Telefonica SA

Good morning. Thank you for standing by and welcome to Telefónica's January-June 2024 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 withdraw your question, please press star 1 1 again. We will kindly ask you to ask a maximum of two questions for participants. As a reminder, today's conference is being recorded. I would 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 Telefónica's conference call to discuss January-June 2024 results. I am Adrian Zunfunegi 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 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 Telefónica's Investor Relations team in Madrid, London. Now let me turn the call over to our Chairman and CEO, Mr. José María Álvarez Payute.

Thank you, Adrian. Good morning and welcome to Telefónica's second quarter conference call. With me today are Ángel Villar, Laura Basolo, Marcus Haas, Lute Schuler, and Eduardo Navarro. As usual, we will first walk you through the slides and we'll then be happy to take any questions. We are pleased to report solid Q2U results that demonstrate the continued success of our strategy. Our top-line growth has accelerated with revenue up 1.2 percent -on-year, driven by sequential improvements in both our B2B and B2C segments. Notably, all our main markets are growing revenue. Our key markets are showing positive commercial momentum. In Spain, we are achieving annual growth across all main customer segments. Germany is expanding in all main access categories, and Brazil is hitting record customer levels. This confirms our commitment to putting customers first. Importantly, we have seen robust growth in EBITDA minus capex, which increased by 11.5 percent -on-year. This impressive double-digit growth this quarter puts us -to-date, already trending above our full-year guidance, and precision us well for the second half of the year. The strong performance was supported by the solid -to-sale ratio of 12.1 percent in the second quarter, reflecting our efficient capital allocation. This performance is also driven by our focus on operational efficiency. Our optics reflects the full impact of Spain's personal restructuring program and ongoing efficiencies for the decommissioning of legacy copper and other legacy networks within our portfolio. We continue seeking further efficiencies. Within our strategic goal to modulate exposure to ESPAN while creating value for our shareholders, we have signed a non-binding MOU with MIDICOM for the potential corporate transaction of our operations in Colombia. In Spain, we have as well signed a non-binding MOU with Vodafone for the creation of a fiber code that should bring further rationality and network optimization to the market. Accordingly, we continue making good progress and remain confident in achieving our financial outlook for the full year 2024. Moving to slide 3, we show how this strong moment will translate into tangible financial results, starting with growth. Our top-line growth accelerated to 1.2 percent on strong service revenue that grows by 2.2 percent. All main units showed revenue growth in euro terms despite headwinds from weaker FX rates. This momentum is driven by high-quality customer addition across our fiber and mobile accesses, with premises passed by farther to the home, growing 13 percent -on-year. Profitability remains core. This healthy top-line expansion is driving profitability growth without a big, rising 1.8 percent -on-year in the second quarter. We are seeing a virtuous cycle of growth and efficiency that flows to our operating cash flow. Our EBITDA minus capex growth has accelerated by as much as 15 percentage points versus the first quarter, supported by our ongoing capital expenditure. Our capex over revenue ratio stands at just 12.1 percent for the quarter, demonstrating our commitment to efficient capital allocation. Importantly, this growth is slowing through to the bottom line. Adding sustainability, our second quarter free cash flow performance keeps us firmly on track to meet our full-year targets, excluding extraordinary tax payments in Peru. Our free cash flow is going by over 20 percent. We had a timing-related 279 million euro payment in the second quarter. It was already factored into our guidance and doesn't affect our outlook. We remain confident in achieving our free cash flow objectives for the year. Laura, we provide more details later. Going into greater detail on slide four, our network transformation continues at pace. In the second quarter, we expanded our -the-home footprint by an additional two million premises. Five-year coverage now reaches 66 percent of the population across our core market, a three-percentage point increase this quarter. Spain and Germany lead the charge with average five-year coverage exceeding 90 percent. Our customers remain at the center of transformation journey. We close the second quarter with 392 million total accesses, adding four million new customers, which is an eightfold increase from the previous quarter. Churn continues its downward trend, while our industry-leading NPS so far does sequential improvement. We are lazy focused on operational simplification to try profitable growth. The workforce destruction program in Spain is already delivering full-cost savings, filling higher EVDA growth as we have made significant progress in our nationwide copper network switch-off, with over 4,000 central offices closed since 2014. This strategic shift is a key driver in reducing capex, boosting our operation cash flow and free cash flow growth. And AI is embedded in our business and how we do business. Our networks are becoming more and more open and more intelligent through softwareization and automation. We are digitalizing to be closer to customers, enhancing offers with increased personalization. AI is also helping to streamline our capex deployment and boosting efficiency across the organization. We are fundamentally changing how we operate and deliver value to customers and stakeholders. In summary, our strategic initiatives, building next-generation networks, prioritizing customers, and creating linear future fit operations are yielding tangible results. This progress reinforces our confidence in delivering on our ambitious goal for growth, profitability, and sustainability. This quarter, Telefonica continues to consolidate its leadership in sustainability, as shown on slide 5. In June, we have published the annual update on our climate action plan. It details our roadmap to net zero and the tangible steps we are taking to decarbonize across the value chain. With 392 million accesses worldwide, Telefonica continues to bridge the digital divide. We are connecting people and raising awareness about the responsible use of technology. Being a responsible technology company also means building a strong code of ethics with regards to artificial intelligence, while pioneering AI code of ethics was first published in 2018. We have now updated it to include a new commitment to the environment while broadening responsibility and traceability across the value chain. Finally, on SG, I'm very proud that Time Magazine has ranked Telefonica among the top 10 world's most sustainable companies. I will now hand over to Ansel.