Telefónica Q1 shows signs of improvement

Spanish giant claims full-year 'stabilization' target on track as COVID-19 impact diminishes; continues to chip away at huge debt pile.

Ken Wieland, contributing editor

May 13, 2021

2 Min Read
Telefónica Q1 shows signs of improvement

Telefónica posted a fairly encouraging set of Q1 figures, enabling the Spanish giant to confirm it was "fully in line" to meet its full-year targets.

Those targets may not sound too exciting – "stabilization" year-on-year in revenue and operating income before depreciation and amortization (OIBDA) on an organic basis – but will no doubt be welcomed by shareholders wanting some reassurance that the ship is being steadied after a long period of market-value decline, which started long before COVID-19.

On the two financial metrics flagged by Telefónica, both improved steadily for the third consecutive quarter. Q1 organic revenue dipped 1.4% year-on-year, to €10.34 billion (US$12.5 billion), while organic OIBDA slipped by 0.3% over the same period, to €3.42 billion/$4.13 billion (in line with analysts' expectations).

Earnings per share reached €0.15 in Q1, up from €0.06 in the same quarter last year.

With what appeared to be a bit more bounce in its step, Telefónica added it was also on track to get capex (excluding spectrum) as a proportion of sales back up to a "normalized level" of 15%. It was 13% during Q1.

The bad, the good...

On a reported basis, revenues and OIBDA declined 9% and 9.1% respectively. Telefónica pinned some of the blame here on unfavorable exchange rate trends and the pandemic, although the impact of COVID-19 was apparently "diminished" in Q1.

That, along with the benefit of "streamlining" regional operations in Latin America, helped explain a 118% Q1 jump in net income, to €886 million ($763 million).

Another positive was the performance of Telefónica Tech, which clocked up a 25.1% increase in turnover, year-on-year, to €166 million ($1.07 billion).

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

Tech comprises two units: Cyber & Cloud Tech; and IoT & Big Data Tech. It is the former, however, which seems to have been the main source of growth during Q1. Telefónica flagged the increasing importance of cybersecurity and cloud as digitalization becomes critical for "businesses of all sizes." The corporate segment in Spain was given special mention, which, according to Telefónica, delivered an "excellent performance."

COVID-19, added the Spanish giant, negatively impacted the sale of IoT and big data solutions.

...and the not so ugly

Telefónica's burdensome debt pile was trimmed 6.4%, year-on-year, to a shade under €35.8 billion/$43.3 billion (excluding lease liabilities) as of March 31 (although it actually increased by €568 million/$686 million during the quarter, partly because of shareholder remuneration).

Through proceeds expected from the impending merger with Virgin Media in the UK, as well as the sale of Telxius and other assets, Telefónica expects to reduce net financial debt by a further €9 billion ($10.9 billion).

— Ken Wieland, contributing editor, Light Reading

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About the Author(s)

Ken Wieland

contributing editor

Ken Wieland has been a telecoms journalist and editor for more than 15 years. That includes an eight-year stint as editor of Telecommunications magazine (international edition), three years as editor of Asian Communications, and nearly two years at Informa Telecoms & Media, specialising in mobile broadband. As a freelance telecoms writer Ken has written various industry reports for The Economist Group.

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