Solid Quarterly Results on the Back of a Combination of Organic Revenue Growth (+1.4%) and Strong Cash Generation (+11.9%)

The Company has confirmed all the financial objectives for 2009 and the target dividend of 1.15 euros per share charged to the current year, thereby keeping its promise to steadily increase the payout

• Acceleration in organic growth from revenues (+1.4%), to OIBDA (+3%) and operating profit (+4.2%) evidences Telefónica’s capacity to successfully tap market growth opportunities and underscores its competitive edge in the industry
• The pace of operating cash flow generation (OIBDA-CapEx) has also increased, up 11.9% in organic terms to €8,156 million in the first half
• The company manages 264 million accesses, 7.6% more than in June last year, thanks to the strides made in mobile telephony (+9.9%) and the sizeable growth in broadband (+14.1%) and pay TV (+19.4%)
• Telefónica Latinoamérica is once again the Group’s growth driver, contributing 39.8% to consolidated revenues and 39% to OIBDA
• Reported revenues (-2%), OIBDA (-1.7%) and operating profit (-0.8%) were affected by the exchange rate effect and the impact of capital gains recorded in 2008
• Basic net earnings per share¹ were €0.79 (+13.7%), while cash flow per share was €0.78 (+6.9%)
• Telefónica maintains its sound financial position, with a ratio of net debt plus commitments to OIBDA of 2.1 x in the first half

In the current economic environment, Telefónica Group (NYSE:TEF) (LSE:TDE) posted a solid set of results in the first half of 2009, combining organic² revenue growth with strong cash flow generation. Telefónica’s results confirm the Company’s differential profile in the industry and reflect the success of its commercial strategy to capture the growth opportunities in its markets, its focus on maximising efficiency and the benefits derived from the high diversification of its operations, both by businesses and by geographies.

Revenues in the first half of 2009 stood at 27,588 million euros, showing a solid year-on-year growth of 1.4% in organic¹ terms. This increase was driven mainly by sound revenue performance at Telefónica Latinoamérica, which contributed 2.8 percentage points to this growth, and, to a lesser extent, by the positive performance of Telefónica Europe, which contributed 0.5 percentage points.

In terms of services, the Company consolidated its positive evolution in broadband connectivity revenues, both wireline and wireless, while the revenue contribution from value added services continued to grow, showing the successful commercial strategy of the Company.

Operating income before depreciation and amortisation (OIBDA) grew by 3.0% in organic¹ terms to 10,939 million euros at the end of June. The positive contribution of Telefónica Latinoamérica (+5.0 percentage points) and Telefónica Europe (+1.1 percentage points) offset the lower OIBDA contribution by Telefónica España (-3.1 percentage points), demonstrating the value of the Group’s high diversification.

It is noteworthy the acceleration of operating cash flow (OIBDA-CapEx) year-on-year growth, totalling 8,156 million euros in the first half, an increase of 11.9% in organic terms³ (vs. an increase of 4.5% in the first quarter of 2009). This strong performance is the result of Telefónica's flexible OpEx and CapEx management and the benefits of economies of scale, which are reflected in an improvement of 1.7 percentage points in the Group’s efficiency ratio⁴ versus the first half of 2008, to 74.4%.