Vodafone (VOD) Q2 2027 earnings review
Vodafone raises its profit targets, but Germany keeps losing customers
Vodafone's African and British businesses are pulling the group forward while Germany, its biggest market, slips backwards. Underlying service revenue grew 5.8% in the half, and chief executive Margherita Della Valle lifted her targets for both profit and cash. Accounting charges in Germany and Britain turned the six months into a loss of €3.6 billion.
| Service revenue, excluding takeovers and currency | +5.8% +5.4% last financial year |
|---|---|
| Operating profit after leases, excluding one-offs | €6.5 billion +6.4% on the same underlying basis |
| Result for the half | −€3.6 billion profit of €1.1 billion a year ago |
| Full-year outlook | Raised €150 million middle of the range: 7% profit growth |
⚖️ Verdict: 🟢 Bullish
The story got better, because Vodafone raised both its profit and its cash targets only months after it last moved them, and Britain returned to growth. One caution: Germany's underlying profit fell again and net debt reached €33.5 billion, so the promise to hold borrowings in the lower half of the target range rests on the winter half.
The question now is whether Germany stops shrinking or holds the whole group back. One side says price rises, business software and 2,300 fewer German roles will lift profit there; the other says television losses and mobile competition keep it falling. Germany's next quarterly service revenue will show which.
🐂 Bull Case
Vodafone Lifts Both Profit and Cash Targets
Vodafone plans its year in two numbers: Adjusted EBITDAaL, its measure of operating profit after lease costs and before one-off items, and Adjusted free cash flow, the cash left once it has run and built its networks. It set both in July, when the Kenyan operator Safaricom entered the accounts.
Chief executive Margherita Della Valle moved both ranges up with these results, saying: "We have made a strong start to Vodafone’s new growth chapter". The middle of each range gained €150 million by our math, so the year now carries underlying profit growth of 7%.
- Profit outlook: €13.2–13.4 billion, from €13.0–13.3 billion in July
- Cash outlook: €2.8–3.0 billion, from €2.6–2.9 billion
- Underlying growth the new ranges carry: 7% in profit, 21% in cash
- Half-year profit on this measure: €6.5 billion, 6.4% higher excluding takeovers and currency
The rise counts because this is year one of the multi-year cash ambition Della Valle set in May. But the comparison flatters it: that 21% runs from a rebased starting point, not from the €2.6 billion the group reported last year.
What to watch: the cash figure in May. These six months brought an outflow of €0.4 billion, so the middle of the range needs roughly €3.3 billion over the winter, by our math. Missing it would cost the new ambition its first year.
Britain Grows Again as Savings Arrive
VodafoneThree is the British business Vodafone created by merging with Three in 2025 and bought outright in July for £4.3 billion. A year ago its sales were shrinking, and Vodafone blamed lost managed-service contracts sold to business customers.
Growth has returned in each of the last two quarters, and the merger savings have started to land. The group has already banked over €50 million of cost savings, worth about one percentage point of British revenue by our math, and in October Della Valle announced "an upgrade of our synergy target to £0.8 billion annual savings by FY30".
- Underlying service revenue: up 1.2% in the second quarter, after 0.6% in the first
- Operating profit after leases: €984 million, 5.9% higher excluding currency and takeovers
- Margin on that measure: 20.3%, 1.2 points better on the same underlying basis
- Customers: 76,000 more broadband homes in the half; 62,000 fewer mobile contracts
Savings matter more here than the sales line, because they fall straight into profit while British prices stay competitive. Two quarters of growth plus a bigger savings target is what turns a standing worry into a driver, and it is why Europe's profit range still holds despite Germany.
What to watch: British service revenue in the third quarter, against last year's recovering business revenue. A third quarter of growth would confirm the turn; a fall would leave the savings carrying the market alone.
Africa Speeds Up and Pays More In
Africa means Vodacom: South Africa, Egypt, Tanzania, Mozambique, the Democratic Republic of Congo, Lesotho and now Kenya, where Safaricom joined the accounts on 1 July. Alongside mobile service these markets sell mobile money, the phone-based accounts millions of customers use instead of a bank.
Growth quickened rather than faded. The release says "Organic service revenue accelerated to 13.4%" for the half, with 14.0% in the second quarter, and Vodacom gained 7.6 million customers. In Kenya, "M-Pesa revenue increased 13.7% driven by growth in transaction volume".
- Operating profit after leases: €2,058 million, 18.0% higher excluding takeovers and currency
- Margin on that measure: 37.9%, 1.6 points better on the same underlying basis
- Mobile money in Vodacom's international markets: revenue up 23.4%, now 31.3% of their service revenue
- Vodafone Cash in Egypt: revenue up 74.3%, 10.1% of Egyptian service revenue
That mix is why the region now earns about a third of group profit on this measure. Financial services ride on networks the company has already built, so each extra payment fee arrives with little extra cost, which is what lifted the African margin.
What to watch: Vodacom's next quarterly update and the Kenyan appeal, because Safaricom supplies much of the region's new profit. Growth holding in the mid-teens would make the raised cash target comfortable.
Business Customers Buy More Software
Vodafone Business sells connections, internet-of-things SIM cards for machines, and increasingly software: cloud storage, cyber security and sovereign services, meaning data kept inside the customer's own country. The unit is about a quarter of group service revenue.
Its revenue grew 5.8% in the half and the company reported that "in Q2 we delivered our best-ever growth of 6.6%", which Della Valle called "our best-ever growth in Vodafone Business, with a record performance in digital services". Vodafone credited "double-digit growth in digital services in Europe, as well as an improvement in core connectivity".
New products sit behind that. With Google the group launched "AI concierge, a customer engagement and productivity solution for small businesses", and it is now the "telecom partner for AWS’ sovereign cloud solution in Germany". Greek public-sector projects lifted Other Europe business revenue 9.9% in the quarter, but the European fund paying for them closed in September.
What to watch: business revenue growth in the third quarter. Greek project work flattered these three months and its funding has ended, so another reading near 6% would show the software demand reaches beyond one country.
🐻 Bear Case
Germany Earns Less and Keeps Losing Customers
Germany is Vodafone's largest market, close to 30% of group service revenue, and it sells mobile service, cable broadband and television there. Della Valle was blunt about it: "Germany is not yet where it needs to be".
The release still titles the market "Stable service revenue despite mobile pressure and TV decline", yet underlying service revenue fell 0.5% in the second quarter after rising 1.2% in the first. Operating profit after leases dropped 3.2% on that underlying basis, and the margin lost 1.3 points.
- Legal costs: a provision over historical broadband price rises cost about 2 points of German profit growth, roughly 0.7 points of German revenue by our math
- Broadband: 198,000 customers left in the half, including 119,000 on the gigabit network
- Television: 115,000 customers left; mobile contracts: 75,000 fewer
- Mobile service revenue: down 1.9% in the second quarter on an underlying basis
Management named "a legal provision related to historical broadband price increases" and higher variable costs from business software, with other costs flat. There is more to come: Vodafone has stopped booking "the historical €5 per month price increases for the 2.5 million broadband customers still on legacy contracts", and blames "the ongoing TV decline and continued mobile ARPU pressure" for the rest.
What to watch: German service revenue in the third quarter, and the Düsseldorf court decision due on 26 November. A second quarter of decline would leave the group's growth resting on Africa and Britain, with a plan "which is structurally simplifying our German operations and improving customer satisfaction across all of our services" still unproven.
A Kenyan Court Nullified the Safaricom Deal
Vodacom paid about €1.4 billion to the Kenyan government for a further 15% of Safaricom, the operator behind M-Pesa mobile money. That lifted the group holding to 55%, so Vodafone consolidates Safaricom from 1 July and reports its revenue as its own.
In September the High Court in Nairobi struck the purchase down, and the judgement "nullified the sale and the related dividend rights". A month later "the Court of Appeal in Nairobi ordered that the prevailing status quo be maintained", so Vodafone Kenya still holds the shares, the government still holds the money, and the accounts stay as they are.
This matters because the consolidation is what added €1.1 billion to this year's profit plan in July. Safaricom brought in €826 million of revenue and €139 million of profit in three months, and Vodafone says it will reassess the accounting if the appeal fails.
What to watch: the appeal date, which the company expects before the end of December. A ruling against Vodacom would put the consolidation, the purchase money and part of this year's profit arithmetic back in question.
Net Debt Reaches €33.5 Billion
Vodafone aims to keep net debt — borrowings less cash and liquid investments — in the lower half of 2.25 to 2.75 times its yearly operating profit after leases. Della Valle said last year that the group would be back inside that lower half by March.
Borrowings instead climbed €8.1 billion in six months. The group paid €5.0 billion to buy CK Hutchison out of VodafoneThree and €1.4 billion for the Safaricom shares, while operations did not cover the investment and the dividend.
- Net debt: €33.5 billion, from €25.4 billion in March
- Leverage: about 2.5 times the middle of this year's profit outlook, by our math
- Share buybacks: €92 million in the half, against €973 million a year earlier
- Cash and short-term investments: €8.4 billion, from €12.4 billion in March
So the cash target and the debt promise now compete for the same money. Buying back shares has all but stopped while the dividend rose 2.5%, which shows the order of priority. Rating agencies also count half of €7.6 billion of hybrid bonds as equity, which keeps the ratio lower than the cash figures alone suggest.
What to watch: net debt at the March year-end against that range. Getting into the lower half needs the winter cash the company has promised and no further large payments out.
Risks this quarter didn't answer
Four standing worries got no new numbers in this half-year statement, which carries no quarterly detail on them and arrived without a presentation or transcript in our materials. Each has a disclosure that would settle it.
- 1&1 wholesale in Germany: the company blames last year's higher wholesale revenue for the quarterly slowdown but puts no figure on it; the annual report's wholesale detail would size the dependence.
- Central costs: Common Functions lost €33 million on the profit measure against €14 million a year ago, with no full-year figure offered.
- Buybacks: after the €4 billion programme ended, only €92 million of shares were bought and no new commitment appears; the next capital allocation statement would show the intent.
- Currency: the outlook assumes fixed rates for sterling, the rand, the lira, the Egyptian pound and the shilling, so African and Turkish earnings translate at set levels; the March results will show the real rate effect.
What to watch: the March results and the annual report, where the wholesale split, the central cost line and the capital allocation decision all become readable. Silence on all four for another half-year would make the raised targets harder to check.
👓 Other Themes
A €4.9 Billion Writedown and a Tax Charge
Vodafone wrote €4.85 billion off German goodwill after government bond yields rose and it cut the plan used for the test, and it dropped €2.2 billion of British tax assets after the VodafoneThree buyout. A €3.0 billion Safaricom gain offset part of that. Vodafone says of the tax entries: "These are accounting adjustments with no current cash tax impact". The half still ended in a €3.6 billion loss.
💲 Other KPIs
Türkiye quickened to 35.2% in the quarter from 30.2% in the first, measured without currency and inflation accounting. Seen over a year the tailwind is thinning: the half came in at 32.8% against 55.6% a year earlier. In euros, service revenue rose 14.8%.
Spending on networks and software rose 18.6%, faster than sales, reaching 15.2% of revenue against 14.3% a year ago. Britain's network programme peaks this year, while African additions climbed to €703 million from €456 million. Capital intensity of about 18% remains the medium-term aim.
Vodafone's main profit measure took 29.5% of revenue in the half, 0.5 points better excluding takeovers and currency. The quarterly reading of 30.4% is the strongest of the last six quarters, lifted by Africa's richer mix and by early cost savings. Europe is where the ratio still lags.
🔮 Guidance
Raised. Vodafone's operating profit measure after lease costs now carries underlying growth near 7% for the year, against 6.4% delivered in the half. By our math that leaves about 7.6% for the winter half, helped by six months of Safaricom instead of three. Second move since May, after July's €1.1 billion step for the Kenyan consolidation.
Raised. The middle of the range gained €150 million and the year now carries underlying cash growth of 21%. Against last year's reported €2.6 billion the step is nearer 11%, because the starting point is rebased for currency and the Dutch disposal. By our math the winter half must bring about €3.3 billion after a €0.4 billion outflow.
Unchanged. Europe's range has not moved since May, even though the group range rose twice. That shows where the extra profit came from: Africa and Türkiye. Inside Europe, British savings are covering a German decline, so the band is wide enough to absorb either market disappointing.
Unchanged. These costs still peak at roughly €0.7 billion this year, of which about €0.4 billion goes on integrating the British merger. The German plan announced on 9 November, with "around 2,300 role reductions over the next two financial years", fits inside that figure, and Vodafone books the provision in the winter half.
Raised. In October Vodafone lifted the British target with "an upgrade of our synergy target to £0.8 billion annual savings by FY30" and added £1 billion a year by FY32. It credits network rationalisation and owning all of VodafoneThree. Delivery so far is small against the promise, so most of it still lies ahead.
❓ Key Questions
How much German revenue do the dropped price rises cost?
Vodafone stopped booking the €5 monthly increases for 2.5 million legacy broadband customers and faces an injunction decision on 26 November. Investors need the annual revenue effect and the size of any repayment.
What happens to Safaricom if the appeal fails?
The Kenyan High Court nullified the 15% purchase. Vodafone says it would reassess its accounting, without saying how. The answer decides whether this year's profit plan survives intact.
When does net debt return to the lower half of the range?
Leverage sits near 2.5 times the middle of the profit outlook by our math. Management promised the lower half by March, so the path and any asset sales behind it matter.
How far will German profit fall this year?
Management confirmed a decline a year ago and has still given no size. The half brought a 3.2% underlying fall including legal costs, so the full-year figure would frame Europe's range.
What does the new fibre partner cost Vodafone?
Itaparica will fund up to €2,250 million in the OXG fibre venture with a guaranteed minimum return, and Vodafone booked a €58 million liability. The eventual cash obligation is unquantified.