Nov. 10 (Bloomberg) -- Vodafone Group Plc, the world’s largest mobile-phone company, posted a 2.9 percent rise in first-half operating profit and said it plans to cut costs by an additional 1 billion pounds ($1.66 billion).

Earnings before interest, taxes, depreciation and amortization, or Ebitda, in the six months ended Sept. 30 rose to 7.46 billion pounds, matching the average of analysts’ estimates, from 7.24 billion pounds a year earlier. The Newbury, England-based company’s stock fell 1.5 percent as European operations fared worse than analysts predicted.

“The declines in organic service revenues and profitability show that the company is still on the back foot and too dependent on the sluggish European business,” said Morten Singleton, an analyst at Collins Stewart in London. “Aggressive cost cuts are the right thing to do, but the market was expecting these cuts.”

Vodafone Chief Executive Officer Vittorio Colao is reducing expenses to offset a slide in demand for telecommunications services. Vodafone this year joined operators such as Deutsche Telekom AG, Royal KPN NV and Mobistar SA in saying that the recession was hurting sales and profits as consumers and companies cut back on travel and mobile-phone use.

Sales in the half advanced 9.3 percent to 21.76 billion pounds, the company said in an e-mailed statement today. Colao said Vodafone’s 1 billion-pound cost-reduction program will be delivered a year ahead of schedule and that the company plans a further 1 billion pounds of cost savings by 2012.

European Operations

Vodafone dropped to 135.95 pence in London trading. The stock has declined 2.2 percent this year, compared with an 18 percent increase by the FTSE 100 benchmark index.

In Europe, service revenue excluding currency swings and acquisitions dropped by 4.5 percent, “reflecting the economic and competitive environment,” Vodafone said. That compares with a slide of 3.2 percent in Africa and Central Europe. Growth in Africa was offset by declines in Turkey and Romania.

The Ebitda profit margin declined by 2.1 percentage points in the first half and is predicted to drop by a similar rate in the full year, the company said.

Vodafone said it still forecasts adjusted operating profit in the year ending March to be between 11 billion pounds and 11.8 billion pounds. It said cash before license and spectrum payments will be around the upper end of a range of 6 billion pounds to 6.5 billion pounds.

‘In Line’

Vodafone in May brought forward a 1 billion-pound cost- reduction plan to cut some jobs and reduce spending on network equipment, advertising and logistics.

“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,” Colao said.

In the Asia Pacific and Middle East region, service revenue gained 18 percent, helped by India where service revenue rose about 21 percent as the company added 14.1 million clients. Profitability, based on Ebitda, declined by 3.1 percentage points in the Asia Pacific and Middle East region, “reflecting lower margins in India caused by the pricing environment and investment in new circles, and star-up costs in Qatar.”

India Business

Colao told reporters on a conference call that India will continue to be an “attractive” market for Vodafone although “the competitive intensity will remain there until consolidation.”

Bharti Enterprises Pvt., which controls India’s largest mobile-phone company, on Oct. 29 predicted mergers and acquisitions will reduce the number of mobile-phone companies in the country as there are “too many” operators.

Vodafone bought a majority stake in Hutchison Essar Ltd., now called Vodafone Essar, for $10.7 billion in May 2007. Vodafone Essar is India’s third-largest mobile-phone company.

“Vodafone is an ex-growth company struggling to maintain margins with unachievable cost cuts, in an environment of increasing regulatory and competitive pressure,” Societe Generale analysts including Ottavio Adorisio and Saeed Baradar said in a note to clients today. They added that India, Vodafone’s former “engine of growth,” looks increasingly “like a liability.”

Colao, a former McKinsey & Co. partner, is pushing managers to squeeze more profit from existing operations. Earlier this year, he agreed to merge an Australian unit with Hutchison Telecommunications Ltd.’s operation in the country, where growth prospects are slim.

The company increased its dividend per share by 3.5 percent to 2.66 pence in the first half.

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

Last Updated: November 10, 2009 13:18 EST