Spanish telecom giant Telefonica S.A. TEF reported mixed financial results in the second quarter of 2015. Quarterly net income increased a robust 70.4% to approximately €1,891 million ($2,091.1 million) on a year-over-year basis. Meanwhile, second-quarter earnings per ADS (American Depository Shares) stood at 29 cents, down 23.7% year over year.
Telefonica recorded quarterly total revenue of €11,876 million ($13,132.5 million), up 12.4% on a reported basis as well as 4.4% on an organic basis. However, revenues fell short of the Zacks Consensus Estimate of $13, 364.4 million.
Operating income before depreciation and amortization (OIBDA) came in at €3,702 million ($4,093.7 million), up 6.8% on a reported basis and 3.3% on an organic basis. This resulted in OIBDA (operating income before depreciation and amortization) margin of 31.2%, down 1.6% year over year on a reported basis and 0.3% on an organic basis. Consolidated operating income declined 10.8% on a reported basis to €1,557 million ($1,721.7 million) owing to higher personnel expenses. This figure also declined 1.7% on an organic basis.
Segmental Results
Telefonica Latin America: Revenues in Brazil increased 4.5% on a reported basis and 5.2% on an organic basis to €2,943 million ($3,254.4 million), while in the Hispano-American markets, revenues grew a substantial 10.6% on a reported basis and 10.3% on an organic basis to €3,467 million ($3,833.8 million). On a year-over-year basis, OIBDA margin in Brazil and the Hispano-American markets stood at 31.2% (down 0.8% year over year) and 29.6% (up 0.5%), respectively.
Telefonica Europe: In Spain, revenues fell 1.1% to €2,966 million ($3,279.8 million) owing to a decline in wireless revenues. Wireless revenues grossed €1,108 million ($1,225.2 million), down 3.2% year over year, while wireline business grew 3.8% to €2,185 million ($2,416.2 million). OIBDA in Spain deteriorated 1.9% to €1,316 million ($1,455.2 million) in the second quarter.
Revenues from Telefonica Deutschland were up a whopping 67.8% on a reported basis and 1.3% on an organic basis at €1,949 million ($2,155.2 million), while revenues from Other companies climbed 21.8% to €551 million ($609.3 million).
Subscriber Statistics
As of Jun 30, 2015, total customer access lines reached approximately 329.4 million, up 13% year over year on the back of T. Brasil's and T. Hispanoamérica's solid growth pace.
On a year-over-year basis, mobile access increased 12% reaching the total to 253.6 million customers. Total Internet and data access grew 18% to 20.8 million users. Pay-TV access totaled 8 million, up a significant 190% year over year. LTE customers stood at 18.6 million, up an astounding 470% year over year, representing 8% of total mobile accesses. Fiber access stood at 5.4 million, up a massive 460% year over year.
Liquidity and Capital Expenditure
Telefonica exited the second quarter of 2015 with net debt of about €51,238 million ($56,659 million), up from €45,087 million ($51,078.2 million) recorded at the end of 2014. Telefonica ended the reported quarter with cash and cash equivalent of €3,843 million ($4,249.6 million) compared with €6,529 million ($7,396.6 million) at 2014-end. Net cash provided by operating activities in the second quarter rose 1.9% to €4,708 million ($5,206.1 million) from 2014-end.
2015 Outlook
Telefonica revised its financial guidance for 2015. The company now expects total revenue growth of 9.5% year over year (earlier 7%) while OIBDA margin is likely to stabilize with an expected annualized erosion of 1.2% (earlier 1%). Meanwhile, net financial debt/OIBDA ratio is confirmed to remain below 2.35x.
Latest Developments
In Jun 2015, Telefonica reportedly closed the acquisition of Vivendi’s broadband assets – GVT. Per the deal, Vivendi has valued GVT at a consideration of €7.5 billion, based on the recent valuations of Telefonica Brasil S.A. VIV and Telecom Italia’s S.p.A TI shares.
For Telefonica, synergies from the acquisition seem quite promising. The deal is expected to place Telefonica in a better position within the broadband segment against stronger rivals like America Movil SAB de C.V. AMX.
Telefonica currently carries a Zacks Rank #3 (Hold).
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