|[February 28, 2013]
Telefónica Ends 2012 with Net Profit of 3,928 Million Euros after Write-Offs Totalling 2,536 Million
MADRID --(Business Wire)--
2012 was a key year in Telefónica's (News - Alert) transformation process. Various
initiatives were introduced during the course of the year that will
accelerate the restoring of the Company's growth differential. In the
management report on the 2012 results, César Alierta, the Executive
Chairman of the Company, highlighted the "progressive improvement
quarter by quarter" as a result of a "deep transformation process at
Telefónica", aimed at regaining sustainable growth of organic revenue
and a continued increase in margins.
Thus, Telefónica Latinoamérica's revenues exceeded those of Telefónica
Europe for the first time, remaining along with mobile data revenues as
the main growth levers for the Group, with both registering an
acceleration in their organic growth rates in the fourth quarter. At the
same time, Telefónica Europe regained strong commercial momentum in its
main markets thanks to the success of the newly launched tariffs,
particularly "Movistar Fusión" in Spain, which reflects a general
improvement in the competitive position in the different markets.
Furthermore, the fourth quarter is the best in the whole year,
discounting exceptional impacts. Thus, for the third quarter in a row
there was a sequential improvement in underlying OIBDA in absolute terms
across all regions, and in the consolidated OIBDA margin, which returned
to year-on-year growth in underlying terms, on the back of the
transformational initiatives and cost reduction measures undertaken in
Revenues stood at 62,356 million euros at the end of December driven by
the solid growth of mobile data revenues (+12.8% year on year) and the
evolution of this item in Latin America (+5.5%).Telefónica's
consolidated OIBDA grew by +5.1% in reported terms to 21,231 million
euros, which places the OIBDA margin at 34% (+1.9 p.p.). With regard to
operations Telefónica ended the year with a customer base that grew by
+3% to 316 million accesses.
At the end of 2012 Telefónica's net income totalled 3,928 million euros.
The behaviour of the net profit compared to 2011 (-27.3%) is affected by
a number of extraordinary impacts that took away 2,536 million euros
from this item during the year. Among them are the adjustment of the
value of stakes in Telecom Italia (News - Alert) and, above all, Telefónica Ireland,
and the effect of the devaluation of the Venezuelan Bolivar. Without
these effects, the consolidated net profit stood at 6,465 million euros.
Telefónica announces its guidance for 2013 and reiterates the
shareholder remuneration policy for 2013, of paying a cash dividend of
0.75 euros per share.
Operating guidance (in organic terms*):
Lower OIBDA margin erosion than in 2012.
CapEx/Sales similar than in 2012.
Net financial debt < 47,000 million euros.
2012, a year of a deep transformation
In 2012 Global Resources consolidated its operating model and, through
its global areas, consistently contributed to Telefónica's progress in optimising
scale economies. As a result, it has obtained higher
efficiencies, improvements in time to market and customer satisfaction,
in addition to increased competitiveness in its multinational
businesses. Thus, it has set the basis for accelerating our IT
transformation, which will be supported on our new data centres (Mexico,
Brazil and Spain); the value traded globally in mobile devices has risen
to 80%, focused on 100 references; and in addition, the new organisation
of Telefónica's multinational businesses has been strengthened and as a
result, revenues from its multinational businesses increased 7%
year-on-year, highlighting international services (+23% year-on-year).
During 2012, Telefónica has also improved the CapEx
efficiency by focusing on growth, reallocating resources to
higher-growth operations and services -such as the selective rollout of
fibre and VDSL-, improving service quality and customer satisfaction,
strengthening our networks via spectrum acquisition, and prioritising
simplicity in order to best take advantage of shared investment.
At the same time, there was a substantial improvement in financial
flexibility at the end of 2012, thanks to a significant reduction in
debt during the second half of the year, thanks to strong cash flow
generation and a proactive portfolio management; and the Company's
refinancing efforts throughout 2012, among other things. All these
measures have led to significant reduction in financial leverage, credit
rating stabilization and significant liquidity improvement.
During the fourth quarter of 2012, Telefónica advanced further with the
transformation of the Company. Telefónica Digital,
as part of its strategy to boost innovation and capture opportunities in
the digital world, has made significant progress, including the progress
with the development of Firefox OS, an HTML5-based Mozilla operating
system; the strategic agreement with Microsoft (News - Alert) for the creation of a
Global Video Platform; or the creation of Telefónica Dynamic Insights, a
new global business unit aimed at opening up the new value-creation
opportunities offered by the so-called "big data" sector. In addition,
Wayra successfully held its first "DemoDay Global" in Miami to
present to international investors the advances made by 17 start-ups
chosen from the more than 180 ventures so far accelerated. During the
quarter Wayra incorporated new academies in Sao Palo, Munich, Prague
and Santiago de Chile, making a total of 13 academies around the world.
A costumer base of 316 million accesses
The Company's total accesses rose 3% year-on-year, reaching 315.7
million at year end 2012, with a significant rise in the number
of contract accesses and fixed and mobile broadband accesses. Noteworthy
was the 6% year-on-year increase in accesses at Telefónica Latinoamérica
(67% of the total). In the fourth quarter, Telefónica Europe posted
positive net additions on its total accesses, as a result of strong
Mobile accesses stood at 247.3 million at the end of the quarter, up 4%
on 2011, driven by sustained growth in mobile contract accesses (+7%
year-on-year), which now account for 33% of total mobile accesses.
Mobile net additions in 2012 totalled 12.1 million accesses (excluding
the disconnection of 3.6 million inactive mobile accesses in Spain and
Brazil). The Company?s mobile broadband accesses stood at 52.8 million
in December 2012, maintaining a solid 38% year-on-year growth, and
representing 21% of mobile accesses (+5 percentage points year-on-year).
Fixed-line accesses reached 40.0 million at the end of 2012, with net
additions of 181 thousand during the fourth quarter. Retail fixed
broadband accesses reached 18.6 million at the end of the year, a 3%
increase vs. December 2011, with 530 thousand net additions during 2012.
In the fourth quarter, Telefónica Europe showed net additions for the
first time since March 2011, thanks to the commercial momentum on fixed
broadband at Telefónica España. Retail fixed broadband accesses reached
a penetration rate of 46% over total fixed accesses.
Analysis of the income statement
It is important to note that Atento Group deconsolidated its results
from Telefónica Group as of the end of November 2012 (following the
disposal of the company during the fourth quarter of 2012), therefore
affecting year-on-year comparisons of Telefónica's reported financial
Revenues in 2012 totalled 62,356 million
euros, a 0.8% decrease vs. 2011, (-2.0% year-on-year in the fourth
quarter), affected by adverse conditions in certain markets, both
economic and those resulting from more intense competition, and the
negative effect of regulation. Revenues increased 0.7% year-on-year in
2012, excluding the negative effect of regulation.
The Company's high diversification remains a key differentiating factor
in the current environment, as demonstrated by the revenue breakdown. By
regions, Telefónica Latinoamérica's revenues in 2012 continued to show
strong year-on-year growth in organic terms (+6.7%), accelerating in the
fourth quarter vs. the third quarter (+7.5% vs. +6.4%), and they now
account for 49% of consolidated revenues (+2.9 percentage points vs. the
previous year), exceeding the revenues from Telefónica Europe (48% of
total). By services, mobile data revenues remained as growth driver in
2012 (+12.8% year-on-year), contributing more than 34% to mobile service
revenues during the period.
Consolidated operating expenses amounted to
42,343 million euros, 4.9% less than in 2011. The reported year-on-year
comparison is affected by the provision for expenses related to the
redundancy program in Spain booked in the third quarter of last year
(2,671 million euros). The trend in expenses improved in the fourth
quarter, with a 3.1% decrease year-on-year, thanks to the efficiency and
cost cutting measures introduced.
By concepts, supplies for full-year 2012 totalled 18,074 million euros,
a 1.0% decrease in reported terms. In the fourth quarter of 2012, the
decrease accelerated (-3.9% year-on-year in reported terms), reflecting
lower mobile interconnection costs in all regions and lower handset
upgrades in Spain and the UK. Subcontract expenses stood at 13,487
million euros while personnel costs stood at 8,569 million euros, a
22.7% decrease vs. 2011, being the year-on-year comparison affected by
the provision for the redundancy program in Spain mentioned above.
Excluding Atento, which was sold in the fourth quarter, Telefónica's
average workforce stood at 131,468 employees.
Gains on sales of fixed assets in 2012
stood at 782 million euros (-5.0% year-on-year) and at 493 million euros
in the fourth quarter (-6.9% year-on-year).
OIBDA and OIBDA margin evolution
It is important to mention that OIBDA is affected by a value adjustment
(-527 million euros) by the Telefónica Group in relation to Telefónica
Ireland. Thus, operating income before
depreciation and amortisation (OIBDA) amounted to 21,231 million
euros, with a sequential improvement in underlying OIBDA in all regions.
In the fourth quarter, underlying OIBDA was virtually stable in
year-on-year terms at 5,862 million euros, confirming, for the third
quarter in a row, a sequential quarterly improvement in OIBDA.
OIBDA margin at the end of 2012 stood at 34.0%. The sustained sequential
improvement in the underlying OIBDA margin continued in the fourth
quarter (37.0%, compared with 35.1% in the third quarter, 34.6% in the
second quarter, and 32.8% in the first quarter). Noteworthy, underlying
OIBDA margin in the fourth quarter registered positive year-on-year
growth (+0.1 percentage points compared with -0.5 percentage points in
the third quarter, -1.9 in the second quarter, and -2.8 in the first
quarter), reflecting the success of measures implemented to improve the
By region, Telefónica Latinoamérica continued increasing its
contribution to consolidated underlying OIBDA, accounting for 51%.
Telefónica Europe accounted for slightly less than 50%, and Telefónica
Spain's contribution fell to less than a third of the total (31%).
Depreciation and amortisation in 2012
(10,433 million euros) increased 2.8% year-on-year while operating
income (OI) totalled 10,798 million euros and particularly
improved in the fourth quarter.
Profit from associates amounted to -1,275
million euros (-635 million euros in 2011), mainly due to Telco,
S.p.A.'s adjustments of the value of its investment in Telecom Italia,
as well as to the recovery of all the operating synergies considered at
the time of this investment, with both effects totalling -1,355 million
euros in 2012. It should be pointed out that these effects were non-cash
Net financial expenses for the full-year
2012 totalled 3,659 million euros, 24.4% more than in 2011. This implies
an effective cost of debt of 5.37% over the last 12 months excluding
exchange rate differences. Free Cash Flow
for full-year 2012 amounted to 6,951 million euros.
It is important to highlight that, following the Company's efforts to
reduce debt, net financial debt decreased by 5,045 million euros in
2012, finishing the year at 51,259 million euros. Thus, the leverage
ratio for the past 12 months (net debt over OIBDA) stood at 2.36 times
as of the end of December.
Active financing policy
During 2012, Telefónica's financing activity, excluding short-term
Commercial Paper Programmes activity, stood at around 15,000 million
equivalent euros and has exceeded the amount raised in fiscal year 2011,
improving significantly the Company's liquidity position. The financing
activity was focused on financing in advance debt maturing in 2012, and
on smoothing the debt maturity profile for 2013 and 2014 at the Holding
level. Therefore, the Company maintains a debt maturity profile that,
along with cash flow generation expectations, is covered beyond 2014.
At the end of December 2012, bonds and debentures represented 68% of
consolidated financial debt breakdown, while debt with financial
institutions represented 32%.
Corporate income tax for 2012 totalled 1,461 million euros, which, over an
income before taxes of 5,864 million euros, implied an effective
tax rate of 24.9%, mainly due to the recognition of tax losses in
several countries during the fourth quarter. Profit
attributable to minority interests dragged net income by 475
million euros in 2012.
As a result of the above items, consolidated net
income in 2012 was 3,928 million euros (-27.3% year-on-year) and
the basic earnings per share 0.87 euros. The behaviour of net profit in
2012 compared to 2011 (-27.3%) is affected by a number of extraordinary
impacts, which last year reduced this item by 2,536million euros. These
included the adjustment of the value of the stakes in Telecom Italia and
Telefónica Ireland, and the effect of the devaluation of the Venezuelan
Bolivar. Without these effects, the consolidated net profit stood at
6,465 million euros, while basic earnings per share was 1.44 euros.
It is important to underline the significant improvement in the fourth
quarter, in which net profit reached 2,051 million and 0.46 euros per
share in underlying terms, showing strong sequential growth (+28.5% vs.
the third quarter of 2012) and remaining virtually stable in
CapEx in 2012 reached 9,458 million euros.
It is important to highlight that in 2012 this item included 586 million
euros mainly relating to the cost of the spectrum in Brazil, Ireland,
and Venezuela. The Company continued to devote the bulk of its
investments on growth and transformation projects (81% of total
investment), fostering the expansion of high-speed broadband services,
both fixed and mobile. The CapEx to sales ratio (excluding spectrum) for
2012 stood at 14.2%, in line with 2011.
Consequently, operating cash flow
(OIBDA-CapEx), excluding spectrum, stood at 12,360 million euros in 2012
(*) Guidance criteria 2013: 2013
guidance assumes constant exchange rates as of 2012 (average FX in
2012), excludes hyperinflationary accounting in Venezuela in both years
and considers constant perimeter of consolidation. OIBDA level guidance
for 2013 excludes write-offs, capital gains/losses from companies'
disposals, towers sales and other significant exceptionals. CapEx
excludes spectrum acquisition.
2012 adjusted bases exclude:
Capital gains/losses from companies' disposals: Capital gains/losses
from China Unicom, Atento, Hispasat (News - Alert) and Rumbo and impairment of T.
Homogeneous perimeter: 2012 adjusted figures exclude results of
Atento, Rumbo and small changes in T. Digital perimeter and
homogeneous accounting treatment of Joint Ventures.
Change in contractual commercial model for contract handsets in Chile.
2012 Bases for 2013 targets:
Organic revenues 2012: 61,084 million euros.
OIBDA margin erosion ex-towers: -1.4 percentage points.
Organic CapEx/Sales ex-spectrum: 14.1%.
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