Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Thursday, February 25, 2021

Telefónica increased net profit by 38.5% in 2020 and managed to reduce debt by €2.516 billion

Revenues amounted to € 43.076 billion, 11% less than in 2019 due to currency devaluation and Covid-19. The pandemic had an impact on revenues of €1.905 billion last years: Hispam takes the worst share among Telefónica's operating markets, with an impact of €670 million. Thanks to the cash generation (€4.794 billion), Telefónica's net financial debt contracted and totaled €35.228 billion. Regarding the destination of Hispam, in the presentation of results, reference was made to a “gradual reduction of exposure to Hispam” and was announced that the portfolio in the region is being reviewed.

Telefónica's results for the fourth quarter of 2020 and the entire full fiscal year of last year show the fruits of the focus on four main markets - Germany, the United Kingdom, Spain and Brazil (together, 79.1% of revenues) -, in contrast to Hispam. The group's total profit increased by 38.5% to € 1.582 billion, after a cash generation of € 4.794 billion, and this allows it to propose to the next General Shareholders Meeting a shareholder remuneration for 2021: a dividend of € 0.30 per share through the voluntary flexible dividend modality.

Cash generation also enables the operator to cut debt: in the fourth quarter, Telefónica's net financial debt fell by €1.449 billion, and in all of 2020, by €2.516 billion. Thus, net debt closed last December at €35.228 billion, a volume that does not include €9 billion corresponding to inorganic operations pending closure (merger of O2 and Virgin Media in the United Kingdom and sale of Telxius towers). In the last four years, net debt was cut by approximately € 17 billion, 30% of that existing in mid-2016.

In terms of income, Spain represents 28.8%; Germany, 17.5%; Brazil, 17.2%; United Kingdom, 15.6%; and Hispam, 18.4%. Last year they totaled €43.076 billion, 11% less than in 2019, as a result of the currency devaluation and Covid-19. The company specified the impact of the pandemic in each country or region: on a total of €1.905 billion attributed to the coronavirus, Hispam had an impact of €670 million; Spain, €480 million; UK, €328 million; Brazil, €302 million; and Germany, €72 million. In the fourth quarter of 2020, revenues were € 10.909 billion, 2% less organically: this data shows a recovery compared to the previous quarters (in the third quarter this year-on-year decrease was 4.3% and in the second quarter, 5.6%).

Hispam, mitigated risk profile. In the presentation of results, Telefónica refers to a “gradual reduction in exposure to Hispam”, after the company's work in reducing and modulating exposure, both organically and inorganically. In the first aspect, Telefónica reported that the legal separation of Hispam is complete, "with what currently the segment already works independently creating the conditions to maximize value". Meanwhile, the focus is on growth in value customers and acceleration of efficiencies and digitization.

As for inorganic, the operator reduced the capital employed in the region by optimizing the infrastructure (the agreement in Mexico with AT&T, for example, and the launch of InfraCo in Chile, owned by KKR by 60%. Open all options with the aim of further optimizing the Group's structure, reducing exposure to emerging markets and accelerating deleveraging. During 2020, the Group requested regulatory approval for the sale of operations to LLA in Costa Rica and began to review its portfolio in the region”, added the Spanish company.

Hispam's revenues amounted to €7.922 billion in 2020, a 17.9% drop compared to the previous year. Between October and December, they reached €1.934 billion, 20.4% less. The mobile business reported sales of €5.070 billion in the year -18.4% less- and the fixed, €2.836 billion -17.4% less-. OIBDA stood at €990 million, a 51.3% drop compared to the previous year.

In terms of accesses, a recovery trend was noted between October and December, already started in the third quarter, with positive quarterly net gains in mobile and fixed. The total base of mobile accesses reached 92.2 million, a decrease of 1% year-on-year. The growth of FTTH accesses stands out in the case of Chile: in Hispam the operator reached 3.41 million total FTTH accesses, a year-on-year increase of 20.8%. Passed ultra-broadband homes reached 12 million (+5.6%): FTTH in particular increased 14.3% to 9.92 million. This same fiber deployment in turn boosted pay TV: accesses in IPTV grew by 72% year-on-year, to 577,700.

Telefónica Tech and Infra. Already with a specific weight within Telefónica's results, Telefónica Tech's revenues increased 13.6% in 2020, to € 1.504 billion. Cybersecurity revenues grew 12.5% to €421 million, following advances in the banking, energy, public and aeronautical sectors. The Cloud segment reported a 20.6% increase in sales, to €772 million, due to the migration to the cloud and double-digit growth in Saas (+59.6% year-on-year). Lastly, in IoT and Big Data, revenues grew 0.8% to € 311 million: accesses reached 23 million, after a 4% increase.

As for Telefónica Infra, also launched in the Spanish company's transformation plan in 2019, it registered revenues of €217 million in the last quarter, 4.7% more year-on-year.

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