AboitizPower 4Q11 Net Income Down 17%

Cebu–(PHStocks)–Aboitiz Power Corp. (AboitizPower) (PSE: AP) recorded a consolidated net income of PhP5.4 billion for the quarter ending December 31, 2011, recording a decline of 17% year-on-year (YoY). The movements in the peso-dollar exchange rate resulted to a PhP124 million non-recurring loss due to the revaluation of consolidated dollar-denominated loans and placements. A one-off loss of hP93 million was also incurred when the Company prepaid in December 2011 one of its outstanding fixed rate notes. This was partially offset by a non-recurring gain of PhP35 million booked by an associate company, as it received cost reimbursements from the National Power Corp. (NPC) relating to its fuel importation. All these bring AboitizPower’s core net income for the fourth quarter of 2011 to PhP5.6 billion, which is 14% lower YoY.

On a full year basis, AboitizPower’s  bottomline performance recorded a 14% YoY decline, from PhP25 billion to PhP21.6 billion. This translated to earnings per share of P2.94. The revaluation of consolidated dollar-denominated loans and placements resulted to a non-recurring loss of PhP160 million.  In addition, AboitizPower booked a  PhP663 million one-off gain during the year as: (1) a wholly owned subsidiary booked revenue adjustments in the first quarter of 2011 resulting from a favorable ruling by the industry regulator regarding its tariff structure for its ancillary services contract; (2) an associate company recovered costs relating to its fuel importation in the second and fourth quarters; (3) a subsidiary reversed a 2010 accrued expense relating to its IPPA contract in the third quarter of 2011; and (4) the Company incurred fees relating to the prepayment of an outstanding loan in the fourth quarter. Adjusting for these oneoffs, AboitizPower’s core net income for 2011 amounted to PhP21.1 billion, down by 14% YoY.

Business Segments

Power Generation

For the quarter ending December 31, 2011, the power generation business recorded a 17% YoY decline in earnings contribution, from PhP6.1 billion to PhP5.1 billion. When adjusted for one-off items, the group’s core net income amounted to PhP5.2 billion, which is 14% lower than last year.

During the quarter in review, the generation group’s attributable power sales recorded a 7% YoY drop, from 2,422 GWh to 2,247 GWh. The decline was mainly due to YoY reduction in spot market transactions brought on by lower average prices at the Wholesale Electricity Spot Market (WESM).

Therma Luzon, Inc. (TLI), a wholly owned subsidiary of AboitizPower and the IPP Administrator of the 700 MW Pagbilao coal-fired power plant, experienced a margin squeeze during the quarter. TLI had to source replacement power to cover its bilateral contracts, as the power plant experienced an unplanned downtime during the period. Moreover, tariffs on its bilateral contracts did not allow the recovery of the YoY increase in its fuel cost. In the meantime, interest incurred by one of the Company’s associates increased significantly, as it commenced the commercial operation of one of its merchant hydropower plants in the third quarter of 2011, which resulted to noncapitalization of interest cost. Albeit, total income contribution of AboitizPower’s merchant hydro assets still recorded an impressive growth of 20% YoY as ancillary services continued to boost their earnings performance given the increased acceptance levels of the nominated capacities made by the Magat and Binga hydropower plants.

On a full year basis, the generation business accounted for 89% of earnings contributions from AboitizPower’s business segments, recording an income share of PhP20.4 billion for the year, down 16% YoY. Netting out one-off items, AboitizPower’s generation business shored in PhP19.8 billion, 16% lower than last year.

The decline in the group’s bottomline performance was due to the lower average selling price and net generation recorded for the period. As a group, AbotizPower’s generation business logged a 7% YoY drop in average selling prices, given the softening of the spot market prices vis-à-vis 2010 levels. Both demand and supply conditions that prevailed during the year were responsible for the recorded 41% YoY decline in the average price of electricity in the WESM’s Luzon spot market. Demand for electricity remained relatively flat versus last year. Meanwhile, the supply condition in 2011 improved given the marked reduction in average outage levels for the Luzon-based powerplants. The adverse impact on earnings, however, was tempered by AboitizPower’s strategic move  of lowering its exposure to the spot market, as it continued to sign additional bilateral contracts. AboitizPower’s net generation for 2011 registered a 3% YoY decline from 9,762 GWh to 9,422 GWh. The drop in the Company’s energy sales was mainly accounted for by the reduced spot market transactions brought about by the low prices that prevailed in the WESM.

The YoY increase in fuel costs resulted to a margin squeeze for TLI. Coal price escalated in 2011 given the unfavorable global supply situation. As most of Pagbilao’s bilateral contracts are based on the NPC Time-of-Use rates, TLI was not able to cover for the increase in its fuel cost during the year. The adverse impact of the unplanned downtime in the last quarter also weighed down TLI’s profitability for the year.

In 2011, the ancillary services provided by AboitizPower’s merchant hydro assets grew significantly over last year. With the elevated water levels, the capability of both Magat and Binga to offer ancillary services was significantly enhanced. The period saw a higher level of accepted capacities by the National Grid Corporation of the Philippines. The combined income contribution of these assets in 2011 recorded an 81% YoY expansion.

As of end-2011, AboitizPower’s attributable capacity was at 2,350 MW, posting a 15% YoY increase. The expansion was due to the following: assumption of full ownership of and control over the 70-MW Bakun hydro run-of-river plant in May 2011, acquisition of the 242-MW Navotas power barges in May 2011, the full completion of the rehabilitation of the Ambuklao hydropower facility in September 2011, the completion of the 4-MW Irisan hydropower Greenfield project in September 2011, and the partial completion of the rehabilitation works at the Binga hydropower facility.

Power Distribution

AboitizPower’s attributable electricity sales for the quarter ending December 31, 2011 was at 964 GWh, a 4% increase from last year’s 929 GWh. The growth was primarily driven by higher electricity sales for the industrial segment, which recorded a 5% YoY expansion. However, gross margin on a group-wide basis declined by 3% YoY to P1.52/kWh. This can be mainly attributed to a timing difference that arose from refunds received by two of AboitizPower’s distribution utilities in the last quarter of 2010. Said refund was related to an over-recovery by NPC of incremental costs on foreign currency exchange rate fluctuations under the Incremental Currency Exchange Rate Adjustment (ICERA). This resulted to the distribution group recording a decline of 5% YoY for the fourth quarter of 2011, from PhP692 million to PhP654 million.

For full year 2011, the power distribution group registered a 25% YoY earnings expansion, from PhP1.9 billion to PhP2.4 billion. This was on the back of increased electricity sales and improved average gross margin. For the year ending December 31, 2011, total attributable electricity sales increased by 3% YoY, from 3,606GWh to 3,727GWh. Leading the pack was the industrial segment recording a 6% YoY growth, while residential and commercial accounts posted marginal declines during the year. The group’s average gross margin for 2011 improved by 15% YoY to PhP1.44/kWh, as a result of the implementation of the approved distribution tariffs (under the Performance Based Regulation) of some of AboitizPower’s distribution utilities and the reduction in operating expenses of Davao Light & Power Company, Inc. (Davao Light). Davao Light recorded a significant decline in operating expenses in 2011 as operation of its backup power plant was not required during the year.

Financial Condition

As of December 31, 2011, the Company’s total consolidated assets amounted to PhP154.2 billion, 15% higher than year-end 2010 level of PhP134.6 billion. The Company’s consolidated Cash and Cash Equivalents was at PhP23.4 billion, while total consolidated interest-bearing loans was at PhP73.2 billion. Equity Attributable to Equity Holders of the Parent increased by 20% to PhP68.9 billion from year-end 2010. Current ratio as of end-December 2011 was at 3.4x (versus year-end 2010’s 2.6x), while net debt-to-equity ratio was at 0.7x (versus year-end 2010’s 0.8x).

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