Telefónica earns 38.5% more to 1,582 million euros, although revenues fall 11% due to the pandemic and will propose a dividend of 0.30 euros per share, which is a 25% cut from the 0.40 euros it has been paying until now.
Telefónica today announced that net profit for the 2020 financial year rose to 1.582 billion euros, an increase of 38.5% compared to the previous year. This net result compares to 2019’s net profit of €1.142 billion, which at the time had been a 65% year-on-year drop on 2018’s profit, mainly due to restructuring provisions.
At yesterday’s board meeting, the telecommunications group approved the new shareholder remuneration policy for the 2021 financial year, which will involve the distribution of EUR 0.30 per share in two tranches of EUR 0.15 in December and June 2022, to be paid in cash or shares (scrip dividend) on a flexible and voluntary basis, i.e. the shareholder will be able to choose the type of remuneration.
This dividend represents a 25% reduction compared to the dividend approved for 2020 and previous years, which amounts to 0.40 euros per share in two tranches of 0.20 euros.
Telefónica thus joins, albeit later, the measures approved by other telecommunications operators such as Vodafone (which cut its dividend by 40% in May 2019 to reduce debt) or Orange (which announced a 28% cut in April 2020), which also decided to reduce their dividend in a defensive move to preserve cash. As Telefónica has 5,526 million shares, the reduction in the payout per share means that the operator will go from distributing 2,210 million euros to 1,657 million euros, i.e. 553 million less.
At Telefónica’s current share price, the dividend yield is above 8%, and the company points out that the European average is around 5% and the Ibex average is 3%.
Telefónica’s chairman, José María Álvarez-Pallete, as well as the group’s CEO Ángel Vilá, have waived 100% of the remuneration that would correspond to them as a long-term incentive for the year.
35 billion in debt
The operator also announced that its net financial debt at the end of 2020 stood at 35.228 billion euros (excluding leases), a reduction of 6.7% compared to the previous year. At the end of 2019, net financial debt stood at €37,744m, which means it has been cut by €2,516m over the year. Since mid-2016, when José María Álvarez-Pallete was appointed chairman, net financial debt has been reduced by 17 billion euros.
Moreover, if we take into account operations approved by the operator but not yet executed for various reasons (generally due to lack of regulatory approval), such as the merger of the British subsidiary O2 with Virgin, the recent sale of the mobile towers controlled by its subsidiary Telxius or the most recent sale to KKR of 60% of the capital of the fibre network in Chile, the reduction in additional debt would reach around 9 billion euros, i.e. a quarter of the current net indebtedness.
Telefónica has 21,447 million euros of liquidity, enough to cover maturities over the next two years.
Turnover falls by 11%.
For the full year, the operator’s revenues totalled 43,076 million euros, a fall of 11% in reported terms and 3.3% in organic terms (excluding currency fluctuations) due to the reduction in general economic activity in most countries due to the Covid-19 pandemic and the depreciation of Latin American currencies against the euro, mainly the Brazilian real, without which revenues would only have fallen by 3.3%.
Moreover, the fall in organic terms is smaller if we only consider the group’s four main markets (Spain, Brazil, Germany and the UK) on which it is going to concentrate investment and growth, after selling the rest of its Latin American businesses. In the sum of the four large countries, the decline in revenues in organic terms was 2.4%.
In the fourth quarter, revenues amounted to 10,909 million, down 12% in reported terms but 2% in organic terms, reflecting an improvement in commercial and operating activity in the fourth quarter, as the decline was 4.3% in the third quarter and 5.6% in the second quarter.
The group’s EBITDA of 13,498 million euros fell 10.7% in reported terms and 5.7% in organic terms. The EBITDA margin was 31.3%, up 0.1 p.p. in reported terms and only 0.9 p.p. lower in organic terms.
Free cash flow for the full year amounted to €4,794 million, down 18.9% in reported terms compared to 2019. The company points out that “the progression of the accounts throughout the year is confirmed in cash generation”. If in the first six months it was limited to €1,222 million, in the second half it increased to €3,572 million, to reach the aforementioned €4,794 million for the year as a whole. In the last quarter of 2020, free cash flow reached €1,993 million, 13.2% more than in the same period of 2019. This increase brought the annual figure to the average of the last five years, a period in which Telefónica has generated a total cash flow of 25,000 million euros.
By country, Spain, which accounts for 29% of total revenues and 37% of the group’s ebitda, achieved revenues of €12,401 million, down 3.5% in reported terms from €12,850 million in 2019. In the fourth quarter, the fall was smaller, at 2.9%. The Spanish subsidiary’s ebitda stood at 3.6 billion, up 0.7%. The Spanish subsidiary has managed to relatively sustain results despite the pandemic due to the improvement in the arpu of its core services and the revival of IT revenues, due to the sudden need for digital transformation services of companies due to the confinement.
The UK, which accounts for 16% of revenues and 15% of consolidated ebitda, saw revenues fall 5.6% (and 4.4% organically) to €6,708m, in an economy hit hard by pandemic confinements. EBITDA fell to EUR 1,151 million. Mobile accesses, however, grew 5% to 36 million.
In terms of total accesses, the group brought the total number of users to 345.4 million, up slightly from the 344.3 million at the end of 2019. This is the first time the total number of accesses has grown in recent years.
Telefónica Tech, the unit that brings together the group’s technology businesses (Cloud, Cybersecurity, and Big Data/IoT) and which should drive additional revenue growth, has finally completed the process of separation or segregation into an independent entity with its own income statement, which was initiated in November 2019. Telefónica Tech’s revenues rose 13.6% for the full year to €1.504 billion, a growth that the operator says is almost three times that of the market.
To strengthen Telefónica Tech’s management team, led by José Cerdán as CEO, María Jesús Almazor has been appointed as head of the Cloud and Cybersecurity businesses, and Pablo Eguirón has also been appointed as chief financial and corporate development officer (CFCDO). The strategy for Telefónica Tech is to seek industrial or financial partners to help develop the subsidiary and add value to it. Until now, Eguirón was Telefónica’s global head of investor relations, a position in which he will be replaced by Adrián Zunzunegui, currently a member of the investor relations team.