Vodafone accounts benefit from new reporting practices

Vodafone yesterday banished memories of the largest loss in British corporate history as it outlined how a switch to new accounting standards would change the way it treated the legacy of a spate of acquisitions.

Restating earnings for the six months to September 2004, the world's largest mobile network operator said the application of International Financial Reporting Standards (IFRS) turned a £1.9 billion (€2.74 billion) pre-tax loss for the period into a £4.5 billion profit.

Following the implementation of IFRS on January 1st, the EU's 7,000 listed companies have to issue financial statements for this year in line with the new standards.

Vodafone's earnings reverse resulted from a change in the treatment of goodwill - the premium paid by corporate acquirers over and above the value of their target's tangible assets - which piled up on Vodafone's balance sheet during an acquisition spree in the late 1990s.

Accountants, however, emphasised that the swing in figures was merely "presentational" and did not signal a change in Vodafone's fortunes.

Investors appeared to concur, with the group's shares edging down 0.4 per cent to 138¼p in line with the London market.

Mr Ken Hydon, Vodafone's financial director, said the IFRS rules, which do not require goodwill amortisation as UK accounting standards do, "result in a clearer presentation of underlying business performance".

The IFRS initiative is designed to improve transparency and help investors compare corporate performance across borders. But the transition to the new standards is expected to cause ructions. Vodafone is one of a handful of blue-chip groups to give investors early guidance on the implications.

Mr Stephen Cooper, managing director of the global valuation group at UBS, said: "Goodwill is probably going to produce the biggest change in terms of the impact of IFRS on reported earnings and Vodafone is the biggest of the big."

However, he added: "For us and for investors, the fact it makes such a big difference to Vodafone is largely irrelevant. Non-cash amortisation charges say little about current operating performance."

Vodafone's quarterly trading update on subscribers and revenues is due out on Wednesday.

"The real positive is that we've got this out of the way. Now we can move on to look at the KPIs [ key performance indicators] next week," said Mr Jim Wright, fund manager at British Steel Pension Fund, a Vodafone shareholder.