O2 Czech CEO Sees Full Dividend Backed by Lower Investments

  • Capex to drop in coming years to 5%-6% of revenue from 8%-9%
  • Lack of acquisition opportunities supports share buyback plan

O2 Czech Republic AS’s declining investments will allow the phone company controlled by billionaire Petr Kellner to keep paying its full profit to shareholders, Chief Executive Officer Tomas Budnik said.

With capital expenditures set to shrink from 2017 and few opportunities to expand through acquisitions, O2 Czech will be left with surplus cash as profits started to rebound this year, Budnik said in an interview in Prague last week. Capex will drop to about 5 percent to 6 percent of revenue in the coming years from 8 percent to 9 percent now, according to the CEO.

“We want to keep the company in a low Capex mode,” said Budnik. “There are no major investments ahead of us. This means we’ll be generating cash that we’ll be able to more or less fully distribute to shareholders.”

O2 Czech, in which Kellner’s PPF Group NV owns almost 85 percent, last month announced a new policy to pay out 90 percent to 110 percent of net income in dividends and said it will increase its debt load to finance a five-year share buyback program. The company says a spinoff of infrastructure assets on June 1 has eased regulatory hurdles and helped it reverse a decline in profits.

The shares have gained more than 300 percent since the spinoff. They rose 0.7 percent to 230 koruna in Prague on Monday, valuing the company at 71.4 billion koruna ($2.8 billion).

The downsized O2 Czech expects net income between 4.85 billion koruna and 5.2 billion koruna this year, compared with an 11-year low of 4 billion koruna the company reported last year when it still included the infrastructure business.

To counter a Europe-wide drop in revenue from fixed voice services, O2 Czech is betting mainly on mobile data and Internet television for growth, according to Budnik. While it’s “ready to look” at future opportunities to buy other companies in central Europe, it doesn’t see any potential targets now and will instead distribute its profits and borrowed funds to shareholders, he said.

The Czech company is in talks with banks and expects to refinance all 7 billion koruna of its debt at better terms by the end of the year, the CEO said. The loan deal may include an agreement on future tranches that would help O2 Czech buy own shares for as much as 8 billion koruna, according to Budnik.

“At this moment we don’t see any interesting acquisition opportunity and we’re not taking any active steps to create one,” he said. “Since there are no such opportunities now, we find it sensible to buy back our own shares.”

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