José María Álvarez-Pallete challenges analysts like JP Morgan who questioned the viability of Telefónica’s dividend. The company has just announced its new GPS plan for the next 3 years, but also other issues such as reducing its investment in networks. The suffocating European regulation prevents them from competing on equal terms with other giants in the world.
Today Telefónica Investor Day is celebrated in Madrid, an event in which the company shares details about its future with its shareholders. In this case, the objectives have been announced for the period 2023-2026, which come with a new GPS plan to boost the growth, profitability and sustainability of the company. This is everything Telefónica will do in the next 3 years.
The Spanish company has a new roadmap after having successfully completed the objectives set in 2019. Now, starting in 2023 and for 3 years, it will implement a new plan focusing on cash generation that should reach 5,000 million of euros. Growth, Profitability and Sustainability (GPS) are the lines that we review below.
The vision of José María Álvarez-Pallete
The president of Telefónica has explained that they are at the dawn of the digital era and that the company has come this far by being faithful to its values and meeting its objectives. He believes they have completely reinvented themselves and now have a new vision and renewed ambition to lead the future.
To this he added that, in this new digital world, complete deregulation is necessary, something in line with what they have been demanding for some years. He considers that the best way to guarantee the strategic autonomy of Europe and the telecommunications sector is a regulatory framework adapted to the needs of the new times. For all these reasons, they believe that their GPS plan is a valuable tool for the company’s future.
What is the GPS plan?
Telefónica has confirmed that the 2023-2026 financial objectives expect that: “The average annual rate of increase (TAMI) will be approximately 1% for revenue; at 2% for the operating result before amortizations (EBITDA); at 5% for operating cash (EBITDAaL-CapEx), and above 10% for cash flow generation (FCF).”
The new GPS plan (Growth, Profitability and Sustainability) is based on five levers that the company has explained:
- The Sustainability of B2C Revenue Growth
- Maintaining the good momentum of the B2B business
- The evolution of income derived from agreements with the company’s partners
- Obtaining efficiencies that help reduce the cost structure
- The reduction of investment, but maintaining Telefónica’s differential profile in the sector
With all of the above, we seek, among other things, simplification and focusing on cash generation. According to Telefónica, “this plan will increase cash generation from the approximately 4,000 million euros expected in 2023 to 5,000 million euros in 2026.” Cash flow will be a primary reference in this new GPS plan.
At the business unit level, more growth will be sought in Telefónica Tech and Telefónica Infra. In the case of the latter, the FTTH fiber footprint in 2026 will reach 30 million real estate units in Spain and there will be 100 million worldwide. Turning to the regulation of the sector, this will be another key aspect of the plan. Telefónica “will intensify its collaboration with the telco industry in order to lead the process of achieving a fairer regulatory environment for the sector.”
Third quarter results
In addition to all this, Telefónica has also announced today the results for the third quarter of 2023. The operator, between July and September, has had revenues of 10,321 million euros and a net profit of 502 million euros, 9.3% more than in the same period of 2022.
Telefónica Tech increased its revenues by 14.4% year-on-year in the quarter, up to 442 million euros, while Telefónica Infra closed with a total of 20 million real estate units passed with FTTH. Operating cash in this period increased by 9.3% and the investment to income ratio stood at 13.4%.
