BELCO’s Net Income Drops $7.6 Million In 2013

April 14, 2014

BELCO’s net income fell $7.6 million to $5.6 million for 2013, as compared to 2012 net income results of $13.2 million, which the company attributed to “the contraction of the Island’s economy.”

These numbers were revealed when Ascendant Group Limited reported consolidated earnings for the year ended December 31, 2013.

Their earnings of $4.9 million, or $0.39 per share, compared to $11.5 million, or $1.07 per common share, for the same period in 2012 – a decrease of $6.6 million or 57.6%. Book value per share declined 1.8% to $30.62 in 2013 versus $31.18 per share in 2012. This was due to the dilutive effect of 120,349 new shares issued during the year and the payment of dividends in excess of net earnings.

The Company said, “On 18 March 2014, the company’s Board of Directors announced a full review of Ascendant Group’s dividend policy, as the company seeks to balance the deployment of its capital to support significant re-investment required for the next generation of electricity infrastructure.

“The review is taking place in consideration of the difficult economic conditions in Bermuda and the associated challenges. Ascendant Group provides energy and infrastructure solutions through its wholly owned subsidiaries Bermuda Electric Light Company Limited (BELCO), Bermuda Gas & Utility Company Limited and AG Holdings Limited.

“The continuing impact of the challenging Bermuda economy on revenues, coupled with energy conservation by customers and significant increases in costs incurred to maintain aging equipment, pension expense and rising healthcare costs, had a substantial impact on BELCO’s earnings. In addition, metering issues discovered during the year had a significant negative effect on the Company’s electricity revenues.

“The combination of the economy and competition resulted in declines in Bermuda Gas’ sales and related earnings in the current year, while improvement in AG Holdings’ results was largely attributed to improved earnings of Air Care Limited with 12 months of that company’s results being recognised in 2013, compared to seven months in 2012, as it was acquired in late May 2012.

“BELCO’s net income fell $7.6 million to $5.6 million for the year, as compared to 2012 net income results of $13.2 million. Sales of electricity net of fuel adjustment for 2013 totalled $143.3 million, a decrease of $2.1 million versus $145.4 million in 2012. BELCO’s kWh sales declined 19.6 million kWh, or 3.2%, from 606.3 kWh sold in 2012 to 586.7 million kWh sold in 2013.

“BELCO’s electric sales have declined 69.4 million kWh, or 10.6%, since reaching a peak of 656.1 million kWh in 2009. This trend of declining electricity sales is the direct result of the contraction of the Island’s economy, as well as conservation measures taken by many customers to reduce their electric energy consumption.

“During 2013, the Company commenced a comprehensive audit and validation of demand and commercial meter installations to determine the accuracy and completeness of metered sales from these customer groups. The findings from work completed to date have revealed several issues:

  • • Three customers had not been billed, as the meter installation information was not entered in the billing system (in these instances, customers were subsequently notified and related sales receivables recovered);
  • • A number of customers had been either over- or under-billed due to meter connection or meter multiplier issues.

“Operational and organisational changes have already been introduced by the Company to prevent these types of issues from recurring.

“It is important to note also that the meter connection issues highlighted in both demand and commercial customer classes are not present in the residential metered customer class. Based on 2013 actual findings and management’s best estimate of liability due to over-billing of both demand and commercial class customers, the Company has reduced its revenue by $2.4 million and accrued a liability of that same amount as at 31 December 2013, for accounts that were over-billed.

“Fuel adjustment revenues in 2013 decreased $8.3 million to $95.8 million from $104.1 million in 2012, due to a combination of lower fuel prices, reduced generation of electricity that resulted in lower kWh sales for the Company and an improvement in overall generation efficiency.

“The average price of fuel in 2013 was approximately $131.47 per barrel, as compared to $135.00 per barrel in 2012, which amounted to $3.3 million of fuel savings. The decrease in kWh sales volume noted above is responsible for $3.2 million of the overall decrease, while an improvement in overall generation efficiency and a decrease of 2.7 million total kWh purchased from the Bermuda Government’s Tynes Bay waste-to-energy incinerator plant was responsible for the balance of the total decrease in fuel costs. The Company does not incur any profit or loss on fuel adjustment; hence, this revenue is offset by identical fuel costs reflected in Operating and Administrative Expenses.

“Total operating expenses, including fuel costs, decreased $7.2 million in 2013 to $243.5 million, compared to $250.7 million in 2012, largely due to the aforementioned decrease in fuel costs. However, the decrease in fuel costs was offset by large increases in several expense items, namely:

  • Costs incurred for the Company’s Defined Benefit Pension Plan rose to $2.6 million in 2013 as compared to $574,200 in 2012 due to a change in investment policy to better match the Plan’s assets with future liabilities. Management is currently considering additional options to further mitigate the risk of the Plan on the Company’s financial position.
  • The requirement to recognize expected future healthcare costs resulted in an expense of approximately $1.1 million in 2013 versus 2012, due to a change in actuarial assumptions.
  • The Company established a provision and incurred an expense of $500,000 for the likely settlement of a contingent liability stemming from a dispute with a software vendor over end-user licence fees associated with the implementation of that vendor’s system in 2012.
  • Additional costs were incurred to maintain BELCO’s aging generating plant in order to meet electricity demand.

“Bermuda Gas’ net earnings decreased $877,789, or 62%, to $535,671 in 2013 from $1.4 million in 2012, due to reduced gas sales, as a result of both the challenging economic conditions and competition. The decline in gas sales was offset to some extent by cost control, increasing appliance sales and improving efficiencies in the Service & Parts Department.

“AG Holdings, which was established in October 2012, manages Ascendant Group’s non-utility business operations: Air Care, iEPC Limited, iFM Limited, PureNERGY Renewables, Ltd., and Ascendant Properties Limited. AG Holdings’ 2013 net earnings of $3.1 million represents an improvement of $2.7 million, or 622%, versus $427,676 in 2012.

“The primary reason for the increase in current year results is attributed to the company’s investment in Air Care. In late May 2012, the company acquired a majority investment in Air Care, which earned $717,063 for the seven-month period ended 31 December 2012, of which $451,779 is attributable to Ascendant Group shareholders. For the 12 months ended 31 December 2013, Air Care earned $3.3 million, of which $2.6 million is attributable to Ascendant Group shareholders.

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Comments (19)

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  1. Terry says:

    So vat.
    Vat dey gutt in dee benk and hah mutch SHAREHOLDERS made.
    I need a double.

  2. CBA says:

    Ouch. Maybe the OBA is right that we do need to increase the population after all.

  3. Meeeee says:

    So what happens if Belco’s profits go even lower? Does Belco cut its prices to make it easier for customers who are having a hard time as so many people ask and insist and think? Or does Belco just take the hit? Or maybe Belco will hold a ‘tag day’?

    Obviously this economy is still gliding downwards and everybody is getting squeezed.

    This prolonged downglide is now in its sixth year. If you look at Belco’s delivery of energy, that delivery of energy is now down to what Belco was delivering in 2005.

    That’s the real story here.

    This economy is still gliding down, down, down. All those naysayers who think that there are a bunch of predatory companies out there need to wake up. As Belco’s profits fall, Belco will be forced to look at that awful thing that Belco has never ever had to do and that is start ‘laying people off’.

    • PBanks says:

      I’d guess that if their profits go down they may choose to cut back on sponsorship/charitable donations before layoffs.

      Doubt that prices will drop anytime soon.

    • cd says:

      Logically, BelCo should be laying people off if sales/ demand for their product (ie electricity) has declined. Just like any other business. If they don’t, they’ll need to reduce profits or raise prices …. and no prizes for guessing which one their shareholders are likely to vote for.

  4. RawOnion says:

    See, see I told you unplugging the water heater cuts electricity usage!!

    • Marie says:

      Exactly right about unplugging the electricity vampires, especially the water heaters. It’s a chore when you first start unplugging the water heater. The occasional cold showers is a tough lesson, but you will find it easier everyday. Just remember to unplug and you will reduce your daily energy consumption.

      My average monthly bill is consistently under $200. Good for me, bad for Ascendant Group.

      Progress requires commitment.

      • cd says:

        Consider adding a hot water heater timer. I’ve done this for every hot water heater in every house I’ve lived in, and installation pays for itself in savings in about 2 months. I’d recommend a digital 7 day timers with a small battery backup so it keeps time and setting even during power-cuts.

  5. Coffee says:

    So voting the OBA in has changed nothing ! Oh my bad , things have gotten worse for Belco .

  6. whatdoesthefoxsay says:

    Net Income (after expenses)still $15,350 PER DAY. In other words, $15,350 per day to distribute to Belco shareholders – if they wished to.

  7. Marge says:

    where is Gary ? he was the best manager that BELCO ever had.

  8. Mumbo Jumbo says:

    I would write a comment but am having difficulty in my typage to the matt I’ll write it and it will have typos after…i stop and check so something is afoot…

  9. Mumbo Jumbo says:

    Belco …just advance yourselves past your demeanor…

  10. Mark says:

    Coffee – change your name to Kool Aid and join the PLP does no wrong Club! The exodus started under their admiral stewardship!

  11. tricks are for kids says:

    Big Deal..Cry me a river……So what if you made less of a profit… least you still made one……Join the club of making less like everybody else….Screw the shareholders…instead of having steak have a burger like everybody else……

  12. Gotham says:

    It would be interesting to clarify how transparently management and directors’ bonuses are paid in the new corporate structure.

    Also, I suspect, if they just stuck to their core business of generating and distributing electricity, net profits would be sufficient to generate enough retained earnings for future infrastructure needs and dividends. If they continue treading water only, infrastructure can only be paid for by either diluting equity (sell the place off to a bunch of foreigners, just like our former banks) or leveraging up (increase investor risk which is crazy for what should be a steady dividend payer for little old ladies, pension funds, charities, etc).

    • cd says:

      Ascendant already got an exemption from the 60:40 rule, so it’s already well on the way to being foreign owned.

  13. Gotham says:

    One more thing, those Air Care figures – Was there some exceptional event (a sell off of something) that boosted profits or was it solely from operating?