Ascendant Group 2013 Interim Financial Results
Ascendant Group today [Sept 18] released their six month report, saying their consolidated net earnings for the first six months of 2013 decreased by $3 million to $1.8 million.
Ascendant Group is the parent company of BELCO, Bermuda Gas & Utility Company Limited and AG Holdings Limited. AG Holdings was established in October 2012 to manage all of Ascendant Group’s non-utility business operations which include Air Care Limited, iFM Limited, iEPC Limited, PureNERGY Renewables, Ltd., and Ascendant Properties Limited.
In a statement to shareholders President & CEO Walter M. Higgins said, “Ascendant Group Limited’s consolidated net earnings for the first six months of 2013 decreased $3.0 million to $1.8 million, or $0.13 per share, as compared with $4.8 million, or $0.46 per share, for the same period in 2012. Typically, the majority of the Company’s earnings are produced in the second half of the year. A
Mr Higgins continued, “Total kilowatt hour (kWh) sales by BELCO for the current period declined 10.3 million kWh, or 3.7%, when compared to 2012, which was offset by a 3.8% increase in basic tariff rates, effective 1 January 2013, as approved by the Energy Commission early in 2012.
“Kilowatt hour sales to residential customers increased a modest 0.5%; however, commercial sales declined as the trend of business closures and downsizing continued, due to the challenging economy.
“In addition, customers are now conserving electricity and reducing their electric energy consumption, further adding to the downward pressure on sales. This is the fourth consecutive year that Bermuda has seen reduced kWh consumption on the Island.”
The full letter to shareholders follows below:
“Ascendant Group Limited’s consolidated net earnings for the first six months of 2013 decreased $3.0 million to $1.8 million, or $0.13 per share, as compared with $4.8 million, or $0.46 per share, for the same period in 2012. Typically, the majority of the Company’s earnings are produced in the second half of the year. Although investments in infrastructure companies iFM Limited and Air Care Limited generated a $1.6 million increase in 2013 net earnings, as compared to 2012, significant declines in propane gas sales, along with increased operating costs, offset improved earnings from these companies.
Electricity sales revenues, excluding the cost of fuel (i.e., fuel adjustment sales), by our Bermuda Electric Light Company Limited (BELCO) subsidiary were essentially unchanged at $66.9 million when compared to the same period last year. Total kilowatt hour (kWh) sales by BELCO for the current period declined 10.3 million kWh, or 3.7%, when compared to 2012, which was offset by a 3.8% increase in basic tariff rates, effective 1 January 2013, as approved by the Energy Commission early in 2012. Kilowatt hour sales to residential customers increased a modest 0.5%; however, commercial sales declined as the trend of business closures and downsizing continued, due to the challenging economy. In addition, customers are now conserving electricity and reducing their electric energy consumption, further adding to the downward pressure on sales. This is the fourth consecutive year that Bermuda has seen reduced kWh consumption on the Island.
BELCO’s gross electric energy revenue in the period decreased $2.0 million, or 1.8%, as compared to 2012, due to the lower average cost per barrel of fuel of $131.66 (includes taxes, duty, shipping, storage and local pipeline transportation and working capital costs for on-Island fuel reserves) for the period, versus $132.25 for the first half of 2012. BELCO does not incur any profit or loss on the fuel adjustment; hence this portion of the BELCO gross electric revenue is offset by identical fuel costs reflected in Operating and Administrative Expenses.
Bermuda Gas & Utility Company Limited’s revenue from propane gas sales fell approximately $1.2 million, or 17.5%, for the first six months of 2013, as compared to the same period in 2012, due to competition in the commercial business sector. Aggressive pricing by competitors seeking to obtain market share has resulted in the loss of a number of commercial customers and, therefore, lower gas volume sold during the current period. Bermuda Gas’ revenues for the first half of 2013 were also negatively affected by the need to reduce commercial gas prices both to retain existing customers and to entice former ones to reconsider doing business with Bermuda Gas and take
advantage of its superior service and support.As previously noted, the Company continues to benefit from its diversification strategy, as some $3.6 million in new revenues were realised from investments in infrastructure companies iFM and Air Care. iFM is a joint venture company that is 60% owned by Ascendant Group, and 40% owned by a Bermudaregistered, exempted subsidiary of Black & McDonald Limited (B&M). B&M is a privately held Canadian company and is considered a leading electrical, mechanical and facilities maintenance management contractor operating across Canada, the United States and Bermuda. iFM is currently in the second of a three-year property management agreement with two large financial institutions in Bermuda. iFM’s management team is actively soliciting new business.
On 29 May 2012, the Company acquired a 57% controlling interest in Air Care, a provider of heating, ventilation and air conditioning and related services in Bermuda. In August 2012, an additional 14% interest in Air Care was acquired in accordance with the acquisition agreement. In August 2013, another 14% interest in Air Care was acquired, such that the Company’s ownership in Air Care is now 85%. The remaining 15% interest in Air Care’s capital stock will be purchased at a fixed multiple of earnings in 2014. The acquisition is being funded by debt scheduled to be repaid by cash flow from Air Care’s operations over eight years. As a result of the change in ownership amount, the Company’s net earnings reflect its respective share of six months of Air Care’s earnings in the first half of 2013 versus one month in 2012.
Operating expenses for the period were up $2.1 million, or 1.9%, as compared to the first six months of 2012. As previously noted, the Company’s net earnings reflect its share of Air Care’s results for six months in 2013 versus one month in 2012. The increase in the Company’s operating expenses as a result of this amounted to $907,000. Changes in actuarial assumptions and continued low discount rate required for BELCO’s defined benefit pension plan resulted in a significant, unanticipated $905,000 increase in the expense incurred to meet legal funding requirements of this pension plan. Health insurance costs have also continued their multi-year climb, thus contributing further to these increased expenses. The Company will have to consider alternatives for the partly frozen defined benefit pension plan, as its retention is proving to be financially unsustainable. Similarly, the Company is examining alternatives to help mitigate rising healthcare costs. Operating, maintenance and insurance costs in BELCO accounted for the remainder of the increase in operating expenses, as BELCO continues to mitigate the risks associated with aging electricity generating plant.
At the Annual General Meeting, the entire Board of Directors was re-elected except J. Michael Collier and Stanley A. Oliver, who did not seek re-election. We thank both Mr. Collier and Mr. Oliver for their many years of dedicated service to Ascendant Group. S. Reginald Minors and Peter C. Durhager were re-elected Chairman of the Board and Deputy Chairman, respectively, while Alasdair Younie and A. Shaun Morris were elected to serve as Directors of the Company.
Ascendant Group’s share price as at 30 June 2013 was $11.00 versus $13.00 on 30 June 2012. The Company’s book value, attributable to equity holders of Ascendant Group, decreased $0.80 to $30.64 as at 30 June 2013 versus $31.44 as at 30 June 2012.
We believe that the remainder of 2013, and the foreseeable future, will be challenging as Bermuda continues to try to find a solution to the current economic situation. Regardless, we are still optimistic that, through continued wise investment in our operations, careful management of expenses and implementation of new strategies to meet the energy needs of our customers, we can contribute to the improvement in Bermuda’s economy and to improved results for our shareholders. We thank our dedicated employee team for their hard work and efforts in these challenging times, and our shareholders for their loyalty and support.”
WALTER M. HIGGINS
President & Chief Executive Officer
Said the monopoly that is the biggest direct contributor to the high cost of living on the Island.
Bermyman: Use less electricity and it will cut down your bill.
Sure! tell that to the hotels and businesses!! Ridiculous fixed costs that are continuously on the rise. Energy costs have gone up 40% in the last 5 years DURING A RECESSION!
And yeah, I never considered using less electricity!? What a band aid approach, no matter how much less you use the price will go up and where will we be in 20 years!?