Thursday, July 26, 2012

Telefonica Suspends Dividend, Share Buybacks

Telefónica will cancel the payment of all remaining dividends and share buybacks for 2012, an action that shows the stresses now experienced by businesses of all sorts in Spain, as a result of the economic and financial crises roiling Spain.

Telefonica's suspension of dividend payments is a risky step, as it would be for any public firm viewed as a "value" stock paying hefty dividends. The problem is partly a debt overhang that has to be rectified, plus a complete lack of revenue growth for the remainder of the year. 

The company said it now anticipates no significant revenue growth this year, compared with a previous expectation of revenue growth of at least one percent.  Telefónica said it will resume its dividend payments in 2013, with a dividend of 75 European cents a share to be delivered in two tranches, in the fourth quarter of 2013 and second quarter of 2014.

That of course assumes Telefónica can fix its immediate problems, namely controlling operating costs and getting debt to below 2.35 times operating profit in 2012. 

Telefónica's Spain operations, in the second quarter of 2012, saw revenue drop 13 percent year over year, compared with a six-percnet decrease for the European unit overall.

Perhaps most shockingingly, mobile phone usage revenue dropped 18 percent. You might conclude either that people indeed are not as attached to their mobile phones as once was thought, or that the Spanish economic crisis is so bad people have no choice, or that substitutes are being used, such as lower-cost services using "SIM-only" approaches. 

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