14/09/2015 06:48
The inclusion or not of Cyta's subsidiary CytaHellas in the package to be offered to strategic investors is likely to turn into a decisive factor for the selling price in the ongoing privatization process.
With the deadline of March 2016 for the privatization of Cyta rapidly approaching, it is yet not clear which parts of the organization will be included in the private company to be formed and sold.
The final decision is expected to be instrumental to the eventual offers to be made by prospective investors as the profitability of the group could substantially vary depending on what subsidiaries and operations are included.
The group's subsidiary CytaHellas as well as the Cytavision service are two components that can drastically affect CYTA's profitability.
Cyta Hellas<
Since its inception, the Greek subsidiary constantly produces considerable losses that not only burden the group's profitability but also necessitate the continued financing by the holding company to keep it afloat. As such, it absorbs a substantial portion of the group's resources that could be obviously used more efficiently.
According to the Auditor General's (AG) report, a total of €200 mn has been committed to CytaHellas since it was established in 2007 with its net asset value by the end of 2014 standing at €0,8 mn after the holding company had to bail it out in 2014 as by the end of 2013 its net position became negative for the first time (-€1,7 mn).
CytaHellas' losses before taxes in 2014 amounted to €15,2 mn and to €17,9 mn in 2013. The AG report states that business plans prepared annually have all proved misguided as the company exhibits much lower revenues and higher losses than anticipated.
According to the latest business plan the company is expected to become profitable in 2017 and to be able to operate autonomously in 2018 but the members of the board described it as quite ambitious.
Cytavision
The Cytavision service has invariably performed poorly as well, as its costs increase over time at a higher rate than its revenues which do not cover even the costs of content.
The AG report states that during the period 2011-2014 accumulated revenues were €16 mn less than the accumulated cost of content while there are additional costs stemming from sponsorships as Cytavision sponsors most of the Cypriot first division football clubs.
By the end of 2013 the total deficit, which is not clearly defined, stood at €25,7 mn.
According to CYTA's management, the provision of the service is necessary as it contributes to the retention of customers and its losses are more than covered by profits from the other service categories (fixed-line telephony, DSL access and Cytanet).
According to the AG's report this claim appears not to be substantiated albeit the AG provides no additional information to help verify his own claims.
Two scenarios
Although nothing is yet finalised, two options appear to be the most prevalent scenarios in what is going to be offered to the strategic investor.
According to Cyta’s head of the board of directors Christos Patsalides, the Cytavision service will surely be part of the new company while CytaHellas subsidiary may not be included.
"We may offer two options to prospective strategic investors" he stated to Stockwatch, "one for CYTA as is and the other excluding CytaHellas which will then be sold separately".
Obviously, with the group's net profit in 2014 reaching €47,6 mn from €37,5 mn in 2013 (after a non-recurring loss before taxes of €24,7 mn in 2013), the inclusion of CytaHellas can definitely affect the price to be offered.
In the case of the latter scenario, the still "bleeding" CytaHellas will remain under the state's ownership which would mean the assumption of its losses by the tax-payers who will at the same time forgo the profits of the rest of the organisation.
In such a case the selling price to be secured must be sufficiently high to compensate the tax-payers accordingly.
Mr Patsalides expects a number of suitors to show interest for Cyta Hellas even on a standalone basis.
With the deadline of March 2016 for the privatization of Cyta rapidly approaching, it is yet not clear which parts of the organization will be included in the private company to be formed and sold.
The final decision is expected to be instrumental to the eventual offers to be made by prospective investors as the profitability of the group could substantially vary depending on what subsidiaries and operations are included.
The group's subsidiary CytaHellas as well as the Cytavision service are two components that can drastically affect CYTA's profitability.
Cyta Hellas<
Since its inception, the Greek subsidiary constantly produces considerable losses that not only burden the group's profitability but also necessitate the continued financing by the holding company to keep it afloat. As such, it absorbs a substantial portion of the group's resources that could be obviously used more efficiently.
According to the Auditor General's (AG) report, a total of €200 mn has been committed to CytaHellas since it was established in 2007 with its net asset value by the end of 2014 standing at €0,8 mn after the holding company had to bail it out in 2014 as by the end of 2013 its net position became negative for the first time (-€1,7 mn).CytaHellas' losses before taxes in 2014 amounted to €15,2 mn and to €17,9 mn in 2013. The AG report states that business plans prepared annually have all proved misguided as the company exhibits much lower revenues and higher losses than anticipated.
According to the latest business plan the company is expected to become profitable in 2017 and to be able to operate autonomously in 2018 but the members of the board described it as quite ambitious.
Cytavision
The Cytavision service has invariably performed poorly as well, as its costs increase over time at a higher rate than its revenues which do not cover even the costs of content.
The AG report states that during the period 2011-2014 accumulated revenues were €16 mn less than the accumulated cost of content while there are additional costs stemming from sponsorships as Cytavision sponsors most of the Cypriot first division football clubs.
By the end of 2013 the total deficit, which is not clearly defined, stood at €25,7 mn.
According to CYTA's management, the provision of the service is necessary as it contributes to the retention of customers and its losses are more than covered by profits from the other service categories (fixed-line telephony, DSL access and Cytanet).
According to the AG's report this claim appears not to be substantiated albeit the AG provides no additional information to help verify his own claims.
Two scenarios
Although nothing is yet finalised, two options appear to be the most prevalent scenarios in what is going to be offered to the strategic investor.
According to Cyta’s head of the board of directors Christos Patsalides, the Cytavision service will surely be part of the new company while CytaHellas subsidiary may not be included.
"We may offer two options to prospective strategic investors" he stated to Stockwatch, "one for CYTA as is and the other excluding CytaHellas which will then be sold separately".
Obviously, with the group's net profit in 2014 reaching €47,6 mn from €37,5 mn in 2013 (after a non-recurring loss before taxes of €24,7 mn in 2013), the inclusion of CytaHellas can definitely affect the price to be offered.
In the case of the latter scenario, the still "bleeding" CytaHellas will remain under the state's ownership which would mean the assumption of its losses by the tax-payers who will at the same time forgo the profits of the rest of the organisation.
In such a case the selling price to be secured must be sufficiently high to compensate the tax-payers accordingly.
Mr Patsalides expects a number of suitors to show interest for Cyta Hellas even on a standalone basis.
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