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Spanish market keeps the brakes on Telefonica's turnaround
May 14, 2015 / 2:26 PM / 3 years ago

Spanish market keeps the brakes on Telefonica's turnaround

MADRID (Reuters) - Spanish telecoms group Telefonica (TEF.MC) posted higher first-quarter sales and core profits on Thursday, despite a disappointing performance in its home market, where a rise in customers has yet to deliver revenue growth.

The company said it has now entered a new phase of growth following a six-year slide in revenue and profit that was caused by the deep economic crisis in Europe and the subsequent restructuring of its business in an effort to reduce its debt.

Having recently bought rivals in Germany and Brazil and agreed the sale of its British unit, Telefonica is now focused on fixing its domestic business, which has shrunk by 40 percent since 2009 and today accounts for just a quarter of revenues.

Telefonica has raised prices on most of its phone, internet and television packages in Spain this year in a move to meet its commitment to return to sales growth in the country this year.

It hopes softer price competition and its heavy investment in high-speed networks and premium TV content will keep existing customers and attract new ones, with the price increases expected to reflect on the financial results from mid-2015 onwards.

“The key issue in Spain is turning back to revenue growth as soon as possible,” said Chief Operating Officer Jose Maria Alvarez-Pallete during a conference call with analysts.

“We need to generate slightly above 3 billion euros per quarter to turn back to revenue growth. We’re not there yet... so we need to improve,” he added.

Alvarez-Pallete also suggested a recent workers’ strike in Spain and regulatory delays to its takeover of Spanish pay-TV firm Canal+ may make it difficult to meet the objective in the second quarter.

In the first quarter Telefonica said total connections or “accesses” to its services in Spain rose 0.8 percent, as new contracts signed for its internet, data and television services offset falling fixed and mobile phones deals.

A reflection of a man talking on his phone is seen outside Telefonica's flagship store in central Madrid, Spain, April 28, 2015. REUTERS/Sergio Perez

But that translated into a 3.8 percent in Spanish sales to 2.88 billion euros ($3.3 billion) and a 8.6 percent fall in operating income before depreciation and amortization (OIBDA) to 1.28 billion euros.


The rest of the group fared better, with sales at its majority-owned German business Telefonica Deutschland (O2Dn.DE) rising 69.4 percent, thanks to the acquisition of E-Plus, and sales up 19.6 percent at its Hispanoamerica division and up 4.8 percent in Brazil.

    This helped total group revenues rise 12.6 percent to 11.54 billion euros and for OIBDA to climb 7.7 percent to 3.62 billion euros. The performance was boosted by a weaker euro and came in above analysts’ expectations.

    Telefonica's share price was down 1.8 percent at 13.06 euros by 1341 GMT (9.41 a.m. EDT), when Spain's blue-chip index Ibex .IBEX was up 0.42 percent and the Stoxx Europe 600 telecoms sector index <0#.SXKP> was down 0.28 percent.

    “Today’s first-quarter results are ahead. However, we believe weaker than hoped for Spanish trends may detract from the headlines,” said JP Morgan analysts in a note to clients.

    Group net profit was up 162 percent at 1.8 billion euros thanks to a one-off boost from a change in the accounting for deferred tax assets due to the agreed sale of O2 UK.

    Telefonica also maintained its full-year forecast of a more than 7 percent rise in revenue, a stabilizing in margins and a reduction in its net debt leverage to below 2.35 times OIBDA, down from 2.73 times at the end of March. Factoring in the O2 UK sale the ratio would have been 2.13, the company said.

    Net financial debt at the end of March stood at 45.63 billion euros, a 540 million-euro increase since December.

    Editing by David Clarke and Greg Mahlich

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