Good morning. Thank you for standing by, and welcome to Telefonica's January to June 2021 Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. To cancel your questions, you can press the hash key.
As a reminder, today's conference is being recorded. I would like to turn the call over to Mr. Hadrian Zuznicki, Global Director of Investor Relations. Please go ahead, sir.
Good morning, and welcome to Telefonica's conference call to discuss January, June 2021 results. I'm Adrian Foneggi from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is unaudited. This conference call and webcast, including the Q and 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 related to the effect of the COVID-nineteen pandemic That could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact the Fonigas Investor Relations team in Madrid or London. Now let me turn the call over to our Chairman and Chief Executive Officer, Mr.
Jose Maria Lorespaute.
Thank you, Adrienne. Good morning, and welcome to Telefonica's 2nd quarter results conference call. With me today are Angel Villar, Laura Bassolo, Eduardo Navarro and Lutz Schuler, CEO of PG Media O2 JV. As usual, We will first walk you through the slides and then we will be happy to take any questions you may have. The Q2 was crucial for Telefonica.
We reached An inflection point in the transition to sustainable profitable growth with organic revenue up and year on year trends accelerating for the 4th consecutive quarter. We posted our best ever net income after booking capital gains from the sale of Telstra Towers and the creation of the Virgin Media O2 UK JV. Moreover, these capital gains have translated into a more efficient capital structure. And finally, they help us Produced debt financial debt by 30% year on year. In parallel, our more efficient capital structure was reflected with our net debt Denominated in LatAm covers is increasing to 30% versus 21% as of March.
On the strategic front, We continued progressing on our objective with key transactions closing in June July. In the UK, one of our core markets, Our position was reinforced as we created the national connectivity champion. Additionally, we continue to modulate exposure to Hispam. The InfraCo in Chile has been completed, and we announced a new fiber vehicle in Colombia with KKR. Telefonica Tech has reinforced its capabilities in the cloud space with the acquisition of CanCon UK and Altostratos, While accelerating year on year growth trends.
With regards to Telefonica Infra, Pipra Brasil started operations in July After regulatory approvals were granted. All of this with digitalization gaining even more relevance and supporting our operating model and facilitating economic and Finally, ESG remains an important part of our strategy. We launched a new industry wide eco rating scheme for mobile phones and have been nominated Europe's climate leader by the Financial Times. Turning to Slide 2. 2nd quarter reported figures reflect the significant capital gains booked, as we just mentioned, As well as all the extraordinary effects.
Reported figures also reflect changes in the consolidation perimeter as Telefonica UK and Telcius Towers We're consolidated until May 31. And since then, the Virgin Media O2 JV started to be consolidated using the equity method. They also reflect FX headwinds, which eased in the quarter. As such, the 2nd quarter reported figures Narrowed the year on year decline by 3.6 percent to EUR 10,000,000,000 and grew 3.4% organically, Accelerating as much as 4.8 percentage points versus the Q1, with all business lines contributing to this improvement. Organic OIBDA also improved its annual growth rate to 3.3% in the Q2 year on year, Whilst net income reached the EUR 7,700,000,000 mark and EPS reached EUR 1.37.
On its side, free cash flow amounted to EUR 877,000,000 in the 2nd quarter. And for the first time, Excluding spectrum payments, it topped EUR 1,600,000,000, 51% more than a year ago. Finally, net financial debt was reduced by as much as EUR 11,000,000,000 in the last 12 months to EUR 26,200,000,000 Post distribution of Telxiu's minorities as of June 2021. This is half the June 2016 net debt position. Moving to Slide 3.
We are upgrading our 2021 guidance for revenues and OIBDA. First half of the year performance is already meeting or slightly surpassing former full year guidance of revenue and OIBDA stabilization. And the outlook is positive for the second half in all of our core geographies. In Spain, efforts aimed at rationalizing the competitive environment And starting to bear fruit. As we are positive and we are positive regarding the second half of the year evolution, OIBDA margin, which has Suffer from delayed roaming recovery is also expected to return to above 39% levels already in the 3rd quarter.
In Brazil, strong commercial KPIs, record net adds in most segments, easing comparison base And the positive tariff update calendar make us feel also positive about strong operational momentum being at least maintained. In Germany, as our colleagues shared with you yesterday, full year guidance has also been upgraded as well on strong commercial and operational momentum. Lastly, in ISPM, we are seeing the commercial turnaround materializing, a top line reversal happening in all countries. And whilst OIBDA is more volatile, we are continuing to gain efficiencies. As for CapEx, Following first half results, where it stood at 13.4% of our revenues, we maintained or up to 15% former guidance.
On shareholder remuneration, we paid the 2nd tranche of our 2020 dividend last month for a voluntary scrip dividend, in which 71.5 percent of shareholders opted to receive new shares, further enhancing our financial flexibility as just around EUR 300,000,000 were paid in cash. As for 2021 dividend, euros 0.5 per share will be payable in December 2021 And another €0.15 per share in June 2022, both through voluntary script dividend. Regarding treasury stock, the adoption of the corresponding corporate resolution will be proposed to the annual shareholders meeting for the cancellation of the share 0.7% of the share capital held as treasury stock. During the second quarter, We further consolidated our commitment to sustainability across our 3 ESG pillars, helping society thrive, Leading by example and building a greener future. In terms of building a greener future, we have launched an industry wide eco rating Scheme to identify the environmental impact of mobile phones.
In addition, Birgitte Media O2 has just issued its 1st, Green Bone raising GBP 1,300,000,000 to support the fiber rollout and the use of renewable electricity. I would also like to highlight the Financial Times has nominated Telefonica as a climate leader. With respect to our leading by example pillar And in line with our commitment to creating a more equal society, we have updated our new diversity and inclusion policy and announced a target of at least 33% Of women in management position by the end of 2024. Thanks to our program, we are one of the best companies to work for women in Brazil. And we have reached a collective agreement with unions to adopt flexible working in Spain.
And finally, with regards to our contribution to society, Telefonica has not only extended its network connecting more people, but also has promoted education and employability to reduce the digital divide. For example, in April, we opened a new 42 campus, our 2nd free programming campus with no age limit and open 24 hours, 7 days per week. Also in terms of offering new solution for society, we have found Indecia, which aims to drive digitalization via artificial intelligence in Spain And have launched B2B in Brazil, a health marketplace to make telemedicine more accessible. All of the above contributes to the achievement of UN Sustainable Development Goals as can be seen in our new report, A Sustainable World, A Connected World. I will now hand over to Angel to go through a detailed review of our business performance.
Thank you, Jose Maria. On Slide 5, we review the performance of our Spanish operation, which is turning around its revenues I'm showing annual growth for the first time since late 2019. The market rationalization that we have been promoting since Q4 2020 is bearing fruits. Following a somewhat muted commercial activity over the last quarters, All accesses showed a month on month recovery throughout the quarter with positive net adds in fixed broadband in June. The early ending of the football season had a negative impact on conversion ARPU.
This impact, however, It's expected to reverse in the coming months and we expect better ARPU in the second half. Furthermore, Conversion churns continues to come down and customer satisfaction has reached a new record high, 33% in June. Revenues, hence, were back to growth in Q2 for the first time since Q4 2019, thanks to improved trends In service and handset revenue, helped also by solid IT, a partial recovery of roaming and the new portfolio. OIBDA trend also improved versus Q1, though it was less margin in revenue due to the lower margin of IT and handsets And the delay in full roaming recovery. Looking forward, we anticipate margin improvement From the next quarter underpinned by better trading, improved ARPU and further positive roaming impact.
Finally, I mean what we would call a very rational option, we secured the spectrum needed In the 700 megahertz band at very favorable terms, which will help us to accelerate our 5 gs deployment And improved operating leverage. Moving to Germany on Slide 6, Well, we have seen operational momentum accelerate in the quarter with O2 ARPU now back to growth year on year in Q2. At the same time, we continue to get strong results in mobile network tests and have 5 gs available in over 80 cities. In May, we also signed the national roaming agreement with 1 on 1 Drillisch, continuing our partnership and securing long term revenue streams. In this quarter, both revenue and OIBDA year on year trends have improved to +5.7 percent And plus 10.3%, respectively.
With CapEx growing by 6.9% year on year in the first half, Continuing to ramp up through the year. This has resulted in continued strong cash generation With OIBDA minus CapEx margin expanding by 1 percentage point in the first half of the year. Moving to the UK on Slide 7, where I'm delighted to say that the JV between O2 and Virgin Media completed on the 1st June. Since then, Virgin Media Utu has moved at pace to start integration with senior leadership in place. B2B cross selling started and Fast product development on the consumer side.
During this time, there has been continued commercial momentum and focus With a total base of €54,600,000 plus 7% year on year on the back of solid base growth from across the company. Network rollout continues at pace with 5 gs now live in almost 200 towns and cities And Project Lining adding 89,000 new premises passed in Q2, helping to grow the company's gigabit network to 7,200,000 premises passed And remaining on track for completion of the gigabit upgrade by the end of 2021. The JV has also reaffirmed its target to deliver annual synergies of £540,000,000 by mid-twenty 26 With a net present value of GBP 6,200,000,000 to give an overview of the underlying performance, we have included the pro form a results For Q2 here, with revenue broadly stable year on year with improving trends in both fixed and mobile, OIBDA plus 5.8 percent year on year on the back of continued cost control and commission savings And delivering solid cash profitability with OIBDA minus CapEx, growing by 2.5% year on year in the first half Moving to next slide. As the U. K.
Largest gigabit broadband provider, Today, we are taking the opportunity to bolster our long term network strategy by upgrading To fiber to the premise, our fixed network of 14,300,000 cable premises. After taking into account the existing 1,200,000 fiber to the premises to full fiber with completion in 2028. We see a huge opportunity in the UK with low fiber penetration of around 20% compared to Spain around 80%, Where we can utilize our fiber expertise as well as creating options to potentially pursue the broadband wholesale market in the UK Together with other B2B and B2C opportunities, regulatory scheme in place is a plus, So the time to rest is now. By utilizing the company's fully adopted network, the upgrade will be one of the UK's most efficient Fiber rollouts, costing around GBP 100 per premise passed versus GBP 60 per premise for upgrade to a full DOCSIS 4.0 cable network. So a very modest increase in network cost during the upgrade with no additional funding needed.
In addition, revenue benefits are expected to accrue to VM02's consumer, enterprise And wholesale businesses from the fiber to the premise upgrade. Moving now to Brazil on Slide 9. Vivo's unique value proposition resulted into sound access growth in the most valuable segments, namely contract and fiber connections. Transformation to a fiber company will be further boosted by 5 Brazil, which is already up and running and will help us Reached our target of 24,000,000 fiber to the home premises passed by 2024. On the financial side, We posted very solid results, significantly accelerating growth trends in revenues to 3.2% year on year in Q2.
Better MSR and fixed revenues that are close to stabilization explain the enhanced top line performance. This improvement at the top line along with efficiencies drove OIBDA to return to positive growth at plus 3% year on year. CapEx allocation continues to support cutting edge technologies that fit our top line, with 83% Of its total related to growth and transformation. And finally, IR's ESG commitments continue to expand, Generating positive impact for our stakeholders. Thus, Vivo reached the 11th position in Merco's ranking of the most responsible companies during the pandemic in Brazil.
On Slide 10, we show the progress of our fiber vehicles, Which allow us to create growth opportunities and value, while accelerating deployment plans and addressing increasing demand for high quality ultra broadband. In Germany, OGE is progressing well in the rollout of its network and has already connected the 1st municipalities. The first retail client was connected in June in record time, less than 4 months since the start of construction. Additionally, both 5 Brazil in Brazil and InfraCo in Chile received all necessary regulatory approvals With both companies already operational after their transactions completion at the beginning of July. We have also announced a new fiber vehicle in Colombia with KKR holding 60% of InfraCo and Telefonica Colombia the remaining 40%.
The company has a target of around 4,300,000 premises passed in 3 years, with 1,200,000 brownfield premises from Telefonica Colombia contributed At the multiple of approximately 20 times enterprise value to FDA and a net debt reduction at group level of approximately EUR 200,000,000 The closing is expected for Q1 2022 after approvals. We have a strong infra portfolio that gives us optionality. We will continue to focus on pursuing growth and value creation opportunities through our infrastructure assets and capabilities across our footprint. On Slide 11, Telefonica Tech revenue growth accelerated to plus 26.6 percent year on year EUR 2,003,000,000 in Q3 in Q2, on an increasing revenue base and again beating its market Growth. Tech services are driving the return to growth of the group B2B revenues, plus 4.5% year on year in the April to June period.
In cyber and cloud, higher value revenues like managed services, professional services and own partners platform, Which account for more than 50% of these revenues continue to deliver double digit growth. While in IoT and Big Data, IoT connectivity revenues representing more than 50%, improved their growth rate to 8.1% in the first half year on year. From a commercial perspective, we signed an agreement with TM1 Cybersecurity Solutions for Malaysian B2B. And in Spain, we adopted Our Cloudcoms portfolio to facilitate new ways of working and we reinforced our SMB offer. It is Arena.
We are proud to mention that we were awarded by Microsoft as the best Spanish partner of the year In the digitalization of SMEs category for helping them maintain the business in the pandemic. In Q2, we acquired Altostratos in the cloud business, and we incorporated Athens in Spain to the perimeter of Telefonica Tech To continue reinforcing our professional capabilities. Finally, Telefonica Tech has just announced the acquisition of CamCom UK, Reinforcing our position in U. K. And Ireland with an end to end advanced cloud and security provider of significant size, relevant partnerships And highly skilled professionals serving customers from both private and public sectors.
I will now hand over to Laura for a review of our [SPEAKER JOSE ANTONIO ALVAREZ
PALLETE:] Thank you, Angel. Let's move to Slide 12. During the quarter, we continued to modulate our exposure to the Isban region. However, accelerating growth and for the first time in 15 quarters, We posted year on year revenue and OIBDA growth simultaneously in reported terms in Hispana America. On the commercial side, Accesses increased year on year for all main products.
In contract, all main markets posted positive net additions, While in FTTH, net additions accelerating, driving a record performance for the company in Q2. In the fixed business, the new fiber vehicle announced in Colombia together with InfraCo in Chile is a Clear example of our strategy to lower capital intensity, crystallize asset value while accelerating expansion plans. On Slide 13, we show how net debt has come down by €9,000,000,000 or 26% since December 2020. Thanks to the sale of Telsey Towers and the B Met O2 UK JV, coupled with a strong €910,000,000 free cash flow generation. Net financial debt stood at EUR 23,200,000,000 as of June or EUR 26,200,000,000 post estimated distribution of proceeds Including post closing events, net debt could be reduced to €25,800,000,000 Net debt to OIBDA ratio went down to 2.57 times.
That is 0.2 times below the 20 ratio. Our liquidity cash amount to EUR 26,900,000,000 and our average debt life has increased to 13.7 years, Placing us in a very comfortable position as we have covered maturities beyond 2024. Telefonica maintains a proactive and innovative approach to financing in 2021, raising EUR 5,300,000,000 in total, Including financing at the German fiber JV and the first green bond at Virgin Media O2 JV. We are evolving our financing strategy with increased weight of debt in LatAm currencies as shown by the long term financing rates in local currencies by our subsidiaries in Chile and Colombia. To note, Coltell signed 2 sustainable linked bilateral loans, Being the 1st Telefonica is bank company to sign sustainability linked bilateral loans.
Effective cost of interest Payment over the last 12 months stood at 2.69 percent as of June 2021 due to debt reduction in debt denominated European currencies and its cost. I will now hand back to Jose Maria to recap.
Thank you, Laura. To recap, First, in the Q2, we completed 2 significant steps in our long term sustainable growth strategy, The completion of the Virgin Media O2 JV in the UK and the sale of Telxius Towers to American Towers. 2nd, our top line performance returned to growth, while net income reached an all time record level and with free cash flow The spectrum growing by more than 30% year on year. 3rd, we continue to prioritize growth when it comes to CapEx allocation, With almost 50% devoted to NGN. 4th, we posted a significant net debt reduction, as much as 30% down year on year Or EUR 11,000,000,000 mainly due to capital gains on strategic transactions, which improved the capital structure of the group.
Finally, we are upgrading our full year guidance to a stable or to a slight growth at both the revenue and OIBDA level. CapEx wise, we feel extremely comfortable by reiterating our up to 15% CapEx to sales target. Thank you very much for listening. We are now ready to take your questions.
Thank Thank you. Thank you. And your first question today comes from the line of David Wright from Bank of America.
Hello, guys. Thank you very much for the call this morning and a lot to digest. I guess the most significant announcement is the Decision to move the U. K. Business from cable to fiber.
I see the price upgrades you've given there, the 100 Pound per premise versus the £60 DOCSIS. So can you just give us some more on your thinking? Is it the upload disadvantage ultimately that has driven the decision to choose fiber over cable? That is a very, very interesting development. I would very much welcome your thoughts.
And just secondly, on to Spain. I appreciate, I think, Angel, you guided towards better ARPU dynamics in the second half. And you mentioned some Diluted effect in the Q2 number from football. If you could just expand on that, the moving parts, please, that would be very useful. Thank you, guys.
Thank you, David. This is Angel. I will start with response to the UK question and then I will pass to Luz. Today, we have announced that BM02 has the intention to upgrade the fixed network to full fiber To the premise by 2028, this will imply covering with fiber An additional 14,300,000 cable premises, because we already have 1,200,000, which are covered with fiber through lightning. We from Telefonica have been clear supporters of fiber networks all across our footprint.
We already enjoy The largest fiber footprint in Europe by far, and we have been extremely supportive Of the proposal of the JV. Lutz, I pass it on to you and then I'll take it back on the Spanish question.
Yes. Good morning, David. So we have in U. K. A very unique situation.
We have a deep fiber fully ducted network. And that brings us in the position That we can upgrade our network to fiber to the premise at very low cost. And this is referring to the £100 Now we had the comparison with DOCSIS 4.0, right? So we have Based on DOCSIS 3.1, today already 1.1 gig speed available. We can upgrade DOCSIS 3.1 to above 2 gig per second.
And then after that, We have taken the decision not to go for DOCSIS 4.0, but instead to go for Fiber to the premise. This is clearly an offensive move because we see a lot of business opportunity coming with it. Think about the wholesale market in U. K, think about the B2B market and also better Competitive position in the consumer market. Yes, back to you, Angel.
Thanks, Lutz. I'm going to the Spanish question and the moving parts. You were asking about, If I am right, the 2nd quarter ARPU evolution and what would be the outlook for the second half of the year?
Yes. We
have Experienced an ARPU decrease in the Q2 and the main drivers of that evolution are the following. The first one is the ending of the football season leads some of our customers to downgrade temporarily. This will be an effect that will reverse in the Q3 and of course in the Q4 when the next The football season starts. Also, there is a continuing impact, as we have seen in previous quarters, Of increasing no frills options penetration, customers taking the O2 or the Movistar Connectamax, Which is pure connectivity without content. We also have had lower out of the bundled consumption And some promotions ending at the beginning of the quarter.
This promotion intensity or ending of promotion intensity will be much lower in the quarters and going Because we have been far less active in promotional activity. At the same time, the new Fusion portfolio that has More for More was applied at the end of the quarter, of the second quarter, while we have had March 2020 tariff upgrade. So this impact in the Equitable would not be recurrent in the following quarters. So the new portfolio of Fusion has still not been relevant in Q2, although it will kick in, in Q3 and so on. So we the outlook for ARPU from the second half of for the second half starting Q3, we expect the ARPU to reflect The reversal of some of the seasonal effects, and we also will have higher revenues from new digital services that are getting traction.
Therefore, we expect a higher ARPU for the second half than what we've seen in the first half.
And Angel, if I could just follow-up, I guess, The football downgrades, that should be annual though. That happens every year, does it not? And you mentioned the tough comp on pricing. I assume it's difficult now to envisage price increases with the current competitive pressures. And the obvious question is maybe the margin does need to step down now.
Is that correct with the digital services running a lower profitability? Thank you.
Well, regarding the football end of season, you would have to compare with 2019, Similar effect because in 2020, the competition were halted. So we didn't have that impact 1 year ago, which we are experiencing. Now regarding price increases, we are seeing price increases from competitors. Bolafon and Euskante are increasing prices now in July. Orange has announced price increases in August.
So that happens in the market. And regarding margin, yes, what We have seen is in this quarter since we have been reactivating some of the commercial But we still do not have full recovery of roaming, which is at levels the second quarter roaming EASL levels, depending on the geographies, between 1 third 40% of what would be the normal roaming levels Compared, for instance, Q2 2019, so we still have we're suffering the impact of roaming still not reactivating. We also have reactivation of handset sales with lower margins and IT. That has put pressure on our margin. But for the second half, we will be not far from the 40% levels because we see And we expect further growing reactivation, which is margin accretive.
We the proved ARPU that I was talking at the beginning of your question. And we will continue having efficiencies in commercial costs. So for the second half, you should see [SPEAKER JOSE RAFAEL FERNANDEZ:] We are expecting margin recovery, at least 1 percentage point higher than what we saw in Q2, and we should be not far from the 40% levels.
Thank
you. Thank you. Next question, please.
Thank you. Your next question comes from the line of Georgios Iordanacano Citi.
Yes. Thank you for taking my questions. I actually have To kind of follow ups to the previous questions asked by David, the first one around the decision to go for fiber, You mentioned the opportunity on the wholesale market. I'm just curious, what was preventing Doing some kind of agreement with cable on wholesale, is it the demand on the other side or is it logistically A lot easier to do that with fiber. And if I could perhaps ask a question whether That also makes it easier for you to find partners to fund the upgrade to fiber, whether that's something you may be considering in parallel To what you already announced.
And then my second question is Spain, and I thank you for going through the moving parts. I think it's quite clear some of the things are happening Under your control, but if you could also comment, you mentioned at the end the price increases announced by your competitors. If I'm not mistaken, it's been a notify the customers a bit earlier. How much of the benefit was already in the June numbers You have shown on Slide 5. And how much of it do you think across the Q3?
So should we expect that you move into [SPEAKER JOSE RAFAEL FERNANDEZ:] Positive territory now that your competitors have time for more. Thank you.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Georgios. The first question, I pass it to Lutz, please.
Yes. Hi, Giorgio. So I mean, when you think about the wholesale market, It's very simple, right? More short and mid term, we can offer a possible wholesale partner the fastest speed Onto our cable network, right, today 1 gig, in the near future 2.2 gig. And then, right, for the longer term, We have all the speed possible available higher than 10 gig up and download.
So this Simply puts us in a very strong future proofed position in potential negotiations. And I think the partner approach is completely independent Right. So we haven't announced any acceleration on lightning. So obviously, we are pursuing possibilities there. But I think the announcement today to upgrade onto fiber is simply taken into account The unique position in U.
K, right? At very low cost, you get to a fully fledged fiber network. And that in the long term puts us in a very strong position. Back to you, Angel.
Thanks, Lutz. And regarding the second question on Spain, I think we have to envelope Everything that's happening into a more rational market. We have been working in driving Rationality in the market by cooling down, this has had benefits in terms of our churn. Also, fostering quality has improved our NPS and the market is behaving more rationally. And what we have seen is that the promotions Have gone to half of what they used to be.
Given the early summer promotions that different players are having, for instance, for The residences are softer with more rational behavior. This more for more that we are seeing from our competitors are a sign of rationality. All operators have joined forces to stop regular practices for acquiring subscribers. The regulator has been promoting Spectrum auction with conditions which are pro investment and we have seen rational behavior In that auction as well. So we've seen that there are evidence signs of rationalization from most players in the market.
And this It's leading to these dynamics that I was describing before with respect to outlook for ARPU And also in the commercial traction that we are seeing within the quarter. I don't know if that responds to your underlying question or not.
Yes, thank you. If I could ask a follow-up on the fiber question. I'm just curious to understand You mentioned that finding a financial partner is independent, 23 from the decision today. I just wanted to understand 2 things. Firstly, whether our financial partner is more aimed towards Project Lightning itself Or whether it could include some of the existing infrastructure?
And is it fair for me to assume that it makes sense for you to announce wholesale deals Before you find a financial partner because obviously that way the price is better. So should we basically expect the wholesale just to compress? Thank you.
Lutz, to you. Thank you.
I would say everything is possible and also every order is Possible is the simple answer, right? We have different plans. We are in different conversation. Let's see, right? It's too early to tell.
Sorry to be not more concrete, but we're actually in the middle of it. Thank you. Back to your answer.
Thank you.
Thanks Georgios. Next question please.
Thank you. Your next question comes from the line of Jakob Bluestone from Credit Suisse.
Hi, good morning. Thanks for taking the question. I've got one question, please, on Spain. You referenced Spanish EBITDA, which So it fell fairly similarly to what we saw during Q1. And I was just wondering if you could comment specifically around the outlook for EBITDA in Spain, when do you think the rate of growth might improve?
You obviously mentioned that ARPU growth or consumer ARPU convergent ARPU growth should improve in the second half. But I think that only makes up about sort of onethree of your service revenues and there's other stuff in there as well. So could you maybe comment specifically on what is the outlook For EBITDA in Spain, do you think the growth rate will improve in the coming quarters? Thank you.
Thank you, Jacob. The trend of OIBDA in Q2 improved versus Q1 slightly, but improved, Thanks to improved service revenues. And despite a worse year on year comparison versus what was a very atypical Q2 in 2020, because in the Q2 of last year, we had very low commercial and production costs and some non recurring factors now. [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] So it improved its trend, but the comparison was tough versus 1 year. 1 quarter, 1 year ago, [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] That was very atypical, no.
This improvement was lower than the revenues improvement because of the lower margin of some of the revenue growth levers, Namely handset sales and IT. And as I was saying before, the reactivation of roaming. We believe that from Q3 onwards, the football seasonality will revert, Improving the ARPU and therefore flowing into profitability and also recovery of roaming, which may add In our estimates around 1 percentage point to margin and this would, of course, improve the trends for the second half. One thing that I would like to note is that on the Q3, there will be a difficult year on year comparison related to content costs because 1 year ago, we got some rebates from content suppliers to us because of the non happening of certain sports And this helped the FDA of the 3rd quarter 2020 and that is not a recurring factor in 2021. So all in all, We believe that the margin is going to be going back to close to 40%.
The year on year comparison In the second half, we'll improve, but in the third quarter, we'll be adversely affected by these non recurrent Content rebates we had 1 year ago.
Thank you. That's very clear.
Thanks, Jacob. Next question, please.
Thank you. Your next question comes from the line of Keval Kariya from Deutsche Bank.
Thank you. I've got two questions, please.
So firstly, Can you update us
on where you stand on the potential further inorganic options in LatAm? And do you think it would not be easier to strike potential deals Now that hopefully most of the COVID drags are behind us. And then secondly, following on from the previous questions on Spanish OpEx, You will obviously have this continued mix shift towards more digital services. And as you look beyond 2021, Do you think any areas where you can actually accelerate the level of cost reduction to then help the overall impact on the margins beyond this year? Thank you.
Thank you, Queval, for your question. Going to Hispam, our aim in Hispam is not to do deals, is To modulate our exposure was we focus on profitability, efficiencies and extracting most value from our assets. Having said so, I think we find a nice formula with the fiber cost, which are allowing to accelerate growth, which are allowing To capture that fixed broadband growth in those countries and at the same time, we are monetizing The brownfield and the contract. And both the fiber co in Chile, the fiber co in Colombia and the Very soon expected approval of Costa Rica are going to contribute to net debt reduction of EUR 1,000,000,000 in 2021. But that's not the ultimate goal, as I said.
And we are modulating and improving return on capital in different fronts. The one of us He's taking care of the operations. And I think we have, as I commented, delivered very strong results. Revenue ROEBITDA improved By 9.5% and 0.3% organically. And in terms of commercial KPIs, we had Very, very solid.
New contract accesses are over EUR 1,100,000 in the first half of the year. Fiber is growing very well, booming with almost 0.5 new connections. And that's being fueled by a new operating model, a new operational model much It's more mutualized, which is going to bring very nice savings and at the same time, it's giving us a lot of agility. We are already operating as such And the fiberco in Colombia was being run by a true regional team doing it in a very short period of time as you have seen since we closed The fiber going Chile, and we are also going to work on that line in the case of Peru. As you have seen also in the debt We are reducing the equity exposure substantially.
We have net debt in Chile, Peru and Colombia very much aligned To the group ratio around 3 times, and we've been active throughout the first half year. We've been issuing in Chile. We are have been issuing in Colombia. We are preparing back financing in Uruguay that is going to take net debt in Uruguay to almost two times OIBDA and we are doing this with a very asset light, so no capital or very low capital is being devoted to the region. We are not Detracting neither management focus from the group nor financial resources and Hispania is becoming An optionality and a potential for value creations that is being the case already through the financials and through the 3 inorganic deals that I commented.
And as COVID headwinds remove, I think that's going to be even better.
[SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] If I
may add, Queval, This is the Q1 in the last 15 quarters that Hispam grows in euros in reported terms and also in OIBDA. So I think that also the operational performance of the Hispam unit is helping us to allocate in [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] In a different manner of our capital structure. So please note that there is a turnaround in euro reported terms in both revenues and OIBDA.
And regarding your question on direction of travel of OpEx, not only looking at the rest of the year, but going forward towards next year, The main buckets of costs in Spanish operation would be personal cost, content cost. Then we have cost of goods supplies, costs related to IT, commercial costs and other expenses. So The direction of travel of these different elements, when one looks not for the next quarter, next second quarter, but Getting into the years to come. Personal cost, as you have seen, we are continually working for [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] With respect to personal cost, the second bucket content costs, we are going to start seeing New cycles of sports where we have acquired or we plan to acquire content with deflation. So for instance, From September this year, the new UEFA Champions League kicks in where we achieved a 16% reduction in the cost in the last Auction and of course, La Liga will be 1 year after and the auction still has to take place, but our aim is to go for deflation.
These two Lines should go in the direction of being more efficient cost wise. On supply costs or cost of goods sold for Either our IT activity or the handsets, which are implicit in our new Fusion portfolio, this will be Align with the evolution of door revenue lines because those are directly linked to the cost of sale. Commercial costs In general, should keep the same weight as they have now. Another expenses like network savings, Efficiencies from legacy switch off, bad debt and so on, these are going We expect to continue to decline as has been the case up to now at a significant rate. So this should be The direction of travel of our cost function in the Spanish operation.
That's very clear. Thank you. Thanks, Keval. Next question, please.
Thank you. Your next question comes from the line of Nick Dalfas from Redburn.
Yes, thanks very much. Question for Lutz, really. The £100 upgrade figure is quite eye catching. Obviously, for those of us who live in the UK, Calling a plumber tends to cost that much. Have you really tested that in a wide range of situations to understand whether that's the real cost?
And then what's your Costs to connect on top of that. Thanks.
Lutz, to you again.
Yes. So yes, we have done pilots already. As we speak, we are doing a bigger pilot with 50,000 premises. So the technical team is very confident to meet that number. As I said before, right, it's The reason for that is that we have already in our network deep fiber everywhere.
And then we have really proper DUCs. So it's what we have found so far and what we have all documented is That the £100 are achievable. This compares to £60 What we have tested, if we would go for DOCSIS 4.0, right? So it's not that DOCSIS is dead in general, right? It's simply a great situation for the U.
K. You had a second question on cable, right?
I forgot that. Was that again? Yes.
Well, that gets you past the home. So what's going to be the costs?
Yes. The connection costs. Yes.
So
I think we haven't disclosed that yet. I've seen that you made an estimate, right, Already, you're not so wrong with that estimate. So because obviously, we have to test that again. We have to build fiber then entirely into the home and the customer obviously needs a new CPE. The good thing is that we can do this entirely demand driven.
What do I mean with that? Right. If a customer gets on to DOCSIS 3.1 today, right, the customer can get Up to 2.2 gig speed, yes? And fiber then kicks in for higher speed. So therefore, Right.
We get to our fiber network at very low cost very quickly. And then the migration cost, Right. Simply linked to a customer jumping onto higher speeds than 2.2 gig. And this obviously also can come with additional revenue. So therefore, I think to call out cost independent of top line is not appropriate at the moment.
So you'd have a connection fee of maybe £300 plus For an incremental fee for some
more days. Maybe not connection fee, it can be also, right? I mean, you've seen The new wholesale regime in U. K. And you see that simply it seems that the first Time in the country we are able to monitor its higher speed.
Yes. And so I think, right, Today, the average speed of the Virgin Media customer is 200 meg. This is 2.5 times faster than the average of the country. So we talk about now a business model that kicks in for an average speed above 2.2 gig, yes? So I think either the monthly subscription will be higher, combination of installation costs and monthly will be higher, Whatever.
I think, right, it's early days. Stay tuned.
So sorry, you have a large connection fee, but you're going to have to pay for that for the incremental ARPU from a customer wanting 10 gig versus 1 gig.
Exactly, right. I mean, we could we can choose what we are going Due between installation cost and connection cost.
Okay. Thanks very much. Okay.
Thanks, Nick. We have time for one last question, please.
Thank you. Your final question comes from the line of Karl Murdock Smith from Berenberg.
Hi. Thank you for the question. I just wanted to ask a slightly longer dated question. I recognize it's more of a Board decision than necessarily for you. But Just beyond this year, what are your thoughts regarding the voluntary scrip option?
You obviously seem quite confident in terms
of the future. You We seem quite confident in terms of the future. You seem to think that your shares are cheap. So why are you happy continuing to see the share price Well, the share count is continuing to increase. And now that the net debt is much reduced following the M and A, Should we be thinking that the voluntary script option won't continue into future years?
Thanks.
Well, thanks for your question. As you know, what we have tried is to provide flexibility Through our remuneration policy, especially in uncertain times this year because of the COVID outcome [SPEAKER JOSE ANTONIO ALVAREZ
PALLETE:] And also
because of several
spectrum auctions that we had on top of the table that now 2 of them are cleared. In terms of the acceptance of our shareholders to this proposal, 71% came for shares in the last and therefore, You were somehow protected by the dilution. And we are trying to devote any excess free cash flow that we have In order to try to mitigate the dilution impact of the scrip option, we have canceled 1 point 5% of what treasury stock in the last shareholders meeting. And today, we are proposing an additional cancellation of 0.7%. So I guess that the answer is that for the time being, we'll be provide this flexibility.
And you know that we have that committed for this tranche, this [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] Coming tranche in December of the 2021 dividend. And the second tranche will be approved by the Shareholders meeting, and we will update you there. We don't have a specific proposal to share. For the time being, we really appreciate this flexibility [SPEAKER JOSE ANTONIO ALVAREZ PALLETE:] Allow us to keep investing into growth CapEx. But yes, you're right, we are approaching the time in which the debt levels are much more sustainable And in which the underlying EPS is back to better trends.
So we will be reassessing the position In the next year end results.
That's great. Thank you.
Thank you. At this time, there are no further questions will be taken.
Thank you very much for your participation, And we certainly hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our Investor Relations department. Good morning and thank you all.