May 29 (Bloomberg) -- Vodafone Group Plc posted a full-year loss of 5.43 billion pounds ($10.8 billion) because of a regulatory change in Italy and forecast sales that exceeded some analysts' estimates on emerging-market growth.

Shares of the world's largest mobile-phone company rose the most in almost 15 months after Vodafone said fiscal 2008 sales will rise as much as 10 percent to 34.2 billion pounds and the company raised its dividend. The Newbury, England-based company had a record loss of 21.9 billion pounds in the previous year.

Chief Executive Officer Arun Sarin bought a controlling stake in India's Hutchison Essar Ltd. this month for $10.7 billion to make up for a slowdown in Europe, where almost everyone has a phone. Earnings in Europe were hurt by a 3.5 billion-pound charge in Italy after the government abolished fees for recharging prepaid cards, Vodafone said in today's statement.

``Vodafone has proved that its strategy to expand in emerging markets is the right one, as European markets become more and more mature,'' Heinrich Ey, who helps manage about $138 billion at Allianz Global Investors in Frankfurt, including Vodafone shares. ``Contribution from emerging markets is still limited but will improve sharply over the years.''

Vodafone today forecast annual sales will rise to 33.3 billion pounds to 34.2 billion pounds. Analysts had predicted sales of 33.5 billion pounds, the average of 29 estimates.

Shares Gain

Vodafone shares rose 8.3 pence, or 5.5 percent, the biggest percentage gain since March 2006, to 159.7 pence in London, the highest Vodafone share price in more than five years. The stock rose 13 percent last year, compared with an 11 percent gain in the U.K.'s FTSE 100 Index.

Vodafone today forecast so-called adjusted operating profit of 9.3 billion pounds to 9.8 billion pounds in fiscal 2008.

The forecast ``suggests confidence in the ability to hold the line on revenue and continue to deliver cost savings in the mature markets,'' Goldman Sachs analyst Simon Weeden wrote in a note after results were released.

Full-year sales rose 6 percent to 31.1 billion pounds, missing the 31.4 billion-pound average of 29 estimates compiled by Bloomberg. Earnings before interest, tax, depreciation and amortization rose 1.6 percent to 11.96 billion pounds, missing the 12.4 billion-pound average of 25 analysts' estimates.

Analysts had predicted a full-year net loss of 1.93 billion pounds, the median of 16 estimates. The loss per share shrank to 9.84 pence from 35.01 pence the previous year.

Higher Dividend

Vodafone increased its full-year dividend by 11 percent to 6.76 pence, more than some analysts had expected.

``We are especially impressed with the dividend payout,'' Jim McCafferty, head of research at Seymour Pierce in London, said in a note to investors. ``There are few stocks in the FTSE 100 which offer such attractive dividend growth coupled with a high yield.'' McCafferty had estimated a dividend of 6.4 pence.

The dividend indicates ``modest growth'' rather than at least flat over the next few years, Weeden at Goldman Sachs said.

Ebitda at Vodafone's European business fell 4.6 percent to 9.33 billion pounds from 9.79 billion pounds as a drop in results in Germany, the U.K. and Italy dragged on gains in Spain.

Vodafone said its European markets will be ``challenging'' in fiscal 2008 and growth prospects at its emerging market business ``remain strong'' because of the potential for subscriber gains and the company's Hutchison Essar purchase.

In Europe, ``pricing pressure'' will remain in fiscal 2008, Vodafone said.

Emerging Markets

Ebitda at Vodafone's emerging markets business jumped 37 percent to 2.04 billion pounds from 1.49 billion pounds.

In the last year, Vodafone saw a ``reshaping'' of its portfolio with acquisitions in Turkey and India.

Vodafone completed the purchase of a 67 percent stake in India's Hutchison Essar, the country's fourth-biggest wireless company, for about $10.7 billion this month. Vodafone also bought Turkey's Telsim Mobil Telekomunikasyon Hizmetleri AS for $4.55 billion last year.

Performance at the company's Turkey unit has performed better than Vodafone's plan, the company said today.

``They've demonstrated with Turkey they can make it extremely profitable,'' Adam Steiner, head of research at SVG Capital Plc in London, said before the report. SVG's main holding is about 12 million Vodafone shares. ``They can do it in India.''

Strategy Shift

In April 2006, Sarin reorganized Vodafone into three units covering Europe, emerging markets and new technology.

Sarin, 52, outlined a five-point strategy about two months later aimed at reducing costs and increasing growth.

Vodafone last month said it would expand its network in Turkey for the second year in a row at a rate of 30 percent in an effort to catch up with market leader Turkcell Iletisim Hizmetleri AS. The company lowered its forecast in December for capital spending to $850 million from the previous prediction of $1.2 billion, in an effort to ``turn around'' the Turkish unit.

Vodafone had 206.4 million customers at the end of March, compared with 200 million on Jan. 31.

Some investors were skeptical of Sarin's strategy and management last year.

At last year's annual meeting, Sarin overcame opposition from shareholders representing 9.5 percent of the shares voted. Standard Life Plc, a U.K. insurer, and Morley Fund Management Ltd., which together held about 3.8 percent of the company, voted against Sarin as a sign of dissatisfaction with the company's strategy to counter slowing growth.

Sarin, whose compensation in fiscal 2006 rose 6.5 percent to 5.23 million pounds, was approved by 84.9 percent of the shares voted at the July meeting.

To contact the reporters on this story: Alex Armitage in London at aarmitage@bloomberg.net

Last Updated: May 29, 2007 12:02 EDT