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slide2

Safe Harbour

This presentation contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company .

Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors.

Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica´s business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company´s Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.

objectives for these two days
OBJECTIVES FOR THESE TWO DAYS
  • Share with you the fundamentals that explain our current performance and position us for future growth
  • Convey our project for continued superior earnings performance
  • Give you the opportunity to know and interact with our top management team
  • Understand your perspectives on the company and provide relevant and helpful factual information about the Group and our businesses
a value growth company1
A VALUE GROWTH COMPANY

Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure

Superior EBITDA and strong financial position

Addressing major open issues: UMTS, Regulation, Acquisitions

Management priorities that translate into superior earnings growth

a market with more than 500 million potential customers
A MARKET WITH MORE THAN 500 MILLION POTENTIAL CUSTOMERS...

SPAIN

MEXICO

  • Wireline: TdE: 100%
  • Wireless: TME
  • Internet
    • Access nº 1
    • Portal: nº1

VENEZUELA

  • Wireless:
    • Bajacel: 100%
    • Movitel: 90%
    • Norcel: 100%
    • Cedetel: 100%
  • Internet:
    • Access: nº 2
    • Portal: nº 1
  • Wireline: CANTV 6.4%
  • More than 65 million customers currently being served
  • Positive growth outlook
  • Strong cultural and economic links

BRAZIL

  • Wireline: TeleSP 86.6%
  • Wireless:
    • Teleleste Cel: 10.8%
    • TeleSudeste: 81.6%
    • CRT 43.4%
  • Internet:
    • Access: nº2
    • Portal: nº2

PERU

  • Wireline:
    • T de Perú: 93.2%
  • Wireless: TdPerú: 91%
  • Internet:
    • Access: nº 1
    • Portal:nº 1

CHILE

ARGENTINA

  • Wireline and wireless:
    • CTC: 43.6%
  • Internet
    • Access:nº 1
    • Portal: nº 1
  • Wireline: TASA: 97.9%
  • Wireless: TASA Móviles 96%
  • Internet
    • Portal: nº3
with growth potential

GDP Growth (%)

Average

2002-2004

2000

2001

USA

EUROSpain

Brazil

Argentina

Mexico

Chile

Peru

4.9

3.4

4.1

4.2

-0.2

6.9

5.4

4.0

2.0

2.9

3.2

4.2

2.9

4.5

5.2

2.5

3.0

3.2

3.4

4.4

4.5

5.2

6.2

4.7

…WITH GROWTH POTENTIAL

Source: Telefónica estimates; OVUM; Pyramid; Forrester; IDC; US Census Bureau

latin america remains a large growth opportunity usd billion
LATIN AMERICA REMAINS A LARGE GROWTH OPPORTUNITYUSD billion

24

19

Telecoms market growth opportunity 2001-2005 Latin America*

Telecoms market current size 2000 Spain

* Current GDP Latam aprox. 1,790 USD billion x 34% GDP growth in 5 years x 4% of GDP in telecoms

Source: IDC; Dataquest; WEFA-WMM

every growth project must be based on clients
EVERY GROWTH PROJECT MUST BE BASED ON CLIENTS...

Growth in customer base

Growth in usage of current services

Dimensions of growth

Growth in new services

and telefonica is uniquely positioned strong growth in our customer base and excellent prospects
…AND TELEFONICA IS UNIQUELY POSITIONED: STRONGGROWTH IN OUR CUSTOMER BASE AND EXCELLENT PROSPECTS

10.8%

39.7

2000 penetration

Managed fixed clients

(millions)

35.8

LatAm

USA

Europe

Wireline

penetration

Wireless penetration

Internet penetration

1999

2000

13%

13%

3%

68%

41%

50%

61%

63%

23%

48.8%

Managed cellular clients

(millions)

23.0

15.5

1999

2000

Internet access clients

(millions)

370%

6.1

1.3

1999

2000

we have achieved strong operational skills productivity
WE HAVE ACHIEVED STRONG OPERATIONAL SKILLS...Productivity

Europe

Latam

Lines/employee

Lines/employee (year 2000)

500

790

493

TdE

420

582

573

516

469

TI

  • 362

416

385

340

DT

  • 289

248

238

  • 262

BT

260

FT

  • 250

180

Telecom

Argentina

Brasil

Telecom

1996

1997

1998

1999

2000

Telmex**

Telemar*

CANTV

TeleSp

TASA

CTC

TdP

* As of June 2000

** As of July 2000

Source: Telefónica

and a strong competitive position
…AND A STRONG COMPETITIVE POSITION

93.7% combined market share in wireline operations

50.4% combined market share in wireless operations

90% total market share of corporate customers where we operate as incumbents

a successful track record of turn arounds
A SUCCESSFUL TRACK RECORD OF “TURN AROUNDS”

From dateof acquisition

To date

6,407

338

58%

10,596

790

66%

TeleSP (acquired Aug. 98)

  • LIS (‘000)
  • Number of lines/employee
  • EBITDA/revenues

1,696

78

38%

4,327

408

60%

TASA (acquired Nov. 90)

  • LIS (‘000)
  • Number of lines/employee
  • EBITDA/revenues
unmatched intangibles
UNMATCHED INTANGIBLES
  • Market knowledge
  • Operational knowledge
  • Successfully applied in different geographies

Knowledge

Brand

  • Strong image, high awareness everywhere
  • One umbrella brand in natural markets

Reputation

  • Credibility
  • Recognized execution capabilities

Relationships

  • Government, regulatory bodies, administrations
  • Corporate distribution, suppliers

Talent

  • Competent, experienced and action oriented management team
telefonica has a balanced business structure
TELEFONICA HAS A BALANCED BUSINESS STRUCTURE...

BUSINESS

TELEFÓNICA’S POSITION

Basic service

  • Large, addressable client base: >500 M in our core markets + 300M elsewhere
  • Broad offering provides flexibility to better serve customer demands

Wireline in Latam

Wireline in Spain

Mobility

Broadband

Wireline in Latam

Wireline in Spain

Internet

Content

slide16

… AND A FLEXIBLE ORGANIZATION

Others

Wireline in Spain

Wireline in Latam

  • Natural owner of the businesses
  • Operating flexibility to better serve customer demands
  • Increased management accountability
  • High potential for capturing synergies
  • Not considering pure spin-offs
  • Further IPO’s based on strategic opportunities to unlock value
a value growth company2
A VALUE GROWTH COMPANY

Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure

Superior EBITDA and strong financial position

Addressing major open issues: UMTS, Regulation, Acquisitions

Management priorities that translate into superior earnings growth

telefonica achieved strong performance in year 2000 2000 financial highlights
TELEFONICA ACHIEVED STRONG PERFORMANCE IN YEAR 2000...2000 Financial Highlights

Million

2000

% Change

Revenues (€)

EBITDA (€)

Net income (€)

EPS (€)

Wireline customers

Wireless customers

Internet access customers

28,485.5

11,918.8

2,504.8

0.67

42.3

24.9

6.1

24.1

9.5

38.8

18.5

10.1

48.9

370.0

best financial balance among peers
BEST FINANCIAL BALANCE AMONG PEERS...

€ 12 Bn. EBITDA

2000

€26.9 Bn. Net debt

12/2000

€80 Bn. Market Cap.

26/02/2001

… with full control and access to the highest diversified cash flow in the industry

1

1999 EBITDA

breakdown

10.9

47

12

40

1

2000 EBITDA

breakdown

36

19

44

11.9

TdE

T. Móviles

T. Latam

T.Data

ebitda will clearly exceed capex required for organic growth
EBITDA WILL CLEARLY EXCEED CAPEX REQUIRED FOR ORGANIC GROWTH

EBITDA

Total Capex

Capex (ex-UMTS)

1999

2000

2004

we have followed a rational and conservative financial policy
WE HAVE FOLLOWED A RATIONAL AND CONSERVATIVE FINANCIAL POLICY
  • Equity-funded acquisitions (€30.4 bn in 2000)
  • New organization optimizes cost of capital

Net debt/EBITDA

Net debt

(€ Bn)

EBITDA

(€Bn)

Telefónica

2.4

26.9

12.0

Deutsche Telekom

4.5

65.3

14.5

France Telecom

56.5

10.9

5.2

British Telecom

47.0

10.1

4.7

23.4

3.3

7.1

KPN

Analysts consensus estimates

a solid financial position evolution of ratings s p

09/99

12/99

03/00

06/00

09/00

12/00

03/01

FT

AA+

BT

BT

BT

FT

AA

KPN

KPN

KPN

KPN

FT

FT

AA-

DT

DT

DT

A+

FT

FT

A

BT

BT

BT

Vodafone

Vodafone

Vodafone

BT

Vodafone

Vodafone

Vodafone

KPN

KPN

FT

DT

DT

DT

DT

A-

Vodafone

KPN

BBB+

A SOLID FINANCIAL POSITIONEvolution of ratings (S&P)

Pursue an upgrade in rating from current levels of A+

Telefónica

Telefónica

Telefónica

Telefónica

Telefónica

Telefónica

Telefónica

we are able to address simultaneously profitability and growth
WE ARE ABLE TO ADDRESS SIMULTANEOUSLY PROFITABILITY AND GROWTH

Strong earnings stream more than covers funding required for organic growth

Telefónica is a value growth company

Strong financial position gives us flexibility to capture new growth opportunities

a value growth company3
A VALUE GROWTH COMPANY

Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure

Superior EBITDA and strong financial position

Addressing major open issues: UMTS, Regulation, Acquisitions

Management priorities that translate into superior earnings growth

umts in germany
UMTS IN GERMANY

We are working hard to deliver

1. Customers from day 1

2. An efficient network

3. An effective organization

  • We are emphasizing the commercial front: negotiating with potential partners, exploring options
  • Negotiating shared infrastructure arrangements and roaming and interconnection agreements
  • CEO and management team appointed. Remaining ramp-up process on track

To date, we have not earned investors’ credibility

  • We remain confident that there is an opportunity for value creation in Germany, the market with the largest growth potential in Europe
  • We commit to update you on our progress
our regulatory approach
OUR REGULATORY APPROACH
  • First objective: maintain open communication and active dialog with regulators in every country where we operate
  • Spain:
    • Wireline: last building blocks of regulatory model settled (unbundling of local loop and price cap) and tariff rebalancing will follow
    • Wireless: likely review of unsustainable spectrum fee in light of industrywide implications
  • Brazil: accelerated compliance with ANATEL objectives as a mean to capture other growth opportunities
  • Argentina and Chile: We have weathered major regulatory crises. We learned the lessons and we are committed at the highest level to manage situation (ULL, number portability)
acquisitions and ventures

Consolidation at

parent level

No to “merger of equals”

Receptive, if strategically complementary

Will not turn our backs to opportunities to absorb underperforming complementary assets

Consolidation at

Business Line level

ACQUISITIONS AND VENTURES

JV with Portugal Telecom in Brazilian mobile market

Selective

Complementing our competitive position

Accretive

Acquisition of Motorola’s wireless assets in Mexico

Increasing EBITDA

a value growth company4
A VALUE GROWTH COMPANY

Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure

Superior EBITDA and strong financial position

Addressing major open issues: UMTS, Regulation, Acquisitions

Management priorities that translate into superior earnings growth

slide29

MANAGEMENT PRIORITIES

Continue improving results in consolidated businesses

1

Continue expansion in Latin America

2

“Achieve sustained superior earnings growth”

Drive developing businesses towards profitability leveraging the Group

3

Continue business building

4

Capture inter-business and Group synergies

slide30

IN SUM, TELEFONICA IS A VALUE GROWTH COMPANY

  • Unmatched fundamentals
  • Strong financial position
  • Recognition of open issues
  • A clear plan forward

Continued superior earnings growth