* Core profit up 14.3 pct as business recovers, costs drop
* Cash flow to keep improving in 2017, helping to cut debt
* Sees stable revenue this year, improving margins
(Adds comments by CFO on reducing debt, M&A)
By Julien Toyer and Andrés González
MADRID, Feb 23 Telefonica reported
rising underlying profits on Thursday, saying it aimed to reduce
its mountain of debt further this year, helped by improving its
profitability, and would not be rushed into selling more assets.
The firm, which turned a corner last year after a long
crisis when core profits halved, is still mired in debt, slowing
its transformation into a more content and data-driven firm.
But its operating income before depreciation and
amortisation (Oibda) rose 14.3 percent to 15.118 billion euros
($15.95 billion), as an improving business and lower
restructuring costs more than offset negative currency effects.
Telefonica's debt stood at 48.595 billion euros at the end
of December, down 1 billion euros from the previous three months
thanks to an improving cash flow.
It is expected to fall by a further 1.275 billion euros
following completion of the sale announced this week of a 40
percent stake in its telecom masts business Telxius to private
equity firm KKR.
Telefonica is also still trying to sell part or all of its
O2 UK business after its sale to CK Hutchison for over
10 billion pounds ($12.5 billion) was blocked by competition
Chief Financial Officer Angel Villa said the company was
still working on those plans, including a potential initial
public share offering, but would wait for the right conditions.
For now, Telefonica will focus on cutting debt from within
the company, with further improvement in cash flow expected to
come from lower capital spending, cost savings and selling
higher-margin premium services such as super high speed Internet
and pay TV.
"We're going to focus on organic cash flow generation and
organic deleveraging... and M&A, if conditions are right, if it
creates value and makes strategic sense, will also play a role
in our efforts," Villa said.
The company said it expected total revenues this year to be
little changed but its profit margin to improve by 1 percentage
point and to reduce its investment-to-sales ratio by 1
With the bulk of restructuring costs linked to a plan to cut
thousands of staff and investments in new high-speed fixed line
and mobile broadband networks already accounted for, these goals
are seen as realistic, analysts say.
Free cash flow, which rose 24 percent in 2016 to 4.37
billion euros, will also be helped this year by a lower
dividend, which is expected to save around 1.9 billion euros.
Telefonica reaffirmed its new dividend policy announced last
October when it cut the planned payout from 0.75 euros to 0.55
euros for 2016 and to 0.40 euros for 2017.
Shares in Telefonica were up 2.3 percent at 9.56 euros at
1142 GMT when the Stoxx Europe 600 telecoms sector index
was up 0.6 percent.
($1 = 0.8024 pounds)
(Editing by Susan Thomas, Greg Mahlich)