Telecom Italia Forecasts Earnings Drop for 2013, Cuts Dividend

Telecom Italia SpA, Italy’s biggest phone company, forecast declining earnings for this year and said it plans to cut its dividend after reporting 2012 profit that trailed analysts’ estimates. The stock fell.

Earnings before interest, taxes, depreciation and amortization will drop by a “low-single digit” percentage in 2013, when excluding currency swings, acquisitions, disposals and non-organic income, the Milan-based company said today in a statement. Revenue on that basis will be stable, it said. Adjusted net debt will fall to less than 27 billion euros in 2013 ($36 billion) from 28.3 billion euros at the end of 2012.

Telecom Italia and other former European phone monopolies are suffering as competition and contracting economies crimp sales and margins. Telecom Italia, whose debt is more than double its market value, said it will cut its dividend payment by about half. The company is also considering sales of assets including its fixed-line network and television unit to reduce borrowings and raise money for investments.

“Operating numbers were on the weak side,” analysts at Espirito Santo said in a report to clients.

The stock dropped as much as 5.7 percent and declined 1.6 percent to 66.3 cents at 1:36 p.m. in Milan, giving the company a market value of about 12 billion euros.

Telecom Italia also said it will sell as much as 3 billion euros of hybrid subordinated debt securities within 18 to 24 months to bolster its finances.

Italian Recession

Ebitda fell 4.2 percent to 11.7 billion euros last year as revenue declined in its domestic market struggling with a recession. Analysts had estimated 11.8 billion euros, according to data compiled by Bloomberg.

Sales last year decreased 1.5 percent to 29.5 billion euros, compared with the 29.6 billion-euro average estimate. The results are preliminary and final earnings are scheduled for March 7.

The company said it plans to pay about 450 million euros in dividends a year through 2015. Last year, Telecom Italia paid out about 900 million euros. The dividend to be paid this year will be 1.97 cents a share, down from 4.3 cents last year. The company was projected to cut its dividend to 4 cents, based on Bloomberg dividend forecasts.

The company also plans further cost reductions, targeting cumulative savings of 1.3 billion euros in Italy from 2013 through 2015, Chief Operating Officer Marco Patuano said on a conference call.

Debt Miss

Adjusted net debt fell to 28.3 billion euros at the end of December from 29.5 billion euros at the end of September. The company had predicted it would drop to about 27.5 billion euros.

The debt is “slightly higher than expected and materially above” Telecom Italia’s target, Tim Boddy, an analyst at Goldman Sachs Group Inc., said today in a note.

Telecom Italia had predicted 2012 organic revenue and Ebitda would be “essentially unchanged.” On that basis, Ebitda fell 2 percent, while sales climbed 0.5 percent.

“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, which we believe is crucial,” Chief Executive Officer Franco Bernabe said.

In Italy, fixed-line sales fell 5.2 percent to 12.8 billion euros and mobile sales dropped 7 percent to 6.62 billion euros.

Telecom Italia also said its board postponed the decision about a potential sale of its television unit Telecom Italia Media SpA to a future meeting.

Telecom Italia said in May that it was beginning the process to sell its media assets to focus on its main business and reduce borrowings. Telecom Italia controls 77.7 percent of its TV unit, which owns the La7 channel and 51 percent of MTV Italia. It also owns broadcasting infrastructure assets.

The company is in “ongoing negotiations” about a spinoff of its network, Bernabe said, without providing further details. The company, seeking funds to revive growth, said last year it will consider separating the network from its other businesses.

To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

To contact the editor responsible for this story: James Ludden at jludden@bloomberg.net

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