Telefonica 2016 Profit Almost 4 Times Higher Yr-On-Yr; Cuts Debt 1.2%

TelefónicaEC gives green light to Vauban, Credit Agricole move on Telefónica's rural fibre arm

Telefonica posted profit of 2.369 billion euros in 2016, up 3.8% from the 616 million euros registered in 2015. Last year’s figure reflected non-recurrent items, mainly a 1.290 billion euros charge in the fourth quarter related to restructuring costs.

According to a report filed with the Stock Market Regulator (CNMV), Telefónica said that excluding the impact of these non-recurrent items, profits rose 4.8% to 4.038 billion euros year-on-year.

Group revenues fell 5.2% to 52.036 billion euros in 2016 from 54.916 billion in 2015. But, in organic terms, revenues rose 1.3%.

Annual cash flow increased 24.4% to 4.370 billion euros in 2016, thanks to improvements in the group’s business lines and despite its investment efforts. Net financial debt stood at 48.595 billion euros at end-2016, down 1.2% from a year ago, after falling 998 million euros in the fourth quarter.

Executive chairman, José María Álvarez-Pallete, highlighted that the 2016 results strengthen the company’s “sustainable growth,” after growth rates in its main operating variables accelerated in  the fourth quarter.

Álvarez-Pallete also flagged the sharp acceleration in cash generation for the year as a whole, as well as the long-term financing obtained which “speed up the deleveraging process and strengthen the financial structure.”

For 2017, we expect similar performances from our businesses; stability in those revenues affected by greater regulatory effects, particularly in European markets, an increase in the OIBDA margin and less intense capex,” he added.

Telefónica also confirmed its 2016 dividend, the second part of which (0,20 euros/share in cash) will be paid in the second quarter of 2017; it also confirmed the 2017 payment – 0,40 euros/share in cash – which it will distribute in the fourth quarter of 2017 (0,20 euros/share) and in the second quarter of 2018 (0,20 euros/share).

Bankinter analysts describe Telefónica’s 2016 results as mixed, with a decline in revenues (and so a failure to comply with its target of growing +4% yr-on-yr) and net attributable profit, but with “a very good OIBDA performance.”

That said, the analysts note that this point is affected “by a favourable comparison with the 2015 figures, which were dragged down by different negative one-off items. But they only managed to beat estimates as far as revenues are concerned.”

A breakdown of the figures shows the good performance in both Spain and Brazil in terms of revenues (+2.5% and +0.3% respectively) and OIBDA (+91.2% in Spain due to the absence of negative one-off items and +3.9% in Brazil). “The good performance from Brazil has been largely driven by the real’s appreciation over the year. However, Germany and the UK remain very weak, while Latin America continues to be the group’s weakest region,” Bankinter analysts add.

Net debt was 48.595 billion euros at end-2016, bringing the net financial debt/OIBDA ratio to 3,2x (vs 4,3x at end-2015). “It’s a slight decline, but a positive one. And this will also fall further with the sale of 40% of Telxius (which is not included yet in these figures and could bring the ratio closer to 3,1x).”

Bankinter believes the objectives for 2017 are “modest”: stable revenues compared with 2016, +1% in the OIBDA margin and Capex/sales excluding spectrum of 16%.

In conclusion, “figures without any major novelties, which confirm the trends seen throughout the year,” Bankinter says.

Telefonica’s share price rose 3% in early trade, boosted by its 2016 results, particularly the decline in net debt.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.