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Telecom Italia Scraps Dividend to Save Cash as Losses Mount

A pedestrian speaks on a mobile device as she walks past a Telecom Italia SpA store in Rome. Photographer: Alessia Pierdomenico/Bloomberg
A pedestrian speaks on a mobile device as she walks past a Telecom Italia SpA store in Rome. Photographer: Alessia Pierdomenico/Bloomberg

March 7 (Bloomberg) -- Telecom Italia SpA, trying to conserve cash as competition in Italy’s phone market hurts earnings, scrapped its dividend for common shares for the first time in its history as a public company.

The full-year net loss was 674 million euros ($934 million), taking the accumulated deficit in the past three years to more than 7 billion euros. Sales fell 9.1 percent to 23.4 billion euros, the Milan-based carrier, Italy’s largest, said today in a statement.

Telecom Italia, privatized by the government in 1997, had its debt cut to junk by Standard & Poor’s and Moody’s Investors Service last year and needs funds for investments to revive growth. Chief Executive Officer Marco Patuano is upgrading networks in Italy and Brazil, while trying to reduce debt.

“Scrapping the dividend is a wise choice for a company like Telecom Italia,” Andrea Giuricin, a professor who specializes in media and telecommunications at Milan Bicocca University, said in a phone interview. Rewarding shareholders would have risked angering bondholders, after Telecom Italia recently raised more money through a convertible bond, he said.

The dividend omission saves Telecom Italia about 270 million euros, based on the 2 cents a share it paid last year and data compiled by Bloomberg. Holders of saving shares will receive a dividend of 2.75 cents a share, at a cost of about 166 million euros.

Telecom Italia shares fell 1.9 percent to 82.2 cents at 4:55 p.m. in Milan. They have advanced 16 percent this year, after ending a string of eight straight annual declines in 2013.

‘Rational Approach’

While Telefonica SA, Telecom Italia’s biggest shareholder, favors a sale or breakup of Tim Participacoes SA according to people familiar with the matter, Telecom Italia Chief Executive Officer Marco Patuano told analysts today the carrier is in Brazil “to stay” and will take a “rational approach.” A combination between Tim Brasil and Vivendi’s GVT Brazilian unit is a “possibility,” while there are no ongoing negotiations and a deal isn’t a priority, he said.

Telecom Italia is seeing the first signs of a recovery in its business and expects to return to paying a dividend on common shares out of its full-year 2014 earnings, Patuano said in the statement. The company, struggling to reverse price declines amid competition from Vodafone Group Plc and VimpelCom Ltd.’s Wind unit in Italy’s saturated phone market, predicted a smaller decline in its domestic revenue for 2014.

Net Debt

The carrier cut its net debt to 26.8 billion euros, reaching its goal of less than 27 billion euros, after selling assets including its Argentine business.

Earnings before interest, taxes, depreciation and amortization fell 9.4 percent to 9.54 billion euros.

European phone companies are trying to cope with intense competition that’s weighing on phone bills. Yesterday, France’s Orange SA cut its dividend to 60 cents a share from 80 cents. Deutsche Telekom AG lowered its forecast for the free cash flow it expects to generate.

Last week, Telecom Italia directors backed proposals by Patuano to give more influence to minority shareholders on the carrier’s board. The proposals, including reducing the current 15-member board to either 11 or 13, will be considered by investors at the company’s April 16 annual general meeting. Telecom Italia’s largest shareholder, the Telco SpA investor group controlled by Telefonica SA, currently has the power to appoint a majority of the board members.

To contact the reporter on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Ville Heiskanen

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