Vodafone (NYSE: VOD) reported first half profit fell 35 percent to £2.14 billion ($3.33 billion), or 4.02 pence (6.25 cents) a share, and announced it was trimming its sales forecast, the second cut in four months. Citing “challenging” operating conditions in Europe and the ongoing economic downturn in certain markets, Europe’s largest telco cut its forecast for annual sales to the range of £38.8 billion ($60.2 billion) to £39.7 billion ($61.7 billion). An earlier estimate put sales ending the year March 2009 at £39.8 billion ($61.8 billion).

Vodafone also announced that it was embarking on cost-cutting drive, aimed at reducing annual operating costs by around £1 billion ($1.56 billion) a year by the 2011 financial year to “offset the pressures from cost inflation and the competitive environment and to enable investment in revenue growth opportunities.”

Meanwhile, sales in the first half ending September 30, were up 17 percent to £19.9 billion ($31 billion) pounds, boosted by currency benefits. Organic growth, however, was 0.9 percent. Stripping out currency impacts and acquisitions, Vodafone’s European business saw revenue fall 1.1 percent to £14.3 billion (£22.2 billion). Though data revenue was up, it could not offset the decline in voice calls. Spain, cited as a trouble area last quarter, stabilised, while its UK unit underperformed. Emerging markets performed better, with organic growth in Eastern Europe, the Middle East, Africa and Asia rising 8.8 percent to £5.4 billion (£8.4 billion).

Earnings Highlights:

— European voice revenue down, data revenue up: Voice revenue in Europe fell 4.3 percent on an organic basis, while data revenue increased by 23.5 percent on an organic basis, driven by increased penetration of mobile PC connectivity devices—or dongles. Attractive tariffs and commercial package offerings also helped drive data growth. Mobile email applications are also seeng “continued strong growth, but content downloads are “slowing.” Mobile messaging revenue grew at 1.4 percent at constant exchange rates, with growth slowing compared to the same period last year following a larger uptake of its messaging promotions and bundled contracts.

Release | Presentation | Additional Numbers | Webcast