Zon CEO Costa Targets Lower Capital Spending to Pay Dividend, Reduce Debt

Zon Multimedia SGPS SA Chief Executive Officer Rodrigo Costa said he will lower capital expenditure to pay dividends and reduce debt.

Capital expenditure will drop to 155 million euros ($209 million) to 160 million euros this year from 245 million euros in 2010 as the company has “finished a cycle of investment,” Costa said in an interview in Lucerne, Switzerland today.

“We are coming from about 25 percent capex to sales and now we’re aiming for it to drop in the long term to between 12 percent and 14 percent.”

Zon, spun off from Portugal Telecom SGPS SA in November 2007, had stepped up investments in its network to gain more customers as it faced competition from its former parent, which started a TV offering of its own in 2008. Reduced capital spending will increase Zon’s free cash flow and allow the company to “follow a different strategy, of paying down debt and increase our dividends,” Costa said today.

“We are very close to announcing what the dividend will be this year,” he said. Costa declined to say what the dividend would be, adding that analysts expect a similar payment to last year’s 16 cents a share.

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net