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Mr. José María Álvarez-Pallete Chairman & CEO Q4 23 & 2023 Summary
Transform, Deliver and Commit WE DELIVER 2023 guidance delivered, FCF beat WE COMMIT On track for GPS ambition, FCF 24 >10% 2 WE TRANSFORM Continued streamlining Building a stronger TEF
Next Generation NETWORKS Stronger Telefónica Enhanced CUSTOMER experience focus Leaner OPERATIONS • More fibre, +10m FTTH PPs to 74m • More 5G, 62% coverage in core markets (Germany 94%, Spain 87%) • More APIs • More customers, +5m to 388m • More satisfied, 31 NPS score • AI driven customer engagement • More digitised, +3pp of revenue from BB & SoC to 76% • Operating leverage +1 p.p. to 19%, OpEx+CapEx efficiencies • 3,420 employees joining Spain’s redundancy program • Legacy shut-down (1.9k Spain COs) 3
Guidance delivered Initial 2023 guidance Upgraded 2023 guidance FY 23 Revenue y-o-y organic “Low single digit growth” ~4% 3.7% OIBDA y-o-y organic “Low single digit growth” ~3% 3.1% CapEx/Sales ~14% ~14% 14.0% FCF Former definition ~€4bn ex-spectrum €4.2bn New definition ~€2.1bn €2.3bn Dividend €0.3/sh. (cash) Dec-23 €0.15/sh. Jun-24 €0.15/sh. 4 1.4% treasury stock to be canceled in the next AGM
We delivered and we commit 5 Reported FY 23; FCF ex-spectrum; EBITDA adjusted and EBITDAaL adjusted
Mr. Ángel Vilá COO Q4 23 Results: Core Markets
Telefónica Group: strong Q4 results with exceptional FCF Revenue €10.2bn +4.1% y-o-y organic Service revenue €9.0bn +4.2% y-o-y organic B2B revenue €2.2bn +4.9% y-o-y organic FCF €1,562m +€432m q-o-q OIBDA €3.5bn +4.5% y-o-y organic OIBDA - CapEx €1.9bn +18.7% y-o-y organic 6
90.3 92.6 91.5 90.6 91.2 1.0% 0.9% 0.9% 0.9% 0.9% Spain: continuing to improve and execute Convergent KPIs Churn (%)ARPU (€) 39% 36% 36% 36% 37% 23% 26% 22% 24% 24% OIBDA-CapExOIBDA Margins (organic) Revenue & OIBDA growth (y-o-y organic) 0.2% 0.3% 0.3% 1.0% 3.3% 0.9% 1.7% 1.9% 2.4% 2.7% (2.1%) (1.7%) (1.0%) (0.5%) 0.1% Net adds (k) 21 24 28 723 43 69 62 (5) (7) 3 3 (49) (60) 1 8 Postpaid ConvergentFBB Q4 22 Q1 23 Q2 23 Revenue OIBDARetail Rev. Q3 23 Q4 23 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q1 23 Q2 23 Q3 23 Q4 23 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Pay TV • Accelerated retail revenue growth: strong trading momentum and record IT • Net adds in all accesses for 2nd straight Q on record-low churn since 2013 • Pay-TV turnaround completed; de- regulation gives us back flexibility • Stabilised OIBDA leveraged on top line growth and efficiencies • Tariff upgrade in Jan-24 • Redundancy program in 2024 and collective agreement until 2026 7 Highlights powered by
Brazil: keeping up the strong momentum 24.4 24.7 25.1 26.2 29 Accesses growth (y-o-y) FTTH Premises passed (m) 18% 15% 3% 4% 4% 19% 17% 15% 14% 13% FTTHContract 10.1% 12.1% 7.6% 7.5% 6.9%6.6% 9.5% 11.1% 11.6% 8.9% Revenue OIBDA 44% 40% 42% 44% 44% 24% 27% 23% 24% 27% OIBDA-CapExOIBDA Revenue & OIBDA growth (y-o-y organic) Margins (organic) Dec-22 Mar-23 Jun-23 Sep-23 Dec-24E Mobile contract share 41.7% 43.5% 43.7% 43.6% Dec-23 43.4% Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23Mar-23 Jun-23 Sep-23 Dec-23 • Growing above inflation on differential value proposition • Highest mobile ARPU & lowest churn in 4 years on rational market environment • Fixed revenue grew for the 10th consecutive Q • Record OIBDA-CapEx margin ever, supported by operating efficiencies • Growing sales and improved operating leverage supercharge future cash growth • Leader of ISE-B3 Corporate Sustainability Index Highlights powered by 8
Germany: healthy trends in a growing market Fixed BB net adds (k) Revenue OIBDA Margins (organic) OIBDA-CapExOIBDA Postpay net adds (k) 264 368 302 396 284 18 25 22 31 13 Q2 23 Q4 23Q4 22 Q1 23 Q3 23 31% 30% 31% 32% 31% 17% 18% 19% 17% 17% 6.6% 8.0% 4.4% 2.2% 4.6% 6.6% 1.7% 2.8% 3.6% 3.7% Q2 23 Q4 23Q4 22 Q1 23 Q3 23 Q2 23 Q4 23Q4 22 Q1 23 Q3 23 Q2 23 Q4 23Q4 22 Q1 23 Q3 23 • Sustained financial momentum on robust commercial traction; >1.3m 2023 postpaid net adds • O2 postpaid ARPU +1.9% vs. Q4 22 • 5G pop coverage ~95% at YE 23 (>80% Dec-22), on track with expectations • “Very good’ rating in Connect test; improve in network quality • #1 telco worldwide on ‘Sustainalytics ESG Risk Score’ Revenue & OIBDA growth (y-o-y organic) 9 Highlights powered by
Virgin Media O2: increasing customers, fibre and 5G reach 0.4% 3.9% 6.2% 7.1% 3.7% 9.9% 1.4% 3.7% 6.3% 10.6% 37% 36% 37% 37% 39% 17% 18% 17% 18% 23% Fixed network build (k PPs) Mobile contract churn (%) Revenue OIBDA Margins (organic) OIBDA-CapExOIBDA Revenue & OIBDA growth (y-o-y organic) Q4 23Q4 22 Q1 23 Q2 23 Q3 23 UBB PPs 17.0m 188 108 175 251 299 Q3 23Q4 22 Q1 23 Q2 23 Q4 23 0.9% 1.0% 0.9% 1.0% 1.2% Q3 23Q4 22 Q1 23 Q2 23 Q4 23 Q4 23Q4 22 Q1 23 Q2 23 Q3 23 • Solid commercial traction • Record fixed network expansion; +833k PPs in 2023, contributing to net adds • Realised ~2/3 of annualised £540m run- rate synergies, ahead of plan and on track to fulfil by mid-2026 • O2 owned stores now National Digital Inclusion Hubs (free services to communities in need) 10 Highlights powered by
T. Tech: keeping above industry momentum, cornerstone of strong B2B T. Tech Revenue Reported (€m) 706 944 1,482 1,878 FY 20 FY 21 FY 22 FY 23 +26.7% Constant Perimeter +21.7% vs FY 22 • Solid double-digit revenue growth in constant perimeter • Well-balanced revenue mix • Strong commercial activity, large revenue visibility Operational Highlights Highly skilled and diversified team • 6.3k professionals; >60 nationalities; 80% in Europe; ~4k certifications New operating model delivering value • Key driver to increase share of wallet Partners awards “Best Computing Partner 2023” “To infinity and beyond” “Top Selling Partner 2023” “Top Performance Partner 2023” 11
T. Infra: strengthening Telefónica’s infrastructure to support growth and efficiency Accelerating FTTH deployment Telxius >110k km international network by 2026 Solid profitability 51.4% OIBDA margin (FY 23) Joining Firmina subsea cable Providing three redundant routes to connect US, Brazil and Argentina Fully invested capital base No material additional renewal CapEx required ̴30% of 23-26 of TEF’s FTTH rollout Leveraging wholesale to increase reach Pangea Co 13 21 Dec-22 Dec-23 2026E ~30~60% Total FTTH Premises Passed1 (m) 12 1 Included in the total Group’s FTTH PPs. Dec-23 and 2026E includes Pangea PPs.
Mrs. Laura Abasolo CFCO & Head of T. Hispam Q4 23 Results & Capital Allocation
T. Hispam: progressing in “asset-light” model 16.8 17.6 18.6 19.5 20.3 FTTH & Cable PPs (m) 4% 4% 3% 3% 1% 19% 18% 16% 12% 8% FTTH & CableContract 2.8% 1.6% (0.4%) (2.7%) 1.7% (1.5%) (3.9%) (5.0%) (17.1%) 8.8% Revenue OIBDA 22% 20% 20% 18% 24% 4% 15% 12% 9% 7% Accesses growth (y-o-y) Revenue & OIBDA growth (y-o-y organic) Margins (organic) OIBDA-CapExOIBDA Dec-22 Mar-23 Jun-23 Sep-23 16.6m FTTH Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Dec-23 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 • FiberCo model allows FTTH accesses +8% while reducing CapEx • COL: 5G Spectrum acquired jointly with Millicom • Cooling down competition in a tough environment • CapEx/Sales FY 23: 9.4% (-1 p.p. y-o-y) 13 Highlights powered by
Double-digit growth of underlying EPS 14 (892) 1.2bn* 1.8bn 2,369 Net Income reported Spain restructuring VMO2 Impairment Others Net income Underlying Underlying EPS €0.37 +18.6% +17.1% (*) net of taxes Accounting non-cash items
Solid balance sheet to face any market environment Net Financial Debt Comfortable liquidity position 11.3 Liquidity cushion, Dec-23 (€bn) 8.2 Cash position Undrawn credit lines & synd. credit facilities Cash liquidity 19.5 3.5 5.1 2.6 4.3 20252024 2026 2027 Gross debt maturities, Dec-23 (€bn) Total debt related interest payment cost ex leases Contained interest payment cost Dec- 22 +100 bps in short- term rate = +€25m in interest payment Dec-23 >80% Total debt fixed 11.6 yrs Average Debt Life 3.96% 3.80% (1) Argentina impact on debt amounts to €274m (2) Including full T. Deutschalnd shares acquisition (94.1%), partially compensated by the income for the sale of a stake in Pangea 15 ND/OIBDAaL 2.54x ND/OIBDAaL 2.60x Dec-22 FCF Pre-retirement commitments Dec-23 Post closing (2) FX & Others (1) Net financial investments Shareholder Remuneration 26,687 27,349(3,988) 2,320 854 (129) 788 ND/OIBDAal 2.66x ND/OIBDAaL 2.52x 26,533 816 Dec-23 ex- TD shares acquisition TD shares acquisition (until 31/12/23) Dec-23 28.0bn € in million
Capital allocation: investing in our business whilst maximizing shareholder value • Investing in networks; i.e fiber and 5G • Paying DPS with a floor of €0.3/sh • Reducing leverage to our target • Starting share repurchases • Considering other strategic opportunities FY 17 FY 22 FY 23 FY 24 FY 25 FY 26 17.0% 14.8% 13.3% CapEx over Revenue up to 13% ND / EBITDAaL 2.2-2.5x in 2026 (Peak) < 12% 16 Capital allocation priorities FCF 2024 >10% growth FCF CAGR 23-26 >10% growth
Mr. José María Álvarez-Pallete Chairman & CEO 2024 and Beyond
ESG: We keep transforming Net-zero by 2040 100% renewables by 2030 Zero-waste by 2030 > 90% MBB rural coverage by 2024 1 37% women executives by 2027 Zero adjusted gender pay gap 2 Key targets Environmental Social Governance Parity 3 in top governing bodies by 2030 Zero-tolerance of corruption ~40% sustainable financing by 2026 4 Aligned with SDGs: >€100bn contribution to society via connectivity On track for gender diversity: 33% women executives. 0.7% adj. pay gap Customer centric: 31 NPS +1 pp. y-o-y Balanced and diverse Board: 40% women and 67% independents Directors Zero corruption: 0 confirmed cases FY 23 Leaders in sustainable financing: €18.8bn as of Dec-23; 33.6% o/total Progress 1 Core markets. 2 Adjusted pay gap: equal pay for jobs of equal value. Achieved in 2022. Objective is to maintain zero pay gap. 3. Parity defined as not less than 40% of each gender represented 4. Financing linked to sustainability criteria includes balance sheet debt, hybrids and undrawn committed credit lines based on ICMA sustainable bond principles, LMA Sustainability Linked Loan Principles and other ESG criteria. Not necessarily linked to EU Taxonomy aligned activities On track for net zero: -51% in total carbon emissions in last 8 years Leading actor in climate: CDP Climate A-List for 10th consecutive year Decarbonising the economy: enabling customers to avoid 86.1m tCO2 emissions 17
Going forward, we keep transforming • More fibre, FTTH PPs to ~106m in 2026 (74m 2023) • More 5G, 70% 5G coverage in core markets by 2026 (62% 2023): • ~90% Spain, ~60% Brazil, ~99% Germany, UK ~70% • Increasing Return on Invested Capital, programmable networks monetisation • >60% convergent customers 2026 (>50% 2023) • ~50% IT/B2B Service rev in 2026 (~40% 2023) • Personalised Digital Supermarket • AI driven customer engagement • Legacy Switch off • Spain retail copper in 2024 • 2G and 3G before YE 26 • Free up spectrum to more efficient 4G/5G • Continue right-sizing • Network sharing 18 Next generation NETWORKS Enhanced CUSTOMER Experience focus Leaner OPERATIONS
We keep commiting 2023 Actuals 2024 Guidance 2023-26 CAGR Revenue y-o-y reported 1.6% ~1% ~1% B2C ~1.5%; B2B ~5% EBITDA y-o-y reported 1.4% 1% to 2% ~2% EBITDAaL - CapEx y-o-y reported 5.7% 1% to 2% 5% CapEx/ Sales 13.3% Up to 13% <12% FCF y-o-y reported €2.3bn >10% >10% Cash Dividend €0.3/share €0.3/share 2 tranches €0.15;Dec-24, Jun-25 €0.3/share floor Leverage 2.66x post-closing Reduced 2.2-2.5x (2026) 19
20 Delivered solid Q4 results to close out 2023, meeting our upgraded FY guidance and exceeding FCF target Positioned well for 2024 and on track with the GPS plan to achieve our 23-26 FCF CAGR target of >10% Good momentum across our business units; Spain growing and continued strength in Brazil and Germany Building best-in-class next-gen networks while streamlining our operations for the best customer experience Disciplined balance sheet management with focus on lowering CapEx intensity, deleveraging, and paying dividend Key Takeaways
Results presentation and Q&A Session Telefónica’s management will host a webcast on 22 February at 10:00 AM (CET), 9:00 AM (GMT), and 4:00 AM (EST) Participants from Telefónica • To access the webcast: click here • The webcast replay will be available on Telefónica IR’s website after the event • To participate in the Q&A session, please register using the following link to receive the dial in and PIN details. click here. • José María Álvarez-Pallete l Chairman & CEO • Ángel Vilá l COO • Laura Abasolo l CFCO & Head T. Hispam • Lutz Schüler l CEO Virgin Media O2 • Eduardo Navarro l Chief Corporate Affairs & Sustainability Officer • Adrián Zunzunegui l Global Director of Investor Relations Webcast Q&A Session
***Este documento está clasificado como PUBLICO por TELEFÓNICA. ***This document is classified as PUBLIC by TELEFÓNICA. For further information, please contact: Investor Relations Adrián Zunzunegui (adrian.zunzunegui@telefonica.com) Isabel Beltrán (i.beltran@telefonica.com) Torsten Achtmann (torsten.achtmann@telefonica.com) Tel. +34 91 482 87 00 ir@telefonica.com www.telefonica.com/investors FOLLOW US: Climate A List 2023 Bloomberg GEI 2023 1st company worldwide in 2023 Digital Inclusion Benchmark 1st in sector 2022 Member of DJSI Europe