Vodafone Reports Robust H1 FY26 Performance, Raises Guidance and Introduces Progressive Dividend

Vodafone H1 FY26: growth returns, guidance raised and a new dividend trajectory

Vodafone has posted a solid first half and, crucially, lifted its outlook to the upper end of guidance for both profit and cash flow. Revenue stepped up, service revenue accelerated in Q2, Germany finally turned the corner and the UK’s Three merger is off to a fast start. Management has followed through with a new progressive dividend policy – expecting a 2.5% uplift for FY26 – and a fresh €500 million buyback tranche begins today.

Key numbers that matter

Metric (H1 FY26)	Result	YoY
Total revenue	€19.6 billion	+7.3%
Service revenue	€16.3 billion	+8.1% reported, +5.7% organic
Adjusted EBITDAaL	€5.7 billion	+5.9% reported, +6.8% organic
Operating profit	€2.2 billion	-9.2%
Basic EPS (continuing)	3.38 eurocents	3.92c in H1 FY25
Adjusted EPS	6.92 eurocents	4.84c in H1 FY25
Adjusted free cash flow	(€583 million) outflow	improved from (€950 million)
Net debt	€25.9 billion	€22.4 billion at year-end FY25
FY26 guidance	Adjusted EBITDAaL €11.3–11.6 billion; Adjusted FCF €2.4–2.6 billion	Now expecting upper end
Interim dividend	2.25 eurocents per share	unchanged

Quick jargon check: service revenue is the recurring income from telecom services (not device sales). “Organic” strips out currency and M&A effects. Adjusted EBITDAaL is EBITDA after leases – Vodafone’s preferred operational profit metric.

Why guidance is moving up

I see three drivers behind the upgrade: a cleaner picture in Germany, post-merger momentum in the UK, and broad-based growth in Africa and Türkiye. In Q2, Germany’s service revenue ticked back to growth at +0.5% as the impact of the TV law change faded and wholesale mobile revenue picked up. The UK posted +1.2% organic growth in Q2 and is already executing on network integration with Three. Africa kept up double-digit organic growth at 13.5% in Q2, and Türkiye delivered very strong organic gains (48.4% in Q2) despite hyperinflation accounting noise.

A progressive dividend returns to the agenda

Management is committing to a progressive dividend policy, expecting a 2.5% increase for FY26. The interim dividend is held at 2.25 eurocents and, from here, the interim will be set at 50% of the prior full-year dividend. Alongside this, €3.0 billion of buybacks have already been completed since May 2024, €1.0 billion remains, and a new €500 million tranche starts today.

My take: a credible signal. You don’t introduce a progressive policy unless you believe the cash flow trajectory is durable. The FY26 adjusted free cash flow guide of €2.4–2.6 billion (upper end expected) backs that up.

Where the growth came from

Germany: back to the black in Q2

• Q2 service revenue +0.5% after heavy headwinds from the Multi-Dwelling Unit TV law change rolled off.
• Mobile benefiting from wholesale as 1&1 migrations ramp – 10.5 million customers migrated by Q2; full run-rate revenue expected in Q4 FY26.
• Still investment-heavy: H1 Adjusted EBITDAaL declined 4.3% with margin at 36.5% as prior-year commercial spend and the MDU transition weighed.

Opinion: the inflection matters. Germany is 33% of Group service revenue; stabilising here is pivotal for the re-rating case.

UK: fast start for VodafoneThree

• Total revenue +27.9% on consolidation of Three; organic service revenue +1.1% in H1 (+1.2% in Q2).
• Network integration is moving quickly: spectrum sharing improved 4G speeds for 7 million Three/SMARTY users within two weeks; over 5,000 sites upgraded; 16,500km² of coverage “not spots” to be removed by year-end.
• Adjusted EBITDAaL up 25.0% reported and 5.4% organic; broadband margins improving.

Opinion: early proof that the integration thesis – better coverage, faster speeds, and cost synergies – is tangible. Watch the Business segment, where organic service revenue fell 2.3% as legacy contracts roll off.

Africa and Türkiye: the growth engines

• Africa service revenue +7.9% reported, +13.7% organic; Adjusted EBITDAaL +17.0% organic with margin up to 34.1%.
• Egypt is standout: 42.5% organic service revenue growth; Vodafone Cash now 7.9% of Egypt service revenue with 12.7 million active users.
• Türkiye service revenue +55.6% organic, with Adjusted EBITDAaL +58.0% organic; 100 MHz of 5G spectrum acquired for US$627 million to support 2026 launch.

Opinion: these regions are doing the heavy lifting on growth and margin expansion. Currency will continue to buffet the reported numbers, but the organic trend is strong.

Costs, cash and the balance sheet

• Operating profit fell 9.2% to €2.2 billion, mainly due to higher depreciation and amortisation after bringing Three UK on balance sheet and lower other income.
• Adjusted free cash flow was an outflow of €583 million, a notable improvement on last year’s €950 million outflow, thanks to higher EBITDAaL and lower capex, partly offset by working capital and tax.
• Net debt rose to €25.9 billion, driven by free cash outflow, €1.7 billion additional debt from the VodafoneThree merger, €0.6 billion dividends and €1.0 billion buybacks.
• Liquidity looks comfortable: €10.9 billion in cash and short-term investments and €7.5 billion of undrawn revolving credit facilities.

Opinion: the balance sheet is fine at this stage of the cycle, but the path to positive free cash flow through H2 and FY26 is key for the dividend trajectory and buyback capacity.

Customer experience and AI: small line item, big lever

Vodafone’s “Ask Once” service initiative is live in three markets and Net Promoter Score leadership is claimed in 11. SuperTobi, the AI assistant, is now live across Europe with a 70% end-to-end resolution rate. These initiatives don’t show up as line items, but they reduce churn and service costs – useful tailwinds as pricing becomes more rational across markets.

What I’m watching next

• Germany margins as wholesale revenues ramp and the TV law headwind fades.
• Real-world network and cost synergies in the UK as more than 5,000 sites upgraded becomes tens of thousands.
• Business segment growth across Europe – digital services are growing, but legacy connectivity remains soft.
• Cash conversion in H2 to underpin that progressive dividend and remaining buybacks.

Risks to keep in mind

• Regulatory and competitive pressure, notably in Portugal and Germany.
• Execution risk on the UK merger integration and planned network investments.
• Macro and FX volatility, particularly in Africa and Türkiye; hyperinflation accounting will continue to distort reported figures.
• Higher tax burden this half – effective tax rate at 50.2%, with an adjusted rate of 27.4% due to a German corporate tax rate change and Türkiye adjustments.

Investment takeaway

For me, this is a better-quality half from Vodafone. The combination of improving organic growth, a UK integration that is delivering visible network benefits, and a stabilising Germany supports management’s confidence to guide to the top end of the range. The progressive dividend policy is a meaningful marker that cash flow growth is expected to stick.

It’s not all roses – reported EPS is down, net debt is higher, and competition hasn’t disappeared. But the direction of travel is clearer than it has been in years. If Vodafone can convert H2 cash flow as guided and sustain Germany’s recovery, today’s raised outlook and dividend move could be the start of a more rewarding period for shareholders.