CEC | FY2015 Conference Call transcript

By Published On: April 7th, 2017Categories: Corporate announcement

Good day, ladies and gentlemen, and welcome to the Copperbelt Energy Corporation Plc earnings presentation for the year ended 31 December 2015. All participants are currently in listen-only mode and if you should need assistance during the call please signal an operator by pressing star and then zero. Please note that the call is being recorded. I now wish to draw your attention to the usual forward-looking statements on slide three. The presentation takes about 20 minutes and will be followed by a Q&A session. Our presenters today will be Owen Silavwe, the Managing Director, and Mutale Mukuka, CEC’s Chief Financial Officer. I now hand the conference over to Owen. Please go ahead, sir.

Owen Silavwe
Good afternoon ladies and gentlemen. To start our presentation I will go straight away to slide six. Looking at the graph there you see that the macroeconomic indicators are quite depressed in 2015. And we mostly expect this to continue in 2016. Despite the short-term economic challenges, our business performed well in 2015 and I will be speaking to this fact shortly. And our expectation is that this will continue. As we all know, our business revenues are Dollar based on the basis of the commercial contracts that we’ve got with our customers, which customers also earn their living in Dollars. This, to a large extent, helps the business to mitigate the forex issues.

I now move to slide seven. On slide seven, I share with you a picture of our HSE. We continue to focus on achieving HSE excellence and we are quite proud of our performance in Zambia where we have been implementing, over the years, procedures and processes that are working very well. Our intention is to duplicate this in Nigeria and we have scored some improvements in this area, though a lot more remains to be done.

I now move to slide eight where I begin to discuss some of the details in terms of our performance in the Zambian market. Generation constraints that were occasioned by the drought and compounded by falling commodity prices resulted in lower sales volumes in terms of the power that we sell to the mines as well as in terms of the wheeling volumes. However, through strong power trading, we mitigated most of these issues; and at the end, you will see that we delivered a strong performance at CEC Plc. During the same period, I am happy to report that the performance improvements that we have been making at our telecommunications businesses have essentially delivered a turnaround of CEC Liquid Telecom where we were able to deliver a profit for the first time. And we look to the future expecting that the solid performance will continue, and the restructuring that we have done in terms of CEC Liquid Telecom’s acquiring 100% of what used to be called Realtime, now renamed Hai Telecoms, we think this should facilitate stronger growth going forward.

I now move to slide nine. You will note from slide nine that ZESCO was unable to provide all our power requirements and, therefore, in Q4 we had to seek alternative sources of power. And we did this through relatively more expensive imports from the region. And you will also note that we suffered a reduction in demand as a result of some of the factors that we faced in our business environment where our customers were facing falling copper prices, as well as the shortage of power that necessitated that our customers look to improving their efficiencies in terms of how they utilise the power that we supply to them, and also we noticed that some of our customers scaled down a little bit in terms of their operations.

I will now move to the Nigerian market. We basically see in terms of the macroeconomic factors that the Nigerian market in terms of performance reflects exactly the same picture that we saw in Zambia. This economic downturn in Nigeria has added an element of uncertainty to the environment in which we operate. However, I’m happy to report that in Q4 of 2015 the regulator approved a ten-year tariff plan and the increases that we saw as part of this tariff plan certainly do reflect some of the macroeconomic factors that we are showing in this slide. We believe our business model is still solid as it is supported by the approved tariff plan and the financial support that we anticipate to come through from the central bank of Nigeria that I will be talking about in the next slide.

I now move to slide 12. You will note that AEDC as a company is still making some losses and our Chief Financial Officer will be alluding to that fact. However, we are quite confident that the tariff plan that has been approved, whereas it doesn’t enable for recovery in the first two years we think that combined with the facility that is being provided by the Central Bank of Nigeria should mitigate these losses in the short to medium term. And in the long term we think once the cost-reflective tariffs are achieved the business should be able to be sustainable.

I move to slide 13 where we share with you some of the details of the tariff methodology that the regulator is following in Nigeria. You will see that the methodology is quite robust. It covers all the efficient costs associated with the business. This comprehensive tariff methodology as outlined in this slide was also adopted and used in the ten-year tariff plan that has been approved, and we believe this provides a solid framework for us to earn an acceptable long-term return on our investment in AEDC.

Moving to slide 14, I’ll share with you what we consider to be the key operational pillars for the success of our business at AEDC znd we believe so far we are on track in terms of delivering on each of these pillars. If you look at the ATC&C losses we have achieved some milestone in this area. However, we realise a lot more work needs to be done. The same can be said about the improvements that we make in the billing and systems as well as customer connection strategies that we continue to implement. We believe more needs to be done to improve on our collections, and this is an area where we continue to put a lot more effort.

I now move to slide 15. And you will notice that this slide basically speaks to the performance that I’ve alluded to at AEDC. It clearly shows improvements in the ATC&C losses, and it also highlights the need for us to continue working on this important aspect of the business as well as the required investments that we need to make in ICT and systems to continue to sustain the improvements that we’ve already begun to see thus far. In terms of the billing, again we will see that improvements are being made in that area. And as I said, we will continue our efforts in these critical areas of the business. At this stage I would like to hand you over to Mutale, our CFO, who is going to take us through the financial performance of the CEC Group.

Mutale Mukuka
Good afternoon listeners. Thank you for joining us. I will take you through the financial results of CEC Group starting with slide 17 which provides the Group’s long-term financial snapshot. On the top left provides the revenue, which has increased at the back of efficiency gains at AEDC. On the earnings side, the earnings were negatively impacted by, number one, the impairment to the value of the property, plant and equipment which was a one-off write-off as well as the change in policy in bad debt provision, which was implemented in January 2015. The policy now provides for more prudent accounting with respect to receivables. These two aspects negatively impacted on the Group’s earnings and the resultant earnings per share. On the bottom right side it highlights the need for the Group to continue to balance shareholder returns between dividends and future returns from today’s investments.

Moving on to slide 18, the Group’s cash operating expenses remained static as shown in this slide and the Group experienced an increase in gross profit at the back of primarily AEDC performance improvements during the year. Non-cash operating expenses and one-off impairments explained in the previous slide negatively impacted on the 2015 financial results.

Moving on to slide 19, which provides the Group’s financial position, an important aspect worth mentioning here is the overall interest-bearing debt which remained static over the two years as well as a significant increase in current liabilities which I will explain in the next few slides.

Slide 20 provides the debt profile as well as the investments which the Group has made in capital expenditure and project investments. A few scores during 2015 include the fact that we’ve managed to restructure the facilities at a company called KANN Utility to try and align the cash generation to the debt repayment profile. The restructuring was concluded in December 2015 and it provided for an additional principal moratorium of 15 months on the entire facility sourced from UBA with an outstand