Results

January - March 2020

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Creating a leading communications provider in the UK

Mr. José María Álvarez-Pallete Chairman & CEO

Transaction Summary

Transaction Structure and Key Terms

Stronger, larger and more sustainable player

EUR/GBP converted at 0.877; HK/GBP converted at 0.100; USD/GBP converted at 0.808. Source: Companies Information, Analysys Mason, Ampere Analysis, GlobalCom. Excluding M2M subscribers and including MVNO subscribers. (1) Pro-forma of run-rate synergies; (2) Financials for BT are LTM Dec-19A, excluding Global Services and Openreach; (3) Financials for Vodafone are LTM Dec-19A (Vodafone reports regional results half-yearly); (4) Sky UK financials based on 2019E broker estimates; (5) 3 UK financials are 2019A (reported in December 2019); (6) Talk Talk financials are 2019A statutory results (reported in March 2019); (7) Excluding Virgin Media MVNO subscribers; (8) Excluding Project Lightning.

Compelling and differentiated value proposition

National Connectivity Champion

Telefonica UK network: Highly competitive and cost-effective 5G ready mobile infrastructure

Virgin Media UK network: High performance & Ultrafast Today and Future proof for tomorrow

99% population 4G coverage and consistently recognized as most reliable and best coverage network

• Access to the largest tower portfolio in the UK with 15k sites through its 50% stake in CTIL

• Successful long term relationship with Vodafone extended to 5G & Industry-led single rural network progressing

• O2 5G already live in 30 places and will reach 50 towns and cities by summer 2020

• Strong holding of <1GHz frequency, resulting in best in-door coverage; ongoing network optimization with spectrum refarming

• 100% of VM UK homes DOCSIS 3.1 hardware ready and 100% 1Gbps coverage in 2021

• 15 million homes passed of which 14.3 million are HFC and 0.7 million are FTTP/RFOG

Access network 100% ducted in owned ducts, 0% aerial, creating flexibility in upgrade path to future coaxial or fibre
8m km of fibre strands of which the access network is 7.3m km
Analogue TV and FM over cable radio services decommission complete
✓ Unique infrastructure in Europe to seize new opportunities arising from Fixed-Mobile convergence ✓ No network monetization to date – retains ownership of its mobile and fixed infrastructure ✓ Clear market leader in UBB (FTTP, HFC)

Identified synergies of c.£6.25 bn NPV, with 80% of full potential related to OpEx and CapEx synergies

Transaction fully consistent with TEF's strategy

Governance, Exit and Timetable

Governance / Shareholders Agreement	• The JV Board of Directors will consist of eight members, four from each of Liberty Global and Telefonica • Certain matters will require unanimous approval of both companies' representatives • The position of Chairman of the JV will be held for alternating 24 month periods by a Telefónica or Liberty Global appointed director. The Chairman has no casting vote • Key management positions will be announced prior to completion of the transaction
Exit	• 3 year lock-up • Each shareholder has the right to initiate an Initial Public Offering of the JV after the third anniversary of closing, with the opportunity for the other shareholder to sell shares in the IPO on a pro-rata basis • The parties have agreed restrictions on other transfers of interests in the JV until the fifth anniversary of closing ‒ After the fifth anniversary, each shareholder will be able to initiate a sale of the entire JV to a third party, subject to a right of first offer in favour of the other shareholder
Expected Transaction (1) Timetable	• Transaction notifiable to the European Commission (EC) • The transaction may be referred back and require clearance by the Competition and Markets Authority (CMA) • If approved at Phase 1, closing would take place in Q4 2020 - Q3 2021 • If approved at Phase 2, closing would take place in Q2 2021 - Q1 2022

Governance /
Shareholders
Agreement

•
The JV Board of Directors will consist of eight members, four from each of Liberty Global and Telefonica
•
Certain matters will require unanimous approval of both companies' representatives
•
The position of Chairman of the JV will be held for alternating 24 month periods by a Telefónica or Liberty Global
appointed director. The Chairman has no casting vote
•
Key management positions will be announced prior to completion of the transaction

Exit

•
3 year lock-up
•
Each shareholder has the right to initiate an Initial Public Offering of the JV after the third anniversary of closing, with the
opportunity for the other shareholder to sell shares in the IPO on a pro-rata basis
•
The parties have agreed restrictions on other transfers of interests in the JV until the fifth anniversary of closing
‒
After the fifth anniversary, each shareholder will be able to initiate a sale of the entire JV to a third party, subject to a
right of first offer in favour of the other shareholder

Expected
Transaction
(1)
Timetable

•
Transaction notifiable to the European Commission (EC)
•
The transaction may be referred back and require clearance by the Competition and Markets Authority (CMA)
•
If approved at Phase 1, closing would take place in Q4 2020 -
Q3 2021
•
If approved at Phase 2, closing would take place in Q2 2021 -
Q1 2022

Closing Remarks

Creating a leading integrated player with significant cross-selling opportunities in the second largest European market, improving market positioning, group profile and business sustainability
Combining Telefonica UK's leading mobile operations and Virgin Media UK's extensive superfast broadband network to benefit consumers, businesses and the public sector through investment to accelerate digital infrastructure deployment and improving customer experience
Significant value creation: total cost, capex and revenue synergies with an estimated NPV of c.£6.25bn (after integration costs), additional financial / fiscal synergies not considered
M&A processes in 2 (UK and Brazil) out of 4 core markets, progressing on the New Telefonica strategy
Substantial value creation for Telefónica shareholders
- ‒ Stronger converged challenger in the UK market, leading in customers and profitability
- ‒ Improving growth profile and market positioning
- ‒ FCF accretive(1) from the outset
- ‒ Transaction expected to reduce Telefonica's net debt by £5.5-5.8bn(2)
- ‒ Credit positive improving competitive positioning and long term business sustainability

COVID 19 implications Q1 20 highlights

Mr. José María Álvarez-Pallete Chairman & CEO

Telecoms proving essential; responding all stakeholders

Evidence-based mission: "Making our world more human by connecting lives"

Doing well; not immune, but relatively well protected

Potential hit…

Managing impacts; yet uncharted territory
Pressure on B2B revs (SMEs; corporates with higher exposure to COVID19; sales funnel, com. activity…)
Pressure on B2C revs (roaming, prepaid, lower traffic to stores)
Potential increase in bad debt
Potential supply chain/network/handset inventory disruptions

…but relatively well protected

Demand for telcos on the rise; potential for further monetization
Stable L/T revenue base: flat rate contracts, L/T customers
High quality, future-proof asset base (e.g. Fiber networks)
OIBDA better covered than top line (costs relief, lower churn…)
Social goodwill earned (close to society needs & all stakeholders)

• • •	Upselling of digital services, specially Cybersecurity and Cloud Higher demand in some services (TV consumption, content fiction; VoD, higher BB speeds) Accelerate digitalization; strengthen on-line channels; transform network/ IT	We need to adapt to new reality
•	Decrease in churn, commercial costs, advertising	Levers to
• •	Discretionary CapEx management = OIBDA-CapEx shelter Delay of spectrum auctions (Spain, UK, Brazil)	secure FCF

2022 Guidance and 2020 €0.4 dividend reiterated

2022 Guidance Confirmed

Financial Targets (organic ex-contribution to growth from ARG)	Guidance 2019-2022E
Revenues	Revenue growth
(OIBDA-CapEx)/ Revenues	+2 p.p. by 2022

Despite current uncertainty; confidence in future demand growth for connectivity, digital services…

2020 Stable &Sustainable Dividend

2020 Dividend	€0.40/Share
Interim Dec-20	€0.20/sh. (Voluntary Scrip)
Final Jun-21	€0.20/sh.

2020 calendar payments
Jun/20 €0.20/sh. (Voluntary Scrip)
Dec/20 €0.20/sh. (Voluntary Scrip)

Confidence in business model flexibility to weather current environment, coupled with solid liquidity position & business resiliency

2020 Guidance Withdrawn; significant changes in context & high level of uncertainty

Q1 20 Results

Mr. Ángel Vilá COO

Financial summary

€ in millions	Q1 20
	Reported	Reported y-o-y	Organic y-o-y	Organic y-o-y aggregated 4 core markets
Revenues	11,366	(5.1%)	(1.3%)	0.1%
OIBDA	3,760	(11.8%)	(1.7%)	0.8%
OIBDA margin	33.1%	(2.5 p.p.)	(0.1 p.p.)	0.2 p.p.
OIBDA-CapEx (ex-spectrum)	2,275	(16.6%)	(3.8%)	3.2%
OIBDA-CapEx / Revenues (ex-spectrum)	20.0%	(2.8 p.p.)	(0.5 p.p.)	0.7 p.p.
Net Income	406	(56.2%)
EPS (€)	0.06	(62.0%)
FCF (inc. leases principal payments)	233	(83.4%)
Net Financial Debt ex-leases	38,223	(5.3%)

€0.11 Underlying EPS

Q1 seasonal effect; Q1 19 tax refund €702m

Reduction of €14Bn since Jun-16

Q1 COVID 19 impacts;

Revenues (-€77m); OIBDA (-€33m); CapEx (-€17m)

Spain | The most reliable and advanced telco in Europe

✓ No TV lock in period

Leading content platform

Proof-tested network

✓ Outstanding delivery with record traffic (both retail & wholesale)
✓ Critical connectivity on top quality assets
- Largest FTTH network & digitalisation
✓ Effective remote activity
- Best in class Cloud, Security, Big Data
- 50% activity in online/phone channel
✓ Value added to the offer for free
- MBB, Premium TV (even to non-customers)

39.8% 11.2% 28.6% OIBDA/Revs. CapEx/Revs. (OIBDA-CapEx)/ Revs. Prudent OpEx/CapEx policy 5G auction delayed y-o-y organic + 0.9 p.p.

Key financials Sound (OIBDA-CapEx)/Revs.; cash in focus

Germany | Robust start to year

Good commercial performance

Accesses (m, y-o-y)

Gaining momentum across all revenue lines

Solid trading

✓ Good contract momentum of O² brand; blended ARPU stable and contract churn -0.1 p.p. y-o-y
✓ Sustained VDSL demand: +36k net adds; 76% o/FBB
✓ Resilient network coping with COVID-19 traffic increase
✓ Supporting employees, customers and the wider society
✓ 4G/LTE steady progress; preparing 5G deployment