In compliance with the requirements of the Securities Act and the Listings Rules of the Lusaka Securities Exchange, Copperbelt Energy Corporation Plc announces its audited results for the year ended 31 December 2019.
- The operating environment was characterized by some challenges, which resulted in one processing operation being placed under care and maintenance; a situation which continues to subsist. Secondly, the action in the High Court for Zambia by ZCCM-IH to commence winding up proceedings of Konkola Copper Mines Plc (KCM) and the subsequent appointment of a Provisional Liquidator negatively impacted on KCM’s operations; all of which actions affected negatively the Company’s financial results. Further, the collection of value added tax (VAT) refunds remained a challenge during the year. As at 31 December 2019, more than USD21 million remained uncollected.
- Total revenue decreased by 3% from USD421.203 million in 2018 to USD408.272 million in 2019 mainly on account of an 8% reduction in power demand by the mines as well as reduced wheeling services to our non-mining consumers of 7%. The power trading revenue to regional customers grew by 25%.
- Profit after tax was USD12.246 million compared to USD55.856 million in 2018. This represents a decrease of 78%. There was an increase of USD53.335 million in net impairment provision, necessitated by the challenge of the KCM payment default.
- Despite the adverse cash collection occasioned by the KCM payment default and nonrefund of VAT by the Zambia Revenue Authority, the prudent working capital management implemented during the year resulted in cashflow from operations of USD49.777 million from USD78.083 million the previous year and a cash balance of USD77.902million (2018: USD85.791 million). The year-end balance is partly boosted by the restricted cash. Refer to note 1 above.
During the year under review, the Company paid a dividend of USD30.875 million (2018: USD26.0 million).
Performance and operational update
The industry faced a challenging business environment during the year, characterized by suppressed demand by the mining customer category in Zambia, operational challenges affecting our two largest customers, KCM and Mopani Copper Mines Plc (MCM), and the countrywide power deficit which was as a result of low water levels in the country’s hydro reservoirs occasioned by poor rainfall in the 2018/19 hydrological year. KCM is the subject of winding up proceedings commenced by ZCCM-IH (one of its shareholders) while the planned smelter outage at MCM, for purposes of effecting plant overhaul, had the impact of reducing demand at the mine by about 35%. The challenges at KCM have manifested in the customer failing to pay for power consumed, resulting in the Company taking significant impairments during the year. This remains a top concern for the business, requiring the Company to take measures to limit its exposure if the customer does not find a sustainable solution in the coming year. While the mining customers received their full power requirements, the load management program rolled out across the country reduced demand under the domestic wheeling segment of the business by about 6%. Similar challenges on the supply side were reported across the entire Southern African Development Community region against a backdrop of growing demand. Supply challenges in the regional market have a direct impact on our ability to meet our market requirements in the DRC. Despite these challenges, our DRC business segment continued on its upward trajectory during the year; growing by 25% on a year-on-year basis. On the technical side, the power network performed well, meeting the set benchmarks for availability and reliability. This is despite power shortages across the region which continue to pose operational risks to the network.
Health, Safety, Environment and Social
We do recognize that safety failures affect not only our bottom line but also the morale of the staff and our ability to attract and retain talent, and can cause damage to our reputation and productivity. During the year, the Company recorded zero fatalities and lost-time injury man hours.
This performance resulted in the attainment of 6.451 million man-hours without a system based lost-time injury at year end.
We continue to pursue various initiatives to foster further improvement in this area, such as embedding management systems in accordance with ISO standards, enhancement of our occupational health programme and implementation of our safety culture improvement programme. Our expectation is that when these programmes are fully embedded, we should have ingrained across the business the understanding that we save life and money through well maintained occupational safety and health practices. It also gives an opportunity for every employee to contribute ideas that would make the Company an even safer workplace.
The supply of power to the mines remains the largest business segment by revenue and achieving stability in this segment by finalising future supply arrangements is a key priority for the Company.
The main supply agreement, the Bulk Supply Agreement (BSA), that has underpinned the Company’s source of power for several years expired at the end of March 2020. CEC and ZESCO, with the support of the Government, have continued negotiations to put in place a successor agreement to the BSA. The first round of negotiations ended without the parties agreeing due to outstanding differences on some key terms. Please refer to the market announcement issued on 1 April 2020. Efforts to close the gap on those terms are continuing through the engagement of both ZESCO and the Government. In our engagements with ZESCO and Government, we continue to be guided by the principle of ensuring the endgame of the negotiations represents an equitable and win-win outcome for all parties. Achieving predictable, stable and long-term power supply arrangements through win-win long tenured agreements is not only important to CEC but is highly beneficial to the industry as a whole. In this regard, efforts to ensure the Company establishes a portfolio of power sources are continuing.
On the demand side, CEC maintains long term power supply agreements (PSAs) with all its customers that include the ability to renegotiate power tariffs from time to time. In the last six years, CEC has extended all but one of its PSAs with its mine customers in Zambia. The one PSA yet to be extended remains the subject of discussions between CEC and the affected customer.
The PSAs underpin power sales to our customers and remain the vehicles through which the Company has over the years demonstrated its quality and seamless service delivery. While in the short term (one to two years), we expect the demand to remain largely suppressed, fundamentally, the prospects for a rebound in demand going forward remain very good as most mine customers work to return their operations to full capacity and a number of customer expansion and new projects resume ramping up demand over the next three to five years. The key downside risks to demand in the short term include the mining fiscal regime, seen as being unfavourable by the mines, and the impact of the novel coronavirus disease (COVID-19), which are yet to be fully understood at this stage. Recent efforts by the Government to stabilize the mining sector and efforts across the globe to find a lasting solution to COVID-19 give us a measured sense of confidence that stability and focus on growth should return over the medium to long term.
Finally, on the liquidity and working capital position which is now seen as one of the challenges, efforts aimed at unlocking the VAT refunds are continuing through engagements with the ZRA and the Government as well as discussions aimed at finding a workable solution with appropriate risk allocation for supply to challenged KCM.
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 based on the Copperbelt Province of Zambia and some mining companies in the DRC in conjunction with that country’s state utility, SNEL. CEC wheels power through its network on behalf of ZESCO Ltd on the Copperbelt, and 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, InnoVent-CEC North and Power Dynamos Sports Limited (PDSL). CEC-KHPL is the special purpose vehicle through which CEC is developing the 40MW 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.)