Slide 1: Results January-December 2011
Results January-December 2011 Investor Relations Telefónica, S.A.
Slide 2: Disclaimer
Disclaimer This document contains statements that constitute forward looking statements about Telefónica Group (going forward, “the Company” or Telefónica) including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which ma
Slide 3: Agenda
Agenda 2011 results and 2012 priorities 2011 HIGHLIGHTS, 2012 STRATEGIC Mr. César Alierta 01 PRIORITIES AND GUIDANCE Executive Chairman and CEO 2011 FINANCIAL RESULTS, CAPITAL Mr. Ángel Vilá 02 STRUCTURE AND BUSINESS PRIORITIES Chief Finance and Corporate Development Officer Investor Relations 3 Tel
Slide 4: 2011 Highlights, 2012 Strategic Priorities and Guidance
01 2011 HIGHLIGHTS, 2012 STRATEGIC PRIORITIES AND GUIDANCE Mr. César Alierta Investor Relations 4 Telefónica, S.A.
Slide 5: Solid financial results against a difficult backdrop
TELEFÓNICA 01 2011, a year of record FCF generation and significant progress globally and vertically STRENGTHENED FRANCHISE IN Solid financial results against a LATAM difficult backdrop REINFORCED INCREASED • Steady revenue growth (+3.5%) driven by key LIQUIDITY SCALE & POSITION SCOPE growth engines
Slide 6: Record yearly FCF generation
TELEFÓNICA 01 Record yearly FCF generation FCF Generation Outperforming top European based peers1 € in billions € in billions 9.3 8.9 9.3 7.8 7.2 +9.5% 6.4 6.3 5.8 -4.5% -1.9% -6.3% -7.2% Average Average FY 11 TEF Competitor A Competitor B Competitor C Competitor D FY 02 - FY 07 FY 08 - FY 10 1. Sou
Slide 7: New strategic boost from last summer to drive transformation
TELEFÓNICA 01 New strategic boost from last summer to drive transformation and increase our growth potential Progress in our transformation New organization, journey to foster enhanced position in growth the value chain New shareholder remuneration targets, increased financial Refocused flexibility
Slide 8: Strong investments in customer expansion, setting stage for future growth
TELEFÓNICA 01 Strong investments in customer expansion, setting stage for future growth Decisive commercial actions to regain Accesses growth organic (y-o-y) momentum already bearing fruits across the board (Figures in millions) Net adds H1 11 Net adds H2 11 Total: 307 m 12.9 12.7 61% 19% 7.5 7.1 7.
Slide 9: Delivering growth from data on rapid adoption of MBB
TELEFÓNICA 01 Delivering growth from data on rapid adoption of MBB Data penetration (Dec-11) FY 11 mobile data revenue growth (organic y-o-y) Smartphone MBB Total mobile data Non-SMS data P2P SMS +3.6% y-o-y 29% 31% 49% 26% 28% 38% 34% 16% 32% 13% 24% 19% 10% 7% 11% 11% TEF T. España T. Europe T. La
Slide 10: Monetising the MBB explosion
TELEFÓNICA 01 Monetising the MBB explosion Data traffic converging to revenue growth T. Europe1 +65% +39 p.p. +46% +17 p.p. Traffic (y-o-y growth) • Major focus on smartphones : 2 Non-SMS data revenue (y-o-y growth) ARPU uplift 1.5x +26% +29% Higher profit up to 1.4x Q1 11 Q4 11 • Pricing consis
Slide 11: Building on our strengths to successfully execute our growth strategy in 2012
TELEFÓNICA 01 Building on our strengths to successfully execute our growth strategy in 2012 Telefónica strengths • Robust outlook for Latam, where structural growth 38% 47% remains intact and we have strengthened our lead Environment Revenues • Enhanced positioning in the growing German outside Euro
Slide 12: Telefónica Digital, our platform to monetise the opportunity in the digital world
TELEFÓNICA 01 Telefónica Digital, our platform to monetise the opportunity in the digital world Unique combination of Assets and Capabilities To bolster revenue growth leading to a strong position in a changing Digital Environment Combination of Fixed & Strength in Enterprise & Mobile Delivery Gover
Slide 13: Best in class networks place us in the best position to maximise value
TELEFÓNICA 01 Best in class networks place us in the best position to maximise value across the whole value chain Single & Ubiquitous End-to-End Quality of Service Guaranteed5 Telefónica Digital Customer Experience Core network + Computing&Storage ~ 5M Kms terrestrial fiber >100K Servers worldwide F
Slide 14: In 2012 we will further advance in our transformation journey
TELEFÓNICA 01 In 2012 we will further advance in our transformation journey, prioritising investments to drive forward growth Foster Revenue Growth • Strong commercial momentum to reinforce competitive position with 2012 GUIDANCE focus on FBB & MBB • Launch of Telefónica Digital FINANCIAL GUIDANCE:
Slide 15: A very attractive shareholder remuneration fully covered by FCF generation
TELEFÓNICA 01 A very attractive shareholder remuneration fully covered by FCF generation Total declared shareholder remuneration (€ per share) Remuneration cash outflow per year Dividends Share buyback € in billons Timing of cash out-flows depending on Mix to be decided interim payments and path of
Slide 16: 2011 Financial Results, Capital Structure and Business Priorities
02 2011 FINANCIAL RESULTS, CAPITAL STRUCTURE AND BUSINESS PRIORITIES Mr. Ángel Vilá Investor Relations 16 Telefónica, S.A.
Slide 17: 2011 Key financials
TELEFÓNICA 02 2011 Key financials Jan-Dec Jan-Dec Jan-Dec Underlying Underlying Reported 2011 2011 2010 Change Change y-o-y Change € in millions Reported Underlying Underlying y-o-y ex-MTRs y-o-y Revenues 62,837 62,837 60,737 +3.5% +4.8% +3.5% 20,210 22,697 23,188 -2.1% -1.3% -21.6% OIBDA OIBDA Marg
Slide 18: 2011 Organic evolution
TELEFÓNICA 02 2011 Organic evolution Jan-Dec Jan-Dec Jan-Dec Organic Organic 2011 2011 2010 Change Change y-o-y Reported Organic Organic y-o-y ex-MTRs € in millions Revenues 62,837 63,104 63,058 +0.1% +1.4% OIBDA 20,210 22,784 24,017 -5.1% -4.3% OIBDA Margin 32.2% 36.1% 38.1% -2.0 p.p. Operating Inc
Slide 19: Best portfolio diversification drives revenue growth
TELEFÓNICA 02 Best portfolio diversification drives revenue growth Revenue contribution to FY 11/10 growth 5.7 p.p. +3.5% Europe1 0.4 p.p. T. Latam Others & TEF Eliminations -2.7 p.p. FY 11 Revenue OIBDA1 Brazil: 52% 48% Brazil: 52% 47% 23% (-4 p.p.) (+4 p.p.) 23% (-4 p.p.) (+4 p.p.) (+4 p.p.) (+6 p
Slide 20: Industry leading profitability
TELEFÓNICA 02 Industry leading profitability Organic OIBDA margin 38.1% 36.1% Limited y-o-y (1.2 p.p.) (1.0 p.p.) 0.2 p.p. erosion FY 10 Commercial Costs Network Others FY 11 & System costs Truly exploiting our unique scale, scope • Record smartphone sales in FY11 drive rise in and global projects t
Slide 21: Strong CapEx to deliver long-term growth
TELEFÓNICA 02 Strong CapEx to deliver long-term growth FY 11 CapEx (ex-spectrum) FY 11 Spectrum Organic y-o-y change 37 10,224 349 68 € in millions 842 306 8,929 1,705 -3.8% 2,072 +2.6% 4,845 +6.6% T. Latam T. España T. Europe Others& TEF T. España Brazil Costa Rica Colombia TEF Eliminations • Impro
Slide 22: Strong FCF allows for debt reduction
TELEFÓNICA 02 Strong FCF allows for debt reduction Net Financial Debt evolution € in millions € 1.6bn 55,593 -9,270 +1,590 +346 56,304 ~1,500 ~54,804 +807 53,982 +386 +6,852 Net Financial Debt/ OIBDA1 2.46x Net Fin. Debt FCF Dividends Commitments Net Fin. Debt Net share Net Financial FX & Others Net
Slide 23: Active financial management to minimize cost and maximize cash preservation
TELEFÓNICA 02 Active financial management to minimize cost and maximize cash preservation Effective Interest Cost (ex-FX) Effective Financial Cost 5.00% 4.91% 5.30% 5.22% Beating guidance 5%-6% Dec-10 Dec-11 Dec-10 Dec-11 LatAm gross repatriation (€ Bn) Cash tax rate 1 26% 21% 3.3 2.0 Beating guidan
Slide 24: Strong liquidity position, proactive refinancing
TELEFÓNICA 02 Strong liquidity position, proactive refinancing Cash & increased available credit lines Balanced access to markets € in billions € in billions 10.1 Total 2011 financing 9.0 € 11.5 Bn 5.1 76% LT 4.4 4.0 3.1 57% LT Cash & cash equivalents Undrawn credit Undrawn credit Bonds Bank lending
Slide 25: 2012 outlook: Increase financial flexibility, maximise value
TELEFÓNICA 02 2012 outlook: Increase financial flexibility, maximise value • Improve leverage ratio towards target: Net financial debt/OIBDA < 2.35x 1 REDUCE LEVERAGE • Rating preservation • Fully sustainable levels COMPELLING EARLY PROACTIVE • 2012 maturities • Dividend not to be paid REMUNERATION
Slide 26: Latam: Solid operating momentum heading into 2012
T. LATAM 02 Latam: Solid operating momentum heading into 2012 • Increased activity along the year Mobile Mobile Net adds net adds (m)1 evolution (m) (1) • Strengthened lead in contract & MBB: Organic y-o-y 66% 59% o Largest contract base in the region: 35 m, 12% 7.5 Strong mobile +18% y-o-y 3.9 4.6
Slide 27: Increased investments for future growth in the region
T. LATAM 02 Increased investments for future growth in the region OIBDA drivers (y-o-y) +5.6 p.p. SAC y-o-y Profitability • Higher gross adds and different mix Margin +3.0 p.p. -10% impacting OIBDA y-o-y 37.4% +3.4 p.p. impacted by commercial costs • Drag from Mexico, heavily hit by unexpected inter
Slide 28: Brazil: 2011 a year of progress on multiple fronts
T. LATAM 02 Brazil: 2011 a year of progress on multiple fronts NPV. € Bn 4.4/4.8 3.3/4.2 2.3/2.7 2.7/3.1 • Corporate restructuring completed Integration and 1.0/1.5 ≥1.7 • Integration synergies upgraded transformation Operating synergies Financial & tax Total sinergies Prepaid + • New services launc
Slide 29: Brazil: Strengthened leadership and solid profitability
T. LATAM 02 Brazil: Strengthened leadership and solid profitability Mobile net adds (millions)1 Mobile market share (Dec-11)2 • Mobile net adds x2 vs. FY 10 y-o-y 5.5 FY 11 • Market share gains in high value 36.6% 43.4% segments, leveraging quality, 3.0 29.5% Record 2.6 coverage and product innovati
Slide 30: South Region: further advances to transform the businesses
T. LATAM 02 South Region: further advances to transform the businesses Contribution to TEF Revenue FY 11 FY Revenue y-o-y organic Argentina • Solid double digit top line Peru • Top line growth acceleration thought the year • Healthy OIBDA growth (+11.1% y-o-y in FY 11) (+7.0% in Q4 y-o-y) • Strong c
Slide 31: North Region accelerating growth
T. LATAM 02 North Region accelerating growth Contribution to TEF Revenue FY 11 FY Revenue y-o-y organic Venezuela • Commercial activity improvement in Q4; 27% MBB penetration • Acceleration in top line growth (+12.3% organic y-o-y in Q4) boosted by outgoing revenues 4.3% • Mobile data revenue is 36%
Slide 32: 2012 outlook: Ramp-up in growth leveraging best asset portfolio in Latin America
T. LATAM 02 2012 outlook: Ramp-up in growth leveraging best asset portfolio in Latin America Growth acceleration in 2012 as basis Further growth leveraging diversification are firmly set in the region • Consolidate mobile leadership in all Sustain strong segments • Foster FBB & MBB penetration (bund
Slide 33: T. Europe: Improving commercial momentum, leading MBB adoption
T. EUROPE 02 T. Europe: Improving commercial momentum, leading MBB adoption in our markets T. Europe FY 11 net adds (thousands) Mobile Contract Retail FBB 714 Ramp-up in • Leverage on new commercial proposition 599 488 419 results on commercial turnaround commercial activity • Focus on value custome
Slide 34: Spain: New offerings already paying-off
T. EUROPE 02 Spain: New offerings already paying-off Turnaround of FBB net adds, Record mobile net adds since Q4, ARPU trends continue improving very healthy data ARPU • Back to positive net adds in Q4 • Improvement across segments driven by new contract and prepay • Inflection point in FBB churn, d
Slide 35: Spain: Significant progress in strategic areas in 2011
T. EUROPE 02 Spain: Significant progress in strategic areas in 2011 Headcount reduction Benefits from • Wage increase below CPI, leveraging • 1,925 left the company at new collective increased flexibility 6,500 FY 11 bargaining, fast • 36% of potential headcount reduction • 434 have left in Jan-12 e
Slide 36: Spain: A clear roadmap to turn around commercial momentum in 2012
T. EUROPE 02 Spain: A clear roadmap to turn around commercial momentum and improve financial performance in 2012 Focus on customer satisfaction leveraging new commercial propositions and enhanced customer experience New price points will allow us to increase effectiveness of commercial costs ACT
Slide 37: UK: Stronger finish to the year in commercial terms
T. EUROPE 02 UK: Stronger finish to the year in commercial terms Contract net adds („000) Contract upgrades (y-o-y) • Commercial refocus from August to face a challenging economy and increased competition 175 Increased • Best quarterly contract net adds in Q4 11 151 commercial • Stable contract chur
Slide 38: UK: Robust mobile data offset by adverse market conditions
T. EUROPE 02 UK: Robust mobile data offset by adverse market conditions Data revs/MSR Smartphone penetration • Increased smartphone penetration (+9 p.p. y-o-y) Sustained • >80% consumer contract data base on tiered plans 43% 45% 46% 47% leadership in >80% choosing higher-priced plans 33% 35% 36% 3
Slide 39: Germany: a story of success in a profitable market
T. EUROPE 02 Germany: a story of success in a profitable market FY 11 Contract net adds („000) 271 Strong • O2 Blue tariff re-launched in H2 11 206 252 252 trading • Contract churn improvement momentum • Continued success in partner & business 1.9% 1.8% Churn maintained channels Q1 Q2 Q3 Q4 Mobile r
Slide 40: 2012 outlook: Strengthening positions in two key markets
T. EUROPE 02 2012 outlook: Strengthening positions in two key markets Significant customer investments, better We aim to continue outperforming in a revenue dynamics profitable market • Recover momentum towards stabilisation • Push data penetration, building high value High-value of revenue share sm
Slide 41: Czech R.: Outstanding OpCF, sustained improving trends
T. EUROPE 02 Czech R.: Outstanding OpCF, sustained improving trends • Contract mix 62% driven by MBB (16% FBB base („000) Mobile net adds („000) penetration, up 4 p.p. y-o-y) Robust • Solid prepay net adds boosted by Xmas 840 103 campaign 59 commercial ~4x momentum • Enhanced churn in fixed and mobi
Slide 42: Making the most from our new global units
TELEFÓNICA 02 Making the most from our new global units TELEFÓNICA GLOBAL TELEFÓNICA DIGITAL RESOURCES • Launch a new range of digital services in • Increase savings in procurement: high potential marketplaces: o Global handset portfolio: from 234 handsets o Financial services: Mastercard JV in Lata
Slide 43: Closing remarks
TELEFÓNICA 02 Closing remarks • Our business has the right fundamentals for sustained profitable growth • We have recorded a promising commercial momentum heading to 2012 • In 2012 we are prioritising investments to drive forward growth • We are determined to increase financial flexibility • We are
Slide 44: Organic growth notes
Organic growth: In financial terms, it assumes constant average exchange rates as of January-December 2010, and excludes changes in the perimeter of consolidation and hyperinflation accounting in Venezuela. Therefore, in January-December 2010 the consolidation of Vivo, HanseNet and Tuenti are includ