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Loss-making Telefónica bucks COVID-19 to lift revenues in Q3Loss-making Telefónica bucks COVID-19 to lift revenues in Q3

Despite making a loss, Spanish telco giant saw net income grow by 5%, with 1.2% uplift in revenues, announces a FTTH alliance with Allianz.

Fiona Graham

October 29, 2020

3 Min Read
Loss-making Telefónica bucks COVID-19 to lift revenues in Q3

In a mixed bag of results, Spanish operator Telefónica says it expects to see a return to profit by 2022, while logging a loss in Q3.

Figure 1: Talk it up: Telefonica CEO Jose Maria Alvarez-Pallete is upbeat about the future, as the company announces a FTTH deal with Allianz. (Source: Telefonica) Talk it up: Telefónica CEO José María Álvarez-Pallete is upbeat about the future, as the company announces a FTTH deal with Allianz.
(Source: Telefónica)

At the same time, the telco announced a new partnership with German insurer Allianz to build energy-efficient fiber to the home (FTTH) networks in Germany. The deal is worth around €5 billion ($5.82 billion).

Telefónica and Allianz will each hold 50% under a co-control governance model, creating an independent open-access wholesale operator focused on deploying fiber in rural and semi-rural Germany.

This comes as fiber plans in Latin America, notably Brazil and Chile, are "progressing nicely," according to COO Angel Vila.

He said the plan is to connect 5 million Brazilian homes, and includes possibly buying smaller local fiber companies. A group of local and international businesses had been selected as potential partners.

Ups and downs

Revenue rose 1.2% in the third quarter over the second, despite a €591 million ($698.50 million) blow from COVID-19.

The company claimed this was due to a surge in activity in their four main markets – Spain, Brazil, Germany and the UK.

A €785 million ($914.98 million) impairment charge in Argentina didn't help – leading to a net loss of €160 million ($186.49 million).

Telefónica forecast free cash flow of more than €4 billion ($4.6 billion) at the end of this year.

Third quarter revenues totaled €10.46 billion $(12.19 billion); a 12.1% reduction year on year. In the first nine months of the year, revenues totaled €32.16 billion ($37.49 billion), down 10.7%.

Broken down by region, Spain accounted for 29% of total revenues in the first nine months, up to €9.1 billion ($10.72 billion). Brazil contributed 18%, with €5.67 billion ($6.6 billion), Germany 17%, with €5.5 billion ($6.41 billion) and the UK 15%, with €4.96 billion ($5.78 billion). Latin America meanwhile hit 19%, with €5.98 billion ($6.97 billion).

Switching the lens

"Thanks to the implementation of the strategy presented a year ago and the robustness of our business, trends are improving in the third quarter, with a clear recovery in commercial activity in our key markets," said Telefónica CEO José María Álvarez-Pallete

"We are growing in revenues compared to the previous quarter, and the operating cash flow margin remains stable, in line with our objectives … We are facing the current scenario with a solid liquidity position, which exceeds 22,400 million euros, and allows us to cover debt maturities for the next two years."

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While Álvarez-Pallete appeared upbeat, the markets didn't entirely agree, with shares shares were down 6.3%, making them the worst performers on Spain's benchmark IBEX-35 index, down 0.9%

The stock has been tracking lower over the past five years and is now more than 50% below its level at the start of 2020.

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Fiona Graham, Editorial Director, Light Reading

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Fiona Graham

Editorial Director, Light Reading

Fiona is the Editorial Director at Light Reading. 

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