Telefónica (NYSE:TEF) (LSE:TDE) accelerates capture of growth thanks to its successful sales approach, with mobile net additions up 45% in the quarter, and 7.8 million new accesses added. In 2011 as a whole, total customers grew 7% year-on-year, to 306.6 million accesses The company announces its commitments to the financial community for 2012*: Financial Guidance: - Net financial debt / OIBDA < 2.35x (equivalent to previous (Net Debt+Commitments) / OIBDA < 2.5x). - Shareholder remuneration of 1.50 euros per share, including the payment of a cash dividend of 1.30 euros per share and a share buyback for the remaining amount. Operating Guidance (considering constant perimeter): - Revenue growth >1% at current exchange rates. - Lower OIBDA margin decline than in 2011. - Similar CapEx/sales as in 2011.
- Telefónica reported an increase in revenues of 3.5% year-on-year, to 62,837 million euros in 2011. This growth was driven by the increase in wireless data revenues (+19% in organic terms), which accounted for more than 31% of mobile service revenues, and growth in Latin America (+13.5%), a region which already represents 47% of total consolidated revenues and 48% of the Telefónica Group's OIBDA.
- The robust figures reported by the company underline the high level of diversification of its operations. 72% of consolidated revenue and 67% of Group OIBDA were generated outside Telefónica's fixed and mobile businesses in Spain.
- The performance of its net profit of 5,403 million euros in 2011 compared to the profit obtained in 2010 was affected by several one-off accounting impacts. Among other items, particularly noteworthy was the positive net impact of 3,476 million euros in 2010, from the revaluation of Telefónica's pre-existing stake in Vivo, and the negative impact in 2011 of the 1,870-million-euro provision for restructuring expenses associated with the workforce restructuring plan in Spain.
- Stripping out all one-off impacts for both years, growth in net profit in 2011 would be -16.6% year-on-year.
- In 2011, Telefónica invested 10,224 million euros, including spectrum purchases in several countries, among them Spain, where investment increased by 44.2% in the year to guarantee future growth in the area. 79% of the total investment went to projects focusing on growth and transformation, linked to fixed and mobile broadband services, among others.
- High-value customers: Almost a third of the Group's 238.7 million mobile accesses were contract customers, up 11% year-on-year, accounting for 40% of the year's mobile net additions. In addition, 16% of the company's mobile accesses were mobile broadband customers, up 61% and already accounting for 38 million accesses. Telefónica also reported 18 million retail fixed broadband accesses (+5.5%) and 3.3 million Pay TV accesses (+18.7%).
- At 31 December 2011, OIBDA stood at 20,210 million euros, thanks to high profitability and operating efficiency. Operating income totalled 10,064 million euros in 2011.
- Telefónica took key decisions in Spain in 2011 to reduce its operating costs and improve its competitive positioning, and these are already bearing fruit. Its new sales approach resulted in net adds in the last quarter of 72,000 customers, which reversed the trend of the three previous quarters.
- Net financial debt / OIBDA: 2.46 x.
- Revenues: 62,837 million euros.
- OIBDA margin: 36.1%.
- CapEx/Sales ex spectrum: 14.2%.
All this has been compatible with investments exceeding the 10.2 billion euros mark in 2011, underpinning the importance of having a differential, top-quality network, to offer increasingly sophisticated services compatible with all kind of fixed and mobile devices, essential for the generation of future revenues.In parallel, we have made significant progress in other areas. On the one hand, we have increased our customer base to exceed the 306 million mark, while the Company’s strategy to strengthen its competitive position is already paying off, showing a significant increase in the commercial activity in the second half of the year, and a remarkable growth in mobile broadband. In 2011, Telefónica has led the increase of penetration of mobile broadband services in its markets, with more than 38 million customers at the end of the year, 61% above 2010 figure. As a result, mobile data revenue also grew significantly to almost 20% in organic terms, and now represents 31% of mobile service revenues. Furthermore, we have continued to make advancements in the diversification of our business, reinforcing greatly our position in Latin America, while our business in the region already accounts for over 45% of revenue, OIBDA and operating cash flow of Telefónica. The commercial effort done in the last months is already positively impacting revenue evolution with growth rate showing a significant acceleration in the fourth quarter to 6.3% year-on-year in organic terms and excluding the impact from lower mobile termination rates. We have strengthened our leadership in the key market of the region, Brazil, which has become our major growth engine and yields tremendous potential for the future. In Europe, despite a tough economic backdrop, Telefónica has continued to push the adoption of new broadband services as key drivers for revenue growth, in a context of pressure in traditional voice services due to strong competition with adverse regulation. Moreover, the changes in the commercial offer in our main markets have led to a stronger commercial activity, quite evident in the fourth quarter. On the other hand, the Company’s efforts to enhance efficiency have been translated into specific projects that have already started to bear fruits in the case of Spain, bringing significant savings in personnel expenses in 2012. In addition, in Spain, and despite the adverse trading conditions, Telefónica has invested close to 3 billion euros in 2011, representing a 17% over sales and underpinning the strong push in the deployment of high speed broadband networks as well as the acquisition of the best spectrum in the market. On the other hand, the strong results obtained in Germany must be highlighted. We have reinforced significantly our position in this market and have become the operator with the highest growth rate in 2011.
We face 2012 from a position of strength, thanks to the advances we have made in the last decade to reinforce our diversification, not only geographical but also by businesses, and also because of the decisions we have taken in the last months to accelerate our transformation and increase financial flexibility. For all this, we face 2012 with a lot of confidence.We will continue pushing the mass-market adoption of broadband in our markets, both fixed and mobile, with Telefónica becoming the key lever for the development of the societies where we are present. Additionally, we have reinforced our position in the value chain with the launch of Telefónica Digital, in order to accelerate the capture of new revenues in the digital world. As a result, in 2012 we expect revenue growth of more than 1% at current exchange rates. The creation of Telefónica Global Resources has also been fundamental to take us another step forward towards more efficiency and maximise all the benefits coming from our scale while freeing up resources in a year in which we will maintain a strong investment effort to advance in our transformation process and to improve our network capabilities. And, as the progress in the first two months of the year shows, we are focused on strengthening our balance sheet and reducing our leverage. During the year we will proactively manage our portfolio of assets to optimize the use of capital and to maximize the Company’s value. All of the above topped by a very attractive and sustainable shareholder remuneration policy. The dividends and share buybacks announced for 2012 yield 11.5% as of today’s stock prices”. Telefónica delivered a solid set of results for 2011, in line with the targets that had been set, and allowed it to achieve net profit of 5,403 million euros over the twelve-month period. In what was a year of adverse macroeconomic conditions, stiff competition, and negative effects from regulation, the company's figures highlight the value of the high diversification of its operations. Furthermore, Telefónica posted a record high for free cashflow generation in 2011, amounting to 9,270 million euros, up a robust 9.5% year-on-year, compatible with the company's considerable investment efforts in the year.
Telefónica's total consolidated revenues grew 3.5% in 2011 to over 62,800 million euros, driven by the increase in wireless data revenues (+19% in organic terms) and growth in Latin America (+13.5%), a region which already represents 47% of the Group's total consolidated revenues. The company also made strides in its strategy to capture growth opportunities, thanks to a successful sales approach which allowed it to increase its customer base by +7% year-on-year, reaching 306.6 million accesses as at 31 December 2011.Overall and for comparative purposes, the performance of its net profit of 5,403 million euros in 2011 compared to the profit obtained in 2010 was affected by several one-off accounting impacts. Among other items, particularly noteworthy was the positive net impact of 3,476 million euros in 2010, from the revaluation of Telefónica's pre-existing stake in Vivo, and the negative impact in 2011 of the 1,870-million-euro provision for restructuring expenses associated with the workforce restructuring plan in Spain. Therefore, in underlying terms, i.e. stripping out all one-off impacts for both years, growth in net profit in 2011 was -16.6% year-on-year. Upon presenting these results at the close of 2011, Telefónica reiterated its shareholder remuneration policy, announced last December, and set the financial targets for 2012: Financial Guidance : - Net financial debt / OIBDA < 2.35x (equivalent to previous (Net Debt+Commitments) / OIBDA < 2.5x). - Shareholder remuneration of 1.50 euros per share, including the payment of a cash dividend of 1.30 euros per share and a share buyback for the remaining amount. Operating Guidance (considering constant perimeter): - Revenue growth >1% at current exchange rates. - Lower OIBDA margin decline than in 2011. - Similar CapEx/sales as in 2011. Customer growth to 306.6 million accesses In a year characterized by adverse macroeconomic conditions Telefónica has continued making progress in its strategy to capture growth in its different markets, being noteworthy the sharp increase in the Company's activity during the second half of 2011, as a result of the refocused commercial strategy that led to changes in the commercial offer in the main countries of operations. This strategy led to a year-on-year increase in total accesses of almost 7% in organic terms, to 306.6 million in 2011, with a significant growth in the number of contract and mobile broadband customers. It is worth highlighting the acceleration in the Company's access growth during the second half of the year, period in which net additions reached almost 13 million accesses (72% more than in the first half of 2011 and more than duplicating thatin the second half of 2010). By region, Telefónica Latinoamérica’s performance is noteworthy, which, with a 10% year-on-year organic growth in accesses, consolidated its position as the main contributor to the expansion of Telefónica's accesses.
Telefónica’s mobile accesses stood at 238.7 million in 2011, with a year-on-year increase of 8% in organic terms, following an acceleration in the growth rate during the second half of the year. It is worth highlighting net additions registered during the fourth quarter, reaching a record in the year (7.8 million accesses, excluding the disconnection of 1 million inactive prepaid accesses in Brazil in December), with a year-on-year increase of 45%.The Company’s focus on capturing high-value customers led to a sustained increase in the contract segment (+11% year-on-year), which accounted for almost a third of total mobile accesses. As a result, the contract segment contribution to total net additions stood close to 40% over the full year, exceeding 100% at Telefónica España and Telefónica Europe. In Latin America, it is important to highlight the Company's leading position in the contract segment, where Telefónica has the largest customer base in the region. Mobile broadband accesses -accesses with a data rate attached and therefore active users of the service- exceeded 38 million at the end of 2011 (+61% year-on-year). This figure represents a penetration rate of 16% over Telefónica's total mobile access base. Telefónica Europe reached a penetration rate of 31%, followed by Telefónica España (29%). Meanwhile, there is huge scope for increasing penetration of these services at Telefónica Latinoamérica (10%). The Company's differential focus on the data business is reflected in the sustained increase in data revenues, with a 19.0% year-on-year increase in organic terms, to account for more than 31% of Telefónica's total mobile service revenue in 2011. Noteworthy was the strong increase in non-SMS data revenues (+37.5% year-on-year in organic terms), which now account for more than 52% of total data revenues. Retail fixed broadband accesses reached a total of 18.0 million (+5% year-on-year). The strategy of bundling voice, broadband, and TV services has proved to be key to control the churn rate, with the percentage of retail broadband accesses (in both Spain and Latin America) bundled in a dual or triple service package rising gradually to around 90% in 2011. The number of Pay TV accesses stood at 3.3 million in 2011 (+19% year-on-year), with a pickup in the growth rate, basically due to the successful commercial repositioning in Latin America, where net additions in 2011 tripled those of 2010, the inclusion of TVA's Brazilian customers as of June and the good commercial performance in Spain during the second half of the year. Fixed telephony accesses reached 40.1 million, down 3% year-on-year. This decline remained stable throughout 2011. Analysis of the income statement It is important to bear in mind that Vivo has been fully consolidated since October 2010 (prior to that date, the results of Vivo were proportionately consolidated). Consequently, this had an impact on the year-on-year comparisons of Telefónica’s financial results in reported terms.
In 2011 revenues totalled 62,837 million euros, a year-on-year increase of 3.5%, driven by higher revenues from Telefónica Latinoamérica (+13.5% year-on-year).By services, the contribution of services with the highest growth potential continued to increase (fixed and mobile broadband, services beyond connectivity), exceeding 26% of consolidated revenues (+3 percentage points versus 2010). This contribution offset the lower contribution by traditional access and voice revenues. By regions, revenues from Telefónica Latinoamérica already account for 47% of total consolidated revenues and remained the Company’s main growth driver. Revenues from Telefónica Europe represent 25% of the consolidated revenues, while Telefónica España contributes with some 28%. Consolidated operating expenses stood at 44,501 million euros in 2011. It is important to remember that the year-on-year performance in reported terms (+10.2%) is mainly affected by the increase in personnel expenses (+31.8% year-on-year in reported terms), as a result of the non-cash impact provision for restructuring expenses (2,671 million euros in consolidated terms) register in the third quarter of 2011, associated to the workforce restructuring plan approved by the Company in Spain. Nevertheless, this effect is offset by lower mobile termination costs in all the regions. The average number of employees at the end of 2011 was 286,145 (17,098 more than at the end of 2010), mainly due to the larger workforce at Atento. Excluding Atento, Telefónica's consolidated average workforce was 133,948 employees (128,011 in 2010). Additionally, Telefónica’s global efficiency projects continued to contribute very positively to consolidated results in 2011 (636 million euros in terms of revenues and 523 million euros in OIBDA). In this regard, and reflecting the benefits of our scale, it is worth highlighting that Telefónica's "Partners Programme” now includes three operators (Bouygues, Etisalat and Sunrise). The “Partners Programme” is an initiative that makes available to selected operators and, under commercial terms, a host of services that allows partners to leverage on Telefónica’s scale and to cooperate on key business topics (roaming, services to multinationals, procurement, devices, etc.).
Gains on sales of fixed assets totalled 823 million euros in 2011, mainly due to the impact of sales of non-strategic towers within the framework of a number of initiatives developed by the business units to optimize the use of capital (impact of 541 million euros in 2011). Moreover, 2011 results include the positive impact of the partial reduction of our economic exposure to Portugal Telecom (184 million euros) as well as T. España's sale of non-strategic assets, amounting to 73 million euros.It is worth noting that in the third quarter of 2010 this item included the positive impact of the revaluation of the previously-held stake in Vivo at its fair value at the date of acquisition of the 50% stake in Brasilcel owned by Portugal Telecom (3,797 million euros) as well as the capital gain from the disposal of Manx Telecom (61 million euros). OIBDA and operating income Thus, operating income before depreciation and amortization (OIBDA) for 2011 stood at 20,210 million euros. In underlying terms, OIBDA decreased 2.1%, affected by the loss of higher-margin revenues, the sharp increase in commercial activity and negative impact of interconnection (188 million euros in 2011). Despite the difficult operating business environment and the strong activity throughout the year, the Company maintained a high level of efficiency, with OIBDA margin reaching 36.1% in organic terms, a limited erosion versus 2010. In underlying terms, OIBDA margin stood also at 36.1%. By region, Telefónica Latinoamérica continued to increase its contribution to consolidated OIBDA, already accounting for 48% of underlying OIBDA, rising to 67% including the contribution from Telefónica Europe. Depreciation and amortization in 2011 (10,146 million euros) posted a year-on-year increase of 9.1% in reported terms, reflecting full consolidation of Vivo and the amortization of Vivo's purchase price allocation (336 million euros for the full year vs. 84 million euros in 2010). Total depreciation and amortization charges derived from purchase price allocation processes amounted to 1,119 million euros in 2011. As a result, operating income (OI) stood at 10,064 million euros for 2011, a 9.0% drop year-on-year in underlying terms. Profit from associates stood at -635 million euros for 2011 versus +76 million euros in 2010. The year-on-year change was mainly the result of the non-cash impact of Telco S.p.A.’s revision of its value of its investment in Telecom Italia, as well as of the operating synergies achieved, with both effects totalling 662 million euros (481 million euros after the related tax effect). Financial expenses and cash flow generation Net financial expenses in 2011 stood at 2,941 million euros (+11.0% year-on-year), due to increased average debt with respect to 2010. This implied an average cost of debt of 5.22%, which, adjusting for exchange rate differences, fell to below 5% (4.91%), and it is lower than in 2010. Net financial debt stood at 56,304 million euros in 2011 (+711 million euros versus 2010).
Telefonica´s Free Cash Flow for 2011 reached 9,270 million euros, an increase of 805 million euros versus 2010 (+9.5% year-on-year), reaching a record level in the cash flow generation of the Company, despite strong investments in spectrum. FCF per share reached 2.06 euros (9.8% year-on-year).The leverage ratio, net debt including commitments over OIBDA (excluding results on the sale of fixed assets and adjusted by the provision related to the redundancy program in Spain), stands at 2.63 times at December 2011. If we consider the new leverage criteria, the ratio net debt over OIBDA (adjusted by the provision related to the redundancy program in Spain) stands at 2.46 times. During 2011, the financing activity of Telefónica, excluding short term Commercial Paper Programmes activity, rose to above 11,500 million equivalent euros, with the main objective of financing in advanced 2011 debt and smoothing our debt maturity profile for 2012 and 2013 at Telefónica S.A. level. At the end of December 2011, bonds and debentures represented 64%, on the consolidated financial debt breakdown, while debt with financial institutions weighted 36%. Corporate income tax in 2011 totalled 301 million euros, based on profit before income tax of 6,488 million euros. It is noteworthy the accounting in the fourth quarter of a reversal of deferred tax liabilities recognized as part of the Vivo purchase price allocation in the amount of 1,288 million euros (952 million euros net of taxes and minority interests) resulting from the tax benefit generated by some of the acquired assets. Profit attributable to minority interests dragged net income by 784 million euros in 2011. As a result of the above items, consolidated net profit in 2011 was 5,403 million euros, which, in underlying terms, implies a decrease of 16.6% year-on-year, with the basic earnings per share at 1.66 euros, again in underlying terms(-16.4% year-on-year). The 2010 consolidated net profit figure was affected by the positive net impact from the revaluation of the previously held stake in Vivo (3,476 million euros) and the non-cash impact provision for restructuring expenses, recorded in the third quarter, associated to the workforce restructuring plan approved by the Company in Spain, previously mentioned (1,870 million euros). CapEx in 2011 reached 10,224 million euros, with a 3.3% year-on-year increase in organic terms. In reported terms, CapEx declined 5.7% year-on-year. It is important to mention that the 2011 CapEx figure includes the cost of the spectrum in Spain, Brazil and Costa Rica, amounting to 1,296 million euros. The Company continued to focus its investments on growth and transformation projects, fostering the development of fixed and mobile broadband services. As a result, 79% of total CapEx was targeted to these projects in 2011. Consequently, operating cash flow (OIBDA-CapEx) totalled 9,986 million euros in 2011.