Vodafone prepares to focus on prospects


Vodafone's 450,000 Irish shareholders will want positive signals on the future from chief executive Mr Chris Gent when he releases annual results tomorrow after the sharp deterioration in the share price.

The mobile phone operator's shares have fallen by just over 50 per cent this year to 113p sterling as the group grapples with difficult telecoms markets and falling asset values. Irish shareholders got their Vodafone shares when the British group bought the Eircom mobile subsidiary Eircell. At that time Vodafone shares were trading at 245p sterling.

Analysts expect Vodafone to announce large mark-downs in the value of its assets this week and to move to reduce a goodwill mountain built up over its acquisition spree including the purchase of Germany's Mannesman about two years ago.

But estimates of the size of the expected write-offs vary widely - ranging from £8 billion sterling (€12.6 billion) to £30 billion. It is not clear whether the write-down would include a reduction in the value of the Eircell acquisition.

In recent months as market values have deteriorated other telecoms operators have written down the value of their assets.

In its recent results British Telecom announced an exceptional charge of £2.9 billion including a write-off of an estimated £500 million on its Irish fixed line business.

"We believe it is likely that the company will take a sizeable write-down, probably in the £15 billion sterling to £20 billion sterling range," Mr James Stanzler, analyst at investment bank Robertson Stephens forecast in a recent research note.

But most investors will focus this week on the mobile group's prospects for the current year - to end March 2003 - amid market concern that the potentially lucrative third generation services may not now catch on until mid-2003.

A cut in earnings forecasts for Vodafone operations in Germany and Italy, coupled with rising concern about the health of the wireless sector in general, resulted in Vodafone shares dropping to a low of 92.5p sterling in early May.

"We expect investors will look past the 2002 numbers and write-downs, and focus on the underlying trends in the core business and forward guidance from management," Mr Stanzler said.

Some analysts said drastic cuts in spending could provide cheer as revenue risks persist, particularly in the volatile United States market where Vodafone has a 44 per cent stake in market leader Verizon Wireless. They estimated that planned capital expenditure for the year to March 2003 could fall to £5.5 billion from current estimates for £6.5 billion.

Investors will also look for clarification on its acquisition strategy on anticipation that the group may raise its stake in number two French mobile operator SFR.

Any plans for further expansion overseas, especially outside Europe, will be closely scrutinised amid suggestions that a return of cash to shareholders may be a better use of funds. "Vodafone is far from being a yield stock and will need to convince a sceptical audience why further investment overseas is the optimum use of shareholder funds rather than, say, a share buy-back," according to the telecoms analyst at Investec Securities, Mr Christian Maher.

Forecasts for proportionate earnings before interest, tax, depreciation and amortisation (EBITDA) range from £7.4 billion to £9.9 billion, giving a consensus forecast of £7.7 billion for the year to the end of March.

This is compared with £7.04 billion for the previous year. Turnover is predicted to be between £29.9 billion and £22 billion.

Vodafone shares have underperformed the Stoxx pan-European telecoms index by 3 per cent over the past 12 months.