Telefonica goes to net profit but Spanish companies wither

The logo of the Spanish telecommunications company Telefonica can be seen at its headquarters in Madrid, Spain, on May 12, 2021. REUTERS / Sergio Perez

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MADRID, Nov. 4 (Reuters) – Spanish telecommunications company Telefonica SA (TEF.MC) said on Thursday that it posted third-quarter net profit after losing a year earlier thanks to the performance of its overseas units, despite the rise in energy costs is reaching profitability in its domestic market.

The company reported third quarter net profit of 706 million euros ($ 818 million), compared to a loss of 160 million a year ago, following a 785 million euros impairment of assets in Argentina. .

While activity was strong in Germany and Latin America, the basic result in Spain in the quarter was down 8.9% from the previous year.

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This was mainly due to rising energy costs and higher costs for sports content after rights holders granted a discount in 2020 due to the pandemic, the company said. Shares were down 2.3% at midday, making it the worst performer on the IBEX 35 blue chip index.

Rising energy costs in Spain will likely continue to weigh on Telefonica’s profitability for a few quarters to come, COO Angel Vila told analysts on Thursday on a conference call.

The effect “will wear off at some point next year,” he added, as prices eventually “stabilize” and the company will manage to become more efficient, he told Reuters. . It does not intend to pass the cost increases on to customers.

In the first nine months of the year, Telefonica achieved a record net profit of 9.34 billion euros, mainly due to the capital gains realized on the sale of its Telxius tower unit and the merger of its O2 and Virgin Media unit in Great Britain.

Overall revenue fell 11% in the third quarter compared to the same period a year ago as the company grew considerably smaller as a result of the asset sale, but core profits increased by 40%.

“We maintained momentum in organic revenue and year-over-year (basic profit) growth for the second consecutive quarter,” Managing Director Jose Maria Alvarez-Palete said in a statement. .

Analysts polled by Refinitiv had forecast a net profit of 568 million euros in the third quarter.

Telefonica reiterated that it expects revenue and basic profit to be “flat” or to “grow slightly” in 2021, according to an announcement last quarter.

Like its European competitors, the company, Spain’s largest telecommunications company, has faced growing challenges outside of the impact of the pandemic, and has sold assets to reduce debt and finance an upgrade to next-generation 5G networks.

Thanks to its asset disposal strategy, Telefonica succeeded in reducing its debt to 25 billion euros in September, 32% less than in September 2020. The company intends to obtain a level of debt compatible with a ” solid ”investment rating, said the CFO. Laura Abasolo said.

($ 1 = 0.8635 euro)

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Reporting by Inti Landauro; Editing by Shounak Dasgupta, Jan Harvey, Emelia Sithole-Matarise and Steve Orlofsky

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