FINANCIAL HIGHLIGHTS

·           Solid value growth: LTE (2.1x year-on-year), smartphones (+18%), fibre + VDSL (+31%) and TV (+5%).

·           Quarterly revenues reached 12,723 million euros (-0.2% organic year-on-year; -7.7% reported).

®  Service revenues posted solid growth of +1.5% organic year-on-year; handset revenues -18.0% year-on-year.

®  Broadband connectivity revenues increased by 15.3% organic year-on-year in April-June.

·           Growth of OIBDA in the quarter to 3,918 million euros (+0.8% organic; -7.1% reported).

®  Solid margin (30.8%; +0.3 percentage points organic year-on-year); capture of synergies and efficiencies.

·           CapEx for the semester (+2.9% organic year-on-year) was focused on the transformation of networks and systems. Operating cash flow (OIBDA-CapEx) increased by 3.3% organic year-on-year.

®  32.9 million homes passed with fibre (+14% year-on-year); 55% LTE coverage (84% in Europe).

·           During the first six months, free cash flow increased to 815 million euros and net income to 1,241 million euros (0.23 euros per share).

·           Net financial debt stood at 52,568 million euros after the dividend payment in the quarter.

·           Telefónica reiterated its 2016 guidance and dividend and the leverage ratio for the mid-term.

·           T. España maintained a positive trend in line with the new growth cycle and the commercial activity improved, with a widespread reduction of churn. The initial savings from the employment suspension plan contributed to the OIBDA year-on-year growth (+2.6% year-on-year excluding non-recurrents). Operating cash flow returned to growth for the first time since the third quarter of 2013.

·           T. Brasil maintained solid financial results with year-on-year growth of revenue, OIBDA, operating cash flow (+35.3% organic year-on-year in the quarter) and margins expansion thanks to its data-centric and quality strategy along with the capture of synergies and efficiencies.

·           T. Deutschland continued to present an increase in its profitability and growth of operating cash flow (+17.3% year-on-year in the quarter) in a context of higher competitive intensity in particular segments. In parallel, further progress was made in the integration of E-Plus and generation of synergies.

·           T. UK posted its best commercial performance in the last 6 quarters (net mobile additions of 240 thousand), leveraging the O2 brand recognition, the success of its commercial offering and the high customer base loyalty.

·           T. Hispanoamérica, one growth driver of the Group, continued to make progress in implementing its
value-focussed strategy, thus enabling the expansion of year-on-year revenues, underpinned by the fixed business (+16.1% organic in the quarter). Profitability was affected by the higher level of competition and commercial effort in some markets.

Comments from José María Álvarez-Pallete, Executive Chairman:

"Our second quarter results reflect the benefits of Telefónica's structural transformation, which allowed us to build the future, driving our innovative capabilities and Big Data. The network improvements through excellent connectivity, together with the differentiation and quality of our products and services, have been key to the success of our commercial activity, focused on value, and improved customer loyalty.

All this is reflected in the continued profitable growth another quarter, which along with the capture of synergies and efficiencies, was the main growth lever for service revenue, OIBDA, operating cash flow and margin expansion.

These results and the expected improvement of free cash flow generation in the second half of the year, allow us to confirm 2016 guidance, including the dividend (0.75 euros per share) and the leverage ratio in the mid-term."