Quarterly results January-Dec

RNS Number : 9266N

Telefonica SA

26 February 2009

 



TELEFÓNICA GROUP

Financial Highlights

• Telefónica ended 2008 with a solid set of results, underpinned by the strong organic growth reported by the businesses and the Company's high execution skills:

  • Total accesses rose 13.2% year-on-year to around 259 million at the end of 2008, driven by the sharp increase in wireless (+16.6%), broadband (+20.9%) and pay TV (+29.7%) accesses.

  • In reported terms, revenues rose 2.7% while OIBDA and OI advanced 0.4% and 3.6% respectively. 

  • In organic terms excluding capital gains1 growth accelerated from revenue to operating income, with revenues rising by 6.9%, OIBDA by 14.7% and OI by 28.7%. Revenues continued to grow at a similar same pace as in the first nine months (+7.0%), while OIBDA and OI increased the gap in terms of growth rate vs. September by 4.9 percentage points and 10.7 percentage points, respectively.

  • Net income reached 7,592 million euros in 2008, up 38.0% from 2007 on a like-for-like basis2. Basic earnings per share stood at 1.63 euros in 2008, 41.4% higher than in 2007 on a like-for-like basis2. 

• The Company's ongoing focus in 2008 on maximising efficiency and cash flow generation, in a context of increasing commercial activity and significant investment to expand its networks, resulted in an operating cash flow (OIBDA-CapEx) of 14,519 million euros:

• • Operating cash flow grew 20.2% year-on-year in organic1 terms excluding capital gains, outpacing revenue growth by 13.3 percentage points.

  • Free Cash flow per share reached 1.97 euros in 2008, compared with 1.86 euros a year earlier.

• In 2008 Telefónica devoted 69% of the Free cash flow generated over the year or 10% of the Company's market capitalisation3 to shareholder remuneration.

• Telefónica maintained its financial strength, with a ratio of net debt + commitments to OIBDA of 2.0x at the end of 2008, at the lower end of the target range set by the Company (2-2.5x).

• Once again Telefónica met Group guidance on all metrics, reflecting the value of its highly diversified portfolio of operations. Under the criteria used to establish its financial targets for 20084, all the metrics across the P&L were at the top end of, or exceeded the ranges announced to the market:

• • Revenue growth stood at 7.3% in a forecast range of 6%-8%.

  • OIBDA increased by 10.6% in a forecast range of 7.5%-11%;

  • OI advanced 20.4%, topping the announced range of 13%-19%;

  • CapEx totalled 8,544 million euros vs. a target of around 8,600 million euros.

• The Company has announced its guidance for 20095, which reflects the Company's ability to flexibly manage OpEx and CapEx in the current economic environment. In 2009 the focus will be on preserving strong cash flow generation in markets with a more complex economic outlook while at the same time exploiting the growth potential of growing markets. Telefónica expects:

• • Significant year-on-year growth in consolidated operating cash flow (OIBDA-CapEx) in the range of +8%/+11%;

  • Year-on-year consolidated OIBDA growth in the range of +1%/+3%;

  • Consolidated revenue growth;

  • CapEx is expected to be below 7,500 million euros.

                 2008 Base figures for financial targets:

• • Operating cash flow (OIBDA-CapEx): 14,201 million euros; 

  • Consolidated OIBDA: 22,602 million euros;

  • Consolidated revenues: 57,946 million euros;

  • Consolidated CapEx: 8,401 million euros. 

• The strong cash flow generation expected for 2009 has permitted the Company to increase the dividend corresponding to 2009 fiscal year to a total amount of 1.15 euros per share, up 15% from the dividend of 1 euro per share to be paid against 2008 results. This proposal confirms Telefónica's commitment to prioritize shareholders returns for the use of its Free Cash Flow and to progressively increase the dividend per share. 

• The Company maintains its target to reach an EPS6 of 2.304 euros and a FCFS7 of 2.87 euros in 2010. 

The Company has conducted a sensitivity analysis to assess the impact of the changes in the trading environment, reflecting an extreme scenario for 2010 (extrapolating the strong depreciation of some currencies versus the euro and current economic weakness). Under this extreme scenario, 2010 EPS6 would stand at 2.10 euros and 2010 FCFS7 would reach 2.50 euros.

TELEFÓNICA ESPAÑA:

• The company maintained its competitive strength in the market, with 47.3 million accesses (an increase of +2.0% year-on-year):

• • Telefónica maintained its leadership in the broadband market, with an estimated market share around 57%. Retail broadband Internet accesses stood at over 5.2 million (+13.7% year-on-year), with a solid performance in broadband ARPU (-3.9% year-on-year) over the year.

  • The number of pay TV subscribers topped 612,000, up 19.8% on December 2007 and increasing the Company's estimated market share to 14%.

  • In a market characterised by a high penetration rate, Telefónica achieved a noteworthy 6.8% year-on-year growth in its mobile contract customer base, driving the total customer base to more than 23.6 million lines (an increase of 3.4% from a year earlier).

• In adverse economic conditions, the results achieved in 2008 underline the efficiency improvements attained and the Company's focus on maintaining margins and cash generation:

• • Revenues grew 1.5% on like-for-like8 terms in 2008, compared with the 2008 target of 2.0% to 3.5% growth, reflecting the overall slowdown of the market and the lower usage in some segments. Particularly noteworthy were the sharp rise in wireline Internet and broadband revenues (+8.7%) and the jump in mobile connectivity data revenues (+65.2% versus 2007), which pushed up mobile data revenues by 14.8%.

  • OIBDA increased by 8.9% from 2007, with the margin improving by 3.7 percentage points to 49.4%, meeting the announced growth targets despite the pressure on revenues. Thus, OIBDA growth, under the criteria used to establish the financial targets for 2008, stood at 7.0%, within the target range of 6% - 8%.

  • Operating cash flow (OIBDA-CapEx) increased by 14.3% year-on-year in 2008 to 8,077 million euros, underlining the Company's ability to manage its investment.

TELEFÓNICA LATINOAMÉRICA:

• Telefónica Latinoamérica ended 2008 with a solid set of commercial results, underpinned by the dynamism of the telecommunications market in the region, which again registered strong growth in the fourth quarter:

• • Telefónica Latinoamérica increased its customer base by 18% from 2007 to over 158 million accesses in the region.

  • Strong levels of commercial activity in the wireless market led to 18.9 million organic net adds in 20089, driven by the higher number of gross adds and by churn contention. The total wireless customer base increased by 18.1% in organic terms10, to 123.4 million accesses. Outgoing ARPU grew 0.9% in constant currency11, despite the sharp rise in the customer base.

  • In broadband, net adds topped one million in 2008, bringing total accesses to more than 6 million (+20.5% year-on-year), while pay TV customers surpassed 1.5 million and wireline access increased by 1.0% from December 2007. Average revenue per fixed telephony access increased by a solid 6.4% in constant euros.

• Telefónica Latinoamérica consolidated its position as the Group's growth driver in 2008, exceeding the growth targets announced at the start of the year12:

• • In accordance with the guidance criteria, year-on-year revenue growth stood at 14.2%, compared with a target of +11%/+14%, while OIBDA advanced 17.6%, well ahead of the +12%/+16% growth target. 

  • The pace of organic revenue growth13 remained strong over the year (+12.9%), with organic OIBDA growth13 accelerating sharply in the fourth quarter (+21.5% in 2008, +15.6% in the first nine months).

  • Telefónica Latinoamérica reported operating cash flow (OIBDA-CapEx) of 4,415 million euros in 2008, up 21.8% from 2007 in constant euros.

TELEFÓNICA EUROPE:

• Telefónica Europe increased its total mobile base in 2008 by 2.9 million lines, to reach 41.2 million mobile customers at the end of the year (+7.6% year-on-year).

• Telefónica Europe had a strong financial performance in 2008, with financial targets successfully achieved in a worse economic environment:

• • Under guidance criteria, revenue growth in 2008 reached 5.9%14 year-on-year, within the 4%-7% announced guidance, and reflected a more balanced contribution from the different businesses:

• • • Total revenue for Telefónica O2 UK had a strong 10.6% year-on-year growth in local currency in 2008, outperforming the mobile market on a leading contract churn rate and focused commercial approach around Simplicity and iPhone.

    • In the fourth quarter of 2008 Telefónica O2 Germany returned to positive year-on-year growth in mobile service revenues (+0.7%) in a very competitive environment. The business ended the year with a total revenue growth of 1.5% year-on-year with the foundations of the business on track and a new commercial approach set in the last quarter of the year.

    • The businesses in the Czech Republic, Slovakia and Ireland were particularly active in the fourth quarter of the year, reinforcing improving trends for the future.

  • Under guidance criteria, OIBDA rose 4.7%14 in the year, meeting the 2%-6% guidance. In 2008 the OIBDA margin stood at 29.2%, broadly unchanged from 2007 in like-for-like15 terms, as efficiency measures taken in 2007 and 2008 pay off, as well as more focused commercial activity.

• Operating Cash Flow (OIBDA-CapEx) grew 6.7% year-on-year in like-for-like15 terms, despite increased investment in Germany.

 1. Assuming constant exchange rates and including the consolidation of TVA in January-September 2007 and Telemig in April-December 2007. Excluding the consolidation of Airwave in January-March 2007 and Endemol in January-June 2007. Revenues include the impact in Telefónica España of the new model for the public use telephone service (-147.4 million euros in 2007). In OIBDA and OI, the impact of asset disposals (Airwave, Endemol and Sogecable) is excluded from both periods.

 2. Excluding the impact of asset disposals (Airwave, Endemol y Sogecable) in both periods and the impact of the impairment charge taken by Telco, SpA's on its investment of Telecom Italia.

 3. Market capitalisation as of 25 February 2009.

4. 2007 base figures exclude Airwave and Endemol and include the consolidation of TVA in October-December 2007. The revenues of T. España are adjusted to reflect the new business model for public telephony service revenues. As a result, Group revenues have been adjusted to reflect this new model. The 2008 figures include TVA, Deltax and Telemig (since April 2008). Telefónica's CapEx does not include the Real Estate Efficiency Programmes. The growth provided for 2008 guidance assumes constant exchange rates from 2007. In terms of guidance calculations, OIBDA and OI exclude exceptional revenues and expenses not foreseeable in 2007.

 5. 2008 adjusted figures for guidance excludes Sogecable capital gain (143 million euros) and the application of provisions made in T. Europe in respect of potential contingencies deriving from the past disposal of shareholdings, one these risks had dissipated or had not materialized (174 million euros), includes 9 months of consolidation of Telemig in T. Latam. 2009 figures for guidance assume 2008 constant FX (average FX in 2008). In terms of guidance calculation, OIBDA exclude capital gains and losses from sale of companies and write-offs. Group CapEx excludes Real Estate Efficiency Program of T. España and spectrum licenses. 

 6. Reported EPS

 7. FCF available to remunerate Telefonica S.A. shareholders, to protect solvency levels and to accommodate strategic flexibility.

 8. Including the impact on Telefónica España of the new model for public use telephone service (147.4 million euros in the period from January to December 2007).

 9. The Telemig customers incorporated by the Group in April 2008 (close to 4 million) are not included as net adds in the period.

 10. Including Telemig's accesses in December 2007.

 11. Including Telemig in April-December 2007.

 12. Assuming constant exchange rates of 2007. In terms of guidance calculation OIBDA and OI exclude other exceptional revenues/expenses not foreseeable. 2007 base figures include the consolidation of TVA in October-December 2007.

 13. Assuming constant exchange rates and including the consolidation of TVA in January-September 2007 and Telemig in April-December 2007.

 14. Assuming constant exchange rates and excluding the consolidation of Airwave in the first quarter of 2007.

 15. Assuming constant exchange rates and excluding the consolidation of Airwave in the first quarter of 2007. Capital gain from the sale of Airwave is also excluded, as well as gains related to the real estate sale in the Czech Republic, restructuring and similar charges and the result of the application of provisions made in respect of potential contingencies deriving from the past disposal of shareholdings, once these risks had dissipated or had not materialized.

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