Nov. 11 (Bloomberg) -- Vodafone Group Plc, the world's largest mobile-phone company, cut its full-year sales forecast for the second time in four months and said it will reduce costs after revenue slowed in some markets amid the economic slump.

Sales in the year ending March 2009 will be 38.8 billion pounds ($60.8 billion) to 39.7 billion pounds, the company said in a statement today. Vodafone initially forecast 39.8 billion pounds to 40.7 billion pounds, and said in July sales would be ``around the bottom'' of that range after slowing economic growth hurt revenue from phone calls and handsets.

The lowered forecast is a setback for Chief Executive Officer Vittorio Colao, who took over at the Newbury, England- based company in July. Colao said July 29 ``economic challenges won't slow us down'' and that Vodafone would become more efficient and adjust its business to clients' needs to offset the effect of slowing economic growth.

``Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow,'' Colao said today. ``We will improve operational performance through customer value enhancement and cost efficiency, supported by a 1 billion-pound cost reduction program.''

Vodafone today reiterated its full-year forecast for adjusted operating profit of 11 billion pounds to 11.5 billion pounds and raised its predictions for free cash flow in the full year to a range of 5.2 billion pounds to 5.7 billion pounds from 5.1 billion pounds to 5.6 billion pounds.

Rising Earnings

First-half profit before interest, taxes, depreciation and amortization rose 10 percent to 7.2 billion pounds while sales grew 17 percent to 19.9 billion pounds. Ebitda was seen at 7.31 billion pounds on sales of 19.78 billion pounds, the median estimates of seven analysts surveyed by Bloomberg News.

At Vodafone's European business, sales excluding currency swings and acquisitions dropped by 1.1 percent as growth in data services didn't make up for a decline in voice and messaging sales. Profit margins, based on Ebitda, dropped by 2 percentage points in Europe because of higher costs and investments in fixed-line services, the company said.

In Eastern Europe, the Middle East, Africa and Asia, sales excluding currency swings and acquisitions rose by 8.8 percent. Vodafone has expanded in emerging markets in the past two years with acquisitions in Turkey, India and Ghana to make up for slower growth in Europe.

The company bought a 52 percent stake in Hutchison Essar Ltd., now India's third-largest wireless provider, for $10.7 billion in May 2007, and purchased Turkey's Telsim Mobil Telekomunikasyon Hizmetleri AS for $4.55 billion in 2006. On May 28, Vodafone and a local partner said they will pay $2.1 billion for Qatar's second wireless license.

New Structure

Colao also has revamped Vodafone's organizational structure to work in emerging markets more efficiently. Management of Eastern Europe, the Middle East, Africa and Asia will be split in two beginning Jan. 1, the company said in September.

The company also said today it revised its dividend policy because of the recent foreign exchange rate volatility, the impact of amortization of acquired intangible assets and the current economic environment. Vodafone said it has now adopted a ``progressive policy,'' where dividend growth is supposed to reflect the underlying trading and cash performance of the group.

Vodafone raised its interim dividend by 3.2 percent to 2.57 pence a share. ``We see increasing dividends as the primary reward to shareholders,'' the company said. ``Given our credit rating and the current level of cash flow and dividends, this leaves limited debt capacity.''

To contact the reporters on this story: Simon Thiel in London at sthiel1@bloomberg.net;

Last Updated: November 11, 2008 02:46 EST