1st Quarter Results - Part 1
Telefonica SA
13 May 2004
PART 1
Quarterly results
January - March 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 Lycos 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: 19,269 Medi Telecom: 2,042
WIRELESS
T Moviles: 19,939
Deutschland/UK
ADSL CONNECTIONS
Grupo T Deutschland:
320
LATIN AMERICA
Argentina Brazil Chile Mexico Puerto Rico
WIRELINE WIRELINE WIRELINE WIRELESS WIRELESS
T de Argentina: Telesp: 12,746 CTC Chile: 2,563 TEM Mexico: 3,772 NewComm Wireless:
4,297 WIRELESS WIRELESS 167
WIRELESS CRT Celular: 2,617 CTC Movil: 2,500 Peru
TCP Argentina: TeleSudeste Cel: Venezuela
1,970 3,774 Guatemala WIRELINE
TeleLeste Celular: T del Peru: 2,111 WIRELINE
El Salvador 1,189 WIRELINE WIRELESS CAN TV: 2,760
Global Telecom: 1,873 T. Guatemala: 36 T Moviles: 1,635 WIRELESS
WIRELINE Global Telesp Cel: WIRELESS PAY-TV CUSTOMERS CAN TV: 2,779
T. El Salvador: 54 7,970 T. Guatemala: 189 Cable Magico: 370
WIRELESS TeleCentro Oeste:
T. El Salvador: 270 4,452
TELEFONICA GROUP
MARKET SIZE
Unaudited figures (Thousands)
Totals Weighted (*)
Mar 2004 Mar 2003 % Chg. Mar 2004 Mar 2003 % Chg.
Lines in service (1) 44,156.4 43,183.0 2.3 38,398.2 37,410.6 2.6
In Spain 19,269.3 18,794.8 2.5 19,269.3 18,794.8 2.5
In other countries 24,887.1 24,388.1 2.0 19,128.9 18,615.8 2.8
Cellular customers (2) 57,138.3 44,248.8 29.1 32,779.7 27,736.5 18.2
In Spain 19,938.8 18,693.9 6.7 18,431.5 17,278.8 6.7
In other countries 37,199.5 25,554.8 45.6 14,348.3 10,457.7 37.2
Total (3) 101,664.4 87,771.9 15.8 71,537.2 65,477.3 9.3
(*) 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, CanTV, 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), NewCom Wireless Puerto Rico, Telefonica Moviles Guatemala, Telefonica Moviles El Salvador, Telefonica
Moviles Mexico and CanTV Celular.
(3) Includes Pay TV customers of Cable Magico in Peru.
TELEFONICA GROUP
Financial Highlights
The most relevant factors of Telefonica Group results for the first quarter are
the following:
• Strong growth in all business lines as a result of the more intense
commercial effort and the stronger client orientation:
• 7.7% growth in operating revenues, sustained by the cellular business
(+20.4%).
• Total customer base exceeded 101 million clients (87.8 million in March
2003), thanks to the high levels of commercial activity in cellular business
(54.4 million managed customers, +30.2%) and the addition of over 1.3
million new ADSL connections (ADSL connections managed 3.0 millions as of
March 31, 2004).
• Improvement in the Group's profitability, as a consequence of a more
flexible and efficient business model:
• Strong EBITDA growth (+10.4%) above the increase in revenues (+7.7%).
• Consolidated EBITDA margin of 44.7% compared with the 43.6% of the first
quarter 2003.
• Telefonica de Espana Group's EBITDA increased by 4.2% and its
EBITDA margin stood at 45.8% (+1.1 percentage points over first quarter 2003
figure).
• Growing operating free cash flow and financial strength:
• Operating free cash flow (EBITDA-CapEx) amounted to 2,492.7 million euros
(+12.4% year-on-year), driven by the 9.5% increase in the mobile business,
Telefonica de Espana Group and Telefonica Latinoamerica Group.
• The Group's CapEx increased by 3.1% due to larger investments
being made in the areas of growth (cellular business and broadband).
• Net debt reduction during the quarter of 1,217.4 million euros, to end
March at 18,017.9 million euros as of March 2004.
• Continued slow-down in the negative impact of exchange rates:
• Assuming constant exchange rates, the growth of revenues, EBITDA and
Operating Profit would amount to 9.0%, 10.5% and 27.2%, respectively.
• The strength of Telesp and the improvement in TASA's operating
metrics have led to a growth in Telefonica Latinoamerica Group's
revenues and EBITDA of 8.8% and 5.8%, respectively (+10.3% and +7.2% in
constant euros, respectively).
• Net income of 558.2 million euros compared with 543.4 million euros
for the January-March 2003 period:
• Extraordinary expense amounted to 185.7 million euros has been accounted
for in the 1Q04, corresponding to the 672 redundancies accepted in the first
quarter 2004 as part of the 2003-07 Redundancy Program.
• Excluding the effect of the provision for the Redundancy Program, net
income would have grown by 27% to 690 million euros.
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 Telelefonica 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.
The results obtained by Telefonica Group during the first quarter of 2004 are
characterized by the strong performance in operations (operating revenues
+7.7%), the higher profitability (44.7% EBITDA margin, +1.1 percentage points
compared with 1Q03), the sustained increase in operating free cash flow
(EBITDA-CapEx +12.4%) and the reduction in net debt (18,017.9 million euros in
comparison with 19,235.3 million euros at December 2003).
The strong behaviour of the business lines is reflected in the solid growth of
operating revenues. All business lines increased in terms of revenues (except
for the Content and Media business, due to the removal of Antena 3TV from the
consolidation perimeter) through the results obtained by the more intense
commercial efforts and the stronger client oriented organization.
Operating Free cash flow (EBITDA-CapEx) for the first three months of the year
stood at 2,492.7 million euros compared with the 2,218.2 million euros of the
same period in 2003. All business lines grew and this cash flow generation
increased despite the higher CapEx over the period (+3.1%), due to the greater
investment effort in growing businesses (mobile telephony and broadband).
Telefonica Group's total customer base as of March 31st, 2004 rose to
101.6 million, 15.8% more than in March 2003 and 2.9% more than in December
2003. The Group's managed customer base rose to 96.1 million (+16.4% year on
year and +2.9% compared with the end of 2003). As in previous quarters, this
growth came from the cellular and broadband businesses. Thus, the Telefonica
Moviles managed customer base amounted to 54.4 million, with net adds over the
past twelve months of 12.6 million and of 2.3 million in the first three months
of 2004. ADSL connections recorded 3.0 million, with a year-on-year growth of
77.6% (almost 2.2 million in Europe and over 0.8 million in Latin America).
The slow-down of the negative impact of exchange rates on the consolidated
accounts of the Telefonica Group continues, in line with the decreasing trend of
2003. Their impact on the first quarter 2004 is relatively small (-1.2
percentage points in revenues, -0.1 percentage points in EBITDA and +2.0
percentage points in Operating Profit).
Operating revenues for Telefonica Group recorded a solid growth rate of 7.7% on
those obtained in the first quarter of 2003 to reach 6,959.0 million euros.
Exchange rates fluctuations deducted 1.2 percentage points from total growth in
March, compared with the -6.6 percentage points in December 2003. Excluding this
effect and the changes in the consolidation perimeter (deducting 1.3 percentage
points to the growth compared with the contribution of 0.5 percentage points in
December), revenues would have presented a 10.3% year-on-year growth.
In terms of business lines, the mobile telephony business made the highest
contribution to consolidated revenues in absolute terms as of March with 2,647.9
million euros (+20.4% year-on-year). Moreover, it is the highest contributor to
the Group's revenues in relative terms. Revenues increased primarily due to
service revenues and to the sale of handsets. In terms of operators, it must be
underlined Telefonica Moviles Espana (+17.4%), VIVO (+43.4% in local currency)
and Telefonica Moviles Mexico (+43.8% in local currency).
Telefonica Latinoamerica Group is the second contributor to the Telefonica Group
's consolidated revenues, totaling 1,630.1 million euros in the first
three months of the year, up 8.8% on those registered in January-March 2003.
This growth rate would increase to 10.3% in constant euros. The higher revenues
in local currency of Telesp (+21.5%), TASA (+15.4%) and Telefonica Empresas
America (+20.4%) offset the lower revenues in local currency of CTC Chile
(-10.2%) and Telefonica del Peru (-2.0%).
Operating revenues for Telefonica de Espana Group (2,635.1 million euros)
recorded year-on-year growth of 1.7% primarily due to Telefonica Espana parent
company. In that respect, the increases in Internet and Broadband Services
(+33.0%) and Wholesale Services (+9.4%), more than offset the lower revenues
from Traditional Services (-4.7%).
As of March 2004, the geographical areas breakdown is as follows: Spain
continued to represent almost two third of total revenues, although its
contribution decreased by 1.5 percentage points to 61.3% over the past year in
favour of Latin America (33.7% compared with 32.2% in March 2003). By countries,
it is important to highlight the higher contribution of Brazil (17.9% as of
March 31st, 2004 compared with 15.1% as of March 31st of the previous year).
Telefonica Group's total operating costs during the first quarter of the
year reached 4,014.0 million euros, showing a 5.0% growth compared with the same
period of the previous year. This growth in total costs vs the decline
registered in 2003 (2003/2002 -5.1%) can partly be explained by the more intense
commercial activity in the main business lines, particularly in mobile telephony
(+26.3% vs first quarter 2003) and in Telefonica Latinoamerica Group (+12.5% vs
January-March 2003). To a lesser extent, it is also due to the lower impact of
the exchange rates (deducting 6.8 percentage points in December and 2.0
percentage points in March) and to the changes in the consolidation perimeter
(-2.7 percentage points as of March and only +0.2 percentage points in
December). Thus, in comparable terms, i.e. removing both effects, the
year-on-year growth in total operating costs would have reached 9.7%.
The higher expenses in the cellular business were due to the increase in
commercial costs due to the increased commercial activity in the main markets
and, therefore, the higher number of handset purchases. In the Telefonica
Latinoamerica Group, the increased fixed-to-mobile interconnection and long
distance costs recorded by Telesp explain this performance.
The total operating costs of Telefonica de Espana Group, however, fell by 1.4%
with regard to the first three months of 2003, despite the greater commercial
effort (external services up 12.4%), due to the decline in personnel expenses to
reflect the savings of employees joining the Redundancy Program in 2003.
Cumulative bad debt as of March 2004, measured by the bad debt to revenues ratio
(excluding prepaid revenues), stood at 1.5%, a 0.4 percentage points improvement
compared to March 2003. Telefonica de Espana Group (0.6% of revenues) and the
cellular business (1.1% of revenues) recorded a year-on-year improvement of 0.5
percentage points and 0.4 percentage points, respectively. It must be underlined
TASA's bad debt to revenues ratio of around 1% (below 3% in March 2003).
In Telesp, the bad debt to revenues ratio remained stable compared with March
last year at 3.9% and in CTC Chile it worsened by 0.4 percentage points to 3.8%.
This evolution of revenues and operating costs has placed Telefonica Group
's consolidated EBITDA at 3,112.2 million euros, 10.4% up on that
obtained in the same period 2003. The year-on-year EBITDA growth rate would drop
to 9.7% if we exclude the variations in the exchange rates and the changes in
the consolidation perimeter. The consolidated EBITDA margin amounted to 44.7% in
comparison with 43.6% a year ago, due to the generalized improvements in all
business lines (Terra Lycos Group +17.6 percentage points, directory business
+7.2 percentage points and Content and Media business +5.4 percentage points),
offsetting the drops in the mobile business and Telefonica Latinoamerica Group.
Telefonica de Espana Group, the main contributor to the consolidated EBITDA with
1,206.3 million euros (38.8% of the total), recorded a year-on-year EBITDA
growth of 4.2%. The EBITDA margin stood at 45.8%, 1.1 percentage points higher
than in March 2003 due to the aforementioned effect of the Redundancy Plan.
The cellular business, showed a year-on-year growth of 12.2% in euros during the
first quarter of 2004 to 1,140.1 million euros. In turn, EBITDA margin declined
3.1 percentage points year on year to 43.1%, due to the strong commercial
activity of the quarter (net adds over six times that of the same period 2003).
This performance was explained by Telefonica Moviles Espana (EBITDA margin 55.1%
in 1Q03 to 53.3% in 1Q04) and by the higher losses of Telefonica Moviles Mexico.
Telefonica Latinoamerica Group totaled 722.8 million euros in January-March
2004, 5.8% more than in the same period of 2003. In terms of EBITDA margin, a
year-on-year decline of 1.3 percentage points, to 44.3%, is due to the fall in
the margins in some operators. In this sense, Telesp's EBITDA margin
dropped to 44.0%, compared with 49.0% a year ago.
At the end of the quarter, 70.8% of consolidated EBITDA came from Spain, almost
the same percentage as in March 2003. Latin America represented a 28.4%, 1.6
percentage points less than twelve months ago because of the more negative
contribution of Mexico. Like in the case of revenues, Brazil increased its
contribution to consolidated EBITDA to 17.8% (16.5% one year ago).
The operating profit during the January-March 2004 period grew by 29.1%
year-on-year to total 1,624.9 million euros. This performance was explained by
the 10.4% growth in EBITDA and the 4.7% drop in amortization. Assuming constant
exchange rates and excluding changes in the consolidation perimeter,
amortization would have dropped to 3.0% and the operating profit would have
grown by 25.4%.
The negative results of associates recorded a year-on-year reduction of 36.2
million euros (-71.7%) to reach -14.3 million euros in the first three months of
the year. This significant improvement is mainly due to the merger of Via
Digital with Sogecable and the consolidation of this Company since July 2003,
the lower losses attributed to IPSE 2000, Medi Telecom and Terra Lycos Group and
the better results of Pearson.
Total net financial costs reached 215.4 million euros in the first quarter of
2004, including a positive impact of 19.3 million euros from the appreciation of
the Argentine peso. Excluding this effect, the financial results rose to 234.7
million euros, which meant a drop of 43.2% vs the comparable financial results
for 2003 (413.0 million euros). This drop in financial results was due to the
14.7% decrease in average net debt and 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 the first quarter of
2004 was 1,745.3 million euros, of which 224.0 million euros were devoted to
financial investments (net of real estate divestiture) and 196.7 million euros
to cancelation of commitments acquired by the Group, derived basically from the
headcount reduction plan. Thus, free cash flow after financial investments and
dividend payments, which corresponds to the one available for debt reduction was
1,324.6 million euros.
Net debt of Telefonica Group at the end of March 2004 stood at 18,017.9 million
euros. The reduction of 1,217.4 million euros with respect to the consolidated
debt at the end of 2003 (19,235.3 million euros) arose mainly from the
generation of free cash flow after financial investments and dividend payments
(1,324.6 million euros). Likewise, there was, a 153.2 million euros increase due
to the currencies movements effect on the non-euro denominated debt (mainly due
to the appreciation of the euro against the dollar), as well as 46.0 million
euros due to the changes in consolidation and other effect on financial
statements.
Goodwill amortization in the first quarter rose by 2.5% compared to the same
period of 2003 to 105.5 million euros due to the incorporation of Sogecable in
July 2003 and the increase in mobiles in Brazil after the purchase of TCO in May
2003.
Extraordinary results as of March 2004 were negative in 268.4 million euros vs
the -31.5 million euros recorded in the first quarter of 2003. This increase was
mostly due to the extraordinary provision of 185.7 million euros associated to
the acceptance of 672 layoffs of the 2,362 requests to join Telefonica de Espana
2003-07 Redundancy Program. The remaining requests are currently being assessed.
In the case of all requests being accepted the cumulative provision for 2004
wouldl amount to 672.5 million euros. Furthermore, other extraordinary negative
results have been accrued, such as the updating the provisions for redundancies
in 2003 (2003-2007 Redundancy Program) and those from the previous Redundancy
Program at Telefonica de Espana (-39.4 million euros), the restructuring at
Lycos (-16.4 million euros) and the provision of any eventual negative economic
consequences that could arise from the arbitration award between Uniprex and the
Radio Blanca Group (-31.4 million euros).
It is important to note that the income before taxes grew by 23.5% compared with
the January-March period of the previous year, reaching 1,021.2 million euros.
The provision for tax for the first three months of the year reached 387.8
million euros, although this will mean a very reduced cash outflow for the Group
due to compensation of negative tax bases obtained in previous years.
The results attributed to minority interests deduct 75.1 million euros to the
net income in the first quarter of 2004, in comparison with the -19.8
million euros of the same period of 2003. The lower losses of Terra Lycos Group
and the higher stake in the Company, together with the participation of minority
interests in the positive net results of VIVO and in the fixed telephony
operators of Latin America, particularly CTC Chile and Telesp justify the
increase of this item over the past twelve months.
The net income amounted to 558.2 million euros over the first three months of
2004, a 2.7% increase with regard to the same period of 2003.
The CapEx of Telefonica Group for the first quarter of the year rose to 619.5
million euros, which implies a 3.1% year over year increase (+3.7% in constant
euros and excluding changes in consolidation). The mobile business (+24.7%,
223.0 million euros) explains this evolution due to the progress in the rollout
of Telefonica Moviles Espana's UMTS network and the GSM network in Mexico and
Argentina. However, it should be noted that there is a strong cyclical component
to the investment, so that this performance cannot be extrapolated to the full
year.
The investments in growth and transformation accounted for 48.7% of the total as
of March 2004 (31.1% in March 2003), in line with the Company's objective to
focus investments towards areas of growth (broadband and mobile telephony).
Finally, the average workforce of Telefonica Group in the first quarter totaled
149,804 employees, 3,408 less than in the same period a year ago.
TELEFONICA GROUP
Financial Data
TELEFONICA GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg.
Operating revenues 6,959.0 6,458.9 7.7
EBITDA 3,112.2 2,819.1 10.4
Operating profit 1,624.9 1,258.1 29.1
Income before taxes 1,021.2 827.0 23.5
Net income 558.2 543.4 2.7
Net income per share 0.113 0.107 4.8
Avg. No of shares, millions (1) 4,955.9 5,057.0 (2.0)
(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
Mar 2004 Mar 2003 % Chg Mar 2004 Mar 2003 % Chg Mar 2004 Mar 2003 % Chg
Telefonica de Espana Group 2,635.1 2,590.0 1.7 1,206.3 1,158.2 4.2 575.4 482.5 19.3
Telefonica Latinoamerica Group 1,630.1 1,498.2 8.8 722.8 683.4 5.8 310.6 255.1 21.8
Cellular Business 2,647.9 2,199.9 20.4 1,140.1 1,016.5 12.2 758.4 640.5 18.4
Directories Business 77.9 66.7 16.9 17.4 10.0 73.1 12.2 3.6 242.0
Terra Lycos Group 133.7 114.5 16.7 0.7 (19.6) c.s. (21.2) (39.0) (45.7)
Atento Group 134.0 122.5 9.4 19.4 13.6 42.0 9.4 (0.2) c.s.
Content & Media Business 273.8 372.3 (26.5) 41.8 36.7 13.9 34.7 22.0 57.7
Other companies 186.9 208.0 (10.2) (34.7) (60.1) (42.3) (67.2) (100.4) (33.1)
Eliminations (760.4) (713.2) 6.6 (1.5) (19.7) (92.5) 12.7 (5.9) c.s.
Group 6,959.0 6,458.9 7.7 3,112.2 2,819.1 10.4 1,624.9 1,258.1 29.1
TELEFONICA GROUP
CAPEX BY BUSINESS LINES
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg
Telefonica de Espana Group 262.6 296.6 (11.5)
Telefonica Latinoamerica Group 102.6 117.2 (12.5)
Cellular Business 223.0 178.7 24.7
Directories Business 3.6 2.0 76.8
Terra Lycos Group 5.1 28.3 (82.0)
Atento Group 2.9 2.4 22.8
Content & Media Business 5.6 10.5 (46.8)
Other companies & Eliminations 14.2 (34.8) c.s.
Group 619.5 600.9 3.1
TELEFONICA GROUP
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg
Operating revenues 6,959.0 6,458.9 7.7
Internal expend capitalized in fixed assets (1) 95.5 102.2 (6.5)
Operating expenses (3,896.9) (3,695.4) 5.5
Supplies (1,584.5) (1,439.2) 10.1
Personnel expenses (1,080.0) (1,166.0) (7.4)
Subcontracts (1,106.1) (985.3) 12.3
Taxes (126.3) (105.0) 20.3
Other net operating income (expense) (45.5) (46.6) (2.4)
EBITDA 3,112.2 2,819.1 10.4
Depreciation and amortization (1,487.3) (1,560.9) (4.7)
Operating profit 1,624.9 1,258.1 29.1
Profit from associated companies (14.3) (50.6) (71.7)
Financial net income (expense) (215.4) (246.2) (12.5)
Amortization of goodwill (105.5) (102.9) 2.5
Extraordinary net income (expense) (268.4) (31.5) n.s.
Income before taxes 1,021.2 827.0 23.5
Income taxes (387.8) (263.8) 47.0
Net income before minority interests 633.4 563.2 12.5
Minority interests (75.1) (19.8) 279.4
Net income 558.2 543.4 2.7
Average shares (millions) (2) 4,955.9 5,057.0 (2.0)
Net income per share 0.113 0.107 4.8
(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)
March
2004 2003 % Chg
Subscribed shares not paid-in -- 253.9 n.s
Long-term assets 44,123.2 48,641.2 (9.3)
Start up expenses 525.5 465.9 12.8
Intangible net assets 7,536.3 7,519.0 0.2
Fixed net assets 23,985.7 26,330.2 (8.9)
Investment 12,075.7 14,326.0 (15.7)
Goodwill on consolidation 6,022.4 6,455.7 (6.7)
Deferred expenses 508.1 790.0 (35.7)
Current assets 11,236.9 11,591.9 (3.1)
Inventories 458.0 694.4 (34.0)
Accounts receivable 5,962.5 5,808.4 2.7
Short-term investments 3,908.5 3,511.7 11.3
Cash and banks 481.0 948.8 (49.3)
Others 426.8 628.7 (32.1)
Assets = Liabilities 61,890.6 67,732.8 (8.6)
Shareholder's equity 17,166.5 17,672.7 (2.9)
Minority interests 4,483.6 5,691.1 (21.2)
Badwill on consolidation 7.8 10.8 (27.6)
Deferred income 617.8 916.0 (32.6)
Provisions for risks and expenses 7,729.4 7,758.2 (0.4)
Long-term debt 17,558.2 21,422.9 (18.0)
Accrued taxes payable 795.6 1,511.6 (47.4)
Short-term debt including current maturities 5,354.5 4,648.0 15.2
Interest payable 281.7 365.2 (22.9)
Other creditors 7,895.5 7,736.2 2.1
Financial Data
Consolidated net debt (1) 18,017.9 21,502.3 (16.2)
Consolidated debt ratio (2) 43.9% 45.5% (1.6 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)
March
2004 2003 % Chg
I Cash flows from operations 3,024.4 2,833.0 6.8
II Extraord. payments related to operating activities and (231.9) (189.0)
commitm.
III Net interest payment (1) (361.9) (394.0)
IV Payment for income tax (32.5) (34.6)
A=I+II+III+IV Net cash provided by operating activities 2,398.1 2,215.4 8.2
B Payment for investment in fixed and intangible assets (826.8) (773.0)
C=A+B Net free cash flow after CAPEX 1,571.3 1,442.4 8.9
D Cash received from sale of Real State 143.2 37.0
E Net payment for financial investment (367.2) (462.9)
F Dividends paid (2) (22.7) (21.9)
G=C+D+E+F Free cash flow after dividends 1,324.6 994.6 33.2
H Effects of exchange rate changes on net debt 153.2 (423.2)
I Effects on net debt of changes in consolidation and (46.0) 386.9
others
J Net debt at beginning of period 19,235.3 22,533.1
K=J-G+H+I Net debt at end of period 18,017.9 21,502.3 (16.2)
(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 - March
2004 2003 % Chg
EBITDA 3,112.2 2,819.1 10.4
- CAPEX accrued during the period (EoP exchange rate) (619.5) (600.9)
- Extraordinary payments related to operating activities and commitments (231.9) (189.0)
- Net interest payment (361.9) (394.0)
- Payment for income tax (32.5) (34.6)
- Investment in working capital (295.1) (158.2)
= Net Free Cash Flow after Capex 1,571.3 1,442.4 8.9
+ Cash received from sale of Real Estate 143.2 37.0
- Net payment for financial investment (367.2) (462.9)
-Dividends paid (22.7) (21.9)
= Free Cash Flow after dividends 1,324.6 994.6 33.2
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 - Mar 2004 Jan - Mar 2003
Net Free Cash Flow after Capex 1,571.3 1,442.4
+ Payments related to cancellation of commitments 196.7 136.0
- Dividend payments to minoritaries (22.7) (21.9)
= Free Cash Flow 1,745.3 1,556.5
TELEFONICA GROUP
NET FINANCIAL DEBT AND COMMITMENTS
Unaudited figures (Euros in millions)
March 2004
Long-term debt 17,558.2
Short term debt including current maturities 5,354.5
Cash and Banks (481.0)
Short and Long-term financial investments (1) (4,413.7)
A Net Financial Debt 18,017.9
Guarantees to IPSE 2000 557.7
Guarantees to Sogecable 80.0
Guarantees to Newcomm 49.9
B Commitments related to guarantees 687.6
Gross commitments related to workforce reduction (2) 5,225.3
Value of associated Long-term assets (3) (651.7)
Taxes receivable (4) (1,357.8)
C Net commitments related to workforce reduction 3,215.8
A + B + C Total Debt + Commitments (5) 21,921.4
Net Financial Debt / EBITDA 1.4x
Total Debt + Commitments/ EBITDA 1.7x
(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 69.9 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 April 2003 to March 2004.
TELEFONICA GROUP
EXCHANGES RATES APPLIED
P&L (1) Balance Sheet and CapEx (2)
Mar 2004 Mar 2003 % Var Mar 2004 Mar 2003
US Dollar / Euro 1.249 1.073 1.222 1.090
Argentinean Peso / Euro 3.631 3.395 3.496 3.179
Chilean Peso / Euro 770.141 784.894 753.500 797.035
Brasilian Real / Euro 3.619 3.739 3.555 3.653
Peruvian Nuevo Sol / Euro 4.324 3.730 4.231 3.788
Mexican Peso / Euro 13.936 11.552 13.635 11.731
(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 31/03/04 and 31/03/03.
RESULTS BY BUSINESS LINES
Fixed Line Business
TELEFONICA DE ESPANA GROUP
The financial results of Telefonica de Espana Group during the first quarter of
the year, within the new management perimeter, reflected the intensification of
the Company marketing push, as well as the ongoing effort being made in terms of
efficiency and cost restraint, the main line of which being the workforce
reduction scheme (2003-2007) implemented through a Redundancy Program. On
completion of the enrolment period to the Redundancy Program for the year 2004,
a total of 2,362 employees had submitted a request to join it.
As a result of this dual effort made by the company in achieving increased
operating growth and profitability, over the first quarter of 2004 Telefonica de
Espana Group registered a 1.7% growth in revenues and a 4.2% growth in EBITDA
compared with the same period of the previous year.
The main progress made over the quarter in terms of developing the company's
commercial program is as follows:
• The launch of Imagenio Service once the corresponding
administrative authorization was obtained. Imagenio offers integrated voice
and audiovisual services (TV, video on demand, music, etc.) and broadband
Internet access. The service will be deployed progressively, initially
covering the metropolitan areas of Madrid, Barcelona and Alicante.
• 'Alta Gratis' ('Free Subscription')
promotion during the week of March 8th to 14th, consisting of the
removal of the Telefonica de Espana PSTN connection fee for all
subscriptions made during this period. The success of this marketing
initiative has resulted in 128,000 subscription requests, of which 105,000
were installed by the end of March, which is almost one third all
subscriptions made over the quarter.
• The positive acceptance of the access+traffic modular plans
('Combinados') is also important to note, which amounted to
383,983 plans sold by the end of March, an increase of over 200,000 compared
with those sold in December 2003.
• ADSL products portfolio has been extended with the launching of a
new semi-flat rate offering, which is to be commercialized at 29.9 euros per
month, enabling unlimited Internet access on weekends, and weekdays from 6
p.m. to 8 a.m. next day.
• Launching of the 24h flat-rate plan for narrowband Internet access
in February.
Among the most significant regulatory issues to have occurred to date are:
• As of April 1st, the monthly fee for PSTN lines increased by 4.35%
to 13.17 euros per month, while certain fees for international calls were
selectively decreased by 2.15% overall. These reductions have been
particularly notable in calls made to the countries of origin of the
immigrant population living in Spain. The aforementioned adjustment to
international fees already makes up to 0.19% of the total 2% Price-Cap
reduction planned for the whole of 2004. These measures will have no impact
on Telefonica de Espana results until the second quarter of 2004.
• The cost of the Universal Service for 2002 was set by the Spanish
regulatory body (CMT) at 110 million euros, representing approximately 50%
of the amount calculated by Telefonica. The CMT concluded that this cost was
not a competitive disadvantage for the Company and as such Telefonica de
Espana should not receive any compensation for it.
• The new Wholesale access offer to the Subscriber Loop (OBA: Oferta
de acceso al Bucle de Abonado) was approved on March 31st, 2004, the most
significant points of which being the revoking of the current '
retail-minus' pricing scheme for the wholesale ADSL access service.
According to this scheme a discount (around 40%) was automatically applied
over Telefonica de Espana retail prices to wholesale prices to date. The OBA
specifies that from now on Telefonica de Espana must provide the CMT with
sufficient notice of any new pricing or services schemes for retail ADSL
services. According to this information, the regulatory body will decide in
each case on the need to modify the pricing or service scheme of the
corresponding wholesale services. Furthermore, new loop rental prices were
also established for both the fully unbundled access and the shared access,
these being set at 11.35 euros per month and 3 euros per month, respectively
(leading to 7.9% and 14.0% reductions on previous prices). This decline in
prices was partly offset by the increase of the one-time connection fee for
both, the fully unbundled access by 11.8% and the shared access by 11.7%.
• The CMT has set a compensation of 4.79 euro cents per minute to
Public Use Telephony providers for the toll-free calls, which did not
generate revenue streams to these providers and did induce interconnection
costs. This decision affects TTP (Telefonica Telecomunicaciones Publicas)
positively in relation with toll-free calls to competitors'
numbering, and will take effect on August 1st.
In regard to the financial and operating results of Telefonica de Espana Group,
it is important to note that its quarterly results will be given from now on
according to the new management perimeter, including Telefonica Empresas
business in Spain, along with its corresponding pro-forma data from the previous
year.
The distribution of revenues corresponding to Telefonica de Espana parent
company has also been adapted to this new management perimeter, including
revenues from Telefonica Empresas' businesses in Spain. Parent company
's revenues are grouped into four main sections:
• Traditional Services: This includes the revenues for access, voice
traffic and other traditional services such as Intelligent Network, sale of
handsets and maintenance services.
• Internet and Broadband Services: This includes all revenues
related to Narrowband and Broadband Internet activities devoted to the
retail market.
• Data and Solutions Business: This section includes data and
solutions services for businesses and revenues from circuit rental to
clients (not included in the wholesale segment). Excluded from this section
are revenues from ADSL service provision in terms of both connectivity and
value-added services.
• Wholesale Business: This includes all types of services sold to
domestic or international operators in terms of both voice and data,
including the wholesale ADSL service.
Telefonica de Espana Group's operating revenues amounted to 2,635.1
million euros during the first quarter of the year, representing a 1.7% growth
in comparison with the same period of the previous year. Telefonica de Espana
parent company, as the single most important contributor, provided 2,527.8
million euros of revenues, with a year-on-year growth of 0.7%. The affiliates
Telyco and TTP (Telefonica Telecomunicaciones Publicas), with strong revenues
growth, contributed significantly to Telefonica de Espana Group's
revenues growth.
• Traditional voice services revenues decreased by 85.4 million
euros, being Internet and broadband services those that most contribute to
consolidated revenues growth with 63.0 million euros. Finally, Data and
Solutions and Wholesale services contributed positively to growth with 13.0
and 27.0 million euros, respectively.
• The Traditional Services, which totalled 1,730.8 million euros,
decreased by 4.7% in comparison with the same period of the previous year,
maintaining the same performance as in 2003.
Revenues from Client Network Access amounted to 720.1 million euros, a 2.4%
decrease compared to the figures recorded for the same quarter of the
previous year, as a result of the drop in access market share. The estimated
access market share of Telefonica de Espana at the end of the first quarter
of 2004 was 89.9%, having lost 0.5 percentage points in comparison with
December 2003 and 2.2 percentage points with regard to the same quarter of
the previous year.
It is also important to note that 28,594 PSTN and ISDN basic access lines
were lost in the quarter, compared to the loss of 36,348 lines in the last
quarter of 2003 and the 96,968 lines lost in the first quarter of 2003,
thanks to the recent 'Alta Gratis' ('Free
Subscription') promotion mentioned above. The positive progress in
the loss of access, together with the aforementioned PSTN monthly fee
increase last April 1st, will lead over the forthcoming months an
improvement in access revenues over total revenues.
Effective revenues from voice usage decreased by 7.6% to 785.0 million euros
as a result of the negative evolution of the total voice market that,
according to our estimations contracted by 3.5%, and the loss of voice
traffic market share to 26.6% (1.1 percentage points higher than that of
December 2003).
The estimated total volume of minutes processed by the Telefonica de Espana
network during the quarter amounted to 32,760 million, experiencing a
decline of 6.4%. Total outgoing traffic (including Internet), representing
57.0% of all traffic, amounted to 18,685 million minutes and fell by 15.8%.
Outgoing traditional traffic stood at 12,609 million, a year-on-year drop of
9.8% as a result of the aforementioned negative market evolution and share
loss. It is important to note that traffic continued showing signs of
weakness during the first quarter of 2004, with a 0.1% drop in
fixed-to-mobile traffic to reflect a change in trend with regard the
evolution recorded over the previous year. Local traffic fell by 13.1%,
provincial traffic by 7.7% and DLD traffic by 9.3%. International traffic
was the only type to uphold a positive trend over the quarter, with a 2.4%
growth. The number of outgoing minutes to the Internet amounted to 6,076
million and continued to show a negative year-on-year variation of 26.0%,
mainly as a result of switched Internet traffic cannibalization by broadband
ADSL services. Finally, incoming traffic rose by 10.0% to 14,076 million
minutes.
The deceleration of net gain in preselected lines must also be noted, as
preselected lines increased by only 51,924 lines in comparison with the
122,678 lines increase in the last quarter of 2003. The net gain figure of
preselected lines in the first quarter is the lowest ever since the
launching of this service.
In regard to Value-Added Services, Voice Mailbox and Caller ID services
should be noted. By the end of March 2004 the number of services activated
amounted to 11,652,387 and 7,073,834 respectively, showing a positive trend
over the quarter. The growing acceptance of the Text messaging service
continued, the number of text messages having increased by 10,9% compared
with the previous quarter.
• Internet and Broadband Services contributed with 254.0 million
euros to the consolidated revenues, a 33.0% increase in relation to the same
period of the previous year.
Telefonica de Espana continued to develop the Broadband business through the
mass deployment of ADSL to reach a total of 1,847,313 ADSL connections in
service. In the first quarter, ADSL net gain was 186,863 net accesses were
added in the first quarter, 4.4% more than the figure recorded in the first
quarter of 2003. The number of retail ADSL accesses at the end of the
quarter was 1,194,288 growing by 11,6% in comparison with those recorded as
of December 2003 to obtain a 48.1% share of total estimated broadband access
market.
Value Added Services on the retail ADSL service continued to perform
soundly, reaching a total of 503,310 services sold. Of these, 'ADSL
Solutions' should be highlighted as they have recorded a 16.1%
growth in comparison with December 2003, up to a total of 118,064 units
(39,382 Net-Lan Solutions: head-offices and remote accesses). The service
'Mantenimiento Integral ADSL' (ADSL Comprehensive
Maintenance) also presents strong growth reaching 38,000 clients.
Hence, revenues from the Telefonica de Espana retail broadband service grew
62.4% to reach 180.3 million euros.
Narrowband Internet revenues continued to drop by 7.8% to 73.6 million
euros, basically due to the lower volume of Internet traffic recorded over
the quarter.
• Data and Solutions Services, which are corporate client segment
oriented, continue under a deep transformation process, presenting strong
declines in traditional services such as X-25, ATM or traditional Frame
Relay connectivity, offset by those based on IP technology. Overall, these
services increased their revenues by 6.1% to reach 228.3 million euros. The
greatest contribution to these revenues came from the planning and operation
of virtual private networks, representing 55.1% of this segment's
revenues and growing at a year-on-year rate of 1.7%.
On the other hand, corporate Solutions and Value-Added Services segment
recorded a 24.7% growth, representing 25.4% of total Data and Solutions
revenues. Circuit rental and broadcasting business followed a downwards
trend, with a 4.9% drop in revenues to 34.0 million euros as a result of a
reduction in prices, the decrease in the demand and migration to other types
of access services such as ADSL.
• Wholesale Services contributed with 314.7 million euros to
consolidated revenues, a 9.4% increase in relation to the same period of the
previous year. Domestic interconnection revenues, which presented a 7.7%
growth on the back of fixed-to-mobile interconnection revenues growth and
flat fixed-to-fixed interconnection revenues, amounted for 28.6% of
wholesale revenues. In addition to this, the solid growth of wholesale ADSL
service must also be noted, growing by 46.6% to reach 52.3 million euros.
Telefonica de Espana Group's operating expenses experienced a
year-on-year decrease of 0.4% to 1,454.7 million euros. Among other items
comprising operating expenses, it should be noted the 10.0% reduction in
personnel expenses in comparison with the same period of the previous year,
totalling 539.4 million euros. This behaviour of operating expenses is the
result of the staff joining the 2003-2007 Redundancy Program in the Telefonica
de Espana parent company.
Telefonica de Espana parent company headcount (former perimeter) as of March
31sr 2004 reaches 34,464 persons, with a reduction of 752 employees during the
first quarter of the year. However, considering the new management perimeter,
the total number of employees of Telefonica de Espana parent company reaches
36,344.
Supplies expenses, amounting to 610.8 million euros, grew by 4.0%, partly
determined by a 1.7% increase in interconnection expenses at Telefonica de
Espana, that, in turn, were affected by two opposite trends: the drop in
fixed-to-mobile interconnection prices and the increase in interconnection
expenses for Intelligent Network and 118XY services. The growth in Telyco
expenses associated to the handset sale business also had a significant impact
on supplies expenses.
Expenses for external services & others grew by 12.4% to 269.3 million euros,
primarily because of the aforementioned greater commercial activity over the
quarter and the increase in general expenses associated to the real estate
program.
Telefonica de Espana Group's EBITDA amounted to 1,206.3 million euros,
up 4.2% year-on-year. The Group's EBITDA margin reached 45.8% (1.4
percentage points higher than that of full year 2003 and 1.1 percentage points
higher than in the first quarter 2003). Telefonica de Espana parent company's
EBITDA amounted to 1,204.1 million euros (up 4.3% year-on-year).
Telefonica de Espana Group's operating profit was 19.3% higher than that
of the previous year, amounting to 575.4 million euros in the first quarter of
2004 as a result of the positive evolution of EBITDA and the 6.6% decrease in
amortization and depreciation.
During the first quarter of 2004 Telefonica de Espana Group accounted for an
extraordinary provision totalling 173.0 million euros in relation to the
redundancy program.
CapEx by Telefonica de Espana Group dropped by 11.5% to 262.6 million euros to
reach a CapEx over Revenues ratio of 10.0%, reflecting Telefonica de Espana
's aim to progress in its transformation process towards a more flexible
and less capital-intensive company. It is important to note that, given the
seasonal nature of the investments, this decrease cannot be extrapolated to the
year as a whole.
Operating free cash flow, defined as EBITDA minus Capex, amounted to 943.8
million euros, up by 9.5% on the same period of 2003.
TELEFONICA DE ESPANA
SELECTED OPERATING DATA
Unaudited figures (Thousands)
March
2004 2003 % Chg
Equivalent lines (1) 19,269.8 18,794.8 2.5
PSTN Lines 15,022.9 15,361.6 (2.2)
ISDN equivalent basic access 1,836.5 1,763.7 4.1
ISDN equivalent primary accesses y 2/6 equivalent accesses 538.8 528.4 2.0
Fully unbundled local loops 24.3 5.0 381.1
ADSL connections 1,847.3 1,136.1 62.6
Telefonica de Espana retail ADSL 1,194.3 742.2 60.9
Traffic (minutes in millions) (2) 32,760.0 34,997.0 (6.4)
Employees (units) 36,344 42,435 (14.4)
(1) 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 - March cumulative data.
TELEFONICA DE ESPANA PARENT COMPANY
OPERATING REVENUES
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg
Traditional Services 1,730.8 1,816.2 (4.7)
Client network access (1) 720.1 737.8 (2.4)
Voice usage (Net total) (2) 785.0 849.6 (7.6)
Local 197.1 213.6 (7.7)
Provincial 62.7 66.6 (5.8)
Domestic long distance 110.2 116.8 (5.6)
International long distance 58.7 58.5 0.3
Fixed to mobile 283.9 305.9 (7.2)
IRIS and others (3) 72.2 88.3 (18.2)
Handsets sales and maintenance 166.7 174.8 (4.6)
Other business lines (4) 58.9 54.1 9.0
Internet and Broadband Services 254.0 191.0 33.0
Narrowband 73.6 79.9 (7.8)
Broadband (retail) 180.3 111.1 62.4
Data and Solutions Services 228.3 215.3 6.1
Corporate networks (5) 170.4 168.8 0.9
Solutions 57.9 46.4 24.7
Wholesale Services 314.7 287.7 9.4
National interconnection 89.9 83.5 7.7
Wholesale ADSL (Megabase, Megavia and GigADSL) 52.3 35.7 46.6
International operators services 71.8 71.9 (0.2)
Other national operators services (6) 100.7 96.5 4.4
Total operating revenues 2,527.8 2,510.1 0.7
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 and 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 - March
2004 2003 % Chg
Operating revenues 2,635.1 2,590.0 1.7
Internal expend capitalized in fixed assets (1) 29.9 41.2 (27.6)
Operating expenses (1,454.7) (1,460.6) (0.4)
Other net operating income (expense) (4.0) (12.5) (68.4)
EBITDA 1,206.3 1,158.2 4.2
Depreciation and amortization (631.0) (675.7) (6.6)
Operating profit 575.4 482.5 19.3
Profit from associated companies (0.3) (0.4) (39.4)
Financial net income (expense) (99.5) (117.1) (15.0)
Amortization of goodwill (0.8) (0.7) 24.3
Extraordinary net income (expense) (198.7) (3.0) n.s.
Income before taxes 276.0 361.3 (23.6)
Income taxes (86.1) (104.4) (17.5)
Net income before minority interests 190.0 257.0 (26.1)
Minority interests (0.0) (0.0) (5.0)
Net income 189.9 256.9 (26.1)
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) 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
As of this quarter, the quarterly results of Telefonica Latinoamerica Group are
presented according to their new business perimeter, including the businesses of
Telefonica Empresas America and of TIWS, the unit responsible for assisting
operators, managing the Group's international services and the network
supporting them as a whole. The corresponding pro forma results for the previous
year are also presented.
In this first quarter, the negative effect of exchange rates on Telefonica
Latinoamerica accounts was drastically reduced, given that appreciation of the
US dollar versus the euro over recent months caused all Latin American
currencies to reduce their year-on-year depreciation levels against the euro,
and even the Brazilian real and the Chilean peso recorded levels of appreciation
in comparison with the same period of 2003.
Telefonica Latinoamerica operating revenues, which amounted to 1,630.1 million
euros, showed growth of 10.3% in constant currency at the end of the first
quarter (+8.8% in current euros), primarily due to the 21.5% rise in revenues in
local currency of Telesp, promoted by the increase in the revenues of new
businesses (SMP, long-distance outside Sao Paulo), higher revenues obtained in
local telephony through tariff increases in July 2003 and through greater
fixed-to-mobile traffic and the increase in ADSL revenues, associated to the
higher number of users. To a lesser extent, the growth in revenues also reflects
the increase in revenues of TASA (+15.4% in local currency) due to the recovery
of total traffic per line, primarily encouraged by the increase in Internet
traffic and accelerated ADSL rollout, and the growth of Telefonica Empresas
America operators' revenues (+20.4% in constant euros). On the other
hand, CTC and Telefonica del Peru revenues recorded drops over the period
(-10.2% and -2.0% in local currency, respectively).
The total operating expenses of Telefonica Latinoamerica stood at 941.1 million
euros, a year-on-year growth of 13.3% in constant euros (12.5% in current euros)
basically as a result of the increase in expenses at Telesp due to greater
fixed-to-mobile and long distance interconnection costs, and the increase in
costs linked to the growth of the Internet business (ADSL and i-Telefonica). As
a result of this evolution, consolidated EBITDA stood at 722.8 million euros
with a year-on-year growth rate of 7.2% in constant euros, reduced to 5.8% in
current euros as a result of the forex effect.
Telefonica Latinoamerica depreciation and amortization amounted to 412.2 million
euros, a 2.1% drop in constant euros. The good performance of EBITDA and the
level of depreciation and amortization led the operating profit to reach 310.6
million euros, a growth of 22.8% in constant terms.
On the other hand, extraordinary results amounted to 8.9 million euros compared
with the negative 41.5 million euros of the previous year. In 2004, this item is
to include income from seizures and severance payments in continuation with the
program started at TdP in 2003, and adjustments due to lower value of materials
at Telesp, partly offset by the extraordinary revenues of TASA obtained through
the sale of scrap.
Financial results increased by 277.4% to stand at -51.1 million euros,
mostly due to lower positive exchange differences recorded over the quarter
(mainly by the Argentinean companies, which produced a positive effect of 132.4
million euros in the first quarter of 2003). Excluding the effect of exchange
rate differences, net financial expenses for Telefonica Latinoamerica fell by
33.8% due to lower financial expenses associated to lower average debt at both
holding company and operators level.
These results, together with a tax provision of 73.9 million euros and minority
interests of 32.2 million euros, led to a 118.0% growth in net income to reach
140.1 million euros.
Telefonica Latinoamerica's CapEx amounted to 102.6 million euros, a
year-on-year decrease of 18.5% in constant euros (12.5% in current euros). This
evolution reflects the control of CapEx implemented by the fixed operators and
by Telefonica Empresas America, particularly notable over these initial months
of the year. Telefonica Latinoamerica's operating free cash flow
(EBITDA-CapEx) amounted to 620.2 million euros in the first quarter, a 12.5%
growth in constant euros (9.5% in current euros). The contribution of Telesp
with 339.1 million euros is particularly noteworthy in terms of operating free
cash flow (EBITDA-CapEx) evolution.
As of March 31, Telefonica Latinoamerica managed 21.7 million of equivalent
lines, a year-on-year growth of 0.7%, mainly due to the increase in ADSL
connections that recorded a year-on-year increase of 71.6% through the
significant efforts made by all operators in terms of the broadband business.
Hence, at the end of the quarter, ADSL connections (853,275) accounted for 3.9%
of equivalent lines, compared with the 2.3% twelve months beforehand.
Traditional lines in service dropped by 1.0% due to the fall in lines at CTC
(-8.0%) and Telesp (-1.5%), which was not offset by the significant growth in
lines at TdP (+9.2%) and the slight increase at TASA (+0.4%).
The headcount at the fixed telephony operators (including subsidiaries) amounted
to 23,411 employees, which was 4.3% less than the previous year following the
workforce-restructuring program carried out by Telesp in 2003.
TELESP
Telesp ended March with 12.7 million lines in service (traditional + ADSL) to
remain virtually unchanged with respect to that of a year ago (-0.1%), as the
increase recorded in broadband (+48.3%) practically offsets the 1.5% reduction
in lines in service.
Despite the drop recorded in the global long-distance market, Telesp was able to
increase its estimated market share with respect to the previous year in terms
of Interstate long distance from Sao Paulo (+9 percentage points to 50% at the
end of March) and international long distance from Sao Paulo (+8 percentage
points to 41% at the end of March), while Intrastate long distance stood at 87%
at the end of March (at similar levels to those of the previous year). The good
performance of SMP is also important to note (a carrier must be chosen as of
January in long distance calls from mobile phones), leading to additional
long-distance revenues since July 2003.
The ADSL business exceeded half a million clients (518,175 connections as of
March 31), recording a net gain in the quarter of 33,782 connections (up by
110.8% year on year). This was mostly due to the new service portfolio launched
in September 2003, adapted more closely to client requirements by increasing the
range of connection speeds. The good performance of Telesp's ISP,
i-Telefonica, continued with over 1.5 million users and an estimated traffic
market share similar to that of December 2003.
Telesp's operating revenues during the first quarter of 2004 of 896.4 million
euros registered at year-on-year growth of 21.5% in local currency, driven by
both the increase in traditional services (+20.0%, providing 93.6% of operating
revenues), due to the increase in outgoing long distance revenues (+45.6%) as a
result of new businesses (SMP, long distance outside Sao Paulo), higher revenues
obtained in local traffic and monthly fees (+18.0%) due to the increase in
tariffs applied in July 2003 and to the greater fixed-to-mobile traffic, and
higher revenues from the Internet business (Narrowband + Broadband), which
increased by 62.4% in local currency, particularly ADSL revenues (+89.0%)
associated to the larger number of users.
Operating expenses rose by 35.1% in local currency compared with the previous
year, mainly as a result of the increase in interconnection expenses (+54.0%) to
reflect the higher revenues from fixed-to-mobile and long distance traffic.
Personnel expenses dropped by 13.9% in local currency thanks to the lower
average workforce compared to the previous year due to the two layoff processes
implemented during 2003. Expenses for external services grew by 25.4% in local
currency due to both greater activity (ADSL, i-Telefonica, co-billing, new
product marketing expenses, etc.) and to the indexing of certain contracts.
The provision for bad debts remained stable compared to the previous year in
3.9% over revenues (excluding prepaid revenues), thanks to the implementation of
stricter entrance filters.
With this evolution in operating revenues and expenses, in the first quarter of
2004 Telesp had an EBITDA of 394.3 million euros with year-on-year growth of
9.2% in local currency. The EBITDA margin stood at 44.0%, 5.0 percentage points
below that of a year ago and affected by the higher growth of businesses with a
smaller margin (Fixed-to-mobile traffic, long distance outside Sao Paulo and
SMP).
CapEx at March stood at 55.2 million euros, with a year-on-year reduction of
32.0% in local currency thanks to the optimization and reprogramming of certain
projects due to their strategic and profitable nature.
Operating free cash flow (EBITDA-CapEx) amounted to 339.1 million euros,
a 20.8% growth in local currency with regard to the first quarter of 2003 as a
result of the growth in EBITDA and the decrease in CapEx.
At the end of March, Telesp had 7,177 employees, with a ratio of 1,776 lines per
employee (+14.7%).
TELEFONICA DE ARGENTINA
The consolidation of the stable economic situation in Argentina continued over
the first quarter of 2004 following the sharp deterioration suffered in 2002.
The evolution of the main macroeconomic parameters, particularly the
appreciation of the peso against the dollar (9.0% average year-on-year exchange
rate appreciation), together with management efforts adapted to a context of
greater activity and increased consumer spending, led to the strong recovery of
plant and traffic operating indicators that even registered similar values to
those reached in 2001, the year prior to the crisis.
The plant of traditional lines, 4.2 million, increased slightly with respect to
2003 (+0.4%) as a result of the recovery in demand, which was reflected in the
number of gross adds (up by 64.0% year on year). Many of the lines that were
disconnected during the crisis were reactivated through the 'recupero
line', with around 60,000 lines remaining susceptible of migration to
this product. The good performance of the plant was accompanied by the recovery
of total traffic per line that increased by 10.0% in relation to 2003, mainly
driven by the increase in prepaid (+18.9% including the prepaid plant and
prepaid cards) and Internet (+14%) traffic. Also of particular note during the
quarter was accelerated ADSL rollout, which was reflected by a net gain of
15,410 lines over the three months, the greatest quarterly gain recorded by
TASA, to reach 84,746 ADSL lines in service (compared with 38,335 in March
2003), giving the company a 7 percentage point increase in its estimated
broadband market share in the Southern region (69%).
As a result of the good performance of the operating variables of plant and
traffic with respect to 2003, TASA's operating revenues rose by 15.4% in
local currency year on year to 192.1 million euros, despite the freezing of
tariffs since January 2002. It must be noted that the establishing of agreements
with operators for mutual invoicing applying CER (inflation indexing of
wholesale offerings) as of June 2003 had an impact on the strong year-on-year
growth. Without this effect, revenues would have risen by 10.7% year on year.
Revenues from traditional services (93.7% of the total), grew by 13.8%, while
revenues from the Internet business (Narrowband + Broadband) increased by 45.7%.
The significant increase in activity and sales has led to a 14.1% increase in
operating expenses in local currency, although TASA did not abandon the
aggressive cost reduction and control policy applied since the start of the
crisis. Of particular note was the effective management of bad debts, which has
led to debt recovery being maximized and to ensuring that profitable clients are
maintained. Hence, the bad debt provision as a percentage of revenues (excluding
prepaid revenues) for the year stood at around 1%.
The positive evolution in operating variables, combined with the ongoing policy
of cost containment, enabled TASA to achieve EBITDA of 114.9 million euros in
the year, an increase of 16.2% in local currency on that of the first quarter of
2003. The EBITDA margin was 0.5 percentage points higher than in 2003, reaching
59.8%.
Furthermore, it is important to note that investment for the year is focused
primarily on ADSL. In the first quarter, TASA's investments also tripled
year on year, considering the low level of investment in 1Q03. The CapEx to
revenues ratio reached 7.8% in local currency. Thanks to the increase in EBITDA,
the company achieved an operating free cash flow (EBITDA-CapEx) of 99.3 million
euros, 5.1% higher in local currency than that of the same period in 2003.
At the end of March, TASA had 7,970 employees, with a ratio of 539 lines per
employee (a year-on-year increase of 2.8%).
Finally, is should be noted that the contract documents and transfer agreement
governing the rate system of Telefonica de Argentina, S.A. envisage the
possibility of adjusting the rates applied by Telefonica de Argentina, S.A. to
its customers if extraordinary events arise that were not initially foreseen.
Accordingly, in view of the trend in Argentina's economy, Telefonica de
Argentina, S.A. presented a proposal to the Argentine government in recent
months to reestablish the rate system by indexing rates to the monthly variation
in Argentina's CPI or using another type of formula should there be a
significant variance between the trend in the price of the U.S. dollar and the
aforementioned variation in the CPI. Nevertheless, no definitive decision
regarding the claims made by the Company's proposal has yet been taken
by the Argentine government.
TELEFONICA CTC CHILE
On May 4th, the Chilean regulatory body (Subtel) published the tariff decree for
the forthcoming 5 years, the main amendments to which included the increase in
the number of tariff areas and time slots and the increase in the average
monthly fee and access charge tariffs by 7.0% and 39.0% respectively, along with
the reduction in the measured local service established at 14.4%.
For CTC, this decree does not imply a solution to the tariff structure problems
that have arisen since the enactment of the previous decree in 1999. The company
is assessing the effect of applying this new tariff structure on the business,
as well as any legal measures to be taken.
CTC's results for this first quarter of 2004 were marked by its
significant growth in the mobile market. The increase in business was also
assisted by the significant reduction in mobile tariffs, with the consequent
replacement of fixed traffic by mobile traffic.
The number of traditional lines in service stood at 2.4 million, a year-on-year
drop of 8.0% due to the disconnection of lines with bad debt problems recorded
in 2003. The 16.0% growth of the Prepaid plant must be noted, particularly the
increase in Full Variable lines (to 134,603 lines), influenced by the migration
of regular lines with problems of bad debt.
Despite the 8.4% squeeze in the DLD market compared to March 2003, CTC increased
its share by 4.6 percentage points in the last twelve months to reach a 43.6%
market share. The ILD market grew by 1.5% over the same period, CTC obtaining a
32.5% share.
In terms of Broadband, the number of ADSL connections at the end of March was
143,108, more than double that of 2003, having recorded a net gain over the
quarter of 17,846 connections, 50.0% more than in the same period of 2003.
The volume of accumulated revenues as of March stood at 203.6 million euros, of
which 93.8% were from the Traditional Business, reduced by 12.0% in local
currency. Total revenues were reduced by 10.2% year-on-year in local currency,
although excluding the impact of the reduction of CPP tariffs started in
January, the variation would be -5.7%, influenced by both the lower number of
lines in service and the smaller amount of Local and Long-Distance traffic.
Furthermore, the negative adjustment of tariffs through the decreased Whole
Price Index has had an added negative effect.
The Internet business (Narrowband + Broadband) grew substantially to obtain
29.3% more revenues year-on-year in local currency.
In order to counteract this negative trend in revenues, CTC is implementing a
strict cost control plan. The operating expenses registered are 11.1% below that
of the previous year in local currency, as a result of the reduction in
management expenses. Additionally, the 28.0% drop in interconnection expenses
associated with the reduction in traffic and the with the drop in
fixed-to-mobile tariffs must also be noted. Bad debt levels increased slightly
year-on-year, recording a bad debt provision 3.8% of revenues (excluding prepaid
revenues). These factors led to an 8.8% drop in EBITDA in local currency
compared with the previous year to 90.7 million as a result of the fall in
revenues not offset by cost control.
CapEx for the quarter focused on the expansion of ADSL and grew by 5.4% in local
currency with respect to the first quarter of 2003, a trend that will be
moderated over forthcoming months. As a result of the evolution of EBITDA and
CapEx, the Company's operating free cash flow (EBITDA-CapEx)
dropped by 11.1% in local currency in comparison with the same quarter of 2003
to stand at 75.3 million euros.
TELEFONICA DEL PERU
Telefonica del Peru continued to record a strong year-on-year growth of its
equivalent lines (+12.4%), as a result of both the increase in traditional lines
(+9.2% to 2.0 million), encouraged by the marketing of new tariff plans as of
March 2003, and the growth in broadband connections (+146.3% to 107,246), which
recorded a net gain in the quarter of 16,557 connections (+80.9% year over
year).
The company ended the first quarter of 2004 with revenues totaling 247.3 million
euros, a 2.0% drop in local currency compared with the same period of the
previous year, given that the 63.3% growth of revenues from the Internet
business (Narrowband + Broadband) in local currency was unable to offset the
4.3% drop in revenues from the traditional business, contributing 94.3% of the
total. This was affected by the poorer performance of the long distance business
due to the effects of competition, as well as the reduction in revenues from
traffic and fees in local telephony (-7.4%), affected by the impact of
migrations to new plans that represent 52.7% of the traditional plant. The
decrease in ARPU as a result of the launch of tariff plans was offset by the
significant growth of lines in service that considerably counteracted the
negative impact on revenues.
The long distance business, the revenues of which fell by 16.7% in local
currency, still suffered the effects of competition and interconnection rates
(payments made to other operators for outgoing international traffic). At the
end of March, DLD and ILD market shares stood at 73.2% and 60.5% respectively,
an increase in the share with regard to the previous year (+6.2 percentage
points and 10.9 percentage points, respectively).
The expense control policy resulted in a 1.2% reduction in total operating
expenses in local currency, mostly as a result of a 1.0% decrease in personnel
expenses due to the laying off of staff with higher salaries than those being
appointed. The company continued to improve its bad debt levels, registering a
provision of 3.0% on revenues (excluding prepaid revenues) compared with the
3.2% of the same period in 2003.
Despite the control of expenses and as a result of the reduction in revenues,
the company's EBITDA fell by 3.1% in local currency to stand at 106.7
million euros.
Investment control led to CapEx of 7.9 million euros, a 17.4% drop in local
currency, leading to the generation of an operating free cash flow
(EBITDA-CapEx) of 98.7 million euros.
The operator's workforce amounted to 3,195 employees, a year-on-year
drop of 5.4% (total employees, including subsidiary employees, stood at 5,044),
bring the productivity ratio to 661 lines per employee, 18.8% more than in the
first quarter of 2003.
TELEFONICA EMPRESAS AMERICA
Telefonica Empresas America continued to focus on the segment of large companies
with global responsibility on the data communications and corporate solutions
businesses. This management unit includes Telefonica Empresas operations in
America: Brazil, Argentina, Chile, Peru, Mexico, the U.S. and Colombia.
Operating revenues totaled 105.8 million euros, continuing along a stable path
of growth (+15.2% compared with 2003) and doubling the EBITDA margin on revenues
(11.6% versus the 5.7% of the same period in 2003) due to both a growth in scale
and improved resource management. Combined with a restrictive CapEx policy aimed
at growth, Telefonica Empresas America was able to generate an operating free
cash flow (EBITDA-CapEx) of 6.9 million euros in the first quarter of
2004.
The positive evolution of Telefonica Empresas Brazil is important to note,
representing one third of total revenues and achieving a substantial
year-on-year growth rate in local currency in terms of both revenues (+32.4%)
and EBITDA (+73.7%), obtaining an EBITDA margin of 21.5%, almost 5 percentage
points above that of the last quarter 2003.
Argentina, Chile and Peru all generated positive operating free cash flows and
Chile is particularly worth noting, with an accumulated EBITDA margin at March
of 29.4%.
In Mexico, the U.S. and Colombia, revenues totaled 19.9 million euros (+50.2%
compared with 2003), with a 15 percentage point improvement in the EBITDA
margin, recording a negative 2.7 million euros EBITDA with respect to the
negative 3.8 million euros in the same period of 2003.
Regarding products, the increase in revenues for Hosting / ASP and Solutions
must be noted, rising to 65% and 42%, respectively (in constant currency). These
lines are the ones with the greatest added value within the Telefonica Empresas
America value chain, providing our clients with an integral range of
communication solutions.
TELEFONICA INTERNACIONAL WHOLESALE SERVICES (TIWS)
Over the past year, TIWS has made a significant effort to improve efficiency and
reduce costs. In this regard, despite having increased revenues by 7.6% with
regard to the same period in 2003, operating expenses were reduced by 15.8%,
mostly due to the drop in external service expenses (-21.1%) and supplies
(-19.9%).
Hence, TIWS' EBITDA during the first quarter stood at 7.2 million euros,
compared with a negative EBITDA of 0.2 million euros during the first quarter of
2003, a 22.1 percentage point improvement on the margin over revenues. With a
CapEx of 3.1 million euros (up 117.0% over the year) in the first quarter of
2004, the generation of operating free cash flow (EBITDA-CapEx) was positive in
4.2 million euros.
TELEFONICA LATINOAMERICA GROUP
SELECTED OPERATING DATA
Unaudited figures (Thousands)
March
2004 2003 % Chg
Telesp
Lines (1) 12,745.7 12,762.8 (0.1)
PSTN Lines 11,136.4 11,180.2 (0.4)
ISDN equivalent accesses 29.1 34.2 (14.9)
2/6 Accesses for PBX and Ibercom 1,062.0 1,199.1 (11.4)
ADSL connections 518.2 349.3 48.3
Employees (units) (2) 7,177 8,245 (13.0)
Traffic (millions of minutes) (3) 20,830.9 20,173.1 3.3
Telefonica de Argentina
Lines (1) * 4,297.4 4,234.3 1.5
PSTN Lines 4,132.0 4,115.4 0.4
ISDN equivalent accesses 6.6 6.1 8.2
2/6 Accesses for PBX and Ibercom 74.1 74.5 (0.5)
ADSL connections 84.7 38.3 121.1
Employees (units) (2) 7,970 8,070 (1.2)
Traffic (millions of minutes) (3) 9,035.8 8,117.4 11.3
Telefonica CTC Chile
Lines (1) * 2,562.7 2,696.3 (5.0)
PSTN Lines 2,270.6 2,487.2 (8.7)
ISDN equivalent accesses 93.4 92.2 1.4
2/6 Accesses for PBX and Ibercom 55.5 50.9 9.1
ADSL connections 143.1 66.1 116.6
Employees (units) (2) 3,220 3,140 2.5
Traffic (millions of minutes) (3) 5,582.0 5,793.3 (3.6)
Telefonica del Peru
Lines (1) 2,111.2 1,878.0 12.4
PSTN Lines 1,970.0 1,800.0 9.4
ISDN equivalent accesses 34.0 34.5 (1.3)
2/6 Accesses for PBX and Ibercom -- -- n.s.
ADSL connections 107.2 43.5 146.3
Employees (units) (2) 5,044 5,016 0.6
Traffic (millions of minutes) (3) 3,230.9 3,259.5 (0.9)
TELEFONICA LATINOAMERICA GROUP
Lines (1) 21,717.1 21,571.4 0.7
PSTN Lines 19,509.0 19,582.8 (0.4)
ISDN equivalent accesses 163.1 166.9 (2.3)
2/6 Accesses for PBX and Ibercom 1,191.7 1,324.4 (10.0)
ADSL connections 853.3 497.2 71.6
Employees (units) (4) 23,411 24,471 (4.3)
Traffic (millions of minutes) (3) 38,739.0 37,343.2 3.7
* In 2003, number of lines is affected by internal reclassification in line with 2003 criteria, homogeneous within
the operators.
(1) PSTN (including Public Use Telephony) (x 1) - ISDN Basic access (x 2) - ISDN Primary access (x 30) - 2/6
Accesses (x 30) - 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 (except at Telesp in 2002, not available),
DLD and ILD. January-March 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 31/03/04 day were 2.383 and 251 respectively.
TELEFONICA LATINOAMERICA GROUP
SELECTED FINANCIAL DATA
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg
Telesp
Operating revenues (1) 896.4 714.1 25.5
EBITDA 394.3 349.6 12.8
EBITDA margin 44.0% 49.0% (5.0 p.p.)
Telefonica de Argentina
Operating revenues 192.1 178.1 7.9
EBITDA 114.9 105.7 8.7
EBITDA margin (2) 59.8% 59.4% 0.5 p.p.
Telefonica CTC Chile
Operating revenues 203.6 221.5 (8.1)
EBITDA 90.7 97.1 (6.6)
EBITDA margin 44.5% 43.8% 0.7 p.p.
Telefonica del Peru
Operating revenues 247.3 292.4 (15.4)
EBITDA 106.7 127.6 (16.4)
EBITDA margin 43.1% 43.6% (0.5 p.p.)
Telefonica Empresas America
Operating revenues 105.8 91.9 15.2
EBITDA 12.3 5.2 134.8
EBITDA margin 11.6% 5.7% 5.9 p.p.
TIWS
Operating revenues 33.7 31.3 7.6
EBITDA 7.2 (0.2) c.s.
EBITDA margin 21.5% (0.7%) 22.1 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
CONSOLIDATED INCOME STATEMENT
Unaudited figures (Euros in millions)
January - March
2004 2003 % Chg
Operating revenues 1,630.1 1,498.2 8.8
Internal expend capitalized in fixed assets (1) 9.5 10.3 (8.2)
Operating expenses (883.1) (785.4) 12.4
Other net operating income (expense) (33.7) (39.7) (15.2)
EBITDA 722.8 683.4 5.8
Depreciation and amortization (412.2) (428.4) (3.8)
Operating profit 310.6 255.1 21.8
Profit from associated companies (0.5) 6.3 c.s.
Financial net income (expense) (51.1) (13.5) 277.4
Amortization of goodwill (21.7) (23.4) (7.1)
Extraordinary net income (expense) 8.9 (41.5) c.s.
Income before taxes 246.2 182.9 34.6
Income taxes (73.9) (92.5) (20.1)
Net income before minority interests 172.2 90.3 90.7
Minority interests (32.2) (26.1) 23.4
Net income 140.1 64.3 118.0
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.
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