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February 28, 2013 9:20 am
Net profits at Telefónica, the eurozone’s most valuable telecoms group, fell by over a quarter last year as it was buffeted by a sharp recession at home and several large writedowns but said it expected to increase revenues in 2013 as its restructuring efforts took hold.
Telefónica said that net profit for 2012 fell by 27.3 per cent to €3.92bn as it was forced to write down the value of its stake in Telecom Italia and its business in Ireland as well as taking a hit on the devaluation of Venezuelan Bolivar earlier this year. Without those adjustments, the company said it would have earned €6.46bn in net profit over the year.
The difficulties even Spain’s largest and most internationally diversified company had in accessing financing over a year where rising borrowing costs meant the country was taken to the brink of requesting a European bailout was reflected by a jump in Telefónica’s financial expenses over 2012. The company’s net financial expenses rose by 24.4 per cent to €3.65bn, implying an effective average cost of debt of 5.4 per cent over the year.
Over the year, Telefónica reduced it net financial debt by €5bn to €51.2bn, helped by a €1.5bn spin-off of a minority stake in its German unit into a separate Frankfurt-listed company last October. The Spanish operator said that it would aim to reduce net financial debt to below €47bn over this year and keep capital expenditure as a proportion of sales steady. After cutting its dividend last year to control debt levels, the company said it would stick to its planned payout for 2013 of €0.75 per share in cash.
However, the Spanish operator slightly missed its targeted leverage ratio of 2.35 times operating income before depreciation and amortisation, reporting a ratio of 2.36 for the year. Telefónica had been preparing to spin off a stake in its prized Latin American unit, which had made up more than half of its revenues in the fourth quarter, but had eventually put the plan on hold as other asset sales and an improvement in financial markets made a sale less pressing.
Analysts’ reaction was broadly positive to the results, with most viewing signs of improvement in the Spanish market as encouraging. “We expect a positive reaction to the meeting of guidance and the improvement in Spain on an operational cash flow generation basis, as well as the maintenance of the dividend objective,” said analysts at JB Capital Markets. “We do not expect to see much concern with the slight miss on the debt objective”.
Telefónica shares, which are down by 22.3 per cent over 12 months, rose by 2 per cent to €10.01 in morning trading in Madrid.
Revenues over the year held steady, falling by 0.8 per cent to €62.3bn as a 5.5 per cent rise in sales in its Latin American business helped in part offset a 6.5 fall in Europe. Sales in Spain, where the company has faced rising competition from low-cost operators at a time when more than a quarter of the Spanish workforce is unemployed, fell by 13.2 per cent, while revenues in its UK O2 unit rose by 1.7 per cent in euro terms, but fell by 5 per cent when denominated in sterling as a result of the currency’s depreciation against the euro.
In Spain, where in 2011 the company suffered a sharp fall in subscriber numbers, its Movistar Fusión offer, a package launched last September combining broadband internet, mobile and fixed-line services into a single offer, allowed it to double the number of fibre customers won in the fourth quarter compared with the third, and regain the bulk of broadband users it lost since the start of 2011. The offer has gained 1.5m customers in Spain since launching.
In Latin America, revenues in Brazil fell by 4.9 per cent year on year to €13.6bn, but recorded double-digit growth across all other markets apart from a 2.5 per cent increase in the Mexican market, where Telefónica is attempting to compete with billionaire Carlos Slim’s América Móvil on its home turf, and is the second largest operator in the country.
Overall operating income before depreciation and amortisation rose by 5.1 per cent to €21.2bn over 2012, while basic earnings per share fell from €1.18 to €0.87.
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