FY14 was a year of overhaul at Hub Power Company Limited (PSX: HUBC) that resulted in tepid growth in the IPP's bottomline. However, in the absence of any major overhauls and repairs, FY15 brought improvement in the firm's earnings. And with the announcement of 1HFY16 financial performance, it seems that the year will once again see some restrictions in earnings on account of O&M expenditure.
In 1HFY16, the firm's unconsolidated revenues saw a decline of 39 percent, year-on-year. The reduction in turnover was due to persisting fall in furnace oil prices. During the first six months of FY16, the furnace oil prices have dropped by around 45 percent year-on-year.
At the same time, the falling input cost translated into lower operating cost for the IPP, and HUBC's gross profits dropped in the six-month period. However, gross margins improved significantly from 9.8 percent in 1HFY15 to 14.6 percent in 1HFY16.
Overall, unconsolidated earnings for HUBC were five percent lower in 1HFY16 versus that of 1HFY15. And apart from lower furnace oil prices, and bottomline was affected by higher administrative expenses, and other operating expenses. The increase in other operating expenses came directly from increase in O&M expenditures on account of overhaul of the last boiler during the first six months of FY16. Finance cost continued its downward journey due to the fall in discount rates. But the reduction in finance cost also resulted in reduction in penal receivable. Overall, the net margins too depicted a positive increase from around six percent in 1HFY15 to over nine percent in 1HFY16.
The consolidated earnings of HUBC were also supported by around 19 percent higher income from its hydel subsidiary, Laraib Energy Limited along with better profits from Narowal plant. The firm
also announced an interim cash dividend of Rs4.5 per share. Apart from its investment in two 660MW coal power projects, the IPP has also started to take part in coal mining apart from using it for generation by investing in SECMC.
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