The Telefónica Group has earned 898 million euros throughout the first nine months of the year, 21.7% less than the profit recorded in the same period of 2023. The reduction in the year-on-year comparison of the results is due to a accounting adjustment made in the Peruvian subsidiary, a market where the telecom company has withdrawn 314 million euros from the last line of the third quarter accounts. Without this extraordinary punishment from Peru, which has not required a cash outflow, the group would have increased its profits by 16.8%, to 1,914 million euros.
Telefónica’s income until September has frozen at 30,418 million euros, just 0.2% less than the 30,499 million in the comparable period of last year. This slowdown in sales is seen more significantly in the data for the third quarter, whose income has decreased by 2.9%, to 10,023 million euros, due to the adverse exchange rate of the Brazilian real against the euro. . In fact, the depreciation of currencies in Latin America has caused a deterioration in revenues of 429 million euros in the third quarter and 159 million euros in the operating result before amortizations (Ebitda).
However, in the cash flow, the aforementioned foreign exchange burden has been limited to 25 million euros in the first nine months of the year, thanks to the monetary risk coverage contracted by Telefónica to mitigate the unfavorable behavior of exchange rates.
In the third quarter, EBITDA fell 2.5% to 3,260 million euros, while in the first nine months of the year the same operating profit before depreciation rose 0.4%, with a total of 9,684 million euros.
Despite the burden of Latin currencies, the generation of free cash flow has accelerated its growth to reach 1,030 million euros until September, 27.7% more than in the same period of the previous year. This magnitude has multiplied its quarterly increase by 4.2 times compared to the previous three months, although it has decreased year-on-year by 89.5%, to 866 million euros.
Invariant forecasts for the whole year
The multinational has reiterated its business forecasts for the entire year, which translates into revenue growth of around 1% and EBITDA and operating cash growth between 1% and 2%. The investment-to-sales ratio remains at 13%, while the expected increase in cash flow will exceed 10%. Likewise, the group has confirmed the dividend for the year, estimated at 0.30 euros per share, payable in two tranches of 0.15 euros each and which will be paid next December and in June 2025.
Telefónica Spain has achieved the highest net customer gain in the last six years
Commercial activity has maintained the upward trajectory of previous quarters, reflected in the 2.3% increase in the number of accesses, established at 393 million lines in September 2024 compared to 384 million in the same month of 2023. Of all For them, fiber and mobile contract customers have increased their accumulated 11% and 3%, respectively, compared to the data from twelve months ago. The Spanish subsidiary has contributed significantly to this drive, achieving the highest net customer gain in the last six years. The domestic subsidiary has confirmed its return to growth in ebitda, increasing by 1% in the third quarter, to 1,155 million euros, with an improvement of 0.6% in the first nine months, with 3,387 million euros.
In addition, Telefónica Spain has maintained its average monthly income per customer (Arpu) above 90 eurosin a context characterized by the acceleration of the growth of commercial activity, with an increase of two points in customer satisfaction compared to last June and with greater loyalty of subscribers, with a ‘churn’ (disconnection rate) 0.8%, considered by Telefónica as the lowest level in history.
Free cash flow has multiplied its growth by 4.2 times in the quarter compared to the previous three months and has grown to 866 million euros, 89.5% more than in the third quarter of 2023. In the accumulated period until September, it has reached 1,030 million euros, 27.7 % more in year-on-year terms and, therefore, above the annual objective of raising it by more than 10%.
Strategic initiatives
The operator explained in its third quarter results report that “uncertainty about the wholesale business in Spain has dissipated with the creation of the new fiber company with Vodafone and the long-term fiber wholesale agreement with MasOrange.” In the Brazilian market, the approval of the migration from the concession model to authorization is expected in the last quarter of the year, to which is added the wholesale agreement with Lyca and renewal of the contract with Lebara in Germany.
The multinational has announced 71% 5G coverage in the sum of its four strategic markets in Spain, reaching that percentage more than two years ahead of schedule.
By market, the EBITDA of the German subsidiary has grown by 3% in the quarter, to 694 million euros, and by 3.9% between January and September, to 2,027 million euros. In Brazil, the same magnitude has been cut by 5.9% in the quarter, to 1,030 million euros, due to the impact of the exchange ratebut in the first nine months it has grown by 2.2%, to 3,066 million euros. In the UK, the VMO2 joint venture has confirmed its financial objectives for the entire yearas well as the distribution of dividends, while at Hispam “the strategy of reducing capital exposure in the region and continuing to operate more efficiently and with lower costs is maintained,” according to the teleco.
Debt evolution
Telefónica established at the end of September its net financial debt at 28,748 million euros. Said liability has been reduced in the third quarter by 492 million euros due to the generation of free cash flow of 838 million (including spectrum payments) and other net factors of 77 million. These are partially offset by shareholder remuneration of 327 million (mainly share buybacks in Brazil) and net financial investments of 96 million euros. However, in the year-on-year comparison, net debt increases by 1,399 million, due to net financial investments of 1,153 million euros, with the acquisition of shares in Telefónica Deutschland, and to shareholder remuneration of 1,324 million euros. The factors that reduce net debt are the generation of free cash flow of 956 million (including frequency payments) and other net factors, amounting to 122 million euros.
On the other hand, the net financial debt including leases amounts to 36,815 million euros in September 2024, while the teleco has raised financing until September worth 3,542 million euros, while the British VMO2 has done the same with 2,172 million euros.
In terms of investment, the funds mostly allocated for improving the networks have stood at 3,642 million euros (4.8% less compared to twelve months ago), equivalent to 12% of income, in line with annual forecasts. In turn, operating cash (EBITDAaL-CapEx) was 1,253 million euros in the third quarter, in line with the figure for the same period in 2023, and reached 4,001 million euros in the first nine months, a 2.2% more. Besides, 60% of quarterly income comes from the residential marketwhile 21% is generated in the business segment and the remaining 19% comes from the wholesale business, partners and other income.
Alvarez-Pallete’s rating
The president of Telefónica, José María Álvarez-Pallete, has assessed the results positively after emphasizing that the opportunities ahead are “enormous.” In his opinion, the “GPS action plan (growth, profitability and sustainability) is ambitious and continues to produce results to move in the right direction and consolidate profitable growth”, despite “a global context of uncertainties.” As indicated, the teleco continues to “transform networks with a strategic approach based on quality and solidity, and does so with a higher degree of satisfaction for our customers.”
Network agreement with Vodafone Spain
Telefónica has taken advantage of the presentation of the third quarter accounts to confirm that its Spanish subsidiary has reached an agreement with Vodafone for the establishment of a joint venture, with the aim of marketing a fiber to the home (FTTH) network. The future company, which is pending regulatory approval, will cover approximately 3.6 million real estate units, with assets that are currently part of the Telefónica de España fiber and that represent approximately 12% of its national network. The same sources estimate that the company will initially have around 1.4 million clients, which implies a penetration level of approximately 40%. According to the same statement, After the closing of the operation, Telefónica Spain will have 63% of the Company and Vodafone Spain the remaining 37%. Everything indicates that, once regulatory approval has been received for the creation of the joint venture, the shared company will look for a financial partner to incorporate into the capital.
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