Telefonica Q3 & CMD 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

Key Takeaways

  • Telefonica delivered in Q3 organic revenue growth of 2.5% and accelerated OIBDA minus CapEx growth to 9.3% year-on-year, generating €1.1 billion of free cash flow and reducing net debt to €26.5 billion.
  • The company reconfirmed and upgraded its 2023 guidance, targeting ~4% organic revenue growth, ~3% organic OIBDA growth, ~14% CapEx/sales, €4 billion free cash flow ex-spectrum, and a €0.30 per share dividend.
  • Telefonica’s new GPS plan (2023–2026) aims for ~2% reported revenue and EBITDA CAGRs, ~5% EBITDA minus CapEx CAGR, >10% free cash flow CAGR, a 2.2–2.5x leverage range, and a €0.30 dividend floor.
  • Extensive network transformation continues with over 50 million FTTH premises added since 2016, advanced fiber and 5G roll-out, software-based open APIs and AI-driven automation to boost efficiency and enable new services.
  • Key strategic moves include a €2.35/share public tender offer for Telefónica Deutschland to simplify the group structure, accelerated B2C digital ecosystems, B2B expansion via Telefónica Tech, and Telefonica Infra’s plan to pass >100 million premises by 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Telefonica Q3 & CMD 2023
00:00 / 00:00

There are 16 speakers on the call.

Operator

So I guess we're ready. Good afternoon, everyone, and welcome to Telefonica's Q3 'twenty three results. I'm Adrian Fonfonegi from Investor Relations. Before proceeding, let me just mention that the financial information contained in this document has been prepared under International Financial Reporting Standards S, as adopted by the European Union. This financial information is unaudited.

Operator

This presentation, including the Q and A session, may contain paying forward looking statements and information relating to the Telefonica Group. These statements may include financial or operating focus an estimate 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 you are publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant information, SCONTACT Telefonica's Investors Investor Relations team in Madrid, London.

Operator

In the interest of facilitating an efficient Q and A session, we kindly request the Dose attending virtually. Direct your questions on Q3 results to our inbox, cmdquestionstelefonica niga.com, which has just been opened. Please note that for Q3 related inquiries, we would appreciate if each participant limits their queries to a maximum one question per participant. And ensure that the questions pertain solely to the matters concerning this specific quarter. For any other Greece.

Operator

Outside the scope of the Q3 results, we encourage you to reserve those to the of further dedicated session during the Capital Markets Additionally, for those standing in person, please feel free to raise your hands and ask live questions during the Q and A session. As a reminder, today's presentation is being recorded. And now I'd like to pass the floor to our Chief Operating Officer, Angel Villa.

Speaker 1

Welcome everybody to Telefonica's Onica's Q3 results presentation. With me today is Laura Bassolo. Our Chairman and CEO, Jose Maria Alvarez Pallete, They will join later for the Capital Market Day session. This morning, we announced our Q3 earnings. We have delivered another quarter Equator.

Speaker 1

We maintained a strong market position, growing high value accesses such as fiber and mobile Sustainable revenue and OIBDA organic growth continued, while OIBDA minus CapEx accelerated its Growth in Q3 to +9.3 percent year on year, growing 4.8% in organic terms during the 1st 9 FX headwinds. OIBDA performance improved in Q3, 2 plus 2.5 percent year on year, showing an improved operational Leberage. Bottom line, active management of all free cash flow lines supported the conversion of this better operating performance to free cash Flow and helped us to reach €1,100,000,000 free cash flow in Q3 and €2,400,000,000 Europe in the 1st 9 months of the year. Net debt declined to €26,500,000,000 while the leverage Show declined to 2.5 times during the quarter. In summary, we continued to deliver Michels.

Speaker 1

In reported terms, OIBDA grew plus 2.5% year on year to €3,300,000,000 accelerating by 2.6 Virtually stable year on year. Net income reached €1,300,000,000 in 9 months in the 1st 9 months of 2023 €500,000,000 in the quarter. Free cash flow grew 0.4% year on year in Q3, reaching 2 €400,000,000 in the 1st 9 months. This strong free cash flow generation helped net debt to decline both quarter on quarter Energia and year on year by 3.4% and 7.4%, respectively. As mentioned before, all key financial metrics Show growth also in organic terms during the quarter, which added to an improved operational leverage results into stronger growth down the line.

Speaker 1

Revenue growth of 2 point 5% resulted in 3.5% OIBDA growth and as much as 9.3% OIBDA minus CapEx growth. Moving on to slide 4. Given the strong 9 months

Speaker 2

performance and expected evolution of our business, we are well

Speaker 1

on track and reconfirm our We are well on track and reconfirm our full year guidance, which we recently upgraded. Organic revenue Year on year growth of around 4%, organic OIBDA year on year growth of around 3% and CapEx to sales organic guidance at around 14%. The €2,500,000,000 free cash flow ex spectrum For the 1st 9 months is on track as well to meet the ambition of around €4,000,000,000 free cash flow Markets Spectrum for the year. Our 2023 €0.3 dividend per share €0.15 in December 23 and the Regarding ESG, on slide number 5, we are ahead of the regulatory curve with a solid and transparent road map to achieving Our goals. We have published our 2nd climate action plan, which follows TCFD Guideline, TIF CFD, means Task Force for Climate Related Financial Disclosures.

Speaker 1

This updated plan includes more details on our governance model And the risks and opportunities related to climate change. Another example is our human rights and environmental impact Assessment, which we have published ahead of the new due diligence requirements. Finally, we continue We continue to explore sustainable financing options successfully issuing a green hybrid bond for 750,000,000 Euro in the last quarter. We have also updated our financing framework to align with the latest Market Practices. Moving to Spain on slide 6, Telefonica Spain Q3 results again How a strong and improving commercial momentum positively impacts our financial trend evolution.

Speaker 1

Following the The refreshment of the B2C portfolio and the launch of a new over the top proposal in August, convergent Customers and TV accesses simultaneously grew year on year in Q3. Moreover, a benchmark low churn An industry leading ARPU are boosting our premium conversion customer lifetime value. This is an important proof point of The successful commercial strategy of Telefonica Spain, which has been permanently adapting to market dynamics, allowing sequentially in Q3, with retail revenue growth accelerating to +2.4 percent year Yield with the stronger trading acting as the main leverage. OIBDA decline slowed to minus 0 point By the higher revenue flow, lower energy costs and network transformation efficiencies. OIBDA Mineros CapEx margin remained At benchmark levels, 24% in the 1st 9 months with CapEx intensity to further soften year on year in Q4.

Speaker 1

Q4. Moving to Brazil on Slide 7. Once again, Vivo delivered a very a strong operational and financial performance. Operationally, Vivo remains the clear market leader. In mobile, U.

Speaker 1

S. ARPU continued to grow almost double digit year on year, driven by progressive upselling And continue tariff upgrades in both contract and prepaid, while churn remains very low at 1 1.1 percent. In FTTH, Vivo accelerated new connections to 183,000 in the quarter. Revenue 4%. The already anticipated reduction in CapEx intensity allowed OIBDA minus CapEx to increase 26% year on year in the 1st 9 months of the year.

Speaker 1

Moving To Germany on slide 8, which delivered another robust another quarter of robust growth driven by its value over our volume strategy and with commercial momentum building on its successful more for more portfolios and normalized Churn Rates. Since October 'twenty three, O2 customers can experience 5 gs plus which marks the beginning of a new Technology Era with this service being available to more than 90% of the German population. Moving Sales revenue grew by 2.2% in the quarter, while OIBDA grew plus 3.6% year on year, supported by improved operational leverage mainly in mobile, which was partly offset by some anticipated cost We now move to move Growing the customer base in both fixed and mobile. The focus on network investment continued with 200 and 51,000 Premises Pass deployed during the quarter, surpassing the 500,000 Premises the last milestone in the 1st 9 months of the year and with 5 gs connectivity now available in 3,002 100 Townes and Cities. In addition, the MO2 has reached an agreement to sell a 16.7% minority stake in the Mobile Tower joint venture Cornerstone to U.

Speaker 1

K. Based infrastructure fund Envignon OIBDA accelerated sequentially to 7.1% and 6.3% respectively, supported by next fiber construction And underpinned by the delivery of synergies, which remain on track to achieve their target. Slide 10 reviews Telefonica Tech, the leading provider of advanced next generation solutions Firms in B2B. Telefonica Tech outperformed the market again, delivering a 30% year on year revenue Growth in the 1st 9 months of the year. On the back of its strengths, a highly skilled workforce and a well ABLY's reputation for excellent delivery across Europe and the Americas.

Speaker 1

In constant perimeter, revenue grew by 20 3% year on year and outlook is very positive supported by 26% year on year increase in last 12 IoT and Business Apps. This will provide a global portfolio and service to maximize the opportunity in all markets And create synergies. Finally, let me highlight that Telefonica Tech has become one of the most relevant Microsoft partners in Europe after receiving Inner Circle Award for Outstanding Sales and Innovation and Partner Team Managed Connectivity Services Worldwide by ADC and Representative Vendor for 4 gs and 5 gs Private BioNetwork Services by Gartner. On slide 11, we review our top tier infrastructure portfolio Telefonica Infra. Our well established fiber core portfolio with 1st class partners reached 20,000,000 premises passed as Of September.

Speaker 1

Let me or let us highlight the U. K. This quarter where NextFibre A rollout milestone of 500,000 premises passed and BMO2 acquired UPP, a U. K. Alternative fiber operator.

Speaker 1

The network assets will be transferred to NextFiber after integration Works are completed, accelerating the deployment by 175,000 premises passed. In addition, we expect to update regulatory approval for agreement with Entel in Chile in Q4 this year. TELSIUS maintained a solid profitability with margins 50% in the 1st 9 months and Q3 and announced that it will be extending the submarine cable Tikal to land in Dunkun Mexico. I will now hand it over to Laura, who will review Ispam's operations and the group financial position.

Speaker 3

Thank you, ENSC like FTTH, where we posted an access increase of 12% year on year. We received the regulatory approval from the Colombian the government for the integration of our mobile radio access network with Millicom. Infraco in Chile is awaiting for the Greenlight for operation with FENTEL that could allow for an increase in the size of the neutral fiber network, By a difficult macro and competition backdrop in Peru, the impact of the FTTH access migration in Chile EMEA and the network transformation efficiencies in Colombia in Q3, 'twenty two. However, we expect a better OIBDA minus CapEx trend in Q4 'twenty three. Turning to Slide 13.

Speaker 3

Net financial debt Medi, mainly due to the solid free cash flow generation in the quarter. Net debt to EBITDA was significantly reduced from 2.62 times Stoop 2.51 times as of September 2023. We maintain a solid position of €20,800,000,000 that together With a light maturity profile allows us to cover debt maturities over the next 3 years. Meanwhile, we have contained Please Any Environment. I will now hand back to Angel, who will wrap up.

Speaker 1

Thank you, Ora. Summarize on Slide 14. We delivered another solid quarter in Q3. Revenue and OIBDA growth remained steady year on year supported Stronger KPIs and improved customer satisfaction, while OIBDA minus CapEx growth accelerated significantly year Vision Machine Learning, bringing benefits in terms of minimizing costs and resources allocation. This has It's enabled us to reduce our net debt to €26,500,000,000 while reducing leverage to 2.51 times.

Speaker 1

Free cash flow ex spectrum is progressing Towards the full year target of €4,000,000,000 having reached €2,500,000,000 in the 1st 9 months of the year. We are on track to fulfill our Upgraded 2023 guidance, free cash flow ambition and we confirmed the dividend for the year and the 1.5% treasury Ping ESG Priorities at the Core of Our Business. Thank you very much for listening. Now we're ready for your questions.

Speaker 4

Good morning. It's Georgios Arnaugano from Citi. Maybe a Pershona Spain. And I've seen the KPIs are quite solid, but it looks like a lot of the acceleration of retail revenues comes from Non conversion revenues. So perhaps if you can comment a bit on what's driving that?

Speaker 4

And also you mentioned the new tariff plans Terra Route. If you could comment both on whether this will improve the conversion ARPU going forward and what competition is Enelter Senda. Thank

Speaker 1

you. Thank you, Georgios. Well, we have had Spain, also in a quarter that is marked by the disconnections or suspension of football subscriptions at the beginning of the quarter and then the reconnections. Again, the commercial improvement is the result of 2 measures. 1, The reconfiguration of the Mee Movistar portfolio that we did to make it more modular.

Speaker 1

And second, the launch of the new pay TV over the top offering That has reverted many quarter trend of negative net adds in paid TV that Now have moved to positive. So we are doing this, while at the same time managing to increase our ARPU year on year, okay? It declined And quarter on quarter because of the football effects that we have always in the Q3, but increased year on year, we We are having the lowest churn ever at around it's 0.9%. And this combined With all the metrics, we get to customer lifetime of 9 years, Which is quite resilient. We are now in the Q4.

Speaker 1

We're starting the typical back to school the typical Black Promotions in this season. So you will see and some people like to write potential promos. From From what we're seeing so far and what we saw in the back to school campaign and the beginning of the football season campaign, no more intense promotional activity

Speaker 5

than what we

Speaker 1

had 1 year ago. Motional activity that what we had 1 year ago. I don't know if the response to your question or I can elaborate.

Speaker 4

On the non convergent revenues, Which seem to be driving the retail revenue growth. Is that business? Is it sustainable? Just to

Speaker 1

Well, we're also Having traction in part of our services that we have around the digital ecosystem Beyond the pure conversions. And also we are getting traction in we are In positive territory in postpaid mobile that we managed to achieve as compared to previous quarters. Thank you.

Speaker 5

Hello, Fernando from Santander. Just a quick question on wholesale business in Spain. Just to understand if the deceleration that we have seen in the Q3 Is driven by or what is the reason behind that deceleration? Is it coming from low margin wholesale revenues like content or is it from high margin wholesale revenues like, For example, fiber access and so on. Thank you.

Speaker 1

Well, the wholesale has also A seasonal impact in the Q3 linked to a resale or not resale of, for instance, the football content. It's less linked ToFiber, which continue to see good traction. But in the content resale, we always have seasonality, the same way that our subscribers of Of soccer, either disconnect or suspend that connection at the beginning or at the end of the football season, which is the beginning of the quarter and reconnect later on. The same happens with our To other players that buy the content from us.

Speaker 5

Thank you.

Speaker 6

Thank you. Javier Borachiro, Kepler Cheuvreux. On the EBITDA domestic EBITDA, can you maybe walk us through the different Items and the moving parts. I think in previous quarters, you mentioned some tailwinds, lower energy costs, lower content costs, it's probably network facing. Just maybe if you can comment on these different items.

Speaker 6

Thank you, Hakan.

Speaker 1

Thank you, Javier. Well, the first part is Revenue growth, as you could see in the slide, it's accelerating, both on service revenue and retail revenue. This is both on the B2C Adrienne is higher on the B2B side. So the more we grow on the B2C side, the better margins Station of some cost items like content cost. At the same time, we continue hedging on and covering our energy costs, Which are no longer a headwind but a tailwind in comparison with the previous year.

Speaker 1

And we continue working on all type Of efficiencies linked to the progressive transformation of our network to a fully the fiber network, which we're going to elaborate more later on today on what savings and to what level of OpEx or margins Can take us and what level of CapEx of revenues we will be projecting in particular in Spanish operation

Operator

If there's no further questions, I think we can leave it here. And we'll reconnect at 2 p. M. For the

Speaker 1

Thank you Thank you very much. I'm sure we will have plenty of questions when we reconnect in half an hour time. Thank you.

Operator

Thank you.

Speaker 1

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Speaker 2

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Speaker 7

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Speaker 7

What a time to be alive. Today, we are witnessing the greatest technological revolution in human history. A moment of unprecedented transformation. There is great value to be captured by the telco industry, A based, cloud based, virtualized, intelligent, on demand, scalable, sustainable, a future proof network. An Open network is a new ecosystem of innovation that breaks the network into programmable microservices open to Flipers' Foyer Cloud Marketplaces.

Speaker 7

An open network is a bridge between the earth and the cloud, a cognitive Decentralized Supercomputer, a natural complement to hyperscalers, a plug and play access to our network capabilities for developers. But this is not only a technical revolution. This is a huge business opportunity. Open networks will enable us to drive profitable and sustainable growth, generating new revenue models, Optimizing capital, opening infrastructure to partners. Leading change to

Operator

Good afternoon all and welcome to Telefonica's Capital Markets Day. Going through the agenda, our Executive Chairman, Mr. Jose Maria Agora Espaliete, will start guiding you through the transformation the company has undergone and why we are truly a better and stronger company. He will also outline the new ambition we have. Our CEO, Angel Villalao, will then guide you through the details of our new GPS framework Can How it reaches in all parts of the company.

Operator

After that, Laura Bassolo, CFCO and Head of ISPM, will guide you through our free cash flow, our balance sheet and capital allocation policy. C. We will end the presentation with the guidance and closing remarks by Jose Maria, and we'll then take your questions. But before that, sorry, I know I did it before, but lawyers ask me to repeat it again. Let me mention that the financial information contained in this presentation has been prepared under International Financial Reporting Standards as adopted by the European Union.

Operator

This financial information is unaudited. This presentation, including the Q and A session, may Tain forward looking statements and information relating to the Telefonica Group. These statements may include financial or operating forecasts an estimates regarding plans, objectives and expectations regarding different matters. All forward looking statements involve risks announced changes that could cause the final developments and results to materially differ from those expressed or implied Vazage's statements. As a reminder, today's event is being recorded.

Operator

And now the floor is yours, Jose Maria.

Speaker 2

Good afternoon, everyone, and welcome to Telefonica. We We are very pleased to have you here on the eve of the 1 hundredth anniversary of our company. We are here I shall say that when back in July, we decided to call for this Capital Market Day, we didn't know most of the things that Have happened since then. And a lot of things have happened. But all in all, we feel that this is the right time to share with all of you what we see ahead of us Norway we think that we are prepared and that we have an attractive project.

Speaker 2

Let's focus on what today is truly about. Please keep these pivotal points in ENGINE. Firstly, after years of massive transformation, we are back to solid trajectory of revenue growth in reported terms. This transformation has driven increased operational leverage that will translate into margin expansion. As a result of the above, we will deliver double digit free cash flow growth over the next 3 years to move decisively towards deleveraging and secure an attractive Evident to our shareholders.

Speaker 2

First question you're probably asking yourselves is why now. Because So three main reasons, because of our transformation journey is yielding results. In 2016, we began our recent transformation Journee. In 2019, we announced a plan which marked a significant change in the way we manage the company. And we have delivered on that plan and have Also because we have an exciting vision and because we are ready to increase our ambition.

Speaker 2

In 2019, we announced a strategic plan structure around 5 pillars, a plan which marked a significant change for us, and we delivered. We have strengthened our core units. Capital employed in Ispao has come down significantly through reduced capital intensity, asset lighter models, local detitions and overall streamlining. We have developed Telefonica Tech both through its organic carve out and inorganic measures and is now a proven growth engine For our B2B activity. Telefonica Infra has been key to the growth of our core units through co investment vehicles and also Generating Value.

Speaker 2

And we implemented a new operating model that further added to our effort towards improving our operating leverage. Today, 7 years down the road of our transformation, it is time to reflect on what we have built. We have invested significantly in building the most

Speaker 1

advanced networks in our markets, a

Speaker 2

brand new network, radically improved, Veronique in our markets, a brand new network radically improved with state of the art technology. Through this new network, we can offer Advanced Telecom Services and Adjacent Products and Services in a seamless way and with a much faster time to market. We have become a truly the Online Digital Supermarket. And as a result, we have gained customer relevance. And we can now operate in a much more efficient Norway.

Speaker 2

Our operations are more agile, more efficient and ready for the future. Our transformation has also strengthened our commitment to sustainability. First, it is about connectivity. We have managed to build the best or joint best network in all of our core markets, both in terms of fiber coverage and in 4 gs and 5 gs. In fiber, we have deployed more than 50,000,000 additional premises since 2016, reaching 72,000,000 premises, the largest fiber Network Outside China, and certainly the largest European.

Speaker 2

We have started earlier and have made a significant investment effort, which allow us to face the future With ample margin, our CapEx peak is well behind us. But network transformation goes beyond 5 gs On fiber rollout. It is really hard to convey the depth

Speaker 6

of the

Speaker 2

transformation. Our network today is more efficient, more productive and Antifa. I'm capable of carrying 6 times more data traffic than in 2016, with less legacy. Spain, where more than 90 Sendoff, our fixed broadband customers are already on fiber will be the 1st EU country that switches off its corporate network. At the same time, we have reduced 2 gs and 3 gs carriers by 43%.

Speaker 2

With more distributed processing capacity, we increased our service by 30% And have developed 2 84 internal APIs. Not many people is aware, but we are we have now processing and storage in capacity that allow us to be one of the top supercomputers in the world. Additionally, we have prepared our networks for the future, Delivering high performance connectivity to our customers, including low latency, high bandwidth and secure reliability, becoming much more edge capable. Softwareized and virtualized, thanks to disaggregated and cloud based architectures To gain efficiency and scalability and open to a collaborative ecosystem enabling the integration with third parties, our data driven abstraction expose the capabilities of our network in a straightforward manner. As a result of this transformation, we can provide new products and services, reduce Time to Market and Reduce OpEx and CapEx.

Speaker 2

The network becomes a differentiation element for Our customers. We have 14% more customers now than in 2016, customers that are more satisfied and more So more efficient and engaging, with 47% of users regularly accessing our app, which shares a single engine at the group level, capturing economies of scale. Following this operational and customer transformation, our revenue mix has evolved. We have Essentially Change. In 2016, 45% of our revenues were still coming from legacy products.

Speaker 2

Today, 76% of our revenues are coming from future proof products and services. Our customers are more converged and are taking more and more services We have been preparing our operations for the future, enabling us not just to switch Dov Legacy Networks, but also to decommission 2 thirds of our operating systems. The company we created Italy. It's simpler and linear with 85 of the process digitalized and automated, which in turn allow us to reduce by 18 Send our headcount and executive position by 31%. We have built the foundation for AI already impacting around Ocean.

Speaker 2

This led to an increased operating leverage of almost 4 percentage point of EBITDA minus CapEx margin from 2016 levels. By building those networks and streamlining our operation, we are also building a much more sustainable Orocobre. First, a new world demands a new framework. The current regulatory regime is obsolete. It was designed For a sector that doesn't exist anymore, we are calling for a complete deregulation and the battle is on.

Speaker 2

2nd, it is about collaboration among players to share resources and standards. 3rd, it is about a much more efficient use Lux. And 5th, it is about reskilling and managing the digital transformation in a responsible manner. We have done a massive capital allocation effort. Since 2016, we have carried out corporate transaction worth more than €80,000,000,000 including the largest operation in our history, the merger of O2 with including the largest operation in our history, the merger of O2 with Virgin Media in the U.

Speaker 2

K. We have devoted €57,000,000,000 in CapEx Over the period, we have taken networks to the next level. EUR 18,000,000,000 have been distributed to shareholders via dividends and Equifax. And we have reduced debt in €22,000,000,000 since 2016. Results are MENA.

Speaker 2

We are back to revenue growth in reported terms. We have expanded operating cash flow margin by almost 4 percentage points since 2016. Meanwhile, our CapEx intensity has fallen. Sustainability has as well improved, achieving record churn rates and reflecting the strength of our the business. It is a stronger company.

Speaker 2

We are back to growth with increased profitability and in a more sustainable way. But there are more reasons to be excited about. We are at the brink of a new era. Deep disruptive innovation usually happens at the frontier between Technologies. This is what happened 15 years ago at the conference of mobile Internet and Computing, a device Conceived support mobile voice turned into a smartphone, making its capabilities available to newborn digital platforms.

Speaker 2

Internet went social and mobile almost at the same time, and the first digital native companies were born. The world was Change. Today, we are at the doors of a new change of era driven by the intersection of telco, ultra broadband networks, computing, artificial intelligence and Web3. In all four fronts, we are leaving radical disruption. And this new era is already changing everything, everything again.

Speaker 2

There is a new way a new way for digital services emerging and already generating a new innovation cycle. Products and services that only us Can enable through a network, share from any device at any location at any time, requiring seamless, massive, fully interoperable communications and real time computing. Best effort quality is not good enough to cope this world. We have amazing opportunity to improve people's lives again. Data traffic We'll continue to grow and it's just one of the challenges.

Speaker 2

Apart from speed, mobility, embedded security and privacy, Other attributes will call our connectivity, such as latency, capacity and processing and storage capabilities, To which we need to add a significant degree of personalization to meet the widest spectrum of needs and requirement of our customers. The increase in traffic, together with the need for high performance connectivity, will require access to more distributed compute In capacity beyond the current cloud. There is no way this new generation of products and services can We serve exclusively on cloud technology. It would be technologically impossible and very inefficient from an energy standpoint. And we have There is unique responsibility to make it happen again.

Speaker 2

Connectivity is the foundation for everything that is digital. Today and tomorrow, We are no longer just telecom network. We are something different, something bigger, something even better. It means much more than transforming. It means that we need to reimagine ourselves, moving from copper, 2 gs, 3 gs and 4 gs to full IP fiber Granite 5 gs Networks, evolving from hardware based reactive network to software based networks, from customized Tailormade integration to global platforms interconnected with open APIs.

Speaker 2

The traditional telco experience develops into customer engagement. One size fits all offerings are behind us. We moved to a personalized Digital Supermarket. It is a brand new factory. Again, it all starts with our networks: Ultrabroadband and low latency, programmable and AI based and cloud and edge computing are enabling efficiency, but Alto New Business Opportunities.

Speaker 2

We are breaking down network and IT components into individual microservices that can be solved through developer centric marketplace within the cloud ecosystem. Developers and software integrator can access code through these marketplaces, allowing them To embed microservices like premium latencies on device location into their apps. Developers will be able to create configurable And scalable network quality and information based products. We are still in the early stages so far, but very excited of what we Marcin. We are looking forward to share proof points with you, and we will.

Speaker 2

Please do not miss the next Congress in Barcelona. And this is happening as a collective effort from the sector. We are working on a new standard in GSMA and MARA. Only through standardization and simplicity, we can unleash the enormous value hidden in connectivity. This is a growing group and we continue to add members.

Speaker 2

Today, 35 leading players are already on board. We serve a platform that Which is to 5,400,000,000 people daily. We are ready as an industry. But Telefonica is also Ready. Telefonica is ready to go the extra mile and elevate our ambition further.

Speaker 2

It's time to outline where are we taking our company. Thanks to the increased relevance and loyalty from our customer base and differential capabilities such as Teleso for traditional comps market and are growing faster. In 3 years, these revenues will become a relevant part of our mix. We see growth rates of 7% for consumer value added services, where we are developing an ecosystem of API AI based services around connectivity. In enterprise, where we hold a solid market position, leveraging telephonic uptake capabilities, 15% in the next 3 years creating a new revenue streams.

Speaker 2

APIs are at the core of our B2C, B2B and wholesale business Onshore. We are landing network access service into reality. First, on the technical side, we are actively developing our first set Atopapis, enabling our 1st generation of services. We already have several APIs ready for service with commercial launch coming very soon in Brazil Finland, Spain. 2nd, on the commercial side, we are proactively collaborating for the market to gain traction by working with customers and other carriers to Developed Use Cases by developing and testing different routes to market and by promoting a developer's base.

Speaker 2

In 3 years, we'll have an extensive portfolio of increasingly relevant API based services. And we'll be reaping the benefits of what we have we are developing today, ensuring more more sustainable growth in the long term. We are also leveraging this transformation to double down on efficiency and boost customer experience. During the next 3 years, we will be fully benefiting from massive legacy switch off, streamlining our business model. We'll be realizing the advantages of our proactive investment in platforms and artificial intelligence, which will manifest as highly automated operations and content management, autonomous network management and Adriane Fonfonegi from Adriane Fonfonegi from Adriane Fonfonegi from Adriane Fonfonegi from Adriane Fonfonegi from Adriane Fonfonegi from Adriane

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assist to our customers. And all this makes our service faster and more efficient. We are doubling down on capital allocation. We are taking it to Next Level. We will manage 2 buckets of capital: organic cash flow to fund our business as usual.

Speaker 2

We have lower CapEx intensity Niti. And we have hence more capacity to reduce leverage whilst growing our dividend coverage. Inorganic opportunities and other sources to speed up deleveraging, improve shareholder remuneration and look for growth opportunity. You should expect from us to be very on this front. Along with our capital allocation strategy, we reinforced our focus in one of our core the markets.

Speaker 2

Yesterday, we launched a public tender offer to buy Telefonica Deutschland shares at what we think is an attractive price of 2.35 per share euros per share. Before Laura later runs you through the details, I would like to share our rationale and why we think it's It's a truly win win for Telefonica Deutschland and Telefonica shareholders. Germany remains an attractive market and one of our core markets, but the loss of the one ToOne contract created a special situation. We have a recovery plan in place to offset the impact, but that might take longer than expected, Telenet and we acknowledge it creates uncertainty. This changed the investment proposition of Telefonica Doja shareholders and we want to provide Telefonica Doja shareholders an exit opportunity at an attractive price.

Speaker 2

For the group, the transaction is accretive and increases our exposure to euro denominated free cash flow. It supports our offer to simplify the group structure in line with our strategy to be simpler and stronger. And finally, it has no impact on our credit rating. We are committed as well to ensure the long term sustainability of our business and our sector. And therefore, we are actively leading in 4 key topics.

Speaker 2

1st, together with other key players, we are promoting collaboration to share Resources and Standard. 2nd, a new world demands a new framework. The current regulatory regime is obsolete. It was designed for a sector that doesn't exist anymore. We are calling for a complete deregulation.

Speaker 2

3rd, it is about a much more sustainable use of the networks. We are provoking very relevant discussion as OTT fair share to foster a responsible use of the Network. And 4th, we will keep leading the industry on the ESG front. As since we think we are ready, We are launching today the GPS program. We are ready to introduce a new and transformative journey that will shape the future of our organization.

Speaker 2

That's why we are ready to face as well a higher level of ambition. During the next 3 years, we aim to grow reported revenues by around 2% and EBITDA by around 2%. This will result into average growth of EBITDA minus CapEx of around 5% over the period, which as a result of our improved operating leverage will result into free cash flow compound growth rate of more than 10% in the next three Eurus. This elevated ambition leading to a higher than 10% free cash flow compounded average growth rate will It helps us to create significant shareholder value. To leverage reduction, we will bring net debt down over EBITDA to Between 2.5 and 2.2 times.

Speaker 2

We will keep having an attractive dividend of at least €0.3 per That's why we are here today. In summary, we feel that we have a stronger company and we think it deserves Higher Ambition. Angel will now guide you through the details of the GPS plan.

Speaker 1

Thank you, Jose Maria, and hello to everyone. Growth, profitability and Sustainability are the objectives of the GPS that will guide our plan for the next 3 years. The GPS program is Short around five lines of action. The first one is to consolidate and sustain the revenue growth in the consumer segment in B2C. OXXI.

Speaker 1

2nd one is to continue outperforming in B2B with above industry revenue Intrum. The third one sorry, third one is to manage our wholesale revenue evolution And to evolve our partners' revenue business. In addition to revenue items, Optimize CapEx through efficiencies while not losing differentiation. In the next slides, I will describe the priorities, Consumer accounts for 60% of our reported revenues, covering €260,000,000 consumer accesses. After a few years under pressure, we have turned around B2C, which After a few years under pressure, we have turned around B2C, which is growing in reported terms plus 1.9% in the 1st 9 This has been possible, thanks to a growing customer base that is also more satisfied, consumes more products and stays Key Markets.

Speaker 1

Movistar and Vivo both are super brands, not only the number one brands in telco Greece, but also among the most notorious brands across all industries in those countries. This, by the way, we You will see it is great for cross selling. BMO2 combines 2 very well established brands, SPIRGIN MEDIA and O2 into a very solid number 2 position. And O2 in Germany is closing the gap as well with the second Strong brands drive customer loyalty. Strong brands also give us differentiation But of course, a top brand can only be sustained on best product and best experience.

Speaker 1

This starts with having the best Networks and offering attractive products with bundled services. Mimo Vistar, Vivo Total and Volt All compelling conversion bundle propositions for our customers. At the same time, Customer experience is becoming more digital, as seen by the consistent increase in the percentage of our consumers engaging via our apps. As a result, through best product and best experience, we are generating the highest customer satisfaction and achieving The best NPS scores. A satisfied customer is at the core of our business.

Speaker 1

Happy customers That range from entertainment to security to fintech and constantly evolving, increasing and personalizing those. This gives We see significant potential for further growth with an addressable market of €40,000,000,000 across our geographic footprint. With our digital B2C ecosystems, we are growing Customers spend more, stick longer, are more engaged, more loyal. These are much more valuable customers. Of course, all of this translates into KPIs.

Speaker 1

Our goal is to have more than 60% Conversing customers in Spain, Brazil and the U. K, up from half of those today. Bundle services will also help us reduce compelling propositions that give us more share of wallet from them. As a result of all of this, we WinNow and 2026. Turning now to our B2B Exactment, which represents 21% of our reported revenue and covers more than 5,500,000 clients.

Speaker 1

This is where we see the strongest momentum in terms of revenues, with 6% growth so far this year and a big turnaround coming from -three in 2019. We have transformed B2B and with the help of Telefonica Tech, we have created a fast growing segment. Our growth in B2B is differential versus other industry players and key to this differential Behaviors Telefonica Tech. Telefonica Tech is our specialist provider of Advanced Digital B2B Solutions in the cloud, cybersecurity, IoT and big data fields. On top of Telefonica Tech's organic growth post carve out, we have strengthened the unit with strategic acquisitions ranging from Total and Vitorna, which helped to more than double our revenue in less than 3 years.

Speaker 1

Our aim is Ascend compounded growth rate from today's level. All of this is because B2B customers' And with this move, the addressable market gets bigger and the growth accelerates. The weight of IT over revenue increases. The addition of traditional B2B with Telefonica Tech Services gives us the confidence to expect B2B reported revenue to grow by around 5 The 3rd segment of revenues is wholesale Partners, representing 16% of our reported revenue mix. This is a valuable revenue Ustream that improves network utilization, gives access to different customer segments and helps boost return on the significant Spend in our Networks.

Speaker 1

But traditional wholesale has become much more competitive and we are seeing declining Revenue. We have a tailored plant in each one of our core markets to strengthen the wholesale business. In Spain, we have well established long term contracts and we are prepared Germany. In Brazil, we see growth opportunities in the fiber cost space. In Germany, we have plans in place to mitigate in the U.

Speaker 1

K. We see a strong opportunity to be the 2nd scale fiber wholesale alternative to BT to build upon our already strong wholesale relationships in mobile and fixed backhaul. In our traditional wholesale business, We remain rational. And we always keep the overall health of the market in mind For Integrators as customers, allowing us to exploit the open gateway opportunity with an addressable Market in excess of around €4,000,000,000 Despite this evolution of the partner revenue, we are Expecting a low to mid single digit decline in the wholesale business in the next 3 years, but we expect to gradually We've said this decline with new sources of revenues. Having spoken about where we see Revenue Growth.

Speaker 1

I would like now to turn to how the huge technological transformation that Jose Maria described is making our business more Ascent. By next year, Spain will be the 1st EU country to shut down its legacy copper network. As you know, full fiber Networks are cheaper to run because they have fewer faults, less maintenance, consume less energy. We are also switching off costly 2 gs and 3 gs networks across our footprint, while energy efficiency is driving cost lowers and we are freeing up spectrum that can be more efficiently used in 4 gs and 5 gs. We are sharing costs With partners on existing networks and when we roll out new ones.

Speaker 1

AI and automation means we will Deliver these services more efficiently and faster. And we continue rightsizing the organization to adjust for the needs of the future. This technological long term vision allows us to implement efficiencies, but we This is not only on the network side. Also on commercial costs, we are transforming the customer's relationship into more digital ones, Well, we redesign our automate client processes and review channel strategy. Also in other costs, we Continue always searching for additional efficiencies on support functions, overheads, real estate among others.

Speaker 1

So the combination We Expect an EBITDA compounded growth rate of around 2% in the next 3 years, meaning Stets. That come with reaching that revenue growth. The other 2 third of the EBITDA improvement will come from On the 5th lever, turning to CapEx, we started early to invest in fiber and 5 gs. And thanks to that, our CapEx peak is It's well behind us. Most of the 5 gs spectrum auctions are complete and we continue to increase coverage.

Speaker 1

Our fiber deployment is most Advanced in Spain, which is fully fiber, followed by Brazil and the U. K, where we are fast rolling out next generation networks. Telefonica is a global leader in fiber to the home. We will sustain network differentiation Well Reducing CapEx. And Telefonica Infra has been part of this process.

Speaker 1

Telefonica Infra, our infrastructure Exponent Arm helps us to reduce CapEx and accelerate fiber rollout through innovative partnerships. Telefonica Infra is building networks fiber networks with its partners in Brazil, Germany, Spain and the U. K. I'm supporting Telefonica Ispam in Chile, Colombia and Peru FiberCos. Telefonica Infra also manages Telxius, our submarine cable business with 100,000 kilometer state of the art network.

Speaker 1

We have the most developed international connectivity network with a fiberco expertise second to We created Telefonica Infra to maximize value from our unique Instructure Assets and the unit has delivered. We sold Celsius towers at the right time, achieving a record high Ontipon. The unit Mint's focus now is to accelerate deployment in fiber, primarily through co investment With Financial Partners in Fibercos. Telefonica Infra is increasing its fiber footprint from currently 20,000,000 FTTH Premises Passed TO Approximately 30,000,000 in 2026, Contributing to achieve the group wide target of well above 100,000,000 premises passed by 2026. But reducing CapEx isn't just about hardware spend.

Speaker 1

It's also the consequence of transformation investments we have made in software, technology and AI, and you cannot underestimate what difference these investments SMIC. We see, as a result, room to further shrink CapEx across categories. And today, we are guiding For CapEx intensity to fall from around 14% of revenue organic this year to below 12% in 2026 Exane. In reported terms, to be clear, this means an absolute reduction in CapEx Spend. I will now give a bit more detail on how we plan to implement the GPS network in Logical Transition.

Speaker 1

In Brazil, we took part of in market consolidation. We have successfully turned from the fixed business, reinforced and accelerated B2B. We have strengthened our network in Germany, which has seen solid commercial momentum. And in the U. K, our joint venture is delivering on the synergies so far as planned and continues to roll out fiber Unconverged Products.

Speaker 1

On this slide, you can see that the momentum in sustained EBITDA growth in Spain, Germany sorry, Germany, Brazil and the U. K. Is very clear. And Spain EBITDA is heading towards stabilization as we indicated WeWout. 1 hour ago in the Q3 call, I confirmed we confirmed that we expect Spain EBITDA to stabilize in the Q4 this CECL.

Speaker 1

Our Spanish unit is best positioned to navigate everything that What is happening in the sector? We have the best assets with benchmark low churn, healthy ARPU. Our goal is to continue to grow in revenues in our consumer segment and accelerate B2B momentum with double digit ICT growth. We do expect some effects from in market consolidation and we are prepared for potential outcomes. There is room To reduce costs further, and we see opportunities in OpEx from general efficiencies, legacy shutdown, automation 20 6.

Speaker 1

To sum up, we see continued revenue growth. Also EBITDA growing starting from 2020 For EBITDA minus CapEx, growing faster than revenue and EBITDA supported by CapEx to Sales of 10% declining to 10%. Our premium positioning in Spain within a segmented market puts SaaS in a stronger relative position. This is a strategy that is not available to all players in the market. In Brazil, we maintain a premium position, a leadership position in a growing market, and we build on that leading position with a complete portfolio of digital services in B2C and B2B.

Speaker 1

Looking ahead, We expect strong growth in all segments, growing our customer base and increasing our share of wallet with expansion in margins. We are deploying a Europe. Turning to Germany. Telefonica Deutschland is growing strongly, thanks to the improvement we made in network quality an attractive commercial propositions. Our goal is to maintain B2C growth while accelerating momentum contract.

Speaker 1

And CapEx to sales will decline over the next 3 years together with an accelerated transformation and simplification of the business. We expect revenue, New EBITDA and EBITDA minus CapEx to grow in Germany through the execution of the recovery growth plan that Focus in 1 of our 4 core markets. Finally, the U. K. Is an attractive market, Seeing potential consolidation both on the mobile side and on the AlNet side.

Speaker 1

VMO2 enjoys a loyal customer base, Built on historic speed, advantage in fixed and customer care and customer service in mobile. We will continue to target B2C growth through fixed mobile conversions and continue to build differentiation through digitalization and AI. Here. We see further scope for synergies with a £540,000,000 annual run rate by 2026. And we are optimizing CapEx to sales by leveraging Next Fiber and by decommissioning C Technologies like the 3 gs shutdown that we plan in 2025.

Speaker 1

As you all know, we do not fully consolidate the U. K. And receive annual dividends from BMO2. We expect to continue delivering strong free cash flow along with execution Synnergies and partners will decide on an annual basis on the recap amount. We're focusing on five lines of action to deliver the ambitious goals of the GPS program to delivering compounded annual growth rates 1% in revenue, 2% in EBITDA, 5% in EBITDA minus CapEx and over 10% in free cash flow.

Speaker 1

Now I I'll hand over to Laura, who will walk you through how the strategy will be to lead to free cash flow growth in the coming

Speaker 3

Thank you, Angel, and good afternoon, everyone. This section is going Focus on how our strategy will deliver strong returns for our shareholders and in our improved capital Instructure. But first, let me touch briefly on Isban. Isban is a self sustained CAGEN. We reduced capital intensity and risk reduced risk.

Speaker 3

We have been delivering in this framework since the end of 20 And it's managed separately within Telefonica. Within the regional and lean model, we have improved our free cash flow potential, Thanks to a laser focus on increasing efficiency. We have led the sector in sharing network cost wherever Impossible shutting down legacy and we have also influence in more rational spectrum auctions. And we have digitized our Commercial Processes. This infrastructure strategy links very naturally with our inorganic moves, where we have executed year after year successful co investment and network models.

Speaker 3

CapEx has come down to just 10 percent of sales from mid teens. And we have reduced capital intensity by 26%, more than a quarter since 20 Maintain. And we have also derisked by much in-depth in local currency, which I will address a little later. Slow Growth in the Region by optimizing costs and we continue modulating capital intensity. We keep our options open to reduce that exposure further either through potential divestments that Faster De Leverage, but also in market consolidation that could lead to a so much needed market rationality Therefor fostering our free cash flow.

Speaker 3

Hispania is committing to this plan by contributing With a clear target to increase EBITDA minus CapEx by 5% per year between 23% to 26% and continue reducing Capital Invested by 15%. Let's move to the pure financial section. We We're enabling our GPS framework with an strict and disciplined capital allocation, where we are assigning capital with a segmented approach. We are managing our balance sheet prudently and proactively. Liquidity, maturity profile, the interest and FX strategy I will walk you through.

Speaker 3

We'll reinforce our balance sheet with the deleverage commitment and a clear target. And we are proposing a simpler and comprehensive reporting and guidance with growing free cash flow. Telefonica has a very clear and strict capital allocation hierarchy. Let me explain on this. We have split the resources in 2 parts, organic and Inorganic.

Speaker 3

Organic cash flow is where we have the highest visibility. Execution is in our hands. We will invest in our business first to support Growth and the strength of the platforms. And we are achieving that with a CapEx to sales ratio falling to below 12%. Organic cash flow will Leverage and pay a floor dividend of $0.30 per share, which we are committing for the midterm.

Speaker 3

With organic free cash flow, we are covering these three needs and priorities. And in addition, we have inorganic sources, Options opportunities will arise. Out of excess cash, asset recycling and other sources, we will allocate it to a speed at leverage, reduction, Exane. Share buyback and value accretive M and A if it becomes available. And we are taking a holistic view on the opportunities and allocating capital We set a leverage target, which will be measured with net debt to EBITDAAL and we are aiming to be in the range between 2.5 to 2.5 times In 2026.

Speaker 3

From this capital allocation Criteria. Let me walk you through the details of the public offer we did to buy Telefonica Deutschland Ash. A 37 premium over mandate closing price, a 36 premium to last 3 months VWAP and 34 Premium to the average broker target price of Euro 0.76 per share. We launched this offer yesterday. E.

Speaker 3

Let me talk about the calendar. Filing will be late November, public offerings acceptance will start early December, a recent opinion by Telefonica Phonika Deutschland Management will be around mid December and acceptance periods will end in mid January followed by the settlement. There is no minimum acceptance Translevel. We have no intention to conclude a domination and or profit and loss transfer agreement. This offer is funded fully with cash And we don't expect any impact on our credit rating.

Speaker 3

We believe this has an attractive exit opportunity in cash For all Telefonica Deutschland shareholders. Financial Resources Management, definitely a priority for NASS. Our prudent balance sheet management gives us flexibility on when to access the market and reduces volatility to FX and interest rates. This is crucial in uncertain scenarios with the step changes. Starting with flexibility, as shown in the page, Roche aiming for longer turners in our refinancing.

Speaker 3

We have also been proactive in hybrid refinancing and there's no need to tap the market in the short term either. Our balance sheet strategy is designed to shield us from FX movements by aligning currencies to reflect the business mix across geographies. You can see we have 70 5% of our debt in euro, 15% in Brazil and 10% in Ispan and others, which is broadly aligned to our operations. Moreover, when we convert our accounts to euro, we have a natural hedge from FX volatility, me. As it impacts revenue, but it also impacts OpEx, CapEx, other local currency payments.

Speaker 3

Due, we are minimizing The FX impacts flow into the final free cash flow to approximately just 15% of the revenue impact. And additionally, So protected in the scenario in which rates stay higher for longer. 85% of our debt is fixed, including the entirety of our euro denominated debt. Meanwhile, the bulk of our floating rate is Brazilian real and Ispan and their rates have Starting to Decline. To show that a 100 basis point change in rates will equate to just €38,000,000 to our interest bill, €33,000,000 of which is linked to Brazil where we may have an upside.

Speaker 3

And moreover, our euro cash position mirrors floating rates. So actually, we are benefiting short term from rising rates as we earn income on that cash. Our debt financial payments are going to evolve Very gradually and they're going to be fairly stable. Aside from resources, Financial Risk Management. We are also taking a step in simplification, market alignment and commitment.

Speaker 3

MENA. We listen to you and introduce new guidance KPIs will better allow to evaluate our performance against our GPS Mann. We are making it simpler. We will as from January 1, 2024, start reporting with with statutory accounts and reported euro and move to industry standard metrics. We are guiding Our new guidance on revenue, EBITDA growth and CapEx over revenues, although in reported terms.

Speaker 3

And we are adding 4 more metrics: EBITDA minus CapEx growth, free cash flow growth, a leverage target and our midterm dividend commitment and with a clear focus

Speaker 4

Xinya.

Speaker 3

I said, free cash flow is the focus. And there are previous definition, We committed to a free cash flow of around €4,000,000,000 in 2023 that we will deliver. From 2023 to 2026. That figure is growing. We'll grow to €5,000,000,000 We are proposing a new definition for free cash flow, Which is aligned to our capital allocation priorities and shows precisely the capital available for our commitment on dividend and deleverage.

Speaker 3

This new free cash flow all includes the free cash flow portion of the dividends from the U. K. And includes hybrid coupons and commitments. We will of course provide you also with a full bridge to do the calculation. Under this new definition, Free cash flow will stand at around €2,100,000,000 in 2023 and will grow by a CAGR of more than 10% targeting around €3,000,000,000 in 2026, improving dividend coverage and deleverage ability.

Speaker 3

This is just a rebasing exercise. Under any definition, we are delivering a strong free cash flow growth. And this Strong free cash flow growth is which supports our commitment to our shareholders. At Telefonica Group, as we have already announced, we set A $0.30 dividend floor during the 2023 to 2026 period. We may consider DPS growth or share buyback as we regain financial Xevility.

Speaker 3

Telefonica Deutschland confirmed the $0.80 dividend committed for 2023, the last of the 4 year dividend On top of that, we launched, as I said, yesterday a public offer to buy Telefonica Deutschland shares at what we think is an attractive price of €2.35 per share. And at a net debt price of €2.35 per share. And at Vivo, we will continue to have an attractive shareholder Eurasian. With a payout of at least 100% of net income in the next 3 years, including BRL 1,500,000,000 capital reduction proposal for 2024 as announced this morning. I will now hand over to Jose Maria EMEA for the closing remarks.

Speaker 2

Thank you, Laura. Before finishing, let me recap. We have an exciting vision for the industry as we go through Telecom Connectivity, together with AI, cloud and edge computing and Q3, our key converging technologies. And this conference will enable a new step forward to future progress and growth. We will see an acceleration of major trends such as the next wave of digitalization, industrial automation or AR and VR immersive Experiences.

Speaker 2

That will demand not only speed, mobility, security and privacy, but other high performance attributes Such as latency, processing and storage capabilities. It paves the way for new monetization opportunities. And with Open Gateway and Kamara, For this new era. The massive transformation we have undergone, improving our networks, increasing customer engagement, Making operations more efficient and ensuring business sustainability place us in a considerably improved position. We have our next generation infrastructure ready.

Speaker 2

Ultra broadband connectivity is already deployed. Our networks and IT are becoming Softwareize and benefiting from hyper automation. Data driven and API based abstraction ledgers allow us to orchestrate and interconnect with the digital world in a seamless Way. We are building a telco orchestrated earth computing stack, where we perform all the intelligence we spoke Ote. Data and automation of this ledger make us smarter and faster to offer better and new services, Retail transformation of our B2B customers and provide wholesale connectivity to partners, including both other telcos and developers.

Speaker 2

But also this massive transformation give us the confidence to fulfill the plan we have set ourselves for the next three U. S. This includes to reiterate our 2023 guidance to accelerate the free cash flow delivery for 2024 and to commit for an ambitious 2026. We have started 2023 with a low single digit organic growth Guidance for both revenue and OIBDA and guided for 14% organic CapEx over sales. We then upgraded that guidance at our half year results moving to around 4% organic revenue growth and around 3% organic OIBDA growth.

Speaker 2

And we introduced an around €4,000,000,000 free cash flow ambition for 2023. As you can see from our 9 month results, we are fully on track to meet this upgraded guidance. Today, we reiterate Guidance, our EUR 4,000,000,000 free cash flow ambition and our EUR 0.30 per share dividend commitment. Despite Still not having closed year 2023, we are also ready to commit for 2024. That shows our Confidence not only in the medium term, but also since year 1 of the GPS plan.

Speaker 2

We will further detail this guidance with year end results as we usually for 2023. Free cash flow should grow more than 10% year on year. As usual, more details and other building blocks to come next February, but I can share with you that free cash flow growth will lie both on declining CapEx intensity, but also on our ambition to Global Revenue and EBITDA. This operational transformation process results into Higher Ambition going forward. In the next 3 years, reported revenue will grow by around 1%.

Speaker 2

Reported EBITDA will grow more than And EBITDA minus CapEx should even grow farther to around 5% compounded average growth rate in the next 3 years. Thanks to decline CapEx over revenues to below 12% by 2026. Free cash flow under a new and clear reference will grow by A compound rate of more than 10%, helping to reduce our leverage ratio to between 2.52 point Two times in 2026 and allowing us to commit to a floor dividend of €0.30 with improved Dividend coverage throughout the plan. We are becoming a simpler but stronger company. New free cash flow growth rate Of more than 10%, leverage target of between 2.5x and 2.2x and 0.30 dollars dividend commitment as sustainable and profitable growth.

Speaker 2

Let me summarize today's session with the 5 messages we introduced At the beginning. Our massive transformation has put us firmly on the path of solid growth in reported terms. This deep change It has significantly enhanced our operational leverage, and it will be reflected into double digit free cash flow growth in the next 3 years to move decisively toward deleveraging and secure an attractive dividend to our shareholders. Thank you very much for your attention. We are now happy to take your questions.

Speaker 2

But before we start, let me greet our local CEOs that are here with us, starting with Emilio Gallo from our Spanish business Christian Guevara from our Brazilian business Marcus Jaz from our German business Lutz Schuler from our U. K. Business and Alfonso Gomez Palacio from our RizPAN Business. Also here are Jose Ferdan, CEO of Telefonica And Guillermo Ansaldo from Telefonica Infra. Thank you very much.

Operator

So as Jose Maria said, we are now ready to address your questions, both those received through the CMD inbox. Again, CMD questions at telefonica dot com and those from in person attendees. Just one thing, the inbox would be grouping together those questions regarding similar particular topics. And for those online also, those who would like to make the questions live, please be ready to connect your microphone whenever your name is mentioned. But we'll start with in person attendees.

Operator

Carl, please, on the

Speaker 8

Thanks very much. Sorry for the long pause. I was waiting for the microphone. Karl from Berenberg. Two questions, please.

Speaker 8

Firstly, on Slide 76, you've been very explicit in terms of the cash dividends And for this year, looking for clarification in terms of the dividend floor for the next 3 years, can you confirm that, that will A cash dividend floor of €0.30 and that there won't be any scrip in relation to that. And then secondly, In terms of the more guidance that you're providing, that you talk about on Slide 74, that's very Welcome and great. I suppose what people would really be looking for is more country guidance. And you've provided the 3 year CAGRs. But Specifically in relation to Spain, are you expecting after the OIBDA stabilization in Q4, are you expecting OIBDA growth in 2024?

Speaker 8

Thank

Speaker 2

CQ. Well, thank you very much for your question. And the first one is very straightforward. We can confirm that it's a cash dividend and no script is contemplated. So the answer is yes.

Speaker 2

And we say Vistaflo, because if you run the numbers, you will see that overall the plan, the dividend coverage has improved compared Compared with the existing levels. So yes, it's in cash, and we think dividend coverage will improve progressively and linearly over the period.

Speaker 1

Okay. On the second question, of course, we do not provide guidance by country. Throughout the presentation, I've been trying to send a message of directional Trends. So in Spain, we are expecting to accelerate revenue growth from 'twenty four onwards. We're already in growth.

Speaker 1

And if you look at the Q3 results we presented earlier today, you can see the That has been developing over the last quarters. EBITDA that we plan to stabilize in the Q4 of this year, we are projecting EBITDA growth across the 3 year plan and starting that growth already in 2024. So from year One off of the plan, not back end loaded in any way. Regarding CapEx, we have been quite explicit that We are expecting through decommissioning, shutting down copper and so on, a ratio of 10% CapEx To sales in 2026, down from 12 ish percent. That's going to be this year.

Speaker 1

Brazil, the We're also pointing in the direction of growth in revenue and EBITDA. By the way, I didn't say EBITDA minus CapEx in Spain growing In over the 3 year horizon, the same in Brazil. Germany, Revenue growth, EBITDA growth, EBITDA minus CapEx with CapEx to sales decline. Those were the messages that I tried to convey in the slides. And that would be the indication on the core of this.

Speaker 1

The joint venture will deliver Well, it's annual guidance at the regular end of year moments.

Speaker 8

That's great. Thank you.

Operator

Yes, Mathieu, please.

Speaker 9

Good afternoon and thank you for the presentation, Mathieu Robillard from Barclays. I had a few questions, please. First, along the lines of a bit more granularity. You mentioned some OpEx reduction over the next few years, but you haven't given defined or more precise I think the Spanish press had talked about an important potential reduction in personnel in Spain. I don't know if you can confirm that it's part of the plan And if you can give any granularity beyond that.

Speaker 9

The second one was about the German recovery plan. I Fully realize that the loss of the 1 on 1 contract is very recent and you don't turn around the strategy overnight. But I don't know if you have a little bit more details now Compared to during the summer, in terms of where you see areas of growth to maintain net revenue and OIBDA growth, which is going to be challenging Because of course, there's a loss of revenues. And then very lastly, you don't mention it in the presentation, but I'm curious as to what this Very good free cash flow growth target means in terms of ROCE. Do you think your ROCE will progress over the next few years?

Speaker 9

Do you think you'll be in a position to cover your cost Capital. Thank you.

Speaker 1

Thank you, Matti. On the cost and efficiency side, I think We have tried to dissect the different buckets of cost going forward that lead to the reported 2% Found the annual growth rate in EBITDA. So onethree of that would come from revenues, net of direct costs to get the revenues, the other 2 thirds from efficiencies. And I was talking about 3 type of buckets: network, commercial and other costs. Network in turn was divided on switching off legacies, automation, Sharing benefits of scale and different efficiencies.

Speaker 1

As part of this, we are and Jose Maria was describing at the beginning a huge transformation journey that we need to adapt our organization to, both in terms of shape and size So we are analyzing and different accommodations of our organization, not only potentially in Spain, but also in different hobbies and geographies in the This means that we need to achieve new ways of working, diversity, attracting young talent, reskilling programs and at some point rightsizing of organizations. We have always done This type of efforts in full collaboration with labor representatives and for us it's key To ensure the retention of key talent. In the projections that have been posted that Underlying this guidance, we have included an estimate of the savings that we would achieve from workforce Readjustments. Also the cost to capture in terms of the commitments and the payments that we would In those, we have not included the one time provision that we take in the balance But this is still early days. We are still preparing.

Speaker 1

We are preparing the negotiations with employee representatives. As always, we will do this in absolute collaboration. We look forward to constructive engagement. And whenever there is agreements reached on this front, we would release them to the market as we normally do. But the projections I confirm that include some estimates on the outcome of these potential plans.

Speaker 1

I think the second question was on the loss of the 101 contract. Sorry.

Speaker 9

Yes. Basically, how

Speaker 1

much have you been

Speaker 8

able to think about this

Speaker 1

Yes, I will start the response. And Markus, who's here, Please feel free to complement and correct if I make any mistake, which is possible. So This contract during 2024 has very limited impact. The contract Brands until mid 2025. So effects would be felt in 2026.

Speaker 1

We have been disclosing the market. An estimate of broadly €200,000,000 impact in free cash flow on 2026. And we have plans in place, Accelerated Growth and Efficiency Plan, I think is the name of the plan, Markus, Where we plan to use levers that we didn't have before. All of a sudden, the loss of the 1 on 1 contract That means that we have more capacity available that we can use for different sources. And second, that we are no longer bound by the remedies, restrictions that we But in terms of pricing, bundling or whatever.

Speaker 1

So we are planning to use these levers to grow in B2C with Dione Brands. We also are planning to extend B2P or wholesale Asa contracts with existing partners, potentially with new partners. We are also planning in our German operation to be more active In the B2B that we have been underscored with the collaboration of Telefonica Tech and the Viterne unit that We are acquired in that region. Of course, we now will have possibilities Of agreements in infrastructure that maybe were not possible to do before that can give us efficiency in some deployments in CapEx and We mentioned in CapEx and potentially efficiencies also in what the plan is called accelerated Growth and Efficiencies as well in the operation. With this, our objective would Minimize the impact that we have suffered from losing this contract.

Speaker 1

But of course, this has A different degree of execution risk. It's not the business as usual. The team is working really strongly. But of course, this will entail time to execute this and a different degree of execution risk. That's why we and maybe Jose Maria, if I may, we have offered a liquidity proposition to existing Telefonica Adolphemson shareholders that maybe have a different perception on the recovery plan, the execution risk, the higher preference for Short term liquidity.

Speaker 1

So that's why we offered that proposition to the Telefonica's shareholders. I don't know, Marcos, what else You can give us color on this recovery plan in Germany.

Speaker 10

Yes. I think we have more initiatives Then the challenge is so the funnel is full, but clearly now the efficiency part that is fully underpinned now with CapEx and OpEx, as Angel mentioned. We're now working on the growth Chateau. And we clearly, Germany is a rational market, and we all benefit from that market. And we clearly want to fill up our capacity that we know of in the most smartest way on the one I'm clearly to fill the €200,000,000 free cash flow of the lease challenge that's still left.

Speaker 10

I think that's the number we have given to the markets in August, And we work against that. It's clear our ambition to close it. We have more initiatives to do that, and we are very confident on that. We have done first steps and Step by step, once we have delivered the proof points, we will announce. And that's the clear target that we are going to do.

Speaker 10

And I think, yes, step by step.

Speaker 3

Adriane, on the return of capital employed, we definitely have focused on it. We definitely have an improvement target imply in the numbers we are showing today. We have started this exercise with a clear focus on free cash flow growth, but we also demand every OV in our portfolio to improve return on capital employed. On average, we are fine, But we do have different return on capital employed per OB. But if you follow the guidance, you will see there's a Natural Improvement, because EBITDA will be growing, so the numerator will improve.

Speaker 3

And we have we are reducing CapEx intensity as our peak is behind. So both numerator and denominator are going to improve. Therefore, return on capital employed will improve at a group level, But it will also improve at every OB level as we are going for growth across the board.

Operator

Now Warren, David.

Speaker 11

Presentation, Noah Crisini from Morgan Stanley. I have a number of questions. Firstly, starting by CapEx, which is a key Highlights from the presentation today. If we look at incumbents, average CapEx to sales today is around 19%. Those who are talking about peak CapEx in fiber are hoping to go to 15%.

Speaker 11

So today at 14%, you are already Below that and going to 12%, the gap will increase, in particular in Spain, where we are talking about 10%. So Could you talk maybe about what differentiates you from the rest of the industry when it comes to your capital intensity? So that is my first question. The Second question is on Spain. The consolidation deal review is ongoing.

Speaker 11

So I'll be interested to hear How have you thought about this event when constructing the guidance? Because it can have a significant impact on market structure. So it will be interesting to hear your assumptions, but also the degree of cautiousness that you have perhaps baked In the outlook. And lastly, on Wholesale, clearly, a lot of moving parts. I would be interested to hear your Risk assessment, but also opportunities on the wholesale revenue.

Speaker 11

Are there any Big or large wholesale contracts coming to a moment of renegotiation. I have DG perhaps Since Spain, if you could talk about that, that will be helpful. But also interested to hear the opportunities on wholesale, in particular as you have Showed an appetite to host Vodafone fixed business in your Network. Thank you very

Speaker 1

much. Well, those are all the questions. If I look at my talk, Q and A.

Speaker 2

I was proposing, Angel, because he's going to have Long answer for me to start on a global consideration on the I guess, you were referring to the OrangeMaz Mobile transaction. First, we are almost 18 months down the road. I don't have an answer, which is somehow Surprising. Despite we have stated since the beginning that this transaction should not have any remedies. We think it should have been already been clear without remedies.

Speaker 2

We acknowledge that there is a discussion around that. And we have been defending that Despite of the fact that this is going to create a stronger competitor for us in Spain. So the outcome of the merger will be a stronger competition Rather than the opposite. Remember that Telefonica is not part of this process, I mean and therefore and remember as well That the statement of objections from the Commission has stated that there was no problem on the wholesale market. So if If we are not part of the transaction and there should be no impact on the wholesale market, it will be hard for us to understand that any remedy should impact us because We will be facing a stronger competitor.

Speaker 2

And at the same time, there is no impact on the wholesale market according to the statement of objection from the commission. So we are waiting. I mean, we keep waiting. But we have proven To be a rational player. Things happen to us in other markets, and the way we are reacting is a reaction from rational players.

Speaker 2

So we would expect everyone to be a rational player as well, especially here in Spain. And now for potential impact, I hand it over to For the long, long, long answer.

Speaker 1

Well, I think that nobody in this room would I argue that Spain is a quite competitive market, especially Emilio, who is sitting in front of me. And of course, we We expect it to continue to be competitive and in particular in the wholesale segment. And in particular after Zeona has said that they plan to be more active in mobile wholesale in their statements, which is something Ifin Mobile Wholesale in their statements, which is something that Brussels should take into account when they look at this. So Again, as Jose Maria said, we think this should not have remedies and in particular should not have remedies in the wholesale, which is also part from Of your question. But the market will be evolving, and we are expecting No Significant Disruption.

Speaker 1

Why? 1st, because we have faced similar situations in the past. We have seen consolidation. We have Changes of Control. The players who are now involved in these new situations happen to be familiar faces.

Speaker 1

We have seen them in the past. We have seen them operate. So we have had in the past to adapt and we have done It successfully in Spain. 2nd, because to do this, we are leveraging on our best assets. We have the strongest network by far in fiber, much more developed than the rest.

Speaker 1

We have mobile coverage second to none. And we have very strong long term wholesale relationships with our partners, pretty well established, with clear terms, conditions, clauses, We are ready and prepared to evolve the wholesale business and to negotiate. Always with rationality in mind, as Jose Maria said. But we think that we have the strongest assets in place and that is basic for wholesale agreements. 3rd reason why we think this should not be a Disruptive scenario is that all the players that we see in front of us, first, we'll need to defend our back book.

Speaker 1

Zegona defending the old Vodafone back book. Orange, Mass Mobile, if they close, also need to defend The bad book, DG, they have also their presence. But the 3 of these players are So very highly levered. At the time of the highest interest rates, which can be higher and for longer. So we should expect financial rationale Adriane on behalf of these players.

Speaker 1

So the scenario that we cannot be precise about what the scenario we Including our guidance. But yes, you have seen that the same way that we are guiding on B2C to grow 1.5%, around 1.5 percent across the group, 5%. In B2B, we are guiding for a lowtomidsingledigit decline In wholesale, while we are declining 0.9% today. So that can give you an indication of how We may foresee developments that allow us to both defend the health of our Spanish business, Medis before we can be more precise. And also linked to this, of course, you were asking about Digi.

Speaker 1

This This is one of our long term relationships in wholesale. That's a very well established contract, and it would be Opportunity in Brazil in fiber. It's an opportunity in the U. K. In fiber as well.

Speaker 1

CapEx, You were talking about how can we get to 10% CapEx in Spain. Well, the country is fully fiberized. We are closing down Q4. We have been receiving questions consistently across the different results conference call. Once You shut down the copper.

Speaker 1

Once you complete the 5 gs network, what could be a recurrent CapEx level? This is Where we see the CapEx level possible to be in once we have completed, as you say in one of our slides, not Only the fiber, but substantially all of the 5 gs stand alone network by 2026.

Operator

Yes, David, And sorry, I forgot to say, please try and limit if there's any question left to 2 questions per participant.

Speaker 12

That comment arrived Suspiciously Yes,

Operator

yes, sorry, I'm late.

Speaker 12

Thank you, everyone. It's David Wright from Bank of America. Thank you so much for your new free cash flow definition, which is more More relevant, I think, to what is available to shareholders. Half marks on the balance sheet, I'm afraid, Lara. It is not the way the rating agencies look at you, of course, which is what is perhaps more relevant.

Speaker 12

It's good 4.0 to 3.7 in 3 years, maybe not so much. That feels a little over levered still. And what I couldn't understand Leverage today is 2.5. So why would the guidance range have 2.5 in it? That implies no deleverage at all over 3 years.

Speaker 12

And You're talking about better dividend cover, share buyback availability, etcetera. I suspect that may be because it's consolidated, in which case you To add €2,000,000,000 for O2D. Maybe that's the answer. That's part 1. Sorry, Adrian.

Speaker 12

And part 2, if I may, it's my little book, Barrett. It's the VMO2 dividend, leverage dividend. Your cash flow guidance This is without it, and that's very fair. But why would it even still be considered? From your perspective, it is Allutiv to borrow at VMO2 cost of debt, which is higher than Telefonica Group cost of So I'm wondering why you would even consider that right now.

Speaker 12

And the only obvious answer I can think of is that your Partner wants to do it. So is there a shareholder misalignment there that we should be considering? Thank you.

Speaker 3

Thank you, David. On the leverage range, we are setting for 2026, Several comments. First, €251,000,000 is indeed what we have seen at the end of September, but you have to Remember, we did a liability management of hybrids right after, so that will increase slightly. And then obviously, If depending on the outcome of the offer of Telefonica Deutschland, we did yesterday could also increase the starting In that range, you have to capture several messages. First of all, the upper part of the range sits With the investment grade thresholds.

Speaker 3

So but we don't want to stay with the previous guidance of Just being investment grade. We want to commit further. And as we are setting a target, we agree with you, it has a pretty wide range because we are also Talking about 3 years down the line, we are saying that we are deleveraging and we have committed to deleverage and we We have committed to a ratio. And I think that it's reconfirming is not only just being investment grade, is to reduce The deliveries give it a lot of emphasis in our capital allocation. So I do believe we have a further with That range.

Speaker 3

No, I'm more clarity to our shareholders where we are going to sit. That deleverage ratio, obviously, the bulk of it is going B2B free cash flow, the organic free cash flow, which is in our hands. And you will see that with that above 10% growth and that €3,000,000,000 around €3,000,000,000 Not only the dividend coverage increased, the deleverage capacity also increased, but we obviously have inorganic options, asset recycling. So the more inorganic options, the more we will position towards the end. So I think to set a corridor gives us optionality, but is complementing In the investment grade guidance, you had up to now with a very clear target.

Speaker 3

It is a range, but it's a target is SetTarget, in which the company is saying we are committed to further deleverage in these 3 years. And unfortunately, the free cash flow will allow On the dividend, we have taken it out of the free cash flow definition, what it has to do with recaps. We are not sending any message In that regard, we are not saying that we will not have recaps. They may we may have recap and I hear you on the financial logic, but this is Something we will decide on a year on a yearly basis. I mean, obviously, we will discuss With our shareholders and we will come with the best solution.

Speaker 3

What I can tell you is that indeed the JV has a leverage which is Higher than the one we have at Telefonica, but it's being managed very prudently from a liquidity position. It has September. So it's a growing EBITDA because it's not only the organic efforts, it's also delivering on the synergy as planned. So I think it's a different profile to the one we have at Telefonica, but it's a well capital structure, well managed vehicle. But we don't want to Sent in a message regarding recaps, nor that they will not happen, nor that they will happen.

Speaker 3

I mean, this is a yearly shareholder discussion that we will take and We'll let you know in due course. But we definitely want to send a message. Our free cash flow growth is regardless of what happens with the dividend in the

Speaker 2

JB with

Speaker 3

a recap.

Speaker 2

Sorry, and I want to emphasize one thing, which is very important for us. There is no misalignment with our partner in the U. K. We get along very well with them. We have a very crystal Clear agreements since the beginning, which included 3 caps.

Speaker 2

And therefore, I think that the success of the integration process lies on the fact that there is A very deep alignment between shareholders, and that provides a lot of stability for the management team. So I really wanted to stress that.

Operator

We have now some questions from the virtual audience. Andrew Lee from Goldman Sachs to raise a question. Andrew, please go ahead. Until Andrew Khams, there are more questions from the virtual audience. Luigi Minera from HSBC is asking about B2B guided revenue growth, whether it includes not an inorganic portion.

Operator

And also, he asks about profitability margins of the B2B business with some specific question on Telefonica take margin going forward.

Speaker 1

Okay. So the first one is easy. The growth that we have guided does not include any inorganic Move. No acquisitions are factoring into that growth rate. Regarding profitability, we Close the margins by segments, profitability of B2B services since it entails in part And resale of 3rd party services integrated into bundles can be lower than the one In B2C, but what I can say is that it is improving across the horizontal plan and in particular the Telefonica Tech EBITDA margin evolution is projected to increase during the 3 years of the plan.

Speaker 1

These are businesses That entail very little CapEx. So when you look at the operating cash flow margin, it's not so dissimilar from the regular Golar. Operating cash flow margins that we are used to have in each one of our operations.

Operator

Next, Georgios,

Speaker 4

Thank you. I've got 2.5 questions, so hoping it's okay for the threshold. The first question is on interest costs and leverage. I'm just Just trying to understand if for free cash flow, both in interest cost and tax, whether the Peruvian tax case is included in the pro form a numbers you are giving for 'twenty And also, my understanding given what you guided medium term, it looks like the minority acquisition of Teff Deutschland will be very accretive next year. So just curious is that 10% growth That you've already highlighted is predicated on that.

Speaker 4

And then the second question on the financing side is A bit similar to the previous one asked about Vemed. Obviously, now that you've gone to a free cash flow that includes the hybrid payments, It's much more accretive for you to look at perhaps reducing some of the hybrid options. I know it may be harder to do initially, but over the scope The period, as you delever a bit, is that part of the plan? Because I think that may have more meaningful impact to your free cash flow. And then The second question is maybe Jose Maria around regulation.

Speaker 4

So it was 2 half ones, exactly, and now it's the full one. It's around regulation. And there's been a change in sentiment in Europe, but no action that really has helped the industry. It looks like this fair share debate has been postponed, perhaps indefinitely. So what are the things that you are hoping to see ChangeOn.

Speaker 4

And I know that even in the U. K, there's a bit more neutral stance or net neutrality rather than the very We have in Europe. Is that something that's feasible? Do you even inform more to sort of the changes in Europe? Thank you.

Speaker 3

Thank you for your three questions.

Speaker 6

And

Speaker 3

on the Peruvian, you know there's still uncertainty On the amount, the date, the settlement, the interest that may apply, but we have included our best estimate in the life of The Plan. We have included some in 2023 and is within the €4,000,000,000 a guidance we gave you. However, if that gets delayed, we may do work with other working capital measures. So I think you should Think of the €4,000,000,000 regardless of what happens with Peru. We have already included payments up to Q3, And there could be more, but we are managing our free cash flow, all the different lines in a way That we will deliver on the €4,000,000,000 And if those that does not happen in by the end of 2023, we may have to include it more in 2020 Q4, but we will also compensate it with our working capital management.

Speaker 3

So the question is yes, with all the uncertainty and we will definitely Not attributable to us and so on, but it is included. With regards to the Telefonica Deutschland offer, you may Understand that this plan has been done a long time ago. And the offer was launched yesterday. So we have free cash flow growing by 10% More than 10% despite this offer. If this offer happens, it will be Free cash flow accretive, definitely.

Speaker 3

But the plan was built prior to that, and we are committing to the above 10%. You also need to take into account that the dividend is payable in May. So it flows through 2024. But definitely, the plan was done ahead of this. And all the very strong messages on free cash flow growth and the above 10 Centaur are prior to that.

Speaker 3

And on the hybrid, for the time being, we're comfortable with the €7,500,000,000 layer. We We've been very proactively in managing and anticipating the refinancing. And But we will obviously look at all the options at the given time. We have flexibility from the credit rated agencies of 10% in a year, 25% in ten EMEA. So we may use that flexibility.

Speaker 3

But for us, it's a layer of our capital structure. We have managed proactively. Cost is slightly above 4 4.4 percent even with the latest issuance we did, out of the higher interest rates than in the past. And the life the average life is 4.5. So similar management to the rest of the debt, but for the time being comfortable with that layer.

Speaker 2

And on your question on regulation, asking a CEO of a telecom business about regulation in Europe is like a And I would move to Angel for the more specific Spain situation that we are asking for. In terms of Europe, in the current telco market in Europe It's just unsustainable. It's just highly fragmented. It's very inefficient. I mean, you have in Europe more than 40 just mobile Telias.

Speaker 2

While you have 3 mobile operators in the U. S, I mean, so it's unsustainable. We think that if we are talking about EP and Strategic Autonomy. There is no way we can reach that without digital infrastructure. And if you compare the current level of CapEx deployment in Europe aggregated With the targets that the commission has set up for the digital compass, there is a mismatch of roughly €176,000,000,000 from here till year 2 2030.

Speaker 2

So it's time for Europe to take a stance. It's time for Europe to decide if they want to preserve this level of artificial competition Or if we want to focus on an industrial policy. And also, we think that the regulatory framework that was So no doubt, 30 years ago, has made no longer sense. I mentioned that twice during the presentation. This regulatory regime is obsolete.

Speaker 2

It was designed for a sector that doesn't exist Instenimo. In the case of FASK, for example, it was a regulation that was designed for a copper incumbent monopoly. We are no longer copper. We are not an incumbent centrally and we're certainly not a monopoly. So most of the reasons why that was happening are no longer anymore.

Speaker 2

And on top of that, technology has been going Further down the road than the regulator. The definition of relevant market is wrong. Here in Spain, we are supposed to be the leader in pay TV, but The market share of Netflix, Amazon Prime or HBO or Disney plus is not even measured. So the definition of relevant market is wrong. With With all that in mind, and I will come down to the 1st year, but you triggered the therapy.

Speaker 2

So bear with me for a second. I mean, The good thing, and I think it's a good thing, is that there is a debate. And there is a debate in place. And Commissioner Breton has been pushing this public consultation. There is already an outcome of that public consultation.

Speaker 2

And this public consultation goes much further than just the DT First Share thing, which I will cover. It talks about what's how do we see networks for the future. And we have designed How we see networks for the future, this kind of earth computing stack. And if we want to have those network, what's the necessary regulatory framework for So it has opened the Pandora box of a different kind of thing. I don't think we are going to have time to have something solved before the Parliament is dissolved.

Speaker 2

But Commissioner Breton has called for a white paper, for a white book to be written in the next 2 to 3 months, and And we are going to be actively participating, and the battle is on. And then I'm going to go for the OTT and then Achal will be much more specific. OTT fair share, this is no longer the traditional debate of we want them we want their money Because they are using our networks. It's not their money that we want. It's our money back.

Speaker 2

We devote 25% of our CapEx for A city that serve no revenue and brings no value to my customer. So why should we be building a A significant part of the network just for 5 players or 6 players. It makes no economic sense. So we want our money back. And that means that We are going to give them a period of time, 2 years, whatever is necessary, forget them below the 5% consumption of the capacity of the network.

Speaker 2

And we are going to give them APIs. We were talking about APIs to integrate seamlessly and standardize APIs. So for 2 years, they will have the chance Compress their capacity signal, so we are able to invest less in capacity and more in coverage will give us a return. If after 2 years they are not there, then we are asking For an arbitrator to decide. So it's a much broader thing.

Speaker 2

It's not the traditional debate of That we lost 15 years ago, and it's not the money we are looking for. We are looking for our money back. We want to be free to decide where we invest Everyyear.

Speaker 1

Well, Jose Maria is asking me to be precise, which is something that I try to Torviz. What can I do? So when responding before to Nawa's question on Orange Mars Mobile, I To talk about potential upsets that I talked about defensives. An upside can be in the pay TV rights that got Related already, linking to this regulation question. But Orange Pass Mobile going forward means that we would not be the leader in the market in terms Number of clients, yes, in all the financial metrics, but not in terms of clients.

Speaker 1

This should imply further the regulation. And we are lobbying actively for that in areas such as fixed broadband, Liber products replicability, access to that and others that would allow us to have more flexibility in tailoring our commercial offers and some efficiencies. So this would be regulatory angles Arising from this transaction going through.

Speaker 2

Let me finish my therapy. We are asking for a total deregulation. It makes no sense. It makes no sense for us to be regulated in the same way that when we were a copper monopoly 30 years ago.

Operator

Yes, I think James got a question.

Speaker 13

Yes, thanks very much. It's James Rets from New Street Research.

Speaker 5

So I was going to

Speaker 13

ask a question About your B2C growth target you've given of 1.5% CAGR. I mean, you've exited the The 1st 9 months this year at 1.9%. You put up a slide with some consultants' numbers saying you expect 7% Market CAGR over the next 3 years. So why only 1.5% growth, which is, I suppose, lower And then the second question I had was if we could just drill a bit further down into The CapEx question here in Spain, so I think that's going to be an area a lot of people are looking at. And to get to the 10% guidance in explicit The 1,000,000 of euros, you're guiding to that really going down to about €1,300,000,000 from About €1,550,000,000 today.

Speaker 13

So that's a kind of €250,000,000 reduction in absolute terms. Could you just help to then Breakdown, what are the levers that drive €250,000,000 of reduction? And how sustainable that is kind of beyond the end of Plan. Thank you.

Speaker 1

Thank you, James. On the B2C figure, the 1.5 around 1.5 CAGR. Over the horizon in reported terms is the blend of all our geographies except the U. K. So here you are In very different realities, we have markets like Brazil where we're experiencing very high rates of growth, The same that we are projecting in some of the countries of Hispano America, in Spain that Growth rate would be potentially more modest.

Speaker 1

This has the 2 The part of connectivity and the part of the digital ecosystem of services around connectivity. We are seeing higher growth rate In those services, over connectivity on that digital ecosystem, while it's impossible to do P times you to get to this figure. But we are seeing, and in particular, we are talking about Spain, the best commercial Vintum that we have in the trend across the year. If you look at the slides of the Q3 results presentation, we are In a very clear progress and momentum, the 3rd quarter was the most positive quarter in terms of net adds that we We've had for a long, long while. We are back to net adds growth in TV.

Speaker 1

We are Growing in conversion bundles. And we are growing also in mobile. I don't know if Emilio you will want to complement on it. On the CapEx, clearly, it comes from several buckets. One is the management of the technological cycle, which means the decommissioning of the copper And the completion of the 5 gs.

Speaker 1

Then there is cloud and virtualization. This is going to happen in all of our operations. Then we have open and disaggregated architectures and automation and applications of AI in our CapEx. These are levers that in my slide on CapEx, we try to quantify with this also Missioning is the one that accounts probably for half of this CapEx improvement. I'm being Hinted that the 7% market growth that you were alluding to, it's only services On connectivity, not the connectivity.

Speaker 1

Emilio, I don't know if you want to give more color on

Speaker 14

Following the Question only to remark, highlight that we have a very strong 2 brands very strong, both O2 In the low end and Movistar in the high end has the best result in terms of churn in the performance Via Arpio in both of them. And this brand permit us to be sure that we are able to maintain this momentum, the commercial Ventum during the next coming quarters.

Operator

Next question from Fernando, please.

Speaker 5

Hello, Fernando Corolla from Santander. Two questions, if I may. The first one is related with your comment on you are going to be very active on, Let's say on also pursuing inorganic activities. And I would like to understand, particularly for Telefonica Tech, if there is anything else That you want to add to the portfolio that Telefonica Tech is having today and particularly if you were looking to enlarge the, Let's say the basics or the basic IT services proposal made by Telefonica. In other words, there has been comments in the market Regarding a potential interest in Insight, just to understand if this is on the table or not.

Speaker 5

And the second question is, At the beginning of the presentation, you described what you believe is the next generation telco. And in that sense, I would like to understand at which stand this vision It's already changing the profile of the different assets that you are managing. In the past, you have considered towers as not a core business core asset. You have in your, let's say, core operating businesses, fiber is a core asset. I just would like to understand if this Ranking of core assets within your perimeter is still valid in the new vision that you have on the sector.

Speaker 1

On the first question of Telefonica Tech, we have been doing some acquisitions in Telefonica Tech either To complement skills and services or to get into geographies where we were more stronger in B2C than in B2B and in advanced B2B. So we have done acquisitions like Altostratos in Spain Intuit Into Industry 4.0 or we have done acquisitions like the Cancom subsidiary in U. K. And another company called Incremental, which now have become Telefonica Tech U. K.

Speaker 1

And Ireland. And then we bought Biterna to be active in the basically based in the German region, but the overall DACH region Switzerland Austria. We continuously get opportunities to enlarge The skills basically in these different countries, but we assess them as part The capital allocation process when they come. You asked about a specific name, in site. We do Not comment on market rumors, but not sure it would fit the profile of what we would be looking

Speaker 2

And in terms of the next generation telco that we were describing, you need to understand that for us, what What we have right now is no longer a telecommunication network. It's something much different. It's a massively decentralized supercomputer. And in fact, it's a supercomputer that has a terminal almost in every corner of every territory. And therefore, that give us a commercial advantage in terms of Time to market in terms of efficiencies, but also in terms of integrating products and service.

Speaker 2

And that's why AP fine, standardizing The APIs is so important. So that means that whatever give us power to give intelligence or to sophisticated our APIs, we will Keep. I mean, whatever is passive, it's no longer a differentiating factor going forward. So whenever you judge our elements, keep in And also the wholesale market. For example, fiber in Spain give us an amazing opportunity because we are everywhere and it's It's a differential asset.

Speaker 2

So keep that in mind. The main message is that we don't longer consider ourselves just a telecommunication network. We have a mirror of the cloud, at least as powerful.

Operator

We have the next Question from the virtual audience is Andrew's question. He had a problem with the mic. And about the transformation program, whether it includes benefits from softwareization and how much more specifically in Spain, how much more savings can we make in Spain. I think that he got it wrong because he is asking whether none of the provisions in net debt guide are included and whether how would leverage look like should include these efficiency programs provisions, so we should make that clear.

Speaker 1

Okay. Since I made the comment, I should be precise. The estimate of Savings from potential people planning in Spain and other geographies, our growth group are included in the projections. The cost To capture those, including the commitments to employees, are also included, Fund estimate. What is not included is the onetime non cash accounting provision In the projections.

Speaker 1

Regarding the transformation program, again, I think that we have been giving the different levers that It can impact how we get to the 10% CapEx of our sales in In Spain. Again, the technological cycle management with all the decommissioning, the virtualization and taking To the cloud of the network, the open and desegregated architectures, including Open RAN, but not only Open RAN, also open broadband, open transport And then benefits derived from automation. And with respect to efficiencies that could come from this information Into EBITDA, well, we are indicating that after stabilizing the EBITDA in Spain in the Q4 this year, we We are expecting to see it growing over the next 3 years starting on 2024. I think that this is much more than we have ever been ready Not to guide, but yes, to indicate.

Speaker 3

And the commitments impact, I'm glad we get the questions so we can clarify. The commitments have always been included in the net debt evolution. So every year, we have to pay some commitments and that increase the net debt that then is compensated with free cash cash flow and the like. So it's been always part of the net debt evolution. Accounting wise, it's not a free cash flow, because what we are paying here is like if we were paying the principal of a debt.

Speaker 3

We are actually paying the commitments. And going forward, they will disappear. And in fact, we We may reach a peak now in this plan, but afterwards, we are going to see the commitments getting reduced more than €100,000,000 per year until they completely disappear. Nordea. But even if this is not accounting free cash flow, as we listen to you and we rebased the free cash So it is true that it's not available cash to pay for the leverage or for the dividend commitment.

Speaker 3

And that's why we have included in the free cash flow. From a NetEp evolution perspective, they were always there. It was a separate item. It's like we are paying the principal of a debt. We are paying the principal of the commitments.

Speaker 3

They will end Disappearing completely. And we are including it now in this new definition. So we want to resemble the cash which is available for the leverage and Dividend.

Operator

Thank you. So we have time for one last question. Josh, please.

Speaker 15

Thanks for the questions. It's Josh Mills here from BNP Paribas. The first one was just on the guidance And if you'd be able to maybe give us guidance on an EBITDA after lease basis versus the 2% guidance on an EBITDA, which I believe is reported. And the reason is that tell us a bit more about what you're assuming for lease cost inflation going forwards. I think the guidance on Spain, for example, for stabilization by Q4 is on reported EBITDA, but the EBITDA of the lease guidance or growth at the moment is still running down mid single digits.

Speaker 15

That would be helpful. And then the second question also on Spain. I know you don't give specific divisional guidance, but within the guidance For revenue growth, should we assume it's kind of 1% consumer, a bit higher B2B? And then on the wholesale business, are you assuming flat? Or have you actually assumed There will be wholesale losses either with or without the remedies that may come through in Spain.

Speaker 1

Okay. On the second question, we are seeing continued revenue growth in Spain. We foresee this revenue growth to continue going forward in the period 'twenty three, 'twenty six even Accelerating. The trends that we're seeing both in the net adds and in the ARPU Would indicate that the service revenue should be in the positive direction. B2B.

Speaker 1

We have been posting now for a while not only at group level, but also in Spain a higher revenue growth than what we have seen In B2C. And the wholesale dynamics will be very much derived from the different moving parts that I was alluding to When I was responding to the question on potential impact of market reconfiguration, let's say. So without Being able to confirm the order of magnitude of the numbers that you are talking about, Yes, conceptually, this should be the direction of travel. The other question

Speaker 2

was EBITDA in Spain.

Speaker 3

And in general, no, I may start with a general answer and then Angel complements with Spain. We gave it a lot Fot, but we wanted to focus on EBITDA as it helps you see better historical versus Chart Trends and because leases still have more volatility. However, we are guiding implicitly in EBITDA, because we were very conscious that leases It's an area of focus and it's very important to follow and that's why we choose EBITDA, but we choose EBITDA minus CapEx. So you can See what we are doing through CapEx and what we are doing through rights of use, so we're being fully transparent. And with a 2% EBITDA and the EBITDA minus CapEx FX of that we have provided.

Speaker 3

And on top of that, with the CapEx decreasing on Of 12% in 2026, you can deduct that we are also growing EBITDA. And we are So demanding each OV to grow EBITDA.

Speaker 1

We are not guiding on EBITDAAL minus CapEx level in Spain. What we are indicating is that over the 3 year period 2026 EBITDAAL Del Minus CapEx will grow more than the EBITDA and revenue growth rate Over that period. That's as much as I can tell you on this one.

Operator

So thank you. And now Agiosa Maria for closing the event.

Speaker 2

Well, thank you very much. Thanks for being here. It was for us A huge effort, but also a very motivating effort to put this plan together and for us to share that with the market in this way. So we We appreciate you being here physically or virtually. And we are ready to take your questions in the afternoon if you have further.

Speaker 2

But if not, please Contact Adrian's team. We'll be delighted to answer your questions. Thank you very much for being here. Okay.

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