News
CUC reports 13 percent decreasein earnings for first quarter ending July 31
The Caribbean Utilities Company, Ltd. (CUC)has recorded a 13 percent decrease in earnings for the quarterending July 31, 2002, compared with same period last year.
Unaudited financial results for that quartershowed that earnings were US$5,181,197 compared with US$5,996,257for the same period last year.
Earnings per Class A Ordinary Share wereUS$0.19 versus US$0.23 for the corresponding period, a 17.39%decrease. Although financial results for the quarter were lowerthan the same period last year, they were slightly higher thanbudgeted.
Net generation for the first quarter grewat an average of 2.62% over the same period last year. A new recordpeak load of 77.1 megaWatts (MW) was recorded in July 2002, a4% increase over last year's first quarter peak.
According to the report, operating revenuesincreased 0.64% over the same period last year. Electricity salesrevenue increased 3% over the same period last year, reflectinghigher sales due to normal economic growth.
Fuel factor revenue decreased 10.54%, reflectingthe recent leveling off of oil prices.
The Company's Licence provides for adjustmentsto be made to the rates billed to customers to reflect variationsin the cost of diesel fuel used in the generation of electricity.Such adjustments are made on a monthly basis such that variationsin the cost of fuel are directly recovered from consumers.
Operating expenses increased 4.58% overthe same period last year.
This increase was due to rising depreciationand amortisation expenses and maintenance expense. Depreciationand amortisation expense increased 27% due to increased depreciationarising from the completion of various capital projects. CUC expectsdepreciation and amortisation expense to increase approximately16% in fiscal 2003 over 2002.
Maintenance expense increased 60% in firstquarter 2003 over the same period last year. This was expectedand budgeted for and is reflective of the normal generating maintenanceprogram. The Company expects maintenance expense to increase 21%in the current fiscal year over last year.
Conversely, transmission and distribution(T&D) expenses declined 38% to $240,728 in first quarter 2003compared with the same period last year. This decline is a resultof the Company's focus on completing a number of capital projectsin the first quarter. This is in line with first quarter plansand is consistent with budget. CUC expects T&D expenses toincrease 3% this fiscal year over last year. The major focus ofthe $5.7 million capital expenditure program during the quarterwas on T&D projects.
Financing expenses for the period rose 11%due to the increased expenses associated with CUC's $30 million,6.67% Unsecured Senior Notes due 2016, which were drawn down lastyear, and the interest expense that was capitalized during construction.These projects are now completed and capitalization of interestto these projects has ceased.
The report said that the Cayman IslandsGovernment notified CUC last spring of its intention to instructthe Cayman Islands Auditor General to conduct a special reviewof the Company's operations. CUC agreed to this special reviewas it is viewed as a positive step in the Company's ongoing Licenceextension discussions with Government. The special review shouldbe completed by September. CUC does not expect the special review,when completed, to result in any material change to its operations.
"Prior to this special review, thepublic accounting firm of Ernst & Young (E&Y) was appointedby Government to conduct an independent audit of CUC's financialaffairs in 2001. The Company's Licence includes a provision foran independent audit of the Company's financial affairs to beconducted at Government's expense. CUC views these audits as consistentwith its own policy of openness and transparency. E&Y completedthe financial audit in October 2001 and submitted its findingsto Government," the report added.
The Company received a preliminary financialaudit report, which concluded that the 2001 audited results werecorrect in all material respects.
The Company in June drew down US$13 millionof a US$15 million short-term bridging loan facility with RoyalBank of Canada. These funds were used to finance the June 20,2002 redemption of 50%, or US$6,007,500, of CUC's 8% Cumulative,Redeemable Class C, Series 2 Preference Shares, and to partiallyfund capital projects.
The report said that CUC signed an agreementwith MAN B&W Diesel AG, the Company's generation strategicalliance partner, in August for the purchase and installationof a third 12.25 MW V48/60 diesel generating unit and auxiliaryequipment. This new unit will be online by summer 2003 to meetgrowing electricity demand.
In terms of future outlook, management forecastselectricity demand growth of 4.75% over the next year and conservativegrowth of 4% to 5% over the next five years. These forecasts arebased in part on the Island's development plans as approved bythe Cayman Islands Central Planning Authority and historical growthtrends. CUC plans to invest more than US$120 million on capitalprojects over the next five years, based on these projections.
CUC expects to spend US$23 million in fiscal2003 to finance additional electrical infrastructure and generatingcapacity required to accommodate future growth represented byprojects such as the new US$350 million Ritz-Carlton resort andcondominiums; the Meridian condominium resort; the Cayman Shoresdevelopment; the 50,000-square foot UBW Building in downtown GeorgeTown; and the 67,000-square foot Kirk Harbour Centre retail shoppingand office complex. The Company will spend US$15 million on closingthe loops of the T&D system.
Meantime, the Board of Directors has declareda regular quarterly dividend of US$0.155 on the issued and outstandingClass A Ordinary Shares payable September 2, 2002 to shareholdersof record August 12, 2002. This dividend represents a 6.9% increaseover the quarterly dividend paid in September 2001, and an annualizeddividend of US$0.62 per share.
CUC issued an aggregate of 25,980 ClassA Ordinary Shares in first quarter 2003 pursuant to the Company'sCustomer Share Purchase Plan, Executive Stock Option Plan, DividendReinvestment Plan and Employee Share Purchase Plan.
CUC is covered by Standard & Poor's(S&P) and continues to receive an 'A' rating.
CUC is covered by Dominion Bond Rating Serviceand received an 'A' (low) rating for its long-term debt and a'Pfd-2' (low) rating for its preferred shares in January 2002.