Telefonica Sa · BME:TEF
Telefonica Sa — Telefonica S A — Investor Day (October 2003)
54 slides from Telefonica Sa's investor day presentation, Oct 14, 2003
Slide 1: Third Investor Conference
Antonio Viana-Baptista Executive Chairman Telefonica Moviles, S.A. THIRD INVESTOR CONFERENCE | | maprin 2 OO 3 Telefonica
Slide 2: Safe harbor
Safe harbor "This presentation 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 int
Slide 3: Leveraging performance excellence and building growth
Leveraging performance excellence and building growth
Slide 4: A global perspective: capitalizing on performance excellence
+ A global perspective: capitalizing on performance excellence & existing growth prospects » Responding to local challenges & opportunities: ~ Spain: sustainable leadership with world class performance ~ Brazil: consolidating leadership & shaping the market — Mexico: agile management to support rapi
Slide 5: Telefonica Moviles has earned the right to grow
Telefonica Moviles has earned the right to grow » Continuing strong cash flow generation in our established markets provides strategic flexibility » World-class operational capabilities are being leveraged to extract maximum potential from existing growth opportunities + Positions developed in key m
Slide 6: Positive CF generation in every market with established operations
Positive CF generation in every single market with established operations providing strategic flexibility Operating CF 1Ho3* 1,658 e 8 Start-up 175 operations 35 32 a Spain Brazil Peru Argentina Guatemala & El Salvador 1 Operating CF: EBITDA-Capex. Aggregate figures
Slide 7: TEM Spain is the soundest mobile operator in the industry
World-class operational capabilities: TEM Spain is the soundest mobile operator in the industry Market share 1HO3 Monthly churn 1HO3 53.5% 1.6% -_ a 0.8% TEMSpain European TEM Spain European average average? EBITDA margin 1HO3 54% _ 45% TEM Spain European average? 1 overage performance for Vodafone
Slide 8: Outstanding organic growth prospects
Outstanding organic growth prospects 3.4€ 2002 2006E 2002 2006E * Opportunity to mou Data ARPU leverage our #4/#2 position to capture | Total market penetration a large share of the >55MM new, customers coming to the market* Brazil (Vivo's areas of 22% Ea ad epurationy) * Further market consolidatio
Slide 9: Unique business case
Telefonica Mevile= 2:2) Unique business case STRATEGIC TEM TODAY DIRECTION Growth of customer base with sound CF generation market by market + Financial strength TEM in 2006E 65-70MM?* customers > €15Bn of operating CF generation in 2003-06E? Telefonica Moviles
Slide 10: A global perspective: capitalizing on performance excellence
» A global perspective: capitalizing on performance excellence & developed growth prospects » Responding to local challenges and opportunities: ~ Spain: sustainable leadership with world class performance ~— Brazil: consolidating leadership & shaping the market ~ Mexico: agile management to support
Slide 11: Focus on development in the Spanish market
Focus on Total Spanish market '% Penetration development in the Spanish market We have anticipated & benefited from each major 1993 1994 1995 1996 July 1995 Dec 1996 Launch of ff Launch of prepaid Subscriber base 1997 1997-1999 ‘Mass market campaigns Market share Control churn rate & 10 March 2000 L
Slide 12: Spain: sustainable leadership with world class performance
Spain: sustainable leadership with world class performance KEY CHALLENGES & OPPORTUNITIES Maintain market * Grow selectively veteeiulp * Maximize customer loyalty Boost usage * Sustain traffic growth rate above European average * Promote data services * Enhance operating profitability Sustain operat
Slide 13: Selective customer base growth through targeted initiatives
Selective customer base growth will be achieved through targeted initiatives Corporate, SME & SoHo customers ‘000 414% 2,774 © Focus on specific segments with 2,434 high growth potential ml aHo2 1HO3 Gap between outgoing traffic & subscriber market share * Increase penetration among 60 a a residenti
Slide 14: Best in class churn rate
best in class churn rate Unique loyalty programs for contract & prepaid customers launched in March 2000 * 10% customer base already upgraded handsets in 1Ho3 Selective prepaid to contract migrations * 1.1 million migrations to date Leverage on being the largest wireless community in Spain Detailed
Slide 15: Migrate prepaid to contract
Migrate prepaid to contract Increase on-net traffic, capitalising on our high market share Increase off-peak traffic Develop usage commitment Increase penetration of VAS Benefit from natural market trend to migrate fixed traffic to mobile Proactive growth of voice usage ... ‘uae Average ARPU of a mi
Slide 16: Traffic growth higher than other European operators
.. that make our traffic growth higher than that of other European operators Total billable traffic: y-o-y growth rates TEM Spain's Blended MOU 30% TME European average 10% 1Q01 2901 3Q01.« 40a. 1002 2002, 3902 402-1003 Source: Goldman Sachs, “Awalk onthe wireless side”, June 2003 European average i
Slide 17: With contained regulatory risk
.. with contained regulatory risk Termination fees & roaming prices in line with European average Revenues’ exposure to interconnection & Average termination fee per minute - Post 2003 Reductions incoming roaming (Euro cents/minute) oo 02 Tite VOD. TM «VOD. TEM. «UOD. Orange St mam VOD THN Opin pees
Slide 18: Enhanced & segmented data offering
Enhanced & segmented data offering Offer customized data oriented to all our customers * Prepaid * Contract individuals * SME & Corporate Enhance customer experience Ease of use ‘SMS + MMS MoviStar= Oficin@ MoviStar £/mocién Blackberry Guarantee access to affordable handsets » Able to use new + Easy
Slide 19: Data offering versus our main competitor in Spain
than our main competitor in Spain ‘stor NY) MoviStar< @/mocién + Access / Handsets i = SMS, MMS, wap, i-mode™, voice portal Content providers Wide content offer. >300 content providers. Various exclusive agreements Open focus to attract plenty of high quality providers i-mode facilitates collaborati
Slide 20: New handsets enhance user-friendly navigation
New handsets enhance user-friendly navigation in New e-mocion Menu launched in February 03 Handsets specially adapted for e-mocion Old e-mocion Menu + e-mocién embedded in handset menu + i-mode™ allows for higher navigation speed ete Se ml ae © oF Direct access to e- mocion Icon-driven menu » Integr
Slide 21: Own brand handsets encourage new technologies
Our wide range of own brand handsets encourages the penetration of new technologies to foster data usage TSM handsets at very competitive prices Today's offer... Coming soon ... TSM 100 Price range: 120-160 € TSM5 Price range: 80-100 € TSM 400 TSM 30 Price range: 600-800 € Price range: 100-120 € Per
Slide 22: Focus on operational efficiency
We will maintain focus on operational efficiency Commercial cost: Non-commercial costs + Increasing focus on loyalty programs, » Lower network and operational costs per building on sound results from initiatives minute leveraging scale economies launched in March 2000 + Efficiency improvements in: +
Slide 23: Investment program will support growth platform
Our investment program will support our growth platform 2003-2006: reparing the future & leading the UMTS deployment Progressive UMTS roll-out: = Gradual network deployment to steadily migrate customers to a high quality UMTS metropolitan coverage/service once attractive handsets are available — 750
Slide 24: Alliance with TIM, T-Mobile & Orange
Telefonica Sa TME commercial & operational strategies will be enhanced through the alliance with TIM, T-Mobile & Orange TEM Spain's strategic | Maximize customer base Boost voice & data usage Enhance operating efficiency Rationalize capex CORPORATE ROAMING SERVICES. SERVICES & PLATFORMS HANDSETS 1 \
Slide 25: We will deliver sustained revenue growth
We will deliver sustained revenue growth... Year-on-year ARPU growth Service revenues Moe Operating revenues* MME 6,770 a 2002 2006E 24 “Operating revenues: Service Revenues + Handset Sales
Slide 26: Continue improving our profitability
.. and continue improving our profitability ... EBITDA EBITDA Margin* MME 2002 2006E 2002 2006E 2003E 2004E 2005E 2006E EBITDA Margin « EBITDA/Operating Revenues 25
Slide 27: Increasing our estimates year over year
55% 50% 45% 40% “EBITDA Margin = EBITDA/Operating Revenues .. to carry on increasing our estimates year over year TEM Spain EBITDA margin Madrid (2003) Sevilla (2002) Objective: 2006 Objective: 2005 Rio de Janeiro (2001) Objective: 2004 2004E 2005E <> TEM's guidance at Investors Day 26
Slide 28: A global perspective: capitalizing on performance excellence
+ A global perspective: capitalizing on performance excellence & existing growth prospects » Responding to local challenges and opportunities: ~ Spain: sustainable leadership with world class performance ~ Brazil: consolidating leadership & shaping the market ~ Mexico: agile management to support ra
Slide 29: The Brazilian market has a vast potential
The Brazilian market has a vast potential Mobile penetrati Vivo's markets * Tele Leste Celular 35%- 40% * TCO & NBT * Tele Sudeste Celular * CRT Celular * Telesp Celular & Global Telecom 2002 * 177MM POPs * 13" largest economy worldwide * Wireless accesses (40MM) already above fixed lines (39MM) 28
Slide 30: Led consolidation in Brazil
We have led consolidation in Brazil & we are the only player to deliver significant progress in the integration of operations * Single management structure * Single procurement process * Single nationwide brand launched in April 2003
Slide 31: VIVO is the soundest wireless player in Brazil
VIVO is the soundest wireless player in Brazil with a unique position to capture the significant growth potential of the market * We maintain our national & local * Welead profitability leadership Subscriber share (1HO3E) EBITDA share (1HO3E) aera sree (27.5 MM ACTIVE 8 operations 47% > 59% era £2 C
Slide 32: Capitalize on strengths to grow customer base
We will capitalize on our current strengths & expertise to grow our customer base ... * Leverage on “being part of the largest mobile community” in Brazil * Deeper market segmentation with growing focus on customer loyalty * Capitalise on TME’s track record in loyalty initiatives ee Capture customer
Slide 33: Enrich the usage profile
.. and to enrich their usage profile * Leverage on a high-quality customer base to drive usage * Service differentiation & comprehensive offer to residential and business customers * Increasing contribution from data services: * Data services & VAS leadership * Increased penetration of existing VAS
Slide 34: Integration of operations improves operating performance
Integration of operations enables us to improve operating performance, taking full competitive advantage of our size & New customer oriented organization Focus on reduction of non- commercial costs Employees 7,686 a 6,843 Es Pre-VIVO 2903 Single management structure Workforce rationalization & incre
Slide 35: Superior customer experience without jeopardising capex optimisation
While our commitment to offer superior customer experience does not jeopardise capex optimisation Major network roll-out has already been made. Controlled capex to increase capacity in key cities Selective CDMA overlay in main cities: Rio Grande do Sul & Brasilia Leading technology to 3G evolution:
Slide 36: Solid leadership captures upside potential while increasing profitability
In summary, our solid leadership allows us to capture the significant upside potential of the market while increasing profitability Operating revenues EBITDA EBITDA margin? MM Reais MM Reais 40%- 45% 3,343 20027 2006E Capex MM Reais 1500 1000 500 2003E 2004E 2005E 2006E 3100 EBITDA 35
Slide 37: A global perspective: capitalizing on performance excellence
+ A global perspective: capitalizing on performance excellence & existing growth prospects » Responding to local challenges and opportunities: ~ Spain: sustainable leadership with world class performance ~ Brazil: consolidating leadership & shaping the market ~ Mexico: agile management to support ra
Slide 38: Mexico is a fast growing market
Mexico is a fast growing market.... Penetration GDP/Capita 02 2002 US$) Sao Paulo 24.0% 5,713 1,4 x GDP/Capita of Chile with Chile 40.0% 4,414 Ya the penetration in 2002 Mexico 20.0% 6,257 Total market penetration = 40% 21% Penetration in 2006 lower than today in Chile
Slide 39: Room for a 2nd profitable player
.. with room for a 2"4 profitable player Analysts estimates for #1 player m1Ho3) = Gl 2005E * Weare committed to profitable growth. We aim to capture a reasonable market 15% ram, share, refraining from direct pricing competition 42% 43% * Only alternative to AMX with international experience Market
Slide 40: Performance better than originally anticipated
Our performance is better than originally anticipated ... * Launch of GSM in 17 cities, coverage in areas with 383MM POPs * Nationwide single brand launched * Implementation of TEM’s commercial system Accelerating GSM build-up 2003 Initial plans 2003 New plans * 46 cities covered * Coverage in >80 c
Slide 41: Record-time GSM network build up
.. With a record-time GSM network build up...
Slide 42: Controlled distribution strategy
* Deployment of a controlled distribution strategy: * Reinforcement of Retail channel © Streamlining of Direct channel (own stores) * Reinforcement of Specialised and Mixed channels * Creation of SME Dealer & Corporate channel * Refurbishing of points of sale 4a .. at the same time that we expand ou
Slide 43: Innovative GSM service offering
Leverage on TEM’ * Basic services: * Call Waiting * Call forwarding * Conference call * Caller ID * 2424 (info services) * Voice mail * SMS * Balance check (prepaid) lepth knowledge & expertise of GSM technology & services, accelerating time to market 42 .. and launch an innovative GSM service offer
Slide 44: Subscriber base growth
.. Which have supported the subscriber base growth Net adds (000) 190 3003 number of subscribers has reached 2.7MM 11 1903 2Q03 3003 43
Slide 45: Initiatives accelerate customer growth and reach profitability
These initiatives allow us to accelerate customer growth & reach profitability in the medium term 2003 » Nationwide single brand launched and integration of Companies » Expansion of distribution channels (5,000 vs. 2,228 end 2002) + Innovative GSM offer » GSM deployment, covering >80 cities » CAPEX
Slide 46: A global perspective: capitalizing on performance excellence
» A global perspective: capitalizing on performance excellence & existing growth prospects « Responding to local challenges and opportunities: ~ Spain: sustainable leadership with world class performance ~ Brazil: consolidating leadership & shaping the market ~ Mexico: agile management to support ra
Slide 47: Other operations offer additional growth prospects
Other operations offer additional growth prospects 38% y-o-y EBITDA growth in Euro terms (1H03) Self sustainable operation with cash flow generation Capture growth opportunities due to extremely low mobile penetration while continuing to enhance operating efficiency Growth & capex will evolve accord
Slide 48: A global perspective: capitalizing on performance excellence
+ A global perspective: capitalizing on performance excellence & existing growth prospects » Responding to local challenges & opportunities: ~ Spain: sustainable leadership with world class performance ~ Brazil: consolidating leadership & shaping the market ~ Mexico: agile management to support rapi
Slide 49: Unique business case
Telefonica Moviles, S.A. Unique business case STRATEGIC TEM TODAY DIRECTION Growth of customer base with sound CF generation market by market ry Financial strength of 2002. 48 TEM in 2006E 65-70MM?1 customers > €15Bn of operating CF generation in 2003-06E? Telefonica Moviles
Slide 50: Strong customer expansion in Latin America
Strong customer expansion in Latin America Managed Customers by 2006E MM 65-70 Int 20-22 DATA. Spain voice TEM Spain International TEM 02! O6E O6E O6E Consolidated operating revenues CAGR 02-06E ?: 15% + 2002 Customer bose does net include TCO customers = Constant exchange rates 9» of 2002 49 We off
Slide 51: High level of operating efficiency
.. high level of operating efficiency ... ° TEM Spain is the most efficient operator in its European Home Market ° EBITDA margins > 40% in Brazil * Continue improving margins in other countries TEM Group EBITDA TEM Group EBITDA margin MME 2002 2002 2006E constantenckange ates ascF 2002 50
Slide 52: Capex optimisation leads to strong cash flow generation
generation Operating cas! low Cumulative figures 2003-2006E Bn€ EBITDA Capex constantenchange ates ascF 2002 Operating CF 51 .. and capex optimisation that lead to a strong cash flow Invest in growth projects with reduced risk & control of operations Maintain solid balance sheet Healthy dividend str
Slide 53: Guidance
Strong usage growth 2. ARPU CAGR 02-06E: 3%-5% 3. Sustained EBITDA margin >50% 4. Controlled capex budget at €600-850MM/year while leading UMTS deployment 5. Competitive scenario & regulatory environment —— 6. Leader in a 60-70MM subscribers market by 2006-07 7. EBITDA margins > 40% 8. Strong operat
Slide 54: Signatures
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Telefónica, S.A. Date: October 13 th , 2003 By: /s/ Antonio Alonso Ureba Name: Antonio Alonso Ureba Tit