Telefonica ups operating cash flow goal as Brazil, Spain boost core profit

MADRID, July 29 (Reuters) - Spanish telecoms group Telefonica raised its 2026 operating cash flow target after reporting higher adjusted core profit in the second quarter, helped by growth in its Spanish and Brazilian businesses.

The company said on Wednesday it now expects adjusted operating cash flow after leases to grow by more than 3% this year at constant exchange rates, compared with a previous forecast for growth above 2%.

"This is perhaps the most important metric in a telecommunications company, since it reflects the performance of the core business," CEO Marc Murtra said in a statement.

Telefonica also maintained its full-year outlook for revenue and adjusted core profit growth of 1.5%-2.5%, capital expenditure equivalent to about 12% of revenue, and free cash flow of around €3 billion ($3.42 billion).

CORE PROFIT BEATS ANALYST CONSENSUS

The company said adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 6.4% to €2.93 billion between April and June, beating analysts' consensus of €2.89 billion.

However, it added that second-quarter reported net profit was hampered by a €265 million provision for restructuring at its German unit.

Spain and Brazil led Telefonica's operating momentum, with the domestic Spanish unit accelerating growth on strong customer metrics, low churn and expanding mobile contract bases.

Telefonica's Brazilian business also outpaced inflation, boosted by record access levels, rapid uptake of its Vivo Total converged offer and wider profitability.

Germany remained under pressure as revenue and adjusted EBITDA declined, though it added mobile contract customers. In Britain, VMO2 said first-half performance kept it on track to meet its 2026 outlook.

NET FINANCIAL DEBT FELL

The company reported a net loss of €338 million for the first six months of the year, narrowing 75% from the same period in 2025, after taking a €1 billion impact from the sale of its Chilean business and the Telefonica Germany restructuring.

Net financial debt fell 8.4% year-on-year to €25.28 billion by the end of June, reducing the leverage ratio to 2.68 times adjusted EBITDA from 2.78x by the end of 2025. Telefonica still targets a ratio of 2.5x by 2028.

It also confirmed a 2026 cash dividend of €0.15 per share, payable in June 2027.

($1 = 0.8773 euros)

(Reporting by David Latona; Editing by Jesús Aguado and Jan Harvey)