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Press release from Business Wire

Telefónica Reports a Significant Improvement in Net Profit and OIBDA in the Second Quarter Compared to the First Three Months of 2012

<p> <span class='bwuline'>The customer base increased by 6% year-on-year in 1H12, with 312 million accesses</span> </p> <p> <i>The company reported net profit of 2,075 million euros in the first half of 2012, 1,327 million euros in the second quarter, and consolidated OIBDA of 10,431 million euros in the first six months, rising 5.3% between April and June compared to the previous quarter.</i> </p> <ul> <li class='bwlistitemmargb'> The improvement in consolidated OIBDA is due mainly to the performance of Telefónica España, where profitability increased in the second quarter of the year (vs.Q1). Telefónica España reported OIBDA of 1,718 million euros between April and June, an increase of 3% compared to the previous quarter, with significant margin growth (45% in 2Q2012 vs. 42.8% in 1Q2012). </li> <li class='bwlistitemmargb'> At the operating level, mobile broadband accesses rose 51% to 44.9 MBB accesses at the end of the first half, signalling a penetration rate of 18% in the mobile customer base (243.5 million, +7%). Contract mobile accesses grew +8% year-on-year to 78.5 million, while fixed broadband and pay TV accesses stood at 18.4 million and 3.3 million, respectively. </li> <li class='bwlistitemmargb'> Its high degree of diversification is one of the company's strengths: Telefónica Latinoamérica continues to drive growth, contributing 48% of consolidated revenue and accounting for 50% of Group OIBDA. In Europe, highlights include the sound results achieved in Germany, with growth across all main operating and financial areas. </li> <li class='bwlistitemmargb'> Telefónica is making efficiency improvements on a quarterly basis, reporting an OIBDA margin of 33.7% (34.6% in the second quarter). Operating income totalled 5,300 million euros at the end of June. </li> <li class='bwlistitemmargb'> The proactive financing policy during the first half of the year and the adjustment in shareholder remuneration policy enable the Company to have debt maturities covered till the end of 2013. </li> <li class='bwlistitemmargb'> The company invested 11.8% of revenue, especially in projects aimed at growth and transformation. Therefore, between January and June, the Group has invested 3,658 million euros, used mainly to grow its high-speed broadband businesses (both fixed and mobile). </li> </ul>

Wednesday, July 25, 2012

Telefónica Reports a Significant Improvement in Net Profit and OIBDA in the Second Quarter Compared to the First Three Months of 201214:36 EDT Wednesday, July 25, 2012 MADRID (Business Wire) -- The Telefónica Group (NYSE: TEF) (LSE: TDE) presented its first half 2012 results today. In the second quarter, net profit and OIBDA were significantly higher than in the first three months of the year. Therefore, at the end of June, the company reported net profit of 2,075 million euros, 1,327 million euros in the second quarter, and consolidated OIBDA of 10,431 million euros in the first six months, growing +5.3% between April and June compared to the previous quarter. At today's results release, Telefónica chairman, César Alierta, discussed these figures, pointing out that “Telefónica's second quarter results showed an improvement quarter-on-quarter, especially at OIBDA level.”, thanks to the strict cost containment measures, while at the same time highlighting “the strong diversification of our business”, which remains key to growth, “with an increasing contribution from Telefónica Latinoamérica to consolidated results”. Further, Alierta underlined the advances made in Telefónica España, where the changes implemented are leading to “increased efficiency and improved profitability, with quarter-on-quarter growth in OIBDA”. In the first half of 2012, Telefónica's results were significantly impacted by the difficult trading environment in key countries, including adverse economic conditions, intense competition and the negative effects of regulation. Against this backdrop, the Company's highly diversified portfolio and the increasing contribution of Latin America and Germany, where solid growth is maintained, are the key levers to offset the performance in the rest of Europe. Nevertheless, second quarter results showed a better OIBDA performance with quarter-on-quarter growth across regions and a sequential quarter-on-quarter OIBDA margin expansion, leveraging on cost contention initiatives across regions, being particularly noteworthy the return to positive quarter-on-quarter OIBDA growth in Telefónica España. In this regard, since the beginning of the year the Company announced a number of significant initiatives focusing on maximising efficiency and improving profitability that will result in strong benefits for the whole market. As such, it should be highlighted the introduction of a new commercial model in Spain, with handset subsidies' removal in new customer acquisition. This will result in a strong commercial expenses reduction, with net savings already visible. In this sense, handset subsidies were gradually reduced in the UK in the second quarter of the year. Additionally, in the UK and Mexico network sharing agreements with other operators were recently signed, which will lead to further savings in the coming years. In parallel, the Company has achieved relevant progress to capture new opportunities in the digital world, reaching important agreements in relation to M2M, Security, Cloud and Financial Services. Telefónica reported revenue of 30,980 million euros to June, with consolidated OIBDA of 10,431 million euros and an OIBDA margin of 33.7%. Operating income totalled 5,300 million euros at the end of June. Consolidated net profit stood at 2,075 million euros. In underlying terms, i.e. excluding exceptional impacts, net profit was 2,818 million euros between January and June. January-June performance allows the Company to reiterate its year-end targets for OIBDA margin and CapEx to Sales ratio. However, due to the weaker than anticipated economic conditions in some countries and a stronger negative impact from regulation than envisaged, the Company has updated its revenue guidance and now expects to deliver flat to positive revenue growth in current euros in 2012. Increase in customer numbers, driven by mobile accessesTotal accesses increased by 6% year-on-year to 312 million by the end of June 2012, driven by the mobile segment (+7% year-on-year). Mobile net additions in the first half totalled 8.3 million (excluding 3.6 million mobile accesses disconnections in Spain and Brazil), up 18% year-on-year. Contract mobile accesses grew 8% year-on-year, accounting for 32% of total mobile accesses. The Company's mobile broadband accesses posted a solid growth of 51% year-on-year to 44.9 million at the end of the first half, accounting for 18% of mobile accesses (+5 percentage points year-on-year). It should be highlighted the continued smartphone adoption by our customers (with attached data tariffs), with 6.9 million net additions in the first half. Out of this amount, 4.8 million came from Latin America doubling the net additions registered in the same period of 2011. Telefónica's retail fixed broadband accesses increased 5% year-on-year to 18.4 million at the end of June 2012, with 364 thousand net additions (89 thousand in the second quarter), with a sustained growth of Telefónica Latinoamérica accesses. By regions, Telefónica Latinoamérica's total access base grew 10% year-on-year, after recording 8.5 million mobile net additions during the first half of the year (excluding the disconnections mentioned above), up 36% year-on-year. Analysis of the income statementRevenues in the first half of 2012 totalled 30,980 million euros, with a year-on-year growth of 0.3%, underpinned by higher sales at Telefónica Latinoamérica (+7% year-on-year), which more than offset the lower revenues from the European operations (-6.1% year-on-year). Excluding the negative impact of lower mobile termination rates, revenues rose 1.5% year-on-year. Exchange rate fluctuations contributed with 0.8 percentage points to the growth. The Company's focus in capturing the high-growth in the mobile data business was reflected in the sustained growth of mobile data revenues (+15.7% year-on-year), accounting for more than 34% of mobile service revenues in the first half of the year (30% over the same period in 2011). There was also a sharp increase in non-SMS data revenues (+26.6% year-on-year), accounting for more than 56% of total data revenues (+5 percentage points vs. January-June 2011). The Company's high diversification was reflected by the increased contribution of Telefónica Latinoamérica, which accounted for 48% of consolidated revenues during the first half of the year (+3 percentage points year-on-year) and remains the main growth driver (+3.2 percentage points year-on-year). On the other hand, Telefónica Europe accounted for 49% of consolidated revenues and, within the former, Telefónica España's contribution fell by 3.4 percentage points to represent 25% of consolidated revenues. Consolidated operating expenses amounted to 21,268 million euros, up 4.7% vs. the first half of 2011, decelerating significantly their growth rate in the second quarter (+3.6% reported vs. +5.9% in the first quarter) mainly due to a lower increase in commercial costs and higher efficiencies achieved. Supplies during the first half of the year totalled 9,060 million euros, up 1.9% year-on-year. Nevertheless, the year-on-year growth eased in the second quarter compared to the first quarter (+2.7% reported; +1.9% in organic terms in the first quarter of 2012). Subcontract expenses (6,708 million euros) rose by 6.3% year-on-year, decreasing its year-on-year growth with respect to the first quarter of the year (+8.7% reported; +8.4% organic in the first quarter of 2012). Personnel expenses stood at 4,377 million euros, up 5.7% year-on-year, decelerating with respect to the first quarter (+6.7% reported; +6.6% in organic terms in the first quarter of 2012). The average headcount was 287,437 employees (2,348 employees more than the average for the first half of 2011), mainly due to the higher workforce at Atento. Excluding Atento, Telefónica's average workforce stood at 132,667 employees, 948 fewer than in the same period of 2011. Gains on sales of fixed assets during the first half of the year stood at 285 million euros, compared to 245 million euros in the first half of 2011. In 2012 this amount mainly includes the impact from the sale of non-strategic towers, principally in Spain, Brazil and Mexico, for a total amount of 211 million euros (88 million euros in the second quarter mainly in Brazil and Mexico), as well as a capital gain of 39 million euros from the sale of applications in the second quarter (including 18 million euros from the sale of applications in Telefónica España). This heading, in the first half of 2011, included the positive effects of the partial reduction of our economic exposure to Portugal Telecom and the sale of non-strategic towers. Significant improvement in efficiency levels During the first half of 2012, operating income before depreciation and amortisation (OIBDA) amounted to 10,431 million euros (-7.7% year-on-year; -6.2% in underlying terms), and recorded an improvement of 1.1 percentage points compared to the first quarter of the year (+1.2 percentage points in underlying terms), leveraging on cost initiatives and efficiencies achieved. OIBDA margin stood at 33.7% in the first half of the year (-2.9 percentage points year-on-year; -2.3 percentage points in underlying terms), showing a significant sequential improvement vs. the first quarter. Thus, OIBDA margin in the second quarter was 34.6% in underlying terms vs. 32.8% in the first quarter, registering, as well, a lower year-on-year erosion (-1.9 percentage points vs. -2.8 percentage points in the first quarter). Telefónica's geographic diversification is again reflected by the increasing contribution of Telefónica Latinoamérica to consolidated underlying OIBDA, accounting for 50% (+3.8 percentage points with respect to 2011). It is worth to highlight that Telefónica España's contribution to total OIBDA fell to 32%, and thus Telefónica Europe accounts for 50% of total OIBDA. Depreciation and amortisation in the first six months of the year (5,131 million euros) increased by 3.5% year-on-year (+2.5% in organic terms) mainly due to the amortisation of the new spectrum acquired in Germany, Brazil, Colombia, Spain and Mexico, and the increase of fixed assets. The depreciation and amortisation charges derived from purchase price allocation processes amounted to 492 million euros in the January-June period. In the first half of the year, operating income (OI) totalled 5,300 million euros (-16.5% year-on-year; -13.9% in underlying terms), with an improved trend in the second quarter (-15.3% year-on-year; -12.2% in underlying terms). Profit from associates stood at -498 million euros in the first semester (-534 million euros during the same period in 2011), mainly due to Telco, S.p.A.'s adjustment of the value of its investment in Telecom Italia, as well as of the operating synergies achieved, with both effects totalling 512 million euros in 2012 and 505 million euros in 2011. It should be pointed out that these effects were non-cash impacts. Financial positionNet financial expenses in the first half of 2012 reached 1,585 million euros, of which 20 million euros were negative foreign exchange differences. This yielded an effective cost of debt of 5.82% in the last 12 months (5.22% at December 31st 2011). Excluding foreign exchange differences, the effective cost of debt would be 5.47% compared to 4.91% at December 31st 2011. Free Cash Flow for the first half of the year amounted to 1,727 million euros, posting an improvement of 1,645 million de euros compared to the first quarter of 2012, in line with Company estimates. At the end of June 2012, net financial debt amounted to 58,310. The evolution with respect to December 2011 (+2,006 million euros) can be explained, on the one hand, by shareholder remuneration (3,551 million euros), not fully compensated by the debt reduction in Colombia (1,499 million euros) due to the merger of the Colombian subsidiaries. The leverage ratio for the past 12 months (net debt over OIBDA, adjusted by the provision related to the redundancy program in Spain), stood at 2.65 times as of end of June 2012. If net commitments related to workforce reduction are considered, the ratio of total net debt plus commitments over OIBDA (excluding results on the sale of fixed assets and adjusted by the provision related to the redundancy program in Spain) stood at 2.85 times. Financing activity During the first half of 2012, Telefónica's financing activity, excluding short-term Commercial Paper Programmes activity, stood slightly over 8,000 million equivalent euros, and the main focus was on financing in advance debt maturing in 2012, and smoothing the debt maturity profile for 2013 at the Holding level. At the end of June 2012, bonds and debentures represented 63% of consolidated financial debt breakdown, while debt with financial institutions weighted 37%. Corporate income tax during the first half of 2012 totalled 960 million euros which, over an income before taxes of 3,217 million euros, implied an effective tax rate of 30%, normalising with respect to the rate recorded during the previous quarter. Profit attributable to minority interests dragged net income by 182 million euros in the first six months of 2012 and fell by 15.8% year-on-year. As a consequence of all the items mentioned above, consolidated net income in the first half of 2012 stood at 2,075 million euros, and basic earnings per share were 0.46 euros. In underlying terms, consolidated net profit fell by 24.1% and basic earnings per share stood at 0.62 euros. CapEx for the first six months of the year totalled 3,658 million euros, 4.7% lower than in the same period of 2011. In 2011 this item included the cost of spectrum acquisition in Brazil and Costa Rica. Therefore, in organic terms, CapEx rose year-on-year by 9.2%. The Company continues to devote the bulk of its investment to growth and transformation projects (81% of total investment), fostering the expansion of high speed broadband services, both fixed and mobile. The CapEx over sales ratio (excluding spectrum investments) was 11.8% in the first half of 2012. It should be noted that the year-on-year change of the first half of the year cannot be extrapolated to the full year given the different levels of investment execution in both years. Operating cash flow (OIBDA-CapEx), excluding spectrum investment, stood at 6,780 million euros for the first half of 2012 (-13.4% year-on-year in organic terms; -12.0% in underlying terms). Telefónica, S.A.Dirección de Comunicación CorporativaRonda de la Comunicación, s/n+34 91 482 38 00prensa@telefonica.eswww.telefonica.es/saladeprensa