The net benefit it's the brightest part in any results account. However, that glow can sometimes lead to hasty conclusions. And it is that profits are the most volatile item, being subject in many occasions to the risk of extraordinary impacts or accounting variations. That mirage, without going any further, occurs when looking at the balance of the results obtained by Spanish companies listed in 2018. Last year, the aggregate attributable profit stood at 45,988 million euros, an amount that represents a decline of 12.57 % with respect to the figures for the year 2017. Does that mean that the harvest of profits was bad? Not necessarily. The total profit figure for those listed in 2018 is very much affected by the accounting effects in three companies (Naturgy, Ferrovial and Abengoa), which after certain sanctions led them to register voluminous red numbers.
Due to this volatility of the benefit, the experts recommend analyzing the upper part of the income statements (income and operating profit) to really assess the soundness of the business figures. And in doing this analysis, the conclusion is that 2018 was a good exercise. The Spanish listed billed last year worth 661,415 million euros, 4.87% more. The improvement in sales was driven mainly by the good performance of the domestic market. For the first time in more than a decade, the turnover generated in Spain grew more than the income obtained abroad, thanks to the strength of the local economy.
The environment invites to borrow. Interest rates are still in the area of record lows and forecasts say that the first rise in the price of money, expected after the summer, can be postponed due to the economic slowdown and the absence of inflation. With such favorable financing conditions, the logic would be to see how the net debt of the companies increases. However, reality is the opposite. The latest crisis caught most of the listed Spanish with high levels of leverage. In the last decade they have purged these excesses and they are still releasing ballast.
As of December 31, the net financial debt of the Ibex 35 companies (excluding banks) amounted to 156,193 million euros, its lowest level since 2005. In 12 months, large companies managed to reduce their commitments by 3,847 million, a 2.4%, thanks to the generation of cash flow and certain divestments.
The company that is tightening its belt to lighten its balance is Repsol. The oil company ended 2018 with a debt of 3,439 million euros, 45% less than in 2017.
Another case of austerity is played by Telefónica. The operator closed 2018 with a net debt of 41,785 million. During the past year, it reduced its volume by 2,445 million, 5.52% less. The company chaired by José María Álvarez-Pallete maintains its commitment to financial control and a week ago announced the sale of its subsidiaries in Central America, an operation that will allow it to reduce its debt by an additional 1,400 million.
Although the general trend is to reduce debt, within the Ibex 35 there are companies that are increasing their leverage to improve their growth rate. In 2018, the companies that most fattened their balance were Inmobiliaria Colonial (raised the debt by 1,523 million), Iberdrola (1,315 million) and Amadeus (990 million).
In 2019, however, a change in accounting regulations will likely cause the total balance of debt within the Ibex to rise. In particular, leases of real estate will be computed as a liability, which will raise financial expenses and reduce the net result.
It is the second consecutive year with growth in sales, which contrasts with the long journey of the desert that companies made after the outbreak of the crisis financial crisis that subsequently resulted in the Great Recession. Since 2012 the results started to come out of the well, but they did it very slowly; first based on bailing water, draconian austerity plans, but the recovery of income did not come and, as everyone knows, growth only through the reduction of costs is finite. And finally in 2017, and later in 2018, the essential factor was recovered to guarantee a sustained growth of profits: strong sales.
In addition, the austerity policies of the last decade have made possible what analysts define as operational leverage. That is to say, although the growth of the income is modest, the companies are able to convert it into a higher operating profit rate. due to control of expenses. This phenomenon is well observed when analyzing the evolution of the operating result of Spanish listed companies last year. This item, which roughly reflects the pure evolution of a business (revenues minus costs), stood at 81,823 million euros, 6.4% more than in 2017.
The process of internationalization of Spanish companies, first in Latin America and then in the rest of the foreign markets, which began in the last decade of the 20th century, was a cushion of vital importance for the results when the crisis arrived. While sales in Spain were depressed, in other markets Spanish companies were able to compensate for that drop. In 2018, on the other hand, there was a striking change of trend: it was the domestic activity that pulled the accounts at a time when the subsidiaries abroad had a weaker behavior.
Specifically, the companies of the Ibex 35 - without counting ArcelorMittal, which does not disclose the origin of its sales, nor Inditex, which, having an irregular fiscal year, has not yet published its annual data - invoiced in Spain for a value of 141,667 million euros in 2018, which represents a year-on-year improvement of 7.85%. On the other hand, foreign revenues stood at 275,267 million euros, with a growth of only 2.22%. This differential has allowed the domestic business to gain some weight after years of reduction and go to represent 33.98% of total sales, compared to 32.79% that was in 2017.
This year the National Securities Market Commission (CNMV) has introduced some changes in the document that companies have to fill in to explain the geographical distribution of their turnover. The previous division of foreign sales (EU, OECD countries and the rest) has given way to new categories (euro zone, non-euro EU and rest). While sales in the euro zone and in the rest category (with great weight of Latin American activities) grew, turnover in European countries that do not share common currency worsened by 6.7%, largely due to the uncertainty generated around the UK exit from the European Union.
Better the big ones
Another classic analysis of business accounts is to see the evolution of them according to size. In aggregate terms, the 2018 photo is more favorable to large listed groups. The companies that belong to the Ibex 35 obtained a net benefit of 42,005 million, only 0.07% lower than the previous year. On the other hand, the combined profits of the rest of the companies in the continuous market totaled 3,983 million, 62.3% less than in 2017. In the case of medium and small capitalization firms, the balance is greatly affected by the impact of Abengoa -Paise to earn 4,277 million to lose 1,497 million due to the valuation of the financial debt- and the red numbers of OHL -1,529 million in its third consecutive year of losses-. On the contrary, in terms of sales, the evolution was fairly even among the different groups. The Ibex companies increased their sales by 4.84% to 502,243 million, while in the case of smaller groups the improvement was 4.96%, which put their aggregate sales at 159,172 million.
The banking sector is, by far, the one with the greatest weight in the Spanish stock market. The entities have undergone a hard adjustment process in the last decade and their margins are still suffering due to the persistence of low interest rates. However, in 2018 the large listed bank (Banco Santander, BBVA, Banco Sabadell, Bankia, Caixabank and Bankinter) added profits of 16,676 million, 22.4% higher.
In the individual chapter, ArcelorMittal was once again the company that billed the most. The steel giant (headquartered in Luxembourg, but part of the Ibex 35 by the merger agreements that gave rise to the current company) entered 66,930 million euros in 2018, 10.7% more, thanks to the increased demand world steel and the incorporation of some companies acquired in recent months. The second place in the ranking of sales corresponded to Airbus. The aeronautical manufacturer sold valued at 63,707 million, with a year-on-year increase of 7.9%. It closes the sales podium Banco Santander, with 54,324 million (3% less than in 2017).
Precisely the entity chaired by Ana Botín heads the classification of earnings. Santander ended 2018 with an attributed net profit of 7,809 million, 18% more, thanks to the good performance of the business in Brazil, where it obtained 26% of the result, and Spain (where it gains 21% more after joining the Bank Popular). After Santander was the BBVA. In the last year with Francisco González at the head of the entity, the benefit was of 5,324 million, 51% more, the second best figure since 2017. In his case, the sale of the Chilean subsidiary offset the turbulence of two important markets for the business as are Turkey and Argentina. The third largest profits corresponded to ArcelorMittal (4,532 million).
Finally, Naturgy endured the greatest losses. The energy group had a red number of 2,821 million due to the updating of the value of its assets in the generation business in Spain, with a deterioration of more than 4,000 million.
The solidity of the business accounts in 2018 was noticeable in the company's hiring policies. The average workforce of the Ibex 35 groups, not counting the cases of ArcelorMittal and Inditex, was 1,154,383 employees last year. This amount represents 22,308 more people in payroll in relation to the workers who had these same companies in 2017. It is a growth of 1.97% in the labor force of the large listed Spanish groups. Of course, when dealing with means, does not automatically mean that the increase is due to more hiring, but may also be due to the incorporation of the templates of those companies that have been acquired.
The distribution of the hirings by sexes was more or less even. The average number of men who worked was 660,911, 2.09% more than in 2017. On the other hand, the number of women on the payroll of the Ibex groups grew by 1.8% to a total of 493,472 employees. This growth in hiring therefore maintains the gender gap in favor of men, who represent 57.25% of the Ibex workers, compared to a weight of women of 42.75%. Grifols, Banco Sabadell and Bankia are the companies with the greatest weight of women in their workforce. In contrast, the groups with the lowest female presence are Acerinox, Ferrovial and Cie Automotive.
After the absorption of Banco Popular, Banco Santander consolidates its position as the main job generator of the Ibex. The entity chaired by Ana Botín had an average workforce of 201,829 employees in 2018, 3.11% more than a year earlier. The second place is for ACS, with a payroll composed of 191,823 workers, 5.6% more than in 2017.
In absolute terms, the greatest destruction of employment during the past year was the responsibility of Telefónica. The average workforce of the operator was 121.853 employees, 3,518 fewer people. The adjustment carried out by BBVA was also notable. The entity employed 129,336 people, 3,168 less than a year earlier. Although not all banks destroyed employment in 2018, there was a generalized cut in offices. As of December 31st, the financial entities of the Ibex had 31,489 branches, 1,224 less than 12 months earlier.