Eduardo Caride Executive Chairman of Telefónica Data€¦ · specialized sales force in our...

Eduardo Caride

Executive Chairman of Telefónica Data

Second Investor Conference

March, 2002, Seville

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Telefónica Data

Creating value for ourCorporate Customers

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This presentation contains statements that constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995. These statementsappear in a number of places in this presentation and include statements regarding theintent, belief or current expectations of the customer base, estimates regarding futuregrowth in the different business lines and the global business, market share, financialresults and other aspects of the activities and situation relating to the Company .Such forward looking statements are not guarantees of future performance and involverisks and uncertainties, and actual results may differ materially from those in the forwardlooking statements as a result of various factors.Analysts and investors are cautioned not to place undue reliance on those forward lookingstatements, which speak only as of the date of this presentation. Telefónica undertakes noobligation to release publicly the results of any revisions to these forward lookingstatements which may be made to reflect events and circumstances after the date of thispresentation, including, without limitation, changes in Telefónica´s business or acquisitionstrategy or to reflect the occurrence of unanticipated events. Analysts and investors areencouraged to consult the Company´s Annual Report on Form 20-F as well as periodicfilings made on Form 6-K, which are on file with the United States Securities and ExchangeCommission.

Safe harbour

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Content

• 2001 Commitment´s in a challengingenvironment

• Reorientation of our Business Model

• Achievements to date and strategic prioritieslooking forward

• Summary of commitments moving forward

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Financial results for 2001 were below expectations

RIO 2001 (E) 2001

Revenues

EBITDA

1,226 M€IncumbentSpain + LatAm 1,228 M€

%

100%

64 M€New EntrantLatAm

43 M€ 67%

807 M€New Entrant Europe 598 M€ 74%

176 M€ 24 M€ 11%

• Strong focus on launching:

– Startup businesses in Brazil (out of Sao Paulo), Mexico, USA, Italy and anInternational Network

– Value Added Services : Hosting & ASP and Consulting

x

x

x

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Slowdown in demand has reduced growth expectations

• Steep decline in demand from New EconomyPlayers, last year’s most promising segment

• Lower telecom expenditure growth andlengthening of sales cycles due to economicslowdown

• Distressed alternative carriers cut-off fromfinancing

• “Need to sell anything at any price” reducedmarket prices

• “Flight to Quality” by customers to mostsustainable providers

During 2001, themarket hasstrongly reducedits expectationson the businessgrowth for thecoming yearsrecognizing rampup for demandwill take longerthan expected

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Content





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Moving forward we have repositioned our strategic focus

• Serve Corporate Customers offeringcustomized solutions throughspecialized sales force in ourdomestic markets

• Capture the Data Services / VASgrowth opportunity leveragingon massive client base indomestic markets

Current focus Situation at Río

• Strengthen position fromselective expansion in newmarkets: attractive customerbases and focus on Corporateand NEPs

• Turn profitable the businesses innew markets by achievingnecessary scale, offering packagedsolutions to targeted segments

• Leverage infrastructure /presence to serve multinationalcustomers

• Leverage our distinctive regionalposition to better servemultinational corporations andboost our international services

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Markets presence

Europe

GermanyItalyUK

Austria

Argentina

Brazil *

Chile

Peru

MexicoUSA

ColombiaUruguay

America

SpainIncumbentmarkets

New entrantmarkets

* In Brazil Telefónica is new entrant out of Sao Paulo

Leverage thecompetitiveadvantage ofTelefónica´s wirelineoperator

Achieve scale as analternative carrier,concentrating on the mostattractive segments andservices

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Business model

Incumbentmarkets

ServicesClients Infrastructure

• Largecorporationsand ISPs

• One stop Shopping

• Customizedsolutions to largecorporations

• Own data networksand hosting centers

• Use of Telefonica’sincumbent backboneand accessinfrastructure

• Own IP networks andhosting centers

• Basic infrastructure:– By default, use

others– Selectively deploy or

acquire dependingon managed traffic/interconnectionconditions

New entrantmarkets

Growth focus

• Cross-sell newservices (VAS)to currentclient base

• Acquire newclients

• Increaserevenues perclient

• Complete portfolioof IP services

• Packagedsolutions (xDSL,VoIP, IP-VPN)

• Multinationalswithin currentportfolio

• SMEs/ISPs

• Telefonicacompanies

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Need for customized solutionsfor their particular needs

Integrated Solutions

We are a “One Stop Shopping” solution provider for our customers to dealwith the IT and Telecom technological convergence

Corporate customers require integrated solutionsfor their various needs

Need to accessinternet content &email

CorporateCustomer

Hosting

Voice

DataCommunications

InternetAccess

Need of voice communicationsamong employees andthird parties

Need toconnectcomputers toshareinformation

Need to handlehuge volumesof informationand make itavailable tothird parties

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Repositioning of our focus in the newenvironment

Incumbentmarkets

• Focus on large corporate customers• Reputation of high-quality advanced

solutions• Increased emphasis on efficiency• Close relationship with Telefonica’s

Wireline Operators

New entrantmarkets

• Focus on achieving critical scale in mostattractive segments and markets

• “Pragmatic” growth based on local marketenvironment

• Speed-up of “path to profitability”

• Increased focus onefficiency

– Lean CorporateCenter

– Leverage sharedservices fromTelefonica’s Group

– Unification of ITplatform

• Leverage regionalfootprint to serveglobal/regionalaccounts

+

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Content





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2001 pro forma financials

28%

-78%24108

2000

EBITDA

2001

CAGR

1,442

1,850

Revenues• Significant revenue growth

• Growth efforts in start-upoperations significantlyimpacted EBITDA– Italy– Mexico– US data center– International Network

• Overall containment of CapEx

€ Millions

459 427CapEx -7%

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Contribution to results by market typePercentage

59%

23%6671

3429

Revenues2000

Incumbentmarkets

Revenues2001

-10%

15%

AnnualGrowth

EBITDAmargin(2001)

100 100

Newentrantmarkets

• Significant revenue growth

– Steady growth inincumbent markets(especially LatAm)

– Increase in new marketscontribution to the totalrevenue

• Overall EBITDA impacted byincreasing share of revenuesfrom new entrant marketswhere operations are in start-up phase

15

20

80

High quality revenues2001. Percentage

Product mixRevenue source

81

36

46 Equipment

TelephonySolutionsHosting/ASP

Data andInternet*

Wholesale

Internet traffic& access to ISPs

Retail

High quality of revenue mix• Portfolio based on managed services• Retail client focus• Low exposure to voice revenues

* No Voice nor leased lines

0100 100

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Our strategic priorities moving forward

Focus on profitability through operating efficiency, CapEx management and effective know-how transferamong geographies

Makeprofitable theEuropeanexpansionventures

3 Ascend in thevalue chain intohigher marginand strongerloyalty impactservices

4 Capitalize ourdistinctiveregionalposition tobetter servemultinationalcorporationsand boost ourinternationalservices

5Completeexpansion tomain Latin-Americanmarkets

2Strengthenleadership inincumbentmarkets byincreasingshare of wallet

1

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Pro forma results in incumbent markets€ Millions

Spain

2000 2001

• Substantial revenue growth even in most mature markets (Spain)• Sustained leadership/market share in corporate data services in Spain

(~75%) and increasing market share in Brazil/Sao Paulo (30%)

797699

* Argentina, Brazil, Chile, Peru

14%

LatAm Incumbent*

2000 2001

431

303

42%

Revenues

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Pro forma results in incumbent markets€ Millions


Spain LatAm Incumbent*

797699

431

303

42%

Revenues

14%

• Flat EBITDA in Spain due to pricing pressure and launch of newbusinesses (hosting/ASP)

• Expansion of EBITDA margins in Latin America• Significant wholesale revenues generated to Telefónica´s fixed line

operators (2nd largest wholesale client)

2000 2001 2000 2001EBITDAMargin 22% 19% 5% 7%-3pp +2pp

155155 106%EBITDA 0% 3115

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Capex adjustments in incumbent markets€ Millions

2000 2001

Significant CAPEX rationalization under way

-15%

-14%

11888

2000 2001

167

143

CapEx/Revenues 17% 11% 55% 33%


Spain LatAm Incumbent*

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Strategic objectives in Brazil

Competitive platform

In Sao Paulo

Strategic objective

Out of

Sao Paulo

• 30% market share:– Retail revenues coming from

data products– Top corporations

• Complete portfolio of services• Broad commercial capillarity

• National license since March2002

• ITAU national infrastructures andbusiness

• 1 PoP deployed in Rio and 7additional PoPs in installationphase in 7 other cities

•Achieve leadership in allcorporate segments

•About 45% market share by2005

•Serve the global needs of SaoPaulo corporations andcapture additional businesson SMEs

•About 25% market share by2005

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2001-2005 financial projections in incumbentmarkets

EBITDAMargin

Spain LatAm Incumbent

• Reinforce leadership in all incumbent markets

• Increase loyalty and revenues per client through :– Integrated advanced solutions leveraging broadband access (eBA)– Specialized sales force by industry

• Reduce operating expenses and CapEx to improve ROIC

• Leverage incumbent wireline operator network and commercial activity

Revenues

EBITDA

9-13% CAGR

10-14% CAGR

18-22% by 2005

15-19% CAGR

35-40% CAGR

11-15% by 2005

Strategicpriorities

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Strengthenleadership inincumbentmarkets byincreasingshare of wallet

Make profitablethe Europeanexpansionventures

Ascend in thevalue chain intohigher marginand strongerloyalty impactservices

Capitalize ourdistinctiveregionalposition tobetter servemultinationalcorporationsand boost ourinternationalservices

Completeexpansion tomain Latin-Americanmarkets

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Pro forma results in Latam new entrantmarkets*€ Millions

*Colombia, Mexico, Uruguay and USA

EBITDAMargin

• Strong revenue growth

• Negative impact on EBITDAof launch of new ventures– Mexico– USA

• Slump of Colombia’s overallprofitability

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24

82%

2000 2001

9% -70%

Revenues

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Complete expansion to main Latin-Americanmarkets to consolidate regional player role

US basedoperations

Competitive platform Strategic objective

• Mission critical data center inMiami interconnected toTelefónica’s Latin-Americaoperations over theTelefónica´s internationalbackbone

• Interconnection agreements inthe US

Mexico

• Network upgrade to multi-service level and IP protocol

• Value Added Services over IP

• Initial portfolio of largecustomers of T-Data

Capture Latin-American multinationalbusiness of US corporations

• Target large corporations requiringintegrated advanced telecom solutionsin diverse Latin American countries

• Provide remote hosting services forLatin American companies

Capture large accounts and stronglyreduce interconnection costs to achievepositive returns

• VPN solutions to outsource the privatenetworks of large corporations

• Leverage business opportunitieswith/from other Telefónica Companies

• International traffic to US and Miamiremote hosting

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Financial projections: Latam new entrantmarkets*

50-60% CAGR

Break even by 2003

12-16% by 2005

• Complete regional footprint

• Compete aggressively inselected markets

• Expand aggressively in valueadded services (especiallyhosting)

* Colombia, Mexico, Uruguay and USA

EBITDAMargin

Revenues

EBITDA

Strategic priorities

2001- 2005 projections

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Makeprofitable theEuropeanexpansionventures




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Pro forma results in Europe´s new entrantmarkets*

* Germany, Italy, UK and Austria* * Includes € 318 M from Mediaways 2000 pro forma

EBITDAMargin

• Strong revenue growth

• Negative impact on EBITDAdue to launch of Italianoperations

598

380

57%

2000 2001

1% -5%

€ Millions

Revenues

* *

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Priorities for Germany, our major new entrantinitiative in Europe

By end 2001, 2nd largest narrow-band access provider and carrier ofswitched online minutes (35%market share) …

…but requiring to achievebroadband capabilities to sustainits competitiveness in the nearfuture

•IP infrastructure providing broad coverageand latest value added services for a smallinvestment– 2nd Nationwide IP Network– No fiber hauls owned– 270 Pops (planning to go up to 475)

ensuring most favorable interconnectionrates

– ~250,000 ports

•One-stop solutions for ISPs

•Complete portfolio of corporate services

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Achieved broadband capabilitiesthrough HighwayOne acquisition

Broadband

Corporations/ISPs

Narrowband

SMEs

Serviceoffering

Clientsegment

• Become most attractivealternative to DT for broadbandsolutions to corporate segments

• Protect Internet traffic business

• Shorten time to market instrategic service

Media Waysstand alone

Hig

hway

One

acqu

isiti

on

Deal Rationale

Media Ways+ Highway One

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Financial projections: Europe new entrantmarkets*

• Selectively attack customersegments and geographies usingcost competitive IP infrastructure– Concentrate on profitable

bundling of voice and dataproducts

– Focus on SMEs and ISP– Capture corporations as second

growth lever (IP-VPNs)– Leverage indirect channels– Selectively deploy/acquire

infrastructure

• Capture significant market share ineach country to achieve positivereturns

25-30% CAGR

* Germany, Italy, UK and Austria

Break even by 2003

11-15 % by 2005EBITDAMargin

Revenues

EBITDA

Strategic priorities

2001- 2005 projections

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eBusiness consulting &systems integration

Hosting & ASP solutions

• 10 data centers and 16collocation sites interconnectedby Telefónica backbone

• Complete service portfolio• Blue chip customer base

• Outsourcing and consultingservices in several countries

• Leverage internal resources fromTelefónica Sistemas

Significant progress to date has been achieved

Switching & DataServices

Status

2000 2001

247 %

3% of total

revenues

2000 2001

29%

6% of total

revenues

116

Increasing presence in high value added services (9%of total 2001 revenues)

66

19

90

Revenues

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Competitive hosting – ASP offering

Deployed services Main reference clientsPartnership agreements

Housing

Storage

Shared hosting

Dedicated hosting

Remote hosting

Digital certificates

Content streaming

Content delivery

Managed services

Application servicesplatforms

• Addeco

• Ahold

• AOL

• Banco Popular

• Barclays Bank

• BBVA

• Bradesco

• Canon

• Compuserve

• Der Spiegel

• Eli Lilly

• Eroski

• Fiat

• Iberia

• Pixelpark

• PriceWaterHouseCoopers

• Mc Donald’s

• RTVE

• RTL

• RBA Ediciones

• Scopus

• UPS

• Varig

• Versum

• Visanet

• Admira

• Atento

• Telefónica

• Katalyx

• Terra-Lycos

• T Móviles

Service Providers

– Akamai

– Globix

– Verisign

Systems integrators

– Accenture

Technology providers

– Cisco Systems

– HP

– Microsoft

– Oracle

– Sun

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Telecom andhostingcomponentsbecomeincreasinglyimportant ascorporationsexternalize theirIT solutions

Systems integration capabilities

Deployed services Main Reference Clients

• Telecom-IT networks

• Outsourcing

• Call centers

• Internet applications designand development

• Intranets/extranets

• Application services hostingand management

• CRM

• ePayments

• E-Procurement

• E-Learning

• Security and certification

• Adquira

• Aena

• Banco Popular

• BBVA

• CaixaCataluña

• Cruzcampo

• Falabella

• Fiat

• Iberia

• Itaú

• Renault

• Spanish Defense Ministry

• SCH

• Terra

• Visanet

Inte

grat

ed s

olu

tion

s

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Providing integrated solutions acrossthe entire value chain to increase shareof wallet

eBusiness consulting &systems integration

Hosting & ASP solutionsSwitching & Data Services

• Boost high-capilarity broadband communications and usage of Data Centers• Develop high value added services• Reassure reliable solutions and high quality management• Industry specific solutions

Development of complete, customized, “end-to-end”,industry-specific solutions for corporations• To help customer increase efficiency in their own businesses• To capture larger part of corporate communication expenditures

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Financial projections: value addedservices

• Consolidate value added servicesproduct offering to increaseloyalty of our customers

• Ensure quick adoption of valueadded services by clients

• Optimize infrastructureutilization

Hosting/ASP Solutions

70 – 80 % 20 – 25 %

•Increase sector/verticalmarket focus

•Become the “one stopshopping” solution for ourcustomers to deal with the ITand Telecommunicationconvergence

RevenuesCAGR 2001-2005

13 – 17% 6 - 10%Share oftotal 2005Revenues

Strategicpriorities

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Strategic priorities and progress to date in global customers and international services

Globalcustomers

• Provide first classservice tomultinationalaccounts requiringintegratedmanagement of theirdiverse local andinternationalsolutions

Commercial Focus Progress to date

• Global Account Teamsensure one stop shopping forlarge multinationals acrossall geographies

• Active accounts generateannual revenues close to470M Euros

Interna-tionalservices

• Develop internationalservices

• Channel management modelwith representatives at eachlocal Business Unit

• Centralized productdevelopment and presale/post-sale engineers unit

• 300 customers generatingabout 35M Euros

Reach a portfolio of120-150 globalaccounts generatingannual revenues of€ 650 to 700 M

23 - 27% expectedCAGR on revenuesover internationalservices to 2005

Objectives2005

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Content





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Summary of our financial projections

2001-2005growth projections

Revenues

EBITDA

EBITDA Margin

CapEx

18-22% CAGR

over 90% CAGR

13-17% by 2005

€ 300-350 M*

* Annual averageNote: Financial highlights presented for the four geographies don’t add-up to the financials presented for the

Telefonica Data line of business due to operating costs of the corporate center and adjustments & inter-companyoperations

2001

1850

24

1%

€ 427 M

Results00-01Change

28%

- 69%

- 6 p.p.

- 7 %

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Our levers to accomplish these objectives

• Focus on specific market segments

• Improve quality of revenues by offering higher marginvalue added solutions

• Capitalize on our distinctive regional positioning tomultinationals in Spain and LatAm

• Increase operating efficiency

• Reduce learning curve experience by efficientlytransferring know-how across borders

• Benefit from Telefonica Group’s financial strength

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Telefónica Data

Creating value for ourCorporate Customers

Eduardo Caride Executive Chairman of Telefónica Data€¦ · specialized sales force in our...

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