Telefonica SA

Good morning. Thank you for standing by and welcome to Telefónica's January-March 2025 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 come to you and kindly ask you to ask a maximum of two questions per participant. As a reminder, today's conference is being recorded. I will now like to turn the conference call over to Mr. Torsten Achtmann, Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to Telefónica's conference call to discuss January-March 2025 Results. I'm Torsten Achtmann 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 unaudited. 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 and uncertainties that could cause the final development 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. Mio Gayo.

Good morning and thank you for joining the call, my first call with the financial community. With me today are Laura Basolo, Marcus Haas, Lutz Suller, and Eduardo Navarro. Welcome everyone. It's a pleasure to have you here. I'd like to start this call by highlighting our progress in operations, especially along our three main pillars, customer engagement, network transformation, and efficiency. First, customer engagement. I am proud to report that we continue to excel in this area, with MPS score reaching new highs. Spain continues to lead the market, while Brazil and Germany show strong and consistent improvement, a clear sign of our competitive strength. Our portfolio of products and services also continues to improve while we maintain focus and customer care. We have an outstanding market position of our digital ecosystem in Spain and Brazil. This allows for very low level of churn and a differential R2. Next, Fiber and 5G. We rolled out fiber to over 1.5 million premises in the last three months, and we've reached 75% 5G coverage in our core markets. Our networks are virtualized, more efficient, and flexible, and more reliable. Finally, efficiencies. We progress in the southbound of legacy services, with copper switch-off in Spain that will be completed this month. We're also 3G in Germany and 2G in Uruguay. In Spain, we keep on executing our strategy and optimize our portfolio, including the sale of our operation in Argentina and Peru, and the signing in Colombia in just three months. All of this shows that we continue to execute. We want to speed up this execution across businesses with an industrial rationale, accelerate financial flexibility and simplification, and operate under technology and operational excellence. In parallel, we have started a strategic review, which we expect to complete and set with you in the second half of the year. Please give us time to conclude this review and focus for now on the business operating performance. Moving to slide three. Our core businesses show a strong performance. In Spain, growth accelerated across key commercial and financial metrics. The robust combination of our strong brands, best in class infrastructure, a matched portfolio and powerful channels continue to deliver strong results. In Brazil, momentum remains steady. Our leadership in the market remains intact, with a strong growth in mobile contract and fiber accesses. FX impacts our reported accounts, but in local currency, we continue to grow clearly about inflation. In Germany, operating cash profitability remains strong, so our efficiency focus. We have made change to our expand portfolio as we continue to further reduce our exposure, and we are determined to progress in this direction. Our main financial metrics are impacted by intense competition in the different markets and by Forex in reported terms. Despite this, it is worth mentioning the growth in contract attacks in Q1, which we are seeing for the first time since Q4-23. At the root level, reported results were negatively affected by Forex. However, in organic terms, we are growing in main metrics, and GOMs will ease around the year. I'd like to highlight the differential growth of B2B. .4% -on-year. Finally, net debt has decreased. Freqas flow is affected by sessionality in Q1. In summary, our core business, Spain, Brazil, and Germany, continues to show resilience across all key metrics, while at the same time, we are reducing our exposure in Spain. Moving to slide 4. Here we can show that we are on track to meet 2025 guidance in all financial metrics, a constant perimeter, with Q1 results being fully aligned with internal expectations. In fact, we expect our performance to improve as the year progresses, as com-VC during the year and operational trends continue our progress. As such, we can fully reiterate our 2025 outlook. Revenue, EBITDA, and EBITDA-CAPES will grow in organic terms, with CAPES to sell continue to decline. Freqas flow will be similar to the figures posted in 2024. We expect a lower leverage despite the temporary increase in Q1, which is mostly driven by Forex and working capital sessionality. We also confirm 2025 cash dividend. Moving to slide 5. We will review the start of the year in our domestic market. Telefónica Spain's commercial and financial performance continues to improve in the first quarter of the year. We have a strong commercial momentum. Q1 NetAs were above Q1 24 level, and we delivered customer growth in all accesses for our seventh quarter in a row. TV NetAs were the best in more than six years. The growth in B2C is being driven by our segmented and flexible offering, an attractive ecosystem with a very positive performance and our focus on customer care and service excellence. I would like to highlight the increasing device sold and the performance of Movistar ProSobre Alarms, which is the second largest player in the alarm market in Spain. All this means Telefónica Spain has the best charm and art view compared with our competitors in the convergent market. We have also seen strong growth in B2B, fostered by double-digit growth IT sales in the corporate segment. These sales are thanks to our cutting-edge technologies and highly experienced sales force, combined with the extension of long-term contracts with large enterprises. Full-sale sales are also anticipated. Nevertheless, the new long-term agreements signed in 2024 give stability to this revenue flow. As a result, domestic revenue grew by 1.7 percent -on-year, which has been down accelerating by 1 percent, quarter on quarter. On top of that, the reduction in CAPES led to a 2 percent improvement in operating cash flow generation. Let me say that our best practice CAPES to sales does not come at the expense of network coverage or quality. We have passed 1.3 million premises with fiber in the last year, and we have already activated standalone across the 5G network. All this means advanced functionalities to our customers. In summary, a strong performance with an outstanding set of commercial and financial KPIs. On to slide 6. Telefonica Brasil again showed solid commercial momentum, remaining a leader in both OSPEC and Fiber. Vivo reached the largest customer base in its history. Vivo Total, our market-leading full bundle, grew 77 percent in accesses -on-year. In addition, digital services penetration accelerated, reaching more than 11 percent of total revenue thanks to our ecosystem of services. Revenue rose 6 percent above inflation due to the double-digit growth of our flagship services. This was driven by higher arpu, growth in mobile contracts, and fiber accesses, acceleration in digital services, and a strong B2B performance. Prepaid to post-paid migration is leading to arpu growth and improved customer satisfaction. We are capturing an increasing share of wallet thanks to our differential portfolio, ranging from connectivity to digital solutions. Despite this commercial push, we achieved a 14.5 percent increase in EBITDAO minus KPIs with margin expansion. Finally, in April, we formalized an agreement with Anatel to migrate to the authorization regime. This is an important step that will enable greater business transformation and deliver positive commercial and financial impacts thanks to an improved service quality to corporate customers, office reduction, and asset sales. In summary, Brazil is performing solidly, and we expect to maintain these results throughout the year. Moving to slide 7, Telefonica Deutschland maintained a robust commercial momentum in mobile with -on-year growth in contract net ads. This was achieved with B2B customer wins and stronger B2B partnerships, as well as the attractiveness of the O2 brand. Both continue to focus on operational leverage in a market with increased commercial and promotional activity. In the sixth segment, arpu increased by 5 percent -on-year, based on improved value missed due to the demand for higher speed packets. Revenue was impacted by headwinds related to the B2B combined with weaker handset sales. However, this is not the case with market trends. Evita also faced difficult -on-year comps. Nevertheless, efficiency gains combined with successfully implemented growth initiatives in both the consumer and partner businesses helped maintain a stable evita margin -on-year. Evital minus caps grew by 4.8 percent -on-year. I also like to highlight a German regulator confirmed the 5-year spectrum prolongation until 2030. In summary, Telefonica Deutschland remains focused on operational improvement while at the same time increasing efficiency. Moving to slide 8. Now I'd like to update you on Virgin Media O2. In Q1, despite a tougher trading environment, we remain focused on delivering fast and reliable connectivity while protecting customer value. We continue to invest in our UQ networks and services, ensuring we remain in a good position for the future. Our 5G population coverage reached 77 percent and we expanded our fixed network footprint to over 18.4 million premise passed, of which 7 million are fiber homes. In mobile, contract chance remained stable at a total of 1.1 percent -on-year, proving that our efforts to increase customer retention are working. The chain ventures just expressed its portfolio with better airtime rates and multi-sign offerings. In our fifth consumer business, our public growth grew, once again supported by our value strategy. Revenue has begun to grow again, excluding handsets and next fiber, which reflects the successful phasing of price increases into service revenue. This contributed to a bit of growth, further supported by cost efficiencies. Evidal minus capes grew by 15.2 percent and the margin improved, reflecting capex seasonality. Finally, the net cost sale process has been paused to assess the best path forward to create value. Our next fiber will build towards a cumulative 2.5 million homes in 2025. In summary, in the UK, the team is focused on value while it continues to progress in next fiber and 5G rollout to capture growth opportunities. Next slide, please. In Istanbul, we have accelerated execution of our strategy in the last three months. We completed the sale of Telefónica Argentina for 1.2 billion euros in February, with simultaneous signing and closing, eliminating execution risk. We have also signed a binding agreement to sell Telefónica Colombia, pending regulatory approval and agreements with minority shareholders. Finally, just last month, we completed the sale of Telefónica Peru, which helped us avoid future liabilities and financial needs, while the consolidation improves free cash flow outlook and leverage of the group. In summary, these steps marked strong progress in simplifying our footprint and are also indicative of our financial discipline. Moving on to slide 10, staying with Hispan. I'd like to now focus on the operational and financial performance. We record positive net tasks in mobile contracts, the first in five quarters, thanks to better results in Chile and the launch of Movistar Antigua's single mobile network in Colombia. On the fixed side, fiber rollout keeps advancing, while 98% of broadband now on fiber. Revenue dropped 3.4%, mainly due to sales of copper in Chile in Q1-24. However, this drop was partially offset by a 5% growth in service revenue in Mexico. Evidal minus Capes fell 31% due to lower EBITDA and higher lease costs due to the single network launch in Colombia. Summary, in Hispan, we are happy with how the execution of our strategy has accelerated in the last quarter, which has resulted in a significant reduction in invested capital since December 2019. And finally, before I pass on to Laura, on slide 11, I'd like to talk about the performance of our transversal units, Telefónica Tech and Infra. Firstly, Telefónica Tech, the engine of our B2B segment. We help our customers with the digital transformation of their processes and businesses, leveraging our unique combination of leading professionals, leading technologies and the best platforms, all supported by a global ecosystem of market-leading partners. I am delighted to say that Telefónica Tech has increased revenue .6% -on-year. Commercial activity continues to grow, led by the private sector, with bookings up 7%. The 15% expansion in the commercial funnel and Telefónica Tech's strong market recognition as a global leader position it well to capture further growth. Secondly, Telefónica Infra. Our Fiber cost footprint reached 29 million premise past, including Fiber Pass in Spain. We recently closed the sale of our Staking Naviax. And finally, our submarine cable company, Telsus, continues to show strong profitability. I will now hand over to Laura, who will guide you through the main financial topics.