Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Thursday, May 12, 2022

Telefónica records revenue growth thanks to its operations in Brazil and the region

It added €10.883 billion in the first quarter. The American operations were the ones that rose the most and represented more than 37% of the turnover. The profit was €706 million. Strong increase, of 20%, in the FTTH customer base and in contracts for mobile accesses, of 4.3%. Telefónica Tech generated almost €300 million in the quarter.

Telefónica's revenues grew by 3.2% in the first quarter of 2022 compared to the same period of 2021, driven by the increase in billing in all the markets in which it operates, together with the greater efficiencies achieved thanks to the new operating model and the favorable behavior of the exchange rates, informed the company.

First quarter revenues reached €10.883 billion, including 50% from the joint venture created in the UK, VirginMediaO2 (VMO2). The company recorded double-digit increases in Brazil (18.1%) and Hispam (10.9%), while they were lower in Europe: 5.2% in Germany, 4.3% for VMO2, and 0, 9% in Spain.

These numbers contrast with the results of a year ago, when operations in Brazil showed a collapse of 25.7% and those of the Hispam region showed a drop of 12%, in both cases compared to the first quarter of 2020. These strong changes in billing led to revenues from these two units representing 37.6% of Telefónica's total revenues in the quarter, three percentage points above their level recorded a year ago.

As important as this growth is that both in Brazil and in Hispam the growth was due to the same causes as in the rest of the group: greater deployment of broadband and digital services.

José María Álvarez-Pallete, president of Telefónica, said in a statement: “The solid start of the year carried out by Telefónica in a scenario of inflationary tensions and geopolitical instability shows the strength of the company to face the most adverse situations. Once again, it is confirmed that the Group's strategic plan is correct and represents a valid and robust roadmap to be able to continue providing the best service to our customers”.

As highlights of the quarter, Telefónica referred to the closing of the acquisition of Oi's mobile assets in Brazil, which will generate synergies of around €1 billion; the 15% reduction in the cost of broadcasting rights for LaLiga de España; the improvement of the network in Germany; advances in the deployment of fiber in Spain and the United Kingdom; and the purchase of Incremental by Telefónica Tech.

Profits. Telefónica reported profits of €706 million between January and March of this year, with a drop of 20% compared to this same period in 2021.

Operating profit before amortization (OIBDA) increased by 2.1% to €3.753 billion, including 50% of VMO2.

The group assured that “For the first time in recent years, the favorable evolution of exchange rates has had a positive effect on both revenues and OIBDA in the same quarter, with a contribution of €242 million in sales and €95 million in operating income before amortization”. This is the result of a temporary rise in local currencies, including the euro, against the dollar, a trend that will reverse from the second quarter of this year with the rise in interest rates in the US and the context of high global inflation.

According to the report, the growth of both revenues and OIBDA "is on the path to meeting the financial objectives set by the company for the year as a whole, consisting of achieving low single-digit growth in both sections organically". The same is true for the CapEx to sales ratio, which stood at 12% against an annual target of 15%.

Operating data. Grupo Telefónica access base reached 368.3 million at the end of March, 1.1% more than a year earlier. Fiber (FTTH) customers grew 20% to 12,697,900 for a total of 22.5 million ultrabroadband (UBB) subscriptions.

The company continued to focus on the deployment of fiber and the development of sustainable, open and virtualized technologies. At the end of March, real estate units passed with fiber grew by 6%, to a total of 162.9 million homes passed, of which nearly 85 million do so through Telefónica's own network.

In mobile accesses, the group registered a rise of 2.1% year-on-year, with falls of 3.7% in prepaid and rises of 4.3% in postpaid or by contract. The firm also increased the number of clients of its IoT business by 20.6%, with 32 million contacts. And following the pace of other pay TV operators, it lost 4.3% of subscriptions in the first quarter of the year compared to what it had in the same period of 2021.

As regards 5G technology, at the end of the quarter Telefónica already offered coverage in more than 400 British towns, around 250 German cities and 21 Brazilian cities, while in Spain it covered approximately 82% of the population. In this sense, it continues with the implementation of 5G SA technology after the acquisition of spectrum in Spain, the United Kingdom and Brazil in 2021.

Telefónica Tech occupies more and more space in the group's income. Its revenues increased by 80.6% compared to the same period of the previous year, to €299 million, thanks to the good performance of all areas and the integration of operations throughout 2021.

In relation to Telefonica Infra, the company advanced in the quarter in the process of creating fiber vehicles in Spain and the United Kingdom, holding talks with potential investors, and closed the alliance with Pontegadea in Telxius, after the sale of KKR's stake.

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