Quarterly Results January-December 2013

RNS Number : 0836B

Telefonica SA

27 February 2014

 



financial highlights

·         Organic revenue growth, in line with the return-to-growth target for 2013.

®      Revenues amounted to 57,061 million euros and increased 0.7% year-on-year in 2013 in organic terms (+2.3% year-on-year excluding the negative impact of regulation).

®      Telefónica Latinoamérica (51% of revenues; +9.6% year-on-year) and mobile data revenues (+9.3%) remained as main growth drivers during the year, more than offsetting revenue pressure at T. Europa
(-8.6%), impacted by regulation and a highly competitive environment.

®      In the fourth quarter revenues posted positive growth for the third quarter in a row (+1.8% year-on-year organic).

·         OIBDA stabilisation in 2013:

®      OIBDA totalled 19,077 million euros and remained stable in organic terms compared with 2012, on the back of revenue growth, strict cost control and efficiencies reflecting the progress of the Company's transformation strategy.

®      OIBDA margin stood at 33.4% and posted a year-on-year erosion of 0.2 p.p. in organic terms, 1.1 p.p. lower than the decline posted in 2012, consistent with the target for 2013.

®      In the fourth quarter, OIBDA continued posting a sequential year-on-year organic improvement trend, and grew 1.2% year-on-year (-0.3% in the third quarter; -0.7% in the second).

®      Exchange rate evolution deducted 7.5 p.p. to year-on-year revenue and OIBDA growth in 2013. This evolution also reduced payments in euros related to CapEx, interests, taxes and minorities, offsetting almost two thirds of the negative impact of exchange rates on OIBDA and significantly mitigating their effect on cash flow generation.

·         Solid free cash flow generation of 5,391 million euros in 2013, 6,890 million euros excluding spectrum payments.

®      Free cash flow per share in the year reached 1.19 euros per share, allowing for an ample coverage of dividend commitments for 2013 (0.75 euros per share). The Company paid a dividend of 0.35 euros per share on November 6th and will pay the remaining 0.40 euros per share in cash in the second quarter of 2014.

·         Enhanced financial flexibility and strengthened balance sheet, with a net financial debt reduction of 5,878 million euros in 2013:

®      Net debt amounted to 45,381 million euros as of December, comfortably achieving the target of net debt below 47,000 million euros in 2013.

®      Including post-closing events (disposal of T. Czech Republic, completed in January 2014, and T. Ireland), net debt stood at 42,325 million euros, bringing the debt ratio to 2.31x, and implying a net debt reduction of 15,985 million euros since June 2012.

·         Net profit in 2013 amounted to 4,593 million euros (+16.9% year-on-year) and basic earnings per share totalled 1.01 euros (+15.6%), progressively improving throughout the year.

·         CapEx (excluding spectrum)/sales organic ratio in 2013 (14.5%) was slightly higher than in 2012 (14.1%).

·         Telefónica España showed a gradual business recovery in 2013. It should be highlighted the strong commercial momentum in the last quarter of the year, mainly in fibre and pay TV, with record quarterly net additions, and the slight improvement in the mobile contract segment. Total revenues fell 13.6% year-on-year in 2013 and 11.9% in the fourth quarter, with the year-on-year decline trend easing for the third quarter in a row. Profitability remained strong, reflecting the benefits and savings from the operational transformation, with an OIBDA margin of 48.9% at the end of the year (+3.3 percentage points year-on-year organic).

·         Telefónica Brasil strengthened its competitive position in 2013 both in the mobile business, reinforcing its leadership in high-value segments, and in the fixed business, thanks to the new commercial proposition and the rollout of fibre. As a result, contract segment reached again record net additions in the fourth quarter (1.6 million accesses). Operating performance in the fixed business continued to improve in 2013, registering positive net additions across the board (traditional business, broadband and pay TV). Revenues maintained in 2013 a solid year-on-year growth of 3.7% in organic terms excluding the negative impact of regulation. The OIBDA margin stood at 32.3% up to December (-2.6 percentage points compared with 2012) as a result of the commercial focus on high-value customers.

·         Telefónica announces its guidance and shareholder remuneration policy for 2014.

Guidance¹ for 2014 is: 

Guidance 2013	2013	Guidance 2014 (organic and excluding Venezuela)
Revenue growth (>0%)	0.7%	Positive revenue growth
Lower OIBDA margin decline than in 2012 (-1.4 p.p.)	(-0.2 p.p.)	OIBDA margin towards stabilisation with erosion of around 1 p.p. y-o-y to allow for commercial flexibility if needed
Similar CapEx (ex-spectrum)/Sales as in 2012 (14.1%)	14.5%	CapEx /Sales: 15.5%-16%
		Guidance 2014 (Reported)
Net debt < €47Bn	€45.4Bn	Lower than €43Bn

®      CapEx increase oriented to stimulate growth; Network differentiation, improve market positioning & ROCE in core markets.

®      Mid-term commitment 2.35x Net financial debt/OIBDA reiterated.

®      2013 Dividend: 0.75 euros per share (0.35 euros paid in November 2013; 0.40 euros cash payment in the second quarter 2014).

Distribution of a dividend in 2014 of 0.75 euros per share.

®      To be paid in the fourth quarter 2014 (0.35 euros per share by means of scrip dividend) and in the second quarter 2015 (0.40 euros per share in cash).

¹ Guidance criteria 2014: 2014 guidance assumes constant exchange rates as of 2013 (average FX in 2013), excludes Venezuela in both years and considers constant perimeter of consolidation. OIBDA level guidance for 2014 excludes write-offs, capital gains/losses from companies' disposals, towers sales and other significant exceptionals such as restructuring costs, etc. CapEx excludes spectrum acquisition.

2013 adjusted bases exclude:

ü  T. Venezuela

ü  Homogeneous perimeter: Group T. Czech Republic (excluding results from January-December 2013); T. Ireland (excluding results from July-December 2013)

ü  Tower sales

ü  Capital gains/losses from companies' disposals: Capital gains from the sale of Hispasat and Telefónica Móviles Aplicaciones y Soluciones. Value adjustments of T. Ireland and T. Czech Republic

2013 Bases for 2014 targets:

·          Revenues: 51,580 million euros

·          OIBDA margin: 32.5%

·          CapEx/Sales: 14.2%

Comments from César Alierta, Executive Chairman:

"In 2013, Telefónica has advanced significantly in its transformation process, achieving the targets set for the year; return to organic revenue growth, progressive margin stabilisation and improvement in financial flexibility compatible with the strengthening of the Company's growth potential.

We will accelerate this transformation in 2014. Among our targets, we will continue accelerating revenue growth while generating synergies to advance in margin stabilisation. At the same time, we will increase investments to anticipate to the growing demand from the increasingly intensive data service usage, as well as the recovery of demand expected in some of our main markets.

As a result, Telefónica will reinforce the differentiation of its products and services through a non-replicable infrastructure. In 2014 Telefónica will double the fibre coverage in Spain to 7.1 million homes passed, reaching the highest coverage levels among the largest economies in Europe. In Brazil we will also increase fibre coverage to 2.5 million homes. In the mobile business, we will expand 4G usage in Europe reaching an average coverage of more than 50%, while we continue leading the mobile data market in Latin America with the progressive launch of 4G.

This intensification in investments is compatible with our commitments to continue improving financial flexibility and to offer an attractive remuneration for our shareholders. Our targets for 2014 include an additional reduction of net debt, maintaining our dividend in €0.75 per share. For that purpose, we will continue executing our asset portfolio optimisation strategy, freeing non-strategic resources that will allow us to improve our positioning and growth potential in key markets, both inorganically and organically, through the increased investment in 2014.        

In parallel and in order to accelerate growth, we have announced a deep organizational transformation. The Digital revolution entails a huge opportunity and at the same time requires an evolution to take advantage of its full potential. Telefónica pioneered the movement towards a Digital world and now, we will accelerate this transformation. The new operating structure will enable us to reinforce our commercial and technological profile, as well as to increase our differentiation thanks to the modernisation of our infrastructures, targeting revenue growth acceleration and data monetization.  

Telefónica has always been a reference in terms of efficiency, and technological revolution, the strengthening of our technologic positioning and infrastructures, is compatible with the increase in our efficiency. As a result, we are launching a new synergy plan to generate savings totalling 1.5 billion euros per year in the following years.

Overall, this new organisational structure implies one step further in the already defined strategy, being possible thanks to the goals achieved, and allowing us to be; more agile in decision making, faster in the implementation of the strategy, more flexible in satisfying our client needs and more efficient in the use of our resources, maximising this way the returns offered by the Digital revolution."

TELEFÓNICA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
	January-December		% Chg			October-December		% Chg
	2013		Reported	Organic		2013		Reported	Organic
Revenues	57,061		(8.5)	0.7		14,436		(8.9)	1.8
Telefónica Latinoamérica	29,193		(4.3)	9.6		7,410		(6.7)	10.3
Telefónica Europe	26,840		(10.6)	(8.6)		6,739		(10.0)	(7.9)
Other companies & eliminations	1,028		(43.8)			286		(29.9)
OIBDA	19,077		(10.1)	0.0		4,977		(8.7)	1.2
Telefónica Latinoamérica	9,439		(15.0)	5.3		2,549		(20.3)	6.1
Telefónica Europe	9,917		(3.0)	(5.2)		2,548		11.0	(6.4)
Other companies & eliminations	(279)		180.8			(120)		n.m.
OIBDA margin	33.4%		(0.6 p.p.)	(0.2 p.p.)		34.5%		0.1 p.p.	(0.2 p.p.)
Telefónica Latinoamérica	32.3%		(4.0 p.p.)	(1.3 p.p.)		34.4%		(5.9 p.p.)	(1.4 p.p.)
Telefónica Europe	36.9%		2.9 p.p.	1.3 p.p.		37.8%		7.2 p.p.	0.6 p.p.
Operating Income (OI)	9,450		(12.5)	(0.5)		2,765		(0.9)	5.5
Telefónica Latinoamérica	4,805		(20.1)	8.3		1,475		(21.5)	16.4
Telefónica Europe	5,211		(0.0)	(9.1)		1,506		44.0	(10.0)
Other companies & eliminations	(566)		31.5			(217)		59.3
Net income	4,593		16.9			1,448		n.m.
Basic earnings per share (euros)	1.01		15.6			0.31		n.m.
CapEx	9,395		(0.7)	3.8		3,376		(10.2)	10.5
Telefónica Latinoamérica	5,252		(3.7)	15.5		2,178		(11.8)	13.3
Telefónica Europe	3,872		10.2	(7.7)		1,067		(4.1)	9.1
Other companies & eliminations	272		(44.6)			130		(26.9)
OpCF (OIBDA-CapEx)	9,682		(17.8)	(2.7)		1,601		(5.3)	(12.0)
Telefónica Latinoamérica	4,188		(25.9)	(3.6)		371		(49.1)	(12.6)
Telefónica Europe	6,045		(10.0)	(4.1)		1,480		25.3	(14.8)
Other companies & eliminations	(551)		(6.6)			(250)		13.5
- Reconciliation included in the excel spreadsheets.
Notes:
- OIBDA and OI are presented before brand fees and management fees.
- OIBDA margin calculated as OIBDA over revenues.
- 2012 and 2013 reported figures include the hyperinflationary adjustments in Venezuela in both years.
- Other companies & eliminations include the results of Atento in 2012 until November 30th.
- CapEx includes 1,224 million euros from the spectrum acquired in January-December 2013 (226 million euros in the fourth quarter): 69 million euros in Spain, 719 million euros in United Kingdom, 185 million euros in Brazil, 109 million euros in Colombia in the fourth quarter, 120 million euros in Peru in the fourth quarter and 22 million euros in Uruguay. In January-December 2012 it includes 586 million euros (549 million euros in the fourth quarter): 127 million euros in Ireland in the fourth quarter, 420 million euros in Brazil in the fourth quarter, 5 million euros in Nicaragua and 34 million euros in Venezuela.
- From January 1st, 2013, Tuenti is included in the consolidation perimeter of T. España. Before it was included within "Other companies and eliminations" of Telefónica Group. As a consequence, the results of T. España, T. Europe and "Other companies and Eliminations" of Telefónica Group have been restated for the year 2012. As this is an intragroup change, Telefónica consolidated results for 2012 are not affected.
- Organic growth / 2013 guidance: Assumes constant exchange rates as of 2012 (average Fx in 2012), excludes hyperinflationary accounting in Venezuela in both years and considers constant perimeter of consolidation. In OIBDA and OI terms excludes write-downs, capital gains/losses from companies' disposals, tower sales and material non-recurring impacts. CapEx excludes spectrum acquisition.

DISCLAIMER

This document contains statements that constitute forward looking statements about Telefónica Group (going forward, "the Company" or Telefónica) including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which may refer, among others, to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company.

The forward-looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements, by their nature, are not guarantees of future performance and involve risks and uncertainties, and other important factors that could cause actual developments or results to differ from those expressed in our forward looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica with the relevant Securities Markets Regulators, and in particular, with the Spanish Market Regulator.

Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the securities issued by the Company, are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation.

Except as required by applicable law, Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica's business or acquisition strategy or to reflect the occurrence of unanticipated events.

This document may contain summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, any fuller disclosure document published by Telefónica.

Finally, it is stated that neither this presentation nor any of the information contained herein constitutes an offer of purchase, sale or exchange, nor a request for an offer of purchase, sale or exchange of securities, or any advice or recommendation with respect to such securities.

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