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Telefonica reports 58% drop in first-quarter net profit

Spanish telecoms firm Telefonica (TEF.MC) disappointed the market on Thursday with a 58% drop in first-quarter net profit from the same period a year ago as the company was unable to raise prices in line with costs.

The company said its net profit fell to 298 million euros ($328 million), while overall revenues rose 6.7% to 10.05 billion euros. Core earnings fell 2.4% to 3.12 billion euros.

The company managed to raise prices in most Latin American countries and Britain where fees are tied to inflation and raise prices on some products elsewhere, but costs such as labour and IT equipment often rose faster than prices, Chief Operating Officer Angel Vila said in an interview.

“We managed to pass on almost all (cost increases), but we had a profit margin erosion of about one percentage point,” he said.

The company also recorded a 19% increase in interest payments during the first quarter to 667 million euros and booked a 200 million euro capital gain in the first quarter of 2022 on the sale of telecom infrastructure in Colombia.

Brokerage CM Capital Markets said the results were negative for the share price as the net profit fell short of expectations, while the top line and core earnings were above consensus.

Shares were down 4.2% at 1112 GMT, having gained 19% so far this year.

Telefonica said its net financial debt, which has weighed down its business and share price in the past, fell by 244 million euros to 26.44 billion euros.

It reiterated guidance for low single digit revenue growth in 2023 after a 4% increase last year, and the same growth rate for core earnings. Reuters

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