Vodafone forced to write down Indian business
Friday, 21 May 2010
Andrew Parker and Philip Stafford
FT Syndication Service
LONDON: Vodafone was forced to write down the value of its Indian business by more than 25 per cent, just three years after securing control of the country's second-largest mobile operator.
The writedown on its flagship emerging market business overshadowed the UK group's results, where, for the first time, it set a three-year dividend growth target.
Vittorio Colao, chief executive, also tried to woo investors by holding out the possibility of a resumption of dividend payments from Verizon Wireless, the US mobile operator in which it has a 45 per cent stake.
But investors fretted over Vodafone's Indian challenges and the group's shares closed down 0.35p at 136p.
Vodafone's purchase of a controlling stake in Hutchison Essar, then India's fourth-largest mobile operator, was the signature acquisition of Arun Sarin, Mr Colao's predecessor.
Vodafone paid a hefty $10.9bn in 2007 for a 66 per cent stake in Hutchison Essar, and it has since become the country's second-largest mobile operator by revenue. But the operator, renamed Vodafone Essar, is slugging it out in a fierce price war.
There is also a soaring auction for the country's 3G radio spectrum for the huge charge in one of its newest and fastest growing markets.
The 3G auction has accelerated rapidly, with bids for nation-wide licences last week reaching $3.4bn (£2.3bn), more than four times the reserve price.
India has 15 network operators, whereas many developed countries have three or four.
Vodafone has written down the book value of its Vodafone Essar stake from £8.0bn to £5.7bn ($11.5bn to $8.2bn) because of the price war, which has also dented the market capitalisations of domestic operators led by Bharti Airtel and Reliance Communications.
Andy Halford, chief financial officer, said: "We had to take a view on where the auction will end up, so that's factored into the impairment."
Mr Colao called on the Indian government to reform rules that prohibit consolidation between mobile operators.
He said: "There is a need for political leadership in shaping the industry".
He also criticised proposals by the Indian telecoms regulator to impose retrospective radio spectrum charges on existing mobile operators.
Vodafone reported revenue of £44.5bn for 2009-10, up 8.4 per cent compared with the previous year because of favourable currency swings and acquisitions.
Pre-tax profit rose to £8.7bn in the year to March 31 from £4.2bn in 2008-09, when the group recorded £5.9bn of impairment charges on its businesses in Spain, Turkey and Ghana.
The 2009-10 dividend has been set at 8.31p, up 7.0 per cent. Vodafone plans to increase its dividend by at least 7.0 per cent in each of the next three years.
The pay-out policy fails to factor in a dividend from Verizon Wireless, which is controlled by Verizon Communications.
Mr Halford said a Verizon Wireless dividend was more likely in 2011-12 than 2010-11.
John Killian, finance director at Verizon Communications, reiterated the group's wish to buy Vodafone's Verizon Wireless stake, but said it could come down to price.
FT Syndication Service
LONDON: Vodafone was forced to write down the value of its Indian business by more than 25 per cent, just three years after securing control of the country's second-largest mobile operator.
The writedown on its flagship emerging market business overshadowed the UK group's results, where, for the first time, it set a three-year dividend growth target.
Vittorio Colao, chief executive, also tried to woo investors by holding out the possibility of a resumption of dividend payments from Verizon Wireless, the US mobile operator in which it has a 45 per cent stake.
But investors fretted over Vodafone's Indian challenges and the group's shares closed down 0.35p at 136p.
Vodafone's purchase of a controlling stake in Hutchison Essar, then India's fourth-largest mobile operator, was the signature acquisition of Arun Sarin, Mr Colao's predecessor.
Vodafone paid a hefty $10.9bn in 2007 for a 66 per cent stake in Hutchison Essar, and it has since become the country's second-largest mobile operator by revenue. But the operator, renamed Vodafone Essar, is slugging it out in a fierce price war.
There is also a soaring auction for the country's 3G radio spectrum for the huge charge in one of its newest and fastest growing markets.
The 3G auction has accelerated rapidly, with bids for nation-wide licences last week reaching $3.4bn (£2.3bn), more than four times the reserve price.
India has 15 network operators, whereas many developed countries have three or four.
Vodafone has written down the book value of its Vodafone Essar stake from £8.0bn to £5.7bn ($11.5bn to $8.2bn) because of the price war, which has also dented the market capitalisations of domestic operators led by Bharti Airtel and Reliance Communications.
Andy Halford, chief financial officer, said: "We had to take a view on where the auction will end up, so that's factored into the impairment."
Mr Colao called on the Indian government to reform rules that prohibit consolidation between mobile operators.
He said: "There is a need for political leadership in shaping the industry".
He also criticised proposals by the Indian telecoms regulator to impose retrospective radio spectrum charges on existing mobile operators.
Vodafone reported revenue of £44.5bn for 2009-10, up 8.4 per cent compared with the previous year because of favourable currency swings and acquisitions.
Pre-tax profit rose to £8.7bn in the year to March 31 from £4.2bn in 2008-09, when the group recorded £5.9bn of impairment charges on its businesses in Spain, Turkey and Ghana.
The 2009-10 dividend has been set at 8.31p, up 7.0 per cent. Vodafone plans to increase its dividend by at least 7.0 per cent in each of the next three years.
The pay-out policy fails to factor in a dividend from Verizon Wireless, which is controlled by Verizon Communications.
Mr Halford said a Verizon Wireless dividend was more likely in 2011-12 than 2010-11.
John Killian, finance director at Verizon Communications, reiterated the group's wish to buy Vodafone's Verizon Wireless stake, but said it could come down to price.