• Free Cash Flow: EUR2.6 billion, representing 14% growth year-on-year.
• CapEx to Revenue Ratio: 12.9%.
• Leverage: Reduced to below 2.6 times.
• Revenue Growth: 5.4% in Q4.
• EBITDA: Flat year-on-year in Q4.
• Net Financial Debt: EUR27.2 billion, with a net debt-to-EBITDAaL ratio of 2.58 times.
• Revenue Telefonica Spain: 1.3% year-on-year growth in Q4.
• Revenue Telefonica Brasil: Close to 8% increase in local currency.
• 5G Coverage Germany: Exceeding 97% population coverage.
• 5G Coverage UK: Reached 75%, an improvement of 24 percentage points year-on-year.
• Telefonica Tech Revenue: Exceeded EUR2 billion, with 10% growth year-on-year in Q4.
• Fiber Premises Passed: 25 million by year-end.
• Free Cash Flow Growth: 14.1% in 2024.
• Dividend: EUR0.3 per share in cash for 2025.

• Warning! GuruFocus has detected 5 Warning Signs with TEF.

Release Date: February 27, 2025

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

Positive Points

• Telefonica SA (NYSE:TEF) delivered within its 2024 guidance ranges across all metrics, with a notable 14% year-on-year growth in free cash flow.
• The company achieved strong commercial momentum in core markets, with Spain experiencing full year-on-year growth in all accesses for the first time since 2018.
• Telefonica SA (NYSE:TEF) maintained a CapEx to revenue ratio of just 12.9%, demonstrating industry-leading capital efficiency.
• The company successfully reduced leverage to below 2.6 times while maintaining strong dividend coverage.
• Telefonica Tech, a key growth driver, exceeded the EUR2 billion revenue mark, with a 10% year-on-year growth in the last quarter of 2024.

Negative Points

• The strategic review process is expected to take until the second half of 2025, which may delay potential strategic changes.
• Telefonica SA (NYSE:TEF) faces challenges in the European telecom industry due to market fragmentation and regulatory hurdles.
• The company experienced a decline in revenue in Germany by 3.7% year-on-year in Q4, impacted by MTR headwinds and tough handset comparisons.
• There is increased competitive intensity in the German market, affecting pricing dynamics.
• The sale of operations in Argentina and the insolvency procedure in Peru indicate ongoing challenges in the Hispam region.

Q & A Highlights

Q: Why did Telefonica decide to put the midterm guidance on hold, and what are the prospects for in-market mobile consolidation? A: Marc Murtra, Chairman and CEO, explained that the decision to focus on 2025 guidance rather than midterm guidance is to allow strategic flexibility during their strategic review. He reassured that nothing has changed regarding their previous statements. Regarding in-market consolidation, Murtra noted potential flexibility but emphasized the need for a strategic review to analyze the broader European market changes.

Q: Can you clarify the strategic priorities for Telefonica's core businesses, particularly in Spain and Brazil, and the criteria for evaluating market presence? A: Marc Murtra stated that there is no nuance in their strategic priorities, emphasizing strong positions in Spain, Brazil, Germany, and the UK. The strategic review will focus on operational rationale, improving margins, and consolidating markets to enhance scale and efficiency. The European market's fragmentation is seen as an opportunity for improvement.

Q: What are Telefonica's plans regarding the tech space, and how does it relate to potential M&A or organic growth? A: Marc Murtra highlighted that Telefonica will focus on areas where it has proven know-how and existing operations, particularly in telecom infrastructure. The strategic review will determine whether growth will be pursued through M&A or organic investments, with decisions based on net present value analysis.

Q: How does Telefonica plan to address its leverage and balance sheet concerns, and why is the strategic review expected to take until the end of 2025? A: Laura Abasolo, Chief Financial and Control Officer, emphasized strong free cash flow as the main driver for deleveraging. The strategic review is expected to conclude before the end of 2025, allowing time for thorough analysis without setting an artificial deadline.

Q: What is the outlook for Telefonica's operations in Spain, particularly regarding revenue and OpEx? A: Angel Vila Boix, Chief Operating Officer, projected revenue growth in Spain for 2025, driven by retail and B2B segments. EBITDA is expected to grow by low single digits, supported by continuous efficiencies and a favorable revenue trajectory. The company aims to maintain EBITDA margins in line with 2024.

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