Vodafone Earnings Disappoint
By Carlo Longino, Tue May 25 14:15:00 GMT 2004

Goodwill writedowns continue to hamper the carrier's net profits, though revenues and pretax, pre-writeoff earnings were up. Vodafone also said it would buy the 30 percent of its Japanese unit it doesn't already own.

London investors knocked 6 percent off Vodafone's share price today, after earnings came in lower than expected and the company announced plans to spend GBP 2.6 billion to take full control of its Japanese business, and GBP 3 billion to continue stock buybacks.

Vodafone's revenues rose 10 percent in the fiscal year ended March 31 to 33.56 billion pounds,and earnings before interest, tax, depreciation and amortization jumped 13 percent to GBP 12.64 billion, but the company was forced to write off GBP 15.2 billion in goodwill from acquisitions it made at the height of the telecom boom, resulting in a 9 billion pound net loss.

The carrier added a net 13.7 million new customers in the year, raising its total to 133.4 million. ARPU was up 4% and 6% in Italy and the UK, respectively, and off 7% and 1% in Japan and Germany. Data revenue increased to 16.1% of total service revenues in the year, up a point and a half from 2003.

Japan has been a tough market for the company, with Vodafone KK getting beaten pretty handily by KDDI and DoCoMo in pretty much every regard. Many analysts think Vodafone's global ambitions have stifled its Japanese unit, so it's hard to see how Vodafone buying out the 15% of Vodafone KK it doesn't own will help turn things around. Vodafone KK's sales and profits both fell in the year, but the company says once Vodafone launches 3G in more markets around the world -- and it can get more handsets -- it expects its situation to improve.

But the share buyback scheme seems to be causing some concern that it could signal a return to the company's spend-happy past. Businesses often repurchase their own shares when stock prices are low as a way of increasing shareholder value, by decreasing the number of outstanding shares, but at least one analyst says it looks like a strategy to keep dividends low and maintain some financial flexibility for any potential acquisitions.

Vodafone also said it had started selling consumer 3G service in Spain and Italy -- markets where competitors Telefonica and Telecom Italia Mobile will also start service this week.