Telefonica 2011 profit halves as Spanish crisis bites

 

Telefonica reported 2011 net profit of almost half the amount posted the previous year on Friday as restructuring costs in crisis-hit Spain and slowing revenues in some of its mature markets bit hard.

Profit at the euro zone's largest telecom, which fell 47% to 5.40 billion euros, was nevertheless better than expected in a Reuters poll although heavily skewed by one-off items. Revenues were in line with expectations, up 3.5%.

Spain-based Telefonica, struggling to convince sceptical investors that a December dividend cut is enough for it to meet a tough debt reduction programme as revenues wane, also announced modest growth targets for 2012, with revenues seen growing at least 1%.

It also kept its closely-watched dividend and debt-to-core earnings (OIBDA) rate at 2.35 times, both unchanged. At present, net debt to OIBDA is at 2.46 times.

Profit at the telecom was dampened by the unflattering comparison with a one-off gain of 3.5 billion euros in 2010, an accounting profit after the purchase of the remainder of Telefonica's Brazilian mobile unit Vivo.

The former Spanish monopoly last year shelled out 2.7 billion euros to cut 20% of its Spanish workforce, an attempt to offset a decline in revenues driven by the defection of hundreds of thousands of once-safe clients to cheaper competitors.

With Spanish unemployment at 23% and the economy headed for recession this year, Telefonica will remain under pressure in its home market, which accounts for 27% of revenues, for the time being.

Telefonica had previously given guidance for the 2010-2013 period of 1% to 4% organic growth in revenue, "limited" erosion of its EBITDA margin from 38% in 2010, and a net debt to EBITDA range of 2-2.5 times.

Amid the difficulty of paying down debt now at around 56.3 billion euros with only modest revenue growth, analysts have begun again to talk about the need for asset sales.

However given the weakness of the European economy and the difficulty of getting a good price for assets - as the postponed sale of call centre unit Atento last year demonstrates - some think further dividend reduction is inevitable.