Aboitiz Power ends 2013 with P18.6B net income

CEBU, Philippines - Aboitiz Power Corporation (AboitizPower) saw its bottom line amount to P18.6 billion in 2013, a 24% year-on-year (YoY) drop from P24.4 billion in 2012. This translated to earnings per share of P2.53.

"The dip in our full-year net income was largely expected. We are confident that we remain on track with our various strategies to grow our power business and provide better power solutions in the Philippines. The need for more power supply in the country is pressing and imminent; AboitizPower is committed to further invest in bringing in more power capacity to support the economy's growth trajectory," Erramon I. Aboitiz, AboitizPower President and Chief Executive Officer, said.

The Company registered a non-recurring loss of P1,547.2 million (versus last year's gain of P705.1 million) during the year. This was due to the net effect of the revaluation of consolidated dollar-denominated loans and placements, the realization of a non-recurring expense due to the prepayment of debt earlier in the year, and a gain amounting to P415.8 million due to the step acquisition of a subsidiary, net of impairment losses.

Adjusting for these one-offs, the company's core net income for 2013 amounted to P20.1 billion, down by 15% YoY.

AP declared a regular cash dividend of P1.26 per share, with a record date of March 25, 2014, and payment date of April 22, 2014. It also declared a special cash dividend of P0.40 per share, with a record date of March 25, 2014, and payment date of April 22, 2014.

Power Generation

On a full-year basis, the generation business accounted for 83% of earnings contributions from AboitizPower's business segments, recording an income share of P15.2 billion for 2013, down 33% YoY. Netting out one-off items, AboitizPower's generation business generated P17.2 billion for the period, which was 21% lower than last year.

The adverse impact on earnings was mainly attributable to the lower margins registered by the Pagbilao plant and the higher fuel cost brought about by the implementation of the Geothermal Resource Supply Contract for the Tiwi-MakBan plants.

The group's average price for its power decreased by 3% YoY in 2013. This was mainly due to the 7% YoY decrease in the average selling price of the group's bilateral contracts. On the other hand, average spot market prices increased by 9% during the same period.

On the other hand, AboitizPower's attributable net generation for the period in review grew by 3% YoY, from 10,660 gigawatt-hours (GWh) to 10,949 GWh on the back of a 37% increase in spot sales from 1,398 GWh to 1,914 GWh. Meanwhile, power sales through bilateral contracts for the period declined by 2% from 9,261 GWh to 9,035 GWh.

The year 2013 saw the successful implementation of AboitizPower's strategy to shift the bulk of its contracts from energy-based contracts to capacity-based contracts. In general, the latter are essentially de-risked contracts since these provide a fixed capacity fee payment for the company covering capital recovery and operation and maintenance costs; allows for the full pass-through of fuel costs, which make up a significant portion of the company's operating costs; and includes provisions for inflation-related adjustments and where applicable, foreign exchange adjustments on these costs.

The combination of these features allows the company to minimize revenue to cost mismatches.  As such, the shift to capacity-based contracts will allow AboitizPower to benefit from more stable and predictable cash flows and minimize volatility in the company's cash flow generation.

As of the end of 2013, the bulk of the group's capacity has already been contracted, with only 11% of its capacity exposed to spot, down by 15 percentage points from a year ago.

On a capacity basis, the company's attributable sales increased by 3% YoY from 1,547 megawatts (MW) to 1,590 MW with bilateral capacity and spot market sales making up for the decline in ancillary and bilateral energy sales.  Ancillary volumes dropped by 35% during the year as a result of the lower acceptance rate by the National Grid Corporation of the Philippines.

"AboitizPower expects to continue expanding its portfolio of generation assets nationwide. We will remain cognizant of bringing in the right mix of baseload, intermediate, and peaking power, as well as other forms of renewable power. Our goal remains to contract our capacity through bilateral contracts rather than be exposed to volatile WESM (Wholesale Electricity Spot Market) prices," Aboitiz said.

Power Distribution

Expansions in volumes and margins resulted to a 15% YoY growth in the power distribution group's earnings share for 2013, from P2.8 billion to P3.2 billion. Total attributable electricity sales increased by 4% YoY, from 3,934 GWh to 4,076 GWh. The residential segment spearheaded the growth in sales with a 5% YoY expansion in volume sales, while commercial and industrial accounts both registered YoY growth of 3%.

The strong performance of the distribution group can be attributed to the increase in sales across all customer classes, with the residential and industrial segments registering notable sales growth of 4% and 7% respectively.

The group's year-to-date gross margin on a per kilowatt-hour basis increased to P1.77 from P1.60 a year ago. This was due to the improvement in the systems loss levels of the distribution utilities, which were mostly maintained within the government-imposed cap of 8.5%. Approved adjustments under performance-based rate setting also helped support the increase in gross margins.

"We are continuing efforts to further increase reliability and efficiency to reduce operating costs while at the same time offering better customer service. Our contestable customers now have the power of choice as to where to purchase their power requirements, and we don't want to give them a reason to leave us," Aboitiz said. (FREEMAN)