MADRID, Spain - (Business Wire) The Telef
ónica Group
’s (NYSE:TEF) (LSE:TDE) results for the first nine months of 2008 mark a consolidation of the trends evidenced in the first half, displaying substantial organic growth stripping out capital gains (i.e. excluding the impact of the capital gains generated from the sale of Airwave and Endemol in 2007}.
Given the current market backdrop, these results highlight the more defensive profile of the telecommunications sector in general, and Telefónica in particular, underpinned by its extensive geographic and service diversification, strong competitive positioning in its main markets (the number one or two player in all markets) and the Company’s integrated management model.
Similarly, the high organic growth (stripping out capital gains) in the main income statement headings, with growth accelerating from the topline down through to OI, and the sizeable cash flow generated during the period (outpacing revenue growth year-on-year), reflect the Company’s strategic focus on maximising profitability and leveraging its economies of scale.
--252 million accesses--
During the third quarter the Company continued to register a strong commercial activity across the markets, underpinning growth in the total number of accesses of 15.2% on the first nine months of 2007 to almost 252 million. This growth was driven by the increase in wireless (+19.0%), broadband (+24.5%) and pay TV (+54.0%) accesses. By region, it is worth highlighting the contribution by Telefónica Latinoamerica, with over 150 million accesses across the region at the end of September 2008 (up 21.1% year-on-year).
By access type, the Telefónica Group’s wireless accesses stood at approximately 189 million at the end of September, with 6.2 million net adds during the third quarter of 2008 (year-on-year organic1 growth of 17.4%) and of 17.22 million net adds in January-September (year-on-year organic3 growth of 14.2%).
Retail internet broadband accesses stood at 12.0 million, a year-on-year increase of 24.5%, driven by the growing penetration of voice, ADSL and pay-TV bundles. In fact, in Spain over 84% of retail broadband accesses are bundled as part of some kind of dual or triple service package while in Latin America the weight of bundles is growing rapidly, with 46% of retail broadband accessed bundled as part of Duo or Trio packages. Net adds in the third quarter of 2008 amounted to 0.6 million accesses (year-on-year growth of 14.9%), bringing total net adds for the first nine months to 1.7 million accesses (up 1.5% year-on-year), of which 0.8 million come from Latin America, 0.5 million from Spain and 0.4 million from Europe.
Total broadband accesses in Latin America at the end of September surpassed 5.8 million (up 24.9% year-on-year), compared to over 5.1 million in Spain (up 16.8% year-on-year), and just over 1 million in Europe (year-on-year growth of 80.8%).
Pay TV accesses stood at over 2.1 million at the end of the third quarter, up 54.0% on the prior year, driven by net adds of 130,000 accesses in the third quarter (year-on-year growth of 14.4%) and approximately 410,000 in January-September (up 21.4% year-on-year). By September the Company offered Pay-TV services in Spain, the Czech Republic, Peru, Chile, Colombia and Brazil, whereas in October Telefonica launched its pay TV services in Venezuela.
--Sound organic growth rates--
The positive evolution of the operating results led to revenues of 43,141 million euros, for a year-on-year increase in the first nine months of the year of 2.7%, boosted by the outstanding growth rate of 5.7% in the third quarter.
In organic terms4, revenue growth accelerated as compared to the first half, reaching 7.0% in the first nine months (+6.7% in the first half of the year), mainly driven by the significant increase in Telefónica Latinoamérica (4.6 percentage points contribution to growth in the first nine months of 2008). In absolute terms, in the first nine months of 2008 Telefónica Latinoamérica accounted for 37.8% of total Group revenues, with Telefónica España and Telefónica Europe accounting for 36.4% and 24.8%, respectively.
Meanwhile, the Telefónica Group’s operating expenses totalled 27,186 million euros in the January-September 2008, virtually flat year-on-year. Stripping out the impact of exchange rates, operating expenses would have risen 3.5% year-on-year.
Gains on sale of fixed assets totalled 236 million euros in the first nine months of 2008, mainly in connection with capital gains recorded on the sale of its stake in Sogecable (143 million euros) and the Real Estate programmes in Telefónica España and Telefónica Europe. It is worth recalling that in January-September 2007 the Company registered the capital gains realised on the disposal of Airwave (1,296 million euros) and Endemol (1,368 million euros), the latter in the third quarter of 2007.
Operating income before depreciation and amortisation (OIBDA) reached 17,026 million euros for the first nine months of 2008, down 6.7% year-on-year, due primarily to the impact of the aforementioned capital gains, which also explain the year-on-year decline in OIBDA in the third quarter of 2008 (-15.4%). However, excluding also capital gains5, OIBDA would have risen 9.8% in the period, outpacing topline growth by 2.8 percentage points. Telefónica Latinoamérica (+5.4 percentage points) and Telefónica España (+3.0 percentage points) were the main contributors to this growth. In absolute terms, OIBDA at Telefónica España accounted for 46.1% of total Group OIBDA, compared to 35.4% and 18.0% from Telefónica Latinoamérica and Telefónica Europe, respectively.
The OIBDA margin for January-September 2008 stood at 39.5% (compared to 43.4% a year earlier), due to capital gains on the disposals of Airwave and Endemol. In organic terms, and excluding capital gains7, the OIBDA margin was 38.5% in the first nine months of 2008, up 1.0 percentage points year-on-year, driven by efficiency improvements and economies of scale, in the context of high commercial activity in the Group and transformation of the wireline business in Latin America.
Depreciation and amortisation in the first nine months totalled 6,803 million euros, down 2.6% year-on-year. Telefónica Europe includes the amortisation of the purchase price allocation made following the O2 Group acquisition (523 million euros) and the Telefónica O2 Czech Republic acquisition (133 million euros). In organic terms6 the Telefónica Group’s depreciation and amortisation charges for the nine months fell 0.3% year-on-year, with Telefónica Europe and Telefónica España contributing the most to this decline.
Operating income (OI) totalled 10,223 million euros for the period from January to September 2008, down 9.2% year-on-year, due to recognition of the aforementioned capital gains on the sale of Airwave and Endemol in 2007. In organic terms6, the drop in operating income stands at 7.8%. Also stripping out the capital gains on the Sogecable, Endemol and Airwave disposals from both periods, operating income would grow 18.0% year-on-year.
Accordingly, growth accelerated in the third quarter in organic terms and ex-capital gains7, from revenue to operating income (revenue up 7.0%, OIBDA up 9.8%, and OI up 18.0%).
Net profit from associates amounted to 20 million euros in the first nine months (vs. 107 million euros in January-September 2007), mainly contributed by the investment in Portugal Telecom. The year-on-year decline reflects a lower contribution from Portugal Telecom and losses attributable to the Company’s investment in Telco SpA.
Net financial results at the end of September 2008 amounted to 2,099 million euros, virtually flat vs. the same period of 2007 (+0.2%), mainly due to the decrease of 10% in the average debt, which has generated savings of 230 million euros.
--Financial Flexibility--
Free cash flow generated by the Telefónica Group up to the end of September 2008 amounted to 6,276 million euros of which 1,766 million euros were assigned to Telefonica’s share buyback program, 1,869 million euros to Telefónica S.A. dividend payment and 552 million euros to commitment cancellations derived mainly from the pre-retirements plans. Due to the fact that financial and Real Estate net divestments for the period amounted to 339 million euros, net financial debt decreased in 1,749 million euros. Also, net debt was reduced by an additional 679 million euros because of the foreign exchange impact, changes in the consolidation perimeter and other effects on financial accounts. All this has led to a decrease of 2,428 million euros with respect to the net financial debt at the end of the fiscal year 2007 (45,284 million euros), leaving the net financial debt of the Telefónica Group at September 2008 at 42,856 million euros.
Leverage ratio, net debt over OIBDA, continues to fall down to 1.91x at September 2008, compared to 2.0x at June 2008, thanks to both the reduction of the net financial debt in the period and to an increase in the OIBDA figure.
During the first nine months of the year, the financing activity of Telefónica Group, excluding short term Commercial Paper Programmes activity, rose to approximately 2,700 million euros, less intense compared to previous periods due to the instability of the credit markets and the Group's liquidity position. The cash position as of September 30th covers in excess debt maturities in the last quarter of the year. Net debt maturities forecasted for 2009 stand at 4,085 million euros.
The tax provision for January-September 2008 totalled 2,374 million euros, implying an effective tax rate of 29.2%. However, the Telefónica Group's cash outflow is being lower in 2008 as tax losses generated in prior years and pending deductions are used. It is worth highlighting that in 2007 the tax provision was lower, as a result of the disposal of Endemol, which generated a fiscal loss.
Minority interests grew 11.4% year-on-year, reducing net profit for the first nine months of the year by 174 million euros.
As a result of the above, consolidated net income for the first nine months of 2008 amounted to 5,596 million euros, down 28.7% on the same period of 2007. This decrease is mainly due to the recognition in 2007 of capital gains on the sale of Airwave and Endemol. Stripping out the impact of asset disposals (Airwave, Endemol and Sogecable) from both periods, growth in net income in January-September rises to 23.5%. Basic earnings per share in the first nine months of 2008 stood at 1.2 euros, year-on-year growth of 26.4% on comparable terms.6
CapEx amounted to 5,406 million euros in January-September, to leave operating cash flow (OIBDA-CapEx) at 11,621 million euros, with a year-on-year organic growth ex-capital gains7 of 10.1%. By region, Telefónica España accounted for 6,302 million euros of the total, while Telefónica Latinoamérica generated 3,626 million euros and Telefónica Europe, 1,693 million euros. Free cash flow per share was 1.346 euros for the first nine months of 2008, compared to 1.249 euros the year before.
In relation to shareholder remuneration, on November 12th, 2008, the Company paid out a per share interim dividend of 0.50 euros against 2008 profits, equivalent to 50% of the total dividend to be paid against this year’s profits. In addition, on October 13th, 2008, Telefónica announced a 50% expansion of its 2008 share buyback programme, implying the acquisition of 50 million own shares by year-end, in addition of the 100 million already bought since the beginning of the year.
1 Including Telemig in July-September of 2007
2 The Telemig customers incorporated by the Group in April 2008 (close to 4 million) are not included as net adds in the period.
3 Including Telemig in April-September of 2007
4 Assuming constant exchange rates and including the consolidation of TVA in January-September 2007 and Telemig in April-September 2007. Excluding the consolidation of Airwave in January-March 2007 and Endemol in January-June 2007. In revenues, the impact in Telefónica España of the new model for the public use telephone service (-106.1 million euros in January-September 2007) is included. In OIBDA and OI, the impact of asset disposals (Airwave, Endemol and Sogecable) is excluded from both periods.
5 Assuming constant exchange rates and including the consolidation of TVA in January-September 2007 and Telemig in April-September 2007. Excluding the consolidation of Airwave in January-March 2007 and Endemol in January-June 2007. In revenues, the impact in Telefónica España of the new model for the public use telephone service (-106.1 million euros in January-September 2007) is included. In OIBDA and OI, the impact of asset disposals (Airwave, Endemol and Sogecable) is excluded from both periods.
6 Excluding the impact of asset disposals (Airwave, Endemol and Sogecable) from both periods.
7 Assuming constant exchange rates and including the consolidation of TVA in January-September 2007 and Telemig in April-September 2007. Excluding the consolidation of Airwave in January-March 2007 and Endemol in January-June 2007. In revenues, the impact in Telefónica España of the new model for the public use telephone service (-106.1 million euros) is included. In OIBDA and OI, the impact of asset disposals (Airwave, Endemol and Sogecable) is excluded from both periods.
http://www.telefonica.es/saladeprensa
Telefónica
Dirección de Comunicación Corporativa
Tel: +34 91 4823800
or
Press Office
Fax: +34 91 7271498
e-mail: prensa@telefonica.es
or
Communications Department
e-mail: prensa@telefonica.es
Telephone: +34-91-584 08 44
Fax: +34-91-532 71 18
