Telefónica fails to stop rot after axing 4,500 jobs last year

Telefónica's share price sank 5% in Spain this morning after job cuts and other restructuring efforts failed to boost financials to the extent analysts had been expecting.

The Spanish telecom giant today reported a 0.6% dip in sales last year, to around €48.4 billion ($52.3 billion), and saw underlying profits (or OIBDA, for operating income before depreciation and amortization) fall 2.9%, to €15.1 billion ($16.3 billion), as restructuring costs tore into profitability. Telefónica said revenues and OIBDA grew 3.2% and 1.9% respectively on a like-for-like basis. It is guiding for stable revenues and OIBDA this year.

The operator cut more than 4,500 jobs in 2019, nearly 4% of total positions, as it worked to boost profits under its latest strategy of doubling down on a smaller number of key markets, according to financial results published this morning.

The operator's average global headcount for 2019 fell by 4,506 employees, to 117,347. The update means that nearly 16,000 jobs have disappeared since the end of 2012, or about 12% of the total that year, with some positions removed because of divestment activity.

Telefónica's empire has shrunk in the last decade but still spans various important markets in Europe and Latin America. Under a strategy it unveiled in late November, it announced plans to focus more heavily on Spain, Brazil, the UK and Germany in future, spinning off its other Latin American businesses into a separate unit. The move implied those assets may eventually go on sale.

Like other European incumbents, Telefónica has also set up an infrastructure business that includes its towers. It appears to be courting external investors interested in acquiring a stake in Telefónica Infra, as the business is called.

Another new division, Telefónica Tech, has been tasked with generating an additional €2 billion ($2.2 billion) in revenues by 2022 from the sale of cybersecurity, Internet of Things, big data and cloud products.

While it remains early days for that new strategy, the latest headline results from the operator appeared to miss analyst expectations, with the company's share price down more than 5% during mid-morning trading in Spain. Shares have now lost about a fifth of their value in the last year.

The program of layoffs has been especially brutal in Spain, with the latest financial report showing that nearly one in ten Spanish jobs was eliminated in 2019, leaving the unit with a total of 22,869 employees at the end of December.

Telefónica said it had already been able to realize savings from a voluntary redundancy program in its domestic market, where 2019 sales grew 0.5%, to about €12.8 billion ($13.8 billion). Hit by restructuring charges, OIBDA sank 22.6%, to around €3.7 billion ($4 billion), but was up 0.1% organically, said the company.

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The UK business remained the high-flyer in the group, with reported revenues up 4.7% for the year, to €7.1 billion ($7.7 billion). In Germany, Telefónica managed a modest 1.1% improvement in sales, to €7.4 billion ($8 billion).

But the company's Latin American operations weighed heavily on overall performance. Although sales from the Brazilian business were up 0.9%, to roughly €10 billion ($10.8 billion), an impairment charge of €206 million ($223 million) in Argentina hit profitability.

On a positive note, Telefónica continued to chip away at its net financial debt, which was down to €37.7 billion ($40.7 billion) in December from a monstrous €52.2 billion in June 2016. Telefónica's net-debt-to-OIBDA ratio of 2.5 at the end of last year looks more respectable than it has in years.

"We are becoming more efficient based on digitalization and shutting down legacy services," said José María Álvarez-Pallete, Telefónica's chairman and CEO, in a statement. "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."

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— Iain Morris, International Editor, Light Reading

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