Telefonica (TEF) Q3 2020 Earnings Name Transcript

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Telefonica (NYSE:TEF)
Q3 2020 Earnings Name
Oct 30, 2020, 6:30 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Women and gents, thanks for standing by, and welcome to Telefonica’s January to September 2020 Outcomes Convention Name. [Operator Instructions] [Operator Instructions]

I’d now like to show the decision over to Mr. Pablo Eguiron, World Director of Investor Relations. Please go forward.

Pablo Eguiron VidarteWorld Director of Investor Relations

Good morning and welcome to Telefonica convention name to debate January-September 2020 outcomes. I am Pablo Eguiron, Head of Investor Relations. Earlier than continuing, let me point out that the monetary data contained on this doc associated to the third quarter 2020 has been ready below Worldwide Monetary Reporting Requirements as adopted by the European Union. This monetary data is unaudited. This convention name webcast, together with the Q&A session, could include forward-looking statements and data referring to the Telefonica Group.

These statements could embody monetary or working forecasts and estimates or statements relating to plans, aims and expectations relating to completely different issues. All forward-looking statements contain dangers and uncertainties, together with dangers referring to the impact of the COVID-19 pandemic, that might trigger the monetary developments and outcomes to materially differ from these expressed or implied by such statements. We encourage you to evaluation our publicly accessible disclosure paperwork filed with the related securities market regulators. If you do not have a replica of the related press launch and slides, please contact Telefonica’s Investor Relations groups in Madrid or London.

And now let me flip the decision over to our Chief Working Officer, Angel Vila.

Angel Vila BoixChief Working Officer

Thanks, Pablo. Good morning, and welcome to Telefonica’s Third Quarter Outcomes Convention Name. At the moment with me is Laura Abasolo, our Chief Monetary and Management Officer. As standard, we’ll first stroll you thru the slides, after which we will probably be completely satisfied to take any questions you might have. Let me begin with the primary highlights of our third quarter outcomes.

First, we had a really robust industrial exercise within the quarter all throughout the board with considerably improved traits versus Q2, together with finest fastened broadband internet provides in Spain because the third quarter of 2018, document fiber-to-the-home connections, the best pay as you go internet provides in years in Brazil and a historic low churn in Germany. Amongst our 4 core markets, Spain confirmed higher traits at each ARPU, income and OIBDA ranges with a exceptional industrial traction regardless of the competitors noise.

Germany outperformed its market as soon as the standard community hole has been decreased. Within the U.Okay., we’re progressing with regulatory approval for being nationwide connectivity champion, whereas in Brazil, the place, once more, we registered multiyear document industrial exercise, free money circulation grew double-digit in euro phrases regardless of the forex depreciation. Second, we superior on technological management in infrastructure and digitalization. As such, 5G is already stay in our 4 core markets, and fiber has continued to develop. Third, we accelerated the carve-out of high-growth tech autos.

One other exceptional spotlight, our free money circulation in the course of the quarter was excellent at EUR1.6 billion, plus 13% year-on-year, and EUR0.30 per share. Within the January to September interval, it totaled EUR2.Eight billion or EUR0.53 per share. Fifth, internet debt continued to be decreased. Liquidity cushion has surpassed the EUR22 billion mark, whereas internet debt maturities now stand at simply EUR1.9 billion for the 2020-2022 interval. Lastly, we’re proposing to the following AGM the cancellation of 1.5% of treasury shares. Transferring to slip three. Let me clarify the progress we continued to make throughout our 5 strategic pillars in Q3. First, taking a look at our 4 core markets.

In Spain, we launched 5G companies with the goal of reaching 75% protection nationwide by year-end. We additionally posted additional restoration in industrial exercise with managed churn and margin enlargement and continued to reveal our fiber management with 795,000 new premises handed in Q3 to succeed in 24.Four million. In Germany, we signed an early extension of our settlement with Deutsche Telekom, together with fiber-to-the-home, and we launched 5G companies in key cities. Within the U.Okay., we’re progressing within the in-market convergent consolidation.

Our O2/Virgin Media three way partnership formally requested EU approval, and the GBP5.7 billion recapitalization course of was accomplished. Additionally it is price highlighting the expansion of the client base in U.Okay. throughout all segments of the enterprise. In Brazil, we progressed with the joint supply for Oi, being now the popular bidder. In the meantime, we launched 5G in July whereas sustaining our management in fiber-to-the-home, rising the variety of houses handed in Q3 by 1.5 million to 14.6 million.

Second, in Hispam, we filed for regulatory approval of the Costa Rica sale to LLA, and we proceed to guage all accessible choices for decreasing our portfolio publicity within the area. Third, Telefonica Tech’s three firms, cybersecurity, cloud and large knowledge IoT, are actually established, built-in and absolutely operational. Two acquisitions have been made to construct out our capabilities within the cyber area: Govertis, a consultancy; and iHackLabs, an expert coaching enterprise.

Fourth, at Telefonica Infra, as we speak, we’ve introduced a JV with Allianz in Germany to develop fiber in underserved areas, whereas we expanded Telxius towers portfolio via the German deal. And fifth, we signed the MoU with Rakuten and OpenRAN, a subsequent step in our journey towards a virtualized networks mannequin. As well as, our new operational mannequin continued to enhance our agility, ship advantages from digitalization and assist us determine additional efficiencies, with OIBDA minus capex margin in Q3 increasing 0.7 proportion factors year-on-year in natural phrases. Transferring to outcomes. Let me spotlight that we’re managing our enterprise to mitigate COVID-19 impacts.

On this slide, we are able to see income reconciliation between reported and natural year-on-year variations. From January to September, reported revenues declined by 10.7%, which interprets right into a 3.7% natural drop after stripping out 5.9 proportion factors of ForEx and one proportion level from adjustments within the consolidation perimeter and different results. In our 4 core markets, the decline was restricted to minus 2.5%. And the impression of COVID-19 was a drag of three.9 proportion factors year-on-year.

Throughout the third quarter, reported revenues declined by 12.1%, which, after excluding 8.1 proportion factors from ForEx and adjustments within the perimeter and different elements, led to a lower of 4.3% organically, bettering from the minus 5.6% posted in Q2. COVID-19 dragged 4.9 proportion factors year-on-year. Furthermore, the decline in our 4 core markets is proscribed to minus 3.9% year-on-year. slide 5, we present OIBDA reconciliation. Within the first 9 months of 2020, reported OIBDA declined 15%. ForEx impacted in seven proportion factors, whereas adjustments within the perimeter and others dragged 1.1 proportion factors, as such, decreasing the natural decline to six.7%.

This decline is proscribed to three.1% in our 4 core markets with a COVID-19 unfavorable impression of 5.2 proportion factors. Within the third quarter, reported OIBDA decreased by 2.8%. Stripping out ForEx unfavorable impression of 13 proportion factors and adjusting 18.5 proportion factors of different impacts, primarily restructuring prices booked in Q3 ’19, capital good points and impairments, we posted an natural decline of 8.3%, bettering from the minus 10% posted in Q2. It’s price highlighting that the COVID-19 impacted progress by 6.Eight proportion factors year-on-year.

And in our 4 core markets, the speed of decline in OIBDA was minus 3.3%. Transferring to slip six. We confirmed a really robust money circulation era, mirrored in each OIBDA minus capex and free money circulation per share metrics. Our robust concentrate on profitability stands out with a EUR5.7 billion OIBDA minus capex generated in January to September 2020, considerably above the determine of the identical interval of 2019, together with spectrum. OIBDA minus capex declined by 1.8% organically however grew by 3.4% year-on-year in natural phrases in our 4 core markets.

Free money circulation per share elevated to EUR0.30 in Q3, reaching EUR0.53 per share within the first 9 months of the yr, greater than overlaying the EUR0.40 dividend to be paid in 2020. The results of all that is sequential progress in free money circulation to EUR1.6 billion within the quarter, plus 13.2% year-on-year, together with mid- to high-teens progress in Brazil’s free money circulation even in euro phrases. Our monetary replace for the quarter on slide seven clearly reveals the numerous impression of COVID-19 and forex depreciation on the reported figures.

These impacts are detailed on the backside of the slide, and we’ll clarify them in additional element in a while. OIBDA was additionally impacted by an impairment allotted to Argentina of EUR785 million and by restructuring prices in Q3 ’19, together with EUR1.7 billion in Spain. Revenues reached EUR10.5 billion in Q3 ’20, and reported OIBDA decreased by 2.8%. Our persevering with concentrate on price and capex administration enabled us to limit the year-on-year decline in natural OIBDA minus capex to only 0.8% in Q3 at group stage, whereas rising it considerably at 5.2% in our 4 core markets.

Web earnings reached EUR671 million and surpassed the EUR two billion for the 9 months 2020 on an underlying foundation, leading to EPS of EUR $0.36 for the 9 months on the identical foundation. Free money circulation expanded sequentially to EUR1.6 billion and grew 13.2% year-on-year in Q3 2020 with free money circulation per share at EUR0.30 within the quarter. Web monetary debt declined an additional EUR525 million in Q3 to EUR36.7 billion, down 4% versus September 2019. Transferring to the following slide. Income efficiency improved sequentially year-on-year in Q3 by 1.Four proportion factors, led by each service and handset revenues and by Hispam.

Throughout our 4 core markets, the decline was restricted to three.9% in Q3. This accounted for a unfavorable contribution from the U.Okay., primarily in consequence from roaming, handset launch delays, along with rising higher-margin direct distribution impacting income recognition. Regardless of these short-term U.Okay. impacts, I want to comment the higher traits seen in Brazil and Spain and the power in Germany. We’re persevering with to remodel our income combine, with revenues from broadband and companies past connectivity rising by 5 proportion factors year-on-year to 68% of whole service income within the quarter.

In the meantime, Telefonica Tech Providers delivered double-digit income progress year-on-year versus 9 months 2019. On the following slide, we present additionally the improved traits in each OIBDA and OIBDA minus capex, optimizing our money circulation era. As such, OIBDA improved quarter-on-quarter by 3.Three proportion factors in Q3, led by Spain on the again of higher content material prices, Germany coming again to progress and enhancements within the U.Okay. and Brazil. OIBDA minus capex posted a considerably improved pattern, rising by 5.2% year-on-year in Q3 and 1.9% in Q2 pushed by the efficiency in Germany, Brazil and the U.Okay.

This robust money conversion can also be proven within the OIBDA minus capex margin, which expanded organically by 2.1 proportion factors year-on-year in Q3 pushed by an impressive efficiency from Brazil, adopted by the U.Okay. and Germany and a flattish pattern in Spain within the quarter. I want to spotlight, nonetheless, that Spain retains a benchmark OIBDA minus capex margin of 29.7%. Transferring to slip 10. Our breakdown of the COVID-19 impacts by quarter and enterprise line reveals a transparent enchancment versus the second quarter. On the income stage, this was on account of higher handset gross sales, supported by retailer reopenings throughout our completely different geographies.

B2C continued to be pressured by reductions, promotion and difficult buying and selling circumstances in postpaid, together with some delays in closing new enterprise. In B2B, reductions or renegotiations, mission delays and decrease demand from SMEs mixed to ship the unfavorable impression seen. The quarter suffered vital impression on roaming. Nonetheless, regardless of these unfavorable impacts, we proceed to implement vital price containment measures with decrease industrial bills and unhealthy debt bettering amongst different initiatives.

On the identical time, the disaster has allowed us to enhance buyer engagement primarily based on our community’s reliability, with churn declining 0.Three and 0.1 proportion factors year-on-year and quarter-on-quarter, respectively. We have now additionally accelerated digitalization, with gross sales through digital channels rising 36% year-on-year in our 4 core markets in Q3. On high of all of this, demand for cloud and cyber companies has elevated considerably. Because of this, on slide 11, we affirm our 2020 dividend of EUR0.40 per share, with a primary tranche of EUR0.20 to be paid in December via voluntary scrip dividend and the second tranche in June 2021.

Concerning treasury inventory, the adoption of the corresponding company resolutions will probably be proposed to the AGM for the cancellation of the shares representing 1.5% of the share capital held as treasury inventory. We keep our 2020 outlook, confirming our steering of barely unfavorable to flat year-on-year natural OIBDA minus capex as we proceed to handle our price base and operational flexibility with out jeopardizing our funding priorities. Furthermore, we’ll proceed monitoring and adapting to COVID-19-related restrictions to mitigate their impacts on the enterprise.

I’ll now hand over to Laura to take you with extra element via the group outcomes.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Thanks, Angel, and good morning to everybody. Transferring to slip 12. Telefonica Spain consolidated the restoration pattern in internet provides amid a really aggressive setting in Q3 ’20. Its superior, aggressive and segmented providing continues to drive progress in variety of accesses, recording the best fastened broadband internet provides since Q3 ’18 and constructive convergent internet provides, with fiber internet provides within the quarter exceeding 100,000, taking fiber penetration to 76% of the retail broadband base and 67% of the wholesale base.

Our highest-value TV convergent providing additionally carried out properly, posting constructive internet provides. Nonetheless, whole pay TV base fell because of the decline in lower-value TV accesses, together with Movistar+ Lite OTT service, following a big short-term improve within the base in Q2 on account of COVID-19-related confinement once we added 57,000 accesses. Our convergent buyer base as soon as once more proved notably resilient within the quarter. Quarterly churn decreased year-on-year to 1.5% regardless of the same old promotions on this interval, whereas ARPU improved quarter-on-quarter regardless of a comparison-based softening because of the Q3 ’19 value improve.

And excluding COVID-19 impression, it might even develop year-on-year. Telefonica Spain continued to be on the forefront of the sector in Spain. Our FTTH community reached 24.Four million premises handed with a 29% uptake. The 5G community was switched on within the quarter with the goal on attaining 75% protection by year-end, and progressive companies lately launched will additional improve differentiation. On slide 13.

Whereas Telefonica Spain outcomes continued to be impacted by COVID-19 in Q3, year-on-year monetary efficiency present clear enchancment versus Q2, with the year-on-year income decline bettering 0.9 proportion factors regardless of an unfavorable comparability producing by the July ’19 convergent tariff improve and a discount in roaming. OIBDA margin was near 42% in Q3 because the year-on-year OIBDA pattern improved by 4.1 proportion factors sequentially pushed by higher income efficiency, decrease content material prices, decrease roaming prices and personnel efficiencies.

With regard to content material, it’s price highlighting that for the primary time, the brand new cycle of soccer rights will now imply a year-on-year improve in internet prices. It is going to be flat for the 2021 season and decrease for the following season. The year-on-year decline in capex decelerated in step with elevated industrial exercise within the quarter, whereas our robust money era was mirrored in a record-high OIBDA minus capex over income ratio of almost 30%. Transferring to slip 14. Telefonica Deutschland achieved strong monetary leads to the COVID-19 setting, with buying and selling dynamics recovering to shut to pre-pandemic ranges and O2 churn reaching historic lows at 1%.

Income grew by 0.4% year-on-year, supported by the robust efficiency of the O2 free portfolio, whereas OIBDA returned to progress, rising 0.7 year-on-year in Q3 supported by enhanced price effectivity. capex decreased by 7.1% on account of extra back-end loaded deployment in 2020 and tailored phasing inside the current funding program. As such, OIBDA minus capex elevated by 12.5% year-on-year within the quarter and by 4% within the first 9 months.

It’s price highlighting the launch of the 5G community, which is now operational in 15 cities, focusing on over 30% inhabitants protection by the top of 2021 and round 50% protection by the top of 2022. Transferring to the U.Okay. on slide 15. We proceed to be U.Okay.’s primary community, now with over 35 million cellular clients, our market-leading loyalty and NPS. Wanting on the monetary efficiency, income declined by 9.5% within the third quarter, primarily on account of roaming, SMIP, the iPhone 12 launch delay, along with a rise in higher-margin direct distribution impacting income recognition.

OIBDA declined by 4.5% in Q3, with OIBDA minus capex rising by 3.7% year-on-year within the quarter, demonstrating opex self-discipline in addition to capex flexibility and concentrate on progress areas. Let’s now transfer to the efficiency of our Brazilian operations on slide 16. A powerful industrial restoration was seen in Q3 in all progress segments as soon as extra restrictions had been lifted. Vivo ended the quarter with document cellular market share pushed by the best pay as you go internet provides and lowest contract churn seen in years.

Contract internet provides are again to pre-COVID-19 ranges with a benchmark churn of 1.2%, down 0.7 proportion factors year-on-year. Pay as you go. Web provides reached the best stage of the final eight years, indicating a powerful industrial restoration. In Mounted, the corporate continues to seize the large fiber alternative with a document stage of FTTH connections within the quarter. Moreover, current settlement with Phoenix and the choice to create a impartial fiber car will additional strengthen our fiber attain. Free money circulation grew by 50% year-on-year within the first 9 months ’20 in native forex and by mid- to excessive teenagers in euro phrases.

our monetary efficiency, we delivered excellent OIBDA minus capex progress of 22.2% with margin enlargement of 5 proportion factors in Q3 ’20. This excellent consequence was supported by our continued concentrate on driving opex efficiencies and optimizing capital allocation, to which 70% was devoted to progress areas. Transferring now to slip 17. Telefonica Infra continued to ship a strong efficiency throughout Q3, demonstrating the robustness and resilience of its enterprise mannequin. Continued progress was made on the strategic entrance. And in Q3, Telxius executed the primary tranche of its acquisition of websites from Telefonica Deutschland, including roughly 6,000 websites to its portfolio, which is anticipated to succeed in 33,000 websites as soon as the deal is accomplished.

On the operational entrance, the entire variety of websites elevated 46.7% year-on-year, whereas tenants rose 38.5% year-on-year. It’s price highlighting the constructive efficiency within the tower enterprise, with each income and OIBDA progress accelerating to 20.2% and 18.1%, respectively, pushed primarily by increased colocation revenues and acquisition. This constructive efficiency noticed Telefonica Infra’s income develop 2.1% and OIBDA 0.3% within the quarter regardless of the unfavorable impression from contract extensions in cable. The OIBDA minus capex over income ratio, excluding M&A capex from inorganic operations, stood at 51.2% for the primary 9 months of the yr.

On slide 18, we are able to see that Telefonica Tech has continued to make vital progress. These tech firms are already up and operating, with the primary part of switch of cybersecurity, cloud and IoT massive knowledge property accomplished. Telefonica Tech Providers continued to exhibit sustained double-digit progress charges, with revenues up 15.4% year-on-year within the first 9 months of 2020. Going ahead, Telefonica Tech is anticipated to proceed outperforming, underpinned by its essential position amid accelerating digitalization in the course of the COVID-19 disaster and by the strengthening of its capabilities.

Bolstered by current acquisitions, we are actually capable of mix our integration and consultancy capabilities with our managed service to supply clients with a whole end-to-end service. In cloud, our multi-cloud companies for enterprises of all sizes had been the important thing driver of 23% year-on-year progress in income within the first 9 months of the yr as we set up ourselves as stress-free accomplice for migration to the cloud. In cybersecurity, we’re combining our in-house options and safety operation facilities with the easiest companions to supply safety as a service for all steps of the digital transformation.

With the acquisitions made in the course of the interval, we’ve added new consulting and coaching expertise, additional strengthening our choices. And with Telefonica Tech Ventures, we goal to detect disruptive innovation, notably in cybersecurity start-ups. In IoT and large knowledge, we’re growing Web of Issues for various sectors, the place our distinctive worth proposition switch uncooked knowledge into invaluable actionable data and our new COVID-compliant use instances are serving to companies determine the necessities crucial for enterprise restoration within the new setting.

Turning to Hispam on slide 19. We noticed strong industrial exercise in Q3, surpassing pre-COVID-19 ranges as contract internet provides virtually doubled versus Q3 ’19 and fiber-to-home connections keep a transparent upward pattern. When it comes to financials, revenues present a pronounced year-on-year enchancment in comparison with the earlier quarter, with revenues lowering minus 6% year-on-year versus minus 11% in Q2. OIBDA was impacted by short-term duplicating community prices in Mexico, the place extra financial savings are anticipated from 2021 onwards as the advantages of the brand new operational mannequin circulation via.

Excluding this impact, year-on-year OIBDA pattern would in any other case be secure versus the earlier quarter regardless of very robust industrial exercise and hard comps. And OIBDA minus capex improved 2% year-on-year within the quarter, once more, reflecting rising synergies and efficiencies at each opex and capex ranges. Transferring to slip 20. We evaluation intimately how FX actions are impacting our outcomes whereas, once more, proving how forex headwinds are structurally neutralized on the free money circulation stage via our efficient hedging technique.

Unfavorable FX impression elevated in Q3 ’20, primarily because of the depreciation of the Brazilian actual versus the euro. It acted as an 8.1 proportion level drag on income year-on-year and decreased OIBDA by 13 proportion factors. For the primary 9 months, the unfavorable contribution was decrease at 5.9 and 7 proportion factors, respectively. However, the unfavorable impact of EUR808 million to OIBDA stage translated into only a EUR300 million impression at free money circulation ranges. And by way of internet debt, this had a constructive impression of EUR1.2 billion for the primary 9 months or EUR2.1 billion on the web debt plus leases house.

As proven on slide 21, our internet debt decreased to EUR36.7 billion on the finish of September 2020. Within the final 9 months, we’ve decreased internet debt by EUR1.1 billion, primarily on account of resilient free money circulation era that reached EUR2.Eight billion for the interval. This efficiency comfortably exceeds dividends, hybrid coupons and commitments whereas serving to to deliver down internet debt. We stay centered on internet debt discount as demonstrated by our choice to supply a voluntary scrip dividend fee, which decreased our money outflows by greater than EUR600 million within the first tranche paid in July.

Slide 22 presents Telefonica ample and diversified financing exercise totaling EUR16.7 billion year-to-date. Of this, EUR6.Three billion pertains to the Virgin Media/O2 U.Okay. financing we efficiently closed originally of September. On the group stage, Telefonica’s financing exercise quantities to EUR10.Four billion and contributes to each an extension of our common debt life as near 11 years and a sturdy liquidity place of greater than EUR22 billion.

This place accepts debt maturities past 2022. As well as, together with U.Okay. cash-in associated with O2/Virgin Media deal, internet debt maturities will probably be EUR1.9 billion from now to 2022. Telefonica’s financing exercise has been executed at historic low rate of interest and has allowed us to decrease our curiosity fee efficient prices to three.15% as of September 2020.

I’ll now hand again to Angel to shut.

Angel Vila BoixChief Working Officer

Thanks, Laura. Slide quantity 23 reveals the rising significance of ESG within the post-COVID-19 period and our full dedication. Digitalization is likely one of the most necessary pillars to deal with local weather change. It would allow different sectors to scale back their carbon emissions. However we’ve to advance digitalization with essentially the most environment friendly networks by way of vitality and emissions. We introduced, subsequently, a brand new goal to extend the ambition as a result of local weather disaster is pressing.

We are going to turn out to be internet zero by 2025, decreasing our emissions and compensating the remaining ones. We are going to turn out to be increasingly related for our clients on this matter. For instance, Telefonica’s B2B clients in Spain prevented GHG emissions via our digital companies and prevented 2.2 million tons of CO2 in the course of the first three months of the pandemic. Telefonica has been acknowledged for the success of its initiatives on this space. We have now been awarded the Sustainable Procurement Award on the Amazon Enterprise Alternate for selling sustainability in our provide chain.

And we’re one of many high 25 most numerous and inclusive firms on the earth, based on Refinitiv, which ranks over 450 environmental, social and governance metrics for greater than 9,000 listed firms. Lastly, our sustainability technique is strengthened by our inclusion within the FTSE4Good sustainability index with an improved rating of 4.3, exceeding the sector common, and by our entry into Moody’s Euronext Vigeo-Eiris Europe 120.

All in all, our position is changing into increasingly necessary for the societies the place we function. We’re a key element of the answer for the restoration of the economic system and the digital transformation of the society. To recap, we’re persevering with to behave decisively and execute quickly to ship our sustainable long-term enterprise technique. First, we’re offering ongoing assist to all stakeholders to contribute to financial restoration.

Second, we’ve confirmed our enterprise’ resilience within the face of COVID-19, FX and GDP headwinds, delivering improved monetary and operational traits and sustaining funding in strategic progress areas. Third, we’re delivering progress on our strategic priorities throughout all fronts. Fourth, we’re taking a proactive method to stability sheet administration with a continued contribution to internet debt discount. And eventually, we’re reiterating our full yr steering and dividend for 2020.

Thanks very a lot for listening. We are actually able to take your questions.

Questions and Solutions:

Operator

[Operator Instructions] We will now take our first query from Georgios Ierodiaconou from Citi. Please go forward.

Georgios IerodiaconouCiti — Analyst

Sure. Good morning and thanks for taking my questions. I’ve a pair. The primary one is across the settlement you introduced with Allianz as we speak. I will be curious to grasp a few of the motivations behind your participating on this settlement, and in addition whether or not there are different comparable choices you could be wanting both in Germany or different markets. I do know you’ve got a few of these kinds of agreements in Brazil, however whether or not you propose to develop them past these two markets.

And the second query, sort of resulting in that, to date, your agreements appear to be extra oriented towards rolling out new infrastructure. I used to be curious whether or not taking a look at your fastened line infrastructure in Spain, in Brazil, and in a few of the different markets, whether or not you see a chance maybe to monetize a few of the current Fiber that you just personal. Thanks.

Angel Vila BoixChief Working Officer

Thanks, Georgios, to your query. This morning, we’ve introduced a 50-50 three way partnership with Allianz in Germany. We consider that there’s a huge alternative for Fiber-to-the-Dwelling in that market as a result of the penetration is low. There are applications to develop on Fiber via completely different gamers, however there’s a massive alternative. We’re doing this with a pure wholesale method. It will be a impartial car open to all of the gamers out there. It has been structured in such a approach that it’ll not be consolidated by both Allianz or ourselves. It is ring-fenced, each from accounting and from a score standpoint.

We’re approaching this as a complementary entry to fastened broadband to the completely different autos or agreements that Telefonica Deutschland has. We have now prolonged the settlement with Deutsche Telekom, accessing additionally Fiber-to-the-home. We have now an unique settlement with Vodafone to entry their cable. We have now an settlement with Tele Columbus, and now Telefonica Deutschland goes to be anchor consumer, shareholder, and in addition provider of some companies to this new FiberCo.

Clearly, our goal is to be complementary to different Fiber autos in Germany to keep away from overbuild within the nation to maximise the take, and we’re aiming to have a mission with a really substantial IRR. And we noticed final yr the valuation at which Deutsche Glasfaser was valued in that market. We’re taking a look at comparable, though somewhat bit completely different initiatives, in different markets, in Brazil and in Chile. In Brazil, we’re fairly progressed.

We’re in Section Two, spherical two of affords. For a FiberCo, which, not like Germany, which is pure greenfield, in Brazil, we’ve a brownfield element plus a greenfield build-out to succeed in — in Germany, it’ll be barely over two million Fiber houses handed. In Brazil, we’re aiming for above 5 million, together with the preliminary contribution of brownfield plus the build-out of greenfield. That second mission is progressing properly. We have now events within the second spherical, as I mentioned. And in Chile, we’re additionally within the technique of bringing, doubtlessly, traders into the Fiber car. Concerning the Fiber that we’ve in Spain, it is a completely different state of affairs.

In Spain, we do not have the under-penetration that you’ve got in different markets. It is a very well-penetrated market in Fiber, truly the chief in Europe. There are very lively industrial agreements in place to wholesale that Fiber. It is regulated, but additionally there are industrial agreements with all of the gamers out there for entry to that. Clearly, it is a very invaluable and really well-developed FiberCo or Fiber presence within the nation. It provides us a number of optionality, but it surely’s a distinct state of affairs from markets the place the Fiber will not be as developed than Spain.

Georgios IerodiaconouCiti — Analyst

Thanks.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Georgios. Subsequent query, please.

Operator

We will now take our subsequent query, Jakob Bluestone from Credit score Suisse.

Jakob BluestoneCredit score Suisse — Analyst

Hello. Good morning. Thanks for taking my questions. I’ve obtained two barely number-sy questions. Firstly, your working capital was minus EUR764 million within the first 9 months in comparison with constructive EUR482 million within the first 9 months final yr, so sort of a swing of about EUR one billion. Are you able to perhaps simply assist us perceive why working capital is such a giant drag? And I do not know should you can provide any steering both for the yr or kind of the way you see that evolving?

In order that’s the primary query. The second query is in your internet debt. If I look within the launch on web page 14, you disclosed that your internet debt features a constructive worth of a derivatives portfolio, with a internet worth of about EUR2.2 billion. Final quarter, that was about EUR 4 billion. And so are you able to assist us perceive why did the derivatives portfolio fall in worth by about EUR two billion? And am I appropriate that your internet debt would have been EUR two billion decrease if that hadn’t occurred? So perhaps should you can simply assist us perceive what is going on on with this derivatives portfolio. Thanks.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

So thanks, Jakob, for the questions. The working capital, not just for this Q, additionally for the complete 2020 versus 2019, goes to be very a lot affected by the deferred funds of the German spectrum acquired in 2019. If you happen to recall, we accounted every little thing in capex. Nonetheless, the fee itself goes to be deferring greater than 10 years. In order that’s affecting the entire working capital comparability this yr. If you happen to go — should you exclude that, it is truly decrease consumption. In Q3 ’20 versus Q3 ’19, it is just about secure, barely decrease.

And should you take a look at the 9 months, there’s decrease consumption. So we maintain working capital very properly with capex phasing. I imply, they’re restructuring, taking part in unfavorable as a result of we accounted for it in ’19, and we’re paying it now. However on the opposite facet, a few of the one-offs that had been executed This fall final yr are being money now. After which you’ve got all of the timing of the multiyear contracts, primarily wholesale contracts. And AT&T in Mexico is working negatively, but it surely’s very, very a lot affected by the German spectrum. And should you exclude that, it is comparable Q3 and somewhat bit extra favorable for the primary 9 months of the yr.

So nothing completely different on that entrance as soon as you’re taking the spectrum of Germany out. On the web debt, we did do some adjustments in the way in which we’re accounting for them to kind the mark-to-market of derivatives final yr. And we disclosed that intimately, and the Investor Relations can clarify you. However what we did exactly is that this is not going to impression our internet debt evolution. A lot of those mark-to-market adjustments need to do with the debt we’ve in greenback as a result of we’ve derivatives to maneuver from variable to fastened.

After which we even have derivatives to hedge for the U.S. greenback and euro. So you’ve got very, very giant actions. They’re simply — I imply they don’t seem to be — they don’t have a money impression. And on the finish of the derivatives, it can turn out to be impartial, and we truly excluded it from the online debt to keep away from all that volatility. So — however we can provide you extra element on that. However your internet debt evolution year-on-year has nothing to do with this.

Jakob BluestoneCredit score Suisse — Analyst

Thanks. That is very useful.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Jakob. Subsequent query, please.

Operator

Subsequent query comes from Joshua Mills from Exane. Please go forward.

Joshua MillsExane — Analyst

Hello, there. Thanks for the questions. Two from my facet. The primary, on Spain, particularly the EBITDA. So that you refer within the press launch to decrease content material prices, which I believe could also be associated to some rebates out of your content material spend earlier within the yr. May you quantify how a lot decrease the content material prices had been in Q3? After which additionally tell us if that is going to proceed into This fall, simply in order that we are able to take into consideration modeling that out. It will be very useful.

After which the second query, on the Fiber-to-the-Home based business in Germany. What sort of take-up charges or community utilization do you anticipate within the two million houses you may be rolling out to? And have you ever already began to have lively discussions with different wholesale operators out there exterior of Telefonica conditions?

Angel Vila BoixChief Working Officer

Thanks for the questions. As you noticed and we had anticipated to the market that the OIBDA margin of our Spanish operation has reached 41.8% is increased than it was within the first half of the yr. And we count on, as properly, the EBITDA margin of the second half of the yr to proceed to be increased than the one of many first half. That is the results of an opex year-on-year lower regardless of reactivation of economic prices, due to effectivity measures and because of higher evolution of the TV content material.

So personnel price was down excessive single-digit within the yr, identical financial savings from the personnel discount program as in Q2. The availability price was down low single-digit on decrease content material prices. Our industrial prices had been secure on again to normalized exercise. Content material prices have reached — or will attain stability year-on-year in This fall, whereas all of the contents are comparable year-on-year. We have now full Liga and European competitions with deflation ranging from subsequent season. So you will notice stability in content material prices and deflation from subsequent yr.

It’s true that on this quarter, we ended up having — or within the first half of the yr, we ended up having fewer content material that we initially had contracted for. This is applicable to a few of the sports activities proper we exploit. The figures will not be public, however sure, we are able to affirm that some financial savings had been generated over the third quarter primarily based on this decrease content material that we had over the yr. So going ahead — and within the particular relating to sports activities content material, stability for the remainder of the present sports activities season declined from the present subsequent season when the brand new Champions League cycle, which we achieved with a 15% deflation, will kick in into our figures.

Concerning the FiberCo in Germany, we’re aiming — and there will probably be a interval of build-out to succeed in this in extra of two million houses. We’re aiming to be very complementary to the deployments of different gamers out there. So we’re addressing underserved, non-urban, however prosperous areas in Germany. As such, I can’t disclose the targets that we’ve of take-up, however I can let you know that we’re aiming for these targets to be fairly constructive on this — in our projections.

Joshua MillsExane — Analyst

Thanks. So simply to make clear, so there will probably be no additional content material financial savings in This fall. They’ve all been booked in Q3 in Spain.

Angel Vila BoixChief Working Officer

We have now had content material financial savings in Q3. Relying on the evolution of the conditions — for example, within the spring, we had, with the lockdown, a close-down of most of the social venues that had been displaying sports activities content material to their patrons. Lots of these are again. An enormous proportion of these are again as a result of we’ve had soccer season everywhere in the summer time. The brand new wave, good outcomes doubtlessly in a few of these social venues, having some restriction on these. After which we might have changes additionally within the prices to ship to these as properly. So the state of affairs is fluid.

We have now booked financial savings within the Q3. Relying on how the state of affairs evolves, we might even see — and the evolution of the completely different sports activities going ahead, we might even see these sooner or later. These will not be factored at this second in our outlook for the remainder of the yr in Spain, which, once more, we’re wanting ahead to having a better OIBDA margin within the second half than within the first half. If these extra content material financial savings had been to be produced, they’d be incremental to this outlook.

Joshua MillsExane — Analyst

Thanks.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Josh. Subsequent query, please.

Operator

Subsequent query comes from Keval Khiroya from Deutsche Financial institution. Please go forward.

Keval KhiroyaDeutsche Financial institution — Analyst

Thanks. I’ve obtained two questions, please, one on capex and one on the opposite firms line. So first, on capex, you’ve got clearly made spectacular discount in capex this yr serving to you on the free money circulation stage. As we glance within the coming quarters and subsequent yr, so you are going to begin to push extra into 5G as properly, how ought to we take into consideration how the capital depth ought to evolve on the group stage?

And secondly, simply inside the different firms and eliminations line on EBITDA, clearly, it’s kind of harder for us to have a transparent view on the place that needs to be. May you assist us get an concept of how we should always take into consideration how giant that unfavorable quantity needs to be going ahead? Thanks.

Angel Vila BoixChief Working Officer

Thanks, Keval. On capex, we had the 2020 capex embedded in our steering, which envisage capex progress in sure markets. Given the state of affairs created by COVID-19, we’re offsetting a few of the impression through decrease — clearly, through opex efficiencies, but additionally through decrease capex to protect working money circulation and goal for the steering that we’ve said for — or the outlook for the yr of barely unfavorable to flat working money circulation margin. capex spend and strain has been decreased. Some rollouts had been impacted by lockdowns. Some associated to provision in portability, short-term in some markets. Some deployment pace have been delayed.

And clearly, there was delay on spectrum auctions. That additionally had some protection and upkeep work that was postponed. We’re actively managing the capex to regulate to the brand new financial context and perspective. We’re reprioritizing our most worthwhile investments and contemplating the aggressive state of affairs in each market. However all of those with out impacting the community’s high quality and reliability, with out jeopardizing our key funding priorities, and absolutely assembly the community protection obligations.

And for example, we’ve launched 5G already in our 5 — in our 4 core markets, and we’re attaining document Fiber-to-the-Dwelling deployments and connections everywhere in the footprint. It is early to quantify the small print. Some capex, perhaps, can have been delayed to 2021. However clearly, another capex efficiencies are going to be everlasting and will not be going to indicate catch-up in 2021.

For the remainder of 2020, what I can affirm is that we absolutely stand by the outlook that we’ve given to the market on working money circulation evolution. And this could not indicate any capex shoot-up on the interval. And for subsequent yr, we’ll give the steering once we current the complete yr outcomes. However once more, most of the capex efficiencies on account of reprioritization, additionally decreasing the funding in legacies, and so forth are right here to remain. These wouldn’t be spilling over to subsequent years.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

However eliminations, I perceive it is troublesome to observe as a result of it’s important to keep in mind right here, we embody headquarters, we embody the small subsidiaries, a few of them being affected additionally for COVID. As an illustration, within the small subsidiaries, we’ve a buying unit. As — and as we’re decreasing opex and capex, the results of this unit has additionally obtained decreased. However going ahead, you noticed that in Q2, it was round EUR165 million and in Q3 has elevated about EUR30 million to EUR200 million. That EUR30 million will be defined by our donation to Fundacion. As you understand, we accrue for a rare donation some years in the past.

That has lasted longer than anticipated as a result of they’ve additionally prioritized most of the initiatives. That has no impression on free money circulation as a result of the free money circulation goes via in any approach. Going ahead, and I believe a few of the small subsidiaries which can be a part of it will enhance additionally with COVID. I believe round EUR200 million could possibly be a correct amount for This fall. You additionally need to keep in mind right here, I am not together with capital good points that might assist or both restructuring that might worsen.

But when I attempt to go to the underlying different hand elimination, I believe the determine you’ve got seen for Q3 could possibly be a proper extrapolation for This fall. Sure. Sorry, as a result of because it’s a part of the others, it is arduous to see. However I can guarantee you that on the headquarters line, there’s been numerous effectivity additionally, not solely aligned to COVID, additionally it was a part of our working mannequin, strategic choice on This fall final yr. So we’re simplifying the group and working mannequin, and that is coping with vital financial savings.

Keval KhiroyaDeutsche Financial institution — Analyst

Thanks.

Angel Vila BoixChief Working Officer

Thanks, Keval. Subsequent query please.

Operator

Subsequent query comes from Mathieu Robilliard from Barclays. Please go forward.

Mathieu RobilliardBarclays — Analyst

Sure. Good morning and thanks. First, I had a query on Spain. So clearly, due to COVID, we’re seeing some troublesome traits. However on the convergent product, mainly, what we’re seeing is an ARPU decline, which I believe can also be a part of a downspin out there. And so my query actually is, how do you handle this going ahead? Do you assume quantity progress can offset the structural ARPU erosion? Or do you assume that regardless of the powerful macro and aggressive setting, there’s scope for extra initiatives sooner or later with the intention to stabilize the ARPU and in some unspecified time in the future, your high line in Spain?

After which the second query needed to do with the leverage and the debt score. So lately, a characteristic positively maintained the debt score and the secure outlook. However I do word that one assumption, amongst others, is that the euro to Brazil price stays at 6.3. It is already at 6.8. So clearly, that is one assumption that’s not entering into the proper route. And so I used to be questioning, what are the levers you assume you’ll be able to work on to offset that? And particularly, do you’ve got any progress by way of what you are able to do with the Latin America or the Hispano-American enterprise? Thanks.

Angel Vila BoixChief Working Officer

Thanks, Mathieu, to your questions. I will take the primary one on the Spanish convergent ARPU. The ARPU of our convergent merchandise was down, sure, year-on-year, but it surely was up 1% quarter-on-quarter sequentially. Right here, you’ve got completely different shifting items. Whenever you take a look at the year-on-year drivers, it is very vital, the impression of the worth improve that came about within the third quarter of 2019, which was not the case on this third quarter of 2020. Additionally, we’ve COVID-19 results.

And we’ve decrease additional consumption out of the bundle on condition that we’ve moved to extra allowances in cellular, for example, and we’ve the dilutive impact from multi-brand choices, that means the elevated — the penetration of our O2 proposition. On the identical time, we’ve upselling, we’ve new digital companies with fairly robust traction and we’ve decrease year-on-year promotion weight. So, sure, declined versus final yr with two vital results from the worth improve comparability from one yr in the past, and the COVID impression being crucial.

However quarter-on-quarter, it is bettering, as we mentioned within the earlier name. It is bettering due to financial reactivation. It is bettering due to the return of the soccer, and the social venues reopening, and regardless of these harder comps. Along with rising quarter-on-quarter, what we’ve is also a churn, which is 0.1% decrease than one yr in the past. And we count on ARPU — convergent ARPU within the second half of the yr to be increased than within the first half of the yr.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Sorry.

Angel Vila BoixChief Working Officer

Please go forward.

Mathieu RobilliardBarclays — Analyst

Sorry, if I can simply observe up. So that you assume that this sort of the spin-down, I believe we’re seeing somewhat bit, and also you alluded to that along with your multi-branding technique, will be offset over the following quarters, proper?

Angel Vila BoixChief Working Officer

We expect the ARPU of the second half of the yr to be increased than the one of many first half of the yr. That is how I’d synthesize all of the shifting items in — with the intention to construct it into your fashions. Thanks.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Thanks, Mathieu, to your query. It was truly multiple query since you requested in regards to the score, inorganic choices, and in addition progress on HispAm. So I’ll attempt to reply all of them. You might be proper. Fitch has maintained a secure outlook. It’s true that they talked about that there is a danger related to FX and translation impression, however in addition they affirmed the willingness and capability of Telefonica to guard money circulation era via disposals and in addition the natural free money circulation era. On the inorganic, we’re actively managing our asset portfolio.

I believe we’re being bolder, and we’re executing sooner, as a result of we have to take away uncertainty on our deleverage path. We have now the stability sheet in extra of EUR100 billion. It is stuffed with high-quality property. We have now infrastructure property greater than different firms within the sector. So we consider we’ve big capability to generate worth with our asset base. On this regard, as you understand, we’ve executed already, and we’ve transactions which can be below approval processes. It is the U.Okay. merger. It is the sale of Costa Rica. It is also the sale of the German towers to Telxius that a part of that profit will undergo already in This fall this yr.

Telefonica Tech additionally affords optionality and, clearly, Telefonica Hispano. And close to Telefonica HispAm, our technique has natural and inorganic angles. Within the natural entrance, we have to enhance effectivity and we have to focus way more these models with a devoted group we’ve in place to generate free money circulation and scale back the publicity to the area. In that half, within the inorganic possibility, the — we carry on working in parallel, in getting ourselves ready for the spin-off. And in that regard, we’ve finished a number of work. We have now finished the operational carve-out. We have now additionally finished the company carve-out, which is sort of accomplished.

We’re getting ready the documentation, engaged on the capital construction of the corporate, and we’re intently monitoring market circumstances and progressing in all work streams so when the window involves be absolutely ready. However we’re additionally exploring and dealing in numerous M&A alternate options. Having mentioned that and has been extra lively than ever within the inorganic entrance, let me let you know that on the natural entrance, I believe our free money circulation has proved to be very, very, very strong. Free money circulation is a part of our DNN, and it is an absolute precedence for us and much more this yr.

We have now demonstrated in the course of the pandemia that we’ve levers that we’ll proceed to tug to attenuate the income impression all the way in which to free money circulation, via efficiencies and capex prioritization. This additionally applies to FX. As you additionally noticed, and also you talked about the true, and it is not excellent news, however you’ve got additionally proven how the over EUR two billion FX impression in income has obtained decreased to free money circulation to EUR300 million, even with this big actual depreciation. And we nonetheless assume we’re going to ship very, very strong free money circulation on this complicated yr within the the rest of 2020.

Mathieu RobilliardBarclays — Analyst

Thanks very a lot.

Angel Vila BoixChief Working Officer

Let me, Mathieu, offer you a few figures to provide you consolation on what I mentioned earlier than. We have now had document fastened broadband internet provides, highest for the final two years. That is partially because of the second residences. However these have come on this quarter with the brand new soccer season, with the reopening of the social venues, which has meant that we’ve had convergent gross provides considerably increased than in Q3 ’19.

The soccer gross provides within the quarter rising double-digit, and the combination of the gross hedging convergence with the perfect worth combine within the final 4 quarters. 76% of the gross provides had been within the mid- and the excessive finish of the Fusion packages. Simply so that you can have some coloration or some proof of what’s behind my assertion earlier than that we count on ARPU within the second half increased than the primary.

Mathieu RobilliardBarclays — Analyst

That is very useful. Thanks very a lot.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Mathieu. Subsequent query, please.

Operator

Subsequent query comes from Akhil Dattani from JP Morgan.

Akhil DattaniJP Morgan — Analyst

Hey?

Operator

Please unm

Akhil DattaniJP Morgan — Analyst

I’ve simply obtained one query, please, with two components to it, simply across the stability sheet and capital construction. I believe as you’ve got outlined to the decision, you’ve got finished an excellent job of managing down debt and defending money circulation from the forex impacts you’ve got had. However I suppose it is extra of a conceptual query in regards to the greater image on how you consider stability sheet. I suppose what we have seen this yr is traders as a complete are feeling more and more uncomfortable with excessive ranges of leverage.

And I believe in some ways, numerous the debates now shifted to taking a look at internet debt as a proportion of your EV, which clearly has gone up lots given how a lot asset has gone down. So how do you consider that metric? How do you consider the consolation you’ve got internally with the stability sheet and the way you are managing that going ahead?

And secondly is only a very fast clarification level. I imply you’ve got made very clearly the purpose this yr that you have used the scrip to handle the dividend and offer you flexibility. Any feedback you can provide round how you consider the dividend and scrips going ahead?

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Okay. Thanks, Akhil, for the query. I am unsure you had been referring to internet debt over EBIT. Is that what you mentioned?

Akhil DattaniJP Morgan — Analyst

No. Sorry, Laura. Sorry, I wasn’t clear. It’s internet debt as a proportion of your enterprise worth. So basically, as we speak, you are down — the fairness is about 20% of the EV. Sure?

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Sure. Sure. Understood. Understood. Thanks, Akhil. Sure, you are completely proper. As our share value will not be performing on the stage we want to and truly is sort of beneath the sum of the components and a lot of the analyst suggestion, the proportion of internet debt is rising their share, and we’re following on that. What I can let you know on that entrance is that we’ve a fully dedication to maintain on decreasing leverage, and we’ve an absolute dedication to stay with a strong funding grade. And with a purpose to ship that, we’ve to generate free money circulation, and we’ve to execute inorganic strikes. There is not any different answer.

On the free money circulation, you noticed and I do know, however for us, it is essentially the most sustainable approach to scale back internet debt. And with a really robust free money circulation, additionally the share value ought to go up. So a part of that unbalance we’ve now between the online debt and fairness needs to be resolved. You understand we don’t embody free money circulation as a part of our official steering, so please take this remark extra as a forecast.

However we’re simply two months forward of closing, and except there’s one thing surprising that I can’t consider at current on high of the pandemia uncertainty, after all, I positively assume our free money circulation needs to be above EUR 4 billion, and that is properly above the present market consensus. So with this message, I can let you know that there is numerous administration concentrate on delivering free money circulation as a sustainable approach for our share value appreciation and in addition for deleverage. And within the inorganic, I informed Mathieu, every little thing we have finished final yr, every little thing we’ve finished already within the first 9 months and extra is certainly going to return.

I additionally let you know that the inorganic strikes additionally embody funding as a result of as a part of the technique, we have to reinforce our core OBs. So the bid we did for Oi and in addition the information we launched as we speak on the fiberco go on that route. You may as well be that we’re doing this with companions. So we care for the capital as we wish to improve and enhance return on capital employed. On the dividend and scrip, you understand our shareholder accepted the dividend being an scrip with a purpose to give flexibility and with a purpose to present prudency, which I believe is properly wanted in these instances.

We’re conscious that the scrip dividend for those who take the money has a dilutive impact, and that is why we took the motion of minimizing a part of — or partially compensate a part of that dilution for the June ’20 scrip, and that is why we’re proposing amortizing half of the present — or 1.5% for treasury inventory. However we nonetheless assume an additional stage of prudency is required, and in addition this body inside our dedication of the strong funding grade. It is quickly to speak about future dividend, however let me stress the elements to think about.

First, the robust free money circulation era with the forecast I gave you, that comfortably covers the dividend and the discount of internet debt organically and all different commitments. The lively portfolio administration, I discussed the high-quality property above EUR100 billion, and in addition that we’ve finished the homework. So the online debt determine could also be excessive, but it surely’s been very properly managed. We have now a maturity of debt which is now 11 years. We have now refinanced over virtually EUR70 billion.

We have now a liquidity cushion of EUR22 billion, and that is with out contemplating the U.Okay. proceeds. So I believe regardless of a sophisticated yr, we’ve proved that free money circulation will not be affected even with a double dip impression from COVID and FX that has been great in our portfolio. Our enterprise, subsequently, it is a strong money era. We personal a large base of top-quality property, and we’ve a wholesome monetary and liquidity place. So we’ll maintain taking down debt. We are going to enhance the ratio you referred to, and we’ll crystallize worth for the good thing about our shareholders.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Akhil. Subsequent query, please.

Operator

Subsequent query comes from Mandeep Singh from Redburn.

Mandeep SinghRedburn — Analyst

It is Mandeep at Redburn. It is a comparatively easy query, hopefully, but it surely’s already been requested earlier than. I am actually simply wanting on the kind of medium-term outlook to your client enterprise in Spain. I am not asking you for a particular forecast. However simply conceptually, your ARPU ranges are very excessive, among the many highest, if not the best, by some margin out there. And to each exterior observer, Spanish pricing is below extreme strain out there. So the straightforward query actually is how are you going to develop or stabilize your client enterprise in Spain?

Angel Vila BoixChief Working Officer

Thanks, Mandeep. I believe that this query is being requested repeatedly in each name. And we proceed producing each quarter outcomes that show that we are able to be capable of keep the efficiency of our Spanish enterprise. Right here, what we’ve is differential property within the sense of the perfect community accessible within the nation. We even have finest services, together with unique content material and positioning with respect to clients which can be within the higher segments of the enterprise, that are valuing what we’re giving them by way of connectivity, functionalities, content material and so forth.

As well as, our ARPU is product of extra companies per buyer than the ARPU of a few of our opponents. And we proceed including new companies to attraction to our clients. As an illustration, our dwelling safety options within the three way partnership with Prosegur are getting spectacular traction. We’re promoting 4 instances what Prosegur stand-alone was promoting one yr in the past. So for example, we’ve simply launched e-health companies which can be changing into extraordinarily related in these instances.

So sure, we’ve ARPU premium with respect to our opponents. On the identical time, we’re providing — we’re together with in that ARPU extra companies than what you’ve got within the ARPU of our opponents’ companies, that are offering not solely that ARPU, however that are offering stickiness of the purchasers with us. And subsequently, we’re sustaining or having the chance to extend ARPU quarter-on-quarter whereas decreasing churn on the identical time. We perceive that we have to maintain bettering this each quarter, and you’ll be completely positive that we’ll proceed working to enhance it each quarter.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Mandeep. Subsequent query, please.

Operator

Subsequent query comes from Giovanni Montalti from UBS Funding Financial institution.

Giovanni MontaltiUBS Funding Financial institution — Analyst

Simply questioning should you can share with us some coloration in regards to the subsequent public sale for La Liga rights. Is there something deliberate for subsequent yr? Is there any ideas you’ll be able to share with us, I imply, assuming there’s something deliberate for subsequent yr?

Angel Vila BoixChief Working Officer

Properly, I believe it is early days to consider La Liga. What you noticed within the earlier cycle, we achieved deflation in La Liga. Admittedly, it was slight deflation, however we achieved deflation. Most lately, within the Champions League, a brand new contract, we’ve achieved 15% financial savings versus the earlier cycle, and we’ve stabilized the worth of every one of many years of the cycle with out having the intra-cycle inflation.

We have now negotiated additionally, for example, different sport rights like Formulation One, renewed for 3 seasons with greater than 25% deflation versus the present cycle. So the pattern is right here. We have now reversed a pattern of a few years of inflation. And now we are able to show then in three of the primary sports activities content material rights that we’re having fun with, we’ve achieved deflation in all 3. And…

Giovanni MontaltiUBS Funding Financial institution — Analyst

Sorry. If I could observe up.

Angel Vila BoixChief Working Officer

Please, please go forward.

Giovanni MontaltiUBS Funding Financial institution — Analyst

Is there any visibility on the potential timing of the public sale so far as you are conscious?

Angel Vila BoixChief Working Officer

No, we do not have visibility on that timing.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Giovanni. Subsequent query, please.

Operator

Subsequent query comes from Luigi Minerva from HSBC.

Luigi MinervaHSBC — Analyst

It is Luigi Minerva from HSBC. I’ve two questions. One is a follow-up on the dividend. And I used to be questioning whether or not, given the place the share value is, the Board would contemplate a share buyback program as maybe a greater approach to ship a sign of confidence within the outlook of the enterprise. And my second query is on Telxius. I imply you proceed to — but to switch property, but it surely appears to me that till Telxius is consolidated inside the group, you can’t correctly develop it as Europe will most likely do. So is management of Telxius one thing that you’d contemplate altering?

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Thanks, Luigi. On the primary query, you might be truly implying shareholder remuneration. And as I mentioned, we’ve our shareholder remuneration for 2020. We do not have a multiyear coverage, so we’ll touch upon this at due time. However let me let you know that though we’ve elevated our treasury inventory as much as 154% that we communicated on the finish of September from a earlier level, 53% at July 14, these shares, it has been extra tactical, and we shouldn’t have any program in place for the time being.

As well as, we purchased these shares after the huge score yr as we speak, and we’ve used this to mitigate a part of the dilution from the scrip dividend. We are going to analyze potential share buybacks applications as soon as we really feel comfy with the discount in leverage. And below present circumstances of volatility and uncertainty, typically, not in Telefonica, we consider we have to present with an additional stage of prudency.

Angel Vila BoixChief Working Officer

Concerning Telxius, we consider that it is a very invaluable asset within the sum of the components of Telefonica. As you’ll be able to see on slide 17, the corporate is performing very properly with substantial progress and really excessive margin. Completely different growth within the two companies. Within the towers, as you’ll be able to see on the underside proper of slide 17, rising organically at 20% in revenues within the third quarter, 18% in OIBDA. With the German tower deal, we are actually at near 27,000 towers from the 16,000, which — with which Telxius began three years in the past once we closed the second tranche of the German deal, 33,000 towers, a really substantial and invaluable tower firm, which provides us optionality.

It has been clearly rising, doubling its dimension because the firm was created. And we predict that with a purpose to facilitate the event and the expansion of the corporate, we could possibly be optioned — could possibly be open to ponder choices. On the identical time, when one seems to be on the evolution of the consolidated of Telxius, the habits of the submarine cable enterprise has been completely different. And let me clarify why you see the change in pattern on this quarter. The service contracts between the submarine cable division of Telxius and Telefonica’s working companies had been expiring in 2020 and 2021.

What we’ve finished is renegotiate these early in change for an prolonged interval of 5 years. The trade-off for this extension has been to scale back the fastened costs. And that is why you see the submarine cable decreasing its efficiency in comparison with earlier quarters. In reciprocity, this discount within the fastened costs of the submarine cable will enhance the working companies’ margins.

From Telxius standpoint, this discount in costs is impacting the short-term revenues, however the extension of the contract provides full visibility and progress forward for the Telxius submarine cable for mid- and long run. And this visibility in long run will enable Telxius to ponder all potential strategic alternate options for these subsea cable models.

Pablo Eguiron VidarteWorld Director of Investor Relations

Thanks, Luigi. We have now time for one — only for one closing query, please.

Operator

Our final query comes from David Wright from Financial institution of America.

David WrightFinancial institution of America — Analyst

Simply on Spain, simply on the battle round O2, we have — our evaluation suggests it is monitoring about 20% to 25% of gross provides. So I simply puzzled whether or not you can give us any sort of indication of whether or not that is an affordable ballpark simply once we’re forecasting ARPU, please. After which, second of all, simply Laura, clearly, some extra progress on the Hispam potential demerger. I puzzled should you might give us some extra indication on what leverage vary you can point out, you can placed on that car.

From my perspective, it appears arduous to think about it might carry the online debt to EBITDA that Telefonica Group has. So might the spin-off truly be a deleveraging occasion for Telefonica Group? And in addition, you’ve got written down Argentina considerably as we speak. So clearly, you are pleased with the present guide values of these LATAM property. Do you even have a guide worth for Telefonica Hispam put up the Argentina writedown, please?

Angel Vila BoixChief Working Officer

Thanks, David. On O2, it is having industrial traction and helps us or is making us be related in a phase of market which isn’t coated by our Fusion convergent affords. So we had 76,000 convergent internet provides. And the client base is 3 times year-on-year. It has decrease ranges of churn at 1%, an ARPU which is secure at EUR49 and is main in Web Promoter Rating.

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

David, in your Hispam query on potential spin-off, we are literally engaged on the potential capital construction, as you could think about. However I would slightly to not disclose that as it is not an insulated and unbiased entity. We have now to place the area as a few of sizable and diversified variety of nations and operations, a few of them with very giant scale within the nations they function, and that ought to assist its credit score profile. The leverage ratio of opponents, as you understand in addition to me, is between two instances to 4 instances. So there’s loads of — it is a fairly wide selection.

You might be proper. It can’t be — it could possibly be leverage-neutral, is determined by the ratio. However the primary goal of the spin-off is to derisk the stability sheet, decrease the fairness publicity, altering the FX combine and simplified the fairness story. So we gives you extra coloration as we progress on this, little question. And clearly, to have it as leverage-friendly as potential. It is also a really good to have, but it surely’s not the final word purpose because it’s extra the derisking and simplify — easy fairness story. On the guide worth, my understanding is that we give element on guide worth on the annual accounts.

So you will notice that, and you’ll see the way it was for the completely different Hispam property. So we can have this within the subsequent accounts with extra element on the primary apparent that affirm the Telefonica Group perimeter. And subsequently, you will discover that the Hispam guide worth of the property. Unsure if you would like me to remark something on the Argentinian impairment, however I want to emphasize that it has heaps to do with the macro setting. Argentina is struggling a really extreme confinement and in addition the legacy of some unbalances. Because of this, inflation expectations proceed to rise, and that has implications on our low cost charges.

And that, along with the FX, explains about 75% much more of the impairment. The remaining has to do with the lower, not permitting improve in tariffs in lots of our companies. I can let you know, the operation is engaged on a plan to reverse industrial traits and alter the working mannequin in order to scale back opex and prioritize capex to guard free money circulation. Argentina can also be very superior in digitalization, not solely of their operations but additionally within the interplay with the purchasers. And that enables for opex to begin rising, hopefully, earlier than inflation.

I do not wish to reduce the impression of this, little question, but it surely’s noncash. As you understand, there hasn’t been a correction within the worth of Argentina previously. And also you additionally need to keep in mind Argentina income accounts for lower than 4%, OIBDA, working money circulation, free money circulation lower than 3%. We have now taken Argentina out of our natural progress. So from this level, except the macro continues reversing what’s in our fingers, what’s below administration, I believe it’s important to take a look at these particular property as optionality going ahead.

Angel Vila BoixChief Working Officer

Thanks very a lot to your participation, and we actually count on to have offered some helpful insights for you. If you happen to nonetheless have questions, please contact our Investor Relations division. Good morning, keep wholesome, and thanks.

Operator

[Operator Closing Remarks]

Length: 90 minutes

Name members:

Pablo Eguiron VidarteWorld Director of Investor Relations

Angel Vila BoixChief Working Officer

Laura Abasolo Garcia de BaquedanoChief Finance and Management Officer

Georgios IerodiaconouCiti — Analyst

Jakob BluestoneCredit score Suisse — Analyst

Joshua MillsExane — Analyst

Keval KhiroyaDeutsche Financial institution — Analyst

Mathieu RobilliardBarclays — Analyst

Akhil DattaniJP Morgan — Analyst

Mandeep SinghRedburn — Analyst

Giovanni MontaltiUBS Funding Financial institution — Analyst

Luigi MinervaHSBC — Analyst

David WrightFinancial institution of America — Analyst

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