Telefónica Stock

Good morning. Thank you for standing by, and welcome to Telefónica's January to June 2026 Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Torsten Achtmann, Global Director of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Telefónica's conference call to discuss January to June 2026 results. I'm Torsten Achtmann 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&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 press release and the slides, please contact Telefónica's Investor Relations team. Now let me turn the call over to our Chairman and CEO, Mr. Marc Murtra.

Good morning, everyone. I am here today with Emilio Rodríguez our COO; Juan Azcue, our CFO; Borja Ochoa, our CEO for Telefónica Spain; Santiago Argelich, CEO for Telefónica Germany; and Lutz Schuler, COO of VM O2. At Telefónica, we have taken on the challenge of becoming the best gateway for citizens to access digital technologies. We are doing it through our Transform and Grow strategic plan which, as we will explain in this presentation, is turning our ambition into results through disciplined execution.

This slide shows the strong execution achieved in the second quarter, delivering against our strategic road map and driving consistent and resilient growth. We accelerated year-on-year growth in constant terms in adjusted EBITDA and adjusted operating cash flow after leases at group level as well as in Spain and Brazil. In Germany, we continue to grow in adjusted EBITDA ex 1&1. In addition to strict cost control, we continue to foster efficiency gains through redundancy programs, AI, automation, channel management, legacy shutdown, tech and operational excellence.

We continued with commercial traction, leveraging network leadership. In Spain, we recorded positive net adds in main services for 12 consecutive quarters. In Brazil, we recorded growth in value accesses again. And in Germany, churn remained at a low level. Free cash flow reached EUR 611 million in the quarter, EUR 278 million more than in the previous quarter. Free cash flow is back-end loaded, accelerating in H2. We have further deleveraged to 2.68x, reducing net financial debt to EUR 25.3 billion.

The improvement in operating leverage and in Spain and in Brazil gives us the confidence to upgrade our group 2026 guidelines for adjusted operating cash flow after leases from our previous guidance of over 2% to over 3%. We are on track to fulfill 2026 guidance in all other metrics. Nevertheless, due to the weakness in handsets, mainly in Germany, we expect to be at the low end of our revenue growth range. The more important service revenue growth is at a healthy 1.0% in the first half of the year. Whilst we maintain our adjusted EBITDA guidance, we expect to be on the high end of the range due to our good performance in Spain and Brazil.

Finally, 2026 dividend of EUR 0.15 will be paid in June 2027. To note that we paid the 18th of June, the second tranche of 2028 dividend, EUR 0.50 (sic) [ EUR 0.15 ]. On Slide 2, let me walk you through the progress we have made across the strategic pillars of our Transform and Grow plan. On customer experiences, Accesses grew 5% on year-on-year and NPS remained sound at 34. Spain and Brazil reached historical low levels of churn. In B2C, we delivered 1.4% year-on-year growth. In Spain, Movistar Plus launched Plan Libre Cine y Series and Movistar Fast Pass. Brazil is the first player offering complimentary access to Google Gemini AI Plus. Germany strengthened the convergent offering with new bundles.

UK O2 satellite is now supported on iPhone and Google Pixel devices, and we launched a partnership. In B2B, we continue to build on our strong momentum with revenue growth of 6.7% year-on-year. In Spain, we strengthened our sovereign cloud proposition. While in Brazil, we launched a partnership with Ecovias in Germany with EWE and Deichmann. In addition, our infrastructure expanded in fiber to 77 million premises based on 5G coverage to 83% on average in our core markets, while improving network quality. We completed the deployment of 17 Edge nodes in Spain and are participating in the Spanish AI Gigafactory consortium.

Fifth, on simplification, we are capturing the efficiencies from redundancy programs and legacy networks switch off. Notably, in Germany, we're starting an operational and strategic reorganization that Emilio will explain in more detail later. Overall, these achievements demonstrate, in our view, the consistent execution of Transform and Grow plan. I will now pass the presentation to Emilio for the operating business review.

Thank you, Marc. On Slide 3, we review our domestic business. In the second quarter of the year, Telefónica España continued to excel, delivering a strong commercial and financial performance. Quarterly net adds were soft. Fixed broadband was supported by more connection in secondary homes. Contract net adds almost doubled quarter-on-quarter with top portability results well above 2025 average. TV accesses increased by 7%, supported by the broadest and most differentiated content proposition in the market and by excellent retention of sports customers, enabled by our unique offering of football leagues and tournaments, including Spain's recent World Cup victory.

This commercial momentum is underpinned by our differentiated strengths. First, our 100 fiber and 5G stand-alone networks. Secondly, our focus on delivering excellent customer service, resulting in the lowest ever volume of complaints, down 54% year-on-year. AI personalized campaigns are allowing us to increase upselling, retention and sales by close to 20%. The use of AI is also improving network operation, reducing by 70% the time invested in software upgrades and therefore, enhancing network and service quality.

We continue to enhance our flexible and transparent B2C offer, bringing innovation to our customers with AI solution and Movistar Fast Pass, a new service that allows differential connectivity while in high-density events like concerts. In addition, our B2C ecosystems continue to gain traction with alarm business growing double digit and 3 out of 4 customers adding a device. These services increased customer engagement and revenue while reducing churn. We have registered the lowest churn rate ever, 0.7%, while convergent ARPU grew slightly and remains above EUR 91, the highest in the market.

In B2B, our premium digital services continue to fuel growth steadily and already account for more than 50% of B2B revenue. We have the best-in-class value proposition with services such as Titan Connect for business continuity or the recent launching of new managed cybersecurity services for the mid-market. These are examples of new levers that allows us to continue growing. We would also like to highlight two key strategic projects that strengthen our digital sovereignty. First, the deployment of our leading edge computing network with 870 nodes already activated.

Second, the Spanish consortium that will bid for the Spanish AI Gigafactory, where we have a minority stakeholding and we are the tech partner in the consortium. Regarding financials, Spain is achieving solid cash generation with growth acceleration across all KPIs. Growth in revenue accelerated to 2.9% year-on-year, supported by better service revenue as a result of increased retail revenue that helped offset the expected decline in wholesale revenue. Adjusted EBITDA growth accelerated to 2.3% year-on-year due to higher revenue growth and savings from the redundancy plan.

In addition, CapEx discipline and the more stable leases led to a 3.7% growth in adjusted operating cash flow after leases. In short, our domestic business is a strong operation, delivering steady growth across the board, and we expect a better year-on-year performance in H2 versus H1 in key financials. On to Slide 4, Telefónica Brazil continued to deliver financial growth ahead of inflation, supported by a strong commercial execution and margin expansion. Operationally, we remain focused on growing our contract mobile and fiber accesses while maintaining pricing discipline and delivering best-in-class customer experience.

In mobile, contract net adds grew 6% year-on-year, underpinned by our differentiated value proposition and unique asset as brand and network. Meanwhile, churn remained low at 1.1%, confirming the depth of our customer relationships and loyalty. Total mobile ARPU increased by 5.7% as customers migrated to higher value plans and use more data. In fixed, momentum remained high with double-digit growth and continued demand for premium connectivity and digital services.

Convergent got total clients up 29% year-on-year. This validates the attractiveness of our convergent proposition and its ability to capture even more customers. Revenue and adjusted EBITDA grew year-on-year, well ahead of inflation, both accelerating from the previous quarter once again. Revenue mix continued to evolve with growing relevance in contract, fiber and new businesses. In B2C, performance showed the strong acceleration on new digital services, growing 33.6% over the last 12 months. This shows the sustained expansion of Vivo's ecosystem and the effectiveness of our strategy to deepen customer engagement, drive cross-selling and extract greater lifetime value from our existing base.

Noteworthy, consumer electronics recorded the highest year-on-year growth in 3 years. In addition, we have scaled our financial services with Vivo Pays new installment plan, simplifying device financing for customers while driving revenue and strengthening loyalty. In B2B, digital services delivered outstanding performance with cloud and digital solution revenues growing over 20% in the last 12 months. This growth, driven by the accelerating demand for digital transformation across multiple industries underscores our evolution beyond more connectivity and positions Vivo as a trusted digital partner for enterprise customers.

In this quarter, Vivo and Ecorobotix joining our partnership to expand mobile coverage in over 400 kilometers of interstate roads in the state of Goias and Minas Gerais, benefiting 1.4 million people. Vivo remains committed to driving operational efficiency. Its largest ongoing initiative is the development of AI powered customer services concern designed to enhance the customer experience across billing, and technical support, aiming for 70% of customer interaction to be resolved by digital agents. All this, along with ongoing efficiency measures across both owned and leased infrastructure translate into adjusted EBITDA and adjusted operating cash flow after leases growth of 11% and 18% year-on-year, respectively.

Overall, Vivo has reaffirmed its leadership position by combining a strong commercial momentum with sustained financial growth. In H2, we expect similar trends to Q2. Moving into Slide 5 to discuss Germany. Q2 financial performance reflects a combination of a continued weaker trend in handsets in select channels and headwinds in the partner business. Revenue in Q2 declined over 11% year-on-year. The decrease in revenue is mainly due to lower handset sales, down 26%. We saw healthy consumer trends for O2 MyHandy, while supply chain and our focus on profitability resulted in a decline in third-party channel sales, typically with very low margins.

Mobile service revenue continued to reflect the headwinds in the partner business, which for the most part, is now behind us. By contrast, fixed revenue posted another quarter of solid growth, 6.5% -- adjusted EBITDA trend improved to minus 7.2%, reflecting efficiencies, stringent cost management and better revenue mix. This measure led to a margin expansion reaching 52.7%. As we move into H2, we expect comps to get easier towards year-end as we will have already included most of the 1&1 customer migration effects in H1. At the same time, we will continue to monitor the handset sales in third-party channels and the supply chain with a focus on value.

Telefónica Deutschland continued to execute a deep strategic transformation across the company to focus on profitable growth. First, on the commercial front, a sustained swift to a value over volume strategy with a deceleration in contracts quarter-on-quarter. However, the O2 contract churn remained at a low level of 1.2%, while the decline in ARPU reflects a higher share of second and third SIM cards. Let me highlight the launch of the O2 Mobile Plus bundle in June. These are further promoting our value focus by fostering convergence. The combination of a first SIM with a second product ensure a minimum bundle price of EUR 30.

We also continue focusing on ensuring support and leveraging our MyHandy model to complement these offers. In fixed broadband, our momentum remains healthy with accesses growing for the fourth quarter in a row, driven by both demand for cable and fiber. We are also transforming our B2B business, having restructured and transformed our channel and strengthening our partnerships. For example, we have reached an agreement with Deichmann to expand the use of standardized SD-WAN infrastructure in nearly 5,000 shops across Europe. Also, JTA has selected us as its partner for the digitalization of its 900 store in Germany.

In B2B, we are working on upgrading our partners' value proposition and continue evolving our partner base, launching a strategic mobile MNVO partnership with Kiwi. The company is also making progress in the execution of a new operating model to address technological change, changing market conditions and new customer demand. This enabled us to run a leaner operation. Telefónica Deutschland has announced an operational organization that implies a reduction of around 1,100 full-time employees in 2026 and the closure of 60 underperforming owned shops. The company will address further measures in '27, '28 with a focus on streamlining its customer service organization and its overall retail footprint.

In this context, a provision of EUR 265 million has been recorded in Q2, and we expect additional restructuring provision of up to EUR 155 million to be booked most likely in H2 '26. As a whole, annual run rate savings of around EUR 185 million will be achieved in the 2028, starting at the end of the current year. These measures are part of the transformation we are implementing in Germany with no impact guidance. In summary, Telefónica Deutschland continued to progress in its Transform and Growth strategy in Q2 and maintain it resilient underlying performance.

With the execution of the Transform and Growth strategy, we are preparing the company to return to profitable growth next year. Let's move to Slide 6. VMO2 results are negatively impacted by weaker handset trends and a market that is affected in fixed and in mobile, mainly by specific impacts. Nonetheless, results are in line with our expectations. In this backdrop, VMO2 continues to execute against its strategic plan and achieved several strategic milestones during the quarter, supporting long-term value creation like an agreement with Monzo to launch Monzo Mobile, further reinforcing O2's position as the trusted partner of choice for MNVOs in the U.K.

The new auto business brand, bringing together VMO2's national network scale with Daisy’s expertise in connectivity and IT solution to create a stronger proposition for business customers. Expanded network leadership with almost 9 million gigabit-enabled premises and the U.K.'s largest 5G stand-alone covering 87% of the population. From a commercial perspective, VMO2 showed improvement in Q2. In fixed, we reduced year-on-year subscriber losses, while the consumer ARPU decline of 4.6% reflects competitive intensity in the broadband market. In mobile, consumer ARPU remained stable due to our focus on value management.

In wholesale, we maintained our strong leadership in MNVO's while continuing to build capabilities in fixed wholesale. In addition, VMO2 confirms 2026 guidance in both revenue and adjusted EBITDA, supported by on track first half performance. Service revenue declined 3.9%, mainly due to continued pressure on consumer fixed and the streamlining of the product portfolio business. Adjusted EBITDA decreased 2.9% and remains at the high end of the guidance range. Finally, we progressed the Netomnia acquisition to a fast track referral to Phase 2 to reach a final approval quicker. I will now hand it over to Juan, who will provide a more detailed overview of our financial performance.

Thank you, Emilio. Moving to Slide 7. Let me take you through the financial details for the quarter and the first half of the year. Second quarter is the third consecutive one we are growing simultaneously at constant and current rates in key KPIs. Foreign exchange was a tailwind in Q2, mainly due to the Brazilian reais appreciation versus the euro. In constant terms, we would like to stress the positive underlying momentum of our business.

At group level, revenue slowed down versus Q1 due to a greater decline in handset sales in Germany, as Emilio previously outlined. Service revenue is the key metric. And here, we are maintaining trends with 0.9% growth year-on-year, mainly driven by acceleration in Spain and to a lesser extent, in Brazil. Looking at the revenue mix, B2B is up plus 6.7%, while B2C is up 1.4%, more than compensating the wholesale decline. Adjusted EBITDA and adjusted operating cash flow after leases ramped up to plus 2.7% and plus 2.9%, respectively, thanks to the increase in operating leverage.

Operating cash flow after leases margin increased 0.4 points year-on-year in both Q2 and first half. CapEx over revenue stood at 11.6%, flat year-on-year versus the first half of '25. Current free cash flow is EUR 611 million, improving EUR 278 million versus the first quarter, but st

ill reflecting the usual seasonality in the first half, reaching EUR 944 million. Net financial debt declined to EUR 25.3 billion. Moving to Slide 8. During the second quarter, free cash flow declined year-on-year, primarily due to working capital movements.

However, as I just mentioned, quarter-on-quarter, free cash flow improved due to an improved working capital. As such, it reached EUR 944 million in the first half of the year. We are confident about the free cash flow generation as it has been de-risked and will gain traction heading to our target, which is reaffirmed today. The reasons are further acceleration in the second half due to its back-end loaded profile, more predictable and less volatile free cash flow and financial discipline on all the lines below adjusted operating cash flow after leases. In summary, confident in the free cash flow trajectory improvement in the second half coming.

Moving to Slide 9. I would like to highlight our commitment to the investment-grade rating -- credit rating with a clear deleveraging strategy in place with a target of 2.5 by 2028. We have made solid progress in the first half of the year to achieve such target. In the second quarter, our net debt-to-EBITDA ratio reached 2.78x from 2.72x in March. On financing, Telefónica has demonstrated market execution this year, aiming to achieve best timing and results. During the second quarter, we diversified our funding sources with the Australian dollar inaugural bond issuance, having completed 5 financing transactions year-to-date, raising EUR 4.5 billion long-term financing at the group ahead of recent market volatility while maintaining an ample liquidity position.

Finally, our interest cost payments decreased in the last 12 months from 3.23% to 2.95% as of June 26. In summary, leverage reduction, sound liquidity and lower interest costs. See Slide 10 for the Board-approved 2026 - 2030 sustainability plan, which will drive value creation across 4 dimensions: growth, efficiency, investment attraction and risk mitigation. The plan is structured around 3 pillars: environmental, social and governance deployed through 12 strategic lines that connect sustainability initiatives directly to operational management and business results.

On our quarterly progress to highlight. We updated our climate action plan towards net zero, driving resilience and competitiveness while helping customers address environmental challenges such as reducing water use in water stress areas. We have supported Venezuela through free calls and WiFi, communications recovery and humanitarian assistance. We remain committed to integrity with an updated code of ethics and conduct and new training. Finally, our efforts continue to be recognized externally with inclusion in the Dow Jones Best-in-class Europe Index, the CDP Supplier A List and Europe's Best Employers 2026 ranking. Now I would like to hand over to Marc, who will cover the main takeaways.

Thank you, Juan. Let me close with where we stand and where we are heading. Continued momentum in the second quarter is yielding results on consistent and focused execution of our transform and growth strategy. Again, growth is both constant and current at group level, alongside accelerated growth trends in adjusted EBITDA, adjusted operating cash flow after leases and expansion of operating leverage. We extended investments in leading networks, enhancing customer experience and commercial performance.

This happened jointly with better financial performance in Spain and Brazil. While in Germany, we continue to execute a strategic transformation. Our free cash flow improved and derisked, expecting a better H2 performance. We are upgrading our adjusted operating cash flow after leases to over 3% from over 2%, reiterating the rest of the metrics and our dividend of EUR 0.15. We are on track to be the best gateway for citizens to access digital technologies and to become a best-in-class telco worldwide by 2035. Thank you for your time, and we are now happy to take on your questions.

[Operator Instructions] And your first question today is from the line of Andrew Lee from Goldman Sachs.

I had 2 questions, one on Spanish competition and the second on capital allocation priorities. On Spain, clearly, good trends in the quarter. Could you just give us -- obviously, you highlighted strong execution and good upselling in the mid and high tiers, and we know there's a good macro backdrop. Could you just talk about the competitive intensity in the market? Do you feel competition at the lower end is reducing? Do you feel like your price rises are landing better?

And on this front, I know you're saying you expect better year-on-year performance in H2 versus H1, which is already fairly strong. Do you think that the second quarter '26 service revenue growth of plus 2.9% is sustainable into the second half? So that's on Spain. And then just on capital allocation, normal question really. Any update on priorities and specifically on consolidation intentions? And then specifically on that, do you think it's helpful to wait to see how French consolidation approval is going?

I know that's coming from French authorities, but likely the EU will have a hand in that as well. Do you want to see how that's going before you -- before making any moves? And if so, when do you expect to get that insight?

Emilio will answer the first question, and I'll answer the second question, Andrew. This is Marc.

Andrew, thank you for your question. Regarding the Spanish market, as we are seeing in the Q1, Q2, we expect the same trends in terms of competition in the next quarter. We are seeing that our strong performance and our strong asset permit us to compete very well in all the segments, especially in the high value, but also in the low-value segment. We do look at the results, I would like to highlight the churn. The churn demonstrates the strong engagement that we have with our clients and the strong position that we have in terms of customer service, network, brand channels and products.

Let me say, too, that our offering the high-value base and our superior content strategy permit us to maintain the highest ARPU in the market, even in this quarter, being able to increase year-on-year. Then overall, we -- our performance is strong. We think that we are able to sustain this growth in terms of B2C. And in terms of B2B, we even are seeing better trends because we are able to develop the different products and services even better than before. We are foreseeing different new revenue stream that permit us to be very optimistic.

Together with our proposition in cybersecurity, cloud, IoT and so on, we have a strong position for the future revenues coming from sovereignty or for defense. Then overall, together with our strong position in efficiency measure that lead us to be confident in the improve the results compared to H2 with H1 and to have a very sustainable business for the next quarters.

Regarding the second question, we think -- I mean, we can see that the new documents that the European Commission has made public with regards to M&A guidelines are a Copernican change. We can see and we can read that the definition of the market changes, and it's not so close, and it's an open definition. And they very clearly state that they will be looking into what sort of investment and technological know-how a potential consolidation creates. And we can hear political leaders talking about the social contract concept.

So we can -- we read this as a change and all our peers read it as a drastic change and a very positive change. With regards to France, our view is, as you know, we don't talk about specific M&A options until it is done. It doesn't make sense. We think now we're in a phase where the market has to play its magic and this is not a 24-hour occurrence in any case. And for us, we need to -- any potential deal has to have very specific cost and network synergies. The price has to be right. Let me underline that. The price has to be right and the potential accommodation with the regulatory authorities.

With regards to France, we can see that it has gone to the French authorities, the French competition authorities. That is a very interesting sign. I think another reading we make is that the operation went ahead just after the April M&A guidelines interpretation was made public. But with regards to your question, no, we do not subject our timing and our doing to any specific operation like that. We do believe that such a large operation with 4 players is proposed if they see a clear path going forward. But this is just our reading, Andrew.

We will now take the next question. This is from the line of Carl Murdock-Smith from Citi.

Two questions, one on guidance and one on Spanish workforce restructuring. So firstly, I wanted to ask why there's no EBITDA guidance increase this quarter from your guidance of 1.5% to 2.5% growth for the full year. So you've done 2.3% EBITDA growth in H1, including 2.7% in Q2, so above the range in Q2. And in H2, you'll increasingly lap the 1&1 drag in Germany. You've said that you expect Spanish EBITDA to be stronger than H1. And Brazil for the second half, you're saying to be similar to Q2, which was double-digit growth. So what's getting worse elsewhere in the group?

Or are you just being conservative? And then secondly, -- to what extent will there be any incremental quarter-on-quarter benefit from Spanish workforce restructuring in Q3? Or was Q2 nearly at full run rate? So Q1, you commented that Q1 had seen EUR 20 million of the EUR 250 million of benefit workforce restructuring over the full year. So can you just provide an update of how much benefit you saw in Q2?

Thank you very much for your question. Regarding the first question about the EBITDA guidance. As you mentioned, we are seeing a very strong performance in our Spanish operation. I explained in the question before that is the reason for a strong performance. At the same time, we are putting on the table really an extraordinary set of results in Brazil in all the financial metrics. In the case of Germany, we are expecting to improve trends during the second half. But we are in the middle of a transformation plan, transformation plan that try to work over all the aspect.

First, in the commercial aspect, changing our strategy from volume to value. Secondly, in the operating model with the restructuring plan that we have announced recently. We are saying that we are looking or we are -- we have the outlook to finish the year with the EBITDA in the high range of the guidance. We want to be prudent at the same time, and we want to maintain some flexibility because the transformation of a company is not something that you can be sure when the things happen. We are pretty sure about the measures that we are doing.

We are very confident with the execution of this measure, but the things can take more time than you expected at the beginning, can be some phasing in the different activities that you are doing. And it means that if you want to be a prudent manager and you want to be flexible to take the right decision in any moment, it's better to act in this way. Regarding the second question, as you mentioned, we have achieved in the Spanish operation, EUR 20 million in the first quarter. We are close to EUR 90 million in H1, and we expect to reach the EUR 250 million that we planned at the beginning of the redundancy program at the end of the year.

We are on track, even I will say that slightly better than we expected, but we are on plan, and we feel that we will obtain the saving for this year and the savings for the '27 and '28 that we have planned from the beginning of the redundancy program.

We will now take our next question -- this is from the line of Joshua Mills, BNP Paribas.

A couple of questions from me, one on the U.K. and one on Germany. So as we saw last week with the VMO2 results, there are some quite tough trends in that market and the leverage is now at 5.9x, above the 4 to 5x range, which we targeted. On the conference call, Liberty made the point that you and they are very aligned about plans for that asset and discussed potential organic or inorganic deleveraging strategies.

So my question is, given your previous commentary around the focus on the U.K. as a core market and the focus on infrastructure ownership, at a high level, how do you think about the potential for asset sales, potentially inviting third-party financing in order to bring that leverage down? And if you're not thinking about that, how do you look at the future leverage profile of that business and your ability to take cash out of it in the form of dividends? Any high-level comments there would be very much appreciated, I think.

And then secondly, on Germany, you've talked about the financial trends improving in the second half. It does look like some of the operational performance on net adds and churn is a little bit weaker. And so as part of your cost-cutting plan and the plan to reduce store count, do you feel the need to lean a bit more heavily on third-party operators like Freenet? And specifically on the freenet point, given you're in negotiations around an MSP deal, can you give us an update on how those talks are going?

Okay. Thank you, Joshua, for your questions. I'll take the first one on the U.K. So as an overarching reflection, VMO2 is a strategically important U.K. asset. It's the largest mobile network and the second largest fixed provider in the country. Both Liberty and us are fully committed to its success and are completely aligned. VMO2 has been investing in its future growth and competitiveness. I recognize that the current leverage, the 5.8x is not where we want to be, and we want to deleverage faster towards the 4 to 5 range that you mentioned.

Both Liberty and us are committed to be proactive managing the balance sheet, and we have the levers to pull to materially increase free cash flow and accelerate deleveraging. We are working closely also with VMO2 on updating the company's long-term rates plan, including organic and inorganic options. Growth levers will include immediate and short-term OpEx and CapEx efficiency opportunities that we see and longer-term opportunities such as the B2B, the fixed mobile convergence or the wholesale opportunity.

Then finally, I would like to remind you that we don't have maturities until -- refinancing maturities until '29. So we don't need to access the market right now. What we have to do is take action to create a plan that accelerate the deleveraging that you're mentioning, and we plan to do so.

Regarding Joshua, your question on Germany. So we continue focusing on own customers and strengthening our value over volume strategy. However, we also have a strong partnership with a number of players, a number of partners in the German market. One of those is Freenet with whom we have ongoing commercial arrangements that we obviously discuss and try to improve over time on a continuous basis. We also have been working on strengthening the relationship with other partners like our historical partner, Aldi Talk, but we are also opening the network to additional partnerships that we will be announcing in due time.

We now take our next question. This is from the line of James Ratzer, New Street Research.

So a couple of questions, one on Spain, one on Germany, please. So on Spain, in particular, your retail revenues really strongly accelerated in Q2 from the trends we've seen in the past kind of 5 or 6 quarters. And it seems to also specifically comes from some of your kind of nonconverged services. So I was really interested in kind of digging in kind of what specifically kind of changed in Q2 that wasn't there, say, in Q1 or Q4 that drove that pickup? And how sustainable is that specifically going into the next couple of quarters?

And then secondly, on Germany, I'd love to dig in a bit more about thoughts around revenue growth because you've talked here about a new cost reduction plan. But what we see increasingly worldwide is that operators with kind of spare mobile capacity and lack of fixed infrastructure are pushing into FWA, and we've seen that's been quite a big support for revenue growth for some other operators worldwide. You've obviously lost capacity utilization with the 1&1 migration. So why are you not being more vocal about wanting to push into FWA as a potential source of revenue growth in Germany?

James, thank you for your question. Regarding the Spanish market. Again, we are seeing very solid performance during these quarters. Perhaps as a main differentiation with first quarter is the managing -- the management that we have done in the base of football subscribers that probably with some tools that we have used AI tools and with the right that we acquired of the World Cup, we are able to manage in a better trend.

That is a trend that we can sustain in the third quarter, fourth quarter because when you are able to maintain the clients -- the football client during the second quarter, they maintain less later in the third and fourth quarter. The rest of the things that are happening in the market is the things I mentioned before. We are working very hard in the excellence of the service excellence. We are working very hard to launch new products and service. both in B2C and B2B. And we feel that all these efforts are sustained for the next coming quarter. There is no magic behind the revenues of Spain.

There are a lot of work, a lot of right strategy, a lot of products and services that makes sense, a lot of right selection of content in our TV and our right ecosystem. For example, we always mentioned the alarm business, we got 5 years ago with less than 200,000 clients, and we have close to 700,000 clients today. These are the [ examples ] that permit us to be confident in the future of Telefónica Spain in the retail business. Regarding the Germany question, I'm going to hand over to Santi to give you more color about to answer.

James, to your question on Germany. So what we are seeing in Germany is a more disciplined promotional activity despite some counter examples around the football World Cup that we saw. But overall, we see an inflection point from the last 2 years with very intense promotional activity. That obviously sets a transition in terms of gross adds, net adds trends as well as ARPU. Now to your concrete question about fixed wireless access. Now we use fixed wireless access in an opportunistic way there where we do not have possibilities to use other technologies.

The German market very specifically is a quite steady, slowly growing migration to fiber with a consolidated cable network, but a very resilient VDSL technology. In that environment, we can fit wireless access as a complementary as additional technology to complement a very rich existing offer.

Santiago -- is that something that you see ramping up more commercial efforts on going into 2027?

Excuse me, could you repeat the question? I'm not sure I understand what you meant.

No, just a follow-up. You were talking there about FWA being complementary to fiber. But I was just interested whether that's something you would increase your commercial efforts on with FWA in Germany going into 2027?

No. The answer is no. We balance very carefully the impact on quality and capacity in our network, and we try to use a well-balanced approach to wireless access, wireless access.

We'll now take the next question. This is from the line of Emmet Kelly, Morgan Stanley.

Yes. My first question is on data centers, please. We've seen other telcos, in particular, Deutsche Telekom and Orange are stepping up their efforts in building data centers or developing partnerships like Orange did with Goodman, which was announced yesterday. Can you just give us a quick reminder, Marc, of where Telefónica is on a data center build at the moment? And I also recall, I think some comments were attributed to you in the press last year saying if European telco consolidation were to come through, data centers and data sovereignty were areas that Telefónica would look to invest more in if that were to transpire?

So maybe a few comments around that, please. And then the second question is just on German competition, just as a follow-up. Obviously, competition was extremely intense last year, especially during the summer months. Can you give a kind of an update on competitive dynamics, in particular, in the value for money segment where O2D has been very active over the last 5 or 10 years? And can you maybe just say a few words on the underlying EBITDA trends in Q2, how these compare with Q1? I don't expect a growth rate, but just any commentary about whether it's the same, got better, got worse.

Thanks, Emmet. So I'll answer the first question and the team will complement. And Emilio will answer the second question and Santi might complement. So with regards to data centers, one way of seeing it is there's 3 plans. With regards to the -- what a Gigafactory would be, I think we've commented, and we are part of the Spanish consortium that is applying for European Commission project. With regards to data centers specifically, we, as Telefónica exited this business some years ago.

And with regards to our Transform and Grow plan, we have no comments. We're focusing on where we're focusing, and we're not doing anything other than that. With regards to your -- my comments, my public comments to the press, -- they have to do with a generic geostrategic analysis that if Europe is going to compete technologically, it is going to need companies of scale and European telcos could or in my view, should play a role in that.

But we will cross that bridge when we get to that river. We would always work on discipline. We would work on demand, and we would see what it is we do. We're not in that scenario at this in our plan. And then we also -- there's the third plane which has to do with Edge nodes and Edge data centers, which I'll pass on to Emilio.

Regarding the first one, complementing the comments of Marc, -- as he mentioned, we are -- we have 2 projects that really works in the data center area. First one is computing center. We have 7 nodes (sic) [ 17 nodes ]. Now I'm going to hand it over to Borja to give you more color about that. And the Gigafactory in a consortium that we are leading from the tech point of view, even with a minority stake, and it's part of our strategy to have a sovereign position in the world of data center or data strategy. Borja will give you more color about these projects.

Yes. Regarding the Edge network, what we have done is basically try to transform our copper central offices into data centers. As Emilio, Marc said before, we have already implemented 17 on the year. We are also incorporating apart from data center capabilities, some other AI capabilities and low latency communication capabilities basically to give services to all the industrial ecosystem around these centers, edge nodes. This is together with Gigafactories, the main part of our sovereignty approach in terms of infrastructure.

Regarding the second question about Germany, I'm going to hand over to Santi to talk about the competitive environment, just to say that we are seeing some signs that better environment, but Santi will explain better later. And in respect to the EBIT underlying, we are confident in the evolution. We are seeing as the last quarter, we mentioned single-digit growth, and we feel comfortable that H2 will be better than H1.

Taking account that this is something perhaps that is important that in the second quarter, we estimate that we have bottomed out in terms of total service revenue in absolute terms. Because of that, we are confident in the evolution, taking account again that we are in the middle of a transformation plan that take time in order to address all the activities that we have planned. And Santi will explain a little bit more about the competitive environment.

Yes, Emmet. So we are seeing somewhat more disciplined promotional activity compared to last year. And this despite some actions, as I mentioned, around the football World Championship. We have also seen an activity on the discounter market with a marginal or no effect on the market dynamics. We are, as O2 Telefónica aiming to maintain our customer market share and prioritizing profitable growth. The best example is our new O2 Plus bundles launched in June, where we promote clearly value over volume, and this reflects in our trading momentum. The portfolio emphasizes convergence and value, focusing on a minimum bundle price of EUR 30.

Operator. We have time for 1 last question, please.

Moving to our last question now. Last question is from Mathieu Robilliard from Barclays.

I had a question on Brazil. You had solid results, but there seems to be some concerns about the competitive environment. So maybe you could share with us what are your thoughts on how the competitive environment is looking and what do you expect for the second half of the year, again, in a backdrop where results were actually pretty strong.

Emilio will answer this question.

Mathieu, thank you for your question. As Christian in his conference call explained, we are seeing the same environment, the same activity than in the previous quarter. We don't see more complicated market. It's true that there were some launches of product that seems more competitive, but at the end, were prices that were in the market before. Then in terms of competition, we don't foresee a worse scenario.

And in any case, I think Telefónica Brazil, Vivo is demonstrating the capability to manage the market with very good results. in mobile service revenue and in the fixed revenue and in the -- of course, in the total revenue and EBITDA. Again, and it's similar in some aspect and in Spain, the strong performance and the strong proposition in terms of ecosystem, in terms of convergent offer and in terms of products and services in the mobile market permit us to be confident even if the condition of the market change in the future that we are not seeing today.

At this time, no further questions will be taken.

Thank you, everybody. I hope you can all take some time off in August. See you soon or speak to you soon. Bye.

Telefónica's January to June 2026 Results Conference Call is over. You may now disconnect your line. Thank you.

Good morning. Thank you for standing by, and welcome to the Telefonica's January to March 2026 Results Conference Call. [Operator Instructions]

As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Torsten Achtmann, Global Director of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Telefonica's conference call to discuss January to March 2026 results. I'm Torsten Achtmann 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&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.

Now let me turn the call over to our COO, Mr. Emilio Gayo.

Good morning, and thank you for joining the call. With me today are Juan Azcue, CFO; Borja Ochoa, Santiago Argelich, and Lutz Schuler, CEO of Spain, Germany and U.K.

We are pleased to report a good start to the year. We are growing in revenue, adjusted EBITDA and adjusted operating cash flow after leases, both in constant and current terms with an appropriate CapEx to sales ratio to deliver this growth. At the same time, we are reducing net financial debt despite the usual seasonality of free cash flow in Q1. Across markets, year-on-year growth rates accelerated in Spain and Brazil with a strong commercial performance. In Spain, we recorded the best ever churn. In Brazil, we achieved a record high mobile ARPU. In Germany, O2 contract churn remained at a low level. And in the U.K., fixed line net adds continue to improve.

Revenue growth is driven by retail with a steady growth in B2C and B2B. This performance more than [ offset ] the loss of one-on-one revenues in Germany and the impact from the extension of wholesale agreement in Spain, which provides a more predictable and sustainable business long term. I'd like to highlight the steady growth in service revenue, partially offsetting weaker handset markets in some European countries. On the operating model front, we are reaping the benefits for leaner operations, including the first savings from restructuring plans in Spain and our global units, and the copper networks are done in Brazil. We are executing consistently against our Transform & Grow plan, making good progress. We remain confident in achieving our financial outlook for 2026 and reiterate our EUR 0.15 dividend per share.

On Slide 2, let me share our progress across the strategic pillars of our plan. First, on customer experience, hyper personalization and network quality initiatives are leading to lower churn and a sound NPS.

Second, in B2C, we are sustaining steady growth. We are fostering convergence with a solid traction of our offering in Brazil and Germany. At the same time, we're enhancing our ecosystems. In Spain, we have reached our premium content offering with the FIFA World Cup rights, and we are fostering digital security. In Brazil, we have reached more than 600,000 held subscriptions. We are also expanding the customer electronics business recording significant growth in Spain and Brazil.

Third, in B2B, we have seen a strong momentum with revenue growth close to 6%. Noteworthy is the launch of Titan Connect portfolio and the acquisition of Altim in Spain and the Sao Martinho partnership in Brazil in the [ agro ] business.

Fourth, we continue to enhance our infrastructure, expanding our fiber and 5G coverage while improving network quality. Fifth, on simplification. We are capturing the efficiencies from redundancy programs and legacy network switch off. At the same time, we continue to make solid progress on our Hispam asset with 6 assets sold in the last 12 months. Overall, this action reflects strong execution, positioning us well to continue delivering sustainable growth throughout the year.

On Slide 3, we will review our domestic business. In the first quarter of the year, Telefonica Espana continued to deliver a strong operating and financial performance. We recorded solid commercial KPIs, reaching the lowest churn ever, 0.7%. despite the tariff update in mid-January. This figure proves the high stickiness of our customers to our excellent service and superior network quality, our differential ecosystem and our small [ segmentation. ] Such a competitive advantage is driving a positive balance in portability ratios. We have outperformed our competitors year-on-year, surpassing the 2025 average and 3x higher year-on-year. As a result, we achieved record customer base in fixed broadband and in contract mobile, a significant milestone.

In B2C, convergent ARPU increased above EUR 91. It remains at leading levels in the market, both in absolute and in relative terms. Our premium digital ecosystem continues to support the highest customer lifetime value in the market while driving revenues up.

In B2B, we also started the year with a strong traction. We are growing both incomes and IT services. I would like to highlight the recent launch of innovative service and network resilience for business continuity, advanced service security, drones in defense and sovereign technology. They will drive further growth in this segment.

Regarding financial, Spain is delivering a solid cash generation with growth acceleration across all financial metrics. Growth in revenues accelerating to 2% year-on-year, supported by service revenue. B2B digital services maintained robust growth. Adjusted EBITDA grew over retail revenue, delivering a 56% margin due to revenue growth and savings from the redundancy program. This more than offset the anticipated lower wholesale revenues. In addition, CapEx discipline and the more stable leases led to a 2.3% growth in adjusted operating cash flow after leases. In an upsell, our domestic business had a strong start into the year, and we are in a strong position to continue to excel.

On Slide 4. Telefonica Brazil's performance was once again remarkable. Vivo recorded solid commercial momentum in the most valuable segment and a grew above inflation across all key lines. We maintain a clear leadership position in the market, leveraging our strong commitment to quality and customer satisfaction and our continued evolution in a broader digital platform.

In mobile, we reached record levels both in contract net adds and ARPU with a sustained churn reduction. We added 850,000 new contract customers in the quarter, the highest figure of the last 5 quarters. ARPU is the highest ever, driven by our value-driven growth in the increase in recharge frequency in prepaid. In fact, we increased fiber connection to almost 8 million. This strong performance was driven by Vivo Total, resulting in a lower churn.

Turning to financials, revenue and adjusted EBITDA grew year-on-year, well above inflation and accelerated versus the previous quarter. Revenue increased by 7.4%, supported by consistent growth in mobile service revenues and continued the strength in the fixed business. In B2C, new digital businesses maintained strong momentum. Consumer electronics stand out, growing 56% in the last 12 months, thanks to the launch of new financial options. In B2B, digital solutions were once again the main growth engine driven by cloud and IoT. Adjusted EBITDA and operating cash flow after leases both grew 9%, boosted by solid revenue growth and continued improvements in OpEx. Overall, Vivo delivered another strong set of results, showing growth across key financial KPIs.

Moving on to Slide 5 to discuss Germany, Telefonica Deutschland, core business momentum showed resilience and market with lower promotional activity. We have recently seen some positive price moves in the market. And since March, we have maintained or even increased prices across all promos, stopping at O2 mobile promos at price point below [ EUR 20. ] This is consistent with our strategy to prioritize profitable growth, focus on value over volume while maintaining a low churn level. This quality of our customer base is improving with a growing number of customers with a second or third SIM card. This strategy impacts ARPU and support loyalty and higher net adds. Fixed broadband accesses grew for the third consecutive quarter with a better mix in the base, lower churn and higher ARPU. Notably, IoT accesses recorded another quarter of outstanding growth.

Regarding financial results, the one-on-one customer migration continued to impact revenues with a year-on-year peak of this effect in Q1. Additionally, following a record fourth quarter last year, handset sales declined in a weak German handset market. Nevertheless, MSR trends slightly improved quarter-on-quarter. Our fixed revenue increased 4% year-on-year. Adjusted EBITDA was likewise affected by the [ in-year ] peak of one-on-one impact. However, efficiencies and cost control led to an increase in the adjusted EBITDA margin year-on-year, showing the solid performance of the healthier part of our business.

To summarize, underlying performance remained resilient in Germany with a high single-digit year-on-year growth in adjusted EBITDA, excluding the one-on-one effect. We continue working to return to growth in 2027.

Let's move to Slide 6. Virgin Media O2 started 2026 making clear progress in the line with its strategy. During the quarter, we achieved several important milestones. O2 Satellite was launched, making us the first U.K. mobile network to switch on direct-to-device satellite connectivity. At the same time, we continue to advance our mobile network transformation. We signed new strategic run upgrade agreements and completed the second tranche of [ spectrum transfer ] from Vodafone U.K. As a result, O2 now has the largest 5G stand-alone footprint in the U.K., reaching 86% of the population, 86% of the population.

From a commercial perspective, we continue to show improvements in Q1. In fixed, we reduced losses supported by commercial initiatives, while ARPU remains impacted by the high promotional intensity in the market. In mobile, contract churn decreased quarter-on-quarter, while ARPU remained broadly stable year-on-year. In wholesale, we maintained our leading position in the MVNO market and continue to strengthen our wholesale fixed credentials.

Regarding financials, both service revenue and adjusted EBITDA trends are on track with our 2026 guidance. Service revenue decreased, mainly driven by consumer revenue due to prior year customer losses and continued pressure on fixed ARPU. Business revenue declined, largely reflecting lower margin products. This was partly offset by a strong performance in wholesale supported by the growth in MVNO revenue. Total revenues are also affected by reduced net fiber build activity compared with the year before. Adjusted EBITDA decreased mainly due to the evolution of service revenue.

Finally, we continue to progress as expected with the Netomnia acquisition, which together with our targeted network investment further strengthens Virgin Media O2 [indiscernible] for 2026.

Now I would like to hand it over to Juan, who will cover financial results with more detail.

Thank you, Emilio, and good morning to all. Moving to Slide 7, we show how the strong underlying momentum that Emilio explained translate into tangible financial results with growth both in constant and current FX terms for the second quarter in a row. Our growth in current is supported by the strengthening and well-performing Brazilian reals. Revenue reached EUR 8.1 billion, growing 0.8% year-on-year in constant terms, underpinned by a [ 1.0% ] increase in service revenue. B2B continues to be a growth driver with an outstanding growth of 5.7%, alongside a consistent B2C increase of 1.5%. Adjusted EBITDA and adjusted operating cash flow after leases came in at EUR 2.8 billion and EUR 1.4 billion, respectively, 1.8% and 2.4% higher than a year ago. As such, operating leverage in the business is the main driver behind the higher adjusted operating cash flow after leases margin, 0.3 percentage points more year-on-year.

CapEx to sales stood at 10.7%, declining by 0.2 percentage points year-on-year. Current free cash flow is EUR 333 million, affected by the usual seasonality. Net financial debt decreased to EUR 25.3 billion, primarily due to the receipt of proceeds from Colombia and Chile this quarter. After the sale of Chile in February 2026 and the agreement to sell Mexico in April '26, both companies are classified as discontinued operations in the first quarter.

Slide 8 shows free cash flow performance in the first quarter of the year. Our performance remains solid and fully on track. We are committed to our free cash flow trajectory and our ability to meet our full year free cash flow guidance of around EUR 3 billion. Consistent with prior years, our free cash flow generation of EUR 333 million reflected the usual seasonality of the quarter, mainly due to working capital and its back-ended loaded profile. As such, we anticipate acceleration through the year. With this behind us, we are delivering a constant execution towards a derisked free cash flow as operational efficiency drives us to our target for the year.

As such, we are progressing in a stronger position due to: first, a more predictable free cash flow following the successful execution of the sale of 6 Hispam countries over the last 12 months, with a total firm value above EUR 4 billion. Second, a solid free cash flow, thanks to the execution of our efficiency plan. With the work for restructuring in Spain and global units already in place among other initiatives. Third, a growing free cash flow with upgraded guidance for 2026 after exceeding it in 2025.

On Slide 9, you can see that net financial debt has decreased by EUR 1.5 billion in the first 3 months of the year, mainly due to the disposal of our subsidiaries in Colombia and Chile. Our net debt-to-EBITDAaL ratio has decreased to 2.72x from the 2.78x in December last year. Deleveraging is on track towards our 2.5x target in 2028. Telefonica has demonstrated an excellent refinancing execution this year. We have been active in the capital markets, raising EUR 3 billion long-term financing at the group ahead of recent market volatility while maintaining an ample liquidity position. Finally, the average cost of debt has been reduced year-on-year from 3.30% in March '25 to 2.81% in March '26.

Turning to Slide 10. In Telefonica, sustainability is a driver of competitiveness and resilience. On the environmental side, we continue to enhance operational efficiency by decoupling traffic growth from energy consumption and supporting our customers in meeting their environmental goals. On the social front, we keep bridging the digital divide and promoting esteemed talent. Moving to governance, we have a balanced and diverse Board. We also uphold the highest standards of fiscal transparency. Lastly, we are proud to report positions across prestigious markets.

Now I hand over to Emilio for the final remarks.

Thank you, Juan. To summarize, let me share with you some key takeaways. Telefonica's performance in the first quarter of 2026 demonstrated consistent execution as we continue to deliver against our Transform & Grow plan. We reported a good set of results to start the year with [indiscernible] firmly on track to achieve our full year 2026 guidance across all key metrics, including free cash flow. We are building a company that is more focused, more efficient and more profitable.

Thank you very much for your time. Now we are ready to take your questions.

[Operator Instructions] And the first question today comes from the line of Andrew Lee from Goldman Sachs.

I had two questions. One was on the sustainability or outlook for Spanish growth through the year. And then secondly, just on Germany cost cutting. On Spain, I think your remarks suggested you think that the growth delivered in the first quarter is at least sustainable. But I'm also conscious that there's obviously some lumpiness in the wholesale revenue trends. What is it that gives you the confidence that you can sustain or improve the Spanish growth through the year? Are you seeing increasing markets? Is it going even better than expected as we run into 2Q? Just any help on that would be really useful.

And then just secondly, on Germany cost cutting, it looked like the cost cutting accelerated in the first quarter. I wonder if you could just talk through that a little bit, that would be helpful.

Andrew, thank you very much for your question. Regarding Telefonica Spain, first of all, I would say that we are very happy with the results of the first Q. This result, I have to say that probably are slightly above our expectation. We are happy for that. These results are based on fundamentals in our commercial strategy, in our efficiency program, in our ecosystem, in our B2B revenues growth. For next quarter, we are seeing similar trends. And I will say that for the rest of the year, we are seeing in H2 even better than H1, then our result is that we can confirm our outlook that is to grow above 2025.

Regarding Germany, I have to say that in Germany, we are best-in-class company managing the efficiencies. We have launched several cost efficiency programs that results in an underlying EBITDA growing and it is based in different elements of the company, everything around channels, cost channel, everything about energy, everything about the operating model, all the aspects are reviewed. And as a result of everything is a good performance in this kind of efficiency programs.

Can I just follow up on the Spanish side of things. Are you seeing any improvement in market dynamics? You've done the [ price rise ] this January. Are they holding better than last year? Or is it more company-specific assets that's driving that improvement?

I would say that we feel more comfortable than other peers in our commercial trends. Again, the fundamentals that we are managing in Spain are key fundamentals. Our offer is our [ segmented ] offer demonstrate that is the right approach in this market. The [ manage ] of the ecosystem really is performing very well with a very strong position in around the consumer electronics or the financial options in -- of the [indiscernible] market. We have reached more than 600,000 clients at this moment. And everything demonstrates that the main elements of the offer and the main effects that we need -- that happened in the market is on the table. In the case of B2B, we are growing at the same level that we're doing during the last years and demonstrated that Telefonica Spain is the best in terms of IT services in -- as a telco in Spain or we say, in Europe.

[Operator Instructions] And your next question today comes from the line of Mathieu Robilliard from Barclays.

I had a question on Germany. We see that there's a step down in the mobile ARPU trends in Q1. And I wanted to understand what was behind that and what we could expect for the rest of the year and whether that reflects more competition or you see a similar competition.

And then coming back to the question from Andrew. So you're saying that -- you didn't really comment I think or at least I didn't get that, about the competitive environment in Spain. And so if you could clarify if you think it has improved a bit since the beginning of the year or it's pretty stable.

Thank you for your questions. First of all, about the ARPU in Germany. Let me say, first of all, that the ARPU is the result of different effects. And one of these effects, for example, is the change in our strategy. We think that we are launching a more successful strategy in terms of 2 and 3 SIMs bundles. This is an example of how to move from volume to value, and it can have impacts in the ARPU in this case, but we think this is the right way.

Anyway, I'm going to hand over to Santiago Argelich in order to give you more color about this.

Yes, Mathieu. So when looking at the ARPU, it is impacted by the success of family plans, which naturally result in a dilution of ARPU. We have a higher share today on second and third SIMs, which consolidate our household and convergence strategy. The market overall has largely embraced the family plans. The O2 ARPU performance is in line and even slightly better than the competitors ARPU in this sense. What's more important is that our household ARPU is growing year-on-year.

I guess a follow-up to that is, we don't really see the net adds accelerating in Q1. So I wonder how can we reconcile better SIM cards, which obviously has to be the case is the fact that net adds are not really moving up.

The net add results is again a mix of different strategies. One is the single bundling, but other strategies to move from value to -- from volume to value or even to reduce promotional activity. And then the results in the [ KPIs ] is a [indiscernible] of these aspect. But at the end, we believe that this permit us to have a more profitable way to grow in Germany.

And secondly, regarding again about Spain competitive environment. We don't see an important change in front of us. We are seeing a rational market in the high-value market and our expectation that everything following the same in the same way. And in the case of the low end, it's a more competitive market, but we think that we are not expecting a special change in this market, too. But anyway, we think our O2 strategy, our [ cemented ] strategy permit us to be very resilient and most of the movements that can happen in the market. Remember, for example, that in the first quarter, we have increased the prices, but we have reached the lowest churn ever.

Your next question today comes from the line of Carl Murdock-Smith from Citi.

That's great. I wanted to ask firstly on expectations for other EBITDAaL going forward. So other was the biggest absolute beat versus consensus in today's results at EBITDAaL. If I go back a few years, before Hispam was included in other, other EBITDAaL used to be broadly flat to slightly negative. Obviously, other now includes Hispam, but then you sold most of those assets. I was just wondering if you could help us with what we should be expecting for other going forward? Should we expect it to revert to the broadly flat EBITDAaL we had seen a few years ago? Or has something structurally changed, meaning that today's kind of circa EUR 50 million positive quarter result is sustainable going forward?

And then secondly, I just wanted to ask a bit about why we're seeing such differences in mobile handset trends in different markets. In Germany, you've seen 15% handset decline and you're citing launch cycles and availability of devices as well as lower demand. But then in Spain, handset revenues are up 7%. So why have launch cycles impacted Germany but not Spain?

Okay, Carl, I will take the first one on other. As you know, other is a group of bits and pieces. In the last quarter, we have here the Hispam units. But as we have kept on selling and discontented them, there's been quite a lot of movement. Right now, the only asset, Hispam asset here are Venezuela and the holding company and some other minor assets there. You also -- what we've seen this quarter is a positive performance from Telefonica Tech, offsetting the weakness of other global units. By being more specific on that as a result of the sales in Hispam, these are affecting, for instance, our procurement units. And that's -- those are the ones having a small negative. So all in, we expect this to be rather stable during the year. But as you know, we don't guide for this line.

Regarding the handset revenues, I have to say that the market has a different situation. In some markets, clearly in Spain and Brazil, we have a range of consumer electronics that we are selling in the market wider than in other countries and permit us to be more resilient in the change that the market has had due to the different -- or phasing of the lines or due to some shortage in the supply chain.

In the case specifically of Germany, we have less revenues, handset revenues due to these less range of product that we sell, and the results of Q4. Q4 in handset sales was very strong. And then the comparison with Q1 is worth of Q1. And even in the case of Germany, we have reduced sales in some specific channels due to the supply chain situation. But anyway, this kind of sales are at a very low margin size.

That's great. And can I just ask a clarification on other, when you said stable, does that mean 0? Or does it mean the same as Q1 compared to the rest of the quarters of the year?

Stable versus what you've seen in this quarter.

Your next question for today comes from the line of David Wright from Bank of America.

Just a couple of -- well, essentially a higher level question. There was a lot of discussion last year following the change in management around scale in the business across Telefonica Group. Now obviously, we've seen where there is lack of scale, perhaps in LatAm, we've seen the rapid divestment there. But apart from that, not really too much change. And I guess, when I now look at Germany, there is a clearer strategy. There is an accelerated cost cutting. Is Germany okay here? Or does Germany need either more customer scale or perhaps less capital allocation? Could you look to change that business at all? Or are you very happy with where it is right now?

And if I might also ask the same question in Spain, you have a very strong position in the premium market. But I think, how can I say this, it's sort of half a toe in the water in the lower end with O2. Do you need more scale in the low end of Spain? Do you have an ambition to have more scale in the low end of Spain? Or again, are you happy where you are? The reason I asked the question is there was a lot of talk from your Chairman about scale. But so far, we haven't seen too much action.

Let me say that we are happy, of course, with the scale that we have. We have developed a Transform & Grow program based in the asset that we have, and we are pretty sure and we feel comfortable, confident that we are able to reach our target, our guidance in the plan with the scale, with the operations that we have. Of course, we have talked -- we talked a lot during the last month about the opportunity for more scale related to create or to invest in technology in Europe and related to be more profitable. Of course, scale in telco business is provide better profits. But we feel that with the operations that we have, with the site operation that we have, we are able to compete in the markets in the right way, in a profitable way.

Let me answer your second subdue question, which is asking about M&A, without mentioning M&A. So we don't comment on specific transactions or rumors. In this case, what I would say is our business plan is organically based. We have a plan to organically grow in Germany and Spain and we'll scale organically. That doesn't mean that we will not consider opportunities where it makes sense as we have seen done, for instance, in Libery and Netomnia, and opportunities may happen in Germany if that's the case or even in Spain. So we will consider them as long as they fit on our M&A criteria, which was core markets, core business, a clear and measurable synergies and right terms.

Your next question today comes from the line of Nick Lyall from Berenberg.

It was a couple of questions, please. The first on German ARPU to come back to Mathieu's question, please. How much more can ARPU benefit from the removal of promotions and the price rises that you talked about towards the end of the quarter. And with the value strategy, is it sensible to assume you're going to at least maintain ARPU at this level from here through the year, even with the family SIM cards added in?

And the second one was probably going back to David's point just there on M&A is that you've seen the draft merger guidelines now. Is there anything in there that slows you down on this gaining of scale if you want to do it? Is there anything that you object to or the concern wasn't addressed, please?

Okay. Nick, thank you for the question. For the first one, I'm going to hand over to Santiago. Just only to remember that ARPU is not the only KPI related to value. But anyway, I'm going to hand over to Santiago to give you more color about that.

So we are seeing an increasing mature market with lower activity, commercial activity, the core business momentum in Germany remained resilient and the customer postpaid mobile service revenue was flattish, okay? So that creates an outlook in Germany of a potential stability and that would create the base of, let's say, positive outlook on the ARPU evolution in the next period.

The quality of the citizen customer base is steadily improving for us. We are constantly growing the number of customers with multi-SIM and converged contracts supported by customer loyalty and the overall mobile service revenue trends. So we are looking to an ARPU that will be impacted by the success of family plans, which naturally result in higher share of second and third SIM cards in the base. In a market that has largely embraced family plans, the O2 consumer ARPU performance is in line or even slightly better than the competitors ARPU.

And Okay. Related to the second question about the mergers guidelines. I will say that from the point of -- theoretical analysis of the new guidelines, we think that these guidelines are more close to our ambition. I think this guidelines are opening the option to consider other reasons in order to evaluate the mergers. I'm talking about investment, I'm talking about creating technology and so on. And then again, from the theoretical point of view, we are happy with the evolution in the reasons that are behind these guidelines. Anyway, again, this is theoretical. We have to see if really the change is a real change when we see any operation that can be analyzed under this new umbrella.

Your next question comes from the line of James Ratzer from New Street Research.

Yes. I have two questions, please. The first one, if we can, let's just stick with Germany again for a moment. Maybe you can help us to be a bit more kind of specific on the numbers because I think in Q1, mobile service revenues were down 8.5%. Obviously, that's very influenced by the one-on-one migration, but you don't disclose the underlying revenues, excluding one-on-one. Now I estimate that might be around minus 2% year-on-year. So really, I suppose, first question is, do you think that's a fair estimate? It looks to me like that trend has been stable for the last few quarters. So as we go through the year, do we see service revenues kind of improve, but we're exiting the year at a kind of minus 2% run rate? I'd just love to kind of hear a bit more about where you see the underlying overall revenue growth and how that might develop through the year.

And then secondly, it's widely reported that you are leading a consortium to bid for one of the AI gigafactory, and in particular, the kind of Spanish government-backed project in Spain. So if you were to win that contract, could you kind of give us an order of magnitude of how much capital do you think Telefonica might have to deploy into this AI gigafactory project? And can you then talk us through how you'd expect to make a return on that capital as well? And what kind of IRR you think is feasible?

Okay. Thank you for your questions. That's right, we don't discuss the underlying revenues, but we can say that we are really stable as other quarters. We don't see a critical change in this evolution. The service -- the whole service revenue, the total service revenues of this quarter is very impacted, as I mentioned during the conference call, due to the one-on-one effect [indiscernible], and then answering without figures because we don't give the figures, answering you again, we see the underlying being very resilient in revenues and being very positive even in EBITDA. This is fair.

Regarding the second question, just to clarify any -- we are at the beginning of the process, and I'm going to hand over now to Borja Ochoa, to explain a little bit more of the process. But anyway, the investment that Telefonica can do here is always limited. And of course, in the parameters that we consider that are value accretive for the group.

I'm going to hand over to Borja Ochoa to give you more color.

Thank you, James. Yes, exactly. We are participating in the process of building a gigafactory network all around Europe. We are leading the Spanish consortium. And right now, we are concentrated in all the works behind the preparation of the offer or the final offer. In terms of time frame, the final -- the offer has to be presented between June and July, and we are expecting outcome by the end of the year. We cannot give any further information apart from that.

Okay. But it sounds like the kind of potential capital size would be limited, i.e., kind of like only a few hundred million euros? Or is that even too much?

Let me take that one. Leading from an operational level, but as Borja said, from an investment level, we're talking about a minority. And when I talk minority, I'm talking about between 10% and 15% or something around that. So it's below, it's definitely below the amount you're saying because you have to remember that around 2/3 of that, if not more, is financed via debt. The rest is equity. I mean it's a consortium with the state, and we're only taking an amount of that size. Therefore, the amount is way lower than the figures you put. And the returns that you mentioned will be consistent with returns in the infra digital world.

Your next question today comes from the line of Joshua Mills from BNP Paribas.

There were reports in the press earlier in the year around potential German consolidation and some suggestion that from a Telefonica perspective, one-on-one's network quality might be an issue in any future negotiations. I'm not expecting you to comment on that specifically. But could you maybe give us a high-level view of how you think about the value in any potential consolidation deals, be that Germany, Spain, U.K.? And then perhaps more specifically, how you view the importance of the network quality of competitors. The reason I'm asking is, I think a lot of people view consolidation upside as really a debate around market repair, potential cost, which is [ broader ] than network complementarity. So I'd love to hear your view on that.

Let me start answering you about the network, and I'm going to hand over to Juan to talk about the M&A options. We are very happy with the evolution of the network in Germany. We have reached the second position as -- in terms of quality in the market. And this perhaps or not can be important in any potential consolidation in the future or not, but it's sure that is critical in the performing of Telefonica Germany in the next coming years. And then I think this is not the key reason for the -- to develop a very high-quality network is mergers or acquisition is the quality of services.

And now I hand over to Juan in order to give you more color about the M&A process.

Just one, not sure much color I'm going to give you because in real terms, as I've said, we will pursue transactions that are value accretive and therefore, that have key measurable synergies. And that's quite [indiscernible]. That's mostly cost and network. That's what you can quantify. Yes, there's always revenue synergies, but then those, you have to you have to believe in them. So it's cost and network synergies. And these changes between market to market, different deals and different structures. So Netomnia, there is some revenue synergies. It's mostly CapEx synergy of us having access in fiber, but that can be different depending on the transaction.

Our next question today comes from the line of Fernando Cordero Barreira from Banco Santander.

The first one is in Spain, and I would like to zoom a little bit more in the wholesale revenue line performance after falling mid-single digit last year in a year-to-year basis, we have seen a material [ deceleration ] on that [indiscernible]. And I would like to understand what has been the driver and what should we expect for coming quarters from wholesale in Spain?

And the second question is coming back to Germany, but now on an organic point of view. One of the key messages that you have shared in your Capital Markets Day was your push for convergence in Germany. I would like to understand, which kind of steps are you pursuing on that front?

Fernando, thank you for your question. In the case of the wholesale revenues in Spain, you have to see -- to know that the line is wholesale and others. In this case, there are some linear -- nonlinear effects that improve this line. We are seeing the impact of the wholesale new agreements for the next quarter and probably, the peak of this effect will be in the second quarter of the year. But again, the first quarter is impacted by some nonlinear impact, and some comparison with the last year. Anyway, the evolution of the wholesale is an absolutely expected evolution. It was included in our expectation and then is included in the outlook that we are giving to you that we are expecting to improve H2 compared with H1.

Related to German question, we said this is our strategy to develop the convergence in Germany. And we are working hard in order to develop our fixed business, that is the part -- or the convergence that we have to do more effort. In this case, we don't -- we can't explain so much about the negotiations that we have, but we are working in order to have better access to the infra networks of our competitors and our providers, in this case, in Germany.

If you allow me to complement. Yes, this is Santiago. Just to complement the answer from Emilio. Just we are working on realignment of our offer portfolio to increase our attractiveness in multi lines at the household level. You have seen the accelerated traction in the fixed in Q1, which will also help us to combine better mobile and fixed. And additionally, we are planning to sell and combine digital services for the home, be it TV or other services that we already commercialized in other markets.

Operator, we'll take one last question.

We will now take the final question, and your final question comes from the line of Fernando Abril-Martorell from Alantra.

In Spain, a couple please. In Spain, just to confirm, Emilio, when referring to improving momentum in H2, were you referring mainly to top line trends rather than EBITDA? And also linked to this, how much of the restructuring savings were already captured in Q1 and how much remains to come through over the rest of the year?

And second question on guidance. So Q1 performance was already within the guidance range. However, Germany appears to have bottomed out. Brazil remains quite strong. And Spain should -- you also mentioned this, but restructured savings should also have greater impact through the year. So my question is, am I missing any relevant headwinds for the remainder of the year? Or is it just a simply conservative guidance?

Fernando, thank you for your question. Regarding the first question about the [indiscernible] problem in Spain, it's true that the impact in the Q1 is limited because we started the last month of the quarter around EUR 20 million, and around EUR 250 million during the whole year. But the EBITDA that we are seeing for H2, the same improvement that I mentioned for the rest of the financial [indiscernible] is a result of several impacts. [indiscernible] is one, the price increase is other, the cost increase is other, the salary increase is other, the wholesale agreement is other, the ecosystem is other, the B2B development is other. the result of everything is that we are seeing a better to compare with H1 in the financial metrics.

In the case of Germany guidance. In the case of the Germany, we are seeing better results in H2 compared with H1. This is our expectation for Germany for the rest of the year.

Okay, excuse me. I forgot part of the question. And regarding the guidance of the group, we are very confident to reach our targets and the headwinds -- and the tailwinds are based on the improvement in Germany, improvement in Spain and the solid performance in Brazil.

At this time, no further questions will be taken.

Thank you very much for your participation, and we certainly hope that we have provided some useful insights for you. So if you still have further questions, we clearly ask you to contact our Investor Relations department. Good morning, and thank you.

Telefonica's January to March 2026 results conference call is over. You may now disconnect your line. Thank you.

Good morning, and welcome to Telefonica's conference call to discuss January to December 2025 results. I'm Torsten Achtmann 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&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.

Now let me turn the call over to our Chairman and CEO, Mr. Marc Murtra.

Good morning, everyone, and welcome to Telefonica's Fourth Quarter and Full Year Results Call. I am here today with Emilio Gayo, Chief Operating Officer; Juan Azcue, Chief Financial and Corporate Development Officer; and Lutz Schuler, CEO of Virgin Media O2. Last November, at our Capital Markets Day, we presented our strategic plan, Transform and Grow, that had a clear challenge to provide citizens the best access to digital technologies.

The fundamental access on a high level are clear for us. We are committed to offering additional and enhanced customer services to drive growth in our core markets. We are building a more innovative and competitive company simplifying business units and shifting operational responsibility to markets with an ambitious and effective management focused on growth and efficiency, absolute commitment to guidance and financial discipline, and we are building a stronger, more competitive European operator.

These access on purpose fit our 2025 results, where we delivered on our commitments and where we achieved important milestones. Let me highlight the 2025 results. where we have delivered on our financial commitments in 2025.

At the same time, we made significant progress setting the business up for a stronger future. Importantly, we exited the year with improving momentum. In the quarter, momentum continued with adjusted EBITDA and operating cash flow after leases accelerated.

Adjusted EBITDA constant ForEx growth reached 2.8% and adjusted operating cash flow after leases grew nearly 13%. B2B was particularly highlight, growing 7.3% in the quarter. Our business performance was equally encouraging. In Spain, we delivered the strongest growth in more than 7 years on the back of our premium positioning and improved commercial performance.

In Brazil, our customer base grew to record levels. And in Germany, consumer perception of the O2 brand continued its positive trend. Beyond the financial results, we continued to both simplify and drive long-term value creation for the Telefonica Group. We accelerated the pace of our portfolio transformation, significantly reducing our exposure in Hispam and have now more or less exited the region with 6 out of 8 markets sold.

We also reached a formal agreement with our labor unions to improve productivity in Spain, and this agreement is currently being implemented. This is an important step to build a leaner and faster-moving organization. These are part of a broader efficiency drive that is already flowing through our cost base. Taken together, these achievements represent a solid foundation for 2026 execution.

Moving to Slide 3. At the Capital Markets Day, we defined the 6 strategic pillars underpinning our Transform and Grow strategy. During the end of 2025, we have already executed on these pillars.

The first 3 are delivering a best-in-class customer experience, expanding B2C offering and scaling B2B. Let me highlight some of our achievements here that we are looking to build on in the future. In 2025, our network leadership drove commercial results. We won customers, retain them longer and delivered services they value as our NPS and customer lifetime value reflected.

We also secured our leading position with, for example, the renewal of La Liga and the UEFA rights in Spain. In Brazil, Vivo total represents 43% of FTHH customers and we believe that we will grow that as we expand the customer proposition. We are building out the ecosystem into smart home, security, fintech and consumer electronics.

In Germany, fixed broadband expansion is the path to converge our strong mobile base. The fourth pillar, evolving technological capabilities, we continue to invest in the best network experience for our customers. Beyond building networks, we are changing how we operate them with advanced automation, for example.

The fifth pillar is simplifying our operating model. Our goal is making a leaner, more agile Telefonica, ensuring our investments deliver improved returns. Copper switch-off in Spain was a milestone this year and has already started in Brazil. The workforce transformation agreement is concluded and on track to deliver approximately EUR 0.6 billion in run rate savings by 2028. We made clear progress on portfolio management execution, completing 4 Hispam exits in 2025.

Let me now turn to the priorities for 2026 in our Transform and Grow plan that will drive the next phase of growth. Delivering best-in-class customer experience is one of the clearest way to drive long-term value. When interactions are simpler, and more tailored satisfaction increases, leading to greater loyalty, higher ARPU, lower churn and higher customer lifetime value. At a group level, we are focused on ensuring faster incident resolution, and we are also rolling out AI-based hyperpersonalization across key channels.

This effect is included in the 2026 CapEx of the group. In B2C, we are further driving convergence and deepening customer relationship by bringing more into each household. Customers who bundle multiple services such as connectivity, content devices and other services stay longer, spend more and churn less. This creates a structural opportunity to grow ARPU efficiently.

In B2B, we are scaling our digital services portfolio across the group with a particular focus on cybersecurity and cloud as well as defense in Spain. Our trusted position with enterprise and public sector clients give us a strong foundation to grow recurring revenues.

2026 is already a significant year for cost efficiencies. We are accelerating the simplification, optimizing leases, renegotiating vendor contracts and streamlining structures. In Brazil, we're now shutting down our copper network to concentrate our resources on a single modern infrastructure.

We continue to focus on Hispam exit, already have closed 2 transactions in the year-to-date. Last week, Nexfibre announced the acquisition of Netomnia to become the largest full fiber outnet in the U.K. and will reach 8 million premises passed.

We achieved this without a significant equity contribution from Telefonica. These initiatives show how Transform and Grow comes to life. We entered 2026 with a focused portfolio, stronger commercial momentum in core markets and a clear set of priorities already in execution.

Moving to guidance for 2026. We expect constant revenue and adjusted EBITDA growth of 1.5% to 2.5% and CapEx to sales ratio of around 12%. We expected an adjusted operating cash flow after leases growth of more than 2%, demonstrating operating leverage at the adjusted operating cash flow after leases level.

We expect free cash flow of EUR 3 billion, an upgrade to the upper end of the range given at the Capital Markets Day, supported by the Q4 momentum. We continue to expect leverage to progress towards our target of 2.5x net debt divided by adjusted EBITDA in 2028 to which we are fully committed to. We reconfirm our EUR 0.15 dividend per share in 2026. We also reconfirm all of our 3- and 5-year targets outlined at the Capital Markets Day.

Now let me hand over to Emilio to take you through our operational performance in more detail.

Thank you, Marc. On to Slide 6 to review our domestic business. 2025 was a landmark year for Telefonica Spain, delivering growth and record-breaking achievements. We recorded excellent commercial performance reporting in 2025, the best KPIs since 2018.

This is the result of a strict daily execution to deliver excellent service, leveraging our superior network and quality, a strong ecosystem and digital services and a smart segmentation, all driving high customer satisfaction with the best NPS being a competitive advantage.

I am proud to highlight the record fiber and TV net ads and a robust portability ratios. We achieved the highest customer base ever in contract mobile and fixed broadband. Convergent ARPU remains at leading levels around EUR 90 and churn reached 0.7% in Q4, the lowest level since we launched our convergent proposition.

The key drivers of churn reduction is the improved customer experience. Our focus on operational excellence and improvement in key processes allowed us to reduce call volumes by 10% and claims by 50% in just 3 years. In B2C, our digital ecosystem and premium content are key levers to increase loyalty and customer lifetime value.

Customers with alarms exceeded 600,000. Customers with football grew year-on-year and 3 out of 4 customers have a device. All these customers have a significant lower churn while driving revenues up. In B2B, we also have a strong momentum. We are the best positioned player in the IT business, which is a growth engine. Lines such as Titan Connect assure continuous connectivity for businesses and drive new digital services that will foster further growth.

From a financial standpoint, Spain is delivering profitable growth and solid cash generation with all key financial metrics growing at the same time for the first time since 2008. Revenues grow steadily supported by both residential and B2B with IP maintaining double-digit growth.

Adjusted EBITDA continues to grow year-on-year with margins around 57%, reflecting operating leverage and cost discipline. New personnel efficiency initiatives signed at the end of 2025 that will deliver more than EUR 250 million in savings by 2026.

Finally, our CapEx intensity supports sustainable adjusted EBITDA and cash flow growth with fiber and 5G networks already deployed. To sum up, 2025 has been a remarkable year for our business in Spain, delivering a strong performance and better positioning us to capture growth ahead. In 2026, we aim to accelerate year-on-year growth rates across key financial metrics, leveraging further commercial momentum and execution of our efficiency agenda.

On to the next slide. Telefonica Brasil consolidated its position as the leading digital platform in the market, delivering a strong commercial and financial performance in 2025.

Our operating strategy proved successful in Vivo reached an all-time high in the accesses base. At the same time, our focus on upselling data, new B2C digital services and convergence enhance the lifetime value of our accesses. In mobile, differentiated network quality and customer experience, drive growth in the contract segment with positive portability versus all operators.

ARPU continues to grow, while churn remains at very low levels. In fixed, fiber connection increased double digit mainly driven by our flagship conversion offer and churn reduction. Vivo Total saw an impressive increase year-on-year and already accounts for 53% of fiber connections, setting a new standard for quality and customer retention.

On financial, let me highlight the solid growth above inflation in key metrics. Revenue, adjusted EBITDA and operating cash generation increased year-on-year in real terms, with growth rates accelerating across all metrics, showing Vivo's operating leverage.

Revenue increased over 7%, thanks to the robust acceleration in mobile service revenue in the fourth quarter and the strong growth in new businesses. In B2C, revenue from the ecosystem, including health and wellness, consumer electronics, financial services and entertainment rose more than 20%. The penetration of these services provide a significant upside.

In parallel, the B2B segment marked it's stronger revenue growth in last years. This performance reflects the growing demand for digital solutions, which already represent close to 40% of B2B revenues. Adjusted EBITDA grew 8% in the quarter, while adjusted operating cash flow after leases rose almost 20%, thanks to the sound revenue growth and solid operating cost structure.

In summary, once again, Vivo delivered a set of strong results, showing real growth across main financial KPIs, boosted by quality commercial growth and the focus on customer experience.

Our ambition for 2026 is to continue growing revenue and adjusted EBITDA above inflation, supported by mobile, fiber, B2B digital services and new B2C businesses as well as by the benefit unlocked by the migration from concession to authorization.

Moving to Slide 8 to discuss Germany. Our core business momentum continued in the fourth quarter in a market where we have recently seen signals pointing towards a reduction in promotional activity. The O2 brand was a key driver of mobile contract trading, benefiting from our key strength, network quality.

Network rollout and densification continued at a high pace, bringing 5G population coverage to 99%. We achieved the target of questioning nationwide coverage according to plan. The Connect Magazine rated O2 network quality as very good, and we made a quantum leap forward to achieve second place for the first time.

In the 5 biggest German cities, Connect even rated the network as outstanding. Contracts were robust in the quarter, while churn remained at a low level of 1.1%. Notably, IoT accesses growth accelerated in the fourth quarter.

Fixed broadband reaffirmed its return to slight growth for the second quarter in a row, while ARPU continued to increase. B2B segment offers huge growth opportunities with some initiatives already paying off and supporting underlying revenue growth in 2025.

Regarding financial results, revenue and adjusted EBITDA declined mainly reflecting the completion of 1&1 customer migration by year-end and tough comps with Q4 '24. We continue to deliver on our efficiency plan and a strict cost control but the contributor -- the contribution is not linear.

To highlight in 2025, underlying financial performance was positive year-on-year. With an EC already in place, we continue working on defining and executing further transformational growth and efficiency initiatives in Germany. Our high-quality network and a solid brand positioning laid a foundation for a return to growth in 2027 after leaving behind 1&1 impacts alone this year.

Moving to Slide 9. Virgin Media O2 ended 2025, delivering guidance with a strong progress in the fiber network and 5G deployment. We improved fixed line trading for the second consecutive quarter, reflecting progress in commercial initiatives such as Netflix and an improved retention strategy despite strong market headwinds.

Mobile contract ARPU grew 1.2% year-on-year. while net adds were affected mainly due to the October price rise announcement, elevating churn in the no-closed 30-day exit window, Revenue and adjusted EBITDA trends continue to be impacted by lower handset sales, net fiber construction and the intense competition, which mainly impacted the consumer fixed revenue. However, 2025 guided revenue increased 0.2% year-on-year and guided EBITDA increased 0.9%.

In summary, Virgin Media O2 is scaling its infrastructure while streamlining operations to pave the way for long-term profitable growth. The revenue and adjusted EBITDA expectation for 2026 reflects increased promotional intensity and ongoing uncertainty in the consumer fixed market alongside planned simplification for the B2B product portfolio.

Continued cost efficiency will support profitability but will be partially offset by a higher number of customers on Nexfibre footprint with associated wholesale fees. Finally, Nexfibre announced last week the agreement for the acquisition of Netomnia. This acquisition will strengthen our network, accelerating fiber rollout and penetration with a clear value creation through VMO2 and Nexfibre.

On to Slide 10, review our global units. First, in 2025, Telefonica Tech confirmed its position as the engine for our B2B growth in digital services. Revenue growth rate accelerated quarter-on-quarter, boosted by Spain, where we recorded a strong growth in IoT [indiscernible] sales.

In 2025, revenue increased close to 20%. This performance is driven by the strong demand in Europe, where we see huge opportunity to grow. We continue to scale our capabilities to capture the digitization opportunity while making progress on the operating model simplification. Additionally, we have sold operations in Hispam.

Regarding Telefonica Infra, let me highlight that our fiber costs represented 24% of group deployment in 2025. Also, our subsea cable business delivered sustained profitability in 2025 with an EBITDA margin of over 45%.

Now let me hand it over to Juan, who will present the main financial topics and ESG.

Thank you, Emilio. It's a pleasure to be speaking with you for the first time as Chief Financial and Corporate Development Officer. Let me take you through the financial details for the quarter and the full year.

Starting with the full year. Revenue reached EUR 35.1 billion, growing 1.5% year-on-year in constant terms. Adjusted EBITDA came in at EUR 11.9 billion, up 2%, and adjusted operating cash flow after leases grew 5.9% to just over EUR 5 billion.

CapEx to sales came in at 12.4%, within our target. We reported free cash flow of EUR 2.8 billion, above our base guidance of approximately EUR 2.7 billion. The free cash flow included employee restructuring commitments and VMO2 dividends reached EUR 2.1 billion, exceeding our updated guidance for 2025.

Net financial debt decreased 1.2% year-on-year to EUR 26.8 billion, helped by our exits in Hispam. Q4 trends reflected the underlying momentum in the business. Revenue grew 1.3% in constant terms, adjusted EBITDA 2.8% and adjusted operating cash flow after leases nearly 13%.

Free cash flow accelerated to EUR 1.4 billion in Q4, with net debt down by the same amount. Foreign exchange was a meaningful headwind through 2025. A drag of around 3 percentage points in revenue, adjusted EBITDA and adjusted operating cash flow after leases. That impact lessened in Q4.

A quick notes on perimeter. After Hispam disposals, Argentina, Peru, Ecuador, Uruguay, Colombia and other small companies are classified as discontinued operations. alongside the segment reclassification of Hispam with Chile, Venezuela and Mexico now reported under other companies. These are the portfolio decisions Marc referred earlier. They affect comparability but they create a stronger, more focused business going forward.

Looking at the revenue mix. B2B grew 7.1% in constant terms for the full year and 7.3% in Q4. B2C revenue increased to 2.1% in Q4, up 1.8% for the full year. To summarize, we delivered on our 2025 guidance. The business exited the year with improving trends and the underlying quality of earnings is strengthened as well as we head into 2026.

On to the next slide and turning to free cash flow. As usual, the majority of cash generation was concentrated in Q4, consistent with our typical seasonability. In 2025, we generated free cash flow of EUR 2.8 billion, exceeding our initial free cash flow base for guidance of EUR 2.7 billion.

For 2026, we are upgrading our guidance to approximately EUR 3 billion, the upper end of the range given at the Capital Market Day. The path to get there is underpinned by a positive operating performance and efficient cost management of all lines below.

In the next slide, our net debt-to-EBITDA ratio fell to 2.78x in December from 2.87x in September. Net financial debt at year-end declined to EUR 26 billion, including the sale of Colombia, Chile and the Fiberpass stake, net debt fell to EUR 24.6 billion. Telefonica is well on track to achieve our leverage target of around 2.5x by 2028.

At the end of December, we had liquidity of EUR 17.4 billion, which is a significant higher than our upcoming debt maturities. The average cost of debt has been reduced by 0.21 percentage points year-on-year to 2.98% in December. We continued with our proactive financing -- refinancing approach during the first months of the year.

We already successfully issued a green hybrid bond of EUR 1.8 billion to refinance hybrids with reset dates in December '26 and November '28 at very attractive conditions. Therefore, we have ample flexibility to refinance the next hybrid with the first reset date in May '27. On top of that Telefonica issued a CHF 170 million bond and a EUR 1 billion green bond demonstrated strong market access and ESG financing leadership.

We will continue with our prudent financial policy and free cash flow management, which are key priorities for us. On to the next slide. Let me spend a few moments highlighting Telefonica's financial priorities. Growing our free cash flow in a predictable manner is central to everything we do. Strong and growing free cash flow give us the optionality to invest in our business, return cash to shareholders and do value-accretive M&A if it makes sense.

We will deploy that cash flow to grow Telefonica sustainably. With a clear guardrail to maintain our investment-grade rating and continue our deleveraging path towards a 2.5 ratio by 2028. Our dividend policy is sustainable and aligned to free cash flow generation, as our cash flow grows, so does our capacity to reward shareholders.

On M&A, our framework is clear. We will be opportunistic and disciplined. Any transaction must deliver clear, compelling and measurable synergies, create value for our shareholders, be within our leverage target ambitions and compatible with our commitment to our investment-grade rating. We will not compromise our balance sheet to just add revenues. We have no interest in transactions that dilute the quality of the business we're building.

Every opportunity will be judged on its merits. And if it doesn't meet our criteria, we won't pursue it. More broadly, our focus is on building improved financial flexibility. The combination of the risk and growing free cash flow, a clear deleveraging trajectory and a disciplined capital allocation is what positions Telefonica to create sustainable value for our shareholders.

Turning to our sustainability initiatives. On the environmental front, we continue to cut emissions, making the business more efficient while ensuring stable energy costs. On the social side, we highlight the expansion of our rural mobile broadband coverage, which allows us to provide more communities with secure digital services.

Moving to governance. We are actively strengthening our supply chain resilience, including over 17,000 sustainability-related audits in 2025. Lastly, we are proud to report leadership position across several prestigious international rankings.

I will now hand back to Marc, who will wrap up.

Thank you, Juan. Let me close with where we stand and where we are heading. Telefonica delivered on all its 2025 commitments with accelerating momentum in Q4. Across our 4 markets, Spain, Brazil, Germany and the U.K. we made strong operating progress with each market advancing on its strategic priorities.

We continued to simplify the business. Our efficiency initiatives are ramping and the workforce restructuring is on track. Telefonica is a leaner and more focused company than it was a year ago.

Looking ahead, our 2026 guidance reflects continued momentum with growth in revenue and adjusted EBITDA, accelerating in adjusted operating cash flow after leases and free cash flow upgrading to approximately EUR 3.0 billion, supporting both our dividend and our deleveraging path.

During 2026, we already executed the sale of Chile and Colombia, under Netomnia acquisition. We are executing on transform and grow with a clear framework, driving growth with consolidation as an upside. We have a strong foundation and the best plan to become a world-class European telco with profitable scale. I'm confident in our strategy that will drive shareholder value creation.

Thank you for your time. We are now happy to take your questions.

[Operator Instructions] Our first question comes from the line of Andrew Lee from Goldman Sachs.

I had a couple of questions on operational organic issues. Firstly, on Spanish growth and then secondly, on free cash flow generation outside the EUR 3 billion you are guiding for 2026. Just on Spain, obviously, you're growing and it's improved versus a year ago, but the growth seems stuck on 1% service revenue and 1% EBITDA growth over the past few quarters.

You talked quite clearly about an acceleration and expectation of an acceleration in growth in 2026 today. Do you think the EBITDA growth is accelerating or will accelerate without the EUR 250 million of restructuring efficiencies. If so, why is the underlying EBITDA growth accelerating? And if not, why not?

The second question is on free cash flow generation. Your previous guidance, the employee contributions in 2026 would be higher than the EUR 1 billion originally planned in 2025. Do you still expect employee contributions to be higher than EUR 1 billion in 2026? And also we know that U.K. dividends will be lower this year. Are there any other below-the-line free cash flow movements we should be aware of below the line by that. I mean, below the EUR 3 billion that you're guiding for 2026. Are there any other below the line movements we should be aware of that you are anticipating?

Thanks, Andrew. Emilio will answer the first question and Juan your second question.

Okay. Andrew, thank you for the question. All the saving measures that we are taking in Spain is part of our guidance for '26. We are seeing acceleration in all the financial metrics, both in revenues, EBITDA and operating cash flow after leases. But it's true that restructural savings coming from the agreements is part of this equation.

The reason that not all the savings of the restructural savings goes to the EBITDA is because there are other parts, for example, wholesale revenues that are declining. As you know, in 2024, we signed several agreements that led us to have a very sustainable business for the next coming year in wholesale. But at the same time, in the first year of the agreement, means declining of our revenues.

And other costs that increase, for example, is the personnel cost that is not included in the restructural agreement. Of course, we are facing a change in the revenue mix that bring business or revenues with less margin. And because of that, we are looking for saving in all the company, that is possible. Technology and the evolution of the company permit us to find savings in a lot of activities.

For example, I had to highlight the savings that we expect for the procurement and purchase processes that we are working now in a group level, but of course, in Spain too.

Thank you, Andrew, I will take your second question on free cash flow '26 generation and commitments. So as we pointed out, we upgraded our '26 free cash flow to approximately EUR 3 billion at the upper range of our range given at the CMD. This is underpinned by a positive operational performance and the efficient management of all lines below. The operational performance, we are seeing it already in Q4, and that's the reason why we're guiding to over 2% constant growth in '26 for adjusted operating cash flow.

On the parts below, we do see a risk free cash flow with a free cash flow profile that has changed meaningfully and is more predictable and less volatile. Below operating cash flow, there are different lines that compensate into one with others. But overall, my answer will be that the reason for us to increase and see -- and be more positive on the EUR 3 billion is related to operational performance.

Now your second question was on commitments. We guided to $1 billion commitment in '25. '26 will be a year of transition. And although the amounts are not fully finalized because there might be changes between which part goes as one-off pay and severance and how much is deferred, you should think about a figure around EUR 1.2 billion as the peak. That would be the peak of the commitments and then they will go downwards and fade away over time. You had mentioned -- you mentioned the dividend and the impact on the dividend on '26. But as you know, the dividend on '26, it's a fixed amount of EUR 0.15 that will be paid in June '27. So this increase in [indiscernible] should not affect it.

Okay. Can I just have 2 clarifications. So you're still expecting the positives and negatives below the EUR 3 billion, i.e., employee commitments and U.K. dividends, et cetera, to balance out and then just on Spain, thanks for your help on that.

Just am I right in saying that your expectation is that the EBITDA growth ex the EUR 250 million saving won't be accelerating given the headwinds you measured, including wholesale declines and the low margin growth or weaker revenue growth mix at the moment?

Okay. I will take the first part of the question. So yes, the guide I gave you on commitments -- on peak commitments of '26 is EUR 1.2 billion, on U.K. dividend, you should compute what was guided by the VMO2, which was free cash flow distribution for its shareholders of around GBP 200 million, if I recall correctly, that was the guidance.

In the case of Spain, again, we are expecting to accelerate EBITDA. This is a mix of the different measures, both in revenues and in cost savings.

We will now take the next question from the line of Keval Khiroya from Deutsche Bank.

I have 2, please. So firstly, your free cash flow margin in Germany is less than 10% and approximately half the level of Spain. How do you expect the German free cash flow margin to evolve? And I appreciate you've talked about return to growth, but can you detail a little bit more what's key to get there across the revenue, OpEx and CapEx levers?

And then secondly, you've been quite vocal on the desire for consolidation across your core markets. What do you think are the main barriers to striking deals? And do you think we now have enough regulatory clarity for you to present deals to the regulators should they arise?

Okay. Thanks for your question. I'll start with the second -- your second question. So with regards to consolidation, the main barriers that have existed to date is the mergers and acquisitions guideline managed by the European Commission. I think we can hear good messages in this line, and I'm happy to discuss them further and some mixed messages, but what will matter is exactly how the specifics advance, and we are still we are still not there.

So I would say that is the main -- excuse me, that is the main limitation that we've had as a European market. And then there is, of course, the usual difficulties of reaching large and complex agreements that have to do with getting the right price and getting the right synergies.

Keval, regarding the Germany question, as I mentioned in the -- during the presentation, our expectation is to grow in 2027. During this year, we expect to improve around the year while we are leaving behind the comps with the revenues that we leave.

Keval, I don't know if you can hear the last answer about the margin in Spain, just to say that we are expecting the operating cash flow after leases margin improve more than -- improve due to this operating cash flow after leases grow, it will be above revenues and EBITDA growth.

We will now take the next question from the line from of Joshua Mills of BNP Paribas.

Hopefully, you can hear me. So my first question was on the difference between the EBITDA and EBITDA growth number. If I look at Spain, you actually saw it slowdown in EBITDA growth this year, and this is the metric most of us are focused on. So you went from having plus 0.9% to plus 0.4% in the quarter.

And I understand your commentary on the acceleration in reported EBITDA pre-leases. But how should we think about Spanish EBITDA after lease growth developing in 2026? And what should we assume for lease costs increasing?

Maybe if I can add a second part to that. On the Germany EBITDA after lease development, you saw a minus 22% declines in Q4. I understand you want to grow this in 2027 but it would be great to get a steer on how the 2026 number will shake out, whether that's down 10%, down 20%, down more than that, given that there's so many moving parts and limited visibility.

And then finally, second-ish question. But on the free cash flow guidance, I see that you raised the starting point for 2025. So the starting point for the base has gone from EUR 2.8 billion to EUR 2.9 billion. If I take your 3% to 5% midterm free cash flow CAGR, that would imply some upside to midterm free cash flow. Are you implicitly raising the midterm free cash flow guidance as well today? Or is it still within the range you initially expected?

So leases growth were driven mainly by 5G rollout and fiber expansion in core markets and inflation impact. The lease figure was higher in '25 by 2% due to seasonability mostly in the fourth quarter. As the outlook for the guidance, you should expect leases to continue to moderate upward trend mainly driven by 5G deployment in those core markets. CPI updates apply to both new and renewed contracts from mobile sites rollout for 5G as well as new sites required for such expansion. We remain very focused on driving efficiencies in all lines as a top priority, and leases will be one of our focus for sure.

On your second question regarding the free cash flow base. Yes, we reported EUR 2.8 billion of free cash flow base versus the EUR 2.7 billion reference we had in the Capital Market Day, plus once the consolidated in Chile. That figure, that base goes to EUR 2.9 billion.

On your question on whether we're implicitly increasing guidance? We are increasing guidance for 2026, explicitly, EUR 3 billion. And then on the long term, we feel is still too short time since the Capital Market Day to change the range. So we keep the 3% to 5% range. But obviously, mathematically, we increase the base. We are implicitly giving a message which is the -- what we see, which is we expect 2028 free cash flow to be higher than the initial guidance given at the CMD. So that will be the message. We keep the 3.5. And then we'll see where we see us within that range. But definitely, we do see a higher 2023 free cash flow.

Great. Maybe just to simplify the first question a bit. Do you expect to grow Spanish EBITDA after lease in 2026?

Yes. We are expecting growth acceleration, both in EBITDA, EBITDA after leases. And in Spain, we are expecting leasees very stable.

We will now take the next question from the line of Nick Lyall from Berenberg.

First question was on German mobile ARPU. It looks like the contract Telefonica ARPU. So ex the one-on-one subs is down quite sharply, so down about 14% year-on-year, but maybe it's flattened out sequentially. Could you give us a bit of an idea what the outlook is for '26, please. Just given your comments, particularly about the promotional activity being quite heavy in Germany?

And then secondly, can I just come back to Keval's question on the merger guidelines. I think on the merger guidelines, you said were the biggest barrier to consolidation. Could you just clarify for us exactly what that means in terms of timing? Does that mean you have to wait for a resolution to Teresa Ribera's merger guidelines in that 2027 investigation first? Or are you prepared to do something before the merger guidelines are clarified, please?

As we have explained, [indiscernible] family offers, and it has an impact in the ARPU. We expect the market to stay promotional, but more rational. Family plans naturally result in a higher share of second and third SIM cards [indiscernible] will usually lower ARPUs. But at the same time, we are expecting to have a similar ARPU or ARPU moving in line with market levels for established players..

Regarding the merger guidelines. Unfortunately, my answer has to be ambiguous, we understand that within the current framework of merger guidelines, large operations can happen, if the interpretation applied wishes that to happen. We understand that in the review that will be made public shortly, we can either hear of a review of the guidelines or we can either read of a new interpretation or a modernization of the interpretation of the merger and acquisition guidelines. From our point of view, we're going to work on that on a case-by-case basis and have nothing else to add at this stage.

We will now take the next question from the line of James Ratzer from New Street Research.

Yes. So I have 2 questions. The first one was just regarding the U.K. and Virgin Media O2 where I see you've taken a write-down on the asset. But the new valuation you're putting on VMO2 still looks as if it's around 9.5x EBITDA. So I was wondering if you could just run through what forecast you are using for that impairment review, please, to justify that value? And does that include the impact of the new Netomnia transaction.

And secondly, there was a press after call a month or so ago, where Mr. Domemut in Germany suggested that he might be interested in potentially acquiring Telefonica Deutschland. So could you see a scenario where you might actually be a seller in that market.

James, I will take your first question on the impairment. So VMO2 impairment, we carry a book value that we have to every year with a goodwill included that every year through our audit process, we'll have to attest to see if there's an impairment. The impairment that we have that would have registered this '25 has to do with more negative view or projections at the end of the year based on the changes in the Openreach Equinox studies that took place in fall, okay?

So that took the team to do a sensitivity around their business plan, so it's a sensitivity and that sensitivity was the one that KPMG took as a base for their valuation.

To your question, does that include the Netomnia deal? No -- sadly, no, because that valuation is done as of 31st of December. We do believe that the Netomnia transaction will enhance the financial and operational performance of the asset. And therefore, that's not included in the impairment test. And we think that the outcome of it might have been different if that has been the case. So that's for the VMO2.

Regarding your Germany question, James, by the way, good morning, to you and everybody, and we can hear you all loud and clear. As you know, we have defined 4 core markets that include Germany, the U.K., Brazil and Spain. And whilst we are always a rational operator and we manage our assets very rationally, we also take all media comments as such as media comments. So what we can say is that we are committed to Germany. We are committed to the German market in the short term, in the medium term and in the long term as an industrial operator. And up and above this, we don't really have any other comments.

Operator, we have time for one last question, please.

Our last question comes from the line of Emmet Kelly from Morgan Stanley.

Yes. I have 2 questions, please. Firstly, Marc, can we just come back to some of the comments you made earlier on consolidation and antitrust. You said that you had received some good messages and also some mixed messages. Can you just say a few words more about those comments, please?

And secondly, just on your home market in Spain, can you talk a little bit about the competition you're seeing in Spain in particular, what you're seeing from Vodafone, Zegona and from Digi at the bottom end of the market and whether your premium positioning is keeping you reasonably sheltered from, let's say, the competitive intensity at the bottom end?

Thanks for your question. I'll answer the first one. So I'm only referring to public messages. I always keep any communication with -- private communications private. But we have heard Antonio Costa defending a European telecom's consolidation that will -- would allow more scale and more capacity to invest profitably.

And then we've read public messages with regards to mergers and acquisitions that follow a fine line of ambiguity that we think we understand is deliberate. Those are -- that is what I was referring to. With regards to Antonio Costa, if you haven't seen the message, we'd be happy to forward it to you. I think it was something like 10 or 15 days ago.

With regards to competition, I'll hand over to Emilio.

Okay. Regarding the competition in Spain first of all to remind that in Spain, we see clearly 2 segments of clients. First of all, the high-end clients and where we have a very strong position based on our superior proposal [indiscernible] our consistent general ecosystem and network and brand and commercial approach, but needs to be very optimistic [indiscernible] in this segment, even taking into account the effort of our competitors to gain market share.

The fact is that we are winning market share and we are maintaining the lowest churn in this segment. In the low-end segment, we have to say that we are competing very well. That's true, that is a more competitive segment where Vodafone and Digi clearly are trying to push the fact if you see the portability numbers is that Telefonica Spain clearly maintains a very good performance comparing with this competitor.

Again, we think that our superior network within our superior proposal in terms of ecosystem, even in the low end and the approach that we have in terms of customer service that at the end is the more sustainable competitive advantage permit to be again a positive in the trends with our competitors. The efforts of these 2 competitors in the low end, and at least we don't see that it affects too much to Telefonica Spain.

Thank you. At this time, no further questions will be taken.

Okay. Well, thank you, everybody, for your quality time. You heard what our analysis of the data is and what our commitments are in a qualitative and quantitative way for 2026 and moving forward.

You have channels of communication with us that are ongoing and open. So if there's any questions, that remain to be answered, we'll be delighted to address them and share with you our analysis. Have a great day, everybody.

Good morning, and welcome to Telefónica's Third Quarter 2025 Results. I'm Torsten Achtmann 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 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. [Operator Instructions] As a reminder, today's presentation is being recorded.

Now I'd like to pass the floor to our Chief Operating Officer, Emilio Gayo.

Good morning, and welcome to Telefonica's third quarter results. With me today are our Chief Financial and Control Officer, Laura Abasolo; Marc Murtra, CEO of Telefónica España; Christian Gebara, CEO of Telefonica Brasil; Lutz Schuler, CEO of VMO2; and Markus Rolle, CFO of Telefónica Deutschland. As we have the Capital Markets Day season right after this presentation, you will be disappointed to hear that the call will be shorter than usual.

I would like to highlight the consistent execution across businesses in the quarter. Therefore, today, I will talk about the following. First, we are accelerating the portfolio transformation in Hispam. Second, commercial momentum is accelerating in our core markets with growth in fiber and mobile contract accesses. This is driven by low levels of churn and a superior NPS. Our total customer base has reached 350 million. Growth accelerated year-on-year in all main accesses in Spain with promising demand for our digital ecosystem services in Spain and Brazil.

Third, our network leadership is key to our steady performance. Fibre buy continues already reaching 82.6 million premises passed. while our 5G coverage stand at 78%. And finally, we are working to increase efficiency across the group on a daily basis. Our industry-leading CapEx to sales ratio continued to decline. Moving to Slide 3 for the overview of the third quarter key financials. We again delivered sustained organic growth. We are growing in revenues and EBITDA and EBITDA minus CapEx is back to growth in this quarter. As a result for the first 9 months of the year, we have been growing in key operating metrics. In reported terms, the negative ForEx impact slowed down during this quarter. Free cash flow trends were affected by several issues, which Laura will explain later in more detail, while net financial debt is down year-on-year.

Moving to Slide 4. Performance in Spain was strong with accelerating growth in both customer and financials. Trading in the third quarter was again very positive, recording the highest convergent net adds in more than 6 years and growth in all accesses. Convergent ARPU remained the best in the market, close to EUR 90. This outstanding commercial performance reflects Telefónica España's premium market positioning and a smartly cemented commercial strategy. Q3 revenue increased year-on-year, thanks to sustained growth in service revenue.

Retail revenue increased about 2% year-on-year, driven by customer growth, price upgrades, and solid IT sales growth in B2B. EBITDA improved its growth rate, while EBITDA minus CapEx accelerated to almost 4% in the quarter. This shows 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 the next slide, Telefónica Brasil delivered a strong set of results in Q3, maintaining robust growth in the most valuable segments and a solid financial performance. In mobile, ARPU continued to grow, driven by the higher adoption of 5G, now available in 683 cities. This proves the success of our selling strategy. Churn remained at low levels, around 1%. In fixed, we continued the transformation to Fibre. New connections were up 17%, driven by our convergent position Vivo Total. Revenue grew over 6%, outpacing inflation, thanks to growth in postpaid and fibre and increasing contribution from new businesses, representing 11% of total revenues. EBITDA growth continued to accelerate while EBITDA minus CapEx rose 14%. Margin expansion was supported by the first positive impact of the migration to authorization. In summary, once again, we delivered very positive commercial and financial results in Brazil, just as in previous quarters.

Moving to Slide 6 to cover Germany. Telefónica Deutschland delivered solid own brand momentum in the third quarter. Even though the 1&1 migration continued to weigh on financial results, the migration is very close to completion. We are growing both in fixed broadband and mobile contract net adds. This performance was supported by attractive O2 promotion and the success of both the family and unlimited plans. Network quality remains a key strength with 5G coverage at 98%. We have also continued progress on densification.

From a financial perspective, performance was weaker than expected across the main metrics. Revenue declined over 6% year-on-year and EBITDA dropped 9.5%. This was due to the 1&1 migration which we will continue to waive on Q4 before starting to analyze in the course of the new year. Nevertheless, underlying EBITDA still grew thanks to our efficiency measures. In summary, despite the migration, the underlying operation show resilience.

Moving to Slide 7. Virgin Media O2 improved its commercial results in Q3. The company remains focused on customer loyalty and protecting value in a challenging market. The launch of giffgaff broadband expanded our convergent offering, strengthening our position in the market. In B2B, we completed the merger to create O2 Daisy. This is a key milestone to improve our position in the segment. Revenue continues to be impacted by challenging market dynamics.

Software handset sales are lower and nexfibre construction. However, when we exclude the combination of handset sales, nexfibre construction and B2B with the completion of the O2 Daisy transaction, guided revenue remained virtually stable year-on-year. In addition, guided EBITDA improved its year-on-year trend to 2.7%, thanks to the reduction in operating expenses. All in all, Virgin Media continue to enhance convergence, expand its network and drive operational efficiencies to support future profitable growth.

Moving to Slide 8. In Hispam, we continue to make progress on the portfolio optimization. We completed the sales of Telefónica Uruguay and Telefónica Ecuador in October and Telefónica Colombia will be in the coming months. Organically, we are delivering growth in contract and fibre access. In financial terms, revenue declined in the third quarter, but EBITDA improved its strength compared with previous quarters.

I will now hand over to Laura for the main financial topics and ESG.

Thank you, Emilio, and good morning, everyone. Let me start explaining you our 2025 guidance and dividend. Given our solid operational performance and growth in the first 9 months, we confirm our guidance of revenue, EBITDA and EBITDA minus CapEx growth with a CapEx to sales ratio below 12.5% in 2025. We reiterate also our EUR 0.30 dividend per share in cash for the year. We are updating our free cash flow expectations for the year to around EUR 1.9 billion. And as a consequence, we expect a slightly higher leverage in 2025 versus the decline previously.

Let me go straight into explaining our current 2025 free cash flow expectations. As we approach year-end, we have more clarity on some events. We were expecting a tax refund and the collection of a Millicom litigation of around in combination EUR 0.4 billion for this year. The refund has not occurred yet, and we now expect it for next year. And for the litigation, we have agreed a 3-year payment from '25 to '27. Perimeter is also impacting beyond the effect of discontinuing the company sold. We accelerated the execution and exited 5 out of 8 Hispam countries so far. And as we close the operations, we are seeing all induced impacts. As we accelerate the Hispam, the exit of Hispam, we are managing those full impacts. Lower scale benefits at our purchasing unit, the closure of our Hispam financial subsidiaries, the exit of Tech Hispam, among others.

We are working to concentrate most impacts in 2025, which will flow through free cash flow from continuing operations, while in reality, this is more the cost attached to exit the region. Related to Hispam, also our expectations for working capital have changed, and we foresee a worse working capital contribution versus our initial expectations. Germany performance is challenging. On one hand, B2C revenue continues to consistently deliver growth despite a more competitive environment. On the other hand, B2B free cash flow loss impacts accelerate. Q3 told us that full year performance would be worse than originally expected. We took immediate action, and we will explain the strategic plan for Germany later on today.

Finally, year-on-year comps are difficult, FX negative impact, restructuring from organization changes and a less positive one-offs, such as some infra asset sales stop under a more industrial approach. In comparison with 2024, free cash flow was very positively affected by EUR 288 million cash from 5G CapEx subsidies received in the third quarter last year and a EUR 211 million tax refund in the same period. With all these moving parts, we see free cash flow for the year now more in the EUR 1.5 billion, EUR 1.9 billion range. But it is worth mentioning that phasing impacts will revert and Hispam full transition is being coupled with value-accretive deals on top of leading to a simpler and more predictable portfolio with most of free cash flow midterm coming from Europe and Brazil.

In this slide, I will drive you through the first 9 months financial performance. Net financial debt stands at EUR 28.2 billion in September and including the sale of Uruguay, Ecuador, and Colombia and the acquisition of the 50% of FY Brazil, net financial debt reduces to EUR 26.5 billion. Free cash flow from continuing operations amounted to EUR 414 million in the first 9 months. Year-on-year comps, as I say, were tough on some positive effects last year. FX moves had also an impact on the reported operating cash flow. Working capital consumption was slightly higher and leases reflected seasonality.

Our solid financial profile shows our ample liquidity with debt maturities cover over the next 3 years and an average debt life of 10.5 years. The average cost of debt reduced 0.13 percentage points year-on-year to 3.44% in September. We'll continue with our prudent financial policy and free cash flow management, which are key priorities for us.

Moving to Slide 12. Now we turn to sustainability. This quarter, I'm pleased to highlight the recent signing of a 10-year PPA in the U.K. together with an additional PPA in Germany coming into operation. These long-term agreements permit financial predictability and operational resilience, exemplifying our ESG approach, which is focused on reducing risk and generating value.

And now I will hand back to Emilio, who will wrap up.

To conclude and before we open for the questions, we continue to be focused on executing our plan for 2025. As Laura just explained and despite an updated free cash flow outlook for the year, we are maintaining consistent operating performance in our core markets, allowing us to reiterate our operating guidance for the year. Germany's underlying performance continues to be resilient. Brazil posted strong growth in local currency and Spain recorded very robust KPIs and growth across the board. The U.K. was delivered strong growth in EBITDA on a guidance perimeter. Our dividend committed for 2025 is also confirmed. And finally, we continue with asset disposal in Hispam, a process that is ongoing and will finalize we expect during the next coming years. Thank you very much for your attention.

We're now ready to take your questions. [Operator Instructions] And I can see, I think, Josh, it was the first hand on the back up there.

It's Josh Mills here from BNP Paribas. It is related to Q3, but given the moving parts in free cash flow, I just wanted to clarify whether the EUR 400 million of free cash flow dropping out of the FY '25 free cash flow number is now all going to be taken into account in the 2026 year? And if so, is that EUR 400 million, EUR 300 million included within the guidance of EUR 2.9 billion to EUR 3 billion, which you've laid out?

Okay. Thank you, Josh. I'm going to hand over to Laura to answer your question.

Yes. Thank you, Josh. And you're right, that's a question for later. But anyhow, I will answer it. Our guidance always have a lot of moving parts, and we have as the hard the operating cash flow after leases, and then we have both negative and positive one-offs. But due that 2025, it's a phasing effect. Indeed, we expect the tax refund in Spain for 2026. And in the case of Millicom, we reached an agreement for cash in it between '25 and '27. So it will be distributed along those years.

I think Mathieu was the next one over here, and I think Ronald going on the back again.

Mathieu Robilliard from Barclays. I have two questions. First on Germany. You had a soft target to stabilize the EBITDA in 2025. It seems trends remain challenging. So I was wondering if that soft target still hold. And also, I was intrigued to see that the ARPU of O2 postpaid declined a bit more. So I wanted to understand what was behind that. And then more generically about free cash flow. So I think you're showing the slide that the disposals of Latin America have a negative impact on the free cash flow. Is that also something that we should see in 2026 for some of the other disposals?

Regarding Germany, we will explain in the CMD about the '26. But just to give some color about the -- your question, just to now the 1&1 migration during this quarter was accelerated more than expected. We have a lot of efficiency measures that are taking longer than we expected in a very challenging market. This efficiency measure will take the next coming quarters, the result that we are expecting. It's true that the market is very challenging. We can see in the handset sales that is really weaker trends. However, we are seeing business -- underlying business that is working a good performance and it gives us the basis in order to think in a recovery for the next coming quarters. For the second question, I hand over to Laura.

Thank you for the question, Mathieu. On Hispam, Hispam has been nurtured into our operations for more than 25 years. So when we say we are selling some companies, it's not just the selling of the companies. First, it impacts the remaining companies, mostly -- one example is working capital. So our ability to do working capital initiatives now in Chile is much more difficult or it's under much worse conditions. To give you an example, and as we are also closing our factoring companies there, the ones we had in JV with the Spanish banks. For instance, we used to do some reverse factoring in Chile with those factoring companies that now we have to do with third parties or we cannot do at all. So the first block is the impact on the remaining OBs. And then there's other -- there's many other.

And as I said, as we are exiting, we have less volume for purchases, and then we have less impact in our purchasing subsidiary or now we have to act also in the tech LatAm. To your specific question, we are trying to concentrate most of the impacts in 2025. There will be some more impacts in '26, but there will be no material. And in any case, they are embedded in the projections we will share at the Capital Markets Day. So first, it's well beyond just exiting a few countries. We really need to fulfill all the transition plan to get out of the region, so to say. And second, we are doing a big effort to concentrate most impact in this year and whatever comes next should be already included in our projections.

Just on the German market?

Yes, I missed the answer. Now related to the German ARPU, it's true that we are in a challenging market, as I mentioned. We are starting to see signals of more rational market, but it's true that it's too early to consider that this is a change in the trend. Anyway, I think ARPU and net adds is a combination in the case of Germany that this is the underlying business in the mobile business, and we consider the trend is positive in any case.

Over there in the middle, I think it's Andrew.

It's Andrew Lee from Goldman Sachs. I just had a couple of questions on the free cash flow in the quarter and for the full year. There obviously is -- there are implications for the guidance for the midterm, but we can keep it to this year. Firstly, on the German side of things, you mentioned there's a bigger drag in free cash flow than you anticipated for the full year. That was one of the reasons, I think, for why you downgraded your free cash flow for this year. What exactly is going on there? Can you just give us a bit of color? I think you mentioned B2B being a bigger drag and maybe there's more free cash flow generation in that part of the business. But just help us understand the difficulties that you're having in Germany from a free cash flow perspective.

And then secondly, I think another element of the free cash flow drag is on working capital. And you're now, I understand going to more of a kind of neutral working capital profile going forward. So what's happening in terms of working capital that's changed your perspective on that for 2025, please?

I will take both questions. Thank you, Andrew. On the free cash flow expectations, I wouldn't say there's a huge impact of Germany. We -- it's a collection of different impacts and half of it has to do with phasing and the other 4 has to do with Hispam-induced impacts. And then you have Germany, but also Brazil and Brazil -- Spain and Brazil are doing better. And then you have different other things like restructuring or sales not being done and all of that. And also Germany, it's a part of that. Maybe I missed to spell, it's B2D, not B2B. I mean B2D has the anonymized impact, and that is being accelerated in the second half of the year. So Q3 had very little impact from anonymize. Q4 is going to have almost no impact, and that will be fading away towards '26 and will be completely comparable in '27.

So regarding the free cash flow of Germany, it's some of what Emilio -- it's all linked to what Emilio said. I mean, on the positive side, B2B is growing consistently. As you've seen, it's a more competitive environment, but we have delivered a strong result quarter after quarter. B2B, as I said, has accelerated and we have a very important impact in free cash flow in the second half of the year. Efficiency, you've seen we're doing a lot of efficiency improvements and more to come, but it doesn't have a linear effect yet. So we are seeing those, but not to the full extent. And all of that is leading to a free cash flow worse than expected. But it's the combination, and we have a strong plan in place we will talk about later.

And then working capital. Working capital in the past has had a positive contribution in some years larger than others, depending on its business, long-term contracts, how you pay them and so on and CapEx seasonality. As we are a smaller company now, we will have less working capital contribution. It was more positive in Hispam. So as we take Hispam now that will have lower working capital contribution. So we will share with you in the Capital Markets Day how we see that in the future years. But definitely for '25, we expect also a lower working capital contribution than originally expected. Thank you, Andrew.

Gentlemen, over here to the right and then we move forward to everyone.

It's me, first.

Yes.

Okay. Javier Borrachero from Kepler Cheuvreux. Just a couple of questions on the Spanish business in Q3. I see the retail business was -- I mean, has shown similar trends to previous quarters. But I mean, any comment on the balance volume value and the competitive intensity would be welcome. And then also in Spain, the B2B. Okay, Laura, you've mentioned generally that B2B is going well. Just to hear also your view on Spain. Some of your rivals -- telco rivals are showing more ambitions to grow in the B2B business, and they've made good inroads, particularly with the public administration. So simply to have your comments on the dynamics in the B2B in Spain, if you're feeling more pressure, more pricing pressure, more competitive pressure.

Yes. Regarding the first -- thank you, Javier, for your question. Regarding the first question, the balance between value and volume for us is the right balance. And at the end, the result is the growth in the revenues and the EBITDA. Even taking account when you have -- when you change the mix of your volume, you can have some pressure on the ARPU. It doesn't mean that your trends are not positive. We value these trends very positive in the Spanish market with the right combination between growth, churn, and ARPU. Then our expectation for the next quarter and following quarters, but something for the C and D is to maintain the strong performance in the retail business.

In the case of B2B, we think that Telefónica Spain has a very strong capabilities developed during the last years. And then we expect to grow in digital services in a similar path that we are doing today. We feel that, of course, the competition can increase, but we feel comfortable with our capabilities and the way that we can compete in the market. Regarding the government contracts, of course, we expect to win as much as possible, but this is a competitive market, and it's not easy sometimes to win it. But if we see the winning rate that we are maintaining, the truth is we are obtaining the result that we are looking for.

Let's take one here and then move over to there.

It's Keval Khiroya from Deutsche Bank. I just want to come back to Germany. You've tried to explain that the core business is still quite solid. But when we look at the EBITDA trends of minus 2% in Q1, minus 6% in Q2, and minus 9.5% in Q3, I appreciate most of that is driven by 1&1. But can you just disaggregate if you exclude the 1&1 impact, what is happening to the EBITDA trends over those 3 quarters or at least over the 9 months ex 1&1. I think that would help us understand what's happening to the core business.

Let me answer about Germany. As I mentioned before, the underlying business in Germany, we think that we are doing -- performing very well. And in fact, the trends in EBITDA excluding the 1&1 migration is positive and we expect to maintain this performance. As you know, the 1&1 migration -- I explained before, the 1&1 migration wave during this quarter, and we expect to recuperate the next year when the migration will be behind us.

[indiscernible]

Fernando from Alantra. I think we have already asked about the B2B and B2C dynamics in Spain. My question is around the wholesale. I've seen that there is a decline of around, I think, 4% year-on-year in this quarter. That's a softer decline compared to previous quarter, but still a decline. So I would like to better understand your dynamics, the different moving parts here and the prospects you see for -- going forward? And then second question, a quick one on the debt. There is -- I think it was EUR 100 million impact on ForEx and other. So if you can elaborate a bit on this as well.

Thank you, Fernando. Regarding the wholesales in Spain, as you mentioned, we are declining, but this is a declining that we expected and it's not different than our expectation. It has to be with different aspects, mainly with the contract that we signed during the last year that give us sustainable business in wholesale, but it has an impact during this year. We expect to improve in this area because although the contracts will impact during the next year too, we have opportunities to grow as the new macro regulation and the Fiberpass permit us to see better trends in the future coming quarters. And regarding free cash flow...

The net debt, it's, as I said, both -- we are reporting both post closing and which is lower as we need to include on the investment side, Brazil and in the divestment side, Uruguay and Ecuador, both were executed in the month of October and then Colombia. But I'm mentioning this because in the others, we also have the financed spectrum of Colombia, and that will be out when we discontinue. And the others is usually difference between accruals and payments. It's a whole -- I mean, it's many bits and pieces. But the largest amount will be FX, which is more than EUR 100 million. And then as I said, the finance spectrum of Colombia and that will disappear with the discontinuation and the closing of the operation.

We have probably time for one more question. I've seen Fernando in the back.

Antonio Rodríguez Vicens from JB Capital. Just wanted you to elaborate a little bit more on a question from before on working capital. You were at the beginning of the year hoping for a kind of neutral working capital. The results so far are not there. You were explaining a bit some of the reasons, but I would like to know if you can please split how it's going to end the year, specifically the working capital and why? Because obviously, we're far away from that flat working capital. And the second one is for 2026, specifically, what could we expect on that line?

Thank you for the question. I do not recall we said it will be a flat contribution of working capital because we don't usually give specific guidance per line. We just comment on how we see the different bits and pieces and the different items. And usually, our answer about working capital is that it has a working capital -- a positive working capital contribution, and we give you the range that we had in the past. And the range in the past has moved from EUR 200 million to in some given years, even EUR 1 billion. So we usually said that we expect a positive working capital contribution. And now it's going to be slightly lower than what we originally expected.

As I said, we have less management capacity, mainly in -- and it doesn't -- I mean, it's just that it's much harder for us to get the correct terms to do some of the business as usual in these facilities that we have done it a year ago. So -- but don't take that it was going to be flat because I don't think we ever said that it's usually a positive contribution. And for 2026, if you don't mind, we will wait for the Capital Markets Day in which I will give a specific outlook rather than guidance of working capital for the next 3 years.

Perfect. Let's do a quick one from Fernando in the back there. Thank you.

Fernando Cordero from Santander. Just a quick question on Telefónica Tech. Given that you have made a write-down of close to EUR 250 million in the quarter and also considering the nice momentum in B2B operational one, just to understand the rationale of the write-down.

Yes. Every quarter, we have to go through if there's any indication of any of our assets being deteriorated. We did so. And in the case of Telefónica Tech is UK and Germany, and it's a combination of several factors. The -- it's a combination of the expectations you have and also the fair value of those assets. So we have -- the multiples of those companies have decreased. The expectations of revenue in the sectors, those two companies work are also lower sector-wise and also our projections for those companies were somehow below our original expectations.

So the combination of the three references, WACC has also worsened a bit made us to take a decision to continue -- because we already did something at the end of 2024 to continue writing off some of the goodwill of those two companies. But it would be a combination of sector and own performance in those two specific countries, plus some update on WACC assumptions.

Thank you very much. And I think now it's hand over to Emilio for the closing remarks.

Okay. Thank you very much for your question. As we mentioned at the beginning, we reiterate our guidance for 2020 -- operating guidance for 2025. We reiterate our commitment in the dividend of 2025. And as far as some moving parts in the free cash flow, we expect for really a strong performance in Q4 and in the overall year. Thank you very much again, and we will talk -- we will get your question in the CMD around the future in a few minutes.

Thank you.

Thank you.

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 [email protected] 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.

Thank you, Octavio. Maybe I answered it partially already with the answer to Victoriano, but to touch upon some of the other items you say in your question. The main deleverage lever is operating cash flow after leases. And there, we are including leases that will increase, but low single digits. So you shouldn't expect a large increase in that line. Obviously, we are deploying our mobile networks, and that will put -- make leases go up and also those contracts are linked to inflation, but inflation is more stabilized thereafter. So there's not a large increase in leases.

We will apply the same discipline we apply to CapEx, and that will -- that's what is leading to that operating cash flow after leases growth in the first 3 years of the plan of EUR 1.5 billion to EUR 2.5 billion. On the other items, I already gave some outlook about financial tax, also spectrum not having auctions in the near term. And the specific question about commitments, we have our best estimation as we speak as we still need more clarity. But our idea is that commitments should increase in 2026. But from that point, they start decreasing. They will decrease all the way to 2030. In 2030, there's a very sharp decrease. And from 2035, they will be really negligible. So I think I've covered most of it with the 2 questions.

Just a second then, Emilia, you wanted to mention?

Yes. One answer to Carl question about the conversion because to be honest, we didn't understand very well your question, and I understand now that in your calculation, you miss to put U.K. U.K. is included. I think you do the average of the other 3 countries, if you include the U.K., the results is the result we include in the page.

I would suggest if it's not clear, let's -- when we finish -- I'm not sure what Carl is, but -- when we go here...

Why don't we take it offline and clear it out?

We'll take it offline.

Next question, I can see there's a question very much in the back, which is too much in the darkness, I think is it James?

Yes. Antonio Rodriuez from JB Capital. Just wanted to touch upon a couple of things. The first one, catching up on working capital from before you have burned EUR 0.9 billion so far in 2025. I wanted to know exactly what are you expecting for 2026, if possible.

And you mentioned that the deterioration is coming from the fact of being a smaller company. I struggle to see how that can worsen in itself like-for-like working capital to this magnitude, I can see some. But if you can provide some color on the magnitude and what should happen over the next few quarters because of that very reason, it would be useful.

And the second one would be on OpEx. You're talking about OpEx reduction until 2028, EUR 1.5 billion. Two things there. The first one would be, what are the implementation costs that you are forecasting for some of that CapEx, if any? The second one would be that EUR 1.5 billion is a lot of money for having an impact on margins. And yet you are forecasting revenue growth and EBITDA growth similar in your guidance.

So I guess the question is, are you expecting otherwise higher -- significantly higher OpEx growth like-for-like than revenue growth on the one hand? And on the other hand, would you be expecting that those areas in which you expect growth to grow on revenues have a much lower margin in themselves?

So with regards to the working capital question, I'll hand over to Laura.

Regarding working capital, we have to distinguish between '25 and the question has to do with the previous Q3 results presentation for those who did not attend to that. For 2025, we indeed have less working capital contribution than we initially expected. And that has to do with a lower working capital management capacity in some countries of Iaspan. And that has to do with 2025.

Going forward, we are talking about the free cash flow trajectory of '26 to '28. And in that trajectory, we are not counting with a major contribution of working capital. Of course, there will be ups and downs that are business related. For instance, as an example, in '26, we have a new season of football rights, and that will have some payment terms that may affect '26 and then they revert in '27. So fairly aligned to business as usual and the market dynamics, deferred payments, CapEx seasonality and so on. So we should distinguish there's an explanation regarding '25 with many bits and pieces.

And part of that explanation has to do with less capacity to do working capital in HispAm and then is our new future projections. In the new future projections, there will be variation of working capital as usual, but it's not a major contribution in the guidance of 3% to 5% we are giving and in the EUR 2.9 billion to EUR 3 billion free cash flow guidance we are giving in '26. I hope it's more clear now.

Emilio?

Yes. Regarding the second question and the cost of capture, this cost of capture is mainly one-off investment to capture AI and IT efficiencies. It accounts for less than 5% of the savings expected in of the plan. It's not included in this cost of capture anything that can be related to people. To the second question, we are expecting to grow in different lines of business, but digital services and ecosystem really brings less margin than the traditional business based on communication. It means less margin, but it's less intensive in OpEx. Due to this, we are expecting to grow in cost and leasing, but basically indirect costs in the rest of the -- the OpEx and leases, we are explaining the declining of this number.

I think let's try James again.

It's James Ratzer from New Street Research. So 2 questions, please. The first one for you, Marc, was more a kind of philosophical question about growth in our industry. So across your markets, I think the kind of weighted average inflation at the moment is around 3% and yet the kind of medium- and longer-term guidance you're giving for kind of revenues and EBITDA suggests you don't really see organic opportunities to grow above inflation. So why is this? And then what needs to be done, do you think to get industry growth as a whole above inflation?

And actually, when you look at your organic opportunities and setting this guidance, do you see longer-term opportunities actually for CapEx to sales to be higher than the 11% in return for longer-term growth to actually be in excess of inflation?

And then the second question, really, I think probably be for you, Laura, but you made an interesting comment in your presentation that U.K. dividends would now actually be driven by leverage, I think were the words you used. Now in the past, I think the U.K. dividend strategy has been based on recaps to keep leverage constant. So does that mean your position to kind of Telefonica and the VMO2 Board that you'd be pushing for the U.K. dividend to be cut to reduce leverage at VMO2?

So thanks, James. I wouldn't qualify the first question as philosophical, but we could have a philosophical debate of what that means. But you were mentioning the average inflation across your countries is around 3%. I'd say it's lower. We have -- because inflation in Brazil has gone down and is expected to go down. But the reality is that the inflation in our countries is and will be a given. And also the reality is that the growth in the communications markets that we have is what it is.

We think we can grow faster than the market in the ways we've explained by driving convergence, by increasing -- improving customer experience by improving scale in B2B, that is go-to-market and more products and via enablers. And of course, digital services are growing at over 10%. They have a lower margin, but it's also that they don't have CapEx. And this is our organic plan as we see it. Regarding transformational situations in the next -- well, sorry, you were asking also, do we see any -- I think you were saying any increase of CapEx that could create transformational results.

Our analysis for the next 3 to 5 years is the one we've given you. We are monitoring potentially disruptive technologies that could change things dramatically, but we don't see that we are there now. We think the way to drive transformation and growth in the European market is for us to be allowed to consolidate it. And Laura, if you want to address the U.K. dividend?

Thank you, James, and I'm glad you made the question, so I can clarify. dividend in the U.K. will be decided on a yearly basis, and it will be linked to the local free cash flow of the JV. I add deleverage because obviously, markets are dynamic, and we need to monitor the leverage of the JV versus the market conditions at the time we decide the dividend.

The current capital structure of the JV is sustainable, but we will always monitor that balance of the capital structure and the situation of the capital markets. So that was my comment more than saying that it will be -- the policy will change. On the recap, I have to clarify as well that we haven't had recaps in the dividend this year, and we didn't have a recap in the dividend last year either. Last year, we did have the dividend from the free cash flow. And on top of that, we have some proceeds from the CTIL percentage we sold.

But we haven't done recaps in the last 2 years at the JV. And basically, it will be the free cash flow of the JV. And of course, we have to be prudent and see the leverage situation each time depending on market conditions that so far are still very positive, and we have been able to refinance very prudently at the JV, our next year maturities.

Thank you very much. We got another question from the online community, which I'm going to quickly take, and that is from NextGen Research from Justin Funnel. Justin would like to know if we would be willing -- in Germany, if we're willing to give up share ownership to control Germany or to get -- or control to get to 4 to 3 deal done.

And the second question would be on Germany as well on the fiber networks in Germany, Brazil and actual Spain, are we interested in them? And would we consider buying fiber networks in these markets?

Okay. So with regards to would be -- I think the question was, would we be willing to see control of Germany in exchange of going from 4 to 3. And my answer would be our strategy is the one we've laid where we have 4 markets, 4 core markets and our specific strategy, organic strategy to Germany is the one we've discussed that includes working on access to profitable broadband. any operation that we do, any relevant M&A operation will be under the 3 conditions I have mentioned.

So with regards to the logic of what we're saying, we would -- we believe Germany is a core market, and that is a market that we should have control on. However, there is always a caveat, but that's applicable to anything we do. We have a pragmatic approach to asset rotation. We have a pragmatic approach. But with regards to our strategy, Germany is a core market. And I think I've said that in the past. Germany is a core market, but we have to see returns on investment. We are never going to invest anywhere where the returns or investment don't happen.

We think they're going to happen. We think it is unimaginable that in the next 5 to 10 years, the telecom market in Germany deteriorates further. And with regards to fiber infrastructure, our industrial -- our position is that we are an industrial operator. We're going to want to have our infrastructure near to us. And I think you were referring or the question -- Justin's question was referring to M&A. Correct. We will look at any -- I can't really add anything specific. We -- our plan does not include M&A.

And if there are -- and we will look into any relevant consolidation, may it be a large operation, a medium operation or a small operation. And unfortunately, we will only be able to communicate any operation once it is done.

Let's go back to the audience. I think -- how do we go through? Let's take Josh and Mathieu and then go back to the right side and maybe in the middle can Andrew and then move back to Fernando, and then we are literally done with time.

I have 2 questions. First one, just being a bit more specific on M&A -- sorry, on the free cash flow bridge rather. And then secondly, coming back to M&A. Can we just walk through the building blocks to get to the 2026 real underlying free cash flow number and then how we get from there to the 2028 guidance? Because the EUR 2.9 billion to EUR 3 billion excludes restructuring. You've said that restructuring will be more than EUR 1 billion.

Presumably, you've called that out because it's potentially meaningfully more than EUR 1 billion. So are we talking here about EUR 1.2 billion, EUR 1.3 billion, EUR 1.4 billion that we need to take off the EUR 2.9 billion to EUR 3 billion guidance to start with?

Secondly, going back to the slide in the Q3 presentation, -- is it right to think that the guidance for next year includes about EUR 300 million for the tax refund, which we should also adjust for? And if I do that math, I think we end up with real recurring free cash flow for next year of about EUR 1.4 billion to EUR 1.5 billion and a 2028 number, if I take the EUR 3 billion guide, less GBP 1 billion restructuring of about EUR 2 billion.

So how do you go from real recurring free cash flow in 2026 of about GBP 1.5 billion to GBP 2 billion is the very long first question. And then the second question, just going back to the comments on M&A is you've talked about the importance of owning infrastructure, but you've also said that NexFibre is a vehicle you can use as an off-balance sheet JV to pursue M&A. So if infrastructure ownership is so important to Telefonica, why not reconsolidate that asset rather than hand over half of the exposure to Infra...

Okay. I'll hand the first question over to Laura.

Thank you, Josh. Free cash flow guidance of EUR 2.9 billion to EUR 3 billion is indeed a higher growth rate than what we have in the guidance of 3% to 5%. And that higher growth rate has to do, as you mentioned, because we are seeing now that the tax refund will be cash in '26 rather than in '25. And that's, as you mentioned, about EUR 300 million. If you exclude that, it gets more into the overall trajectory we gave for the next 3 years. Free cash flow for '26, first is built on the operating cash flow after leases for '26 that we will give you a specific guidance when we close the results for '25.

But you know for the 3 years, we have talked about EUR 1.5 billion to EUR 2.5 billion. Let me clarify that we are excluding employee commitments, and we are excluding -- and that's how we do the restructuring in the case of Spain, in the case of the Spanish operation. Any other cost to capture, it is included in the free cash flow. So the free cash flow we have given you and the trajectory, it's a fully fledged free cash flow and is aligned with every operational lever you have seen in the different levers that Emilio shared with us. So it's all in there.

The employee commitments in the case of Spain, I explained why we think they will be provided, but in a different line. So you will have all the bits and pieces, but we are not putting them in the way we guide to you going forward. So that will be the first explanation. Also in that, you have to see there will be a CapEx decline already in 2026, and that also helps the growth trajectory. And when you talk about underlying free cash flow in -- first, you also have to take into account FX impact, which we are foreseeing a depreciation in Brazil.

Once we close the free cash flow, we do tactical hedges around that, but the initial FX impact flows through the free cash flow as well. And the free cash flow always has the operational performance and then many bits and pieces that I couldn't consider not to be underlying. When we have a refund in taxes because we pay more taxes in the past. And so I do think it's managing every single line of the free cash flow and bringing as much as possible cash flow generation. So in your analysis, and we are very happy to run you through with more detail with Investor Relations team, the only thing you could exclude or in order to see how that compares versus the rest of the free cash flow trajectory will be the tax refund. Everything else will be aligned with the 3% to 5% long-term trajectory for the next -- for the first 3 years of the plan.

And regarding the second question, if I understood it correctly, is why would we use NexFibre as a potential vehicle in the U.K. rather than do it directly because we are an -- we state we are an industrial operator. So the truth is we haven't done anything yet. And we have -- we want to simplify operations. We want to keep core operations near us, but we also want to consolidate.

And the extra complexity that we have in the U.K., which is, I think, a reality of having NexFibre and having just 50% of VMO2 with a partner goes against simplicity, but also gives us more flexibility. Unfortunately, I have to answer that we will take it on a case-by-case basis. If something happens, we will be able to explain it under our logic. But I think what Emilio was saying is that NexFibre could be an instrument. The important thing would be the objective, and there's many ways to skin a cut.

I think I said Mathieu getting the next one.

Mathieu from Barclays. I had 2 questions. The first one was on Germany. Obviously, you talked about the need to continue to grow in different verticals. You're also going to push on convergence. And we've clearly noted that the competitive environment as a whole has deteriorated for probably a year or more. I was wondering what would it take in your view for the market to become more rational? Is it you getting to your right scale? Is it other players changing their strategy? Or is it M&A? What makes Germany looks good again, so to speak?

And then I had a question about leverage. So very clearly, you said your leverage is going to decline from 3 to 2.5. Obviously, that I think excludes hybrids, which is how the rating agencies look at it. But as an equity investor, for me, it's more -- it's half a turn higher. So my point is you're cutting dividend, you're going to grow, but the leverage is going to remain quite high even in 3 years' time if I compare it to your peers because they will be deleveraging too. And I was wondering why you didn't take something a bit more drastic in terms of steps to reduce the leverage.

So I'll ask Emilio to answer the first question regarding the second one. I'll give the first part of the answer and see if Laura wants to complement.

Yes. Related to the German market, just first of all, to remember that we are facing a challenging situation due to 2 factors. The first one is that we have not finished the migration of 1&1. And if we exclude this migration, the underlying performance that we are seeing is right in the underlying performance. In terms of how the market is working at this moment, I would say that there are some signs of rational.

Some movement in prices can show changes that can be very profitable for all the players. But at this moment, we are not able to be sure that this is a new trend. Again, our underlying results shows our resilient and a good way to compete in a challenging market.

So Mathieu, with regards to the second point, which I -- my understanding is why weren't you more drastic with regards to a dividend cut, so to delever. So what our analysis on our strategy is we -- the plan is fully funded, and we want to have enough financial flexibility to implement this business plan. And to go down to 2.5 in 2028 gives us enough flexibility to fund the business plan in the next 3 years. Could we have been more drastic? Of course, and maybe we could have been less drastic.

We think that the new capital allocation policy is a big difference to what it was in the past. It ensures us that we finance the Transform & Grow plan, and it leaves us far or comfortably far from a limit. You did mention hybrids, and we, of course, monitor the way S&P looks into this and the way Moody's looks into this and the way Fitch IPCA looks into this. So we think we strike the right balance to move away fund the growth and be comfortable with regards to flexibility for the organic plan. And I think we move at a nice speed.

Thank you. I think next to Mat's, Nick.

Nicholas Lyall, from Berenberg please. Just back on M&A, please. Can I check? I mean, maybe it's my misunderstanding of the situation. But on cost and network, I'm assuming you understand the costs very, very well in each of the scenarios. On remedies, you're not going to get to know the remedies until you've put your M&A proposal in, I'm assuming unless you tell us different, but prices are also moving against you.

So what gets easier from here to do the M&A given the prices have moved against you? Or is it that I've just understood the process and now you finished the strategic plan or maybe shareholders have agreed and giving you the green light to it now? What's changed? Can you help us with the process, please? And then secondly, on value accretion, how are you going to measure that on M&A? Is it return-based, free cash flow per share? What's the criteria for the Board, please?

Okay. Thanks, Nick. So we do understand cost networks, and we do understand CapEx synergies very well. And therefore, we also understand what set of remedies would be acceptable and what sort of remedies would not be acceptable. You have mentioned something that we would defer. And I think I know exactly what you're thinking about, but you're saying prices moved against us, but we're not forced to accept any specific price.

Of course, any potential deal would have to be an agreement with regards to the target. But with regards with regards to us, all right? So any potential relevant deal would be complex, and we would only do it under the conditions we see fit for our shareholders. And these things usually do not move on 24 hours like sometimes like a potential new cycle. We're going to keep our cool.

We're going to focus on what we want to do, and that's why we very specifically say, look, any M&A -- relevant M&A deal or consolidation is up and above our plan, and everybody should understand that we are -- we should be having conversations in all the deals. Regarding potential remedies, we do think things have moved, and we do think things should move even more. Let me answer rhetorically. If nothing has moved, there won't be any more movement. If any potential remedies for an operation is to create a fourth player once again, we would be at 0.0. That's why I keep insisting in the -- in how we would do it.

And with regards to value creation, there's many ways to calculate it, but I would -- and we would calculate it in all ways, but we must see a clear net present value -- positive net present value and focus on cost synergies and infrastructure synergies not so revenue synergies, which are like the real pot of goal at the beginning of a rainbow. You think you see them.

And so often, you don't find them. But with regards to custom network synergies, we have a lot of experience, and I think we can pinpoint them very neatly. But this would be a combination of various things. And the price on the terms should be some that are appropriate for us, not for somebody to impose on us.

Thank you. And then in the middle, the Andrew there, if you could wave and make yourself visible...

It's Andrew Lee from Goldman Sachs. I just wanted to ask a question just on the -- to get a bit deeper on the structural growth outlook. I think what's become clear is what a lot of people are trying to get their head around is in your guidance, you obviously include the benefits of the employee commitments, but you don't include the cost explicit in your guidance. And I think we can understand why that might be.

But I'm just going to ask 2 questions on it. So firstly, in terms of those employee commitments, you've been clear that they go up in 2026 and then come down. During the span of your guidance, i.e., out to 2028, do those employee commitments go below where they were in 2025? Any kind of clarity on that would be really helpful.

And then secondly, and probably more importantly, -- can you help us understand the contribution from the employee commitments to your growth guidance, your EBITDA growth guidance out to 2028, so we can just get a better idea of what the structural growth is, the underlying growth beneath that. If for the group would be great, even better would be for Spain, but kind of a better understanding of what's actually going on in terms of your structural growth rather than the one-off or the more temporary boost from cost cutting?

I'll hand both questions to Laura. Thanks, Andrew.

Thank you, Andrew. On the employee commitments, as we said, we are not including them because we are not guiding on them so specifically. So I won't share with you the specific trend for the 3 next years, just to tell you that it increased in '26 and then it will start decreasing. There are EBITDA benefits, but I wouldn't get into underlying impacts taking one thing out or in because it's all have to be managed. We also have other inflationary trends and deflationary trends. And what we are doing with these lower employees in Spain is to act in a more agile, simple way and it's something which is not tactical. It's structural.

So if I were to take a piece out to see the underlying performance of Spain, I will have to take many other things that maybe playing in the other direction. And it is true that we have the benefits in EBITDA, and we have the employees' commitments thereafter. But this is the way we have our programs in Spain. Any other peer company will have all the benefits and the cost of capture upfront and the trends will be very similar to what we are showing.

So I think you still need to see the operational trends of Spain and how that is growing. And of course, a lever to grow that EBITDA in Spain has to do with being more efficient, being more efficient in many aspects, in channel, in employees, in many aspects. So I wouldn't focus so much on that specific line. It's just being more efficient and doing all the operational transformation that Emilio shared earlier today.

To highlight that, of course, we have some levers of growth. we expect to grow both in B2C and B2B, B2C, both in communication and ecosystem and in B2B, both in communication and digital services where we see a high opportunity. And as we have highlighted, we expect a declining in the wholesale revenues, but offset for the growth in the other segments.

We've already passed the hour. So let's take the last question from Fernando, which I indicated before. if you could make yourself visible to get the microphone. Can someone pass Fernando.

Fernando from Santander. Two questions, if I may. The first one on the Spanish market and on the midterm dynamics because today, we are seeing a quite nice volume growth, particularly in fixed broadband in Spain. And I would like to understand at which you expect that pace to continue? And what could be the scenario when that pace will start to decelerate, particularly considering the disruptive pricing of the challenger in the Spanish market?

And the second question is on consolidation, but on the organic side, not in the inorganic side. I would like to understand what kind of potential network sharing opportunities you may see in the different regions where you are already present. You're already sharing mobile in the U.K., some fixed sharing in Spain. Just to understand where do you see incremental opportunities here?

So I'll hand over the first and second question to Emilio, but just to mention that there are -- in the numbers you see in the organic plan, there is no consolidation in general or specifically the one you're indicating. That would be up and above. Emilio?

Yes. Related to the Spanish market, we expect to maintain the performance -- even taking account that we know that there is a different strategy of our competitors. But the true is that in the last quarter last year, we have demonstrated that we have a superior positioning in terms of networks, price and excellence in the service. We have mentioned several times, but we really believe that this differential position in the service selling is really a competitive advantage sustainable and will be key for the future of the Telefonica Spain as long as, of course, the network upgrade that we think permit us to have this better position at the same time to create new opportunities.

In the case of the -- again, our competitors and the competitors that are reducing prices sometimes, again, we have been with this situation for the last years, and we have been the demonstrate our ability to create value even in these conditions. The second one about the network. In terms of network, we have a very practical approach. If the conditions are more adequate, we can consider a different approach. We believe to own our -- the control of our infrastructure, but it's true that we have to be practical and to find the best way in order to develop the best network in each countries.

Thank you very much. That concludes our Q&A session. So thank you very much for all of you for participating. We truly value your time and your interest in today's discussion. So we would now like to invite all in-person attendees to a cocktail lunch following this session immediately being served outside of the auditorium. And thank you very much again, and we are looking forward to engage with you in the future. Thank you.