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CORRECTED-UPDATE 1-Spain's Telefonica targets higher profitability in 2017 to cut debt
February 23, 2017 / 8:52 AM / 10 months ago

CORRECTED-UPDATE 1-Spain's Telefonica targets higher profitability in 2017 to cut debt

(Corrects to read billion, paragraph 11)

* Core profit up 14.3 pct as business improves, costs drop

* Cash flow improves, helps cutting debt

* Sees stable revenue for 2017, improving margins

By Julien Toyer and Andrés González

MADRID, Feb 23 (Reuters) - Spanish telecoms group Telefonica will focus on higher profitability in 2017 in efforts cut debt and find the right opportunity to divest assets including its British unit O2.

The firm, which turned a corner last year after a long crisis when core profit halved, is still mired in debt, slowing its transformation from a traditional telecoms company into a more content and data driven firm.

It reported a 14.3 percent rise in operating income before depreciation and amortisation (Oibda) for 2016 to 15.118 billion euros ($15.95 billion) while net profit was 2.369 billion euros, as an improving underlying business and lower restructuring costs which more than offset negative currency effects.

Telefonica’s debt was 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 once the sale of a 40 percent stake in its telecom towers business Telxius announced earlier this week is completed.

Telefonica is also trying to sell part or all of its British business with sources familiar with the company’s plans saying an initial public offering may be launched later this year.

For now, however, the company’s plans are to focus on organic deleveraging, with further improvement in cash flow expected to come from lower investments, cost savings and higher margins as clients subscribe to more premium services.

The company said it targeted stable revenues for 2017, improving its profit margin by 1 percentage point and reducing by 1 percentage point its investment to sales ratio.

With both the bulk of restructuring costs linked to a plan to cut thousands of staff and investments in new high-speed internet and mobile phone infrastructures well under way, this goal is in reach, analysts say.

“We expect a positive impact from improving core profit, debt reduction and cash flow generation, which should accelerate significantly in 2017 thanks to lower investment and expanding margins,” Sabadell analysts said in a note to clients.

Free cash flow, which rose 24 percent year on year 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 said it would pay a 0.4 euro per share dividend, all in cash, against 2017 earnings, in line with a new policy announced in October last year.

Shares in Telefonica were up 3 percent at 9.6 euros at 0845 GMT, outperforming Spain’s blue-chip index Ibex and European peers. ($1 = 0.9476 euros)

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