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Copperbelt Energy Corporation Plc 2013 Annual Report

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Copperbelt Energy Corporation Plc 2013 Annual Report

Copperbelt Energy Corporation Plc 2013 Annual Report

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  • 1. 2013 Annual Report Copperbelt Energy Corporation PLC & its Subsidiaries
  • 2. CEC and its Subsidiaries Statement from the Executive Chairman Report from the Managing Director - Operations Report from the Chief Financial Officer Reports from the Subsidiaries Kabompo Hydro Power Project Report Corporate Responsibility Report Power Dynamos Football Club Consolidated Financial Statements for the year ended 31 December 2013 Directors & Management CONTENTS 2 6 10 14 18 32 36 38 40 110 PG2 PG9 PG36 PG38 PG110
  • 3. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES4 CEC & ITS SUBSIDIARIES The Copperbelt Energy Corporation PLC (CEC) is an independent power transmission and distribution company with interests in closely linked businesses in Zambia and the African region, including optic fibre based telecommunications. A member of the Southern African Power Pool and listed on the Lusaka Stock Exchange, CEC has a deep insight into the mining industry, enabling it to provide quality electricity and other power products and services to the majority of the mines in Zambia. Well positioned as a developer of energy infrastructure in Africa and respected in the region for its skills in designing and operating transmission systems, CEC is an emerging independent power generating company, with some strategic generating projects in the pipeline. • Over 50 years of experience in supplying power to the mines • Circa 1,000 kilometres of 220kV and 66kV transmission lines • 540 kilometres of optic fibre on power lines • 41 High Voltage substations and dedicated control centre • 80MW embedded thermal generation • Power transmission for national utilities – Zambia and Democratic Republic of Congo (DRC) • Owns Zambian part of the Zambia – DRC Interconnector line • Accounts for over 50% of power consumed in Zambia
  • 4. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 5 A joint venture between CEC and Realtime Technology Alliance Africa (RTAA), Realtime Zambia is an internet service provider, focused on the niche market of corporate customers. Its core business comprises provision of high speed internet services and private leased circuits using optic fibre technology. Realtime has been operational in Zambia for more than a decade, while RTAA, its 50% parent, has operated in the sub-Saharan African region for more than 30 years. Realtime Zambia has successfully implemented ICT connectivity projects from design to operation using the national and metropolitan fibre loops. Realtime has become the largest optic fibre network provider in Zambia and is connected to submarine fibre cables that connect the rest of the world. Realtime Zambia’s Unique Value Proposition • Trust • Client relationship • Abilities • Accountability • Availability • Uniqueness CEC Liquid Telecom owns and operates a national long haul broadband fibre based backbone from Chirundu to Kasumbalesa. Its business is the provision of competitive high quality product services through wholesaling of national and international fibre bandwidth capacity, terrestrial internet bandwidth and lease of dark fibre for both short and long haul, locally and internationally, and with access to submarine fibre cables. CEC Liquid Telecom’s market segment is in wholesale. The infrastructure is neutral and operated in a non- exclusive manner in Zambia, Zimbabwe, Lesotho, Botswana and South Africa. CEC Liquid Telecom is a joint venture company of CEC and regional fibre infrastructure builder and operator, Liquid Telecommunications of Mauritius. It has become the preferred wholesale broadband connectivity telecommunications company both at national level and within the region.
  • 5. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES6 CEC & ITS SUBSIDIARIES CEC Africa Investments Limited CEC Africa Investments Limited (CEC Africa) is an investments holding company established to develop, finance and operate power infrastructure projects across sub-Saharan Africa. A Pan-African power assets developer, CEC Africa provides access to an African power platform with attractive assets across sub- Saharan Africa and has a strong pipeline of both green field and brown field power projects in development across Africa. Riding on the opportunity presented by Africa’s significant infrastructure deficit and growing investment interest for infrastructure in Africa, CEC Africa offers an attractive investment vehicle in Africa’s energy infrastructure sector. CEC-Kabompo Hydro Power Limited CEC-KHPL is a special purpose vehicle, wholly owned by CEC, created to develop the Kabompo Gorge Hydropower Project, the Company’s forerunner in greenfield hydroelectric power generation. CEC-KHPL is developing the project the basis of a Build-Own-Operate (BOO) concession from the Government of the Republic of Zambia. The project is the first to be located and developed in the North-Western part of the country and will have a stabilizing effect on the grid. Commercial operations are expected to be achieved within 2017.
  • 6. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 7
  • 7. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES8 STATEMENT FROM THE EXECUTIVE CHAIRMAN Hanson Sindowe
  • 8. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 9 2013 presented a real opportunity for the business to grow and step into unchartered waters with focus and determination, executing focused acquisitions and proving the caliber of a strong and experienced management team, and a winning, resilient and innovative culture that has backed the evolution of the business over the years. From a single entity in 1997, the Copperbelt Energy Corporation PLC (CEC) has transformed into a group entity with four subsidiaries. The transformation was wrought through strategic decisions in key areas that we have taken over the years. Those decisions have driven this change and will continue to drive growth and to create better outcomes for our investors, customers and the economies of the countries where we are investing. The results presented in this report cover four companies; being CEC PLC (the Company), Realtime Technology Alliance Africa Limited (Realtime Zambia), CEC Liquid Telecommunications Limited (CEC Liquid) and CEC Africa Investments Limited (CEC Africa); that presently make up the Copperbelt Energy Group (the Group). The CEC Group is on an expansion drive across Sub-Saharan Africa; set on its vision to pioneer Pan-African investments in energy and telecommunications. I am pleased to say that we continue to maintain the pace for reliable growth as a business due to the leadership’s demonstrated ability for delivering short-term commitments while balancing that with long-term growth investment decisions. CEC PLC Safety, Health and Environment We continue to derive encouragement and pride from our safety record, which has stretched three years, equivalent to 3.86 million hours, without a system injury resulting in lost work or productive time. This achievement has not occurred in a vacuum or without conscious effort but is rather an outcome of concerted efforts to change and shape the thinking, culture and approach to work in relation to safety in a way that staff and contractors alike are every time aware of the safety demands in their environment. This is not a one-time action but a continuous process that involves on-going training of staff, sensitization of communities and monitoring of processes and actions. Performance in both reactive and proactive SHE parameters was satisfactory and within set limits or above target except in three of these parameters; being departmental safety meetings, dangerous occurrences and road traffic accidents (RTAs). The sticking point, similar to 2012, was the number of RTAs recorded during the reporting period. Ten against a target of four is undeniably high and several measures have been put in place to ensure a shift from statistics that mar an otherwise commendable record. These measures include refresher driver training, intensified vehicle fleet monitoring, incorporation of road safety education in toolbox safety talks and road safety sensitization workshops. I am hopeful these and other interventions will produce notably positive changes, which will manifest in the coming periods. Financial Performance CEC Group consolidated revenue for the year ended 31st December 2013 was K1,706 million, a 26% increase over 2012 income (K1,359 million). Earnings per share rose over 100% to K0.46 compared to a 10% increase to K0.11 in 2012. Net earnings of K458 million give a return on equity of 18%, which is 50% higher than in 2012. This growth was mainly due to the one-off gain of K716 million on CEC Africa’s acquisition of assets in Nigeria. Our companies continued to perform well in 2013, with revenues attributable to Realtime Zambia increasing 17% from K33 million in 2012, while its net earnings increased by about 26% over the previous period. CEC Liquid equally posted increased revenues of K58 million against K39 million in 2012. Revenue of the Company increased by 8% ti K1,332 million. The copper price was not at its most buoyant in 2013 and teetered to find stability for the most part as did the global economy, generally. Seen in the context of the business, whose transmission and distribution operations are largely dependent on copper mining, we have demonstrated once more that the Company can perform even in uncertain circumstances. Our customers held steady and proceeded with their expansionary undertakings. The Company’s policy with respect to payment of dividends to its shareholders is a matter determined by the board in accordance with certain financial parameters. Since listing on the Lusaka Stock Exchange in 2008, CEC has declared and paid out dividends twice a year every year except for the year under review where a single dividend (K20 million) was paid out in April, owing to the need for cash investment into the various investments undertaken during the year. These investments are covered in the pertinent reports within this Report suffice to mention that during the year, we welcomed to the Group two entities acquired through CEC Africa in the Nigerian power privatisation process – Abuja Electricity Distribution Company and North South Power, which holds the Shiroro Hydropower concession. Cash injections in respect of the Kabompo Gorge Hydropower Project under development through CEC-KHPL also continued during the year as we did for the various organic investments under implementation. Clearly, these investments have created an imperative for the Company to raise capital from both debt and equity. Our focus, as we make the various investments, remains achieving a balance between dividend growth and capital growth, and we want investors to see the Group as a safe, long-term investment that is delivering long- term growth. We are intent on making investors view the Group in the context of the choices we make for purposes of creating value over the long haul. CEC PLC Board Operation Three directors exited the board during the year and were replaced by equally competent and experienced members, who have brought the necessary value to the board.
  • 9. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES10 Neil Croucher, who served as Managing Director - Operations left the Company to join AEDC in Nigeria in August 2013 while Hampande Hachongo, a ZCCM- IH representative, was replaced by Mildred Kaunda. The special shareholder also changed its representation on the board with Charity Mwansa, as Permanent Secretary in the Ministry of Mines, Energy and Water Development, replacing George Zulu who has moved to another ministry. I wholeheartedly thank the members that have left the board for the invaluable contributions made during their tenure and wish them well in their future endeavours. Each of the new directors possesses valuable experience that the board and the Company will no doubt benefit from. Outlook Globally, renewables and smart energy should be expected to be a recurring theme in 2014. A lot more attention is beginning to be paid to possibilities for developing and exploiting renewable energy sources in Zambia and we will be keenly watching and getting involved in that space. We are particularly eager to develop identified solar power opportunities going into the next period. Energy prices should trend upwards as the case supporting that movement is very strong, not least for the continued economic viability of commerce and industry in the country. Cheaper energy sources across and off the grid are not likely to be attainable just yet owing to the fact that the country is starved of and is seeking to attract investment in this key economic area. However, improved efficiencies at all consumption levels should contribute to better management of the country’s supply-demand gap amid actual and anticipated introduction of additional generation from both independent and state producers. CEC will continue on its growth trajectory, consolidating its position by allocating capital in a balanced and disciplined manner by investing in opportunities that are at the core or closely related to our core. We do not take leave of ensuring we acquire and invest in the right human and technological capabilities to drive and support this growth. We will also be looking to create deeper customer relationships, aligning our service and product offerings with our customers’ expectations so as to improve their productivity. We view ourselves as a responsive supplier and it remains in our interest to anticipate customer requirements and help improve their outcomes. We look forward to the next financial year with anticipation. Investments made in 2013 will begin to contribute to Group earnings even as we pursue other opportunities. Overall, we remain committed to working on behalf of the Group’s investors. Hanson Sindowe Executive Chairman >>> STATEMENT FROM THE EXECUTIVE CHAIRMAN
  • 10. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 11
  • 11. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES12 REPORT FROM THE MANAGING DIRECTOR -OPERATIONS Owen Silavwe
  • 12. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 13 The electricity market environment in the year under review was characterised by a number of opportunities and indeed challenges. Deficits on the supply side, which had begun to manifest earlier in 2012, continued as the country sustained significant demand growth rates; mostly driven by increased mining activities. This situation persisted for the most part of the year as demand remained higher than supply. The supply gap threatened system security as it occasionally precipitated a low voltage challenge on the power system, necessitating load management as a critical tool under the circumstances to manage and stabilise the system. This situation, however, drastically improved towards the end of the year when the demand- supply balance took a positive turn with the commissioning of the 50MW HFO plant by Ndola Energy Company and a portion of the Kariba North Bank extension project by ZESCO. The power situation was mirrored at regional level across the majority of the Southern Africa Power Pool (SAPP) as generally, demand continued to surpass supply. While this created regional power trading opportunities, inadequate generation capacity in the region and transmission constraints ensured that CEC could not fully supply the possible addressable regional market. It is worth noting that in most cases, affected customers resorted to more expensive on-site distillate generation. Despite the above challenges, I am happy to report that the company fulfilled its mandate of sustainably operating and investing in power infrastructure so as to deliver a reliable and efficient service to its customers, contributing to the social and economic development of Zambia and delivering enhanced shareholder value. The Company’s key business activities included power supply to its mine customers, domestic wheeling or transportation of power on behalf of ZESCO Limited (ZESCO), and international wheeling and power trading. Safety, Health and Environment Stewardship (SHE) In keeping with the Company policy of SHE first, our safety performance continues to be maintained at satisfactory levels. The Company extended the man hours without a power system related lost-time accident (LTA) from 2.98 million at the end of 2012 to 3.86 million at the end of 2013. The last system based LTA was recorded in December 2010. This is an important achievement as the Company has now gone three consecutive years with no lost time due to system caused injury. This achievement reflects the importance that CEC places on SHE matters in its pursuit to achieving a world class culture of SHE excellence. The main contributing factors to this achievement were risk assessments and toolbox safety talks aimed at proactively addressing task specific safety concerns in advance of commencing the work tasks in addition to good housekeeping assessments, community and public high voltage awareness programmes in areas where CEC infrastructure is located, SHE visibility tours and SHE training/ inductions. The one blot on an otherwise remarkable record was the unfortunate occurrence at our Kabompo project site in April, where a Sinohydro Corporation Limited (the EPC contractor) employee died. Although, the Contractor is responsible for safety, health and environment at the project site, CEC recognizes that overall, the performance of its contractors is the Company’s responsibility. In order to enhance compliance, CEC has strengthened SHE procedures at site and a SHE committee comprising CEC and Sinohydro Corporation senior staff has been set up to oversee all SHE matters at site. Environmental Stewardship CEC continued to monitor all regulated sites in relation to various environmental aspects including air emissions, transportation/disposal of non-hazardous waste, and generation/ storage and transportation of hazardous waste. CEC achieved 100% compliance with statutory emission limits for the emergency power plants and all other requirements for reporting. Further, mandatory regulatory approvals for various projects were secured. The Company is also proud to report on its sponsorship of a tree planting exercise that took place at various locations in Kitwe and Luanshya as a pre-World Environment Day activity. CEC considers this an important sustainability undertaking, which it is committed to carry forward. Power supply to mine customers Meeting the increasing power needs of our mine customers remains a top objective of the business. In 2013, we saw further increases in the power volumes demanded by mine customers and our forecast, based on planned expansionary and new mine projects, is that demand growth by this customer category will continue over the next five years. It is, therefore, important that we continue to reassess our strategies to enable us continually meet this increasing demand.
  • 13. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES14 In the year under review, power purchases from ZESCO under the bulk supply agreement (BSA) were pivotal in meeting supply requirements of our mine customers under the various power supply agreements (PSA). Our extensive power supply infrastructure on the Copperbelt, which extends into the premises of each of our mine customers, provides a robust platform to ensure the Company is able to consistently deliver on this critical objective. During the year, the Company added China Copper Mine (CCM) to its portfolio of mine customers, which now includes the following: a. Konkola Copper Mines Plc (KCM) b. Mopani Copper Mines Plc (MCM) c. NFC Africa Mining Plc (NFCA) d. CNMC Luanshya Copper Mines Plc (CLM) e. Chambishi Metals Plc (CMP) f. Lubambe Copper Mines (LCM) g. Chibuluma Mines (CMP) h. China Copper Mine (CCM) Annual power sales to the mine customers totalled 4,281GWh compared to 4,044GWh in 2012. This represents a year-on-year increase in energy sales of about 6%. Expectedly, average capacity sales to the mine customers also posted a robust performance as they increased to 554MW in 2013 from the 527MW recorded in 2012. The copper price was closely watched by all stakeholders as it remained under pressure for the most part of the year due to slower global economic growth. The annual average copper price, which hovered around USD7,300 compared to an average of about USD8,000 in 2012, was still above the marginal production cost of most of the mines on the Copperbelt; therefore, little or no price- related impact was recorded on mine operations. Overall, the copper price generally held off from further potential weakening, consistent with the global economic performance which avoided a further slowdown. On the technical front, the challenge of occasional low voltages on the power network, which initially surfaced in 2012 continued for the large part of 2013 due to soaring demand both on the Copperbelt and the country in general. A number of strategies have been deployed to ride through this challenging period before commissioning of on-going new generation projects. These include load management requiring all customers to contribute possible curtailable loads especially during peak periods and full deployment of all available voltage support equipment on the system. All mine customers have been called upon to implement power factor improvement projects to comply with power factor requirements in the PSAs. Improved power factors will contribute to improved voltage performance of the power system. On a positive note, towards the end of the year, the situation significantly improved as the planned 50MW HFO plant by Ndola Energy Company and one 150MW generator, which is part of the Kariba North Bank extension project by ZESCO, were commissioned. Unfortunately, further occasional voltage fluctuations were experienced on the power system during the year. These emanated from the wider interconnected system, in particular the Democratic Republic of Congo (DRC), which is facing a considerable supply gap and causing system operation stability issues in that country with some of the effects being felt in Zambia. These operational problems, at times, dictated the opening of the interconnector between the two countries to preserve system integrity but more importantly, called for much closer engagement with SNEL (the national utility of the DRC) in order to resolve the challenges. The consistent engagement of SNEL resulted in the fast-track commissioning of a static var compensator (SVC) on the SNEL system. This sophisticated piece of equipment with flexible operating characteristics has been instrumental in providing relief to some of these challenges while a more disciplined operational regime was also put in place by the parties before the end of 2013. Domestic wheeling Domestic wheeling remained largely steady during 2013. Energy volumes of 1,545GWh recorded in 2013 equal quantities wheeled in 2012. The continued load shedding of domestic customers, which formed part of the load management programmes during the year, ensured little prospects for growth in this area. It is, however, evident that with the number of housing and commercial projects taking place around the Copperbelt, reasonable growth potential can be expected from this activity in the near future. International wheeling and power trading Volume energy sales under international wheeling improved considerably, up 27% from 577GWh in 2012 to 730GWh in 2013. This increase is mostly attributed to the re-opening of Frontier mine, which returned to commercial operations following its acquisition by ENRC. Of the total of 730GWh, Frontier mine accounted for 155 GWh while the rest was SNEL’s direct uptake from regional sources. A total of 85GWh was sold under the international power trading activity where CEC supplies power from regional sources through SNEL to mining companies in the DRC. This activity started towards the end of 2012 when 67GWh of trade was recorded and if unhampered by wheeling constraints through the Zambian system, further growth can be expected in traded volumes. Asset Management As we have previously reported, a significant proportion of the Company’s electrical infrastructure is relatively ‘aged’ as it includes equipment that has been in service for over 30 years. In this regard, CEC’s asset management strategies focus on all aspects of managing these assets from a far reaching perspective on ageing and its impact on the system’s performance to reliably meet customer needs. The Company continues to fund sufficient capital required to enhance asset management processes and procure replacement units for all equipment due for replacement on the basis of a 10 year rolling capital plan. Notably, in 2013, the Company implemented a state-of-the-art computerized maintenance management system and invested in a transformer oil regeneration plant that will give CEC the ability to restore oil characteristics before it reaches full deterioration. Commensurate with determined requirements, asset replacements were implemented for various pieces of equipment including transformers, circuit breakers and protection, control >>> MANAGING DIRECTOR’S REPORT- OPERATIONS
  • 14. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 15 and metering equipment. This on-going programme is being strictly followed to ensure sustainable delivery on the Company’s mission of providing reliable and seamless power supplies. Organic Growth Projects In the period under review, the mining industry continued to grow through establishment of new mines and expansion of existing mining operations, which will not only result in demand growth but will also substantially extend mining life. Mopani Synclinorium Project (MSP) This project, which commenced late in 2012, saw the first of the required power infrastructure being commissioned in the fourth quarter of 2013. The project involves expansion of the existing Nkana substation in Kitwe by installation of an addition of 3 x 30MVA 66/11kV transformers in order to service the new demand due to the installation of a new deep shaft and associated plants by Mopani Copper Mines. Two of the new transformers and associated equipment were commissioned in the period under review while the third transformer was commissioned in the first quarter of 2014. China Copper Mine (CCM) Project The project, which involved construction of a 66kV transmission line and a 66/11kV substation was, commissioned during the year. CCM will extract copper from the Fitula dumps in Chingola by way of heap leach process. When in full operation, the mine is expected to uptake up to 6MW. NFC South East Project This important project by NFCA involves the establishment of a new underground copper mine and associated processing operations at the former Mukulumpe Farm. On the power side, the project scope involves construction of a 220/11kV substation and two 10km 220kV transmission lines. Project works in respect of the substation commenced in 2013 and considerable progress has been achieved. Contract negotiations for the transmission line package are in progress alongside processing of statutory approvals for the resettlement plan for the affected persons in the transmission line route. The project is scheduled to be completed at the end of 2014 and when in full commercial operation will require about 45MW. Upgrade of CEC Supply points to ZESCO Working with ZESCO, CEC is in the process of upgrading a number of its supply points to ZESCO to meet increasing demand by ZESCO customers on the Copperbelt. In the period under review, works to upgrade Luanshya Munic substation commenced while similar works for Kabundi and Dola Hill substations were at design phase. Second Zambia-DRC Interconnector Project This project is intended to expand the capacity of the interconnector between Zambia and the Democratic Republic of Congo. Preliminary works commenced during the year though the full scope of the works is expected to commence by the end of quarter two 2014 as contractors for both transmission line and substation works mobilise. Owen Silavwe Managing Director - Operations
  • 15. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES16 REPORT FROM THE CHIEF FINANCIAL OFFICER Irene L. Chibesakunda
  • 16. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 17 The Group experienced significant change in its financial performance, most of the changes being attributed to the incorporation of CEC Africa Investments Limited (CEC Africa) and its investment in Nigeria. The impact has mainly been positive on the Group performance. The Group‘s financials have been prepared in the rebased Zambian Kwacha, the functional currency for the year 2013. The CEC Africa financials have been translated from both United States Dollars (USD) and Nigerian Naira. The Group’s total revenue increased by 26%, from K1,359 million to K1,706 million. The increase was mainly due to the K253 million revenue from CEC Africa and the 80% increase in telecoms revenue, against an increase of 8% in electricity revenue. However, the Group’s cost of sales increased by 41% resulting in a reduction in the Group’s gross profit from K383 million in 2012 to K336 million. This reduction was further compounded by a 24% decline in other income and 81% increase in operating costs. The increase in operating costs was mainly due to a rise in staff costs at Group level (48%); higher Group audit fees; provision for bad debts and Group project costs. However, the Group operating loss of K116 million was mitigated by a one- off gain of K716 million on CEC Africa’s purchase of the assets in the Abuja Electricity Distribution Company (AEDC). As a consequence, the Group net profit increased from K158 million in 2012 to K600 million in 2013. The Group’s finance costs increased from K332 thousand in 2012 to K43 million in 2013. This increase was due to the financing costs relating to the borrowing by The Group for investment. The Group’s total assets grew from K1,606 million to K4,661 million. This growth was mainly on the acquisition of the transmission and distribution assets of AEDC (K2,442million). The Group has increased its return on equity to 18% (2012: 12%); return on assets at 10% (2012: 7%) and Earnings per share of K0.46 (2012: K0.11). Irene L. Chibesakunda Chief Financial Officer
  • 17. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES18 >>> REPORT FROM THE CHIEF FINANCIAL OFFICER REVENUE K’000s 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2011 2012 2013 GROSS PROFIT K’000s 450 400 350 300 250 200 150 100 50 0 2011 2012 2013 Profit before Interest and Taxes K’000s 700 600 500 400 300 200 100 0 2011 2012 2013
  • 18. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 19 EARNINGS PER SHARE K’000s 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0 2011 2012 2013 RETURN ON EQUITY K’000s 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2011 2012 2013
  • 19. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES20 CEC Africa Investments Limited (CECA or CEC Africa) was incorporated as an investment holding company on 07 February 2013. The company holds a Category 1 Global Business Licence under the Mauritius Companies Act and is governed by the Financial Services Act 2007. The principal activity of CEC Africa is to operate as an investment holding company. Its primary focus is to develop and operate power projects in Sub-Saharan Africa, covering the full value chain in the power sector – Distribution, Transmission, Generation (both hydro and thermal) and renewable energy. The Company will consider investment in projects at different stages of development, ranging from greenfield generation projects to the acquisition of operating assets that may be available for sale through privatization or sale by private equity investors. During the year, the company made two investments in the Nigerian power sector as part of the first phase of the Nigerian power sector privatization, and made significant progress in developing three other projects – two generation projects in Namibia, and one in Sierra Leone. Each of these projects is described below. CEC Africa also intends to support the project development activities of its parent, company CEC PLC, in the development of hydro and transmission projects in Zambia. CEC Africa is an active investment company, and seeks to identify projects where it can provide operational and management services and leadership with respect to governance, operational efficiency, selection and training of competent business unit managers and employees and the establishment of policies and procedures with respect to social, safety, health and environmental management that are consistent with international best practice. Given the highly capital intensive and developmental nature of the power sector in Sub-Saharan Africa, CEC Africa has developed close links with Multi- Lateral Banks and Development Finance Institutions that typically provide the debt required for the development of projects (typically around 70% of the overall project cost). Equally important are relationships with commercial banks active in the African economies in which CEC Africa operates. UBA Plc of Nigeria provided acquisition finance for KANN Utility to acquire Abuja Electricity Distribution Company (AEDC), Zenith Bank of Nigeria provided acquisition finance for North South Power to acquire the Shiroro hydro concession and Standard Bank of South Africa provided bridge finance and advisory services to facilitate the initial capitalization of CEC Africa through shareholder loans from CEC PLC. At 31st December 2013, CEC Africa had only one shareholder in CEC PLC. However, a process had commenced to identify and negotiate with other investors to subscribe for equity and/or shareholder loans in the company. REPORTS FROM THE SUBSIDIARIES MICHAEL J. TARNEY CEC AFRICA MANAGING DIRECTOR
  • 20. KANN Utility Company Limited / Abuja Electricity Distribution Company Limited (‘AEDC’) KANN Utility is a Joint Venture between CEC Africa and XerXes Global Investments Limited of Abuja. The two partners joined together to bid for a controlling interest in AEDC in 2011, ultimately submitting a bid in July 2012 and being declared preferred bidder in October 2012. In accordance with the bidding rules, payment was made to the Bureau of Public Enterprises (BPE) in accordance with a Share Sale Agreement of USD41 million in March 2013 and USD123 million in August 2013 (total USD164 million). KANN Utility took over operational control of AEDC on 1st November 2013, and has since proceeded to implement the business plan submitted to BPE at the start of the bidding process. Key aspects of the business plan include: • Reduction of Aggregate Technical, Commercial and Collection losses; • Rehabilitation of the network; • Implementation of modern metering, billing, vending and enterprise management systems; • Investment in customer service centers; • Improvement in environmental, health and safety performance; • Network expansion. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 21
  • 21. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES22 Structuring of Acquisition The total amount payable for the 60% share acquisition was USD164m of which USD122m was provided by UBA Plc through a 7 year acquisition debt facility, which is guaranteed by CEC Africa. CEC Africa has funded the following amounts, and incurred the following liabilities with respect to KANN Utility: USD41m loan in March 2013 from CEC Africa to KANN Utility USD23m loan in August 2013 from CEC Africa to KANN Utility USD28m loan in May 2014 from CEC Africa to KANN Utility Guarantee of the outstanding obligations to UBA Plc under the USD122.8m Facility Agreement Project Development Costs and interest of approximately USD20m The distribution network in the Abuja Federal Capital Territory (FCT) is relatively modern, with a significant proportion of the circuits being underground cable. The other areas in the distribution zone, however, are dominated by long lines at relatively low voltages of 33kV, resulting in appreciable technical losses. A significant portion of the power is delivered through unmetered connections. This means that billing is estimated in many cases and there is a dearth of specific loss related data. The AEDC distribution zone covers 133,014km² with a population of 10.5 million people in 2.3 million households. There were approximately 614,000 customers at the point of takeover in November 2013, which places the electrification rate at about 27%. Approximately 80% of the power consumed in the AEDC distribution area is consumed in the Abuja FCT. The Aggregate Technical, Commercial and Collection losses at the point of takeover were 52.8%. AEDC has been issued with a distribution license by the regulator, which expires in 2028. The Transition Electricity Market (TEM), a mode of market operation devised by the regulatory authorities, including the Nigerian Electricity Regulatory Commission (NERC), is yet to commence; therefore, the entire electricity market is operating under the interim rules, which were drafted by the regulator awaiting fulfillment of the conditions precedent to commencement of the TEM. Under these rules, Key: DSR means Debt Service Reserve, DSRA means Debt Service Reserve Account, [Equity**] was equity falling due 6 months following financial close on 21st August 2013 >>> MANAGING DIRECTOR’S REPORT- CORPORATE DEVELOPMENT 60% Equity 40% Equity USD164m Equity Contribution Guarantor USD121.8m USD12m USD28m CEC Africa 75% XERXES 25% Bureau of Public Enterprises Ministry of Finance Abuja Disco DSRA UBA KANN Sources Uses Debt 121.8 Shares 164 Equity 81.4 DSR at FC 12 Equity** 28.0 DSR at 6 28 months Costs 27.2 231.2 231.2
  • 22. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 23 AEDC officially receives 11.5% of the national generation to serve its market, although there has been a recent trend for AEDC to receive a higher allocation. CEC Africa provides management and operations services to AEDC to drive the business plan and ensure that the performance targets set in the business plan and performance agreement with the Federal Government of Nigeria are achieved. CEC Africa has seconded the executive management of AEDC. Other technical and operational services, including the change management and business reengineering process will be provided by CEC Africa. A high level summary of the AEDC business model is shown below: GOVERNANCE SUPPORTING PROCESSES SUPPORTING SYSTEMS PURCHASE ENERGY RETAIL PLANNING NEW CONNECTIONS REVENUE MANAGEMENT CUSTOMER INTERACTIONS
  • 23. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES24 North South Power Limited (NSP) / Shiroro Hydro Concession (Shiroro) In August 2013, CEC Africa subscribed for 20% equity in NSP through its subsidiary, CEC Lenux Limited, for a consideration of USD23m. Acquisition finance facilities for the acquisition were secured through Zenith Bank of Nigeria, and the amount outstanding on the Zenith loan at 31st December 2013 was Naira 11.1 billion (USD69m). Details of Concession NSP has a 30 year concession to operate the 600MW Shiroro Hydro Power Plant, located about 65km North-East of Minna, in the Niger State of Nigeria. Commissioned in 1990, it remains Nigeria’s newest hydroelectric power plant and provides about 15% of grid connected and available generation capacity in Nigeria at the current time. The hydro plant was officially taken over by NSP on 1 November, 2013. There are performance obligations on NSP in the concession agreement, which include maintenance of 600MW capacity during the concession period. The company is also obliged to investigate capacity enhancement measures. NSP has appointed a management team, supervised by a Management Committee of the Board. CEC Lenux has seconded a technical director, an operational finance manager and a compliance and quality officer to NSP. The management team has so far assessed the status of the plant and established appropriate technical, commercial and compliance processes for the plant to operate in the new Nigerian Electricity Supply Industry. A business process reengineering process is underway to re-focus the organization going forward. Capital expenditure of approximately USD50m is anticipated within the first 5 years to upgrade the existing plant, and additional projects to enhance the capacity of the plant and develop additional renewable energy resource in the Shiroro environment are being considered. Details of Shiroro Hydroelectric Plant The dam across the Shiroro gorge is a concrete face rock fill (CFRD) dam with a crest length of 700m rising 125m above the original river bed. The width of the dam at its toe is over 300m, whilst its crest accommodates a 7.5m wide service road. The plant has an installed capacity of 600MW from four generating units rated at 150MW each at a head of 97m. Each unit comprises of a vertical Francis type hydraulic turbine controlled by an electro hydraulic governor system. The turbine drives a synchronous generator of salient pole construction having a net output of 150MW. Power is generated at a voltage level of 16kV. A generator steps up the voltage to 330kV for connection to the national grid via a 330kV switchyard. The reservoir was capable of 7 billion cubic metres of water when constructed, and the annual power generation in 2011 was 2,700 GWh. A 44m x 15m x 60m high reinforced concrete tower for the power intake is located on the right bank in the proximity of the spillway structure. The four inlets are 5.5m wide and 10m high and transition into four steel lined penstocks, which are 6.3m in diameter and have an approximate length of 300m each, finally conveyed to the turbines in the Power House. There is also a 1.5m diameter water release outlet to maintain the environmental flow requirements when the turbines are not operating. The intakes are controlled by means of gates operated by an overhead crane located on top of the Intake Tower.
  • 24. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 25 Kudu Power Project The Kudu Power Project is an 800 – 1050 MW gas-to-power project being developed in the South-West of Namibia at Uubvley, a coastal township, approximately 25km north of Oranjemund. The gas for the project will be sourced from a new gas field to be developed 170km offshore and will be supplied by the Kudu Upstream Consortium comprising the following companies: • NamCor (State owned Oil company) – currently it has a stake of 54%; • Tullow Kudu, a subsidiary of Tullow Oil of the UK (31%); • Itochu of Japan through a subsidiary Cieco E&P Limited (15%). The project is strongly supported by the Government of the Republic of Namibia (GRN), which regards it as a strategic development whose success would trigger interest from oil majors to carry out extensive exploration for oil and gas in Namibian waters. Official Photo from Signing of Joint Development Agreement for Development of Kudu Gas-to-Power Project on 7th February 2014 Power Project Structure The Kudu Power Project is one of three distinct but interrelated projects; • development of the offshore Kudu Gas Field; • development of the gas fired Kudu Power Station project; and • transmission integration into the Namibian grid. The Gas Field development is estimated to cost USD1.3Bn. The Power Station development is estimated to cost USD1.2Bn, 70% of which is planned to be funded through debt. Expansion of the transmission network in Namibia, Zambia and South Africa will be required in order to evacuate the power from the project. NamPower will be the lead developer and investor in the power project with a majority shareholding of 51%. In addition to NamPower and CEC Africa, an additional investor with experience in operations and maintenance of gas generation projects is being sought. NamPower will sign a PPA with Kudu Power and will be the off-taker of all the power from the Kudu Power Station of which 400MW is for consumption in Namibia. Out of the 400MW balance, 300MW will be sold to CEC PLC through a Power Export Agreement (PXA) and the remaining 100MW is expected to be exported to Eskom of South Africa through a similar PXA arrangement. The power generated will be a combination of base load and mid-merit power. The CEC Group will participate in the project on two levels, namely, as an off-taker (through CEC PLC) and equity holder (through CEC Africa). CEC PLC will purchase 300MW on a long term basis (15 years) and CEC Africa will hold 30% equity in the project. The CEC Africa equity contribution to the project is expected to be around USD112m, with a possible requirement to provide additional guarantees to ensure completion of construction of the project.
  • 25. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES26 Arandis Power The project comprises the construction of a hybrid thermal and renewable generation plant in the town of Arandis in Namibia. The thermal plant consists of 120MW generated by reciprocating diesel engines using Heavy Fuel Oil, with associated fuel storage and processing facilities. The renewable component comprises 20MW of solar generation situated on the same site. The project has secured land rights, and an appropriate generation license from the Electricity Control Board. Power Purchase Agreement (PPA) negotiations with NamPower have progressed to an advanced stage, based on a 20 year off- take agreement. CEC Africa Sierra Leone CEC Africa SL Generation Limited – a consortium comprising CEC Africa and TCQ Power Ltd, signed a PPA with the Government of Sierra Leone on the 14th of May 2014. The PPA, which governs the terms of investment in a power generation plant and the provision of the generated power to Sierra Leone, was ratified by the Parliament of Sierra Leone on 29th May 2014. The project is expected to be one of the largest private sector investments in Sierra Leone to date. It consists of the building and operation of a 128MW power plant over a concession period of 20 years. The project will be built over 3 phases with the first 50MW coming online at the end of 2015. The second phase (consisting of 39MW) will come online 18 months after the completion of phase 1, whilst the final phase (also 39MW) will come online 18 months after phase 2. The project is being conducted to the highest international standards, which require due care to be exercised to minimize environmental and social impacts, both in the construction and operation phases of the project. To this end, the consortium has already begun the environmental and social impact assessment studies. The process of detailed design of the plant has also commenced and the tender process for the project engineering, procurement and construction contract is planned to be launched in June 2014. Financing Strategy for CEC Africa CEC Africa seeks to provide equity financing for projects, with the debt financing being provided on a non- recourse basis to the sponsors. Debt to equity ratios are typically 70/30, but can vary based on the risk profile of the project. CEC Africa itself will be financed primarily from equity from its principal shareholders in the initial years of operation, but will seek to issue debt instruments in future years once the investment returns from underlying assets become constant and predictable. Ultimately, an Initial Public Offering of the shares of CEC Africa on an international stock exchange will be considered. Future Plans CEC Africa intends to pursue further projects in the markets where the CEC Group has already established a presence – namely Zambia, Nigeria, Namibia and Sierra Leone. Over time, CEC Africa will seek to establish a presence in new markets. One such market is the Katanga Province of the Democratic Republic of Congo, which has an emerging mining sector seeking new sources of cost effective grid connected power to support new mining expansion programmes. CEC Africa is a new company, having been formed in February 2013. The management team to drive its future growth is currently being established, drawing on skills from CEC Africa’s parent company and from other power sector professionals with requisite experience. Ultimately, CEC Africa aims to be the employer of choice for those seeking to develop their careers in the power sector, with the ability to offer career experience covering different projects utilizing different technologies in different countries.
  • 26. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 27
  • 27. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES28 SAMSON LONGWE REALTIME ZAMBIA MANAGING DIRECTOR Overview Realtime Technology Alliance Africa Limited (“Realtime Zambia”) is an integrated communications service provider providing fast speed internet service and inter-office connectivity to a niche market of institutional customers using optic fibre as its core technology. Although Realtime Zambia was established in Zambia in 2001, the company only came to prominence following formation of the joint venture between Copperbelt Energy Corporation Plc (CEC) and Realtime Technology Alliance Africa (Pty) in February 2009. The joint venture allowed CEC to acquire 50% equity in Realtime Zambia. The joint venture combined the strengths of CEC’s world class optic fibre network and know-how, with Realtime’s best- of-breed service offering to deliver optic fibre solutions to a wide array of customers. The significance of this was to offer an opportunity to customers to access CEC’s and other interconnected optic fibre networks for their communication needs across Zambia and the surrounding region, using a medium that is secure, reliable and fast. Consequently, the company pioneered the provision of fibre to the premises (FTTP) in Zambia. In the delivery of its service, Realtime Zambia as a retailer, leases bulk capacity from CEC Liquid Telecommunications (another telecommunications subsidiary of CEC, with a wholesale licence) and other carriers of carriers. Over the last few years, Realtime Zambia has progressively grown and ultimately positioned itself as one of the county’s foremost communication solutions providers in the Internet Service Providers (ISP) sector. Business Environment The macroeconomic and business environment for the country during the year 2013 was generally stable and was particularly favourable to the sector. Demand for ICT services was on the upswing, mainly as a result of market developments attributable to sustained growth of the national economy. Another important factor that influenced the increase in demand was the reduction in broadband prices following the opening up of more international fibre gateways. Competition in the industry further heightened due to the increase in the number of license holders. However, service providers competed mainly on the basis of price on one hand and quality of service on the other. Consequently, some tendencies of market consolidation were observed in the sector as some ISPs joined hands with strategic partners. Financial and Operational Performance The company was on course to attain its strategic objectives for the year, which included improving its revenue and profitability, growing its market share and enhancing network operational efficiency. During the financial year 2013, Realtime Zambia achieved turnover of K38.7 million indicating growth of about 17% compared to last year’s turnover of K33.1 million. The growth in turnover was attributed to the connection of more customers onto the network. Consequently, internet bandwidth on the network grew to 194Mb/s, indicating traffic growth of about 94% compared to the 2012 performance. The company posted a profit after tax of K2.6 million for financial year 2013, indicating growth of about 26% over 2012. The growth in profit is attributed to improvement in gross margins as cost of sales reduced significantly. However, the growth in turnover and profit was surpassed by growth in traffic volumes particularly because of the fall in retail internet prices during the year, a phenomenon typical of the telecommunications industry. As the margins thin out, it means that the sector thrives on increased sales of traffic volumes. In terms of its cash position, the company did not face significant difficulties in raising funds to meet commitments resulting from its normal business transactions. The company paid out a total of about K17 million to its key suppliers while its contribution to the national treasury during the year was about K6 million in taxes and regulatory fees. Optic fibre remained the company’s core technology for delivering its service to customers. Realtime Zambia’s fibre footprint grew across the country. Apart from providing service along the line of rail and all the way to Lumwana, >>> REPORTS FROM THE SUBSIDIARIES
  • 28. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 29 service was extended to new regions such as Chipata and Mpika. In terms of subordinate technologies, the company also upgraded its wireless access network, for metropolitan areas yet to be accessed by fibre. In this regard, the company further invested in a 4G WiMAX network so as to increase its network coverage to areas previously inaccessible by line of sight challenges and to replace the Proxim wireless network, which was nearing the end of its economic life. The company’s total investment in the WiMAX network was just under K1.0 million. Realtime Zambia has continued to exert its influence on the Zambian market and is steadily becoming a preferred provider of communication services to institutional customers, such as mining houses, mining contractors, financial institutions, manufacturing companies, quasi-government institutions and non- governmental organisations. In addition, the company has secured distributorship arrangements for a number of regional ICT players providing service to multinational corporations within Zambia. This has been made possible owing to the company’s extensive optic fibre access network. Accordingly, based on the sector’s revenues, the company’s market share has grown to about 33% in a sector comprising more than 15 internet service providers (ZICTA statistics 2013). Corporate Social Responsibility Realtime Zambia is party to the Engineering Partnership Initiative spearheaded by CEC in conjunction with the University of Zambia and Copperbelt University. The programme aims to support Zambia’s engineering training and development. In this regard, Realtime has continued to offer internship programmes to engineering and ICT students from time to time. In 2013, the company provided such internship to 12 students. 2014 Opportunities and Outlook It is anticipated Zambia’s ICT sector will continue on its positive growth path. The Government of the Republic of Zambia has been promoting the e-governance agenda and in addition has identified the ICT sector as one sector that should significantly contribute to economic growth. In this regard, the government has given incentives to the sector by broadening the range of ICT equipment that qualifies for import tax incentives. We, therefore, expect that this will be a demand-pull inducement for the sector. Other opportunities that will drive demand for bandwidth include the Zambia Revenue Authority’s introduction of the online tax system and generally all businesses’ realization that ICTs are a critical factor in improving their operational efficiencies. Demand will also be driven by individuals’ increased uptake of ICT services, where it is now becoming a norm to have more than one communication device per individual. We envisage that Realtime Zambia’s turnover will remain on its positive trajectory. The company has, therefore, estimated that in 2014, its revenue will peak at 15% to bring the turnover to K43.5 million. The company has also targeted to realise a profit after tax of K5.0 million, reflecting growth of about 100% in profit. The company’s investment plan during 2014 will focus on making the network more robust by improving network redundancy. This will include creating new connection routes on the physical layers as well as virtually. Related to this will be the need to improve backup power supplies for critical points of presence. Furthermore, the company will closely work with suppliers such as CEC Liquid Telecom in deploying technologies like G-Pon (fibre to the home) for its residential and SME (Small and Medium Enterprise) customers. With enhanced quality of service, better service delivery and for as long as the economic environment remains favourable, Realtime Zambia is confident to realise its set objectives for the financial year 2014.
  • 29. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES30 >>> REPORTS FROM THE SUBSIDIARIES ANDREW KAPULA CEC LIQUID MANAGING DIRECTOR Overview CEC Liquid Telecommunications Limited (CEC Liquid Telecom) has continued to consolidate its position in the market in all areas of its franchise. The company, in increasing both the revenue base and national footprint, has registered strong growth; posting revenues of K57.6 million in 2013 against K39.3 million in 2012. CEC Liquid Telecom has become the preferred wholesale broadband connectivity telecommunications company both at national level and within the region. The national backbone now runs from Chirundu to Kasumbalesa. CEC Liquid Telecom’s fibre footprint alongside inner town roads and highways in Zambia grew from 1,783km in December 2012 to 2,185km in December 2013. Corresponding to the rapid increase in revenue, the customer base has also increased to include all mobile operators, virtually all financial institutions (directly and indirectly), the top five internet service providers, Non-Governmental Organisations, quasi- Governmental institutions, educational institutions and foreign missions. The company’s outlook continues to be bright with services being availed in non-traditional areas away from the line of rail and into neighboring countries. The fiber to the premises (FTTp) project is under way with full rollout expected to begin in 2014. This will further consolidate both the market and financial position of the company. The commissioning of fiber cable with access to East Africa and co-located submarine cables has posed both threats in terms of competition and opportunities. The company’s solid foundation, with the support of both Shareholders, will enable the company withstand any potential threats, while initiatives are being taken to exploit the opportunities. Financial and Operational Performance During the period under review, the company posted gross revenue of K 57.6 million with a gross profit margin of 48.9% (2012: 47.5%). Whilst employee, operating and administration expenses were covered by the gross profit, the very high depreciation expense (on account of the large fixed asset base) caused a Loss before tax of K3.9 million. The loss for the period was worsened by the reversal of deferred tax provision and translation losses on foreign currency accounts. Infrastructure Build and Network Performance Local access fibre cables continue to expand the national footprint. New metropolitan networks in Chipata, Mansa, Kasama, Mazabuka, Choma, Monze and Mongu were installed during the year. Additions to the existing Multiprotocol Label Switching MPLS platform to facilitate next generation, scalable services to financial institutions were made as part of the continuous optimization programme. Network Management and various device monitoring systems were also installed to continuously improve customer experience. Network Performance All network performance parameters are well within international and Zambia Information and Communication Technology Authority (ZICTA) norms. Average monthly availability of international services was also within the norms of all Service Level Agreements (SLAs). Improvement of the already world class SLA’s was realized by additional physical redundant capacity leasing. FTTx Deployment The company continued with the strategic decision to rollout modern ICT services to high streets, malls, and social and economic centers through modern technology of fiber to the premises. Pursuant to this, the following activities were carried out: • Completion of the process to acquire customer demand data in order to compile market segment data • Determining the best possible design solutions for each market segment • Proof of concept and testing in Lusaka’s Rhodes Park residential area • Detailed planning for each phase of the project Deployment is expected to commence in 2014.
  • 30. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 31 Marketing Competition The competitive landscape continues to be monitored and a few changes took place during the period under review. • Namibia Telecom has been offering competitive services in the hope of regaining its share of the market. We have had to review our pricing in order to remain equally competitive. • The opening up of the northern route through Tanzania has also paved way for competitively priced bandwidth via the East Coast and this has resulted in customers having a cheaper alternative. However, our competitive advantage is the high availability that we are able to guarantee on our service owing to the redundancy that has been built into the network. • Other local operators continue to contract capacity through foreign suppliers. We have since signed Master Service Agreements with these operators to pave way for them to directly transact with CEC Liquid Telecom. • The period under review saw ZESCO Limited (ZESCO) expanding their fibre network into new towns such as Kasama, Mongu, Mansa and Monze. Our response is to take advantage of this and rather than compete with ZESCO, we have expanded our metro footprint into these towns using ZESCO’s network as the backbone. • ZAMTEL increased their capacity and are also rolling out fibre in the residential areas, a service that is in direct competition to our FTTx deployment. We intend to compete with them in the provision of this service on the basis of quality of service. Product Development In addition to the existing dark fibre, last mile services, wholesale internet and international Layer 2 services, the product portfolio has been expanded to include local MPLS services and dedicated internet to enterprise customers. Advertising and Promotion In order to create brand awareness, CEC Liquid Telecom undertook outdoor advertising by putting up several
  • 31. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES32 billboards in Livingstone and Lusaka. This mode of advertising has resulted in an increase in enquiries being received about the services offered by CEC Liquid Telecom from members of the public. CEC Liquid Telecom participated in several conferences by sponsoring internet services. Foremost among them was the provision of Internet to the United Nations World Tourism Organisation (UNWTO) General Assembly, which took place jointly in Livingstone and Zimbabwe’s Victoria Falls towns. The internet service provided was of international standard and a first for the country. This has resulted in very positive publicity and exposure of the CEC Liquid Telecom brand. Additionally, as part of the UNWTO General Assembly, CEC Liquid Telecom set up wireless hotspots at the Lusaka and Livingstone international airports, providing travelers going through these two airports an experience of the internet service the company offers. CEC Liquid Telecom also sponsored the African Internet Summit (AIS), which was held in Lusaka, and provided internet services to the African Union Council of ICT Ministers, held in Livingstone. The company also provided internet during the ZICTA annual ICT Forum. Supply Chain Management Supplier Management We have reduced the supply base and identified preferred suppliers for our core materials and equipment, whilst developing long term strategic relationships with specified suppliers. We also entered into contracts with suppliers for frequently procured goods and services; this is both with local suppliers and Group approved and negotiated suppliers and contractors. Suppliers and contractors have been categorized into tiers and some activities such as cleaning, security and fleet management tracking have been outsourced. Inventory We developed strategic partnerships with our major suppliers, which led to a significant cost saving as most of the suppliers were able to reduce their prices after negotiations. Our estimated total annual spend was USD980,412 and mainly comprised optic fiber, ducting, manholes, networking equipment and services for excavation and laying of fiber. Human Resources Staff Compliment Nine people were recruited during the year under review, increasing labour strength from 28 employees as at 1 January, 2013 to 37 employees comprising 8 females and 29 males at the close of the reporting period. The industrial relations atmosphere in the company continued to remain calm and peaceful. There were no grievances raised by employees and there were no work stoppages during the period under review. Further, no issues of concern with regard to security arose at any of the CEC Liquid Telecom sites during the year. Safety A total of five (05) road traffic accidents were recorded during the year under review but did not result in any injuries to employees. All incidents were claimable under the insurance policies. Seven employees underwent defensive driving lessons at the Industrial Training Centre and CEC Plc during the period under review. Outlook Despite increasing market competition, the company is expected to continue generating more sales in most sectors, including government as the groundwork has already been done to meet the market challenges. The company remains in a sound position with regard to operations, finance and human resources. Further negotiations will be held with ZICTA to determine the way forward on price regulation, as well as the position with regard to non-Zambian companies selling international services in Zambia. The plan for the roll out of FTTx has been revised to reflect the actual status on the ground after conducting a more detailed survey. Success of this project will also depend on the market’s reaction to the product packaging. The plan for an integrated approach to rolling out LTE wireless data access is being reworked to include partnerships with re-sellers. We are working with ZICTA for an allocation of an efficient frequency spectrum for this project. The acquisition of Realtime is expected to be finalised in March 2014. With the acquisition and integration of Realtime into the business, the true synergistic approach to sales will become more apparent. The company is poised to grow through the introduction of new product lines and services for the mass market as the FTTx and LTE wireless data access projects begin to be rolled out. Quality of service and customer satisfaction are expected to improve as the first fully redundant routing out of Zambia is now in place, which makes CEC Liquid Telecom the absolute choice provider of international bandwidth. The company will continue with its drive to provide operational excellence by monitoring the effectiveness and efficiency of its embedded processes, the timeous acquisition of skills and retention of those skills by motivating our employees with the best work environment. We will continue to strengthen relationships with our key customers through regular interaction and updates especially on developments aimed at improving our service delivery and performance reviews. With the Zambian market now maturing, customers consider quality in the acquisition of services, and not only price. That being said, prices will continue to fall in the shorter to medium term. Nevertheless, CEC Liquid Telecom’s market approach of offering a wider range of high quality services, at an affordable price, will remain our key differentiator. >>> REPORTS FROM THE SUBSIDIARIES
  • 32. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 33
  • 33. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES34 Project Overview and Background The Kabompo Hydro Power Project, located in Mwinilunga District of North- Western Province, was awarded to a CEC-led consortium by the Zambian Government in 2008. This project is the Company’s forerunner in green- field hydroelectric power generation. The basis for the award was that the developer would undertake a feasibility study and then negotiate with the Government of the Republic of Zambia a BOO (build-own-operate) concession to develop the project. The hydro power scheme proposed comprises an underground power station of 40MW generation capacity and an annual energy output of about 166 GWh. In addition, there is a dam of roller compacted concrete, approximately 50 metres high, and 4 kilometres of underground tunneling. Power will be evacuated through a 35 kilometer-long transmission line at 132kV that will join the national grid at Kalumbila mine. The key benefits anticipated from the project include alleviation of potential national power shortage, increased security of future power supplies and provision of emergency power supplies, especially for the mines. The project will also have a stabilising effect on the national grid due to its location as currently, all power sources are located in the country’s south. Other benefits expected through the successful implementation of the project include potential for electrification of parts of North-Western Province through the 33kV builder’s power line, creation of jobs especially during construction, and socio-economic empowerment plus capacity building for the local populations. Project Status More effort and focus was placed on the contractual, environmental and social, Engineering, Procurement and Construction (EPC), and financing processes of project development in the year under review. Negotiations with the Government on the Implementation Agreement (IA) were completed through the Office for Promoting Private Power Investments (OPPPI). The final IA was submitted to OPPPI in November 2013 for approval by the Attorney General’s Office. Similarly, negotiation meetings on the Investment Promotion and Protection Agreement (IPPA) were held with the Zambia Development Agency (ZDA) in December 2013. A plan of action to finalize the IPPA was agreed. Final drafts of the Finance Lease Agreement, Infrastructure Use Agreement and Project Management Agreement were produced and subjected to preliminary review by the Lenders’ advisers. EPC Contract and Implementation Pre-Commencement works being undertaken by the EPC Contractor, Sinohydro Corporation Limited, under the Early Works Agreement progressed well, reaching 75% completion at the end of the reporting period. Works completed include supplementary quarry exploration, construction of site access roads, construction of the Contractor’s office and main camp, partial works on the D273 main access road and partial construction of the diversion tunnel. Negotiations on the EPC contract reached an advanced stage, and the Parties agreed in principle to include the 132kV interconnection facilities in the scope of works. Execution of the EPC contract is expected to take place in quarter one of 2014. Transmission Lines Following successful negotiations with CONCO (RSA), the EPC contract for the 33/11kV substation construction project works was finalized, pending execution in January 2014. Substation civil works, under the scope of this contract, at Lumwana ZESCO substation were 90% complete by the close of the year; while substation works at Kabompo Gorge are scheduled to start in January 2014. EPC contract negotiations with Energya- PTS (Egypt) for the 33kV transmission Site Access road Contractor’s main camp KABOMPO HYDRO POWER PROJECT REPORT
  • 34. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 35 line project reached an advanced stage. At close of the review period, the contract was at final drafting stage with execution set for February, 2014. Financing Debt arranging commenced during the year and the Lenders’ advisers progressed with due diligence investigations related to the technical, legal and insurance aspects of the project. A draft term sheet was produced and discussions initiated with Industrial Commercial Bank of China, China Development Bank, China Export & Credit Insurance Corporation, African Development Bank and Export Credit Insurance Corporation of South Africa. The capitalised project expenditure, which may form part of CEC’s equity contribution, was K78.53 million [USD15.35m] by 31st December, 2013. Advance Infrastructure and Site Preparations Construction of the temporary CEC campsite, comprising pre-fab residential and office accommodation, first aid clinic, ablution blocks and a meeting/ dining hall was two-thirds complete at year-end. Adjudication and award of the contract to rehabilitate and complete outstanding works at the CEC campsite was done. Works are expected to commence in February, 2014 and be concluded by the end of March, 2014. Land Acquisition and Resettlement Activities The land acquisition process hit a snag following delays in signing of revised maps by a traditional leader and council authorities. As a result, little progress was made on the process despite the challenges having been escalated to the offices of the Permanent Secretary in the Ministry of Mines, Energy and Water Development and the Minister of Chiefs and Traditional Affairs. The ZDA did, during negotiations on the IPPA, pledge to help expedite the acquisition of project land. A revised Resettlement Action Plan was submitted to the Zambia Environmental Management Agency (ZEMA) for approval in December. The revision included an updated population and assets inventory schedule of persons directly affected by the project. Hydraform construction technology will be used in constructing the Resettlement Township. A programme, to be rolled out in 2014 after the rains, has already been developed and equipment purchased to implement the use of this technology. In efforts to enable local communities participate in the arising opportunities, a stakeholder sensitization workshop on Entrepreneurial Capacity Building was held in Solwezi, in collaboration with the ZDA and the Ministry of Commerce, Trade and Industry. The objective of the workshop was to sensitize government departments and agencies, as key stakeholders, on the possible areas of capacity building in the project area. D273 Main Access Road after partial repairs Diversion Tunnel inlet after rainfall Excavation of Diversion Tunnel inlet
  • 35. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES36 Environmental Issues ZEMA granted approvals for the following Environmental Impact Statements: • Proposed 132kV power transmission line from Kabompo Gorge substation to Kalumbila mine substation (April 2013) • Proposed Township Complex and Resettlement housing scheme at Kabompo Gorge (May 2013) • Proposed Rehabilitation of the 34 kilometers D273 main access road in Mwinilunga (May 2013) • Proposed 33kV power transmission line from Lumwana mine substation to Kabompo Gorge substation (October 2013) Outlook and Conclusion Commencement of construction works under the EPC contract is still pending the fulfillment of the conditions precedent to financial close. The due diligence by the Lenders’ advisers has reached an advanced stage and there is concerted effort from all stakeholders for the project to reach financial close in 2014. In order to mitigate the impact of the delay in securing financing on the time for completion of the project, selected critical path activities have been earmarked for inclusion in the Early Works Agreement. The key objective is to achieve commercial operations in quarter one, 2017. >>> KABOMPO HYDRO POWER PROJECT REPORT
  • 36. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 37
  • 37. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES38 CORPORATE SOCIAL RESPONSIBILITY Throughout 2013, CEC demonstrated its deep commitment to socially and economically contributing to the communities in which we live and work by acting responsibly and operating sustainably for the good of the present and future of both the Company and the communities. We continued to make efforts that demonstrate scale to grow our investments in the social arena, both in our traditional areas of support and others that may be regarded as either one-off or complementary. One of our continuing projects in the higher education sector is the construction of a high voltage laboratory at the University of Zambia (UNZA) School of Engineering. All the major civil works for the live demonstration power system were completed, while installation of electrical and mechanical equipment progressed significantly. It is envisaged that all remaining works with respect to construction of the two substations and transmission line would be completed by quarter two of 2014. A total sum of K970,000 was spent on the project in 2013. The project is aimed at enhancing practical learning for engineering students. Once completed, the laboratory will, for the first time in the history of UNZA, provide engineering students with a live demonstration power system, enabling a shift from an entirely theoretical approach to learning to a practical one. Students will be exposed to the actual electrical equipment/machinery used in industry, enabling them to acquire necessary skills and contributing to reducing the skills gap found among engineering students. The exposure will cover various aspects of the power system; including system maintenance, protection, control switching operations, safety and the associated communications facilities such as SCADA. Community schools play a vital role in providing supplemental education services to many underprivileged young persons in Zambia. CEC has over the years supported many community schools, at least two of which have now been taken over by the Zambian Government. In continuing to demonstrate the value of these schools to Zambia’s education sector, CEC once again partnered with British charity “Beyond Ourselves” in a drive to raise funds for the benefit of under privileged community schools in Zambia, particularly Ndola. The Company provided logistical support and security to British cyclists who undertook a fundraising bicycle ride of 473km from Lusaka to Livingstone. Following on the construction of a bridge to link Kitwe’s Nkana East and Ndeke townships previously reported on, the Company in 2013 embarked on a project to light up Central Street, one of the key roads in Kitwe’s Nkana East residential area. The project scope of work includes rehabilitation of existing infrastructure, replacement of vandalized cables, procurement and installation of solar
  • 38. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 39 lights and new ordinary light fittings. Fabrication of steel poles commenced in 2013 with the entire project expected to be finalized within the third quarter of 2014. Estimated budget for the project is K1,696,200 split K1,244,025 on solar lighting and K45,000 on conventional lights. Both solar and conventional lighting will be installed along Central Street from 27th to 1st Avenue. Solar lighting will be installed in the section from Ravens Country Club to the traffic lights while the remaining sections will have ordinary lights. Over the past few years, the Company has been erecting public shelters around Kitwe. At the close of 2013, a total of eight shelters had been put up in different locations around the city and one in Chingola. K25,000 was used to build one bus shelter in Chingola in 2013. With large numbers of the population still dependent on public bus transportation, the bus shelters have proved to be a valuable social amenity. The Company constructed and donated seven concrete refuse bins to Mufulira’s Kankoyo area in contribution to garbage disposal management efforts in the area, key to disease prevention and public health maintenance. Total cost of the seven refuse bins was K55,000. CEC recognises the importance of protecting both persons and property from any kind of damage and injury, whether through theft or vandalism, and has for many years partnered with and rendered support to the Zambia Police Service in the quest to improve the provision of security services to the community. The Company in 2013 invested K58,000 to renovate and refurbish the Ndeke Police Post, a facility initially put up by CEC in 2002 and which has since been providing a much valued service to the catchment communities. In the area of sport, CEC continued to sponsor super division side Power Dynamos Football Club, through grant funding of K5,605,570 in 2013. The Company also procured a 65-seater luxury bus for the team to meet their logistical requirements. Apart from football, the Company renovated and refurbished the Ndeke basketball court, a facility that forms part of the Arthur Davies Stadium sporting complex. The basketball court is a valued recreation facility for young people from the surrounding community who have limited access to sporting and recreation facilities to help develop their talents. The success and impact of the Company’s growth will, ultimately, be measured by how well the benefits are harnessed for the public good. Our commitment to better lives, communities and the environment did not waiver in 2013 and we are excited when the communities we are connected with can experience the efforts we put it to improve their access to improved health, education and other social amenities.
  • 39. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES40 POWER DYNAMOS FOOTBALL CLUB Power Dynamos Football Club (PDFC) has continued to be a force to reckon with in Zambian football. Despite a less than stellar showing in 2013, the side cannot be easily dismissed. During the season under the review, the Club’s on-the-pitch fortunes slumped, with the team failing to achieve its target of a top-three finish. 2013 was admittedly a very challenging season for everyone connected with PDFC, with sponsor and fan alike having to take the Club’s unusually low 8th position finish on the premier league log table. However, having endured a tumultuous start to the campaign, and at one point under threat of possible relegation, mid-table 8th finish was actually considered quite an effort. The unfamiliar position the Club found itself in spelt the need for some change. The technical bench was overhauled, with ex Zambian international, Tenant Chilumba being brought in from Zimbabwe’s Platinum Star, together with his two assistants – Anderson Phiri and Alex Namazaba. The sole surviving member of the previous technical staff was goal-keeping coach, Martin Mwamba. While the senior side struggled through the season, the fortunes of Young Power (PDFC’s academy side) differed greatly. The exceptional performance of the young lads the previous season saw then being promoted to the Football Association of Zambia’s (FAZ) Division 3 North for the 2013 season, where they made their presence felt, finishing in the top three bracket in only their maiden season. Financial performance CEC continues to fully sponsor the Club, with the 2013 total grant to fund Club operations standing at K5,605,570 an increase K560,570 or 11% over the previous year (2012: K5,045,000). This is in addition to incentives such as the acquisition of an ultra-modern luxury 65-seater Higer Coach. Relationship with fans To cater for a cross section of fans, Power Dynamos has now employed the use of social media platforms like Facebook and the Club’s official web site alongside traditional media like television, radio. Club officials have also been engaging with fans and helping to set up official fan clubs in various towns across the country. Squad strength and Outlook Following the departure of some key players like Mukuka Mulenga (to South Africa’s Mamelodi Sundowns), Simon Bwalya and Maybin Chishimba (to across-the-town arch rival Nkana F.C.), a number of new players were brought in to strengthen the squad and ensure PDFC is poised to reclaim super league top position. Nyambe Mulenga (former international defender), Patrick Kabamba, Richard
  • 40. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 41 Kasonde, Billy Mutale and Jimmy Njovu are the new legs that have joined the squad to boost the midfield, defence and strike force. Other players who were loaned to Nchanga Rangers F.C. (Alex Ng’onga and Felix Nyaende) and Forest Rangers F.C. (Chiyesu Sakafunya) respectively were brought back to further reinforce the squad. Further, some young players from the academy side (Young Power) graduated to the senior team, based on their impressive performance. These are Emmanuel Kabole (striker), Abraham Chileshe (midfielder), Dominic Nzala (goal keeper) and Matthews Musoni (midfielder). Another young star to watch is Robert Makandani, brought in from Airtel Rising Stars – Chipata. His talent and skill is after the likes of Mukuka Mulenga. The beginning of the 2014 season saw a forceful Tenant Chilumba-led technical bench hitting the ground running and sending a clear message of the team’s intent to reclaim top position and recover from the dismal 2013 performance. At the mid-season mark, signs of a return to greatness for the prestigious PDFC are showing. After 15 games played, PDFC is in the top 3 bracket on the log, and has qualified to compete in this year’s Barclays Cup tournament. The team also stands in a good position to challenge for the title. Executive Committee A new club Executive Committee, chaired by CEC’s Senior Management official, Ben Simukoko, was ushered in at the dawn of 2014. The Committee boasts an array of diverse skills, competences and capabilities in George Lungu (Vice Chairman), Ricky Mamfunda (Club Secretary) Eugene Mpolokoso, Precious Chisenga, Morton M’gemezulu, Muntanga Sibalwa, Andrew Kamanga, Freddie Chalenga and Edward Ngosa. The collective shoulders of this Committee bear the huge weight of expectation from both sponsors and fans. Club Licensing The Football Association of Zambia has set 2015 as the year for the implementation of club licencing as required by football world governing body, FIFA. Accordingly, CEC as the sole sponsor of PDFC, will work at positioning the Club in readiness for these changes. The main and key area of attention is the transformation of PDFC from its current form (fully sponsored outfit) to a stand-alone business entity. To actualise this, CEC is expected to make further investments in re-organising the club management, infrastructure development and commercialisation.
  • 41. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES42 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 Directors’ report Statement of Directors’ responsibilities Report of the independent auditors Consolidated statement of comprehensive income Consolidated statement of changes in equity Company statement of comprehensive income Company statement of movements in equity Consolidated statement of financial position Company statement of financial position Consolidated statement of cash flows Company statement of cash flows Notes to the financial statements 42 58 59 60 61 62 63 64 65 66 67 68
  • 42. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 43
  • 43. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES44 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 DIRECTORS’ REPORT The Directors have pleasure in submitting their report on the Group’s activities and its consolidated financial statements for the year ended 31 December 2013. The Group has grown considerably with the incorporation of CEC Africa. During the year the largest investment was in an electricity distribution company in Nigeria, whose operations were taken over with effect from 1 November 2013. This posed some challenges in the timing and consolidation of the Group financial statements. 1. The Group Copperbelt Energy Corporation PLC, (“The Company”) has direct shareholding in three companies, Realtime Technology Alliance Africa Zambia Limited (Realtime Zambia) and CEC Liquid Telecommunications Limited, and in the year 2013 invested in CEC Africa Investments Limited (CECA or CEC Africa). The Company’s shareholding in Realtime Zambia continues to be 50% based on a joint venture agreement entered into with RTAA (Proprietary) Limited on 11th February 2009. The Company also has a 50% shareholding in CEC Liquid based on a joint venture agreement entered into with Liquid Telecommunications Holdings Limited of Mauritius As already mentioned, during the year, The Company incorporated in Mauritius a 100% subsidiary investment company CEC Africa. This is the vehicle through which CEC Plc will undertake international investments in the power sector in sub-Saharan Africa to achieve its vision of becoming a leading investor, developer and operator of energy infrastructure in Africa. 2. Principal activities The principal activities of The Group are the generation, transmission, distribution and sale of electricity and telecommunications service provision. The Company’s core business remains the transmission, distribution, generation and sale of electricity primarily on the Copperbelt, whilst its joint venture companies focus on telecommunications. Realtime Zambia’s principal activity is provision of IP connectivity, which includes provision of internet service with associated services, corporate connectivity solutions (installation and operation of wide area network through provision of either optic fiber private leased circuits or virtual private networks), supply and installation of various information and communication technology (ICT) products and services and a host of other services typical of the ICT industry, whilst CEC Liquid’s principal activities are the provision of wholesale capacity and internet bandwidth to Zambia Information and Communications Technology Authority (ZICTA) licensed private and public operators. The principal activity of CEC Africa is to operate as an investment company. During the year ended 31 December 2013, CEC Africa made the following investments: • 75% equity investment in KANN Utility Company Limited, a Nigerian investment holding company, which during the year acquired 60% of the Abuja Electricity Distribution Company, also a Nigerian Company. • 100% equity investment in CEC Lenux Investments Limited, a Mauritian Investment Company, which during the year acquired 20% equity interest in North South Power Limited, a company holding a 30 year concession in the operation of Shiroro Hydro power plant. 3. Share Capital The authorised and issued and fully paid share capital of the Group is: 2013 Number of shares 2012 Number of shares 2013 Value 2012 Value Authorised Issued Authorised Issued KM KM The Company 2,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 10,000 140 CEC Africa 1,000 1,000 0 0 5 0 RTAA 5,000 4,000 5,000,000 4,000,000 4 4 CEC Liquid 10,000,000 10,000,000 10,000,000 5,000,001 10 10 The authorised share capital of The Company is K20,000 thousand, divided into 2,000,000,000 Ordinary shares of a par value of K0.01 each and 1 Special Share of K1.40 held in the Company by the Government of the Republic of Zambia.
  • 44. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 45 >> DIRECTORS’ REPORT cont... As at 31 December 2013, the shareholding in The Company 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 4. Significant Shareholding in the Company As at 31 December 2013 substantial shareholding (5 per cent or more) in the Company’s share capital was as follows: Zambian Energy Corporation (Ireland) Limited: 52% ZCCM Investments Holdings Plc: 20% African Life 8% 5. Activity on the Lusaka Stock Exchange The Company continues to be listed and actively traded on the Lusaka Stock Exchange. The stock opened the year under review trading at K0.68 a share (2012: K0.66), hitting a high of K0.85 (2012 highest: K0.69) in April but ended the year at K0.66.Total number of shares traded in the year was 95,610,106 (2012: 25,700,000).
  • 45. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES46 >> DIRECTORS’ REPORT cont... 6. Financial Results Highlights of the financial performance of the Group over the last two years are tabulated below. The consolidated results have incorporated; 100% of The Company; 50% of Realtime Zambia, 50% of CEC Liquid and 100% of CEC Africa. The results of CEC Africa are a consolidation of the results of all its investments. Key Statistics Consolidated The Company RTAA CEC Liquid CEC Africa * 2013 2012 2013 2012 2013 2012 2013 2012 2013 Revenue (K’000) 1,706,730 1,358,747 1,436,816 1,332,021 38,685 33,088 57,569 39,309 252,703 Gross profit/ ( Loss) (K’000) 335,935 383,548 405,931 365,718 19,694 16,373 28,190 18,659 (296,064) Profit/(Loss) before interest and taxes (K’000) 599,949 158,571 196,750 157,776 3,338 2,567 (3,956) (2,947) 490,272 Net profit/(loss) (K’000) 457,644 109,322 125,187 109,159 2,551 2,016 (5,727) (2,947) 430,967 Equity (K’000) 2,476,010 935,658 994,550 889,363 2,592 140 150,472 149,248 1,497,018 Total Assets (K’000) 4,660,639 1,606,525 2,166,792 1,584,927 15,037 12,593 197,393 166,123 3,095,278 Current Assets (K’000) 572,591 351,250 607,068 328,993 6,928 5,945 30,195 15,502 279,045 Inventory (K’000) 37,051 19,973 20,575 16,689 863 478 2,650 1,871 14,720 Current Liabilities (K’000) 1,224,151 351,639 842,745 328,231 10,735 5,500 42,640 13,351 900,033 Acid test ratio (times) 0.44 0.94 0.70 0.95 0.56 0.99 0.65 1.02 0.29 Return on equity (%) 18% 12% 13% 13% - - - - 29% Return on assets (%) 10% 7% 6% 7% 17% 17% (4%) (2%) 14% EBITDA (K’000) 686,032 230,689 250,393 225,373 6,228 4,759 (15,399) 4,540 526,563 Earnings per share (Kwacha) 0.46 0.11 0.13 0.11 - - - -- - * CEC Africa was incorporated in February 2013; therefore there are no comparative amounts for the year 2012. 7. Going Concern The Group’s current liabilities exceeded its current assets by K652 million, which would realise into concern about the Group’s going concern. This net liability position is a consequence of all the companies within the Group having current liabilities exceeding their current assets. The most significant being CEC Africa (net liability of K623million) and the Company (K236million). CEC Africa CEC Africa consolidates the financial statements of KANN Utility Company Limited (which itself consolidates the results of Abuja Electricity Distribution Company Limited) and CEC Lenux Investments Limited. CEC Africa was capitalized by CEC Plc during the course of the year through short term inter-company loans for the primary purpose of investing in KANN Utility Company Limited and CEC Lenux Investments Limited. The total amount outstanding on these inter-company loans was USD95.1m [K524million] at 31st December 2013. CEC Plc will consider capitalizing these short term loans into long term loans or equity during 2014 as the investment in CEC Africa is intended to be a long term investment of the Group. Abuja Electricity Distribution Company (AEDC) Abuja Distribution Company Limited is consolidated into the financial statements of CEC Africa, which are then consolidated into the financial statements of CEC PLC. Abuja Electricity Distribution Company based on the existing interim rules. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 46. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 47 >> DIRECTORS’ REPORT cont... 7. Going Concern (cont...) governing the power sector as issued by the Nigeria Electricity Regulatory Commission (‘NERC’), has the flexibility to defer payment on 47% of the bills of the Market Operator (‘MO’) until the commencement of the Transitional Electricity Market. The repayment of unpaid amounts at the end of the interim period will be determined based on consultation with various industry participants and the NERC. The Directors are optimistic that the repayment terms that will be secured with respect to the MO bills will not be detrimental to the Group’s cash flows. The MO bills represented 84% of the current liabilities of AEDC at the year end. The Directors have reviewed the forecasts and projections of AEDC which take into account reasonable changes in the sector such as absence of MYTO (Multi Year Tariff Order) subsidies, planned reductions in Aggregate Technical, Commercial and Collection Losses, progressive increases in tariffs, continued deferral of the payment of a certain proportion of the MO bill, capital investments required to improve service delivery and reduce losses and financial support offered by KANN Utility Company Limited, the 60% shareholder of AEDC. Based on these factors, the Directors expect Abuja Electricity Distribution Company to continue as a going concern, realize its assets and discharge its liabilities in the normal course of business. The Company The Company entered into various bridge financing arrangements during 2013 with Standard Bank of South Africa in order to provide inter-company loans to CEC Africa to complete the acquisition of a 60% interest in AEDC through KANN Utility Company Limited and a 20% interest in North South Power Company Limited (the concessionaire for the Shiroro Hydro Concession) through CEC Lenux Investments Limited. At 31st December, total borrowings were K569 million, of which K514 million was repayable within 12 months (see Note 25). The bridge finance facilities were a significant contributing factor to Net Current Liabilities for the Company of K235.7m at 31st December 2013. This matter was addressed through (i) raising additional equity funds for the Company through a Rights Offer approved by the Shareholders in July 2013 that closed in March 2014 raising a total of K387.5m and (ii) entering into a new long term debt facility with a consortium of six international banks in June 2014 for a total of USD120m.. The funding raised from the Rights Offer and the new debt facility was sufficient to re-pay all bridge finance and short term debt facilities of the Company. 8. Operations During the period under review, the main source of the Company’s purchases of energy to meet customers’ requirements was ZESCO Limited under the Bulk Supply Agreement. Power sales to the mine customers totaled 4,281 GWh compared to 4,044 GWh in 2012. Average capacity sales to the mine customers increased to 554 MW in 2013 from the 527 MW recorded in 2012. Security of supply was satisfactory although the challenge of low voltages continued to surface occasionally particularly during the peak demand hours mainly due to the supply deficit. The Company deployed its fleet of voltage compensation equipment to the maximum to complement ZESCO’s equipment. The situation improved significantly towards the end of the year following the commissioning of a 50MW HFO plant by Ndola Energy Company and one 150MW generator at Kariba North Bank extension project by ZESCO. The Company’s full complement of emergency Gas Turbine Alternators is expected to be restored in the first quarter of 2014 when the obsolete excitation system on Unit No. 1 at Luano is replaced with a modern static excitation system which has recently been procured. In the period under review the telecoms business continued with CEC Liquid being the major source of supply to Realtime Zambia, which included internet bandwidth and optic fibre leased circuits. Internet bandwidth on the network grew to194 Mb/s indicating traffic growths of about 94% compared to the prior year. In RTAA’s effort to continuously improve network availability and reliability, it undertook projects to build back up services for its links and power supplies. In this regard, new optic fibre routes were contracted. In addition, the company also upgraded its wireless access network using 4G WiMAX technology for areas yet to be connected onto the fibre network. The overall network availability averaged about 98% for the year with a few occasional outages caused by cut fibre cables mainly due to road works and vandalism. CEC Liquid Telecom has become the preferred wholesale broadband connectivity telecommunications company both at national level and within the region. The national backbone now runs from Chirundu to Kasumbalesa. CEC Liquid Telecom’s fibre footprint alongside inner town roads and highways in Zambia grew from 1,783km in December 2012 to 2,185km in December 2013.
  • 47. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES48 8. Operations (cont...) The customer base has also increased to include all mobile operators, virtually all financial institutions (directly and indirectly), the top 5 internet service providers, NGOs, quasi-Governmental institutions, educational institutions and foreign missions. The Group’s operations diversified during the year with the introduction of its investment arm through CEC Africa. CEC Africa subscribed for 75% equity in KANN, which in August 2013 acquired 60% equity interest in the AEDC. KANN formally took over control of AEDC on 1st November 2013. CEC Africa also subscribed for 100% equity in CEC Lenux, which in August 2013 subscribed for 20% equity in North South Power Limited, a company that has a 30year concession to operate the 600MW Shiroro Hydro power plant in the Niger State of Nigeria. 9. Safety and Health Matters The Group continued to manage its health and safety risks effectively in all areas of its operations. During the year, business policies and procedures were reviewed and updated to ensure their relevance, adequacy and suitability to the Group’s operational processes and overall company purpose and direction. In the Company, pursuant to achieve a culture of SHE excellence, SHE training was provided to new employees and SHE Champions were identified to drive SHE matters in their respective departments/sections. Man hours without a power system lost time accident were extended from 2.98 million at the end of 2012 to 3.86 million at the end of 2013. SHE targets were achieved for 11 out of 13 SHE key indicators, representing 78% achievement. Improvements were noted with respect to fatalities (1,2012 vs. 0,2013), system breaches (3,2012 vs.1,2013), reportable incidents (4,2012 vs. 2,2013) and public high voltage sensitization programmes (188,2012 vs. 193,2013). SHE Bonus was paid for all the four quarters in 2013. However, a fatality was recorded involving a Sinohydro Corporation Limited employee at Kabompo project site in April 2013. Although the Contractor is responsible for safety, health and environment at the project site, the Company endeavors to prevent a recurrence of such incidents. In this regard, the Company established a SHE committee comprising of the Company and Sinohydro project representatives and employed a safety officer for the project. The Company continued to recognize and support employee welfare through the malaria roll back and onsite Voluntary Counseling and Testing (VCT) programmes. The social management plan was also developed, which encompass various employee welfare activities. 10. Environmental Matters During the year under review, there were no legal actions or fines imposed on the Company by the Zambia Environmental Management Agency (ZEMA). The Company also continued to support and sponsor the 36 million seedling exotic tree nursery at Ichimpe in Kitwe. CEC has further demonstrated industrial leadership in the use of the Best Available Technology with the implementation of the Biodiesel Pilot Plant at the CEC Plant in Kitwe. The Company has further demonstrated environmental compliance to the ZEMA licensing conditions, continuous improvement in environmental practice and has in place an established environmental policy and management system. 11. Capital expenditure The Group incurred K136million on addition to capital expenditure compared to K207million in 2012. This reduction was necessitated due to the investments made in Nigeria. The largest capital expenditure of K122million, being by the Company. The Company’s capital expenditure strategy and decisions continued to be centralised on minimizing business risks, enhancing customer satisfaction and ensuring future business activities. Major areas of expenditure remained in the areas of emergency generation equipment, transmission and distribution equipment, protection and metering equipment, safety health and environmental (SHE) equipment, IT, vehicles, and communication and control equipment. As in previous years the capital expenditure programme focussed on critical business operational areas in particular, the refurbishment of the Gas Turbine Alternators (GTAs) to improve reliability of standby power plant, replacement of system assets that had reached the end of their useful lives and to maintain the required high standards for SHE compliance. >> DIRECTORS’ REPORT cont... >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 48. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 49 11. Capital expenditure (cont...) The main capital expenditure activities were related to the maintenance, renewal and refurbishment of the network and associated facilities. The major three capital expenditure items in the year were: (i) Procure two 120 MVA transformers (K22,366 thousand); (ii) Procure one 20 MVA transformer (K5,919 thousand); (iii) A total of K11,063 thousand was spent on motor vehicles and capitalised. Realtime Zambia spent K4million whilst CEC Liquid spent K21million on capital expenditure. CEC Africa did not make significant capital expenditure during the year. 12. Insurance The Group has insured its operational assets against all significant business risks. The Group also maintains insurance for its Directors in respect of their duties as Directors in the respective companies. Besides the foregoing, the Group companies also have 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 on an annual basis. 13. 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. However, in 2013 only one dividend of K20, 000 thousand was paid on 26 April because of the need to re-invest the available cash in various projects the Company undertook in 2013. There were no dividends declared by any of the subsidiaries. 14. Developments Major developments by the Group were its investments through CEC Africa, which acquired 75% interest in KANN Utility Company Limited, a Nigerian registered company. KANN Utility acquired 60% of AEDC through a process of international competitive tender. CEC Africa also incorporated a 100% equity investment vehicle in Mauritius registered as CEC Lenux Investments Limited, which during the year acquired 20% equity interest in North South Power Limited, a company holding a 30 year concession in the operation of Shiroro Hydro Power Company. The CEC Board also approved the on- going developments in Namibia of the Kudu Gas Project and the Arandis HFO Project. The Company in its core operations also undertook several projects with the mining companies, including the new 220/11kV substation at NFC Africa Mining Plc (NFCA), which continued from 2012. The substation will serve the South East Ore Body project, a new underground mine along the Kitwe-Chingola Road. Projected increase in power sales as a result of this project, whose completion has been extended to 2015, is in the region of 45MW. Expansion works were also undertaken to the already existing CEC Nkana substation with additional 3x30MVA 66/11kV transformers continued through the year. The additional infrastructure and power system upgrade will cater for Mopani Copper Mine Plc’s (MCM) Synclinorium project. At full completion, which is expected in quarter 2 of 2014, the project will add an extra 25MW to the current power consumption of MCM, CEC’s second largest customer. Other projects included installation of one additional 30MVA 66/11kV transformer at Luanshya Municipality Substation to cater for increased Zesco load in Luanshya; and installation of one 5MVA additional transformer at Chibuluma South substation to meet the increased load at Chibuluma South Mine Plc. Rehabilitation and maintenance works on the wayleave roads in Ndola and Luanshya were undertaken and completed as scheduled. Major maintenance works were undertaken in eight substations in Chingola and Chililabombwe towns as part of the planned substation maintenance works. >> DIRECTORS’ REPORT cont...
  • 49. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES50 14. Developments (cont...) On the telecoms front, optic fibre remained the core technology for delivery of the Group’s service to customers. The fibre footprint grew across the country; apart from Realtime Zambia providing services along the line of rail and all the way to Lumwana, service was extended to Chipata and Mpika. The wireless network was upgraded for the customers yet to be accessed by fibre. In addition, Realtime Zambia secured distribution arrangements from a number of regional ICT players providing services to several multinationals within Zambia. Based on the sectors revenues, its market share grew to about 33% in a sector comprising more than 15 internet service providers. CEC Liquid’s fiber to the premises (FTTp) project commenced on 11 June 2013, consolidating both its market and financial position. The commissioning of fiber cable with access to East Africa and co-located submarine cables posed both threats in terms of competition and opportunities. The company’s solid foundation, with the support from both Shareholders, will enable the company withstand any potential threats, while initiatives are being taken to exploit the opportunities The plan for an integrated approach to rolling out LTE wireless data access is being reworked to include partnerships with re-sellers. The Company is working with ZICTA for an allocation of an efficient frequency spectrum for this project. CEC Africa during the year progressed the development of the under listed projects • Kudu Gas Power This is an 800 – 1050 MW gas-to-power project being developed in the south-west of Namibia. Based on the Joint Development Agreement, CEC Africa will participate as a joint developer with rights to acquire 30% equity estimated at USD112million, in the project Company. • Arandis 120MW HFO Power Plant This project comprises the construction of a hybrid thermal (120MW) and renewable (20MW) solar generation plant in Arandis, Namibia. CEC Africa has rights under the Joint Development Agreement to subscribe for 60% equity. • CEC Africa Sierra Leone 128MW HFO Plant The Project is expected to be one of the largest private sector investments in Sierra Leone to date. The Project consists of the building and operation of a 128 MW power plant over a concession period of 20 years granted on 21 July 2011 and will be built over three phases with the first 50 MW coming online at the end of 2015. The Project is being jointly developed by CEC Africa and TCQ Power Limited with CEC Africa having 50.1% in the project company. 15. Employees The total remuneration of employees during the year amounted to The Group K173,794 thousand (2012 : K117,768 thousand) The Company K112,675 thousand (2012 : K109,584 thousand) CEC Africa K2,312 thousand (2012: nil) Realtime Zambia K7,385 thousand (2012 : K7,134 thousand CEC Liquid K12,094 thousand (2012 : K8,916 thousand) >> DIRECTORS’ REPORT cont... >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 50. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 51 15. Employees (cont...) The average total number of employees was as follows: Month Number The Company RTAA CEC Liquid CEC Africa January 384 52 28 0 February 383 51 28 0 March 384 51 28 1 April 394 52 28 1 May 382 52 28 1 June 382 52 29 1 July 384 53 29 1 August 385 53 32 2 September 381 53 36 2 October 380 52 36 2 November 381 53 37 4,021 December 381 53 37 4,052 Average for the year 382 52 31 1* * The number of employees in CEC Africa increased with the acquisition of the investment in AEDC. However, the Group employed only one person for most of the year. 16. The Board Role of the Board The Board formulates the overall strategies and policies of the Company. The Board’s principal duty is to promote the long term success of the Company by creating and delivering sustainable shareholder value and also the achievement of any short term objectives. The Board is primarily responsible for the governance of Risk and Capital in order to ensure that the Group, Company and Subsidiaries operate as sustainable organisations capable of fulfilling their stated objectives over the long term. In order to fulfil the stated objectives, the Board must direct and control the business of the Group, Company and Subsidiaries. The Directors owe a fiduciary duty to the Group, Company and Subsidiaries and are accountable to the Shareholders. The Directors are also responsible, within the structure of the Articles of Association and any other applicable laws or regulatory provisions, to the other Stakeholders in the Group, Company and Subsidiaries. Board Composition The Articles of Association provide for the Board to comprise nine Non-Executive Director and three Executive Director positions. The Board has six Committees whose duties and responsibilities are set out in the respective terms of reference. The appointment and replacement of Directors is governed by its Articles of Association. On appointment, Directors are made aware of what is expected of them in terms of their duties as Directors in and outside Committee and Board meetings. Each new Director receives a formal induction, which includes presentation on the business, visits to Company key sites, an information pack that includes copies of; the Company’s Articles of Association, latest Annual Report and Accounts, Committee terms of reference and copies of recent Board and Committee minutes and supporting papers. The induction programme also addresses issues on governance and regulatory matters and Directors’ statutory duties. >> DIRECTORS’ REPORT cont...
  • 51. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES52 16. The Board (cont...) The Company has an Executive Chairman and in compliance with the Lusaka Stock Exchange Corporate Code of Governance, the Board has appointed a Non-Executive-Director as Deputy Chairperson. The Membership of the Board as at 31 December 2013 was: Executive Directors Hanson Sindowe - Chairperson Michael Tarney Neil Croucher - Retired on 27th August 2013 Non-Executive Directors Jean Madzongwe - Deputy Chairperson Abel Mkandawire Munakupya Hantuba Klaas Bleeker Reynolds C Bowa Charity Mwansa - Appointed on 30 May 2013 Mildred T Kaunda - Appointed on 6 November 2013 George K Zulu - Retired on 30 May 2013 Hampande Hachongo - Retired on 6 November 2013 Independent Non-Executive Directors Pius H Maambo Edson M Hamakowa Director Conflicts The Company has a formal Conflict of Interest policy on the declaration and management of conflicts of Directors and Officers of the Company. Any potential situation or transactional conflict by a Director must be reported to the Chairman or Company Secretary or declared at a meeting at which the matter is to be discussed at the Board. The Company maintains Directorss and Officers’ liability insurance providing appropriate cover for any legal action brought against its Directors and/or Officers. Board Evaluation The Board undertakes a self-assessment of its performance and that of the Committees and accordingly a formal evaluation of the performance and effectiveness of the Board and its Committees is done annually. Board Meetings and Directors’ Attendance All Directors are expected to allocate sufficient time to the Company to discharge their respective obligations and attend all Board and Committee meetings and also the Annual General Meeting. A Director may appoint an alternate Director by giving notice to the Company where they are unable to attend meetings. The alternate Director may attend, speak and vote on behalf of the Director for whom they have been appointed where Director is not himself present. During the year ended 31 December 2013, there were four scheduled Board meetings on 27 February, 30 May, 30 August and 27 November. The Committees each held four scheduled meetings prior to a scheduled Board meeting. In addition four adhoc special Board meetings were held on 28 March, 26 April, 25 July and 15 August. >> DIRECTORS’ REPORT cont... >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 52. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 53 16. The Board (cont...) Board Meetings and Directors’ Attendance (cont...) The tables below show attendance of Directors and alternates at Board and Committee meetings held during the year. Board EXCOM Audit Rem Business Dev. SHE Number of meetings held in the year 8 7 4 4 4 4 Director Hanson Sindowe 8 7 4 * 3 * Jean Madzongwe 8 6 3 * 4 * George Zulu 0 Charity Mwansa 1 * * * * * Edson Hamakowa 8 4 4 * * * Micheal Tarney 8 7 3 3 3 3 Abel Mkandawire 8 * * 4 * 4 Munakupya Hantuba 3 * * * 4 1 Reynolds Bowa 8 * * 4 4 4 Neil Croucher 2 1 1 1 * * Pius H Maambo 8 8 * 3 * 3 Klaas Bleeker 8 7 4 * 4 * Hampande Hachongo 7 3 3 * * * Mildred Kaunda 1 >> DIRECTORS’ REPORT cont...
  • 53. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES54 17. Board Committees The Board has established six Committees, which have confirmed terms of reference and procedures. The Committees report to the Board of Directors. Executive Committee Membership The members of the Committee during the year, were Jean Madzongwe (Chair), Hanson Sindowe, Klaas Bleeker, Michael Tarney, Reynolds Bowa and Owen Silavwe. Reynolds Bowa and Owen Silavwe joined the Committee, following the retirement of Hampande Hachongo and Neil Croucher. Key Responsibilities The Committee’s role is to oversee the major operations of the business including key customer issues, stakeholder matters financial performance, capital projects and management issues. The Committee provides a quick feedback and decision making process for matters pending formal or full Board approval, restricted, however, to its mandate. The Committee is critical to the success of the Company The Committee provided oversight on all principal corporate matters related to the Company’s operational activities, investments and financing and key business transactions during the year. This Committee meets as required as and when between meetings. The Committee held seven meetings in the year under review. Audit Committee Membership The members of the Committee are Edson Hamakowa (Chair), Mildred Kaunda, Klaas Bleeker, and Jean Madzongwe. Mildred Kaunda was appointed to the Committee after the reconstitution of the Board Committees on 26th November 2013. Key Responsibilities The Committee provides oversight on the effectiveness of the Group’s financial reporting systems and accuracy of information and that the Group’s published Financial Statements represent a true and fair reflection. The Committee ensures that appropriate accounting policies, controls and compliance procedures are in place and also risk management, compliance management and other internal control activities in the Company. During the Financial year, the Committee met four times. The Audit Committee comprises solely of Non-Executive Directors. The External Auditors of the Company and Senior Management are, however, in attendance at the meetings of the Committee. Remuneration and Employee Development Committee Membership The members are Abel Mkandawire (Chair), Pius Maambo, Michael Tarney, Owen Silavwe and Mildred Kaunda. The new members of the Committee are Owen Silavwe and Mildred Kaunda replacing Neil Croucher and Hampande Hachongo. Key Responsibilities The Committee oversees employee remuneration and Mineworkers Union of Zambia (MUZ) wage negotiations, key organisational changes, management and leadership development, pension scheme arrangements, training and employee development policies. The Committee is responsible for formulating remuneration policies and principles that promote the success of the Company. This Committee is responsible for senior management appointment, organisational structure, reviewing arrangements for succession planning and management development and determining the remuneration of employees. The Committee met four times in the year during which decisions were made in relation to the transfer of staff and the governance structure between the Company and its subsidiaries. The Committee’s objective was to ensure that the process of transferring staff out into the new subsidiaries did not result in any adverse impact on the Company. The Committee, therefore, directed that a policy document be put in place to regulate such movements. The policy is under development for implementation in the year 2014. >> DIRECTORS’ REPORT cont... >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 54. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 55 17. Board Committees (cont...) Further, in the preceding year the Committee considered the recommendation for confirmation of Owen Silavwe in the position of Managing Director-Operations following the re-assignment of Neil Croucher to the AEDC in Nigeria. The Committee further recommended the confirmation of Christopher Nthala as Director Operations. The Committee also considered the recommendation of the appointment of Humphrey Mulela as Managing Director in the subsidiary of CEC- Kabompo Hydro Power Limited (CEC-KHPL) and that of Lizzie Muwowo as Finance Director of KHP. Recommendations for the various appointments were all approved by the Board. Safety Health and Environment (SHE) Committee Membership The members of the Committee are Pius Maambo (Chair), Munakupya Hantuba, Abel Mkandawire and Owen Silavwe. Reynolds Bowa was a member of the SHE Committee until November when he was moved to the Executive Committee following Board changes. Senior Management is represented on the Committee by Michael Tarney, Owen Silavwe and Aaron Botha. Humphrey Mulela (Managing Director CEC Kabompo Hydro Power Limited) is also a member of the Committee. Key Responsibilities The Committee’s key mandate is to ensure that management of SHE matters in the Company is aligned with the overall business strategy of the Company and is geared towards attainment of its commitments and obligations in these fields. Governance The Committee comprises four Non-Executive Directors. The Committee met four times and focused on quarterly reviews of the safety, health and environmental performance of the company. The Committee approved and monitored on a quarterly basis, the implementation of the 2013 CEC SHE Top Drivers that were improving the CEC SHE Culture through addressing concerns raised from the employee SHE culture survey and also to improve SHE statistics over and above the 2012 performance. The Committee examined all significant SHE incidents during the year and followed through the recommended actions from the incidents until full closure. Further, the Committee spearheaded the development of and compliance with best practice and all applicable legislation on SHE and suggested best practice SHE reporting methodologies. In addition the Committee monitored the achievement and delivery of a number of regulatory and environmental milestones regarding the NFCA South East Ore Body and Kabompo Hydro Power Generation Projects. Business Development Committee Membership The Members of the Committee are Munakupya Hantuba (Chair), Hanson Sindowe, Michael Tarney, Klaas Bleeker, Jean Madzongwe and Reynolds Bowa. The Committee had five meetings during the year. Key Responsibilities The Business Development Committee was established in order to have a streamlined approach to the various business growth opportunities under consideration by the Company. The Committee provides focussed guidance to grow the Company’s business outside the core business in areas that will create value for the shareholders. During the year, the Committee had four scheduled meetings and several other adhoc meetings. The major projects reviewed in the year were, the acquisition of the AEDC and the investment in Shiroro Hydro Power Plant, both in Nigeria as well as the on-going developments in Namibia of the Kudu Gas Project and the Arandis HFO Project. The Committee also reviewed the Company’s renewable energy projects. >> DIRECTORS’ REPORT cont...
  • 55. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES56 17. Board Committees (cont...) Nominations Committee Membership The Committee is chaired by the Chairperson of the Board, Hanson Sindowe, and in addition comprises a Non-Executive Director, Mr Abel Mkandawire. Key Responsibilities The Committee is tasked with the responsibility of considering candidates for appointment to the Board and making recommendations for approval of Independent Directors, whose appointments are undertaken by the shareholders at the general meetings of the Company. The Nominations Committee makes appropriate recommendations for appointment of Directors following a careful and considered evaluation of the balance of skills, knowledge and experience and that there is diversity in Board membership. During the year the Nominations Committee met twice to review nominations for appointment of independent Non- Executive Directors and the composition and chairmanship of the various Board Committees. The Board confirmed and was satisfied that the composition of the Committees as recommended was appropriate having regard to the skills, knowledge and experience of the Directors and the size and nature of the Committee’s business. Directors Interests in Contracts With the exception of Madison General Insurance Company Limited, who provide insurance services and Standard Chartered Bank Zambia Plc who are the CEC’s bankers in which Abel Mkandawire and Edson Hamakowa are Directors respectively, the Company did not enter into contracts with any Company where a Director has material interests, whether directly or indirectly, at any time during the year. Directors’ interests in CEC As at 31 December 2013, the interests of Directors in the Company, as recorded in the register and on the Lusaka Stock Exchange, were as follows: 2013 2012 2011 Total ordinary issued Shares of the Company 1,000,000,000 1,000,000,000 1,000,000,000 Direct shareholding Hanson Sindowe 1,092,000 2,092,000 2,092,000 Michael J Tarney 1,838,000 1,838,000 1,230,000 Neil Croucher 5,369,000 5,269,000 4,581,000 Munakupya Hantuba 19,000 19,000 19,000 8,318,000 9,218,000 7,922,000 Indirect shareholding Hanson Sindowe 110,802,000 110,802,000 110,802,000 Michael J Tarney 61,513,000 61,513,000 61,513,000 Abel Mkandawire 56,584,000 56,584,000 56,584,000 228,899,000 228,899,000 228,899,000 18. Directors Fees and remuneration The Company paid K5,409 thousand to Executive Directors as remuneration and K1,274 thousand to Non-Executive Directors as directors’ fees. There were K753,970 and K16,220 outstanding loans as ESOP and motor Vehicle loans from Executive Directors at the year end. Members of the Board were not entitled to any form of defined pension benefits from The Company. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 >> DIRECTORS’ REPORT cont...
  • 56. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 57 i. Key Management The following held key management positions in The Group as at the reporting date: Function The Company RTAA CEC Liquid CEC AFRICA Chief Executive Officer Hanson Sindowe Samson Longwe Jerome Kawesha* Michael J Tarney Managing Director Operations/Chief Operating Officer Owen Silavwe Suzyo Chipeta Jonathan Soko n/a Managing Director Corporate Development Michael Tarney Ken Hyslop n/a n/a Chief Financial Officer Irene L Chibesakunda Mwape Chilufya Bright Tembo Mutale Mukuka Company Secretary Julia C Z Chaila Clara K Mvula Mevis K Chisanga Mauritius International Trust Company Limited *Jerome Kawesha resigned from CEC Liquid on 13 February 2014. Andrew Kapula was appointed to act and was appointed Managing Director with effect from 1 June 2014. 19. Power Dynamos Football Club The Company continues to sponsor Power Dynamos Football Club through direct funding. Funding during the year was K5,605 thousand (2012 : K5,045 thousand). 20. Gifts and donations CEC is committed to making a positive difference to the communities in which it operates. During the year the Company made donations to support a number of community initiatives and charitable causes. The donations in 2013 were K3,304 thousand (2012 : K838 thousand). 21. Other material facts, circumstances and events On 27th December 2013, a Rights Offer was made by way of renounceable rights on the basis of 5 rights offers shares for every 8 CEC shares held at K0.62 per share. The rights offer closed on 7th March 2014 and the gross proceeds were K387.5million. Of this, K330million was used to pay back the short term bridging finance from Standard Bank of USD55million included in the current liabilities as at 31st December 2013. In addition, in May 2014, The Company also entered into a USD120million long term debt of which USD90million was drawn down in June 2014. Of this drawdown, a further USD40million went to the repayment of the short term debt held at 31st December 2013. In addition, other short term liabilities were also repaid. These activities significantly changed the Company’s net current liability position from what it was at 31st December 2013. 22. 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. It is proposed that Messrs KPMG be appointed as auditors of the Company for the year 2014. By order of the Board Julia C Z Chaila Company Secretary >> DIRECTORS’ REPORT cont...
  • 57. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES58 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CEC’S COMPLIANCE STATUS OF CORPORATE GOVERNANCE RULES A review of CEC’s compliance with the LuSE Corporate Governance Code as at 31 December, 2013 showed that full compliance rate was at 96%. The summary of the compliance status is shown in the chart below: SUMMARY OF AREAS THAT ARE NOT FULLY COMPLIANT OR INAPPLICABLE 1. AREAS OF NON-COMPLIANCE i) The Board must have a charter or terms of reference defining its functions and setting out its responsibilities. ii) The details of the Board charter must be provided in the Annual Report. iii) The roles of the chairperson and chief executive officer must be performed by separate persons. 2. AREAS OF PARTIAL COMPLIANCE i) The audit committee or similar committee should review executive expense accounts. 3. AREAS NOT APPLICABLE i) Where share options have been granted to non-executive directors, the board must obtain the prior approval of share owners and meet the specific requirements of the Companies Act. 1% - NON COMPLIANT 3% - PARTIALLY COMPLIANT 96% - FULLY COMPLIANT
  • 58. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 59 CEC’S COMPLIANCE STATUS OF CORPORATE GOVERNANCE RULES 2013 LuSE CODE COMPLIANCE TABLE CATEGORY TOTAL RULES APPLCABLE TOCEC NOTAPPLCABLE TOCEC FULL COMLIANCE PARTIAL COMPLIANCE NON COMPLIANCE %NA %FC %PC %NC 1 General Matters 15 15 13 2 0 87 0 13 2 Chairman & CEO 5 4 1 4 22 100 0 0 3 Executive & Non Executive Directors 4 4 4 0 100 0 0 4 Director Compensation 9 9 8 1 0 89 11 0 5 Share & Share Dealings 4 3 1 3 28 100 0 0 6 Board Meetings 4 4 4 0 100 0 0 7 Board Evaluations 1 1 1 0 100 0 0 8 Company Secretary 3 3 3 0 100 0 0 9 Board Committees 10 10 10 0 100 0 0 10 Legal & Compliance 2 2 2 0 100 0 0 11 External Audit 6 6 6 0 100 0 0 12 Internal Audit 12 12 12 0 100 0 0 13 Risk 7 7 7 0 100 0 0 14 Integrated sustainability Reporting 7 7 7 0 100 0 0 15 Disclosure & stakeholder Reporting 4 4 4 0 100 0 0 16 Organisation Integrity 6 6 6 0 100 0 0 99 97 2 94 1 2 2 97 1 2
  • 59. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES60 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Section 164 (6) of the Companies Act 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 its Subsidiaries 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 whether due to fraud or error; • selecting appropriate accounting policies and applying them consistently; • making judgments and accounting estimates that are reasonable in the circumstances; and • preparing the financial statements in accordance with International Financial Reporting Standards, and on the going concern basis unless it is inappropriate to presume that the Group 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 Group and enable them to ensure that the financial statements comply with the Companies Act Cap 388. They are also responsible for safeguarding the assets of the Group hence taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that in their opinion: (a) the financial statements give a true and fair view of the financial position of Copperbelt Energy Corporation PLC and its subsidiaries as of 31 December 2013, 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 Group will be able to pay its debts as and when these fall due; and (c) the financial statements are drawn up in accordance with International Financial Reporting Standards. This statement is made in accordance with a resolution of the Directors. Signed at Lusaka on 26 June 2014 Director Director Director Hanson Sindowe Michael J. Tarney Edson Hamakowa >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 60. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 61 REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF COPPERBELT ENERGY CORPORATION PLC AND ITS SUBSIDIARIES Report on the Financial Statements We have audited the accompanying financial statements of Copperbelt Energy Corporation PLC and its Subsidiaries which comprise the statement of financial position as at 31 December 2013, and 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 58, the Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation and fair presentation of financial statements that are free from material misstatement; whether due to fraud or error. 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 about 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 whether due to fraud or error. 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 Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, 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 and its Subsidiaries as at 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of matter We draw attention to note 2 (b) to the financial statements which indicates that at the reporting date, the Group’s current liabilities exceeded its current assets by K652 million. This condition indicates the existence of a significant uncertainty which may cast doubt on the company’s ability to continue financing its working capital requirements. Our opinion is not qualified in respect of this matter. Report on Other Legal and Regulatory Requirements In our opinion, the financial statements of Copperbelt Energy Corporation PLC and its Subsidiaries as of 31 December 2013 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 Name of Partner signing on behalf of the Firm Lusaka Date: 26 June 2014
  • 61. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES62 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 IN K’000 NOTES 2013 2012 Revenue 5 1,706,730 1,358,747 Cost of sales (1,370,795) (975,199) Gross profit 335,935 383,548 Other operating income 6 38,987 51,285 Gain on bargain purchase 7 716,027 - Share of profit from associates 8 9,206 - Operating expenses 9 (500,206) (276,562) Results from operating activities 599,949 158,271 Finance income 10 22,664 6,990 Finance expense 11 (65,972) (7,322) Net finance cost (43,308) (332) Profit before tax 556,641 157,939 Income tax expense 12(a) (86,370) (48,617) Profit for the year 470,271 109,322 Other comprehensive income Foreign operation – foreign currency Translation difference (12,627) - Total comprehensive income 457,644 109,322 Total comprehensive income attributable to: Owner of the company 410,263 109,322 Non-controlling interest 47,381 - 457,644 109,322 Earnings per share Weighted basic and diluted earnings per share (Kwacha) 13 0.46 0.11 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 62. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 63 CONSOLIDATEDSTATEMENTOFCHANGESINEQUITYFORTHEYEARENDED31DECEMBER2013 INK’000 SHARE CAPITAL SHARE PREMIUM (b) REVALUATION RESERVES FOREIGN CURRENCY TRANSLATION RESERVE RETAINED PROFITS (a) NON- CONTROLLING ASSETS TOTAL Balanceat1January20121407,909517,127-310,081-835,257 Releaseofextradepreciation--(15,846)-15,846-- Comprehensiveincomefortheyear----109,322-109,322 Foreigncurrencytranslationdifference(c)---47,172--47,172 Totalcomprehensiveincomefortheyear--(15,846)47,172125,168-156,494 Transactionswiththeowners Dividendpaid----(56,093)-(56,093) Balanceat31December20121407,909501,28147,172379,156-935,658 Releaseofextradepreciation--(15,846)-15,846-- Comprehensiveincomefortheyear(d)----410,26347,381457,644 Foreigncurrencytranslationdifference---36,663--36,663 Totalcomprehensiveincomefortheyear--(15,846)36,663426,10947,381494,307 Transactionswithowners Acquisitionofsubsidiary-----1,066,0451,066,045 Transfertosharecapital9,860---(9,860)-- Dividendpaid----(20,000)-(20,000) Balanceat31December201310,0007,909485,43583,835775,4051,113,4262,476,010 a. Retainedearningsarethecarriedforwardrecognisedincome,netofexpenses,oftheGrouppluscurrentyear’sprofitattributabletoshareholders. b. Thesharepremiumrelatestotheexcessamountsreceivedontheissueofsharecapitalnetofpre-incorporationcosts. c. TheCompany’sfunctionalandpresentationalcurrencychangedfromtheUnitedStatesDollarstotheZambianKwachawitheffectfrom30June2012aftertheGovernmentofthe RepublicofZambiaissuedtheStatutoryInstrumentnumber33of2012whichprohibitedentitiesoperatinginZambiatochargeinforeigncurrencyfortheservicesprovidedwithin Zambia.Thisresultedinthetranslationofthegeneralledger.TheStatementofcomprehensiveincomeitemshavebeentranslatedusingtheaverageexchangeratesfortheyearasan approximationtotheactualexchangerate.Assetsandliabilitieshavebeentranslatedusingtheclosingexchangerate.Equityitemshavebeentranslatedattheclosingexchangerate. Anydifferencesarisingfromthisprocesshavebeenrecognisedintheforeigncurrencyreservesincludedintherevaluationreserves.Further,in2013,thecompanyinvestedinforeign assetswhosefunctionalcurrenciesareNigerianNairaandUnitedStatesDollars,thefinancialstatementsoftheseassetsweretranslatedinUnitedStatesDollarsandthenZambian Kwachausingtheaverageexchangeratesoftheincomestatementitemsandtheyearendrateforthestatementoffinancialpositionitem.Thedifferenceonthesetranslationshas resultedintheforeigncurrencytranslationswhichareaccountedforinthereservesasforeigncurrencytranslationdifference.
  • 63. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES64 COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 IN K’000 NOTES 2013 2012 Revenue 5 1,436,816 1,332,021 Cost of sales (1,030,885) (966,303) Gross profit 405,931 365,718 Other operating income 6 61,727 50,875 Operating expenses 9 (270,909) (258,761) Results from operating activities 196,749 157,832 Finance income 10 22,664 6,990 Finance expense 11 (24,244) (7,046) Net finance cost (1,580) (56) Profit before tax 195,169 157,776 Income tax expense 12(a) (69,982) (48,617) Profit for the year 125,187 109,159 Earnings per share Weighted basic and diluted earnings per share (Kwacha) 13 0.13 0.11 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 64. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 65 COMPANY STATEMENT OF MOVEMENTS IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013 IN K’000 SHARE CAPITAL SHARE PREMIUM REVALUATION RESERVES RETAINED PROFITS TOTAL Balance at 1 January 2012 140 207 515,476 320,474 836,297 Release of extra depreciation - - (15,846) 15,846 - Comprehensive income for the year - - - 109,159 109,159 Total comprehensive income - - (15,846) 125,005 109,159 Transactions with the owners Dividend paid - - - (56,093) (56,093) Balance at 31 December 2012 140 207 499,630 389,386 889,363 Release of extra depreciation - - (15,846) 15,846 - Comprehensive income for the year - - - 125,187 125,187 Total comprehensive income - - (15,846) 141,033 125,187 Transactions with the owners Transfer to share capital (f) 9,860 - - (9,860) - Dividend paid - - - (20,000) (20,000) Balance at 31 December 2013 10,000 207 483,784 500,559 994,550 a. Retained earnings are the carried forward recognised income, net of expenses, of the Company plus current year’s profit attributable to shareholders. b. The share premium relates to the excess amounts received on the issue of share capital net of pre-incorporation costs. c. At an Extraordinary General Meeting of the members of the company held on 26 July 2013, it was resolved to convert the issued share capital of 1,000,000,000 ordinary shares of par value USD0.0001 into stock comprising 1,000,000,000 stock units of USD0.0001 and thereafter re-convert the stock into 1,000,000,000 ordinary shares of K0.01. Accordingly, it was resolved to debit K9,860,000 of retained profits to pay up in full the amount of K0.009986 remaining unpaid on each ordinary share as a result of the re-denomination of the authorised and issued share capital.
  • 65. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES66 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 IN K’000 NOTES 2013 2012 ASSETS Non-current assets Property, plant and equipment 14(a) 3,782,014 1,222,569 Development costs 15 70,814 32,706 Intangible assets 16 22,910 - Investment in subsidiary 17 5 - Deferred tax asset 12 61 - Trade and other receivable 18 65,794 - Investments in associate 8 146,450 - 4,088,048 1,255,275 Current assets Inventories 21 37,051 19,973 Trade and other receivables 22 352,055 308,485 Amount due from related parties 33(i) 6,659 1,059 Cash and cash equivalents 23 176,826 21,733 572,591 351,250 Total assets 4,660,639 1,606,525 EQUITY AND LIABILITIES Capital and reserves Share capital 24 10,000 140 Share premium 7,909 7,909 Revaluation reserve 485,435 501,281 Foreign currency reserve 83,835 47,172 Retained profits 775,405 379,156 Attributable to the owners 1,362,584 935,658 Non- controlling interest 1,113,426 - Total equity 2,476,010 935,658 Non-current liabilities Interest-bearing loans 25 694,706 94,254 Obligation under finance lease 26 302 - Non-current trade and other payables 27 118,107 103,073 Deferred employee benefits 28 44,786 34,258 Amounts due to related party 33 (ii) 11,460 - Deferred tax liability 12(e) 91,117 87,643 960,478 319,228 Current liabilities Current portion of interest-bearing loans 25 513,857 55,201 Loan from related companies 29 12,678 - Bank overdraft 30 65,211 857 Trade and other payables 32 586,750 259,316 Amount due to related parties 33(ii) 484 6,963 Tax payable 12(c) 45,171 29,302 1,224,151 351,639 Total liabilities 2,184,629 670,867 Total equity and liabilities 4,660,639 1,606,525 The financial statements on pages 60-109 were approved by the Board of Directors on 26 June 2014 and were signed on its behalf by: H. Sindowe E. Hamakowa M. Tarney Director Director Director
  • 66. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 67 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 IN K’000 NOTES 2013 2012 ASSETS Non-current assets Property, plant and equipment 14(b) 1,174,971 1,144,730 Development costs 15 70,814 32,706 Investment in subsidiaries 17 10 - Investments in joint ventures 19 78,498 78,498 Loan to subsidiary 20 235,431 - 1,559,724 1,255,934 Current assets Inventories 21 20,575 16,689 Loan to subsidiary 20 288,502 - Trade and other receivables 22 189,982 278,165 Amount due from related parties 33(i) 48,156 14,024 Cash and cash equivalents 23 59,853 20,831 607,068 329,709 Total assets 2,166,792 1,585,643 EQUITY AND LIABILITIES Equity Share capital 24 10,000 140 Share premium 207 207 Revaluation Reserve 483,784 499,630 Retained earnings 500,559 389,386 994,550 889,363 Non-current liabilities Interest-bearing loans 25 55,100 93,972 Non-current trade and other payables 27 95,137 103,073 Deferred employee benefits 28 43,212 34,258 Deferred income 31 44,931 48,387 Deferred tax liability 12(e) 91,117 87,643 329,497 367,333 Current liabilities Current portion of interest-bearing loans 25 513,857 55,201 Trade and other payables 32 234,918 243,727 Bank overdrafts 30 64,214 716 Amounts due to related party 33(ii) - 1 Tax payable 12(c) 29,756 29,302 842,745 328,947 Total liabilities 1,172,242 696,280 Total equity and liabilities 2,166,792 1,585,643 The financial statements on pages 60-109 were approved by the Board of Directors on 26 June 2014 and were signed on its behalf by: H. Sindowe E. Hamakowa M. Tarney Director Director Director
  • 67. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES68 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013 IN K’000 2013 2012 Cash flow from operating activities Profit before taxation 556,641 157,939 Depreciation 86,083 72,418 Interest expense 65,972 7,322 Interest income (22,664) (6,990) Gain on bargain purchase 716,027 - Loss on disposal of assets (368) 6,546 Cash inflows before working capital changes 1,401,691 237,235 Increase/(decrease) in inventories (17,078) 357 Increase in trade and other receivables (109,364) (67,126) Increase in trade and other payables 342,468 60,948 Increase in amount due from related party (5,600) (834) Increase/(decrease) in amount due to related party 4,981 (5,006) Increase in provisions 10,528 8,192 Interest paid (65,972) (7,322) Income tax paid (66,054) (85,165) Net cash inflows on operating activities 1,495,600 141,279 Investing activities Acquisition of property, plant and equipment (136,354) (206,984) On acquisition of subsidiary (2,588,583) - Proceeds from disposals of assets 1,019 11,529 Acquisition of intangible assets (22,910) - Investment in subsidiary and associate (146,455) - Increase in development costs (38,108) (32,706) Interest received 22,664 6,990 Net cash outflows from investing activities (2,908,727) (221,171) Financing activities Repayment of loans (48,566) (54,545) Finance leases obtained 302 - Related party loan received 12,678 - Loan received 1,107,674 33,834 Dividends paid (20,000) (56,093) Net cash inflow/(outflow) on/(from) financing activities 1,052,088 (76,804) Net decrease in cash and cash equivalents (361,039) (156,696) Cash and cash equivalents at 1 January 20,876 78,822 Effect of exchange rate changes on the balance of cash held in foreign currency 451,778 98,750 Cash and cash equivalents at 31 December 111,615 20,876 Represented by: Bank balances and cash 111,615 20,876
  • 68. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 69 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013 IN K’000 2013 2012 Cash flow from operating activities Profit before taxation 195,169 157,776 Depreciation 53,643 67,540 Interest expense 24,244 7,046 Interest income (22,664) (6,990) Profit on disposal of assets (482) (2,102) Cash inflows before working capital changes 249,910 223,270 (Increase)/decrease in inventories (3,886) 3,436 Decrease/(increase) in trade and other receivables 88,183 (31,459) Increase in amounts due from related parties (34,132) - Decrease in amounts due to related parties (1) - (Decrease)/increase in payables (16,745) 50,230 Increase/(decrease) in provisions 5,498 (8,192) Interest paid (24,244) (7,046) Income tax paid (66,054) (85,165) Net cash inflows on operating activities 198,529 145,074 Investing activities Acquisition of property, plant and equipment (84,421) (118,680) Proceeds from disposals of assets 1,019 - Interest received 22,664 6,990 Investment in subsidiaries (10) - Loan to subsidiary (523,933) - Development costs (38,108) (15,863) Net cash outflows from investing activities (622,789) (127,553) Financing activities Repayment of loans (48,566) (54,427) Receipts from loans 468,350 33,834 Dividends paid (20,000) (57,115) Net cash inflow/(outflow) on/(from) financing activities 399,784 (77,708) Net decrease in cash and cash equivalents (24,476) (60,187) Cash and cash equivalents at 1 January 20,115 76,539 Effect of exchange rate charges on the balance of cash held in foreign currency - 3,763 Cash and cash equivalents at 31 December (4,361) 20,115 Represented by: Bank balances and cash 59,853 20,831 Bank overdrafts (64,214) (716) (4,361) 20,115
  • 69. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES70 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 1. The Group The principal activities of the Group are the generation, transmission, distribution and sale of electricity and telecommunication service provision. 2. Principal accounting policies The principal accounting policies applied by the Group in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. (a) Basis of consolidation The consolidated financial statements include the financial statements of the parent Company and its subsidiary companies made up to the end of the financial year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date of their acquisition or up to the date of their disposal. Intercompany transactions and profits are eliminated on consolidation and all income and profit figures relate to external transactions only. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. Losses incurred are allocated to the non-controlling interest in equity until this value is nil, at which point any subsequent losses are allocated against the interests of the parent. (b) Basis of preparing the financial statements – going concern assumption The Group and the Company reported a profit of K458 million and K109 million respectively. The Group profit includes a one off gain of K716 million arising from the gain on bargain purchase on the acquisition of the subsidiary, Abuja Electricity Distribution Plc; without which the Group would have recorded a loss of K258 million. At the reporting date the Group and Company’s current liabilities exceeded the current assets by K652 million and K236 million respectively. Further, at the reporting date loan amounts repayable within twelve (12) months amounted to K514 million and overdrafts due on demand amounted to K64 million in relation to the Company. The borrowings of the Group amounted to K1,209 million an equivalent of USD220 million. These borrowings have a long term maturity of seven (7) years before the principal falls due and a moratorium of two (2) years in the interest payment. The Company meets its day to working capital requirements through funds generated from its operations. The financial statements have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The validity of this assumption depends on the Company being able to generate sufficient funds from its future activities to meet its working capital requirements and obtaining renewed financing from rights issue proceeds and long term debt financing. If the Group were unable to continue in operational existence for the foreseeable future, adjustments would have to be made to reduce the statement of financial position values of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify fixed assets and long term liabilities as current assets and liabilities. After reviewing the available information including the Group’s strategic plans and continuing support from the Group’s working capital funders, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. (c) Basis of presentation The financial statements are prepared in accordance with the provisions of the Companies Act and International Financial Reporting Standards (IFRS). The financial statements are presented in accordance with IAS 1 “Preparation of financial statements” (Revised 2007). The Group has elected to present the “Statement of Comprehensive income” in one statement namely the “Statement of Comprehensive Income”. The financial statements have been prepared under the historic cost convention, as modified by the revaluation of property, plant and equipment, available-for-sale financial assets, and financial assets and liabilities at fair value through profit or 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 Group’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.
  • 70. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 71 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (d) Foreign currencies (i) Presentational and functional currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Group operates (the ‘functional currency’). The financial statements are presented in Zambian Kwacha, which is also the Group’s functional currency. (ii) Transactions and balances Other currency transactions are translated into the functional currency using the rates of exchange prevailing at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in other foreign currencies are recognised in the income statement. Translation differences on non-monetary items, such as equity at fair value through profit and loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in fair value reserve in equity. The Company’s functional and presentational currency is Zambian Kwacha with effect from 30 June 2012 after the Government of the Republic of Zambia issues the statutory instrument number 33 of 2012 which prohibits entities operating in Zambia to charge in foreign currency for the services provided within Zambia (ii) Statement of comprehensive income items have been translated using the average exchange rate for the year as an approximation to the actual exchange rate. Assets and liabilities have been translated using the closing exchange rate. Equity items have been translated at the closing exchange rate. Any differences arising from this process have been recognised in other comprehensive income. Exchange differences arising on been transferred to the foreign exchange reserve within equity. The following exchange rates have been applied: KWACHA: USD Average Closing exchange rate exchange rate Year ended 31 December 2010 4.7966 4.79611 Year ended 31 December 2011 4.8621 5.11704 Year ended 31 December 2012 5.1395 5.14661 Year ended 31 December 2013 5.3800 5.51000 All historical financial information, except where specifically stated, is presented in Zambian Kwacha rounded to the nearest K’thousand. (iii) Basis of translating transactions and balances Foreign currency transactions are translated into the functional currency using the rates of exchange prevailing at the date of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in statement of comprehensive income.
  • 71. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES72 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (e) New and revised standards that are effective for annual periods beginning on or after 1 January 2013 A number of new and revised standards are effective for annual periods beginning on or after 1 January 2013. Information on these new standards is presented below. IFRS 10 ‘Consolidated Financial Statements’ (IFRS 10) IFRS 10 supersedes IAS 27 ‘Consolidated and Separate Financial Statements’ (IAS 27) and SIC 12 ‘Consolidation- Special Purpose Entities’. IFRS 10 revises the definition of control and provides extensive new guidance on its application. These new requirements have the potential to affect which of the Group’s investees are considered to be subsidiaries and therefore to change the scope of consolidation. The requirements on consolidation procedures, accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary are unchanged. Management has reviewed its control assessments in accordance with IFRS 10 and has concluded that there is no effect on the classification (as subsidiaries or otherwise) of any of the Group’s investees held during the period or comparative periods covered by these financial statements. IFRS 11 ‘Joint Arrangements’ (IFRS 11) IFRS 11 supersedes IAS 31 ‘Interests in Joint Ventures’ (IAS 31) and SIC 13 ‘Jointly Controlled Entities- Non- Monetary-Contributions by Venturers’. IFRS 11 revises the categories of joint arrangement, and the criteria for classification into the categories, with the objective of more closely aligning the accounting with the investor’s rights and obligations relating to the arrangement. In addition, IAS 31’s option of using proportionate consolidation for arrangements classified as jointly controlled entities under that Standard has been eliminated. IFRS 11 now requires the use of the equity method for arrangements classified as joint ventures (as for investments in associates). The Group’s only joint arrangement within the scope of IFRS 11 is its 50% investment in Realtime Africa and CEC Liquid, which was accounted for using the equity accounting consolidation method under IFRS 11. The Company has assessed the carrying amount of the investment for impairment as at 1 January 2012 and has concluded that no impairment loss is required. IFRS 12 ‘Disclosure of Interests in Other Entities’ (IFRS 12) IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities. Notes 10 illustrate the application of IFRS 12 in the current year. Consequential amendments to IAS 27 ‘Separate Financial Statements’ (IAS 27) and IAS 28 ‘Investments in Associates and Joint Ventures’ (IAS 28) IAS 27 now only addresses separate financial statements. IAS 28 brings investments in joint ventures into its scope. However, IAS 28’s equity accounting methodology remains unchanged. IFRS 13 ‘Fair Value Measurement’ (IFRS 13) IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair-valued. The scope of IFRS 13 is broad and it applies for both financial and non-financial items for which other IFRSs require or permit fair value measurements or disclosures about fair value measurements except in certain circumstances. IFRS 13 applies prospectively for annual periods beginning on or after 1 January 2013. Its disclosure requirements need not be applied to comparative information in the first year of application. The Company has however included as comparative information the IFRS 13 disclosures that were required previously by IFRS 7 ‘Financial Instruments: Disclosures’. Amendments to IAS 19 ‘Employee Benefits’ (IAS 19) The 2011 amendments to IAS 19 made a number of changes to the accounting for employee benefits, the most significant relating to defined benefit plans. The amendments: • eliminate the ‘corridor method’ and requires the recognition of re-measurements (including actuarial gains and losses) arising in the reporting period in other comprehensive income; • change the measurement and presentation of certain components of the defined benefit cost. The net amount in profit or loss is affected by the removal of the expected return on plan assets and interest cost components and their replacement by a net interest expense or income based on the net defined benefit asset or liability; • enhance disclosures, including more information about the characteristics of defined benefit plans and related risks. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 72. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 73 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (f) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. IFRS 9 ‘Financial Instruments’ (IFRS 9) The IASB aims to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39) in its entirety with IFRS 9. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning on or after 1 January 2015. Chapters dealing with impairment methodology and hedge accounting are still being developed. Further, in November 2011, the IASB tentatively decided to consider making limited modifications to IFRS 9’s financial asset classification model to address application issues. Management does not expect to implement IFRS 9 until it has been completed and its overall impact can be assessed. Investment Entities – Amendments to IFRS 10, IFRS 12 and IAS 27 The Amendments define the term ‘investment entity’, provide supporting guidance and require investment entities to measure investments in the form of controlling interests in another entity at fair value through profit or loss. Management does not anticipate a material impact on the Company’s consolidated financial statements. 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. (g) Business combinations On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net asset acquired is credited to the statement of comprehensive income in the period of acquisition. Changes in the Group’s ownership interest that do not result in a loss of control are accounted for as equity transactions. Purchase of non-controlling interests are recognized directly within equity being the difference between the fair value of the consideration paid and the relevant share acquired of the carrying value of the net assets to the subsidiary. Contingent and deferred consideration arising as a result of acquisitions is stated at fair value. Contingent and deferred consideration is based on management’s best estimate of the likely outcome and best estimate of fair value, which is usually, but not always, a contracted formula based on a multiple of net profit after tax. Prior to 1 October 2009 business combinations were accounted for under the provisions of the previous version of IFRS 3 such that acquisition costs were not expensed.
  • 73. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES74 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (h) Revenue recognition Revenue comprises revenue from sale of services from major products as shown in note 5. Revenue is recognized when significant risks and rewards of ownership have been transferred to the buyers and no significant uncertainties remain regarding the derivation of consideration, associated costs or the possible return of goods. Revenue comprises the fair value of consideration received or receivable for the sale of the Group’s products in the ordinary course of the Group’s activities. Revenue is shown net of trade allowances, duties and taxes paid and after eliminating sales within the Group. (i) 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 Group 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 – 8.3 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 reporting 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. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 74. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 75 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (j) Leased assets Where fixed assets are financed by leasing agreements which give rights approximating to ownership (finance leases) the assets are treated as if they had been purchased and the capital element of the leasing commitments is shown as obligations under finance lease. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged to the statement of comprehensive income over the period of the lease so as to produce a constant periodic rate of interest in the remaining balance of the liability under the lease agreement for each accounting period. Rentals payable under operating leases are charged to the statement of comprehensive income over the term of the relevant lease and in accordance with the terms of the relevant leases. (k) Lease of land Leases of land are classified as operating leases on the basis that although land has infinite economic life and the right to use the land passes on acquisition, ownership has a fixed lease term of 99 years, or the unexpired portion thereof. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease as an operating lease expense. (l) Computer Software and Licences Licences that have a finite useful life are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of the assets over their estimated useful lives. Licences that have an indefinite useful life are not amortised and are assessed for impairment annually. Computer software is carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis over the assets’ estimated useful life of 5 years. Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software. Costs capitalised include external direct costs of materials, services, direct payroll and payroll related costs of employees’ time spent on the project. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
  • 75. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES76 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (m) Financial assets The Group 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 Group 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 Group 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 Group’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 Group will not be able to collect all amounts due according to their original terms. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Financial assets are derecognised when the rights to receive cash flows from them have expired or where they have been transferred and the Group 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 Group’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 Group establishes fair value by using valuation techniques. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 76. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 77 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (n) Impairment of assets (i) Financial assets carried at amortised cost The Group assesses at each reporting 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 Group 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 Group, including: • adverse changes in the payment status of issuers or debtors in the Group; or • national or local economic conditions that correlate with defaults on the assets in the Group. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If the Group 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 loans 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.
  • 77. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES78 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (n) Impairment of assets cont... (ii) Financial assets carried at fair value The Group assesses at each reporting 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). (o) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on a weighted average basis and includes all expenditure incurred in bringing the inventories to their present location and condition. Net realisable value is the price at which inventory can be realised in the normal course of business and takes into account all directly related costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow moving and defective inventories. (p) 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. (q) 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. (r) 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. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 78. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 79 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (s) Short/long term indebtedness Short term indebtedness includes all amounts due to be repaid within twelve months from the reporting date, including instalments due on loans of longer duration. Long term indebtedness represents all amounts repayable more than twelve months from the reporting date. (t) 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. (u) Employee benefits (i) Pension obligations All local employees below 55 years are registered with the statutory defined contribution pension scheme. A defined contribution scheme is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees’ benefits relating to employee service in the current and prior periods. For the defined contribution scheme, the Group makes mandatory contributions to the National Pension Scheme Authority. These contributions constitute net periodic costs and are charged to the income statement as part of staff costs in the year to which they relate. The Group has no further obligation once the contributions have been paid. Secondly, there is a defined contribution pension scheme, the assets of which are held in a separate trustee-administered fund. The pension scheme is funded by contributions to the pension scheme. The contributions by the Group are charged to the income statement in the period to which the contributions relate. The Group contributes 10.7% and the employees 5% of the employee’s basic salary towards the scheme. (ii) Deferred employee benefits The expected costs of providing post-retirement benefits under defined benefits arrangements relating to employees service during the period are charged to the statement of income. Any actuarial assumptions are recognized immediately in the statement of income. In all cases, the pension costs are assessed in accordance with the advice of independent qualified actuaries but require the exercise of significant judgements in relation to assumptions for future salary and pension increases, long term price inflation and investment returns. While management believes the assumptions used are appropriate, a change in assumptions would impact the earnings of the Group.
  • 79. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES80 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (v) Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. (w) Dividend distribution Dividend distribution to the Group’s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the Group’s shareholders. (x) Investments Investments are stated at cost. (y) Environmental costs The Group is subject to various regulations and environmental costs are charged to the income statement as they are incurred. (z) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (aa) Intangible assets Goodwill Goodwill arising on an acquisition of a business is carried at its value as established at the date of acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment, goodwill is allocated to each of the Group’s cash generating units (or Groups of cash generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash- generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful lives and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 80. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 81 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (aa) Intangible assets cont... Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised. (ab) Grants Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the relates assets. However, contributions from the government in its capacity as a shareholder are accounted for as capital contributions of equity in nature. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. However, government grants where it is assessed that the government is acting in its capacity as a shareholder are accounted for as capital contributions. Grants and transfers of assets from customers Capital and revenue grants and transfers of assets from customers are credited to deferred income within non-current liabilities. Pursuant to the applicable industry regulations, the Group occasionally receives contributions from its customers for the construction of grid connection facilities, or is assigned such assets that must be used to connect those customers to a network and provide them with ongoing access to a supply of goods or services, or both. As the installation received is considered to be payment for ongoing access to the supply of the goods and services, it is credited to deferred income and released to profit or loss over the estimated operational lives of the related assets. Revenue grants and transfers of assets from customers are released to profit or loss over the period in which they are intended to contribute to expenditure incurred. (ac) Earnings per share The Group presents weighted basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to the shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. (ad) Segment reporting IFRS 8 requires segments to be identified on the basis of the internal reports about operating units of the Group that are regularly reviewed by the Board of Directors to allocate resources and to assess their performance. A segment is a distinguishable component of the Group that is engaged either in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment revenue is based on the geographical location of customers.
  • 81. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES82 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 2. Principal accounting policies cont... (ae) Equity and reserves Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. The revaluation reserve within equity comprises gains and losses due to the revaluation of property, plant and equipment. This reserve is non-distributable. Foreign currency translation differences arising from translating to presentational currency and translating foreign operations are included in the capital reserve and foreign exchange reserve. These reserves are non- distributable. Retained earnings include all current and prior period results as disclosed in the statement of comprehensive income. Dividend distributions payable to equity shareholders are included in ‘Dividends payable’ when the dividends have been approved in a general meeting prior to the reporting date. All transactions with owners of the parent are recorded separately within equity. 3. Critical accounting estimates and judgements The preparation of financial statements in conformity with adopted IFRS requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income, expenses and contingent liabilities. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and judgements are under continuous review. Significant accounting judgements (i) Translating presentational currency Management have applied the average monthly exchange rate as an approximation to the actual exchange rate for the purposes of translating the Group’s USD transactions into Zambian Kwacha. The Directors have conducted an exercise to evaluate the impact of these fluctuations on the presentation of the Group’s results and has concluded that the application of the average exchange rate is a reasonable approximation to the actual rate. (ii) Estimated useful lives and residual values of property, plant and equipment The Group’s management determines the estimated useful lives and related depreciation charge for its items of property, plant and equipment on an annual basis. The Group has carried out a review of the residual values and useful lives of property, plant and equipment as at 31 December 2013 and the management has not highlighted any requirement for an adjustment to the residual lives and remaining useful lives if the assets for the current or future periods. (iii) Impairment of trade receivables The Group reviews its receivables to assess impairment on a regular basis. The Group’s credit risk is primarily attributable to its receivables. In determining whether impairment losses should ne reported in profit or loss, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows. Accordingly, an allowance for impairment is made where there is an identified loss event or condition which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 82. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 83 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 3. Critical accounting estimates and judgements cont... Significant accounting judgements cont... (iv) Provision for obsolete inventory The Group reviews is inventory to assess loss on account of obsolescence on a regular basis. In determining whether provision for obsolescence should be recorded in profit or loss, the Group makes judgements as to whether there is any observable data indicating that there is any future saleability of the product and the net realizable value for such product. Accordingly, provision for obsolescence is made where the net realizable value is less than cost based on best estimates by the management, ageing of inventories and historical movement of the inventory. Revenue of the energy industry in which the Group operates is such that the Group’s revenue recognition is subject to a degree of estimation. The assessment of energy sales to retail customers is based on meter readings, which are carried out on a systematic basis throughout the year. Revenue from the sale of energy to retail customers is the value of units supplied during the year and includes an estimate of the value of the units supplied to customers between the date of their last meter reading and the period end based on industrial practice. At the end of each accounting period, amounts of energy delivered to customers since the last billing date are estimated and the corresponding unbilled revenue is estimated and recorded in revenue. Similarly, in the case of prepaid meter customers, an estimate is made by management for unearned revenue as at year-end in line with industrial practice. (v) Impairment of property, plant and equipment In certain circumstances, property, plant and equipment are required to be reviewed for impairment. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of the expected future cash flows of the relevant Cash Generating Unit (“CGU”), or disposal value if higher. The discount rate applied is based on the Group’s weighted average cost of capital with appropriate adjustments for the risks associated with the CGU. Estimates of cash flows involve a significant degree of judgement and are consistent with management’s plans and forecasts. vi) Contingencies Appropriate recognition and disclosure of contingent liabilities is made regarding litigation, tax matters, and environmental issues, among others. Accounting for contingencies requires significant judgement by management regarding the estimated probabilities and ranges of exposure to potential loss. The evaluation of these contingencies is performed by various specialists inside and outside of the Group. The Company’s assessment of the Group’s exposure to contingencies could change as new developments occur or more information. The outcome of the contingencies could vary significantly and could materially impact the Group’s results and financial position. The Company has used its best judgement in applying IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ to these matters. (vii) Valuation of deferred tax The recognition of deferred tax assets requires an assessment of future taxable profit. Deferred tax assets are only recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. The availability of future taxable profits depends on several factors including the Group’s future financial performance and if necessary, implementation of tax planning strategies.
  • 83. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES84 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 4. Management of financial risk 4.1 Financial risk The Group is exposed to a range of financial risks through its financial assets and financial liabilities. The most important components of this financial risk are interest rate risk, foreign exchange risk and credit risk. These risks are exposed to general and specific market movements. The Group manages these positions with a framework that has been developed to monitor its customers and return on its investments. 4.2 Credit risk The Group has exposure to credit risk, which is the risk that a counter party will be unable to pay amounts in full when due. The key area where the Group is exposed to credit risk is amounts due from customers. The Group’s exposure to credit risk is influenced mainly by individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk. Approximately 39% of the Group’s revenue is attributable to sales transactions with a single customer. The Group enters into Agreements with new customers, each customer is analysed individually for creditworthiness before credit terms and conditions are offered. The Group’s review includes trade references from other suppliers, when available, and in some cases bank references. Credit limits are established for each customer, which represents the maximum open amount without requiring approval from the senior management; these limits are reviewed annually. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a cash basis. All the Group’s customers have been transacting with the Group for over five years, and losses have occurred infrequently. In monitoring customer credit risk, customer supplies are within the predetermined credit limits, and further supplies are restricted if amounts remain outstanding for more than 60 days regardless of the amount. Trade and other receivables relate mainly to the Group’s mining customers and other legal entity customers that account for 99% and 1% respectively. Customers that are graded as “high risk” are those for whom outstanding amounts exceed 60 days, and such customers are placed on a restricted customer list, and future electricity supplies are restricted. The Group does not require collateral for trade and other receivables. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main component of this allowance relates to individually significant exposures, and a collective loss component is established for Groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment of statistics for similar financial assets. 4.3 Capital management The Group’s objective when managing capital is to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Group has complied with all capital requirements of its funders. The Group sets the amount of capital in proportion to its overall financing structure. The Group manages the capital structure and makes adjustments to it in the light of the economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of the dividends paid to shareholders, return capital to shareholders, issues new shares, or sell assets to reduce debt. IN K’000 2013 2012 Capital structure GROUP COMPANY GROUP COMPANY Cash and cash equivalents 111,615 (4,361) 20,876 20,115 Interest bearing liabilities (1,208,563) (568,957) (149,455) (149,173) Equity 2,476,010 994,550 935,658 889,363 1,379,062 421,232 807,079 760,305 The Directors define capital as equity plus cash less borrowings and its financial strategy in the short term is to minimize the level of debt in the business whilst ensuring sufficient finances are available to continue the Group’s business activities. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 84. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 85 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 4. Management of financial risk cont... 4.4 Foreign exchange risk The Group is exposed to foreign exchange risk arising from exchange rate fluctuations. Foreign currency denominated purchases and sales, together with foreign currency denominated borrowings, comprise the currency risk of the Group. These risks are minimized by matching the foreign currency receipts to the foreign currency payments as well as holding foreign currency bank accounts and export sales. 4.5 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.The Group uses activity-based costing to cost its products and services, which assist it in monitoring cash flow requirements and optimizing its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. 4.6 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. 4.7 Interest rate risk The Group is exposed to interest rate risk to the extent of the balance of the bank accounts and loans.
  • 85. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES86 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 5. Segmental reporting An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s Board of Directors to make decisions about the allocation of resources and assessment of performance about which discrete financial information is available. Gross margin information is sufficient for the Board of Directors to use for such purposes. The Board of Directors reviews information regarding the operating divisions, which match the main external revenues earned by the Group, and management information regarding the operating assets and liabilities of the main business divisions within the Group. 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY (i) Revenue by business segment Electricity transmission 1,591,055 1,369,268 1,278,088 1,278,088 Wheeling – domestic 61,749 61,749 49,240 49,240 Rural electrification 5,799 5,799 4,693 4,693 Telecoms Unit 48,127 - 26,726 - 1,706,730 1,436,816 1,358,747 1,332,021 Cost of sales (1,370,795) (1,030,885) (975,199) (966,303) Gross profit 335,935 405,931 383,548 365,718 Central operating costs (500,206) (270,909) (276,562) (258,761) Gain on bargain purchase 716,027 - - - Share of profit from Associate 9,206 - - - Other income 38,987 61,727 51,285 50,875 Operating profit 599,949 196,749 158,271 157,832 Finance costs (43,308) (1,580) (332) (56) Profit before tax 556,641 195,169 157,939 157,776 IN K’000 ZAMBIAN OTHER REGION TOTAL (i) Revenue by region Electricity transmission 1,369,268 221,787 1,591,055 Wheeling – domestic 61,749 - 61,749 Rural electrification 5,799 - 5,799 Telecoms Unit 48,127 - 48,127 Cost of sales (1,087,598) (283,197) (1,370,795) Gross (loss)/profit 397,345 (61,410) 335,935 Central operating costs (294,916) (205,290) (500,206) Gain on bargain purchase - 716,027 716,027 Share of profit from Associate - 9,206 9,206 Other income 28,960 10,027 38,987 Operating profit 131,389 468,560 599,949 Finance costs (1,187) (42,121) (43,308) Profit before tax 130,202 426,439 556,641 IN K’000 ELECTRICITY TRANSMISSION WHEELING DOMESTIC OTHERS TOTAL (iii) Operating assets Non - current assets 3,905,195 47,600 135,253 4,088,048 Trade receivables and inventories 376,981 4,556 14,228 395,765 Cash, cash equivalents 111,367 - 2,248 113,615 4,393,543 52,156 151,729 4,597,428 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 86. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 87 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 6. Other operating income 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Capital charge - - 4,407 4,407 Power trading 17,057 17,057 - - Recharge of services rendered to CEC Africa - 30,917 - - Sundry income 21,930 13,753 46,878 46,468 38,987 61,727 51,285 50,875 7. Gain on bargain purchase On 1 November 2013, KANN Utility Company Limited acquired a 60% interest in Abuja Electricity Distribution Company (“the Sub-subsidiary”) by acquiring 60% of the shares and voting interests in the Sub-subsidiary. The Sub-subsidiary is in the business of marketing and distributing electricity to retail customers within the Federal Capital Territory (FCT) and the surrounding states which includes Niger, Kogi and Nasarawa. KANN was setup for the sole purpose of acquiring AEDC and the directors believe that by taking control of AEDC, the Group would be able to improve operations of AEDC by bringing to bear expertise available within the Group in terms of supply of electricity, reduction of ATC&C losses amongst others and generate returns for the shareholders. In the two months to 31 December 2013, AEDC contributed revenue of USD47 million and loss of USD28 million to the Group’s results. If the acquisition had occurred on 1 January 2013, the directors’ estimates that consolidated revenues would have been USD0.22 billion. In determining these amounts, the directors have assumed that the fair value adjustments, determined provisionally, that arose on the acquisition date would have been same if the acquisition had occurred on 1 January 2012. The following summarizes consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the acquisition date. Consideration transferred GROUP USD K’000 Purchase consideration 164,136,940 883,057 Identifiable assets acquired and liabilities assumed Property, plant and equipment 481,149,475 2,588,584 Intangible assets 127,875 688 Inventories 3,479,781 18,721 Cash and cash equivalents 11,486,585 61,798 Unearned revenue in relation to prepaid meter sales (864,472) (4,651) Net identifiable assets at the acquisition date 495,379,244 2,665,140 Less: 60% interest in net assets acquired (297,227,546) (1,599,084) Gain on bargain purchase (133,090,606) (716,027)
  • 87. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES88 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 7. Gain on bargain purchase cont... If new information obtained within one year from the acquisition date, about facts and circumstances that existed at the acquisition date identifies adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the acquisition accounting will be revised. The shareholding of the Subsidiary as at 31 December 2013 is as follows: NUMBER OF ORDINARY SHARES INTEREST (%) KANN Utility Company Limited 6,000,000 60% Bureau of Public Enterprises 3,200,000 32% Ministry of Finance Incorporated 800,000 8% 10,000,000 100% 8. Share of profit in associate (net of tax) GROUP COMPANY USD K’000 USD K’000 Balance at start - - - - Acquisition during the period 24,900,000 137,560 - - Share of profit of investment in associate, net of tax 1,711,219 9,206 - - Share of foreign currency Translation reserves (32,341) (316) - - At 31 December 26,578,878 146,450 Details of investments are as follows: NAME OF COMPANY NUMBER & CLASS OF SHARES % HOLDING COST OF INVESTMENT COUNTRY OF INCORPORATION North South Power Limited 100,000,000 Ordinary shares 20 24,900,000 Nigeria As per the subscription and shareholders’ agreement dated 10 July 2013, CEC Lenux Investments Limited has a commitment to buy up to 40% of the ordinary share capital of the investee. CEC Lenux’s shares in North South Power (NSP) are pledged in favour of Zenith Bank, Nigeria. The following table summarises the financial information of North South Power Limited as included in its own financial statements for the year ended 31 December 2013. USD Total assets 281,237,821 Total liabilities (222,007,786) Total equity 59,230,035 Revenue 24,582,498 Cost of sales (3,623,057) General and administrative expenses (1,842,225) Finance costs (6,799,676) Taxation (3,761,447) Profit after tax – 100% 8,556,093 Other comprehensive loss – 100% (161,705) Group’s share of profit, net of tax – 20% 1,711,219 Group’s share of OCI – 20% (32,341) >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 88. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 89 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 9. Operating expenses 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Depreciation 86,083 53,643 72,418 67,541 Personnel and staff related costs (i) 173,794 112,675 117,768 109,584 Non-executive directors’ fees and benefits 2,102 1,274 916 905 Auditors’ remuneration–audit services 2,464 406 428 262 Auditors’ remuneration–tax services 50 50 50 50 Insurance costs 12,227 9,820 9,849 8,870 Stores and maintenance 16,312 16,312 22,344 22,303 Football expenses 5,861 5,861 5,045 5,045 Impairment provision/(written back) - - 221 185 Bad debts provision 20,147 51 - - Project costs 82,970 29,164 - - Donations 3,304 3,304 - - Other operating expenses 94,892 38,349 47,523 44,016 500,206 270,909 276,562 258,761 i) Personnel and staff related costs Salaries and wages 127,051 66,080 65,054 58,706 Retirement benefits 4,313 4,313 5,198 5,155 Pension contributions and similar costs 12,472 12,472 21,377 21,300 differential, housing and bonuses) 23,996 23,996 19,208 17,649 Staff medical costs 4,020 3,889 3,620 3,486 Staff training 1,942 1,925 3,311 3,288 173,794 112,675 117,768 109,584 10. Finance income Interest on overdue debtors 3,262 3,262 6,601 6,601 Bank interest 19,402 19,402 389 389 22,664 22,664 6,990 6,990 11. Finance expenses Interest on bank loans 47,248 24,244 7,322 7,046 Interest on related party 13,834 - - - Exchange differences 4,890 - - - 65,972 24,244 7,322 7,046
  • 89. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES90 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 12. Income tax expense 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY (a) Charge for the year: Income tax on taxable profit @ 35% (2012 @ 35%) 82,029 66,508 55,948 55,948 Deferred taxation 4,341 3,474 (7,331) (7,331) 86,370 69,982 48,617 48,617 (b) Reconciliation of the tax charge: Profit before taxation 556,641 195,169 157,939 157,776 Taxation at current rate on accounting profit 84,258 68,309 55,279 55,222 Permanent differences: Disallowable expenses (565) (721) 599 101 Profit on disposal of assets (180) (169) (1,413) (1,411) Timing differences: Capital allowances and depreciation 2,563 2,563 (5,258) (5,295) Tax losses brought forward (1,787) - - - Tax losses carried forward 2,081 - (590) - Tax charge 86,370 69,982 48,617 48,617 (c) Movements in taxation payable account: At the beginning of the year 29,302 29,302 57,580 57,580 Charge for the year (note 12(a)) 82,029 66,508 55,948 55,948 Exchange differences (106) - 939 939 Payments made during the period (66,054) (66,054) (85,165) (85,165) At the end of the year 45,171 29,756 29,302 29,302 (d) Deferred taxation This represents: Accelerated tax allowances 90,103 91,362 88,633 88,633 Unrealised exchange losses (245) (245) (990) (990) 89,858 91,117 87,643 87,643 (e) Analysis of movement: At the beginning of the year 87,643 87,643 94,974 94,974 Tax asset (61) - - - Exchange difference (806) - - - Provision made during the year (note 12(a)) 4,341 3,474 (7,331) (7,331) At the end of the year 91,117 91,117 87,643 87,643 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 90. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 91 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 13. Earnings per share The calculation of earnings per share is based on:- • Retained profit for the year attributable to ordinary shareholders; and • Number of ordinary shares outstanding during the year. 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Retained profit for the year attributed to ordinary shareholders 457,644 125,187 109,322 109,159 Number of ordinary shares 1,000,000 1,000,000 1,000,000 1,000,000 Diluted earnings per share (Kwacha) 0.46 0.13 0.11 0.11 The Group has no additional potential shares outstanding. Diluted earnings per share The calculation of diluted earnings per share was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares. The denominator used in the calculation for the Basic Earnings per Share (EPS) is 1,000,000,000 for both 2013 and 2012.
  • 91. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES92 >>NOTESTOTHEFINANCIALSTATEMENTS-31DECEMBER2013cont... >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 14. Property,plantandequipment (a)Groupsummary INK’000 Leasehold& improvements buildings Transmission &Distribution network(Primary) Transmission &Distribution network (Secondary) Equipment fixtures&fittings ISPequipment& fibre Motorvehicles Capitalwork-in progress TOTAL Cost/valuation At1January2012103,296877,668285,63739,6323,19230,90057,9561,398,281 Additions2068,409-16932378137,976206,984 TransfersfromCWIP259108,1677,6251,7336284,129(122,541)- Transfertodevelopmentcost------(32,706)(32,706) Disposals--(19,591)--(178)-(19,769) At31December2012103,5751,054,244273,67141,5343,85235,22940,6851,552,790 Onacquisition98,6602,442,386-1,671--45,8662,588,583 Additions-5,651-8328282,303126,740136,354 TransferfromCWIP1,8183,7094,6281,03749111,063(22,746)- Transfertodevelopmentcost------(38,108)(38,108) Disposals-----(4,058)-(4,058) Effectofmovementin exchangerate (754)(39,660)-(13)-(7)(216)(40,650) At31December2013203,2993,466,330278,29945,0615,17144,530152,2214,194,911 Depreciation At1January20124,02475,221128,24630,7282,02819,250-259,497 Chargefortheyear2,78043,25519,2663,2885503,279-72,418 Disposals--(1,598)--(96)-(1,694) At31December20126,804118,476145,91434,0162,57822,433-330,221 Onacquisition-------- Chargefortheyear2,94258,58516,0423,1896454,680-86,083 Disposals---(8)-(3,399)-(3,407) At31December20139,746177,061161,95637,1973,22323,714-412,897 Netbookvalue At31December2013193,5533,289,269116,3437,8641,94820,816152,2213,782,014 At31December201296,771935,768127,7577,5181,27412,79640,6851,222,569
  • 92. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 93 >>NOTESTOTHEFINANCIALSTATEMENTS-31DECEMBER2013cont... 14. Property,plantandequipmentcont... (b)Companysummary INK’000Buildings Transmission &Distribution network(Primary) Transmission &Distribution network (Secondary) Equipment fixtures&fittings Motorvehicles Capitalwork-in progress TOTAL Cost/valuation At1January2012102,299877,205285,63738,55629,08352,1701,384,950 Additions-----134,543134,543 TransfersfromCWIP150103,4287,6251,2194,129(116,551)- Disposals--(19,591)-(168)-(19,759) Transfertodevelopmentcosts-----(32,706)(32,706) At31December2012102,449980,633273,67139,77533,04437,4561,467,028 Additions-----122,529122,529 TransfersfromCWIP1,8183,7094,62893211,063(22,150)- TransfertoDevelopmentcosts-----(38,108)(38,108) Disposals----(3,560)-(3,560) At31December2013104,267984,342278,29940,70740,54799,7271,547,889 Depreciation At1January20123,98175,195128,24630,36818,615-256,405 Chargefortheyear2,57739,87919,2283,0562,800-67,540 Disposals--(1,560)-(87)-(1,647) At31December20126,558115,074145,91433,42421,328-322,298 Chargeforyear2,21428,71116,0422,7273,94953,643 Disposals----(3,023)-(3,023) At31December20138,772143,785161,95636,15122,254-372,918 Netbookvalue At31December201395,495840,557116,3434,55618,29399,7271,174,971 At31December201295,891865,559127,7576,35111,71637,4561,144,730
  • 93. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES94 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 14. Property, plant and equipment cont... c. A schedule listing the properties as required by Section 164 and the Second Schedule of the Companies Act, Cap 388 of the Laws of Zambia is available for inspections by Members or their duly authorised representatives at the registered office of the Company. d. Included in cost of property, plant and equipment are fully depreciated assets amounting to K59,600 thousand (2012 : K54,300 thousand). The notional depreciation not charged in these financial statements on these assets amounts to K3,973 thousand (2012 : K3,459 thousand). e. The transfer of some of the title to property, transferred from ZCCM Investments Holdings (ZCCM –IH) has not yet been concluded, but is in progress. f. No interest on capital borrowings was capitalized to property, plant and equipment. g. At 31 December 2009 the Company’s properties were revalued by Bitrust Real Estate, Rainbow Surveys Limited and Sherwood Greene registered valuers on the basis of realizable market value. The Company’s primary transmission assets were revalued internally on the basis of depreciated replacement cost. The surplus on revaluation totaling K15,846 thousand was transferred to a revaluation reserve. h. The Company has vehicles valued at K8,927 thousand(2012: K8,770 thousand) under operating leases with Barclays Bank (Z) Ltd. These assets have not been capitalised in the Company’s books and are, therefore, not included as part of property, plant and equipment. i. In the year under review K38,108 thousand (2012: K32,706 thousand) was transferred from work in progress to developmental costs relating to the development of Kabompo Hydro Power station. j. Estimation of useful life of property, plant and equipment The Group at CEC Africa levels, has used its internal engineers to evaluate the useful lives of items of property, plant and equipment based on the level of network performance and the equipment manufacturers estimated/recommended useful life. Reassessment of useful life has been performed as at year end. k. These Consolidated financial statements exclude the value of certain assets such as land on which the distribution assets and buildings are located as the Group is still in the process of acquiring title to those land. As land is an operating lease in Nigeria, which is typically paid up front, the directors do not believe that the omission of the values materially misstate the Consolidated financial statements. In addition, the Group continues to use for free certain NIPP assets and PPE items (mainly buildings) that have been transferred to NELMCO. The Directors believe that as at the year end, based on agreements in place as well as communication with the respective parties, the Group has no obligations with regards to this assets at the year end and these do not constitute leases. l. Capital work in progress represents ongoing construction works on substations handled by third party vendors not yet completed as at year end. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 94. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 95 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 15. Project development costs IN K’000 2013 2012 At cost At the beginning of the year 32,706 16,843 Arising during the year 38,108 15,863 At the end of the year 70,814 32,706 The project development cost relates to the cost incurred on behalf of a 100% subsidiary Kabompo Hydro Power Company, towards the construction of a power station. The results of this operations have not been consolidated since the project is still under development stages and has not yet commenced trading. 16. Intangible assets IN K’000 ACCOUNTING SOFTWARE CAPITAL WORK IN PROGRESS TOTAL Cost 22,679 231 22,910 Carrying value 31 December 2013 22,679 231 22,910 The directors have considered the risk that the software in progress is impaired and have concluded based on development of the software post year end that it is not imported. 17. Investments in subsidiaries 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY At cost Investment in CEC- Kabompo Hydro Power Company 5 5 - - Investment in CEC Africa - 5 - At the end of the year 5 10 - - The Company’s interests in its subsidiaries, which are unlisted is as follows: NAME OF COMPANY COUNTRY OF INCORPORATION ASSETS LIABILITIES REVENUES PROFIT INTEREST CEC- Kabombo Hydro Power Company Zambia 70,814 - - - 100% CEC Africa Investments Ltd and subsidiary Mauritius 614,129 571,739 29,468 42,385 100% 684,943 571,739 29,468 42,385
  • 95. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES96 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 18. Trade and other receivables 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Margin deposit (USD11,940,840) 65,794 - - - 65,794 - - - (i) Margin deposit relates to USD12 million deposited in the Debt Service Reserve Account maintained with creditor bank. The amount is held as lien in line with the terms and conditions under which the Company was granted a loan of USD122 million for financing of its acquisition of a 60% interest in Abuja Electricity Distribution Company. 19. Investments in joint ventures IN K’000 2013 2012 At cost At the beginning of the year 78,498 4,659 Acquired during the year (CEC Liquid) - 73,839 At the end of the year 78,498 78,498 (a) The Company’s interests in the joint ventures are as follows: NAME OF COMPANY COUNTRY OF INCORPORATION ASSETS LIABILITIES REVENUES 31 DEC PROFIT INTEREST Realtime Technology Alliance Africa Zambia 15,036 12,444 38,685 2,552 50% CEC Liquid Telecommunications Limited Zambia 197,393 46,922 57,569 (6,996) 50% 212,429 59,366 96,254 (4,444) (b) The Company reports its interest in the joint venture at cost of it’s proportionate investment in the joint venture. 20. Loan to subsidiary IN K’000 2013 2012 Paid during the year 504,754 - Interest charged during the year (note 10) 19,184 - At the end of the year 523,938 - Balance due within one year 288,502 - Balance due in more than a year 235,431 - Balance at the end of the year 523,933 - The Company availed CEC Africa loans totaling USD91,607,000 during the year. By 31st December 2013, the loans had accrued interest of USD3,482, 000. The loans were advanced under four agreements of USD21m, USD23m, USD41m and USD8m (USD6.607m drawn down and bears interest at LIBOR plus 8.5%, 8.5%, 5% and 8% respectively. The USD21m and USD23m loans are fully repayable by February, 2014 and have an option of converting the repayable amount (including the accrued interest) into shares in CEC Africa. The USD8m loan is fully repayable by June 2014 and has an option of converting the repayable amount (including accrued interest) into shares in CEC Africa Investment Limited. The USD41m is fully repayable by April 2020 and also has an option of converting the repayable amount (including accrued interest) into shares in CEC Africa. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 96. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 97 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 21. Inventories 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Fuel 12,551 12,551 13,685 13,685 Spares and consumables 24,500 8,024 6,288 3,004 37,051 20,575 19,973 16,689 22. Trade and other receivables 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Trade receivables 329,802 172,763 250,202 244,185 Less: impairment of debt (11,091) (10,663) (10,791) (10,612) 318,711 162,100 239,411 233,573 Prepayments and deposits 122,035 4,096 15,198 14,673 Other receivables (a) 24,282 23,786 53,876 29,919 352,055 189,982 308,485 278,165 (a) Other Receivables (i) The other receivables include K4,874 thousand (2012: K10,760 thousand) due from employees under a Share Ownership Plan (ESOP), created by the Company in 2007 to allow members of staff to obtain loans to purchase shares in the Company. (b) The Group’s exposure to credit, currency and impairment losses related to trade and other receivables are disclosed in note 35. 23. Cash and cash equivalents 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Bank balances 176,738 59,771 21,685 20,790 Petty cash 88 82 48 41 176,826 59,853 21,733 20,831 The company’s exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in note 35.
  • 97. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES98 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 24. Share capital IN K’000 2013 2012 Authorized 2,000,000,000 (2012: 1,000,000,000) Ordinary shares of 1 Ngwee each (2012: 0.014 ngwee each) 20,000 14,000 1 Special Share of K1.40 - - Issued and fully paid 1,000,000,000 (2012: 1,000,000,000) Ordinary shares of 1 Ngwee each (2012: 0.014 Ngwee each) 10,000 140 1 Special Share of K1.40 - - a. The rights relating to the Special Share include the right to convene, receive notice for and attend any general meeting of the Company or any meeting of any class of shareholders of the Company and to add items to the agenda. b. After the rebasing of the Zambian Kwacha in January 2013, the Company’s nominal share capital fell below 1 Ngwee. A transfer from revenue reserves of K9,860 thousand was made from Revenue Reserves to Ordinary Share Capital to comply with PACRA requirements of minimum nominal Share capital being at least 1 Ngwee. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 98. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 99 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 25. Interest bearing loans 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY At the beginning of the year 149,455 149,173 170,163 169,766 Received during the year 1,107,674 468,350 33,834 33,834 Payments during the year (48,566) (48,566) (54,542) (54,427) 1,208,563 568,957 149,455 149,173 Amounts due within one year (513,857) (513,857) (55,201) (55,201) At the end of the year 694,706 55,100 94,254 93,972 Group 2013 2012IN K’000 Capital Payment Interest Principal Capital Payment Interest Principal Less than 1 year 513,857 - 513,857 55,201 7,322 55,201 More than 1 year 694,706 - 694,706 94,254 - 94,254 1,208,563 - 1,208,563 149,455 7,322 149,455 Company 2013 2012IN K’000 Capital Payment Interest Principal Capital Payment Interest Principal Less than 1 year 513,857 14,233 513,857 55,201 7,046 55,201 More than 1 year 55,100 - 55,100 93,972 - 93,972 568,957 14,233 568,957 149,173 7,046 149,173 a. The Company obtained loans from Standard Bank of USD41 million (K220,400 thousand) and USD45 million (K247,950 thousand) bearing interest of LIBOR plus 3% and 8.5% respectively The loans are payable in March 2014. b. The Company’s facility with Citibank Zambia, Citibank N. A. London and DEG loan of K31,732 thousand is made up of four tranches totalling; (A) Knil, (B) K13,224 thousand, (C) K9,325 thousand and (D) K9,183 thousand. Tranche A loan bears an interest of LIBOR plus 2.3%, tranches B and C bear interest at LIBOR plus 2.5%, while Tranche D bears interest of LIBOR plus 3.375% . Tranche A loan was fully repaid by December 2012. Tranches B and C are repayable in 13 equal instalments to end by December 2014 while tranche D obtained in April 2011 is repayable in 12 equal instalments to end by February 2014. c. The K68,875 thousand owed by the Company to African Life Financial Services is made of two tranches. Tranche A loan of K55,100 thousand bears interest of LIBOR plus 2.5% and will be fully repaid by March 2019. The loan has a five year grace period and will be repaid in four semi annual instalments commencing in September 2017. Tranche B loan of K13,755 thousand bears interest of LIBOR plus 4% and will be fully repaid by April 2014.
  • 99. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES100 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 25. Interest bearing loans cont... a. On 22 August 2013, KANN Utility Company Limited obtained a long-term loan of USD122 million from a consortium of local and foreign commercial banks for the purpose of part payment of the outstanding consideration amount on acquisition of a 60% interest in Abuja Electricity Distribution Plc. The loan carries interest at LIBOR plus 8.5% and is compounded quarterly with a moratorium on interest payment till 31 December 2015 when the first interest payment would be due. The principal loan amount is repayable on the seventh anniversary i.e. 22 August 2022. The long-term loan is secured by: (i) Lien on the 60% shares of the Company in its subsidiary, AEDC; (ii) Pledge of the equity investment of the shareholders in the Company; (iii) A first fixed and floating charge over the shares of the Company in AEDC; (iv) A first charge over the various facility accounts in favour of the creditor bank on behalf of the Company; (v) Corporate guarantee of CEC Africa; and (vi) A security deposit of USD40 million to be transferred to the Debt Service Reserve Account (“DSRA”) with USD12 million payable before disbursement of the facility and USD28 million payable 180 days after facility disbursement i.e. on 21 February 2014. The covenant mentioned in covenant (vi) above, regarding making additional deposit of USD30 million has not been complied with. The Company has entered into an arrangement with creditor bank for a 3 months extension for depositing the additional DSRA balance of USD28 million. The interest bearing loans and borrowings, which are measured at amortised cost. The details of the Company’s exposure to interest rate, foreign currency and liquidity risk is in note 35. 26. Obligation under finance leases IN K’000 2013 2012 At beginning of period Receipts during the year 854 - Repayments during the year (372) - At end of period 482 - Repayable within the next one year (included in trade payable) 180 - Repayable after more than one year 302 - 482 - >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 100. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 101 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 27. Non - current trade and other payables 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY CNMC Luanshya Copper Mines (note a) 56,371 56,371 56,371 56,371 Accrued interest on loans 22,970 - - - Less amounts payable to CNMC LCM within one year (4,105) (4,105) - - 75,236 52,266 56,371 56,371 First Quantum Mining and Operations (note b) 42,871 42,871 46,702 46,702 118,107 95,137 103,073 103,073 a. The CNMC Luanshya Copper Mines (CLM long term creditor relates to the procurement of transmission assets in Luanshya area from CLM). The credit is interest free and repayment is over seven years upon reaching certain milestones. The assets were acquired in December 2012. At the inception of the agreement, the Company recognised an asset and liability at an amount equal to the fair value of the equipment. In 2013, the agreed threshold of 196,244,000Kwh was reached, hence a payment of K4,105 thousand is due in 2014. b. The First Quantum Mining and Operations (FQM) long term creditor relates to the procurement of transmission assets in Ndola area from FQM. The credit is interest free and repayment is over ten years effective from the date when the conditions of the agreement will be met. The assets were acquired in December 2008. At the inception of the agreement, the Company recognised an asset and liability at an amount equal to the fair value of the equipment. The movement between 2012 and 2013 is attributed to charges of capital charge income levied by CEC. c. The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 35. d. Accrued interest related to the interest on the long term interest bearing loans that is not yet payable. See note 25(d).
  • 101. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES102 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 28. Deferred employee benefits The Company has established a defined contribution pension scheme for its employees, membership of which is compulsory. In addition, the Company provides further benefits to its employees based on the salary of each employee on retirement. The Company’s obligations, based on overall retirement benefits, are accounted for as a defined benefit scheme. (i) Actuarial assumptions An actuarial valuation was carried out for the financial year ended December 2013. Assumptions for the Actuarial Valuation are as below: Retirement benefit valuation done as per Table A shown below. Salary increases have been assumed at 10%. Investment returns will exceed future inflation by 4% per annum. Discount rate of 10% has been used on future cash flows. Mortality is assumed as per actuarial assumptions. Withdrawals have been put at a rate of 12.5% at age 20 reducing to nil at age 50 and thereafter. Table A Age Annual rate 20 12.5% 25 10.0% 30 7.5% 35 7.5% 40 5.0% 45 2.5% 50 0.0% 55 0.0% Normal retirement age for the Company is 55 years. (ii) The amounts recognised in the statement of financial position are as follows: 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Present value of unfunded obligation 44,786 43,212 34,258 34,258 Recognized liability for defined benefit obligation 44,786 43,212 34,258 34,258 Total employee benefits 44,786 43,212 34,258 34,258 (iii) Movement in the present value of retirement/redundancy obligations: 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY At the beginning of the year 34,258 34,258 26,066 26,066 Retirement provisions 14,046 12,472 15,476 15,476 Benefits paid (3,518) (3,518) (7,284) (7,284) At the end of the year 44,786 43,212 34,258 34,258 2,579 2,579 3,359 3,359 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 (iv) Expense recognized in the income statement operating costs
  • 102. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 103 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 29. Loans from related companies 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Loan from Lenux Partners (USD2,300,000) 12,678 - - - 12,678 - - - 30. Bank overdraft 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Stanbic Bank Kitwe (a) 64,214 64,214 - - Citibank Zambia Limited - - 716 716 Other banks 997 - 141 - 65,211 64,214 857 716 a. The Company has an overdraft facility of USD10 million, general short term banking facility of K40 million and a bridge facility of USD40 million. The USD overdraft bears interest at 1 month LIBOR plus 7.5%. The K40 million facility bears interest at 1% above the Bank of Zambia Policy Rate. The Group exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in note 35. 31. Deferred income In 2012, CEC entered into an Indefeasible right of use agreement of the excess capacity on its Telecoms Assets with CEC Liquid Telecommunications Limited for a period of 15 years with a consideration of K51,843 million. The consideration is being amortised over 15 years. IN K’000 2013 2012 At the beginning of the year 48,387 51,843 Armotisation for the year (3,456) (3,456) At the end of the year 44,931 48,387 32. Trade and other payables 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Trade creditors 437,983 203,650 221,914 220,656 Accrued expenses 25,852 7,740 6,853 6,032 Other creditors 118,142 18,755 26,213 12,703 Social security and PAYE 4,773 4,773 4,336 4,336 586,750 234,918 259,316 243,727
  • 103. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES104 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 33. Due from/to related parties 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY (i) Due from related parties CEC Africa - 37,934 - - Realtime - 1,165 - 5,631 CEC Liquid - 9,057 - 8,393 Transaction Payment Solution - - 1,059 - Other liquid companies (share of) 6,076 - - - Other Realtime related (share of) 583 - - - 6,659 48,156 1,059 14,024 (ii) Due to related parties RTAA Zimbabwe (share of) 61 - 61 - Other liquid companies (share of) 423 - 6,901 - Zambian Energy Corporation - - 1 1 Xerxes Global Investments 11,460 - - - 11,944 - 6,963 1 34. Related party transactions The following transactions were carried out with related parties: Group Related parties Nature of relationship Nature of transaction Transactions during the period Balances as at 31 December 2013 USD Copperbelt Energy Corporation PLC Shareholder Interest expense Loan payable (3,481,611) (95,088,611) (3,481,611) (95,088,611) Xerxes Global Investments Ltd Shareholder Loan payable (4,379,206) (4,379,206) Lenux Partners Ltd Related party Loan payable (2,300,000) (2,300,000) Nishati Related party Receivable 1,987,707 1,987,707 Blue Flare Related party Receivable 1,114,388 1,114,388 Mauritius International Trust Company Ltd Administrator Administration fees 1,000 1,000 Company Related parties Nature of relationship Nature of transaction Transactions during the period Balances as at 31 December 2013 USD CEC Africa Shareholder Recharges Amounts receivable (37,934) 30,917 (37,934) 30,917 Realtime Joint Venture Telecom Sales Amounts receivable Telecom purchases (339) 1,165 639 (339) 1,165 639 CEC Liquid Joint Venture Telecom sale Amounts receivable (1,271) 9,057 (1,271) 9,057 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 104. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 105 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 34. Related party transactions cont... (i) Directors’ remuneration A listing of the members of the Board of Directors is included in the Directors’ report. During the year, Directors received cash remuneration for services rendered to the company of K1,369 thousand(2012: K916 thousand). (ii) Executive management remuneration (Executive management team, excluding directors (shown in (ii) above)) 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Short-term employment benefits 18,561 18,561 20,018 17,281 Post employment benefits 1,146 1,146 570 502 Total remuneration 19,707 19,707 20,588 17,783 (iii) Individual shareholders Three shareholders of the Group are also executive directors. The Group pays salaries and provides other benefits to three of the individual shareholders that are in employment with the Group. (iv) Zambian Energy Corporation Limited Two of the Zambian Energy Corporation Limited representatives on the Company’s Board are also executive directors. Both executive directors are also individual shareholders in the Company. The Company pays salaries and provides other benefits to the two members that are in employment with the Company. 35. Financial instruments Exposure to currency, interest rate, credit and liquidity risk arises in the normal course of the Group’s business. (o) Credit risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: 2013 2012 CARRYING AMOUNT CARRYING AMOUNT IN K’000 GROUP COMPANY GROUP COMPANY Trade and other receivables 352,055 238,138 308,485 292,189 Cash and cash equivalents (111,615 (4,361) 20,876 20,115 240,440 233,777 329,361 312,304 The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: 2013 2012 CARRYING AMOUNT CARRYING AMOUNT IN K’000 GROUP COMPANY GROUP COMPANY Domestic 39,400 28,309 4,310 27,600 Others 149,601 5,990 6,481 6,481 189,001 34,299 10,791 34,081 The Company’s most significant customer, Konkola Copper Mines Plc accounts for K71,582 thousand of the trade receivables carrying amount at 31 December 2013 (2012 : K153,332 million).
  • 105. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES106 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 35. Financial instruments cont... (ii) Impairment losses The aging of trade receivables at the reporting date was: Group 2013 2012IN K’000 Gross amount Impaired amount Net amount Gross amount Impaired amount Net amount Days 0-21 135,949 - 135,949 135,374 - 135,374 22-45 165,574 - 165,574 61,893 - 61,893 46-59 - - - - - - Over 60 28,279 (11,091) 17,616 52,935 10,791 42,144 329,802 (11,091) 318,711 250,202 10,791 239,411 Company 2013 2012IN K’000 Gross amount Impaired amount Net amount Gross amount Impaired amount Net amount Days 0-21 135,949 - 135,949 132,874 - 132,874 22-45 8,535 - 8,535 59,393 - 59,393 46-59 - - - - - - Over 60 28,279 (10,663) 17,616 51,918 10,612 41,306 172,763 (10,663) 162,100 244,185 10,612 233,573 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY At the beginning of the year 10,791 10,612 147,278 147,268 New provision 300 83 412 184 Write back of impairment loss - (32) (136,899) (136,840) At the end of the year 11,091 10,663 10,791 10,612 The collectability of receivables is assessed at the reporting date and specific allowances are made for any doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off during the year in which they are identified. The write back in 2012 was as a result of agreeing a 5 year tariff plan with KCM. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 106. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 107 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 35. Financial instruments cont... (iii) Liquidity risk The following are the contractual maturities of financial liabilities: Group IN K’000 CARRYING AMOUNT CONTRACTUAL CASH FLOWS WITHIN 1 YEAR 1 TO 2 YEARS 2 TO 5 YEARS LONGER THAN 5 YEARS 31 December 2013 Non-derivative Financial liabilities Loans 1,208,563 1,272,294 55,201 81,787 161,718 973,588 Trade payables 673,520 673,520 555,413 22,970 - 95,137 Other payables 31,337 31,337 31,337 - - - Total 1,913,420 1,972,151 641,951 104,757 161,718 1,068,725 31 December 2012 Non-derivative Financial liabilities Loans 149,455 149,455 55,201 42,788 - 51,466 Trade payables 324,987 324,987 221,914 - - 103,073 Other payables 37,402 37,402 23,071 - - - Total 511,844 511,844 300,186 42,788 - 154,539 Company IN K’000 CARRYING AMOUNT CONTRACTUAL CASH FLOWS WITHIN 1 YEAR 1 TO 2 YEARS 2 TO 5 YEARS LONGER THAN 5 YEARS 31 December 2013 Non-derivative Financial liabilities Loans 568,957 568,957 513,857 - 13,775 41,325 Trade payables 302,892 207,754 207,754 - - 95,137 Other payables 27,163 27,163 27,163 - - - Total 899,012 803,874 748,774 - 13,775 136,462 31 December 2012 Non-derivative Financial liabilities Loans 149,173 149,173 55,201 42,506 - 51,466 Trade payables 323,729 220,656 220,656 - - 103,073 Other payables 23,071 23,071 23,071 - - - Total 495,973 392,900 298,928 42,506 - 154,539
  • 107. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES108 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 35. Financial instruments cont... (iv) Currency risk Exposure to currency risk The Company’s exposure to foreign currency risk was as follows based on notional amounts: 2013 2012 IN K’000 GROUP COMPANY GROUP COMPANY Trade receivables 88,187 6,612 6,482 6,482 Other receivables 133,820 - - - Other payables (347,661) (173) (4,518) (4,518) Balance sheet net exposure (125,654) 6,439 1,964 1,964 The following significant exchange rates applied during the year: Average rate 2013 2012 ZMW ZMK USD1 5.38 5,140 (v) Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with carrying amounts shown in the balance sheet are as follows: 31 December 2013 Group At fair value through income statement IN K’000 Designated on initial recognition Classified as held for trading Held to maturity investments Loans and receivables Fair value for each class Financial assets Receivables - - - 384,505 384,505 Other receivables - - - 146,317 146,317 Cash and cash equivalents - - - 176,738 176,738 Total financial assets - - - 707,560 707,560 Financial liabilities Loans - - - 1,221,241 1,221,241 Trade payables - - - 437,983 437,983 Other payables - - - 525,405 525,405 Total financial liabilities - - - 2,184,629 2,184,629 Net position - - - 1,477,069 1,477,069 >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 108. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 109 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 35. Financial instruments cont... (v) Fair values cont... Fair values versus carrying amounts The fair values of financial assets and liabilities, together with carrying amounts shown in the balance sheet are as follows: 31 December 2013 Company At fair value through income statement IN K’000 Designated on initial recognition Classified as held for trading Held to maturity investments Loans and receivables Fair value for each class Financial assets Receivables - - - 250,354 239,564 Other receivables - - - 52,582 52,582 Cash and cash equivalents - - - 20,207 20,207 Total financial assets - - - 323,143 312,353 Financial liabilities Loans - - - (148,861) (148,861) Trade payables - - - (217,377) (217,377) Other payables - - - (16,097) (16,097) Total financial liabilities - - - (382,335) (382,335) Net position - - - (59,192) (69,982) 36. Capital commitments Capital commitments authorised and contracted for by the directors as at 31 December 2013 amounted to K36.141 thousand (2012: K4,215 thousand) and capital expenditure authorised but not contracted for was Knil (2012: Knil). 37. Currency re-denomination On 1 January 2013, the Zambian Kwacha was re-denominated. The re-denomination entailed that all balances carried forward after 31 December 2012 were converted into the re-denominated currency by dividing the nominal value of the existing currency by a multiplicand of one thousand. These financial statements have been prepared in the new symbol Kwacha (ZMW). Comparative figures have also been rebased by the division of all figures by 1,000.
  • 109. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES110 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 38. Contingent liabilities The following were contingent liabilities noted from the Group’s Nigerian operations: (a) Garnished bank accounts Based on independent legal advice, the Group has included in net amount transferred to NELMCO cash and cash equivalents of USD 0.01 billion held in bank accounts in its name that were garnished via a mareva order on 15 June 2012 . The basis for this is that whilst the Group will suffer no additional liability, its access to the cash held in those accounts for its own use is remote and more likely than not, will be transferred to NELMCO. The cash balance is stated net of an overdraft amount of USD3.91 million with same bank, which based on the confirmation from the bank will be settled from balances in the garnisheed accounts upon lifting of the court injunction. Neither the garnisheed bank nor the overdraft accounts attract interest. (b) Transfer of pre-completion liabilities and trade receivables As part of the privatization initiative and the restructuring of the Nigerian power sector, the Nigeria Electricity Liability Management Ltd/Gte (NELMCO) was established to takeover and manage the stranded assets and liabilities in the Power sector. As a result, all trade receivables and the liabilities of the Company as at 31 October 2013 were assigned to NELMCO by the National Council on Privatization under the relevant Deeds of Assignment. Though the Company and NELMCO are yet to agree on the individual trade debtors and liabilities transferred, the directors, based on independent legal advice obtained, as well as their understanding of the Share Purchase Agreement between KANN, Bureau of Public Enterprises (BPE) and the Ministry of Finance Incorporated, are of the opinion that all liabilities (crystallised or contingent) as at 31 October 2013 have been effectively transferred. As such, the Company will neither realize those receivables in its own capacity nor settle any liabilities incurred on or before 31 October 2013. On this basis, a net credit of USD4.30 million has been written back to profit or loss. (c) Performance agreement In line with the Performance Agreement dated 21 August 2013 entered into by the BPE and the Company, in consideration of a sum of USD1 that was paid by BPE, the Company granted BPE an irrevocable and unconditional right to purchase the Company’s shares in AEDC in the event of default on performance related targets. In accordance with the current interim rules under which the Subsidiary operates, the Performance Agreement remains suspended and as such default by the Group on any of the key performance targets during the interim period would not result in BPE exercising its call option. Furthermore, the call options are considered to be protective rights owned by BPE. When the events of default that can lead to them being exercised occur, then an evaluation would have to be done at that time as to whether the Company has lost control over the Subsidiary. >>> CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013
  • 110. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 111 >> NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2013 cont... 39. Events subsequent to the reporting date There has not arisen, since the end of the financial year, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect substantially the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent financial years except: i. On 27 December 2013, a Rights Offer was made by way of renounceable Rights on the basis of 5 Rights Offer Shares for every 8 CEC shares held by Qualifying Shareholders on the Record Date, Friday 31 January 2014, for subscription at a price of K0.62 per Rights Offer Share. The rights offer closed on 7th March, 2014 and the gross proceeds for all the rights followed was K387,500 thousand. These proceeds were utilised towards the servicing of the short term facilities from Standard Bank South Africa. ii. In May 2014, the Company entered into USD120 million long term debt of which USD90million was drawn down in June 2014. Of this drawdown, a further USD40 million went to the repayment of the short term debt held at 31st December 2013. In addition, other short term liabilities were also repaid. iii. The Company is majority owned by Zambian Energy Corporation (Ireland) Limited (“ZECI”) which holds 52% shareholding whilst the balance of 48% is held by various institutional and retail investors. ZECI is wholly owned by Zambian Energy Corporation Limited (“ZECL”), a Zambian private limited company. ZECL and its shareholders undertook an internal reorganization involving changes in its ownership but no changes in the level of ZECI’s 52% ownership of CEC shares. As part of the internal reorganisation of ZECL, Batoka Energy Holdings (Ireland) Limited (“Batoka Ireland”) acquired 40% of ZECL, which was held by the minority shareholders of ZECL (the “ZECL Minority Shareholders”). namely the Development Bank of Southern Africa (“DBSA”) with 20%, Netherlandse Financierings-Maatschappij Voor Ontwikkelingsladen NV (“FMO”) with 18% and Aldwych Zambia Investments Limited (“AIL”) with 2% (collectively the “Minority Shareholders”). This acquisition was financed by way of an exchangeable bond issued to Standard Chartered Private Equity Limited. The Securities and Exchange Commission of Zambia (“SEC”) formally advised the Company that the internal reorganisation of ZECL, resulted in an obligation on Batoka Ireland to make a mandatory offer to CEC shareholders under the Takeovers Rules. Therefore, as directed by the SEC, Batoka Ireland undertook a mandatory offer to the minority shareholders of CEC to acquire the shares in CEC not owned by ZECI, pursuant to Rule 56 of the Takeovers Rules. The mandatory offer by Batoka Ireland to the minority shareholders of CEC opened on 05 May 2014 and closed on 30 May 2014. The net result was that after the conclusion of the mandatory offer process, the shareholding in CEC had not changed at all. Zambian Energy Corporation (Ireland) Limited (“ZECI”) still holds 52% shareholding whilst the balance of 48% is still held by various institutional and retail investors. For its part, Batoka Ireland still holds the 40% shareholding that it acquired in ZECL after the restructuring of ZECL. Accordingly, the mandatory offer did not reduce the free float of CEC, which still exceeds 25% and is fully compliant with the requirements of the LuSE Listing Rules. iv. Consequential to the change in shareholding at ZECL, there were changes in the Board of Directors after 31st December 2013. Mrs Jean Madzongwe and Mr Klaas Bleeker retired from the Board of Directors of the Company on 18th March 2014 and were replaced by Mr Ronald Tamale and Mr Kanad Virk, nominees from Standard Chartered Private Equity Limited . On the same date, Mr Munakupya Hantuba a Non-Executive Director was appointed Vice-Chairperson v. In Note 20 of the Financial Statements it was indicated that of the USD92million loaned to CEC Africa, USD21m and USD23 million loans were fully repayable by February, 2014 and the USD8 million loan was fully repayable by June 2014. These loans were not repaid on the expected dates. An additional USD28 million loan was extended to CEC Africa in May 2014, bringing the principal amount loaned by CEC Plc to CEC Africa to USD130 million.
  • 111. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES112 DIRECTORS & MANAGEMENT Board of Directors Hanson Sindowe Executive director Michael J. Tarney EXECUTIVE DIRECTOR Hampande Hachongo NON - EXECUTIVE DIRECTOR (Retired 6 November 2013) Julia C. Z. Chaila COMPANY secretary Jean Madzongwe NON - EXECUTIVE DIRECTOR Reynolds Bowa NON - EXECUTIVE DIRECTOR Edson Hamakowa NON - EXECUTIVE DIRECTOR Charity Mwansa NON - EXECUTIVE DIRECTOR (Appointed 30 May 2013) Neil F. Croucher EXECUTIVE DIRECTOR Abel Mkandawire NON - EXECUTIVE DIRECTOR George Zulu NON - EXECUTIVE DIRECTOR (Retired 30 May 2013) Mildred T Kaunda NON - EXECUTIVE DIRECTOR (Appointed 6 November 2013) Munakupya Hantuba NON - EXECUTIVE DIRECTOR Pius Maambo NON - EXECUTIVE DIRECTOR Klaas Bleeker NON - EXECUTIVE DIRECTOR
  • 112. ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013 113 DIRECTORS & MANAGEMENT Senior Management Team Hanson Sindowe Executive Chairman Irene L. Chibesakunda Chief Financial Officer Roland Lwiindi Director- International Projects Benny Simukoko Projects Director Owen I. Silavwe Managing Director- Operations Humphrey Mulela MANAGING DIRECTOR- CEC-KHPL Silvester Hibajene Director- Strategy & Regulation Titus Mwandemena Commercial Director Michael J. Tarney Managing Director- CORPORATE DEVELOPMENT/ CEC AFRICA Aaron Botha Director- BUSINESS DEVELOPMENT PROJECTS Mutale Mukuka Corporate Finance Director Yonah Banda Technical Services Director Christopher Nthala director of operations Julia C. Z. Chaila Company Secretary / Director Legal Services Chance Mugala Operations Finance Director Jacob Njovu Human Resources Director
  • 113. COPPERBELT ENERGY CORPORATION PLC & ITS SUBSIDIARIES114 Stanbic Bank Corner Obote Avenue P O Box 21600 Kitwe Grant Thornton 5th Floor Mukuba Pension House Dedan Kimathi Road P O Box 30885 Lusaka Operations Head Office 23rd Avenue P O Box 20819 Nkana East Kitwe T : +260 212 244 556 F : +260 212 244 040 Corporate Head Office 1st Floor Abacus Square Stand No. 2374/B Thabo Mbeki Road Post Net 145 Private Bag E835 Kabulonga Lusaka T : +260 211 261 298 F : +260 211 261 640 Shareholder Contact Julia C. Z. Chaila Company Secretary / Director Legal Services T : +260 212 244 274 F : +260 212 244 212 Chama Nsabika-Kalima Senior Manager Corporate Communication T : +260 212 244 914 F : +260 211 261 640 Website : www.cecinvestor.com Email : info@cec.com.zm Citibank Zambia Limited Citibank House Addis Ababa Roundabout P O Box 30027 Lusaka Citibank London CitiGroup Centre Canada Square Canary Wharf E145LB London BANKERS AUDITORS CORPORATE CONTACT INFORMATION
  • 114. www.cecinvestor.com