Vodafone Q1 FY26 slides: service revenue up 5.5%, Three merger integration underway

Vodafone Group PLC reported a 5.5% increase in Q1 FY26 service revenue and a 4.9% rise in adjusted EBITDAAL to €2.7 billion, driven by robust growth in emerging markets like Türkiye (+63.8%) and Africa, which largely offset declines in mature European markets such as Germany. The company completed its merger with Three UK on May 31, 2025, creating the UK's leading mobile operator, and reiterated its FY26 guidance for adjusted EBITDAAL of €11.3-11.6 billion and adjusted free cash flow of €2.4-2.6 billion. This performance underscores Vodafone's strategic transformation, leveraging strong digital services and emerging market momentum to counterbalance persistent competitive pressures in parts of its European portfolio.

Analysis

Vodafone Group PLC reported a robust 5.5% increase in Q1 FY26 service revenue and a 4.9% rise in adjusted EBITDAAL to €2.7 billion, achieving a 29.7% margin. This performance was primarily driven by exceptional growth in emerging markets, notably Türkiye at 63.8% and Egypt at 43.9%, which effectively counterbalanced persistent declines in mature European markets. The company's strategic transformation, leveraging strong digital services and emerging market momentum, is evident in these results.

The recent completion of the Three UK merger on May 31, 2025, is a significant strategic move, positioning Vodafone as the UK's leading mobile operator and contributing to the 0.9% service revenue growth in the region. While Germany's service revenue declined by 3.2%, the company noted an improvement from prior quarters, citing higher wholesale revenue and business digital services. Vodafone Business also demonstrated strength, growing 4.0% in service revenue, with digital services up 14.7%.

Vodafone reiterated its FY26 guidance, projecting adjusted EBITDAAL between €11.3-11.6 billion and adjusted free cash flow of €2.4-2.6 billion, incorporating the UK merger's impact. The company anticipates continued service revenue improvements in Germany and a leverage ratio within the lower half of its 2.25-2.75x range.

Despite acknowledging challenges in the German fixed broadband market and competitive pressures, the strong performance in emerging markets and digital services provides a crucial counterbalance. The overall sentiment is optimistic, reflecting confidence in the company's strategic direction and financial outlook.

Key Decisions for Investors

• Investors should consider Vodafone's reiterated FY26 guidance and the strategic benefits of the Three UK merger, which are expected to bolster future EBITDAAL and free cash flow.
• Monitor the company's ability to sustain strong growth in emerging markets and digital services, as these are critical offsets to ongoing competitive pressures and revenue declines in parts of its European operations.
• Evaluate the integration progress of the Vodafone Three entity in the UK and the anticipated service revenue improvements in Germany, which are key to realizing the full potential of the strategic transformation.