Slide 1: Results January – September 2016
Results_ January – September 2016
Slide 2: Disclaimer
Disclaimer This document and the conference-call webcast (including the Q&A session) may contain forward-looking statements and information (hereinafter, the “Statements”) relating to the Telefónica Group (hereinafter, the "Company" or "Telefónica") or otherwise. These Statements may include financi
Slide 3: Q3 16 Highlights
01 Q3 16 Highlights Mr. José María Álvarez-Pallete Chairman & CEO Investor Relations Telefónica, S.A.
Slide 4: Q3: Sustainable improvements on all fronts
Q3: Sustainable improvements on all fronts • Transformation process is paying off o CapEx intensification ahead of peers allowed quality differentiation (Spain, Brazil, HispAm) Strategy is o Transition from voice to data almost concluded; data keeps growing healthy and voice has been largely bundled
Slide 5: New financial objectives to ensure sustainable remuneration and consistent deleverage
New financial objectives to ensure sustainable remuneration and consistent deleverage DPS • 2017 Remuneration 0.75 o €0.40/sh. to be paid in cash in 2 tranches: €0.20/sh. 0.40 in Q4 17 plus €0.20/sh. in Q2 18 • Revised 2016 remuneration o €0.35/sh. in voluntary scrip dividend in Q4 16 plus €0.20/sh.
Slide 6: 2016 Outlook
2016 Outlook 2016 Guidance Guidance 2016E 9M 16 (Constant FX 2015; ex-VZ; ex-UK) Service Revenue >4% +3.0% Revenues +4.4% OIBDA margin Stabilising vs. 2015 +0.4 p.p. CapEx/Sales Around 17% 15.3% 3 Investor Relations Telefónica, S.A.
Slide 7: Financials in a nutshell
Financials in a nutshell 9M 16 Q3 16 Reported Organic Reported Organic € in millions Reported Reported y-o-y y-o-y y-o-y y-o-y Revenue 38,315 (6.7%) 0.8% 13,080 (5.9%) (0.2%) Service revenue 35,511 (5.2%) 2.2% 12,148 (4.1%) 1.4% OIBDA 11,931 (4.6%) 3.1% 4,175 (1.0%) 3.1% OIBDA Margin 31.1% 0.7 p.p.
Slide 8: Robust FCF generation; improving markedly
Robust FCF generation; improving markedly 2016 FCF (€ in millions) 9M FCF (€ in millions) Enhancing performance throughout the year 2,315 1,500 • +€1,109m y-o-y in 9M (+91.9%) 746 1,206 o Lower spectrum, CapEx, financial payments, taxes & dividend to minorities 69 • +€754m q-o-q on the back of impro
Slide 9: Strong recovery in reported OIBDA
Strong recovery in reported OIBDA 2016 Reported OIBDA (y-o-y) FX negative impact to dramatically ease in H2 16 Q1 Q2 Q3 • Sequential improvement of FX y-o-y drag (+3.6 p.p. y-o-y in revenues & +3.4 p.p. in OIBDA mainly due to BRL) (5.7%) (1.0%) • ARS and GBP main FX detractors in Q3 o Q4 15 ARS deva
Slide 10: Steady growth of service revenues
Steady growth of service revenues 2016 Revenues (y-o-y organic) Total Handset sales Service revenues Consistent performance of service revs q-o-q 1.5% 1.4% • Brazil & Hispam accelerating in Q3; UK & Germany improving trends • Q3 total revenue stable even with pressure from handset sales (0.2%) (0.2%
Slide 11: Accelerating organic OIBDA increase
Accelerating organic OIBDA increase 2016 OIBDA (y-o-y organic) 9M organic OIBDA growth across the board 5.5% 3.1% • +240 bps ramped-up in OIBDA q-o-q 0.8% • OpEx discipline continues to excel (Q3: -1.6% y-o-y; Q2: -0.8%) • Extracting savings from merger synergies & cost efficiencies Q1 Q2 Q3 (redund
Slide 12: Outstanding OpCF upturn on higher OIBDA growth
Outstanding OpCF upturn on higher OIBDA growth 2016 OpCF (ex-spectrum; y-o-y organic) High operating leverage 10.8% • Cost & CapEx efficiencies and optimisation 4.9% 9M +5.7% • Brazil & Spain main contributors to organic OpCF o Spain (43% o/total) +7.1% vs. Q3 15 y-o-y ex non- recurrents 1.4% o Braz
Slide 13: High-value strategy across geographies
High-value strategy across geographies Delivering the goods Sep-16 (y-o-y) Excelling in growth Smartphone penetration LTE penetration • Seizing the 4G opportunity (x1.9 LTE accesses vs. Sep-15) 56% (+10 p.p.) 22% (+11 p.p.) • Continued traction in FTTX & VDSL (+26% y-o-y connected cust.) • Strong pr
Slide 14: Significant upside from data consumption
Significant upside from data consumption Sustained data traffic explosion (y-o-y growth) MBB FBB 65% 56% 55% 55% 56% 53% 50% 52% 53% 52% 50% 47% 47% 45% Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Average data consumption per user (GB/month) Higher speeds driving data usage y-o-y CAGR 15-18 (%) • High
Slide 15: Disruptive data proposals; more recurring revenues
Disruptive data proposals; more recurring revenues MBB accesses (y-o-y ) Q3 Data revenues (y-o-y organic) Q2 16 Q3 16 Scale and tiered pricing boosting revenues Smartphone +20% LTE x2.5 16.0% 20.0% • Reaping prepaid opportunity in Latam with recurrent plans 12.0% o Prepaid data ARPU uplift 9.4% 83%/
Slide 16: Digital Services: Value accretive initiatives
Digital Services: Value accretive initiatives Q3 Digital Services Rev. Mix Holistic view beyond connectivity Others 16% Total revs. • VIDEO: Premium content and user experience Cloud 11% Video Q3: €1.2Bn o Spain: Evolved functionalities (Home Zone) 4% 62% 7% o Latam: Premium content agreement with V
Slide 17: TGR: Continued technological transformation
TGR: Continued technological transformation Enlarging UBB footprint Network developments Premises Passed with Fibre (millions) • Network Quality & User Experience enhancement o Real Time network and Quality of Experience monitoring 21.4m o Building a Smart WiFi Home experience 33.7m FTTX FTTH o New
Slide 18: Q3 Results
02 Q3 16 Results Mr. Angel Vilá CSFO Investor Relations Telefónica, S.A.
Slide 19: Spain: Increasing value in customer base
Spain: Increasing value in customer base Net adds (‘000) Q3 15 Q3 16 Churn y-o-y Growing momentum in upselling 0.0 p.p. +0.1 p.p. -1.1 p.p. -0.2 p.p. 159 217 • Early results of new “Movistar Fusión+” (launched in July) 122 45 15 49 o Boost in mobile portability o Highest-ever UBB net adds (12) (44)
Slide 20: Spain: Stable revenue and growing margins
Spain: Stable revenue and growing margins 2016 Revenues (y-o-y organic) Total Handset sales Service Rev. Ongoing growth of service revenues 1.0% 1.1% • Sustained trend despite tougher comps in Q3 0.2% 0.6% o Step up in “Consumer” growth fuelled by “Fusión” (+20.5% y-o-y) (0.1%) o “Business” revenue
Slide 21: Germany: Incremental synergies in H2
Germany: Incremental synergies in H2 Contract net adds (‘000) LTE driving growth 426 • Data monetisation bearing fruits leveraged on 339 o 4G customer base at 10.6m (+12% q-o-q) Q3 contract churn: 1.5% o Avg data usage 1.6 Gb (+15% q-o-q) 181 (-0.2 p.p. y-o-y) • “O2 Free” launch in October supports
Slide 22: UK: Robust performance; market leading loyalty
UK: Robust performance; market leading loyalty Contract net adds (‘000) Blended ARPU ex “O2 Refresh” (y-o-y) Attracting and retaining in contract Continued customer growth in a challenging market 199 Contract • Mobile customer base 25.4m penetration: 62% 115 134 o 45% LTE penetration (+15 p.p. y-o-y
Slide 23: Brazil: ARPU growth in key services
Brazil: ARPU growth in key services Mobile ARPU (y-o-y) Q3 16 9M 16 Data-centric strategy 19% 27% 26% • Mobile 15% Leader in postpaid: o Differential quality network allow us to capture value 42% market share(*) o Q3 contract net adds: 865k (x2.3 q-o-q) Total Data o 54% share in contract net adds in
Slide 24: Brazil: Strong margin expansion; OpCF +38%
Brazil: Strong margin expansion; OpCF +38% Service Revenues (y-o-y organic) Q1 16 Q2 16 Q3 16 Enhanced revenues trend; well ahead of the sector 5.6% Service Rev • Q3 total revs +1.1% in Q3 (9M: +0.9%) despite macro headwinds and 3.0% handset sales (-27.2% in Q3) 2.3% 35% market share 1.1% 1.7% 0.4%
Slide 25: HispAm: Focusing on value growth
HispAm: Focusing on value growth Contract accesses (y-o-y) Contract penetration Maintaining growth despite intense competition 14% 9% 6% 7% • Leadership in contract segment in the region 4% 4% o Contract ARPU >6x prepaid; churn >0.5x o Smartphone & LTE penetration 41% and 12% (+6 p.p. y-o-y respecti
Slide 26: HispAm: OIBDA back to growth; improving profitability
HispAm: OIBDA back to growth; improving profitability Contribution to Revenues growth Q3 (organic y-o-y) Improved financial trends in Q3 4.1% 3.9 p.p. 2.6 p.p. • OIBDA returned to growth y-o-y (+6.3%; Q2: -3.4%); sequential improvement in all countries except México and Peru (1.0 p.p.) (1.4 p.p.) o
Slide 27: Organic deleverage based on strong FCF generation
Organic deleverage based on strong FCF generation Net Financial Debt € in millions Net Financial Net Financial Debt/OIBDA (€2.6 Bn) Debt/OIBDA 3.20x 3.05x 52,568 (1,500) 148 266 (1,000) (360) (138) 49,984 Shareholder Pre- Jun-16 FCF remuneration retirements Hybrid issue Net financial FX, MTM Sep-16
Slide 28: Attractive financing to reinforce liquidity
Attractive financing to reinforce liquidity Interest payments cost Sources of long-term financing (YTD) € in billions 8.8 0.7 1.7 4.8 4.63% 4.31% 0.40 p.p. 1.0 (0.72 p.p.) 0.6 Sep-15 Europe Latam Sep-16 Equity Hybrids Bonds Other bank Latam Total Linked-bond financing Financing (non-dilutive convert
Slide 29: Summary
Summary • Strategy execution: Back to growth o Transformation process paying off o Next steps: accelerate growth • Q3 proof points o Accelerating OIBDA, OpCF, EPS, FCF growth and deleverage o FX drag ease • Sustainable operating improvement o All business units registering better fundamentals o Best
Slide 30: For further information: Investor Relations
For further information: Investor Relations Tel. +34 94 482 87 00 ir@telefonica.com www.telefonica.com/investors