• Free Cash Flow Growth: Increased by close to 90% in Q3 and 28% over nine months.
• Capital Intensity: 12% up to September.
• 5G Coverage: Reached 71% in core markets.
• Fiber to the Home: Expanded to 82 million premises passed.
• Revenue Growth (Brazil): Increased by 7.1% in local currency.
• EBITDA Margin (Brazil): Increased by 0.2% year on year.
• Net Financial Debt: Reduced to EUR28.7 billion as of September 2024.
• Net Debt to EBITDA: Reduced from 2.78 times to 2.76 times.
• Liquidity Position: EUR19.9 billion.
• Interest Cost: Reduced to 3.61%.

• Warning! GuruFocus has detected 7 Warning Signs with TEF.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Telefonica SA (NYSE:TEF) reported a significant acceleration in free cash flow, growing by close to 90% in Q3 and 28% over nine months, surpassing their target of more than 10% growth for the year.
• The company achieved strong operating and strategic progress across key markets, with Spain delivering its best performance in six years and Brazil sustaining growth momentum.
• Telefonica SA (NYSE:TEF) expanded its 5G coverage to 71% and fiber to the home to 82 million premises, achieving its 2026 target more than two years ahead of schedule.
• The company maintained a strong focus on customer satisfaction, achieving a record Net Promoter Score (NPS) of 34 and adding 1 million accesses to reach 393 million.
• Telefonica SA (NYSE:TEF) continues to make progress in network leadership and operational excellence, with significant advancements in AI-driven solutions and industry collaboration.

Negative Points

• The company faced headwinds from the depreciation of the Brazilian real, which reduced revenue growth by 4.2 percentage points and EBITDA growth by 4.7 percentage points.
• Reported results were impacted by a EUR314 million non-cash impairment charge, particularly affecting operations in Hispam due to currency depreciation and strong competition.
• Despite strong underlying performance, Telefonica SA (NYSE:TEF) experienced FX headwinds impacting reported revenue and EBITDA figures.
• The competitive environment in Spain remains intense, particularly in the low-end market, with some players repositioning their products and strategies.
• In Germany, revenue faced headwinds due to MTR reductions and shifts in the business model, resulting in a 1.6% year-on-year decline in Q3.

Q & A Highlights

Q: How is the competitive environment in Spain affecting Telefonica, especially with recent price cuts by competitors like DIGI? A: Angel Vila Boix, Chief Operating Officer, explained that the market remains segmented and rational, with low churn levels and strong net adds. Telefonica maintains a rational approach with value-based services and best-in-class infrastructure. The DIGI agreement is structured to be value-creating and rational, with no market distortions expected.

Q: Can you clarify the impact of FX headwinds on Telefonica's guidance for 2024? A: Laura Abasolo Garcia De Baquedano, Chief Financial and Control Officer, stated that despite FX headwinds, particularly from the Brazilian real, Telefonica remains confident in achieving its guidance. The focus is on strong underlying performance and free cash flow, which is well-protected through hedging strategies.

Q: What is the status of the copper network shutdown in Spain, and what cost savings have been achieved? A: Angel Vila Boix noted that over 90% of the copper network has been shut down, leading to significant savings in OpEx and CapEx. This has allowed Telefonica to maintain EBITDA margins above 36% and commit to a 10% CapEx-to-revenue intensity target for the Spanish operation.

Q: How is Telefonica Tech performing in terms of profitability and growth? A: Angel Vila Boix highlighted that Telefonica Tech continues to grow above the group average, with a focus on more complex, value-added projects that improve margins and profitability. The company is on track to reach its target of EUR3 billion in revenues by 2026.

Q: What is the progress on the regulatory changes in Brazil, and how will it impact Telefonica? A: Angel Vila Boix stated that the move from concession to authorization in Brazil is expected to be finalized by Q4 2024. This change will allow Telefonica to dispose of reversible assets and provide greater flexibility, which should be accretive for the Brazilian business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.