Economic woes take toll on Meralco’s first half income

Manila Electric Co. (Meralco) reported yesterday sharply lower net income in the first half, due to higher expenses and slower export sales and a lackluster domestic economy.

"What you are seeing for utilities is a slowdown in kilowatt hours (sales).. it’s not unique to Meralco, its happening everywhere in Asia," said a utilities analyst with a foreign securities house, who declined to be named.

Net income for the country’s largest power distributor in the first six months totalled P953 million, a 46.1 percent decline from 1.77 billion posted a year earlier.

It said its sales volume in the first semester grew 4.1 percent to reach 11.16 billion kilowatthours (kwh) from the year-earlier’s 10.72 billion.

Operating revenue in the half grew 36.7 percent year on year.

However, earnings were impacted by a sharp uptick in other expenses which grew 91.1 percent year on year, largely as a result of higher interest payments stemming from the weak peso and a rise in system losses, the statement said.

"System losses were also quite surprising going up to 11.2 percent (in the half) from 10.6 percent for fiscal year 2000," the utilities analyst said.

System losses reflect electricity leakages or theft and Meralco has to absorb the cost of power lost above the government mandated 9.5 percent limit.

Earnings per share in the half totalled 84 centavos, a 31.7 percent decline from P1.23 percent a year ago, the statement said.

Pension expenses

"I found it (the results) quite disappointing, pension-related expenses seemed to be accelerating in the second quarter and it seems likely they will accelerate even further in the second half," the utilities analyst said.

These expenses stem from increased contributions to the company’s employee pension fund to cover shortfalls. The fund owns around a nine percent stake in Meralco.

However, Merrill Lynch Singapore Asian utilities analyst Dante Tinga said the rise in pension fund contributions for the half is distorted by the fact that payments last year were only included in the yearend statement so no adequate first semester comparison was possible.

"You have to take the yearend pension (2000) fund contributions and spread them over the full year to be able to do a valid year on year comparison.. if you do that the number (first half 2001 profit) is down 16 percent," Tinga said.

While the slowdown in sales "was to be expected given the overall slowdown in the economy," he said the net income figure was better than what he had expected, once adjustments were made.

Because of legislative requirements the company had to make higher provisions for depreciation than other companies.

"If you make these adjustments first half profits would be down around 34 percent year-on-year," he said

Profits to remain weak

Tinga added that profits, however, will remain weak in the second half, declining by 10 to 15 percent until the company gets the rate hike it has been seeking since April 2000.

The utilities analyst who declined to be named also expects an even worse performance in the second half as the company books (provisions for) P2 billion in pension related expenses.

He added that the company’s prospects for a 0.30 kwh rate hike also remain unclear.

The firm is seeking approval of its hike petition by the end of August but analysts believe a decision could be delayed by the reorganization of the Energy Regulatory Board into a new regulatory commission.