6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

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, 2017

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  ☒            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  ☒

 

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  ☒

 

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  ☒

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

 

 

 


Table of Contents

Telefónica, S.A.

TABLE OF CONTENTS

 

Item

       Sequential
Page
Number

1.

  Quarterly Results of Telefónica Group: January - December 2016    1


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

FINANCIAL HIGHLIGHTS

 

   

Robust results in the quarter, strengthening growth.

 

   

Continued improvement in quality customer base: LTE (1.8x year-on-year), smartphones (+17%), FTTx and cable (+24%) and mobile contract (+6%).

 

   

Revenues in the quarter reached 13,721 million euros, improving growth: +2.7% organic year-on-year.

 

   

Service revenues increase accelerated to 3.7% year-on-year in the quarter.

 

   

Strong growth of mobile data revenues (+12.3% year-on-year).

 

   

Quarterly OIBDA (3,187 million euros) growth significantly accelerated to 9.4% organic year-on-year, with OIBDA margin expansion (+2.0 p.p. year-on-year), and was affected by several factors:

 

   

Restructuring costs (-1,290 million euros).

 

   

Capital gains on the sale of companies (+228 million euros).

 

   

Goodwill impairments (-215 million euros).

 

   

Underlying OIBDA, excluding the factors mentioned above, reached 4,464 million euros.

 

   

Reinforced competitive position.

 

   

Differential infrastructure (39.2 million premises passed with FTTx and cable); LTE coverage 62% (87% in Europe).

 

   

CapEx totalled 2,912 million euros in the quarter; 8,928 million in 2016.

 

   

Strong free cash flow generation and organic deleverage.

 

   

Free cash flow reached 4,370 million euros in 2016 (+24.4% year-on-year), after reaching 2,055 million euros in the quarter.

 

   

Net financial debt decreased by 998 million euros in the quarter and stood at 48,595 million euros.

 

   

Underlying net income reached 4,038 million euros in 2016 (2,369 million reported).

 

   

Underlying basic earnings per share stood at 0.75 euros (0.42 reported) and increased 5.1% vs. 2015.

 

   

T. España: sequential improvement in year-on-year growth of service revenues (+1.9%) and OIBDA (1,306 million euros in the quarter excluding factors; +2.6%). Movistar “Fusión” increased high-value customer base (pay TV: 68%; UBB: 37%) and ARPU grew by 12% vs. the fourth quarter of 2015.

 

   

T. Brasil consolidated in the quarter the trend of solid revenue growth for the period (+1.1% organic year-on-year) and operating cash flow in the year (+17.8%).

 

   

T. Deutschland accelerated OIBDA growth rate in the quarter (+3.8% organic year-on-year), with OIBDA margin expanding (+2.5 p.p.) underpinned by the capture of synergies.

 

   

T. UK reinforced its position as a market leading mobile operator (customer base +2% year-on-year) and improved the year-on-year organic trend in revenues (+2.5% excluding “O2 Refresh”) and OIBDA (+4.1%) in the fourth quarter.

 

   

In the quarter, T. Hispanoamérica grew at double-digit organic rates both in revenues (+10.9% year-on-year) and OIBDA (+11.5%), with OIBDA margin expansion (+0.2 p.p. year-on-year), amid intense commercial activity.

 

1


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LOGO

 

  

January - December 2016

 

 

 

   

Telefónica announces guidance1 for 2017:

 

   

Revenues: stable vs. 2016, despite the negative impact from regulation (approximately 1.2 p.p.).

 

   

OIBDA Margin: year-on-year expansion up to 1 p.p.

 

   

CapEx/Sales excluding spectrum: around 16%.

 

   

Telefónica confirms shareholder remuneration:

 

   

The second tranche of 2016 dividend (0.20 euros per share in cash) to be paid in the second quarter of 2017.

 

   

Dividend for 2017 of 0.40 euros per share in cash, to be paid in the fourth quarter of 2017 (0.20 euros per share) and in the second quarter of 2018 (0.20 euros per share).

 

 

 

 

 

 

1 

Guidance 2017:

Guidance 2017:

 

   

Assumes constant exchange rates of 2016 (average of 2016), excluding the impact of hyperinflationary adjustments in Venezuela in both years, and constant perimeter of consolidation.

 

   

Excludes:

 

   

OIBDA excludes additionally write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurrent impacts and restructuring costs.

 

   

CapEx excludes additionally spectrum acquisition.

2016 adjusted base: Revenues (51,734 million euros), OIBDA margin (31.8%) and CapEx (ex-spectrum) to sales ratio

 

   

Excludes:

 

   

The results of the companies sold in 2016 (Telefé, T. Personalizadas and Vocem) from January 1st, 2016 to the date of exiting the perimeter of consolidation.

 

   

OIBDA excludes additionally write-downs, capital gains/losses from the sale of companies, tower sales, material non-recurrent impacts and restructuring costs.

 

   

CapEx excludes additionally spectrum acquisition.

 

2


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LOGO

 

  

January - December 2016

 

 

 

Comments from José María Álvarez-Pallete, Executive Chairman:

“2016 results strengthened our sustainable growth, following the fourth quarter acceleration of growth rates in main operational metrics. At the same time, the strong acceleration of free cash flow generation in the year and the long-term financing raised, accelerated deleverage and bolstered our financial structure.

For 2017 we expect similar operating trends: renevue stability despite higher regulatory impacts mainly in European markets, OIBDA margin expansion and lower CapEx intensity.”

 

3


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LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA

SELECTED FINANCIAL DATA

Unaudited figures (Euros in millions)

 

     January - December     % Chg     October - December     % Chg  
     2016     Reported     Organic     2016     Reported     Organic  

Revenues

     52,036       (5.2     1.3       13,721       (1.0     2.7  

Telefónica España (1)

     12,713       2.5       (0.1     3,216       (0.1     (0.1

Telefónica Deutschland

     7,503       (4.9     (4.9     1,936       (6.0     (6.0

Telefónica UK

     6,861       (12.5     (1.5     1,721       (14.4     2.4  

Telefónica Brasil (2)

     11,097       0.3       0.9       3,058       18.2       1.1  

Telefónica Hispanoamérica

     12,579       (12.6     7.5       3,435       (5.2     10.9  

Other companies & eliminations (3)

     1,284       (4.3       356       (2.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OIBDA

     15,118       14.3       4.7       3,187       n.m.       9.4  

Telefónica España (1)

     4,467       91.2       1.4       512       c.s.       3.4  

Telefónica Deutschland

     1,794       (3.4     2.9       481       (18.0     3.8  

Telefónica UK

     1,709       (11.4     1.7       334       (21.7     4.1  

Telefónica Brasil (2)

     3,714       3.9       5.3       1,085       10.3       (0.9

Telefónica Hispanoamérica

     3,477       (20.2     3.9       805       (28.4     11.5  

Other companies & eliminations (3)

     (43     (94.7       (30     (96.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OIBDA margin

     29.1     5.0 p.p.       1.0 p.p.       23.2     18.0 p.p.       2.0 p.p.  

Telefónica España (1)

     35.1     16.3 p.p.       0.6 p.p.       15.9     n.m.       1.4 p.p.  

Telefónica Deutschland

     23.9     0.4 p.p.       1.9 p.p.       24.8     (3.6 p.p.     2.5 p.p.  

Telefónica UK

     24.9     0.3 p.p.       0.8 p.p.       19.4     (1.8 p.p.     0.4 p.p.  

Telefónica Brasil (2)

     33.5     1.2 p.p.       1.4 p.p.       35.5     (2.5 p.p.     (0.7 p.p.)  

Telefónica Hispanoamérica

     27.6     (2.6 p.p.)       (1.0 p.p.     23.4     (7.6 p.p.     0.2 p.p.  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (OI)

     5,469       55.2       8.3       669       c.s.       25.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,369       n.m.         145       c.s.    

Basic earnings per share (euros)

     0.42       n.m.         0.01       c.s.    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CapEx

     8,928       (14.7     3.9       2,912       7.5       11.6  

Telefónica España (1)

     1,847       1.1       3.0       564       11.6       11.6  

Telefónica Deutschland

     1,108       (50.3     6.8       360       9.0       9.2  

Telefónica UK

     931       5.5       18.7       278       20.2       42.1  

Telefónica Brasil (2)

     2,138       1.6       (2.9     769       27.2       14.6  

Telefónica Hispanoamérica

     2,613       (14.6     6.5       815       (4.9     8.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other companies & eliminations (3)

     291       (18.1       127       (29.4  

Spectrum

     345       (78.2     (77.0     5       c.s.       69.9  

Telefónica España (1)

     7       (85.0     (85.0     —         —         —    

Telefónica Deutschland

     6       (99.5     (99.5     1       (11.5     (11.5

Telefónica UK

     —         —         —         —         —         —    

Telefónica Brasil (2)

     48       n.m.       n.m.       1       n.m.       n.m.  

Telefónica Hispanoamérica

     284       (16.0     (11.2     2       c.s.       (23.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OpCF (OIBDA-CapEx)

     6,190       123.6       5.6       275       c.s.       5.4  

Telefónica España (1)

     2,621       n.m.       0.6       (52     n.m.       (1.8

Telefónica Deutschland

     686       c.s.       (2.1     121       (52.9     (6.9

Telefónica UK

     778       (25.6     (12.7     56       (71.3     (39.9

Telefónica Brasil (2)

     1,576       7.3       17.8       316       (16.6     (25.6

Telefónica Hispanoamérica

     864       (33.3     (0.3     (10     c.s.       22.0  

Other companies & eliminations (3)

     (335     (71.6       (157     n.m.    

 

   

Reconciliation included in the excel spreadsheets.

Notes:

 

   

Since the second quarter of 2016 Telefónica’s operations in the United Kingdom are no longer reported as discontinued operations and all its assets and liabilities have ceased to be reported as “held for sale”, and have been reclassified back into full consolidation, in compliance with International Financial Reporting Standards (IFRS). For comparative purposes, the results of Grupo Telefónica of 2015 and the first quarter of 2016 are reported following the same criteria.

 

   

2015 and 2016 reported figures include hyperinflationary adjustments in Venezuela in both years.

 

   

Organic criteria: Assumes constant exchange rates as of 2015 (average FX in 2015) 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. CapEx also excludes investment in spectrum.

 

   

OIBDA and OI are presented before brand fees and management fees.

 

   

OIBDA margin calculated as OIBDA over revenues.

 

(1)

DTS has been consolidated since 1 May 2015.

(2)

GVT has been consolidated since 1 May 2015.

(3)

Telefé has been deconsolidated since 1 November 2016.

 

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LOGO

 

  

January - December 2016

 

 

 

TABLE OF CONTENTS

 

TELEFÓNICA

  

Consolidated Results

     6  

•       Digital Services

     11  

•        Telefónica Recursos Globales

     12  

RESULTS BY BUSINESS UNITS

  

Telefónica España

     25  

Telefónica Deutschland

     30  

Telefónica UK

     34  

Telefónica Brasil

     37  

Telefónica Hispanoamérica

     41  

•       Telefónica Argentina

     44  

•       Telefónica Chile

     47  

•        Telefónica Perú

     50  

•       Telefónica Colombia

     53  

•        Telefónica México

     56  

•       Other Hispam countries

     58  

ADDENDA

  

Key Holdings of the Telefónica Group

     62  

Changes to the Perimeter

     63  

Alternative performance measures

     64  

The financial information related to January-December 2016 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).

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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LOGO

 

  

January - December 2016

 

 

 

01

CONSOLIDATED RESULTS

As of December 2016, Telefónica Group total accesses increased by 1% year-on-year to 350.0 million, with continued customer quality improvement. Thus, unitary customer value improved in the fourth quarter: both due to average revenue per customer growth, accelerating year-on-year to 4.4% (+2.8% in January-December), and churn improvement (-0.5 percentage points year-on-year).

Growing demand for data, speed and content was reflected in the strong growth of high value services. Thus:

i) LTE customers stood at 66.3 million (1.8 times vs. the previous year), with net additions in the quarter of 9.0 million (+25% year-on-year) and a penetration of 25% (+10 percentage points year-on-year);

ii) mobile contract accesses (+6% year-on-year) totalled 110.8 million and accounted for 40% of total mobile accesses (+2 percentage points year-on-year), after recording widespread growth across the different markets and after capturing quarterly net additions of 1.8 million (+18% year-on-year);

iii) smartphones (+17% year-on-year) stood at 147.2 million with penetration of 57% (+8 percentage points year-on-year);

iv) FTTx and cable customers grew by 24% vs. 2015, after recording 458 thousand net additions in the quarter to total 9.2 million, and accounted for 43% of total fixed broadband accesses (+8 percentage points year-on-year);

v) pay TV accesses reached 8.3 million (stable year-on-year) with a penetration of 48% (-1 percentage point vs. the previous year) over total fixed broadband accesses.

Meanwhile, the negative impact arising from the evolution of exchange rates continued to diminish; in the fourth quarter, it deducted 3.2 percentage points from year-on-year revenue change, -8.0 percentage points in 2016. At OIBDA level, the impact in the year was -8.8 percentage points and its negative impact was also reduced significantly in the fourth quarter (-94 million euros; -187 million in the previous quarter; -885 million in the first six months).

Nevertheless, it is important to highlight that currency depreciations had a limited impact in terms of cash generation, since depreciations also decreased payments in euros related to investments, taxes, interest and minorities, almost entirely offsetting the negative impact at OIBDA level in 2016.

In the fourth quarter of 2016, the changes in the perimeter of consolidation (mainly the sale of Telefé) reduced revenue and OIBDA year-on-year growth 0.5 percentage points and 2.1 percentage points respectively (+1.4 percentage points in revenues and +1.3 percentage points in OIBDA in January-December 2016 affected by the incorporation of GVT and DTS in May 2015).

Revenues increased to 13,721 million euros in October-December and grew by 2.7% organic (-1.0% in reported terms), posting an acceleration of 3.0 percentage points, driven by the solid performance of service revenues (+3.7% in the fourth quarter; +2.6% in the year). In the January-December period, revenues amounted to 52,036 million euros, +1.3% organic year-on-year (-5.2% reported).

Excluding the negative impact of regulation, revenues would have grown 3.6% organic year-on-year in the quarter (+2.2% in 2016).

The revenue structure reflected the high degree of diversification and scale of the Company; thus T. España accounted for 24.4% of consolidated revenues from January-December, followed by T. Hispanoamérica (24.2%), T. Brasil (21.3%), T. Deutschland (14.4%) and T. UK (13.2%).

 

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LOGO

 

  

January - December 2016

 

 

 

By services, in January-December 2016, broadband revenues accelerated their year-on-year organic growth to 16.1%, services over connectivity grew by 7.7% and voice and access decreased by 7.9%. Thus, broadband revenues and services over connectivity accounted for 46.8% of total revenues in 2016 (+6.1 percentage points year-on-year), while the weight of voice and access revenues decreased by 4.9 percentage points to 42.7%.

Mobile data revenues continued to post double digit growth this quarter (+12.3% organic year-on-year in the quarter and in the year) and represented 52% of mobile service revenues from January-December (+4.9 percentage points) due to the increased penetration of smartphones and LTE. Non-SMS data revenues grew by 19.2% in the quarter (+19.7% year-on-year in 2016) and represented 82% of total data revenues (+5.1 percentage points organic).

Mobile data traffic maintained a strong growth rate in the quarter (+71% year-on-year), underpinned by the traffic of LTE customers, which accounted for 43% of total traffic (+18 percentage points year-on-year) with higher average usage (+65%) and ARPU around 11% higher. Thus, unitary traffic per client reached 1.2 Gb per month (+44% year-on-year).

Operating expenses totalled 10,852 million euros in the fourth quarter and improved their organic evolution by 0.8 percentage points vs. the previous quarter to -2.3% year-on-year (-20.8% reported) due to better commercial spend evolution, a change in the trend of personnel expenses and the capture of synergies and efficiencies from the transformation and simplification process. In January-December 2016 operating expenses amounted to 38,043 million euros and decreased 0.7% organic year-on-year (-11.7% reported).

Reported operating expenses and other net income/expense for the fourth quarter were affected by restructuring cost provisions amounting to 1,290 million euros (1,250 million euros in operating expenses and 40 million euros in other net income/expense).

The breakdown per business unit is as follows: 856 million euros in T. España, 274 million euros in Other Companies, 81 million euros in T. Hispanoamérica, 36 million euros in T. UK, 30 million euros in T. Deutschland and 14 million euros in T. Brasil.

These provisions did not impact cash flow generation in the quarter and were carried out within the Company’s transformation and simplification process, which shall enable the generation of incremental savings and efficiencies with a positive impact on cash generation.

In the fourth quarter of 2015, restructuring provisions amounted to 3,157 million euros (3,123 million in operating expenses and 33 million in other net income/expense).

Supplies (4,134 million euros in the fourth quarter) decreased by 0.7% vs. the same period of 2015 in organic terms (-4.6% reported), mainly due to lower handset consumption and less interconnection costs.

Personnel expenses, 2,958 million euros in October-December, reduced by 0.8% organic year-on-year (-40.3% reported) and changed their trend vs. the previous quarter, reflecting higher efficiencies, despite inflationary pressure in some Latin American countries and internalisation of services in T. Brasil. The reported figure was impacted by the restructuring provision mentioned above for an amount of 1,249 million euros.

The average headcount in 2016 decreased 1.1% vs. the previous year, standing at 132,120 employees.

Other operating expenses stood at 3,760 million euros in the quarter, 4.8% lower than the previous year in organic terms (-14.7% reported) and improved 6.2 percentage points sequentially. This improvement was driven by savings generated in commercial expenses and more than offset the negative impact of inflation in certain Latin American countries and higher systems and network expenses.

Other net income totalled 39 million euros in October-December and included 22 million euros of restructuring costs (mainly in Germany) and 18 million euros for the optimisation of the distribution network in Spain.

 

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January - December 2016

 

 

 

In the same period 2015, other net income totalled 225 million euros, affected by the adjustment in T. Deutschland for the final agreement related to the acquisition of E-Plus (+102 million euros impact on OIBDA), the expiration of an account payable in Brazil (+98 million euros), the provision for the optimisation of the distribution network in T. España (-30 million euros) and restructuring costs (-3 million euros), among other factors.

The gain on sale of fixed assets in the fourth quarter stood at 266 million euros, reflecting capital gains from the sale of Telefé (impact of 199 million euros on OIBDA; 185 million in Other Companies and 15 million in T. Argentina) and T. Personalizadas in Spain (impact of 29 million euros on OIBDA), as well as the sale of real estate assets in T. España (impact of 33 million euros on OIBDA).

In October-December 2015, this item totalled 159 million euros, reflecting the result of the spectrum swap with AT&T in Mexico (79 million euros impact on OIBDA), the sale of real estate assets in T. España (22 million euros of OIBDA impact) and the sale of towers (18 million euros of impact in OIBDA, mainly in Chile and Brazil).

In the fourth quarter of 2016, impairment of goodwill and other assets totalled 219 million euros, mainly the goodwill of Venezuela (124 million euros) and Mexico (91 million euros); in 2016 impairments increased to 224 million. In the fourth quarter of 2015 this item increased to 105 million euros mainly due to the impairment of goodwill of Jajah (106 million in January-December 2015).

Operating income before depreciation and amortisation (OIBDA) amounted to 3,187 million euros in the quarter and its reported year-on-year change (4 times) was affected by the factors mentioned above.

Quarterly underlying OIBDA reached 4,464 million euros (4,210 in the same period of 2015) and excluded the following impacts:

i) Restructuring costs (-1,290 million euros in the quarter; -1,399 million euros in January-December)

ii) Capital gains/losses from the sale of companies (+228 million euros in the quarter; +212 million euros in the year)

iii) Goodwill impairments (-215 million euros in the fourth quarter)

In 2016, OIBDA totalled 15,118 million euros and increased by 4.7% in organic terms (+14.3% year-on-year in reported terms). In underlying terms, OIBDA increased to 16,519 million euros.

Organic OIBDA growth accelerated to 9.4% year-on-year in the fourth quarter, with highlights including double digit growth of T. Hispanoamérica, return to growth in T. España, growth acceleration in T. UK and sustained growth rate in T. Deutschland. Thus, OIBDA accelerated its organic growth for the second consecutive quarter (+6.3 percentage points vs. the third quarter).

Excluding regulation, OIBDA would have increased 10.4% organic year-on-year in the quarter (+5.7% in January-December).

OIBDA margin for the quarter stood at 32.5% in organic terms and continued to expand by increasing 2.0 percentage points year-on-year, reflecting positive revenue evolution, cost containment efforts and synergies generation. In 2016, OIBDA margin totalled 31.5% organic and expanded 1.0 percentage points vs. the previous year.

Depreciation and amortisation reached 2,518 million euros in October-December and decreased 2.0% organic vs. the same period of 2015 (+1.8% reported). In January-December, this item totalled 9,649 million euros and increased 2.0% organic year-on-year (-0.6% reported), mainly due to the higher level of investment in Brazil and Germany. Total depreciation and amortisation charges resulting from purchase price allocation processes amounted to 170 million euros in the quarter (801 million in 2016).

Operating income (OI) stood at 669 million euros in the fourth quarter of 2016 (-1,751 million euros in the same period of 2015) and increased by 25.3% year-on-year in organic terms. In 2016, operating income amounted to 5,469 million euros (+8.3% year-on-year organic; +55.2% reported).

 

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Net financial expenses totalled 2,219 million euros in January-December, 14.9% lower than the previous year mainly due to the savings from debt management (hedging in pounds linked to T. UK and lower cost of debt in European currencies) and higher revenues associated with inflation in Venezuela, partially offset by the capital loss from the sale of 1.5% stake in China Unicom (-155 million euros) and the result of the divestment in Telecom Italia, S.p.A in 2015 (+380 million euros). In the fourth quarter, net financial expenses reached 369 million euros and decreased vs. the same period of 2015 (687 million euros), mainly due to the reduction in the cost of debt and the impact of inflation in Venezuela.

Corporate Income tax in October-December 2016 totalled 105 million euros, vs. -297 million euros in the fourth quarter of 2015, both years were impacted by the recognition of the tax credit derived from the aforementioned provisions for restructuring costs. In January-December 2016, income tax amounted to 846 million euros (155 million euros in 2015) and its year-on-year comparison was also affected by lower tax credit activation in 2016, while the effective rate stood at 26.1% (+9.0 percentage points year-on-year).

Profit attributable to minority shareholders reduced net income by 49 million euros in the fourth quarter (-95 million euros in the fourth quarter of 2015) mainly due to the profit attributed to minority shareholders of T. Brasil, partially offset by the losses of T. Deutschland. In January-December, minorities reduced net income by 30 million euros (-135 million euros in 2015).

Consolidated net income in the quarter reached 1,233 million euros in underlying terms (145 million reported), 2.5 times vs. the same period of the previous year, while in January-December net income amounted to 4,038 million euros (2,369 million reported) and increased by 4.8% year-on-year. Underlying basic earnings per share stood at 0.23 euros in the fourth quarter, 2.7 times vs. the same period of the previous year, and 0.75 euros in January-December (+5.1% vs. 2015).

In 2016, CapEx from January-December totalled 8,928 million euros, including 345 million euros for spectrum acquisition, and increased by 3.9% organic vs. 2015 (-14.7% reported). In the fourth quarter, CapEx increased by 11.6% organic year-on-year (+7.5% reported) and stood at 2,912 million euros. The investment effort was mainly focused on the deployment of ultrafast networks, with investment in growth and transformation representing 78.8% of the total (+0.2 percentage points year-on-year).

Underlying operating cash flow (OIBDA-CapEx) excluding spectrum for October-December reached 1,556 million euros (279 million euros reported) and grew by 3.8% year-on-year. In 2016, operating cash flow increased by 0.3% vs. 2015 to 7,937 million euros in underlying terms excluding spectrum (6,535 million euros reported).

Interest payments totalled 2,143 million euros in 2016 and decreased by 12.4% year-on-year due mainly to the lower cost of debt in European currencies. In the quarter, interest payments amounted to 397 million euros (-31.8% year-on-year).

The effective cost of interest payments for the last 12 months stood at 3.94% in December 2016, 102 basis points lower than the same period of the previous year.

Tax payments reached 649 million euros in 2016, 5.8% less than in 2015 due to lower payments in advance, partially offset by lower refunds from previous years. The effective payment rate stood at 20.0%.

Working capital positively contributed 383 million euros to cash flow generation in 2016 (1,493 million euros in the fourth quarter of 2016), driven by different management measures (extended payment terms with suppliers or with the factoring firm where those have been discounted, factoring of accounts receivable and process improvements).

Compared to January-December 2015 (1,571 million euros), its contribution decreased by 1,189 million euros mainly due to; (i) payments in 2016 associated with previous years provisions, ii) regularisation of payments in foreign currency in Argentina, iii) the positive impact in 2015 of partial financing of spectrum licences in Germany and Ecuador, and iv) deferred revenues from advanced collections in Germany in 2015.

 

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Operations with minority shareholders in the fourth quarter amounted to 156 million euros and increased by 25.1% year-on-year mainly due to higher dividend payments in Brazil and Central America. In 2016, they totalled 511 million euros, 27 million euros less than in 2015 mainly due to lower dividend payments in T. Brasil, affected by the evolution of the exchange rate.

Thus, in January-December 2016, free cash flow totalled 4,370 million euros and increased by 24.4% year-on-year. In the fourth quarter it increased to 2,055 million euros, improving sequentially by 555 million euros vs. the previous quarter (-10.9% year-on-year).

Net financial debt stood at 48,595 million euros at December 2016 and decreased by 998 million euros in the fourth quarter, thanks to: i) free cash flow generation of 2,055 million euros; ii) net financial divestments of 287 million euros, mainly associated with the sale of Telefé. On the contrary: i) shareholder remuneration (534 million euros, including dividend payment and coupons from capital instruments), ii) payment of labour-related commitments (140 million euros), iii) other factors affecting the valuation of liabilities (432 million euros, including the refinancing of commercial liabilities), and iv) the higher value in euros of net debt in foreign currencies, mainly due to the apreciation of Latin American currencies vs. the euro (238 million euros).

Compared to December 2015, net financial debt decreased by 566 million euros in 2016, due to: i) free cash flow generation of 4,370 million euros; ii) net financial divestments of 500 million euros, mainly associated with the sale of the stake in China Unicom and Telefé and iii) lower value in euros of net debt in foreign currencies (91 million euros). On the other hand, factors causing the debt to increase: i) shareholder remuneration (dividends, treasury stock, issuance of capital instruments net of coupon payments) in the sum of 2,389 million euros; ii) payment of labour-related commitments (738 million euros) and iii) other factors affecting the valuation of liabilities amounting to 1,268 million euros (including the refinancing of commercial liabilities).

In 2016, Telefónica’s financing activity amounted to approximately 10,542 million equivalent euros, without considering the re-financing of commercial paper and short-term bank loans. The activity mainly focused on strengthening the liquidity position, refinancing debt maturities in an environment of very low interest rates and extending maturities. Therefore, at the end of 2016, the Group maintained a comfortable liquidity position, with debt maturities beyond the next twelve months covered. The average debt life stood above 6 years, at 6.35 years.

In the fourth quarter, Telefónica strengthened its financial position with long term financing, in accordance with the objective of maintaining a solid investment rating, by means of several operations:

 

   

The bond issue in October distributed in two tranches, 1,250 million at 4 years and 750 million at 15 years, with the lowest coupons paid by Telefónica historically in an issue in euros with these terms (0.318% and 1.930%, respectively), with the latter being the longest bond to date issued by a Spanish corporate issuer in 2015-2016.

 

   

The signing, in November, of a financing agreement amounting to 1,500 million euros for the purchase of supplier equipment maturing in 8 years, the largest supplier financing deal ever signed in Telefónica.

 

   

In December, the closing of a private placement in the sum of 150 million euros and a 35 year maturity, being the longest tenor in the history of Telefónica.

After the closing of the year, financing activity amounting to approximately 2,568 million equivalent euros has been carried out through the following operations:

 

   

In January, there were two significant Telefónica Emisiones, S.A.U. bond issues for an aggregate sum of 1,750 million euros, of which 1,250 million euros mature in January 2025 and 500 million euros in October 2028 (annual coupon of 1.528% and 2.318% respectively).

 

   

Also in January, Telefónica Emisiones, S.A.U. closed a private placement amounting to 150 million EUR, maturing in 2019.

 

   

Telefónica Chile, in January, issued a bond for 48,000 million Chilean Pesos maturing in six years.

 

   

In February, Telefónica Brasil carried out a bond issuance of 2,000 million Brazilian reals, maturing in February 2022.

 

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Throughout the year, Telefónica Group obtained funding by means of extending payment terms with suppliers, or with the factoring firm where those had been discounted, for a total 982 million equivalent euros.

Meanwhile, Telefónica, S.A. and its holding companies continued with their issuance activity under its Promissory Notes and Commercial Paper Programmes (Domestic and European), maintaining an amount outstanding of approximately 3,000 million euros at the end of December.

At the end of December, Telefónica maintained undrawn committed credit lines with different credit institutions for an approximate amount of 14,627 million euros (13,491 million euros maturing in more than twelve months) which, combined with the cash equivalents position and current financial assets excluding Venezuela, placed liquidity at 21,274 million euros. Including January and February bond issuances, liquidity position stood at 23,842 million euros, almost covering debt maturities for the next two years and extending average net debt to 6.77 years.

Definition:

Organic Growth: Assumes constant exchange rates from 2015, excludes the impact of hyperinflationary adjustments in Venezuela in both years and considers a constant perimeter of consolidation. In OIBDA and OI terms, excludes write-downs, capital gains/losses from the sale of companies, sale of towers, restructuring costs and material non-recurrent impacts. CapEx also excludes investment in spectrum.

Underlying Growth: Reported figures excluding the impact of write-downs, capital gains/losses from the sale of companies, tower sales, restructuring costs and material non-recurrent impacts as well as depreciation and amortisation charges from purchase price allocation processes.

Digital Services

(year-on-year changes in organic terms)

Digital services revenues continued to present double-digit year-on-year growth and reached 1,281 million euros in the fourth quarter (+11.1%) and 4,792 million in 2016 (+14.1%).

Video revenues, 726 million euros in the quarter (2,802 million in January-December), maintained a solid year-on-year growth rate (+9.7%; +12.4% in the year) driven mainly by the consistent increase in the TV base in Hispanoamerica (+4%) and by the improvement in ARPU in Brazil and Spain associated with the wider adoption of premium content. Pay TV accesses stood at 8.3 million as of December (including 4.3 million satellite TV accesses), stable versus 2015.

The Company remained committed to continuous innovation in its TV offer, combining improvements in connectivity, functionality and content, focusing on breadth, quality and exclusivity, aimed at satisfying growing customer demand. Accordingly a clear highlight in Spain has been the commitment to “Movistar+” own productions (mainly TV series: 4 announced for 2017 and 10 for 2018) aimed at becoming the main hub for original Spanish-language content.

In Security, revenues in October-December (103 million euros) grew by 14.4% year-on-year (341 million in January-December; +22.7%). Telefónica continued to be committed to developing new solutions via agreements with leaders in the sector, such as the global agreement signed with Symantec to protect IoT environments from cyber-attacks. In the consumer segment, accesses with security products reached 33.6 million, driven by the growth of users of antivirus, “Personal Cloud” and “Peace of Mind” services.

In Big Data, “LUCA” has been unveiled, the new global Big Data services unit which offers a comprehensive portfolio of services, from data management and analytics to the use of its services and infrastructures, which will contribute to extracting the value of such information in companies’ and organisations’ digital transformation processes.

M2M revenues reached 66 million euros in October-December and grew by 21.7% year-on-year (+21.9% in January-December; 224 million euros), due to the expansion of the managed connectivity platform “Smart M2M”, with

 

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a volume of lines tripling vs. the previous year’s and with capacity to integrate both own or strategic partners’ solutions, which has enabled it to position itself as a benchmark in the market. In this respect, highlights this quarter included the agreements signed with leading companies in the IoT ecosystem in remote device management and new access networks.

In the fourth quarter, Cloud revenues totalled 137 million euros (+5.1% year-on-year; 509 million euros and +17.3% over the twelve-month period) leveraged on the deployment of new services and platforms to offer managed services to key accounts and on the launch of bundled offers (communications + devices + digital services) in the SME segment.

Under the Telefónica Open Future_ initiative, and as a clear commitment to innovation, the “TOF_Global Race” has been launched to identify innovative technological projects. Furthermore, Wayra UK will provide pre-acceleration services to start-ups in the United Kingdom in association with companies from different sectors (consumer, pharmaceuticals) and with GCHQ (Government Communications Headquarters).

Telefónica Global Resources

In 2016 TGR has modernised the Company’s networks and systems capacities, improving service quality and customer experience and, at the same time, has accelerated the strategy of simplification and generation of efficiencies.

Global Network and Operations focused on the expansion of the capacity and coverage of the ultra-broadband access network (FTTx and cable) and the network core.

The growing demand for data continued to drive strong data traffic growth throughout the year (+49% year-on-year), both in fixed broadband (+48% year-on-year), due mainly to the growth in consumption of video in UBB, and in mobile broadband (+61% year-on-year) with a greater contribution from 4G data volume (up to 36%; +16 percentage points year-on-year).

To meet this demand, at the end of 2016, the number of premises passed with ultra-broadband networks (FTTx and cable) increased to 39 million, of which 17 million were in Brazil (FTTx), 17 million in Spain (FTTH) and 5 million in Hispanoamerica (FTTx and cable).

Meanwhile, 4G population coverage stood at 62%, 10 percentage points more in the year (91% Spain; 79% Germany; 95% UK; 60% Brazil; 49% Hispanoamerica), with a total of 55,417 locations.

Transformation of the access network is in turn underpinned by the evolution of the network core, highlighting the continuous transformation of the transport network, including its softwarisation, implementation of Big Data and Machine Learning capabilities, legacy management and virtualisation of network functions. Thus, the deployment of the new metro optic network with OTN (Optical Transport Network) capabilities in Spain is a leading reference.

Additionally, the transformation of the All-IP network has progressed with the deployment of VoIP, VoLTE and VoWiFi. VoIP is offered in 7 countries (Spain, Brazil, Germany, Colombia, Argentina, Chile and Peru) and has reached 6.3 million accesses; VoLTE is now available in 6 countries (Germany, Colombia, Peru, Brazil, Argentina and UK) and native VoWiFi is now offered in Germany and Argentina.

In 2016 the global centres contributed to the increase in quality, simplification and efficiency through the implementation of energy efficiency measures and the industrialisation of consumer equipment production in all operating businesses. Accordingly, the catalogue of devices, along with their functionalities, has been broadened, improving the efficiency of the connection and management of Wi-Fi via a mobile app, thereby increasing the value offered to the customer.

 

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In parallel, the work to define the 5G networks has intensified, with disruptive tests conducted such as “user-centric, no cell” (removes the cell concept and focuses connectivity on the user), and the introduction into current networks of pre-5G components such as C-RAN and SON (Self-Organising Networks) which enable radio access management to be automated and optimised.

Finally, and in terms of innovation, highlights included: (i) evolution of the video platform with Ultra High Definition (UHD), (ii) softwarisation of the networks with the first OSM version (Open Source MANO), deployment of virtual functions (such as the virtual router in the international backbone) and the first SDN (Software Defined Network) IP tests in Peru and (iii) the use of Big Data to monitor the network.

Global IT, focused on E2E digitalisation, already showed results on the back of the structural transformation of certain processes, such as those focused on the customer and related applications, especially by means of the Full Stack programmes, now live in 6 countries (Brazil, Argentina, Peru, Chile, Mexico and Uruguay), with 13% of customers already migrated.

Meanwhile, a Single Online Charging System is already operational for 59% of customers and in Germany the consolidation of systems following the integration with E-Plus has been completed.

Regarding the digitalisation of channels and data management, highlights included the increase in features for customer interaction and self-management via mobile apps and, in Spain, the transformation of the online channel and improvement in the customisation of video services (My TV, Recommendations...). In 2016, data storage capacity has also increased fivefold to 27 PBytes, underpinned by the construction of Big Data platforms (Spain, Peru, Chile, Colombia, Central America and Uruguay) and the scaling of existing ones.

Finally, the simplification of traditional systems continues, with the reduction at the end of 2016 of 2.5% of servers, 9 Data Centers and 256 applications, and an increase in virtualisation (+2.0 percentage points). This has all contributed to improving service levels, with an average of 22% fewer critical incidents than the previous year.

 

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January - December 2016

 

 

 

TELEFÓNICA

ACCESSES

Unaudited figures (thousands)

 

     2015      2016         
     March      June      September      December      March      June      September      December      % Chg  

Final Clients Accesses

     337,505.0        348,093.8        346,226.8        341,475.6        341,262.7        341,922.3        343,932.9        344,671.1        0.9  

Fixed telephony accesses (1)

     36,451.9        40,400.0        40,218.1        39,734.9        39,606.5        39,262.1        38,914.0        38,280.1        (3.7

Internet and data accesses

     18,215.6        21,249.6        21,430.9        21,365.3        21,507.7        21,641.4        21,738.4        21,652.1        1.3  

Broadband

     17,724.6        20,775.2        20,966.8        20,971.3        21,097.2        21,195.9        21,266.5        21,194.9        1.1  

FTTx/Cable

     2,878.7        6,386.4        6,935.1        7,393.1        7,915.1        8,362.0        8,705.1        9,162.9        23.9  

Mobile accesses

     277,371.0        278,414.0        276,423.5        272,103.9        271,783.2        272,596.8        274,883.7        276,450.0        1.6  

Prepay

     177,579.8        177,429.1        173,699.9        167,845.1        166,005.2        165,619.6        165,912.1        165,663.2        (1.3

Contract

     99,791.2        100,984.8        102,723.5        104,258.8        105,778.0        106,977.2        108,971.6        110,786.8        6.3  

M2M

     10,230.1        10,681.6        11,050.1        11,526.3        12,583.9        12,988.2        13,591.7        14,002.0        21.5  

Pay TV

     5,466.5        8,030.3        8,154.3        8,271.6        8,365.4        8,422.0        8,396.7        8,289.0        0.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Wholesale Accesses

     6,475.7        6,401.0        6,271.7        6,062.8        5,826.7        5,591.7        5,480.7        5,300.9        (12.6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Accesses

     343,980.7        354,494.8        352,498.5        347,538.4        347,089.4        347,514.0        349,413.5        349,972.1        0.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Notes:

 

   

GVT and DTS accesses are consolidated from 1 May 2015.

 

   

Telefónica UK accesses are included since the first quarter of 2015 as it has been reclassified back into full consolidation.

 

(1)

Includes fixed wireless and VoIP accesses.

TELEFÓNICA

MOBILE ACCESSES

Unaudited figures (thousands)

 

     2015     2016        
     March     June     September     December     March     June     September     December     % Chg  

Prepay percentage (%)

     64.0     63.7     62.8     61.7     61.1     60.8     60.4     59.9     (1.8 p.p.

Contract percentage (%)

     36.0     36.3     37.2     38.3     38.9     39.2     39.6     40.1     1.8 p.p.  

Smartphones (‘000)

     102,215.8       110,156.4       120,003.6       126,178.9       128,326.0       130,058.4       144,588.9       147,161.8       16.6  

Prepay

     49,712.4       54,510.2       59,961.6       62,823.1       64,140.1       64,957.4       73,339.7       70,921.3       12.9  

Contract

     52,503.4       55,646.2       60,041.9       63,355.8       64,185.9       65,101.0       71,249.2       76,240.5       20.3  

Smartphone penetration (%)

     39.2     42.1     46.3     49.5     50.6     51.1     56.4     57.1     7.6 p.p.  

Prepay

     28.2     31.0     34.8     37.7     38.9     39.5     44.5     43.1     5.4 p.p.  

Contract

     62.1     65.2     69.1     71.9     72.2     72.3     77.7     81.8     9.9 p.p.  

LTE (‘000)

     18,965.4       24,341.5       30,209.6       37,375.0       43,870.2       50,077.3       57,342.4       66,295.7       77.4  

LTE penetration (%)

     7.1     9.1     11.4     15.7     16.9     19.3     22.1     25.3     9.6 p.p.  

Notes:

 

   

GVT and DTS accesses are consolidated from 1 May 2015.

 

   

Telefónica UK accesses are included since the first quarter of 2015 as it has been reclassified back into full consolidation.

 

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TELEFÓNICA

CONSOLIDATED INCOME STATEMENT

Unaudited figures (Euros in millions)

 

    January - December     % Chg     October - December     % Chg  
    2016     2015     Reported     Organic     2016     2015     Reported     Organic  

Revenues

    52,036       54,916       (5.2     1.3       13,721       13,862       (1.0     2.7  

Internal exp. capitalized in fixed assets

    867       946       (8.3     (5.9     231       277       (16.8     (14.4

Operating expenses

    (38,043     (43,075     (11.7     (0.7     (10,852     (13,697     (20.8     (2.3

Supplies

    (15,242     (16,547     (7.9     (3.1     (4,134     (4,334     (4.6     (0.7

Personnel expenses

    (8,098     (10,349     (21.8     1.9       (2,958     (4,955     (40.3     (0.8

Other operating expenses

    (14,703     (16,179     (9.1     0.5       (3,760     (4,408     (14.7     (4.8

Other net income (expense)

    186       270       (31.0     (8.8     39       225       (82.5     (48.2

Gain (loss) on sale of fixed assets

    296       279       6.1       (57.3     266       159       67.7       (68.0

Impairment of goodwill and other assets

    (224     (106     112.2       n.m.       (219     (105     108.8       n.m.  

Operating income before D&A (OIBDA) Underlying

    16,519       16,851       (2.0       4,464       4,210       6.0    

Operating income before D&A (OIBDA)

    15,118       13,229       14.3       4.7       3,187       721       n.m.       9.4  

OIBDA Margin

    29.1     24.1     5.0 p.p.       1.0 p.p.       23.2     5.2     18.0 p.p.       2.0 p.p.  

Depreciation and amortization

    (9,649     (9,704     (0.6     2.0       (2,518     (2,472     1.8       (2.0

Operating income (OI)

    5,469       3,525       55.2       8.3       669       (1,751     c.s.       25.3  

Share of profit (loss) of investments accounted for by the equity method

    (5     (10     (54.3       (2     (1     n.m.    

Net financial income (expense)

    (2,219     (2,609     (14.9       (369     (687     (46.3  

Profit before taxes

    3,245       906       n.m.         298       (2,438     c.s.    

Corporate income tax

    (846     (155     n.m.         (105     297       c.s.    

Profit for the period

    2,399       751       n.m.         193       (2,142     c.s.    

Non-controlling interests

    (30     (135     (77.9       (49     (95     (48.6  

Net Income

    2,369       616       n.m.         145       (2,236     c.s.    

Weighted average number of ordinary shares outstanding during the period (millions)

    5,061       5,071       (0.2       5,053       5,118       (1.3  

Basic earnings per share (euros)

    0.42       0.07       n.m.         0.01       (0.45     c.s.    

Basic earnings per share (euros) Underlying

    0.75       0.71       5.1         0.23       0.09       165.7    

Notes:

 

   

Since the second quarter of 2016 Telefónica’s operations in the United Kingdom are no longer reported as discontinued operations and all its assets and liabilities have ceased to be reported as “held for sale”, and have been reclassified back into full consolidation, in compliance with International Financial Reporting Standards (IFRS). For comparative purposes, the results of Grupo Telefónica of 2015 and the first quarter of 2016 are reported following the 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 2015 and 2016, have 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.

 

   

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.

 

   

2015 and 2016 reported figures include hyperinflationary adjustments in Venezuela in both years.

 

   

Group consolidated results consolidate GVT and DTS’ results since 1 May 2015.

 

   

Telefé has been deconsolidated from the Group consolidated results since 1 November 2016.

TELEFÓNICA

CONSOLIDATED REVENUE BREAKDOWN

Unaudited figures (Euros in millions)

 

     January - December      % Chg     October - December      % Chg  
     2016      2015      Reported     Organic     2016      2015      Reported     Organic  

Revenues

     52,036        54,916        (5.2     1.3       13,721        13,862        (1.0     2.7  

Voice & access

     22,214        26,160        (15.1     (7.9     5,557        6,156        (9.7     (6.7

Broadband Connectivity

     18,081        16,932        6.8       16.1       4,789        4,369        9.6       15.6  

Services over Connectivity (SoC)

     6,267        5,397        16.1       7.7       1,660        1,551        7.0       4.8  

Others

     5,475        6,427        (14.8     (7.1     1,714        1,786        (4.0     1.8  

 

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LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA

GUIDANCE 2016

 

         

Operative 2016 Guidance

   2016

2015 Base

          

Jan-Dec

46,757

  

Revenues (% Chg YoY)

   Growth > 4%    2.6%

31.5%

  

OIBDA margin (Chg YoY)

   Stabilising vs. 2015    0.9 p.p.

16.8%

  

CapEx / Sales

   Around 17%    17.0%

 

   

Guidance criteria 2016: Assumes constant exchange rates as of 2015 (average FX in 2015) and maintaining current company perimeter. Excludes T. Venezuela’s and O2 UK’s results. In addition OIBDA excludes write-offs, capital gains/losses from companies’ disposals, towers sales, material non-recurring impacts and restructuring charges. CapEx also excludes investment in spectrum.

2015 adjusted base excludes:

 

   

OIBDA excludes additionally tower sales, the provision for restructuring charges, the provision to optimize the distribution network in Spain, the provision for Telefónica Foundation, impairments and the final settlement agreement related to the acquisition of E-Plus.

 

   

CapEx excludes additionally spectrum acquisition.

 

   

2015 adjusted base includes GVT’s results in T. Brasil, along with DTS’ results in T. España, since May 2015.

 

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LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA

REPORTED VS. ORGANIC

Unaudited figures (Euros in millions)

 

     January - December     %  
     2016
Reported
    2016
Organic
    2015
Organic
    Organic
Change
y-o-y
     Reported
Change
y-o-y
 

Revenues

     52,036       56,292       55,581       1.3        (5.2

OIBDA

     15,118       17,729       16,937       4.7        14.3  

OIBDA margin

     29.1     31.5     30.5     1.0 p.p.        5.0 p.p.  

Operating Income (OI)

     5,469       7,729       7,135       8.3        55.2  

CapEx

     8,928       9,378       9,030       3.9        (14.7

OpCF (OIBDA-CapEx)

     6,190       8,351       7,907       5.6        123.6  

 

     2016      2015  

Reported revenues

     52,036        54,916  

Forex impact

     4,401     

Hyperinflation in Venezuela

     (144      (119

Changes in the consolidation perimeter

        784  
  

 

 

    

 

 

 

Organic revenues

     56,292        55,581  
  

 

 

    

 

 

 

Reported OIBDA

     15,118        13,229  

Forex impact

     1,200     

Hyperinflation in Venezuela

     (25      8  

Tower sales

     (1      (65

Changes in the consolidation perimeter

        168  

Final settlement agreement related to the acquisition of E-Plus

        (102

Commitments relating to the Telefónica Foundation

        325  

Impairments

     215        128  

Distribution channel reorganisation plan

     18        30  

Restructuring charges

     1,416        3,217  

Capital gains/losses on sale of companies

     (212   
  

 

 

    

 

 

 

Organic OIBDA

     17,729        16,937  
  

 

 

    

 

 

 

Reported CapEx

     8,928        10,461  

Forex impact

     835     

Hyperinflation in Venezuela

     (21      (8

Spectrum acquisition

     (364      (1,585

Changes in the consolidation perimeter

        162  
  

 

 

    

 

 

 

Organic CapEx

     9,378        9,030  
  

 

 

    

 

 

 

Notes:

 

   

The breakdown of the effects for the reconciliation of reported vs. organic 2016 excludes the impacts of the forex and therefore it assumes average constant exchange rates as of December 2015. Forex impact on those effects is totally included under “Forex impact” epigraph.

 

   

Organic criteria: Assumes constant exchange rates as of 2015 (average FX in 2015). Excludes the impact of hyperinflationary adjustments in Venezuela in both years 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. CapEx also excludes investment in spectrum.

 

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LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA

REPORTED VS. ORGANIC

Unaudited figures (Euros in millions)

 

     October - December     %  
     2016
Reported
    2016
Organic
    2015
Organic
    Organic
Change
y-o-y
     Reported
Change
y-o-y
 

Revenues

     13,721       14,082       13,705       2.7        (1.0

OIBDA

     3,187       4,576       4,182       9.4        n.s.  

OIBDA margin

     23.2     32.5     30.5     2.0 p.p.        18.0 p.p.  

Operating Income (OI)

     669       2,191       1,748       25.3        c.s.  

CapEx

     2,912       3,005       2,692       11.6        7.5  

OpCF (OIBDA-CapEx)

     275       1,570       1,490       5.4        c.s.  

 

     2016      2015  

Reported revenues

     13,721        13,862  

Forex impact

     480     

Hyperinflation in Venezuela

     (119      (88

Changes in the consolidation perimeter

        (70
  

 

 

    

 

 

 

Organic revenues

     14,082        13,705  
  

 

 

    

 

 

 

Reported OIBDA

     3,187        721  

Forex impact

     110     

Hyperinflation in Venezuela

     (29      (13

Tower sales

        (18

Changes in the consolidation perimeter

        (15

Final settlement agreement related to the acquisition of E-Plus

        (102

Commitments relating to the Telefónica Foundation

        325  

Impairments

     215        128  

Distribution channel reorganisation plan

     18        30  

Restructuring charges

     1,303        3,127  

Capital gains/losses on sale of companies

     (228   
  

 

 

    

 

 

 

Organic OIBDA

     4,576        4,182  
  

 

 

    

 

 

 

Reported CapEx

     2,912        2,708  

Forex impact

     109     

Hyperinflation in Venezuela

     (20      (8

Spectrum acquisition

     4        2  

Changes in the consolidation perimeter

        (10
  

 

 

    

 

 

 

Organic CapEx

     3,005        2,692  
  

 

 

    

 

 

 

Notes:

 

   

The breakdown of the effects for the reconciliation of reported vs. organic 2016 excludes the impacts of the forex and therefore it assumes average constant exchange rates as of December 2015. Forex impact on those effects is totally included under “Forex impact” epigraph.

 

   

Organic criteria: Assumes constant exchange rates as of 2015 (average FX in 2015) 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. CapEx also excludes investment in spectrum.

 

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LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA

REPORTED VS. UNDERLYING

Unaudited figures (Euros in millions)

 

     January - December      %  
     2016
Reported
     2016
Underlying
     2015
Underlying
     Underlying
change
y-o-y
    Reported
change
y-o-y
 

OIBDA

     15,118        16,519        16,851        (2.0     14.3  

Net Income

     2,369        4,038        3,855        4.8       n.m.  

Basic earnings per share (euros)

     0.42        0.75        0.71        5.1       n.m.  

 

     2016      2015  

Reported OIBDA

     15,118        13,229  

Tower sales

     (1      (65

Final settlement agreement related to the acquisition of E-Plus

        (102

Commitments relating to the Telefónica Foundation

        325  

Impairments

     215        128  

Distribution channel reorganisation plan

     18        30  

Restructuring charges provision

     1,380        3,217  

Capital gains/losses on sale of companies

     (212   

VEF change to SIMADI

        90  
  

 

 

    

 

 

 

OIBDA Underlying

     16,519        16,851  
  

 

 

    

 

 

 

Reported Net Income

     2,369        616  

Tower sales

        (47

Final settlement agreement related to the acquisition of E-Plus

        (64

Commitments relating to the Telefónica Foundation

        195  

Impairments

     251        122  

Distribution channel reorganisation plan

     14        22  

Restructuring charges

     993        2,400  

Capital gains/losses on sale of companies (controlled & non controlled)

     (36      (285

VEF change to SIMADI

        364  

PPAs

     447        532  
  

 

 

    

 

 

 

Underlying Net Income

     4,038        3,855  
  

 

 

    

 

 

 

Notes:

 

   

Underlying criteria: Reported figures excluding the impact of write-downs, capital gains/losses from companies’ disposals, tower sales, material non-recurring impacts and restructuring costs, as well as depreciation and amortisation charges arising from purchase price allocation processes.

 

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January - December 2016

 

 

 

TELEFÓNICA

REPORTED VS. UNDERLYING

Unaudited figures (Euros in millions)

 

     October - December      %  
     2016
Reported
     2016
Underlying
     2015
Underlying
     Underlying
change
y-o-y
     Reported
change
y-o-y
 

OIBDA

     3,187        4,464        4,210        6.0        n.m.  

Net Income

     145        1,233        503        145.4        c.s.  

Basic earnings per share (euros)

     0.01        0.23        0.09        165.7        c.s.  

 

     2016      2015  

Reported OIBDA

     3,187        721  

Tower sales

     (0      (18

Final settlement agreement related to the acquisition of E-Plus

        (102

Commitments relating to the Telefónica Foundation

        325  

Impairments

     215        128  

Distribution channel reorganisation plan

     18        30  

Restructuring charges provision

     1,272        3,127  

Capital gains/losses on sale of companies

     (228   
  

 

 

    

 

 

 

OIBDA Underlying

     4,464        4,210  
  

 

 

    

 

 

 

Reported Net Income

     145        (2,236

Tower sales

     (0      (12

Final settlement agreement related to the acquisition of E-Plus

        (64

Commitments relating to the Telefónica Foundation

        195  

Impairments

     215        122  

Distribution channel reorganisation plan

     14        22  

Restructuring charges

     937        2,343  

Capital gains/losses on sale of companies (controlled & non controlled)

     (171   

PPAs

     94        134  
  

 

 

    

 

 

 

Underlying Net Income

     1,233        503  
  

 

 

    

 

 

 

Notes:

 

   

Underlying criteria: Reported figures excluding the impact of write-downs, capital gains/losses from companies’ disposals, tower sales, material non-recurring impacts and restructuring costs, as well as depreciation and amortisation charges arising from purchase price allocation processes.

 

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January - December 2016

 

 

 

TELEFÓNICA

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Unaudited figures (Euros in millions)

 

     December 2016      December 2015      % Chg  

Non-current assets

     103,667        101,614        2.0  

Intangible assets

     20,518        21,149        (3.0

Goodwill

     28,686        27,395        4.7  

Property, plant and equipment and Investment properties

     36,393        33,910        7.3  

Investments accounted for by the equity method

     76        80        (5.3

Non-current financial assets

     9,765        10,405        (6.2

Deferred tax assets

     8,229        8,675        (5.1

Current assets

     19,974        18,715        6.7  

Inventories

     1,055        1,456        (27.5

Trade and other receivables

     10,675        10,226        4.4  

Current financial assets

     2,954        3,053        (3.2

Tax receivables

     1,533        1,341        14.3  

Cash and cash equivalents

     3,736        2,615        42.9  

Non-current assets and disposal groups classified as held for sale

     21        24        (12.3

Total Assets = Total Equity and Liabilities

     123,641        120,329        2.8  

Equity

     28,385        25,436        11.6  

Equity attributable to equity holders of the parent and other holders of equity instruments

     18,157        15,771        15.1  

Non-controlling interests

     10,228        9,665        5.8  

Non-current liabilities

     59,805        60,509        (1.2

Non-current financial liabilities

     45,612        47,117        (3.2

Non-current trade and other payables

     1,925        2,388        (19.4

Deferred tax liabilities

     2,395        2,550        (6.1

Non-current provisions

     9,873        8,454        16.8  

Current liabilities

     35,451        34,384        3.1  

Current financial liabilities

     14,749        12,970        13.7  

Current trade and other payables

     16,150        17,134        (5.7

Current tax payables

     2,332        2,241        4.1  

Current provisions

     2,220        2,022        9.8  

Liabilities associated with non-current assets and disposals groups held for sale

     —          17        —    

Financial Data

        

Net Financial debt (1)

     48,595        49,161        (1.2

Notes:

 

(1)

418 million euros included as of Dec 2016 associated to the “O2 Refresh” portfolio in UK, which generated financial interests. Net financial debt for the comparative periods has been restated with the same criteria.

 

   

Since the second quarter of 2016 Telefónica’s operations in the United Kingdom are no longer be reported as discontinued operations within Telefónica Group and all its assets and liabilities have ceased to be reported as “held for sale”, and have been reclassified back into full consolidation within Telefónica Group financial statements, in compliance with International Financial Reporting Standards (IFRS). For comparative purposes, the results of Grupo Telefónica of 2015 and the first quarter of 2016 are reported following the same criteria.

 

   

2015 and 2016 reported figures include the hyperinflationary adjustments in Venezuela in both years.

 

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January - December 2016

 

 

 

TELEFÓNICA

FREE CASH FLOW AND CHANGE IN DEBT

Unaudited figures (Euros in millions)

 

          January - December  
          2016      2015      % Chg  

I

   Cash flow from operations      16,130        16,757        (3.7

II

   Net interest payment (1)      (2,143      (2,445   

III

   Payment for income tax      (649      (689   

A=I+II+III

   Net cash provided by operating activities      13,338        13,623        (2.1

B

   Net payment for investment in fixed and intangible assets      (9,195      (10,293   
  

     Spectrum (2)

     (349      (1,309   

C=A+B

   Net free cash flow after CapEx      4,143        3,330        24.4  

D

   Net Cash received from sale of Real Estate      8        36     

E

   Net payment for financial investment      927        (1,016   

F

   Net payment for operations with minority shareholders and treasury     stock (3)      (2,899      (1,303   

G=C+D+E+F

   Free cash flow after dividends      2,178        1,047        108.1  

H

   Effects of exchange rate changes on net financial debt      (91      (611   

I

   Effects on net financial debt of changes in consolid. and others      1,703        5,731     

J

   Net financial debt at beginning of period      49,161        45,087     

K=J-G+H+I

   Net financial debt at end of period      48,595        49,161        (1.2

TELEFÓNICA

RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEX FROM CONTINUING OPERATIONS

Unaudited figures (Euros in millions)

 

     January - December  
     2016      2015      % Chg  

OIBDA

     15,118        13,229        14.3  

- CapEx accrued during the period

     (8,928      (10,461   

- Payments related to cancellation of commitments

     (738      (721   

- Net interest payment

     (2,143      (2,445   

- Payment for tax

     (649      (689   

- Gain (loss) on sale of fixed assets and impairment of goodwill and other assets

     16        (173   

- Investment In working capital and other deferred income and expenses (4)

     1,467        4,590     

= Net Free Cash Flow after CapEx

     4,143        3,330        24.4  

+ Payments related to cancellation of commitments

     738        721     

- Dividends paid to minority shareholders

     (511      (537   

= Free Cash Flow

     4,370        3,514        24.4  

Weighted average number of ordinary shares outstanding during the period (millions)

     5,061        5,071     

= Free Cash Flow per share (euros)

     0.86        0.69        24.6  

Notes:

 

   

Since the second quarter of 2016 Telefónica’s operations in the United Kingdom are no longer reported as discontinued operations within Telefónica Group and all its assets and liabilities have ceased to be reported as “held for sale”, and have been reclassified back into full consolidation within Telefónica Group financial statements, in compliance with International Financial Reporting Standards (IFRS). For comparative purposes, the results of Grupo Telefónica of 2015 and the first quarter of 2016 are reported following the same criteria.

 

   

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.

 

   

2015 and 2016 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. 2016 includes the following spectrum payments: 283 in Peru, 48 in Brazil, 5 in UK, 4 in Spain, 5 in Colombia and 4 in Germany. In 2015: 978 in Germany, 196 in Argentina, 68 in Ecuador, 49 in Spain, 6 in Chile, 8 in Colombia, 2 in UK and 2 in Nicaragua.

(3)

Dividends paid by Telefónica S.A., operations with treasury stock, issuance of shares, issuance and coupons 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.

(4)

Other deferred expenses include 3,019 million euros in 2015 and 1,084 million euros in 2016 related to commitments associated with long-term restructuring plans, mainly in Spain.

 

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January - December 2016

 

 

 

TELEFÓNICA

NET FINANCIAL DEBT PLUS COMMITMENTS

Unaudited figures (Euros in millions)

 

     December 2016      December 2015  

Non-current financial liabilities

     45,612        47,117  

Current financial liabilities

     14,749        12,970  

Gross Financial Debt

     60,361        60,087  

Cash and cash equivalents

     (3,736      (2,615

Current financial assets

     (2,954      (3,053

Positive mark-to-market value of long-term derivative instruments

     (5,048      (5,315

Other non-current liabilities included in “Trade and other payables”

     749        1,073  

Other current liabilities included in “Trade and other payables”

     449        462  

Other assets included in “Non-current financial assets”

     (524      (691

Other assets included in “Current trade and other payables”

     (702      (787

Net Financial Debt (1)

     48,595        49,161  

Gross commitments related to employee benefits

     6,839        6,070  

Value of associated Long-term assets

     (749      (736

Tax benefits

     (1,569      (1,666

Net commitments related to employee benefits

     4,521        3,668  

Net financial debt plus commitments

     53,116        52,829  

Net Financial Debt / OIBDA

     2,95x        2,87x  

Notes:

 

(1)

Net financial debt as of Dec 2016 includes a positive value of the derivatives portfolio for a net amount of 3,401 million euros, of which 3,519 million euros included as financial liabilities and 6,920 million euros included as financial assets.

 

   

Financial assets includes 418 million euros as of Dec 2016 associated to the “O2 Refresh” portfolio in UK, which generated financial interests. Net financial debt for the comparative periods has been restated with the same criteria.

TELEFÓNICA

EXCHANGES RATES APPLIED

 

     P&L and CapEx (1)      Statement of Financial Position (2)  

Currency units per Euro

   Jan - Dec 2016      Jan - Dec 2015      December 2016      December 2015  

USA (US Dollar)

     1.106        1.109        1.054        1.089  

United Kingdom (Sterling)

     0.817        0.726        0.855        0.734  

Argentina (Argentine Peso)

     16.314        10.220        16.706        14.197  

Brazil (Brazilian Real)

     3.833        3.643        3.435        4.251  

Chile (Chilean Peso)

     747.496        723.914        705.622        773.150  

Colombia (Colombian Peso)

     3,369.057        3,016.491        3,162.745        3,428.826  

Costa Rica (Colon)

     609.385        599.520        591.366        593.120  

Guatemala (Quetzal)

     8.406        8.489        7.928        8.309  

Mexico (Mexican Peso)

     20.629        17.569        21.733        18.779  

Nicaragua (Cordoba)

     31.657        30.229        30.904        30.405  

Peru (Peruvian Nuevo Sol)

     3.733        3.530        3.537        3.713  

Uruguay (Uruguayan Peso)

     33.266        30.181        30.924        32.604  

Venezuela (Bolivar Fuerte) (3)

     710.227        216.310        710.227        216.310  

 

(1)

Average exchange rate for the period.

(2)

Exchange rates as of 31/12/16 and 31/12/15.

(3)

After considering Venezuela as an hyperinflationary country, P&L and CapEx from the operations in the country are to be accounted at the closing exchange rate Bolivar Fuerte/Euro. The January-December 2016 consolidated financial statements use the exchange rate of the Venezuelan bolivar set at the denominated DICOM (674 Venezuelan bolivars fuertes per dollar).

 

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January - December 2016

 

 

 

NET FINANCIAL DEBT STRUCTURE BY CURRENCY

Unaudited figures

 

     December 2016  
     EUR     LATAM     GBP     USD  

Net financial debt structure by currency

     80     13     6     1

TOTAL FINANCIAL LIABILITIES BREAKDOWN

Unaudited figures

 

     December 2016  
     Bonds and
commercial
paper
    Debt with
financial
institutions
    Other financial debt (including
governments) and net
derivatives
 

Total financial liabilities

     83     17     0

CREDIT RATINGS

 

     Long-Term      Short-Term      Perspective      Date of last rating change  

Moody’s1

     Baa3        P-3        Stable        11/7/2016  

Fitch1

     BBB        F-3        Stable        9/5/2016  

S&P1

     BBB        A-2        Stable        5/17/2016  

 

(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

 

     Issue date      Amount (m)      Currency     

Issuer

   Coupon     Maturity date      ISIN code  

DEBENTURES AND BONDS

                   

Cash-settled equity-linked bonds related to Telefónica, S.A. shares

     9-Mar-16        600        EUR      Telefónica Participaciones, S.A.U.      0.000%       9-Mar-21        XS1377251423  

Eurobond

     13-Apr-16        1,400        EUR      Telefónica Emisiones, S.A.U.      0.750%       13-Apr-22        XS1394777665  

Eurobond

     13-Apr-16        1,350        EUR      Telefónica Emisiones, S.A.U.      1.460%       13-Apr-26        XS1394764689  

Bond

     28-Sep-16        94,410        CLP      Telefónica Móviles Chile      4.900%       13-Sep-21        BTMOV-K (1)  

Eurobond

     17-Oct-16        1,250        EUR      Telefónica Emisiones, S.A.U.      0.318%       17-Oct-20        XS1505554698  

Eurobond

     17-Oct-16        750        EUR      Telefónica Emisiones, S.A.U.      1.930%       17-Oct-31        XS1505554771  

Eurobond

     28-Dec-16        150        EUR      Telefónica Emisiones, S.A.U.      4.000%       28-Dec-51        XS1542177545  

Eurobond

     17-Jan-17        1,250        EUR      Telefónica Emisiones, S.A.U.      1.528%       17-Jan-25        XS1550951211  

Eurobond

     17-Jan-17        500        EUR      Telefónica Emisiones, S.A.U.      2.318%       17-Oct-28        XS1550951138  

Bond

     19-Jan-17        48,000        CLP      Telefónica Chile      4.900%       5-Jul-23        BCTCH-T (1)  

Eurobond

     25-Jan-17        150        EUR      Telefónica Emisiones, S.A.U.     
3M Euribor
+0,40%
 
 
    25-Jan-19        XS1555704078  

Debenture

     8-Feb-17        2,000        BRL      Telefonica Brasil S.A.     
108,25%
CDI
 
 
    8-Feb-22        BRVIVTDBS069  
     Issue date      Amount (m)      Currency     

Issuer

   Coupon     First Call date      ISIN code  

UNDATED DEEPLY SUBORDINATED RESET RATE SECURITIES

                   

Hybrid bond

     15-Sep-16        1,000        EUR      Telefónica Europe B.V.      3.750%       15-Mar-22        XS1490960942  

 

     Signing
date
   Amount    Currency   

Borrower

   Maturity date

INTEREST-BEARING DEBT

              

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

Loan on supplies

   8-Mar-16    300    EUR    Telefónica, S.A.    8-Mar-21

Syndicated facility

   22-Mar-16    750    EUR    Telefónica Germany GmbH & Co. OHG    22-Mar-21

Club deal loan

   15-Apr-16    150    USD    Telefónica Móviles Chile    15-Apr-21

EIB Financing

   13-Jun-16    450    EUR    Telefónica Germany GmbH & Co. OHG    13-Jun-25 (2)

Loan on supplies

   28-Nov-16    1,500    EUR    Telefonica Europe B.V.    28-Nov-24

 

1.

Santiago exchange code

2.

Maximum maturity date

 

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January - December 2016

 

 

 

02

TELEFÓNICA ESPAÑA

(year-on-year changes in organic terms)

Telefónica España results showed a significant improvement in 2016 and reflected the recovery of a profitable and sustainable growth profile, underpinned by a leading differential infrastructure in Europe, enabling it to increase the penetration of high value services tailored to increasing customer needs.

In 2016, service revenues returned to growth (+1.1% year-on-year) and at the same time, cost management and savings obtained from simplification have translated into year-on-year growth of OIBDA (+2.2%) and cash flow generation (+1.8%), excluding impacts.

Furthermore, in the last quarter of 2016, there was a sequential improvement in the year-on-year growth of service revenues (+1.9%; +1.2 percentage points vs. the previous quarter) and OIBDA (+2.6%; +0.8 percentage points vs. the third quarter).

The investments, focused on strengthening a differential competitive position based on quality, continued to drive commercial activity and customers’ migration towards higher-value products. Thus, annual net additions of mobile contract grew by 82% vs. 2015, in broadband by 39% (UBB penetration +8 percentage points to 34%) and in fixed telephony net losses decreased by 35%.

It is important to note that the results of the fourth quarter of 2016 are impacted by the extraordinary provision of 856 million euros, booked in the quarter and associated mainly with the extension of the voluntary employment suspension plan to 2018, which will generate a positive impact on cash flow generation from 2018 and an annual run-rate of savings in direct expenses of aproximately 100 million euros from 2019. These savings are in addition to those derived from the 2016-2017 plans.

Meanwhile, within the “More for More” strategy, the Company continues to evolve the convergent offer and adapt it to incremental customer demand, highlights subsequent year-end were: i) the increase in data included of all mobile lines included in the “Fusión+2” and “Fusión+4” bundles from 3GB to 8GB; ii) the increase in data of mobile lines included in the basic “Fusión+” bundle from 3GB to 8GB and the inclusion of a second mobile line free of charge with calls at 0 cents and 200MB for new customers; iii) the launch of the new “Fusión+2 Fiction” bundle offering all premium movie and series content, in addition to the 8 “La Liga” matches and the Champions League in the 300 Mb option. All these changes have implied changes to the associated tariffs.

The mobile only portfolio has also been renewed increasing the mobile data allowance (x2 for the entry-level tariff, and x4 for the high value tariffs).

“Movistar Fusión” consumer reached 4.3 million customers (+5% year-on-year) and 2.5 million additional mobile lines (+26% year-on-year), and recorded quarterly net additions of 47 thousand, which continue to drive the penetration of convergent “Fusión” customers over total consumer customers: 83% in broadband (+3 percentage points year-on-year), 80% in TV (+10 percentage points year-on-year) and 73% in mobile contract (+6 percentage points year-on-year).

Additionally, the commitment to quality has driven penetration of higher value services in the convergent base. Thus, 37% of “Fusión” customers had UBB (+8 percentage points year-on-year) and 68% had pay TV (+5 percentage points year-on-year). Meanwhile, the percentage of gross additions of “Fusión” who are completely new customers continues to improve (58% in the quarter vs.; +6 percentage points year-on-year).

 

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January - December 2016

 

 

 

The quarterly ARPU of “Fusión” stood at 81.6 euros, 12% higher year-on-year, driven by the portfolio renewal and tariffs update, and by the continued improvement of the value mix of customers.

Churn continued to reflect the higher customer loyalty with multiple bundled services and stood at 1.4% in the quarter (+0.2 percentage points year-on-year).

Retail fixed telephony accesses (-3% year-on-year) recorded quarterly net losses of 63 thousand accesses and 285 thousand in the year, representing an improvement of 35% vs. 2015, while churn remained stable year-on-year.

Retail broadband accesses grew by 2% year-on-year, with quarterly net additions of 22 thousand (105 thousand in 2016) and relatively stable levels of churn (1.5% in the quarter; +0.1 percentage points year-on-year).

Fibre accesses reached 3.0 million, 35% more than in December 2015, with an acceleration in quarterly net additions to 168 thousand accesses, and accounted for almost half of the broadband base (49%; +12 percentage points year-on-year).

The changes implemented in the “Movistar Fusión+” portfolio continue to promote the trading of UBB. Thus, 79% of new fibre customers in the quarter chose 100 to 300 Mb speed (+23 percentage points more than in the same quarter of 2015), increasing their weight in the total fibre base to 68%. Fibre coverage at year end reached 17.1 million premises, 2.7 million more than in 2015.

Fibre customers’ monthly data consumption maintained solid growth of 15% year-on-year in the quarter and more than doubled that of ADSL customers, reflecting higher video usage.

Pay TV accesses remained stable year-on-year at 3.7 million, including 613 thousand satellite accesses. The quarterly net loss (-54 thousand) was the result of the satellite customers loss (-65 thousand) not offset by the net additions of IP TV customers (+11 thousand). On the other hand, churn stood at 1.9% (-0.4 percentage points vs. the fourth quarter of 2015).

Mobile accesses remained practically stable vs. 2015 (-0.1%) and recorded positive net additions (39 thousand) for the second consecutive quarter, due to the contract segment (176 thousand new lines) underpinned by new convergent multi-line products launched in July and the Christmas promotion.

Excluding M2M, contract accesses increased by 139 thousand in the quarter and contract churn stood at 1.4% (+0.1 percentage points year-on-year).

At the same time, the strong pace of LTE network deployment increased population coverage to 96% (+10 percentage points year-on-year) applying the homogeneous criteria used by other operators in the market (or 91% based on traditional criteria), and continues to drive penetration of smartphones (71%; +5 percentage points year-on-year), of LTE (40%; +19 percentage points year-on-year) and of mobile data traffic (+68% year-on-year in the quarter).

Wholesale accesses totalled 4.5 million (-10% year-on-year), with quarterly net losses of 64 thousand accesses, which have sloweddown progressively (-104 thousand in the previous quarter) due to the lower decline in ULL accesses and the higher growth of fibre NEBA accesses (325 thousand, more than doubling year-on-year).

Operating revenues in the quarter (3,216 million euros) and in the year (12,713 million euros) remained stable year-on-year (-0.1% in both periods).

Service revenues accelerated their year-on-year growth to 1.9% in the fourth quarter (+1.2 percentage points vs. the previous quarter) and grew by 1.1% in 2016.

Consumer revenues (1,631 million euros in the quarter) grew by 3.5% year-on-year accelerating their growth vs. the previous quarter (+2.3 percentage points) due to the lower rate of decline of non-convergent revenues and the continued growth of “Fusión” revenues. Consumer revenues in the full year increased by 1.8% year-on-year.

 

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January - December 2016

 

 

 

Corporate revenues (881 million euros in October-December) increased by 1.4% year-on-year and changed their trend vs. the previous quarter (-4.9%), reflecting growth of IT revenues and a lesser decline in communications revenues. Throughout the year, business revenues showed a trend of stabilisation, underpinned by the renewal of the commercial proposition, with comprehensive solutions (connectivity, IT and digital services), which are key to the digitalisation of the organisations. In 2016 corporate revenues decreased by 1.4% year-on-year.

Other revenues (563 million euros) decreased by 1.8% vs. the fourth quarter of 2015 (+3.2% in 2016), mainly due to lower TV wholesale revenues.

Operating expenses reached 2,821 million euros in the quarter and to 8,652 million in the year, impacted by the restructuring provision of 837 million euros booked in the quarter as personnel expenses.

Thus, excluding this impact and the provision booked in the fourth quarter of 2015 for said employment suspension plan for 2016-2017, operating expenses decreased by 3.5% year-on-year in the quarter (-1.8% in the year) driven by lower commercial and personnel expenses, accelerating their rate of decline on a sequential basis mainly due to the improved performance of personnel and supplies expenses.

Supplies (899 million euros in October-December) increased by 3.7% year-on-year (+4.4% in the year) due to the higher costs of TV content. The lower year-on-year growth of these expenses vs. the previous quarter (+9.0% in July-September) was mainly explained by a higher decline in the purchase of mobile handsets which offset the impact of the higher cost of the current football season and the inclusion of the Champions League (not included in the last quarter of 2015). Net content expenses increased by 46% in the quarter (vs. +20% in the third quarter).

Personnel expenses (520 million euros in the quarter before provisions) increased their rate of decline to 10.7% year-on-year (-6.2% in the year) driven by the savings generated by the voluntary employment suspension plan initiated in 2016 (73 million euros in the quarter; 207 million in 2016). At the end of the year, the headcount of Telefónica España stood at 28,107 employees (-13% vs. December 2015).

Other operating expenses (566 million euros) accelerated their trend of decline and decreased by 7.0% year-on-year in the quarter (-5.9% in the year) mainly due to lower commercial expenses.

OIBDA in the fourth quarter after excluding factors stood at 1,306 million euros and increased 2.6% year-on-year, while the margin stood at 40.6% and expanded 1.1 percentage points year-on-year.

The abovementioned factors in the fourth quarter included: i) provisions for the employment suspension plan and optimising the distribution channel (837 million in personnel expenses and 18 million in “other net income/expenses” respectively in the fourth quarter of 2016 vs. 2,896 and 30 million in the fourth quarter of 2015); ii) capital gains from the sale of Telecomunicaciones Personalizadas, a public telephony service in penitentiary centres, (29 million in the fourth quarter of 2016) and iii) capital gains from the sale of real estate assets (33 million euros in the fourth quarter of 2016 and 22 million euros in the fourth quarter of 2015).

In 2016, OIBDA increased to 5,223 million euros excluding factors and increased 2.2% year-on-year, while the margin expanded 0.9 percentage points year-on-year to 41.1%. In addition to the aforementioned factors in the fourth quarter, these figures exclude the impact of capital gains from the sale of real estate (38 million in the third quarter of 2016 and 51 million in the first nine months of 2015), and the mobile towers (38 million euros in the first quarter 2015), as well as an asset valuation adjustment of DTS (38 million euros in the third quarter of 2015).

CapEx stood at 1,847 million euros in January-December, including 7 million euros for the purchase of spectrum in the second quarter of 2016 (+3.0% year-on-year; +11.6% in the quarter) due to the intense deployment of LTE and continued investment in fibre.

Thus, operating cash flow returned to growth in 2016 to 3,384 million euros, +1.8% excluding factors.

 

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January - December 2016

 

 

 

TELEFÓNICA ESPAÑA

CONSOLIDATED INCOME STATEMENT

Unaudited figures (Euros in millions)

 

     January - December     % Chg     October - December     % Chg  
     2016     2015     Reported     Organic     2016     2015     Reported     Organic  

Revenues

     12,713       12,402       2.5       (0.1     3,216       3,220       (0.1     (0.1

Mobile handset revenues

     497       648       (23.4     (23.4     142       202       (29.7     (29.7

Revenues ex-mobile handset revenues

     12,216       11,754       3.9       1.1       3,074       3,018       1.9       1.9  

Consumer (1)

     6,536       6,129       6.6       1.8       1,631       1,576       3.5       3.5  

Fusión

     4,095       3,368       21.6       21.6       1,053       895       17.7       17.7  

Non-Fusión

     2,441       2,761       (11.6     (20.0     578       681       (15.2     (15.2

Business

     3,423       3,473       (1.4     (1.4     881       869       1.4       1.4  

Communications

     2,708       2,799       (3.3     (3.3     675       681       (0.9     (0.9

IT

     716       674       6.2       6.2       206       187       9.7       9.7  

Other (2)

     2,257       2,152       4.8       3.2       563       573       (1.8     (1.8

Internal expenditure capitalized in fixed assets

     327       350       (6.5     (6.5     83       100       (17.5     (17.5

Operating expenses

     (8,652     (10,526     (17.8     (1.8     (2,821     (4,952     (43.0     (3.5

Supplies

     (3,375     (2,996     12.7       4.4       (899     (867     3.7       3.7  

Personnel expenses

     (2,997     (5,173     (42.1     (6.2     (1,357     (3,477     (61.0     (10.7

Other operating expenses

     (2,280     (2,356     (3.2     (5.9     (566     (608     (7.0     (7.0

Other net income (expense)

     (29     (29     0.5       c.s.       (28     (29     (4.2     c.s.  

Gain (loss) on sale of fixed assets

     111       136       (18.0     (15.3     64       27       136.7       31.5  

Impairment of goodwill and other assets

     (4     2       c.s.       c.s.       (2     4       c.s.       c.s.  

Operating income before D&A (OIBDA)

     4,467       2,336       91.2       1.4       512       (1,631     c.s.       3.4  

OIBDA Margin

     35.1     18.8     16.3 p.p.       0.6 p.p.       15.9     n.m.       n.m.       1.4 p.p.  

CapEx

     1,847       1,827       1.1       3.0       564       505       11.6       11.6  

Spectrum

     7       49       (85.0     (85.0     —         —         —         —    

OpCF (OIBDA-CapEx)

     2,621       509       n.m.       0.6       (52     (2,136     (97.6     (1.8

Notes:

 

   

The reported figures include DTS in Telefónica España’s consolidation perimeter from 1 May 2015.

 

   

OIBDA before management and brand fees.

 

   

Mobile handset revenues have been restated from 1 January 2015 including all the business of Telefónica España (previously only Telefónica Móviles España).

 

(1)

Consumer revenues include residential and SOHO revenues.

(2)

Other revenues include wholesale, subsidiaries and other revenues.

TELEFÓNICA ESPAÑA

ACCESSES

Unaudited figures (Thousands)

 

    2015     2016        
    March     June     September     December     March     June     September     December     % Chg  

Final Clients Accesses

    35,882.6       36,958.2       36,868.1       36,935.6       36,791.3       36,765.2       36,769.8       36,709.4       (0.6

Fixed telephony accesses (1)

    10,321.9       10,126.6       10,064.9       10,005.6       9,910.6       9,854.2       9,783.7       9,720.2       (2.9

Internet and data accesses

    5,972.7       5,905.1       5,947.8       6,000.0       6,012.8       6,061.6       6,076.6       6,094.5       1.6  

Broadband

    5,928.3       5,861.0       5,906.1       5,962.0       5,978.6       6,030.2       6,045.3       6,067.3       1.8  

FTTH

    1,560.3       1,720.7       1,950.5       2,223.0       2,458.3       2,675.7       2,830.7       2,998.3       34.9  

Mobile accesses

    17,448.6       17,330.7       17,272.0       17,258.5       17,140.1       17,094.4       17,198.2       17,237.7       (0.1

Prepay

    3,122.6       2,989.1       2,881.1       2,777.1       2,675.7       2,579.7       2,466.1       2,329.3       (16.1

Contract

    14,325.9       14,341.6       14,390.9       14,481.4       14,464.5       14,514.7       14,732.1       14,908.4       2.9  

M2M

    1,662.4       1,726.5       1,705.6       1,778.8       1,827.2       1,890.5       1,968.8       2,006.3       12.8  

Pay TV (2)

    2,139.5       3,595.7       3,583.4       3,671.5       3,727.8       3,755.0       3,711.4       3,657.0       (0.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Wholesale Accesses

    5,333.6       5,286.7       5,200.4       5,037.7       4,866.9       4,693.3       4,589.3       4,525.5       (10.2

Fibre

    66.5       97.9       124.4       144.7       176.6       210.3       259.7       324.9       124.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Accesses

    41,216.2       42,244.9       42,068.4       41,973.3       41,658.2       41,458.6       41,359.2       41,234.9       (1.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes fixed wireless and VoIP accesses.

(2)

From the second quarter of 2015, Pay TV accesses include DTS.

 

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January - December 2016

 

 

 

 

CONSUMER ACCESSES (Fusión + non-Fusión)

   2015      2016         

Unaudited figures (thousands)

   March      June      September      December      March      June      September      December      % Chg  

Fixed telephony accesses

     7,782.2        7,609.9        7,559.7        7,509.9        7,428.5        7,382.1        7,319.0        7,260.4        (3.3

Internet and data accesses

     5,119.0        5,049.6        5,089.0        5,135.8        5,145.4        5,186.4        5,195.5        5,207.8        1.4  

Mobile accesses

     12,240.0        12,049.3        12,001.3        11,920.1        11,759.7        11,676.5        11,691.5        11,732.3        (1.6

Prepay

     3,122.6        2,989.2        2,881.1        2,777.1        2,675.7        2,579.7        2,466.1        2,329.3        (16.1

Contract

     9,117.3        9,060.0        9,120.2        9,143.0        9,084.0        9,096.8        9,225.4        9,403.0        2.8  

Pay TV

     2,139.5        3,595.7        3,583.4        3,671.5        3,727.8        3,755.0        3,711.4        3,657.0        (0.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Consumer Accesses

     27,280.6        28,304.5        28,233.5        28,237.2        28,061.4        28,000.0        27,917.4        27,857.6        (1.3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

TOTAL MOBILE ACCESSES   2015     2016        

Unaudited figures

  March     June     September     December     March     June     September     December     % Chg  

Prepay percentage (%)

    17.9     17.2     16.7     16.1     15.6     15.1     14.3     13.5     (2.6 p.p.

Contract percentage (%)

    82.1     82.8     83.3     83.9     84.4     84.9     85.7     86.5     2.6 p.p.  

Smartphones (‘000)

    9,801.4       9,877.2       10,052.6       10,169.0       10,200.2       10,295.8       10,500.3       10,715.8       5.4  

Prepay

    365.7       351.4       348.8       383.5       366.3       390.2       379.1       342.4       (10.7

Contract

    9,435.7       9,525.8       9,703.8       9,785.5       9,833.9       9,905.6       10,121.2       10,373.4       6.0  

Smartphone penetration (%)

    62.8     64.0     65.2     66.3     67.2     68.3     69.5     70.9     4.6 p.p.  

Prepay (%)

    11.7     11.8     12.1     13.8     13.7     15.1     15.4     14.7     0.9 p.p.  

Contract (%)

    75.6     76.5     77.4     77.9     78.7     79.2     80.0     81.1     3.2 p.p.  

LTE (‘000)

    2,159.4       2,554.2       2,995.9       3,293.0       4,520.7       5,050.0       5,444.0       6,073.0       84.4  

LTE penetration (%)

    13.7     16.4     19.2     21.3     29.5     33.2     35.7     39.9     18.6 p.p.  

 

CONSUMER FUSIÓN    2015      2016         

Unaudited figures (thousands)

   March      June      September      December      March      June      September      December      % Chg  

Fusión Customers

     3,866.2        3,880.7        4,002.7        4,140.3        4,209.1        4,268.8        4,286.1        4,333.2        4.7  

Fibre 100/300

     891.8        957.1        1,064.4        1,188.1        1,267.4        1,345.9        1,491.0        1,593.5        34.1  

IPTV/Satellite

     1,926.6        2,035.7        2,339.1        2,600.2        2,768.6        2,873.6        2,914.9        2,943.1        13.2  

Mobile add-ons

     1,870.5        1,915.2        1,969.1        2,016.5        2,023.3        2,084.1        2,302.7        2,542.0        26.1  

 

CONSUMER FUSIÓN    2015     2016        
Unaudited figures    Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     % Chg  

Fusión ARPU (EUR)

     68.6       71.3       73.8       73.2       78.2       79.8       81.8       81.6       11.5  

Fusión churn

     0.9     1.4     1.1     1.1     1.3     1.1     1.3     1.4     0.2 p.p.  

 

     Jan - Mar     Jan - Jun     Jan - Sep     Jan - Dec     Jan - Mar     Jan - Jun     Jan - Sep     Jan - Dec     % Chg  

Fusión ARPU (EUR)

     68.6       70.0       71.3       71.8       78.2       79.0       79.9       80.4       12.0  

Fusión churn

     0.9     1.2     1.2     1.2     1.3     1.2     1.2     1.3     0.1 p.p.  

 

SELECTED OPERATIONAL DATA    2015      2016         
Unaudited figures    Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4      % Chg  

Total voice traffic (Million minutes)

     42,519        41,500        38,950        38,963        38,139        39,876        37,214        38,259        (1.8

Fixed voice traffic

     23,895        22,866        20,958        20,863        20,456        20,903        18,927        19,708        (5.5

Mobile voice traffic

     18,624        18,634        17,993        18,100        17,683        18,973        18,287        18,551        2.5  

Total data traffic (TB)

     1,007,617        946,695        1,075,921        1,237,898        1,333,989        1,363,624        1,442,518        1,550,009        25.2  

Fixed data traffic

     982,743        916,869        1,037,339        1,200,768        1,291,860        1,319,042        1,380,891        1,487,583        23.9  

Mobile data traffic

     24,874        29,826        38,582        37,129        42,129        44,583        61,627        62,427        68.1  
     Jan - Mar      Jan - Jun      Jan - Sep      Jan - Dec      Jan - Mar      Jan - Jun      Jan - Sep      Jan - Dec      % Chg  

Total voice traffic (Million minutes)

     42,519        84,018        122,969        161,932        38,139        78,015        115,229        153,488        (5.2

Fixed voice traffic

     23,895        46,761        67,718        88,582        20,456        41,359        60,286        79,994        (9.7

Mobile voice traffic

     18,624        37,258        55,250        73,351        17,683        36,656        54,943        73,494        0.2  

Total data traffic (TB)

     1,007,617        1,954,312        3,030,233        4,268,131        1,333,989        2,697,613        4,140,131        5,690,140        33.3  

Fixed data traffic

     982,743        1,899,612        2,936,951        4,137,720        1,291,860        2,610,901        3,991,793        5,479,375        32.4  

Mobile data traffic

     24,874        54,700        93,282        130,411        42,129        86,712        148,338        210,765        61.6  

Notes:

Since 1 January 2015:

 

   

Consumer accesses (Fusión + Non-Fusión) include accesses of services taken out by the Consumer segment (including SOHOs).

 

   

Fusión Consumer ARPU: average monthly Consumer Fusión revenue divided by average customers for the period.

 

   

Fusión Consumer customer base excludes SME’s customers.

 

   

Fusión Consumer mobile add-ons include “Vive 13” accesses associated to Fusión packages.

 

   

Voice traffic is defined as minutes per access used on the company’s network, both outbound and inbound. Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is included. Traffic volume non rounded.

 

   

Data traffic is defined as Terabytes used by the company customers, both upload and download (1TByte = 10^12 bytes). Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is also included. Traffic volume non-rounded.

 

 

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Table of Contents

LOGO

 

  

January - December 2016

 

 

 

03

TELEFÓNICA DEUTSCHLAND

(year-on-year changes in organic terms)

Telefónica Deutschland maintained operational momentum in a dynamic fourth quarter of 2016, leveraging the successful launch and encouraging customer response to its new premium portfolio “O2 Free”. Competitive pressure in non-premium segment is showing some signs of improvement, that continues in the first months of 2017.

At the same time, the Company delivered its integration milestones, generating additional savings in line with the synergy targets. In addition, Telefónica Deutschland also met its outlook for the full-year financial results.

Furthermore, the results are affected by the reduction in mobile termination rates since last 1 December (-34%; from €1.66 cents to €1.1 cents).

The contract mobile customer base stood at 20.5 million customers at the end of December (+8% year-on-year), with net additions of 336 thousand in the fourth quarter mainly driven by strong partner trading (58% of gross additions; stable from previous quarter). The prepay customer base remained broadly stable year-on-year at 23.8 million accesses, with 89 thousand net losses in the fourth quarter (+231 thousand in the third quarter) due to seasonality in the partner business.

Smartphone penetration up 5 percentage points vs. 2015 to 59% driven by the continued growth of LTE accesses which stood at 12.1 million, growing strongly (+53% year-on-year) while penetration increased 9 percentage points year-on-year to 28%. Music and video streaming continued to be a significant driver of mobile data traffic growth, which came in at +62% year-on-year in the fourth quarter (+51% in 2016).

Blended mobile ARPU performance stabilised sequentially at -3.8% year-on-year in October-December. Quarterly data ARPU up 2.8% year-on-year (+3.6% in the third quarter) underpinned by the non-SMS data ARPU (+10.8%; +11.2% in the prior quarter). Contract ARPU (-5.5% year-on-year in October-December; -4.7% in July-September) continued to reflect the strong contribution of the partner business and the resulting mix-shift from retail to wholesale as well as regulatory headwinds, especially in the second half of the year.

Retail broadband accesses stood at 2.1 million (stable year-on-year) and continued to benefit from the continued strong demand for VDSL which grew 56% year-on-year posting 74 thousand net additions in October-December (+289 thousand in January-December) and accounted for 38% of fixed broadband accesses (+14 percentage points year-on-year). On the other hand, the wholesale DSL customer base continued to fall due to the planned dismantling of the legacy infrastructure.

Revenues in the fourth quarter of 2016 reached 1,936 million euros (-6.0% year-on-year) and 7,503 million euros for the twelve month period (-4.9% year-on-year).

Mobile service revenues came to 1,349 million euros in October-December 2016, declining 2.1% vs. the same period of 2015 (-1.8% year-on-year in July-September). Excluding regulatory effects (termination and roaming), the decline was limited to 0.9%, maintaining the same trend as the prior quarter. The higher share of wholesale revenue as well as the ongoing legacy base rotation remained drivers of the year-on-year performance. For 2016, mobile service revenues came to 5,437 million euros, -1.7% year-on-year and -1.1% when excluding regulatory effects.

 

30


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

Mobile data revenues for October to December 2016 were up 4.8% year-on-year totaling 746 million euros (+5.3% in 2016), reflecting the continued growth of non-SMS data revenues (+12.9% year-on-year to 583 million euros; +13.1% in 2016). This was partly driven by a 41% year-on-year increase of average data usage amongst the O2 contract LTE customers, now at 1.7 GB per month, as well as the growing LTE customer base. As a result, the mobile data revenue share over total mobile service revenues in the quarter increased 4 percentage points year-on-year to 55%, while non-SMS data represented 78% of mobile data revenues, up +6 percentage points year-on-year.

Handset revenues continued to fall both in the quarter and in the full year (-17.6% year-on-year to 341 million euros and -18.4% year-on-year to 1,061 million euros respectively), on the back of longer handset replacement cycles and a lower demand for handsets in the market.

Fixed revenues fell 10.3% year-on-year in the fourth quarter to 238 million euros (-5.9% year-on-year for the full year period to 981 million euros), mainly driven by the lower wholesale and other fixed revenues which were lower year-on-year on the back of the planned decommissioning of the legacy ULL platform. Retail DSL revenue trends (-9.6% year-on-year in the fourth quarter; -8.1% year-on-year in 2016) saw a broadly similar year-on-year performance as in the prior quarter as a result of phasing of promotional effects on a broadly stable (+0.3% year-on-year) customer base.

Operating expenses for the quarter were 1,492 million euros (-8.7% year-on-year) and 5,844 million euros for the full year (-6.8% year-on-year) driven by the savings from integration projects and include restructuring expenses of 30 million euros and 89 million euros, respectively (7 and 73 million euros respectively in 2015) out of which 9 million are in personnel expenses and 21 million in other operating expenses in the quarter (46 and 43 million euros respectively in the year).

Supplies (674 million euros in the quarter) showed a 9.8% year-on-year decline in the quarter as a result of lower interconnection and hardware costs (-9.6% year-on-year in 2016 to 2,452 million euros).

Personnel expenses amounted to 157 million euros in the fourth quarter and fell 1.7% year-on-year (646 million in the twelve months period; -7.9% year-on-year) mainly driven by the successful execution of the employee restructuring programme.

Other operating expenses reached 661 million euros for October to December and fell 9.0% year-on-year (2,747 million euros for the full year; -3.9% year-on-year) on the back of successful synergy capture both from roll-over effects and additional savings from the integration milestones achieved in 2016. These savings were partly offset by commercial expenses and other investments related to customer and brand migration activities in the first half of 2016.

It should be noted, the positive impact of the final agreement related to the purchase price of E-Plus of 102 million euros in Other net income in the fourth quarter of 2015.

OIBDA came to 481 million euros in the fourth quarter and accelerated its year-on-year growth to +3.9% excluding impacts (+3.6% in the third quarter) leveraging on incremental synergies of approximately 25 million euros in the quarter (approximately 150 million euros in 2016).

In the period January-December 2016, OIBDA amounted to 1,794 million euros and increased 3.8% year-on-year excluding the above-mentioned restructuring costs and the positive settlement of 102 million euros and the “yourfone” effect of 15 million euros in the first quarter of 2015.

The OIBDA margin was 24.8% in the fourth quarter, up 2.5 percentage points year-on-year and 23.9% for the twelve months period, up 2.1 percentage points year-on-year organic and ex-yourfone in the first quarter of 2015.

CapEx was up 9.2% year-on-year to 360 million euros in the fourth quarter (+6.8% year-on-year to 1,108 million euros in 2016) as investments were back-end loaded in 2016 due to the intensification of the network integration efforts in the second half of the year.

Operating cash flow (OIBDA-CapEx) totalled 686 million euros and remained almost flat in 2016 (-0.2% year-on-year).

 

31


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA DEUTSCHLAND

CONSOLIDATED INCOME STATEMENT

Unaudited figures (Euros in millions)

 

     January - December     % Chg     October - December     % Chg  
     2016     2015     Reported     Organic     2016     2015     Reported     Organic  

Revenues

     7,503       7,888       (4.9     (4.9     1,936       2,059       (6.0     (6.0

Mobile Business

     6,498       6,832       (4.9     (4.9     1,690       1,791       (5.7     (5.7

Mobile service revenues

     5,437       5,532       (1.7     (1.7     1,349       1,378       (2.1     (2.1

Data revenues

     2,992       2,840       5.3       5.3       746       712       4.8       4.8  

Handset revenues

     1,061       1,300       (18.4     (18.4     341       413       (17.6     (17.6

Fixed Business

     981       1,043       (5.9     (5.9     238       266       (10.3     (10.3

FBB and new services (1)

     748       803       (6.8     (6.8     182       199       (8.6     (8.6

Voice & access revenues

     233       240       (2.9     (2.9     56       66       (15.5     (15.5

Internal expenditure capitalized in fixed assets

     104       113       (7.4     (7.4     25       30       (17.8     (17.8

Operating expenses

     (5,844     (6,226     (6.1     (6.8     (1,492     (1,631     (8.5     (8.7

Supplies

     (2,452     (2,712     (9.6     (9.6     (674     (747     (9.8     (9.8

Personnel expenses

     (646     (655     (1.4     (7.9     (157     (155     1.5       (1.7

Other operating expenses

     (2,747     (2,859     (3.9     (3.9     (661     (729     (9.4     (9.0

Other net income (expense)

     32       70       (54.8     113.9       12       128       (90.7     20.6  

Gain (loss) on sale of fixed assets

     (0     14       c.s.       c.s.       (0     (1     (80.9     (80.9

Impairment of goodwill and other assets

     —         —         —         —         —         —         —         —    

Operating income before D&A (OIBDA)

     1,794       1,858       (3.4     2.9       481       586       (18.0     3.8  

OIBDA Margin

     23.9     23.6     0.4 p.p.       1.9 p.p.       24.8     28.5     (3.6 p.p.     2.5 p.p.  

CapEx

     1,108       2,230       (50.3     6.8       360       330       9.0       9.2  

Spectrum

     6       1,198       (99.5     (99.5     1       2       (11.5     (11.5

OpCF (OIBDA-CapEx)

     686       (372     c.s.       (2.1     121       256       (52.9     (6.9

Notes:

 

   

OIBDA before management and brand fees.

 

(1)

Includes broadband connectivity services (retail and wholesale), including value added services, data and ICT revenues, other services over connectivity and FBB equipment.

 

32


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA DEUTSCHLAND

ACCESSES

Unaudited figures (Thousands)

 

     2015      2016         
     March      June      September      December      March      June      September      December      % Chg  

Final Clients Accesses

     46,572.8        46,981.4        47,627.2        47,391.2        47,341.7        47,754.9        48,404.8        48,655.5        2.7  

Fixed telephony accesses (1)

     2,022.0        2,009.7        1,999.9        1,997.8        2,002.8        2,007.4        2,006.5        2,010.3        0.6  

Internet and data accesses

     2,371.6        2,354.7        2,338.7        2,330.6        2,330.9        2,329.8        2,324.8        2,324.5        (0.3

Broadband

     2,128.3        2,115.2        2,102.7        2,098.0        2,101.5        2,103.9        2,101.6        2,104.0        0.3  

FTTx

     322.2        379.8        444.0        516.8        593.0        669.3        731.8        805.5        55.9  

Mobile accesses

     42,179.2        42,617.0        43,288.6        43,062.8        43,008.0        43,417.8        44,073.5        44,320.7        2.9  

Prepay

     23,264.2        23,500.9        24,003.7        23,979.4        23,743.5        23,814.2        23,872.8        23,784.0        (0.8

Contract (2)

     18,915.0        19,116.1        19,284.9        19,083.4        19,264.4        19,603.6        20,200.7        20,536.6        7.6  

M2M

     443.4        506.2        570.7        632.0        682.2        704.3        748.0        787.8        24.6  

Wholesale Accesses

     1,085.3        1,059.3        1,017.5        972.0        910.5        850.1        790.8        691.0        (28.9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Accesses

     47,658.1        48,040.7        48,644.7        48,363.2        48,252.2        48,605.0        49,195.6        49,346.4        2.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes fixed wireless and VoIP accesses.

(2)

In the fourth quarter of 2015, 400 thousand inactive customer accesses were excluded.

MOBILE ACCESSES

Unaudited figures (thousands)

 

     2015     2016        
     March     June     September     December     March     June     September     December     % Chg  

Prepay percentage (%)

     55.2     55.1     55.5     55.7     55.2     54.8     54.2     53.7     (2.0 p.p.

Contract percentage (%)

     44.8     44.9     44.5     44.3     44.8     45.2     45.8     46.3     2.0 p.p.  

Smartphones (‘000)

     20,364.1       21,153.4       22,145.5       22,594.3       23,083.0       23,707.1       25,353.5       25,623.1       13.4  

Prepay

     9,086.7       9,538.8       10,097.5       10,279.7       10,678.9       10,805.8       11,223.0       11,182.4       8.8  

Contract

     11,277.4       11,614.6       12,048.0       12,314.6       12,404.1       12,901.3       14,130.5       14,440.7       17.3  

Smartphone penetration (%)

     49.8     51.3     52.9     54.2     55.4     56.2     59.2     59.5     5.2 p.p.  

Prepay

     39.6     41.1     42.6     43.3     45.4     45.7     47.4     47.3     4.0 p.p.  

Contract

     63.0     64.4     66.4     68.7     68.6     69.6     73.8     74.2     5.5 p.p.  

LTE (‘000)

     5,146.0       6,093.0       7,002.2       7,883.5       8,690.5       9,399.8       10,566.3       12,063.1       53.0  

LTE penetration (%)

     12.3     14.5     16.4     18.6     20.5     22.0     24.4     27.7     9.1 p.p.  

SELECTED OPERATIONAL DATA

Unaudited figures

 

     2015     2016        
     Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     % Chg  

Voice traffic (Million minutes)

     30,769       29,334       28,324       29,450       28,910       29,341       27,301       28,344       (3.8

Fixed voice traffic

     6,533       5,686       4,915       5,067       5,214       4,652       4,026       3,790       (25.2

Mobile voice traffic

     24,236       23,647       23,409       24,383       23,696       24,689       23,275       24,553       0.7  

Data traffic (TB)

     485,180       497,059       514,154       603,296       664,202       665,593       669,777       788,300       30.7  

Fixed data traffic

     445,008       454,804       468,256       552,795       612,603       603,867       595,416       706,659       27.8  

Mobile data traffic

     40,172       42,255       45,898       50,501       51,599       61,726       74,361       81,641       61.7  

Mobile ARPU (EUR)

     10.6       10.8       10.9       10.5       10.3       10.4       10.5       10.1       (3.8

Prepay

     5.6       5.9       6.0       5.8       5.7       5.7       5.9       5.6       (3.1

Contract (1)

     17.2       17.2       17.4       16.9       16.6       16.6       16.6       16.0       (5.5

Data ARPU (EUR)

     5.5       5.6       5.6       5.5       5.6       5.8       5.8       5.6       2.8  

% non-SMS over data revenues

     70.5     71.5     71.9     72.5     75.4     76.7     77.2     78.2     5.6 p.p.  

Mobile churn

     2.4     2.1     2.1     2.8     2.5     2.1     2.1     2.3     (0.5 p.p.

Contract (1)

     1.7     1.7     1.7     2.4     1.8     1.6     1.5     1.6     (0.8 p.p.

 

    Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     Jan-Mar     Jan-Jun     Jan-Sep     Jan-Dec     % Chg  

Voice traffic (Million minutes)

    30,769       60,103       88,427       117,877       28,910       58,251       85,552       113,896       (3.4

Fixed voice traffic

    6,533       12,219       17,134       22,201       5,214       9,865       13,892       17,682       (20.4

Mobile voice traffic

    24,236       47,883       71,293       95,676       23,696       48,386       71,661       96,214       0.6  

Data traffic (TB)

    485,180       982,239       1,496,393       2,099,689       664,202       1,329,794       1,999,572       2,787,871       32.8  

Fixed data traffic

    445,008       899,812       1,368,068       1,920,863       612,603       1,216,470       1,811,886       2,518,545       31.1  

Mobile data traffic

    40,172       82,427       128,325       178,826       51,599       113,324       187,685       269,326       50.6  

Mobile ARPU (EUR)

    10.6       10.7       10.8       10.7       10.3       10.3       10.4       10.3       (3.7

Prepay

    5.6       5.8       5.8       5.8       5.7       5.7       5.8       5.7       (1.6

Contract (1)

    17.2       17.2       17.3       17.2       16.6       16.6       16.6       16.5       (4.1

Data ARPU (EUR)

    5.5       5.5       5.6       5.5       5.6       5.7       5.8       5.7       3.4  

% non-SMS over data revenues

    70.5     71.0     71.3     71.6     75.4     76.1     76.5     76.9     5.3 p.p.  

Churn

    2.4     2.3     2.2     2.4     2.5     2.3     2.2     2.3     (0.1 p.p.

Contract (1)

    1.7     1.7     1.7     1.9     1.8     1.7     1.5     1.6     (0.3 p.p.

Notes:

 

   

ARPU: monthly average revenue divided by the monthly average accesses of the period.

 

   

Voice traffic is defined as minutes per access used on the company’s network, both outbound and inbound. Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is included. Traffic volume non rounded.

 

   

Data traffic is defined as Terabytes used by the company customers, both upload and download (1TByte = 10^12 bytes). Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is also included. Traffic volume non rounded.

 

(1)

Excludes M2M.

 

 

33


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LOGO

 

  

January - December 2016

 

 

 

04

TELEFÓNICA UK

(year-on-year changes in organic terms)

In 2016 Telefónica UK continued to reinforce its position as a leading mobile operator, consistently outperforming the market, with a growing customer base, increasing spend by customers as well as market-leading loyalty, leading to a strong financial performance with sustained revenue growth.

Total mobile accesses (25.5 million) grew 2% year-on-year driven by a 9% year-on-year increase of the contract mobile customer base (62% of the total; +4 percentage points year-on-year), after recording 135 thousand net additions in the fourth quarter (119 thousand excluding M2M; 421 thousand in 2016) on the back of its mobile led, customer first strategy. Monthly contract churn was flat year-on-year at 1.0%, a benchmark in the market. In prepay mobile there were 77 thousand net losses in the period, in line with industry trends of consumers shifting to contract connections.

Mobile data traffic continued to grow, up 63% year on year, in line with the trends of the previous quarter, leveraged on the 36% year-on-year growth of LTE accesses. LTE deployment continued at a rapid pace, reaching 95% outdoor population coverage as of December (+16 percentage points year-on-year), driving the LTE base to 10.4 million, with a penetration of 47% (+12 percentage points year-on-year). Smartphones reached 14.7 million at the end of the fourth quarter (+11% year-on-year), with a penetration of 68% (+8 percentage points year-on-year).

ARPU excluding “O2 Refresh” grew 1.3% year-on-year in the fourth quarter (-0.6% in the third quarter) on higher average subscription revenue (+9.8% year-on-year excluding “O2 Refresh”). Contract ARPU was down 1.4% year-on-year in the three months to December (vs. -3.1% in July-September) as regulatory roaming and MTRs impacts offset subscription revenue growth. Prepay ARPU grew by 10.5% year-on-year in the quarter due to higher levels of customer revenue and data usage growth.

Revenues in the fourth quarter reached 1,721 million euros and grew 2.5% year-on-year excluding the impact of “O2 Refresh”, once again improving the growth trend from the previous quarter (+0.1% year-on-year) on both mobile service revenue and handset sales and others. For the full year, revenues totalled 6,861 million euros, +0.6% year-on-year (ex-”O2 Refresh”).

Mobile service revenues reached 1,220 million euros and grew 1.5% year-on-year in the quarter (excluding the impact of “O2 Refresh”), again posting a sequential year-on-year improvement (+1.1% in July-September) due to larger out-of-bundle spend, lower impacts from roaming and MTRs (-1.7 percentage points on MSR growth ex-“O2 Refresh”; -2.1 percentage points in July-September) and customer base growth. Mobile service revenue totalled 5,121 million euros in the January-December period (+1.2% year-on-year ex-”O2 Refresh”).

Data revenues increased 4.5% year-on-year in the three months to December (vs. +3.4% in the full year), as customers consume more data and benefit from better value subscriptions with higher data allowances. Non-SMS data revenue accounted for 62% of data revenue in the fourth quarter (+2.6 percentage points year-on-year), while data revenue represented 61% of mobile service revenue (+1.9 percentage points year-on-year). Handset revenue & other revenue increased 5.2% year-on-year in the fourth quarter to 500 million euros (-4.9% in the twelve months to December), as new handset launches drove increased demand.

Operating expenses reached 1,421 million euros in the quarter, up 1.1% year-on-year. In the full year they reached 5,276 million euros, 2.9% lower year-on-year.

 

34


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LOGO

 

  

January - December 2016

 

 

 

Supplies (858 million euros) grew 2.9% year-on-year in the fourth quarter (-3.7% in January-December; 3,226 million euros) due to the higher level of handset sales after the launch of flagship devices in the period.

Personnel expenses totalled 145 million euros, -6.3% year-on-year in the three months to December (+1.2% in January-December; 528 million euros), excluding the impact of a provision of 36 million euros accrued in the quarter related to restructuring in the business.

Other expenses decreased 0.5% year-on-year in the fourth quarter (-2.4% in January-December), reaching 418 million euros (1,522 million euros), despite higher commercial expenses.

OIBDA growth in the quarter reached 4.1% year-on-year to 334 million euros and improved vs. the third quarter (+1.6%) on revenue growth acceleration and strong cost control. Full year OIBDA reached 1,709 million euros (+1.7% year-on-year). Thus, OIBDA margin expanded in both the fourth quarter (19.4%; +0.4 percentage points year-on-year) and the full year 2016 (24.9%; +0.8 percentage points year-on-year).

CapEx amounted to 931 million euros in the January-December period, an increase of 18.7% year-on-year, mainly invested in further LTE rollout as the Company continues to expand its indoor coverage to reach 98% by the end of 2017.

Operating Cash Flow (OIBDA-CapEx) totalled 778 million euros in the full year to December (-12.7% year-on-year).

TELEFÓNICA UK

CONSOLIDATED INCOME STATEMENT

Unaudited figures (Euros in millions)

 

     January - December     % Var     October - December     % Var  
     2016     2015     Reported     Organic     2016     2015     Reported     Organic  

Revenues

     6,861       7,837       (12.5     (1.5     1,721       2,011       (14.4     2.4  

Mobile service revenues

     5,121       5,778       (11.4     (0.3     1,220       1,447       (15.7     1.3  

Data revenues

     3,094       3,369       (8.1     3.4       738       848       (12.9     4.5  

Handset revenues and other

     1,739       2,059       (15.5     (4.9     500       564       (11.2     5.2  

Internal expenditure capitalized in fixed assets

     141       162       (13.1     (2.2     34       43       (21.1     (5.4

Operating expenses

     (5,276     (6,074     (13.1     (2.9     (1,421     (1,636     (13.2     1.1  

Supplies

     (3,226     (3,769     (14.4     (3.7     (858     (992     (13.6     2.9  

Personnel expenses

     (528     (549     (3.9     1.2       (145     (144     0.3       (6.3

Other operating expenses

     (1,522     (1,756     (13.3     (2.4     (418     (499     (16.2     (0.5

Other net income (expense)

     (16     (14     11.9       25.9       (2     (7     (74.8     (67.3

Gain (loss) on sale of fixed assets

     (1     3       c.s.       c.s.       1       1       84.9       102.2  

Impairment of goodwill and other assets

     —         15       —         —         —         15       —         —    

Operating income before D&A (OIBDA)

     1,709       1,929       (11.4     1.7       334       426       (21.7     4.1  

OIBDA Margin

     24.9     24.6     0.3 p.p.       0.8 p.p.       19.4     21.2     (1.8 p.p.     0.4 p.p.  

CapEx

     931       883       5.5       18.7       278       231       20.2       42.1  

Spectrum

     —         —         —         —         —         —         —         —    

OpCF (OIBDA-CapEx)

     778       1,046       (25.6     (12.7     56       196       (71.3     (39.9

Notes:

 

   

OIBDA before management and brand fees.

 

35


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

TELEFÓNICA UK

ACCESSES

Unaudited figures (Thousands)

 

    2015     2016        
    March     June     September     December     March     June     September     December     % Chg  

Final Clients Accesses

    24,869.2       25,072.2       25,302.4       25,286.9       25,204.2       25,452.6       25,692.0       25,759.0       1.9  

Fixed telephony accesses (1)

    232.1       235.4       241.2       247.1       249.8       257.7       264.7       272.6       10.3  

Internet and data accesses

    19.9       20.4       20.5       21.0       21.5       22.3       23.1       23.7       12.8  

Broadband

    19.9       20.4       20.5       21.0       21.5       22.3       23.1       23.7       12.8  

Mobile accesses

    24,617.1       24,816.5       25,040.7       25,018.8       24,933.0       25,172.5       25,404.2       25,462.7       1.8  

Prepay (2)

    10,766.1       10,793.1       10,823.2       10,561.4       9,640.1       9,745.8       9,778.0       9,701.4       (8.1

Contract

    13,851.1       14,023.4       14,217.6       14,457.4       15,292.8       15,426.7       15,626.2       15,761.3       9.0  

M2M (3)

    2,201.1       2,234.2       2,289.9       2,383.9       3,143.4       3,176.8       3,250.9       3,266.9       37.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Accesses

    24,869.2       25,072.2       25,302.4       25,286.9       25,204.2       25,452.6       25,692.0       25,759.0       1.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes fixed wireless and VoIP accesses.

(2)

Includes the disconnection of 720 thousand inactive prepay customers in the first quarter 2016.

(3)

Includes 720 thousand M2M accesses on the Jasper platform since the first quarter 2016.

MOBILE ACCESSES

Unaudited figures (thousands)

 

    2015     2016        
    March     June     September     December     March     June     September     December     % Chg  

Prepay percentage (%)

    43.7     43.5     43.2     42.2     38.7     38.7     38.5     38.1     (4.1 p.p.)  

Contract percentage (%)

    56.3     56.5     56.8     57.8     61.3     61.3     61.5     61.9     4.1 p.p.  

Smartphones (‘000)

    10,784.8       10,972.4       11,202.4       13,274.4       13,267.7       13,301.8       14,130.8       14,680.8       10.6  

Prepay

    3,343.9       3,370.8       3,451.1       4,275.5       4,358.7       4,494.0       4,600.9       4,966.3       16.2  

Contract

    7,440.9       7,601.6       7,751.3       8,998.9       8,909.0       8,807.8       9,529.9       9,714.6       8.0  

Smartphone penetration (%)

    49.3     49.9     50.6     60.4     62.8     62.4     65.9     68.4     8.0 p.p.  

Prepay (%)

    31.4     31.6     32.2     40.9     45.6     46.5     47.5     51.6     10.7 p.p.  

Contract (%)

    66.4     67.2     67.9     78.1     77.0     75.6     81.1     82.1     4.0 p.p.  

LTE (‘000)

    4,906.0       5,769.9       6,631.7       7,661.8       8,300.8       9,489.0       10,038.2       10,425.3       36.1  

LTE penetration (%)

    22.4     26.2     30.0     34.9     38.1     43.1     45.3     47.0     12.1 p.p.  

SELECTED MOBILE OPERATIONAL DATA

Unaudited figures

 

    2015     2016        
    Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     % Chg Local Cur  

Voice Traffic (Million minutes)

    22,206       22,926       22,545       22,850       22,964       23,425       23,221       23,697       3.7  

Data traffic (TB)

    30,928       35,478       39,873       45,257       49,648       55,720       65,609       73,980       63.5  

ARPU (EUR)

    18.8       19.6       19.9       19.3       17.9       17.5       16.6       16.2       1.0  

Prepay

    7.4       7.6       7.8       7.8       7.8       7.7       7.1       7.2       10.5  

Contract (1)

    32.7       34.0       34.6       33.0       30.1       29.6       28.3       27.1       (1.4

Data ARPU (EUR)

    10.9       11.4       11.6       11.3       10.6       10.5       10.2       9.8       4.2  

% non-SMS over data revenues

    58.6     59.2     60.2     59.5     59.9     61.0     62.4     62.2     2.6 p.p.  

Churn

    1.7     1.6     1.8     2.2     2.0     1.5     1.8     2.1     (0.1 p.p.

Contract (1)

    1.0     0.9     0.9     1.0     0.9     0.8     0.9     1.0     (0.0 p.p.
    Jan - Mar     Jan - Jun     Jan - Sep     Jan - Dec     Jan - Mar     Jan - Jun     Jan - Sep     Jan - Dec     % Chg Local Cur  

Voice Traffic (Million minutes)

    22,206       45,132       67,677       90,527       22,964       46,389       69,609       93,306       3.1  

Data traffic (TB)

    30,928       66,406       106,279       151,536       49,648       105,368       170,977       244,957       61.6  

ARPU (EUR)

    18.8       19.2       19.4       19.4       17.9       17.7       17.3       17.0       (1.1

Prepay

    7.4       7.5       7.6       7.7       7.8       7.7       7.5       7.5       9.7  

Contract (1)

    32.7       33.3       33.8       33.5       30.1       29.9       29.3       28.8       (3.5

Data ARPU (EUR)

    10.9       11.2       11.3       11.3       10.6       10.6       10.4       10.3       2.3  

% non-SMS over data revenues

    58.6     58.9     59.4     59.4     59.9     60.4     61.1     61.4     2.0 p.p.  

Churn

    1.7     1.6     1.7     1.8     2.0     1.8     1.8     1.9     0.1 p.p.  

Contract (1)

    1.0     1.0     1.0     1.0     0.9     0.9     0.9     0.9     (0.1 p.p.

Notes:

 

   

ARPU: monthly average revenue divided by the monthly average accesses of the period.

 

   

Voice traffic is defined as minutes per access used on the company’s network, both outbound and inbound. Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is included. Traffic volume non-rounded.

 

   

Data traffic is defined as Terabytes used by the company customers, both upload and download (1TByte = 10^12 bytes). Promotional traffic is included. Traffic not associated to the Company’s mobile customers (roaming-in, MVNOs, interconnection of third parties and other business lines) is also included. Traffic volume non-rounded.

 

(1)

Excludes M2M.

 

36


Table of Contents

LOGO

 

  

January - December 2016

 

 

 

05

TELEFÓNICA BRASIL

(year-on-year changes in organic terms)

In the fourth quarter of the year Telefónica Brasil consolidated the trend of solid year-on-year growth both in revenues and in OIBDA, which, together with the year-on-year reduction of CapEx in the year, translated into a strong increase in operating cash flow.

These results reflected the selective commercial activity focused on high value customers, the continued generation of synergies after the acquisition of GVT and the strict cost control, which offset inflationary pressure and regulatory impacts (reduction in mobile termination rates of -33.8%, retail fixed-mobile of -20.6%, local fixed of -65.9% and interurban fixed of -21.3%, all since 24 February 2016).

The Company managed 97.2 million accesses, stable year-on-year. Mobile accesses increased by 1% year-on-year, with focus on higher value customers which resulted in a clear increase in the quality of mobile accesses: contract accesses +7%, smartphones +25% (75% penetration, +15 percentage points year-on-year) and LTE accesses +118%.

In mobile contract, quarterly net additions reached 891 thousand accesses (+39.6% year-on-year; 2.3 million in 2016, -14.8% year-on-year), recording the lowest level of churn in the last 2 years and maintaining market leadership with a share of 42.1% at December (practically stable year-on-year). Likewise, this leadership was also maintained in LTE accesses (22.2 million) with a 35.7% share, after expanding coverage to 516 cities (60% population coverage).

Mobile ARPU, leveraged on the higher quality of accesses and the strong expansion of data, increased by 18.4% year-on-year in the fourth quarter (+19.3% in the year) showing growth in both segments thanks to the focus on data and on prepay bundling.

Retail broadband accesses (7.3 million) grew by 3% year-on-year, highlighting the strong increase in accesses with speeds higher than 34 Mbps, which accounted for 15% of accesses (+4 percentage points year-on-year, 37.8% of share). FTTx and cable accesses reached 4.2 million (+10.3% year-on-year; 735 thousand FTTH in Sao Paulo) and premises passed with FTTx at December amounted to 17.3 million (4.7 million with FTTH in Sao Paulo). The greater number of fibre connections and the migration to higher speeds explained the growth in ARPU (+7.7% year-on-year in the quarter).

Pay TV accesses (1.7 million accesses) decreased by 4% vs. December 2015 due to lower commercial activity. However, IPTV accesses increased by 48% year-on-year after recording net additions of 24 thousand accesses in the quarter (82 thousand accesses in the year). This improved quality of accesses drove year-on-year growth of ARPU (+9.3% in October-December; +11.5% in January-December).

Revenues in the fourth quarter totalled 3,058 million euros (11,097 million in 2016) increasing by 1.1% year-on-year (+0.9% in 2016) driven by ARPU growth across all services, which was partially offset by regulatory impacts and lower handset sales (-2.3 percentage points and -0.7 percentage points respectively in year-on-year change for the quarter).

Mobile service revenues (1,774 million euros in October-December) posted a solid growth of 4.0% year-on-year (+3.1% in the year). Stripping out the regulatory impact, mobile service revenues would have grown by 6.3% in the quarter (+5.3% in 2016). Data revenues maintained a strong year-on-year growth (+25.5% in the fourth quarter; +24.7% in 2016) and accounted for 57% of mobile service revenues (+8 percentage points year on year). Non-SMS data revenues increased by 34.3% year-on-year in the quarter (+33.0% in the year).

 

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Handset revenues decreased by 20.7% year-on-year in October-December (-20.0% in 2016) due to lower commercial activity with handset which is partially offset by a lower subsidy per unit.

Fixed business revenues in the fourth quarter (1,205 million euros) decreased by 1.2% year-on-year (-0.2% in the year). Nevertheless, broadband and pay TV revenues showed a solid growth which offset the aforementioned regulatory impacts (+1.2% excluding this effect; +2.3% in 2016).

Thus, broadband and new services revenues (473 million euros) increased by 6.5% vs. the fourth quarter of 2015 (+6.5% year-on-year in 2016) on the back of fibre revenues (+18.8% year-on-year in the quarter, +21.4% in 2016) and of pay TV (+4.6% year-on-year in the quarter; +11.8% in the year).

Operating expenses totalled 2,029 million euros in the fourth quarter (7,498 million in 2016) decreasing by 1.6% year-on-year (-1.9% in the year) as a result of the generation of synergies, the reduction of commercial expenses and the positive impact of regulation. All these positive impacts offset the negative impacts associated with inflation.

Supplies (600 million euros) decreased by 14.0% vs. the fourth quarter of 2015 (-10.9% in the year) positively affected by lower termination costs (arising from regulatory changes), by lower consumption of handsets and lower content costs. Acceleration in the year-on-year decline vs. prior quarters was due to the renegotiation of the content contract, which began to have a positive impact in the fourth quarter.

Personnel expenses (326 million euros) increased by 3.8% year-on-year in the quarter (+3.1% in 2016), growing below inflation despite the insourcing process of key activities. The year-on-year change excluded the effect of the headcount restructuring plan (40 million euros recorded in 2016, 14 million of which corresponded to the fourth quarter and 7 million in 2015, 2 million euros of which corresponded to the fourth quarter).

Other operating expenses (1,103 million euros) increased by 5.0% vs. the fourth quarter of 2015 (+2.5% in 2016) as a result of higher expenses associated network expansion.

OIBDA in the fourth quarter reached 1,085 million euros (3,714 million in the year) and decreased by 0.9% year-on-year due to the positive impact of the expiration of a payable account for 98 million euros in the fourth quarter of 2015; excluding this impact, OIBDA would have grown by 8.9% (+8.1% in the year).

Thus, OIBDA margin expanded to 35.5% in the quarter (-0.7 percentage points year-on-year, +2.6 percentage points excluding the aforementioned impact) and 33.5% in the year (+1.4 percentage points year-on-year, +2.2 percentage points excluding the impact mentioned above).

The Company closed 2016 having generated synergies of 247 million euros, 95 million euros of which positively impacted revenues from cross-selling and 152 million euros in expenses from renegotiations with suppliers and from lower commercial and personnel expenses.

CapEx totalled 2,138 million in 2016 (representing 19% of revenues, excluding 48 million euros for the acquisition of spectrum in the third quarter), mainly devoted to the expansion of the 4G network and the IP backbone, to the increase in the capacity of the 3G network and to the development and improvement of fixed networks (more selective expansion of pay TV). CapEx decreased by 2.9% year-on-year vs. the previous year, thanks to the optimisation and efficiency of synergies already achieved (124 million euros in the year).

Thus, operating cash flow (OIBDA-CapEx) totalled 1,576 million euros in 2016, +17.8% year-on-year (+26.2% excluding the non-recurrent impact of the fourth quarter of 2015).

 

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TELEFÓNICA BRASIL

CONSOLIDATED INCOME STATEMENT

Unaudited figures (Euros in millions)

 

     January - December     % Chg     October - December     % Chg  
     2016     2015     Reported     Organic     2016     2015     Reported     Organic  

Revenues

     11,097       11,060       0.3       0.9       3,058       2,587       18.2       1.1  

Mobile Business

     6,669       6,905       (3.4     1.7       1,853       1,526       21.4       2.7  

Mobile service revenues

     6,357       6,495       (2.1     3.1       1,774       1,444       22.8       4.0  

Data revenues

     3,381       2,853       18.5       24.7       1,016       705       44.2       25.5  

Handset revenues

     312       410       (23.9     (20.0     79       82       (3.7     (20.7

Fixed Business

     4,428       4,154       6.6       (0.2     1,205       1,060       13.6       (1.2

FBB and new services (1)

     1,695       1,502       12.9       6.5       473       386       22.5       6.5  

Pay TV

     504       391       29.1       11.8       137       116       18.3       4.6