Telefonica Writes Down Assets to the Value of 6,552.4 Million Euros and Is Set
To Pay Dividends and Buy Back Up to 2% of Its Own Shares
- The write-downs, which do not entail a cash outflow, create a net
accounting loss of 5,574.2 million euros in the first half of this year.
- Generation of free cash flow increased by 67%, to 4,260.3 million
euros,
as a result of higher operating results, lower capital expenditures,
and
cost controls.
- Consolidated net debt decreased by 5,455.2 million euros in the last
12 months, without divesting any assets.
- Consolidated revenue and EBITDA decreased by 4.4%, but if the effect
of
changes in exchange rates is excluded, both would have increased by
5.7%
and 5.6%, respectively.
- Telefonica de Espana's performance improved compared to the previous
quarter and Telefonica Moviles continues on a healthy operating and
financial course.
- The Board will propose to the General Shareholders' Meeting to restore
dividend payments and buy back up to 2% of company shares.
The Telefonica Board of Directors decided to freeze the activities of
its mobile telephone affiliated companies in Germany, Austria, Italy
and Switzerland, and at the same time, to make provisions amounting
to 4,837 million euros to cover the investments carried
out for the acquisition of third-generation mobile telephone licences.
Consequently, although it does not entail a cash outflow, the decision
produces a revision in the value of Telefonica Moviles assets. It also
means
that, from this year, Telefonica Group will considerably improve its
already
growing capacity to generate cash flow.
The
Telefonica Board has also studied the favorable evolution of the
company's debt, which has been reduced by 5,455 million euros during
the last
12 months, to 25,788 million euros, and has therefore decided to propose
to
the General Shareholders' Meeting to restore the payment of dividends.
Additionally, the Board has given its approval for the buy-back of a
package
of up to 2% of the company's own shares.
The Telefonica Group obtained a net loss of 5,574.2 million euros in
the
first half of 2002, in comparison with a net profit of 1,148.6 million
euros
during the same period a year ago. This result has been strongly conditioned
by the following factors:
-- Net extraordinary provisions amounting to 4,837.5 million euros
associated with the write-down of assets and the provision for
associated restructuring costs in Austria, Germany, Italy and
Switzerland of Telefonica Moviles.
Furthermore, a write-down associated with the downward revision of the
Telefonica Data investment in Germany (530.0 million euros). The value
of the write-down pertaining to Mediaways' investment, in accordance
with the most conservative accounting criteria, is determined by an
ongoing goodwill recoverability analysis.
-- Additional extraordinary negative results in the amount of
789.8 million euros in January-June 2002 versus the positive results
of
203.4 million euros during the same period in the preceding year, are
explained mainly by: 1) a provision made to adjust the treasury stock
to market values, in the amount of 288.2 million euros, corresponding
250.4 of them to 2Q02. According to Spanish accounting rules, a
provision on year results must be made for the difference between the
average purchase price of shares and the closing price for the period
or the average price of the stock during the most recent quarter,
whichever is lower. At June 30, 2002, the Group held approximately 1.5%
treasury stock as of the total capital of Telefonica; 2) 134.4 million
euros capital losses from the sale of securities portfolio versus gains
of 261.8 million euros in June 2001, relating fundamentally to the sale
of Azul TV; 3) lower extraordinary positive results in the amount of
280.4 million euros related to the provision for its fixed assets made
in previous fiscal years by Telefonica de Espana; 4) greater positive
extraordinary results from the provision as a result of the agreements
for the sale of ETI Austria (41.2 million euros) and the 33.8 million
euros write-offs related to MediaPark and Fieldy BV (Rodven).
-- The difficult economic environment in Argentina affects the development
of Telefonica's business in that country, despite the measures that
have been implemented (cost reductions, investment reductions, control
of bad debt and the implementation of hedging positions) in order to
minimize the impact of the crisis and to maintain a positive cash flow
in pesos.
During the first half of fiscal year 2002, the depreciation of the
Argentine peso against the dollar (-73.7%) has had a 445.7 million euro
effect on financial results, in addition to that recorded in the
Group's 2001 results, as a consequence of the fall suffered by the peso
from 1 dollar per 1.7 pesos (1 euro per 1.5149 pesos) to 1 dollar per
3.80 pesos (1 euro per 3.4084 Argentine pesos).
At the close of June, Telefonica Group's maximum exposure in the
various Argentine companies rose to 986.5 million euros, including the
equity value assignable to those investments, the goodwill and internal
financing provided
6 million more customers
Besides these circumstances the Group's customer base increased at the
end
of June to 75.4 million managed customers of fixed telephony, mobile
telephony
and pay television combined. These translated into an increase of 6.1
million
clients (+8.8%) over June 2001 and 758,349 over March 2002. Including
total
clients, the figure grew to 80.6 million, a 9.0% increase over last
year and
748,980 more than three months ago.
Consolidated revenues rose to 14,635 million euros
Consolidated revenues rose in the first half of the year to 14,635.5
million euros, representing a year over year fall of 4.4% (2.0 percentage
points more than the cumulative figure for the first quarter of 2002).
This
performance was caused by the negative contribution to the growth of
consolidated revenues by Telefonica Latinoamerica (-7.2 percentage points)
and
Admira Media (-1.3 percentage points).
If we were to exclude exchange rate effects, which take off 10 percentage
points, and the change in the consolidation perimeter (+1.6 percentage
points), the Group's revenues would have grown by 4.1% versus the first
half
of 2001. It is significant to highlight that the adjusted revenue as
of March
was 3.2%, meaning that during the second quarter an improvement of 0.9
percentage points was achieved.
EBITDA turnaround
As a result of the change in revenues and expenses described above,
consolidated EBITDA at the end of the first half reached 6,075.8 million
euros, falling by 4.4% from the same period last year. The variation
in the
exchange rate reduced EBITDA growth by 10 percentage points, while the
change
in the consolidation perimeter added 1.1 percentage points. Thus, adjusted
for
these factors, the percentage change in EBITDA would become 4.5% versus
last
year and 0.4 percentage points better than last quarter as a result
of the
improvement achieved in operating efficiency.
Furthermore, financial expenses increased to 1,609.0 million euros in
the
first half of the year, or 73.6% greater than during the same period
last
year. However, this growth stems from the impact of the devaluation
the
Argentine peso had during the semester, which was 679.5 million euros.
If we
were to exclude these effects, financial expenses for the first half
of the
year would have been 929.5 million euros, similar to those of the first
half
of 2001.
Net debt at the close of the second quarter of 2002 was 25,788.8 million
euros, down 3,152.8 million euros from the net debt of 28,941.6 million
euros
posted at the end of fiscal year 2001 without having to divest. This
decreased
was mainly due to the 1,995 million euros of operating cash flow generated
by
the Group in the period, as well as to the appreciation of the euro
against
the dollar and the Latin-American currencies, accounting for another
2,030
million euros decreased of non-euro denominated debt.
