This excerpt taken from the TEF 20-F filed Apr 12, 2006.
Cash Flow Analysis
The table below sets forth consolidated cash flow information for the periods indicated. Positive figures refer to cash inflows and negative figures or those in parentheses refer to cash outflows.
Net cash provided by operating activities increased 9.9% to 11,139.1 million in 2005 from 10,131.1 million in 2004. This growth in 2005 was mainly due to an increase in cash receipts from customers, offset in part by an increase in cash paid to suppliers and employees and taxes paid.
Cash receipts from customers increased 22.0% to 44,353.1 million in 2005 from 36,367.1 in 2004. This increase was mainly due to the consolidation of Cesky Telecom and the Argentine and Chilean mobile operators acquired from BellSouth in January 2005.
Cash paid to suppliers and employees increased 23.7% to 30,531.5 million in 2005 from 24,674.1 in 2004. These higher outflows were mainly due to the increase in advertising expenses and handset purchases for the promotional efforts made by the Telefónica Group and the consolidation of Cesky Telecom and the Argentine and Chilean mobile operators acquired from BellSouth in January 2005. Payments to employees increased as a result of the increase in the Groups average number of employees.
Taxes paid increased significantly to 1,233.0 million in 2005 from 326.0 million in 2004. This variation was mainly due to an increase in taxes paid in Brazil as a result of the expiration of certain tax credits.
As a result, cash inflow from operating activities (which is subtotal of cash receipts from customers minus cash paid to suppliers and employees and minus income taxes paid) increased 10.7% to 12,588.6 million in 2005 from 11,367.0 million in 2004.
Net interest and other financial expenses paid increased 16.3% to 1,520.0 million in 2005 from 1,307.1 million in 2004, principally due to an increase in the Groups average net financial debt in 2005 compared to 2004.
Net cash used in investing activities increased to 9,592.0 million in 2005 from 5,808.2 million in 2004, mainly due to an increase in payments on investments in companies, net of cash and cash equivalents acquired and payments on investments in property, plant and equipment and intangible assets and a decrease in interest received on excess cash not included under cash and cash equivalents.
Payments on investments in companies, net of cash and cash equivalents acquired increased 56.4% to 6,571.4 million in 2005 from 4,201.6 million in 2004. Our main investments in companies in 2005 were 912.7 million for the acquisition of the mobile operators in Chile and Argentina from BellSouth for 3,662.5 million for the acquisition of Cesky Telecom, 1,265.8 million for the acquisition of 4.97% of the shares of O2 and 424.5 million for the acquisition of a minority stake in China Netcom. Our main investments in companies in 2004 were 208.7 million related to tender offers to increase our interests in the Brasilcel subsidiaries, 3,179.4 million for the acquisition of the BellSouths operators in Latin America (other than in Chile and Argentina, which we acquired in 2005) and 483.7 million for the acquisition of additional Portugal Telecom shares.
Payments on investments in property, plant and equipment and intangible assets increased 26.8% to 4,423.2 million in 2005 from 3,488.2 million in 2004, principally due to an increase at Telefónica de España as a result of the expansion of its broadband business, Telefónica Latinoamérica as a result of the expansion of its broadband and fixed line telephony business, Telefónica Móviles as a result of network upgrades and the roll-out of its GSM network the investment made in Distrito C (the future Telefónica Group headquarters in Madrid).
Interest received on excess cash not included under cash and cash equivalents decreased 45.1% to 625.2 million in 2005 from 1,139.5 million in 2004, principally due to lower levels of excess cash in 2005 as a result of our increased investing activity in 2005.
Net cash used in financing activities decreased to 434.7 million in 2005 from 3,936.6 million in 2004. This decrease was due principally to the increase in proceeds, net of repayments, from loans, credits and promissory notes, to 7,209.4 million in 2005 from 2,085.3 in 2004 offset in part by the increase in cancellation of debentures and bonds redeemed, net of proceeds, to 2,821.4 million in 2005 from 1,217.6 in 2004.