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Telefonica (NYSE:TEF)
Q3 2020 Earnings Call
Oct 30, 2020, 6:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's January to September 2020 Results Conference Call. [Operator Instructions] [Operator Instructions]

I would now like to turn the call over to Mr. Pablo Eguiron, Global Director of Investor Relations. Please go ahead.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Good morning and welcome to Telefonica conference call to discuss January-September 2020 results. I'm Pablo Eguiron, Head of Investor Relations. Before proceeding, let me mention that the financial information contained in this document related to the third quarter 2020 has been prepared under International Financial Reporting Standards as adopted by the European Union. This 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. All forward-looking statements involve risks and uncertainties, including risks relating to the effect of the COVID-19 pandemic, that would cause the financial 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 slides, please contact Telefonica's Investor Relations teams in Madrid or London.

And now let me turn the call over to our Chief Operating Officer, Angel Vila.

Angel Vila Boix -- Chief Operating Officer

Thank you, Pablo. Good morning, and welcome to Telefonica's Third Quarter Results Conference Call. Today with me is Laura Abasolo, our Chief Financial and Control Officer. As usual, we will first walk you through the slides, and then we will be happy to take any questions you may have. Let me start with the main highlights of our third quarter results.

First, we had a very strong commercial activity in the quarter all across the board with significantly improved trends versus Q2, including best fixed broadband net adds in Spain since the third quarter of 2018, record fiber-to-the-home connections, the highest prepaid net adds in years in Brazil and a historic low churn in Germany. Among our four core markets, Spain showed better trends at both ARPU, revenue and OIBDA levels with a remarkable commercial traction despite the competition noise.

Germany outperformed its market once the quality network gap has been reduced. In the U.K., we are progressing with regulatory approval for being national connectivity champion, while in Brazil, where, again, we registered multiyear record commercial activity, free cash flow grew double-digit in euro terms despite the currency depreciation. Second, we advanced on technological leadership in infrastructure and digitalization. As such, 5G is already live in our four core markets, and fiber has continued to expand. Third, we accelerated the carve-out of high-growth tech vehicles.

Another remarkable highlight, our free cash flow during the quarter was outstanding at EUR1.6 billion, plus 13% year-on-year, and EUR0.30 per share. In the January to September period, it totaled EUR2.8 billion or EUR0.53 per share. Fifth, net debt continued to be reduced. Liquidity cushion has surpassed the EUR22 billion mark, while net debt maturities now stand at just EUR1.9 billion for the 2020-2022 period. Finally, we are proposing to the next AGM the cancellation of 1.5% of treasury shares. Moving to slide three. Let me explain the progress we continued to make across our five strategic pillars in Q3. First, looking at our four core markets.

In Spain, we launched 5G services with the aim of reaching 75% coverage nationwide by year-end. We also posted further recovery in commercial activity with controlled churn and margin expansion and continued to demonstrate our fiber leadership with 795,000 new premises passed in Q3 to reach 24.4 million. In Germany, we signed an early extension of our agreement with Deutsche Telekom, including fiber-to-the-home, and we launched 5G services in key cities. In the U.K., we are progressing in the in-market convergent consolidation.

Our O2/Virgin Media joint venture formally requested EU approval, and the GBP5.7 billion recapitalization process was completed. It is also worth highlighting the growth of the customer base in U.K. across all segments of the business. In Brazil, we progressed with the joint offer for Oi, being now the preferred bidder. Meanwhile, we launched 5G in July while maintaining our leadership in fiber-to-the-home, increasing the number of homes passed in Q3 by 1.5 million to 14.6 million.

Second, in Hispam, we filed for regulatory approval of the Costa Rica sale to LLA, and we continue to evaluate all available options for reducing our portfolio exposure in the region. Third, Telefonica Tech's three companies, cybersecurity, cloud and big data IoT, are now established, integrated and fully operational. Two acquisitions have been made to build out our capabilities in the cyber arena: Govertis, a consultancy; and iHackLabs, a professional training business.

Fourth, at Telefonica Infra, today, we have announced a JV with Allianz in Germany to develop fiber in underserved areas, while we expanded Telxius towers portfolio through the German deal. And fifth, we signed the MoU with Rakuten and OpenRAN, a next step in our journey toward a virtualized networks model. In addition, our new operational model continued to improve our agility, deliver benefits from digitalization and help us identify further efficiencies, with OIBDA minus capex margin in Q3 expanding 0.7 percentage points year-on-year in organic terms. Moving to results. Let me highlight that we are managing our business to mitigate COVID-19 impacts.

On this slide, we can see revenue reconciliation between reported and organic year-on-year variations. From January to September, reported revenues declined by 10.7%, which translates into a 3.7% organic drop after stripping out 5.9 percentage points of ForEx and one percentage point from changes in the consolidation perimeter and other effects. In our four core markets, the decline was limited to minus 2.5%. And the impact of COVID-19 was a drag of 3.9 percentage points year-on-year.

During the third quarter, reported revenues declined by 12.1%, which, after excluding 8.1 percentage points from ForEx and changes in the perimeter and other factors, led to a decrease of 4.3% organically, improving from the minus 5.6% posted in Q2. COVID-19 dragged 4.9 percentage points year-on-year. Moreover, the decline in our four core markets is limited to minus 3.9% year-on-year. Looking at slide five, we show OIBDA reconciliation. In the first nine months of 2020, reported OIBDA declined 15%. ForEx impacted in seven percentage points, while changes in the perimeter and others dragged 1.1 percentage points, as such, reducing the organic decline to 6.7%.

This decline is limited to 3.1% in our four core markets with a COVID-19 negative impact of 5.2 percentage points. In the third quarter, reported OIBDA decreased by 2.8%. Stripping out ForEx negative impact of 13 percentage points and adjusting 18.5 percentage points of other impacts, mainly restructuring costs booked in Q3 '19, capital gains and impairments, we posted an organic decline of 8.3%, improving from the minus 10% posted in Q2. It is worth highlighting that the COVID-19 impacted growth by 6.8 percentage points year-on-year.

And in our four core markets, the rate of decline in OIBDA was minus 3.3%. Moving to slide six. We showed a very strong cash flow generation, reflected in both OIBDA minus capex and free cash flow per share metrics. Our strong focus on profitability stands out with a EUR5.7 billion OIBDA minus capex generated in January to September 2020, significantly above the figure of the same period of 2019, including spectrum. OIBDA minus capex declined by 1.8% organically but grew by 3.4% year-on-year in organic terms in our four core markets.

Free cash flow per share increased to EUR0.30 in Q3, reaching EUR0.53 per share in the first nine months of the year, more than covering the EUR0.40 dividend to be paid in 2020. The result of all this is sequential growth in free cash flow to EUR1.6 billion in the quarter, plus 13.2% year-on-year, including mid- to high-teens growth in Brazil's free cash flow even in euro terms. Our financial update for the quarter on slide seven clearly shows the significant impact of COVID-19 and currency depreciation on the reported figures.

These impacts are detailed at the bottom of the slide, and we will explain them in more detail later on. OIBDA was also impacted by an impairment allocated to Argentina of EUR785 million and by restructuring costs in Q3 '19, including EUR1.7 billion in Spain. Revenues reached EUR10.5 billion in Q3 '20, and reported OIBDA decreased by 2.8%. Our continuing focus on cost and capex management enabled us to restrict the year-on-year decline in organic OIBDA minus capex to just 0.8% in Q3 at group level, while growing it significantly at 5.2% in our four core markets.

Net income reached EUR671 million and surpassed the EUR two billion for the nine months 2020 on an underlying basis, resulting in EPS of EUR $0.36 for the nine months on the same basis. Free cash flow expanded sequentially to EUR1.6 billion and grew 13.2% year-on-year in Q3 2020 with free cash flow per share at EUR0.30 in the quarter. Net financial debt declined a further EUR525 million in Q3 to EUR36.7 billion, down 4% versus September 2019. Moving to the next slide. Revenue performance improved sequentially year-on-year in Q3 by 1.4 percentage points, led by both service and handset revenues and by Hispam.

Across our four core markets, the decline was limited to 3.9% in Q3. This accounted for a negative contribution from the U.K., primarily as a result from roaming, handset release delays, together with increasing higher-margin direct distribution impacting revenue recognition. Despite these short-term U.K. impacts, I would like to remark the better trends seen in Brazil and Spain and the strength in Germany. We are continuing to transform our revenue mix, with revenues from broadband and services beyond connectivity increasing by five percentage points year-on-year to 68% of total service revenue in the quarter.

Meanwhile, Telefonica Tech Services delivered double-digit revenue growth year-on-year versus nine months 2019. On the next slide, we show also the improved trends in both OIBDA and OIBDA minus capex, optimizing our cash flow generation. As such, OIBDA improved quarter-on-quarter by 3.3 percentage points in Q3, led by Spain on the back of better content costs, Germany coming back to growth and improvements in the U.K. and Brazil. OIBDA minus capex posted a significantly improved trend, growing by 5.2% year-on-year in Q3 and 1.9% in Q2 driven by the performance in Germany, Brazil and the U.K.

This strong cash conversion is also shown in the OIBDA minus capex margin, which expanded organically by 2.1 percentage points year-on-year in Q3 driven by an outstanding performance from Brazil, followed by the U.K. and Germany and a flattish trend in Spain in the quarter. I would like to highlight, however, that Spain retains a benchmark OIBDA minus capex margin of 29.7%. Moving to slide 10. Our breakdown of the COVID-19 impacts by quarter and business line shows a clear improvement versus the second quarter. At the revenue level, this was due to better handset sales, supported by store reopenings across our different geographies.

B2C continued to be pressured by discounts, promotion and challenging trading conditions in postpaid, along with some delays in closing new business. In B2B, discounts or renegotiations, project delays and lower demand from SMEs combined to deliver the negative impact seen. The quarter suffered significant impact on roaming. However, despite these negative impacts, we continue to implement significant cost containment measures with lower commercial expenses and bad debt improving among other initiatives.

At the same time, the crisis has allowed us to improve customer engagement based on our network's reliability, with churn declining 0.3 and 0.1 percentage points year-on-year and quarter-on-quarter, respectively. We have also accelerated digitalization, with sales via digital channels increasing 36% year-on-year in our four core markets in Q3. On top of all of this, demand for cloud and cyber services has increased significantly. As a result, on slide 11, we confirm our 2020 dividend of EUR0.40 per share, with a first tranche of EUR0.20 to be paid in December through voluntary scrip dividend and the second tranche in June 2021.

Regarding treasury stock, the adoption of the corresponding corporate resolutions will be proposed to the AGM for the cancellation of the shares representing 1.5% of the share capital held as treasury stock. We maintain our 2020 outlook, confirming our guidance of slightly negative to flat year-on-year organic OIBDA minus capex as we continue to manage our cost base and operational flexibility without jeopardizing our investment priorities. Moreover, we will continue monitoring and adapting to COVID-19-related restrictions to mitigate their impacts on the business.

I will now hand over to Laura to take you with more detail through the group results.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Thank you, Angel, and good morning to everyone. Moving to slide 12. Telefonica Spain consolidated the recovery trend in net adds amid a very competitive environment in Q3 '20. Its superior, competitive and segmented offering continues to drive growth in number of accesses, recording the highest fixed broadband net adds since Q3 '18 and positive convergent net adds, with fiber net adds in the quarter exceeding 100,000, taking fiber penetration to 76% of the retail broadband base and 67% of the wholesale base.

Our highest-value TV convergent offering also performed well, posting positive net adds. However, total pay TV base fell due to the decline in lower-value TV accesses, including Movistar+ Lite OTT service, following a large temporary increase in the base in Q2 due to COVID-19-related confinement when we added 57,000 accesses. Our convergent customer base once again proved particularly resilient in the quarter. Quarterly churn reduced year-on-year to 1.5% despite the usual promotions in this period, while ARPU improved quarter-on-quarter despite a comparison-based softening due to the Q3 '19 price upgrade.

And excluding COVID-19 impact, it could even grow year-on-year. Telefonica Spain continued to be at the forefront of the sector in Spain. Our FTTH network reached 24.4 million premises passed with a 29% uptake. The 5G network was switched on in the quarter with the aim on achieving 75% coverage by year-end, and innovative services recently launched will further enhance differentiation. On slide 13.

While Telefonica Spain results continued to be impacted by COVID-19 in Q3, year-on-year financial performance show clear improvement versus Q2, with the year-on-year revenue decline improving 0.9 percentage points despite an unfavorable comparison generating by the July '19 convergent tariff increase and a reduction in roaming. OIBDA margin was close to 42% in Q3 as the year-on-year OIBDA trend improved by 4.1 percentage points sequentially driven by better revenue performance, lower content costs, lower roaming costs and personnel efficiencies.

With regard to content, it is worth highlighting that for the first time, the new cycle of football rights will now mean a year-on-year increase in net costs. It will be flat for the 2021 season and lower for the next season. The year-on-year decline in capex decelerated in line with increased commercial activity in the quarter, while our strong cash generation was reflected in a record-high OIBDA minus capex over revenue ratio of nearly 30%. Moving to slide 14. Telefonica Deutschland achieved solid financial results in the COVID-19 environment, with trading dynamics recovering to close to pre-pandemic levels and O2 churn reaching historical lows at 1%.

Revenue grew by 0.4% year-on-year, supported by the strong performance of the O2 free portfolio, while OIBDA returned to growth, increasing 0.7 year-on-year in Q3 supported by enhanced cost efficiency. capex decreased by 7.1% due to more back-end loaded deployment in 2020 and adapted phasing within the existing investment program. As such, OIBDA minus capex increased by 12.5% year-on-year in the quarter and by 4% in the first nine months.

It is worth highlighting the launch of the 5G network, which is now operational in 15 cities, targeting over 30% population coverage by the end of 2021 and around 50% coverage by the end of 2022. Moving to the U.K. on slide 15. We continue to be U.K.'s number one network, now with over 35 million mobile customers, our market-leading loyalty and NPS. Looking at the financial performance, revenue declined by 9.5% in the third quarter, primarily due to roaming, SMIP, the iPhone 12 launch delay, together with an increase in higher-margin direct distribution impacting revenue recognition.

OIBDA declined by 4.5% in Q3, with OIBDA minus capex growing by 3.7% year-on-year in the quarter, demonstrating opex discipline as well as capex flexibility and focus on growth areas. Let's now move to the performance of our Brazilian operations on slide 16. A strong commercial recovery was seen in Q3 in all growth segments once more restrictions were lifted. Vivo ended the quarter with record mobile market share driven by the highest prepaid net adds and lowest contract churn seen in years.

Contract net adds are back to pre-COVID-19 levels with a benchmark churn of 1.2%, down 0.7 percentage points year-on-year. Prepaid. Net adds reached the highest level of the last eight years, indicating a strong commercial recovery. In Fixed, the company continues to capture the huge fiber opportunity with a record level of FTTH connections in the quarter. Additionally, recent agreement with Phoenix and the option to create a neutral fiber vehicle will further strengthen our fiber reach. Free cash flow grew by 50% year-on-year in the first nine months '20 in local currency and by mid- to high teens in euro terms.

Looking at our financial performance, we delivered outstanding OIBDA minus capex growth of 22.2% with margin expansion of five percentage points in Q3 '20. This outstanding result was supported by our continued focus on driving opex efficiencies and optimizing capital allocation, to which 70% was dedicated to growth areas. Moving now to slide 17. Telefonica Infra continued to deliver a solid performance during Q3, demonstrating the robustness and resilience of its business model. Continued progress was made on the strategic front. And in Q3, Telxius executed the first tranche of its acquisition of sites from Telefonica Deutschland, adding approximately 6,000 sites to its portfolio, which is expected to reach 33,000 sites once the deal is completed.

On the operational front, the total number of sites increased 46.7% year-on-year, while tenants rose 38.5% year-on-year. It is worth highlighting the positive performance in the tower business, with both revenue and OIBDA growth accelerating to 20.2% and 18.1%, respectively, driven primarily by higher colocation revenues and acquisition. This positive performance saw Telefonica Infra's revenue grow 2.1% and OIBDA 0.3% in the quarter despite the negative impact from contract extensions in cable. The OIBDA minus capex over revenue ratio, excluding M&A capex from inorganic operations, stood at 51.2% for the first nine months of the year.

On slide 18, we can see that Telefonica Tech has continued to make significant progress. These tech companies are already up and running, with the first phase of transfer of cybersecurity, cloud and IoT big data assets completed. Telefonica Tech Services continued to exhibit sustained double-digit growth rates, with revenues up 15.4% year-on-year in the first nine months of 2020. Going forward, Telefonica Tech is expected to continue outperforming, underpinned by its critical role amid accelerating digitalization during the COVID-19 crisis and by the strengthening of its capabilities.

Bolstered by recent acquisitions, we are now able to combine our integration and consultancy capabilities with our managed service to provide customers with a complete end-to-end service. In cloud, our multi-cloud services for enterprises of all sizes were the key driver of 23% year-on-year growth in revenue in the first nine months of the year as we establish ourselves as stress-free partner for migration to the cloud. In cybersecurity, we are combining our in-house solutions and security operation centers with the very best partners to provide security as a service for all steps of the digital transformation.

With the acquisitions made during the period, we have added new consulting and training skills, further strengthening our offerings. And with Telefonica Tech Ventures, we aim to detect disruptive innovation, particularly in cybersecurity start-ups. In IoT and big data, we are developing Internet of Things for different sectors, where our unique value proposition transfer raw data into valuable actionable information and our new COVID-compliant use cases are helping businesses identify the requirements necessary for business recovery in the new environment.

Turning to Hispam on slide 19. We saw robust commercial activity in Q3, surpassing pre-COVID-19 levels as contract net adds almost doubled versus Q3 '19 and fiber-to-home connections maintain a clear upward trend. In terms of financials, revenues show a pronounced year-on-year improvement compared to the previous quarter, with revenues decreasing minus 6% year-on-year versus minus 11% in Q2. OIBDA was impacted by temporary duplicating network costs in Mexico, where more savings are expected from 2021 onwards as the benefits of the new operational model flow through.

Excluding this effect, year-on-year OIBDA trend would otherwise be stable versus the previous quarter despite very strong commercial activity and tough comps. And OIBDA minus capex improved 2% year-on-year in the quarter, again, reflecting increasing synergies and efficiencies at both opex and capex levels. Moving to slide 20. We review in detail how FX movements are impacting our results while, again, proving how currency headwinds are structurally neutralized at the free cash flow level through our effective hedging strategy.

Negative FX impact increased in Q3 '20, mainly due to the depreciation of the Brazilian real versus the euro. It acted as an 8.1 percentage point drag on revenue year-on-year and reduced OIBDA by 13 percentage points. For the first nine months, the negative contribution was lower at 5.9 and seven percentage points, respectively. Nevertheless, the negative effect of EUR808 million to OIBDA level translated into just a EUR300 million impact at free cash flow levels. And in terms of net debt, this had a positive impact of EUR1.2 billion for the first nine months or EUR2.1 billion on the net debt plus leases space.

As shown on slide 21, our net debt reduced to EUR36.7 billion at the end of September 2020. In the last nine months, we have reduced net debt by EUR1.1 billion, mainly due to resilient free cash flow generation that reached EUR2.8 billion for the period. This performance comfortably exceeds dividends, hybrid coupons and commitments while helping to bring down net debt. We remain focused on net debt reduction as demonstrated by our decision to offer a voluntary scrip dividend payment, which reduced our cash outflows by more than EUR600 million in the first tranche paid in July.

Slide 22 presents Telefonica ample and diversified financing activity totaling EUR16.7 billion year-to-date. Of this, EUR6.3 billion relates to the Virgin Media/O2 U.K. financing we successfully closed at the beginning of September. At the group level, Telefonica's financing activity amounts to EUR10.4 billion and contributes to both an extension of our average debt life as close to 11 years and a robust liquidity position of more than EUR22 billion.

This position accepts debt maturities beyond 2022. In addition, including U.K. cash-in related with O2/Virgin Media deal, net debt maturities will be EUR1.9 billion from now to 2022. Telefonica's financing activity has been executed at historical low interest rate and has allowed us to lower our interest payment effective costs to 3.15% as of September 2020.

I will now hand back to Angel to close.

Angel Vila Boix -- Chief Operating Officer

Thank you, Laura. Slide number 23 shows the growing importance of ESG in the post-COVID-19 era and our full commitment. Digitalization is one of the most important pillars to tackle climate change. It will enable other sectors to reduce their carbon emissions. But we have to advance digitalization with the most efficient networks in terms of energy and emissions. We announced, therefore, a new objective to increase the ambition because climate crisis is urgent.

We will become net zero by 2025, reducing our emissions and compensating the remaining ones. We will become more and more relevant for our customers in this topic. For example, Telefonica's B2B customers in Spain avoided GHG emissions through our digital services and avoided 2.2 million tons of CO2 during the first three months of the pandemic. Telefonica has been recognized for the success of its initiatives in this area. We have been awarded the Sustainable Procurement Award at the Amazon Business Exchange for promoting sustainability in our supply chain.

And we are one of the top 25 most diverse and inclusive companies in the world, according to Refinitiv, which ranks over 450 environmental, social and governance metrics for more than 9,000 listed companies. Finally, our sustainability strategy is reinforced by our inclusion in the FTSE4Good sustainability index with an improved score of 4.3, exceeding the sector average, and by our entry into Moody's Euronext Vigeo-Eiris Europe 120.

All in all, our role is becoming more and more important for the societies where we operate. We are a key component of the solution for the recovery of the economy and the digital transformation of the society. To recap, we are continuing to act decisively and execute rapidly to deliver our sustainable long-term business strategy. First, we are providing ongoing support to all stakeholders to contribute to economic recovery.

Second, we have proven our business' resilience in the face of COVID-19, FX and GDP headwinds, delivering improved financial and operational trends and maintaining investment in strategic growth areas. Third, we are delivering progress on our strategic priorities across all fronts. Fourth, we are taking a proactive approach to balance sheet management with a continued contribution to net debt reduction. And finally, we are reiterating our full year guidance and dividend for 2020.

Thank you very much for listening. We are now ready to take your questions.

Questions and Answers:

Operator

[Operator Instructions] We can now take our first question from Georgios Ierodiaconou from Citi. Please go ahead.

Georgios Ierodiaconou -- Citi -- Analyst

Yes. Good morning and thank you for taking my questions. I have a couple. The first one is around the agreement you announced with Allianz today. I'll be curious to understand some of the motivations behind your engaging in this agreement, and also whether there are other similar options you may be looking either in Germany or other markets. I know you have some of these types of agreements in Brazil, but whether you plan to expand them beyond these two markets.

And the second question, kind of leading to that, so far, your agreements seem to be more oriented toward rolling out new infrastructure. I was curious whether looking at your fixed line infrastructure in Spain, in Brazil, and in some of the other markets, whether you see an opportunity perhaps to monetize some of the existing Fiber that you own. Thank you.

Angel Vila Boix -- Chief Operating Officer

Thank you, Georgios, for your question. This morning, we have announced a 50-50 joint venture with Allianz in Germany. We believe that there is a massive opportunity for Fiber-to-the-Home in that market because the penetration is low. There are programs to grow on Fiber through different players, but there is a big opportunity. We are doing this with a pure wholesale approach. It would be a neutral vehicle open to all the players in the market. It has been structured in such a way that it will not be consolidated by either Allianz or ourselves. It's ring-fenced, both from accounting and from a rating point of view.

We are approaching this as a complementary access to fixed broadband to the different vehicles or agreements that Telefonica Deutschland has. We have extended the agreement with Deutsche Telekom, accessing also Fiber-to-the-home. We have an exclusive agreement with Vodafone to access their cable. We have an agreement with Tele Columbus, and now Telefonica Deutschland is going to be anchor client, shareholder, and also supplier of some services to this new FiberCo.

Clearly, our objective is to be complementary to other Fiber vehicles in Germany to avoid overbuild in the country to maximize the take, and we're aiming to have a project with a very substantial IRR. And we saw last year the valuation at which Deutsche Glasfaser was valued in that market. We are looking at similar, although a little bit different projects, in other markets, in Brazil and in Chile. In Brazil, we are quite progressed.

We are in Phase Two, round two of offers. For a FiberCo, which, unlike Germany, which is pure greenfield, in Brazil, we have a brownfield component plus a greenfield build-out to reach -- in Germany, it's going to be slightly over two million Fiber homes passed. In Brazil, we're aiming for above five million, including the initial contribution of brownfield plus the build-out of greenfield. That second project is progressing nicely. We have interested parties in the second round, as I said. And in Chile, we're also in the process of bringing, potentially, investors into the Fiber vehicle. Regarding the Fiber that we have in Spain, it's a different situation.

In Spain, we don't have the under-penetration that you have in other markets. It's a very well-penetrated market in Fiber, actually the leader in Europe. There are very active commercial agreements in place to wholesale that Fiber. It's regulated, but also there are commercial agreements with all the players in the market for access to that. Clearly, it's a very valuable and very well-developed FiberCo or Fiber presence in the country. It gives us lots of optionality, but it's a different situation from markets where the Fiber is not as developed than Spain.

Georgios Ierodiaconou -- Citi -- Analyst

Thank you.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Georgios. Next question, please.

Operator

We can now take our next question, Jakob Bluestone from Credit Suisse.

Jakob Bluestone -- Credit Suisse -- Analyst

Hi. Good morning. Thanks for taking my questions. I've got two slightly number-sy questions. Firstly, your working capital was minus EUR764 million in the first nine months compared to positive EUR482 million in the first nine months last year, so kind of a swing of about EUR one billion. Can you maybe just help us understand why working capital is such a big drag? And I don't know if you can give any guidance either for the year or sort of how you see that evolving?

So that's the first question. The second question is on your net debt. If I look in the release on page 14, you disclosed that your net debt includes a positive value of a derivatives portfolio, with a net value of about EUR2.2 billion. Last quarter, that was about EUR four billion. And so can you help us understand why did the derivatives portfolio fall in value by about EUR two billion? And am I correct that your net debt would have been EUR two billion lower if that hadn't happened? So maybe if you can just help us understand what's going on with this derivatives portfolio. Thank you.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

So thank you, Jakob, for the questions. The working capital, not only for this Q, also for the full 2020 versus 2019, is going to be very much affected by the deferred payments of the German spectrum acquired in 2019. If you recall, we accounted everything in capex. However, the payment itself is going to be deferring more than 10 years. So that's affecting the whole working capital comparison this year. If you go -- if you exclude that, it's actually lower consumption. In Q3 '20 versus Q3 '19, it's pretty much stable, slightly lower.

And if you look at the nine months, there's lower consumption. So we keep working capital very well with capex phasing. I mean, they are restructuring, playing negative because we accounted for it in '19, and we are paying it now. But on the other side, some of the one-offs that were executed Q4 last year are being cash now. And then you have all the timing of the multiyear contracts, mainly wholesale contracts. And AT&T in Mexico is working negatively, but it's very, very much affected by the German spectrum. And if you exclude that, it's similar Q3 and a little bit more favorable for the first nine months of the year.

So nothing different on that front once you take the spectrum of Germany out. On the net debt, we did do some changes in the way we're accounting for them to form the mark-to-market of derivatives last year. And we disclosed that in detail, and the Investor Relations can explain you. But what we did precisely is that this will not impact our net debt evolution. Much of these mark-to-market changes have to do with the debt we have in dollar because we have derivatives to move from variable to fixed.

And then we also have derivatives to hedge for the U.S. dollar and euro. So you have very, very large movements. They are just -- I mean they are not -- they do not have a cash impact. And at the end of the derivatives, it will become neutral, and we actually excluded it from the net debt to avoid all that volatility. So -- but we can give you more detail on that. But your net debt evolution year-on-year has nothing to do with this.

Jakob Bluestone -- Credit Suisse -- Analyst

Thank you. That's very helpful.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Jakob. Next question, please.

Operator

Next question comes from Joshua Mills from Exane. Please go ahead.

Joshua Mills -- Exane -- Analyst

Hi, there. Thank you for the questions. Two from my side. The first, on Spain, specifically the EBITDA. So you refer in the press release to lower content costs, which I think may be related to some rebates from your content spend earlier in the year. Could you quantify how much lower the content costs were in Q3? And then also let us know if that's going to continue into Q4, just so that we can think about modeling that out. It would be very helpful.

And then the second question, on the Fiber-to-the-Home business in Germany. What kind of take-up rates or network utilization do you anticipate in the two million homes you'll be rolling out to? And have you already started to have active discussions with other wholesale operators in the market outside of Telefonica situations?

Angel Vila Boix -- Chief Operating Officer

Thank you for the questions. As you saw and we had anticipated to the market that the OIBDA margin of our Spanish operation has reached 41.8% is higher than it was in the first half of the year. And we expect, as well, the EBITDA margin of the second half of the year to continue to be higher than the one of the first half. This is the result of an opex year-on-year decrease despite reactivation of commercial costs, thanks to efficiency measures and thanks to better evolution of the TV content.

So personnel cost was down high single-digit in the year, same savings from the personnel reduction program as in Q2. The supply cost was down low single-digit on lower content costs. Our commercial costs were stable on back to normalized activity. Content costs have reached -- or will reach stability year-on-year in Q4, while all the contents are comparable year-on-year. We have full Liga and European competitions with deflation starting from next season. So you will see stability in content costs and deflation from next year.

It is true that in this quarter, we ended up having -- or in the first half of the year, we ended up having fewer content that we originally had contracted for. This applies to some of the sports right we exploit. The figures are not public, but yes, we can confirm that some savings were generated over the third quarter based on this lower content that we had over the year. So going forward -- and in the specific regarding sports content, stability for the rest of the current sports season declined from the current next season when the new Champions League cycle, which we achieved with a 15% deflation, will kick in into our figures.

Regarding the FiberCo in Germany, we are aiming -- and there will be a period of build-out to reach this in excess of two million homes. We are aiming to be very complementary to the deployments of other players in the market. So we are addressing underserved, non-urban, but affluent regions in Germany. As such, I cannot disclose the targets that we have of take-up, but I can tell you that we are aiming for those targets to be quite positive in this -- in our projections.

Joshua Mills -- Exane -- Analyst

Thank you. So just to clarify, so there will be no further content savings in Q4. They've all been booked in Q3 in Spain.

Angel Vila Boix -- Chief Operating Officer

We have had content savings in Q3. Depending on the evolution of the situations -- for instance, in the spring, we had, with the lockdown, a close-down of many of the social venues that were displaying sports content to their patrons. Many of those are back. A huge percentage of those are back because we have had soccer season all over the summer. The new wave, good results potentially in some of those social venues, having some restriction on those. And then we could have adjustments also in the costs to deliver to those as well. So the situation is fluid.

We have booked savings in the Q3. Depending on how the situation evolves, we may see -- and the evolution of the different sports going forward, we may see those in the future. Those are not factored at this moment in our outlook for the rest of the year in Spain, which, again, we are looking forward to having a higher OIBDA margin in the second half than in the first half. If those additional content savings were to be produced, they would be incremental to this outlook.

Joshua Mills -- Exane -- Analyst

Thank you.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Josh. Next question, please.

Operator

Next question comes from Keval Khiroya from Deutsche Bank. Please go ahead.

Keval Khiroya -- Deutsche Bank -- Analyst

Thank you. I've got two questions, please, one on capex and one on the other companies line. So first, on capex, you've obviously made impressive reduction in capex this year helping you at the free cash flow level. As we look in the coming quarters and next year, so you're going to start to push more into 5G as well, how should we think about how the capital intensity should evolve at the group level?

And secondly, just within the other companies and eliminations line on EBITDA, obviously, it's a bit more difficult for us to have a clear view on where that should be. Could you help us get an idea of how we should think about how large that negative number should be going forward? Thank you.

Angel Vila Boix -- Chief Operating Officer

Thank you, Keval. On capex, we had the 2020 capex embedded in our guidance, which envisage capex growth in certain markets. Given the situation created by COVID-19, we are offsetting some of the impact via lower -- clearly, via opex efficiencies, but also via lower capex to preserve operating cash flow and aim for the guidance that we have stated for -- or the outlook for the year of slightly negative to flat operating cash flow margin. capex spend and pressure has been reduced. Some rollouts were impacted by lockdowns. Some related to provision in portability, temporary in some markets. Some deployment speed have been delayed.

And clearly, there was delay on spectrum auctions. That also had some coverage and maintenance work that was postponed. We are actively managing the capex to adjust to the new economic context and perspective. We are reprioritizing our most profitable investments and considering the competitive situation in every market. But all of these without impacting the network's quality and reliability, without jeopardizing our key investment priorities, and fully meeting the network coverage obligations.

And for instance, we have launched 5G already in our five -- in our four core markets, and we are achieving record Fiber-to-the-Home deployments and connections all over the footprint. It's early to quantify the details. Some capex, maybe, will have been delayed to 2021. But clearly, some other capex efficiencies are going to be permanent and are not going to imply catch-up in 2021.

For the rest of 2020, what I can confirm is that we fully stand by the outlook that we have given to the market on operating cash flow evolution. And this should not imply any capex shoot-up on the period. And for next year, we will give the guidance when we present the full year results. But again, many of the capex efficiencies due to reprioritization, also reducing the investment in legacies, and so on are here to stay. Those would not be spilling over to next years.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

On the other hand eliminations, I understand it's difficult to follow because you have to take into account here, we include headquarters, we include the small subsidiaries, some of them being affected also for COVID. For instance, in the small subsidiaries, we have a purchasing unit. As -- and as we are reducing opex and capex, the result of this unit has also got reduced. But going forward, you saw that in Q2, it was around EUR165 million and in Q3 has increased about EUR30 million to EUR200 million. That EUR30 million can be explained by our donation to Fundacion. As you know, we accrue for an extraordinary donation some years ago.

That has lasted longer than expected because they have also prioritized many of the projects. That has no impact on free cash flow because the free cash flow is going through in any way. Going forward, and I think some of the small subsidiaries that are part of this will improve also with COVID. I think around EUR200 million could be a right amount for Q4. You also have to take into account here, I'm not including capital gains that could help or either restructuring that could worsen.

But if I try to go to the underlying other hand elimination, I think the figure you've seen for Q3 could be a right extrapolation for Q4. Yes. Sorry, because as it's part of the others, it's hard to see. But I can assure you that on the headquarters line, there's been a lot of efficiency also, not only aligned to COVID, also it was part of our operating model, strategic decision on Q4 last year. So we are simplifying the organization and operating model, and that's dealing with significant savings.

Keval Khiroya -- Deutsche Bank -- Analyst

Thank you.

Angel Vila Boix -- Chief Operating Officer

Thank you, Keval. Next question please.

Operator

Next question comes from Mathieu Robilliard from Barclays. Please go ahead.

Mathieu Robilliard -- Barclays -- Analyst

Yes. Good morning and thank you. First, I had a question on Spain. So obviously, because of COVID, we're seeing some difficult trends. But on the convergent product, basically, what we're seeing is an ARPU decline, which I suspect is also part of a downspin in the market. And so my question really is, how do you manage this going forward? Do you think volume growth can offset the structural ARPU erosion? Or do you think that despite the tough macro and competitive environment, there is scope for more initiatives in the future so that you can stabilize the ARPU and at some point, your top line in Spain?

And then the second question had to do with the leverage and the debt rating. So recently, a feature positively maintained the debt rating and the stable outlook. But I do note that one assumption, among others, is that the euro to Brazil rate stays at 6.3. It's already at 6.8. So obviously, that's one assumption that is not going in the right direction. And so I was wondering, what are the levers you think you can work on to offset that? And specifically, do you have any progress in terms of what you can do with the Latin America or the Hispano-American business? Thank you.

Angel Vila Boix -- Chief Operating Officer

Thank you, Mathieu, for your questions. I'll take the first one on the Spanish convergent ARPU. The ARPU of our convergent products was down, yes, year-on-year, but it was up 1% quarter-on-quarter sequentially. Here, you have different moving pieces. When you look at the year-on-year drivers, it's very significant, the impact of the price increase that took place in the third quarter of 2019, which was not the case in this third quarter of 2020. Also, we have COVID-19 effects.

And we have lower extra consumption out of the bundle given that we have moved to more allowances in mobile, for instance, and we have the dilutive effect from multi-brand options, meaning the increased -- the penetration of our O2 proposition. At the same time, we have upselling, we have new digital services with quite strong traction and we have lower year-on-year promotion weight. So, yes, declined versus last year with two significant effects from the price increase comparison from one year ago, and the COVID impact being the most important.

But quarter-on-quarter, it's improving, as we said in the previous call. It's improving because of economic reactivation. It's improving because of the return of the football, and the social venues reopening, and despite these tougher comps. In addition to growing quarter-on-quarter, what we have also is a churn, which is 0.1% lower than one year ago. And we expect ARPU -- convergent ARPU in the second half of the year to be higher than in the first half of the year.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Sorry.

Angel Vila Boix -- Chief Operating Officer

Please go ahead.

Mathieu Robilliard -- Barclays -- Analyst

Sorry, if I can just follow up. So you think that this kind of the spin-down, I think we're seeing a little bit, and you alluded to that with your multi-branding strategy, can be offset over the next quarters, right?

Angel Vila Boix -- Chief Operating Officer

We are expecting the ARPU of the second half of the year to be higher than the one of the first half of the year. That's how I would synthesize all the moving pieces in -- so that you can build it into your models. Thank you.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Thank you, Mathieu, for your question. It was actually more than one question because you asked about the rating, inorganic options, and also progress on HispAm. So I will try to answer all of them. You are right. Fitch has maintained a stable outlook. It is true that they mentioned that there's a risk associated to FX and translation impact, but they also affirmed the willingness and capacity of Telefonica to protect cash flow generation through disposals and also the organic free cash flow generation. On the inorganic, we are actively managing our asset portfolio.

I think we are being bolder, and we are executing faster, because we need to remove uncertainty on our deleverage path. We have the balance sheet in excess of EUR100 billion. It's full of high-quality assets. We have infrastructure assets more than other companies in the sector. So we believe we have huge capacity to generate value with our asset base. In this regard, as you know, we have executed already, and we have transactions that are under approval processes. It's the U.K. merger. It's the sale of Costa Rica. It's also the sale of the German towers to Telxius that part of that benefit will go through already in Q4 this year.

Telefonica Tech also offers optionality and, obviously, Telefonica Hispano. And with regards to Telefonica HispAm, our strategy has organic and inorganic angles. In the organic front, we need to boost efficiency and we need to focus much more these units with a dedicated team we have in place to generate free cash flow and reduce the exposure to the region. In that part, in the inorganic option, the -- we keep on working in parallel, in getting ourselves prepared for the spin-off. And in that regard, we have done lots of work. We have done the operational carve-out. We have also done the corporate carve-out, which is almost completed.

We are preparing the documentation, working on the capital structure of the company, and we are closely monitoring market conditions and progressing in all work streams so when the window comes to be fully prepared. But we are also exploring and working in different M&A alternatives. Having said that and has been more active than ever in the inorganic front, let me tell you that on the organic front, I think our free cash flow has proved to be very, very, very robust. Free cash flow is part of our DNN, and it's an absolute priority for us and even more this year.

We have demonstrated during the pandemia that we have levers that we will continue to pull to minimize the revenue impact all the way to free cash flow, through efficiencies and capex prioritization. This also applies to FX. As you also saw, and you mentioned the real, and it's not good news, but you have also shown how the over EUR two billion FX impact in revenue has got reduced to free cash flow to EUR300 million, even with this huge real depreciation. And we still think we are going to deliver very, very robust free cash flow in this complex year in the remainder of 2020.

Mathieu Robilliard -- Barclays -- Analyst

Thank you very much.

Angel Vila Boix -- Chief Operating Officer

Let me, Mathieu, give you a couple of figures to give you comfort on what I said before. We have had record fixed broadband net adds, highest for the last two years. This is in part due to the second residences. But these have come in this quarter with the new football season, with the reopening of the social venues, which has meant that we have had convergent gross adds significantly higher than in Q3 '19.

The football gross adds in the quarter growing double-digit, and the mix of the gross hedging convergence with the best value mix in the last four quarters. 76% of the gross adds were in the mid- and the high end of the Fusion packages. Just for you to have some color or some evidence of what is behind my statement before that we expect ARPU in the second half higher than the first.

Mathieu Robilliard -- Barclays -- Analyst

That's very helpful. Thank you very much.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Mathieu. Next question, please.

Operator

Next question comes from Akhil Dattani from JP Morgan.

Akhil Dattani -- JP Morgan -- Analyst

Hello?

Operator

Please unm

Akhil Dattani -- JP Morgan -- Analyst

I've just got one question, please, with two parts to it, just around the balance sheet and capital structure. I think as you've outlined to the call, you've done a very good job of managing down debt and protecting cash flow from the currency impacts you've had. But I guess it's more of a conceptual question about the bigger picture on how you think about balance sheet. I guess what we've seen this year is investors as a whole are feeling increasingly uncomfortable with high levels of leverage.

And I think in many ways, a lot of the debates now shifted to looking at net debt as a proportion of your EV, which obviously has gone up a lot given how much asset has gone down. So how do you think about that metric? How do you think about the comfort you have internally with the balance sheet and how you're managing that going forward?

And secondly is just a very quick clarification point. I mean you've made very clearly the point this year that you've used the scrip to address the dividend and give you flexibility. Any comments you can give around how you think about the dividend and scrips going forward?

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Okay. Thank you, Akhil, for the question. I'm not sure you were referring to net debt over EBIT. Is that what you said?

Akhil Dattani -- JP Morgan -- Analyst

No. Sorry, Laura. Sorry, I wasn't clear. It is net debt as a proportion of your enterprise value. So essentially, today, you're down -- the equity is about 20% of the EV. Yes?

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Yes. Yes. Understood. Understood. Thank you, Akhil. Yes, you're absolutely right. As our share price is not performing at the level we would like to and actually is quite below the sum of the parts and most of the analyst recommendation, the proportion of net debt is increasing their share, and we are following on that. What I can tell you on that front is that we have an absolutely commitment to keep on reducing leverage, and we have an absolute commitment to remain with a solid investment grade. And in order to deliver that, we have to generate free cash flow, and we have to execute inorganic moves. There's no other solution.

On the free cash flow, you saw and I know, but for us, it's the most sustainable way to reduce net debt. And with a very strong free cash flow, also the share price should go up. So part of that unbalance we have now between the net debt and equity should be resolved. You know we do not include free cash flow as part of our official guidance, so please take this comment more as a forecast.

But we are just two months ahead of closing, and unless there's something unexpected that I cannot think of at present on top of the pandemia uncertainty, of course, I definitely think our free cash flow should be above EUR four billion, and that's well above the current market consensus. So with this message, I can tell you that there's a lot of management focus on delivering free cash flow as a sustainable way for our share price appreciation and also for deleverage. And in the inorganic, I told Mathieu, everything we've done last year, everything we have done already in the first nine months and more is definitely going to come.

I also tell you that the inorganic moves also include investment because as part of the strategy, we need to reinforce our core OBs. So the bid we did for Oi and also the news we launched today on the fiberco go on that direction. You can also be that we are doing this with partners. So we take care of the capital as we want to increase and improve return on capital employed. On the dividend and scrip, you know our shareholder approved the dividend being an scrip in order to give flexibility and in order to show prudency, which I think is well needed in these times.

We are aware that the scrip dividend for those that take the cash has a dilutive effect, and that's why we took the action of minimizing part of -- or partially compensate part of that dilution for the June '20 scrip, and that's why we are proposing amortizing part of the current -- or 1.5% for treasury stock. But we still think an extra level of prudency is needed, and also this frame within our commitment of the solid investment grade. It's soon to talk about future dividend, but let me stress the factors to take into consideration.

First, the strong free cash flow generation with the forecast I gave you, that comfortably covers the dividend and the reduction of net debt organically and all other commitments. The active portfolio management, I mentioned the high-quality assets above EUR100 billion, and also that we have done the homework. So the net debt figure may be high, but it's been very well managed. We have a maturity of debt which is now 11 years. We have refinanced over almost EUR70 billion.

We have a liquidity cushion of EUR22 billion, and that's without considering the U.K. proceeds. So I think despite a complicated year, we have proved that free cash flow is not affected even with a double dip impact from COVID and FX that has been tremendous in our portfolio. Our business, therefore, it's a robust cash generation. We own a sizable base of top-quality assets, and we have a healthy financial and liquidity position. So we will keep taking down debt. We will improve the ratio you referred to, and we will crystallize value for the benefit of our shareholders.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Akhil. Next question, please.

Operator

Next question comes from Mandeep Singh from Redburn.

Mandeep Singh -- Redburn -- Analyst

It's Mandeep at Redburn. It's a relatively simple question, hopefully, but it's already been asked before. I'm really just looking at the sort of medium-term outlook for your consumer business in Spain. I'm not asking you for a specific forecast. But just conceptually, your ARPU levels are very high, among the highest, if not the highest, by some margin in the market. And to every external observer, Spanish pricing is under severe pressure in the market. So the simple question really is how can you grow or stabilize your consumer business in Spain?

Angel Vila Boix -- Chief Operating Officer

Thank you, Mandeep. I think that this question is being asked continuously in every call. And we continue producing every quarter results that prove that we can be able to maintain the performance of our Spanish business. Here, what we have is differential assets in the sense of the best network available in the country. We also have best products and services, including exclusive content and positioning with respect to customers that are in the upper segments of the business, which are valuing what we're giving them in terms of connectivity, functionalities, content and so on.

In addition, our ARPU is made of more services per customer than the ARPU of some of our competitors. And we continue adding new services to appeal to our customers. For instance, our home security solutions in the joint venture with Prosegur are getting spectacular traction. We are selling four times what Prosegur stand-alone was selling one year ago. So for instance, we have just launched e-health services that are becoming extremely relevant in these times.

So yes, we have ARPU premium with respect to our competitors. At the same time, we are offering -- we're including in that ARPU more services than what you have in the ARPU of our competitors' services, which are providing not only that ARPU, but which are providing stickiness of the customers with us. And therefore, we are maintaining or having the possibility to increase ARPU quarter-on-quarter while reducing churn at the same time. We understand that we need to keep improving this every quarter, and you can be absolutely sure that we're going to continue working to improve it every quarter.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Mandeep. Next question, please.

Operator

Next question comes from Giovanni Montalti from UBS Investment Bank.

Giovanni Montalti -- UBS Investment Bank -- Analyst

Just wondering if you can share with us some color about the next auction for La Liga rights. Is there anything planned for next year? Is there any thoughts you can share with us, I mean, assuming there is anything planned for next year?

Angel Vila Boix -- Chief Operating Officer

Well, I think it's early days to think about La Liga. What you saw in the previous cycle, we achieved deflation in La Liga. Admittedly, it was slight deflation, but we achieved deflation. Most recently, in the Champions League, a new contract, we have achieved 15% savings versus the previous cycle, and we have stabilized the price of each one of the years of the cycle without having the intra-cycle inflation.

We have negotiated also, for instance, other sport rights like Formula One, renewed for three seasons with more than 25% deflation versus the current cycle. So the trend is here. We have reversed a trend of many years of inflation. And now we can prove then in three of the main sports content rights that we are enjoying, we have achieved deflation in all 3. And...

Giovanni Montalti -- UBS Investment Bank -- Analyst

Sorry. If I may follow up.

Angel Vila Boix -- Chief Operating Officer

Please, please go ahead.

Giovanni Montalti -- UBS Investment Bank -- Analyst

Is there any visibility on the potential timing of the auction as far as you're aware?

Angel Vila Boix -- Chief Operating Officer

No, we don't have visibility on that timing.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Giovanni. Next question, please.

Operator

Next question comes from Luigi Minerva from HSBC.

Luigi Minerva -- HSBC -- Analyst

It's Luigi Minerva from HSBC. I have two questions. One is a follow-up on the dividend. And I was wondering whether, given where the share price is, the Board would consider a share buyback program as perhaps a better way to send a signal of confidence in the outlook of the business. And my second question is on Telxius. I mean you continue to -- yet to transfer assets, but it seems to me that until Telxius is consolidated within the group, you cannot properly develop it as Europe will probably do. So is control of Telxius something that you would consider changing?

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Thank you, Luigi. On the first question, you are actually implying shareholder remuneration. And as I said, we have our shareholder remuneration for 2020. We don't have a multiyear policy, so we will comment on this at due time. But let me tell you that although we have increased our treasury stock up to 154% that we communicated at the end of September from a previous point, 53% at July 14, these shares, it's been more tactical, and we do not have any program in place at the moment.

In addition, we bought these shares after the massive rating year today, and we have used this to mitigate part of the dilution from the scrip dividend. We will analyze potential share buybacks programs once we feel comfortable with the reduction in leverage. And under current circumstances of volatility and uncertainty, in general, not in Telefonica, we believe we need to provide with an extra level of prudency.

Angel Vila Boix -- Chief Operating Officer

Regarding Telxius, we believe that this is a very valuable asset in the sum of the parts of Telefonica. As you can see on slide 17, the company is performing very nicely with substantial growth and very high margin. Different development in the two businesses. In the towers, as you can see on the bottom right of slide 17, growing organically at 20% in revenues in the third quarter, 18% in OIBDA. With the German tower deal, we are now at close to 27,000 towers from the 16,000, which -- with which Telxius started three years ago when we closed the second tranche of the German deal, 33,000 towers, a very substantial and valuable tower company, which gives us optionality.

It has been clearly growing, doubling its size since the company was created. And we think that in order to facilitate the development and the growth of the company, we could be optioned -- could be open to contemplate options. At the same time, when one looks at the evolution of the consolidated of Telxius, the behavior of the submarine cable business has been different. And let me explain why you see the change in trend in this quarter. The service contracts between the submarine cable division of Telxius and Telefonica's operating businesses were expiring in 2020 and 2021.

What we have done is renegotiate those early in exchange for an extended period of five years. The trade-off for this extension has been to reduce the fixed prices. And that's why you see the submarine cable reducing its performance compared to previous quarters. In reciprocity, this reduction in the fixed prices of the submarine cable will improve the operating businesses' margins.

From Telxius point of view, this reduction in prices is impacting the short-term revenues, but the extension of the contract gives full visibility and growth ahead for the Telxius submarine cable for mid- and long term. And this visibility in long term will allow Telxius to contemplate all possible strategic alternatives for these subsea cable units.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Thank you, Luigi. We have time for one -- just for one final question, please.

Operator

Our last question comes from David Wright from Bank of America.

David Wright -- Bank of America -- Analyst

Just on Spain, just on the fight around O2, we've got -- our analysis suggests it's tracking about 20% to 25% of gross adds. So I just wondered whether you could give us any kind of indication of whether that's a reasonable ballpark just when we're forecasting ARPU, please. And then, second of all, just Laura, clearly, some more progress on the Hispam potential demerger. I wondered if you could give us some more indication on what leverage range you could indicate, you could put on that vehicle.

From my perspective, it seems hard to imagine it could carry the net debt to EBITDA that Telefonica Group has. So could the spin-off actually be a deleveraging event for Telefonica Group? And also, you've written down Argentina substantially today. So obviously, you're happy with the current book values of those LATAM assets. Do you actually have a book value for Telefonica Hispam post the Argentina writedown, please?

Angel Vila Boix -- Chief Operating Officer

Thank you, David. On O2, it's having a good commercial traction and is helping us or is making us be relevant in a segment of market which is not covered by our Fusion convergent offers. So we had 76,000 convergent net adds. And the customer base is three times year-on-year. It has lower levels of churn at 1%, an ARPU which is stable at EUR49 and is leading in Net Promoter Score.

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

David, on your Hispam question on potential spin-off, we are actually working on the potential capital structure, as you may imagine. But I'd rather not to disclose that as it's not an insulated and independent entity. We have to position the region as some of sizable and diversified number of countries and operations, some of them with very large scale in the countries they operate, and that should support its credit profile. The leverage ratio of competitors, as you know as well as me, is between two times to four times. So there's plenty of -- it's a pretty wide range.

You are right. It cannot be -- it could be leverage-neutral, depends on the ratio. But the main target of the spin-off is to derisk the balance sheet, lower the equity exposure, changing the FX mix and simplified the equity story. So we will give you more color as we progress on this, no doubt. And obviously, to have it as leverage-friendly as possible. It's also a very nice to have, but it's not the ultimate goal as it's more the derisking and simplify -- simple equity story. On the book value, my understanding is that we give detail on book value at the annual accounts.

So you will see that, and you can see how it was for the different Hispam assets. So we will have this in the next accounts with more detail on the main obvious that confirm the Telefonica Group perimeter. And therefore, you can find that the Hispam book value of the assets. Not sure if you want me to comment anything on the Argentinian impairment, but I would like to emphasize that it has lots to do with the macro environment. Argentina is suffering a very severe confinement and also the legacy of some unbalances. As a result, inflation expectations continue to rise, and that has implications on our discount rates.

And that, together with the FX, explains about 75% even more of the impairment. The remaining has to do with the decrease, not allowing increase in tariffs in many of our services. I can tell you, the operation is working on a plan to reverse commercial trends and change the operating model so as to reduce opex and prioritize capex to protect free cash flow. Argentina is also very advanced in digitalization, not only in their operations but also in the interaction with the customers. And that allows for opex to start growing, hopefully, before inflation.

I don't want to minimize the impact of this, no doubt, but it's noncash. As you know, there hasn't been a correction in the value of Argentina in the past. And you also have to take into account Argentina revenue accounts for less than 4%, OIBDA, operating cash flow, free cash flow less than 3%. We have taken Argentina out of our organic growth. So from this point, unless the macro continues reversing what is in our hands, what is under management, I think you have to look at these specific assets as optionality going forward.

Angel Vila Boix -- Chief Operating Officer

Thank you very much for your participation, and we certainly expect to have provided some useful insights for you. If you still have questions, please contact our Investor Relations department. Good morning, stay healthy, and thank you.

Operator

[Operator Closing Remarks]

Duration: 90 minutes

Call participants:

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Angel Vila Boix -- Chief Operating Officer

Laura Abasolo Garcia de Baquedano -- Chief Finance and Control Officer

Georgios Ierodiaconou -- Citi -- Analyst

Jakob Bluestone -- Credit Suisse -- Analyst

Joshua Mills -- Exane -- Analyst

Keval Khiroya -- Deutsche Bank -- Analyst

Mathieu Robilliard -- Barclays -- Analyst

Akhil Dattani -- JP Morgan -- Analyst

Mandeep Singh -- Redburn -- Analyst

Giovanni Montalti -- UBS Investment Bank -- Analyst

Luigi Minerva -- HSBC -- Analyst

David Wright -- Bank of America -- Analyst

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