2nd UPDATE: Telecom Italia Plan Targets Higher Dividend
February 25 2011 - 9:02AM
Dow Jones News
Italy's largest telecommunications operator, Telecom Italia SpA
(TI), Friday said it 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, part of a new three-year plan
covering the period 2011-2013.
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.
Societe Generale also noted that in contrast to dividend
increases under previous management, "we believe the pay-out
announced yesterday is covered by TI organic cash generation."
"Crucially TI is still focused on de-gearing and would only
dedicate around 10% of its 'excessive cash' (free-cash-flow minus
dividends) to support the dividend increase."
Telecom Italia's shares soared Friday in Milan due to the
better-than-expected net debt reduction targets and the dividend
news, and at 1327 GMT were up 4.2% 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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