Disclaimer This document contains statements that constitute forward looking statements about Telefónica Group (going forward, “the Company” or Telefónica) including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which refer to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company Company. The forward-looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements, by their nature, are not guarantees of future performance and involve risks and uncertainties, and other important factors that could cause actual developments or results to differ from those expressed in our forward looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica with the relevant Securities Markets Regulators, and in particular, with the Spanish Market Regulator. Regulator Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the securities issued by the Company, are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Except as required by applicable law, Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica’s business or acquisition strategy or to reflect the occurrence of unanticipated events. Neither this presentation nor any of the information contained herein constitutes an offer of purchase, sale or exchange, nor a request for an offer of purchase sale or exchange of securities or any advice or recommendation with respect to such purchase, securities, securities. Finally, this document may contain summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, necessary any fuller disclosure document published by Telefónica Telefónica.Telefónica, S.A 1Investor Relations
GROUP FINANCIALS2010 reinforces our track record as a highly predictable &reliable company Strong top line growth backed by our high-class diversification: • Latin America now 43% of Group sales p • Mobile data revenue up 19% (y-o-y organic); non-P2P SMS up 32% y-o-y organic Solid set of results Fast customer expansion, consolidating the basis for future growth (+7.2% y-o-y organic) Accelerating A l ti g restructuring efforts t f th enhance efficiency t t i g ff t to further h ffi i + Benchmark profitability and cash generation Acquisition of 50% of Brasilcel Completed key strategic Spectrum investment in Germany, Mexico & Brazil to secure future growth transactions i + Increased stake in China Unicom (2011) Meeting guidance for 8 years in a row Delivering on our Robust financial position: leverage ratio within target range commitments €1.40 €1 40 DPS in 2010; 2011 dividend proposal of €1 60 (+14 3% y o y) €1.60 (+14.3% y-o-y)Telefónica, S.A 2Investor Relations
GROUP FINANCIALSCrystallizing the value of our diversification Jan-Dec Chg Organic chg € in millions 2010 2010/2009 2010/2009 Revenues 60,737 +7.1% +2.4% G oup Co t but o Group Contribution by regions eg o s OIBDA OpCF Operating Income FY 10 Rev Ex-VIVO capital gain Ex-spectrum and VIVO capital gain before D&A 25,777 +14.0% +0.8% ( (OIBDA)) T. España 31% 39% 47% OIBDA Margin 42.4% -0.6 p.p. T. Latam 43% 45% 41% +2.6 p.p. Operating Income p g T. Europe 25% 18% 17% 16,474 16 474 +20.7% +20 7% +4.5% +4 5% (OI) Net income 10,167 +30.8% 68% 64% 58% (+4 p.p. y-o-y) (+6 p.p. y-o-y) (+7 p.p. y-o-y) OpCF -1.7% 14,933 -2.7% (OIBDA-CapEx) Positive impact in OIBDA from the revaluation1 of our stake in Vivo partially offset by non-recurrent restructuring costs Positive effect of forex across the P&L despite Venezuelan Bolivar devaluation Full consolidation of Vivo from Q4 10 1 IFRS 3 Revised –Business combinations Business Organic growth assumes constant exchange rates as of 2009 (average fx) and excludes changes in the perimeter of consolidation: HanseNet since mid Feb10, Jajah in Jan-Dec 10, Telyco Marruecos in Jan-Dec 09 and Manx Telecom in Jul-Dec 09. It includes 100% of Vivo from Q4 09 and Q4 10 and Tuenti in Aug-Dec 09. OIBDA and OI figures do not include the impact of capital gains (Manx Telecom in Q2 10, Medi Telecom in Q4 09 and the revaluation of our pre-existing stake in VIVO in Q3 10),Telefónica, S.A non-recurrent restructuring expenses, booked in H2 10, mainly related to personnel reorganization and firm commitments relating to the Telefónica Foundation’s social activities. CapEx excludes the spectrum acquisition in Germany in Q2 10 and in Mexico in H2 10. Figures exclude hyperinflationary accounting in Venezuela in 3Investor Relations both years.
GROUP FINANCIALSSolid growth in EPS, up 31.6% y-o-yJanuary-December 2010J D b€ in millions(% change y-o-y) • Revaluation of our stake in Vivo: Vivo € 3.8 Bn • Non-recurrent restructuring • € -191 m due to expenses: € 1.3 Bn PPA on Vivo’s acq.: difference in market value of BBVA stake • € 84 m in Q4 10 25,777 • ~€ 350 m/year in the next 5Y (E) • € -864 m tax assets • Impacted by the tax reassessment in assets +14.0% reassessment in Colombia 16,474 Colombia -9,303 +20.7% 76 (+3.9%) (+59.8%) -2,649 (-19.9%) 10,167 -3,829 3 829 95 30 8% +30.8% +56.2% c.s. OIBDA D&A OI Associates Financial Taxes Minorities Net Income expensesPreliminary and unaudited PPA FY 10 EPS reached € 2 25 vs. target of €2 10 2.25 vs €2.10Telefónica, S.A 4Investor Relations
GROUP FINANCIALSVery high commercial activity focused on growth levers Dec-10 y-o-y organic growth 63.9% Total Accesses: 288 m ( 7.2% (+7.2% organic y-o-y) y o y) 15.9% 10.9% 8.9% 8.9% 41 m Accesses 220 m 69 m 22 m 17 m 3m -2.7% Mobile Contract MBB FBB Pay TV Fixed accesses Capturing quality growth Total net adds x1.5 vs. 2009 organically, backed by higher gross adds and churn control • Q4 10 net adds improved q-o-q and y-o-y Strong boost in Mobile Contract to 31% of the mobile base (+3 p p y-o-y organic) p.p. Positive MBB momentum, reaching the 22 m mark (1.6x vs. last year) Robust growth in FBB net adds: +44% organic vs. 2009, driven by improved quality Organic figures and year-on-year growth: exclude Medi Telecom customers in 09, HanseNet in 10 and Manx Telecom both in 09 and 10. Cumulative net adds alsoTelefónica, S.A exclude the disconnection of inactive customers made in Q2 10. 5Investor Relations
GROUP FINANCIALSStrong sales performance along the year FY 10 Reported revenue (y-o-y growth) Organic revenue (y-o-y growth) Organic Organic ex-MTR cuts • Positive effect from forex and changes in the perimeter of consolidation • Extracting the benefits of customer growth 3.4% +9.2 p.p. 7.1% +1.9 p.p. 6.0% 6 0% 2.4% 2 4% 5.4% 1.5% 1.7% FY 09 0.2% Q1 10 H1 10 9M 10 FY 10 FY 09 FY 10 -2.1%Telefónica, S.A 6Investor Relations
GROUP FINANCIALSImproved revenue profileRegional contribution to organic revenue growth Revenue mix by service FY 09 +0.3 p.p. +2.4% +2.7 p.p. 79% 15% 5% 1% FY 10 +1.0 p.p. 74% 18% 5% 2% -1.6 p.p. T. España T. Europe T. Latam Others & TEF Accesses & Voice BB connectivity Eliminations Group Applications & new business Others Solid growth across strategic areas Mobile data: +19% organic y-o-y FBB: +5% organic y-o-y Applications & new services: +12% organic y-o-yTelefónica, S.A 7Investor Relations
GROUP FINANCIALSDriving fast adoption of MBB to further boost revenue MBB penetration in our mobile base Dec-09 Dec-10 • 16% in Venezuela 20% 21% • 7% in Chile • 5% in Brazil 15% 12% Custo e s Customers with MBB devices + attached data t de ces attac ed 10% rates now 10% of our total mobile base, ~20% in 7% Europe 5% 3% Wider portfolio of devices T. Group T. Latam T. España T. Europe Leveraging scale to further reduce device costs Tiered pricing in our markets FY 10 Mobile data revenue growth (organic y o y ) y-o-y Mobile data already 27% of MSR (+3 p p y o y) p.p. y-o-y) 32.4% 19.3% Total Non-P2P Non P2P SMS Mobile data MBB penetration: Active MBB users in the last 3 months over total mobile customers.Telefónica, S.A Aggregate figures for Group mobile service revenue, mobile data revenue and non-P2P SMS data revenue. 8Investor Relations
GROUP FINANCIALSBenchmark underlying profitability OIBDAOrganic y-o-y growth 0.8% 0 8% Q1 10 Improved OIBDA trends along the year FY 10 +4.2p.p. Cost reduction initiatives on track Maximizing benefits f M i i i b fi from global projects: € 200 m l b l j -3.4% in 2010 Limited erosion in underlying profitability y-o-y despite higher commercial efforts: OIBDA marginOrganic y-o-y growth • Reinvesting efficiencies to foster sales expansion: Commercial expenses up 6.9% organic y-o-y 38.3% 38 3% • Interconnection costs down 0.8% organic vs. FY 09 0 8% vs 36.7% -0.6p.p. on lower MTRs y-o-y -1.6p.p. y-o-y Q1 10 FY 10 FY 10 margin ex-VIVO capital gain and H2 10 non-recurrent restructuring expenses .Telefónica, S.A 9Investor Relations
GROUP FINANCIALSHigher CapEx to support growth in customers & volumes CapEx € in millions 2,616 10,844 8,228 +5.9% Organic i Strengthening our networks to foster top line growth: • Focused CapEx: 77% oriented to growth and FY 10 reported Spectrum FY 10 transformation Ex spectrum licences Reported • 3G CapEx up 30% y-o-y in organic terms Spectrum acquisition in Germany (€ 1.4 Bn) & Mexico 858 -35 8,228 8 228 (€ 1 2 Bn) 1.2 B ) 7,246 157 T. Europe T. Latam -9.9% T. España +12.7% +8.4% FY 09 reported FY 10 reported Ex spectrum Ex spectrum y-o-y organic growth Growth and transformation CapEx excludes spectrum acquisitions.Telefónica, S.A 10Investor Relations
GROUP FINANCIALSMeeting our year-end targets for 8 years in a row Revenue OIBDA +3.8% 2010 GUIDANCE 2010 GUIDANCE +1%/+4% 1%/ 4% +1.4% 1 4% +1%/+3% 1%/ 3% FY 10/FY 09 FY 10/FY 09 CapEx EPS €7,646 m 2010 GUIDANCE FY 10: 2010 GUIDANCE €7,450/7,650 m € 2.10 € 2.25 FY 10 Figures according to guidance criteria.Telefónica, S.A 11Investor Relations
TELEFÓNICA ESPAÑAT. España: Delivering on 2010 priorities Sound commercial activity: +10.5% y-o-y, focused on value 53.0% Maintain a strong MBB accesses: x1.7 y-o-y to 20% of total mobile accesses commercial momentum (FBB & FBB net adds: + 6.6% y-o-y, solid market share at 53% MBB) and market Contract mobile gross adds: +24.5% y-o-y leadership to capture FY 10 Fixed line losses: 18.3% lower than in 2009 market recovery Revenue Market Pay TV accesses: +12.1% y-o-y, gaining market share Share (Estimated) FY 10 OpEx (comparable y-o-y change) 46.9% Total Subcontracts Supplies Bad Taxes Personnel OpEx Reinvest efficiency debt gains in the short -1.1 p.p. 11 term to ensure -0.6 p.p. business growth -0.6 p.p. -0.1 p.p. +0.9 p.p. FY 10 prospects Comparable OIBDA Margin Limited erosion in OpCF after working capital (-5.5% y-o-y), €6.5 Bn leveraging an efficient management of WC Benchmark profitability despite increased CapEx (+8.4% B h k fit bilit d it i d C E ( 8 4% Deliver a strong y-o-y) focused on growth: cash-flow generation • 70% devoted to growth and transformation FY 10 • 3G to capture the MBB opportunity OpCF & Comparable Margin • FBB & Pay TV to enhance our offer Comparable terms for FY 10 y-o-y change include Tuenti in the period Aug-Dec 2009 and exclude the following effects: USO, real estate capital gains, Medi TelecomTelefónica, S.A disposal capital gain, Telyco Morocco, TV Tax, revision of the estimates for the personnel commitments provided for in prior periods to 2009, non-recurrent restructurings costs, bad debt recovery and application sales. 12Investor Relations Operating Cash Flow after working capital: Operating collections less OpEx and CapEx payments.
TELEFÓNICA ESPAÑA Top line impacted by regulation and increased competition in a difficult economic environment T. España FY 10 Revenues (comparable y-o-y change) Itx. & Access Outgoing Non-P2P Handsets mobile Data FBB & Voice voice + SMS Mobile & others Others Total Wholesale revenues impacted by g Roaming-in (fixed) P2P SMS Data & IT regulatory measures (MTR, Roaming l (MTR R i cuts, lowest ULL prices in Europe and -1.7 p.p. -0.1 p.p. below our costs) -2.4 p.p. Retail access & voice revenues +0.7 p.p. pp dragged by lower accesses & usage +0.6 p.p. -2.3 p.p. +0.6 p.p. +0.2 p.p. amid challenging macro conditions and strong competition Wireless business Retail FBB business Outgoing voice MSR ARPM ARPU (comparable) ( p ) ARPU Revenues -4.3% -5.6% -7.3% -7.2% -7.6% -8.3% -8.7% 8.7% -9.3% 9 3% -9.1% 9 1% -10.7% Q4 10 (y-o-y) 2010 (y-o-y) Q4 10 (y-o-y) 2010 (y-o-y) Increased price competition from traditional network Further price competition from integrated players competitors in Q4 10 Focus on enhancing our offer (perceived value) Solid growth in connectivity revenues: +54.3% y-o-y Comparable terms for FY 10 and Q4 10 y-o-y change include Tuenti in the period Aug-Dec 2009 and exclude the following effects: USO, Telyco Morocco andTelefónica, S.A application sales. 13Investor Relations
TELEFÓNICA ESPAÑA There is still ample room to further increase our efficiency Less overhead: 6% reduction of manager positions We are working to Potential outsourcing of operations to service providers reshape our labour h l b costs … Further workforce restructuring processes New pay and benefits agreement with pay revisions not linked to CPI … optimizing our Reduction of Smartphone unit costs commercial costs… Value-based policy on handset subsidies … further leveraging on Advancing towards Global Operations (e.g. European Datacenter) global Group scale… scale Global purchasing benefits … and we will continue Network sharing g actively managing our i l i portfolio of assets Divestitures of non strategic activitiesTelefónica, S.A 14Investor Relations
TELEFÓNICA LATAMT.Latam: Sound profitable growth +1.4p.p. +6.7% +5.3% Robust organic revenue growth leveraging fastRevenue customer expansion:( g(Organicy-o-y growth) • Double D bl digit growth in MSR g th i FY 09 FY10 • Sound Internet & Pay TV sales +5.7p.p. +9.1% 39.9%OIBDA +3.4%(Organicyoyy-o-y growth) 36.5% 36 5% Solid profitability leveraging scale & regional Q1 10 FY 10 OIBDA margin integrated model Strong OIBDA margin despite increased commercial g g p efforts 15,156 39.9% OpCF organic growth exceeding revenue growth 39.8%Profitability 10,328 +6.9 %(Organicy-o-y growth) +0.9p.p. +46.7% Net Adds (´000) OIBDA Margin OpCF FY 09 FY 10 y-o-y O g i Organic Organic growth assumes constant exchange rates as of FY 09 (average fx) and excludes hyperinflation accounting in Venezuela in both years. OIBDA, OIBDA margin,Telefónica, S.A and OpCF exclude the capital gain from the revaluation of our pre-existing stake in VIVO in Q3 10 and Q4 10 non-recurrent restructuring costs. 15Investor Relations OpCF excludes the spectrum acquisition in Mexico.
TELEFÓNICA LATAMWireless: A perfect combination of voice and data growth Robust Commercial Activity Improving customer value Contract net adds/total Customer growth (y-o-y) ARPU (y-o-y ex-fx) Net adds (y-o-y) et (y o y) Accesses g o t ccesses growth (Dec-10 y-o-y) +28.7% +28.9% x1.9 +10.8% +9.2% >5% of +10.8% 46% customer base Total Contract MBB -0.2% 19% Customers -2.1% -40.3% -40 3% FY 09 FY 10 FY 09 FY 10 Organic Revenue growth (FY 10 y-o-y) Mobile Data FY 09 FY 10 +10.6p.p. 14.3% 43% 40% 12.0% 38% 31% 23% +3.8p.p. 38 19% Voice Data Total Outgoing MSR Data Rev. % non-P2P SMS (Organic y-o-y % Data Rev./MSR Rev./Data Rev. Outgoing Revs. g g growth)Telefónica, S.A 16Investor Relations
TELEFÓNICA LATAMWireline: Enhanced quality fuelling commercial activity Accesses (m) Net adds (‘000) 7.4 1.016 FBB growth acceleration for 5th quarter inLatam 360 a rowRetail eta 259FBB Churn contention across services 123 x2.8 +15.8% Successful bundling strategy; 86% of y-o-y growth total FBB Dec-10 Q4 09 Q4 10 FY 09 FY 10 Accesses (m) Net losses (‘000) 24.4 -53 Slowdown of accesses y-o-y declineLatam -175 ( 0.7% (-0.7% vs -2.6% in September) 2.6%Retail FixedAccesses -530 Churn improvement based on bundled offer and enhanced quality -0.7% y-o-y growth -1,066 66% of fixed accesses on bundles Dec-10 Dec 10 Q4 09 Q4 10 FY 09 FY 10 35.6%Internet & 28.1%PayP TV rev/ / 24.0% 22.8% 24 0% 22 8% Higher contribution from Internet & Pay 22.0% TV revenueTotal rev 14.8%(FY 10) +1.2p.p. +3.2p.p. +2.3p.p. +2.9p.p. +3.0p.p. +0.3p.p. • Sequential organic growth acceleration: +7.2% FY 10 vs. +6.4% 9M 10 y-o-y growth Latam Peru Chile Arg. Arg Col. Col BrazilTelefónica, S.A 17Investor Relations
TELEFÓNICA LATAMBrazil: Sound momentum across business TELESP On track on synergies VIVO generation Sustained improvement in commercial activity driven by Solid customer growth leveraged on contract enhanced quality q y Sequential growth in ARPU for 3 quarters in a row Record FBB net adds in Telesp’s history Customer y-o-y growth Net adds (mn) 8.5 Traditional FBB Lines 60.3 m 2.9 29 681 2.6 FY 09 81 2.9 Total FY 10 Contract +16.5% 39 0.6 Net Adds (´000) Dec-10 Q4 10 FY 10 Contract 22% 33% weight -408 Gradual improvement in financial metrics p Sequential ramp up in financial metrics q p p 9M 10 (y-o-y in l.c.) 9M 10 (y-o-y in l.c.) FY 10 (y-o-y in l.c.) FY 10 (y-o-y ex-fx and perimeter) +7.4% +11.4% +13.1% +3.3% +3 3% +0.1% +0.2% +9.3% +9.1% +8.4% +7.8% -3.0p.p. -4.2 p.p. -7.5% +0.2 p.p. +1.1p.p. -10.9% 10.9% OIBDA OIBDA Total Rev. FBB rev. OIBDA Margin Total Rev. MSR OIBDA MarginTelefónica, S.A 18Investor Relations
TELEFÓNICA LATAMBrazil: Tender offer for Vivo’s ONs and CorporateRestructuring CVM approval of the tender offer: February 11th Filing of “Edital” and launch of the tender offer: February 16th Tender offer for Vivo’s ONs End of offer period & “leilao”: March 18th (11% free float) free-float) Settlement: Lump sum option (March 22nd); 2 instalments options (March 22nd and July/Oct) Cash-outflows ( ) below € 800 m f (E): BoDs Approvals: Expected end Q1/Beginning Q2 11 Telesp/ Vivo Corporate TSP/VIVO GSMs Approvals (Assuming ANATEL approval) : Expected Q2 11 Restructuring Close of restructuring: Expected H1 11 restructuringTelefónica, S.A 19Investor Relations
TELEFÓNICA LATAMGood performance in key operations % Telefonica Group Revenue Contribution 3.0% 3.8% 3.2% Mexico Venezuela Peru Solid mobile customer growth Lower commercial activity y-o-y L i l ti it on limited availability of handsets Growth in total accesses driven by (+13.0% y-o-y), gaining market 2x mobile contract base and 11% share Robust financials despite increase on FBB Strengthened position in MBB devaluation with MSR growth (+21.3% y o y) (+21 3% y-o-y) pushed by data Positive growth in OIBDA and g after acquisition of spectrum f i ii f margin stabilization services (+47.4% y-o-y) Repositioning of prepay offer on track Solid OIBDA margin (46.9%) Argentina 5.1% Chile 3.6% Colombia 2.5% Bundles leads to stable traditional Steady accesses growth (+10.7%) Wireline accesses stabilization with positive evolution in all fixed accesses and steady FBB driven by FBB and Pay TV growth growth (+16.3% y-o-y) businesses Strong mobile customer growth, Sequential revenues acceleration Robust revenue increase (+17.9% focus in contract (30% of total) y-o-y) driven by FBB and MSR in fixed and mobile businesses Sound improvement in financial Improved growth in OIBDA and Sequential ARPU improvement metrics based on contract and data margins throughout in 2010 Growth rates in financials are given in local currency. In Venezuela, excludes also hyperinflation accounting in both years.Telefónica, S.A 20Investor Relations
TELEFÓNICA EUROPE T.Europe: Continuing strong performance +14.3% +45.6% High commercial activity focused on value: Incl. HanseNetAccesses +6.2% +8.2% • 72% of mobile net adds in Q4 on contract; +1 p.p. in(Dec-10; y-o-y +6.0% contract mixgrowth) 21% 56.3 m 49% • Broader smartphone portfolio 46.7 m Organic • Strong increase in MBB penetration (+6 p.p. y-o-y) % over total mobile base Total Total Mobile • Stable churn in very competitive markets MBB Accesses Mobile Contract +6.7% +6.5% +6.4% +5.4% Improving growth trends driven by data:Revenue +4.4%(y-o-y growth) +3.2% +3.7% • Solid non-P2P SMS revenues, up 26.4% organic y-o-y +3.2% in FY 10 +1.7% +1.1% • Very strong performance of handsets sales (+22.5% Organic ex-MTR Organic y-o-y organic in FY 10) FY 09 Q1 10 H1 10 9M10 FY10 +16.6% Building profitability: gp yFY 2010Profitability +4.9% • FY 10 margin maintained in comparable terms(y-o-y growth in despite increased commercial costscomparable terms) Accelerated operating restructuring to enhance y future efficiency OIBDA OpCF Organic growth: assumes constant FX and excludes the consolidation of HanseNet (since mid February) and Jajah (January-December). Manx T. results in the second half of 2009 are excluded and the capital gain from its disposal in Q2 10. OIBDA also excludes non-recurrent restructuring expenses mainly related to personnelTelefónica, S.A reorganization in H2 10 and CapEx excludes the acquisition of spectrum in Germany. HanseNet and Manx T. customers are excluded. Comparable growth: organic growth and excluding additional non-recurrent effects: i) restructuring expenses, ii) USO, iii) real estate gains, and iv) the proceeds from 21Investor Relations the settlement agreement with T-Mobile in 2009.
TELEFÓNICA EUROPE T.O2 UK: Leading the wave of profitable data monetization Dec-10 Customers % MBB/total +9.8% 23% Strong momentum in MBB, while excelling the core:Mobile 16% • New tiered tariffs taken by 36% of consumer contractcustomer KPIs data users +4.3% 4 3% • Market leading contract churn kept at 1.1% y-o-y change • Contract base is 47% over total (+2 p.p. y-o-y) Total Contract Dec-09 Dec-10 8.7% 9.2% Continued top line growth to 6.5% y-o-y in FY 10: 7.9%MSR 5.6% • ARPU increased 1.2% y-o-y ex MTRs(y-o-y growth) • Non P2P Non-P2P SMS revenue: +32% y o y 32% y-o-y • Handset sales up 9.2% y-o-y on growing demand for Q4 10 smartphones & lower subsidies FY 10 Reported Ex-MTRs OIBDA OIBDA margin +11.0% Business reorganization to capture new opportunities and customer service enhancement:Profitability +7.2% 24.7% 25.4%(y-o-y(y o y comparable • Continued efficiency offsets higher commercial costs y ggrowth) • Restructuring costs of € 72 m booked in Q4 10 +0.5 p.p. +0.2 p.p. • Increased CapEx to give best network quality comparable y-o-y change Q4 10 FY 10 Q4 10 FY 10 Comparable growth. Excluding non-recurrent restructuring expenses in 2009 and in 2010 (mainly related with headcount and shops).Telefónica, S.A Growth rates in financials are given in local currency. 22Investor Relations
TELEFÓNICA EUROPE T.O2 Germany: Maintaining strong momentum Dec-10 Mobile base Mobile Net Adds (‘000) Leveraging our network and integrated approach: 1,542Customer +9.9% 421 • Building scale in core mobile (+18% y-o-y net adds)Base +7.2% • iPhone and smartphone tariffs were 80% of(y-o-y growth)( o gro th) commercial activity i Q4 i l i i in 54% • Retail FBB net adds in Q4 (x2.6 q-o-q) driven by % Contract integrated distribution with HanseNet Total Contract Q4 10 FY 10 9.8% Solid revenue growth on strong fundamentals: 7.9%Revenue • Sequential acceleration in MSR ex- MTR cuts(y-o-y organic 4.9% 4 9% • Non-P2P Non P2P SMS revenue: +31% y-o-y to 42% of yoygrowth) 3.8% data revenues • Strong handset sales in Q4 from higher demand Q4 10 for smartphones through “My Handy” FY 10 Total Revs. T t lR MSR (ex-MTR cuts) ( MTR t ) OIBDA OIBDA margin (ex-restructuring) Profitable growth on the right foundations: +11.6%Profitability +10.1% 10 1% 25.8% 25 8% • OpCF : 3 4x y o y comparable 3.4x y-o-y 25.3%(comparable y-o-y • Tangible synergies from HanseNet integrationgrowth) +0.4 p.p. +0.5 p.p. LTE rollout on track; 99% planned sites owned: • CapEx down due to network rollout completion Q4 10 FY 10 Q4 10 FY 10 Comparable growth: excludes the consolidation of Hansenet since mid February , non-recurrent restructuring expenses in H2 10 and in 2009 mainly related with personnelTelefónica, S.A reorganization and the acquisition of additional spectrum. 23Investor Relations
GROUP FINANCIAL EXPENSES AND DEBTLeverage ratio within target range after Brasilcel acquisition Net Financial Debt Evolution € in millions +4,365 55,593 +8,554 43,551 43 551 6,755 +6,755 +834 -8,466 • Includes pending payments on Brasilcel acquisition Net Fin. Debt FCF Commitments Shareholder Net Financial FX, accruals Net Fin. Debt Dec-09 Post- cancellation remuneration Investments and others Dec-10 Minorities Total Net Debt + Commitments/OIBDA (FY 10) 2. 22x 2.41x 2.50x OIBDA OIBDA OIBDA 25,777 25 777 Sale of fixed assets & Non-recurrent restructuring Reported 9M 50% non-recurrent OIBDA1 expenses other than OIBDA2 OIBDA Vivo OIBDA restructuring expenses commitment s to TEF Foundation • Leverage target (Total Net Debt + Commitments € 57.3 Bn) not exceeding the 2.5x OIBDA limit (1) OIBDA: excludes results on the sale of fixed assets and non-recurrent restructuring expenses and includes 100% of Vivo’s OIBDA for the full year 2010.Telefónica, S.A (2) OIBDA: excludes results on the sale of fixed assets and non recurrent restructuring expenses, but firm commitments related to the Telefónica Foundation’s socialInvestor Relations activities, and includes 100% of Vivo’s OIBDA for the full year 2010. 24
GROUP FINANCIAL EXPENSES AND DEBTContained interest expense and strong liquidity position Cost of Debt ex-fx of 5.0% Cost of Debt Fixed Debt € in millions FY 10 36.7 • 6.8 Bn Forward € in billions starting swaps Net i N interest E Expenses -2,502 2 502 24.0 fixing d bt i fi i g debt in 2011 29.9 FX results -147 Total Financial Results -2,649 Total Average Net Debt 49,999 49 999 Dec-09 Dec-10 Unused committed credit lines Maturity profile and Average net debt life • Includes undrawn € in billions 11.0 amount on new € in billions Dec-10 >6 years after syndicated to cover 2011 new 9.0 pending payments issuances1 +1.8 on Brasilcel 6.7 7.2 (ex-Brasilcel) acquisition (€ 2Bn) 3.0 • Covered by 5.7 5 7 years new issuance €1.2 Bn (Jan) & $2.75 Bn (Feb) Undrawn Credit Undrawn Credit 2011 2012 Average net lines Dec-09 lines Dec-10 debt life Dec-10 Contained interest expenses at 5% while increasing the amount of fixed debt in a low interest rate environment Reinforced liquidity position thanks to unused committed lines increased by €1.8bn in 2010 Recent 2011 issuances cover full net maturities in the year while increasing average debt life above 6 years after new issuances y g g y (1) Average debt life calculated as of Dec-10, including € 1,200 m and $ 2,750 m bond issuances made in 2011.Telefónica, S.AInvestor Relations 25
GROUP FINANCIALS2011 guidance: continued focus on growth Strong momentum in LatAm & further outperformance of T. Europe to outpace decline in Spain: Steady revenue • Fully exploiting mobile data opportunity in our markets growth • Capturing quality growth • Negative impact from severe regulation across European footprint Balancing profitability with higher commercial activity Industry leading Sett g t e bas s o p o tab e Setting the basis for a profitable MBB growth go t profitability fit bilit Continue to leverage Group scale opportunities and global initiatives Higher CapEx to Improved networks capabilities to support growth in mobile data deliver future Further upgrades in FBB networks growth Continue to leverage Group scale opportunities and global initiatives Adjusted Base Guidance € in millions 2010 2011 Revenues 63,144 Up to 2% Upper 30s OIBDA Margin 38.0% Limited erosion y-o-y CapEx 8,541 ~9,000 Figures according to guidance criteria.Telefónica, S.A 26Investor Relations
GROUP FINANCIALSMaintaining premium returns on strong FCF generation M&A focused on acquiring Active management of our Leverage ratio within spectrum in current markets non-core asset portfolio target range to secure future growth Delivering on dividend policy (growing DPS) €1.75 €1.60 €1 60 €1.40 €1.15 Dividend coverage >1 +14.3% Tactical share buybacks to be considered for FCF excesses y-o-y FY 09 FY 10 FY 11 FY 12 Leverage target: Total net debt+ commitments/OIBDA at 2.0/2.5x.Telefónica, S.A 27Investor Relations
GROUP FINANCIALSRegional priorities Defend revenue market leadership: • Rational commercial approach focused on customer value Capture growth opportunities leveraging our integrated offer: T. T ESPAÑA • Total BB, Pay TV and ICT services (SMEs & corporates) Disciplined CapEx, growth oriented Further reshaping of our cost structure Speed up the capture of all the value of integration: • Special focus on Brazil Strengthen St gth our bet in broadband, leveraging on a valuable fixed & mobile offer b t i b db d l gi g l bl fi d bil ff T. LATAM • Reinforce our market position, focusing on customer value as the driver for growth Further develop our unique infrastructure: • Co t ue est g o g o t Continue investing for growth Increase value of customer base: • Enhance contract share • Increase data usage providing basis for data monetization T. EUROPE Improve efficiency: • Higher customer investment offset by delivery of restructuring programs and Group global initiatives • Optimizing CapEx through cost initiatives and partnershipsTelefónica, S.A 28Investor Relations
GROUP FINANCIALSClosing remarks Solid set of results in 2010 Delivering on our commitments Completed k strategic t C l t d key t t gi transactions ti Continued focus on growth and maintaining premium returns in 2011 Leveraging our integrated asset portfolio to fully capture the digital world opportunityTelefónica, S.A 29Investor Relations