Ascendant Group Earnings Decrease 35.2%
The Ascendant Group Limited released their latest financial results, showing their consolidated net earnings for the first six months of 2014 decreased $640,688 [or 35.2%] to $1.2 million, versus $1.8 million for the same period in 2013.
The company said that although earnings improved at both Bermuda Gas and AG Holdings, as compared to the prior year, these results were offset by increased expenses incurred by the holding company, and decreased operating results at BELCO, due to lower electricity sales and higher operating costs.
The statement said the overall decline in electricity sales is “due directly to decreased residential kWh sales, which year-to-date, are down $1.8 million, with a decline of 6.4 million kWh sales, or 5.5%, as compared to those realized in the first six months of 2013.”
“This is the fifth consecutive year that BELCO has reported significantly reduced kWh consumption, which is attributed primarily to the continued weakness of the local economy, accompanied by lower residential unit occupancy, which is related to increased business closures and downsizing,” the company said.
The full report to shareholders is below:
Ascendant Group Limited’s consolidated net earnings for the first six months of 2014 decreased $640,688, or 35.2%, to $1.2 million, or $0.09 per share, versus $1.8 million, or $0.13 per share, for the same period in 2013.
Although earnings improved at both Bermuda Gas & Utility Company Limited and AG Holdings Limited, as compared to the prior year, these results were offset by increased expenses incurred by the holding company and decreased operating results at Bermuda Electric Light Company Limited [BELCO], due to lower electricity sales and higher operating costs.
BELCO’s electric sales revenues, excluding the cost of fuel [i.e., fuel adjustment sales], decreased $1.1 million, or 1.6%, when compared to the same period last year. Total kilowatt hour [kWh] sales for the current period declined 2.9 million kWh, or 1.1%, when compared to 2013.
Basic tariff rates remained unchanged in 2014; however, a Graduated Facilities Charge [GFC] was introduced on 1 June 2014 to reduce costs for lower-usage residential customers, while slightly increasing the overall cost for those who consume the highest number of kWh per month.
The GFC was introduced with approval of the Energy Commission in response to the call to assist lower-income customers who struggle to meet monthly bills during these difficult economic times. The GFC gives BELCO no addition to or loss of revenue, allocating the least cost to those placing the lowest burden on the system, and also encouraging energy efficiency.
The overall decline in electricity sales is due directly to decreased residential kWh sales, which year-to-date, are down $1.8 million, with a decline of 6.4 million kWh sales, or 5.5%, as compared to those realized in the first six months of 2013.
This is the fifth consecutive year that BELCO has reported significantly reduced kWh consumption, which is attributed primarily to the continued weakness of the local economy, accompanied by lower residential unit occupancy, which is related to increased business closures and downsizing.
At the same time, some residential customers have increased their use of energy efficient lighting and appliances, converted to renewable energy installations and taken steps to increase energy conservation overall, contributing to lower demand. The decrease in residential sales was partially offset by a 2.4% improvement in demand customer sales, which increased by $558,000 over the comparative periods, representing a 2.8 million increase in kWh sold.
This increase is attributed to several new projects coming online, especially the new Acute Care Wing at King Edward VII Memorial Hospital, as well as increased consumption by several existing customers. Commercial sales are largely unchanged in 2014 as compared to the same period in 2013. BELCO’s fuel adjustment sales decreased $1.7 million, or 3.9%, as compared to 2013.
The decrease in the average cost per barrel of fuel to $129.24 [which includes taxes, duty, shipping, storage, local pipeline transportation and working capital costs for the onIsland fuel reserves] in 2014 versus $131.66 for the first half of 2013, resulted in a total decrease in fuel adjustment sales of $1.0 million.
Fuel adjustment sales decreased a further $1.5 million due to a decrease of 10.9 million in kWh sales volume between the 2014 and 2013 comparative periods. The fuel cost and kWh sales decreases were offset by a $783,000 increase in fuel adjustment sales due to a decrease in fuel efficiency.
The decrease in fuel efficiency was due to unplanned generator outages experienced in 2014 that required BELCO to operate less efficient plant to meet demand. BELCO does not incur any profit or loss on the fuel adjustment; hence this portion of BELCO’s gross electric revenue is offset by identical fuel costs reflected in Operating and Administrative Expenses.
Bermuda Gas’ net income is up 31% for the first half of 2014, as compared to the same period in 2013. This is encouraging in light of the pressures of persistent economic recession, increased competition and rising gas prices. Increased service and parts sales have been major contributors to bottom line strength, as Bermuda Gas continues to cultivate a culture of service excellence.
iFM Limited, a joint venture company that is 60% owned and controlled by Ascendant Group and 40% by a Bermuda-registered, exempted subsidiary of Black & McDonald Limited, generated results that are tracking on plan to the same period in 2013 with no material difference.
On 29 May 2012, the Company acquired a 57% controlling interest in Air Care Limited, beginning a phased acquisition that was completed on 30 July 2014, with the Company acquiring all remaining shares. The Air Care acquisition was funded by debt scheduled to be repaid by cash flow from Air Care’s operations over eight years, commencing in the third quarter of 2014.
Company net earnings, therefore, reflect a 71% interest in Air Care’s 2013 six-month comparative period results versus an
85% interest in results for the six-month period ended 30 June 2014. Air Care sales increased 22.3% in 2014, or $1.7 million, on a gross sales basis when compared to 2013 sales during the same period.Gross profit, however, declined 5.6% due to unforeseen challenges on a major project, as well as cancellations of several maintenance agreements and underperformance of other maintenance agreements, likely the result of local economic conditions.
Operating and administrative expenses for the period decreased $660,068, or 0.65%, as compared to the first six months of 2013, due to cost control measures taken by the Company, and decreased expenditure related to BELCO’s Defined Benefit Pension Plan, as compared to 2013.
Ascendant Group did incur significant expenses for consulting fees related to the development of new projects, including an Integrated Resource Plan for Bermuda’s energy infrastructure development, as well as information technology system enhancements.
Increased expenses were also associated with health insurance costs; the Company is examining alternatives to help mitigate rising costs with respect to health insurance. At the Annual General Meeting on 6 June 2014, the entire Board of Directors was reelected, except S. Reginald Minors who did not seek re-election.
We thank Mr. Minors for 19 years of distinguished service, including two years as Chairman of the Board and eight years as Deputy Chairman. Peter C. Durhager and L. Anthony Joaquin were reelected as Chairman of the Board and Deputy Chairman, respectively.
Ascendant Group’s share price as at 30 June 2014 was $6.50 versus $11.00 on 30 June 2013. Ascendant Group’s book value, attributable to Company shareholders, decreased $0.27 to $30.37 as at 30 June 2014 versus $30.64 as at 30 June 2013.
The Board of Directors of Ascendant Group declared a dividend of 7.5 cents per share payable on 30 June 2014. The second quarter dividend declaration followed a thorough review of Ascendant Group’s dividend policy by the Board of Directors, as our Company moves to retain more capital to invest in Bermuda’s energy infrastructure, and to deal with the effects on the Company of Bermuda’s sustained economic recession.
The Board of Directors determined that the former dividend level was unsustainable, and that the reduced dividend is commensurate with earnings and in line with other comparable utilities.
The Company bid farewell in August to former Chief Financial Officer Chris Coelho, who left to pursue other opportunities. We thank him for his service. Ascendant Group is making changes in order to fulfill our responsibility to deliver clean, affordable, reliable energy, which is fundamental to Bermuda’s quality of life and productivity, including business retention and development.
Likewise, Ascendant Group’s success is directly linked to the Island’s growth, stability and prosperity. It is in the best interests of shareholders, employees, consumers and the community at large for Ascendant Group to invest in our business in order to secure a bright energy future for Bermuda.
Walter M. Higgins – President & Chief Executive Officer”
I’m sure all of Bermuda is feeling sorry for this loss of earnings….NOT!!
For some reason I just don’t trust this report.
isn’t there a hospital ward by that name ..?
Readers we should be very concerned about this. I understand that many people will not be sympathetic to shareholder loss of earnings. However, in the long run, this means less ability for Belco to invest in our infrastructure which will be a huge disaster for Bermuda. In the short to mis term it will mean that they need to put prices up to even maintain where they are and operate safely.
The key sentence here is the decline in population – for every home/apartment/commercial building not using electricity, that means that the cost needs to be shared amongst the rest of us. If the cost to Belco is $10,000, then sharing that between 100 homes is $100 each; shared between 200 homes is $50 each. We need more ResPop – not just to rent our properties, but to reduce our electricity costs!
The truth is, BELCO was raising prices consistently even when our population was higher. The difference is that now many Bermudian are getting smarter and cutting back on their household electricity consumption, because times are tight – which is part of the reason why profits have dropped.
BELCO was never investing in its infrastructure even when we had many more workers here. Was the BELCO plant taken better care of when they had more customers? No. When they instituted the facilities charge a while ago, they said it was because they needed to upgrade the facilities – well. why would you not upgrade when you had more customers and times were good? Instead they kept the profits to themselves, with dividends to shareholders now and then. It seems BELCO really needs to look at its business model rather than blaming everyone else for its problems.
BELCO hires toooo many people. Given their gross sales, they should be making money. Their problems are internal (and yes they would like to dump them on us). But alas….the developments in St. Geo, Morgans Point, Pink Beach and Sonesta will come to their rescue, and they can return to the good ol days where the public pays for their internal inefficiencies.
THEY THE LIGHT COMPANY will have to be carefull,because we done want to end up with “BROWN OUTS” like they do in the Caribbean countries.
Brown outs are were you only get electricty maybe 8 hours per day.
It’s time for regulation that forces Ascendant to a) publish separate accounts for BELCO rather just as part of ASCENDANT group accounts, b) use plain English in their reports. Enough of the ‘smoke and mirrors’ reporting. Given that BELCO is a state-sanctioned monopoly, the public should have the right to information.
For the 6 months being reported, it sounds like Belco wasted $783,000 worth of fuel due to outages that required them to resort to using inefficient plant and machinery – and this in turn reduced their profit (because they used more fuel than the fuel adjustment covers).
What they omitted to mention is the fact that they don’t have to pay for the excess population and greenhouse gases they emit by running old equipment. The public picks up that tab!
This is what happens when you operate inefficiently and pay high dividends to share-holders for years rather than re-invest in your plant….. so suck it up and make better choices going forward.
What do we want…..Energy Reform
When do we want it… NOW!
They need to stick to the core business and stop losing their shirt doing silly things like selling appliances. Even the gas business is peripheral and should be sold off.