Vodafone takes $6.3 billion writedown on European weakness

Tue May 22, 2012 11:18am EDT
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By Kate Holton

LONDON (Reuters) - Mobile operator Vodafone (VOD.L: Quote) wrote down the value of its assets by 4 billion pounds ($6.3 billion) and cut its medium-term sales target on Tuesday, as the debt crisis hit customers in southern Europe, forcing them to save money on phone calls.

Vodafone, the largest telecom operator in the world, posted full-year results in line with forecasts and stood out from its peers by paying a record dividend as strength in emerging markets, Germany, Britain and Turkey offset a slump in spending in Spain and Italy.

But with poor prospects for the two big southern European markets, coupled with persistent regulatory and foreign exchange pressures, Vodafone said 2013 revenue growth would be slightly below its previous medium-term target of 1 to 4 percent.

The Britain-based group is the latest in a line of major companies to report a knock-on effect from austerity measures, as consumers grapple with higher taxes, inflation, fewer public services and muted wage growth.

Vodafone took the writedown against its units in Spain, Italy, Greece and Portugal, all at the heart of the crisis, where customers are taking lower tariffs and using their phones less.

"Europe continues to be challenging," Chief Executive Vittorio Colao told reporters. "It is clear that (Italy) has a crisis of confidence and especially a lot of uncertainty. It's very obvious that this is a moment where people are defensive.

"The whole European concept needs to be reinvigorated, not diluted down," the Italian added, saying he hoped Greece would remain in the euro zone but was prepared for a possible exit.

The travails in southern Europe pulled the key metric of European organic service revenue down 1.1 percent. Combined with 8 percent growth from Africa, the Middle East and Asia Pacific, however, the group overall was up 1.5 percent on last year.   Continued...

A pedestrian passes a Vodafone store on Oxford Street in central London, November 10, 2009. REUTERS/Kevin Coombs