TP confirmed a long list of threats to cash flows Courtesy of TP

PAP Market Insider – incumbent Polish telecom TP slashed its dividend per share from a long-standing floor at zł.1.5 to zł.1.0 and said that its target of zł.2.0 billion in net free cash flow was now well out of reach. The firm cut short a share buyback as well.

Revenue and EBITDA margin targets were also cut.

“The macro environment is difficult, a price war on the mobile market: we see 2013 also as a difficult year,” CFO Jacques de Galzain told an investor teleconference.

“It is very important to keep a safe balance sheet,” Mr de Galzain said of the dividend cut. Gearing at 35 to 40 percent and net debt-to-EBITDA at a max of 1.5x are the by-words.

By cutting dividend in excess of free cash flow guidance, markets were left to understand that pressure might increase moving forward.

Threats to cash flows

TP confirmed a long list of threats to cash flows: a wave of unlimited usage offers are tearing at mobile revenues, the economic downturn has suppliers pressing for their payments and customers lagging with their own, somewhere between zł.1 billion and zł.2 billion in spectrum purchases are pending and the threat of a European Commission fine hangs.

A preliminary set of Q3 numbers revealed the carnage: Q3 revenues were down 5.5 percent year-on-year, including a sudden move to 4.8 percent erosion in mobile revenues. That seemed dark after the Q2 group top line had been down a mere 1.1 percent
The full-year revenue target was shifted down: “Not more than 3 percent” erosion became a forecast for a 4 to 5 percent decline.

And while cost control helped protect margins, the lower revenues and worsening payments situation meant TP was only at half of its original full-year cash generation target after nine months. That motivated the decision to pre-announce Q3 and revise guidance, management said.

The value of TP’s shares took a painful dive last Wednesday, falling 14.8 percent from the previous day’s close to zł.12.83.

“The cutting of guidance, deep and unexpected, may be viewed only negatively, especially since it translates into a deep dividend cut,” Ipopema Securities analyst Waldemar Stachowiak told PAP.

Glenn Tyrpa