LONDON-listed Cambria Africa Plc is in discussions to shore up its shareholding in Radar Holdings (Pvt) Ltd and is relying on a pre-emptive rights offer of AF Phillip to increase its shareholding in Hinshaw, a company that has a 79,65% controlling equity stake in the local group.
Paynet Zimbabwe (Pvt) Ltd, a wholly-owned subsidiary of Cambria, last year acquired a beneficial interest of 7,83% equity stake in Radar Holdings Ltd and settled the acquisition through the subscription by Paynet for a 62,84% equity stake of the ordinary shares of AF Philip & Company (Pvt) Ltd. AF Philip holds 15,65% interest in Hinshaw (Pvt) Ltd, which holds 79,65% interest in Radar through its wholly owned subsidiaries. Paynet in the last financial year deployed US$400 000 to acquire an additional 1,15% equity stake in Radar, a transaction which was implemented through the same subscription mechanism at an effective price of 68 US cents per Radar share.
Through this transaction, Radar is expected to experience an uptick in the Zimbabwe economy thanks to its regional monopoly in brick manufacturing and its significant development of land holdings.
“Cambria is in discussions to further increase its shareholding in Radar. Should the opportunity arise, the Company will rely on the pre-emptive rights of AF Philip to increase its shareholding in Hinshaw which owns 79,65% of Radar shares. The Radar investment provides an attractive hedge against the possible deterioration in the purchasing power of cash and cash-equivalents in Zimbabwe,” Cambria said in its FY 2018 results statement.
Meanwhile, Payserv Zimbabwe is expected to continue receiving funding at 1:1 to the US dollar to pay licence fees and repay loans.
Although it would be reasonable to expect a rise in overhead costs for Payserv and Millchem, Cambria said the reorganisation completed by Payserv in FY 2018 should save the company about US$400 000 annually in cost-to-company salaries, allowing it to absorb a significant portion of such an increase. On the other hand, Millchem expects new exchange control regulations allowing it to charge in “real” US dollars to facilitate the funding of increased levels of raw material imports and alleviate a significant constraint to its business model over the last two years.
The company reduced its cash position in Zimbabwe to minimal levels before the start of the current turbulence through investing its available cash in beneficial ownership of Radar shares. At the date of this announcement, cash resources outside Zimbabwe (in “real” US dollars) total US$1,1 million and the company continues to be actively considering a number of investment opportunities.
“The impact of these shifts in exchange rates on the company’s accounting profits are hard to gauge. In some instances it will exaggerate the Company’s ‘real dollar’ earnings and in some instances overstate its costs. In the main, our earnings are from fees charged to banks. These fees are fixed in ‘local’ dollars however license fees to the parent company remain in ‘real dollars’,” Cambria said.
“We anticipate that the country’s central bank will continue to honour these obligations, stabilising ‘real’ earnings, notwithstanding disparities between official and effective rates on accounting revenues and profits. To put this in perspective, the license fee per transaction stands at US5 cents payable to Payserv Africa in Mauritius. In FY 2018 Paynet generated license fees for 27,7 million transactions forecasting continued and significant ‘real’ cash flows to our Mauritius subsidiary.”
Accounting for 40% of the total value of financial transactions in Zimbabwe, Paynet is a key player in Zimbabwe’s economy.
Payserv achieved record profit before tax (PBT) of U$3,1 million in FY18 with a 19% increase in revenues to US$7,57 million.
Consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) increased 37% to US$3,63 million before re-organisation costs of US$262 000, while profit after tax (PAT) increased 32% to US$2,34 million.
Millchem achieved profitability for the first time in four years at a PAT of US$217 000 with revenues standing at US$1,88 million although it was a 16% reduction still reflecting the strategy to focus on a more profitable product mix.