|
Case
study Prof. Ian Giddy, New York University The Alternatives
EBITDA increased by 59% to U.S. $200 million (2003: U.S. $126 million) as a result of strong growth in revenues and cost controls despite the Group's investment in the Celtel brand. The Group had net finance costs of U.S. $48 million (2003: U.S. $26 million). The increase was mainly due to the costs of refinancing. In 2004, Celtel raised more than U.S. $100 million from shareholders for an acquisition in Kenya, paying approximately 4.5 x EBITDA. Additional funds were raised by selling minority stakes in China Resources Peoples Telephone in Hong Kong, Vodafone Egypt, and Sudatel in Sudan. Celtel used both local and international capital markets to support its operations where appropriate. In November, Celtel Kenya, previously known as Kencell International, refinanced some U.S. $74 million in the Kenyan debt markets. In December 2004 Celtel completed a U.S. $190 million syndicated loan facility for the parent company, of which U.S. $117 million was refinancing and the remainder for business expansion. "As of December 2004, mobile penetration was less than 5% in 10 of the 13 countries in which Celtel operates. Therefore, the Group believes that there is significant opportunity for customer and revenue growth in sub-Saharan Africa. Sub Sahara Africa is currently the world's fastest growing region for mobile telecommunications," said the company. "The Group aims to position Celtel as a pan-African brand known for quality of service, network coverage and customer care. Through a strong brand with a pan-African reach, Celtel aims to increase customer loyalty, expand its customer base and offer differentiated services." "The demand for quality mobile telecommunications services in Africa is reflected in the strong organic growth of the Group's customer base. During the last quarter of 2004 Celtel was signing up on average 50,000 new customers per week, with significant numbers in particular coming from the Democratic Republic of Congo and Kenya." Africa had a population of 850 million with most growth coming from South Africa, Morocco, Nigeria and Egypt. There was plenty of potential, analysts said. Mobile subscriptions across Africa rose 47 percent to 76.5 million in 2004, according to London-based research firm Informa Telecoms & Media. The Offer On March 29, 2005 Celtel revealed that it had received a $3.4bn all-cash offer from Kuwait's Mobile Telecommunications Company (MTC). MTC, which had a market capitalisation of around $7 bn, had more than 20 years of experience in the cellular business. It.had operations in Kuwait, Jordan, Lebanon, Iraq and Bahrain and also had a strategic partnership with Vodafone Group PLC. It reportedly had 3.4m customers in the Middle East and aimed to have 15m users by 2011. Arguing that Celtel shareholders should be happy with the offer, MTC chairman Saad al Barrak said "Together, MTC and Celtel will leverage the strong synergies, shared cultural values and heritage which exist between the Arab World and Sub-Saharan Africa." If accepted, offer would give even the most recent investors a return of at least 250% as the most that investors paid was $20 a share and MTC was offering $56. Shareholders included Actis, a South African private equity investor, Old Mutual with about 1%, and African Merchant Bank. Actis backed Celtel as a start-up and contributed $77m in three rounds of funding. Its 9.3% made it the largest holder after Celtel chairman Mo Ibrahim. Other shareholders included the Africa Infrastructure Fund and a number of US venture capital firms. The cash from MTC would take out existing stakeholders but would not add any working capital or pay off loans Celtel raised to fund expansion. The most recent round saw Celtel raise $270m, but the listing plan prevented it from acquiring smaller rivals or bidding for new licences while it prepared for its public offering. Celtel had a reputation for being well run: it was profitable and had a presence in 13 countries, but money was always tight and Celtel's plans for African dominance had been relatively easy to dismiss. Its management skills and sound business practices had seen it repeatedly raise debt and equity funding to expand, but a buy-in from MTC would ease that pressure. If MTC succeeded in its buyout, some felt this could provide Celtel with the capital for further African expansion. It also would save Celtel from having to go public through listings in London and Johannesburg. That risked saddling it with demanding shareholders who expected to match the rapid rise in valuations from South African companies Telkom and MTN. Shareholders put MTN under pressure a few years ago when it was pumping vast amounts into Nigeria and seeing nary a niara in return. Questions 1. What are the advantages and disadvantages of an IPO for a company such as Celtel? Appendix 1: Celtel 2004 Results 4 March 2005 Celtel proportionate EBITDA increases 67% to US $252 million Celtel
International, a leading pan-African mobile communications group with
over 5 million managed customers in 13 countries, reports strong growth
for the year to 31 December 2004. Financial highlights:
Operational Highlights:
Marten Pieters, Celtel’s Chief Executive Officer, commented: “We invested more than US $250 million
in infrastructure in Africa in 2004, an increase of 140% compared to
the previous year. Our focus is to continue to invest in our
pan-African business and premier brand at a time of rapid growth for
mobile telephony on the continent.” Financial
information presented is derived from the audited consolidated 2004
financial statements prepared in accordance with international
financial reporting standards (IFRS). Year end results for the year ended 31 December 2004 Group Key Performance Indicators
* Churn equals monthly deactivations divided by the local number of customers at the end of the previous month Customer numbers grew very strongly due to increased market penetration and the acquisition in Kenya. ARPU
was lower by 16% at US $21 per month (2003: US $25) as the Group
continued to increase its market penetration and as a result of the
acquisition in Kenya. Financial Results The Group’s performance is shown below. Consolidated P&L
The
Group performed strongly with revenues up by 62% to US $614 million on
a consolidated basis. This increase was largely due to strong organic
growth of the customer base and the major acquisition in Kenya.
Excluding the Kenyan operation, the Group grew its revenues by 42% and
customers by 60%. Operational
expenditures (OPEX) increased by 63%, which is slightly more than the
increase in Revenue, partly due to the cost of re-launching the Group’s
brand at the beginning of 2004. Excluding this additional marketing and
re-branding costs of approximately US $20 million, which was fully
expensed, OPEX increased by 55%. EBITDA
increased by 59% to US $200 million (2003: US $126 million) as a result
of strong growth in revenues and cost controls despite the Group’s
investment in the Celtel brand. EBITDA
margin declined slightly from 33.3% to 32.6% mainly due to the
additional marketing and re-branding costs. Without this charge, the
margin would have increased to 35.8%. The
Group had net finance costs of US $48 million (2003: US $26 million).
The increase was mainly due to the costs of refinancing. The Group realised a profit of US $69 million (2003: US $24 million) from the disposal of non-core operations. Profit before tax and minority interests increased by 96% to US $186 million (2003: US $95 million). The effective tax rate was 17% (2003: 14%) reflecting local tax holidays and non-taxable income. Net
profit doubled to US $147 million compared with US $ 73 million in
2003. Excluding the profit on sale of investments in both years, net
profit grew 59% to US $78.6 million (2003: US $49.5 million). Consolidated statement of Cash Flows
The
Group’s operations generated substantial amounts of cash before CAPEX
on tangible assets. Celtel raised cash from the disposals of non-core
businesses and also sourced additional equity and debt funding from the
international capital markets. Group
operations generated US $152 million in cash, an increase of 55%
compared to 2003. In 2004,US $253 million was spent on infrastructure
investment and other CAPEX programmes during the year. In
May Celtel invested US$250 million in Kenya to acquire the majority
stake (60%) in KenCell Communications and its shareholder debt and to
develop the business. Celtel raised more than US $100 million from shareholders in relation to the acquisition in Kenya. The
Group also raised funds by profitably selling minority stakes in China
Resources Peoples Telephone in Hong Kong, Vodafone Egypt, and Sudatel
in Sudan. Celtel continued to use local
capital markets to support its operations where appropriate. In
November, Celtel Kenya, previously known as Kencell International,
refinanced some US $74 million in the Kenyan debt markets. Appendix 1: 2001-2003 Summary Results  |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
