(Bloomberg) — Spain’s Telefonica SA missed analysts’ earnings expectations after taking an impairment in the UK and a provision as part of a plan to cut staff costs.
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Fourth-quarter operating income before depreciation and amortization was €1.8 billion ($1.9 billion), the company said in a statement on Thursday. That compares to an average analyst estimate of €1.99 billion, according to a survey by Bloomberg.
Telefonica forecast earnings before interest, tax, depreciation and amortization will grow 1% to 2% this year as the carrier embarks on the new strategy. The firm has pledged to grow profit by about 2% each year through 2026 as part of the plan, with the first year expected to be slower than the rest.
“Our aim is to accelerate FCF delivery right from the first year,” Chief Executive Officer José María Álvarez-Pallete said in the release. Free-cash-flow growth will be driven by growing profits and declining capital intensity, he said.
The company recorded a €1.8 billion goodwill impairment in its UK joint venture with Liberty Global, VMO2, due to rising discount rates and broader macro conditions in the country, Telefonica said. It also had a €1.3 billion provision relating to a plan that will see headcount in Spain decline by 16%.
“The results are muddied at the reported level by certain accounting adjustments, like the redundancies in Spain and the deterioration in the UK,” GVC Gaesco analyst Juan Peña said by email. “Excluding these effects that have no impact on cash, the results for me are positive.”
Earlier plans to reduce staff numbers have failed to achieve the expected gains. Alvarez-Pallete has cut staff levels in Spain by 27% since he was appointed in 2016. This has contributed to the company’s more than €10 billion in one-time restructuring costs over the past decade — including €7.5 billion in Spain — that were largely related to early retirement plans, according to Berenberg analyst Carl Murdock-Smith.
In a sign that the situation in its biggest market is improving, Telefonica’s OIBDA in Spain rose 0.1% last quarter, reversing declines over the last several years.
The earnings come against the backdrop of deep changes in Spain’s competitive landscape. A merger of Masmovil Ibercom SA and Orange SA’s Spanish operations was approved by the European Commission this week, in a deal that will create Spain’s biggest mobile operator, leapfrogging Telefonica.
Telefonica’s shareholding structure is also in the middle of a transformation since Saudi Telecom Co., which is controlled by the Saudi sovereign wealth fund, announced plans to acquire a €2.1 billion stake in September.
Spain’s government said in December that it will buy as much as 10% of shares through its investment vehicle SEPI in a bid to safeguard the strategically important asset. If completed, the acquisition could turn the government into the former monopoly’s largest shareholder, more than two decades after it sold the last of its Telefonica shares.
(Updates with comments and details starting in fourth paragraph.)
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