Telefónica earnings eroded by Spain and Telecom Italia

Spanish telecoms giant Telefónica suffered a double-digit fall in earnings in the first half of the year due to ongoing weakness in its domestic market and a writedown of the value of its stake in Telecom Italia, partly offset by a strong performance by its Brazilian business.

Telefónica said Thursday its net income in the first six months fell 16.3 percent from a year earlier to 3.162 billion euros, in line with analyst forecasts. The telecoms operator took a charge of 353 million euros for the erosion of the value of its Telecom Italia stake. The company's shares closed down 0.48 percent.

Revenues in the period climbed 6.3 percent to 30.886 billion euros as a result of an 18.5-percent increase in its Latin American operations and a rise of 2.2 percent in Europe. Turnover in Spain dropped 6.1 percent due to stiffer competition and the ongoing weakness of the domestic economy.

"Spain remains very weak and we wonder whether Latin America's strong performance could slow down," Bloomberg quoted Andrés Bolumburu, an analyst at Banco Sabadell in Madrid, as saying.

Factoring out currency and consolidation perimeter effects, sales were up only 0.9 percent, below the upper level of the company's target for this year of growth of 2 percent.

Gross operating profit in the form of OIBDA increased 3.7 percent to 11.304 billion euros but fell in the case of Spain by 10.6 percent.

The number of accesses climbed 6 percent to 295 million at the end of June led by Latin America, where the increase was 8.0 percent. That compared with growth of only 0.5 percent in Spain.

"Telefónica delivered a solid set of first-half results, with sharp growth in consolidated revenues in the period despite challenging conditions in some of the markets where the company operates and the significant impact of regulation," Telefónica said in a statement.

Telefónica highlighted the performance of Brazil where the integration of its fixed line and mobile divisions is expected to generate synergies of 3.7-4.6 billion euros, higher than initially estimated.

After buying out Portugal Telecom's stake in their jointly owned Brazilian mobile company Vivo, Telefónica expects Brazil to take over from Spain as the company's main market.