Newly focused Vodafone sees cash-flow growth but Germany drags

By Paul Sandle

LONDON (Reuters) - Vodafone's strategy of focusing on its strongest markets will start to deliver sustainable cash-flow growth this year, even if it takes longer for a turnaround in Germany to show up in the telecom's profits, its chief executive said on Tuesday.

Margherita Della Valle has reshaped the British group in the last two years by selling operations in Spain and Italy and agreeing a merger in Britain, where it will become the mobile market leader when the deal completes in the coming weeks.

"We are now operating in markets where we have strong positions and the potential to earn good returns," she told reporters.

Vodafone has struggled in Germany, its biggest market, since it was tripped up by a change in the rules on selling cable TV to apartments.

A 5% decline in German service revenue partly offset positive performances in Britain, the rest of Europe, Turkey and Africa, resulting in 2.8% growth for the group.

Adjusted core earnings in Germany fell by nearly 13% - dragging the result for the group down to 10.9 billion euros ($12.3 billion) from 11.0 billion the year before.

After adjusting for hyperinflation in Turkey, core earnings met its 11 billion euro target, the company said.

Della Valle said she expected Germany to return to revenue growth during this year, but there was one more quarter impacted by the TV law change and the market remained competitive.

"We are not yet stable across all of Europe in FY 26 as Germany will need time to return to EBITDA growth," she said, referring to earnings before interest, tax, depreciation and amortisation, or core earnings.

Analysts have applauded Della Valle's actions, which have reduced debt and have sharpened Vodafone's operational performance.

But the market has remained sceptical about the group's prospects and the shares have declined 6% in the last 12 months to lows last seen in 1997.

They traded flat on Tuesday.

It said it expected to report core earnings between 11.0 and 11.3 billion euros this year and adjusted free cash flow of 2.6-2.8 billion euros, up from 2.5 billion euros in 2024.

($1 = 0.8884 euros)

(Reporting by Paul Sandle; editing by Sarah Young and Tomasz Janowski)