First Gen posts flat income growth to $20.3 million in 6 months

MANILA, Philippines - First Gen Corp., the largest renewable energy company in the country, posted a net income of $20.3 million in the first half of 2009, nearly the same level registered in the comparative period last year.

First Gen chief finance officer Giles Puno attributed the marginal drop in earnings to higher interest expenses incurred mainly from the refinancing of First Gas Power Corp. — the company that owns and operates the 1,000 megawatt Santa Rita natural gas-fired power plant.

Puno added the lower net income from geothermal steam and power provider Energy Development Corp. (EDC) also contributed to the minimal decline in income during the period.

He said there were also some derivative losses from the company’s convertible bond.

But he noted that these were fully offset by lower administrative expenses, favorable foreign exchange movements, and deferred income tax benefits from the depreciation of the peso against the US dollar. 

First Gen’s consolidated net income of $74.4 million, however, was 17.7 percent lower than the previous year’s $90.4 million, primarily due to lower income from EDC given the effect of incremental costs on the company’s steam augmentation projects that were implemented in Unified Leyte.

In May 2009, Prime Terracota Holdings Corp. issued Class B preferred shares to Lopez Inc. Retirement Fund and Quialex Realty Corp.. With the preferred share issuance, First Gen’s voting interest in Prime Terracota was reduced to 45 percent resulting in the deconsolidation of Prime Terracota and its subsidiaries, which include Red Vulcan Holdings Corp. Red Vulcan is the entity that holds a 60 percent voting and 40 percent economic stake in EDC.

The deconsolidation now allows First Gen’s 40 percent economic interest in EDC to be accurately reflected in its financial statements.

As a result of the deconsolidation of EDC’s numbers from the company’s financials, the consolidated financial statements present a more precise picture of First Gen’s financial position.  

Though First Gen’s consolidated revenues in the first semester of 2009 declined 16.1 percent to $530.7 million from last year’s $632.8 million, the decrease was mainly attributable to the lower fuel charges resulting from lower natural gas prices during the period.  

Operating costs and expenses were consistently lower with the decline in fuel expenses. First Gen’s operating income also remained virtually unchanged.  

“The financials now correctly reflect our ownership in each of the generating companies. Though EDC’s income is lower than last year’s, we fully expect the capital expenditures that we are pouring into the company to pay off in the coming years.  

Moreover, the company is already beginning to reap the benefits of the economy’s improving fundamentals, the group’s hedging strategy, and the fruits of our refinancing efforts.  Despite the difficult environment, First Gen has successfully achieved the normalization of its financials,” Puno said.