Telefonica S.A. — Interim / Quarterly Report 2016

Jul 28, 2016

6-K 1 d80585d6k.htm 6-K 6-K

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of July, 2016

Commission File Number: 001-09531

Telefónica, S.A.

(Translation of registrant’s name into English)

Distrito Telefónica, Ronda de la Comunicación s/n,

28050 Madrid, Spain

3491-482 87 00

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ¨ No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ¨ No x

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes ¨ No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

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Telefónica, S.A.

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Item		Sequential Page Number
1.	Telefónica Group: Presentation on quarterly results January-June 2016	2

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Telefónica Results January – June 2016

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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 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 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. The content of this disclaimer must be taken into account by any individual or entity who may have to purchase or sell or elaborate or disseminate opinions related to any securities issued by the Company, and, in particular, by analysts and investors. Except as required by applicable laws, 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 or business development strategy or any other unexpected circumstance. This document and the conference-call webcast (including the Q&A session) may contain summarized or non-audited financial information. The information contained herein and therein should therefore be considered as a whole and in conjunction with all the public information regarding the Company available, including any other documents released by the Company that may contain more detailed information. Neither this document nor the conference-call webcast (including the Q&A session) nor any of their contents constitute an offer to purchase, sale or exchange any securities, a solicitation of any offer to purchase, sale or exchange of any securities, or a recommendation or advice regarding any security. Investor Relations Telefónica, S.A. Telefónica

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01 Q2 16 Highlights Mr. José María Álvarez-Pallete Chairman & CEO Investor Relations Telefónica, S.A. Telefónica

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Q2 16 Highlights; strategy is working Profitable growth remained solid Service revenue +1.5%, offsetting handset sales (-18.0%) Data monetisation driver continue their positive trend (Non-SMS data revs +16.0%) Av. Rev/Access +2.0% capitalising on fiber, smartphones, LTE and Pay TV Maintaining focus on efficiencies & merger synergies Growing OIBDA, margin and OpCF Best technology platforms Fiber premises passed 32.9m; LTE coverage 55% (84% in Europe) Building the future (new customer knowledge platform linked to Big Data; offering a differential experience) Improved competitive position Spain: OpCF back to growth Brazil & Germany: Margins boosted by synergies (proving TEF’s capacity to extract value from them) UK: Distinctive customer growth, loyalty and brand awareness Hispam: Increasing value penetration Committed to deleverage Best in class diversification; further improvement of operations and FX drag to ease in H2 FCF €815m in H1 to significantly improve along the year Broad diversity of potential debt reduction measures, combined with attractive debt re-financing opportunity %: y-o-y organic 2016 guidance; dividend & mid-term leverage confirmed Investor Relations Telefónica, S.A. 1 Telefónica

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Key financials (UK full consolidation) € in millions Revenue Service revenue OIBDA OIBDA Margin OpCF (ex-spectrum) Net Income EPS FCF Net Financial Debt Reported 25,235 23,364 7,756 30.7% 4,112 1,241 0.23 815 52,568 H1 16 Reported y-o-y (7.1%) (5.7%) (6.4%) 0.2 p.p. (5.9%) (42.1%) (45.2%) c.s. 2.7% Organic y-o-y 1.3% 2.7% 3.1% 0.5 p.p. 3.3% Reported 12,723 11,824 3,918 30.8% 1,968 693 0.13 746 Q2 16 Reported y-o-y (7.7%) (6.1%) (7.1%) 0.2 p.p. (3.1%) (54.5%) (55.6%) c.s. Organic y-o-y (0.2%) 1.5% 0.8% 0.3 p.p. 1.4% Negative FX effect in OIBDA offset at FCF level (€ in millions) (913) OIBDA 581 CapEx 177 Working Capital 176 Taxes + interest + Others 21 FCF Investor Relations Telefónica, S.A. 2 Telefónica

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H1 affected by FX and perimeter impacts FX impact (y-o-y) Revenues OIBDA Q1 16 Q2 16 H1 16 (14.3 p.p.) (13.6 p.p.) (9.1 p.p.) (7.9 p.p.) (11.7 p.p.) (10.7 p.p.) Perimeter impact (y-o-y) Revenues OIBDA 5.0 p.p. 3.7 p.p. Q1 16 1.5 p.p. 0.8 p.p. Q2 16 3.3 p.p. 2.3 p.p. H1 16 FX to ease in H2 16 H1 16 results impacted by average FX, following sharp depreciation Q3 15: BRL and COP Q4 15: ARS Perimeter; no impact in H2 16 • GVT & DTS consolidated in May-15 Investor Relations Telefónica, S.A. 3 Telefónica

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Full-year guidance on track 2016 Guidance (Constant FX 2015; ex-VZ; ex-UK) Revenue OIBDA margin CapEx/Sales Guidance 2016E >4% Stabilising vs. 2015 Around 17% H1 16 +5.0% +0.1 p.p. 15.1% Service Revenues +6.4% Dividend Share buyback: % share capital cancelled (treasury) (BoD to decide in H2 16) Mid-term target Net Financial Debt / OIBDA <2.35x €0.75/sh. €0.35/sh. voluntary scrip Nov-16 €0.4/sh. cash Q2 17 1.5% 3.20x Jun-16 Investor Relations Telefónica, S.A. 4 Telefónica

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Strong FCF performance in Q2 16 FCF (€ in millions) 2015 2016 363 69 Q1 746 (557) Q2 815 (194) H1 FCFS (€) 0.01 0.15 0.17 EPS (€) 0.10 0.13 0.23 Cash generation improvement (y-o-y and q-o-q) Robust H1 FCF y-o-y (+€1,009m) on the back of: Better performance of OpCF in Q2 Lower spectrum, CapEx, financial payments & minorities Higher WC consumption (partly due to spectrum) & slightly higher taxes impacted by non-recurrents in H1 15 FCF sequential improvement (+€677m) mainly due to WC and financial expenses, offsetting higher taxes, Capex and minorities • FCF to improve in H2 16 Expected improvement in operational performance (OIBDA) • Lower FX headwinds • Seasonality of WC & other factors Investor Relations Telefónica, S.A. 5 Telefónica

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Continued strong momentum with quality customers Expanding reach Jun-16 (y-o-y) Mobile Contract/ Total Mobile 39% (+3 p.p.) Smartphone penetration 51% (+9 p.p.) LTE penetration 19% (+10 p.p.) Pay TV/FBB 49% (+1 p.p.) FTTX+VDSL/FBB 40% (+10 p.p.) Avg. Revenue / Access (y-o-y organic) 3.2% H1 16 Accesses 348m Churn 2.7% Securing a distinctive top-line growth profile Exploiting growth opportunities to foster service revenues o X2 LTE accesses vs. Jun-15 o 1.7m smartphones added to base in Q2 o +31% y-o-y FFTX + VDSL accesses o Fast adoption of Pay TV (+5% y-o-y) Increasing bundling with FFTX/4G, allowing high-end pricing power Increasing customer lifetime value o Strong Q of customer retention (churn -0.2 p.p. q-o-q) o Innovative value propositions o Best customer experience Investor Relations Telefónica, S.A. 6 Telefónica

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Resilient growth of service revenues Total Revenues (y-o-y organic) (0.2%) Q2 1.3% H1 Handset Revenues (y-o-y organic) (9.0%) (18.0%) Q1 Q2 Q2 Service Revenues (y-o-y organic) 4.8% 1.5% 1.6% 1.1% (1.8%) (2.3%) TEF T. Hispam T. Brasil T. España T. UK T. Deutsch Service Revenues (y-o-y organic) 3.9% (1.4 p.p.) 1.5% (0.6 p.p.) (0.3 p.p.) (0.1 p.p.) Q1 T. Venezuela T. Mexico T. UK Others Q2 Quality of revenues Service revenues growth offset handset sales Service revenues expansion higher than total revenues in all segments Consistent trends in Q2 in Brazil & Spain vs. Q1 Lower handset sales impacting Q2; worsening trends in all business Q2 growth levered on strategic business BB Connectivity & SoC growing robustly and increasing weight to 47% o/total (+6 p.p. y-o-y) Declining Voice & Access (43% o/total; -5 p.p. y-o-y) Continued demand for mobile data (Non-SMS revs. +16.0% y-o-y) Revenue (H1 16) GER 15% SPAIN 25% UK 14% HISPAM 24% BRAZIL 20% Investor Relations Telefónica, S.A. 7 Telefónica

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Sustaining OIBDA growth, strong diversification H1 OIBDA (y-o-y organic) 7.0% 3.1% 1.7% 1.5% 0.6% (1.2%) TEF T. Brazil T. Deutsch T. España T. UK T. Hispam OIBDA 2016 (y-o-y organic) OIBDA Margin (y-o-y organic) 3.1% 0.8% High operating leverage Q2 30.8% +0.3 p.p. H1 30.7% +0.5 p.p. Ongoing synergies & efficiencies improvements OIBDA growth for 8th Q in a row Outstanding OpEx in Q2 (-0.8% y-o-y organic); outpacing revenue decline Merger synergies on track (BZ, DE) Redundancy programs driving personnel savings (Spain, BZ, ) Global simplification initiatives across regions Broad-based y-o-y margin improvement in Q2, except in Hispam Ongoing organic OpCF growth in Q2 (H1: +3.3% y-o-y) Back to growth in Spain (Q2: +1.0% y-o-y) Brazil maintains its robust increase (H1: +33.6% y-o-y) OIBDA (H1 16) GER 11% SPAIN 33% UK 12% HISPAM 22% BRAZIL 21% OpCF ex-spectrum (H1 16) SPAIN 41% UK 12% HISPAM 17% BRAZIL 21% GER 10% Investor Relations Telefónica, S.A. 8 Telefónica

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Clear data monetisation results Q2 mobile data traffic +50% y-o-y LTE traffic 32% of mobile data traffic (+4 p.p. y-o-y ) Smartphone penetration 51% Contract 72% Prepaid 40% Q2 LTE dynamics Traffic (y-o-y) 3x Usage uplift 68% ARPU uplift ~10% Data Revenues (y-o-y organic) Q2 16 H1 16 20.0% 12.5%16.0% 9.4% Data 52% +5 p.p. Data/MSR Non-SMS data 82% +5 p.p. Non-SMS/Data LTE data upselling; ARPU growth LTE customers 50.1m (x2 y-o-y) Q2 avg. usage/per smartphone +34% y-o-y (955 MB/month) Prepaid data ARPU uplift in Latam (Q2:+18% y-o-y) T. Hispam opportunity; smartphone penetration 30% Contract data monetisation via traffic dynamisation and upselling Fixed data opportunity ahead Booming FBB traffic (Q2: +50% y-o-y) Fiber quality and speed fostering usage Investor Relations Telefónica, S.A. 9

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Digital Services: enhancing customer experience Revenues (y-o-y organic) 15.7% Q2 16 €1,212m 17.4% H1 16 €2,349m Solid growth (y-o-y organic) Q2 16 H1 16 Weight o/ total revs. Q2 16 28% 33% 30% 24% 25% 26% 13% 15% Video Security M2M Cloud 57% 7% 5% 12% Building on solid platforms Video: 8.4m accesses (+5% y-o-y) Introduction of new functionalities and success of own productions Cloud: Chile & Brazil: new “Open Telefónica Cloud” services Security: Two new Security Operations Centres in Mexico & Spain New strategic alliances to integrate with own security solutions M2M: Consolidating Smart m2m platform as strategic asset to win key industry references Financial Services: O2 Mobile Banking, Germany’s first mobile-only bank, launched commercially Telefónica Open Future_: Integrating startups’ services internally and into customer offering Investor Relations Telefónica, S.A. 10 Telefónica

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TGR: Technology excellence Enlarged UBB footprint Premises Passed with Fibre 32.9m FTTX +14% y-o-y 20.7m FTTH +19% y-o-y LTE Coverage (%PoP) 55% (+12 p.p. y-o-y) Further progress on All-IP VoIP accesses 5.7m 7 countries VoLTE deployments 6 countries Network modernisation All-IP upgrade: More capability & efficiency Native VoWiFi in Germany based on IMS (IP Multimedia Subsystem) New metro network in Spain; OTN (Optical Transport Network) Global Centers: Standardisation & simplification Devices: HGU (Home Gateway Unit) already in Spain & Brazil Innovation: SON (Self Optimizing Networks) to improve 70m customers’ experience Telefónica awarded best NFV/SDN solution Agreements with main vendors to evolve 5G architecture E2E Digitalisation Big Data platforms for Real Time decision 14.7 PB (x 3 y-o-y) Consolidation Online Charging Systems 51% Single OCS customers Full Stack 15 countries on track Investor Relations Telefónica, S.A. 11 Telefónica

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02 Q2 16 Results Mr. Angel Vilá CSFO Investor Relations Telefónica, S.A. Telefónica

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Spain: Commercial momentum gaining pace Quarterly net adds (‘000) Q1 16 Q2 16 Churn q-o-q -0.2 p.p. 52 17 FBB -0.1 p.p. 111 114 UBB -0.2 p.p. 56 27 Q2 seasonality TV -0.1 p.p. 50 (17) Mobile contract “Fusión” high value Jun-15 Jun-16 67% 52% 32% 25% UBB IPTV “Fusión” ARPU Euros +12% 78.2 79.8 71.3 Q2 15 Q1 16 Q2 16 Unique platform High customer stickiness Fusion churn: 1.1% in Q2 (-0.2 p.p. q-o-q) Best-in-class UBB network in Europe FTTH coverage: 15.7m premises passed (H1: +1.4m) LTE coverage: 86% pop (+3 p.p. q-o-q) Continuous quality upgrade of quad-play offer Innovative TV (VoD off-line, shift TV, ), 300 Mb symmetry, HGU,.. Consistent upselling “Fusión” remains unabated (subs: +10% y-o-y) Penetration upside New step on the “more for more” strategy launched in July Smart bundling (Premium TV & mobile add-ons) Investor Relations Telefónica, S.A. 12 Telefónica

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Spain: Further progress in the new growth cycle Revenues (y-o-y organic) Total Handset sales Service Rev. Total Revenues €3,126m €3,202m 1.0% 1.1% 0.2% (0.1%) (18.2%) (22.3%) Q1 16 Q2 16 Profitability (y-o-y organic ex-real estate in Q2 15) Q1 16 €3,126m Q2 16 Margin Total OIBDA €1,317m 2.6% 2.0% OIBDA 41.1% +1.1 p.p. €854m 3.3% (0.5%) OpCF 26.7% +0.9 p.p. Sustainable service revenues growth Accelerating service revenues increase despite negative calendar effect from “Fusión” tariffs update All revenue segments delivering y-o-y growth in Q2 Convergence and IT drive Business improvement Improved OIBDA & OpCF; efficiency gains Savings from Redundancy Program since Q2 Q2 OpEx: -1.9% y-o-y (Q1: -1.3%) Commercial process simplification (Q2 commercial cost: -18% y-o-y) Sustainable margin expansion OpCF increasing in Q2 y-o-y; despite Q2 CapEx +1.2% y-o-y Investor Relations Telefónica, S.A. 13 Telefónica

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Germany: Outstanding OpCF; synergies on track Contract Gross Adds mix GA retail GA partners 53% Q2 16 339k contract net adds; +87% q-o-q Revenues (y-o-y) (2.3%) (0.3 p.p.) (3.1 p.p.) (0.2 p.p.) (5.9%) Q1 16 MSR Handset Other Q2 16 Financial (y-o-y ex non-recurrent) Margin Q1 16 Q2 16 6.2% 1.8% OIBDA 25.0% +1.9 p.p. 16.0% 17.3% OpCF 13.3% +2.8 p.p. Strong trading of partner brands Increasing competition in non-premium (aggressive pricing) Revenues pressure in Q2 Lower handset sales y-o-y (Q2: -25.5% y-o-y; Q1: -5.5%) MSR showed wholesale mix; legacy base headwinds and regulation Further progress on LTE: Coverage at 77% (+7 p.p. y-o-y) Ramp-up of non-SMS data revs in Q2 to 13.6% y-o-y Avg. data usage of contract LTE O2 consumer +16% q-o-q to 1.4G OIBDA margin expansion to remain Incremental savings from H2: Q2 synergies (€40m); H1 (€95m) OpEx transformation peaking in H1 (brand, retention) Outlook confirmed but CapEx guidance reduced to ‘mid to high single- digit % growth’ Proposal for annual dividend growth over next 3 years (2016: €0.25/sh.) Investor Relations Telefónica, S.A. 14 Telefónica

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UK: Strong trading; leading loyalty Net adds (‘000) Total Contract 240 115 134 (86) Q1 16 Q2 16 New record low contract churn of 0.8% Mobile Service Revenues (y-o-y ex “O2 Refresh”) 2.6% (1.6 p.p.) (0.8 p.p.) (0.4 p.p.) (0.2%) Q1 16 Roaming/ Subscription Other Q2 16 MTR Continued customer growth Strongest quarterly net additions in 6 quarters Contract customers: 61% of the total; +5 p.p. y-o-y Fast LTE deployment 91% outdoor coverage (+18 p.p. y-o-y) Penetration at 43% of base (+17 p.p. y-o-y) Customers up 64% y-o-y to 9.5 m OIBDA margin expansion in Q2 (26.6%; +0.1 p.p. y-o-y) Q2 MSR broadly flat (ex-O2 Refresh) y-o-y Top line pressure in Q2 (ex “O2 Refresh”) Handset sales market wide slowdown (-11.6% y-o-y) Roaming + MTRs (-2.0 p.p. in Q2 y-o-y) OpEx decline y-o-y (phasing of marketing spend and underlying savings) Increased investments in LTE (H1 CapEx: +6.3% y-o-y) Investor Relations Telefónica, S.A. 15 Telefónica

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Brazil: Best positioned in the market Mobile accesses (y-o-y) ARPU Q2 y-o-y x3 21% 7% (11%) Total Contract Smarthpones LTE Mobile ARPU +18.6% Data ARPU +40.9% Fixed access (y-o-y) ARPU Q2 y-o-y 2% FBB FBB ARPU +7.3% 51% UBB UBB ARPU +8.3% (1%) Pay TV TV ARPU +12.2% 49% IPTV IPTV ARPU +8.5% Superior quality; Outperforming peers Mobile: Best 3G & 4G coverage (89% population) Best satisfaction and perceived quality (Anatel survey) 42.3% contract market share (LTM: 55% share of net adds) Prepaid: Selective commercial approach Fixed: Increasing speed fostering ARPU expansion 16.1m homes passed with fiber/4.0m connected Shortening the loop in the legacy copper network in SP Leader in UBB with 54% market share Successful cross-selling between former GVT and Vivo customers: All stores already selling fixed products Investor Relations Telefónica, S.A. 16 Telefónica

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Brazil: Growing market share with margin expansion Service Revenues (y-o-y organic) Total service revenues (F+M) Mobile service revenues 2.3% 1.7% 1.1% 0.4% Q1 16 Q2 16 Service Revenues market share 35% (+0.8 p.p. vs. Q1 15) Financials (y-o-y organic) Margin Q1 16 Q2 16 8.2% 5.8% OIBDA 31.7% +1.5 p.p. 32.1% 5.8% OpCF 14.9% +4.0 p.p. Synergies above estimates; raising ambition to R$25Bn Sustaining revenue growth Q2 MSR accelerated to +3.9% y-o-y ex-regulation Data revs. continues ramping-up (Q2: +24.8% y-o-y) Q2 fixed revs. decelerated to +0.8% y-o-y mainly due to regulation (-21% since Feb-16). Growth engines: Pay TV and FBB Handset sales y-o-y (Q2:-19.2%; Q1: -10.9%) affected by targeted commercial activity and macro Deeper efficiency, synergies and financial discipline Sequential Improvement in OpEx (Q2: -2.8% y-o-y; Q1: -1.0%) well below inflation (+8.8%) Rational commercial approach. Better trend on energy cost o Q2 operational synergies: €37m (H1: €85m) Solid execution of synergies (already secured 55% of NPV of best case) + additional opportunities identified during integration process with a trending NPV +13% above the best case scenario Widening investment gap; 15.6% CapEx/Sales (16.5% before CapEx synergies) Investor Relations Telefónica, S.A. 17 Telefónica

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HispAm: Reinforcing leadership in high-value Contract accesses (y-o-y) 24.4% 11.5% 7.3% 8.5% 7.4% 1.5% HispAm ARG CHI COL PER MEX FBB & Pay TV accesses (y-o-y) FBB Pay TV 17.1% 14.7% 9.7% 2.3% 3.5% 6.1% 0.5% 1.0% 1.2% HispAm ARG CHI COL PER Quality investments paying-off T. HispAm: Strong performance in contract Net adds x2.5 vs. Q2 15 Very intense competition, mainly Peru and Chile, hitting prepaid performance Rapid take-up of new services y-o-y Smartphone & LTE penetration: +6 p.p. y-o-y Accelerating fixed transformation (bundling 41%; +5 p.p. y-o-y) Delivering higher speeds (56% > 4 Mbps; +5 p.p. y-o-y) Positive Q2 Pay TV net adds in main markets Investor Relations Telefónica, S.A. 18 Telefónica

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HispAm: Healthy growth in top line Revenue (organic y-o-y) Change vs. Q1 16 y-o-y contribution 11.3% (4.7 p.p.) (2.5 p.p.) (0.5 p.p.) 3.6% Q1 16 VZ MEX Others Q2 16 Service Revenue (organic y-o-y) Q1 16 Q2 16 20.1% 18.8% 12.7% 12.8% 4.8% 4.7% 3.0% (0.4%) (0.3%) (0.8%) (2.0%) (6.1%) HispAm ARG MEX COL CHI PER Peers’ outperformance in broad markets Robust Q2 fixed revenues: +16.1% y-o-y Sequential deterioration of OIBDA y-o-y (Q2: -3.4%; Q1: +0.8%) affected by MEX and VZ FX, competition (higher interconnection costs) and inflation: drivers of margin erosion (-2.0 p.p. y-o-y) MÉXICO: Intense competition in H1, but easing in recent weeks. Gaining market share PERÚ: OIBDA and margin improving in Q2 on efficiencies and strong performance in fixed business ARGENTINA: Steady revenue increase in Q2 & improving OIBDA trends CHILE: Very solid fixed revenue performance; OIBDA growth impacted by higher commercial costs and FX COLOMBIA: Improved revenue growth; OIBDA and margin declining (inflation & commercial investments) Investor Relations Telefónica, S.A. 19 Telefónica

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Leverage impacted by Q2 dividend payment Net Financial Debt € in millions Net Financial Debt/OIBDA 3.02x 50,588 Mar-16 (746) FCF 191 Pre-retirements commitments 1,950 Shareholder remuneration & Hybrid coupon 86 Net financial investments 499 FX, MTM & Others Net Financial Debt/OIBDA 3.20x 52,568 Jun-16 Mid-term target < 2.35x reiterated 1,968 OpCF ex-spectrum (220) Working capital (490) Net Interest payment (240) Tax (270) Dividend to minorities & Others 746 FCF Investor Relations Telefónica, S.A. 20 Telefónica

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Strong liquidity to face upcoming maturities Effective interest cost: 96 b.p. lower y-o-y Guidance Below 5% 5.31% Jun-15 (0.98%) Lower cost of European currencies 0.02% Others 4.35% Jun-16 Liquidity position (Jun-16) € in billions 5.4 Cash position ex-VZ 11.8 90% LT 5.4 Undrawn credit lines & syndicated credit facilities 17.3 Liquidity position Sources of long-term financing (Jun-16) € in billions 1.8 0.4 5.6 2.8 0.6 Equity Linked-bond (non-dilutive convertible) Bonds Other bank financing Latam Financing Total Net debt maturities (Jun-16) € in billions; not considering hybrid NC dates Average debt life at 5.09 years 2.3 2016E 8.1 2017E 7.8 2018E Investor Relations Telefónica, S.A. 21 Telefónica

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Summary: Structural transformation Executing and building for the future Networks upgrades & product differentiation driving commercial activity: growing value & improving sustainability Strengthening market positioning across markets Ongoing efficiencies & synergies driving margin expansion Profitable organic growth continues, improvement expected in H2 FX headwinds expected to ease in H2 Improving FCF generation, H2 to benefit from seasonality 2016 guidance; dividend & mid-term leverage confirmed Investor Relations Telefónica, S.A. 22 Telefónica

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Telefónica For further information: Investor Relations Tel. +34 94 482 87 00 ir@telefonica.com www.telefonica.com/investors

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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.

/s/ Miguel Escrig Meliá
Name:	Miguel Escrig Meliá
Title:	Chief Financial Officer