January-June 2007 results-Pt2

Telefonica SA 30 July 2007 Part 2 TELEFONICA LATINOAMERICA SELECTED FINANCIAL DATA (II) Unaudited figures (Euros in millions) January - June 2007 2006 % Chg % Var Local Cur -------------------------------------------------------------------------------- PERU Revenues 743 693 7.2 11.2 OIBDA 279 288 (3.2) 0.4 OIBDA 37.5% 41.5% (4.0 margin p.p.) CapEx 93 73 26.6 31.3 Telefonica del Peru (2) Revenues 526 547 (4.0) (0.4) OIBDA 210 233 (9.9) (6.6) OIBDA 39.9% 42.5% (2.7 margin p.p.) CapEx 43 45 (4.8) (1.3) TEM Peru Revenues 276 201 37.7 42.8 OIBDA 68 55 24.1 28.7 OIBDA 24.7% 27.4% (2.7 margin p.p.) CapEx 50 28 77.2 83.8 -------------------------------------------------------------------------------- COLOMBIA Revenues 746 496 50.2 46.9 OIBDA 209 93 124.5 119.5 OIBDA 28.1% 18.8% 9.3 p.p. margin CapEx 67 75 (10.3) (12.3) Telefonica Telecom (3) Revenues 348 106 n.m. n.m. OIBDA 152 44 n.m. n.m. OIBDA 43.6% 41.2% 2.4 p.p. margin CapEx 42 7 n.m. n.m. TEM Colombia Revenues 417 392 6.3 3.9 OIBDA 58 50 16.0 13.4 OIBDA 13.9% 12.7% 1.2 p.p. margin CapEx 26 68 (62.3) (63.1) -------------------------------------------------------------------------------- MEXICO (TEM Mexico) Revenues 653 444 47.0 60.3 OIBDA 61 (34) c.s. c.s. OIBDA 9.4% (7.7%) c.s. margin CapEx 64 15 324.1 n.m. -------------------------------------------------------------------------------- VENEZUELA (TEM Venezuela) Revenues 1,123 953 17.9 27.7 OIBDA 469 343 36.9 48.3 OIBDA 41.8% 36.0% 5.8 p.p. margin CapEx 94 56 68.3 82.2 -------------------------------------------------------------------------------- CENTRAL AMERICA (4) Revenues 297 267 11.2 OIBDA 99 79 24.6 OIBDA 33.2% 29.6% 3.6 p.p. margin CapEx 38 37 2.1 -------------------------------------------------------------------------------- ECUADOR (TEM Ecuador) Revenues 138 152 (9.2) (1.8) OIBDA 34 36 (8.1) (0.6) OIBDA 24.3% 24.0% 0.3 p.p. margin CapEx 15 10 46.6 58.6 -------------------------------------------------------------------------------- OIBDA is presented after management fees. (2) Telefonica del Peru includes Cable Magico. (3) Data for Telefonica Telecom (formerly Colombia Telecom) only include results for May-December 2006 period includes Telefonica Data Colombia. (4) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICA SELECTED FINANCIAL DATA (III) Unaudited figures (Euros in millions) January - June 2007 2006 % Chg % Var Local Cur ------------------------------------------------------------------------------------- URUGUAY (TEM Uruguay) Revenues 47 35 34.1 45.5 OIBDA 11 6 77.3 92.4 OIBDA 23.9% 18.1% 5.8 p.p. margin CapEx 4 1 173.5 196.6 ------------------------------------------------------------------------------------- TIWS Revenues 133 109 21.9 25.5 OIBDA 45 38 19.7 23.0 OIBDA 34.0% 34.6% (0.6 margin p.p.) CapEx 20 5 n.m. n.m. OIBDA is presented after management fees. RESULTS BY REGIONAL BUSINESS UNITS Telefonica O2 Europe At the end of June 2007, Telefonica O2 Europe revenue was 7,068 million euros (5,828 million euros in 2006), and operating income before depreciation and amortization (OIBDA) reached 3,100 million euros (1,758 million euros in 2006), which included restructuring charges totaling 114 million euros related to the UK, Ireland and German businesses, as well as the capital gain from the sale of Airwave (1,296 million euros). Operating Income (OI) was 1,350 million euros in the first half, mainly affected by the impact of higher assets amortizations derived from the Purchasing Price Allocation (PPA) process, which also impacted negatively the 2006 OI figure (187 million euros). Telefonica O2 Europe CapEx for the 6 month period ended 30 June 2007 amounted to 963 million euros (1,055 million euros in the same period of last year). FINANCIAL TARGETS:1 • Telefonica O2 Europe Revenue growth for the 12 months to December 2007 remains unchanged and is expected to be in the range +11%/+14%. OIBDA growth is also unchanged and is expected to be in the range +7%/+10%. Capital expenditure for the group is expected to be less than 2,200 million euros. • O2 UK Revenue growth is expected to be in the range +15%/+18%. OIBDA growth is expected to be in the range +9%/+12%. • O2 Germany (including Telefonica Deutschland) Due to the challenging conditions in the German mobile market, revenue growth is now expected to be in the range +7%/+10%, with positive service revenue growth year-on-year, expected by the end of the year. To better position the business for the future, additional investment in the growth plans will be brought forward into the second half of 2007 and consequently OIBDA growth is now expected to be in the range +21%/+25%. • Telefonica O2 Czech Republic (including Telefonica O2 Slovakia) Revenue growth is expected to be in the range +1%/+3%. OIBDA is expected to be in the range -1%/+0%, due primarily to the costs associated with the Slovakia business. Capital expenditure is expected to be around 9,000 million Czech Crowns. Strategic and operational highlights: • Management changes. In June Telefonica O2 Europe announced a number of changes to its Board of Directors. Rudi Groger will become chairman of a newly-created Supervisory Committee of the German business. His successor as chief executive of O2 Germany is Jaime Smith, formerly chief executive of Telefonica O2 Czech Republic. Salvador Anglada becomes the new chief executive of Telefonica O2 Czech Republic. Both will report directly to Peter Erskine, chairman and CEO of Telefonica O2 Europe, and sit on the Board of Directors of the Company. The Supervisory Committee of O2 Germany comes into existence on 1 October 2007 and will provide independent insight and advice on German market developments to the management of the business. Until this point, Rudi Groger will be working closely with Jaime Smith to ensure a smooth transition. • The O2 opens in London. In May 2005, AEG announced that it had joined forces with O2 to transform the former Millennium Dome and the surrounding area into the UK's most exciting and technically advanced music, sport and entertainment destination. It has been renamed The O2 and opened in June 2007. The centrepiece of the multi-million pound development is an indoor arena for over 20,000 fans that will host over 150 world-class music, entertainment and sport events in its first year of opening. There is also a live music venue - indigO2 - with a capacity of over 2,300, a world-class exhibition space that will host the Tutankhamen exhibition from November 2007, an eleven-screen state-of-the-art cinema complex, and a vibrant - Entertainment Avenue- featuring a variety of bars, restaurants, and leisure facilities. The O2 is one of the official venues for the London 2012 Olympics, hosting both the gymnastic and basketball finals. The O2 will offer a selection of benefits to O2 customers. There will be access to exclusive pre-sale tickets and exclusive music content. At the venue O2 customers will have the chance to upgrade their seats, and get fast track entry through special 'blue lanes' and access the blueroom bar for a true VIP experience. The O2 is an integral part of O2's strategy to deliver a great customer experience, and differentiate from the rest of the market. • Ireland launches Wireless Broadband. On 9 July O2 Ireland launched its O2 Broadband service, offering wireless broadband at speeds of up to 3.6Mbps, utilising HSDPA (High Speed Downlink Packet Access) technology, which currently covers 75% of the population. The new service offers a viable alternative to fixed broadband in the home, providing one of the fastest and easiest ways for customers in Ireland to get Internet and email access, whether they are at home, in the office or on the move. O2 mobile voice customers will receive a discount on the standard monthly Broadband tariff. • Telefonica O2 Czech Republic and Slovakia lower roaming charges. In advance of the holiday season, Telefonica O2 Czech Republic launched the O2 Smart Roaming tariff with reductions of up to 82 % on calls made from 14 popular holiday destinations. The O2 Smart Roaming tariff covers the most popular summer destinations for Czech holidaymakers: Croatia, Slovakia, France, Italy, Spain, Cyprus, Malta, Bulgaria and Greece, as well as non-European destinations - Egypt, Turkey, Malaysia and Thailand. Calls back to the Czech Republic and within the 'Smart Roaming' country visited are charged at a flat-rate of 9.90 Czech Crowns/min. Customers can also save on calling from the rest of the EU. • Telefonica O2 Slovakia launches first post-pay product. In May the Slovak business announced the launch of O2 Vo'nost', its first post-pay tariff which customers can tailor to their own needs, offering no fixed contract term or commitment. With two of the tariffs (O2 Vo'nost' 835 and 500), a range of subsidised phones is also available. -------------------------------------------------------------------------------- 1 2006 base reported figures include eleven months of O2 Group (consolidated since Feb.06), three months of start-up losses in Slovakia, and exclude Airwave results. 2007 guidance assumes constant exchange rates as of 2006, and exclude changes in consolidation. OIBDA excludes other exceptional revenues/expenses not foreseeable in 2007. Personnel restructuring and Real Estate Programs are included as operating revenues/expenses, except for those decided after guidance was set at the beginning of the year (redundancies in O2 Group and Real Estate Program in TEF O2 CR). For comparison, the equivalent other exceptional revenues /expenses registered in 2006 are also deducted from reported figures. -------------------------------------------------------------------------------- O2 UK Total revenues in the April-June period were 1,828 million euros, an increase of 10.6% in local currency compared to the same period of last year. For the 6 months to 30 June 2007, total revenues were 3,587 million euros, an increase of 32.0% in local currency compared to the 5 month period to 30 June 2006. On a like for like basis total revenue growth was 10.4%. Net service revenue for the 3 months to 30 June 2007 was 1,689 million euros, an increase of 11.4% in local currency compared to the same period last year, driven by continued strong customer and ARPU growth. Operating income before depreciation and amortization (OIBDA) for the 3 months to 30 June 2007 was 468 million euros, an increase of 5.1% in local currency compared to the same period of last year. OIBDA in the first half totalled 890 million euros, an increase of 18.6% in local currency compared to the 5 month period to 30 June 2006. On a like for like basis, OIBDA was flat. OIBDA in the second quarter included a restructuring charge of 14.8 million euros relating mainly to the reorganisation of the sales and marketing teams. Excluding this charge, growth in local currency would have been 8.4% in the second quarter. As expected, this reverses the trend seen in the first quarter, when on a like for like basis OIBDA declined by 4.6%. OIBDA margin in the second quarter was 25.6%, compared to 26.9% in the same quarter in 2006 and 24.0% in the previous quarter. Excluding the restructuring charge, margin would have been 26.4%. OIBDA margin for the first half was 24.8%, while excluding restructuring charges it was 25.2% The quarter again saw tough competition in the market, but the business continued to perform well. Gross additions in the quarter were around 10% lower than the same period in 2006, reflecting the increasingly mature nature of the UK market but also the focus on customer retention. A total of 34,000 net new customers were added in the quarter, taking the base to 17.8 million, 5.8% higher than at the same time last year (excluding the Tesco Mobile customer base, which reported 1.4 million customers at the beginning of the year). O2 UK's own channels accounted for over 60% of gross connections in the second quarter. A total of 76,000 net new contract customers were added in the second quarter and at the end of the period contract customers made up 35.8% of the total base, compared to 34.9% in the same period last year. Quarterly monthly contract ARPU of 63.9 euros was up 2.4% quarter on quarter in local currency, due to increased minutes of use, and up 0.6% compared to the second quarter last year. Contract churn fell to 1.8% in the quarter, from 2.0% in the second quarter last year. The number of pre-pay customers fell by 42,000 during the second quarter, reflecting migrations from prepay to contract, along with the highly penetrated market. However, those customers that left had, on average, a lower monthly spend. Quarterly monthly pre-pay ARPU of 18.2 euros was 4.0% higher in local currency than the second quarter last year and 8.4% higher than the first quarter, reflecting the retention of higher value customers. As a result, O2 UK's blended monthly ARPU of 34.5 euros was 4.9% higher than the first quarter in local currency, and 2.8% higher than the second quarter of last year, reflecting the increased weight of contract customers in the base, and the continued growth in data ARPU offsetting declines in voice ARPU. Quarterly monthly minutes of use were up 11.7% year-on-year at 189 minutes a month, driven by propositions such as 'Long Weekends' and 'Favourite Place'. Data ARPU of 11.0 euros was 8.6% higher in local currency than the same period last year driven primarily by growth in text message volumes, up 18.7%, as well as increasing usage of a range of non-SMS services, and 1.0% higher than the previous quarter. O2 UK's broadband unit Be had rolled out to over 770 exchanges by the end of the quarter, giving its broadband network a population coverage of almost 50%, with 31,000 customers. CapEx in the second quarter was 182 million euros, with continued investment in both the 3G network and existing 2G network to ensure a high level of service. O2 UK promoted a number of products and services during the quarter, aimed at acquisition and retention of customers and revenue growth. These included: • Favourite Place - Pay and Go customers get 500 free minutes every month to use from their 'favourite place'. Customers register the postcode of their favourite place and need to top-up £10 or more a month for 500 free minutes to UK landlines and O2 mobiles. • Improvements to Best for Business calling plans - from 27 April, O2 business customers on corporate bundles received free calls to colleagues and to any O2 mobile - including family and friends. This upgraded proposition represents great value for business customers and sets O2 apart from the other mobile operators in the business sector. • Pay and Go Online customers 'number 1' offer - an extra 500 free minutes to a chosen O2 mobile for 3 months, subject to a £10 minimum monthly top-up. • Launch of the BlackBerry Curve 8300 - O2 was the first mobile operator in the UK to make the device available to customers. O2 GERMANY O2 Germany includes Telefonica Deutschland and comparable 2006 figures have been restated on this basis. Total revenues in the 3 months to 30 June 2007 were 861 million euros, a decrease of 2.9% compared to the three month period ended 30 June 2006. Year to date total revenue was 1,703 million euros, an increase of 16.4% compared to the five month period to 30 June 2006. On a like for like basis, revenue declined by 2.9%. Mobile service revenue for the 3 months to 30 June 2007 was 727 million euros, down 3.8% compared to the same period last year, an improvement in the trend seen in the first quarter (which saw a decline of 4.6%), reflecting the continued ARPU weakness in the German market and the impact of the 20% termination rate cut in November 2006, partly offset by growth of the customer base. The termination rate cut reduced second quarter service revenue by over 4%. Operating income before depreciation and amortization (OIBDA) for the 3 months to 30 June 2007 was 98 million euros, a decrease of 49.8% compared to the same period in 2006. OIBDA in the second quarter included an exceptional charge of 96.5 million euros in respect of a structural reorganisation, which will strengthen customer facing units while the number of employees in central and supporting functions will be reduced by around 700. In total O2 Germany mobile will reduce its headcount from around 4,700 to around 4,000 employees. At the same time, units and departments will be merged to accelerate decision making processes as well as time to market for product innovations. This re-organisation will better position the business for the future growth opportunities that the German market presents in both mobile and DSL. Excluding this charge, OIBDA would have been 194 million euros, broadly flat compared to the same period last year. For the six months period, cumulative OIBDA is 259 million euros, a decline of 20.4% compared to the 5 month period to 30 June 2006. On a like for like basis, the decline was 29.1%. OIBDA margin in the second quarter was 11.4%, compared to 22.0% in the same quarter last year, reflecting the consolidation of Telefonica Deutschland, as well as the aforementioned exceptional charge (margin would have been 22.6% in the second quarter excluding this charge). OIBDA margin for the first half was 15.2%, and 20.9% excluding restructuring charges. In a highly competitive environment, a total of 374,000 net new customers were added in the quarter, taking the base to 11.6 million, 11.8% higher than at the same time last year. The Tchibo Mobile customer base grew by 40,000 to 913,000 by the end of the quarter. O2 Germany added a total of 191,000 net new contract customers in the quarter, with quarterly monthly ARPU of 35.2 euros, 2.7% higher than the previous quarter, and 10.1% lower than the same quarter last year. This reflected the impact of the termination rate cut in November 2006, seasonal usage patterns, increasing competition in the German market and the introduction of new customer offers. A total of 183,000 net new pre-pay customers were added in the quarter. Quarterly monthly ARPU of 6.7 euros was 1.3% lower than the previous quarter and 24.9% lower than the second quarter last year, reflecting in addition to the above mentioned factors, higher market penetration and the growth in multiple SIM ownership. Additional pre-pay customer acquisition campaigns featuring both new O2 propositions and new offers from partners, will be launched during the rest of the year. Blended quarterly monthly ARPU in the second quarter was 20.9 euros, an increase of 2.0% from the previous quarter, but 13.5% lower than the same quarter last year. This trend reflects the ongoing impact of the termination rate cuts, the rapid growth in the pre-pay customer base over the past 12 months, which now makes up 50% of the total base, and the increasingly competitive market environment. Termination rate cuts reduced monthly ARPU in the quarter by approximately 3 euros. Blended quarterly monthly minutes of use grew by 3.7% year-on-year to 133 minutes, driven by new propositions such as Genion flat rate and Genion S/M/L. O2 Germany now has a total of 4.1 million Genion customers (70% of the post-pay base), with 62% of all net new post-pay customers opting for one of the Genion tariffs. Monthly data ARPU was 5.1 euros, broadly flat compared to the previous quarter and 5.5% lower than the second quarter last year due to the higher number of lower spending pre-pay users in the base and a shift from SMS to voice usage with the introduction of flat rate voice tariffs. To address the imbalance of voice vs. data and SMS tariffs, O2 Germany refreshed its data and SMS packs during the second quarter. O2 DSL had acquired 34,000 customers by the end of the second quarter, with Telefonica Deutschland reporting 339,000 ULL lines in total, from around 40,000 lines at the end of the second quarter in 2006. Equivalent ADSL lines in service reached just over 796,000 at the end of June, from 400,000 at the end of June last year. The broadband market grew by approximately 1.3 million lines in the second quarter, or around 8%, slightly lower than in the first quarter due to the strike action at Deutsche Telekom. Telefonica Deutschland took around 13% of the market net additions in the second quarter. The ULL network now includes over 1,850 local exchanges, giving population coverage of nearly 50%. CapEx in the quarter was 203 million euros with continued expenditure on both the 3G and 2G networks. O2 Germany launched a number of new products and services during the quarter, including: • The Family&Office flat rate for O2 DSL. Calls from the fixed net DSL line to up to 5 mobile numbers are free. O2 also reduced the basic fee of all three DSL tariffs (S/M/L) by 10 euros. • The new 'O2 Surf Card' and O2 Surf Box mini. Both offer customers fast and easy Internet access on the move. The O2 Surf Card is aimed at business customers who need to access their company network and offers download speed of up to 3.6 Mbit/s. The O2 Surf Box mini is targeted at consumers. • Mobile Music non-stop: in July, the 'MTV-Music-Pack from O2' was launched. O2 customers are able to download the MTV top 10 hits every week to their mobile for only 5 euros per month. They can also view the latest MTV Mobile Channel videos, using a 3G device. In addition, subscribers to the MTV Music-Packs enjoy a special price of only 99 cents per track download at the O2 Music Shop. • O2 Genion special offer: customers signing up for the O2 Genion L tariff can chose from a selection of high-end handsets for only 1 euro. • The Xda nova, a tri band device which supports GSM/GPRS/EDGE and also includes Bluetooth, WiFi, a 2 megapixel camera and a 1 GB microSD card, but weighs only 112g. It uses the innovative TouchFLO touch screen interface. In combination with a Genion L contract the device costs 49.99 euros. O2 IRELAND Total revenues in the 3 months to 30 June 2007 were 249 million euros, an increase of 3.9% compared to the same period last year. Revenue for the 6 month period to 30 June 2007 was 487 million euros, an increase of 23.1% compared to the 5 month period to 30 June 2006. On a like for like basis growth was 2.8%. Mobile service revenue for the second quarter was 237 million euros, an increase of 4.5% compared to the same period last year, reflecting the growth of the customer base and the increase in blended ARPU. The termination rate cut reduced second quarter service revenue by just under 1%. Operating income before depreciation and amortization (OIBDA) for the second quarter was 86 million euros, broadly flat compared to the same period last year. An exceptional charge of 2.8 million euros was included in OIBDA, related to the restructuring of various departments within the business and the costs associated with the integration of the O2 Retail Head Office into Corporate Headquarters. Excluding this charge, OIBDA would have grown by 3.5%. OIBDA margin in the second quarter was 34.5%, and excluding the charge would have been 35.6%. In a competitive market O2 Ireland traded well, with gross connections at a broadly similar level to the second quarter last year. At the end of June the total customer base was 1.6 million customers, 2.1% higher than at the same time last year. O2 Ireland added a total of 14,000 net new contract customers in the quarter. Quarterly monthly ARPU of 83.8 euros was 5.0% lower than the second quarter last year but 2.2% ahead of the previous quarter. Due to the impact of increased competitor activity, the pre-pay customer base fell during the quarter, by 15,000 customers. Monthly pre-pay ARPU was 30.0 euros, an increase of 2.0% on the same period a year ago and 7.0% compared to the previous quarter. Blended monthly ARPU of 46.7 euros was reduced by approximately 0.4 euros due to the termination rate cut and was 1.8% higher than the same quarter last year and down 5.6% higher than the previous quarter. Quarterly monthly minutes of use increased by 4.7% year-on-year to 249 minutes, mainly due to the higher proportion of post-pay subscribers in the base. Monthly data ARPU was 11.2 euros, 17.5% higher than the second quarter last year but 3.2% lower than the first quarter. In addition O2 Ireland launched a number of pricing initiatives and services during the quarter. These included: • O2 Friends, a major new pricing initiative for Speak easy customers. The offer entitles all Speak easy customers to make 1c calls at off peak hours and at weekends to three friends of their choice on the O2 network until 2009. Customers are required to top up their phone by at least 20 euros every month. • The Xda Orbit, exclusive to O2, featuring GPS technology and Windows Mobile Email, and the Blackberry Curve. In June the company also launched a major new nationwide advertising campaign 'Let's change the way we work' designed to promote the benefits that mobile technology can bring to the work/ life balance. • O2 Ireland also continued to trial broadcast mobile TV with 350 consumers in the Greater Dublin area using state of the art Nokia N92 handsets. Research results from the trial will be released in the next quarter. TELEFONICA O2 CZECH REPUBLIC Total revenues for the first six months of the year amounted to 1,095 million euros, an increase of 3.1% in local currency. The Czech mobile business was the key driver of this growth, with the Czech fixed line business reporting a slight increase in revenues year-on-year, confirming the trend seen in the first quarter. Operating income before depreciation and amortization (OIBDA) in the first half was 504 million euros, a decrease of 2.2% in local currency compared to the first half of 2006, giving a margin of 46.0%, 2.5 percentage points lower than the same period last year, with around 2 points coming from the impact of the Slovak operations. Total CapEx for the Telefonica O2 Czech Republic in the first half amounted to 98 million euros, an increase of 2.5% in local currency, mainly related to the deployment of infrastructure in Slovakia. The Czech mobile business maintained its focus on developing attractive voice and data packages, along with its policy of prepaid to contract migration. Total business revenues for the Czech mobile business grew by 5.5% year-on-year in local currency in the first half to reach 558 million euros, with a 6.1% increase in the second quarter alone. The total number of mobile customers reached 4.9 million at the end of June, and increase of 2.6% year-on-year. A total of 111,000 net contract customers were added in the second quarter, bringing the total contract base to 2.1 million, an increase of 20.3% year-on-year, with contract customers representing 42.4% of the total customer base, up from 36.2% a year ago. Contract monthly ARPU of 32.2 euros was down 8.0% year-on-year in local currency, reflecting the migration of prepay customers, but stable compared to the previous quarter (up 0.9%). The pre-pay customer base declined by 7.4% year-on-year to 2.8 million at the end of June, mainly due to the pre-pay to contract migration strategy. Monthly ARPU of 8.8 euros was up 4.2% in local currency compared to the second quarter last year and up 7.3% compared to the first quarter. Blended monthly ARPU was 18.5 euros, an increase of 3.4% year-on-year in local currency, with minutes of use growing 16.9% to 120 minutes. Activities in the Czech fixed line business continued to focus on the development of broadband services and increasingly the ICT/Business Solutions area. The business introduced a new range of bundles and converged propositions in the first half of the year, in particular the O2 Duo and O2 Trio bundles, combining flat-rate fixed voice tariffs with ADSL and/or IPTV and O2 Duo Mobil, which combines mobile with ADSL or IPTV services. The total number of fixed telephony accesses fell by 17.2% to reach 2.2 million at the end of June, with net disconnections of 81,000 in the second quarter, compared to 114,000 in the previous quarter. Total broadband ADSL accesses (retail+wholesale) reached 526,000 at the end of June, with 24,000 net new accesses in the second quarter. The total number of O2 TV customers increased to 38,000 at the end of June, a net gain of 12,000 in the second quarter. Total business revenues for the Czech fixed line business grew by 0.3% year-on-year in local currency in the first half to reach 535 million euros, with a year-on-year increase of 0.7% in the second quarter alone. Year-on-year growth of 18.3% in Internet and Broadband revenues for the first half of the year, together with growing revenues from IT and Business Solutions, driven by new contract wins from Government institutions, offset the decline in revenues from the traditional voice and access business. Telefonica O2 Slovakia. In the second quarter the company continued to rollout its own mobile network, targeting 400 sites by September 2007 to fulfill license conditions. The company also successfully completed the first phase of its direct sales network rollout, opening 12 brand shops. The distribution network also consists of more than 3,500 indirect points of sale, in addition to the recently launched online 'e-shop'. In June, the company introduced the innovative postpaid product 'O2 Vo'nost'', which allows customers to use postpaid services without having to sign a contract. By the end of June the company had recorded 455,000 registered customers. TELEFONICA O2 EUROPE ACCESSES Unaudited figures (thousands) 2006 2007 June September December March June % Chg y-o-y --------------------------------------------------------------------------------- Final Clients 36,886.0 37,564.5 38,310.9 38,866.0 39,341.4 6.7 Accesses Fixed telephony 2,726.1 2,598.3 2,462.9 2,347.8 2,267.2 (16.8) accesses (1) Internet and 572.7 564.6 607.1 627.3 637.0 11.2 data accesses Narrowband 224.3 178.6 143.7 110.9 85.6 (61.8) Broadband 335.9 373.9 451.9 505.2 540.5 60.9 Other 12.5 12.1 11.6 11.2 10.9 (12.7) Cellular 33,587.2 34,398.9 35,225.2 35,865.5 36,399.7 8.4 accesses Contract 20,320.6 20,757.5 21,143.6 21,504.0 21,643.9 6.5 Prepaid 13,266.6 13,641.3 14,081.7 14,361.5 14,755.8 11.2 Pay TV 0.0 2.8 15.6 25.5 37.5 n.m. Wholesale Accesses 119.2 160.7 243.8 329.5 410.8 n.m. (2) Total Accesses 37,005.2 37,725.2 38,554.7 39,195.5 39,752.2 7.4 --------------------------------------------------------------------------------- (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes Unbundled Lines by T. Deutschland. Note: Cellular accesses, Fixed telephony accesses and Broadband accesses include MANX customers. TELEFONICA O2 EUROPE CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - June April - June 2007 2006 % 2007 2006 % Chg Chg --------------------------------------------------------------------------------- Revenues 7,068 5,828 21.3 3,534 3,418 3.4 Internal exp capitalized in fixed 107 98 9.3 50 64 (21.3) assets (1) Operating expenses (5,379) (4,166) 29.1 (2,720) (2,479) 9.7 Other net operating income 6 5 29.0 5 2 127.6 (expense) Gain (loss) on sale of fixed assets 1,297 (5) c.s 1,297 (3) c.s. Impairment of goodwill and other 0 (1) n.m. 0 (1) n.m. assets Operating income before D&A (OIBDA) 3,100 1,758 76.4 2,167 1,001 116.4 Depreciation and amortization (1,750) (1,571) 11.4 (832) (888) (6.4) Operating income (OI) 1,350 187 n.m. 1,336 113 n.m. --------------------------------------------------------------------------------- Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. Note: 'Bad debt provisions' have been reclassified from 'Other net operating income (expense)' to 'Operating expenses'. Note: Telefonica O2 Europa includes in 2006 Telefonica O2 Czech Republic (January-June), T. Deutschland (January-June) and O2 Group (February-June). (1) Including work in process. TELEFONICA O2 EUROPE ACCESSES BY COUNTRIES Unaudited figures (Thousands) 2006 2007 June September December March June % Chg y-o-y --------------------------------------------------------------------------------- UK Final Clients 16,814.3 17,337.7 17,650.0 17,774.9 17,815.4 6.0 Accesses Internet and 0.0 0.0 16.8 24.0 30.7 n.m. data accesses Broadband 0.0 0.0 16.8 24.0 30.7 n.m. Cellular 16,814.3 17,337.7 17,633.2 17,750.9 17,784.7 5.8 accesses Prepaid 10,940.5 11,255.8 11,415.1 11,452.9 11,410.7 4.3 Contract 5,873.8 6,081.9 6,218.1 6,298.0 6,374.1 8.5 Total Accesses 16,814.3 17,337.7 17,650.0 17,774.9 17,815.4 6.0 --------------------------------------------------------------------------------- GERMANY Final Clients 10,335.3 10,628.7 11,043.8 11,215.2 11,591.5 12.2 Accesses Internet and 0.0 0.0 19.0 31.4 33.7 n.m. data accesses Broadband 0.0 0.0 19.0 31.4 33.7 n.m. Cellular 10,335.3 10,628.7 11,024.8 11,183.8 11,557.8 11.8 accesses Prepaid 5,143.3 5,340.7 5,544.1 5,609.6 5,792.4 12.6 Contract 5,192.1 5,288.0 5,480.7 5,574.2 5,765.4 11.0 Wholesale Accesses 40.0 75.3 149.3 227.4 305.1 n.m. (1) Total Accesses 10,375.3 10,704.0 11,193.1 11,442.6 11,896.6 14.7 --------------------------------------------------------------------------------- IRELAND Cellular 1,598.4 1,602.8 1,631.7 1,632.5 1,631.5 2.1 accesses Prepaid 1,146.7 1,134.7 1,146.7 1,133.6 1,118.7 (2.4) Contract 451.7 468.1 485.1 499.0 512.8 13.5 Total Accesses 1,598.4 1,602.8 1,631.7 1,632.5 1,631.5 2.1 --------------------------------------------------------------------------------- CZECH REPUBLIC Final Clients 7,999.8 7,854.3 7,842.9 7,712.3 7,698.1 (3.8) Accesses Fixed telephony 2,666.0 2,537.3 2,402.5 2,287.5 2,207.2 (17.2) accesses (2) Internet and 563.6 554.6 560.3 559.9 559.8 (0.7) data accesses Narrowband 224.3 178.6 143.7 110.9 85.6 (61.8) Broadband 326.8 363.9 405.1 437.9 463.3 41.8 Other 12.5 12.1 11.6 11.2 10.9 (12.7) Cellular 4,770.2 4,759.7 4,864.5 4,839.5 4,893.7 2.6 accesses Prepaid 3,043.1 2,978.3 2,989.7 2,873.2 2,816.7 (7.4) Contract 1,727.1 1,781.3 1,874.8 1,966.3 2,076.9 20.3 Pay TV 0.0 2.8 15.6 25.5 37.5 n.m. Wholesale Accesses 79.2 85.4 94.5 102.1 105.7 33.5 Total Accesses 8,079.0 7,939.8 7,937.4 7,814.4 7,803.8 (3.4) --------------------------------------------------------------------------------- SLOVAKIA Cellular - - - 386.8 455.0 n.m. accesses Prepaid - - - 386.8 454.0 n.m. Contract - - - 0.0 1.0 n.m. Total Accesses - - - 386.8 455.0 n.m. --------------------------------------------------------------------------------- (1) Includes Unbundled Lines by T. Deutschland. (2) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. TELEFONICA O2 EUROPE SELECTED OPERATING DATA CELLULAR BUSINESS BY COUNTRIES Unaudited figures 2006 2007 2Q 3Q 4Q 1Q 2Q % Chg y-o-y Local Cur ----------------------------------------------------------------------------------------------------- O2 UK MOU (minutes) 169 175 180 179 189 11.7 ARPU (EUR) 33.1 34.0 34.1 33.3 34.5 2.8 Prepaid 17.3 17.9 18.2 17.0 18.2 4.0 Contract 62.7 63.9 63.5 63.2 63.9 0.6 Data ARPU 10.0 10.6 10.7 11.0 11.0 8.6 %non-P2PSMS over data revenues 13.3% 13.1% 12.5% 13.4% 14.2% 0.9 p.p. ----------------------------------------------------------------------------------------------------- O2 GERMANY MOU (minutes) 128 124 129 129 133 3.7 ARPU (EUR) 24.2 25.3 23.7 20.5 20.9 (13.5) Prepaid 8.9 9.0 8.3 6.8 6.7 (24.9) Contract 39.1 41.7 39.2 34.2 35.2 (10.1) Data ARPU 5.4 5.8 5.9 5.1 5.1 (5.5) %non-P2PSMS over data revenues 21.5% 21.4% 22.6% 24.9% 25.0% 3.5 p.p. ----------------------------------------------------------------------------------------------------- O2 IRELAND MOU (minutes) 237 241 246 240 249 4.7 ARPU (EUR) 45.8 45.2 45.0 44.2 46.7 1.8 Prepaid 29.4 29.8 29.6 28.0 30.0 2.0 Contract 88.2 83.5 81.4 82.0 83.8 (5.0) Data ARPU 9.5 9.9 10.0 11.5 11.2 17.5 %non-P2PSMS over data revenues 15.6% 18.4% 19.6% 19.9% 23.4% 7.8 p.p. ----------------------------------------------------------------------------------------------------- T. O2 CZECH REPUBLIC (1) MOU (minutes) 102 102 109 109 120 16.9 ARPU (EUR) 17.9 18.3 18.8 17.7 18.5 3.4 Prepaid 8.4 8.6 8.8 8.3 8.8 4.2 Contract 34.8 34.9 35.0 32.2 32.2 (8.0) Data ARPU 3.7 3.8 4.0 3.8 3.9 4.8 %non-P2PSMS over data revenues 38.7% 43.0% 40.0% 41.0% 42.0% 3.3 p.p. Note: MOU and ARPU calculated as monthly quarterly average. (1) KPIs for cellular business in Czeck Republic do not include Eslovaquia. TELEFONICA O2 EUROPE SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - June 2007 2006 % Chg % Chg Local Cur --------------------------------------------------------------------------------------------- O2 UK (1) Revenues 3,587 2,669 34.4 32.0 OIBDA 890 737 20.8 18.6 OIBDA margin 24.8% 27.6% (2.8 (2.8 p.p.) p.p.) CapEx 363 330 10.0 8.0 --------------------------------------------------------------------------------------------- O2 GERMANY (2) Revenues 1,703 1,463 16.4 16.4 OIBDA 259 325 (20.4) (20.4) OIBDA margin 15.2% 22.2% (7.0 (7.0 p.p.) p.p.) CapEx 406 494 (17.9) (17.9) --------------------------------------------------------------------------------------------- O2 IRELAND (1) Revenues 487 395 23.1 23.1 OIBDA 164 150 9.2 9.2 OIBDA margin 33.7% 38.0% (4.3 (4.3 p.p.) p.p.) CapEx 63 62 1.0 1.0 --------------------------------------------------------------------------------------------- TELEFONICA O2 CZECH REPUBLIC Revenues 1,095 1,049 4.4 3.1 OIBDA 504 509 (1.0) (2.2) OIBDA margin 46.0% 48.5% (2.5 (2.5 p.p.) p.p.) CapEx 98 94 3.7 2.5 (1) In 2006 includes February-June period. (2) In 2006 includes February-June period for O2 Germany and Telefonica Deutschland. RESULTS BY REGIONAL BUSINESS UNITS Others Companies Atento Group Revenues for the Atento Group reached 565 million euros in the January-June 2007 period, equivalent to a year-on-year growth of 11.1% when compared to the same period the previous year, as a result of the organic growth experienced in Latin America. Revenues generated by external clients to the Telefonica Group advanced 18.6% on an annual basis versus the first semester of 2006 and represented 49.2% of Atento's total revenues to June 2007, up 46.1% when compared to the same period the previous year. The main drivers of this growth were: • Brazil: increased revenue from Itau, Redecard, Losango and Banco do Brasil. • Mexico: increased activity with BBVA-Bancomer, mainly in Finanzia services and collection services. • Venezuela: growth in revenue from the CANTV Group, the addition of new customers from the financial sector, such as Econoinvest, and increased revenues from telemarketing management with Banco de Venezuela. • Colombia: increased activity in the multisector market with Citibank, BSCH and Whirlpool and new client acquisitions (Sony, IFX, Banca Andina and Bancoldex). In terms of geographical distribution of revenue, Brazil accounted for 40.3% of the total and Spain 24.6%. Combined, their contribution was 4.9 p.p. lower than the same period the previous year. Atento Mexico continued to post strong growth, contributing 11.8% of the group's total revenues, compared to 9.4% in the first semester of 2006. Venezuela accounted for 4.2%, up from 3.4% in the same period last year, and Peru for 3.7%, up from 2.7%. Operating costs rose 10.6% year-on-year to 492 million euros. This was largely the result of the increase in personnel costs underpinned by the growth in the Group's activity and higher facility leasing and maintenance costs. Operating income before depreciation and amortization (OIBDA) for the Atento Group amounted to 73 million euros in the first semester of 2007, a 13.8% year-on-year increase due to increased business activity. In terms of profitability, OIBDA margin stood at 12.9%, 0.1 p.p. higher than the first semester of 2006. Atento Brazil contributed 32 million euros or 42.9% of total OIBDA. Of the remaining operations, the largest contributions were by Mexico (17.0% or 13 million euros), Chile (9.5% or 7 million euros), Venezuela (7.8% or 6 million euros) and Peru (7.7% or 6 million euros). Operating income for the six-month period of 2007 amounted to 59 million euros, representing annual growth of 16.2%. CapEx in the first semester of 2007 amounted to 10 million euros, compared to 12 million euros in the same period the previous year (-15.4% year-on-year), mainly deployed in Brazil, Mexico and Spain. Operating cash flow (OIBDA-Capex) presented a growth of 20.8% when compared to the first semester of 2006, reaching 63.0 million euros, as a result of continued growth in operating income coupled with a lower investment effort. At an operational level, the Atento Group ended June 2007 with 51,191 positions in place, marking a 20.6% year-on-year increase. The average number of occupied positions for 2007 stood at 41,083. Productivity in the first half of 2007 was 78.1%, 1.3 p.p. lower than in the first semester of 2006. ATENTO GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - June April - June 2007 2006 % Chg 2007 2006 % Chg ------------------------------------------------------------------------------------------------------ Revenues 565 508 11.1 293 253 16.0 Internal exp capitalized in fixed 0 0 n.m. 0 0 n.m. assets (1) Operating expenses (492) (445) 10.6 (256) (223) 14.7 Other net operating income (expense) 0 1 (40.4) 0 0 (21.8) Gain (loss) on sale of fixed assets 0 0 9.1 0 0 50.0 Impairment of goodwill and other 0 0 n.m. 0 0 n.m. assets Operating income before D&A (OIBDA) 73 65 13.8 38 30 25.4 Depreciation and amortization (15) (14) 5.4 (7) (7) 7.2 Operating income (OI) 59 51 16.2 30 23 30.7 ------------------------------------------------------------------------------------------------------ (1) Including work in process. ADDENDA Key Holdings of the Telefonica Group detailed by regional business units TELEFONICA ESPANA TELEFONICA O2 EUROPE % Part % Part ------------------------------------------------------------------------------------ Telefonica Espana 100.00 O2 UK 100.00 Telefonica Moviles Espana 100.00 O2 Gemany 100.00 Telyco 100.00 O2 Ireland 100.00 Telefonica Telecomunic. 100.00 Manx 100.00 Publicas T. Soluciones de Informatica y 100.00 Be 100.00 Comunicaciones de Espana Telefonica O2 Czech Republic 69.41 (1) Iberbanda 51.00 Telefonica O2 Slovakia (2) 100.00 Medi Telecom 32.18 (1) Company owned through Telefonica S.A. (2) Company owned through Telefonica O2 Czech Republic. TELEFONICA LATINOAMERICA OTHER PARTICIPATIONS % Part % Part ------------------------------------------------------------------------------------ Telesp (1) 87.95 3G Mobile AG (Switzerland) 100.00 Telefonica del Peru 98.18 Endemol (1) 99.73 Telefonica de Argentina 98.04 Atento Group 91.35 TLD Puerto Rico 98.00 Group 3G (Germany) 57.20 Telefonica Chile 44.89 Mobipay Internacional 50.00 Telefonica Telecom 52.03 Tempos 21 (2) 43.69 Telefonica USA 100.00 IPSE 2000 (Italy) (2) 39.92 T. Intern. Wholesale Serv. 100.00 Lycos Europe 32.10 (TIWS) (2) Brasilcel (3) 50.00 Sogecable (3) 16.76 T. Moviles Argentina 100.00 Mobipay Espana (2) 13.36 T. Moviles Peru 98.53 Hispasat 13.23 T. Moviles Mexico 100.00 Portugal Telecom (4) 9.84 Telefonica Moviles Chile (4) 100.00 China Netcom Group (5) 5.00 T. Moviles El Salvador 99.08 BBVA 1.02 T. Moviles Guatemala 100.00 Amper 6.10 Telcel (Venezuela) 100.00 1) Ownership held by Telefonica S.A. T. Moviles Colombia 100.00 Endemol Holding NV is the parent company of Endemol Group and owns 75% of Endemol NV, company quoted in the Otecel (Ecuador) 100.00 Amsterdam Stock Exchange. On July 3rd, 2007 Telefonica sold its 99.7% stake in ENDEMOL, an entity equally T. Moviles Panama 100.00 participated by Mediacinto Cartera SL, Cyrte Fund II B.V. and GS Capital Partners Fund, LP. T. Moviles Uruguay 100.00 (2) Ownership indirectly held by Telefonica Moviles Espana. Telefonia Celular Nicaragua 100.00 (3) Telefonica de Contenidos, S.A. holds 15.63% and Telefonica, S.A. T. Moviles Soluciones y 100.00 holds 1.13%. Aplicac. (Chile) (4) Telefonica Group's effective participation. Telefonica Group (1) Effective participation 88.01%. participation would be 9.96% if we exclude the minority interests. (2) Telefonica, S.A. owns 92.51% y Telefonica DataCorp owns 7.49%. (5) Ownership held by Telefonica Latinoamerica. (3) Joint Venture which fully consolidates the subsidiary Vivo, S.A., through participation at Vivo Participacoes, S.A. (62.94%) (4) Telefonica Moviles Chile made a capital increase in the month of May. As a result it became the unique shareholder of Telefonica Moviles de Chile, that will be disolve. This operation ended the 1st of July. ADDENDA Significant Events • On July 23th, 2007, Telefonica S.A. treasury stock position was 34.471.368 shares representing 0.722% of its current share capital. • On July 3rd, 2007, pursuant to the share purchase agreement dated May 14, 2007, and once the corresponding administrative authorisations have been obtained, Telefonica, S.A. sold its 99.7% stake in ENDEMOL INVESTMENT HOLDING BV to EDAM ACQUISITION BV, an entity equally participated by MEDIACINCO CARTERA SL, CYRTE FUND II B.V. and GS CAPITAL PARTNERS FUND, LP. As already disclosed, the total price of the sale has been 2,629.6 million euros and the capital gain is expected to be approximately 1,400 million euros. • On June 8th, 2007, 147,633,912 of the own shares of TELEFONICA, S.A. were cancelled, reducing the company's share capital by the sum of 147,633,912 euros. This also means rewording Article 5 of the By-laws, relative to share capital, which now stands at 4,773,496,485 euros, made up of an equal number of ordinary shares, all of a single series and with a nominal value of one (1) euro per share, totally paid in. • This share capital reduction is being charged to voluntary reserves, cancelling, in the appropriate amount, the restricted reserve referred to by article 79.3 of the Spanish Corporations Act, (Ley de Sociedades Anonimas), and setting aside a reserve for retired capital in amount of 147,633,912 euros. ADDENDA Changes to the Perimeter and Accounting Criteria of Consolidation In the period January-June of 2007, the main changes have occurred in the consolidation perimeter were the following Telefonica O2 Europe In April, Telefonica O2 Europe PLC, 100%-owned by Telefonica, S.A. and its wholly owned subsidiary O2 Holdings LTD, sold 100% of British firm Airwave O2 Ltd. This company, which was consolidated in the Telefonica Group financial statements using the full integration method, has been removed from the perimeter of consolidation. OTHER COMPANIES • In June, Telefonica, S.A. sold its entire 31.75% stake in Sistemas Tecnicos de Loterias del Estado, S.A. This company, which had been accounted for by the Telefonica Group under the equity method, was removed from the perimeter of consolidation. • In May, Telefonica, S.A. agreed to sell its 99.7% stake in Dutch company Endemol Investment Holding B.V. to a newly created consortium held equally by Mediacinco Cartera S.L., a newly incorporated company owned by Mediaset and its listed Spanish subsidiary Gestevision Telecinco, Cyrte Fund II B.V. and G.S. Capital Partners VI Fund, L.P. The consortium will pay 2,629 million euros. The agreement was executed on 3 July. In the consolidated financial statements of the Telefonica Group as of 30 June 2007, the assets and liabilities of Endemol Group are reclassified under the captions 'Non-current assets classified as held for sale' and 'Liabilities associate with non-current assets classified as held for sale'. • In April, US firm Katalyx, Inc. sold its 54% stake in Brazilian company Mercador, S.A. The company had been consolidated in the financial statements of the Telefonica Group under the equity method and was thus removed from the perimeter of consolidation. • During the first quarter of 2007, the Telefonica Group sold shares in the Italian company Ipse 2000 S.p.A. reducing its direct and indirect percentage in the Italian company to 39.9158%. The company continues to be incorporated in the consolidated financial statements of the Telefonica Group using the equity method. • In February 2007 the company sold 100% of its stake in Endemol France to the company Endemol, N.V., in which the Group has 75% participation, and thus reducing its stake in the company to that percentage. • The Spanish company Communicapital Gestion, S.A., has been liquidated. The company, which was included in the financial statements of Telefonica Group using the full integration method, has been removed from the perimeter of consolidation. DISCLAIMER This document contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company. The forward-looking statements in this document can be identified, in some instances, by the use of words such as 'expects', 'anticipates', 'intends', 'believes', and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and other important factors that could cause actual developments or results to differ materially from those expressed in our forward looking statements. Analysts and investors are cautioned not to place undue reliance on those forward looking statements which speak only as of the date of this presentation. Telefonica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefonica's business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company's Annual Report as well as periodic filings filed with the relevant Securities Markets Regulators, and in particular with the Spanish Market Regulator. The financial information contained in this document has been prepared under International Financial Reporting Standards (IFRS). This financial information is unaudited and, therefore, is subject to potential future modifications. For additional information, please contact. Investor Relations Gran Via, 28 - 28013 Madrid (Spain) Phone number: +34 91 584 4700 Fax number: +34 91 531 9975 Email address: Ezequiel Nieto - ezequiel.nieto@telefonica.es Dolores Garcia - dgarcia@telefonica.es Isabel Beltran - i.beltran@telefonica.es ir@telefonica.es www.telefonica.es/accionistaseinversores This information is provided by RNS The company news service from the London Stock Exchange
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