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ZCCM-IH Market Update on the Internal Restructuring and Reposition Strategy

ZCCM-IH Market Update on the Internal Restructuring and Reposition Strategy

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Published by Zambian-Economist

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Published by: Zambian-Economist on Oct 04, 2013
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 ZCCM INVESTMENTS HOLDINGS PLC
 
[Incorporated in the Republic of Zambia]Company registration number: 771 Share Code: ZCCM-IHISIN: ZM0000000037[
“ZCCM
-IH
“or
 
the “Company”
]
MARKET UPDATE ON THE INTERNALRESTRUCTURING AND REPOSITIONING STRATEGYANDFURTHER CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement issued on 12 December 2012, shareholders and the
 
market areadvised of the following further and on - going developments relating to the Company and are advisedto continue exercising caution when dealing in ZCCM-IH shares.
 INTRODUCTION
ZCCM Investments Holdings PLC (
ZCCM-IH
) is an investments holdings company with diversified interestsin metals, mining, power and other sectors of the Zambian economy. The Company has a primary listingon the Lusaka Stock Exchange
(“
LuSE
) in Zambia and a currently non active secondary listing on theLondon Stock Exchange and some shares are traded on the Euronext stock exchange in Paris.ZCCM-IH is the privatized entity formerly known as Zambia Consolidated Copper Mines Limited
(“ZCCM”
).In 2000 ZCCM was privatized by the Government of the Republic of Zambia
(“
GRZ
”).
ZCCM-IH emergedfrom the privatization of ZCCM as an investments holdings company with equity stakes of between 10 to20.6 % in the new companies that were formed from the unbundling of ZCCM.The focus of ZCCM-IH today, and going forward, is to achieve full operational sustainability and realize theoriginal objectives which shareholders sought to achieve through the privatization of ZCCM. Theseobjectives include the following:
 
Mobilise substantial amounts of committed new capital for new operations;
 
Ensure that ZCCM-IH realises value from its assets and retains a significant minority interest inprincipal mining operations in Zambia;
 
Extinguish ZCCM-IH liabilities, including long standing indebtedness to the GRZ;
 
Diversify the investment portfolio; and
 
Promote Zambian participation in the ownership of mining assets.
Shareholding structure and status on the stock exchange
As shown on Table 1 below, the GRZ currently holds 87.6 % shareholding in ZCCM-IH made up of 60.3%
designated as "A" shares and 27.3 % designated as “B"
shares. The balance of the shareholding of 12.4 % isdesignated
as “B” shares and
these are
held by minority shareholders (“Minorities "). GRZ acquired its 27.3
% shareholding of
B
 
shares from Zambia Copper Investment Holdings Limited (“ZCI”) under the
privatization of ZCCM in 2000. ZCI was controlled by Anglo American Corporation (
AAC
).All the
B
shares (i.e. the 12.4 % shares held by the Minorities and the 27.3 % held by GRZ) were listed onthe LuSE in 1995. The
A
shares held by GRZ are not listed on any stock exchange.A portion of the
B
shares held by the Minorities are deposited on the Euronext (Paris Bourse) andpresently trade on that stock exchange, on a non formalized basis.
 
2
Table 1: ZCCM-IH Shareholding Structure
SHAREHOLDER CLASS OF SHARES STATUS NO OF SHARES % SHAREHOLDINGGRZ
A Not Listed 53,825,808 60.3
GRZ
B Listed 24,329,828 27.3
MINORITIES
B Listed 11,140,792 12.4
Total
89,296,428 100.0[Note:
The “A” and the “B” shares of ZCCM
-IH are similar in every respect and carry equal voting rights
.
]
 INVESTMENT PHILOSOPHY
The investment philosophy of ZCCM-IH is
“to
operate as an investment holding company holding shares,stocks, warrants, bonds, debentures, options and securities of whatever nature in privatized power andmining and other profitable
companies”
.
INVESTMENTS HELD BY ZCCM-IH
The table below summarizes the companies in which ZCCM-IH currently holds equity.
Table 2: ZCCM-IH Investment Portfolio
Investment Major ShareholderZCCM-IH% Holding
Ndola Lime Company Limited ZCCM-IH 100.0Misenge Environmental and Technical ServicesLimitedZCCM-IH 100.0Mawe Exploration and Technical ServicesLimitedZCCM-IH 100.0Nkandabwe Coal Mine Limited ZCCM
 – 
IH 100.0Kariba Minerals Limited ZCCM-IH/GEMFIELDS 50.0Maamba Collieries LimitedNava Bharat Singapore (Pte)Limited35.0Konkola Copper Mines PLC Vedanta Resources 20.6Kansanshi Mining PLC First Quantum Minerals 20.0Copperbelt Energy Corporation PLC Zambian Energy Corporation 20.0Luanshya Copper Mines PLC CNMC20.0Lubambe Copper Mines PLC Vale/ARM 20.0NFC Africa Mining PLC CNMC 15.0Chibuluma Mines PLC Jinchaun 15.0Investrust Bank PLC Zambian institutions 10.6 %Mopani Copper Mines PLC Glencore 10.0Chambishi Metals PLC ENRC 10.0
[Source: ZCCM-IH]
RECENT PERFORMANCE OF ZCCM-IH
At the Group or holding company level, in the year ended 31 March 2012, the consolidated statement ofcomprehensive income recorded revenue of ZMW257.3 million and an operating profit of ZMW367.3million. Revenues were made up of dividends (ZMW79.7 million) from investee companies constituting 31%, and sales of lime (ZMW 177.6 million) under Ndola Lime Company representing 69 %. Dividendrevenues, as expected, depend on the operational performance of the investee companies, commodityprices and other factors. Dividends are currently constrained by the on-going capital expenditure projectsbeing undertaken at the various investee companies.
 
3
At the company level the balance sheet of ZCCM-IH for the year ended 31 March 2012 carries totalliabilities of ZMW2, 352 million against total assets of ZMW2, 302 million resulting in a negative book value ofZMW 50.5 million. The bulk of the liabilities constitute debt owed to the GRZ carried over from ZCCM.The GRZ indebtedness has severely constrained the balance sheet of ZCCM-IH in the recent past. In turnthis has affected valuation of the Company by the market and limited the capacity of Management tounlock value for the benefit of shareholders.Taking into account the high volatility associated with copper prices, the unpredictability of dividendsfrom investee companies, and other related factors that impinge on the revenues of the Company, theBoard of Directors of ZCCM-IH believes that it is imperative that the balance sheet of ZCCM-IH berestructured as a matter of urgency and that priority be the reduction or elimination of the current debtburden. In so doing the Company will be put on a sustainable trajectory going forward and thus willmaximise shareholder value.
STRATEGIES TO IMPROVE PERFORMANCE OF ZCCM-IH
To improve the performance of the Company, going forward, in April 2012 the ZCCM-IH Board approveda 5 year Strategic Plan under which the key strategic objectives for the period 2012
 – 
2016 are:
 
Reposition the Company to improve operational efficiency;
 
Resolve the long standing legacy liabilities;
 
Strengthen the oversight and monitoring capacity on investments; and
 
Unlock the value of investments to increase overall shareholder value.
Repositioning the Company to improve operational efficiency
The Board and Management are taking measures to reposition the Company and improve its operationalefficiency. These include the following:
 
The Company engaged the services of organizational restructuring consultants to review andrealign the ZCCM-IH organisational structure to the 2012-2016 Strategic Plan. The review wasundertaken to ensure the availability of structural capacity to deliver on the 2012-2016Strategic Plan. A review of the current skills set was also undertaken to ensure that necessaryskills are available in all the functions of the Company. The Organisational Design hasrecently been completed, and the Board has approved a new organisational structure andits implementation is already under way.
 
A detailed exercise was undertaken to identify and select suitable persons to serve asindependent non-executive directors on the boards of investee companies. This has alreadyyielded positive results through improved monitoring and supervision of the investmentportfolio of the Company;
 
The Company reclaimed the technical library services and geological data and core shedsof the former ZCCM in Kalulushi on the Copperbelt.These facilities were reclaimed from the Chamber of Mines in the second half of 2013. In thepast, these two functions operated as cost centres. As part of the internal restructuring, theseoperations have now been converted to revenue centres through the incorporation ofwholly owned subsidiaries called Mawe Exploration and Technical Services Limited
(“Mawe”)
and Misenge Environmental and Technical Services Limited
(“Misenge”)
. Mawe will pursueopportunities in the areas of exploration, small scale mining, the gemstone sector, localcontent and beneficiation amongst others whereas Misenge will undertake environmentalremediation relating to past obligations and pursue opportunities in the provision ofenvironmental support services to the mining industry in Zambia.The Board and Management continue to explore further measures and strategies in pursuit of operationalefficiency.
Recent movements in the Portfolio
 Further to the incorporation of Misenge and Mawe in December 2012 and April 2013 respectively, therehave been further recent changes to the investment portfolio of ZCCM-IH, namely:-
 
In February 2013 the GRZ requested ZCCM-IH to assume the ownership and operation of theColum Coal Mine in Southern Province of Zambia. ZCCM-IH has since completed the legalformalities and has taken ownership of the coal mine under the name Nkandabwe Coal MineLimited.
 
In June 2013, the Directors issued the Half Yearly Statement where it was announced that Jin TuoInvestment Limited had proposed to acquire 100 per cent of the Albidon Limited (an asset under 

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