Gerhard,
As I mentioned in a private mail to you, the loss is a pro-forma loss, and this loss was actually reversed into a profit when Vodafone switched to different accounting rules. Below is a story from accountingnet.ie which explains in language that I think even those of us without PhDs in physics can understand:
By S Heaphy
Jan 24, 2005
The adoption of international financial reporting standards by UK mobile phone giant Vodafone will lead to a £6.8bn boost in reported profit according to reports released by the company.
For the six months ended 30 September 2004 the impact of the adoption of IFRS is to increase profit attributable to equity shareholders by £6.8 billion comprising a credit of £7.3 billion in relation to the cessation of goodwill amortisation, a £0.3 billion reduction in non-recurring tax income and a net charge of £0.2 billion in relation to other adjustments".
The primary changes to Vodafone's reported financial information from the adoption of IFRS are as a result of the:
* requirement not to amortise goodwill;
* proportionate consolidation for certain Group interests, most notably Vodafone Italy, resulting from their reclassification as joint ventures;
* requirement to amortise mobile licences on a straight line basis;
* recognition of deferred tax liabilities on a different basis;
* inclusion of a fair value charge in relation to employee share options;
* recognition of all employee benefit related assets and obligations, principally pensions; and
* recognition of certain financial instruments at fair value and the reclassification of preference shares as debt.
Ken Hydon, Financial Director, commented:
"The financial information provided today shows how IFRS impacts on Vodafone's recent results in advance of its adoption in the next financial year. The most significant change is that Vodafone will no longer amortise goodwill, resulting in a clearer presentation of nderlying business performance"
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Now, just to clarify: This change increased profits by 6.8 billion pounds sterling, which translates to about 12.9 billion U.S. just for the six months. So, yes, accounting rules can have a very big impact, in this case going from a loss of $15.9 billion to profit of around $10 billion, year on year.
I am not a financial person, but I have been told that a somewhat clearer measure of a company is their free cash flow. Vodafone expects to generate around 13 billion dollars in free cash flow in the next year, of which much will be spent on dividends and stock re-purchases. DoCoMo had about 8.2 billion dollars of free cash flow, and also spent some of that on dividends and stock re-purchases. As a shareholder, I am quite satisfied with the performance of my investment, and that the company is taking appropriate measures to maximise the value of my investment.
What I meant about the pressures being higher on Vodafone to perform well financially was unclear, and I apologise: NTT DoCoMo, while listed on the NYSE, does not trade the majority of its shares on that bourse, and actually, the majority are not traded on any exchange, since they are held by NTT. The business culture *is* different in Japan in terms of it's focus on market share, and the relatively less importance put on profits. (by profits, please read 'free cash flow').
I apologise for my longwinded answer, but I thought that your mail deserved a full answer.
Best,
Nik
>Nik, I am not sure I understand this about the culture
>gap. I checked out DoCoMo and Vodafone's annual reports and
>found:
>(a) both Vodafone and DoCoMo are listed on the NYSE
>(b) DoCoMo reports a profit of US$ 6.5 billion
>(c) Vodafone reports a loss of US$ -15.5 billion
>Looks like there is a difference of US$ 22 billion.
>That kind of money is totally out of my personal range
>of experience, so I don't really understand what that
>means. Maybe you can explain. Naively, with my PhD
>in Physics, I learnt in University about astronomical
>things, light years and all that.... seems to me that
>DoCoMo is US$ 22 billion more profitable than Vodafone globally.... if I make a mistake please correct me.
>
>What did you mean about the NYSE pressure being higher
>on Vodafone than on DoCoMo and KDDI????
Gerhard
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Gerhard Fasol, PhD Eurotechnology Japan K. K.
http://fasol.com/blog/ http://www.eurotechnology.com/
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Received on Tue Feb 22 11:19:26 2005