The Telefónica Group has summarized it in three main objectives its commitments until 2026: growth, profitability and sustainability (GPS). With this new direction, the telecommunications operator considers that its transformation phase, which began in November 2019, has already ended and that the time has come to value this new company designed for the digital services revolution. In addition to its new strategic plan, which guarantees a dividend of at least 0.3 euros until 2026 and a cash generation of 5,000 million euros in that year, Telefónica has presented its accumulated results for the first nine months of the year.
José María Álvarez-Pallete, president of Telefónica, will detail in the next few hours, in a conference with analysts (you can follow it live on YouTube), the details of a strategic plan that contemplates an average annual rate of increase in revenue of 1% in the period 2023-26, a rebound in operating income before amortizations (ebitda) of 2% and an improvement in year-on-year cash generation of 10% to 5,000 million euros at the end of 2026. This last achievement is expected to be achieved through the confluence of various factors, among them the reduction by two percentage points of the effort allocated to investment with respect to income, currently 14% and which will decrease to 12%.. Telefónica considers that the “peak of investment” in new networks has already been surpassed in three of its strategic markets – Spain, Brazil and Germany – so that part of these resources can be derived to reduce debt and consolidate the dividend in the coming years, at least with the current remuneration of 0.30 euros per year per title.
Regarding the recovery forecasts, Telefónica estimates a debt ratio of 2.5 or 2.2 times EBITDA, compared to the current magnitude, which fluctuates depending on the quarters between 2.7 and 2.8 times operating profit before Amortization. Broadly speaking, and after examining its conscience in recent months, Telefónica considers itself more than prepared to explain its ambition to grow profitably and sustainably.. According to the aforementioned GPS plan, which consists of more than 90 pages with graphs and projections, the group boasts financial strength to weather the possible storms of the turbulent geostrategic panorama.. In fact, the multinational already has liquidity of 20,772 million, just over double the debt maturities planned until 2026, estimated at 10,300 million euros.
This credit solvency, together with the strength of its cash generation, the reduction of debt, the increase in income and EBITDA, the maintenance of the long-term dividend and the transformation of the group to address the challenges of digitalization are the pillars of this GPS, called to convince the markets from now on. By business lines, the company hopes to increase sales in the consumer segment (B2C), with an average annual increase rate of 1.5% in the reference three-year period., a rate that will be much higher in the business area (B2B), which will reach 5%, in line with the evolution of recent quarters. Telefónica believes that we will not have to wait long to see the results of this GPS plan in the income statement, so that the first fruits will already be seen in 2024.
In fact, and despite the fact that the objectives for the next year will be revealed next February, Telefónica anticipates a considerable cruising speed in the increase in income derived from agreements with the company’s partners, as well as obtaining efficiencies that help reduce the cost structure and the aforementioned reduction in investment. In this case, Telefónica understands that most of its duties in fiber optic and 5G deployment have already been carried out, something that many of its European competitors cannot say. These lower investments, together with the ambition to grow in revenue and EBITDA, invite the group to face the immediate future with solid perspectives, possibly differentiating in the sector..
The most faithful exponent of the transformation is reflected in the aforementioned increase in cash generation, from 2.1 billion in 2023, the 4,000 million euros expected in 2023 and the 5,000 million euros in 2026. In this task, the teleco modifies the very definition of FCF (free cash flow) that the company will use from now on. In that case, this magnitude will exclude investments in the purchase of frequencies, restructuring costs and recapitalizations in its British joint venture VMO2. The new subsidiaries created in 2019 have also responded to the group’s expectations, as explained by Telefónica.
In that way, Telefónica Tech plays a relevant role in meeting the objectives of the GPS plan, with a growth story that will continue until 2026. Until that date, the company expects to register an average annual growth rate of 18%, above the market, to end 2026 with revenues of 3,000 million euros.
At the same time, Telefónica Infra, an infrastructure unit also created in 2019, will bet on conquering new markets to, by 2026, have deployed fiber to the home (FTTH) in 30 million real estate units (UUII), compared to the current 20 million. All of the above will make it possible for Telefónica to add 100 million buildings with fiber in 2026.
Sustainability commitments
Regarding sustainability, the teleco will focus on its employees and clients on the immediate challenges in environmental, social and governance issues, based on principles of integrity, transparency and simplicity. It is also committed to achieving gender parity in the company’s highest governing bodies by 2030 and net zero emissions by 2040., the latter with the help of renewable energies, efficiency and circularity, as explained by the teleco. In the case of the workforce, the group will work to motivate and promote diversity, mobility and reskilling, in order to “gain agility and guarantee responsible management of the digital transition.”
Apart from the above, the telecom will advocate intensifying its collaboration with the telecommunications industry in order to lead the process of achieving a fairer regulatory environment for the sector. In this effort, Telefónica will influence to demand a more equitable distribution of investments in networks with the large American technology companies..
