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Moody's Investors Service Says EU Telecoms Hard To Compare
Published on:
BRUSSELS -(Dow Jones)- Although EU-based telecoms operators now report under International Financial Reporting Standards (IFRS), an examination of the annual reports of seven investment-grade operators reveals several accounting differences of varying magnitude and significance, says Moody's Investors Service in a new Special Comment.
The companies covered are BT Group rated Baa1/stable, Deutsche Telekom rated A3/P-2/stable, France Telecom rated A3/P-2/stable, KPN rated Baa2/P-2/stable, Telecom Italia rated Baa2/negative, Telefonica rated Baa1/P-2/stable and Vodafone Group rated Baa1/P-2/stable.
Moody's report reveals that there is little consistency in the items included in (and excluded from) earnings before interest, tax, depreciation and amortization or Ebitda, debt and net debt.
"This is not surprising as there are no standard definitions for these key measures," says Trevor Pijper, a Moody's Vice President and Senior Credit Officer and author of the report.
In addition, because IFRS does not prescribe a single method of accounting for pension costs and investments in jointly controlled entities, the report notes that it is inevitable that different methods are being used in practice.
However, Moody's notes that a lack of consistency in the amounts that are reported as interest expense, lease expense and current tax expense is more unexpected.
"These accounting differences make it harder to compute credit metrics on a comparable basis," says Pijper. The report also highlights differences in the companies' reported allowances for doubtful debts, capital spending on software and the depreciation of property, plant and equipment.
Moody's routinely adjusts financial statements in order to improve comparability and to better reflect, for analytical purposes, the underlying economics of transactions and events. In aggregate, the rating agency has added EUR61 billion (24%) to the EUR250 billion reported as debt by the seven companies for 2006, and Ebitda is approximately EUR5 billion higher than the operators' headline figure of EUR100 billion.
Moreover, the adjustment for off-balance-sheet leased assets accounts for 80% of the amount added to debt.
The operating lease expense is consequently added back to Ebitda.
Moody's report sets out in detail how the companies' key figures are adjusted for use in standard ratios by analysts. Companies' reported and adjusted financials, along with the adjustments made by Moody's analysts, are available to subscribers as Moody's Financial Metrics data analytic service.
"Although it is not practicable to adjust for all possible accounting differences, and despite the fact that our methodology for operating leases of necessity adopts a simplified approach, we believe that the outcome is sufficiently accurate for credit analysis purposes," Pijper concludes.
Company website: http://www.moodys.com
(END) Dow Jones Newswires"
Tags: [deutsche telekom] [telecom italia] [kpn] [france telecom] [bt group] [bt] [tax] [pension]
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