STRATEGY, TARGETS AND GROWTH DRIVERS

Comments of José María Álvarez-Pallete, Chairman and Chief Executive Officer:

“2019 was an important year for Telefónica. We met our guidance, with all our core markets growing in organic terms. We are becoming more efficient based on digitalisation and shutting down legacy services. We delivered very strong free cashflow in 2019, leading to a continued reduction in debt for 11 consecutive quarters, also helped by disposals and other actions to improve return on capital employed. We continue to invest in next generation networks, cementing our leadership in fibre networks in both Europe and Latin America. Thanks to years of investment, our CapEx to sales ratio peak is behind us.

We are also making good progress in achieving non-financial objectives, including an improvement in both customer and employee satisfaction. Our staff and board are more diverse. We are aware that our sector has a great impact on the societies where we operate. Our digital customer solutions, as well as energy efficient networks, are helping to decarbonise the economy. Last year we reduced CO2 emissions by 18%, reaching a 50% reduction in four years.

We begin 2020 with good momentum and focus on executing the plan we announced at the end of last year. Telefónica took five strategic decisions to generate value and long-term positive impact to all stakeholders. We are prioritising markets where we can be relevant for our customers - Spain, Brazil, Germany and the UK - while focusing on value creation in new digital services and infrastructure through T. Tech and T. Infra. The operational spin-off of Hispam will open opportunities to crystallise value and finally, we are increasing agility and efficiency across all units.

Looking to our 2020 guidance, we are expecting stable growth in the main metrics, a stable and attractive dividend, with a long-term commitment to a sustainable and responsible growth.”

 

GUIDANCE

- Telefónica announces for 20201 stable Revenues, OIBDA and (OIBDA-CapEx)/Revenues

- Telefónica announces 2019-20221 financial targets, within the framework of the new action plan announced in November 2019:

  • Revenue growth.
  • More than €2bn additional revenues by 2022 generated by Telefónica Tech (cybersecurity, IoT/Big Data and cloud).
  • +2 p.p. (OIBDA-CapEx)/Revenues ratio.

 

1 2020 and 2019-2022 guidance:

  • Assumes constant exchange rates of 2019 (average in 2019).
  • Exclude the contribution to growth from T. Argentina and T. Venezuela.
  • Exclude the results from Central America's operations.
  • Considers constant perimeter of consolidation.
  • Does not include write-offs, capital gains/losses from the sale of companies, material non-recurring impacts and restructuring costs.
  • CapEx excludes investments in spectrum.

2019 adjusted bases: Revenues (€47,875m), OIBDA (€16,762m), and (OIBDA-CapEx)/Revenues (19.9%).

  • Considering: average exchange rates in 2019 with the exception of Venezuela and Argentina (exchange rate of the end of the period). Excludes T. Centroamérica. IFRS 16.

 

TREND EVOLUTION

In the context of our industry, we operate in a highly dynamic sector with sustained growth and the forecast is that 'Industry 4.0' will generate billions of euros in value, unstoppable progress and increasingly intelligent societies thanks to:

Tendencias
  • An unprecedented accumulation of technology that changes the way we do things (the so-called ‘smart spaces’).
  • Everything and everyone are connected, or even hyper-connected (cars, cities, people, …)
  • Exponential growth of digital data describing what things and people are and do. New technologies such as cognitive and artificial intelligence to predict their behaviour.

At the same time, inequality in the world is increasing, the demographic, labour and environmental challenges are multiplying and there is growing concern about fake news and privacy, etc. For the first time in ten years, the top five global risks in terms of probability of occurrence have to do with the environment. They are followed by fraud, data theft and cyberattacks (Source: Global Risks 2020 - World Economic Forum).

The digital revolution is at the root of some of these challenges and involves major ethical dilemmas that demand unavoidable responsibility for the sector. At the same time, new technologies can help solve problems that have so far remained unanswered and ensure fair, inclusive progress.

These societies must be able to address the above-mentioned economic, social and environmental challenges and, to do so, people turn to enterprise.

This requires an evolution of the current models towards "stakeholder capitalism" in which the purpose of businesses is to engage a central, cross-functional approach focused on collaboration with all stakeholders to create shared and sustained value as outlined in the Davos 2020 manifesto (Source: Davos 2020 Manifesto: The Universal Purpose of Business in the Fourth Industrial Revolution) in the framework of Industry 4.0.

Tendencias

As universal providers of connectivity and technology, telecommunications companies are called upon to play a key role in this revolution. We will have to complete a metamorphosis towards new generation networks with a change to fibre in their fixed networks and the evolution to 5G in their mobile networks, at a time when the sector is also subject to stiff competition As a result, we are at a moment in time when our industry’s status quo is changing at an increasingly rapid pace; this brings with it the challenge to find new models that adapt to the new rules of the game.