Vodafone rules out share buyback and limits assets write-downs to £8bn

Vodafone has ruled out a share buyback or a big increase in the dividend to placate investors angry at the precipitous fall in the mobile telephone giant's share price this year.

However, the group will seek to reassure shareholders about the state of its balance sheet by limiting the scale of asset write-downs when it reports full-year results tomorrow.

The company is expected to announce impairment charges for the year of £7bn to £8bn to reflect the fall in the value of businesses bought at the height of the telecoms boom. But this will include the £4.5bn hit it took in the first half. There had been fears that Vodafone might write-down the value of its assets by as much as £25bn or even £50bn.

Sir Chris Gent, Vodafone's embattled chief executive, has been under pressure to restore investor confidence following a 50 per cent decline in the value of the company this year. Vodafone's market capitalisation has slumped from a peak of £270bn to £77bn now and at one point earlier this month the share price fell as low as 92p. It closed at 113p last week. The group has been weighed down by worries over its growth prospects and the strain on its balance sheet caused by having vastly overpaid for rival mobile operators and third-generation cellular licences in the late 1990s.

There had been suggestions that Vodafone would seek to return as much as £3bn to investors through a share buyback as well as lifting the dividend considerably.

But Vodafone has decided to do neither and instead seek to persuade shareholders that it is "steady as she goes". The dividend is expected to rise by around 5 per cent in line with the increase in the payout in previous years.

Analysts also expect Vodafone to cut capital expenditure by up to £1bn, from £6.5bn last year to around £5.5bn this year, to offset the risk to revenues particularly in the volatile US market where Vodafone owns 44 per cent of the market leader Verizon Wireless.

Profits before interest, tax, depreciation and amortisation are expected to come in at about £7.7bn up from £4.8bn a year earlier, on revenues of about £23bn.

But Vodafone will report a heavy bottom-line loss following big goodwill write-downs and one-off "impairment" charges. The annual goodwill write-down is running at about £13bn. In addition to this, Vodafone will take a one-off charge to reflect the decline in the value of businesses it has acquired which could take overall write offs to about £20bn.

In the first half it took an impairment charge of £4.5bn, mainly to reflect the fall in the value of Arcor, the fixed-line business it acquired through the takeover of the German group Mannesmann, and its stakes in China Mobile and Iusacell, a Mexican mobile business. Further impairment charges for the second half will be announced tomorrow. These are expected to relate principally to the group's fixed-line businesses, not its mobile operations.

Vodafone's UK rival mmO2 also produces its maiden set of results as an independent company this week following its demerger from BT. Analysts expect profits before interest, tax and write-downs to be around £390m to £440m on sales of £4.5bn. However, big one-off charges are likely to push the group into a pre-tax loss of around £4bn.