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11-05-2012 17:26:00

2nd UPDATE: Telefonica Profits Choked By Europe's Woes

Relateret indhold

-- Earnings missed expectations, shares down 2%

-- Weakness in Europe largely offset by Latin America

-- Telefonica lost customers in Europe, gained in Latin America

(Adds comments from Telefonica on Argentina, possible asset sales)

By Darcy Crowe and David Roman


MADRID -(Dow Jones)- Telefonica SA (TEF) Friday posted weaker-than-expected earnings, as its business in austerity-hit Europe continued to suffer, making the Spanish telecom giant increasingly dependant on Latin America to drive revenue and profits.

The Madrid-based operator, Spain's largest company and a trailblazer for corporate Spain's foray into Latin America in recent years, posted a net profit of EUR748 million in the first quarter of the year, down 54% from EUR1.62 billion in the same period a year earlier, missing forecasts of EUR1.31 billion.

The lower profit was partly due to a EUR337 million write-down on its 10% indirect stake in Telecom Italia SpA (TI), to reflect a decline in the company's stock price, as well as to its sliding fortunes in Europe, where revenue dropped 6.6% in the quarter to EUR7.55 billion. In Spain itself, revenue fell 11% to EUR3.9 billion.

The results come as the Latin American operations of Spanish firms are under the spotlight following the nationalization last month of Repsol SA's (REP.MC) YPF SA (YPF) unit in Argentina and of Spanish power grid operator Red Electrica Corp SA's (REE.MC) local unit in Bolivia.

Telefonica, which has navigated complex regional politics for longer than most, relies heavily on its profitable Brazilian unit, but also has significant operations in Venezuela and Argentina.

Earlier this week, Argentinian authorities imposed an unusually hefty $41.7 million fine on Telefonica after a massive wireless service outage in April, igniting fears of further government action.

Santiago Fernandez Valbuena, head of Telefonica's operations in Latin America, said in a conference call Friday, however, that even though Telefonica had not been responsible for the outage, the fine doesn't represent a change in the local regulatory landscape for Telefonica.

"I can go as far as saying nothing has changed in the telecom space in Argentina," he said.

Latin America contributed more than 50% of Telefonica's operating income before depreciation and amortization, or Oibda for the first time in the first three months of the year.

Even so, Oibda, a measure of profitability closely watched by analysts, fell 8.8% to EUR5.08 billion.

"There is not a lot to cheer about," broker Alliance Bernstein said in a research note.

At 1500 GMT, Telefonica shares were down 2.03% at EUR11.09, still well above Bernstein's target of EUR10.

Telefonica's revenue in the quarter edged 0.5% higher to EUR15.51 billion and its client base rose 6.4%, largely due to aggressive expansion in Latin American markets like Brazil and Mexico, an expensive move because of the need to subsidize handsets to attract customers.

Latin America remained strong. In Brazil, the number of clients climbed 16%, while revenue rose 4.2% to EUR3.6 billion, while in Argentina revenue rose 19% to EUR869 million and the number of clients was up 2.9%.

In Europe by comparison, Telefonica's client base dropped 1.2% to 103.2 million. Much of that corresponded to its Spanish home market, where Telefonica's strategy of cutting down on expensive smartphone subsidies is driving customers to other brands.

The company also said it's moving to reduce its debt by shedding some assets in Europe, and is in the process of selling its 2% stake in Portugal Telecom SA (PTC.LB, PT). It is also preparing to sell Rumbo, an online booking service, and Atento, a call-center firm that it already tried to float last summer on Madrid's stock market.

Telefonica said it is targeting income in excess of EUR1.5 billion from those moves, and is also studying the sale of some additional non-strategic assets, as well as launching initial public offerings for some affiliates, as a mechanism to raise more funds.

-By Darcy Crowe and David Roman, Dow Jones Newswires; +34 91 395 8127; darcy.crowe@dowjones.com

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Order free Annual Report for Telefonica SA

Visit http://djnweurope.ar.wilink.com/?ticker=US8793822086 or call +44 (0)208 391 6028

Order free Annual Report for YPF SA ORD D

Visit http://djnweurope.ar.wilink.com/?ticker=US9842451000 or call +44 (0)208 391 6028

(END) Dow Jones Newswires

May 11, 2012 11:26 ET (15:26 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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