Mergers, Acquisitions and Financial Results

Zimbabwean mobile retail operator, Celsys Limited, has confirmed market speculation that it was considering a number of potential acquisitions as part of a programme to diversify its rapidly expanding business. Company chairman Willard Zireva said Celsys was eyeing some “cash generative” firms on an equity swap basis.

“It has been mentioned on occasion before that Celsys Limited has approached a number of companies with regard to acquiring them on a share swap basis to achieve diversification and additional growth prospects in the company.

“These companies are cash generative and have huge growth potential,” Zireva said. Although he could not divulge the names of the firms under consideration as Celsys, whose half-year financials are due at the end of February, is in its grey period. Zireva said discussions that are underway “look promising.”

Celsys was last year linked to a possible share swap with telecommunications firm Econet Wireless Holdings Limited (EWHL), although both firms shot down all speculation of impending nuptials.

Market speculation was rife at the time that Celsys chief executive officer Gary Shane was on an aggressive buying spree on the Zimbabwe Stock Exchange (ZSE), and had built up a significant holding in EWHL as a result, sentiments Shane himself strenuously denied.

The company has, to date, disposed of 15 percent of its investments on the stock market, a move Zireva said was in keeping with management’s deliberate move to dispose of investments in light of interest rate movements. Shane said although the rising interest rates made for a more hostile trading environment, Celsys, which had a gearing of about 20 percent, had taken steps to ensure that its growth and profitability was not affected.

“Our gearing is under 20 percent at the moment, but then any gearing at this point is dangerous. Although the rates have not affected the growth of our business, management is taking a look at that aspect,” Shane said, adding that the firm had reviewed its credit models to take cash upon delivery for all business units.

On other aspects of the business, Shane admitted that the rising tariff charges levied by the cell phone networks meant a reduction in recharge card volumes.

He, however, said this had been offset by the volumes of cheques, which remained high. Analysts said rising tariffs and reduced air time purchases, coupled with the cash model for handset sales, posed a challenge for management and was likely to see a significant reduction in volumes.

Cognisant of the mounting challenges on the domestic front, Celsys has had to look beyond the borders and Shane said the firm had recently struck a deal with Vodacom SA for the printing of 7 million recharge cards on a monthly basis, a factor which should more than compensate for any drop in volumes in Zimbabwe, as well as ensure a foreign currency revenue stream.

Meanwhile, Shane revealed that Celsys had entered into discussions with Econet Zimbabwe over the USD600 million bulk supply agreement dispute that arose after Econet unilaterally terminated the contract in September.

Shane said that an expert had been brought in to arbitrate in the issue, while some regional networks had expressed interest in pursuing a similar arrangement with Celsys.

“We’ve had two major offers (for bulk supply deals) we would have wanted to finance through equity, but current market conditions are not conducive,” Shane said.

Celsys was one of the best performing counters on the ZSE in its maiden year on the bourse following its April 30 listing, reaching a high of $100.The share price has since come down to $50, as the equities market slipped into the doldrums in the final quarter of the year.

Financial Gazette