3rd Quarter Results 2006 Pt 1
Telefonica SA
15 November 2006
PART 1
Quarterly results
January-September 2006
TABLE OF CONTENTS
Telefonica Group
Market Size
Financial Highlights
Consolidated Results
Financial Data
RESULTS BY BUSINESS LINES
Fixed Line Business
• Telefonica de Espana Group
• Telefonica Latinoamerica Group
Telefonica Moviles Group
Telefonica O2 Europe
• O2 Group
• Telefonica O2 Czech Republic
• Telefonica Deutschland
Other Business
• Atento Group
• Content and Media Business
addenda
Companies included in each Financial Statement
Key Holdings of the Telefonica Group and its Subsidiaries
Significant Events
Changes to the Perimeter and Accounting Criteria of Consolidation
The financial information contained in this document has been prepared under
International Financial Reporting Standards (IFRS). This financial information
is unaudited and, therefore, is subject to potential future modifications.
The English language translation of the consolidated financial statements
originally issued in Spanish has been prepared solely for the convenience of
English speaking readers. Despite all the efforts devoted to this translation,
certain omissions or approximations may subsist. Telefonica, its representatives
and employees decline all responsibility in this regard. In the event of a
discrepancy, the Spanish-language version prevails.
These consolidated financial statements are presented on the basis of accounting
principles generally accepted in International Financial Reporting Standards
(IFRS). Certain accounting practices applied by the Group that conform with
generally accepted accounting principles in IFRS may not conform with generally
accepted accounting principles in other countries.
TELEFONICA GROUP
TELEFONICA GROUP
ACCESSES
Unaudited figures (thousands)
January - September
2006 2005 % Chg
Final Clients Accesses 193,759.6 145,404.2 33.3
Fixed telephony accesses (1) 42,660.1 41,001.0 4.0
Internet and data accesses 11,774.8 10,278.8 14.6
Narrowband 4,287.5 5,067.9 (15.4)
Broadband (2) 7,285.4 5,023.6 45.0
Other (3) 201.9 187.3 7.8
Cellular accesses 138,443.3 93,581.1 47.9
Pay TV 881.4 543.3 62.2
Wholesale Accesses 2,102.5 1,706.4 23.2
Unbundled loops 790.6 365.7 116.2
Shared UL 438.5 228.9 91.6
Full UL 352.2 136.9 157.3
Wholesale ADSL (4) 1,167.4 1,285.3 (9.2)
Other (5) 144.4 55.4 160.9
Total Accesses 195,862.1 147,110.6 33.1
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
accesses for internal use included.
(2) ADSL, satelite, optical fibre, cable modem and broadband circuits.
(3) Remaining non-broadband final client circuits.
(4) Includes T. Deutschland connections resold on a retail basis.
(5) Circuits for other operators.
Note: Cellular accesses, Fixed telephony accesses and Broadband accesses include MANX customers and Colombia Telecom.
TELEFONICA GROUP
Financial Highlights
The most relevant facts of Telefonica Group results for the January-September
2006 period are the following:
• Once more Telefonica Group offers the best combination of growth and
returns:
• Revenues grew 43.1% year-on-year boosted by the solid performance of
the business in Spain, the differential growth that Latin America offers
and the consolidation and growth of the European activities
• The success in the commercial policy carried out is reflected in the
higher broadband revenues (+33.9% year-on-year), services revenues from
the mobile business (+12.4% year-on-year) and the extension of the
bundling products (around 2.5 millions as of September 30th)
• OIBDA up year-on-year 35.9%
• Net income increased year-on-year 59.4% to top 5,185.7 million euros
(considering 639.0 million euros of amortization of assets related with
the O2 Group Purchase Price Allocation) and the basic earnings per share
achieved 64.0% growth to 1.091 euros.
• Group diversification by geographies and business continues:
• 45.9% of the consolidated OIBDA is generated in Spain, 33.8% in Latin
America and 19.7% in Europe
• 47.5% of the total OIBDA is originated in the fixed businesses while
51.2% is generated in the mobile businesses (including Telefonica O2
Czech Republic and Telefonica Deutschland)
• The integrated management of operations resulted in organic growth rates
above peers and in a higher operating free cash flow:
• The organic1 growth of revenues, OIBDA and OI is 7.5%, 7.6% and 6.2%
year-on-year, respectively
• Operating free cash flow (OIBDA-CapEx) totalled 9,587.3 million euros
and increased 25.9% vs. January-September 2005
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1 Assuming constant exchange rates and including the consolidation of Telefonica
O2 Czech Republic in January -September 2005 and O2 Group in February-September
2005. Excluding the consolidation of Colombia Telecom in May-September 2006 and
Iberbanda in July-September 2006.
• The emphasis on the client is materialized in the outstanding growth of
the total accesses (195.9 million; +33.1% vs. September 2005) due to the
good results of the commercial campaigns and the incorporation of the
operations in Europe:
• Cellular accesses reached 138.4 million accesses by the end of
September and grew 47.9% year-on-year
• Retail Internet Broadband connections amounted to 7.3 million, 45.0%
more than in September 2005
• Pay TV customers totalled 0.9 million (+62.2% year-on-year)
• Guidance upgrade for full year 2006 2:
• Revenue growth higher than 37% from the initial range of +34%/+37%
• OIBDA growth will be in the high end of the range communicated (+26%/
+29%).
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2 2006 guidance assumes constant exchange rates as of 2005. Base reported
numbers include six months of Telefonica O2 Czech Republic (consolidated since
July 2005) and include TPI as a discontinued operation. All figures exclude
changes in consolidation, other than O2 (Feb-Dec 06 included). In terms of
guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses
not foreseeable in 2006. Personnel Restructuring and Real Estate Programs are
included as operating revenues/expenses. For comparison, the equivalent other
exceptional revenues/expenses registered in 2005 are also deducted from reported
figures. The assignment of O2's goodwill is not included in OI guidance
calculation.
TELEFONICA GROUP
Consolidated Results
The results obtained by Telefonica Group and the management report included in
this report are based on the actions carried out by the various business units
in the Group and which constitute the units over which management of these
businesses is conducted. This implies a presentation of results based on the
actual management of the various businesses in which Telefonica Group is
present, instead of adhering to the legal structure observed by the
participating companies.
In this sense, income statements are presented by businesses, which basically
implies that each business line participate in the companies that the Group
holds in the corresponding business, independently of the legal structure.
It should be emphasized that this presentation by businesses in no case alters
the total results obtained by Telefonica Group. These results are incorporated
from the date of effective acquisition of the holding.
The results of the Telefonica de Espana Group and the Telefonica Latinoamerica
Group include the results from Terra Networks operations as of 1st January 2005.
Hence, Terra Espana, Azeler and Maptel results are included in the Telefonica de
Espana Group, whereas the Terra results in Latin America are included in the
Telefonica Latinoamerica Group.
As of 1st February 2006, the results of the O2 Group are consolidated into
Telefonica O2 Europe business line. This business line is integrated by the
assets of O2 Group, Telefonica O2 Czech Republic (during the July-December 2005
period it was an independent business line) and Telefonica Deutschland (in 2005
it was included in Other companies of the Telefonica Group).
As of 1st May 2006, the results of Colombia Telecom are consolidated into
Telefonica Latinoamerica Group.
As of 1st July 2006, the results of Iberbanda are consolidated into Telefonica
de Espana Group.
Due to Telefonica's disposal of TPI, the Telefonica Group's 2005 and 2006
results include the Directories Business as a discontinued operations, in line
with International Financial Reporting Standards (IFRS).
The results of Telefonica Group's corresponding to the first nine months of 2006
keep demonstrating the Company's growth profile and the value of the
diversification, as the revenues register strong year-on-year growth (43.1%),
which is supported by the solid evolution of the businesses in Spain, the strong
growth in Latin America as well as the consolidation and the organic growth from
operations in Europe. It should be highlighted the net income level achieved
(5,185.7 million euros; +59.4% year-on-year) and the basic earnings per share
(1.091 euros; +64.0% year-on-year). Efficiency in integrated operations
management has permitted the OIBDA to grow 35.9% year-on-year and operating free
cash flow (OIBDA-CapEx) 25.9% year-on-year, reaching 9,587.3 million euros.
This positive evolution of the results has permitted to upgrade the consolidated
revenue1 growth target for 2006 to over 37% from the initial range of +34%/+37%
while the 2006 OIBDA1growth is expected to be at the top-end of the communicated
range (+26%/+29%).
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1 2006 guidance assumes constant exchange rates as of 2005. Base reported
numbers include six months of Telefonica O2 Czech Republic (consolidated since
July 2005) and include TPI as a discontinued operation. All figures exclude
changes in consolidation, other than O2 (Feb-Dec 06 included). In terms of
guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses
not foreseeable in 2006. Personnel Restructuring and Real Estate Programs are
included as operating revenues/expenses. For comparison, the equivalent other
exceptional revenues/expenses registered in 2005 are also deducted from reported
figures. The assignment of O2's goodwill is not included in OI guidance
calculation.
Telefonica Group's total accesses reached 195.9 million, a year-on-year increase
of 33.1% , as a result of the successful commercial policies developed in
growing businesses, mainly mobile and broadband. It's important to mention the
successful commercial campaigns developed in the third quarter, which were
characterised by the expansion of bundles offers for voice, broadband and TV.
Accesses in Spain totalled 43.4 million (+5.3% year-on-year), 110.1 million in
Latin America (+17.3% year-on-year) and 38.2 million in Europe (8.3 million on
30th September 2005).
The Group's cellular accesses reached 138.4 million compared with 93.6 million
in September 2005. From this figure, 21.0 million originate in Spain, 78.8
million in Latin America, 34.4 million in Europe and 4.2 million in Morocco. The
customer base for Telefonica Moviles Group stands at 104.0 million, with a
year-on-year increase of 16.8%. The acquisition of the value customers has been
mantained in the three regions, after recording net adds in the third quarter
gains of 365,000 in Spain, 2.6 million in Latin America and 812,000 in Europe.
Retail broadband Internet accesses continue to record high growth rates,
totalling 7.3 million at the end of September, 45.0% above the figure of
September 2005, highlihgting the levels reached in Spain (3.4 million vs. 2.4
million twelve months ago) and in Telesp (1.5 million vs. 1.1 million at the
close of the third quarter 2005).
In the first nine months of 2006, revenues for the Telefonica Group amounted to
38,704.4 million euros, representing year-on-year growth of 43.1%, with positive
increase in all business lines. The positive effect of the exchange rates is
reduced and contributes with 3.2 percentage points to the growth compared with
5.4 percentage points in the first half of the year. The incorporation of the
new companies in the perimeter of consolidation has contributed 32.4 percentage
points to the growth vs. 33.3 percentage points in January-June. Therefore, the
organic2 growth would reach 7.5% (+7.7% in January-June 2006), maintaining a
high organic percentage of variation, in which the following must be
highlighted; i) the contribution of the growth in the customer base in the 02
Group and Telefonica Moviles Latin America, ii) the solid growth in services
revenues in Telefonica Moviles Espana and iii) the increase of broadband sales
in Spain and Latin America. In the third quarter, revenues totalled 13,541.9
million euros and have grown 37.2% compared with the same period the previous
year.
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2 Assuming constant exchange rates and including the consolidation of Telefonica
O2 Czech Republic in January-September 2005 and the O2 Group in February-
September 2005. It excludes the consolidation of Colombia Telecom in May-
September 2006 and Iberbanda in July-September 2006.
By business lines, Telefonica Moviles Group continues to be the main contributor
to the growth and ended the first nine months of the year with 13,537.2 million
euros of revenues, 12.3% higher than the prior year figure. Excluding the impact
of the exchange rates, the year-on-year increase stands at 10.6% compared with
9.4% in the first half of the year. In Telefonica Moviles Spain there is an
acceleration in the revenue growth (+3.7% vs. +2.9% to June) after increasing
5.1% in the third quarter due to higher client revenues (+6.8%). In Latin
America, the evolution of Venezuela (+47.5% in local currency), Argentina
(+33.9% in local currency), Chile (+16.0% year-on-year) and Mexico (+20.0%
year-on-year) must be highlighted.
The contribution of revenues from Telefonica O2 Europe (constituted by the O2
Group since February 2006 and from Telefonica O2 Czech Republic and Telefonica
Deutschland since the 1st of January 2006) to the consolidated revenues is
9,434.3 million euros. The good performance of service revenues in O2 UK in the
first eight months of the year (+15.0% year-on-year in local currencie) that is
due to the strong growth of the customer base and the ARPU, has led the Company
to upgrade the service revenue growth guidance for 2006 (February-December) to
14%-15% from the previously announced (+8%/+11%). In O2 Germany and also in the
first eight months of the year, the year-on-year increase of service revenues
has reached 8.1%, changing the target for the end of the financial year
(February-December 2006) to the high single digits from the low double digits.
In Telefonica O2 Czech Republic, sales register a 0.6% (including other
recurring revenues) rise in local currency compared to January-September 2005,
reaching 1,592.5 million euros.
The revenues from the Telefonica de Espana Group in the cumulative period to
September stand at 8,893.9 million euros and show a 1.7% growth compared with
the same period of the previous year (+2.3% excluding the impact of the change
in the accounting criteria for minute-card revenues as of March 2006), mainly
supported by the strength of Internet and Broadband revenues (+27.0%) because of
the succesful commercial offers of Duos and Trios, which once again more than
offset the fall in access sales (-2.0%) and traditional voice (-5.1%). It should
be highlighted that in the third quarter alone, the year-on-year growth for the
revenues stands at 1.6% (+2.4% ex accounting criteria for minute-card), showing
acceleration of the trend registered in the second quarter (+0.3%).
The Telefonica Latinoamerica Group reported revenues of 7,050.3 million euros,
17.5% higher than those obtained in January-September 2005, showing a slow-down
compared with the first six months of 2006, when it increased by 23.2%. This
desaceleration is due to the lower positive impact of the exchange rates (+10.2
percentage points vs. +16.2 percentage points up to June) and a lesser increase
in Telesp sales (+2.1% vs. +4.5% to June) mainly due to the negative tariff
adjustments dated in July 2006. Assuming constant exchange rates and excluding
the Colombia Telecom revenues, the year-on-year growth rate is 3.5% (+4.4% in
the first half), in spite of the negative tariff environment in Argentina and
Peru.
By geographic areas, a greater diversification has been observed. As of
September 2006, revenues generated in Spain represented 38.5% of the total,
compared with 53.1% twelve months ago. Latin America has reduced its
contribution to total revenues by 6.2 percentage points, down to 26.0%. On the
other hand,revenues from Europe represented 126.0% of the total Group's revenues
(4.6% to September last year). Brazil continues to be the country with the
highest contribution to total revenues, after Spain, (14.7% on the 30th
September vs. 18.0% a year ago), followed by United Kingdom (12.5% vs. 0.4% in
September 2005), after the incorporation of O2 last February.
Although the level of commercial activity in the Group has intensified over the
last three months, the year-on-year increase of the operating expenses (24,519.2
million euros) up to September (+47.8%) is slightly lower than the figure
obtained in the first half of the year (+48.1%). Nevertheless, the effect of the
exchange rates, the changes in the perimeter of consolidation and the higher
costs in the Telefonica Moviles Group and O2 Group, explain this growth versus
September 2005. The performance of the main expense concepts was as follows:
• Supplies expenses (11,984.8 million euros) increased by 69.5% versus the
first nine months of 2005 (+66.6% in constant euros) as a consequence of the
handsets purchases in the Telefonica Moviles Group and the consolidation of
the O2 Group.
• Personnel expenses rose in January-September 2006 to 5,201.4 million
euros, equivalent to an increase of 26.1% (+23.7% assuming constant exchange
rates). The average workforce during the period was 225,879 employees, with
a net increase of 40,116 people (+21.6%) due to the changes in the perimeter
of consolidation and the significant increase in the Atento Group (excluding
the Atento Group, the average workforce number would increase 22.3% up to
127,525 employees). Regarding the Telefonica de Espana 2003-2007 Redundancy
Program, during the third quarter of the financial year no additional
provision has been recorded to the one accounted for the first six months
(391.5 million euros for 1,237 redundancies and 45 from the Terra Espana
Remunerated Layoff Plan). During the fourth quarter of the fiscal year, the
provision for the rest of the employees joined to the Program in 2006 will
be recorded and, in the other hand the incorporation to Redundancy Program
in 2007 has been changed to October 2006.
• External services increased by 36.8% in comparison with September 2005
(+33.3% eliminating the exchange rate effect), totalling 6,652.1 million
euros as a consequence of the higher costs in the Telefonica Moviles Group
related to the commercial activity -commercial costs, advertising costs,
call centre costs - in a competitive environment in the operations markets
and the incorporation of the O2 Group, which also presents a higher level of
commercial costs in O2 UK.
With respect to the sale of fixed assets in the Telefonica Group, it rose in the
first nine months of 2006 to 223.5 million euros (+177.9 million euros in
January-September 2005). This is mainly explained by two factors: i) the sale of
shares in Sogecable (6.6% of capital share) after the takeover bid presented by
the Prisa Group ii) the capital gain of real state amounted to 85.8 million
euros in Telefonica de Espana Group.
As a result of the evolution of the aforementioned revenues and costs, the
operating income before depreciation and amortization (OIBDA), cumulative to
September, totals 14,653.9 million euros, 35.9% higher than that registered in
the same period 2005 (+32.6% in constant euros). In the third quarter, the
year-on-year increase is 28.1% (5,411.5 million euros). In accumulated terms,
the organic3 growth rate has reached 7.6%, 0.2 percentage points higher than the
one recorded up to June. As far as the OIBDA margin is concerned, in the first
nine months of the year, it stands at 37.9% compared to 39.9% twelve months ago,
mainly due to the incorporation of new companies into the perimeter of
consolidation. The margin on revenues in the third quarter alone has risen to
40.0% (42.8% in July-September 2005).
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3 Assuming constant exchange rates and including the consolidation of Telefonica
O2 Czech Republic in January-September 2005 and the O2 Group in February-
September 2005. It excludes the consolidation of Colombia Telecom in May-
September 2006 and Iberbanda in July-September 2006.
The Telefonica Moviles Group, which contributes 32.1% of the Group's OIBDA, in
the January-September period 2006 reached 4,700.3 million euros and has grown
11.2% from that obtained in the same period of 2005 (+10.1% in constant
currency), whilst profitability has remained virtually stable despite the high
commercial activity developed in its markets of operations (OIBDA margin rises
to 34.7% with a year-on-year drop of 0.4 percentage points). Noteworthy is the
improvement in the OIBDA margin for the Latin American operators up to September
(24.70% vs. 22.0% twelve months ago), whilst the OIBDA margin for Telefonica
Moviles Spain stands at 45.5% vs. 46.7% in January-September 2005.
The OIBDA of the Telefonica de Espana Group records 7.6% growth in respect to
the first nine months of 2005, totalling 3,769.5 million euros and representing
25.7% of the total OIBDA. The positive evolution of revenues and the cost
control (-3.2%) along with the lower accounted provision by the employees joined
the Redundancy Program in 2006 compared to 2005, has contributed to this
performance. For the 2006 financial year, it has been predicted that OIBDA
growth4 will surpass 5% without considering the possible provision resulting
from bringing forward part of the Redundancy Program for 2007 (previously +1.0%/
+3.0%). The OIBDA margin to September stands at 42.4% (40.1% in
January-September 2005). Excluding the redundancy plan provision, in both
periods the OIBDA margin has increased to 46.8% (46.1% the previous year).
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4 2006 guidance exclude changes in consolidation. Operating Income before D&A
excludes other exceptional revenues/expenses not foreseeable in 2006. Personnel
Restructuring (E.R.E.) and Real Estate Programs are included as operating
revenues/ expenses. For comparison, the equivalent other exceptional
revenues/expenses registered in 2005 are also deducted from reported figures.
With regard to Telefonica Latinoamerica Group, the OIBDA (3,198.2 million euros)
represents 21.8% of the consolidated OIBDA for the first nine months of the
fiscal year and shows a year-on-year growth of 18.8%. Excluding the positive
impact of the exchange rates (+10.4 percentage points) and the incorporation of
Colombia Telecom in May, the rise in the OIBDA is reduced to 4.0%. The OIBDA
margin, excluding the result for disposing of fixed assets in both periods,
reached 45.4%, 1.8 percentage points higher than the previous year.
Telefonica O2 Europe contributed 2,798.2 million euros or 19.1% to the
consolidated OIBDA, which comprised eight months of O2 Group (2,044.6 million
euros) and nine months of Telefonica O2 Czech Republic and Telefonica
Deutschland. With regard to Telefonica O2 Czech Republic, the OIBDA reached
778.8 million euros and has increased 4.1% compared to January-September 2005,
which has led to increase the OIBDA growth target to be around 2% compared to
the flat performance which was previously announced. With respect to the OIBDA
margin, in the February-September 2006, O2 UK stands at 27.6% and O2 Germany at
24,2%. By the end of 2006, it is expected that the O2 UK margin for the 11
months in 2006 will stand around 1.0 percentage points below than the one
obtained in the same period in 2005.With regard to the breakdown of OIBDA by
geographic areas at the end of the third quarter, 45.9% of the total OIBDA for
the Telefonica Group comes from Spain (-13.7 percentage points compared to
September of last year), 33.8% from Latin America (2.0 percentage points less
than twelve months ago) and 19.7% from Europe (15.7 percentage points more than
in September of the previous year).
Depreciation and amortization to September has risen to 7,209.3 million euros
and registers a 50.1% increase over the same period of the previous year. This
performance is mainly due to the incorporation of Telefonica O2 Europe, that
includes eight months of the O2 Group Purchase Price Allocation for 639.0
million euros and nine months of amortization associated to the Price Purchase
Allocation of Telefonica O2 Czech Republic which reached 115.8 million euros. We
are not expecting significant variations of the preliminary estimated amount of
the O2 puchase price allocation incorporated until the end of September once we
have the definitive figure. In organic5 terms, depreciation and amortization
increased by 9.1%, changing the trend versus June (-1.4%) due to the O2 PPA
mentioned before. Excluding this effect, depreciation and amortization would
decrease, in organic terms, untill 0.9% as a result of the decline of
amortisation in Telefonica de Espana Group (-13.2%).
The consolidated operating income (OI) presents year-on-year growth of 24.5% and
totals 7,44.6 million euros in January-June 2006. The organic5 growth ,
excluding the effect of the allocated assets in the acquisition proccess of O2
would have increased by 15.6%, 1.0 percentage points less than in the first half
of the year.
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5 Assuming constant exchange rates and including the consolidation of Telefonica
O2 Czech Republic in January-September 2005 and the O2 Group in February-
September 2005. It excludes the consolidation of Colombia Telecom in May-
September 2006 and Iberbanda in July-September 2006.
The result of associated companies cumulative to September reaches 60.7 million
euros compared with 9.6 million for the same period of the previous year. This
improvement was due to the higher contribution of Portugal Telecom and, to a
lesser extent, the reduction in losses attributable to IPSE 2000.
Net financial expenses amounted to 1,928.7 million euros, 71.5% year-on-year
(+804.1 million euros) in respect with the comparable figure of 2005 (1,124.5
million euros). This variation is lower than the 88.3% increase in the average
net debt due to the lower costs than 2005 average related to the debt growth in
euros and pounds for the O2 acquisition.
The net free cash flow after CapEx generated by the Telefonica Group in the
first nine months of 2006 totalled 6,485.6 million euros, of which 2,063.3
million euros were assigned to the buyout of treasury stock in Telefonica, S.A.,
1,169.2 million euros to the payment of dividend and 616.1 million euros to the
cancellation of commitments, mainly headcount reduction program. Since the
financial investments in the period (net of the sale of real state and the cash
flow of O2, Colombia Telecom and TPI in the moment of the acquisition/disposal)
reached 21,872.2 million euros, mainly because the O2 take over (purchases of O2
shares in the stock market began in 2005), the net financial debt has been
increased by 18,641.2 million euros.
Telefonica's Group net financial debt at the end of September 2006 stood at
52,238.7 million euros. Along with the aforementioned effect (increase of
18,641.2 million euros), another effects have to be added: i) increase of
4,146.6 million euros due to the changes in the perimeter of consolidation and
other effects over the financial statements, mainly the incorporation of O2 and
Colombia Telecom gross debt and ii) reduction of 616.1 million euros as a
consequence of the effects of the exchange rates on net financial debt non
denominated in euros. This results in an increase of the net financial debt of
22,171.7 million euros versus the fiscal year 2005 net financial debt figure
(30,067.0 million euros).
The tax provision accrued in the first three quarters of the year reached
1,714.0 million euros, which implies a tax rate of 31% in the period, althoug
the cash outflow for the Telefonica Group will be further reduced as negative
tax bases are compensated for. The effective tax rate stood at 39% in the third
quarter impacted by the O2 Group Purchase Price Allocation, higher than the 20%
rate accounted in the second quarter which was affected by the deductions
(allowances for export activities) that were pending to record.
The result from discontinued operations stands at 1,596.0 million in the first
nine months of the financial year after registering the net capital gain in the
third quarter of the year corresponding to the sale of Telefonica's
participation in TPI for 1,564 million euros.
The results attributed to minority interests subtract 273.0 million euros from
the net income cumulative to September and grows 6.6% year-on-year. This
variation is mainly due to minority shareholder participation in the higher net
income of Telefonica O2 Czech Republic, Telesp, Endemol (IPO in November 2005).
As a consequence of the performance of the aforementioned parties, the net
income from the Telefonica Group increased in the first nine months of the year
to 5,185.7 million euros, 59.4% higher than the one obtained in
January-September 2005, after registering a net income of 2,611.7 million euros
in the third quarter (1,418.2 million euros in July-September 2005).
The consolidated CapEx for the first nine months of 2006 reached 5,066.6 million
euros, a year-on-year increase of 59.9%. In organic6 terms, growth would have
been 6.1%, explained basically by the higher investments in the fixed business,
broadband and new businesses, both in Spain and in Latin America and in the
mobile business in Europe due to the deployment of the third generation network
in UK and Germany and additional investments in the second generation network.
However, it should be noted that there is a cyclical component of the
investments, so that this performance cannot be extrapolated to the full year.
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6 Assuming constant exchange rates and including the consolidation of Telefonica
O2 Czech Republic in January-September 2005 and the O2 Group in February-
September 2005. It excludes the consolidation of Colombia Telecom in May-
September 2006 and Iberbanda in July-September 2006.
FINANCIAL TARGETS ( 7 )
Regarding the financial targets established for 2006 the Telefonica Group
expects that:
• The consolidated growth of the revenues for the 2006 fiscal year is now
expected to be above 37% compared with the initial range of +34/+37%.
• The 2006 OIBDA growth is expected to be at the top-end of the range
previously comunicated (+26%/+29%)
• The OI growth in 2006 is expected to be in the range (+26%/+30%)
previously announced.
• CapEx is expected to be around the 7,200 million euros previously
announced.
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7 2006 guidance assumes constant exchange rates as of 2005. Base reported
numbers include six months of Telefonica O2 Czech Republic (consolidated since
July 2005) and include TPI as a discontinued operation. All figures exclude
changes in consolidation, other than O2 (Feb-Dec 06 included). In terms of
guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses
not foreseeable in 2006. Personnel Restructuring and Real Estate Programs are
included as operating revenues/ expenses. For comparison, the equivalent other
exceptional revenues/expenses registered in 2005 are also deducted from reported
figures. The assignment of O2's goodwill is not included in OI guidance
calculation.
TELEFONICA GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September
2006 2005 % Chg
Revenues 38,704.4 27,054.1 43.1
Operating income before D&A (OIBDA) 14,653.9 10,782.4 35.9
Operating income (OI) 7,444.6 5,980.1 24.5
Income before taxes 5,576.7 4,865.2 14.6
Net income 5,185.7 3,253.3 59.4
Basic earnings per share 1.091 0.665 64.0
Weighted average number of ordinary shares outstanding during the period (millions) 4,754.0 4,890.7 (2.8)
Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares
outstanding during the period have been obtained applying IFRS rule 33 'Earnings per share'. Thereby, there are not
taking into account as outstanding shares the weighted average number of shares held as treasury stock during the
period nor the shares assigned to the stock options plans for employees. Furthermore, in line with IFRS rule 33, the
weighted average number of shares outstanding during every period, has been adjusted for these operations that had
implied a difference in the number of outstanding shares, without a variation associated in the equity, as if those
have taken place at the beginning of the first period presented. It consists on the distribution of the paid-in
capital reserve by means of delivery of shares in the proportion of 1 share to every 25 shares, approved by the AGM
as of May 31, 2005.
TELEFONICA GROUP
RESULTS BY COMPANIES
Unaudited figures (Euros in
millions)
REVENUES OIBDA OPERATING INCOME
January - September January - September January - September
2006 2005 % Chg 2006 2005 % Chg 2006 2005 % Chg
Telefonica de Espana Group (1) 8,893.9 8,744.5 1.7 3,769.5 3,503.0 7.6 2,355.9 1,875.4 25.6
Telefonica Latinoamerica Group (1) 7,050.3 6,000.9 17.5 3,198.2 2,692.9 18.8 1,737.7 1,378.0 26.1
Telefonica Moviles Group 13,537.2 12,050.0 12.3 4,700.3 4,226.5 11.2 2,875.1 2,546.7 12.9
Telefonica O2 Europe (2) 9,434.3 717.7 n.c. 2,798.2 253.8 n.c. 320.7 99.7 n.c.
Atento Group 758.0 608.6 24.6 102.3 82.6 23.9 81.3 61.9 31.3
Content & Media Business 1,124.9 878.7 28.0 270.1 167.1 61.6 248.8 146.7 69.7
Other companies (3) 511.4 439.6 16.3 (69.2) (128.3) (46.1) (102.6) (165.4) (37.9)
Eliminations (2,605.7) (2,385.8) 9.2 (115.5) (15.2) n.m. (72.3) 37.2 c.s.
Total Group 38,704.4 27,054.1 43.1 14,653.9 10,782.4 35.9 7,444.6 5,980.1 24.5
(1) Telefonica de Espana Group and Telefonica Latinoamerica Group results consolidates the results from Terra
Networks operations from 1 January 2005
(2) Telefonica O2 Europe includes in 2006 O2 Group (February-September), Telefonica O2 Czech Republic y T.
Deutschland. In 2005 Telefonica O2 Europe includes Telefonica O2 Czech Republic since July and T. Deutschland since
January
(3) OIBDA and Operating Income exclude the variation in investment valuation allowances and the capital gain obtained
for the sale of TPI accounted for by Telefonica S.A. parent company and that are eliminated in consolidation
TELEFONICA GROUP
CAPEX BY BUSINESS LINES
Unaudited figures (Euros in millions)
January - September
2006 2005 % Chg
Telefonica de Espana Group (1) 1,049.3 919.8 14.1
Telefonica Latinoamerica Group (1) 736.6 578.0 27.4
Telefonica Moviles Group 1,301.1 1,384.6 (6.0)
Telefonica O2 Europe (2) 1,675.2 55.9 n.c.
Atento Group 19.2 24.2 (20.5)
Content & Media Business 37.0 13.9 165.9
Other companies & Eliminations 248.3 191.4 29.7
Total Group 5,066.6 3,167.8 59.9
Note: Group CapEx in 2006 at cumulative average exchange rate. For comparative purposes, 2005 Capex has been
recalculated at the cumulative average exchange rate for the corresponding period
(1) Telefonica de Espana Group and Telefonica Latinoamerica Group results consolidates the results from Terra
Networks operations from 1 January 2005
(2) Telefonica O2 Europe includes in 2006 O2 Group (February-June), Telefonica O2 Czech Republic y T. Deutschland. In
2005 Telefonica O2 Europe only includes Telefonica O2 Czech Republic since July and T. Deutschland since January
TELEFONICA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg 2006 2005 % Chg
Revenues 38,704.4 27,054.1 43.1 13,541.9 9,867.6 37.2
Internal expenditure capitalized in fixed assets (1) 523.9 338.1 54.9 182.2 112.9 61.3
Operating expenses (24,519.2) (16,590.6) 47.8 (8,346.2) (5,668.9) 47.2
Supplies (11,984.8) (7,072.1) 69.5 (4,245.7) (2,534.6) 67.5
Personnel expenses (5,201.4) (4,126.0) 26.1 (1,611.8) (1,261.4) 27.8
Subcontracts (6,652.1) (4,863.0) 36.8 (2,250.8) (1,688.0) 33.3
Taxes (680.9) (529.6) 28.6 (237.9) (184.9) 28.7
Other net operating income (expense) (264.4) (184.8) 43.1 (34.1) (96.4) (64.6)
Gain (loss) on sale of fixed assets 223.5 177.9 25.7 71.6 13.6 n.m.
Impairment of goodwill and other assets (14.2) (12.2) 16.6 (3.9) (5.4) (27.5)
Operating income before D&A (OIBDA) 14,653.9 10,782.4 35.9 5,411.5 4,223.5 28.1
Depreciation and amortization (7,209.3) (4,802.3) 50.1 (2,863.8) (1,721.4) 66.4
Operating income (OI) 7,444.6 5,980.1 24.5 2,547.7 2,502.1 1.8
Profit from associated companies 60.7 9.6 n.s. 21.4 4.3 n.m.
Net financial income (expense) (1,928.7) (1,124.5) 71.5 (738.0) (394.0) 87.3
Income before taxes 5,576.7 4,865.2 14.6 1,831.1 2,112.5 (13.3)
Income taxes (1,714.0) (1,409.5) 21.6 (712.3) (620.5) 14.8
Income from continuing operations 3,862.6 3,455.7 11.8 1,118.7 1,491.9 (25.0)
Income (Loss) from discontinued operations 1,596.0 53.7 n.m. 1,576.6 37.9 n.m.
Minority interest (273.0) (256.2) 6.6 (83.6) (111.7) (25.1)
Net income 5,185.7 3,253.3 59.4 2,611.7 1,418.2 84.2
Weighted average number of ordinary shares outstanding during 4,754.0 4,890.7 (2.8) 4,828.1 4,877.9 (1.0)
the period (millions)
Basic earnings per share 1.091 0.665 64.0 0.541 0.291 86.1
(1) Including work in process.
Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares
outstanding during the period have been obtained applying IFRS rule 33 'Earnings per share'. Thereby, there are not
taking into account as outstanding shares the weighted average number of shares held as treasury stock during the
period nor the shares assigned to the stock options plans for employees. Furthermore, in line with IFRS rule 33, the
weighted average number of shares outstanding during every period, has been adjusted for these operations that had
implied a difference in the number of outstanding shares, without a variation associated in the equity, as if those
have taken place at the beginning of the first period presented. It consists on the distribution of the paid-in
capital reserve by means of delivery of shares in the proportion of 1 share to every 25 shares, approved by the AGM
as of May 31, 2005.
TELEFONICA GROUP
CONSOLIDATED BALANCE SHEET
Unaudited figures (Euros in millions)
September
2006 2005 % Chg
Non-current assets 90,832.1 57,982.2 56.7
Intangible assets 21,042.1 6,872.5 206.2
Goodwill 22,752.5 9,394.4 142.2
Property, plant and equipment and Investment property 33,671.1 27,961.5 20.4
Long-term financial assets and other non-current assets 5,981.4 5,546.5 7.8
Deferred tax assets 7,385.0 8,207.3 (10.0)
Current assets 19,128.3 13,905.5 37.6
Inventories 1,052.2 903.8 16.4
Trade and other receivables 9,709.1 7,459.1 30.2
Current tax receivable 1,468.1 1,561.5 (6.0)
Short-term financial investments 1,788.3 1,415.0 26.4
Cash and cash equivalents 5,101.1 2,548.9 100.1
Non-current assets classified as held for sale 9.4 17.1 (44.9)
Total Assets = Total Equity and Liabilities 109,960.4 71,887.6 53.0
Equity 19,087.0 14,924.8 27.9
Equity attributable to equity holders of the parent 16,298.9 12,265.0 32.9
Minority interest 2,788.1 2,659.8 4.8
Non-current liabilities 64,446.1 34,750.8 85.5
Long-term financial debt 51,647.0 23,884.2 116.2
Deferred tax liabilities 5,275.5 1,999.9 163.8
Long-term provisions 6,535.1 7,632.4 (14.4)
Other long-term liabilities 988.4 1,234.3 (19.9)
Current liabilities 26,427.3 22,212.1 19.0
Short-term financial debt 8,974.7 9,094.8 (1.3)
Trade and other payables 8,781.9 6,061.9 44.9
Current tax payable 2,494.5 2,345.8 6.3
Short-term provisions and other liabilities 6,176.2 4,709.6 31.1
Liabilities associated with non-current assets classified as held for sale 0.0 0.0 n.s.
Financial Data
Net Financial Debt (1) 52,238.7 28,676.1 82.2
(1) Net Financial Debt = Long term financial debt + Other long term liabilities + Short term financial debt - Short
term financial investments - Cash and cash equivalents - Long term financial assets and other non-current assets.
TELEFONICA GROUP
FREE CASH FLOW AND CHANGE IN DEBT
Unaudited figures (Euros in
millions)
January - September
2006 2005 % Chg
I Cash flows from operations 13,729.9 9,303.8 47.6
II Net interest payment (1) (1,711.4) (934.7)
III Payment for income tax (879.0) (1,017.1)
A=I+II+III Net cash provided by operating activities 11,139.5 7,352.0 51.5
B Payment for investment in fixed and intangible assets (4,981.5) (3,074.3)
C=A+B Net free cash flow after CAPEX 6,158.0 4,277.7 44.0
D Net Cash received from sale of Real Estate 24.0 84.2
E Net payment for financial investment (21,302.2) (4,854.6)
F Net payment for dividends and treasury stock (2) (3,521.0) (2,277.9)
G=C+D+E+F Free cash flow after dividends (18,641.2) (2,770.6)
H Effects of exchange rate changes on net financial debt (616.1) 1,240.6
I Effects on net financial debt of changes in consolid. 4,146.6 970.5
and others
J Net financial debt at beginning of period 30,067.0 23,694.4
K=J-G+H+I Net financial debt at end of period 52,238.7 28,676.1
(1) Including cash received from dividends paid by subsidiaries that are not under full consolidation method.
(2) Dividends paid by Telefonica S.A. and dividend payments to minoritaries from subsidiaries that are under full
consolidation method and treasury stock.
--------------------------------------------------------------------------------
TELEFONICA GROUP
RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEX
Unaudited figures (Euros in millions)
January - September
2006 2005 % Chg
OIBDA 14,653.9 10,944.5 33.9
- CapEx accrued during the period (EoP exchange rate) (5,066.6) (3,330.6)
- Payments related to commitments (616.1) (665.4)
- Net interest payment (1,711.4) (934.7)
- Payment for income tax (879.0) (1,017.1)
- Results from the sale of fixed assets (223.6) (177.7)
- Invest. in working cap. and other deferred income and expenses 0.7 (541.3)
= Net Free Cash Flow after CapEx 6,158.0 4,277.7 44.0
+ Net Cash received from sale of Real Estate 24.0 84.2
- Net payment for financial investment (21,302.2) (4,854.6)
- Net payment for dividends and treasury stock (3,521.0) (2,277.9)
= Free Cash Flow after dividends (18,641.2) (2,770.6) n.m.
Note: At the Investor Conference held in October 2003, the concept expected 'Free Cash Flow' 2003-2006 was introduced
to reflect the amount of cash flow available to remunerate Telefonica S.A. Shareholders, to protect solvency levels
(financial debt and commitments), and to accomodate strategic flexibility.
The differences with the caption 'Net Free Cash Flow after CapEx' included in the table presented above, are related
to 'Free Cash Flow' being calculated before payments related to commitments (workforce reductions and guarantees) and
after dividend payments to minoritaries, due to cash recirculation within the Group.
Jan-Sep 2006 Jan-Sep 2005
Net Free Cash Flow after CapEx 6,158.0 4,277.7
+ Payments related to cancellation of commitments 616.1 502.9
- Ordinary dividends payment to minoritaries (288.5) (262.7)
= Free Cash Flow 6,485.6 4,517.9
TELEFONICA GROUP
NET FINANCIAL DEBT AND COMMITMENTS
Unaudited figures (Euros in millions)
September 2006
Long-term debt 51,970.8
Short term debt including current maturities 8,974.7
Cash and Banks (5,101.1)
Short and Long-term financial investments (1) (3,605.8)
A Net Financial Debt 52,238.7
Guarantees to IPSE 2000 365.5
Guarantees to Newcomm 74.0
B Commitments related to guarantees 439.5
Gross commitments related to workforce reduction (2) 5,123.5
Value of associated Long-term assets (3) (723.1)
Taxes receivable (4) (1,765.9)
C Net commitments related to workforce reduction 2,634.4
A + B + C Total Debt + Commitments 55,312.6
Net Financial Debt / OIBDA (5) 2.62x
Total Debt + Commitments/ OIBDA (5) 2.78x
(1) Short term investments and certain investments in financial assets with a maturity profile longer than one year,
whose amount is included in the caption 'Investment' of the Balance Sheet.
(2) Mainly in Spain. This amount is detailed in the caption 'Provisions for Contingencies and Expenses' of the
Balance Sheet, and is the result of adding the following items: 'Provision for Pre-retirement, Social Security
Expenses and Voluntary Severance', 'Group Insurance', 'Technical Reserves', and 'Provisions for Pension Funds of
Other Companies'.
(3) Amount included in the caption 'Investment' of the Balance Sheet, section 'Other Loans'. Mostly related to
investments in fixed income securities and long-term deposits that cover the materialization of technical reserves of
the Group insurance companies.
(4) Net present value of tax benefits arising from the future payments related to workforce reduction commitments.
(5) Calculation based on 12 months accumulated OIBDA, including Telefonica O2 Czech Republic, O2 and Colombia
Telecom.
TELEFONICA GROUP
EXCHANGES RATES APPLIED
P&L and CapEx (1) Balance Sheet (2)
Jan - Sep 2006 Jan - Sep 2005 % Chg September 2006 September 2005
United States (Dolar USA/Euro) 1.243 1.261 1.266 1.204
United Kingdom (Sterling/Euro) 0.685 - 0.678 -
Argentina (Peso Argentinean/Euro) 3.821 3.661 3.930 3.504
Brazil (Real Brasileno/Euro) 2.714 3.131 2.753 2.676
Rep. Checa (Corona Checa/Euro) 28.441 29.682 28.330 29.550
Chile (Peso Chileno/Euro) 660.066 719.424 679.810 636.943
Colombia (Peso Colombiano/Euro) 2,949.853 2,941.176 3,030.303 2,754.821
El Salvador (Colon/Euro) 10.880 11.038 11.078 10.536
Guatemala (Quetzal/Euro) 9.462 9.639 9.649 9.217
Mexico (Peso Mexicano/Euro) 13.543 13.805 13.945 13.065
Nicaragua (Cordoba/Euro) 21.707 20.986 22.510 20.396
Peru (Nuevo Sol Peruano/Euro) 4.093 4.117 4.111 4.027
Uruguay (Peso Uruguayo/Euro) 29.898 31.192 30.257 28.843
Venezuela (Bolivar/Euro) 2,673.797 2,645.503 2,724.796 2,590.674
(1) These exchange rates are used to convert the P&L and CapEx accounts of the Group foreign subsidiaries from local
currency to euros.
(2) Exchange rates as of 30/09/06 y 30/09/05.
RESULTS BY BUSINESS LINES
Fixed Line Business
Telefonica de Espana Group
Telefonica de Espana Group's results for the first nine months of 2006 confirm
the success of the commercial strategy by showing a 1.7% growth in revenues,
supported by the positive evolution of the Internet and Broadband business,
which increased by 27.0%.
As a result from the commercial campaigns developed, net gain of Retail Internet
Broadband accesses in the third quarter posted a 27.1% growth compared to that
of same quarter 2005, surpassing 190.000 net adds.
This success of Telefonica de Espana is based on product bundling through the
Duos and Trios offers, which amounted to over 2.3 millions by September end, and
on the higher usage of VAS, which contributed to the increase of global ARPU to
63 euros, being 4.3% higher than that of the first nine months of 2005.
It is also noteworthy the fixed telephone line loss contention in the
traditional business, showing a year-on-year decline of just 1.3%. This good
performance is due, on one side, to Telefonica's bundling strategy and
commercial and promotional actions, and on the other, to the fixed line market
growth in Spain, that according to Company's estimates reaches a 1.8%
year-on-year growth by September 2006.
The cost contention results, together with top line growth, have resulted in an
OIBDA growth, for the January-September 2006 period, of 7.6%. This growth is
even more meaningful once taken out one-off effects, such as the lower E.R.E.
provision in 2006, the Real State program, or public subventions, leading to an
underlying OIBDA growth of 3.7%. All in one has led to an upgrade of the 2006
OIBDA guidance to higher than 5%.
Following with commercial details, next, most relevant products launched during
the third quarter of the year are mentioned:
• Expansion of the Duos range aimed primarily at SMEs, which include the
most advanced ADSL modalities: Class (2 Mbps/320 Kbps), Advanced (4 Mbps/512
Kbps), Premium (8 Mbps/640 Kbps), TOP (10 Mbps/320 Kbps) and Premium Plus
(20 Mbps/800 Kbps).
• Launch of the new 'Actuaciones Lan' (LAN Operations) service to manage the
local area networks of our clients and the 'Escritorio PYME' (SMEs Desktop)
service: The grouping of outsourced functions and services to create an
on-line desktop in the company (virtual intranet) where all company staff
share resources and information and are connected 24 hours a day from
anywhere, inside and outside the office.
• The new modality of contracting theme channels through the Imagenio
Service to customize the range of TV programmes, adding channel packages
known as 'Favoritos' (Favourites) or independent channels 'a la carta' (a la
carte). From among the former it is possible to choose packages containing
theme channels of Series, Music, Cinema, Documentaries or Sports from €3.00
a month. The 'a la carte' channels are available from €1.70 a month.
Significant efforts have also be made in terms of marketing campaigns:
• The free subscription campaign between 18th September and 2nd October.
• The marketing campaign undertaken during the summer months regarding the
combined offers, Duos and Trios, which, among other discounts, offered free
monthly subscription fees until September and that have contributed towards
a quarterly net gain in this type of products of over 278,000 units, despite
the summer season.
• The inclusion of 120-minute vouchers a month in Duos and Trios (promotion
valid from 20th August until 15th October) for fixed-to-mobile traffic at
any time of day free of charge for 6 months. The success of this offer can
be seen in the total number of these vouchers, which exceeded 140,000
through the end of September.
Also worth noting is the renewed agreement signed with Buenavista International
for an initial three-year period for the video-on-demand distribution of titles
from the Walt Disney Studios, Touchestone Pictures and Miramax Films through the
Imagenio service.
In terms of regulatory matters, the decision published by the CMT last September
in relation to the new RUO, Reference Unbundling Offer (OBA, Oferta de Acceso al
Bucle de Abonado: Offer for Access to the Subscriber Loop) is worth noting. This
decision established significant new issues in comparison with the previous RUO
in force, including:
• The 14.4% reduction in the fully unbundled loop rental price to 9.72 euros
per month, the price of the shared loop remaining unaltered.
• Creation of a planning and monitoring system for requests for work
associated with loop unbundling, trying to solve problems due to delays over
the established completion terms when requests were presented in large
numbers and without prior planning.
• The reduction of the period established for alternative operators to use
the space reserved in central offices to six months as of its availability.
• The introduction of a new procedure for shared loops to disable the basic
telephone service on request by the end customer. The loop will be treated
as fully unbundled loop to bill the alternative operator and Telefonica de
Espana will no longer charge the end customer the PSTN line monthly fee.
• The imposition of a gap of no shorter than 30 calendar days for Telefonica
to launch a new ADSL retail service as of the availability of the same
wholesale service for alternative operators.
• The inclusion of new quality parameters for the unbundled loop services,
wholesale ADSL services (GigADSL and ADSL-IP) and the end services it
provides for itself, PSTN, ADSL line and Imagenio, and for companies in the
Group.
In August, the CMT also published a new decision in which it established the
maximum average prices applicable to voice termination interconnection services
on mobile networks. In this regulation, the CMT established a period of three
years between October 2006 and September 2009 to set a half-yearly path to cut
the average prices of the three operators so that, by the end of the period,
they will all stand at 0.07 euros/minute, leading to a reduction of between 42%
and 47% in comparison with current prices. The first cut proposed, made
effective as of 16th October, represents a reduction of between 7% and 8% in
relation to the previous prices in force.
Revenues of Telefonica de Espana Group amounted to 8,893.9 million euros during
the first nine months of 2006, a year-to-year growth of 1.7%. Revenues totalled
2,972.7 million euros in the third quarter of the year, a 1.6% increase that, as
in the previous quarter, was affected by the change in accounting criteria for
traffic-card revenues as of March 2006. Revenues growth, taking out the effect
of the traffic cards revenues accounting criteria change, would stand at 2.3%
(2.4% for the third quarter alone).
Through September, Telyco's contribution to revenues amounted to 311.0 million
euros, down 8.6% compared to the previous year. The performance of Telyco took
0.4 percentage points from Telefonica de Espana Group growth during January to
September 2006. TTP contributed to the Group's growth with 81.3 million euros, a
12.3% year-to-year decline. Iberbanda's contribution, since it is being firstly
consolidated as of July 1st 2006 , amounts to 8.9 million euros.
On 1st July 2006, Terra Espana was merged with Telefonica de Espana, S.A.,
retroactively to 1st January 2006. As such, Telefonica de Espana parent
company's operating revenues for the third quarter 2006 included 15.7 million
euros of Terra Espana revenues from the January to September 2006 period. These
additional revenues are mostly attributed to the retail internet and broadband
business; revenues from wholesale and IT services provided during the period by
the Telefonica de Espana Parent company to Terra Espana are eliminated in
consolidation.
As a result, over the first nine months of the year, the Telefonica de Espana
Parent Company's revenues totalled 8,568.8 million euros, a 2.5% growth year to
year, which amounted to 2.4% during the third quarter.
A detailed analysis of the Telefonica de Espana Parent Company's revenues
follows:
• Revenues for traditional access fell by 2.0% in relation to those obtained
during the first nine months of 2005 to stand at 2,078.7 million euros. In
relation to the third quarter of the previous year, the 1.7% decline was due
to the reduction in the number of fixed telephony lines and the freezing of
monthly fee of PSTN lines in 2006.
The launch of the free subscription fee campaign fuelled the fixed telephony
market in Spain, which increased by 1.8% year-on-year to September end, in
comparison with the 1.5% growth by June end or the 1.3% increase by
September of the previous year. Telefonica de Espana recorded a net loss of
41,571 lines, 25.4% less than that recorded in the third quarter of the
previous year. Telefonica de Espana's total number of lines stood at 16.0
million, with an estimated market share of 83.4%.
The total number of Telefonica de Espana accesses where, along with fixed
telephony accesses, data and internet accesses were accounted for, as well as
pay television and wholesale accesses, increased by 3.6%. The total combined
figure amounted to 22.3 million accesses.
• Revenues from traditional voice services amounted to 3,665.6 million euros
to September this year, with a year-on-year reduction of 5.1%. Excluding the
effect of the traffic cards revenues accounting criteria change, revenues
decrease would be 3.8%.
Revenues from outgoing voice traffic amounted to 2,274.6 million euros over
the first nine months of the year, with a year-to year reduction of 6.9%.
This reduction amounted to 7.5% in the third quarter.
Moreover, this decline in revenues does not reflect the better performance
of outgoing voice traffic in minutes seen as a result of the launch of Duo
and Trio offers, which improved from the 7.2% drop in 2005 to a decrease of
only 1.5% over the first nine months of the year 2006.
This effect can also be seen in the performance of the fixed voice market in
Spain which, from January to September, fell by an estimated 1.0% compared
with the 3.1% drop of the previous year. The estimated market share of
Telefonica de Espana remained fairly stable throughout the year at around
66%.
Telefonica de Espana's outgoing voice traffic during the first nine months
of the year amounted to 32,170 million minutes, leading to a 1.5% fall,
substantially below that recorded during the first nine months of the
previous year (7.9% year-on-year reduction).
Through September, domestic voice traffic fell slightly by 1.4% in
comparison with the previous year, with a total of 24,483 million minutes.
The significant growth of DLD traffic -interprovincial- is worth noting
(10.9% to September), heavily encouraged by the new rates schemes.
International long-distance traffic increased by 4.3% to 1,543 million
minutes. Fixed-to-mobile traffic continued to drop by 4.9% to stand at 4,091
million minutes.
With regard to service packages, it is worth noting that the total number of
combined plans and flat rates amounted to 4,157,841 at September 2006, 7.3%
up on that of June 2006.
Moreover, by the end of September, there were 2,025,370 pre-selected lines,
a drop of 74,322 over the third quarter, with the accumulated reduction over
the first nine months of the year amounting to 259,220 lines.
• According to our estimates, the fixed Internet Broadband access market in
Spain amounted to around 6.1 million accesses by the end of September,
recording an estimated net gain over the quarter of 280,000 accesses, 9% up
on that estimated for the same period of the previous year. Telefonica ADSL
connections as a whole (wholesale plus retail, including accesses providing
only the Imagenio service) accounted for 4,086,690 connections by the end of
September 2006.
Revenues from Internet and Broadband services totalled 1,762.6 million euros
during the first nine months of the year, 27.0% up compared with the
previous year, more than offset by the reduction in revenues from the
traditional access and voice businesses. During the third quarter of the
year, the growth in these revenues stood at 28.1%.
The incorporation of Terra into the Telefonica de Espana Parent Company
perimeter led to 24.8 million euros of additional revenues in relation to
the previous year.
Within this caption, broadband revenues from both internet access and pay
television grew 33.2% over the year to reach 1,645.0 million euros, of which
1,368.8 million euros are from the retail business. Growth stood at 32.7%
over the third quarter.
Telefonica's client base of retail Internet broadband accesses (ADSL,
Optical fibre and other technologies, excluding accesses only providing the
Imagenio service) recorded a net gain of 191,184 connections over the third
quarter. With this, the total number of Telefonica retail Internet broadband
lines stood at 3,411,322 by September 2006. The Broadband market share
remained at around 55% in September.
The new bundles of products and the reductions in prices included in the
promotions have led to a year-on-year reduction in the ADSL connectivity
ARPU of close to 8.9% that, partially offset by the growth of almost 21.7%
in the value added service ARPU, led to an overall 4.8% drop in ADSL Line
ARPU. Finally, to be noted for the purposes of analysing revenues, the lower
ARPU recorded was offset by the increase in the number of clients.
It must be highlighted that 65.5% of Telefonica de Espana retail Internet
broadband accesses have the Internet connectivity service with some kind of
double or triple-offer package.
The net gain of unbundled loops during the third quarter amounted to 96,511
new loops, of which 78% correspond to migrations from the Telefonica de
Espana wholesale ADSL service. By the end of the third quarter, the total
number of unbundled loops stood at 774,805 to represent, according to our
estimates, 13% of the total number of fixed broadband accesses on the
Spanish market and 16% of ADSL lines. Of this total, 438,484 (57%) were
shared access loops. In terms of net gain for the third quarter, fully
unbundled loops represented 46% of the total.
The wholesale ADSL service was affected by the migration to unbundled loops
and, therefore, recorded a loss of 59,192 accesses during the third quarter
to leave its total plant at 625,239.
Value-added services (VAS) provided over Telefonica de Espana broadband
accesses remained a fundamental factor in the commercial portfolio of
Telefonica de Espana. The number of operative services amounted to 2.9
million. ADSL Solutions is noteworthy among these services, a total of
328,967 solutions being operational by the end of the third quarter to give
a 2.0% increase in relation to last June.
The net increase in Imagenio customers during the third quarter of the year
stood at 36,880, around 35% of the total estimated net gain for the pay TV
market in Spain. This figure places the total number of Imagenio clients at
304,353, a market share of over 8%.
• Revenues from data services grew by 4.8% in relation to the first nine
months of the previous year to reach 806.0 million euros. Growth stood at
7.3% over the third quarter. Over this third quarter, wholesale data
revenues recorded a 17.4% growth, basically promoted by leased circuits and
transport capacity to other telephony operators.
Retail services grew by 1.7% over the quarter in relation to the previous
year.
• Lastly, information technology services contributed towards Telefonica de
Espana revenues with a total of 255.8 million euros, a 17.1% year-on-year
increase. Growth stood at 17.2% over the third quarter.
There are currently 213 client management centres operated by Telefonica de
Espana and 156 contracts with clients who are outsourcing their
communications service/systems. These figures have grown by 23% and 37%
respectively year-on-year.
The number of servers devoted to clients amounted to 3,526, a 25% increase
versus the previous year. The number of desktop positions/workstations
managed stood at 87,633, of which 43.0% include high added value solutions
such as managed LAN or the helpdesk service.
Telefonica de Espana Group's operating expenses recorded a year-on-year decrease
of 3.2% to 5,260.9 million euros, whereas this decline stood at 1.3% for the
third quarter. Excluding the effect of the provisions for workforce
restructuring, expenses in the January-September 2006 period expenses would have
dropped by 0.8%. This good performance is due to the reduction in supplies and
external services expenses.
• Personnel expenses fell by 5.6% in relation to the same period of the
previous year to reach 1,991.7 million euros. Over the third quarter,
however, this expense item increased slightly by 0.6%. 45 redundancies were
recorded during the first nine months of the year from the Terra Espana
Remunerated Layoff Plan and 1,237 from the Telefonica de Espana Redundancy
Program (E.R.E.). The provision for this item amounts to 392 million euros.
Excluding the effect of Redundancy Plan provisions in the first nine months
of 2005 (524.3 million euros including actuarial reviews) and in 2006,
personnel expenses would have grown by 1%.
In relation to the Redundancy Plan (E.R.E.), it must be noted that, in view
of the foreseeably large number of applications expected for the last year
of the programme, the start date of the subscription period for the
incorporation of staff to the 2007 programme has been moved forward from
January 2007 to October 2006. Bearing in mind that the provision for the
Redundancy Plan is based on employees that have subscribed to the programme,
the fact that the provision initially foreseen for 2007 has been brought
forward to this year may affect the OIBDA for 2006.
Telefonica de Espana Parent Company workforce at the end of September
amounted to 32,837 employees, of who 222 employees come from the integration
of Terra Espana. This represents a net reduction of 442 employees since the
start of the year. The average Telefonica de Espana Group workforce in the
first nine months of the year stood at 34,657 employees, a 4.4% reduction in
comparison with the average workforce in the same period of 2005.
• Supplies expenses fell by 1.7% over the year to stand at 2,175.0 million
euros. This reduction amounted to 3.8% during the third quarter. Lower
interconnection expenses (-10.9%) as a result of the reduction in
international traffic delivery costs and the reduction in fixed-to-mobile
traffic and termination interconnection rates have notably contributed to
this good performance.
• External services expenses recorded a drop of 2.6% to stand at 942.5
million euros, mainly as a consequence of the change in the accounting
criteria for traffic cards.
The combined effort made by the Company with regard to the growth in revenues
and efficiency has led to operating income before depreciation and amortization
(OIBDA) of 3,769.5 million euros in the first nine months of the year, a 7.6%
year-on-year growth and a 7.7% growth in the third quarter. This growth was
affected by the profits recorded from the Real State assets for a value of 85.8
million euros.
For comparison purposes with the announced financial guidance, exceptional
revenues/expenses not foreseen in the January-September period of 2005 and 2006
must be excluded from OIBDA. Once this adjustment has been made, the growth in
OIBDA would stand at 8.6%, positively affected by the difference between the
provisions made by the Redundancy Plan in the January-September 2006 period
compared with the same period of 2005.
Excluding one-off effects, such as the lower E.R.E. provision in 2006, the Real
State program, or public subventions, the underlying OIBDA would have grown by
3.7%.
The OIBDA margin stood at 42.4% during the January-September period, 2.3
percentage points above that recorded the previous year. Excluding the effect of
the provision for the Redundancy Program (E.R.E.), and the actuarial review in
2005 and 2006, the margin would have improved year-on-year by 0.7 percentage
points to reach 46.8%.
The OIBDA for the Telefonica de Espana Parent company amounted to 3,761.1
million euros, up 8.9% year-on-year.
Lastly, CapEx for Telefonica de Espana Group totalled 1,049.3 million euros over
January-September 2006 period, showing a 14.1% increase in comparison with the
same period previous year.
FINANCIAL GUIDANCE1
In relation with the financial guidance communicated for 2006, Telefonica de
Espana expects:
• Revenues growth shall stand between the 0.5% - 2.0% range initially
estimated
• OIBDA growth is upgraded form the previously announced range of between
1.0% - 3.0% to exceed the 5% mark, without considering the possible
provision for bringing forward part of the Redundancy Plan scheduled for
2007.
• CapEx will stand at around the initially foreseen 1,500 million euros.
--------------------------------------------------------------------------------
1 2006 guidance exclude changes in consolidation. Operating Income before D&A
excludes other exceptional revenues/expenses not foreseeable in 2006. Personnel
Restructuring (E.R.E.) and Real Estate Programs are included as operating
revenues/ expenses. For comparison, the equivalent other exceptional
revenues/expenses registered in 2005 are also deducted from reported figures.
TELEFONICA DE ESPANA GROUP
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 20,931.3 2.2 20,484.3 20,742.7 20,901.7 20,821.7
Fixed telephony accesses (1) 15,978.1 (1.3) 16,180.8 16,135.6 16,108.5 16,019.7
Internet and data accesses 4,648.8 10.4 4,211.4 4,400.6 4,542.9 4,534.6
Narrowband 1,177.7 (32.5) 1,745.7 1,614.9 1,437.4 1,254.0
Broadband (2) 3,411.3 42.3 2,397.7 2,720.8 3,042.7 3,220.1
Other (3) 59.8 (12.1) 68.0 64.9 62.8 60.4
Pay TV 304.4 230.4 92.1 206.6 250.3 267.5
Wholesale Accesses 1,406.5 30.5 1,077.4 1,164.1 1,260.4 1,369.3
Unbundled loops 774.8 114.5 361.3 434.8 546.7 678.3
Shared UL 438.5 91.6 228.9 279.0 320.3 386.0
Full UL 336.3 154.0 132.4 155.7 226.4 292.3
Wholesale ADSL 625.2 (11.8) 708.6 721.9 706.4 684.4
Other (4) 6.5 (14.2) 7.5 7.4 7.3 6.6
Total Accesses 22,337.7 3.6 21,561.7 21,906.8 22,162.1 22,191.0
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
accesses for internal use included.
(2) ADSL, satelite, optical fiber and broadband circuits. Includes Terra.
(3) Leased lines.
(4) Wholesale circuits.
TELEFONICA DE ESPANA PARENT COMPANY
OPERATING REVENUES
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg 2006 2005 % Chg
Traditional Access (1) 2,078.7 2,122.0 (2.0) 696.3 708.7 (1.7)
Traditional Voice Services 3,665.6 3,863.5 (5.1) 1,191.7 1,280.5 (6.9)
Domestic Traffic (2) 902.6 996.1 (9.4) 274.6 300.2 (8.5)
Fixed to Mobile Traffic 835.6 870.0 (3.9) 275.8 289.5 (4.7)
International Traffic 370.0 354.4 4.4 125.7 120.1 4.6
Intel. Network, other cons. and bonusses (3) 166.4 222.5 (25.2) 52.3 77.3 (32.3)
Interconnection (4) 696.0 716.9 (2.9) 233.8 263.0 (11.1)
Handsets sales and others (5) 695.0 703.7 (1.2) 229.5 230.5 (0.4)
Internet Broadband Services 1,762.6 1,388.0 27.0 620.8 484.6 28.1
Narrowband 117.6 153.5 (23.4) 38.6 45.9 (15.8)
Broadband 1,645.0 1,234.6 33.2 582.2 438.8 32.7
Retail (6) 1,368.8 939.0 45.8 518.4 335.2 54.6
Wholesale (7) 276.2 295.6 (6.6) 63.8 103.6 (38.4)
Data Services 806.0 768.9 4.8 272.4 253.9 7.3
VPN, Leased Circuits and Broadcasting 478.6 497.9 (3.9) 166.1 163.3 1.7
Wholesale 327.4 271.0 20.8 106.3 90.6 17.4
IT Services 255.8 218.4 17.1 85.6 73.0 17.2
Total operating revenues 8,568.8 8,360.8 2.5 2,866.8 2,800.7 2.4
(1) Monthly and connection fees (PSTN, Public Use Telephony, ISDN and Corporate Services) and Telephone booths
surcharges.
(2) Local and domestic long distance (provincial and interprovincial) traffic.
(3) Intelligent Network Services, Special Valued Services, Information Services (118xy), bonusses and others.
(4) Includes revenues from fixed to fixed incoming traffic, fixed to mobile incoming traffic, and transit and carrier
traffic.
(5) Managed Voice Services and other businesses revenues.
(6) Retail ADSL services and other Internet Services.
(7) Includes Megabase, Megavia, GigADSL, and local loop unbundling.
Note: On 1st July 2006, Terra Espana merged with Telefonica de Espana, S.A., retroactively to 1st January 2006. As
such, Telefonica de Espana parent company's operating revenues for the third quarter 2006 includes Terra Espana's
revenues for the January-September 2006 period.
TELEFONICA DE ESPANA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in
millions)
January - September July - September
2006 2005 % Chg 2006 2005 % Chg
Revenues 8,893.9 8,744.5 1.7 2,972.7 2,925.3 1.6
Internal expenditure capitalized 98.2 107.8 (8.9) 31.6 32.8 (3.5)
in fixed assets (1)
Operating expenses (5,260.9) (5,434.2) (3.2) (1,616.4) (1,638.2) (1.3)
Other net operating income (33.5) 30.7 c.s. (8.2) 9.9 c.s.
(expense)
Gain (loss) on sale of fixed 82.8 59.9 38.2 71.9 15.9 353.0
assets
Impairment of goodwill and other (11.1) (5.6) 97.1 (3.8) (1.0) n.m.
assets
Operating income before D&A 3,769.5 3,503.0 7.6 1,447.7 1,344.7 7.7
(OIBDA)
Depreciation and amortization (1,413.6) (1,627.6) (13.2) (457.3) (520.2) (12.1)
Operating income (OI) 2,355.9 1,875.4 25.6 990.4 824.5 20.1
(1) Including work in process.
Note: Telefonica de Espana Group incorporates the results of Terra Networks operations
from 1 January 2005.
RESULTS BY BUSINESS LINES
Fixed Line Business
Telefonica Latinoamerica Group
From January 1st 2006, Telefonica Latinoamerica Group's fixed telephony operator
accounts include the Telefonica Empresas businesses in their respective
countries. The 2005 results are shown on comparable terms. On the other hand, to
facilitate year-on-year comparisons, the Telefonica Latinoamerica Group figures
include the results of the Terra subsidiaries in Latin America since January 1st
2005.
In addition, from the 1st of May, the Group's results consolidate the results of
Colombia Telecom, following the acquisition of 50% plus one share of that
company in April. In these five months, Colombia Telecom has contributed 232.1
million euros to Telefonica Latinoamerica's revenues and 118.5 million euros to
its OIBDA.
The currencies of the countries in which the Telefonica Latinoamerica Group
operates have remained practically stable over the last quarter in relation to
the euro. Year-on-year, the good evolution of exchange rates has had a positive,
yet declining effect, on Telefonica Latinoamerica Group's accounts, contributing
with 10.2 percentage points to the growth of revenues (16.2 percentage points to
June) and 10.4 percentage points to the growth of OIBDA (15.6 percentage points
to June).
In the first nine months of the year, Telefonica Latinoamerica Group recorded
revenues of 7,050.3 million euros, 17.5% up on the same period of the previous
year in current euros. Excluding the positive contribution of the exchange rates
and the revenues from Colombia Telecom, the Telefonica Latinoamerica Group
recorded revenues that were 3.5% higher in constant euros than those of the same
period of 2005, reflecting the growth rate of all operators in local currency,
particularly in the broadband business. Brazil recorded a 2.1% growth in
revenues in local currency, supported by the strong increase in broadband
connections; traditional business, despite increasing slightly due to the effect
of the tariff increase in 2005 and the positive progress of the public telephony
business, slowed down in comparison with previous quarters as a result of the
reduction in tariffs approved by Anatel in July 2006 and the downwards trend of
average traffic that the operator seeks to offset through the marketing of
traffic packages. Argentina recorded a 12.5% growth in revenues in local
currency due to the good performance of the traditional business, especially
wholesale businesses, and thanks to the growth in revenues from broadband and
new businesses. The growth in revenues in Peru (+2.5% in local currency), was
mainly due to the growth in broadband and pay TV revenues, offsetting the fall
in revenues from the traditional business, which was mostly due to the impact of
the productivity factor (CPI-10.07%). In Chile, revenues remained stable (+0.4%
in local currency) thanks to the progress of Broadband and digital TV launched
in June, which offset the poor performance of traditional business, mostly due
to the effect of competition and of mobile telephony.
Operating expenses for Telefonica Latinoamerica Group stood at 3,899.2 million
euros until September, with a year-on-year growth of 19.7% in current euros.
Excluding the contribution of Colombia Telecom and the exchange rate effect,
operating expenses recorded a 6.0% growth in constant euros. This growth was
affected by workforce restructuring costs in Chile and Brazil recorded during
the first quarter of the year and the recently launched layoff plan in
Argentina. Furthermore, greater tax expenses were recorded in Telesp due to the
licence fee on the new concession, higher interconnection costs, particularly in
Argentina due to the reclassification of international termination rates to
operating expenses in September, the increase in payroll expenses in Argentina
and higher commercial expenses, especially regarding customer service and
advertising.
As a result, Telefonica Latinoamerica Group recorded an operating income before
depreciation and amortization (OIBDA) of 3,198.2 million euros, 18.8% higher
year-on-year. Excluding the contribution of Colombia Telecom and the positive
contribution of exchange rates, OIBDA recorded a 4.0% increase in constant
euros. This progress was affected by the capital gains recorded in 2005 through
the sale of Infonet and, in 2006, through the sale of TUMSAC (Peru), with a net
effect of 4.9 million euros on the group's accounts. Eliminating the impact of
results on sales of fixed assets and the contribution of Colombia Telecom, OIBDA
growth in constant euros stood at 7.0% (+5.5% in June).
The Telefonica Latinoamerica Group's CapEx until September amounted to 736.6
million euros, a year-on-year growth of 27.4% (+11.7% in constant terms and
excluding the investment of Colombia Telecom), primarily used for the expansion
of broadband and new businesses. The Telefonica Latinoamerica Group's operating
free cash flow (OIBDA-CapEx) during the first nine months of the year amounted
to 2,461.6 million euros, a 16.4% growth (+5.7% in constant euros and excluding
the contribution of Colombia Telecom and the results on sales of fixed assets).
By the end of September, the Telefonica Latinoamerica Group managed 31.1 million
accesses, 11.0% up on September 2005 following the incorporation of Colombia
Telecom with 2.4 million fixed telephone accesses and 42,261 retail broadband
Internet accesses. The Group's retail broadband Internet accesses upheld the
strong growth rate of previous quarters, reaching almost 3.5 million (+43.3%
year-on-year), thanks to the commercial efforts of all operators. On the other
hand, fixed telephone accesses amounted to 24.0 million, 10.5% up on September
2005 following the incorporation of Colombia Telecom and also thanks to the high
growth rate of Telefonica del Peru and TASA, which offset the lower plant in
service of Telesp and Telefonica Chile. The Telefonica Latinoamerica Group
already has 559,900 pay TV clients in Peru and Chile.
Telesp
By the end of September, Telesp had 15.8 million accesses, a year-on-year growth
of 0.8% thanks to the strong growth in the number of retail broadband Internet
accesses that stood close to 1.5 million (+36.1% year-on-year), following a net
gain over the first nine months of the year of 271,400 accesses. Fixed telephony
accesses stood at 12.3 million (-1.2% year-on-year), of which around 20% were
prepaid lines or lines with a consumption limit (18% in September 2005).
Voice traffic recorded a 2.8% year-on-year decrease, standing at 52,579 million
minutes as a result of the drop in local traffic (-1.8%), primarily due to lower
usage per line and lower average plant. Long distance traffic, mostly
inter-state, also dropped as a result of the squeeze of this market (-10%
year-on-year) due to the growth of the cellular business, and a reduction was
also recorded in traffic originating from mobiles.
Revenues recorded over the first nine months of the year stood at 4,156.7
million euros, a year-on-year increase of 2.1% in local currency in comparison
with the 4.5% growth up to June. This fall in the growth rate is explained by
the deceleration recorded in the traditional business, 1.8 percentage points
lower than the growth recorded in the first half of the year mostly due to the
negative tariff adjustment in July (compared with the 7% increase in tariffs in
July 2005) and the reduced average fixed telephony plant. Public telephony
revenues progressed within traditional revenues (+29.7% year-on-year), mostly as
a result of higher card sales. The 17.2% growth of Internet revenues in local
currency (narrowband + broadband) also contributed positively, contributing
towards 8.5% of Telesp turnover (7.4% in the same period of 2005) thanks to the
growth in broadband revenues (+29.3% in local currency), due to the increase in
total connections. To a lesser extent, a growth in revenues from the data and
information technology business was also recorded (+5.7% and +34.0% in local
currency, respectively), providing a combined 3.9% of Company revenues.
Operating expenses recorded a 3.8% year-on-year growth in local currency,
primarily due to higher tax expenses (+79.7% in local currency) due to the tax
established in the new concession contract and higher personnel expenses (+9.7%)
following the extraordinary charge associated to the workforce restructuring
programme undertaken during the first quarter of the year that is, however,
beginning to bear fruit. Excluding this extraordinary charge, personnel expenses
would increase by 1.9% in local currency, whereas operating expenses would
reduce their growth rate to 2.8% in local currency. Furthermore, supplies
expenses dropped 0.6% in local currency due to the slowing down of
interconnection expenses as a result of less traffic to mobiles. Subcontracting
expenses recorded a growth rate of only 0.4% in local currency, reflecting the
cost containment efforts of the operator.
Telesp's operating income before depreciation and amortisation (OIBDA) over the
first nine months of the year stood at 2,001.7 million euros, 7.8% more in local
currency than the same period of the previous year and positively affected by
the recovery of past taxes (PIS/Cofins) following the favourable judgement
issued in September. The OIBDA margin was 48.2%, 2.6 percentage points higher
than that recorded in the same period of 2005.
CapEx accumulated to September amounted to 380.0 million euros, a 3.4% growth
with regard to the same period of 2005 in local currency. Accordingly, the
operating free cash flow (OIBDA - CapEx) amounted to 1,621.7 million euros, an
increase of 8.8% year-on-year in local currency.
TELESP
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 15,759.0 0.7 15,642.9 15,606.8 15,618.7 15,704.4
Fixed telephony accesses (1) 12,295.1 (1.2) 12,446.4 12,340.3 12,370.4 12,336.1
Internet and data accesses 3,463.9 8.4 3,196.5 3,266.5 3,248.2 3,368.3
Narrowband 1,884.5 (7.5) 2,038.4 1,986.7 1,876.1 1,891.4
Broadband (2) 1,485.2 36.1 1,091.0 1,213.8 1,307.3 1,382.4
Other 94.2 40.2 67.2 66.0 64.8 94.5
Wholesale Accesses 46.4 41.3 32.9 32.6 32.7 46.3
Total Accesses 15,805.4 0.8 15,675.8 15,639.4 15,651.3 15,750.8
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30.
Company's accesses for internal use included.
(2) Includes ADSL and broadband circuits.
Telefonica de Argentina
In the third quarter of the year, business in Argentina continues showing a
positive trend, supported by the strong growth of revenues from different
commercial initiatives and despite the lack of tariff indexing since 2001.
By the end of the September, TASA managed over 5.6 million accesses (+3.8%
compared with the same period in 2005) thanks to the year-on-year increase in
fixed telephony accesses (+3.0%) to stand at 4.6 million, and the strong growth
in the number of retail broadband Internet accesses (+71.4%), enabling the
company to maintain its position as leader of the broadband market in its area
of influence with 477,912 accesses.
Total voice traffic remained stable in relation to 2005 (-0.3% year-on-year),
thanks to the slight increase in local, and higher domestic and international
long-distance traffic, as well as intelligent network traffic, which almost
offset the decrease in public telephony traffic, affected by the expansion of
the cellular business and the slight drop in incoming interconnection traffic.
Revenues amounted to 730.3 million euros, a year-on-year increase of 12.5% in
local currency affected by international termination expenses that, as of
September, are accounted as operating expenses and no longer netting the line of
revenues as of 1st January 2006. Even so, eliminating the effect of the
reclassification of international termination costs, TASA revenues grew by 10.0%
in local currency compared with the 9.6% recorded to June, primarily thanks to
the increased growth recorded by the Internet business (narrowband + broadband),
the revenues of which increased by 33.1% in local currency (+31.2% to June) and
that already account for 11.0% of company revenues (1.7 percentage points more
than in the same period of 2005). This growth is in line with the accelerated
growth rate of its broadband accesses (whose revenues increased by 53.4% in
local currency), which recorded a year-on-year increase of 71.4% having
registered its highest net quarterly gain in the last three months (69,200
connections). Moreover, revenues from traditional business increased by 6.3% in
local currency (+9.3% including the reclassification of international
termination costs), thanks to the higher average plant in service (+3.9%) and
higher interconnection revenues. The wholesale and value added services
businesses also performed well, offsetting lower revenues from the public
telephony business, due to greater competition from cellular operators. High
growth rates were also maintained in the data and information technology
businesses (+23.5% jointly in local currency) as a result of higher sales to
companies, primarily of VPN's and turnkey projects, contributing towards 7.8% of
TASA sales.
Operating expenses grew by 24.0% in local currency in comparison with 2005,
affected by the aforementioned effect of international termination costs.
Excluding this impact, operating expenses increased by 18.5% in local currency
compared with the 19.2% accumulated to June. The main increase in supplies
expenses (+52.2%; +21.4% excluding the international termination costs effect),
was due to the increase in interconnection traffic with other operators and the
cost of equipment (associated to higher revenues). Personnel expenses increased
by 23.0% in local currency, affected by the rises in salaries agreed at the end
of 2005 and the impact of workforce restructuring expenses recorded in the third
quarter. Subcontracted services increased by 14.2% in local currency, primarily
due to the growth in service contracts that were also affected by the salary
increases and greater commercial and customer service activity.
The ratio of bad debt provision to revenues remained below 1% thanks to the good
recovery management and to the volume of pre-paid infrastructure and consumption
control, which remained at around 30% of the total.
The significant growth in business revenues enabled TASA to achieve operating
income before depreciation and amortization (OIBDA) of 364.2 million euros, an
increase of 3.0% in local currency on that obtained in the same period of 2005
to give a 42.5% margin over revenues.
CapEx stood at 93.5 million euros, 19.1% up year-on-year in local currency.
Thus, TASA generated an operating free cash flow (OIBDA-CapEx) of 270.7 million
euros, similar to that generated in January-September 2005 (-1.6% year-on-year
in local currency).
TELEFONICA DE ARGENTINA
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 5,611.3 3.8 5,404.6 5,417.3 5,465.4 5,548.3
Fixed telephony accesses (1) 4,612.4 3.0 4,476.7 4,532.2 4,553.1 4,586.7
Internet and data accesses 998.9 7.6 927.9 885.1 912.3 961.6
Narrowband 504.1 (20.3) 632.5 564.0 548.9 536.1
Broadband (2) 477.9 71.4 278.8 304.3 346.5 408.7
Other 16.8 0.9 16.7 16.8 16.8 16.8
Wholesale Accesses 7.2 9.0 6.6 6.9 7.3 7.2
Total Accesses 5,618.4 3.8 5,411.2 5,424.2 5,472.7 5,555.5
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30.
Company's accesses for internal use included.
(2) Includes ADSL, optical fiber, broadband circuits and ISP in the North part of the country.
Telefonica Chile
At the end of the third quarter of 2006, Telefonica Chile managed 2.8 million
accesses, 2.4% down on September 2005. This drop is basically explained by old,
inactive prepaid plant restatement and to the review of line cancellation
criteria communicated in the second quarter of the year. Telefonica Chile
remained as the clear leader in the fixed line market.
Following the launch of digital TV in June, the sales strategy was supported on
the triple play, with 52,400 digital TV clients being recorded by September. A
high level of ADSL sales was maintained during the third quarter, having
recorded a net gain of 154,100 retail Internet broadband accesses in the first
nine months of the year to give Telefonica 456,000 retail broadband accesses in
Chile by the end of the quarter, 79.8% up on September 2005.
Accumulated voice traffic processed by the Telefonica Chile network by the end
of the third quarter amounted to 10,800 million minutes. This figure implies a
10.5% fall in relation to 2005, in line with the previous quarter, due to the
mobile substitution and higher competition.
Accumulated revenues at the end of September amounted to 757.9 million euros,
which in local currency meant a 0.4% increase in comparison with the previous
year thanks to the growth in Internet business revenues, which offset lower
sales from traditional business. Revenues from traditional business dropped 2.6%
due to the strong impact of competition and the mobile substitution. However,
these lower sales were offset by higher revenues from the Internet business
(narrowband + broadband + digital TV), which increased heavily to record a 33.4%
year-on-year growth rate in local currency. The weight of the Internet business
on total company revenues increased to 10.1%, 2.5 percentage points up on
September 2005. The growth in revenues from data and information technology
services (basically dealing in the companies segment) amounted to a joint 0.8%
in local currency, affected by an environment of intense competition to reach
6.2% of Company sales.
During the third quarter, Telefonica Chile made a significant effort in terms of
cost containment. As a result, operating expenses decreased their year-on-year
growth to 6.4% in local currency (11.7% to June of this year). Personnel
expenses (without taking workforce restructuring expenses into account) dropped
by 5.6% in local currency as a result of the measures taken during the first few
months of the year. Supplies expenses increased by 8.2% in local currency,
mainly due to the increase in interconnection and equipment rental costs,
although their growth was slowed down by lower equipment and card costs and by
lower consumption of materials. The growth in subcontracted services slowed down
to 1.3% (3.3 percentage points below the level recorded at June), despite the
strong increase in activity (launch of TV, growth of ADSL, etc.).
Bad debts continued to improve in relation to the previous quarter. Accumulated
bad debt provision at the end of September amounted to 2.8% of revenues,
compared with the 3.1% in June.
Given the performance of revenues and costs, the accumulated operating income
before depreciation and amortization (OIBDA) at September amounted to 314.9
million euros, a drop of 1.1% in local currency. Without taking the costs
arising from workforce restructuring into account, OIBDA would have grown by
3.4% in relation to September 2005 in local currency, compared with the 3.9%
drop to June.
Accumulated investment at the end of September (CapEx) stood at 109.7 million
euros. This is a 56.3% increase in local currency year-on-year, primarily due to
the launch of digital TV, the growth of broadband, improved network capacity and
new information systems. Hence, the accumulated operating free cash flow (OIBDA
- CapEx) amounted to 205.2 million euros, 17.3% down year-on-year in local
currency.
TELEFONICA CHILE
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 2,817.1 (2.3) 2,882.6 2,876.0 2,873.8 2,853.4
Fixed telephony accesses (1) 2,225.9 (9.6) 2,462.2 2,429.1 2,407.0 2,328.0
Internet and data accesses 538.9 28.2 420.4 446.9 466.7 514.9
Narrowband 72.8 (52.1) 152.0 130.5 110.7 95.6
Broadband (2) 456.0 79.8 253.7 302.0 345.4 409.0
Other 10.1 (31.4) 14.7 14.5 10.6 10.3
Pay TV 52.4 n.m. 0.0 0.0 0.0 10.4
Wholesale Accesses 21.9 (20.3) 27.5 25.9 23.9 22.8
Total Accesses 2,839.1 (2.4) 2,910.1 2,902.0 2,897.7 2,876.1
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30.
Company's accesses for internal use included.
(2) Includes ADSL, optical fiber and broadband circuits.
TELEFONICA DEL PERU
At the end of the third quarter, Telefonica del Peru recorded a total of 3.5
million accesses, 11.6% up on the same period of the previous year thanks to the
commercial campaigns and assistance developed over the year. Total Internet
retail broadband accesses recorded the greatest growth (+40.2% year-on-year) to
stand at 435,700 in September. The total number of telephone accesses continued
to reflect the strength of demand, having reached a number in service of almost
2.5 million lines (+7.2% year-on-year). The pay TV business also maintained its
strong growth rate, exceeding the half-million clients level (507,500) and up
16.1% following the July launch of satellite TV in addition to the cable TV
already offered by the company to cover areas where cable TV has no coverage.
Total voice traffic remained at the same level of September 2005 (+0.1%
year-on-year), favoured by the strong increase in long distance and
fixed-to-mobile traffic, which offset the drop over the year in public telephony
traffic.
Revenues show a year-on-year growth of 2.5% in local currency to stand at 819.0
million euros until September. The intense growth in local currency in Internet
business revenues (narrowband + broadband + television) in relation to 2005 must
be noted, which stood at 21.4% as a result of the good performance of broadband
revenues (+30.2% in local currency) and the growth of television revenues, which
were up 17.4% on 2005 in local currency. Thus, revenues from the Internet
business contributed towards 19.7% of company revenues, compared to the 16.6% in
the same period of 2005. Revenues from traditional business recorded a 1.9% drop
in local currency year-on-year, for two main reasons: the impact of the
productivity factor applied since September 2004 that affects revenues from fees
and traffic (CPI- 10.07%), and the lower revenues from public telephony as a
result of the increased use of mobile telephony. Lastly, revenues from data and
information technology services recorded a combined growth of 7.6% in local
currency, contributing to 5.4% of company sales.
Accumulated operating expenses in the first nine months recorded a year-on-year
growth of 2.5% in local currency, as a result of an increase in supplies
expenses (+1.1% in relation to September 2005), personnel expenses that
increased by 6.1% and subcontracted services that increased by 4.1%. Increased
sales of both traditional lines and ADSL, as well as of the TV business led to
higher equipment and materials and plant maintenance expenses and to higher
commercial expenses.
Bad debt provisions recorded a 29.7% fall in local currency, favoured by the
growth in the prepaid and consumption control lines, which amounted to 59% of
the plant in service.
Operating income before depreciation and amortization (OIBDA) stood at 359.6
million euros, up 9.3% on the same period in 2005 in local currency thanks to
the good progress of revenues, the control of operating expenses and to lower
extraordinary contingencies, primarily relating to labour and tax issues, and
capital gains from the sale of TUMSAC. The OIBDA margin in relation to revenues
stood at 43.9%, 2.7 percentage points up year-on-year.
In terms of CapEx, 82.4 million euros were invested up till September that,
compared with the previous year, represented 3.4% less investments in local
currency. The operating free cash flow (OIBDA-CapEx) generated by the company
amounted to 277.2 million euros, a 13.7% increase in local currency with regard
to 2005 thanks to the increased OIBDA obtained and the lower investment
recorded.
TELEFONICA DEL PERU
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 3,469.9 11.6 3,108.9 3,211.0 3,277.9 3,374.2
Fixed telephony accesses (1) 2,468.2 7.2 2,302.1 2,347.6 2,388.2 2,434.0
Internet and data accesses 494.2 33.7 369.6 401.2 414.9 449.8
Narrowband 49.6 (3.8) 51.5 52.5 47.6 52.0
Broadband (2) 435.7 40.2 310.7 341.1 359.8 389.3
Other 8.9 20.3 7.4 7.6 7.5 8.4
Pay TV 507.5 16.1 437.2 462.2 474.7 490.4
Wholesale Accesses 0.5 (48.3) 0.9 0.5 0.6 0.5
Total Accesses 3,470.4 11.6 3,109.8 3,211.6 3,278.5 3,374.7
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30.
Company's accesses for internal use included.
(2) Includes ADSL, optical fiber, cable modem and broadband circuits.
TELEFONICA INTERNATIONAL WHOLESALE SERVICES (TIWS)
By the end of September, TIWS accumulated revenues of 167.8 million euros. This
figure represents a strong growth (+24.6% in constant euros) in relation to the
same period of the previous year, thanks to the good performance of all company
business lines. Revenues from International IP (which represented around 54% of
total revenues) grew by 20.0% year-on-year in constant euros. Revenues from
bandwidth capacity sales increased by 28.8% in constant euros, whereas sales of
international virtual private networks increased by 19.6% in constant euros.
The good performance of revenues determined a significant growth in the
operating income before depreciation and amortization (OIBDA), which at
September amounted to 56.7 million euros, a year-on-year increase of 35.8% in
constant currency.
FINANCIAL TARGETS 1
Regarding financial targets announced for 2006, Telefonica Latinoamerica Group
expects that:
• Revenue growth will be around the lower end of the range announced
(4%-6%), including the reclassification of international termination rates
in Brazil, Argentina and Peru and public telephony commissions in Brazil
into operating expenses (till now these items were recorded as a negative
revenue), retroactive to January 1st 2006. These reclassifications will
contribute 0.7 percentage points to revenue growth for the whole fiscal
year.
• The growth in OIBDA in 2006 will be at the higher end of the 3%-5% range
announced at the start of the year.
• CapEx is expected to stand at around the previously announced 1,200
million euros.
--------------------------------------------------------------------------------
1 2006 guidance assumes constant exchange rates as of 2005, and excludes
changes in consolidation perimeter, namely Colombia Telecom. Operating Income
before D&A exclude other exceptional revenues/expenses not foreseeable in 2006.
For comparison, the equivalent other exceptional revenues/expenses registered in
2005 are also deducted from reported figures.
TELEFONICA LATINOAMERICA GROUP
ACCESSES
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
Final Clients Accesses 31,064.6 11.0 27,981.0 28,086.8 28,231.4 30,713.0
Fixed telephony accesses (1) 23,964.2 10.5 21,687.4 21,649.1 21,718.8 23,895.5
Internet and data accesses 6,540.5 11.7 5,856.4 5,975.4 6,037.9 6,316.6
Narrowband (2) 2,931.2 (11.8) 3,322.2 3,185.1 3,030.6 3,005.7
Broadband (3) (4) 3,479.3 43.3 2,428.3 2,685.4 2,907.5 3,180.9
Other 130.0 22.7 106.0 105.0 99.8 130.0
Pay TV 559.9 28.1 437.2 462.2 474.7 500.9
Wholesale Accesses 76.0 12.0 67.8 66.0 64.5 76.8
Total Accesses 31,140.6 11.0 28,048.8 28,152.7 28,295.9 30,789.8
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
accesses for internal use included.
(2) Includes narrowband ISP of Terra Brasil and Terra Colombia.
(3) Includes broadband ISP of Terra Brasil, Telefonica de Argentina, Terra Guatemala y Terra Mexico.
(4) Includes ADSL, optical fiber, cable modem, broadband circuits and ISP in the North part of the country.
Note: Fixed telephony and Internet and Data accesses from Colombia Telecom as of September 2006 are
included.
TELEFONICA LATINOAMERICA GROUP
SELECTED OPERATING DATA
Unaudited figures (Euros in millions)
January - September
2006 2005 % Chg % Chg Local Cur
Telesp Revenues 4,156.7 3,529.6 17.8 2.1
OIBDA 2,001.7 1,609.6 24.4 7.8
OIBDA margin 48.2% 45.6% 2.6 p.p.
Telefonica de Argentina Revenues 730.3 677.5 7.8 12.5
OIBDA 364.2 369.2 (1.4) 3.0
OIBDA margin (1) 42.5% 46.7% (4.2 p.p.)
Telefonica Chile Revenues 757.9 692.7 9.4 0.4
OIBDA 314.9 292.0 7.8 (1.1)
OIBDA margin 41.5% 42.2% (0.6 p.p.)
Telefonica del Peru Revenues 819.0 794.6 3.1 2.5
OIBDA 359.6 327.2 9.9 9.3
OIBDA margin 43.9% 41.2% 2.7 p.p.
Colombia Telecom (2) Revenues 232.1 - n.c. n.c.
OIBDA 118.5 - n.c. n.c.
OIBDA margin 51.1% - n.c. n.c.
TIWS Revenues 167.8 134.0 25.2 24.6
OIBDA 56.7 41.5 36.5 35.8
OIBDA margin 33.8% 31.0% 2.8 p.p.
Note: From January 1st 2006, Telefonica Latinoamerica Group's fixed telephony
operator accounts include the Telefonica Empresas businesses in their respective
countries. The 2005 results are shown on comparable terms.
OIBDA is presented before management fees. Data for Telefonica de Argentina
include the ISP business of Advance, while those of Telefonica del Peru includes
CableMagico.
(1) Margin over revenues includes fixed to mobile interconnection.
(2) Data for Colombia Telecom only include results for May-September 2006 period.
TELEFONICA LATINOAMERICA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in
millions)
January - September July - September
2006 2005 % 2006 2005 % Chg
Chg
Revenues 7,050.3 6,000.9 17.5 2,390.1 2,219.6 7.7
Internal expenditure capitalized 35.5 31.7 11.9 12.3 12.9 (4.7)
in fixed assets (1)
Operating expenses (3,899.2) (3,257.6) 19.7 (1,309.1) (1,195.4) 9.5
Other net operating income 13.0 (166.2) c.s. 49.6 (70.7) c.s.
(expense)
Gain (loss) on sale of fixed 0.0 77.7 n.m. 4.1 (3.3) c.s.
assets
Impairment of goodwill and other (1.5) 6.5 c.s. 0.0 1.3 n.m.
assets
Operating income before D&A 3,198.2 2,692.9 18.8 1,147.1 964.4 18.9
(OIBDA)
Depreciation and amortization (1,460.5) (1,314.8) 11.1 (494.0) (468.6) 5.4
Operating income (OI) 1,737.7 1,378.0 26.1 653.2 495.8 31.7
(1) Including work in process.
Note: Telefonica Latinoamerica Group incorporates the results of Terra Networks
operations from 1 January 2005.
RESULTS BY BUSINESS LINES
Telefonica Moviles Group
The Telefonica Moviles Group has registered a high level of commercial activity
in the third quarter of 2006, which was determined both by the high growth rate
and by intense competition in its main operations markets As of September 2006
the total managed customer base for Telefonica Moviles exceeded 104 million,
with a year-over-year increase of 16.8%.
Total net adds in the third quarter of 2006, reached 3.0 million, of new
customers, with the Latin American operators contributing 2.6 million. In the
first nine months of the year, net adds in Latin America rose to 10.1 million,
reaching a base of 78.8 million clients as of September 2006 (+20.0% vs.
September of 2005).
Telefonica Moviles Espana recorded net adds of 365,000 clients (+45.2% vs. third
quarter 2005), in line with the previous two quarters and bringing the customer
base as of September above 21 million clients (+7.1% vs. September of 2005).
Consolidated revenues reached 13,537.2 million euros by September, with
year-over-year growth of 12.3% in the first nine months of 2006, contributing
the exchange rates 1.7 percentage points to this growth. In the third quarter,
the revenue stood at 4,744.0 million euros, showing an improvement of 10.6% on
the third quarter of 2005.
By geographic region, Telefonica Moviles Espana has accelerated its revenue
growth up to 3.7% over the first nine months of 2006 (+5.1% year-over-year in
the third quarter). The revenues coming from the consolidated Latin American
operators increased 22.9% compared to September 2005 (19.0% excluding the impact
of the exchange rates), supported by the better performance in Venezuela, Peru,
Argentina and Chile.
Consolidated OIBDA reached 4,700.3 million euros in September 2006, up 11.2% in
the first nine months of the year vs. 2005. Excluding the impact of the exchange
rates, the year-over-year growth of the consolidated OIBDA would stand at 10.1%
compared with the first nine months of 2005. In the third quarter of 2006 the
OIBDA totalled 1,801.5 million euros, 9.3% more than in the same period of the
previous year.
Despite the increase in commercial activity, the improvement in revenues and the
control of unitary commercial costs allow the consolidated OIBDA margin in the
third quarter of 2006 to reach 38.0% (-0.4 percentage points compared to the
third quarter of 2005), and 34.7% until September 2006 (-0.4 percentage points
compared to the same period in 2005).
OIBDA for Telefonica Moviles Spain until September exceeded 3,125.4 million
euros, with an annual growth of 1.1%. In the third quarter OIBDA reached 1,149.2
million euros, with year-over-year growth of 0.5%. In the nine months to
September, the margin stands at 45.5%, 1.2 percentage points below the margin
obtained a year ago.
In Latin America, consolidated OIBDA rose a 37.7% in euros (+33.8% excluding the
impact of exchange rates) in the first nine months of 2006 vs. the previous
year, tolalling 1,653.6 million euros. In the third quarter the OIBDA for the
region reached 672.1 million euros, a 29.9% increase in euros. Likewise,
consolidated Latin America subsidiaries contributed 35.2% to consolidated OIBDA
1 (+6.8 percentage points vs. the previous year).
--------------------------------------------------------------------------------
1 Consolidated data before rest and intragroup eliminations.
The higher GSM customer base weight and the change from red to black in Mexico,
which records a positive OIBDA of almost one million euros in the quarter, have
had a determining effect on the region's positive evolution, leading to a 2.9
percentage points progress in the margin compared to the third quarter of 2005,
up to the 29.2%, and 2.6 percentage points compared with the first nine months
of 2005 (24.7%).
The operating cash flow (OIBDA-CapEx) obtained in Latin America region as of
September 2006 reached 765 million euros, with a year-over-year growth of
137.9%.
TELEFONICA MOVILES GROUP
TOTAL CUSTOMERS
Unaudited figures (Euros in millions)
September
2006 2005 % Chg
Spain and Morocco 25,265.3 23,471.5 7.6
Prepaid 13,401.8 13,007.1 3.0
Contract 11,862.3 10,464.4 13.4
Fixed Wireless 1.2 0.0 n.m.
Latin America 78,777.4 65,620.7 20.0
Prepaid 63,501.6 52,149.5 21.8
Contract 14,075.4 12,479.2 12.8
Fixed Wireless 1,200.4 992.0 21.0
Total 104,042.6 89,092.1 16.8
FINANCIAL TARGETS2
Financial Guidance communicated for 2006 by Telefonica Moviles Group registers
no changes:
• Revenues growth is expected to be in the +9%/+12% range.
• OIBDA growth is expected to be in the +9%/+12% range.
• CapEx is expected to be lower the one registered in 2005.
--------------------------------------------------------------------------------
2 2006 guidance assumes constant exchange rates as of 2005, and excludes
changes in consolidation perimeter. Operating Income before D&A exclude other
exceptional revenues/expenses not foreseeable in 2006. For comparison, the
equivalent other exceptional revenues/expenses registered in 2005 are also
deducted from reported figures.
Spain
The key factor behind Telefonica Moviles Espana results is the positive
performance of the commercial actions taken both in customer acquisition and
retention, that has led to customer base growth, churn containment and finally
revenue growth.
Thus, the net adds in the third quarter 2006 reach 365,000 lines, a 45.2% higher
than in the third quarter 2005, on the back of the favourable monthly churn
evolution and in particular of the contract segment, which is below 1% in the
quarter.
Therefore customer revenues grow around 7% in the January-September 2006 period,
at the same pace as the customer base, offsetting the price cuts which are
increasing usage.
The Spanish wireless market exceeded 46 million customers by the end of the
third quarter of 2006, an estimated 10% up on September 2005 as a result of
greater commercial activity by operators due to a highly competitive
environment. Hence, the estimated penetration rate of the market stood at 103%,
8.6 percentage points up on the previous year.
The continued commercial efforts of Telefonica Moviles Espana over the quarter
must be noted, carrying out more than 2.6 million commercial actions, higher
than that of the same quarter in 2005, to give a yearly accumulate of 8.4
million commercial actions (+5.1% vs. the same period in 2005). The company
continues to record a high level of gross adds, amounting to almost 1.5 million
during the third quarter of 2006 and over 20% higher than during the same
quarter of 2005. Gross adds totalled 4.4 million to September 2006, 16.4% up on
the same period of the previous year.
Along these lines, Telefonica Moviles Espana recorded net adds of 365,000 lines
in the third quarter of 2006, 45.2% higher than the 251,000 net adds recorded in
the same quarter of 2005 and exceeding 21 million customers by September end
(+7.1% vs. September 2005). Net adds exceed 1.1 million during the first nine
months of the year (+72.3% vs. the same period of 2005).
The net gain of portability contributed significantly towards this positive
result, standing at 62,500 net adds, the highest figure recorded in a third
quarter in the company's history and 63.3% up on the third quarter of 2005,
giving an accumulated net balance of 113.000 compared with a negative net
balance over the first nine months of 2005. Hence, Telefonica Moviles Espana was
the operator to experience the greatest progress from one year to the next in
terms of its net portability balance. It is worth highlighting that the good
performance in terms of portability has been on contract customers , recording a
positive balance of 72,000 lines in the third quarter of 2006. This positive
performance of the contract segment, almost 200,000 prepaid to contract
migrations during the third quarter, a higher volume of contract gross adds and
the good evolution of the churn rate led the contract segment to represent 55.8%
of the total customer base by September 2006, 3.3 percentage points up year on
year.
Monthly churn rates for the third quarter of 2006 amounted to 1.76%, in line
with that of the same period in 2005 (1.64%). It must be noted that this slight
increase in the churn rate is due to the prepaid segment and its lower-value
customers, with excellent monthly churn performance in the contract segment that
remained below 1%. Churn containment in the contract segments is partly due to
the good results achieved in customer retention activities, which continue to
reward customer loyalty, offering extremely favourable conditions for handset
upgrades in exchange for signing commitment contracts.
In terms of the main traffic and consumption indicators, the company networks
carried during the third quarter a total of 14,690 million minutes, 5.9% up year
on year. On-net traffic recorded a year-on-year increase of 3.7% due to the good
performance of the different campaigns that strengthened the community effect
and promoted internal traffic among company customers. Thus, MOU in the third
quarter of 2006 amounted to 158 minutes, in line with that obtained in the same
period of 2005. Accumulated MOU stood at 156 minutes, a 4.5% increase year on
year.
Voice ARPU totalled 29.3 euros in the third quarter, 1.4% down on the same
period of the previous year primarily due to the cut in interconnection rates in
the forth quarter 2005. Accumulated voice ARPU over the year stood at 28.5
euros, limiting its fall to 0.9% compared to the 2005 accumulated one due to a
lower incoming ARPU. Accumulated outgoing voice ARPU increased by 1.2% in
comparison with the first nine months of 2005.
In terms of interconnection rates, in September, the CMT published a new
resolution in which it established the maximum average prices applicable to
voice termination interconnection services over mobile networks. In this
regulation, the CMT established a period of three years between October 2006 and
September 2009 to set a half-yearly path to lower the average prices of the
three operators so that, by the end of the period, they all stand at €0.07/
minute. The first cut proposed, made effective as of 16th October, represents a
reduction for Telefonica Moviles Espana of 7% in relation to the previous prices
in force, establishing the price at 0.111 euro/min .
Data ARPU for the third quarter of 2006 totalled 4.6 euros, a 1.3% year-on-year
growth. This increase was fuelled by data connectivity traffic and, more
particularly, by the data semi flat-rates (5Gb, 1Gb and 30 Mb packages), for
which over 80,000 customers have already signed up. Accumulated data ARPU
amounted to 4.4 euros (+1.9% vs. September 2005). The company now has over
785,000. UMTS customers.
Thus, total ARPU for the third quarter 2006 stood at 33.9 euros, slightly down
to the one recorded in the third quarter of 2005 (-1.1%) but 2.7% higher than
that of the previous quarter. ARPU stood at 32.9 euros in the first nine months
of the year, a slight 0.5% drop in comparison with the September 2005
accumulate.
The following must be noted in terms of the financial results for the third
quarter of the year:
Revenues from Telefonica Moviles Espana amounted to 2,446.3 million euros in the
third quarter of 2006, a year-on-year growth of 5.1%. The positive financial
results obtained are due on one hand to the strong service revenue performance
that increased by 4.2% in relation to the third quarter of 2005, reflecting an
increase in Telefonica Moviles Espana customer traffic, and, on the other, to
the good performance of the revenues from handset sales as a result of the
strong commercial drive, which amounted to 272.5 million euros (+13.1%).
The positive performance of service revenues was backed by customer revenues
(+6.8% up on the third quarter of 2005), which offset lower roaming and
interconnection revenues (-3.7%). Notable within the roaming business is the
launch of initiatives with Group 02 mobile operators, such as the recent
introduction of a new roaming rate in My Europe to eliminate charges for
receiving calls abroad, offering customers tangible benefits and an example of
the progress in obtaining combined synergies.
Accumulated revenues totalled 6,866.8 million euros, a 3.7% increase in
comparison with the first nine months of 2005.
In this context, Telefonica Moviles Espana obtained an OIBDA of 1,149.2 million
euros in the third quarter of the year, 0.5% up on that recorded one year ago.
Commercial expenses (acquisitions, retention and advertising) represented 14% of
gross service revenue during third quarter 2006, 1 percentage point up on the
third quarter of 2005 as a result of greater commercial activity and partly
offset by lower unit commercial costs. Hence, Telefonica Moviles Espana recorded
a 47.0% OIBDA margin over the quarter.
Accumulated OIBDA amounted to 3,125.4 million euros, 1.1% higher than that
obtained in the first nine months of 2005 to reach an OIBDA margin of 45.5%, 1.2
percentage points down on that recorded in the first nine months of 2005 due to
the greater commercial activity recorded and the slight increase in customer and
network management expenses.
Accumulated investment stood at 408.8 million euros, showing the progress in the
UMTS network rollout where the company already has over 5,700 base stations and
offers coverage in areas housing over 80% of the population. It is worth
highlighting, that Telefonica Moviles Espana offers already HSDPA coverage in
all cities with more than 100,000 inhabitants and in the 180 more relevant
municipalities of the other Spanish cities, showing the company commitment to
develop new technologies.
Thus, the company obtained an accumulated operating cash flow of 2,716.6 million
euros over the year, higher than that reached in the same period of 2005.
TELEFONICA MOVILES ESPANA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg 2006 2005 % Chg
Revenues 6,866.8 6,621.5 3.7 2,446.3 2,326.7 5.1
OIBDA 3,125.4 3,089.9 1.1 1,149.2 1,143.3 0.5
OIBDA margin 45.5% 46.7% (1.2 p.p.) 47.0% 49.1% (2.2 p.p.)
TELEFONICA MOVILES ESPANA
SELECTED OPERATING DATA
Unaudited figures
2006 2005 2006
September % Chg September December March June
Cellular customer (thousands) 21,019.7 7.1 19,632.9 19,889.9 20,276.8 20,655.0
Prepaid 9,290.7 (0.4) 9,330.0 9,186.4 9,231.9 9,261.2
Contract 11,729.0 13.8 10,302.9 10,703.5 11,044.9 11,393.8
3Q % Chg 3Q 4Q 1Q 2Q
MOU (minutes) 157.9 (0.3) 158.4 151.5 153.1 156.0
Prepaid 70.9 (11.8) 80.4 66.6 65.7 64.5
Contract 227.7 (1.5) 231.2 226.0 227.3 231.3
ARPU (EUR) 33.9 (1.1) 34.2 33.2 31.8 33.0
Prepaid 17.6 (6.6) 18.9 16.7 15.7 16.4
Contract 46.9 (3.4) 48.5 47.7 45.5 46.6
Data ARPU 4.6 1.3 4.5 4.7 4.4 4.2
% non-P2P SMS over data revenues 43.9% 5.8 p.p. 41.5% 41.1% 43.6% 42.5%
Note: MOU and ARPU calculated as monthly quarterly average.
TELEFONICA MOVILES ESPANA
REVENUES
Unaudited figures
September
2006 2005
Customer revenues 68.9% 66.4%
Interconnection 16.4% 17.5%
Handset sales 11.4% 12.1%
Roaming - In 3.0% 3.3%
Other 0.3% 0.7%
FINANCIAL OBJECTIVES
The financial objectives of Telefonica Moviles Espana announced on 28th February
remain unchanged:
• Revenue growth is estimated to stand between +3% and+6%
• OIBDA margin below that of 2005 (46.7%)
• CapEx will stand below 800 million euros
Morocco
At the end of September 2006, Medi Telecom's customer base stood at 4.25
million, a 10.6% year over-year increase.
Regarding financial results, revenues in the January-September period totalled
322 million euros (+7.7% in local currency vs. the first nine months of 2005),
on the back of the good performance of service revenues.
OIBDA to September 2006 increases 24% in local currency to reach 145 million
euros standing the margin in the first nine months of the year at 45% (+6
percentage point vs. the margin at September 2005).
MOROCCO
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg December March June
MEDI TELECOM 4,245.6 10.6 3,838.6 4,023.3 4,185.6 4,167.9
Prepaid 4,111.0 11.8 3,677.1 3,873.4 4,040.5 4,029.8
Contract 133.3 (17.4) 161.5 149.9 145.1 137.7
Fixed Wireless 1.2 n.m. 0.0 0.0 0.0 0.4
Latin america
Brazil
During the third quarter 2006, Vivo results have shown an improvement as a
consequence of the action plan implemented, although they also continue to
reflect the impact of the high level of competition existing on the market.
Throughout the third quarter, Vivo carried out some of the initiatives defined
in its action plan for resolving problems and improving the performance of the
company, obtaining positive results in reducing cloning through the Zero Fraud
project. Reductions were seen in 84% of cases in implemented regions. Execution
in all regions is planned for the fourth quarter of this year. During third
quarter of 2006, Vivo launched campaigns aimed at increasing service usage and
prepaid traffic. The company will also continue to focus on its high-value
clients with aggressive pricing campaigns that will be complemented with the
launch of new plans in the fourth quarter. These will be based on loyalty and
retention plans, which are increasingly efficient.
In this context, at the end of third quarter of 2006, customer base for Vivo
totalled 28.7 million clients in a market surpassing 53% penetration and with
growth compared to the third quarter 2005 of 7 percentage points. Commercial
activity for the quarter is in line with previous quarters, although a rebound
in churn rate of up to 2.6% in the third quarter of 2006 (+0.6 percentage points
compared to the third quarter in 2005) leave net adds for the quarter at 201.000
clients.
Usage and traffic reaped the positive effects of campaigns carried out in third
quarter which focused on boosting consumption (talk 45 minutes and pay for 3
minutes; bonus variable according to the top-up for on-net traffic; etc.). The
MOU in the third quarter of 2006 was 78 minutes, showing a recovery with regards
to the same period last year of 1.7%, an effect that transfers to the ARPU,
which was 29.2 Brazilian reais (+2.7% vs. third quarter 2005).
Regarding financial results, total revenues in the first nine months of the year
reached 1,488.5 million euros (-3.1% compared to the same period in 2005 in
local currency). Service revenues in local currency during the first nine months
of the year dropped by 1.5% vs. the same period in 2005, while this same figure
for the third quarter of 2006 increased by 3.2% with respect to the same period
last year, due to greater revenues from interconnection (+15.7%), which was the
consequence of the removal of the Bill & Keep rule. If the impact of regulatory
change were eliminated, service revenues would be reduced by 8.8% compared to
the same period of the previous year.
In line with focusing Company efforts on the most relevant operational regions,
it should be highlighted the positive development of outgoing revenues in the
Rio de Janeiro area (both voice and data), a result of increased outgoing
traffic.
The revenue evolution along with the containment of operating expenses
translates into a recovery of OIBDA levels with respect to the last quarter. In
2006, the OIBDA fell 23.4% in local currency to finish at 335.3 million euros,
registering a margin of 22.5%, whilst looking at the third quarter solely; it
shrank by 6.8% in local currency compared to 2005, obtaining an OIBDA margin of
26.9% for the quarter. Regulatory changes to Bill & Keep rule have had a
positive impact on the OIBDA of around 6 million euros in the quarter.
BRASIL
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 1,488.5 1,331.7 11.8 (3.1) 516.5 495.4 4.3
OIBDA 335.3 379.2 (11.6) (23.4) 139.2 143.3 (2.8)
OIBDA margin 22.5% 28.5% (5.9 p.p.) 26.9% 28.9% (2.0 p.p.)
BRAZIL
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
VIVO 28,725.7 (0.4) 28,840.5 29,804.6 30,137.7 28,524.7
Prepaid 23,481.5 1.3 23,190.3 24,060.8 24,377.2 23,256.5
Contract 5,244.1 (7.2) 5,650.2 5,743.8 5,760.5 5,268.1
At the close of 1H06, an adjustment of 1.8 million inactive lines in Brazil was made.
Northern Region
Mexico
During the third quarter of 2006, Telefonica Moviles Mexico continued to
increase its commercial activity, in line with the initiatives developed in the
first semester to improve its competitive positioning, boosting the improvement
of the sales network in the third quarter in coverage and quality, as well as
customer service and network quality.
As of September 2006, penetration in the Mexican market surpassed 49% (+8
percentage points year-on-year).
In this context, Telefonica Moviles Mexico exceeded 7.4 million clients, which
involves a growth of 24.5% with respect to the third quarter of 2005. This good
performance is based on the development and improvement of the sales network,
which allowed adds to surpass 1.2 million in the third quarter of 2006, 50%
higher than the numbers recorded in the same period last year. In turn, churn
rate continued to show positive trends, improving 3.1% showed in the third
quarter of 2006 (compared to 3.9% in both the third quarter of 2005 and the
second quarter 2006) as a consequence of the measures adopted, which was aimed
at increasing the quality of the customer base acquisition. In this way,
Telefonica Moviles Mexico obtained net adds in the third quarter 2006 of 578,000
clients (more than four times the net adds of third quarter 2005), almost
reaching 1.1 million in the first nine months of the year.
In the third quarter of 2006, the contract segment showed favourable
developments, reaching net adds of 66,000 clients (+128.1% with respect to the
third quarter 2005), due to both a greater number of new customers and a
containment of churn in this segment, which continued to drop, finishing at 1.6%
in the third quarter of 2006.
Regarding operating indicators, traffic growth obtained during the third quarter
should be mentioned. MOU in the third quarter 2006 reached 87 minutes (+84.3%
with respect to the third quarter 2005) and lead the ARPU, up to 123.4 Mexican
pesos (+16.2% vs. the third quarter 2005). In the accrued year, the MOU is 70
minutes (+36.0% with respect to the first nine months of 2005) and the ARPU is
115.7 Mexican pesos (+8.0% with respect to the same period last year). The good
performance of these indicators is supported by the warm welcome the new
commercial offer, launched in prior quarters, is receiving with plans such as
'Fixed Rate per Call' or the 'Fixed Rate Plan', which are fostering the usage.
As a result of the good commercial performance of the Company, revenues during
the first nine months of 2006 reach 689.1 million euros and show a growth of
20.0% in local currency with respect to the same period in 2005, based on
service revenues that grew 25.9% in local currency with respect to the first
nine months of 2005, higher than the growth of the total client numbers
(+24.5%), reflecting the better quality of clients. This good performance in
service revenues is due to the development of outgoing revenues (+36.1% in local
currency) and to a lesser degree on incoming revenues (+7.6% in local currency),
which continue to show the drop in interconnection rates at the beginning of the
year. The good performance of service revenues in third quarter 2006 is worth
emphasising, showing growth of 38.4% vs. the third quarter of 2005.
Despite the intense commercial activity of third quarter, the good performance
of revenues and greatly improved efficiency have led to OIBDA for first time, at
0.7 million euros in third quarter 2006. However, in the first nine months of
2006, OIBDA reached negative 32.3 million euros.
The improved OIBDA evolution translates into the negative operating cash flow,
which in the first nine months of 2006 reduced its losses in local currency by
52% compared to the previous year, at 129 million euros.
It is noteworthy the delay of the entry into force of the 'El que llama paga
nacional '(National CPP') system, initially planned for the 10th of October. On
the 11th of October, Telcel, Telmex, Iusacell, Unefon and Movistar operators
agreed upon the entry into force of this system for the 4th of November,
although the interconnection rates currently in force shall be respected until
the 31st of December.
MEXICO
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 689.1 563.4 22.3 20.0 244.8 192.2 27.4
OIBDA (32.3) (130.5) (75.3) (75.7) 0.7 (33.6) c.s.
OIBDA margin -4.7% -23.2% 18.5 p.p. 0.3% -17.5% 17.7 p.p.
MEXICO
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Mexico 7,443.3 24.5 5,976.6 6,368.1 6,559.4 6,865.6
Prepaid 6,950.7 22.1 5,692.5 6,047.7 6,189.1 6,439.0
Contract 490.9 72.9 283.9 319.9 369.3 425.3
Fixed Wireless 1.6 n.m. 0.1 0.6 0.9 1.2
NORTHERN REGION
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Mexico 7,443.3 24.5 5,976.6 6,368.1 6,559.4 6,865.6
Prepaid 6,950.7 22.1 5,692.5 6,047.7 6,189.1 6,439.0
Contract 490.9 72.9 283.9 319.9 369.3 425.3
Fixed Wireless 1.6 n.m. 0.1 0.6 0.9 1.2
TEM Guatemala 1,385.6 50.0 923.9 1,040.7 1,149.1 1,281.4
Prepaid 1,175.8 58.5 741.6 864.4 965.8 1,078.8
Contract 88.9 21.5 73.2 69.9 71.2 82.1
Fixed Wireless 120.9 10.9 109.1 106.3 112.1 120.6
TEM Panama 948.7 20.4 788.2 849.4 904.8 889.4
Prepaid 872.1 20.6 723.0 781.5 836.2 815.9
Contract 76.7 17.6 65.2 67.9 68.5 73.5
TEM El Salvador 743.6 50.5 494.0 537.8 626.4 693.9
Prepaid 607.3 53.5 395.6 435.3 513.6 568.8
Contract 86.2 11.0 77.7 79.0 79.9 82.5
Fixed Wireless 50.0 140.8 20.8 23.5 32.9 42.6
TEM Nicaragua 486.9 44.5 336.9 371.6 414.7 458.7
Prepaid 423.7 53.2 276.6 310.4 354.6 397.2
Contract 43.2 (3.4) 44.7 45.3 43.4 43.2
Fixed Wireless 20.0 28.1 15.6 15.9 16.7 18.3
Total Acceses 11,008.1 29.2 8,519.6 9,167.6 9,654.3 10,188.9
Andean Region
Venezuela
The mobile telephony market in Venezuela continued to show solid growth, with an
estimated penetration of 61%, a 22 percentage points leap from the figure for
September 2005.
Telefonica Moviles Venezuela obtained net adds in third quarter 2006 of 205.300
lines, 69% up on the third quarter of 2005, surpassing 8 million clients at the
end of September, which represents an year-on-year increase of 51%.
The growth in the client base, the promotion of plans with 'on net' minute
packages and ongoing improvement of data revenues translated into a growth in
service revenues of 48.0% year-on-year in third quarter 2006 (+50.0% in accrued
2006 vs. the first nine months of 2005). This good performance of service
revenues transferred to total revenues, which recorded an increase of 45.5% in
local currency year-on-year and 47.5% in the year to date, totalling 1,450.0
million euros in the first nine months of the year.
Despite increased commercial activity in the third quarter 2006 compared to the
same period in 2005 (+78.5%), greater efficiency and cost controls allowed the
OIBDA to record a growth of 43.5% in local currency compared to the first nine
months of 2005, surpassing 579.2 million euros (+60% year-on-year for the third
quarter). Thus, the OIBDA margin was 47.5%, 4.7 percentage points above the
margin for the third quarter last year. For the first nine months of the year,
the margin stood at 39.9%.
VENEZUELA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 1,450.0 993.4 46.0 47.5 497.9 358.1 39.0
OIBDA 579.2 407.9 42.0 43.5 236.5 153.2 54.3
OIBDA margin 39.9% 41.1% (1.1 p.p.) 47.5% 42.8% 4.7 p.p.
VENEZUELA
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Venezuela 8,025.9 50.9 5,319.0 6,160.3 6,683.3 7,820.6
Prepaid 6,813.6 55.1 4,393.2 5,203.7 5,659.0 6,665.7
Contract 431.6 26.9 340.0 347.8 371.7 399.2
Fixed Wireless 780.7 33.3 585.8 608.8 652.7 755.7
Colombia
The Colombian mobile market has maintained its strong growth trend in recent
quarters, surpassing 29.3 million clients, a growth of 59% year-on-year, as a
consequence of strong competition. Penetration reached 71.1% (+31.1 percentage
points with respect to September 2005).
During third quarter 2006, commercial activity, mainly in GSM, registers a 38.4%
year-on-year. Thus, there were net adds in third quarter 2006 of 212,972 lines,
totalling 1.7 million as of September 2006, 11.7% less than that obtained in the
first nine months of the year 2005, affected by an increasing churn. Therefore,
total numbers in September 2006 almost reached 7.7 million clients (+48.7%
year-on-year), with 55% of clients on GSM (+6.0 percentage points vs. second
quarter 2006).
Regarding the financial results, revenues in local currency show a 11.9% growth
compared to third quarter 2005, which in the year to date totals 9.2%, or a
total of 584.0 million euros. The evolution in service revenues (+5.6% in local
currency with respect to third quarter 2005) has been affected by reductions in
interconnection rates and accelerated growth in the customer base. Cumulative
service revenues shows progress of 5.9% in local currency with respect to the
first nine months of 2005.
Increased commercial initiatives in third quarter 2006 compared to the same
period in 2005 affected the OIBDA, which recorded a drop in local currency of
16.4% year-on-year. Nevertheless, in the year to date, the OIBDA has registered
a growth of 40.9% in local currency, reaching a margin of 14.5% (+3.2 percentage
points compared to the first nine months of 2005).
COLOMBIA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 584.0 536.2 8.9 9.2 191.8 188.3 1.8
OIBDA 84.4 60.1 40.5 40.9 34.5 43.2 (20.1)
OIBDA margin 14.5% 11.2% 3.2 p.p. 18.0% 23.0% (4.9 p.p.)
COLOMBIA
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % September December March June
Chg
TEM Colombia 7,687.0 48.7 5,170.6 6,033.0 6,817.8 7,474.0
Prepaid 5,883.5 48.0 3,976.7 4,657.9 5,283.6 5,721.4
Contract 1,803.5 51.1 1,193.9 1,375.1 1,534.1 1,752.7
Peru
The Peruvian market has shown greater dynamism during the third quarter of 2006
than in previous quarters, increasing penetration by more than 10 percentage
points in order to reach 27.5% as of September 2006.
During this quarter, more competitive intensity was observed based on lower
entry barriers and increased traffic discounts. Telefonica Moviles Peru has been
able to counteract these aggressive commercial activity by relying on the
strength of the sales channels and the improvements of the commercial offers and
added value services, which have permitted it to more than double commercial
activity levels of the third quarter of 2005. Thus, the company has obtained net
adds of 464,890 clients, more than triple that reached in the third quarter of
2005. Therefore, total customer base at the close of September 2006 surpassed
4.5 million clients (+41% year-on-year), with 28% of clients already on GSM.
The company continues to show strong revenue growth. Revenues in local currency
increased by 32% in third quarter 2006 year-on-year and 20.1% compared to the
first nine months of last year, reaching 318.6 million euros. The development of
service revenues is worth mentioning. These showed a year-on-year growth of
30.4% in the third quarter and 16.9% in the year to date, both in local
currency, due to the excellent performance of prepaid outgoing revenues that
show an accrued growth through September 2006 in local currency of 99%
year-on-year, lead by increased traffic promotions.
Despite increased commercial activities in third quarter, good revenue
performance and greater operating efficiency have led an OIBDA growth of 27%
compared to third quarter 2005, and 7.2% with respect to the first nine months
of the year, reaching 91.7 million euros. Quarterly margins reached 31.1% and
28.8% for the nine months to September (-3.5 percentage points to that
registered in the first nine months of 2005).
PERU
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 318.6 263.8 20.8 20.1 117.8 92.2 27.8
OIBDA 91.7 85.0 7.8 7.2 36.6 29.7 23.1
OIBDA margin 28.8% 32.2% (3.5 p.p.) 31.1% 32.2% (1.2 p.p.)
PERU
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Peru 4,513.8 41.1 3,199.3 3,455.0 3,680.9 4,048.9
Prepaid 3,749.7 46.6 2,557.7 2,804.3 3,007.6 3,331.1
Contract 691.9 21.4 569.8 579.5 603.3 648.1
Fixed Wireless 72.2 0.6 71.8 71.1 70.1 69.8
ANDEAN REGION
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Venezuela 8,025.9 50.9 5,319.0 6,160.3 6,683.3 7,820.6
Prepaid 6,813.6 55.1 4,393.2 5,203.7 5,659.0 6,665.7
Contract 431.6 26.9 340.0 347.8 371.7 399.2
Fixed Wireless 780.7 33.3 585.8 608.8 652.7 755.7
TEM Colombia 7,687.0 48.7 5,170.6 6,033.0 6,817.8 7,474.0
Prepaid 5,883.5 48.0 3,976.7 4,657.9 5,283.6 5,721.4
Contract 1,803.5 51.1 1,193.9 1,375.1 1,534.1 1,752.7
TEM Peru 4,513.8 41.1 3,199.3 3,455.0 3,680.9 4,048.9
Prepaid 3,749.7 46.6 2,557.7 2,804.3 3,007.6 3,331.1
Contract 691.9 21.4 569.8 579.5 603.3 648.1
Fixed Wireless 72.2 0.6 71.8 71.1 70.1 69.8
TEM Ecuador 2,393.1 47.3 1,624.2 1,884.6 2,328.4 2,554.7
Prepaid 1,984.0 55.7 1,273.9 1,517.5 1,948.3 2,161.7
Contract 406.9 17.0 347.8 364.7 377.7 390.6
Fixed Wireless 2.2 (9.3) 2.5 2.4 2.4 2.3
Total Acceses 22,619.8 47.7 15,313.1 17,532.8 19,510.5 21,898.2
southern Cone Region
Argentina
During third quarter 2006, the Argentinean mobile market continued showing
remarkable growth, reaching an estimated penetration of 69%, 21 percentage
points above September 2005.
Telefonica Moviles Argentina recorded a growth in its commercial activities in
the third quarter 2006 vs. the same period in 2005. Net adds in the third
quarter of 2006 totalled 664,181 new clients, in line with the third quarter
2005, surpassing 1.8 million in the year to date. Therefore, customer base
increased by 37.3% to total 10.15 million, with a 70% out of the total base in
GSM (42% in third quarter 2005).
Regarding financial results in local currency, revenues maintained the solid
growth registered in previous quarters, presenting a 33.9% growth in the nine
months to September 2006 vs. the same period in 2005, which translates into
906.6 million euros in local currency (+32% year-on-year in third quarter).
Service revenue grew a 30.6% in third quarter 2006 year-on-year, driven by the
good performance of outgoing revenues, and especially prepaid revenues.
Cumulative service revenues had a growth of 33%. The good evolution of data
revenue is worth mentioning, which more than doubled with respect to the figures
as of September 2005, reaching 184 million euros.
Good revenue performance, coupled with increased commercial activity associated
with lower unit acquisition subsidies, have led to an increase in OIBDA of
111.5% in local currency (+61.2% in the third quarter year-on-year), up to 217.2
million euros in the cumulative through September 2006. Thus, the OIBDA margin
improved by 8.8 percentage points compared to last year, to finish at 24.0%
(27.0% for the third quarter).
ARGENTINA
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 906.6 706.6 28.3 33.9 316.0 265.3 19.1
OIBDA 217.2 107.2 102.7 111.5 85.4 57.5 48.6
OIBDA margin 24.0% 15.2% 8.8 p.p. 27.0% 21.7% 5.4 p.p.
ARGENTINA
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Argentina 10,150.2 37.3 7,395.2 8,335.0 8,914.4 9,486.1
Prepaid 6,498.1 50.7 4,312.2 5,035.8 5,535.2 5,951.4
Contract (1) 3,499.4 20.8 2,896.7 3,119.2 3,210.0 3,373.8
Fixed Wireless 152.7 (18.0) 186.3 179.9 169.2 160.8
Chile
The Chilean market has continued showing sustained growth as a consequence of
extreme market competition. Therefore, estimated penetration as of September
2006 reached 78.3%, with an advance of 10 percentage points year-on-year.
Total customer base for Telefonica Moviles Chile surpassed 5.6 million clients
at the end of September (+7.4% with respect to the third quarter of 2005),
driven by new GSM clients with 69% of the total base already using this
technology. It should be highlighted the 28% increase in the contract base (1.1
million), representing 20% of the customer base. Net adds in the third quarter
of 2006 totalled 103,000 new clients, compared to negative net adds in the third
quarter 2005, as a consequence of the increased commercial activity and a better
performance, with regards to the churn rate. Cumulative net adds totalled
342,000 clients, 28.5% below the figure for the same period last year, although
with a greater contract weight.
Revenues to September 2006, show good performance with a 16.0% growth in local
currency year-on-year, totalling 580.6 million euros. This was due to the good
evolution of service revenues (+20.9% in 2006 year to date compared to the same
period in 2005; +20.5% in third quarter 2006 vs. third quarter 2005 both in
local currency), and in particular to the outgoing revenues that were
significantly above the growth of the client base, reflecting the positive
development of the ARPU (+11.6% with respect to the nine months to September
2005).
This good performance of revenues transferred to the OIBDA, which recorded a
4.6% growth in year-on-year third quarter and 15.0% in local currency compared
to the first nine months of last year, reaching 186.9 million euros. The
cumulative OIBDA margin as of September 2006 reached 32.2%, in line with that
obtained in the same period in 2005, despite increased commercial efforts taken
due to initiatives arising from technological migrations and plans. The OIBDA
margin in the third quarter of 2006 reached 35.6%.
CHILE
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg % Chg Local Cur 2006 2005 % Chg
Revenues 580.6 459.2 26.4 16.0 196.5 171.6 14.5
OIBDA 186.9 149.1 25.4 15.0 70.0 66.5 5.3
OIBDA margin 32.2% 32.5% (0.3 p.p.) 35.6% 38.8% (3.1 p.p.)
CHILE
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Chile 5,618.1 7.4 5,230.2 5,275.8 5,335.0 5,515.1
Prepaid 4,491.6 3.3 4,350.0 4,384.1 4,396.0 4,501.9
Contract (1) 1,126.5 28.0 880.1 891.7 938.9 1,013.2
SOUTHERN CONE
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
2006 2005 2006
September % Chg September December March June
TEM Argentina 10,150.2 37.3 7,395.2 8,335.0 8,914.4 9,486.1
Prepaid 6,498.1 50.7 4,312.2 5,035.8 5,535.2 5,951.4
Contract (1) 3,499.4 20.8 2,896.7 3,119.2 3,210.0 3,373.8
Fixed Wireless 152.7 (18.0) 186.3 179.9 169.2 160.8
TEM Chile 5,618.1 7.4 5,230.2 5,275.8 5,335.0 5,515.1
Prepaid 4,491.6 3.3 4,350.0 4,384.1 4,396.0 4,501.9
Contract 1,126.5 28.0 880.1 891.7 938.9 1,013.2
TEM Uruguay 655.4 103.5 322.1 418.9 500.4 584.4
Prepaid 569.8 114.1 266.1 356.5 434.7 511.9
Contract 85.6 52.9 56.0 62.4 65.6 72.5
Total Acceses 16,423.8 26.8 12,947.5 14,029.7 14,749.8 15,585.6
(1) Includes costumers with an 'Ahorro' contract, who prepay a monthly fee.
TELEFONICA MOVILES GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - September
2006 2005 % Chg
Spain Revenues 6,866.8 6,621.5 3.7
OIBDA 3,125.4 3,089.9 1.1
OIBDA margin 45.5% 46.7% (1.2 p.p.)
Latin America Revenues 6,695.3 5,445.7 22.9
OIBDA 1,653.6 1,200.7 37.7
OIBDA margin 24.7% 22.0% 2.6 p.p.
Brazil Revenues 1,488.5 1,331.7 11.8
OIBDA 335.3 379.2 (11.6)
OIBDA margin 22.5% 28.5% (5.9 p.p.)
Northern Region Revenues 1,092.7 909.7 20.1
OIBDA 94.6 (23.8) c.s.
OIBDA margin 8.7% -2.6% 11.3 p.p.
Andean Region Revenues 2,573.0 2,009.9 28.0
OIBDA 809.3 584.0 38.6
OIBDA margin 31.5% 29.1% 2.4 p.p.
Southern Cone Revenues 1,541.1 1,194.4 29.0
OIBDA 414.4 261.3 58.6
OIBDA margin 26.9% 21.9% 5.0 p.p.
Rest and intragroup Revenues (24.9) (17.1) 45.5
OIBDA (78.7) (64.1) 22.8
OIBDA margin n.m. n.m. n.c.
TOTAL Revenues 13,537.2 12,050.0 12.3
OIBDA 4,700.3 4,226.5 11.2
OIBDA margin 34.7% 35.1% (0.4 p.p.)
TELEFONICA MOVILES GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - September July - September
2006 2005 % Chg 2006 2005 % Chg
Revenues 13,537.2 12,050.0 12.3 4,744.0 4,290.2 10.6
Internal expenditure capitalized in fixed assets (1) 87.8 85.8 2.4 29.9 33.7 (11.2)
Operating expenses (8,738.8) (7,785.3) 12.2 (2,941.4) (2,607.9) 12.8
Other net operating income (expense) (185.0) (122.7) 50.8 (30.8) (68.2) (54.8)
Gain (loss) on sale of fixed assets (0.9) (1.2) (25.6) (0.2) 0.0 c.s.
Impairment of goodwill and other assets 0.0 0.0 n.m. 0.0 0.0 n.m.
Operating income before D&A (OIBDA) 4,700.3 4,226.5 11.2 1,801.5 1,647.7 9.3
Depreciation and amortization (1,825.2) (1,679.8) 8.7 (606.6) (585.7) 3.6
Operating income (OI) 2,875.1 2,546.7 12.9 1,194.9 1,062.0 12.5
(1) Including work in process.
TELEFONICA MOVILES GROUP
CAPEX BY GEOGRAPHIC REGIONS
Unaudited figures (In Million Euros)
January - September
2006 2005 % Chg
Spain 408.8 504.7 (19.0)
Latin America 889.0 879.3 1.1
Brazil 196.0 212.5 (7.7)
Northern Region 170.4 192.4 (11.4)
Mexico 97.1 133.1 (27.0)
Guatemala 27.1 15.0 80.0
El Salvador 20.0 14.2 41.0
Panama 19.8 16.4 20.8
Nicaragua 6.5 13.7 (52.7)
Andean Region 329.7 290.6 13.5
Venezuela 112.8 79.7 41.6
Colombia 152.0 155.9 (2.4)
Peru 43.4 19.9 118.0
Ecuador 21.5 35.2 (39.0)
Southern Cone 192.9 183.9 4.9
Argentina 67.9 82.0 (17.2)
Chile 120.6 84.5 42.7
Uruguay 4.4 17.4 n.s.
Rest of the World 3.3 0.6 n.m.
TOTAL 1,301.1 1,384.6 (6.0)
Group Capex in 2006 at cumulative exchange rate. For comparative purposes, 2005 Capex has been recalculated at the
cumulative average exchange rate for the corresponding period.
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