Telefónica's Alierta bullish despite drop in H1 net profit

Telefónica saw its first half net income fall 7.5 per cent year-on-year, but showed signs of improvement in the second quarter with a 4.9 per cent increase compared to the same quarter in 2013.

The operator generated a profit of €1.2 billion ($1.6 billion) in the second quarter despite an 11.8 per cent year-on-year fall in revenue. Revenues in the first half fell 12.6 per cent, resulting in a drop in net income from €2 billion in 2013 to €1.9 billion in the recent period.

Telefónica's European operations continued to weigh down the company's earnings in the opening months of 2014.

In Spain, operating income before depreciation and amortisation (OIBDA) fell 12.3 per cent year-on-year in the first half and 16 per cent in the second quarter, as revenues fell by 8.6 per cent and 9.1 per cent respectively.

Telefónica Deutschland--which recently gained European Union approval for an €8.6 billion acquisition of rival E-Plus--recorded a 14.6 per cent drop in OIBDA in the first half and a 14.5 per cent decline in the second quarter. Revenues declined 6.6 per cent in the first half and 4.4 per cent in the second quarter. Telefónica said the E-Plus deal is on track to complete in the third quarter.

The company's UK operation registered a 4.4 per cent annual decline in OIBDA in the second quarter. However, the division increased the figure 8.6 per cent in the first half of 2014.

Telefónica has become increasingly reliant on its Latin American operations for growth as its European businesses wane. That growth engine, however, stalled in the opening months of 2014.

Telefónica Brasil reported a 16.3 per cent drop in OIBDA in the first half of the year, and an 11.1 per cent decline in the second quarter. The company's Hispano America business--which covers Argentina, Peru, Chile, and Colombia--saw OIBDA decline 11.9 per cent year-on-year in the first six months, and 9.7 per cent in the second quarter.

Despite the mixed bag of earnings, executive chairman César Alierta said Telefónica is beginning to turn a corner. "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," he said.

The company noted that exchange rate variations deducted 10.9 percentage points from its annual OIBDA and revenue figures. A sale of its business in the Czech Republic also impacted earnings, resulting in a 3.1 percentage point drop in revenue and a 3.7 percentage point reduction in OIBDA.

For more:
- see Telefonica's results announcement [PDF]
- see the operator's financial charts [PDF]

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