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Last Updated: Monday, 27 February 2006, 10:29 GMT
Vodafone in overvaluation warning
Model with Vodafone handset
Competition is heating up in the mobile market, Vodafone says
Vodafone has warned its assets are overvalued by as much as 28bn and it faces a slowdown in revenue growth.

The mobile phone giant said it would take a hit of between 23bn and 28bn - mainly on its German operations after its takeover of Mannesmann in 2000.

Increasing competition will also see revenue growth slow to between 5% and 6.5% in the year to March 2007, against growth forecasts of 6% to 9% for 2006.

As a result margins will slip in the next financial year, Vodafone said.

Earnings before interest, tax, depreciation and amortisation (EBITDA) are now expected to fall by 1%. However, this year's results would be unaffected.

Vodafone also blamed the warning on tougher regulation which has led to mobile firms reducing the amount they charge each other and landline firms for putting callers through to their customers.

The news prompted a sharp drop in Vodafone's shares, which slipped 4.75 pence - or 4.06% - to 112.25p.

Overvalued

It's another incremental worsening of management expectations
Robert Grindle, analyst

Most of the impairment charges relate to the value of the group's German assets but operations in Italy and possibly Japan are also overvalued.

The write-down relates mainly to the 112bn takeover of Mannesmann, which at the time was the biggest in corporate history.

The deal caused dismay in Germany and sparked controversy when it emerged that a handful of Mannesmann directors were paid hefty bonuses once the merger was complete, while many rank and file employees lost their jobs.

Analysts said the announcement would step up the pressure on Vodafone chief executive Arun Sarin.

"It's another incremental worsening of management expectations," Robert Grindle, from Dresdner Kleinwort Wasserstein, told Reuters.

"It will put Sarin under more pressure. The more the share price falls, the more pressure he will be under."

But Mr Sarin said the write-down and revenue warning would not affect Vodafone's ability to return cash to shareholders through dividends and buying back shares.




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