Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's January to September 2020 Results Conference. Call. Question and answer As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Eguerran, Global Director of Investor Relations.
Please go ahead.
Good morning, and welcome to Telefonica Conference Call to discuss January, September 2020. And Paulo Leon, our 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 an This conference call webcast, including the Q And A session, may contain forward looking statements and information relating to the Nika Group. These statements may include financial, operating forecast and estimates or statements regarding plans, objectives and expectations regarding different matters.
All forward looking statements involve risk and uncertainties, including risk relating to the effect of the COVID-nineteen dynamic. 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 regulator. 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.
Thank you, Pablo. Good morning, and welcome to Telefonica's 3rd quarter results conference call. Today with me is Lara Avasorom, our Chief Financial And Control Office year. 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 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 4 core markets, Spain showed better trends at both ARPU, despite the competition noise. Germany outperformed its market, once the quality network gap has been reduced. In the UK, we are progressing with regulatory approval for being the national connectivity champion Whilst in Brazil, where again, we registered multiyear record commercial activity. Free cash flow grew double digit in euro terms. Despite the currency depreciation 2nd, we advanced on technological leadership in infrastructure and digitalization.
As such, 5G is already live in our 4 core markets, and fiber has continued to expand. 3rd, we accelerated the carve outs of high growth tech vehicles. Another remarkable highlight, our free cash flow during the quarter was outstanding at 1,000,000,000, plus 13% year on year and per share. In the January to September period, it totaled EUR 2,800,000,000 or EUR 0.53 per share. 5th, net debt continued to be reduced.
Liquidity cash has surpassed the EUR 22,000,000,000 mark, whilst net debt maturities now stand at just EUR 1,900,000,000 for the 20 2020, 2022 period. Finally, we are proposing to the next AGM, the cancellation of 1.5% of treasury shares. Moving to Slide 3, Let me explain the progress we continued to make across our 5 strategic pillars in Q3. First, Looking at our 4 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 $24,400,000. 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 UK, we are progressing in the in market convergent consolidation. Our auto Belgian media joint venture formally requested the approval and the £5,700,000,000 recapitalization process was completed. It is also worth highlighting the growth In Brazil, we progressed with a 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 by $1,500,000 to $14,600,000. 2nd, in this time, 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. 3rd, telephonic attacks, 3 companies, cyber security, 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 iHeartlabs, a professional training business. Or at Telefonica infra today, we have announced a JV with Allianz in Germany to develop fiber in underserved areas, while we expanded Telcio's tower's portfolio through the German deal. And 5th, we signed the MOU with Rakuten on Openbrand and next step in our journey towards a virtualized network model, In addition, our new operational model continued to improve our agility, deliver benefits from digitalization and help us to identify further efficiencies with OIBDA minus CapEx margin in Q3 expanding 0.7 percentage points year on year in organic terms. Moving to mitigate COVID-nineteen impacts. On this slide, we can see revenue reconciliation between corporate and organic year on year variations.
From January to September, reported revenues declined by 10.7%. Which translates into a 3.7 percent organic drop after stripping out 5.9 percentage points of Forex and 1 percentage point changes in the consolidation perimeter and other effects. In our 4 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%.
During the third quarter, reported revenues declined by 12.1%, which After excluding 8.1 percentage points from ForEx and changes in the perimeter, another factors led to a decrease of 4.3 organically, improving from the minus 5.6 posted in Q2. COVID 19 dragged 4th point 9 percentage points year on year. Moreover, the decline in our 4 core markets is limited to minus 3.9% year on year. Looking at Slide 5, we show OIBDA reconciliation. In the 1st 9 months, of 2020, reported OIBDA declined 15%.
ForEx impacted in 7 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 2019. 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 4 core markets, the rate of decline in OIBDA was -3.3%. Moving to Slide 6, we showed a very strong cash flow generation, reflected in both OIBDA minus CapEx and free cash flow per 5,700,000,000 or EBITDA 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 4 core markets. Free cash flow per share increased to in Q3, reaching per share in the 1st 9 months of the year, more than covering the euro's dividend to be paid in 2020. The result of all this is sequential growth in free cash flow to EUR 1,600,000,000 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 7, clearly shows the significant impact of COVID-nineteen and currency depreciation on the reported figures. These impacts have 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 EUR 785,000,000 and by restructuring costs in Q3 2019, including EUR 1.7 1,000,000,000 in Spain. Revenues reached 1,000,000,000 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 4 core markets.
Net income reached 1,000,000 and surpassed the 1,000,000,000 for the 9 months, 2020, on an underlying basis. Resulting in EPS of for the 9 months on the same basis. Free cash flow expanded sequentially to EUR 1,600,000,000 and grew 13.2% year on year in Q3 2020, with free cash flow per share at EUR 0.3 in the quarter. Net financial debt declined a further EUR 525,000,000 in Q3, to 1,000,000,000, down 4% versus September 2019. Moving to the next slide, revenue performance improved sequentially year on year in Q3 by 1.4% points led by both service and handset revenues and by ISP.
Across our four markets, the decline was limited to 3.9 percent in Q3. This accounted for a negative contribution from the UK, primarily as a result from roaming handset release delays, together with increasing higher margin debit distribution impacting revenue recognition. Despite these short term UK impacts, I would like to We are continuing to transform our revenue mix with revenues from broadband and services beyond connectivity increasing by 5 percentage points year on year, to 68% of total service revenue in the quarter. Meanwhile, Telefonica Tech Services deliver double digit revenue growth year on year versus 9 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. Net by Spain, on the back of better content costs, Germany coming back to growth and improvements in the UK and Brazil. OIBA 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 UK. This strong cash conversion is also shown in the OPA minus FX margin, which expanded organically by 2.1 percentage points year on year in Q3, driven by an outstanding performance from Brazil. Followed by the UK and Germany and a flattish trend in Spain in the quarter.
I would like to highlight, however, that Spain retains a benchmark OITA minus CapEx margin of 29.7 percent. 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 re openings 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 lower demand from SMEs combined to deliver the negative impact seen. The quarter suffered significant impact on Robin. However, despite these negative impacts, we continue to implement significant cost containment measures with lower commercial expenses but debt improving among other initiatives. At the same time, the crisis has allowed us to improve customer engagement base on our networks 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 percent year on year in our 4 core markets in Q3.
On top of all of these, demand for cloud and saver services has increased significantly. As a result, on Slide 11, we confirm our 2020 dividend per share, with a 1st tranche of to be paid in December through voluntary script dividend and the second tranche in June 2021. Regarding Treasury stock, the adoption of the corresponding corporate resolution 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 Moreover, we will continue monitoring and adapting to COVID 19 related restrictions to mitigate their impacts on the business.
I will now hand over
Thank you, Angel, and good morning to everyone. Moving to Slide 12. Telefonica Spain consolidated the recovery trend in NetApp and meet a very competitive environment in Q3 20. A superior competitive and segmenting offering continues to drive growth in number of accesses. Recurring the highest fixed broadband net adds since Q3 2018 and positive converging 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 led you to decline in lower value TV accesses, including Movistar Blue's Lite, OTT Service, following a large temporary increase in the base in Q2, due to COVID-nineteen, the likes related confining when we added 57,000 axises. Our conveyor customer base once again proved particularly resilient in the quarter. Order return reduced year on year to 1.5% despite the usual promotions in this period.
While ARPU improved quarter on quarter despite a comparison base softening due to the Q3 2019 price upgrades. And excluding COVID-nineteen 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 24,400,000 premises, as we said, 29% uptake. The 5G network was switch on in the quarter.
With the aim on achieving 75 percent coverage by year end, and Innovative Services recently launched will further enhance differentiation. On Slide 13, while Telefonica Spain results continue to be impacted by COVID 19 in Q3, year on year financial performance, so clear improvement versus Q2. With the year on year revenue decline in improving 0.9 percentage points despite an unfavorable comparison generating by the July 2019 convergent tariffs increase and the 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 personal efficiencies. With regard to content, it is worth highlighting for the first time, the new cycle of football rights will no mean a year on year increase in net costs.
It will be flat. For the 2020 wide season and lower for the next season. 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-nineteen environment, with trading dynamics recovering to close to pre pandemic levels and auto 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 Saeta returned to growth, increasing 0.7 year on year in Q3, supported by enhanced decisions. CapEx decreased by 10.1% due to more backend loaded deployment into 2020. And at that it facing 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 1st 9 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 2022.
Moving to the UK on Slide 15. We continue to be UK's number 1 network Now with over 35,000,000 mobile customers are market leading loyalty and NPS. Looking at the financial performance, revenue declined by 9.5% in the third quarter, primarily due to roaming, snip, 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 EBITDA 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 most restrictions were lifted. Vivo ended the quarter with record mobile market share, driven by the highest prepaid net adds, our lowest contract churn seen in years. Contract net adds are back to pre COVID-nineteen 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 8 years indicating a strong commercial recovery.
In fixed, the company continues to capture the huge fiber opportunity, with the record level FTTH connections in the quarter. Additionally, recent agreements 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 1st 9 months, 20. In local currency and by mid to high teens in euro terms. Looking at our financial performance, we delivered outstanding OIBDA minus growth of 22.2 percent, with margin expansion of 5 percentage points in Q3 twenty twenty.
This outstanding result was supported by our continued focus on driving OpEx efficiencies and optimizing capital allocation through 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, Telcio's executed the 1st tranche of its acquisition of sites from Telefonica Deutschland, adding approximately 6000 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 Enant rose 38.5% year on year. It is worth highlighting the positive performance
in
and 18.1%, respectively, driven primarily by higher colocation revenues and acquisition. This positive performance So Telefonica Infrastructure revenue grew 2.1 percent and OIBDA 0.3% in the quarter. This by the negative impacts from contract extensions in cable. The OIBDA minus CapEx over revenue ratio, excluding M and A CapEx, from inorganic operations stood at 51.2 percent for the 1st 9 months of the year. On Slide 18, we can see that Telefonica Tech has continued to make significant progress Insect, companies are already up and running, with the 1st phase of transfer of cybersecurity, cloud and IoT big data assets completed.
Telephonic attack services continue to exhibit sustained double digit growth rates, with revenues up 15.4% year on year, in the 1st 9 months of 2020. Going forward, Telefonica Tech is expected to continue outperforming underpinned by its critical role aimed accelerating digitalization during the COVID-nineteen crisis and by the strengthening of its capabilities, bolster by recent acquisitions we are now In cloud, our multi cloud services for enterprises as support sizes were the key driver of 20 percent year on year growth in revenue in the 1st 9 months of the year, as we established ourselves as trusted 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 secure 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 cyber security and start In IoT and big data, we are developing internet of teams for different sectors, where a unique value proposition transformed raw data into variable actionable information and our new COVID compliance use cases, our health and businesses identify the requirements necessary for business recovery in the environment.
Turning to his plan on Slide 19. We saw robust commercial activity in Q3. Surpassing pre COVID-nineteen levels as contract net adds almost doubled versus Q3 2019. 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 Q3 2.
OIBDA was impacted by temporary duplicating network cost in Mexico, where more savings are expected from 2021 onward as the benefits of the new operational model flow through. Excluding this effect, year on year OIBDA trends would otherwise be a stable versus the previous quarter, despite various strong commercial activity and tough comps. 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're reviewing detail how FX movements are impacting our results, while again, improving how currency headwinds are structurally neutralized at the free cash flow level for our effective hedging strategy.
Negative FX impact increased in Q3 2020, mainly to the depreciation of the Brazilian real versus the euro. It acted as an 8.1 percentage point drag from revenue year on year. And reduced OIBDA by 13 percentage points. For the 1st 9 months, the negative contribution was lower at 5.97 percentage points, respectively. Nevertheless, the negative effect of EUR 108,000,000 to EBITDA levels translated into just a million impact at free cash flow levels.
And in terms of net debt, this had a positive impact of 1,000,000,000 for the 1st 9 months. Or 1,000,000,000 on net debt plus business basis. As shown on Slide 21, Our net debt reduced to EUR 36,700,000,000 at the end of September 2020. In the last 9 months, we have reduced net debt by EUR 1,100,000,000, mainly due to resilient free cash flow generation that reached EUR2.8 billion for the period. This performance comfortably exceeds dividend, 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 split dividend payment which reduced our cash outflows by more than EUR 600,000,000 in the first tranche paid in July. Slide 22 presents Telefonica, Aimple and diversified financing activity, totaling 1,000,000,000 year to date. Of this, EUR 6,300,000,000 relates to the Virgin Media O2 UK financing, we successfully closed at the beginning of September. At the group level, Telefonica's financing activity amounts to 1,000,000,000 and contributes to both an extension of our average deadline at close to 11 years and a robust liquidity position of more than EUR 22,000,000,000. This position accepts their maturities beyond 2022.
In addition, including UK cash seen related with O2 Vision Media Deal. Net debt maturities will be 1,000,000,000 from now to 2020. 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 come back to Angel to close.
Thank you, Laura. Slide number 23 shows the growing importance of ESE in the post COVID-nineteen era and our full commit 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 that for a new objective to increase the ambition because climate crisis is urgent.
We will become net 0 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 GAG emissions through our digital services and avoided 2,200,000 tons of CO2 during the 1st 3 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 1 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 9000 listed companies. Finally, our sustainability strategy is reinforced by our inclusion in the FTSE4Goods sustainability index with an improved score of 4.3 exceeding the sector average and by our entry to Moody's Euronext VGO, Iris, Europe 120. All in all, our role is becoming more and more important for the societies where we operate 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. 1st, we are providing ongoing support to all stakeholders to contribute to economic recovery.
2nd, we have proven our businesses resilience in the face of COVID-nineteen, FX and GDP headwinds, delivering improved financial and operational trends, and maintaining investment in strategic growth areas. 3rd, we are delivering progress on our strategic priorities across all fronts. 4th, we are taking a proactive approach to rent seat 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
you. You. We would kindly ask you to ask a minimum, a maximum of 2 questions per participant, there will be We can now take our from Georgios Lerodi Nukhn from Citi. Please go ahead.
I'll have a couple. The first one is around, the agreement you announced, Alliance, today, opportunities to understand some of the motivations behind you 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 on these type of agreements in Brazil, but whether you plan to extend them beyond these two markets And the second question, kind of linked to that. So far, your agreements seem to be more oriented towards rolling out new infrastructure.
I was curious whether you can do a fixed line infrastructure in Spain, in Brazil, in some of the other markets, whether you see an opportunity perhaps to monetize some of the existing fiber that you own?
Thank you, Georgios, for your question. This morning, we have Alan announced a fifty-fifty joint venture with 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 contributed 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. With Vodafone to access their cable.
We have an agreement with Telecolumbus, and now telephonic adoption is going to be anchor client shareholder and also supplier of some services to this new fiber call. Clearly, our objective is to be complementary to other fiber vehicles in Germany, to avoid overbuilt, 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 evaluation at which Deutsche Glass Fusser was valued in that market. We are looking at similar, although a little bit different project in other markets in Brazil and in in Chile.
In Brazil, we are quite progressed. We are in phase 2 round 2 of offers for a fiberco, which unlike Germany, which is pure greenfield in Brazil will have a brownfield component plus a ring fill buildout to reach, in Germany, it's going to be slightly over 2,000,000 fiber homes passed in Brazil, we're aiming for above 5,000,000 including the initial contribution of Brownfield plus the build out of Greenfield. That second project is is progressing nicely. We have interested parties in the 2nd 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 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 a very well developed fiberco of fiber present in the country. It gives us lots of optionality, but it's a different situation from markets where the fiber is not developed in Spain.
Thank you, Julius. Next question, please.
Jacob Bluesto from Credit Suisse.
Hi, good morning. Thanks for taking the questions. I've got two slightly numbers to see questions. Firstly, your working capital was minus 1,000,000 in the 1st 9 months. Compared to positive 482 in the 1st 9 months last year.
So kind of a swing of about 1,000,000,000 Can you maybe just help us understand why working capital is such a big drag? 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 1,000,000,000.
Last quarter, that was about 1,000,000,000. And so can you help us understand why did the derivatives portfolio fall in value by about 1,000,000,000? And am I correct that your net debt would have been $2,000,000,000 lower, if that hadn't happened, so maybe you can just help us understand what's going on with this derivatives portfolio?
Thank you, Jacob, for the questions. The working capital, not only for this queue, also for the full 2020 versus 2019 is going to be very much affected by the deferred payments of the German on acquiring 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 twenty twenty versus Q3 twenty nineteen, it's pretty much stable, slightly lower. And if you look at the 9 months, there's lower consumption. So we keep working working capital very well. With CapEx facing.
I mean, there are restructuring playing negative because we accounted for it in 2019 and we are paying it now. But on the other side, some of the one offs that were executed Q4 last year are being cashed now. And then you all the timing of the multi year contracts, mainly wholesale contracts. And AT and T in Mexico is working negatively, but it's very, very much effective by the German spectrum. And if you exclude that, it's similar Q3 and a little bit more favorable for the 1st 9 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 are accounting for M2 from the mark to market of derivatives last year. And we disclosed that in the tail and the investor relation can explain to you. But what we did precisely is that this will not impact our net debt evolution. And much of these mark to market changes have to do with the debt we have in dollar because we have derivatives to put 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 movement They are just I mean, they are not they do not have the cash impact and at the end of the derivative, 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.
Next question comes from Joshua Mills from Exane. Please go ahead.
Hi, there. Thank you for the questions. 2 from my side. The first on Spain and specifically the EBITDA. So you referring 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 screen continues Q4 just so that we can think about modeling that out. It'd 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 utilizations do you anticipate in the 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 telephone capabilities?
Thank you.
Thank you for the questions. As you saw and we had anticipated to the market, 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 1 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 personal cost was down high single digit in the year, same savings from the personal 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 once all the constants are comparable year on year. We have full legal and European competitions with inflation starting from next season. So you will see stability in content cost 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 rate. We exploit. The figures have not public But yes, we can confirm that some savings were generated over the third quarter based on these 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 decline 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 built out to reach this in excess of 2 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.
Thank you. So just to clarify, so
there's no there'll be no further contemplated in Q4. Have they all been booked in Q3 for Spain?
We have had, content savings in Q3. Depending on the evolution of the situations, for instance, in the spring, we had a with a lockdown closed down of many of the social venues that were displaying sports content to their patrons. Many of those are back huge percentage of those are back because we have had soccer season all over the summer. The new wave good result 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 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.
Thank you. Yes. Next question, please.
Next question comes from Keval Espoya from Deutsche Bank. Please go ahead.
Thank you. I've got 2 questions, please. 1 on CapEx and 1 on the other company's line. So 1st in CapEx you've obviously made in in CapEx this year helping you, at the free cash flow level. As we look in the coming quarters and next year, as 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 elimination 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.
Thank you, Keval. On CapEx, we had the 2020 CapEx embedded in our guidance, which envisaged CapEx growth in certain market. Given the situation created by COVID-nineteen, we are offsetting some of the impact via lower clearly via OpEx efficiencies, but also be a lower CapEx to preserve operating cash flow and aim for the guidance we have stated for 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 provision in portability than put it in some markets, some deployment speed have been delayed. And clearly, there was delay on spectrum auctions that are had some coverage and maintenance work that was postponed.
We are actively managing CapEx, to adjust to the new economic context and perspectives, we are reprioritizing our most profitable investments and considering the competitive situation in every market. But all of these without impacting the networks, 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 5 in our forward markets. And we are achieving record fiber to the home, deployments and connections all over the footprint. No?
It's already quantified 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 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 And this should not imply any CapEx, should have 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 and reducing the investment in legacies and so on are here to stay. Those would not be spilling over to next years.
On the other eliminations, I understand it's difficult to follow, no, because you have to take into come here, we include headquarters, we include a small subsidiary. Some of them being affected also for COVID. For instance, in a small subsidiaries, we have other 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 1,000,000 and in Q3 has increased about 1,000,000 to $200,000,000. That $30,000,000 can be explained by our donation to Fundafion. As you know, we are approved for an ordinary donation some years ago.
That has lasted longer than expected because they have also prioritized many of many of the projects that has not 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 1,000,000 could be a right amount for Q4. You also have to take into account here. I'm not including capital gains that would help or either train, that would worsen.
But if I try to go to the underlying order and elimination, I think the figure you've seen for Q3 could be a right Revolution for Q4. Yes, sorry, because as it 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 it was part of our operating model, a strategic decision on Q4 last year. So we are simplifying the organization and operating model, and that's dealing with significant savings.
Next question comes from Matthew Robilliard from Barclays. Please go ahead.
First, I had a question on Spain. So obviously because of COVID, we're seeing some difficult trends, but 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? Are you seeing that despite the tough macro and competitive environment, there is scope for more 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 that is not 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 American or the Espano American business? Thank you.
Thank you, Matija, for your questions. I'll take the first one on the Spanish Convergent ARPU. The ARPU of our convergent products was down 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 at place in the third quarter of 2019, which was not the case in this third quarter of 2020. Also, We have a COVID-nineteen effects. And we have lower extra consumption out of of the bundle, even that we have moved to more allowances in mobile, for instance, And we have the dilutive effect from multi brand options, meaning the increased penetration of our O2 proposition. At the same time, We have upselling. We have new digital services with quite strong traction.
And we have a lower year on year promotion weight. So yes, declined 1st of last year with 2 significant effects from the price increase comparison from 1 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, 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 1 year ago, we expect ARPU, convergent ARPU in the second half of the year to be higher than in the first half of the year.
Thank you management for the sorry.
Please go ahead.
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 because you branding strategy can be offset, over the next quarters,
right?
We are expecting the ARPU of the second half of the year to be higher than the 1 of the first half of the That's how I would synthesize all the moving pieces in so that you can build it into your models. Thank you.
Thank you, Matthew, for your question. It was actually more than one question because you asked about the rating in organic options and also a progress on So I will try to answer all of them. You are right. A pitch has maintained a stable outlook. It is true that they mentioned that there's a risk associated to FX and translation impacts but they also affirm 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 move uncertainty on our deleverage path. We have the balance sheet in excess of 1,000,000,000. 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. It is regard, as you know, we have executed already and we have shares that are under accrual processes. It's the UK merger, it's the sale of Costa Rica. It's also the sale of the German Towers to tell Fuse that a part of that benefit will go through already in Q4 this year. Telefonica Tech also offers optionality and obviously Telefonica ispano.
And with regards to Telefonica ispanche, our strategy has organic and inorganic angles. In the organic front, we need to boost efficiency and we need to focus much more this unit 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 clearing the documentation, working on the capital structure of the company, and we are closing monitoring 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 and 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 D and N. And it's an absolute priority for us.
And even more this year. We have demonstrated in 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 2,000,000,000 FX impact in revenue has got reduced to free cash flow to EUR 300,000,000, even with this huge rei 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.
Thank you very much.
Thank you very much. Let me, Matija, if you a couple of figures to give you comfort on what I did before. We have had record fixed broadband net at, highest 4 for the last 2 years. This is in part due to the 2nd residences. But these have come within this quarter with new football season with the reopening of the social venues, which has meant that we have had conversion gross adds significantly higher than in Q3 'nineteen.
The football gross adds in the quarter growing double digit and the mix the gross adds in 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 color or some evidence of what is behind my statement before that we expect ARPU industrial have higher in the first
Very helpful. Thank you very much.
Next question comes from Akhil Dhatania from JP Morgan. Please unmute your line.
Hi, good afternoon. Thanks for taking the question. I've just got one question, please, with 2 parts to it, which is 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 the 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 to the portion of your EV. Which obviously has gone up a lot given how much effect 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 second, it's just a very quick clarification point. I mean, you've made very clearly the point this year that you've used a script to address the dividend and give you flexibility. Any comments you can give around how you think about the dividend and scripts going forward?
Okay. Thank you, Akil, for the question. I'm not sure you were referring to net debt over EBIT? Is that what you said?
No. Sorry, Laura. Sorry.
I wasn't clear. Net debt is a proportion of your enterprise value. So essentially today you're down, the equity is about
20 percent. Yes. Yes. Understood. Understood.
Thank you, Akil. Yes, you're absolutely right. As our share price is not performing at the level we would like to and is quite below the sum of the parts and most of the analysts recommendation, the proportion of net debt is increasing their share. And we are following we're 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 generally free cash flow, and we have to execute in organic 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 and balance 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 2 months ahead of closing And unless there's something unexpected that I cannot think of at present on top of the what the pandemia uncertainty, of course, definitely think our free cash flow should be above 4,000,000,000, and that's well above the current market consensus. So with these message, 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 de leverage. And in the inorganic, I told Matt, everything we've done last year, everything we have done already in the 1st 9 months and more is definitely going to come. I also tell you that in organic 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 Day on the fiber crook, 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 script, you know, our cell handler approved the dividend being on a script in order to give flexibility in order to show prudency, which I think is well needed in this time. We are aware that the escrow 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 script, and that's why we are proposing amortizing part of the current or 1.545 Treasury stock but we are 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 a future dividend, but let me stress the factors to take into consideration 1st, the strong free cash flow generation with the forecast I gave you that comfortably covers free the dividend the reduction of net debt organically and all other commitments. The active portfolio management, I mentioned high quality assets above 1,000,000,000 and also that we have done the homework. So the negative figure may be high, but if been very well managed. We have a maturity of debt, which is now 11 years.
We have refinanced over almost EUR 70,000,000,000 we have the liquidity cushion of SEK 22,000,000,000 and that's without considering the UK 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.
Thanks, Laura.
Next question comes from Randy
Cinch from Redburn. Please go ahead.
Hi, it's Mandeep at Redburn. It's a relatively simple question hopefully, but, you sort of got asked it before. 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 amongst 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 a simple question really is how can you grow or stabilize your consumer business in Spain? Thank you.
Thank you, Mandeep. I think that this question is being asked continuously in every call. And we continue producing every quarter results, the proof 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
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, 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 Prosevuro standalone was selling 1 year ago. So for instance, we have just launched eHealth services that become extremely relevant in these times. No? So Yes. We have ARPU premium with respect to our competitors.
At the same time, we are offering, quite including in that ARPU more services than what you have in the ARPU of competitor services, which are providing not only the 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, we're 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 prove it every quarter. Thank you.
Thank
you, Mandeep. Next question please.
Next question comes from Giovanni Montalati from UBS. Investment Bank.
Hi, thank you. I'm just wondering if you can share with us some color about the next option for Vallica rights. Is there anything planned for next year? Is there any thoughts you can share with us? I mean, assuming there's anything planned here?
Well, I think it's early days to think about Aliga. What you saw in the previous cycle, we achieved deflation in Deliga. Admittedly, it was slight inflation, but we achieved the deflation, most recently in the champions league, a new contract we have achieved 15% saving 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, others provide like a formula 1, renewed both three seasons with a more than 25% deflation versus the current cycle, So the trend is, the trend is here.
We have reversed a trend of many years of inflation. And now we can prove that in 3 of the main sports, content rights and that we are enjoying. We have achieved the depletion in all three. If I may go up, please go ahead. Is there any visibility on the potential timing of the option as far as you're aware?
No, we don't have visibility on that timing.
Thank you, Giovanni. Next question, please.
Next question comes from Luigi Venerva from HSBC.
Hello. Can you hear me?
Yes. We can go ahead. Thank you.
Yes. Thank you. It's Louie Geminalva from HSBC. I have two questions. One is a follow-up on, the dividend.
And I was wondering whether, you know, 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, yeah, to transfer assets, but it seems to me that until Telxius is consolidated within the group, you cannot properly develop it as you would probably do. So is control of PELx just something that you would consider changing?
Thank you, Luigi. On the first question, you are actually implying shareholder remuneration and I said, we have our shareholder remuneration for 2020. We don't have a multi year policies. So we will comment on this at due time, but let me tell you that although we have increased our treasury stock up to 1 by 4% that we communicated at the end of September. From a previous 0.53 percent at July 14th.
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 de rating year to date, 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 and leverage and under currency circumstances, so volatility and uncertainty in general, not in Telefonica. We believe we need to provide with an extra level of prudency.
Regarding TELSIUS, we believe that this is a very valuable asset, in in the sum of the parts of Telefonica. As you can see on slide 17, the company's forming very nicely with substantial growth and very high margin, different development in the 2 businesses. In the towers, as you can see on the bottom right of Slide 17, growing organically at 20% in revenues the third quarter, 18% in APA, with the German tower deal, we are now at close to 27,000 towers from the 16,000, which with which tells you started 3 years ago. When we closed the second tranche of the Geraldine deal, 33,000 towers, a very substantial and valuable tower company. Which gives us optionality.
It has been clearly growing double in its size since the company was created and putting that in order to, facilitate the development and the growth of the company, we could be option 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 do 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 2021. What we have done is renegotiate those for an extended period of 5 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 Telcio's 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 TELSIUS submarine cable for mid and long term. And this visibility long term, we allow Teles used to contemplate all possible strategic alternatives for this Subsea cable unit.
Okay. Thank you.
Thank you, Louis. We'll have time for 1, just for one final question, please.
Your last question comes from David Wright from Bank of America.
Hello guys. Thank you very much and especially for the last question. I'll make them nice and brief. Just on Spain, just on the, the the fighter brand 2, we've got our analysis suggests it's tracking about 20 the 25% of gross adds. I just wondered whether you could give us any kind of indication of whether that's a reasonable, ballpark just when we're forecasting our group, please.
And then, second of all, just Laura, I, you know, 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 or, from my perspective, it seems hard to imagine it could carry the net debt to EBITDA, the Telefonica group has. So could the spin off actually be a releveraging event for Telefonica Group. And also you've you've written down Argentina substantially today, So obviously you're, happy with the the current, current book values of those LatAm assets. Do you actually have a book value for Telefonica, HispAN, post the Argentina write down, please?
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 conversion offers. So we've had 76,000 conversion net adds. And the customer base is three times year on year. It has low levels of churn at 1% an ARPU which is stable at EUR 49 and is leading in Net Promoter Score.
David, on your east bank 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 isolated independent entity. We have to position the region as some of flexible and diversified a number of countries and operations. Some of them with very large scale in the countries they operate, and that should support its profile. The leverage ratio of competitors, as you know, as well as needs, between two times to four times. So there's plenty of of it's a pretty wide range.
You are right. It cannot be could be leverage neutral. It 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 lever and friendly as possible, it it's also a very nice to have, but it's not the ultimate goal as it's more the derisking and by a simpler equity story.
On the book value, my understanding is that we give a detail on book value at the annual account. So you will see that and you can see how it works for the different Espana assets. So we will have this in the next in the next accounts with more detail on the main OVs that confirm the Telefonica Group perimeter. And therefore, you can find that the expense book value of the assets. Not sure if you want, you need to comment anything on the Argentinian impairment.
But I would like to emphasize that it has lots to do with the macro environment. And Argentina is suffering a very severe confinement and also the legacy of some imbalances. 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 decree and not allowing increasing tariffs in many of our services.
I tell you the operation is working on a plan to reverse commercial trends and change the operating model so as to reduce OpEx and prioritized CapEx to protect free cash flow. Argentina is also very advanced in the utilization not only in their operations, but also in the interaction with the customers. And that allows for OpEx to start growing, hopefully, before in place No. I don't want to minimize the impact of this, no doubt, but it's a non cash. 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 it's in our hands, what it's under management. I think you have to look at this specific assets as optionality going forward.
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.
Telefonica's January, September 2020 Results Conference Call is now over. You may disconnect your line.