CEC 2008 Annual Report


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CEC 2008 Annual Report

  1. 1. 2008 Annual Report Copperbelt Energy Corporation PLC
  2. 2. Copperbelt Energy Corporation Plc 23rd Avenue, PO Box 20819, Nkana East Kitwe Copperbelt Energy Corporation Plc P/Bag E835, Post Net 145, Kabulonga Lusaka
  3. 3. 2008 Annual Report Copperbelt Energy Corporation PLC Copperbelt_AR.indd 1 19/3/09 09:57:52
  4. 4. XXX Copperbelt Energy Corporation Plc Mission,Vision,Values Copperbelt Energy Corporation Plc Vision Mission Corporate Values Social Investment To be the leading Zambian investor, developer and operator of energy infrastructure in Africa by providing innovative solutions and building strategic partnerships through committed professional teams Increase value for our shareholders through responsible and transparent corporate conduct, innovation and investing prudently ■ Being honest in all our dealings Supporting each other Building good team relationships Being open to new ideas Developing a “Can Do” attitude ■ ■ ■ ■ ■ CECendeavours to share its success with all. Our objectives for social responsibility include the need to contribute to social and economic development and to encourage the involvement of our employees in efforts that uplift communities. CECsupports many causes, prioritising education, health, vulnerable groups, HIVand AIDSand youth support. We are committed to: Supply reliable energy and high quality services to meet our customers’ unique and changing needs efficiently and proactively through robust infrastructure, diverse power sources and professional teams ■ Copperbelt_AR.indd 2 19/3/09 09:58:00
  5. 5. Vision, Mission, Values ......................................................................................................................... 2 Corporate Profile .......................................................................................................................................... 4 Chairman’s Report ..................................................................................................................................... 5 Managing Director – Operations’ Report.............................................................................. 9 Managing Director – Corporate Development and CFO’s Report .............. 13 Financial Charts ......................................................................................................................................... 16 Directors’ Report ....................................................................................................................................... 18 List of Directors............................................................................................................................................53 CEC Management Team ...................................................................................................................... 54 Contact Details ........................................................................................................................................... 55 Transmission Map ................................................................................................................................... 56 Contents Copperbelt Energy Corporation Plc Contents Copperbelt_AR.indd 3 19/3/09 09:58:01
  6. 6. Copperbelt Energy Corporation PLC (CEC) is an electricity utility operating in Zambia’s Copperbelt Province. CEC’s business is the supply of power to the mines and transmission for national utilities ZESCO Limited (Zambia) and SNEL of the Democratic Republic of Congo through the Zambia – Congo interconnector. CEC owns the Zambian part of the interconnector. Approximately 50% of Zambia’s demand goes through the CEC transmission network. CEC also carries telecommunications traffic, in a Carrier of Carriers capacity using fibre optic technology installed on its network. The communication business is poised to grow following the recent investment by CEC in Realtime Alliance Africa Ltd. CEC owns 884 km of 220kV and 66kV transmission lines, 540 km of optic fibre on power lines, 38 major substations and 80MW of gas turbine generation. To ensure high quality of supply, reliability enhancing features include a high degree of network redundancy, stand-by generation, a well equipped control centre and multiple sourcing points. CEC’s long term strategy is to maintain its core business of supplying power to the mines on the Copperbelt and to use its expertise in project development to increase its participation in the region through the development of new business opportunities. Some of the opportunities being pursued include: Expanding the network to new mining projects; Expanding the inter-connection business between the DRC and the Southern African Power Pool (SAPP); Developing the commercial use of its fibre optic telecommunications network; Investment in new generation capacity in Zambia and the SADC region and; Investment in the development of bio-fuels in Zambia. CEC is developing its financial and technical capacity and building partnerships with appropriate organisations to enable it to participate in the development of these projects. ■ ■ ■ ■ ■ Corporate Profile Copperbelt Energy Corporation Plc CorporateProfile Copperbelt_AR.indd 4 19/3/09 09:58:19
  7. 7. Copperbelt Energy Corporation Plc XXX Copperbelt Energy Corporation Plc Chairman’sReport I am pleased to be able to report that our results for the year ended 31st December 2008 demonstrate increased profitability, commendable achievement and significant progress against our strategic objectives. The year under review was one of continuing progress and growth, both in terms of profits and earnings per share. Safety, Health and Environment We have placed safety, health and environmental (SHE) stewardship at the top of our organisational priorities and to demonstrate this, the Chairman, Directors and all Managers went through training to help us spearhead the SHE cultural change throughout the company and to be in the forefront of implementing the SHE Improvement Action Plan. Every CEC employee had an opportunity to undergo a voluntary health check-up between July and November 2008. The Executive Health Check-up was mainly intended to provide baseline information on the health status of staff, to facilitate for HIVand AIDSprevention and management and to help identify occupational hazards in the workplace. I am pleased to report that out of the 330 employees at the time, 326 voluntarily undertook health checks beating the target of 264. A total of K146.7 million was spent on the exercise. Highlights At the start of the 2008 financial year, CEC effected a tariff increase of 33% on power sales to our mining customers on the back of a 35% upward adjustment on our power purchases under the Bulk Supply Agreement with ZESCO Limited. The tariff increases were implemented after negotiations with our customers who agreed to negotiate even though their Power Supply Agreements with us remained valid until 2012 at the earliest. The tariff adjustments were meant to fairly reflect the cost of delivering firm base load power required to enable our mining customers to operate efficiently and likewise allowed CEC to pay ZESCO a cost-reflective tariff for bulk power supplies. Last year, I placed much emphasis on the need to bring on new generation to meet increasing demands for power – from mining operations, industry, agriculture and even at household level – so as not to stall economic growth. Responding to this need and as part of our growth strategy CEC identified, for development, a number of power generation projects. In October 2008, the Zambian Government through the Ministry of Energy and Water Development awarded the rights (concession) to carry out detailed feasibility studies into the development of the Kabompo Gorge Hydro-Electric Power Project in North-Western Province to CEC and Tata Africa Holdings (SA) Pty Ltd, with whom we had made a joint bid, taking us closer to our entry into the generation market. The process is on course and we are, at the time of reporting, evaluating consultants to carry out the feasibility studies. A number of our existing customers continued to expand their operations, riding on high commodity prices on world markets over recent years. In particular, Konkola Copper Mines Plc’s (KCM) expansion works meant that CEC had to reinforce its Northern Area network so as to meet our customer’s supply needs for its new mining developments. The Konkola Deep Mining Project, which will simultaneously extend the life of the mine and expand production of copper ore from 2 to 6 million tonnes a year, Chairman’s Report Hanson Sindowe Executive Chairman Copperbelt_AR.indd 5 19/3/09 09:58:22
  8. 8. Copperbelt Energy Corporation Plc Chairman’sReport involves sinking of new shafts and construction of new concentrator and backfill plants. In order to ably supply the additional power requirements, CEC has constructed a new substation – Bancroft Central – and carried out major changes, in terms of substation equipment and arrangement, to the already existing Michelo substation. Business Environment As we wound up the year, the global financial and economic uncertainty that had characterised much of 2008 rapidly moved into a near collapse of markets worldwide. Although the local economy, like most emerging markets, proved somewhat resilient to this crisis from its onset in 2007, the mining industry bowed under the pressure of low metal prices, particularly copper and cobalt, in the last quarter of 2008. Two of our customers – Chambishi Metals Plc and Luanshya Copper Mines – could not sustain their operations and have since been placed under care and maintenance. Although this clearly poses a risk to the short-term outlook of our business, we consider that the significant ore reserves and ore-processing infrastructure in the Copperbelt will ensure that in the medium to long-term, levels of operational activity will revert to normal, thus, ensuring our sustainability. In the meantime, we are mindful of our costs and have put in place measures to save money where we can and at the same time, we have identified initiatives to generate income away from our core business. These measures will compensate for reduced energy sales and increased customer risk in the face of our customers’ weakened economic positions. I believe CEC is well placed to withstand the effects of this downturn and to continue to provide long- term shareholder value without neglecting our other responsibilities. The current economic conditions should not prevent continuing growth through careful strategic positioning and diversification. An example of this is the strengthening and repositioning of the telecommunications side of the business. Stakeholder Relations At CEC, we recognize that our business will thrive more if the national economy is robust. Hence, we support efforts aimed at raising Zambia’s profile and attracting credible investment to the country. InJune2008,CECcollaboratedwiththeGovernmentandother privateinstitutionstoenablethehostingoftheEuromoney InvestmentConferenceforthefirsttimeinZambia. The Euromoney Zambia Investment Conference brought together financiers, local and foreign investors, private and public institutions with the overarching objective of attracting investment into the country by understanding the bottlenecks and opportunities; and examining possibilities for the future. CEC was also featured under the energy segment of a 30-minute documentary about Zambia aired on the Asia Business Channel (ABC). The documentary was a promotional piece intended to raise the interest and level of Asian investment in Zambia. Consistent with our objective of increasing shareholder value, we paid out two interim dividends during the year. This was within one year of listing our shares on the Lusaka Stock Exchange (LuSE).Consultants at the Kabompo Gorge Hydro-electric project site Copperbelt_AR.indd 6 19/3/09 09:58:32
  9. 9. Chairman’sReport Copperbelt Energy Corporation Plc The CEC stock began to publicly trade on the local bourse on 21st January 2008 and remains attractive and sought after by local and foreign investors alike. With the expansion of our shareholder numbers from about 8 prior to CEC’s public offer of shares to more than 3,000 post listing; it became imperative for us to devise and maintain effective communication with each of our shareholders. Despite some challenges with regard to correct details of some of our shareholders, I am pleased to report that we have related well with our investors and endeavoured to provide as much relevant information as is possible to all our shareholders. To this end, we redesigned our website with particular emphasis on Investor Relations. The site, which will as much as possible serve the needs of our investors, will be launched in the early part of 2009. Corporate Responsibility and Sustainability It is a long-held view of CEC that responsible corporate citizenship is not different from good business practice. We have been attentive to the needs of communities and different stakeholders and have tried to step up to meet various needs as much as we can. In 2008, our major commitment was to partner and assist the University of Zambia’s School of Electrical and Electronics Engineering in raising the quality of teaching and instruction the school is imparting to Zambia’s future engineers. This we hope to achieve through the provision of modern equipment and materials to aid learning. We will also repair the physical infrastructure to make the teaching and learning environment more conducive. Our support, valued at US$240,000, will be phased over three years, commencing in 2009. We believe this is one sure way of ensuring the country produces engineers of good quality and not least because being a predominantly engineering based business, we can be sure that a good number of those graduates will some day practice their knowledge and skill at CEC. We also supported Mulenga Community School of Kitwe’s Mulenga Township with teaching and learning resources. Our traditional support to young people and the development of sport, particularly football, through the Power Dynamos Football Club continued during the year under review. A total of US$441,284 went towards supporting the team during the 2008 season. Due to the on-going refurbishment of the Arthur Davies Stadium, the team played all its home matches at other stadia within Kitwe. We are in consultation with structural engineers to refurbish the stadium and enhance its safety. Appointments to the Board CEC values the importance of a strong Board of Directors. In this regard, it is particularly pleasing to announce in 2008 the appointment of two new non-executive Directors – Munakupya Hantuba and Jonathan Muke – and the re-appointment of Emmanuel Mutati, also a non-executive Director. William Musama was appointed to represent ZCCM-IH on the Board as a non-executive Director following the retirement of Joseph Chikolwa from the Board during the year. I am delighted to welcome all four members for the expertise, knowledge and value they will bring to your Board. I reiterate our commitment to maintaining a high quality, balanced Board of Directors at the head of your Company. Board Operation We place great emphasis on adherence to the highest standards of Corporate Governance at Board level and the Avenue substation transformer Copperbelt_AR.indd 7 19/3/09 09:58:36
  10. 10. Copperbelt Energy Corporation Plc Board monitors its compliance against the Code of Corporate Governance established by the LusakaStockExchange. I am pleased to confirm that of the 99 rules listed in this code, CEC is compliant with 97 of them and the additional two rules are not relevant to the operations of CEC. The four Board sub-committees described in the Directors’ Report, each of which is chaired by a non- Executive Director, have been an important element of the Governance framework. Business Outlook Economic conditions may remain daunting for some time but we are committed to ensuring that the success and growth we have registered over the past 11 years remain uninterrupted. We are not blind to the combined challenges of sustainability, the economy and the environment – of which energy is a big part. We are seriously investigating how we can make better use of and even reduce our consumption of oil products. To this end, we have commissioned the Copperbelt University to carry out a study on the viability of establishing jatropha plantations for the production of bio-diesel. We are also identifying particular areas of expertise within CEC, which we can offer as consultancy to other entities locally and elsewhere. For example, CEC has won the bid to conduct both the managerial and technical audit of the Gambian national utility (NAWEC). This is part of the evaluation to determine the utility’s capability to increase its capacity. Recognition I am gratified to report that CEC has, through the years, remained focused on its strategic objectives and growth plans and 2008 was no exception. Our success in all aspects of the business, by anyone’s standards, did not escape the eye of external observers and earned us commendable recognition. Our commitment to providing shareholder value earned us the 2008 Best Performing Stock – Dividend Return Award. The weight that this award carries cannot be overstated especially that it was given by the experts in the business of investing - the Zambia Association of Pension Fund Managers (ZAPFM). I am pleased to report that your company also picked up the 2008 Zambian Electricity Industry Business Development Strategy Leadership Award conferred by Frost Sullivan, an international research, growth consulting and corporate best practice outfit, which researches and analyses new market opportunities for corporate growth. This clearly shows that we are building onto the successes and recognition of years past. Appreciation All the achievements and profitability we are reporting would not have been possible without the focused direction and counsel of our Board of Directors; the leadership of our management team and the loyalty, dedication and skills of every member of staff. I pay tribute to all of you and to you the shareholders for your continued confidence in our ability to deliver value on your investment. May I also thank other stakeholders for working with us and helping us along our path of success and growth. Conclusion The CECstory is one of sustainable growth and I am confident that we have the resilience to continue making progress even in the current challenging economic conditions. We have the people, the skills and the desire to pursue and unlockgrowth opportunities wherever they occur. For those who purchased shares through the listing process, I hope that in the one year you have been part owners of this company, you have enjoyed the journey and have enough confidence and trust in us to further grow your investment. Hanson Sindowe Executive Chairman Chairman’sReport Copperbelt_AR.indd 8 19/3/09 09:58:37
  11. 11. Copperbelt Energy Corporation Plc I am pleased to present a summary of the operations of the company for the year ended 31st December 2008. The operations of the CEC transmission and distribution systems operated to a satisfactory level throughout 2008. However, the national and regional system external to CEC did not perform satisfactorily with a number of faults, blackouts, under-frequency and voltage instability incidents having occurred. These had a negative impact on CEC and its customers. During 2008, Zambia, like most countries in Southern Africa, was hit by power shortages and had to ration electricity supply. As a result, CEC was, from time to time, required to cut back supply to the mines by approximately 15% of the usual 530MW. The situation was aggravated for extended periods whilst the Zambian power system was disconnected from the rest of the Southern African Power Pool during which times ZESCO Limited (ZESCO) was obliged to maintain increased margins of reserve generation capacity. Zambia experienced national power failures on the 19th, 21st and 22nd January 2008. During the national blackout, emergency power from our gas turbine fleet was supplemented by supply from the Democratic Republic of Congo (DRC) 220kV interconnector and rolled out across the Copperbelt to all mines. Through the combination of power from CEC’s fleet of gas turbines and power from the DRC, CEC had adequate power during this period to discharge its contractual emergency power provision obligations. CEC made every effort to ensure that power to critical areas of the mines was restored within reasonable time to avoid loss of life and minimise damage to equipment. Although the power outages were clearly external in origin, we constituted a team to carry out investigations into the effect of the outages on our system and the effectiveness of our emergency response plans in mitigating the impact of the outages on our customers. All the short term and medium term recommendations from these findings have been implemented. The combined effect of the three power failures resulted in a slight deterioration of our customer service indices for 2008 compared to 2007. These incidents coupled with the increase in demand for power brings to the fore the urgent need for investment in the power sector. CEC remains committed to investing in capacity development initiatives. The number of faults recorded on the network during the year increased from 170 in 2007 to 219 in 2008. However, more than half of these faults were due to external factors such as lightning, theft and vandalism. I am happy to report that out of these faults only two resulted in power interruptions to our customers. Vandalism and cable thefts continue to be a major cause of concern. Although we saw a reduction in Neil Croucher Managing Director, Operations Managing Director Operations’ Report Copperbelt Energy Corporation Plc GTA engine swap at Kankoyo MDOperations’Report Copperbelt_AR.indd 9 19/3/09 09:58:39
  12. 12. 10 MDOperations’Report the number of cases in 2008 (2008:17, 2007:31), we instituted measures to ensure that this vice is brought to a halt. Pilot cables which are prone to theft have been decommissioned and all functions transferred to optic fibre. Furthermore, the stringent security measures that we adopted during the year worked well thus the security of the power system was not compromised. Power Sales and Purchases Power purchases from ZESCO accounted for 99.98% of our total requirements, while the balance was supplied through our Gas Turbines Alternators (GTA). Purchases averaged 488MW in 2008 compared to 485MW in 2007. These figures could have been higher had it not been for power rationing due to Zesco having taken generation equipment out for rehabilitation. Consumption by customers increased in 2008 to 532MW from 521MW in 2007 due to the coming on stream of some expansion projects embarked on by some of our customers. Again consumption would have been higher had it not been for the energy curtailment measures that CEC and its customers embarked on due to load rationing. Consumption in the latter part of 2008 decreased due to two of our customers putting their operations on care and maintenance following the global financial crisis and collapse of the commodity prices. GasTurbineAlternators(GTAs)andotherAssets The CEC GTA plant continued to provide emergency power back up to the system and was also used for peak load management. The GTAs were operated during the national power outages in January. Although the performance and response time was satisfactory, difficulties were experienced in synchronising the machines to the system due to poor quality of power in terms of voltage and frequency from the DRC line. On the whole, compared to 2007, GTA plant availability improved by 2.7%. However, first-start reliability dropped by 8.9% due to various minor faults experienced during machine start ups. In a continued effort to ensure that our GTAs operate efficiently, Generator Condition Assessments were carried out on our two 20MW machines at Luano by experts under Rotary Electrical of the United Kingdom, which involved visual inspection and detailed electrical tests of the generators and exciter stators as well as the rotors. This was aimed at determining the machines’ current state and remaining life. The results indicated that both machines were in good condition but would require further assessment to ascertain the remaining life. Further, CEC in conjunction with its customers embarked on a project to improve the power factor on the system. This urgent project is required as part of the solution to address the voltage instability which occurs on the Copperbelt under various loading conditions. The project involves the installation of power factor correction equipment in CEC’s network at three main 66kV substations as well as the installation of similar equipment in the customer 11kV networks. Most of our assets were installed over 20 years ago and require extensive maintenance including inspecting, overhaul and replacement. Our Asset Management team, together with the SystemLuano GTA unit being worked on Copperbelt Energy Corporation Plc Copperbelt_AR.indd 10 19/3/09 09:59:01
  13. 13. 11 Copperbelt Energy Corporation Plc MDOperations’Report Maintenance team have developed maintenance plans which are reviewed and enhanced regularly to ensure that we proactively mitigate the impact of potential breakdowns with appropriate maintenance programmes. We are applying prudence in this area to ensure that the required maintenance is fully implemented to achieve our mission of reliability and continuity of supply. In this regard, we have continually sought and assessed new maintenance technologies to enable us ascertain the condition of our assets with minimal disruption of service to our customers. During 2008, sweep frequency response analysis was added to our maintenance regime, enabling better insight into the mechanical condition of transformer internals. We also continued the modernisation of our protection systems with the installation of more digital protection relays offering increased speed and functionality. System control was also enhanced with the commissioning of modern remote terminal units (RTUs) and improvements to SCADA functionality. Expansion to Core Network Last year I reported on a number of expansion programmes that we are undertaking to meet the increase in demand by some of our customers. I am pleased to report that we successfully commissioned a project to supply power to the First Quantum Minerals Limited operated mine, the Frontier Mine. The mine is now taking up to 25MW which is wheeled through our system from SNEL, the DRC national utility. The consumption level remained static due to postponement of further expansion by First Quantum. Exceptional progress was made on the Konkola Expansion project (KEP), a project which entails the expansion of the CEC northern area network to supply new mining operations and a smelter being constructed by Konkola Copper Mines. Most of the equipment was commissioned by December 2008 within the agreed time frames. Only three circuits remained outstanding for installation and commissioning by end of year but are expected to be complete within quarter one of 2009. Once complete, the KEP project will help meet the expected additional demand by KCM of 170MW over a four year period. Unfortunately, the Muliashi Mine project which was being developed by Luanshya Copper Mines Plc was suspended due to financial constraints attributed to low copper prices. Transformers at newly constructed Bancroft Central Substation Copperbelt_AR.indd 11 19/3/09 09:59:07
  14. 14. 12 Copperbelt Energy Corporation Plc Customer Relations Cordial relations were maintained with all our stakeholders during the year with regular meetings held with customers and other stakeholders. The key challenge faced by our customers in the latter part of 2008 was the continued drop in metal prices in the global market. Two of CEC customers have since put their operations on care and maintenance as a result. This poses a challenge to CEC as it will result in reduced power sales, therefore, reduced income. In mitigating this impact, CEC has instituted cost saving measures to ensure sustainability of the business as we go forward. Safety, Health and Environment (She) It is with great sadness that I report a fatal incident that resulted in the death of a contractor who was engaged to work on one of our systems. This was a tragic event and our thoughts and deepest sympathies are with all those affected. Our goal remains a safe workplace and we will continue to ensure that all who work on our system are properly inducted on safety and other key aspects of the CEC business. Overall, our safety performance for 2008 was satisfactory. Our key focus for the year was enforcing high safety and health standards through development and implementation of the Tool Box Safety Talk. Training was conducted for more than 90% of our employees on the need and importance of conducting such talks before any task is commenced. We also held training for senior members of management with the theme, ‘Leadership for SHE Excellence’. The objectives of this training were to refresh and reinforce understanding of the requisite principles to developing a positive SHE culture and to ensure that this is applied throughout the organisation. We achieved our goal for zero lost time accidents in 2008 compared to 3 in 2007. We recorded a 16% increase in near miss reporting and a 27% reduction in road traffic incidents (2008:40, 2007:55). However, the number of system breaches and permit withdrawals increased from 2 and 3 in 2007 to 5 and 6 in 2008 respectively. Our performance on the environmental front was good. We achieved 100% compliance with statutory emission limits for the emergency power plant for the first half of the year but results for the second half were not available at the time of reporting. Full compliance was also achieved for the submission of statutory reports to the Environmental Council of Zambia which covered air emissions, waste management and hazardous waste management. Employee Welfare CEC continued to focus on employee’s health and wellbeing. We successfully conducted a health check up for employees and 326 employees were examined, against a target of 264. The annual rollback malaria campaign, which involves spraying employee homes and distribution of mosquito nets, was conducted. We continued to promote awareness among employees on issues of HIV and AIDS. Voluntary counselling and testing (VCT) remains a key tool in combating the disease. We however noted a reduction in VCT uptake in the workplace during the year which stood at 30 compared to 78 in 2007. We also aim to help and support our employees in maintenance of good physical health, as such we commenced the construction of a gymnasium close to the workplace that will be accessible to all employees. The gym will be commissioned in the early part of 2009. Our focus on developing the talent of our current and future leaders continued. Most of our employees attended training locally or overseas. External consultants were engaged to conduct a course on effective personal productivity and 24 employees participated in this course. Neil Croucher Managing Director, Operations MDOperations’Report Copperbelt_AR.indd 12 19/3/09 09:59:07
  15. 15. 13 Michael Tarney Managing Director Corporate Development CFO MDCorporateDevelopmentReport Copperbelt Energy Corporation Plc The severe power shortages within the Southern African region during 2008 highlighted the need for more investment in power infrastructure, particularly in the generation and transmission sectors to support the economic growth of the region. In Zambia alone, investments exceeding US$2 billion are required during the next five years in order to keep pace with the demand for power, notwithstanding the recent downturn in commodity prices. CEC has responded to this challenge by identifying viable projects in the transmission and generation sectors outside of its traditional business of supplying power to the mines on the Copperbelt. Projects currently being undertaken include the following. Construction of a new double circuit 220kV Interconnector between Zambia and the Democratic Republic of Congo (DRC) CEC has operated a single circuit interconnector between DRC and Zambia for more than 50 years. This has mainly been used to facilitate power exports from DRC to Zimbabwe and South Africa over recent years. However, constraints to the capacity and reliability of the line have limited the commercial value of the interconnector. We are pleased to report that CEC has committed to construct a new double circuit interconnector capable of transferring in excess of 500MW on a firm basis between DRC and Zambia for an estimated cost of US$14 million. The double circuit line will connect CEC’s substation at Luano to a substation being constructed by the Congolese utility SNEL at Kasumbalesa. The Environmental Impact Assessment and Environmental Management Plan have been completed in line with international best practice. This project is a part of the much larger World Bank funded ‘Southern African Power Market Project’ aimed at strengthening the central power corridor between Inga Power station in DRC and South Africa. As part of commercial arrangements for the project, CEC has agreed to purchase 50MW from SNEL for sale within Zambia or within other parts of the Southern African power pool. Development of Kabompo Gorge Hydro Station The Ministry of Energy and Water Development through the Office for the Promotion of Private Power Investment advertised for the private sector to develop the Kabompo Gorge Hydro-electric project in North-Western Province on a Build, Own and Operate basis. The capital cost of the hydro station is expected to be in excess of US$80 million, and initial estimates suggest that the station will be capable of generating 34MW, and will incorporate a dam wall 65m in height, an underground power station and a 4km tunnel. Following a competitive bidding process, a concession to undertake a feasibility study for the project was awarded to a joint venture of CEC and Tata Africa Holdings Limited. The feasibility study is expected to be completed by the fourth quarter of 2009, and commissioning of the project is expected to take place by 2014. The project area is located approximately 12km south of the Solwezi – Mwinilunga road in the North-Western Province of Zambia. The project is expected to bring development opportunities to a remote part of Zambia, and will connect into the Zambian grid through a transmission line connecting to the ZESCO 330kV substation recently constructed at Lumwana. Managing Director for Corporate Development CFO’s Report Copperbelt_AR.indd 13 19/3/09 09:59:09
  16. 16. 14 MDCorporateDevelopmentReport Copperbelt Energy Corporation Plc CEC also seeks to develop other projects where there are proven synergies with its core business of power transmission and generation. An example of such a project is in the fixed line telecommunications sector. Investment into Realtime Alliance Africa Limited On the 11th of February 2009, CEC entered into a Joint Venture Agreement with RTAA (Pty) Limited to acquire a 50% interest in Realtime Africa Alliance Limited (‘Realtime’), a company providing telecommunications and internet services in Zambia. Through the Joint Venture Agreement, CEC will invest US$2.0 million into Realtime and will second a number of senior managers to the Joint Venture. CEC installed 540km of optical fibre on its transmission lines in the Copperbelt in 2003, and was granted a ‘Carrier of Carriers’ Licence to provide commercial telecommunications services to Communications Authority of Zambia licence holders in 2004. During 2005, CEC selected Realtime as its preferred last mile service provider, and has worked with them to provide services to customers on the Copperbelt. The Joint Venture is currently focusing on developing a robust network along the ‘line of rail’ within Zambia from Sesheke to Lumwana, and incorporating Lusaka and the Copperbelt. The network utilises the fibre networks developed by CEC and ZESCO and the Joint Venture will focus on developing infrastructure in the main commercial centres to facilitate high quality networks capable of delivering reliable high quality bandwidth for internet, Virtual Private Networks and other applications. It is important to note that the Realtime business will operate at arm’s length from the CECfibre business, and CECwill continue to provide services on a non-discriminatory basis to all carriers in accordance with its licence. Other Developments CEC has been selected to conduct a managerial and technical audit of the transmission system of the Gambian national utility, NAWEC. This exercise is being undertaken to contribute to capacity building within the Gambian utility. CEC is reviewing options for the development of bio-fuels with Copperbelt University and other stakeholders in the bio-fuels sector in Zambia. Financial Report The financial statements have been prepared in compliance with International Financial Reporting Standards, and accounting policies are consistent with those applied in the previous periods. Statement of Income for the Year Ended 31st December 2008 Revenue increased by 35% to US$177.5 million for the year to 31st December, 2008 (2007 US$ 131.7 million). The increase in revenue is attributed to tariff adjustments to the mines of 33%, annual indexation in line with US producer inflation and load growth of 2%. Cost of sales, that mainly comprised payments to ZESCO under the Bulk Supply Agreement, increased by 38% to US$127.9 million (2007 US$93.0 million). The increase is attributed to an increase in the Bulk Supply Agreement tariffs of 35%, annual indexation in line with US producer inflation and a load growth of 2%. Profit before interest and taxincreased by 29% to US$17.2 million. The weighted basic and diluted earnings per share were 1.01 USCents for the year, compared to 0.73 USCents per share for the previousyear. During the year under review, two interim dividends ofLaying of fibre for the telecommunications business Copperbelt_AR.indd 14 19/3/09 09:59:12
  17. 17. 15 Copperbelt Energy Corporation Plc MDCorporateDevelopmentReport US$8,000,000 and US$8,200,000 were declared and paid in April and August 2008 respectively. This represented a dividend of US0.80 cents and US0.82 cents per share. This translated to approximately K29.57 and K29.58 per share respectively in kwacha terms. No final dividend is proposed in respect of this financial year. Therefore, the total dividend declared for the year was US1.62 cents per share or K59.15 per share which translates to a gross dividend yield of 13% at the close of the year Balance Sheet as at 31st December 2008 Capital expenditure for the year was US$19.1 million, comprising a new investment to support First Quantum Mineral’s Frontier Mine of US$12.1 million and investments on CEC’s existing network of US$7.0 million. The net book value of property, plant and equipment increased to US$125.4 million at 31st December 2008, an increase of 8.5% compared to the previous year end. Inventories increased from to US$3.4 million from US$1.3 million at the previous year end, primarily due to an increase in the volume of stored diesel to feed CEC’s Gas Turbine Alternators in emergency situations. Trade and other receivables increased by 107% to US$33.8 million. The increase was mainly attributable to the implementation of a tariff increase of 33% from 1st January 2008, but also due to an increase in the average age of debt as many of CEC’s customers had chosen to delay payments following the decrease in commodity prices during the last quarter of 2008. Total interest bearing loans at 31st December 2008 were US$46.3 million, comprising outstanding amounts on facilities with: (i) Citibank and DEG, under a general corporate facility to fund capital expenditure, of US$32.0 million at 31st December 2008; (ii) African Life Financial Services, to fund capital expenditure and working capital, of US$10.0 million at 31st December 2008; and (iii) Development Bank of Southern Africa, related to the cost of constructing a substation to supply power to Chambishi Metals, of US$4.3 million at 31st December 2008. Overall, total assets had increased by 19% to $179.0m at 31st December 2008 compared to the previous year. Statement of Cash Flows for Year Ended 31st December 2008 Cash inflows before working capital changes increased by 20% to US$26.4 million. However, net cash inflows on operating activities decreased by 45% to US$8.4 million, mainly due to an increase in the time taken to recover outstanding amounts from customers. Loans amounting to US$15.0 million were drawn during the year, and loan repayments of US$4.0 million were made during the year. The cash balance at 31st December 2008 was US$16.3 million. Share Price Performance CECPLClisted at K440 and at its peakthe share price reached K1,200 before coming down and closing the year at K450. In comparison, the LuSE AllShare Indexclosed the year on negative gains of -28 %, in line with the general weakness induced by the global financial crisis. Michael Tarney Managing Director Corporate Development CFO Capital expenditure for the year was US$19.1 million, comprising a new investment to support First Quantum Mineral’s Frontier Mine of US$12.1 million and investments on CEC’s existing network of US$7.0 million. Copperbelt_AR.indd 15 19/3/09 09:59:14
  18. 18. 16 Key statistics 2003 2004 2005 2006 2007 2008 Sales ($000) 114,874 120,348 122,164 127,280 131,746 177,486 Gross Profit ($000) 32,777 35,109 36,367 37,383 38,746 49,526 Profit Before Interest and Taxes ($000) 15,226 18,665 15,240 12,745 13,306 17,222 Acid Test Ratio (Times) 1.02 0.77 0.74 0.67 1.24 1.26 Return on Equity 13% 17% 12% 12% 16% 26% EBITDA ($000) 22,759 26,777 24,202 21,293 22,152 26,419 Total Assets ($000) 148,566 142,361 136,505 131,453 156,481 178,977 Earnings Per Share (Cents) 1.01 1.18 0.82 0.79 0.73 1.01 Return on Assets 6.8% 8.3% 6.0% 6.0% 4.6% 5.7% Net Profit ($000) 10,069 11,842 8,241 7,915 7,251 10,143 Equity ($000) 77,838 69,680 68,021 65,680 45,630 39,573 Current Assets ($000) 26,998 23,582 19,746 17,395 40,887 53,579 Inventory ($000) 820 1,224 1,028 1,136 1,307 3,443 Current Liabilities ($000) 25,547 29,121 25,206 24,332 31,891 39,786 Financial Highlights Profit before interest and tax US$’000’ 20,000 18,000 16,000 14,000 12,000 10,000 Years 2003 2004 2005 2006 2007 2008 Sales revenue US$’000’ 190,000 180,000 170,000 160,000 150,000 140,000 130,000 120,000 110,000 100,000 Years 2003 2004 2005 2006 2007 2008 Acid test ratio Times 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 Years 2003 2004 2005 2006 2007 2008 Debtor days Numberofdays 65 60 55 50 45 40 35 30 Years 2003 2004 2005 2006 2007 2008 FinancialHighlights Copperbelt Energy Corporation Plc Copperbelt_AR.indd 16 19/3/09 09:59:17
  19. 19. 17 Copperbelt Energy Corporation Plc XXX Copperbelt Energy Corporation Plc FinancialHighlights Earnings per share EPSin$UScents 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 Years 2003 2004 2005 2006 2007 2008 Return on assets Returnonassets 9% 8% 7% 6% 5% 4% Years 2003 2004 2005 2006 2007 2008 10-year EPS EPSin$UScents 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Years 1999 2001 2003 2005 2007 20082000 2002 2004 2006 Asset turnover Dividend per share Total debt to asset ratio Debtstoassets 30% 25% 20% 15% 10% 5% 0% Years 2003 2004 2005 2006 2007 2008 In$UScents 0.25 0.20 0.15 0.10 0.05 0.00 Years 2003 2004 2005 2006 2007 2008 Revenuegeneratedper$1ofasset 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Years 2003 2004 2005 2006 2007 2008 Copperbelt_AR.indd 17 19/3/09 09:59:19
  20. 20. 18 XXX Copperbelt Energy Corporation PlcCopperbelt Energy Corporation Plc Directors’ Report The Directors have pleasure in submitting to the Shareholders their report and the Financial Statements for the year ended 31 December 2008. The Company’s principal business is in the generation, transmission, distribution and sale of electricity. There was no change in the activities of the Company during the year. Financial Results The turnover for the year was US$177.5 million (2007: US$131.7 million). The gross profit was US$49.5 million (2007: US$38.7 million). Capital Expenditure CEC’s capital expenditure programme has been developed in line with the Company’s strategy of minimizing business risks, enhancing customer satisfaction and ensuring future business activities. In this regard, the major categories of expenditure has been and continues to be emergency generation equipment, transmission and distribution equipment, protection and metering equipment, safety health and environmental equipment, IT, vehicles and communication and control equipment. Through its continuous capital expenditure programme CEC achieves continued refurbishment of the Gas Turbine Alternators to improve reliability of standby power plant replacement of system assets that have reached the end of their useful lives and meeting required high standards for SHE compliance. In addition to its planned capital expenditure for the maintenance, renewal and refurbishment of its network and associated facilities CEC commenced the construction of a Company gymnasium and undertook preliminary works at Arthur Davies Stadium. The total capital expenditure for the year was US $6.9 million. CEC further procured assets from First Quantum Minerals (FQM) valued at $12.1million arising out of a long term arrangement. The assets comprised a transmission line and substation to supply power to FQM’s Frontier Mine. Insurance TheCompanyhasinsureditsoperationalassetsagainstall significantbusinessrisks. TheCompanyalsomaintains insuranceforitsDirectorsinrespectoftheirdutiesasDirectors oftheCompany. Besidestheforegoing,theCompanyhas coverforemployer’sliability,publicandproductliability,group personalaccident,motorvehicleinsuranceandgrouplife assurance.Thesepoliciesarerenewableandrunfrom1stMay to30thAprilofthefollowingyear. Dividends and transfer to reserves The policy of the Company in respect of the payment of dividends is a matter to be determined by the Board in accordance with the following principles: The Company’s actual accumulated profits arising from the business of the company in respect of each year after: (i) provision of working capital as determined by the Board; (ii) the making of such transfers to reserves as in the opinion of the Board ought reasonably to be made; (iii) service of all debts and full compliance with any financing agreements to which the company is party at the relevant time of payment; and (iv) taking into account the interests of the shareholders in minimizing taxation liabilities, shall be distributed by the company to the shareholders by way of dividend: Interim dividends of US$8,000,000 and US$8,200,000 were paid on 7th April, 2008 and 5th September 2008 respectively. Retained profit taken to reserves at 31 December 2008 was US$10.143 million. Directors’Report Copperbelt_AR.indd 18 19/3/09 09:59:20
  21. 21. 19 Directors’Report Copperbelt Energy Corporation Plc Operations During the year all purchases of electrical power were from ZESCO Limited under the Bulk Supply Agreement. Electricity supplies from the source accounted for 99.98% of the total requirements and the balance was supplied from the Company’s Gas Turbine Generating plants. Generation shortfall was however experienced during the year, due to generator outages leading to the nation wide load shedding measures that were put in place by ZESCO. CEC was on its part called upon by ZESCO to reduce its demand from time to time during periods of generation shortfall as a mitigation measure to the situation. A satisfactory security of supply from ZESCO was generally maintained. The operations of the Company’s high-voltage transmission and distribution system were maintained to a satisfactory standard. There were however a few occurrences resulting in interruption of supply during the months of August and October. Sales of electrical energy to CEC customers totaled 3,981 GWh being an increase from the 3,934 GWh sales of the previous year. Operation of the CEC/SNEL 220kV interconnector line in respect of international wheeling was satisfactory. The total energy import into the network was 5,675 GWh of which 4,098 GWh was Company purchases while 1,576 GWh was wheeled to ZESCO. International wheeling to ZESCO was mainly attributable to power import requirements from SNEL in DRC, by ZESA in Zimbabwe and ESKOM in RSA. There was a significant reduction in the number of theft/vandalism cases of CEC’s electrical installations during the period under review. This was a result of the remedial measures that were put in place leading to the apprehension of a number of criminals involved in the thefts and special operations carried out by the Company’s security personnel with Zambia Police. The security measures adopted worked well and therefore the security of the power system was not compromised. Directors At the end of the year the composition of the Board was as follows: Hanson Sindowe Chairperson Helen Tarnoy Deputy Chairperson Peter Mumba Neil F Croucher Michael J Tarney William S Musama John K Kaite Abel Mkandawire Jean Madzongwe Emmanuel B Mutati Muna Hantuba Jonathan M Muke With exception of Stanbic Bank Limited who are bankers for the Company and Madison Insurance Limited who provide insurance services in which companies Hanson Sindowe and Abel Mkandawire are Directors respectively, the Company did not enter into contracts with any company where a Director has material interests. Share Capital The authorised share capital of the Company is US$100,001, divided as follows: 1,000,000,000 Ordinary shares of a par value of US $0.0001 each 1 Special Share of US $1.00 held in the Company by the Government of the Republic of Zambia As at 31st December 2008, the shareholding was as follows: Zambian Energy Corporation 520,000,000 (Ireland) Limited ZCCM Investments Holdings Plc 200,000,000 Private/Individuals/Institutions 280,000,000 Government of the Republic 1 Special Share of Zambia (Golden Share) Following a highly successful share flotation through a public offer, CEC was listed on the Lusaka Stock Copperbelt_AR.indd 19 19/3/09 09:59:21
  22. 22. 20 Copperbelt Energy Corporation Plc Exchange (LuSE) and trading of its shares commenced on 21st January 2008. CEC listed at a price of K440. The share price closed the year at K450. Average number and remuneration of employees The total remuneration of employees during the year amounted to US$13.08 million (2007: US$9.9 million) and the average total number of employees was as follows: Month Number January 327 February 332 March 337 April 341 May 341 June 350 July 353 August 353 September 354 October 355 November 359 December 370 Average 348 The increase in employee numbers in December reflected the recruitment of graduates into the Company as part of a long-term succession plan. Power Sports Limited The process of liquidating Power Sports limited is progressing and is expected to complete during 2009. CEC has continued to sponsor Power Dynamos Football Club through a process of direct funding. Industrial Relations A sound industrial relations climate continued to prevail in the Company during the year under review and no work stoppages were experienced. Cordial relations continued to be maintained with the Mineworkers’ Union of Zambia (MUZ). Developments Progress was made in respect of the proposed Second DRC – Zambia inter-connector Project with the signing of a Term Sheet under which CEC will purchase some supplies of power from the Congolese utility Societe D’Nationale Electricite (SNEL). The Term Sheet further provides for the commercial arrangements relating to CEC’s investment in the Project, whose implementation is scheduled to commence in the year 2009. The CEC Northern Area Reinforcement Project that is being undertaken by CEC in respect of the Konkola Expansion Project is at final stages of implementation, and is scheduled to complete in April 2009. The copper price reduction experienced during the last half of 2008 has impacted on several mining related projects, some of which have been temporarily rescheduled and others cancelled. The CEC/Tata Africa Holdings Ltd (TAHL) consortium emerged as the successful bidder for the Kabompo Hydroelectric Power Station Project which was awarded on 23 October 2008 by the Ministry of Energy and Water Development. The consortium is in the process of appointing a consultant to undertake feasibility studies. Implementation format and actual construction of the proposed Power Station and associated infrastructure will be determined subsequent to the completion of the feasibility studies. On 11th February, 2009, CEC and RTAA (Proprietary) Limited of Botswana signed an Agreement for the formation of a joint venture that will involve each investor holding a 50% interest in Realtime Technology Alliance Africa Limited. The joint venture will operate and invest in the fixed line telecommunications sector. Gifts and Donations Donations in 2008 were focused on support of social activities as well as activities aimed at raising the profile of the company in order to attract investors. The key social activities supported were in the areas of education, health, culture and sport. CEC made a donation to the Disaster Management Unit for support of flood victims. The Company part sponsored the Euromoney Investment Directors’Report Copperbelt_AR.indd 20 19/3/09 09:59:23
  23. 23. 21 Copperbelt Energy Corporation Plc Directors’Report conference that was held in June. CEC also supported the 20th African Hydro Symposium hosted by Zambia through Lunsemfwa Hydro Power Company in September, 2008. The Company continued to support all sports clubs registered under CEC. The total expenditure for 2008 was US$82,000. Safety and Health Matters The Company continued to place key focus on the areas of safety and health. Potential safety risks in the various business operations have been identified and have been mitigated by the conducting of tool box safety training for Frontline Supervisors and also the Management SHE training, whose main objective was to raise the level of safety in all areas of the organisation and enhance proactive leadership in safety compliance within the Company. There was one major SHE incident recorded during the year 2008. In the area of health CEC continued with its wellness programme through out the organisation. The Company partnered with Kitwe District Health Management Team in an effort to control malaria in the Kitwe District by undertaking Indoor Residual Spraying (IRS) for all employees’ homes. In addition the Company distributed mosquito nets and repellents to employees. The Company continued with its HIV and AIDS voluntary counselling and testing workplace programme and commenced a Company-sponsored Executive Health Check up for all employees. Environmental Matters The Company achieved 100% compliance with statutory emission limits for its emergency power plants. The construction of oil containment facilities at the Luano Substation oil storage tanks was successfully completed. Compensations were paid out to various households to facilitate works being undertaken for the Northern Area Expansion Project. There were no serious environmental incidents recorded in the year. Statement on Corporate Governance The Company continues to commit itself to the corporate governance principles of openness, integrity and accountability. The Company has adopted the LuSE Code of Corporate Governance for listed and quoted companies. During the year under review the Board membership comprised twelve Directors, three of whom were Executive Directors and the others were Non- Executive Directors. The Board has three independent Non- Executive Directors in its membership whose appointments are undertaken by all Shareholders. The Board has an Executive Chairperson and a Non-Executive Deputy Chairperson in accordance with the Company’s Articles of Association and the LuSE Code of Corporate Governance. The Board has considerable depth of knowledge and experiences, collectively gained from both the public and private sectors and also represents the respective shareholding groups. Board Committees The Board has established committees to oversee various aspects of the Company’s business and operations. The Board has delegated its authority on certain defined areas to these committees. The committees are comprised of Executive Directors, Non-Executive Directors and Senior Management. The meetings of the respective committees are chaired by a Non-Executive Director. Reports of committee meetings are submitted at each Board meeting. Executive Committee The Board of Directors has an Executive Committee whose role is to oversee the major operations of the business including key customer issues, stakeholder management, financial performance, capital projects and management issues. The Committee comprises five members and is chaired by Helen Tarnoy the Deputy Chairperson of the Board. Audit Committee During the year under review the Audit Committee provided valuable oversight on the effectiveness of the Company’s financial reporting, internal control policies, risk management systems, compliance management Copperbelt_AR.indd 21 19/3/09 09:59:23
  24. 24. 22 Copperbelt Energy Corporation Plc systems and the internal audit function. The Committee comprises three Non-Executive Directors. Appropriate members ofSenior Management attend committee meetings.The committee is chaired by John Kaite. During the year 2008, the Audit Committee reviewed and endorsed the CEC Financial Statements for approval by the Board and recommendation to the Shareholders. Further, the Committee recommended the Company’s Corporate Social Responsibility Policy, the Insider Trading Policy and the Conflict of Interest Policy for approval by the Board and reviewed the Company’s implementation status towards full compliance of the LuSE Corporate Code of Governance. The Committee reviewed and ratified seven Audit Reports and approved the amended 2008/2009 Internal Audit Strategic Plan. Remuneration and Employee Development Committee The Committee oversees employee remuneration and MUZ wage negotiations, key organisational changes, pension scheme arrangements and employee development policies. During the year the committee approved the Company’s implementation of notches in one senior staff grade, the benchmarking report provided by the external consultants, the valuation of some outstanding jobs and the creation of a grade for frontline supervisory staff. The Committee comprises five members and is chaired by Emmanuel Mutati. There is an ad hoc committee for business development whose purpose is to review business development projects to ensure they are in line with general business development and customer policies. Safety, Health and Environment Committee The Committee’s role is to review the safety, health and environmental performance of CEC, ensure development of and compliance with best practice and all applicable legislation, and to review the quality of reporting of safety, health and environmental issues. The Committee comprises two Non-Executive Directors and four members of Senior Management, including the Managing Director. The Chairman of the committee is Abel Mkandawire. During the year under review the SHE Committee examined and endorsed the CEC 2007 SHE performance report. The Committee reviewed and approved the 2008 corporate SHE performance targets. The Committee further examined all significant SHE incidents during the period under review and all the action items necessary to fully close out the matters. Nominations Committee The Board introduced the Nominations Committee during the year 2008, following the public listing of CEC shares on LuSE. The Nominations Committee is chaired by the Chairperson of the Board, Hanson Sindowe, and comprises Executive and Non-Executive Directors. The Committee is tasked with the responsibility of considering appointments to the Board and making recommendations for approval of the three independent Directors, whose appointments are undertaken by the Shareholders. The Committee meets as necessary. Auditors At the last Annual General Meeting of the Shareholders of the Company, Messrs Grant Thornton were appointed as auditors of the Company. In accordance with the Company’s Articles of Association, Messrs Grant Thornton will retire as auditors of the Company at the conclusion of the forthcoming Annual General Meeting. Messrs Grant Thornton offer themselves for re-election. By order of the Board Julia C Z Chaila 18th February 2009 Company Secretary Kitwe, Zambia Directors’Report Copperbelt_AR.indd 22 19/3/09 09:59:24
  25. 25. 23 Section 164 (6) of the Companies Act 1994 Cap 388 of the Laws of Zambia requires the directors to prepare financial statements for each financial year which give a true and fair view of the financial position of Copperbelt Energy Corporation PLC and of its financial performance and its cash flows for the year then ended. In preparing such financial statements, the directors are responsible for: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement; selecting appropriate accounting policies and applying them consistently; making judgments and accounting estimates that are reasonable in the circumstances; and preparing the financial statements in accordance with the applicable financial reporting framework, and on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1994. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. ■ ■ ■ ■ The Board of Directors confirm that in their opinion (a) the financial statements give a true and fair view of the financial position of Copperbelt Energy Corporation PLC as of 31st December 2008, and of its financial performance and its cash flows for the year then ended; (b) at the date of this statement there are reasonable grounds to believe that the company will be able to pay its debts as and when these fall due; and (c) the financial statements are drawn up in accordance with International Financial Reporting Standards. This statement is made in accordance with a resolution of the directors. Signed at Kitwe on Hanson Sindowe, Director Michael J. Tarney, Director John K. Kaite, Director The Directors confirm that the financial statements have been prepared on a going concern basis. StatementofDirectors’ Responsibilities Directors’Responsibilities Copperbelt Energy Corporation Plc Copperbelt_AR.indd 23 19/3/09 09:59:25
  26. 26. 24 Independent Auditors to the Members of Copperbelt Energy Corporation Plc Report We have audited the accompanying financial statements of Copperbelt Energy Corporation Plc which comprise the balance sheet as at 31 December 2008, and income statement, statement of changes in equity, and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the financial statements As described on page 23, the management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by trustees, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Copperbelt Energy Corporation Plc as of 31 December 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on other legal and regulatory requirements In our opinion, the financial statements of Copperbelt Energy Corporation Plc as of 31 December 2008 have been properly prepared in accordance with the Companies Act 1994, and the accounting and other records and registers have been properly kept in accordance with the Act. Chartered Accountants Wesley M Beene Partner Lusaka 4 March 2009 Copperbelt Energy Corporation Plc AuditorsReport Copperbelt_AR.indd 24 19/3/09 09:59:26
  27. 27. 25 Copperbelt Energy Corporation Plc IncomeStatement For the year ended 31 December 2008 2008 2007 Notes US$’000 US$’000 Revenue 5 177,486 131,746 Cost of sales (127,960) (93,000) Gross profit 49,526 38,746 Other operating income 6 2,222 2,645 Operating expenses 7 (34,526) (28,085) Results from operating activities 17,222 13,306 Finance income 9 964 319 Finance expense 10 (2,709) (2,225) Net finance cost (1,745) (1,906) Profit before tax 15,477 11,400 Income tax expense 11(a) (5,334) (4,149) Profit for the year 10,143 7,251 Earnings per share Weighted basic and diluted earnings per share (cents) 12 1.01 0.73 Income Statement Copperbelt_AR.indd 25 19/3/09 09:59:27
  28. 28. 26 Statement of Changes in Equity for the year ended 31 December 2008 Share Share Retained capital premium earnings Total US$’000 US$’000 US$’000 US$’000 Balance as at 1 January 2007 100 148 58,431 58,679 Retained profit for the year - - 7,251 7,251 Dividend paid - - (20,300) (20,300) Balance at 31 December 2007 100 148 45,382 45,630 Retained profit for the year - - 10,143 10,143 Dividend paid - - (16,200) (16,200) At 31 December 2008 100 148 39,325 39,573 (a) Retained earnings are the carried forward recognised income, net of expenses, of the company plus current year’s profit attributable to shareholders. (b) The share premium relates to the excess amounts received on the issue of share capital net of pre-incorporation costs. Copperbelt Energy Corporation Plc StatementofChangesinEquity Copperbelt_AR.indd 26 19/3/09 09:59:27
  29. 29. 27 Copperbelt Energy Corporation Plc BalanceSheet as at 31 December 2008 2008 2007 Notes US$’000 US$’000 ASSETS Non-current assets Property, plant and equipment 13(a) 125,395 115,591 Investment 14 3 3 125,398 115,594 Current assets Inventories 15 3,443 1,307 Trade and other receivables 16 33,822 16,372 Cash and cash equivalents 17 16,314 17,472 53,579 35,151 Total assets 178,977 150,745 EQUITY AND LIABILITIES Equity Issued capital 18 100 100 Share premium 148 148 Retained earnings 39,325 45,382 39,573 45,630 Non-current liabilities Interest-bearing loans 19 39,262 32,597 Non current trade and other payables 20 18,800 4,690 Provisions 21 7,000 7,000 Deferred employee benefits 22 1,955 2,093 Deferred tax liability 11(e) 32,601 32,586 99,618 78,966 Current liabilities Current portion of interest-bearing loans 19 7,059 2,703 Trade and other payables 23 31,491 20,868 Tax payable 11(c) 1,236 2,578 39,786 26,149 Total liabilities 139,404 105,115 Total equity and liabilities 178,977 150,745 The financial statements on pages 25 to 52 were approved by the Board of Directors on 18 February 2009 and were signed on its behalf by: H Sindowe, Director J Kaite, Director M Tarney, Director Balance Sheet Copperbelt_AR.indd 27 19/3/09 09:59:28
  30. 30. 28 for the year ended 31 December 2008 2008 2007 US$’000 US$’000 Cash flow from operating activities Profit before taxation 15,477 11,400 Depreciation 9,197 8,845 Interest expense 2,709 2,225 Interest income (964) (319) Profit on disposal of assets (53) (110) Cash inflows before working capital changes 26,366 22,042 Increase in trade and other receivables (15,503) (1,740) Increase in inventories (2,136) (170) Increase in payables 10,623 1,477 Decrease in provisions for employee benefits (137) (746) 19,213 20,863 Interest paid (2,576) (1,219) Income tax paid (6,265) (4,368) Net cash inflows on operating activities 10,372 15,276 Investing activities Acquisition of property, plant and equipment (6,883) (6,484) Proceeds from disposals of assets 98 116 Interest received 702 152 Net cash outflows from investing activities (6,083) (6,216) Financing activities Repayment of loans (3,979) (1,300) Loans received 15,000 30,000 Dividends paid (16,200) (20,300) Net cash (outflow)/inflow (from)/on financing activities (5,179) 8,400 Net (decrease)/increase in cash and cash equivalents (890) 17,460 Cash and cash equivalents at 1 January 17,472 64 Exchange loss (268) (52) Cash and cash equivalents at 31 December 16,314 17,472 Represented by: Bank balances and cash 16,314 23,208 Bank overdrafts - (5,736) 16,314 17,472 Statement of Cash Flows StatementofCashFlows Copperbelt Energy Corporation Plc Copperbelt_AR.indd 28 19/3/09 09:59:28
  31. 31. 29 NotestotheAccounts Copperbelt Energy Corporation Plc for the year ended 31 December 2008 1. The Company Copperbelt Energy Plc is a company domiciled in Zambia. The company’s principal business is the generation, transmission, distribution and sale of electricity. 2. Principal accounting policies The principal accounting policies applied by the company in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of presentation The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. (i) Amendments to published standards effective in 2008 In 2008, the following new and revised standards and interpretations became effective for the first time and have been adopted by the company where relevant to its operations. The comparative figures have been restated as required, in accordance with the relevant requirements: ■ IFRIC 14, IAS 19 - The limit on a defined benefit asset. ■ IFRIC 11, IFRS 2 - The group and treasury share transactions ■ IFRIC 12 - Service concession arrangements ■ IFRS 8 - Operating segments ■ IFRIC 13 - Customer loyalty programmes (ii) Amendments to published standards that have been early adopted by the company. In 2008, the following revised standard was early adopted. ■ IAS 23 (revised) Borrowing costs. The amendments restrict the alternative treatment of expensing borrowing costs. All borrowings costs on qualifying assets are now capitalised. (iii) Amendments to published standards that are not yet effective and have not been early adopted by the company: The following new amendments to existing standards have been published and are mandatory for the company’s accounting periods beginning on or after 1 January 2009 or later periods but the company has not early adopted: Notes to the FinancialStatements Copperbelt_AR.indd 29 19/3/09 09:59:29
  32. 32. 30 Standard or Interpretation Effective for reporting periods starting on or after IAS 1 Presentation of financial statements (revised) 1 January 2009 IAS 16 Property, plant and equipment (amendment) 1 January 2009 IAS 32 Financial instruments: Presentation (amendments) 1 January 2009 IAS 36 Impairment of assets (amendments) 1 January 2009 IAS 39 Financial instruments (amendments) 1 January 2009 (iv) Interpretations to published standards that are not yet effective: The following interpretation and amendments to existing standards have been published and are mandatory for the company’s accounting periods beginning on or after 1 January 2009 or later periods or are not relevant for the company’s operations: Standard or Interpretation Effective for reporting period starting on or after IAS 28 Investment in associates (amendment) 1 January 2009 IAS 29 Financial reporting in hyperinflationary 1 January 2009 Economies (amendments) IAS 31 Interest in joint venture (amendments) 1 January 2009 IAS 38 Intangible assets (amendment) 1 January 2009 IFRS 2 Share based payment (amendments) 1 January 2009 IAS 40 Investment property (amendment) 1 January 2009 IAS 41 Agriculture (amendment) 1 January 2009 IAS 20 Accounting for government grants and disclosures 1 January 2009 of government assistance (amendments) IFRS 1 First time adoption of IFRS; and IAS 27 1 January 2009 consolidated and separate Financial statements IFRS 5 Non current assets held for sale and discontinued operations (amendments) 1 January 2009 IAS 19 Employee benefits (amendments) 1 January 2009 IFRIC 16 Hedges of a net investment in a foreign 1 October 2008 Operation (amendments) Based on the company’s current business model and accounting policies, management does not expect material impact on its financial statements when the Standards or interpretations become effective. The directors have assessed the relevance of these amendments and interpretations with respect to the company’s operations and concluded that they may not in some instances be relevant to the company based on the current operations. (b) Revenue recognition Revenue in respect of supply of electricity is recognised upon delivery of power for a given period to customers. (c) Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. NotestotheAccounts Copperbelt Energy Corporation Plc Notes to the Financial Statements continued... Copperbelt_AR.indd 30 19/3/09 09:59:29
  33. 33. 31 Copperbelt Energy Corporation Plc NotestotheAccounts Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. If a revaluation is undertaken, increases in the carrying amount arising on revaluation of property, plant and equipment are credited to the revaluation surplus in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. Each year, the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost, net of any related deferred income tax, is transferred from the revaluation surplus to retained earnings. Depreciation is calculated to write off the cost of property, plant and equipment on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are: % Properties 2 Transmission and Distribution Network 1.5 – 8.33 Motor vehicles 20 Office equipment, furniture and fittings 20 Capital work in progress is not depreciated. The assets’ residual values and useful lives are reviewed at each balance sheet date and adjusted if appropriate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the income statement in the other operating income. When revalued assets are sold, the amounts included in the revaluation surplus relating to these assets are transferred to retained earnings. (d) Financial assets The company classifies its investments into the following categories: financial assets at fair value through income, debtors and receivables, held-to-maturity financial assets and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluate this at every reporting date. (i) Financial assets at fair value through income This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified into the ‘financial assets at fair value through income’ category at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there Notes to the Financial Statements continued... Copperbelt_AR.indd 31 19/3/09 09:59:30
  34. 34. 32 Copperbelt Energy Corporation Plc is evidence of short term profit taking, or if so designated by management. Financial assets designated as at fair value through profit or loss at inception are those that are: ■ held in internal funds to match investment contracts liabilities that are linked to the changes in fair value of these assets. The designation of these assets to be at fair value through profit or loss eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; ■ managed and whose performance is evaluated on a fair value basis. Assets that are part of these portfolios are designated upon initial recognition at fair value through profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the company intends to sell in the short term or that it has designated as at fair value through income or available for sale. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans and receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to their original terms. (iii) Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of debtors and receivables that the company’s management has the positive intention and ability to hold to maturity. These assets are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the company will not be able to collect all amounts due according to their original terms. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Financial assets are derecognised when the rights to receive cash flows from them have expired or where they have been transferred and the company has also transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available for sale are recognised in equity. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as net realised gains or losses on financial assets. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the company’s right to receive payments is established. NotestotheAccounts Notes to the Financial Statements continued... Copperbelt_AR.indd 32 19/3/09 09:59:30
  35. 35. 33 Copperbelt Energy Corporation Plc NotestotheAccounts The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the company establishes fair value by using valuation techniques. (e) Impairment of assets (i) Financial assets carried at amortised cost The company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the company about the following events: ■ significant financial difficulty of the issuer or debtor; ■ a breach of contract, such as a default or delinquency in payments; (i) Financial assets carried at amortised cost (continued) ■ it becoming probable that the issuer or debtor will enter bankruptcy or other financial reorganisation; or ■ observable data indicating that there is a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the company, including: ■ adverse changes in the payment status of issuers or debtors in the company; or ■ national or local economic conditions that correlate with defaults on the assets in the company. The company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If the company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred on debtors and receivables or held-to- maturity investments carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. If a held-to-maturity investment or a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under contract. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. (ii) Financial assets carried at fair value The company assesses at each balance sheet date whether there is objective evidence that an available-for-sale Notes to the Financial Statements continued... Copperbelt_AR.indd 33 19/3/09 09:59:31
  36. 36. 34 Copperbelt Energy Corporation Plc financial asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and current fair value, less any impairment loss on the financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not subsequently reversed. The impairment loss is reversed through the income statement, if in a subsequent period the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. (iii) Impairment of other non-financial assets Assets that have an indefinite useful life, for example land, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). (f) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on a weighted average basis and includes all expenditure incurred in bringing the inventories to their present location and condition. Net realisable value is the price at which inventory can be realised in the normal course of business and takes into account all directly related costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow moving and defective inventories. (g) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments and balances held with banks. (h) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. (i) Borrowing costs Borrowing costs, being interest payable on loans directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use are capitalised. (j) Short/long term indebtedness Short term indebtedness includes all amounts due to be repaid within twelve months from the date of the balance sheet, including instalments due on loans of longer duration. Long term indebtedness represents all amounts repayable more than twelve months from the date of the balance sheet. (k) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Tax currently payable is based on the results for the year as adjusted for items which are non-assessable or disallowed for tax purposes. NotestotheAccounts Notes to the Financial Statements continued... Copperbelt_AR.indd 34 19/3/09 09:59:31
  37. 37. 35 Copperbelt Energy Corporation Plc NotestotheAccounts Deferred taxation liabilities are recognised for all taxable temporary differences. Temporary differences can arise from the recognition for tax purposes of items of income or expense in a different accounting period from that in which they are recognised for financial accounting purposes. The tax effect of these temporary timing differences is computed by applying enacted statutory tax rates to any differences between carrying values per the financial statements and their tax base, and accounted for as deferred tax. Deferred taxation assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. (l) Foreign currencies (i) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the company operates (the ‘functional currency’). The financial statements are presented in United States Dollars, which is also the company’s functional currency. (ii) Transactions and balances Other currency transactions are translated into the functional currency using the rates of exchange prevailing at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in other foreign currencies are recognised in the income statement. Translation differences on non-monetary items, such as equity at fair value through income statement, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in fair value reserve in equity. (m) Employee benefits (i) Pension obligations All local employees below 55 years are registered with the statutory defined contribution pension scheme. A defined contribution scheme is a pension plan under which the company pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees’ benefits relating to employee service in the current and prior periods. For the defined contribution scheme, the company makes mandatory contributions to the National Pension Scheme Authority. These contributions constitute net periodic costs and are charged to the income statement as part of staff costs in the year to which they relate. The company has no further obligation once the contributions have been paid. Secondly, there is a defined contribution pension scheme, the assets of which are held in a separate trustee- administered fund. The pension scheme is funded by contributions to the pension scheme. The contributions by the company are charged to the income statement in the period to which the contributions relate. The company contributes 10.7% and the employees 5% of the employee’s basic salary towards the scheme. (ii) Deferred employee benefits The expected costs of providing post-retirement benefits under defined benefits arrangements relating to employees service during the period are charged to the statement of income. Any actuarial assumptions are recognized immediately in the statement of income. In all cases, the pension costs are assessed in accordance with the advice of independent qualified actuaries but require the exercise of significant judgements in relation to assumptions for Notes to the Financial Statements continued... Copperbelt_AR.indd 35 19/3/09 09:59:32
  38. 38. 36 Copperbelt Energy Corporation Plc future salary and pension increases, long term price inflation and investment returns. While management believes the assumptions used are appropriate, a change in assumptions would impact the earnings of the company. (n) Provisions Provisions are recognised when: the company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. (o) Dividend distribution Dividend distribution to the company’s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the company’s shareholders. (p) Investments Investments are stated at cost. (q) Environmental costs The company is subject to various regulations and environmental costs are charged to the income statement as they are incurred. (r) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (s) Earnings per share The company presents weighted basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by diving the profit or loss attributable to the shareholders of the company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. (t) Lease of land Leases of land are classified as operating leases on the basis that although land has infinite economic life and the right to use the land passes on acquisition, ownership has a fixed lease term of 99 years, or the unexpired portion thereof. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease as an operating lease expense. (u) Segment reporting A segment is a distinguishable component of the company that is engaged either in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment revenue is based on the geographical location of customers. NotestotheAccounts Notes to the Financial Statements continued... Copperbelt_AR.indd 36 19/3/09 09:59:33
  39. 39. 37 Copperbelt Energy Corporation Plc NotestotheAccounts 3. Critical accounting estimates and judgements The company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the process of applying the company’s accounting policies, management has made judgements in determining: (a) the classification of financial assets; (b) whether assets are impaired; (c) estimation of provision and accruals; and (d) recoverability of trade and other receivables. 4. Management of financial risk 4.1 Financial risk The company is exposed to a range of financial risks through its financial assets and financial liabilities. The most important components of this financial risk are interest rate risk and credit risk. These risks arise from open positions in interest rate and business environments, all of which are exposed to general and specific market movements. The company manages these positions with a framework that has been developed to monitor its customers and return on its investments. 4.1.1 Credit risk The company has exposure to credit risk, which is the risk that a counter party will be unable to pay amounts in full when due. The key area where the company is exposed to credit risk is: ■ amounts due from customers. The company’s exposure to credit risk is influenced mainly by individual characteristics of each customer. The demographics of the company’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. Approximately 36% of the company’s revenue is attributable to sales transactions with a single customer. The company enters into Agreements with new customers, each customer is analysed individually for creditworthiness before credit terms and conditions are offered. The company’s review includes trade references from other suppliers, when available, and in some cases bank references. Credit limits are established for each customer, which represents the maximum open amount without requiring approval from the senior management; these limits are reviewed annually. Customers that fail to meet the company’s benchmark creditworthiness may transact with the company only on a cash basis. All the company’s customers have been transacting with the company for over five years, and losses have occurred infrequently. In monitoring customer credit risk, customer supplies are within the predetermined credit limits, and further supplies are restricted if amounts remain outstanding for more than 60 days regardless of the amount. Trade and other receivables relate mainly to the company’s mining customers and other legal entity customers that account for 99% and 1% respectively. Customers that are graded as “high risk” are those for whom outstanding amounts exceed 60 days, Notes to the Financial Statements continued... Copperbelt_AR.indd 37 19/3/09 09:59:34