MERALCO Consolidated Core Net Income for 9M2013 Up 5% to PhP13.6B
Manila—(PHStocks)—Manila Electric Co. (MERALCO, PSE: MER) has announced that its unaudited consolidated Core Net Income, which excludes one-time, exceptional charges, for the nine months ended 30 September 2013 amounted to PhP13.6 billion. Consolidated Reported Net Income also stood at PhP13.6 billion.
The volume of energy sold during the first nine months of 2013 reflected a 5% growth despite a major weather disturbance last 19 August 2013, which resulted in an estimated 17.9GWh of unserved energy. At the height of Typhoon Maring (International Codename: Trami), Meralco was constrained to de-energize several circuits to ensure the safety of residents in severely flooded areas of Metro Manila, Rizal, Laguna, Bulacan and Cavite.
Billed customers grew to 5.3 million, with over 136 thousand new customer accounts since the beginning of the year, reflecting a sustained growth of 3% per year over the last four (4) years. Core Earnings per Share for the nine months ended 30 September 2013 stood at PhP12.029 while Reported Earnings per Share was PhP12.105.
Consolidated revenues, of which electricity sales account for 99%, decreased by 3% to PhP208.1 billion for the first nine months of 2013, due to significantly lower average price of purchased power under five (5) new Power Sales Agreements (PSAs) implemented shortly before the start of the current year. These PSAs accounted for approximately 55% of total purchased volume. The 5% growth in electricity sales volume during the first nine months of 2013 was buoyed by the sustained healthy demand from the commercial and residential segments, which grew by 5.5% and 5.6%, respectively, assisted by a 3.1% growth from industrial customers. Wholesale Electricity Spot Market (WESM) charges peaked at PhP25.95 per kWh in February, the impact of which was partly offset by the lower average generation cost from other sources of PhP4.83 per kWh. The average retail rate charged to Meralco’s captive customers for the three months ended 30 September 2013 was at PhP9.49 per kWh, 5% lower than 2012.
With the commencement of Retail Competition and Open Access (RCOA) on 26 June 2013, it is worth noting that the Company’s nine-month consolidated revenues already reflect the contribution of Meralco’s Retail Electricity Supply (RES) unit, operating under the trade name, MPower. Total revenues from MPower, for this approximately 3-month period amounted to PhP3.7 billion, partly offsetting the decline in consolidated electricity revenues for the period.
Non-electricity revenues, comprising 1% of consolidated revenues, increased by 68% principally due to higher volume of construction and service contracts of Meralco Industrial Engineering Services Corp. (MIESCOR) and Meralco Energy Inc. (MServ). The sustained increase in third party volume of the payment services business of CIS Bayad Center Inc. provided additional growth in service revenues.
Consolidated Core EBITDA was higher at PhP24.6 billion, reflecting a Core EBITDA margin of 12% on consolidated revenues.
Consolidated capital expenditures for the nine months ended September 30, 2013 amounted to PhP6.1 billion.
The completed electric capital projects include the construction of the Paco-Tutuban, First Cavite Industrial Estate (FCIE)-Rosario, FCIE-Trece Martires City (TMC) II, Saog -Sta. Maria and Calamba Premiere International Park (CPIP) 115kV lines, the uprating of the Saog-Duhat 115kV Line as well as the development of the Laguna Bel-Air Substation, the expansion of the Carmelray Substation (2nd Bank) and the replacement of Malolos Bank No. 1.
Total cash and cash equivalents stood at PhP58.8 billion as at 30 September 2013, net of cash dividends of PhP4.6 billion paid out of the 2013 first half Core Net Income on 20 September 2013. Free cash flow amounted to PhP11.1 billion at the end of September 2013, net of the equity investment in FPM Power Ltd (FPM) for the joint acquisition of a 70% interest in PacificLight Power Pte Ltd (PacificLight Power) in Jurong Island, Singapore made in the first quarter of 2013.
Consolidated debt balance as at 30 September 2013 amounted to PhP24.2 billion (inclusive of current maturities totaling PhP4.1 billion). Gross debt to EBITDA stood at 0.74x. Total principal debt repayments and customer refunds, inclusive of financial charges, amounted to PhP6.9 billion on a consolidated basis. All of the Company’s outstanding debts are denominated in Philippine pesos with maturities well spread out up to 2022, 86% of which represents fixed rate corporate notes. Consolidated net debt (gross debt net of cash and cash equivalents) was at negative PhP34.6 billion.
“The resurgence of investor confidence in the country and strong consumption spending continue to drive growth of the economy as reflected in the steadily increasing electricity sales volume across our industrial, commercial and residential customers. Strong macro-economic fundamentals, continuing rise in OFW remittances and BPO revenues and excess liquidity in the financial system provide the environment for sustained private and public sector investment, and consumer spending. These compel us all the more to commit to higher capital expenditures in order to achieve a more reliable network, unfailing customer-centricity and proactive engagement in Retail Competition and Open Access. As well, we see the need for Meralco to invest in much needed power generation capacity to assure reliable and cost-competitive power supply. We believe that we will be able to contribute even more meaningfully to the country’s growth and respond to the needs of our customers by doing our share in these strategic parts of the entire electricity supply chain,” said Manuel V. Pangilinan, Chairman.
Core Distribution: Resiliency and Growth under Challenging Conditions
The third quarter of 2013 saw the franchise area battered by the Habagat (southwest monsoon)-intensified Tropical Storm Maring, which caused massive flooding in Metro Manila and the surrounding provinces, with the measured rainfall at more than twice the normal level in a rainy month. This again tested the robustness and resiliency of the entire distribution network and customer retail service organization. Other than in identified areas wherein Meralco chose to de-energize to ensure safety of the residents, the rest of the affected franchise area did not experience any power interruptions.
Despite the unpredictable weather patterns, forced outages of certain generating plants and two additional legal holidays, sales volume rose by 5% over 2012 with consolidated sales volume at 25,616GWh for the nine months ended 30 September 2013.
Sales volumes across all customer classes continued to reflect growth over the nine month period of 2013. Commercial and residential customers, which accounted for 39% and 30% of total electricity sales volume grew by more than 5% each. Real estate and retail trade fueled by the BPO industry expansion and higher consumer spending in entertainment, malls, hotels and restaurants underpinned the growth in commercial sales volumes. Year-to-date September sales to residential customers reflected the more than 3% increase in residential customer count and September sales to residential customers reflected a 2% net increase in per capita consumption supported by warmer temperature and benign inflation. Sales to industrial customers, which represented 30% of the total sales volume, grew by more than 3% year-on-year. Food and beverage, rubber and plastics, as well as semiconductor were the industries, which fueled the growth in industrial volumes.
The Company’s number of billed customers increased by 136 thousand new accounts with residential customers accounting for a sizeable portion of the increase. Residential customers represent 91% and commercial customers account for 8% of total customer count.
Consolidated revenues from electricity sales amounted to PhP205.3 billion for the nine months ended September 30, 2013, 4% lower than 2012. Pass-through charges amounting to PhP163.0 billion consisting of generation and transmission costs and system loss (excluding related taxes) which represent 79% of electricity sales decreased by 7%. Certain high load factor industrial customers with total average consumption of 181GWh for the three months ended September 2013 opted to be served by other RESs. The lower revenue from sales of electricity was attributable to the 10% decrease in the generation charge component to PhP5.08 per kWh in 2013 from PhP5.64 per kWh in 2012, due to the lower price of purchased power under the new PSAs, which became effective shortly before the beginning of 2013. The impact of these lower-priced PSAs outweighed the 5% increase in volume as well as higher prices at the WESM, which peaked at PhP25.95 in February 2013. The higher average distribution charge of PhP1.65 per kWh reflected the effect of higher residential customer sales and PhP0.04 per kWh for S-factor reward.
Cost containment and prudent spending remain to be our business imperatives. For the nine months ended 30 September 2013, total operating expenses amounted to PhP188.7 billion or a 5% decrease over 2012. There has been no new major operating expenditure during the period.
The Company’s operating performance during the period reflected continuing improvements over 2012. The Company’s 12-month moving average system loss was at 6.71% as at 30 September 2013 or 1.79 percentage points better than the regulatory cap of 8.5%, the lowest yet achieved in the Company’s 110-year history. The improvements in system efficiency and system reliability helped the Company realize incremental energy sales estimated at an aggregate 127GWh for the nine-month period.
“Our proven track record in delivering reliable electric service was most evident at the height of Typhoon Maring. Despite torrential rains, the entire distribution system was up and running, except in areas where public safety required us to de-energize. Power was restored as soon as the flooding subsided.
“Sizeable capital expenditures year after year on the Meralco network and customer retail service infrastructure and the commitment to public service of the people of Meralco, have again paid off in enabling us to sustain sales growth,” stated Oscar S. Reyes, President and Chief Executive Officer.
Retail Electricity Supply: A New Business Platform
On June 26, 2013, RCOA commenced on a voluntary basis. Out of approximately 700 qualified customers in the Meralco franchise area, over 230 customers opted for immediate contestability and switched on such date based on Central Registration Board registration reports. Among those who switched, 151 customers signed up with MPower to avail of competitive and attractive contract terms. As at 30 September 2013, MPower met the challenging commercial expectations of 60% of this switched contestable market, both in terms of customer count and volume. During MPower’s first three (3) months of operations, peak demand reached 469MW with power delivered at competitive prices favorable to the customers. Further switching of qualified customers to the competitive market is expected to be realized over the coming months, particularly for those with relatively high load factors, even as distribution utilities (DUs) and RESs continue to engage with policy making and regulatory bodies on the applicable rules and protocols to enhance the operational stability and customer experience of RCOA.
“The electric power industry turned a new page in the implementation of the ‘Electric Power Industry Reform Act’ (EPIRA) with the recent commercial launch of RCOA. MPower actively engaged with contestable customers in the Meralco franchise area to serve their power supply needs under pricing options and terms best suited to their load profile. Our RES operations in the first three months of RCOA have provided positive results to both the customers and Meralco,” added Reyes.
Power Generation: Early Moves are Gaining Traction
On 29 August 2013, MERALCO PowerGen Corp. (MGen) signed a Joint Development Agreement with New Growth B.V., a 100% subsidiary of Electricity Generating Public Co. Ltd (EGCO) of Thailand for the development of a new 460MW (net) supercritical coal-fired power plant in Mauban, Quezon. MGen’s equity in the joint venture company shall be 49%, with a right to nominate a preferred investor for an additional 2%. Together with EGCO, MGen shall be selecting a financial advisor for project financing and tendering the Engineering, Procurement and Construction (EPC) contract.
On 7 October 2013, MGen executed a Share Sale and Purchase Agreement with First Metro Investment Corp. (FMIC) followed by the Shareholders Agreement signed on October 22, 2013, for the sale by FMIC and purchase by MGen of a 20% equity interest in Global Business Power Corp. (GBPC).
MGen is also taking the appropriate measures along with its joint venture partners, for the continued development of Redondo Peninsula Energy Inc.’s (RP Energy) 2x300MW circulating fluidized-bed coal-fired power plant. This is pending a Petition for Review on Certiorari, which was filed in response to the denial by the Court of Appeals decision of separate Motions for Reconsideration of RP Energy, the Department of Environment and Natural Resources and the Subic Bay Metropolitan Authority relating to the legality and validity of the original Environmental Compliance Certificate and the Lease Development Agreement.
MGen’s first overseas investment interest in power generation, PacificLight Power’s 2x400MW liquefied natural gas (LNG) plant in Jurong Island, Singapore is on track for full commercial operations by early 2014. First fire of the first 400MW unit has been achieved.
Conclusion
“We remain positive about our distribution business and prospect of our power generation initiatives. The equity stakes we have taken in Global Business Power Corporation here and in PacificLight Power Pte Ltd in Singapore will provide us early income and cash flow accretion, even as we pursue new builds of baseload and mid-merit power plants in Luzon and other parts of the country.
“Our consumption- and service-driven economy, supported by the ever-growing remittances from Overseas Filipino Workers and BPO clients in foreign markets, is well-positioned to sustain its growth trajectory. This encourages us to set aspirational milestones across our business segments. Customers highly satisfied with reliable and efficient Meralco service are the key. The country’s continued growth and sustained investment grade status hinge on political, policy and regulatory stability.
“Given our performance to-date and the positive outlook for the remainder of the year, it is likely that Meralco’s Consolidated Core Net Income for the full year 2013 will exceed our earlier guidance number of Pesos17.0 billion,” Pangilinan concluded.