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Telefonica profits tumble on exchange rates

Published on 28/07/2016

Spain's heavily indebted telecoms giant Telefonica Thursday reported a plunge in profits on adverse exchange rates but maintained its objectives for the year.

It posted net profits of 693 million euros ($770 million) in the second quarter, down 54.5 percent, below the figure of 743 million predicted analysts polled by Factset.

The group was hit by the decline against the euro of several currencies in its main markets, notably Brazil, Britain and Argentina.

Sales slumped 7.7 percent to 12.72 billion euros, and operating income fell 7.1 percent to 3.92 percent excluding depreciation and amortization.

But the group said it “confirms its objectives for 2016, including the dividend of 0.75 euros per share and the leverage ratio in the mid-term.”

Net debt was 52.57 billion euros at the end of June.

Telefonica had hoped to reduce this with the sale of its British subsidiary O2 to Hong Kong group Hutchison Whampoa, but the European Commission has blocked the deal over fears it would inflict higher prices on British consumers.

Chairman Jose Maria Alvarez-Pallete, who took over in April, is seeking alternatives, and the group has begun selling its non-strategic assets, such its 1.51 percent stake in Chinese operator Unicom.

Spanish media said Telefonica, which is among the top five telecommunications companies in the world, is also mulling a partial stock market flotation of its subsidiary Telxius, which would bring in between 1.5 and 2.5 billion euros.

The company’s high debt level and the global financial crisis in 2008 led it to concentrate on a few key markets: Spain, Germany, Brazil and former Spanish colonies in Latin America.