2ND UPDATE: Vodafone To Write Off Up To $49 Billion In Goodwill
LONDON (Dow Jones) -- Vodafone Group on Monday said it will slash as much as $49 billion in goodwill due to slowing growth in Germany and other top markets.
Vodafone, in a review of its accounting due to the adoption of international accounting rules, said it now expects to write down 23 billion pounds to 28 billion pounds ($49 billion) of assets, mostly on the goodwill it took on from its 110 billion-pound acquisition of Germany's Mannesmann in 2000.
Goodwill is the value of a company beyond its assets -- such as brand names or employee morale -- that should translate into better earnings growth.
With profit warnings in the past half year not only from Vodafone but telecom peers Deutsche Telekom and France Telecom, the company's management said it needs to factor an increasingly competitive market into its accounting model.
Vodafone's London-listed sharesdropped 3%.
Shares heading into Monday's announcement were already down 25% from a 52-week high, and analysts said the impairment news was already partly captured in the share price.
A combative Arun Sarin, the company's chief executive, said he's still comfortable in his position.
"I have the support of the board, and they're comfortable with what I am doing," he said on a conference call.
The Vodafone news weighed on the wider sector.
Telecom Italia declined 1% in Milan and Deutsche Telekom declined 0.8% in Frankfurt, though France Telecom reversed early losses to trade 0.2% higher in Paris.
Vodafone also issued a profit warning for the fiscal year ending March 31, 2007, though it's excluding the impact of recent deals in Turkey, South Africa, India and Sweden.
While adjusted earnings per share are expected in line with market estimates, Vodafone said that comparable-sales growth -- or organic proportionate mobile-revenue growth, in its words -- will grow at a 5% to 6.5% clip.
Vodafone has been eyeing 6% to 9% in comparable revenue growth in the year ending March 31, 2006 and "slightly lower" revenue the following year.
It also said that operating margins outside of Japan should shrink around 1% on a comparable basis because of pricing pressures, additional investments in customers and forced changes in termination rates. Termination rates are the fees mobile operators charge other carriers to use their networks.
Sarin said there would be no "material impact" from the write-down on the dividend or buybacks.
But he cautioned that the board in May will meet to discuss its cash-return policy.
He added that there are "no current plans" to sell its stake in Verizon Wireless, the mobile arm in the U.S. that's majority held by Verizon Communications (VZ) .
(END) Dow Jones Newswires "
Posted to the site on 27th February 2006