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Technology Stocks : Vodafone-Airtouch (NYSE: VOD) -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (2868)	6/19/2000 9:10:00 PM
From: MrGreenJeans	Read Replies (1) \| Respond to of 3175

Vodafone's pelican crossing makes for a nestful of capital City Editor's comment Vodafone gives Gent œ10m cash and share bonus A wonderful bird is the pelican His bill will hold more than his belican He can take in his beak Enough food for a week But I'm darned if I know how the helican VODAFONE is the pelican of Britain's industrial aviary, and today we are treated to the annual inspection of its awesome corporate digestion system, courtesy of the accounts of this insatiably acquisitive company. It has been quite a year: when the previous books were ruled off in March 1999, there were just over three billion shares in issue. Twelve months later that total had swollen to 61 billion. The market value of the business bulged from œ7.5 billion to œ210 billion, as Vodafone gobbled up first AirTouch and then Mannesmann. It now dominates the FTSE 100 share index and the world's mobile phone industry. Yet those who look to the balance sheet to see why it is far and away our most valuable business will merely be baffled. The numbers look big enough, with capital and reserves of œ142 billion. It is on the other side of the books that things look strange. The biggest asset is œ101 billion for the "investment" in Mannesmann, which was not completed until April, and will not be consolidated until next year. Much of that cost will be goodwill; indeed, the second biggest item in this balance sheet is œ22 billion of goodwill following the takeover of AirTouch. Goodwill is, of course, the difference between what something is worth and what you paid for it, and in mobile phone industry it is as common as those masts that sprout everywhere you look. The masts are one of Vodafone's few tangible assets, but they scarcely register on the accounting radar. The balance sheet is supposed to be the key piece of financial information for suppliers, creditors, investors and employees curious to know how strong a company really is. Yet that of our biggest business is worthless for any of these purposes. Obviously, Vodafone itself is not worthless. Its right to a slice of the spectrum over Britain, for which it paid œ6 billion just after the year-end, may turn out to be worth far more, and plenty of others were prepared to pay almost as much. Its ability to offer its customers a seamless mobile service in most parts of the globe is obviously valuable, even if it is also intangible. The balance sheet will reflect none of this. It was designed for businesses which bought factories, and filled them with things which hurt if you dropped them on your foot. You'd hardly notice if you dropped a Panasonic GD90 on your corns, but they are extremely valuable to Vodafone, as every parent of a teenager knows well enough. Old balance sheets were quite as capable of misleading as new ones; the chemical plant or car assembly line, so carefully depreciated over its expected life, is practically worthless from day one, except to ICI or Ford. It is cash flow from profitable sales that sustains a business, which is why those with capital put so much of it into Vodafone, despite its pelican-like balance sheet.