TDE.L Regulatory News (TDE)

FINANCIAL HIGHLIGHTS

· Acceleration in the growth of the main financial and operating metrics.

® Increased value accesses: LTE (+31% y-o-y), smartphones (+6%), FTTx/Cable (+23%; record net additions in the quarter of 724k), mobile contract (+6%; 2.2m net additions, 7-year record), Pay TV (+6%).

® Revenues (€12,144m; -6.3% y-o-y) accelerated their organic growth to +2.0% in the quarter.

® April-June OIBDA (€4,237m; +1.9% y-o-y) increased by 4.1% organic (+3.3% in the first quarter) and OIBDA margin expanded (+2.8 p.p. y-o-y; +0.7 p.p. in organic terms).

® In the second quarter, net income (€902m) grew by 9.9% y-o-y and by 11.0% per share (€0.16).

® Reported April-June results are affected by net positive impacts in OIBDA (€225m) and negative impacts in net income (-€60m), mainly associated with a favourable court ruling in Brazil, and partial goodwill impairment and tax asset reversal in Mexico.

· Radical transformation of our networks.

® 47.3m premises passed with FTTx/cable (+15% y-o-y) and LTE coverage of 73% (+6 p.p.).

® Leaders in network virtualisation and in the creation of a global customer-centric digital ecosystem.

· Financial flexibility continued increasing.

® Free cash flow (€1,548m in January-June 2018) grew 32.7% y-o-y excluding spectrum.

® Net debt (€43,593m at June; -10.1% y-o-y) decreased for the 5th consecutive quarter (-€382m).

· The Company reiterates its guidance and the dividend announced for 2018.

· T. España reinforced its positioning with the launch of O2 Brand and football content acquisition, whilst growing in revenues (+0.3% y-o-y in organic terms) and OIBDA (+0.2%), with OIBDA margin at 40.5% in April-June. 

· T. Brasil organic OIBDA growth accelerated y-o-y in the quarter (+7.1%), with OIBDA margin expansion of 2.2 p.p. after posting a new record in fibre connections and increasing contract net additions y-o-y.

· T. Deutschland improved its commercial activity in the second quarter with the launch of O2 Free Boost and O2 Connect and grew in mobile service revenues (ex-regulation +0.2% y-o-y organic), OIBDA (+0.3%) and operating cash flow (+3.2% in the first half of the year).

· T. UK maintained in April-June its leading contract churn in the market, and growth accelerated both in revenues (+5.6% y-o-y organic) and OIBDA (+8.2%), while operating cash flow increased by 21.0% y-o-y in January-June.

· T. Hispam Sur; solid increase in revenues and OIBDA y-o-y organic growth in the quarter (+8.7% and +8.8% respectively) posting net contract additions in all the countries and a gradual progress in FTTx/Cable.

· T. Hispam Norte; strong commercial activity focused on high value. April-June revenues -0.4% y-o-y organic and OIBDA -2.8%. However, excluding regulation growth trends accelerated (+1.5% and +5.1% respectively).

Comments from José María Álvarez-Pallete, Executive Chairman:

"Telefónica second quarter results showed an improvement in the y-o-y organic growth trends of revenues, OIBDA and OIBDA margin expansion. Moreover, net debt decreased for the fifth consecutive quarter thanks to the strong free cash flow generation (€998 million), which grew by 55% excluding spectrum payment in the UK. These results allow us to reiterate our guidance and dividends for 2018.

Our value offer to customers remains key, and we continue investing and expanding our ultra broadband networks. As of June, we have 47.3m premises passed with proprietary FTTx/cable network, +15% y-o-y. LTE coverage grew by 6 p.p. to an average 73% in all our footprint.

Lastly, we remain convinced that the key levers to a sustainable digital future lie with our capacity to radically transform our networks, create a customer-centric digital ecosystem, establish digitalisation as the cornerstone for generating efficiencies and remain at the vanguard of cognitive intelligence".

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DISCLAIMER

This document may contain forward-looking statements and information (hereinafter, the "Statements") relating to the Telefónica Group (hereinafter, the "Company" or "Telefónica") or otherwise. These Statements may include financial forecasts and estimates based on assumptions or statements regarding plans, objectives and expectations that make reference to different matters, such as the customer base and its evolution, growth of the different business lines and of the global business, market share, possible acquisitions, divestitures or other transactions, Company's results and other aspects related to the activity and situation of the Company.

The Statements can be identified, in certain cases, through the use of words such as "forecast", "expectation", "anticipation", "aspiration", "purpose", "belief" or similar expressions or variations of such expressions. These Statements reflect the current views of Telefónica with respect to future events, do not represent, by their own nature, any guarantee of future fulfilment, and are subject to risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such Statements. These risks and uncertainties include those identified in the documents containing more comprehensive information filed by Telefónica before the different supervisory authorities of the securities markets in which its shares are listed and, in particular, the Spanish National Securities Market Commission.

Except as required by applicable law, Telefónica does not assume any obligation to publicly update the Statements to adapt them to events or circumstances taking place after the date hereof, including changes in the Company's business, in its business development strategy or any other unexpected circumstance. This document may contain summarized, non-audited or non-GAAP financial information. The information contained herein should therefore be considered as a whole and in conjunction with all the public information regarding the Company available, including, if any, other documents released by the Company that may contain more detailed information.

In October 2015, the European Securities Markets Authority (ESMA) published guidelines on Alternative Performance Measures (APM), applicable to regulated information published from July 3, 2016. Information related to APM used in the present document are included in the Appendix "Alternative performance measures", page 45 of this document. Moreover, recipients of this document are invited to read our condensed consolidated interim financial statements and consolidated interim management report for the six-month period ended Jun 30, 2018 submitted to the Spanish National Securities Market Commission (CNMV), in Note 2, page 9, of the pdf filed. Neither this document nor any of its contents constitute an offer to purchase, sale or exchange any security, a solicitation of any offer to purchase, sale or exchange any security, or a recommendation or advice regarding any security.