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Telefonica’s Dividend Next Year Is Guaranteed, CFO Says

Telefonica 2013 Dividend Guaranteed as Debt Peaks, CFO Says
Last week, Telefonica said its net debt had shrank to 52.8 billion euros from 58.3 billion euros in June. Photographer: Angel Navarrete/Bloomberg

Telefonica SA’s planned dividend for next year is “100 percent safe,” Finance Chief Angel Vila said, seeking to reassure investors as European telecommunications companies keep reducing shareholder rewards.

The carrier, Spain’s biggest, omitted this year’s payout almost four months ago and pledged to pay 75 euro cents in two tranches, in the fourth quarter of next year and in the second quarter of 2014. Since then, peers including France Telecom SA and Telekom Austria AG have continued to scale down dividend plans as competition and slowing economies hurt earnings.

“Next year’s dividend commitment is 100 percent safe, without a doubt,” Vila said yesterday in an interview in Barcelona at a conference organized by Morgan Stanley.

Europe’s most indebted phone company is making progress on debt reduction while its free cash flow will probably continue to grow, Vila said. Madrid-based Telefonica’s operating income before depreciation and amortization is “stabilizing” after hitting its lowest level in the first quarter, he said.

Last week, Telefonica said its net debt had shrank to 52.8 billion euros ($67 billion) from 58.3 billion euros in June. Its year-end target is 50 billion euros, Vila said. Third-quarter Oibda was 5.35 billion euros, beating analysts’ estimates.

Chief Executive Officer Cesar Alierta is reversing a decade-long acquisition spree that expanded the company’s debt, weighing on credit ratings. In recent months, Telefonica sold shares in a German unit, divested a stake in China Unicom (Hong Kong) Ltd., and disposed of the Atento call-center division.

Latin America

Telefonica is still studying a potential initial public offering of its Latin American business and hasn’t reached a decision, Vila said. The company is also weighing other asset disposals that won’t alter its strategy, he said.

The shares fell 0.6 percent to 10.08 euros at 9:24 a.m. in Madrid. They have dropped 25 percent this year, giving the company a market value of 45.9 billion euros.

Telefonica has ruled out a sale of its stake in Telecom Italia SpA as it continues to generate “significant” synergies, the executive said. The phone company and a group of Italian financial investors together own 22.4 percent of Telecom Italia through holding company Telco SpA. Telecom Italia said this week Egyptian billionaire Naguib Sawiris had expressed interest in acquiring new shares in the country’s biggest phone company.

No Offer

“We have not received any offer from Mr. Sawiris and don’t expect to receive any offer from him,” Vila said. Telefonica doesn’t expect Telecom Italia will need a capital increase, Vila said.

Telecom Italia Chief Operating Officer Marco Patuano said on Nov. 13 the company has no immediate need for a capital boost.

Telefonica expects credit-rating companies to positively value its efforts to reduce debt, Vila said, adding the company is “consistent in improving its financial flexibility.”

The carrier also expects to reduce costs through network-sharing agreements. An accord in Germany with Royal KPN NV’s E-Plus could be reached “if it adds value to Telefonica Deutschland and Telefonica shareholders,” Vila said.

“We are very actively looking at network sharing agreements to manage our capex efficiently,” Vila said. “We are exploring potential deals with different companies and in different markets. It doesn’t make sense to have so many networks in so many markets. It’s the way forward.”

Network Sharing

Eelco Blok, CEO of KPN, also said at the Barcelona event that the companies would benefit from an network deal.

“It’s not wishful thinking,” Blok said. “There’s real value in there.”

KPN, whose debt is rated BBB by Standard & Poor’s, the second-lowest investment grade, and an equivalent Baa2 by Moody’s Investors Service, may accept a lower ranking on a temporary basis as the former Dutch phone monopoly assesses different scenarios and its needs for investments, Blok said. Telefonica’s debt has the same ratings.

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