Telefónica saw profits fall dramatically and its directors agree to cut their pay by 30 percent despite growing Q2 and half-year revenues.
Profit for the first half of the year fell by over a third to €2.1 billion.
However, group revenue grew by 0.1 percent year-on-year in Q2 to €15.5 billion and by 0.3 percent to €30.9 billion in H1.
As has been the case for a while, the Spain-based operator was indebted to the performance of its Latin American division, which grew 5.7 percent in Q1 and seven percent in H1.
By contrast, revenues at Telefónica's European business fell 6.3 percent in Q2 and 6.1 percent in H1.
Telefónica chairman César Alierta was left to trumpet improved quarter-on- quarter sales and “the strong diversification of our business”.
However, he and his fellow directors made a significant statement as to the state the company finds itself in by cutting their overall compensation by 30 percent.
This includes a direct 20 percent pay cut plus removing the right of 1,300 executives to profit from the company’s Performance Share Plan.
Further, the dividend and share buyback programme for the 2012 fiscal year will be temporarily suspended.
Ovum analyst Emeka Obiodu said cuts were necessary to help stabilize margins.
“Unsurprisingly, Telefonica has obliged by slashing dividend payments,” he said.
The company’s stock price fell four percent on Thursday – click here to read our earlier analysis of why the markets continue to shun the company.
Telefónica said the objectives underlying their decision included: strengthening the balance sheet; substantially accelerating debt reduction; and “decoupling” from Spain’s macroeconomic problems.
Revenues from Spain, still the company’s largest market, fell a further 13.6 percent in Q2 to €3.8 billion.
But there are also problems in Brazil, the company’s second largest market, which saw revenues fall both q-o-q and y-o-y to €3.3 billion.
There was better news in the UK and Germany, which both recorded y-o-y gains.
“As was evident with Vodafone’s results earlier this week and now Telefónica, emerging markets are no longer sufficiently covering poor performance in Europe,” said Obiodu.
In a statement, Telefónica said that the results confirm a “conviction” that “the toughest part of the cycle” has now been overcome and predicted the start of “a progressive trend” towards the recovery of profitability in the second half of the year.
Obiodu is less certain.
“As telecoms performance lags economic performance, Europe’s continued economic woes mean telcos are not out of the woods yet,” he said.
“As such, the challenge is to extract additional value from their businesses despite the difficult circumstance. This is not going to be easy.
“There is still growth in broadband, but while new wave revenues from M2M, health services etc. are promising, they will not provide imminent relief.
“Just as telcos scrapped unlimited mobile data bundles to solve the cost vs revenues dichotomy for mobile broadband networks, tariff innovation may provide them much more value in the immediate term.”
Have you taken our latest quarterly survey? Click here to share your views on M2M