Copperbelt Energy Corporation Plc (CEC.zm) HY2019 Interim Report

In compliance with the requirements of the Securities Act and the Listings Rules of the Lusaka Securities Exchange, the Copperbelt Energy Corporation Plc (CEC) announces its unaudited results for the period ended 30 June 2019.

I. Introduction
CEC’s core business is the supply of power to the mines in the Copperbelt Province in Zambia, and Haut-Katanga and Lualaba Provinces in the Democratic Republic of Congo (DRC), where we work with SNEL (DRC’s state-owned power utility). CEC also provides wheeling services to third parties, including ZESCO Ltd, and operates the Zambian section of the interconnector into the DRC.

II. Financial Highlights

  • In Zambian Kwacha terms, revenue at ZMW2.561 billion increased 25% from ZMW2.044 billion; whereas a reduction of 1% was registered in United States Dollars (USD) from USD208.253 million to USD206.437 million compared to the same period in 2018. The increase in Kwacha revenue is attributed to a 26% depreciation of the currency. The reduction in USD revenue was a result of reduced power consumption by some of our mining customers.
  • Driven by Kwacha depreciation, cash operating costs (excluding the impairment of receivables) increased by 24% from ZMW172 million to ZMW212 million. In USD terms, operating costs were marginally lower at USD17.1 million (2018: USD17.4 million).
  • Arising from the delayed and/or non-payment of invoices by Konkola Copper Mines Plc (KCM), a provision for impairment of receivables of ZMW358 million (USD28.8 million) was made. No impairment provision was made in the preceding period. This provision was made in accordance with the Company’s accounting policy as well as the provisions of the International Financial Reporting Standards 9 (IFRS 9).
  • Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (Adjusted EBITDA), excluding impairment, was 29% higher in Kwacha at ZMW626.6 million compared to ZMW485.6 million prior. In USD, Adjusted EBITDA at USD50.505 million, was 1% more than in the preceding period (2018: USD49.804 million). EBITDA (inclusive of the impairment of receivables) at ZMW268.9 million was 45% lower than in the prior year (2018: ZMW485.6 million).
  • Profit after tax (PAT) came in at ZMW97 million (USD7.832 million) compared to ZMW246 million (USD24.863 million) in the comparable period. Adjusted PAT (excluding the impairment of receivables) at USD26.570 million was 7% higher than prior period PAT of USD24.862 million.
  • Cash generated from operations for the period was recorded at negative ZMW33.952 million (negative USD2.737 million) compared to positive ZMW130.971 million (USD13.344 million) the previous year. The drop was as a result of the delayed and/or non-payment by KCM of invoiced amounts.
  • The exchange rate for the six months ended 30 June 2019 averaged K12.41 (2018: K9.82) to the USD; a depreciation of 26%. The closing rate on 30 June 2019 was K12.83 (2018: K10.04).

III. Dividends Proposed and Paid
CEC is committed to providing sustainable shareholder returns through distribution of dividends and share price appreciation. In March 2019, the Company paid a dividend of ZMW383 million (USD30.875 million), which translated to 22.67 Ngwee (ZMW0.2267) or US Cents 1.9 per share. Prior year declared and paid dividend was ZMW249 million (USD26 million), translating to 15.57 Ngwee (ZMW0.1557) or US Cents 1.6 per share.

IV. Operational Performance Update
Our customers consumed about 10% less energy at 1,636GWh compared to 1,817GWh during the same period in 2018. This is attributed to operational constraints experienced by some of them; triggered by unrelated factors that include the time it is taking for them to adjust to changes to the mining tax regime introduced in 2019, the winding up proceedings affecting KCM, following the appointment of a Provisional Liquidator by an order of Lusaka High Court, and the on-going short- term overhaul of part of the plant at Mopani Copper Mines Plc (MCM). Fundamentally, prospects for demand recovery and growth remain very good as a number of customer expansion projects are still in ramp up phase and the Company has, during the period under review, signed two new power supply agreements with upcoming mines in the Copperbelt that are expected to reach commercial operation in the next 3 to 5 years.

The power trading segment of the business improved on the back of growth in the customer base and attendant power demand in the DRC, resulting in an increase in traded volumes from 328.199GWh in the prior corresponding period to 333.421GWh. The Company, having extended the tenure of all its main power purchase agreements and signed a number of new customers, remains positive that this upward trend in demand in the DRC market will continue during the second half of the year.

Zambia received below average rainfall in the 2018/19 rainy season, leading to major reservoirs at the country’s hydro power generating facilities receiving less than normal water inflows and resulting in a national energy shortage in 2019. Consequently, load management initiatives have been rolled out across the country to help manage the power shortfall. The reduced power consumption by our customers, while impacting our revenues, has so far been helpful in mitigating the supply gap. Through our relationships with other utilities in the Southern African Power Pool (SAPP), we expect to start importing some power for our customers in Zambia from September / October 2019. This should ensure that our customers’ productivity is impacted as little as possible by the current adverse power situation.

V. Health, Safety, Environment and Social (HSES)
Our commitment to HSES excellence at both operational and project levels remains solid and consistent with our core values. To this end, our performance in this area continues to be inspirational. The Company extended its record of man-hours without a system based lost time accident. As at 30 June 2019, we had attained 5.540 million man-hours (2018: 4.225 million) without a system based lost time accident. From an environmental sustainability perspective, our legal compliance with all environmental obligations continued to be satisfactory.

VI. Outlook
In the short term, a rather mixed performance is envisaged; with the business and the entire electricity sector facing headwinds emanating mainly from the following:

  • The challenge of suppressed demand as the mining companies slowly adjust their operations to the new tax regime and ramp up demand at their new and/or expansion projects.
  • We also expect customers such as MCM, who have some of their plant undergoing short term overhauls, to return to full operation by year end.
  • The winding up proceedings currently affecting KCM will financially constrain the business and the entire electricity value chain. The Company is working very closely with all relevant stakeholders to minimize, as far as possible, the adverse impact of this situation. More importantly, we remain hopeful that a lasting solution will be found to allow the mine to return to full commercial operation in the shortest time possible.Over the medium to long term, the fundamentals for the business remain very strong, supported by:
  • The expected demand recovery and growth in mining power consumption. Mining customers faced with short-term operational constraints should return to normal operation by year end, while new expansion projects implemented by a number of our customers are expected to register steady growth in demand over the next 2 to 3 years. This, together with projections for demand growth from new supply agreements signed with new customers in both Zambia and the DRC, has positioned the business for continued growth going forward. On the supply side, we expect we will continue to deal with the effects of the power deficit over the next couple of years. We remain confident in the ability of the SAPP market to provide any balance of power that cannot be sourced locally.
  • The eventual resolution of the winding up proceedings currently affecting KCM over the coming months, allowing the mine to return to commercial operation and regain its ability to discharge its contractual obligations, including fully paying for the power it consumes. § Discussions with the Government and ZESCO for a successor agreement to the bulk supply agreement signed about 20 years ago. This work stream is still in progress.

Furthermore, the Company will continue to make prioritized capital expenditure driven by its digitization, asset modernization and expansion strategy. Positioning the business to continue supplying reliable power efficiently to its customers remains a key priority. Another key focus is to efficiently support the expansion projects, aimed at increasing productivity, being driven by specific customers in the Copperbelt and the DRC. As the electricity value chain adjusts and adapts to a low carbon economy, we are continuing our efforts in the adoption of distributed sources of energy that include technologies such as solar, wind and storage. We expect the Company to gradually increase its contribution to renewable energy sources; which will help diversify the country’s energy mix and over the long haul reduce dependence on hydropower, which should mitigate energy deficits arising from climatic factors such as drought.

By Order of the Board
Julia C Z Chaila (Mrs.)
Company Secretary

Lusaka Securities Exchange Sponsoring Broker
T | +260-211-232456

E | [email protected]

W | www.sbz.com.zm

Stockbrokers Zambia Limited (SBZ) is a registered member of the Lusaka Securities Exchange and is regulated by the Securities and Exchange Commission of Zambia

First Issued on 29 August 2019


Related download

CEC 2019 interim results.pdf