Telefónica Ends 2012 with Net Profit of 3,928 Million Euros after Write-Offs Totalling 2,536 Million

  Telefónica Ends 2012 with Net Profit of 3,928 Million Euros after Write-Offs
  Totalling 2,536 Million

    The Executive Chairman of the company, César Alierta, highlighted the
  progressive improvement in results quarter by quarter, which reflects the
  implementation of a deep transformation in Telefónica, aimed at regaining
  sustainable growth of organic revenue and a continued increase in margins.

Telefónica announces its guidance for 2013 and reiterates the shareholder
remuneration policy for 2013, of paying a cash dividend of 0.75 euros per
share.

Operating guidance (in organic terms*):

Revenue growth.

Lower OIBDA margin erosion than in 2012.

CapEx/Sales similar than in 2012.

Financial guidance:

Net financial debt < 47,000 million euros.

  *The fourth quarter is the best in the whole year, discounting exceptional
    impacts: the pace of growth increased in Latin America and consolidated
    OIBDA stabilised, after three successive quarters of sequential growth and
    increase in margins
  *The behaviour of net profit in 2012 compared to 2011 (-27.3%) is affected
    by a number of extraordinary impacts, which last year reduced this item by
    2,536million euros. These included the adjustment of the value of the
    stakes in Telecom Italia and Telefónica Ireland, and the effect of the
    devaluation of the Venezuelan Bolivar. Without these effects, the
    consolidated net profit stood at 6,465 million euros.
  *Between January and December, the free cash flow totalled 6,951 million
    euros, which guarantees ample coverage of the dividends announced for
    2013.
  *Revenues stood at 62,356 million euros at the end of December (-0.8% year
    on year, +0.7% excluding the impact of regulation). Particularly notable
    is the solid growth of mobile data revenues (+12.8% year on year) and the
    evolution of this item in Latin America (+5.5%), which accelerated in the
    fourth term to grow by +7.5% in organic terms.
  *Latin America consolidated its position as the region that contributes
    most to the Group's revenue (more than 50% in the fourth quarter), which
    demonstrates the value of the company's high degree of diversification;
    this is key to guarantee sustainable levels of differential growth in the
    future.
  *Over the year as a whole, Telefónica's consolidated OIBDA grew by +5.1% in
    reported terms to 21,231 million euros, which places the OIBDA margin at
    34% (+1.9 p.p.).
  *Between January and December, Telefónica reduced its financial debt by
    over 5,000 million euros to 51,259 million euros, which means that the net
    financial debt to OIBDA ratio is 2.36 times. In addition, thanks to an
    active financing policy (€15,000M between January and December), the
    profile of Telefónica's debt maturities is now covered beyond 2014. All of
    this is compatible with the envisaged investments in areas of greater
    growth and the acquisition of spectrum.
  *During financial year 2012, Telefónica invested 9,458 million euros, i.e.
    14.2% of its revenue (excluding investments in spectrum). 81% of that
    investment was earmarked for growth and transformation projects.
  *With regard to operations, Telefónica ended the year with a customer base
    that grew by +3% to 316 million accesses and the recovery of commercial
    momentum in Europe. Mobile customers totalled 247 million accesses at
    close of 2012 (+4%), with growth rates of +7% in the contract segment. At
    the end of December, Telefónica had 52.8 million mobile broadband
    customers (+38%) and had 18.6 million retail fixed broadband accesses
    (+3%).
  *The business in Spain has become the paradigm of the transformation of the
    Group towards a sustainable model of growth and profitability, which in
    the fourth quarter was translated into positive results, in both the
    financial and operating spheres. Thus:

       *Thanks to the new commercial strategy and the higher levels of
         efficiency and optimisation of resources, in the fourth quarter the
         OIBDA margin in Spain grew, year on year, by 5 p.p. , and for the
         first time in the last four years the quarterly operating cash flow
         increased (+7.7% year on year).
       *Movistar Fusión – which already has 1.5 million customers –marked a
         turning point in the Company's evolution in the country, boosting the
         growth of value services, as almost a third of the customers of
         Movistar Fusión have incorporated new mobile or broadband services.
         In addition, thanks to this service, in the fourth quarter the net
         gain in fibre customers accelerated (66,000 accesses), double that
         recorded in the third quarter, and in just one quarter the Company
         regained practically all the broadband accesses lost since the start
         of 2011.

Business Wire

MADRID -- February 28, 2013

2012 was a key year in Telefónica's transformation process. Various
initiatives were introduced during the course of the year that will accelerate
the restoring of the Company's growth differential. In the management report
on the 2012 results, César Alierta, the Executive Chairman of the Company,
highlighted the “progressive improvement quarter by quarter” as a result of a
“deep transformation process at Telefónica”, aimed at regaining sustainable
growth of organic revenue and a continued increase in margins.

Thus, Telefónica Latinoamérica's revenues exceeded those of Telefónica Europe
for the first time, remaining along with mobile data revenues as the main
growth levers for the Group, with both registering an acceleration in their
organic growth rates in the fourth quarter. At the same time, Telefónica
Europe regained strong commercial momentum in its main markets thanks to the
success of the newly launched tariffs, particularly "Movistar Fusión" in
Spain, which reflects a general improvement in the competitive position in the
different markets.

Furthermore, the fourth quarter is the best in the whole year, discounting
exceptional impacts. Thus, for the third quarter in a row there was a
sequential improvement in underlying OIBDA in absolute terms across all
regions, and in the consolidated OIBDA margin, which returned to year-on-year
growth in underlying terms, on the back of the transformational initiatives
and cost reduction measures undertaken in several areas.

Revenues stood at 62,356 million euros at the end of December driven by the
solid growth of mobile data revenues (+12.8% year on year) and the evolution
of this item in Latin America (+5.5%).Telefónica’s consolidated OIBDA grew by
+5.1% in reported terms to 21,231 million euros, which places the OIBDA margin
at 34% (+1.9 p.p.). With regard to operations Telefónica ended the year with a
customer base that grew by +3% to 316 million accesses.

At the end of 2012 Telefónica’s net income totalled 3,928 million euros. The
behaviour of the net profit compared to 2011 (-27.3%) is affected by a number
of extraordinary impacts that took away 2,536 million euros from this item
during the year. Among them are the adjustment of the value of stakes in
Telecom Italia and, above all, Telefónica Ireland, and the effect of the
devaluation of the Venezuelan Bolivar. Without these effects, the consolidated
net profit stood at 6,465 million euros.

Telefónica announces its guidance for 2013 and reiterates the shareholder
remuneration policy for 2013, of paying a cash dividend of 0.75 euros per
share.

Operating guidance (in organic terms*):

Revenue growth.

Lower OIBDA margin erosion than in 2012.

CapEx/Sales similar than in 2012.

Financial guidance:

Net financial debt < 47,000 million euros.

2012, a year of a deep transformation

In 2012 Global Resources consolidated its operating model and, through its
global areas, consistently contributed to Telefónica’s progress in optimising
scale economies. As a result, it has obtained higher efficiencies,
improvements in time to market and customer satisfaction, in addition to
increased competitiveness in its multinational businesses. Thus, it has set
the basis for accelerating our IT transformation, which will be supported on
our new data centres (Mexico, Brazil and Spain); the value traded globally in
mobile devices has risen to 80%, focused on 100 references; and in addition,
the new organisation of Telefónica’s multinational businesses has been
strengthened and as a result, revenues from its multinational businesses
increased 7% year-on-year, highlighting international services (+23%
year-on-year).

During 2012, Telefónica has also improved the CapEx efficiency by focusing on
growth, reallocating resources to higher-growth operations and services -such
as the selective rollout of fibre and VDSL-, improving service quality and
customer satisfaction, strengthening our networks via spectrum acquisition,
and prioritising simplicity in order to best take advantage of shared
investment.

At the same time, there was a substantial improvement in financial flexibility
at the end of 2012, thanks to a significant reduction in debt during the
second half of the year, thanks to strong cash flow generation and a proactive
portfolio management; and the Company's refinancing efforts throughout 2012,
among other things. All these measures have led to significant reduction in
financial leverage, credit rating stabilization and significant liquidity
improvement.

During the fourth quarter of 2012, Telefónica advanced further with the
transformation of the Company. Telefónica Digital, as part of its strategy to
boost innovation and capture opportunities in the digital world, has made
significant progress, including the progress with the development of Firefox
OS, an HTML5-based Mozilla operating system; the strategic agreement with
Microsoft for the creation of a Global Video Platform; or the creation of
Telefónica Dynamic Insights, a new global business unit aimed at opening up
the new value-creation opportunities offered by the so-called “big data”
sector. In addition, Wayra  successfully held its first “DemoDay Global” in
Miami to present to international investors the advances made by 17 start-ups
chosen from the more than 180 ventures so far accelerated. During the quarter
Wayra incorporated new academies in Sao Paulo, Munich, Prague and Santiago de
Chile, making a total of 13 academies around the world.

A costumer base of 316 million accesses

The Company's total accesses rose 3% year-on-year, reaching 315.7 million at
year end 2012, with a significant rise in the number of contract accesses and
fixed and mobile broadband accesses. Noteworthy was the 6% year-on-year
increase in accesses at Telefónica Latinoamérica (67% of the total). In the
fourth quarter, Telefónica Europe posted positive net additions on its total
accesses, as a result of strong commercial momentum.

Mobile accesses stood at 247.3 million at the end of the quarter, up 4% on
2011, driven by sustained growth in mobile contract accesses (+7%
year-on-year), which now account for 33% of total mobile accesses. Mobile net
additions in 2012 totalled 12.1 million accesses (excluding the disconnection
of 3.6 million inactive mobile accesses in Spain and Brazil). The Company‟s
mobile broadband accesses stood at 52.8 million in December 2012, maintaining
a solid 38% year-on-year growth, and representing 21% of mobile accesses (+5
percentage points year-on-year).

Fixed-line accesses reached 40.0 million at the end of 2012, with net
additions of 181 thousand during the fourth quarter. Retail fixed broadband
accesses reached 18.6 million at the end of the year, a 3% increase vs.
December 2011, with 530 thousand net additions during 2012. In the fourth
quarter, Telefónica Europe showed net additions for the first time since March
2011, thanks to the commercial momentum on fixed broadband at Telefónica
España. Retail fixed broadband accesses reached a penetration rate of 46% over
total fixed accesses.

Analysis of the income statement

It is important to note that Atento Group deconsolidated its results from
Telefónica Group as of the end of November 2012 (following the disposal of the
company during the fourth quarter of 2012), therefore affecting year-on-year
comparisons of Telefónica's reported financial results.

Revenues in 2012 totalled 62,356 million euros, a 0.8% decrease vs. 2011,
(-2.0% year-on-year in the fourth quarter), affected by adverse conditions in
certain markets, both economic and those resulting from more intense
competition, and the negative effect of regulation. Revenues increased 0.7%
year-on-year in 2012, excluding the negative effect of regulation.

The Company's high diversification remains a key differentiating factor in the
current environment, as demonstrated by the revenue breakdown. By regions,
Telefónica Latinoamérica's revenues in 2012 continued to show strong
year-on-year growth in organic terms (+6.7%), accelerating in the fourth
quarter vs. the third quarter (+7.5% vs. +6.4%), and they now account for 49%
of consolidated revenues (+2.9 percentage points vs. the previous year),
exceeding the revenues from Telefónica Europe (48% of total). By services,
mobile data revenues remained as growth driver in 2012 (+12.8% year-on-year),
contributing more than 34% to mobile service revenues during the period.

Consolidated operating expenses amounted to 42,343 million euros, 4.9% less
than in 2011. The 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). The trend in expenses
improved in the fourth quarter, with a 3.1% decrease year-on-year, thanks to
the efficiency and cost cutting measures introduced.

By concepts, supplies for full-year 2012 totalled 18,074 million euros, a 1.0%
decrease in reported terms. In the fourth quarter of 2012, the decrease
accelerated (-3.9% year-on-year in reported terms), reflecting lower mobile
interconnection costs in all regions and lower handset upgrades in Spain and
the UK. Subcontract expenses stood at 13,487 million euros while personnel
costs stood at 8,569 million euros, a 22.7% decrease vs. 2011, being the
year-on-year comparison affected by the provision for the redundancy program
in Spain mentioned above. Excluding Atento, which was sold in the fourth
quarter, Telefónica's average workforce stood at 131,468 employees.

Gains on sales of fixed assets in 2012 stood at 782 million euros (-5.0%
year-on-year) and at 493 million euros in the fourth quarter (-6.9%
year-on-year).

OIBDA and OIBDA margin evolution

It is important to mention that OIBDA is affected by a value adjustment (-527
million euros) by the Telefónica Group in relation to Telefónica Ireland.
Thus, operating income before depreciation and amortisation (OIBDA) amounted
to 21,231 million euros, with a sequential improvement in underlying OIBDA in
all regions. In the fourth quarter, underlying OIBDA was virtually stable in
year-on-year terms at 5,862 million euros, confirming, for the third quarter
in a row, a sequential quarterly improvement in OIBDA.

OIBDA margin at the end of 2012 stood at 34.0%. The sustained sequential
improvement in the underlying OIBDA margin continued in the fourth quarter
(37.0%, compared with 35.1% in the third quarter, 34.6% in the second quarter,
and 32.8% in the first quarter). Noteworthy, underlying OIBDA margin in the
fourth quarter registered positive year-on-year growth (+0.1 percentage points
compared with -0.5 percentage points in the third quarter, -1.9 in the second
quarter, and -2.8 in the first quarter), reflecting the success of measures
implemented to improve the Company's efficiency.

By region, Telefónica Latinoamérica continued increasing its contribution to
consolidated underlying OIBDA, accounting for 51%. Telefónica Europe accounted
for slightly less than 50%, and Telefónica Spain's contribution fell to less
than a third of the total (31%).

Depreciation and amortisation in 2012 (10,433 million euros) increased 2.8%
year-on-year while operating income (OI) totalled 10,798 million euros and
particularly improved in the fourth quarter.

Profit from associates amounted to -1,275 million euros (-635 million euros 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 recovery of all the operating
synergies considered at the time of this investment, with both effects
totalling -1,355 million euros in 2012. It should be pointed out that these
effects were non-cash impacts.

Net financial expenses for the full-year 2012 totalled 3,659 million euros,
24.4% more than in 2011. This implies an effective cost of debt of 5.37% over
the last 12 months excluding exchange rate differences. Free Cash Flow  for
full-year 2012 amounted to 6,951 million euros.

It is important to highlight that, following the Company's efforts to reduce
debt, net financial debt decreased by 5,045 million euros in 2012, finishing
the year at 51,259 million euros. Thus, the leverage ratio for the past 12
months (net debt over OIBDA) stood at 2.36 times as of the end of December.

Active financing policy

During 2012, Telefónica's financing activity, excluding short-term Commercial
Paper Programmes activity, stood at around 15,000 million equivalent euros and
has exceeded the amount raised in fiscal year 2011, improving significantly
the Company’s liquidity position. The financing activity was focused on
financing in advance debt maturing in 2012, and on smoothing the debt maturity
profile for 2013 and 2014 at the Holding level. Therefore, the Company
maintains a debt maturity profile that, along with cash flow generation
expectations, is covered beyond 2014.

At the end of December 2012, bonds and debentures represented 68% of
consolidated financial debt breakdown, while debt with financial institutions
represented 32%.

Corporate income tax for 2012 totalled 1,461 million euros, which, over an
income before taxes of 5,864 million euros, implied an effective tax rate of
24.9%, mainly due to the recognition of tax losses in several countries during
the fourth quarter. Profit attributable to minority interests dragged net
income by 475 million euros in 2012.

As a result of the above items, consolidated net income in 2012 was 3,928
million euros (-27.3% year-on-year) and the basic earnings per share 0.87
euros. The behaviour of net profit in 2012 compared to 2011 (-27.3%) is
affected by a number of extraordinary impacts, which last year reduced this
item by 2,536million euros. These included the adjustment of the value of the
stakes in Telecom Italia and Telefónica Ireland, and the effect of the
devaluation of the Venezuelan Bolivar. Without these effects, the consolidated
net profit stood at 6,465 million euros, while basic earnings per share was
1.44 euros.

It is important to underline the significant improvement in the fourth
quarter, in which net profit reached 2,051 million and 0.46 euros per share in
underlying terms, showing strong sequential growth (+28.5% vs. the third
quarter of 2012) and remaining virtually stable in year-on-year terms.

CapEx in 2012 reached 9,458 million euros. It is important to highlight that
in 2012 this item included 586 million euros mainly relating to the cost of
the spectrum in Brazil, Ireland, and Venezuela. The Company continued to
devote the bulk of its investments on growth and transformation projects (81%
of total investment), fostering the expansion of high-speed broadband
services, both fixed and mobile. The CapEx to sales ratio (excluding spectrum)
for 2012 stood at 14.2%, in line with 2011.

Consequently, operating cash flow (OIBDA-CapEx), excluding spectrum, stood at
12,360 million euros in 2012 (+9.6% year-on-year)

(*) Guidance criteria 2013: 2013 guidance assumes constant exchange rates as
of 2012 (average FX in 2012), excludes hyperinflationary accounting in
Venezuela in both years and considers constant perimeter of consolidation.
OIBDA level guidance for 2013 excludes write-offs, capital gains/losses from
companies’ disposals, towers sales and other significant exceptionals. CapEx
excludes spectrum acquisition.

2012 adjusted bases exclude:

  *Capital gains/losses from companies’ disposals: Capital gains/losses from
    China Unicom, Atento, Hispasat and Rumbo and impairment of T. Ireland.
  *Homogeneous perimeter: 2012 adjusted figures exclude results of Atento,
    Rumbo and small changes in T. Digital perimeter and homogeneous accounting
    treatment of Joint Ventures.
  *Tower sales.
  *Change in contractual commercial model for contract handsets in Chile.

2012 Bases for 2013 targets:

  *Organic revenues 2012: 61,084 million euros.
  *OIBDA margin erosion ex-towers: -1.4 percentage points.
  *Organic CapEx/Sales ex-spectrum: 14.1%.

Contact:

Telefónica
Maite Núñez
Tel: +34 91 482 38 00
Email: prensa@telefonica.es
www.telefonica.es/saladeprensa