Earnings call transcript: Telefonica Q2 2025 sees steady growth, strategic focus

Telefonica SA ADR reported its Q2 2025 earnings with a focus on steady revenue growth and strategic market consolidation. The company achieved 1.5% organic revenue growth, reaching 9 billion euros, and improved its free cash flow significantly. According to InvestingPro analysis, Telefonica currently appears undervalued, with a "Fair" overall financial health score. The company’s stock showed a slight decline in premarket trading, reflecting a cautious market reaction.

Key Takeaways

• Telefonica reported a 1.5% organic revenue growth in Q2.
• The company improved its free cash flow by 718 million euros from Q1.
• Strategic focus on core markets with sales of operations in Argentina and Peru completed.
• 5G coverage expanded by 2 percentage points, enhancing digital infrastructure.
• Stock price experienced a 0.95% decline in premarket trading.

Company Performance

Telefonica maintained a steady performance in Q2 2025, with a focus on organic growth and strategic market positioning. The company added 2 million customer accesses, bringing the total to 349 million, and expanded its fiber and 5G networks. The completed sales of operations in Argentina and Peru, along with agreements to sell in Colombia, Uruguay, and Ecuador, underscore Telefonica’s strategy to concentrate on markets where it holds competitive advantages.

Financial Highlights

• Revenue: 9 billion euros (+1.5% organic growth)
• EBITDA: Nearly 3 billion euros (+1.2%)
• Free Cash Flow: 5 million euros (an improvement of 718 million euros from Q1)
• Net Financial Debt: Decreased by 5.5% year-over-year to 27.6 billion euros

Market Reaction

Telefonica’s stock experienced a 0.95% decline in premarket trading, with shares priced at $5.23. This movement reflects a cautious market sentiment despite the company’s solid performance and strategic initiatives. The stock remains within its 52-week range, with a high of $5.48 and a low of $3.89. Notable is the stock’s impressive 32.5% return over the past six months, with relatively low price volatility (Beta: 0.55). The company has maintained dividend payments for 23 consecutive years, currently offering a 4.7% yield.

Outlook & Guidance

Telefonica reiterated its full-year guidance across all metrics, aiming for revenue and EBITDA growth, particularly in Spain. The company plans to unveil a strategic review in the second half of 2025, focusing on cybersecurity and tech opportunities to create value through strategic consolidation. InvestingPro analysts expect the company to return to profitability this year, with projected earnings per share of $0.36. For deeper insights into Telefonica’s financial outlook and comprehensive analysis, access the exclusive Pro Research Report, available to InvestingPro subscribers.

Executive Commentary

• Emilio Rayo stated, "We aim to deliver revenue year on year growth higher than 2024," highlighting the company’s commitment to surpassing past performance.
• Marc Murtrar emphasized, "Our ultimate goal is to create value across all our decision making," underscoring Telefonica’s strategic focus.
• Murtrar also noted, "We need scale to be able to take on more calculated risks," pointing to the importance of strategic consolidation.

Risks and Challenges

• Competitive pressures in the UK market could affect growth.
• B2B transformation challenges in Germany may impact profitability.
• Macroeconomic conditions could influence consumer spending trends.
• The execution of strategic sales and market focus involves potential risks.
• Maintaining leadership in fiber deployment requires continued investment.

Q&A

During the earnings call, analysts inquired about potential opportunities in the cybersecurity market and the financial implications of the copper network shutdown in Spain. Telefonica addressed these concerns, emphasizing cost savings and strategic advantages. Additionally, consumer spending trends in Germany and infrastructure ownership strategies were discussed, providing insights into the company’s operational focus.

Full transcript - Telefonica SA ADR (TEF) Q2 2025:

Conference Operator: As a reminder, today’s conference is being recorded.

I would now like to turn the call over to Mr. Thorsten Atman, Global Director of Investor Relations. Please go ahead, sir.

Thorsten Nachman, Global Director of Investor Relations, Telefonica: Good morning, and welcome to Telefonica’s conference call to discuss January 2025 results. I’m Thorsten Nachman from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is unaudited. This conference call and webcast, including the Q and A session, may contain forward looking statements and information relating to the Telefonica Group.

These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives and expectations regarding different matters. All forward looking statements involve risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don’t have a copy of the relevant press release and the slides, please contact Telefonica’s Investor Relations team in Madrid or London. Now let me turn the call over to our Chairman and Chief Executive Officer, Mr.

Marc Murtrar.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Results conference call. Sylvain? Excuse me, sorry about that. Good morning, everyone, and welcome to Telefonica’s Second Quarter Results Conference Call. With me today are Emilio Rayo Laura Vasolo Marcos Jas Lutz Schuller and Eduardo Navarro.

It is a pleasure to have you here as usual. We will first walk you through the slides and we’ll be then happy to take any questions. Six months ago, I joined to lead Telefonica with a clear goal, unlock the values that exist within the company. We’re still early in our plan, but the pieces are starting to come together. Today’s results show steady operational execution, continued progress on strategic initiatives and our strategic review, which we’re expeditiously advancing on schedule for second half unveiling.

Behind the scenes, we’re making significant progress working intensively to get this right. While I can’t share the conclusions of our strategic review, I can ensure that every decision we’re making follows four fundamental principles. First, customers are at the core of everything we do. Second, technology and operational excellence are fundamental to our business. Third, we apply an industrial rationale to our decision making.

Fourth, our ultimate goal is to create value across all our decision making, all under strict financial discipline, prioritizing Europe and leadership in Brazil. Despite a variable macro environment, we’re focused on managing what is within our control. We are confident that the transformation underway at Telefonica will create value for our shareholders and strengthen our competitive position. The strategic choices we’re making will contribute to a stronger, more competitive telecom industry in Europe. On slide three, let me walk you through our second quarter operational highlights.

We’re maintaining momentum across customer growth, network expansion and portfolio optimization. Each of these areas is part of our future. Starting with customer focus. This quarter, we added 2,000,000 accesses to reach three forty nine million accesses. Their experience and satisfaction remain a priority and customer lifetime value is improving, with high levels of NPS and low levels of churn.

We continue with portfolio renewals and new tariffs, like in Spain with MimoVistar and O2. Our network build continues. We accelerated our fiber to the home rollout with 1,500,000 premises added in the quarter, while our five gs coverage expanded by two percentage points. The completion of our copper shutdown in Spain marks an important moment. We’re the first major European operator to achieve this milestone.

This frees up resources and focus for other endeavors. We’re being disciplined on efficiency and portfolio management. We continue to simplify SPAM. This allows us to concentrate resources and management bandwidth where we can build competitive advantages. In these six months, we’ve reshaped our Latin America footprint.

We completed the sales of Argentina and Peru, signed a binding agreement for Colombia and recently announced binding agreements for Uruguay and Ecuador. These transactions represent approximately EUR 3,000,000,000 in firm value. Our approach focuses on concentrating resources in select markets where we have competitive advantages. The speed of execution matters and it allows us to be productive on other fronts. Each transaction strengthens our ability to invest more effectively in our core markets and has been structured to minimize execution risk.

This approach is part of our capital redeployment. This approach is an example of what we want our industrial rationale to be. We evaluate every market and every investment through the lens of industrial value. We aim for a simplified organization that can move faster and compete more effectively. Our work in Espan is not over.

Moving to slide five. Revenue reached almost EUR9 billion in the quarter, growing 1.5% organically, EBITDA almost €3,000,000,000 plus 1.2% and EBITDA minus CapEx was broadly stable. Free cash flow turned positive to $5.00 €5,000,000 in the second quarter, an improvement of €718,000,000 versus Q1. In the first half, free cash flow was €291,000,000 Free cash flow will continue to improve in the back half of the year following our typical seasonality. Foreign exchange headwinds impacted reported figures slightly higher than in Q1.

Net financial debt decreased 5.5 year on year to EUR 27,600,000,000.0 as of June. The first six months reflect free cash flow seasonality and the dividend payment in June. Lastly, earnings per share from continued operations amount to zero seven in the second quarter and zero one five in the first half. Moving to slide number six. Spain and Brazil, which together represents 70% of group EBITDA showed improving trends this quarter.

Spain delivered its best Q2 net adds since Q3 twenty eighteen, while improving EBITDA minus CapEx. Brazil continues its good run with record EBITDA growth since Q4 twenty twenty three, performing above inflation, although it was negatively impacted by foreign exchange movements. Germany is facing the effects of the B2B transformation, while maintaining solid consumer momentum. VMO2 is investing in its network, while EBITDA decline slowed on efficiencies. Espan showed resilience and declining EBITDA softened and growing contract net adds.

While we transform Telefonica, our operations must continue to deliver and improve. What we’re seeing across our footprint is operational stability. This will give us space to execute our strategic initiatives while maintaining financial discipline. Our performance in Q2 is in line with expectations, reflecting different moving parts in the direction of business. Based on our first half performance, we reiterate our full year 2025 guidance across metrics.

Revenue and EBITDA continued to grow in line with our targets. EBITDA minus CapEx was stable due to phasing and will improve through the year. CapEx intensity remains within our target of being below 12.5%. Free cash flow already improved in Q2 and we expect the momentum to build through the second half, which is our typical seasonal pattern. Leverage is currently above guidance target.

This temporary uptick is mainly due to free cash flow seasonality in the first half. The mix the FX mix impact on the ratio and the dividend payment in June, we’re expecting it to improve over the course of the year. These results keep us on track to deliver our guidance. Let me now hand over to Emilio to take you through our operational performance in more detail.

Emilio Rayo, Executive, Telefonica: Thank you, Mark. Let me start by giving an overview of the main themes in our core operating businesses. First, commercial momentum remained steady. We are showing very strong levels of net adds. Low churn and our digital ecosystems continue to gain traction.

To highlight, in Spain, we achieved the highest quarterly net addition since the 2018. Ambiibo increased the number of O2T subscriber by 55%. Second, our networks are a key differentiating factor for the quality of our services, product offerings and customer satisfaction. As an example, in Spain and Brazil, we have superior NPS compared to our competitors. Also the lifetime value of our convergent customer is the best in our domestic market Twist the figure of our closest competitors.

Third, our performance in key markets and our development in Hispan show our focus on execution. In Spain and Brazil, we have improved financial trends year on year in the second quarter. In Germany, we are focused on mitigating the impact of the migration of one on one, showing growth in underwriting terms. Finally, in The U. K, Virgin Media Alto’s declining EBITDA improved reflecting cost efficiencies.

On to slide nine. Performance in Spain was excellent with accelerating growth in customer and financials. Momentum in Q2 was again very strong, achieving the highest net adds in more than six years. The year on year growth of our key services accelerated. There were several drivers behind this.

We saw a convergence churn reaching 0.8%, its lowest level in more than eleven years. There was an improved portability balance. And finally, we had 89,000 TV net adds, the highest number in more than six years. This has been possible to transfer Telefonica Espana reinforcing its market position during Q2 with a cemented commercial strategy. We improved both models and Movistar value proposition with additional features such as new TV content, increased the fiber speed and more mobile data.

On top of this, we launched MaVista Portee, a personalized customer care plan that deeply changed the way we serve our subscribers. This approach is a structural change in the market. It will drive a further expansion of our best in class NPS in Spain and a sustained reduction in claims, which were already on the decline. This proves our commitment to excel in customer experience in a market where trust and quality are a key loyalty factors to drive commercial performance. Meanwhile, convergent ARPU remained the best in the market above €90 despite the end of the football season and the higher O2 penetration.

A strong financial performance continued with improved growth across metrics. Q2 revenue growth increased year on year as to sustained growth in services and higher handset sales. Retail revenue increased above inflection driven by customer growth, price upgrades and higher weight of services beyond connectivity. We delivered growth in both B2C and B2B. There was double digit growth in IT sales, which already accounts for over 50% of B2B revenue with a record high IT backlog.

As expected, wholesale and other revenue declined due to the renewal of wholesale agreements, which added long term sustainability. The year on year growth in EBITDA in Q2 also accelerated. This performance is driven by several factors: revenue growth, stabilization of leases, efficiencies in network transformation and hybrid automation. Also copper network shutdown was completed in May. EBITDAaL minus CapEx increased by over 2% in H1, showing our leading cash conversion in the domestic market.

In summary, in Spain, we continue to leverage our solid fundamentals to deliver a stronger performance. On to the next slide. Telefonica Brasil’s performance in Q2 was again marked by solid growth both in operation and financially, thanks to our sustained leadership in a quality customer base. Upselling initiatives from prepaid to contract plans, our focus on convergence and our commitment to offer the best services led to a 6% increase in our contract accesses and more than 60% increase in Vivo Total. Our ability to retain high value customer despite increasing prices is reflected in postpaid churn, which remained very low in Q2 at 1.1%.

The growth in TV accesses and the 42% increase in revenue from cloud services are two examples of increasing traction of our digital ecosystem in Brazil. Revenue increased by 7% and continues to outpace inflation, thanks to two factors. Firstly, strong growth in postpaid and fiber showcasing Vivo’s successful convergence strategy. Secondly, growth in real terms of our fixed and mobile revenue. Despite this strong commercial momentum, we were still able to maximize efficiencies, which resulted in OpEx growing below inflation.

Vivo delivered the highest EBITDA year on year growth since Q4 twenty twenty three with margin expansion. In Brazil, we have expanded our fiber footprint to 30,000,000 premises passed. To highlight on the July 10 Telefonica acquired the 50% stake of Fibrocell owned by CDPCO, strengthening Vivo’s leadership in fiber. This cost BRL850 million. In addition, we have integrated the IoT and Big Data businesses into the cloud business.

This change will allow greater simplicity and increased efficiencies. In summary, I am happy to report that Brazil is performing excellently. We expect to maintain these results throughout the next quarters. Moving to slide 11. Telefonica Deutschland reported financial were impacted by the migration of the one on one customer base and the partner business transformation.

While we continue looking for additional growth and efficiency measures to mitigate this impact, the underlying performance showed growth across revenue, mobile service revenue and EBITDA. Higher promotional activity continue across segment in what is a more mature market. In mobile, we saw robust commercial additions with contract net adds increasing double digit quarter on quarter. Additionally, O2 contract churn remained stable year on year at a low of 0.9% reflecting the strength of the O2 brand. In the B2B segment, we signed a major new customer, a German and European market leader in shoe retail.

Also Telefonica Deutschland announced a strategic partnership with Siemens. Together both companies will transform the water industry with the first fully integrated connectivity solution based on five gs network slicing. On the financial side, revenue declined year on year mainly due to lower mobile service revenue. EBITDA declined 6% year on year reflecting the impact of the one on one customer migration. We expect this impact to continue as more customers migrate off our network.

In summary, while financials reflect temporary pressures Telefonica Deutschland continues to execute on its strategy to position the company for growth once the impact of the one on one migration is over. We aim to achieve this growth, investing in network leadership, applying efficiency measures and driving sustainable commercial performance through focused growth initiatives in all the segments. All of this will help drive profitable growth. Moving to slide 12. The U.

K. Mobile market remained competitive in Q2 and Virgin Media O2 stays focused on customer loyalty and protecting value. O2 contract churn improved to 1%, driven by an enhanced customer experience and ongoing investment in network quality. In fixed, we are stepping up our retention efforts as we adapt to evolving market conditions, including the implementation of One Touch Switch. At the same time, we expanded our fixed network footprint to over 18,500,000 premises passed with more than 7,000,000 on fiber.

Consumer fixed ARPU also grew year on year for the fifth consecutive quarter. During the quarter, we received regulatory approval to create a new B2B company with the transaction expected to close on August 1. We also announced an agreement to acquire seventy eight point eight megahertz of spectrum from Vodafone U. K. For £343,000,000 This acquisition will be partially funded by the last year’s minority stake sale in Cornerstone.

This transaction will bring our total mobile spectrum share to around 30%, strengthening our network capacity. It will also support greater balance across U. K. Operators, enhancing competition, improving coverage and elevating the customer experience. Spectral transfer is expected to begin in the second half of the year, subject to AFCON’s approval.

Financially, revenue declined by 5.7% year on year, mainly due to three factors: the phasing of price increase under the new pounds and pence approach lower handset volumes and reduced next fiber build activity. However, EBITDA declined due to the evolution in the fiber construction. Excluding this, EBITDA growth accelerated in Q2, reflecting the cost optimization efforts following the 2024 investment in IT and digital transformation. In summary, The U. K.

Business is progressing with a steady network expansion, early signs of financial stabilization and continued focus on customer value. Moving on to slide 13 and the operating performance in Hispan, which now includes four countries. For the second consecutive quarter, we posted positive contract net adds in the region. These positive results are driven by the improved network quality in Colombia due to the launch of Movistar Antigos single mobile network, our great performance in Mexico and a better regulatory environment in Chile. On the fixed business, almost 100% of our broadband customers already have fiber.

Revenue decreased year on year, mainly due to sales of copper in Chile in the 2024. EBITDA decreased 2.8% year on year, but improved sequentially due to Colombia. On to slide 14 to review our transversal units. Firstly, regarding Telefonica Tech. Revenue growth rate improved quarter on quarter to over 12% year on year in Q2 with bookings growing in line with revenues.

By sector, the performance is driven by the solid demand in financial services, health care and public administration. And with her, I’ll also reinforce our AI and data capabilities to expand our offer. Secondly, on to Telefonica infra. Our fiber costs have already reached 29,000,000 premises passed, representing 35% of group deployment. Our submarine cable business delivered sustained profitability with margins of around 50%.

Telxius has signed a partnership with Google to provide the necessary infrastructure to land the new subsea cable in Spain. In summary, consistent execution continue across our markets and businesses. I will now hand over to Laura for the main financial topics.

Laura, Financial Executive, Telefonica: Thank you, Emilio. Free cash flow has improved by €718,000,000 to $5.00 €5,000,000 in the second quarter and €291,000,000 in the first six months of the year. Free cash flow follows its usual seasonality in the first half and this has been reflected in the evolution of the net financial debt and deleverage ratio, which has increased to 2.78 times. However, as the year progresses free cash flow will gain traction heading to our targets. Furthermore, our net debt will be reduced to €26,000,000,000 after the sales of Telefonica Ecuador, Uruguay and Colombia and acquisition of the 50% of Fibrocell.

We maintain ample liquidity, which covers debt maturities over the next three years. The average cost of debt has been reduced year on year from 3.64% in June 2024 to 3.3% in June 2025. We continue with our present financial policy and free cash flow management, which are key priorities for us. Turning to page 16. This quarter, we have made significant strides in our sustainability efforts.

On the environmental front, we have published an updated Climate Action Plan marking a clear pathway towards our ambition to be net zero by 02/1940. Furthermore, Telefonica has been included as a supplier engagement leader by CDP for the six year running in recognitions of our efforts to reduce value change emissions. On the social side, our customer centric approach has led us to launch a new personalized service model in Spain. We also remain committed to diversity and inclusion initiatives. And this quarter, we achieved 34% female executives.

Looking at governments, we have been recognized for our transparency receiving awards for both fiscal sustainability reporting. Finally, I’m pleased to share that Time Magazine considers Telefonica as the second most sustainable company in the world. I will now hand back to Mark who will wrap up.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Thank you, Laura. To summarize, our second quarter offers data to show that how we’re managing this transition period. We’re maintaining operational performance while we prepare for the changes ahead. We are making progress on portfolio focus with fine Espan transactions. Our networks continue to evolve, including completing the copper shutdown in Spain.

We’re on track to meet our financial guidance. Our strategic review continues on schedule. We’re taking a hard look on how to position Telefonica in a changing industry. I look forward to sharing our conclusions in the second half of the year. Thank you very much for your attention and we are now ready to take your questions.

Conference Operator: Thank you. You. We will now take the first question from the line of Andrew Lee from Goldman Sachs. Please go ahead.

Andrew Lee, Analyst, Goldman Sachs: Good morning, everyone. I had two questions, one on Spain and one on The U. K. Just noting, Emilio’s, I guess, bullish comments on the strong KPIs in Spain, but revenue and EBITDA growth still remains pretty low versus peers across Europe. So the question is, do you expect growth to accelerate meaningfully organically to more encouraging levels?

Or does Spain still need fixing? And what are the potential opportunities to fix that, if so? Secondly, on The UK, the KPIs weakened again, but the cyber market looks right for consolidation. I know your net co creation process keeps stalling. The question is, is VMO2 in a position financially to be able to pursue what it wants to do on fiber consolidation?

Or are there still inorganic things that need to be done to put yourself into a position to succeed there? Thank you.

Emilio Rayo, Executive, Telefonica: Thank you, Andrew. Regarding the question about Spain, I will say that we aim to deliver revenue year on year growth higher than 2024 and fostered by the handset sales and retail. We see B2C growth ahead driven by a better customer experience, best in class churn, January 25 price increase and solid mix of convergent KPIs supported customer lifetime value, new subscriber on O2 and direct to consumer Movistar Plus and a solid new service ecosystem increasing the traction of our portfolio. In B2B, we have a strong B2B momentum. As communication and IT coverage, we are the player with the best commercial offer.

It is the growth engine, while communications are protected by portfolio revamps. In terms of wholesale, we expect wholesale and other to decline year on year. Nevertheless, we have a more sustainable wholesale businesses delivered from the agreement signed in 2024. And in terms of EBITDA and the part of the cost on costs, we expect to continue capturing savings from efficiencies such as network transformation, simplification of processes and system and optimize commercial cost by phone automation and higher use of online channels. And as a result, expect 2025 EBITDA and EBITDA to show higher year on year growth than in 2024.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Regarding the VMO2 question, Andrew. So there are different opportunities in The U. K. Market, some of which you have mentioned. And I think we have different ways of capturing the opportunities we’re interested in.

But I cannot comment on any specifics due to us wanting to keep confidentiality with regards to what we want to do on the M and A side and to maintain flexibility in with regards how we’ll pursue those opportunities. So I’m sorry for the ambiguous answer.

Andrew Lee, Analyst, Goldman Sachs: No, thank you. Thanks anyway. And just on the Spain, 2025 being having higher growth than 2024 in revenue and EBITDA, I guess that’s the minimum that you’d want to see from that business. You expect further acceleration organically into 2026 and beyond? Or does that need to change in the market to achieve that?

Emilio Rayo, Executive, Telefonica: And we have commented that we have a strategic review during this part of the year and we will talk about the objectives and the targets of 2026 at the end of this strategic review.

Andrew Lee, Analyst, Goldman Sachs: Understood. Thank you.

Conference Operator: Thank you. We will now take the next question from the line of Joshua Mills from BNPP Exane. Please go ahead.

Joshua Mills, Analyst, BNPP Exane: Hi, guys. Thank you for the questions. I have two as well please. Mark, I understand we won’t get much more detail on this until we provide a strategic review. So I’d love to hear some high level thoughts about the tech and cybersecurity opportunities for yourself, but also telcos more generally in Europe.

It’s an area you’ve talked about, but it’s also one investors have been skeptical around the ability for telcos to create value in historically. So I guess the question is, when you talk about adjacent areas industrial rationale for your strategic review, what makes tech investments different now to in the past? And more specifically, what strengths do you think Telefonica brings to the table versus some of your telco peers? That would be the first question. And then the second question just on The U.

K. If I come back to the results we saw this morning with slightly weaker revenue than expected EBITDA still growing in absolute terms. Look in order to meet the guidance for revenue growth for the year, you’ll have to accelerate in the 2025. What will drive that acceleration in revenue growth on a guidance basis with VMO2? And perhaps in that context, you could give a bit of color around competition in the fixed line market as well, that would be great.

Thank you.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Okay. Thanks. So with regards to the first question, yes, markets have been skeptical and I would say with good reason. In the past with regards to what telecom operators can do in the tech and cybersecurity part of the world. I would say specifically in the product area, not so much in the integration area.

And what I do think or what we do think and what we’re analyzing are two large changes that have happened occurred in the last six twelve months. The first is the invigoured notion of strategic autonomy. Europe and the different nation states have stated we need technological strategic autonomy. And that in our mind means having cybersecurity technology in Europe, which does not exist. And the second are is the announced, I would qualify as huge defense investments.

And a lot of the announced huge defense investments will be in creating technology. Cybersecurity, of course, is a twin brother of cyber defense. So with regards to the first point, we expect conditions regarding the cybersecurity market to change driven by European political will. And if that happens, we would react accordingly. And the second, we expect large investments in the area of cyber defense, which we think those that operate in cybersecurity can capture.

What strengths do companies like Telefonica bring to the cybersecurity area? We have and other large telecom operators have a large, long and deep experience in integrating and managing cybersecurity products. So we are near the cybersecurity space. We are part of the cybersecurity space, but it is true we haven’t created cybersecurity products.

Emilio Rayo, Executive, Telefonica: Okay. And regarding the revenues in UK, during the conference call, we explained some factors that explained the evolution of the revenue. And I’m going to hand over to Lutz to give you more color about that.

Lutz, Executive, Telefonica: Thank you, Emilio. Good morning. Yes, so the fixed market in The U. K. Is impacted by OneTouch switch and also by high promotions from Ordnance and also some direct competitors.

So as a result of that, we have the second quarter in a row negative net adds. So that is correct. What we are doing is like we have a very sophisticated machine to manage prevention to manage retention in the right way. And now we turn this machine to prevention. And we have made good progress in the second half year.

Now to your question, how do we come to service revenue growth during the course of 2025? So obviously, have guided revenue excluding hardware and construction revenue, which has been flat in the first half year. Within that consumer has been growing. So consumer service revenue has been growing and B2B revenue has been shrinking a bit. We have a pretty encouraging funnel on the B2B side.

So we think we will get some bigger deals closed in second half of this year and therefore we stick to our guidance. Thank you.

Joshua Mills, Analyst, BNPP Exane: Thank you very much.

Conference Operator: Thank you. We will now take the next question from the line of Akhil Atani from JPMorgan. Please go ahead.

Akhil Atani, Analyst, JPMorgan: Hi, good morning. Thanks for taking the questions. I’ve got two please as well. The first is just on the strategic review that you’re running. And I guess I wanted to stand away from the industrial side where I appreciate it’s going be hard for you to comment specifically.

But I wanted to ask a more philosophical question around the balance sheet. There’s been a perennial debate in the market around leverage across the sector and whether that constrains the ability to invest freely or to take proactive measures on acquisitions to drive strategic growth. And I just wondered now you’re six months into the process of reviewing what you want to do. Can you just talk us through how you think about the balance sheet? And I guess the context being Telefonica is probably at the upper end of the peer group on leverage.

Do you think that is any sort of constraint? Do you think it is important to create more financial flexibility? Or conversely do you think given cash flow is improving it isn’t a relevant factor? So I’d love to understand that a little bit better. And then the second one is actually just in reference to a comment you made in the press on the industrial plan.

I guess I just wanted to understand how we should interpret it specifically. It was in Spanish, so maybe there’s a translation related issue here. But effectively what the article seemed to quote you as saying is that you’re looking to place a lot of bets to make sure that a few succeed. So I guess what I was really trying to understand is what is that in relation to? Were you talking about industrial journeys across different markets?

Is that specifically in relation to M and A? Can you maybe just clarify what you meant by wanting to take a multitude of bets to make sure a few of these deliver? Thanks a lot.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Sure, Akhil. And actually the philosophical questions are the ones I really enjoy. So regarding your first and philosophical questions, I break it down to two different points. The first one, we will not compromise our grade, our net debt grade. We have of course net financial debt, we have hybrids and we have other liabilities.

So we’re not going to move with regards to the ratios we have and we have promised we will keep. With regards to operations, of course, operations also include acquiring EBITDA. So any acquisition can include the acquisition of EBITDA. If the target one is acquiring has a larger leverage than our leverage, that is a leverage problem. If it has a lower leverage, that is not necessarily a leverage problem.

And it is our technical belief that if we have good targets, we can the market offers good options to finance those. With regards to your final sub question, the way we see it, our leverage and being on the upper end of the leverage is a constraint. It is relevant, but we don’t think it will be strategically limiting to us. We can find solutions for good operations. That is always under the initial constraint that we will always be investment grade.

So that would be my answer to your first question, Akhil. With the second one, the answer that you read that was originally in Spanish, it has to do with assuming more calculated risks. So at the end of the day, risks goes with return. And the reason we want to acquire a larger scale is because there are larger economies of scale. We think that is good for Europe.

And we think as part of the idea of please let us gain scale, let us consolidate the European market and then we will be able to invest in technology. And investments in technology have high risk. So I don’t I’m not discussing launching huge operations with high risk, because that is not the nature of what we do. But being having the balance sheet and the capability eventually of launching small operations that might have a higher risk profile and then detecting those that have or create traction and being able to double down. So what I was saying is risk goes with return and we need scale or we want larger scale to be able to take on more calculated risks.

Any high risk operation that we ever take would be of limited scope initially. If that works, we would scale up appropriately. So I was not referring to what we imagine like large or significant M and A operations. It had to do with technology or more limited operations.

Akhil Atani, Analyst, JPMorgan: That’s really clear. Thanks very

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: much. Thanks.

Conference Operator: Thank you. We will now take the next question from the line of Nick Rielle from Berenberg. Please go ahead.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Hi, there. Good morning. Could I ask two as well please? Just firstly on Germany. Is it possible for you to give us the underlying ARPU move of the remaining 17,600,000.0 contract subs on the Telefonica brand, please?

And then secondly, on Spain, you mentioned copper savings as you shut down the network and you’re first in Europe. Could you give us more details on what you’ve found so far in terms of savings? And maybe a few a bit of help on what future savings you might be able to take as you shut down copper? Thanks very much.

Emilio Rayo, Executive, Telefonica: Thank you, Nick. Regarding the Telefonica Deutschland question, I’m going to hand over to Marcus to give you more explanation about that.

Thorsten Nachman, Global Director of Investor Relations, Telefonica: Thank you. I think in the reported average postpaid ARPU, you clearly see the wholesale customers included. So with the phase out and the migration, that’s a technical effect. So the ARPU will finally grow to the ARPU by year end and then you will see next year the full owned postpaid ARPU with the reduction of the wholesale customers. It’s clearly we always said it’s significantly higher than the reported number that you see.

While we don’t have a segment reporting through the different customer types, we will clearly see a constant improvement. But what we can say is, we have a broadly stable ARPU with our own customers as reported and presented earlier. The small reduction is mainly driven by family cards and second SIM cards, but the overall ARPU trend in the O2 postpaid base and that’s clearly the major or the lion’s share in the €17,000,000 that you mentioned is broadly stable.

Emilio Rayo, Executive, Telefonica: Nick, regarding the copper question, just to remember that the Fonica is the European leader in copper switch off, having shut down the entire copper network. Today, we are a fiber company with only not even a single copper subscriber. We have consolidated structural efficiencies from copper switch off with a total benefit of more than one percentage point in 2024 EBITDA margin. These efficiencies are derived from lower energy consumption, lower technical failures, optimized cost in call centers, lower maintenance costs and a stable sizing enabled by technological upgrade. The end of the fiber rollout and copper switch off do not mean the end of the network transformation.

Telefonica has to continue dismantling copper facilities. In fact, we aim to reaching a run rate with an additional zero five point in margin when transformation is over that it will be around three more years.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Okay. Great. So sorry, in summary, it one percentage point margin improvement this year EBITDA minus CapEx and then 0.5% over the next three years? Is that your is that roughly what you’re guiding to with that No, copper

Emilio Rayo, Executive, Telefonica: no. It’s one more one percentage point in 2024 and in the next coming years after all the transformation that it will take three years, it will see an additional 0.5 in margin.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Okay. That’s clear. Thanks very much.

Conference Operator: Thank you. We will now take the next question from the line of David Wright from Bank of America. Please go ahead.

David Wright, Analyst, Bank of America: Hello, guys. Thank you for taking my question. I just noticed in the release on the Telefonica Deutschland section, talk about, and I quote, mounting consumer reluctance to spend. And I guess independently, we have seen perhaps with the Einstein profit warning recently, consumer desire to maybe raise usage. So how should we think about that?

Is the consumer looking to grow data but really doesn’t want to spend anymore? Are you finding major opposition? And do you think that is a barrier to wider price increases in the near term in Germany that some of your competitors are maybe considering? Thank you.

Emilio Rayo, Executive, Telefonica: Thank you very much for the question. I’m going to hand over to Markus to give you more explanation with more detail.

Thorsten Nachman, Global Director of Investor Relations, Telefonica: Thank you for your question, David. I think we see two fold. If you look at the prepaid and the postpaid segment, what we clearly have seen is that in the prepaid segment, we have been able to increase our promotions and tariffs by 10% with the launch of unlimited on demand in the last quarter. It was a very successful proposition. So we see the willingness to pay more for more data if the proposition is right.

Clearly, need to model smart models and also smart tariff plans that we saw, but especially the unlimited of demand that Telefonica introduced to the German market last year is clearly a way to monetize data by not giving the full unlimited. The full unlimited plans are currently sit at €60 Clearly, there are promotional activities on them. But every unlimited customer on our network grades is ARPU accretive. So whenever customers choose unlimited, we increase the average ARPU of the customer base. So clearly, there’s still demand for twenty, fifty and one hundred gigabyte tariff plans and that’s still the majority of the inflow that you have seen of the 180,000 postpaid net adds that we delivered in the last quarter.

So I think it’s a mix. There’s a higher willingness to pay for unlimited. I think that’s the first conclusion that we take. But we clearly we need to play it smart. And clearly we have different underlying economics if you play like an MVNO with unlimited of course.

So from that perspective, there’s value up and we are currently realizing that.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Okay. Thank you.

Conference Operator: Thank you. We will now take the next question from the line of James Ratzer from New Street Research. Please go ahead.

Akhil Atani, Analyst, JPMorgan: Yes. Good morning. Thank you for taking the questions. Have two please. So the first one goes back a little bit to what I think Josh was asking earlier on cybersecurity, but would just love to dig in a bit more on what your current investments are in areas around sovereign cloud and what’s included in your CapEx at the moment for kind of data spending or Gigafactory spending?

I mean, noticed with interest Deutsche Telekom recently signed a large deal with NVIDIA to expand some of their investments in Germany. And I’m really kind of wondering whether you take your current levels and see the need to increase the spending in that area in Spain. And then the second question was just love to get a process update on the Fibre Pass stake sale. Is that currently on pause at the moment as part of a strategic review like The U. K.

Netco sale? Or if not and that process is ongoing at the moment, could you give us an update on expected timing for that transaction to close? Thank you.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Yeah. So, I’ll have a first quick answer. And then we will and then I’ll pass through to Emilio. So with regards to the future regarding data centers or opportunities like that, that is part of course of the strategic review. You mentioned the NetCo, The U.

K. NetCo is not paused there and it’s not part of the strategic review that is a decision we made and announced and that has to do with our industrial strategy and industrial way of working. So Emilio?

Emilio Rayo, Executive, Telefonica: Yes. Regarding the fiber path, I would say that this process is ongoing and is not based in the strategic review. We have an agreement with Vodafone. And we are working on that in the same plan that we have before. Regarding the first question, talking about cybersecurity or cloud, we are not we don’t see the need to invest CapEx healthy in an important amount of tariff, because this kind of business are not considered is not so important to invest in CapEx.

Regarding geo factories, as I can I say at this moment that the euro plans are an initiative to invest in establishing up to five AI factories? There was a call for expression of interest. We have a response this expression of interest, because we are interested in hosting one gigafactory in Spain. But at this moment, it’s too early to give you more details because this is a process that will really start to be in our consideration during the last part of the year where the government or The UAE finally launched their process to with RFQ or FPP or whatever process they consider.

Thorsten Nachman, Global Director of Investor Relations, Telefonica: Operator, we have time for one last question please.

Conference Operator: You.

Emilio Rayo, Executive, Telefonica: Will

Conference Operator: take the next question from the line of Keval Kiroia from Deutsche Bank. Please go ahead.

Thorsten Nachman, Global Director of Investor Relations, Telefonica0: Thank you. I’ve got two questions please. So firstly, TET Deutschland had the 2025 outlook for broadly stable EBITDA, but understandably we’ve seen the EBITDA falling 4% in the first half. Is the business tracking in line with your expectations? And when do you think EBITDA in Germany will stabilize and then grow?

And then secondly, just a question on infrastructure. Telefonica has historically had different structures on infrastructure from fully owned JVs to having minorities. Do you feel it’s more important to fully own infrastructure than before? I noticed you bought out your JV partner in FEE Brazil. Thank you.

Emilio Rayo, Executive, Telefonica: Yes. Regarding the first question, I’m going to hand over to Marcos.

Thorsten Nachman, Global Director of Investor Relations, Telefonica: Thank you, Emilio. I think it’s first to note on the German EBITDA that the migration of the national roaming and MBO revenues is a two years journey. I think the combination of growth and efficiency measures started already bearing fruit in early twenty twenty four. So it supported last year’s EBITDA growth for Germany alone by 4.3% full year year over year. While one on one customer migration was suspended as we all know by last year by several issues on technical reasons on the partner side.

We faced in 2025 tough comps on EBITDA with the pre delivery already in 2024. Coming back to your question broadly stable is a range that goes from the minus to the positive. So it’s around a zero point. So overall, we feel comfortable what we have said in the past. And as said, it’s a two years journey and we deliver the efficiencies not on a linear basis as outlined.

So overall, we are on track with the accelerated growth and efficiency plan.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Regarding the second question, I would say our position is and will be as a result of the strategic review that we are an industrial operator and therefore core infrastructures of our business are better run near our business and in a simplified way, so that we can coordinate the different areas of our business including monitoring demand and making offers servicing that demand with infrastructures and of course with a convergent offer. I wouldn’t comment too much with regard to that is more or less than what we used to say. That is the way we operate and that is the way we see we operate in a more efficient way from a cost point of view and from an offering in services for our clients to keep ARPU high and churn low.

Thorsten Nachman, Global Director of Investor Relations, Telefonica0: That’s clear. Thank you.

Conference Operator: At this time, no further questions will be taken.

Marc Murtrar, Chairman and Chief Executive Officer, Telefonica: Okay. Well, thank you everybody. I’m sorry we didn’t I’m sorry for the answers we didn’t answer. And I think there was maybe one of you tried to re ask a question and by the time we realized we jumped on to the next question. So we’re happy to do that to answer that offline.

I hope this was a useful time of your hour and we’re looking forward to having a deeper conversation once the Board approves the new strategy and we make it public. Thanks very much. Have a good day.

Conference Operator: Telefonica’s January 2025 results conference call is over. You may now disconnect your line. Thank you.

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