Europe’s reporting season reveals cost of Covid

31 July 2020 | Melanie Mingas

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On the last day of the current reporting season, the final cohort of European telcos have released their H1 and Q2 financial results, confirming the real-world impact of Covid-19 on operations and profitability.

This reporting season is the first to include a full quarter of Covid-19 trading conditions.

Over recent days, Capacity has published results from multiple industry stakeholders, including Orange Group, O2, Juniper and AT&T.

As further results trickle through, they paint a mixed picture for operations across Europe.

Releasing its results today, Nokia reported that its net sales reached €5.1 billion in Q2, with “strong margin expansion”, driven by mobile access. However, net sales decreased 11% because of Covid-19 and China.

On profits, the company said: “profits remain strong, but declined mainly as a result of lower net sales.” (see graph)

Profitability gains in the quarter were supported by a 4.5 percentage point year-on-year improvement in Networks gross margin, building on a 3.5 percentage point gain in Q1, and driving Nokia non-IFRS gross margin to 39.6%. Nokia Enterprise also grew year-on-year constant currency sales by 18% compared to one year ago and expanded margins.

In terms of operational highlights, the business noted 83 commercial 5G deals, 32 live 5G networks and 18% enterprise net sales growth.

President and CEO Rajeev Suri, commented; “Nokia delivered a strong improvement in Q2, with better-than-expected profitability, significant improvement in cash generation, clear indications of a return to strength in mobile radio, and a year-on-year increase in earnings-per-share, despite the challenges of Covid-19.”

Meanwhile, Telefonica reported year on year growth in its operating cash flow for both the second quarter and first half 2020, in addition to a 7.5% reduction in its net debt year on year. However, its revenues declined 10%.

The group said: “The estimated negative impact of the Covid-19 pandemic on group revenue performance amounted to -€729 million in Q2, largely due to lower service revenues and handset sales. The decline in services revenues was driven by lower roaming revenues and commercial activity in the B2C segment, along with project delays and lower SME revenue which affected performance in the B2B segment.

“The Covid-19 crisis also contributed to the significant depreciation of Latin American currencies versus the Euro during the second quarter. This FX negatively affected reported group revenues and OIBDA by -€791 million and -€297m respectively.”

Telia Company saw net sales increase 2.7% in the second quarter, while service revenues grew by 4.7%. However it noted a material impact from both its Turkcell divestment and Covid-19.

The firm estimated that the crisis has cost it upwards of US$110 million.

Bucking all these trends, Ericsson, published its results last week and noted a “solid” result, maintaining its full-year targets for the group.

CEO Börje Ekholm, said: “Despite the difficult environment we delivered a solid result. Q2 organic sales were flat and gross margin improved to 38.2% (36.7%) YoY, including negative effects from strategic contracts. Free cash flow before M&A improved to SEK 3.2 billion. While the effects of Covid-19 create uncertainties, with current visibility we maintain the full-year targets for the group.”

 

There's more on Q2 and H1 financial results in episode 14 of The Digital Digest