Belgacom SA (BELG), the largest telephone company in Belgium, fell the most in nine months in Brussels trading after signaling that promotions will lead to a deeper cut in 2012 earnings than most analysts projected.
Belgacom dropped 1.18 euros, or 4.9 percent, to 22.89 euros at the 5:40 p.m. close of trading on Euronext Brussels, the biggest retreat since May 6. The shares have lost 17 percent in the past year, more than the 12 percent decline for the Stoxx 600 Telecommunications Index in the period.
“By giving this guidance, we wanted to make it absolutely clear that we will fight for customers,” Scott Alcott, who heads the consumer business unit, told reporters in Brussels today. Expenses linked to an efficiency program that is supposed to yield savings as of next year are “no big driver” of the forecast, Chief Financial Officer Ray Stewart said on a conference call.
Earnings before interest, tax, depreciation and amortization will decline as much as 6 percent this year to about 1.8 billion euros ($2.38 billion), Belgacom said today in a statement. Analysts projected 2012 Ebitda of 1.86 billion euros, according to the average of 22 estimates compiled by Bloomberg.
Belgian phone companies and cable operators seek to lure or retain residential customers by offering discounts on bundled offerings of telephony, broadband Internet and television services.
Belgacom began offering subsidized tablet computers and TV sets in a partnership with Samsung Electronics Co. (005930) to defend its market share in broadband and mobile Internet and started offering free fixed-line phone calls to mobile phones to retain fixed-line telephone subscribers.
While Belgacom’s customer gains exceeded analyst projections in the fourth quarter, a drop in average monthly revenue per user in the consumer business unit accelerated, with declines ranging from 5 percent for fixed voice and broadband Internet to 11 percent for TV and even 14 percent for mobile voice.
“The consumer division showed a significant deterioration on the back of weaker consumption in fixed and mobile,” Javier Borrachero, an analyst at Kepler Capital Markets in Madrid, wrote in an investor note. “Revenues deteriorated sequentially due to lower usage and larger promotions.”
Alcott told reporters that Belgacom began seeing the effect of an increase in mobile data traffic substituting voice revenue, even as a 3.4 percent decline in the average monthly duration of mobile-phone calls was exacerbated by incidental calls being made a year earlier because of severe winter weather in December 2010.
Belgacom sought to offset concerns about its shareholder distributions, saying it will keep the gross dividend over 2012 profit at least stable at 2.18 euros a share. The company maintained its final dividend at 1.68 euros a share and Chief Financial Officer Ray Stewart said Belgacom remains committed to an additional distribution of 100 million euros this year, either through share buybacks or a special dividend.
Net debt was little changed at 1.48 billion euros, or less than 0.8 times earnings before interest, tax, depreciation and amortization.
The state-controlled phone company generated 788 million euros of cash not required for reinvestment last year, a 20 percent decline from a year earlier. Analysts had projected free cash flow of 779 million euros. Capital spending will be “in the upper end of the range of 10 percent to 12 percent of revenue, Belgacom said. That amounts to about 698 million euros to 761 million euros, compared with 777 million euros in 2011.
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