Telefónica’s Net Profit to September up by 26.4% at 3,455 Million Euros

  Telefónica’s Net Profit to September up by 26.4% at 3,455 Million Euros

The client base has increased by 5% year-on-year and reached 314 million
accesses at the end of the third quarter

The Company has consolidated the improvement of its quarterly returns in all
regions and, between January and September, has recorded year-on-year growth
rates of +10.7% and +19.6% in OIBDA and operating income, respectively.

  *The Company’s earnings per share mark a turning point and rise to 0.98
    euros per share in underlying terms (0.36 euros in the third quarter),
    picking up significantly from the previous quarters.
  *The greater cash generated in the third quarter (€2,541M, €4,268M since
    January) and the execution of the divestment programme and asset portfolio
    management, including events following the close of the quarter, have
    enabled almost 5,500 million euros to be trimmed from its net financial
    debt since the end of June to 52,823 million euros. This is in line with
    the Company’s objective to cut the leverage ratio (net debt over OIBDA) to
    2.35 times by the end of the year.
  *Thanks to an active financing policy (€13,000 million so far this year),
    Telefónica has already covered its debt maturities until after 2014, with
    a net liquidity position of €18,000 million.
  *The revenue generated by Telefónica Latin America exceeded for the first
    time in history the weighting of revenue from operations in Europe and now
    represent 49% of the Company’s total turnover, which has remained stable
    at 46,519 million euros. Both Latin America (+5.9%) and mobile data
    (+14.2%) continue to be growth drivers for the Group. Both aspects
    underline the value of diversification as Telefónica’s strength.
  *In the first nine months of the year, the greatest efficiencies stemming
    from the transformation initiatives and from the benefit of Telefónica’s
    scale have driven OIBDA to 15,782 million euros. The operating result has
    reached 8,009 million euros.
  *In operational terms, 78% of the Group’s clients are mobile accesses,
    amounting to 246 million (+6%), supported by the sustained growth in
    contract users (+7%; especially in Latin America, +12%). Mobile broadband
    access has grown at solid rates of +40% year-on-year and already accounts
    for 47.7 million accesses. In Telefónica’s European operations, one third
    of mobile clients are already using mobile broadband thanks to the
    increasing adoption of smartphones.
  *The Company is advancing in its transformation process to become a
    “Digital Telco” with major milestones such as the launch of the best
    convergent offer in Spain, the new IPTV platform in Brazil and the
    development of new M2M services.

Business Wire

MADRID -- November 07, 2012

Between January and September, 2012, the Telefónica Group has achieved a
consolidated net profit of 3,455 million euros, implying growth of 26.4% with
respect to the same period in 2011. At the close of the year’s third quarter,
the Company has consolidated the quarter-on-quarter improvement in returns in
all regions and, between January and September, has recorded year-on-year
growth of +10.7% and +19.6% in OIBDA (€15,782M) and operating result
(€8,009M), respectively. In addition, the revenue generated by Telefónica
Latin America at the end of September has for the first time in history
exceeded the weighting of revenue from operations in Europe to represent 49%
of the Company’s total turnover, which has remained stable at 46,519 million
euros.

In the management report on the third-quarter results, the Executive Chairman
of Telefónica, César Alierta, has underscored the highly visible progress
achieved in issues of great priority for the Company over the last few months.
In this sense, he stressed that in “the third quarter of the year there has
been a consolidation of the recovery trend initiated in the second quarter,
with an outstanding sequential improvement in underlying earnings per share,
which stood at 0.36 euros per share in the quarter (0.98 euros at the end of
September), returning to positive year-on-year growth.” Alierta also points
out the strengthening of the financial positioning of the company, thanks to
the debt reduction and a proactive refinancing policy. Furthermore, the
Executive Chairman of Telefónica has highlighted that “from a strategic
standpoint, we continue making progress in our transformation into a “Digital
Telco” and we are making further progress in our transformation journey and
the results achieved so far make us feel more positive about the future
despite tough conditions”.

Greater efficiencies and more financial flexibility

Telefónica’s results in the third quarter of the year showed significant
progress in priority areas for the Company.

Earnings per share registered an outstanding improvement in the quarter,
delivering positive year-on-year growth in underlying terms. This improvement
reflected sequential OIBDA growth in absolute terms across all regions, and a
quarter-on-quarter improvement in underlying terms in the consolidated OIBDA
margin, reflecting transformational initiatives and cost-reduction measures
undertaken in all countries. In this sense, particularly noteworthy were the
removal of handset subsidies for new customers acquisition in Spain from March
this year -this is already leading to significant savings in commercial
expenses-, the gradual reduction of subsidies in the UK, the focus on quality
as a key lever to reduce churn, and network-sharing agreements reached with
other operators in the UK and Mexico.

Moreover, the higher efficiency reflects the benefits of our scale. Telefónica
Global Resources is consistently contributing to higher efficiencies and cost
reduction, driven by new ways of sourcing, building and operating our networks
and IT.

Meanwhile, the third quarter also featured a considerable reduction in net
financial debt, reflecting the Company’s strategy of increasing its financial
flexibility and improving its liquidity position.

In addition, the Company advanced further on the capture of new growth
opportunities in the digital world in the third quarter, with initiatives such
the joint-venture in the UK for mobile payment and advertising approved by the
European Union authorities, the agreement signed with Aurasma, the world’s
leading augmented-reality platform, and the launch of Amérigo, a 300 million
euros network of private equity funds, among others.

Customer base: 314 million accesses

Total accesses increased by 5% year-on-year to 314 million by the end of
September 2012, driven by the increase in mobile accesses, fixed and mobile
broadband, and pay TV accesses. Noteworthy was the 8% year-on-year increase in
accesses at Telefónica Latinoamérica (67% of the total).

Mobile accesses stood at 246 million at the end of the third quarter (+6%
year-on-year), driven by a sustained growth in mobile contract accesses (+7%
year-on-year), accounting for 33% of total mobile accesses. Mobile net
additions in the first nine months totalled 10.5 million accesses (excluding
the disconnection of 3.6 million inactive prepay mobile accesses in Spain and
Brazil).

The Company's mobile broadband accesses maintained solid growth of 40%
year-on-year to 47.7 million at the end of September 2012, and accounted for
19% 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 10.0 million net additions in the first nine months of
2012 (+14% year-on-year).

Telefónica’s retail fixed broadband accesses increased by 4% year-on-year to
18.5 million at the end of September 2012, with 458 thousand net additions,
reflecting the sustained growth of Telefónica Latinoamérica. Retail fixed
broadband accesses reached a penetration rate of 47% over total fixed
accesses.

Analysis of the operating statement

Revenues in the first nine months of 2012 totalled 46,519 million euros,
virtually unchanged year-on-year (-0.3%). This performance reflects the
Company’s high diversification, a key differentiating factor in the current
environment characterised by adverse economic conditions, more intense
competition and negative effects of regulation in some countries. Excluding
the negative effect of regulation, revenues rose by 1.1% year-on-year vs. the
first nine months of 2011.

By region, Telefónica Latinoamérica’s revenues continue to show strong
year-on-year growth (+5.9%) and now account for 49% of consolidated revenues
(+2.9 percentage points year-on-year), for the first time exceeding revenues
from the European operations (48% of the total). Telefónica España’s
contribution decreased to 24% of consolidated revenues.

Mobile data revenues continue to post a solid growth during the first nine
months of 2012 (+14.2% year-on-year), contributing more than 34% to mobile
service revenues during the period. Also, non-SMS mobile data revenues have
posted a significant increase (+25.3% year-on-year), representing 57% of total
mobile data revenues.

Consolidated operating expenses amounted to 31,663 million euros, down 5.4%
vs. the first nine months of 2011 (-21.1% in the third quarter). It should be
noted that reported year-on-year comparison is affected by the provision for
expenses related to the redundancy program in Spain booked in the third
quarter of last year (2,671 million euros).

Supplies in the January-September 2012 period totalled 13,403 million euros
and were flat year-on-year in reported terms. Subcontract expenses (10,113
million euros) rose by 5.5% year-on-year compared to the first nine months of
2011 (+5.5% organic), with a sequential decrease in year-on-year growth in the
third quarter, mainly due to efficiencies implemented and reflected in a
general reduction of commercial costs. Finally, personnel costs stood at 6,507
million euros, down 27.0% year-on-year, affected by the aforementioned
provision associated with the redundancy program in Spain.

The average headcount was 286,249 employees (1,186 employees more than the
average for the first nine months of 2011), mainly due to the higher workforce
at Atento. Excluding Atento, Telefónica's average workforce stood at 132,192
employees.

Gains on sales of fixed assets in the first nine months of the year stood at
289 million euros, similar to the same period of 2011 (293 million euros).
This heading in 2012 included mainly the following: the impact of the sale of
non-strategic towers, with an impact in OIBDA of 289 million euros; the gain
from the sale of applications in the second quarter (39 million euros; 18
million euros in Telefónica España); and the capital loss on the sale of
shares of China Unicom (97 million euros in the third quarter).

Better OIBDA behaviour in all regions

In the first nine months of 2012, operating income before depreciation and
amortisation (OIBDA) amounted to 15,782 million euros and recorded an
improvement vs. the first half thanks to a sequential improvement in all
regions. Thus, OIBDA in the third quarter amounted to 5,448 million euros in
underlying terms, up 1.8% from the second quarter despite lower revenues.

OIBDA margin in January-September 2012 stood at 33.9% (-1.7 percentage points
year-on-year in underlying terms). It should be highlighted that the OIBDA
margin in underlying terms posted a sustained sequential improvement to 35.1%
in the third quarter compared to 34.6% in the second quarter and 32.8% in the
first quarter.

By region, Telefónica Latinoamérica continues increasing its contribution to
consolidated underlying OIBDA, accounting for 50% (+3.7 percentage points vs.
September 2011). Telefónica Europe represents the remaining 50%, with
Telefónica España decreasing to less than a third of the total (32%).

Depreciation and amortisation in the first nine months of 2012 (7,773 million
euros) increased by 2.9% year-on-year and was up 1.7% year-on-year in the
third quarter, mainly due to the amortisation of the new spectrum acquired in
Germany, Brazil, Colombia, Spain, Mexico and Venezuela.

In the first nine months of 2012, operating income (OI) totalled 8,009 million
euros, particularly improving in the third quarter.

Profit from associates stood at -486 million euros in the first nine months of
2012 vs. -506 million euros during the same period in 2011, mainly due to
Telco, S.p.A.'s adjustments of the value of its investment in Telecom Italia,
as well as to the operating synergies achieved, with both effects totalling
-542 million euros in 2012 and -505 million euros in 2011. It should be
pointed out that these effects were non-cash impacts.

Financial position

Net financial expenses for the first nine months of the year 2012 reached
2,419 million euros (+18.3% year-on-year). This yielded an effective cost of
debt of 5.65% in the last 12 months. Free Cash Flow for January-September 2012
amounted to 4,268 million euros posting an improvement in the third quarter
(2,541 million euros) compared to the first half of 2012, in line with Company
estimates.

At the end of September 2012, net financial debt amounted to 56,006 million
euros, posting a significant reduction in the third quarter (-2,304 million
euros). After the closing of the third quarter, the company has executed an
efficient asset portfolio management and a successful divestment program to
reach a total debt reduction of 5,500 million euros since the end of June.
Thus, the current net financial debt stays at 52,823 million euros, in line
with the objective to reach a leverage ratio (net debt over OIBDA) of 2.35
times, versus 2.44 times at the present moment.

During the first nine months of 2012, Telefónica's financing activity,
excluding short-term Commercial Paper Programmes activity, stood at nearly
11,900 million equivalent euros and has exceeded the amount raised in fiscal
year 2011. It is worth to highlight the strong refinancing activity since the
end of August until mid-October, when the Company raised around 5,375 million
euros equivalent in the credit markets, improving significantly the Company’s
liquidity position. The financing activity was focused on financing in advance
debt maturing in 2012, and smoothing the debt maturity profile for 2013 and
2014 at the Holding level. Therefore, the Company maintains a debt maturity
profile covered beyond 2014.

At the end of September 2012, bonds and debentures represented 64% of
consolidated financial debt breakdown, while debt with financial institutions
weighted 36%.

Corporate income tax for the first nine months of 2012 totalled 1,358 million
euros which, while profit attributable to minority interests dragged net
income by 291 million euros in the first nine months of 2012.

As a consequence of the items mentioned above, consolidated net income in the
January-September 2012 period stood at 3,455 million euros (+26.4%
year-on-year), while basic earnings per share increase to 0.98 euros per share
in underlying terms. It should be highlighted that underlying earnings per
share registered an important improvement in the third quarter, standing at
0.36 euros per share and growing both sequentially (+4.8%) and year-on-year
(+0.5% vs. -20.3% in the second quarter and -25.7% in the first quarter).

CapEx for the first nine months of the year totalled 5,699 million euros. In
organic terms, CapEx rose year-on-year by 3.5%. 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 12.2% in the first nine months of 2012.

Operating cash flow (OIBDA-CapEx), excluding spectrum investment, stood at
10,122 million euros for the first nine months of 2012 (+16.1% year-on-year).

Contact:

Telefónica, S.A.
Dirección de Comunicación Corporativa
Ronda de la Comunicación, s/n
+34 91 482 38 00
prensa@telefonica.es
www.telefonica.es/saladeprensa
 
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