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Vodafone posts 2000 loss
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May 29, 2001: 6:25 a.m. ET
British mobile phone operator racks up losses on costs of acquisitions
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LONDON (CNN) - Vodafone, the biggest wireless operator, said on Tuesday it made a loss as it spent billions buying stakes in cellular companies worldwide.
The Newbury, England-based company racked up losses of £9.76 billion ($13.8 billion), or 15.89 pence a share, in the year ended March 31. That compares to a profit of £487 million, or 1.8 pence a share, a year ago.
Proportionate earnings before interest, tax, depreciation and amortisation (EBITDA) -- a measure of underlying profits -- rose 28 percent to £7.04 billion, at the top end of analyst expectations.
The results "come as no real surprise," analysts at Bear Stearns wrote in a note to investors. Results in Europe were ahead of expectations "although this was outweighed by a lower contribution from the U.S. and Asia Pacific."
Vodafone made a pretax loss of £8.1 billion, compared with a profit of £1.35 billion in the year earlier. The company took a £11.9 billion goodwill amortisation charge related to acquisitions.
The British company's stock closed at 195.25 pence on Friday, about 20 percent down on the year. The stock hit a peak in March 2000 of 399 pence after agreeing to buy Germany's Mannesmann for about $183 billion.
Vodafone's stock has come under pressure as it continues to expand through acquisitions. It agreed to buy rival British Telecom's Japanese and Spanish assets for $6.9 billion.
The company has been issuing stock to fund acquisition, which has left shares in the hands of entities that may not wish to hold on to their stakes in Vodafone (VOD). About 8.5 percent of the company's stock is in the hands of such entities.
Analysts have questioned the company's policy on issuing stock in acquisitions. They contest, unlike its competitors – which have built up huge debts in acquiring high-speed Internet permits – Voadfone has a strong balance sheet.
"We were not convinced of the rationale for the equity rather than debt transaction," Bear Stearns said. "Neither were we convinced that acquiring the additional 17.8 percent stake in (Spain's) Airtel was of strategic importance."
"Unless further tangible evidence of asset integration is provided we suspect the shares will continue to trade at a discount to its sum-of-the-parts valuation," Bear Stearns' analysts added. The investment bank maintained its "buy" rating on the stocks with a 12-month price target of 275 pence.
Vodafone Chief Executive Chris Gent told reporters on a conference call that the company was calling a halt to expansion plans and would not issue stock this year.
Gent said the company would not increase its stake in Cegetel, France's second-largest mobile phone operator, that BT (BT-A) is expected to sell. The company is also passing up the opportunity to pursue Singapore's No.2 operator MobileOne.
"Japan and China is where we should focus in Asia rather than fragment by going into some of the smaller countries that might come along as acquisition opportunities," Gent said.
Vodafone's share price fell 2.7 percent to 189 pence in mid-morning trade in London on concerns about the rising cost of connecting new subscribers rose in the UK and Germany as price competition increased.
The company said there was a "substantial" increase in acquisition cost in Germany, without providing details. The cost of acquiring one new subscriber in the UK was £121 in 2001 compared to £94 a year ago.
Profit margins in Germany rose to 39 percent in the second-half, but margins for the year were 35 percent, down on the previous year's figure of 41 percent.
"Now's the time to improve margins," Benedict Lawson, an analyst at Barclays Stockbrokers told CNN. "It's time to show the previous strategy (of acquisitions) will work. The hard work begins now."
Vodafone's Gent also said the company was launching GPRS phones, which would offer users higher-speed, always-on Internet connections, in September or October.
The GPRS system is a half-way house to third-generation networks, which have cost European companies billions of dollars in licence fee payments. Vodafone plans to send £10 billion rolling out 3G networks over the next five years. 
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