The Net Income of Telefónica Increases 30%, Reaching 5,787 Million Euros in 2015, Excluding Non-Recurring Impacts

César Alierta, Executive Chairman of Telefónica, highlighted the efforts made by the Company to adapt the commercial offering, the networks and the structure of the Company to capture all the potential of the digitalisation of the economy. Alierta concluded that: “if 2015 has been a very positive year, in 2016 growth and data monetisation will accelerate, while we maximise the efficiencies from integration and simplification, and boost our innovation and Big Data capabilities”.

  • In 2015 consolidated revenues increase 8.7%, and investment grows 10.3% whilst Spain (excluding DTS) reaffirms the growth path initiated in the previous quarter
  • The operational guidance set for 2015, upgraded in July, is fulfilled. Furthermore, Telefónica announces guidance* and confirms shareholder remuneration for 2016 :
    • Revenue growth: expected to be >4% year-on-year.
    • OIBDA margin: stabilizing vs. 2015
    • CapEx/Sales excluding spectrum: at around 17%.
    • Net Financial Debt/OIBDA ratio: <2.35x, adjusted for the closing of the O2 UK sale.
    • The 2016 dividend is set at 0.75 euros per share. Payable in cash subject to the closing of the O2 UK sale. Additionally, the amortisation of treasury stock for a total of 1.5% of share capital (subject to the closing of the O2 UK sale) will be proposed at the 2016 AGM.
  • Net income is affected by extraordinary factors, mainly a non-recurrent impact of 2,602 million euros in the fourth quarter of 2015 related to the Voluntary Suspension Plan in Telefónica España. The plan will improve the efficiency in coming years.
  • The consolidated revenues increased to 47,219 million euros in 2015 whilst OIBDA stood at 14,926 million euros excluding non-recurring impacts.
  • In organic terms, revenues accelerated its trend and grew 4% year-on-year, OIBDA increased 3.6% boosted by the efficiencies stemming from the integration synergies in Germany and Brazil and the simplification program of the Group while the operating cash flow in the year returned to growth (+1.9%).
  • Telefónica reinvests approximately 17% of its annual sales, which together with spectrum acquisition in 2015 puts the Group investment (CapEx) in 9,578 million euros.
  • As one of the principle pillars of its new strategy to becoming an Onlife Telco, the Company has focussed on transforming its fixed and mobile networks in order to guarantee excellent connectivity. Thus, Telefónica has in Spain the most extensive fibre to the home network (14.3 million premises passed) and the highest number of fibre connected clients in Europe. At the same time reaches 17 million premises passed in Brazil as well as an LTE coverage that reaches 75% of the population of the countries in which it operates in Europe.
  • At the closing of 2015, the Group totals 322.3 million total accesses, with an outstanding behavior of the higher value services. Fibre clients increased over 3.5 times, LTE accesses have tripled, and pay television and smartphone accesses grew by 62.6% and 42.9%, respectively.
  • In December 2015 the net financial debt reached 49,921 million euros, placing the debt ratio -considering the sale of O2 UK- at 2.38 times.
  • In 2015, the Telefónica Group maintains a diversified structure and improves its competitive position in key markets. According to geographical areas, Spain, Germany, and Brazil account for 66% of the year's revenues, while Telefónica Hispanoamérica represents 30%.
    • Taking the consolidation of DTS into account as of May 1, revenues in Spain increased by 3.2% throughout the year whilst OIBDA is affected by the extraordinary provision to the abovementioned plan. This plan will improve efficiency with savings of around 370 million euros a year starting in 2017. Movistar Fusión has already reached 4.2 million clients and positively boosts broadband net adds (which almost double during the year), for fibre that increases 25%), and the return to growth of mobile contracts.
    • Germany has successfully executed the integration synergies goal revised upwards during the year and achieved an effective commercial strategy. This translates into an acceleration of the organic growth of the OIBDA in both the fourth quarter (+35.5%), and in 2015 as a whole (+20.9%).
    • Telefónica Brazil maintains a solid year-on-year organic increase of revenues (around +5%), despite the macroeconomic situation. Furthermore, the Company closes the year with a substantial improvement in its competitive position after capturing half of all new contract mobile accesses, and the entire increase in pay TV accesses of the market during 2015.
    • In organic terms, Telefónica Hispanoamérica grows by double digits (+10.1%) and shows a progressive improvement in the commercial activity of value clients. This is reflected in the fourth quarter with a record net profit gain in mobile contracts of more than 730 thousand new accesses.

MADRID--()--Telefónica presented today the corresponding results of the 2015 fiscal year, a year in which the Company firmly advanced down the road of long term profitable and sustainable growth, while simultaneously improving its competitive position in key markets.

At the end of 2015, and excluding non-recurring impacts, the net profit of Telefónica increased nearly 30% year-on-year, reaching 5,787 million euros throughout the entire year, raising the basic earnings per share to 1.12 euros in 2015 (+23.9%).

The net result of the fiscal year is affected by extraordinary factors, mainly an impact of 2.602 million euros during the fourth quarter of the year, stemming especially from the provision related to the voluntary employment suspension plan of Telefónica España. Considering the aforementioned non-recurring impacts, the net profit of the fiscal year is 2,745 million euros (-8.5%).

The commercial activity in 2015, centered on growth and quality services (fibre, smartphones, LTE, pay TV), has intensified, boosted by the increase in revenues which grew 8.7% during the year, reaching 47,219 million euros. In organic terms, this item accelerates its behavior and emphasizes the double digit growth of mobile data revenues (+16.9%). Furthermore, in the fourth quarter the Company consolidates the return to positive behavior of the business in Spain (+0.8%, excluding DTS).

Simultaneously, the savings obtained from the integration synergies in Germany and Brazil, and the efficiencies generated by the simplification program, have contributed to improving the OIBDA (+3.6% organic year-o-year), and the return to the growth of the operating cash flow (+1.9% organic year-on-year).

Finally, in the results presented today, César Alierta, Executive Chairman of Telefónica, highlighted the efforts made by the Company to adapt the commercial offering, the networks and the structure of the Company to capture all the potential of the digitalisation of the economy. Alierta concluded that: “if 2015 has been a very positive year, in 2016 growth and data monetisation will accelerate, while we maximise the efficiencies from integration and simplification, and we boost our innovation and Big Data capabilities”.

In this regard, Telefónica fulfilled all the operational guidance set for 2015 and upgraded in July. Furthermore, Telefónica announces guidance* and confirms shareholder remuneration for 2016:

  • Revenue growth: expected to be >4% year-on-year.
  • OIBDA margin: stabilizing vs. 2015
  • CapEx/Sales excluding spectrum: at around 17%.
  • Net Financial Debt/OIBDA ratio: <2.35x, adjusted for the closing of the O2 UK sale.
  • The 2016 dividend is set at 0.75 euros per share. Payable in cash subject to the closing of the O2 UK sale. Additionally, the amortisation of treasury stock for a total of 1.5% of share capital (subject to the closing of the O2 UK sale) will be proposed at the 2016 AGM.

For the analysis of the results, it’s worth taking into account that in the fourth quarter, year-on-year performance reflected the consolidation of GVT's results in Telefónica Brasil and DTS' in Telefónica España (both since 1 May 2015). Likewise, Telefónica UK has been reported as a discontinued operation within Telefónica Group and its assets and liabilities are classified as "held for sale" in compliance with International Financial Reporting Standards (IFRS), as a result of the signing of the definitive sale agreement in March 2015.

More than 322 million total accesses

Total accesses at December, grew by 2% year-on-year to 322.3 million, underpinned by Telefónica Hispanoamérica (+2%) which represented 42% of the total. High-value customers’ organic growth remained strong: fibre (+30% year-on-year), Pay TV (+12%), smartphones (+29%) and LTE (3.0x, reported).

Mobile accesses stood at 247.1 million (-1% year-on-year) and were affected by the more restrictive calculation in of the prepay base in T. Brasil. In the contract segment (+6% year-on-year), all regions posted year-on-year growth. Contract customer quarterly net additions reached 1.7 million for the Group, the highest level in six quarters.

Smartphones reached 112.9 million after growing by 1.4 times vs. 2014, with penetration increasing 15 percentage points to 48%. Contract smartphone penetration stood at 71% and in prepay penetration stood at 38%. LTE customers (29.7 million) accounted for 12% of total mobile accesses (+8 percentage points year-on-year) and obtained record net additions of 6.1 million (+42% year-on-year)

Retail broadband accesses totalled 21.0 million and grew 19% vs. December of last year while Fibre accesses stood at 6.1 million and increased 30% year-on-year in organic terms, mainly due to T. España.

The total Pay TV base reached 8.3 million, 12% more in organic terms than at December 2014 driven by Hispanoamérica (+16%), T. España (+10%) and T. Brasil (+10%).

Income statement analysis

Fourth quarter results were affected by the depreciation of Latin American currencies against the euro, particularly the Brazilian real, the Venezuelan bolivar, the Colombian peso and the Argentine peso. Thus, the evolution of exchange rates deducted 9.1 percentage points from revenue performance and 11.8 percentage points from OIBDA growth (-4.4 percentage points and -5.0 percentage points respectively, in 2015). On the other hand, the incorporation of GVT and DTS in the perimeter of consolidation contributed 5.7 percentage points to reported year-on-year revenue growth in the quarter and 4.6 percentage points to OIBDA performance (+8.8 percentage points).

In January-December revenues totalled 47,219 million euros and maintained a solid growth rate of 4.0% in organic terms compared to the same period of the previous year (+8.7% reported). Revenues increased by 3.3% year-on-year organic in the quarter (stable in reported terms) to 11,881 million euros, driven by T. Hispanoamérica and T. Brasil and mobile data revenues.

Thus, mobile data revenues grew in organic terms by 18.7% year-on-year in the quarter (+16.9% in January-December) and represented 42% of mobile service revenues due to higher smartphone penetration and the growing weight of LTE customers. In turn, non-SMS data revenue growth improved sequentially by 1 percentage point to 27.8% organic year-on-year (+25.3% in 2015) and represented 82% of data revenues. Another key highlight was the higher unitary usage of data traffic by LTE customers (63% higher vs. 3G customers), which translated into double-digit ARPU growth and also resulted in more efficient network usage.

The diversification of the Company’s assets was evident in the revenue structure. Thus, T. España, T. Deutschland and T. Brasil accounted for 66% of revenues in 2015, while T. Hispanoamérica represented 30%, both percentages stable vs. the previous year.

The annual results and particularly those of the quarter were affected by various non-recurring impacts.

In this regard, in the fourth quarter, with the aim of enhancing future efficiency and representing a step further in the transformation and simplification processes which the Group is implementing, a provision of 3,122 million euros was booked. Per segment, it is important to highlight the Voluntary Employment Suspension Plan in T. España (2,896 million euros).

Other non-recurring items in the fourth quarter included a provision to provide Telefónica Foundation with the adequate financial structure for future years (325 million euros), a provision in Spain to optimise the distribution network (30 million euros) and valuation adjustments in Other Companies and Eliminations (23 million euros).

Meanwhile, in the fourth quarter other positive impacts were recorded, such as the final agreement related to the purchase price of E-Plus in Germany (102 million euros), the outcome of the spectrum swap in Mexico (79 million euros), the expiration of an account payable in Brazil (98 million euros), the sale of real estate assets in T. España (impact of 22 million euros on OIBDA) and tower sales in Latin America(18 million euros on OIBDA).

Operating expenses stood at 12,089 million euros in October-December 2015 (+35.7% reported). In 2015, expenses totalled 37,132 million euros and grew 4.6% year-on-year organic (+20.6% reported).

Supplies for the quarter, 3,371 million euros (reflected higher handset consumption (higher weight of high-end handsets) and the increase in content costs, partially offset by the positive impact of lower interconnection costs. Personnel expenses amounted to 4,811 million euros in October-December with the provision for non-recurrent restructuring costs mentioned before. Other operating expenses totalled 3,907 million euros in the fourth quarter and included a non-recurrent provision of 325 million euros, reflecting the Group's firm commitment to Fundación Telefónica, to provide the Foundation with the adequate financial structure for future years to serve several social projects, central to them being the digital education for children and young people.

The average headcount in 2015, excluding O2 UK, stood at 125,892 employees and increased 11.5% year-on-year.

Other net income increased to 232 million euros in the quarter, and mainly included an adjustment in T. Deutschland for the final agreement related to the acquisition of E-Plus (an impact of 102 million euros on OIBDA), the positive impact in T. Brasil of the expiration of an account payable and a provision in Spain to optimise the distribution network previously mentioned.

Gains on sale of fixed assets totalled 158 million euros in the fourth quarter. In 2015, this item increased to 275 million euros and mainly comprised of the outcome of the spectrum swap with AT&T in Mexico (79 million euros impact on OIBDA), the sale of real estate assets in T. España (impact of 73 million euros on OIBDA), tower sales (impact of 65 million euros on OIBDA) and the sale of “yourfone GmbH” in Germany (15 million euros of OIBDA impact).

Evolution of OIBDA and profitability

Operating Income Before Depreciation and Amortization (OIBDA) for the fourth quarter reached 401 million euros, affected by non-recurrent factors mentioned, and would have reached 3,781 million euros underlying. In organic terms, OIBDA increased 3.8% vs. the same period of 2014, underpinned by the strong growth of T. Deutschland, reflecting significant integration synergies, associated with solid revenue performance and efficiency measures focussed on cost control, and T. Hispanoamérica.

In January-December 2015, OIBDA (11,414 million euros) improved its pace of growth in organic terms (+3.6%) vs. 2014. OIBDA would have reached 14,926 million euros in underlying terms.

Thus, OIBDA margin in the fourth quarter stood at 32.2% in organic terms and expanded 0.2 percentage points vs. the same period of the previous year. This year-on-year growth enabled the full year 2015 margin to remain stable vs. 2014, thanks to revenue growth acceleration, cost containment and the tangible benefits of synergies generated from the integration of the acquired companies

Operating income (OI) reached 2,897 in January-December, affected in the fourth quarter by the aforementioned non-recurrent impacts. Net financial expenses in 2015 increased to 2,581 million euros, 7.1% lower than the previous year. The negative exchange rate differences increased to 620 million euros, mainly due to the impact of the adoption of the Venezuelan bolivar exchange rate set at SIMADI.

Profit from discontinued operations for October-December totalled 394 million euros (104 million euros in the same period of 2014), impacted by the cessation of depreciation and amortisation since the signing of the final sale agreement of Telefónica’s operations in the United Kingdom. In 2015, this item reached 2,582 million euros.

Profit attributable to minority interests reduced net income for the quarter by 95 million euros. In January-December, net income decreased by 135 million euros, 116 million euros less than in 2014, mainly due to lower results attributed to minority interests in T. Brasil and T. Colombia.

As a consequence of the previous items, consolidated net income for the fourth quarter of 2015 stood at 769 million in underlying terms, excluding the non-recurring impacts mentioned above. In 2015, net income reached 5,787 million euros in underlying terms (+29.7% vs. 2014). Basic earnings per share in underlying terms increased to 1.12 euros in January-December 2015 (+23.9% year-on-year).

Investment and operating cash flow increase

In 2015, the Company took yet another step forward in its ongoing investment plan focussed on growth and transformation of networks and systems, having dedicated 75% of the total, excluding spectrum acquisition, to these projects. Thus, CapEx grew in 2015 by 5.0% organic year-on-year to 9,578 million euros including 1,585 million euros of spectrum acquisition.

Operating cash flow (OIBDA-CapEx) sequentially accelerated its year-on-year organic growth in the fourth quarter by 11.1 percentage points to 17.6%. In 2015, operating cash flow returned to growth, after increasing by 1.9% year-on-year in organic terms.

Free cash flow excluding spectrum payments grew by 1.6% in 2015 to 4,821 million euros. In the fourth quarter, free cash flow generation amounted to 2,307 million euros (2.6x year-on-year).

Net financial debt stood at 49,921 million euros at December 2015. The leverage ratio (net debt over OIBDA1) in the last 12 months at the end of December 2015 stood at 2.38 times considering the closing of the sale of O2 UK.

Financing activity

In 2015, Telefónica's financing activity reached around 18 billion equivalent euros, without considering the re-financing of commercial paper and short-term bank loans. Activity was mainly focused on financing the GVT acquisition as well as on strengthening the liquidity position, refinancing maturing debt and actively managing the cost of debt, through the extension of the maturity of the credit lines and the reduction of credit margins.

Telefónica maintained undrawn committed credit lines with different credit institutions for an approximate amount of 13,684 million euros, with around 12,497 million euros maturing in more than 12 months, which, along with the adjusted cash position, placed liquidity at 19.1 billion euros.

Digital Services and Telefónica Global Resources

In the fourth quarter of 2015, Digital Services revenues stood at 1,068 million euros, 15.1% higher than in the same period of 2014 (3,758 million in January-December; +23.6% year-on-year). Per area, Video revenues reached 628 million euros, 14.0% higher than in October-December 2014 (2,142 million euros in 2015; +27.3% year-on-year). Revenues continue to be supported by the solid growth of pay TV accesses, with quarterly net additions of 117 thousand, resulting in a total base of 8.3 million in December (4.6 million of which are satellite TV), 12% higher than in 2014, driven by Brazil (+10% year-on-year), Hispanoamérica (+16%) and Spain (+10%, including DTS).

In regards of the Global Resources unit, throughout 2015, TGR, has consolidated as the technological reference for the Group, supporting growth in the operating businesses, enabling end-to-end digitalisation and accelerating transformation.

The Global Network and Operations area advanced on the deployment of ultra broadband (UBB), both in terms of coverage and quality, as well as in the All-IP transformation, the creation of global centres and the commitment to innovation. The investment in UBB has been focused on offering excellent connectivity, increasing speed, reliability and improving the quality and security of the network. At the end of 2015 premises passed with fibre to the home totalled 19 million, 14 million in Spain and 5 million in Brazil. Additionally, GVT contributed with 12 million premises passed with fibre to the cabinet. In LTE, coverage in Europe and Latin America reached 75% and 43% of the population, respectively.

The Global IT area reached a new record in IT Service Delivery, reducing the number of critical incidents by 40% vs. last year, and delivered significant transformation, with almost all operating business included in the Full Stack processes and applications programmes.

Finally, throughout the year, the transformation has been reinforced by the continuous effort and execution of simplification measures, with the closing of 3 Data Centres, the reduction of 321 applications and 8% of servers, while virtualisation increased by 5.7 percentage points.

(*)

Operational guidance 2016:

2015 adjusted base: Revenues (46,757 million euros), Margin OIBDA (31.5%) and CapEx (ex-spectrum) to sales ratio (16.8%)

  • Excludes:
    • T. Venezuela results from January-December 2015.
    • OIBDA excludes additionally tower sales, the provision for restructuring costs, the provision to optimise the distribution network in Spain, the provision for Telefónica Foundation, write-downs and the final settlement agreement related to the acquisition of E-Plus.
    • CapEx excludes additionally spectrum acquisition and the Real Estate efficiency plan.
  • Includes:
    • Since May 2015, GVT results consolidated in T. Brasil results and DTS results in T. España results.

2016E guidance:

  • Assumes constant exchange rates as of 2015 (average FX in 2015) and maintaining current Company perimeter.
  • Excludes:
    • T. Venezuela results.
    • OIBDA excludes additionally: write-downs, capital gains/losses from the disposal of companies, tower sales, material non-recurring impacts and restructuring costs.
    • CapEx excludes additionally spectrum acquisition and the Real Estate efficiency plan.

Financial guidance 2016:

Net financial debt / OIBDA both adjusted for the closing of the sale of O2 UK

Contacts

Telefónica
Miguel Angel Garzón, Tel: +34 91 482 38 00

Contacts

Telefónica
Miguel Angel Garzón, Tel: +34 91 482 38 00