Telefonica goes to net profit but the Spanish business collapses | Investment News

MADRID (Reuters) – Spanish telecommunications company Telefonica SA said on Thursday it posted a net profit in the third quarter after a loss a year earlier thanks to the performance of its foreign units, although rising energy costs affected the profitability of its domestic market.

The company posted a net profit of 706 million euros ($818 million) in the third quarter, compared with a loss of 160 million in the same period a year ago, following a 785 million euro impairment of assets in Argentina.

While business was buoyant in Germany and Latin America, core profit in Spain in the quarter fell 8.9% year-on-year.

This was mainly due to rising energy costs and rising sports content costs after rights holders gave 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, chief operating officer Angel Vila told analysts on a conference call Thursday.

The effect “will fade at some point next year”, he added, as prices will eventually “regulate” and the business will manage to gain efficiencies, he told Reuters. . It does not plan to pass on cost increases to customers.

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

Overall revenue fell 11% in the third quarter from the same period a year ago as the company became significantly smaller due to the sale of assets, but core profits rose by 40%.

“We maintained the year-over-year organic revenue and (core earnings) growth momentum for the second consecutive quarter,” chief executive Jose Maria Alvarez-Pallete said in a statement.

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

Telefonica reiterated that it expects core revenue and profit to be “stable” or show “modest growth” in 2021, according to an announcement last quarter.

Like its European rivals, the company, Spain’s largest telecommunications company, has faced growth issues apart from 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 grade, said the chief financial officer. says Laura Abasolo.

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

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