The Company has reached
the operating targets laid down for the whole year, and ensured
dividend continuity with 0.75 euros per share in 2015 and
2016
In the results presentation, César Alierta, Chairman and CEO of
Telefónica (NYSE:TEF) (LSE:TDE), has emphasized that "the execution
of our transformation strategy in recent years, coupled with the
evident change in trends which is underway, lead us to upgrade the
level of our ambition for the next two years. The evolution of our
operations, the strength of our Balance Sheet and the current
environment all present clear signs of improvement and are
reflected in the acceleration of the Company’s profitable and
sustainable growth”.
Telefónica announces its operating and
financial guidance for 2015 and ambition for 2016Operating guidance 2015 and ambition 2016 criteria
(p.7)
Base 2014 Operating guidance 2015 & ambition 2016
Guidance 2015E Ambition 2016E 42,853M€
Revenues
>7% >5%
CAGR 2014-16E
32,6%
OIBDA margin
Limited margin erosionaround 1 p.p. (to
allow forcommercial flexibility ifneeded)
Stabilising in 2016
16,7%
Capex / Sales Around 17% Around 17% (-2
p.p. 2017E vs.2016E) Financial Guidance 2015 &
Ambition 2016 Guidance Ambition2016E
Net Financial
Debt / OIBDA <2.35x <2.35x
Telefónica announces the distribution of a
dividend of 0.75€ per share in 2015 and 2016
Telefónica will propose
the adoption of the relevant corporate resolutions with the aim
to:
- In 2015, amortise Treasury stock for a
total of 1.5% share capital and distribute a dividend of 0.75 euros
per share. Payable in the fourth quarter of 2015 (0.35 euros per
share in the form of a voluntary scrip dividend) and in the second
quarter of 2016 (0.40 euros per share in cash).
- In 2016, amortise Treasury stock for a
total of 1.5% share capital and distribute a dividend of 0.75 euros
per share in cash, in both cases subject to the closing of the
proposed sale of O2 UK.
- Total income of 50,377 million euros for the whole of
the year showing widespread acceleration in organic growth in
almost all countries. At the same time, efficiency and
simplification measures have secured solid profitability, with
OIBDA of 15,515 million euros and an
OIBDA margin of 30.8% for the whole of the year.
- In the fourth quarter, both income
(12,399 million euros) and OIBDA (3,190 million euros) have been
affected by the adjustment of the exchange rate in Venezuela, which
has taken 2,187 million euros from income and 1,379 million euros
from OIBDA, this also affected by the provision of restructuring
costs.
- Telefónica's investment has 16.9% organic y-o-y growth, and
totalled almost 9,500 million euros in 2014, which includes 1,294
million euros spectrum acquisition. This investment effort
represents a considerable step forward towards the modernisation
and differentiation of the company's networks, and strengthens the
company's transformation into a Digital Telco that will ensure more
sustainable future growth.
- Telefónica has maintained a strong
financial discipline in 2014. At year
end, total debt was 45,087 million euros, impacted by the exchange
rate in Venezuela, which increased debt by 2,341 million euros.
Debt would stand at 31,705 million euros and the debt ratio (net
financial debt over OIBDA) at 2.15 times after the closing of the
proposed sale of O2 UK and the FX change in Venezuela.
- Growth of net
profit in 2014 compared to 2013 was affected by several
extraordinary factors which took place mainly in the fourth quarter
(non-recurrent provisions, adjustment of the exchange rate in
Venezuela and provision of restructuring costs, among others).
Setting aside these effects, consolidated net profit was 4,462
million euros (-18.6%).
- In 2014, Telefónica's free cash flow translated into 3,817 million
euros, equal to 0.83 euros per share, meaning the Company is able
to comfortably cover 2014 cash dividend payments, as it represents
just 55% of FCF per share.
- In operating terms, the company at the
end of 2014 had 341 million accesses,
showing y-o-y growth of +6%. Particularly relevant is the
performance of high-value services, with y-o-y growth of +11% and
+39% in contract mobiles and smartphones, respectively.
- Spain, Brazil and Germany have
consolidated their position as the Telefónica
Group's major markets, where the company has managed to
strengthen its competitive position:
- In Spain,
last year marked a turning point, consolidating the stabilisation
of income, which reached 3,038 million euros between October and
December (12,023 million euros for the whole of the year), with a
clear trend of quarter-on-quarter improvement. This is the result
of Telefónica Spain's competitive differential positioning in the
fiber, in the mobile contract and in the pay TV segments.
- In Brazil,
Telefónica has strengthened its competitive position in the market,
especially in the higher value segments, which will consolidate
with the purchase of GVT. In 2014, the company captured more than
half of all new mobile contract customers and 38% of the LTE
market, while at the same time pushing forward the deployment of
fibre (4.1 million property units connected) and has significantly
increased paid-TV clients (+20%). Its main financial items grew
year-on-year in organic terms, despite the impact of regulation
(+0.5% and +0.9%, income and OIBDA, respectively).
- The final quarter of 2014 showed the
potential of the newly established Telefónica Germany, after the integration of E-Plus on 1
October. The company is now established as the leading carrier in
the mobile market, with 47.7 million accesses, and has shown
stability in income in the fourth quarter resulting from the
success of data monetisation.
Telefónica presented today FY 2014 results, a
year in which the company has taken key steps and obtained visible
results in its strategy of transformation towards becoming a
Digital Telco. Both investment and the management of the assets
portfolio have focused on increasing its competitive positioning in
higher-value sectors and markets, translating into an acceleration
in income growth throughout the year. At the same time, it has
maintained its strict cost management and obtained significant
savings from the simplification of the new operating model,
resulting in positive OIBDA growth in organic terms.
Total revenues for the year stood at 50.377
million euros and this consolidates widespread acceleration of
organic growth in the fourth quarter in almost all countries. As
such, this figure grew, in organisational terms, by +5% between
October and December with an increase of +2.6% for the whole year.
At the same time, efficiency and simplification measures have
secured solid profitability, with OIBDA of 15,515 million euros
(+0.2% organic y-o-y) and an OIBDA margin of 30.8% for the whole of
the year.
Taking all this into account, the net profit
of Telefónica at the end of 2014 totalled 3,001 million euros
(-34.7%), a figure which was affected by several extraordinary
factors, which came into play mostly in the fourth quarter.
Non-recurrent provisions for the October-December period deducted
1.088 million euros from this figure, and include the impact of the
exchange rate adjustment in Venezuela, the provision of
restructuring costs and the adjustment to the Telco's valuation,
among other factors. Setting aside these effects for the year,
consolidated net profit was 4,462 million euros (-18.6%).
In the results presentation report,
Telefónica’s Chairman and CEO, César Alierta, has stressed that
"results in the fourth quarter of 2014 represent the culmination of
a period of intense transformation that has strengthened the
Company, its growth potential and its financial position in just
over two years”.
He also explained that “this transformation
was carried out from the core of the business, thanks to an intense
CapEx effort that has allowed us to adapt to the evolution of our
customers’ technological needs which are characterised by a booming
data usage”.
Strong growth in higher value segments
Total accesses
reached 341 million at December 2014, up 6% year-on-year, after
incorporating the customers of E-Plus in T. Deutschland and posting
solid growth at T. Hispanoamérica, T. Brasil and T. UK. By
services, commercial momentum focused on high value customers
remained high in the quarter and was reflected in sustained growth
of mobile contract (smartphones and LTE), fibre and Pay TV
accesses.
Mobile accesses totalled 274.5 million, up 8%
vs. 2013, driven by the strong growth of the mobile contract
segment (+11% reported), which continued to increase its weight and
accounted for 36% of mobile accesses. Particularly noteworthy in
the fourth quarter was the performance of T. España, which posted
mobile contract net additions (+57 thousand) for the third quarter
in a row and for the first time in the full year since 2011.
Smartphones maintained a strong growth momentum (+39% year-on-year)
and stood at 90.4 million, reaching a penetration of 35% over the
total access base.
Retail broadband accesses totalled 17.7
million, with net additions of 11 thousand accesses in the quarter
(138 thousand accesses in 2014 in organic terms). Fibre accesses
stood at 1.8 million at December 2014 (2.1 times greater vs.
December 2013), after posting record net additions in the quarter
of 308 thousand accesses, up 16% quarter-on-quarter, boosted by T.
España (248 thousand accesses). Finally, pay TV accesses totalled
5.1 million and grew 48% in organic terms.
Main results
It is important to highlight the Company's
decision to adopt the exchange rate of the Venezuelan bolivar set
at the previously denominated SICAD II at the end of 2014, as being
the most representative among the available exchange rates as of
that date, for the monetary translation of the accounting figures
of cash flows and balances, impacting fourth quarter financial
results. In the last auction of the quarter this rate was set at 50
bolivars per dollar. In the fourth quarter, the evolution of
exchange rates was especially impacted by the aforementioned change
to SICAD II and, to a lesser degree, the depreciations of the
Argentine peso and the Brazilian real against the euro. Thus, the
negative impact of exchange rates reduced year-on-year revenue and
OIBDA growth by 20.4 percentage points and 23.9 percentage points
respectively (12.1 percentage points and 13.1 percentage points in
January-December 2014).
In addition, the results of E-Plus at
T.Deutschland are consolidated from 1 October, affecting, together
with the deconsolidation of the results of T. Czech Republic (since
January 2014) and T. Ireland (since July 2014), the year-on-year
comparison of Telefónica's reported financial results. Thus,
changes in the perimeter of consolidation contributed with 1.6
percentage points to fourth-quarter revenue growth, while reduced
full-year growth by 2.1 percentage points. OIBDA was reduced by 2.3
percentage points in the fourth quarter and by 3.5 percentage
points in the full year.
Revenues totalled
50,377 million euros in 2014, with organic growth accelerating in
the fourth quarter to 5.0% year-on-year (+2.8% in the third
quarter; +2.6% in January-December) and speeding up in all
segments. In reported terms, revenues fell year-on-year (-14.1% in
the fourth quarter; -11.7% in January-December), affected by the
negative impact of exchange rate fluctuations and changes to the
consolidation perimeter mentioned above. Most notably, the change
to SICAD II in Venezuela had a negative impact of 2,187 million
euros on fourth quarter revenues.
Mobile data revenues remained one of the
Company's main growth drivers, increasing by 9.9% in organic terms
in 2014 (+10.6% year-on-year in October-December) and accounted for
41% of mobile service revenues (+3 percentage points compared with
2013). Non-SMS data revenues advanced 23.9% year-on-year in organic
terms in 2014 (+22.8% in the quarter) and accounted for 73% of data
revenues.
In the fourth quarter, a provision of 644
million euros for non-recurrent restructuring and other costs was
registered with the aim of enhancing the Company's future
efficiency. As a result, operating expenses totalled 36,149 million
euros in January-December 2014, up 3.8% year-on-year in organic
terms.
Strong profitability
Gains on sales of fixed
assets totalled 327 million euros in 2014 while Operating
income before depreciation and amortisation (OIBDA) in
January-December 2014 totalled 15,515 million euros, up 0.2%
year-on-year in organic terms, reflecting revenue growth and the
benefits from the efficiency measures implemented and despite the
higher commercial and network expenses mentioned above.
In the fourth quarter, OIBDA amounted to 3,190 million euros, stable
year-on-year in organic terms (-35.9% reported), and was affected
by one-off factors with a negative impact of 1,379 million euros:
the adoption of the exchange rate set at SICAD II (-915 million
euros), the provision of 644 million euros for restructuring
costs.
In reported terms, OIBDA fell by 18.7% in
2014, impacted by the exchange rate fluctuations, changes to the
consolidation perimeter and one-off factors mentioned earlier.OIBDA
margin stood at 30.8% in January-December 2014, with limited
year-on-year erosion in organic terms (-0.8 percentage points).
Operating income
(OI) totalled 6,967 million euros in 2014, 1.9% higher year-on-year
in organic terms.
Share of profit (loss)
of investments accounted for by the equity method amounted
to -510 million euros in January-December 2014, mainly due to
losses booked following the classification of Telco, S.p.A.
investment as an asset held for sale in the fourth quarter, while
net financial expenses amounted to 2,822 million euros in 2014
(-1.6% year-on-year), of which 293 million euros were due to net
negative foreign exchange differences primarily associated with the
Company's decision to adopt the exchange rate of the Venezuelan
bolivar set at SICAD II.
Thus, and as a result of all the items and
one-off factors explained above, consolidated
net income in 2014 amounted to 3,001 million euros (4,462
million euros in underlying terms), down 34.7% year-on-year (-18.6%
underlying) and 89.5% year-on-year in the fourth quarter (-29.7%
underlying). In the fourth quarter extraordinary effects amounted
to 1,088 million euros and included: the impact of the adoption of
the exchange rate set at SICAD II in Venezuela (-399 million
euros), the provision for restructuring expenses (-405 million
euros), the value adjustment of Telco, S.p.A (-257 million euros)
and other factors (-26 million euros). Basic earnings per share in
underlying terms amounted to 0.93 euros in 2014 and to 0.25 euros
in the fourth quarter.
In 2014, the Company remained focused on
network differentiation and modernisation, with 75% of total
investment in the year, excluding spectrum, devoted to
transformation and growth (+6 percentage points year-on-year in
organic terms). As a result, CapEx
grew 16.9% year-on-year in organic terms and totalled 9,448 million
euros, including 1,294 million euros related to spectrum
acquisition (primarily in Brazil, Argentina and Venezuela in the
fourth quarter and in Colombia and Central America in the first
quarter). Operating cash flow (OIBDA-CapEx) totalled 6,067 million
euros in 2014.
Financing activity
In 2014, free cash
flow amounted to 3,817 million euros in 2014, 4,748 million
euros excluding spectrum payments. Net financial debt stood at
45,087 million euros at the end of December 2014, down 294 million
euros year-on-year. Excluding the impact of the evolution of the
exchange rate in Venezuela, which increased debt by 2,341 million
euros, debt would have been reduced by 2,635 million euros. The
leverage ratio (net debt over OIBDA1) for the last 12 months at the
end of 2014 stood at 2.74 times. Considering the closing of the
proposed sale of O2 UK and the FX change in Venezuela, the leverage
ratio would stand at 2.15 times.
In 2014, Telefónica's financing activity
through capital markets stood at around 14,740 million equivalent
euros and was mainly focused on completing the financing of the
acquisition of E-Plus (via the issue of a bond mandatorily
convertible into Telefónica shares for a notional amount of 1,500
million euros and the execution of the capital increase of T.
Deutschland), strengthening the liquidity position, actively
managing the cost of debt and smoothing the debt maturity profile
of Telefónica S.A. for the following years. Therefore, as of the
end of 2014, the Group maintains a comfortable liquidity position
to accommodate the next debt maturities.
Telefónica maintains total undrawn committed
credit lines with different credit entities for an approximate
amount of 11,545 million euros, with around 10,618 million euros
maturing in more than 12 months, which, together with the cash
position, increases liquidity to 19.4 billion euros.
Digital Services
Highlights in the area of the Chief Commercial
Digital Officer (CCDO) include the following: In the Consumer (B2C)
area, revenue from the Video business amounted to 954 million euros
in 2014 and grew 29% year-on-year in organic terms due to the
improvement in service quality, the ongoing development of new and
exclusive content and the growth in Pay TV accesses; Global Device
Management continued to foster the acceleration of smartphone
adoption, with a special focus on LTE. Thus, in the fourth quarter,
75% of total devices acquired by the Company were smartphones,
while 41% were LTE (+24 percentage points year-on-year).
In the Corporate (B2B) area, M2M revenues
stood at 183 million euros in January-December 2014 (+41%
year-on-year in organic terms), boosted by the growth of M2M
accesses (+16% year-on-year organic). Cloud business revenues grew
by 25% year-on-year in organic terms to reach 342 million euros. In
Information Security, revenues in 2014 stood at 115 million euros,
with growth accelerating to 57% year-on-year in organic terms.
Global IT area
In 2014, Telefónica Global Resources
technological transformation strategy obtained visible results and
advanced strongly in terms of network and system modernisation
towards an all-IP Company. This process is part of an efficient
management model focused on simplifying operations and reducing
legacy costs, which in turn enables the Company to differentiate
its products and services, improving customer satisfaction.
The Global Network and Operations unit
continued to accelerate UBB rollout. As a result, premises passed
with fibre reached 14.7 million at the end of December, twice vs
previous year figure and LTE base stations surpassed 20,100 (10,500
in 2013), with over 80% of 3G and LTE base stations connected at
high speed to the transmission network. 4G coverage in Europe
stands at almost 60%, while the LTE deployment in Latin America
increases to 10 countries. In the fourth quarter, Argentina and
Venezuela acquired LTE spectrum. This higher UBB coverage
contributed to reach 1.8 million fibre customers (2.1x
year-on-year) while LTE customers totalled 13.2 million.
The global IT area continued to successfully
manage and execute simplification and transformation through
systems processes, applications and integrations. The advances made
in IT simplification in 2014, a key driver to accelerate
transformation, are shown in continuous progress in reducing, with
over 430 applications eliminated and the increase of virtualised
servers to 46% (+11 percentage points compared with December 2013)
as a result of the infrastructure consolidation process in leading
data centers, which results in to a 13% reduction in physical
servers.
Operating guidance 2015 and ambition
2016 criteria:
2014 adjusted bases:
- Exclude:
- T. UK results from January-December
2014.
- T. Venezuela results from
January-December 2014.
- OIBDA excludes additionally tower sales
and the provision for restructuring costs.
- CapEx excludes additionally spectrum
acquisition, Real Estate Efficiency Plan and the investment in
Telefónica’s Headquarter in Barcelona.
- Include:
- E-Plus results consolidated in T.
Deutschland results since the fourth quarter of 2014.
- T. Ireland results from January-June
2014.
2015E guidance and 2016E ambition:
- Assume constant exchange rates as of
2014 (average FX in 2014).
- Exclude:
- T. UK results.
- T. Venezuela results.
- OIBDA excludes additionally:
write-offs, capital gains/losses from the disposal of companies,
tower sales, material non-recurrent impacts and major restructuring
related to integration processes in Germany and Brazil and to the
simplification program.
- CapEx excludes additionally spectrum
acquisition and Real Estate Efficiency Plan.
- Include:
- GVT results consolidated in T. Brasil
results since July 2015.
Financing guidance 2015 and ambition
2016 criteria:
Net financial debt / OIBDA both adjusted for the closing of
the proposed sale of O2 UK
1 Adjusted for the sale of companies, restructuring costs and
also incorporating E-Plus OIBDA corresponding to January-September
period (homogenised under the accounting policies of
Telefónica).
TelefónicaMiguel Angel Garzón, Tel: +34 91 482 38 00
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