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Investing.com -- Fitch Ratings has revised Vodafone Group Plc’s outlook to stable from positive while affirming its Long-Term Issuer Default Rating at ’BBB’.
The outlook change reflects a slower pace of free cash flow improvement than previously forecast, with cash flow from operations less capital expenditure remaining within 5%-7% to FY29, below Fitch’s earlier expectation of 8.5% by FY27.
Despite the outlook revision, Vodafone remains strongly positioned at the ’BBB’ level with a low leverage profile. The company’s strengths include its scale, broad operational footprint across Europe, the Middle East and Africa, solid competitive positions, and strong liquidity supported by a large cash balance at FYE25.
Fitch expects Vodafone’s EBITDA leverage to remain stable at 2.2x-2.3x in FY26-FY28, below the 3.0x positive sensitivity threshold and consistent with Vodafone’s revised target of the lower half of 2.25x-2.75x company-defined EBITDA net leverage.
The rating agency forecasts that free cash flow will be constrained over the next three to four years by sustained network investments and lower EBITDA margins. Capital expenditure, excluding spectrum costs, is expected to remain at about €7 billion in FY26-FY29 due to 5G rollout costs, fixed infrastructure upgrades, and investments in digital platforms and services.
In Germany, Vodafone reported a 3.2% decline in organic revenue in 1QFY26, with Fitch projecting a 1.7% decline for FY26 due to a shrinking customer base, including the impact of the end of bulk TV contracting in multi-dwelling units. However, the agency expects network and customer service investments, along with a long-term national roaming agreement with 1&1, to support gradual improvement in revenues and EBITDA in FY27-FY28.
The merger with Hutchison’s Three in the UK, completed in May 2025, is expected to enhance Vodafone’s performance in the UK market. The combined business will invest £11 billion to deliver a 5G network in the UK, with financial benefits expected to be credit-positive, though they may only be realized several years after the merger.
Fitch projects Vodafone’s EBITDA margin to decline to 28% in FY26 from 29% in FY25, followed by broadly stable margins in FY27-FY29, supported by cost-efficiency initiatives and merger synergies, partly offset by competitive pressures in European markets.
For a potential rating upgrade, Vodafone would need to maintain EBITDA net leverage below 3.0x and achieve cash flow from operations less capital expenditure to debt ratio sustainably trending to 10%-12%, while showing improvement in operating metrics across its main subsidiaries.
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