CEC PLC – Not so Impaired Value
Copperbelt Energy Corporation Plc, Energy, Finance

From the moment we published “CEC’s quest for Naira destroying value in the medium term” last year, we knew that the 2016 CEC PLC annual report would be an exciting read. Investors in CEC would be anxious to see how their company performed in 2016.

In his statement to shareholders, Chairman Hanson Sindowe acknowledged the company produced compelling results albeit in an environment that challenged the company’s expansionist and growth agenda. 2016 brought with it macro conditions that included low commodity prices, constrained power generation in Zambia with customers (mines) cutting back on their power uptake. This therefore meant a small haircut in its revenues of 0.12% revenue (compared to 2015) from the 14% and 15% drop in energy and capacity sales respectively.

Curiously, despite the $100m impairment which showed negative earnings, the company still paid a healthier dividend in 2016 (17.1% increase) compared to 2015. The CFO’s statement shows an exciting application of IAS 36 (International Financial Reporting’s standard for decoding impairments) that cools off any concerns on overall performance. Divesture was necessary to ring fence the business from any potential risk that CEC Africa posed to CEC PLC. Therefore, analyzing their 2016 performance requires “adjustments” to present an accurate picture of actual performance.

However, despite the impairment, value was generated from energy trading and their growing investment in fibre optic through CEC Liquid. Energy trading saw revenue increase of 86% whilst CEC Liquid scored a 21.1% increase from 2015. The latter now boasts of a 5000+ km growing network which we believe is an asset to watch in the telecoms sector.

Impairment aside, total assets shrunk by 18.9%. There is evidence of prudent spending as seen from the reduction in employee benefits from 2015 when staff count increased by 3.8% as well as a 15.3% reduction in current liabilities. Furthermore, the company was not aggressive in the debt market as gearing only went up by 2% from 23% in 2015.

With adjustments due to the exceptional impairment, return on equity remained stable at 10%, return on assets increase by 2% to 7% and earnings per share (EPS) increased marginally to 0.026. However, unadjusted equity fell by 23.2%. This was due to the 43.8% reduction in retained earnings in 2016 (adjustments to plowback).

Increased rainfall offers hope for improved generation capacity. Therefore, the management team will be keen to see revenue growth as a result. Furthermore, Government is in pole position to bring parity to the issue of tariffs. The Chairman signals consolidation of business in DRC as a growth area. Furthermore, he indicates they will keep an eye on IDCs solar ambitions as they go to round 2 of the auction offering in 2017.

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