Telefonica Sa · BME:TEF
Telefonica Sa — Telefonica S A — FY2006 Earnings Presentation
45 slides from Telefonica Sa's earnings presentation, Mar 1, 2007
Slide 1: Annual Results January - December 2006
Annual Results January - December 2006 TELEFONICA S.A. March 1st, 2007 | y st Lv NS Ay a ue oe This presentation is being broadcast live on the Internet
Slide 2: Disclaimer
Disclaimer This document contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the intent, b
Slide 3: 2006 performance strengthens our profile as best combination of growth & returns
GROUP FINANCIALS 2006 performance strengthens our profile as the best combination of growth & returns in the industry 4 areas of management focus in 2006... ..that delivered tangible results >1 bn.€ of synergies cashed-in (OIBDA-CapEx) Net Debt" /OIBDA progressing towards our 2.5x target TELEFONICA
Slide 4: A solid set of results in 2006, outperforming sector average
GROUP FINANCIALS e ° ° © A solid set of results in 2006, outperforming sector = average... L> =) € in millions (% change yo-y) Jan-Dec Jan-Dec —% Change % Change 2006/2005 2006 2005 2006/2005 organic? Revenues 52,901 37,383 ‘Operating Income ~ before D&A 19,126 15,056 (O1BDA) Operating income 9,421
Slide 5: Hitting our P&L targets at the Group level
GROUP FINANCIALS: . hitting our P&L targets at the Group level, after3Q06 [Q upgrade OO Revenue Growth OIBDA Growth +38.8% 428.9% Ties 3) Tien 3) % Change 2006/2005, % Change 2006/2005, Ol Growth capex 429.2% 7,749 me ea % Change 2006/2005, 2006 erence STS res spy coe ee ces ent ae Inet Relations Sy
Slide 6: ...and pushing underlying EPS up by almost 23%
GROUP FINANCIALS .and pushing underlying EPS up by almost 23%... (4 chongey-o9) 427.0% 412.7% QUUG 1861 ME (02's PPA) 1155 ME (Cesky’s PPA) Including 2006 results & eapital 2 gains (2.6 bné) from TP 2006 OIBDA D&A Assodates Financial results Taxes Minorities & (2006 Net income Discontinued ‘operatio
Slide 7: ...as we leveraged our drive on subscriber acquisition and retention
GROUP FINANCIALS ..a@s we leveraged our drive on subscriber acquisition and retention UU Total accesses (in mitions) Organic annual Commercial expenses * growth rate in billions) 86 2005, 2006 Capex spending (Ein millions) ; Or af . @ ‘Gowthrate. Breakdown by business (organk growth?) 455.7% 5,453 4
Slide 8: A highly diversified financial performance
A highly diversified financial performance... 2005 Revenues by region ROW 0.2% OIBDA by region TELEFONICA S.A, Note: beforeetiminations Investor Relations GROUP FINANCIALS 2006 = ROW 2% Europe 26% . Spain 38% Spain 51% ROW 02% | Spain 44% Spain 58%
Slide 9: Continuous focus on cost management to keep profitability
GROUP FINANCIALS ..and a continuous focus on cost management to keep profitability despite our commercial efforts QUUG OpExt Organic? Growth 2006 OIBDA Margin Organic? O18DA Margin 37.7% 37.2% Fixed? Mobile 2 : Group 2005 2006 (2) Supplies, Personnel Expenses (ex-restractuing cost), Externt Services
Slide 10: Spain: reinforced market position in 2006
m 8 QUUT E Spain: reinforced market position in 2006 Unique growth & profitability profile = Strengthening the lead in the BB market through the development of 2P & 3P and capturing market share in Pay TV, while limiting traditional lines losses = Strong top-line performance with the transformation
Slide 11: Telefónica de España: a push in ARPU that leads to unique top line growth
SPAIN WIRELINE Telefonica de Espafia: a push in ARPU that leads to eB unique top line growth [> L> ARPU TRANSFORMING THROUGH THREE KEY AXIS (€/month) = Expanding BB customer base me 64 23.5% of lines have BB (16.9% in 2005) 6 = Promoting 2P/3P (ARPU uplift & loyalty) 71% of retail 8B accesses with 2
Slide 12: Leading broadband development in the Spanish market
SPAIN WIRELINE Leading broadband development in the Spanish market... Spanish BB market Spanish BB market (accesses in millions) (accesses in millions) th7 QUUS 6.7 Gable 17% Tae Whi, -B% Decos 2006 net adds Dec.06 4006 net adds Dec.06 TdE Retail internet BB Accesses Td Pay TV subscribers (accesses
Slide 13: ...and containing traditional business erosion
SPAIN WIRELINE ..and containing traditional business erosion... e [> Tal fixed lines trend Flat & Semi-Flat Rates for voice D> (in thousands) (customers in millions) 15,950 oi 46 29 2005 2006 Net loss Net loss Total lines Dec.os Dec.06 Dec.06 Estimated Traffi (Million minutes) 2006 2005 OUTGOING 54,
Slide 14: ...with a strong focus on operational efficiency
SPAIN WIRELINE ..with a strong focus on operational efficiency QUUS Group Ope Breakdown fe in millions @ rmetgroutnrote Personne! Supplies External Taxes Operating 2006initial 2006 ex-ERE Services Expenses ex-ERE ERE provision additional provisions provisions ERE provision in 4Q06 ERE provisions in
Slide 15: Unique profile in terms of profitability
SPAIN WIRELINE Unique profile in terms of profitability QUUG Group Adjusted O1BDA* for Group O1BDA guidance cakulation €€ in miilfions) € in millions) 784 6 4572 503 ME additional FRE provision registered in 4006 is not included for guidance caleuiation 2005 2006 TELEFONICA S.A, _ (2) Bxlode other e
Slide 16: Telefónica Móviles Spain: a record Xmas campaign since 2001
SPAIN WIRELESS Telefonica Méviles Spain: A record Xmas campaign since 2001... QUUT 4006 performance Gross Adds Churn Net adds hs ane, © Postpay is m Postpay (in mittions) () Poste (in thousands) 0 Tota! a8, a ere .! it Le 17 17 257 td 09 4905 4006 4905 4906 4g05 4906 = > 1.2M customers joined on-net
Slide 17: ...which has reinforced the success of our commercial strategy
SPAIN WIRELESS: ..which has reinforced the success of our commercial e strategy, focused on value... 2 2006 performance 2006/2005 Churn Number Portability (%) © Posipay (in thousands} W Posipay +70% @ Total B Total +18% 17 278 1.0 180 Gross Adds Net Adds 2006 “116 2005 2006 Customer growth voy) Comp
Slide 18: ...and on the stimulation of voice and data usage
2006 (1-0 growth rates) INCOMING 1.7% . TOTAL? | -B4% OUTGOING —— -0.7% L: Voice TELEFONICAS.A, (i) Excladesroamingin .. and on the stimulation of voice and data usage SPAIN WIRELESS: QUUS i ARPU Growth MOU Growth Data revenues split 2005 2006 P2P Communications 63% 58% 24% increase in non P2P SMS r
Slide 19: Maintaining strong margin and absolute OIBDA despite tariff reductions
SPAIN WIRELESS: Maintaining strong margin and absolute OIBDA despite e interconnection & roaming tariffs reductions = Revenues Handset Revenues Service Revenues 44.2% 44.5% Customer revenues 44.7% 46.5% Interconnection revenues 40.5% -2.0% Roaming-in revenues? 43.8% 5.5% OIBDA (€ in millions) @ yoys
Slide 20: Europe: exploiting mobile growth opportunities
EUROPE Europe: exploiting mobile growth opportunities and extracting value from the turn-around of fixed b = Keeping the lead in service revenue growth in the UK, driven by solid subscriber additions and improved ARPU = Sustained healthy commercial performance in Germany, with a focus on contract se
Slide 21: O2 UK: strong service revenue growth driven by customer expansion
O2 UK: strong service revenue growth driven by solid customer expansion and strong voice usage Evolution of cient base (in thousands) in 2006 Decos Deco6 ® Postpay ° Prepay Average Revenue per User (quarterly monthly average, in£) " Better client mix, 35% of base on postpay (+1 p.p. vs. 2005) +9.2%
Slide 22: O2 Germany: sustained positive performance on contract
02 GROUP O2 Germany: sustained positive performance on e contract within a highly competitive scenario K Evolution of client base (in thousands) Service Revenues (€ inmiiliions) 0a as 2 9,769 ust 21,025 = 396,000 net new customers ne Ps ee ® 49% of 4006 net adds were on postpay 2,633 " 4Q06 contract
Slide 23: T.O2 Czech Republic: BB and mobile driving P&L turn-around
T.02 GROUP T.02 Czech Republic: BB and mobile are driving P&L turn-around UU 1 , . ne cttente i Revenue evolution tail BB connections —_Postpay mobile clients! nue in thousands) {in thousands) i (C2k in bitfons) 405 i BS SB ars | « 1,546" 2005 2006 OIBDA evolution (CZK in billions) Le } Growth of re
Slide 24: Latam: a successful management of growth and profitability
Latam: a successful management of growth and profitability QUUS = Strong growth in broadband & Pay TV across all countries, improving market positioning through gradual introduction of 2P & 3P = Broadband and VAS growth drive revenue expansion across all the region, with ongoing active management of
Slide 25: T.Latinoamérica: BB and IT services driving top-line performance
TLATAM WIRELINE T.Latinoamérica: BB and IT services are driving top-line performance... 2006 Revenue growth Breakdowm of consolidated revenue growth (constant currency’, in millions) QUUT 414.2% -40.7 8,352 10.7 pep. P23 pp PP. L 86% of growth eomparison* 2005 Internet Data Traditional Eliminations
Slide 26: BB connectivity & VAS to drive top-line growth
T.LATAM WIRELINE ..BB connectivity & VAS to drive top-line growth... QUUT Broadband revenues (€ in millions) Retail intemet BB connections (in thousands) Hoot DB Dec.o5 +31.4% growth in constant ausrrency ‘94,000 clients in Chile as of Dec.06 =26,000 clients in Peru as of Dec.06 Decos TELEFONICA S.A
Slide 27: While sustaining healthy margins across the board
TLATAM WIRELINE . While sustaining healthy margins across the board Commercial drive linked to economic growth iFrozen tariffs OIBDA margin by company = 2005 m= 2006 Telesp TASA! T.Chile Adjusted OIBDA? for guidance calculation in miffions) 4.6% growth excluding “PPD” > 2005 2006 QUUT TELEFONICA sa,
Slide 28: T. Móviles Latam: strong service revenue growth & enhanced profitability
T.LATAM WIRELESS T. Moviles Latam: strong service revenue growth & eB enhanced profitability boost cash flow generation K 2006/2005 growth rates OIBDA margin 30.5% a Bi txforex 24.5% 22.8% me @ E terms Customers (cei OIBDA 4005 4006 2005 ©2006 = Outgoing revenues: +27.7% in€ & local currency = Comme
Slide 29: Brazil: enhancing competitive position
T.LATAM WIRELESS Brazil: working towards enhancing our competitive eB position & delivering progressive improvements K Mol ARG © Corporate restructuring into , corporate restructuring into a (minutes) (local asrrency) See ee nied = Strong reduction of fraud and cloning-related losses Highest number
Slide 30: Mexico: strong operating momentum
T.LATAM WIRELESS Mexico: strong operating momentum leads to outstanding e service revenue growth & OIBDA improvement me Gross adds Blended chum Net adds (in thousands) () (in thousands) a5 8: 4514 5,414 Ee 2,185 28 4005 4006 2005 2006 4005 4006 2005 2006/2005 growth } 4006/4005 growth in millions) +
Slide 31: Other major operations (I)
T.LATAM WIRELESS Other major operations (I eB VENEZUELA: Sound revenues performance leveraging customer & ARPU growth E> Net adds 2006/2005 growth OIBDA @ Margin L tin eee (local asrrency) (in millions) &> 8M 1,834 I 46% =— 443% Customers Service OIBDA (2006 revenues . Commercial activity: +79% yoy
Slide 32: Other major operations (II)
T.LATAM WIRELESS Other major operations (II) ARGENTINA: Sound operating and financial performance Net adds 2006 y-o-y growth O1BDA @ tian in “eo, local eS € in millions) 269% 2 oo 28 a50% BEd of 2005, 2006 Servier = Very strong 4006 with >1M net Revenues = Strong commercial activity: adds (+11.6% vs
Slide 33: Deeper integration generating tangible benefits, ahead of expectations
GROUP SYNERGIES Deeper integration is generating already sizeable tangible benefits, ahead of initial expectations... CUB OpCF from synergies 2006 in millions) 2006 main initiatives (Spain & Latam) 1 970% of roaming internally managed . (8 94.7M clients on “A ‘urope”” 174. ME coming from |) "77M cli
Slide 34: ...and will continue to support operating performance in 2007
GROUP SYNERGIES .and will continue to support operating performance in 2007, capitalizing on the new Group structure OpCF from synergies 2007 § Regional management (Spain, Latam & Europe) in millions) CUB © Global projects {infrastructure & Systems, Resources, and Business Development) ~ 1,250 ~ 2,3
Slide 35: Reducing the average cost of debt
GROUP FINANCIAL EXPENSES Reducing the average cost of debt R im 2006 2005 [> Net Interest Expenses (2,795) (1,792) 455.9% FX Results 61 165 Reported Financial Expenses (2,734) (1,628) 468.0% Average Total Net Debt Evolution of Average Effective in millions) Debt Service Rate* 54,345 6.1% “Ge. 29,534
Slide 36: Cash Flow & Debt: de-leverage reaffirmed
GROUP DEBT Cash Flow & Debt: de-leverage reaffirmed and loan for the acquisition of O2 fully refinanced 4006 Net Financial Debt Evolution (in mitfions) UBUU 2.6% OIBDA* 52,239 +4,458 +105 7222 316ME for debt reduction Net Fin, Debt FCF Commitments Share_—‘TSA Dividends Net Financial Change in Net Fi
Slide 37: An attractive shareholder remuneration policy
GROUP FINANCIALS An attractive shareholder remuneration policy BUT 2006 Targets Dividends 2.6 bn€ paid : Double 2005 dividend per share (0.5€) to shareholders i by 2009, in line with doubling 2005 EPS (0.91€) by 2009 Buyback 5.6 M shares in treasury as of: Complete 2.7 bn€ buyback Program December 0
Slide 38: We are setting benchmark targets again for 2007
GROUP GUIDANCE We are setting benchmark targets again for 2007... Group Revenues Group O1BDA (€ in millions) «€ in miilfions) 19,126 19,040 2006 2006 adjusted for guidance 2006 adjusted forguidance (ex Endemol & Airwave) (ex Endemol & Airwave) Group O! (€ in millions) Group CapEx (€ in millions) 9,4
Slide 39: ...leveraging on very solid expectations for domestic
GROUP GUIDANCE ..leveraging on very solid expectations for domestic... Revenues OIBDA (€ in millions) €€ in millions) 11,964 4,560 2006 2007 2006 adjusted for 2007 guidance 8 2007e ERE provision of aprox.630 ME (2,200 employees) vs 980 ME in 2006 1007e Real Estate capital gains of aprox.162 ME vs 94
Slide 40: ...continuing out-performance of European businesses
GROUP GUIDANCE ..continuing out-performance of European businesses... (€ in millions) (€ in mitfions) 7 265 4,777 13,459 47 942 6. 2006 2007 2006 2006 2007 adjusted for guidance reported ex Airwave Revenues OIBDA (€ in millions) (€ in millions) adjusted for adjusted for guidance guidance (ex Airwave
Slide 41: ...and exploiting our distinctive growth profile in Latin America
GROUP GUIDANCE ..and exploiting our distinctive growth profile in Latin America Revenue Growth OIBDA Growth (€ in milfions) (€ in mitfions) 18,089 6,607 2006 2007 (2006 2007 adjusted for guidance CapEx (€ in milfions) 2,811 (2006 2007 TELEFOWICA SA etme figs ight tino ciel ay 2006, 2007 dene coma eh
Slide 42: 2007 targets, a guide to calculations
GROUP GUIDANCE 2007 targets, a guide to calculations | 2006 indude y 44 months of 02 (consolidated since February 2006) y 8 months of Telefonica Telecom? (consolidated since May 2006 under T. Latam) y 6 months of iberbanda (consolidated since July 2006 under T. Espaiia) y 3 months of start-up losses
Slide 43: Our commitments are based on execution of key management initiatives
GROUP GUIDANCE Our commitments are based on the execution of key management initiatives in each region = Develop our markets further, exploiting the penetration gap = Promote higher usage & enhance our competitive position through v A push on mobility & Internet services v A Pragmatic approach to co
Slide 44: Conclusions
Conclusions Stimulating growth, extracting synergies, re-structuring the debt, and yielding attractive returns have been our four management priorities this year, and translated into a 43% EPS growth 2006 financial results have remained solid across the year, ahead of the peer Group, and totally in-
Slide 45: Signatures
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Telefónica, S.A. Date: March 1 st , 2007 By: /s/ Santiago Fernández Valbuena Name: Santiago Fernández V