Tel Italia Plan Targets Higher Divi, Focus On Latin America

Italy's largest telecommunications operator, Telecom Italia SpA (TI), Friday announced a three-year plan that aims to increase its dividend by 15% a year and sharpen its focus on its Latin American operations as it struggles to defend margins at home.

The Rome-based company also said that it will continue to strengthen its cash flow generation, focusing on strategic markets Italy, Brazil and Argentina with the aim of stabilizing consolidated revenue. It said it plans investments of around EUR4.8 billion in 2011, with up to EUR8.7 billion invested in Italy alone by 2013, Chief Executive Franco Bernabe said on a conference call with investors and analysts Friday.

The former monopoly, like many of its European peers, faces growing competition at home and increased regulation by the European Commission, and is betting on markets in Latin America to drive growth. Telecom Italia on Thursday said ts 2010 net profit almost doubled, as continued weakness in its Italian business was offset by non-recurring gains and a strong performance in Brazil. Net profit was lifted by the consolidation of its stake in Telecom Argentina SA (TEO, TECO2.BA) in the fourth quarter, which led to a net one-off gain of EUR266 million.

In August, Telecom Italia reached a deal with the Werthein Group to increase its stake in the holding company that controls Telecom Argentina to 58% from 50%, a move that strengthened its presence in a key growth market. Bernabe Friday said the company would be interested in increasing the stake in Telecom Argentina further, if and when authorized to do so. "I reiterate that we are interested but we need to evaluate it and the process needs time," he said.

In Brazil, another huge growth market for Telecom Italia and Spanish rival Telefonica SA (TEF), net profit more than quadrupled in the fourth quarter as revenue increased and a non-recurring gain boosted the bottom line. Telecom Italia's TIM Participacoes SA (TCSL4.BR) is the third placed operator in Brazil, behind Telefonica's Vivo Partcipacoes SA (VIVO4.BR) and Claro, the local unit of America Movil SA (AMX.MX)

Telecom Italia's board proposed a dividend of EUR0.058 a share, up from EUR0.05 a year before.

One abiding area of concern has been Telecom Italia's debt pile. The company said Thursday it met its debt reduction target for 2010, cutting it to EUR32.1 billion at the end of December from about EUR33 billion at end-September.

As part of the strategic plan announced Friday, the company said it also aims to cut adjusted net debt in the 2011-2013 period to about EUR25 billion by 2013 compared with a previous target of less than EUR28 billion in 2012. It also said it will cut costs by EUR1 billion by 2013. Bernabe said during the conference call that EUR600 million of those savings will be made this year.

Deutsche Bank analysts said Friday that the 15% a year increase of the dividend was "an excellent surprise," noting that the 2013 dividend is set to be 21% higher than consensus.

Telecom Italia's shares soared Friday in Milan due to the better-than-expected net debt reduction targets and the dividend news, and at 1350 GMT were up 4.3% at EUR1.09, outperforming the Italian FTSE Mib index.

-By Sabrina Cohen and Alberto Chimenti, Dow Jones Newswires; +3902 5821 9906; sabrina.cohen@dowjones.com

(Giada Zampano in Rome and Marco Fusi contributed to the article.)

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