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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of February, 2016

Commission File Number: 001-09531

Telefónica, S.A.

(Translation of registrant’s name into English)

Distrito Telefónica, Ronda de la Comunicación s/n,

28050 Madrid, Spain

3491-482-8700

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

No

X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

No

X

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes

No

X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  N/A

 

 

 

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Telefónica, S.A.

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Item				Sequential  Page Number
1.		Quarterly Results of Telefónica Group: January- December 2015		1

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FINANCIAL HIGHLIGHTS

 

•

Fulfilment of 2015 operating guidance, upgraded in July 2015.

 

•

Commercial activity intensified, improving the competitive position in key markets and high-value services.

 

g

Strong year-on-year organic growth of fibre customers (+30%), Pay TV (+12%), Smartphones (+29%) and LTE (3.0x, reported).

 

g

Significant improvement in customer base value, with revenue per access growing (+1.9% vs. 2014) and a churn improvement across the board in high-value services.

 

•

Revenues increased by 4.0% organically (+8.7% reported) to 47,219 million euros in 2015.

 

g

Mobile data revenues improvement (+16.9% year-on-year organic in 2015; +18.7% in the quarter), underpinned by non-SMS data growth (+25.3% in 2015; +27.8% in the quarter).

 

g

Revenues in October-December totalled 11,881 million euros and grew 3.3% year-on-year organic

 

•

OIBDA growth improved in 2015 (+3.6% organic) to 11,414 million euros; 14,926 million euros underlying (-1.5%).

 

g

OIBDA in the fourth quarter (401 million euros) was affected by various non-recurrent factors:

 

g

i) Provision for restructuring expenses (-3,122 million euros in total; -2,896 in T. España, -190 in Other Companies, -29 in T. Hispanoamérica and -7 in T. Deutschland); ii) provision for Telefónica Foundation to meet its financing needs for the following years (-325 million); iii) provision for the optimisation of the distribution network in Spain (-30 million); iv) valuation adjustments of companies (-23 million).

 

g

And other factors that had a positive impact: i) final agreement related to the purchase price of E-plus (+102 million euros); ii) outcome of the spectrum swap in Mexico (+79 million); iii) expiration of an account payable in Brazil (+98 million); iv) capital gains due to the sale of real estate assets in T. España (+22 million); v) tower sales in Latin America (+18 million).

 

g

OIBDA in the quarter grew by 3.8% organic year-on-year driven by T. Deutschland and T. Brasil.

 

g

Organic OIBDA margin in October-December stood at 32.2% (+0.2 percentage point year-on-year) thanks to revenue growth, efficiency gains and synergies. In January-December, margin remained stable at 31.6%.

 

•

Operating cash flow in the year returned to growth (OIBDA-CapEx, +1.9% organic).

 

g

CapEx increased by 5.0% year-on-year organic, focused on the growth and transformation of networks and systems.

 

g

Operating cash flow made significant progress in the quarter (+17.6% organic).

 

•

Underlying net income amounted to 5,787 million euros in 2015 (+29.7% year-on-year) and basic earnings per share stood at 1.12 euros (+23.9%) in underlying terms. Net income for the fourth quarter was impacted by extraordinary factors, mentioned previously.

 

•

Solid free cash flow generation before spectrum payments in the quarter (4,821 million euros; +1.6%), increasing to 0.98 euros per share. In the quarter, free cash flow reached 2,307 million euros, improving virtually in all lines.

 

•

Net financial debt totalled 49,921 million euros. The leverage ratio considering the sale of O2 UK stood at 2.38x.

 

•

Telefónica España, which consolidated DTS from 1 May 2015, increased its commercial activity in the quarter, achieving net additions of 145 thousand accesses in “Fusión”, 272 thousand in fibre, 56 thousand in broadband, 88 thousand in Pay TV, 90 thousand in contract mobile and reducing the net loss in fixed lines to 59 thousand.

 

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T. España revenues (excluding DTS) accelerated to 0.8% year-on-year in the quarter and OIBDA was affected by an extraordinary provision (2,926 million euros) mainly associated with a voluntary employment suspension plan which will be implemented in 2016 and 2017 and will improve efficiency in coming years.

 

•

In the fourth quarter, Telefónica Brasil strengthened its leadership in the mobile segment, after capturing 69% of new contract accesses, and reinforced its position in fibre and Pay TV. Revenues maintained solid growth of 3.4% year-on-year due to the accelerated adoption of mobile data and the positive performance of fibre and Pay TV. OIBDA increased by 7.3% year-on-year and reflected efficiency measures focused on cost containment and the initial capture of synergies.

 

•

In Germany, commercial activity in the quarter remained high and focused on retaining value customers. The level of profitability was notable, reflecting both the growing contribution of integration synergies and the optimisation of commercial spend. Thus, organic year-on-year OIBDA growth in the quarter accelerated significantly to 35.5% and organic OIBDA margin expanded by 5.9 percentage points to 23.9%.

 

•

T. Hispanoamérica registered an improvement in its commercial activity in the quarter, particularly in higher value services (record net additions in mobile contract, migration to higher speeds in broadband and boost in Pay TV). In organic terms, revenues increased by 8.1% year-on-year and OIBDA by 4.0%, despite the higher commercial activity and an environment marked by the depreciation of most currencies in the region against the US dollar.

 

•

Telefónica announces guidance1 and confirms shareholder remuneration for 2016:

 

g

Revenue growth: expected to be >4% year-on-year.

 

g

OIBDA margin: stabilizing vs. 2015.

 

g

CapEx/Sales excluding spectrum: at around 17%.

 

g

Net Financial Debt/OIBDA ratio: <2.35x, adjusted for the closing of the sale of O2 UK.

 

g

Dividend for 2016 of 0.75 euros per share in cash, subject to the closing of the sale of O2 UK. Additionally, the amortisation of Treasury stock for a total of 1.5% share capital will be proposed at the 2016 AGM (subject to the closing of the sale of O2 UK).

 

¹ Operational guidance 2016:

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

 

ü

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.

 

ü

Includes:

 

¡

Since May 2015, GVT results consolidated in T. Brasil results and DTS results in T. España results.

2016E guidance:

 

ü

Assumes constant exchange rates as of 2015 (average FX in 2015) and maintaining current Company perimeter.

 

ü

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.

 

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Comments from César Alierta, Executive Chairman:

“The Digitalisation of the economy is now a reality which is already bringing about significant changes in society; changes that will accelerate in the next years. The growth of connections, data traffic and innovation is going to be exponential and is going to translate into real improvements in terms of productivity, employment and economic growth and, ultimately, into important social progress. The telecom sector is at the centre of that revolution, however new skills are required to capture its full potential.

We must adapt the commercial offering in order to satisfy the growing needs of our customers, characterised by increasingly higher data consumption (data traffic increased by 40% in 2015 and mobile data traffic by 48%, boosted by video usage). In this respect, in 2015, our Fibre customers increased by 30%, LTE customers tripled, smartphones advanced by 29% and Pay TV by 12%. This translated into higher value customers, both in terms of higher average revenue per access and increasing loyalty, and, therefore, into revenue growth acceleration to 4.0% organic in 2015.

The growing demand for data also requires adapting the networks, a trend which Telefónica began earlier than others. In 2015, we once again invested 17% of our revenues, which, together with spectrum acquisitions, positioned our investment level at 9,578 million euros. This effort enabled us to have in Spain the most extensive fibre-to-the-home network (14.3 million premises passed) and with more customers connected in Europe, to reach more than 17 million premises passed with fibre in Brazil, or achieve an LTE penetration in Europe of 75% and 43% in Latin America.

Meanwhile, the digital economy also requires more agile, more efficient and more responsible companies. As a consequence, in 2015 we launched efficiency plans, which shall be reflected in profitability improvements, and we have allocated financial resources to Telefónica Foundation in order to continue driving digital education, democratising access to quality knowledge for millions of students. Telefónica is currently ranked the third Company in the world in terms of education investment.

As such, 2015 has been a very positive year, in which we have met our objectives. 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. We expect that all of this will be reflected in improvements in the key financial figures: revenue growth higher than 4%, margins stabilising while we maintain strong levels of investment, recover full-cash dividend payment (75 cents per share) and strengthen financial flexibility.”

 

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TELEFÓNICA

SELECTED FINANCIAL DATA

 Unaudited figures (Euros in millions)

 

 

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TELEFÓNICA
		Consolidated Results					6
		•		Digital Services			12
		•		Telefonica Recursos Globales			13
RESULTS BY BUSINESS UNITS
		Telefónica España					24
		Telefónica Deutschland					30
		Telefónica Brasil					35
		Telefónica Hispanoamérica					41
		•		Telefónica Argentina			44
		•		Telefonica Chile			47
		•		Telefonica Perú			50
		•		Telefónica Colombia			53
		•		Telefónica México			56
		•		Telefónica Venezuela and Centroamérica			59
		•		Other Hispam countries			62
ADDENDA
		Key Holdings of the Telefónica Group					64
		Changes to the Perimeter					65

The financial information related to January-December 2015 contained in this document has been prepared under International Financial Reporting Standards (IFRS), as adopted by the European Union, which do not differ for the purposes of the Telefónica Group, from IFRS as issued by the International Accounting Standards Board (IASB). For comparative purposes only, the comparative figures for January-December 2014 have been modified with respect to those presented as of end of December 2014 following the consideration of T. UK as a discontinued operation in compliance with IFRS rules. Also for comparative purposes only, the comparative figures for October-December 2014 have been modified with respect to those presented as of end of December 2014, due to the conversion to SICAD II (50 VEF/USD) of those operations referenced to the Venezuelan bolivar in the first, second and third quarter of 2014. The financial information for October-December 2014 presented as of end of December 2014 and prepared under IFRS as adopted by the European Union, can be found in the tables “Selected Financial Data”, available in www.telefonica.com/investors. This information is unaudited.

Telefónica’s management model, regional and integrated, means that the legal structure of the companies is not relevant for the release of Group financial information, and therefore, the operating results of each of these business units are presented independently, regardless of their legal structure. For the purpose of presenting information on a business unit basis, revenue and expenses arising from invoicing among companies within Telefónica’s perimeter of consolidation for the use of the brand and management contracts have been excluded from the operating results for each business unit. This breakdown of the results does not affect Telefónica’s consolidated earnings.

The English language translation of the consolidated financial statements originally issued in Spanish has been prepared solely for the convenience of English speaking readers. Despite all the efforts devoted to this translation, certain omissions or approximations may subsist. Telefónica, its representatives and employees decline all responsibility in this regard. In the event of a discrepancy, the Spanish-language version prevails.

 

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01

CONSOLIDATED RESULTS

In 2015, Telefónica made firm progress towards long-term profitable and sustainable growth, at the same time as improving its competitive position in key markets. Thus, commercial activity, focused on growth and quality services (fibre, smartphones, LTE, Pay TV), intensified, underpinning revenue growth acceleration (+4.0% organic year-on-year).

At the same time, the savings obtained from integration synergies in Germany and Brazil and the efficiencies generated by the simplification programme contributed to OIBDA improvement (+3.6% organic year-on-year) and the return to growth of operating cash flow (+1.9% organic year-on-year). On the other hand, basic earnings per share in underlying terms reached 1.12 euros in 2015, increasing 23.9% year-on-year.

In the fourth quarter, year-on-year performance reflected the consolidation of GVT’s results in Telefónica Brasil and DTS’ in T. 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.

Total accesses at December, grew by 2% year-on-year (-1% organic) to 322.3 million, underpinned by T. Hispanoamérica (+2%) which represented 42% of the total, despite the fact that the performance of accesses in the fourth quarter was impacted by the application of more restrictive criteria when calculating prepay accesses in T. Brasil (net loss of 6.8 million customers). High-value customers’ organic growth remained strong: fibre (+30% year-on-year), Pay TV (+12%), smartphones (+29%) and LTE (3.0x, reported). Churn evolution was also noteworthy, posting improvement in high-value segments.

 

g

Mobile accesses stood at 247.1 million (-1% year-on-year) and were affected by the more restrictive calculation of the prepay base in T. Brasil. In the contract segment (+6% year-on-year), all regions posted year-on-year growth: T. Brasil +10% after capturing 69% of new accesses in the quarter, T. Hispanoamérica (+6%) obtained quarterly net additions of 732 thousand customers (3.3x year-on-year), T. España (+2%) net additions accelerated to 90 thousand customers in the quarter (1.6x year-on-year) and T. Deutschland (+2%) achieved net additions of 198 thousand customers in October-December. Thus, contract customer quarterly net additions reached 1.7 million for the Group, the highest level in six quarters.

 

g

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% (+12 percentage points year-on-year) and, in prepay, penetration stood at 38% (+15 percentage points year-on-year). LTE customers (29.7 million; 3.0x year-on-year) accounted for 12% of total mobile accesses (+8 percentage points year-on-year) after capturing record net additions of 6.1 million (+42% year-on-year), underpinned by T. Brasil (+2.7 million; 3.1x) and T. Hispanoamérica (+2.3 million; 2.6x).

 

g

Retail broadband accesses totalled 21.0 million and grew 19% vs. December of last year (+2% in organic terms), underpinned by T. Brasil (1.8x; +4% organic). A key highlight is the quarterly net gain of T. España (+56 thousand accesses), the highest recorded since the launch of “Fusión”.

 

g

Fibre accesses stood at 6.1 million and increased 30% year-on-year in organic terms, mainly due to T. España (+69% year-on-year; 2.2 million customers). It is important to highlight the positive trend of fibre customers’ weight in T. Brasil, already reaching 53% of the retail broadband base (+5 percentage points year-on-year).

 

g

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%), and reached net additions of 117 thousand customers in the quarter.

 

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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).

These depreciations also reduced payments in euros related to CapEx, taxes, interest and minorities, offsetting the negative effect of exchange rate evolution on OIBDA and mitigating its impact on cash flow generation.

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 and +5.4 percentage points, respectively in 2015).

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 (+5 percentage points year-on-year), due to higher smartphone penetration (+15 percentage points year-on-year) and the growing weight of LTE customers (+8 percentage points). 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 (+5 percentage points year-on-year). 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.

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). Particularly noteworthy were T. Hispanoamérica, with double digit growth, and T. Brasil, whose year-on-year growth rate accelerated to c.a. 5%.

On the other hand, excluding the impact of regulation, revenues grew by 4.1% year-on-year in organic terms in the fourth quarter and by 5.0% in 2015.

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:

 

g

Restructuring costs: 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) and the restructuring expenses in T. Hispanoamérica (29 million euros), T. Deutschland (7 million euros) and Other Companies and Eliminations (190 million euros). This provision affected personnel expenses (3,119 million euros) and other net income/expense (3 million euros).

 

g

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

 

g

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).

 

g

In January-December 2015, total restructuring costs amounted to 3,212 million euros: T. España (2,896 million euros), T. Deutschland (74 million euros), T. Hispanoamérica (38 million euros), T. Brasil (7 million euros) and Other Companies and Eliminations (198 million euros). This provision affected personnel expenses (3,143 million euros) and other net income/expense (69 million euros).

 

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Operating expenses stood at 12,089 million euros in October-December 2015, 5.0% more vs. the same period of the previous year in organic terms (+35.7% reported) due to higher expenses in T. Hispanoamérica and T. Brasil, associated with increased commercial intensity and the depreciation of the majority of Latin American currencies against the US dollar, although this was partially offset by savings in T. Deutschland derived from integration synergies. Compared to the previous quarter, the organic evolution of operating expenses remained virtually stable (+0.2 percentage points year-on-year) due to greater efficiencies in commercial spend and lower network and systems costs.

In 2015, expenses totalled 37,132 million euros and grew 4.6% year-on-year organic (+20.6% reported).

Breakdown by component:

 

g

Supplies for the quarter, 3,371 million euros (+1.0% year-on-year organic), 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. The organic year-on-year growth rate decelerated 0.4 percentage points vs. the third quarter, mainly due to a lower volume of handset sales in the prepay segment of T. Hispanoamérica.

 

g

Personnel expenses amounted to 4,811 million euros in October-December with the provision for non-recurrent restructuring costs mentioned before (3,119 million euros in the fourth quarter; 3,143 million euros in January-December) impacting the year-on-year evolution. In organic terms, these expenses grew by 5.4% vs. the same period in 2014, affected mainly by inflationary pressures in certain Latin American countries.

The average headcount in 2015, excluding O2 UK, stood at 125,892 employees and increased 11.5% year-on-year (-2.8% year-on-year including in 2014 the equivalent average headcount of E-Plus, GVT and DTS).

 

g

Other operating expenses totalled 3,907 million euros in the fourth quarter and increased 8.8% year-on-year organic, due to the impact of inflation in certain Latin American countries, the depreciation vs. the dollar of most currencies in the region, higher network and system costs related to the transformation of the Company and increased commercial intensity, which more than offset the savings associated with the simplification measures undertaken. This item 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.

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 (98 million euros on OIBDA) and a provision in Spain to optimise the distribution network (30 million euros).

Gains on sale of fixed assets totalled 158 million euros in the fourth quarter, and mainly included the outcome of the spectrum swap with AT&T in Mexico (impact of 79 million euros on OIBDA), the sale of real estate assets in T. España (impact of 22 million euros on OIBDA) and tower sales (18 million euros impact on OIBDA, mainly in Chile and Brazil).

In 2015, this item increased to 275 million euros and was 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).

 

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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 (+35.5%), reflecting significant integration synergies, T. Brasil (+7.3%), associated with solid revenue performance and efficiency measures focused on cost control, and T. Hispanoamérica (+4.0%; +1.0 percentage point vs. the previous quarter).

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, higher cost containment and the tangible benefits of synergies generated from the integration of the acquired companies.

Depreciation and amortisation, 2,161 million euros in October-December, increased 1.6% in organic terms vs. the same quarter of 2014 mainly due to the amortisation of the new spectrum acquired in Brazil and Spain and the higher investments. In January-December 2015, depreciation and amortization increased to 8,517 million (+3.5% year-on-year organic). Total depreciation and amortisation charges arising from purchase price allocation processes totalled 191 million euros in the quarter (745 million euros in 2015).

Operating income (OI) reached -1,760 million euros in October-December, affected by the aforementioned non-recurrent impacts, and increased 6.5% year-on-year in organic terms (+3.7% year-on-year organic in January-December).

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. Excluding exchange rate differences, these expenses stood at 1,961 million euros and improved 21.2% (528 million euros), primarily due to the lower cost of debt in euros (146 million euros), leveraged by the reduction of fixed-rate debt and the capture of the lower euro short-term rates, and the divestment of the Group’s entire stake in Telecom Italia, S.p.A. (404 million euros). This was partially offset by other effects that had a negative impact of 22 million euros, including the monetary correction for the inflation in Venezuela net of higher expenses in Latin American currencies, revision of contingencies and mark to market of other equity items.

The effective cost of debt in the last twelve months, excluding exchange rate differences and the positive impact of the divestment in Telecom Italia, S.p.A., stood at 4.69%, 57 basis points lower year-on-year.

In the fourth quarter of 2015 there was a tax income of 313 million euros, mainly due to the recognition of the tax credit derived from the aforementioned provision for restructuring expenses. In January-December 2015, corporate income tax reached 13 million euros and also included activation of tax credits in Spain in the second quarter of 2015.

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, with 1,412 million euros corresponding to the impact of deferred tax assets resulting from the estimation of the difference in Telefónica, S.A. between the fiscal value and the agreed value for the sale of Telefónica’s UK operations (which are expected to materialise in the foreseeable future when they are made definitively deductible in the sale), reduced by the amount corresponding to the tax amortisation of goodwill.

 

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Profit attributable to minority interests reduced net income for the quarter by 95 million euros, 122 million more than in the same period of the previous year mainly due to higher results attributed to minority interests in T. Deutschland. In January-December, minorities reduced net income 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 -1,832 million euros (769 million in underlying terms), affected by the non-recurring impacts mentioned above. In 2015, net income reached 2,745 million euros, or 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) and 0.14 euros in the fourth quarter (-43.8% year-on-year).

In 2015, the Company took yet another step forward in its ongoing investment plan focused 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 (+10.3% in reported terms), including 1,585 million euros of spectrum acquisition (76% of the total in Germany in the second quarter).

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.

Operating cash flow excluding spectrum in underlying terms, reached 1,302 million euros in October-December and 6,872 million euros in 2015.

Interest payments in 2015 totalled 2,410 million euros, a 3.8% year-on-year reduction despite the increase in average debt (+6.5%). Net financial payments accounted for 4.8% of the net average debt in the year.

Payment for taxes amounted to 664 million euros in 2015, 443 million euros less than the previous year, primarily due to tax recoveries on definitive tax filings of previous years. Excluding the impact on income before taxes of the provision for the aforementioned restructuring costs, the effective cash tax rate stood at 18.8%.

Working capital in the fourth quarter of 2015 generated a cash flow of 2,500 million euros, driven by the various management measures, including: (i) extended payment terms with suppliers or with the factoring firm where those had been discounted, for 838 million euros, (ii) factoring of accounts receivable, (iii) lower CapEx payments vs. accruals in the period and (iv) expenses derived from the provision made to Telefónica Foundation, to be paid in the coming years.

In January-December 2015, working capital contributed positively to a cash flow generation of 1,855 million euros (2,390 million 2014) due to management measures implemented throughout the year.

Operations with minority shareholders totalled 537 million euros in 2015, 211 million euros more than the previous year, mainly due to higher dividend payments in Germany and Brazil in 2015.

Cash flow from discontinued operations totalled 675 million euros in the year (531 million in 2014).

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, increasing 4,834 million euros year-on-year. Factors explaining the debt increase included: i) 6,934 million euros in net financial investments including changes in the perimeter of consolidation; ii) shareholder remuneration (dividends, treasury stock and hybrid coupons) totalling 4,188 million euros; iii) spectrum payments of 1,307 million euros; iv) the payment of labour-related commitments (721 million euros) mainly related to early retirement and v) other factors affecting the valuation of liabilities amounting to 1,185 million euros (mainly due to the refinancing of commercial liabilities). Conversely, noteworthy factors reducing

 

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the debt included: i) free cash flow generation before spectrum payment of 4,821 million euros; ii) capital increase of Telefónica S.A. of 3,003 million euros; iii) the contribution of minority shareholders in Telefónica Brasil’s capital increase, totalling 1,258 million euros; and iv) the issuance of capital instruments for a total of 419 million euros.

In the fourth quarter, net debt increased by 231 million euros mainly due to: i) shareholder remuneration (including payment of dividends, purchase of treasury stock and payment of capital instrument coupons) of 799 million euros; ii) net financial investments of 241 million euros; iii) payment of labour-related commitments (150 million euros) and iv) other factors affecting the valuation of liabilities amounting to 1,350 million euros (mainly due to the refinancing of commercial liabilities). Contrarily, free cash flow generation before spectrum payments reduced debt by 2,310 million euros.

The leverage ratio (net debt over OIBDA¹) in the last 12 months at the end of December 2015 stood at 2.91 times. Considering the closing of the sale of O2 UK, the ratio stood at 2.38 times.

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, 26% of which was obtained as capital (equity and hybrids) and the rest as financial debt. 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. The capital increases of Telefónica, S.A., for a total of 3.0 billion euros, and Telefónica Brasil, S.A. for 16.1 billion Brazilian reais, were completed during the second quarter, in connection with the financing of the acquisition of GVT. The capital increase at Telefónica Brasil, S.A. was subscribed in a 25.2% by minority shareholders (approximately 1.2 billion euros).

In February 2015, a syndicated credit line was signed with 33 financial entities for the sum of 2.5 billion euros and maturing in February 2020. In parallel, the economic terms of the syndicated credit facility signed in February 2014, for an amount of 3.0 billion euros, were modified. The maturities of both syndicated facilities have been recently extended one year to February 2021 and February 2020, respectively. Likewise, in September 2015, a key highlight was the first issuance of the year in the bond market in euros, totalling 1.0 billion euros and maturing in 6 years, with a historic record-low coupon paid by Telefónica for a euro issuance. In November 2015, Telefónica signed a credit line for the sum of 3.0 billion euros and maturing in February 2018 with seven financial entities, allowing Telefónica to address part of the debt maturing in the first quarter of 2016 with this transaction and to use the already existing liquidity position to cover the maturities of subsequent years.

In Hispanoamerica, Telefónica subsidiaries tapped financing markets in January-December 2015 for a total approximate amount of 1,722 million equivalent euros. It is worth highlighting the hybrid issuance from Colombia Telecomunicaciones, S.A. ESP in the first quarter for a total of 500 million US dollars.

In the first quarter, T. Deutschland closed financing agreements for an amount of 300 million euros through the issuance of debt instruments in the local market (schuldscheindarlehen and namensschuldverschreibung), with different maturity terms until 2032.

Throughout the year, Telefónica Group obtained funding for a total 927 million equivalent euros, by means of extending payment terms with suppliers or with the factoring firm where those had been discounted.

 

¹ 12 month rolling, not considering O2 UK discontinuation, incorporating DTS and GVT OIBDA corresponding to January - April 2015 and excluding the non-recurring impact from restructuring costs in the 12 months rolling and the firm commitments relating to the Telefónica Foundation’s social activities

 

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Meanwhile, Telefónica, S.A. and its holding companies continued with their issuance activity under the various Commercial Paper Programmes (Domestic and European), increasing the outstanding amount to approximately 1,497 million euros at the end of December.

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.

Definitions

Organic Growth: Assumes constant average exchange rates from 2014. Excludes the impact of hyperinflationary adjustments in Venezuela in both years and O2 UK results for both years after being classified as discontinued operations, and considers a constant perimeter of consolidation. In OIBDA and OI terms, excludes write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurring impacts and restructuring costs mainly related to the Voluntary Employment Suspension Plan in Spain and to the integration processes in Germany and Brazil and the simplification programme. CapEx also excludes investment in spectrum and the Real Estate efficiency plan.

Underlying Growth: Reported figures excluding the impact of write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurring impacts and restructuring costs mainly related to the Voluntary Employment Suspension Plan in Spain and to the integration processes in Germany and Brazil and the simplification programme, as well as depreciation and amortization charges from purchase price allocation processes.

Digital Services

(year-on-year changes in organic terms)

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, highlights include:

 

g

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), decelerating the rate of growth mainly due to DTS’ revenue trend.

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), Hispanoamerica (+16%) and Spain (+10%, including DTS).

Main highlights for the quarter include: i) in Spain, the agreements to include in “Movistar+ TV” the “UEFA Champions League” and “UEFA Europa League” 2016-2018, and “La Liga” and the “Copa de S.M. el Rey” until 2019, ii) in Hispanoamerica, the announcement of the launch of VoD and linear TV channels in seven new countries in 2016 (Ecuador, Uruguay, Panama, Costa Rica, El Salvador, Guatemala and Nicaragua).

 

g

In the area of Security, revenues in October-December (74 million euros) grew by 22.8% year-on-year (282 million in January-December; +34.7% year-on-year).

In the Consumer segment, following the new technical assistance launches in Brazil, accesses with security products reached 10.8 million in December (+46% year-on-year). Additionally, 5 million customers safely store their digital data with the Personal Cloud service. In the Corporate segment, new agreements were signed with several sector-leading Partners, such as Alien Vault, BlueCoat, Intel Security, Palo Alto Networks, RSA and Vaultive for the joint development of cybersecurity products.

 

g

M2M revenues reached 47 million euros in the quarter and increased by 35.9% year-on-year (169 million in 2015; +16.5%), driven by new energy efficiency projects in Spain launched in the third quarter that enable companies to save up to 30% in energy expenditure. The launch of the global connectivity service “IoT 4G-LTE” over the Telefónica’s leading “Smart M2M” platform should also be noted.

 

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g

Cloud revenues in the quarter increased by 25.5% year-on-year to 112 million euros (402 million euros in 2015, +28.7% year-on-year). One of the main highlights was the global collaboration agreement reached with Huawei to drive the migration of companies’ traditional IT services to the cloud in a scalable, reliable manner and at a competitive price and 600 thousand Office 365 licenses commercialised to SMEs.

 

g

In Financial Services, revenues reached 73 million euros in the last three months (+14.4% year-on-year) and 284 million over the twelve months (+13.0% year-on-year).

 

g

In Big Data, highlights include the purchase of Synergic Partners, a consultancy firm specialised in advanced data analytics and pioneer in the development of strategic Big Data solutions. Likewise, in December a joint venture was created together with China Unicom to develop Big Data services in China, using “Smart Steps” technology developed by Telefónica.

 

g

“Telefónica Open Future_”, with the aim of observing, detecting and capturing external innovation in order to make it available to the Company’s customers, closed 2015 as one of the most relevant corporate investors in innovation across Europe and Latin America. Thus, in 2015 more than 350 startups entered the programme. The positive performance of the portfolio in 2015 is a key highlight, with outstanding rounds of financing (such as Job&Talent, CartoDB or Tado) and a good turnover rate of investee companies, with significant exits of startups such as Trustev and Marfeel. Similarly, “Telefónica Open Future_” contributed to the incorporation of innovation both in the business offer, as demonstrated by the recent agreement with the Job&Talent job search platform for Telefonica’s customers access to exclusive services, as well as in the greater efficiencies achieved through improved internal processes.

 

g

Meanwhile, in the area of Global Device Management, smartphones accounted for 83% of devices purchased in the fourth quarter (+11 percentage points year-on-year), of which 56% were LTE handsets (+28 percentage points year-on-year). Likewise, in the fourth quarter, the Company was the first in Europe to launch a device with the Cyanogen operating system (enhancing user experience with a more customisable interface and greater levels of privacy and security).

Telefónica Global Resources

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. Additionally, it has focused on creating value and generating efficiencies through the simplification and development of infrastructures, enabling improved service quality.

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. As such, the network is prepared to cope with the strong growth in data traffic (+38% year-on-year in the fourth quarter), driven by both mobile broadband (+40% year-on-year), and by fixed broadband (+38%; video traffic: +48%). At the end of 2015:

 

g

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, taking the total number of homes covered with fibre in Brazil to 17 million.

 

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g

In LTE, coverage in Europe and Latin America reached 75% and 43% of the population, respectively; base stations in service increased to more than 33 thousand and 98% of 3G and LTE base stations are connected via IP and fibre to the transmission network. As a result, LTE customers tripled year-on-year, reaching already 29.7 million customers.

 

g

In terms of the development of All-IP technology, the main highlights include: 1) the launch of VoLTE in Germany, 2) the commencement of the switch-off of the legacy networks in Spain and the of legacy transport networks and, 3) the reduction of IP layers, with the deployment of new IP architecture in the core and in transport, starting with access centres in Spain.

Furthermore, 2015 saw the creation of Global Device Centres (equipment design such as HGU “Home Gateway Unit” in Spain or HomeBox2 in Germany), progress in the transformation of OSS “Operating Support Systems” (for example, the Integrated Field Force Management project increased labour productivity by 5% year-on-year in 2015 and significantly reduced the back office) and Video synergies generation, thanks to taking best practices to all operating businesses in the Group (high availability of global platforms DTH, Cable, IPTV and the deployment of the OTT Video Service).

Finally, in innovation, highlights include: 1) the deployment of LTE-Advanced with various carriers; 2) the progress in virtualisation (automation of the deployment of VNFs “Virtualised Network Functions”, validation and certification of VNFs in the reference laboratory, NFV “Network Function Virtualisation” and the first multivendor concept trial in the industry of SDN “Software Defined Networks” in wireless transport) and 3) progress in 5G (Research and Innovation laboratory 5TONIC, in partnership with IMDEA Networks, for the development and deployment of 5G technologies).

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, with benefits starting to materialise (13% of customers have migrated to the new Full Stacks). Thus, in 2015 Argentina migrated the mobile business and Mexico completed the migration of the prepay segment, while all countries from Telefónica Hispanoamérica have deployed global B2B presales capabilities.

In parallel, the foundations have been laid for digital capabilities in Business Intelligence and Big Data in practically all of the operating businesses.

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.

 

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TELEFÓNICA ACCESSES  Unaudited figures (thousands)
		2014																		2015
		March				June				September				December						March				June				September				December						% Chg
Final Clients Accesses			283,012.7				285,331.4				285,237.0				309,800.5						312,635.8				323,021.6				320,924.3				316,188.7					2.1
Fixed telephony accesses (1)			37,382.1				37,326.1				37,103.9				36,602.0						36,219.8				40,164.5				39,976.9				39,487.7					7.9
Internet and data accesses			18,105.5				18,151.4				18,150.3				18,132.5						18,195.7				21,229.3				21,410.4				21,344.3					17.7
Broadband			17,569.1				17,625.9				17,640.2				17,649.3						17,704.7				20,754.8				20,946.3				20,950.3					18.7
Fibre			975.9				1,181.6				1,447.1				1,755.0						2,062.6				5,444.4				5,829.7				6,100.3					n.m.
Mobile accesses			223,958.0				225,662.0				225,332.8				249,978.9						252,753.8				253,597.5				251,382.7				247,085.1					(1.2)
Prepay			150,854.2				150,750.4				149,877.0				164,959.2						166,813.7				166,636.1				162,876.8				157,283.7					(4.7)
Contract			73,103.9				74,911.6				75,455.7				85,019.6						85,940.1				86,961.4				88,506.0				89,801.4					5.6
M2M			6,269.0				6,665.1				6,841.4				7,595.5						8,029.0				8,447.4				8,760.1				9,142.4					20.4
Pay TV			3,567.1				4,191.9				4,650.0				5,087.2						5,466.5				8,030.3				8,154.3				8,271.6					62.6
Wholesale Accesses			6,327.7				6,438.6				6,585.6				6,521.6						6,475.7				6,401.0				6,271.7				6,062.8					(7.0)
Total Accesses			289,340.3				291,770.0				291,822.5				316,322.1						319,111.5				329,422.6				327,196.0				322,251.5					1.9
Notes: - T. Ireland accesses are excluded from the third quarter of 2014. E-Plus accesses are consolidated from the fourth quarter of  2014 and GVT and DTS accesses are consolidated from 1 May 2015. - O2 UK accesses are excluded from the first quarter of 2014 as a result of the discontinuation of the operation. (1) Includes fixed wireless and VoIP accesses.   TELEFÓNICA MOBILE ACCESSES  Unaudited figures (thousands)
		2014																		2015
		March				June				September				December						March				June				September				December						% Chg
Prepay percentage (%)			67.4	%			66.8	%			66.5	%			66.0	%					66.0	%			65.7	%			64.8	%			63.7	%				(2.3 p.p.)
Contract percentage (%)			32.6	%			33.2	%			33.5	%			34.0	%					34.0	%			34.3	%			35.2	%			36.3	%				2.3 p.p.
Smartphones (‘000)			58,340.2				63,670.7				71,447.1				79,027.7						91,431.1				99,184.0				108,801.2				112,904.5					42.9
Prepay			25,660.8				29,208.1				35,349.2				36,539.6						46,368.5				51,139.4				56,510.6				58,547.6					60.2
Contract			32,679.4				34,462.6				36,097.9				42,488.1						45,062.5				48,044.6				52,290.6				54,356.9					27.9
Smartphone penetration (%)			27.7	%			30.0	%			33.7	%			33.6	%					38.3	%			41.4	%			45.9	%			48.5	%				14.8 p.p.
Prepay			17.2	%			19.6	%			23.8	%			22.4	%					28.0	%			30.9	%			35.0	%			37.5	%				15.1 p.p.
Contract			53.2	%			54.8	%			56.8	%			59.2	%					61.4	%			64.8	%			69.3	%			71.0	%				11.8 p.p.
LTE (‘000)			2,758.5				3,982.1				5,505.8				9,830.7						14,059.4				18,571.7				23,577.9				29,708.2					n.m.
LTE penetration (%)			1.3	%			1.8	%			2.5	%			4.1	%					5.7	%			7.6	%			9.7	%			12.5	%				8.4 p.p.
Notes: - T. Ireland accesses are excluded from the third quarter of 2014. E-Plus accesses are consolidated from the fourth quarter of  2014 and GVT and DTS accesses are consolidated from 1 May 2015. - O2 UK accesses are excluded from the first quarter of 2014 as a result of the discontinuation of the operation.

 

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TELEFÓNICA

CONSOLIDATED INCOME STATEMENT

 Unaudited figures (Euros in millions)

 

Notes:

- The comparative figures for October-December 2014 have been modified with respect to those presented at the close of December 2014, solely for comparative purposes, due to the conversion to SICAD II 50 VEF/USD of those operations referenced to the Venezuelan bolivar in the first, second and third quarters of 2014. In the January-December 2015 period the consolidated financial statements use the exchange rate of the Venezuelan bolivar set at the denominated SIMADI (as of 31 December this rate was set at 199 Venezuelan bolivars fuertes per dollar).

- From the first quarter of 2015 Telefónica UK’s operations are reported as discontinued operations within the Telefónica Group and their assets and liabilities are classified as “held for sale”, in compliance with the IFRS, as a result of the signing of the definitive sale agreement of the company in March 2015. For comparative purposes, 2014 results are reported using these same criteria.

- The weighted average number of ordinary shares outstanding during the period has been obtained applying the IAS rule 33 “Earnings per share”. Thereby, the weighted average of shares held as treasury stock have not been taken into account as outstanding shares. On the other hand, the denominator is retrospectively adjusted for transactions that have changed the number of shares outstanding without a corresponding change in equity (as if such transactions had occurred at the beginning of the earliest period presented). For instance, the bonus share issue carried out to meet the scrip dividends paid in 2014 and in 2015, has been taken into account. Also, the ordinary shares that would be issued upon the conversion of the mandatorily convertible notes issued on 24 September 2014 are included in the calculation of earnings per share from that date.

- Continuing operations earnings per share is calculated dividing profit for the period from continuing operations including non-controlling interests, adjusted for the net coupon corresponding to “Other equity instruments”, by the weighted average number of ordinary shares outstanding during the period.

- Discontinued operations per share is calculated dividing profit for the period from discontinued operations by the weighted average number of ordinary shares outstanding during the period.

- Basic earnings per share ratio is calculated dividing Net Income, adjusted for the net coupon corresponding to “Other equity instruments”, by the weighted average number of ordinary shares outstanding during the period.

- 2014 and 2015 reported figures include hyperinflationary adjustments in Venezuela in both years.

- Group consolidated results consolidate GVT and DTS’ results since 1 May 2015, consolidate E-Plus’ results since the fourth quarter 2014 and deconsolidate Telefónica Ireland’s results since the third quarter 2014.

 

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TELEFÓNICA

GUIDANCE 2015

 

 

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TELEFÓNICA 

REPORTED VS. ORGANIC 

 Unaudited figures (Euros in millions)

 

		January - December														%
		2015     Reported				2015     Organic				2014     Organic						Organic Change y-o-y				Reported Change y-o-y
Revenues			47,219				48,941				47,076						4.0				8.7
OIBDA			11,414				15,452				14,917						3.6				(17.2	)
OIBDA margin			24.2	%			31.6	%			31.7	%					(0.1 p.p.	)			(7.5 p.p.	)
Operating Income (OI)			2,897				6,754				6,515						3.7				(54.4	)
CapEx			9,578				8,428				8,026						5.0				10.3
OpCF (OIBDA-CapEx)			1,835				7,024				6,892						1.9				(64.0	)
						2015				2014
Reported revenues							47,219				43,458
Forex impact							1,842
Hyperinflation in Venezuela							(119	)			(187	)
Changes in the consolidation perimeter											3,804
Organic revenues							48,941				47,076
Reported OIBDA							11,414				13,781
Forex impact							609
Hyperinflation in Venezuela							8				(72	)
Tower sales							(66	)			(196	)
Restructuring charges provision							3,212				658
Distribution channel reorganisation plan							30
Impairments							23
Commitments relating to the Telefónica Foundation							325
Final settlement agreement related to the acquisition of E-Plus							(102	)
Changes in the consolidation perimeter											747
Organic OIBDA							15,452				14,917
Reported CapEx							9,578				8,681
Forex impact							412
Hyperinflation in Venezuela							(8	)			(35	)
Spectrum acquisition							(1,554	)			(1,290	)
Real estate efficiency plan											(78	)
Changes in the consolidation perimeter											748
Organic CapEx							8,428				8,026

Notes:

- The breakdown of the effects for the reconciliation of reported vs. organic 2015 excludes the impacts of the forex and therefore it assumes average constant exchange rates as of December 2014. Forex impact on those effects is totally included under “Forex impact” epigraph.

-  Organic criteria: Assumes constant exchange rates as of 2014 (average FX in 2014). Excludes the impact of hyperinflationary adjustments in Venezuela in both years and O2 UK results for both years after being classified as “discontinued operations”, and considers constant perimeter of consolidation. In OIBDA and OI terms, excludes write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurring impacts and restructuring costs mainly related to the voluntary employment suspension plan in Spain and to integration processes in Germany and Brazil and the simplification programme. CapEx also excludes investment in spectrum and the Real Estate efficiency plan.

 

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TELEFÓNICA

REPORTED VS. ORGANIC

 Unaudited figures (Euros in millions)

 

		Octobre - December														%
		2015     Reported				2015     Organic				2014     Organic						Organic Change y-o-y				Reported Change y-o-y
Revenues			11,881				12,878				12,470						3.3				(0.0	)
OIBDA			401				4,147				3,996						3.8				(88.1	)
OIBDA margin			3.4	%			32.2	%			32.0	%					0.2 p.p.				(24.9 p.p.	)
Operating Income (OI)			(1,760	)			1,871				1,756						6.5				c.s.
CapEx			2,477				2,763				2,819						(2.0	)			(34.2	)
OpCF (OIBDA-CapEx)			(2,076	)			1,384				1,177						17.6				n.m.
						2015				2014
Reported revenues							11,881				11,881
Forex impact							1,085
Hyperinflation in Venezuela							(88	)			(89	)
Changes in the consolidation perimeter											678
Organic revenues							12,878				12,470
Reported OIBDA							401				3,365
Forex impact							381
Hyperinflation in Venezuela							(13	)			(30	)
Tower sales							(20	)			(138	)
Restructuring charges provision							3,122				644
Distribution channel reorganisation plan							30
Impairments							23
Commitments relating to the Telefónica Foundation							325
Final settlement agreement related to the acquisition of E-Plus							(102	)
Changes in the consolidation perimeter											155
Organic OIBDA							4,147				3,996
Reported CapEx							2,477				3,763
Forex impact							300
Hyperinflation in Venezuela							(8	)			(23	)
Spectrum acquisition							(6	)			(1,098	)
Real estate efficiency plan											(6	)
Changes in the consolidation perimeter											183
Organic CapEx							2,763				2,819

Notes:

- The breakdown of the effects for the reconciliation of reported vs. organic 2015 excludes the impacts of the forex and therefore it assumes average constant exchange rates as of December 2014. Forex impact on those effects is totally included under “Forex impact” epigraph.

- Organic criteria: Assumes constant exchange rates as of 2014 (average FX in 2014). Excludes the impact of hyperinflationary adjustments in Venezuela in both years and O2 UK results for both years after being classified as “discontinued operations”, and considers constant perimeter of consolidation. In OIBDA and OI terms, excludes write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurring impacts and restructuring costs mainly related to the voluntary employment suspension plan in Spain and to integration processes in Germany and Brazil and the simplification programme. CapEx also excludes investment in spectrum and the Real Estate efficiency plan.

 

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TELEFÓNICA

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 Unaudited figures (Euros in millions)

		December 2015						December 2014						% Chg
Non-current assets			91,398						99,448						(8.1	)
Intangible assets			18,562						22,227						(16.5	)
Goodwill			21,745						25,437						(14.5	)
Property, plant and equipment and Investment properties			30,549						33,155						(7.9	)
Investments accounted for by the equity method			74						788						(90.6	)
Non-current financial assets			10,008						10,973						(8.8	)
Deferred tax assets			10,460						6,867						52.3
Current assets			31,576						22,900						37.9
Inventories			1,360						934						45.6
Trade and other receivables			8,301						10,637						(22.0	)
Tax receivables			1,341						1,749						(23.3	)
Current financial assets			2,971						2,932						1.3
Cash and cash equivalents			2,599						6,529						(60.2	)
Non-current assets classified as held for sale			15,004						119						n.m.
Total Assets = Total Equity and Liabilities			122,974						122,348						0.5
Equity			27,556						30,321						(9.1	)
Equity attributable to equity holders of the parent and other holders of equity instruments			17,891						21,135						(15.4	)
Non-controlling interests			9,665						9,186						5.2
Non-current liabilities			60,549						62,318						(2.8	)
Non-current interest-bearing debt			47,117						50,688						(7.0	)
Non-current trade and other payables			2,381						2,384						(0.1	)
Deferred tax liabilities			2,313						2,566						(9.9	)
Non-current provisions			8,738						6,680						30.8
Current liabilities			34,869						29,709						17.4
Current interest-bearing debt			12,953						9,094						42.4
Current trade and other payables			14,235						16,951						(16.0	)
Current tax payables			1,769						2,026						(12.7	)
Current provisions			1,971						1,595						23.6
Liabilities associated with non-current assets held for sale			3,941						43						n.m.
Financial Data
Net Financial debt (1)			49,921						45,087						10.7
Note:   - From the first quarter of 2015 Telefónica’s operations in the United Kingdom are reported as discontinued operations within the Telefónica Group and their assets and liabilities are classified as “held for sale”, in compliance with the IFRS, as a result of the signing of the definitive sale agreement of the company in March 2015. - 2014 and 2015 reported figures include the hyperinflationary adjustments in Venezuela in both years. - The consolidated statement of financial position for the year ended 31 December 2014 has been restated to reflect the final adjustment of the purchase accounting of E-Plus, which was finalized in the third quarter of 2015. (1) Figures in million euros. Net Financial Debt in December 2015 includes: Non-current interest-bearing debt + Non-current trade and other payables (1,073) + Current interest-bearing debt + Current trade and other payables (462) - Non-current financial assets (5,793) - Current financial assets - Current trade and other receivables (321) - Cash and cash equivalents.

 

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TELEFÓNICA

FREE CASH FLOW AND CHANGE IN DEBT

 Unaudited figures (Euros in millions)

					January - December
				2015				2014				% Chg
I		Cash flow from operations			14,912				14,520				2.7
II		Net interest payment (1)			(2,410	)			(2,505	)
III		Payment for income tax			(664	)			(1,106	)
A=I+II+III		Net cash provided by operating activities			11,838				10,909				8.5
B		Net payment for investment in fixed and intangible assets			(9,183	)			(8,000	)
		Spectrum (2)			(1,307	)			(927	)
C=A+B		Net free cash flow after CapEx			2,655				2,909				(8.7	)
D		Net Cash received from sale of Real Estate			36				5
E		Net payment for financial investment (3)			(933	)			(517	)
F		Net payment for operations with minority shareholders and treasury stock (4)			(1,303	)			144
G=C+D+E+F		Free cash flow after dividends from continuing operations			456				2,541				(82.1	)
L		Free cash flow after dividends from discontinued operations			591				426
H		Effects of exchange rate changes on net financial debt			(564	)			2,405
I		Effects on net financial debt of changes in consolid. and others			6,445				268
J		Net financial debt at beginning of period			45,087				45,381
K=J-G-L+H+I		Net financial debt at end of period			49,921				45,087				10.7

TELEFÓNICA

RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEX FROM CONTINUING OPERATIONS

 Unaudited figures (Euros in millions)

 

			January - December
		2015				2014				% Chg
OIBDA			11,414				13,781				(17.2	)
- CapEx accrued during the period			(9,578	)			(8,681	)
- Payments related to cancellation of commitments			(721	)			(704	)
- Net interest payment			(2,410	)			(2,505	)
- Payment for tax			(664	)			(1,106	)
- Gain (loss) on sale of fixed assets and impairment of goodwill and other assets			(259	)			(265	)
- Investment In working capital and other deferred income and expenses (5)			4,874				2,390
= Net Free Cash Flow after CapEx			2,655				2,909				(8.7	)
+ Net Cash received from sale of Real Estate			36				5
- Net payment for financial investment			(933	)			(517	)
- Net payment for operations with minority shareholders and treasury stock			(1,303	)			144
= Free Cash Flow after dividends			456				2,541				(82.1	)
Unaudited figures (Euros in millions)			January - December
		2015				2014				% Chg
Net Free Cash Flow after CapEx			2,655				2,909				(8.7	)
+ Payments related to cancellation of commitments			721				704
- Operations with minority shareholders			(537	)			(327	)
= Free Cash Flow from continuing operations			2,839				3,286				(13.6	)
+ Free Cash Flow from discontinued operations			675				531				27.1
= Free Cash Flow			3,514				3,817				(7.9	)
Weighted average number of ordinary shares outstanding during the period (millions)			4,928				4,714
= Free Cash Flow per share from continuing operations (euros)			0.58				0.70				(17.4	)
= Free Cash Flow per share from discontinued operations (euros)			0.14				0.11				21.6
= Free Cash Flow per share (euros)			0.71				0.81				(11.9	)
Notes:   - From the first quarter of 2015 Telefónica UK’s operations are reported as discontinued operations within the Telefónica Group and their assets and liabilities are classified as “held for sale”, in compliance with the IFRS, as a result of the signing of the definitive sale agreement of the company in March 2015. For comparative purposes, 2014 results are reported using these same criteria. - The comparative figures for October-December 2014 have been modified with respect to those presented at the close of December 2014, solely for comparative purposes, due to the conversion to SICAD II 50 VEF/USD of those operations referenced to the Venezuelan bolivar in the first, second and third quarters of 2014. In the January-December 2015 period the consolidated financial statements use the exchange rate of the Venezuelan bolivar set at the denominated SIMADI (as of 31 December this rate was set at 199 Venezuelan bolivars fuertes per dollar). - The concept “Free Cash Flow” reflects the amount of cash flow available to remunerate Telefónica S.A. Shareholders, to protect solvency levels (financial debt and commitments), and to accomodate strategic flexibility. - The differences with the caption “Net Free Cash Flow after CapEx” included in the table presented above, are related to “Free Cash Flow” being calculated before payments related to commitments (payment of labour commitments) and after operations with minority shareholders, due to cash recirculation within the Group.     - 2014 and 2015 reported figures include the hyperinflationary adjustments in Venezuela in both years. (1) Includes cash received from dividends paid by subsidiaries that are not fully consolidated. (2) Figures in million euros. 2015 includes: 978 in Germany, 196 in Argentina, 68 in Ecuador, 49 in Spain, 8 in Colombia, 6 in Chile and 2 in Nicaragua. 2014 includes: 545 in Brazil, 166 in Argentina, 93 in Colombia, 82 in Panama and 2 in Nicaragua. (3) In 2015 includes the contribution of minorities in the share capital increase of Telefónica Brasil, the sale of Telecom Italia S.p.A., the sale of yourfone GmbH, the payment for the purchase of GVT and DTS and the purchase of a minority stake in Mediaset Premium. In 2014, includes the sale of T. Czech Republic, the sale of T. Ireland and the acquisition to Mediaset of its 22% stake in DTS, the acquisition of E-Plus, the capital increase of Telefónica Deutschland and the sale of 2% stake in China Unicom (4) Dividends paid by Telefónica S.A., operations with treasury stock, issuance of shares, issuance of undated deeply subordinated securities, issuance of mandatorily convertible bonds into Telefónica S.A. shares and operations with minority shareholders from subsidiaries that are consolidated through the equity method.     (5) In 2015 includes 3,019 million euros related to restructuring cost provision, mainly in Spain.

 

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TELEFÓNICA

NET FINANCIAL DEBT PLUS COMMITMENTS

 Unaudited figures (Euros in millions)

				December 2015
		Long-term debt (1)		48,190
		Short term debt including current maturities (2)		13,415
		Cash and cash equivalents		(2,599)
		Short and Long-term financial investments (3)		(9,085)
A		Net Financial Debt		49,921
		Gross commitments related to employee benefits (4)		6,070
		Value of associated Long-term assets (5)		(736)
		Taxes receivable (6)		(1,666)
B		Net commitments related to employee benefits		3,668
A + B		Total Debt + Commitments		53,589
		Net Financial Debt / OIBDA (7)		2.91x
- Notes:     - From the first quarter of 2015 Telefónica’s operations in the United Kingdom are reported as discontinued operations within the Telefónica Group and their assets and liabilities are classified as “held for sale”, in compliance with the IFRS, as a result of the signing of the definitive sale agreement of the company in March 2015.   - 2015 reported figures include the hyperinflationary adjustments in Venezuela. (1) Includes “Non current interest-bearing debt” and 1,073 million euros of “Non-current trade and other payables”. (2) Includes “Current interest-bearing debt” and 462 million euros of “Other current payables”. (3) Includes “Current financial assets”, 5,793 million euros of “Non-current financial assets” and 321 million euros of “Trade and other current receivables”. (4) Mainly in Spain. This amount is detailed in the captions “Long-term provisions” and “Short-term provisions and other liabilities” of the Statement of Financial Position, and is the result of adding the following items: “Provision for Pre-retirement, Social Security Expenses and Voluntary Severance”, “Group Insurance”, “Technical Reserves”, “Provisions for Pension Funds of Other Companies” and “Voluntary Employment Suspension Plan”. (5) Amount included in the caption “Non-current financial assets” of the Statement of Financial Position. Mostly related to investments in fixed income securities and long-term deposits that cover the materialization of technical reserves of the Group insurance companies. (6) Net present value of tax benefits arising from the future payments related to actual workforce reduction commitments. (7) OIBDA 12 month rolling, not considering O2 UK discontinuation, incorporating DTS and GVT OIBDA corresponding to January - April 2015 and excluding the non-recurring impact from restructuring costs in the 12 months rolling and the firm commitments relating to the Telefónica Foundation’s social activities.

TELEFÓNICA

EXCHANGES RATES APPLIED

		P&L and CapEx (1)						Statement of Financial Position (2)
		Jan - Dec 2015		Jan - Dec 2014				December 2015		December 2014
USA (US Dollar/Euro)		1.109		1.326				1.089		1.214
United Kingdom (Sterling/Euro)		0.726		0.806				0.734		0.779
Argentina (Argentine Peso/Euro)		10.220		10.751				14.197		10.382
Brazil (Brazilian Real/Euro)		3.643		3.117				4.251		3.225
Chile (Chilean Peso/Euro)		723.914		756.710				773.150		736.654
Colombia (Colombian Peso/Euro)		3,016.491		2,650.032				3,428.826		2,904.688
Costa Rica (Colon/Euro)		599.520		722.022				593.120		662.252
Guatemala (Quetzal/Euro)		8.489		10.255				8.309		9.223
Mexico (Mexican Peso/Euro)		17.569		17.655				18.779		17.898
Nicaragua (Cordoba/Euro)		30.229		34.445				30.405		32.293
Peru (Peruvian Nuevo Sol/Euro)		3.530		3.767				3.713		3.614
Uruguay (Uruguayan Peso/Euro)		30.181		30.779				32.604		29.543
Venezuela (Bolivar Fuerte/Euro) (3)		216.310		60.691				216.310		60.691
(1) These exchange rates are used to convert the P&L and CapEx accounts of Telefónica foreign subsidiaries from local currency to euros. (2) Exchange rates as of 31/12/15 and 31/12/14. (3) After considering Venezuela as a hyperinflationary country, the P&L and CapEx for Telefónica’s operations in Venezuela are converted to the Bolivar Fuerte/Euro exchange rate at close. In 2014 they are reported adjusting the exchange rate of Venezuela from SICAD I to SICAD II 50 VEF/USD, following the adoption of SICAD II 50 VEF/USD. In the January-December 2015 period the consolidated financial statements use the exchange rate of the Venezuelan bolivar set at the denominated SIMADI (as of 31 December this rate was set at 199 Venezuelan bolivars fuertes per dollar).

 

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NET FINANCIAL DEBT STRUCTURE BY CURRENCY

 Unaudited figures

 

December 2015

EUR

LATAM

GBP

USD

Net financial debt structure by currency

70%

13%

14%

3%

TOTAL FINANCIAL LIABILITIES BREAKDOWN  Unaudited figures

December 2015

Bonds and   commercial     paper

Debt with      financial      institutions

Other financial debt (including governments) and   net derivatives

Total financial liabilities

84%

16%

0%

CREDIT RATINGS

Long-Term

Short-Term

Perspective

Date of last rating change

Moody’s1

Baa2

P-2

Stable

3/25/2015

S&P1

BBB

A-2

Positive

5/28/2015

Fitch1

BBB+

F-2

Stable

6/26/2015

(1) The rating is issued by a credit rating agency established in the EU and registered under Regulation (EC) 1060/2009.

TELEFÓNICA

YEAR TO DATE MAIN FINANCING OPERATIONS

 Unaudited figures

 

Closing date

Amount (m)

Currency

Issuer

EQUITY

Capital increase

17-Apr-15

3,048

EUR

Telefónica, S.A.

Capital increase

5-May-15

4,044

BRL

Telefônica Brasil, S.A.

Issue date

Amount (m)

Currency

Issuer

Coupon

Maturity date

ISIN code

DEBENTURES AND BONDS

Schuldscheindarlehen/ Namensschuldverschreibung (1)

13-Mar-15

300

EUR

Telefónica Germany, GmbH & Co

2.375% (1)

13-Mar-32 (1)

Eurobond

18-Jun-15

300

EUR

Telefónica Emisiones, S.A.U.

Euribor 3M + 0.330%

Interest Payment Date falling in June 17

XS1249278976

Eurobond

21-Jul-15

67

EUR

Telefónica Emisiones, S.A.U.

Euribor 6M + 0.830%

Interest Payment Date falling in July 2022

XS1262975995

Bond

24-Jul-15

2

UF

Telefónica Móviles Chile

2.200%

20-Jun-20

BTMOV-G (2)

Bond

20-Aug-15

2

UF

Telefónica Móviles Chile

1.950%

14-Aug-20

BTMOV-I (2)

Eurobond

14-Sep-15

1,000

EUR

Telefónica Emisiones, S.A.U.

1.477%

14-Sep-21

XS1290729208

Eurobond

11-Dec-15

100

EUR

Telefónica Emisiones, S.A.U.

Euribor 3M + 0.530%

Interest Payment Date falling in December 2017

XS1330976272

Issue date

Amount (m)

Currency

Issuer

Coupon

First Call date

ISIN code

UNDATED DEEPLY SUBORDINATED RESET RATE SECURITIES

Hybrid bond

30-Mar-15

500

USD

Colombia Telecomunicaciones, S.A. ESP

8.500%

30-Mar-20

USP28768AB86

Signing date

Amount

Currency

Borrower

Maturity date

INTEREST-BEARING DEBT

Syndicated facility

19-Feb-15

2,500

EUR

Telefónica, S.A.

19-Feb-21 (4)

Syndicated facility (3)

19-Feb-15

3,000

EUR

Telefónica, S.A.

18-Feb-20 (4)

Bilateral Loan

30-Jun-15

200

EUR

Telefónica, S.A.

30-Jun-20

Bilateral Loan

16-Jul-15

175

EUR

Telefónica, S.A.

16-Jul-17

Bilateral Loan

16-Jul-15

125

EUR

Telefónica, S.A.

19-Mar-19

Term Loan

12-Oct-15

1,050

PEN

Telefónica del Perú, S.A.A

15-Aug-20

Bilateral Loan

13-Nov-15

100

EUR

Telefónica, S.A.

13-Nov-20

Syndicated facility

17-Nov-15

3,000

EUR

Telefónica, S.A.

17-Feb-18

Loan on supplies

11-Dec-15

750

USD

Telefónica, S.A.

11-Mar-26 (5)

Loan on supplies

11-Dec-15

500

EUR

Telefónica, S.A.

11-Mar-26 (5)

Bilateral Loan

23-Feb-16

100

EUR

Telefónica, S.A.

23-Feb-21

Bilateral Loan

23-Feb-16

100

EUR

Telefónica, S.A.

23-Feb-19

1. Maximum coupon and maturity date

2. Santiago exchange code

3. Amendment to the 3,000 million euros syndicated credit facility arranged on February 18, 2014

4. One year maturity extension option applied in February 2016

5 Maturity of final tranche

 

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02

TELEFÓNICA ESPAÑA

Telefónica España’s financial and operating results consolidate DTS from 1 May 2015, the date upon which it was incorporated into the Telefónica Group perimeter. In order to facilitate year-on-year comparisons, the organic change also includes DTS from 1 May to 31 December 2014.

The commercial activity in the quarter was underpinned by the quality of the Company’s assets and by the positive reception of the new convergent offer “Movistar Fusión+” launched in July, as well as by the promotion that included all “TV Premium Extra” content for 9.90 euros/month, launched in August, to which almost 700 thousand customers were subscribed, highlighting the solid TV and ultrafast fibre proposal, in an economic environment in which private consumption continued to improve.

It is worth noting the reduction in churn in 2015, particularly noticeable following the elimination of permanent contracts in “Fusión” on 1 August, which, together with the improved performance in gross additions, translated into very positive commercial results. As such, annual net additions of broadband almost doubled vs. 2014, in fibre grew by 25%, growth returned in contract mobile (234 thousand accesses) and in fixed telephony the net loss decreased by 31%.

This was reflected in a significant improvement in T. España’s revenues (excluding DTS), which accelerated their growth in the fourth quarter to +0.8% year-on-year (+0.6 percentage points vs. the third quarter).

Meanwhile, T. España’s revenues, including the consolidation of DTS, increased 6.0% year-on-year in the fourth quarter (-2.0% organic), and the margin stood at 40.2% organic (42.1% in the year).

It must be noted that the aforementioned margins exclude the impact of tower sales and the extraordinary provision of 2,926 million euros booked in this quarter and associated mainly with a voluntary employment suspension plan which shall be implemented in 2016 and 2017. Thus, the results in the next financial years shall benefit from average annual savings in direct expenses in the region of 370 million euros from 2017, with a positive impact on cash flow generation from the first year.

Likewise, the continuous effort to improve the quality and coverage of the networks (14.3 million premises passed with fibre and 75% population coverage with LTE), the integration of the most complete content offer (including all football until 2019) and the launch of the exclusive “Movistar#0” channel in February 2016 contributed to strengthening a solid starting position from which to approach 2016.

On the other hand, regarding the process of the commercial offering redefinition and subsequent to the close of the year, highlights included: i) increased mobile data allowance from 2GB to 3GB in all the main “Fusión” lines and additional mobile lines, with an update of the monthly charges for both services (+3 euros VAT included) in February; ii) update of tariffs in the fixed broadband non-convergent services portfolio (+3 euros VAT included) in January; iii) update of tariffs in the “Vive” contract mobile portfolio, except “Vive 45”, (+1 euro VAT included) also in January. Additionally, in December a new prepay mobile portfolio was launched including 4G mobile data which improved the positioning of the offering in this segment.

Telefónica España accesses stood at 42.0 million at the end of the year, following the incorporation of DTS satellite TV accesses (0.9 million in December) with retail accesses growing 3.1% year-on-year to 36.9 million (-2.3% in 2014). Excluding this impact, total accesses remained practically stable (-0.4% year-on-year).

 

g

“Movistar Fusión” improved its quarterly net additions to 145 thousand accesses (126 thousand in July-September), reaching 4.2 million customers and 1.5 million additional mobile lines, and maintained solid year-on-year growth (+13% and +8% respectively), representing in the consumer segment 81% of fixed broadband customers and 63% in contract mobile.

 

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The capture of high-value customers continued to prevail since, out of the “Movistar Fusión” quarterly additions, 90% incorporated new services, 50% corresponded to completely new “Movistar” customers, and 47% took out ultrafast fibre.

It is worth noting the strong growth in the penetration of high-value services in “Movistar Fusión”; 32% of customers enjoy ultrafast fibre of 100 or 300 Mb (+11 percentage points year-on-year) and 62% Pay TV (+18 percentage points year-on-year).

The ARPU for the quarter increased by 7.3% year-on-year to 74.4 euros due to the impact of the repositioning of tariffs since May 2015 and the migration towards higher value bundles (fibre and TV).

However, in the quarter the ARPU growth year-on-year was partially offset by the impact of the “TV Premium Extra” promotion for 9.90 euros/month until 31 December, although it should be mentioned that following the end of the promotion the uptake of TV packages by customers has been very positive.

Compared to the previous quarter, the ARPU evolution reflected the higher seasonal consumption in certain services during the summer months.

On the other hand, churn stood at 1.2%, stable both year-on-year and quarter-on-quarter.

 

g

Retail fixed telephony accesses (-4% compared to December 2014), presented once again their best quarterly performance since the launch of “Movistar Fusión” in 2012, with a net loss of 59 thousand accesses (-442 thousand in the year) underpinned by higher gross additions (+7% year-on-year) and reduced churn (1.3%, -0.2 percentage points year-on-year).

 

g

Retail broadband accesses presented net additions of 56 thousand accesses in the quarter, the highest number since the launch of “Movistar Fusión” (and more than four times those of the fourth quarter of 2014), and 76 thousand in the year, adding up to 6.0 million (+1% year-on-year), thanks to the higher volume of gross additions of fibre (+22%) and improved churn performance (1.4% in the quarter and in the year, -0.1 percentage points year-on-year in both cases).

The quarterly ARPU reached 30.0 euros (+17.2% year-on-year), impacted by the greater weight of TV and ultra broadband customers and the allocation of “Movistar Fusión” revenues.

Fibre accesses increased from October to December by 272 thousand and recorded a new record in annual net additions (906 thousand) taking the base to 2.2 million (1.7x compared to 2014), accounting for 37% of total fixed broadband accesses (+15 percentage points year-on-year). Meanwhile, two thirds of fibre accesses benefitted from the new speeds (30 and 300 Mb) launched in May.

Ultrafast fibre accesses of 100 or 300 Mb (with additional ARPU of 12 euros, VAT included) increased to 1.5 million (69% of total fibre accesses), following a new record in net additions in the quarter (152 thousand; 499 thousand in the year) driven by the growth in additions (+24% year-on-year) and the containment of churn (1.0%, +0.1 percentage points year-on-year), and continued to reflect customers’ preference for higher speeds (63% of fibre gross additions).

Fibre to the home coverage continued to be a European benchmark and reached 14.3 million premises passed, 4.0 million more than in 2014 (+0.9 million in the quarter).

 

g

Pay TV accesses totalled 3.7 million, 10% more compared to December 2014 in organic terms, and included 926 thousand DTS satellite TV accesses. Net additions from October to December improved sequentially to 88 thousand accesses, as a result of 242 thousand net additions in T. España (without DTS) and the lower quarterly net loss of DTS accesses, affected by the migration of customers to “Movistar”.

 

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The quarterly churn excluding DTS (1.6%; +0.5 percentage points year-on-year; +0.2 percentage points vs. the third quarter) was slightly impacted by the elimination of permanent contracts in a market with intense commercial activity, ending the year at 1.3%, stable year-on-year.

 

g

The total base of mobile accesses stood at 17.3 million, 2.0% lower than in 2014.

The contract base accelerated its growth throughout the year, to 2% year-on-year in December, with net additions of 90 thousand accesses in October-December as a main highlight (1.6x higher than the same period of 2014). Stripping out M2M, quarterly mobile contract net additions would increase to 17 thousand accesses (+53% year-on-year) with a weaker portability performance vs. the previous quarter in an environment of higher competitive intensity during the Christmas campaign.

Nevertheless, the better performance in the portability balance in 2015 is worth highlighting (-162 thousand versus -508 thousand in 2014) which enabled mobile contract net additions, excluding M2M, to turn positive again throughout the year (+68 thousand vs. -113 thousand in 2014).

Contract churn excluding M2M remained at 1.3% in the fourth quarter (stable versus the previous quarter, -0.2 percentage points year-on-year).

ARPU reached 15.2 euros in the quarter (-2.2% year-on-year), although it was strongly conditioned by the different allocation of revenue of convergent bundles.

 

g

Smartphone penetration at the end of the year increased to 66% of the base (+6 percentage points year-on-year) and continued to be the principal lever of data traffic increase (+67% year-on-year).

LTE coverage reached 75% of the population, accelerating 9 percentage points vs. September (+17 percentage points vs. 2014) thanks to the boost from the implementation of the 800 MHz band once the interferences with the TDT were cleaned up. Thus, LTE customers totalled 3.3 million, almost doubling those of one year ago, and LTE penetration stood at 21% (+10 percentage points year-on-year).

Revenue included DTS’ contribution from 1 May 2015 and reached 3,220 million euros in the quarter (+6.0% year-on-year) and 12,402 in the year (+3.2% year-on-year). In organic terms, revenue decreased by 2.0% year-on-year in October-December (-2.1% in January-December).

Excluding the incorporation of DTS, revenue in the fourth quarter increased by 0.8% (+0.2% the previous quarter) and decreased by 1.0% in 2015, reflecting a significant recovery vs. the decline of 7.2% recorded in 2014.

The mobile-fixed revenue breakdown is becoming less and less relevant due to the allocation of revenue of a convergent offer with high penetration. However:

 

g

Fixed business revenue (2,483 million euros in October-December) increased 0.5% year-on-year organic due to the repositioning of tariffs, the higher revenues in retail broadband, wholesale TV and IT services, and despite the negative DTS contribution (-4.1 percentage points to the organic change). Customer repositioning after the end of the TV promotion is expected to generate incremental revenue of around 30 million euros in the first quarter of 2016 (vs. the fourth quarter).

 

g

Mobile business revenue (1,117 million euros in the fourth quarter) declined 1.9% year-on-year organic, reflecting renewed tariffs, higher mobile data revenue and the decline in MVNOs wholesale revenue. The year-on-year performance improved sequentially (-2.6% in the third quarter) due to higher handset sales (+6.6% year-on-year; +1.5% in the previous quarter).

 

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Operating expenses include DTS from 1 May 2015 and reached 4,952 million euros in October-December and 10,526 in the year. Nonetheless, they were impacted by the provision of 2,896 million euros accrued as personnel expenses in the quarter, associated with a Voluntary Employment Suspension Plan within the framework of a broad social agreement. In organic terms, operating expenses including DTS increased 0.4% year-on-year in October-December (-0.1% in 2015) due to higher personnel costs not offset by lower supplies.

It should be underlined that gross content costs in the quarter increased 2.6% year-on-year organic, with individual year-on-year performance in T.España (ex-DTS) and DTS not being representative due to the allocation criteria. Meanwhile, net content costs (of TV wholesale revenue) reduced 8.0% year-on-year organic in the quarter.

Breakdown by item:

 

g

Supplies (867 million euros in October-December) declined by 2.6% organic year-on-year (-2.7% in January-December) mainly due to the reduction in interconnection and network equipment expenses.

The worse year-on-year performance of these expenses in the quarter vs. the previous one (-8.3% in July-September) is primarily due to the positive impact of the assets valuation adjustment made in the third quarter in DTS (38 million euros) and to a lesser extent, to the higher growth of gross cost of TV contents and the increased purchase of mobile handsets.

 

g

Personnel expenses (582 million in the quarter before the abovementioned provision) increased 4.4% year-on-year organic affected by a higher expense in incentives in October-December, and 4.0% in the year, reflecting the resumption of the Company’s contribution to the pension plan from the third quarter of 2014.

At the end of 2015, the total headcount of Telefónica España stood at 32,171 employees including DTS.

 

g

Other operating expenses (608 million euros in October-December) increased by 1.2% organically (-0.5% in January-December) due to higher real estate and network expenses, and due to the payment of the fee for the 800 MHz band from April 2015. Nevertheless, the year-on-year performance improved in the quarter (+3.2% in the third quarter).

Due to the allocation criteria of content costs already mentioned, the year-on-year evolution of OIBDA at T. España (ex-DTS) is not representative.

OIBDA including the consolidation of DTS since 1 May (with a contribution of 35 million euros) reached 2,336 million euros in 2015, strongly impacted by the extraordinary provisions in the quarter.

OIBDA in the fourth quarter would stand at 1,272 million excluding non-recurrent impacts, with a year-on-year decline of 6.4% without including those factors: i) provision for an amount of 2,926 million euros (2,896 million in personnel expenses and 30 million in “other net income (expense)” associated to a optamisation plan for the distribution channel); ii) capital gains from the sale of real estate (22 million in the fourth quarter of 2015 vs 41 million in the fourth quarter of 2014); iii) capital gains from the sale of towers (136 million in the fourth quarter of 2014).

In 2015 the following should also be considered: i) capital gains from the sale of real estate in the first nine months of the year (51 million euros); ii) an assets valuation adjustment in DTS (38 million euros in the third quarter of 2015); iii) capital gains from the sale of towers (38 million in the first quarter of 2015 vs. 55 million in the first nine months of 2014).

As such, OIBDA margin in organic terms (affected in part by the incorporation of DTS) stood at 40.2% in October-December and at 42.1% in January-December, with a year-on-year decline of 2.4 percentage points in the quarter and 1.0 percentage points in the year.

CapEx including DTS from 1 May 2015 reached 1,827 million euros, and increased by 4.5% year-on-year organic (+5.5% reported) due to the continuous investment in growth projects.

 

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TELEFÓNICA ESPAÑA

Including DTS from 1 May 2015

CONSOLIDATED INCOME STATEMENT

 Unaudited figures (Euros in millions)

 

		January - December										% Chg										October - December										% Chg
		2015				2014						Reported				Organic						2015				2014						Reported				Organic
Revenues			12,402				12,023						3.2				(2.1	)					3,220				3,038						6.0				(2.0	)
Revenues ex-handset revenues			11,742				11,355						3.4				(2.2	)					3,000				2,832						5.9				(2.6	)
Mobile Business			4,337				4,556						(4.8	)			(4.8	)					1,117				1,138						(1.9	)			(1.9	)
Mobile service revenues			3,677				3,888						(5.4	)			(5.4	)					897				932						(3.7	)			(3.7	)
Data revenues			1,619				1,508						7.4				7.4						418				379						10.5				10.5
Handset revenues			661				668						(1.2	)			(1.2	)					220				207						6.6				6.6
Fixed Business			9,359				8,543						9.6				1.9						2,483				2,225						11.6				0.5
FBB and new services (1)			5,436				4,368						24.5				8.4						1,478				1,141						29.6				6.5
Voice & access revenues			3,077				3,547						(13.3	)			(13.3	)					770				854						(9.8	)			(9.8	)
Other			846				627						34.9				34.9						234				230						1.9				1.9
Internal expenditure capitalized in fixed assets			350				316						10.8				10.8						100				92						8.7				8.7
Operating expenses			(10,526	)			(6,965	)					51.1				(0.1	)					(4,952	)			(1,783	)					177.8				0.4
Supplies			(2,996	)			(2,592	)					15.6				(2.7	)					(867	)			(712	)					21.7				(2.6	)
Personnel expenses			(5,173	)			(2,139	)					141.8				4.0						(3,477	)			(538	)					n.m.				4.4
Other operating expenses			(2,356	)			(2,234	)					5.5				(0.5	)					(608	)			(533	)					14.2				1.2
Other net income (expense)			(29	)			32						c.s.				(96.8	)					(29	)			3						c.s.				(95.6	)
Gain (loss) on sale of fixed assets			136				268						(49.4	)			30.7						27				202						(86.5	)			(56.4	)
Impairment of goodwill and other assets			2				(3	)					c.s.				c.s.						4				(2	)					c.s.				c.s.
Operating income before D&A (OIBDA)			2,336				5,671						(58.8	)			(4.3	)					(1,631	)			1,551						c.s.				(0.0	)
OIBDA Margin			18.8	%			47.2	%					(28.3 p.p.	)			(1.0 p.p.	)					n.m.				51.0	%					c.s.				(2.4 p.p.	)
CapEx			1,827				1,732						5.5				4.5						505				546						(7.4	)			(7.6	)
Spectrum			49				-						-										-				-						-				-
OpCF (OIBDA-CapEx)			509				3,939						(87.1	)			(8.3	)					(2,136	)			1,005						c.s.				(7.5	)

Note:

- The reported figures have been adjusted including DTS in Telefónica España’s consolidation perimeter from 1 May 2015. The reported figures up to September included DTS in Other Companies and Eliminations (Telefónica Group).

- OIBDA and OI before management and brand fees.

(1) Includes FBB connectivity services (retail and wholesale), including value added services, TV services, ICT revenues and other services over connectivity.

 

TELEFÓNICA ESPAÑA

Without including DTS

CONSOLIDATED INCOME STATEMENT

 Unaudited figures (Euros in millions)

 

		January - December										% Chg										October - December										% Chg
		2015				2014						Reported				Organic						2015				2014						Reported				Organic
Revenues			11,905				12,023						(1.0	)			(1.0	)					3,063				3,038						0.8				0.8
Revenues ex-handset revenues			11,244				11,355						(1.0	)			(1.0	)					2,842				2,832						0.4				0.4
Mobile Business			4,337				4,556						(4.8	)			(4.8	)					1,117				1,138						(1.9	)			(1.9	)
Mobile service revenues			3,677				3,888						(5.4	)			(5.4	)					897				932						(3.7	)			(3.7	)
Data revenues			1,619				1,508						7.4				7.4						418				379						10.5				10.5
Handset revenues			661				668						(1.2	)			(1.2	)					220				207						6.6				6.6
Fixed Business			8,861				8,543						3.7				3.7						2,325				2,225						4.5				4.5
FBB and new services (1)			4,939				4,368						13.1				13.1						1,321				1,141						15.8				15.8
Voice & access revenues			3,077				3,547						(13.3	)			(13.3	)					770				854						(9.8	)			(9.8	)
Other			846				627						34.9				34.9						234				230						1.9				1.9
Internal expenditure capitalized in fixed assets			350				316						10.7				10.7						100				92						8.6				8.6
Operating expenses			(10,064	)			(6,965	)					44.5				2.9						(4,797	)			(1,783	)					n.m.				6.7
Supplies			(2,728	)			(2,592	)					5.2				5.2						(792	)			(712	)					11.2				11.2
Personnel expenses			(5,120	)			(2,139	)					139.3				4.0						(3,456	)			(538	)					n.m.				4.2
Other operating expenses			(2,217	)			(2,234	)					(0.8	)			(0.8	)					(549	)			(533	)					3.1				3.1
Other net income (expense)			(30	)			32						c.s.				c.s.						(30	)			3						n.m.				(94.5	)
Gain (loss) on sale of fixed assets			138				268						(48.5	)			33.8						28				202						(86.1	)			(55.2	)
Impairment of goodwill and other assets			2				(3	)					c.s.				c.s.						4				(2	)					c.s.				c.s.
Operating income before D&A (OIBDA)			2,301				5,671						(59.4	)			(5.3	)					(1,633	)			1,551						c.s.				(8.6	)
OIBDA Margin			19.3	%			47.2	%					(27.8 p.p.	)			(2.0 p.p.	)					n.m.				51.0	%					c.s.				(4.3 p.p.	)
CapEx			1,805				1,732						4.2				4.3						495				546						(9.3	)			(8.2	)
Spectrum			49				-						-				-						-				-						-				-
OpCF (OIBDA-CapEx)			496				3,939						(87.4	)			(9.6	)					(2,128	)			1,005						c.s.				(8.8	)

Note:

- The reported figures do not include DTS.

- OIBDA and OI before management and brand fees.

(1) Includes FBB connectivity services (retail and wholesale), including value added services, TV services, ICT revenues and other services over connectivity.

 

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TELEFÓNICA ESPAÑA

ACCESSES

 Unaudited figures (Thousands)