Telefonica S.A. — Investor Presentation 2021

Feb 25, 2021

Results

January - December 2020

Disclaimer

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2020 Highlights

Mr. José María Álvarez-Pallete Chairman & CEO

Material progress against strategic objectives

1	Focus on 4 core markets	Improving our value proposition across core markets: ✓ FTTH network; 25.2m premises passed in Spain and 15.7m in Brazil ✓ 78% 5G coverage in Spain; live in Germany, UK and Brazil. German network ranked "Very Good" ✓ JV with O2 UK/Virgin Media progressing to plan; won auction in joint bid for Oi mobile in Brazil
2	Reduce Hispam exposure	✓ Risk profile mitigation; maximising efficiencies and profitability; reduced equity exposure ✓ Independent neutral fibre network vehicle in Chile to reach 3.5m premises passed by FY 22 ✓ Hispam legal separation completed, preserving optionality (disposal of CAM assets executed)
3	Optimise Telefónica Tech	✓ Double-digit revenue growth ✓ Cloud, Cyber and IoT & Big Data carveouts almost completed and fully functional ✓ Developing additional capabilities, building IoT/Big Data portfolio, new Cloud solutions in Edge
4	Develop Telefónica Infra	✓ Sale of Telxius towers to ATC for €7.7bn, implied multiple of 30.5x proforma OIBDAaL ✓ Partnership with Allianz for Germany FTTH rollout, target of 2m rural & semi-rural premises passed ✓ Advanced talks to create a fibre wholesale network in Brazil; to pass >5.5m premises in 4 years
5	Simplify operating model	✓ 79% of all business processes digitalised in 2020, up 10 p.p. y-o-y and managed in real time ✓ FY 20 Group (OIBDA-CapEx)/Revenues up 0.5 p.p. y-o-y organic ✓ MoU signed with leading European telcos to promote Open RAN, successful testing

2020 performance highlights

Revenues y-o-y org	OIBDA-CapEx y-o-y org	OIBDA-CapEx Margin org y-o-y org	Free cash flow y-o-y	Net debt y-o-y
down 3.3% to	down 0.9% to	up 0.5 p.p. to	Q4 €2.0bn (+13.2%)	down €2.5bn to
€43.1bn	€7.6bn	20.4%	€4.8bn	€35.2bn

• Good momentum in Q4 20; accelerating organic trends in Revenues and OIBDA across all segments
• Group OIBDA-CapEx back to growth of 1.9% y-o-y organic in Q4 20, with margin expanding 0.7 p.p.
• Strong focus on delivering incremental cost efficiencies with OpEx down 2.2% y-o-y organic in Q4 20
• 2020 EPS 0.24€/share, up 54.3% y-o-y
• Prioritised investment in NGN (UBB network; 134.8m premises passed)
• Improved customer engagement; NPS in core markets at 24% (+7.0 p.p. y-o-y); ⁴ th consecutive Q of churn improvement; -0.7 p.p. y-o-y
• Key focus on digitalisation; digital sales +40.5% y-o-y in the 4 core markets to 31% of total (+12 p.p. y-o-y)
• Notable improvement throughout the year in free cash flow generation
• Inorganic initiatives announced, add flexibility and further reduce net debt by €9bn (c. 25% of year-end €35.2bn net debt)

Robust financial performance in a challenging year

Free cash flow per share

OIBDA 2020 y-o-y Strong organic debt reduction (€bn)

Financial summary

	FY 2020			Q4 2020
€ in millions	Reported	Reported y-o-y	Organic y-o-y	Organic y-o-y aggregated 4 core markets	Reported	Reported y-o-y	Organic y-o-y	Organic y-o-y aggregated 4 core markets
Revenues	43,076	(11.0%)	(3.3%)	(2.4%)	10,909	(12.0%)	(2.0%)	(1.9%)
OIBDA	13,498	(10.7%)	(5.7%)	(2.6%)	3,751	2.2%	(2.8%)	(1.3%)
OIBDA margin	31.3%	0.1 p.p.	(0.9 p.p.)	(0.1 p.p.)	34.4%	4.8 p.p.	(0.3 p.p.)	0.2 p.p.
OIBDA-CapEx (ex-spectrum)	7,763	(0.9%)	(0.9%)	1.9%	2,083	31.9%	1.9%	(2.6%)
OIBDA-CapEx / Revenues (ex-spectrum)	18.0%	1.8 p.p.	0.5 p.p.	1.0 p.p.	19.1%	6.4 p.p.	0.7 p.p.	(0.2 p.p.)
Net Income	1,582	38.5%			911	c.s.
Underlying Net Income	3,086	(13.7%)			1,035	4.9%
FCF (incl. leases principal payments)	4,794	(18.9%)			1,993	13.2%
Net Financial Debt ex- leases	35,228	(6.7%)

COVID-19 impacts (estimated)			FX impacts			Argentina impairment
€ (m)	Q4 20	FY 20	€ (m)	Q4 20	FY 20		€ (m)	FY 20
Revenues	(508)	(1,905)	Revenues	(1,003)	(3,138)		OIBDA	(894)
OIBDA	(291)	(977)	OIBDA	(399)	(1,205)

Accelerated recovery in Q4 20

Improvement in Revenue and OIBDA trends across all segments in Q4 20

Long track record of efficiency gains

2020 financial outlook delivered

Management of operations to preserve Operating Cash Flow

Financial targets (organic ex-contribution to growth from ARG)	2020E	FY 20
OIBDA-CapEx	Slightly negative to flat	(0.9%)

More than covered by strong FCF generation

2020 dividend	€0.40/share	Higher flexibility;	December payment: 67% of
Interim Dec-20	€0.20/sh. (Voluntary Scrip)	Scrip dividend in 2020 payments	shareholders opted for new shares;
Final Jun-21	€0.20/sh. (Voluntary Scrip)		63% in June

ESG at the heart of our strategy throughout the pandemic

7

FY & Q4 20 Results

Mr. Ángel Vilá COO

Spain | Strategy proven right, preserved value

(0.2 p.p.)

Convergent base Fibre uptake

Performance

• ✓ Market cooled down to preserve value
  • Tariff upgrade (more for more) announced in Q4
• ✓ Polarisation remains, enhanced offering and innovative VAS
  • Fibre UBB +9% y-o-y; O2 base doubling
  • Upselling on speed (1Gb) and Premium TV (new partnerships)
  • New revenue streams (alarms, eHealth..)
• ✓ Resilient convergent base and KPIs
  • 91% of consumer FBB base (+1 p.p. y-o-y)
• ✓ Innovative infrastructure
  • Increased fibre profitability and share; 78% 5G coverage

Spain | Strong execution, recurrent and solid cash generation

Performance

• ✓ Continued improvement in financials in Q4
• ✓ Revenue trend better across the board
  • Solid convergent ARPU, record IT sales
  • "Wholesale & others" back to y-o-y growth
• ✓ Benchmark OIBDA margin, benefiting from digitalisation
  • Savings in network, systems, commercial costs
  • Progress on copper switch off (>750 CO's closed)
• ✓ High cash conversion (OIBDA-CapEx): €3.6 Bn in 2020; -0.5% y-o-y
  • CapEx efficiency (lower legacy, 5G switch on)
• ✓ FY 20 COVID impacts y-o-y: Revenues -3.7 p.p.; OIBDA -3.9 p.p.

Record OIBDA-CapEx margin

CapEx/Revenues

y-o-y organic

Germany | Delivery of targets

Key milestones

• ✓ Delivery on FY 20 guidance, revenues, OIBDA and Capex/Sales
• ✓ Strong trading; O² Free tariffs remained highly popular
• ✓ Network quality equalisation; LTE coverage completed
• ✓ Ranked "very good" in Connect Magazine network test
• ✓ 5G network active in 15 cities, targeting >30% coverage by FY 21

2020 Key financials

Strong financial performance

• ✓ Positive momentum in mobile revenues (+2.1% y-o-y in Q4)
• ✓ FY 20 handset revenues up 5.7% y-o-y on high value handsets sales
• ✓ Q4 OIBDA up 3.4% y-o-y; a strong improvement (+0.7% in Q3 20)
• ✓ FY 20 CapEx up 4.8% y-o-y, investment in 4G/LTE and 5G launch
• ✓ FY 20 COVID impacts y-o-y: Revenues -1.0 p.p.; OIBDA -2.5 p.p.

UK | #1 network in the UK

Revenues OIBDA OIBDA-CapEx

• ✓ Rated #1 MNO for NPS and satisfaction by Ofcom¹
• ✓ Industry leading low level of customer loyalty
• ✓ 5G available in over 150 towns and cities

Continued efficiency gains

• ✓ Strong cost control and focus on direct trading resulting in Q4 OIBDA growth
• ✓ 5th consecutive year of expanding OIBDA margin
• ✓ CapEx flexibility and increased investment in growth areas including 5G
• ✓ Continued cash generation; FY OIBDA-CapEx margin +1.3 p.p. y-o-y
• ✓ FY 20 COVID impact y-o-y: -4.7 p.p. revenues, -7.3 p.p. OIBDA

O2 UK / Virgin Media JV progressing to plan. Joint EV £38bn including synergies. O2 valued at 7.8x EV/OIBDA 2020. Synergies NPV £6.2bn. Cash inflow for Telefónica £5.5bn-£5.8² . Closing estimated by mid-2021

(1) https://www.ofcom.org.uk/\_\_data/assets/pdf\_file/0014/211082/ukrn-performance-scorecards-2021.pdf 11 (2) Calculated at the date of the agreement and subject to customary adjustments in this type of transactions

Brazil | Growth in value and efficiencies driving profitability

Improving mix and monetisation

Key financials 2020

Second to none quality of service

• ✓ Reinforced mobile leadership (33.6% MS; +0.6 p.p. y-o-y)
• ✓ Strong net adds in core segments
  • Historical low contract churn levels at 1.1% (-0.5 p.p. y-o-y)
  • Largest FTTH footprint in LatAm (15.7M)
  • In talks for FTTH vehicle to reach >5.5m premises passed in 4 yrs
• ✓ Oi acquisition to reinforce spectrum and service leadership
• ✓ Optimised capital allocation
  • Growth CapEx 71% of total (> fibre; < legacy)
• ✓ FY 20 COVID impacts y-o-y: Revenues -4.0 p.p.; OIBDA -4.3 p.p

Profitability and cash generation

Oi Mobile acquisition progressing to plan. Full deal value €2.6bn. 4.0x EV/OIBDA 2020 post synergies. Vivo's investment €0.9bn. Closing expected H2 2021

Infra | Telxius: delivering growth, unlocking value

Revenues, OIBDA & Profitability: Telxius

3 rd Party Tenants

Revenues & OIBDA: Tower business

Developing fibre opportunity across our markets

Deployment boost driving connection growth

• ✓ Penetration stable at 21%
• ✓ Strongest technological transformation in the sector provides visibility to long-term revenues: UBB/ FBB 77% (+6 p.p. y-o-y)

Owned FTTH network (premises passed; m)

✓ Unsere Grüne Glasfaser (UGG)¹

✓ JV 40% T. Infra / 10% T. Deutschland / 50% Allianz

• Neutral wholesale operator benefiting from T. Group FTTH expertise
• Massive market opportunity, just c.10% FTTH coverage in Germany²
• Targeting >2m premises passed over >50,000km fibre deployed over 6 years
• EC approval received; construction starting in 2021
• Phased investment & long-term returns

✓ InfraCo SpA

✓ New JV 60% KKR / 40% T. Chile

• Accelerating deployment without CapEx impact
• Expected net debt reduction of c.0.4bn USD
• Transfer of T. Chile's footprint (c.2m premises passed) at 18.4x EV/OIBDA
• Plan of 3.5m premises passed by year-end 2022
• Expectation to be operational from H2 21

✓ FiBrasil

✓ Advanced negotiations with a leading international financial investor

• Independent and neutral fibre wholesale network
• To accelerate deployment and reduce time-to-market (convergent offer)
• Vivo to carve out 1.6m FTTH premises passed; FiBrasil target >5.5m over the next 4 years
• Vivo will hold a stake in FiBrasil together with T. Infra and the Investor

Further fibre Optionality (Europe & Hispam)

Tech | Resilient and fast growing business

Solid growth

Operational highlights

Tech services revenue* (FY 20; M€; y-o-y organic)

Outperfoming the market Initial carve out c. 50% of revenues to Tech COs

• ✓ COVID-19 increasing companies' need for digital transformation
• ✓ Corporate B2B back to growth in Q4 (~60% of B2B FY 20 revenue)
  • Key role for Public Administration
• ✓ Tech Companies up & running, carve-out almost finished
  • Cyber & Cloud in a single unit with a fully integrated proposal

• •	Multicloud portfolio reinforced: new VDC with Edge Computing in Spain, own VDC in 4 countries updated. Accelerated migration: +60% SaaS rev. y-o-y; +22% IaaS&PaaS in FY
• •	Differential assets: 12 SOCs owned; +1.5k security professionals Telefónica Tech Ventures, vehicle for investment, 14 startups
• • •	Commercial activity improved in Q4 vs Q3 Developing solutions for different sectors 23M IoT accesses (+4%); revenue growth despite lockdown

FY & Q4 20 Results

Ms. Laura Abasolo CFCO

Hispam | Maximising value; reduced exposure

Improving growth trajectory

✓ Focus on value growth

• Contract net adds +56% q-o-q; churn -0.6 p.p. y-o-y to 2.2% in Q4
• FTTH net adds x3 y-o-y; churn -1.2 p.p. y-o-y to 1.9% in Q4
• 9.9m premises passed with FTTH (+1.2m in FY 20)
• ✓ Positive NPS evolution in the region
• ✓ Acceleration in digitalisation & efficiencies
• FY 20 Digital sales reached 22% of total (+11 p.p. y-o-y)
• Transformation towards a new operating model
• ✓ Recovery in financial trends
• OIBDA y-o-y evolution improved despite tougher comps
• ✓ FY 20 COVID impacts y-o-y: Revenues -5.5 p.p.; OIBDA -10.6 p.p.

Strong commercial recovery underway

Reduced average capital employed by c. 20%

✓ Asset light model

• Co-investments deals with ATC & ATP / Chile InfraCo
• 4G sharing in COL, AT&T agreement in MEX
• CapEx/Sales 11% (-3 p.p. vs. FY 19)

✓ Improved capital structure

• COP leverage +1.3x and CLP +0.7x
• ✓ Value crystalisation through disposals
  • \$1bn Chile InfraCo / \$500 EV/premise passed
  • LatAm towers sale to ATC
  • CAM sale at ~7x EV/OIBDA

Key Financials 2020

Mitigated FX impact on FCF

FX impact structurally neutralised; Natural hedge

FX negative factor in Q4 20 and FY 20 FY 20 currency impact

Debt | Strong FCF and inorganic initiatives

De-risked balance sheet

Sources of long-term financing (2020 & YTD)

Flatter maturity profile

Robust liquidity position

Long Average Debt Life and low interest costs

Dec-20

1. Liquidity not including inorganic deals (Includes proceeds from the JV in the UK, the sale of Telxius Towers, the disposal of Costa Rica, the sale of a stake in InfraCo Chile and reduced by payment for the acquisition of Oi assets)

Conclusion

Mr. José María Álvarez-Pallete Chairman &CEO

2021 guidance | Recovery more evident from Q2

2021 guidance

Financial Targets (organic y-o-y)	2021
Revenues	"Stabilisation"
OIBDA	"Stabilisation"
CapEx/Sales (ex spectrum) 2021 stable and sustainable dividend	Back to normalised level up to 15%

CRYSTALLISING VALUE FOR THE BENEFIT OF SHAREHOLDERS

A digital company Best networks (base for future growth) Disciplined execution Best-in class efficiency and high cash-flow generation Active portfolio management (value creation) Continued deleveraging Comfortable financial position Improved ROCE

2021 DIVIDEND	€0.30/SHARE
		2021 calendar payments
Interim Dec-21	€0.15/sh. (Voluntary Scrip)	Jun/21 €0.20/sh.; voluntary scrip
Final Jun-22	€0.15/sh. (Voluntary Scrip)	Dec/21 €0.15/sh.; voluntary scrip

1.5% treasury stock to be cancelled

Key takeaways

• Proven resilience in challenging times; delivering for all stakeholders

• ‒ Strong improvement across four core markets
• ‒ Leveraging best-in-class network infrastructure to maintain and grow high-value customer base
• ‒ Prioritising network investments to further strengthen quality gap
• ‒ Effective management of OpEx and CapEx through the COVID-19 crisis
• ‒ Delivery of 2020 outlook
• ‒ Strong FCF generation; FCF/Sh. €0.88 in 2020; €25bn in 2016-20

• Material progress towards strategic objectives

• ‒ Strengthened position in the UK and Brazil via in-market consolidation
• ‒ Reducing and modulating our exposure to Hispam
• ‒ Sale of Telxius tower division to ATC at record multiples
• ‒ Telefónica Infra and Telefónica Tech provide enhanced platform for value optimisation and future growth
• ‒ Material savings generated through streamlining operating model and growing digitalisation

• Proactive de-leveraging

• ‒ Net debt down to €35.2bn in 2020, €9bn additional ND reduction from announced inorganic transactions
• ‒ Average debt maturity of 10.79 years
• Positive outlook
  • ‒ Well positioned to drive economic recovery and leverage growth opportunities

Results presentation and Q&A Session

The management will host a webcast to discuss the results on 25th February at 10:00am (CET), 9:00am (GMT), 04:00am (EST)

Participants from Telefónica: José María Álvarez-Pallete (Chairman & CEO), Ángel Vilá (COO), Laura Abasolo (CFCO), and Pablo Eguirón (Global Director of IR).

• To access the webcast: click here
• The webcast replay will be available on Telefónica IR's website after the event

Webcast Q&A Session

• To participate in the Q&A session, please register using the following link to receive the dial in and PIN details. click here

If you have any questions, please contact the Investor Relations team at ir@telefonica.com or +34 914 828 700

For further information, please contact: Investor Relations Pablo Eguirón (pablo.eguiron@telefonica.com) Isabel Beltrán (i.beltran@telefonica.com) Adrián Zunzunegui (adrian.zunzunegui@telefonica.com) Tel. +34 91 482 87 00 ir@telefonica.com www.telefonica.com/investors

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