The Cabinet discussed Cesky Telecom (CTel) yesterday; it declared it wants to sell its majority stake in the dominant domestic fixed-line operator in 2004-2005. An inter-ministry working group should prepare a privatization agenda (including a resolution of current shareholder agreements between (i) the Cabinet and KPN/Telsource, the latter which holds 33% in CTel, and (ii) CTel and Atlantic West, the latter which holds 49% in Eurotel, CTel’s 51%-owned mobile operator). Also, the group is to make a recommendation as regards CTel’s Eurotel strategy (divesting its 51% stake or acquiring the remaining 49%); the working group should table its proposals by September 2003.
Cabinet seems inclined to speed up CTel privatization (the Cabinet previously declared 2005 as a privatization goal); on the other hand, we had earlier expected CTel strategy to be set by June 2003. Nevertheless, the news is generally in line with expectations.
Separately, Eurotel presented selected 2002 figures yesterday. Higher-than-expected sales (i.e., higher ARPU) were, in terms of profits, more than offset by lower-than-expected EBITDA margin (47.6% vs. 48.9%). We see the difference between the results and expectations as marginally negative. A comparison with 2001 figures reveals a 4.2% decline in revenues -- the 2002 rise in call and subscription revenues did not offset the decline in interconnect revenues (interconnection tariffs decreased) and the decline in non-recurring revenues (driven by fewer new subscribers). Total MOU rose by 13% (the number of subscribers by 20%). Cuts across all operating expenses resulted in an EBITDA margin increase, from 44.1% in 2001 to 47.6% in 2002.
IAS, CZK mil. 2002 2001 %change 2002e
Sales 28,800 30,063 -4.20% 28,545
EBITDA 13,712 13,250 3.49% 13,967
EBIT na 9,056 9,308
Pre-tax profit na 8,775 9,231
Net profit 6,271 6,068 3.35% 6,369
We expect a 2.4% revenue decline in 2003 and 1-2% revenue growth afterwards, with EBITDA at the CZK 13 bil. (USD 442 mil) level in 2003-2005; a focus on FCF generation (capex, opex cuts) should prevail in the short and medium term.
As to the immediate future of the company, CTel’s potential acquisition of the remaining 49% of Eurotel is the superior strategic choice facing the company at present, since this would secure an increased hedge against traffic migration to mobile business and would eliminate the influence of Atlantic West (AT&T Wireless/Verizon Communications; holds 49% of Eurotel). Of course, there is a risk of CTel overpaying for the stake; we would be comfortable with a price paid for the 49% Eurotel stake not in excess of CZK 29.2 bil. Acquisition negotiations could be resumed in Q2 2003, we believe.
Also separately, CTel will begin operations as an alternative operator in Slovakia, with the focus on business clients. The company estimates revenues at several millions of CZK.
Jiří Soustružník