Good morning. Thank you for standing by, and welcome to Telefónica's January-March 2023 Results Conference Call. [Operator Instructions]. I would now like to turn the call over to Mr. Adrian Zunzunegui, Global Director of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Telefónica's conference call to discuss January-March 2023 results. I'm Adrian Zunzunegui from Investor Relations. Before proceeding, let me mention 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 risks 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 in Madrid or London. Now let me turn the call over to our Chief Operating Officer, Mr. Angel Vila.

Thank you, Adrian. Good morning, and welcome to Telefónica's first quarter conference call. With me today are Laura Abasolo, Eduardo Navarro and Lutz Schüler. As usual, we will first walk you through the slides, and we'll then be happy to take any questions. I would like to start highlighting how we continue to progress on our strategy and to deliver on our goals. Strong momentum continued in our core markets. In Spain, service revenue growth accelerated, and year-on-year OIBDA trend improved as we had anticipated. Brazil posted double-digit growth on both revenue and OIBDA. In Germany, 5G deployment progressed well, and financials remain robust. In the U.K., revenue stepped up another quarter. Our scaled European cloud and cyber champion, Telefónica Tech, increased revenue by 44% year-on-year, largely outgrowing its market. And at Telefónica Infra, we continued progressing in FiberCo rollout, while Telxius again recorded very solid growth rates. Group-wise, the Open Gateway initiative, I joined the effort for leading telcos under GSMA sponsorship, was successfully presented during Mobile World Congress '23, whilst on the ESG side, our greenabler strategy continues anticipating regulatory needs. Looking ahead, we are shaping opportunities in our core markets, such as in-market consolidation in Spain, stellar growth and lower capital intensity in Brazil, normalized levels of CapEx to sales in Germany and ongoing capture of synergies in VMO2, with more than 50% of run rate expected by year-end. Telefónica Tech, where we ambition to grow double digit this year, continues to be a source of value. Telefónica Infra will further expand its fiber networks, whilst assessing consolidation opportunities, and optionality remains on self-sustainable Telefónica Hispam. Finally, from an industry point of view, the coming months are key for next fairer share regulation and a broad fairer regulation environment. On Slide 3, we can see that we had a strong start to 2023. Revenue growth accelerated during the quarter, both in organic and reported terms. Moreover, all business lines are growing, with a good uptake of price increases, supporting a sequential service revenue improvement to plus 4.2% year-on-year in organic terms. B2B continues to perform strongly with 9% year-on-year growth and remains one of the key and differentiating growth drivers of the group. Commercial traction has strengthened, with fiber and mobile contract accesses growing 16% and 7% year-on-year, respectively, whilst 5G deployment is progressing well. Our focused investments in next-generation networks and quality of service allowed us to post record levels of NPS and lower churn rates in a quarter of proven pricing power. This resilient performance, coupled with proactive management of efficiencies within a streamlined operational model, resulted in the third consecutive quarter of underlying OIBDA growth year-on-year. Financially speaking, net debt and leverage declined, despite seasonality in Q1. As such, the balance sheet remains strong with a light maturity profile, strong liquidity, limited debt refinancing ahead and a high portion of that in long-term fixed rate. Lastly, and along the lines of legacy shutdowns, we announced the Spanish full copper switch off for April 2024, the best example of our sustainability pathway in the transformation of our networks. Moving to Slide 4 to review our key financial metrics and figures. In organic terms, revenue growth accelerated 1 percentage point to 4.9%, while OIBDA maintained a steady growth of 1.1%, with CapEx increasing by just 0.7%, all that resulting a 2.1% annual growth in OIBDA minus CapEx. In reported terms, revenue growth improved sequentially by 1.3 percentage points to 6.7% year-on-year, while underlying OIBDA increased 2.4% year-on-year. FX continued to be a tailwind in the quarter. Free cash flow reached EUR 454 million, along the usual CapEx and working capital seasonality in this period of the year, while net debt declined EUR 0.2 billion in the quarter or 3.5% lower year-on-year. Moving to Slide 5. Let me tell you that we are well on track to fulfill our 2023 guidance of low single-digit growth in both revenue and OIBDA, and around 14% CapEx to sales, despite inflationary pressures. We expect the strong momentum and the current positive trends to continue further, supported by some price actions taking place in Q2. Energy cost pressure and overall inflation continues easing, further supporting our OIBDA evolution. As part of our shareholder remuneration, we canceled 25 million own shares, and we will be paying EUR 0.15 per share in cash, the second tranche of the 2022 dividend on the 15th of June. As for the 2023 dividend, EUR 0.15 per share will be payable on the 14th of December and another EUR 0.15 per share in June 2023, both in cash. Turning to Page 6. We continue working quarter after quarter to achieve our ambitious ESG targets. On the environmental side, our efforts in reducing Scope 3 emissions were once again recognized, as we have nominated CDP supplier engagement leader for the fourth consecutive year. Within the social pillar, we are pushing ahead with network rollouts to connect more people as well as promoting affordability with social tariffs. We're immensely proud that the World Benchmarking Alliance has, for the second year running, ranked Telefónica in top position within its Digital Inclusion Benchmark. And on the government side, we highlight the renewal of ESG certifications across Telefónica Hispam, where we continue to lead the sector in sustainable financing. Moving to Slide 7. We can see that Telefónica España successfully started into the year with supportive commercial momentum and better financials. Fixed broadband and contract accesses posted our best quarterly performance since the end of the pandemic in Q3 '20. A new record low churn of 0.9% helped to deliver contract net adds for the third consecutive quarter and returned to year-on-year growth in fixed broadband for the first time since second quarter '19. We achieved this better commercial momentum, despite the tariff revision that took place in mid-January, a proof point of our pricing power and meets an increasingly rational market. Service revenue growth accelerated to plus 1.0% in Q1 '23 driven by retail revenue growth, which accelerated by 0.8 percentage points versus the fourth quarter last year to 1.7% year-on-year. This acceleration is driven by a growing ARPU, better trading and double-digit growth of IT revenues. Likewise, OIBDA continued its recovery path, limited its declined to 1.7% year-on-year as a result of the mentioned better revenue trends and despite higher personnel costs. OIBDA minus CapEx margin remained at benchmark organic levels of 26%. Moving to Germany on Slide 8. It delivered a robust start to the year with another quarter of good commercial traction and sustained financial performance. The company implemented its More for More strategy across all brands and portfolios backed by its widely acknowledged network, products and services quality and extended ESG leadership. Telefónica Deutschland's 5G network is well on track to deliver around 90% population coverage by year-end 2023. Revenue posted strong organic growth at 8% year-on-year in the first quarter. OIBDA grew 1.7% year-on-year, supported by operational leverage mainly mobile, which was partially offset by anticipated inflationary cost pressures. Post the successful completion of the 3-year investment for growth program, Telefónica Deutschland returned to a normalized CapEx envelope, which declined 7.2% year-on-year to an 11.7% CapEx to sales, resulting in operating cash flow growth of 8.6% organic. We now move on to Slide 9 to the U.K. and our joint venture, Virgin Media O2, which focused on operational progress and accelerating long-term growth drivers. VMO2 delivered resilient trading performance with a stable customer base of 58 million, while keeping churn steady and -- at low levels of just 1%. Broadband adds remained healthy during the quarter. Network investment continued, with 108,000 premises deployed during the quarter and with 5G connectivity now available in over 2,100 cities. Q1 was the first full quarter of network rollout on behalf of nexfibre, and delivery is being prepared to ramp up through the year. In the first quarter, revenue growth accelerated to plus 3.9% year-on-year organically, underpinned by the increase in mobile and nexfibre revenue. At the same time, OIBDA grew plus 1.4%, impacted by phasing of both fixed price increase and synergies and higher costs, mainly energy. Moving to Brazil on Slide 10. Vivo started 2023, posting once again a very strong set of results, both commercially and financially. Mobile market share reached 39% in February, increasing by 1 percentage point since Oi Mobile asset acquisition and by 2 percentage points in the contract segment to 43.7%. Vivo continues to be the clear market leader in a more rational environment. Vivo connected 813,000 new accesses to our FTTH network in the last 12 months, twice the performance of the second player in the market, thanks to our leading footprint and differential value proposition. Revenue growth accelerated to plus 12.1% year-on-year in Q1 '23, the highest revenue growth seen in 10 years, thanks to growing accesses, price increases and the good performance of digital services. In terms of operational leverage, OIBDA minus CapEx grew 22.7% year-on-year as a result of growing OIBDA close to 10% and lower CapEx intensity, in line with the target of bringing it down below BRL 9 billion by 2023. Slide 11 reviews the performance of Telefónica Tech, a global next-generation IT provider with a distinctive growth profile. Telefónica Tech continued to outperform the market in Q1 '23 with a 43% year-on-year revenue growth or plus 27% in constant perimeter, proving the benefits of its transformation into a leading scale provider of advanced IT solutions. The growing partner ecosystems and its diversified team of around 6,000 professionals, with close to 4,000 certifications in strategic partners technologies, are key for Telefónica Tech to become a reference player in delivering differentiated digitalization journey with higher relevance of managed services. Bookings increased by 40% over the last 12 months, which supports future revenue flows, leveraging Telefónica Tech's success, Telefónica's position in the B2B large global deals category clearly improved. According to industry analysts, Telefónica gained fourth place and entered the first division of telcos providing global IT services after years of steady progress from a regional player to a supra regional operator. Turning to Slide 12. Telefónica Infra continued to consolidate its leading portfolio of FiberCos, which already cover 15 million premises as of March '23. Bluevia's deployment in Spain is progressing as planned and has already met more than 80% of its deployment target. UGG in Germany continued to promote MOUs sign-ins, with more than 870,000 households as of the end of March. nexfibre in the U.K. is scaling up the team, processes and interaction with VMO2. FiBrasil is already present in 151 cities in Brazilian states, with 4.3 million premises passed. ON*NET Fibra Chile and ON*NET Fibra Colombia are both leading their markets with 3.7 million and 2.6 million premises passed, respectively. Moreover, Telxius posted again healthy financials with rising revenue and OIBDA growing for the fifth quarter in a row. Thanks to continuous cost management, Telxius achieved an impressive OIBDA margin of 54.2%. I will now hand it over to Laura, who will review Hispam's operations and the group's financial results.

Thank you, Angel. Moving to Telefónica Hispam, we continue to focus on value growth, improving returns, while reducing investment -- invested capital in the region. Contract accesses grew plus 4% year-on-year, especially in Mexico and Colombia, with plus 13% and plus 7%, respectively. The transformation to fiber continues, supported by the InfraCos. Fiber uptake remained high at 30%, despite the fast FTTH deployment. Revenue continued to grow and was up 1.6% year-on-year, thanks to the good performance in both contract and FTTH. OIBDA declined by 3.9%, mainly impacted by high commercial activity and the InfraCo model in Chile. Turning to Slide 14. Telefónica maintains about 80% of its debt linked to fixed rates, mainly in euro, with an average life of 13.2 years, which places us in a comfortable position to face any market environment. We maintained a solid liquidity position of EUR 21.4 billion that, together with a live maturity profile, allows us to cover debt maturities over the next 3 years. Meanwhile, net financial debt and leverage ratio continued their downward trends. Net financial debt declined from EUR 26.7 billion in December to EUR 26.4 billion in March. Net debt to EBITDA ratio improved from 2.54x in December to 2.51x in March. As of March 2023, we have contained our debt-related interest cost at 3.87%, thanks to the solid position of fixed interest rates in strong currencies, which allow us to navigate the rising rates. I will now hand back to Angel, who will wrap up.

To wrap up, on Slide 15, Q1 delivered again positive momentum, continuing with resilient performance, whilst further executing our strategy. First, our differentiated and premium infrastructure is clearly taking off in terms of churn and NPS, which helped Q1 revenue growth to accelerate on the back of our proven pricing power. Furthermore, OIBDA maintained a steady performance, thanks to efficiencies that allow us to mitigate inflationary pressures. Second, our balance sheet was further strengthened, thanks to our proactive debt management. Third, Q1 performance, coupled with maintained positive momentum, allow us to reiterate full year guidance and dividend. Fourth, our sustainability pathway is demonstrated with the transformation of our networks. On ESG, we are progressing well and anticipating regulatory needs. And finally, we continue to shape opportunities that should create value for our shareholders. Thank you very much for listening. We are now ready to take your questions.

[Operator Instructions]. We will now take the first question. It comes from the line of David Wright from Bank of America.

A couple from me, please. I noticed on the EBITDA beat today, it was quite material at the other level. I think you recorded about EUR 53 million. Consensus is give or take EUR 8 million. Now I understand some of that is driven by Telxius and Telefónica Tech, where you've obviously given some quite optimistic commentary in the presentation. So I wondered, could you give us a little bit of guidance where we could expect that line to trend this year, please? Or is there something else that is exceptional? And maybe, Laura, just for you on Hispam. You've obviously seen the EBITDA -- year-on-year EBITDA decline starting to go into decline again, but I think that is partly due to the new state due to the InfraCo model, which means you're now bringing on wholesale cost. I wondered if you could give us an idea of what the EBITDA minus CapEx organic trend is perhaps Q4 and Q1 to really understand to what extent that decapitalization is working. So those 2 questions from me, a little detail.

David, on the first one on the EBITDA that we have in other companies and others, here, there are some businesses, which are included along this line, one of them being Telxius, the unit that for holds our submarine cable. We have some detail on Slide #12 on the performance of this unit, which is growing revenues at a high single-digit level -- sorry, EBITDA on double-digit level with 54% OIBDA margin. That's an actual business, which is performing very nicely, included in that line. Second element would be the Telefónica Tech companies that got acquired in the U.K. So we bought CANCOM U.K. and then a company called Incremental, and the Telefónica company we acquired in Germany and the DACH region called BE-terna. These are also included in this element of other companies, eliminations and others. These 2 companies are growing revenues double digit with margins of around 14%, 15%. So you have actual businesses, I would say, hidden jewels in this line, which are performing quite nicely. And the third relevant element in this line is the efficiencies that we are achieving on group corporate costs, given our efforts to optimize our operating models. So we would be aiming to continue providing positive results on this line in the coming quarters.

David, on your question on Hispam, as you said, year-on-year variations are softer this quarter, and it has to do with the CapEx to OpEx model. And it also has to do that we are going faster commercially. These InfraCo models are allowing us to start connecting homes faster than what we have done with our own CapEx. And therefore, we have more commercial pressure. But at the same time, we are building a super strong value access base, so we will be stronger for the future. I think when you look at Hispam, you have to look at it in each trajectory since the beginning of 2020 when we decided a new strategy as noncore. OIBDA minus CapEx has improved tremendously in the last 3 years. We have been posting very good results, as we transition to a leaner model, focused, as I said, on value customers and building on a different way of deploying infrastructure, but which has been very valid to build that value customer base. We are better in general terms in market share, and these results were very much aligned with our expectations. Maybe Peru has been a bit softer due to the political environment, and also there's a lot of portability and we need to cool down the market there, but we are in that front. I'd rather talk to you about the OIBDA minus CapEx for the full year, which is how we are working. We are working on a full year basis, and we have still ambition to grow OIBDA minus CapEx in 2023, as it's been the case in the accumulated from 2020. We keep on working on reducing capital employed. We keep focusing on being super rational on spectrum auction. We just had the Uruguay spectrum auction a couple of days ago, which was at reserved price, very well managed. Again -- and that should be following the strategy we already announced a few years ago, and we are executing thoroughly.

If I could just ask an additional follow-up. Just Angel, given that Q1 EBITDA in the other line, you said you want to remain positive, but is there any reason you shouldn't be sustaining those kind of levels given the growth in the underlying businesses and the acquisitions? Any reason not to imagine it trends broadly similarly for the rest of the year?

Yes, we -- as you know, we don't guide by line, but the businesses which have -- and I was quite explicit about which companies are included in these other companies, these businesses are all of them in growth mode, both in revenues and in EBITDA, with steady margins. So those -- there would be no reason to, at least for the element that corresponds to those businesses, not to project them not only steady, but growing.

We will now take the next question from the line of Georgios Ierodiaconou from Citi.

I have two questions on Spain, please. The first one is just to understand the outlook we should expect in terms of ARPU for the business. And obviously, there were the price increases in January. We've seen the ARPU continue to grow, but perhaps not accelerate that much. So I was curious, Angel, if this is down to tougher comps because you need some price increases also in January last year or whether you are seeing optimization within Mi Movistar with perhaps that effect maybe also affecting the future quarters. So if you could give us an idea of the mix between those 2 effects. And also the comment you made earlier about more price increases in the second quarter, whether you feel confident that the excellent KPIs you reported in Q1 can be sustained even with these price increases you're putting through. And my second question is on B2B and the growth they are delivering. And obviously, that's not common for all the telcos in Europe. Do you mind just giving us a bit of an idea of what other growth drivers they are, how sustainable they are? And a bit like the comment you made earlier on some of the acquisitions in Telefónica Tech, if you can give us an indication on the gross margins of these revenues would be great.

Thank you, Georgios, for the questions. You saw that in this first quarter, we made the highest price increase that we've done for a long, long time and potentially in history following the adjustments for inflation. And this has resulted not only in not suffering churn, but we have experienced the lowest churn in the last how many quarters. And you can see clearly in the slide the trend of improvement of the churn. NPS, by the way, has gone up by 9 percentage points year-on-year, and the gap versus the second player has also widened. And ARPU has gone up to EUR 92.6, which is a growth of 1.7% year-on-year and is a growth if you look quarter-on-quarter of more than EUR 2 per share. One of the questions that you may have is with a price increase of 6.8%, ARPU is growing 1.7% year-on-year, I should say that ARPU growth is in line with what we were expecting. The price increase was not applied to all the conversion base. It was applied to the Mi Movistar brand, not to the O2 brand, and it's not applied to all the ARPU components. It's applied to the fees, but not to extra consumptions, new digital services or advertising. Also another relevant element is that the price increase was executed in the second half of January, so it's impacting not the full quarter, but at a fraction of the quarter. And there has been some repositioning that -- between our customer base, but it's not a significant element. Also one relevant point when one looks at the translation of this into growth of revenues, not only of ARPU, is that we have in the wholesale line a less comparable metric year-on-year because we are selling less content, because we bought 55% of LaLiga, not having 100% of LaLiga. This is resulting in 1 percentage point less growth in service revenue. So service revenue growth has accelerated in the Spanish operation to 1%. It would have been 2% growth in service revenue if we have had the same comparable perimeter of wholesale revenues through resale of contract. And this effect will annualize in the third quarter. So this detraction of 1 percentage point in the year-on-year comparison will disappear from the third quarter onwards. So we expect the effect of the price increases to continue kicking in into our revenue function. And given that we are 2.5 months into the price increase and a very good customer reaction, we think that the momentum is -- that the price increase has been digested and the momentum should continue along the lines that we are seeing. Regarding the second question on B2B, I agree with you. We have a differential performance at Telefónica Group. B2B revenues are growing 9% in our Spanish operation. B2B are also -- revenues are also growing high single digits in our perimeter. This is a robust performance and is very much based on a few elements. We are growing market share, and especially in the SME category. We're also managing to stabilize the comms element of the B2B revenues with better performance in renewal of contracts. And potentially here, the performance of Telefónica units through the pandemic allowed us to gain the confidence from our customers, from our clients. And then very important, we are growing in the IT and tech elements double digit. We made a very strong bet a few quarters ago on cloud cybersecurity, IoT and big data. And this is helping us -- help our customers in their own digitalization needs, and this is proving to be a key element in the growth of our businesses. The companies that we acquired in geographies like the U.K. and Germany, in Telefónica Tech are having EBITDA margins around between 10% and 15%, depending on the quarters, which are EBITDA margins, you were asking gross margin net of figure, but in EBITDA margins, they are in that line, the companies that we acquired and are included as we were discussing before in other and eliminations.

If I can ask just a clarification. Based on what you described, Angel, the price increases are coming now in the second quarter, is it fair to assume that the ARPU momentum should improve in the future quarters? I know you don't guide line by line. But broadly speaking, is that a fair assumption?

We see -- with the in mid-January, that was not effective the whole of the month. You have seen a positive evolution of the ARPU. So this ARPU levels are here to stay.

We will now take the next question from the line of Joshua Mills from BNPP Exane.

A couple from me. The first one is actually just coming back on this ARPU point because there's been a few questions around this. Can we clarify exactly what gets included in the convergent ARPU definition? Is it purely the service revenue side of the -- or the service components of the contracts? And how much, if any, of the ARPU is made up of add-ons, like TVs, handsets, other bits and pieces? And the reason I ask is one of the reasons we might be seeing a slightly slower improvement in ARPU this quarter is that last year, you were doing more of these add-ons, and that probably boosted the ARPU to Q1 2022. So any clarification on what's in the ARPU and then what's in service revenue would be great. And then secondly, on the EBITDA trajectory in Spain, you've reiterated that there should be a steady improvement through the course of the year, reaching stabilization in the second half. I guess, if I think about the moving parts on the cost side, one of the tailwinds you had in the first half of the year, which won't repeat in the second half, is from lower content costs. So aside from a broadly improving service revenue trend through 2023, what other cost tailwinds will kick in, in the second half, which means EBITDA should be getting better rather than worse?

Thank you for your questions. Let me try to give you more color on the ARPU. ARPU, of course, includes the communications, the connection, the mobile, the TV options, the TV add-ons, the mobile add-ons. It's the same definition of ARPU -- convergent ARPU that we have been applying consistently for now on the last years. The growth of ARPU that we're seeing year-on-year and quarter-on-quarter can be broken down across different ends. On the positive side, More for More, the price increases, both the one that we had this year in January, last year, it was in the month of February. We also have the higher contribution of new services in the portfolio. The reduction of promotions is quite relevant. Market continues to be very rational, and the dilutive effect that promotions have on the calculation of ARPU is disappearing. On the negative side, we are experiencing a little bit less out of bundle on the mix because this convergent ARPU is a mix of the brand Mi Movistar and the brand O2. The growing penetration of the O2 brand is reducing slightly the ARPU. And then now that we have a few contents -- or less content on LaLiga and so on, we have the elements on lower revenue from advertising. But this ARPU, we see it, as I was saying before, resilient and visibly higher than it was 1 year ago. On the outlook on revenues, and then I will get to your question on cost on revenues, we see service revenue continuing to grow. And we are having less handset revenues than we had last year because we had a very strong performance in 2022 when we introduced a new Mi Movistar offer that included all type of electronic devices possibilities for the customer. So we have less handset and devices revenue, but service revenue growing. This we see, through momentum in trading, the solid convergent ARPU that we continue to be the new digital services ecosystem. We see growth in communications and especially in IT in the -- and tech in the B2B side. The B2B digitalization and the impact of European recovery funds expected also in the second half, although we have less TV contents to wholesale. In EBITDA, the sound behavior of revenues has to continue contributing to continue the year-on-year recovery, and we aim to stabilization as -- and reiterate that we aim to stabilization at some point in the second half. Margins, you saw the first quarter at 36%. We expect margins to stand in the mid high 30s. And the CapEx will continue, of course, to be a benchmark, in line with what we had last year, which was 12% and because CapEx is behind. The cost components that will help us here, the personnel cost, once we have done all the negotiations, not only with employees in the collective agreement, but the employee side collective agreement, that cost increases slightly above 6% less than the price increases. Energy prices, we continue to expect a year-on-year decline, and we continue with efficiencies for network -- from network transformation, the savings of lower price of LaLiga and the continued efforts to make more efficient on digitized operating model. So all in all, we expect the trend of recovery of EBITDA to continue. We reiterate that we expect in the second half, at some point, stabilization on the year-on-year comparison and margins of EBITDA to be in the high 30s.

We will now take the next question. It's from Mathieu Robilliard from Barclays.

I have two questions, please. First, on Spain, you may have touched on it, but I could have missed it, which is on the pay TV, where I think since the end of April, you have no more regulatory obligation to wholesale it and no more regulation on the price at which you need to wholesale it. How do you see that going forward? And when will it -- could it have an impact, the fact that you changed the prices or some of the providers join you or do not join you? Is that starting from September 2023? And then a second question on leverage. You showed good progress on your deleveraging on your slides, and I think rating agencies also see you delever. But at least for one of them, you still remain quite high in terms of the rating adjusted leverage. And I was wondering if you could give us a bit of color in terms of what will lead you to deleveraging throughout 2023. I realize you don't give guidance, but if you can point out to the main elements that you expect will contribute to deleveraging.

Thank you, Mathieu, for your questions. The remedies that the CNMC had imposed from the DTS acquisition in 2015 expired as of 30th of April. So now Telefónica Spain has much more flexibility to shape the contents offering. We are no longer a dominant player in the pay TV market given the much higher subscriber shares of our -- of other platforms, and we will assess in this newest scenario. The policy is that we want to apply, of course, always keeping competitive and being respectful with a competitive nature of the market. But we now have a different flexibility in terms of which content we could keep or we would also want to share, more flexibility on the pricing of such content, more flexibility on the bundling, more flexibility on elements like channels that we no longer have to carry. So much more flexibility in order to shape our offer to be more attuned to the needs of our customers and also to be more efficient on the cost side of certain content that we could not need to carry going forward as well. So this is providing us much more commercial flexibility that we will use in order to continue to reinforce our very strong performance in the Spanish business.

And if I may follow up -- sorry, Laura. I think that the CNMC, you had bought the rights for, if I remember correctly, 3 or 5 years. The CNMC disputed the lengths of the contract. Has that been resolved in terms of LaLiga contract?

The last auction was of LaLiga for 5 years. With the previous remedies, there was a restriction of us acquiring the rights for longer than 3-year period. Those remedies are no longer in place. But we still have dialogue with the CNMC, but that limitation is no longer applicable going forward.

Mathieu, on your question on leverage and trajectory, we do not have a public leverage target ratio, but we do have a target of being committed to investment-grade credit rating, and deleverage remains a priority for us. Our main driver is going to be a steady organic OIBDA improvement, and that has been the case. The CapEx peak being definitely behind, so the main driver for reducing net debt should be free cash flow generation. On that regard, we are well on track to achieve a sound free cash flow in 2023. We see that growth accelerating forward throughout 2023, exceeding shareholders' remuneration, dividend commitments, hybrid coupons and, therefore, allowing for further deleverage. That free cash flow generation is very much anchored in the positive underlying operating cash flow trend, but we see that we also optimize every single line below that. Another thing which is very important is how we are prioritizing balance sheet strength. Our prudent debt management has allowed us to be more resilient in the current environment. We have a very strong liquidity position and aligned maturity profile. And we are anticipating many of the liability management, so we are really tapping the markets at the right moment. We continue having a very strict capital allocation. In organic, we also have a top quality asset base, which could complement the sound free cash flow generation. On the credit ratings, we have regular meetings with them. I think they have seen that we have fulfilled the guidance for the last few years, that we have started a strong start of the year, and we ended up the year very strong, despite everything that has happened. And we have shown our resilience, and rate agency value definitely are a strong commitment and welcome the measures we take to protect the credit rating.

We will now take the next question from the line of Yemi Falana from Goldman Sachs.

Taking a step back from the results, it seems Spain was solid and you expect that to continue. Telxius and Telefónica Tech ultimately came in better than expected, and that should continue. But the area that was a bit soft was on the free cash flow side. So maybe focusing in there, could you walk us through the cash flow items that get better through the year? I think you're expecting a reversal on the working capital side, for example. What's your level of confidence there? And could you talk us through any kind of key moving parts?

Sure. No problem. Free cash flow for Q1 was aligned with our expectations. You see it's always very affected by seasonality in Q1, and free cash flow generation is generally back-end loaded. As I just said to Mathieu, we are well on track to achieve a sound free cash flow in 2023, and that growth will be accelerating forward to the end of 2023. The moving parts is the growing OIBDA on top line and also efficiencies and the lower CapEx, 1 percentage below that it was a year ago. You are seeing that OIBDA minus CapEx is already growing in Q1, and that should continue. Below operating cash flow, you're right, working capital should reverse, and it will have a positive balance. Working capital in Q1 reflected seasonality, as always. Handset or supplier financing had no differential impact, and it's been really meaningless and not contributing to working capital. So it's been basically seasonality, deferred payments, and part of that is going to change as we approach in the year, as every year does. We will continue optimizing our financial payments. You have seen that our debt -- financial debt related cost is very attractive, and we will keep on working on that trend. In the case of tax, it's sometimes affected by refunds and payment in advance, but we expect a normalized tax payment standing at around 23%, which is below the nominal rate. We have to emphasize on the cash inflows from the U.K. JV, which is on track to deliver that. We gave a guidance of EUR 1.8 billion to EUR 2 billion. And then on leases, we are working on optimization. I think part of the peak came last year with inflation, FX and so on. It should be more stable this year, but we are also monitoring that very, very closely. So we will continue to manage every single line, starting from consolidating the improvement of the operational trends. And I think, very important to mention how resilient free cash flow has been in all those past years. Over the last 7 years, we generated as much of EUR 32 billion cumulative free cash flow, including EUR 3 billion on spectrum. Very important to mention that spectrum in the core has been mostly secured, so that shouldn't be a detractor in free cash flow, a relevant one in the near term. And definitely, free cash flow continues for us to be an absolute priority and linked into the previous question from Mathieu are main lever for deleverage. So working on that, confident on a sound result for the full 2023.

Very clear. Maybe just one follow-up. On the lease side, it seems like kind of inflation year-over-year was about 6%. Is that a clean number ex FX? Or is FX a driver within that cost bucket? And could you maybe give us a steer as to where you expect to be from a kind of lease inflation perspective on a full year basis kind of excluding FX? That'd be super helpful. Clearly, it does seem like free cash flow does materially improve through the year.

Yes. It's difficult to give guidance on inflation for leases because not every lease is affected by inflation. Some of them are affected by other indexes. And in some cases, we have very long-term leases. We can renegotiate, maybe lengthening the terms and getting better terms. Last year, as you rightly said, it was a combination of FX, which, by the way, affected positively revenue and OIBDA, but it had the opposite effect in leases. Also some of the inflation of similar indices adjustments and also that we incorporated a new right of use of Oi, for instance, or build-to-suite we are doing in Germany. So the full combination of that gave a least an uptake a little bit above the -- what should be the general trend. But it's not as easy to give you an inflation target because there's a lot of moving parts. But definitely, a priority for us, and we will keep optimizing this line.

We will now take the next question. It's from the line of Carl Murdock-Smith from Berenberg. Carl Murdock-Smith: If I look at the income statement versus consensus, one of the biggest beats this quarter is net financial expense at EUR 266 million. That's quite a surprise and lower than every analyst in consensus given rising interest rates and 80% of debt being fixed. I was wondering if there are any positive one-offs in that cost line this quarter. Or should we be thinking the interest rate -- interest costs could be sustainably lower than previously expected going forward? So that's question number one. Question number two is just on your comments about the legacy copper switch-off in Spain by April 2024. I was wondering if you could just expand a bit more on that in terms of quantitatively what could be the near-term financial impacts of that as we go past April 2024.

Carl, on the financial expense question, I would say it's been rather the opposite. It may have been below -- sorry, expenses, net financial expenses below consensus, but that's because of the good management we are doing because there hasn't been significant one-offs. Actually, last year, we had some reversal of provisions for some items, so it was certainly more positive last year in the other side. So if you look at the year-on-year evolution, the good result is the management we are doing. We are benefiting from having a very high rate of 80% of fixed rates. We are also seeing that we had a big ramp-up in interest costs in Hispam and LatAm last year. That's more stable there. We have also reduced slightly the leverage ratio in real currency, and that's helping also a bit. But it's basically the debt-related financial expenses being very controlled and been optimized. On the other expenses, there are many bits and pieces. We have hedges. We have some commercial debt. We have -- anytime we have a fine or a contingency, it always has a tax element, and that's very, very volatile. That's why we are working now in an increasingly focused market on interest rate raising. We are focusing more on the debt-related KPI, and that's been very well managed. But on the other, not big things in '23. I would say it was more beneficial in 2022, and this year actually is working. It's not helping us, just the opposite. It's the debt-related piece, which is bringing all the overperformance.

And regarding the benefits from the copper network shutdown, we -- as I was saying before, we have confirmed the determination to decommission our copper network by April '24. We will be one of the first telco players in the world to achieve this. And in fact, we are no longer adding subscribers on copper technology already since April this year. This will -- this brings -- it's already bringing OpEx and CapEx savings, as running fiber the home network is much cheaper on the back of lower maintenance and higher efficiency in terms of energy consumption. Fiber is 85% more efficient than copper. We're already capturing part of this in cost savings in energy, maintenance, lower failure rate, less call center retention and also in disposal of legacy assets, mainly copper, and some real estate, although this already peaked in 2022. So we think that efficiencies will continue increasing year by year until transformation is completed. We will need, during 2024, to continue some wholesale services, not retail, but wholesale services on copper for extra 6 months, and we will need some time for dismantling this after that. But all in all, we estimate that we may have captured already 0.8 percentage points in OIBDA margin from permanent efficiencies of what we have been dismantling already so far. And we already have 90% of the fixed broadband customers in fiber. And in the next 2 to 3 years, we could get an additional 1 percentage point of OIBDA margin improvement on this. Of course, there will be other moving pieces around, and this will also allow us to keep our CapEx to sales at a benchmark low level going forward.

Thank you, Carl. We have time for one last question, please.

Our last question comes from the line of Pilar Vico from Credit Suisse.

I have two on my side. So the first one is on Spain, and I would like to get a bit more clarity on whether you're starting to see some sort of spin down. There were some comments in MasMóvil this week where they were highlighting the intensive promotional activity on the low end. So I'm not pretty sure how much of this is actually being reflected into the customer base. Angel mentioned that O2 has been quite strong this quarter. So it would be good if we could get a bit more clarity here on whether this promotion activities is impacting the base. And the second one is on Brazil. It has been a very strong performance, so I'm not sure if part of this is already capturing benefits from the ICMS tax reduction, when to start expecting price increases or if there is any sort of mechanism in place in order just to capture this potential upside.

Thank you, Pilar. On your first question, we are seeing a limited spin down, the same way that maybe in other markets like the U.K. with cost of living crisis is impacting partially. In Spain, we are seeing a very, very limited spin down. We attribute to this the fact that we anticipated trends by adjusting from Fusión to Mi Movistar and making the bundle more flexible, more modular, more adaptable to the customer needs. And this is, in the end, yes, the mix of O2 has been increasing. But at the same time, we have also been adding new digital services in our digital B2B ecosystem devices, and so on, that allow us to manage the different moving parts and, all in all, continue increasing the ARPU at the time that we improve NPS, NPS gap, and we reduce churn. So nothing that concerns us. And actually, we anticipated it with the reconfiguration of the Mi Movistar portfolio. Regarding Brazil and ICMS, we passed that benefit to the customer. There was different timing of adjustments. This is a tax that is applicable state-by-state. Different states have applied different adjustments and in different moments of time. This process is over. We have passed this to the customer. On the other side, this has allowed us to increase prices according to inflation or thereabouts, both in fixed and in mobile. But the customers, thanks to this reduction of the tax, have not been suffering so much in their bills. And this has allowed us also in Brazil to continue growing ARPU, to grow NPLs, maintain or reduce churn and achieve the spectacular rates of growth that we have been posting in the results that you saw in the market. So the ICMS, which I think was your question, it has been passed to the customers and has allowed, let's say, the customers today just the price increases without suffering such a big impact in their overall bill, including taxes. So thank you very much for your questions -- sorry, go ahead Pilar.

No. Just in terms of the promotional activity, is there anything that you are just spotting, which might be worried in terms of market moves or could trigger higher commercial activity?

What we see is that the market continues to be a 2-tier market. Promotions are out of all the main brands in the higher ARPU, higher value segments. In the low end, there is more intensity of competition. I think that in their statement, MasMóvil was also pointing at, at the activity in those segments. So in the lower price, lower cost and lower ARPU segment, yes, there is more to be a competitive environment in those segments, but the market is confirming the rationality on the promotional activity and many other elements clearly in the mid- and high-end tiers. And yes, we will continue to see pressures on the low end. So with this, I would like to thank everybody. We hope that we have been able to respond to your questions. If there were questions left, please don't hesitate to contact our Investor Relations team. Thank you.

Telefónica's January-March 2023 results conference call is over. You may now disconnect your lines. Thank you.