Telefonica S.A. — Investor Presentation 2020

Feb 20, 2020

RESULTS JANUARY | DECEMBER 2019

Disclaimer

This document and 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'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 and the Q&A session may contain summarized, non-audited or non-GAAP 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, if any, other documents released by the Company that may contain more detailed information. Information related to Alternative Performance Measures (APM) used in this presentation are included in our consolidated financial statements and consolidated management report for the year 2019 submitted to the Spanish National Securities Market Commission (CNMV), in Note 2, page 19 of the .pdf filed. Recipients of this document are invited to read it.

Neither this document nor the Q&A session nor any of their 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.

2019 Highlights

Mr. José María Álvarez-Pallete Chairman & CEO

2019 Highlights

Strong starting position & attractive opportunities…

... within a changing world that requires foresight

Key Messages from 2019

• Core markets outperformance (back to OIBDA growth in SP, BRA highest mobile share since 2006, UK: 14 Qs growing in revs., strong trading momentum in GER)
• Efficiency = Profitability (SP org. OIBDA margin 40%, BRA OIBDA margin 46%; exceeding 2019 digitalisation savings by 23% (>€420m))
• Net debt decreases for 11 straight Qs
• ROCE-driven asset management
• Benchmark CapEx/Sales in the industry; CapEx peak remains behind

New Action Plan, 3 axes

• Prioritise markets where we can be relevant and deliver sustainable growth
• Promote growth opportunities; leverage value of our infrastructure
• Increase agility and improve efficiency

New Telefónica New Plan/Strategy

Mr. José María Álvarez-Pallete Chairman & CEO

New plan based on 5 key decisions; aiming at long term impact and value creation

• Cutting-edge operators
• Units at the forefront of Technology
• All options open in Hispam
• Agility to capture opportunities
• Synergy model/economies of scale
• Optimise capital allocation

Sustainable model

Long-term integrated stakeholder approach

Delivering long-term stakeholder value

Growth; digitalisation; lever for social progress & decarbonisation

• A key enabler for digital & climate transition
• Avoiding 3.2m tCO2 through our P&S: 10 tons of CO2 for every ton by 2025
• Inclusive network deployment, including remote / rural areas; 1st fiber country in the OECD list

Efficiency; a better network for the planet

• New targets aligned with 1.5 ºC scenario and TFCD compliance
• Greener supply chain: -30% emissions per euro purchased by 2025
• Circular economy: 98% waste recycled

Trust; generating Trust Capital with our stakeholders

• A more diverse company
• Strengthening our corporate governance
• Privacy and security at the top of our priorities
• Customer satisfaction

• Already 100% renewable energy (Europe + Brazil), 82% T. Group

• -72% of energy consumption per unit of data traffic (2015-2019). Target -85% in 2025

• -50% carbon emissions (2015-19); -70% in 2030E and become carbon neutral, meaning zero-net emissions in 2050

• 2019: 26% women in management positions
• 30% women in BoD
• 1st in Ranking Digital Rights
• NPS 21%
• Reptrack 56.4

Telefónica contributes through technology to reach the global UN SDGs

2019 Highlights

Mr. José María Álvarez-Pallete Chairman & CEO

Consistent growth profile; strengthening balance sheet

2019 global reach and growth

2019 proof points of business sustainability

2019 guidance achieved | Above in revenues

2019 guidance (organic)	Guidance 2019E	FY 19
Revenues	Around +2%	3.2%
OIBDA	Around +2%	1.9%
CapEx/Sales ex-spectrum	Around 15%	15.0%

Sustainable & attractive dividend

* Closing of 14/02/2020

FY & Q4 19 Results

Mr. Ángel Vilá COO

2019 financial highlights

+3.2%

Revenues y-o-y org. €48,422m Exceeding +2% 2019 target

+1.9% OIBDA y-o-y org. €15,119m Underlying €16,982m

€3,574 Underlying Net Income EPS Underlying €0.65

+20.6% y-o-y €5,912m FCF

€37,744m

-8.1% y-o-y Net Debt

15.0% CapEx/Revenues Ex-spectrum

Financials in a nutshell

		FY 19			Q4 19
€ in millions	Reported	Reported	Organic	Reported	Reported	Organic
	IFRS 16	y-o-y	y-o-y	IFRS 16	y-o-y	y-o-y
Revenues	48,422	(0.6%)	3.2%	12,400	(4.0%)	2.0%
OIBDA underlying	16,982			4.370
OIBDA	15,119	(2.9%)	1.9%	3,669	3.8%	4.0%	€2.2bn restructuring provisions in FY; mainly
OIBDA margin	31.2%	(0.8 p.p.)	(0.4 p.p.)	29.6%	2.2 p.p.	0.6 p.p.	€1.7bn€ in Q3 Spain
OIBDA-CapEx (ex-spectrum)	7,836	(5.8%)	0.1%	1,579	16.7%	5.6%
Net Income	1,142	(65.7%)		(202)	c.s.		MEX DTA (-€454m in Q4)
EPS (€)	0.17	(70.6%)		(0.05)	c.s.
EPS underlying (€)	0.65			0.18
FCF	5,912	20.6%		1,762	(9.5%)
Net Financial Debt ex-leases	37,744	(8.1%)

Well invested platforms

+17.1% y-o-y

Internal application

Video Cloud Security IoT

6,0%

LUCA; AI for our customers

Network Planning /offering personalisation…

Becoming 100% Digital while reaping savings

B2B | A distinctive growth engine

• ✓ Lego-like value proposition (Own + Partners ecosystem)
• ✓ +14k B2B salespeople
• ✓ Low CapEx intensity

Capturing digitalisation value

>900k O365 licenses +53% y-o-y in Saas rev.; +54% in Iaas Leader in M2M services worldwide (Gartner) – 6 th consecutive year +1.4M IoT lines in Q4

Security

11 SOCs & Telco Security Alliance Global leader as MSSP Provider

+1,800 MS professionals, +1,500 security certifications

Spain | Back to FY OIBDA growth

Growing convergent base and ARPU Increasing value and returns

Accesses (Dec y-o-y)

10th Q of service rev. growth; higher profitability Robust Cash generation in best invested Co.

Germany | Accelerating commercial momentum

Improving customer loyalty

Growing revenues Enhanced network quality

• ✓ 3x "Good" rating for the first time
• ✓ Evidencing network and customer experience

UK | 14th consecutive quarter of top-line growth

Brazil | Investing for growth bears fruit

Strengthened market leadership

Market Share (Dec-19)

Growing in most valuable segments

Sustainable growth Sound FCF growth

19

Hispam | Growth in value; focus on efficiencies

Hispam South Hispam North

Telxius | Sustained growth delivery

Sites Evolution 3

rd Party Tenants

FY & Q4 19 Results

Ms. Laura Abasolo CFCO

OIBDA & Net income | Non-recurrent factors

Q4 OIBDA -€701m Q4 Net Income -€1,188m

Q4:

• ✓ Restructuring costs: enhancing efficiency and FCF going forward
• OIBDA: -€266m mainly related to H. Sur, Other companies, H. Norte and UK
• ✓ T. Mexico operating model transformation (AT&T agreement): OIBDA: -€239m; N. Income: -€275m
• ✓ T. Mexico DTA: N. Income: -€454m
• ✓ T. Argentina goodwill impairment: OIBDA and Net income: -€206m

FY:

• ✓ Restructuring costs: -€2,170m OIBDA (o/w Spain -€1.7bn in Q3)
• ✓ Capital Gains: OIBDA: +€98m Antares, +€213m Data Centers, +€365m CAM (Panamá, Nicaragua, Guatemala)

TOTAL factors

FX impact structurally neutralised

FX headwinds

y-o-y

• ✓ Revenue (Q4: -3.0 p.p.; FY: -3.5 p.p.)
• ✓ OIBDA (Q4: -1.7 p.p.; FY: -2.9 p.p.)
• ✓ ARS; major drag in FY

2019 FX impact

€ in millions

2019 FX effect

Deleverage mainly driven by growing organic FCF

Net Financial Debt; 11 Qs in a row of reduction (-€549M in Q4)

Robust liquidity position and attractive LT financing

1.5 10.0 1.1 2.5 2.2 1.8 0.9 € Green Financing USD Bonds € Bonds Hybrids Financing at Subsidiaries Bank Financing Total *

Sources of long-term financing

Net Debt maturities

Liquidity position

2019 & 2020YTD | €bn

Strengthening debt profile

Dec-19

Active hybrid management increased average life at lower cost

TEF Hybrids Average Coupon Cost vs. Outstanding Notional

• ✓ In just 9 Qs we executed:
• €4bn replacement through Liability Management exercises, largest globally
• Issued 1 st green hybrid bond in the telco industry
• Average hybrid life increased from 3.4 years to 4.7 years
• Temporary hybrid amount increase in 2019 to €8.2bn will be reduced in Q1 20 with hybrid calls (NC Mar.20 and Telefónica Colombia)

2020 & 2022 Guidance

Mr. José María Álvarez-Pallete Chairman & CEO

New Guidance criteria|Consistent with New Telefonica

Financial Performance (organic)	2019	2019 ex-contribution to growth from ARG
Revenues	+3.2%	+0.8%
OIBDA	+1.9%	+0.5%
CapEx/Sales	15.1%	15.2%

• Ex-contribution to growth of Argentina, consistent with New Telefonica focus
• Improves visibility and reliability
• 2019 Revenues and OIBDA growth excontribution to growth from Argentina: +0.8% and +0.5% respectively…

Core Markets (organic y-o-y)	Revenues 2019	OIBDA 2019
Spain	+0.5%	+0.1%
UK	+3.8%	+2.3%
Germany	+1.1%	(1.1%)
Brazil	+1.9%	+3.7%

• … with business lines growing in Revenue & OIBDA

2019-2022 Financial Guidance

Financial Targets (organic ex-contribution to growth from ARG)	2019	Guidance 2019-2022E
Revenues	€47,875m	Revenue growth
(OIBDA-CapEx)/ Revenues	19.9%	+2 p.p. by 2022

Ex Central America

2020 Guidance | We will continue to execute

2020E: Organic ex-contribution to growth from ARG

Stable Revenues, OIBDA and (OIBDA-CapEx)/Revenues

Ex Central America

2019 Basis for Guidance: Revenues (€47,875m); OIBDA (€16,762m); (OIBDA-CapEx)/Revenues 19.9%

2020 STABLE & SUSTAINABLE DIVIDEND

2020 DIVIDEND	€0.40/SHARE
Interim Dec-20		2020 calendar payments
	€0.20/sh.	Jun/20 €0.20/sh.
Final Jun-21	€0.20/sh.	Dec/20 €0.20/sh.

Long-term stakeholder approach to ensure business sustainability

2019-2022 Financial Guidance

> €2bn Revenues 2019-2022

Cybersecurity

• - Automate operations and expand SoC capacity
• Reinforce B2B sales, brand and product team
• Enter in new P&S categories (i.e. fraud, IoT security) and capture internal business
• Activate countries with high opportunity and markets outside footprint

IoT/Big Data

• Accelerate solutions beyond connectivity (B2B & B2C; in house-platforms & partner ecosystem)
• Leading IoT player; cutting-edge platforms and services (analytics & AI) to extract value from multiple sources
• Tailored offerings for specific industries: retail, mobility, utilities, industry 4.0, public or financial sector

Cloud

• New business development: Edge computing & Cloud network services
• Best-in class private/hybrid cloud portfolio and hyperscalers agreements
• Strong professional and managed services to help our clients migrate to the cloud

2019-2022 Financial Guidance

+2 p.p. (OIBDA-CapEx)/Revenues by 2022; achieve a new level of simplicity

Operational excellence; Streamline corporate center

• Refocusing key functions (focus on differential, value-adding activities for other units)
• Greater simplicity and efficiency
• Synergies & Economies of scale

Optimise use of assets

• - Mobile network sharing
• Legacy shut down in all operations

Copper decommission well advanced in Spain (>450 Cos; 100% before 2025), kicking-off in Latam

Mobile; 2G at minimum; 3G transferred to 4G; Single Grid 2G in Brasil

Sustained digitalization efforts

• Digitalisation and automation will drive commercial and back-office efficiencies
• Simplifying IT processes
• Improving commercial efficiency
• Focused on customer experience (digital channels, assistants, …)

Conclusion

Mr. José María Álvarez-Pallete Chairman & COO

Summary

The New Telefónica; A new model begins to deliver long-term value creation

Leveraged on the foundations built during transformation journey

Focus on key markets Differential value with a sustainable model

UBB massification Towards a 100% UBB based telco

Focus on opportunities Of higher potential growth

Digitalisation At the forefront in Full Stack deployments & AI

Focus on agility Accelerate the execution and improve efficiency

A sustainable model Growth; Efficiency; Trust

Portfolio management Improving capital allocation

Guidance Growing sustainably

For further information: Investor Relations Tel. +34 91 482 87 00 ir@telefonica.com www.telefonica.com/investors

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