Telefonica SA (TEF) 2003 Q4 法說會逐字稿

Good morning. Good afternoon, ladies and gentlemen. Welcome to the Telefonica conference call. [OPERATORS INSTRUCTIONS]. I would like to hand over to chairperson, Mr. Ezequiel Nieto. Please go ahead you can start.

Thank you. Good afternoon ladies and gentlemen. Welcome to Telefonica conference call to discuss 2003 for the year results. I'm Ezequiel, talking about investor relation. Before proceeding that we mentioned at this presentation make one thing references had constitute forward-looking statement which are not warranties of future performance and involves risk and uncertainties and actual results make effort materially for those in the forward-looking statement as the result of various factors.

We request you to read the complete disclaimer include in the first page of this presentation, which you will find on our Web site. We got it you to review our publicly available disclosure documents file, with the relevant securities market privileges.

As in past quarters Colmaneto (ph) comments include in this presentation preferred to the financial performance of Telefonica SA with the international our subsidiary in which the do management gone through up December we encourage by the full consolidation. Your presenting of financial results and management comments by global business lines on a performance basis. Signing no Latin American business to their correspondent global business line from January 5 independently of the effective transfer of the assets. If you have a copy of the relevant press release and slide please contact Telefonica invest relations team number three, by dialing the following telephone number 3-491-584-4713. Now let me turn the call forward to our executive chairman Mr. Cesar Alierta who will be leading this conference call.

Good morning and good afternoon ladies and gentlemen. And thank you for attending Telefonica 2002 full year resource conference call. Today I have with me Julio Rinales (ph) who is Telefonica Espana Executive Chairman. (inaudible) Executive Chairman of our World Land (ph) division in Latin America and thereof for Santiago Fernandez Valbuena, who is Chief financial Officer.

In 2003 our strategy combine focus on core business selecting and straining growth opportunities such as Brogon MOS (ph), keeping cost and CAPEX under control to be and closer to the client company. From these strategic initiatives we have succeeded in turning around a company BNN performance in '01 year. Inline with the financial priorities we have said as target. First building consistence supply growth with revenues and in the year flat are 28.4 billion euros. Second, increase in the group profitability with EBITDA growing at 7.5 annual rate to exceed the 12.6 billion euro. EBITDA margin increase more than 3% point before the 4.4%.

In additional to the one precision, which is falling by 6% due to CAPEX control, EBIT growth rate were close to 26%. Third improving all non-operating in resource and derive net income, which top the 2.2 billion euro to mark. And first foremost enhancing capital generation returns. We are operating at full growth, crossed 4% with a total 8.9 billion euros. In terms of slide number 4, (inaudible) growth in efficiency gain has yielded a strong result. The company year a guidance has been fully made and illness past forward most metrics. With those it gives us line will fill in their financial target. (inaudible) change in consolidation organic growth for a group in terms of revenues EBITDA, EBIT and operating cash flow of average 6%, 12.5%, 30%, and 80% respectively.

If you weren't noticing the underlying performance has trended up quarter over quarter during that year. With exception of operating cash flow due to CAPEX seasonality. And that 2002 performance has been clearly beaten in 2003. In addition, to between our financial guidance, operative results have inflated into expansion in euro terms. In translation, that past acceleration throughout 2003 as slide number five shows.

As such, revenues in EBITDA went up by 9 and 18% for the October/December period. In comparison, posted in the first quarter of the year. As opposed to 2002, extremely negative impact on financial had faded a way throughout the year, following better and more stable economic profit prospect for the Latin American origin. In 2003 forex bring gross to 6% response to revenue in EBITDA growth. Almost one-step down from first quarter negative impact.

Let's turn to slide number 6 for the review of our second stock financial priority profitability. Cost of the initiation aim at building a leaner, and more commercial oriented company remains a priority for our business line and compliment top line growth in '04 (inaudible). The group's higher efficiencies have related into a 44.4% EBITDA martin EGS. Three percentage points above 2002 figures. With all the business lines retaining or improving for the productivity levels. The more intense commercial activity of our Warvait unit linked to the Kizmark campaign with a stand Brazil and Mexico are in use below 3.5 million new clients, in the fourth quarter alone. It is the reason behind the slight results in the margins in the last quarter.

On top of growth and profitability we have executed the restructuring programs that we communicated in early 2002. Our operating results were 44 into the group net income is shown in the slide number 7. As a result, 2003 to reported net income exceeded the 2 billion Europe market, reversing the 5.6 billion euro loss posted in 2002. (inaudible) was closed and with the amount of inflation adjusted net income. We have top 3 billion Euros equivalent to a 70% annual growth rate. In addition to 4% which had the 40 positive impact on accessories with the amortization in extraordinary low appreciation expenses and a time management of our debt profile half added to go till 9 improved settlements.

Turning to slide number 8 for a review of consolidated CAPEX. Total indifference declined by growth to 1.5 in the last 12 months to come close to 3.7 billion euros keeping CAPEX over revenues at the 2002 level of 17%. Excluding forex and changes in consolidation CAPEX grew just below the 2% mark in line with our CO2 (ph). Three percent full year guidance. Well in CAPEX expending both in Spain and in Latin America somewhat a steady decline benefitting for additional efficiencies. In particular, on our DSL deployment and so with initial expectations.

Discussed but offset by increasing what is capital related to move VSN roll outs in Chile and in Mexico. Our CAPEX is now being managed at the expense of growth on the contrary the group on teenage to work over business transformation which now accounts for 43% of total investment. Allocating increasing resources to the demand of newer revenue sources such as Brova (ph), UNBS, NESM, with Mexico as top priority. Through top line growth and deeper efficiencies in costing Telefonica the basis for generation and improved returns as slide number 9 presents. 2003 group operating cash flow was up by 12%, reaching nearly 8.9 billion Euros.

The two major contributors Wireline Spain and the Mobile business have kept a strong cash flow performances with overall rate approaching 17% and 50% respectively. Operating cash flow growth has accelerated in the second half of the year. As for organic EBITDA progress has been amplified but the sequential improved demand of it generates. I would like to point out that each Euro Zone in 2003 has been converted into 51 cents of operating cash flow. Place in Telefonica are the top of the industry. The combination of the stronger operations and eminent capital rates supports our target to begin a solid double-digit return in capital employed company by 2005.

Starting the analysis by Siemens with Telefonica Espana financials in the slide number 10. In 2003, Telefonica Espana has doubled the force to transform the company into a fixed revenues and variable cost business model both in the air factories on three key initiatives. First the verita license voice services and the European and profitable ADSL to boost top line up. Second a significant recruit of 2003 to 2007 period, that is my program after the major driver for cost cutting and margin expansion. Therefore the company has been able to reduce the phase of revenue decline on a quarterly basis.

To end the year posting a 0.5 sale growth are the top end of 2003 guidance, a target that we upgraded in October. On the cost side group operating expenses were around by 1.2% year on year with the Telefonica Espana funds are accounting for most of the decline. Telefonica Espana fund cost register almost 2% fall in operating expenses in last two quarters was driven by the complexion of the first phase of the retirement program which push fourth quarter personnel expenses down by 7% after bringing in savings of 56 million Euros. Top line recovering and cost concern have led to a sequential improvement in profitability with EBITDA growth and season 2003 guidance to end at 0.4%. And EBITDA margin is struck at 44%. If we work to highlight that the fourth quarter and EBITDA margin includes 4 to 5.

With regard to Telefonica Espana traditional service operating performance on slide number 11. Asset of line losses declined by 72% year on year to reach 374,000 with Telefonica Espana keeping its market share used above 90%. It is worth mentioning that fixed lines loss decreased by 74% on an MRI basis in the last quarter. In of indirect assets we select lines exceeded 2.2 million. 91% of which were globally pre-selected. For increasing commercial flexibility enhancing voice packages together with our focus on DSL has permitted the global improvement plan. In the second half, of the year and as such in the combined Europe and equal number of lines in the last quarter of both 2002 and 2003. Moving to traffic, of going about traffic decline by 9% year on year mainly driven by the (inaudible) of total market, traffic that around by 5%. As in past quarter local internet traffic, which decrease by almost 40% and 90% respectively are drivers behind the evolution.

Moving to slide number 12, of a deal of ADSL metrics. Total ADSL connections almost reach 9.7 million mark after having 240,000 new clients in the fourth quarter. Their best performance ever since the company launched the service. 54% of total connections were paid subscribers, which top 1 million at the end of the year. Over all revenues for the joint December period almost reach to a 720 million euros more than doubling the 2002 figure. But in this 43 euros per month of up 8% from 2002 level. As of December 2003, grows to 28% over the decline were paying for value added services, a figure that compares to the 10% registered at the end of 2002.

In terms of profitability, total EBITDA amounted to 179 million euros, equivalent to a margin of growth to 25% having reach EBITDA per given in the first quarter of the year. For the review of the Latin American wireline business, please turn to slide number 13. In 2003, Telefonica Latin America has beaten by far 2002 performance. And has skipped revenues in the EBITDA excluding Forex growing at the top end of the ladder. Fourth revenues in EBITDA were up by close to 8.5% each in customs privacy term. A strong management operation has given Telefonica Latin American the flexibility required to adapt quickly to a demanding market micro scenario. As a result the company retain its EBITDA margin at 48% in line with 2002 level and it's service cash flow generation in Euro terms to which all business lines constitutes in (inaudible).

Network related cost have continued to trade down laid by the implementation of the globus program. In harp almost compensated for higher commercial expensive related to ADSL mainly Brazil, in New Brazil particular. Drivers of War privilege growth in the region are Gillespie and Dutch. For the revenue circle month our percentage in the next line.

Starting we would have seen we have earn for 55% of Telefonica Latin America revenue generation, Gillespie ended in January-December period which sees toping to a billion rate, 80% above 2002 figure. Local long distance revenues were the two major drivers behind operation revenues performance. Contributing each at 8% in response to total revenue while the tariff adjustment cope with the 2.5 and annual increasing local traffic explain the 12% annual and local revenues. Better market sales resorted to in 52% increase in long distance sales.

Complementary to traditional services, the less electric booth on revenue sales is starting to have an impact on the company numbers. With the ADSL revenues close by 76 year on year and having 1% discount to the top line growth.

Regarding wireline operations in Argentina, line grew by 14.5% base on a general improvement of operating metrics. The promising economic recovery to get along with the flexible managing operations and taking advantage of lot of opportunities selectively while keeping this zone for on course are the two factors behind this performance. Local revenues were up by 5% and long distance sales by 28%. Benefitting a 56 increase in growth up and highest traffics. Turn in to end this line, we present our basic wireline estimate for 2004. I remind you that this guideline is in constant currency a term that is the excluding Forex and change in consolidation.

Starting with Telefonica Espana Peru, 2004 is strictly a settlement fully blank. First the plus point, 5 to 2.5 revenue growth for the year driven by a season traffic market serve rose below the 2003 level. A 4% range in the monthly fee, we are planning to execute in the second quarter of this year and ADSL increasing contribution. Second a design increasing 2 and 5% with the 2003, 2007 period retirement program clean and since road. We have expect toss our employees to join this year. And fifth operating cash flow growing by 13 to 16%, benefitting from lower traditional CAPEX. For Telefonica Latin America, we expect the company to end 2004 with for a 6 to 9% revenue in EBITDA expansion.

Second in operating cash flow growth, standing between the 3 and 6% are effected by CAPEX relating to ADSL roll out across market and the provisions kept it's policy in Argentina if in economic upturn consolidates. Please notice that operation are calculated from perform 2003 numbers including Telefonica impressive Hispanic, Latin America business into the respective world and business that moving 714 next quarter.

It's like (inaudible) the sense to reduce Telefonica moving any resource which would fully explain newly company conflicts. For that reason and to serve the mileage (inaudible), I would not reveal the company full year performance. Mainly due to mention 2004 EBITDA guidance is very slow on the opportunity we have in front of us to invest to expand in the client base as delivered for future roles with Mexico our top priority.

I will remind you that the company is keeping unchanged its long-term positive performance as communicated as investor conference last October. Wireless issues are set basis is for the groups financial performance in 2004 which we present in this slide number 17. Excluding forex and change reconciliation, 2004 guidelines are as follows, first revenue in EBITDA will grow in the 7 to 10% range. With respect to EBITDA has grown by 12.5% in 2003 if you add to this performance, the 2004 guidance we are disclosing today 2002, 2004 growth rate will be fully seen a 9 to 12% for more -- growth rate, we are disclosing the conference.

Second we expect EBIT to increase between 15 and 80% with the firm in the position complementing the strong EBITDA. Please remember again that EBIT increase by almost 30% in 2003 and adding 2004 guidance to this performance 2002, 2004 growth rate before we have seen 20 to 23% moderate conference study. Third, CAPEX would remain flat or grow at the maximum 3% rate with the Telefonica Espana growth in traditional CAPEX of certain higher investments in Latin America Wireline business lines. Fourth, operating cash flow will be up by 11, 8 to 11% and now I'll had it over to Santiago for review in the Management Investor.

Thank you Cesar. Good morning and good afternoon ladies and gentlemen. Please go into slide 18 where with -- of full year results. We now provide a new format for reporting on financial expense, on ability management and risk hedging. If you look at slide 18, our overall financial expense from the top right has shrunk to slightly over 1 billion from the 2.2 billion in 2002. Net financial expense has declined 14% in line with the change in average debt while the Argentinian peso has given back some of its losses, 134 versus negative 528 last year. The ship in Brazilian hatches from a net asset to a cash flow hatching view and from dollar seeing to euros has added as we reported already 267.5 million Euros to the caption of financial income.

On our policy of trying to compensate the euro value of cash flow is coming from Latin America with debt savings we have to report that while the average depreciation of long term currencies has being around 15% starting 196 million of the euro value of our cash flow besides of the debt reductions has been about 4 times that figure the larger part of those savings were already crystalized. Our debt by currency which is in the bottom left part of the slide 18 is 70% euro, 19% Latin American currencies and about 10% US dollar.

To build a cash flow hedge we have also taken a dollar euro put strap positions, which has now a delta value of about 4% of total debt. The trend in the average effective cost of debt on the bottom right of our slide 18 has been clearly declined in 2003, while the year average was 7.1% the second half figure was 6.6%. Let me recall that while Latin American debt is about 19% of the total Latin American financial expense is significantly higher than that as a consequence of Brazilian rates being in the very high teams and as a consequence also of the shrinking share of USA in the total.

Turning to slide 19 and in line with our commitment that we communicated to give at the approval conference. We now update on the evolution of debt and cash commitments, a full break down can be formed on page 16 of our internal report published yesterday. Let me highlight that over all net debt has declined from 22.5 to 19.2 billion euros for a -- of about 15%.

Free cash flow generation of about 6.3 billion euros and foreign exchange debt reductions of 859 million have contributed on the positive side. 1.68 billion of cash flow has been used to pay dividend and buy back shares and 1.26 billion have been used for financial investments to which the (inaudible) effected in the third quarter of last year is the largest contributor. Net changes in Grim Tor added slightly more than a 100 million of new debt. Finally our cash commitments to retire this and the pay down guarantees have been sued 818 million euros. The total size of debt and cash commitments is 23.1 billion euros, this shows that our October target of bring in the ratio of total debt plus cash commitments to EBITDA to two times have been clearly beaten.

In slide 20, we provide a detail break down of cash flow. On the orange lines we show that while EBITDA is up 7.5%, cash flow after CAPEX is up 26.8% from 2002 and free cash flow in our new definition is up 27.2% to the 6.3 billion figures that I mentioned in the previous slide, every line is contributing positively to free cash flow. Let at this point recall that the criteria we used in Madrid conference are the one being used here and that they defined free cash flow as the amount available to pay dividends, reduce debts or expand business. On those grounds on line, row and 6 we have included the 818 million euro commitment pay down because the net present value for cash commitment has gone down by that figure. In any case whether you use a new or the old formats the improvement in free cash flow is not dependent on the finishing as shown by lines B and C of this schedule.

Finally let me give you on the slide 21 an update on our share buy back commitment. In our October conference our chairman stated that the 4 billion shares buy back will be based on to principles, free cash flow being effectively available and sensitiveness to the share price. On the top right of this line we will provide a schedule on a number of shares held in treasury stock at the send of the second, third and fourth quarter of 2003 in other time of our last conference call November 14. As we reported yesterday our internal result we held at the end of 2003, 40.5 million shares or 0.8% of share capital. As a components to that cash report intended to respect the availability of cash flow principle but understanding that the rise in the share price would be likely in the early part of 2004, the company decided to implement strategy base on collections on our own stock for 33 million shares.

This strategy is now deep in the money and it could be converted into shares around the end of the first half of 2004. Thus at the end of 2003 the company held 1.5% of share or share equivalent in capital and we worked to value the 73.5 million share or share prevalence up average Telefonica share price of the fourth quarter about 800 million or roughly 20% of the program announced by the chairman would have been completed. Roughly one in one quarter out of the 13 does proven is last providing some substance to our comments on this program being front loaded. We have in 2004 progresses continues our program and as of last week and we held 50 million shares in casual stock which together with the auction based strategy have explicit represent 1.67% of share capital. And now I come back to our Chairman for him to sum up.

To sum up first we are building consistence underlying job line growth clearly ahead of our targets. Second, we are keeping our focus on cost control across business with a group EBITDA margin and in 2003 above the 44% margin. We have 10 around none of these in resource are recommitted pushing job line work to flow into net income after regeneration and reverse. And fourth we have said a desperate commitment with our shareholders to distribute its excess through dividend and selective buy worth.

I firmly believe that Telefonica presents to the much combination of growth, captioned in the industries, making the company an unique investment proposition among the incomers. Take your question.

[OPERATORS INSTRUCTIONS]. Our first question come from David Right from J.P.Morgan in London please go ahead with your question.

Yes good afternoon gentlemen. I have three question for you, but on the first of all is, Can you tell us how many lines were un bundled in this business as of end of 2003 and I think there around about 13000 up and down this period? My second question regards the guidance given on the six months punish business why do you include the empresses Spanish business within the and if not potentially had some kind of combination of the two? On my third question is just and very simply some on the slide 21 and just a more simple question on that one. How much is the 4 billion euros has been allocated to the buy back should using the amount given on the slide or what number of the 4 billion assets is remaining 306. Thanks.

OK. Regarding your fist question a at the end of 2003 the number of local loop were 18,000. Regarding the one question as its was mentioned already next year we are going to provide information taking together Telefonica Spain group and Telefonica empresses us that the year before was separated. As you know the size of Telefonica empresses us is small in comparison with a size of the Telefonica group in Spain. And also you have to wear in mind that there is a significant volume of inter company relationship between both companies'. So, after integration it is necessary that to take into account that the inter company sales cost have to be netted. Then, totally we could save that Telefonica empresses in Spain, we will represent approximately 4.8% of the total revenues of the new group and 5.2% of the EBITDA of the new group.

Yes David, on your question on cycle one this year. I think it is fair to say that we are about 20% done on the program. The reason I provided that our cable is to - is for investors to maintain an individual assessment of how much are we done. And which is why I provide the average price for Q4. We will be regularly updating you on that and also remember what I said that the option based program is to expire around the middle of 2004, and therefore it is our option but not our obligation to convert those anxiety to shares. And those options into shares, which might or might or not despite earn the money.

OK, thanks.

Thank you our next question comes from James McKenzie from Sedentis (ph) Madrid Please go ahead with new question.

Hi, a couple of questions. Firstly I want to give us any guidance as to what you think, you may end up the year in terms of your financial commitments. And any guidance is to where the ratio of financial commitments plus net data read it or may be at the end of the year. And second, the initiative operational payments, I think accelerated little bit in the 4th quarter. I was expecting around 750 million for the year, and it is coming in just over a billion. I wonder if could detail, one if you were surprise by that number at all. And two, where the operations payments are actually lie with its all in Telefonica in Spaniard or there are evident or some in Latin America as well.

Hi. OK on then on the financial commitments its is delivered decision of the company not to provide as specific guidance as you know we have consistency said that we don't have absolute numbers as target. We gave you, I think in October a noble all indication al where we want to go and we still abide by the target as by 2006. Total debt plus commitment is also to be between 1.4 to 1.7 over EBITDA. We don't have specific program on year-by-year basis to communicate of course we will be updating you on how we do have on quarterly basis.

On the operating numbers for Q4 I think they have probably they missed a link is they closing down in the pay down of the (inaudible) that I guaranteed, which may be same placing your projections. The programs on the on the two soft engineer does to would have expected that and this is the about 100 million number that is new and non recurring on those figures

Right. So the figure of about 900 million from the 2004 would be, has that right?

That's correct

And how much is that is actually sitting in Telefonica Espana?

Including the acquisition interest 870 or so would be included in Telefonica Espana this final.

Fantastic

But let also emphasis here that it is a some what complicated story because of the introduction in November 2002 of the no insurance law in Spain that force externalization of commitments to pay retires (ph) and pensions so you know it would take as the part of 30 minutes over that

I don't want to bore every one

Thank you, our next question comes from Robert Mukata from Sify Group in London, please go ahead

Yes. Thanks. I have got a couple of questions. The first question is on CAPEX and given the level of the you have just shown us for the fourth quarter 2003 and your CAPEX stands for 2004 and 2005 are changing at all we were edging up for edging down. And second question I had was on financing going forward you also shown us net interest charge around 6.6% currently do you think that also kind of it coming down to fallen to 2004 and 2005 thank you

Well we have again what we turn in buffer ends and our packages is to margin our CAPEX between it was 9% and we think we can very well do that even taking into assumption that we are you know we have accelerating the growth of the originate you have seen in Mexico and Argentina. So we will be little declining in the coming years after the rights.

OK bob and on your question on the average cost of the financial one of the (ph) is that it does not only include interest, it also includes part of the cost of hedging and then part of the differences positive or negative in swaps and other instruments that we use to hedge or manage currency on interest rate exposure. We don't have the specific guidance for that number, but then the one just you said I think is consistent with the structure and the likely evolution of debt, so 6.6 is not a guidance but it is a (inaudible) but it is a reasonable under judgment.

Thank you. Our next question comes from the Guy Teddy from Deutsche Bank in London. Please go ahead and ask your question

Yeah, good afternoon gentleman just one quick or two quick questions in need one on the head count reduction strategy and in particular the number of 2002 and in 2004, my understanding is you are aiming for 15,000 by the end of 2006 and basically this number this number you have given would incline number of about 7,500 at the end of the 2004 which means that in 2005 and in 2006 you are looking for a similar number to always concern that you are committed still to the 15,000 numbers at the end of '06 and secondly point I've just wondering it (inaudible) details which in long term investments are included in the net debt calculation and whether any of those are the companies states in Pearson Portal Telecom (inaudible) and I would be interested to just know what your intentions to do with those assets are going to be when you have to report under international counting standards when there are issues over what you can treat them as associates, thank you

OK, regarding your first question you have to take into account that the program is a five-year program from 2003 to the end of 2007. And during the year 2003 and 2004 the two years together we are planning that the number of people that we joined the program will be around 7500 so it means that has or the programs will be done during this first two years.

On your question was short, but the answer cant possibly that short, it actually contains two questions. I think your first part of the question is the reconciliation of the balance sheet debt with the casual debt and the long term financial investment is included there. Let me give a straight answer really. The only long term financial investment which is included in the net debt calculation that we present is a 510 million U.S bank deposit which is related to the (inaudible). As we detailed across the values of the guarantees to it self 555 and we are the master debt. We think it is fair to subtract the related deposit who ever in alternatives would be to show a higher net debt and a guarantee of holding the net, which is 45 million for that's the only difference between the two. And then you probably had a related interest on the possibilities of these numbers changing due to the introduction of IAS accounting. IAS accounting is seemed to be fully defined and you could probably have some consequences, which we expect that we still don't know on how to re consolidate or by the equity method interest below 20% but we might have a significant, control or something we accomplish. We will buy by that, but we think it is far from absolutely sure that the 20% number which is now been discussed at the draft level, will actually called or when hold un qualifies, in any case when they pull their numbers and the full criteria are disclosed you can take for granted at the last stage of the consequences

OK thank you very much

Thank you. Your next question comes from Bosco Ojeda from UBS in London, please go ahead with your question.

Yes good afternoon, a couple of questions about the wireline business. The first one about due to the space kind of the turn around in the whole sale revenues and also in the other items that include Teleco another business as they made, if you do think that that's going to be also the trend for 2004 what certainly in driver behind those that recovery and also you could also provide some call around that kind of savings you are going to experience in EBITDA on the wireline business as result of the restructuring process that's for the wireline, that's it thank you

(inaudible) program with (inaudible) you have fortune savings in EBITDA, well we realize that some time its pretty good to compare reports from the recent European incidence. Because of the difference very much of each company is for - is we are taking to account in 2003. Telefonica in (inaudible) as Spain was really knew which has been flood in relationship with 2002. I think it is important that in the fourth quarter that parting company itself has a significant improvement in company assurance is - the cumulative fear at the September month that was minus 1.3% and we had in the fourth quarter just a decrease of 0.4% in the foreign company. The year been the year of 2004 you don't seem you should consider that they will use you in regarding wholesale services and telecom may have the same in but as in the last quarter of the (inaudible).

OK, thank you.

Thank you, our next question comes from Mike Melon from Goldman Sachs. Please go ahead with your question.

Thank you. I was wondering if you could just update it on what plans you may for your excess free cash flow. Beyond the shareholder remuneration and results for continuity this year at the invested day in October. For example are there any things in North America perhaps still in acquisitions in Brazil, Mexico etc. That is interesting at this point. Thanks.

Hello, might be in the profile which were in the better companies in (inaudible) is large as the same. We are very clear. We basically rely in our organic growth is what we have seen (inaudible). As I said before, in an issue on the cash flow they both will sum in (inaudible) in the (inaudible). And if you are referring to non of that growth, we are in a state that we are by the simple we state in the October conference and that is there will be an impact in all business owning that, sorry I am not able to give - and that are complementary with it. Please note that issues when they are correctly reasonable and we see enough (inaudible) and we have attained in the (inaudible) in October.

Thank you.

Thank you. Our next question comes from Antony (inaudible) in London. Please go ahead.

Hi, Antony (inaudible) here from (inaudible). I just put the regard to the expected tax increases in Brazil this year at a less fare. Giving the fact that it gets through in our IGTP and DI and where you know the telecoms ministry has been saying that now with that now below and below CPI ratings and that is the rate that you are more that likely be concentrate this year. And IGPDI (ph) is currently running just more than 5% and are you still comfortable with your underlying gross targets in the less pay and given - you know in the event that you have any to be transferred a tax increase of 5% to 6%.

OK. Let me say that first of all I mean well it is still forward and the moment you will be back in - I mean in June. I kindly said that last year the contract according to an (inaudible) contract were affected because of course lowest or increased (inaudible) EGPDI, he was a local - he was the court who was telling that the - it was EBCA to be established. As a result, we expect that this year again the contract will have the same resonance as it always has in the EGPDI. We will not know what is going to be the outcome of that by June. So far we know that the wireless process is on course and it has been respected in the same industry. So for the time being we cannot tell you. We have fixed that the same reference is going to be used.

Just wonder that reply to your question.

Yes thanks very much.

OK, thank you. And next question comes from Evans Scorpen (ph) from A Justice (ph) in London. Please go ahead.

Thank you. I have a couple of questions based on your slide 21. You said that you are buy back principles where conditioned on free cash flow generation and share price. And can you guide us to what you were to for free cash flow generation came as you plan in the share price, state roughly where it is today. Could we expect you to continue to buy back as aggressively as you have done recently and secondly, do you still see any purpose in having free flows in minorities such as may be like now you have a special cash flow as the parent company to make an do you like the acquisition?

Yes, I wanted to make the formal statements that the program as our chairman said in October is predictions and I think - as you said share price and free cash flow availability. We have to reduce which - you know one in change of quarters that have already elapsed. Our commitment is to tell you how we are doing on a quarter to quarter basis and as we have planned now we have already do and how we have done until last week. This is the technique we will continue to use. But, I don't think it would fare to expect from as a detailed program on a day by day around the price. If part of your question is like that - I would like a different question which is do we think that for Telefonica as a whole is the grand share price is across 50. The answer is yes.

With regard to the possibility of the why not in minorities in Telefonica Movil. I will let you know that we are feeling very worst in the present position. We have as you know we have 92.44% of Telefonica Movil, which is above the 75%, and are required to consider to go in this share group. We also mind that in acquisition I think it is an important possibility and I would say that the currency that we have possibility to make any position - where is the possibility that we want to keep it. So I think we are in the best combination in the best situation and we are in a position Telefonica Movil is like it is. With regard to Latin America operations also we feel very comfortable with the present situation and because we have the minorities of this new front.

Thank you.

Thank you our next question comes from Matthew (ph) from BMP Paribas in London, please go ahead.

Yes, good afternoon and congratulations for your results. I will have three questions for you, if I may. My first question will be on the domestic wireline. Given the presently revenue growth you know expect for 2004 for the one in business when including in - and process. I was just wondering what assumption in terms of access and traffic evaluation you are assuming for 2004. Did you see any improvements on the back of the fourth quarter performance? My second question will be regarding CAPEX, what your CAPEX plans for Latin American Wireline and you see CAPEX increasing in 2004 in some particular countries and the third question is on the buy back. First of all thanks for update. I was just wondering if you could give any timing of elimination of the treasury share. Thank you.

OK. Regarding your fist question. In net additional business or net additional our services; we expect during 2004 the market behavior very similar to one in 2003. Regarding our market share especially traffic we are set to improve our performance in relationship with 2003. In fact, we are set to have a selective number for lines significantly smaller than in 2003 and increase in the number of lines also significantly led then in 2003. Also you should take into account that the during 2003, we have said that the decreases in effective prices will be lower than in 2003 specially if you take into account that sum of our competitors already increases sum of their prices.

With regard to your question about CAPEX in Latin America, in our consolidated way I mean in constant year term, we do not ambition that' year to increase and we have an ambition to decrease a bit of it, giving year 2004 when compared to year 2003. Having said that we need to tell that we are going to pushing forward ADSL deployment in Brazil, Seal, Peru and Argentina, will be pushing plant in Peru and slightly above in Argentina.

With regards to the possibility of amortization of treasury into this, surely -- nothing saying yet. There will be no money consideration through with seasonal with they given the board that would take place before again meeting in which you know will be by the end of the month April.

Thank you.

Thank You our next question comes from Mark Stilmiliono (inaudible) in Brazil. Please go ahead with your question.

Thank you my question been answered earlier.

Thank you our next question comes from Christopher Nicolson in Oraka, London. Please go ahead.

Could give some indication about what you think about the principle of converting your entire Spanish network, fixed line net work to VOIP. Do you think that is not potential demands to warrant making CAPEX plans for that conversion?

OK, regarding the evolution of our network, I think we have a such a program very advanced already and in fact a contagious that at the end of 2003, 61% of our total traffic was already transported through our AP network. OK, next question please

Our next question comes from David George from CSFB in London. Please go ahead

Yeah Thank you just going back to the issue on use of cash flow I mean understand the general at principles that has expressed in Drid (ph) you would say in the past comments as I think that there were assets in Europe that were available - that were attractive I just wonder in a given recent attempt to consolidate in European that were available that were attractive I just wonder in a give recent attempt to consolidate in European. That perspective change its all or may be particularly the current success we are having with IMA is that attempting to part more Christly with KPN and I'm just like in a very specific question of on tax can you give a bit of guidance on both the P&L effective tax rates we gonna expect in terms of Cash tax payments in 2004 Thank you

Let me start with the second part on the cash on the cash taxes, that is a we don't expect a significant deviation from the numbers we have provided for 2003. As you know, the group continues to have a very significant shield which is going to take some time to be fully consumed, so we thought being able give you a very specific number something to the tune of what we have reported in 250 to 300 million range or to be expected interims of cash out flows dealing with taxes

OK and what (inaudible) what I said before about non organic possibilities you know in betting our core business in the manageable di and complementary with us shooting up our reasonable price with upside busts this is a strategy before we (inaudible)

Thank you our next question comes from Mark Cardial (ph) from Best Services (ph) in London. Please go -

Hi, its Mark Cardial from burnstien (ph). Two things quickly, if I could. First of all, on the last tax question, could you also comment on income statement taxes and what we should expect on the income statement and secondly on the fixed line business in Spain, could you give us an update on what's going on from our regulatory point of view in particularly as relates to what you expect over the next year or two on wholesale prices for interconnect for bundling and in broad band in general

Yes, on the income tax you should not expect either any significant change from last year. The tax shield of roughly fund savings euros which is being slowly used and therefore that would basically imply in this consolidated tax group differs roughly 15 billion of gross profit of the not pay any significant tax in cash on the account in term of course that tax shield will be eventually consumed if we continue the path that we have re inaugurated in 2003 so no major tax change are to be expected even from the income statement by going forward

OK, regarding the your question about the regularity frame work in Spain, as you know, today in most of the European countries, they are analyzing the 18 really run markets defined by the European Union and there a regulatory body here is Spain is running such process and then before that analysis is being conclude it is very difficult to anticipate the impact of the analysis In any case regarding the interconnection prices I think it is very important to take in to account that last year for the first time since the one interconnection prior was increased by 7% which was the capacity based interconnection though it was compensative but a decrease in the time base interconnection price and we expect during this years 2004 through 40 more or less the same line because still we are aiming that the interconnection price based on capacity is a still low

Let me do a follow up on the figures question about CAPEX guidance in Latin America in constant terms you would be slightly above the few EBITDA that you have at the end of year 2003 when compared to revenues

Thank you Mr. Cardial, does that reply to your question

Yes, could you just comment on the stream in the un bulling on pricing

I think the price of the embedded of the loop here Spain is very old in line with average in Europe and we believe that is it is not to Jews as much in some countries is because our ADSL hold sale offer is very attractive because a they have a discount of 40% regarding our retail price and because of that they are not doing the that were using ambani local loop.

Thank you

[OPERATOR INSTRUCTIONS] Next question is a follow up question form James Lokensi (ph) Infodantris Madrid please go a head

Hi, thanks, question on slide on your ADSL retail function of very impressive 7.7% growth. So why don't you gives and color behind how much of that increase in also is due to migration to a higher packages may be I mean talk to a bit about value and services what the value added services or as a proportion to the total may be or potentially the spend of the customer and value added services

I believe that, mainly being cases due to the evaluated head of this use to proposal that we have in the market and in flat they have to figure that we have the right to use these evaluated set up is to represent approximately 6% of the total fuel. Migration of course but you your think is too if look at these, but your sink is two significant from the point of view of the RPO figure that we provide to you.

Al right so, is that about that the evaluated services are about 2.8 in total

Yeah 2.6

2.6

2.6

They haven't been any price increases either have they

No, no they had no re manipulating the (inaudible)

OK. Thanks

Thank you, our next question comes from Maria (ph) from SCH Madrid please go ahead with your question

Hello. I have a few questions, the first one is you could explain what are the advantages of integrating telefonica in sets so what are you going to do basically and also there has been some noise in Spain as about they are again the restructuring of the corporate (ph). You can comment on these, the second question will be on Teleonica at America I want to know if you could explain the accounting of the because of the employee reduction assumed that the employee reduction like 10% result. So how do you account for those cause, and finally as more question is on ADSL if you could tell us what has been the incremental margin because margin talking about the full EBITDA margin but I was interested if possible to know been connected margin, thank you very much

Maria, you has got the rational between the inhibition of telefonica as that the thick line in your opinion clear the market statis I an on that the business are converting with that of the six lines. First and clearly the customers are increasing demand in the single operating goods implies the services of the single for metal approach. Also, they reached in and we believe leverage of the synergies for both the activities of being combined in the same operation are very important. Here in Latin America in both places and we see the potential and the growth potential our revenues for the whole segment will be very pleased because of this matter. Corporate you'd seen our results reduce the number of staff in quarters during this year by normal it can may be around 30% of petrol and hit counts

With up to your question about with under sales in Latin America as you know there are some difference we can see in Sweden and Spanish GAAP and as a result consolidated to telefonica accounts sometimes referred from the one that elaborated and publishing no guide ups example in the case of Gillespie. In a strategic case of Gillespie the main discrepancy is the stationary provisions for operating expense will be 170 million and better also some course, personal di structuring made into quarter that which account for 2800 employees basically and their cost was 110 million RIAS. Those under Brazilian Tax goals about and according to this is perhaps low below dead line.

Maria we believe that this is much better to follow the evolution big DDSL business to EBITDA. Evolution on EBITDA margin, because it more represent that the load margin is so - because of that since we reach these forfeit EBITDA margin last year we are going to provide from now on information about our EBITDA margin.

OK, thank you.

We have time for the last question please.

Thank you our last question comes form Maria Tinaro form Citigroup at AM in New York. Please go ahead with your question.

Hi everyone, another Maria. I apologize if this question has been answered. I have some problems with the line. I was wondering if you can give us an update of our regulation and what are your expectations about rate increases in Brazil, Chile and Argentina. And also if you can give us some guidance about the ABSL business in North America. I know your portion for ABSL in ABSL in Brazil but if you could get some guidance about that. And finally what you are getting more positive about Argentina. Is it that the competitive environment in wireless that recently change with the interest of America Moviles and moreover what is driving and your recent decision to go ahead with GSM Movile. Thank you.

Hi Maria. Regarding the tight process review of the Dgo in Brazil, will be held around June - will be run around the June review and we don't know to soon get. We expect that they will be respecting the saving that year and because if a lower level and we will not ambition any or we will not foresee any difficulties on that front.

What about the bad debts from last year?

Oh that is in court right now. And we are depending the decision of the court. I mean you know that they are - allow us to implement and the contract is stated as it should be so we don't know what we going to be out of the court but the it keeps going. We have seen that and it would be a respecting day in the index. In July we are in the middle of the process. You know that we need to raise conclusions for the repeated issues and those conclusions issued by court. And we had a waiting time for next week. They allow that noise in the company and we are keeping a prudent silence because we don't know what the opening is going to be. Too soon to state. You know that we have been presenting a very solid model and that we are - even a solid increase especially in the connection rights. But, we don't know what will be the outcome.

Is it a positive average or just going to comment?

For the time being I am neutral. I mean - I am - we are waiting. And in Argentina fortunately no news. I mean it has been declared that Telefonica has seen - with bringing its contract that was affected by the secretary of the state of the unit. And as a result on the whole of these, but no news from that side unfortunately. We will be at Argentina from the wide line point of view is that wireline point of view is that the tactic keeps - I mean a very strong. And that line demand is also pushing up a little bit. But no news from the - on the other side.

So, just because this wide ratio still very low, so -

Yes.

: The stupid, the stupid thing to why I don't even -

Well, yes. But, I mean, when are we going to complaint our defect that will be a front that we have seen growth there. You know that we have been doing a huge force to control those and as a result, our margins are strong. So, we keep waiting.

: Then what about the ADSL?

Sorry for that. You know, last year we have increased ADSL line based in Northern America probably by 77%. The target for these is also very aggressive. We have not been disclosing that target but you should step from, as the have been very aggressive seeking that four countries and I guess-

I'd like to thank everyone for your time spent in this conference call and moving it. Thank you very much.

Thank you ladies and gentlemen, this concludes our Telefonica conference call. You may now all disconnect your lines. Thank you.