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Telefonica Profit Rises After Digital Push Bears Fruit

Rodrigo Orihuela

(Bloomberg) -- Telefonica SA said first-quarter earnings rose 1% on an organic basis, as the Spanish phone carrier advanced a cost-cutting push to simplify and digitalize the organization.

On an underlying basis, operating income before depreciation and amortization, which strips out the impact of one-time items and doesn’t factor in accounting changes, fell 3.9% to 3.73 billion euros ($4.2 billion), in line with the 3.75 billion-euro average of seven estimates compiled by Bloomberg.

Key Insights

Telefonica Chairman Jose Maria Alvarez-Pallete is pushing artificial intelligence and other technology throughout the company’s networks to cut costs and improve efficiencies. In its statement Friday, the company said it’s retaining more customers by digitalizing the sales process and customer support. The carrier recorded higher sales in its four largest markets, in local-currency terms. Oibda was negatively impacted by poor performance in the embattled Mexican unit, where it declined 46 percent in the quarterNet debt is set to drop to 38.7 billion euros after Telefonica receives proceeds from asset sales. That’s below 40 billion euros for this first time since 2005, before Telefonica made a series of acquisitions. It was the eighth consecutive quarter in which debt declined, driven by Pallete’s reliance on internally generated cash to reduce leverage. Telefonica, which long faced investor concerns about its debt, may now have financial flexibility to pursue acquisitions for growth.

Market Reaction

Telefonica rose as much as 1.6% in early Madrid trading. The shares were down 3% this year through Thursday, compared to a 1.7% drop for the Stoxx 600 Telecommunications index.

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Telefonica reported an increase in non-adjusted Oibda of 10.3 percent to 4.26 billion euros, a gain driven by the impact of Telefonica adopting IFRS accounting standards that offset foreign currency depreciation.For more on the numbers, click here

(Updates with share prices in Market Reaction section.)

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net

To contact the editor responsible for this story: Rebecca Penty at rpenty@bloomberg.net

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