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Last Updated: Tuesday, 15 November 2005, 16:49 GMT
Growth concerns rattle Vodafone
New Vodafone 803T and 903T models
Vodafone has been struggling to reverse a drop in Japanese user numbers
Fears over slower growth at Vodafone in the coming year have driven shares in the mobile phone more than 10% lower.

The company warned the rising cost of revitalising its struggling Japanese unit would continue to erode margins.

Investors decided to focus on the negative impact of Japan rather than a 9% rise in revenues to 18.3bn for the six months to 30 September.

Overall customer numbers also rose by 10 million, but pre-tax profits fell 9.5% to 4.1bn.

The company said a one-off 515m charge from the sale of its Swedish business had been the main reason for the drop in profits.

Vodafone Group continues to prosper in a competitive and challenging environment
Arun Sarin, Vodafone chief executive

By the close, shares in the firm were down 10.86%, or 15.75 pence, at 129.25p.

Vodafone chief executive Arun Sarin said the firm was making "good progress" in a tough trading environment, boosting its customer base to 171 million.

"Vodafone Group continues to prosper in a competitive and challenging environment," he added.

'Satisfactory' progress

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 6.2% to 6.7bn during the six months - just above analyst forecasts.

"I am very satisfied with progress and believe that the group is uniquely placed to take advantage of the many opportunities to deliver shareholder value in the future," Mr Sarin said

But Vodafone's announcement that it was raising its dividend and increasing its share buyback programme by 2bn to 6.5bn was overshadowed by worries about its future in Japan.

"If it wasn't for Japan, (their numbers) would have been exceptional. But Japan was in there and Japan was disappointing," Robert Grindle, telecoms analyst at Dresdner Kleinwort Wasserstein told Reuters.

Japanese woes

Vodafone has been struggling to halt a decline in the Japanese market ever since the 2004 introduction of its third-generation (3G) service flopped.

The group has been cutting rates and offering promotions - all of which resulted in a 6% cut in margins at the business - yet customer numbers and average revenues per spender still declined.

Overall margins at the group slipped slightly to 37.9% from 39.4% in the six months to September.

The development prompted a more cautious outlook for the 2006/07 financial year - with the group warning cashflow, mobile revenue growth and mobile EBITDA margins outside Japan would fall.

Increased competition has already affected its UK market.

Revenues were broadly unchanged at 2.57bn despite a rise in customer numbers as the firm was forced to cut prices.

In May, Mr Sarin warned that profitability could suffer in the face of increasing competition.




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