PPC first-quarter profits hit by oil costs and labor strikes

Public Power Corporation’s (PPC) first-quarter profits fell 27 percent yesterday, hit mostly by a long-term strike that forced the company to import more costly fuel. State-controlled PPC must cut costs and implement an aggressive restructuring program to boost competitiveness in the newly liberalized Greek energy market, but union objections and high oil prices have hampered efforts. «The 18-day strike by our employees… was a contributing factor to increased energy purchases and more expensive fuel generation,» CEO Takis Athanassopoulos said in a statement. «A number of board meetings were also disrupted by union members, resulting in an inability to take timely resolutions on the implementation of certain of our strategic priorities,» he said. Greece’s largest energy utility saw about two-thirds of its plants shut down in March, halving electricity output, as PPC unions joined other striking Greek workers to protest against government plans to overhaul the country’s pension system. Unions also obstructed company offices and blocked access to board members, preventing them from voting on cooperation agreements, such as a deal with Germany’s RWE to set up energy joint ventures in Greece. In April, PPC signed a deal with RWE to jointly build a coal-fired plant in Albania, as part of its plans to seek partnerships that will help it modernize operations and expand in Southeast Europe to offset a drop in domestic market share. Last year the government allowed the utility, whose hydroelectric plants were also hit by drought, to increase some rates to help offset rising oil prices, but that was not enough to help the bottom line. «The drastic fuel and energy purchase price increases offset all tariff increases that were granted to PPC since the first quarter of the previous year,» Athanassopoulos said. PPC’s prices are set by the government, which also owns 51 percent of the company. Shares drop Net profit came in at 30 million euros, compared with 41 million euros a year earlier, below the average forecast of 38 million euros from a Reuters poll of analysts. Earnings before interest, tax, depreciation and amortization (EBITDA) dipped 13 percent to 205.5 million euros, while sales rose 14 percent to 1.41 billion euros. Its shares fell 2.7 percent to 25 euros on the Athens bourse. «PPC released a weak set of Q1 results,» said HSBC analyst Paris Mantzavras in a note to investors. «The March strike, persisting drought, as well as a continuous oil price rally cloud the immediate profits outlook.» PPC’s share price has lost about 30 percent in the year to date, underperforming a 24 percent fall in the main Athens market index. The stock trades at about 28 times estimated 2008 earnings, which compares with a multiple of 26 for shares in France’s EdF and 15 for Germany’s E.ON, according to Reuters Estimates data.