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

Introduction & Market Context

Vodafone Group PLC (NASDAQ:VOD) reported a 5.5% increase in service revenue for its first quarter of fiscal year 2026, according to the company’s July 2025 trading update presentation. The telecommunications giant also completed its merger with Three UK on May 31, 2025, creating what the company describes as "the UK’s leading mobile operator."

The results come as Vodafone continues its strategic transformation, balancing challenges in mature European markets with strong performance in emerging regions. The stock closed at $11.97 on October 31, 2025, reflecting a 0.67% increase from the previous day, with a slight aftermarket dip of 0.42% to $11.92.

Quarterly Performance Highlights

Vodafone reported encouraging progress across its operations, with Group adjusted EBITDAAL (earnings before interest, taxes, depreciation, amortization, and lease costs) growing by 4.9% year-over-year to €2.7 billion in Q1 FY26, representing a margin of 29.7% - a 0.4 percentage point improvement from the previous year.

As shown in the following financial highlights slide, the company has maintained consistent service revenue growth over the past five quarters, while showing improvement in its European operations when excluding the impact of MDU (multi-dwelling units):

The company’s performance varied significantly across regions, with strong growth in emerging markets offsetting challenges in Europe:

• Group service revenue growth: +5.5%
• Europe service revenue: -1.3%
• Germany service revenue: -3.2% (-0.3% excluding MDU impact)
• UK service revenue: +0.9%
• Other Europe service revenue: +0.2%
• Türkiye service revenue: +63.8%
• Africa service revenue: Strong performance across regions

Regional Performance Analysis

Germany, which represents 34% of Vodafone’s group service revenue, showed service revenue decline of 3.2% in Q1 FY26, though this marked an improvement from previous quarters. The company cited higher wholesale revenue and business digital services project phasing as factors contributing to the quarterly improvement.

The following slide details Germany’s performance metrics and operational improvements:

In the UK, Vodafone completed its merger with Three, consolidating financial results from June 1, 2025. The UK market, representing 21% of group service revenue, delivered 0.9% growth in Q1, with good performance in Consumer and Wholesale segments partially offset by Business decline.

The company highlighted its integration strategy for the newly formed Vodafone Three entity:

Türkiye delivered exceptional service revenue growth of 63.8%, although this represents a moderation from previous quarters as inflation in the country stabilizes. Meanwhile, Vodafone’s African operations showed strong momentum, with South Africa growing 2.9%, Egypt 43.9%, and Vodacom Internationals 12.6%.

The following slide illustrates the performance across African markets:

Strategic Initiatives

Vodafone Business, a key strategic focus area, delivered 4.0% service revenue growth in Q1 FY26. Digital services now contribute 24% to Business service revenue, growing at 14.7% year-over-year. The company’s IoT connections reached 215 million, representing 15.0% growth compared to the previous year.

As shown in the Business performance slide:

The company highlighted several strategic initiatives across its markets:

1. In Germany, Vodafone is enhancing brand awareness through Borussia Dortmund football team sponsorship and continuing organizational transformation with progress in FTE efficiencies.

2. In the UK, the newly formed Vodafone Three is implementing spectrum sharing to improve 4G speeds by up to 40% for Three UK customers, with a network sharing program allowing 28.8 million customers to seamlessly use both networks.

3. In Africa, Vodafone launched 5G services in Egypt in June 2025 and saw strong growth in financial services, with Vodafone Cash revenue in Egypt increasing 55.1% year-over-year.

Forward-Looking Statements

Vodafone reiterated its financial guidance for FY26, including the impact of the UK merger. The company expects adjusted EBITDAAL to reach €11.3-11.6 billion and adjusted free cash flow of €2.4-2.6 billion.

The detailed guidance breakdown is presented in the following slide:

The company expects Germany to deliver service revenue improvements throughout the year, while maintaining its capital intensity broadly at current levels market by market. Vodafone also anticipates its leverage ratio to remain in the lower half of the 2.25-2.75x range.

For Europe specifically, Vodafone projects adjusted EBITDAAL in the range of €7.5-7.7 billion for FY26, including the impact of the UK merger. The merger is expected to contribute €0.3 billion to EBITDAAL in FY26, though capital expenditure will be higher than the two businesses combined due to accelerated network deployment.

While the company maintains an optimistic outlook, it acknowledges ongoing challenges in the German fixed broadband market and competitive pressures in markets like Portugal. Nevertheless, Vodafone’s strong performance in emerging markets and growing digital services business provide counterbalance to these headwinds as the company continues its strategic transformation.

Full presentation:

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