Telefonica results point to turnround in Spanish home market

Telefonica on Thursday hailed the start of a "new growth cycle", as the Madrid-based group reported a 162 per cent jump in first-quarter profits and said it was seeing strong signs of a turnround in its long-suffering Spanish home market.

Net earnings in the three months to March reached €1.8bn, up from €688m in the same period last year. The jump reflected a €1.2bn tax gain linked to the sale of Telefonica's O2 operations in the UK to Hutchison Whampoa. Revenues rose 12.6 per cent to €11.5bn, while operating income before depreciation and amortisation (Oibda) rose 7 per cent to €3.6bn.

Analysts had expected Oibda to be slightly lower, though some sector specialists also voiced disappointment that sales and income had continued to decline in Spain despite the economic recovery there. "The performance of the domestic market was quite disappointing in our view," analysts at Mirabaud said in a note, pointing out that first-quarter revenues in Spain had declined 3.8 per cent compared with 2014.

But Telefonica said it was confident that earnings in Spain would soon pick up. "Spain has already begun its return to growth after reporting in the quarter a year-on-year increase in accesses, which will gradually translate into growth in financials," said Cesar Alierta, executive chairman.

Telefonica's first-quarter results bore the marks of the group's drastic portfolio reshuffle. Over the past year, it has sold its UK business and also completed the acquisition of E-Plus in Germany. It also bought a pay television business in Spain and is in the midst of completing the acquisition of GVT, a Brazilian broadband company.

The recent flurry of transactions reflects the group's desire to concentrate on markets with the highest growth potential, while fortifying its position as a so-called "quad-play" provider that can offer customers TV, broadband, mobile and fixed-line phone services all in one package.

Revenues in Brazil, Telefonica's biggest market, rose more than 4 per cent, and 20 per cent across the rest of Latin America. In Germany, revenues jumped 70 per cent on the back of the E-Plus deal.

Across the group, mobile connections rose 13 per cent, and pay-TV contracts were up 53 per cent. The group's total number of customers now stands at 319m, up 10 per cent from the previous year.

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