Full year 'organic' revenues increased by 3.4% year-on-year to €52 billion while 'organic' operating income before depreciation and amortization (OIBDA) grew 5.3% to €16.2 billion.

February 22, 2018

7 Min Read

MADRID -- Telefónica today presented its financial results for the year 2017.

Highlights:

  • Revenues increased 3.4% y-o-y organic (-0,1% reported) in 2017 to 52,008M€. In the quarter, revenues grew 4.8% y-o-y organic (-4,1% reported) to 13.162M€.

    • OIBDA reached 16,187M€ in 2017 (+5.3% organic; +7.1% reported) and accelerated growth in the 4Q (+9.2% organic; 22.8% reported).

    • Net debt stood at 44.230M€ as of December 2017, a decrease of 4,400M€ y-o-y. Free cash flow reached €4,947m in 2017 (+13.0% y-o-y).

      Telefónica met 2017 objectives and announces today guidance for 2018:

      • Revenues: growing around 1% vs. 2017 (despite the negative impact from regulation, approximately -0.9 p.p.).

      • OIBDA Margin: y-o-y expansion of around 0.5 p.p. (despite regulation dragging -1.6 p.p. to OIBDA y-o-y growth in 2018).

      • CapEx/Sales excluding spectrum: around 15%.

    • The Company confirms shareholder remuneration for 2017 (second tranche of 2017 dividend, €0.20 per share in cash, to be paid in June 2018); and announces remuneration policy for 2018, a dividend of €0.40 per share in cash, to be paid in December 2018 (€0.20 per share) and in June 2019 (€0.20 per share).

      José María Álvarez-Pallete, Executive Chairman:

      “In 2017 we have delivered solid results, we have met the guidance set for 2017, which was upgraded in July. The highlights were the growth in revenues, OIBDA, OpCF, EPS and FCF, the 4.4 billion euro net debt reduction; and we achieved all this despite regulatory drags. Beyond financial results, we continued to make progress in the intensive process of digitalisation and we are advancing towards transforming into a platform Company. Thanks to the investments made during recent years we are in a strengthened position; we cover more than 90% of the population in Europe with LTE technology and we have surpassed the 70 million mark of premises passed with fibre.

      We have entered 2018 with clear priorities to execute our strategy, with revenue growth, margin expansion for the third year in a row and lower capital intensity thanks to the efforts already undertaken. At the same time, we maintain our objective to continue strengthening our financial position, compatible with attractive shareholder remuneration”.

      Financial Results January-December 2017:

      Telefónica today presented its financial results for the year 2017, which highlights its strength and growth, both operational and financial, as well as the strong reduction in debt, and all this in a context of ultra-broadband network deployment acceleration. Net profit for the year increased 32.2% and reached 3,132 million euros.

      Solid operating and financial results

      Telefónica group's total accesses stood at 343.5m as of December 2017 and customer value continued to improve, with average revenue per customer growth accelerating to 5.4% y-o-y in organic terms in the fourth quarter and stable churn. This performance reflected a growing demand for data, speed and content driving the growth of high-value services: LTE customers reached 97.5m (1.5x y-o-y), mobile contract accesses (115.9m; +5% y-o-y), and smartphones (+8% y-o-y; 158.7m). On fixed access, fixed broadband customers grew (21.4m; +1% y-o-y), FTTx/cable customers (11.0m) increased 20% vs. December 2016, and pay TV accesses (8.5m; +2% y-o-y).

      Revenues in 2017 stood at €52,008m and grew +3.4% y-o-y in organic terms (-0.1% reported). In the quarter revenues reached €13,162m and accelerated growth to 4.8% (-4.1% y-o-y reported), driven by mobile service revenues, which improved their y-o-y performance to 4.3% (+3.1% in January-December), while handset revenues maintained a strong pace of growth (+9.8% in the quarter; +6.5% in 2017).

      Furthermore, this acceleration was underpinned by the growth in mobile data revenues, which increased by 19.5% y-o-y in organic terms (+16.8% in January-December) and represented 60% of mobile service revenues in the quarter (+6 p.p. y-o-y in organic terms). Excluding the negative impact of regulation (-1.0 p.p. in the quarter; -1.1 p.p. in January-December), revenues would have risen by 5.9% y-o-y in organic terms in the fourth quarter (+4.5% in January-December).

      Exchange rate fluctuations in January-December had a negative impact on key financial indicators, mainly due to the strong devaluation of the Venezuelan bolivar and the depreciation of the Argentine peso and pound sterling against the euro. Thus, in 2017 currencies reduced the y-o-y growth of revenues by 3.2 p.p. and that of OIBDA by 4.7 p.p. Nevertheless, it is important to highlight that the negative impact of FX evolution at OIBDA level has been significantly reduced in terms of cash generation, as it reduces the payment in euros of CapEx, taxes and other items.

      In organic terms, operating expenses increased by 2.2% y-o-y in 2017 and +2.7% in the quarter.

      Operating income before depreciation and amortization (OIBDA) reached €16,187m in January-December (+7.1% y-o-y), and €3,913m in the fourth quarter (+22.8% y-o-y). In organic terms, OIBDA grew by 5.3% in 2017 and 9.2% y-o-y in the quarter, reflecting the sustained revenue improvement and cost containment efforts, efficiencies from the transformation process and digitalisation, synergy capture and a lower regulatory impact. Excluding the impact of the regulation (-1.5 p.p. in the quarter), OIBDA would have increased by 10.8% y-o-y in organic terms in the quarter (+6.7% in January-December).

      Underlying OIBDA amounted to €16,638m in January-December (+0.7% vs. 2016) and €4,230m in October-December (-5.2% y-o-y). In the fourth quarter, underlying OIBDA mainly excluded the following factors: restructuring expenses (-€219m), provisions to cover regulatory contingencies (-€107m; Brazil -€50m and Other Companies -€57m) and tower sales (€6m). OIBDA margin stood at 29.7% in the fourth quarter, expanding 6.5 p.p. y-o-y (+1.4 p.p. organic). OIBDA margin reached 31.1% in January-December (+2.1 p.p. reported; +0.6 p.p. in organic terms).

      Thus, operating income (OI) reached €1,648m in October-December (2.5x y-o-y; +21.0% organic) and €6,791m in the twelve-month period, growing by 24.2% vs. 2016 (+14.1% in organic terms).

      In this regard, the net profit in January-December reached €3,132m, growing by 32.2% y-o-y. In the fourth quarter it stood at €693M, 4.8x higher vs. October-December 2016. Basic earnings per share totalled €0.56 in January-December and grew 33.9% y-o-y. In the fourth quarter, basic earnings per share amounted to €0.12 and were 7.9x higher y-o-y.

      UBB network deployment acceleration

      CapEx in the full year (€8,697m; -2.6% reported; -1.2% in organic terms) continued to focus on expanding 4G and UBB networks and simplifying and digitalising processes and systems, reflected integration synergies and included €538m in spectrum and licences. In this regard, FTTx/cable network coverage increased to 44m premises passed (+13% y-o-y) and connected premises increased to 11m, which represented 22% of total passed premises (+1 p.p. y-o-y). For the mobile network, 4G coverage increased to 72% (+10 p.p. y-o-y), LTE customers amounted to 38% of the total (+13 p.p. y-o-y) and LTE traffic multiplied 2.5x representing 52% of total traffic.

      In January-December 2017, free cash flow reached €4,947m, increasing by 13.0% y-o-y, due, among other factors, to Operating cash flow (OIBDA-CapEx) in the twelve months (€7,490m) maintained a strong pace of growth (+21.0% y-o-y reported; +12.2% in organic terms), as a result of good business performance and lower CapEx intensity.

      Substantial debt reduction
      Net financial debt as of December 2017 (€44,230m) decreased by €2,992m vs. September 2017, mainly due to free cash generation (€1,721m), the closing of the 40% stake sale of Telxius (€1,275m), the issuance of capital instruments (€915m; net of coupon payments) and the lower value in euros of net debt in foreign currencies (€125m), which comfortably offset the payment of the first tranche of the dividend announced for 2017 (€858m) and payment of labour-related commitments (€189m). Compared with December 2016, net financial debt decreased €4,365m.

      During 2017, Telefónica’s financing activity amounted to approximately €10,501m equivalent (without considering the refinancing of commercial paper and short-term bank loans) and focused on maintaining a solid liquidity position and refinancing and extending debt maturities (in an environment of very low interest rates). Therefore, as of the end of December, the Group has covered debt maturities for the next two years. The average debt life stood at 8.08 years (vs. 6.35 years in December 2016).

      Meeting guidance and shareholder remuneration
      Telefónica announced guidance[1] for 2018:

    • Revenues: growing around 1% vs. 2017 (despite the negative impact from regulation, approximately -0.9 p.p.).

    • OIBDA Margin: y-o-y expansion of around 0.5 p.p. (despite regulation dragging -1.6 p.p. to OIBDA y-o-y growth in 2018).

    • CapEx/Sales excluding spectrum: around 15%.

      Telefónica confirms shareholder remuneration for 2017 and announces remuneration policy for 2018:

    • The second tranche of 2017 dividend (€0.20 per share in cash) to be paid in June 2018.

    • Dividend for 2018 of €0.40 per share in cash, to be paid in December 2018 (€0.20 per share) and in June 2019 (€0.20 per share).

      Telefónica

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