CEC releases Unaudited Results for the Half Year Ended 30 June 2021
Note: LTIFR – Safety measure showing the man-hours achieved without a system based lost-time injury
Cash Ops – Cash generated from Operations
Net Cash – Cash and cash equivalents less debt
Milestone achievement ISO CERTIFICATION
- ISO 9001 Quality Management System
- ISO 45001 Occupational Health and Safety Management System
- ISO 14001 Environmental Management System
CEO, Owen Silavwe, commented:
“I am delighted to advise of our continued improvements in the operational, safety and financial metrics for the first half of 2021, notwithstanding the effects of the COVID-19 pandemic, which continues to ravage our environment; resulting in unprecedented negative impact on businesses and individuals alike. We persevered and remained resolute to work through the challenges the Company faced in the short term, while remaining focused on attaining the targeted progress on its strategic priorities in the medium to long term. Of significance is the milestone attainment of certification to ISO 9001 Quality Management System, 45001 Occupational Health and Safety Management System, and ISO 14001 Environmental Management System, signifying that the business is well structured in its approach to managing its risks and leveraging opportunities. The certification confers a mark of excellence on the Company, giving further evidence and assurance to customers and other stakeholders of CEC’s exceptional application of and adherence to globally recognized standards.
Overall, the financial highlights below provide more information on the considerable performance improvements achieved on CEC’s operational, financial and safety metrics for the first half of the year, setting a great foundation for continued business improvements going forward as the business environment improves, as expected. The Company continues to prioritise the resolution of all outstanding commercial issues and repositioning the business for delivery of positive performance and sustained growth.”
Financial performance update
Revenue reduced to USD163.472 million from USD201.857 million in H1 2020, signaling a 19% reduction, mainly because of the transfer of the Konkola Copper Mines (KCM) load from the supply to the use of system business segment, following the lapse of the power supply agreement in May 2020. It must, however, be noted that there was an increase in revenue from domestic wheeling, up 13% to USD4.806 million on the back of reduced load shedding; regional power sales, up 4% to USD37.769 million on account of customers’ increased power uptake and use of system, which rose 508% to USD21.178 million.
Expected Credit Losses or receivable impairment losses reduced from USD89.663 million in the first half of 2020 to USD3.189 million, triggered by the segment shift of the KCM demand, as aforestated, positively impacting on the KCM credit exposure. The Company progressed its quest for cost containment, which positively impacted its cash costs to hold at USD13.7 million compared to USD13.8 million the previous comparable period. Profitability for the period benefitted from the reduction in receivable impairment losses, coming in at USD25.483 million against a loss of USD32.458 million in the prior comparable period.
Cash generation improved, relative to the comparable period last year. Cash generation from operations was USD32.344 million (2020: USD19.234 million) with a cash balance of USD105.886 million (2020: USD89.098 million). The cash balance is partly boosted by the restricted cash referred to in note 1.
Dividend
The Board did not declare or pay any dividends during the period under review.
COVID-19
Despite the ramifications of the COVID-19 pandemic, CEC diligently executed its mandate of delivering quality service to all its customers. To navigate the devastating and far-reaching effects of COVID-19, the Company adopted the Ministry of Health-issued guidelines to prevent disease contraction and possible cross-infection among employees. The Company also implemented a number of homegrown protocols, benchmarked against practices by similar businesses around the globe. Further, CEC partnered with health institutions, including the Kitwe Teaching Hospital where hospital beds and bedding were donated to boost the bed capacity and enable more COVID-19 patients to be admitted.
Operational performance update
Performance of the CEC power network was satisfactory as it continued to meet the Company’s set technical benchmarks relating to availability, reliability and quality of supply. Power sales across all business segments; which include power supply, domestic wheeling, use of system, regional power trading and international wheeling, totalled 3,230.14GWh compared to 3,033.09GWh the same period in 2020.
Power sold under the power supply segment increased by 8% to 1,631GWh from 1,505GWh in 2020, whereas wheeling services posted an 18% increase over the same period. Regional power trading increased by 4% to 361GWh on the back of an upturn in power demand. The Company remains positive that this upward trend in demand in this segment of the business will be sustained over the course of 2021.
The general metals market outlook is bullish, given the favourable supply side and strong demand fostered by economic recovery across the global. This is expected to drive strong metal prices in the short-to-medium term and should encourage implementation of new and expansionary projects by mining companies.
The country experienced above average rainfall in the 2020/21 wet season, which resulted in its major hydro power generating reservoirs receiving more water inflows compared to the preceding season. Consequently, the load management initiatives aimed at containing the energy deficit, effected in the previous period, reduced significantly.
Health, Safety, Environment and Social (HSES)
The Company’s HSES performance was pleasing. The Company maintained its record of zero fatalities and injury to personnel and extended the number of man-hours without a lost time accident directly associated with the operation of the power network to 9.217 million hours from 8.257 in June 2020.
Road traffic related incidents maintained a downward trend, as the Company continues to actively implement proactive measures meant to enhance high levels of road safety, although the performance is partly due to the adaptation of COVID-19 imposed ways of working.
Legislation and market developments
CEC continued to support and participate in the Cost of Service Study (CoSS), being undertaken by the Energy Regulation Board (ERB)-appointed consultant. The CoSS is earmarked for completion before the end of 2021. Its outcome is expected to underpin future power tariff reviews.
On 29 May 2020, the Minister of Energy issued Statutory Instrument No. 57 of 2020 (SI 57) declaring all of the Company’s transmission and distribution lines common carrier. CEC challenged this decision, and the consequent step taken by the ERB to set a subeconomic tariff for the use of the Company’s system, through an action for judicial review in the High Court. In February 2021, the High Court returned judgment in favour of CEC, quashing SI 57. Subsequently, on 1 April 2021, the Minister of Energy issued a new Statutory Instrument No. 24 of 2021 (SI24), the Electricity (Common Carrier) (Declaration) Regulations, by which he redeclared all of CEC’s transmission and distribution lines as common carrier. In reaction to this, CEC again, on 11 June 2021, applied for judicial review of SI 24 on the basis that the SI is detrimental to its business interests. The matter is yet to be determined by the court.
Contractual arrangements
On 31 March 2020, the contract that underpinned the commercial relationship between CEC and ZESCO, the Bulk Supply Agreement (BSA), expired. The BSA included services such as power supply by ZESCO to CEC, provision of domestic wheeling and the use of each other’s networks for international wheeling. The parties had engaged in negotiations for a successor agreement but the talks deadlocked before the expiry date. While continuing to seek avenues to resolve the matter, the parties remain committed to continue providing services to all power customers in the Copperbelt. CEC is desirous to resolve this matter as soon as possible.
At the end of May 2020, the power supply agreement between CEC and KCM came to an end and was not renewed. The subsequent events led to the shifting of the KCM load from the business segment of power supply to that of use of system and related services. This structure requires the Company to enter into two contracts, namely, the transmission use of system and the network services agreement. The Company will continue to prioritize efforts to conclude these two agreements.
Outlook
The Company’s strategy positions customers first, therefore, the business continues to find ways to enhance operational excellence by further improving standards for quality and reliable service provision. This will partly be achieved by embedding the Integrated Management System in all of the Company’s operations. It is also imperative that the Company maintains a healthy level of investments in its electricity network through renewal and modernisation of its power assets, technology adoption and digitisation of processes. This is critical as it holds significant benefits for the business by lowering operating costs and enhancing efficiencies, leading to notable and measurable additional value-creation for customers and the electricity sector at large.
CEC will also continue to leverage opportunities in the renewables space, further enhancing its service offering. The Company is committed to motivating quality investments in distributed generation and connecting cleaner sources of energy to its power network, thus, enabling its contribution to the energy transition agenda. These efforts will be highly accretive to the key financial metrics of the business.
To effectively and sustainably operate in the evolving power industry landscape calls for continued investment in CEC’s human capital, sufficiently equipping them with the required skills. The Company believes this should also facilitate rewarding and engaging careers for all employees.
Cautionary on Forward-looking Information
This summary results announcement contains financial and non-financial forward-looking statements about the Company’s performance and position. We believe that while all forward-looking information contained herein is realistic at the time of publishing this report, actual results in future may differ from those anticipated. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause CEC’s actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by these forward-looking statements. Although CEC believes that the expectations reflected in these forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. We take no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the statements have been made.
About the Company
CEC’s core business is the supply of power to the copper mines in the Copperbelt Province of Zambia and the DRC. CEC provides the transmission use of system and wheels power through its network on behalf of ZESCO Ltd and other users in Zambia and the Southern Africa Power Pool. The Company operates a transmission interconnection with the DRC.
CEC has five incorporated subsidiaries – CEC-Kabompo Hydro Power Limited (CEC-KHPL), CEC DRC Sarl, CEC-InnoVent South, InnoVentCEC North and Power Dynamos Sports Limited (PDSL). CEC-KHPL is the special purpose vehicle through which CEC has been pursuing the development of the Kabompo Gorge hydroelectric power project in Mwinilunga District of the North-Western Province of Zambia, while CEC-DRC Sarl is a special purpose vehicle incorporated to secure the power trading segment and grow the Company’s interest in the DRC market. PDSL is a special purpose vehicle which runs Power Dynamos Football Club.
By Order of the Board
Julia C Z Chaila (Mrs.)
Company Secretary
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