Telefónica, S.A.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Adrian Cincinnati:]

Good morning and welcome to Telefonica’s conference call to discuss January-March 2021 results. Before proceeding, let me mention that the financial information contained in this document related to the first quarter 2021 has been prepared under International Financial Reporting Standards as adopted by the European Union. These financial information is unaudited. This conference call webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefonica Group. These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives and expectations regarding different matters.

[Angel Vila:]

Thank you, Adrian. Good morning and welcome to Telefonica’s first quarter results conference call. With me today is Laura Abasolo. And as usual, we will first walk you through the slides and then we will be happy to take any questions. First, I would like to briefly go through our Q1 results. It has been a strong start to 2021 on the commercial front. Our customer base grew 2% year-on-year and Group NPS improved to 27%, a record high and nine percentage points higher than in Q1 2020. It has also been a strong start on the financials. Momentum quarter-on-quarter improvement seen in Q4 was maintained in Q1 2021 with sequential improvements in both revenue and OIBDA trends. Despite Q1, facing the toughest year-on-year comparison in the whole 2021, once comparison base eases, as from these Q2, we should see a gradual improvement along the year. Cash conversion improved on higher operating leverage paying off with growing operating cash flow and margins. Free cash flow, ex-spectrum payments, grew by 200% year-on-year, while net debt will soon be reduced further. And we posted stellar EPS year-on-year growth of 158%. Second, we see growth and gaining momentum. March already showed year-on-year growth in terms of revenues, OIBDA and OIBDA minus CapEx. And we are generating the strongest growth from our strategic priorities. Our new tech businesses, ultrabroadband, particularly fiber-to-the-home and in high value and convert services in our four core markets. Moreover, B2B revenues continue to improve sequentially, plus 2.8 percentage points above total revenues, showing we are best placed to grow. Also worth noting – it’s worth noting that the return of growth comes while managing capital intensity as we remain focused on smarter capital allocation aimed at the nursing growth opportunities while capturing efficiencies to increase returns. In this respect, spectrum acquisition in the UK at much lower prices than benchmark is a clear win.

[Laura Abasolo:]

Thank you, Angel. We will now go through the Hispam main highlights on Slide 9. During the quarter, we continue to reduce our exposure to the region. As demonstrated by the launch of the fiber vehicle in Chile, which is pending regulatory approval and the recent sale of our wholesale DTH business and move along with our commercial strategy of prioritizing investments in growth and which will bring savings at both the OpEx and CapEx levels. Along these lines, we continue to debt in local currencies and aligning the region’s leverage with that of the Telefonica Group. At the same time, we efficiently manage investments in the region with CapEx to sales at 11% in the first quarter. All-in-all, we continue to reduce capital employed in the region. This is a strategy to modulate our exposure is happening without jeopardizing growth. Contract net adds grew 40% – sorry, 54% for the previous quarter, as much as 1 million improvement versus Q1 last year, which we multiply FTTH net adds by three times. Ongoing value growth and continued OpEx and CapEx efficiencies led to more than two percentage point sequential improvement in revenue performance to flat year-on-year growth and as much as 31.5% annual growth in OIBDA minus CapEx, a remarkable achievement. On the Slide 10, you can see that despite a slight increase in net debt in March by approximately €500 million, once you include the proceeds from inorganic transactions approved, namely Telxius towers in Europe and the second tranche of TEF Deutschland Towers, net financial debt decreases already to €31.8 billion. Furthermore, it will start at approximately €26 billion with the additional inorganic initiatives announced. We maintain a proactive and innovative approach to financing into 2021, raising €111 billion in total, including €1.7 billion related to the Allianz and Telefonica Group deal financing.

[Angel Vila:]

Thank you, Laura. Moving to Slide 12, let me tell you that despite challenges and an uncertain environment due to COVID-19, we feel very confident to meet our financial guidance for the full year. Q1 results are in line with our expectations. And we are already close to our full year guidance of revenue stabilization despite Q1, being the toughest in terms of comparison base. OIBDA is already stabilized and CapEx should be accelerating throughout the year to the guided normalized level of up to 15% of our revenues. In fact, once comparison base eases as from the second quarter, we should see a gradual recovery along the year. On shareholder remuneration, we canceled 83-odd million shares, and we will be paying €0.2 per share in the second tranche of the 2020 dividend through a voluntary scrip dividend next year. As for the 2021 dividend, €0.15 per share will be payable in December 2021 and another €0.15 per share in June 2022, both through voluntary scrip dividend. To wrap up, on Slide 13, we continue to execute on our strategy and significant progress has been made in this respect over the last three months. We are only weeks away from large capital gains and net debt reductions being booked once Telxius towers and the UK JV obtained final approvals. It has been a strong start to 2021. Whilst year-on-year trends inevitably reflect the continuing impacts of COVID-19 against a lastly unaffected first quarter last year, the momentum of month-on-month and quarter-on-quarter improvements in at the end of last year was maintained in Q1. We would also like to highlight the stellar growth in EPS and free cash flow ex-spectrum we delivered this quarter. We are firmly on track to fulfill 2021 guidance with a more evident recovery from this Q2 once the comparison base eases. Smart capital allocation continues to drive our strategy. 50% of CapEx in our four core markets continues to be devoted to next generation networks. This quarter, we also managed to acquire spectrum in the UK at prices significantly below market expectations. And through this reassignment process, the value of such spectrum increased even further. Thank you very much for listening. We are now ready to take your questions.

[Operator:]

Our first question comes from the line of Mathieu Robilliard from Barclays. Please go ahead.

[Mathieu Robilliard:]

Yes. Good morning and thank you. I had a question on Spain first with regards to the trajectory of the convergent ARPU. So, I understand that you increased some prices during Q1, but we still saw a decline in the ARPU year-on-year. So, I was wondering what was behind that. Is it largely related to the impact of the pandemic on some of the revenue lines or are you seeing down spin between the different packages or is it just a mix of the two? So if you could give a bit of color on that would be very helpful. And then, with regards to your disposal program, as you’ve shown in your slides, the total is €9 billion. Can you remind us the big blocks that constitute the €9 billion and whether there is some impact also on the leases that wouldn’t be captured by the €9 billion, which, as I understand, are excluding lease impact. Thank you.

[Angel Vila:]

Thank you, Mathieu. I’ll take the first question and Laura will deal with the second one. With respect to the ARPU of our converge product, there is indeed a decrease in the absolute amount, although there is an increase with respect to the gap versus our competitors. The reasons behind this ARPU decrease in the first quarter

[Mathieu Robilliard:]

Thank you. Go ahead.

[Laura Abasolo:]

Good morning, Mathieu. With regards to the €9 billion, the majority of that, as you may imagine, will be the towers, the Telxius tower deal and also the proceeds from the or do JV with Beijing Media in the UK. By the way, as we commented, the UK deal is going to be approved in a few weeks and towers in Europe have already been approved and Telefonica Deutschland towers was also approved. So, much of it is going to flow through already in the net debt reduction and you also have to take into account the strengthening in the balance sheet that it will occur not only because of the net debt reduction, also because of the capital gains attached to these two projects. On top of that, you do have the Costa Rica and Brazil. We have fulfilled all the regulatory information requirements and we should be expecting regulatory approval in the coming months. We will also have proceeds from the fibreco in Chile that include brownfield. As you know, we on the opposite direction, we need to include the mobile assets that we are acquiring. And also, we have fibreco in Brazil, which in the short-term is meaningless from a net debt perspective. You are right, the $9 billion does not include the leases. The UK transactions, for instance, is going to be more beneficial once you include the leases, because we are going to deconsolidate the leases we have at present from O2 UK towers. On the other way, it will have a reduction in the impact, because we will have to recognize the additional leases. Oi Costa Rica has a slightly more impact in leases. But all-in-all, and you know these numbers could change, the €9 billion would be around €1 billion less because of leases coming basically from the towers. That should be it.

[Mathieu Robilliard:]

Thank you very much.

[Operator:]

Our next question comes from the line of David Wright from Bank of America. Please go ahead. Your line is open.

[David Wright:]

Hey. Good morning, guys. Thank you very much for taking the calls. A couple of questions. Just firstly on the guidance. Given the progressive recovery expected through the rest of the year, I can clearly see the logic for the revenue guidance that started a little bit light then recovers. But based on that recovery on the fact that EBITDA started positively, could we not be looking at a better EBITDA performance than the guidance or is it maybe just a little too early to commit? And then, secondly, just on the UK, I noticed the better – much better EBITDA. And I’m trying to understand how much of that margin increase is due to just the pure commercial activity being lower or whether that’s a more sustainable margin increase even as the UK comes out of lockdown. Thank you.

[Angel Vila:]

Thank you, David, for your questions. With respect to guidance, we reiterate our 2021 guidance on – of stabilization in revenues. On OIBDA, you saw that in Q1, we already – in Q1, which was a COVID quarter compared to a non-COVID quarter one year ago, we already got OIBDA stabilized and the revenue trend was improving. Also, what we see is that once the comparison base, we should see a gradual recovery along the year. Here, what we see is that there are tailwinds that should be supportive of our revenue line such as the macro environment with vaccination gaining base in Europe. You may have seen that the European Commission yesterday raised its forecast for GDP growth in Spain to 6% almost this year and close to 7% next year. At some point, the European reconstruction funds will also be a tailwind with very much relevance devoted to digitalization and connectivity in those programs. Germany and UK are lifting their restrictions. We continue to see strong momentum in our B2B and tech businesses. So, we think that there are tailwinds. It’s difficult to assess the timing. For instance, will roaming come back in June/July/August? It’s difficult to say. Roaming is, to your question on OIBDA, recovery of roaming would be quite determinant for OIBDA improvements. Also we see that some of the revenue growth that we’re seeing comes on those lines that have relatively lower margin, like handsets with a gradual recovery of stores and some of the tech and IT products. So, we believe that we need to see some of those tailwinds to start materializing before making any move to our guidance we saw last year. It took last year total to be prepare for the unexpected. So, at least for the time being, we prefer to stick to the current guidance, which we feel very comfortable.

[David Wright:]

If I could just jump in before maybe the second question. If revenues are set to recover, I don’t see why the EBITDA would go backwards. It feels to me like stabilization is very cautious. It does – it should seem like the EBITDA goes back to growth.

[Angel Vila:]

Again, we have seen in this quarter with, for instance, the shop lockdown in places like the UK or Germany, that some commercial costs were not incurred. And this clearly came to highlight the EBITDA performance in those two geographies in the first quarter. Some of these costs will normalize or will go back to usual evolution, now that retail is being open again. Again, we need to see high-margin revenue lines like roaming starting to reactivate. So at this stage, we prefer to stick to the current guidance, maybe conservatively. But we want to state that we feel very confident with this guidance, no? And then regarding your question on the UK. UK had a very positive evolution of OIBDA of plus 7.6% this quarter. There are a number of moving parts in this strong growth the UK, the most relevant being, we have moved our distribution model away from Dixons Carphone one year ago. This implies some tension on the revenue line, as you saw, but at the same time, significant commission savings, which have continued to build on a cumulative basis since the second quarter of last year. We also have a number of phasing-related cost savings in the quarter in marketing and sponsorship, a portion of which should pick up as the economy starts to open up. Again, we also have had some commercial settlements, although for not high material figures. And especially, I would like to highlight the great work done by the UK team on cost control. They have been managing the cost base very effectively in the UK, while delivering a market-leading NPS, a market-leading churn and growing the mobile base by 5% to its highest level in history of 36.6 million customers.

[David Wright:]

Okay. Very good. Thank you, Angel.

[Operator:]

Our next question comes from the line of Keval Khiroya from Deutsche Bank. Please go ahead.

[Keval Khiroya:]

Thank you. I’ve got two questions, both of which on Spain. So firstly, you’ve obviously highlighted that you wanted to call down the Spanish competitive environment, and you have seen the indication in Q1 on your subscriber trends. Do you think you’ve been successful with that strategy, such that we should expect those subscriber losses to now moderate? And then second, just following on from the previous question. You’ve successfully shown an improvement in the Spanish service revenue trend for the past three quarters, but the organic EBITDA decline has been relatively similar over those three quarters. So can you talk about – I know you don’t go divisionally, but can you talk about how we should think about the EBITDA trends domestically as those Spanish revenue trends also improve? Thank you.

[Angel Vila:]

Okay. Thank you, Keval. I was clarifying with my colleagues the first question. As I said in my speech, we continued – as we had done in the fourth quarter of last year, we continued pulling down the market in Q1. This has been hitting our B2C commercial KPIs on several factors. We had promotional expiration concentrating in Q1 because six months promotion from half year before and three months promotion from the previous quarter we’re expiring in Q1. We also applied more for more price increase in January. These are Q1-related effects, not necessarily structural ones. But at the same time, this is bringing benefits such as a reduction in the churn in convergence. We have seen also market becoming more rational with some of our competitors or most of our competitors following more for more actions, consolidation of low-end brands. We have seen in-market consolidation between MasMavil and Euskaltel. So all of these are trends that are bringing rationality to the Spanish market. And in this process, we have been achieving a record high NPS, growing the gap versus our competitors. So we think that this is a strategy that it’s bringing its fruits with respect to cooling down the market. The market continues to be polarized between the high and low value segments of the market, and we continue to increase our performance in the higher end of the market. The gross adds in Fusion have been coming with higher ARPU. The high-value TV base continues to grow. It was around 50% one year ago versus two-thirds now. And in convergence, high-speed fiber and O2 customers continue to grow. So it’s the strategy that we continue to implement. With respect to the OIBDA trends in Spain, what I should say is that in this first quarter, the sequence of improvement has been lower than what we have seen in revenues. We have got two percentage points improvement in revenues from the trend in the previous quarter to this quarter. And this brings some increased revenues, for instance, in handsets, which have lower margin than the overall margin. We also have IT and tech growth at record levels, seven percentage points higher than the previous quarter. And this also come with lower margin, and we have not had any benefit from roaming this quarter, which is a high-margin activity. So this would be the elements that explain mostly and the evolution of the OIBDA versus the revenue evolution in our Spanish operation.

[Keval Khiroya:]

That’s clear. Thank you.

[Operator:]

Our next question comes from the line of Mandeep Singh from Redburn. Please go ahead.

[Mandeep Singh:]

Thank you. I have a couple of questions, please. So just coming back to the UK on service revenues, your margins are now 46%. I mean, in the history of UK Mobile, I don’t ever recall these types of margins being delivered. So I’d like a little bit more color on the sort of sustainability of that high level of margin in the UK. That’s the first question. And then the second question is also in the UK. I think there’s a lot of interest in – obviously, the JV is now complete. So I’m sure you’ve given this some thought. What you think about UK network expansion when it comes to fiber? What are your attitudes toward wholesaling fiber to other people like supply or anybody else for that matter, off balance sheet vehicles or funding that expansion? Just thoughts around sort of fiber strategy and wholesaling of that in the UK. Thank you.

[Angel Vila:]

Thank you, Mandeep, for your questions. Let me try to give some more color on the UK margins. Again, we have had a very high performance in profitability in the UK with some factors that are to continue going forward and some factors that probably have been more specific to the first quarter. Among the factors that are going to be more recurrent is the better margin that we have from having moved from indirect distribution to direct distribution. This is here to stay. We have had a cumulative impact from commission savings since we moved away from DCP. Here, we did not incur in a one-time payment to DCP in order to improve the margins. Later on, we are – we continue in this DCP model to pay existing commissions. But given the different volumes on each one of these channels, this figure will continue to be helping our profitability. On the other hand – well, and also on the recurrent type of effort, we have very strong cost control in the UK. It’s in the management remit to continue to do so. And of course, with the joint venture going forward, you should expect this to be also incremented with the synergies that will be derived from the transaction. On the elements which are less recurrent from this high profitability in the UK would be those related to all the costs – to all the COVID impacts from the first quarter. We had a full lockdown in the UK in the first quarter, and the country is moving away from that situation. So you should expect a portion of that marketing sponsorship costs to recover again. An example also could be in the Smart Metering Programme, where we were not able to do installation during the lockdown. This will be reactivating as the economy reopens. So this would be the moving pieces of this margin, probably. You are looking in this quarter at a record high-margin for our UK operation. Then with respect to the UK network, of course, we need to first close the transaction. We have a preliminary approval, and we continue very constructively in talks with the CMA for expedition – expeditious move ahead with the transaction. Our – or Virgin Media already has 15 million homes passed through different technologies in the UK. We have plans to move ahead with an additional – or Virgin Media has planned – sorry, I shouldn’t say we yet. Virgin Media has plans to move ahead with at least 1 million homes passed in addition. And as Mike was explaining in his Liberty Global conference call one week ago, there is opportunity to continue to upgrade and expand the network in the UK, potentially aiming at additional 7 million homes passed above the previous figures. And this could be done by accessing highly efficient sources of funding and potentially partnerships. We, as soon as we close the joint venture, would be taking those decisions together, along with our partners. Here, we have proven that we are extremely positive and focused in growing fixed ultrabroadband fiber in all our footprint. And the UK would not be different from that. But for specific plans on this front, we would need first to close the joint venture and then reach agreement with our partners.

[Mandeep Singh:]

Thank you very much.

[Operator:]

Our next question comes from the line of Michael Bishop from Goldman Sachs. Please go ahead.

[Michael Bishop:]

Thanks very much. Just a question on free cash flow. You’ve had a good start to the year on an underlying basis, excluding spectrum. And I remember, I think I asked the same question at Q4. You said there was quite a few moving parts. So it was a bit difficult to give sort of a guide on cash flow like you gave in 2020 as the year progressed. But I was just wondering whether you’ve got any more updated thoughts on where we could be thinking about free cash flow landing for the year, and in particular, any sort of moving parts below operating cash flow. Thanks very much.

[Laura Abasolo:]

Thank you, Michael, for the question. Let me focus first on the free cash flow on Q1 because I think it shows our solid performance and capabilities to generate a strong free cash flow. It’s been indeed impacted by the spectrum paid, which is being UK, Chile and also part of Spain. But I think we have been very happy about the successful execution of those three spectrum auctions, removing a lot of uncertainty, and in the case of UK, it was well low benchmark expectations. But the €727 million, excluding the spectrum, reflects regular seasonality of the first quarter, and this year will not be an exception. Free cash flow generation is generally back-end loaded. If we go through the expectations for the year, I’m afraid, Michael, I have to give you a similar answer to the one I gave you a few months ago. We do not guide on free cash flow, but we remain very focused on delivering a very robust free cash flow. It’s an absolute priority. It’s going to comfortably exceed dividend payments, labor commitments and hybrid coupons, and it’s going to be a sustainable driver for continuing deleveraging on top of the very sizable inorganic deals. Operating cash flow, it will flow through the guidance we gave you, which is stabilization and CapEx moving to normalized levels of 15% below operating cash flow. As you asked, working capital will be business as usual. You can also expect that we are going to continue optimizing our financial payments. That’s something which is structural, and it’s all going – flowing through P&L and free cash flow. Tax payments, very much affected by refunds and so on, but we have a midterm guidance of around 20% with the unavoidable volatility of payments, advance and refunds. Spectrum, we still have Spain and Brazil to come. But I think the uncertainty removed around UK, it’s very – it’s crucial for the free cash flow generation of the year. Minority is in line. So a lot of management in every single line. Uncertainty is still there. So we are not comfortable with giving any guidance on free cash flow as we did last year. We did it much well advanced, this year, not so early. But be safe that we are focused and we are going to manage resources aligned with results and aligned with revenues as we did. But again, let me emphasize that resource prioritization, as you can see, it’s not been at the expense of growth. And we are able to deliver this free cash flow and at the same time, posting a strong solid commercial results.

[Operator:]

Our next question comes from the line of Jakob Bluestone from Credit Suisse. Please go ahead.

[Jakob Bluestone:]

Hi. Good morning. Thanks for taking the question. I had two questions, please. Firstly, on Spain, you mentioned earlier the sort of site disconnect, I guess, between service revenue trends that are improving, but EBITDA growth is still sort of stuck at minus five. And you alluded to the fact that there’s a bit of a mix shift happening within your revenues. So if you look a few years out, what do you actually think will happen to margins in Spain? Do you think they can go up, stay stable? Or would you think they could fall because of this mix shift? And then just secondly, if you can maybe just give an update on how the disposal for Hispam is getting on what are sort of the key milestones to come. Thank you.

[Angel Vila:]

Thank you, Jakob. When we look at margins in Spain, I would like to reiterate what I stated in the previous conference call after Q4. We still see OIBDA margins around 40%. In this quarter, the margin was 39.2%, and we see for the year margins from 40%, which are sustained margins compared to last year. These are made of evolution of differentiation to the revenue evolution. We see evolution on different cost lines. So for instance, in this first quarter, personnel cost has had a slight decline as a more significant decline in commercial costs. Content costs have been decreasing year-on-year. We have had an increase in supply costs, especially those related to IT and hardware supplies that come with some of our tech and IT businesses. But when we look – and we don’t guide over years, and this is also we guide for the group, this would be a, how to say, an indication or where we are aiming at, we continue to believe that margin of 40% or around 40% for our Spanish operation is something that we would be aiming at.

[Laura Abasolo:]

On Hispam, Jakob, Hispam is progressing with the strategy of strengthening our assets while reducing capital employed. We have completed operations, a legal carve-out and have a fully dedicated team working at Hispam. So we have all the optionality. We are prepared. We continue to modulate our exposure in the regions with the agreement such as the FibreCo in Chile or the wholesale sale – DTH sale now. We are prioritizing investments in growth, and that will bring on top – and that will be accompanied by savings on OpEx and CapEx as we digitize those operations more and we go to a much leaner operating model. All this, without jeopardizing growth. You saw it in the slide, revenue and OIBDA are improving trends to virtually stable; contract net adds of over 600,000; we multiply fiber net adds by three times; efficiency, accelerating; operating cash flow growing more than 30%, and all of that’s improving customer satisfaction. And we have leading NPS in five markets. We are continuing de-risking our balance sheet by adding debt in local currencies and aligning the region’s leverage with that of Telefonica Group. Precisely this quarter, we have refinanced bank financing in Chile, and we are issuing – we have already issued a bond in Chile – in dominated Chilean pesos in April. So that’s all working and on-track. We continue, of course, exploring and working in different M&A alternatives. There are different routes – option routes, sorry. Optionality is there as we continue improving those assets. I think we have gained ourselves with the successful execution of various landmark transactions in the past month, the flexibility to choose the right timing to make the right and value-accretive decisions. But we will continue posting solid results. We will continue showing we are modulating exposure in many different ways and improving the return on capital in this region.

[Jakob Bluestone:]

Thank you. That’s helpful.

[Angel Vila:]

Let me complement my previous comment on margins. When one looks at the first quarter in Spain and you compare it to the previous year, last year, we reported some capital gains from sale of real estate and other assets in our figures. In Q1 2021, there are no material or substantial comparable situations. And the other thing I would like to add is that CapEx to revenue in Spain will continue to be best-in-class. We are aiming this year for something below 12%. So the operating cash flow margin for our Spanish operation probably is benchmark in Europe.

[Jakob Bluestone:]

Thanks.

[Operator:]

Our last question comes from the line of Luigi Minerva from HSBC. Please go ahead.

[Luigi Minerva:]

Yes. Good morning. Thanks for taking my questions. Can I ask you about the point you make in the presentation about exploring more fiber optionality in Europe? We’ve seen some initiatives in Germany, obviously. And Spain has so far been out of the table. I was wondering if there is any change in view there? And secondly, if you could share your views on the way the recovery fund may have a positive impact on the Spanish operation. My understanding is that these are public money that will help investments where private capital is not available. But yes, perhaps it would be helpful to hear your views. Thanks.

[Angel Vila:]

Thank you, Luigi. With respect to fiber, we are constantly looking for alternatives to accelerate fiber expansion because we think that there is – and even more in this post-pandemic world, there is growing demand for high-quality ultra broadband in different countries now. So in Germany, we established this 50-50 JV with Allianz. It’s already up and running. We have permits in several municipalities to start building, and we have already started building in various of those municipalities. We expect to sign up the first customer already in the month of May. In Brazil, we also, in addition to our own development in the first year of municipality of towns and cities in Brazil, which is done 100% by Vivo with our own CapEx, we are launching FiBrasil, which is a 50-50 JV with CDPQ. This would be new cities. So it would be incremental to our existing footprint. And we also have wholesale agreements, and we have franchises. The target in Brazil is to reach 24 million homes passed by 2024. In the UK, I commented before, the strategy will be linked to, first, closing the JV, and then agreeing with our partners. But we are, in all our footprint, supportive for alternatives to accelerate fiber. With respect to Spain, only in Spain, we have the most developed, most capillary fiber deployment in the whole of Europe. It’s a strategic asset, which is probably not reflected in our valuation. And it’s one that could give us optionality in the future, but we declare it as a strategic asset. But you should expect us to continue exploring efficient ways to deploy fiber across our footprint. With respect to the next generation funds or the recovery funds from European Union, out of the €750 billion European Union wide, €140 billion is the amount allocated to Spain, 50% of those €140 billion being direct subsidies for transfers and the other half being loans. At this moment, the Spanish government is focusing on the direct transfers in an initial phase and has allocated to accesses which are relevant for Telefonica, which are digitalization and environmental. Big part of that amount of money to digitalization, 20%; to environment around 35%. Environment is relevant because deployments such as fiber are qualifying for environmental improvement processes. So Telefonica has designed what we call Telefonica Next Generation program, which has three major priorities. One is around connectivity. We want to provide the best connectivity, secure and efficient for everyone, and there will be funds allocated to these connectivity such as fixed broadband in rural areas or 5G coverage in rural areas. Second access in our plan, so first, is provide the best connectivity. Second is improve competitiveness of the Spanish environment, giving SME success to technology. 5G, for instance, in Industry 4.0, smart cities, connected mobility, cultural industry support. And the third axis is linked to strengthen the pillars of well-being or welfare in society, meaning digital education, healthcare, digital administration and ecological transition. So, Telefonica is already submitting a proposal of projects along these lines. Spain as a country already has sent its proposal of national recovery and resilience plan to the European Union, joined with a program of reforms that need to be implemented to qualify for those funds. And we believe that this is going to be a competitive program. It’s going to be having public-private collaboration, probably will be done in ecosystem with partners. But a company like Telefonica is perfectly qualified in order to make these funds be effective and accelerate the economy under digitalization. We think that this is one-off of the tailwinds that I was talking about at the beginning of the call that should be underlying. We don’t know exactly in which quarter, but later in the year, the revenue trend of Telefonica. So I don’t know if this is the – okay. Thank you.

[Luigi Minerva:]

Thank you very much, Angel. Very helpful.

[Operator:]

At this time, no further questions will be taken.

[Angel Vila:]

Well, thank you very much. We expect to have provided you with data points and comments which we expect to be useful to you. If you have remaining questions, please do not hesitate to contact our Investor Relations department. Thank you very much.