Consolidated Results
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STRENGTH The 2010 results demonstrate Telefónica’s strength… Consolidated Results Telefónica obtained solid results in 2010, The increased commercial drive resulted in • Retail fi xed broadband accesses reached meeting the guidance committed with the a year-on-year growth in gross additions a total of 17.1 million (+27.0% year-on-year market for eight years in a row, thanks to the of 13.3%. At the same time, customer in reported terms, +10.9% organic). Net Company’s high-class diversifi cation, both in loyalty programmes and the commitment to additions picked up in the fourth quarter terms of geographies and businesses. improving quality kept the churn rate stable to reach 422 thousand accesses. In 2010, year-on-year at 2.3% in 2010. As a result, the net additions stood at 3.6 million accesses The strong growth posted by Telefónica Company registered 19.2 million organic net (1.5 million in organic terms). Brazil was once Latinoamérica and Telefónica Europe drove additions during the year (1.5 times the net again the driver of the Group’s growth in this Telefónica’s solid performance, offsetting the additions recorded in 2009), adding 5.7 million type of access, with Telesp registering lower contribution of the business in Spain. It new accesses in the fourth quarter (+36.0% 681 thousand net additions, a record-high is noteworthy the growing contribution of the compared to the third quarter; +13.1% fi gure in the Company’s history. Latin America business to the Group’s results, year-on-year). supported by the positive performance in Bundled voice, broadband, and television operations and the greater exposure to Brazil, By access type: services remain key to Group strategy following the acquisition of Portugal Telecom’s and especially to churn control. In Spain, stake in Vivo last September. • Mobile accesses at the Telefónica Group 89% of retail fi xed broadband accesses are stood at 220.2 million at the end of 2010, bundled as part of either a dual or triple It should be noticed that Vivo is fully a year-on-year growth of 8.9% (both in play offer, while in Latin America the fi gure consolidated in the Group since October 2010 organic and reported terms). Organic net stands at 86%. (prior to that date, the results of Vivo were additions reached 18.2 million in 2010 proportionally consolidated), affecting therefore (1.3 times those recorded in 2009). Fourth- • The number of pay-TV accesses stood to year-on-year comparisons in reported terms quarter net additions amounted to 5.4 at 2.8 million in 2010, an 8.9% increase as from the fourth quarter of the year. million. Brazil posted the greatest growth in in organic terms on December 2009 customer base, with 8.5 million net additions (+12.0% reported). The Company’s focus on growing its customer in 2010 (2.6 million in the fourth quarter). base and increasing the value of customers led • Fixed telephony accesses totalled 41.4 to a solid advance in the number of accesses, The focus on high-value customers has million, down 2.7% year-on-year in organic especially in the broadband businesses been reflected in a significant increase terms, although the rate of decrease was (both wireline and mobile). In addition, it in contract net additions compared to slower in the fourth quarter than in previous is noteworthy the higher proportion of the 2009: 53% of organic net additions periods. In reported terms, the number of contract segment in the mobile business, corresponded to this segment, compared accesses rose 1.8%. thanks to active migration policies and to the to 38% in 2009. This has left a total of rapid adoption of smartphones. Bundled offers 69.0 million contract customers (+15.9% The increased customer base and the growing in the wireline business showed also steady year-on-year in organic terms), which contribution from the mobile data business growth, refl ecting the commercial priorities represents over 31% of the Group’s total drove growth in revenues, which totalled set for the year. mobile accesses (+3 percentage points 60,737 million euros in 2010, up 7.1% year- year-on-year organic). on-year (+9.9% in the fourth quarter). Foreign The intense commercial activity recorded exchange rates added 2.2 percentage points throughout the year by the Group’s businesses The strong adoption of mobile broadband despite the sharp devaluation in the Venezuelan across markets pushed total accesses up by services, together with the launch of new bolivar, while changes in the consolidated 7.2% year-on-year in organic terms (+8.7% and more segmented price schemes has perimeter accounted for 2.5 percentage points in reported terms), to 287.6 million. By region, allowed the Group to increase its number of of the growth for the year. of particular note are the expansion of the mobile broadband accesses to more than customer base at Telefónica Latinoamérica 22.2 million by the end of 2010 (+63.9% The Group’s high-class diversifi cation is a key (+9.0% year-on-year) and Telefónica year-on-year). This represents a penetration factor behind the strong revenue trends. In Europe (+6.2% year-on-year organic; over the total mobile access base of 10.1%, 2010, Telefónica Latinoamérica and Telefónica +14.3% reported). 3.4 percentage points higher than at Europe accounted for 68% of consolidated December 2009. All these accesses have a revenues, whereas Telefónica España’s data rate attached and therefore are active contribution stood below 31%. users of the service. Annual Report 2010 Telefónica, S.A. 57 STRENGTH The 2010 results demonstrate Telefónica’s strength… Consolidated Results This diversifi cation is also behind the positive The average number of employees in 2010 In organic terms, which exclude the performance of revenues in organic terms, was 269,047 (13,896 employees more than aforementioned non-recurrent restructuring which grew 2.4% year-on-year in 2010. This at December 2009), mainly due to the larger expenses, OIBDA rose 0.8% year-on-year, an fi gure is roughly in line with the growth rate workforce at Atento. Excluding Atento, improved performance compared to the fi rst recorded in the fi rst nine months of the year. Telefónica Group’s average workforce rose nine months of 2010. The OIBDA margin was It is worth to mention that cuts in mobile 2% year-on-year to 128,012. virtually stable compared to the prior year termination rates dragged 1.0 percentage (-0.6 percentage points), despite the higher point to organic revenue growth. By region, it • Subcontract expenses amounted to commercial activity in 2010. is noteworthy the sustained momentum in 12,228 million euros in 2010, up 7.9% on the year-on-year revenue growth at Telefónica 2009 in organic terms (+23.3% reported). By region and excluding the positive impact Latinoamérica and Telefónica Europe. These This performance is largely due to the higher of the revaluation of the previously held regions account for 2.7 percentage points and commercial efforts in the three regions and stake in Vivo already mentioned, Telefónica 1.0 percentage points of the organic growth in increased network management expenses Latinoamérica increased its contribution to consolidated revenues respectively, and offset at Telefónica Latinoamérica. Subcontract the Group’s OIBDA up by 5.0 percentage points the lower contribution from Telefónica España expenses also include fi rm commitments year-on-year, to exceed 45% of the Group (-1.6 percentage points). relating to social activities of the Telefónica fi gure. Consequently, together with the higher Foundation. contribution from Telefónica Europe, in 2010 Consolidated operating expenses amounted over 60% of consolidated OIBDA was generated to 40,375 million euros in 2010, a 13.8% In addition, it is important to highlight the outside Telefónica España. year-on-year growth in reported terms. These value of the scale of the Group, refl ected expenses were negatively affected by non- in the positive contribution to results from Depreciation and amortization amounted recurrent restructuring expenses recorded in global projects launched in 2010. Indeed, the to 9,303 million euros in 2010, up 3.9% in the second half of 2010 (1,262 million euros). centralisation of certain Group processes had reported terms (-2.8% organic). In the fourth These costs were mainly related to personnel a positive effect on 2010 results, impacting quarter, this caption included amortization reorganization (658 million euros) and fi rm revenues by 242 million euros and OIBDA by associated to the purchase price allocation commitments relating to the Telefónica 200 million euros. of Vivo (84 million euros). Foundation’s social activities (400 million euros; of this total, 280 million euros are recorded Gain on sales of fi xed assets totalled As a result, operating income (OI) totalled in Telefónica S.A. and the rest is registered in 4,150 million in 2010, primarily explained by 16,474 million euros in 2010, up 20.7% year- Telefónica Latinoamérica). In organic terms, the positive impact of the revaluation of the on-year in reported terms. In organic terms expenses were up 3.7% year-on-year in 2010, previously held stake in Vivo at the date of and excluding the non-recurrent expenses although the rate of growth slowed in the last acquisition of the 50% in Brasilcel owned by mentioned above, OI rose 4.5% year-on-year. quarter. Breakdown by component: Portugal Telecom (3,797 million euros in the third quarter). Profi ts from associates amounted to 76 • Supply costs amounted to 17,606 million million euros in 2010, up 59.8% year-on-year.