Telefonica's profit increases in 2Q14 despite lower reported revenues

31 Jul 2014

Spanish telecoms giant Telefonica recorded a 12.6% year-on-year drop in reported revenues in the quarter ended 30 June 2014, though it said the EUR12.275 billion (USD16.8 billion) generated in the period did reflect organic growth of 1.3%. Reported turnover in all but one of the group’s five business units were down against the corresponding period of 2013, with only its UK subsidiary posting a 4.4% y-o-y increase, to EUR1.700 billion. Meanwhile, in organic terms Telefonica’s Brazilian and Hispanoamerica units also recorded revenue growth in 2Q14, generating EUR2.818 billion and EUR3.630 billion, respectively. Telefonica also noted that the quarter under review was the second in a row of sequential mobile data revenue growth acceleration, which was up 9.2% year-on-year in organic terms.

Operating income before depreciation and amortisation (OIBDA) in the three-month period declined by 0.7% y-o-y in organic terms to EUR4.126 billion, with Telefonica attributing this predominantly to ‘higher commercial investments to capture growth opportunities’. Operating income, meanwhile, totalled EUR2.055 billion in 2Q14 (down 8.7%), though net income for the quarter stood at EUR1.210 billion, representing a 4.9% increase against the same period a year earlier. Capital expenditures in the second quarter of 2014 were EUR1.968 billion, up 25.4% in organic terms.

On the back of the results, Telefonica said it was reiterating its financial targets for the current fiscal year, which will end on 31 December 2014, noting that the first half performance was in line with its internal estimates for revenues, OIBDA margin erosion and CAPEX/sales (+0.1% y-o-y, -0.9 percentage points y-o-y and +13.7%, respectively, in organic terms and excluding Venezuela).

Meanwhile, the number of total accesses reported by Telefonica as at end-June 2014 increased by 2% in organic terms to 315.8 million (excluding Telefonica Czech Republic, which was divested in January 2014). Mobile subscribers represented the bulk of connections, totalling 249.4 million at 30 June 2014, up 3% year-on-year in organic terms, with growth said to have been driven by a 9% rise in post-paid subscribers. Retail fixed broadband accesses climbed by 1% compared to end-June 2013 to reach 17.6 million, while pay TV access growth accelerated to 32% y-o-y, bringing the group’s total to 4.2 million.

Commenting on the results, Telefonica’s executive chairman Cesar Alierta noted: ‘First-half results started to reflect the benefits from the investments in network modernisation carried out in recent quarters, which are enabling us to further differentiate our offering in key markets … In financial terms, the performance in the first six months of the year was in line with our full-year expectations; organic revenue growth trend was similar to the first quarter while OIBDA was stable year-on-year, despite increased commercial investments in high-value customers. This organic revenue and OIBDA performance was again overshadowed in reported terms by the negative impact of exchange rate fluctuations and recent disposals, though the impact of the first factor on cash flow generation was negligible.’

Spain, Telefonica