Vodafone (VOD) Q2 2026: Service Revenue Growth Accelerates to 5.8% as UK and Germany Stabilize
Vodafone’s second quarter marked a decisive inflection as service revenue growth accelerated, driven by stabilization in Germany and integration gains in the UK. The group’s reshaped portfolio, spanning Europe and high-growth emerging markets, is now positioned for multi-year expansion with a focus on operational execution and customer experience. Management’s confidence is evident in a new progressive dividend policy and guidance at the upper end of the FY26 range.
Summary
- Integration Momentum in UK: Early synergy capture and network improvements signal a strong start to the Vodafone-Three merger.
- Germany Turnaround Progress: Customer satisfaction and network quality gains support the market’s stabilization narrative.
- Dividend Policy Shift: Progressive dividend commitment underscores management’s growth outlook and capital discipline.
Performance Analysis
Vodafone delivered a notable acceleration in group service revenue growth, reaching 5.8% in Q2, as both Europe and Africa contributed positively. Europe’s return to growth was modest at 0.5%, but this marks a crucial reversal from prior quarters of stagnation, with Germany and the UK acting as primary engines. In Germany, Vodafone’s largest market, service revenue also grew 0.5%, aided by the end of regulatory headwinds from the MDU TV law change and a step-up in wholesale revenue. The UK, now operating as the merged Vodafone-Three entity, showed measurable improvements in network quality and customer loyalty, supporting a stronger commercial trajectory.
Emerging markets, particularly Türkiye and Vodacom (Africa), continued to outperform, delivering strong Euro-denominated growth and offsetting slower regions. B2B (business-to-business) revenue grew 2.9%, with digital services expanding at double-digit rates, illustrating Vodafone’s push beyond traditional connectivity. On profitability, adjusted EBITDA grew organically by 6.8%, reflecting both top-line gains and cost discipline, though cash flow was seasonally impacted by in-year phasing. Capital returns remain a priority, with over €3 billion in buybacks executed and a further €1 billion planned.
- UK Integration Drive: Vodafone-Three merger is already yielding operational and customer experience improvements, with early synergy capture underway.
- Germany Stabilization: Network quality recognition and higher customer satisfaction mark a turning point in this key market.
- Emerging Markets Outperformance: Türkiye and Vodacom continue to deliver robust growth, reinforcing portfolio diversification benefits.
Overall, Vodafone’s Q2 results validate its strategic reshaping and signal a sustained return to growth, with execution in Germany and the UK remaining critical to the multi-year outlook.
Executive Commentary
"During the first half of the year, we completed the reshaping of the Group, with our merger in the UK forming the country's leading mobile operator, as well as the acquisition of Telecom Romania's assets. Across the Group, we have continued to make operational progress as we deliver on our strategic priorities of customers, simplicity and growth."
Margarita Della Valle, CEO
"Group service revenue growth accelerated to 5.8% in Q2, supported by growth across both Europe and Africa. Europe's return to growth of 0.5% was supported by the stabilization in Germany and growth in the UK... given our solid performance in the year so far and the positive outlook ahead, we have confirmed that we now expect to deliver at the upper end of our FY26 guidance."
Luca, Outgoing CFO
Strategic Positioning
1. UK Integration and Market Leadership
The merger of Vodafone and Three in the UK is central to Vodafone’s strategy, creating the country’s largest mobile operator and unlocking scale-driven advantages. Management reports a “fast start” to integration, with network quality and customer loyalty metrics already improving. Synergy realization has begun, and the group is leveraging a multi-brand approach to cross-sell broadband and fixed wireless access (FWA), aiming to capture incremental ARPU (average revenue per user) and reduce churn.
2. Germany Operational Turnaround
Germany remains Vodafone’s key market for both risk and opportunity. The company is investing in network quality—recently recognized in independent tests—and expanding its OXG fiber offering to 1 million homes. Migration of 11 million wholesale customers onto Vodafone’s mobile network is a milestone, and customer satisfaction is now “significantly higher than two years ago,” narrowing the gap with the incumbent. The focus is now on disciplined execution and ARPU expansion through differentiated product offerings and B2B investments.
3. Emerging Markets Growth Engine
Türkiye and Vodacom continue to deliver strong Euro-based growth, providing a buffer against mature European markets. Direct exposure to high-growth verticals such as IoT (Internet of Things) and digital financial services positions Vodafone to capitalize on secular trends in connectivity and digitalization, especially in Africa and Turkey where mobile penetration and digital adoption are rising rapidly.
4. Capital Allocation and Dividend Policy Shift
Vodafone’s capital allocation framework, refreshed in March 2024, prioritizes balanced investment, financial flexibility, and shareholder returns. Over €3 billion in buybacks have been executed, with dividends exceeding €2 billion. The move to a progressive dividend policy, starting with a planned 2.5% increase for FY26, signals management’s confidence in sustainable cash flow generation and long-term growth trajectory.
5. Leadership Transition and Execution Focus
The CFO transition from Luca to Pilar López brings fresh operational rigor, with Pilar’s background spanning telco and global tech. Her stated focus on simplification, productivity, and customer-centricity aligns with Vodafone’s transformation agenda. Leadership continuity and execution discipline will be tested as the group navigates integration and turnaround challenges in its two largest markets.
Key Considerations
Vodafone’s Q2 marks a strategic pivot from portfolio reshaping to operational execution, with integration and turnaround efforts in the UK and Germany now in full focus. The group’s exposure to high-growth emerging markets and digital services is a differentiator, but execution risk remains elevated in legacy European markets.
Key Considerations:
- Integration Execution: Sustained synergy delivery and customer retention in the UK merger will determine value realization.
- German Market Dynamics: Competitive intensity and regulatory shifts require ongoing investment and disciplined ARPU management.
- Emerging Markets Volatility: Currency and macro risks in Türkiye and Africa could impact reported growth and cash flow conversion.
- Dividend and Capital Returns: Progressive dividend policy heightens the need for consistent cash generation and capital discipline.
- Leadership Transition: New CFO must maintain operational momentum and credibility during a period of heightened execution risk.
Risks
Vodafone faces material risks from competitive pressure in Germany, where market share and ARPU remain under threat. Integration complexity in the UK merger could dilute synergy capture or disrupt customer experience if not managed tightly. Emerging markets, while a growth engine, expose the group to currency swings and regulatory unpredictability. Execution missteps in any of these areas could undermine the multi-year growth narrative and jeopardize the new dividend policy.
Forward Outlook
For Q3 2026, Vodafone guided to:
- Service revenue growth at the upper end of FY26 guidance
- Continued operational improvement in Germany and UK integration progress
For full-year 2026, management maintained guidance at the upper end of the previously stated range:
- Progressive dividend policy with a planned 2.5% increase in the final FY26 dividend
Management highlighted several factors that support this outlook:
- Stabilization in core European markets
- Strong growth momentum in emerging markets and digital services
Takeaways
Vodafone’s Q2 signals a shift from restructuring to disciplined execution, with early signs of stabilization in Germany and integration momentum in the UK underpinning a confident outlook. Investors should focus on operational delivery in these two markets, as well as cash flow consistency to support the new dividend policy.
- Execution in Germany and UK: Sustained improvement is essential to validate the multi-year growth thesis and justify the capital return strategy.
- Emerging Markets Remain a Buffer: Outperformance in Türkiye and Africa provides diversification but introduces new volatility risks.
- Dividend Policy as a Signal: Progressive dividend commitment reflects management’s confidence but increases pressure on operational and cash delivery.
Conclusion
Vodafone’s Q2 2026 results mark a return to growth, with stabilization in Germany and UK integration progress driving management’s upbeat guidance and dividend shift. Execution risk remains high, but the group’s diversified portfolio and capital discipline position it for a sustained multi-year expansion.
Industry Read-Through
Vodafone’s performance highlights the importance of scale, disciplined integration, and operational turnaround in mature telecom markets. The group’s pivot to a progressive dividend policy and focus on digital and emerging market growth is likely to influence peers facing similar market maturity and capital allocation challenges. Industry participants should note the increasing pressure to deliver cash-backed returns, as well as the need for agile execution in portfolio integration and customer experience improvements. Emerging market operators may also take cues from Vodafone’s success in leveraging IoT and digital services for incremental growth.