Telefónica has cut its dividend by a quarter as the Spanish telecoms group seeks to preserve cash to complete a major overhaul of its business.
Revenue in the year to December fell 11 per cent to €43bn and 12 per cent in the fourth quarter to €11bn. Pre-tax profit declined 5 per cent to €2.6bn for the year, although it more than doubled to €1.2bn in the final three months.
The annual drops were driven by the impact of Covid-19 with roaming revenue down sharply due to fewer people travelling and lower rates of smartphone upgrades. Telefónica said the pandemic over the course of the year had led to €1.9bn in lost revenue and cost it almost €1bn in operating income, with Spain, the UK and Brazil bearing the brunt of the losses.
“We have been able to manage the unexpected,” said José María Alvarez-Pallete, executive chairman.
The Spanish group pointed to a stabilisation of revenue and operating income in 2021 as it recovered from the disruption, but nonetheless cut its dividend to €0.30, from the €0.40 it paid out last year in cash and shares as it continues to restructure the company.
Telefónica was involved in two of the largest transactions in European telecoms over the past year after it agreed to merge its O2 mobile network in the UK with Liberty Global’s Virgin Media cable division and sold its Telxius mobile tower division to American Tower for €7.7bn last month.
It has also created separate technology and infrastructure divisions and signed fibre co-investment deals with financial companies in markets including Germany. Telefónica acquired parts of its Brazilian rival Oi during the year but has also started to dismantle its chain of operations in Latin America.
The company’s debt, which has weighed on it for years, reduced by €2.5bn overall to end the period at €35bn on a net basis, a figure that excludes lease liabilities. Transactions such as Telxius will reduce debt by a further €9bn.
Georgios Ierodiaconou, analyst at Citigroup, said Telefónica’s numbers were slightly higher than expected. “The focus will be on how Spain is expected to perform within the mix. The dividend policy is likely to get a mixed response,” he said.
O2 in the UK recorded a drop in revenue for the first time in five years but nonetheless increased its margin during the period despite the impact of Covid-19.
Rivals Sky and Vodafone have objected to the merger of O2 and Virgin Media on the grounds that it could reduce competition in the market for “virtual” operators that lease capacity on a mobile network to offer their own services.
Mark Evans, chief executive of Telefónica UK, told the Financial Times that Vodafone had performed similar cable-to-mobile deals in markets such as Germany and the Netherlands and said that there would still be four mobile networks for virtual operators such as Sky to use after the merger. “Is there any less competition? The answer is no,” he argued.
Telefónica shares were up 4 per cent in early trading on Thursday.
