CHAIRMAN’S LETTER TO SHAREHOLDERS
The optimism in the future of the business that the Board of Directors and the management share and carry has informed the decisions we have taken in the year and the results we are reporting. Having clocked 25 years of successful operations in November, I cannot help but reflect on the path the Company has taken over the years, and the singularity of purpose in terms of achieving success. Today, we are an innovating industry leader with regional scale and occupying an advantaged position for delivering sustainable energy solutions, not only for our customers but also to enable the tackling of pressing societal and economic challenges.
The year in brief
2022 was a good year for us. Our profitability of USD50.8 million is comparable to the prior year’s profit despite a doubling of provision for impairment losses at USD24.1 million (2021: USD12.6 million). There was general improvement in the financial and operational performance in the year.
From a shareholder returns perspective, the Company paid the largest single dividend to date, of USD50.4 million, in keeping with our policy to return not less than half of CEC’s profitability to our stockholders for having entrusted in us the responsibility to create value for them. Our investors have, despite many challenges over the years, kept their faith in us and believed in the future of the business under our captaincy.
On the turnover front, we recorded increased revenue translated in part from the growth in power flows through our network in 2022. The growth came from all of our business lines, led by regional power sales which increased by USD12.3 million. Wheeling recorded a noticeable bump due to a tariff adjustment and increased power flows by third parties to the DRC. Local sales remained our largest segment, going up 9% over 2021. Overall, these segments contributed 14%, 45% and 9% respectively to our revenue.
You will find the detailed financial performance report and insights in our Chief Financial Officer’s report and the financial statements from pages 85 and 144.
Financial success is only one measure of our performance. Operating in the energy industry keeps us alive to some of the pressing challenges of our time and I can, with pride, share with you that transitioning the business to higher sustainability is well underway. In 2022, we made significant strides in decarbonizing our operations, transitioning our generation, and sourcing mix and improving circularity. We captured more than four times the level of carbon as we did the previous year through tree-planting alone, while our circular economy initiatives enabled us to reduce the amount of carbon we could have emitted into the atmosphere by avoiding to create or procure new products and processes in preference to reusing, recycling and repurposing. We allocated a significant portion of capital to developing one of our solar power resources, enabling us to grow our assets while also reducing our carbon footprint.
This report, compared to previous ones, delves more into how we are creating a sustainable future for the business, the challenges and gaps we have identified and how we plan on closing those; in terms of actions, data capture, analysis and reporting. You will find these insights and context throughout the report.
For their loyalty and placing the responsibility of powering their businesses in our hands, we extend ourselves every day to serve our customers beyond their expectations and holding ourselves up to very stringent internally set markers. We maintained our quality of supply above the minimum standards set for the industry, exceeding regulatory benchmarks, in keeping with our consistency. While these high levels of quality performance are continuously beset by criminality through vandalism and theft, we forge ahead undeterred devising solutions that insulate our customers from the worst of these despicable acts, despite the high cost inflicted on the business. These measures and the full operations performance report for the year are discussed on page 36 through to 53.
I alluded earlier to the societal challenges of our time, and the role we are playing in the collective governmental and corporate effort to respond to those challenges which, left unheeded, not only threaten but actually undermine achievement. One that cuts across, and which we consider an important lever for value-creation, but for which resources and facilities remain acutely inadequate is health. Fresh from the devastating impact that COVID-19 wreaked on global business and from whose shadows we are yet to fully emerge, we find that achieving good health and well-being cannot be separated from having access to clean water and sanitation and affordable clean energy. Hence, we particularly make quality health access and provision core to our business and social sustainability. In the past year, we determined to spend a significant portion of our social investment budget on improving paediatric healthcare delivery at one of our major hospitals in the Copperbelt Province. The project is underway and headed for completion in the ensuing year.
We kept up our vigilance towards COVID-19 prevention even as the national disease incidence rate plummeted. Keeping our guard up not only ensures that we do not lapse under the lull of falling disease statistics but also helps us to perfect systems and reach high levels of awareness among our employees, a factor that contributed to our achieving nearly 80% vaccination penetration, a leap beyond 30% from 2021.
We believe that with regard to the challenges we had consistently reported on, stretching from 2020, we have turned a corner. We take our performance in 2022 as a show of our strengthened leadership position, which may be judged from our recovery in capital expenditure for power network maintenance and operation, development of new renewable power generating assets, the resilience of our people and systems during the pandemic, our growth in earnings, a strong balance sheet and increased dividend distribution to our shareholders.
I commend the Board for having steered the business to a sturdy position in readiness to execute our business strategy for the period to 2027, and to seize the opportunities presented in the plans of the different governments in the region as well as the transforming energy landscape.
While these difficulties are now behind us, they do not spell the end to the impediments the business shall encounter, now or in the future. The Board guides and works with management in ensuring that not only are the potential risks to the business and the accompanying mitigants accurately identified and mapped, but that there is a sound process to identify and assess the efficacy of those mitigation mechanisms. These systems and processes affect the Company’s performance on the other ESG factors, ultimately affecting its sustainability and creation of value. Our approach to enterprise risk management stems from our belief that the Board is an important source of advice to management, equally executing its oversight role over management on behalf of the shareholders.
The road ahead
Energy sits at the heart of debate, discussion and action required for a future in which the finite and destructible interactions of individuals and organisations with the natural environment are halted and reversed.
We believe that achieving the transition to energy systems that produce and consume less carbon that we, and the world, desire requires well-planned and pragmatic steps backed by capital allocation decisions that speak to the attainment of those targets. In that regard, our power system meets the fundamental requirements to initiate and support the transition we have embarked on. Our network has many times proved resilient to various shocks, including economic. However, we do not forge ahead naively.
We know that the structural changes to the global electricity generating profiles that are underway or anticipated are inevitable. We have recognized that electricity systems are being pummeled by climate change, leading to more extreme weather patterns. In our case, more dry weather and flash flooding which are inimical to hydropower-based generation – the predominant source in Zambia. Another factor is digitalisation of power systems, which despite their cost and efficiency advantages render systems more prone to cyberattacks.
CEC has positioned itself to not be found a laggard but among the frontrunners in our region. In 2022, our CAPEX included USD22.0 million invested in developing 33MW of solar PV capacity. The plant was completed and powered in February 2023, post the reporting period. Over the course of our current strategic period, we should bring online more than 300MW in renewables, as we walk the talk to our net zero attainment target date of 2027.
From an estimate of up to 260GW of solar PV that the world added in 2022, Africa’s share was nearly 1GW. The flow of investments into renewable energies in Africa is still dismal, despite the abundance of these resources. This can be taken as a silver lining wherein African utilities and governments utilize the period before the expected increase in investment inflows is actualized to devise long term strategies. These strategies should focus on strengthening their power infrastructure to support the deployment of renewable energy. To that end, CEC expects to spend in excess of USD200 million in new transmission and distribution infrastructure to support the energy transition.
We also recognize that a clean energy future depends very heavily on mining. The sheer volumes of the different metals needed for an effective transition by the mid-century target date is in billions. However, questions abound whether the global mining industry, itself highly energy intensive, is ready for this demand. This brings to the fore a reality very familiar to CEC of the strong synergies that exist between energy and mining. We shall, therefore, explore how we could work more closely with our mine customers in our markets to support their energy requirements in a manner that enables them to more ably support a clean energy future.
The Board, management, and the entire employee body, working together, devote themselves continually to building and maintaining a vibrant and healthy company capable of continuing to create value long into the future. I am grateful to all of them for the singularity of purpose exhibited in delivering this performance. The employees are the primary resource the Company must take care of. Looking after our employees, customers, communities, and other parties of interest well enables CEC to achieve harmony among its broad set of stakeholders to enable the creation of value for our shareholders and all stakeholders.
CEC PLC – 2022 Interactive Annual Report.pdf