CEC Zambia – Analysis of 2018 Performance
Copperbelt Energy Corporation Plc, Energy

Corporate Bio

The core business of CEC Zambia is to supply power to copper producing mines on the Copperbelt Province of Zambia and other related mining companies in the Democratic Republic of Congo (DRC) in conjunction with SNEL that country’s state utility company. CEC has two incorporated subsidiaries namely CEC-Kabompo Hydro Power Limited (CEC-KHPL)  and CEC  DRC Sarl through which it wheels power on its network on behalf of ZESCO limited on the copperbelt and operates a transmission interconnection with the DRC.

Operational Performance

Throughout 2018, the performance of the power supply was relatively satisfactory by meeting the set benchmarks on which performance is measured. This is evident based on the good rainfall that was experienced during the 2017/2018 season which resulted in sufficient power energy been generated from Itezhi Tezhi and Kariba dams to sustain the country’s energy requirements.

It is important to note that CEC only imported energy from the Southern African Pool (SAPP) in the first quarter of 2018 and for the remaining three quarters the local mining clients were supplied through ZESCO as agreed under the Bulk Supply Agreement.

According to the CEC’s performance review results the importation of power was supplied to cover the 30% energy deficit that resulted from the partial 2014 season drought. However, by April 2018 the main dams had regained their full water and generation capacity which in turn allowed ZESCO to lift their 2015 partial full supply suspension. Therefore, CEC discontinued the importation of power from the SAPP in April 2018 which indicated that ZESCO was able to meet the nations demand. Generally, CEC significantly carries out wheeling which is known to be the transportation of power on behalf of other entities within the country and the SAPP. In 2018, the total energy handled by CEC was 5,220.717GWh, out of which 3,761.343GWh constituted consumption by the mines while 1,459.374GWh was wheeled for ZESCO. Moreover, the sales to the copper producing mine clients amounted to 3,676.003GWh compared to 3,512.529GWh in 2017 (Adopted from 2018 Annual Report).

Financial Performance

CEC audited financial results for 2018 suggest that the company’s revenue increased to ZMW4,405 million from ZMW3,697 million in 2017 which represents a 19% boost in Zambian Kwacha (ZMW) and 8% in United States Dollar (USD). The company also recorded a profit after tax of ZMW584 million compared to ZMW459 million in 2017, which resulted in an increase of 27.2% in ZMW and 15.5% in USD. In addition, CEC significantly improved in their general working capital management and collections as it is evident by the improvement in cash from operation from ZMW703 million to ZMW795 million representing 13%. EBITDA increased from ZMW1,153m (USD110.23m) in 2017 to ZMW972m (USD101.471m) in 2018 which represented 18.6% and 8.6% movements in terms of ZMW and USD respectively. Overall, the CEC’s core business financial profitability has improved from the prior year to this year as evident by the financial trends and adjusted profits which were recorded at ZMW533 million  (USD51.5  million) in 2018 compared to ZMW456 million (USD48.3 million) in 2017.

Internally, as per CEC strategy they did manage to successfully divest the 50% stake in CEC Liquid Telecom to allow them solely focus on the power supply business going forward. Through this strategy the company was able to realize a gain of ZMW115.8 million (USD11.1 million) from this disposed investment. Moreover, regional power trading was strategically upheld through the continued drive to expand in this field and a result several new long-term contracts with other mining customers in the DRC were successfully signed in 2018. It is evident that this strategy will definitely in the long run provide CEC with improved and diversified earnings.

Like any other business CEC is equally impacted by the various macro environment factors of the energy market in which it operates. For instance, the 2018/19 hydrology will impact on Zambia’s overall power generation situation and the Zambian fiscal policy specifically the significant impact of the proposed 2019 tax regime may affect the overall operations in the short run (Adopted from 2018 Annual Report). Moreover, the political situation in the DRC despite the formation of a coalition government and the general commodity prices outlook might also negatively impact on the operations of the business. However, according to the CEC annual report the company intends to participate in the development of renewable generation projects such as hydro and solar while also participating in the Government-led programmes such as the GET FiT Zambia and Scaling Solar programmes (Adopted from 2018 Annual Report).

For now, the Company  posted  positive  results,  ensuring  shareholders  continue  to  earn  a  return  through vigor dividends and sustained share price growth. This has definitely seen the shareholders of CEC from Monday, 4 March 2019 enjoying their approved dividend of US Cents 1.9 per ordinary share, which translates to 22.67 Ngwee (ZMW0.2267) per share.

Stock Performance

The CEC Security out performed the LuSE Index for the first two quarters of 2018. However, it under performed, albeit briefly for the next two quarters closing the year on par with the index average. As at the time of publishing in March 2019, the security had lost some ground against the index.

CEC Performance against LuSE Index: Source Bloomberg Terminal

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