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Tue, Jul 31, 2007 - Page 10 News List

Telefonica profit doubles, annual forecasts raised

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Telefonica SA, Europe's second-largest telephone company, said second-quarter profit more than doubled and raised its forecasts for sales and earnings this year on broadband customer growth.

Net income rose to 2.57 billion euros (US$3.5 billion), or 54.1 cents per share, from 1.14 billion euros a year earlier, or 24.3 cents a share, Madrid-based Telefonica said in a regulatory filing yesterday. Analysts had predicted profit of 2.39 billion euros, the median of seven estimates in a Bloomberg News survey.

Telefonica raised its earnings forecasts for the year, citing broadband customer growth at home and abroad. High-speed Internet access clients increased 35 percent at the end of last month from a year earlier.

To spur growth, chairman Cesar Alierta has spent US$80 billion on takeovers this decade. A one-time gain from the sale of Airwave O2 Ltd also spurred second-quarter earnings.

"Telefonica's performance in its home market is outstanding," said Agustin Alberti, an analyst at Ibersecurities SA, who has a "buy" rating on the shares. "The new forecasts are very encouraging."

Sales rose 6.5 percent to 14 billion euros, in line with analyst estimates. Spanish fixed-line and mobile services revenue increased 5.4 percent to 5.2 billion euros.

Luis Padron, a Fortis Bank analyst, expected a 2.9 percent increase in Spanish sales.

Telefonica forecast full-year sales growth of 8 percent to 10 percent, up from a previous target of 6 percent to 9 percent, it said yesterday.

Ebitda is forecast to rise 10 percent to 13 percent, up from an earlier goal of 8 percent to 11 percent. Operating profit is seen rising 19 percent to 23 percent, compared with a previous forecast of 14 percent to 20 percent.

Shares of Telefonica rose as much as 16 cents, or 0.9 percent, to 17.17 euros, and traded at 17.04 euros as of 9:06am in Madrid.

Before yesterday, Telefonica's shares had risen 2.8 percent in a month, leading gains in the 20-member Bloomberg Europe Tele-communication Services Index, which fell 5.4 percent.

The company said it reduced the revenue forecast for its German unit because of "challenging conditions." It now expects German sales to rise 7 percent to 10 percent, compared with a previous forecast of 14 percent to 17 percent.

Telefonica also raised its forecast for operations in Spain and Latin America.

Earnings before interest, tax, depreciation and amortization increased 34 percent to 6.16 billion euros in the second quarter.

Analysts expected Ebitda to reach 6.2 billion euros. Ebitda was hurt by a 151.9 million euro fine imposed by European regulators on Telefonica this month for abuse of dominant position. The former phone monopoly has appealed the European Commission fine.

In April, Telefonica sold Airwave, which operates the UK's national police digital radio network, for ?1.9 billion (US$3.9 billion). Telefonica bought Airwave parent O2 Plc last year.

Alierta has sold assets to fund takeovers without taking on more debt, already the highest among European phone companies.

Alierta last year pledged to double the dividend and per-share profit from 2005 levels through 2009, and to spend 2.7 billion euros to buy back stock before the end of this year.

The Spanish former monopoly ended the second quarter with net debt of 54.9 billion euros. Before Telefonica acquired O2, Britain's largest mobile-phone company by customers, debt stood at 29.5 billion euros.

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