Published: Tuesday, 10 Nov 2009 | 3:41 AM ET

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Vodafone Group, the world's largest cellphone service operator by revenue, is to step up cost cutting after a successful start to a program which boosted cashflow in the first half of the year.

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[VOD-LN  Loading...      ()] reported on Tuesday first-half revenue, earnings and adjusted operating profits which were all in line with forecasts and reaffirmed its profit guidance for the year.

But a combination of foreign currency benefits, reduced working capital and the cost cuts meant the group beat forecasts for free cash flow, up 29.1 percent, and it now expects that to be at the upper end of its original target for the full year.

Vodafone launched a 1 billion-pound ($1.68 billion) cost cutting scheme a year ago and accelerated the rate in May after confronting saturated markets in Europe and a slowing rate of growth from increased competition in emerging markets.

On Tuesday the company, whose shares have underperformed the FTSE 100 by 13 percent this year, said it would deliver that program a year ahead of plan and would now extend this to a further 1 billion of cost savings by 2012.

Sharon Lorimer

"The group has performed in line with our expectations and we have made strong progress with our strategic priorities, in particular in mobile data and cash generation," Chief Executive Vittorio Colao said. "We have confirmed our guidance for the full year, despite the uncertainties of current economic trends."

In Europe organic service revenue from the provision of ongoing services was down 4.5 percent due to the tough economy and increasing competition.

Organic service revenue declined in Africa and Central Europe by 3.2 percent with growth in the African Vodacom unit being offset by weakness in Turkey and Romania.

India, a key market for Vodafone which has been hit by a pricing war, had service revenue growth of 20.5 percent after adding an extra 14.1 million customers, slightly better than analysts had expected.

Vodafone, which has also been hampered by regulatory changes and lower consumer spending across its territories, reported first half earnings before interest, tax, depreciation and amortization (EBITDA) up 2.9 percent to 7.5 billion pounds, in line with expectations.

It reported half-year revenues up 9.3 percent to 21.8 billion pounds, also bang in line with the Reuters poll of 12 analysts. Revenues were down 3 percent on an organic basis.

The results follow similar statements by European rivals which have also cut costs heavily and Indian rivals who have been hit by an increasingly vicious price war.

European firms Deutsche Telekom, Telenor, KPN and TeliaSonera have all reported higher than expected earnings thanks to cost cutting measures, but Deutsche failed to provide an outlook for 2010 due to economic uncertainty.

The only major exception so far was France Telecom which just missed forecasts and warned of rising restructuring costs.

In India, however, Vodafone's two main rivals, Bharti Airtel and Reliance Communications, both reported weak earnings in their recent results due to a crushing price war in the Indian market.

Shares in Vodafone were down by 1.4 percent by the close in London.

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