Spanish telecoms group Telefonica raised its 2015 revenue forecast after it reported strong second-quarter results, saying its problematic home market was beginning to return to growth. The company has seen Spanish revenues fall for the past six years as the country has been mired in an economic downturn for much of that time; its home market now accounts for 25 percent of group revenue, compared with 36 percent in 2008.
However the economy has been recovering since mid-2013 and Telefonica has spent the last three years restructuring its business and investing in new networks, putting it on a firmer footing. Telefonica said price hikes implemented in May translated into a long-awaited "revenue stabilisation" towards the end of the quarter and that it expected Spanish revenue to rise in the second half of the year.
It said commercial trends were also encouraging as the fixed communications business, which include high-margin optic fibre and pay-TV contracts, grew in the quarter. This underpinned an upgrade in full-year group revenue growth forecast to over 9.5 percent, from more than 7 percent previously. Its 2014 revenue was 50.4 billion euros. The hike was also partly the result of the integration during the last quarter of firms it had acquired - Brazilian rival GVT and Spain's pay-TV firm Canal+. But Telefonica said its margins were expected to lose 1.2 percentage point this year as a result, from an earlier forecast of 1 percentage point.
It gave the new outlook after it reported a 6.8 percent rise in second-quarter operating income before depreciation and amortisation (OIBDA) to 3.7 billion euros ($4.1 billion) and a 70 percent jump in net profit to 1.9 billion euros, both beating analysts' forecasts. At revenue and operating profit level, the group grew in all markets apart from Spain, with particularly strong performances in Latin America and also in Germany following last year's purchase of competitor E-Plus.
Earnings were also boosted by one-offs items such as the sale of Telefonica's British unit and the divestment of Telecom Italia shares. Shares in Telefonica were up 1.13 percent at 13.92 euros at 1330 GMT, one of the top gainers on Spain's bluechip index Ibex , and outperforming most of its European peers.
But many analysts said the new full-year revenue forecast was still conservative. "Spain has managed to stabilise the business and will improve in the second half, Germany will also see more synergies in the second half, Brazil is resilient, and Latin America shows solid growth," said Kepler Cheuvreux analyst Javier Borrachero in a note to clients. The company affirmed other full-year group targets, including a net debt to OIBDA ratio of below 2.35 and a 0.75 euro per share dividend in 2015 as well as 2016.
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