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MARKET COMMENT
By
Carburton Street, London -- Full year results this morning from Vodafone Group (LSE: VOD) were widely flagged and came as little surprise to the market. Turnover nearly doubled from £7.8b last year to £15b this time. Operating profit improved from £2.5b to £5.2b helping margins increase by three percentage point to 35%. But at the pre-tax level, the company made a loss of £7b compared with a small profit of £796m last year. The damage to the bottom line was caused by a massive amortisation charge of £11.8b, which arose from its acquisition of the German engineering and telecom business Mannesmann. Growth through acquisition has been the core strategy at Vodafone for some years. But even the mobile phone giant must admit that the days of expansion by acquiring stakes in existing operators are drawing to a close. Its network now spans most developed countries and it has points of presence in the US, Europe and Asia-Pacific regions. Its appetite for acquisitions will also be curtailed by the cost of rolling out the next generation mobile phone service, which the company said would cost £10b over the next five years. The company said that as a result of recent changes in its commercial policies, its focus would be on continued margin improvement and cash flow growth, rather than customer growth and market share. That should be a relief to shareholders that have seen the value of their investment deteriorate as a consequence of the company's policy to pay for acquisitions by issuing more shares rather than taking on extra borrowings. Debt is not a problem at Vodafone and its net borrowings of £6.7b represent just 5.4% of the groups total market capitalisation. Shareholders up till now have been patient with the company but it is now time for Vodafone to outline its strategy for the future. Many pundits believe that Vodafone is one of the better-positioned players in the telecom sector to take advantage of developments in cellular technology. But the company must start generating adequate levels of profits for its shareholders if it is to retain their loyalty. More: Vodafone Group discussion board. The writer holds shares in Vodafone Group.