Energy costs hit Telefónica's Q3 earnings in Spain

Telefónica turned in a solid performance in the third quarter of this year, buoyed by its German unit and businesses in Latin America, but all is not rosy at its domestic operations.

The Spanish incumbent crowed about its record net income figure for the first nine months of the year, driven by asset disposals, and confirmed its full-year guidance, but seemed keen to draw attention away from Spain itself, where earnings took a sizeable hit.

Telefónica España, which accounts for 29% of group revenues and over a third of earnings, reported a slight uptick in revenues in the July-September quarter, but OIBDA, the telco’s preferred earnings metric, slid by almost 9% to €3.5 billion. The decline in OIBDA stemmed from the impact of higher energy costs and an unfavourable comparison with lower content costs in Q3 last year.

We often hear telecoms companies talking about the importance of reducing energy usage from an environmental point of view, the subtext being that there is also a cost implication. It’s interesting to see that impact in black and white in a telco’s results announcement. Telefónica is involved in various environmental and renewable energy projects across its footprints. Doubtless it hopes they will have some bearing on its balance sheet in future years.

Naturally, Telefónica was more interested in talking up its slight – 0/4% – revenue increase and sequential improvement in net adds across fixed and mobile. However, its on-year comparisons show declines in customer numbers in all segments aside from FTTH and IoT. On the mobile side its prepaid business is still shedding significant numbers of customers, and its postpaid mobile unit is still a couple of hundred thousand customers down on this time last year. It admits that “competitive intensity persists” in Spain’s low-end mobile market, but insists its exposure to this segment of the market is lower.

Nonetheless, Spain is clearly one to keep an eye on. It is certainly not matching the upbeat performance shared by Telefónica Deutschland earlier this week, which upped its full-year guidance while shouting about its customer loyalty prowess.

Telefónica Deutschland helped to boost the group as a whole. Overall, Q3 revenues were down 11% on a reported level to €9.3 billion, but organically grew by 3.6%, while OIBDA grew by 1.6% to €3.7 billion on an organic basis.

And as for that headline net income figure…

Net profit for the third quarter came in at a creditable €706 million, but funnily enough Telefónica chose to lead with its nine-month net income, a record €9.3 billion. The figure was impacted – just slightly – by capital gains from the closure of the Virgin Media/O2 merger in the UK and sale of Telxius Towers!