Telefonica Net Profit Rose 73% During First Half of 1999, to 1.020 Billion Euros - Telefonica Internacional - Company Financial Information

Cambridge Telcom Report, Sept 13, 1999

-- Net profit, excluding extraordinary items, increased 31.7% from a year earlier.

-- Operating revenues and EBITDA at Telefonica de Espana grew 3.6% and 3.1%, respectively.

-- The increase in mobile phone business brought the total of Telefonica Moviles' customers to 6,540,172, an increase of 823,421 in the second quarter. Telefonica Internacional now has 7.889 million cellular phone clients, having added 1.2 million in the same period.

From January 1, 1999, Telefonica adopted a new organizational structure consisting of a holding company with a series of business lines. As a result, starting with this press release, Telefonica will increase the amount of information it provides to the markets, with detailed data on the principal business lines along with the corresponding data from the same period a year earlier, in this case pro-forma, allowing for a homogeneous comparison with the current year. At the same time, and in order to allow the preparation of annual projections data for full-year 1998 which were not contained in previous press releases are also included. In order to avoid difficulty in the analysis (possible distortions in the analysis due to changes in consolidation perimeter), produced by the full consolidation of some companies in the consolidated financial results, in particular the incorporation of Telesp and TeleSudeste Celular from the beginning of this year, these financial statements consolidate by the equity accounting method those companies owned by Telefonica Internacional in which the economic shareholding is less than 100%. However, an annex to this press release contains the consolidated financial statements with the consolidation of those companies by the full integration method, in accordance with accounting principles applicable in Spain. This annex also details separately the impact of the full integration of Telesp Participacoes S.A. and TeleSudeste Celular Participacoes.

MADRID, Spain

Telefonica (NYSE: TEF) has reported a consolidated net profit of 1.020 billion euros (169.719 billion pesetas) during the first half of 1999, an increase of 73.0% over the same period last year.

This growth cannot be extrapolated to the end of the year, as several extraordinary events which occurred during the first six months of the year which have had a significant effect on this increase:

-- First, extraordinary revenues totaled 962.5 million euros (160.146 billion pesetas), reflecting the capital gains generated from the sale of shareholdings, of which the most important were Temasa and TPI- Paginas Amarillas. Total capital gains, after taxes, amounted to 580.9 million euros (96.658 billion pesetas).

-- Second, extraordinary expenses totaled 704.4 million euros (117.208 billion pesetas), including 337.3 million euros (56.119 billion pesetas) corresponding to generic provisions made during the second quarter to increase the measures of provisioning and restatement of Telefonica Internacional's Latin American investments if such action were to become necessary due to the deterioration in the region's economic climate.

Stripping out these capital gains and generic provisions, whose net positive effect was 243.6 million euros (40.539 billion pesetas), Telefonica's net profit totaled 776.6 million euros (129.18 billion pesetas), for a year- on-year increase of 31.7%, in line with first-quarter performance ( 30.7%).

Consolidated revenues totaled 6.394 billion euros (1.06 trillion pesetas), an increase of 7.5% year on year, 2 percentage points greater than the one recorded in the first quarter of 1999. This was due to the dynamic growth of Telefonica Moviles services, higher revenues at Telefonica Data from increased connections and the growth of the IP network, as well as strong sales at Telefonica de Espana, buoyed by greater traffic volumes, containment of market share loss and the expansion of value-added services.

EBITDA rose 3.8% in absolute terms (it rose 3.6% to March) and stood at 53.2% of revenues. This was due to the growth of revenues and of associated expenses, which rose in line with the expansion of Telefonica activity, wiping out the sharp decline in personnel expenses (-8.9%).

Operating profits fell back 10.2% from the first half of 1998 but climbed 32% from the previous quarter. This performance is attributable to the shorter depreciation period applied for some of Telefonica de Espana's assets, since the start of 1999, leading to additional depreciation charges of 248.8 million euros (189.3 million during the first quarter). Stripping out this effect, operating profits would have advanced 4.6%, year on year.

Income before taxes surged 79.9%. The differing performance of pretax income and operating profits is attributable to the first half's extraordinary events, as mentioned above, coupled with lower extraordinary expenses as a result of Telefonica de Espana's staff downsizing programme, the drop in net financial results and the effects of the 1998 change in the accounting principles with respect to consolidation of goodwill.