copperbelt energy corporation limited hy 2015 financial results presentation
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Copperbelt Energy Corporation Plc
Earnings Presentation
for Half Year ended 30 June 2015
www.cecinvestor.com
Contents
Page
Group Structure 07
Focus on Nigeria and Zambia 08
Financial results 13
Operational statistics 19
Outlook 22Outlook 22
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Your presenters
Owen SilavweManaging Director
Owen was appointed Managing Director for CEC Plc inAugust 2014, having served as Managing Director –Operations (in charge of the Operations Division of thebusiness) since 2013. Prior to his current role, he servedas the Chief Operations Officer for the Company fromMarch 2012. Owen has previously held the position ofCommercial Director responsible for organic business
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Commercial Director responsible for organic businessdevelopment and other commercial aspects of theCompany’s Operations division. Having served invarious positions within CEC, including System PlanningEngineer, Projects Engineer, Projects Manager andBusiness Development Manager. He has been one ofthe main contributors to reforming contractorprocurement processes in CEC as well as financing andimplementation structures of organic business growthprojects. Owen holds a Bachelor of ElectricalEngineering degree from the University of Zambia anda Master of Science in Power Engineering fromChalmers University in Sweden.
Your presenters
Mutale MukukaChief Financial Officer
Mutale was appointed Group Chief Financial Officer inAugust 2014. Prior to this appointment, he was the first CFO forsubsidiary CEC Africa and had also served as CEC Africa’sRegional Head - West Africa, based in Abuja, Nigeria. He ledthe business development and financing transactions foracquisition of equity interest in Abuja Electricity DistributionCompany and North South Power. Other senior positions heheld within the Group include that of Director - Corporate
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held within the Group include that of Director - CorporateFinance for CEC Plc, Manager Corporate Finance andBusiness Planning Head. As CFO, he is responsible for drivingfinancial strategy, financial operations and control as well asoverseeing statutory reporting across several jurisdictions.Mutale has over 15 years of experience covering a numberof industries in project development, corporate finance, taxplanning, project structuring, financial reporting and control.He started his career in audit, and joined CEC Plc in2003, having previously worked for the Zambia RevenueAuthority. He is a qualified UK Chartered ManagementAccountant and a Fellow of the Zambia Institute ofChartered Accountants.
Statements in this presentation (including all other media) that are not historical facts or
information may be forward-looking statements.
These forward-looking statements are based on information available at the time the
statements are made and/or management's belief as of that time with respect to
Forward looking statements
statements are made and/or management's belief as of that time with respect to
future events and involve risks and uncertainties that could cause actual results and
outcomes to be materially different. Important factors that could cause such
differences include, but are not limited to the loss of key customers, the disruption to
operations, economic conditions, political conditions, regulatory issues and reduction in
demand.
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How to access information on CEC
We’re connecting with investors
http://cecinvestor.com/investorconnect-2/
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How to access pan African power sector news
Pan-African power sector news is published through our Twitter
– follow us!
https://twitter.com/cecinvestor
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CEC: Group structure
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CEC
Focus on Nigeria and ZambiaFocus on Nigeria and Zambia
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Market overview
There is a chronic electricity supply shortage across Africa.Current generation capacity estimated at approx. 75 GW.The 48 Sub-Saharan countries have a combined installedgeneration base of only 68 GW*
The shortage becomes even more severe:
– There is a significant deficit to satisfy on the basis of the existing population and economic activity; and
– Africa’s population is growing and so are its economies,
In Sub-Saharan Africa the electrification rate is low, at 30 percent, and only 14 percent in rural areas
Power Pools (sub-Saharan Africa), 2012
Power Pool
Southern African Power Pool
East African Power PoolWest African Power PoolCentral African Pool
Key points Demand
expected to grow at 6.7% between 2009 and 2040
Current chronic electricity supply
African power sector potential
South Africa, with a population of 50 million people, hasalmost 2/3rd of the total installed base of power in sub-Saharan Africa at approximately 43 GW. In contrast the restof Sub-Saharan Africa has roughly 25 GW of electricitycapacity and over 800 million people
Demand for electricity is expected to grow by an average6.7% growth (with regional annual growth rates ranging fromabout 6-9%) over the period 2009-2040. Installed capacitywill need to grow by more than 10% annually just to meetAfrica’s suppressed demand
Hydro power is the main feedstock in many Africanjurisdictions. Enormous hydro potential suggests that it willremain one of the main sources of power in Africa,
Growing use of diesel fired gas turbines, mainly foremergency/backup generation
Majority of the existing power stations have beencommissioned before the 1990’s
electricity supply shortage
Current infrastructure is aging
Power generation is a major focus area for a number of African countries
Electricity consumption (TWh-hrs) pa***
*per African Development Bank group **per the Energy Collective, June 2013 ***McKinsey – Brighter Africa, 2015
423
426
522
760
841
996
1570
3035
3557
3962
0 1,000 2,000 3,000 4,000 5,000
Sub-Saharan Africa
Brazil
Canada
India
Latin America
Japan
Sub-Saharan Africa 2040
European Union
China
United States
9
Current status characterized by
power deficits
Deteriorating power situation across Sub-Saharan Africa (SSA) as power deficits sweep acrossmost countries
Most markets are currently affected by massive power cuts
Continuing issues in the power market
Underinvestment in new capacity, fuel shortages and a failure to reform power sectors toattract investment
Global oil prices currently pose an imminent risk to domestic gas supply growth
Forecast Over a 10-year forecast period, power markets across the region will continue to be blighted
by electricity shortages, under investment and poor electricity supply all affecting mostcountries’ realization of their economic potential
African power sector overview
5
Government Support Governments will continue to strive towards adding capacities with an aim to stop power
shortages from curbing economic growth
Likely concerns
SSA has high growth but limited capacity and characterized by low generation percapita, low total installed capacity, poor quality of supply and low electrification rates
Installed capacity to continue to lag behind other regions
Perception of lack of capacity to pay will continue to hinder investments in more generation
Favourable future
SSA will continue to be characterized by strong growth rates for generation, consumptionand capacity
Higher growth rates owing to low base effect
Huge untapped demand for electricity exists and will continue to exist and grow in line withpopulation expansion and economic development
Growing middle class will demand more and also have the ability to pay for power
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Zambian Electricity Market
Mining contribution & power consumption
• Large mining sector expanding with mining and power emerging as key drivers for economic growth
• Zambia to exhibit the highest rate of growth in mined copper output out of the top six copper producers in the world
• Copper deposits considered of a grade averaging around 2-3% compared with a global ave. of @ 0.8%
• GoZ ruled out reintroduction of windfall tax on mining companies' profits (2012)
Copperbelt71.4%
Rest of Zambia28.6%
Copper resources of 2.8bn tonnes
Mining54.8%Domestic
30.3%
Others14.9%
2014
11
Current Issues & OpportunitiesNo. of customers /expected growth
Mining Co Current load (MW) Expansion (MW)
Konkola Copper Mines 230
Mopani Copper Mines 190 25
NFC Africa Mining 27 50
CNMC Luanshya Copper Mines 50
Chambishi Metals 22
Lubambe Copper Mines 18 80
Chibuluma Mines 3
China Copper Mine 1 4
Total 541 159
Wheeling
ZESCO 250
Frontier Mines 22
SAPP 50-200
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• Hydrology: low water levels at power station reservoirs
• Country experiencing significant power deficit
• In H1 no impact on mining consumption
• Demand cut back by mines expected in H2
Mitigation:
• Short term: Power imports, Emergency generation
• Medium to long term: Coal Plants, Grid Scale Solar PV, HFO Plant
• Industry Structure• Declared TEM effective 1 February 2015, Nigerian Bulk Electricity
Trader has delayed activation of PPAs citing the failure of some distribution entities to activate vesting contracts; negative consequences include failure to index tariffs
• NBET has replaced MO as purchaser of power• Removal of imbalance penalties (HY AEDC $9.6m as penalty)
• Tariffs • General Increase in tariffs
Nigerian Electricity Market
• General Increase in tariffs• Commercial and Industrial tariffs increase of 27% effective Feb.• Discos submitted 10 year tariff profile migration path
• Outlook• Increase in generation on account of increased gas supply• Investment in transmission infrastructure to facilitate power
evacuation• Increased liquidity in entire energy sector• Signs of political will
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Financial results
CEC
Financial results
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CEC: Statement of profit or loss & EBITDA indicators
US$m FY2013 FY2014 1H15 Comments/ Highlights
Revenue 309.4 581.0 322.8 Substantial increment in revenues was led by enhanced operational efficiencies at AEDC.
COGS (251.4) (493.8) (227.9)
Gross profit 58.0 87.2 94.9
Operating expenses (88.5) (201.0) (113.5)Increased due to change in the Group policy for recognizing bad debts; provisioning of $40m at AEDC
Other 141.8 13.8 (5.1)
Operating income 111.3 (100.1) (23.7)
Interest expense, total (12.2) (50.5) (43.8)Nigerian Naira depreciation against U$ resulted in recognition of $26m loss for 1H15 with respect to KANN
Interest & invest. Income 4.2 1.3 0.6
14
Interest & invest. Income 4.2 1.3 0.6
Earnings before tax 103.3 (149.3) (66.9)
Income tax expense (15.9) (14.7) (11.0)
Earnings from cont. ops. 87.4 (164.0) (77.9)
Diluted EPS $0.09 -$0.11 -$0.05
EBITDA margin
Group EBITDA 14.0% -3.0% -5.8%
CEC Plc 17.9% 20.8% 17.9%
AEDC -50.0% -42.2% -34.2%
NSP 67.8% 65.5% -3.1%
CEC Liquid 12.1% 12.8% 21.5%
Realtime 16.1% 15.4% nm
nm = not measureable
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CEC: CEC Plc
US$m CEC PlcFY2013 FY2014 1H15 Comments/ Highlights
Revenue 267.1 291.9 167.2
- Power sales: Up 2.1% y/y in 1H15 to 2,120GWh - Domestic wheeling: Avg capacity sales up marginally by 1% y/y to 242MW - International wheeling: up 9% y/y to 557GWh due to increased mining demand in DRC- International power trading: Up 267% y/y to 213GWh due to increased mining demand in DRC
Gross Profit 75.5 88.7 57.9
EBITDA 47.7 60.6 30.0 Up due to increased regional sales volume and FX gains (regulatory support in the form of revocation of Statutory Instrument 33 of 2012 resulting the restoration of major contracts to U$)resulting the restoration of major contracts to U$)
Margins:-
Gross margin 28.3% 30.4% 34.6%
EBITDA margin 17.9% 20.8% 17.9%
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CEC: Telecommunications
US$m CEC LiquidFY2013 FY2014 1H15 Comments/ Highlights
Revenue 10.6 13.3 9.7
Gross profit 5.2 7.3 6.2 Introduction of new method billing based on data usage resulting in lower Costs
EBITDA 1.3 1.7 2.1
Margins:-
Gross margin 49.1% 54.9% 63.9%
EBITDA margin 12.3% 12.8% 21.6% Benefitted from lower marketing and admin costsEBITDA margin 12.3% 12.8% 21.6% Benefitted from lower marketing and admin costs
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CEC: Nigerian operations
AEDCUS$m FY2013 FY2014 1H15 Comments/ Highlights
Revenue 47.0 289.0 155.6 Driven by (Billing efficiency improved 17ppt to 80% in 1H15 vs. 63% in 1H14) and tariff increase
Gross Profit (8.1) (1.5) 37.0 Reduced Aggregate Technical Commercial and Collection (ATC&C) losses to 43% in Jun/15 vs. 48.5% in Dec/14 and 60% in Nov/13
EBITDA (23.5) (122.0) (53.1)
Affected by change in the Group policy for recognizing bad debts; provisioning of $40m Low generation levels in Nigeria aggravated by nationwide petroleum product Scarcity
Margins:-
Gross margin -17.2% -0.5% 23.8%Gross margin -17.2% -0.5% 23.8%
EBITDA margin -50.0% -42.2% -34.1%
NSPUS$m FY2013 FY2014 1H15 Comments/ Highlights
Revenue 24.6 63.2 18.6 Lower water levels due to poor rainfall resulted in less than expected electricity generation
Gross Profit 21.0 44.9 12.0
EBITDA 16.7 41.4 6.2
Margins:-
Gross margin 85.4% 71.1% 64.5%
EBITDA margin 67.9% 65.5% 33.3% Lower plant capacity factor and higher costs affected operations
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(240)
(160)
(80)
0
80
160
20
01
20
02
20
03
20
04
20
05
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06
20
07
20
08
20
09
20
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20
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14
1H
15
Continuing ops earnings U$m
0
200
400
600
800
20
01
20
02
20
03
20
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20
14
1H
15
Revenue U$m
Earnings from continuing operations, U$m, 2001-1H15Revenue, U$m, 2001-1H15
CEC: Long-term wealth creation
Full year consolidation ofAEDC in 2014 resulted in they/y revenue increase
Five-year turnaround plan forAEDC on course
0%
20%
40%
60%
80%
100%
120%
20
09
20
10
20
11
20
12
20
13
20
14
1H
15
Dividend payout, 2009-1H15EPS, USc, 2001-1H15
18
2015 CEC Plc declared and paid a dividend of US$14m (No dividends were declared in 2014)
2012-2013 focused oninvestments for futureshareholder value creation
Rights Issue closed in FY14with US$64m additionalequity raised
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Operational statistics
CEC
Operational statistics
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CEC: AEDC operating statistics Jan/14 – Jun/15
Average AT&C LossesAT&C Losses
40%
45%
50%
55%
60%
65%
-14
-14
-14
-14
-14
-14
-15
-15
-15
50%
52%
54%
56%
58%
-14
-14
-14
-14
-14
-14
-15
-15
-15
40%
50%
60%
70%
80%
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
40%
50%
60%
70%
80%
90%
100%
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
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Collection efficiencyBilling efficiency
Jan
-
Mar
-
May
-
Jul-
Sep
-
No
v-
Jan
-
Mar
-
May
-
Jan
-
Mar
-
May
-
Jul-
Sep
-
No
v-
Jan
-
Mar
-
May
-
0
50
100
150
200
Jan Feb Mar Apr May Jun
Ene
rgy
char
ged
in
TW
h
(500)
0
500
1,000
1,500
2,000
Jan Feb Mar Apr May Jun
Co
llect
ion
s in
NR
N m
n
CEC: NSP key highlights – 2015 Vs. 2014
Collections in NRN mnEnergy charged in TWh
Jan Feb Mar Apr May Jun
2014 2015
Jan Feb Mar Apr May Jun
2014 2015
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Outlook
CEC
Outlook
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CEC: Segment outlook
Transmission & Distribution Generation & Telecoms
Business CEC Plc, CEC Africa and AEDC CEC Liquid / Hai Telecomms and NSP
Outlook
o Increased power tradingo CEC Africa seeks to raise capitalo Short to medium-term power shortage in
Zambia
o Positive outlook for Zambia’s ICT sector propelled by e-governance initiatives.
o Increased national energy generation
o Mining expansion projectso Economic growth in Zambia, Nigeria, Namibia
and Sierra Leoneo Medium term: target Katanga Province of the
o Projected normal rainfall in NigeriaIncreased investment in Nigerian gas infrastructure to support
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Drivers
o Medium term: target Katanga Province of the DRC – emerging mining sector
o Increased growth in international power trading & wheeling post upgrade of interconnector to 500MW from 260 MW
o Improved AEDC collections & performanceo Continued implementation of 5-yr AEDC plan
oo Increased investment in Nigerian gas infrastructure to support
supplyo Investment in TCN (Transmission Company of Nigeria)o Commissioning of Turbine 3 at NSP
2nd HalfFocus/ objectives
o Continue with the AEDC turn around strategieso CEC Africa capital raiseo Commissioning of 50MW South East Ore Body
and Synclinorium projectso Commissioning of 2nd Zambia-DRC 220kV
Interconnector projecto Implementation of ERPo Focus on regional power trade
o Implementation of the LTE technology / Expanding the 4G WiMax network and reinforcing back up capabilities
o Commissioning of third fully redundant routing out of Zambia (through Lusaka-Livingstone-Victoria-Falls fiber project currently under construction)
Q&AQ&A
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