Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Thursday, May 13, 2021

Telefónica's net profit rose 118.3% in first quarter due to lower costs and a lesser impact of Covid-19

It reached € 886 million, also in response to a stable operating cash flow and to the evolution of exchange rates compared to those recorded by the end of 2020. Revenues fell 9% year-on-year. Hispam contributes 19% of the group's sales, and Brazil, 16%.

Telefónica presented its financial results for the January-March period, which show an increase of 118.3%, to € 886 million. The increase is based on the efficiency of the management -reduction of costs of 9% and stability of the operating cash flow-, although it also shows a lower impact of the pandemic and the evolution of exchange rates. Regarding revenues, they were down 9% year-on-year, to € 10.340 billion.

If revenues breakdown is observed, the four main markets defined by Telefónica -Spain, Germany, United Kingdom and Brazil- concentrate 78% (Spain provides 29% of the company's sales, Germany, 18%, United Kingdom, 15% and Brazil, 16%). Meanwhile, Hispam contributes 19%. 

Among the pillars of Telefónica's strategic plan, the case of Telefónica Tech, which had an increase in revenue of 25.1%, to € 166 million, stood out. As for process digitalization, it already represents 79%, and digital sales grew by 37% in the four key markets (they already represent 35% of the total). "Until March, about 30 million customers, 12% more, have chosen to use digital channels throughout the Group", as stated by the report. 

The deployment of Movistar Argentina's Open RAN in Puerto Madryn is one of the milestones of the quarter. “Following the pilot tests carried out in Brazil, Argentina, Germany and the United Kingdom, the extended validation of the new Open RAN architecture in field deployments will take place in the four key markets from 2021 to the first half of 2022, with the objective of reaching in 2025 a 50% of the growth of the radio network”, anticipates the operator. 

Between January and March, Hispam's revenues amounted to € 1.939 billion, a decrease of 0.2% year-on-year. This implies a sequential improvement (they had decreased by 2.5% in the fourth quarter of 2020), thanks to the performance of all markets -especially Chile and Peru- and with the exception of Mexico (it was affected by the reduction in interconnection rates). 

Service revenues fell 2.7%, despite Colombia's notable growth (7.3%). Hispam's OIBDA was € 396 million (-21%) and investment, € 350 million (+7.4%).

Regarding Hispam's performance in particular, the company highlighted improvements in the operating model, which is reflected in a 2.6 percentage point expansion of the OIBDA-CapEx margin (organic year-on-year). Among the outstanding facts to take into account for the rest of the year, FiberCo of Chile will be operational during the second semester. As part of this morning's presentation, Laura Abasolo, CFCDO and Head of Telefónica Hispam, stated that the focus is on “reducing exposure without jeopardizing growth”. 

As an example of this, details of the net additions were provided in the mobile postpaid segment (611,000) and in FTTH (225,000). Net agreement additions rose 54% in the first quarter, compared to the previous quarter; and those of FTTH tripled in the year-on-year comparison. In total 10.4 million installations passed with FTTH were reached. 

Among the “light asset model” actions, co-investment agreements such as InfraCo in Chile and Mexican case were highlighted, where 35% of the traffic is already on the AT&T network. 

Telefónica Hispam closed March with 92.9 million mobile accesses (+1.3%), 7.6 million fixed telephony customers (-9.4%), 5.55 million broadband accesses (+2.3%) and 2.86 million Pay TV accesses (-2.7%).

Debt. Telefónica's net debt decreased by 6.4% to € 35.8 billion, but once the merger of O2 and Virgin Media in the UK, and Telxius tower transaction are completed, the shrinkage in the second quarter will be € 9 billion, with capital gains of more than € 6 billion. With this, the company's debt will be reduced to half of that existing five years ago.

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