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Telefónica’s Net Profit To September Up By 26.4% At 3,455 Million Euros

The average headcount was 286,249 employees (1,186 employees more than the average for the first nine months of 2011), mainly due to the higher workforce at Atento. Excluding Atento, Telefónica's average workforce stood at 132,192 employees.

Gains on sales of fixed assets in the first nine months of the year stood at 289 million euros, similar to the same period of 2011 (293 million euros). This heading in 2012 included mainly the following: the impact of the sale of non-strategic towers, with an impact in OIBDA of 289 million euros; the gain from the sale of applications in the second quarter (39 million euros; 18 million euros in Telefónica España); and the capital loss on the sale of shares of China Unicom (97 million euros in the third quarter).

Better OIBDA behaviour in all regions

In the first nine months of 2012 , operating income before depreciation and amortisation (OIBDA) amounted to 15,782 million euros and recorded an improvement vs. the first half thanks to a sequential improvement in all regions. Thus, OIBDA in the third quarter amounted to 5,448 million euros in underlying terms, up 1.8% from the second quarter despite lower revenues.

OIBDA margin in January-September 2012 stood at 33.9% (-1.7 percentage points year-on-year in underlying terms). It should be highlighted that the OIBDA margin in underlying terms posted a sustained sequential improvement to 35.1% in the third quarter compared to 34.6% in the second quarter and 32.8% in the first quarter.

By region, Telefónica Latinoamérica continues increasing its contribution to consolidated underlying OIBDA, accounting for 50% (+3.7 percentage points vs. September 2011). Telefónica Europe represents the remaining 50%, with Telefónica España decreasing to less than a third of the total (32%).

Depreciation and amortisation in the first nine months of 2012 (7,773 million euros) increased by 2.9% year-on-year and was up 1.7% year-on-year in the third quarter, mainly due to the amortisation of the new spectrum acquired in Germany, Brazil, Colombia, Spain, Mexico and Venezuela.

In the first nine months of 2012, operating income (OI) totalled 8,009 million euros, particularly improving in the third quarter.

Profit from associates stood at -486 million euros in the first nine months of 2012 vs. -506 million euros during the same period in 2011, mainly due to Telco, S.p.A.'s adjustments of the value of its investment in Telecom Italia, as well as to the operating synergies achieved, with both effects totalling -542 million euros in 2012 and -505 million euros in 2011. It should be pointed out that these effects were non-cash impacts.

Financial position

Net financial expenses for the first nine months of the year 2012 reached 2,419 million euros (+18.3% year-on-year). This yielded an effective cost of debt of 5.65% in the last 12 months. Free Cash Flow for January-September 2012 amounted to 4,268 million euros posting an improvement in the third quarter (2,541 million euros) compared to the first half of 2012, in line with Company estimates.

At the end of September 2012, net financial debt amounted to 56,006 million euros, posting a significant reduction in the third quarter (-2,304 million euros). After the closing of the third quarter, the company has executed an efficient asset portfolio management and a successful divestment program to reach a total debt reduction of 5,500 million euros since the end of June. Thus, the current net financial debt stays at 52,823 million euros, in line with the objective to reach a leverage ratio (net debt over OIBDA) of 2.35 times, versus 2.44 times at the present moment.

During the first nine months of 2012, Telefónica's financing activity, excluding short-term Commercial Paper Programmes activity, stood at nearly 11,900 million equivalent euros and has exceeded the amount raised in fiscal year 2011. It is worth to highlight the strong refinancing activity since the end of August until mid-October, when the Company raised around 5,375 million euros equivalent in the credit markets, improving significantly the Company‚Äôs liquidity position. The financing activity was focused on financing in advance debt maturing in 2012, and smoothing the debt maturity profile for 2013 and 2014 at the Holding level. Therefore, the Company maintains a debt maturity profile covered beyond 2014.

At the end of September 2012, bonds and debentures represented 64% of consolidated financial debt breakdown, while debt with financial institutions weighted 36%.

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