A conversation withLars Mosdorf

Euro Tele Sites after the spin-off: "The initial focus is on debt reduction"

Just a few weeks ago, infrastructure provider Euro Tele Sites became publicly traded on the stock market after its separation from A1 Telekom Austria. It came with a 1 billion Euro debt burden. CFO Lars Mosdorf shares insights on how they plan to reduce the leverage and how a reference price can be established without traditional bookbuilding methods.

Euro Tele Sites after the spin-off: "The initial focus is on debt reduction"

Competitors like Vodafone and Telefónica set the precedent, and this year, A1 Telekom Austria followed suit: with the spin-off of its tower business into the new entity Euro Tele Sites, the Austrian company completed the separation of its mobile communications business and infrastructure. The spin-off is intended to unlock value by segregating the infrastructure business, including cell towers that may also be of interest to other providers, from the communication services.

The shareholder structure of the two sister companies is identical: Just as with A1 Telekom Austria, over 56% of Euro Tele Sites belongs to the mobile telecommunications conglomerate América Móvil, while the Austrian state holding company, ÖBAG, holds slightly over 28%. The remaining 15% is in public ownership.

The spin-off was carried out as a pure stock listing without any issuance proceeds. Shareholders received one Euro Tele Sites share for every four Telekom Austria shares. However, as part of the spin-off, A1 Telekom Austria transferred 1 billion euros in intra-group financial liabilities to the new company, which had to be repaid immediately upon the separation becoming effective. The team around CFO Lars Mosdorf, who was appointed in June and had been CFO of Düsseldorf Airport until the end of 2022, was challenged from the very beginning with the financing negotiations.

Financing over five years

Euro Tele Sites has secured a bond and a credit agreement, each worth 500 million euros, both with a five-year term. The chosen five-year term aligns with the agreement between the major shareholders, América Móvil and ÖBAG, for a lock-up period of half a decade following the spin-off, during which they won't sell any shares. "This provides us with a long-term perspective for business development," says Mosdorf.

However, the young company is operating with a high level of leverage. In 2022, Euro Tele Sites had a revenue of 232 million euros, and its Earnings Before Interest, Taxes, Depreciation, and Amortization, including "after Leases" (Ebitda_aL), amounted to 127 million euros. Currently, the debt ratio is just below eight times the Ebitda_aL. Mosdorf states, "The initial focus is on debt reduction. The goal is to achieve a leverage ratio of around 5. Once we achieve that, we will be on a similar level to our competitors and can restructure financing on market-standard terms."

No dividends for now

The plan to achieve this involves both growth and cost discipline on the one hand, and debt reduction on the other. Significant M&A activities are not on the agenda for the next few years, and shareholders will need to forego dividends for the next four years. "Whatever is left at the end of the year will be directed towards growth investments and debt reduction."

Currently, Euro Tele Sites' largest customer is its sister company, A1 Telekom Austria. The separated entity generates 95% of its revenue from A1 Telekom Austria, although the proportion is supposed to gradually decrease. Mosdorf sees parallels between the tower business and his previous field of work: "As an infrastructure provider, we aim to provide a neutral platform for various providers, much like an airport," he says. The company acquired over 13,200 towers on open land and rooftops, along with 1,000 micro-sites as assets.

Mosdorf and CEO Ivo Ivanovski have planned for an annual growth of 4 to 6%. The rapidly increasing data volume and the transition to the new 5G mobile standard offer substantial potential. Euro Tele Sites also intends to expand its business with industrial customers, whose data usage is increasing significantly due to new technologies like the Internet of Things. Currently, this segment represents less than 1% of their revenue. The company will release its quarterly results for the first time on February 13th.

"We only build when it's ensured that we will receive income for usage."

Lars Mosdorf, Euro Tele Sites

Approximately 60% of the company's revenue is currently generated in its home market of Austria, with additional subsidiaries in Bulgaria, Serbia, Croatia, Slovenia, and North Macedonia. Lars Mosdorf sees particularly significant growth potential in Serbia, stating, "In Serbia, 5G licenses have not been distributed yet." The company aims to minimize risks when constructing new towers, as Mosdorf explains, "We only build when it's ensured that we will receive income for usage."

The business model is characterized by a robust 55% margin and is based on long-term contracts, according to the CFO. He is optimistic about Euro Tele Sites' performance on the stock market. However, one month after going public, the stock is trading well below the reference price of 4.95 euros, with values below 3.10 euros. Mosdorf remarks, "We closed the first day of trading at 5.50 euros. To me, that's a sign that we allocated the reference price quite well." Pressure on the stock has come not only from the challenging market environment but also from investors who received shares as A1 Telekom Austria shareholders but solely invest in telecommunications or track an index.

Reference price determined

The spin-off was primarily led by Citi and Erste Bank. Euro Tele Sites, in collaboration with A1 Telekom Austria, determined the reference price without using the traditional bookbuilding method. Instead, various factors were considered: "We applied conventional valuation methods, such as multiples valuation and discounted cash flow analysis," explained Mosdorf.

Additionally, comparisons with publicly traded competitors were made, and feedback from investor roadshows in the summer was taken into account. "Based on this information pool, you come to a limited range. As management, we made the decision within that range."

Strategic independence

The company commenced its independent journey with around 170 employees, including colleagues who transitioned from A1. Euro Tele Sites is already operating relatively independently from an operational standpoint. "There is still IT support, but in our processes, finance department, and treasury, we are independent in terms of systems," says Mosdorf. It was beneficial that the subsidiary companies had already been spun off over the past two years, and now the holding company and the Austria business were added to the mix.

"We want to provide third parties with the assurance that we truly operate independently."

Lars Mosdorf, Euro Tele Sites

The detachment from the A1 Telekom Austria group is also strategically important for Euro Tele Sites. "We want to provide third parties with the assurance that we truly operate independently and are not under A1's wings," explains Mosdorf.

For Mosdorf, ringing the symbolic stock market bell on the day of the spin-off was a significant milestone. "For me, it was an expression that from that point on, we are a new company," he says. He experienced the weeks leading up to the IPO as very intense. "You toil highly focused during the day, in the evenings, at night, and on weekends, to make this IPO work," he recalls. Therefore, the joy and relief are even greater when the initial public offering is successful. "When you're on the trading floor, a burden is lifted."

Meet the Person

Lars Mosdorf was appointed as the CFO of the company in June. In September, the company was listed on the stock exchange as Euro Tele Sites through a spin-off. He gained experience in managing infrastructure facilities at Fraport and as the Chief Financial Officer at Düsseldorf Airport, where he served until the end of 2022.