Telefonica Sa · BME:TEF

Telefonica Sa — Telefonica S A — Third Telefónica Investor Conference 2003

27 slides from Telefonica Sa's conference presentation, Oct 14, 2003

  1. Slide 1: Third Investor Conference - CFO Presentation

    Santiago Fernandez Valbuena Chief Financial Officer Telefonica SA THIRD INVESTOR CONFERENCE | maprip 2 O O 3 Telefonica

  2. 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

  3. Slide 3: Finance at Telefonica: We Are Careful with Capital

    Finance at Telefonica: for us, WACC means We Are Careful with Capital

  4. Slide 4: Contents

    Contents Managing for Cash-Flows: Generation and Distribution. 2. Our 3-D Balance Sheet: Assets, Liabilities, Risks. 3. Conclusions.

  5. Slide 5: 1. Managing For Cash-flows

    1. Managing For Cash-flows 1.1 GENERATION ° FCF Generation * Regional Sources 1.2 DISTRIBUTION RATIONALE | ° Shareholder Remuneration COMMITMENTS ° Solvency Protection (| * Business Expansion BLEXIBITY * Financial Flexibility

  6. Slide 6: A Strong Cash Flow For The Period 2003-2006

    A Strong Cash Flow For The Period 2003-2006... * Client focus & commercial excellence to drive top lin: FREE CASH FLOW GENERATION growth 2003-2006 ** (€ Bn., 2002 constant exchange rates) OPERATING FREE CASH FLOW* * Build-up of a cost effi model >39 t * Optimizing Capex for lower capital intensity 7

  7. Slide 7: Free Cash Flow Well Balanced By Geographies

    ..Which Is Well Balanced By Geographies 2003-2006 FREE CASH FLOW BREAKDOWN BY GEOGRAPHY * Latam 1/3 Spain 2/3 => Spain more than covers our 03-06 firm commitments. = We have proven our active management of Latam exposure. * Constant Exchange Rates as of 2002

  8. Slide 8: Our Rationale For 2003-2006 Cash-flows Distribution

    Our Rationale For 2003-2006 Cash-flows Distribution TWO BASIC PRINCIPLES... TO ACHIEVE OUR FOUR PRIORITIES . SHAREHOLDER REMUNERATION TO FULLY DELIVER ON OUR FIRM COMMITMENTS 2. SOLVENCY PROTECTION FOR A “SINGLE A” RATING TO KEEP STRATEGIC FLEXIBILITY TO GROW OUR BUSINESSES . BUSINESS LONG TERM EXPA

  9. Slide 9: Track Record Delivering On All Four Priorities

    * Cash dividends * Share buy-backs SHAREHOLDER REMUNERATION SOLVENCY PROTECTION FOR “SINGLE A” RATING * Debt reduction * Notional funding of Inon-debt commitments * Add-on acquisitions * Minority buy-outs * Capex acceleration BUSINESS LONG TERM EXPANSION * 2002 devaluations drained 1.3 Bn.€ of OpFCF

  10. Slide 10: Destination Of 03-06 Cash-flows (I)

    Telefénica, S.A. Our Approach To The Destination Of 03-06 Cash-flows (I) WE HAVE FIRM COMMITMENTS IN EXCESS OF € 15 Bn SOLVENCY PROTECTION FOR SHAREHOLDER REMUNERATION =7.4 Bn.€ SINGLE A RATING * =7.9 Bn.€ Cash dividends. We have cash commitments for 7.9 Billion€: Share buy-backs. Gross NPV 98 Redun

  11. Slide 11: Destination Of 03-06 Cash-flows (II)

    Our Approach To The Destination Of 03-06 Cash-flows (I!) HAREHOLDER REMUNERATION TO FULLY DELIVER ON OUR FIRM OLVENCY PROTECTION FOR COMMITMENTS SINGLE A” RATING = 50% of FCF allocated to “hard” commitments TO KEEP STRATEGIC FLEXIBILITY TO GROW USINESS EXPANSION OUR BUSINESSES INANCIAL FLEXIBILITY T

  12. Slide 12: Destination Of 03-06 Cash-flows (III)

    Our Approach To The Destination Of 03-06 Cash-flows (III) KEEPING STRATEGIC FLEXIBILITY ABOVE 11.5 Bn.€ TO ACCOMMODATE = 5 * Complementarity to core businesses. * Target selection based on cash flow generation capabilities. 12 a 5 * A50% value loss of Latam currencies plus * A10% drop of average 04-

  13. Slide 13: 2. Our 3-D Balance Sheet

    2. Our 3-d Balance Sheet 2.1 ASSETS DDiscou nt Rates THREE ARE 2.2 LIABILITIES [l)Debt Management 2.3 RISKS ®)Derivatives Management * Help establish required rates of return for new investments, both for equity ASSETS and debt. * Follow WACC parameters in the industry and take them into account. *

  14. Slide 14: 2.1 Assets

    2.1 Assets » Creating value for shareholders means investing in businesses/projects with expected returns higher than WACCs. =» We provide a consistent framework for project evaluation and return assessment setting WACC parameters by business and region. =» We can contribute to value creation with b

  15. Slide 15: 2.2 Liabilities

    2.2 Liabilities = Creating Shareholder Value via Leverage: * Lower cost of funds means lower WACC. * Sensible Leverage ratios ensure sustainability. = Creating Shareholder Value via Availability of Funds: * Acomfortable single A rating ensures smooth and timely access to capital markets. * Business

  16. Slide 16: Items Included In Total Debt

    Items Included In Total Debt Dec 2002 Jun 2003 + Expected New Figures in million euros NET FINANCIAL DEBT 22,533 19,991 Richens Guarantees (IPSE, AVS) 776 776 Program Net pre-retirement commitments 3,557 3,266 2003-2007 ERE ie} ie} 3,600 COMMITMENTS 4,333 4,042 3,600 TOTAL DEBT+ NPV of Cash Commitme

  17. Slide 17: Debt Reduction In 2002 & 2003

    9 Bn Euros Debt Reduction In 2002 & 2003 ete € to xepirpa ere seas [22.533 asco (0) 19,994 2,000 1.7 x EBITDA Operating Forex Dividends Financial Changssin any 93 FCF Investments consolidation & Others 2001 Operating Forex Preferred Financial ~—Changesin. 2002 FCF Shares Investments consolidation &

  18. Slide 18: 2.3 Risk Management Policy

    2.3 Risk Management Policy © Cash Flow Hedging. CURRENCY RISK * No FX losses impacting P&L. ° Non-recourse to the parent: Financing at operating SOVEREIGN RISK company level in Latin America. © Fund repatriation. * Average Maturity of Debt longer than period needed to pay off debt in full. * Liquidi

  19. Slide 19: FX Management: Offsetting Cash-flow Shortfalls With Debt Reduction

    Fx Management: Offsetting Cash-flow Shortfalls With Debt Reduction USD debt in Lat: LATAM DEPRECIATION vs EURO DEBE ENGUREEMEIES ully hedged cap Lost Value (Weighted By Ebitda Origin) Others: 1% in Argentina 32% 2% Latam: 18% 31% ie 19% 14% + 2.3 bn USD US $:16% ~ put spreads for 12% 34% 2004 Averag

  20. Slide 20: Actively Managing Latin American Risk

    Actively Managing Latin American Risk 1.5 bn USD repatriated from Latam in 2002; 0.7 bn USD in 1H2003. REPATRIATION VEHICLES 2002 & 1H2003 TOTAL REPATRIATED FUNDS (M USD) a 2002 1HO3 > Percentage repatriated funds/latam free funds Latam debt (23% of total) non recourse to Parent 1,458 Zo ™> 1bn USD

  21. Slide 21: Low Refinancing Risk

    Telefonica, S.A, 3 “ 5 Low Refinancing Risk Average net financial debt maturity 6.3 years (June 03) © 2003 issuance has increased average maturity by 2 years. e Longer credit lines (extendable to 2 - 3 years). € in Million 4,449 1H03 2HO3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2030 2033 F

  22. Slide 22: Telefonica Could Fully Pay Its Debt In Years

    Telefonica Could Fully Pay Its Debt In 4 Years Interests & Cash available for OpFCF Calls on Cash * debt service = Debt maturity longer than time needed for full repayment * Interests calculated assuming free cash-flow is used to reduce debt. 22

  23. Slide 23: Net Financial Expenses: Balance Between Conservatism And Active Management

    Net Financial Expenses: Balance Between Conservatism And Active Management Gap Debt financial expenses of 802 mill EUR in 1HO3 21,158 62% Fixed 4,647 Europe Latam Total TEF Net debt as of 30 June 03 TM 1H03 Average net debt (DD H03 average debt service expense/financial Debt =™ Average interest expe

  24. Slide 24: 3. Conclusions

    3. Conclusions 3.1 TELEFONICA’S FINANCIAL STRENGTH. 3.2 RISKS WE DON’T HAVE. 24

  25. Slide 25: 3.1 Telefonica's Financial Strength

    3.1 Telefonica’s Financial Strength 1.- Large Free Cash Flow Generation > 27 Bn.€ (03-06) ° FCF roughly equal to 50% of Market Capitalization. ° FCF roughly equal to 100% of Net Debt + Expected Commitments. 2.- Current and Expected Cash Consumption fully funded * 20Bn<€ Net Debt + 7.9 Bn€ of Cash Co

  26. Slide 26: 3.2 Risks We Don't Have

    3.2 Risks We Don’t Have => No Extra Liabilities © No Pension Liabilities. ° No Real Estate Sale & Lease-back (secured off-balance sheet debt). * No asset-backed bonds (off-balance sheet). => No Pressure on stock trading * Core Shareholder Stability and no government overhang. * Liquidity: Telefonica

  27. Slide 27: 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

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