UK and Latin America gave Telefónica a steady Q1

Telefónica’s otherwise flat quarter was bolstered by strong performance in its UK and Latin America South units, which delivered 5.3% and 15.2% organic growth rates, taking the group level growth rate to 3.8%.

Telefónica reported its first-quarter results, with the total revenue at €12.611 billion, an increase of 3.8% in organic terms. This means adjustments were made to the reported numbers considering impacts of exchange rate moves, regulation and reporting standard changes, and special factors, for example adjustment made to the Argentina numbers on account of the hyper-inflation. Otherwise, the total revenue would have reported at € 11.979, or a 1.7% decline from a year ago. The quarterly operating income before depreciation and amortisation (OIBDA) reached €4.264 billion, up by 10.3%; and the net income grew by 10.6% to reach €926 million.

The Telefónica group is now serving a total of 332 million subscriber accounts (“accesses”), 6 million less than a year ago. The total mobile accesses by the end of the quarter stood at 267 million, down by 4 million from a year ago. But the good news for Telefónica is that it actually grew the contract customer base by 7.5 million over Q1 last year, meaning the loss is mainly on the pre-paid market, down by 11.5 million. It also grew its fixed broadband (including FTTx and cable) customer base by 2.1 million over the course of the year.

“The first quarter results showed a significant improvement in revenue growth trends and double-digit growth in net income and earnings per share. Strong cash generation, which was three times higher than the figure reported in the first quarter of the previous year, allowed for an acceleration in debt reduction, for the 8th consecutive quarter, further strengthening our balance sheet,” commented José María Álvarez-Pallete, Chairman and CEO of Telefónica. “We have started the year by extending our leadership in fibre and 4G deployment, testing new 5G capabilities and making progress in the UNICA virtualisation programme, allowing us to continue gaining customer relevance through better experience and higher average lifetime.”

Ángel Vilá, Chief Operating Officer of Telefónica, introduced the Q1 results and its outlook to 2019 annual outlook in more detail in the video clip at the bottom (in Spanish, with English subtitle).

While the its two biggest markets, Spain and Brazil, managed to stay stable, delivering modest organic growth of 0.3% and 1.7% respective (+0.3% and -5.2% in reported terms), Telefónica’s UK business registered a strong 5.3% organic growth to reach €1.67 billion (£1.47 billion). Excluding the exchange rate impact, the UK business would have reported a 6.6% revenue growth to reach €1.691 billion (£1.488 billion). The company is now serving 32.7 million mobile subscribers, up 2.3% over Q1 last year, which includes both customers on O2 (25.1 million) and those on the MVNOs using Telefónica networks (Sky Mobile, giffgaff, Lycamobile, and Tesco Mobile).

“This is another good set of results building on our momentum from 2018. We have delivered further revenue and customer growth underpinned by our award-winning network and market-leading loyalty,” commented Mark Evans, CEO of Telefónica UK. “We are committed to making every day better, providing customers with compelling reasons to join and stay with us through attractive propositions such as O2 Custom Plans.”

Looking across all the Telefónica markets, the UK registered the lowest churn rate of 0.9% among in its postpaid customers. In comparison, in Telefónica’s other European markets, the churn rate of contract customers was 1.6% in Germany and 1.7% in Spain. Comparable churn rates in markets like Chile and Mexico ran around 3%.

Telefónica attributed high customer loyalty, among other things, to its aggressive investment to improve its networks. The company claims it is investing equivalent to £2 million a day to strengthen its network and increase its reach.

One of O2’s focus investment areas in 2019, in addition to the planned launch of 5G, will be high density venues, including sports arenas, shopping centres, hotels, and conference centres. Already serving the Anfield Stadium in Liverpool and the Lord’s cricket ground in London with improved networks, in collaboration with the Wireless Infrastructure Group (WIG), an infrastructure company, O2 is planning to upgrade and improve its coverage and capacities in other high usage venues.

“While we look ahead to 5G we also continue to focus on our existing network capability. We strive to deliver a great network experience to all our customers, including some of the UK’s busiest locations where network demand is at its peak,” said Brendan O’Reilly, O2’s Chief Technology Officer. “Our multi-million pound investment with our partners at WIG should provide O2 customers with even better connectivity in the places they love to visit.”

Here’s more commentary from COO Ángel Vilá.