copperbelt energy corporation limited hy 2015 financial results presentation

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

www.cecinvestor.com 1

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


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


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.

4www.cecinvestor.com

How to access information on CEC

We’re connecting with investors

http://cecinvestor.com/investorconnect-2/


http://cecinvestor.com/investorconnect-2/

How to access pan African power sector news

Pan-African power sector news is published through our Twitter

– follow us!

https://twitter.com/cecinvestor


CEC: Group structure


CEC

Focus on Nigeria and ZambiaFocus on Nigeria and Zambia


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


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

www.cecinvestor.com

• 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


Financial results

CEC

Financial results


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

www.cecinvestor.com

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%


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


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


(240)

(160)

(80)

0

80

160

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

1H

15

Continuing ops earnings U$m

0

200

400

600

800

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

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

www.cecinvestor.com

Operational statistics

CEC

Operational statistics


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

www.cecinvestor.com20

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


Co

llect

ion

s in

NR

N m

n

CEC: NSP key highlights – 2015 Vs. 2014

Collections in NRN mnEnergy charged in TWh


2014 2015


2014 2015

www.cecinvestor.com21

Outlook

CEC

Outlook


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


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


copperbelt energy corporation limited hy 2015 financial results presentation

Investor Relations