Final Results-Part II

Telefonica SA 28 February 2005 RESULTS BY BUSINESS LINES Other businesses DIRECTORIES BUSINESS During the year 2004, TPI Group's operating revenues increased by 6.6% to 605.9 million euros, despite the negative performance of Latin American currencies against the euro. The Group's EBITDA amounted to 210.1 million euros, 17.0% higher than the figure of 2003 and net profit grew by 24.2% up to 111.9 million euros. These results are explained by: • The good performance of advertising revenues within Spain, which improved by 4.4% compared to 2003 up to 411.7 million euros. • The revenues of Publiguias, the Chilean subsidiary, increased by 1.9% in local currency, despite the non publication of Adenda, the addendum of the Santiago de Chile residential White Pages directory, a biannual book. However, advertising revenues showed a sound evolution, growing at 6.8% in local currency. EBITDA improved 5.0% also in local currency, with an increase of 1.1 percentage points in the EBITDA margin up to 37.6%. • TPI Brazil experienced a decrease in revenues of 9.6% in local currency due to more strict receivables and sales policies. However, during the fourth quarter, publishing revenues climbed by 15.5% like for like. TPI Brasil reduced its negative EBITDA by 3.7% in local currency to -4.9 million euros, being newly affected by higher bad debt provisions coming from 2003. • The increase in total revenues at TPI Peru of 8.4% in local currency. It must be highlighted the contribution of the Internet business, which experienced a revenues increase of 61.4% and accounts for 6.8% of total advertising revenues. EBITDA rose by 30.5% up to 7.8 million euros, also in local currency, due to efficiencies in costs. With these results, TPI easily exceeds the initial 2004 year-end forecasts announced during May 2004 of growth at constant exchange rates in revenues (+3/ +5%) and EBITDA (+9/+11%). At constant rates, revenues increased by 7.4% and EBITDA by 17.6%. Espana, which includes the revenues of TPI Edita (former Goodman Business Press), increased its contribution to Group's revenues by 2 percentage points up to 80.0%. EBITDA contribution of TPI Spain amounted 85.6% of total Group's EBITDA. Excluding the revenues of TPI Edita, TPI Espana revenues rose by 8.9% to 484.7 million euros, mainly due to the following three factors: • The Editorial business, which grew by 3.0% up to 371.9 million euros. This division registered an organic growth, like for like, of 2.1% and 5.6% experienced by the 110 Yellow Pages directories (105 directories in 2003) and the 60 White Pages directories (62 directories in 2003), respectively published. • The advertising revenues related with the Internet Business, which rose by 16.4% up to 31.0 million euros and the advertising revenues related to telephony information services, which reached 4.5 million euros, registering an increase of 14.7%. • And the strong performance achieved by the telephony traffic business line (11888), whose revenues soared by 95.2% up to 46.6 million euros, and represents 9.6% of total TPI Spain revenues. In turn, EBITDA of Spain jumped by 18.3% up to 180.2 million euros, thanks to the good evolution of operating revenues and cost control. Latin America contributed with the remaining 20.0% of revenues and 14.4% of EBITDA (positive EBITDA of 30.3 million euros). TPI Chile was the biggest Latin American contributor to both revenues (73.7 million euros) and EBITDA (27.7 million euros). In turn, the directories business of the Telefonica Group, which includes the Argentinean company Telinver, recorded during 2004 an increase in total revenues of 6.6% up to 628.1 million euros compared with 2003. EBITDA amounted 215.2 million euros, representing a year-on-year increase of 16.9%. TPI - PAGINAS AMARILLAS GROUP SELECTED OPERATING DATA IN SPAIN Unaudited figures January - December 2004 2003 % Chg Books Published Yellow Pages* 110 105 White Pages 60 62 (Euros in millions) Revenue Breakdown (1) 484.7 445.3 8.9 Advertising 411.7 394.5 4.4 Publishing 371.9 361.2 3.0 Yellow Pages 296.3 291.1 1.8 White Pages 69.1 66.1 4.5 Verticals 6.5 4.0 63.8 Europages 31.0 26.7 16.4 Internet 4.5 4.0 14.7 Operator Assisted Yellow Pages 4.3 2.7 59.9 Others 46.6 23.9 95.2 Telephony Traffic 24.9 24.6 1.4 Operator 1.6 2.4 (33.9) Others *Includes a breakdown by residential/business services and pocket guides. (1) TPI Espana includes Telefonica Publicidad e Informacion S.A. and 11888 Servicio de Consulta Telefonica S.A.U. results. TPI Edita (former Goodman Business Press) is not included. TPI - PAGINAS AMARILLAS GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 605.9 568.6 6.6 160.7 148.2 8.4 Operating expenses (395.8) (389.0) 1.7 (111.7) (106.7) 4.7 EBITDA 210.1 179.6 17.0 48.9 41.5 17.9 Depreciation and amortization (24.5) (30.0) (18.1) (8.5) (10.9) (22.2) Operating profit 185.6 149.6 24.0 40.4 30.5 32.3 Profit from associated companies (0.6) (1.2) (46.1) (0.1) (0.2) (23.5) Financial net income (expense) (2.9) (2.6) 9.7 (1.4) 0.1 c.s. Amortization of goodwill (6.6) (3.0) 115.9 (1.3) (0.8) n.s. Consolidation adjustments 0.0 0.6 n.s. 0.0 0.0 n.s. Extraordinary net income (expense) (0.4) (0.8) (53.9) 0.0 0.3 (93.1) Income before taxes 175.1 142.5 22.9 37.6 30.0 25.4 Income taxes (63.8) (48.9) 30.5 (17.9) (10.9) 63.9 Net income before minority interests 111.3 93.7 18.9 19.7 19.1 3.4 Minority interests 0.5 (3.6) c.s. 0.0 (0.1) c.s. Net income 111.9 90.1 24.2 19.7 19.0 4.1 DIRECTORIES BUSINESS CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 628.1 589.3 6.6 175.8 163.5 7.5 Internal expend capitalized in fixed assets (1) 0.0 0.0 n.s. 0.0 0.0 n.s. Operating expenses (378.7) (375.9) 0.8 (111.2) (111.4) (0.1) Other net operating income (expense) (34.2) (29.4) 16.4 (11.4) (6.5) 75.3 EBITDA 215.2 184.0 16.9 53.2 45.6 16.5 Depreciation and amortization (25.1) (30.8) (18.3) (8.5) (11.1) (23.4) Operating profit 190.1 153.3 24.0 44.6 34.5 29.4 Profit from associated companies (0.6) (1.2) (46.1) (0.1) (0.2) (23.5) Financial net income (expense) (6.0) (6.6) (8.3) (2.2) (0.6) 260.0 Amortization of goodwill (6.6) (2.5) 165.6 (1.3) (0.8) 71.6 Extraordinary net income (expense) (2.4) (1.7) 42.3 (1.4) 0.2 c.s. Income before taxes 174.4 141.4 23.4 39.6 33.1 19.7 Income taxes (62.3) (48.9) 27.5 (16.4) (10.9) 50.2 Net income before minority interests 112.1 92.5 21.2 23.2 22.2 4.7 Minority interests 0.5 (3.7) c.s. (0.1) (0.2) (60.5) Net income 112.6 88.8 26.9 23.2 22.0 5.2 Note: Telefonica Directories Business includes Telinver (Argentina). (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses TERRA NETWORKS GROUP In 2004, the operating revenues obtained by Terra Networks amounted 539.2 million euros, representing a decrease of 1.1% over 2003. It is important to highlight that the year on year variation is affected by the changes produced in the consolidation perimeter with the sale of Lycos, Inc. shares in October 2004. Therefore, excluding this variation and the negative impact in exchange rates fluctuations, total revenues would have increased 8%. The Strategic Alliance with Telefonica Group has reached a revenue figure for Terra Networks Group of 133.8 million euros at the end of December 2004 compared with 101.1 million euros obtained in the same period of 2003. The revenues breakdown by business line was as follows: 43.8% Access revenues (+7.0% y-o-y), 22.1% Advertising and Online revenues (-16.3% y-o-y), 22.6% Value added & Contents services revenues (+2.8% y-o-y) and the remaining 11.5% Corporate Services and others revenues (-2.4% y-o-y). Regarding the geographical revenues breakdown, Spain continues to be the biggest contributor, weighting 44.4% of total revenues (37.2% in 2003), followed by Brazil with 27.5% of total revenues (26.1% in 2003) and USA with 16.2% of total revenues (23.1% in 2003). The remaining 11.9% mainly comes from Mexico (5.5%) and Chile (5.3%). During 2004, Terra Espana experienced a year over year revenues growth of 18.3% to 220.3 million euros, mainly due to the growth registered in both ADSL access subscribers (+14.0%) and VAS&Contents subscribers (+55.9%). As of December 31st, 2004, Terra Espana accounts for 336,259 paying subscribers, of which 147,223 are narrowband clients and 189,036 are broadband clients. Moreover, Terra Espana has 2.1 million paying customers that have signed up for VAS & Contents products. During this fourth quarter, it should be mentioned, among the new products and services launched, the migration of ADSL Home clients to ADSL Plus platform in order to increase portfolio quality and migrate all clients to higher value-added products. It is also important to highlight the launch of Football and Music, two news products that were followed by an important advertising investment. Brazil revenues stood at 148.8 million euros, registering an increase of 4.4% over 2003 (+9.8% in local currency). Terra Brasil has exceeded the 1.25 million paying access subscribers figure, of which 724,728 are broadband clients. Terra consolidates its leadership in Brazil in access paying subscribers in internet, and holds more than 50% market share in the broadband market. During this fourth quarter, it should be mentioned, among the new products and services launched, the incorporation of new European tournaments in the Sports channel and the packages (UEFA and European Championships) for mobile and Internet. EBITDA for 2004 stood at 20.9 million euros, representing a positive EBITDA margin of 3.9% (-7.2% in 2003), compared with the negative 39.5 million euros reached in 2003. This margin improvement has been possible through higher revenues coming from our main markets and savings obtained in all operating expenses. It should be mentioned the sharp decrease in personal costs (-20.0% in 2004) due to the headcount reduction carried out during 2004 (-28.8% to 1,606 employees). The Alliance with Telefonica registered coverage of the value committed for the whole year (79.6 million euros) of 101.3%. Terra Networks registered a positive net income of 164.0 million euros compared to a net loss of 172.7 million euros in 2003. Due to the incorporation of Terra Networks within the fiscal perimeter of Telefonica Group during the year, Terra Networks materialized in 2004 a tax credit of 306.5 million euros coming mainly from the sale of Lycos Inc.. Also in 2004, Terra Networks recognized an extraordinary loss of 25.8 million euros mainly resulted from the headcount reduction carried out. At the end of December 2004, Terra Networks's client base reached 6.3 million paying subscribers (+24.8% over 2003). Access clients accounted for 1.8 million (+8.6% vs. 2003), of which more than 1.1 million are broadband clients, the majority of them being ADSL (+66.0% y-o-y). It should be mentioned that 71.1% of the company's total paying customers had signed up for VAS & Contents products. These clients have increased 32.8% in the last twelve months up to 4.5 million, of which 3.2 come from the Strategic Alliance with Telefonica. At the end of December 2004, Terra Networks had a cash position of 529 million euros. TERRA NETWORKS GROUP SELECTED OPERATING DATA Unaudited figures (Thousands) December 2004 2003 % Chg Total Pay Subscribers 6,279.9 5,032.5 24.8 Access 1,815.7 1,672.0 8.6 Narrowband 747.6 1,028.4 (27.3) Broadband 1,068.0 643.6 66.0 OBP (CSP/Portal) 4,464.3 3,360.5 32.8 Broadband Access Subscribers by Country 1,068.0 643.6 66.0 Spain 189.0 165.9 14.0 Latin America 879.0 477.7 84.0 Employees (units) 1,606 2,255 (28.8) TERRA NETWORKS GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 539.2 545.1 (1.1) 132.9 155.0 (14.3) Internal expend capitalized in fixed assets (1) 0.7 0.9 (20.1) 0.1 0.2 (69.1) Operating expenses (510.4) (577.8) (11.7) (114.1) (145.7) (21.7) Other net operating income (expense) (8.7) (7.7) 12.5 (2.3) (1.9) 22.9 EBITDA 20.9 (39.5) c.s. 16.5 7.6 117.0 Depreciation and amortization (79.5) (78.7) 1.0 (31.3) (21.6) 44.9 Operating profit (58.6) (118.2) (50.4) (14.8) (14.0) 5.7 Profit from associated companies (14.6) (34.7) (58.1) (1.7) (19.7) (91.4) Financial net income (expense) 18.3 57.7 (68.3) 1.9 30.7 (93.7) Amortization of goodwill (64.8) (82.3) (21.2) (5.9) (19.9) (70.6) Extraordinary net income (expense) (25.8) 4.5 c.s. 4.0 (12.9) c.s. Income before taxes (145.6) (173.0) (15.9) (16.4) (35.8) (54.1) Income taxes 306.5 (0.3) c.s. 277.1 (0.0) c.s. Net income before minority interests 160.9 (173.2) c.s. 260.7 (35.8) c.s. Minority interests 3.1 0.5 n.s. 0.1 0.1 56.2 Net income 164.0 (172.7) c.s. 260.8 (35.7) c.s. (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses ATENTO GROUP The last quarter of 2004 reflected the results of the commercial effort made throughout the year, consolidating the revenue growth registered since the beginning of the year. By geographical countries, the commercial agreements that have contributed the most to this evolution are as follows: • In Brazil, the operations with VIVO, Unibanco and Telesp, which continued with a sound growth rate, and the new clients Bradesco, Microsoft, Telemig and Sul America. • In Spain, the agreement with BBVA and the services with Gas Natural, Repsol and Serviberia. • In Mexico, the increased activity with BBVA and the consolidation of the agreements with Amex, Infonatel, GE Seguros and British American Tobacco. • In Puerto Rico, the agreement with AT&T. • In Chile, the sales coming from Correos de Chile, Autopista Central and Banco Paris. • In Venezuela, the services with Electricidad de Caracas and Citibank. • In Argentina, the increased activity with TASA and Unifon. Atento Group operating revenues during 2004 amounted to 611.7 million euros, 24.1% more than in the same period of 2003. This increase was primarily due to Atento Spain (revenues +29.4%), Atento Brazil (revenues +18.3%), Atento Mexico (revenues +68.2%), Atento Argentina (revenues +77.4%) and Atento Puerto Rico (revenues +71.6%). Excluding the negative exchange rate effect, revenues would have increased by 28.4%. During the fourth quarter, the revenue growth trend experienced since the second quarter of 2004 was consolidated, reaching the highest level of revenues in the history of the Atento Group (178.9 million euros). The contribution of the external clients of the Telefonica Group continued its upwards trend, reaching 44.1% of total revenues at the end of 2004, compared with 37.0% in December 2003, as a result of the aforementioned commercial progress. By geographical regions, both Spain and Brazil contributed with 71.4% of total revenues, the same percentage as in 2003, although Spain individually increased its contribution to 39.0% (37.5% in 2003) and Brazil, in turn, reduced it to 32.4% (33.9% twelve months ago). Regarding the remaining countries, Mexico increased its contribution (7.1% vs. 5.2% a year ago), as well as Argentina (2.7% vs. 1.9% in December 2003) and Puerto Rico (2.8% vs. 2.0% twelve months ago). Operating expenses registered in 2004 a growth of 22.2% up to 524.0 million euros (+26.3% in constant euros), primarily due to an increase in personnel expenses (+25.4%) as a result of greater activity. Cumulative EBITDA for the year stood at 90.8 million euros, a figure 36.6% higher than in 2003 (+44.3% excluding the exchange rate effect). EBITDA margin rose to 14.9%, a 1.4 percentage points improvement on the figure twelve months ago. This margin places the Atento Group among the most profitable companies in the 'Contact Center' sector. The operating profit for 2004 amounted to 54.4 million euros compared with the 14.3 million euros registered during January-December 2003, due to a higher EBITDA and a decrease in depreciations (-30.3% year-on-year) as a result of the degree of maturity achieved in operations. Net income in 2004 reached 18.2 million euros (-16.2 million euros compared to 2003). During the fourth quarter of 2004, the Atento Group recorded a positive net income of 6.9 million euros for the fifth consecutive quarter. At operating level, the Atento Group had 30,566 positions in place at December 31st 2004, 4,866 more than one year ago. The average number of occupied positions for 2004 was 22,116, representing a level of occupation of 75% (74% in 2003). Cumulative CapEx at the end of the fourth quarter totaled 22.8 million euros, showing a year-on-year increase of 76.5%. This increase was mainly due to the investments made by Atento Brazil to attend new services and clients at the new Contact Center in Sao Bento and at the extended call center in Barrafunda, as well as the opening of new platforms in Spain to attend new services and the implementation of the new call center in Chile (Vicuna) and Mexico (Puebla). Finally, operating free cash flow (EBITDA-CapEx) reached 68.0 million euros compared with the 53.6 million euros generated in 2003. ATENTO GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 611.7 493.0 24.1 178.9 136.3 31.2 Operating expenses (524.0) (429.0) 22.2 (154.0) (111.8) 37.7 Other net operating income (expense) 3.1 2.5 23.9 1.1 1.0 3.4 EBITDA 90.8 66.5 36.6 25.9 25.5 1.4 Depreciation and amortization (36.4) (52.2) (30.3) (8.2) (11.5) (28.8) Operating profit 54.4 14.3 n.s. 17.7 14.0 26.3 Financial net income (expense) (17.6) (30.3) (42.0) (4.3) (6.2) (31.3) Amortization of goodwill (6.0) (6.9) (12.2) (1.5) (1.6) (8.3) Extraordinary net income (expense) (4.5) 2.9 c.s. (0.2) 1.0 c.s. Income before taxes 26.3 (20.0) c.s. 11.7 7.2 63.8 Income taxes (6.5) 4.6 c.s. (4.2) (3.7) 12.5 Net income before minority interests 19.8 (15.5) c.s. 7.5 3.4 119.5 Minority interests (1.6) (0.8) 103.3 (0.6) (0.4) 46.4 Net income 18.2 (16.2) c.s. 6.9 3.0 130.3 RESULTS BY BUSINESS LINES Other businesses CONTENT AND MEDIA BUSINESS The Content and Media Business obtained operating revenues of 1,219.1 million euros at 2004 year end, compared with the 1,378.5 million euros registered during the same period of last year, mainly due to the consolidation by the global integration method of the results of Antena 3 and its subsidiary Onda Cero until the end of June 2003, along with Euroleague Marketing during the first nine months of the year. These companies were subsequently removed from the consolidation perimeter of the Telefonica Group. Without taking into account these changes in the consolidation perimeter, consolidated revenues would grow 10.9% in relation to the same period of the previous year, mainly due to the positive performance of Endemol and ATCO in Argentina. The consolidated EBITDA amounted to 182.6 million euros, compared with 210.3 million euros in 2003. Without taking into account the aforementioned changes in the consolidation perimeter, the EBITDA growth would have been 9.2%. The process of divestiture of non-strategic assets continued during the fourth quarter of 2004, being totally removed from the consolidation perimeter the Group's stake on Rodven, the Venezuelan music producer, and having agreed the sale of Torneos y Competencias, the owner of the Argentinean football league content rights. Furthermore, Telefonica has reached to a selling agreement with Prisa Group in relation to the ownership of the Argentinean radio stations LS4 Radio Continental and Radio Estereo (100% owned by ATCO Group), subject to final approval by the Argentinean competition defence authorities. ENDEMOL The Endemol Group generated revenues of 1,033.7 million euros during the year 2004, which was 13.1% more than in the previous year. Endemol obtained EBITDA of 180.9 million euros, up by 9.9% year-on-year, and it is noteworthy to highlight the achievement of an EBITDA margin of 17.5%, in line with the previous year's figure. These results are due primarily to the good behavior of operations in competitive markets where Endemol has operations, like United Kingdom and the USA. The US subsidiary reached a year-on-year increase of 128.1% in revenues, measured in local currency, due to the successful adaptation of Endemol format library to the US market and the rebroadcast of past produced TV programs through a local TV channels group, leaded by NBC. Even though Western Europe continues to be the main contributor to Endemol Group revenues (76.7%), Endemol USA represents the 13.2% in 2004 vs. 7.2% in 2003. ATCO Throughout the year 2004, the advertising market in Argentina has consolidated the good trend initiated in 2003, having registered year-on-year growth of approximately 39% in Capital and Gran Buenos Aires areas. At the end of 2004, Telefe reaffirmed its position as the audience leader both on total population and commercial audience, reaching 37.8% and 40.9% shares in these two metrics, respectively, and followed by Canal 13, its main competitor, with 27.4% and 30.3% shares. As a result of the aforementioned audience figures, cumulative advertising market share achieved at the end of 2004 is 44.9% in Capital and Gran Buenos Aires areas, 12.3 percentage points. higher than its main competitor's, and 4.5 percentage points higher than the one achieved in the same period of last year. The company obtained revenues at the end of the year of 330.4 million pesos, 38.0% more than in 2003 and EBITDA climbed to 53.9 million pesos, 37.6 million pesos higher than registered at the end of 2003. CONTENT AND MEDIA BUSINESS CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 1,219.1 1,378.5 (11.6) 387.2 341.8 13.3 Internal expend capitalized in fixed assets (1) 0.2 0.1 90.8 (0.0) (0.0) 200.0 Operating expenses (1,027.9) (1,179.7) (12.9) (328.8) (287.8) 14.3 Other net operating income (expense) (8.9) 11.4 c.s. (2.7) (4.5) (39.1) EBITDA 182.6 210.3 (13.2) 55.6 49.5 12.4 Depreciation and amortization (30.5) (49.9) (39.0) (9.2) (10.5) (11.8) Operating profit 152.1 160.4 (5.1) 46.4 39.0 18.9 Profit from associated companies (20.9) (95.2) (78.1) (7.1) (22.9) (68.8) Financial net income (expense) (104.1) (61.5) 69.2 (81.0) (14.4) n.s. Amortization of goodwill (121.1) (102.5) 18.2 (29.3) (32.1) (8.7) Extraordinary net income (expense) (32.7) 327.9 c.s. 7.4 367.9 (98.0) Income before taxes (126.7) 229.0 c.s. (63.5) 337.6 c.s. Income taxes 66.3 (105.1) c.s. 25.4 (63.8) c.s. Net income before minority interests (60.4) 123.9 c.s. (38.2) 273.8 c.s. Minority interests (5.1) (4.2) 19.7 (1.7) 0.0 c.s. Net income (65.5) 119.7 c.s. (39.9) 273.8 c.s. (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses TELEFONICA DEUTSCHLAND GROUP Telefonica Deutschland Group obtained operating revenues of 319.5 million euros in 2004, a decrease of 16.5% year on year, due primarily to the reduction in revenues from narrowband services which has not yet been offset by the increase in broadband business, which nearly accounted for 14.2% of the revenues. With respect to the broadband business, an due to its wholesale nature, a new method of equivalent ADSL lines accounting has been adopted, regarding the total broadband capacity contracted per client. Thus, the total number of equivalent ADSL lines in service for both German and UK markets reaches the figure of 497,180, which compares with the equivalent figure of 302,761 in 2003, providing services to four out of five top main ISPs in Germany. EBITDA reached a total of 3.5 million euros in 2004, with an EBITDA margin of 1.1% which compares with the 22.3 million euros registered in the previous year. TELEFONICA DEUTSCHLAND GROUP SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - December October - December 2004 2003 % Chg 2004 2003 % Chg Operating revenues 319.5 382.7 (16.5) 72.6 94.3 (22.9) EBITDA 3.5 22.3 (84.3) (1.0) 11.2 c.s. EBITDA margin 1.1% 5.8% (4.7 p.p.) (1.3%) 11.9% (13.2 p.p.) ADDENDA Companies included in each Financial Statement Based on what was indicated at the start of this report, the results breakdown of Telefonica Group are detailed according to the business in which the Group has a presence. The main differences between this view and the one that would apply attending to the legal structure, are the following: • Telefonica, S.A. directly participates in the share capital of Endemol Entertainment Holding, N.V., which has been included in Telefonica de Contenidos Group. Furthermore, in the fiscal year 2003 the results from the participation, and following divestiture, in Antena 3 de Television, S.A., were integrated within the Telefonica de Contenidos Group results, although it had been participated directly by Telefonica S.A. through a part of the year. The results from the Sogecable stake have been also assigned to Telefonica de Contenidos Group, even though a part of the investment is legally dependent upon Telefonica, S.A. • Telefonica Holding Argentina, S.A. holds 4.706% of Atlantida de Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A. which, for those purposes, are considered to be part of Telefonica de Contenidos Group, consolidating 100% share capital of both companies. • In the case of Compania de Telecomunicaciones de Chile, S.A. (CTC), participated by Telefonica Latinoamerica, the activities of the mobile telephony business in Chile have been sold to Telefonica Moviles Group in the third quarter of fiscal year 2004, although the results of this company have been assigned to the mobile business from the beginning of the year. • The participation of Telefonica Group in IPSE 2000 SpA is assigned to the cellular business, also including the investment legally dependent upon Telefonica DataCorp, S.A. • In the case of Telefonica de Argentina (TASA), participated by Telefonica Latinoamerica Group, Telinver has been assigned to the directories business, in line with our vision for the total Telefonica's directories business. • Telefonica Data Group, legally dependent upon Telefonica S.A., has been segregated and subsequentally integrated into the fixed line activities both in Spain and Latin America for presentation purposes, and according to geographic criteria. The stakes not included in neither of the previous geographic areas will be consolidated directly by Telefonica S.A. In this sense, the stakes in Telefonica Data Espana, S.A.U. and Soluciones Group have been sold to Telefonica de Espana S.A.U. in the third quarter of 2004, although the results of both companies had been assigned to the fixed line business in Spain from the beginning of the year. • Emergia Group, now denominated Telefonica International Wholesale Services America, S.A. (Uruguay), directly participated by Telefonica S.A., has been consolidated within the Telefonica Latinoamerica Group. ADDENDA Key Holdings of the Telefonica Group and its Subsidiaries detailed by business lines TELEFONICA GROUP % Part Telefonica de Espana 100.00% Telefonica Moviles 92.46% Telefonica Latinoamerica 100.00% TPI Group 59.90% Terra Networks Group (1) 75.87% Telefonica de Contenidos 100.00% Atento Group 91.35% (1) Efective participation: 76.80%. Including Terra's shares in treasury stock. TELEFONICA DE ESPANA GROUP % Part Telyco 100.00% Telefonica Telecomunic. Publicas 100.00% Telefonica Soluciones Sectoriales 100.00% Telefonica Empresas Espana 100.00% T. Soluciones de Informatica y 100.00% Comunicaciones de Espana TELEFONICA LATINOAMERICA GROUP % Part Telesp 87.49% Telefonica del Peru 98.19% Telefonica de Argentina 98.03% TLD Puerto Rico 98.00% CTC Chile 44.89% Telefonica Data Colombia 65.00% Telefonica Empresas Brasil 93.98% Telefonica Empresas Peru 97.07% Telefonica Data Argentina 97.92% Telefonica Data USA 100.00% T. Internacional Wholesale Serv. (TIWS) 100.00% TELEFONICA MOVILES GROUP % Part Telefonica Moviles Espana 100.00% Brasilcel (1) 50.00% TCP Argentina 97.93% TEM Peru 97.97% T. Moviles Mexico 92.00% TEM El Salvador 91.75% TEM Guatemala 100.00% Telefonica Movil Chile 100.00% Telcel (Venezuela) 100.00% TEM Colombia 100.00% Comunicaciones Moviles del Peru 99.85% TEM Guatemala y Cia 100.00% Otecel (Ecuador) 100.00% TEM Panama 99.57% Abiatar (Uruguay) 100.00% Telefonia Celular Nicaragua 100.00% Group 3G (Germany) 57.20% IPSE 2000 (Italy) (2) 45.59% 3G Mobile AG (Switzerland) 100.00% Medi Telecom 32.18% Telefonica Moviles Interacciona 100.00% Mobipay Espana 13.36% Mobipay Internacional 50.00% T. Moviles Soluciones y Aplicac. (Chile) 100.00% (1) Joint Venture which fully consolidates TeleSudeste Celular Participacoes, Celular CRT Participacoes, TeleLeste Celular Participacoes and Telesp Celular Participacoes. Telesp Celular Participacoes fully consolidates Global Telecom Participacoes and, from May 2003, TeleCentro Oeste Participacoes. The participation that consolidate of Brasilcel in their subsidiaries in December 2004 are the following: TeleSudeste Celular Participacoes 90.9%; Telesp Celular Participacoes 65.1%; Global Telecom Participacoes 65.1%; Celular CRT Participacoes 65.9%; TeleLeste Celular Participacoes 50.6% and TeleCentro Oeste Participacoes 33.0%. (2) Aditionally, Telefonica Group has a 4.08% of IPSE 2000 through Telefonica DataCorp. TPI - PAGINAS AMARILLAS GROUP % Part TPI Edita 100.00% Publiguias (Chile) 100.00% TPI Brasil 100.00% TPI Peru 100.00% 11888 Servicios de Consulta Telefonica 100.00% TERRA NETWORKS GROUP % Part Lycos Europe 32.10% Terra Networks Peru 99.99% Terra Networks Mexico 99.99% Terra Networks USA 100.00% Terra Networks Guatemala 100.00% Terra Networks Venezuela 100.00% Terra Networks Brasil 100.00% Terra Networks Argentina 99.99% Terra Networks Espana 100.00% Terra Networks Chile 100.00% Terra Networks Colombia 99.99% Ifigenia Plus 100.00% EducaTerra 100.00% R.U.M.B.O. 50.00% Uno-E Bank 33.00% One Travel.com (1) 54.15% (1) In February 2005, the agreement of sale has been reached. ATENTO GROUP % Part Atento Teleservicios Espana, S.A. 100.00% Atento Brasil, S.A. 100.00% Atento Argentina, S.A. 100.00% Atento de Guatemala, S.A. 100.00% Atento Mexicana, S.A. de C.V. 100.00% Atento Peru, S.A.C. 99.46% Atento Chile, S.A. 77.58% Atento Maroc, S.A. 100.00% Atento El Salvador, S.A. de C.V. 100.00% TELEFONICA DE CONTENIDOS GROUP % Part Telefe 100.00% Endemol 99.70% Torneos y Competencias (1) 20.00% Telefonica Servicios de Musica 100.00% Sogecable 23.83% Telefonica Servicios Audiovisuales 100.00% Hispasat 13.23% (1) In January 2005, it has been sold. ADDENDA Significant Events • On February 23, 2005, the Board of Directors of both Telefonica, S.A. and Terra Networks, S.A. have each adopted, a Merger Plan for the acquisition of Terra Networks, S.A., with the termination, through dissolution without liquidation, of the former company, and the en bloc transmission of all of its assets to the latter company, which, through universal succession, will acquire the rights and obligations of Terra Networks, S.A. The exchange ratio which was determined on the basis of the real value of the corporate assets and liabilities of both companies, will be the following: Two shares of Telefonica, S.A., each having a par value of one euro, for every nine Terra Networks, S.A. shares, each having a par value of two euros. Moreover, the Board of Directors of Terra Networks, S.A. has proposed to Telefonica, S.A. the distribution to Terra Networks, S.A.'shareholders, a cash dividend of 0.60 euros per share, that will be charged against Additional Paid-in Capital Reserve. • On February 17, 2005, TPI's Board of Directors agreed to submit to the next General Shareholders' Meeting corresponding to fiscal year 2004, a proposal to distribute a dividend of 0.30 euros per share, which amounts to a 20% increase against 2003. The payout came to 97% of the net profit of the TPI Group and 99% of the net profit of TPI S.A. The dividend will be paid after the amortization of the treasury stock actually held by the company (7,212,147 shares, representing 1.96% of the share capital), previously attached to the hedging of the Stock Options program, ended on November 2003; decision that will also be submitted for the approval to the next General Shareholders' Meeting. • On February 15, 2005, Telefonica S.A. treasury stock position was 246,104,407 shares representing 4.996% of its current share capital. • On February 11, 2005, Terra Networks agreed the sale of its 54.1% stake in Onetravel.com Inc, in the context of several agreements reached between Onetravel.com Inc, and the American company RCG Companies, driven to the merger of both entities. The final amount for the whole agreement is 25.5 million dollars. • On January 26, 2005, Telefonica's Board of Directors agreed the payment of a dividend of 0.5 euros per share corresponding to fiscal year 2004 charged against both earnings and reserves. The corresponding corporate agreements will be adopted for such purpose. The intention of the Board is also to maintain the same minimum dividend for fiscal year 2005. The proposal will be for the dividend corresponding to the fiscal year 2004, to be distributed in two payments. The first (interim dividend from 2004 net income) on May 13th, 2005 of a fix gross amount of 0.23 euros and the second (dividend in cash from the Additional Paid-in Capital Reserve) on November 11th, 2005 of a fixed amount of 0.27 euros per share. • On January 7 2005, the acquisition of 100% of BellSouth Chile operator was completed for an enterprise value of 532 million dollars, and on January 11 2005, the acquisition of 100% of BellSouth Argentina was completed for an enterprise value of 988 million dollars. • In January 2005, after the close of fiscal year 2004, the capital increase carried out by Telesp Celular Participacoes' (TCP) was fully subscribed for an amount of approximately 2,054 million reais. The proceeds raised will be used in part to finance TCP's increased stake in Tele Centro Oeste (TCO) and the remainder will be used to partially repay short-term debt and improve the company's capital structure. Through this operation Brasilcel's stake in TCP's share capital increases to 65.70%. • On November 24, 2004, the Board of Directors agreed to submit to the next General Shareholders' Meeting corresponding to fiscal year 2004, a proposal to distribute Telefonica, S.A. treasury stock among its shareholders in the proportion of one (1) share for every twenty five (25) shares. The distribution will be charged against paid-in capital reserves. • On November 22, 2004, pursuant to the agreement in principle reached between the parties, the ATCO Group, subsidiary of Telefonica de Contenidos, S.A., entered into an agreement to sell 100% of the share capital of the companies Radio Continental LS4, S.A. and Radio Estereo, S.A., radio operators in Argentina of the Telefonica Group, to the PRISA Group member companies, GLR Services Inc. and Corporacion Argentina de Radiodifusion, S.A., for 10.5 million dollars. Execution of the transaction is subject to administrative authorisation by the Argentinean authorities. ADDENDA Changes to the Perimeter and Accounting Criteria of Consolidation In the period January-December of 2004, the following changes have occurred in the consolidation perimeter: TELEFONICA GROUP • During 2004, Telefonica Group has purchased 71,693 shares in the Dutch company Endemol Entertainment Holding, N.V. (Endemol) for 1.79 million euros. After this transaction, Telefonica Group's stake in Endemol has reached 99.70%. The company continues to be fully consolidated within the Telefonica Group. • Likewise, Telefonica S.A. has purchased 52,820,862 shares of Portugal Telecom, S.G.P.S., S.A. during 2004 for 475.14 million euros, highlighting a consolidated goodwill of 344.52 million euros. In addition, on December 29, Portugal Telecom announced a share capital reduction by cancelling 87,799,950 shares in treasury stock, equivalent to 7% of its share capital. After these operations, Telefonica has increased its direct stake in the company to 8.55%. The direct and indirect effective stake of Telefonica Group is 9.58%. The company continues to consolidate by the equity method in the financial statements of Telefonica Group. • The Spanish company Inmobiliaria Telefonica, S.L.U. has been dissolved without liquidation through the transfer of all its assets and liabilities to its sole shareholder Telefonica, S.A. and its later extinction. The company, which was consolidated within Telefonica Group's financial statements by the full integration method, has been removed from the consolidation perimeter. • The US companies Telefonica B2B, Inc. and Telefonica USA, Inc., which used to be consolidated within Telefonica Group's financial statements by the full integration method, have been removed from the consolidation perimeter, the companies being liquidated and dissolved and their assets and liabilities transferred to their sole shareholder, Telefonica, S.A. • The company Zeleris Soluciones Integrales, S.L.U. has been taken over by the wholly-owned subsidiary of Telefonica, S.A., Telefonica Gestion de Servicios Compartidos Espana, S.A., increasing its share capital by 5.47 million euros and receiving all of the shares comprising the capital of Zeleris in exchange. As a result of the afore-mentioned merger, the company Zeleris Espana, S.A.U., subsidiary of Zeleris Soluciones Integrales, S.A., becomes a 100% subsidiary of Telefonica Gestion de Servicios Compartidos Espana, S.A. This company continues to be included in the consolidation perimeter of the Telefonica Group using the full integration method. • In 2004, the Spanish company Telefonica Investigacion y Desarrollo, S.A. has constituted the Mexican company Telefonica Investigacion y Desarrollo Mexico, S.A., subscribing and paying for all of its share capital, consisting of 50,000 shares at a par value of 1 Mexican peso each. The company has been included in the Telefonica Group's consolidation perimeter under the full consolidation method. • In November, the Spanish companies Telefonica Participaciones, S.A.U. and Telefonica Emisiones, S.A.U. were constituted, both with a share capital represented by 62,000 shares with a par value of one euro each, all subscribed and paid for by the unique shareholder, Telefonica, S.A. • In December, the Luxemburg company Altair Assurances, S.A. was incorporated with an initial capital of 6 million euros. The wholly-owned Telefonica Group subsidiaries, the Luxemburg company Casiopea Reaseguradora, S.A. and the Spanish company Seguros de Vida y Pensiones Antares, S.A., have subscribed and paid for all of this company's share capital: the former owning 95% and the latter 5%. • In December, the Peruvian company Telfisa Peru, S.A.C. was incorporated with an initial share capital of 12 million nuevos soles. The Telefonica Group subscribed and paid for all the initial share capital. TELEFONICA DE ESPANA GROUP • As part of its ongoing process to restructure its group of companies, Telefonica Cable, S.A., a wholly-owned subsidiary of Telefonica de Espana, S.A., has taken over the following local operators: Telefonica Cable Asturias S.A., Telefonica Cable Valencia S.A., Telefonica Cable Extremadura S.A. and Telefonica Cable Balears S.A. All of these companies, which were fully consolidated within the Telefonica Group, have been removed from the Group's consolidation perimeter this year. • The 2.13% stake that Telefonica de Espana, S.A. owned in the French company Eutelsat, S.A., was sold for 44.83 million euros, resulting in a 21.43 million euros net capital gain. In addition, the 0,75% stake in the Dutch company New Skies Satellites, B.V. of Telefonica de Espana S.A. has been sold for 6.02 million euros, having generated a capital gain of 5.95 million euros. Both companies were recorded within the 'Other investments' item of the Telefonica Group's consolidated balance sheet. • The Spanish company Telefonica Mobile Solutions, S.A.U. has been taken over by its parent company Telefonica Soluciones de Informatica y Comunicaciones de Espana, S.A.U. This company, which used to be consolidated within Telefonica Group's financial statements by the full integration method, has been removed from the consolidation perimeter. TELEFONICA LATINOAMERICA GROUP • The Brazilian company Aix Participacoes, which was integrated by the equity method in the consolidated accounts of the Telefonica Group in 2003, is now incorporated using the proportional integration method. • The U.S. company Katalyx, Inc. took over the U.S. companies Adquira, Inc. and Katalyx Transportation, LLC. Both companies, which were integrated in 2003 in the consolidated accounts of the Telefonica Group using the full integration method, have been removed from the consolidation perimeter. • The Peruvian company Telefonica Empresas Peru, S.A.A. has taken over the Peruvian company Telefonica Servicios Financieros, S.A.C. The company, which in 2003 was integrated in the consolidated accounts of the Telefonica Group using the full integration method, has been removed from the consolidation perimeter. • On July 8 2004, Telefonica Internacional Chile S.A. purchased 3,000,000 ADRs in Compania de Telecomunicaciones de Chile S.A. (CTC), representing 12,000,000 Series A shares equivalent to a 1.25% stake in the company, giving the Telefonica Group a 44.89% stake. The price paid for the deal was 37.07 million of U.S. dollars. The company continues to consolidate in the financial statements of the Telefonica Group by the full integration method. • On April 26 2004, as it was mentioned before CTC sold to Telefonica Publicidad e Informacion S.A. it stake in the Chilean company Impresora y Comercial Publiguias S.A. (9%). • After the approval for the CTC Board of Directors on May 18 2004 and its afterwards ratification in the AGM on July 15 2004 the sell of a 100% of Telefonica Movil Chile, S.A. to Telefonica Moviles S.A. was formalized. • In line with a share buy-back program, the subsidiary Telefonica del Peru, S.A.A. has purchased shares in the market, raising Telefonica Group's effective shareholding from 97.21% to 98.19%, for an amount of 21.90 million of nuevos soles, approximately 5.3 million euros. The company continues to consolidate in the financial statements of the Telefonica Group by the full integration method. • In November, Telefonica del Peru S.A.A. bought 99.99% of the shares in Antena 3 Producciones S.A. for the sum of 3.85 million dollars, approximately 2.9 million euros. The company has been included in the Telefonica Group financial statements under the full consolidation method. • Telefonica del Peru, S.A.A. disposed of all of its approximately 0.83% stake in the Dutch company New Skies Satellites, B.V. for 7.84 million dollars, around 5.9 million euros. The company was registered in the 'Other investments' item on the Telefonica Group's consolidated balance sheet. • Regarding the Katalyx Group, the Mexican subsidiaries Katalyx Construction Mexico, S.R.L., Katalyx Health Mexico, S.R.L., Katalyx Cataloguing Mexico, S.R.L. de C.V., Katalyx Food Service Mexico, S.R.L. de C.V. and Katalyx Transportation Mexico, Llc. and the Argentinean companies Katalyx Transportation Argentina, S.R.L., Katalyx Construction Argentina, Katalyx Food Service Argentina, S.R.L., Katalyx Cataloguing Argentina, S.R.L. y Katalyx Argentina, S.A. have been dissolved or are currently being liquidated. All of these companies, which in 2003 were integrated in the consolidated accounts of the Telefonica Group using the full integration method, have been removed from the consolidation perimeter. • The Argentinean company Adquira Argentina, S.L. has been taken over by the company Telefonica Data Argentina, S.A. The company, which in 2003 was integrated in the consolidated accounts of the Telefonica Group using the full integration method, has been removed from the consolidation perimeter. • The Venezuelan company Compania Anonima Nacional de Telefonos de Venezuela, C.A. (CANTV), in which the Telefonica Group has a 6.91% stake, included in the Telefonica Group financial statements under the equity method, has been removed from the Telefonica Group consolidation perimeter. This change was due to the only representative of Telefonica Internacional leaving the CANTV Board of Directors following a decision adopted by the CANTV Meeting of Shareholders held on March 31 2004. • In December, the Brazilian company Telecomunicacoes de Sao Paulo, S.A. (TELESP) signed a purchasing contract the entire shareholding in the company Santa Genovense Participacoes Ltd., a holding company owning all of the shares in the company Atrium Telecomunicacoes Ltda., for the sum of 113.44 million reais, approximately 31 million euros, generating goodwill of 33.14 million euros. The company has been included in the Telefonica Group consolidated financial statements under the full consolidation method. TELEFONICA MOVILES Group • The company Mobipay Espana, S.A. increased its share capital by 3.78 million euros during 2004. Telefonica Moviles Espana, S.A. subscribed in the capital increase by purchasing the shares necessary to increase its stake in the company from 13.33% to the current 13.36%. The company continues to be included in the consolidation perimeter of the Telefonica Group by the equity method. • In August 2004, Brasilcel N.V. and Telesp Celular Participacoes, S.A. (TCP) announced their intention to launch voluntary tender offers for Tele Sudeste Celular Participacoes, S.A., Tele Leste Celular Participacoes, S.A., Celular CRT Participacoes, S.A and Tele Centro Oeste Celular Participacoes, S.A (TCO) respectively. These tender offers were completed in October. The following information shows the stake Brasilcel, N.V. and TCP had in these subsidiaries prior to the tender offers and the stake obtained with the purchase of the shares as a result of the bids: Brasilcel Stake prior to Stake after the TCP Stake prior to Stake after the the bids bids the bids bids Tele Sudeste 86.7% 90.9% Tele Leste 27.9% 50.6% TCO 28.9% 50.6% CRT 51.5% 67.0% These bids involved actual payments of approximately 607 million reaies for Brasilcel, N.V. and 902 million reaies for TCP. • Acquisition of an additional 13.95% stake in the share capital of the Spanish company Mobipay Internacional, S.A., reaching a 50% stake in the company. The company, which was integrated in the consolidated accounts of the Telefonica Group using the equity method, consolidates as from June 1st by the proportional method. • At the end of June 2004 Brasilcel acquired NTT DoCoMo Inc. and Itochu Corporation shareholdings in the share capital of Sudestelcel Participacoes, S.A., holding that controls a 10,5% stake in Tele Sudeste Celular Participacoes, S.A. for an amount of 20.84 million euros. Through this operation, Brasilcel now controls 100% of Sudestelcel Participacoes, S.A. and continues to consolidate in Brasilcel Group's financial statements by the full integration method. Likewise, Brasilcel Group consolidates by the proportional method in Telefonica Group's financial statements. • On July 23 2004, a 100% of the Chilean company Telefonica Movil de Chile, S.A. was acquired to Compania de Telecomunicaciones de Chile, S.A., a subsidiary of Telefonica Internacional, S.A. The total amount paid by Telefonica Moviles for this acquisition was 1,058 million dollars. Through this operation, the Telefonica Group has increased its effective stake in the capital from 44.89% to the current 92.46%. The company continues to consolidate in the financial statements of the Telefonica Group by the full integration method. • The mergers of the following Mexican companies became effective on September 25 2004: Movicelular, S.A. de C.V. merged with Movitel del Noroeste, S.A. de C.V. to form a company known as Movitel del Noroeste, S.A. de C.V., and Tamcel, S.A. de C.V. merged with Baja Celular Mexicana, S.A. de C.V. to form a company known as Baja Celular Mexicana, S.A. de C.V. Both subsidiaries continue to consolidate by the full integration method in the financial statements of the Telefonica Group. • On March 5 2004, Telefonica Moviles, S.A. reached an agreement with BellSouth Corporation ('BellSouth') to purchase 100% of BellSouth's stake in its operators in Argentina, Chile, Peru, Venezuela, Colombia, Ecuador, Uruguay, Guatemala, Nicaragua and Panama. The actual transfer of the companies' shares depended, among other factors, on the obtaining of the necessary regulatory authorization in each country and the necessary approval of minority shareholders. The actual transfer of the operators' share capital took place in 2004 and January 2005. Hence, 100% of BellSouth's stake in Ecuador, Guatemala and Panama was transferred on October 14 2004, Colombia, Nicaragua, Peru, Uruguay and Venezuela on October 28 2004, Chile on January 7 2005 and Argentina on January 11 2005. This agreement meant valuing 100% of the companies at 5,850 million dollars and assuming their net debt. The total purchase price for Telefonica Moviles, adjusted to include the net debt of all the companies, totaled 3,252.54 million euros (not including Chile and Argentina). Below are details of the values allocated to each of the operations and the purchase price for Telefonica Moviles: • Purchase of 100% of the operator Otecel, S.A. (Ecuador) for a total company value of 833 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 663.43 million euros. • Purchase of 100% of BellSouth Guatemala, S.A. for a total company value of 175 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 92.54 million euros. • Purchase of 99.57% of BellSouth Panama, S.A. for a total company value of 657 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 549.28 million euros. • Purchase of 100% of Telcel, S.A. (Venezuela) for a total company value of 1,195 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 1,223.98 million euros. • Purchase of 100% of Telefonica Moviles Colombia, S.A. for a total company value of 1,050 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 517.46 million euros. • Purchase of 99.85% of Comunicaciones Moviles del Peru, S.A. for a total company value of 210 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 7.70 million euros. • Purchase of 100% of Telefonia Celular de Nicaragua, S.A. for a total company value of 150 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 148.74 million euros. • Purchase of 100% of Abiatar, S.A. for a total company value of 60 million dollars. The purchase price for Telefonica Moviles, adjusted to include the company's net debt, totaled 49.42 million euros. TPI GROUP • In 2004, the Parent Company Telefonica Publicidad e Informacion S.A., has purchased an additional 49% stake of the share capital of its Chilean subsidiary Impresora y Comercial Publiguias for 65.6 million euros, reaching a 100% stake in the company. In this deal, 9% of the share capital has been bought to the Chilean Compania de Telecomunicaciones de Chile, S.A., a subsidiary of Telefonica Group. The company continues to consolidate in the financial statements of Group Telefonica by the full integration method. • On August 13th 2004, the Chilean company Edinet America S.A. (previously Urge Chile, S.A.) increased its capital by 218.81 million Chilean pesos (0.29 million euros), fully subscribed and paid up by Publiguias Holding, S.A.. Following this operation, the TPI Group shareholding in the company reached 99.978%, compared with the previous 99.90%. In November, the Chilean company Impresora y Comercial Publiguias, S.A. purchased a 0.022% stake in Edinet America, S.A. Through this operation, the Telefonica Publicidad e Informacion Group now controls 100% of the Chilean company. The company remains in the Telefonica Group scope of consolidation, under the full consolidation method. TERRA NETWORKS GROUP • Emplaza, S.A., in which the Terra Lycos Group had a 20% stake and that was no longer included in the consolidation perimeter as of June 2003 because it was not running any business, was dissolved and liquidated and in January 2004. • In March 2004 Lycos, Inc. sold its stakes in Wit Capital and GSI Global Sports. These companies were recorded under the 'Other investments' item. Capital gains from selling these stakes amounted to 0.15 million euros. • During 2004, Lycos Inc. sold its minority stakes in Amazon, Interland, Cross Media, Easy Link, Fast, Autobytel y Total Sports, registering a loss of 5.32 million euros. All these companies were included under the 'Other investments' item. • In June, 100% of the Mexican company Tecnologia and SVA, S.A. has been sold, generating a capital gain of 10.77 million euros. This company, which used to be consolidated in Telefonica Group's financial statements by the full integration method, has been removed from the consolidation perimeter. • During 2004, Terra Networks Asociadas, S.L. has increased capital in the company Inversis Networks, S.A. by 1.60 million euros. Its stake in the company stood at 10.68%. The company is recorded within the 'Other investments' item of the Telefonica Group's consolidated balance sheet. • On September 2 2004, Terra Networks Asociadas, S.L. sold its entire stake in the company A Tu Hora S.L., which is not operational, to Telepizza, which until then owned a 50% stake in the company. The company, which was included until now in the consolidation perimeter of Telefonica Group by the equity method, has been removed. • On October 5 2004, Terra Networks, S.A. and Daum Communications, Corp. reached an agreement on the sale of Lycos, Inc., once obtained the necessary administrative authorizations and approval from the US authorities for the Defense of Competition. The sale price was established at 108 million dollars, generating a capital gain of 26.17 million euros. Prior to the sale of Lycos, Inc., and as part of the operation, Lycos, Inc. transferred assets amounting 332.9 million euros to Terra Networks, S.A. on September 30th 2004. • In November 2004, Terra increased its capital to offset losses in the subsidiary Terra Networks Colombia, S.A. for the sum of 0.3 million euros, in which no local shareholders took part. After this operation, the percentage of minority interest fell from the previous 32% to the current 5%. The company remains on the Telefonica Group financial statements by the full consolidation method. • The merger of the wholly-owned subsidiary Ordenamiento de Links Especializados, S.L. (OLE) with Terra Networks Espana, S.A. was completed in December 2004. OLE, which in the previous year was included in the Telefonica Group consolidation perimeter by the full consolidation method, has been removed. ATENTO GROUP • In March 2004, took place the sale of 100% of the shares in Atento Guatemala Comercial, S.A. The company has been removed from the consolidation perimeter of the Telefonica Group, in which it was fully consolidated. • Atento USA, Inc., has been dissolved and all its assets and liabilities were transferred to its parent company Atento Holding Inc. effective January 1, 2004. The company, which in 2003 was included in the consolidated financial statements of the Telefonica Group by the full consolidation method, has been removed from the consolidation perimeter. • On April 30, the US company Atento Holding Inc. has been dissolved and all its assets and liabilities transferred to its Dutch parent company Atento N.V. This company, which used to be consolidated in Telefonica Group's financial statements by the full integration method, has been removed from the consolidation perimeter. • Atento Teleservicios Espana, S.A took over its wholly-owned subsidiary Leader Line, S.A. on July 16th 2004. The company, which until then was consolidated in the financial statements of the Telefonica Group by the full integration method, has been removed from the consolidation perimeter. • The Mexican company Atento Atencion y Servicios, S.A. de CV. was incorporated on September 1st 2004, its entire initial share capital for 49,999 Mexican pesos was subscribed and fully paid up by Atento Mexicana, S.A. de C.V., and 1 Mexican Peso by the company, also Mexican, Atento Servicios, S.A. de C.V. The company is now incorporated in the consolidated accounts of the Telefonica Group using the full integration method. • On September 30 2004, the company Atento Uruguay, S.A. was dissolued and liquidated, being all its assets and liabilities transferred to its parent company Atento Argentina, S.A. The company, which until then was included in the Telefonica Group consolidated financial statements by the full consolidation method, has been removed from the consolidation perimeter. TELEFONICA CONTENIDOS GROUP • In July 2004, the sale of 70% of the Spanish company Lola Films, S.A. to its minority shareholder was executed. Telefonica, S.A. sold 38,853,403 shares in the company Pearson Plc, 4.88% of its share capital, on the London stock exchange for an approximate value of 350 million euros. Both companies, which were included in the consolidated perimeter of the Telefonica Group, the first one by the full integration method and the second one by the equity method, have been removed from the consolidation perimeter. • The group's parent company has taken over its Spanish subsidiaries Telefonica Medios de Comunicacion, S.A., Telefonica Media Internacional y de Contenidos, S.A., Producciones Multitematicas, S.A. and Gestora de Medios Audiovisuales de Futbol, S.L. The Spanish company Corporacion Admira Media, S.A. was dissolved and liquidated in June this year. All of these companies, which were consolidated in Telefonica Group's financial statements by the full integration method, have been removed from the consolidation perimeter. • In October 2004, Telefonica de Contenidos, S.A. disposed of its entire shareholding in the companies Lideres Entertainment Group, Inc and Fieldy BV. These companies, which were included on the Telefonica Group consolidated financial statements by the equity method, have been removed from the consolidation perimeter. • Telefonica de Contenidos' 20% stake in the Argentinean company Torneos y Competencias, S.A. has been classified in the Telefonica Group consolidated financial statements as a short-term investment, as the agreements to sell this investment were at an advanced stage at the end of the year and were eventually sold in January 2005 for an amount of 3 million dollars. DISCLAIMER This document contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document 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 activity and situation relating to the Company. The forward-looking statements in this document can be identified, in some instances, by the use of words such as 'expects', 'anticipates', 'intends', 'believes', and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. 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 and investors are cautioned not to place undue reliance on those forward looking statements which speak only as of the date of this presentation. Telefonica 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 Telefonica'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 as well as periodic filings filed with the relevant Securities Markets Regulators, and in particular with the Spanish Market Regulator For additional information, please contact. Investor Relations Gran Via, 28 - 28013 Madrid (Spain) Phone number: +34 91 584 4700 Fax number: +34 91 531 9975 Email: Ezequiel Nieto - ezequiel.nieto@telefonica.es Diego Maus - dmaus@telefonica.es Dolores Garcia - dgarcia@telefonica.es ir@telefonica.es www.telefonica.es/investors This information is provided by RNS The company news service from the London Stock Exchange

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