Telefonica SA

Good morning. Thank you for standing by and welcome to Telefónica's January-September 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 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 Funfunegi, Global Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to Telefónica's conference call to discuss January-September 2024 Results. I'm Adrian Funfunegi 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 unedited. This conference call and work cast, 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 or London. Now let me turn the call over to our Chief Operating Officer, Mr. Ángel Vila.

Thank you, Adrian. Good morning and welcome to Telefónica's Third Quarter Results Conference Call with me today are Laura Basolo, Marcus Haas, Lutz Schuller, and Eduardo Navarro. Before going into the results presentation, we would like to express our condolences to the Telefónica teams who are working 24-7 to restore communications to all those affected. God bless them all. And now let us first walk you through the slides and we'll then be happy to take any questions. We are pleased to report solid Q3 results that prove strong operating and strategic progress. Across all key markets, underlying performance remains strong. Spain delivered the best net ads in six years with record low churn. And Brazil sustained its growth momentum across all key metrics in local currency. One of the quarter's key highlights is the acceleration of free cash flow, growing by close to 90% in Q3 and 28% in nine months, and is already above our target of more than 10% growth for the year. Beyond expected backloading phasing, our free cash flow benefited from our industry-leading capex intensity of 12% up to September, reflecting optimized investments and enhanced operating leverage. We invest more efficiently. We continue deploying next generation networks at pace with 5G coverage in our core markets, reaching 71% fiber to the home, expanding to 82 million premises past. Importantly, we made significant progress on near-term catalysts across our core markets. In Spain, we strengthened wholesale visibility through today's announced definitive fiber co-agreement with Vodafone Segona and the long-term fiber to the home IRU signed with Mass Orange. Brazil's migration to the authorization model is expected to complete in Q4. In Germany, we enhance our wholesale position via the Levara contract renewal and new like agreement, while expecting Venezuela's update on details of the spectrum extension in early 2025. And in the UK, Netco continues to progress well, supporting our fiber strategy. Finally, we remain confident in achieving our financial outlook for the full year 2024, despite effects headwind. Going into greater detail on the next slide, we continue to build a stronger Telefonica through network leadership, customer centricity, and operational excellence. We accelerated our fiber to the home rollout with 2.7 million premises in the quarter, while our 5G coverage expanded by 6 percentage points in the last three months, achieving our 2026 target more than two years ahead of schedule. These milestones strengthen our network leadership, while capital efficiency improves, supported by AI-driven solutions. On Open Gateway, we continue making progress on industry collaboration. The API Newco venture will greatly simplify the process for Telcos worldwide to expose their network APIs, enabling seamless integration with hyperscalers and developer platforms through a single connection point. Our customers, their experience and satisfaction remains a priority, and AI is further improving this. Our recent investment and commercial partnership with Perplexity will further improve customer service across our markets, driving cost efficiencies, productivity gains, and faster resolutions. This quarter, we added 1 million accesses to reach 393 million, while achieving a record MPS of 34. Operational simplification and asset optimization remain key priorities. In Spain, we've closed approximately 8,000 central offices and remain on track to complete our copper network shutdown. We continue scaling AI across the business, having prioritized six key use case clusters. Meanwhile, in Spain, we are executing on our strategy, as evidenced by the non-binding MOU with Millicom in Colombia. On slide four, our underlying performance remains strong, with all three core units showing local currency growth in Q3, in line or above what's seen in the first half of the year. This proves that our core business momentum continues. Reported figures were impacted by FX headwinds, particularly from the depreciation of the Brazilian real against the euro, reducing revenue growth by 4.2 percentage points and EBITDA growth by 4.7 percentage points. Nevertheless, nine months EBITDA minus capex growth stands above our 2024 guided range in reported terms, despite FX headwinds, demonstrating the strength of our operating model. And most importantly, our free cash flow grew significantly year on year in both Q3 and nine months, largely protected from currency volatility through natural hedging strategy. Moving to slide five, underlying revenue growth has been solid, reflecting strong commercial traction and is underpinned by the increasing high value accesses, especially fiber. At the same time, we continue to see strong demand on B2B, with IT services seeing double digit growth. Profitability remains a focus. Operating leverage improved versus Q323 as capex declined 6.3 percent, driven by legacy network switch-offs, AI implementation and other digital transformation initiatives. These efforts, among others, continue supporting our margins. On sustainability, our free cash flow trends continue to strengthen, growing at a pace that reinforces our confidence in achieving our target of more than 10 percent growth for the full year. Slide six, we review the positive performance of the KPIs and financials at Telefonica Spain. Q3 marked an excellent commercial quarter, with the best net ads in six years and all accesses showing year on year growth. Telefonica Spain continued to excel in a competitive market, leveraging its superior quality and customer service, and achieved the lowest churn level in a decade and the best ever NPS. Our focus remains on protecting our high value conversion customer base, with a balanced combination of churn and ARPU. We believe that a rational approach is the right strategy to sustain revenue growth. Revenue growth continued in Q3, in line with our prior quarters, while EBITDA growth improved up to one percent year on year, on the back of further transformation efficiencies. This EBITDA growth, together with a quarter on quarter stabilization of leases, translated into a further visible sequential improvement in EBITDA that stabilized year on year in Q3 already. Finally, let me highlight two relevant topics that enhance our business sustainability. We are pleased with the recent success in the wholesale business. Leveraging our superior network quality and expertise, we extended all existing agreements and incorporated new ones, with rational and value-accretive terms. Hence, our wholesale business is secure for the long term, and we have further visibility and stability in the ongoing deregulation process is creating new opportunities in the Spanish market. Telefónica Brasil continues to enhance customer value, driven by a robust expansion of its contract access base and fiber connections, which support ARPU growth and keep churn rates very low. To highlight that we have the largest network across Latam. Revenue increased by 7.1 percent in local currency, boosted by the strong performance of mobile service revenue, the growth in fiber to the home, and the ongoing expansion of digital services. Despite the higher contribution from digital services, both EBITDA and EBITDA minus capex margins showed year on year increases of 0.2 and 2.1 percentage points respectively. Finally, we remain very optimistic about the integration from a concession to an authorization with a final agreement expected in Q4-24, as mentioned before. Our German operations maintain strong momentum in Q3, with consistent growth in contract details quarter on quarter, and low O2 contract churn of 1 percent reflecting our brand appeal and network quality. On the network front, 5G population coverage reached 97 percent, with 5G Plus celebrating its first anniversary and the O2 network was rated excellent in the latest smartphone magazine test. We further strengthened our position with the relaunch of O2 TV and a tariff simplification, reinforcing our value for money leadership. We also strengthened our B2B positioning, refilling freed-up network capacity through the renewal of contracts with Freenet, LeBara, and a new agreement with Leica. Financially, revenue faced headwinds due to MTR reductions and the shift in the -on-one business model, with revenue declining by 1.6 percent year on year in Q3. However, sustained EBITDA growth of 3 percent year on year was achieved through focused execution of the accelerated growth and efficiency plan and disciplined cost management. Moving to slide 9, to review our UK operations at VMO2. In Q3, we remain committed to our strategy to invest in our foundations and key drivers for future growth. We returned to fixed line customer growth in Q3, adding 16,000 broadband customers, and at the same time fixed ARPU increased by 2.2 percent year on year. In our wireless business, our automobile contract churn improved to 1.1 percent. Furthermore, fiber deployment has significantly accelerated, with a notable 44 percent year on year increase in our build rate in the first nine months of 2024. We also established a new long-term partnership with Selenex UK to provide tower infrastructure and associated services, and monetized a further 8 percent stake in CTIL while returning code control. Regarding financials, revenue fell by 0.7 percent year on year in Q3, mainly affected by hardware weakness. Despite this, we have achieved stable combined consumer fixed and mobile revenue, excluding handsets. EBITDA also decreased by 2.7 year on year due to ongoing investments in IT and Next Fiber initiatives. Telefonica Tech on slide 10 continues to show steady progress. Tech is a crucial growth driver for our B2B business. Tech in the last 12 months reached 2 billion euro revenues at 12 percent annual increase. Both finance and bookings show an even higher growth rate and revenue, which gives us a very good visibility of the future business. Q3 bookings increased by 3.5 percent. 40 percent year on year, mostly driven by large contracts from the private sector, awarded from financial, healthcare, and manufacturing customers. Solid commercial activities increasing the backlog of higher value contracts, which will bring more recurrent services and revenue flows in the future, enhancing the sustainability of the business. The ongoing improvement is not only evident in the visibility of the tech business, but also in a revenue mix with a stronger contribution from managed and professional services and on platforms and a higher weight of hard currency revenue, already 87 percent of revenue in nine months of 2024. With all these positive developments, we remain optimistic for the future. Telefonica infra on slide 11 continues to drive growth and accelerate digital inclusion through efficient deployment of next generation infrastructure. FG Rolat by fiber course progressed at pace, having passed more than one million premises in the quarter to 24 million, advancing well to the target of around 30 million in 2026. In Germany, UGEGE reached an agreement to acquire Infra-Fiber Germany, strengthening UGEGE's position as a fiber infrastructure provider throughout selected rural areas and accelerating the plan expansion to two million premises past. Telcios, our global connectivity provider, maintained a double digit growth rate in traffic and a high profitability level of close to 50 percent in the first nine months of the year. I will now hand it over to Laura, who will guide you through ISPAM performance, the main financial situation, and ESG topics.