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Tuesday, 28 May, 2002, 16:35 GMT 17:35 UK
Vodafone: Why the big loss?
Vodafone, the world's biggest mobile telephone firm, has reported a 13.5bn loss.

Yet the data seemed of little concern to investors who, initially, helped Vodafone shares higher.

How can the biggest loss in UK corporate history be seen in a positive light?

A 13.5bn loss? Aaagghh, how did that happen?

It happened because companies Vodafone bought during its explosion onto the world stage in the late 1990s are no longer worth what was paid for them.

With the bursting of the bubble went rose-tinted views of the future potential of telecoms firms.

Concerns over present earnings have been raised by the fierce level of competition among mobile phone companies.

So Vodafone has accepted that, say, the stake it bought in China Mobile two years ago for $2.5bn (1.7bn; 2.7bn euros) is worth less today.

A writedown of the value of the China Mobile holding is included among some 6bn of investment losses, with a further 13.5bn in so-called "goodwill" writedowns related to the takeovers.

Almost 20bn written off? That's mammoth.

Certainly. It is a sum larger than even the market value of Tesco, the UK's largest retailer.

So who's responsible, and have they been sacked?

Responsibility ultimately rests with Christopher Gent - Sir Christopher since June - who has driven the strategy behind Vodafone's rise and fall.

Sir Christopher Gent
Christopher Gent: High hopes

And there would seem little prospect of him going, although some shareholders have begun to grumble about the "generosity" of his bonus package.

Sir Christopher on Tuesday defended his strategy, saying that the firm's investments would pay off "handsomely" in the long term.

And while Vodafone did pay huge sums for its acquisitions, it at least did not make the mistake Marconi did of paying for them in cash.

Vodafone paid wherever possible in its own shares, which were as inflated in price as those of the firms it was buying.

The firm's underlying performance remains robust.

Exclude the 19.7bn write-offs, and you will see that Vodafone made a profit of 6.2bn for the year to the end of March, up 54% on the same period a year before.

So Vodafone profits have gone up, yet the shares are worth a little more than one half of what they were a year ago. How?

Much of the decline reflects sector-wide concerns - fierce competition, investment write-offs, and delays to the roll-out of new technologies.

But much is also down to a debate among analysts about the premium Vodafone shares attract as a so-called "growth" stock.

Many in the City believe Vodafone has matured from a young firm, with plenty of market space to expand into, to being in essence a workaday utility.

A share price target of 65-70p has been mentioned, compared with Tuesday's close of 103p, and the 195.25p closing price a year ago.

Are the sceptics right?

Sir Christopher disagrees with them.

"We have every confidence in the continued growth of the business," he said.

And with customer numbers up by 22% over the year, turnover growth strong in markets such as Southern Europe, and plenty of new products to unveil as next generation mobile phones take off, his assertion is not unreasonable.

Nonetheless, look at the firm's key UK market, where subscriber numbers grew by a modest 7% and turnover rose by 9%, and a more mature profile begins to unfold.

To retain a "growth" tag, Vodafone must hope that new technologies deliver as promised, and that it can continue to pick up subscribers from, in particular, lagging mobile phone markets.

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28 May 02 | Business
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