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Press release from Business Wire

Telefónica's Net Profit to September up by 26.4% at 3,455 Million Euros

<p> <span class='bwuline'>The client base has increased by 5% year-on-year and reached 314 million accesses at the end of the third quarter</span> </p> <p> <i>The Company has consolidated the improvement of its quarterly returns in all regions and, between January and September, has recorded year-on-year growth rates of +10.7% and +19.6% in OIBDA and operating income, respectively.</i> </p> <ul> <li class='bwlistitemmargb'> The Company's earnings per share mark a turning point and rise to 0.98 euros per share in underlying terms (0.36 euros in the third quarter), picking up significantly from the previous quarters. </li> <li class='bwlistitemmargb'> The greater cash generated in the third quarter (€ 2,541M, € 4,268M since January) and the execution of the divestment programme and asset portfolio management, including events following the close of the quarter, have enabled almost 5,500 million euros to be trimmed from its net financial debt since the end of June to 52,823 million euros. This is in line with the Company's objective to cut the leverage ratio (net debt over OIBDA) to 2.35 times by the end of the year. </li> <li class='bwlistitemmargb'> Thanks to an active financing policy (€ 13,000 million so far this year), Telefónica has already covered its debt maturities until after 2014, with a net liquidity position of €18,000 million. </li> <li class='bwlistitemmargb'> The revenue generated by Telefónica Latin America exceeded for the first time in history the weighting of revenue from operations in Europe and now represent 49% of the Company's total turnover, which has remained stable at 46,519 million euros. Both Latin America (+5.9%) and mobile data (+14.2%) continue to be growth drivers for the Group. Both aspects underline the value of diversification as Telefónica's strength. </li> <li class='bwlistitemmargb'> In the first nine months of the year, the greatest efficiencies stemming from the transformation initiatives and from the benefit of Telefónica's scale have driven OIBDA to 15,782 million euros. The operating result has reached 8,009 million euros. </li> <li class='bwlistitemmargb'> In operational terms, 78% of the Group's clients are mobile accesses, amounting to 246 million (+6%), supported by the sustained growth in contract users (+7%; especially in Latin America, +12%). Mobile broadband access has grown at solid rates of +40% year-on-year and already accounts for 47.7 million accesses. In Telefónica's European operations, one third of mobile clients are already using mobile broadband thanks to the increasing adoption of smartphones. </li> <li class='bwlistitemmargb'> The Company is advancing in its transformation process to become a “Digital Telco” with major milestones such as the launch of the best convergent offer in Spain, the new IPTV platform in Brazil and the development of new M2M services. </li> </ul>

Wednesday, November 07, 2012

Telefónica's Net Profit to September up by 26.4% at 3,455 Million Euros04:08 EST Wednesday, November 07, 2012 MADRID (Business Wire) -- Between January and September, 2012, the Telefónica Group has achieved a consolidated net profit of 3,455 million euros, implying growth of 26.4% with respect to the same period in 2011. At the close of the year's third quarter, the Company has consolidated the quarter-on-quarter improvement in returns in all regions and, between January and September, has recorded year-on-year growth of +10.7% and +19.6% in OIBDA (€ 15,782M) and operating result (€ 8,009 M), respectively. In addition, the revenue generated by Telefónica Latin America at the end of September has for the first time in history exceeded the weighting of revenue from operations in Europe to represent 49% of the Company's total turnover, which has remained stable at 46,519 million euros. In the management report on the third-quarter results, the Executive Chairman of Telefónica, César Alierta, has underscored the highly visible progress achieved in issues of great priority for the Company over the last few months. In this sense, he stressed that in “the third quarter of the year there has been a consolidation of the recovery trend initiated in the second quarter, with an outstanding sequential improvement in underlying earnings per share, which stood at 0.36 euros per share in the quarter (0.98 euros at the end of September), returning to positive year-on-year growth.” Alierta also points out the strengthening of the financial positioning of the company, thanks to the debt reduction and a proactive refinancing policy. Furthermore, the Executive Chairman of Telefónica has highlighted that “from a strategic standpoint, we continue making progress in our transformation into a “Digital Telco” and we are making further progress in our transformation journey and the results achieved so far make us feel more positive about the future despite tough conditions”. Greater efficiencies and more financial flexibility Telefónica's results in the third quarter of the year showed significant progress in priority areas for the Company. Earnings per share registered an outstanding improvement in the quarter, delivering positive year-on-year growth in underlying terms. This improvement reflected sequential OIBDA growth in absolute terms across all regions, and a quarter-on-quarter improvement in underlying terms in the consolidated OIBDA margin, reflecting transformational initiatives and cost-reduction measures undertaken in all countries. In this sense, particularly noteworthy were the removal of handset subsidies for new customers acquisition in Spain from March this year -this is already leading to significant savings in commercial expenses-, the gradual reduction of subsidies in the UK, the focus on quality as a key lever to reduce churn, and network-sharing agreements reached with other operators in the UK and Mexico. Moreover, the higher efficiency reflects the benefits of our scale. Telefónica Global Resources is consistently contributing to higher efficiencies and cost reduction, driven by new ways of sourcing, building and operating our networks and IT. Meanwhile, the third quarter also featured a considerable reduction in net financial debt, reflecting the Company's strategy of increasing its financial flexibility and improving its liquidity position. In addition, the Company advanced further on the capture of new growth opportunities in the digital world in the third quarter, with initiatives such the joint-venture in the UK for mobile payment and advertising approved by the European Union authorities, the agreement signed with Aurasma, the world's leading augmented-reality platform, and the launch of Amérigo, a 300 million euros network of private equity funds, among others. Customer base: 314 million accessesTotal accesses increased by 5% year-on-year to 314 million by the end of September 2012, driven by the increase in mobile accesses, fixed and mobile broadband, and pay TV accesses. Noteworthy was the 8% year-on-year increase in accesses at Telefónica Latinoamérica (67% of the total). Mobile accesses stood at 246 million at the end of the third quarter (+6% year-on-year), driven by a sustained growth in mobile contract accesses (+7% year-on-year), accounting for 33% of total mobile accesses. Mobile net additions in the first nine months totalled 10.5 million accesses (excluding the disconnection of 3.6 million inactive prepay mobile accesses in Spain and Brazil). The Company's mobile broadband accesses maintained solid growth of 40% year-on-year to 47.7 million at the end of September 2012, and accounted for 19% of mobile accesses (+5 percentage points year-on-year). It should be highlighted the continued smartphone adoption by our customers (with attached data tariffs), with 10.0 million net additions in the first nine months of 2012 (+14% year-on-year). Telefónica's retail fixed broadband accesses increased by 4% year-on-year to 18.5 million at the end of September 2012, with 458 thousand net additions, reflecting the sustained growth of Telefónica Latinoamérica. Retail fixed broadband accesses reached a penetration rate of 47% over total fixed accesses. Analysis of the operating statementRevenues in the first nine months of 2012 totalled 46,519 million euros, virtually unchanged year-on-year (-0.3%). This performance reflects the Company's high diversification, a key differentiating factor in the current environment characterised by adverse economic conditions, more intense competition and negative effects of regulation in some countries. Excluding the negative effect of regulation, revenues rose by 1.1% year-on-year vs. the first nine months of 2011. By region, Telefónica Latinoamérica's revenues continue to show strong year-on-year growth (+5.9%) and now account for 49% of consolidated revenues (+2.9 percentage points year-on-year), for the first time exceeding revenues from the European operations (48% of the total). Telefónica España's contribution decreased to 24% of consolidated revenues. Mobile data revenues continue to post a solid growth during the first nine months of 2012 (+14.2% year-on-year), contributing more than 34% to mobile service revenues during the period. Also, non-SMS mobile data revenues have posted a significant increase (+25.3% year-on-year), representing 57% of total mobile data revenues. Consolidated operating expenses amounted to 31,663 million euros, down 5.4% vs. the first nine months of 2011 (-21.1% in the third quarter). It should be noted that reported year-on-year comparison is affected by the provision for expenses related to the redundancy program in Spain booked in the third quarter of last year (2,671 million euros). Supplies in the January-September 2012 period totalled 13,403 million euros and were flat year-on-year in reported terms. Subcontract expenses (10,113 million euros) rose by 5.5% year-on-year compared to the first nine months of 2011 (+5.5% organic), with a sequential decrease in year-on-year growth in the third quarter, mainly due to efficiencies implemented and reflected in a general reduction of commercial costs. Finally, personnel costs stood at 6,507 million euros, down 27.0% year-on-year, affected by the aforementioned provision associated with the redundancy program in Spain. The average headcount was 286,249 employees (1,186 employees more than the average for the first nine months of 2011), mainly due to the higher workforce at Atento. Excluding Atento, Telefónica's average workforce stood at 132,192 employees. Gains on sales of fixed assets in the first nine months of the year stood at 289 million euros, similar to the same period of 2011 (293 million euros). This heading in 2012 included mainly the following: the impact of the sale of non-strategic towers, with an impact in OIBDA of 289 million euros; the gain from the sale of applications in the second quarter (39 million euros; 18 million euros in Telefónica España); and the capital loss on the sale of shares of China Unicom (97 million euros in the third quarter). Better OIBDA behaviour in all regions In the first nine months of 2012, operating income before depreciation and amortisation (OIBDA) amounted to 15,782 million euros and recorded an improvement vs. the first half thanks to a sequential improvement in all regions. Thus, OIBDA in the third quarter amounted to 5,448 million euros in underlying terms, up 1.8% from the second quarter despite lower revenues. OIBDA margin in January-September 2012 stood at 33.9% (-1.7 percentage points year-on-year in underlying terms). It should be highlighted that the OIBDA margin in underlying terms posted a sustained sequential improvement to 35.1% in the third quarter compared to 34.6% in the second quarter and 32.8% in the first quarter. By region, Telefónica Latinoamérica continues increasing its contribution to consolidated underlying OIBDA, accounting for 50% (+3.7 percentage points vs. September 2011). Telefónica Europe represents the remaining 50%, with Telefónica España decreasing to less than a third of the total (32%). Depreciation and amortisation in the first nine months of 2012 (7,773 million euros) increased by 2.9% year-on-year and was up 1.7% year-on-year in the third quarter, mainly due to the amortisation of the new spectrum acquired in Germany, Brazil, Colombia, Spain, Mexico and Venezuela. In the first nine months of 2012, operating income (OI) totalled 8,009 million euros, particularly improving in the third quarter. Profit from associates stood at -486 million euros in the first nine months of 2012 vs. -506 million euros during the same period in 2011, mainly due to Telco, S.p.A.'s adjustments of the value of its investment in Telecom Italia, as well as to the operating synergies achieved, with both effects totalling -542 million euros in 2012 and -505 million euros in 2011. It should be pointed out that these effects were non-cash impacts. Financial positionNet financial expenses for the first nine months of the year 2012 reached 2,419 million euros (+18.3% year-on-year). This yielded an effective cost of debt of 5.65% in the last 12 months. Free Cash Flow for January-September 2012 amounted to 4,268 million euros posting an improvement in the third quarter (2,541 million euros) compared to the first half of 2012, in line with Company estimates. At the end of September 2012, net financial debt amounted to 56,006 million euros, posting a significant reduction in the third quarter (-2,304 million euros). After the closing of the third quarter, the company has executed an efficient asset portfolio management and a successful divestment program to reach a total debt reduction of 5,500 million euros since the end of June. Thus, the current net financial debt stays at 52,823 million euros, in line with the objective to reach a leverage ratio (net debt over OIBDA) of 2.35 times, versus 2.44 times at the present moment. During the first nine months of 2012, Telefónica's financing activity, excluding short-term Commercial Paper Programmes activity, stood at nearly 11,900 million equivalent euros and has exceeded the amount raised in fiscal year 2011. It is worth to highlight the strong refinancing activity since the end of August until mid-October, when the Company raised around 5,375 million euros equivalent in the credit markets, improving significantly the Company's liquidity position. The financing activity was focused on financing in advance debt maturing in 2012, and smoothing the debt maturity profile for 2013 and 2014 at the Holding level. Therefore, the Company maintains a debt maturity profile covered beyond 2014. At the end of September 2012, bonds and debentures represented 64% of consolidated financial debt breakdown, while debt with financial institutions weighted 36%. Corporate income tax for the first nine months of 2012 totalled 1,358 million euros which, while profit attributable to minority interests dragged net income by 291 million euros in the first nine months of 2012. As a consequence of the items mentioned above, consolidated net income in the January-September 2012 period stood at 3,455 million euros (+26.4% year-on-year), while basic earnings per share increase to 0.98 euros per share in underlying terms. It should be highlighted that underlying earnings per share registered an important improvement in the third quarter, standing at 0.36 euros per share and growing both sequentially (+4.8%) and year-on-year (+0.5% vs. -20.3% in the second quarter and -25.7% in the first quarter). CapEx for the first nine months of the year totalled 5,699 million euros. In organic terms, CapEx rose year-on-year by 3.5%. The Company continues to devote the bulk of its investment to growth and transformation projects (81% of total investment), fostering the expansion of high speed broadband services, both fixed and mobile. The CapEx over sales ratio (excluding spectrum investments) was 12.2% in the first nine months of 2012. Operating cash flow (OIBDA-CapEx), excluding spectrum investment, stood at 10,122 million euros for the first nine months of 2012 (+16.1% year-on-year). Telefónica, S.A.Dirección de Comunicación CorporativaRonda de la Comunicación, s/n+34 91 482 38 00prensa@telefonica.eswww.telefonica.es/saladeprensa