Telefonica SA

Good morning, thank you for standing by and welcome to Telefonica's January-December 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. As a reminder today's conference is being recorded. I will now like to turn the call over to Mr. Adrian Zunfunegi, Global Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to Telefonica's conference call to discuss January-December 2023 results. I'm Adrian Zunfunegi from Investor Relations. Before proceeding let me mention that financial information contained in this document has been prepared under international financial reporting standards as adopted by the European Union. This financial information is unedited. This conference call and webcast including the Q&A session may contain forward-looking statements and information relating to the Telefonica 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 risks and uncertainties that 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 Telefonica's Investor Relations team in Madrid or London. Now let me turn the call over to our Chairman and Chief Executive Officer, Mr. Jose Maria Alvarez-Pallete.

Good morning and thank you all for joining us today. Reflecting on 2023, I'm proud of the progress we have made as a company and the dedication and resilience demonstrated by our teams worldwide. 2023 was a pivotal year for Telefonica where we enhance our networks, our operations and an overall customer experience. While there is clearly a lot more to do, I am confident that we have a lot more to do. As we continue to execute against our strategy, we delivered on our promises in 2023 and we are comfortably on track to meet the GPS plan ambitions we shared with you last November. With the GPS plan as our guide, we stand ready and eager to invest the opportunities that 2024 holds. In 2023, we not only achieve an over-updated guidance but also, and importantly, over-deliver in terms of free cash flow generation. We are growing revenues, with P2B remaining a differential engine growing 6.3 euro a year in organic terms, significantly above the overall .7% top-line organic growth. OEDA also grew more than 3% and we reduced CAPEX by another 3%, allowing us to expand our OEDA minus CAPEX margin to 19%. In turn, this higher OEDA and lower capital intensity contributed to the very strong free cash flow of 4.2 billion euros, 200 million above what we guided to in July. We are delivering solid results across all of our markets, driving exceptional performance in Brazil and Germany and improving trends in Spain. These successes are underpinned by our investment in the latest technologies, which have enabled significant growth in our customer base, who now enjoy the benefits of our advanced fiber and 5G networks. As we progress, our strategy of reducing exposure to legacy networks is paying dividends, allowing us to streamline operations and drive our efforts in simplifying the business. We have now reached more than 94% ownership of Telefonica Deutschland following our tender offer, reinforcing our confidence in the German market. Our journey towards simplicity and efficiency is ongoing and you can expect us to continue to optimize our business structure. As we look ahead, our path is clear. We are seeing momentum in our business and we are ready for 2024 as the first year of our growth, profitability and sustainability plan. We remain committed to driving growth, enhancing our customer experience and leading the digital transformation that will shape the future of Telecom. We will share more details on guidance, but in 2024 we will grow revenues, EVTA and EBITDA minus capex and our capital intensity will continue to decline. Importantly, despite a stronger 2023, we expect that free cash flow will grow by more than 10% this year. This is strong free cash flow generation supports our key capital allocation priorities, including our dividend, our expectation to deliver over time and our path to create a significant shareholder value. I am confident in the direction of our business and the opportunities that lie ahead. As you heard on our Capital Markets Day, Telefonica is on a mission to be at the forefront of the telecommunication industry. Our journey has been and is guided by three pivotal pillars in addition to sustainability. Firstly, our investment in future proof networks has been transformational. With the deployment of FTTH to an additional 10 million premises globally, increasing our pool stream by 15% over 2022 and achieving 62% of 5G in our core markets, we have expanded our infrastructure to revolutionize the connectivity landscape. Our networks are not merely conduits of communications, they are the backbone of innovation for the service and products of tomorrow. This provides us with new opportunities to monetize our network and enhances our ability to increase our return on invested capital. Secondly, our focus on an enhanced customer experience and being customer-centric organization has generated considerable rewards. We are not just adding customers, we are fostering relationships, growing our customer base to 388 million. And our satisfaction metrics are growing. By example, our MPAs expanded by 31 this year and we continue to be focused on improving the overall experience. Ultimately, trust, reliability and superior service are the backbone of Telefonica. Lastly, our pursuit of linear and more efficient operations has propelled us into the new level of operational excellence. We have refined our organizational structure, stripping away complexity to reveal a more agile organization, which has improved our operating leverage by up to 19%. At the same time, we have optimized our structure with many employees joining our redundancy program, a strategic move that aligns our workforce with our future needs. Moreover, we have made significant progress in phasing legacy networks, including the shutdown of almost 2,000 copper central offices in Spain, with full retail copper network shutdown to be finished by April of this year. This shift reduces costs and reallocates investment to more advanced efficient technologies, ensuring our infrastructure meets devolving demands of connectivity and sets the stage for future service innovation. This is not just about cost savings, it's about crafting a business that is as resilient as it is dynamic. With a robust network infrastructure in place, a customer-centric approach with a growing base and a relentless focus on efficiency, we are well positioned to be a global leader in fiber and 5G and ultimately to unlock value for shareholders. Our strategic initiatives have allowed us to deliver on our upgraded 2023 guidance, which we set in July in organic terms. Revenue grew by .7% and FDA grew by .1% year on year. Our capital intensity continues to decline. CapEx to sales declined year on year to 14%. Bottom line free cash flow ended up stronger than anticipated, reaching more than 4.2 billion euros above our guidance of 4 billion euros. In other words, we are delivering. The financial strength secures our dividend for 2023 of 0.3 euros per year, comfortably funded by our free cash flow of 0.75 euros per share. And even with the updated free cash flow calculation, we maintain a healthy free cash flow per share of 0.41 euros, more than covering our dividend payment. And while we deliver on organic terms, year 23 also shows our GPS plan and are already kicking in in reported terms too. We are back to growth in reported terms in both revenue and OEDA by between 1% and 2% year on year, despite effects such as the Argentinian Pesod Evaluation. This is even more pronounced in our EDL minus CapEx, which grew more than 5% demonstrating the tangible benefits of efficiency measures and declining CapEx. The driving forces behind the growth were Brazil, Germany, and Spain, with the former being the biggest contributor to operating improvement. Looking forward and starting in 2024, we expect Spain to increase this contribution to EDA growth, adding to continued growth for Brazil and Germany. I will now hand over to Angel to give you an overview of the progress across our core business during the last quarter of 2023. Thank you,