Investors eye Vodafone results

Investor confidence in the telecoms sector will be tested on Tuesday when Vodafone reports its full year results.

Often quoted as one of the success stories of the mobile phone industry, Vodafone does not escape the scepticism of analysts and shareholders who question whether huge investments are going to pay off.

Vodafone has been on an aggressive acquisition spree for the past two years.

Investors will now be looking to see whether cost savings - the much heralded economies of scale - are evident in the balance sheet.

Falling shares

Vodafone's share price has been sliding for more than a year.

Shares were at 302p when Vodafone presented its full year results last year. At the close of business on Friday, shares were at just 195.5p.

The falling share price has frustrated Chris Gent

Last year's results were overshadowed by the triumph of its hostile move on Germany's Mannesmann.

Since then, it has added stakes in mobile phone operations in Spain, Ireland, Switzerland, Romania, Mexico, China and Japan.

Many of these acquisitions were made through the issue of new equity, resulting in a significant proportion of shareholders who are not seen as long-term investors. This creates a constant selling pressure.

Investors will also be seeking clarification on possible future acquisitions, most notably the French operator SFR.

Third generation risks

The declining shares are also due to the heavy debts built up through buying third generation licences that will allow mobile phone users to surf the net and send e-mails.

We have no real indicator of the likely take-up, usage, or spend that will come from true mobile data services

SG Securities

Vodafone is about to launch the stepping stone to third generation phones, General Packet Raido Services (GPRS), with 3G to follow by the end of 2002 or early 2003.

But there has been little concrete proof that these more sophisticated services will be popular with consumers.

"Data revenues remain the big unknown," said SG Securities in a note previewing the full year results. "We have no real indicator of the likely take-up, usage, or spend that will come from true mobile data services."

The future revenue streams of mobile phone operators are resting on these services since many traditional marketplaces are reaching saturation.

Increased turnover

The underlying earnings before interest, tax, depreciation and amortization are expected to grow by about a quarter to £6.9bn ($.9.8bn).

Merrill Lynch expects turnover of £14.94bn compared with £8.24bn last year.

This reflects a vastly expanded customer database.

Vodafone's debt at the end of June is expected to stand at about £10.5bn.