Telefonica SA

Good morning, thank you for standing by and welcome to Telefónica's January-June 2023 results conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. If you'd like to ask a question, please press star followed by 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To answer your question, please press star 1 1 again. We will kindly ask you to ask a maximum of two questions per participant. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Adrian Zunzunegui, Global Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to Telefónica's conference call to discuss January-June 2023 results. I'm Adrian Zunzunegui from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is un-audited. This conference call and webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefónica group. These statements may include financial or operating forecasts and estimates, or statements regarding plans, objectives, and expectations regarding different matters. All forward-looking statements involve risk, financial changes, and could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefónica's Investor Relations team in Madrid or London. Now let me turn the call over to our Chairman and CEO, Mr. José María Álvarez-Mallete.

Good morning and welcome to Telefónica's second quarter results conference call. With me today are Ángel Villá, Laura Basolo, Eduardo Navarro, and Lut Fuehler. As usual, we will first take you through the slides, and we'll then be happy to take your questions. During the second quarter, we continue to focus on our strategic objectives and delivered on our goals. We improved our position in all core markets. In Spain, retail revenue growth improved, and we progressed towards OFDA stabilization. In Germany, the first half results showed a strong performance and continued momentum with excellent progress in 5G deployment to 90% pop coverage in a normalized -to-sales envelope. Finally, in the UK, we accelerated the network rollout in ultra broadband and 5G, along with a sequential improvement in revenue and ODA growth based on synergies, which we are executing above plans. We see opportunities from e-market consolidation in Spain and the UK over the next years. In Spain, copper switch-off in April 2024 is an important milestone. In Brazil, we focus on growth and lower capital intensity and the B2C ecosystem opportunity. In Germany, good customer demanding of more for underpins future growth ambitions, and in the UK, we will benefit from synergies realization until 2026. Group-wise, Telefonica Tech continues to outgrow its market with solid revenue growth and continue to be a source of value, while Telefonica Infra further develop our fiber vehicles and looks for consolidation opportunities. Telefonica Ispan announced two important deals, the MOU network agreement in Colombia with Tigo and the agreement with KKR and Intel to create the largest neutral wholesale fiber code in Peru. 32 telcos have already joined Open Gateway Initiative, and we are fostering the development of artificial intelligence based use cases. Finally, from a regulatory point of view, the next months are key for pressure regulation and consolidation among others. This is the fifth consecutive quarter of reported revenue growth, thanks to a strong commercial momentum in value accesses, backed by increasing coverage of next generation networks that helps us strengthening the relationship with our customers with sustained high NPS levels. Along this line, we are also working on the development of a new network. The last quarter is the last quarter to .5% -on-year growth. This trend is visible in all core units. This operating leverage in the business is the main driver behind the higher margin. Contained capital intensity and active management on all free cash flow lightens, notably in our debt cost, helps operating performance to flow through free cash flow, which is almost twice what we generated in the first quarter of the year, and grows -on-year to $842 million for a total of $1.3 billion in the first six months of the year. To sum it up, improved OVDA and free cash flow momentum. Moving to slide four for detailed financial update. In organic terms, revenue, OVDA, and OVDA minus capex grew in the second quarter by 3.3%, 3.5%, and .4% respectively. In reporter terms, revenue grew .9% -on-year, and OVDA was stable despite the negative FX impact this quarter. Net income increased .5% in the second quarter of this year to $462 million. Reaching 760 million euros in the first half of the year. Free cash flow reached 842 million euros in the quarter and 1.3 billion euros in the first half of the year. While June net financial debt declined .9% -on-year to 27.5 billion euros. Moving to slide five. We show a strong first half of the year performance and the expected evolution of our business. Thanks to a strong commercial and operating momentum, give us confidence to upgrade our group guidance for this year. We are moving up from our previous guidance of low single-deed growth for both revenues and OVDA to organic revenue -on-year growth of around 4%. Organic OVDA -on-year growth of around 3%. While we keep our capex to sales organic guidance unchanged at around 14%. This upgraded guidance at both revenues and OVDA coupled with unchanged capital intensity levels make us extremely confident with free cash flow generation for the year. We expect to stand above latest consensus estimate and generate significantly more free cash flow in the second half of the year. For a full free cash flow figure that excluding spectrum should not be far from the 4 billion mark. Furthermore, we will propose to the shareholders meeting the adoption of the corresponding corporate resolution for the cancellation of .4% of shares held as treasury stock at the 30th of June of 2023. This together with our confirmed 0.3 euros per share dividend implies a very attractive shareholders remuneration scheme. A consequence of our strong confidence in our free cash flow generation capacity. Turning to slide 6, I would like to provide a glimpse of our progress across the pillars of ESG. On the environmental side, GMO2's net zero targets has been validated by the renowned Science Bains Targets Initiative, a validation received by Telefónica Group last year, the first in the sector to achieve it. We have also introduced take back, reusing and recycling targets in line with the sector push to address the circularity of devices. With regards to the social pillar, we continue to connect more people directly and via network agreements to improve and extend coverage. We also help to boost around 1.2 million people's employment prospects via our foundation. Within the company, women now represent just over 32% of executives, positioning as well on track to achieve our 2024 target of 33%. On the governance side, we highlight the award by Global Capital for our Sustainable Finance Issues, the launch of our ESG Academy to provide training for our employees and that we are protecting our customers from cyber attacks. I will now hand over to Ángel to give you an overview of the progress across the operating business.