Ascendant profits plunge 47% as electricity sales tumble
Ascendant Group Ltd’s profits for the first half of the year were almost cut in half as residential electricity sales by its subsidiary Belco fell more than six percent.
The company attributed the fall in sales to a decline in the number of work permit holders on the Island.
But the major driver of the plunge in profit was the one-time $1.5 million expense of giving 26 long-serving staff members early retirement as part of a cost-cutting effort.
According to Ascendant’s report on the first six months of this year, the group’s net income fell by 47.2 percent, or $2.77 million, to $3.1 million for the period from $5.86 million reported for the first half of 2010.
“Ascendant Group Ltd is seeing the effects of the struggling economy in our operating companies’ sales and receivables,” wrote Ascendant president and CEO Vincent Ingham in the company’s six-month report to shareholders.
“We are preparing for a protracted period of economic uncertainty and sharpening our focus on expense reduction and improved efficiency.
“In the short term, we have also endeavoured to assist our customers by avoiding price increases for electricity and propane, and made a commitment to our employees that there would be no redundancies in 2011.”
Belco’s operating earnings fell 23.6 percent to $4.28 million, which Ascendant said reflected the anaemic economy and the decision to waive an approved 1.5 percent increase in electricity tariffs that was scheduled to have taken effect from January 1, 2011.
“To offset the anticipated reduced revenue, Belco implemented a cost control plan at the start of 2011 that, to date, has resulted in salaried staff wage freezes, suspension of planned new hires, overtime rate concessions by the Electricity Supply Trade Union (ESTU) and the early retirement of 26 long-serving staff members,” Mr Ingham said.
The staffing reductions would lead to lower compensation costs during the second half of this year and beyond, Mr Ingham added.
In a seperate letter to shareholders, Mr Ingham wrote: “Reduced sales in electricity at Belco and decreased propane usage at Bermuda Gas are clear indicators of fewer residents on the Island, as well as reduced commercial activities in both our international business and hospitality sectors,” he said.
“These challenges have had a direct impact on our bottom line. The recently released 2011 Bermuda Energy White Paper, which sets out Government’s proposed direction and policy, is also being considered as we contemplate further investment in the energy sector.
“All of these matters will influence our future investment decisions, but they have also served as catalysts for change in our operating companies.”
If Belco’s results can be regarded as a barometer of economic activity, there are some worrying indications.
Total units of electricity sold for the period were 2.4 percent lower than a year earlier at 290.4 million kilowatt hours (kWh).
“The decrease in demand was primarily due to a sharp decline in residential consumption, reflecting a decrease in the number of work permit holders who had been residential unit tenants,” Mr Ingham wrote in the report.
Residential sales fell 8.4 million kWh, or 6.4 percent, to 123.1 million kWh from 131.5 million last year.
Sales to large demand customers actually rose 1.9 percent, or 2.3 million kWh, owing largely to improved hotel occupancy levels this year, as well as to several new demand customers coming online.
Commercial customer sales fell 1.8 percent, or 808,016 kWh, due to decreased average consumption.
While Belco’s gross electric sales for the first half of 2011 were 0.7 percent higher than a year earlier at $104.6 million, the company said the net increase was due entirely to fuel adjustment sales, which rose 7.6 percent, or $2.5 million, to $35.1 million.
This was because the average cost of fuel for the first six months of 2011 of $106.40 per barrel was 8.9 percent, or $8.72, higher than for the same period in 2010 of $97.68 per barrel.
All of Ascendant’s operating companies posted weaker results than for the first half of 2010.
Bermuda Gas’s net income decreased $252,868, or 40.5 percent, to $369,948 from $621,816, reported for the same six-month period in 2010.
While the Company realised a 9.9 percent increase in appliance sales during the first half of the year, a principal driver of the decrease was management’s decision not to pass along to customers the increased propane prices incurred by Bermuda Gas.
“This pricing strategy was taken in light of economic conditions and resulted in reduced margins on gas sales,” Mr Ingham said.
PureNERGY posted a loss of $473,870 for the first half of 2011 as compared to a loss of $239,535 for the same period in 2010.
Ascendant Group’s other operating companies, BELCO Properties Limited, inVenture Limited and Sigma Corporate Services Company Limited, had no significant impact on earnings, the report added.
“Ascendant Group is working to manage our operating companies in the most challenging economic environment in recent memory,” Mr Ingham stated.
“We are also preparing for a future that looks very different than the past, exploring innovative ways to ensure long-range sustainability that will enable us to continue contributing to Bermuda’s progress.”