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Disappointing Q2 results for Telefonica

Source: WSJ - Fri 29th Jul 2011

Telefonica yesterday reported a 27% drop in Q2 net profit following falling revenues in Spain together with rising operating costs.

Telefonica, Europe's second-largest telecomms company by market value after the UK's Vodafone, announced net profit fell to EUR1.54 billion from EUR2.12 billion in the same period last year, falling short of analysts' expectations.

Operating expenses rose 4% to EUR10.13 billion, with staffing costs rising by 5.7%. However, revenues increased just 2.2% to EUR15.45 billion, as falling sales in its troubled Spanish home market were partially offset by soaring revenue in high-growth but fiercely competitive Latin American markets.

The Group was also hit by a EUR353 million writedown of it's share in Telecom Italia, another former telecom monopoly that is facing tough domestic market conditions. Telefonica holds this stake jointly in an investment vehicle which also comprises several Italian companies.

Telefonica's revenue in Spain fell 6.6% in the quarter, while revenue in the rest of Europe dropped 3.5%. Latin American revenue increased 12%.

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