Wednesday 22 November 2017

Telefonica cuts €527m off O2 value

John Mulligan

John Mulligan

Spanish telecoms giant Telefonica has slashed the value of its O2 mobile business in Ireland by €527m.

Telefonica revealed the impairment yesterday as the group said its profitability in the fourth quarter of 2012 had been hit by the writedown.

But its fourth quarter earnings still beat estimates, as its Latin America operations buoyed group figures.

The O2 arm in Ireland, which again left customers struggling to send text messages yesterday, is by far the worst performing unit in the Telefonica mobile business, with the economic downturn taking a massive toll on the company here.

It is the second biggest mobile operator in Ireland, with more than 1.6 million customers.

Operating income before depreciation and amortisation at the O2 Ireland unit slumped 37pc in 2012 to €130m, with the margin tumbling to 20.7pc from 28.5pc.

Telefonica said its services revenue in Ireland fell 16.2pc last year to €567m, while data revenues declined 5.5pc to €252m. Total revenue, which includes that from its retail outlets, fell 13.1pc to €629m.

Telefonica said its group revenue in 2012 dipped 0.8pc to €62.3bn while operating income before depreciation and amortisation rose 5.1pc to €21.2bn. Operating income before depreciation and amortisation fell 8.6pc in the fourth quarter to €5.45bn.

During the year, Telefonica also wrote down the value of its stake in Telecom Italia by €949m and took a €417m hit in Venezuela after the country's currency was devalued.

Telefonica is not the first mobile operator to cut the value of its Irish operations since the downturn.

In 2010, Vodafone – Ireland's biggest mobile operator – cut the value of business here by €1.14bn. It also cut the value of its businesses in Portugal, Greece, Spain and Italy.

Traction

Telefonica has been working to turn around its business. It may be gaining traction with its efforts after chief executive officer Cesar Alierta suspended dividend payments and sold assets including a stake in Telefonica Deutschland.

Still, earnings and sales are yet to rebound as Telefonica is forced to cut prices to fend off smaller rivals in the company's shrinking home economy.

"The numbers look pretty encouraging," said Paul Marsch, an analyst at Berenberg Bank in London, who has a "sell" rating for the stock.

"There's a whole bunch of one-off items but, overall, in Latin America they delivered growth while the trend on the domestic market is good."

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business