Acquisitions boost Telefónica’s performance

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Telefónica, the Spanish telecoms group, reported pre-tax profits for 2005 almost 40 per cent higher than the previous year, boosted by its recent acquisitions.

Pre-tax profits were €6.8bn on revenues that were 25 per cent higher at €37.9bn. Excluding acquisitions, revenue grew at 9.3 per cent. Earnings per share were €0.913, compared with €0.637 a year earlier.

Telefónica in late 2004 acquired the Latin American mobile businesses of Bellsouth for $5.85bn and in April last year spent €2.7bn on a 51 per cent stake in Cesky Telecom, the Czech telecommunications operator.

Revenues from Telefónica’s mobile business grew by 40.5 per cent to €16.5bn, while organic growth - excluding the effect of the Latin American Bellsouth business - was 14.2 per cent.

The company took a €597m charge to finance about 2,000 redundancies in Spain. It also wrote off €89m relating to the cost of acquiring a UMTS license in Italy.

Telefónica Móviles provided the bulk of group revenues and profits. Its mobile telephony division contributed €16.5bn out of a total €37.8bn in revenues, and €1.9bn to group profits – 43 per cent of the total.

Analysts said these were solid figures which had beat market expectations.

In an early note to investors, analysts at Dresdner Kleinwort Wasserstein welcomed the results saying the fourth-quarter performance was better than expected, but that they were unhappy with the total annual dividend of €0.50. “We and the consensus had hoped for more (€0.60 and €0.55 respectively), but given the recent credit downgrade and M&A potential perhaps the company’s stinginess is understandable.”

Telefónica said on Tuesday it was considering selling its phone-directory unit, TPI, a move that sparked speculation that the proceeds might be used for more acquisitions. Its 60 per cent stake in TPI is worth about €1.8bn. Standard & Poor’s lowered Telefónica’s credit rating to BBB+ from A- last month, in line with Moody’s Baa1 grade. The rating is the third lowest investment grade and the lowest ever for Telefónica.

At the end of 2005, Telefónica had 153.5m connections to fixed line, mobile, internet and pay TV customers, or 180.9m including the acquisition last year of O2, the UK mobile operator.

Revenues in Spain from traditional fixed-line voice telephony, a business which is largely in decline worldwide, fell by 0.7 per cent to €5.16bn, while internet and broadband services in Spain grew by 79 per cent to €1.9bn.

Telefónica was last month charged by the European Commission with anti-competitive behaviour in Spain, where it owns most of the broadband infrastructure.

The shares were €0.08 higher at €13.02 in morning trade.

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