Telecom Italia cuts dividends to fund network rollout

Telecom Italia said it will slash dividends in half and raise some €3 billion ($4 billion) in debt so that it can continue funding the rollout of next-generation networks, but the Italian incumbent is still aiming to lower its high overall level of net debt.

The dividend cut follows similar moves by other European incumbents, including Deutsche Telekom (Bonn, Germany) and KPN (The Hague, Netherlands), which are under pressure to invest in faster mobile and fixed-line networks during a period of economic retrenchment.

Telecom Italia said it will slash dividends in half and raise some €3 billion ($4 billion) in debt so that it can continue funding the rollout of next-generation networks, but the Italian incumbent is still aiming to lower its high overall level of net debt.

The dividend cut follows similar moves by other European incumbents, including Deutsche Telekom (Bonn, Germany) and KPN (The Hague, Netherlands), which are under pressure to invest in faster mobile and fixed-line networks during a period of economic retrenchment.

Although Telecom Italia managed to lop more than €2 billion off net debt in 2012, lowering the figure to about €28.3 billion, it missed a target of ending the year with €27.5 billion of debt.

The operator is now aiming to reduce net debt to less than €27.5 billion by the end of this year.

“The group continues to pursue debt reduction through robust cash generation, which will help to fund the development of network infrastructure in Italy and abroad” said Franco Bernabe, Telecom Italia’s chief executive officer, in a statement.

The operator’s dividends are to be cut to a total payout of €450 million for each of the next three years, from €900 million in 2012, which equals a yield of about 3%.

Telecom Italia (Rome, Italy) will also issue up to €3 billion in subordinated debt securities over the next two years, and said that it will be possible to convert half of this into equity.

In its preliminary full-year financial results published late last week, the operator reported a 1.5% fall in revenues, to €29.5 billion, compared with 2011, and said earnings before interest, tax, depreciation and amortisation (EBITDA) fell 2%, to €11.7 billion, in organic terms.

Bernabe said the results were achieved in “an extremely tough economic climate with persisting recession and market difficulties in Italy, and a slowdown in growth in Brazil and Argentina”.

Conditions in Italy weighed particularly heavily on Telecom Italia, with domestic revenues shrinking by almost 6%, to €17.9 billion, between 2011 and 2012.

Telecom Italia slashed capital expenditure at its domestic business unit by €1.1 billion, to €3.1 billion, but is under competitive and regulatory pressure to invest in new 4G and fibre networks.

It hopes to stabilize revenues this year and is aiming for low single-digit annual average growth in both revenues and EBITDA in 2015.

Over the next three years it is also planning for cumulative capital expenditure of around €16 billion.