* Takes 5.9 bln stg writedown on Spain, Italy business
* Q2 organic service revenue down 1.4 pct, below forecast
* H1 adjusted operating profit 6.2 bln stg, boosted by U.S.
* To buy back 1.5 bln stg of shares from Verizon dividend
* Shares down 4 pct, biggest fall on FTSE 100 index
(Adds reaction, details)
By Kate Holton
LONDON, Nov 13 Vodafone wrote down the
value of its businesses in Spain and Italy by 5.9 billion pounds
($9.4 billion) and lowered its cash-flow forecast, as
recession-hit southern Europeans cut back on using their mobile
The British mobile operator on Tuesday became the latest
company to fall victim to a plunge in demand in major euro zone
countries, as they drive through austerity measures to reduce
Last week, French bank Credit Agricole took a 2
billion euro writedown on the sale of its Greek business, while
companies from steelmakers to brewers have warned of weakening
trade across the euro zone.
Vodafone, with 407 million customers globally, is in a
better position than many rivals thanks to its strong position
in faster-growing U.S. and emerging markets, and it continues to
pay among the biggest dividends in the FTSE 100 wh i le others
It said it would make a half-year payout of 3.27 pence per
share, up 7.2 percent on the year before.
However, emerging market growth is slowing and the fact that
the United States is now the main growth engine poses problems,
as Vodafone only owns 45 percent of its Verizon Wireless joint
venture there and has no final say over its strategy.
Some investors were also disappointed by the
smaller-than-expected dividend from Verizon Wireless, controlled
with Verizon Communications, announced late on Monday.
"If you stripped out the impact from the United States then
these results would look pretty poor, and that's a problem,"
said Espirito Santo analyst Will Draper.
At 1405 GMT, Vodafone shares were down 4 percent at 160
pence, the biggest fall on the UK's FTSE 100 index. The
stock fell as low as 156.78p, its lowest since August 2011.
Vodafone said organic service revenue - a key financial
metric which excludes acquisitions and one-off costs - fell 1.4
percent in the three months through September, below the 0.7
percent decline predicted by analysts.
That included a 11.3 percent plunge in southern Europe. Data
last week showed a quarter of a million Spaniards ditched their
mobile phones in September.
Germany and Britain, which had performed robustly in recent
quarters, also slowed sharply, while the Australian business
continued to struggle.
As a result of weak trading and adverse currency moves,
Vodafone said it expected free cash flow for the full financial
year to be in the lower half of its guidance range.
"Group guidance was maintained but it is the accounting of
Verizon Wireless profits that will hold up the results -
revealing a business that has little ambition or optimism to
improve the performance of controlled operations," Bernstein
analyst Robin Bienenstock said.
Vodafone said it was writing down the goodwill of its
operations in Spain and Italy by 3.2 billion pounds and 2.7
billion respectively. That left the carrying value of goodwill
for the two units at 2.4 billion and 7.2 billion.
The group's first-half adjusted operating profit rose 2.2
percent to 6.2 billion pounds, beating analysts' average
forecast of 5.9 billion thanks to a strong U.S. performance,
which accounted for over half the total. Southern Europe
accounted for around 18 percent of operating profit.
Overall, it posted a loss of 1.9 billion pounds.
The results show the quandary facing Vodafone - it does not
control its main growth engine and shareholders have long
questioned whether it will eventually sell out.
Vodafone said it expected to get a 2.4 billion pound
dividend from the joint venture by the end of the year and would
buy back 1.5 billion pounds of shares with the money.
"I would say there are more uncomfortable things in life
than being linked to a fantastic company," Chief Executive
Vittorio Colao told reporters. "It's a great asset. If it's
paying dividends at this rate, I'm not so sure that my
shareholders will complain."
For its own dividend, Vodafone said it would stay in line
with its growth target of at least 7 percent per year until
March 2013. However, some analysts have questioned whether the
group can continue paying out at that rate beyond 2013.
"I don't think anybody should be making any assumptions
about cuts in dividends," Finance Chief Andy Halford told
"We have absolutely stuck to the 7 percent. We are very
mindful that we're a big dividend payer. It is not in our minds
to do anything other than to be maintaining at least the level
of dividends going forwards."
Deutsche Telekom managed last week to keep its
dividend plan for 2012 after it eked out better than expected
results. But Telefonica - which is fighting to pay down
debt - France Telecom, KPN and Telekom Austria
have all cut or scrapped their payouts.
($1 = 0.6302 British pounds)
(Editing by Mark Potter and David Holmes)