Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Telefonica SA (TEF, Financial) reported a solid Q2 with revenue growth of 1.2% year on year, driven by improvements in both B2B and B2C segments.
- The company achieved robust growth in EBITDAaL minus CapEx, which increased by 11.5% year on year, positioning them well for the second half of the year.
- Telefonica SA (TEF) expanded its fiber-to-the-home footprint by an additional 2 million premises, with fiber coverage now reaching 66% of the population across core markets.
- The company signed a non-binding MOU with Vodafone for the creation of a FiberCo, which should bring further rationality and network optimization to the FTTH market.
- Telefonica SA (TEF) continues to lead in sustainability, with Time Magazine ranking it among the Top 10 World's Most Sustainable Companies.
Negative Points
- Despite the positive revenue growth, Telefonica SA (TEF) faces headwinds from weaker FX rates, impacting overall financial performance.
- The company experienced a timing-related EUR279 million tax payment in Peru, which, although factored into guidance, affected cash flow in Q2.
- There are ongoing challenges in the Spanish market, with mobile termination rates and declining voice traffic impacting wholesale revenues.
- The company’s CapEx intensity is expected to increase in the second half of the year, which could pressure free cash flow.
- Telefonica SA (TEF) is dealing with uncertainties regarding domestic fiscal and monetary policies in Brazil, which could impact future financial performance.
Q & A Highlights
Q: On Spanish EBITDA growth, you mentioned it would improve through 2024, but there was a decline in Q2. Can you provide more details on the expected growth run rate and long-term outlook?
A: The first half of the year was the weakest for EBITDA and EBITDAaL in Spain due to factors like inflation and lease impacts. However, we expect sequential improvement starting in Q3, with EBITDAaL stabilizing in the second half of the year.
Q: How has your group wholesale revenue growth outlook changed with the new Digi and Vodafone agreements?
A: Wholesale revenue will face headwinds in 2024 due to factors like mobile termination rate changes and declining voice traffic. However, the new agreements with Digi and Vodafone are supportive of wholesale revenue and retail market conditions.
Q: Can you explain the building blocks for achieving the 5% EBITDAaL minus CapEx guidance, given the current progress?
A: The guidance for 2024 is 1% to 2%, and we are currently at 3%. Leases will grow slightly, but we are focused on mitigation measures. Spain's lease impact was highest in the first half and will annualize during the year, supporting our long-term guidance.
Q: How do you plan to maintain network quality in Hispam with such low CapEx?
A: CapEx in Hispam is usually back-loaded, and we operate within a 10% envelope. We invest through fiber vehicles and network sharing agreements, ensuring access to the best technology while maintaining a low CapEx profile.
Q: How are you managing the impact of the Brazilian real depreciation on your guidance?
A: We protect ourselves through local currency debt and hedging 70% of free cash flow from Brazil. The FX impact on revenue and EBITDA has been minimal so far, and we remain confident in our free cash flow guidance.
Q: Can you clarify the status of the UK fiber build and any discrepancies with Liberty Global's statements?
A: The Nexfibre build is on track, with a record quarter in Q2. However, we are slightly behind in selling into the fiber homes, which we aim to improve in the second half of the year.
Q: Can you provide more details on the economics of the Digi wholesale agreement and its impact on market pricing?
A: The agreement is not a capacity deal but is based on subscriber numbers and traffic consumption. We expect yearly revenues to be roughly in line with current levels, ensuring market rationality.
Q: What are the details of the expanded wholesale agreement with Freenet in Germany?
A: The 10-year deal with Freenet includes a significant increase in customer numbers, with the full run rate expected by 2026. This will compensate for the effects of the 1&1 agreement and strengthen our partnership.
Q: How does the traffic-driven growth in the Digi contract work, given the difficulty in predicting data pricing over 16 years?
A: While I can't disclose specific details, the agreement is structured to maintain revenue levels roughly in line with current figures, ensuring stability and rational pricing.
Q: Will the remaining tax payments in Peru affect your full-year guidance?
A: The remaining payments will be fractioned starting from 2025, and the situation is fully included in our guidance. We remain confident in achieving our free cash flow growth targets for 2024 and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
