Business profits take off

Facade of the Madrid Stock Exchange VICTOR SAINZ

Companies are gradually recovering the normality lost with covid-19.

The outbreak of the pandemic in 2020 flooded corporate accounts in the red.

The world stood still, and successive waves of the virus blurred any hope of a speedy recovery.

The delta variant prevents lower guard, but the truth is that vaccination, especially in developed countries, has picked up pace and the long-awaited group immunity is already closer.

This week, most of the listed Spanish companies have presented their results for the first half of 2021. And the balance confirms, in general terms, that feeling that better times are coming. Despite the fact that the first quarter of the year was not as good as expected, due to vaccine delays, the six-month balance invites hope. Specifically, the aggregate profits of the companies in the continuous market between January and June totaled 30,304 million euros, compared to the losses of 14,144 computed in the same period of the previous year.

The recovery can be seen from the top of the corporate reports and is confirmed as the income statement declines. Sales are perhaps the best thermometer because, after applying real economies of war in the toughest months of the pandemic, companies need to see their revenues grow or, in the worst case, stop declining. In this sense, the aggregate turnover of the Spanish listed companies was 230,658 million euros, an amount that represents 5.63% more than in the first half of 2020.

The health crisis forced companies to apply significant cost cuts to minimize the impact of lower activity.

These austerity policies now have a multiplier effect at the level of operating income when revenues are recovered.

The gross operating result or ebitda is the cotton test of the performance of a company because it reflects, roughly, the income minus the costs (without taking into account items such as extraordinary, depreciation or taxes).

The total ebitda of the listed companies in the first half of the year totaled 40,405 million euros, 228% more than in the same period of 2020.

Generalized gains

The improvement in corporate accounts has been generalized, both in large companies and in those of medium or small size. In the Ibex 35, where the groups with the largest capitalization are located, the joint profit was 28,835 million, compared to the losses of 14,785 million a year earlier. For its part, the balance sheet of the rest of the companies listed on the continuous market reflects earnings of 1,468 million, 129% higher. As of June 30, there were 16 companies in the red, while on the same date in 2020 the loss club consisted of 28 members.

Telefónica has recovered, after several years, the first position of earnings. The operator obtained 8,628 million euros in the semester compared to 830 million in fiscal year 2020. Although the telecom's sales fell, the net profit broke the historical record in a semester thanks to the merger of O2 with Virgin and the sale of towers Communication. "The strength of our results during the second quarter represents a turning point in our transition towards sustainable and profitable growth," said the Chairman of Telefónica, José María Álvarez-Pallete, in a note sent to the CNMV. In addition, the perspectives drawn by the head of the company are optimistic. “Looking ahead to the second half of the year, we improved our targets for the year as a whole in revenue and OIBDA [operating income]”,Álvarez-Pallete added.

The gradual return to normality in the world economy is reflected in the good results of the steel groups, whose activity depends heavily on the timing of the cycle. Precisely, ArcelorMittal has established itself in the first position for sales among Spanish companies (although it is based in Luxembourg and is listed on the Madrid Stock Exchange) with 29,862 million euros, in the best semi-annual accounts since 2008 for the steel giant. "The second quarter confirmed a solid recovery, both in results and inventories", highlighted the CEO, Aditya Mittal, who also showed his confidence in the sustainability of the improvement: "Looking to the future, we see that the prospects for demand improve even more in the second semester and thereforewe have raised the forecasts regarding the consumption of steel in the whole of the year ”.

Another example of a cyclical sector that suffered a shock and is now recovering is the automobile business. Spain does not have a national manufacturer - Seat belongs to the Volkswagen group - but it does have some of the main component suppliers that show that way out of the crisis in their semi-annual accounts. Gestamp, for example, has gone from losing 198 million to winning 82.8 million. "We closely follow the uncertainties in the automotive market around the impact of the semiconductor shortage, but we maintain our forecasts for 2021, improving them in the ratio of capex [investment] over sales and debt over ebitda," explained the CEO of Gestamp, Francisco J. Riberas. In the case of Cie Automotive, the net profit multiplied by 2.5 times, to 148 million."The excellent recovery of our operating margins and the tight control of our investments have allowed us to reduce our level of indebtedness by almost 250 million euros in the last 12 months," said Jesús María Herrera, CEO of Cie Automotive.

Banks continue to face a difficult environment, as prolonged low interest rates make it difficult to generate financial margins. However, the year-on-year comparison is very favorable since in 2020 they undertook large accounting write-offs due to the impact of covid-19. The five largest entities in the market (Banco Santander, BBVA, Caixabank, Banco Sabadell and Bankinter) earned 11,127 million between January and June compared to losses of 11,495 million a year earlier.

Banco Santander recorded a profit of 3,675 million this semester compared to the red numbers of 10,798 million in which it incurred a year earlier. Ana Botín, president of the entity, pointed out that the group is "in line" to exceed the profitability objective that had been set for the year as a whole and maintains the intention of "resuming a remuneration to shareholders of 40% -50 % of ordinary profit ”. BBVA has also managed to leave behind the semi-annual losses of 2020 (1,157 million) with an attributed net profit of 1,911 million. "We continue to advance at a good pace in key areas of our strategy: we have doubled our commitment to sustainability and we have achieved a historical record in attracting customers through digital channels", highlighted the CEO of the entity, Onur Genç.

For its part, Caixabank presented the first half-yearly results as a merged entity with earnings of 4,181 million compared to 205 million a year earlier.

Gonzalo Gortázar, CEO of the bank, stressed that "in a still complex environment and in full integration", they have managed to maintain "the strength of the balance sheet, with the best delinquency rates of large banks in Spain, and a high rate of activity commercial".

Impact on tourism

Tourism has been one of the great victims of the sanitary restrictions imposed due to covid-19. Companies in this sector have presented better accounts than in the first half of 2020, but many of them still have a negative net result. IAG has gone from losing 3,811 million last year to a red number of 2,046 million. "In the short term, our priority is to ensure that we are operationally prepared and that we have the flexibility to capitalize on an environment in which there is latent demand that manifests itself as soon as travel restrictions are lifted," he explained. the CEO of IAG, Luis Gallego.

Hotel companies are also gradually coming out of the shock caused by the pandemic.

Meliá Hotels, for example, has managed to reduce its losses to 151 million compared to 358 million in the first half of last year.

“Although the successive waves of covid-19 maintain volatility in the business, the positive trend in reserves and the progressive reduction in cancellation rates show that mass vaccination has completely changed the scenario, by drastically reducing the risk for vaccinated travelers, as well as for destinations ”, said the CEO of Meliá, Gabriel Escarrer.

The salary of the councils wears the crisis well

The pandemic causes an unprecedented drop in the average gross salary in Spain. Annual compensation per worker stood at 22,838 euros in 2020 after a 2.6% decline, the highest since the Annual Labor Cost Survey began in 2008. The data, which was released this week, contrasts with the evolution of salaries in the noble floors of companies. The boards of directors of the Ibex 35 companies earned an aggregate 123.5 million euros in the first half of 2021, an amount that represents a minimum drop of 0.45% compared to the wage bill for the same period of the previous year.

The company where the remuneration of administrators grew the most was Indra, 204%, due to the compensation that its former president received when he left his post. The salary of the council of the technology company, where the State through SEPI is its largest shareholder, totaled 6.3 million, an amount that includes the 3.1 million settlement received by Fernando Abril-Martorell plus 0.775 million "as a consequence of the breach of the contractual term of notice ”.

The board of directors of the selective index where the remuneration increased the most was that of Iberdrola. Its members received a total of 16.4 million euros in the first six months of the year, with an increase of 7% over 2020. The second most expensive board in Spain was that of ACS, with a joint payroll of 9.31 million euros, 1.79% more. In third place, the administrative body of Banco Santander was placed, with 8.5 million euros, a figure that represents a year-on-year improvement of almost 1%.

In the case of the members of the senior management of the Ibex 35 companies, the wage bill totaled 182.2 million euros, with a decrease of 1.78%.

The bonuses for objectives, which increasingly weigh more in the remuneration of the directors, are usually distributed in the second half of the year.

Therefore, it will be necessary to wait until then to see if this slight salary containment in the domes is confirmed or is just a mirage.

Spain compensates for external weakness

From the beginning of the 21st century and until the outbreak of the pandemic, the foreign affairs of listed companies were the main driver of the income statement. However, covid-19 has caused a change of scenery. Between January and June 2021, the turnover of the domestic activities of the Ibex 35 companies grew by 6.07%, offsetting the fall in the income of the international subsidiaries (-1.2%). This uneven behavior has slightly reconfigured the geographic contribution of the selective's turnover: Spain contributed 33.7% of total sales during the first semester (32.14% a year earlier) compared to 66.3% of the international markets.

On the other hand, the improvement in corporate profits and the gradual normalization of the economic situation have not been accompanied by a recovery in the labor force. As of June 30, the workforce of the Ibex 35 companies (not counting Inditex, ArcelorMittal and Solaria) employed 1,000,217 people, 4,000 less than in the same period of the previous year. It must be taken into account that this is the average number of employees during the semester and that in many cases the variations do not correspond to hiring or firing, but to sales or acquisitions of companies (and their employees). Cellnex was the company that increased its average workforce the most during the semester (39.2%), followed by Caixabank, with growth of 28% (largely due to the merger with Bankia) and Banco Santander (15%).