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Press release from Business Wire

Telefónica's Revenues Rose 10.8% in the First Quarter of 2011 and the Group Confirms Full-Year Guidance

Friday, May 13, 2011

Telefónica's Revenues Rose 10.8% in the First Quarter of 2011 and the Group Confirms Full-Year Guidance03:45 EDT Friday, May 13, 2011 MADRID (Business Wire) -- The Company's commercial focus on higher-value customers led to a 6% increase in the customer base to 290 million accesses, with significant improvements in the contract mobile segment and growth businessesIn line with the Company's internal forecasts, OIBDA stood at 5,574 million euros (+9%), operating income totalled 3,057 million euros (+4.3%) and consolidated net income amounted to 1,624 million euros (-1.9%). Operating cash flow amounted to4,022 million euros (+2.5%), despite increased investment in transformation and growth projects Between January and March 2011 consolidated revenue increased to 15,435 million euros. Thanks to the Company's successful diversification strategy, strong revenues in Latin America (+26%) and Europe (+8.4%) offset the performance in Spain (-5.6%). The mobile data business reinforces its status as a key growth driver (18.6% year-on-year in organic terms). Almost 71% of revenues and 64% of OIBDA are now generated outside Telefónica España thanks to the Group's high degree of diversification Telefónica Group's (NYSE:TEF) (LSE:TDE) CapEx rose by over 30% in the first quarter of 2011 to 1,551 million euros. This item grew in all regions, with a significant increase of 15.8% in Spain. 81% of the total Capex was directed to investments in the development of broadband services (fixed and mobile) Almost one third of the 223 million mobile accesses are contract (+14.2% year-on-year) and 12% are mobile broadband (26.5 million MBB accesses). Also, at the end of March Telefónica had 17.4 million retail fixed broadband Internet accesses and 2.9 million pay TV customers, up 9% and 10% respectively By country, highlights include the solid performance of the Company's operations in Brazil, where revenue (+6.2% year-on-year organic) and OIBDA (+11.9% year-on-year organic) growth accelerated. In Spain, the Company continued its costs cutting efforts, resulting in a reduction in all operating expenses with the exception of personnel expenses, which advanced 3.2% In the first quarter of 2011 Telefónica's consolidated revenue posted double-digit growth (+10.8%), while the Company's commercial focus on higher-value customers and new services resulted in an increase of more than 6% in the customer base to almost 290.5 million accesses. Significant increases were achieved in the mobile contract segment (+14.2% year-on-year). In line with the Company's internal estimates, OIBDA stood at 5,574 million euros (+9%), operating income totalled 3,057 million euros (+4.3%) and consolidated net income amounted to 1,624 million euros (-1.9%) at the end of March. The Company also generated operating cash flow of 4,022 million euros in the first quarter (+2.5%), despite increased investment in all regions in growth and transformation projects. In the words of Telefónica's executive chairman, César Alierta, “the trends shown by the results in the first quarter allow us to confirm Telefónica's full-year targets.” Alierta also stressed that the Company's overall performance highlights the qualities that set Telefónica apart from other companies: “Our strong diversification, the scale of our business, and our integrated management model have enabled us to increase revenues and maintain a high level of operating efficiency despite the negative performance of our business in Spain.” Telefónica's chairman concluded by underlining the Company's solid performance in Latin America –especially in Brazil–, the increase in mobile broadband – with growing uptake of smartphones – and the performance of new services, which “are enabling us to broaden and strengthen our access base for sustainable growth in the future.” A focus on value and commitment to new services During the first three months of the year, the Company focused its commercial strategy on value rather than volume, with special attention to new services with strong growth, such as mobile broadband. This strategy has led to continued growth in accesses (+6% year-on-year, both in organic and reported terms) to 290.5 million by March 2011. Of particular note are the expansion of the customer base at Telefónica Latinoamérica (+8% year-on-year) and Telefónica Europe (+6% year-on-year organic). By access type, Telefónica's mobile accesses reached 223.1 million by the end of the first quarter of 2011, up 8% year-on-year, both in organic and reported terms. The focus of commercial efforts on higher-value customers and on new services is reflected in the contract segment's growing contribution to net additions, which reached 57% in the first quarter of 2011, leading the total contract customer base to 70.6 million (+14% year-on-year in organic terms), which represents almost 32% of the total mobile access base (+2 percentage points year-on-year in organic terms). Likewise, the strong adoption of mobile broadband services, on the back of increased tariff segmentation and the availability of a higher range of handsets with more competitive prices across all the segments, enabled the Company to reach 26.5 million mobile broadband accesses by the end of March 2011. This figure represents a penetration rate of 12% of Telefónica's total mobile access base, a level that reaches over 20% at Telefónica España and Telefónica Europe. Retail fixed broadband accesses reached a total of 17.4 million, up 9% year-on-year in both reported and organic terms. Bundles of voice, broadband and television services remain key to this strategy and especially to churn control. Both in Spain and in Latin America, 89% of retail fixed broadband accesses are bundled as part of either a dual or triple service package. The number of Pay TV accesses stood at 2.9 million at the end of the first quarter (+10% year-on-year), which represents a pick up in the growth rate thanks to the success of commercial repositioning of the service in Latin America. Fixed telephony accesses totalled 40.9 million, down 2% year-on-year in organic terms. A strong revenue performance underpinned by extensive business diversification It is important to bear in mind that Vivo has been fully consolidated from October 2010 (prior to that date, the results of Vivo were proportionately consolidated). Consequently, this has an impact on the year-on-year comparisons of Telefónica's financial results in reported terms. The increased customer base and the growing contribution from the mobile data business drove growth in revenues, which totalled 15,435 million euros in the first quarter, up 10.8% year-on-year. Telefónica's high-class diversification is a key factor behind the revenue growth. By region, it is particularly noteworthy the sustained year-on-year revenue growth at Telefónica Latinoamérica and Telefónica Europe, which account for 2.4 percentage points and 0.6 percentage points of organic growth in consolidated revenues respectively, and offset the lower contribution from Telefónica España (-1.8 percentage points). In the first quarter, Telefónica Latinoamérica and Telefónica Europe accounted for almost 71% of consolidated revenues, compared to Telefónica España's contribution of around 28%. Consolidated operating expenses for the first quarter totalled 10,176 million euros (+12.8% year-on-year in reported terms), an increase of 2.7% in organic terms. Supply costs amounted to 4,476 million euros, as a result of increased handset costs in the three regions, associated to the growing smartphone adoption across all the markets. Personnel expenses amounted to 2,077 million euros, rising 6.2% in organic terms (+12.8% in reported terms) and Subcontract expenses amounted to 3,129 million euros in the first quarter, up 3.5% on March 2010 in organic terms (+17.6% reported). The average number of employees at the end of March 2011 was 284,352 (25,113 more than at March 2010), mainly due to the larger workforce at Atento. Excluding Atento, Telefónica's consolidated average workforce would stand at 133,834 employees. At the same time, Telefónica's global projects continued to make a positive contribution to consolidated results in the first quarter (69 million euros in revenues and 66 million in OIBDA). Gains on sale of fixed assets totalled 104 million euros during the first three months of the year, including mainly the positive impact of the partial reduction of our economic exposure to Portugal Telecom. High operating efficiencyOperating income before depreciation and amortization (OIBDA) for the first quarter stood at 5,574 million euros, with a solid year-on-year growth rate of 9%. The reported OIBDA margin stood at 36.1% for the first quarter, virtually unchanged year-on-year. By region, Telefónica Latinoamérica's increased its contribution to consolidated OIBDA by 5.6 percentage points year-on-year, to over 45%. This, together with the contribution from Telefónica Europe, meant that nearly 64% of consolidated OIBDA was generated outside Telefónica España in the first quarter of 2011. Depreciation and amortization totalled 2,517 million euros, a year-on-year increase of 15.2% in reported terms. As a result, operating income (OI) in the January-March 2011 period amounted to 3,057 million euros, up 4.3% year-on-year in reported terms. Profit from associates stood at -16 million euros in the quarter versus +36 million euros a year earlier. The year-on-year change is mainly the result of Portugal Telecom's deconsolidation beginning in the second half of 2010 and lower contribution from China Unicom year-on-year. Total financial expenses up to March 2011 reached 579 million euros. Net Financial Debt has been reduced by 1,373 million euros from 2010 year end, due to cash generation net of investments, depreciation of currencies against the euro, higher interest payments and other accounting effects, standing at 54,220 million euros at of the end of March 2011. The leverage ratio, net debt over last twelve months' OIBDA was reduced to 2.4 times at March 2011. Financing activities between January and March During the first quarter of 2011, the financing activity of Telefónica, excluding short term Commercial Paper Programmes activity, rose to approximately 4,000 million equivalent euros, with the main objective of financing in advanced 2011 debt at the Holding level, leading to a cash position at the end of March above the net debt maturities for the year. Telefónica´s average net debt life exceeds 6 years as of March 2011. At the end of March 2011, bonds and debentures represented 63%, on the consolidated financial debt breakdown, while debt with financial institutions reached a 37% weight. Corporate income taxes in the first quarter totalled 728 million euros, which, over an income before taxes amounting to 2,461 million euros, results in an accrued rate of 29.5%. Profit attributable to minority interests dragged 110 million euros to net income in the first quarter. As a result, consolidated net income amounted to 1,624 million euros (-1.9% year-on-year), while basic earnings per share stood at 0.36 euros (-1.5% year-on-year). CapEx stood at 1,551 million euros, up 30.2% on the year-earlier figure. The Company continues to focus its investments on growth and transformation projects (81% of total investment), fostering the development of broadband services, both fixed and mobile. It should be noted that the year-on-year growth in the quarter cannot be extrapolated to the full year given the different levels of execution of CapEx in both years. Consequently, operating cash flow (OIBDA-CapEx) totalled 4,022 million euros in the first quarter of 2011 (+2.5% year-on-year). Telefónica, S.A. Ronda de la Comunicación, s/n 28050 Madrid www.telefonica.es/saladeprensaTelefónicaDirección de Comunicación CorporativaTel: +34 91 482 38 00email: prensa@telefonica.es