Telefónica will partly finance a possible labor regulatory dossier (ERE) with the savings it will obtain from cutting the dividend in the coming years. The reason is that the 2026-2030 Strategic Plan includes “commitments to employees” as one of the indicators that will be used to set the dividend starting from 2027. Under this “commitments” heading are included the compensation and annual payments received from workers who have left the company in the various ERE or voluntary redundancy plans.
In this way, the cost of any collective layoffs that the company will have to face will lead to an automatic reduction in the dividend, which will be greater the more workers are affected by the adjustment or the better the economic conditions and the compensation they receive. In summary, shareholders will be responsible for a very large portion of the bill for any ERE the company may raise in the future.
Telefónica’s last ERE ended in early 2024, with the voluntary departure of 3,420 workers and an approximate cost of 1.3 billion euros. The Plan Transform and grow It does not foresee any specific item for staff adjustment, but foresees operational cost savings of up to 3,000 million euros in 2028. Furthermore, internal sources indicate that the operator is preparing an exit plan that could concern between 5,000 and 6,000 employees, as published in this newspaper.
The CEO of Telefónica, Emilio Gayo, interviewed by journalists in the press conference presenting the plan of 4, did not exclude the possibility of this adjustment, as a tool to reduce operating costs, even if he subordinated any measure in this regard to “an agreement with the unions”.
It does not seem that the majority unions will pose major problems to a possible ERE given the advantageous conditions agreed in the latest plans. In fact, they have just signed the first social pact so that the rights of the group’s workers are equal regardless of the branch in which they work, in a movement that is interpreted as preparation for the next exit plan.
Cash flow formula
Specifically, the plan calls for the dividend charged in 2027 and subsequent years (payable in June of the following year) to be between 40% and 60% of free cash flow (FCF), an accounting concept that measures the funds a company generates after covering operating expenses and investments necessary to keep it running. But the plan Transform and grow establishes an ad hoc cash flow, modifying its calculation formula by subtracting the annual cost of “employee commitments” (payments to workers who have joined ERE or incentive redundancy plans) and adding the dividends of Virgin Media O2, the 50% subsidiary of Liberty in the United Kingdom.
If this formula had been applied in 2025, the dividend of 0.30 euros per share that shareholders will receive would have been reduced to less than half. The company itself admits this theoretical reduction in the presentation of the plan – the dividend for 2025 remains the expected one at 0.30 euros – underlining that 1,000 million in costs for labor adjustments should be subtracted from the 2,700 million euros expected in FCF for the current year and 200 million in dividends received from the United Kingdom should be subtracted, for a total of 1,900 million euros as the basis for setting the dividend. distribute to shareholders. Between 40% and 60% of this amount is equivalent to a dividend of between 0.13 and 0.20 euros per share, compared to the 0.30 euros that will be distributed with the previous method. For 2026, the dividend is also out of the formula, albeit reduced by half (0.15 euros per share).
For the next few years, the company’s forecasts indicate cash flow growth of between 3% and 5% per year compared to the 2,900-3,000 million expected for 2026. An ERE for 5,000-6,000 workers would imply a bill of over 2,000 million euros, which would directly impact the dividend of the years in which this expense was allocated.
The company also admits that employee commitments will increase in 2026 and that the dividend repatriated from VMO2 will not be much higher than what it currently receives, so dividends from 2027 could even be lower than the €0.15 set for the 2026 financial year.
It also remains to be seen whether the group will be able to achieve its cash flow targets. In results presented Tuesday, FCF was only 414 million through the end of September, 68% less than the same period last year, so at the end of the year it will be a long way from the 1,900 million expected for 2025, and even more than the 2,900 it had set as a target for 2026.
The financial director of Telefónica, Laura Abasolo, justified this bad evolution of the FCF with the impact of the sales of subsidiaries in Latin America and with the delay in the collection of one of the tax cases that the company won at the Treasury. For the next few years, Abasolo told analysts that the capex reduction contained in the plan will also help increase FCF.
Another derivative of this formula is that the state, through its 10% stake held by the State Industrial Participation Company (SEPI), will not only see its income reduced if the dividend is reduced, but will also indirectly contribute to addressing a collective layoff.
