November 11, 2011 / 7:23 AM / 8 years ago

UPDATE 2-Telefonica keeps targets after 9 mths net plummets

* Net profit 2.73 bln euros vs 3.04 bln euro in poll

* Revenues 46.67 bln euros vs 46.54 bln euros expected

* Shares flat, underperform sector (Adds detail, analyst comment)

By Elisabeth O’Leary

MADRID, Nov 11 (Reuters) - Spanish telecoms giant Telefonica stuck doggedly to ambitious shareholder return targets on Friday after 9-month profit fell a more-than-expected 69 percent in what the group described as a “challenging” operating environment.

Telefonica posted a 69 percent fall in net profit to 2.73 billion euros ($3.71 bln) on a 5.4 percent rise in revenues to 46.67 billion euros in the January to September period, with net profit around 300 million euros below average expectations.

Results were skewed by a 2.7 billion euro one-off restructuring charge.

In a statement, Telefonica blamed a tough regulatory environment and challenging business conditions amid sluggish economic growth for a weak performance, but said it was confident that a new business structure announced in September would soon produce efficiency improvements.

The group continued to benefit from a booming and not fully penetrated market in Latin America, helping it offset slower growth in more mature markets in Europe. Spain continued to disappoint as high unemployment leaves its mark, and analysts also pinpointed weakness in Mexico and Ireland.

Core earnings (operating profit before depreciation and amortisation) fell 30 percent in the nine month period.

“Expectations were low ahead of earnings, but across the board (core earnings) weakness is an incremental negative in our view. We expect the stock to underperform the sector slightly today,” said Goldman Sachs’ analyst Tim Boddy in note to clients.

Shares were up 0.14 percent to 13.955 euros at 0912 GMT, underperforming the European telecoms sector which was up 0.5 percent.

By contrast, Telecom Italia, another former monopoly in southern Europe, saw its shares rise 5 pct as investors took a positive reading of results which showed an improving performance in a fiercely competitive domestic market, allowing the group to stick to guidance.

Telefonica reiterated earnings targets for this year and confirmed its shareholder remuneration policy, widely questioned in the investment community.

Analysts say that given roughly 55.4 billion euros in group net debt, ongoing investment commitments and an adverse environment for asset sales, the targets are not reachable.

Telefonica has promised a dividend of 1.75 euros per share in 2012 and has set a minimum shareholder remuneration target of 1.75 euros per share from then on.

“It’s shocking they haven’t lowered their guidance,” said a London-based analyst who requested anonymity.

Analysts homed in on continued lower revenues in the Spanish market, where competing phone companies are making deep inroads into its Spanish customer base.

Group profit was dented by a 2.7 billion euro charge to cut up to 6,500 workers at its Spanish unit.

Overall the number of connections continued to rise, adding 6 percent to almost 300 million worldwide. Latin America now accounts for almost half of group revenue.

Net debt to OIBDA stood at 2.55 times, just above the group’s full year target of 2.5 times. ($1=0.736 Euros) (Reporting By Elisabeth O’Leary; Editing by Judy MacInnes and Hans-Juergen Peters)

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