History always provides us with lessons for the future. We at TFHZPC draw our strength from our ability to use numbers to decode historical trends that can provide an indication that supports our ‘gut feel’ on how the strategic tendencies of premier companies will be shaped.
We take you back with our insight into the financials of CEC in our review of their 2015 performance. We walked you through “destruction of value on Nigerian soil due to explosive Naira”. The 11 November 2016 SENS Announcement from LUSE on them disclosed a strategic move by the group to demerge from the investment vehicle they had created in 2013 whose purpose was allow the group to explore the power sector across Sub-Saharan Africa (backed by $100m in their piggy bank). Enter Naira land and Diamonds of Sierra Leone.
We followed the macro developments on these investments and of note was the paradox of tumbling naira which possessed a credible threat to creation of value in President Buhuri’s “backyard”.
Enter SENS announcement from LUSE on 29 November 2016, CEC Plc decides to divest from diamond land. Although they argue that the country remains an attractive investment destination, we decode that the move is purely to protect shareholder value. Rightly so we might add. The rule of every finance manager is to accept all projects with a positive net present value. However, circumstances in the macro environment may lead to the NPV moving target hence an astute management team will take the decision to change course to protect value.
However, strategic decisions are not without consequences. In the case of nairaland, verbatim from the SENS report read:
“The Board has, therefore, determined an impairment of USD99,999,999 which implies that the carrying value of CEC Africa in CEC Plc books reduces from USD100 million to USD1;”
The aforementioned will certainly appear in next years published financials which we will be digesting at publication. We are still firm believers of accepting all positive NPV projects however, we also know that when the project is not a success, the numbers in the financials will show.