Telefónica H1 2026 Earnings Call - Upgraded Cash Flow Guidance Driven by Spain and Brazil Momentum

Operator: Good morning. Thank you for standing by, and welcome to Telefónica’s January to June 2026 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you’d like to ask a question, please press star, followed by 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We would kindly ask you to ask a maximum of two questions per participant. As a reminder, today’s conference is being recorded. I would now like to turn the call over to Mr. Torsten Achtmann, Global Director of Investor Relations. Please go ahead, sir.

Torsten Achtmann, Global Director of Investor Relations, Telefónica: Good morning. Welcome to Telefónica’s conference call to discuss January to June 2026 results. I’m Torsten Achtmann from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under international financial reporting standards as adopted by the European Union. This financial information is unaudited. This conference call and webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefónica Group. These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives, and expectations regarding different matters. All forward-looking statements involve risk and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators.

If you don’t have a copy of the relevant press release and the slides, please contact Telefónica’s investor relations team. Let me turn the call over to our Chairman and CEO, Mr. Marc Murtra.

Marc Murtra, Chairman and CEO, Telefónica: Good morning, everyone. I am here today with Emilio Gayo, our COO, Juan Azcué, our CFO, Borja Ochoa, our CEO for Telefónica Spain, Santiago Argelich, CEO for Telefónica Germany, and Lutz Schüler, CEO of VMO2. At Telefónica, we have taken on the challenge of becoming the best gateway for citizens to access digital technologies. We are doing it through our Transform and Grow strategic plan, with which, as we will explain in this presentation, is turning our ambition into results through disciplined execution. This slide shows the strong execution achieved in the second quarter, delivering against our strategic roadmap and driving consistent and resilient growth. We accelerated year-on-year growth in constant terms in adjusted EBITDA and adjusted operating cash flow after leases at group level, as well as in Spain and Brazil. In Germany, we continued to grow in adjusted EBITDA ex 1&1.

In addition to strict cost control, we continue to foster efficiency gains through redundancy programs, AI, automation, channel management, legacy shutdown, tech, and operational excellence. We continued with commercial traction leveraging network leadership. In Spain, we recorded positive net adds in main services for 12 consecutive quarters. In Brazil, we recorded growth in value accesses again, and in Germany, churn remained at a low level. Free cash flow reached EUR 611 million in the quarter, EUR 278 million more than in the previous quarter. Free cash flow is back and loaded, accelerating in H2. We have further deleveraged to 2.68 times, reducing net financial debt to EUR 25.3 billion. The improvement in operating leverage and in Spain and in Brazil gives us the confidence to upgrade our Group 2026 guidelines for adjusted Operating Cash Flow after Leases from our previous guidance of over 2% to over 3%.

We are on track to fulfill 2026 guidance in all other metrics. Due to the weakness in handsets, mainly in Germany, we expect to be at the low end of our revenue growth range. The more important service revenue growth is at a healthy 1.0% in the first half of the year. We maintain our adjusted EBITDA guidance, we expect to be on the high end of the range due to our good performance in Spain and Brazil. 2026 dividend of EUR 0.15 will be paid in June 2027. To note that we paid the 18th of June the second tranche of 2028 dividend, EUR 0.50. On slide two, let me walk you through the progress we have made across the strategic pillars of our Transform & Grow plan. On customer experiences, access grew 5% year-on-year and NPS remained sound at 34.

Spain and Brazil reached historical low levels of churn. In B2C, we delivered 1.4% year-on-year growth. In Spain, Movistar Plus+ launched Plan Libre: Cine y Series and Movistar Fast Pass. Brazil is the first player offering complimentary access to Google Gemini AI Plus. Germany strengthened the convergent offering with new bundles. UK O2 Satellite is now supported on iPhone and Google Pixel devices, and we launched a partnership-. In B2B, we continue to build on our strong momentum with revenue growth of 6.7% year-on-year. In Spain, we strengthened our sovereign cloud proposition, while in Brazil, we launched a partnership with EcoRodovias, in Germany with EWE and Deichmann. In addition, our infrastructure expanded in fiber to 77 million premises based on 5G coverage to 83% on average in our core markets, while improving network quality.

We completed the deployment of 17 edge nodes in Spain and are participating in the Spanish AI Gigafactory Consortium. Fifth, on simplification, we are capturing the efficiencies from redundancy programs and legacy networks switch-off. In Germany, we’re starting an operational and strategic reorganization that Emilio will explain in more detail later. These achievements demonstrate, in our view, the consistent execution of Transform & Growth plan. I will now pass the presentation to Emilio for the operating business review.

Emilio Gayo, Chief Operating Officer, Telefónica: Thank you, Matt. On slide three, we review our domestic business. In the second quarter of the year, Telefónica España continued to excel, delivering a strong commercial and financial performance. Quarterly net adds were strong. Fixed broadband was supported by more connection in secondary homes. Contract net adds almost doubled quarter-on-quarter with top portability results well above 2025 average. TV accesses increased by 7%, supported by the broadest and most differentiated content proposition in the market, and by excellent retention of sport customers, enabled by our unique offering of football leagues and tournaments, including Spain’s recent World Cup victory. This commercial momentum is underpinned by our differentiated strengths. First, our 100 fiber and 5G standalone networks. Secondly, our focus on delivering excellent customer service, resulting in the lowest ever volume of complaints, down 54% year-on-year.

AI personalized campaigns are allowing us to increase upselling, retention, and sales by close to 20%. The use of AI is also improving network operation, reducing by 70% the time invested in software upgrades, and therefore enhancing network and service quality. We continue to enhance our flexible and transparent B2C offer, bringing innovation to our customers with AI solution and Movistar FastPass, a new service that allows differential connectivity while in high density environments like concerts. Our B2C ecosystems continue to gain traction, with alarm business growing double digit and three out of four customers adding a device. These services increase customer engagement and revenue while reducing churn. We have registered the lowest churn rate ever, 0.7%, while convergent ARPU grew slightly and remains above €91, the highest in the market.

In B2B, our premium digital services continue to fuel growth steadily and already account for more than 50% of B2B revenue. We have the best-in-class value proposition with services such as Titan Connect for business continuity, or the recent launching of new managed cybersecurity services for the mid-market. These are examples of new levers that allows us to continue growing. We would also like to highlight two key strategic projects that are strengthening our digital sovereignty. First, the deployment of our leading edge computing network with 870 nodes already activated. Second, the Spanish consortium that will bid for the Spanish AI Gigafactory, where we have a minority stakeholding and we are the tech partner in the consortium. Regarding financials, Spain is achieving solid cash generation with growth acceleration across all KPIs.

Growth in revenue accelerated to 2.9% year-on-year, supported by better service revenue as a result of increased retail revenue that helped offset the expected decline in wholesale revenue. Adjusted EBITDA growth accelerated to 2.3% year-on-year due to higher revenue growth and savings from the redundancy plan. CapEx discipline and the more stable leases led to a 3.7% growth in adjusted operating cash flow after leases. In short, our domestic business is a strong operation, delivering steady growth across the board, and we expect a better year-on-year performance in H2 versus H1 in key financials. On to slide four. Telefónica Brasil continued to deliver financial growth ahead of inflation, supported by a strong commercial execution and margin expansion. Operationally, we remain focused on growing our contract mobile and fiber accesses while maintaining pricing discipline and delivering best-in-class customer experience.

In mobile, contract net adds grew 6% year-on-year, underpinned by our differentiated value proposition and unique assets as brand and network. Meanwhile, churn remained low at 1.1%, confirming the depth of our customer relationships and loyalty. Total mobile ARPU increased by 5.7% as customer migrated to higher value plans and used more data. In fixed, momentum remained high with double-digit growth and continuous demand for premium connectivity and digital services. Convergent, Vivo Total clients at 29% year-on-year. This validates the attractiveness of our convergent proposition and its ability to capture even more customers. Revenue and adjusted EBITDA grew year-on-year well ahead of inflation, both accelerating from the previous quarter once again. Revenue mix continued to evolve with growing relevance in contract, fiber, and new businesses. In B2C, performance showed the strong acceleration on new digital services, growing 33.6% over the last 12 months.

This shows the sustained expansion of Vivo’s ecosystem and the effectiveness of our strategy to deepen customer engagement, drive cross-selling, and extract greater lifetime value from our existing base. Noteworthy, consumer electronics recorded their highest year-on-year growth in three years. In addition, we have scaled our financial services with Vivo Pay’s new installment plan, simplifying device financing for customer while driving revenue and strengthening loyalty. In B2B, digital services deliver outstanding performance with cloud and digital solution revenues growing over 20% in the last 12 months. This growth, driven by the accelerating demand for digital transformation across multiple industries, underscores our evolution beyond more connectivity and positions Vivo as a trusted digital partner for enterprise customers. In this quarter, Vivo and EcoRodovias joined in a partnership to expand mobile coverage in over 400 kilometers of interstates roads in the state of Goiás and Minas Gerais, benefiting 1.4 million people.

Vivo remains committed to driving operational efficiency. Its largest ongoing initiative is the development of an AI-powered customer services concern, designed to enhance the customer experience across billing, contents, and technical support, aiming for 70% of customer interaction to be resolved by digital actions. All this, along with ongoing efficiency measure across both owned and leased infrastructure, translate into adjusted EBITDA and adjusted operating cash flow after leases growth of 11% and 18% year-on-year respectively. Overall, Vivo has reinforced its leadership position by combining strong commercial momentum with sustained financial growth. In H2, we expect similar trends to Q2. Moving into slide five to discuss Germany. Q2 financial performance reflects a combination of a continued weaker trend in handsets in select channels and headwinds in the partner business. Revenue in Q2 declined over 11% year-on-year. The decrease in revenue is mainly due to lower handset sales, down 26%.

We show healthy consumer trends for O2 My Handy, while supply chain and our focus on profitability resulted in a decline in third-party channel sales, typically with very low margins. Mobile service revenue continued to reflect the headwinds in the partner business, which for the most part is now behind us. By contrast, fixed revenue posted another quarter of solid growth, 6.5%. Adjusted EBITDA trend improved to -7.2%, reflecting efficiencies, stringent cost management, and better revenue mix. This measure led to a margin expansion, reaching 52.7%. As we move into H2, we expect comps to get easier towards year-end, as we will have already included most of the 1&1 customer migration effects in H1. At the same time, we will continue to monitor the handset sales in third-party channels and the supply chain with a focus on value.

Telefónica Deutschland continued to execute a deep strategic transformation across the company to focus on profitable growth. First, on the commercial front, a sustaining shift to a value over volume strategy with a deceleration in contract attach quarter on quarter. However, the O2 contract churn remained at a low level of 1.2%, while the decline in ARPU reflects a higher share of second and third SIM cards. Let me highlight the launch of the O2 Mobile Plus bundle in June. These are further promoting our value focus by fostering convergence. The combination of a first SIM with a second product ensure a minimum bundle price of EUR 30. We also continue focusing on ensuring support and leveraging our O2 My Handy model to complement these offers. In fixed broadband, our momentum remains healthy, with accesses growing for the fourth quarter in a row, driven by both demand and for cable and fiber.

We are also transforming our B2B business. Having restructured and transformed our channel and strengthening our partnerships. For example, we have reached an agreement with Deichmann to expand the use of standardized SD-WAN infrastructure in nearly 5,000 shops across Europe. Also, K-Stad has selected us as its partner for digitalization of its 900 stores in Germany. In B2B, we are working on upgrading our partners’ value proposition and continue evolving our partner base, launching a strategic mobile MVNO partnership with EWE. The company is also making progress in the execution of a new operating model to address technological change, changing market conditions, and new customer demand. This enables us to run a leaner operation. Telefónica Deutschland has announced an operational reorganization that implies a reduction of around 1,100 full-time employees in 2026 and the closure of 60 underperforming owned shops.

The company will address further restructuring measures in 2027, 2028, with a focus on streamlining its customer service organization and its overall retail footprint. In this context, a provision of EUR 265 million has been recorded in Q2, and we expect additional restructuring provision of up to EUR 155 million to be booked, most likely in H2 2026. As a whole, annual run rate savings of around EUR 185 million will be achieved in 2028, starting at the end of the current year. These measures are part of the transformation we are implementing in Germany with no impact on our guidance. In summary, Telefónica Deutschland continued to progress in its Transform & Grow strategy in Q2 and maintained resilient underlying performance. With the execution of the Transform & Grow strategy, we are preparing the company to return to profitable growth next year. Let’s move to slide six.

VMO2 results are negatively impacted by weaker handset trends and a market that is affected in fixed and in mobile, mainly by other specific impacts. Nonetheless, results are in line with our expectations. This backdrop, VMO2, continues to execute against its strategic plan and achieved several strategic milestones during the quarter, supporting long-term value creation, like an agreement with Monzo to launch Monzo Mobile, further reinforcing O2’s position as the trusted partner of choice for MVNOs in the U.K. The new O2 Business brand, bringing together VMO2’s national network scale with Basis’ expertise in connectivity and IT solution to create a stronger proposition for business customers. Expanded network leadership with almost nine million gigabit-enabled premises and the U.K.’s largest 5G standalone, covering 87% of the population. From a commercial perspective, VMO2 showed improvement in Q2.

In fixed, we reduced year-on-year subscriber losses, while the consumer ARPU decline of 4.6% reflects competitive intensity in the broadband market. In mobile, consumer ARPU remained stable due to our focus on value management. In wholesale, we maintained our strong leadership in MVNOs while continuing to build capabilities in fixed wholesale. In addition, VMO2 confirms 2026 guidance in both revenue and adjusted EBITDA, supported by on-track first half performance. Service revenue declined 3.9%, mainly due to continued pressure on consumer fixed and the streamlining of the product portfolio in business. Adjusted EBITDA decreased 2.9% and remains at the high end of the guidance range. Finally, we progressed the Netomnia acquisition to a fast-track referral to phase two to reach a final approval quicker. I will now hand it over to Juan, who will provide a more detailed overview of our financial performance.

Juan Azcué, Chief Financial Officer, Telefónica: Thank you, Emilio. Moving to slide seven, let me take you through the financial detail for the quarter and the first half of the year. Second quarter is the third consecutive one we are growing simultaneously at constant and current rates in key KPIs. Foreign exchange was a tailwind in Q2, mainly due to the Brazilian reais appreciation versus the euro. In constant terms, we would like to stress the positive underlying momentum of our business. At group level, revenue slowed down versus Q1 due to a greater decline in handset sales in Germany, as Emilio previously outlined. Service revenue is the key metric, and here we are maintaining trends with 0.9% growth year-on-year, mainly driven by acceleration in Spain and to a lesser extent in Brazil. Looking at the revenue mix, B2B is up +76.7%, while B2C is up 1.4%, more than compensating the wholesale decline.

Adjusted EBITDA and adjusted operating cash flow after leases ramp it up to +2.7% and +2.9% respectively, thanks to the increase in operating leverage. Operating cash flow after leases margin increased 0.4 points year-on-year in both Q2 and first half. CapEx over revenue stood at 11.6%, flat year-on-year versus the first half of 2025. Current free cash flow is EUR 611 million, improving EUR 278 million versus the first quarter, but still reflecting the usual seasonality in the first half, reaching EUR 944 million. Net financial debt declined to EUR 25.3 billion. Moving to slide eight. During the second quarter, free cash flow declined year-on-year, primarily due to working capital movements. However, as I just mentioned, quarter-on-quarter, free cash flow improved due to an improved working capital. As such, it reached EUR 944 million in the first half of the year.

We are confident about the free cash flow generation, as it has been de-risked and will gain traction heading to our target, which is reaffirmed today. The reasons are: further acceleration in the second half due to its back-end-loaded profile, more predictable and less volatile free cash flow, and financial discipline on all the lines below adjusted operating cash flow after leases. In summary, confident in the free cash flow trajectory, improvement in the second half coming. Moving to slide nine. I would like to highlight our commitment to the investment grade rating, credit rating, with a clear deleveraging strategy in place, with a target of 2.5 by 2028. We have made solid progress in the first half of the year to achieve such target. In the second quarter, our net debt to EBITDA ratio reached 2.78 from 2.72 in March.

On financing, Telefónica has demonstrated market execution this year, aiming to achieve best timing and results. During the second quarter, we diversified our funding sources with the AUD inaugural bond issuance, having completed five financing transactions year to date, raising EUR 4.5 billion long-term financing at the group ahead of recent market volatility while maintaining an ample liquidity position. Finally, our interest cost payments decreased in the last 12 months from 3.23% to 2.95% as of June 26. In summary, leverage reduction, sound liquidity, and lower interest costs. See slide 10 for the board-approved 2026-2030 Sustainability Plan, which will drive value creation across four dimensions: growth, efficiency, investment attraction, and risk mitigation. The plan is structured around three pillars: environmental, social, and governance, deployed through 12 strategic lines that connect sustainability initiatives directly to operational management and business results.

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

Marc Murtra, Chairman and CEO, Telefónica: Thank you, Juan Azcué. Let me close with where we stand and where we’re heading. Continued momentum in the second quarter is yielding results on consistent and focused execution of our Transform & Grow strategy. Again, growth is both constant and current at group level, alongside accelerated growth trends in adjusted EBITDA, adjusted Operating Cash Flow after Leases, and expansion of operating leverage. We extended investments in leading networks, enhancing customer experience and commercial performance. This happened jointly with better financial performance in Spain and Brazil. While in Germany, we continue to execute a strategic transformation. Our free cash flow improved and de-risked, expecting a better H2 performance. We are upgrading our adjusted Operating Cash Flow after Leases to over 3% from over 2%, reiterating the rest of the metrics and our dividend of EUR 0.15.

We are on track to be the best gateway for citizens to access digital technologies and to become a best-in-class telco worldwide by 2035. Thank you for your time. We are now happy to take on your questions.

Operator: Thank you. If you would like to ask a question, please press star, followed by one and one on your telephone keypad. Once again, that is star, one, and one to register a question. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star, one again. We would kindly ask you to ask a maximum of two questions per participant. There will be a short silence while questions are being registered. Your first question today is from the line of Andrew Lee from Goldman Sachs. Please go ahead.

Andrew Lee, Analyst, Goldman Sachs: Good morning, everyone. I had two questions, one on Spanish competition and the second on capital allocation priorities. On Spain, clearly good trends in the quarter. Obviously, you highlighted strong execution and good upselling in the mid and higher tiers. We know there’s a good macro backdrop. Could you just talk about the competitive intensity in the market. Do you feel competition at the lower end is reducing? Do you feel like your price rises are landing better? On this front, I know you’re saying you expect better year-over-year performance in H2 versus H1, which is already fairly strong. Do you think that the second quarter 2026 service revenue growth of +2.9% is sustainable into the second half? That’s on Spain, just on capital allocation. Normal question, really. Any update on priorities and specifically on your consolidation intentions?

Specifically on that, do you think it’s helpful to wait to see how French consolidation approval is going? I know that’s coming from French authorities, but likely the EU will have a hand in that as well. Do you want to see how that’s going before making any moves? If so, when do you expect to get that insight? Thank you.

Marc Murtra, Chairman and CEO, Telefónica: Emilio will answer the first question. I’ll answer the second question, Andrew. Thanks. This is Marc.

Emilio Gayo, Chief Operating Officer, Telefónica: Andrew, thank you for your question. Regarding the Spanish market, as we are seeing in the Q1, Q2, we expect the same trends in terms of competition in the next quarter. We have seen that our strong performance and our strong asset permit us to compete very well in all the segments, especially in the high value, but also in the low-value segment. We do look at the results, I would like to highlight the churn. The churn demonstrates the strong engagement that we have with our client and the strong position that we have in terms of customer service, network, brand, channels, and products. Let me say, too, that we’re offering the high value based on our superior content strategy permit us to maintain the highest RPU in the market, even in this quarter, being able to increase year-over-year. Overall, our performance is strong.

We think that we are able to sustain this growth in terms of B2C and in the terms of B2B, we even are seeing better trends, because we are able to develop the different products and services even better than before. We are foreseeing different newest revenue stream that permit us to be very optimistic. Together with our proper position in cybersecurity, cloud, IoT, and so on, we have a strong position for the future revenues coming for sovereignty or for defense. Overall, together with our strong position in efficiency measure, permit us to be confident in the improved the results compare H2 with H1, and to have a very sustainable business for the next quarters.

Marc Murtra, Chairman and CEO, Telefónica: Regarding the second question, we can see that the new documents that the European Commission has made public with regards to M&A guidelines are a Copernican change. We can see, we can read that the definition of the market changes, and it’s not so closed, and it’s an open definition. They very clearly state that they will be looking into what sort of investment and technological know-how a potential consolidation creates. We can hear political leaders talking about the social contract concept. We read this as a change, all our peers read it as a drastic change, a very positive change. With regards to France, our view is, as you know, we don’t talk about specific M&A options till it is done. It doesn’t make sense.

We think now we’re in a phase where the market has to play its magic, and this is not a 24-hour occurrence in any case. For us, any potential deal has to have very specific cost and network synergies. The price has to be right. Let me underline that. The price has to be right, the potential accommodation with the regulatory authorities. With regards to France, we can see that it has gone to the French authorities, the French competition authorities. That is a very interesting sign. I think another reading we make is that the operation went ahead just after the April M&A guidelines interpretation was made public. With regards to your question, no, we do not subject our timing and our doing to any specific operation like that.

We do believe that such a large operation with four players is proposed if they see a clear path going forward. This is just our reading, Andrew.

Andrew Lee, Analyst, Goldman Sachs: That’s very helpful on both fronts. Thanks very much.

Operator: Thank you. We will now take the next question. This is from the line of Carl Murdock-Smith from Citi. Please go ahead.

Carl Murdock-Smith, Analyst, Citi: That’s great. Thank you. Two questions, one on guidance and one on Spanish workforce restructuring. Firstly, I wanted to ask why there’s no EBITDA guidance increase this quarter from your guidance of 1.5%-2.5% growth for the full year. You’ve done 2.3% EBITDA growth in H1, including 2.7% in Q2, so above the range in Q2. In H2, you’ll increasingly lap the 1.1 drag in Germany. You’ve said that you expect Spanish EBITDA to be stronger than H1, and Brazil for the second half you’re saying to be similar to Q2, which was double digit growth. What’s getting worse elsewhere in the group? Are you just being conservative? Then secondly, to what extent will there be any incremental quarter-on-quarter benefit from Spanish workforce restructuring in Q3, or was Q2 nearly at full run rate?

At Q1 you commented that Q1 had seen EUR 20 million of the EUR 250 million of benefit workforce restructuring over the full year. Can you just provide an update of how much benefit you saw in Q2? Thank you.

Emilio Gayo, Chief Operating Officer, Telefónica: Thank you very much for your question. Regarding the first question about the EBITDA guidance. As you mentioned, we are seeing a very strong performance in our Spanish operation. I explained in the question before what is the reason for this strong performance. At the same time, we are putting on the table really, an extraordinary set of results in Brazil in all the financial metrics. In the case of Germany, we are expecting to improve trends during the second half, but we are in the middle of a transformation plan. Transformation plan that try to work over all the aspect. First in the commercial aspect, changing our strategy from volume to value. Secondly, the operating model with the restructuring plan that we have announced recently. We are saying that we have the look to finish the year with the EBITDA in the high range of the guidance.

We want to be prudent at the same time, and we want to maintain some flexibility because the transformation of a company is not something that you can be sure when the things happen. We are pretty sure about the measure that we are doing. We are very confident with the execution of this measure, but the things can take more time than you expected at the beginning, can be some phasing in the different activities that you are doing. It means that if you want to be a prudent manager and you want to be flexible to take the right decision in any moment, it’s better to act in this way. Regarding the second question, as you mentioned, we have achieved in the Spanish operation, EUR 20 million in the first quarter.

We are close to EUR 90 million in H1, and we expect to reach the EUR 250 million that we plan at the beginning of the redundancy program at the end of the year. We are on track, even I will say that slightly better than we expected, but we are on plan, and we feel that we will obtain the saving for this year and the savings for the 2027 and 2028 that we have planned from the beginning of the redundancy program.

Carl Murdock-Smith, Analyst, Citi: That’s great. Thank you very much.

Operator: Thank you. We will now take our next question. This is from the line of Joshua Mills, BNP Paribas. Please go ahead.

Joshua Mills, Analyst, BNP Paribas: Hi, guys. Thank you. Couple of questions from me, one on the U.K. and one on Germany. As we saw last week with the VMO2 results, there are some quite tough trends in that market, and the leverage is now at 5.9 times above the 4 to 5 times range, which we targeted. On the conference call, Liberty made the point that you and they are very aligned about plans for that asset and discussed potential organic or inorganic deleveraging strategies. My question is, given your previous commentary around the focus on the U.K. as a core market and the focus on infrastructure ownership. At a high level, how do you think about the potential for asset sales, potentially inviting third party financing in order to bring that leverage down?

If we’re not thinking about that, how do you look at the future leverage profile of that business and your ability to take cash out of it in the form of dividends? Any high level comments there would be very much appreciated, I think. Secondly, on Germany, you’ve talked about the financial trends improving in the second half. It does look like some of the operational performance on net adds and churn is a little bit weaker. So as part of your cost cutting plan and the plan to reduce store count, do you feel the need to lean a bit more heavily on third party operators like Freenet? Specifically on the Freenet point, given you’re in negotiations around an MSP deal, can you give us an update on how those talks are going? Thanks very much.

Juan Azcué, Chief Financial Officer, Telefónica: Okay. Thank you, Joshua, for your questions. I’ll take the first one on the U.K. As an overarching reflection, VMO2 is a strategically important U.K. asset. It’s the largest mobile network and the second-largest fixed provider in the country. Both Liberty and us are fully committed to its success and are completely aligned. VMO2 has been investing in its future growth and competitiveness. I recognize that the current leverage of 5.8 times is not where we want to be, and we want to deleverage faster towards the four to five range that you mentioned. Both Liberty and us are committed to be proactive, managing the balance sheet, and we have the levers to pull to materially increase free cash flow and accelerate that deleveraging. We are working closely also with VMO2 on updating the company’s long-term range plan, including organic and inorganic options.

Growth levers will include immediate and short-term OpEx and CapEx efficiency opportunities that we see, and longer-term opportunities such as the B2B, the fixed mobile convergence or the wholesale opportunity. Finally, I would like to remind you that we don’t have refinancing maturities until 2029. We don’t need to access the market right now. What we have to do is take action to create a plan that accelerates the deleveraging that you’re mentioning, and we plan to do so.

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

James Ratzer, Analyst, New Street Research: Great. Thank you.

Operator: Thank you. We’ll now take our next question. This is from the line of James Ratzer, New Street Research. Please go ahead.

James Ratzer, Analyst, New Street Research: Yes, thank you very much indeed. Yeah, good morning. I had a couple of questions, one on Spain, one on Germany, please. On Spain in particular, your retail revenues really strongly accelerated in Q2 from the trends we’ve seen in the past five or six quarters, it seems to also specifically comes from some of your non-converged services. How sustainable is that specifically going into the next couple of quarters? Secondly, on Germany, I’d love to dig in a bit more about thoughts around revenue growth, because you’ve talked here about a new cost reduction plan.

What we see increasingly worldwide is that operators with spare mobile capacity and lack of fixed infrastructure are pushing into FWA, we’ve seen that’s been quite a big support for revenue growth for some other operators worldwide. You’ve obviously lost capacity utilization with the 1&1 migration. Why are you not being more vocal about wanting to push into FWA as a potential source of revenue growth in Germany? Thank you.

Borja Ochoa, CEO Telefónica Spain, Telefónica: James, thank you for your question. Regarding the Spanish market, again, we are seeing very solid performance during these quarters. Perhaps, as a main differentiation with first quarters is the management that we have done in the base of football subscribers. That probably with some AI tools that we have used, with the rise that we acquired of the World Cup, we are able to manage in a better trend. That is a trend that we can sustain in the third quarter, fourth quarter, because when you are able to maintain the football client during the second quarter, they maintain less later in the third and fourth quarter. The rest of the things that are happening in the market is the things I mentioned before. We are working very hard in the service excellence.

Juan Azcué, Chief Financial Officer, Telefónica: We are working very hard to launch new products and service, both in B2C and B2B. We feel that all these efforts are sustained for the next coming quarter. There is no magic behind the revenues of Spain. There are a lot of work, a lot of right strategy, a lot of products and services that make sense, a lot of right selection of contents in our TV and a right ecosystem. For example, we always mention the alarm business, where we got five years ago with less than 200,000 clients, and we have close to 700,000 clients today. These are the examples that permit us to be confident in the future of Telefónica Spain, in the retail business.

Emilio Gayo, Chief Operating Officer, Telefónica: Regarding the Germany question, I’m going to hand over to Santi to give you more color about all your answers.

Santiago Argelich, CEO Telefónica Germany, Telefónica: James, to your question on Germany. What we are seeing in Germany is a more disciplined promotional activity, despite some counter examples around the football World Cup that we saw. Overall, we see inflection point from the last two years with very intense promotional activity. That obviously sets a transition in terms of gross adds, net adds trends as well as ARPU. To your concrete question about fixed wireless access. We use fixed wireless access in an opportunistic way there where we do not have possibilities to use other technologies. The German market, very specifically, is a quite steady, slowly growing migration to fiber, with a consolidated cable network, but a very resilient VDSL technology. In that environment, we can fit wireless access as an additional technology to complement a very rich existing offer.

James Ratzer, Analyst, New Street Research: Thank you, Santiago. Is that something, though, you see you ramping up more commercial efforts on going into 2027?

Santiago Argelich, CEO Telefónica Germany, Telefónica: Excuse me, could you repeat the question? I’m not sure I understand what you meant.

James Ratzer, Analyst, New Street Research: Just follow up. You were talking there about FWA being complementary to fiber. I was just interested whether that’s something you would increase your commercial efforts on with FWA in Germany going into 2027.

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

James Ratzer, Analyst, New Street Research: Great.

Santiago Argelich, CEO Telefónica Germany, Telefónica: Fixed wireless access.

James Ratzer, Analyst, New Street Research: That’s clear. Thank you very much.

Operator: Thank you. We will now take the next question. This is from the line of Emmet Kelly, Morgan Stanley. Please go ahead.

Emmet Kelly, Analyst, Morgan Stanley: Yes. Good morning, everybody. Thanks for taking the questions. My first question is on data centers, please. We have seen other telcos, in particular Deutsche Telekom and Orange, are stepping up their efforts in building data centers or developing partnerships like Orange did with Goodman, which was announced yesterday. Can you just give us a quick reminder, Marc, of where Telefónica is on a data center build at the moment? I also recall, I think some comments were attributed to you in the press last year saying, if European telco consolidation were to come through, data centers and data sovereignty were areas that Telefónica would look to invest more in if that were to transpire. So maybe a few comments around that, please. The second question is just on German competition, just as a follow-up. Obviously, competition was extremely intense last year, especially during the summer months.

Can you give a kind of an update on competitive dynamics, in particular in the value for money segment where O2 D has been very active over the last seven or 10 years? Can you maybe just say a few words on the underlying EBITDA trends in Q2, how these compare with Q1? I do not expect a growth rate, but just any commentary about whether it is the same, got better, got worse. Thank you.

Marc Murtra, Chairman and CEO, Telefónica: Thanks, Emmet. I’ll answer the first question and the team will complement, and Emilio will answer the second question and Santi might complement. With regards to data centers, one way of seeing it is there’s three planes. With regards to what a gigafactory would be, I think we’ve commented, and we are part of the Spanish consortium that is applying for a European Commission project. With regards to data centers, specifically, we, as Telefónica, exited this business some years ago, and with regards to our Transform & Grow plan, we have no comments there. We’re focusing on what we’re focusing, and we’re not doing anything other than that. With regards to my comments, my public comments to the press, they have to do with a generic geostrategic analysis that if Europe is going to compete technologically, it is going to need companies of scale.

Emilio Gayo, Chief Operating Officer, Telefónica: European telcos could or, in my view, should play a role in that. We will cross that bridge when we get to that river. We would always work on discipline, we would work on demand, and we would see what it is we do. We’re not in that scenario at this in our plan. There’s the third plane, which had to do with edge

Marc Murtra, Chairman and CEO, Telefónica: Edge nodes and edge data centers, which I’ll pass on to Emilio.

Emilio Gayo, Chief Operating Officer, Telefónica: Yes. Regarding the first one, complementing the comments of Marc, as he mentioned, we have two projects that really works in the data center area. First one is computing center. We have 17 nodes. Now, I’m going to hand it over to Borja to give you more color about that, and the Gigafactory, a consortium that we are leading from the tech point of view, even with a minority stake, and it’s part of our strategy to have a sovereign position in the world of data center or data strategy. Borja will give you more color about these projects.

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

Emilio Gayo, Chief Operating Officer, Telefónica: Thank you, Matt. Regarding the second question about Germany, I’m going to hand over to Santi to talk about the competitive environment. Just to say that we are seeing some signs that better environment. Santi will explain better later. Respect the EBITDA underlying, we are confident in the evolution. We are seeing, as the last quarter we mentioned, one single-digit growth, and we feel comfortable that H2 will be better than H1. Take in account that this is something perhaps that is important that in the second quarter, we estimate that we have bottoming out in terms of total service revenue, in absolute terms. Because of that, we are confident of evolution, taking account again that we are in the middle of transformation plan that take time in order to address all the activities that we have planned.

Santi will explain a little bit more about the competitive environment.

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

Torsten Achtmann, Global Director of Investor Relations, Telefónica: Operator, we have time for one last question, please.

Operator: Thank you. Moving to our last question now. Last question is from Mathieu Robilliard from Barclays. Please go ahead.

Mathieu Robilliard, Analyst, Barclays: Yes, good morning. Thank you for the presentation. I had a question on Brazil. You had solid results, but there seems to be some concerns about the competitive environment. Maybe you could share with us what are your thoughts on how the competitive environment is looking and what you expect for the second half of the year. In a backdrop where results were actually pretty strong. Thank you.

Marc Murtra, Chairman and CEO, Telefónica: Emilio will answer this question.

Emilio Gayo, Chief Operating Officer, Telefónica: Matthew, thank you for your question. As Christian, in his conference call explained, we are seeing the same environment, the same activity than in the previous quarter. We don’t see more complicated market. It’s true that there were some launches of product that seems more competitive, but at the end, were prices that were in the market before. In terms of competition, we don’t foresee a worse scenario. In any case, I think Telefônica Brasil people is demonstrating the capability to manage the market with very good results in the mobile service revenue and in the fixed revenue and of course, in the total revenue and EBITDA.

Again, it’s similar in some aspect than in Spain, the strong performance and the strong proportion in terms of ecosystem, in terms of conversion offer, and in terms of products and services in the mobile market permit us to be confident even in the condition of the market change in the future that we are not seeing today.

Mathieu Robilliard, Analyst, Barclays: Thank you very much.

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

Marc Murtra, Chairman and CEO, Telefónica: Thank you, everybody. I hope you can all take some time off in August. See you soon or speak to you soon. Bye.

Operator: Telefónica’s January to June 2026 results conference call is over. You may now disconnect your line. Thank you.