The 0.5% rise in German service revenues in Q2 is small but significant; amid the good news, debt is up and operating profit down by 9.2% as the VodafoneThree merger is absorbed
A return to revenue growth in Germany, Vodafone Group’s largest market, means that the company will raise its dividend for the first time in seven years and will achieve the upper end of its profit and cash flow guidance.
Shares rose more than 8% at the news; Vodafone’s shares are up almost 40% since the start of the calendar year. Adjusted earnings before interest, taxes, depreciation, amortisation and lease expenses is forecast at between €11.3 billion and €11.6 billion.
Total revenue rose 7.3% to €19.6 billion in H1, with service revenue up 8.1%, but operating profit fell 9.2% to €2.2 billion due to issues like higher depreciation and amortisation after the merger with Three UK was finalised earlier this year.
Getting a grip in Germany
It seems Vodafone has finally got a grip in the German market which has been a drag on results since a change in regulation came into force in July 2024. This allowed residents in multi-tenanted dwellings to choose their own broadband and TV service provider rather than being forced to use the one chosen by the landlord.
Vodafone Germany shed about half of its TV customers between July 2024 and March 2025 it added 90,000 new customers in the first half after bundling TV with broadband. Consequently, in Q2, the German opco saw a 0.5% increase in service revenue to €2.74 billion, up from €2.72 billion for the corresponding period last year. It’s small, but a start.
Progress report
Vodafone Group’s CEO, Margherita Della Valle, said, “Following the progress of our transformation, Vodafone has built broad-based momentum. In the second quarter, we saw service revenue accelerating, with good performances in the UK, Türkiye and Africa, and a return to top-line growth in Germany.
“Whilst we have more to do, we delivered good strategic progress in the half year, driving further operational improvements across the business, expanding our customer satisfaction initiatives, and making a fast start in integrating the Vodafone and Three networks in the UK.
The elephant in the room
A blog on The Motley Fool investment website points out the less good news is that Vodafone Group’s net debt at 30 September reached €25.9 billion, up from €22.4 billion at 31 March, in part driven, it seems, by costs accured in the VodafoneThree merger.
True, debt is down from the €31.8 billion recorded at the halfway stage last year, but it still is roughly equivalent to the company’s market cap, calling into question the wisdom of spending so much on share buyback the blog suggests.
Vodafone has bought back €3 billion of its own shares since May 2024 and another €1 billion is in the pipeline. The market seemed fixated on Vodafone’s first increase in dividends in seven years. Della Valle announced, “We are introducing a new progressive dividend policy, with an expected increase of 2.5% for this financial year.”
Even so, Motley Fool author, Alan Oscroft, concludes, “I really am impressed by the way the new CEO has steered the company in the short time she’s held the wheel”.
