February 21, 2019 / 8:01 AM / 3 months ago

UPDATE 2-Spain's Telefonica expects 2 pct profit growth in 2019

(Adds growth rate comparison, quote, dividend, capex, shares)

By Isla Binnie and Andrés González

MADRID, Feb 21 (Reuters) - Spanish telecoms group Telefonica expects 2 percent organic growth in revenue and core profit and to make savings this year after underlying revenue rose in 2018.

Chief Executive Jose Maria Alvarez Pallete said 2018 results, along with “remarkable operating momentum in the initial months of 2019, allow us to announce with confidence our 2019 targets”, as well as a 0.40 euro cash dividend.

The targets imply revenue and core profit growth, stripping out currency effects and other one-offs, will be close to or slightly lower than the 2.4 percent and 3.5 percent registered in 2018. However, the company raised its revenue target last October.

Shares rose 1.4 percent after the results, before subsiding to around 0.5 percent higher at 0845 GMT.

Telefonica, which has invested billions of euros in high-speed networks to carry bells-and-whistles packages including pay-TV, said it had boosted the share of its revenue from services beyond traditional connectivity to 15 percent.

It also pledged to make gross savings of over 340 million euros ($386 million) in the course of the year, and spend around 15 percent of sales on investments not including spectrum.

Plunging currencies in Brazil, where Telefonica makes about a quarter of its core profit, and other Latin American countries that account for a further 20 percent, have dragged on earnings in recent quarters.

Operating income before depreciation and amortisation came in at 15.57 billion euros ($17.7 billion) in 2018, helped by improving margins at its British and Brazilian operations.

The impact of currency effects, restructuring and other one-offs meant this translated into a 3.8 percent drop, on the back of 48.7 billion euros in revenue, which in reported terms was a 6.4 percent fall.

Spain’s fourth-biggest company said the growth forecasts assumed constant exchange rates everywhere apart from Venezuela and excluded adjustment for hyperinflation in Argentina.

Telefonica shaved a further 5.5 percent in 2018 off the debt it piled up through its network investment, leaving it with debt equivalent to less than three times its core earnings.

As part of the process it has sold its mobile telecoms assets in Panama, Costa Rica and Nicaragua to Millicom International Cellular, which would take 1.4 billion euros off its debt pile. ($1 = 0.8806 euros)

Reporting by Isla Binnie and Andres Gonzalez Editing by David Goodman and Keith Weir

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