Telefonica CFO Angel Vila on Thursday heralded a new phase of profitable growth after the Spanish incumbent reported a strong rise in first quarter group revenue and earnings.
The company is "reaping the early gains" of its "portfolio optimisation", he said during Telefonica’s quarterly investor call, which in recent years has seen Telefonica divest assets in some markets and bulk up in others. Telefonica is also benefiting from healthy demand for high-speed data services and pay TV, he said.
Average revenue per connection increased 0.8% year-on-year while churn fell 0.2 percentage points to 2.6%.
"More and more customers are taking up higher-value services," said Vila.
Indeed, Telefonica ended the first quarter with 91.4 million smartphone connections, up from 58.3 million a year ago. LTE smartphone connections surged to 14.1 million from 2.8 million. In addition, over the last 12 months its fibre customer base has grown from 976,000 to 2.1 million.
In terms of infrastructure, Telefonica’s LTE networks had reached 65% population coverage in its European footprint and 28% in its Latin American footprint by the end of Q1, while its fibre networks passed 16.1 million premises.
The steady operational performance was reflected in the company’s financials.
In the three months to 31 March, Telefonica generated revenue of €11.5 billion, up 12.6% on last year. Bra zil and Latin America together accounted for the bulk of the growth, with revenues there growing a combined 12.7% to €6.5 billion.
Its business in Germany, which recently absorbed E-Plus, saw revenue increase to €1.9 billion from €1.1 billion in Q1 2014. In Spain, revenue fell 3.8% to €2.9 billion; however, the on-year decline was smaller than the 4.9% recorded in the fourth quarter of 2014.
Group operating income before depreciation and amortisation (OIBDA) came in at €3.6 billion compared to €3.4 billion a year ago.
The results "represent a new cycle of profitable growth," Vila said, adding that Telefonica is on track to achieve its full-year guidance.
For 2015, Telefonica has forecast revenue growth of more than 7% and net a net debt-to-OIBDA ratio of less than 2.35x.
Over the last few years, Telefonica has made a concerted effort to rationalise its market footprint in order rein in its hefty net financial debt. It has continued this tradition in 2015, finalising in March its agreement to sell O2 UK to Hutchison Whampoa, parent of 3UK, for £10.25 billion.
Telefonica said the sale will cut its net financial debt to €31.7 billion or a debt/OIBDA ratio of 2.13x, from €45.6 billion or 2.73x debt/OIBDA at the end of Q1.
"The completion of the transaction will allow us to stay comfortably below our leverage target," Vila said.
In the first quarter, O2 UK achieved net customer additions of 138,000, giving it 24.6 million mobile customers. Its LTE customer base increased to 4.9 million from 1.1 million in Q1 2014.
