Telefonica Stock Forum

Telefonica Q3 2024 $TEF (+1.75%)

Financial performance:

• Revenue: Telefónica recorded revenue of 10.023 billion euros in the third quarter of 2024, a decrease of 2.9% compared to the previous year. The decrease is mainly due to currency fluctuations, which had a negative impact of 4.2 percentage points.
• EBITDA: Adjusted EBITDA amounted to EUR 3.260 billion, a decrease of 2.5% year-on-year, albeit with a slight margin improvement of 0.1 percentage points to 32.5%.
• Net income: Net income attributable to shareholders amounted to just EUR 10 million in the third quarter of 2024, which was heavily influenced by non-ordinary expenses.

Balance sheet overview:

• Total assets: Total assets amounted to EUR 100.484 billion as at September 2024, a decrease of 3.7% compared to December 2023.
• Equity: Equity attributable to shareholders fell by 5.9% to 20.562 billion euros.

Income structure:

• Operating expenses: Operating expenses fell by 3.8% year-on-year to EUR 7.084 billion in the third quarter of 2024.
• Impairments: Included a non-cash impairment of goodwill and other intangible assets in Peru amounting to 314 million euros.

Cash flow overview:

• Free cash flow (FCF): FCF increased by 89.5% year-on-year in the third quarter of 2024, supported by a strong operating performance and natural hedging effects.
• Investing activities: Net capital expenditure increased by 51.3% year-on-year to EUR 4.76 billion in the first nine months of 2024.

Key figures and profitability metrics:

• Debt ratio: The ratio of net debt to EBITDAAL was 2.76x as at September 2024.
• EBITDA margin: Slight margin improvement of 0.1 percentage points to 32.5% in the third quarter of 2024.

Segment information:

• Spain: Sales growth of 1.0% compared to the previous year in the third quarter of 2024, as well as EBITDA growth of 1.0%.
• Brazil: Year-on-year sales growth of 7.1% in the third quarter of 2024.
• Germany: Decline in revenue of 1.6% in the third quarter of 2024, however EBITDA grew by 3.0%.

Competitive position:

Telefónica remains the leader in FTTH (fiber) and 5G, supported by significant investments in network expansion.

Forecasts and management comments:

The company reiterated its guidance for 2024, with expected revenue growth of 1% to 2% and EBITDAAL - CapEx growth of up to 13%.

Risks and opportunities:

• Risks: Exchange rate volatility, particularly from the Brazilian real, and competitive pressure in key markets.
• Opportunities: Expansion in FTTH and 5G as well as potential regulatory changes in Brazil and the EU.

Summary of results:

Positive aspects:

Strong free cash flow growth of 89.5% year-on-year in the third quarter of 2024, indicating solid operating results and effective financial management

Improvement in the EBITDA margin by 0.1 percentage points year-on-year, a sign of efficiency in cost control.

Further growth in Spain and Brazil despite challenging macroeconomic conditions.

Strategic focus on the expansion of FTTH and 5Gstrengthening the market position.

Effective hedging strategythat mitigates the negative impact of exchange rate fluctuations.

Negative aspects:

Decline in sales of 2.9% year-on-year in the third quarter of 2024, which has a negative impact on revenue.

Significant non-cash impairment in Peruaffecting the balance sheet and comprehensive income.

Decrease in net profit due to non-recurring expenses, which could make the company less attractive to investors.

Increased net expenditure on investments by 51.3 % compared compared to the previous year, which ties up capital and may limit short-term financial flexibility.

Competitive pressure in the core marketswhich could put pressure on margins in the long term.

Summary Earnings, 07.11.

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