Telefonica ups outlook as revenues rise

Telefonica has increased its full-year revenue and earnings guidance after a strong second-quarter performance brought about for the most part by customers paying more for services.

The Spain-based telco group now expects turnover for calendar 2023 to grow by around 4%, and earnings – or OIBDA, to use its preferred metric – to increase by 3%. It previously guided for low single-digit growth in both, which might not seem like a massive change, but it is describing its new revenue growth target as double the earlier one.

In the three months to the end of June Telefonica turned in revenue of €10.1 billion, up 0.9% on a reported basis, but organically – and including its 50% stake in Virgin Media O2 – the top line grew by 3.3% to €11.7 billion (see chart below). The pattern was similar for OIBDA, while net profit increased by 44.5% to €462 million.

“During the Q2 23 we added high-value customers in fibre and 5G, further improving the customer mix. Pricing power in most countries flowed through to revenue and along with efficiencies allowed for a sequential acceleration of organic OIBDA growth,” said José María Álvarez-Pallete, Chairman and CEO of Telefónica, in the firm’s Q2 report.

The chief executive chose his words carefully, but essentially he’s saying that Telefonica was able to hike prices in most of its operating markets, booting turnover, as well as cutting costs, which naturally had a positive impact on earnings.

“Investment peak is behind, which together with resilient FCF generation and a sustainable financial policy, will help accelerate leverage reduction in the next quarters, as FCF will continue to improve in H2 23,” Álvarez-Pallete said.

Free cash flow for the quarter increased by 0.9% to €842 million in Q2, but contracted by 3.9% in the first half to €1.3 billion. Net financial debt at end-June stood at €27.5 billion, down by 3.9% on-year.

The chief executive also indicated that there is a new strategic plan in the pipeline, but at the moment all we have to go on is buzzwords.

“Focused on the customer and the creation of shareholder value, and with technology as a decisive factor to better understand and connect with the world, Telefónica is preparing its 2023-2026 plan with a model of operational excellence based on three pillars: Growth, Profitability and Sustainability,” Álvarez-Pallete said. “The operator is in an advantageous position to capture all the growth opportunities of the digital era. Telefónica is not content to simply adapt to the future but has decided to shape it with a radical evolution.”

Make of that what you will. The smart money is on Telefonica attempting to re-invent itself as a digital champion – indeed, it is already one of the more advanced telcos when it comes to digital transformation – while further squeezing costs and making a lot of noise about green issues: power consumption, renewable energy, smartphone recycling and so forth.

It’s probably not wise to expect a truly “radical evolution,” but stranger things have happened. We will find out when Telefonica presents that new three-year strategy at its upcoming investor day on 8 November.

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