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Copperbelt Energy Corporation plc
Annual earnings presentation for the year ended 31 December 2015
30 March 2016
www.cecinvestor.com
Contents
Zambia review Pg 5 Economic overview 6
Health safety environment & social 7
Overview: Zambian operations 8
CEC plc sales & power trading 9
Nigeria review Pg 10 Economic overview 11
Regulatory events 12
Overview AED Plc business model 13
Financial results Pg 16 CEC Group
- Long term financial snapshot 17
- Statement of profit or loss 18
- Statement of financial position 19
- Debt and capital expenditure 20
- Going concern 21
CEC plc
- Long-term financial snapshot 22
- Other financial extracts 23
Telecommunications financial extracts 24
AED Plc financial extracts 25
NSP financial extracts 26
Project pipeline Pg 27
Outlook and strategy Pg 29
www.cecinvestor.com 1
Your presenters
www.cecinvestor.com 2
Owen Silavwe Managing Director
Mutale Mukuka Chief Financial Officer
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
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.
Forward looking statements
3
CEC Group structure
www.cecinvestor.com 4
KANN Utility
SPV
Shiroro Hydro (NG)
CECA SL Generation
SPV
Abuja Disco Generation Project
CEC Africa
CEC Plc
Zambian Energy Corp
Ireland (ZECI) ZCCM – IH
Institutional & Retail
Investors
75%
60%
100%
50.1%
100%
100%
20% 52% 28%
Nigeria Mauritius
Sierra Leone
Projects in development Operating assets
Key:
North South Power
20%
CEC Liquid Telecom
Hai Telecoms
Kabompo Hydro 50%
100%
100%
CEC Africa Hydro
100%
Investment assets
CEC Group
ZAMBIA
Summary Economic & Business Overview
www.cecinvestor.com 5
Health, safety, environment and social (HSES)
– CEC plc clocked 5.57 million man hours without a system related lost time
accident
– Continued improvements in safety metrics
– In AED Plc compliance is becoming an integral part of operations contributing
to our objective of HSES excellence.
– 30% reduction in fatalities during the year was positive but any fatality is
unacceptable
– In addition to AED Plc Fatality Prevention Plan HSES Initiatives include: -
Close collaboration with stakeholders
Continuous network infrastructure improvement
Access restriction
Community awareness programmes
Dedicated customer service centres for quick fault resolution
www.cecinvestor.com 7
Overview: Zambian operations
– Drought imposed generation constraints nationwide compounded by commodity price falls (copper). CEC accessed a proportion of its power from SAPP for its mining clients during the year when ZESCO could not meet power requirements as a result of drought
induced generation challenges
– YOY energy sales were down 3%. Domestic wheeling for ZESCO down 4% on account of load shedding and commodity prices. Mines are cost cutting and restructuring to promote long term sustainability
– Solid performance from CEC Plc particularly in power trading which is one of the key focus areas going forward (20% of revenues). Increased off-take by DRC mines recorded
– Tariff increment +29% passed by Energy Regulation Board in April 2014 remained unresolved however fresh tariff adjustment process commenced end 2015 and uniform tariff of USc10.35 kWh to all mines driven
– Realtime now 100% subsidiary of CEC Liquid Telecom and renamed to Hai Telecoms - broadens CEC internet offering to the retail market. CEC Liquid Telecom turned profitable.
– CEC Liquid Telecom grew its fibre footprint from 2,494 km to 2,730 km in 2015 and continued its FTTH roll out (covering most parts of Lusaka) and this will be continued in other parts of Zambia
www.cecinvestor.com 8
Max Demand Trend (Sales Units MW)
Power trading
CEC Group: CEC Plc operating statistics
www.cecinvestor.com 9
• Improved sales over 2014 up to end of Q3 in 2015
• Sales dipped at the beginning of Q4 due to the following factors
• Declaration of force majeure resulted in ZESCO supplying
only 70%
• Balance of demand sourced from more expensive imports
from the region
• Falling copper prices forced mines to manage their costs
more stringently
• Mines put more efforts in energy efficiency and in some
cases scaled down operations
• Overall demand reduction of about 100MW by Dec 2015
• Significant growth in power trading + 87%
• Power trading more than made for the reduction in power sales
• Power trading has become a significant proportion of CEC
business
• CEC taking a long term view of this business activity
CEC Group
NIGERIA
Summary Economic & Business Overview
www.cecinvestor.com 10
0.0040
0.0050
0.0060
0.0070
Jan
-11
Jun
-11
No
v-1
1
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
De
c-1
3
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
NGN/USD
0
50
100
150
Jan
-11
Jun
-11
No
v-1
1
Ap
r-1
2
Sep
-12
Feb
-13
Jul-
13
De
c-1
3
May
-14
Oct
-14
Mar
-15
Au
g-1
5
Jan
-16
WTI Crude Oil ($/bbl)
2%
4%
6%
8%
10%
20
11
20
12
20
13
20
14
20
15
20
16
E
20
17
E
20
18
E
20
19
E
20
20
E
Nigerian GDP growth (%)
Inflation rate, 2011-20E
WTI Crude prices, 2011-16 YTD
GDP growth, 2011-20E
ZMW/USD, 2011-16 YTD
Economic Overview: Nigeria
www.cecinvestor.com 11
Nigerian GDP is estimated to
grow at ~4.8% over 2017-20E
IMF estimates inflation rate to
decline by 2ppt to 7% by 2020E
Significant power generation
shortfalls persist
Nigeria continues to adopt
fixed forex policy
Commodity prices (oil) remain
depressed
Stabilisation in crude prices to
benefit oil based economies
Regulatory events: Revised Multi-Year Tariff Order 2.1
Summary: Approval of ten year tariff plan in 4Q15: -
First 2 years under-recovery: to moderate impact of significant short term
tariff increases for consumer
In recognition of period of under recovery, the Government of Nigeria and
NERC has provided a concession to AED Plc where only 65% of the power
purchased for re-sale from the Market Operator (pre-February 2015) and
NBET (post- February 2015) need be paid for immediately.
The balance of power purchase costs (35%) is accrued / recognised in
financial reporting for the year ,but settlement thereof is deferred for
settlement through: -
financial assistance (interest free and no fixed terms of repayment) from the
Central Bank of Nigeria (“CBN”) Market Stabilisation Facility (“NMSF”) for distribution companies of US$1.8bn and
increased tariffs, which tariffs are set at a level that enables repayment of the
NMSF funds as well as enables AED Plc to earn an acceptable equity return on
investment
.
www.cecinvestor.com 12
10 year cost reflective tariff model
Minor reviews every 6 months and major reviews
www.cecinvestor.com 13
Section 6.1 of MYTO methodology provides that minor review be carried out whenever a market participant has a grievance with the current inputs, but the participant must operate with said inputs for a certain period in order to empirically prove they need to be changed
Inflation rate
Foreign exchange rate
Gas price
Generation capacity
Capacity to evacuate generation capacity Minor Review
BI – Annual Minor Review
5 Year Major Review
According to Section 6.4 of the MYTO methodology, the major 5-yearly tariff review, will address the following variables:
Capital expenditure
Actual and projected sales
Customer numbers and consumptions
Operating costs
Fuel costs
Taxes and other payments
Forecasts of electricity demand
Interest rates
Reasonable industry WACC
Appropriate expansion of the transmission and distribution networks
Reasonable annual rates of reduction of industry losses, particularly non-technical losses.
AED Plc Business Model broadly on track
www.cecinvestor.com 14
Operations
Reduced ATC&C losses
Improved billing efficiency
Increased Customer Connections –
Metering
Improved collection rate
Improved customer service levels
Human
Resources &
Technology
Operations
Safety
Customer
Service
Safety
HSES policy developed
Fence off of all exposed Infrastructure
Installed danger warning signs at all
AED Plc Sites
Conducting Public / Community
Sensitization Programmers
Stakeholder Engagement Team
Constituted
2015Q2 was the first quarter in history
where there were no loss time
accidents
Customer Service
Call centre established
Stakeholder engagement strategy
being implemented
Revenue protection unit established
Business information system installed
Human Resources & Technology
Right-sizing completed
Organisation redesign in progress
Regional structure initiated
Employee development plans
developed
IT infrastructure to support business
operations to be installed by Q12015
CEC Group: AED Plc operations insights
www.cecinvestor.com 15
Improvements in ATC & C losses
Investments into ICT and systems continue
to sustain improvement
Challenges remain / more effort being
invested
10%
20%
30%
40%
50%
60%
70%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
ATC & C Losses %
ATC & C Losses 2014
ATC & C losses 2015
150,000,000
170,000,000
190,000,000
210,000,000
230,000,000
250,000,000
270,000,000
290,000,000
310,000,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
AED Plc Trend Energy billed MWh
Energy Billed 2014
Steady increase in power availability
Improvement in billing efficiency
CEC Group
Financial results
www.cecinvestor.com 16
0.00
0.50
1.00
1.50
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Dividend Uc
Earnings from continuing operations, U$m, 2006-15
Dividend per share, 2009-16*
Revenue, U$m, 2006-15
EPS, USc, 2006-15
CEC Group: Long-term financial snapshot
www.cecinvestor.com 17
Revenue increased in FY15
despite commodity down
cycle
Bad debt provision
(USD94.4m) & PPE impairment
(USD86.1m) write downs
masked AED Plc revenue
gains & positive CEC Plc
performance
Announced interim dividend
of USc1.01 in Jan 16
Paid dividend of USc0.86 in
Jan 15
CEC Group: Statement of profit or loss
18
Ch. 2015 2014 Comments/ Highlights
Revenue 6% 616.7 581.0 Revenue growth driven by tariff increase at Nigerian operations
Cost of sales 7% (459.4) (493.8)
Gross profit 80% 157.3 87.2 Increment in average billing efficiency at AED Plc
Cash operating expenses -2% (121.3) (118.4)
Bad debt provision -115% (94.5) (44.0) Change in bad debt provisioning policy
Other income 135% 32.4 13.8 International power sales up by ~150% y/y in DRC region
Op profit before dep. & impairment 57% (26.1) (61.4)
Impairment of property, plant & eq. - (86.1) -
Depreciation - (38.9) (38.6)
Operating loss -51% (151.2) (100.1)
Interest expense, total 6% (47.6) (50.5)
Interest & invest. Income 15% 1.5 1.3
Earnings before tax -32% (197.2) (149.3)
Income tax expense -58% (23.2) (14.7)
Earnings from cont. ops. -34% (220.4) (164.0)
Diluted EPS -28% -$0.055 -$0.043
CEC Group: Financial position
19
Ch. 2015 2014 Comments/ Highlights
Shareholders funds -33% 293.0 436. 9
Interest bearing debt 1% 235.6 237. 4
Non current assets 897.2 828.0
Current assets 279.4 278.7
Cash -41% 60. 9 102.4
Current liabilities -22% 459.2 377.6
Net current liabilities -82% (179.8) (98.9)
CEC Group: Debt and capital expenditure
20
Debt repayment profile
Capital expenditure & investment
www.cecinvestor.com
• Gearing at prudent and manageable levels
– Restructured U$122m loan (UBA)
– Capital repayment moratorium until Mar/17
– Weighted ave. debt maturity at 8.4 yrs vs. 7.2 yrs in 2014
• Capex: USD28.7m in 2015 vs USD25.8m in 2014
– Continued capex for replacement, expansion, operational and automation
– Retain capex for 2016 at similar levels
• Project investments at U$13m in 2015
– Investments at Heavy Fuel Oil project at Sierra Leone,
– Hydroelectric project in Zambia
– Feasibility study on solar project at Shiroro hydropower plant
CEC Group: Going concern
21
Current liabilities USD ‘ 000
www.cecinvestor.com
Net current liabilities & losses
Group loss USD220.35m (2014: USD164.02m)
Net current liabilities of USD 179.8m at year end (2014: USD226.9m).
Interim Rules and NBET debt of USD264.2m, included in current net liabilities, recoverable in the medium term from
CBN funding
increased tariffs
Non-cash charges to earnings
Of the USD220.35m loss USD180.6m comprised
Impairment loss on property, plant and equipment USD86.1m (2014: Nil)
Bad debt provisions of USD94.5m (2014: 44.0m)
Analysis of non-cash charges
Total dividends, USD Revenue, USD’000, 2005-15
EPS, USc, 2005-15
CEC Plc: Long-term financial snapshot
www.cecinvestor.com 22
Cash generated from operations USD 000
CEC Group: CEC Plc
USDm
CEC Plc 2015 2014 Ch. Comments/ Highlights
Revenue 291.1 291.9 0%
Gross Profit 86.5 88.7 -3%
EBITDA 80.0 60.6 32% - Up 32% y/y due to increased power trading and FX gains
Net Profit 39.5 33.6 18%
Margins:-
Gross margin 29.7% 30.4% -0.7%
EBITDA margin 27.5% 20.8% 6.7%
Net margin 13.2% 11.5% 1.7%
Financial position:-
Shareholders funds 381.5 279.5 36%
Cash 40.2 43.2 -7%
Debt 101.6 99.7 -2%
Net current assets 63.4 49.3 29%
www.cecinvestor.com 23
CEC Group: Telecommunications: CEC Liquid Telecom
www.cecinvestor.com 24
CEC Liquid Telecom USDm 2015 2014 Ch.
Revenue 14.7 13.3 11%
Gross Profit 10.0 7.3 37%
EBITDA 2.4 1.7 41%
Net Profit 1.5 (0.1) -
Margins:- Mvmt
Gross margin 3.4% 2.5% 0.9%
EBITDA margin 0.8% 0.6% 0.2%
Net margin 0.5% 0.0% 0.5%
Financial position:- Ch.
Shareholders funds 33.6 29.2 15%
Cash 0.46 4.9 -91%
Debt 8.5 11.0 -23%
Hai Telecoms USDm 2015 2014 Ch.
Revenue 6.4 7.0 -9%
Gross Profit 2.5 3.5 -29%
EBITDA (0.2) 1.1 -118%
Net Profit (0.3) 0.5 -161%
Margins:- Mvmt
Gross margin 0.9% 1.2% -0.3%
EBITDA margin -0.1% 0.4% -0.5%
Net margin -0.1% 0.2% -0.3%
Financial position:- Ch.
Shareholders funds 0.273 0.876 -69%
Cash 0.058 0.013 346%
Debt 0.300 0.285 -5%
CEC Group: Nigerian operations AED Plc
www.cecinvestor.com 25
USDm
AED Plc 2015 2014 Ch. Comments/ Highlights
Revenue 322.1 289.0 12% Tariff increase and Improved billing efficiency (81% in 2015 vs. 67% in 2014)
Gross Profit 67.2 (1.5) - Reduced Aggregate Technical Commercial and Collection (ATC&C) losses to 50% in 2015 from 53% in 2014
Impairment PPE 82.2 -
EBITDA (106.1) (118.5) +10% Change in bad debt provisioning policy resulted in 1x increase to U$94m
Net loss (216.6) (197.3) -10%
Margins:-
Gross margin 23.1% -0.5% -
Financial position:-
Shareholders funds 184.9 191. 9 -4%
Cash 9. 0 18.8 -52%
Debt 1.8 1.1 64%
Net current liabilities: (226.9) (123.3) -84%
Less: Market
Operator & NBET
amounts due
264.2 144.9 -82%
Net current assets 84.4 21.6 +291% - Proforma adjusted net current assets
CEC Group: Nigerian operations NSP
www.cecinvestor.com 26
USDm
NSP 2015 2014 Ch. Comments/ Highlights
Revenue 61.7 63.2 -2% - Low water levels affected supply
Gross Profit 47.4 44.9 6% - Collections to billable revenue increased to 83% in 2015 from 65% in 2014
EBITDA 36.4 41.4 -12%
Net Profit (13.3) (5.1) -161% - FX losses increased to U$13m (vs. U$5m) due to delay in activation of PPA
tariffs
Margins:-
Gross margin 16.3% 15.4% 0.9%
EBITDA margin 12.5% 14.2% -1.7%
Net margin -4.6% -1.7% -2.9%
Financial position:-
Shareholders funds 27.8 45.0 -38%
Cash 6.3 6.8 -7%
Debt 63.1 66.3 5%
Project pipeline
www.cecinvestor.com 27
Project pipeline
www.cecinvestor.com 28
MW Country
CECA SL (thermal) 128 Sierra Leone
Kabompo Gorge (hydro) 40 Zambia
Luapula (hydro) 700 Zambia/DRC
2nd Zambia – DRC interconnector 550 Zambia
Prospects:-
• Feasibility studies on renewable energy generation by investigating solar parks in Zambia
• Expansion of generation capacity at Shiroro (with solar) underway
Outlook & strategy
www.cecinvestor.com 29
CEC Group: Segment overview
www.cecinvestor.com 30
Zambia Nigeria
Country Strategy
Cautious view of capital expenditure
Seek alternative generation sources & diversify revenue base
Interest rate and exchange rate hedging
Pursuit of cost saving measures
Stabilisation strategy
Pursue operational improvements: reducing ATC & C losses, business process re-engineering, improve revenue collection and customer service delivery
Establishing steady cash flows from NSP
Group strategy
oCEC Group equity is undervalued - strategies to unlock value will be pursued and this
includes a capital raise in CECA
oActively pursue target projects including renewables
oProgress development of the 128MW HFO power plant in Sierra Leone
oActive participation in evolution of regulatory environments
CEC Group: Segment overview
www.cecinvestor.com 31
Energy Telecommunication
Business CEC Plc, AED Plc, NSP CEC Liquid Telecom, Hai Telecoms
Outlook
o Estimate 10-15% average reduction in mining power uptake in Zambia; to recover in medium term
o U$1.8bn Nigeria Electricity Market Stabilization Facility to provide liquidity to
distributors & reduce net liabilities
o Tariff increase in Nigeria in Feb 2016 @ 20% and continued tariff reviews
o Tariff discussions in Zambia continue
o Positive outlook for Zambia’s ICT sector
o Retail growth through wider services and products
o Increased countrywide presence
o Restructured Telecoms businesses will increase market share
2016 Focus/
objectives
o Continue to source power from the region to meet shortfall in Zambia
o Continue with the AED Plc turn around strategies
o AED Plc capex allocation for capacity expansion and AT&C loss reduction measure
o Significant progress at 128MW CECA Sierra Leone thermal power project
o Kabompo Gorge (hydro) power project. Zambia-DRC 220kV Interconnector project
o Generation capacity expansion at Shiroro hydropower plant with solar generation
o Copperbelt fiber expansion
o Expand FTTH expansion to other parts of the country other than Lusaka
o Improve profitability and benefit from synergies
o Consolidate market position
o Improve quality and affordability of the services
o Focus on Branding
CEC Group: Segment overview
www.cecinvestor.com 32
Energy Telecommunication
Business CEC Plc, AED Plc, NSP CEC Liquid Telecom, Hai Telecoms
Drivers
oMove toward market related tariffs
oLess uncertainty in regulatory environment
oAbility to leverage alternate generation sources regionally
oGrowth in international power trading & wheeling
oImproved AED Plc collections & operational performance
oLeverage nationwide infrastructure
oCommissioning of fiber cable with access to East Africa and co-located sub cables
oInfrastructure build: Expand Fiber to the Home (FTTH) service
oUpgraded its Multiprotocol Label Switching (MPLS) and the Gigabit Passive Optical Networks (GPON) fiber solutions
Q&A
www.cecinvestor.com 33
Thank You
www.cecinvestor.com 34