Q2 FY20: isolated Hispam brings the Group down

At its results for the quarter to 30 June 2020 Q2 FY20, Telefónica Group reiterated its ambition to put a distance between its Hispanoamérica division and the Group as a whole, as part of its restructuring plan. The process does not look likely to be a rapid one, however, and in the meantime Telefónica is expecting the local operating businesses to lessen the capital burden they place on the Group, while becoming lightweight and agile competitors in local markets.

• Hispanoamérica OBs put forward the message that the initial shock of the pandemic was receding by the end of the quarter, and the Group is said to be “optimistic about the next quarters’ commercial and financial performance”. COVID‑19 is not the only threat facing the division, however, with Telefónica Chile and Telefónica Peru particularly noting the toll of intense competitive pressure.

• All options are still said to be on the (crowded) table when it comes to the future of the Hispanoamérica division. Varying degrees of operational or financial spin‑offs are being considered, as are inorganic moves for individual assets. While in Telefónicawatch’s view this ongoing openness to ideas leaves the Group vulnerable to allegations that it still has no clear plan for what to do with the troublesome division, management sought to emphasise that the work done to date is stabilising the business and creating a more attractive asset.

• In contrast to some European markets, handset sales plummeted at Hispanoamérica OBs as the pandemic impacted the continent, decreasing by a third organically and halving, to €185m, on a reported basis.

• In a region that has for years been slowly edging towards greater adoption of mobile contracts, the contract base shrank by 4% on a year earlier and still only represents around a quarter of all accesses. Telefónica Colombia and Telefónica Mexico offered some good news here, though, with 6% and 8% year‑on‑year growth in contract accesses respectively. Another bright spot was churn, which at 3.2% across the region was a percentage point lower than a year earlier.

• When considered in local currency terms, Telefónica Argentina actually saw its revival continue in Q2, with a 23% increase in revenue and 5% rise in OIBDA. The pandemic did slow the rate of recovery, however, and reported numbers were gloomy on FX impact.

• Telefónica Mexico appears to be justifying the decision to rely on AT&T’s infrastructure in the country and surrender its own spectrum. The traditionally underperforming unit saw profit rise 6% to (a still modest) €21m in the quarter, driven by lower costs for resources. Management has indicated more network-sharing deals are under consideration across Hispanoamérica, aiming to build on Mexico success.

• Telefónica Chile is progressing plans to establish a separate fibre infrastructure business, in a similar vein to efforts building in Europe (see separate report), with an expectation that a majority stake in the fibre business will be sold. The OB saw strong demand for its fibre services in Q2 as it was reportedly recognised as providing the highest connectivity speeds in the country.