PPC’s first-half results hurt by high fuel costs

High fuel costs helped drive Greek electricity utility Public Power Corporation’s (PPC) first-half net profits down 35 percent, despite tariff hikes, and analysts expect the trend to continue this year. The country’s dominant power utility, 51 percent state-owned, met market expectations yesterday as earnings fell 34.7 percent to 96.2 million euros ($123.3 million). The oil-dependent giant – with roughly 25 to 30 percent of its power generated using oil and natural gas – faces increasing competition since Greece deregulated its energy market last year. «Given current conditions, we expect the third quarter to be along the same lines, if not worse,» said one analyst who declined to be named. A 3.2 percent tariff hike the company imposed on consumers in September 2005 did not offset the negative impact from the sharp rise in fuel prices. Analysts said a further increase of about 4.8 percent as of August 1 this year, was still not expected to fully counter the effect. Vulnerability to stay They said PPC was unlikely to reduce its oil dependence in the near term and would therefore continue to be vulnerable to high oil prices. «It doesn’t seem likely that PPC will be able to move away from oil anytime soon, since doing so requires obtaining permits and creating new infrastructure – both time-consuming processes,» said Artion Securities analyst Elias Lazaris. The sharp rise in fuel costs compared with the same period last year added 131.9 million euros to costs, while energy imports jumped 131.3 percent to 193.1 million euros. As a result, earnings before interest, taxes, depreciation and amortization (EBITDA) were squeezed 14.4 percent lower to 476.8 million euros. Sales rose 10 percent to 2.33 billion euros. No emission costs On the plus side, the power utility did not incur any carbon emission costs, compared with 45 million euros in the first half of 2005, nor does it expect any in the second half based on projected generation. PPC said affiliated companies like nickel producer Larco accounted for 11.2 million euros of PPC’s profit, compared with a zero contribution in the first half of 2005. Tellas, its fixed-line telephone joint venture with Italian telecoms firm Wind, narrowed losses to 2.5 million euros compared with 5.9 million the same period last year. «The surprise came from the associated companies, which, for the first time in at least three years, had a positive impact on PPC’s financial results,» Alpha Finance analyst Manousos Stathoudakis said. PPC shares trade at around 28 times 2006 estimated earnings, a hefty premium to Italian utility Enel’s 15 times multiple and Spanish Endesa’s 12, according to Reuters Estimates. Its shares, up 0.8 percent since the start of the year, have underperformed the 16.8 percent gain in the DJ Stoxx utilities index. Yesterday they were up 1.42 percent at 18.60 euros.

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