Cellestis and Forex

Many people have contacted us to comment upon the Forex (Currency Foreign Exchange) impact on Cellestis and this proposed Scheme.

It is worthwile, therefore, making some comments.

We all know without too much thought that the spectacular rise of the $A over the last two years has dramatically impacted the bottom line of Cellestis, where profits are reported in $A. We also know that, even with this phenomenal headwind, Cellestis has been able to report both substantial profits and impressive profit growth. 

Had Cellestis been a European or USA Company then this forex impact would have been minimised and Cellestis would have been reporting profits and profit growth that would make anybody sit up and pay attention.

But we aren't (European or American)(yet!). 

The Forex is what it is - there is really nothing that we can do about it. We do, though, need to consider the Forex impact in two different ways.

Firstly, as touched on above, the actual level of Forex at any point in time will impact the bottom line in A$. At the moment the $A is at US$1.07. I don't know where it will go next. From my reading it seems that even the experts are divided (read nfi). If, ultimately, the A$ was to go back down then the profits that CST reports would be much higher.

None of the above is an excuse for anything. We must be aware, however, that Qiagen are making an opportunistic bid in "the worst of times". Many of us have been with this investment for many years. We have been through many peaks and troughs of every factor impacting Cellestis. Selling at "the worst of times" is just plain silly - but that is what they want us to do.

Now, to another aspect of Forex that is not quite so obvious and often overlooked.

Cellestis is a GROWTH Company. We buy and hold our shares because we believe in growth (we could get a better raw return by putting our money in the bank). By definition that means that we are always watching the growth figures of the company. That is the most important metric that we have in monitoring and managing our investment in Cellestis.

From 2009 to 2010, Cellestis was able to report a growth in NPBT of 26%. Based on best estimates, the growth from 2010 to 2011 will be at the very least the same again. (I have used NPBT here because during the periods mentioned, CST has consumed its tax credits. Subsequent years can use NPBT or NPAT to report the same growth percentages).

Again, these very impressive growth figures were achieved despite the impact of Forex. However, in this case, it is not the level of the Forex that has impacted the figures but the movement in the Forex. A movement upwards in the Forex dampens the reported growth in profits. Both of the years mentioned have sustained continual movement upwards in the $A.

This means that if the movement of the Forex were to stop (even staying at the current high level) then the impressive growth that Cellestis is experiencing in native (foreign) currencies would be translated directly into profit growth in $A.

So, we don't need the $A to come down at all for Cellestis to begin to report even more spectacular profit growth figures. Of course, if the $A does move downwards, then .....

Vic Bula

Spokesperson

CSAG