Telefónica obtains a record profit of 9,335 million euros until September and confirms its objectives for the whole of the year

Telefónica statement

(Machine translation)

Madrid, November 4, 2021. Telefónica has obtained a record profit of 9,335 million euros in the first nine months of the year, as a result of the capital gains derived mainly from the closing of the merger of O2 and Virgin Media in the United Kingdom and from the sale of the Telxius towers. The net profit achieved between July and September has amounted to 706 million euros. Additionally, the results for the quarter show organic growth in revenues and operating income before amortization (OIBDA) and proper capital management, prioritizing investment in the most relevant markets and businesses for the company, and with a focus on long-term growth and profitability.

Thanks to the results achieved in the first nine months of the year, Telefónica confirms the financial objectives set for the year; that is, that revenues and OIBDA move between stabilization and slight growth in an organic way, and that investment (CapEx) on sales returns to a normalized level of up to 15%.

On the verge of turning two years old, the company's strategic plan continues to bear fruit. In addition to moving towards a more sustainable operating model, the Group has also made progress in the development of fiber vehicles in various countries through Telefónica Infra; in the history of growth of Telefónica Tech with acquisitions such as Cancom UK&I, in the United Kingdom, and with revenues that increased by 25.5% in the first nine months of 2021, to 598 million euros; and in achieving a more favorable and efficient exposure in Hispam, both operational and financial, after the closing of the sale of Costa Rica and the agreement for the sale of the business in El Salvador.

José María Álvarez-Pallete, Chairman of Telefónica, highlights: “During the third quarter, Telefónica's performance has been solid. The year-on-year growth rate of revenues and OIBDA has been maintained for the second consecutive quarter, with acceleration in the growth of service and B2B revenues ”. And he adds: “These results reflect a new significant step towards the economic and social recovery of the markets in which we operate while the world continues to emerge from the worst effects of the pandemic. I am proud of the role that Telefónica plays in helping society prosper and build a greener future through digitization ”.

Accomplishment of the goals

Between July and September, and for the second consecutive quarter, both revenues and OIBDA have grown in organic terms by 3.6% and 1.6%, respectively, while in the first nine months the growth of both magnitudes has been 1.7%. These two references thus evolve towards the fulfillment of the objectives established for 2021.

In reported terms, revenues have reached 9,298 million euros in the quarter, 11.1% less, and 29,603 million euros until September, 8% less, decreases that are mainly a consequence of the changes in the perimeter of the company. The weight of revenues associated with broadband connectivity, together with services that go beyond connectivity, increased 3.8 percentage points in the last year, to 71% of total service revenues.

OIBDA grew 39.8% in the quarter in reported terms, to 3,734 million euros, and more than doubled in the first nine months, to 20,620 million euros. This increase is mainly derived from capital gains from operations closed during 2021, but it also benefits from the efficiencies and cost control achieved thanks to applied management.

By markets, the Group's four main companies -Spain, Germany, Brazil and the United Kingdom- provide 78% of revenue. Specifically, Spain contributes 29%; Germany, 18%; Brazil, 16%; and the United Kingdom, 15%. Hispam contributes 19% of the income.

Strong cash generation

In addition, Telefónica has maintained its strong pace of cash generation, which reached 2,482 million euros in the nine months of the year. Including spectrum payments, free cash flow stands at 1,470 million.

Investment has increased by 10.9% in the quarter, to 1,493 million euros, and 20.3% through September, to reach 4,893 million euros, with the focus on capturing growth opportunities. Around 45% of the investment is allocated to the deployment and development of ultra-fast networks; ie fiber and 5G. Discounting the spectrum, CapEx has stood at 3,904 million euros until September, a figure equivalent to 13.2% of sales, which is also moving towards the achievement of the financial objectives for the year.

Telefónica maintains its leadership in fiber, both in Europe and Latin America, with a total of 156.6 million homes passed, of which 82 million pass through its own network. The Group's total access base has registered a year-on-year growth of 3%, to 365.7 million. The company thus strengthens its competitive advantage and the sustainability of its operating model by relying on the three pillars of its network strategy: the continued evolution of an excellent 5G and fiber network, the development of open networks and the virtualization of the network architecture. .

The extensive fiber network is key to ensuring excellent connectivity and facilitating digitization and, by extension, social progress. At Telefónica, the digitization of processes now reaches 79% of the total, with real-time management that allows a more agile customer service provision.

Maturities covered beyond 2024

Telefónica's net financial debt has fallen to 25,000 million euros at the end of September, 31.8% below the 36,676 million in which it was a year earlier. In the last quarter, the debt has fallen 4.6%, with a cut of 1,200 million euros.

Telefónica maintains a solid liquidity position that amounts to 22,606 million euros at the end of the quarter and that allows it to have its debt maturities covered until beyond 2024. Since January, the company has undertaken refinancing for a total of 5,407 million of euros and has extended the average life of its debt to 13.85 years, compared to 10.79 years last December.

ESG commitment

Along with Telefónica's commitment to the sustainability and quality of the network, during the third quarter the company has starred in various milestones that have allowed it to progress, with digitization as the basis, in the execution of its ESG strategy. Within environmental issues (E), aimed at building a greener future, in recent months Telefónica has exceeded the threshold of 1,000 copper plants closed in Spain since 2016.

With regard to social commitment (S), aimed at helping society prosper, during the third quarter the Group has made progress in connectivity in rural areas, ProFuturo has become the first project in Spain to receive the WISE Prize for educational innovation and more than 25,000 employees have participated in 300 initiatives on Telefónica's International Volunteer Day.

Regarding corporate governance (G), and with the aim of leading by example, the company has received awards for its achievements in diversity in countries such as Chile or Peru, recognitions that show the company's commitment to maintaining the trust of its stakeholders -clients, employees, suppliers and shareholders- in matters of diversity, quality and good governance.