Telefonica, Spain’s prominent telecommunications provider, has recently mooted a fresh strategic roadmap attached with the catchy acronym of GPS, which represents Growth, Profitability, and Sustainability. After sharing solid Q3 figures suggestive of tangible organic revenue and earnings fortification, the company has breathed life into its 2023-2026 strategic blueprint, serving up key targets.
Principal among Telefonica’s GPS mission is to augment its annual free cash flow generation by 2026 to €5 billion. That’s a robust leap from the estimated €4 billion expected this year, embodying a more than 10% compound annual growth rate. Keeping in mind that Telefonica is modifying how it computes free cash flow (FCF), the 2026 FCF in pragmatic terms will be €3 billion, a sizeable increase from €2.1 billion of 2023.
To keep shareholders in positive spirits, the company revealed, “Cash flow is a priority for Telefonica and a key reference in the GPS plan to continue to reduce debt, meet financial commitments and guarantee the dividend.”
Similarly, Telefonica is envisaging a CAGR of roughly 1% in revenues, and twice that in EBITDA over these three years. In terms of business segmentation, the retail section is expected to raise its revenue by 1.5% CAGR in the 2023-2026 period, and business-to-business (B2B) is predicted to raise its revenue by 5%. Furthermore, Telefonica Tech, the digital services wing of the company, has the challenging target of recording an 18% CAGR, and it is projected to log €3 billion in revenues by 2026.
Despite the prevailingly financial spotlight of this agenda, the plan does not neglect the critical aspect of digital transformation. In the words of Telefónica Chairman José María Álvarez-Pallete, “The company has completely reinvented itself because connectivity is at the heart of everything digital. We are now a supercomputer.”
After a revenue growth of 2.5% to €11.9 billion, and net income increase of 9.3% to €502 million in this year’s third quarter, the solid numbers solidify the company’s assurance in its new strategy. Telefonica emphasizes the shift in investment priorities outlined by GPS. The roadmap anticipates a gradual reduction in expenditure vis a vis sales, dropping to less than 12% by 2026—a reduction of more than two percentage points as against the 14% full-year target for 2023.
Telefonica’s updated strategy also entails the company’s commitment to debt reduction. The company aims to keep the net financial debt to EBITDAaL ratio between 2.2x and 2.5x by 2026.
Telefonica’s GPS plan focuses on the fundamentals of every successful business strategy: generate more cash, optimize expenditure, and boost revenues and earnings. It’s a simple equation but one that, if Telefonica executes it strategically, could reshape its position in the coming years.