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Spain's Telefonica sees recovery momentum despite profit fall

Source: Reuters - Wed 12th Nov 2014
Spain's Telefonica sees recovery momentum despite profit fall

Spain's Telefonica pointed to rising demand for its mobile, broadband and pay-TV deals as evidence of a turnaround from its three-year slump as it posted falling revenue and profit in the first nine months of the year.

The trend echoed that at British and Dutch rivals Vodafone and KPN, which have started to benefit from investments in faster networks, though Telefonica's trading improvement may need a few more months to bolster the bottom line.

Telefonica, which has lost more than a third of its revenue and core profit in Spain as cash-strapped consumers reduce telecoms spending, is betting on the take-up of bundled packages combining mobile and fixed-line phones, high-speed Internet and TV and on its heavy investment in fibre-optic networks.

The strategy comes at a price, however. Margins in Spain, which contributes 42% of revenue and 30% of operating income, have continued to fall, slipping 2.7 basis points to 45.9% in the 9 months to Sept. 30th.

Europe's biggest telecoms group by revenue reported net profit down 9.4% in the period to EU2.85 Bln just above analysts' forecasts. Operating income dropped 12.6% to EU12.33 Bln and revenue shrank 10.9% to EU37.98 Bln.

CURRENCY EFFECTS

Revenue and operating income were hit by weaker Latin American currencies, but the effect eased between July and September and the region's underlying performance remained strong.

In Brazil, where Telefonica bought broadband provider GVT in September and is now considering bidding for assets of TIM Participacoes, the currency effect was positive on the quarter, boding well for the rest of the year.

Net debt, a weak spot in the past, was EU41.2 Bln at the Sept. 30, already beating a year-end target of EU43 Bln. However, the figure was EU44.9 Bln when taking into account corporate moves not yet reflected in earnings.

In a conference call with analysts, finance chief Angel Vila said the company could soon issue more hybrid debt or sell assets to meet the target.

Shares in the company were little changed at EU12.19 by 1444 GMT but were outperforming a 1.6% fall in Spain's blue-chip Ibex index.

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