Vodafone in £2.6bn plan to buy out Japanese holdings

Vodafone took a series of radical steps yesterday to get a grip on its ailing Japanese business, where operating profits have fallen 20 per cent in the year to 31 March.

Vodafone took a series of radical steps yesterday to get a grip on its ailing Japanese business, where operating profits have fallen 20 per cent in the year to 31 March.

Vodafone's profits from its Japanese business fell to £1.05bn last year, with profit margins shrinking from 31.3 per cent to 28.9 per cent. The company warned that profit margins from its Japanese business in the current financial year would be lower than the 25.4 per cent achieved in the second half of the last financial year.

Vodafone, which reported annual results yesterday, said total sales grew 10 per cent to £33.6bn and pre-tax profits before goodwill writedowns and exceptionals were up 19 per cent to £10bn. The group also unveiled a plan for the Japanese operation and a £2.6bn offer to buy out the minority holders in its two Japanese subsidiaries. This will consolidate the ownership of its Japanese assets under its full control.

Its two main Japanese rivals, NTT DoCoMo and KDDI have stolen a march on Vodafone in attracting customers to their versions of third-generation (3G) services with low prices and better services. During the year Vodafone failed to make any market share gains in Japan, where its £7.7bn of sales account for 23 per cent of group turnover, and its average revenue per customer fell 7 per cent as its higher value customers left for its rivals.

Fighting to defend its market share through higher marketing expenditure hit profit margins. However, in the 3G market Vodafone had only 1 per cent of the available customers. It said it expected suitable handsets would be available in time for the run-up to Christmas when it would be making a co-ordinated launch of its 3G services in several key markets including the UK.

Julian Horn-Smith, Vodafone's chief operating officer, said: "The second half has been much more challenging than the first and we expect these tough market conditions to continue during the current financial year." He said the market was undergoing a radical shift from second to third generation technology but that Vodafone had suffered a shortage of phones compatible with its W-CDMA network. "We still need to make a fundamental shift in our competitive position in Japan so we have put in place an extensive plan to transform Vodafone Japan's performance."