As the Investor Relations department, we act as an interface between the company Telefónica Deutschland, the capital market and other stakeholders. We inform interested parties promptly, regularly and comprehensibly about the operational and strategic development of the company, for which we provide relevant information clearly and without delay. These activities and the regular, active dialogue are intended to give investors the opportunity to inform themselves about the development of the company and to make investment decisions on the basis of a well-founded assessment.
Economic situation and capital market environment
In 2018, the German economy recorded another upswing and, according to initial calculations by the Federal Statistical Office, achieved GDP growth of 1.5 percent (price-adjusted) year-on-year in an environment marked by global crises. The impetus for this growth comes in particular from the domestic market. Consumer spending by households and government expenditure increased, as did investment in equipment, buildings and other assets. Exports continued to rise, with imports also reporting an increase. The number of unemployed people went down significantly compared with the previous year.
The global stock markets were strongly influenced by global economic and political developments in 2018 and were unable to continue the positive trend of previous years. In addition to the negotiations on the UK's exit from the European Union which carried on until the end of the year, concerns about trade tariffs between the US and other nations have repeatedly unsettled the stock markets.
The German benchmark index DAX and its European counterpart, the Stoxx600, performed almost in parallel in 2018. Following a positive start to the year, the highs for the year had already been reached by the end of January. After a recovery that lasted from February to May, the indices were able to keep their performance stable until autumn. Prices then fell sharply in the third quarter of the year, reaching lows at the end of November. Even the last month of the year did not lead to any significant recovery on the stock markets. As a result, the DAX closed 2018 with a loss of 18.3 percent, while the Stoxx600 ended the year slightly better, although with a loss of 15.5 percent.
The European telecommunications sector was also unable to escape the global negative trend affecting stock markets. The index peaked at the beginning of the year before reaching its low at the end of October with a slight recovery, i.e. somewhat earlier than the European markets. From this point on, the price performance of the European telecommunications index became detached from the performance of the European markets and there was a slight recovery, with the result that the index closed the year at -13.0 percent.
At the beginning of 2018, Telefónica Deutschland's share price performed largely in line with the German and European benchmark indices. Following the high for the year of EUR 4.252 in January, the dividend payment in May was followed by a decoupling from market trends. The Telefónica Deutschland share recorded significant losses and reached its low for the year at EUR 3.346 on 28 June 2018. A recovery then got under way and, while the share was able to largely offset the losses compared with the DAX and the European telecommunications index, it remained volatile. This was the case particularly in view of the ongoing discussions surrounding the upcoming awarding of 5G spectrum licences. Telefónica Deutschland shares ended the year with a loss of 18.3 percent and a closing price of EUR 3.418.
Shareholder remuneration at Telefónica Deutschland
We are maintaining our attractive shareholder remuneration policy with a high payment ratio for the dividend in relation to free cash flow. A conservative financial policy and financial flexibility remain at the core of our financing strategy. In the course of the 2019 financial year, we will adjust our self-defined debt target in two respects: firstly, we will reflect the technical changes resulting from the introduction of IFRS 16, which we expect to have a significant impact on our margin, balance sheet and debt ratio. Secondly, we are considering introducing a higher target debt ratio in order to tap into our full financial strength for the upcoming 5G investments, while maintaining our BBB investment-grade rating from Fitch.
On 30 October 2018, Telefónica Deutschland management announced its intention to propose to the next Annual General Meeting (expected to be held on 21 May 2019) a cash dividend of EUR 0.27 per share for the 2018 financial year. This corresponds to an increase of approx. 4 percent compared with the previous year.
Activities of the Investor Relations department of Telefonica Deutschland
The core of our investor relations work is prompt, open and transparent reporting, an active and regular dialogue with our shareholders, analysts, investors and other stakeholders, and expansion of our network of national and international contacts. We continued this intensive dialogue in the 2018 financial year and presented our strategy and business model at numerous conferences and road shows, as well as at our first Capital Markets Day in February. Last year, the Management Board and the Investor Relations team participated in 246 investor meetings (2017: 259). In total, the team was on the road for 9 weeks (2017: 9 weeks) in Europe and North America.
A total of 31 analysts monitor the performance of the Telefónica Deutschland share (as of 31/12/2018); with price targets between EUR 2.30 and EUR 5.90 per share. As of the end of 2018, the target price averaged EUR 3.94 for all analyst estimates, i.e. more than EUR +15 percent above the closing price of EUR 3.42 on the stock market.
We hold telephone conferences to coincide with the publication of our annual report and quarterly results. Here, investors and analysts have the opportunity to pose their questions directly to the Management Board. These conferences will subsequently be available as webcasts on the Investor Relations website for one year.