Reasons to invest in Telefónica

Telefónica is committed to delivering sustainable, profitable growth and long-term industry leading total shareholder return (TSR). The Group’s strategy is built on a streamlined, future-proof operating model with embedded sustainability objectives, robust revenue growth, an efficient balance sheet, strongly improving ROCE and optionality beyond the core business.

Telefónica has an effective capital allocation strategy aimed at increasing ROCE across the business while adhering to the following key objectives:

  • Maintain an efficient balance sheet to support the business and investment grade credit rating
  • Provide attractive shareholder remuneration through dividends and opportunistic share buybacks
  • Invest in future growth areas in the most efficient way
  • Use strategic M&A to accelerate growth and divest non-core assets

Clear long-term strategy to generate sustainable, profitable growth and industry leading TSR

Telefónica’s strategy is based on the following pillars:

Leverage four core businesses in Spain, Germany, UK and Brazil as platform for sustainable growth and value creation and capture new and adjacent growth areas

We are well positioned in our large, attractive markets with the scale, best-in-class networks and high-value customer services and strategies in each to capture and monetise ever rising demand for data and connectivity, improving our operating leverage over time. These businesses are, or are well on their way to being, our free cash flow and capital generation engines. We continue to develop new growth areas to position the Group for sustainable, profitable growth.

  • Proactively driving in-market consolidation with VMO2 in the UK (created in 2021, on track to deliver synergies) and Oi Mobile in Brazil (acquisition completed in Q1 22, value capture of R$5.4bn in synergies), and improving our competitive positioning and benefitting from potential in-market consolidation moves in Spain
  • Delivering ongoing network enhancement and rollout: key 5G spectrum secured in the UK, Spain and Brazil; enhanced network in Germany; acceleration in FTTH rollout in Spain and Brazil; Gigabit upgrade in the UK completed
  • Invest for growth and develop adjacent growth areas

Develop Telefónica Tech, a global digital business

Telefónica Tech is our fast-growing technology company comprising two business units, Cybersecurity & Cloud Tech and IoT & Big Data Tech. T. Tech’s strong capabilities in these areas help business customers digitally transform their operations while playing a key role in the economic recovery.

  • Outperforming the market with 64.8% revenue growth in Q2 22 (~30% constant perimeter) and increased scale generating c. €0.3bn in Q2 22 (LTM revenues €1,209m; €944m in 2021)
  • Increasing capabilities through acquisitions and enhancing the value proposition with further partnerships (e.g., Microsoft and Amazon)

Pursue value creation opportunities through Telefónica Infra

Telefónica Infra, our infrastructure portfolio manager, is focused on pursuing value creation opportunities, in line with the Group’s strategy of crystallising the value of its infrastructure assets and capabilities, improving the competitive position of Telefónica’s operating business units by accelerating their FTTH rollout, while capturing future value upside from its infrastructure assets and co-investments.

  • Towers value optimised at record multiples
  • Developing fibre vehicles to create capital-light growth opportunities in Brazil, Germany, Chile, and Colombia.
  • Recently announced fibre transactions in Spain (sale of 45% of Bluevia, fibre wholesale provider in Spain rural areas) and the UK (creation of a JV which is 50% owned by Liberty Global and Telefónica Infra, and 50% owned by InfraVia Capital Partners, to build a new fibre network in the UK covering up to 7 million homes)
  • Strategic partnerships forged to increase deployment and commercialisation, e.g. reinforced position in submarine cables through partnership with Pontegadea

Reduce and optimise exposure to Hispam portfolio

Telefónica continues to reduce its exposure to the Hispam region and crystallise value from its assets. T. Hispam is focused on improving the quality of its customer base through growth in mobile contract and FTTH, operational efficiencies and acceleration in digitalisation.

  • Continue modulating our exposure whilst increasing profitability with more optionality
  • New operating model in place
  • Higher share of debt in local currencies
  • Portfolio simplification (sale of Central America operations) and value crystallisation

Streamline and digitalise operating model to build a simplified future-proof operating model

Telefónica continues to strive for enhanced efficiency and to drive digitalisation initiatives across its operating businesses and corporate centre.

  • 81% of processes digitised by the end of Q2 22
  • Embracing agile technology solutions, including fibre, 5G, and OpenRAN
  • Increasingly customer centric and agile business

Maintain strong commitment to sustainable ESG development

Sustainability forms the basis for the way we do business. We are aligned with the United Nations Sustainable Development Goals and our net-zero target has been validated by the Science-based Targets Initiative (SBTi), the first telcoms operator to receive this approval. In 2021, Telefónica was an important contributor to the economy in terms of GDP contribution (€48.9bn), provision of employment (1.2m jobs) and fiscal contribution (€9.1bn).

Our Sustainability Strategy is based on three pillars:

  • Environmental: Building a greener future
  • Social: Helping society to thrive
  • Governance: Leading by example

This strategy includes clearly defined key targets:

  • Net zero by 2040 (scopes 1,2 & 3)
  • Zero-waste company by 2030
  • >50m tCO2 avoided-customer emissions by 2025
  •  90-97% MBB rural coverage by 2024 (Spain, Germany, Brazil)
  • 33% female executives by 2024
  • Zero-gender pay gap by 2050
  • Zero tolerance of corruption
  • ~25% financing linked to sustainability by 2024
  • Parity in top governing bodies by 2030

Delivery against objectives

Clear strategic execution whilst delivering growth in Q2 22. Telefónica delivered a robust performance across its key metrics and delivered results either above or at the higher end of the guided range, despite the more challenging macro environment. As such, Telefonica has updated its 2022 guidance, and now expect to be in the high-end of the “low-single-digit growth” range for revenues and in the “mid-to-high end” in OIBDA terms. This performance was supported by a strong balance sheet and robust operating model.

  • Accelerated revenue and OIBDA growth across whole Group (organic y-o-y: +5.2% Revenue, 3.4% OIBDA and +4.1% OIBDA-CapEx)
  • Managing challenging macro environment and continued inflationary pressures
  • Best in class customer profile owing to network and FTTH expansion, and excellent 5G position (total accesses +6% y-o-y to 384m; fibre +18%, mobile contract +9%; retaining world leading position (outside of China) in UBB, 164.7m premises passed)
  • Strong balance sheet: debt portfolio de-risked and well positioned, robust liquidity, with solid free cash flow generation (€1,348, in H1 22) Net debt including post-closing events stood at €27.8bn with a stable leverage ratio vs. Dec-21, end of the period FX OIBDA, despite incorporating impact from Oi and Be-terna acquisitions

Our ambitions

Telefónica is well positioned in its markets to leverage its leading position and competitive advantages. The Group continues to invest for future growth and build its digital ecosystem in key markets. As part of Telefonica’s commitment to industry leading TSR the Group reintroduced a full cash dividend of €0.30 per share in 2022.

Well on track for 2022 targets; guidance updated to mid-high end of range

  • Revenue +4.2% y-o-y in H1 22
  • OIBDA +2.7% y-o-y in H1 22
  • CapEx (ex-spectrum) to sales ratio of 13.0% organic in H1 22 vs. 2022 target of up to 15%

Shareholder remuneration confirmed

  • €0.15 p/s paid in Jun-22, through a voluntary scrip, 74.5% of shareholders opted to receive new shares
  • 2022 cash dividend of €0.3 p/s (€0.15 p/s in Dec-22; €0.15 p/s in Jun-23).
  • Share capital reduction of 139,275,057 (Telefónica’s own shares cancellation) in Apr-22
  • Propose to the next AGM the cancellation of 0.4% of share capital held as treasury stock as of 30 June 2022

NOTE: Financial data as of 30 June 2022. For further detail please visit our financial reports publications.