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, 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, while capturing 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 and Oi Mobile in Brazil, improving our competitive positioning in Spain, where in-market consolidation and the European Recovery Fund are upside opportunities
  • Focus on network enhancement and rollout of new technologies: 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
  • Q3 22 highlights: reinforced leadership
    • Spain: ongoing commercial momentum on Mi Movistar offering; progress on OIBDA y-o-y improvement
    • Brazil: unrivalled operating performance, double-digit revenue growth and OIBDA margin up y-o-y, continues integrating Oi mobile accesses and capturing synergies
    • Germany: M4M with revamped O2myHome tariff; accelerated revenue and OIBDA growth y-o-y
    • VMO2: accelerating OIBDA growth y-o-y; synergies kicking-in (30% of £540m run rate by 22E)

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.

  • A potential source of value due to its fast-growing B2B digital services and new partnerships
  • Grew at scale ahead of the market with a strong funnel: +68.6% y-o-y in Q3 22, +70.6% y-o-y to €1,021m in 9M 22 (~30% y-o-y in constant perimeter)
  • Increasing capabilities through acquisitions and enhancing the value proposition with further partnerships (e.g., Microsoft, Amazon, McAffee, Sherpa.ai)

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 enabling further growth via alternative investment models.

  • Capturing growth through fibre vehicles (12m premises passed as of Sep-22 and >25m in 2026) in Brazil, Germany, Chile, Colombia, and the recently announced in Spain and UK, while analysing opportunities to crystallise value
  • Strategic partnerships forged to increase deployment and commercialisation (e.g. reinforced position in submarine cables through partnership with Pontegadea)
  • Towers value optimised at record multiples

Reduce and optimise exposure to Hispam portfolio

Telefónica continues to modulate its exposure to the Hispam region while maintaining optionality. 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.

  • New operating model in place
  • Strong commercial traction in high value (+18% FTTH & cable, +5% contract, +54% IPTV) Revenue +16.2% y-o-y in Q3 22, OIBDA +12.6% (€). Capital employed -34% since Dec-19
  • 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 Q3 22
  • Progressing on network leadership (focusing on environment & efficiency, new open networks)
  • New opportunities for Telcos in the new Web 3 environment (5G, NaaS, Edge computing,…)
  • 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, based on three pillars, includes clearly defined key targets:

  • Environmental: Building a greener future
    • – Net-zero emissions across the value chain by 2040 (interim: reducing 90% Scope 1 + 2 in core markets and neutralising 10% unabated emissions by 2025). 100% renewable electricity by 2030
    • – Zero-waste company by 2030
    • – Avoid 12m tCO2 p.a. in 2025 and >50m tCO2 emissions (2020-25 accumulated)
  • Social: Helping society to thrive
    • – 90-97% MBB rural coverage by 2024 (Spain, Germany, Brazil)
    • – 33% female executives by 2024
    • – Zero-gender pay gap by 2050
  • Governance: Leading by example
    • – Zero tolerance of corruption
    • – ~25% financing linked to sustainability by 2024
    • – Gender parity in top governing bodies by 2030

Delivery against objectives

The relentless execution of our strategy allowed us to report improving growth trends in euros in both revenues and OIBDA, and to reiterate our recently updated guidance and the dividend for 2022. Our streamlined and leaner operating model enabled us to generate a stable organic OIBDA margin vs Q3 21 despite ongoing cost headwinds. At the same time, we maintained a strong balance sheet, and have a strong liquidity position that covers maturities over the next three years.

  • Accelerating reported trends (revenue +11.2% and underlying OIBDA +8.5% y-o-y in Q3 22)
  • Consistent and sustainable organic growth (revenue +3.8% and OIBDA +3.1% y-o-y in Q3 22)
  • Network leadership and commercial actions supporting accesses growth (UBB +7%, fibre +17% and mobile contract +8% y-o-y), churn management and leading NPS
  • Smart capital allocation, prioritising investment for growth (13.8% CapEx to Sales organic)

Strong balance sheet on prudent debt management (13.0 years avg. debt life, 74% total debt fixed, €22.1bn robust liquidity, covered maturities over the next three years) and solid FCF (€1,1bn in Q3 22 to €2.5bn in 9M 22 (+68.2% y-o-y)) positioning us well for macro uncertainties. Net financial debt considering post-closing events of €26.7bn, deleveraging despite M&A activity in 2022 (2.52x ND/OIBDAal post-closing EoP). Shareholder’s equity up +15.8% vs. Dec-21 to €25.7bn as of Sep-22

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.

January-September 2022 results on track to meet guidance for 2022

  • Revenue: “high-end of the low single digit growth” range (+4.1% y-o-y in 9M 22)
  • OIBDA: “mid-to-high-end of the low single digit growth” range (+2.9% y-o-y in 9M 22)
  • CapEx (ex-spectrum) to sales ratio of up to 15% (13.8% in 9M 22)

Shareholder remuneration confirmed

  • 2022 cash dividend of €0.3 p/s (€0.15 p/s in Dec-22; €0.15 p/s in Jun-23).
  • €0.15 p/s paid in Jun-22, through a voluntary scrip (second tranche of 2021 dividend)
  • 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 September 2022. For further detail please visit our financial reports publications.