Item
1
ANNUAL
REPORT
CONTENTS
HISTORY AND EQUITY
OWNERSHIP OF THE COMPANY
PURCHASE OF
TELEFONICA DATA ARGENTINA S.A. (“TDA S.A.”)’s SHARES
POLITICAL AND
ECONOMIC, REGULATORY AND LEGAL CONTEXT
Political and economic context
Regulatory Framework
Tariff Renegotiation
CORPORATE
MATTERS
Shareholding structure
Listing
Dividend policy
Decision-making Organization
Internal control
and financial reporting
Organizational chart
Directors and
committees of Telefónica de Argentina S.A.
Main Executive management
Directors and executive management
compensation
Human capital management
Telefónica and its
contribution to the generation of opportunities in education, social
development, art, and knowledge.
Corporate
Governance in Telefónica Group
SERVICE AND MARKET
CUSTOMERS
Residential Customers
Business Unit
Wholesale
B
usiness
Corporate Business
Network and systems services
Collection
procedures
Significant variables
ECONOMIC AND
FINANCIAL ISSUES
The strategic plan
Financing policy and financial
position
Negotiable obligations program
Comparative balance sheet figures
Analysis of main changes in balance sheet
captions
Net Income for the fiscal year
Analysis of main changes in statement of
operations captions
Proposed income (loss)
appropriation
Proposed Directors’ and Supervisory Committee
fees
PROSPECTS
ACKNOWLEDGMENT
HISTORY
AND EQUITY OWNERSHIP OF THE COMPANY
Telefónica de
Argentina S.A. (“Telefónica” or “the Company”) was organized in Argentina as a
stock corporation on April 23, 1990, under the name Sociedad Licenciataria Sur
Sociedad Anónima, for a period of 99 years. The organization of the Company was
filed for registration with the Argentine Public Registry of Commerce on July
13, 1990. Its present corporate name was filed for registration on December 3,
1990.
The Company’s
principal executive office is located at Ingeniero Huergo 723, Ground Floor,
(C1107AOH) Buenos Aires, Argentina. Its telephone number is (++5411)
4332-2066.
The Company is a
licensed supplier of fixed-link public telecommunications services and basic
telephone services in Argentina. Applicable regulations define basic telephone
services as both (1) the supply of fixed telecommunications connections which
form part of the public telephone network or are connected to such network, and
(2) the provision through these links of local, domestic long-distance and
international telephone voice services. The Company’s license is perpetual, as
it has been granted for an unlimited period of time.
The capital stock
is represented by common book-entry Class A and Class B shares, each with a AR$
0.10 face value. The Class A shares represent 62.53% of the Company’s capital
stock. The Class B shares represent 37.47% of the Company’s capital
stock.
As of December 31,
2009, Compañía Internacional de Telecomunicaciones S.A. (“COINTEL”) owned 52.70%
of the Company’s capital stock through its holding of 3,599 million Class A
shares representing 51.53% of capital stock and 81.4 million Class B shares
representing 1.2% of the Company’s capital stock. If COINTEL’s Class A shares
holding is reduced to less than 51% of the Company’s capital stock, the shares
transfer should be approved by Regulatory Authority. On January 8, 2010, COINTEL
transferred to Telefónica Internacional S.A. (“TISA”) 2,999,657 of the Company’s
Class A shares, with par value of $0.1 per share, and entitled to one vote per
share, representing approximately 0.04% of the Company’s capital stock and
votes, and 2,035,564 American Depositary Receipts (“ADRs”), each representing 40
Class B shares, with par value of $0.10 per share and entitled to one vote per
share, representing approximately 1.17% of the Company’s capital stock and
votes. As of the date of issuance of the financial statements, Cointel holds
51.49% of the Company’s capital stock. As of December 31, 2009, Cointel’s
shareholders were three affiliates of Telefónica S.A. (“TSA”) that collectively
own the entire capital stock of Cointel. These three affiliates are Telefónica
International Holding B.V. (“TIHBV”, with a 37.3258% interest), Telefónica
Holding de Argentina S.A. (“THA”, with a 50% interest), and Telefónica
Internacional S.A. (“TISA”, with a 12.6742% interest).
As of
December 31, 2009, TISA owned 14.99% of the Company’s capital stock through the
ownership of ADRs representing Class B shares, and Telefónica Móviles Argentina
S.A. (“TMA”) owns Class A shares, Class B shares and ADRs representing Class B
shares for a total of 29.56%. TIHBV holds Class B shares representing a 0.95%
equity interest.
In June 2009, TSA
issued a Public Offering of Acquisition for the entire capital stock held by
minority shareholders (1.8%), in accordance with Decree No. 677/01. On December
3, 2009, the CNV approved the price offered by TSA. The amount for the
acquistion price is available for the shareholders at BBVA Banco Francés. On
January 25, 2010, TSA registered as a public deed the Unilateral Declaration of
Acquisition of the total remaining capital stock held by minority shareholders.
Consequently, as from the date of the public deed, (i) TSA has acquired the
total remaining capital stock of the Company held by minority shareholders and,
(ii) the Declaration of Acquisition implies as a matter of law the withdrawal of
the Company’s stock from the public offering and quotation regime.
Summary
table as of the date of issuance of the financial statements
PURCHASE
OF TDA S.A.’s SHARES
In connection with
Telefónica’s Group internal reorganization process, on May 4, 2006, the
Company’s Board of Directors approved the purchase of shares that represent
97.89% of the capital stock and votes of TDA S.A., owned by Telefónica Datacorp
S.A. (“Datacorp”), a company indirectly controlled by TSA. This transaction was
approved by the Company’s Audit Committee, prior to its discussion by the Board
of Directors. The Audit Committee considered the transaction reasonably
qualifies as having been agreed on terms that are usual and customary in the
market.
On December 2,
2008, as the conditions of the agreements between the parties had been met, the
Company and Datacorp executed the closing agreement (the “Closing Agreement”)
whereby Datacorp agreed to transfer to the Company 802,645 common stock shares
with nominal value of AR$100 per share and entitled to one vote per share,
representing approximately 99.75% of the capital stock and votes of TDA
S.A.
The transaction was
made for a total amount of US$ 57,084,835.
On December 10,
2008 the Company performed a paid-in capital contribution of 100 million in its
controlled company as of that date TDA S.A., issuing consequently 1,000,000
common stock shares with nominal value AR$100 per share, entitled to one vote
per share. As of the date of issuance of the financial statements, the
registration of this capital stock increase at Public Register of Commerce is
still pending.
In addition, on
December 10, 2008, TDA S.A.’s Board of Directors approved the transfer to
Telefónica of 1,972 treasury shares, representing approximately 0.25% of its
capital stock and voting rights.
On December 23,
2008, the Company and its subsidiary company TDA S.A. entered into a Preliminary
Merger Agreement, which purpose was (i) to analyze and, if applicable, initiate
the merger process between both companies effective as from January 1, 2009;
(ii) to provide for the preparation of the related financial statements; and
(iii) to provide for the appropriate preparation of a Merger Prospectus and
Preliminary Merger Commitment, which was approved by the Company and TDA S.A.’s
Boards of Directors on February 16, 2009. In addition, on April 20, 2009, the
Company’s General Ordinary and Special Class A and B Shareholders’ Meeting,
approved the Preliminary Merger Agreement and the merger by absorption of TDA
S.A., which is dissolved without liquidation.
On June 29, 2009,
the Company and TDA S.A. executed the Final Merger Agreement whereby the Company
absorbed TDA S.A.’s total assets, liabilities and shareholders’ equity under the
terms and conditions set forth in the Preliminary Merger Agreement. On September
24, 2009, through Resolution No. 16.203, the CNV decided the authorization of
the merger of TDA S.A. under the terms of Section 82 of Law No. 19.550, to send
the files to the Argentine regulatory agency of business associations (“IGJ”) in
order to register the merger, and to request the Company proof of the
registration of the dissolution without liquidation of TDA S.A. with the Public
Register of Commerce, which is currently pending.
In accordance with
the abovementioned Preliminary Merger Agreement, the date of the reorganization
was established on January 1, 2009, based on both companies’ book values arising
from the annual financial statements as of December 31, 2008.
On May 1, 2009, TDA
S.A.’s operating and accounting systems were incorporated into the Company’s
systems and the operations of both companies were unified. This merger aimed to
centralize in a single organization the management of the companies, that is to
say, a coordinated and consistent management of all merged activities allowing
an adequate planning and preventing redundant expenses, with a minor impact of
fixed costs. In addition, the merger allowed to improve commercial management
actions, technical operations, customer service systems, to enhance sales
actions and obtain the following synergies:
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1)
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Economies of
scale arising from the integration of the companies’ telecommunication
networks;
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2)
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Improving the
conditions in suppliers
arrangements;
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3)
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Costs savings
attained by grouping corporate
activities;
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4)
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Shorter times
for developing new product and service markets which will translate in
more satisfied for customers;
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5)
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Enhanced
strategic, operational and financial flexibility in the corporate business
segment; and
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6)
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Obtainment of
a more convenient structure for the companies’ activities for tax
purposes.
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In accordance with
the abovementioned, the Company’s financial statements for the fiscal year ended
December 31, 2009 incorporate the assets, liabilities and income and loss of TDA
S.A. since January 1, 2009.
POLITICAL
AND ECONOMIC, REGULATORY AND LEGAL CONTEXT
Political
and economic context
After the
expiration of Néstor Kirchner administration for the period 2003 through 2007,
his wife, Cristina Fernández de Kirchner, assumed as President of Argentina as
she won the elections in October 2007 in first round by having exceeded the 45%
threshold. In spite of the favorable tendency received in economic terms, the
lady President faces multiples challenges related to institutional, political,
economic, social and international matters in a context of global crisis.
Recently, the ruling political party lost the absolute majorities and the quorum
in both houses of the National Congress as from the renewal of chairs scheduled
which occurred in December 2009 (although it maintains the first minorities in
both houses), as a consequence of the outcome of the parlamentary elections held
in June 2009.
As of the beginning
of the crisis in the international financial markets, Argentine economic
activity increased at high rates: annualized rate of 8.7% in 2007 and annualized
rate of 7.0% in 2008, driven by private consumption and by investment. However,
in the first eleven months of 2009, economic activity measured by EMAE-INDEC
improved an annual 0.5%. The Gross Domestic Product (“GDP”) grew 9.0% in 2004,
by 9.2% in 2005, by 8.5% in 2006, by 8.7% in 2007 and by 6.8% in 2008. In
addition, the Consumer Price Index in Argentina determined by “INDEC” remained a
single-digit figure during 2008: 7.2%, whilst wholesale prices accumulated an
8.8% increase over the year. In 2009, retail prices increased 7.7% annually and
wholesale prices increased 10.0% annually.
According to
official figures, the unemployment rate raised slightly to 8.4% of the
economically-active population in the third quarter of 2009 (measured as
four-quarter average), however falling from levels over 20% during the worst
periods of the Argentine crisis 2001-2002. The fall in the growth rate of GDP,
is the main cause of the rise in the unemployment rate. According to official
figures, poverty is at the level of 13.9% of total population and indigence
represents the 4.0% of total population in the first semester of
2009.
As far as the main
financial variables are concerned, the dollar exchange rate fluctuates around
AR$ 3.85 per U.S. dollar, meanwhile the capital flight tends to hold back after
the election period and the minor depth of the international crisis. The Merval
index closed as of the closing date of the financial statements in 2,320 points,
accumulating in 2009 a 114.9% in Peso-denominated gain and a 94.8% measured in
US dollars. In turn, the interest rates were moderate compared to those at last
fiscal year-end, with the interest rate for loans to first-level companies
(“PRIME”) of 30 days having been set at 15.0% per annum (December 2009 average)
and the interest rate for fixed-term banks deposits of over 1 million pesos
(“BADLAR”) of 30 days having been set at 9.8% per annum (December 2009
average).
Argentina’s total
sovereign debt decreased from US$ 189.8 billion, in the first quarter of 2005,
to US$ 141.7 billion (equivalent to 46% of GDP) in the third quarter of 2009.
Those levels of indebtedness are above the level as of December 2001, although
the terms have been extended considerably and the service payments are lower.
This reduction in the country’s sovereign indebtedness is due to the conclusion
of the process to renegotiate the amounts defaulted in the first quarter of 2005
and to the early settlement of the full amount owed to the International
Monetary Fund (“IMF”), made in January 2006, with a disbursement of about US$
9.5 billion. Notwithstanding this, there are still US$ 30.0 billion in
indebtedness not submitted for swap (hold-outs) and approximately US$ 6.4
billion in indebtedness still pending for settlement with Club de
París.
The prospects for
the following months indicate that the economic activity will show some degree
of recovery, boosted by the gradual emergence from the international crisis
(especially in emerging and regional countries) and maintenance of the favorable
exchange terms the country has, in relation to the rest of the
world.
In the financial
markets the perspective for the exchange rate points to a slide of the Peso
against the US Dollar, while interest rates will keep adjusting in real
terms.
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Evolution
of the main macroeconomic variables:
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2004
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2005
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2006
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2007
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2008
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2009
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Real Growth
of Gross Domestic Product (*)
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9.0%
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9.2%
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8.5%
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8.7%
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6.8%
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1.2%
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Exchange Rate
($/U$S) – end of period
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2.97
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3.03
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3.07
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3.15
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3.45
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3.8
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Variation in
the Consumer Price Index
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6.1%
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12.3%
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9.8%
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8.5%
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7.2%
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7.7%
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Variation in
the Wholesale Price Index
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8.8%
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10.6%
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7.7%
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15.0%
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8.8%
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10.0%
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Trade Balance
(billions of U$S)
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12.1
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11.3
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12.3
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11.2
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12.6
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17.0
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Unemployment
(% of the economically-active population) (*)
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13.6%
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11.6%
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10.2%
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8.5%
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7.9%
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9.6%
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Source:
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Central
Bank of Argentina (BCRA)
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Instituto
Nacional de Estadísticas y Censos (INDEC)
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Ministry
of Economy and Public Finance
(MECON)
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(*)
Estimated data for the year 2009, as the official data has not been published as
of the date of issuance
Regulatory
Framework
Tariff
Renegotiation
The Public Emergency and Exchange System Reform
Law No. 25,561, dated January 6, 2002, which has been extended until December
31, 2011, provided that in the agreements executed by the Federal Administration
under public law regulations, including public works and utilities, indexation
clauses based on foreign countries’ price indices and any other indexation
mechanisms are annulled. Law No. 25,561 also established that the prices and
tariffs resulting from such clauses are denominated in Pesos at the AR$ 1 to US
Dollar 1 exchange rate. Furthermore, Section 9 of this Law authorized the
Federal Executive Power (the “PEN”) to renegotiate the above contracts taking
into account the following criteria in relation to public utilities: (a) the
impact of tariffs on the competitiveness of the economy and the distribution of
income; (b) service quality and investment plans, when such aspects are
contemplated in the contracts; (c) the interest of users and access to the
services; (d) the security of the systems comprised; and (e) the profitability
of the companies (see note 8.1 to the Company’s financial
statements).
On May 20, 2004, Telefónica, Telecom Argentina
S.A. and the Argentine Government signed a memorandum of understanding pursuant
to which the parties confirmed their intent to reach a final contractual
renegotiation agreement prior to December 31, 2004, which eventually did not
come to happen. In addition, they agreed to maintain the General Tariff
Structure currently in force for the Basic Telephony Service until December 31,
2004 and to implement the actions necessary for: (i) the development of services
aimed at the beneficiaries of the Head of Household Plan and for pensioners who
Unaudited
Information
do not have a
telephone line and, (ii) the promotion of Internet access in provincial centers
at discount prices. Lastly, the memorandum of understanding ratified tax
stability for the contracts.
The relationship
between variables determining revenues and costs was affected as a result of the
“pesification” and freezing of the Company’s tariffs within the context of a
potentially inflationary economy and may continue to be mismatched depending
upon the regulatory framework to be designed by the Argentine Government in the
future. The Transfer Contract provides for mechanisms to re-balance the relation
between the variables that determine income and costs (including investments),
i.e., the so-called "economic and financial equation" upon the occurrence of
certain circumstances.
On February 15,
2006, the Company and Renegotiation and Analysis of Public Utilities Agreements
Unit (“UNIREN”) signed on behalf of the Argentine Government, a Memorandum of
Understanding 2006. After the procedures provided for in current regulations are
met, this instrument will be the necessary background to execute the Protocol of
Renegotiation of the Transfer Contract approved by Decree No. 2332/90 (“Protocol
of Renegotiation”), in accordance with the provisions under section 9 of Law No.
25,561.
Among others, the
Memorandum of Understanding 2006 deals with the following main
issues:
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1.
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Investments:
the Company shall continue with the investments aimed at the development
and technological update of its network and new
services.
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2.
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Service
Targets and Long-Term Targets: it is agreed that as of December 31, 2010
the Company must achieve the goals established as Long-Term Targets
pursuant to Decree No. 62/90 and in the General Regulations on Basic
Telephone Service Quality. Targets have also been established for
achievement starting in 2005 which shall be in force until the date above
mentioned.
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3.
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Contractual
Situation: the National Communications Commission (“CNC”) and UNIREN's
Executive Secretary have expressed that they have proceeded, in accordance
with current rules and regulations, to an analysis of the progress and
degree of compliance by the Company with the commitments assumed pursuant
to the Transfer Contract and the regulatory framework. The conclusion has
been that until the signature of the Memorandum of Understanding 2006 the
Company has complied to an acceptable degree, there being only specific
non-compliances, for which penalties have been imposed, and issues
inherent in operations being pending, which would be resolved before June
30, 2006. Despite the scheduled date, the matters referred are still
pending.
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5.
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Stay of
Actions and subsequent Waiver of Rights and Withdrawal of
Actions.
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6.
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Adjustment of
Incoming International Calls in the Local Area through the application of
a correction factor, so that the value referred to in section 37 of Annex
II to Decree No. 764/00 undergoes a three-fold
increase.
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7.
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Unification
of the low-rate time band for local calls, national and international
long-distance calls, which in the aggregate results in the application of
lower discounts starting with the implementation of the Protocol of
Renegotiation.
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8.
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Equal
Treatment: In the context of the process to renegotiate the agreements,
the National Government undertakes to treat the Company on the basis of
terms reasonably similar and equal to those afforded to other
telecommunications companies participating in said
process.
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The parties agreed to comply with and maintain
the legal conditions provided in the Transfer Agreement and regulations
effective to date. Thirty days after the public hearing to discuss the
Memorandum of Understanding 2006, which was celebrated on April 28, 2006, both
the Company and its shareholders should suspend for 210 working days all the
claims, remedies, and lawsuits filed or in progress before administrative and
arbitral tribunals or any court of law, in Argentina or abroad, based on or
related to the events occurred or measures taken as a result of the emergency
situation under Law No. 25,561 regarding the Company’s license and Transfer
Contract. In this sense, the Company and its shareholders filed in the time
limits established, the suspension requested mentioned in the Memorandum of
Understanding 2006 and then subsequent extensions which latest maturity date was
on April 6, 2009. As of the expiration date, the Company, its shareholders and
the Argentine government expressed their intention to negotiate the terms of the
next steps to be followed. In that sense, Telefónica S.A. and the Argentine
Government requested, in mutual agreement, the Court of the International Centre
for Settlement of Investment Disputes ("CIADI") to terminate the arbitration
proceedings initiated by Telefónica S.A., having the Court ruling so on
September 24, 2009. The termination of the arbitration proceedings does not
imply that either Telefónica S.A. or the Argentine Government waive any of their
rights.
In order to ensure the necessary foreseeability
in the telecommunications sector and considering the telecommunications
expertise and experience contributed by sector companies, the PEN committed its
efforts to consolidating an adequate and consistent regulatory framework which,
based on the legal and technical aspects of the industry, supplements and
strengthens the regulations applicable to the sector.
In the opinion of
Company’s Management and its legal advisors, under the general principles of
administrative law applicable to the List of Conditions and the Transfer
Contract, the future rates should be set at levels sufficient to cover the cost
of the service in order to preserve regular, uninterrupted and efficient
provision of the public telephony utility service. It is possible that, over
time, such rates scheme may not maintain the rate values in US dollars or in
constant pesos in relation to any future increase in the general price
level. If a future regulatory framework did not provide for the rates
to change at a pace allowing balancing the economic and financial equation that
both the List of Conditions and the Transfer Contract intended to preserve, such
rate schedule could have an adverse impact on the Company’s financial position
and future results. To date, the Company’s Management could not predict the
possible outcome of the renegotiation pursuant to Public Emergency Law or the
rates system that will apply in future or when it will be
implemented.
Pursuant to the Memorandum of
Understanding 2006, the PEN has undertaken to make efforts to establish in the
future a stable legal framework allowing to regulate the activities in the
sector. To that end, it shall send a bill of proposed legislation to the
Legislative Power which shall include the following minimum
contents:
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·
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Assurance of
a stable and effective regulatory framework applicable to the
industry;
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·
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Maintenance
and assurance of legal stability for the benefit of service
development;
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·
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Strengthening
of the Nation's common welfare;
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·
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Assurance of
adequate service supply:
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·
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Assurance of
effective protection for the rights of users and
consumers;
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·
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Incentives to
the involvement of the private sector in
telecommunications;
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·
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Promotion of
a sustainable technological evolution in the sector with a view to fixed
and wireless connectivity;
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·
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Development
of the Argentine telecommunications
industry;
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·
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Promotion of
job creation;
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·
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Promotion of
investment commitments that guarantee sustainable development in
telecommunications infrastructures based on respect for the principle of
technological freedom; and
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·
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Establishment
of equal treatment for all
providers.
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The financial
statements consider the effects derived, and those projected, by the Company’s
Management, from the regulations enacted as of the date of issuance. The effects
of any additional regulations that may be implemented shall be considered at the
time they are enacted in their final form and once they are part of the
regulatory framework in force and applicable to the Company’s
operations.
CORPORATE
MATTERS
Shareholding
structure
The Company’s
shareholding structure as of the date of is as follows:
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Shareholder
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Class A
shares
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%
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Class B
shares
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%
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Total
shares
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%
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COINTEL
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3,596,126,978
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51.49%
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-
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-
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3,596,126,978
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51.49%
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TISA
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2,999,657
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0.04%
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1,128,312,880
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16.16%
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1,131,312,537
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16.20%
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TMA
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768,262,045
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11.00%
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1,296,324,988
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18.56%
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2,064,587,033
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29.56%
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TIHBV
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-
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-
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66,171,964
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0.95%
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66,171,964
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0.95%
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TSA
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-
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-
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126,001,784
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1.80%
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126,001,784
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1.80%
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6,984,200,296
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100.00%
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Listing
Telefónica de Argentina S.A. shares were listed
on the BCRA and on NYSE until on January 25, 2010, when the Declaration of
Acquisition of the total remaining capital stock held by minority shareholders
was registered as a public deed. Consequently, as from the date of the public
deed, (i) TSA has acquired the total remaining capital stock of the Company held
by minority shareholders and, (ii) the Declaration of Acquisition implies as a
matter of law the withdrawal of the Company’s stock from the public offering and
quotation regime.
Its stock was
listed since March 8, 1994, on the NYSE through ADRs. The shares are identified
with the “TAR” ticker symbol. ADRs represented 10 Class B shares of 1 peso par
value each. As a result of the capital stock reduction performed in 2006, the
ADRs represent 40 class B shares of 10 cents par value each, as from December
22, 2006.
High and low stock
quotes on the BCBA for the latest ten years are as follows (in Argentine
pesos):
|
Fiscal
year
|
High
$
|
Low
$
|
|
1999
|
3.24
|
2.58
|
|
2000
|
4.93
|
2.43
|
|
2001
|
3.73
|
0.75
|
|
2002
|
2.80
|
0.80
|
|
2003
|
3.05
|
1.14
|
|
2004
|
3.90
|
1.95
|
|
2005
|
3.35
|
2.17
|
|
2006
(1)
|
13.24
|
5.74
|
|
2007
(2)
|
1
5
.2
0
|
9
.
90
|
|
2008
(2)
|
10.30
|
3.10
|
|
2009 1
st
quarter
(2)
|
7.20
|
5.70
|
|
2009 2
nd
quarter
(2)
|
1
0
.
0
0
|
6.25
|
|
2009 3
rd
quarter
(2)
|
10.10
|
9.10
|
|
2009 4
th
quarter
(2)
|
10
.
00
|
9.00
|
Source: Buenos Aires Stock
Exchange
|
|
(1)
|
As from
2006 th
e prices
reflect
the
effect
of
the capital stock reduction
and the change in the
face value of the above-mentioned shares. Additionally, as from
2006, prices are
stated with respect to a
nominal
value of AR$
1.
|
|
|
(2)
|
The prices are stated with respect
to a
nominal
value of AR$
1.
|
Dividend
Policy
The declaration, amount and payment of
dividends are determined by a majority vote of the holders of the Company’s
common stock on recommendation of the Company’s Board of Directors. Because
COINTEL is the majority shareholder of the Company and can appoint the number of
directors necessary to prevail in the Board, it can recommend and approve or
disapprove the declaration, amount and payment of dividends, subject to the
availability of profits and the customary legal restrictions contained in
Argentine law.
The Company has not distributed dividends as
from the fiscal year 2002, including the fiscal year ended December 31,
2009.
Decision-making
Organization
Corporate
decision-making at the Company is based on an internal division into functional
areas, geographic, customer and business unit departments and process
standardization and operation as set
forth in formal
procedures, to allow for and ensure the coordination of tasks and functions
across the organization.
In conjunction with authority delegation and
decentralized decision-making, control procedures are in place to maximize goal
setting and attainment and ensure dynamic operations in keeping with the style
of a high-technology, mass service provider.
Ongoing and
systematic interaction between operators and Management Control, Finance,
General Secretary, Human Resources main areas enables a comprehensive analysis
and orientates, prioritizes and optimizes the expenditure and investment budget
in order to define the tactical and operational plan. These ideas rely on an
integrated corporate management system, achieving operational efficiency and
transparency when managing the budget.
Internal
Control and Financial Reporting
The Sarbanes –
Oxley Act, published in the United States in 2002, lays down a series of duties
related to internal control over financial information that are mandatory for
all public companies governed by the U.S. Securities and Exchange Commission
(“SEC”). Specifically, section 404 of the SOX requires the inclusion in annual
reports of a statement by the Company’s management of the effectiveness of
internal controls over the Company’s financial reporting and a certification
issued by the Independent Accountant.
Such act applies to
the Company regarding to the management’s statement of the effectiveness of its
internal control system for financial reporting. The Independent Accountant’s
certification shall apply as from the fiscal year 2010.
The Company has
established a General Assessment Model that includes the review of the Company’s
general controls as well as the specific controls over the main processes with
an impact on financial reporting. Such review is carried out mainly in the
following phases: the first phase consists in identifying the Company’s
processes that feed critical accounts; then such processes are subject to a
preliminary analysis that includes identifying existing control activities,
required controls not yet in place, as well as those that though currently
applied are not reflected in the documented description of processes, as well as
proposals for improvement in the design of existing controls. The second phase
verifies that the controls established in the prior phase are properly
operational and proposes actions and improvements in internal
control.
Therefore, the
implementation of such Model, in combination with strategic planning,
administrative procedures, information and communication systems, personnel
assessment, management and quality control, contributes to ensuring
an internal control system that guarantees that objectives shall be met with
efficacy and efficiency in operations, with reliable financial information and
in compliance with current rules and regulations.
Organizational
Chart
Directors
and committees of Telefónica de Argentina S.A.
|
Directors
|
|
Supervisory
Committee
|
|
|
|
|
|
Chairman
|
|
|
|
Eduardo
Fernando Caride
|
|
Santiago
Carlos Lazzati
|
|
Francisco
Javier de Paz Mancho
|
|
Edgardo
Alejandro Sanguinetti
|
|
José Fernando
de Almansa Moreno-Barreda
|
|
Eduardo Luis
Llanos
|
|
Mario Eduardo
Vázquez
|
|
|
|
Manuel
Alfredo Alvarez Trongé
|
|
|
|
Jaime Urquijo
Chacón (1)
|
|
|
|
Guillermo
Harteneck (1)
|
|
|
|
Luis Ramón
Freixas Pinto (1)
|
|
|
|
|
|
|
|
|
|
María
Cristina Sobbrero
|
|
|
|
Roberto
Aníbal Oneto
|
|
|
|
Hugo
Guillermo Waingortin
|
|
Alternate
Directors
|
|
|
|
|
|
|
|
José María
Alvarez Pallete
|
|
Audit
Committee
|
|
Gaspar Ariño
Ortíz
|
|
|
|
Luis Blasco
Bosqued
|
|
Jaime Urquijo
Chacón
|
|
Javier
Benjumea Llorente
|
|
Guillermo
Harteneck
|
|
Juan Jorge
Waehner
|
|
Luis Ramón
Freixas Pinto
|
|
Cristián
Aninat
|
|
|
|
|
|
|
|
|
|
Board
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
Alejandro
Pinedo
|
|
|
|
|
|
(1)
|
Telefónica de
Argentina S.A. currently has three members of the Board who meet the
independence requirements established by the CNV. These directors are
members of the Audit Committee.
|
The Board of
Directors is made up of the directors appointed by the Shareholders’ Meeting
within the limits established in the Company’s by-laws.
The Board of
Directors determines – based on the circumstances prevailing at the time, and in
accordance with the importance of the issuer and with the decision-making
process – whether its number of members is adequate in order to propose, if
applicable, its change to the Shareholders’ Meeting.
The Board of
Directors includes an adequate number of independent directors. In addition, the
Board of Directors has formed a sufficient number of committees in order to
attain its mission effectively and efficiently.
Main
Executive Management
|
|
|
|
|
|
|
|
|
Chairman
|
|
Eduardo
Fernando Caride
|
|
|
|
Internal
Audit
|
|
Manuel Neira
Montes
|
|
|
|
Management
Control and Resources
|
|
Sebastián
Minoyetti
|
|
|
|
Institutional
Relations
|
|
José Luis
Rodríguez Zarco
|
|
|
|
General
Secretary
|
|
Alejandro
Pinedo
|
|
|
|
Business
strategy, wholesale business and regulation
|
|
José Luis
Aiello Montes
|
|
|
|
Finance
|
|
Juan
D’Ambrosio
|
|
|
|
Human
Capital
|
|
Raúl
Lacaze
|
|
|
|
Enterprises
|
|
Javier
Roldán
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Manager
|
|
Juan Jorge
Waehner
|
|
|
|
Residencial
Business Unit
|
|
Marcelo
Tarakdjian
|
|
|
|
Business Unit
(*)
|
|
Alexis
Krossler
|
|
|
|
Network and
systems
|
|
Horacio Oscar
Acerbi
|
|
|
|
Costumer
Service
|
|
Ariel
Ginzburg
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
incumbent.
Directors
and executive management compensation
Board of Directors
compensation is determined and approved by the shareholders’ meeting after the
end of each fiscal year.
Executive manager’s
compensation is determined in accordance with a dual policy providing for fixed
and variable compensation. The fixed portion of compensation is proportional to
the responsibility that is inherent in a certain position and compensation paid
for similar positions on the market. The variable portion of compensation is
hinged on performance, and is proportional to the extent to which certain
predetermined goals have been achieved throughout the year.
In June 2006,
Telefónica Group approved a performance share plan intended for certain
executives. The plan comprises 5 cycles of three years each, and the whole plan
expires on June 30, 2013. Delivery of the shares is linked to Total Shareholder
Return (as the measure for determining value generation in the Group in the
medium and long term). See note 15. to the Company’s financial
statements.
On February 15,
2007, the Company’s Board of Directors approved the summary of social security
plan for executives (the “SSE Plan”), which consists in making monthly
contributions shared between executives and the Company to a special vehicle in
order to cover contingencies related to retirement, early retirement, total
disability and death of the executives eligible as beneficiaries of the SSE
Plan. The contributions are based on a percentage of the annual and fixed gross
compensation of the participant and an additional percentage paid by the Company
in different portions. The Company is not liable for the performance of the
funds contributed or for the availability thereof to the participants. Also, on
November 5, 2009, the Company’s Board of Directors approved some modifications
to the SSE Plan’s contributions structure, which consists of changing from the
previous model divided in two contribution portions (Portion I: contributions
made by the Company and the participant; Portion II: contribution made by the
Company only), into a model with only one portion in which the contributions are
shared between the participant and the Company, consequently eliminating the
Portion II. See note 15. to the Company’s financial statements.
Human
Capital Management
The main objectives
of Human Capital are to align and coordinate people’s management in order to
facilitate the achievement of business objectives, and to ensure the Company’s
employees an appealing and motivating professional career.
During 2009 the
focus was placed on the following pillars: 1) Organization, 2) Labor and Trade
Unions Relationship, 3) Service Culture, 4) Leadership, 5) Development, 6)
Recognition, 7) Communications, and 8) Life Quality.
1.
Organization
The implementation
of the “operational efficiency” program allowed a comparative analysis by
activity between the organization and the rest of Telefónica’s Group operators
in Latin America. This benchmark allowed to share best practices and to identify
improvement actions to enforce implemented. This year’s focus was set on those
activities related to customer through call centers.
Within this model,
and as a differential factor, management indicators were established,
contemplating the Company’s personnel and personnel of third companies grouped
by activities, allowing a more comprehensive and real assessment of the
resources involved.
The trend is to
develop simpler structures (less hierarchical) enabling greater facility in the
decision-making process, simple and agile processes to promote the development
of new business.
Models were
developed to improve management’s efficiency through performance plans for non
commercial resources, performance measuring systems through quantitative and
qualitative factors and improving operation’s planning tools.
2.
Labor and Trade Unions Relationship
The action plans
focused on the following:
2.a- Inclusion of
proactive operational leaders in every negotiation (company – trade
union), in order to render empowerment, capacity and speed of action in front of
their collaborators and trade union representatives needs.
2.b- A closeness
and synergy plan with trade unions was developed, enabling the implementation of
a weekly-scheduled work plan, achieving the development of a model that analyzes
problems reducing conflicts significantly.
2.c- Health
and prevention programs that have an impact on the entire community were
developed, in order to monitor accidentology indicators and to prevent
occupational and endemic illnesses such as Influenza “A” and dengue, both at
work and at home.
2.d- Regarding the
operational efficiency initiative, a Third Party Management Program was
developed and implemented in order to reduce solidarity contingencies,
strengthen third parties management, and ensure personnel management
transparency through the implementation of a program that strengthens structural
relationship, ensuring the sustainability of the model and the final customer
service.
3.
Service Culture
Telefónica has
defined cultural guidelines on its desired position regarding the service
provided to its customers, hoping to become a company with simple interactions,
that values customer’s loyalty, has staff committed in offering solutions, gives
the best solutions to customer needs, fulfills its agreements, and offers
reliable products and services. These internal promises, approved by the
Management Committee, were the line of argument of the entire communication
plan, participating all of its collaborators.
For this purpose, a
Quality Plan was launched, which aims the improvement of the processes and
indicators leveraging customer satisfaction, along with a cultural
transformation plan driving the organization towards the desired change. For
this reason, the Inspira Project was implemented, based on the incorporation of
the technical “appreciative methodology” in order to motivate teams in the
search, establishment, and expansion of the current and potential organizational
capabilities in order to improve our customers’ experience. The Project's main
action was conducted in workshops where all collaborators participated, led by
the Company’s executives.
4.
Leadership
A Training Plan for
the Company’s middle management was developed and implemented (LIDERA), based on
a profound diagnostic of the leadership style and the application of several
tools and management information analyses. Therefore, a Leadership Map and
Individual Reports for over one thousand participants were obtained, implemented
in 2009, which enable the design of a development path in order to cover the
areas to be improved regarding to the expected profile. The mentioned plan will
continue throughout 2010.
5.
Development
Telefónica favors
transparency in the process of internal mobility of its employees. For this
reason, vacancies are first offered internally and, in order to facilitate
communications, an open employment blog was created which publishes selected
searches, some tips for interviews, recommended readings, and testimonies of
employees who have rotated through the Development Opportunities program. In
addition, we systematized the personalized feedback process for the finalists of
each search.
In order to focus
on the development and training of Young Professionals, an Internal Tutor
program was created with leaders from different areas to guide and help young
professionals through their learning processes. Additionally, summer internships
were carried out with the children and siblings of employees who did not have
any work experience, facilitating the integration of the company, the family and
society.
In order to favor
the development of employees with outstanding performance and projection,
scholarships were granted to take postgraduate courses and Master’s degrees, in
Argentina as in Spain. On the other hand, Telefónica has a Corporate University
in Barcelona for the development of all its directors and managers identified as
substitute directors and managers where study programs of the highest
international academic quality are annually accomplished.
6.
Recognition
The recognition
program called “Protagonists”, launched in 2008 as a management key’s tool for
all leaders was strengthened. This initiative aims to generate a culture in
which recognition fosters trust and team work, favors closeness between leaders
and collaborators, encourages recognition among peers and allows for the reward
of extraordinary actions, contributing the development of our three key
management elements: growth, quality, and efficiency.
7.
Communications
In order to
facilitate fluid and direct communication, multiple meetings were held, in which
the Company’s top executives and personnel from different levels and from
different areas of expertise participate, achieving closeness, receiving
concerns and giving feedback.
8.
Life Quality
Telefónica aims to
be recognized for generating excellent experiences in terms of the quality of
life of its employees, fostering flexible time, comradeship, and healthy habits
for them and their families. For this reason, the balance between the personal
and working life of our employees is facilitated by the “Time for you” program,
designed so that people can meet their objectives in an environment with
flexibility to organize their time and workplace.
In 2009, Telefónica
was incorporated into the prestigious “Great Place to Work” ranking as one of
the best companies to work in Argentina between the companies with more than one
thousand employees, positioning in the 9
th
position.
Telefónica
and its contribution to education, social development, arts, and knowledge
oportunities
Since its creation,
Fundación Telefónica’s (“the
Foundation
”) goal has been to contribute to the creation of future
possibilities for thousands of children, teenagers and members of vulnerable
communities close to the regions where
Telefónica Group
operates in
our country, bulding a social progress and development network through quality
education and also sharing its main assets: great technological capacity, strong
territorial presence, and the high professional and human level of its
employees.
In order to carry
out this mission,
the
Foundation
canalizes its
actions through defined and concrete programs and projects, developed directly
or in cooperation with non-profit educational, social and cultural entities of
recognized reputation and proven capacity in order to conduct and achieve the
initiatives abovementioned.
Fundación Telefónica’s
activity is divided into five conceptual central points of
intervention:
1
)
Education
, through the “
Educared
” program, an action
line that seeks children’s primary and secondary education development through
the application and the educational use of Information and Communication
Technologies (ITC);
2)
Eradication of Child Labor,
developed together with
TMA
, the “
Proniño
” program, an
initiative aimed at the prevention and progressive eradication of child labor in
Argentina and Latin America through the interdisciplinary joint work with NGOs,
the Public Sector and major international organizations with vast experience in
the issue;
3)
Volunteering
, promoting
Telefónica Group’s employees commitment and involvement in the development of
social actions and projects for the community through its “
Voluntarios Telefónica
”
program;
4
)
Debate and Knowledge
, enabling
the Company’s access to Information and Knowledge -and the incorporation of the
largest number of people, specially those who could be excluded of such
processes-, the
Foundation
supports the development of studies and research
(and their communication
through symposiums, seminars and publications), and promotes the Iberoamerican
academic work;
5)
Art and New Technologies.
Besides promoting the management and spreading of
Telefónica Group’s
Artistic,
Cultural and Historical-Technological Heritage, the
Foundation
´s main goal is
creating equal opportunities for the promotion of contemporary art and the
artistic applications that Information Technologies and Communications have in
it, and the access –for local public and local artists- and development of
training spaces for Argentine and Latin American artists in this specialty,
approximating them to top artists and facilitating the production and spreading
of their work domestically and abroad.
After several years
of action, the
Foundation
has managed to
capitalize and adapt
Telefónica’s
expertise and
know-how, as a leading company in the telecommunications sector, in its lines of
action, which has resulted in major benefits in logistics, visibility and
commitment terms for many of its initiatives. Currently, the programs not only
interact among them, taking full advantage of their synergies, but they have
also started to expand this scope to the different
Telefónica Group’s
areas and
companies, multiplying its impact on all stakeholders.
In 2009,
Educared’s
Experts teams and
their Spanish colleagues –and the rest of the Latin-American countries where the
program is implemented– worked together in order to shape up the new program’s
website (
www.educared.org
),
presented in November at the opening session of the V International Educared
Conference, held in Madrid. The new site –currently a unique and global platform
– uses the latest web 2.0 technologies and offers teachers and professors the
best tools (collaboration, forums, blogs, wikis) for those who seek improving
the education and communication with the students through the incorporation of
ITC in the classroom. Thus as from this fiscal year end, once again
Educared
renews its commitment
to innovation, consolidating not only as the most recognized and visited site by
Argentine teachers, but also being one of the only ones that currently allows
the customization of contents by criteria such as native country, language and
personal interests.
Also in 2009,
Educared
has firmly maintained
its support to the knowledge dissemination on ITC and Teaching, developing
various conferences and workshops at the provinces, and has supported the growth
of special education through
Integrared
, an initiative that works in the research and promotion of
adaptative technology to promote an integrating and inclusive education,
continuing the implementation of training workshops throughout the country. In
turn, this fiscal year
Integrared
not only has
received the
“Juntos Educar
2009”
award, granted by the “Vicaría Episcopal de Educación” to ventures
and personalities that contribute to culture and education development in
Argentina, for its work; but also its devices attained significant dissemination
and visibility spaces at two
Movistar Technological Centers of
Customer Experience
opened in Córdoba and Buenos Aires, where, since
then, visitors with physical disabilities can use the new technologies and
access to the web.
During 2009, the
website maintained an average of 1,500,000 monthly visitors; and it provided a
space for 7,962 teachers, from over 1700 schools, to train in the use of
technology in the classroom and to articulate cooperation projects.
Regarding the
prevention and progressive eradication of child labor, in 2009, the
Proniño
program maintained its
geographical coverage, continuing its work conducted through 63 project branches
and providing comprehensive protection to 9,000 children and teenagers - and
their families-; and strengthening its actions in two essential initiative
pillars: guaranteeing and promoting an ongoing and
high-quality
education for underage in child labor situation, and making people aware on this
issue, its typologies and its impact on young children.
In accordance to
the abovementioned, it signed agreements with several Provinces’ Ministries of
Education in order to install
Telefónica Foundation
Classrooms
, equipped with computers and Internet access in the places
where the program is carried out; and a teacher’s training and dynamization plan
was implemented, together with
UNESCO
, for the use of ITC.
The
Canal Educared del Educador
Proniño
, a site for exchange educational material and experiences, was
also implemented.
In order to promote
the eradication of child labor, in 2009, a major communication campaign was held
in the media and, in turn, the
“Connected we are stronger against
child labor”
contest was held, aimed at Communication, Advertising, and
Marketing students and young professionals, who were invited to design a
advertising campaign to raise the awareness of this issue in our
country.
In turn, in 2009,
the interconnected human network that makes up the
Voluntarios Telefónica
program
showed it still desires to grow and keep helping those who need it most. In its
ninth year of existence, the initiative reached a record amount of 148,374
direct beneficiaries, through 16,678 hours spent on social projects, and
welcomed 162 new members who were added to the 1,346 previous members, from all
Telefonica Group’s business units and companies
.
In 2009, 231 volunteers were
trained through the different stages offered by the program (classroom and
distance) and through all the actions and interventions developed in the fiscal
year, 248 schools and social organizations were benefited. The 6th edition of
the National Contest of Social Projects (CNPS) promoted the submission of 93
initiatives, 66% more projects than in 2008.
During this period,
it was also held a new edition of the transnational experience “Vacaciones
Solidarias,” which made possible for Argentine, Spanish, and Ecuadorian
employees to conduct, during their vacations, solidary work at
Proniño
organizations in
Salta, Bariloche, and Virreyes, in the province of Buenos Aires, and for the
first time, two Argentine volunteers traveled to do solidary work at Peru; and a
new innovating participative social budget project was implemented in Bahía
Blanca and Mar del Plata.
Art also had its
significant moments in 2009. In March, the
Espacio Fundación Telefónica
(EFT)
opened its doors converted into a big sensory “laboratory” showing
the “BlueSky” exhibition, organized together with the Centro Cultural de España
en Buenos Aires (CCEBA), around the work of the artist Francisco Ruiz de
Infante. In June, it was “Extranjerías” ’s turn, the exhibition-developed with
the support of the Embassy of Mexico- was the highest point of a two-year
research conducted by anthropologists, sociologists, historians, art and
literature critics, and communication specialists who, invited by the
Foundation
’s
Debate and Knowledge
programs,
inquired on what being “foreign” means today. The conclusions were interpreted
by ten international artists, and the works exhibited received a highly positive
response from critics and people who filled the
EFT
in Buenos Aires
facilities. Finally, in October, the
Art and New Technologies
program opened up “Geografías celulares” exhibit, a show co produced with
TMA
and Nokia. The exhibit
brought to
Argentina
the latest trends in art through mobile
platforms (cellular phones, blackberries and other wireless devices), and
presented for the first time the “technological nomadisms” concept, through a
seminar
of
the main international referents in
this new area.
The contribution to
the Information Society, regarding to the Debate and Knowledge field, finally
had its gala in 2009. The book “Extranjeros en la tecnología y la cultura”
(Foreign in Technology and Culture), product of research conducted
over two years by a famous Latin-American specialists team such as Alejandro
Grimson, Rosalía Winocur, Andrea Giunta, Graciela Speranza, Gerardo Mosquera,
Pat Badani, Mariana Castillo Debal, Carlos Amorales, Arlindo Machado, and Jorge
La Ferla, among others, led by the famous Argentine anthropologist settled in
Mexico, Néstor García Canclini, was presented at the “Feria del Libro” in Buenos
Aires. This work, supported by Telefónica Foundation through its
Debate
and Knowledge
program, was
published in cooperation with Editorial Ariel and is the first project entirely
created from Argentina to Latin America.
Corporate
responsability in Telefónica Group
The Group’s
Corporate Responsibility (CR) management is included in the goals and business
operation.
The CR strategy is
based on the “conducting well your business”, and also, achieving a positive
perception of that effort, that is obtaining and maintaining high reputation
among the different interest groups. In other words, conducting the day to day
management with ethics and integrity, based on the Principles of Action that are
the essential postulates on which policies and rules are built; strengthening
business impacts to
contribute to the society progress as a whole, develop social and cultural
actions, and communicate with interest groups in a transparent and effective
way.
In 2009,
the
Telefónica
Group
presented in
Argentina
the
2008 V Annual Report
on Corporate Responsibility,
describ
ing
and quantifi
ng
the social, economic, cultural and
environmental impact of the activities conducted by the Group in the country,
reflecting the commitment to the
information
transparency of information.
Additionally, along
to
the presentation of the
report, the
“Responsible Use of
ITC”
website
was launched (
www.telefonica.com.ar/usoresponsabledetics
),
which was
developed
based on the
“In
teractive Generation in
Iberoamé
rica”
research,
conducted by the Universidad de Navarra
from
Spain and Fundación Telefónica,
unprecedented at world level.
Within the general
plan, it is worth mentioning the “Principles of Action” (PoA) formalization
which states the principles and values shared by all collaborators for the
achievement of the desired culture. These principles have been communicated
throughout the organization levels. The training plan developed enables the
inclusion of its concepts in the daily work of the whole community of
collaborators. Today, Telefónica de Argentina’s progress degree is 80%. The
express commitment of all leaders, guarantors of the compliance with the PoAs,
and the participation of trade unions in their implementation guarantee their
continuity, as well as the creation of the Corporate and Local PoA Office that
along with the claims channels allow the essential knowledge and the
participation and involvement of all collaborators in order to ensure the
appropriate compliance with these principles.
The V Annual Report on Corporate
Responsibility assesses the goals set in 2007, highlights the compliance with
the company’s “Principles of Action”; the agreements entered into with trade
unions; customer perception and satisfaction rates, and also perception and
satisfaction rates
among
employees,
who entered into
a “flexible schedule" policy in
accordance with various initiatives and benefits; plus the continuity of
training programs and the granting of scholarships.
Furthermore, the Report includes
detailed analysis of issues related to the implementation of the responsible
purchases policy; quality management processes together with Small and Medium
Enterprises, with the
release
of the “Principles of Action” in the
chain of value
and
the
environmen
tal
subject
and
the
Quality Certification under the ISO
9001:2000 standard in Commercial Centers.
It also shows the Fundación
Telefónica
’s programs
performance
(Proniño,
EducaRed, Voluntarios Telefónica, Forum, Arte y Tecnología),
which are the Company’s
social and strategic engine. This
document is an essential tool for the
Company’s
Corporate Responsibility
management, which
undertakes new commitments at
international level in order to promote the use and development of Information
Technologies and Communications by children and teenagers, also
promoting
digital inclusion. The full report can
be accessed at
www.telefonica.com.ar/rc08
.
SERVICE
AND MARKET CUSTOMERS
Residential
customers
The Residential
Customers segment, which represents our traditional business, is specialized in
providing basic telephone and broadband services focused on households,
pensioners and public telephones.
In 2009, the unit
strategy was to achieve a valuable, competitive, and differential proposal based
on products and services integration, highly focused in quality and customer
experience.
Regarding this, certain initiatives were
implemented such as Virtual Hold in the 112 Customer Service process (consisting
on informing the waiting time the customer will have, telling them that they
will be called by commercial representatives) and the On Line Channel portal
(communication channel associated to Internet and Web 2.0, through which
customers are commercially involved in all of the business processes: pre-sale,
sale, and post-sale, with more benefits), among others.
Telefónica launched
the Digital Invoice service, which allows customers to see and pay their
invoices through the web without printing them, and also to join the free
expiration notice service. This initiative is also aimed at cooperating with the
protection of the environment, reducing the use of paper.
In order to get a closer relation with
customers, through greater interaction and specialized service, the Company has
opened the Business Centers of Lomas de Zamora, San Justo, Quilmes and Morón,
offering an exclusive place for customers to test all the products and services
offered by the
Unaudited
Information
Company, meet the
latest technologies and solve all concerns and procedures regarding fixed and
mobile communications.
Reaffirming our
commitment to Quality Management and ongoing improvement, the Customers Service,
Sales and Cash processes at the Business Centers were recertified under ISO
9001: 2000 standard.
All of the above resulted in an increase of the
General Satisfaction of Residential Customers rate (ISC) up to 7.1 in December
2009, from 6.5 in 2008.
Basic
telephony services
Despite 2009’s
inflationary context, which had a strong impact on costs, and the steady
increase of mobile telephony in residential customers, the final Basic Telephony
plant was maintained in 3.8 million lines, while revenues increased
8.2%.
The main growth levers activated throughout the
year were: contention of service cancellations due to lack of payment (with
retention plans customized according to the needs of each customer sub-segment),
creation of new lines integrating services and value development for
customers through traffic packetizing offers and the opportunity to upgrade to
new products such as Flat Control Line with calls to cellular phones (fixed
charge line that allows urban, interurban, international and cellular telephone
calls).
Thus, an improvement in the products mix is
seen, increasing from 26% of prepaid lines (Cero, Medida and Control Lines) in
December 2008, to 22% in December 2009, as well as a 8.3% ARPU increase, having
reached an $ 44.0 monthly average value per line in 2009.
The penetration of Free lines with no credit
limit packages also had a significant rise: local traffic increased to 77% in
December 2009 from 66% in December 2008, and long distance traffic to 21.4% from
14.5%, respectively.
The Flat Rates final plant increased 38.1%
interannually reaching 0.9 million of TPL (Local Flat Rate) packages, 1 million
TPLL (Flat Rate per Local Call) packages, 0.3 million TPLL LD (Flat Rate per
Long Distance Call) packages, and 0.1 million TPL LD (Flat Rate per Distance
Call) packages, proving these products’ success on helping to shield business
revenues.
Internet
services
Throughout this
year, the strategy was focused on enhancing the Telecommunication sector by
promoting digital inclusion, education and technological training, and the
extension of connectivity. In this way, and supported by the 2.0 web concept,
Speedy has been adapted to the new customers needs positioning the product’s
differentiating attributes offer: greater uploading speed, greater international
speed and the possibility of sharing contents through the net without
restrictions. Thus, it was reached 1,099,059 ADSL lines, with a penetration over
Basic Telephony lines of 29% in 2009 versus 25% in 2008.
Throughout 2009, in order to increase
customer’s satisfaction by developing an integrated and segmented services
proposal according to their requirements, the Wi-Fi modem’s self-installation
kit was implemented (the installation of the wireless solution conducted by the
customer). By launching Sonora (it allows users to play music files when they
want with no prior download) and repositioning Aula 365 (first Iberoamerican
educational social network which reached 263,000 customers in December 2009)
among other actions, the Broadband Value Added Services offer was renewed,
achieving a penetration per customer of 30%. The Company has also conducted
speed multiplication campaigns which resulted in 79% of the ADSL plant with 1
Mega Byte (“MB”) or more in December 2009 versus 69% in December
2008.
In July 2009,
coincidentally with school winter break that was extended to prevent Influenza A
spreading, the Company announced the opening of its educational contents for all
society through “Aula 365 Speedy”. Only in the first six days from the
announcement of this decision, the educational website reached 120,000 visits,
and over 500 thousand pages were browsed, thus reflecting a massive social
acceptance.
In the second half of the fiscal year the
Company launched the TRIO product (package that includes Speedy + flat rate for
local calls + digital television service) based on a commercial agreement signed
with DirecTV. This, in addition to DUO customers plant (Speedy + TPL), have
allowed Telefónica to
Unaudited
Information
reach a package
penetration of 76.3% over the Speedy plant, strengthening its goal of becoming a
Broadband company and ensuring customer loyalty through a competitive
proposal.
All of these actions helped to increase the
ADSL ARPU (monthly average revenue per user) in +$ 11.9, to reduce the churn
(average cancellations per month over the average plant) and to consolidate the
leadership in Broadband, DUOs (Broadband + Voice) and TRIOs (Broadband + Voice +
TV) with 31.6% country market share, and 70% in the southern area in December
2009.
Public
telephones
Despite the
negative framework as a result of the mobile telephony market solid growth and
the reduction of the profitability margins at sale points (with increases in
fixed costs and frozen tariffs), Public Telephony revenues were reduced only by
6.2% as regards 2008, compared to the 19.6% reduction recorded in the previous
fiscal year, increasing, in turn, the fixed income percentage
portion.
In 2009, customer
loyalty and retention campaigns were conducted, improvements in the collection
and retention operating processes were implemented, and business agreements were
renewed and increased, reaching a final plant of approximately 88,500
lines.
In addition, the
Company kept encouraging international traffic supported by promotions offered
to foreign communities living in Argentina, thus increasing MOU (daily minute
average per line) of Booths by 11% as compared to 2008.
Business
Unit
The Business Unit
is specialized in Small and Medium Companies (“Pymes”), retail and professional
business, and it has achieved a revenues grew of 12% in 2009.
During 2009, the
Voice over Internet Protocol (VOIP) products marketing was extended, enabling
the possibility of having new alternative technologies to provide basic
telephony services, having reached the sale of 30% of new basic telephony lines
through this way. The computerized workstations concept was extended to the
mobile workstation that includes renting a laptop PC. Finally, the marketing of
the local voice flat rate, designed for Business clients was
extended, reaching a 29% penetration over the local packages plant,
which has enabled traffic shielding, the key to keep growing among the
traditional business, reducing traffic variations and increasing
revenues.
New Internet value
added services products were launched, such as Online branch, which enabled the
completion of the services offer to Business Unit customers, facilitating the
creation of a web site through friendly software and finally hosting the address
and launching it online.
Also, we developed
actions focused on personalized management per costumer, multiproduct sales,
which enabled us to improve the efficiency of contact sales, and also on
measures to improve churn and customers retention.
Finally, a new
Business Management model (RAVI 2.0) was developed and implemented, which helps
us to detect our customer's consumption needs, creating a new way of
communication with our customers.
Wholesale
B
usiness
This segment of
customers is composed of other Carriers and Telecommunications Services
suppliers comprise, in addition to their product and services offerings for
retail markets a highly competitive market in capacity and capillarity of the
networks available.
The wholesale
solutions portfolio for these customers consists, besides the mandatory
interconnection offers, in the supply of products and services voluntarily
offered (such as digital direct lines, long-distance carriage, point-to-point
transmission links, IP traffic, among others) which represents over 70% of
direct revenues from this segment and whose relative weight and evolution
indicate a growing trend in long-term.
In 2009 a sustained
growth for the fourth year in a row was maintained, driven mainly
by:
|
|
§
|
Connectivity
and infrastructure needs of the mobile telephony sector with their
deployment of networks to offer web access to their customers and the
ongoing growth of voice and data
traffic.
|
|
|
§
|
The
capitalization of opportunities arising from the growing supply of broad
band Internet access driven by the customers increasing demand of more
speed through the development of specific products (IP Traffic, Megaline,
etc.) whose growing broadband and links demand consolidated a significant
share in this business revenues in the last
years.
|
Corporate
Business
Corporate Business
is specialized in the service for Large Companies and Government agencies, with
a new Fixed Telephony and IT converging services offer.
During 2009, it
achieved a revenue growth of 10.4%. In order to achieve this growth, it was
essential the marketing of high value-added solutions, such as Managed Telephony
Services and Vertical Solutions for Health and Government sectors. Additionally,
the business kept deploying MPLS data network services, maintaining its
leadership and increasing its market share in the number of links and in
bandwidth.
Fifteen new product
were launched, boosting the growth of the chain of value. All of them are part
of our converging offer, integrating Fixed Telecommunications and IT services.
These products ensure our strategic position for 2010.
Finally, we beat
the competition regarding to customers satisfaction. This differentiation factor
is based on the customer service provided by our commercial, engineering and
post-sale team.
Network and systems
services
During this year,
the Company strengthened the technological efforts aimed at the convergence of
new generation networks. In this sense, the Company continued to implement
networks allowing it to accomplish its mission to become a broad band company.
Systems efforts were focused on an agile support, that allows a dyamic and
adaptable management to ongoing changes.
Networks
Digital
Links
Redundant Long-Distance Transport
Layer
We are continuing
with the deployment of the optical layer on technology Dense Wavelength Divider
Multiplexer (“DWDM”) and Automatically Switched Optical Network (“ASON”), both
with New Generation functionalities.
Securing
Several links have
been secured through different paths. For instance, San Juan-Mendoza, and the
deployment in long distance DWDM technology between Tucumán, Salta and
Jujuy.
A ring has been
built in the Argentine Northwestern, also in long distance DWDM technology that
links Córdoba and Tucumán, through our own fiber optic network.
Other
Reorganizations
Several links were
completed and several extensions were finished in 1 Lambda (10 Gb/s) Long
Distance DWDM technology, enabling the extension of the Interurban Transport
Network available capacity throughout the country. Also, the available
capacities in the Transport Network were extended with Synchronous Digital
Hierarchy (“SDH”) equipment, increasing the Ring capacity from 2.5 Gb/s to 10
Gb/s or from 622 Mb/s to 2.5
Gb/s.
The Interurban Long
Distance DWDM Chains network was extended, increasing the capacity (bandwidth)
between Chivilcoy – Santa Rosa – Trenque Lauquen – Villa Mercedes transmission
nodes and also those between Trenque Lauquen and Bahía Blanca, through Coronel
Suárez.
All of these works
are aimed to cover the demand’s requirements and different products and
services’ sale plans.
ADSL Deployment
Continuing with
ADSL deployment and as part of the plan for fiscal year 2009, 185,437 ports were
installed in 287 switches, activating during the fiscal year 20 new switches.
This increased the plant to a total of 1,413,748 ports installed, achieving a
plant efficiency represented by a vacancy of 5.6%.
Development of new generation networks
(“NGN”)
Fiber Optic
networks and Lan to Lan links were carried out in the access from our Switches
to Mobile Operators locations.
Works were
completed in 959 2MB/s links between extensions and new links to increase the
service provided at Radiobases that already had such connection to our
network.
Regarding the IP
network, 40 Fast Ethernet links were completed to provide Voice over IP (VOIP),
and also 1 GB Ethernet links to the Mobile Broadband service.
Regarding the
connection between our switches and those from Mobile Operators, five 10 GB
Ethernet and forty five 1 GB Ethernet transmission links were
installed.
Technological
evolution is leading communication network architecture towards the called NGNs.
These new networks allow the convergence of services as they handle electric
signals encoded into pulses and conveyed as packets. It is thus possible to
provide Telephony, Internet, Data and value-added services through the same
transmission network.
The traditional
telephony network is gradually migrating towards this technology, and during
2006 secured control and management centers were established in Buenos Aires and
several cities in Argentina. As of December 31, 2009, it was reached 33%
coverage in NGN technology over the Telephony Transport Network total for vocal
traffic.
We
have launched the VOIP service (fully packetized telephony service), we have
reached the first 10,000 customers, and we have a fast growth expectation for
upcoming years.
Network and Service
Management Integrated System
(“
SIGRES”)
The deployment of
SIGRES is being developed in order to include current services and to add new
services. Among others, services such as Speedy, VDSL and VoIP. Additionally, we
are in the process of developing new Fiber Optic technologies.
SIGRES is a
systemic solution for network and service management. This is a fully flexible
solution, which allows work in successive phases to expand the system and keep
pace with technological changes and customer demands. In an economic environment
with continuous challenges it is extremely important to have access to solutions
that maximize network and customer service efficiency. This solution covers
every aspect of the Operation Support System (“OSS”), and is based on the
Telecommunication Management Forum (“TMF”) model. It is currently being
implemented throughout the Telefónica Group’s Operators (Brazil, Chile, Peru,
Colombia and Argentina).
The benefits
offered by SIGRES include an integrated view of the network, automation of
engineering processes, increased proactiveness, improvement in quality perceived
by customers, reduced times to repair, and a single management system that
integrates events from various network elements and different technologies,
among others.
Technical
Relationships Portal
Related to a
unified portal (Front-end) that enables to manage with a unique vision all
technical and operational aspects, interrelating them in a cross and global
vision.
Its implementation
enables to respond differentially customers according to their segment,
improving the operational efficiency on technical areas, increasing customer
satisfaction, improving post sale and technical assistance processes,
integrating information between management, support and operation
areas.
Systems
Hardware
and Software Acquisition
A deep renovation
and conversion of computer systems and elements has started, improving
timeframes and processes both in critical business points and internal
processes.
It includes the
renovation of 25% of computers, workstation portability for Managers through
lightweight PCs (laptops).
Also we have
renovated critical servers for processes, Proxy servers that optimize Internet
access and other platforms with direct impact on the Company’s business units
and finally on the customer.
On
Line Channel
The development of
this new application enables the unification of Telefónica’s portals in order to
present in one place a variety of possibilities, from the invoice displaying, to
consult available offers, verification of processes and, in the future, sales
managment and administrative processes.
The portal is built
in stages, increasing the different available functions and it integrates with
the applications in order to automatize end-user operations, reducing
simultaneously the time it takes to customers to reach the solutions offered and
the related cost due to the reduction of manual intervention. Digital Invoice is
one of the development landmarks of On Line Channel, improving the capacity of
customers consultations regarding the contracted services and also to reduce
errors related to the distribution of invoices and operational costs. This
initiative is also aimed at cooperating with the environment care, reducing
paper use.
Collection
procedures
In 2009, Telefónica reached the
challenging levels budgeted
of overdue balances
at the beginning of the fiscal year,
focusing
in
considering
the growth of
business lines of the Company and also maintaining management expenses under
control.
The implementation of a new CRM
(Customer Relationship Management) system has enabled, among other aspects,
greater customer segmenta
tion and the application of new
specific and
differentiated
actions in order to improve the recovery
rate of
overdue
balances
.
The initially budgeted amount for
Management expenses was
maintained
based on changes in management and the
application of specific
actions.
The certification of collection
procedures under ISO 9001-2008 standards was also maintained in
2009,
for this
purpose
the management was
audited by the Instituto Argentino de Normalización y Certificación
(IRAM).
In the Business Unit, a redefinition of
the conditions for the incorporation of new customers was made, conciliating
objectives of
growth and collection
s
. Regarding Residential Customers, the
year ended with 20% less cancellations
for
lack of payment.
Significant
variables
|
|
|
Dec
-
31-05
|
|
Dec
-
31-06
|
|
Dec
-
31-0
7
|
|
Dec
-
31-0
8
|
|
Dec
-
31-0
9
|
|
Lines
installed
|
|
4
,
728
,
439
|
|
4
,
818
,
612
|
|
4
,
916
,
254
|
|
5,037,410
|
|
5,077,358
|
|
Lines in
service
|
|
4
,
534
,
844
|
|
4
,
638
,
914
|
|
4
,
591
,
681
|
|
4,605,723
|
|
4,610,234
|
|
Public
Telephones
|
|
120
,26
5
|
|
119
,
189
|
|
112
,
396
|
|
97,710
|
|
88,522
|
|
Total headcount
(
e
)
|
|
8
,
898
|
|
9
,
692
|
|
10
,06
2
|
|
10,708
|
|
10,666
|
|
Installed lines per employee
(a)
|
|
531
|
|
518
|
|
471
|
|
479
|
|
4
6
9
|
|
Lines in service per employee
(a)
|
|
5
10
|
|
47
9
|
|
440
|
|
438
|
|
426
|
|
Network digitalization
(%)
|
|
100
|
|
100
|
|
100
|
|
100
|
|
100
|
|
ADSL
|
|
301
,
902
|
|
515
,
612
|
|
816
,
264
|
|
1,078,966
|
|
1,235,974
|
|
Optical fiber cable
(kilometers)
|
|
18
,
511
|
|
20
,
679
|
|
21
,
272
|
|
21,750
|
|
21,860
|
|
Capital expenditures in the year
(c)
(d)
|
|
473
|
|
568
|
|
690
|
|
904
|
|
976
|
|
Net revenues (c)
(d)
|
|
3
,
367
|
|
3
,846
|
|
4
,
186
|
|
4,761
|
|
5,664
|
|
Net income
(loss) (c)
|
|
767
|
|
222
|
|
72
|
|
337
|
|
378
|
|
Solvency (b)
(d)
|
|
0.7
|
|
0.5
|
|
0.54
|
|
0.68
|
|
0.
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Considering total personnel
as of fiscal
year-end.
In 2008,
the headcount correspond
s
to consolidated
information of the Company with
TDA
S.A.
(See note 18. to the Company’s
financial statements).
|
|
(b)
|
Shareholders’ Equity to Total
liabilities from continuing
operations.
|
|
(c)
|
In millions of constant pesos (see
note 2.
1
. to the
Company’s
financial statements
)
.
|
|
(d)
|
In 2008 c
orresponds to consolidated
information of the Company
with
TDA
S.A.
See note 18. to the Company’s
financial
statements.
|
|
(e)
|
Average headcount of the fiscal
year.
|
ECONOMIC
AND FINANCIAL ISSUES
The
Strategic Plan
The Strategic Plan
is a tool essential for the Company to meet the objectives aimed at ensuring
maximum value generation in the long-term for all stakeholders (customers,
employees, shareholders and the society at large). Thus, the strategy deployed
by Telefónica is defined by means of a process that involves all the areas of
the Company and generates internal communication channels that encourage
thorough analysis, the contribution of ideas and a creative
attitude.
Telefónica, in
addition to its commitment of basic telephone service supply, has planned to
lead the digital revolution. Therefore, it aims on the satisfaction of its
customers and shareholders, the innovation of products and services, development
of contents and network and diversified businesses. All these actions are
included in a model that, from a business point of view, is articulated around
the traditional service leveraged in Broadband and Contents’ development and
always aimed to obtain profitable growth.
In this context,
Telefónica has been working on a deep commercial and operational transformation
seeking to position itself as a telecommunications services company that places
customer satisfaction in a key place to growth. This change process is reflected
today in Speedy’s sweeping leading position, the Broad Band of
Telefónica.
In order to
continue driving basic telephone service and broadband penetration, as well as
the development of new services, the Company will continue to increase the level
of investments to traditional basic telephone service and on Broad Band, with
the stress on contents and variety of value added services that can be supplied
on these services, such as contents, music and games.
Financing
policy and financial position
As of December 31,
2009, the Company's current assets are lower than its current liabilities by AR$
738 million.
The Company’s
general financing policy consists on covering future fund needs to continue its
investment plan and repay short and long-term debt mainly with funds generated
by the operations plus bank loans and/or access to capital markets and
ultimately applying for financing from the Company’s indirect parent
company.
In the fiscal year
ended December 31, 2009, investments in Fixed Assets and Intangible Assets
amounted to AR$ 976 million. For fiscal year 2010, the Company plans to invest
approximately AR$ 1,000 million. These are preliminary estimates and are based
on technical, economic and commercial factors, exchange rates, evolution of the
inflation rate, demand and availability of equipment and buildings.
As of December 31,
2009, Telefónica has financial and banking payables for the equivalent of AR$
1,126 million, of which AR$ 499 million are classified as non-current in the
balance sheet.
During 2009, as
well as in prior periods, the Company reduced gradually its financial
indebtedness by cancellations at maturity and repurchasing part of its
negotiable obligations (see note 10.2 to the Company’s financial statements).
The Company expects to settle or refinance successfully the remaining balance of
its indebtedness using internally-generated cash flows, as well as possible
additional issuances, possible refinancing options and/or other financing
alternatives that the Company may consider.
•
Negotiable obligations
program
As of December 31,
2009, there were two negotiable obligations series outstanding:
|
Issuance
Month/Year
|
Face
Value
as of
December 31, 2009
(in millions)
(b)
|
Term
(in
years)
|
Maturity
Month/
Year
|
Rate per
annum
(%)
|
Use of
proceeds
|
|
08/03
|
US$144.9
|
7
|
11/2010
|
9.125
|
a)
|
|
08/03
|
US$116.2
|
8
|
08/2011
|
8.85
|
a)
|
|
|
a)
|
Refinancing of
liabilities.
|
|
|
b)
|
Net of the
face value of negotiable obligations repurchased in 2009, which
to date, have not been
cancelled.
|
As of the date of
issuance of the Company’s Financial Statements, in the opinion of the Company’s
Management, the Company has met all the obligations arising from the financial
agreements.
The Company’s
Shareholders’ Meeting held on December 19, 2003 approved the creation of a
global program (the “Program”) for the issuance of simple negotiable obligations
not convertible into shares, denominated in pesos or in any other currency, with
ordinary guarantee, in various series and/or successive tranches, either
cumulative or non-cumulative, for a maximum outstanding amount of AR$ 1.5
billion or its equivalent amount in other currencies, and delegated to the Board
of Directors the ability to set the remaining issue conditions and to decide to
request or not authorization to quote in the BCBA and the MAE (automated
over-the-counter market in Argentina) and/or other foreign exchange markets. As
of December 31, 2009, there are no negotiable obligations outstanding under this
Program, which expired on April 23, 2009.
Comparative
balance sheet figures
|
Comparative balance sheet
figures
|
Comparative
(1)
|
|
(Restated as
described in note 2.1 to the Company’s financial statements)
|
200
9
|
200
8
|
|
|
|
|
|
|
|
Current
Assets
|
2,028
|
1
,
1
78
|
|
|
Noncurrent
Assets
|
4,934
|
5
,043
|
|
|
|
|
|
|
|
Goodwills
|
31
|
62
|
|
|
|
|
|
|
|
Total
Assets
|
6
,993
|
6
,
2
83
|
|
|
|
|
|
|
|
Current
Liabilities
|
2,766
|
1
,6
28
|
|
|
Noncurrent
Liabilities
|
1,304
|
2
,106
|
|
|
|
|
|
|
|
Net
liabilities from discontinued operations
|
7
|
11
|
|
|
|
|
|
|
|
Total
Liabilities
|
4,077
|
3,745
|
|
|
|
|
|
|
|
Shareholders´
Equity
|
2
,916
|
2
,538
|
|
|
|
|
|
|
|
Total Liabilities and
shareholders´ equity
|
6
,993
|
6
,
2
83
|
|
|
(1)
|
The Company
presents its balance sheet figures as of December 31, 2009, along with the
balances as of December 31, 2008, which include, for comparative purposes,
TDA S.A. balances as of that date (see note 2.5 to the Company’s financial
statements).
|
•
Analysis of main changes in balance sheet captions
Current assets
increased by AR$ 850 million or 72.2% in 2009 as compared to 2008. The main
variations were due to: (i) an increase in Investments of AR$ 651 million,
mainly due to deposits; (ii) an increase in trade receivables of AR$ 182
million, mainly due to the increase of billing and in provisions of accrued and
unbilled services, partially offset by the increase of the allowance for
doubtful accounts; (iii) an increase in Other Receivables of AR$ 22 million,
mainly due to an increase in guarantee deposits and other receivable balances,
partially offset by a decrease in prepayments to vendors. The increases in
current assets were partially offset by (iv) a decrease of AR$ 3 million, AR$ 1
million and AR$ 1 million in Cash, Inventories and Other assets,
respectively.
Non-current assets
as of fiscal year end decreased by AR$ 109 million or 2.2% as compared to 2008.
The main variation corresponds to: (i) a decrease in Fixed Assets of AR$ 97
million as a consequence of the net increase in depreciations, partially offset
by the effect of the TDA S.A.’s goodwill allocation; (ii) a decrease in Other
Receivables of AR$ 26 million, mainly due to the compensation of the credit of
minimum presumed income tax of TDA S.A., which is disclosed net of income tax
provision; (iii) a decrease in trade receivables of AR$ 1 million; partially
offset by (iv) an increase in Intangible Assets of AR$ 15 million.
The goodwill in
2009 decreased by AR$ 31 million or 50% as compared to 2008, as a consequence of
the TDA S.A.’s goodwill allocation (see note 2.2.h)).
Net liabilities
from discontinued operations decreased by AR$ 4 million in 2009 as compared to
2008, as a consequence of the elimination of the uncertainties over that amount
during the fiscal year (see note 13. to the Company’s financial
statements).
Current liabilities
in 2009 increased by AR$ 1,138 million or 69.9% as compared to 2008. Such
variation is mainly due to: (i) an increase in bank and financial payables of
AR$ 550 million, mainly due to the reclassification to short term of negotiable
obligations with maturity in November 2010, net of the cancellations made in
2009; (ii) an increase in trade payables of AR$ 320 million mainly due to the
Unaudited
Information
increase in
balances with suppliers; (iii) an increase in taxes payables of AR$ 234 million
mainly due to an increase in income tax liabilities; (iv) an increase in other
payables of AR$ 34 million, mainly due to an increase in liabilities of
financial instruments; (v) an increase in payroll and social security taxes
payable of AR$ 24 million; partially offset by a decrease in reserves of AR$ 24
million mainly due to contingencies payment.
Non-current
liabilities in 2009 decreased by AR$ 802 million or 38.1% as compared to 2008.
The main reasons of the variation correspond to: (i) a decrease in bank and
financial payables of AR$ 744 million mainly due to the reclassification to
short term of debt with maturity in November 2010, mainly corresponding to
negotiable obligations; (ii) a decrease in taxes payables of AR$ 107 million as
a consequence of the decrease in net deferred tax liabilities; (iii) a decrease
in payroll and social security taxes payable of AR$ 1 million; partially offset
by (iv) an increase in reserves of AR$ 35 million due to contingencies charges
and (v) an increase of AR$ 14 million and AR$ 1 million in trade payables and
other payables, respectively.
Net
income for the fiscal year
|
Net
income for the fiscal year
|
Comparative
(1)
|
|
(Restated as
described in note 2.1 to the Company’s financial statements)
|
2009
|
2008
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
|
|
Net
Revenues
|
5,664
|
4,761
|
|
|
Cost of
Services provided, Administrative and Selling Expenses
|
(4,644)
|
(3,827)
|
|
|
Other
expenses, Net
|
(162)
|
(168)
|
|
|
Financial
expense and holding losses
|
(285)
|
(224)
|
|
|
Net income
before income tax
|
573
|
542
|
|
|
|
|
|
|
|
Income
Tax
|
(199)
|
(205)
|
|
|
Net income for the fiscal year
from continuing operations
|
374
|
337
|
|
|
|
|
|
|
|
Income from discontinued
operations
|
4
|
-
|
|
|
|
|
|
|
|
Net income
for the fiscal year
|
378
|
337
|
|
|
(1)
|
The Company
presents its statement of operations figures as of December 31, 2009,
along with the figures as of December 31, 2008, which include, for
comparative purposes, TDA S.A. figures as from the acquisition date (see
note 2.5 to the Company’s financial
statements).
|
|
·
|
Analysis of main changes in
statement of operations captions
(restated as described in Note 2.1
to the Company’s Financial
Statements).
|
Net income for the
fiscal years ended as of December 31, 2009 and 2008 was AR$ 378 million, and AR$
337 million, respectively, broken down as follows:
|
|
§
|
Net revenues
were AR$ 5,664 million in fiscal year 2009, which compared to AR$ 4,761
million in fiscal year 2008 represented a AR$ 903 million increase or
19.0%. The main increases were observed in special services for AR$ 705
million, basic telephone services for AR$ 187 million, international
long-distance service for AR$ 28 million and other for AR$ 19 million,
partially offset by a decrease in direct lines for AR$ 17 million, public
phones for AR$ 13 million and access charges for AR$ 6
million.
|
|
|
§
|
Cost of
services provided, administrative and selling expenses amounted to AR$
4,644 million in fiscal year 2009, which compared to AR$ 3,827 million in
fiscal year 2008 represent a AR$ 817 million increase, or 21.3%. The main
variations were due to an increase in fees and payments for services of
AR$ 341 million, salaries and social security charges of AR$ 274 million
resulting from an increase in salaries granted by the Company, taxes for
AR$ 51 million, brand license fee for AR$ 29 million, material consumption
and other expenditures for AR$ 26 million, amortization of fixed assets
and intangible assets for AR$ 35 million, allowance for doubtful accounts
for AR$ 24 million, other for AR$ 59 million, partially offset by a
decrease in management fee of AR$ 22
million.
|
|
|
§
|
Other
expenses, net, amounted to AR$ 162 million in 2009, which compared to AR$
168 million in 2008 represented a AR$ 6 million decrease or 3.6%. The main
variations were due to a decrease in the employee termination charges and
other expenses of AR$ 42 million and AR$ 38 million, respectively,
partially offset by an increase in contingencies of AR$ 64 million and net
book value of fixed assets retired charges of AR$ 10
million.
|
|
|
§
|
Net financial
income and losses amounted to a loss of AR$ 285 million in fiscal year
2009, which compared to the loss of AR$ 224 million in fiscal year 2008,
represents an increase of the losses of AR$ 61 million. This variation was
mainly due to: (i) AR$ 82 million increase in holding loss from financial
instruments and AR$ 3 million in the loss from exchange differences,
partially offset by (ii) a decrease in interest and net financial charges
of AR$ 9 million, mainly due to a decrease in financial payables; (iii) a
decrease in the loss from government securities and other of AR$ 15
million.
|
|
|
§
|
The charge
for income tax as of December 31, 2009 and 2008 amounted to AR$ 199
million and AR$ 205 million, respectively. The variation is mainly due to
the increase in net income as of December 2009 as compared to December
2008.
|
For further
details, see the operating and financial review and prospects accompanying the
financial statements for the fiscal year ended December 31, 2009.
Proposed
income (loss) appropriation
|
·
|
Unappropriated
income as per the Financial Statements as of December 31, 2008 approved on
February 16, 2009
|
|
336,651,200
|
|
|
|
|
|
|
·
|
Appropriation
of retained earnings as approved by the Ordinary Shareholders’ Meeting
Special Class A and B Shareholders’ Meeting held on April 20,
2009:
|
|
|
|
|
|
|
|
|
|
– To Legal
Reserve
|
|
(336,651,200)
|
|
|
|
|
|
|
With the
purpose of complying to restore the absorbed Legal Reserve decided in the
General Ordinary and Special Shareholders’ Meeting held on April 21, 2006,
and up to reach the 20% of the capital stock, plus the balance recorded
under the comprehensive adjustment to capital stock account, and
considering the criteria of the CNV, in addition to the appropriation to
legal reserve of the entire net income of the year 2008, and in order to
complete the mentioned restore of the absorbed legal reserve, the
mentioned Shareholders’ Meeting disaffected $ 30,219,216 from the Reserve
for future dividends and allocated them to Legal
Reserve.
|
|
§
|
Net income of
the fiscal year
|
|
377,634,540
|
|
|
|
|
=============
|
|
|
|
|
|
|
§
|
Unappropriated
income as of December 31, 2009
|
|
377,634,540
|
|
|
|
|
|
|
The Board of
Directors submits the following appropriation of retained earnings for the
consideration of the Shareholders’ meeting:
|
|
|
|
|
|
|
Reserve for
future dividends
|
|
377,634,540
|
Proposed
Directors and Supervisory Committee fees
The Board of
Directors proposes that fees be approved for its members in this fiscal year for
the amount of AR$ 5,552,346 (Argentine Pesos five million, five hundred and
fifty-two thousand, three hundred and forty-six), which includes the amounts
that reflect compliance with technical and administrative duties. Additionally,
it proposes that payment of fees to the Supervisory Committee should be for the
amount of AR$ 465,750 (Argentine Pesos four hundred and sixty-five thousand,
seven hundred and fifty).
In addition, the
Board of Directors proposes that fees be approved for the members of TDA S.A.
board of directors, for the period January-April 2009 for the amount of AR$
695,410 (Argentine pesos six hundred and ninety-five thousand four hundred and
ten), which includes the amounts that reflect compliance with technical and
administrative duties, and proposes that payment of fees to the Supervisory
Committee for the same period should be for the amount of AR$ 42,000 (forty two
thousand pesos).
The compensation to
the Board of Directors as proposed takes into consideration the respective
duties of the members, their competencies and other parameters as mentioned in
section 261 of the Companies Law and in section 2, sub-section d), Chapter III,
Book I of General Resolution No. 368/01 of the CNV.
PROSPECTS
In the 2001 post
crisis scenario, where the companies reacted by carrying out liability
restructurings, mergers and acquisitions, the Company faced extraordinary
challenges, focusing its decisions in the generation and protection of its cash
flows and in the fulfillment of its commitments.
Since 2003, the
economy growth facilitated a gradual recovery of the telecommunications services
demand, raising the consumption and favoring the development of new services,
such as broadband, in a highly competitive environment.
The Company’s
results of operations are sensitive to changes in the peso/ U.S. dollar exchange
rate due to its primary assets and revenues are denominated in pesos while 36%
of its total liabilities are denominated in foreign currency.
In this scenario,
the Company has defined the following management priorities for the short and
medium term, in order to reach its vision of “Improving people’s lives,
facilitate business and contribute to communities progress in which we operate
by supplying innovating services based on Information Technologies and
communications”:
|
|
·
|
To continue
developing the traditional basic telephone service and to add new value
added services for the residential segment, small and medium companies,
large companies and the Government;
|
|
|
·
|
Becoming a
2.0 company, leading Internet growth opportunities by developing
broadband, considered to be the main lever for growth in the residential
segment. The growth plan launched by the Company has allowed it to
consolidate its leading position in the area where it is the incumbent,
maintaining quality and service standards comparable to the most developed
markets around the world and has succeeded in overcoming the challenge of
exceeding 1.2 million broadband’s customers in
2009;
|
|
|
·
|
To continue
adding value through an added-value services offer over broadband,
enhancing the contents and variety of multimedia services, and developing
commercial alliances with third parties to continue
improving the value proposal offered to
customers;
|
|
|
·
|
To continue
investing in the capacity of our network to increase the broadband
connection speeds, incorporating new technologies such as VDSL and
fiber;
|
|
|
·
|
To
consolidate the Company as a comprehensive supplier for corporate
customers, i.e., with a vision focused on integrated solutions based on
information technology, adapted to the needs of different sectors of the
economy;
|
|
|
·
|
To drive
forward the Company’s conversion into an organization focused on, and
committed to, the customer and to quality, through continued improvement
in customer satisfaction;
|
|
|
·
|
To develop
our human capital resources in order to consolidate our position among the
best companies to work for in
Argentina;
|
|
|
·
|
To promote
the development of an innovation-oriented
culture;
|
|
|
·
|
To optimize
resource use by simplifying processes focused on customers and generating
efficiencies at the operational
level;
|
|
|
·
|
To continue
with an adequate cash management, honoring commitments assumed;
and
|
|
|
·
|
To contribute
to Argentina’s economic and social development by reinforcing the
Company’s positioning as a strategic ally of the
country.
|
In summary, the
Company’s long term business strategy consist in keeping and improving its
position in the competitive Argentine telecommunications market. This strategy
implies the innovation in the development of new offers of telecommunication
services, in traditional services plus broadband and others, for corporate and
residential customers.
In this line, the
Company will continue to invest substantial resources expecting to invest in
2010 over one billion in fixed service and in Broadband, empowering the contents
and variety of the value added multimedia services that may be supplied with
that service, as well as, in training and personnel development and in incentive
programs to reduce costs and improve efficiency.
The Company
considers that the implementation of these short- and long-term business
strategies will continue having a positive impact on the competitiveness of its
telecommunications activities, reducing the adverse effects of growing
competition.
ACKNOWLEDGMENT
We have reached the
objectives of the year thanks to the effort and commitment of all members of the
Company, who provided an excellent service from all business lines, ensuring the
quality on the services provided and responding to the customers’
needs.
Our collaborators
are without question the center, engine and key element of the success of our
organization.
We have set the
commitment to be a customer-oriented company. For this reason, our vision
consist on improving people’s lives, facilitating the development of businesses,
and contributing to the progress of the communities in which we operate,
providing them innovative services based on information and communications
technologies.
I want to thank all
employees who are part of the Telefónica Group for their collaboration during
this fiscal year; our customers, for trusting us; and our suppliers, for
supporting us during fiscal year 2009.
Buenos
Aires
February 15,
2010
|
|
EDUARDO FERNANDO
CARIDE
|
|
|
|
|
|
CHAIRMAN
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
Telefónica
de Argentina S.A.
|
|
|
Date:
|
March
25, 2010
|
|
By:
|
/s/
Pablo Luis Llauró
|
|
|
|
|
|
|
Name:
|
Pablo
Luis Llauró
|
|
|
|
|
|
|
Title:
|
Assistant
General Counsel
|
|