Telefónica chairman José María Álvarez-Pallete acknowledged that the Spain-based operator group is "not immune to global uncertainties" amid rising inflation and the fallout of the COVID-19 pandemic.

"Telefónica does not live out of touch [with] reality. The war in Ukraine, an energy crisis that complicates the inflationary scenario and higher financing costs have a direct impact on the lives of companies and individuals, without exception," Álvarez-Pallete said in a statement to accompany Telefónica’s first half and second quarter (Q2) results to the end of June 2022.

However, he hailed the group’s resilience, and its ability to offer "confidence and stability to whatever challenges lie ahead." Indeed, Telefónica has now raised its financial targets for 2022 after producing what it described as "solid results" in the first half of the year.

Figure 1: Spain-based group Telefónica raises financial targets after producing what it described as "solid results" in the first half of the year.
(Source: Reuters/Alamy Stock Photo)

It particularly noted that cumulative net income amounted to €1.026 billion (US$1.04 billion) for the first six months of the year. Although net income exceeded €8.6 billion ($8.7 billion) a year ago, this was boosted by the sale of Telxius towers and the creation of Virgin Media O2 (VM O2) in the UK.

There was a similar impact on operating income before depreciation and amortization (OIBDA). In the full six months, OIBDA fell 62.4% in reported terms to €6.34 billion ($6.4 billion). In Q2 alone, it fell 76.6% to €3.15 billion ($3.2 billion).

In the Q2 period, revenue increased in organic terms by 5.2% to €11.52 billion ($11.66 billion), including 50% of revenue from VM O2. In reported terms, Q2 revenue was also higher, rising 0.8% to €10 billion ($10.13 billion). In the first six months, organic revenue including VM O2 rose by 4.2% to €22.4 billion ($22.69 billion).

Álvarez-Pallete noted that revenue and OIBDA growth accelerated year-on-year in Q2 both in reported and organic terms. "In reported terms, revenue grew annually for the first time since Q3 2019," he added.

In terms of full-year guidance (in organic terms and including VM O2), Telefónica is now expecting to be in the "high-end" of the "low single digit growth" range for revenues and in the "mid-to-high-end" of the "low single digit growth" range in terms of OIBDA.

Key highlights

In terms of key events in the first half of the year, Telefónica highlighted the launch of new mi Movistar service packages, replacing the Fusion bundles, as well as the Solar 360 photovoltaic solar joint venture with Repsol in Spain. Also in Spain, Telefónica recently announced the launch of the Bluevia vehicle for rural fiber-to-the-home (FTTH) deployments.

In Germany, the 5G network has reached 50% population coverage, while in Brazil Vivo has integrated the recently acquired Oi mobile assets. In the UK, the integration of VM O2 was described as "on track" a year after it began.

In Telefónica’s key domestic market of Spain, total mobile customers exceeded 19 million by the end of June, while FTTH customers grew slightly to over 3.1 million. Total premises passed by its FTTH network grew to 27.52 million, with FTTH uptake still at 29%.

As for the UK, Lutz Schüler, CEO of VM O2, noted that the JV had come "out of the gate running and achieved a huge amount in our first year as a joint business." However, he noted that the business still has "much more to do."

Want to know more? Sign up to get our dedicated newsletters direct to your inbox.

VM O2 has confirmed its 2022 guidance of mid-single digit EBITDA growth, improved revenue growth, and investments of £2.1 billion ($2.55 billion)

In Q2, and adjusted for last year’s merger transaction, the JV reported a 0.2% increase in revenue to £2.5 billion ($3.03 billion). EBITDA increased 4.0% to £972 million ($1.18 billion), "representing the best full quarter growth rate since Virgin Media O2 was formed", the operator observed.

In terms of its ongoing network upgrade, the Project Lightning network expansion build increased to 114,000 premises in Q2, up from 101,000 premises added in Q1 2022 and 89,000 premises added in Q2 2021. The cumulative Lightning footprint is now 2.9 million and the company is on-track to add over 500,000 Lightning premises in 2022.

VM O2 noted that the fiber upgrade of the existing network is starting to ramp up following the completion of trials in Q1. The goal is to roll out full fiber across the fixed network at a cost of £100 ($121) per home with completion in 2028.

In terms of mobile networks, the UK operator said the 5G rollout remains on-track to hit 50% population coverage by 2023.

Related posts:

— Anne Morris, contributing editor, special to Light Reading