Final Results-Part I
Telefonica SA
28 February 2005
Quarterly results
January-December 2004
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
Mobile Business
Other Business
• Directories Business
• Terra Networks Group
• Atento Group
• Content and Media Business
• Telefonica Deutschland Group
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
NOTE:
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 Spain. Certain accounting practices applied by
the Group that conform with generally accepted accounting principles in Spain
may not conform with generally accepted accounting principles in other
countries.
TELEFONICA GROUP
Market Size
(Data in thousands)
EUROPE AFRICA
Spain Morocco
WIRELINE WIRELESS
T de Espana: 19,835 Medi Telecom: 2,730
WIRELESS
T Moviles: 18,977
PAY TV CUSTOMERS
Imagenio: 6
Deutschland/UK
WHOLESALE ADSL LINES
T Deutschland Group: 497
LATIN AMERICA
Argentina Brazil El Salvador Guatemala Peru
WIRELINE WIRELINE WIRELINE WIRELINE WIRELINE
T de Argentina: 4,517 Telesp: T. El Salvador: 86 T. Guatemala: 35 T del Peru: 2,362
WIRELESS WIRELESS 13,289 WIRELESS WIRELESS WIRELESS
TCP Argentina: 3,370 CRT Celular: 3,215 T. El Salvador: 384 T. Guatemala: 751 T. Moviles: 2,870
TeleSudeste Cel: 4,377 PAY TV CUSTOMERS PAY TV CUSTOMERS
TeleLeste Celular: 1,321 TV Cable: 13 Cable Magico: 389
Chile Global Telecom: 2,579
WIRELINE Grupo Telesp Cel: 9,231 Nicaragua
CTC Chile: 2,628 TeleCentro Oeste: 5,821 Ecuador WIRELESS
WIRELESS WIRELESS Telefonia Celular: 286 Uruguay
T. Movil Chile: 3,318 Otecel: 1,122 WIRELESS
Colombia Panama Abiatar: 203
WIRELESS WIRELESS
TEM Colombia: 3,297 Mexico TEM Panama: 626 Venezuela
WIRELESS WIRELESS
TEM Mexico: 5,639 Telcel: 4,326
TELEFONICA GROUP
MARKET SIZE
Unaudited figures (Thousands)
Managed Weighted (*)
Dec 2004 Dec 2003 % Chg. Dec 2004 Dec 2003 % Chg.
Lines in service (1) 43,249.5 41,128.4 5.2 39,998.5 37,947.5 5.4
In Spain 19,835.3 19,100.4 3.8 19,835.3 19,100.4 3.8
In other countries 23,414.3 22,028.0 6.3 20,163.3 18,847.1 7.0
Cellular customers (2) 74,442.5 51,848.6 43.6 49,592.0 31,376.2 58.1
In Spain 18,977.0 19,660.6 (3.5) 17,546.2 18,174.3 (3.5)
In other countries 55,465.4 32,188.0 72.3 32,045.9 13,201.9 142.7
Total (3) 118,100.3 93,351.3 26.5 89,990.3 69,686.5 29.1
(*) Weighted by the equity interest of Telefonica in each of the companies.
(1) Lines in service: includes all lines in service for Telefonica de Espana, Telefonica CTC Chile, Telefonica de
Argentina, Telefonica del Peru, Telesp, Telefonica Moviles El Salvador, Telefonica Moviles Guatemala and Telefonica
Deutschland.
(2) Cellular customers: includes all cellular customers of Telefonica Servicios Moviles Espana, MediTelecom, Telefonica
Movil Chile, TCP Argentina, Telefonica Moviles Peru, Brasilcel (the Joint Venture with Portugal Telecom in Brazil),
Telefonica Moviles Guatemala, Telefonica Moviles El Salvador, Telefonica Moviles Mexico and those acquired from
BellSouth Latin-America operators (Venezuela, Guatemala, Nicaragua, Panama, Ecuador, Colombia, Peru and Uruguay),
except Chile and Argentina
(3) Includes Pay TV customers of Cable Magico in Peru, Multiservicio in El Salvador and Imagenio in Spain.
TELEFONICA GROUP
ACCESSES
Unaudited figures (thousands)
January - December
2004 2003 % Chg
Fixed telephony accesses (1) 37,793.3 37,428.0 1.0
Internet and data accesses 10,075.8 8,027.8 25.5
Narrowband 5,055.0 4,983.4
Broadband 5,020.8 3,044.4
ADSL (2) 4,682.2 2,797.5
Fully unbundled loops 78.4 16.3
Other accesses (3) 260.2 230.6
Pay TV 410.7 377.2 8.9
Cellular accesses (4) 74,442.5 52,023.2 43.1
Total Accesses 122,722.4 97,856.3 25.4
(1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access x30; 2/6 Access. Company's
accesses for internal use included.
(2) T Deutschland's connections resold on a retail basis included.
(3) Cable modem, WiFi clients, satellite and fiber included.
(4) Accesses corresponding to acquired operators from BellSouth included with the exception of Chile and Argentina.
TELEFONICA GROUP
Financial Highlights
The most relevant factors of the Telefonica Group results during 2004 are the
following:
• Significant growth in the main items on the profit and loss account,
meeting the financial commitments set for 2004:
• Strong operating performance, increasing revenues and EBITDA by 6.8%
and 4.9% respectively (+8.3% and +6.0% excluding the negative impact of
the exchange rates and the variations in the consolidation perimeter).
• The Operating Profit presents double digit growth both in current
euros (+14.3%) and excluding exchange rates effect and changes in the
consolidation perimeter (+15.5%).
• The client oriented management resulted in a strong organic growth in all
business lines:
• Intense commercial efforts have been reflected in the significant
client base growth. At year end, the Group's managed customers totaled
118.1 million (up26.5% year-on-year). Including the customers from
BellSouth operators in Chile and Argentina, whose acquisition was
completed in early January 2005, managed clients totaled 121.9 million.
• A resilient capacity to transform the top line growth into profitability
and cash flow:
• The Operating Free Cash Flow generated (EBITDA-CapEx) increased by
6.4% year-on-year to reach 9,443.5 million euros, driven by the
Telefonica de Espana Group (+17.2%).
• The consolidated EBITDA margin stood at 43.6%.
• Substantial growth in consolidated net income (+30.6% year-on-year), to an
all time high of 2,877.3 million euros:
• 31.3% increase in earnings per share over the period (0.581 euros in
2004 vs. 0.442 euros in 2003).
• The investments grew by 1.2% year-on-year to 3,771.9 million euros, with
close to 55% of the total allocated to growth businesses.
• Strengthen in the shareholder remuneration policy:
• A 25% increase in the dividend corresponding to the fiscal year 2004
to 0.5 euros per share.
• The share buy-back program maintained its fast pace. As of February
15th 2005, Telefonica's treasury stock represents 4.966% of its current
share capital.
• Commitment to distribute 4% of the treasury stock to shareholders
(1x25).
• Completion of the BellSouth's Latin American operators acquisitions,
gaining scale and enhancing the Group growth profile in the future.
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 business, which basically
implies that each line of activity participate in the companies that the Group
holds in the corresponding business, regardless of whether said holding has
already been transferred or not, even though it might be the final intent of
Telefonica, S.A. to do so in the future.
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.
Starting first quarter 2004, Telefonica Empresas results will be included in
Telefonica de Espana Group and Telefonica Latinoamerica Group results. In that
sense, Telefonica Data Espana and Telefonica Soluciones results will be
incorporated within Telefonica de Espana Group, whereas Telefonica Data in Latin
America and TIWS will be incorporated in Telefonica Latinoamerica Group results.
Finally, Telefonica Deutschland Group results will be incorporated to Other
Companies in Telefonica S.A. accounts.
In the fourth quarter of 2004, results of November and December of the new
operators acquired from BellSouth in Latin America (Venezuela, Guatemala,
Nicaragua, Panama, Ecuador, Colombia, Peru and Uruguay) were accounted, except
those of Chile and Argentina, whose acquisition was completed in January 2005.
The Telefonica Group achieved a solid combination of growth, efficiency and
profitability during 2004. The main items on the profit and loss account grew
significantly (operating revenues up 6.8%; EBITDA up 4.9%; operating profit up
14.3% and net income up 30.6%), due to the positive evolution of operations,
mainly supported by the increase in the client base and the intense commercial
efforts. At the same time, operational efficiency has been transformed into
profitability (EBITDA margin 43.6%) and into an operating free cash flow
generation (EBITDA-CapEx) of 9,443.5 million euros (+6.4%) thanks to investment
rationale (+1.2%), that only increased in high growth businesses (broadband and
mobile telephony).
All of this has driven a continuous improvement in the shareholder remuneration
policy, being one of the most attractive and long-term committed in the European
telecommunications sector. So, a 0.4 euros per share dividend corresponding to
fiscal year 2003 has been paid and the share buy-back program has maintained its
fast pace. At February 15th 2005, treasury stock amounted to 4.966% of the
capital share. The Company also proposed the distribution of Telefonica S.A. own
shares, that represents 4% of the capital share, for the next AGM at a
proportion of one treasury stock share for every twenty five. Moreover, a
payment of 0.5 euros per share dividend corresponding to fiscal year 2004 was
also proposed for the next AGM, which is 25% higher than on the previous year.
The Board of Director's intention is to maintain this same minimum dividend for
fiscal year 2005.
Likewise, during 2004 has been announced and completed the acquisition of
BellSouth's Latin America mobile operators. This operation has led to
incorporate more than 14.7 million cellular clients in 2004, and to strengthen
the scale and Telefonica Group's future growth profile.
The Group's managed client base (fixed and mobile telephony and pay television)
stood at 118.1 million at December 31st, 2004, registering a 26.4% increase over
the same period of 2003. Including the clients from the Latin American BellSouth
mobile operators in Chile and Argentina, whose acquisition was completed in
January 2005, the number of clients managed would amount to 121.9 million.
This growth was mainly due to the strong growth of Telefonica Moviles through
its intense commercial activity and the integration of the BellSouth operators.
Thus, it reached a total of 74.4 million clients managed (+43.6% vs. 2003),
obtaining a net gain in the last quarter of 6 million (4.8 million excluding
BellSouth's Latin American operators). Including clients from BellSouth
operators in Chile and Argentina, whose acquisition was completed in January
2005, the total number of cellular clients would total 78.2 million, 56.5
million corresponding to Latin America.
ADSL connections also grew significantly over the year, with a total of 3.9
million connections by the end of December 2004, both in Spain and Latin America
(+61.0% vs. 2003), with a net gain of 1.5 million lines in the last twelve
months. In Spain, there were 2.5 million connections (+50.0% year-on-year),
giving the Group an estimated market share of 73.8% in the total broadband
market. Telefonica Group retail ADSL clients in Spain totaled 1.9 million,
representing a total estimated market share of 55.5%. In Latin America, the
number of ADSL connections exceeded 1.4 million (+84.7% year-on-year), with a
significant contribution of Brazil (58.1% of the total) with 0.8 million
connections, compared with the 0.5 million at December 2003.
Telefonica Group's operating revenues totaled 30,321.9 million euros in 2004,
posting a 6.8% increase over 2003, boosted by higher revenues from almost all
business lines, with the exception of the Content and Media business and Terra
Networks, which reduced their revenues due to the changes in the consolidation
perimeter. The growth rate of revenues was influenced on one hand by the
negative effect of exchange rates, which deducted 2.4 percentage points to
growth (-2.3 percentage points at September) and on the other hand by the
changes in the consolidation perimeter, which contributed with 0.9 percentage
points to growth (-1.0 percentage points in January-September 2004), due to the
incorporation of BellSouth's eight Latin American operators. Thus, the variation
of revenues adjusted for these two factors would stand at 8.3%, meeting the 2004
target (+7/+10%).
The cellular business continued to be the main contributor in the Group's
growth, registering operating revenues of 12,054.1 million euros, 15.6% more
than in 2003. By components, revenues from services and sale of handsets were
15.4% and 32.6% higher than those recorded the previous year, respectively. By
operator, the solid performance of Telefonica Moviles Espana (+9.3% year on
year), Telefonica Moviles Mexico (+49.2% year-on-year in local currency) and
VIVO (+16.2% year on year in local currency) must be highlighted.
The Telefonica Latinoamerica Group registered in 2004 operating revenues of
6,883.4 million euros, showing a 2.1% increase, although in constant euros this
growth rose to 7.5%. This variation was mainly explained by Telesp and TASA,
whose revenues increased in local currency by 14.6% and 10.6%, respectively,
more than offsetting the fall in revenues in local currency at Telefonica del
Peru (-1.1%) and Telefonica CTC Chile (-6.2%).
In the fourth quarter of 2004 Telefonica de Espana Group accelerated its
operating revenues growth rate, recording an increase of 2.7% in comparison with
the 1.7% in the first quarter, the 2.7% in the second quarter and the 2.6% in
the third quarter. In 2004, operating revenues totaled an absolute value of
10,955.8 million euros, 2.4% more than in 2003 due to the significant increase
in Internet and broadband revenues (+34.2%), which exceeded the fall in revenues
from traditional services (-2.5%).
By countries, Spain accounted for 60.3% of the Group's consolidated revenues,
down by 1.3 percentage points year-on-year, while 34.8% came from Latin America
(33.3% a year ago). Brazil increased its contribution to total revenues over the
year by 0.3 percentage points to 17.3%.
The Group's total accumulated expenses at the end of 2004 totaled 17,962.5
million euros, an 8.1% increase year-on-year and 3.8 percentage points more than
in September. These higher expenses are mainly due to the incorporation of
BellSouth's operators to the cellular business consolidation perimeter. Hence,
excluding changes in the consolidation perimeter and in constant euros,
operating expenses would increase by 9.8%, 1.1 percentage points more than in
the first nine months of the year.
By different expense items, subcontracts grew by 11.5% year-on-year as a result
of the commercial effort made by the Group and supply expenses jumped by 17.4%
due to increased handset purchases. Personnel expenses, however, decreased by
4.9% compared with the previous year, mainly due to the savings obtained through
the 2003-2007 Redundancy Program at Telefonica de Espana.
The Telefonica Group's bad debt control policy continued to execute
successfully, placing the bad debt provision as a percentage of revenues
(excluding pre-paid revenues) at year-end 2004 at 1.2%, showing a 0.4 percentage
point improvement over December 2003 and a 0.1 percentage points increase over
the nine months of 2004. Telefonica Latinoamerica was the business line that
reduce the most its bad debt ratio as a percentage of revenues over the past
twelve months (-0.8 percentage points) to 2.3%, mostly due to Telesp, which
recorded a 0.8 percentage point improvement (3.1% as a percentage of revenues)
thanks to the launch of more adapted products to different client profiles, and
TASA, whose ratio stood at below 1%. Telefonica CTC Chile was the only operator
to register a worse bad debt ratio (4.1% in December 2004 vs. 3.8% a year ago),
due to the accounting of certain extraordinary provisions in the last quarter of
the year. The bad debt ratio as a percentage of revenues for the cellular
business dropped to 0.8% (1.3% in 2003) and that of the Telefonica de Espana
Group by 0.4 percentage points to 0.5% over revenues.
Consolidated EBITDA for the year reached 13,215.4 million euros, 4.9% higher
than the previous year. The negative evolution of exchange rates deducted 1.7
percentage points to the growth (1.5 percentage points at September), while the
changes in the consolidation perimeter contributed to the growth with 0.6
percentage points, compared with the 0.0 percentage points in January-September,
due to the incorporation of BellSouth's Latin American operators. Thus, assuming
constant exchange rates and excluding changes in the consolidation perimeter,
EBITDA showed a year-on-year increase of 6.0%, in line with the target
established for 2004 (+5/+7%). Although it has slowed down vs. the first nine
months of 2004 (+7.1%) due to the intense commercial efforts made during the
campaigns in the fourth quarter. In terms of profitability, the 2004 EBITDA
margin reached 43.6%, showing a 0.8 percentage point drop over the previous year
as a result of the EBITDA margin decrease in the cellular business, which could
not be offset by the better margins in the rest of the businesses.
For the third consecutive quarter, the Telefonica de Espana Group is the Group's
biggest contributor to consolidated EBITDA growth, after recording a 6.1%
year-on-year growth up to 5,054.5 million euros (38.2% of total EBITDA). In the
fourth quarter of the year, the EBITDA growth rate slowed down compared to the
previous quarter (+4.8% vs. +7.5%), mainly due to the smaller reduction in
personnel expenses (-6.1% vs. -11.4%), as the first layoffs from the 2003-2007
Redundancy Program were accounted for during this period. The EBITDA margin was
46.1%, 1.6 percentage points more than twelve months ago.
The cellular business EBITDA, which contributed with 36.0% in the Group's
consolidated EBITDA in absolute terms, amounted to 4,755.0 million euros in
2004, 3.8% more than in 2003. Increased commercial and advertising costs related
to strong commercial activity in operating areas had an impact on the margin as
a percentage of revenues, which decreased to 39.4% at December 2004, compared
with 43.9% twelve months ago. During the fourth quarter, the margin dropped to
32.6% (39.1% in October-December 2003).
EBITDA at the Telefonica Latinoamerica Group, with a consolidated EBITDA
contribution of 23.8%, stood at 3,141.0 million euros at the end of 2004,
registering a 1.3% growth compared to the previous year, or 6.8% in constant
euros (7.2% in January-September 2004). The slow-down in operating expenses over
the year (+7.4% as of December vs. +7.9% as of September), led to a 45.6% EBITDA
margin by the end of 2004, almost the same level as in 2003 (46.0%) and 0.2
percentage points up on the first nine months of the year.
By geographic areas, Spain generated 70.7% of total EBITDA, 1.1 percentage
points more than at December 31st 2003, due to lower EBITDA contributions from
Latin America (29.1% compared with 30.6% a year ago). This fall in contributions
from Latin America was mostly due to lower contributions over the past year from
Brazil (-0.6 percentage points to 17.2%), Chile (-0.6 percentage points to
4.3%), Argentina (-0.5 percentage points to 3.8%) and Peru (-0.2 percentage
points to 4.0%) and the higher losses recorded in Mexico.
The operating profit during January-December 2004 amounted to 7,235.2 million
euros, posting a year-on-year growth of 14.3%, 3.8 percentage points less than
in September. This slowdown was due to lower EBITDA growth and the lower
decrease in amortization compared with September (-4.7% vs. -6.7%). In a
homogeneous comparison, i.e. excluding the negative impact of exchange rates and
variations in the consolidation perimeter, the year-on-year reduction in
amortization would stand at 3.7% (-4.1% in the first nine months of the year)
and the increase in the operating profit would be 15.5% (+18.6% in September),
within the guidance for 2004 (+15/+18%).
The negative results of associated companies recorded a year-on-year reduction
of 156.5 million euros to -56.1 million euros. This 73.6% improvement is mainly
due to: i) the deconsolidation of Via Digital (entry of Sogecable in July 2003),
ii) the sale of Audiovisual Sport, iii) the lower losses related to Medi
Telecom, IPSE-2000 and the Lycos Group following the sale of Lycos Inc last
October and iv) the increased participation in Portugal Telecom.
Total net financial costs at the end of December 2004 reached 1,183.8 million
euros, including a 10.6 million euros negative result coming from the Argentine
peso's depreciation. Excluding this effect, net financial costs stood at 1,173.2
million euros, experimenting a 19.8% decrease over the comparable net financial
costs of 2003 (1,462.6 million euros). In these results, neither the 134.4
million euros profit generated by the appreciation of the Argentine peso nor the
267.5 million euros profit coming from the cancellation of US dollars
denominated debt in 2003 were included. This fall in the net financial costs was
due to the decrease in the average net debt as well as the reduction of its
average cost as a result of the drop in interest rates in the euro and in the
Brazilian real.
The free cash flow generated by Telefonica Group during 2004 was 6,507.0 million
euros, of which 1,924.2 million euros were devoted to dividend payments by
Telefonica S.A., 5,534.5 million euros to financial investments (net of real
estate divestitures) and 697.2 million euros to cancellation of commitments
acquired by the Group, derived basically from the headcount reduction plan.
Thus, the free cash flow after dividend payments, which mainly explains the net
debt increase, was -1,648.9 million euros.
Net debt of Telefonica Group at the end of December 2004 stood at 20,982.2
million euros. The increase of 1,746.9 million euros with respect to the
consolidated debt at the end of 2003 (19,235.3 million euros) came mainly from
the aforementioned generation of free cash flow after financial investments and
dividend payments (-1,648.9 million euros). Likewise, there was a 321.4 million
euros increase in net debt due to changes in the consolidation perimeter and
other effects on the financial statements, although a big part of this increase
has been compensated by a reduction of 223.4 million euros in net debt, coming
from the currencies movement effects on the non-euro denominated debt.
Cumulative goodwill amortization at the end of December 2004 totaled 432.6
million euros, experimenting a 2.2% decrease over the previous year. This
performance is partly explained by the reduction in the cellular business
goodwill amortization (allocation of part of Telefonica Moviles Mexico goodwill
in the fourth quarter of 2003 as higher value of the operator's license) and
that of Terra as a result of the sale of Lycos Inc. However, the incorporation
in the fourth quarter of 2004 of two months' goodwill amortization coming from
BellSouth's Latin American operators acquisition and since July 2003 that of
Sogecable led to an increase in goodwill.
Extraordinary results as of December 2004 totaled -1,165.7 million euros,
compared with -1,249.7 million euros during the previous year. The main
extraordinary expenses accrued over the year were as follows: i) the accounting
of a 674.7 million euros provision related to the acceptance in 2004 of 2,417
employees coming from the 2003-2007 Redundancy Program, ii) anticipated
cancellation of Telefonica's UK goodwill for 101.5 million euros, iii)
restructuring of the Terra Group (-62.1 million euros), iv) personal
reorganizations in other subsidiaries within the Group for 211.4 million euros,
v) the impact of the -31.4 million euros of the Arbitration Award concluded in
relation to the claim presented by the Radio Blanca Group to Uniprex, which is
currently being appealed by the Antena 3TV Group under the Provincial Court and
vi) -30.6 million euros as a result of the agreement reached with Bidland
Systems Inc concerning certain complaints.
The tax provision for the year stood at 1,138.7 million euros, and will mean a
reduced cash outflow for the Group supposing that it will be compensated by
negative tax bases registered in previous years.
Results attributed to minority interests deducted 381.0 million euros from the
Group's net income at year end, compared with the -245.5 million euros of the
previous year. This year-on-year increase of 55.2% is explained by the
contribution of minority interests in the net income of Terra Networks compared
with the losses of the previous year and the higher stake in this company
compared to 2003.
As a result of this, the consolidated net income for the year amounted to
2,877.3 million euros, posting a year-on-year growth of 30.6%. In quarterly
terms, the net income of the fourth quarter is four times that obtained in the
same period of the previous year. Excluding the net effect of the 2003-2007
Redundancy Program for 2004, net income would reach 3,289.2 million euros, with
a year-on-year increase of 6.3%.
The Telefonica Group's CapEx during 2004 amounted to 3,771.9 million euros,
registering a 1.2% increase over the previous year. Assuming constant exchange
rates and excluding variations in the consolidation perimeter, this percentage
would drop to 0.6%. By business line, the cellular business (+24.6%) and
Telefonica Latinoamerica (+15.2%) recorded higher investments, due on one hand,
to the rollout of the UMTS network in Spain and GSM networks in Argentina and
Mexico, to the increase in network capacity in Brazil and to the incorporation
of BellSouth operators and, on the other hand, to the broadband efforts being
made in all countries. The remaining business lines have continued with the
downward trend of the previous year, as can be seen in the Telefonica de Espana
Group (-18.4%). The CapEx ratio as a percentage of revenues stood at 12.4% at
year end, compared with the 13.1% recorded in December 2003.
The average workforce of the Telefonica Group in 2004 was 156,819 employees,
experimenting an average net increase of 7,354 employees compared to the
previous year, mainly due to an increase in Atento Group workforce to deal with
increased activity. Excluding the Atento Group, there was a 6.8% year-on-year
decline in the workforce, mainly due to the layoffs carried out at Telefonica de
Espana (2003-2007 Redundancy Program) and at Telesp in 2003 and 2004.
TELEFONICA GROUP
Financial Data
TELEFONICA GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
Operating revenues 30,321.9 28,399.8 6.8
EBITDA 13,215.4 12,602.1 4.9
Operating profit 7,235.2 6,327.9 14.3
Income before taxes 4,397.0 3,362.5 30.8
Net income 2,877.3 2,203.6 30.6
Net income per share 0.581 0.442 31.3
Avg. No of shares (millions) (1) 4,955.9 4,984.6 (0.6)
(1) Weighted average number of shares in the period adjusted by free capital increases funded by reserves, that mean a
change in the number of shares that did not produce any variation of equity structure, as if they were done at the
beginning of the first period presented. That relates the two capital increases funded by a charge on freely disposable
reserves, recorded with the Mercantile Register on February 18, 2003 and on April 24, 2003. Moreover, the number of
shares in 2003 is affected by the capital reduction by amortization of treasury stock shares, from April 11, 2003, when
the AGM was held, and that was recorded with the Mercantile Register on June 10, 2003. Accordingly, there was an
average number of shares outstanding at the end of the period of 4,955,891,361.
TELEFONICA GROUP
RESULTS BY COMPANIES
Unaudited figures (Euros in millions)
REVENUES EBITDA OPERATING PROFIT
Dec 2004 Dec 2003 % Chg Dec 2004 Dec 2003 % Chg Dec 2004 Dec 2003 % Chg
Telefonica de Espana Group 10,955.8 10,695.4 2.4 5,054.5 4,762.4 6.1 2,680.5 2,123.6 26.2
Telefonica Latinoamerica 6,883.4 6,744.9 2.1 3,141.0 3,101.3 1.3 1,443.2 1,295.6 11.4
Group
Cellular Business 12,054.1 10,428.3 15.6 4,755.0 4,581.9 3.8 3,081.6 3,065.9 0.5
Directories Business 628.1 589.3 6.6 215.2 184.0 16.9 190.1 153.3 24.0
Terra Networks Group 539.2 545.1 (1.1) 20.9 (39.5) c.s. (58.6) (118.2) (50.4)
Atento Group 611.7 493.0 24.1 90.8 66.5 36.6 54.4 14.3 n.s.
Content & Media Business 1,219.1 1,378.5 (11.6) 182.6 210.3 (13.2) 152.1 160.4 (5.1)
Other companies 803.7 788.8 1.9 (169.1) (185.7) (8.9) (296.8) (330.1) (10.1)
Eliminations (3,373.3) (3,263.4) 3.4 (75.5) (79.3) (4.8) (11.2) (36.8) (69.5)
Group Total 30,321.9 28,399.8 6.8 13,215.4 12,602.1 4.9 7,235.2 6,327.9 14.3
TELEFONICA GROUP
CAPEX BY BUSINESS LINES
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
Telefonica de Espana Group 1,207.5 1,480.5 (18.4)
Telefonica Latinoamerica Group 753.3 654.1 15.2
Cellular Business 1,669.0 1,339.7 24.6
Directories Business 21.5 20.6 4.5
Terra Networks Group 25.4 80.4 (68.3)
Atento Group 22.8 12.9 76.5
Content & Media Business 24.3 139.0 (82.5)
Other companies & Eliminations 48.1 0.0 n.s.
Group Total 3,771.9 3,727.1 1.2
TELEFONICA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Operating revenues 30,321.9 28,399.8 6.8 8,395.4 7,566.7 11.0
Internal expend capitalized in fixed assets (1) 474.3 531.1 (10.7) 165.7 174.1 (4.8)
Operating expenses (17,539.1) (16,136.9) 8.7 (5,267.7) (4,442.7) 18.6
Supplies (7,525.7) (6,412.9) 17.4 (2,392.4) (1,842.0) 29.9
Personnel expenses (4,411.8) (4,641.3) (4.9) (1,149.1) (1,170.7) (1.8)
Subcontracts (5,082.5) (4,558.4) 11.5 (1,581.4) (1,285.4) 23.0
Taxes (519.2) (524.2) (1.0) (144.7) (144.7) 0.0
Other net operating income (expense) (41.7) (191.9) (78.3) 115.0 10.0 n.s.
EBITDA 13,215.4 12,602.1 4.9 3,408.4 3,308.0 3.0
Depreciation and amortization (5,980.2) (6,274.2) (4.7) (1,593.6) (1,571.5) 1.4
Operating profit 7,235.2 6,327.9 14.3 1,814.8 1,736.5 4.5
Profit from associated companies (56.1) (212.6) (73.6) (7.5) (51.2) (85.3)
Financial net income (expense) (1,183.8) (1,060.7) 11.6 (366.1) (310.1) 18.0
Amortization of goodwill (432.6) (442.5) (2.2) (112.0) (116.5) (3.8)
Extraordinary net income (expense) (1,165.7) (1,249.7) (6.7) (299.3) (1,197.3) (75.0)
Income before taxes 4,397.0 3,362.5 30.8 1,029.9 61.4 n.s.
Income taxes (1,138.7) (913.4) 24.7 (161.8) 204.7 c.s.
Net income before minority interests 3,258.3 2,449.1 33.0 868.0 266.2 n.s.
Minority interests (381.0) (245.5) 55.2 (107.9) (77.0) 40.1
Net income 2,877.3 2,203.6 30.6 760.2 189.2 n.s.
Average shares (millions) (2) 4,955.9 4,984.6 (0.6) 4,955.9 4,955.9 0.0
Net income per share 0.581 0.442 31.3 0.153 0.038 n.s.
(1) Including work in process.
(2) Weighted average number of shares in the period adjusted by free capital increases funded by reserves, that mean a
change in the number of shares that did not produce any variation of equity structure, as if they were done at the
beginning of the first period presented. That relates the two capital increases funded by a charge on freely
disposable reserves, recorded with the Mercantile Register on February 18, 2003 and on April 24, 2003. Moreover,
the number of shares in 2003 is affected by the capital reduction by amortization of treasury stock shares, from
April 11, 2003, when the AGM was held, and that was recorded with the Mercantile Register on June 10, 2003.
Accordingly, there was an average number of shares outstanding at the end of the period of 4,955,891,361.
TELEFONICA GROUP
CONSOLIDATED BALANCE SHEET
Unaudited figures (Euros in millions)
December
2004 2003 % Chg
Subscribed shares not paid-in 0.0 0.0 n.s.
Long-term assets 43,982.1 45,003.9 (2.3)
Start up expenses 409.2 543.6 (24.7)
Intangible net assets 8,430.0 7,673.2 9.9
Fixed net assets 23,348.1 24,315.8 (4.0)
Investment 11,794.8 12,471.4 (5.4)
Goodwill on consolidation 7,409.4 6,053.9 22.4
Deferred expenses 432.2 535.0 (19.2)
Current assets 11,642.6 10,482.4 11.1
Inventories 669.6 401.0 67.0
Accounts receivable 6,935.8 6,218.3 11.5
Short-term investments 2,288.4 3,199.6 (28.5)
Cash and banks 855.0 336.4 154.2
Others 893.8 327.1 173.3
Assets = Liabilities 63,466.3 62,075.2 2.2
Shareholder's equity 16,225.1 16,756.6 (3.2)
Minority interests 3,775.6 4,426.2 (14.7)
Badwill on consolidation 5.0 11.4 (56.5)
Deferred income 329.0 658.0 (50.0)
Provisions for risks and expenses 7,574.2 7,688.2 (1.5)
Long-term debt 15,147.9 17,693.8 (14.4)
Accrued taxes payable 855.8 801.6 6.8
Short-term debt including current maturities 9,413.4 5,587.1 68.5
Interest payable 370.8 376.5 (1.5)
Other creditors 9,769.5 8,075.8 21.0
Financial Data
Consolidated net debt (1) 20,982.2 19,235.3 9.1
Consolidated debt ratio (2) 49.8% 45.9% 3.8 p.p.
(1) Net debt: Long-term debt + Short-term debt including current maturities - Short-term and Long-term finantial
investments - Cash and banks.
(2) Debt ratio: Net debt / (Shareholders' equity + Minority interests + Deferred income + Accrued taxes payable + Net
debt).
TELEFONICA GROUP
FREE CASH FLOW AND CHANGE IN DEBT
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
I Cash flows from operations 12,635.1 11,974.8 5.5
II Extraord. payments related to operating activities and commitm. (956.6) (1,006.4)
III Net interest payment (1) (1,152.2) (1,496.9)
IV Payment for income tax (326.0) (277.7)
A=I+II+III+IV Net cash provided by operating activities 10,200.3 9,194.0 10.9
B Payment for investment in fixed and intangible assets (3,457.7) (3,458.7)
C=A+B Net free cash flow after CAPEX 6,742.6 5,735.3 17.6
D Cash received from sale of Real State 210.8 399.1
E Net payment for financial investment (5,745.3) (2,115.1)
F Dividends paid (2) (2,857.0) (1,474.5)
G=C+D+E+F Free cash flow after dividends (1,648.9) 2,544.9 (164.8)
H Effects of exchange rate changes on net debt (223.4) (859.4)
I Effects on net debt of changes in consolidation and others 321.4 106.4
J Net debt at beginning of period 19,235.3 22,533.1
K=J-G+H+I Net debt at end of period 20,982.2 19,235.3 9.1
(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.
TELEFONICA GROUP
RECONCILIATIONS OF CASH FLOW AND EBITDA MINUS CAPEX
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
EBITDA 13,215.4 12,602.1 4.9
- CAPEX accrued during the period (EoP exchange rate) (3,771.9) (3,727.1)
- Extraord. payments related to operating activities and comm. (956.6) (1,006.4)
- Net interest payment (1,152.2) (1,496.9)
- Payment for income tax (326.0) (277.7)
- Investment in working capital (266.1) (358.8)
= Net Free Cash Flow after Capex 6,742.6 5,735.3 17.6
+ Cash received from sale of Real Estate 210.8 399.1
- Net payment for financial investment (5,745.3) (2,115.1)
- Dividends paid (2,857.0) (1,474.5)
= Free Cash Flow after dividends (1,648.9) 2,544.9 c.s.
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-Dec Jan-Dec
2004 2003
Net Free Cash Flow after Capex 6,742.6 5,735.3
+ Payments related to cancellation of 697.2 818.3
commitments
- Dividend payments to minoritaries (1) (259.8) (241.2)
= Free Cash Flow 7,180.0 6,312.4
(1) 673.0 million euros corresponding to extraordinary dividends to minorities (mainly of Terra and CTC) are not
included in the ordinary dividend payment to minorities of 259.0 million euros.
TELEFONICA GROUP
NET FINANCIAL DEBT AND COMMITMENTS
Unaudited figures (Euros in millions)
December 2004
Long-term debt 15,147.9
Short term debt including current maturities 9,413.4
Cash and Banks (855.0)
Short and Long-term financial investments (1) (2,724.1)
A Net Financial Debt 20,982.2
Guarantees to IPSE 2000 483.9
Guarantees to Sogecable 80.0
Guarantees to Newcomm 44.8
B Commitments related to guarantees 608.7
Gross commitments related to workforce reduction (2) 5,170.3
Value of associated Long-term assets (3) (697.5)
Taxes receivable (4) (1,450.1)
C Net commitments related to workforce reduction 3,022.8
A + B + C Total Debt + Commitments 24,613.7
Net Financial Debt / EBITDA (5) 1.6x
Total Debt + Commitments/ EBITDA (5) 1.9x
(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, except 56.9 million euros related to the provision of pension fund liabilities of corporations
outside 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 twelve months rolling EBITDA, that is from December 2003 to December 2004.
TELEFONICA GROUP
EXCHANGES RATES APPLIED
P&L (1) Balance Sheet and CapEx (2)
Jan - Dec 2004 Jan - Dec 2003 % Chg Dec 2004 Dec 2003
US Dollar / Euro 1.242 1.129 1.362 1.263
Argentinean Peso / Euro 3.651 3.324 4.058 3.701
Chilean Peso / Euro 692.379 670.174 759.235 749.969
Brasilian Real / Euro 3.632 3.454 3.616 3.649
Peruvian Nuevo Sol / Euro 4.077 3.910 4.470 4.375
Mexican Peso / Euro 13.993 12.681 15.344 14.191
(1) These exchange rates are used to convert the P&L accounts of the Group foreign subsidiaries from local currency to
euros. P&L accounts for subsidiaries that use inflation adjusted accounting criteria (Mexico, Chile, Peru, Colombia
and Venezuela), are first converted to US dollars at the closing exchange rate, and then the conversion into euros
is made according to the average exchange rate.
(2) Exchange rates as of 31/12/04 and 31/12/03.
RESULTS BY BUSINESS LINES
Fixed Line Business
TELEFONICA DE ESPANA GROUP
At the end of 2004, Telefonica de Espana achieved growth in revenues of 2.4%,
placing it at the top end of the target set for the year (+0.5%/+2.5%), and a
growth in EBITDA of 6.1% to exceed the target established (+2.0%/+5.0%). These
good results support the transformation strategy the Company is committed to,
having as basic pillars the boost of innovative broadband services and
operational efficiency.
In relation with commercial initiatives, it should be highlighted the determined
push of Telefonica de Espana to launch Imagenio service as a key driver on
broadband strategy. The following items should be mentioned on this front:
• Contents: Incorporation of football matches to the contents of Imagenio
pay-per-view services following the agreement reach with Sogecable. Under
this agreement Imagenio is now offering all Spanish Professional Football
League and 'Copa del Rey' games on pay-per-view. The offer of these
'premium' contents continues the enrichment of the contents catalogue,
increasing the attractiveness of Imagenio service.
The thematic channels offer has also been improved, comprising now a total
of 36 channels after adding new ones such as EuroSport, Canal Real Madrid,
Bloomberg TV, Euronews, CNN International and Cartoon Network.
• Coverage: Imagenio's coverage has been extended to Basque Country (Pais
Vasco) and improved in the areas where the service is already being offered.
As such, by middle February, Imagenio is available at around 1.600.000
households.
• Services: New Imagenio Service modality without Internet connectivity
service for clients only interested in digital television or not having a PC
at home. This service is offered at a price of 19 euros per month.
Voice price plan offering a flat rate for local and provincial calls made to
ten preset numbers at a price of 8 euros per month; should national long
distance calls be also included in the voice package, the price rises to 13
euros per month. These voice packages together with Imagenio make up an
attractive triple-play offer.
• Promotions: Free installation and connection fee, as well as monthly fees
up to May, for new clients of Imagenio service and an additional bonus of a
free football match of the Spanish League or Copa del Rey.
Regarding other broadband services, and on completion of the process to double
the speed of the ADSL Service, Telefonica de Espana continued its strategy to
promote this technology through the launch of new commercial offers during the
last quarter of 2004, more particularly:
• 'Navidad ADSL' (Christmas ADSL) promotion from November the 20th, 2004 to
January the 7th, 2005, by which Telefonica de Espana offered for basic ADSL
Service free connection fee, USB modem and monthly fees up to January the
31st, 2005.
• The launch of 'Servicio Flexible ADSL Negocios' (Flexible ADSL Business
Service) taylor made for the business market segment and offering internet
access from Monday to Friday from 9:00 to 12:00 and from 18:00 to 21:00,
together with 12 extra hours a month during any time slot for 24.90 euros
per month. Additional minutes are billed at 2.99 euro cents, with a maximum
monthly bill of 42 euros. The new service Solucion ADSL E-gestion Negocio
(ADSL E-management Business Solution), also aimed at the business market
segment, together with ADSL access to provide management applications for
commercial processes based on ASP (Application Service Provider) technology.
Other notable commercial actions taken by the Company in the traditional
business include:
• 13.7% reduction in the price of the 'Combinado Pais' (access+traffic
modular plan) rate as of October the 28th, 2005, to 33.17 euros per month.
• December launch of the new Video-telephony service over conventional
lines. This new services enables real-time transmission and reception of
speakers' image by connecting a screen, with a built-in camera, to a basic
line at no extra cost to clients.
• Improvement of Voice Mailbox Service with the introduction of additional
features: information of incoming calls without message, that informs the
client on the telephone number of incoming calls that did not leave a
message in the voice mailbox; Immediate Call-back Service, allowing to make
a phone call to the telephone number leaving a message right after listening
to it.
• Additionally, a new portfolio of services for SME and Professional market
segment has been launched, of which we could highlight the following: free
PSTN line connection fee promotion for additional lines from November the
26th, 2004 to March the 31st, 2005; the new 'Professional Line' having a
Comprehensive and specifically tailored service for the market segment; and
the new 'Tarifa Plana Comercial' (Commercial Flat Rate), including unlimited
national calls within commercial hours for 19 euros per month, with a
promotional price of 9,90 euros per month up to June the 30th, 2005.
Insofar as Regulation is concerned, the approval of the 2005 Price-Cap formula
set al CPI-3%, must be highlighted. Modifications to rates in compliance with
this formula should be completed by July the 1st, 2005, when the CMT is expected
to have completed its analysis of the relevant markets, resulting in a new
regulatory price and service control framework in Spain.
Telefonica de Espana has been granted authorization to raise the PSTN monthly
fees by 2.0% to 13.43 euros as of January the 22nd, 2005, when said rise came
into force.
Telefonica de Espana Group operating revenues totaled 10,955.8 million euros
during the year, representing a 2.4% growth in comparison with 2003, the last
quarter remaining in line with the growth trend recorded in revenues over the
year: 1.7% in the quarter ending March 2004, 2.2% in the period from January to
June, and 2.3% in the nine months to September. Telefonica de Espana parent
company contributed revenues of 10,491.2 million euros to the Group, which
represented a year-on-year growth rate of 2.1% in 2004 after recording revenues
213.6 million euros above those of the period January-December 2003.
Particularly noteworthy when analyzing the contribution to the growth in
revenues of each of the businesses forming the Telefonica de Espana Parent
company is the good progress made by revenues from the Internet and Broadband
Services, which widely offset the 182.9 million euro decline in Traditional
Services revenues, with 290.5 million euros. The Data and Solutions Business and
the Wholesale Business contributed to growth by 13.0 and 93.1 million euros,
respectively. A more precise analysis of each business follows:
• Aggregate revenues from Traditional Services totalled 7,060.4 million
euros at the end of December, 2.5% down on those recorded during the
previous year. The positive progress recorded during the year must be
highlighted, the drop in revenues slowing down from 4.7% in the first
quarter to an aggregate 3.8% in June, 3.1% over the first nine months of the
year and up to 2.5% in 2004, due to a better performance during the fourth
quarter in which they dropped by 0.8%. The growth in revenues from Client
Network Access recorded as of the third quarter 2004, together with the
better performance of revenues from voice traffic over the last quarter,
have resulted in the evolution of revenues from Traditional Services during
the period October-December 2004.
Revenues from Client Network Access amounted to 2,969.4 million euros over
the year, which was 0.7% higher in comparison with the previous year. Along
these lines, the positive effect of the 4.35% rise in monthly fees for PSTN
lines by 0.55 euros in April 2004 and the surcharges on calls made to
toll-free numbers from public payphones as of the third quarter are worth
noting.
The estimated access market share at December 2004 stood at 88.2%, 0.8
percentage points lower than in the last quarter and 2.2 percentage points
down on December of the previous year. In absolute terms, 17,361 lines
(PSTN+ISDN basic access) were lost during the quarter, a considerable
improvement with regard to the last two quarters in which this value stood
at around 70,000 lines. Last September's free connection fee campaign
contributed significantly to this, as most of the lines became operational
during October. With regard to the year as a whole, the total number of
lines lost reached 185,936. It is also important to compare this amount with
the number of lines lost in 2002 and 2003 (492,793 and 334,299 respectively)
to evaluate the improved progress of this indicator.
Revenues from voice usage amounted to 3,281.8 million euros to December,
down by 2.5% from the same period of the previous year. This performance
must be considered positive, bearing in mind the relevant drop of 10.9%
recorded in the volume of minutes, and is a result of the changes made in
the second quarter to the Comprehensive Maintenance Service (SIM) and, in
general, in the optimisation policy for discounts and bonuses for the
service, focused more specifically on client segmentation. In this sense, it
is worth noting that the 1 euro discount applied to all SIM service clients
was eliminated as of January 1st, 2005, when the number of clients with the
service contracted amounted to 5.7 million.
As regards voice traffic, the estimated total volume of the market in Spain,
expressed in minutes, dropped by round 5% over 2004. Telefonica de Espana's
estimated market share of the voice market stood at 68.0%1 in December, 2.1
percentage points lower than in September and 4.4 percentage points lower
than December 2003.
------------------------
1 Change in criteria to adapt to data published by Spanish Regulator CMT
The estimated total volume of minutes processed by Telefonica de Espana
during 2004 amounted to 123,026 million, a 6.7% year-on-year drop. Total
outgoing traffic (including internet), which accounted for 55.9% of total
traffic, amounted to 68,787 million minutes and fell by 14.9% with regard to
the same period of the previous year. Traditional outgoing traffic totalled
47,334 million minutes at December end, down by 10.9% year on year due to
the negative performance of the market and the aforementioned loss in market
share. The negative trend in traffic continued over the year, with very
significant year on year falls in domestic fixed line-to-fixed line traffic:
local traffic was down by 13.7%, provincial traffic by 10.9% and DLD traffic
by 9.5%. There was also a 1.3% drop in fixed-to-mobile traffic during this
period. Only international traffic maintained a positive trend, with
year-on-year growth of 4.0%. The number of outgoing minutes to the internet
amounted to 21,435 million to December and continued to show a negative
interannual year-on-year variation of 22.5%, mainly as a result of switched
internet traffic cannibalisation by broadband ADSL services. Finally,
incoming traffic rose by 6.2% year on year to 54,239 million minutes.
Due to the introduction of verbal consent preselection procedure, the total
number of preselected lines has risen by 83,246 in the fourth quarter. The
total number of pre-selected lines over 2004 amounted to 100,435, a much
lower figure than the 500.950 registered in 2003. As such, the total number
of preselected lines at 2004 year end stands at 2,379,457.
In regard to Value-Added Services, Voice Mailbox and Caller ID services
should be noted. By the end of December 2004, the number of services
activated amounted to 11,901,202 and 7,500,542, with positive progress in
the year of 3.1% and 10.0%, respectively. As a result of the continued
increase in clients with handsets adapted to the Text Messaging service,
this service grew on the number of messages process by 217% year on year,
reaching a volume of processed messages that exceeded 50 million, of which
33 million were originated from the fixed network. The total number of
access + traffic modular plans 'Combinados' amounted to 1,140,639.
• Internet and Broadband Services recorded aggregate revenues of 1,139.5
million euros over the year, representing year-on-year growth of 34.2% and a
slight acceleration with regard to the previous quarters of 2004.
The broadband market experienced a remarkable acceleration during the last
quarter of 2004 following the intensive sales campaigns undertaken by the
different operators on the market. This greater commercial activity resulted
in the net gain of 440,000 new broadband lines in Spain during the fourth
quarter of 2004 with regard to the quarterly average net gain of 270,000
lines over the rest of 2004.
The net gain of ADSL retail and wholesale lines during the fourth quarter
amounted to 332,308, favored by this intensive market drive. Thus, the total
number of ADSL lines in service amounted to 2,490,113, during 2004, a 50.0%
increase. It should be noted this figures does not include unbundled lines
as ADSL connections. Telefonica de Espana retail ADSL lines also benefited
from the increased growth, recording a net gain of 168,099 to give an
aggregate total of 1,611,897 retail ADSL lines.
The unbundled loops by competitors of Telefonica de Espana in the fourth
quarter of the year were 20,745 as fully unbundled loops and 23,180 as
shared access loops; the total number of unbundled loops by the end of
December being 116,112, of which 78,445 were fully unbundled and 37,667 were
shared loops. The continued acceleration in the net gain of loops was
observed during the quarter, although for the first time the highest growth
corresponded to the shared access loop. Were all of the unbundled loops,
fully unbundled and shared, to have an ADSL connection, the total number of
ADSL accesses in Spain at the end of December 2004 would reach 2,606,225.
As a result of the greater commercial pressure of competitors, Telefonica
Group's market share stood at 55.5%, 2.6 percentage points down on the end
of the third quarter. With a clear aim to lead the broadband market,
Telefonica de Espana continues to present attractive new commercial offers,
such as the promotional ADSL + voice package that, for all new subscriptions
to the 24 hours ADSL Flat Rate service made between January the 26th 2005
and February 14th 2005, offers free local calls throughout 2005 and free
connection to the ADSL service, or the promotion starting February the 21st
2005 and ending March the 31st 2005 that provides monthly fee discounts up
to 25.7% for all 2005 year long.
The rich portfolio of value-added services is being well received among
Telefonica de Espana ADSL clients, as shown by the fact that 48.1% of these
clients have already signed up to at least one kind of value-added service.
Of the most successful services in terms of both greater acceptance and
revenues generated, 'Soluciones ADSL' (ADSL Solutions) reached 178.226
operative units, registering a 16.3% growth from September 2004. The
'Seguridad ADSL' (ADSL Security) service is another service with a strong
growth rate, reaching a total of 347.198 operative units. In regard to
Imagenio Service launched in Madrid, Barcelona and Alicante last year, the
total number of clients at December end stood at 6,024, of which over 85%
have internet access and over 63% have signed up for some kind of additional
subscriber service. It is important to note that the total number of
value-added services operative at year end 2004 exceeded one million to
reach 1,187,363.
The accelerated growth in the number of retail ADSL lines is reflected in
revenues, which grew by 65.7% year on year during the fourth quarter, in
comparison with the 58.5% growth rate recorded during the third quarter.
Hence, revenues from retail Broadband services recorded a year-on-year
growth of 60.0% to reach 891.0 million euros. Revenues associated to the
provision of value-added services on the retail ADSL service also showed
this trend, representing 9.8% of retail ADSL ARPU.
The strong demand for broadband services is resulting in a decline in
narrowband internet revenues due to the continued migration of clients from
narrowband internet access to broadband services with greater features. At
year-end 2004, revenues from Narrowband Internet fell by 14.9% to 248.5
million euros.
• The Data and Solutions Service business recorded an aggregate growth in
revenues of 1.4% over the year and totaled 941.6 million euros.
The planning and operating of virtual private networks represented 53.1% of
these revenues, although the migration to lower cost, IP-technology based
products, not completely offset by the growth in plant in service, resulted
in a year-on-year decrease of 1.7%.
The Solutions and Value-Added Services for Businesses segment continued to
grow within the Data and Solutions services and accounted for 26.5% of total
Data and Solutions revenues in 2004 compared with 24.1% during 2003 to
record a year-on-year growth of 11.6%. There are currently 175 agreements
for the management or outsourcing of services for large corporations, of
which 129 are client management centers operated by Telefonica, and there
has been a 29.7% increase in the number of hosting servers.
• Wholesale Business contributed to revenues with 1,349.8 million euros
during 2004, a 7.4% increase compared to 2003. The slower growth rate
compared with the period of January-September 2004, which stood at 9.0%, was
due to a double effect: the decrease of domestic incoming fixed-to-fixed
traffic during the fourth quarter of 2004, and the change in the mix of
international incoming traffic, loosing weight the traffic to mobile
networks, with a higher price per minute.
'Other National Operators Services' contributed notably to the increase in
Wholesale Business with a 18.3% growth in the quarter, thus reflecting the
impact of agreements signed with large domestic operators on non-regulated
price schemes for the carriage of transit traffic to mobile networks.
26.3% of wholesale revenues came from National Interconnection services,
which decreased by 0.3% year on year due basically to the 6.4% reduction in
fixed-to-fixed interconnection revenues that was not fully offset by the
15.2% growth in fixed-to-mobile interconnection revenues.
Telefonica de Espana Group's operating expenses experienced a year-on-year
reduction of 0.5% to 6,019.0 million euros (0.7% on the aggregate to September)
having remained unchanged during the fourth quarter of 2004 with regard to the
same quarter in 2003. The 9.3% reduction in personnel expenses in comparison
with the same period of the previous year must be noted, which amounted to a
total of 2,083.6 million euros. This annual reduction is a result of the
2003-2007 Redundancy Program, although during the fourth year of 2004 personnel
expenses dropped by 6.1%, given that the first redundancies associated to the
program occurred during the last quarter of 2003 and, as such, this quarter
included part of the impact of the Redundancy Program of personnel expenses. The
Telefonica de Espana parent company headcount reached 35,045 employees at the
end of December 2004, representing a reduction of 2,014 employees over the year.
In 2004 a total of 2,417 employees have joined the Redundancy Program (E.R.E.
2003-2007).
Contrary to personnel expenses evolution, the Company's increased commercial
activities aimed at revenue growth led to a 13.5% rise in External Services &
Others which totaled 1,179.9 million euros.
Supplies expenses, amounting to 2,571.3 million euros, grew by 1.7 % despite the
5.2% decrease in interconnection expenses following the reductions in
fixed-to-mobile interconnection tariffs that came into effect in November 2003
and October 2004. The increase in expenses at Telyco linked to the handset sale
business had a decisive impact on the evolution of supplies expenses at
Telefonica de Espana Group; without them, the Group's supplies expenses growth
would have fallen by 2.5 percentage points.
Telefonica de Espana Group EBITDA amounted to 5,054.5 million euros, up 6.1%
year on year. The Group's EBITDA margin was 46.1%, 1.6 percentage points higher
than in the same quarter of the previous year. During the last quarter of 2004,
EBITDA growth stood at 4.8% compared with the 6.6% growth of the
January-September period, due to the slower decrease in costs over the last
three months of 2004. Telefonica de Espana Parent company EBITDA amounted to
5,027.3 million euros (+6.2 % on the previous year).
Telefonica de Espana Group's operating profit amounted to 2,680.5 million euros
at the end of 2004, +26.2% over the previous year as a result of the positive
evolution of EBITDA and the 10.0% decrease in amortization and depreciation.
CapEx accumulated to December end by Telefonica de Espana Group dropped by 18.4%
to 1,207.6 million euros to reach a CapEx over Revenues ratio of 11.0%.
Operating free cash flow, defined as EBITDA minus CapEx minus early retirement
payments, amounted to 2,968.3 million euros in the January-December 2004 period,
up by 21.0% on the same period of 2003 to exceed the growth target (+13%/+16%).
TELEFONICA DE ESPANA
SELECTED OPERATING DATA
Unaudited figures (Thousands)
December
2004 2003 % Chg
Equivalent lines (1) 19,835.3 19,100.4 3.8
PSTN Lines 14,838.2 15,061.0 (1.5)
ISDN equivalent basic access 1,863.8 1,827.0 2.0
ISDN equivalent primary accesses y 2/6 equivalent accesses 564.7 535.7 5.4
Fully unbundled local loops 78.4 16.3 n.s.
ADSL connections 2,490.1 1,660.5 50.0
Telefonica de Espana retail ADSL 1,611.9 1,070.3 50.6
Traffic (minutes in millions) (2) 123,026.0 131,897.0 (6.7)
Employees (units) 35,045 37,059 (5.4)
(1) Equivalent lines: PSTN (including Public Use Telephony) (x 1); ISDN Basic accesses (x 2); ISDN Primary access (x
30); 2/6 Accesses (x 30); ADSL Lines (x1).
(2) January - December cumulative data.
TELEFONICA DE ESPANA PARENT COMPANY
OPERATING REVENUES
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Traditional Services 7,060.4 7,243.3 (2.5) 1,774.8 1,789.6 (0.8)
Client network access (1) 2,969.4 2,950.0 0.7 743.9 726.0 2.5
Voice usage (Net total) (2) 3,281.8 3,366.1 (2.5) 844.8 827.1 2.2
Local 778.2 816.9 (4.7) 202.5 213.9 (5.3)
Provincial 252.0 259.5 (2.9) 65.4 64.3 1.7
Domestic long distance 441.7 461.6 (4.3) 114.7 119.7 (4.2)
International long distance 295.4 243.9 21.1 86.8 53.7 61.8
Fixed to mobile 1,207.4 1,257.9 (4.0) 303.7 312.2 (2.7)
IRIS and others (3) 307.2 326.3 (5.9) 71.8 63.3 13.5
Handsets sales and maintenance 586.4 706.0 (16.9) 130.2 182.7 (28.7)
Other business lines (4) 222.8 221.1 0.7 55.9 53.9 3.7
Internet and Broadband Services 1,139.5 849.0 34.2 323.2 238.3 35.6
Narrowband 248.5 291.9 (14.9) 53.4 75.5 (29.3)
Broadband (retail) 891.0 557.1 60.0 269.8 162.8 65.7
Data and Solutions Services 941.6 928.6 1.4 249.1 248.9 0.1
Corporate networks (5) 692.4 705.4 (1.8) 180.8 178.3 1.4
Solutions 249.2 223.3 11.6 68.2 70.6 (3.4)
Wholesale Services 1,349.8 1,256.7 7.4 352.3 341.9 3.0
National interconnection 355.4 356.6 (0.3) 86.3 96.2 (10.3)
Wholesale ADSL (Megabase, Megavia and GigADSL) 234.7 166.1 41.3 65.8 51.1 28.7
International operators services 287.4 309.3 (7.1) 59.6 75.6 (21.2)
Other national operators services (6) 472.3 424.7 11.2 140.7 118.9 18.3
Total operating revenues 10,491.2 10,277.6 2.1 2,699.3 2,618.7 3.1
Note: Starting first quarter 2004, Telefonica Data Espana and Telefonica Soluciones results will be incorporated within
Telefonica de Espana Group. 2003 figures are proforma for the benefit of comparison.
(1) Revenues derived from monthly and connection fees (PSTN, Public Use Telephony, ISDN and Corporate Services), public
telephone booths and network services.
(2) Voice usage net of discounts, foreign participation (international long distance) and payments to Intelligent
Network providers.
(3) Services included: Intelligent Network services, Special Valued Services and others.
(4) Special Projects, Services agency and others. (Broadcasting included).
(5) Included leased circuits, VPN and delicated internet access.
(6) Services included: Commercial wholesale services (access, carrier and maintenance), wholesale leased circuits,
other IP services and ULL.
TELEFONICA DE ESPANA PARENT COMPANY
OPERATING REVENUES - PROFORMA 2003
Unaudited figures (Euros in millions)
2003
Jan - Mar Jan - Jun Jan - Sep Jan - Dec
Traditional Services 1,816.2 3,664.3 5,453.6 7,243.3
Client network access (1) 737.8 1,489.6 2,224.0 2,950.0
Voice usage (Net total) (2) 849.6 1,709.2 2,539.0 3,366.1
Local 213.6 420.2 603.0 816.9
Provincial 66.6 132.5 195.2 259.5
Domestic long distance 116.8 232.8 341.9 461.6
International long distance 58.5 122.5 190.2 243.9
Fixed to mobile 305.9 623.5 945.7 1,257.9
IRIS and others (3) 88.3 177.9 263.1 326.3
Handsets sales and maintenance 174.8 353.7 523.4 706.0
Other business lines (4) 54.1 111.8 167.2 221.1
Internet and Broadband Services 191.0 399.0 610.6 849.0
Narrowband 79.9 149.6 216.4 291.9
Broadband (retail) 111.1 249.4 394.3 557.1
Data and Solutions Services 215.3 443.0 679.8 928.6
Corporate networks (5) 168.8 345.1 527.1 705.4
Solutions 46.4 97.9 152.7 223.3
Wholesale Services 287.7 600.1 914.8 1,256.7
National interconnection 83.5 175.3 260.4 356.6
Wholesale ADSL (Megabase, Megavia & GigADSL) 35.7 74.8 115.0 166.1
International operators services 71.9 148.1 233.6 309.3
Other national operators services (6) 96.5 201.9 305.8 424.7
Total operating revenues 2,510.1 5,106.3 7,658.9 10,277.6
Note: Starting first quarter 2004, Telefonica Data Espana and Telefonica Soluciones results will be incorporated within
Telefonica de Espana Group. 2003 figures are proforma for the benefit of comparison.
(1) Revenues derived from monthly and connection fees (PSTN, Public Use Telephony, ISDN and Corporate Services), public
telephone booths and network services.
(2) Voice usage net of discounts, foreign participation (international long distance) and payments to Intelligent
Network providers.
(3) Services included: Intelligent Network services, Special Valued Services and others.
(4) Special Projects, Services agency and others. (Broadcasting included).
(5) Included leased circuits, VPN and delicated internet access.
(6) Services included: Commercial wholesale services (access, carrier and maintenance), wholesale leased circuits,
other IP services and ULL.
TELEFONICA DE ESPANA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Operating revenues 10,955.8 10,695.4 2.4 2,822.4 2,748.7 2.7
Internal expend capitalized in fixed assets (1) 144.3 174.6 (17.4) 47.0 53.8 (12.6)
Operating expenses (6,019.0) (6,048.7) (0.5) (1,542.5) (1,542.1) 0.0
Other net operating income (expense) (26.5) (58.9) (55.0) (8.6) (2.3) n.s.
EBITDA 5,054.5 4,762.4 6.1 1,318.3 1,258.0 4.8
Depreciation and amortization (2,374.0) (2,638.8) (10.0) (570.3) (646.0) (11.7)
Operating profit 2,680.5 2,123.6 26.2 748.0 612.0 22.2
Profit from associated companies (1.0) (0.9) 12.5 (0.2) (0.1) 54.9
Financial net income (expense) (374.0) (447.5) (16.4) (86.4) (107.4) (19.6)
Amortization of goodwill (3.2) (2.8) 14.0 (0.7) (3.1) (75.7)
Extraordinary net income (expense) (718.1) (1,374.1) (47.7) (65.3) (1,395.6) (95.3)
Income before taxes 1,584.1 298.2 n.s. 595.3 (894.2) c.s.
Income taxes (471.9) (18.1) n.s. (176.6) 322.4 c.s.
Net income before minority interests 1,112.2 280.1 n.s. 418.7 (571.8) c.s.
Minority interests (0.2) (0.0) n.s. (0.0) (0.0) n.s.
Net income 1,112.1 280.1 n.s. 418.7 (571.8) c.s.
Note: Starting first quarter 2004, Telefonica Data Espana and Telefonica Soluciones results will be incorporated
within Telefonica de Espana Group. 2003 figures are proforma for the benefit of comparison.
(1) Including work in process.
TELEFONICA DE ESPANA GROUP
CONSOLIDATED INCOME STATEMENT - PROFORMA 2003
Unaudited figures (Euros in millions)
2003
Jan - Mar Jan - Jun Jan - Sep Jan - Dec
Operating revenues 2,590.0 5,282.9 7,946.7 10,695.4
Internal expend capitalized in fixed assets (1) 41.2 83.8 120.8 174.6
Operating expenses (1,460.6) (2,983.7) (4,506.6) (6,048.7)
Other net operating income (expense) (12.5) (40.1) (56.6) (58.9)
EBITDA 1,158.2 2,343.0 3,504.4 4,762.4
Depreciation and amortization (675.7) (1,337.1) (1,992.8) (2,638.8)
Operating profit 482.5 1,005.9 1,511.6 2,123.6
Profit from associated companies (0.4) (0.6) (0.7) (0.9)
Financial net income (expense) (117.1) (228.4) (340.1) (447.5)
Amortization of goodwill (0.7) 0.2 0.2 (2.8)
Extraordinary net income (expense) (3.0) 18.7 21.5 (1,374.1)
Income before taxes 361.3 795.8 1,192.5 298.2
Income taxes (104.4) (226.4) (340.5) (18.1)
Net income before minority interests 257.0 569.4 852.0 280.1
Minority interests (0.0) (0.1) (0.0) (0.0)
Net income 256.9 569.4 851.9 280.1
Note: The incorporation of the assets corresponding to Telefonica Empresas into Telefonica de Espana Group in 2004,
implies the presentation of Telefonica de Espana Group proforma financial statements for fiscal year 2003, under the
same criteria, for the benefit of comparisons. In February 27th, 2004, the company notified the main metrics of these
proforma financial statements for fiscal year 2003 under the new consolidation perimeter. The final definition of the
assets to be incorporated to Telefonica de Espana Group makes these metrics to vary slightly with respect to the ones
previously presented (-4.4 million euros in revenues and -10.4 million euros in EBITDA), a change that does not imply
modifications in neither Telefonica de Espana Group nor Telefonica Group published accounts in the above mentioned
fiscal year.
(1) Including work in process.
RESULTS BY BUSINESS LINES
Fixed Line Business
TELEFONICA LATINOAMERICA GROUP
In 2004, Telefonica Latinoamerica showed a very solid performance, experimenting
growths of 7.5% and 6.8% respectively in both operating revenues and EBITDA in
constant currency, in line with the expected 2004 guidance for these two
indicators (+6/+9% growth in both cases). In current euros, both operating
revenues and EBITDA at Telefonica Latinoamerica, also recorded positive
cumulative growth, as a result of a stable currency evolution. In the last
quarter of the year, almost all Latin American currencies appreciated against
the dollar. Likewise, the average dollar/euro exchange rate remained almost
unchanged through this fourth quarter. However, on a year-on-year basis, Latin
American currencies recorded significant levels of depreciation against the
euro, which had a negative impact on the year-on-year variation in both
operating revenues and EBITDA, reducing growth by 5.4 percentage points and 5.5
percentage points, respectively.
Operating revenues amounted to 6,883.4 million euros, registering a year on year
growth of 2.1% (+7.5% in constant euros), slightly slowing down the growth seen
in previous quarters. The evolution of total revenues in constant euros reflects
the behavior of revenues at:
• Telesp (+14.6% in local currency), as a result of the positive progress
made by the traditional business (+13.6%), helped by the good performance of
the new businesses (SMP, long distance outside Sao Paulo, etc.), the
successive tariffs increases (+6.89% for the local telephony basket and 3.2%
for domestic long distance calls in July, corresponding to 2004, +4.1% in
September and +3.9% in November, the latter two corresponding to 2003 due to
the difference between the increase granted in 2003 and the IGP-DI), the
increase in fixed-to-mobile traffic and the good performance of value-added
services.
• TASA (+10.6% in local currency), primarily due to the good performance of
the plant and traffic operating variables in comparison with 2003, despite
the tariff freeze in force since January 2002, which made it possible to
achieve growth of 8.7% in local currency in revenues from traditional
services.
• CTC recorded a fall in revenues of 6.2% in local currency, with a slow
down in the decreasing rate recorded at September 2004 (-6.8%) due to the
positive impact of the new Tariff Decree 2004-2009, following the new
version published in September and the launch of minute plans in June.
However, a downside review of termination tariffs on mobile networks (CPP),
the cannibalization of mobile telephone and the poor performance of the
domestic long-distance market explain the year-on-year drop in revenues.
• TdP registered a 1.1% fall in revenues in local currency. The good
performance of the Internet business (Narrowband + Broadband), which grew by
57.9%, was unable to offset the drop in Traditional business (-3.8%) caused
by both the lower local traffic and the impact of the decrease in average
tariffs related to the new tariff scheme.
• Telefonica Empresas America and TIWS continued with the positive trend of
previous quarters and ended the year with a revenue growth of 11.2% and
21.2%, respectively, in constant euros.
The total operating expenses of Telefonica Latinoamerica stood at 3,843.2
million euros at year end 2004, 2.1% higher than in 2003 in current euros. In
constant euros, expenses continued to slow down, recording a 7.4% increase
compared to the 7.9% figure registered in the nine months of 2004. This
slow-down is explained by the smaller growth in expenses in local currency at
Telesp and to the expenses reduction at TdP and TIWS, which offset the slowing
down in the decreasing costs at CTC and the increase in costs at TASA, due to
greater commercial activity. However, this year-on-year growth in expenses in
constant euros reflects the higher interconnection costs and other supply
expenses, mainly coming from Telesp and TASA, which are related to increased
activity and traffic mostly with mobile operators. The increase in the Group's
expenses excluding interconnection costs would be limited to 5.8%.
EBITDA at the end of 2004 stood at 3,141.0 million euros, showing a growth of
1.3% in current euros (+6.8% in constant euros). EBITDA margin reached 45.6%,
slightly better than the figure as of September 2004. The decrease in
depreciation and amortization expense (-1.4% in constant euros) made it possible
to achieve an operating profit of 1,443.2 million euros, representing an
improvement of 18.1% in constant euros.
At December 2004, Telefonica Latinoamerica recorded an extraordinary net income
of 363.1 million euros, compared with the negative 128.1 million euros
registered in December 2003. The sale of Telefonica Moviles Chile (until then a
100% subsidiary of CTC) to Telefonica Moviles last July had a determining
impact, contributing with an extraordinary net income of 425.5 million euros.
The financial results stood at -315.3 million euros , compared with the previous
year's -228.6 million euros. Excluding the impact of the exchange rate
differences, which in 2003 had a great positive impact due to exchange gains
recorded by Argentine companies (around 113 million euros) and the profit
recorded in 2003 as a result of the cancellation of the debt denominated in
dollars (around 250 million euros), Telefonica Latinoamerica net financial
results were down 57% as a result of the lower interest expenses connected with
the lower debt and interest rates.
These results, together with a tax provision of 264.0 million euros, allowed
Telefonica Latinoamerica to record a net income of 806.6 million euros, with a
year-on-year increase of 44.4%.
In 2004, Telefonica Latinoamerica's CapEx amounted to 753.3 million euros,
posting an increase of 15.2% (+16.9% in constant euros), primarily due to
greater investment in ADSL. At December 2004, the CapEx/Revenues ratio stood
close to 11%. The good performance of EBITDA enabled the company to achieve an
operating free cash flow (EBITDA-CapEx) of 2,387.7 million euros, showing a
decrease of 2.4% in current euros (+4.1% in constant euros).
Telefonica Latinoamerica's plant of equivalent lines totaled 22.8 million, which
was 5.4% more than at the end of 2003, thanks to the efforts made in the
broadband business, which are reflected in the strong growth of the ADSL plant
with 651,779 new clients since the beginning of the year, increasing by 84.7%
compared to the previous year and reaching a total number of Telefonica
Latinoamerica broadband connections of 1.4 million. It must be highlighted that
broadband connections now represent 6.2% of total equivalent lines, compared
with 3.6% in December 2003.
Furthermore, traditional business lines showed in 2004 an increase of 2.5%,
reaching a total of 21.4 million fixed telephony lines, helped by the general
growth experienced in all Group operators, in particular at TdP (+9.5%), as a
result of the new tariff plans, and TASA (+3.8%), whose plant reached its
historic maximum due to both the sound performance of demand in 2004 and the
higher commercial efforts. There was a net gain of 522,778 lines in 2004, with
the biggest contribution being made by TdP and Telesp, with a net gain of
186,765 and 165,816 lines, respectively.
TELESP
2004 was a year of intense commercial efforts for Brazil aiming at consolidating
the growth of broadband and the new products adapted to all segments of the
population. The economic environment was favorable, with stable exchange rates
throughout the year and a substantial increase in tariffs. Apart from the 6.89%
average increase in tariffs in July for the local telephony basket and 3.2% for
domestic long distance calls, a second adjustment was established by ANATEL,
according to the judgment handed down by the Higher Court of Justice that ruled
in favor of allowing fixed line telephony operators to raise tariffs in
compensation for the difference between the previous year's increase and the
result of applying 2003's IGP-ID as the reference index (wholesale price index),
to be made in two stages and not retroactive. The first (+4.1%) was executed in
September and the second (+3.9%) in November.
At the end of 2004, the equivalent lines in service (traditional business +
ADSL) at Telesp amounted to 13.3 million (+4.0% higher than in December 2003),
due to the strong increase recorded in the ADSL plant (+70.6%) and the growth of
traditional lines. For the second consecutive quarter, Telesp recorded a net
gain of 103,589 traditional lines, obtaining a net gain of 241,959 lines in this
second half of the year and reversing the trend of traditional plant loss
experienced during the first half of the year (-76,143 lines). The strong
competence of the cellular business makes difficult to keep on growing the
subscriber base. This change in trend was helped by the successful launch of new
products in July targeting low income clients (economic and super-economic
lines), which have enabled Telesp to increase subscriptions compared to December
2003 and to place its traditional plant at 12.5 million lines, posting a
year-on-year growth of 1.3% despite the impact registered by the ARPU due to the
lower usage of those lines.
Telesp continued to pursue its policy of giving fixed lines greater value
through a higher volume of Value Added Services and broadband expansion. In this
last quarter it achieved a new record net gain of 110,800 ADSL connections,
bringing the total ADSL plant up to 826,400 at the end of the year (70.6% higher
than in December 2003). The growth in Telefonica's ISP (itelefonica) users also
continued, reaching a total of 2.1 million with an estimated market share of
around 24%.
Telesp was able to consolidate its position in the long distance market during
2004. Thanks to the launch of several commercial initiatives, the company was
able to partly compensate the negative market evolution, mostly due to the
cannibalization of the cellular business. Hence, Telesp increased its market
share in all traffic segments. Its market share in the domestic intra-state
long-distance market stood at 88.5% (slightly up on December 2003). In
inter-state long-distance, its market share rose to 58% (+7 percentage points),
while the international long-distance market share increased almost by 12
percentage points compared to December 2003, up to 51%.
At the end of the year, Telesp obtained operating revenues of 3,707.9 million
euros, which represents an increase of 14.6% compared to 2003 in local currency,
thanks to the increase in tariffs, the good performance of new businesses (SMP,
long distance outside Sao Paulo, etc.), the sound progress of value-added
services and the increase in fixed-to-mobile traffic and public telephone
traffic, leading to a 13.6% growth in traditional business revenues in local
currency. In addition to this, there was a notable increase in broadband
revenues (+61.4% in local currency) due to the growth in the customer base,
leading to a 31.6% increase in internet revenues (broadband+narrowband) in local
currency, contributing with 6.4% of the operator's total operating revenues.
Although operating costs were 18.3% higher in local currency than in 2003, the
slowing trend shown in previous quarters remained (1.7 percentage points lower
than September 2004). Among the items which grew the most, it must be
highlighted interconnection expenses (+23.9% in local currency) related to the
increased fixed-to-mobile, SMP and long distance traffic revenues. It is also
worth noting the increase in subcontracting services (up 20.4% in local
currency), due to an increase in commercial activity, higher co-billing expenses
and the indexing of certain contracts. However, personnel expenses were 7.7%
lower in local currency, as a result of the reduction in the average workforce
due to the lay-offs that took place in 2003 and in the second quarter of 2004.
Bad debt provision as a percentage of revenues continued to drop in December to
3.1% (0.8 percentage points down on the previous year), mainly due to new more
closely adapted products for different client profiles.
Telesp's EBITDA stood at 1,698.2 million euros, with a year-on-year increase of
7.4% in local currency. EBITDA margin continued its progression compared to
previous quarters, reaching 45.8% (0.5 percentage points up on September 2004).
There was a 3.1 percentage point drop in comparison with the previous year, due
to the higher proportion of revenues accounted for by new businesses with higher
associated interconnection expenses (fixed-to-mobile, long distance outside Sao
Paulo, SMP).
Telesp's very strict policy of CapEx control continued for the entire year, with
priority being given to strategic investments, particularly broadband. At year
end, CapEx stood at 370.2 million euros, 0.4% down in local currency compared to
the previous year. The CapEx/Revenues ratio totaled almost 10% at the end of the
year, while the operating free cash flow (EBITDA-CapEx) generated amounted to
1,328 million euros, showing an increase of 9.8% year on year in local currency.
Telesp had 7,125 employees as of year end, almost the same as in 2003, reaching
a productivity ratio of 1,865 lines per employee (up 4.1% on the previous year).
TELEFONICA DE ARGENTINA
The stability of the macroeconomic situation in Argentina was consolidated
during 2004. The sustained growth of the GDP (+8.2%) and the stability of the
peso against the dollar, with a slight 1.7% depreciation over the year, should
be noted. In line with the economic improvement, the Telecommunications sector
continued to grow thanks to the gradual recovery of the fixed line telephony
market, the accelerated rollout of broadband and the strong growth of the
cellular market. In this context, the management of Telefonica de Argentina
continued in keeping with the recovery of the market, leading to a significant
increase on revenues obtained in 2003.
During 2004, no news concerning tariffs has been announced, continuing with the
tariff freeze. The accumulated inflation effect over operating expenses and
Capex is starting to generate management tensions, as revenues are decreasing
due to a reduction in both traffic and plant volumes, as a result of the
cellular business expansion.
The plant of traditional lines recorded a growth of 3.8% in 2004, once again
accelerating the growth rate registered during the previous quarter (+3.6%) and
reaching 4.3 million lines, its maximum historic value, thanks to the demand
recovery (36.6% year-on-year increase in subscriptions). The net gain recorded
during the year amounted to 159,612 lines (compared with the loss of 12,494 in
2003), of which an increasing proportion were prepaid and consumption control
(27.7% of the total plant, 1.4 percentage points up on 2003). In addition to the
plant increase, total traffic per line grew significantly during 2004 (+7.2%),
mainly driven by prepaid traffic, both in cards and prepaid lines. There was
also a substantial increase in the ADSL plant (+172.4%), which stood at 188,840
lines and provided a net gain for the whole year of almost 120,000 lines. The
commercial efforts related to the accelerated rollout of ADSL has enabled the
company to increase its estimated broadband market share in the southern area by
12.3 percentage points to 80.7%. The ratio of lines to employee stood at 558
lines, representing an increase of 5.5% over 2003.
Thanks to the good performance of the operating variables with respect to 2003,
TASA operating revenues accelerated its growth rate in 2004 and recorded an
increase of 10.6% in local currency up to 810.5 million euros, despite the
tariff freeze in place since January 2002. When comparing the figures for 2004
with those of the previous year, is important to remember that it was in the
second quarter of 2003 that the impact of agreements with operators for mutual
invoicing applying CER (inflation indexing of wholesale offerings) was recorded
for the whole of 2002. Excluding this effect, TASA's revenues rose by 12.5% in
local currency. Broken down by business lines, revenues from traditional
services (accounting for 92.8% of the total) rose 8.7% in local currency due to
the growth in traffic and plant, while revenues from the Internet (Narrowband +
Broadband) business rose 41.5% in local currency thanks to the ADSL plant
expansion, which offset the decrease in the narrowband business.
The strong growth rate of revenues is coupled with a 9.7% increase in operating
expenses in local currency, despite the fact that TASA continued to apply a
strict policy for cost rationalization and control adopted as a result of the
crisis in 2002. Of particular note over the year was the effective management of
bad debts, with increased use of prepaid and consumption control products, which
has made it possible to maximize debt recovery and place bad debt provision as a
percentage of revenues below 1%.
Cost control, together with the increased sales, enabled TASA to achieve EBITDA
of 484.7 million euros in 2004, showing an increase in local currency of 11.2%
over 2003. In homogenous terms (excluding the impact on 2003 revenues of CER
invoicing related to 2002), EBITDA experienced a year-on-year growth rate of
13.7%. The EBITDA margin was 0.4 percentage points higher than in 2003, at
59.8%.
The good performance of EBITDA enabled the company to achieve an operating free
cash flow (EBITDA-CapEx) of 388.3 million euros, 3.3% less in local currency
than in 2003, due to the sharp increase in investment (+135.5% in local
currency), in line with the recovery of the business. This investment, totaling
96.4 million euros, was primarily focused on massive ADSL rollout, which
accounted for 39.3% of CapEx. The CapEx to revenues ratio stood at 13.2% in
local currency.
TELEFONICA CTC CHILE
On September 21st, the Chilean General Controller, published a review of the
2004-2009 Tariff Decree in which most of the suggestions made by CTC were
accepted. This review has meant an increase in tariffs with regard to the
version of the Decree published in May this year. Given that the final version
is yet to be approved and these conditions to be applied to the market, since
early May CTC's accounts have included the impact of the initial Decree and in
September the effects of the new version of the Decree were recorded, which were
also retroactive to May. However, the Tariff Decree was finally published in the
Official Bulletin on February 11th 2005, hence the company will begin the
resettlement process for its clients within the terms established by law. This
process is not thought to have a significant impact on company revenues.
The traditional plant improved significantly compared to the previous quarter,
recording a net gain of 29,227 lines (compared with the 733 lines obtained in
the third quarter and the loss of 19,375 lines in the first half of the year).
CTC therefore closed the year with a net gain of 10,585 lines, compared with the
loss recorded during the previous year. This improvement was mostly due to
launch of new services in July: the minute plans (which at year end totaled
167,555 clients including high consumption) and the Controlled Line (low
consumption plan, with 34,516 lines in 2004). The traditional plant line totaled
2,427,364 lines at the end of December 2004 (+0.4% over 2003).
Growth in broadband clients over the year amounted to 60.3% up to 200,794,
driven by September's launch of the 2V (double broadband speed without an
increase in prices for clients) and by the package offers with minute plans.
Although the domestic long distance market continued to decline (down 9.2% year
on year), as observed in previous quarters, CTC succeeded in increasing its
market share by 3.7 percentage points, reaching a market share of 45.3%. CTC's
share of the international long distance market stood at 29.4% at year end (+0.3
percentage points compared to 2003).
Operating revenues in 2004 totaled 932.9 million euros, registering a 6.2%
decrease in local currency compared to 2003 (-6.8% as of September; -9.4% in the
first half of 2004), continued in the last quarter with the improvement seen
throughout the year (excluding the effect of the CPP tariff reduction, the
decrease would be only 2.6%). This progress was possible due to the better
performance of traditional business revenues, which continued to reduce their
drop in local currency quarter by quarter, as a result of the increased plant,
the successful acceptance of minute plans and the new tariff situation following
the last review. Furthermore, Internet (Narrowband + Broadband) revenues
maintained a high growth rate (+45.1% in local currency), accounting for 5.9% of
CTC operating revenues.
Operating expenses remained at levels below those of 2003 (-8.0% in local
currency), as a result of the strict cost control policy and of the lower
fixed-to-mobile tariffs, causing a 22.5% reduction in interconnection expenses
in local currency. Expenses related to commercial management, one of the
priorities of the company, are practically the ones to have increased the most
over the year, as a result of the advertising campaigns used to launch and
position new products. The ratio of bad debts to revenues stood at 4.1%,
slightly above the figure registered in 2003, due to certain extraordinary
provisions accounted for in the last quarter of the year. As a result, EBITDA
for the year stood at 417.8 million euros, posting a 3.6% decrease in local
currency compared to 2003. The level of investments at the end of December
placed CapEx at 80.8 million euros, climbing 1.4% over 2003, due to greater
investments in Broadband (32.3% of total CapEx), which rised 2.7 percentage
points over 2003. The CapEx to revenues ratio totaled 9.4%. The operating free
cash flow (EBITDA-CapEx) generated totaled 337.1 million euros, experiencing a
4.9% decrease in local currency compared to 2003, due to both lower EBITDA and
increased investments.
TELEFONICA DEL PERU
Telefonica del Peru experienced a significant growth in the plant of equivalent
lines during 2004 (+14.6% year on year, 0.5 percentage points higher than in the
previous quarter), as a result of the 9.5% increase in traditional lines
(largely due to the marketing of new tariff plans since March 2003), as well as
the growth in broadband connections (+126.5%) which, with an aggregate net gain
of 114,736 connections (+103.8% year on year), totaled 205,425 lines.
Operating revenues totaled 1,032.1 million euros, registering a year-on-year
drop of 1.1% in local currency due to the fact that the increase in internet
revenues (Narrowband + Broadband), which grew by 57.9% and accounted for 7.0% of
operating revenues, were unable to make up for the 3.8% fall in revenues from
the Traditional Business. Traditional services were affected (i) by the impact
of the migrations to new plans, representing 50.4% of the traditional plant,
(ii) by the impact of exchange rates on revenues in dollars (Cablenet, ADSL,
incoming international long distance and Multimedia), (iii) by the application
of the new Usage Conditions, allowing users being refunded the amounts
corresponding to the monthly fees for periods of line disconnection, in addition
to the revenues from the payment of packages and of the revenues of associated
value added services (i.e. memobox -voicemail-) and (iv) by the entering into
force of the new productivity factor for the price cap system as of September
1st.
The Long Distance business continued to be affected by competition from prepaid
cards. At the end of the year, the company's market shares of the domestic and
international markets stood at 72.4% and 57.8%, respectively, experienced
increases compared to the previous quarter of 2.3 percentage points and 0.6
percentage points, respectively, despite to the enforcement imposed by OSIPTEL
since July to publish detailed information on TdP clients for knowledge of the
competition.
The cost control policy implemented by TdP, together with the lower
interconnection expenses (-6.9%) due to the decrease in traffic terminating on
mobile networks, resulted in a 2.9% decrease in operating expenses in local
currency, partly due to lower bad debts provisions (-53.1%) as a result of an
improvement in the level of bad debts through the increased prepaid plant. Thus,
in line with the improvement recorded in previous quarters, the bad debts to
revenues ratio stood at 1.3% in comparison with 3.1% in 2003.
The company's EBITDA increased slightly in local currency (+0.9%) in relation to
December 2003 to stand at 465.1 million euros.
CapEx increased by 15.2% in local currency, primarily due to the greater effort
made in broadband. The CapEx to revenues ratio stood at 11.5%. This higher
investment reduced the operating free cash flow (EBITDA-CapEx) to 3.3% to stand
at 356.7 million euros in local currency at year end.
At December 2004, the company had a workforce of 3,025 employees, registering a
decrease of 4.7% compared to 2003 (including the workforce at subsidiaries, the
total number of employees was 5,039, +5.7%). As a result, the productivity ratio
stood at 781 lines per employee, jumping by 20.3% year on year.
TELEFONICA EMPRESAS AMERICA
Telefonica Empresas America continued to improve efficiency and to consolidate
its growth rate during 2004. Operating revenues amounted to 467.7 million euros,
experiencing a year-on-year growth of 11.2% in constant terms. This growth is
basically due to the progress observed in constant terms in Data & Internet
revenues, which grew by 5.6% and accounted for 63% of total operating revenues,
and in Hosting/ASP revenues, which recorded a 50.2% growth. It is also
noticeable the growth in constant terms of the Solutions revenues (+40.3%) and
International Services revenues (+15.5%). EBITDA grew by 71.5% (+79% in constant
terms) reaching 54.3 million euros, with an EBITDA margin of 11.6% (+4.5
percentage points year on year). CapEx experienced a 3.9% increase (+5.7% in
constant currency) amounting to 45.5 million euros and enabling Telefonica
Empresas America to record an operating free cash flow (EBITDA-CapEx) of 8.8
million euros at the end of December 2004, compared with the negative figure of
12.2 million euros reached in the same period of 2003.
Telefonica Empresas Brazil accounted for approximately 36% of operating revenues
at Telefonica Empresas America in 2004, with a growth of 15.8% in local
currency. EBITDA grew year on year by 53.8% in local currency, a 4.8 percentage
point improvement in the EBITDA margin compared to 2003. Argentina, Chile and
Peru, whose joint EBITDA amounted to 46 million euros, generated positive
operating free cash flow (EBITDA-CapEx) totalling 31.3 million euros. Of the
three, Chile stands out, with a growth in local currency by 19.3% and 24.3% in
terms of revenues and EBIDTA, respectively.
Regarding other countries, it must be noted that Colombia recorded a positive
EBITDA of 2.8 million euros at year end and generated positive operating free
cash flow. Mexico and the US improved their EBITDA margins by 14.2 percentage
points and 1.0 percentage points respectively year on year.
TELEFONICA INTERNATIONAL WHOLESALE SERVICES (TIWS)
TIWS continued to focus on increasing profitability. At year end, the company
recorded growth of 15.2% in its operating revenues up to 157.5 million euros,
being sales from the international IP services the main contributor with a
growth of 24.8%. Despite this growth in revenues, operating expenses decreased
by 9.3% year on year, basically due to the fall in supplies (-14.2%) and
subcontracts (-8.7%) . As a result, TIWS obtained an EBITDA margin of 31.8%,
representing an 18.8 percentage point improvement on 2003. The improvement in
operating free cash flow (EBITDA-CapEx) continued and amounted to 25.6 million
euros.
TELEFONICA LATINOAMERICA GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
Telesp Operating revenues (1) 3,707.9 3,400.9 9.0
EBITDA 1,698.2 1,662.8 2.1
EBITDA margin 45.8% 48.9% (3.1 p.p.)
Telefonica de Argentina Operating revenues 810.5 805.3 0.7
EBITDA 484.7 478.7 1.3
EBITDA margin (2) 59.8% 59.4% 0.4 p.p.
Telefonica CTC Chile Operating revenues 932.9 1,029.1 (9.3)
EBITDA 417.8 448.7 (6.9)
EBITDA margin 44.8% 43.6% 1.2 p.p.
Telefonica del Peru Operating revenues 1,032.1 1,088.1 (5.1)
EBITDA 465.1 480.9 (3.3)
EBITDA margin 45.1% 44.2% 0.9 p.p.
Telefonica Empresas America Operating revenues 467.7 443.9 5.4
EBITDA 54.3 31.7 71.5
EBITDA margin 11.6% 7.1% 4.5 p.p.
TIWS Operating revenues 157.5 136.7 15.2
EBITDA 50.1 17.8 181.8
EBITDA margin 31.8% 13.0% 18.8 p.p.
Note: EBITDA before management fees. Data for Telefonica de Argentina include the ISP business of Advance, while those
of Telefonica del Peru includes CableMagico.
(1) Net of international accounting payments, homogeneous within Latin America operators. Criteria applied
retroactively in 2003.
(2) Net of fixed to mobile interconnection.
TELEFONICA LATINOAMERICA GROUP
SELECTED OPERATING DATA
Unaudited figures (Thousands)
December
2004 2003 % Chg
Telesp Lines (1) 13,289.1 12,781.3 4.0
PSTN Lines 11,386.6 11,171.5 1.9
ISDN equivalent accesses 27.8 29.9 (6.9)
2/6 Accesses for PBX and Ibercom 1,048.4 1,095.6 (4.3)
ADSL connections 826.4 484.4 70.6
Employees (units) (2) 7,125 7,134 (0.1)
Traffic (millions of minutes) (3) 81,023.3 84,414.2 (4.0)
Telefonica de Argentina Lines (1) * 4,517.3 4,238.3 6.6
PSTN Lines 4,246.3 4,088.5 3.9
ISDN equivalent accesses 6.1 6.5 (6.6)
2/6 Accesses for PBX and Ibercom 76.1 73.9 2.9
ADSL connections 188.8 69.3 172.4
Employees (units) (2) 8,090 8,007 1.0
Traffic (millions of minutes) (3) 39,824.9 36,232.7 9.9
Telefonica CTC Chile Lines (1) * 2,628.2 2,542.0 3.4
PSTN Lines 2,276.4 2,266.1 0.5
ISDN equivalent accesses 96.1 93.3 2.9
2/6 Accesses for PBX and Ibercom 54.8 57.4 (4.4)
ADSL connections 200.8 125.3 60.3
Employees (units) (2) 3,070 3,202 (4.1)
Traffic (millions of minutes) (3) 22,191.5 24,337.0 (8.8)
Telefonica del Peru Lines (1) 2,361.5 2,060.0 14.6
PSTN Lines 2,121.6 1,934.8 9.7
ISDN equivalent accesses 34.5 34.5 (0.0)
2/6 Accesses for PBX and Ibercom 0.0 0.0 n.d
ADSL connections + Cablemodem 205.4 90.7 126.5
Employees (units) (2) 5,039 4,769 5.7
Traffic (millions of minutes) (3) 13,055.3 13,218.6 (1.2)
T. LATINOAMERICA GROUP Lines (1) 22,796.1 21,621.7 5.4
PSTN Lines 20,030.9 19,460.9 2.9
ISDN equivalent accesses 164.5 164.3 0.1
2/6 Accesses for PBX and Ibercom 1,179.3 1,226.9 (3.9)
ADSL connections 1,421.5 769.7 84.7
Employees (units) (4) 23,324 23,112 0.9
Traffic (millions of minutes) (3) 156,095.0 158,202.6 (1.3)
* In 2003, number of lines is affected by internal reclassification in line with 2003 criteria, homogeneous within the
operators.
(1) Lines: PSTN (including Public Use Telephony) (x1); ISDN Basic access (x2); ISDN Primary access (x30); 2/6 Accesses
(x30); ADSL Lines (x1) and Cablemoden (in Peru).
(2) Calculated with the wireline company staff of the fixed telephone operator (OTF) and the subsidiaries that are
consolidated by the full integration method.
(3) Including total invoiced incoming and outgoing traffic: Local, PUTs, DLD and ILD. January-December accumulated
data.
(4) Calculated with the wireline company staff of the fixed telephone operator (OTF) and the subsidiaries that are
consolidated by the full integration method. Does not included the employees of Telefonica Empresas America and
those of TIWS. As of 31/12/04 they were 2,352 and 244 respectively.
TELEFONICA LATINOAMERICA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Operating revenues 6,883.4 6,744.9 2.1 1,837.4 1,823.5 0.8
Internal expend capitalized in fixed assets (1) 44.3 47.4 (6.5) 14.0 12.9 8.8
Operating expenses (3,646.6) (3,548.5) 2.8 (980.7) (964.7) 1.7
Other net operating income (expense) (140.2) (142.5) (1.6) (21.5) (22.7) (5.0)
EBITDA 3,141.0 3,101.3 1.3 849.2 848.9 0.0
Depreciation and amortization (1,697.8) (1,805.7) (6.0) (446.9) (467.0) (4.3)
Operating profit 1,443.2 1,295.6 11.4 402.3 381.9 5.3
Profit from associated companies (0.4) 2.5 c.s. 0.2 1.4 (84.7)
Financial net income (expense) (315.3) (228.6) 38.0 (75.2) (156.7) (52.0)
Amortization of goodwill (83.1) (91.1) (8.7) (18.1) (22.2) (18.6)
Extraordinary net income (expense) 363.1 (128.1) c.s. (55.3) (43.3) 27.7
Income before taxes 1,407.4 850.3 65.5 253.9 161.1 57.6
Income taxes (264.0) (169.7) 55.6 (69.0) 105.3 c.s.
Net income before minority interests 1,143.4 680.7 68.0 184.9 266.4 (30.6)
Minority interests (336.8) (122.1) 175.8 (23.9) (48.1) (50.3)
Net income 806.6 558.5 44.4 161.0 218.3 (26.2)
Note: Starting first quarter 2004, Telefonica Data in Latin America and TIWS results will be incorporated in
Telefonica Latinoamerica Group. 2003 figures are proforma for the benefit of comparison.
(1) Including work in process.
TELEFONICA LATINOAMERICA GROUP
CONSOLIDATED INCOME STATEMENT - PROFORMA 2003
Unaudited figures (Euros in millions)
2003
Jan - Mar Jan - Jun Jan - Sep Jan - Dec
Operating revenues 1,498.2 3,132.7 4,921.5 6,744.9
Internal expend capitalized in fixed assets (1) 10.3 22.2 34.5 47.4
Operating expenses (785.4) (1,650.9) (2,583.8) (3,548.5)
Other net operating income (expense) (39.7) (80.3) (119.8) (142.5)
EBITDA 683.4 1,423.8 2,252.4 3,101.3
Depreciation and amortization (428.4) (877.3) (1,338.7) (1,805.7)
Operating profit 255.1 546.5 913.7 1,295.6
Profit from associated companies 6.3 2.3 1.0 2.5
Financial net income (expense) (13.5) 129.1 (71.8) (228.6)
Amortization of goodwill (23.4) (46.6) (68.8) (91.1)
Extraordinary net income (expense) (41.5) (47.0) (84.8) (128.1)
Income before taxes 182.9 584.4 689.3 850.3
Income taxes (92.5) (247.4) (275.0) (169.7)
Net income before minority interests 90.3 337.0 414.3 680.7
Minority interests (26.1) (48.8) (74.0) (122.1)
Net income 64.3 288.2 340.3 558.5
(1) Including work in process.
RESULTS BY BUSINESS LINES
Mobile Business
Telefonica Moviles reported net income in 2004 of 1,633.9 million euros vs.
1,608 million euros in 2003, an increase of 1.6%. Excluding the impact of
extraordinary provisions booked in both years, the Group would have reported a
year-over-year increase in net income of 7.1%.
As for the fourth quarter 2004 results, it should be taken into account for the
year-over-year comparison that these figures include the incorporation of the
November and December results of the new operators acquired from BellSouth in
Latin America (except those of Chile and Argentina, whose acquisition was
completed in January 2005).
Results in 2004 were driven by a solid operating performance in a year marked by
a sharp increase in commercial activity by the Group operators, against a
backdrop of strong competitive pressure in all markets of operation.
The intense commercial activity carried out throughout the year continued in the
fourth quarter 2004, driven by the Christmas campaign, with the Group operators
maintaining their number 1 or 2 position in its principal markets of operation.
Companies managed1 by Telefonica Moviles achieved net adds of over 6 millions in
the fourth quarter 2004, compared to 4.2 millions in the fourth quarter 2003.
Excluding the impact of the incorporation of BellSouth's Latin American
operators in November, net adds stand at over 4.8 millions, representing record
organic growth for the Group.
As a result, the Group ended 2004 with 74.4 millions managed1 customers in all
its markets (representing a year-over-year increase of 43.6%, and +22.4%
excluding the operators acquired from BellSouth in Latin America), of which 52.7
millions belonged to Latin American operators and close to 19 millions to
Telefonica Moviles Espana (TME).
------------------------
1 Since the cancellation of Movistar Puerto Rico's management contract in
September 2004, its customer base is no longer accounted for within the Group's
managed customer base.
Including the customers of BellSouth's operators in Chile and Argentina, whose
acquisition was completed in early January 2005, Telefonica Moviles' managed
customer base would have exceeded 78.2 millions, with 56.5 millions in Latin
America.
Key aspects of the year 2004 are as follows:
• Year-over-year growth in operating revenues of 17.5% to 11,827.6 million
euros in 2004. The incorporation of the operators acquired from BellSouth in
Latin America into the Group's consolidation perimeter contributed 425
million euros to total operating revenues, and 4.2 p.p to the growth rate
for the year, whereas the incorporation of Telefonica Movil Chile (TM Chile)
contributed 1.8 p.p. On the other hand, exchange rate fluctuations led to a
2.2 p.p. decline in revenue growth in 2004.
Thus, assuming constant exchange rates and excluding changes in the Group's
consolidation perimeter with respect to December 20032, consolidated
operating revenues would have registered a year-over-year increase of 13.6%.
------------------------
2 Excluding the impact of the incorporation of Telefonica Movil Chile from
August 1, 2004 and the incorporation of the operators acquired from Bell South
in Latin America from November 1, 2004.
By components, service revenues totalled 10,239 million euros in 2004, a
year-over-year increase of 15.4% and an increase of 29.7% in the fourth
quarter 2004 vs. the fourth quarter 2003. The solid advance in service
revenues in Latin American operators must be highlighted, with a 35.2%
year-over-year increase vs. 2003.
Revenues from handset sales for the year registered a year-over-year
increase of 32.6% to 1,589 million euros.
By companies, Telefonica Moviles Espana (TME) obtained operating revenues of
8,190.0 million euros in 2004, a year-over-year increase of 9.3%, driven by
the positive performance in service revenues, which grew 9.2% in the year.
Operating revenues from consolidated Latin American operators totalled
3,649.8 million euros, a year-over-year increase of 42.1%. The impact from
the incorporation of the operators acquired from BellSouth in Latin America
was 425 million euros in absolute terms. Excluding the impact of changes in
the Group's consolidation perimeter with respect to December 20032, and
assuming constant exchange rates, these operators' revenues would have shown
growth of 27.0% vs. 2003.
We would highlight the increase in the weight of the Latin American
operators on the Group's total revenues to 30.9% in 2004 from 25.5% in 2003,
driven by both organic growth and acquisitions.
• Increase of 5.3% in consolidated EBITDA vs. 2003 to 4,701.0 million euros
in 2004.
The incorporation of BellSouth's operators in Latin America into the Group's
consolidation perimeter from November 2004 contributed 66 million euros to
consolidated EBITDA.
Assuming constant exchange rates and excluding the changes in the Group's
consolidation perimeter with respect to December 20032, year-over-year
growth in EBITDA would have been 3.1%.
EBITDA margin reached 39.7% in 2004, impacted by the increase in commercial
and advertising costs in a year marked by rising commercial activity and a
strong competitive pressure in the main markets of operation, and by network
roll-outs in various Latin American operations.
Stripping out the impact of the incorporation of TM Chile and BellSouth's
operators in Latin America to the consolidated results, the Group's EBITDA
margin would have been 40.9% in 2004.
EBITDA in the fourth quarter 2004 reached 1,173.4 million euros, an increase
of 7.2% vs. the fourth quarter 2003, with an EBITDA margin of 32.7%. The
decline in the EBITDA margin vs. the fourth quarter 2003 was due to higher
commercial efforts associated with the stronger commercial activity -a
year-over-year increase of 49% vs. the fourth quarter 2003 in the fully
consolidated operators- and the impact of the incorporation of TM Chile and
the BellSouth operators to the consolidation perimeter. Excluding the impact
of these incorporations, the Group's EBITDA margin for the fourth quarter
2004 would have been 35.2%.
By regions, EBITDA at TME increased by 6.6% in 2004, leaving an EBITDA
margin of 51.3%.
EBITDA for the Group's consolidated Latin American subsidiaries, in euros,
fell by 2% vs. 2003. Assuming constant exchange rates and excluding the
contribution of TM Chile and BellSouth's operators in Latin America to the
consolidated results, EBITDA for these companies would have declined 19.2%
vs. 2003, due to the increased commercial activity mentioned above.
As regards the rest of the main items, we would highlight:
• Allocation of the purchase price of TM Chile and of the operators acquired
from BellSouth in Latin America in 2004. Appraisals carried out have led to
the following allocation of intangible assets: 279 million euros to
customers, 758 million euros to licences and 32 million euros to software.
The remainder, 2,055 million euros, is to be booked as goodwill.
Such allocation is the result of the preliminary assessment by third party
independent experts.
Impact of the depreciation of these assets in the fourth quarter 2004
totalled 53 million euros (33 million euros as customers depreciation, to be
depreciated along the expected average life, with higher rates in the short
term, 17 million euros as licenses depreciation and 3 million euros as
software depreciation).
• Consolidated CapEx reached 1,618 million euros in the full year 2004, an
increase of 33.3% vs. 2003, due to higher CapEx in the main markets (TME's
UMTS network rollout, GSM networks in Argentina and Mexico, and increased
capacity in Brazil) as well as the impact of the incorporation of Telefonica
Movil Chile (69 million euros CapEx) and BellSouth's Latin American
operators (81 million euros CapEx).
Regarding the evolution of the Mobile Business of Telefonica Group (including
Telefonica Movil Chile since January 1st, 2004), the operating revenues totalled
12,054.1 million euros as of December 2004, a year-on-year increase of 15.6%
compared to the same period of last year. On the other hand, EBITDA reached
4,755.0 million euros, a year-on-year increase of 3.8%.
SPAIN
The Spanish cellular market in 2004 was marked by growing commercial pressure
from competitors, mainly focused in number portability actions in the
residential market and aggressive pricing in the corporate segment.
Against this backdrop, Telefonica Moviles Espana (TME) ended 2004 with close to
19 million customers, with net adds of 280 thousand customers in the fourth
quarter 2004. The positive performance of the contract segment (residential and
corporate) during the year must be highlighted, registering cumulative net adds
of over 1.3 millions. The weight of the contract segment over the total customer
base stood at 48.8% in December 2004 (an increase of 8.5 p.p. for the year),
placing TME as the European operator with the best performance in terms of mix
since December 2003.
Regarding commercial activity in 2004, total volume including gross additions,
migrations and handset upgrades was close to 9 millions in the full year 2004
and almost 2.5 millions in the fourth quarter 2004. TME's handset upgrades
reached close to 3.6 millions in the full year, with almost a million in the
fourth quarter 2004; while prepaid to contract migrations stood at over a
million (256 thousand in the fourth quarter 2004).
In terms of number portability actions, TME maintained a steady position in 2004
with a net balance of close to 8 thousand customers for the year, with a notably
favourable performance in the contract segment, with a positive balance of 176
thousand customers (51 thousand in 2003).
In line with TME's strategy centred on high-value segments, we would highlight
the focus on the corporate segment, where the Company continues reacting to
competitors' aggressiveness by developing new products, services and solutions
which create value for its customers. During the fourth quarter 2004, TME
stepped up the commercialisation of services such as 'Movistar Desktop' and
'Blackberry Professional Mail' with attractive offers for its devices. We would
also highlight the launch of the TSM 520 handset, primarily targeted at this
segment, with the Windows Mobile Smartphone 2003 system built in.
In parallel, as part of the strategy of developing commercial plans targeted at
high growth segments, it is worth highlighting the specific offer for the
professional segment ('Plan Autonomos') ('Self-employed Plan') with its own
price plan, high-quality post-sales service and handset upgrade incentives.
As for usage, traffic carried on TME's networks increased by 12.6% in 2004 (+10%
in the fourth quarter 2004 vs. the fourth quarter 2003). MOU for the full year
was 129.1 minutes (134.6 in the fourth quarter 2004).
Regarding data services, close to 3.8 million customers used web browsing with
GPRS technology in December, almost 2.4 millions more than in December 2003,
with almost 700 thousand of them using its i-mode service. Another mark is the
consolidation of the multimedia messaging service (MMS), with almost 1.5
millions users in December 2004 (half a million in December 2003).
All of this contributed to a significant increase in data revenues, which
totalled almost 1,000 million euros in 2004 (+16.1% vs. 2003). Data ARPU for
2004 was 4.3 euros (4.6 euros in the fourth quarter 2004).
Total ARPU for TME was 32.6 euros in 2004 and 33.4 euros in the fourth quarter
2004.
Highlights of TME's financial results include:
• Operating revenues for the full year stood at 8,190.0 million euros, with
a year-over-year increase of 9.3%.
Service revenues posted a similar performance, reaching 7,282 million euros
in 2004 (+9.2% vs. 2003), driven by the positive trend seen in traffic.
Handset sales totalled 908 million euros for the year, representing a
year-over-year increase of 10%, and a maintaining its weighting over total
operating revenues stable with last year at 11%.
Operating revenues in the fourth quarter 2004 totalled 2,147.1 million euros
(+5.9% vs. the fourth quarter 2003), driven by strong service revenues'
growth, which registered a year-over-year increase of 8.8% vs. the fourth
quarter 2003
It must be remembered that service revenues in the fourth quarter 2004 were
impacted by the 12% reduction in interconnection tariffs, which came into
effect in November 2004.
• The weight of subscriber acquisition and retention costs over operating
revenues stood at 8.6% in 2004 (1.5 p.p higher than in 2003). This increased
effort was driven by the increase in commercial activity, which has impacted
in higher commercial costs (+30% vs. 2003), as well as the high cost of
number portability initiatives. This increased commercial activity is also
evident in the fourth quarter 2004, with SACs and SRCs representing 9.8% of
operating revenues (+2.0 p.p. vs. the fourth quarter 2003).
• In spite of the above, TME has achieved a 6.6% increase in EBITDA to
4,202.0 million euros in 2004, leading to an EBITDA margin of 51.3%. EBITDA
in the fourth quarter 2004 stood at 1,006.4 million euros, with an EBITDA
margin of 46.9%, impacted by the increased commercial activity typical of
the quarter.
Excluding the impact of commercial and advertising costs, EBITDA would have
registered year-over-year growth of 10.1%. This strong performance in the
adjusted margin3 (67.7% in 2004 vs. 67.2% in 2003) underscores the company's
solid operating efficiency.
------------------------
3 EBITDA margin excluding marketing and advertising costs over gross service
revenues from the loyalty points program.
• Finally, CapEx in 2004 totalled 628 million euros, driven by the rollout
of the UMTS network. By the end of the year, TME's UMTS coverage represented
40% of the population, with 3,800 base stations in approximately one hundred
cities.
MOROCCO
Medi Telecom ended 2004 with 2.7 million customers (+32.5% vs. 2003). Net adds
in the fourth quarter 2004 amounted to 158 thousand customers, following a third
quarter with strong commercial activity due to the summer campaigns.
Operating revenues rose 24.9% year-over-year in 2004 vs. 2003 to 336 million
euros (87 million euros in the fourth quarter 2004), driven by both customer and
traffic growth. EBITDA continues to show positive performance, standing at 154
million euros in the full year 2004 (94 million euros in 2003), with an
increasing trend in quarterly EBITDA (51 million euros in the fourth quarter
2004 vs. 38 million euros in the third quarter 2004).
EBITDA margin for the full year 2004 at Medi Telecom stands at 46.0% (58.9% in
the fourth quarter 2004) vs. 35.0% in 2003.
Thanks to the growth of EBITDA and the scaling back of CapEx, operating cash
flow reached 94 million euros in 2004, close to triple that of 2003.
BRAZIL
The growth trend in the Brazilian cellular market continued into the fourth
quarter of the year, driven by the Christmas campaign. Total customers in the
market stood at 65.6 millions by year-end, leading to a significant increase in
the penetration rate, to close to 37% by December 2004, compared to 33% in
September (40% in VIVO's areas of operation).
In the context of a rapidly expanding market, with increased competitive
pressure from all operators, VIVO has maintained its leadership position. In the
fourth quarter 2004 VIVO achieved close to 1.9 millions net adds vs. 1.1
millions in the third quarter 2004. We would point out that VIVO targeted its
commercial activity during the fourth quarter 2004 at high-value customers,
rising entry barriers in the prepaid segment and promoting customer acquisition
in the contract segment, as well as prepaid to contract migrations.
It must also be remembered that at the end of September 2004 a new operator
started up in the Amazon, Rio Grande do Sul, Parana and Santa Catarina regions,
areas in which VIVO operates, launching aggressive commercial plans in both the
prepaid and contract segments.
Against this backdrop, VIVO ended 2004 with a total customer base of over 26.5
millions (year-over-year growth of 28.5% and 7.7% compared to September 2004).
This gives it an estimated market share of 40% for Brazil as a whole and 51% in
its areas of operation.
As for customer usage, total MOU in the fourth quarter 2004 was 86 minutes,
while total ARPU was 31 reais. In the full year 2004, MOU stood at 89 minutes
and ARPU reached 33 reais.
The year-over-year performance in ARPU was shaped by the sharp growth in the
total customer base, driven by the prepaid segment -which accounted for 80.5% of
total customers in December 2004 compared to 76.6% in December 2003-, increased
traffic promotions and the impact on incoming traffic of the blocking of
fixed-to-mobile calls by fixed-line operators.
Regarding data services, the accelerating trend in usage must be highlighted,
with data revenues representing 5% of VIVO's total service revenues in the
fourth quarter 2004 (3% in the fourth quarter 2003). For the year as a whole,
they accounted for 4% of service revenues.
Regarding the financial results, operating revenues for the year showed a 16.2%
year-over-year increase in local currency, boosted by service revenue growth on
the back of the increase in the customer base. Excluding TCO's contribution
during the first four months of 2004, operating revenues would have grown 9.5%
vs. 2003 in local currency. The impact of the competitive environment on the
growth of revenues, with more traffic promotions in 2004, and the impact of the
migration to SMP from July 2003 must be taken into account.
EBITDA for the year reached 500.3 million euros. The evolution from 2003 (+3.8%
in reais) is impacted by the strong increase in net adds in the year (+59% vs.
2003) as well as by higher commercial and advertising costs. Excluding TCO's
contribution during the first four months of 2004, this change would have been
-3.8% vs. 2003 in local currency.
We would point out that despite seasonality in commercial activity typical of
the fourth quarter of the year (with a 68% increase in the fourth quarter 2004
vs. the third quarter 2004), the control in per unit subscriber acquisition cost
in the prepaid segment -the main component of VIVO's net adds- during the
Christmas campaign has allowed for year-over-year decline in margin in the year
to remain stable with the decline seen in cumulative EBITDA to September 2004
(-3.9 p.p.). Thus, EBITDA margin, after management fees, for full year 2004
stood at 32.9% (28.5% in the fourth quarter 2004).
Excluding the impact of higher commercial and advertising costs, the performance
of the adjusted margin4 (61.6% in 2004 vs. 58.0% in 2003) reflects the
improvement in operating efficiency and economies of scale at VIVO.
------------------------
4 EBITDA margin excluding marketing and advertising costs over service revenues.
For comparison purposes 2003 includes TCO from January 1st.
Finally, total CapEx in 2004 stood at 278 million euros, driven by increased
capacity of the operators' networks in order to meet the growth of the customer
base and by the further rollout of VIVO's 1xRTT networks. By year-end 2004,
VIVO's 1xRTT network extended to 3,700 base stations, covering over 800
municipalities in its areas of operation.
MEXICO
In 2004 Telefonica Moviles Mexico (TMM) has reinforced its positioning as number
two player in the country, boosted by the strong growth in its customer base.
TMM's total customer base at the end of 2004 was 5.6 millions, maintaining the
accelerating trend in quarterly customer growth, with an increase in the fourth
quarter 2004 vs. the third quarter 2004 of over 25% (+10% in the third quarter
2004 vs. the second quarter 2004 and +8% in the second quarter 2004 vs. the
first quarter 2004).
Net adds increased sharply in the fourth quarter 2004, driven by the Christmas
campaign, to over 1.1 millions new customers (+58% vs. the fourth quarter 2003
and nearly triple the third quarter 2004 figure), over half of which were added
during December.
We note the favourable results in the contract segment, with the second
consecutive quarter of positive net adds, to end the year with a positive
balance, compared to net losses in 2003. By December 2004, the contract customer
base increased by 25% from December 2003.
The strong performance of GSM customer adds continues being a main driver in
total customer growth. As of December 2004, GSM customers accounted for 72% of
the total customer base (compared to 58% in September).
The consolidation of TMM's market positioning was driven over the course of the
year by ongoing advances in the expansion and enhancement of its sales network
and the rollout of its GSM network.
As a result, the number of points of sale increased by almost 70% during the
year to over 10,400 by December 2004 (6,200 at the end of 2003), while GSM
coverage had extended to 248 cities (189 in September 2004 and 96 as of December
2003), to reach a level of population representing 77% of Mexican GDP.
Regarding customer usage, MOU in the fourth quarter 2004 was 59 minutes and ARPU
was 172 Mexican pesos (stable from the third quarter 2004). MOU for the year
stood at 61 minutes, while ARPU was 172 Mexican pesos.
Regarding financial results, we would highlight the positive quarterly trend in
operating revenues in local currency (+76.7% in the fourth quarter 2004 vs. the
third quarter 2004), boosted by increased handset sales and the acceleration in
service revenue growth, which was up 12.7% vs. the third quarter 2004 driven by
the solid growth in the customer base.
The positive performance shown by revenues, together with cost control policies,
kept EBITDA losses under control in the fourth quarter 2004. As a result,
despite having triple the number of net adds in the fourth quarter 2004 compared
to the third quarter 2004, TM Mexico's EBITDA losses were 44 million euros in
the quarter (compared to losses of 22 million euros in the third quarter 2004).
EBITDA losses in the full year 2004 totalled 145 million euros.
In terms of margin, the control of EBITDA losses led to a slight decline of only
1.9 p.p. (EBITDA margin of -14.2% in the third quarter 2004 and of -16.1% in the
fourth quarter 2004). As for year-over-year comparison, despite a 60% increase
in commercial activity in the fourth quarter 2004 compared to the fourth quarter
2003, cost efficiency allowed for the margin to improve by over 20 p.p. vs.
2004.
Excluding the impact of higher commercial and advertising costs, the adjusted
margin5 for 2004 would have been 33.0% vs. 25.3% in 2003.
------------------------
5 EBITDA margin excluding marketing and advertising costs over service revenues.
Finally, CapEx was 391 million euros in 2004, reflecting the rollout of the GSM
network.
ARGENTINA
The Argentine cellular market was marked in 2004 by a significant acceleration
in growth, driven since the beginning of the year by the improved macroeconomic
environment, increased commercial efforts from all operators and the rollout of
GSM networks. The estimated penetration rate at the end of 2004 was 34%
(compared with 29% in September 2004 and 21% in the fourth quarter 2003), above
initial expectations.
During the fourth quarter 2004 Unifon maintained its strategy to improve its
competitive positioning in the market, increasing its commercial activity and
continuing to roll out GSM in new cities. The year's most important commercial
campaigns - Mothers' Day in October and Christmas- took place during the fourth
quarter 2004, resulting in record customer net adds for the year. Net adds in
the fourth quarter 2004 were 765 thousand customers, almost 50% of the total for
the year, accelerating the growth trend compared to prior quarters (almost six
times higher than in the fourth quarter 2003 and compared to 417 thousand in the
third quarter 2004). Total net adds for the year were over 1.5 million
customers, more than seven times higher than in 2003.
Unifon's total customer base stood at 3.4 millions by December 2004 (+84.8% vs.
2003 and +29.3% vs. September 2004). Growth was mainly driven by GSM customers,
particularly in the last quarter (in which they accounted for 87% of net adds).
By year-end, GSM accounted for 33% of the total customer base, twice the weight
in September 2004. Also of note is the continued growth in the contract segment,
where the customer base doubled over 2003, to 36.8% of total customers by the
end of 2004.
Continuing with the trend seen since the beginning of the year, customer usage
ratios improved despite the significant growth in the customer base, underpinned
by campaigns aimed at boosting the usage of voice and data services. MOU rose
20% in the fourth quarter 2004 vs. the fourth quarter 2003, in line with
year-over-year growth in ARPU. MOU in full year 2004 rose 26% year-over-year,
while ARPU in Argentinean pesos registered year-over-year growth of 22%, to 45
Argentinean pesos.
In terms of financial results, Unifon recorded a year-over-year increase of 65%
in operating revenues in 2004 in Argentine pesos, continuing with the
acceleration in growth driven by strong advance in customers and traffic,
together with increased handset sales (which were six times those of 2003).
EBITDA was impacted by the significant increase in commercial activity,
especially in light of the seasonal pickup in the fourth quarter of the year, by
increased competitive pressure and by the higher costs associated to the GSM
rollout. The company posted EBITDA losses in the fourth quarter 2004 of 15.2
million euros, leading to EBITDA for the full year of 4.4 million euros. EBITDA
margin for the full year 2004 stood at 1.2% in 2004 (-12.5% in the fourth
quarter 2004).
CapEx continued to be driven by the rollout of the GSM network, which continued
into the fourth quarter 2004. As of December 2004, the GSM network reached
population coverage of approximately 82% of national GDP. CapEx in 2004 totalled
105 million euros.
On 11 January 2005, after the end of the fiscal year, Telefonica Moviles
completed the acquisition of 100% of BellSouth Movicom.
Adding BellSouth Movicom's operations to those of Unifon makes Telefonica
Moviles the leading cellular operator in Argentina, with more than 5.5 million
customers at the end of 2004, and leaves the company in an excellent position to
capture a significant portion of the strong growth potential in cellular
telephony in Argentina.
PERU
The Peruvian cellular market showed a strong expansion in 2004, registering a 4
p.p. increase in penetration to 15% at the end of December.
In this context, Telefonica Moviles Peru has led market growth in the year, with
net adds of 618 thousand in the full year, more than double the 2003 figure. It
is worth noting the positive performance in net adds in the contract segment,
where TM Peru added 10 times as many customers in the fourth quarter 2004 as in
the fourth quarter 2003 and 61% more than in the third quarter 2004 (almost
three times more in the full year 2004 than in 2003).
Moreover, with the acquisition of 99.85% of Comunicaciones Moviles del Peru -
the remaining 0.15% is still publicly listed - at the end of October 2004,
Telefonica Moviles consolidated its leadership in the Peruvian market. In
December 2004 the combined operators' customer base totalled close to 2.9
millions (TM Peru: 2.1 million customers; Comunicaciones Moviles del Peru: 0.7
millions).
Regarding financial results, TM Peru's operating revenues in local currency grew
4.4% in 2004, driven by the increased customer base and growth in outgoing and
on-net traffic, partially offset by lower incoming traffic from fixed networks
and the reduction in fixed to mobile tariffs. In quarterly terms, service
revenues grew 3.6% in local currency vs. the third quarter 2004 due to the
stabilisation of incoming MOU in the fourth quarter 2004 and the positive
performance in outgoing traffic, boosted by campaigns aimed at increasing usage.
It is worth noting that the good results of TM Peru's cost control policies have
allowed it to increase EBITDA margin to 35% in the fourth quarter 2004, higher
than the margin registered in previous quarters, despite the increase in net
adds. Thus, the year-over-year decline in total EBITDA vs. 2003, consequence of
the increased commercial activity in the year, is reduced to 16% in local
currency (-22.9% in the period January-September 2004). In annual terms, this
leads to a 28.4% EBITDA margin, higher than the margin registered in 9M04.
The incorporation of Comunicaciones Moviles del Peru's results in November and
December contributed 19 million euros to operating revenues and 2.6 million
euros to EBITDA. As a result, the two companies' combined operating revenues
stood at 267 million euros for 2004, and EBITDA at 73 million euros,
representing an aggregate EBITDA margin of 27.4%.
CHILE
Telefonica Movil Chile (TM Chile) recovered its leadership position in the
Chilean market in 2004, ending the year with over 3.3 million customers (+46%
vs. 2003). Growth was driven, during yet another quarter, by a strong increase
in GSM customers, with 1.5 million customers in December 2004, accounting for
44% of the total customer base.
TM Chile continued to lead market growth in the fourth quarter 2004, obtaining
net adds of 317 thousand (+33% vs. the fourth quarter 2003), boosted by strong
results of the Christmas campaign.
Regarding usage, it is worth noting that, despite strong growth in its customer
base, ARPU in the fourth quarter 2004 remained practically flat compared to the
third quarter 2004. The decline vs. 2003 reflects a 26% reduction in
interconnection rates and the higher weight of the prepaid segment in the total
customer base (85% in 2004 vs. 80% in 2003).
Moreover, operating revenues continued to be driven by the steady increase in
the customer base and in outgoing traffic, which more than offset lower
interconnection revenues.
EBITDA margin in the fourth quarter 2004 stood at 28.8%, and at 27.4% for the
five months in 2004 which are incorporated to the Group's consolidated results.
After the close of fiscal year 2004, on 7 January 2005, Telefonica Moviles
completed the acquisition of 100% of BellSouth Chile.
Telefonica Moviles' customer base in Chile from the combined operations of TM
Chile and BellSouth Chile totalled approximately 4.7 millions at the end of
2004.
GUATEMALA Y EL SALVADOR
With the cellular markets in both countries expanding rapidly, TM Guatemala and
TM El Salvador showed significant increases in net adds during 2004. Net adds at
TM El Salvador in 2004 were 7.5 times higher than in 2003, and at TM Guatemala,
3.6 times higher than in 2003.
Bearing in mind seasonality typical of fourth quarter, customer acquisition
continued to grow, with combined new adds of 128 thousand, more than four times
higher than those added in the fourth quarter 2003.
As a result, TM Guatemala more than doubled its customer base compared to 2003,
while TM El Salvador's customer base rose 55% vs. 2003. We would also highlight
the strong take-up of GSM in both countries during the fourth quarter 2004. Five
months after its launch, GSM customers account for 21% of the total customer
base in TM El Salvador and TM Guatemala.
On the other hand, after the closing of the acquisition of 100% of TEM Guatemala
y Cia. in mid-October 2004, Telefonica Moviles' total customer base in Guatemala
stands at 751 thousand (TM Guatemala: 376 thousand; TEM Guatemala y Cia.: 375
thousand) and at 384 thousand in TM El Salvador.
Regarding financial results, TM Guatemala and TM El Salvador recorded a
year-over-year increase in total operating revenues, in constant euros from both
operations of 23% in 2004 vs. 2003, boosted by increased service revenues and
higher handset sales. EBITDA for the year showed a 21% decline in constant euros
vs. 2003, reflecting the increase in commercial activity.
The incorporation of the results of BellSouth Guatemala in November and December
contributed 13.7 million euros to operating revenues and 4.5 million euros to
EBITDA.
OTHERS OPERATIONS (OTHER LATIN AMERICAN OPERATORS ACQUIRED FROM BELLSOUTH)
At the close of December 2004, the customer base of the other six operators
acquired from BellSouth in Latin American totalled 9.9 millions (Colombia: 3.3
millions; Ecuador 1.1 millions; Nicaragua 286 thousand; Panama 626 thousand;
Uruguay 203 thousand and Venezuela: 4.3 millions).
Commercial activity during the two months under Telefonica Moviles' management
was marked by Christmas campaigns primarily targeting the acquisition of prepaid
customers, which resulted in significant growth in monthly net adds for November
and December, with most of the operators recovering or increasing their monthly
shares of net adds.
Regarding financial results, the incorporation of the results of BellSouth in
Colombia, Ecuador, Nicaragua, Panama, Uruguay and Venezuela in November and
December contributed 392 million euros to Group operating revenues and 59
million euros to Group EBITDA.
CELLULAR BUSINESS
SELECTED OPERATING DATA: CELLULAR CUSTOMERS
Unaudited figures (Thousands)
December
2004 % Chg 04/03
T Moviles Espana (1) 18,977 n.c.
Contract 9,260 n.c.
Prepaid 9,717 n.c.
Brasilcel 26,543 28.5%
Contract 5,186 7.2%
Prepaid 21,357 35.0%
TCP Argentina 3,370 84.8%
Contract 1,240 113.6%
Prepaid 2,130 71.4%
T Moviles Peru (2) 2,870 90.5%
Contract 497 66.1%
Prepaid 2,308 91.2%
Fixed Wireless 65 n.d.
TEM El Salvador 384 55.3%
Contract 78 27.2%
Prepaid 294 57.8%
Fixed Wireless 12 66.1%
TEM Guatemala (3) 751 378.5%
Contract 80 84.7%
Prepaid 562 395.0%
Fixed Wireless 109 (5.4%)
Telefonica Moviles Mexico 5,639 63.3%
Contract 301 25.3%
Prepaid 5,338 66.1%
Medi Telecom 2,730 32.5%
Contract 110 (14.8%)
Prepaid 2,620 35.7%
Telefonica Movil Chile (4) 3,318 46.2%
Contract 484 9.3%
Prepaid 2,834 55.2%
Venezuela 4,326 n.d.
Colombia 3,297 n.d.
Ecuador 1,122 n.d.
Panama 626 n.d.
Nicaragua 286 n.d.
Uruguay 203 n.d.
Total Managed 74,442 43.6%
(1) Costumer base net of 1.3 million inactive prepaid SIM cards no longer included in the reported costumer base. For
reporting purposes and regarding all the operating metrics this adjustment has been made from 1 April 2004, in
accordance with the decision adopted by the Company as of June 2004.
(2) Subscriber data for 2004 includes Comunicaciones Moviles del Peru subscribers, company acquired by TEM Group in
October 2004.
(3) Subscriber data for 2004 includes TEM Guatemala y Cia.'s subscribers, company acquired by TEM Group in October
2004.
(4) TM Chile has been incorporated into the consolidation perimeter of Telefonica Moviles Group as of August 2004. In
2003, Telefonica Moviles just managed the company.
Note: Since the cancellation of Movistar Puerto Rico's management contract in September 2004 , its subscriber base is
excluded from the Group subscriber base.
CELLULAR BUSINESS
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - December
2004 2003 % Chg
Telefonica Moviles Espana Operating revenues 8,190.0 7,495.5 9.3
EBITDA 4,202.0 3,940.8 6.6
EBITDA margin 51.3% 52.6% (1.3 p.p.)
Brasilian companies (1) Operating revenues 1,521.7 1,377.8 10.4
EBITDA 500.3 506.8 (1.3)
EBITDA margin (1) 32.9% 36.8% (3.9 p.p.)
Telefonica Moviles Mexico Operating revenues 730.0 540.0 35.2
EBITDA (144.9) (108.7) 33.3
EBITDA margin (19.8%) (20.1%) 0.3 p.p.
TCP Argentina Operating revenues 360.5 240.1 50.1
EBITDA 4.4 64.4 (93.1)
EBITDA margin 1.2% 26.8% (25.6 p.p.)
Telefonica Moviles Peru Operating revenues 247.8 247.4 0.1
EBITDA 70.4 87.4 (19.5)
EBITDA margin 28.4% 35.3% (6.9 p.p.)
Comunicaciones Moviles del Peru (2) Operating revenues 19.0 n.d. n.d.
EBITDA 2.6 n.d. n.d.
EBITDA margin 13.4% n.d. n.d.
TEM Guatemala and El Salvador Operating revenues 182.6 163.5 11.7
EBITDA 20.9 29.1 (28.3)
TEM Guatemala y Cia. (2) Operating revenues 13.7 n.d. n.d.
EBITDA 4.5 n.d. n.d.
EBITDA margin 33.1% n.d. n.d.
Telefonica Movil Chile Operating revenues 412.9 361.1 14.3
EBITDA 104.1 119.0 (12.5)
EBITDA margin 25.2% 33.0% (7.7 p.p.)
Telefonica Movil Colombia (2) Operating revenues 94.9 n.d. n.d.
EBITDA (0.4) n.d. n.d.
EBITDA margin (0.4%) n.d. n.d.
Telefonica Movil Ecuador (2) Operating revenues 43.8 n.d. n.d.
EBITDA (0.9) n.d. n.d.
EBITDA margin (2.0%) n.d. n.d.
Telefonica Movil Nicaragua (2) Operating revenues 8.3 n.d. n.d.
EBITDA 1.0 n.d. n.d.
EBITDA margin 11.9% n.d. n.d.
Telefonica Movil Panama (2) Operating revenues 24.0 n.d. n.d.
EBITDA 7.7 n.d. n.d.
EBITDA margin 32.1% n.d. n.d.
Telefonica Movil Uruguay (2) Operating revenues 5.6 n.d. n.d.
EBITDA 0.9 n.d. n.d.
EBITDA margin 15.7% n.d. n.d.
Telefonica Movil Venezuela (2) Operating revenues 215.2 n.d. n.d.
EBITDA 51.0 n.d. n.d.
EBITDA margin 23.7% n.d. n.d.
Note: Telefonica Cellular Business includes Telefonica Movil Chile.
(1) Year over year comparision is affected by TCO incorporation from May 2003.
(2) Includes financial data for November and December 2004.
TELEFONICA MOVILES GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Operating revenues 11,827.6 10,070.3 17.5 3,591.2 2,766.5 29.8
Operating expenses (7,257.2) (5,660.5) 28.2 (2,517.1) (1,707.0) 47.5
Other net operating income (expense) 130.5 53.1 145.7 99.3 34.7 186.2
EBITDA 4,701.0 4,462.9 5.3 1,173.4 1,094.2 7.2
Depreciation and amortization (1,611.0) (1,420.6) 13.4 (507.6) (348.4) 45.7
Operating profit 3,090.0 3,042.3 1.6 665.8 745.8 (10.7)
Profit from associated companies (38.2) (80.7) (52.6) (8.1) (23.8) (65.9)
Financial net income (expense) (353.8) (378.1) (6.4) (118.8) (119.2) (0.3)
Amortization of goodwill (94.7) (101.7) (6.8) (35.0) (27.4) 27.7
Extraordinary net income (expense) (92.9) (4.5) n.s. (70.0) (10.4) n.s.
Income before taxes 2,510.3 2,477.3 1.3 433.9 565.0 (23.2)
Income taxes (898.1) (890.5) 0.9 (176.9) (223.8) (21.0)
Net income before minority interests 1,612.2 1,586.8 1.6 257.0 341.2 (24.7)
Minority interests 21.7 21.1 2.7 20.4 9.1 123.4
Net income 1,633.9 1,607.9 1.6 277.4 350.3 (20.8)
CELLULAR BUSINESS
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - December October - December
2004 2003 % Chg 2004 2003 % Chg
Operating revenues 12,054.1 10,428.3 15.6 3,607.1 2,888.9 24.9
Internal expend capitalized in fixed assets (1) 94.8 90.1 5.1 41.1 34.3 19.7
Operating expenses (7,381.9) (5,881.3) 25.5 (2,500.2) (1,785.7) 40.0
Other net operating income (expense) (12.1) (55.2) (78.1) 29.2 (6.9) c.s.
EBITDA 4,755.0 4,581.9 3.8 1,177.1 1,130.6 4.1
Depreciation and amortization (1,673.4) (1,516.0) 10.4 (511.9) (380.1) 34.7
Operating profit 3,081.6 3,065.9 0.5 665.3 750.5 (11.4)
Profit from associated companies (39.6) (80.7) (50.9) (8.1) (23.8) (65.9)
Financial net income (expense) (369.3) (416.6) (11.4) (119.9) (130.6) (8.2)
Amortization of goodwill (103.0) (116.4) (11.5) (35.6) (32.0) 11.0
Extraordinary net income (expense) (92.7) (7.5) c.s. (70.0) (13.0) n.s.
Income before taxes 2,476.9 2,444.7 1.3 431.7 551.0 (21.7)
Income taxes (893.7) (889.0) 0.5 (176.6) (222.3) (20.5)
Net income before minority interests 1,583.2 1,555.7 1.8 255.0 328.7 (22.4)
Minority interests 37.2 38.6 (3.7) 21.5 16.2 33.0
Net income 1,620.4 1,594.3 1.6 276.5 344.9 (19.8)
Note: Telefonica Cellular Business includes Telefonica Movil Chile.
(1) Including work in process.
This information is provided by RNS
The company news service from the London Stock Exchange