Telefónica Ups Profit in 2004

MADRID -- The Telefonica Group

The Telefonica Group achieved a solid combination of growth, efficiency and profitability during 2004. The main items on the profit and loss account grew significantly due to the positive evolution of operations, mainly supported by the increase in the client base and the intense commercial efforts. At the same time, operational efficiency has been transformed into profitability (EBITDA margin 43.6%) and into an operating free cash flow generation (EBITDA-CapEx) of 9,443.5 million euros (+6.4%). All of this has driven a continuous improvement in the shareholder remuneration policy, being one of the most attractive and long-term committed in the European telecommunications sector. So, a 0.4 euros per share dividend corresponding to fiscal year 2003 has been paid and the share buy-back program has maintained its fast pace. At February 15th 2005, treasury stock amounted to 4.966% of the capital share. The Company also proposed the distribution of Telefonica S.A. own shares, that represents 4% of the capital share, for the next AGM at a proportion of one treasury stock share for every twenty five. Moreover, a payment of 0.5 euros per share dividend corresponding to fiscal year 2004 was also proposed for the next AGM, which is 25% higher than on the previous year. The Board of Director's intention is to maintain this same minimum dividend for fiscal year 2005. Likewise, during 2004 has been announced and completed the acquisition of BellSouth's Latin America mobile operators. This operation has led to incorporate more than 14.7 million cellular clients in 2004, and to strengthen the scale and Telefonica Group's future growth profile. Customer base The Group's managed client base (fixed and mobile telephony and pay television) stood at 118.1 million at December 31st, 2004, registering a 26.4% increase over the same period of 2003. Including the clients from the Latin American BellSouth mobile operators in Chile and Argentina, whose acquisition was completed in January 2005, the number of clients managed would amount to 121.9 million. ADSL connections also grew significantly over the year, with a total of 3.9 million connections by the end of December 2004, both in Spain and Latin America (+61.0% vs. 2003), with a net gain of 1.5 million lines in the last twelve months. In Spain, there were 2.5 million connections (+50.0% year-on-year), giving the Group an estimated market share of 73.8% in the total broadband market. Telefonica Group retail ADSL clients in Spain totaled 1.9 million, representing a total estimated market share of 55.5%. In Latin America, the number of ADSL connections exceeded 1.4 million (+84.7% year-on-year), with a significant contribution of Brazil (58.1% of the total) with 0.8 million connections, compared with the 0.5 million at December 2003. Revenues and expenses Telefonica Group's operating revenues totaled 30,321.9 million euros in 2004, posting a 6.8% increase over 2003, boosted by higher revenues from almost all business lines, with the exception of the Content and Media business and Terra Networks, which reduced their revenues due to the changes in the consolidation perimeter. The growth rate of revenues was influenced on one hand by the negative effect of exchange rates, which deducted 2.4 percentage points to growth (-2.3 percentage points at September) and on the other hand by the changes in the consolidation perimeter, which contributed with 0.9 percentage points to growth (-1.0 percentage points in January-September 2004), due to the incorporation of BellSouth's eight Latin American operators. Thus, the variation of revenues adjusted for these two factors would stand at 8.3%, meeting the 2004 target (+7/+10%). The cellular business continued to be the main contributor in the Group's growth, registering operating revenues of 12,054.1 million euros, 15.6% more than in 2003. The Telefonica Latinoamerica Group registered in 2004 operating revenues of 6,883.4 million euros, showing a 2.1% increase, although in constant euros this growth rose to 7.5%. In the fourth quarter of 2004 Telefonica de Espana Group accelerated its operating revenues growth rate, recording an increase of 2.7% in comparison with the 1.7% in the first quarter, the 2.7% in the second quarter and the 2.6% in the third quarter. In 2004, operating revenues totaled an absolute value of 10,955.8 million euros, 2.4% more than in 2003. By countries, Spain accounted for 60.3% of the Group's consolidated revenues, down by 1.3 percentage points year-on-year, while 34.8% came from Latin America. The Group's total accumulated expenses at the end of 2004 totaled 17,962.5 million euros, an 8.1% increase year-on-year and 3.8 percentage points more than in September. These higher expenses are mainly due to the incorporation of BellSouth's operators to the cellular business consolidation perimeter. Hence, excluding changes in the consolidation perimeter and in constant euros, operating expenses would increase by 9.8%, 1.1 percentage points more than in the first nine months of the year. EBITDA and EBITDA margin Consolidated EBITDA for the year reached 13,215.4 million euros, 4.9% higher than the previous year. Thus, assuming constant exchange rates and excluding changes in the consolidation perimeter, EBITDA showed a year-on-year increase of 6.0%, in line with the target established for 2004 (+5/+7%). Although it has slowed down vs. the first nine months of 2004 (+7.1%) due to the intense commercial efforts made during the campaigns in the fourth quarter. In terms of profitability, the 2004 EBITDA margin reached 43.6%. For the third consecutive quarter, the Telefonica de Espana Group is the Group's biggest contributor to consolidated EBITDA growth, after recording a 6.1% year-on-year growth up to 5,054.5 million euros (38.2% of total EBITDA). The cellular business EBITDA, which contributed with 36.0% in the Group's consolidated EBITDA in absolute terms, amounted to 4,755.0 million euros in 2004, 3.8% more than in 2003. EBITDA at the Telefonica Latinoamerica Group, with a consolidated EBITDA contribution of 23.8%, stood at 3,141.0 million euros at the end of 2004, registering a 1.3% growth compared to the previous year, or 6.8% in constant euros. The operating profit during January-December 2004 amounted to 7,235.2 million euros, posting a year-on-year growth of 14.3%, 3.8 percentage points less than in September. The negative results of associated companies recorded a year-on-year reduction of 156.5 million euros to -56.1 million euros. This 73.6% improvement is mainly due to: i) the deconsolidation of Via Digital (entry of Sogecable in July 2003), ii) the sale of Audiovisual Sport, iii) the lower losses related to Medi Telecom, IPSE-2000 and the Lycos Group following the sale of Lycos Inc last October and iv) the increased participation in Portugal Telecom. Financial results and Debt The free cash flow generated by Telefonica Group during 2004 was 6,507.0 million euros, of which 1,924.2 million euros were devoted to dividend payments by Telefonica S.A., 5,534.5 million euros to financial investments (net of real estate divestitures) and 697.2 million euros to cancellation of commitments acquired by the Group, derived basically from the headcount reduction plan. Thus, the free cash flow after dividend payments, which mainly explains the net debt increase, was -1,648.9 million euros. Net debt of Telefonica Group at the end of December 2004 stood at 20,982.2 million euros. The increase of 1,746.9 million euros with respect to the consolidated debt at the end of 2003 (19,235.3 million euros) came mainly from the aforementioned generation of free cash flow after financial investments and dividend payments (-1,648.9 million euros). Likewise, there was a 321.4 million euros increase in net debt due to changes in the consolidation perimeter and other effects on the financial statements, although a big part of this increase has been compensated by a reduction of 223.4 million euros in net debt, coming from the currencies movement effects on the non-euro denominated debt. Extraordinary results as of December 2004 totaled -1,165.7 million euros, compared with -1,249.7 million euros during the previous year. The main extraordinary expenses accrued over the year were as follows: i) the accounting of a 674.7 million euros provision related to the acceptance in 2004 of 2,417 employees coming from the 2003-2007 Redundancy Program, ii) anticipated cancellation of Telefonica's UK goodwill for 101.5 million euros, iii) restructuring of the Terra Group (-62.1 million euros), iv) personal reorganizations in other subsidiaries within the Group for 211.4 million euros, v) the impact of the -31.4 million euros of the Arbitration Award concluded in relation to the claim presented by the Radio Blanca Group to Uniprex, which is currently being appealed by the Antena 3TV Group under the Provincial Court and vi) -30.6 million euros as a result of the agreement reached with Bidland Systems Inc concerning certain complaints. Net Profit As a result of this, the consolidated net income for the year amounted to 2,877.3 million euros, posting a year-on-year growth of 30.6%. In quarterly terms, the net income of the fourth quarter is four times that obtained in the same period of the previous year. Excluding the net effect of the 2003-2007 Redundancy Program for 2004, net income would reach 3,289.2 million euros, with a year-on-year increase of 6.3%. The Telefonica Group's CapEx during 2004 amounted to 3,771.9 million euros, registering a 1.2% increase over the previous year. Assuming constant exchange rates and excluding variations in the consolidation perimeter, this percentage would drop to 0.6%. By business line, the cellular business (+24.6%) and Telefonica Latinoamerica (+15.2%) recorded higher investments, due on one hand, to the rollout of the UMTS network in Spain and GSM networks in Argentina and Mexico, to the increase in network capacity in Brazil and to the incorporation of BellSouth operators and, on the other hand, to the broadband efforts being made in all countries. The remaining business lines have continued with the downward trend of the previous year, as can be seen in the Telefonica de Espana Group (-18.4%). The CapEx ratio as a percentage of revenues stood at 12.4% at year end, compared with the 13.1% recorded in December 2003. Telefónica SA