Telefonica SA · BME:TEF

Telefonica SA — JP Morgan Investor Conference 2004

30 slides from Telefonica SA's conference presentation, May 2004

  1. Slide 1: JP Morgan Investor Conference

    JP MORGAN Investor Conference Miguel Escrig Meliá Deputy General Manager Financing & Capital Markets Barcelona May 2004

  2. Slide 2: Safe harbour

    Safe harbour 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

  3. Slide 3: Index

    Index Company overview Business performance Financial Policy Conclusions 3

  4. Slide 4: A solid strategic and competitive position

    A solid strategic and competitive position ... 9 Telco Market cap ranking (May 04) # 6 Worldwide # 1 European incumbent Telefónica 9 100 million customers under management 9 Leader in the Spanish & Portuguese-speaking markets, with above 500 million potential customers CUSTOMER BREAKDOWN WIRELINE WI

  5. Slide 5: Strengthening core business through commercial activity

    … strengthening core business through commercial activity,... Wireless growth Customers + 30% y-o-y, revenues + 20%, EBITDA + 9% (constant perimeter & FX) GSM network deployment: Mexico & Argentina Strong commercial activity in Latin America Loyalty programs in Spain Reinforce Latam growth opportuni

  6. Slide 6: Promoting efficiency

    … promoting efficiency, and … Non performing businesses restructuring Internet: Takeover of Terra Lycos for better integration Terra already EBITDA positive Media: Pay TV merger (Sogecable), open TV divestment (A3) 4.5 bn Eur savings from efficiency 15.000 employees reduction in Spanish wireline in

  7. Slide 7: With a balanced financial policy

    … with a balanced financial policy … Shareholder value 2 bn Eur dividends per year (+60% vs 03), close to 3% yield 4 bn Eur buy-back program until 06 Room for selective acquisitions Solvency protection 3.5 bn Eur debt reduction in 12 months, to 18 bn Eur (March 04) (Net debt + Commitments) / EBITDA

  8. Slide 8: Sustained double-digit cash flow growth

    Sustained double-digit cash flow growth after after 63% 63% increase in 2002... FY03 OpCF* (€ in Million) 8/11% 31.3% 11.8% 27.9% 8,875 62.6% 7,935.2 15.7% 4,881.5 12.4% 2,493 2001 2002 2003 2004 Target 1Q04 (constant FX) CF over Revenues Annual growth rate OpCF Growth 2003 1Q04 Mobile 14.5% 9.5% Sp

  9. Slide 9: Supported by revenue & EBITDA growth

    … supported by revenue & EBITDA growth, … REVENUE EBITDA GROWTH 0.0% +7.5% +7.7% 7/10% 7/10% 6,959 +10.4% 3,112 2002 2003 2004 target 1Q04 2002 2003 2004 target 1Q04 (constant FX) (constant FX) FX drained 6.6 pp to revenues growth in 03, and 6.0 pp to EBITDA, but only 1.2 pp and 0.1 in 1Q04 9

  10. Slide 10: Efficient Capex targeting growth areas

    ...and with efficient Capex targeting growth areas CAPEX EVOLUTION INCREASING EFFORT ON (€ in Million) TRANSFORMATION Traditional capex +1.9% 0/3% GSM Latam + UMTS -23.2% 317.9 -1.6% 3,861.1 414.0 Broadband (Fixed) 3,789.0 3,727.1 +267.0% 102.4 27.9 158.9 +25.3% 199.2 FY02 FY03 FY03 ex-forex & FY04

  11. Slide 11: Index

    Index Company overview Business performance Financial Policy Conclusions 11

  12. Slide 12: Spanish wireline has faced substantial challenges

    Spanish wireline has faced substantial challenges … • Price reduction: REGULATION – Tariffs decreases (2000-03) around 35% – Tariffs and access fee similar to European peers • Foster competition • 10% access loss (2.3% in 2003) NEW ENTRANTS • 2.2 million lines preselected (Dec 03) • 73.4% voice mark

  13. Slide 13: Beaten through increased commercial activity

    … beaten through increased commercial activity ACCESS LINES NET PRESELECTED LINES ADSL CONNECTIONS LOSSES NET ADDS (Net Adds, thousands) (PSTN + B.A. ISDN; Thousands) (Thousands) 1.847,3 1.660,5 -70.5% -42.3% 1.420,5 1.293.6 1.136,1 97.0 957.2 90.7 28.6 51.9 1Q03 1Q04 1Q03 1Q04 Dec-02 Mar-03 Jun-03

  14. Slide 14: Spanish wireline has enhanced its cash-flow

    Spanish wireline has enhanced its cash-flow, with growth in top line 10,217.4 Million € Spanish (-0.5%) Wireline 4,534.2 2000 (0.4%) 3,128 10,272.1 (12.8%) 2001 4,517 2002 2,635 2,773 1,206 2,638 945 2,577 2003 Total revenues 1Q04 EBITDA 1Q04 OpCF* 1Q04 1Q04 growth: revenues +1.7%; EBITDA +4.2%; Op

  15. Slide 15: Strong cellular growth driving cash-flow

    Strong cellular growth driving cash-flow Net adds (000)1 Managed customer base (MM) 2,350 +30.2% 54.4 52.0 4.8x 41.8 494 1Q031 1Q04 1Q03 4Q03 1Q04 Strong organic growth EBITDA-CAPEX (y-o-y) 20.2% 19.5% +9.5% 0.917 +15.1% 12.6% 0.838 +14.3% 8.7% Operating Revenues EBITDA 1Q03 1Q04 Growth ex-forex & c

  16. Slide 16: Improving metrics in Spanish wireless

    Improving metrics in Spanish wireless MOU ARPU € SUSTAINED CUSTOMER GROWTH +9.0% 115.6 19,939 116.1 +6.8% 29.5 278 27.6 -1.3% +6.7% Blended Blended 1Q04 Net Adds 1Q04 Customer base (000) (000) 1Q03 1Q04 1Q03 1Q04 y-o-y growth 9 +25% increase in prepaid to contract migrations (308.000 1Q) 9 +2% incre

  17. Slide 17: Record cellular customer growth in Latin America

    Record cellular customer growth in Latin America… COUNTRY CUSTOMER BASE, 1Q04 NET ADDS Y-o-Y GROWTH MLN (000s) (%) (As of 31/3/04) Brazil 21.85 1,200 59 Mexico 3.77 318 55 Argentina 1.97 147 27.4 Peru 1.63 128 31.9 Chile 2.50 230 32.7 9 Brazil: Penetration still at 30%, EBITDA growing 17% 9 Mexico:

  18. Slide 18: Expansion through BellSouth companies acquisition

    … supports expansion through BellSouth companies acquisition 65 MILLION MANAGED CUSTOMERS AS OF MARCH 04(*) Mexico: #2 Strong presence in Brazil & Mexico Guatemala: #3 Panama: #1 + El Salvador: #2 Leadership & Venezuela: #1 consolidation in Chile, Argentina & Peru Nicaragua: #1 + Acquiring critical

  19. Slide 19: Latam wireline growing at top and bottom line

    Latam wireline growing at the top and at the bottom line TRAFFIC EBITDA (€) REVENUES (€) (Million minutes) 722.8 1,630.1 8.8% 5.8% 3.7% 38,739.0 37,343.2 683.4 1,498.2 1Q03 1Q04 1Q03 1Q04 1Q03 1Q04 OpCF * GENERATION (€) 620.2 98.7 10.3 „ Lines in service close to flat 75.3 „ Growth is being supporte

  20. Slide 20: Robust top line growth at Telesp & TASA

    Robust top line growth at Telesp & TASA TELESP REVENUE OPERATING DRIVERS GROWTH 26.0% 22.0% „ Local: 2003 tariff increases & 3% local traffic annual increase „ LD: 50.5% market share in DLD (+9 p.p. y-o-y) & 41% in ILD (+8 p.p. y-o-y) „ ADSL: Close to 34,000 net adds in 1Q04 (2x 1Q03 net adds) 1Q04

  21. Slide 21: Index

    Index Company overview Business performance Liability Management Conclusions 21

  22. Slide 22: Risk management policy & liability management

    Risk management policy & liability management... • Cash Flow Hedging CURRENCY RISK • No FX losses impacting P&L • Average Maturity of Debt longer than period needed to pay off debt in full REFINANCING RISK • Liquidity sources greater than planned uses for next 12 months • Non-recourse to the parent:

  23. Slide 23: Debt reduction and improved financial expenses

    ... are paying off: 0.9 Bn Eur debt reduction due to FX and 1.2 Bn Eur improvement in financial expenses in 03 15.4% 859 € Mill. 2003 2002 % Change 692 m 196 € Mill. Net Financial Expense 1,462.6 1,692.8 -14% USD Argentinean Peso effects (134.4) 528.8 167 m Latam Realised P&L USD debt (267.5) cancel

  24. Slide 24: 4.5 Bn Eur debt reduction since December 2002

    4.5 Bn Eur debt reduction since December 2002 for solvency protection and financial flexibility 1.9x EBITDA 1.4x EBITDA 22,533 6,312 -818 -1,269 -107 18,018 -1,680 46 -197 859 79 -303 1,745 -153 (1) (1) Negative numbers imply debt increase Dec 2002 FCF post Forex TSA Dividends Financial Changes In C

  25. Slide 25: Telefónica could fully pay its debt in 4 years

    Telefónica could fully pay its debt in 4 years 2003-2006: 4-year Cash Flow * (billion EUR) 1Q04 Debt >39 7 >27 Net Debt+NPV Cash 5 Commitments ** 21.9 Net Debt 8.0 1Q04 (2003-1Q04) 18.0 OpFCF Interests Cash Taxes, Cash Minorities & available for Working debt service Capital · Debt maturity –6 years

  26. Slide 26: Comfortable coverage of 2004 needs

    Comfortable coverage of 2004 needs, including the acquisition of Bell South’s assets TOTAL USES: TOTAL SOURCES: EUR 13,382+? mln EUR 17,756 mln Treasury Stock, PT Shares, Financial Committed LT Investments Credit Lines EUR 837** + ? mln EUR 6,368 mln Bell South Assets EUR 4,958 mln* Ö Maturities in

  27. Slide 27: Balanced credit quality matched with even CF allocation

    Balanced credit quality matched with even CF allocation ADJ NET DEBT / EBITDA (2003E) • Solid credit metrics compared to peers, especially after off balance sheet adjustments 4x • No asset-backed securities, pension fund deficits nor 3.4x sale&lease-backs 3.3x 3.3x 3.0x 3x 2.6x 2.5x 2.4x 2.3x 2.1x 2

  28. Slide 28: Index

    Index Company overview Business performance Financial Policy Conclusions 28

  29. Slide 29: Comprehensive approach to shareholder value

    Comprehensive approach to shareholder value including solvency protection Focus on core business & efficiency Cash-Flow generation Solvency protection Discipline Easy access to credit Face Dividends Take growth business & opportunities risks Buy-backs Shareholder value 29

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