Telefónica recorded a net profit of 1,142 million euros in 2019, 65.7% less than in the previous year. This fall is explained by the impact of a series of extraordinary negatives for 2,432 million euros, such as the cost of the incentive leave plan called the Individual Suspension Plan (PSI), the transformation of the operational model of Telefónica México after the agreement reached with AT&T and the deterioration of the goodwill of Telefónica Argentina. Without including extraordinary, the net profit would have reached 3,574 million.
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The operator reduced its turnover by 0.6%, to 48,422 million euros, while the operating result before depreciation (oibda) stood at 15,119 million euros, 2.9% less reported. Excluding perimeter variations and currency fluctuation, revenues grow 3.2% and oibda 1.9%.
At the end of the year, net debt amounted to 37,744 million euros, 8.1% less year-on-year, and decreased by 573 million in the fourth quarter (cut of 3,330 million in the year as a whole), although including events after closing , would be reduced to 37,000 million.
The company expects to grow revenue by 2020 thanks to the generation of an additional 2,000 million from the new Telefónica Tech division and to improve the Oibda-Capex ratio with respect to revenues by two percentage points. It will also keep the dividend, with the payment of 0.4 euros per share, payable in December 2020 (0.20 euros) and in June 2021 (0.20 euros).
Telefónica's results have not convinced investors and one hour after the opening of the session their titles fell more than 5%, to 6.19 euros per share, the worst value of Ibex 35.
The sharp reduction in profit is due to the series impact of extraordinary items. The most relevant is the cost of 1,614 million of the voluntary retirement plan (PSI), which 2,636 Telefónica employees with 53 years or more and with a seniority of more than 15 years in the company signed up. The results were also weighed down by the reversal of deferred tax assets of Telefónica México (-454 million), the impacts of the transformation of the operational model of Telefónica México after the agreement with AT&T (-275 million), the deterioration of Telefónica's goodwill Argentina (-206 million) and other extraordinary items (-253 million). On the contrary, capital gains and other positive factors have added 117 million euros.
In the fourth quarter, revenues fell 4%, to 12.4 billion, affected by changes in the perimeter and the effect of currency depreciation. During this period, losses of 202 million were recorded.
The evolution of exchange rates has a negative impact on revenues from January to December of 3.5 percentage points and 2.9 points of the Oibda in 2019, mainly due to the depreciation against the euro of the Argentine peso.
Investment and debt
The investment (capex) in 2019 amounts to 8,784 million euros (+ 8.2% year-on-year) and includes 1,501 million cost of the radio spectrum for 5G, of which 1,425 million will go to Germany. The investment continues focused on the deployment of LTE and fiber networks, increasing the capacity and virtualization of the network and improving the quality and experience of the client (application of Artificial Intelligence in the company's technological platforms).
The net financial debt at the end of December 2019 totaled 37,744 million and is the eleventh consecutive quarter that is reduced. The generation of free cash grows by 20.6% to 5,912 million euros and marks the highest level since 2013.
By region, revenues grow in European subsidiaries and fall in Latin American ones. In Spain they increase 0.5%, to 12,767 million; in Germany, they grow by 1.1%, to 7,399 million; in the United Kingdom, they increase 4.7%, to 7,109 million; in Brazil, they fall 0.9%, to 10,035 million; and in South Latin America, revenues fall 4.4% in 2019, to 6,384 million; while in North America, they yield 6.9%, to 3,795 million.
The executive president of Telefónica, José María Álvarez-Pallete, stressed that last year has been an "important year" for the company, which has fulfilled its financial objectives and whose key markets have grown in organic terms. "We are increasingly efficient thanks to the digitalization and legacy shutdown [of the copper network]. We have generated a strong free cash flow in 2019, which has allowed us to continue reducing debt for the eleventh consecutive quarter, thanks also to the sale of assets, "he said.
The number of total clients (including wholesale accesses) reached 344 million at the end of the year, 3.4% less. All segments recorded declines in both mobile lines (-3.4%), broadband (-4.2%) and television (-4.9%).
Telephone of Spain
Spain's business maintains the upward trend of previous quarters, with a turnover of 12,767 million euros, 0.5% more, and the Oibda, of 3,687 million, 22% less for the provision for the casualty plan. Revenues for the quarter (3,266 million euros) have grown by 0.4% year-on-year.
These data were influenced by the 1% increase in the number of convergent customers, which already reach 4.7 million subscribers, and the improvement in average monthly income per convergent user (ARPU) up to 88.4 euros per month in last quarter, 0.2% more in year-on-year comparisons.
The number of customers (including wholesalers) remained stable at 41.8 million (-0.1%). Those of the Internet and fiber are down 1.5%, those of mobile phones increase by 2.9% and those of pay television are stabilized at 4 million. The investment stood at 3,423 million, 1.2% less than 12 months ago.
The salaries of the directors remain
The president of Telefónica, José María Álvarez-Pallete, registered a total income of 5,537 million euros in 2019, a figure slightly lower than the one registered the previous year (5,553 million), according to the annual remuneration report of the directors, sent by the company to the CNMV.
Of these, 5,371 million correspond to the remuneration in cash (compared to 5,402 million the previous year), 132,000 euros are the remuneration for savings systems (equal to 2018) and 34,000 euros to other concepts (the previous year were 19,000 euros). To these figures, both in one year and another add another 541,000 euros of contribution of the company to savings systems with unconsolidated economic rights. Pallete accumulates funds for savings for a total amount of 9,656 million.
Likewise, Pallete accumulates 889,056 options on shares of the compensation plan for executives Performarnce Share Plane 2019-2022, subject to the fulfillment of certain objectives.
The CEO, Ángel Vilá, received a total of 4,094 million euros in 2019. Of these, 3.99 million come from the remuneration in cash, 72,000 to remuneration for savings systems with consolidated economic rights and 32,000 euros to other concepts. In addition, it had a contribution of 488,000 euros to savings systems with unbound rights. Accumulate pension funds of 7.20 million and 659,000 stock options.
The total remuneration of the board of directors of Telefónica amounted to 12,505 million euros, of which 12,235 million corresponded to cash compensation, as indicated by the company in the aforementioned report. The remuneration of the board is almost equal to that of 2018, which was 12,506 million. By 2020 it has been proposed not to raise the remuneration to the board.
The third highest paid director was Javier de Paz, with 585,000 euros, of which 280,000 were in the parent and 305,000 in other group companies. Among the other directors, the vice-presidents of the Isidro Fainé council stand out, with 280,000 euros; José María Abril, with 300,000 euros; Javier Echenique, with 415,000 euros, and Peter Erskine, with 271,000 euros.