Vodafone made a £14.9bn ($27.9bn) loss last year - a record for a UK firm - after it admitted some of its assets were worth less that it thought.
Vodafone says it must become more innovative
It incurred one-off costs of more than £23.5bn after revaluing its German business Mannesmann, which it bought in 2000 for £112bn ($183bn at the time).
The firm said it would also cut 400 jobs as part of a move to reduce costs.
Excluding one-off costs, Vodafone made an £8.8bn profit and it said it had added 21 million new customers.
The news that it had reduced the value of its assets was greeted positively by investors, who are hoping that Vodafone will now be able to put its problems behind it.
Vodafone's shares rose nearly 2% after it said it would return a further £3bn to shareholders - in addition to the £6bn it has already earmarked for investors following the sale of its Japanese arm to Softbank.
Vodafone's losses would total £21.8bn ($41bn) if the loss in value of its Japanese subsidiary, which it sold in March, were included.
But Richard Hunter, at stockbrokers Hargreaves Lansdown, spoke of a possible turning point for the company:
"Given the mauling that the share price has had over the last year, down 14% during which time the FTSE 100 has risen 16%, inevitably some positive news was overdue," he said.
Vodafone, whose global headquarters are situated in Newbury, Berkshire, warned earlier this year that its assets may be worth up to £28bn less than previously calculated.
When Vodafone bought German mobile phone operator Mannesmann - in what was Germany's first hostile takeover by a foreign firm - it added substantial value to its balance sheet.
However, the real income generated by Mannesmann did not live up to the £112bn price tag, and now Vodafone has adjusted the value of its subsidiary on its books - a process that accountants call a write-down.
The firm is facing extremely tough competition in key markets and sold its Japanese business for £8.9bn earlier this year after failing to make much headway in the country.
However, it has seen continued growth in other markets such as Germany, Spain and the United States.
Vodafone said the market remained "challenging" and that it needed to do more to meet customer demands for new products.
But it stressed that its business remained fundamentally healthy, despite the huge loss.
"Vodafone has met or exceeded expectations, outperforming its competitors in an increasingly challenging marketplace," said chief executive Arun Sarin.
"Vodafone is well positioned to deliver on its strategy."
A new strategic focus will see Vodafone concentrate on growing sales in emerging countries such as India, reducing costs in more mature European markets and seeking to be more innovative.
Under pressure from investors as previously buoyant sales growth has slowed, Mr Sarin is looking to develop new services to give the firm greater competitive advantage.
The firm hopes to exploit the convergence between communications platforms by offering new products to personal and business users.
CUSTOMERS BY MARKET (IN MILLIONS)
Germany: 29.1 million
United States (associate): 23.5
South Africa(joint venture): 10.9
Source: Vodafone(March 2006)
Under a plan known as "Mobile Plus", it will look at selling Vodafone-branded broadband services and upgrading 3G phone masts to offer high-speed data downloading technology known as HSDPA.
It will also explore the opportunities offered by integration of mobile phones and PCs while offering more advertising-based services.
Mr Sarin stressed that Vodafone may exit other markets which did not offer strong long term growth prospects.
However, Vodafone gave a vote of confidence to its US joint venture business Verizon Wireless, in which it owns a 45% stake but which some analysts want it to sell.
Verizon Wireless's market share grew to 25% in the US, as it added more than three million new customers.