The Chairman of Telefónica (NYSE:TEF) (LSE:TDE), César Alierta, said the
Company will accelerate its transformation in 2014: "Among our
targets, we will continue accelerating revenue growth and, at the same
time, we will increase investments to anticipate to the growing demand
from the increasingly intensive data service usage, as well as the
recovery of demand expected in some of our main markets".
Telefónica announces its its guidance and shareholder remuneration
policy for 2014 and reiterates its commitment to pay shareholders, with
the distribution in 2014 of a dividend of 0.75 euros per share to be
paid in the fourth quarter 2014 (0.35 euros per share by means of scrip
dividend) and in the second quarter 2015 (0.40 euros per share in cash).
Guidance criteria 2014 organic and excluding Venezuela (*) see page
Guidance 2014 (reported)
Net debt < €47 Bn
Lower than €43Bn
CapEx increase announced by the Company is oriented to stimulate
growth, to network differentiation and to improve market positioning,
among other reasons. The Company also reiterates mid-term commitment
2.35x Net financial debt/OIBDA.
Telefónica today presented its results for the end of year 2013, a year
in which the Group's net profit rose by 16.9%, to a figure of 4,593
million euros, at the same time as it kept its focus on improving
financial flexibility and strengthening the balance sheet, through
proactive management of its portfolio of assets and solid cash flow
generation. This translated into a reduction in the net financial debt
of 5,878 million euros in 2013, which places this item significantly
below the objective set for the year (€45,381 million vs. <€47,000
million), and a reduction of almost 16.000 million euros in 18 months.
Furthermore, although 2012 was a key year for Telefónica because it
represented the start of its transformation process, the financial year
2013 saw the consolidation of the long-term sustainable growth model on
which it has been working since then. Thanks to this dynamic, Telefónica
has managed to improve its positioning with regard to the competition in
the segments and markets of greatest value and has successfully managed
to strengthen its efficiency levels. So, as anticipated in September,
consolidated earnings rose again (+0.7% organic, +1.8% in the fourth
quarter) to 57.061 million euros, while the OIBDA (€19,077 million) and
the OIBDA margin (33.4%, -0.2 p.p. organic), meanwhile, remained stable
compared to 2012, in line with forecasts, meeting all financial
guidances for 2013.
In the report presenting the Company's annual results, Telefónica's
Chairman, César Alierta, pointed out that the Company will accelerate
its transformation in 2014: "Among our targets, we will continue
accelerating revenue growth and, at the same time, we will increase
investments to anticipate to the growing demand from the increasingly
intensive data service usage, as well as the recovery of demand expected
in some of our main markets".
He also explained that "in 2014 Telefónica will double the fibre
coverage in Spain to 7.1 million homes passed, reaching the highest
coverage levels among the largest economies in Europe. In Brazil we will
also increase fibre coverage to 2.5 million homes. In the mobile
business, we will expand 4G usage in Europe reaching an average coverage
of more than 50%, while we continue leading the mobile data market in
Latin America with the progressive launch of 4G.
In addition, Telefónica also announced today its guidance and
shareholder remuneration policy for 2014 and reiterates its commitment
to pay shareholders, with the distribution in 2014 of a dividend of 0.75
euros per share to be paid in the fourth quarter 2014 (0.35 euros per
share by means of scrip dividend) and in the second quarter 2015 (0.40
euros per share in cash). Details of the guidance as follows:
CapEx increase announced by the Company for 2014 is oriented to
stimulate growth, to network differentiation and to improve market
positioning, among other reasons. The Company also reiterates mid-term
commitment 2.35x Net financial debt/OIBDA
Contract mobile and pay TV foster access base
Telefónica managed a total of 323.1 million accesses at the end of 2013,
up 2% year-on-year, driven by contract mobile customers, in particular
the mobile broadband segment, and pay TV accesses. It is worth to
mention T. Latinoamérica (68% of the total) outstanding access
performance, posting growth acceleration for the fourth quarter in a row
to 4% year-on-year.
Mobile accesses stood at 254.7 million at the end of December and posted
the highest year-on-year growth in the last four quarters (+3%),
reflecting the increased commercial momentum. Contract accesses rose by
9% to 89.2 million euros and now account for 35% of the total mobile
customer base, reflecting the focus on growing high-value customers.
Mobile broadband accesses reached 72.8 million in December 2013 (+38%
year-on-year) and now account for 29% of total mobile accesses (+7
percentage points year-on-year), driven by the strong smartphone
performance. Retail broadband accesses totalled 18.4 million, up 2%
compared with December 2012 excluding the sale of assets related to the
fixed consumer business in the United Kingdom while Pay TV accesses (3.6
million) rose 8% year-on-year, posting 266 thousand net additions in
2013 a tenfold increase on the 2012 figure.
Atento Group results were deconsolidated 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 results. The results of the disposed
assets relating to the fixed consumer business in the United Kingdom are
also excluded as from May 1, 2013.
In 2013 exchange rate fluctuations have negatively impacted main metrics
year-on-year performance, mainly due to the devaluation of the
Venezuelan bolivar and the depreciations of the Brazilian reais and the
Argentine peso against the euro. Thus, exchange rates reduced both
revenue and OIBDA year-on-year growth by 7.5 percentage points in 2013,
and by 9.2 and 9.4 percentage points respectively in the last quarter.
Moreover, changes in the perimeter of consolidation reduced revenue
growth by 1.7 percentage points and OIBDA growth by 1.0 percentage point.
Revenues totalled 57,061 million euros in 2013, with growth accelerating
to 0.7% year-on-year in organic terms (-8.5% in reported terms)
following a 1.8% year-on-year increase in the fourth quarter in organic
terms (-8.9% in reported terms). Excluding the negative impact of
regulation, organic revenues grew 2.3% compared with 2012 and 3.2%
year-on-year in the fourth quarter.
Telefónica Latinoamérica remained the Group's main growth driver, with
revenues up 9.6% in organic terms compared with 2012 and by 10.3%
compared with October-December 2012. Telefónica Digital also continued
improving its organic growth (+19.4% year-on-year in the fourth quarter,
+17.9% in the third quarter).
Consolidated operating expenses amounted to 39,112 million euros, up
1.4% year-on-year in organic terms (-7.6% reported) mainly on the back
of strong commercial momentum at T. Latinoamérica related to the
strategic focus on capturing high-value customers. By components,
Supplies grew 2.0% year-on-year in organic terms and Personnel costs
increased 4.5% in organic terms compared with 2012 (-15.9% reported),
reflecting the negative impact of inflation in some Latin American
countries. Moreover, subcontract expenses fell 1.4% year-on-year in 2013
in organic terms.
The average headcount in 2013 was 129,893 employees, 3.9% lower than the
average in 2012 excluding the impact of the deconsolidation of Atento.
Gains on sales of fixed assets in 2013 totalled 161 million euros (58
million euros in the fourth quarter) mainly associated with the sale of
non-strategic towers in Latin America and Spain. Impairment of goodwill
and other assets amounted to -39 million euros, and included the value
adjustment of certain assets of T. Digital for a total of -25 million
OIBDA evolution and OIBDA margin
Operating income before depreciation and amortisation (OIBDA) in 2013
amounted to 19,077 million euros, stable in organic terms compared with
2012. In the fourth quarter, OIBDA grew 1.2% year-on-year in organic
terms and continued the sequential year-on-year organic improvement
(-0.3% in the third quarter; -0.7% in the second), resulting from steady
revenue growth and on-going cost containment, along with efficiency
improvements stemming from the operational transformation process. The
OIBDA margin stood at 33.4% at the end of 2013 and at 34.5% in the
fourth quarter, both figures virtually stable year-on-year in organic
Operating income (OI) in 2013 stood at 9,450 million euros, virtually
unchanged year-on-year (-0.5% in organic terms; -12.5% reported), while
in the fourth quarter, operating income growth accelerated to 5.5%
year-on-year in organic terms.
Share of profit (loss) of investments accounted for by the equity method
totalled -304 million euros in 2013 (-186 million euros in the fourth
quarter) and it is mainly explained by Telco, S.p.A.'s adjustments of
the value of its investment in Telecom Italia (-350 million euros). It
should be pointed out that these effects were non-cash impacts.
Net financial expenses amounted to 2,866 million euros in 2013, of which
111 million euros were due to net negative foreign exchange differences.
Excluding this effect, net financial expenses fell 11.8% year-on-year,
mainly due to a 11.4% reduction in the average debt.
Profit attributable to minority interests reduced net income in 2013 by
376 million euros, down 20.7% year-on-year, mainly as a result of the
lower profit attributed to minority interests in Brazil, affected by the
As a result, consolidated net income in 2013 totalled 4,593 million
euros (+16.9% year-on-year) and and basic earnings per share amounted to
1.01 euros per share (+15.6% year-on-year). In the fourth quarter of
2013, net income totalled 1,448 million euros and basic earnings per
share stood at 0.31 euros, nearly tripling the figures registered in the
same period of 2012.
More CapEx and financial flexibility
CapEx in 2013 amounted to 9,395 million euros and included 1,224 million
euros relating to the acquisition of spectrum, primarily in the United
Kingdom, Brazil, Peru, Colombia, Spain and Uruguay. In organic terms,
investments rose 3.8% year-on-year with nearly 68% of total investments
devoted to business transformation and growth.
As a result, free cash flow amounted to 5,391 million euros in 2013,
including spectrum payments of 1,499 million euros. Excluding this
impact, free cash flow totalled 6,890 million euros.
Net financial debt was reduced by 5,878 million euros in 2013 to 45,381
million euros at year-end as a result of the Company's focus on
enhancing financial flexibility. Including post-closing events (disposal
of T. Czech Republic, completed in January 2014, and of T. Ireland), net
debt stood at 42,325 million euros. The leverage ratio (net debt over
OIBDA) for the past 12 months stood at 2.36 times at the end of December
2013. If aforementioned post-closing events were considered, the
leverage ratio would stand at 2.31 times.
Active financial activity
During 2013, Telefónica's financing activity, has been intense through
bond and loan markets executing operations for nearly 12,000 million
equivalent euros. The financing activity was mainly focused on financing
in advance debt maturing in 2014 and beyond, smoothing the debt maturity
profile at the Holding level for the following years while strengthening
liquidity position. Therefore, as of December the Company maintains a
comfortable liquidity position to accommodate next debt maturities.
At the end of December 2013, bonds and commercial paper represented 69%
of the consolidated gross financial debt breakdown, while debt with
financial institutions represented 31%.
Telefónica Digital and Global Resources
Telefónica Digital continued to deliver on its priorities for
2013, building powerful propositions through partnerships and fostering
digital products and services in several markets to gradually enhance
year-on-year revenue trend (+19.4% year-on-year in organic terms in the
fourth quarter; +17.9% in the third quarter).
Regarding its main milestones during 2013, it is worth to mention the
launch of its Global Video Platform, which allows the delivery of TV
services across various networks to a wide range of devices; and the
strong position in M2M, with a portfolio that includes both M2M
connectivity services and end-to-end products in different industries.
Especially noteworthy is the significant success of in-house
developments, as the "Smart M2M" Solution, which enabled the recent
contract awarded in the UK (£1.5bn) to deliver smart meter
communications services, representing the industry's largest contract
win to date.
It is also important eHealth capabilities, bolstered through
acquisitions in 2013, like Axismed in the first quarter, or the strong
delivery posted by Financial services, as the establishment in Spain,
jointly with Santander and Caixabank, of the first JV in Europe to
develop a new Financial Services proposal.
Among other initiatives, it is worth highlight the launched "Latch", a
revolutionary new Security service developed in-house; the strategic
investment in Box, the leading Cloud collaboration and storage company;
and other Investments and global partnerships made by Telefónica Digital
in 2013 included the equity stake in Rhapsody and the global
partnerships signed with Pinterest and Evernote. Telefónica also
continued driving innovation in its core communications services
introducing along 2013 Firefox OS in new markets, and it will be
launched in eight new countries in 2014.
Regarding Telefónica Global Resources, in 2013 the unit has
continued advancing in infrastructure transformation and in the
execution simplification of projects in order to maximise efficiencies
and scale benefits.
In this way, the Network and Operations global unit, to anticipate to
the growing demand for data (network traffic grew 26% year-on-year in
2013), continued expanding ultra-broadband coverage and all IP. In terms
of the fixed network, fibre investments accelerated, mainly in Spain and
Brazil. As such, FTTH coverage in Spain grew significantly, with more
than 3.5 million homes passed, while Brazil ended the year with 1.4
million homes passed. In terms of the mobile network, there was an
acceleration in the LTE rollout across all European markets and in the
main Latin American markets. As such, the Company continued advancing in
the mobile network transmission and around 60% of the mobile base
stations are now connected with UBB, mainly in the areas with higher
Transformation of the Global IT unit is key to become a Digital Telco.
Accordingly, from an IT infrastructure consolidation perspective, the
Company closed six data centres in 2013 while at the same time created a
benchmark global data centre in Spain. In addition, the simplification
and transformation efforts put in place resulted into the switch-off of
1,150 applications and a 12% reduction in physical servers. The global
procurement unit continued creating value, capturing the benefits of the
Group's scale. In 2013 the new end-to-end sourcing model was
consolidated, with significant quarter-on-quarter improvement. This
translated into 60% of global procurement processes now executed under
the end-to-end strategic sourcing model. The global procurement unit
manages over 25 billion euros annually and has achieved savings of 7% on
a volume of more than 13 billion euros executed by this unit in 2013.
Finally, the mobile devices unit, progressed in rebalancing the vendors
and operating systems in 2013 thanks to the agreements reached with
leading industry players, while at the same time accelerated smartphone
penetration among our customers, leveraging the Group's scale to obtain
more competitive prices.
1 Guidance criteria 2014:
2014 guidance assumes constant exchange rates as of 2013 (average FX
in 2013), excludes Venezuela in both years and considers constant
perimeter of consolidation. OIBDA level guidance for 2014 excludes
write-offs, capital gains/losses from companies' disposals, towers sales
and other significant exceptionals such as restructuring costs, etc.
CapEx excludes spectrum acquisition.
2013 adjusted bases exclude:
2013 Bases for 2014 targets:
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