Telefonica SA

Good morning and welcome to Telefonica's conference call to discuss January to December 2025 results. I'm Torsten Nachtmann 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 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. Now let me turn the call over to our chairman and CEO, Mr. Mark Murtra.

Good morning, everyone, and welcome to Telefonica's fourth quarter and full year results call. I am here today with Emilio Gallo, Chief Operating Officer, Juan Azcue, Chief Financial and Corporate Development Officer, and Lutz Schuller, CEO of Virgin Media 02. Last November, at our Capital Markets Day, we presented our strategic plan, Transform and Grow, that had the clear challenge to provide citizens the best access to digital technologies. The fundamental access on a high level are clear for us. We are committed to offering additional and enhanced customer services to drive growth in our core markets. We are building a more innovative and competitive company, simplifying business units and shifting operational responsibility to markets with an ambitious and effective management focused on growth and efficiency. absolute commitment to guidance and financial discipline, and we are building a stronger, more competitive European operator. These axes and purpose fit our 2025 results, where we delivered on our commitments and where we achieved important milestones. Let me highlight the 2025 results, where we have delivered on our financial commitments in 2025. At the same time, we made significant progress setting the business up for a stronger future. Importantly, we exited the year with improving momentum. In the quarter, momentum continued with adjusted EBITDA and operating cash flow after leases accelerated. Adjusted EBITDA constant forex growth reached 2.8% and adjusted operating cash flow after leases grew nearly 13%. B2B was particularly highlight, growing 7.3% in the quarter. Our business performance was equally encouraging. In Spain, we delivered the strongest growth in more than seven years on the back of our premium positioning and improved commercial performance. In Brazil, our customer base grew to record levels. And in Germany, consumer perception of the O2 brand continued It's a positive trend. Beyond the financial results, we continued to both simplify and drive long-term value creation for the Telefonica Group. We accelerated the pace of our portfolio transformation, significantly reducing our exposure in Spain, and have now more or less exited the region with six out of eight markets sold. We also reached a formal agreement with our labor unions to improve productivity in Spain. And this agreement is currently being implemented. This is an important step to build a leaner and faster moving organization. These are part of a broader efficiency drive that is already flowing through our cost base. Taken together, these achievements represent a solid foundation for 2026 execution. Moving to slide three. At the Capital Markets Day, we define the six strategic pillars underpinning our transform and grow strategy. During the end of 2025, we have already executed on these pillars. The first three are delivering a best-in-class customer experience, expanding B2C offering and scaling B2B. Let me highlight some of our achievements here that we are looking to build on in the future. In 2025, our network leadership drove commercial results. We want customers. retained them longer, and delivered services they value, as our NPS and customer lifetime value reflected. We also secured our leading position with, for example, the renewal of La Liga and the UEFA rights in Spain. In Brazil, VivoTotal represents 43% of FTHH customers, and we believe that we will grow that as we expand the customer proposition. We are building out the ecosystem into smart home, security, fintech, and consumer electronics. In Germany, fixed broadband expansion is the path to converge our strong mobile voice. The fourth pillar, evolving technological capabilities. We continue to invest in the best network experience for our customers. Beyond building networks, we are changing how we operate them with advanced automation, for example. The fifth pillar is simplifying our operating model. The goal is making a leaner, more agile Telefónica, ensuring our investments deliver improved returns. Copper switch-off in Spain was a milestone this year and has already started in Brazil. The workforce transformation agreement is concluded and on track to deliver approximately 0.6 billion euros in run rate savings by 2028. we made clear progress on portfolio management execution, completing four SPAM exits in 2025. Let me now turn to the priorities for 2026 in a transform and grow plan that will drive the next phase of growth. Delivering best-in-class customer experience is one of the clearest ways to drive long-term value. When interactions are simpler, and more tailored satisfaction increases, leading to greater loyalty, higher ARPU, lower churn, and higher customer lifetime value. At a group level, we are focused on ensuring faster incident resolution, and we are also rolling out AI-based hyper-personalization across key channels. This effect is included in the 2026 CAPEX of the group. In B2C, We are further driving convergence and deepening customer relationship by bringing more into each household. Customers who bundle multiple service, such as connectivity, content, devices, and other services, stay longer, spend more, and churn less. This creates a structural opportunity to grow ARPU efficiently. In B2B, we are scaling our digital services portfolio across the group, with a particular focus on cybersecurity and cloud as well as defense in Spain. Our trusted position with enterprise and public sector clients gives us a strong foundation to grow recurring revenues. 2026 is already a significant year for cost efficiencies. We are accelerating the simplification, optimizing leases, renegotiating vendor contracts, and streamlining structures. In Brazil, we are now shutting down our copper network to concentrate our resources on a single modern infrastructure. We continue to focus on ISPAM exit, already have closed two transactions in the year to date. Last week, NextFiber announced the acquisition of Netomnia to become the largest full-fiber altnet in the UK and will reach 8 million premises passed. We achieved this without a significant equity contribution from Telefonica. These initiatives show how transform and grow comes to life. We enter 2026 with a focused portfolio, stronger commercial momentum in core markets, and a clear set of priorities already in execution. Moving to guidance for 2026. We expect constant revenue and adjusted EBITDA growth of 1.5% to 2.5%, and capex to sales ratio of around 12%. We expected an adjusted operating cash flow after leases growth of more than 2%, demonstrating operating leverage at the adjusted operating cash flow after leases level. We expect free cash flow of 3 billion euros, an upgrade to the upper end of the range given at the capital market state, supported by the Q4 momentum. We continue to expect leverage to progress towards our target of 2.5% times net debt divided by adjusted EBITDA in 2028, to which we are fully committed to. We reconfirm our 15 euro cents dividend per share in 2026. We also reconfirm all of our three and five-year targets outlined at the capital market stage. Now, let me hand over to Emilio to take you through our operation performance in more detail.

Thank you, Mark. onto slide six to review our domestic business. 2025 was a landmark year for Telefónica Spain, delivering growth and record-breaking achievements. We recorded excellent commercial performance, reporting in 2025 the best KPIs since 2018. This is the result of a strict daily execution to deliver excellent service, leveraging our superior network and quality. a strong ecosystem and digital services, and a smart segmentation, all driving high customer satisfaction with the best MPS being a competitive advantage. I am proud to highlight the record fiber and TV net ads and a robust portability ratios. We achieved the highest customer base ever in contract mobile and fixed broadband. Convergent ARPU remains at leading levels, around 90 euros, and churn reached 0.7% in Q4, the lowest level since we launched our convergent proposition. The key drivers of churn reduction is the improved customer experience. Our focus on operational excellence and improvement in key processes allowed us to reduce call volumes by 10% and claims by 50% in just three years. In B2C, our digital ecosystem and premium content are key levers to increase loyalty and customer lifetime value. Customers with alarms exceeded 600,000. Customers with football grew year on year, and three out of four customers have a device. All these customers have a significant lower chance while driving revenues up. In B2B, we also have strong momentum. We are the best positioned player in the IT business, which is a growth engine. Launch such as Titan Connect assures continuous connectivity for businesses and drives new digital services that will foster further growth. From a financial standpoint, Spain is delivering profitable growth and solid cash generation, with all key financial metrics growing at the same time for the first time since 2008. Revenue has grown steadily, supported by both residential and B2B, with IT maintaining double-digit growth. Adjusted EBITDA continues to grow year on year, with margins around 57%, reflecting operating leverage and cost discipline. New personal efficiency initiatives, signed at the end of 2025, will deliver more than 250 million euros in savings by 2026. Finally, our CAPES intensity supports sustainable adjusted EBITDA and cash flow growth, with fiber and 5G networks already deployed. To sum up, 2025 has been a remarkable year for our business in Spain, delivering strong performance and better positioning us to capture growth ahead. In 2026, we aim to accelerate year-on-year growth rates across key financial metrics, leveraging further commercial momentum and execution of our efficiency agenda. Onto the next slide. Telefónica Brasil consolidated its position as the leading digital platform in the market, delivering a strong commercial and financial performance in 2025. Our operating strategy proved successful in vivo, reached an all-time high in the access space. At the same time, our focus on upselling data new B2C digital services, and convergence enhance the lifetime value of our accesses. In mobile, differentiated network quality and customer experience drive growth in the contract segment, with positive portability versus old operators. APU continues to grow while chance remains at very low levels. In fixed, fiber connection increased, double-digging, mainly driven by our flaccid conversion offer and churn reduction. Vivo Total saw an impressive increase year-on-year and already accounts for 53% of fiber connections, setting a new standard for quality and customer retention. On financial, let me highlight the solid growth above inflation in key metrics. Revenue, adjusted EBITDA, and operating cash generation increased year-on-year in real terms. with growth rates accelerating across all metrics, showing Vivos operating leverage. Revenue increased over 7%, thanks to the robust acceleration in mobile service revenue in the fourth quarter and the strong growth in new businesses. In B2C, revenue from the ecosystem, including health and wellness, consumer electronics, financial services, and entertainment, rose more than 20%, The penetration of these services provides a significant upside. In parallel, the B2B segment marked its strongest revenue growth in last years. This performance reflects the growing demand for digital solutions, which already represent close to 40% of B2B revenues. Adjusted EBITDA grew 8% in the quarter, while adjusted operating cash flow after leases, rose almost 20% thanks to the sound revenue growth and solid operating cost structure. In summary, once again, Vivo delivered a set of strong results, showing real growth across main financial KPIs, boosted by quality commercial growth and the focus on customer experience. Our ambition for 2026 is to continue growing revenue and adjusted EBITDA above inflation, supported by mobile, fiber, B2B digital services, and new B2C businesses, as well as by the benefit unlocked by the migration from concession to authorization. Moving to slide eight to discuss Germany. Our core business momentum continued in the fourth quarter in a market where we have recently seen signals pointing towards a reduction in promotional activity. The O2 brand was a key driver of mobile contract trading, benefiting from our key strength, network quality. Network rollout and densification continued at a high pace, bringing 5G population coverage to 99%. We achieved the target of quasi-nationwide coverage according to plan. The Connect magazine rated O2 network quality as very good, and we made a quantum leap forward to achieve second place for the first time. In the five biggest German cities, Connect even rated the network as outstanding. Contranetats were robust in the quarter, while Chan remained at a low level of 1.1%. Notably, IoT accesses growth accelerated in the fourth quarter. Fixed broadband, re-influenced, is returning to slight growth for the second quarter in a row, while RPU continues to increase. B2B segment offers huge growth opportunities, with certain initiatives already pegging off and supporting underlying revenue growth in 2025. Regarding financial results, revenue and adjusted EBITDA declined, mainly reflecting the completion of one-on-one customer migration by year-end, and that comes with Q4-24. We continue to deliver on our efficiency plan and strict cost control, but the contribution is not linear. To highlight, in 2025, the underlying financial performance was positive year on year. With an EC already in place, we continue working on identifying and executing further transformational growth and efficiency initiatives in Germany. Our high-quality network and a solid broad positioning laid the foundation for a return to growth in 2027. after leaving behind one-on-one impacts alone this year. Moving to slide nine, Virgin Media 2 ended 2025 delivering guidance with a strong progress in the fiber network and 5G deployment. We improved fixed line trading for the second consecutive quarter, reflecting progress in commercial initiatives such as Netflix and an improved retention strategy despite strong market headwinds. Mobile contract IPO grew 1.2% year-on-year, while net ads were affected mainly due to the October price rise announcement, elevating churn in the now-closed 30-day exit window. Revenue and adjusted EBITDA trends continue to be impacted by lower transit sales, net fiber construction, and the intense competition, which mainly impacted the consumer fixed revenues. However, 2025 guided revenue increased 0.2% year-on-year and guided EBITDA increased 0.9%. Summary, Vision Media 2 is scaling its infrastructure while streamlining operations to pave the way for long-term profitable growth. The revenue and adjusted EBITDA expectations for 2026 reflect increased promotional intensity and ongoing uncertainty in the consumer fixed market, alongside planned simplification for the B2B product portfolio. Continued cost efficiency will support profitability, but will be partially offset by a higher number of customers on NextFiber footprint with associated wholesale fees. Finally, NextFiber announced last week the agreement for the acquisition of Netonia. This acquisition will strengthen our network, accelerating fiber rollout and penetration, with a clear value creation through BNO2 and X-Fiber. On to slide 10, review our global units. First, in 2025, Telefónica Tech confirmed its position as the engine for our B2B growth in digital services. Revenue growth rate accelerated quarter on quarter, boosted by Spain, where we recorded a strong growth in IoT beacon sales. In 2025, revenue increased close to 20%. This performance is driven by the strong demand in Europe where we see huge opportunity to grow. We continue to scale our capabilities to capture the digitalization opportunity while making progress on the operating model simplification. Additionally, we have solved the operation in HESPA. Regarding Telefonica Infra, Let me highlight that our fiber cost represented 24% of group deployment in 2025. Also, our subsea cable business delivered sustained profitability in 2025, with an EBITDA margin of over 45%. Now, let me hand it over to Juan, who will present the main financial topics and ESG.