Spanish telecoms giant Telefonica on Friday reported annual net profits down 8.5 percent to 2.75 billion euros, partly down to costs associated with voluntary redundancies in Spain.

Analysts contacted by information data company Factset had estimated higher losses of 3.32 billion euros.

Revenue for one of the world's top five telecoms groups rose by a better than forecast 8.7 percent to 47.22 billion euros while year-on-year sales rose 4.0 percent on an organic, or self-generated,  basis.

Operating income before depreciation and amortization, a measure of profitability, plunged 17.2 percent to 11.41 billion from 13.8 billion last year.

Shares were trading lower mid-morning in Madrid, down 0.6 percent at 9.37 euros.

Telefonica said it had set aside 2.60 billion euros in the fourth quarter for its layoffs plan which could cover several thousand employees in Spain aged 53 and over.

In a statement, the group, which revealed it was targeting at least a 4.0 percent revenue rise in 2016, said the proposed voluntary departures would "improve efficiency in the coming years."

The group is primarily present in Spain, Germany and Brazil and is concentrating on high value services such as fibre optics, Pay TV and 4G.

Net debt stood at 49.92 billion euros at the end of 2015 but expects to trim that debt pile with the proposed $14 billion sale of its British mobile phone operator O2 to Hong Kong conglomerate Hutchison Whampoa.

That deal is still dependent on Brussels giving the green light to the transaction which is still the subject of a competition enquiry.