Vodafone set to write off billions

MOBILE phone giant Vodafone is expected to announce record losses next month after being forced to swallow huge writedowns in the value of recent acquisitions.

Vodafone's chairman Sir Chris Gent will have to admit that the company overpaid by billions of pounds when it bought businesses during the telecom boom years.

Investors and analysts are becoming increasingly nervous ahead of Vodafone's annual results, due on May 28, with estimates that total write-downs could run into tens of billions of pounds.

The fears follow recent big writedowns by other telecoms groups. Japan's NT&T wrote off £7 billion from the value of its overseas investments last week, while France Telecom and Dutch company KPN turned in record losses after they revalued their businesses.

In its half-year results in November, Vodafone slashed £4.5 billion from the value of assets bought in recent years. The write-downs mainly covered its Arcor fixed-line business in Germany, bought as part of the £75 billion takeover of industrial group Mannesmann in 2000.

The company decided that future earnings potential meant the business was just not worth what it paid. That move helped contribute to an interim loss of £8.4 billion by Vodafone, which followed losses in the year to March 31, 2001 of £8.1 billion.

Vodafone's financial year finished last month and auditor Deloitte & Touche is now considering whether the value of other acquisitions made during its spending spree in the late Nineties should also be cut.

Any write-downs would be on top of about £10 billion set aside to cover 'goodwill' - covering areas such as patents and brand names - whose values are reduced over several years.

Goodwill write-downs totalled £11.9 billion last year, but the figure is expected to be slightly lower this year because Vodafone has sold some businesses.

Most analysts expect write-downs of between £2 billion and £10 billion. But several have suggested that the total figure could be much higher.

Philip Townsend, telecoms analyst with New York broker Arnhold & S. Bleichroeder, has suggested the total could be as high as £35 billion. As well as buying Mannesmann, Vodafone paid £38 billion for US company AirTouch and spent £13 billion buying licences to operate the next generation of mobile phones.

Mustapha Omar, an analyst with broker Collins Stewart, believes Vodafone faces writing down a total of about £70 billion of goodwill in the next few years. He said: 'Given that these assets were acquired at the peak of the technology boom, it does not take a cynic to suggest that they are wildly overvalued.' Omar said Vodafone faced losses for the next few years and the shares were overvalued and put a 73p target price on them compared with last week's closing price of 131 1/4p. That was two thirds lower than its high of 399p in March 2000 and left the company valued at £89 billion.

Vodafone said: 'We said at the halfyear that we would consider whether any further write-downs were necessary at the end of the financial year. We are undertaking that process.'