1st Quarter Results - Part 2

Telefonica SA 13 May 2004 PART 2 RESULTS BY BUSINESS LINES Mobile Business Telefonica Moviles obtained net income of 423.3 million euros in first quarter 2004, an increase of 17.9% compared to the same period of 2003. The year's first quarter saw strong commercial activity in the main areas of operation despite the typical seasonal fluctuations of the business in the period. The companies managed by Telefonica Moviles achieved net adds of over 2.3 million in first quarter 2004 vs. 383 thousand in first quarter 2003, with the consequent impact on commercial costs. Telefonica Moviles ended March 2004 with 54.4 million managed customers, 30.2% more than in March 2003 and 5% more than in December 2003. Including the customers from BellSouth's Latin American operators(1), whose acquisition was agreed in March, Telefonica Moviles would have more than 66 million managed customers. Key aspects of these results are listed below: • Solid growth in operating revenues of 20.2% year-over-year, to 2,560.5 million euros in first quarter 2004. Assuming constant exchange rates and excluding the impact of changes in the consolidation perimeter, revenues would have grown 19.5% in first quarter 2004 year-over-year. By components, service revenues (2,270 million euros) advanced 15.1% vs. first quarter 2003, boosted by the operators' larger customer base and the increase in traffic. Handset sales (290 million euros) rose 84% year-over-year, due to the stronger commercial activity in first quarter 2004. Telefonica Moviles Espana obtained operating revenue of 1,882.5 million euros in first quarter 2004, a year-over-year increase of 17.4%. Operating revenues from consolidated Latin American operators showed a year-over-year increase of 29.6% in euros and accounted for 26% of Group revenues in first quarter 2004. Excluding the impact of exchange rates and the incorporation of TCO into the Group's consolidation perimeter, these revenues would have shown growth of 25.8% vs. first quarter 2003. • Increase of 12.6% in consolidated EBITDA vs. first quarter 2003 to 1,118.6 million euros. Excluding the impact of exchange rates and changes in the Group's consolidation perimeter, consolidated EBITDA would have grown 8.7%. The EBITDA margin was 43.7% vs. 46.7% in first quarter 2003 due to the higher commercial costs recorded in first quarter 2004, in line with the increased commercial activity (+52% growth in consolidated companies vs. first quarter 2003). Telefonica Moviles Espana obtained EBITDA of 1,002.7 million euros in first quarter 2004, 13.4% higher than in first quarter 2003, leaving an EBITDA margin of 53.3%. EBITDA for the Group's consolidated Latin American subsidiaries, in euros, was virtually unchanged vs. first quarter 2003 due to the commercial efforts made during the period. Assuming constant exchange rates and excluding the incorporation of TCO into the Group's consolidation perimeter, these companies' EBITDA would have declined 28.3%, mainly due to the higher operating losses recorded in Mexico. • In first quarter 2004, consolidated CapEx amounted to 213 million euros, a 43% year-over-year increase, due to higher CapEx deriving from the rollout of Telefonica Moviles Espana's UMTS network and the GSM networks in Argentina and Mexico. Regarding the evolution of the Mobile Business of Telefonica Group (including Telefonica Movil Chile), the operating revenues totalled 2,647.9 million euros as of March 2004, a year-over-year increase of 20.4% compared to the same period last year. On the other hand, EBITDA reached 1.140,1 million euros, a year-over-year increase of 12.2%. SPAIN The Spanish cellular market had an estimated 38.3 million customers at the end of March 2004, 11% more than a year ago, leading to an estimated penetration rate of 89.6%, more than 7 p.p. higher than in March 2003. Against this backdrop, Telefonica Moviles Espana ended March 2004 with a total of 19.9 million customers (+6.7% vs. first quarter 2003), with net adds for the quarter of 278 thousand customers, virtually the same as in first quarter 2003. Regarding prepaid to contract migrations, in the first quarter 2004 there were close to 310 thousand migrations (+25% vs. the same period of 2003), the second highest figure in the Company's history after the one registered in the fourth quarter 2003. This has helped the weight of the contract segment within Telefonica Moviles Espana's total customer base to continue growing, to 41.7% (36.4% in first quarter 2003). On the other hand, the volume of handset upgrades registered in first quarter 2004 was 848 thousand, similar to first quarter 2003. Customer loyalty efforts have centred on the contract segment, where there were over 570 thousand handset upgrades in first quarter 2004 (+6.6% vs. first quarter 2003). All this led to an increase of 17.5% in commercial activity (including the sum of gross additions, migrations and handset upgrades) vs. first quarter 2003. We would also underscore the increase in the weighting of portability initiatives in commercial activity in first quarter 2004, after the introduction of more automatic exchange processes at the end of 2003. TME has a positive cumulative portability balance despite aggressive competition in this area. The commercial effort was accompanied by solid growth in usage and revenues. In first quarter 2004, traffic carried on TME's networks was close to 9,865 million air minutes, a year-over-year increase of 17%. As for customer usage ratios, the high MOU growth recorded in the last five quarters continued in first quarter 2004. MOU for first quarter 2004 was 116 minutes, 9% higher than in first quarter 2003 but 2% lower than in fourth quarter 2003 due to seasonal factors. By segments, we would highlight the stability of prepaid MOU despite the Company's intensive migration activity. Growth in contract MOU continued to increase (+1% vs. first quarter 2003). As for short messages, the Company's networks carried a total of 2,355 million SMS in first quarter 2004 (+10% vs. first quarter 2003). Of this, 32% were related to content access and value added services. With respect to other kinds of data services, we would underline the steady growth of Multimedia Messaging, i-mode services and the larger number of users of GPRS technology services. In the area of corporate services, we would highlight that more than 600 large companies have signed up for the MoviStar Intranet service with TME. Overall, total data revenues in first quarter 2004 exceeded 230 million euros (+17% vs first quarter 2003), which represents a year-over-year increase of 10% in quarterly data ARPU to 3.9 euros, extending the growth trend in this indicator seen in recent quarters. Of total data revenues generated, 26.8% came from non person-to-person SMS services. Accordingly, average revenue per user and month (ARPU) continued to show solid growth, with a year-over-year increase of 7% in first quarter 2004 to 29.5 euros despite including the full impact of the reduction in termination fees approved at the end of 2003. Although traditional seasonal factors usually cause ARPU to decline in the first quarter of the year compared to the fourth quarter of the previous year, this time the decline was only 2%. By segments, prepaid ARPU performed very positively, showing year-over-year growth for the second consecutive quarter (+2.7%). Contract ARPU was virtually stable, only declining 0.6%, despite the larger weighting of residential customers due to the flow of migrations from prepaid. Alongside the performance of traffic and revenues, continued efforts to streamline expenses and CapEx resulted in solid financial results: • Operating revenues in first quarter 2004 were 1,882.5 million euros (+17.4% vs. first quarter 2003). This performance was underpinned by growth in both service revenues (+13.4%) and handset sales (+75.4%), the latter fuelled by the increased commercial activity and to timing differences in stocks in the distribution network compared to last year. Due to this last factor, the pace of growth in revenues recorded in first quarter 2004 is likely to ease in coming quarters, in line with the target of achieving year-over-year growth of over 9% for the whole of 2004. • Despite an increase of over 17% in commercial activity, the weight of subscriber acquisition and retention costs over operating revenues in first quarter 2004 stood at 8.3%, 1 p.p. more than a year ago. • EBITDA in first quarter 2004 reached 1,002.7 million euros, an increase of 13.4% vs. first quarter 2003. This represents an EBITDA margin of 53.3%, keeping Telefonica Moviles Espana as one of the sector's most efficient companies. The 1.9 p.p. declines in the margin compared to first quarter 2003 was due mainly to increased commercial activity and the larger weighting of handset sales. Also, since March 1st, in line with the commercial launch of Oficin@ Movistar UMTS, the fee for using the UMTS spectrum has no longer been capitalized nor have the other expenses related to this technology, with the consequent effect on EBITDA (3.8 million euros), and UMTS-related expenses capitalised up to now have started being depreciated, with an 4.5 million euros impact on depreciation. • CapEx in first quarter 2004 totalled 137 million euros, an increase of 23% on the same quarter of last year due to the efforts being made to roll out the new UMTS network. MOROCCO Medi Telecom ended March with 2.042 million customers, a year-over-year increase above 21%. The customer base contracted slightly in first quarter 2004 after the sharp volume of customer acquisition in 4Q03 and the decline in prepaid recharge promotions in the period. Nonetheless, both revenues and EBITDA continue to advance, driven by traffic growth and cost control. Revenues grew by 17% year-over-year in first quarter 2004 and EBITDA by 64%, to 31 million euros. More noteworthy was the 43% EBITDA margin for the period, far higher than in any quarter of last year. The positive performance of operating results and the cutback in CapEx enabled operating free cash flow (EBITDA-CapEx) to exceed 25 million euros, more than 76% of the total generated in 2003. The Company estimates than in the coming quarters, especially during summer, there will be an increase in commercial activity. LATIN AMERICA Brazil The Brazilian cellular market continued to grow rapidly in first quarter 2004 despite the typical seasonal fluctuations of the business in this period. Against this backdrop, Vivo has led the growth of the market in general and in the regions where it operates, with an estimated average share of net adds of 49% in first quarter 2004. Accordingly, its market share was virtually unchanged from December 2003 at 45% for Brazil as a whole and an average of 56% in its areas of operation. Vivo ended March 2004 with 21.875 million customers, capturing more than 1.2 million customers in first quarter 2004. We would highlight the strong commercial activity in TCP and TCO's areas of operations, with VIVO achieving 815 thousand net adds. Vivo reached the 22 million customers mark in the first week of April. Despite strong growth in recent months, mobile telephony penetration in Vivo 's areas of operation at the end of first quarter 2004 was 30%, well below figures for other markets with similar per capita income indicating the high growth potential that still exists in the regions where Vivo operates. Total MOU in first quarter 2004 was 93 minutes (-10% vs. previous quarter), while total ARPU was 35 reais (-10% vs. previous quarter). This performance was shaped by seasonal factors typical of the year's first quarter, traffic promotions of gross adds during the Christmas campaign and the impact of the sharp growth in the customer base. Figures for first quarter 2004 are not comparable with first quarter 2003 due to the incorporation of TCO to the consolidation perimeter and the migration to SMP. The sustained growth in the contribution of data services should also be mentioned, as these represented 4.4% of VIVO's service revenues, more than double the weighting in first quarter 2003. As regards VIVO's results, operating revenues in first quarter 2004 including TCO's results from May 1st,, 2003 showed growth in local currency of 43% vs. first quarter 2003, driven by service revenues (+40%) and the increased commercial activity. Excluding TCO's contribution, operating revenues would have grown 16.8% vs first quarter 2003. Despite the stronger commercial activity, improvements in efficiency and economies of scale enabled the company to obtain an EBITDA margin after management fees of 40.2%, with absolute growth, in local currency, in EBITDA of 45% vs. first quarter 2003 (17% ex-TCO). Mexico First quarter 2004 featured intense commercial activity in the Mexican market, where Telefonica Moviles Mexico has consolidated its position as the second-largest cellular operator and made progress towards its goal of achieving critical mass in customers. We would also highlight the progress in the rollout of the GSM network, extending coverage to 112 cities in March vs. 96 in December 2003. Thanks to the efforts made in first quarter 2004 -including the extension of the Christmas campaign into the first few days of January- Telefonica Moviles Mexico achieved net adds of 318 thousand customers, well above first quarter 2003 net adds (11 thousand) and higher than the combined total for the first nine months of 2003. The operator ended March with a customer base of close to 3.8 million (+9% vs. previous quarter and +55.3% vs. first quarter 2003). Growth was driven by gross adds of GSM customers, who now represent 38% of the total customer base, 12 p.p. more than in December 2003. In line with the strong growth of the customer base, MOU in first quarter 2004 was 61 minutes, while ARPU reached 174 Mexican pesos (-21.2% vs. first quarter 2003). Comparisons of MOU and ARPU with first quarter 2003 and 4Q03 are affected by the rapid growth of the customer base and seasonal factors. Against this backdrop, operating revenues in local currency increased by 43.8% in first quarter 2004 vs. first quarter 2003, boosted by higher service revenues (+21% vs. first quarter 2003) and handset sales. Meanwhile, the costs deriving from the increased commercial activity and the rollout of the GSM network led to an EBITDA loss of 47.3 million euros in first quarter 2004. CapEx in first quarter 2004 totalled 26 million euros, with CapEx committed up to 31 March 2004 of 255 million euros. Argentina The growth of the Argentine mobile market continues to accelerate, with an estimated penetration of 22%. In this context, Unifon's customer base ended March 2004 at 1,970 million, with year-over-year growth of 27.4% (+8% vs. December 2003). We would highlight the growth in net adds -more than 146 thousand customers - after the negative figure in first quarter 2003. The level even surpassed that of 4Q03 despite the typical seasonality of the business in the first quarter. Customer usage indicators continued to rise despite the growth of the customer base, with the company registering a sharp increase in MOU (+27% vs. first quarter 2003). The growth in MOU, coupled with larger customer base, boosted total traffic in minutes by more than 50% vs. first quarter 2003, while ARPU registered year-over-year growth of 26%, fuelled by the increase in MOU. Unifon recorded a year-over-year increase in operating revenues of 54% in pesos in first quarter 2004, boosted by the larger customer base and increased traffic, as well as higher handset sales. Despite the increase in commercial activity vs. first quarter 2003, EBITDA in pesos rose 9%, with an EBITDA margin of 22.7%. As in previous quarters, we would highlight the good performance of revenues in euros (+43.8%) despite the negative impact of exchange rates in the last 12 months. Lastly, regarding CapEx, we would point out that the rollout of the GSM has begun this year. Phases I and II were completed by the end of first quarter 2004, providing coverage to nearly 9 million POPS. Commercialisation of the service was launched at the end of March in AMBA (the Federal Capital and Greater Buenos Aires), Mendoza and Mar del Plata. Total CapEx for Unifon in first quarter 2004 was 25 million euros, with CapEx committed at 31 March 2004 of 72 million euros. Peru The Peruvian mobile market ended first quarter 2004 with an estimated 3.1 million customers, with penetration of 11.4%, 3 p.p. higher than at the end of first quarter 2003. Telefonica Moviles Peru continued with a high commercial activity in first quarter 2004, achieving net adds of over 128 thousand customers. It continued to lead market growth, with an estimated share of net adds of 60%. Telefonica Moviles Peru ended first quarter 2004 with 1.6 million customers, a year-over-year increase of 32%. Efforts in customer acquisition led to growth in both the contract and prepaid segments, of 7.1% and 39.2%, respectively, vs. first quarter 2003. It is also worth noting that at the end of first quarter 2004, four months after the launch of the CDMA 2000 1xRTT network, more than 15% of the customer base has a handset with this technology. As regards results, Telefonica Moviles Peru's first quarter 2004 operating revenues in local currency showed an increase of 5.1% vs. first quarter 2003. This was mostly due to the positive performance of revenues from outgoing traffic, which were partially offset by lower interconnection revenues. In line with the increase in operating expenses deriving from the intense commercial activity, EBITDA in local currency declined by 25.6% vs. first quarter 2003, leaving an EBITDA margin of 25.5%. Chile Telefonica Movil ended first quarter 2004 with 2.5 million customers, 32.7% higher than in first quarter 2003. The company has once again led the growth in the market, with 230 thousand net adds in first quarter 2004 vs. 34.6 thousand in first quarter 2003, thanks to the positive performance of GSM net adds. The success of GSM has allowed the company to have, in less than one year, 657 thousand customers using this technology, 26% of its total customer base, enabling it to regain nearly 2 p.p. of market share. As regards results, year-on-year growth in operating revenues is driven by the increase in the customer base and total traffic. Meanwhile, due to the increased commercial activity and the reduction in mobile interconnection tariffs, the EBITDA margin declined by 8 p.p. vs. first quarter 2003 to 24.3%. Guatemala and El Salvador The progress in customer acquisition in Guatemala and El Salvador in first quarter 2004, underpinned by the dynamism of both countries' markets, led to net adds of over 55 thousand customers vs. 6 thousand in first quarter 2003. The total customer base managed by Telefonica Moviles' operators in Guatemala and El Salvador at the end of March 2004 stood at 460 thousand customers (189 thousand in Guatemala and 270 thousand in El Salvador) vs. 334 thousand in first quarter 2003. As regards financial results, we would highlight the 19% year-over-year increase in revenues, in euros assuming constant exchange rates, fuelled by the growth of the customer base. Despite the commercial effort in first quarter 2004, the EBITDA margin was 5.5 p.p. higher than in first quarter 2003 thanks to the one-off expenses registered in first quarter 2003. CELLULAR BUSINESS SELECTED OPERATING DATA: CELLULAR CUSTOMERS Unaudited figures (Thousands) March Mar 2004 % Chg 04/03 T Moviles Espana 19,939 6.7 Contract 8,306 22.0 Prepaid 11,633 (2.1) Brasilcel 21,875 58.8 Contract 4,843 30.2 Prepaid 17,032 69.4 TCP Argentina 1,970 27.4 Contract 636 32.2 Prepaid 1,334 25.2 T Moviles Peru 1,635 31.9 Contract 303 7.1 Prepaid 1,331 39.2 TEM El Salvador 270 18.6 Contract 64 6.7 Prepaid 206 22.8 TEM Guatemala 189 78.9 Contract 46 (1.6) Prepaid 144 141.7 NewCom Wireless Puerto Rico (1) 167 (4.8) Contract 116 21.0 Prepaid 51 (35.7) Telefonica Moviles Mexico 3,772 55.3 Contract 222 (25.7) Prepaid 3,550 66.6 Medi Telecom 2,042 21.2 Contract 131 7.1 Prepaid 1,911 22.4 Telefonica Movil Chile 2,500 32.7 Contract 440 0.0 Prepaid 2,060 42.7 Total Managed 54,360 30.2 Note: Telefonica Cellular Business includes Telefonica Movil Chile. (1) In order to fulfil the commitments to develop the cellular business in Puerto Rico, Telefonica Group has the option to obtain shares respresenting 50.1% of total equity in the company. CELLULAR BUSINESS SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Telefonica Moviles Espana Operating revenues 1,882.5 1,603.9 17.4 EBITDA 1,002.7 884.2 13.4 EBITDA margin 53.3% 55.1% (1.9 p.p.) Brasilian companies (1) Operating revenues 354.3 240.6 47.3 EBITDA 142.4 95.8 48.7 EBITDA margin (1) 40.2% 39.8% 0.4 p.p. Telefonica Moviles Mexico Operating revenues 155.5 130.4 19.2 EBITDA (47.3) (4.5) n.s. EBITDA margin (30.4%) (3.4%) (27.0 p.p.) TCP Argentina Operating revenues 70.0 48.7 43.8 EBITDA 15.9 15.6 1.8 EBITDA margin 22.7% 32.0% (9.4 p.p.) Telefonica Moviles Peru Operating revenues 56.9 62.8 (9.4) EBITDA 14.5 22.6 (35.9) EBITDA margin 25.5% 36.0% (10.5 p.p.) Telefonica Moviles Guatemala and El Salvador Operating revenues 40.3 39.9 0.8 EBITDA 5.8 3.5 63.0 EBITDA margin 14.3% 8.8% 5.5 p.p. Telefonica Movil Chile Operating revenues 88.5 71.2 24.4 EBITDA 21.5 23.3 (7.7) EBITDA margin 24.3% 32.7% (8.4 p.p.) Note: Telefonica Cellular Business includes Telefonica Movil Chile. (1) Year over year comparision is affected by TCO incorporation from May 2003. TELEFONICA MOVILES GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 2,560.5 2,129.8 20.2 Operating expenses (1,459.1) (1,152.0) 26.7 Other net operating income (expense) 17.2 15.4 11.4 EBITDA 1,118.6 993.2 12.6 Depreciation and amortization (358.8) (357.3) 0.4 Operating profit 759.8 635.9 19.5 Profit from associated companies (11.8) (23.7) (50.3) Financial net income (expense) (56.0) (78.9) (29.1) Amortization of goodwill (20.8) (21.0) (1.2) Extraordinary net income (expense) 6.1 5.0 22.0 Income before taxes 677.4 517.3 31.0 Income taxes (250.0) (171.2) 46.1 Net income before minority interests 427.4 346.1 23.5 Minority interests (4.1) 13.0 c.s. Net income 423.3 359.1 17.9 CELLULAR BUSINESS CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 2,647.9 2,199.9 20.4 Internal expend capitalized in fixed assets (1) 18.9 19.1 (1.2) Operating expenses (1,520.9) (1,194.9) 27.3 Other net operating income (expense) (5.7) (7.6) (25.0) EBITDA 1,140.1 1,016.5 12.2 Depreciation and amortization (381.7) (375.9) 1.5 Operating profit 758.4 640.5 18.4 Profit from associated companies (12.3) (23.7) (48.0) Financial net income (expense) (63.6) (87.6) (27.4) Amortization of goodwill (24.0) (24.1) (0.6) Extraordinary net income (expense) 6.4 5.4 18.9 Income before taxes 664.9 510.6 30.2 Income taxes (248.2) (169.2) 46.7 Net income before minority interests 416.7 341.4 22.1 Minority interests 1.7 15.6 (89.0) Net income 418.4 357.0 17.2 Note: Telefonica Cellular Business includes Telefonica Movil Chile. (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses DIRECTORIES BUSINESS During the first quarter of 2004 the TPI Group's operating revenues increased by 16.1% to 77.4 million euros, despite the negative performance of exchange rates in Peru. The Group's EBITDA amounted to 17.8 million euros, 65.6% higher than the figure for the same period of 2003. Net income rose 140.0% to 7.8 million euros. These results are explained by: • Good performance of TPI Espana, whose advertising revenues rose by 12.9% to 34.3 million euros. • The good behaviour of advertising revenues at the Chilean subsidiary (Publiguias), which in local currency rose by 9.6%. • The decrease of 9.8% in total revenues at TPI Peru due to the Peruvian sol depreciation vs the euro experienced in the y-o-y comparison. However, in local currency, revenues have increased by 4.5%. EBITDA grows 16.6% in local currency. Once again it is important to remember that the seasonal nature of revenues, due to accounting criteria in place once each guide was actually published, make it so that the quarterly results are not comparable or standardized, nor can they be extrapolated to year end. Since the first quarter results do not really represent the impact on the year as a whole, the TPI Group provides forecasts in constant currency of its main financial aggregates up to year- end. These forecasts indicate growth in TPI Group revenues of around 3-5%. This trend, combined with a policy of cost control at all the business units, means that the EBITDA forecast for the end of the year is expected to reflect growth of between 9-11%. TPI Espana, that includes the revenues of Goodman Business Press, contributed 60% of the Group's revenues, and made a positive contribution to the Group's EBITDA of 7.8 million euros. This high percentage of revenues against a low EBITDA is due to the fact that only a small number of directories are published in the first quarter of the year, while nevertheless the proportional part of the company's structural costs have to be accounted. Revenues rose by 38.5% to 46.1 million euros, triggered mainly by four main factors: 1) the organic growth of 5.7% and 9.9% experienced by the Yellow Pages and White Pages directories, 2) the publication of two additional Yellow Pages directories (twelve in total) in comparison with the same period of 2003; TPI Espana published eight White Pages directories, the same number than in the same period of 2003, 3) variations in the publication calendar of guides and, 4) strong increase experienced in the telephony traffic business related with telephony information services (mainly due to 11888), which revenues soared by more than nine-fold compared to the same period of 2003. Latin America contributed the remaining 40% of revenues and 57% of EBITDA, with TPI Peru being the biggest Latin American contributor to both revenues and EBITDA thanks to its publication of the Lima directory. In the first quarter, TPI Peru obtained revenues of 23.6 million euros, representing 30% of the Group's total revenues, and contributed 10.5 million euros to the Group's consolidated EBITDA. In turn, the directories business of the Telefonica Group, which includes the Argentinean company Telinver, recorded during the first quarter of 2004 an increase of 16.9% compared with the first quarter of 2003, due primarily to an improvement in the economic situation in Argentina. Revenues amounted to 77.9 million euros and EBITDA to 17.4 million euros, representing a year-on-year increase of 73.1%. TPI - PAGINAS AMARILLAS GROUP SELECTED OPERATING DATA IN SPAIN Unaudited figures January - March 2004 2003 % Chg Books Published Yellow Pages* 12 10 White Pages 8 8 (Euros in millions) Revenue Breakdown (1) 46.1 33.3 38.5 Advertising 34.3 30.4 12.9 Publishing 27.3 23.9 14.3 Yellow Pages 20.8 18.0 15.0 White Pages 6.5 5.8 12.2 Building Directory (2) 0.0 0.0 n.s. Europages (2) 0.0 0.0 n.s. Internet 5.8 5.3 9.1 Operator Assisted Yellow Pages 0.9 0.8 3.5 Others 0.4 0.4 (2.1) Telephony Traffic 9.8 1.1 835.2 Operator 1.6 1.4 9.5 Others 0.4 0.4 (4.9) *Includes a breakdown by residential/business services and pocket guides. (1) TPI Espana includes Telefonica Publicidad e Informacion S.A. and 11888 Servicio de Consulta Telefonica S.A.U. results. Goodman Business Press is not included. (2) Both will be published from next quarter onwards. TPI - PAGINAS AMARILLAS GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 77.4 66.7 16.1 Operating expenses (59.5) (55.9) 6.5 EBITDA 17.8 10.8 65.6 Depreciation and amortization (5.0) (6.3) (19.8) Operating profit 12.8 4.5 184.2 Profit from associated companies (0.3) (0.6) (45.9) Financial net income (expense) (0.3) (1.0) (74.0) Amortization of goodwill (0.8) (0.8) 10.1 Consolidation adjustments 0.0 0.6 n.s. Extraordinary net income (expense) 0.1 (0.4) c.s. Income before taxes 11.5 2.3 398.6 Income taxes (4.2) (0.8) 445.1 Net income before minority interests 7.4 1.6 376.9 Minority interests 0.5 1.7 (73.3) Net income 7.8 3.3 140.0 DIRECTORIES BUSINESS CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 77.9 66.7 16.9 Internal expend capitalized in fixed assets (1) 0.0 0.0 n.s. Operating expenses (57.1) (52.3) 9.2 Other net operating income (expense) (3.5) (4.4) (20.3) EBITDA 17.4 10.0 73.1 Depreciation and amortization (5.2) (6.5) (19.9) Operating profit 12.2 3.6 242.0 Profit from associated companies (0.3) (0.6) (45.9) Financial net income (expense) (1.1) (2.4) (54.8) Amortization of goodwill (0.8) (0.2) 312.3 Extraordinary net income (expense) 0.1 (0.4) c.s. Income before taxes 10.1 0.0 n.s. Income taxes (4.2) (0.8) 445.1 Net income before minority interests 5.9 (0.7) c.s. Minority interests 0.5 1.7 (71.7) Net income 6.4 0.9 589.9 Note: Telefonica Directories Business includes Telinver (Argentina). (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses TERRA LYCOS GROUP In the first quarter of 2004, the operating revenues obtained by Terra Lycos amounted to 133.7 million euros, representing an increase of 16.7% over the same period of the previous year. It is important to highlight the revenues diversification, helped by the company's ability to act as an integral Internet product and service provider. Revenues from most business lines have increased, boosted by the customer base growth in every country, continuing with the progress in the development of the strategic alliance with Telefonica. During this quarter, revenues from the Alliance reached 27.0 million euros compared with 19.1 million euros obtained in the same period of year 2003. This contract represents, at the end of the first quarter 2004, 20.2% of total revenues, (+3.5 p.p. vs. first quarter 2003). In first quarter 2004, the revenues breakdown by business lines was as follows: 42.4% Access revenues, 25.5% Advertising and Online revenues, 21.7% Communication Services revenues and the remaining 10.4% Corporate Services revenues. Regarding the geographical revenues breakdown, Spain, Brazil and USA subsidiaries weighted 80% of total revenues, with a significant contribution from the strategic Alliance with Telefonica both in Spain and Brazil. Moreover, USA revenues have stabilized, as the end of the contract with Bertelsmann is not reflected anymore in the quarter over quarter comparison. During this quarter, Spain experienced a year over year revenues growth of 29.8% to 51.4 million euros, representing 38.3% of total revenues (up from 34.5% of total revenues in the same period of 2003), mainly due to the growth registered in both access (+13.0%) and OBP (+42.2%) revenues. Brazil revenues stood at 33.7 million revenues, an increase of 1.1% over the first quarter of 2003, representing 25.1% of total revenues (down 3.9 percentage points y-o-y). Terra Brazil remains the biggest paying access provider in the country with 1.1 million subscribers, highlighting its leadership in the broadband market, with more than 447,000 clients. USA revenues amounted to 21.2 million euros. Although revenues in local currency soared 16%, revenues in euros remained stable compared with the same period of 2003. USA represents 15.8% of total revenues (18.6% in the same quarter of 2003). Following the new business model implemented in Lycos in 2003 and early 2004, most of the revenues obtained this quarter come from two sides: 1) advertising revenues, after closing an agreement with 24/7 Real Media concerning the provisions of advertising sales and 2) the higher revenues stemming from the agreement reached with Google. EBITDA for the first quarter stood at 0.7 million euros, representing an EBITDA margin of 0.5%, compared with the negative 19.6 million euros reached in the first quarter of 2003. It must be underlined that this is the second consecutive quarter that Terra Lycos reaches a positive EBITDA. The Alliance with Telefonica registered, in the first quarter of 2004, 21% coverage of the value committed for the whole year, that is, 78.5 million euros. Regarding its customer base, Terra Lycos reached at the end of the first quarter more than 5,2 million paying subscribers (+61.8% over the same period of 2003). Access clients accounts for 1.7 million at the end of March 2004, of which 725,731 are broadband clients, representing an increase of 73.1% vs the same period of the previous year. It should be mentioned that 66.9% of the company's total paying customers had signed up for OBP products, consisting of either communication or portal products (CSPs or OBPs). These customers have increased 95.0% in the last year up to 3.5 million subscribers, largely due to the new Alliance with Telefonica. At the end of the first quarter of 2004, Terra Lycos had a cash position of 1,606 million euros, placing it in a privileged position of liquidity within the sector. In the last quarter two main agreements should be highlighted, the one reached between Terra Lycos and Network Associates, Inc., leader provider in on-line security solutions, in order to provide with additional offers such as antivirus products and 'Personal Firewall Plus' to its portal subscribers and the strategic agreement reached with 24/7 Real Media Inc., pioneer in interactive marketing and technology services. This company will provide services to Lycos USA. TERRA LYCOS GROUP SELECTED OPERATING DATA Unaudited figures (Thousands) March 2004 2003 % Chg Total Pay Subscribers 5,273.5 3,260.0 61.8 Access 1,745.5 1,450.4 20.3 Narrowband 1,019.8 1,031.2 (1.1) Broadband 725.7 419.1 73.1 OBP (CSP/Portal) 3,527.9 1,809.6 95.0 Broadband Access Subscribers by Country 725.7 419.1 73.1 Spain 183.8 122.2 50.4 Latin America 542.0 297.0 82.5 Employees (units) 2,147 2,256 (4.8) TERRA LYCOS GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 133.7 114.5 16.7 Internal expend capitalized in fixed assets (1) 0.2 0.2 (3.2) Operating expenses (131.1) (132.1) (0.8) Other net operating income (expense) (2.1) (2.1) (2.1) EBITDA 0.7 (19.6) c.s. Depreciation and amortization (21.8) (19.5) 12.3 Operating profit (21.2) (39.0) (45.7) Profit from associated companies (4.6) (11.2) (58.8) Financial net income (expense) 12.0 12.3 (2.3) Amortization of goodwill (19.7) (20.1) (2.3) Extraordinary net income (expense) (19.6) 2.5 c.s. Income before taxes (53.1) (55.6) (4.4) Income taxes 10.6 (0.2) c.s. Net income before minority interests (42.5) (55.7) (23.7) Minority interests 2.1 0.0 n.s. Net income (40.4) (55.7) (27.5) (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses ATENTO GROUP The first quarter of 2004 is characterized by Atento Group's increase in commercial activity. In this respect, it is important to note the agreements reached with VIVO and Unibanco Brazil, the gain of new clients such as Nokia, American Express and Carrier, new services with BBVA in Mexico and the growth with BBVA in Spain. Likewise, Atento Puerto Rico signed this quarter important contracts with AT&T Wireless, ACE Insurance and Banco Santander. Atento Chile was able to get new clients outside the Telefonica Group, VTR Banda Ancha and Almacenes Paris Comercial. Atento Group operating revenues for the first quarter 2004 amounted to 134.0 million euros, 9.4% more than in the same period of the previous year, primarily due to greater contribution of Atento Brazil, which revenues grew 22.7% year over year due to commercial achievements over the period. Excluding the negative exchange rate effect, revenues would have increased by 11.7%. In terms of revenues structure, the contribution of clients outside the Telefonica Group maintain its upward trend, reaching 40% of revenues as of March 2004, compared with 38% in December 2003, as a result of the aforementioned commercial progress. Regarding the evolution by countries, Spain and Brazil continue to be the highest contributors of revenues (73% of the total), 0.4 percentage points less than their contribution at the end of March 2003. Spain's contribution reduced 1.9 percentage points while Brazil's contribution rose 1.5 percentage points. Regarding the rest of the countries, Mexico increased its contribution to 6% (4% a year ago). Operating expenses totaled 115.0 million euros for the period January-March 2004, 5.4% higher than the first three months of 2003. This variation can be explained by the year over year increase in the items of personnel expenses and subcontracts (+6.9% and 6.7%, respectively) related to a higher activity. As a result of this evolution of revenues and expenses, EBITDA for the first quarter of the year stood at 19.4 million euros, 42.0% higher than the figure for the same quarter of the previous year (47.7% excluding the forex effect). EBITDA margin rose to 14.4%, 3.3 percentage points above that registered twelve months ago. This margin places the Company among the most profitable companies in the 'Contact Center' sector. The operating profit for the first quarter amounted to 9.4 million euros compared with the 0.2 million euros loss registered during the same period in 2003, mainly due to the increase in EBITDA and the 27.9% decrease in depreciation as a result of the degree of maturity achieved in operations. Net income for the first quarter amounted to 1.6 million euros, as compared with a net loss of 6.3 million euros in the first three months of 2003. It is important to note that, for the second consecutive quarter, the Company has recorded a positive net result. At operating level, Atento Group had 26,400 positions in place as of March 31, 2004, 700 and 800 more than those as of December and March 2003, respectively, in line with the growth experienced by the business. The average number of occupied positions for the quarter was 20,021, representing a level of occupation of 82%, an increase of 3 percentage points from the same period of the previous year. CapEx amounted to 2.9 million euros in the first three months of the year, 22.8% more than in the first quarter of 2003, mainly due to the investments made by Atento Brazil to attend new services and clients and the implementation of the new call center in Chile. Finally, it is important to note that operating free cash flow (EBITDA-Capex) reached 16.4 million euros compared with the 11.3 million euros generated in January-March 2003 (+46.0%). ATENTO GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 134.0 122.5 9.4 Operating expenses (115.0) (109.0) 5.4 Other net operating income (expense) 0.3 0.2 66.3 EBITDA 19.4 13.6 42.0 Depreciation and amortization (10.0) (13.9) (27.9) Operating profit 9.4 (0.2) c.s. Financial net income (expense) (3.6) (8.5) (58.0) Amortization of goodwill (1.6) (1.8) (14.1) Extraordinary net income (expense) (0.4) 0.4 c.s. Income before taxes 3.9 (10.1) c.s. Income taxes (2.0) 3.8 c.s. Net income before minority interests 1.9 (6.3) c.s. Minority interests (0.3) 0.0 c.s. Net income 1.6 (6.3) c.s. RESULTS BY BUSINESS LINES Other businesses CONTENT AND MEDIA BUSINESS The Content and Media business obtained operating revenues of 273.8 million euros at the end of the first quarter 2004, 98.5 million euros less than during the same period of the previous year, mainly due to the consolidated results of Antena 3 and its subsidiary Onda Cero using the full integration method during the first quarter of 2003, both companies being subsequently removed from the consolidation perimeter of the Telefonica Group. This drop was partially offset by the positive performance of Endemol in the United States, Germany and the United Kingdom and of ATCO, thanks to the recovery of the advertising market in Argentina and to its strong competitive position. The consolidated EBITDA of the business during the first quarter of the year amounted to 41.8 million euros, as compared with the 36.7 million euros obtained during the same period of 2003. Excluding the contribution made to consolidated EBITDA by Antena 3 and Onda Cero during the first quarter of 2003 (7.6 million euros), the EBITDA growth would be 29.7 percentage points higher than the one recorded. ENDEMOL The Endemol Group generated revenues of 233.5 million euros during the first quarter of 2004, which was 19.4% more than in the same period of the previous year. In EBITDA terms, Endemol registered 39.9 million euros, 22.1% more than in the first quarter of 2003. This positive performance was mainly achieved in the United States, Germany and the United Kingdom. It is important to note that the 'Fear Factor' format has contributed most towards the company 's good performance in the United States, with equally important agreements being reached to use the old series portfolio based on this format for subsequent rebroadcasting. ATCO The advertising market in Argentina grew by approximately 61% during the first quarter with respect to the same period of the previous year. Telefe reaffirmed its position as leader of the free-to-air television market, obtaining 40.3% of the total audience, followed by its main competitor Canal 13 with a 25.3% share during the first quarter. As a result of the significant financial and competitive improvement, ATCO 's operating revenues rose to 61.3 million pesos, 46.6% higher than the figure for the first quarter of 2003. Regarding EBITDA, it was positive in 15.8 million pesos, as compared with the loss of 0.6 million pesos recorded in the same period of the previous year. CONTENT & MEDIA BUSINESS CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 273.8 372.3 (26.5) Internal expend capitalized in fixed assets (1) 0.0 0.0 n.s. Operating expenses (228.0) (342.3) (33.4) Other net operating income (expense) (4.1) 6.7 c.s. EBITDA 41.8 36.7 13.9 Depreciation and amortization (7.0) (14.7) (52.0) Operating profit 34.7 22.0 57.7 Profit from associated companies 6.7 (27.1) c.s. Financial net income (expense) (10.9) (10.9) (0.3) Amortization of goodwill (30.0) (20.1) 49.6 Extraordinary net income (expense) 3.8 (14.1) c.s. Income before taxes 4.3 (50.2) c.s. Income taxes (28.1) 13.0 c.s. Net income before minority interests (23.8) (37.2) (36.1) Minority interests 0.1 4.0 (98.7) Net income (23.7) (33.3) (28.6) (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses TELEFONICA DEUTSCHLAND GROUP Telefonica Deutschland Group obtained revenues of 91.6 million euros in the first quarter of 2004, a decrease of 9.2% year on year, due primarly to the reduction in revenues from narrowband services wich has not yet been offset by the increase in broadband business, wich nearly accounted for 11% of the total revenues. Amongst the main commercial successes achieved during the quarter, noteworthy was the incorporation of the narrowband ISP provider Intelicom to the customer portfolio of Telefonica Deutschland in Germany, thus becoming the second client behind AOL in terms of managed volume. With respect to the broadband business, it is important to highlight the addition of 90,802 new ADSL users within Telefonica Deutschland wholesale (T-ZISP) offer in the german market. As a result, the total number of the company's ADSL users exceeded the figure of 320,000 (both in the German and UK markets), providing services to the top four main ISPs (out of five) in Germany. EBITDA reached a total of 3.8 million euros in the first quarter of 2004, with an EBITDA margin of 4.1% wich compares with the negative figure registered the previous year. TELEFONICA DEUTSCHLAND GROUP SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - March 2004 2003 % Chg Operating revenues 91.6 100.9 (9.2) EBITDA 3.8 (0.4) c.s. EBITDA margin 4.1% (0.4%) 4.5 p.p. ADDENDA Companies included in each Financial Statement Based on what was indicated at the start of this report, the results breakdown of Telefonica Group are detailed according to the business in which the Group has a presence. The main differences between this view and the one that would apply attending to the legal structure, are the following: • Telefonica, S.A. directly participates in the share capital of Endemol Entertainment Holding, N.V., which has been included in Telefonica de Contenidos Group. Furthermore, in the fiscal year 2003 the results from the participation, and following divestiture, in Antena 3 de Television, S.A., were integrated within the Telefonica de Contenidos Group results, although it had been participated directly by Telefonica S.A. through a part of the year. The results from the Sogecable stake have been also assigned to Telefonica de Contenidos Group, even though a part of the investment is legally dependent upon Telefonica, S.A. • Telefonica Holding Argentina, S.A. holds 26.82% of Atlantida de Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A. which, for those purposes, are considered to be part of Telefonica de Contenidos Group, consolidating 100% share capital of both companies. • In the case of Compania de Telecomunicaciones de Chile, S.A. (CTC), participated by Telefonica Latinoamerica, the activities of the mobile telephony business in Chile have already been assigned to the mobile business. • The participation of Telefonica Group in IPSE 2000 SpA is assigned to the cellular business, also including the investment legally dependent upon Telefonica DataCorp, S.A. • In the case of Telefonica de Argentina (TASA), participated by Telefonica Latinoamerica Group, Telinver has been assigned to the directories business, in line with our vision for the total Telefonica's directories business. • Telefonica Data Group, legally dependent upon Telefonica S.A., has been segregated and subsequentally integrated into the fixed line activities both in Spain and Latin America for presentation porposes, and according to geographic criterias. The stakes not included in neither of the previous geographic areas will be consolidated directly by Telefonica S.A. • Emergia Group, directly participated by Telefonica S.A., has been consolidated within the Telefonica Latinoamerica Group. ADDENDA Key Holdings of the Telefonica Group and its Subsidiaries detailed by business lines TELEFONICA GROUP % Part Telefonica de Espana 100.00% Telefonica Moviles 92.44% Telefonica Latinoamerica 100.00% TPI Group 59.90% Terra Lycos Group 75.29% Telefonica de Contenidos 100.00% Atento Group 91.35% TELEFONICA DE ESPANA GROUP % Part Telyco 100.00% Telefonica Telecomunicaciones Publicas 100.00% Telefonica Soluciones Sectoriales 100.00% Telefonica Empresas Espana 100.00% T. Soluciones de Informatica y Comunic. 100.00% TELEFONICA LATINOAMERICA GROUP % Part Telesp 87.49% Telefonica del Peru 97.15% Telefonica de Argentina 98.03% TLD Puerto Rico 98.00% CTC Chile 43.64% CAN Telefonos de Venezuela (CANTV) 6.92% Telefonica Data Mexico Holding 100.00% Telefonica Data Colombia 65.00% Telefonica Empresas Brasil 100.00% Telefonica Empresas Peru 97.07% Telefonica Data Argentina 97.92% Telefonica Data USA 100.00% T. Internacional Wholesale Services 100.00% Emergia 100.00% TELEFONICA MOVILES GROUP % Part Telefonica Moviles Espana 100.00% Brasilcel (1) 50.00% TCP Argentina 97.93% TEM Peru 97.97% T. Moviles Mexico 92.00% TEM El Salvador 90.26% TEM Guatemala 100.00% Group 3G (Germany) 57.20% IPSE 2000 (Italy) 45.59% 3G Mobile AG (Switzerland) 100.00% Medi Telecom 32.18% Telefonica Moviles Interacciona 100.00% Mobipay Espana 13.36% Mobipay Internacional 36.05% T. Moviles Aplicac. y Soluciones (Chile) 100.00% (1) Joint Venture which fully consolidates TeleSudeste Celular, Celular CRT, TeleLeste Celular, Telesp Celular Participacoes. From May 2003 Telesp Celular Participacoes includes the stake acquired in TeleCentro Oeste Participacoes. Brasilcel's stake in subsidiaries in March 2004: TeleSudeste Celular 84.14%; Telesp Celular Participacoes 65.12%; CRT Celular 50.42%; TeleLeste Celular 27.86% and TeleCentro Oeste Participacoes 19.04%. TPI - PAGINAS AMARILLAS GROUP % Part Goodman Business Press 100.00% Publiguias (Chile) 100.00% TPI Brasil 100.00% TPI Peru 100.00% 11888 Servicios de Consulta Telefonica 100.00% TERRA LYCOS GROUP % Part Lycos, Inc. 100.00% Lycos Europe 32.01% Terra Networks Peru 99.99% Terra Networks Mexico 99.99% Terra Networks USA 100.00% Terra Networks Guatemala 100.00% Terra Networks Venezuela 100.00% Terra Networks Brasil 100.00% Terra Networks Argentina 99.99% Terra Networks Espana 100.00% Terra Networks Chile 100.00% Terra Networks Colombia 68.30% Ifigenia Plus 100.00% EducaTerra 100.00% R.U.M.B.O. 50.00% Uno-E Bank 33.00% One Travel.com 54.15% ATENTO GROUP % Part Atento Teleservicios Espana, S.A. 100.00% Atento Brasil, S.A. 100.00% Atento Argentina, S.A. 100.00% Atento de Guatemala, S.A. 100.00% Atento Mexicana, S.A. de C.V. 100.00% Atento Peru, S.A.C. 100.00% Atento Chile, S.A. 100.00% Atento Maroc, S.A. 100.00% Atento El Salvador, S.A. de C.V. 100.00% TELEFONICA DE CONTENIDOS GROUP % Part Telefe 100.00% Endemol 99.60% Lola Films 70.00% Torneos y Competencias 20.00% Servicios de Teledistribucion 100.00% Sogecable 23.83% Telefonica Servicios Audiovisuales 100.00% Pearson 4.84% Hispasat 13.23% ADDENDA Significant Events • On May 14, 2004, Telefonica, pursuant to the resolution adopted by the shareholders of Telefonica, S.A. at their Annual General Meeting of April 30th, 2004, will pay a cash dividend from 2003 net income of a gross amount of 0.20 euros for each Company share issued, in circulation and carrying entitlement to this dividend. • On May 5, 2004, Telefonica, S.A. held 80,175,320 million own shares as treasury stock representing 1.618% of the company stock. • On May 3, 2004, Telefonica Publicidad e Informacion, S.A., paid a dividend of 92,058,582.75 euros against 2003 fiscal year net income and distributable reserves. Every share will receive a gross dividend of 0.25 euros. • On April 29, 2004, Telefonica, S.A. notified the Portuguese 'Comissao do Mercado de Valores Mobiliarios' of the increase in its holding in the share capital of Portugal Telecom SGPS, S.A. Subsequent to the acquisition, Telefonica, S.A. directly holds 89,132,630 shares of Portugal Telecom SGPS, S.A., representing 7.106 % of its share capital. In addition, Telefonica, S.A. holds an indirect stake representing 1.062% of the Portugal Telecom, SGPS, S.A. share capital through the following Grupo Telefonica companies: Allianca Atlantica Holding B.V. (0.424% of Portugal Telecom) y Telecomunicacoes de Sao Paulo, S.A. (0.637% of Portugal Telecom). • On March 24, 2004, the TPI Group reached an agreement to acquire Telefonica CTC of Chile's 9% stake in Publiguias for 14.7 million dollars. On February 23, the company reached an agreement to acquire for 65.6 million dollars the 40% held until then by the company's minority shareholders, Editorial Lord Cochrane (20.4%) and Impresiones Cuenca Uno e Impresiones Cuenca Dos (19.6%). With both operations, the TPI Group will control 100% of Publiguias. Since December 2000, the TPI Group owned 51% of 'Impresora y Comercial Publiguias S.A.'. • On March 8, 2004, Telefonica Moviles reached an agreement to acquire BellSouth's Latin America cellular operations. With this agreement, adding 10 companies in 10 countries, Telefonica Moviles: • consolidates its leadership position in key Latin American markets where it is already present (Argentina, Chile and Peru). • gains a strong footprint in high-growth markets where it did not have a presence before (Venezuela, Colombia, Ecuador and Uruguay). • and achieves a critical mass in Central America (Guatemala, El Salvador, Panama and Nicaragua). The agreement implies a total value for the 100% of the companies (firm value) of 5,850 million US dollars. ADDENDA Changes to the Perimeter and Accounting Criteria of Consolidation In the first quarter 2004, the following changes have occurred in the consolidation perimeter: TELEFONICA GROUP • During 2004, Telefonica Group has purchased 36,501 shares in the Dutch company Endemol Entertainment Holding, N.V. (Endemol). After this transaction, Telefonica Group's stake in Endemol has reached 99.6%. The company continues to be fully consolidated within the Telefonica Group. TELEFONICA DE ESPANA GROUP • As part of its ongoing process to restructure its group of companies, Telefonica Cable, S.A., a wholly-owned subsidiary of Telefonica de Espana, S.A., has taken over the following local operators:Telefonica Cable Asturias, S.A., Telefonica Cable Valencia, S.A. and Telefonica Cable Balears, S.A. All of these companies, which were fully consolidated within the Telefonica Group, have been removed from the Group's perimeter of consolidation this year. • The 2.13% stake that Telefonica de Espana, S.A. owned in the French company Eutelsat, S.A., was sold for 44.83 million euros, resulting in a 22.50 million euros capital gain. The company was recorded within the 'Other investments' item of the Telefonica Group's consolidated balance sheet. TELEFONICA LATINOAMERICA GROUP • The Brazilian company Aix Participacoes, which was integrated by the equity method in the consolidated accounts of the Telefonica Group in 2003, is now incorporated using the proportional integration method. • The U.S. company Katalyx, Inc. took over the U.S. companies Adquira, Inc. and Katalyx Transportation, LLC. Both companies, which were integrated in 2003 in the consolidated accounts of the Telefonica Group using the full integration method, have been removed from the consolidation perimeter. • The Peruvian company Telefonica Empresas Peru, S.A.A. has taken over the Peruvian company Telefonica Servicios Financieros, S.A.C. The company, which in 2003 was integrated in the consolidated accounts of the Telefonica Group using the full integration method, has been removed from the consolidation perimeter. • The Mexican companies Katalyx Construction Mexico, S.R.L., Katalyx Health Mexico, S.R.L., Katalyx Cataloguing Mexico, S.R.L. de C.V., Katalyx Food Service Mexico, S.R.L. de C.V. and Katalyx Transportation Mexico, LLC. were liquidated in February this year. All of these companies, which in 2003 were integrated in the consolidated accounts of the Telefonica Group using the full integration method, have been removed from the consolidation perimeter. TELEFONICA MOVILES GROUP • Mobipay Espana, S.A., carried out a capital increase of 3.78 million euros in 2004. In this capital increase, Telefonica Moviles Espana, S.A., raised its stake in the company from 13.33% to the current 13.36%. The company continues to be consolidated within the Telefonica Group using the equity method. TPI GROUP • In March 2004, Telefonica Publicidad e Informacion, S.A., has purchased an additional 40% in the share capital of its Chilean subsidiary, Impresora y Comercial Publiguias, S.A., for 53.3 million euros, increasing its stake up to 91%. The company continues to be fully consolidated within the Telefonica Group. TERRA LYCOS GROUP • Emplaza, S.A., in which the Terra Lycos Group had a 20% stake and that was no longer included in the consolidation perimeter as of June 2003 because it was not running any business, was liquidated in January 2004. • In March 2004 Lycos, Inc., sold its stakes in Wit Capital and GSI Global Sports. These companies were recorded under the 'Other investments' item and accounted at their cost of acquisition because the stakes in both of them were less than 5% and there was no influence in their management. Proceeds from selling these stakes amounted to 153,000 euros. ATENTO GROUP • The sale of 100% of the shares in Atento Guatemala Comercial, S.A., in March 2004, resulted in a 0.02 million euros capital gain for the Telefonica Group. The company has been removed from the consolidation perimeter of the Telefonica Group, in which it was fully consolidated. • Atento USA, Inc., has been dissolved and all its assets and liabilities were transferred to its parent company Atento Holding Inc. effective January 1, 2004. The company, which in 2003 was included in the consolidated financial statements of the Telefonica Group by the full consolidation method, has been removed from the consolidation perimeter. 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, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company. The forward-looking statements in this document can be identified, in some instances, by the use of words such as 'expects', 'anticipates', 'intends', 'believes', and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward looking statements as a result of various factors. Analysts and investors are cautioned not to place undue reliance on those forward looking statements which speak only as of the date of this presentation. Telefonica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefonica's business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company's Annual Report as well as periodic filings filed with the relevant Securities Markets Regulators, and in particular with the Spanish Market Regulator For additional information, please contact. Investor Relations Gran Via, 28 - 28013 Madrid (Spain) Phone number: +34 91 584 4700 Fax number: +34 91 531 9975 Email: ezequiel.nieto@telefonica.es dmaus@telefonica.es dgarcia@telefonica.es www.telefonica.com/ir This information is provided by RNS The company news service from the London Stock Exchange

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