Disappointing 02 Czech Republic results add to shareholder woes

By bne IntelliNews February 12, 2015

bne IntelliNews -


O2 Czech Republic, the largest Czech telecom by revenue, reported weaker than expected profit in 2014 and has declined to offer guidance on future performance or to comment on expected dividends, adding pressure on the company's shares.

O2 posted a 30% drop in net profit last year to CZK4bn (€145mn), the lowest figure in 11 years, the company reported on February 11. The reading missed analysts’ expectations for net earnings of CZK4.3bn, according to a poll by Bloomberg. Profit fell on shrinking revenue because of mobile termination rate cuts and competitive pressure.

The group results were at odds with those of the Slovak unit, where revenues rose 8% to €224mn, fuelled by sustained customer growth of 9.4%. The telecom operator’s market share in Slovakia increased by 2pp to 25%.

In a conference call, CEO Tomas Budnik said that he will not comment on a dividend on 2014 profit nor on its guidance for 2015 as the company is in the process of splitting its mobile and fixed infrastructure into a separate company and is readying to extend a CZK24.8bn loan to PPF - the closely-held Czech financial group of billionaire Petr Kellner that bought the company last year.

O2 shares fell 0.8% to close at CZK220.7 in Prague on Febuary 11, the lowest closing price since January 30. The shares have lost around one third of their value since the start of 2014.

Budnik said a decision on the spin-off should be taken within weeks. The plan has only increased speculation that PPF - unused to working under the scrutiny of minority shareholders - will eventually look to delist the biggest Czech operator.

Meanwhile, the CZK25bn loan to PPF has hit sentiment because of its likely effect on the dividend payout. Investors have got used to strong payouts, while O2's low debt ratio had led to expectations that all shareholders would eventually benefit from an increase in leverage. However, with PPF not set to pay any interest to O2 until the loan matures in seven years, it appears that the majority shareholder will take all the cream.

PPF requested the loan last year to pay down part of the debt it took on to fund the acquisition of the telecom operator. O2 shareholders approved the request in December. 

PPF bought a 65.9% stake in the mobile operator from Spanish Telefonica a year ago. PPF has subsequently raised its stake in O2 to 83% through buybacks.

In January the company filed a request to delist its global depositary receipts (GDRs) from the main market of the London Stock Exchange, effective as of February 28.

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