Telefónica cracks down on pay, dividends and more to save €10.2B

Telefónica said it was scrapping its dividend and share buyback programme for 2012 in an effort to reduce its €57 billion debt mountain. The company also announced that pay for its top managers would be slashed by 30 per cent, according to Bloomberg, as part of a plan designed to save Telefónica an estimated €10.2 billion.

In a statement, the Spanish telecoms giant called the dividend cut a "one-time exceptional measure," which would help it "immunise from debt markets liquidity conditions."

"This is the first time Telefónica cancels the whole dividend in its history as far as I know," Andres Bolumburu, an analyst at Banco de Sabadell in Madrid told Bloomberg. "The market had been begging for this type of measure for a very long time."

This move came as the company said that it believed its critical domestic market had hit bottom in the first quarter of 2012. "The gradual improvement in operating performance and a tight cost management make us comfortable that our Spanish business reached its bottom level in the first quarter of the year," Angel Vila, Telefónica's general manager for finance and corporate development, told Reuters.

The company posted a net profit for the second quarter of €1.33 billion, a 13.7 per cent decline over the same period last year while revenue barely rose to €15.47 billion, according to AFP.

Telefónica said it anticipates no significant revenue growth this year, compared with a previous forecast of a 1 per cent boost at least, adding that solid revenue growth in Latin America had helped offset lower sales in Europe.

"Our strong diversification continues to be a key lever amid challenging trading conditions in some of our markets, with a growing contribution of Telefónica Latin America to consolidated results," CEO Cesar Alierta said in a statement.

Despite this reassurance, the company share price slumped on the news. The company's share price has fallen 35 per cent over the past 12 months, making Telefónica the worst performing among the 23 companies in the Bloomberg Europe Telecommunication Services Index, which lost 7.7 per cent.

Sanford C Bernstein analyst Robin Bienenstock wrote in a report: "Whilst we think that the company will be successful in some aspects of its renewed efforts, it would take a perfect storm of positive changes to convince investors that a full transformation is underway," according to Bloomberg.

Separately, Alierta confirmed that it would float O2 Germany on that country's stock market in the fourth quarter. According to Dow Jones Newswires, he said that the initial public offering will be used to raise capital and secure a market valuation for the unit, as well as to create a means to access capital if necessary in the future.

For more:
- see this Bloomberg article
- see this Reuters article
- see this AFP article
- see this Dow Jones Newswires article

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