Telefónica, S.A. (TEF) Earnings Call Transcript & Summary

Good afternoon, and welcome to Telefonica's 2025 Capital Markets Day. It's a pleasure to have you here with us today. Those of you joining us in person and those of you joining us online. On behalf of the entire management team, would like to thank you for taking the time today to engage with us. Today is an important opportunity for us to give you an overview of how we are positioning the company for growth and value creation. Over the next 1.5 hours, you will hear from our Chairman and CEO, Marc Murtra; our COO, Emilio Gayo; and our CF-CEO, Laura Abasolo. Marc will open the event by giving you an overview of our new strategic 2026 to 2030 plan and our long-term vision. Emilio will then give you the details how we're going to implement this plan. And Laura will give you an overview of our financials and our guidance. Mark will end the presentation with his closing remarks. We will then take your questions for around 1 hour, followed by a live lunch served outside of the auditorium. Before proceeding, let me mention that the financial information contained in this document has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is unaudited. This presentation, including the Q&A session, may contain forward-looking statements and information relating to the Telefónica Group. These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives and expectations regarding different matters. All forward-looking statements involve risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant information, please contact Telefónica's Investor Relations team in Madrid. As a reminder, today's event is being recorded. With that, thank you once again for joining us, and let's start the event by welcoming our Chairman and CEO, Marc Murtra.

Good morning. I am delighted to welcome you to Telefonica's Capital Markets Day. Today marks an important milestone in our collective journey, a moment to redefine our purpose and to present a clear path to shape the future of our company and the industry. At Telefonica, we have the capacity to take on any challenge that comes our way because we have extraordinary people and vast telecom knowledge. The crucial challenge we face is how and where to correctly prioritize our analysis and actions. We must choose what are the questions we want to answer. We don't want to just respond to what happens to us, no cheerleading or chin-stroking for us. We wish to lead with initiatives and choose our own destination. We thus have a clear present objective to deliver the best digital experience to our customers. This session aspires to explain what the path to achieve our objective is. To do this, we will share our strategic framework. We will explain the pillars of our new business plan, and we will show you our implementation road map. It is a plan that will strengthen Telefonica and will help, we think Europe in these complex times. You will see that we will make all the necessary decisions to achieve our goals. Our plan reflects a shared view and determination. Telefonica must play a leading role in Europe and Brazil. We hope our strategic plan becomes a light that is not easily dimmed. Before outlining the plan, I want to share with you my impressions of Telefonica. Telefonica is a wonderful company with great opportunities ahead. The company has very strong and hard-to-replicate assets and capabilities. The company also has specific areas of improvement. These can be addressed in a relatively short time. The Telefonica strategic plan will tackle these issues and capture many of the opportunities we have ahead. Telefonica is well set, fit and ready to start this important race. We have ahead of us. Many of you will be used to CEOs explaining what the strengths of the companies are, but I think you will find that we can all agree on what our main strengths are. We have 4 strong core markets with strong operations. We hold a leading position in 2 of those markets, Spain and Brazil. We are experts in network layouts and operations. In many places, we have a widely deployed infrastructure, for example, in Spain. We are pioneers in convergence strategy. We were the creators of the concept and its implementation at scale. Convergence improves engagement and customer value, reducing churn. Behind everything we do, we have our people. Telefónica has a wide senior team with exceptional professionalism, expertise and commitment. We have deep know-how in many vital areas. Decades of experience in different countries has given us knowledge in marketing plans, operations, networks, pricing, legal, M&A, customer service, finance and operations and M&A. We have a strong culture. Our people are proud of Telefónica, want Telefónica to lead the market and have a deep sense of belonging to the Telefónica. This drives commitment and high levels of professionalism. Many of you might wonder what our areas of improvement are. After a long cold hard look, I also have a clear idea of what is holding us back. I wanted to share with you my view. These are the areas of improvement that we have. We have had a divergence between our strategic vision and the business context. Our priorities have not always been aligned with the realities of Telefónica. In the past, Telefónica has had an aversion to make tough decisions. In my view, tough decisions are those necessary decisions that are hard to explain or will not be well received. We have a high organizational and operational complexity. Let us remember that complexity compounds and greatly affects costs and decision-making. Telefonica's financial flexibility is limited. This is well known. Our high leverage incentivize the short-term decisions, absorbs management bandwidth, does not allow us to take some acceptable risks and dispels serendipity. Slow speed executing. Execution must be faster. We have gained speed in the last months, for example, when exiting Espan, but we must execute faster. There has been excessive short-termism within the group. Too often, it has operated with a short-term priority, cash flow now worse results in the future. We must bear in mind the long term. We must drive with our full beams on. Finally, some costs, structural items like spectrum, leases and labor intrinsically grow at significantly faster levels than our communication revenues. If we don't change this structural asymmetry, our margins will inexorably decrease. With this understanding, I have asked the team to help me build a strategic plan that captures real market opportunities we have ahead of us, a plan that reduces complexity, improves financial flexibility, balances short-term and long-term decisions, creates measurable efficiencies and makes tough, but necessary decisions. Our strategic plan will focus on profitable growth to create shareholder value for all. It will ensure we offer the best digital experience to our customers, and it will lead us to become a European world-class telecom operator. With this ambition in mind, our plan has developed with depth. We have brought together 182 Telefónica professionals, 154 external experts in over 5,750 hours of working sessions, organized across 27 work streams running in parallel. The ExCom and myself have been fully involved in leading and developing the plan. You all know the importance of numbers and data, but also how powerful teams can be when working together. I have to say I will miss some of the groups, and I have told them so. Creating the plan has been an effort that has combined talent, multisectoral in-house know-how, external insights, strategic vision, prioritizing and actionable planning. The result is a plan built on evidence, data, knowledge and PQ. It is not a plan built on intention or generic top-down objectives. We have all had our notebooks open, pens and capped, eyebrows cocked and elbows decidedly out. The process started bottom up, all proposals and LFM have been simplified, pruned to the essence, prioritized and then analyzed with regards to the strategic and financial value accretion. We have then ensured homogeneous analysis, strategic coherence and a structure that can be effectively implemented. All final decisions have been. This is not the first time I lead the creation and implementation of a transformational strategic plan. You can all see that I did it with some success at [ Indra. ] Let me share with you a short video that takes you behind the scenes of how we built our plan Telefónica. [Presentation]

Our strategic plan embraces the challenges of a world in transformation. Everyone here is aware of how geopolitical plization has abruptly changed alliances and placed strategic autonomy at the center of Europe's agenda. There is today a will to strengthen Europe's autonomy. We all know how tech disruption is accelerating. Some changes happen so quickly that we do not have time to be astonished. We are all experiencing it in our lives. We need only to look at our markets or customers of 20, 10 and 5 years ago. Change will not stop. I still remember my first e-mail, my friend, Pedraesta sent it to me. I remember the advent of smartphones and my first doubling with AI. Artificial intelligence is, of course, redefining processes and networks and new products create new value pools. Tariffs and currency volatility pose a challenging to certainty and planning. The macro context will shape the telco and tech industry, in which Telefonica operates. When looking at the telecom market growth forecast, we can state that European communication market is stagnating with expected annual growth of 1.5%, which is equal or below inflation. In the telco industry, the European market is an anomaly. Europe remains fragmented, while the U.S. and China are consolidated around 3 scale players. Amid these dynamics, telco customers have become more sophisticated with 60% of them prioritizing experience over price. Hyperpersonalization and digital customer relationships are necessary to achieve customer excellence. I am sure we can all empathize with our customers. Our infrastructure -- on infrastructure, we can see that the asset carve-out cycle has slowed down with 52% drop in the number of tower deals and fiber deals in the last 2 years. Telcos are well positioned to play a role in cyber defense in Europe with an estimated opportunity between EUR 10 billion and EUR 2 billion in Europe by 2035. We are all in -- we are in an era where Titanic tech companies have sharply driven digital change, products and services and will continue to do so. These giants operate as dominant players in near monopoly markets and have deep knowledge and are more capable than they were 20 years ago. All these companies are based in the U.S. and China, and there is no technology titans in Europe today. We depend on players from other geographies for critical technologies. Europe will require more than EUR 750 billion in tech investment by 2030 to close the gap according to the Drag report. Digital services will continue to grow nicely with over 10% annual growth expected through 2030. In parallel, rising attacks on infrastructure are growing concerns over the criticality of cyber warfare and the need to have European technology. We have all read articles about cyber attacks in London, Brussels, Berlin and Dublin airports during 2025. We can all imagine what cyber fragility implies. Let me highlight for all of us what the implications for Telefónica are. European consolidation is likely to happen. Timing is uncertain. There is a European need to regain technological sovereignty that will result in European investment in tech. Customer experience is a key driver for differentiation and is, therefore, a priority. Competitive telcos will maintain end-to-end industrial control over core infrastructure. Artificial intelligence will transform processes and networks. With this context in mind, our mission is clear: deliver the best digital experience to our customers. I myself as a customer, have dealt with large companies that look after the customers and companies that do know and know how to tell the difference. At Telefónica, we want to provide the best connectivity, technology and digital services for our customers, people, enterprises and administration. Today and in the decades ahead, this, as you all know, is something we have been doing for over a century. The mission sets the current work for the group. Let me now share with you our vision, become a world-class European telco with profitable scale. This is where we want to go. World-class sets our performance and eventually scales objectives on par with global peers. European telco states our origin and duty. We have a clear commitment to Europe's competitiveness and strategic autonomy and to our core markets. All this whilst maintaining our commitment and love to Brazil. Profitable scales means anything we do will be to deliver value to shareholders. If it does not do this, we will not do it. To achieve our ambition, our plan has been defined around initiatives required to become best-in-class. It is built on customer centricity, technological capabilities, operating model and talent. Up and above this, but not as part of the plan as a potential addition is in-market consolidation. By executing it effectively when the opportunity arises, we can unlock the scale needed to profitably elevate Telefónica. If anybody asks me, is consolidation part of the plan, I will answer that it is an upside to our strategic plan and that the financials that we are sharing with you today will not and do not include any consolidation. Regarding a potential consolidation, I believe we do not face a dancing in the rain scenario, we -- but neither do we face a McBest scenario. To bring this vision to life, we have designed a strategic plan called Transform and Growth strategy plan, a plan that will make the necessary decisions to make it happen. Transformation and growth are interwoven. We transform to improve our services and costs. We grow because we want to make more money for our shareholders and add more value to Europe and Brazil. Let me elaborate on our plan to become a best-in-class European telco. You will have all seen multiple business plans and are used to analyzing them. Transform and Grow is built around 6 strategic pillars. Three will strengthen our relationship with customers, whilst the other 3 are enablers. Deliver a best-in-class customer experience. Customer experience is a powerful competitive advantage, one that is difficult to replicate and central to value creation. Delivering excellence means improving every process that touches or eventually affects the customer from network quality to interactions across physical and digital channels, from service provisioning to problem resolution. We will automate processes, use AI, develop hyper-personalization capabilities and invest in both network infrastructure and customer equipment to deliver better customer experience. Expand the B2B offering. Telefónica was a pioneer in driving convergence at scale, a strategy that has proven to be effective in reducing churn and creating long-term value. We will continue to evolve our convergent markets where it is already established. We will accelerate adoption in those where it is not yet the primary household offering. In addition, we will increase the scope of offering to our customers. Scale B2B. We will modernize and enhance our communication services and expand our digital offering where we will double down on cybersecurity services. Evolve technological capabilities. Internally, we will continue to develop and deliver network assets while modernizing our systems and processes. Externally, we will strengthen our product innovation capabilities to better serve our customers and their evolving needs. Simplify Telefonica's operating model. We will speedily simplify our operating model to increase efficiency, sharpen focus and enhance accountability. We have redesigned our model to accelerate decision-making and execution. And we have revisited our corporate center and global business units to better serve and fit the group's new reality of 4 core markets with large operations. Develop talent. To execute our plan, we must promote talent, build the right capabilities and improve decision-making and execution. Each of our 6 strategic pillars is actionable and will bring positive change. Let me elaborate. Customer experience. By improving our processes, systems, offering and hardware, we will increase our Net Promoter Scores, NPS, by 6 points by 2028 on average. Spain stands out in this area where we have an NPS, where we target an NPS of 61, comparable to leading tech companies. B2C expansion. Accelerating convergence will raise convergence over fixed broadband base to 74% by 2028. We also expect to grow the ecosystem revenues by 3.4 KGR from 2025 to 2028. Scale B2B, modernizing our communications portfolio and expanding digital services will elevate B2B revenues to 26% of group revenues by 2028. These KPIs measure the speed of our transformation and growth. The 3 transversal pillars of our plan are designed to enable growth and transformation. Each has projects underlined by KPIs and actions. Evolve technological capabilities. We will invest EUR 32 billion in totex, including CapEx and OpEx to improve our networks in the period 2026 to 2028 and reach a network optimization level of 3.75 by 2028. Simplify Telefonica's operating model. We have reviewed our operating model, and we will resize the corporate center and our business units to align them with the new reality of our group and the revisit roles, reducing OpEx from these areas by 25% by 2027. In parallel, we are launching efficiency plans to address the inflationary pressure of our industry with gross OpEx reduction per annum at constant FX of EUR 1.51 billion by 2028 and EUR 2.0 billion per year by 2030. This is gross, not net. Develop talent, building capabilities through reskilling and acquiring new talent is necessary. We will have more than 91% of critical roles covered yearly. In addition, we are evolving our cultural to one of more impact-driven mindset. We are fully aware that the implementation of our plan is what will determine our success. Diamonds must be unearthed and brought into the sunlight if they are to shine. We now turn to the potential upside of our strategic plan, consolidation. I want to be clear, this is an upside to our plan. It is not part of our organic plan. In-market consolidation leads to a more efficient investment in Europe to help close the technological gap with the U.S. and China and strengthens Europe's strategic autonomy. The European telco market remains fragmented, unlike the U.S. and China where 3 scaled players operate. Scale enables greater investment capacity. In Europe, overregulation and fragmentation have led to subscale operators and inefficient networks, slowing technological progress. CapEx budgets of U.S. and Chinese operators are 9 to 15x larger than those of their European counterparts. U.S. companies invest EUR 11.3 billion per year on average. Chinese companies invest EUR 6.7 billion per annum, and that is in nominal euros, whilst European companies invest EUR 700 million per year on average. The result is faster technological development and deployment in the U.S. and China than in Europe. For example, stand-alone availability, 5G availability is 77% in China, 24% in the U.S. and only 2% in Europe. Europe faces huge gaping holes across the technological stack and is aware that cats do not negotiate with mice. In contrast, similar maps for the U.S. and China show that most stacks are well developed over there. Given our capabilities, telcos are well positioned to help close some of these gaps. For example, those in cybersecurity or sovereign cloud. In this context, there have been important changes that directly affect Europe's regulatory framework. The distance between the U.S. and Europe, the North Atlantic is larger than it has ever been since the World War II. And there is a very broad acceptance of the draggy and letter reports in Europe. I think we can all agree that having a broad consensus in Europe is unprecedented in my lifetime. This potentially could lead to a new European regulatory framework. This new framework could support in-market consolidation with appropriate regulatory terms to generate profitable scale and synergies for telcos in efficient markets with value-accretive investments in telco core competencies and adjacent digital products as remedies. I have relevant ample, and I would argue successful experience dealing with authorities, brokering large complex deals and bringing about profitable change that supports European and member states objectives. If we believe broker research and industry experts, unlocking consolidation in our core markets would generate EUR 18 billion to EUR 22 billion in synergies from selected Telefonnica-led potential transactions. These synergies would benefit buyers, sellers, customers, investment and innovation. Also, I can confirm that we will complete our exit from [ Iispan. ] Please note that Telefonica will always follow a pragmatic approach towards portfolio rotation. Transform & Grow is a 5-year organic plan focused on growth and building a best-in-class telco. It is a plan that will carry Telefonica far. As discussed, it is structured around 6 strategic pillars that will strengthen customer relationship and push cross-functional enablers. Each pillar includes specific actions that have been planned professionally. We have also studied and planned further ahead in all areas in 20 -- up to 2035. We wanted to understand what we think the future technology evolution will mean for our industry and to ensure long-term strategic coherence for our plan and decisions. Now our CEO, Emilio Gayo, will go into the specifics of how we will implement the plans. Thank you.

Good morning, everybody. Thank you, Mark. It's really a pleasure to be with you all today and to be part in this chapter in the history of Telefonica. Our Transform and Grow plan will impact every unit across the group, operating businesses, global units and corporate center. During the next 15 minutes, I'm going to speak about the following: the importance and opportunities in our core markets, the key principles of our approach to these markets. And finally, the change to our operating model adjusted to Telefonica's new footprint. Our market represents a significant opportunity. They have a total population of more than 400 million people. All 4 of them are among the 12 largest economies in the world. 3 of them are among the top 5 largest communication and digital services markets in Europe and Brazil is the largest market in Latin America. Combined, they give us access to a telco market worth over close to EUR 270 billion. Each of them has its own unique characteristics and opportunities. Spain is one of the most competitive and fragmented markets with fully deployed fiber infrastructure. However, there are great opportunities in the B2C ecosystem and B2B digital services. Brazil alone is of continental scale with a mobile market consolidated with 3 national players. Even so in fixed broadband, it's still fragmented and in development stage. Importantly, it has growth ahead in communication services across all segments. While Brazil is the largest telco market in Latin America, Germany is the largest in Europe, especially in B2B. However, has seen a limited development in fiber deployment and in the fixed broadband market, impacted by current regulatory framework. Last but not least, the U.K., the second biggest telco market in Europe and the largest in digital services for enterprises. Despite having competition, it's a market that presents opportunity in both fiber and convergence. As Marc mentioned before, we believe that the path to becoming a world-class telco starts by being best-in-class in each market. To achieve this, there are 5 principles to apply to all markets. First, excellent in customer service is and will be a key differentiating factor for a competitive advantage. It creates sustainable differentiation and is probably the most difficult element to replicate. For us, this means superior network quality, optimized processes, leaner operation and leveraging AI and digital in customer interactions. Telecommunication is a business based on infrastructure. We know the importance of investing in the network with maximum efficiency. So our second principle will be to continue pursuing this approach even in the countries where we don't own the infrastructure. We are committed to ensure commercial access solution in both fixed and mobile in all markets. Third principle, our strong belief in the value and importance of convergence. This means delivering fixed, mobile and content services to households. We have proven the growth benefits of offering both B2C ecosystem and B2B digital services. So our fourth principle is twofold. We will continue expanding the ecosystem to increase engagement with our customer. And in parallel, we will further our commitment to delivering best-in-class digital services to become the preferred partner in B2B. Additionally, we will capture the business opportunities in wholesale when it generates value. Our fifth principle is one that I, as Chief Operating Officer, firmly believe in, more efficient and leaner operations. But all of this means nothing without the right people. To make sure that we meet these 5 principles, we will invest in reskilling our people and hiring top talent when needed. Let's talk now in more detail about the plans for each of our operating business units. In Spain, we are the market leader in all segments. This past year, we have achieved a differential positioning in service quality to sustain our leadership in the market. As part of the Transform & Grow plan, Telefonica Spain will carry out significant investment and initiatives to hold on to this position. We will double down our focus on service quality and customer experience as a long-term differentiating factor. I'd like to highlight the following initiatives. We will fully deploy 5G stand-alone and upgrade the fiber network. We will reach hyperpersonalization in customer service. And finally, we will refine our commercial policies, resulting in a stronger and more transparent customer promises. Now on to B2C. We will expand the existing ecosystem of services, which includes video content, devices, alarm, solar power, advertising and financial services, among others. We will enrich the ecosystem with new services such as traveling and device. And we will remain committed to differential pay TV content, investing in sports, fiction and innofiction, all with the aim to reaching 45% on Spain's total B2C revenue by 2028. Also, we will strengthen B2B digital services by developing new capabilities with a special focus on cybersecurity, defense and growth. We will do this while keeping our focus on efficiency in OpEx and CapEx, proving our ability once again to be an industry benchmark. Telefonica Spain will continue delivering sustainable growth with a positive evolution in all key metrics. Now let's talk about Brazil, a high-growth market with a lot of potential. Our priority is to continue growing by leveraging Vivo's premium position and brand recognition and by taking advantage to our unique infrastructure assets. To do so, we will continue to focus on being a leader in network quality. We will expand our network nationwide in both mobile 5G and fiber. This will enforce our convergence strategy. In parallel, the development of the B2C ecosystem is a priority. We will continue increasing and expanding the ecosystem with services such as content distribution, devices, financial health and education, among others. Over 1 million customers benefiting from our financial services and the 0.5 million subscribers in our health services are proof of our expertise. In B2B, we expect to grow to be boosted by the additional capabilities of digital services. In the case of Brazil, this will be mainly in cybersecurity, cloud, IoT and Industry 4.0. On top of the revenue growth, we will also unlock efficiencies. Here, we can highlight the commissioning of the copper network, which should be completed by 2028. In Brazil, we expect to grow above inflation in key financial metrics. Now let's talk about Germany. O2 is an established mobile challenger in the market. We have a profitable mobile business, and we want to strengthen our position. We will leverage this mobile recognition to accelerate penetration for our convergence and family bundles. In parallel, consider our leadership in B2B, we will continue broadening the road map of services to stabilize and revamp the business. Additionally, we have an opportunity to leverage the relatively low development of the fiber market. This will improve our position both in fixed and in B2B, where our presence is still limited. To capture this growth, our strategic imperative is to secure competitive access to fixed infrastructure. Leveraging this access with O2, we want to drive convergence in 2028 to around 70%. Regarding the potential of B2B, we will reinforce and solidify the offering and go-to-market. We have serious ambition to become a relevant player in this segment. Germany will execute its growth plan, including simplification and more structural efficiencies to return to growth in all metrics in 2027. And finally, the U.K. We can proudly say that our joint venture, BN O2 is among the largest challengers in Europe with a unique market position when combining content, mobile and fixed broadband. We will build on that unique position to promote premium convergence. will boost the B2B business, both in traditional communication and in digital services. We will also continue to expand our fiber offer. Additionally, we will continue exploring new wholesale opportunities, both in fixed and mobile. Finally, in common with our approach to each of the 4 markets, simplification and efficiency are deeply embedded in the plan for the U.K., leveraging AI to optimize both OpEx and CapEx. In U.K., we aim to sustain and reinforce our second position in the market. Moving to our global business units. They are our engine for developing and sharing capabilities. Let me dedicate some time today to Telefonica Tech, our engine for B2B digital services. We are evolving it into a full digital services provider, expanding the portfolio with focus on sovereign cloud, IoT, Industry 4.0 and cyber services. In fact, cyber stand out as a priority in all markets where we aim to replicate the success of Spain, which has achieved close to 20% of market share. Telefonica Tech as a product and service factory will increase efficiency through technology and operational excellence. Now let's talk about the group operating model. The group's new footprint with less operating businesses, but now all of them of large scale along with our determination to accelerate execution calls for a simplified operating model. Hence, our operating businesses will continue to focus on market growth, developing service excellence and ensuring efficiency in the operation. Global units will serve operating businesses, leveraging scale, growth opportunity and standardization. The corporate center will focus on providing strategic guidance, deciding capital allocation, maintaining a strict control and supporting the group in areas such as people, legal, finance and M&A, among others. This new operating model means that we are going to simplify our organization, the way we operate and the project we invest in, ensuring that we focus on what is the key for the group. For example, our innovation will have less projects and greater financial discipline. We will continue to evaluate emerging technology by concentrating efforts on the strongest opportunities. This simplification will deliver close to a 25% reduction in the OpEx related to operating model. As Marc mentioned before, these are difficult decisions to make, but they have to be addressed, and we are committed to doing so. So far, I have mentioned several times, efficiency and simplification. Efficiency initiatives are at the core of our plan. They will help us fund the journey to faster growth and operate more dynamically and effectively in the markets. Most of the initiatives are recurring and will be implemented across the group. They will provide a gross run rate reduction in our totex base of EUR 2.3 billion by 2028 to offset part of the growth expected. EUR 1.5 billion of those efficiencies are in recurring OpEx and sales. To highlight, we will launch a structural program across the group. We will enhance automation of the network. We will transform the supply chain end-to-end. We will redesign group processes by leveraging advances in technology. We will simplify operation, and we will complete copper network decommissioning. This is not a closed list. We will continue to identify additional opportunities to deliver value on top of what is already included in the plan. Growth is the major driver of the plan, especially in B2C and in B2B with moderate decline in from wholesale and others. In B2C, both communication and ecosystem revenues are showing strong growth. Looking at B2B, on top of the higher comms revenues, our effort in digital services is paying off. Above all, service excellence will be key for our growth ambitions. In summary, this plan will help us to become a best-in-class European telco and maximize growth opportunities. Simplification is at the core, will be obsessed with finding and capturing efficiencies. And finally, strict and fast execution is a must for all of us. Now let me hand over to Laura. Thank you very much.

Thank you, Emilio, and good afternoon, everyone. I will now take you through the financial and our capital allocation framework as well as the targets that underpin this plan. We have broken down our targets in 2 periods following the balance between short and long-term undertaking in our review. Our guidance is at constant FX at constant perimeter, which is our core operations and remaining business in Hispan. During the first 3 years, '25 to '28, we will deliver solid growth across our economic KPIs. We expect revenue to grow at a compounded annual rate of 1.5% to 2.5%. EBITDA will also grow at 1.4 -- sorry, at 1.5% to 2.5% those margins pretty stable. CapEx over revenue will decrease from 12.5% in '25 to 12% in the first 3 years of the plan, and the decline starts from the beginning of this plan. And as a result, operating cash flow after leases will grow at a compounded annual rate of 1.5% to 2.5%. And from '28 to '30, we expect to accelerate the pace, targeting an additional point of growth so that revenue, EBITDA and operating cash flow after leases will grow at a compounded annual rate of 2.5% to 3.5%. As transformation programs mature and efficiency gains materialize, CapEx over revenue will further decline to 11% in 2030. This guidance is supported by the operational levers shared earlier today. Revenue growth, as explained by Marc and Emilio, will come from B2C and B2B with richer convergence and digital ecosystems in B2C and B2B demand for digital services continuing to scale. This growth will be partly offset by a decline in wholesale revenue, mainly driven by the expansion of key contracts in Spain and the loss of the contract 1&1 in Germany. Moving to EBITDA. Efficiency programs are fully embedded, allowing us to protect profitability even as the business mix shifts towards digital and despite inflationary trends. Finally, appropriate CapEx execution remains key while ensuring ability to capture growth opportunities and securing network quality. Overall, this translates into sustained operational momentum, underpinning the path to a stronger cash generation. Having detailed how we deliver operating targets, let's now focus on our capital allocation framework. Our approach builds on 2 key pillars: A derisk more predictable free cash flow profile and disciplined capital allocation. We are operating with a less volatile perimeter with improved currency mix, supported by healthier core operations and underpinned by gross efficiencies and appropriate CapEx for growing. About the perimeter. We have streamlined our footprint, exiting 5 geographies. This reduces macro volatility and improves our currency mix. Free cash flow is anchored on a group-wide efficiency program. And importantly, this is not tactical cost cutting. This is a structural transformation on how we operate. And finally, we are investing with a disciplined CapEx allocation. And important as well, this does not rely on consolidation or M&A upside. Any such opportunities could be incremental. Free cash flow is the base and will include the investment we need for growth. What do we do next? We protect our rating. We will anchor our investment-grade rating with a more flexible and appropriate balance sheet. And then we will propose the dividend aligned with free cash flow generation growth. And finally, we'll pursue value-accretive M&A selectively, only in core markets and core businesses where synergies are clear and returns meet our financial discipline. Let's look now on how we are defining the free cash flow we are going to use to guide you. Our objective is to provide the most recurring free cash flow base. Free cash flow base is on continued operations. We continue including hybrids like any other financial payments. We continue excluding spectrum. It's not possible to guide on it. Amounts, payment terms and timing are unknown. And we are excluding 2 elements: U.K. dividends, which we cannot guide about as they are decided on an annual basis based on the local business own free cash flow and its leverage. Employee commitments, which have been frequent in the past, and we have indeed factored new efficiencies in these projections are being excluded. We believe excluding them provides a clearer view of our recurring operational cash flow and long-term free cash flow trajectory. These commitments after the expected increase in 2026, they start decreasing in '27 with a material decline from 2030 and fading away from 2035. On this new basis, we expect free cash flow base for guidance to grow in the range of 2.5% to -- sorry, to 3% to 5% in '25 to '28. And we are also committing to an absolute amount of EUR 2.9 billion to EUR 3 billion in '26. Free cash flow is our focus. In the bridge from operating cash flow after leases to free cash flow guidance, we will work on every single item. You can expect some increase in financial and tax payments, and we do not project a significant working capital impact along the plan. We will, of course, continue giving actuals on both U.K. and commitments as free cash flow, including both will be the base we use to propose our dividend. This provides you, we believe, with all the pieces to understand our cash generation potential. Moving to our next use of capital. This plan will improve our financial flexibility. Removing our debt constraint will make us stronger. We are firmly committed to maintain an investment-grade rating. And furthermore, we plan to reduce net debt to EBITDA to 2.5x in 2028. This leverage reduction is driven by growing operating cash flow after leases and excess free cash flow, which will be partially offset by items such as spectrum payments, contributions to our infra vehicles and then our dividend. Net debt amounts and ratios cannot be seen in isolation. They have to be evaluated together with how we manage our balance sheet and our financial resources. Our debt maturity profile remains smooth with an average debt life of 10.5 years and average gross maturity of EUR 3 billion per year, which enable us to manage refinancing at. We hold a comfortable and ample liquidity position, above EUR 16 billion, which is made of cash, current financial assets and undrawn credit lines and long-term committed credit facilities. And finally, we enjoy deep access markets to source our financing, so we can decide when to access the market, reducing volatility from FX and interest rates. The next use of capital is our dividend. We propose a dividend that is a result of a disciplined capital allocation among investment for growth, leverage and shareholder remuneration. Today, we reiterate the EUR 0.30 dividend per share for 2025, EUR 0.15 to be paid in December '25 and EUR 0.15 in June '26. And we expect to distribute EUR 0.15 as dividend in '26 and in one tranche in June '27. On the midterm, in years '27 and '28, our target is to pay out a percentage of our free cash flow base for dividend that will be in the 40% to 60% range. Dividend is a result and will be aligned with our growing free cash flow profile. Our last building block is M&A framework. We are clear on our priorities to maximize value for our shareholders. First, we will only execute accretive transactions in our core markets and core business areas, targeting deals that enable us to achieve meaningful cost and network synergies and ensuring favorable terms and conditions. We continue working on completing our exit from HispAm. Second, we exercise this without putting an investment grade at risk. That remains an action for us. And third, we have ample strategic flexibility. Since our financial plan is entirely organic, any potential transaction could be an upside. And therefore, we can engage in different ways of consolidation, for example, analyzing both traditional M&A deals, but also infrastructure sharing vehicles. And we will take a pragmatic approach towards portfolio rotation if there are value crystallization opportunities. We will not chase scale at any price. We will invest only where we have a clear visibility of value creation. This slide summarizes our full guidance. It's a comprehensive set of KPIs, both economic and financial. It gives you a mid- and long-term view, but also visibility with free cash flow and dividend commitments for 2026. And it reflects how we will allocate capital and is fully aligned with our Transform and Grow plan. Let me end by remarking on the key points of our financial plan. This financial plan is anchored on the robust operating strategy explained by Marc and Emilio and will improve our financial flexibility. Free cash flow is our focus. We will only execute value-accretive M&A, which will be an upside to this plan. We will improve financial flexibility, and we are committing to a sustainable dividend policy aligned to free cash flow generation. I will now hand over to Marc for the closing remarks. Thank you.

Thank you, Laura. The plan we have before us is exciting, ambitious and demanding. We are well set, fit and ready to start the important race we have ahead of us. With very strong and hard-to-replicate assets and capabilities, supported by a wide senior team with exceptional professionalism, expertise and commitment. The plan addresses tough issues, makes necessary decisions and sets a clear capital allocation strategy that ensures the investment needed to transform and grow the company, the appropriate leverage level to allow us the needed flexibility and defines our dividend policy as an outcome of our free cash flow after investment and financial flexibility. The strategic plan embodies the joint vision of the management team and the Board and has been unanimously approved with the backing of our strategic shareholders. Transform and Grow is the plan Telefonica needs to capture the opportunities ahead, improve our financial flexibility and generate sustainable value for all shareholders. I am here to lead Telefonica on this fabulous journey, transform and grow the group and make any necessary tough decisions to execute this plan. The plan has my full and undivided commitment. As an additional upside to the plan, we will pursue in-market telco consolidation to unlock profitable scale and enable value-accretive investments. This plan defines our direction and our future to make our mission a reality. deliver the best digital experience to our customers. Well, we have spot dirt, wiped the sweat from our eyes, wiped our arms and are now going for it. Now this is the time for implementation. We all have our marching orders, and we all know what to do. This is not the first time I do this, and I am looking forward to doing it. Thank you all for being here today, and thank you for your time. And thank you to everyone across Telefonica who is making this plan reality. Thank you.

Thank you very much, Marc, Emilia and Laura for this insightful presentation. Today's event reflects Telefonica's commitment to transparency, accountability and an open dialogue with all stakeholders. With the conclusion of the formal remarks, we now progress to the Q&A session. The purpose of this section is to give you an opportunity to have a deeper look at any of the topics discussed and address any open questions you might have. To ensure an efficient Q&A session, we kindly ask all virtual attendees to submit their questions to our inboxcmdquestins@telefonica.ona hand the microphone when it's your turn to state your name and your limit. [Operator Instructions] For the Q&A session, we are joined by our previous presenters, Marc, Emilio and Laura as well as Bohachoa, CEO of Telefonica Spain; [ Christian Gabara, ] CEO of Telefonica Brazil; [ Lutzruler, ] CEO of Virgin Media O2; and Markus Roller, CFO of Telefonica Deutschland. Please welcome them on to the stage with me. Thank you once again for your attention and your continued interest in Telefonica. I will start with the in-person attendees with a question, and I can see -- I think this time the first one was Emmet on the back on the right-hand side here. And please, if you take the microphone. Thank you and state your name and institution.

This is Emmet Kelly from Morgan Stanley here in the middle. I've got 2 questions, please. The first question is on the outlook for consolidation, specifically for Telefonica. So the consolidation point is made first on your main implications slide, so it's clearly front and center of your strategy. I guess the consensus view is that you are present in 2 markets that already have consolidated that have shrunk down to 3 players. So that is the U.K. market and also Brazil, but you're still in markets that have had consolidation, but still have 4 players specifically Germany and Spain. Could I maybe just drill into Spain, please? If you could maybe talk about what consolidation opportunities you might see in Spain. Clearly, we've already had the merger of Ma and Orange last year, which leaves Vodafone and Digi as your 2 big competitors. Can you talk about how you view both of those potential targets and how things might play out there from an antitrust perspective? And any thoughts you might have there, please? And then my second question is really for Marc on the Venn diagram, the crossover between telecoms and technology. So obviously, you have a background in technology. You've talked a lot today about data sovereignty and cloud. Can you talk about how you look at this market from perhaps a data center perspective? If I look at the European market, it's clearly controlled by the hyperscalers and private equity. There's a lack of European -- pure European cloud providers and data center operators. Is this an area you'd like to move into? Obviously, rolling out data centers is extremely expensive, but could you look at potential partnerships, for example, with the likes of STC or other partners?

Thank you, Emmet. I'll answer both questions. We, of course, don't discuss specifics, but you were saying that some people or many people argue that Brazil and the U.K. has gone down to 3. I would say we're down to 3.5 or we could argue potato if it's 3.7 or 3.4%. So we do think there's still a long way and a lot of value to be added in consolidation in Brazil and in the U.K. And with regards to Spain and Brazil -- sorry, to Spain specifically, we won't comment any. But you do know that we don't comment any particular operation until it's done and close. But I think it would be correct for investors to assume that we're having -- we're always having ongoing conversations in each one of our core markets. I don't want to become a bore, but any operation we do will have -- go through 3 conditions, which Laura mentioned, cost and network synergies, appropriate terms and price with a potential seller and appropriate terms and remedies with regulators. If these -- we can't properly tick these 3 boxes, we won't do it. We do see large -- huge potential upside there, but there is, of course, uncertainty and it's not done until it is done. Then with regards to our telecom and technology opportunities. So -- to ensure that there is no misunderstanding, and I do think I have been clear, our plan is an organic plan. And we've only included organic operations and changes in the numbers and in the plan. We do see a potential upside that has to do with M&A. So with regards to the potential of the organic plan, we have included some data center and some potential work there. But it is -- it does require huge investments and the returns are quite specific and stable and aren't huge, which is appropriate to infrastructure investments. What we do see is that there could be a potential transformation in the next cycle in Europe. We do see that European authorities are not comfortable with having all data centers in the hand of 3 U.S. hyperscalers. And what we say is telecom operators could help there, but only as part of a consolidation and only as part of potential remedies, Emmet.

Let's maybe go down from Emmet and then go through the room. I can see -- I think David is, I think, the next, and then we take Akhil and then Karl and then probably switch over.

It's David Wright from Bank of America. Nice to see you all again. A couple of questions. The dividend cut, obviously aligned with the new free cash flow profile, but the cut to just 50% of payout. Is that essentially preempting the balance sheet for M&A? You've made the dividend cut. You could now issue equity in quite significant volume without cutting dividend again. Is that kind of what we've done here? We've preempted the ability to absorb M&A into the balance sheet? And then just on to the U.K., might be one for you, Luke. So we know that there has been this sort of frozen debate in the U.K. around the NetCo and the possible spin-off of infrastructure. Could you give us any indication of whether that's now back on the table as a potential consolidation vehicle? And a question that's related to that, this is 2.5 Torsten, don't worry, is Laura, you were given that real gift, I think, from S&P last year when they took the U.K. consolidation away from the group. Have you had a -- I think their assumption at the time was that it would never come back, and maybe that's now a little bit more in debate. Have you had an assurance that they're not going to bring that back into the S&P adjusted multiple?

So thanks for those 2.5 questions, David. I'll ask Laura to answer the first one and the last 0.5 and Lutz to answer the second.

Thank you, David, for your 2.5 questions. Regarding the dividend, the dividend is aligned to the plan we are presenting today, which is a plan without M&A with value in itself where M&A is an upside. So dividend now is not related to whatever M&A may happen. It reflects our capital allocation in which we have 3 priorities, very clear and in a very clear order as well. First, invest for growth; second, delever and protect our rating and then have dividend as a percentage of the free cash flow we generate every year. And that's how it comes the proposal and not related to M&A as M&A is an upside to this entire plan.

On the S&P one, maybe you want to.

I think you should ask S&P, but we have very frequent conversations with the credit rating agencies. They excluded the proportional consolidation for the U.K. that we are -- we think is the right thing to do, and we expect that continue to be the case. But obviously, we -- I think our -- the ratios is part of the rating. S&P take many other things under consideration. And this perimeter being less volatile with less macro and FX risk and being very resilient in our core markets are 2 elements that are part of the ratio beyond the specific numbers.

Yes. Thank you for the question, David. You're right, right? We have stopped the approach to carve out the NetCo out of Virgin Media O2. However, I perceive both of my shareholders being committed to consolidation and you can do this in different ways, right? You don't necessarily need to carve out a network operation, which is very complex. and not always successful. We have also our next Fiber sister company. So there are possibilities. And I think assume that we are committed to the consolidation in the fiber market in U.K. and both shareholders are supporting BMO 2 here.

Just to add that we don't disclose the plan of U.K., but we want to say that the plan that we have is fully funded without any kind of NetCo with any operation will be in any case a vehicle that we can use depending on the ourudject in terms of deployment and connection.

It;s Keil from JP Morgan. Marc, maybe I could address 2 of the philosophical points you made at the beginning of your presentation around strategy and what you're trying to achieve. The first question is you mentioned the need to take tougher decisions and be bolder. Just to maybe challenge that and understand exactly how we should think about it. When we look at the guidance you've given for the next 3 years, the EBITDA guidance you're targeting is the same as the last 3-year period, and the cash flow growth is lower than the last 3-year period. So it's hard maybe for us to see at this stage the output of that tougher decision-making. So is it that, that is still part and parcel of what you still need to do? And if it is, can you maybe talk us through what needs to be done? And what does it take for Telefonica to grow faster? So I guess that's really the first question. And then the second question, you mentioned your let's say, criticism of the balance sheet historically and the decision and the need to take a more prudent view going forward. How does that square with the M&A strategy? And I guess what I'm trying to understand is, Laura mentioned the deleveraging you'll now achieve in the next few years. Is that something you're looking to ensure even in the event of M&A? And so therefore, will M&A inevitably require a capital raise has been discussed quite heavily in the press?

Okay. Thanks, Kiel. So I wouldn't want to peg the specifics of tough decisions on anything specifically. But I think you can see that we have made an adjustment to our capital allocation and that sort of decision is not a -- is different to what Telefonica has done in the past. And I think you have seen the targets we have with regards to simplification, CapEx and OpEx reductions with -- and these are the results of our calculations. With regards to growth in market, -- we live in the market we live with the growth that we see. We think that the right way to approach growth within this market, and I think you implicitly said it, we are going to grow faster than was expected. And that is the first tough battle, fighting, maybe the term isn't fighting, working with regards to the market and then getting those revenues and transforming them in cash flow into cash flows. And there are some decisions that can make that transformation quick, but impact the mid and the long term. And there are some decisions that slower the transformation into cash flows and that impact in the creation of cash flow in the short term, but create higher cash flow in the long term. So that would be my philosophical answer, Kiel, to your first question. The second you used the term criticism. I don't think I -- what I tried to do is give you my strategic framework and my analysis. So the business plan is fully funded. The U.K. business plan is fully funded. The transform and growth plan is fully funded. And we think it is better that we gain some strategic flexibility and move away from the levels of leverage that we have because that allows one to capture serendipity, one allows one to focus more on the midterm and the long term. And I think most of us here are over 50, and we know that 3 to 5 years might seem a long way away, but one day you wake up and oh my God, those 3 to 5 years have come. But with regards to your question, we are not creating a war chest. And if there was a relevant M&A operation ahead of us, we would look at the different ways of funding that operation. If the operation, as I said, had cost and synergy costs -- sorry, cost and network synergies, the right terms on price, the right terms and remedies, one way to fund such an operation would be a capital increase, but not as part of the business as usual. I think I've answered, Kiel.

Very quick clarification, which is, I guess what I'm trying to understand is, is the leverage target you're getting to where you aspire to be going forward, given your point about wanting more flexibility? Or is that not a prerequisite? That's what I'm trying to understand.

So sorry, your question is, if we did I don't know, relevant or transformational M&A operation, would we aspire to reach 2.5? Is that the question?

Correct. Is that maybe your aspirational level of where you feel you've got flexibility to do what you want organically, inorganically going forward?

So I have to be careful with how I answer that because we're talking of hypotheticals. So for business as usual, that is the sort of financial flexibility we would want. So for business as usual in this sort of organic terms, that is the sort of financial flexibility we would want. If there was an operation that changed things, we would have to look at it. But it would be under what we've called here strict financial discipline or a financial discipline of steel and far away from any investment-grade frontier.

And Carl, please, after you then hand the microphone back.

That's great. It's Carl Murdock-Smith from Citi. I wanted to dig into some of the operational KPI targets that you've put in the slides, specifically the convergence over fixed broadband base. So you're targeting an 8 percentage points increase across Spain, Brazil and Germany by 2028. And in the slides, you talk about a 6 percentage point increase in Germany and a 6 percentage point increase in Brazil as well. So to average 8%, I'm therefore thinking that Spain has to be 9% or 10%. Just first part is just clarifying, is that correct? And kind of the second follow-on from that is that figure is currently 75%. So that would take you up to about 85% -- it's currently going down because your broadband adds are growing faster than your convergent adds and a 10 percentage point improvement in 3 years on a broadband basis, 6 million implies about 200,000 convergent adds a year, which is a massive increase on the 21,000 you've just done in Q3, which is the best you've done in 6 years. So just wanting to make sure that I understand those operational KPI targets correctly.

Thanks, Carl. So that's one question with 2 parts, I'd say, no. Emilia, would you...

Yes, you understand well the KPIs that we are looking for. Conversion for us is a key factor of success. Of course, we have proven in Spain, and we want to increase our convergence strategy, both in Brazil that we are proving that we are -- we have a successful strategy in this way. And in the case of Germany, we will do the same. We try to -- we are going to increase this level of convergence because we think it's the right way in order to protect our revenues. It means that we have to secure access to fixed broadband access in this market, especially in Germany. we are secure that this access is positive, not only for Telefonica for the German market, then we fully believe that it is going to happen. And then with this success and with the project that we are able to do, we think we are able to increase our convergence. Anyway, the figures that we are seeing are based on the current condition we have for the whole business. If the condition improve, we will be able probably to improve and then we can even increase the convergence dimension, the percentage percentage can be the same, but the total amount of convergent quantity in Germany.

So sorry, just to follow up. So in Spain...

I'm going to hand over anyway to CEO to explain a little bit more about this question. Christian...

I don't know if you want to talk about Brazil or Spain. If you want to talk about Brazil, I can give you some information.

Yes, absolutely, but it was more trying to back out the German and Brazilian figures to understand.

Okay. The figures are based on the fiber client, how -- what's the percentage of convergent over the fiber. In Brazil, we have 2 ways to improve it. First is to -- now it's around 62%, and we believe it can be -- and I think in the plan, we reached 75%. I think we are the leading one in prepaid and postpaid. So I think there is room to grow, and we've been growing. Now we have what we call a single plan that it's only one plan for fixed and mobile. and is growing a lot. So in the last quarter, we presented, we have more or less like 40% already in this plan and the other 22% have both plans, mobile and fixed. And we're also growing with more fiber deployment. Today, we have 31 million home passed with a penetration of or take-up of 25%. We envision to grow more the network and of course, also the take-up. -- both combined with this offer that has mobile and fixed together, we are pretty sure that we can raise this number from 62% to close to 75% very soon.

In the case of Spain...

Yes. In case of Spain, as you know, Spain got a really high level of convergence right now. So we are specifically -- in fiber, we are around 88%. And in contracts, we are around -- regarding B2C around 84%. We had during the last quarter, the best net gains in convergence. And we also have the best quarterly churn regarding this kind of offering in the last 12 years. So I mean, there's in Spain still room to grow, but we really think that our level of convergence is pretty, pretty high.

Thank you, Carl, if you could hand it back. And I think it's probably a good time to take 2 questions from the online community. First question comes from Victoria Ade from Barclays. And she asks if we could please provide more details on the leverage trajectory through 2028. And if we should assume that leverage will remain above 2.5 in the meantime? And her second question would be related to capital raise. Would you be open to raising equity as a means to fund potential M&A, which we've partly already answered, but I think also that's something from the credit side as well.

Okay. Thank you. I'll ask Laura to answer the first question, and I would answer the second question.

Thank you, Victoria, for your question. Our target is to start decreasing our leverage ratio, net debt to EBITDA to 2.5 in '28, and it's a path. So you should expect that it will above 2.5 in this year. You have to take into account. We are starting from 2.89 as of today, and that decreases with the post-closing event. So it is a journey. It has a target at the end of 2028, but it will be slightly higher in between years. The main lever and the most sustainable is free cash flow generation. And that free cash flow generation is based on operational cash flow after leases growth because regarding the other below items, there will be a slight increase in both financial and tax payments and also working capital is not going to have a material contribution in the next 3 years. So the main lever is free cash flow, but also taking into account that we are having a pragmatic approach to portfolio rationalization. So that could also be part of that. And on the positive side, also to say that there are not large spectrum auctions or no spectrum auctions from now to '28, maybe 6 in Brazil, but nothing else. So that will also be -- it won't be a headwind in order to reach that deleverage target.

Regarding a capital raise, yes, I think I have addressed it, but I think it's worth addressing again. So the Transform & Grow plan is fully funded. If there were a relevant operation under the 3 conditions I have mentioned during the presentation and in this Q&A session, we would analyze the option of a capital raise for the operation, but not as part of the business as usual. So for a large relevant M&A operation, we would contemplate that option to finance the operation.

Thank you. And we'll take the second question from online community. That's from Ottavio Adorisio from Bernstein, and I will read the question. It's for Laura. Based on guidance for midterm growth in EBITDA and net debt to EBITDA in '28, it looks as Telefonica might record either limited debt reduction over the next 3 years and/or significantly increasing lease charges, which may reduce growth in EBITDA. As a result, my question is, can we please have some color on the cash costs booked below free cash flow, including cash costs for employee commitments, the growth in P&L lease cost management expect to incur during the midterm period?

Yes.

Please Laura.