Telefónica returns to organic growth in Spain

Telefónica hailed a return to both revenue and core earnings growth in Spain in the first quarter of 2016, with the group's new CEO José María Álvarez-Pallete noting that "for the first time in eight years both OIBDA and revenues are growing simultaneously."

The company reported a 0.2 per cent year-on-year increase in Spanish revenue to €3.13 billion ($3.56 billion) in organic terms, although on a reported basis revenue was up by 8.6 per cent. Operating income (referred to as OIBDA) also increased by 2 per cent in organic terms to €1.26 billion, while on a reported basis it was 1.2 per cent lower.

Telefónica noted that this is "a significant change in the trend as revenues and OIBDA had not grown year-on-year simultaneously [in Spain] since the third quarter of 2008."

The Spanish market fell into a deep recession from 2008, although there were some indications that a recovery was underway in 2015. In the earlier years of the downturn, the market's four mobile operators haemorrhaged subscribers as consumers looked for ways to cut costs.

The situation now looks to be improving. Indeed, Telefónica -- which operates under the Movistar brand here -- became the second operator this week to report an improvement in Spain: Orange also returned to growth with a 1.8 per cent rise in revenue. Both companies benefited from moves to raise prices after years of aggressive pricing.

Álvarez-Pallete welcomed the results, saying that "in a context of intense technological disruption and transformation, our first quarter results reflected a strengthening of the business across the board and of the capacity of our platforms which is enabling us to reach more customers with higher value products and services."

Indeed, Álvarez-Pallete noted that OIBDA increased in all business units across the group. Total group OIBDA increased by 5.5 per cent to €3.37 billion on an organic basis, although it fell by 6.7 per cent in reported terms. Group revenue was also 6.6 per cent down in reported terms at €10.78 billion, due primarily to currency effects in Latin American markets. In organic terms, revenue was 3.4 per cent higher.

Álvarez-Pallete added that the results "are in line with our expectations for the year-end and enable us to reiterate our guidance and the dividend of €0.75/share for 2016."

However, the company has many challenges ahead of it, not least the task of reducing its huge debt mountain. Net financial debt stood at €50.2 billion in March 2016 and increased in the quarter by €292 million.

Telefónica still hopes that the sale of O2 UK to CK Hutchison will help reduce its leverage ratio (net debt over OIBDA), which stood at 3.02 times over the last 12 months but would fall to 2.52 times with the O2 sale. However, that deal is looking increasingly doubtful, with the European Commission now widely expected to oppose it.

For more:
- see the Telefónica results

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