Telefonica Sa · BME:TEF

Telefonica Sa — FY2006 Earnings Presentation

45 slides from Telefonica Sa's earnings presentation, Mar 1, 2007

  1. Slide 1: Annual Results January – December 2006

    Annual Results January – December 2006 TELEFONICA S.A. March 1st, 2007 This presentation is being broadcast live on the Internet

  2. Slide 2: Disclaimer

    Disclaimer This document contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, b

  3. Slide 3: 2006 performance strengthens our profile as the best combination of growth & returns

    GROUP FINANCIALS 2006 performance strengthens our profile as the best combination of growth & returns in the industry 4 areas of management focus in 2006... ...that delivered tangible results 1 Fuelling our unique +42.9% EPS growth growth profile 2 Extracting value from >1 bn.€ of synergies deeper i

  4. Slide 4: A solid set of results in 2006, outperforming sector average

    GROUP FINANCIALS A solid set of results in 2006, outperforming sector average… € in millions (% change y-o-y) Jan-Dec Jan-Dec % Change % Change 2006/2005 2006 2005 2006/2005 organic 1 Revenues 52,901 37,383 +41.5% +7.8% Operating Income before D&A 19,126 15,056 +27.0% +6.4% (OIBDA) Operating Income

  5. Slide 5: Hitting our P&L targets at the Group level, after 3Q06 upgrade

    GROUP FINANCIALS Chairman …hitting our P&L targets at the Group level, after 3Q06 upgrade Revenue Growth OIBDA Growth +38.8% +28.9% 9 9 GUIDANCE GUIDANCE High end of >37% 26% / 29% (lifted in 3Q06) (lifted in 3Q06) % Change 2006/2005 % Change 2006/2005 OI Growth CapEx +29.2% 7,749 GUIDANCE 26% / 30%

  6. Slide 6: Pushing underlying EPS up by almost 23%

    GROUP FINANCIALS …and pushing underlying EPS up by almost 23%... € in millions (% change y-o-y) +27.0% +12.7% +40.2% „861 M€ (O2’s PPA) „155 M€ (Cesky’s PPA) Including 2006 results & capital gains (1.6 bn€) from TPI 19,126 9,421 +1,250 -9,704 77 (c.s.) 6,233 (+45.0%) (c.s.) -2,734 (+68.0%) -1,781 (-

  7. Slide 7: Drive on subscriber acquisition and retention

    GROUP FINANCIALS …as we leveraged our drive on subscriber acquisition and retention Total accesses (in millions) Organic annual Commercial expenses 1 +13.6% growth rate (€ in billions) +32.4% 203.2 +6.0% 9.2 153.5 8.6 2005 2006 Dec.05 Dec.06 CapEx spending (€ in millions) Organic annual +7.7% growth

  8. Slide 8: A highly diversified financial performance

    GROUP FINANCIALS A highly diversified financial performance… 2005 2006 ROW Europe ROW 1% 6% 1% Europe 26% Spain Revenues 38% by LatAm Spain region 42% 51% LatAm 35% Europe ROW ROW 6% 0.2% 0.2% Europe 20% OIBDA LatAm Spain by 36% 44% region Spain 58% LatAm 36% TELEFONICA S.A. Note: before elimination

  9. Slide 9: Continuous focus on cost management to keep profitability

    GROUP FINANCIALS …and a continuous focus on cost management to keep profitability despite our commercial efforts OpEx1 Organic 2 Growth -3.1 p.p. +12.2% +12.0% +9.6% +9.4% +9.0% 2005 1Q06 1H06 9M06 2006 2006 OIBDA Margin Organic2 OIBDA Margin -0.5 p.p. 40.8% 37.7% 37.2% 31.6% 36.2% Fixed 3 Mobile 3

  10. Slide 10: Spain: reinforced market position in 2006

    SPAIN Spain: reinforced market position in 2006 Unique growth & profitability profile „ Strengthening the lead in the BB market through the development of 2P & 3P and capturing market share in Pay TV, while limiting traditional lines losses „ Strong top-line performance with the transformation towar

  11. Slide 11: Telefónica de España: a push in ARPU that leads to unique top line growth

    SPAIN WIRELINE Telefónica de España: a push in ARPU that leads to unique top line growth ARPU TRANSFORMING THROUGH THREE KEY AXIS (€/month) „ Expanding BB customer base +4.3% 64 23.5% of lines have BB (16.9% in 2005) 61 „ Promoting 2P/3P (ARPU uplift & loyalty) 71% of retail BB accesses with 2P/3P „

  12. Slide 12: Leading broadband development in the Spanish market

    SPAIN WIRELINE Leading broadband development in the Spanish market… Spanish BB market Spanish BB market (accesses in millions) (accesses in millions) +1.7 +34% 6.7 +0.55 +9% 6.7 TdE Retail 60% TdE Retail 60% ULL 30% 6.1 TEF’s momentum 5.0 Cable 17% maintained in 4Q06 TdE Whl. -8% Dec.05 2006 net add

  13. Slide 13: Containing traditional business erosion

    SPAIN WIRELINE …and containing traditional business erosion… TdE fixed lines trend Flat & Semi-Flat Rates for voice (in thousands) (customers in millions) -1.2% 15,950 +60% 4.6 2.9 2005 2006 Net loss Net loss Total lines Dec.05 Dec.06 -185.7 Dec.06 -199.2 -6.8% Estimated Traffic % Change (Million mi

  14. Slide 14: Strong focus on operational efficiency

    SPAIN WIRELINE …with a strong focus on operational efficiency Group OpEx Breakdown (€ in millions) +5.1% -0.2% -19.8% -0.4% +3.7% 503 7,582 477 -1.1% 1,302 203 6,602 2,971 +0.7% Annual growth rate 2,125 Personnel Supplies External Taxes Operating 2006 initial 2006 Operating ex-ERE Services Expenses

  15. Slide 15: Unique profile in terms of profitability

    SPAIN WIRELINE Unique profile in terms of profitability Group Adjusted OIBDA1 for Group OIBDA guidance calculation (€ in millions) (€ in millions) -4.4% +6.4% 2006 target 4,784 5,072 4,572 4,766 >5% 503 M€ additional ERE provision registered in 4Q06 is not included for guidance calculation 2005 2006

  16. Slide 16: Telefónica Móviles Spain: a record Xmas campaign since 2001

    SPAIN WIRELESS Telefónica Móviles Spain: A record Xmas campaign since 2001… 4Q06 performance Gross Adds Churn Net adds Postpay Postpay (in millions) (%) (in thousands) Total +66% Total +21% 401 414 426 1.5 1.3 1.7 1.7 257 1.1 0.9 4Q05 4Q06 4Q05 4Q06 4Q05 4Q06 „ > 1.2M customers joined on-net Xmas Ma

  17. Slide 17: Commercial strategy focused on value

    SPAIN WIRELESS …which has reinforced the success of our commercial strategy, focused on value… 2006 performance 2006/2005 Churn Number Portability (%) Postpay (in thousands) Postpay +70% Total Total +18% 1.8 1.7 278 93% 1.1 contract 1.0 180 175 Gross Adds Net Adds 2005 2006 -116 2005 2006 Customer g

  18. Slide 18: Stimulation of voice and data usage

    SPAIN WIRELESS … and on the stimulation of voice and data usage 2006 (y-o-y growth rates) INCOMING ARPU Growth MOU Growth 1.7% TOTAL 1 Data revenues split 2005 2006 -8.4% P2P Communications 63% 58% P2P SMS 61% 56% OUTGOING Content 31% 33% Connectivity 6% 9% Customer-driven -0.7% revenues 5.7% „ 24%

  19. Slide 19: Maintaining strong margin and absolute OIBDA despite tariff reductions

    SPAIN WIRELESS Maintaining strong margin and absolute OIBDA despite interconnection & roaming tariffs reductions 4Q06/4Q05 2006/2005 2006 target Revenues +5.4% +4.1% +3%/+6% Handset Revenues +15.7% +1.7% Service Revenues +4.2% +4.5% Customer revenues +4.7% +6.5% Interconnection revenues +0.5% -2.0%

  20. Slide 20: Europe: exploiting mobile growth opportunities and turn-around of fixed

    EUROPE Europe: exploiting mobile growth opportunities and extracting value from the turn-around of fixed „ Keeping the lead in service revenue growth in the UK, driven by solid subscriber additions and improved ARPU European „ Sustained healthy commercial performance in Germany, with a focus Mobile

  21. Slide 21: O2 UK: strong service revenue growth

    O2 GROUP O2 UK: strong service revenue growth driven by solid customer expansion and strong voice usage Evolution of client base (in thousands) Service Revenues (£ in millions) 17,633 2006 target 15,981 +10.3% ƒ 1.65M net new clients added 3,885 +14%/+15% 6,218 in 2006 5,502 +14.7% +13.0% ƒ 295k net

  22. Slide 22: O2 Germany: sustained positive performance on contract

    O2 GROUP O2 Germany: sustained positive performance on contract within a highly competitive scenario Evolution of client base Service Revenues (in thousands) (€ in millions) 2,808 9,769 +12.9% 11,025 ƒ 396,000 net new customers 2006 target added in 4Q06 “high single digit” 5,481 +6.7% 4,970 +10.3% ƒ

  23. Slide 23: T.O2 Czech Republic: BB and mobile driving P&L turn-around

    T.O2 GROUP T.O2 Czech Republic: BB and mobile are driving P&L turn-around Revenue evolution Retail BB connections Postpay mobile clients (CZK in billions) (in thousands) (in thousands) 405 2006 target +21.3% 1,875 +0.4% 61 +79.4% 61 1,546 “flat” 226 Dec.05 Dec.06 Dec.05 Dec.06 2005 2006 OIBDA evolut

  24. Slide 24: Latam: a successful management of growth and profitability

    LATAM Latam: a successful management of growth and profitability „ Strong growth in broadband & Pay TV across all countries, improving market positioning through gradual introduction of 2P & 3P T.Latam „ Broadband and VAS growth drive revenue expansion across all the (Wireline) region, with ongoing

  25. Slide 25: T.Latinoamérica: BB and IT services driving top-line performance

    T LATAM WIRELINE T.Latinoamérica: BB and IT services are driving top-line performance… 2006 Revenue growth Breakdown of consolidated revenue growth (constant currency 1, in millions) +3.5% +14.2% -10.7 p.p. +51 -11 8,641 6 p.p. 2006 target +57 +192 -0.1 p.p. Forex +0.6 p.p. low end of +0.7 p.p. 4.7

  26. Slide 26: BB connectivity & VAS to drive top-line growth

    T.LATAM WIRELINE …BB connectivity & VAS to drive top-line growth… Retail Internet BB connections Broadband revenues 3,760 (€ in millions) (in thousands) +40.0% Dec.05 Dec.06 +38.7% 2,685 +32.5% 1,608 851 +31.4% growth in constant 1,214 +70.1% +63.8% +37.3% 614 494 currency 518 468 304 302 341 Telesp

  27. Slide 27: Sustaining healthy margins across the board

    T LATAM WIRELINE … while sustaining healthy margins across the board „Commercial drive linked OIBDA margin by company to economic growth 2005 „Frozen tariffs 2006 +1.6 p.p. -4.9 p.p. +0.3 p.p. +0.7 p.p. 45.8% 47.4% 46.4% 41.9% 42.6% 41.6% 41.1% 41.4% Telesp TASA 1 T.Chile TdP Adjusted OIBDA2 for gui

  28. Slide 28: T. Móviles Latam: strong service revenue growth & enhanced profitability

    T.LATAM WIRELESS T. Móviles Latam: strong service revenue growth & enhanced profitability boost cash flow generation 2006/2005 growth rates OIBDA margin +38% 30.5% Ex-forex 24.5% 26.3% +21% +38% 22.8% € terms +6p.p. +4p.p. +20% +18% Customers Service OIBDA 4Q05 4Q06 2005 2006 revenues „ Outgoing rev

  29. Slide 29: Brazil: enhancing our competitive position

    T.LATAM WIRELESS Brazil: working towards enhancing our competitive position & delivering progressive improvements MoU ARPU (minutes) (local currency) „ Corporate restructuring into a +6.6% single company finalised +5.6% „ Strong reduction of fraud and 31.2 cloning-related losses 78 82 29.2 29.2 74 „

  30. Slide 30: Mexico: strong operating momentum

    T.LATAM WIRELESS Mexico: strong operating momentum leads to outstanding service revenue growth & OIBDA improvement Gross adds Blended churn Net adds (in thousands) (%) (in thousands) +13% x 2.1 5.5 5,114 2,185 4,511 5.3 x 2.8 +30% 3.5 2.8 1,110 1,029 1,780 1,370 392 4Q05 4Q06 2005 2006 4Q05 4Q06 200

  31. Slide 31: Other major operations (I)

    T.LATAM WIRELESS Other major operations (I) VENEZUELA: Sound revenues performance leveraging customer & ARPU growth Net adds 2006/2005 growth OIBDA Margin (in thousands) (local currency) (€ in millions) +45% 8.8M 40.7% 39.9% 2,666 +46% +43% 815 1,834 585 +43% 2005 2006 Customers Service OIBDA 2005 2

  32. Slide 32: Other major operations (II)

    T.LATAM WIRELESS Other major operations (II) ARGENTINA: Sound operating and financial performance Net adds 2006 y-o-y growth OIBDA Margin (in thousands) (local currency) (€ in millions) 26.9% +10% 11.2M 15.0% 339 2,599 2,864 (73% GSM) +138% 151 +32% +34% +37% 2005 2006 Customer Service OIBDA 2005 20

  33. Slide 33: Deeper integration generating sizeable tangible benefits

    GROUP SYNERGIES Deeper integration is generating already sizeable tangible benefits, ahead of initial expectations... OpCF from synergies 2006 2006 main initiatives (€ in millions) „ >70% of roaming internally (Spain & Latam) managed „ >1.7M clients on “My Europe” 174 M€ coming from „ Regionalizatio

  34. Slide 34: Synergies to support operating performance in 2007

    GROUP SYNERGIES ...and will continue to support operating performance in 2007, capitalizing on the new Group structure Keeping the focus on ongoing initiatives OpCF from synergies 2007 „ Regional management (Spain, Latam & Europe) (€ in millions) „ Global projects (Infrastructure & Systems, Resource

  35. Slide 35: Reducing the average cost of debt

    GROUP FINANCIAL EXPENSES Reducing the average cost of debt 2006 2005 Net Interest Expenses (2,795) (1,792) +55.9% FX Results 61 165 Reported Financial Expenses (2,734) (1,628) +68.0% Average Total Net Debt Evolution of Average Effective (€ in millions) Debt Service Rate 1 54,315 6.1% +83.9% -1.0 p.p

  36. Slide 36: Cash Flow & Debt: de-leverage reaffirmed

    GROUP DEBT Cash Flow & Debt: de-leverage reaffirmed and loan for the acquisition of O2 fully refinanced 4Q06 Net Financial Debt Evolution (€ in millions) 2.6x 2.7x 2.6x OIBDA1 OIBDA1 OIBDA1 (ex additional ERE provision of 4Q06) 52,239 +222 52,145 +1,458 +105 +338 +213 -2,430 316M€ for debt reduction

  37. Slide 37: An attractive shareholder remuneration policy

    GROUP FINANCIALS An attractive shareholder remuneration policy 2006 Targets Dividends 2.6 bn€ paid Double 2005 dividend per share (0.5€) to shareholders by 2009, in line with doubling 2005 EPS (0.91€) by 2009 Buyback 75.6 M shares in treasury as of Complete 2.7 bn€ buyback Program December 06, equiv

  38. Slide 38: Setting benchmark targets again for 2007

    GROUP GUIDANCE We are setting benchmark targets again for 2007… Group Revenues Group OIBDA (€ in millions) (€ in millions) +6%/+9% +8%/+11% 19,126 19,040 52,901 18,688 51,298 2006 2006 2007 2006 2006 adjusted 2006 adjusted 2007 (ex Endemol & Airwave) (reported) for guidance for guidance (ex Endemol

  39. Slide 39: Very solid expectations for domestic business

    GROUP GUIDANCE Chairman …leveraging on very solid expectations for domestic… Telefónica España Spanish wireline Revenues OIBDA (€ in millions) (€ in millions) +0.5% / +2% +9% / +12% Revenue +0.5% / +2% 19,750 Growth 11,964 4,560 (€ in millions) 2006 2007 2006 adjusted for 2007 2006 2007 guidance „ 2

  40. Slide 40: Continuing out-performance of European businesses

    GROUP GUIDANCE Chairman …continuing out-performance of European businesses… O2 UK Telefónica O2 Europe Revenues OIBDA (€ in millions) (€ in millions) +11% / +14% +15% / +18% +9% / +12% Revenue 6,265 1,777 13,159 12,842 Growth (€ in millions) 2006 2007 2006 2007 2006 2006 2007 adjusted for guidance r

  41. Slide 41: Distinctive growth profile in Latin America

    GROUP GUIDANCE Chairman …and exploiting our distinctive growth profile in Latin America Revenue Growth OIBDA Growth (€ in millions) (€ in millions) +11% / +14% +12% / +16% 18,089 6,607 2006 2007 2006 2007 adjusted for guidance CapEx (€ in millions) <3,000 2,811 2006 2007 TELEFONICA S.A. T. Latam bas

  42. Slide 42: 2007 targets, a guide to calculations

    GROUP GUIDANCE 2007 targets, a guide to calculations „ 2006 include 9 11 months of O2 (consolidated since February 2006) 9 8 months of Telefónica Telecom1 (consolidated since May 2006 under T. Latam) 9 6 months of Iberbanda (consolidated since July 2006 under T. España) 9 3 months of start-up losses

  43. Slide 43: Commitments based on execution of key management initiatives

    GROUP GUIDANCE Our commitments are based on the execution of key management initiatives in each region 4 basic priorities at the ... that translate into a set of common Group level... key operating levers for 2007 1 Fixed businesses „ Develop our markets further, exploiting the penetration gap „ Dev

  44. Slide 44: Conclusions

    Conclusions „ Stimulating growth, extracting synergies, re-structuring the debt, and yielding attractive returns have been our four management priorities this year, and translated into a 43% EPS growth „ 2006 financial results have remained solid across the year, ahead of the peer Group, and totally

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Telefónica — FY2006 Earnings Presentation on 6ix