investor presentation sept 2016

Copperbelt Energy Corporation Plc

RMB Morgan Stanley Conference

27 September 2016

Today’s presenters

1

Owen Silavwe

Managing Director

Qualifications: Bachelor of Electrical Engineering degreefrom the University of Zambia and a Master of Science inPower Engineering from Chalmers University in Sweden.MBA from IMD, Switzerland

Years spent in the company: 18 years

Years industry experience: 19 years

Mutale Mukuka

Chief Financial Officer

Qualifications: Qualified UK Chartered ManagementAccountant and a Fellow of the Zambia Institute ofChartered Accountants. MBA from IE Business School inSpain

Years spent in the company: 13 years

Years industry experience: 16 years

2

The Zambian business

The Nigerian business

Consolidated Group performance

Overview of the CEC Group

Strategy and concluding thoughts

Q&A

3

About CEC Plc

1953 • Founded in 1953 as the Rhodesia-Congo Border Power Corporation

1966 • Company was renamed the Copperbelt Power Company

1982 • Became the Power Division of ZCCM, following the formation of ZCCM in 1982

1997 • ZCCM Power Division was privatised in 1997 and CEC formed

2006 • 77% of the CEC acquired by Zambian Energy Corporation

2008 • Listed on the Lusaka Securities Exchange

2009• Acquires 50% interest in Zambian ISP, Realtime Technology Alliance

Africa Ltd (Realtime) with the aim of commercialising its OPGW network

2010 • Receives infrastructure investment award – 2010 “Developer of the Year" presented by Africa Investor

2011• Enters into JV with Liquid Telecommunications to form CEC Liquid

Telecommunications Limited in Zambia to develop wholesale telecommunications platform

2013 • CEC Africa acquires an effective 45% stake in the Abuja DISCO and 20% in the Shiroro Hydro Power Station concession, both in Nigeria

2014• USD65 million successfully raised in CEC Plc Rights Offer • CEC’s international power trading segment makes a significant

contribution to the company’s earnings for the first time

2015 • CEC Liquid Telecom acquires 100% of Realtime (renamed HaiTelecommunications)

2016• 2nd Zambia-DRC Interconnector line commissioned• CEC receives Iconic Investor of the year award from the Zambia

Development Agency (ZDA)

• CEC Plc is a Zambian incorporated power transmission, generation and electricity distribution company listed on the Lusaka Securities Exchange

− CEC is a major developer of energy infrastructure in Africa and is respected for its skills in designing and operating transmission systems

• CEC Plc operates power transmission, generation and distribution assets in Zambia and Nigeria

− In Zambia, CEC is a market leading power transmission and distribution business and is the main supplier of power to the mines in the Copperbelt region

• Owns and operates an extensive electricity transmission and distribution network covering over 1,000km of 220kV and 66kV primary transmission lines

− In the DRC, CEC is a supplier of power to mining operations via the Zambia-DRC interconnection

− In Nigeria, CEC through its interest in CEC Africa, holds a 45% interest in the Abuja DISCO and a 20% interest in the ShiroroHydro Power Company

• CEC is a member of the Southern African Power Pool (SAPP) and is one of the largest international power traders in Zambia and the DRC

About CEC Plc Corporate development timeline

Source: Company information

CEC Plc Group structure

4

Zambian Energy Corp Ireland (ZECI) ZCCM – IH Institutional & Retail

Investors

CEC Liquid Telecom(Dark Fiber)

Kabompo Hydro(SPV)

CEC Africa

Hai Telecoms(ISP)

100%

50%

100%

100%

52% 20% 28%

KANN UtilitySPV

Abuja Disco

Shiroro Hydro (NG)

North South Power

CEC Africa Hydro CECA SL GenerationSPV

Generation Project

Key:

Investment assets Operating assets Projects in development

75% 50.1%100%

60%

Concession

100%20%

Zambian & DRC OperationsNigerian Operations

CEC Africa operates independently with no recourse to the CEC Plc balance

sheet

100%

Operating assets(Electricity transmission

and distribution)


CEC PlcListed on Lusaka Securities

Exchange

5






Q&A

Principal business activities in Zambia

6

Business units

Principal activities

Revenue

Contribution to CEC Plc

EBITDA

EBITDA margin

• Power transmission, distribution and generation in Zambia & DRC

• Main supplier of power to copper mines in Zambia• Supplier of power copper mines to the DRC• Long term contracts with payments in USD• Demand has a high level of resilience due to nature of

operations• Wheeling of power on behalf of the national state-

owned utility ZESCO• Owns and operates Zambian portion of the Zambia –

DRC interconnection

Energy

• USD363.1m

• 51%

• USD79.951m

• 22%

FY20

15

• 50% JV with Liquid Telecommunications• Largest and preferred wholesale bandwidth provider in

Zambia. CEC Liquid Telecom builds fibre and provides a national backhaul

• Hai Telecommunications is Zambia’s second largest ISP by market share

• Fibre network over 770kms with presence in Lusaka, Livingstone, Solwezi and Chirundu

• CEC Liquid Telecom has successfully leveraged CEC’s power infrastructure and allowed CEC to diversify revenue sources & build a new business

Telecoms

• USD21.144m

• 3%

• USD2.185m

• 10%


7

Power generation is dominated by state-owned ZESCO, with the mining sector being the major consumer

Zambia’s mining sector is a major consumer of energy

CEC Plc is responsible for distribution of 50% of energy consumption in Zambia

94%

4%

2%

ZESCOCEC PlcLunsemfwa Hydro

69%

29% 2%

ZESCOCEC PlcLunsemfwa Hydro

ZESCO owns 94% of power generation in Zambia

CEC is engaged in 29% of transmission in Zambia

Domestic power shortfall expected to persist in Zambia

99.7% 99.7% 98.5%81.0% 81.2% 81.3% 85.6%

17.2% 17.0% 16.9% 13.1%

0%10%20%30%40%50%60%70%80%90%

100%

2014A 2015E 2016F 2017F 2018F 2019F 2020F

Hydropower Coal Oil Renewables

Hydro powered electricity remains dominant source of power

Structure of the Zambian power market

Source: EIU; BMI – Zambian Mining Report Q4 2015

8

CEC Plc - Zambia Asset Base & Infrastructure

Copperbelt Energy owns, maintains and operates the electricity distribution network in the Copperbelt region of Zambia

Leasehold title and wayleave rights of 99-year terms on properties and assets

High voltage transmission network (mostly 220kV and 66kV) designed for high reliability of supply

80MW Gas Turbine Generation capacity (including 8.8m litres fuel storage facilities)

Operates inter-connection with the DRC (handles bulk power flows into and out of DRC)

Comprehensive SCADA control system for 24hrs monitoring and operational control

Facilities for voltage control (sync condenser, cap banks) in various locations on network

China Copper Mine Ltd


• Multiple sources of power, including access to SAPP sources which is important to satisfy customer demand not satisfied by ZESCO bulk supply agreement

• CEC takes reasonable risk on power purchase and makes margin on sale to customer

9

How the contractual power supply and demand arrangements work in Zambia

Back-to-back power supply and demand contracts mitigate trading risk

• Long term bulk power supply contract in place with ZESCO (up to 2020)

• Committed capacity reflects estimated demand from copper mines subject to 85% / 105% floor / cap

• Tariffs adjusted annually based on US PPI• Force majeure clause if unable to supply

power requirements to CEC• CEC has ability to access SAPP to satisfy

excess demand and mitigate risk of power shortages.

ZESCO

SAPP

• Long term ‘take-or-pay’ customer contracts

• Committed usage set on an annual basis with 90% of committed usage paid for (110% cap)

• Tariffs on ZESCO power adjusted annually based on US PPI with ability to pass-through 100% of BSA cost escalation

• Back-to-back force majeure clause with customers if unable to supply power due to ZESCO power shortages

• CEC enters into short term supply agreements to satisfy excess demand with SAPP sourced power

• ZESCO:

– Charge to wheel power to ZESCO customers in Zambia

– Secure payment mechanisms in place

• SAPP Utilities:

– Utilities using CEC infrastructure for a fee to move power within SAPP

Other customers

Mines


• Aims to have a mix of third party and own generation sources to create a robust power sourcing pool in the region

Robust Power Solutions

10

How CEC Plc generates income

Sources of income for Copperbelt Energy Key customers

Pricing model

Electricity transmissionUSD277.6m

76%

Procurement of power at high voltage and transmission through CEC network to supply mine customers on the Copperbelt

Wheeling - distributionUSD11.7m

3%

Includes the provision of wheeling (wheeling) transportation services to mostly ZESCO to move power from point A to B in the CEC network

Other USD1.8m

1%

Peak generation & Other services: This service is priced as part of the supply contracts

Activity FY15 Description

Total income (Zambia) USD363.1m Total Revenue for the business

Power tradingUSD64.1m

18%

Operates a power trading business with power from regional sources sold the mines in the DRC market

Sundry incomeUSD7.9m

2%

This is mainly an amount representing customer contributions to dedicated assets used to supply their power requirements

Zambia DRC

China Copper Mine Ltd

COMILU

COMMUS


Principles

• Tariffs are generally set back-to-back between the BSA and PSAs

• Tariffs are indexed annually to US PPI

• Applicable tariff is two-part consisting of capacity and energy components

• Industry-wide adjustments are taking root

Successful adjustments• Adjustments successfully effected

through industry-wide negotiations in 2008 & 2011

Challenges• Country working to adopt more

robust tariff setting mechanism• Considerable improvements

expected starting from next year

Regulation• Regulator adopting more proactive

approach to economic/technical regulation

• Process being perfected

13

21 21 24

34

40

FY10 FY11 FY12 FY13 FY14 FY15

30

49 44

47

61

80


172

218

267 279

326 363


11

Track record of consistently strong financial performance

Adjusted Revenue (USD’m)1 EBITDA (USD’m)2 & EBITDA margin (%)

Cash flow from operations (USD’m)3,4 & cash conversion (%)Profit after tax (USD’m)

36

26 29

37

28

48


Note 1: Revenue adjusted for the inclusion of power trading that has been included in core business activitiesNote 2: 2011 EBITDA positively impacted by arbitration award of USD 11.3mNote 3: 2010 cash from operations impacted on account of receipt of accrued amounts arising from tariff increase over and above USPPINote 4: 2014 cash from operations impacted by payment dispute with one customer – dispute later resolvedSource: Company info (extracted from IFRS account)Notes 5: Cash conversion equals cash flow from operations divided by EBITDA

120% 53% 66% 46%79% 60%

17.4% 22.5% 16.5% 18.7%16.8% 22.0%

7.6% 9.6% 7.9% 10.4%8.6% 11.0%

4.7%

6.8% 6.8%

5.8%6.3%

5.5%


8.1%

12.4% 12.2%13.1%

12.2%10.5%


Average: 6.0%

12

Strong balance sheet and attractive returns

Return on assets Return on equity

Debt to equityNet debt to EBITDA

Source: Company information(extracted from IFRS account)

0.7x

0.8x 0.8x

1.3x

0.9x 0.9x


Average: 11.4%

Average: 0.9x

1.1x

0.7x 0.7x

2.2x

1.6x

1.3x


Average: 1.3x

13






Q&A

Principal business activities in Nigeria

14

Business units

Principal activities

• Acquired in 2013 and owned 45% by the CEC Group

• 40% interest retained by FGN

• AEDC Plc is a power distribution company in Nigeria with a franchise to distribute electricity in four states comprising the Federal Capital Territory of Abuja, Niger, Kogi and Nassarawa

• The AEDC Plc distribution zone covers 133,014km2 which has a population of at least 10.5 million people in 2.3 million households, dominated by the Federal Capital

• AEDC Plc has around 700,000 customers and an average electrification rate of 27%

Energy

• NSP has the concession to operate the ShiroroHydroelectric Power Plant

• Shiroro, commissioned in 1990, is presently Nigeria’s newest hydroelectric power plant

• The 600MW plant contributes around 11-15%? of Nigeria’s national generation

• It is located in the Niger State, 500 metresdownstream from the confluence of the Kaduna and Dinya Rivers, and is located within the AEDC Plc franchise distribution zone

• The Group holds an effective 20% minority equity stake

Power


15

Understanding the performance of the Nigerian business – CEC Africa

Revenue (USD’m)

EBITDA


Challenges facing the business

• AEDC distributor of power to 4 states (Abuja, Kogi, Niger and Nassarawa):

Sector has a huge growth potential given the population and the value to be derived from business turnaround activities linked to operational efficiency improvements

However, sector dogged by a number of issues:

• Liquidity challenges and culture of non-payment for consumed electricity

• Regulatory environment far from mature

• Macroeconomic issues mainly spooned by low commodity prices and Fx challenges

• NSP – concessionaire of the 600MW Shiroro hydro generation plant:

Turnaround strategy includes maintenance and operational efficiency improvements / renegotiating currency of the concession

Performance impacted by sector issues including liquidity and non-payment issues, and FX issues

• Nigerian businesses continue to be loss making and are driving overall losses in the Group

• Management is focused on:

Operational improvements and improvement in ATC&C losses

Aggressive debt collection strategies

Efforts to convert the USD loan to Naira to mitigate currency mismatch

Participate in regulatory reforms discussions

289

324

146

202

FY14 FY15 1H15 1H16

(117)

(177)

(33)

(55)

FY14 FY15 1H15 1H16

16






Q&A

Consolidated Group financial performance: strong performance of Zambian business offset by losses in Nigeria

17

Adjusted revenue1 (USD’m) EBITDA (USD’m)

Profit after tax (USD’m) Dividends (USD’m)

Note 1: Revenue adjusted for the inclusion of power trading that has been included in core business activitiesSource: Company info (extracted from IFRS account)

311

612

710

315357

FY2013 FY2014 FY2015 1H15 1H16

127

(61)

(112)

(5)

13

FY2013 FY2014 FY2015 1H15 1H16

103

(149)

(197)

(78)

(157)

FY2013 FY2014 FY2015 1H15 1H16

4

0

14

16

FY2013 FY2014 FY2015 1H16

18






Q&A

19

Strategy

• Focus on the core transmission business in Zambia and DRC

Increase capacity and efficiency through continued investment in the core power transmission assets

Focus on demand growth, maintaining and improving margins, cash conversion and returns on capital employed

• Increase wheeling of power on behalf of ZESCO

Leverage infrastructure to provide more extensive wheeling services

Segment to grow as Zambia brings on-stream new sources of power

• Build on highly profitable power trading business in Zambia and the DRC

Power trading, with power sourced from regional sources, holds huge growth potential

CEC has positioned itself for growth and aims to make a significant contribution to the DRC market going forward

• Co-investment with Zambian and regional partners on generation and transmission projects to create a robust power sourcing strategy

• Work with other sector players to achieve a more robust tariff framework in Zambia

• Transmission lines have provided opportunity to enter the telecoms space:

CEC Liquid Telecom with its retail arm Hai have made considerable progress to grow the market share in the last 4 years

• New services being rolled out, including LTE solution

• Business focused on growth and running a lean operation

• Offers good diversity to the power business

• Focus on business turnaround including maintenance and operational efficiency improvements, improved debt collection strategies, renegotiating agreements including currency of concessions and regulatory reform

• Aim to decrease losses in the business through focused implementation of turnaround strategies


20

Concluding thoughts

The core Zambian business remains highly profitable, generating attractive USD linked revenue and EBITDA growth and stable margins

CEC’s core electricity transmission and distribution business is a market leader in electricity transmission and distribution in the attractive Zambian and the DRC markets

Group financial performance in FY14 & FY15 has been impacted by poor performance of CEC Africa, specifically relating to the acquisition of AEDC Plc in Nigeria in 2013

CEC’s current Group structure, consolidated financial results & limited liquidity at LuSEhave impacted the market value of CEC Plc

The Board of CEC Plc and management are evaluating options to unlock value for shareholders, which may include a restructuring of the business and a separate listing of the Zambian business on the JSE

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Q&A

investor presentation sept 2016

Investor Relations