Telefónica takes hit amidst restructure

José María Álvarez-Pallete

Telefónica shares took a dive in early trading after the company posted a fall profits as a result of expensive layoffs in Argentina and Mexico.

Overall, the Spanish telco saw revenues drop by 4% to €12.4 billion. Concerningly for the company, it saw Q4 net loss of €202 million, significantly far away from analyst expectations of €715.7 million net profit.

Positively, sales reached €48.42 billion for the year, faster than the company’s targeted annual increase of 2%. This beat analyst expectations of €47.8 billion.

José María Álvarez-Pallete, chairman and CEO of Telefónica said: “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.”

In terms of overall revenue, Spain is Telefónica’s biggest market, making up 26% of its business. This is followed by Brazil with 21%, and Germany and the UK at 15% each.

This comes amid a period of major restructuring for Telefónica, which in November announced it would focus investments on the Spanish, Brazilian, British and German markets. It is also splitting its Latin American markets – including Argentina, Mexico and Colombia – into a separate unit which it will look to sell.

Following the results, shares fell by more than 5% in early trading.

Looking forward, Álvarez-Pallete said: “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.”