Vodafone lost £3bn of stockmarket value in its biggest one-day share price fall for more than five years after warning its 2015 earnings would be lower than the City expected.
The world's second-largest mobile operator is using cash from last year's sale of its US subsidiary Verizon Wireless to invest £19bn to upgrade networks and high street stores over the next two years. It plans to bring superfast 4G services to 91% of the European population by 2016, and more 3G mobile internet to emerging markets.
Vodafone announced full-year results in line with City forecasts but its shares closed down 5.5% at 205p, the biggest one day drop since November 2008, according to spread betting firm City Index. Shareholders took fright as Vodafone said underlying Ebitda earnings (before interest, tax, depreciation and amortisation) would fall to between £11.4bn and £11.9bn by next March, down from £12.8bn this year. The new estimate was worse than the fall to £12.1bn City analysts had been forecasting.
"Vodafone continues to spin the plates with mixed success," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers. "The writedowns across several European regions are further proof of the challenges the company is facing, with underlying profit continuing to move in the wrong direction."
Citing "significant ongoing pressures" in Europe, the company revealed it had written down by £6.6bn the value of its operating companies in Germany, Spain, Portugal, the Czech Republic and Romania, taking the amount wiped off the book value of its European operations in the past three years to £18bn.
Moody's warned Vodafone's credit rating could be downgraded over the next 12 months unless the company strengthens its financial profile. "Vodafone has exhausted the financial flexibility within the A3 [rating band]," said Moody's analyst Ivan Palacios.
Revenues continued to fall, down nearly 2% across the group to £43.4bn, but the rate of decline has slowed from over 4% last year, and finance director Nick Read said revenues could begin to recover from the second half of this financial year.
Vodafone now has 637,000 4G subscribers in Britain, up from 500,000 at Christmas, and plans to get superfast mobile internet to 99% of the UK population within two years. Chief executive Vittorio Colao said it was time to "muscle up" the UK business, but said he was still not happy with the quality of indoor reception over his network in London.
Vodafone's network improvements will increase its capital expenditure from an average of £6bn to nearly £10bn a year over the next two years, but the company warned the returns would not come for another seven years.
Colao said: "While cash flow will be depressed during this investment phase, our intention to continue to grow dividends per share annually demonstrates our confidence in strong future cash flow generation."
He declared a final dividend of 7.47p per share, giving total dividends up 8% in the year to 11p.
Dario Talmesio, telecoms analyst at research firm Ovum, said: "Unfortunately, the uptake of data fails to deliver in financial terms. Revenues continue to fall for Vodafone Group, meanwhile margins have severely deteriorated. There is a certain paradox here: Vodafone is putting most of its commercial and investment efforts in something that is not turning revenues."Service revenues – which exclude handset sales but include calls, texts and data charges – declined 17% in Italy,13% in Spain and 6% in Germany. They improved by 13% in India, which is overtaking Turkey (up 8%) as the group's fastest growing market.