Telefonica Group posted a more than doubling of net profit in Q1, year-on-year, to €1.8 billion – helped by the way it accounts for the impending sale of its UK unit – and was boosted by strong performances abroad, particularly in Brazil, Columbia, Germany and Mexico.

Telefónica reported O2 as a discontinued operation after agreeing to sell it to Hutchison Whampoa. By doing so, the Spanish and Latin American giant was able to register a €1.19 billion gain from deferred tax assets in the UK.

Group revenue was up 12.6 per cent, to €11.5 billion, helped by a strong showing in some of its key Latin American markets, as well as the acquisition of E-Plus in Germany.

Spain, Telefonica’s domestic market, continues to struggle, but it was not enough to prevent operational improvements being felt at Group level.

Group operating income before depreciation and amortisation (OIBDA) was up 7.7 per cent, to €3.6 billion, although the uplift was helped to a certain extent by favourable exchange rates and the sale of fixed assets.

Cash flow, impressively, was up 26 per cent, to €363 million.

CEO Cesar Alierta (pictured) said Q1 results showed evidence that Telefonica had started a “new growth cycle”.

Samba rhythm
In Brazil, year-on-year revenue was up 4.8 per cent, to €2.8 billion, with mobile service revenue up 8.9 per cent, to €1.8 billion.

Telefonica claimed high network quality and attractive (and innovative) offers were big contributory factors to growth.

Telefonica Hispanoamérica also proved to be one of the main drivers of Group growth, with Mexico and Columbia highlighted as star performers.

Reported OIBDA in Mexico leapt 70 per cent, to €109 million, on the back of solid revenue growth (up 6 per cent, to €444 million).

OIBDA in Columbia was up 9.2 per cent, to €150 million, thanks to cost efficiencies which cushioned the regulatory impact on revenue (flat, year-on-year, in reported terms).

Domestic issues
Alierta’s insistence that Spain was also on a road to recovery seemed not entirely convincing. It continues to weigh heavily on the Group.

Mobile service revenue slumped by nearly 12 per cent, to €897 million, while the number of mobile connections stood at 17.4 million by the end of March, down 3 per cent year-on-year.

Operating revenue in Spain reached €2.9 billion, a 3.8 per cent year-on-year decline, although it was a “recovery path” of sorts, since Q1 operating revenue was up 1.1 per cent when measured against the previous quarter.

Telefonica explained that quarter-on-quarter mainly reflected “the improved commercial performance, the increased demand for value offers and the diminishing impact of customers’ repositioning, despite the drop in handset sales”.

Indeed, smartphones accounted for 63 per cent of the mobile voice base, a 9 percentage points increase from March 2014. LTE customers stood at 2.2 million, more than double compared with March 2014, although this growth has still to translate into meaningful growth.

Alierta is confident it will – eventually. “Spain has already begun its return to growth after reporting in the quarter a year-on-year increase in accesses, which will gradually translate into growth in financials,” he said.

If you take the fixed and mobile operations in Spain combined, revenue was down 3.8 per cent, to €2.88 billion.

True, it is better than the 4.9 per cent year-on-year drop in Q4 2014, but it’s still a worrying decline.