“The worst is behind us”

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Telefónica has closed the first quarter of 2022 with financial results that have exceeded market expectations. The company has been resistant to the negative impact that the war in Ukraine following the Russian invasion has had on the economy as well as inflationary pressures and high energy prices.

But, in addition, he has been optimistic about the evolution of his business in the coming months and has confirmed its forecasts for the whole of 2022. In fact, in the telecommunications operator they consider that, both in terms of inflation and energy, “the worst is over”.

“The first quarter reflects strong growth at the start of the year, with organic and reported growth improving across the group. We have overcome inflationary pressures, of which the worst should be behind us“, affirmed Ángel Vilá, CEO of Telefónica, at the conference with analysts.

Specifically, Vilá referred to the impact of the “significant increase” in the cost of energy in the gross operating result (Oibda) of Telefónica Spain, which fell by 4.9%. Despite this, it was “partially compensated” by the efficiencies associated with the latest voluntary redundancy plan or the shutdown of the copper network.

In this case, as in the case of inflationary pressures, the CEO of the telecommunications group also pointed out that “the great impact of energy has already passed”. In fact, he has pointed out that they expect it to be reduced in the second quarter of 2022, but, above all, from the third.

confirmed forecasts

After these results and taking into account the different initiatives, Telefónica has decided to maintain and reiterate its forecasts for the 2022 financial year. And that since it presented them the macroeconomic context has worsened “significantly” as a result of the conflict in Ukraine.

The group announced its forecasts for 2022 on February 24, coinciding with the publication of the 2021 results. Exactly the same day that the “terrible” war in Ukraine began after the Russian invasion and that has generated greater economic uncertainty and has increased inflationary pressures.

Telefónica headquarters in Madrid, in a file image.

Even so, Vilá has added that the management carried out by the operator in recent times has allowed its revenues to grow by 3.2%, a percentage that is at the top of its forecast for the year as a whole, which is a low single digit increase.

Along these lines, he added that the work carried out in the first quarter has helped the company to beat market forecasts in terms of turnover, operating income or cash flowas collected by the analysis houses in their reports after the results.

Specifically, it has detailed that these results demonstrate the company’s ability “to deal with inflation”something to which, in addition, they are accustomed to having been operating “for decades” in high-inflation markets, as may now be the case in Venezuela or Argentina.

In addition, it gives them confidence to, “despite the adverse macroeconomic scenario”, confirm their forecast for 2022. However, they will continue to monitor the evolution of the situation throughout the year to, if necessary, make some upward adjustment. “But we think that now is not the time to make this adjustment,” stressed Vilá.

Outlook for 2022

Although the company does not usually detail its forecasts by business units, the manager did want to add some “color” to them. Regarding income, they expect the trend registered in the first three months of the year to continue and all its geographical divisions close the year with positive business figures.

Regarding the gross operating result (Oibda), the CEO of Telefónica emphasizes that there are factors that make the group also be optimistic about its evolution as the year progresses.

In addition to the already mentioned lower negative impact of energy prices in Spain, there is also the fact that it will be from this second quarter when the savings generated by the voluntary redundancy plan will be fully realized launched by Telefónica at the beginning of the year.

Another aspect that will also benefit the operator’s accounts from the second half of 2022 is the new scenario around the television rights of LaLiga. After the last auction, in which Telefónica and Dazn shared the contents, for the group the cost of broadcasting the maximum Spanish competition will be reduced by 15%.

Ángel Vilá, CEO of Telefónica, during his speech at COP25.

Ángel Vilá, CEO of Telefónica, during his speech at COP25.

Regarding other subsidiaries, Vilá has indicated that the synergies obtained in the consolidation processes in the United Kingdomwith the merger of O2 with Virgin Media, and Brazil, with the purchase of part of the mobile assets of its rival Oi, are going to be higher as the year progresses. Added to this is the strong growth that the operator is registering in Germany.

For all these reasons, he has trusted that in 2021 the telecommunications group will be able to maintain its “tradition” of recent years of beating its own forecasts. “There are headwinds. There is inflation, economic effects of the war, increases in the cost of living… But things like the ones I have described before give us the confidence to maintain and reiterate our forecast and we are on the right track to achieve it“, he assured.

upward review

With these results, the start of the 2022 financial year has been positively received by the markets and by analysts, who point out that, thanks above all to its Brazil and Hispam divisions, the accounts have been better than expected. In fact, some even point to the possibility that all this will lead to an improvement in your guidance for this year.

That is the case of Iván San Félix, a financial analyst at Renta 4, who adds that Telefónica is “well on track” to exceed the targets set and improve your forecasts. In his opinion, the results of the first quarter show that the company is efficiently managing cost increases.

For their part, analysts at JB Capital Markets agree that there is a possibility for Telefónica to improve its estimates later for this year, while those of Santander add that the macroeconomic uncertainty suggests that it is too soon for it.

The market has also reacted positively to these results and Telefónica shares have risen 2.64%, to 4.78 euros. They have thus placed themselves at the head of the Ibex 35 in a day of generalized falls, since, in addition to Telefónica, only Cie Automotive (1.59%) and Inditex (0.7%) have managed to close in positive.

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