YTLPOWER 1Q 2010 Results

With the release of 1st Quarter 2010 results, I would think that all the clarification needed to see through the company easier will be available. Alas I spoke too soon. The latest quarterly report makes the numbers more murky for me and still nothing reported on their hedging operations other than required holding and inventories.


P/L / Balance sheet / Cash flow

First it looks great from the 1st line you read as the revenue grew quite a sum compared to previous quarter (not last year's 1Q beside it). But as I read further, it became clear their operations suffered somewhat a setback compared to last quarter. With only RM556 mil in operational profit which is about RM200 mil less than last Q but with higher revenue. Doesn't make sense huh. But the answer lies in the notes (B2) which states last Q revenue was higher due to a write back in fuel provisions which amounted to RM170 mil. Heh, talk about late disclosure. Shouldn't that statement be last quarter instead of this quarter to explain it?

Net profits after tax was only RM230 mil which is comparable to the time even before Seraya Power was acquired. This tells you something or someone is not quite making it in terms of profit for the group. It's as though Seraya never existed. RM230 mil is only RM10 mil more of what they made in 3rd Q 2009 with a lousy GBP conversion! And that was considered a lousy quarter. So definitely Seraya is not performing somewhat.

Not much to say about their balance sheet. They paid off some of the loans in SG and long term loan reductions looks OK but not much. Their asset and liability value fluctuates with the currency so there is no easy way to look at it. But I normally concentrate if there are big difference which indicates some sort of payment. Such as RM300 mil less in Payable but RM 200 mil more in borrowings.

Cash flow looks healthy enough from the operations contribution. Due to their higher financing requirements, they registered a negative flow of cash which normally shows a positive figure from all their warrant conversions. This quarter also reflected last Qs dividends which is RM219 mil which is low as they only proposed 3.75% last quarter. Financing activities is expected to balloon positively next quarter when the warrants 2010 are expiring in January. At the end of the day, they added more money into their bank accounts to a tune of RM 6.1 bil.

Their notes also showed they issued 2 term notes, one in GBP for 50 mil which comes to about RM 275 mil and also another in MY for RM 480 mil.

Segmental reporting

My current beef with this report is this part. This is where it all becomes muddy and blurred. Where previously, they would segment their operations by electricity, water/sewerage and investment holdings. Now the decided to separate Power Seraya into it's own segment under "Multi-Utilities" to reflect its operational status as a multi-utility player. I suppose it would make it easier to understand their operations from a distance. As each segment can be separated into Malaysia, UK and Singapore.

What I hate is that there is no further segmentation of their Singapore operations. Because Power Seraya (PS) not only generates electricity for sale, they will also sell Steam, industrial air and operate an oil trading business. Not to mention they are actively hedging their activities in terms of fuel swaps, interest swaps and exchange forwards. Thus their PS operations becomes hard to predict, as you can't tell how much each separate business in PS is affecting their overall business. For example if they made losses in the hedging part, we won't know because it is being masked by their electricity sale profits.

Looking at the segmental reporting, I can tell that Power Seraya profits are seriously lacking the boost required to pump their net profits up. It only showed 50% of what I expected it to contribute quarterly. Out of RM2.2 bil worth of revenues, they can only show for only RM59 mil in profits. Their revenues I suspect are inflated by their oil trading activities which includes buying and selling kilo tonnes of fuel to earn a small profit by the margin of difference. Lower profits could also be explained by their increased financing responsibilities.

Malaysia electricity operations are always on full steam so their results are normally due to the efficiency of running at full capacity. It's revenues are quite comparable to previous quarters but the profits are lower by about 20%.

UK operations are also weak this quarter compared to GBP exchange where GBP depreciated 5% BUT their profits dropped RM100 mil or 39% to RM159 mil. To compare some more, when the GBP was weakest in 3rd Q 2009, Wessex Water actually earned RM180 mil. So definitely not up to par compared with other quarters if currency exchange is not concerned.

Now I'm not saying its the end of the world, YTLPOWER 1st Quarter results are always on the lower end of the spectrum out of 4 quarters in a year in the last 5 years. So this can be due to multitude of reasons from re-valuating assets, financial obligations and consolidation of accounts.

But the best part of this report was the proposed dividend of 7.5% which harks back to previous quarters interim results. Definitely a welcome relief ever since last quarter they announced only 3.75% interim. Hopefully, it can be incrementally higher in coming quarters.


Wish List

What I would like to see were the segmented business reporting for their Singapore operations like how PS website reports it. It shows how each business is making money and how important they are to the business core which is utilities.

Most important is their hedging/swapping operations and how good a job they are doing there.

Repayment schedules of term loans or at least a mention of how much they paid and when.

Higher dividends to reflect the additional profits that somehow PS is not delivering.