Financial_analysis_CTc

FINANCIAL ANALYSIS

ČESKÝ TELECOM, a.s.Czech Republic

Jan Zika

IDENTIFICATION

Name: Český Telecom, a.s.Prof. Number:Country: Czech RepublicNACE-code:Sector: TelecommunicationsSpecification:Currency: CZKAmounts: millionDate: 5/30/2003

Identification 1

Jan Zika - Financial Analysis, Český Telecom, a.s.

Comments The source of all historical data is Český Telecom, a.s. (CTc). Figures used for calculations has been obtained from CTc’s audited annual financial statements prepared according to International Accounting Standards. The rest of the data used for comparisons (See also Methodology Description section in Ratio Comparison Sheet) has been obtained from Reuters multexInvestor Service. On several places in this analysis estimates or aggregate figures are used due to lack of relevant and ‘effectively accessible’ data. For the same reason, some of the breakdowns in the specific survey sheets had to be replaced by aggregations. Despite all this, the aim of the author was to maintain sufficient level information validity within the limits of very restricted means.

Comments 2

Income SurveyČESKÝ TELECOM, a.s.Czech Republic

Fiscal year (ending in) 2000 2001 2002 2003E 2004E 2005E 2006E 2005E* 2006E*Number of months 12 12 12 12 12 12 12 12 12

Last month DEC DEC DEC DEC DEC DEC DEC DEC DECCurrency CZK CZK CZK CZK CZK CZK CZK CZK CZKAmount million million million million million million million million million

TOTAL REVENUES 57,224 100.0 55,900 100.0 52,856 100.0 50,320 100.0 50,364 100.0 51,623 100.0 54,616 100.0 66,128 100.0 68,532 100.0 Net sales (turnover) 43,648 76.3 40,300 72.1 37,044 70.1 34,220 68.0 33,922 67.4 34,312 66.5 35,204 64.5 34,312 51.9 35,204 51.4 Current gain on disposal 405 0.7 448 0.8 514 1.0 502 1.0 513 1.0 521 1.0 531 1.0 521 0.8 531 0.8 Other operational cash income 13,171 23.0 15,152 27.1 15,298 28.9 15,598 31.0 15,929 31.6 16,790 32.5 18,881 34.6 31,295 47.3 32,797 47.9 Other operational non-cash income 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0- OPERATING COSTS 45,153 78.9 45,785 81.9 45,768 86.6 44,428 88.3 43,445 86.3 42,803 82.9 43,389 79.4 51,891 78.5 52,437 76.5 Cash costs of goods sold 30,528 53.3 28,745 51.4 26,706 50.5 25,617 50.9 26,498 52.6 27,216 52.7 28,650 52.5 34,344 51.9 35,530 51.8 Goods, commodities and services 9,626 16.8 8,352 14.9 6,604 12.5 5,735 11.4 5,832 11.6 5,870 11.4 6,258 11.5 7,450 11.3 7,751 11.3 Personnel costs 7,722 13.5 7,554 13.5 7,563 14.3 7,018 13.9 7,251 14.4 7,463 14.5 7,712 14.1 9,290 14.0 9,568 14.0 Selling, general & admininstr. Costs 3,753 6.6 2,569 4.6 1,913 3.6 1,917 3.8 2,098 4.2 2,159 4.2 2,263 4.1 2,721 4.1 2,815 4.1 Operating rents 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Other operational cash costs 9,427 16.5 10,270 18.4 10,626 20.1 10,947 21.8 11,317 22.5 11,724 22.7 12,417 22.7 14,883 22.5 15,396 22.5 Depreciation/amortizations 14,625 25.6 17,040 30.5 19,062 36.1 18,811 37.4 16,947 33.6 15,587 30.2 14,739 27.0 17,547 26.5 16,907 24.7 Other operational non-cash costs 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0= EBIT (NET OPERATING RESULT) 12,071 21.1 10,115 18.1 7,088 13.4 5,892 11.7 6,919 13.7 8,820 17.1 11,227 20.6 14,237 21.5 16,095 23.5+ Financial cash income (267) (0.5) 834 1.5 498 0.9 536 1.1 535 1.1 431 0.8 494 0.9 525 0.8 491 0.7+ Equity in distributed profits 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0+ Equity in non-distributed profit 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0+ Other Financial non-cash income 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0- Interest expenses 2,690 4.7 2,178 3.9 1,476 2.8 1,361 2.7 985 2.0 581 1.1 519 1.0 3,873 5.9 3,635 5.3- Other financial cash costs 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0- Financial non-cash costs 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0= CURRENT PROFIT BEFORE TAX 9,114 15.9 8,771 15.7 6,110 11.6 5,067 10.1 6,469 12.8 8,670 16.8 11,202 20.5 10,889 16.5 12,951 18.9- Current taxes 992 1.7 1,369 2.4- Deferred taxes 1,766 3.1 1,330 2.4= CURRENT NET PROFIT/LOSS 6,356 11.1 6,072 10.9 4,225 8.0 3,684 7.3 4,743 9.4 6,203 12.0 8,047 14.7 7,796 11.8 9,266 13.5 Extraordinary cash items 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Extraordinary gain on disposal 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Extraordinary non-cash items 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0= TOTAL NET PROFIT/LOSS 6,356 11.1 6,072 10.9 4,225 8.0 3,684 7.3 4,743 9.4 6,203 12.0 8,047 14.7 7,796 11.8 9,266 13.5- Dividends 2,416 38.0 0 0.0 1,836 43.5 1,771 48.1 2,319 48.9 2,995 48.3 3,897 48.4 2,383 30.6 2,609 28.2- Profit attributable to minority interests 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0

3,685 5.41,383 2.7 1,726 3.4 3,155 5.8 3,093 4.71,885 3.6 2,467 4.8

Results 2003E-2006E are based on the assumptions of the STATUS QUO scenario of CTc holding a 51% share in Eurotel. Columns 2005E* and 2006E* describe the BUY scenario of the acquisition of Eurotel. Although it is likely that CTc will acquire the residual share of Eurotel, it is hard to predict when exactly this is going to happen. Even after setting a particular year (2005 is estimated in this analysis), the influence of acquisition on financial results will depend on the number of month left to the end of that fiscal year. Especially for 2005, the results could be "somewhere between" 2005E and 2005E*

Income Survey 3

Balance SurveyČESKÝ TELECOM, a.s.Czech Republic



FIXED ASSETS 141,525 88.2 140,822 88.5 131,210 83.9 124,611 87.2 118,841 87.4 112,654 86.1 108,700 85.5 138,042 88.8 133,923 88.3 Net tangible fixed assets 122,388 76.3 120,765 75.9 115,471 73.9 111,283 77.9 107,084 78.7 102,132 78.0 100,054 78.7 125,148 80.5 123,271 81.3 Investments & Advances 9,801 6.1 6,888 4.3 4,398 2.8 3,113 2.2 3,012 2.2 2,801 2.1 2,782 2.2 3,433 2.2 3,427 2.3 Other fixed assets 9,336 5.8 13,169 8.3 11,341 7.3 10,215 7.2 8,745 6.4 7,721 5.9 5,864 4.6 9,461 6.1 7,225 4.8CURRENT ASSETS 18,852 11.8 18,275 11.5 25,141 16.1 18,245 12.8 17,142 12.6 18,245 13.9 18,431 14.5 17,357 11.2 17,708 11.7 Inventories, orders on hand 1,804 1.1 1,925 1.2 1,409 0.9 1,680 1.2 1,521 1.1 1,428 1.1 1,735 1.4 1,750 1.1 2,138 1.4 Trade receivables 6,552 4.1 7,265 4.6 Other receivables 2,334 1.5 927 0.6 Prep. expenses & Accr. Inc. 594 0.4 665 0.4 Marketable securities 5,834 3.6 2,147 1.3 Cash & Deposits 1,734 1.1 5,346 3.4TOTAL ASSETS 160,377 100.0 159,097 100.0 156,351 100.0 142,856 100.0 135,983 100.0 130,899 100.0 127,131 100.0 155,399 100.0 151,631 100.0T.N.W. 103,807 64.7 107,062 67.3 111,317 71.2 107,672 75.4 106,005 78.0 104,783 80.0 102,108 80.3 104,783 67.4 102,108 67.3 Common stock 32,209 20.1 32,209 20.2 32,209 20.6 32,209 22.5 32,209 23.7 32,209 24.6 32,209 25.3 32,209 20.7 32,209 21.2 Preferred stock 30,816 19.2 30,816 19.4 30,816 19.7 30,816 21.6 30,816 22.7 30,816 23.5 30,816 24.2 30,816 19.8 30,816 20.3 Revaluation reserves 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Retained earnings 40,782 25.4 43,998 27.7 48,247 30.9 44,600 31.2 42,927 31.6 41,705 31.9 39,028 30.7 41,705 26.8 39,028 25.7 Other reserves (-tr. stock) 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Minority interests 0 0.0 39 0.0 45 0.0 47 0.0 53 0.0 53 0.0 55 0.0 53 0.0 55 0.0- Goodwill (correction) 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0- Intangibles (correction) 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0LONG TERM LIABILITIES 39,675 24.7 30,386 19.1 21,146 13.5 18,014 12.6 15,218 11.2 12,216 9.3 11,375 8.9 36,621 23.6 35,374 23.3 Provisions 10,046 6.3 11,184 7.0 11,632 7.4 11,602 8.1 11,064 8.1 10,981 8.4 11,135 8.8 10,981 7.1 11,289 7.4 Subordinated long term debt 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Senior long term debt 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Long term financial lease obligations 29,629 18.5 19,202 12.1 9,514 6.1 6,412 4.5 4,154 3.1 1,235 0.9 240 0.2 25,640 16.5 24,085 15.9 Other long term liabilities 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Progress payments/billings l.t. 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0CURRENT LIABILITIES 16,895 10.5 21,649 13.6 23,888 15.3 17,170 12.0 14,760 10.9 13,995 10.7 14,303 11.3 13,995 9.0 14,149 9.3 Long term debt maturing 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Short term debt (banks..) 3,481 2.2 7,801 4.9 12,513 8.0 5,738 4.0 1,220 0.9 521 0.4 190 0.1 521 0.3 190 0.1 Trade payables 13,260 8.3 13,848 8.7 11,375 7.3 11,278 7.9 13,540 10.0 13,474 10.3 13,959 11.0 13,474 8.7 13,959 9.2 Progress payments/billings s. t. 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Accrued taxes/Staff charges/soc sec 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Other debt & loans 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 Current provisions 154 0.1 0 0.0 0 0.0 154 0.1 0 0.0 0 0.0 154 0.1 0 0.0 0 0.0 Other accruals & Prep. Inc. 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0TOTAL LIABILITIES 160,377 100.0 159,097 100.0 156,351 100.0 142,856 100.0 135,983 100.0 130,994 100.1 127,786 100.5 155,399 100.0 151,631 100.0 NET CURRENT ASSETS 1,957 1.2 (3,374) (2.1) 1,253 0.8 1,075 0.8 2,382 1.8 4,250 3.2 4,128 3.2 3,362 2.2 3,559 2.3

OFF BALANCE SHEET LIABILITIES - operating leases 0 0.0 0 0.0 0 0.0 - capex commitments 0 0.0 0 0.0 0 0.0 - guarantees 0 0.0 0 0.0 0 0.0 - other 0 0.0 0 0.0 0 0.0

10,324 6.6

5,283 3.4

8,589 6.8

8,107 6.4

8,425 6.4

8,392 6.4

8,543

7,078

6.2

5.4

6.3

5.2

8,431 5.4

15,301 9.8

10,582 7.0

4,988 3.3

8,821

7,744

Balance Survey 4

Cashflow SurveyČESKÝ TELECOM, a.s.Czech Republic



A. Cash Flow from operating activities 24,057 107.7 25,084 104.5 22,185 93.5 21,927 96.7 24,739 112.2 22,648 100.6 23,847 100.1 24,134 91.5 27,324 99.4 + Total net profit/loss 6,356 28.4 6,072 25.3 4,225 17.8 3,684 16.2 4,743 21.5 6,203 27.6 8,047 33.8 7,796 29.6 9,266 33.7 + Depreciations/Amortizations 14,625 65.5 17,040 71.0 19,062 80.4 18,811 82.9 16,947 76.9 15,587 69.3 14,739 61.8 17,547 66.5 16,907 61.5 + Deferred taxes & other non-cash costs 1,766 7.9 1,330 5.5 943 4.0 692 3.0 863 3.9 1,234 5.5 1,578 6.6 1,547 5.9 1,843 6.7 - Equity in non-distributed profit 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 - Gain on disposal (current + extraordinary) 405 1.8 448 1.9 514 2.2 502 2.2 513 2.3 521 2.3 531 2.2 521 2.0 531 1.9 - Non-cash income 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 = "Total cash flow" 22,342 100.0 23,994 100.0 23,716 100.0 22,685 100.0 22,040 100.0 22,503 100.0 23,833 100.0 26,369 100.0 27,485 100.0 - Extraordinary items 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 = "Current cash flow" 22,342 100.0 23,994 100.0 23,716 100.0 22,685 100.0 22,040 100.0 22,503 100.0 23,833 100.0 26,369 100.0 27,485 100.0Change in net working capital 1,715 7.7 1,090 4.5 (1,531) (6.5) (758) (3.3) 2,699 12.2 145 0.6 14 0.1 (2,235) (8.5) (161) (0.6)

B. Cash Flow from investing activities (23,702) (11,383) (13,644) (11,750) (11,750) (12,150) (12,500) (13,608) (15,000) Purchase of tangible/intangible fixed assets (23,235) (11,383) - Disposals (market value) 467 0

C. Cash Flow from financing activities (4,356) (6,107) (4,976) (9,877) (6,776) (3,618) (1,326) 25,731 (1,886) Net increase in long-term financial debt (5,457) (10,427) (9,688) (3,102) (2,258) (2,919) (995) 25,400 (1,555) Net increase in short-term financial debt 1,101 4,320 4,712 (6,775) (4,518) (699) (331) 331 (331) Net increase in equity (issues) 0 0 0 0 0 0 0 0 0

Sources (A + C) 19,701 18,977 17,209 12,050 17,963 19,030 22,521 49,865 25,438

Application (B) (23,702) (11,383) (13,644) (11,750) (11,750) (12,150) (12,500) (13,608) (15,000)

(13,644) (12,150) (15,000)(11,750) (11,750) (12,500) (13,608)

Cashflow Survey 5

RatiosČESKÝ TELECOM, a.s.Czech Republic



Last month DEC DEC DEC DEC DEC DEC DEC DEC DECProfitability Sales increase (%) 1.6 -7.7 -8.1 -7.6 -0.9 1.1 2.6 -2.5 2.6 Gross margin (%) 83.2 85.1 87.5 88.6 88.4 88.6 88.5 88.7 88.7 Current net profit / Total revenues (%) 11.1 10.9 8.0 7.3 9.4 12.0 14.7 11.8 13.5 Current cash flow / Total revenues (%) 39.0 42.9 44.9 45.1 43.8 43.6 43.6 39.9 40.1 Current ROE (% Net / TNW weighted) 6.3 5.8 3.9 3.4 4.4 5.9 7.8 7.5 9.0 ROE (% Net profit / Equity) 6.1 5.7 3.8 3.4 4.5 5.9 7.9 7.4 9.1 ROA (% Net profit / Total Assets) 4.0 3.8 2.7 2.6 3.5 4.7 6.3 5.0 6.1 ROA (% EBIT / Total Assets) 7.5 6.4 4.5 4.1 5.1 6.7 8.8 9.2 10.6 [Current ROA (%) according to the template] 7.5 6.9 4.8 4.3 5.3 6.9 9.1 10.4 10.8 Pay-out ratio (%) 38.0 0.0 43.5 48.1 48.9 48.3 48.4 30.6 28.2Liquidity Current ratio 1.1 0.8 1.1 1.1 1.2 1.3 1.3 1.2 1.3 Quick ratio 1.0 0.8 1.0 1.0 1.1 1.2 1.2 1.1 1.1 Inventory rotation (times a year) 24.2 20.9 26.3 20.4 22.3 24.0 20.3 19.6 16.5 Trade credit granted (days) 54.8 65.8 66.5 75.3 73.5 71.7 71.2 87.9 87.8 Trade credit received (days) 502.8 605.2 628.7 717.8 847.4 837.8 814.2 660.1 657.3Financial Structure Solvency ratio (%) 64.7 67.3 71.2 75.4 78.0 80.0 80.3 67.4 67.3 Solvency ratio (before correction for goodwill & intangibles) (%) 64.7 67.3 71.2 75.4 78.0 80.0 80.3 67.4 67.3 Solvency ratio (including operating leases) (%) 64.7 67.3 71.2 75.4 78.0 80.0 80.3 67.4 67.3 LT Financial debt / TNW (%) 28.5 17.9 8.5 6.0 3.9 1.2 0.2 24.5 23.6 Total financial debt / TNW (%) 31.9 25.2 19.8 11.3 5.1 1.7 0.4 25.0 23.8

Ratios 6


Ratio projection 2003-2006

2 alternative scenarios: BUYSTATUS QUO

Profitability

CTc will not sell its 51% share in Eurotel, at the same time it will not buy the residual share of 49%

CTc will acquire the residual share of 49% in Eurotel

-10

-8

-6

-4

-2

0

2

4

2000 2001 2002 2003E 2004E 2005E 2006E

Sales Increase (%) BUYSTATUS QUO

8081828384858687888990

2000 2001 2002 2003E 2004E 2005E 2006E

Gross margin (%) BUYSTATUS QUO

0

2

4

6

8

10

12

14

16

2000 2001 2002 2003E 2004E 2005E 2006E

Net profit / Total revenues (%) BUY

STATUS QUO

3637383940414243444546

2000 2001 2002 2003E 2004E 2005E 2006E

Current cash flow / Total revenues (%) BUY

STATUS QUO

0123456789

10

2000 2001 2002 2003E 2004E 2005E 2006E

Current ROE (% Net / TNW weighted) BUYSTATUS QUO

0

1

2

3

4

5

6

7

2000 2001 2002 2003E 2004E 2005E 2006E

ROA (% Net profit / Total Assets) BUYSTATUS QUO

0

2

4

6

8

10

12

2000 2001 2002 2003E 2004E 2005E 2006E

ROA (% EBIT / Total Assets) BUYSTATUS QUO

0

10

20

30

40

50

60

2000 2001 2002 2003E 2004E 2005E 2006E

Pay-out ratio (%) BUYSTATUS QUO

Ratio Projection 7

Liquidity

Financial Structure

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2000 2001 2002 2003E 2004E 2005E 2006E

Current ratio BUY

STATUS QUO

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2000 2001 2002 2003E 2004E 2005E 2006E

Quick ratio BUY

STATUS QUO

0

5

10

15

20

25

30

2000 2001 2002 2003E 2004E 2005E 2006E

Inventory rotation (times a year) BUY

STATUS QUO

0102030405060708090

100

2000 2001 2002 2003E 2004E 2005E 2006E

Trade credit granted (days) BUY

STATUS QUO

0

100200300400500

600700800900

2000 2001 2002 2003E 2004E 2005E 2006E

Trade credit received (days) BUY

STATUS QUO

40

4550

5560

65

7075

8085

2000 2001 2002 2003E 2004E 2005E 2006E

Solvency ratio (%) BUY

STATUS QUO

0

5

10

15

20

25

30

2000 2001 2002 2003E 2004E 2005E 2006E

LT Financial debt / TNW (%) BUY

STATUS QUO

0

5

10

15

20

25

30

35

2000 2001 2002 2003E 2004E 2005E 2006E

Total financial debt / TNW (%) BUYSTATUS QUO

Ratio Projection 8


CTc current price, PSE PX50 Index and Price (Valuation) Ratios; 2000-2003Source: www.akcie.cz, Prague Stock Exchange, CTc, author's calculations

Interval (days) Date CTc Price PX50

No. of Current

Year Quarters

Net Profit (TTM,

million) EPS (TTM) P/E (TTM)BV per Share P/BV

Sales (TTM,

million)

Sales per Share (TTM)

P/Sales (TTM)

FCF per Share

(Annual) P/FCF28 5/30/2003 347.50 555.90 1 3775 11.72 29.65 249.79 1.39 52756 163.79 2.12 36.36 9.5628 5/2/2003 331.00 527.50 1 3775 11.72 28.24 249.79 1.33 52756 163.79 2.02 36.36 9.1028 4/4/2003 301.30 497.20 1 3775 11.72 25.71 249.79 1.21 52756 163.79 1.84 36.36 8.2928 3/7/2003 264.00 463.80 0 4276 13.28 19.89 249.79 1.06 52856 164.10 1.61 36.36 7.2628 2/7/2003 281.80 476.60 0 4276 13.28 21.23 249.79 1.13 52856 164.10 1.72 36.36 7.7528 1/10/2003 251.30 465.10 0 4276 13.28 18.93 249.79 1.01 52856 164.10 1.53 36.36 6.9128 12/13/2002 273.10 465.20 3 6045 18.77 14.55 249.79 1.09 53493 166.08 1.64 36.36 7.5128 11/15/2002 242.30 449.90 3 6045 18.77 12.91 249.79 0.97 53493 166.08 1.46 36.36 6.6628 10/18/2002 239.10 430.10 3 6045 18.77 12.74 249.79 0.96 53493 166.08 1.44 36.36 6.5828 9/20/2002 255.10 448.30 2 5772 17.92 14.24 249.79 1.02 53838 167.15 1.53 36.36 7.0228 8/23/2002 275.50 459.20 2 5772 17.92 15.37 249.79 1.10 53838 167.15 1.65 36.36 7.5828 7/26/2002 253.80 420.40 2 5772 17.92 14.16 249.79 1.02 53838 167.15 1.52 36.36 6.9828 6/28/2002 243.00 412.60 1 6077 18.87 12.88 249.79 0.97 54497 169.20 1.44 36.36 6.6828 5/31/2002 310.50 451.40 1 6077 18.87 16.46 249.79 1.24 54497 169.20 1.84 36.36 8.5428 5/3/2002 335.50 461.60 1 6077 18.87 17.78 249.79 1.34 54497 169.20 1.98 36.36 9.2328 4/5/2002 315.80 433.90 1 6077 18.87 16.74 249.79 1.26 54497 169.20 1.87 36.36 8.6928 3/8/2002 342.50 439.90 0 6072 18.85 18.17 249.79 1.37 55900 173.55 1.97 36.36 9.4228 2/8/2002 316.30 406.40 0 6072 18.85 16.78 249.79 1.27 55900 173.55 1.82 36.36 8.7028 1/11/2002 370.80 411.60 0 6072 18.85 19.67 249.79 1.48 55900 173.55 2.14 36.36 10.2028 12/14/2001 323.10 390.10 3 5537 17.19 18.79 236.60 1.37 56093 174.15 1.86 9.69 33.3528 11/16/2001 335.50 401.40 3 5537 17.19 19.52 236.60 1.42 56093 174.15 1.93 9.69 34.6328 10/19/2001 263.60 361.90 3 5537 17.19 15.33 236.60 1.11 56093 174.15 1.51 9.69 27.2128 9/21/2001 195.75 325.20 2 6109 18.97 10.32 236.60 0.83 56808 176.37 1.11 9.69 20.2128 8/24/2001 267.40 373.50 2 6109 18.97 14.10 236.60 1.13 56808 176.37 1.52 9.69 27.6028 7/27/2001 327.50 383.10 2 6109 18.97 17.27 236.60 1.38 56808 176.37 1.86 9.69 33.8128 6/29/2001 365.00 417.70 1 6234 19.35 18.86 236.60 1.54 57133 177.38 2.06 9.69 37.6828 6/1/2001 358.30 434.70 1 6234 19.35 18.51 236.60 1.51 57133 177.38 2.02 9.69 36.9928 5/4/2001 335.10 405.80 1 6234 19.35 17.31 236.60 1.42 57133 177.38 1.89 9.69 34.5928 4/6/2001 354.10 418.50 1 6234 19.35 18.30 236.60 1.50 57133 177.38 2.00 9.69 36.5628 3/9/2001 426.70 458.70 0 6356 19.73 21.62 236.60 1.80 57224 177.66 2.40 9.69 44.0528 2/9/2001 481.00 485.60 0 6356 19.73 24.37 236.60 2.03 57224 177.66 2.71 9.69 49.6628 1/12/2001 533.20 491.40 0 6356 19.73 27.02 236.60 2.25 57224 177.66 3.00 9.69 55.0429 12/15/2000 477.20 465.00 3 6310 19.59 24.36 226.62 2.11 55894 173.53 2.75 17.30 27.5827 11/16/2000 481.70 467.40 3 6310 19.59 24.59 226.62 2.13 55894 173.53 2.78 17.30 27.8428 10/20/2000 529.30 507.10 3 6310 19.59 27.02 226.62 2.34 55894 173.53 3.05 17.30 30.6028 9/22/2000 555.00 513.50 2 6264 19.45 28.54 226.62 2.45 54563 169.40 3.28 17.30 32.0828 8/25/2000 604.90 542.00 2 6264 19.45 31.11 226.62 2.67 54563 169.40 3.57 17.30 34.9728 7/28/2000 698.60 572.60 2 6264 19.45 35.92 226.62 3.08 54563 169.40 4.12 17.30 40.3828 6/30/2000 625.30 524.80 1 6264 19.45 32.15 226.62 2.76 54563 169.40 3.69 17.30 36.1528 6/2/2000 757.20 588.20 1 6217 19.30 39.23 226.62 3.34 53233 165.27 4.58 17.30 43.7728 5/5/2000 741.60 599.00 1 6217 19.30 38.42 226.62 3.27 53233 165.27 4.49 17.30 42.8728 4/7/2000 843.20 642.20 1 6217 19.30 43.68 226.62 3.72 53233 165.27 5.10 17.30 48.7428 3/10/2000 869.20 666.60 0 6171 19.16 45.37 226.62 3.84 51902 161.14 5.39 17.30 50.2428 2/11/2000 769.80 626.90 0 6171 19.16 40.18 226.62 3.40 51902 161.14 4.78 17.30 44.50n/a 1/14/2000 595.10 516.50 0 6171 19.16 31.06 226.62 2.63 51902 161.14 3.69 17.30 34.40

n/a 4/11/2003 306.70 505.70 1 3775 11.72 26.17 249.79 1.23 52756 163.79 1.87 36.36 8.44n/a 12/30/2002 244.70 460.70 3 6045 18.77 13.04 249.79 0.98 53493 166.08 1.47 36.36 6.73

Stock Market and Price Ratios 9

http://www.akcie.cz

Quarterly data for TTM calculationSource: CTc; aproximations for 1999 and 2000 are used, they are derived by dividing the annual figures by 4

Year Quarter Net Profit Revenues2003 1 971 12712.02002 4 355 13476.02002 3 1290 13246.02002 2 1159 13322.02002 1 1472 12812.02001 4 2124 14113.02001 3 1017 13591.02001 2 1464 13981.02001 1 1467 14215.02000 4 1589 14306.02000 3 1589 14306.02000 2 1589 14306.02000 1 1589 14306.01999 4 1543 12975.51999 3 1543 12975.51999 2 1543 12975.51999 1 1543 12975.5

Beginning of the year2003 1/1/20032002 1/1/20022001 1/1/20012000 1/1/2000

Number of days per year365

Free Cash Flow - figures from CTc's Offical Statements are used2002 2001 2000

CF from Operations 21368 22549 22499Capex 9657 17016 16927Dividends paid 0 2413 0FCF 11711 3120 5572


Price Ratios - Methodology Interval The period of time between the two consequent dates, in which the then current price information was recorded. The author is using 28 days for two reasons: 1) 28-day period is just a little shorter than 30-day period which is considered one month in many standards. Therefore the developments can be more less observed as monthly data; 2) 28 days and not 30 days was used because of the character of the data stream. 28-day period allowed omitting the weekends when the Prague Stock Market is closed. Of course, the author might have used the Friday’s data for weekends, but the 28-day approach seemed to be more accurate. Only once in the whole sample, the 28-day period couldn’t be pursued for the reason of State holiday on the date the information was supposed to be recorded. This happened on November 17, 2000. Data of November 16, 2000 were used in stead as the last valid information available. Number of Current-Year Quarters Number of Current-Year Quarters is used in TTM (Trailing twelve months) calculations. When divided by 4, it indicates the relative weight of the correspondent (current) fiscal year accounting data in the TTM aggregation. In other words, any TTM accounting figure (Net Profit, Revenue) is a sum of the latest 4 completed quarters. Trailing twelve month approach (TTM) Please note, that ex-post TTM is used for P/E and P/Sales. This explains the differences between the calculations in here (“Stock Market and Price Ratios” sheet and related links) and calculations that could be made using historical data elsewhere in this analysis. The difference does not show an inconsistence of the data but different approach to them. TTM here actually simulates the historical development of ratios as it would be observed in real time by someone watching the quarterly accounting data. Of course, the assumption that the revised quarterly accounting data is available immediately after the particular period (quarter) ends is not realistic. On the other hand, one may assume that this data is in fact a mean, and therefore the best estimate, of expected results. Net Profit (TTM) The quarterly data for 1999 and 2000 were not available to the author. Therefore they are approximated as equal portions of annual figures. EPS (TTM) Please see TTM description above. Particularly, EPS here differs from both historical annual EPS and annualized (projected) EPS presented in the official CTc’s statements. The total number of shares used is the number for the current year with the exception of 2003, for which 2002 data is used. For the whole period 1999-2002 the number of shares is constant and it is very likely it will be constant in the following years too. (See accounting statements projection) P/E (TTM) Please see TTM description above. BV per share The BV and Number of Common Shares data for this indicator is obtained from annual account statements, not from the quarterly statements. The reason is the stable development of these variables and the fact that annual accounting statements were used as a primary source of data for this analysis. Quarterly data elsewhere in this analysis were only used to capture the real-time developments of more volatile variables. For every date P/BV Please see BV per share description above. Sales per Share (TTM) TTM Sales equals TTM Revenues as shown on this sheet. See also TTM description above. The total number of shares used is the number for the current year with the exception of 2003, for which 2002 data is used. For the whole period 1999-2002 the number of shares is constant and it is very likely it will be constant in the following years too. (See accounting statements projection) P/Sales (TTM) Please see Sales per share (TTM). FCF per Share (Annual) Free Cash Flow here is calculated as CF from Operations minus Capital Expenditures minus Dividends paid. The official CTc annual CF statement is used as a source of data. CF Survey from this analysis was not used because of the lack of relevant data and higher compatibility with IAS. The total number of shares used is the number for the current year with the exception of 2003, for which 2002 data is used. For the whole period 1999-2002 the number of shares is constant and it is very likely it will be constant in the following years too. (See accounting statements projection) P/FCF Please see FCF per Share (Annual) above.



Český telecom S&P 500

World Communicatio

ns Industry Sector

Telstra Corporation

(ADR) (NYSE)

Vodafone Group plc

(ADR) (NYSE)

Verizon Communication

s (NYSE)

SBC Communication

s Inc. (NYSE)

Nippon Telegraph & Telephone

Corp. (ADR) (NYSE)

Telecom Italia S.p.A. (ADR)

(NYSE)

Deutsche Telekom AG

(ADR) (NYSE)Telefonica S.A. (ADR) (NYSE)

BellSouth Corporation

(NYSE)France Telecom

(ADR) (NYSE)BT Group plc (ADR) (NYSE)

Swisscom AG (ADR) (NYSE)

Koninklijke KPN N.V. (ADR)

(NYSE)

Nextel Communication

s (NASD)AT&T Corp.

(NYSE)

Telekom Austria AG

(ADR) (NYSE)Tele2 AB (ADR)

(NASD)

MATAV Hungarian

Telecom, (ADR) (NYSE)

Valuation Ratios Český T. S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTAP/E Ratio (TTM) 26.17 22.98 15.86 23.18 84.8 NM 21.67 9.8 NM NM NM NM 15.83 NM NM 35.88 NM 8.29 11.7 362.32 176.29 9.93P/BV (MRQ, end of the year for 1.23 4.34 2.5 3.35 17.59 0.66 3.02 2.19 1.16 4.26 1.31 2.69 2.4 NM 38.15 3.88 3.28 4.55 0.96 1.88 1.36 1.72P/Sales (TTM) 1.87 3 1.49 2.4 11.12 15.85 1.46 1.7 0.62 1.57 0.86 1.55 1.91 0.5 0.79 1.99 1.14 1.33 0.31 1.51 1.25 1.5P/FCF (TTM, annual for CTc) 8.44 27.43 17.65 25.61 31.45 108.86 16.65 15.14 624.29 NM 10.95 NA 14.28 NA 25.04 15.77 3.63 56.38 31.3 4.03 NA 10.07

Český T. S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTABeta (S&P 500 is 1) n/a 1 1.09 0.99 0.68 0.95 0.8 0.79 1.06 0.78 1.4 1.18 0.8 1.73 1.23 0.66 1.73 2.15 0.9 0.75 1.52 1.35Dividends Český T. S&P 500 Industry Sector TLS VOD VZ SBC NTT TI Company TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTADividend Yield 1.86 2.21 4.25 2.61 5.36 1.28 4.29 4.93 1.01 1.89 NA NA 3.68 3.62 2.53 NA NA NA 4.95 NA NA NA

Chart Description Český T. S&P 500 INDUSTRY SECTOR Telstra Vodafone Verizon SBC Nippon T.T. T. Italia Deutsche T. Telefonica BellSouth France T. BT Group Swisscom KPN Nextel AT&T T. Austria Tele2 MATAV

Comparison of Price (Valuation) Ratios: CTc and selected companies in the communications services industry listed in order of descending market

Methodology description Below are the definition of the ratios presented in this sheet. For the detailed description of methods used to calculate the CTc Ratios, please see “Stock Market and Price Ratios” sheet. According to the author the most significant difference (the usage of MRQ vs. “End of the year” for P/BV and TTM vs. “Annual” for P/FCF) is still negligible. Stock prices of April 11, 2002 were used. P/E Ratio (TTM) Calculated by dividing the Price by the sum of the Diluted Earnings Per Share from continuing operations before Extraordinary Items and Accounting Changes over the last four quarters. P/BV (MRQ, end of the year for CTc) Price divided by the latest quarterly Book Value per Share. For CTc, Book Value per Share is the one in fiscal 2002 consolidated statements. BV per Share is defined as the Common Shareholder's Equity divided by the Shares Outstanding at the end of the most recent fiscal quarter or at the end of fiscal 2002 for CTc. P/Sales (TTM) Price divided by the Sales (Revenue) per Share for the trailing twelve months. P/CFC (TTM, annual for CTc) Price divided by the trailing twelve month Free Cash Flow Per Share. Free Cash Flow is calculated from the Statement of Cash Flows as Cash From Operations minus Capital Expenditures and Dividends Paid.

Price Ratios - Comparison 12


The period used for the data actualization is 28 days. Please note that the methods used here to calculate the ratios may differ from methods used elsewhere in this analysis. As a result, the values differ too. Please see the methodology description in "Stock Market and Price Ratios" sheet.

Below are the charts displaying the data and calculations from "Stock Market and Price Ratios" sheet.Price Ratios - Charts

0

5

10

15

20

25

30

35

40

45

50

1/14/2000 5/14/2000 9/14/2000 1/14/2001 5/14/2001 9/14/2001 1/14/2002 5/14/2002 9/14/2002 1/14/2003 5/14/2003

P/E Ratio (TTM)

0

100

200

300

400

500

600

700

800

900

1000

1/14/2000 5/14/2000 9/14/2000 1/14/2001 5/14/2001 9/14/2001 1/14/2002 5/14/2002 9/14/2002 1/14/2003 5/14/2003

CTc Stock Price and PX50 Index PX50 CTc Price

Price Ratios - Charts 13

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1/14/2000 5/14/2000 9/14/2000 1/14/2001 5/14/2001 9/14/2001 1/14/2002 5/14/2002 9/14/2002 1/14/2003 5/14/2003

P/BV Ratio

0

1

2

3

4

5

6

1/14/2000 5/14/2000 9/14/2000 1/14/2001 5/14/2001 9/14/2001 1/14/2002 5/14/2002 9/14/2002 1/14/2003 5/14/2003

P/Sales Ratio (TTM)

0

10

20

30

40

50

60

1/14/2000 5/14/2000 9/14/2000 1/14/2001 5/14/2001 9/14/2001 1/14/2002 5/14/2002 9/14/2002 1/14/2003 5/14/2003

P/FCF Ratio


Price Ratios - Comparison (Charts)

Beware of zero values. Some ratios are incorectly displayed as zero, eventhough in fact the data is not available. Please see "Price Ratios - Comparison"

26.1722.9815.8623.1884.8021.679.8000015.830035.8808.2911.7362.32176.299.93

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

P/E Ratio (TTM)

1.234.342.53.3517.590.663.022.191.164.261.312.692.4038.153.883.284.550.961.881.361.72

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

P/BV (MRQ, end of the year for CTc)

1.8731.492.411.1215.851.461.70.621.570.861.551.910.50.791.991.141.330.311.511.251.5

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

P/Sales (TTM)

8.4427.4317.6525.6131.45108.8616.6515.14624.29010.95014.28025.0415.773.6356.3831.34.03010.07

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

P/FCF (TTM, annual for CTc)



Český telecom S&P 500Communication

s Industry SectorCorporation

(ADR) (NYSE)Group plc

(ADR) (NYSE)Communicatio

ns (NYSE)Communications Inc. (NYSE)

Telegraph & Telephone

S.p.A. (ADR) (NYSE)

Telekom AG (ADR) (NYSE)

Telefonica S.A. (ADR) (NYSE)

Corporation (NYSE)

Telecom (ADR) (NYSE)

BT Group plc (ADR) (NYSE)

Swisscom AG (ADR) (NYSE)

KPN N.V. (ADR) (NYSE)

Communications (NASD)

AT&T Corp. (NYSE)

Austria AG (ADR) (NYSE)

Tele2 AB (ADR) (NASD)

Hungarian Telecom, (ADR)

Valuation Ratios CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTAPayout Ratio 43.45 27.52 51.68 16.94 306.12 NM 92.49 48.11 NM NM NM 0 54.6 0 NM 100.89 0 0 53.15 0 0 12.95Growth Rates CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTASales Increase (%) -8.08 4.06 0.4 11.19 -2.67 70.72 0.65 -6.03 -3.35 NA 12.38 -4.76 -7 8.38 -12.06 2.48 1.63 13.42 -28.02 17.24 24.7 11.47Financial Strength CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTACurrent Ratio 1.05 1.68 1.04 1.43 0.96 0.71 0.77 0.96 1.08 1.74 1.3 0.64 0.82 0.31 1.09 1.31 0.86 1.69 1.32 0.34 1.03 0.35Total Debt to Equity 0.40 0.94 1.35 0.89 0.92 0 1.66 0.66 1.31 1.77 1.84 1.6 0.98 NM 43.59 0.51 2.81 4.41 1.83 1.78 0.36 0.79Profitability Ratios CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTAGross Margin (%) 87.51 47.44 44.25 41.37 63.99 -18.9 37.96 37.08 100 94.11 73.29 100 46.85 60.2 100 65.86 100 71.15 49.37 93.7 4.93 93.14Net Profit Margin (%) 7.99 11.85 7.6 7.78 12.48 -34.91 6.78 17.32 2.1 0.03 -50.91 -15.82 12.07 -44.05 -8.22 7.12 -61.36 15.89 3.3 -3.94 0.71 15.12Management Effectiveness CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTAReturn On Assets (%) 2.70 6.37 2.76 5.92 7.14 -6.21 2.71 7.89 1.12 0.02 -17.21 -5.7 5.35 -17.43 -5.54 5.18 -23.42 6.37 1.13 -1.49 0.47 8.06Return On Investment (%) 3.19 3.65 7.98 9.04 -6.76 3.37 9.97 1.37 0.02 -7.5 -18.47 6.67 -27.01 -8.15 6.99 -30.51 7.52 1.35 -1.99 0.58 9.8 10.29Return On Equity (%) 3.80 18.4 9.13 13.18 18.79 -8.17 14.63 23.18 -9.01 -3.88 -42.99 -20.14 14.94 -581.6 -362.87 9.56 -129.2 2477.61 2.95 0.5 0.78 16.86Efficiency CTc S&P 500 Industry Sector TLS VOD VZ SBC NTT TI DT TEF BLS FTE BTY SCM KPN NXTL T TKA TLTOB MTANet Income/Employee (USD) 11408 7315 38378 72888 40218 NM 19974 42605 9009 99 NM NM 35169 NM NM 36340 NM 91184 17592 NM 11926 23129Receivable Turnover 6.27 9.3 5.68 16.24 5.47 4.71 4.95 4.91 5.77 3.66 7.65 3.5 5.05 5.9 3.53 NM NM 7.62 5.59 6.52 4.33 6.48Inventory Turnover 26.29 11.01 29 16.24 29.7 95.42 24.12 NA 0 2.88 8.12 0 35.85 22.76 0 NA NA 9.99 NA 2.62 89.04 3.18Asset Turnover 0.34 0.95 0.43 1.18 0.57 0.18 0.4 0.46 0.53 0.53 0.34 0.36 0.44 0.4 0.67 0.73 0.38 0.4 0.34 0.38 0.66 0.53

USD/CZK Exchange rate 27

Chart Description Český T. S&P 500 INDUSTRY SECTOR Telstra Vodafone Verizon SBC Nippon T.T. T. Italia Deutsche T. Telefonica BellSouth France T. BT Group Swisscom KPN Nextel AT&T T. Austria Tele2 MATAV

Comparison of CTc with selected companies in the communications services industry listed in order of descending market capitalization

Methodology Description Figures derived for CTc are intended for orientation comparison purposes only. The methods used for calculations of ratios of CTc and the rest of the companies (as described below) differ due to lack of relevant data about CTc. On the other hand, obtaining the financial statements of the other companies, synchronizing and analyzing them would not be effective considering the purpose of this analysis. Ratios for CTc are calculated according standard IAS approach as annual ratios for fiscal 2002. Ratios for the rest of the companies are calculated as described below. In general the difference is that for CTc the last reported fiscal 2002 is used for calculation whereas for the rest of the companies TTM (rarely MRQ) methodology is applied. Another difference would be in calculating average aggregations, where most recent annual figures (or two consequent years average) would be used for CTc and five most recent quarters average would be used for the rest of the companies. Despite the delays of couple month and differences in calculating averages, the ratios are roughly comparable assuming there is stable short-term development to a certain extent. Payout Ratio Percentage of the Primary/Basic Earnings Per Share Excluding Extraordinary Items paid to common stockholders in the form of cash dividends during the trailing twelve months. Sales Increase Percent change in annual sales (trailing twelve months) as compared to the same period one year ago. Current Ratio Total Current Assets for the most recent quarter divided by Total Current Liabilities for the same period. Total Debt To Total Equity This ratio is Total Debt for the most recent fiscal quarter by Total Shareholder Equity for the same period. Total Debt is the sum of Short Term Debt, the Current Portion of Long Term Debt and Capitalized Lease Obligations, Long Term Debt and Capitalized Lease Obligations. Gross Margin Trailing 12 months Total Revenue minus the trailing 12 months Cost of Goods Sold divided by the trailing 12 months Total Revenue and multiplied by 100. Net Profit Margin Income After Taxes for the trailing twelve months divided by Total Revenue for the same period and is expressed as a percentage. Return on Assets Income After Taxes for the trailing twelve months divided by the Average Total Assets, expressed as a percentage. Average Total Assets is calculated by adding the Total Assets for the 5 most recent quarters and dividing by 5. Return on Investment Trailing twelve month Income after taxes divided by the average total long-term debt, other long-term liabilities and shareholders equity, and expressed as a percentage. Return on Equity Income Available to Common Stockholders for the trailing twelve months divided by the Common Equity and is expressed as a percentage. Average Common Equity is calculated by adding the Common Equity for the 5 most recent quarters and dividing Average by 5. Net Income/Employee Income After Taxes for the trailing twelve months divided by the number of employees at the end of the last reported fiscal year. The number of employees is defined as the number of full-time equivalent employees reported on the Company's 10-K report. Receivable Turnover Total Revenue for the trailing twelve months divided by Average Accounts Receivables. Average Receivables is calculated by adding the Accounts Receivables for the 5 most recent quarters and dividing by 5. Inventory Turnover Cost of Goods Sold for the trailing twelve months divided by Average Inventory. Average Inventory is calculated by adding the inventory for the 5 most recent quarters and dividing by 5. Asset Turnover Total Revenues for the trailing twelvemonths divided by the Average Total Assets. The Average Total Assets is defined as the Total Assets for the 5 most recent quarters divided by 5.

Ratio Comparison 16


Ratio evaluation Payout Ratio Since different businesses have different cash needs and different levels of normal earnings volatility, it's probably best to evaluate Payout Ratios by comparing a company to the average for its Industry. Unfortunately even this measure would not be very precise due to specific conditions in CTc and its position on the market. The zero value for CTc came out as a result of retained earnings. In fact, in the last four years dividends were paid out only once in 2001. General Meeting of CTc can still decide to pay out the dividends for 2002. Sales Increase The main reasons for decrease in sales in 2002 were decrease in call revenues and decrease in revenues from other operators. Current Ratio Increase in current ratio was partly influenced by write-offs of 0,36 billion in the fourth quarter 2002. Theoretically, it is usually suggested that the value should be higher, but on the other hand the CTc’s figure is almost equal to industry average. Total Debt To Total Equity In this aspect CTc has a great advantage to the other national operators. Its debt-to-equity ratio is one of the lowest in the industry which contrast with serious problems some big operators (including France Telecom for which the data is not available in this comparison) have been facing recently. It also fully meets the standard general suggested benchmark. On the other hand low debt lowers efficiency and implies high cost of capital. Gross Margin CTc’s gross margin is roughly twice as big as both industry average and S&P 500 average. Net Profit Margin Modest Net Profit Margin, though roughly equal to industry and S&P 500 average can be considered as a success bearing in mind the huge negative results of France Telecom, Deutsche Telecom, KPN and others as shown in the chart. Return on Assets Although CTc’s ROA is fully comparable with industry average and unlike ROA of some other, especially European, operators it is positive, its low and decreasing value has a negative influence on the overall outlook and represents a weakness. Return on Investment CTc’s return on investment is rather low compared to some other companies in the industry. Partial explanation can be provided by the fact that CTc has been recently obliged to various investment activities related to the modernization of the network and opening its infrastructure to alternative operators. Return on Equity Very low and decreasing ROE has been a serious problem of CTc for the last few years and has to be considered as a weakness. Net Income/Employee Low Net Income per Employee compared to the industrial average can be explained by excessive number of employees remaining from the past. However the management is aware of this problem and actively promotes the reorganization and reduction of total number of employees. Receivable Turnover The Receivables Turnover is slightly above the industrial average. It doesn’t signal any problem. Inventory Turnover Inventory Turnover of CTc meets the industry average. Asset Turnover Asset Turnover of CTc is not significantly lower in comparison with the industry average. On the other hand the so called favorable rate would be necessarily higher.

Ratio Evaluation 17

Jan Zika - Financial Analysis, Český Telecom, a.s.Beware of zero values. Some ratios are incorectly displayed as zero, eventhough in fact the data is not available. Please

see "Ratios Comparison"

43.45

27.52

51.68

16.94

306.12

0

92.49

48.11

0

0

0

0

54.6

0

0

100.89

0

0

53.15

0

0

12.95

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Payout Ratio

Český T.S&P 500

INDUSTRYSECTOR

TelstraVodafone

VerizonSBC

Nippon T.T.T. Italia

Deutsche T.

TelefonicaBellSouth

France T.BT Group

SwisscomKPN

NextelAT&T

T. AustriaTele2

MATAV

-40 -20 0 20 40 60 80

Sales Increase (%)

1.05

1.68

1.04

1.43

0.96

0.71

0.77

0.96

1.08

1.74

1.3

0.64

0.82

0.31

1.09

1.31

0.86

1.69

1.32

0.34

1.03

0.35

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Current Ratio

0.400.941.350.890.9201.660.661.311.771.841.60.98043.590.512.814.411.831.780.360.79

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Total Debt to Equity

Ratio Comparison - Charts 18

Český T.S&P 500

INDUSTRYSECTOR

TelstraVodafone

VerizonSBC

Nippon T.T.

T. ItaliaDeutsche

T.Telefonica

BellSouthFrance T.

BT GroupSwisscom

KPNNextel

AT&TT. Austria

Tele2MATAV

-20 0 20 40 60 80 100

Gross Margin (%)

Český T.S&P 500

INDUSTRYSECTOR

TelstraVodafone

VerizonSBC


Deutsche T.Telefonica

BellSouthFrance T.

BT GroupSwisscom

KPNNextel

AT&TT. Austria

Tele2MATAV

-70 -60 -50 -40 -30 -20 -10 0 10 20

Net Profit Margin (%)

Český T.S&P 500

INDUSTRYSECTOR

TelstraVodafone

VerizonSBC


Deutsche T.Telefonica

BellSouthFrance T.

BT GroupSwisscom

KPNNextel

AT&TT. Austria

Tele2MATAV

-25 -20 -15 -10 -5 0 5 10

Return On Assets (%)

Český T.S&P 500INDUSTRYSECTOR

TelstraVodafone

VerizonSBCNippon T.T.

T. ItaliaDeutsche T.

TelefonicaBellSouth

France T.BT Group

SwisscomKPN

NextelAT&T

T. AustriaTele2

MATAV

-35 -30 -25 -20 -15 -10 -5 0 5 10

Return On Investment (%)


Český T. 3.80S&P 500 18.4INDUSTRY 9.13SECTOR 13.18Telstra 18.79

Vodafone -8.17Verizon 14.63SBC 23.18

Nippon T.T. -9.01T. Italia -3.88

Deutsche T. -42.99Telefonica -20.14

BellSouth 14.94France T. -581.6

BT Group -362.87Swisscom 9.56

KPN -129.2Nextel 2477.61AT&T 2.95T. Austria 0.5Tele2 0.78MATAV 16.86

-25 -20 -15 -10 -5 0 5 10 15 20 25

Return On Equity (%)

11408

7315

38378

72888

40218

0

19974

42605

9009

99

0

0

35169

0

0

36340

0

91184

17592

0

11926

23129

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Net Income/Employee (USD)

6.27

9.3

5.68

16.24

5.47

4.71

4.95

4.91

5.77

3.66

7.65

3.5

5.05

5.9

3.53

0

0

7.62

5.59

6.52

4.33

6.48

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Receivable Turnover


26.29

11.01

29

16.24

29.7

95.42

24.12

0

0

2.88

8.12

0

35.85

22.76

0

0

0

9.99

0

2.62

89.04

3.18

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Inventory Turnover

0.34

0.95

0.43

1.18

0.57

0.18

0.4

0.46

0.53

0.53

0.34

0.36

0.44

0.4

0.67

0.73

0.38

0.4

0.34

0.38

0.66

0.53

Český T.

S&P 500

INDUSTRY

SECTOR

Telstra

Vodafone

Verizon

SBC

Nippon T.T.

T. Italia

Deutsche T.

Telefonica

BellSouth

France T.

BT Group

Swisscom

KPN

Nextel

AT&T

T. Austria

Tele2

MATAV

Asset Turnover



DuPont Diagram Companmy: ROE

ROA

Profit margin Asset turnover

Net profit after tax Total revenues Equity multiplicator

Profit before tax Taxes Total assets Equity

Total revenues Total costs Tax rate %

EBITSales of goods Costs of sales Total revenues Total assets

514 1913

Production Other Production Services37044 15298 11502 5728

Sale of assets Depreciation Staff costs Fixed assets Current assets19062 7563

Residual value Other costs Tangible assets Inventories Receivables and prepayments

Intangible assets Fin. Investment Fin. assets Other assetsEarnings from fin. oper.

Fin. Revenues Interests Other fin. costs Other assets1208 -230

Extra. earningsExtra. revenues Extra. costs

4027

0

8431

11341 371 15301

131210 25141

115471 1409

-978

111272

52856 46746 31

708852856 156351

4225 52856 1.4

6110 1885 156351

Český telecom, a.s.2002 3.8%

2.7%

8.0% 0.34

DuPont 22


00/99 01/00 02/01 03/02 04/03 05/04 06/05Revenues 51,902 57,224 55,900 52,856 50,320 50,364 51,623 54,616 66,128 68,532 10% (2%) (5%) (5%) 0% 2% 6%Operating Costs 26,170 30,528 28,745 26,706 25,617 26,485 27,216 28,650 34,344 35,530 17% (6%) (7%) (4%) 3% 3% 5%EBITDA 25,732 26,696 27,155 26,150 24,703 23,879 24,407 25,966 31,784 33,002 4% 2% (4%) (6%) (3%) 2% 6% Depreciation 13,409 14,625 17,040 19,062 18,811 16,947 15,587 14,739 17,547 16,907 9% 17% 12% (1%) (10%) (8%) (5%)EBIT 12,323 12,071 10,115 7,088 5,892 6,932 8,820 11,227 14,237 16,095 (2%) (16%) (30%) (17%) 18% 27% 27% Contributed services from TelSource (cost) 544 634 (9) 0 0 0 0 0 0 0 17% (101%) (100%) n/a n/a n/a n/a Interest expense 3,154 2,690 2,178 1,476 1,361 985 581 519 3,873 3,635 (15%) (19%) (32%) (8%) (28%) (41%) (11%) Interest income (413) (342) (467) (268) (297) (411) (314) (389) (328) (275) (17%) 37% (43%) 11% 38% (24%) 24% Currency (gains)/losses 596 (25) (358) (230) (239) (124) (117) (105) (197) (216) (104%) 1332% (36%) 4% (48%) (6%) (10%)Profit Before Tax 8,442 9,114 8,771 6,110 5,067 6,482 8,670 11,202 10,889 12,951 8% (4%) (30%) (17%) 28% 34% 29% Income Tax 2,271 2,758 2,699 1,885 1,383 1,726 2,467 3,155 3,093 3,685 21% (2%) (30%) (27%) 25% 43% 28%Net Profit after tax 6,171 6,356 6,072 4,225 3,684 4,756 6,203 8,047 7,796 9,266 3% (4%) (30%) (13%) 29% 30% 30% EPS (Earnings Per Share) 19.2 19.7 18.9 13.1 11.4 14.8 19.3 25.0 24.2 28.8 3% (4%) (30%) (13%) 29% 30% 30%

00/99 01/00 02/01 03/02 04/03 05/04 06/05Call revenues 1) 26,393 24,126 21,150 13,663 10,083 9,467 9,439 9,643 9,439 9,643 (9%) (12%) (35%) (26%) (6%) (0%) 2% Business 63% 61% 55% 52% 50% 49% 49% 47% 49% 47% (3%) (10%) (5%) (4%) (2%) 0% (4%) Residential 32% 34% 41% 44% 46% 47% 47% 49% 47% 49% 6% 21% 7% 5% 2% 0% 4% Payphones 5% 5% 4% 4% 4% 4% 4% 4% 4% 4% 0% (20%) 0% 0% 0% 0% 0%Revenues from other network operators 5,347 5,712 3,910 2,593 2,351 2,317 2,358 2,447 2,358 2,447 7% (32%) (34%) (9%) (1%) 2% 4% Revenues from international operators 2,973 2,946 2,041 1,492 1,134 1,180 1,353 1,426 1,353 1,426 (1%) (31%) (27%) (24%) 4% 15% 5% Revenues from domestic operators 2,374 2,766 1,869 1,101 1,217 1,137 1,005 1,021 1,005 1,021 17% (32%) (41%) 11% (7%) (12%) 2%Subscription charges 5,190 6,897 7,263 10,576 10,395 10,057 10,261 10,584 10,261 10,584 33% 5% 46% (2%) (3%) 2% 3%Connection / relocation charges 718 414 260 217 131 145 117 98 117 98 (42%) (37%) (17%) (40%) 11% (19%) (16%)Eurotel and consolidation adjustments 7,891 12,104 14,019 13,861 13,982 14,131 14,612 15,398 29,117 29,314 53% 16% (1%) 1% 1% 3% 5%Equipment sales and sales of materials 371 405 448 514 502 513 521 531 521 531 9% 11% 15% (2%) 2% 2% 2%Leased lines 1,869 2,023 2,383 2,680 3,246 3,423 3,421 3,421 3,421 3,421 8% 18% 12% 21% 5% (0%) 0%Data transmission and other telephony 2) 3,453 4,476 5,334 7,315 8,014 8,513 8,716 9,011 8,716 9,011 30% 19% 37% 10% 6% 2% 3%Other revenues 670 1,067 1,133 1,437 1,616 1,798 2,178 3,483 2,178 3,483 59% 6% 27% 12% 11% 21% 60%Total 51,902 57,224 55,900 52,856 50,320 50,364 51,623 54,616 66,128 68,532 10% (2%) (5%) (5%) 0% 2% 6%1) Excluding call revenues from ISDN2) ISDN, Internet, Data network services, Telex, Data transmission and other telephony

All financials in CZK million, unless specified otherwise.

Financial results 1999-2002 are audited. Results 2003-2006 are own estimations of the author. Results 2003E-2006E are based on the assumptions of the STATUS QUO scenario of CTc holding a 51% share in Eurotel. Columns 2005E* and 2006E* describe the BUY scenario of the acquisition of Eurotel. Although it is likely that CTc will acquire the residual share of Eurotel, it is hard to predict when exactly this is going to happen. Even after setting a particular year (2005 is estimated in this analysis), the influence of acquisition on financial results will depend on the number of month left to the end of that fiscal year. Especially for 2005, the results could be "somewhere between" 2005E and 2005E*

All results are consolidated and presented under International Accounting Standards (IAS).

Source: ČESKÝ TELECOM, a.s., author

2002

2002

2003E 2004E

YOY Change

2005E 2006E

2003E 2004E 2005E 2005E* 2006E*

INCOME STATEMENT 1999 2000 2001

REVENUES - Breakdown 1999 2000 2001 2006E

YOY Change2005E* 2006E*

IS 23

00/99 01/00 02/01Telephone lines in operation, e.o.p. (x 1000) 3,839 3,854 3,842 3,661 0% (0%) (5%) Business (incl. service lines and payphones) 1,159 1,190 1,210 1,148 3% 2% (5%) Residential 2,680 2,664 2,632 2,513 (1%) (1%) (5%) - ISDN channels (x 1000) 57 122 261 389 114% 114% 49% Net number of new lines installed (x 1000) in the period 105 15 (12) (181) (86%) (180%) 1405%Payphones in operation, e.o.p. (x 1000) 30 30 28 26 0% (7%) (6%) Penetration as % of households 72% 72% 71% 59% (0%) (1%) (17%) Penetration as % of population 37% 37% 37% 36% 0% (0%) (3%) Digitalisation (number of teleph. lines connected to digital exchange)

77% 86% 95% 100% 12% 11% 5%

00/99 01/00 02/01Total Eurotel customers, e.o.p. (x 1000) 1,070 2,171 3,238 3,891 103% 49% 20%

00/99 01/00 02/01Total number of customers, e.o.p. (x 1000) 45 185 481 702 312% 159% 46%

00/99 01/00 02/01 03/02 04/03 05/04 06/05Staff costs 7,567 7,722 7,554 7,563 7,018 7,251 7,463 7,712 9,290 9,568 2% (2%) 0% (7%) 3% 3% 3%Material consumed 1,154 1,474 949 876 899 927 953 984 1,140 1,227 28% (36%) (8%) 3% 3% 3% 3%Payments to other network operators 6,912 8,152 7,403 5,728 4,836 4,905 4,917 5,274 6,310 6,524 18% (9%) (23%) (16%) 1% 0% 7% Payments to international operators 3,365 3,092 2,480 1,798 1,082 1,191 1,196 1,527 1,398 1,894 (8%) (20%) (28%) (40%) 10% 0% 28% Payments to domestic operators 3,547 5,060 4,923 3,930 3,754 3,714 3,721 3,747 4,912 4,630 43% (3%) (20%) (4%) (1%) 0% 1%Equipment and material cost of sales 2,003 3,753 2,569 1,913 1,917 2,098 2,159 2,263 2,721 2,815 87% (32%) (26%) 0% 9% 3% 5%Energy, repairs & mainten. and other oper.costs 8,534 9,427 10,270 10,626 10,947 11,317 11,724 12,417 14,883 15,396 10% 9% 3% 3% 3% 4% 6%Total operating costs 26,170 30,528 28,745 26,706 25,617 26,485 27,216 28,650 34,344 35,530 17% (6%) (7%) (4%) 3% 3% 5%

00/99 01/00 02/01ČESKÝ TELECOM employees, e.o.p. 20,115 17,322 15,194 13,717 (14%) (12%) (10%) Lines per fixed line employee, e.o.p. 191 222 253 267 17% 14% 6% Eurotel employees (all staff), e.o.p. 1,627 2,121 2,420 2,447 30% 14% 1%

Number of ordinary shares in issue1) 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900 322,089,900Dividend per share - 7.50 - 5.70 5.50 7.20 9.30 12.10 7.40 8.10 1) Due to comparability,one registred ordinary share with the nominal value of CZK 1,000 was included as 10 shares with a nominalvalue of CZK 100.

2002

2002

2002 YOY Change

FIXED LINE NETWORK 1999 2000 2001

MOBILE NETWORK 1999 2000 2001

INTERNET IOL 1999 2000 2001

OPERATING COSTS 1999 2000 2001

YOY Change STAFF 1999 2000 2001 2002

2002 2003E 2004E 2005E

YOY Change

2005E* 2006E*2006E

2006E*2002 2003E 2004E 2005E

YOY Change

YOY Change

DIVIDENDS 1999 2000 2001 2006E 2005E*

IS 24


Source: ČESKÝ TELECOM, a.s., author

00/99 01/00 02/01 03/02 04/03 05/04 06/05Fixed Assets 134,614 141,525 140,822 131,210 124,611 118,841 112,654 108,700 138,042 133,923 5% (0%) (7%) (5%) (5%) (5%) (4%) tangible fixed assets 121,457 122,388 120,765 115,471 111,283 107,084 102,132 100,054 125,148 123,271 1% (1%) (4%) (4%) (4%) (5%) (2%) construction in progress 8,318 6,617 5,865 4,027 2,958 2,852 2,647 2,630 3,244 3,240 (20%) (11%) (31%) (27%) (4%) (7%) (1%) intangible fixed assets 4,718 9,336 13,169 11,341 10,215 8,745 7,721 5,864 9,461 7,225 98% 41% (14%) (10%) (14%) (12%) (24%) available-for-sale investment 121 3,184 1,023 371 155 160 154 152 189 187 2531% (68%) (64%) (58%) 3% (4%) (1%)

Current Assets 20,872 18,852 18,275 25,141 18,245 17,142 18,245 18,431 17,357 17,708 (10%) (3%) 38% (27%) (6%) 6% 1% inventories 2,226 1,804 1,925 1,409 1,680 1,521 1,428 1,735 1,750 2,138 (19%) 7% (27%) 19% (9%) (6%) 21% receivables and prepayments 9,294 9,480 8,857 8,431 8,821 8,543 8,425 8,589 10,324 10,582 2% (7%) (5%) 5% (3%) (1%) 2% cash and cash equivalents 1) 9,352 7,568 7,493 15,301 7,744 7,078 8,392 8,107 5,283 4,988 (19%) (1%) 104% (49%) (9%) 19% (3%)

Total Assets 155,486 160,377 159,097 156,351 142,856 135,983 130,899 127,131 155,399 151,631 3% (1%) (2%) (9%) (5%) (4%) (3%)Equity 97,478 103,807 107,023 111,272 107,625 105,952 104,730 102,053 104,730 102,053 6% 3% 4% (3%) (2%) (1%) (3%) share capital 32,209 32,209 32,209 32,209 32,209 32,209 32,209 32,209 32,209 32,209 0% 0% 0% 0% 0% 0% 0% reserves 65,269 71,598 74,814 79,063 75,416 73,743 72,521 69,844 72,521 69,844 10% 4% 6% (5%) (2%) (2%) (4%)

Minority interest 0 0 39 45 47 53 53 55 53 55 n/m n/m 15% 4% 13% 0% 4%

Liabilities 58,008 56,570 52,035 45,034 35,184 29,978 26,211 25,678 50,616 49,523 (2%) (8%) (13%) (22%) (15%) (13%) (2%) loans and overdrafts 37,466 33,110 27,003 22,027 12,150 5,374 1,756 430 26,161 24,275 (12%) (18%) (18%) (45%) (56%) (67%) (76%) - of which: short term 2,380 3,481 7,801 12,513 5,738 1,220 521 190 521 190 46% 124% 60% (54%) (79%) (57%) (64%) long term 35,086 29,629 19,202 9,514 6,412 4,154 1,235 240 25,640 24,085 (16%) (35%) (50%) (33%) (35%) (70%) (81%) creditors 11,781 13,260 13,848 11,375 11,278 13,540 13,474 13,959 13,474 13,959 13% 4% (18%) (1%) 20% (0%) 4% provisions 8,761 10,200 11,184 11,632 11,756 11,064 10,981 11,289 10,981 11,289 16% 10% 4% 1% (6%) (1%) 3%

Total Equity and Liabilities 155,486 160,377 159,097 156,351 142,856 135,983 130,994 127,786 155,399 151,631 3% (1%) (2%) (9%) (5%) (4%) (2%)1) incl. Available-for-sale investment

00/99 01/00 02/01Net cash from operating activities 22,182 22,499 22,549 21,368 22,750 22,250 22,150 22,100 28,795 28,730 1% 0% (5%)

Net cash used in investing activities (13,875) (23,702) (11,383) (13,644) (11,750) (11,750) (12,150) (12,500) (13,608) (15,000) 71% (52%) 20% purchase of property, plant and equipment (15,118) (12,438) (12,732) (9,059) (18%) 2% (29%) purchase of intangible assets (3,439) (4,950) (5,219) (2,032) 44% 5% (61%) marketable securities 1) 4,241 (6,775) 5,633 (3,987) (260%) (183%) (171%) other 441 461 935 1,434 5% 103% 53%

Net cash outflow before financing 8,307 (1,203) 11,166 7,724 11,000 10,500 10,000 9,600 15,187 13,730 (114%) (1028%) (31%)Net cash from financing activities (1,695) (4,367) (7,571) (4,586) (7,500) (4,500) (4,500) (4,500) (5,580) (5,580) 158% 73% (39%)Effect of exchange rate changes 375 132 (109) 5 (65%) (183%) (105%)Net cash increase / (decrease) 6,987 (5,438) 3,486 3,143 (178%) (164%) (10%)1) Sum of Cash purchase of and Proceeds from marketable securities.

2005E* 2006E*2003E 2004E 2005E 2006E

2002

2002 YOY Change

2003E 2004E 2005E 2006E 2005E* 2006E* YOY Change BALANCE SHEET 1999 2000 2001

CASH FLOW STATEMENT 1999 2000 2001

BS and CF 25

Jan Zika - Financial Analysis, Český Telecom, a.s.FCFF and DDM (using data from projected statements for BUY scenario)

Year 2003E 2004E 2005E* 2006E*EBIT x (1-t) 4,284 5,086 10,193 11,515 (CZK millions)+ Depreciation 18,811 16,947 17,547 16,907 (CZK millions)= CF from Operations 23,095 22,033 27,740 28,422 (CZK millions)- Change in Net Working Capital 178 - 1,307 980 197 (CZK millions)- Capital expenditures 10,000 10,000 16,000 16,000 (CZK millions)= FCFF 13,273 10,726 10,760 12,225 (CZK millions)

Year 2003E 2004E 2005E* 2006E*Dividend per share (CZK) 5.50 7.20 9.30 12.10

WACCCurrent EBIT 7,088 (CZK millions)Current tax rate 30.85%Current Return on Capital 9.84%Cash & Marketable Securities 15,301 (CZK millions)Market Value of Equity 111,926 (CZK millions)Market Value of Debt 24,687 (CZK millions)

Beta of the stock 1.8Riskfree rate 3.88%Risk Premium 6.00%

Enter the cost of debt 4.88%

Cost of Equity 14.42% For Expected Mkt Rate of Return Use:Cost of Debt 3.37% Daily Mkt Avg 2000-200328-day Mkt Avg 2000-2003OtherDebt Ratio 18.07% Yes No NoCost of Capital (WACC) 12.42% Mkt Avg Return (daily)Mkt Avg Return (28 days)k (CAPM) 16.42% 11.02% 5.19% 7.00%

FCFF Growth Rate beyond 2006 1% 2% 3% 4% 5%Dividend Growth Rate beyond 2007-2010 4% 5% 6% 10% 14%Dividend Growth Rate beyond 2010 2% 2% 2% 2% 2%EV (FCFF, CZK millions) 103,194 110,422 119,184 130,026 143,790 EV-LT Liabilities (FCFF, CZK million) 76,887 84,115 92,877 103,719 117,483 EVPS (FCFF, CZK) 320.39 342.83 370.03 403.69 446.43 P (FCFF, CZK) 238.71 261.15 288.36 322.02 364.75 P (DDM, CZK) 66.86 83.05 89.48 135.28 332.22

CTc Stock Price at PSE - Dec 30, 2002 244.70 Estimated Dividend Growth Rate 2007-2010 4.39%

200

250

300

350

400

450

1% 2% 3% 4% 5%

CZK

Growth Rate beyond 2006

FCFF Valuation P (FCFF, CZK)

- 50

100 150 200 250 300 350 400 450 500

4% 6% 8% 10% 12% 14%CZK

Dividend Growth Rate 2007-2010

DDM Valuation P (DDM, CZK)

FCFF and DDM 26

Jan Zika - Financial Analysis, Český Telecom, a.s.Regression

Current riskfree rate 3.88% Risk premium for stocks 6.00% Current stock price 347.50Number of periods of data 45 Riskfree rate during period 3.88% Current Annual DPS 5.70Time period Index Price(Stock) DPS(Stock) Split Factor Index Level Return(Stock)Return(Mkt) (R(jt)-Rj)^2 (R(mt)-R(m))^2 (R(jt)-R(j))*(R(mt)-R(m)) 1+Return(Stock)1+Return(Mkt)

1 1 347.50 1 555.90 4.98% 5.38% 0.002834411 0.002485478 0.002654216 104.98% 105.38%2 1 331.00 1 527.50 9.86% 6.09% 0.010396472 0.003244097 0.005807509 109.86% 106.09%3 1 301.30 1 497.20 14.13% 7.20% 0.020931759 0.004628013 0.00984238 114.13% 107.20%4 1 264.00 1 463.80 -6.32% -2.69% 0.003573065 0.00095118 0.001843537 93.68% 97.31%5 1 281.80 1 476.60 12.14% 2.47% 0.015564839 0.000430213 0.0025877 112.14% 102.47%6 1 251.30 1 465.10 -7.98% -0.02% 0.005842156 1.76338E-05 0.000320966 92.02% 99.98%7 1 273.10 1 465.20 12.71% 3.40% 0.017031656 0.000901396 0.003918197 112.71% 103.40%8 1 242.30 1 449.90 1.34% 4.60% 0.000281359 0.001768329 0.000705362 101.34% 104.60%9 1 239.10 1 430.10 -6.27% -4.06% 0.00352008 0.001987565 0.002645068 93.73% 95.94%

10 1 255.10 1 448.30 -7.40% -2.37% 0.004992404 0.000768467 0.001958698 92.60% 97.63%11 1 275.50 1 459.20 8.55% 9.23% 0.007901545 0.007798436 0.007849821 108.55% 109.23%12 1 253.80 1 420.40 4.44% 1.89% 0.002288157 0.000222613 0.000713704 104.44% 101.89%13 1 243.00 1 412.60 -21.74% -8.60% 0.045796455 0.008089043 0.019247064 78.26% 91.40%14 1 310.50 1 451.40 -7.45% -2.21% 0.005058823 0.000680237 0.001855047 92.55% 97.79%15 1 335.50 1 461.60 6.24% 6.38% 0.00432589 0.003582656 0.003936772 106.24% 106.38%16 1 315.80 1 433.90 -7.80% -1.36% 0.005560083 0.000310597 0.001314133 92.20% 98.64%17 1 342.50 1 439.90 8.28% 8.24% 0.007434405 0.006153901 0.006763918 108.28% 108.24%18 1 316.30 1 406.40 -14.70% -1.26% 0.020617876 0.000276155 0.002386155 85.30% 98.74%19 1 370.80 1 411.60 14.76% 5.51% 0.022807812 0.002614254 0.007721749 114.76% 105.51%20 1 323.10 1 390.10 -3.70% -2.82% 0.001126913 0.001032708 0.001078782 96.30% 97.18%21 1 335.50 1 401.40 27.28% 10.91% 0.076259928 0.01105902 0.029040662 127.28% 110.91%22 1 263.60 1 361.90 34.66% 11.29% 0.122504076 0.011852531 0.0381049 134.66% 111.29%23 1 195.75 1 325.20 -26.80% -12.93% 0.069992202 0.017769308 0.035266315 73.20% 87.07%24 1 267.40 1 373.50 -18.35% -2.51% 0.03244365 0.000843498 0.005231266 81.65% 97.49%25 1 327.50 1 383.10 -10.27% -8.28% 0.00987032 0.007537516 0.00862541 89.73% 91.72%26 1 365.00 1 417.70 1.87% -3.91% 0.000487953 0.001856897 -0.000951881 101.87% 96.09%27 1 358.30 1 434.70 6.92% 7.12% 0.005274145 0.004520283 0.004882686 106.92% 107.12%28 1 335.10 1 405.80 -5.37% -3.03% 0.002526763 0.001178602 0.001725702 94.63% 96.97%29 1 354.10 1 418.50 -17.01% -8.76% 0.027806468 0.008394825 0.01527843 82.99% 91.24%30 1 426.70 1 458.70 -11.29% -5.54% 0.011990156 0.003525947 0.00650205 88.71% 94.46%31 1 481.00 1 485.60 -9.79% -1.18% 0.008931995 0.000249239 0.001492047 90.21% 98.82%32 1 533.20 1 491.40 11.74% 5.68% 0.014578499 0.002786773 0.006373929 111.74% 105.68%33 1 477.20 1 465.00 -0.93% -0.51% 3.54224E-05 8.31577E-05 5.42738E-05 99.07% 99.49%34 1 481.70 1 467.40 -8.99% -7.83% 0.007489146 0.006768781 0.007119859 91.01% 92.17%35 1 529.30 1 507.10 -4.63% -1.25% 0.001841789 0.00027053 0.000705874 95.37% 98.75%36 1 555.00 1 513.50 -8.25% -5.26% 0.006257242 0.003199862 0.00447463 91.75% 94.74%37 1 604.90 1 542.00 -13.41% -5.34% 0.01709168 0.003297601 0.007507433 86.59% 94.66%38 1 698.60 1 572.60 11.72% 9.11% 0.014547731 0.007586065 0.010505238 111.72% 109.11%39 1 625.30 1 524.80 -17.42% -10.78% 0.029174061 0.012492704 0.019090912 82.58% 89.22%40 1 757.20 1 588.20 2.10% -1.80% 0.000596622 0.000484632 -0.000537719 102.10% 98.20%41 1 741.60 1 599.00 -12.05% -6.73% 0.01371314 0.005076999 0.008343956 87.95% 93.27%42 1 843.20 1 642.20 -2.99% -3.66% 0.000703434 0.001647382 0.001076487 97.01% 96.34%43 1 869.20 1 666.60 12.91% 6.33% 0.017560143 0.003521614 0.007863844 112.91% 106.33%44 1 769.80 1 626.90 29.36% 21.37% 0.088181885 0.044000127 0.062289759 129.36% 121.37%45 1 595.10 1 516.50

Regression Statistics and Risk Parametres Stock Avg (28 days)Mkt Avg (28 days)Risk and Performace Measures -0.34% 0.40%Intercept (Alpha) -1.04% Stock Avg (365 days)Mkt Avg (365 days)Slope (Beta) 1.756298872 -4.42% 5.19%Rf(1- Beta) -0.24%Intercept-Rf(1-Beta) -0.80%

Stock CompoundVariance Statistics 2002 2001 2000Variance of the stock 0.018319642 -15.48% -32.29% -19.81%Variance of the market 0.004835974Systematic variance 0.014916975 Mkt CompoundUnsystematic variance 0.003402667 2002 2001 2000R squared 81.43% 19.25% -16.11% -9.97%

Using BetaIn estimating expected returns: Riskfree Rate 3.88% Historical return premium 6.00% Expected return 14.42% In forecasting prices: Current price 347.50 Annualized DPS 5.70 Predicted prices: - One year from now 391.90 - Two years from now 441.98 - Three years from now 498.45 - Four years from now 562.14 - Five years from now 633.97

Regression 27

Jan Zika - Financial Analysis, Český Telecom, a.s.Inputs for synthetic rating estimation

Type of firm = 1 (1 for large manufacturing firm, 2 for smaller or riskier firm, 3 for financial service firm)Current Earnings before interest and taxes (EBIT) = 7,088 (CZK million)Current interest expenses = 1,476 (CZK million)Current long term government bond rate = 3.88%OutputInterest coverage ratio = 4.80Estimated Bond Rating = AEstimated Default Spread = 1.00%Estimated Cost of Debt = 4.88%

For large manufacturing firms For financial service firmsIf interest coverage ratio is If long term interest coverage ratio is

> ≤ to Rating is Spread is greater than ≤ to Rating is Spread isOperating Income Decline-100000 0.199999 D 10.00% -100000 0.049999 D 10.00% -50.00%

0.2 0.649999 C 7.50% 0.05 0.099999 C 7.50% -40.00%0.65 0.799999 CC 6.00% 0.1 0.199999 CC 6.00% -40.00%0.8 1.249999 CCC 5.00% 0.2 0.299999 CCC 5.00% -40.00%

1.25 1.499999 B- 4.25% 0.3 0.399999 B- 4.25% -25.00%1.5 1.749999 B 3.25% 0.4 0.499999 B 3.25% -20.00%

1.75 1.999999 B+ 2.50% 0.5 0.599999 B+ 2.50% -20.00%2 2.499999 BB 2.00% 0.6 0.799999 BB 2.00% -20.00%

2.5 2.999999 BBB 1.50% 0.8 0.999999 BBB 1.50% -20.00%3 4.249999 A- 1.25% 1 1.49999 A- 1.25% -17.50%

4.25 5.499999 A 1.00% 1.5 1.99999 A 1.00% -15.00%5.5 6.499999 A+ 0.80% 2 2.49999 A+ 0.80% -10.00%6.5 8.499999 AA 0.50% 2.5 2.99999 AA 0.50% -5.00%

8.50 100000 AAA 0.20% 3 100000 AAA 0.20% 0.00%

For smaller and riskier firmsIf interest coverage ratio isgreater than ≤ to Rating is Spread is

-100000 0.499999 D 10.00%0.5 0.799999 C 7.50%0.8 1.249999 CC 6.00%

1.25 1.499999 CCC 5.00%1.5 1.999999 B- 4.25%2 2.499999 B 3.25%

2.5 2.999999 B+ 2.50%3 3.499999 BB 2.00%

3.5 4.499999 BBB 1.50%4.5 5.999999 A- 1.25%6 7.499999 A 1.00%

7.5 9.499999 A+ 0.80%9.5 12.499999 AA 0.50%

12.5 100000 AAA 0.20%

Rating 28

Jan Zika - Financial Analysis, Český Telecom, a.s.PSE Historical 2000-2003

Date CTc Price PX50 Return CTc Return PX50 1+Return CTc 1+Return PX50 CTc Avg Return Mkt Avg Return5/30/2003 347.5 555.9 -0.20% 0.04% 99.80% 100.04% 27.24% 11.02%5/29/2003 348.2 555.7 0.14% 0.63% 100.14% 100.63% (Annual) (Annual)5/28/2003 347.7 552.2 0.84% 0.20% 100.84% 100.20%5/27/2003 344.8 551.1 -0.78% -0.31% 99.22% 99.69%5/26/2003 347.5 552.8 0.00% 0.07% 100.00% 100.07%5/23/2003 347.5 552.4 -0.23% -0.05% 99.77% 99.95%5/22/2003 348.3 552.7 -0.06% 0.25% 99.94% 100.25%5/21/2003 348.5 551.3 1.31% 0.44% 101.31% 100.44%5/20/2003 344 548.9 -0.15% -0.09% 99.85% 99.91%5/19/2003 344.5 549.4 1.17% 1.05% 101.17% 101.05%5/16/2003 340.5 543.7 -1.10% -0.44% 98.90% 99.56%5/15/2003 344.3 546.1 0.38% -0.04% 100.38% 99.96%5/14/2003 343 546.3 0.35% 1.13% 100.35% 101.13%5/13/2003 341.8 540.2 0.50% 0.60% 100.50% 100.60%5/12/2003 340.1 537.0 -0.41% 0.17% 99.59% 100.17%

5/9/2003 341.5 536.1 -0.38% -0.65% 99.62% 99.35%5/7/2003 342.8 539.6 0.38% -0.55% 100.38% 99.45%5/6/2003 341.5 542.6 2.71% 1.40% 102.71% 101.40%5/5/2003 332.5 535.1 0.45% 1.44% 100.45% 101.44%5/2/2003 331 527.5 1.69% 1.31% 101.69% 101.31%

4/30/2003 325.5 520.7 0.62% -0.34% 100.62% 99.66%4/29/2003 323.5 522.5 -0.31% 0.23% 99.69% 100.23%4/28/2003 324.5 521.3 1.63% 1.26% 101.63% 101.26%4/25/2003 319.3 514.8 -0.84% -0.27% 99.16% 99.73%4/24/2003 322 516.2 -0.56% -0.06% 99.44% 99.94%4/23/2003 323.8 516.5 3.85% 2.34% 103.85% 102.34%4/22/2003 311.8 504.7 0.16% -0.16% 100.16% 99.84%4/18/2003 311.3 505.5 0.00% 0.40% 100.00% 100.40%4/17/2003 311.3 503.5 1.04% 0.84% 101.04% 100.84%4/16/2003 308.1 499.3 -1.38% -1.17% 98.62% 98.83%4/15/2003 312.4 505.2 0.61% -0.20% 100.61% 99.80%4/14/2003 310.5 506.2 1.24% 0.10% 101.24% 100.10%4/11/2003 306.7 505.7 1.39% 0.22% 101.39% 100.22%4/10/2003 302.5 504.6 -0.49% -0.26% 99.51% 99.74%

4/9/2003 304 505.9 1.16% -0.35% 101.16% 99.65%4/8/2003 300.5 507.7 0.00% 0.36% 100.00% 100.36%4/7/2003 300.5 505.9 -0.27% 1.75% 99.73% 101.75%4/4/2003 301.3 497.2 3.54% 1.16% 103.54% 101.16%4/3/2003 291 491.5 -4.96% -1.82% 95.04% 98.18%4/2/2003 306.2 500.6 -0.52% 0.42% 99.48% 100.42%4/1/2003 307.8 498.5 1.25% 1.16% 101.25% 101.16%

3/31/2003 304 492.8 1.91% 0.61% 101.91% 100.61%3/28/2003 298.3 489.8 -0.23% 0.27% 99.77% 100.27%3/27/2003 299 488.5 -1.45% -0.35% 98.55% 99.65%3/26/2003 303.4 490.2 0.97% 0.51% 100.97% 100.51%3/25/2003 300.5 487.7 -1.89% 0.35% 98.11% 100.35%3/24/2003 306.3 486.0 1.26% 0.16% 101.26% 100.16%3/21/2003 302.5 485.2 2.09% 1.10% 102.09% 101.10%3/20/2003 296.3 479.9 0.51% 0.59% 100.51% 100.59%3/19/2003 294.8 477.1 2.79% -0.13% 102.79% 99.87%3/18/2003 286.8 477.7 0.46% -0.10% 100.46% 99.90%3/17/2003 285.5 478.2 -1.48% -0.04% 98.52% 99.96%3/14/2003 289.8 478.4 0.66% 1.16% 100.66% 101.16%3/13/2003 287.9 472.9 3.41% 1.98% 103.41% 101.98%3/12/2003 278.4 463.7 3.00% 0.89% 103.00% 100.89%3/11/2003 270.3 459.6 -0.73% -0.78% 99.27% 99.22%3/10/2003 272.3 463.2 3.14% -0.13% 103.14% 99.87%

3/7/2003 264 463.8 1.23% 0.11% 101.23% 100.11%3/6/2003 260.8 463.3 0.00% -0.15% 100.00% 99.85%3/5/2003 260.8 464.0 -0.84% -0.51% 99.16% 99.49%3/4/2003 263 466.4 -2.41% -1.12% 97.59% 98.88%3/3/2003 269.5 471.7 0.37% -0.17% 100.37% 99.83%

2/28/2003 268.5 472.5 -2.19% -0.44% 97.81% 99.56%2/27/2003 274.5 474.6 -4.19% -0.90% 95.81% 99.10%2/26/2003 286.5 478.9 -0.28% 0.44% 99.72% 100.44%2/25/2003 287.3 476.8 -1.44% -0.75% 98.56% 99.25%2/24/2003 291.5 480.4 -0.78% -0.62% 99.22% 99.38%2/21/2003 293.8 483.4 0.89% 0.23% 100.89% 100.23%2/20/2003 291.2 482.3 0.76% 0.50% 100.76% 100.50%2/19/2003 289 479.9 -0.10% 0.02% 99.90% 100.02%2/18/2003 289.3 479.8 -0.86% 0.13% 99.14% 100.13%2/17/2003 291.8 479.2 -0.75% 0.50% 99.25% 100.50%2/14/2003 294 476.8 0.20% -0.29% 100.20% 99.71%2/13/2003 293.4 478.2 2.05% 0.48% 102.05% 100.48%2/12/2003 287.5 475.9 -1.37% -0.42% 98.63% 99.58%2/11/2003 291.5 477.9 0.93% 0.34% 100.93% 100.34%2/10/2003 288.8 476.3 2.48% -0.06% 102.48% 99.94%

2/7/2003 281.8 476.6 2.06% 1.06% 102.06% 101.06%

PSE Historical 29

Jan Zika - Financial Analysis, Český Telecom, a.s.Operating Lease Converter

Inputs (All Currency amounts in millions of CZK)Operating lease expense in current year = 1,022

Operating Lease CommitmentsYear Commitment Year 1 is next year, here it is 2003.

1 593 2 324 3 324 4 324 5 324

6 and beyond 1,046

Pre-tax Cost of Debt = 4.88% (from the ratings estimator, see Rating sheet)

From the current financial statements, enter the followingReported Operating Income (EBIT) = 7,088 EBIT reported in the current income statement, CZK millionsReported Debt = 22,254 Interest-bearing debt approximated from Interest-bearing debt/Equity ratio reported by CTc, CZK millions

OutputNumber of years embedded in yr 6 estimate = 2 The average lease expense over the first five years is used

to estimate the number of years of expenses in yr 6Converting Operating Leases into debt

Year Commitment Present Value1 593 565 2 324 295 3 324 281 4 324 268 5 324 256

6 and beyond 523 768 Commitment beyond year 6 converted into an annuity for ten yearsDebt Value of leases = 2,432

Restated FinancialsDepreciation on Operating Lease Asset = 347 Straight line depreciationAdjustment to Operating Earnings = 119 PV of operating leases * Pre-tax cost of debtAdjustment to Total Debt outstanding = 2,432

Operating Lease Convertor 30

1999 2000 2001RevenueCommunications traffic revenues 30,207 30,218 27,464Connection charges 1,664 2,028 1,249Subscription charges 7,701 9,515 9,838Revenue from other network operators 5,416 6,590 5,954Telex, data transmission and other telephony 3,453 4,476 6,831Equipment sales and sales of materials 808 1,244 970Leased circuits 1,847 1,982 2,332Other revenues 806 1,171 1,262Total revenues 51,902 57,224 55,900

1999 2000 2001Operating costsWages and salaries 5,327 5,418 5,395Social security contributions 1,948 1,906 1,785Staff welfare costs 292 397 374Total staff costs 7,567 7,721 7,554Depreciation of tangible fixed assets 12,810 13,804 14,723Amortization of intangible fixed assets 599 821 2,317Payments to other network operators 6,912 8,152 7,403Equipment and material cost of sales 2,003 3,753 2,430Repairs and maintenance 477 571 713Advertising and promotion 1,105 1,634 1,527Operating lease payments 615 640 719Consultancy n/a 915 1,034Other operating expenses 7,491 7,142 7,365Total operating expenses 39,579 45,153 45,785

1999 2000 2001Finantial costsContributed services from TelSource 544 634 (9)Interest expense 3,154 2,690 2,178Interest income (- means positive income) (413) (342) (467)Currency gains/losses (- means gain) 596 (25) (358)Total finantial costs 3,881 2,957 1,344

1999 2000 2001Receivables and prepaymentsDomestic trade receivables 5,788 6,260 6,930Foreign currency trade receivables 232 292 335Other debtors 1,699 1,653 385Prepayments 513 594 665Derivative instruments 0 0 1Income tax receivable 369 211 0VAT receivable 693 470 541Total Receivables and prepayments 9,294 9,480 8,857

1999 2000 2001Cash flow - Investing activitiesPurchase of property, plant and equipment (15,118) (12,438) (12,732) Purchase of intangible fixed assets (3,439) (4,950) (5,219) Purchase of marketable securities 0 (11,998) (428) Disposal of tangible fixed assets 28 119 467 Proceeds from marketable securities 4,241 5,223 6,061 Interest received 413 342 468 Net cash used in investing activities (13,875) (23,702) (11,383)

FS Breakdown 31

Financial_analysis_CTc

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