Telefonica reports revenue falls in quarter of O2-Three merger collapse

William Turvill
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An O2 mobile phone store is seen on Oxfo
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Telefonica has reported a near-eight per cent fall in revenue in the quarter its O2 sale fell through.

The figures

Telefonica UK’s revenue for the quarter was €1.7bn (£1.4bn), down 12.3 per cent. The UK market was the second biggest faller in terms of revenue, behind Latin America, where it fell 14.6 per cent to €3bn.

Overall turnover totalled €12.7bn, down 7.7 per cent.

Read more: O2 chief executive Ronan Dunne leaving the company

Operating income before depreciation and amortisation (Oibda) was €3.9bn, down 7.1 per cent on a reported basis. UK Oibda for the quarter was €456m.

Telefonica said the UK had posted its “best commercial performance” in the last six quarters, with net mobile additions of 240,000.

Why it’s interesting

During the second quarter of 2016, the European Commission blocked the planned takeover of Telefonica’s O2 by Hong Kong’s CK Hutchison.

The company’s board said it had agreed at a meeting on 29 June that it will “continue to explore different strategic alternatives for O2 UK, to be implemented when market conditions are deemed appropriate”.

Read more: Customers could be offered O2 shares as Telefonica nears IPO

The results said: “Given that the execution of a sale transaction is less certain, Telefonica’s operations in UK are no longer presented as discontinued operations and its assets and liabilities cease to be classified as held for sale.

“Thus, items are presented line by line in the consolidated financial statements. Comparative financial statements have been amended accordingly.”

Telefonica is understood to be considering floating O2 or selling it off, with private equity firms circling.

What the company said

Executive chairman Jose Maria Alvarez-Pallete:

Our second quarter results reflect the benefits of Telefónica's structural transformation, which allowed us to build the future, driving our innovative capabilities and Big Data. The network improvements through excellent connectivity, together with the differentiation and quality of our products and services, have been key to the success of our commercial activity, focused on value, and improved customer loyalty.

All this is reflected in the continued profitable growth another quarter, which along with the capture of synergies and efficiencies, was the main growth lever for service revenue, Oibda, operating cash flow and margin expansion.

These results and the expected improvement of free cash flow generation in the second half of the year, allow us to confirm 2016 guidance, including the dividend (€0.75 per share) and the leverage ratio in the mid-term.

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