Slide 1: Results January–June 2017
~ . ~ Results ‘ January —June 2017 ‘Telefonica
Slide 2: Disclaimer
Disclaimer This document and the conference-call webcast (including the Q&A session) 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 financi
Slide 3: H1 17 Highlights
01 H1 17 Highlights Mr. José María Álvarez-Pallete Chairman & CEO Investor Relations Telefónica, S.A.
Slide 4: Q2: Executing on strategy; structural quality
Q2: Executing on strategy; structural quality Demand for fiber, LTE, smartphone unabated; “M4M” gaining traction Organic growth acceleration Improving Avg. rev per access to +3.1% y-o-y; churn -0.2 p.p. q-o-q across the board Accelerating trends; Revs +3.1%, OIBDA +7.2%, OpCF +17.5% Flowing
Slide 5: Financial Summary
Financial Summary H1 17 Q2 17 Reported Organic Reported Organic € in millions Reported Reported y-o-y y-o-y y-o-y y-o-y Revenue 26,091 3.4% 2.3% 12,960 1.9% 3.1% Service revenues 24,224 3.7% 2.3% 12,037 1.8% 2.9% OIBDA 8,179 5.5% 4.3% 4,158 6.1% 7.2% OIBDA Margin 31.3% 0.6 p.p. 0.6 p.p. 32.1% 1.3 p.
Slide 6: Upgrading full year guidance
Upgrading full year guidance 2017E Guidance Original Guidance 2017 UPGRADED GUIDANCE 2017 H1 17 (Organic) Stable > 1.5% 2.3% Revenues (in spite of regulation: ~-1.2 p.p.) (regulation ~-1.2 p.p.) (regulation -1.0 p.p.) OIBDA margin Expansion up to 1 p.p. Expansion up to 1 p.p. +0.6 p.p. CapEx ex-spec
Slide 7: OIBDA growth flowing to net income
OIBDA growth flowing to net income H1 2017 (€m) +5.5% reported +9.3% +28.9% 8,179 (4,809) reported Reported Including -€130m +31.2% non-cash impacts (1) Underlying 3,370 (1,197) 3 (520) 1,600 (56) OIBDA D&A OI Associates Net Financial Taxes Minorities Net Income Expenses Underlying EPS €0.38 +32.3%
Slide 8: Robust FCF generation; improvement y-o-y and q-o-q
Robust FCF generation; improvement y-o-y and q-o-q FCF (€m) 2016 2017 y-o-y Growing FCF (y-o-y) +804 H1 17 (y-o-y in €m) 98.6% 402 (224) 1,021 1,620 804 62 599 746 564 815 69 Q1 Q2 H1 16 H1 17 OpCF WC Interest Taxes FCF growth payments & Others growth • FCF to accelerate in H2 17 Q2 q-o-q change in
Slide 9: Accelerating OIBDA growth
Accelerating OIBDA growth OIBDA: Organic growth & FX impact (€m) Q1 17 y-o-y Q2 17 y-o-y H1 17 y-o-y +139 (51) +337 +191 +285 Strong organic improvement in Q2 +52 • Up to June, organic and FX added €477m to OIBDA Organic Organic • Organic OIBDA trends ramping-up FX FX Organic FX Growth Growth Growth
Slide 10: Strengthening organic trends; sustainable growth
Strengthening organic trends; sustainable growth Top line (y-o-y organic) Q1 17 Q2 17 +4.1% Operating leverage improving returns Ex-reg. 5.2% • Q2 Service revenues ramping up +120 bps 3.1% 2.9% o All segments accelerating; UK stable 1.5% 1.7% • Outstanding sequential improvement in OIBDA of +590 bps
Slide 11: Gaining momentum in data monetisation
Gaining momentum in data monetisation LTE (H1 y-o-y organic) Smartphones (H1 y-o-y organic) Penetration Penetration Fostering data usage and revenue growth x3 83% 63% 59% 52% • Ensuring ARPU growth in Latam: recurrent plans & tiered pricing 19% o ~10% ARPU uplift after data adoption o 46% smartphone
Slide 12: New wave of value creation opportunities
New wave of value creation opportunities Cognitive Additional customer Intelligence value Services Beyond Connectivity Optimised customer experience: ARPU increased (upselling and cross-selling); improved conversion rates Enhanced operational efficiency (channel Speed & ARPU uplift mix, reduce back-
Slide 13: Digital Services: progress in the new ecosystem
Digital Services: progress in the new ecosystem 59% Video: pillar of current & future growth o/H1 Dig. Revs. • Solid revenue growth +4.8% y-o-y • Leveraging pay TV differentiation: o IPTV accesses growth acceleration to +7% y-o-y o New entry-level “Fusión+”; exclusive content and functionalities o W
Slide 14: Global Resources: Progress on technology evolution
Global Resources: Progress on technology evolution 18m FTTH (+15%) 89% Europe (+5 p.p.) 41m FTTx/Cable Leading NGN 18m (+5%) LTE coverage 61% LatAm (+15 p.p.) premises passed Connectivity 5m (+49%) (68% pop.) is essential Network Virtualization Telefonica solution ”UNICA”; deployment in 4 countries
Slide 15: Telxius: Consolidating solid results
Telxius: Consolidating solid results Financials (y-o-y organic) Q1 Q2 H1 Accelerating revenue growth 11.4% 48.9% 47.9% • Delivering strong revenue growth while maintaining robust profitability o New tower contracts signed in Spain, Germany and Brazil 5.4% (tenancy ratio +0.02x q-o-q) o Strong traffi
Slide 16: H1 17 Results
02 H1 17 Results Mr. Ángel Vilá COO Investor Relations Telefónica, S.A.
Slide 17: Spain: Improved trading, ongoing upselling
Spain: Improved trading, ongoing upselling “Fusión” mix (% base) “Fusión” ARPU (€) Low Mid High +6.4% Quality, ARPU & loyalty increase y-o-y 21% 24% +4.4% 84.8 73% y-o-y • Churn improvement q-o-q (Fusión, TV, mobile) 51% 49% 81.6 • Steady “Fusión” upselling; high-end: 24% (+3 p.p. q-o-q) 26% 29% 27%
Slide 18: Spain: Revenues trending upwards, solid cash flow
Spain: Revenues trending upwards, solid cash flow 2017 Service Revenues (organic y-o-y) Q1 Q2 Revenues in the right direction • Consumer revs. back to growth (+1.4 p.p. q-o-q) Q2 SR +0.2% y-o-y (ex TV wholesale) o Tariff upgrade and upselling 1.1% 0.1% • Business revs. (-1.4 p.p. q-o-q) reflecting s
Slide 19: Germany: Solid momentum; realisation of synergies
Germany: Solid momentum; realisation of synergies MSR ex-regulation (y-o-y organic) Promotions with larger data buckets MSR Regulation • Contract (+7% y-o-y); 197k net adds (172k in Q1) Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 o 55% of gross adds from partners (stable q-o-q) (0.4%) o Promotional activities; 15
Slide 20: UK: Customer focus delivers robust performance
UK: Customer focus delivers robust performance MSR (y-o-y organic) Quality customer Continued customer growth base growing… in a challenging market 1.5% 1.2% 1.4% Regulation • Contract growing: 62% o/total (+1 p.p.) 0.2% (0.7 p.p.) o Contract accesses: +2% y-o-y Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 o Leadi
Slide 21: Brazil: Accelerating profitable growth
Brazil: Accelerating profitable growth Contract Net adds (k) x2.3 y-o-y Quality-centric strategy continues delivering 858 435 • Strengthening mobile leadership Q2 Mobile ARPU o Total market share of 30.6%; 42.3% in contract +4.6% o Smartphones accesses (+33%), LTE (+90%) o 4G coverage to 71% of pop.
Slide 22: Brazil: Sustained benchmark performance
Brazil: Sustained benchmark performance Revenues (y-o-y organic) Q1 17 Q2 17 Accelerating revenue growth 5.1% 4.8% • Consistent mid-single digit MSR growth 2.1% 2.3% o Double-digit postpay growth o Data / MSR: 72% (+15 p.p. vs Q2 16) • Fixed revs. improving trend on FBB performance (2.2%)(1.3%) o UB
Slide 23: HispAm: Focus on value driving ARPU acceleration
HispAm: Focus on value driving ARPU acceleration Mobile accesses (y-o-y) Mobile ARPU (y-o-y local currency) Penetration Network upgrades driving superior growth 72% 21.1% 10.3% • Strong ARPU increase on booming data 17% 6.9% o Mobile data ARPU 55% o/total 1.1% Flat o LTE coverage 54%; +9 p.p. y-o-y
Slide 24: HispAm: Growth acceleration across the board
HispAm: Growth acceleration across the board Revenues (y-o-y organic) Reported Strong Revs., OIBDA, OpCF both organic & reported 15.5% 11.0% • Organic top line ramped-up on MSR (Q2: +18.2%; Q1: +10.6%) and fixed (Q2: +5.7%; Q1: +4.1%) 9.2% 4.1% o Mobile data revs. +34.7% in Q2 (+23.1% in Q1) o Pay T
Slide 25: Deleverage on strong organic FCF and disposals
Deleverage on strong organic FCF and disposals Net Financial Debt (€m) ND/OIBDA ND/OIBDA 2.91x 2.86x -€3.7Bn y-o-y 48,766 (1,021) 164 (648) (1,275) 829 397 48,487 €47,212 -€5.0Bn y-o-y 2.78x Mar-17 FCF Shareholder Pre- FX MTM & Jun-17 Post-closing remuneration retirement Others event (incl. hybrid c
Slide 26: Solid and diversified liquidity
Solid and diversified liquidity Sources of long-term financing (2017 YTD) Net Debt maturities (Jun-17) (€Bn) (€Bn; not considering hybrid NC dates) Avg. debt life 7.8 years 0.8 6.9 6.9 2.1 4.7 4.0 Cash > gross maturities USD Bonds € Bonds Latam Total 2017E 2018E 2019E Financing Liquidity position (J
Slide 27: Closing remarks
Closing remarks • Solid acceleration in organic growth; Revenues, OIBDA and OpCF • Sustained commercial momentum; adding higher value customers & “M4M” actions • Strengthening our differentiation; network leadership & quality businesses • Upfront CapEx investments fading • Sound earnings growth • Ro
Slide 28: For further information: Investor Relations
For further information: Investor Relations Tel. +34 94 482 87 00 ir@telefonica.com www.telefonica.com/investors