Telefonica SA

Good morning and welcome to Telefonica's third quarter 2025 results. I am 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 presentation, 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 information, please contact Telefonica's investor relations team in Madrid. To ensure an efficient Q&A session, we kindly ask virtual attendees to submit their questions to our inbox, cmdquestions at telefonica.com. For in-person attendees, please raise your hand, and we will hand you the microphone when it is your turn. Please state your name and institution before asking your questions, and we kindly ask you to limit your queries to a maximum of two questions per participant. We'd appreciate if you would solely focus your questions on Q3-related topics. For any other inquiries outside the scope of the Q3 results, we encourage you to reserve those questions for the dedicated session during the Capital Markets Day. As a reminder, today's presentation is being recorded. Now I'd like to pass the floor to our Chief Operating Officer, Emilio Gallo.

Good morning. and welcome to Telefónica's third quarter results. With me today are our Chief Financial and Control Officer, Laura Basolo, Borja Ochoa, CEO of Telefónica España, Christian Guevara, CEO of Telefónica Brasil, Lutz Söhler, CEO of BNO2, and Markus Rohl, CFO of Telefónica Deutschland. As we have the Capital Markets Day session right after this presentation, you will be disappointed to hear that the call will be shorter than usual. I would like to highlight the consistent execution across businesses in the quarter. Therefore, today I will talk about the following. First, we are accelerating the portfolio transformation in headspan. Second, commercial momentum is accelerating in our core markets, with growth in fibre and mobile contract accesses. This is driven by low levels of churn and a superior NPS. our total customer base has reached 350 million. Growth accelerated year on year in all main accesses in Spain, with promising demand for our digital ecosystem services in Spain and Brazil. Third, our network leadership is key to our steady performance. Feverbile continues already reaching 8.6 million premises past, while our 5G coverage stands at 78%. And finally, we are working to increase efficiency across the Group on a daily basis. Our industry-leading CapEx-to-Sale ratio continues to decline. Moving to slide 3, for the overview of the third quarter key financials. We again deliver sustained organic growth. We are growing in revenues and EBITDA, and EBITDA minus CapEx is back to growth in this quarter. As a result, for the first nine months of the year, we have been growing in key operating metrics. In reported terms, the negative forex impact slowed down during this quarter. Frequent flow trends were affected by several issues which Laura will explain later in more detail, while net financial debt is down year on year. Moving to slide four. Performance in Spain was strong with accelerating growth in both customer and financials. Trading in the third quarter was again very positive, recording the highest convergent net gaps in more than six years and growth in all accesses. Convergent ARPU remained the best in the market, close to 90 euros. This astounding commercial performance reflects Telefónica Espanya's premium market positioning and a smartly segmented commercial strategy. Q3 revenue increased year-on-year thanks to sustained growth in service revenue. Retail revenue increased about 2% year-on-year, driven by customer growth, price upgrades and solid IT sales growth in B2B. EBITDA improved its growth rate, while EBITDA's minus cap accelerated to almost 4% in the quarter. This shows our leading cash conversion in the domestic market. In summary, in Spain, we continue to leverage our solid fundamentals to deliver a stronger performance. On the next slide. Telefónica Brasil delivered a strong set of results in Q3, maintaining robots' growth in the most valuable segments and a solid financial performance. In mobile, RPU continued to grow, driven by the higher adoption of 5G, now available in 683 cities. This proves the success of our selling strategy. Churn remained at low levels, around 1%. In fixed, we continued the transformation to Fiverr. New connections were up 17%, driven by our convergent position Vivo Total. Revenue grew over 6%, outpacing inflation, thanks to growth in postpaid on Fiverr, and increasing contribution from new businesses, representing 11% of total revenues. EBITDA growth continued to accelerate, while EBITDA minus cap rose 14%. Margin expansions were supported by the first positive impacts of the migration to authorisation. In summary, once again, we delivered very positive commercial and financial results in Brazil, just as in previous quarters. Moving to slide 6 to cover Germany. Telefonica Deutschland delivered solid on-brand momentum in the third quarter. Even now, the one-on-one migration continues to weigh on financial results. The migration is very close to completion. We are growing both in fixed broadband and mobile contract net ads. This performance was supported by attractive O2 promotion and the success of both the family and unlimited plans. Network quality remains a key strength, with 5G coverage at 98%. We have also continued progress on densification. From a financial perspective, performance was weaker than expected across the main metrics. Revenue declined over 6% year-on-year and EBITDA dropped 9.5%. This was due to the one-on-one migration which we could continue to wait on Q4 before starting to analyze in the course of the new year. Nevertheless, underlying EBITDA still grew thanks to our efficiency measures. In summary, despite the migration, the underlying operations show resilience. Moving to slide 7. Virgin Media 2 improved its commercial results in Q3. The company remains focused on customer loyalty and protecting value in a challenging market. The launch of Gigaf broadband expanded our convergent offering, strengthening our position in the market. In B2B, we completed the merger to create O2DAISY. This is a key milestone to improve our position in the segment. Revenue continues to be impacted by challenging market dynamics. Software-enhanced sales and lower next-fiber construction. However, when we exclude the combination of handset sales, next-fiber castration and B2B with the completion of the O2DACY transaction, Guided revenue remains virtually stable year-on-year. In addition, Guided EBITDA improves its year-on-year trend to 2.7% thanks to the reduction in operating expenses. All in all, Virgin Media 2 continues to enhance convergence, expand its network, and drive operational efficiencies to support future profitable growth. Moving to slide eight. In Hispan, we continue to make progress on the portfolio optimization. We completed the sales of Telefónica Uruguay and Telefónica Ecuador in October, and Telefónica Colombia will be in the coming months. Organically, we are delivering growth in contract and fiber accesses. In financial terms, revenue declined in the third quarter, but EBITDA improved its strength compared with previous quarters. I will now hand over to Laura for the main financial topics and ESG.

Thank you, Emilio. Thank you, Emilio, and good morning, everyone. Let me start explaining you our 2025 guidance and dividend. Given our solid operational performance and growth in the first nine months, we confirm our guidance of revenue EBITDA and EBITDA minus CAPEX growth with a CAPEX to sales ratio below 12.5% in 2025. We reiterate also our 30 euro cents dividend per share in cash for the year. We are updating our free cash flow expectations for the year to around 1.9 billion euro, and as a consequence, we expect a slightly higher leverage in 2025 versus a decline previously. Let me go straight into explaining our current 2025 free cash flow expectations. As we approach year-end, we have more clarity on some events. We were expecting a tax refund and the collection of familial litigation of around, in combination, €0.4 billion for this year. The refund has not occurred yet, and we now expect it for next year. And for the litigation, we have agreed a three-year payment from 2025 to 2027. perimeter is also impacting beyond the effect of discontinuing the company salt. We accelerated the execution and exited five out of eight East Bank countries so far. And as we close the operations, we are seeing all induced impacts. As we accelerate the exit of ISPAN, we are managing those full impacts. Lower-scale benefits at our purchasing unit, the closure of our ISPAN financial subsidiaries, the exit of TechISPAN, among others. We are working to concentrate most impacts in 2025, which will flow through free cash flow from continuing operations, while in reality this is more the cost attached to exit the region. Related to ISPAN, also our expectations for working capital have changed, and we foresee a worse working capital contribution versus our initial expectations. Germany's performance is challenging. On one hand, B2C revenue continues to consistently deliver growth despite a more competitive environment. On the other hand, B2P free cash flow loss impacts accelerate. Q3 told us that full-year performance could be worse than originally expected. We took immediate action, and we will explain the strategic plan for Germany later on today. Finally, year-on-year comps are difficult. FX negative impact, restructuring from organization changes, and a less positive one-off, such as some infrastructure says stop under a more industrial approach. In comparison with 2024, free cash flow was very positively affected by 288 million euro cash from 5G capex subsidies received the third quarter last year, and a 211 million euro tax refund in the same period. With all these moving parts, we see free cash flow for the year now more in the 1.5-1.9 billion euro range. But it is worth mentioning that facing impacts will revert. An lifespan full transition is being coupled with value accretive deals on top of leading to a simpler and more predictable portfolio with most of free cash flow mid-term coming from Europe and Brazil. In this slide, I will drive you through the first nine months' financial performance. Net financial debt stands at 28.2 billion euro in September, and including the sale of Uruguay, Ecuador, and Colombia, and the acquisition of the 50% of Five Brazil, net financial debt reduces to 26.5 billion euro. Free cash flow from continued operations amounted to €414 million in the first nine months. Year-on-year comps, as I said, were tough on some positive effects last year. FX moves had also an impact on the reported operating cash flow. Working capital consumption was slightly higher and leases reflected seasonality. Our solid financial profile shows our ample liquidity, with debt maturities covered over the next three years and an average dead life of 10.5 years. The average cost of debt reduced 0.13 percentage points year-on-year to 3.44% in September. We'll continue with our prudent financial policy and free cash flow management, which are key priorities for us. Moving to slide 12, now we turn to sustainability. This quarter, I'm pleased to highlight the recent signing of a 10-year PPA in the UK, together with an additional PPA in Germany coming into operation. These long-term agreements permit financial predictability and operational resilience, exemplifying our ESG approach, which is focused on reducing risk and generating value. And now we'll hand back to Emilio, who will wrap up.