Quarterly results January-June 2014

RNS Number : 8385N

Telefonica SA

31 July 2014

 



FINANCIAL HIGHLIGHTS

·        Accelerating commercial activity in the second quarter, focused on high-value customers, with sequential churn improvement.

®      Mobile contract accesses increased 9% year-on-year in organic terms, pay TV accesses were up 32%, smartphone penetration reached 32% (+8 percentage points year-on-year) and fibre accesses grew by 98%, with 10.5 million premises passed with fibre.

®      Total net additions in the quarter reached 2.6 million, 40% higher than the first quarter, registering an improved trend in nearly all services. Thus, quarterly net additions reached 2 million mobile contracts, 5 million smartphones, 610 thousand pay TV accesses, 228 thousand fibre customers and a limited net loss of 99 thousand fixed traditional accesses.

·        Organic revenue growth for the fifth consecutive quarter.

®      Revenues totalled 12,725 million euros in the second quarter and rose 1.3% year-on-year in organic terms (+3.7% year-on-year excluding regulation). In the first half, revenues advanced 1.4% year-on-year in organic terms (+3.6% year-on-year excluding regulation) to 24,957 million euros.

®      Second quarter in a row of sequential mobile data revenue growth acceleration (+9.2% year-on-year organic in the second quarter), highlighting non-SMS data revenues (+24.1% year-on-year organic in the second quarter).

®      The Company maintained its focus on technological transformation and network modernisation, translating in a significant CapEx increase in the first half of the year.

·        Stable OIBDA in the first half, despite increased commercial momentum in the second quarter.

®      In the second quarter, OIBDA fell 0.7% year-on-year in organic terms (+0.9% year-on-year excluding regulation) mainly due to higher commercial investments to capture growth opportunities.

®      OIBDA totalled 8,055 million in January-June 2014 and remained stable year-on-year (-0.1% in organic terms; +1.4% year-on-year excluding regulation). OIBDA margin stood at 32.3%, with limited organic erosion of 0.5 percentage points compared to the first half of 2013 and of 0.6 percentage points vs. the second quarter of 2013.

·        Solid cash flow generation, enhancing financial flexibility. 

®      Free cash flow amounted to 1,664 million euros, with a significant year-on-year growth (+14.7%) despite strong CapEx increase, the sale of T. Czech Republic and exchange rates variation.

·        Net financial debt declined 1,590 million euros in the first half to 43,791 million euros.

®      Net debt increased by 1,067 million euros in the second quarter, mainly due to the cash dividend payment of 0.40 euros per share in May.

®      Including post-closing events (disposal of T. Ireland, completed in July), net debt stood at 42,961 million euros and the leverage ratio at 2.43 times.

·        Second quarter net income increased 4.9% year-on-year to 1,210 million euros (1,903 million euros in the first half).

®      EPS improved in the second quarter to 0.26 euros (0.41 euros in the first six months to June).

·        Telefónica reiterates financial and operating targets for 2014, including the dividend.

®      First half 2014 results are in line with the Company's internal estimates for revenues, OIBDA margin erosion and CapEx/Sales (+0.1% year-on-year, -0.9 percentage points year-on-year and 13.7%, respectively, in organic terms and excluding Venezuela).

·        Telefónica España second quarter results confirmed the success of the refreshed offer, reflecting increased commercial activity in high value services. Including backlog increase in the quarter, Pay TV net additions amounted to 0.5 million; quarterly fibre net additions increased 69% vs. first quarter to reach 182 thousand; 721 thousand Fusión customers were repositioned (resetting their long-term contracts); and, for the first time since the second quarter of 2011, the Company posted positive mobile contract net additions. Revenue consolidation trend along with the radical change in commercial activity, demonstrate a change in the business dynamics in Spain, confirming its gradual turnaround, which should be gradually reflected in
year-on-year performance. 

·        Telefónica Brasilcompetitive position continued to improve in the second quarter through its focus on service quality and innovation in commercial offerings. Thus, the Company captured over 60% of total contract net additions in the market for the fourth quarter in a row. In the fixed business, 2.9 million premises were passed with fibre. Revenue growth accelerated in the second quarter despite the higher impact of regulation, driven by the acceleration in the mobile business. OIBDA returned to year-on-year growth for the first time in five quarters, after increasing 4.0% in organic terms in the second quarter. OIBDA margin stood at 32.1% in the quarter (+0.9 percentage points year-on-year), reflecting efficiency measures and despite higher commercial and network costs. 

Comments from César Alierta, Executive Chairman

"First-half results started to reflect the benefits from the investments in network modernisation carried out in recent quarters, which are enabling us to further differentiate our offering in key markets. This increased differentiation resulted in an acceleration of commercial activity in the second quarter, with net additions of 2 million mobile contracts, 5 million smartphones and over six hundred thousand pay TV customers. All these are
high-value services contributing to boost average revenue per customer and to reduce churn.

In financial terms, the performance in the first six months of the year was in line with our full-year expectations; organic revenue growth trend was similar to the first quarter while OIBDA was stable
year-on-year, despite increased commercial investments in high-value customers. This organic revenue and OIBDA performance was again overshadowed in reported terms by the negative impact of exchange rate fluctuations and recent disposals, though the impact of the first factor on cash flow generation was negligible.

In parallel, we continued to strengthen our competitive position through higher investments which resulted in 10.5 million premises passed with fibre and an expansion of LTE coverage to almost half of the population in our European markets and one third of the population in Latin America.

All this is accompanied with the ongoing improvement of our financial flexibility driven by strong cash flow generation. We also continued executing our asset portfolio optimisation policy, enabling us to reduce debt to below 43 billion euros including the disposal of Ireland, completed in July.

This asset portfolio optimisation policy includes the consolidation of Germany, expected to be completed in the third quarter, which will enable us to significantly increase our scale in this market and to generate significant synergies, thereby increasing the value of the business.

I would also like to highlight the status of the business in Spain, where the radical transformation undertaken in recent years and the clear improvement in the economic conditions resulted in a change of the business dynamics in the second quarter. Both our new commercial offering and the growing differentiation of our service quality have triggered a significant transformation in commercial activity that should be reflected in a gradual revenue improvement in the coming quarters".

	TELEFÓNICA
	SELECTED FINANCIAL DATA
	Unaudited figures (Euros in millions)
			2014				Reported		Organic			2014				Reported		Organic
	Revenues		24,957				(12.6)		1.4			12,725				(11.8)		1.3
	Telefónica España		5,992				(8.6)		(8.6)			3,000				(9.1)		(9.1)
	Telefónica UK		3,344				3.4		(0.1)			1,700				4.4		0.1
	Telefónica Deutschland		2,284				(6.6)		(6.6)			1,162				(4.4)		(4.4)
	Telefónica Brasil		5,484				(14.7)		0.6			2,818				(11.0)		1.0
	Telefónica Hispanoamérica		7,066				(13.8)		13.0			3,630				(14.6)		11.3
	Other companies & eliminations		787				(53.7)					416				(51.7)
	Telefónica Ireland		259				(6.7)		(6.7)			129				(8.4)		(8.4)
	Telefónica Czech Republic		-				n.m.					-				n.m.
	OIBDA		8,055				(14.5)		(0.1)			4,126				(15.0)		(0.7)
	Telefónica España		2,745				(12.3)		(14.0)			1,342				(16.0)		(16.5)
	Telefónica UK		805				6.2		2.6			401				(4.4)		(8.4)
	Telefónica Deutschland		515				(14.6)		(14.6)			265				(14.5)		(14.5)
	Telefónica Brasil		1,732				(16.3)		0.1			904				(11.1)		4.0
	Telefónica Hispanoamérica		2,267				(11.9)		17.5			1,192				(9.7)		20.1
	Other companies & eliminations		(8)				n.m.					22				(88.2)
	Telefónica Ireland		51				(1.6)		(1.6)			26				(5.9)		(5.9)
	Telefónica Czech Republic		-				n.m.					-				n.m.
	OIBDA margin		32.3%				(0.7 p.p.)		(0.5 p.p.)			32.4%				(1.2 p.p.)		(0.6 p.p.)
	Telefónica España		45.8%				(1.9 p.p.)		(2.8 p.p.)			44.7%				(3.7 p.p.)		(4.0 p.p.)
	Telefónica UK		24.1%				0.6 p.p.		0.6 p.p.			23.6%				(2.2 p.p.)		(2.2 p.p.)
	Telefónica Deutschland		22.6%				(2.1 p.p.)		(2.1 p.p.)			22.8%				(2.7 p.p.)		(2.7 p.p.)
	Telefónica Brasil		31.6%				(0.6 p.p.)		(0.1 p.p.)			32.1%				(0.0 p.p.)		0.9 p.p.
	Telefónica Hispanoamérica		32.1%				0.7 p.p.		1.3 p.p.			32.8%				1.8 p.p.		2.4 p.p.
	Operating Income (OI)		3,892				(9.8)		7.9			2,055				(8.7)		10.4
	Net income		1.903				(7.5)					1,210				4.9
	Basic earnings per share (euros)		0,41				(11.0)					0,26				2.0
		CapEx		3,523				(9.8)		27.2			1,968				0.3		25.4
	Telefónica España		703				12.1		24.9			436				16.3		40.5
	Telefónica UK		375				(65.0)		2.5			184				(19.5)		(3.0)
	Telefónica Deutschland		266				(10.1)		(10.1)			134				(10.9)		(10.9)
	Telefónica Brasil		833				12.3		37.6			523				10.6		35.5
	Telefónica Hispanoamérica		1,234				26.7		44.2			629				2.0		31.3
	Other companies & eliminations		112				(42.3)					62				(48.0)
	Telefónica Ireland		27				1.5		1.5			13				(27.8)		(27.8)
	Telefónica Czech Republic		-				n.m.					-				n.m.
	Spectrum		189				(77.3)		(75.3)			3				(98.2)		n.m.
	Telefónica España		-				n.m.		n.m.			-				n.m.		n.m.
	Telefónica UK		-				n.m.		n.m.			-				n.m.		n.m.
	Telefónica Deutschland		-				n.m.		n.m.			-				n.m.		n.m.
	Telefónica Brasil		-				n.m.		n.m.			-				n.m.		n.m.
	Telefónica Hispanoamérica		189				n.m.		n.m.			3				n.m.		n.m.
	OpCF (OIBDA-CapEx)		4,533				(17.9)		(13.5)			2,159				(25.3)		(16.9)
	Telefónica España		2,042				(18.4)		(22.6)			907				(25.9)		(30.3)
	Telefónica UK		429				c.s.		2.7			216				13.7		(12.6)
	Telefónica Deutschland		249				(18.9)		(18.9)			130				(18.0)		(18.0)
	Telefónica Brasil		899				(32.3)		(20.0)			381				(29.9)		(21.6)
	Telefónica Hispanoamérica		1,033				(35.5)		1.9			563				(19.9)		9.9
	Other companies & eliminations		(120)				c.s.					(39)				c.s.
	Telefónica Ireland		24				(4.9)		(4.9)			13				32.8		32.8
	Telefónica Czech Republic		-				n.m.					-				n.m.
	- 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.
	- 2013 and 2014 reported figures include the hyperinflationary adjustments in Venezuela in both years.
	- From January 1st, 2014, and due to the implementation of the new organization announced in February 2014, the activities carried out to date by Telefónica Digital, Telefónica Europe and Telefónica Latam are integrated into the Global Corporate Centre, thus simplifying the organization. Additionally, from the beginning of the year, the new organizational structure will be composed of T. España, T. Brasil, T. Deutschland, T. U.K. and T. Hispanoamérica (Argentina, Chile, Peru, Colombia, Mexico, Venezuela & Central America, Ecuador and Uruguay). All that is not specifically included in these new segments is part of "Other companies and eliminations". Thus, the results of T. España, T. Brasil, T. Deutschland, T. U.K., T. Hispanoamérica and "Other companies and eliminations" have been revised for the year 2013, to reflect the above mentioned new organization. As this is an intragroup change, Telefónica consolidated results for 2013 are not affected.
	- Organic criteria: Assumes constant exchange rates as of 2013 (average FX as of January - June 2013), 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.

                            Relaciones con Inversores

Distrito Telefónica - Ronda de la Comunicación, s/n

28050 Madrid (España)

Teléfono: [phone]

Fax: [phone]

Pablo Eguirón ([e-mail])

Isabel Beltrán ([e-mail])

Gonzalo Borja ([e-mail])

[e-mail]

www.telefonica.es/accionistaseinversores

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