CEC 2009 Annual Report


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CEC 2009 Annual Report

  1. 1. Annual Report 2009
  3. 3. 2 COPPERBELT ENERGY CORPORATION PLC Mission 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 Increase value for our shareholders through responsible and transparent corporate conduct, innovation and investing prudently Vision 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 Corporate Values  Being honest in all our dealings  Supporting each other  Building good team relationships  Being open to new ideas  Developing a ‘can do’ attitude
  4. 4. 3 COPPERBELT ENERGY CORPORATION PLC Corporate Profile History and Operations The Copperbelt Energy Corporation Plc (CEC) is a Zambian electricity utility whose core business is the supply of power to the mining industry and transmission for national utilities, ZESCO Limited of Zambia and SNEL of the Democratic Republic of Congo, through the Zambia – Congo interconnector, the Zambian part of which CEC owns. For over half a century, the company has been a supplier of choice to Zambia’s mining companies in the mineral-rich Copperbelt province. While that is still the stronghold of the business, CEC is increasingly looking outside of the Copperbelt and beyond the core business for new business opportunities. Listed on the Lusaka Stock Exchange since January 2008; CEC, the first and only private sector utility to attain full Southern African Power Pool (SAPP) membership, is fast positioning itself as a developer of energy infrastructure in Africa and is well respected in the region for its skills in designing and operating transmission systems. A licensed carrier of telecommunications traffic using broadband optic fibre, CEC has made significant inroads in the telecoms business; moving from a carrier of carriers only to a competitive retail sector player through a joint venture with Realtime Zambia – a partnership that combines CEC’s strong fibre network management skills and Realtime’s experience in delivering fibre and wireless communication solutions across Zambia, especially to corporates. Infrastructure CEC owns and operates 884 kilometres of 220kV and 66kV transmission lines, 540 kilometres of optic fibre on power lines, 38 major substations and 80MW of gas turbine generation. To ensure high quality of supply, the network has a number of reliability enhancing features that include a high degree of network redundancy, stand-by generation, a well equipped control centre and multiple sourcing points. Growth Strategy CEC’s focus is on activities and opportunities that create value for the company and its investors. To achieve that, we continue to build appropriate partnerships that provide us with the necessary support to pursue and participate in viable new business opportunities.
  5. 5. 4 COPPERBELT ENERGY CORPORATION PLC Contents Chairman’s Report 5 Managing Director Operations’ Report 10 Managing Director for Corporate Development & CFO’s Report 14 Operational / Financial Highlights 18 Director’s Report 20 Statement on Corporate Governance 25 Statement Of Directors’ Responsibilities 27 Report of the Independent Auditors to the members of Copperbelt Energy Corporation Plc 28 Statement of Comprehensive Income 29 Statement of Changes In Equity 30 Statement of Financial Position 31 Statement Cash flow 32 Notes to the Financial Statement 33 Directors 62 CEC Management Team 63 Corporate Contact Information 64 Bankers and Auditors 64
  6. 6. 5 COPPERBELT ENERGY CORPORATION PLC Chairman’s Report Chairman’sReport I am delighted to report an encouraging performance for the business for the period ended 31st December 2009. The year under review coincided with a worldwide economic downturn, but I am glad to report that despite the challenges, which I will outline later in the report, the Company fared well and posted improved earnings compared to the previous year. Commendable progress was also made in the area of new business identification and development. Safety, Health and Environment (SHE) The priority we have placed on SHE in all of our business practices and operations is clearly paying dividends. Managers’SHE visibility tours enabled our senior managers to demonstrate their active involvement in identifying and preventing hazards / incidents at various CEC work sites, thus leading the SHE cultural change and implementing the SHE Improvement Action Plan, as we envisaged prior to the start of the year. In early June, an HIV prevalence survey was conducted for all willing staff. The essence of the survey was to help the Company to develop an accurate understanding of the profile of HIV and AIDS in our workplace and to help plan for appropriate programs on prevention, treatment, care and support. Ultimately, this will help us to effectively mitigate the impact of the disease on employees and the Company. The prevalence survey was also undertaken to track changes in HIV and AIDS prevalence within the Company since the last survey was conducted in 2005. A key objective of this follow-on survey was to help the Company understand the factors responsible for changes in disease prevalence within the four-year period between the two surveys. Staff uptake was commendably high at 84%; and results disseminated to staff show a drop in prevalence levels from 33% in 2005 to 23% in 2009. As our contribution to the malaria fight, we proactively continued to provide mosquito nets and repellants to all employees, and partnered with other organisations in the Indoor Residual Spraying exercise for 2009. Our SHE performance for the year was good. We recorded zero fatal incidents and an improvement in near-miss and safety meeting statistics. Unfortunately, we had four lost time accidents (LTAs), compared to zero during the 2008 period. All four were minor LTAs and all corrective and preventive action measures raised in the incident investigation reports have since been implemented.
  7. 7. 6 COPPERBELT ENERGY CORPORATION PLC Chairman’sReport Business Performance Highlights Copper prices exhibited a downward trend from the last quarter of 2008 and continued to slide until the end of the first quarter of 2009. A dip of more than 50% in the price of copper during this period, from well over $8,000 per tonne to lower than $3,000 per tonne caused loss of business confidence amongst some of our mining customers. Consequently, three mining operations were placed under care and maintenance while other operations instituted cut-backs in production. The effect of low copper prices on our customers caused a reduction of 18% in the Company’s capacity sales; from an average of 532MW during 2008 to an average 436MW in 2009. An improving global economic and financial environment stimulated a resurgence in copper prices from April 2009, and prices had recovered to $6,000 per tonne by June 2009. The recovery has since been steady, resulting in the resumption of activity at CNMC Luanshya Copper Mine (formerly Luanshya Copper Mines Plc) and Chambishi Metals Plc. Konkola Copper Mines Plc continues to invest in its operations by expanding both its mining and smelting capacity. It is important to note that through these and other challenges, the Company’s level of service to our valued customers remained uncompromised throughout the year. The quality of our electricity supply was reliable and the Company undertook further investments to improve the resilience of its network, such as an investment in power factor correction equipment. Last year, we reported the awarding of rights by the Zambian Government to conduct a detailed feasibility study into the development of the Kabompo Gorge Hydro-electric Power Project in North-Western Province to a CEC led consortium. The feasibility study is now complete, and the final report is expected at the end of February 2010. The Company has made a joint application with Zesco for concessionary funding to facilitate the electrification of a number of towns in North- Western Province, thereby increasing access to electricity and eliminating the need for a number of expensive diesel generators operated by Zesco. Also worth noting in 2009 was the formation of a telecommunications joint venture with Realtime Technology Alliance Africa (‘Realtime’), which saw the Company investing $2.0m in Realtime to acquire a 50% stake in the company. The venture has succeeded in combining the fibre network management skills of the Company with Realtime’s experience in providing network services to corporate customers. A team of CEC staff completed a consultancy assignment, looking at transmission system management, in The Gambia earlier in the year. A significant achievement during the year was the Company’s attainment of the of full SAPP (Southern African Power Pool) membership. This milestone, reached in November 2009, gives the Company the status of a fully-fledged utility in SAPP. What makes this even more significant is the fact that CEC becomes the first and only private sector utility with full SAPP membership and we are being expected to play an active role in challenging the norms with an infusion of new ideas.
  8. 8. 7 COPPERBELT ENERGY CORPORATION PLC Chairman’sReport Business Environment Of particular concern to the Company was the low copper price, and how our customers were affected beginning the last quarter of 2008. Although copper prices started to pick up from the second quarter of 2009, the impact was not felt in terms of higher capacity sales to our customers until the third quarter of 2009. The Company emerged from the situation more knowledgeable and aware of some of the vulnerabilities to the core business. At the same time, the experience helped underscore more strongly our desire and need to grow the business outside of the traditional customer base on the Copperbelt. As a mark of our resilience, the Company did not lay off staff during the downturn but instead was able to get their support in instituting measures to significantly reduce operating costs. The Company remained able to continue meeting its obligations to Zesco under the Bulk Supply Agreement. These economic challenges, trying as they were, did not prevent the Company from delivering value to its shareholders and pursuing a vision of diversified growth and the creation of other income streams. These and other developments have clearly demonstrated our ability to withstand harsh economic conditions and still perform well. Net profit for 2009 was $11.9m, 18% higher than $10.1m achieved in 2008. Stakeholder Relations The Company has consistently stressed its objective of increasing shareholder value and our performance in 2009 was no different. In 2009, we paid out two interim dividends in April and September, marking the second straight year since going public in January 2008 that we have paid out two dividends in a year. The CEC share price traded close to the listing price of 440 Kwacha per share through most of the year, and closed the year at 430 Kwacha per share. We understand the need to increase shareholder value, and we intend to grow the earnings and the assets of the Company through investment in viable energy infrastructure projects that generate a return that will be attractive to investors. I am glad to report that we have addressed most of the communication difficulties that were experienced with some of our shareholders in the first year after listing, which were mostly due to the incorrect recording of some shareholder details at the time of listing. Some challenges still remain, but we are continually perfecting our systems. There are investor relations offices in both Kitwe and Lusaka where individual shareholder queries can be addressed. I encourage all of our shareholders and stakeholders to make use of the website www.cecinvestor.com which has been especially designed to provide relevant information about the Company. CorporateResponsibilityandSustainability In September, the Company and the environmental consultant on the Kabompo Gorge Hydro project, D.H. Engineering, undertook an environmental scoping and impact assessment (‘ESIA’) exercise in Solwezi and Mwinilunga. The meetings were
  9. 9. 8 COPPERBELT ENERGY CORPORATION PLC attended by Government departments and agencies represented in the province; concerned individuals; quasi-government bodies and civil society organisations. The objective of the scoping meetings was to collect views and concerns from all stakeholders and to use these views as a basis for carrying out the environmental and social base line survey required to apply for Environmental Council of Zambia consent to proceed with the project. During the year we refurbished the lecture and computer facilities at the University of Zambia’s School of Electric and Electronic Engineering; making good on our commitment to help improve the School’s standards over a three-year period. The priority we place on matters of SHE is not limited to the CEC workplace alone, and we have endeavoured to demonstrate SHE excellence in all facets of our operations and business practices. An example of this was our undertaking to relocate a total of 8 families in Chililabombwe, whose houses were found to be in contravention of the safety requirements relating to settlements near the Company’s transmission lines. In compensation, the Company has constructed better housing units for the affected families, upgrading them from one and two-roomed structures with ablution facilities outside to two and three-bed roomed houses, each with toilet and bath facilities inside. A structural refurbishment of the Arthur Davies Stadium, home of the Power Dynamos Football Club, which is sponsored by the Company, was undertaken in 2009. The stadium will be ready for use on commencement of the new football season in March 2010. A fitness centre and gym for staff and the wider community has also been completed at Ravens Country Club. We continued to support the Mulenga Community School of Kitwe’s Mulenga Township, one of our community’s less privileged areas. The Company will continue its support for the community in 2010, focusing particularly in the areas of youth, health, education and sport. Appointments / Changes to the Board At the Annual General Meeting of the members of the Company held on 17th April 2009, three non-executive Directors (Munakupya Hantuba, Emmanuel Mutati and Jonathan Muke) were re- appointed to serve on the CEC Board of Directors. I heartily welcome back the three members and look forward to receiving the continued benefit of the expertise and knowledge that they bring to our Board. In the fourth quarter of the year, ZCCM-IH made changes to its board representation, retiring William Musama and John Kaite and appointing Irene Lombe Ng’andwe and Standwell Mapara in their stead. On behalf of the Company, I convey our gratitude for the service to the Board rendered by both William Musama and John Kaite. I equally welcome the two new members and anticipate the value and experience our board will gain from them. Board Operation Our board adhered to the highest standards of Chairman’sReport The future - local children attended the ESIA scoping meeting at Kanyikezhi School
  10. 10. 9 COPPERBELT ENERGY CORPORATION PLC Corporate Governance and conducted itself above reproach by ensuring compliance to the Lusaka Stock Exchange established Code of Corporate Governance. Our board self-monitors its conduct and compliance against this code and other identified standards that are found relevant to the operations of the Company. Business Outlook Copper prices have recovered stimulating a recovery of investment into the mining sector, both for the Company’s customers on the Copperbelt and other mining operations that operate in other provinces of Zambia. The capital investments by the mines over the last decade have ensured that many of Zambia’s copper producers are internationally competitive, which in turn improves the resilience of the Company’s business model in case of future downturns. For our core business, we expect a steady improvement in sales to the mines as new mining and ore processing operations are brought into production. Outside of the core business, it is widely acknowledged that there are shortages in generation and transmission capacity both within Zambia and the SADC region. To stimulate further investment in the required infrastructure, the regulatory authorities are supportive of increasing tariffs to cost reflective levels to ensure that sustainable investments can be undertaken in new capacity. This provides an opportunity for the Company to participate in the growth of the energy sector outside of its traditional business on the Copperbelt. The Company is currently evaluating opportunities to invest in transmission and generation projects in Zambia and surrounding countries. To support the proposed growth, we are investing in our people to introduce new skills in such areas as the management of hydro schemes and project financing. A number of managers have been placed on a training and development programme that places them in a strong position to take business leadership roles in future. Furthermore, we have developed contacts with a number of international development banks with a view to develop structures for the financing of new projects. Conclusion We have a lot be proud of as CEC and I believe the future looks bright and solid; not least because energy is at the core of the development of any country’s economy and Zambia is no exception. We are excited by our immediate and future prospects in this sector, both in Zambia and in other countries within Africa. Our staff remains highly skilled and motivated. Certainly, we can look to the future with confidence and anticipation. Hanson Sindowe Executive Chairman Chairman’sReport
  11. 11. 10 COPPERBELT ENERGY CORPORATION PLC Power System Performance Electricity demand by our customers is driven by a number of factors, which include economic activity, business growth and energy efficiency. The economic down turn, which led to low copper prices, resulted in the scaling down of operations by some of our customers. In the first half of 2009, we saw three mining companies being placed under care and maintenance and a cutback at a number of mining shafts. The net effect of this on our business was a reduction in capacity sales to the mining customers of 18% from 532MW in 2008 to 436MW in 2009. Therefore, the major challenge for the core business was to keep the Company’s operating and capital costs within sustainable levels in line with the reduced power sales and cash inflows, whilst not compromising on the Company’s ability to maintain the quality and reliability of power supplies. The Company instituted a number of cost saving measures, which included freezing of all recruitment and curtailment of non-essential expenditure. During the latter part of the year, the price of copper began to pick up and there was a recovery in mining activity, with activity re-commencing at Luanshya Copper Mines following the take-over by China Non- Managing Director Operations’ Report Ferrous Metal Mining Company - Luanshya Copper Mines and at Chambishi Metals. There was also continued investment by Konkola Copper Mines Plc (KCM) to expand both its mining and smelting capacity. Power Purchase & Sales Zesco continued to provide CEC with electrical energy under the bulk supply agreement and supply from Zesco accounted for 99.99% of the total requirement with the remainder supplied from the Company’s Gas Turbine Alternators. The quality and reliability of the supply of electricity from Zesco was better during 2009 than it had been the previous year. However, there were occasional generation shortfalls due to generator outages on the Zesco system and CEC was called upon to reduce its demand to mitigate the shortfalls. As highlighted above, the demand for electricity from our customers reduced in 2009 and sales of energy totaled 3,338 GWh compared to 3,981GWh the previous year. The system load factor remained at 80%. In addition to CEC’s role of transmitting and supplying power to the mining sector, CEC also undertakes domestic wheeling on behalf of Zesco and international wheeling. During the year, the international wheeling of power from the Congolese utility, SNEL, was mainly dictated by the power import ManagingDirectorOperations’Report
  12. 12. 11 COPPERBELT ENERGY CORPORATION PLC requirements of the Frontier Mine (supplied by SNEL utilizing the CEC network), ZESA in Zimbabwe and ESKOM in the Republic of South Africa. A total of 438 GWh was wheeled from the Congo while 41 GWh was wheeled into the Congo and 182 GWh was wheeled to the Frontier Mine through the 220kV Congo inter- connector. Domestic wheeling on behalf of Zesco totaled 1,611 GWh compared to 1,576 GWh in 2008. The Company adhered to all of its maintenance programs throughout the year. In addition, the Company increased its ability to monitor the equipment connected to the power system through enhancements to the SCADA system. As a result of the above, power system performance during the year was good with few incidents having occurred. Occasional equipment failure was experienced, mainly due to lightning or the age of equipment. The majority of incidents, which did impact on the CEC system, were externally caused. The most significant of these incidents was a national blackout that occurred on 15th June 2009, caused by a failure on the Zesco system. The Company’s response to this was excellent with supply rapidly being made available to all of our customers through the GTA’s and imported SNEL power. However, a few challenges were experienced in, firstly, synchronizing the machines to the grid and then maintaining synchronism with the grid whenever the voltage of the incoming power from the Congo dropped too low. Unfortunately, the phenomenon of extremely high voltages was once again experienced when Zesco restored power to the Copperbelt following the blackout of 15th June. This occurs when the power is first restored by Zesco via the long transmission lines from the south of the country and before the loads on the CEC system can be reconnected i.e. under extremely lightly loaded conditions. These extremely high voltages are of great concern as, apart from the ageing of insulation which results, catastrophic failure can occur to critical items of equipment. Joint CEC and Zesco technical teams are examining the problem in order to find the best solution. Based on the performance of the GTAs during the power blackout and numerous customer engagements to witness machine runs, the level of customer confidence in the GTA’s has improved. Throughout the year, all six of CEC’s GTA’s were available for service and plant availability was at 98.7% compared to 97.5% in 2008 and reliability at 90% from 88% the previous year. This improvement was as a result of numerous equipment upgrades carried out over the past few years, aimed at enhancing performance and confidence in the machines. On the whole, the system capacity continued to be firm. However, CEC has identified that with the numerous expansion projects being carried out by our customers, there are a number of areas on the CEC ManagingDirectorOperations’Report
  13. 13. 12 COPPERBELT ENERGY CORPORATION PLC network where transformer capacity will need to be reinforced. The power factor correction project, which commenced in 2008 in conjunction with our customers, progressed steadily throughout the year. The study phase of the project identified the need to install compensation equipment that does not only provide reactive support but also filters impurities (often called‘harmonics’) out of the system. Contractors have been engaged and they have since commenced detailed design works as well as the placement of orders for equipment. Project completion is currently forecasted to be June 2010. The Company noted an increase in cases of theft and vandalism of the Company’s installations from 17 in 2008 to 31 in 2009 and this remains a major cause of concern. The increase was attributed to numerous incidents of theft of steel members from CEC’s pylons. Repairs were carried out on the vandalized equipment and, as a result, the security of the power system was not compromised. We are happy to report that the Company was accorded full membership of the Southern Africa Power Pool (SAPP) in November 2009. Our membership will enhance the status and influence of the company within the SADC region, and provide a basis for undertaking projects on a regional basis, including power trading and investment in transmission and generation facilities that have a regional impact. Core Business Expansion The $35m CEC Northern Area Expansion Project, which was aimed at expanding the CEC network to supply new mining operations and the new smelter for KCM, was executed smoothly with no major incidents or delays recorded. All new equipment for the project was successfully installed and commissioned by year end. The commissioning of the 220kV equipment at our Michelo substation has helped improve system stability and reliability in that area. The whole project was executed in a safe and environmentally- friendly manner and in compliance with all statutory regulations. The Company is expected to take over ownership of the assets from KCM during 2010. During implementation, it was observed that the location of some houses was in breach of safety regulations in terms of safety clearance along the wayleave. It was, therefore, necessary that they be demolished and the inhabitants relocated to a safer area. As a result, eight houses were constructed for the affected households. This was done in consultation with both the Environmental Council of Zambia and the affected households. The Muliashi project, which was shelved in 2008, was resurrected in 2009 by the new owners of Luanshya Mine. The implementation of the Muliashi project is tentatively planned for 2010 with a forecast demand of 30MW when fully developed. ManagingDirectorOperations’Report
  14. 14. 13 COPPERBELT ENERGY CORPORATION PLC Various other projects are at a developmental stage. Customer Relations Good relationships were maintained with CEC’s mining customers and other stakeholders during the year. This was accomplished through regular monthly interactive meetings and communication with industry-wide bodies. The global copper price showed a steady upward trend throughout the year, exceeding the $6,000 per tonne mark by year end. Consequently, total mines’power consumption showed a very slow but steady upward trend from the third quarter of 2009. Safety, Health & Environment In 2009, the Company embarked on a program called the‘SHE Improvement Action Plan’to ensure that all employees strive for continuous improvement and address previous areas of concern. This programme is intended to ensure that all employees take responsibility for SHE issues at all times. As a result, the following actions were undertaken: • Change in reporting priorities – SHE issues to be reported/discussed before all other issues at management and operational meetings at all levels within the organization. • Conducting of SHE management visibility tours – 192 action items were identified during such tours. Progress on the action items is being tracked at management level. • SHE training for Directors and Management was conducted – issues raised during the training have been incorporated in the SHE Improvement Action Plan and progress is being tracked. • Review of the SHE reward system in order to become a more effective driver of improved performance. • Tool Box Safety Talks were identified as an extremely important part of achieving a safe working environment. Specific training was conducted for frontline supervisors and mechanisms for measuring compliance have been put in place. • A company-wide Good Housekeeping Assessment was undertaken to ensure that CEC maintains good order in the workplace. Awards were issued to sections that achieved excellence in this area. Our safety performance continues to be maintained at a satisfactory level. There were no fatalities during the year. However, four lost time accidents were recorded compared to zero in 2008. This increase is of concern and will be a focus area for 2010. There was a reduction in the number of system breaches and permit withdrawals, from four and six respectively in 2008 to three for both parameters in 2009. Road traffic accidents increased (10 in 2008, 11 in 2009) while road traffic incidents reduced (40 in 2008 versus 39 in 2009). The Company has maintained good performance in en- vironmental management and complied with all statu- tory requirements for reporting and license renewals. Employee Welfare Cordial employee relations were maintained company- wide throughout the year. We are happy to report that, even with the challenges of economic uncertainty that the business experienced, retrenchment of staff was not required. The Rollback Malaria and HIV and AIDS workplace programmes achieved positive results. Uptake of voluntary counseling and testing (VCT) improved, mainly because of the VCT day that was specifically dedicated to encouraging employees to undertake tests and to know their status. Neil Croucher Managing Director - Operations ManagingDirectorOperations’Report
  15. 15. 14 COPPERBELT ENERGY CORPORATION PLC Managing Director for Corporate Development & CFO’s Report Second Interconnector between Zambia and the Democratic Republic of Congo (‘DRC’) An Infrastructure Development Agreement was signed in October through which CEC and the Congolese utility SNEL have agreed to construct a new dual circuit 220 kV transmission line between DRC and Zambia that will facilitate the transfer of 550MW of firm power from DRC to Zambia. Tenders for the lines and substation equipment were issued and adjudicated in February 2010. Construction and commissioning are expected to be complete by the second quarter of 2011. The total project cost, including internal costs that have accumulated during the design and development of the line is expected to be $16.2m, which has been funded by CEC through its existing corporate debt facilities. The funding for SNEL has been provided through a World Bank facility afforded to the Government of the DRC as part of the bank’s Southern Africa Power Market Programme. CEC is earning a return on this investment through receiving power available for export from SNEL, which can be on-sold to utilities and large electricity users within Southern Africa. The transmission line will be fitted with 48 Core OPGW optical fibre that will facilitate the connection of Katanga Province to the CEC and Zesco fibre networks. This fibre will be used to enhance operational communications between the utilities, and to provide a basis for linking telecoms providers in Katanga Province to telecoms providers in Zambia. Kabompo Gorge Hydro Power Project CEC was awarded the right to undertake the feasibility study for the development of a medium sized hydro station at Kabompo Gorge in North-Western Province in the final quarter of 2008 through the Office for Promoting Private Power Investment, the branch of the Ministry of Energy and Water Development responsible for facilitating the development of power projects in the private sector. The feasibility study was undertaken during 2009, utilising consultants from the Amanzi Consortium (comprising Gibb and Knight Piesold) for the power station and hydro scheme design; and D.H. Engineering Consultants for the environmental and social impact assessment (‘ESIA’). The power station study encompassed detailed studies of the hydrological, topographical and geotechnical aspects of the site by relevant experts and the optimization of the site design. ManagingDirectorforCorporate Development&CFO’sReport
  16. 16. 15 COPPERBELT ENERGY CORPORATION PLC The ESIA encompassed a thorough review of the impact of the proposed project on the local community, a review of the National Heritage Conservation Commission and consultations with the local Chiefs and Government departments. The terms of reference for the study were approved by the Environmental Council of Zambia, and a number of public hearings were held at the project site and neighbouring communities. A forestry inventory and assessment of valuable trees was undertaken in conjunction with the Forestry Department. It is expected that the detailed power station design and tendering process will be undertaken during 2010, with a view to commencing construction during 2011. The pre-feasibility study for the site estimated that the station would comprise a 34MW power station, a dam wall 65m in height, an underground power station and a 4km tunnel. The final design parameters will be confirmed once the detailed design has been completed. The final design for the scheme will take into account the optimal balance for peak and off-peak power that will be generated by the station, based on the requirements of the Zambian and regional power market. The North-Western Province of Zambia currently has limited access to electricity, with the majority of towns having no access to the main electricity grid, and some of the towns being supplied through diesel generators that are expensive to run. CEC recognizes that the proposed development of a new power station in the province should facilitate greater access to electricity within the province. Initiatives have, therefore, been taken to identify sources of funding for an electrification programme that will benefit the local people. Telecommunications Joint Venture CEC signed a Joint Venture Agreement with RTAA (Pty) Limited and completed the acquisition of 50% shares in Realtime Technology Alliance Africa Ltd. for $2.0m in July 2009, following regulatory consent from the Zambia Competition Commission to proceed with the transaction. Realtime’s key customer focus is in providing fibre connectivity to the business community operating in the main commercial centres in Zambia. Realtime purchases bulk bandwidth from Zesco and CEC, who provide a fibre backbone service between the main commercial centres in Zambia. Realtime provides its customers with internet access and Virtual Private Networks, operates a resilient national network and provides radio and VSAT access where fibre has not yet been installed. CEC seconded a number of senior managers into the Joint Venture. The business is operating at arm’s length from the fibre backbone network operated by CEC on the Copperbelt, which has a separate‘Carrier of Carriers’ License. CEC’s network connects all of the main towns on the Copperbelt and is 540km in length, with a ring topology. The key customer base for the network is the mining companies, commercial banks and cellular service providers. Future Developments A number of countries in Southern Africa have interconnected power grids that enable power to flow, for example, from the Inga Power station in the DRC through to South Africa. Zambia is at the centre of this interconnected grid network, and new transmission and generation projects, therefore, have both a national and regional impact. There are, however, two fundamental challenges that face the region as a whole. The first relates to a shortage of generation to meet demand from households, industry, agriculture and mines. The effects of this shortage were last felt in 2008 when there was widespread load shedding throughout the region that was partly alleviated in 2009 due to a curtailment in economic activity, resulting in reduced demand for electricity. The second challenge relates to the limited capacity of the transmission network in Southern Africa that prevents power flowing within the region to the extent necessary to alleviate imbalances in the demand and supply of power within different countries and provinces. CEC’s future growth strategy is based on seeking concessions to develop generation and transmission projects that will have a positive impact in the region. ManagingDirectorforCorporate Development&CFO’sReport
  17. 17. 16 COPPERBELT ENERGY CORPORATION PLC The migration towards cost reflective tariffs in the region is expected to ensure that the investments will provide sufficiently attractive investment returns. Financial Report The Financial Statements have been prepared in accordance with International Financial Reporting Standards, and accounting policies are consistent with those applied in previous periods. Statement of Comprehensive Income for the Year Ended 31st December 2009 Revenue reduced by 13% to $154.2m. The decrease was due to a 15% reduction in sales to the mines, totaling $142.8m compared to $167.9m the previous year. However, there was a compensating 30% increase in domestic wheeling income to $10.6m, largely as a result of the commencement of supplies to the Frontier Mine. Cost of sales, which mainly comprise purchases from Zesco under the Bulk Supply Agreement decreased by 13% to $111.8m. The Gross Profit decreased by 14% to $42.4m. Other income increased by 176% to $6.1m, largely due to a reduction in obligations to refund customers for the costs of connection assets that were pre-financed by customers, but also due to an increase in sundry revenue and telecoms revenue. Operating costs reduced by 11% overall to $30.7m compared to the previous year operating costs of $34.4m. Within operating costs, there was an 18% reduction in personnel costs to $10.7m and a 36% reduction in stores and maintenance costs to $1.7m. However, there was a 67% increase in other operating costs from $4.9m to $8.3m. Included within other operating costs were a number of non-recurring costs including $1.6m expenditure on undertaking the feasibility study of the Kabompo Gorge hydro project, and $2.0m of non-recurring legal costs. Interest payable decreased by 33% to $1.8m due to a reduction in US LIBOR, and a reduction in the average level of debt of the company on which interest was payable during the year. The company entered into a hedging arrangement during the year that fixed the rate of exchange from dollars into Kwacha at a rate of 5,502 for a portion of the Company’s Kwacha requirements. As this rate was more favourable than the spot rate for much of the year, an exchange gain of $1.3m was recorded. Earnings increased by 18% to $11.9m from $10.1m the previous year. Statement of Changes in Equity for the Year Ended 31st December 2009 The opening equity of $39.6m was increased by $3.7m to $43.3m due to a prior year adjustment arising from a clarification of tax provisions relating to previous years’ tax liabilities. Equity increased through the creation of a revaluation reserve of $113.1m and profit for the year of $11.9m, reduced by dividends declared and paid of $10.0m. The closing equity was $158.3m, an increase of 300%. Statement of Financial Position as at 31st December 2009 The Company undertook a revaluation of property and its primary transmission equipment during the year, which resulted in an increase in value of $9.9m ManagingDirectorforCorporate Development&CFO’sReport
  18. 18. 17 COPPERBELT ENERGY CORPORATION PLC for property and $103.2m for primary transmission equipment. The increase has been reflected in the balance sheet through an increase in the value of property, plant and equipment, with a corresponding increase in equity through the creation of a revaluation reserve of $113.1m. The value of property plant and equipment increased from $125.4m at 31st December 2008 to $236.2m at 31st December 2009, an increase of 90%. The movement was mainly attributable to the revaluation in fixed assets of $113.1m, $7.3m of capital expenditure and a depreciation charge of $9.6m. Trade and other receivables reduced by 9% to $30.7m, which demonstrates an improving trend in the collection of receivables from customers. Trade and other payables reduced by 22% to $24.6m as the Company made progress in reducing creditor days, and maintaining current on payments to Zesco. Total interest bearing loans at 31st December 2009 totaled $39.3m comprising outstanding amounts on facilities with: (i) Citibank and DEG, under a general corporate facility to fund capital expenditure of $26.1m at 31st December 2009, of which $5.9m plus accrued interest will be repayable during the financial year ended 31st December 2010; (ii) African Life Financial Services, to fund capital expenditure and working capital, of $10.0m at 31st December 2009; and (iii) Development Bank of Southern Africa, related to the cost of constructing a substation to supply power to Chambishi Metals, of $3.2m at 31st December 2009. Equity increased to $158.3m compared to $43.3m at the previous year end (restated for a prior year adjustment). The increase was attributable to the creation of a revaluation reserve arising from the revaluation of property, plant and equipment and an increase of $1.9m in retained earnings following the declaration of dividends for the year. Overall, total assets had increased by 53% to $274.7m at 31st December 2009 compared to $179.0m at the previous year end. Statement of Cash Flows for the Year Ended 31st December 2009 Net cash inflows from operating activities increased by 12% from $10.4m to $11.7m. Investing activities included expenditure of $7.3m on property, plant and equipment, and an investment of $2.0m in the Realtime telecommunications joint venture. The debt obligations of the Company were reduced by $7.0m through repayments of facilities with DEG, Citibank and DBSA. A total dividend payment of $10.0m was made during the year. The cash balance at 31st December 2009 was $2.3m compared to $16.3m at the previous year end. Share Price Performance The CEC share price at 31st December 2009 quoted on the Lusaka Stock Exchange (‘LuSE’) was 430 Kwacha per share compared to 450 Kwacha per share at the previous year end, a decrease of 4%. In comparison, the LuSE all share index recorded an increase of 10.07% in local currency terms and 14.61% in US Dollar terms. The dividend yield, expressed in Kwacha as a percentage of the share price at the year end was 13%. Michael Tarney Managing Director Corporate Development & CFO ManagingDirectorforCorporate Development&CFO’sReport
  19. 19. 18 COPPERBELT ENERGY CORPORATION PLC Load 0 100 200 300 400 500 600 2005 2006 2007 2008 2009 YEAR LOAD (MW) Load Debtor Days - 10 20 30 40 50 60 70 2005 2006 2007 2008 2009 Year No of Days Acid Test Ratio 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2005 2006 2007 2008 2009 Year Times Gross profit - 10,000 20,000 30,000 40,000 50,000 60,000 2005 2006 2007 2008 2009 Year Gross Profit Return on Assets 0% 1% 2% 3% 4% 5% 6% 7% 2005 2006 2007 2008 2009 Year Return on Assets EBITDA 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2005 2006 2007 2008 2009 Year EBITDA Operational / Financial Highlights Operational/FinancialHighlights
  20. 20. 19 COPPERBELT ENERGY CORPORATION PLC Earnings Per Share - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2005 2006 2007 2008 2009 Year EPS in Cents Revenue 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 2005 2006 2007 2008 2009 YEAR US$`000 Revenue Profit Before Interest and Tax 0 5,000 10,000 15,000 20,000 25,000 2005 2006 2007 2008 2009 Year US$`000 PBIT Copper Price Trend - 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 Jan Feb March April May June July Aug Sept Oct Nov Dec usd/ton 2008 2009 Operational/FinancialHighlights
  21. 21. 20 COPPERBELT ENERGY CORPORATION PLC Director’s Report The Directors have pleasure in submitting to the shareholders their report and the financial statements for the year ended 31 December 2009. The Company’s principal business is the generation, transmission, distribution and sale of electricity and telecommunication service provision. In the quest to develop the telecommunication business, the Company signed a joint venture agreement with RTAA (Proprietary) Limited on 11th February 2009 to acquire a 50% interest in Realtime Technology Alliance Africa Limited (‘Realtime’). Financial results The turnover for the year was US$154 million (2008: US$177 million). The gross profit was US$42 million (2008: US$49 million). The Table below presents a financial summary of key indicators for the five year period to 2009. Key Statistics 2009 2008 2007 2006 2005 Sales ($’000) 154,169 177,486 131,746 127,280 122,164 Gross profit ($,000) 42,371 49,526 38,746 37,383 36,367 Profit before interest and taxes ($,000) 19,126 17,222 13,306 12,745 15,240 Acid test ratio (Times) 0.95 1.26 1.24 0.67 0.74 Return on equity 8% 26% 16% 12% 12% EBITDA ($,000) 28,682 26,419 22,152 21,293 24,202 Total assets ($,000) 274,711 178,977 150,745 131,453 136,505 Earnings per share (Cents) 1.19 1.01 0.73 0.79 0.82 Return on assets 4.4% 5.7% 4.6% 6.0% 6.0% Net profit ($,000) 11,920 10,143 7,251 7,915 8,241 Equity ($,000) 158,273 39,573 45,630 65,680 68,021 Current assets ($,000) 36,500 53,579 35,151 17,395 19,746 Inventory ($,000) 3,506 3,443 1,307 1,136 1,028 Current liabilities ($,000) 34,847 39,786 26,149 24,332 25,206 Director’sReport 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 include emergency generation equipment, transmission and distribution equipment, protection and metering equipment, safety health and environmental (SHE) equipment, IT, vehicles and communication and control equipment. Through its continuous capital expenditure programme, CEC achieves continued refurbishment of the Gas Turbine Alternators (GTAs) to improve reliability of standby power plant. Replacement of system assets that have reached the end of their useful lives is undertaken to meet required high standards of SHE compliance.
  22. 22. 21 COPPERBELT ENERGY CORPORATION PLC In addition to its planned capital expenditure for the maintenance, renewal and refurbishment of its network and associated facilities CEC undertook further projects related to (i) rehabilitation of Arthur Davies Stadium (US$574,000), (ii) telecommunication optic fibre installation (US$257,000), (iii) procurement of heavy equipment for way leave roads rehabilitation (US$725,000) and (iv) procurement of critical system spares (US$700,000). The total capital expenditure for the year was US$7.332 million. Insurance The Company has insured its operational assets against all significant business risks. The Company also maintains insurance for its Directors in respect of their duties as Directors of the Company. Besides the foregoing, the Company has cover for employer’s liability, public and product liability, group personal accident, motor vehicle insurance and group life assurance. These policies are renewable and run from 1st May to 30th April of the following year. 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 principles outlined below: 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) transfer 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. The Company has a policy of declaring dividends twice a year; in March and August. Dividends of US$4,000,000 and US$6,000,000 were paid on 3rd April and 25th September 2009 respectively. Retained profit taken to reserves at 31 December 2009 was US$11.920m. Operations During the year all purchases of electrical power were from ZESCO Limited under the Bulk Supply Agreement. Electricity supplies from this source accounted for 99.99% of the total requirements. The balance was supplied from the Company’s Gas Turbine Generating plants. A supply shortfall to CEC was however experienced during the year due to generator outages leading to nationwide load shedding measures that were put in place by ZESCO. CEC on its part was called upon by ZESCO to reduce its demand from time to time to help mitigate the situation. Sales of electrical energy to CEC customers totalled 3,339 GWh, a reduction from 3,981 GWh sales the previous year due to the low commodity prices on the international market The total energy import into the network was 5,061 GWh of which 3,450 GWh was the Company purchases while 1,611 GWh was wheeled for ZESCO. International wheeling was mainly dictated by the power export requirements from SNEL in DRC to Frontier Mine, ZESA in Zimbabwe and ESKOM in RSA. The operations of the Company’s high-voltage transmission and distribution system were maintained to a satisfactory standard. Further a satisfactory security of supply from ZESCO was generally maintained throughout the year. However, there were two major occurrences resulting in interruptions of supply, one arising from the ZESCO system during the month of June and the other from the DRC/SNEL network in September. Thefts and vandalism of the Company’s installations continued to be a major cause of concern. There was an increase in the number of theft/vandalism cases on Director’sReport
  23. 23. 22 COPPERBELT ENERGY CORPORATION PLC CEC’s electrical installations. The Company continued to put in place stringent security measures to ensure that the security of the power system is not compromised Directors The Directors who served during the year and at the date of this report were as follows: Hanson Sindowe Chairperson Helen Tarnoy Deputy Chairperson Peter Mumba Neil Croucher Michael Tarney Irene L. Ng’andwe Appointed on 18 /11/2009 Standwell C. Mapara Appointed on 18 /11/2009 Abel Mkandawire Jean Madzongwe Emmanuel Mutati Munakupya Hantuba Jonathan M Muke William S. Musama Retired on 18 /11/ 2009 John K. Kaite Retired on 18 /11/ 2009 With the exception of Stanbic Bank Limited ,who are bankers for the Company, and Madison General Insurance Company 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 31 December 2009, the shareholding was as follows: Zambian Energy Corporation (Ireland) Limited 520,000,000 ZCCM Investments Holdings PLC 200,000,000 Private Individuals/ Institutions 280,000,000 Government of the Republic of Zambia (Golden Share) 1 Special Share Average number and remuneration of employees The total remuneration of employees during the year amounted to US$10.7 million (2008: US$13 million) and the average total number of employees was as follows: Month Number January 367 February 353 March 363 April 360 May 353 June 353 July 344 August 355 September 354 October 356 November 356 December 351 Average 355 The decrease in employee numbers in December reflected the non renewal of contracts for contractual employees whose duties related to capital projects as there was a reduction in capital activities in the year 2009. Power Sports Limited The process of liquidating Power Sports Limited, a subsidiary of CEC and sponsors of Power Dynamos Football Club was concluded during 2009. CEC has, however, continued to sponsor Power Dynamos Football Club through a process of direct funding. Director’sReport
  24. 24. 23 COPPERBELT ENERGY CORPORATION PLC Industrial Relations A sound industrial relations climate continued to prevail in the Company during the year and no work stoppages were experienced. Cordial relations continued to be maintained with the Mine workers’ Union of Zambia (MUZ). Developments The fall in the copper price to below US$3,000 per metric tonne at the end of the 4th quarter of 2008 resulted in a number of the mining operations supplied by CEC being placed under care and maintenance during 2009. However, a recovery of copper prices to more than US$6,000 per metric tonne by mid- 2009 resulted in a re-commencement of mining development activity, and a number of the operations placed under care and maintenance had recommenced operations by the 4th quarter of 2009. Transmission assets to a value of US$35m have been commissioned in CEC’s Northern Area to facilitate the supply of power to Konkola Copper Mines (‘KCM’) for the supply of power to a new smelter at Nchanga, and new deep mine at Konkola. The assets were financed by KCM and remained in the ownership of KCM at the year end, but are expected to be transferred to CEC in 2010 following signature of the final hand-over certificate by the prime contractor, ABB Finland. CEC has signed an agreement with KCM to re-pay the cost of the assets over a number of years provided that threshold targets for the incremental sale of electricity from CEC to KCM are achieved. A number of families were required to be relocated as a result of the construction of a new transmission line in Konkola, and the Company constructed alternative accommodation for the affected families in the vicinity. The Company completed agreements with Congolese utility SNEL and its financier, the World Bank to commence construction of the Zambian section of a dual circuit 220kV interconnector between Zambia and the Democratic Republic of Congo. The construction of the line has been advertised for international competitive tender and the project is expected to cost US$16.2m. Construction of the project is expected to commence by mid-2010, and commissioning of the line is expected by the second quarter of 2011 to coincide with the completion of works in the Democratic Republic of Congo. An environmental impact assessment and environmental management plan were prepared and have been implemented in line with local and international regulations. The Company was granted the right to undertake a feasibility study to develop the Kabompo Gorge hydro site in the 4th quarter of 2008. The study formally commenced in 2009, and the final report is expected by the end of February 2010. The study comprised a detailed assessment of the hydrological, topographical and geological aspects of the site, an environmental impact assessment and a number of meetings with the affected communities and Government institutions in North Western Province. If the final report demonstrates that the project is viable, it is expected that the detailed site design, tendering and financing process for the project will be undertaken during 2010. The Company signed a joint venture agreement with RTAA (Proprietary) Limited on 11th Feb 2009 to acquire a 50% interest in Realtime Technology Alliance Africa Limited (‘Realtime’). The transaction was completed in July 2009. The Company has secured regulatory consent from Zambia Competition Commission in respect of the joint venture. Realtime specializes in installing fibre in metropolitan areas in Zambia. The Company also extended its own fibre network on the Copperbelt that is subject to a separate‘Carrier of Carriers’license. The Company has a department responsible for identifying new projects, and is currently undertaking an evaluation of opportunities in the supply of power to mines on the Copperbelt and elsewhere, the construction of transmission, generation and telecommunications infrastructure and the provision of operations and maintenance services. Gifts and Donations The Company continued to undertake social activities with the key focus areas being education, sport and health. In addition CEC undertook social activities following a request from the Kitwe City Council which included construction of a bus shelter and speed humps in Central Street. The refurbishment of lecture and computer facilities Director’sReport
  25. 25. 24 COPPERBELT ENERGY CORPORATION PLC in the Electric and Electronic Department of the University of Zambia was completed at a cost of US$35,000. Repair works at the Arthur Davies Stadium were also undertaken during the year. A project to construct a fitness center and gym for employees and wider community was completed and commissioned during the year In addition, renovations were made to the Mulenga Community School of Kitwe’s Mulenga Township, one of our community’s less privileged areas. Monetary and material donations were also given to worthy causes. The total cost for donations in 2009 was US$16,471. Safety and Health Matters The key safety and health focus for the Company during the year was to change the SHE Culture. This was implemented through the‘SHE Improvement Action Plan’that was developed from the SHE Training for Managers and Directors. The improvement plan was undertaken in order to ensure that the Company achieves world-class SHE standards through continuous improvement in SHE Management, proactive follow through of previous areas of concern and that it increases ownership of SHE issues amongst all employees. There were no major SHE incidents recorded during the year. In the area of health, CEC continued with its wellness programme throughout the organization. A HIV prevalence survey was conducted by Afya Mzuri and the key findings of the survey were communicated to all employees. The Company renewed its membership as a Global Development Alliance partner, a partnership that aims at developing and implementing effective workplace HIV/AIDS programmes. The Company continued with its roll back malaria programme of spraying homes in most parts of Kitwe in collaboration with the Kitwe District Management Team and other organisations and also distributed mosquito nets to employees. Environmental Matters The Company was granted all environmental permits and licences relevant to the Company’s business operations by the Environmental Council of Zambia following acceptable pre-license verification inspections. The Company achieved 100% compliance with the statutory emission limits for its emergency generation plant. The relevant environmental requirements relating to the 2nd DRC – Zambia Interconnector and the Kabompo Hydro Power Projects were adequately met. Construction of eight houses for resettlement of households that were in contravention of the safety requirements relating to settlement near CEC’s transmission line in the Northern Area Expansion project was completed during the year. Director’sReport
  26. 26. 25 COPPERBELT ENERGY CORPORATION PLC Statement on Corporate Governance In recognition of the importance of conducting its affairs with integrity, in accordance with generally accepted good corporate practice, CEC remains resolute in its commitment to the principles of integrity, openness and accountability. The Company fully supports the principles of good corporate governance espoused in the Lusaka Stock Exchange (LuSE) Corporate Governance Code (which Code is in line with internationally accepted norms). CEC has in this regard, adopted the practice of annual Board Assessment outlined in the LuSE Corporate Governance Code. This enables the Board to assess the performance of both the Board as a body and that of its individual Directors. The Company has also developed a number of policies and procedures aimed and entrenching good Corporate Governance practices, which have resulted in the development and implementation of: (a) CEC Code of Ethics. (b) Insider Trading policy and Guidelines. (c) Conflict of interest policy and Guidelines. In December 2009, Corporate Governance Policy sensitization was conducted for employees at all levels of the Company. 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 appointment is 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 Statement on Corporate Governance for the year ended 31 December 2009 of Corporate Governance. The Board has considerable depth of knowledge and experience collectively gained from both the public and private sectors and also represents the respective shareholding groups. During the year two Directors representing ZCCM-IH, Messrs William Musama and John Kaite retired from the Board and were replaced by Mr Standwell Mapara and Mrs Irene Ng’andwe. These changes were with effect from 18 November 2009. 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 six 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 systems, StatementonGovernance
  27. 27. 26 COPPERBELT ENERGY CORPORATION PLC and the internal audit function. The Audit Committee reviewed and endorsed the CEC Financial Statements for approval by the Board and recommendation to the Shareholders. The Committee comprises three Non-Executive Directors. Appropriate members of Senior Management attend committee meetings. The committee is chaired by Jonathan Muke. Remuneration and Employee Development Committee The Committee oversees employee remuneration and Mine Workers Union of Zambia (MUZ) wage negotiations, key organisational changes, pension scheme arrangements and employee development policies. Key issues addressed by the committee during the year include introduction of the mentorship programme, benchmarking of salaries and labour cost containment. The Committee comprises four members and is chaired by Munakupya Hantuba. 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 three Non-Executive Directors and four members of Senior Management including the Managing Director. The Chairman of the Committee is Emmanuel Mutati. During the year under review, the committee examined and endorsed the 2008 SHE Performance Report. The Committee reviewed and approved the 2009 Corporate SHE performance Targets. The Committee further examined all the significant SHE incidents during the quarter under review and the all the action plans necessary to fully close out the matters. The Committee approved and monitored on a quarterly basis, the implementation of the SHE Improvement Action Plan aimed at changing the CEC SHE Culture and the Managers’SHE Visibility and Inspections Strategy aimed at demonstrating management commitment to SHE and as a tool for proactive SHE Incident identification and prevention. The Committee also monitored the achievement and delivery of a number of regulatory and environmental milestones regarding the CEC Expansion Projects i.e. the KEP Relocation Action Plan and the Kabompo Hydro Power Generation ESIA Programme. The Committee attended a workplace HIV/AIDS information dissemination workshop that was delivered by Afya Mzuri during the August 2009 meetings. Nominations Committee 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 is chaired by the Chairperson of the Board, Hanson Sindowe and comprises Executive and Non – Executive Directors. During the year, the committee met to discuss the reappointment of the three independent Directors to the Board. 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 Company Secretary Lusaka Date: 17 February 2010 StatementonGovernance
  28. 28. 27 COPPERBELT ENERGY CORPORATION PLC 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 judgements and accounting estimates that are reasonable in the circumstances; and • preparing the financial statements in accordance with International Financial Reporting Standards, 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 hence taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board of Directors confirms 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 31 December 2009, 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. StatementofDirectors’Responsibilities Signed at Lusaka on 17 February 2010 Director Director Director Hanson Sindowe Michael J.Tarney Jonathan Muke StatementofDirector’s responsibilities
  29. 29. 28 COPPERBELT ENERGY CORPORATION PLC Report on the Financial Statements We have audited the accompanying financial statements of Copperbelt Energy Corporation PLC which comprise the statement of financial position as at 31 December 2009, and income statement, statement of comprehensive income, 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. Directors’responsibility for the financial statements As described on page 27, the Directors are 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 judgement, 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 2009, 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 2009 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 Date: 26 February 2010 Report of the Independent Auditors to the members of Copperbelt Energy Corporation Plc ReportofIndependentAuditorsofthe membersofCEC
  30. 30. 29 COPPERBELT ENERGY CORPORATION PLC 2009 2008 Notes US$’000 US$’000 Revenue 5 154,169 177,486 Cost of sales (111,798) (127,960) Gross profit 42,371 49,526 Other operating income 6 6,132 2,222 Operating expenses 7 (30,697) (34,378) Results from operating activities 17,806 17,370 Finance income 9 1,065 964 Finance expense 10 (1,815) (2,709) Net finance cost (750) (1,745) Profit before tax 17,056 15,625 Income tax expense 11(a) (5,994) (5,385) Profit for the year 11,062 10,240 Other Comprehensive Income: gross gains/ (loss) on cash flow hedges 1,320 (148) Income tax relating to other comprehensive income 11(a) (462) 51 Total comprehensive income for the year 11,920 10,143 Earnings per share Weighted basic and diluted earnings per share (cents) 12 1.19 1.01 Statement Of Comprehensive Income for the year ended 31 December 2009 StatementofComprehensive Income
  31. 31. 30 COPPERBELT ENERGY CORPORATION PLC Share Share Revaluation Retained capital premium reserve earnings Total US$’000 US$’000 US$’000 US$’000 US$’000 Balance at 1 January 2008 As previously stated 100 148 - 45,382 45,630 Prior year adjustment (a) - - - 3,700 3,700 As restated 100 148 - 49,082 49,330 Comprehensive income for the year - - - 10,143 10,143 Dividend paid - - - (16,200) (16,200) Balance at 31 December 2008 100 148 - 43,025 43,273 Balance at 31 December 2008 As previously stated 100 148 - 39,325 39,573 Prior year adjustment - - - 3,700 3,700 As restated 100 148 - 43,025 43,273 Revaluation increase - - 113,080 - 113,080 Comprehensive income for the year - - 11,920 11,920 Dividend paid - - - (10,000) (10,000) Balance at 31 December 2009 100 148 113,080 44,945 158,273 (a) The prior year adjustment is in respect of a prior period error in the computation of the company tax losses in the period since 1 April 2002 which was over stated by US$3.7 million (note 22). (b) Retained earnings are the carried forward recognised income, net of expenses, of the company plus current year’s profit attributable to shareholders. (c) Thesharepremiumrelatestotheexcessamountsreceivedontheissueofsharecapitalnetofpre-incorporation costs. (d) The revaluation reserve represents change in value for Land and Building and PrimaryTransmission Network. Land and Building increased in value by US$9,876,000 following a revaluation by external valuers. Primary Transmission Network increased in value by US$103,204,000 following a revaluation by Internal valuers using Depreciated Replacement costs. The Replacement costs were provided by independent suppliers of the various components of the Primary Transmission Network. Statement of Changes In Equity for the year ended 31 December 2009 StatementofChangesofEquity
  32. 32. 31 COPPERBELT ENERGY CORPORATION PLC 2009 2008 2007 Notes US$’000 US$’000 US$’000 Restated Restated ASSETS Non-current assets Property, plant and equipment 13(a) 236,211 125,395 115,591 Investments in subsidiaries 14 - 3 3 Investments in joint venture 15 2,000 - - 238,211 125,398 115,594 Current assets Inventories 16 3,506 3,443 1,307 Trade and other receivables 17 30,695 33,822 16,372 Cash and cash equivalents 18 2,299 16,314 17,472 36,500 53,579 35,151 Total assets 274,711 178,977 150,745 EQUITY AND LIABILITIES Equity Issued capital 19 100 100 100 Share premium 148 148 148 Revaluation Reserve 113,080 - - Retained earnings 44,945 43,025 49,082 158,273 43,273 49,330 Non-current liabilities Interest-bearing loans 20 32,103 39,262 32,597 Non current trade and other payables 21 13,266 18,800 4,690 Provisions 22 - 3,300 3,300 Deferred employee benefits 23 2,809 1,955 2,093 Deferred tax liability 11(e) 33,413 32,601 32,586 81,591 95,918 75,266 Current liabilities Current portion of interest-bearing loans 20 7,159 7,059 2,703 Trade and other payables 24 24,575 31,491 20,868 Amounts due to related party 25(i) 1,430 - - Tax payable 11(c) 1,683 1,236 2,578 34,847 39,786 26,149 Total liabilities 116,438 135,704 101,415 Total equity and liabilities 274,711 178,977 150,745 The financial statements on pages 29 to 61 were approved by the Board of Directors on 17 February 2010 and were signed on its behalf by: ) H Sindowe ) Director ) ) J Muke ) Director ) ) MTarney ) Director Statement of Financial Position as at 31 December 2009 StatementofFinancialPosition
  33. 33. 32 COPPERBELT ENERGY CORPORATION PLC 2009 2008 US$’000 US$’000 Cash flow from operating activities Profit before taxation 18,376 15,477 Depreciation 9,556 9,197 Interest expense 1,815 2,709 Interest income (1,065) (964) Profit on disposal of assets (89) (53) Cash inflows before working capital changes 28,593 26,366 Decrease/(increase) in trade and other receivables 3,127 (15,501) Increase in inventories (63) (2,136) (Decrease)/increase in payables (5,486) 10,623 Decrease in provisions (4,154) (136) 22,017 19,216 Interest paid (2,297) (2,579) Income tax paid (8,062) (6,265) Net cash inflows on operating activities 11,658 10,372 Investing activities Acquisition of property, plant and equipment (7,332) (6,883) Investment in a joint venture (2,000) - Proceeds from disposals of assets 132 98 Interest received 859 702 Net cash outflows from investing activities (8,341) (6,083) Financing activities Repayment of loans (6,959) (3,979) Loans received - 15,000 Dividends paid (10,000) (16,200) Net cash outflow from financing activities (16,959) (5,179) Net decrease in cash and cash equivalents (13,642) (890) Cash and cash equivalents at 1 January 16,314 17,472 Exchange loss (373) (268) Cash and cash equivalents at 31 December 2,299 16,314 Represented by: Bank balances and cash 2,299 16,314 Bank overdrafts - - 2,299 16,314 Statement Cash flow for the year ended 31 December 2009 StatementCashFlow
  34. 34. 33 COPPERBELT ENERGY CORPORATION PLC 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 financial statements are presented in accordance with IAS 1“presentation of financial statements”(Revised 2007). The company has elected to present the“Statement of Comprehensive Income”in one statement. They have been prepared under the historic cost convention, as modified by the revaluation of financial assets and liabilities at fair value through profit and loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement 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 2009 In 2009, 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: IFRS 2 (amendments) - Share based payments IFRS 3 (amendments) - Consolidated and separate financial statements IFRS 8 - Operating segments IAS 1 (revised) - Presentation of financial statements IAS 16 (amendment) - Property, plant and equipment IAS 19 (amendment) - Employee benefits IAS 21 (amendments) - Borrowing costs IAS 27 (amendments) - Consolidated and separate financial statements IAS 31 (amendments) - Interest in joint venture IAS 32 (amendments) - Financial instruments Presentation IAS 36 (amendments) - Impairment of assets Notes to the Financial Statement - 31 December 2009 NotestotheFinancialStatement
  35. 35. 34 COPPERBELT ENERGY CORPORATION PLC 2. Principal accounting policies (continued) (a) Basis of presentation (continued) (ii) Interpretations to published standards that are not yet effective and have not been early adopted by the company: The following new interpretations 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 or are not relevant for the company’s operations: Standard or Interpretation Effective for reporting periods starting on or after IFRS 5 Non current assets held for sale and discontinued operations (amendments) 1 July 2009 IFRIC 16 Hedges of a net investment in a foreign Operation (amendments) 1 October 2009 (iii) 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 2010 or later periods or are not relevant for the company’s operations: Standard or Interpretation Effective for reporting period starting on or after IAS 1 Presentation of financial statements (amendments) 1 January 2010 IAS 7 Statement of cash flows (amendments) 1 January 2010 IAS 17 Leases (amendments) 1 January 2010 IAS 39 Financial instruments (amendments) 1 January 2010 IFRS 8 Operating segments (amendments) 1 January 2010 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 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. Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement
  36. 36. 35 COPPERBELT ENERGY CORPORATION PLC 2. Principal accounting policies (continued) (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. 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. Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement
  37. 37. 36 COPPERBELT ENERGY CORPORATION PLC 2. Principal accounting policies (continued) (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 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 debtors 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. Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement
  38. 38. 37 COPPERBELT ENERGY CORPORATION PLC 2. Principal accounting policies (continued) (d) Financial assets (continued) 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. 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; • 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 Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement
  39. 39. 38 COPPERBELT ENERGY CORPORATION PLC 2. Principal accounting policies (continued) (e) Impairment of assets (continued) (i) Financial assets carried at amortised cost (continued) 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 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 Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement
  40. 40. 39 COPPERBELT ENERGY CORPORATION PLC Principal accounting policies (continued) (f) Inventories (continued) 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. 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. Notes to the Financial Statements - 31 December 2009 (Continued) NotestotheFinancialStatement