The Company reiterates guidance for 2009, and maintains target of distributing €1.15/share in 2009, in line with its commitment to prioritise dividends to shareholders
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The solid performance of organic growth in income (+2.8%), OIBDA (+2.5%), and operating income (+3.9%) confirms Telefónica's differential profile in the sector, which is characterised by its highly diversified operations, both in terms of businesses and geographies.
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Telefónica totalled 261.4 million customers worldwide (+11.9%) thanks to a business strategy that focuses on capturing growth potential in expanding businesses. There has been growth in mobile access (+15.4%), broadband (+17.5%) and pay TV (+24.8%)
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In line with its objective to increase earnings, operating cash flow (OIBDA-CapEx) grew 4.5% in organic terms, reaching 4,154 million euros
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At the close of the third quarter, the efficiency ratio rose to 75.3%, a result of Telefónica’s ability to manage its costs and investment in a flexible way
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In reported terms, the evolution of income (-1.4%) and OIBDA (-0.4%) is basically affected by exchange rate fluctuation, whereas operating income (OI) grew 2.9%
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Telefónica maintains its financial strength, with a ratio of net financial debt plus commitments to OIBDA of 2.1x at the end of March
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By geographical areas, Telefónica Latin America continues to drive the Group’s growth (with organic revenue growth of 8.7%). In Europe – where organic revenue grew by 4%-, the business has shown resilience, driven by solid results in the United Kingdom (+7%) and Germany (+3.6%). In its domestic market, Telefónica has complied with its strategy to maximise income and maintain solid operating cash flow (+0.2% in comparable terms)

Telefónica Group in the first quarter of 2009 reflects the success of the Company’s strategy, focused on capturing the growth potential in expanding businesses while increasing the cash flow generation, leveraging the advantages of the high diversification of the Group’s operations, both by businesses and by geographies. This strategy has allowed Telefónica to consolidate its differentiated profile in the sector, showing a notable revenue and OIBDA year-on-year growth in organic terms1, being this positive performance reinforced with a strong cash flow generation.
The Company reiterates its 2009 guidance for all metrics, announced in February 2009, and maintains its target of paying a dividend of 1.15 euros per share for 2009 fiscal year, in line with Telefónica’s commitment to prioritize shareholder remuneration for the use of the free cash flow and to progressively increase its dividend per share.
Positive evolution of revenue and OIBDA, thanks to business diversification
Revenue stood at 13,703 million euros in the first quarter of 2009, showing a solid 2.8% year-on-year growth in organic terms1, boosted mainly by the strong performance posted by the businesses at Telefónica Latinoamérica, contributing with 3.3 percentage points to revenue growth and, to a lesser extent, by the positive behaviour of revenue at Telefónica Europe, with a contribution of 0.9 percentage points in the period. By services, it is noteworthy the positive performance of broadband connectivity revenue, both fixed and mobile, together with the high acceptance and growing contribution to revenue of value added services, showing the successful commercial strategy of the Company.
Operating income before depreciation and amortization (OIBDA) reached 5,354 million euros at the end of March, advancing 2.5% year-on-year in organic terms2. The strong performance of Telefónica Latinoamérica’s OIBDA (+4.9 percentage points) and Telefónica Europe (+1.2 percentage points), offset the lower OIBDA coming from T. España, demonstrating the value of the high diversification of the Group.
The Telefónica Group’s ability to flexibly manage OpEx and CapEx is reflected in the efficiency ratio3, +0.9 percentage points year-on-year to 75.3%, enabling to increase the operating cash flow (OIBDA-CapEx) significantly to 4,154 million euros till March, up 4.5% year-on-year in organic terms2. As a result, organic2 operating cash flow growth exceeded revenue growth by 1.7 percentage points, basically as a result of the strong growth achieved by Telefónica Latinoamérica (+14.3% in organic terms2; 1,606 million euros) and Telefónica Europe (+11.7% in organic terms2; 527 million euros), together with the stability of the cash flow generated by Telefónica España in comparable terms4 (2,068 million euros).
1 Assuming constant exchanges and including consolidation of Telemig in January-March 2008.
2 Assuming constant exchange rates and including consolidation of Telemig in January-March 2008.
3 Defined as (Operating Expenses+ CapEx-Internal Expenses capitalized in fixed assets)/ Last 12 month revenues. CapEx figure excludes spectrum acquisition.
4 Growth in comparable terms in T. España excludes real state capital gains (0.4 million euros in January-March 2009 and 67 million euros in January-March 2008), bad debt recovery amounting to 25 million euros in the first quarter of 2008 and the recognition of the Universal Service Cost in the first quarter of 2009 (with an impact of 75.3 million euros in revenues and 21.7 million euros in OIBDA).

Totalling over 261 million accesses
At the same time, the Company is focusing its commercial strategy on capturing growth in expanding markets. This led to an 11.9% rise in the total number of accesses for the Telefónica Group compared to the first quarter of 2008, to over 261.3 million. The increase was underpinned by the expansion in wireless accesses (+15.4%), broadband (+17.5%) and pay TV (+24.8%) accesses. By region, it is worth highlighting the contribution by Telefónica Latinoamérica, with over 159 million accesses across the region at the end of March (up +15.8% on March 2008).
By type of access, the Telefónica Group’s wireless accesses exceeded 198 million at the end of March, with net adds in the first quarter of around 2.4 million and around 22.5 million customers5 compared to the end of March 2008. The main drivers of the net adds in the first quarter of the year were Brazil (0.7 million), Germany (0.3 million), Mexico (0.2 million) and Argentina (0.2 million).
Retail internet broadband accesses stood reached close to 12.8 million, a year-on-year increase of 17.5%, driven by the growing adoption of voice, ADSL and pay-TV bundled offers. It is worth highlighting that in Spain over 86% of retail broadband accesses are bundled as part of some kind of dual or triple offers, whilst in Latin America, 51% of broadband accesses are bundled as part of a dual or triple package. In the first quarter net adds were 0.3 million accesses, most of which coming from Brazil.
Pay TV accesses exceeded 2.3 million by the end of March, almost 25% more than a year ago. The Company has pay TV operations up and running in Spain, the Czech Republic, Peru, Chile, Colombia, Brazil and Venezuela.
Revenue and operating expenses
Reported revenue fell by 1.4% compared to the first quarter of 2008. However, this was mainly as a result of the negative exchange rate effect, which reduced growth by 4.7 percentage points. Changes in the consolidation perimeter contributed with 0.5 percentage points to revenue growth.
In absolute terms, Telefónica Latinoamérica’s contribution to total Group revenue continued to grow, rising to 39.4% (+2.3 percentage points compared to the same period in 2008), whilst Telefónica España and Telefónica Europe contributed around 36% and 24% respectively, to reported revenue.
The Telefónica Group’s operating expenses in the first quarter amounted to 8,572 million euros, down 2.3% on the end of March 2008. Excluding the impact of exchange rate fluctuations, operating expenses increased by 3.2% on a year-on-year basis, mostly as a result of higher expenses at Telefónica Latinoamérica, which were mainly due to higher commercial expenses at Vivo and the higher resources associated to the new businesses at Telesp, as a result of the Company’s efforts to improve service quality for customers. In organic terms6, operating expenses increased by 2.6%.
On the other hand, in the first quarter of the year, gains on sales of fixed assets totalled 6 million euros, mainly from the sale of property in the Czech Republic.
5 The almost 4 million Telemig customers incorporated into the Group in April 2008 are not included in the net gain for the period.
6 Assuming constant exchange rates and including consolidation of Telemig in January-March 2008.

Profit from associated companies was 5 million euros for the period January-March 2009. Profit from the Company’s stake in Portugal Telecom is partially offset by the losses from the Telefónica Group’s shareholdings in Lycos Europe and Telco SpA.
Net financial results at the end of March 2009 amounted to 731 million euros, down 4.7% vs. the same period of 2008, mainly due to a decrease of the average cost of the Group’s debt, to 5.95% over total average debt excluding foreign exchange results, that leads to a lower expense of 70 million euros due to lower interest rates in 2009 and a decrease of 7.3% in the average debt, which has generated savings of 48 million euros.
Free cash flow generated by the Telefónica Group up to the end of March 2009 amounted to 1,299 million euros of which 290 million euros were assigned to Telefónica’s share buyback program, 226 million euros to commitment cancellations derived mainly from the pre-retirements plans and 58 million euros to financial and Real Estate net divestments. As a result, net financial debt decreased by 726 million euros. On the other hand, net debt increased by an additional 249 million euros because of the foreign exchange impact, changes in the consolidation perimeter and other effects on financial accounts. All this has led to a decrease of 477 million euros with respect to the net financial debt at the end of 2008 (42,733 million euros), leaving the net financial debt of the Telefónica Group at March 2009 at 42,256 million euros.
Leverage ratio, net debt over OIBDA, stands at 1.9 times at the end of March 2009, with a reduction of the net financial debt in the period for an amount of nearly 500 million euros.

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