By Inti Landauro
MADRID (Reuters) -Spanish telecoms company Telefonica (BME:TEF) expects revenue growth and reduced capital expenditure to drive a rise in profitability for the coming three years, it said on Wednesday.
In a document laying out its strategy until 2026, the company said it expected core earnings to rise by 2% per year and overall revenues by 1% as it shifts its focus toward growth, profitability and sustainability after years spent cutting debt and investing in infrastructure.
It also reiterated its forecast revenues will rise by 4% and core earnings will grow 3% this year from 2022.
Telefonica - in common with European rivals - faced a squeeze on profitability from cut-throat competition and the need for hefty investment in infrastructure for 5G technology and increased bandwidth as demand surged for content such as video streaming.
For years, the company sold stakes in more mature businesses such as submarine cables or mobile masts to fund its 5G and optic fibre expansion and to reduce debt.
The peak of investment in infrastructure was over, Telefonica's Chief Executive Jose Maria Alvarez-Pallete said in a meeting with analysts in Madrid.
The company expects the ratio of capital expenditure to revenues to fall to 12% in 2026 down from an expected 14% this year, and it also forecasts revenue will keep growing.
Telefonica booked a higher-than-expected 502 million euro ($536.54 million) net profit in the third quarter, significantly more than the 276 million euros expected by analysts in a company-provided consensus, Telefonica said.
The company's core earnings were 3.33 billion euros up from 3.25 billion euros a year ago, out of overall revenues of 10.32 billion euros. Both indicators were in line with consensus.
Chief Operating Officer Angel Vila attributed the profitability increase to higher revenue flows, lower energy costs and the greater efficiency of the company's networks.
Investors initially reacted positively to the results, with Telefonica shares up by more than 2% in early afternoon trading. They reversed course and shares were down 0.6% at 4.19 p.m. local time (1519 GMT).
($1 = 0.9356 euros)