Vodafone's Q2 2026 Earnings Call: Contradictions in Germany's Market Recovery, EBITDA Outlook, and U.K. Integration Progress

Date of Call: November 11, 2025

Financials Results

• Revenue: Group service revenue growth accelerated to 5.8% in Q2 (H1 growth described as accelerated; no absolute revenue provided)
• Operating Margin: Group EBITDAaL grew 6.8% in the first half (H1), with nearly all markets posting EBITDAaL growth

Guidance:

• Company expects to close FY '26 at the upper end of the growth guidance set out in May.
• Moving to a progressive dividend policy; first year dividend growth targeted at 2.5%.
• A further EUR 1.0 billion of buybacks planned over the next six months ( >EUR5bn returned prior 18 months).
• Midterm free cash flow growth outlook is supportive of progressive returns.
• UK integration expected to deliver GBP 700m cost & CapEx synergies plus revenue synergies.

Business Commentary:

* Strong Financial Performance and Service Revenue Growth: - Vodafone Group reported a 5.8% acceleration in group service revenue growth in Q2, driven by growth across Europe and Africa. - This growth was supported by operational improvements and strategic priorities in key markets like Germany and the U.K.

• Operational Turnaround and Integration in Germany and the U.K.:
• In Germany, despite ongoing challenges, Vodafone saw a stabilizing trend in service revenue, with plans to drive growth through a disciplined execution focused on customer experience and product offerings.

• In the U.K., the integration of Vodafone and Three is progressing well, with increased consumer performance and momentum from cross-selling opportunities.

• Impact of Emerging Markets and Synergies:

• Vodafone's emerging markets, particularly Türkiye, have been a significant source of growth, contributing to mid-teens service revenue growth in hard currency.

• The company expects increased synergies from the U.K. merger to contribute positively to future performance.

• Dividend Policy and Capital Allocation:

• Vodafone announced a progressive dividend policy with a 2.5% increase for the current year and plans to grow dividends annually.
• This policy reflects the company's confidence in its improved financial position and the outlook for midterm free cash flow growth.

Sentiment Analysis:

Overall Tone: Positive

• Management confirmed we "expect to close the year at the upper end of the growth guidance" and highlighted that "group service revenue growth has accelerated to 5.8% in Q2" and "group EBITDAaL grew by 6.8% in the first half," while announcing a progressive dividend policy.

Q&A:

• Question from Maurice Patrick (Barclays Bank PLC, Research Division): If I could ask a little bit about the EBITDA run rate for the second half and also next year, so you've delivered 6.8% organic year-on-year growth, you tightened the guidance towards the upper end of the range. I think if I look at the full-year guidance, it implies 4%, 5% growth for the full year. So your guidance, even at the high end, seems to imply a slowdown versus the first half, despite Germany probably having easier comps. As you exit the MDU drag, maybe you could help us understand some of the EBITDA sort of levers in second half. I know you called out higher SAC in the U.K., for example. And it's probably a bit early to talk about FY '27, but if you could give us some indications of some of those building blocks, that would be very helpful.
  Response: H2 EBITDA growth will slow versus H1 because emerging market growth moderates and UK topline/marketing is phasing back into H2, though Germany should improve (full 1&1 wholesale run-rate ~EUR11m by Q4); FY27 should see stronger UK synergy-driven contribution while EM headwinds persist.

• Question from Akhil Dattani (JPMorgan Chase & Co, Research Division): I've got a question around Germany, just to unpack a bit of what you mentioned, Margherita, around the turnaround initiatives that you've taken so far, and how we see the fruits of that bearing into the numbers. You talked just to a lot of different things that you've done in Germany. But if we look at the moment and we strip out the MDU effect and the 1&1 impact, the German revenue trends are still declining 2% to 3%. So I'd love to understand what you think it takes in the timeline to see the underlying momentum starting to improve. And then, if we layer on to that, the scale effect of 1&1, how should we think about the H2 outlook for Germany for revenue and EBITDA?
  Response: Underlying German revenue is broadly stable ex-wholesale; Germany should grow in H2 as MDU impact fades and wholesale (net ~€80–100m in contribution) and B2B digital services ramp, while reduced churn and ARPU moves support gradual topline improvement.

• Question from Carl Murdock-Smith (Citigroup Inc., Research Division): That's great. I wanted to ask about the U.K. You touched in the presentation on making a fast start on integration. Can you provide a bit more color on your early actions and synergy delivery? And also comments on in what ways the commercial performance in Q2 and revenue has been a bit better than the decline you had suggested we could expect when you spoke at last quarter's results.
  Response: Early UK integration has driven measurable network quality and churn improvements, very strong broadband net adds (consumer) and initial cross-selling/FWA gains; commercial outperformance reflects these early wins and will be supplemented by the GBP700m cost & CapEx synergies and growing revenue synergies.

• Question from Polo Tang (UBS Investment Bank, Research Division): It's a question on Germany. So there are proposed changes to legislation that will make it easier for operators such as Deutsche Telekom to access MDUs and deploy fiber. So what's your view on the impact of these potential changes? And can you also talk to the economics for the OXG fiber JV? From memory, it's about EUR 7 billion of CapEx to build a footprint to 7 million homes. But can you remind us what the equity injections that are required for the JV? And how should we think about the wholesale costs that the German unit has to pay to OXG JV longer term?
  Response: Potential Telco Act changes would at most marginally accelerate fiber to MDUs; OXG is largely self-financing with very small equity needs (~€70m injected over 3 years), no obligation to migrate cable customers, 20% of footprint outside cable areas, and a gradual wholesale revenue/cost dynamic as penetration builds.

• Question from Emmet Kelly (Morgan Stanley, Research Division): My question, yet again this quarter, is on Vodafone Turkey. On my numbers, it represents, I think, almost half of the organic EBITDA growth that we've seen since last year. I guess, most notable is the EBITDA margin uptick at your Turkish business. So could you talk a little bit about the topline trends you're seeing there and expect to see? And on your cost management program, if you could say a few words on that.
  Response: Türkiye's outperformance is driven by strong digital sales, agile base management and cost discipline (e.g., digital loyalty/happy app), delivering mid-teens service revenue growth in euros and large EBITDA/cash improvement; growth should moderate as inflation eases but competitive position remains strong.

• Question from Joshua Mills (BNP Paribas, Research Division): I wanted to come back to the U.K. market and focus on your FWA proposition in particular. So following the Three U.K. merger, you had a very strong spectrum position. You mentioned in your comments earlier that you're happy with how the FWA business is developing. Could you give us a bit more detail about the net adds on that business? And what your longer-term ambition with FWA might be? How you balance that against the desire to grow on the fixed broadband base as well? And just one short clarification, when you have your FWA customers, are they included in your broadband numbers or your mobile customer numbers?
  Response: FWA net adds are counted in mobile (17,000 in the quarter); FWA is a strategic bridge to reach customers before fiber (and in rural areas), can be migrated to fiber later, and complements fixed broadband growth rather than cannibalizing it.

• Question from David Wright (BofA Securities, Research Division): Sorry. I'm on the -- I do apologize and apologize for no video or lower -- maybe not a bad thing. But just a technical question, I suspect, just for yourself, Luka, super straightforward. In the first half, adjusted EBITDAaL common functions was maybe a little surprisingly negative. It shows minus EUR 14 million. It's been running a fairly consistent clip of EUR 22 million, EUR 23 million in the last couple of halves. So just any explanation there and just how we should think about that full year number and maybe even into 2027? That's it from me.
  Response: Common functions EBITDA is now structurally negative as prior positive one-offs (M&A effects and central provision release) have dissipated; don't assume H1 simply doubles for full year given small variability and absent one-offs.

• Question from James Ratzer (New Street Research LLP): So we haven't yet had a question on the dividend, I think. So it would be great just to get a kind of updated kind of thinking on cash return for kind of next year and beyond. Because I think in the past, you've set out you had a kind of ambition to grow the dividend and to be progressive. You've now been more quantitative. But just for this year, I think, you've just set out the 2.5% for this year, but really kind of not beyond FY '26. I mean, it looks to me like leverage is going to end up right at the bottom end of your 2.25x to 2.75x guidance. So, going beyond FY '26, how are you then thinking about what progressive dividend could look like and potential scope for any share buybacks going into next year?
  Response: Vodafone is moving to a progressive dividend policy (first-year growth ~2.5%); buybacks remain part of the toolkit—€1bn tranche to be executed in next six months—with future buybacks and dividend growth assessed annually against capital allocation, leverage and market position.

• Question from Paul Sidney (Joh. Berenberg, Gossler & Co. KG, Research Division): I just had a question around the Skaylink acquisition. We've seen a lot of excitement in the sector around data centers, AI, cloud services, cybersecurity, you name it, obviously, Deutsche Telekom, announcing a pretty high-profile partnership with NVIDIA to build a data center and Telecom Italia having a recent event, looking at their AI capabilities. So just a very broad question about is this really a material revenue driver for your business looking forward? And could we expect more similar acquisitions to Skaylink in some of your other geographies?
  Response: Digital services already exceed 25% of B2B revenues and are growing double-digit; Skaylink expands cloud capabilities in Germany, targeting SME demand—management expects continued capability builds and selective bolt-on M&A where returns are attractive.

• Question from Robert Grindle (Deutsche Bank AG, Research Division): Great to see your stock get its mojo back. I hope that translates to Italy and Germany, especially before Luka moves on. Margherita, the footprints reshaped, you've merged the U.K., not to mention all the operational stuff. This was a large entrée. So what do you look forward to spending more time on with your new CFO colleague? We have the capital allocation question. You addressed that. More capabilities in digital seem to be underway. Do you see any footprint infill need? Any more consolidation opportunity? And conversely, do you see that the Vodafone balance sheet needs further simplification?
  Response: Post-reshaping priorities are executional: drive customer experience, simplify the group, and accelerate B2B/digital growth; management does not anticipate headline M&A—focus is on operational delivery and disciplined execution rather than further large-scale consolidation.

Contradiction Point 1

German Market Recovery and EBITDA Expectations

It involves differing expectations for the German market recovery and its impact on EBITDA, which is crucial for financial forecasting and investor expectations.

What is the EBITDA run rate for H2 and FY27? What are the key EBITDA drivers in H2, and can you provide any guidance for FY27? - Maurice Patrick(Barclays Bank PLC)

2026Q2: Our outlook implies a slowdown, driven by Germany's full run rate of wholesale migration, and improved performance in Q4. - Luka Mucic(CFO)

What is the pace and timing of the German recovery? Are there significant improvements in NPS? How are German pricing conditions impacting your results? - Akhil Dattani(JPMorgan)

2025Q4: We expect a significant improvement in German EBITDA due to non-recurring MDU drag and 1&1 migration ramp-up. - Luka Mucic(CFO)

Contradiction Point 2

Germany's Service Revenue Growth and EBITDA Outlook

It involves differing expectations regarding service revenue growth and EBITDA outlook for Germany, which are crucial for understanding the company's financial performance and strategic focus.

Can you discuss the turnaround initiatives in Germany and their impact on underlying revenue trends? - Akhil Dattani (JPMorgan Chase & Co)

2026Q2: Germany's service revenue grew 1.9% in the quarter, with underlying growth of 3%. Germany's service revenue grew 1.9% in the quarter, with underlying growth of 3%. Fixed ARPU has risen, and mobile upselling is taking place. - Margherita Della Valle(CEO)

Can you discuss the factors affecting revenue and EBITDA in your guidance for the upcoming year? - Emmet Kelly (Morgan Stanley)

2024Q4: Germany's service revenue grew 0.5% in the quarter, with underlying growth of 1.5%. Germany's service revenue grew 0.5% in the quarter, with underlying growth of 1.5%. - Margherita Della Valle(CEO)

Contradiction Point 3

U.K. Integration and Synergy Delivery

It involves differing expectations regarding the integration of the U.K. operations and the delivery of synergies, which are critical for the company's growth strategy.

Can you provide an update on the U.K. integration and early synergy delivery, and discuss revenue performance compared to prior expectations? - Carl Murdock-Smith (Citigroup Inc.)

2026Q2: Revenue performance exceeded expectations due to churn improvement, strong consumer performance, and cross-selling benefits. Integration is progressing rapidly, with the focus on networks and operations. - Margherita Della Valle(CEO)

Can you discuss the U.K. merger and potential CMA remedies? - Stephen Malcolm (Redburn)

2024Q4: We will allow the merger to enhance competition and benefit customers. The combination of Vodafone and Three in the UK will not require any remedies. - Margherita Della Valle(CEO)

Contradiction Point 4

Germany Turnaround Strategies and Timelines

It highlights differing perspectives on the turnaround strategies and timelines for Vodafone's operations in Germany, which are crucial for the company's financial performance and market positioning.

Can you explain the turnaround initiatives in Germany and their impact on underlying revenue trends? - Akhil Dattani(JPMorgan Chase & Co)

2026Q2: Churn reduction and improved customer experience are driving underlying performance. Germany is seeing benefits from network improvements, customer service changes, and growth in ARPU. - Margherita Della Valle(CEO)

What are the turnaround plans in Germany, including current challenges and expected timeline for improvement? - Akhil Dattani(JPMorgan)

2022Q4: Challenges in Germany include network capacity upgrades and commercial execution issues. Remedial actions are underway, with expected resolution by summer. - Nicholas Read(CEO)

Contradiction Point 5

European Service Revenue Growth Expectations

It involves differing expectations for service revenue growth across Europe, which is a critical factor for Vodafone's overall financial performance.

What is the EBITDA run rate for H2 and FY26, and what are the key EBITDA levers for H2 with any guidance for FY27? - Maurice Patrick(Barclays Bank PLC)

2026Q2: Our outlook implies a slowdown, driven by Germany's full run rate of wholesale migration, and improved performance in Q4. - Luka Mucic(CFO)

What is the guidance on service revenue growth in Europe, and how do you plan to mitigate cost inflation through price increases? - Andrew Lee(Goldman Sachs)

2022Q4: Mid-case expectation is for Europe to continue growing in FY ‘23. Growth will be supported by strong commercial momentum in the UK and the impact of European recovery funds in Southern Europe. - Margherita Della Valle(CFO)