2016 Annual Report

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2016 Annual Report

Published Date: 31st March 2016 File Size: 0.00 KB

CHAIRMAN’S STATEMENT

On behalf of the Board of Directors, I am pleased to share with you the performance of ZCCM Investments Holdings Plc (ZCCM-IH) as a Company and that of its investee companies during the financial year ended 31 March 2016.

As ZCCM-IH’s investment is largely in the mining sector, the Company experienced low to static growth owing to the challenges faced by the mining sector in general. The mining sector was faced with a significant energy deficit which affected production negatively and consequently led to a reduction in revenues. The situation was further compounded by low commodity prices particularly copper due to increased supply on the market and reduced demand mainly in high copper consumer countries such as China. As a result of the foregoing, investment in the mining sector was reduced and mainly concentrated on consolidation of already existing operations.

The lower than expected performance in the mining sector resulted in reduced revenues and impairment of the value of certain investee companies for the Company and consequently a loss at Group level.

Global economy

The International Monetary Fund (IMF) World Economic Outlook estimated global economic growth to slow to 3.1% in 2016, reflecting a more subdued growth in advanced economies due to geopolitical reasons mainly in Europe and weaker than expected growth economic activity in the United States of America. It is further projected that the global economy will marginally increase to around 3.4% in 2017.

Regarding the prospects of Sub-Saharan Africa, the IMF projected a sharp slowdown in growth generally due to a reduction in demand for commodities on which the Sub-Saharan African economies rely. Growth for the region as a whole fell to 3.5 percent in 2015 and remained within the same range as at 31 March 2016. This figure has been the lowest level in some 15 years, and may remain unchanged in 2017.

Global annual copper production remained constant at around 18.7 million tonnes as at December 2015. LME copper prices declined by 26%, from US$ 6,359 per tonne at the end of December 2014 to US$4,710 per tonne at the end of December 2015.

The decline in copper prices as well as the challenges in the energy sector resulted in a lower than expected growth in the Zambian economy of just above 3 percent in 2016 (growth was projected to be around 5 percent). Other sectors such as agriculture could not provide the needed buffer as severe weather conditions impacted negatively on the sector resulting in reduced production of commercial crops. The manufacturing sector was equally negatively affected by the energy deficit and unstable exchange rates (depreciation of the kwacha) which increased the cost of production and consequently reduced demand for locally manufactured goods

Financial performance

The Group reported a loss before tax of K 2,865 million (2015: K 1,329 million). The Group recorded a loss after tax of K 2,912 million (2015: K 987 million). The Group’s share of loss of equity accounted investees’ was K 2,210 million (2015: Profit of K 281 million).The Group recorded turnover of K 199 million (2015: K242 million) and operating loss of K 858 million (2015: K2, 179 million). The Group’s retained earnings as at 31 March 2016 were positive at K 147 million (2015: K 3,058 million). The reduction in retained earnings is attributed to an increase in the share of losses as a result of operating losses reported by the investee companies mainly: Kansanshi Mining Plc, Konkola Copper Mines Plc and Copperbelt Energy Corporation Plc. The Company’s retained earnings were K87 million (2015: K 512 million)

Strategic and new investments

Recapitalisation of Ndola Lime Company (NLC)

The recapitalisation project at NLC continued. ZCCM-IH provided an additional shareholder loan of K28.7 million (US$ 2.82 million) for the Ndola Lime Recapitalisation Project. The Second Vertical Kiln (“VK-2”) is still undergoing hot commissioning. Furthermore, there are plans to restructure the operations of NLC to improve its performance in response to the changing market environment.

Real Estate

As part of its diversification program, ZCCM-IH has acquired the Trinity Park offices located along Alick Nkhata road. The premises consist of three identical buildings suitable for up-market office accommodation. ZCCM-IH offices will move to one of the buildings while two-thirds of the buildings have been leased out to other tenants. ZCCM-IH will continue to seek for opportunities in this sector as it has huge and varied potential.

GRZ Share Sell Down and Transfer of Shares

During the presentation of the 2015 National Budget, the Minister of Finance directed the Securities and Exchange Commission (SEC) to ensure that all listed Companies on the Lusaka Stock Exchange (LuSE) complied with the LuSE minimum free (public) float requirements of 25% of the shares. In this regard, the Finance Minister announced GRZ’s intention to reduce its shareholding in ZCCM-IH from 87.5% to 60.3% by selling some of its shares. Subsequently, GRZ transferred its 60.3% to the Industrial Development Corporation (IDC) while the 27.2% were offered to the public through a Preferential Secondary Market Offer.

The objectives of the Preferential Secondary Market Offer were as follows:

i) to increase economic participation of Zambian citizens in economic development through a Preferential Secondary Market Offer of shares to Zambian citizens;

ii) to ensure a broad distribution of shares in order to increase the liquidity and trading of ZCCM-IH shares on the LuSE;

iii) to comply with LuSE Listings Requirements with regard to the minimum percentage of shareholding available to the public;

iv) implement GRZ’s initial intention of the second phase of privatisation, specifically the sale of part of its shares in ZCCM-IH; and

v) to raise revenue for the Treasury through the sale of GRZ’s shares in ZCCM-IH.

The results of the share sell down was an under-subscription due to low liquidity in the market. Generally, the stock market experienced low growth as evidenced from the share price index on the LuSE.

Amidst the challenges of the past, ZCCM-IH is confident that with improved prospects in the mining sector, there will be an increased appetite for investment in the sector through the purchase of shares on the stock exchange.

Capital market

The ZCCM-IH share price on the Lusaka Stock Exchange closed the year at K40 (2015: K40). The market capitalisation as at 31 March 2016 remained unchanged at K6, 431 million (2015: K6, 431 million). The static share price is indicative of the general stock market performance, which has experienced low liquidity and hence low share transactions.

Outlook

Beyond these current challenges, the underlying drivers of growth in Sub-Saharan Africa that have been in play domestically in the region over the past decade most importantly, the much improved business environment generally continue to be in place, and favorable demographics are poised to support these drivers over the coming decades. These will anchor medium-term growth prospects.

The Zambian economy is expected to continue on a recovery path and maintain a steady growth of around 3.4 percent in 2017. This growth is hinged on key sector policy interventions in agriculture, tourism, industrialisation and mining within a diversification framework. The move to more cost reflective tariffs is expected to improve investment in the energy sector which will help drive growth in the key sectors of the economy.

As the majority of ZCCM-IH’s investment remains in the mining industry, the Company is confident that the industry will perform better in the coming years premised on the recent improvements in the copper prices as a result of anticipated demand in the United States of America, China and Europe.

The commissioning of the 150 MW power plant by Maamba Collieries Limited (MCL) is a success story for ZCCM-IH and its partners who have worked tirelessly to ensure the project was completed. Once the plant is fully operational, it will provide the much needed dependable and sustainable base load power, which is crucial for the country’s economic growth and energy security.

In response to the challenges faced by the Company and in order to increase shareholder value, ZCCM-IH will implement a robust strategy aimed at taking advantage of the opportunities that exist in various sectors of the economy including mining, energy, agriculture and real estate. ZCCM-IH is better placed to leverage its position and expand its operations in sectors of the economy that offer opportunities.

Directorate

During the year, the following changes were made to the Directorate:

Mr Cosmas Mwananshiku Retired Non-Executive Director

Dr Bwalya Ng’andu Retired Non-Executive Director

Mrs Pamela C Kabamba Retired Non-Executive Director

Ms Sophie Mutemba Retired Non-Executive Director

Mr Paul Chanda Retired and reappointed Non-Executive Director

Mr Fredson Yamba Appointed Non-Executive Director

Mr Mateyo Kaluba Appointed Non-Executive Director

Mr Yollard Kachinda Appointed Non-Executive Director

Dr Pius C Kasolo Appointed Executive Director

Appreciation

I express sincere gratitude to my fellow Board members, the immediate past Board members, the Management and Staff of ZCCM-IH for their dedication and commitment during the past year. I again extend my gratitude to the investee companies for their efforts and contributions during the year.

Director