Telefonica Q4 results were impacted by adjustment of Venezuela’s exchange rate, which lopped off €2.18 billion from revenue and contributed to a €1.38 billion fall in operating income before depreciation and amortisation (OIBDA), but the Spanish and Latin American giant maintained its transformation strategy was still on track and forecast 7 per cent sales growth for 2015.
Cesar Alierta, Telefonica’s CEO, said “results in the fourth quarter of 2014 represent the culmination of a period of intense transformation that has strengthened the company, its growth potential and its financial position in just over two years”.
He added that “this transformation was carried out from the core of the business, thanks to an intense capex effort that has allowed us to adapt to the evolution of our customers’ technological needs which are characterised by a booming data usage”.
Indeed, there were some positive signs. Organic revenue (which, among other things, strips out currency swings) was up 5 per cent for the three months ended December 2014, to €12.4 billion, although reported revenue was down 14 per cent over the same period.
In Spain, Telefonica claimed that 2014 marked a “turning point”, pointing to “stabilisation” of revenue (even though it still fell 4.9 per cent in Q4, year-on-year, to €3.04 billion).
Telefonica also pointed to “competitive differential positioning” in its home market for fibre, mobile contract and pay TV, but there are still worrying downward trends that the operator needs to grapple with.
Mobile service revenue in Spain, during the fourth quarter, fell 10.9 per cent, to €932 million, compared with the same quarter the year previously.
And though the percentage of contract connections in its total mobile subscriber base rose 3.5 percentage points, to 81.1 per cent – between October and December 2014 – it still wasn’t enough to stop mobile data revenue falling compared with Q4 2013. Sales from mobile data were down 3.9 per cent, to €379 million, over that period.
The UK and Germany showed signs of stability, but concerns linger there as well.
O2 UK, a potential acquisition target of Hutchison Whampoa – the owners of 3 UK – posted an organic revenue increase of 3.2 per cent in Q4, year-on-year, to €1.9 billion. Mobile service revenue, on the other hand, was down 4.5 per cent, to €1.36 billion – again, on an organic basis.
In Germany, where Telefonica’s subsidiary completed the integration of E-Plus on 1 October, the combined entity is now the country’s biggest mobile operator with 42 million connections. Organic revenue growth is, however, flat – a 0.4 per cent year-on-year increase in Q4, to just over €2 billion.
Aside from Venezuela’s weakening economy, Telefonica Group results had to absorb €644 million restructuring costs related to the E-Plus acquisition.
In Brazil, Telefonica said it had “strengthened its competitive position in the market”, especially in the higher value segments, and which it will consolidate with the purchase of GVT.
During 2014, the operator reported that it captured more than half of all new mobile contract customers in Brazil, and 38 per cent of the LTE market, while still pushing forward with the deployment of fibre (4.1 million property units connected) and boosting the number of its pay-TV customers by 20 per cent.
All those efforts combined meant that operations in Brazil, from a revenue perspective, stabilised on an organic basis for the year (€11.2 billion) and Q4 (€2.85 billion)
At a group level, organic revenues were up 2.6 per cent during 2014, to €50.4 billion, while net income was down 35 per cent, to €3 billion.
Looking ahead, Telefonica said it expected sales to grow more than 7 percent this year and more than 5 percent in 2016.
Net debt was €45.1 billion as of 31 December 2014, above its target of €43 billion, but the weakening Venezuelan currency increased the net debt by €2.34 billion.