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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 October, 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 87 00
(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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Telefónica Group: Presentation on quarterly results January-September 2016 | 3 | ||||
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Results_
January – September 2016
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Disclaimer
This document and the conference-call webcast (including the Q&A session) may contain forward-looking statements and information (hereinafter, the “Statements”) relating to the Telefónica Group (hereinafter, the “Company” or “Telefónica”) or otherwise. These Statements may include financial forecasts and estimates based on assumptions or statements regarding plans, objectives and expectations that make reference to different matters, such as the customer base and its evolution, growth of the different business lines and of the global business, market share, possible acquisitions, divestitures or other transactions, Company results and other aspects related to the activity and situation of the Company.
The Statements can be identified, in certain cases, through the use of words such as “forecast”, “expectation”, “anticipation”, “aspiration”, “purpose”, “belief” or similar expressions or variations of such expressions. These Statements reflect the current views of Telefónica with respect to future events, do not represent, by their own nature, any guarantee of future fulfilment, and are subject to risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such Statements. These risks and uncertainties include those identified in the documents containing more comprehensive information filed by Telefónica before the different supervisory authorities of the securities markets in which its shares are listed and, in particular, the Spanish National Securities Market Commission.
Except as required by applicable laws, Telefónica does not assume any obligation to publicly update the Statements to adapt them to events or circumstances taking place after the date hereof, including changes in the Company’s business or business development strategy or any other unexpected circumstance.
This document and the conference-call webcast (including the Q&A session) may contain summarized, non-audited or non-GAAP financial information. The information contained herein and therein should therefore be considered as a whole and in conjunction with all the public information regarding the Company available, including any other documents released by the Company that may contain more detailed information.
Neither this document nor the conference-call webcast (including the Q&A session) nor any of their contents constitute an offer to purchase, sale or exchange any securities, a solicitation of any offer to purchase, sale or exchange of any securities, or a recommendation or advice regarding any security.
Investor Relations Telefónica, S.A.
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01 Q3 16 Highlights
Mr. José María Álvarez-Pallete Chairman & CEO
Investor Relations Telefónica, S.A.
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Q3: Sustainable improvements on all fronts
Strategy is working: back to growth
Q3 proof points: Accelerating OIBDA, OpCF, EPS, FCF growth
& Deleverage
Operating improvement is sustainable
Sustainable organic deleverage
Investor Relations Telefónica, S.A.
Transformation process is paying off o CapEx intensification ahead of peers allowed quality differentiation (Spain, Brazil, HispAm) o Transition from voice to data almost concluded; data keeps growing healthy and voice has been largely bundled
Next steps, accelerating growth o CapEx/Sales peak behind us; OpCF growth to accelerate. Interest costs to continue declining o Consolidation driven synergies in BRA, GER o Improve ROCE
Service revenue +1.4% y-o-y organic, stable from Q2
Pick-up in OIBDA to +3.1% y-o-y organic (+2.4 p.p. q-o-q improvement)
OpCF +10.8% organic (+9.3 p.p. q-o-q improvement)
External factors (FX) improving; reported Q3 OIBDA almost flat (-1.0% y-o-y; -7.1% in Q2)
€2.6Bn net debt reduction in the last 3M to €49.98Bn
Strong cash conversion; Q3 FCF of €1.5bn, up 7.1% y-o-y leading to €2.3bn in 9M (+91.9%)
Spain: Sustaining very solid financials; increasing market value (OIBDA keeps growing; OpCF growth accelerating) Brazil: Stellar performance, expanding market share and margins at the same time (Q3: OpCF +37.9% y-o-y organic) Hispam: OIBDA back to growth (Q3: +6.3% y-o-y organic; +9.7 p.p. q-o-q improvement) Germany: Successful execution of synergies (OIBDA margin +2.2 p.p. y-o-y organic ex non-recurrent) UK: Better trends in revenues & profitability; best UK mobile operator: sustained market outperformance
Dividend reset; growing FCF Consistent organic deleverage
Portfolio optimisation policy: strategically driven
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New financial objectives to ensure sustainable remuneration and consistent deleverage
DPS
• 2017 Remuneration
0.75 o €0.40/sh. to be paid in cash in 2 tranches: €0.20/sh. in Q4 17 plus €0.20/sh. in Q2 18
0.40
Revised 2016 remuneration o €0.35/sh. in voluntary scrip dividend in Q4 16 plus Old New €0.20/sh. in cash in Q2 17
Pay-out assuming FCF of €4Bn/yr
>90%
• Sustainable pay-out, with growing FCF
~50%
• Allows for recurrent excess retained FCF
Old New
Objective
Consistent organic deleverage Solid investment grade credit rating, aiming to ratios compatible with BBB/Baa2 levels
2 Investor Relations Telefónica, S.A.
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2016 Outlook
2016 Guidance
Guidance 2016E 9M 16
(Constant FX 2015; ex-VZ; ex-UK)
Service Revenue >4% +3.0% Revenues
+4.4% OIBDA margin Stabilising vs. 2015 +0.4 p.p.
CapEx/Sales Around 17% 15.3%
3 Investor Relations Telefónica, S.A.
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Financials in a nutshell
9M 16 Q3 16
Reported Organic Reported Organic € in millions Reported Reported y-o-y y-o-y y-o-y y-o-y
Revenue 38,315 (6.7%) 0.8% 13,080 (5.9%) (0.2%) Service revenue 35,511 (5.2%) 2.2% 12,148 (4.1%) 1.4% OIBDA 11,931 (4.6%) 3.1% 4,175 (1.0%) 3.1% OIBDA Margin 31.1% 0.7 p.p. 0.7 p.p. 31.9% 1.6 p.p. 1.0 p.p. OpCF (ex-spectrum) 6,256 (1.4%) 5.7% 2,144 8.6% 10.8% Net Income 2,225 (22.0%) 983 38.5% EPS 0.41 (23.6%) 0.19 44.8% FCF 2,315 91.9% 1,500 7.1%
Net Financial Debt 49,984 0.7%
9M 16: Negative FX effect in OIBDA neutralised at FCF level
(€ in millions)
725 (63)
174 LatAm FX impact to 131 ease further in Q4
(1.093)
OIBDA CapEx Working Taxes + FCF Capital interest + Others 4 Investor Relations Telefónica, S.A.
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Robust FCF generation; improving markedly
2016 FCF (€ in millions) 9M FCF (€ in millions)
Enhancing performance throughout the year
1,500 2,315
• +€1,109m y-o-y in 9M (+91.9%)
746 1,206 o Lower spectrum, CapEx, financial payments, taxes & dividend to minorities
69 • +€754m q-o-q on the back of improvements across the board, despite greater investments and spectrum payments Q1 Q2 Q3 2015 2016 o FCF ex-spectrum accelerating in Q3 (+30.8% y-o-y)
FCFS (€)
0.01 0.15 0.31 0.25 0.47
On the right path to deliver stronger FCF in Q4
EPS (€) FY16 FCF >€4Bn
0.10 0.13 0.19 0.54 0.41
5 Investor Relations Telefónica, S.A.
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Strong recovery in reported OIBDA
2016 Reported OIBDA (y-o-y)
FX negative impact to dramatically ease in H2 16
Q1 Q2 Q3 • Sequential improvement of FX y-o-y drag (+3.6 p.p. y-o-y in revenues & +3.4 p.p. in OIBDA mainly due to BRL) (1.0%) • ARS and GBP main FX detractors in Q3 (5.7%) o Q4 15 ARS devaluation to ease y-o-y comps in Q4 16 (7.1%)
OIBDA y-o-y trends (€ in million)
No perimeter effect from Q3 16
+230 +90
+135 +9 (2)
FX impact (y-o-y)
+34
Revenues OIBDA
(187)
(553) (332) Q1 16 Q2 16 Q3 16
Organic Perimeter Organic Perimeter Organic Perimeter FX FX FX Growth & Others Growth & Others Growth & Others
(4.4 p.p.) (7.9 p.p.) (5.5 p.p.)
-233m -300m -44m (9.1 p.p.) (13.6 p.p.)
Q1 y-o-y Q2 y-o-y Q3 y-o-y (14.3 p.p.)
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Steady growth of service revenues
2016 Revenues (y-o-y organic)
Consistent performance of service revs q-o-q
Total Handset sales Service revenues
1.5% 1.4% • Brazil & Hispam accelerating in Q3; UK & Germany improving trends
• Q3 total revenue stable even with pressure from handset sales
(0.2%) (0.2%) • Q3 BB Connectivity & SoC 49% o/total; +7 p.p. y-o-y o Increasing growth opportunities (IoT, cloud, video,…)
Strong demand for mobile data (Non-SMS revs +20.0% vs. Q3 15) (18.0%) (16.6%)
Q2 Q3
Outstanding diversified portfolio
Q3 Service Revenues (y-o-y organic) Revenue (9M 16)
5.5% BRAZIL
GER 21%
1.4% 2.4% 0.6% 15% HISPAM
0.1% 24% SPAIN
UK
(1.8%) 25%
13%
TEF Hispam Brazil Spain UK Germany
7 Investor Relations Telefónica, S.A.
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Accelerating organic OIBDA increase
2016 OIBDA (y-o-y organic)
9M organic OIBDA growth across the board
5.5%
3.1%
• +240 bps ramped-up in OIBDA q-o-q
0.8%
OpEx discipline continues to excel (Q3: -1.6% y-o-y; Q2: -0.8%)
• Extracting savings from merger synergies & cost efficiencies
Q1 Q2 Q3 (redundancy programs; commercial efficiency; network optimisation)
OIBDA (y-o-y organic)
0.3 p.p. OIBDA (9M 16)
0.6 p.p.
0.7 p.p. BRAZIL
2.4 p.p. 3.1% GER 22% (0.5 p.p.)
11%
(1.1 p.p.) HISPAM SPAIN 22%
0.8% UK
33% 12%
Q2 Hispam UK Brazil Germany Spain Others Q3
9M OIBDA (y-o-y organic) OIBDA margin progression in Q3
7.8% • 31.9%; +1.0 p.p. y-o-y organic
3.1% 2.6% • Expanding margin y-o-y in all segments
1.2% 1.0% 0.8% •
9M margin 31.1% (+0.7 p.p. y-o-y organic) TEF Brazil Germany Hispam UK Spain
8 Investor Relations Telefónica, S.A.
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Outstanding OpCF upturn on higher OIBDA growth
2016 OpCF (ex-spectrum; y-o-y organic) High operating leverage
• Cost & CapEx efficiencies and optimisation
10.8%
9M
• Brazil & Spain main contributors to organic OpCF
4.9% +5.7% o Spain (43% o/total) +7.1% vs. Q3 15 y-o-y ex non-recurrents
1.4% o Brazil (21% o/total) +37.9% y-o-y in Q3 Q1 Q2 Q3
9M OpCF margin 16.3% OpCF ex-spectrum (9M 16)
GER
2016 CapEx (y-o-y organic) 9% BRAZIL 21% SPAIN HISPAM
43% 18% UK
6.2% 12%
9M +0.5%
0.2%
79% CapEx in growth & transformation
(3.8%)
Q1 Q2 Q3 • Continued investments in differential platforms to excellent connectivity
CapEx/Sales
13.5% 15.3% 15.5%
(ex-spectrum) • 9M CapEx (ex-spectrum)/Sales 14.8% (flat y-o-y organically)
Q3 y-o-y reflects phasing effects
9 Investor Relations Telefónica, S.A.
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High-value strategy across geographies
Delivering the goods
Sep-16 (y-o-y) Excelling in growth
Smartphone
LTE penetration • Seizing the 4G opportunity (x1.9 LTE accesses vs. Sep-15) penetration 22% (+11 p.p.) 56% (+10 p.p.) • Continued traction in FTTX & VDSL (+26% y-o-y connected cust.)
Strong progression in Pay TV (+3% y-o-y to 8.4m)
Pay TV/FBB FTTX+VDSL/FBB • “More for More”tariff actions (i.e. Spain, Germany, Colombia …) 49% (flat) 41% (+8 p.p.)
High-end pricing power (further progress in bundling FFTX/4G)
• Differential customer experience
Rewarding loyalty: Churn reduction -0.3 p.p. y-o-y in Q3
Positive customer lifetime value
Avg. Revenue/Access (y-o-y organic)
Quality customer led-strategy focused on network evolution to provide more opportunities to deliver
Accesses
2.6% 349m superior revenues
Churn
9M 16 2.7%
10 Investor Relations Telefónica, S.A.
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Significant upside from data consumption
Sustained data traffic explosion (y-o-y growth)
MBB FBB
65% 56% 55% 55% 56% 53% 50%
52% 53% 52% 50%
47% 47% 45%
Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16
Average data consumption per user (GB/month) Higher speeds driving data usage y-o-y
CAGR 15-18 (%)
• High demand requires stronger networks
2.33 22.5 • Fiber: key driver to maintain strong fixed data growth
2.15 24.9 o FTTH data consumption in Spain 2x DSL
• Evidence suggest MBB usage can double
1.38 17.5 o MBB consumption in Asian countries >2x Europe
0.97 29.5
0.95 34.3
0.75 33.7
0.69 41.3
0.56 36.9
Source: Analysys Mason as of Dec-2015 for cellular data traffic and cellular connections (SIMs excl. 2G devices)
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Disruptive data proposals; more recurring revenues
MBB accesses (y-o-y ) Q3 Data revenues (y-o-y organic)
Q2 16 Q3 16 Scale and tiered pricing boosting revenues
Smartphone +20%
20.0%
• Reaping prepaid opportunity in Latam with recurrent plans
LTE x2.5 16.0%
12.0% o
Prepaid data ARPU uplift 9.4% 83%/Data o T. Hispam smartphone penetration at 32%
Q3 Avg. usage/smartphone (y-o-y) 51%/MSR
New prepaid data portfolio (Sep-16) Data Non-SMS data
• Developing innovative contract schemes to play elasticity
+40% 1 GB
“O2 Free”: more content for higher price points
“Roaming like at Home”
Key engines delivering monetisation
LTE & UBB: Upselling and increasing ARPU
Usage uplift ARPU uplift
LTE 63% ~10%
• Q3 LTE traffic x3 y-o-y
Avg. Usage vs DSL o LTE: 36% of mobile data traffic (+16 p.p. y-o-y) UBB price o Mobile data traffic ramped-up: +65% y-o-y
FTTx > x2 premium
Q3 FBB traffic +45% y-o-y o Intensive video usage due to fiber and content bundling
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Digital Services: Value accretive initiatives
Q3 Digital Services Rev. Mix
Holistic view beyond connectivity
Others
16% • VIDEO: Premium content and user experience
Cloud Total revs.
11% Video Q3: €1.2Bn o Spain: Evolved functionalities (Home Zone)
4%
62% o Latam: Premium content agreement with Vivendi
7%
M2M • CLOUD: Enlarged scale in hybrid solutions
Security o 8th “Virtual Data Center” opened in Miami o “Open Telefónica Cloud” launched in Mexico (already in Chile & Brazil)
• SECURITY: In-house innovation & leading partnerships
Q3 Contribution to Digital Revenue growth (y-o-y organic) o “Path6”: proprietary technology to detect large-scale vulnerabilities in mobile apps 10.7% • M2M: Leading telco platform o A “Leader” in Gartner’s “Magic Quadrant Managed Machine-to-6.0 p.p. Machine Services, Worldwide” for 3rd year running
• Telefónica Open Future_: At the forefront of innovation
1.8 p.p. 1.5 p.p.
1.2 p.p. o UK government agreement to accelerate cybersecurity start-ups 0.2 p.p.
Digital Video Security Cloud Others M2M
Services
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TGR: Continued technological transformation
Enlarging UBB footprint Network developments
Network Quality & User Experience enhancement Premises Passed with Fibre (millions) o Real Time network and Quality of Experience monitoring 33.7m 21.4m o Building a Smart WiFi Home experience
FTTH o New set-top platform to power HD and Ultra HD video services FTTX +17% y-o-y +11% y-o-y • Innovation: o Inauguration of 5G laboratory o Successful trial of 4G high speed data transfer: up to 800 Mbps LTE Coverage (%PoP) o 1st Version of OSM (Open Source Mano) launched Europe o Extending SON automatisation solution across our footprint
86%
58%
(+9 p.p. y-o-y)
LatAm E2E Digitalisation
48%
Further progress on All-IP
• Full Stack on-going transformation
Big Data platforms for in progress in mobile; Brazil: migrating o Peru: VoLTE Real Time decision fixed customers
VoIP accesses
6.1m deployments
6 countries • Spain: Online channel evolution (ie. MiTV 7 countries Recommendations) 18.6 PB
(x4 y-o-y) • Germany: Systems consolidation (TEF DE + E-Plus)
• Advancing in global systems deployment
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02 Q3 16 Results
Mr. Angel Vilá CSFO
Investor Relations Telefónica, S.A.
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Spain: Increasing value in customer base
Net adds (‘000)
Q3 15 Q3 16 Churn y-o-y Growing momentum in upselling
0.0 p.p. +0.1 p.p. -1.1 p.p. -0.2 p.p.
217
159 • Early results of new “Movistar Fusión+”(launched in July) 122
45 49 o Boost in mobile portability 15 o Highest-ever UBB net adds (12) (44) o More premium TV packs
FBB UBB TV Mobile contract • Focus on higher value to foster ARPU uplift and loyalty o Promoting symmetric UBB & Premium TV
UBB/“Fusión” “Fusión” ARPU
Euros o Increasing mobile add-ons +8 p.p. +11% • Resilient churn (despite tariff update) 35% 27% 81.8 79.8
+3 p.p. 73.8 q-o-q
Sep-15 Sep-16 Leveraging unparalleled quality assets
Q3 15 Q2 16 Q3 16
FTTH (premises passed in millions) • Market-leader in network coverage: 4G, FTTH, satellite
Fiber customers/FBB o LTE: 90% pop. (+24 p.p. y-o-y) +23% • Best-in-class TV experience
17% fiber take-up
16.4 (+3 p.p. y-o-y) o All premium content
13.4 o Richer UX: innovative functionalities & equipment
47% 33%
Sep-15 Sep-16
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Spain: Stable revenue and growing margins
2016 Revenues (y-o-y organic)
Total Handset sales Service Rev. Ongoing growth of service revenues
1.1% • Sustained trend despite tougher comps in Q3
1.0%
0.6% 0.2% o Step up in “Consumer” growth fuelled by “Fusión” (+20.5% y-o-y) (0.1%) o “Business” revenue affected by IT seasonality (to reverse in Q4) (0.4%) o “Other revenue” growth improved despite lower TV wholesale (18.2%) (20.8%) (22.3%)
Q1 Q2 Q3
Strong Profitability (y-o-y organic ex-non recurrents) Solid OIBDA and cash conversion
Q1 16 Q2 16 Q3 16 Margin
7.1%
Continued cost cutting: OpEx -0.3% y-o-y in Q3 o Savings from Redundancy Programme (€133m in Q2+Q3 16) 3.3% 2.6% 2.0% 1.8% o Increased cost of new football season since mid-August
• Consistent margin expansion y-o-y & q-o-q
• OpCF growth for 2nd quarter in a row
(0.5%) OIBDA OpCF
43.3% 30.9%
+0.9 p.p. +2.1 p.p.
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Germany: Incremental synergies in H2
Contract net adds (‘000) LTE driving growth
426 • Data monetisation bearing fruits leveraged on
339 o 4G customer base at 10.6m (+12% q-o-q)
Q3 contract churn: 1.5% o Avg data usage 1.6 Gb (+15% q-o-q)
181 (-0.2 p.p. y-o-y) • “O2 Free” launch in October supports operational momentum
Dynamic competitive environment in Q3; early signs of easing pressure in non-premium segment Q1 Q2 Q3
• Stabilisation of ARPU trends q-o-q
2016 Financials (y-o-y ex non-recurrent)
OIBDA MSR OIBDA margin & margin y-o-y OIBDA growth ramping-up
6.2%
• MSR performance stable q-o-q; improving trends ex-regulation
3.6% o Sustained non-SMS data growth (Q3: +13.2% y-o-y) 1.6% o Roaming & MTRs drag 0.9 p.p. y-o-y in Q3 (Q2: -0.2 p.p.) o Continued decline of handset sales (Q3: -24.5% y-o-y; Q2: -25.5%)
Incremental synergies in H2: Q3: €30m; 9M: €125m; site & employee (1.7%) (1.8%) (1.3%) restructuring Q1 Q2 Q3 Transformation OpEx lessening; finalised contract customer migration
Q3 CapEx +30.4% y-o-y with phasing back-end loaded (9M: +5.7%)
21.1% 25.0% 24.7%
+1.8 p.p. +1.9 p.p. +2.2 p.p.
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UK: Robust performance; market leading loyalty
Contract net adds (‘000)
Blended ARPU ex “O2 Refresh” (y-o-y) Attracting and retaining in contract
Continued customer growth in a challenging market
199 Contract • Mobile customer base 25.4m penetration: 62%
115 134 (+5 p.p. y-o-y) o 45% LTE penetration (+15 p.p. y-o-y) o Data usage continues to grow (+65% y-o-y)
• Sustained market-leading contract churn of 0.9%
Q1 16 Q2 16 Q3 16 • High levels of customer satisfaction and best brand awareness
1.8% (0.8%) (0.6%) o MNO with lowest level of complaints (Ofcom)
93% LTE outdoor coverage (+15 p.p. y-o-y)
MSR (y-o-y) OIBDA margin expansion
Ex “O2 Refresh” Reported OIBDA margin expansion (27.3%; +1.0 p.p.)
Roaming & MTR impact
2.6% • Q3 MSR strengthened
1.1% Better Q3 OIBDA: o Roaming seasonality (“O2 Travel”) positive impact
(0.2%)
+1.6% y-o-y o Non-SMS data revenue growth (+9.4% y-o-y; +4.5 p.p. vs. Q2) vs. Q2 -4.0%
0.1% o Avg. subscription per user (+8.2% y-o-y ex “O2 Refresh”)
(0.5%)
(2.0%) o Subscription 76% o/total ARPU (69% Q3 15) Q1 16 Q2 16 Q3 16 • OIBDA increase driven by revenue flow and overall cost control
Continued growth in CapEx on ongoing LTE rollout (Q3: +18.0% y-o-y)
(0.4 p.p.) (2.0 p.p.) (2.1 p.p.)
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Brazil: ARPU growth in key services
Mobile ARPU (y-o-y)
Q3 16 9M 16 Data-centric strategy
27% 26% • Mobile 19%
15% Leader in postpaid: allow capture value (*) o Differential quality network us to 42% market share o Q3 contract net adds: 865k (x2.3 q-o-q) Total Data o 54% share in contract net adds in LTM o LTE x2.4 y-o-y (27% penetration, +17 p.p. y-o-y) o Data consumption increased on 4G adoption o Main cities: 47% of data traffic is 4G o Improvement on prepaid top-ups (+1.7% Q3/Q2) Fixed ARPU (y-o-y)
Q3 16 9M 16 • Fixed o Successful cross-selling
12% 13%
12%
10% 9% o All stores already selling fixed products
8% 7% 7% o UBB accesses: 4.1m (+8% y-o-y) o 16.9 m homes passed with fiber
FBB UBB Pay TV IPTV o Strong IPTV accesses (+39% y-o-y) on FTTH take-up
55% UBB 9% Pay TV Market share(*) Market share(*)
(*) At August 2016
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Brazil: Strong margin expansion; OpCF +38%
Service Revenues (y-o-y organic)
Q1 16 Q2 16 Q3 16 Enhanced revenues trend; well ahead of the sector
5.6%
Q3 total revs +1.1% in Q3 (9M: +0.9%) despite macro headwinds and
3.0% Service Rev handset sales (-27.2% in Q3) 2.3% 35% market share
1.7% • MSR accelerated driven by double digit postpaid growth and
1.1% 0.4% +0.9 p.p. y-o-y improved prepaid trends; sustained data rev. growth in Q3 (+24.4%)
Ongoing increased in FBB and new services (Q3: +11.8% y-o-y; 9M:
Service Revenues Mobile Service Revenues +6.5%)
Regulation drags 2.2 p.p. to rev. y-o-y (-2.4 p.p. in 9M)
Financials (y-o-y organic)
Margin Q1 16 Q2 16 Q3 16 OIBDA acceleration: synergies and efficiencies
37.9%
32.1% 35.3% •
Cost reduction despite inflation (Q3: -2.0%; 9M: -1.9%)
o Lower commercial cost (more rational approach, brand unification) 8.2% 9.5% o Bad debt remained stable due to credit and collection actions 5.8%
• CapEx below initial guidance: optimisation and big data
OIBDA OpCf o 16% CapEx/Sales including CapEx synergies (9M: +€83m)
Successful execution of operational synergies; 9M: €229m (Q3: +€94m)
33.3% 13.7% o Already secured 2/3 of best case +2.5 p.p. +4.0 p.p.
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HispAm: Focusing on value growth
Contract accesses (y-o-y)
Contract penetration Maintaining growth despite intense competition
14%
9%
7% • Leadership in contract segment in the region
6%
4% o Contract ARPU >6x prepaid; churn >0.5x 4% o Smartphone & LTE penetration 41% and 12% (+6 p.p. y-o-y respectively) HispAm ARG CHI COL PER MEX • Mobile net adds improved in Q3 o 1.1m (x2.7 y-o-y; x8.4 q-o-q) 22% 35% 34% 26% 36% 7% o Positive prepaid net adds after 2 quarters
Further room to grow; 65% of mobile penetration in the region (1)
Fixed business o Bundling strategy (43% o/total, +6 p.p. y-o-y)
FBB & Pay TV accesses (y-o-y) o Focus on quality; delivering higher speeds (59% >4 Mbps; +7 p.p.
FBB>4Mb Pay TV y-o-y) o FBB accesses +1% y-o-y
19% 14% 16%
13% 14%
9% 10% 7% 3%
HispAm ARG CHI COL PER
(1) Unique mobile subscriber according to Latin America GSMA 2016 report
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HispAm: OIBDA back to growth; improving profitability
Contribution to Revenues growth Q3 (organic y-o-y) Improved financial trends in Q3
4.1% 3.9 p.p.
2.6 p.p. • OIBDA returned to growth y-o-y (+6.3%; Q2: -3.4%); sequential improvement in all countries except México and Peru
(1.0 p.p.) (1.4 p.p.) o Revs accelerated (+0.5 p.p. q-o-q) on MSR (Q3: +4.1% y-o-y) Total Mobile Fixed Handset Regulation o OpEx improved y-o-y (+4.1%; Q2: +6.8%); more homogeneous comparison (higher comm. activity in Col & Arg from Q3 15) Services Services
2016 OIBDA (organic y-o-y)
6.3% • ARGENTINA:
0.8% o Ramping-up revenues, OIBDA and margin on successful campaigns, tariffs update, and efficiency measures
• COLOMBIA:
(3.4%) o OIBDA & MSR back to growth on trading improvement Q1 Q2 Q3 and more rational commercial approach
CHILE: 2016 OIBDA margin o Revenue & Profitability remained broadly flat y-o-y on 31.0% increased value services amid strong competition 28.3% 28.2%
MEXICO: o Challenging results continue affected by intense prepay competition
• PERU:
Q1 Q2 Q3 o Revenues continued affected by strong competition
Organic
(2.9 p.p.) (2.0 p.p.) +0.6 p.p. y-o-y
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Organic deleverage based on strong FCF generation
Net Financial Debt
€ in millions
Net Financial Net Financial
(€2.6 Bn)
Debt/OIBDA Debt/OIBDA
3.20x 3.05x
52,568 (1,500) 148 266
(1,000) (360) (138) 49,984
Shareholder Pre-
Jun-16 FCF remuneration retirements Hybrid issue Net financial FX, MTM Sep-16 (hybrid cost) commitments investments & Others
302 (369)
2,144
(137) (440)
1,500
OpCF Working Net Interest Tax Spectrum FCF ex-spectrum capital payment paid & Others
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Attractive financing to reinforce liquidity
Interest payments cost Sources of long-term financing (YTD)
€ in billions 0.7 8.8
1.7
4.8
4.63%
4.31%
0.40 p.p.
1.0
(0.72 p.p.) 0.6
Sep-15 Europe Latam Sep-16 Equity Hybrids Bonds Other bank Latam Total Linked-bond financing Financing (non-dilutive convertible)
21.8 incl. EUR bond
Liquidity position (Sep-16) Net debt maturities (Sep-16) October
€ in billions € in billions; not considering hybrid NC dates
19.8 Av. debt life 5.04yr;
13.6
6.04yr incl. Oct. bond and liquidity
8.2
89% LT 6.7
6.2
0.8
Cash position Undrawn credit Liquidity position ex-VZ lines & syndicated 2016E 2017E 2018E credit facilities
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Summary
• Strategy execution: Back to growth
o Transformation process paying off o Next steps: accelerate growth
• Q3 proof points
o Accelerating OIBDA, OpCF, EPS, FCF growth and deleverage o FX drag ease
• Sustainable operating improvement
o All business units registering better fundamentals o Best-in class assets: networks, spectrum and differential offers
• New targets to ensure sustainable remuneration and consistent deleverage
o DPS 2016: €0.55/sh.; 2017: €0.4/sh.
Organic deleverage accelerated Growing FCF
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For further information:
Investor Relations
Tel. +34 94 482 87 00 ir@telefonica.com www.telefonica.com/investors
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Telefónica, S.A. | ||||||||
| Date: October 27, 2016 | By: | /s/ Miguel Escrig Meliá | ||||||
| Name: | Miguel Escrig Meliá | |||||||