Greece's Public Power Corp. SA (PPC.AT) Thursday said its 2007 net profit soared, thanks in large part to the sale of its stake in local telephone company Tellas.
For the 12 months to Dec. 31, the company said net profit was EUR222.3 million, compared with EUR22.1 million a year earlier. Revenue rose by 7.7% to EUR5.15 billion from EUR4.79 billion the previous year.
The company said it booked a pretax gain of EUR165 million from the sale of Tellas. But even excluding the sale of the Tellas stake, the operating profit figures were better-than-expected, pushing the shares higher in early trade.
At 1102 GMT, PPC shares were up EUR2.24, or 9%, at EUR27.14.
Analysts had expected net profit of EUR56.8 million and revenue of EUR5.19 billion.
"The increase in net profit was largely from the Tellas sale, but the company also reported lower costs than expected," Paris Mantzavras at HSBC Pantelakis said. "PPC had lower fuel costs, lower payroll costs and lower operating costs. Generally, across the board there was lower costs than the market expected."
Total operating costs, excluding deprecation, rose 7.1% to EUR4.34 billion from EUR4.05 billion. That included a lower-than-expected 3.1% increase in payroll expenses to EUR1.08 billion.
That helped lift operating profit as measured by earnings before interest, taxes, depreciation and amortization, or Ebitda, 11% to EUR818.7 million. At the same time, the Ebitda margin widened to 15.9% in 2007 from 15.5% a year earlier.
"In 2007, we continued the intensification of our efforts for internal financial discipline through the strengthening of a corporate culture for achieving efficiency improvement," Chairman and Chief Executive Takis Athanasopoulos said. "In this framework, we achieved a reduction of 7% in other operating expenses per generated megawatt-hour, compared to the previous year."
"Our challenges in 2008, are achieving additional efficiency improvements and the beginning of the essential implementation of the ambitious investment program, we announced at the end of 2007," he added.
The improved results come as a relief for the company, which has reported a string of disappointing results. According to analyst estimates, PPC reported an EUR38 million net profit in the fourth quarter - excluding the Tellas sale - compared with an EUR49 million loss in the final quarter of 2006.
Since 2005, PPC has seen its profits continually shrink - squeezed between higher fuel costs and electricity purchases from third-party power producers on the one hand, and relatively low tariffs on the other.
The Greek government, which controls 51% of PPC, the country's one-time monopoly power producer and still dominant electric utility, tightly controls the prices that PPC can charge consumers.
In addition, PPC is also required to subsidize various groups, including farmers, islanders, large families, company employees and pensioners. Overall, these public service obligations are estimated to cost the company between EUR500 million and EUR1 billion.
Moreover, an exceptionally hot and dry year in 2007 reduced production at the company's hydroelectric plants, forcing it to increase its purchases of electricity from third-party producers.
In its nine-month results, the company saw profits drop 15% on year, mainly because of the higher energy purchases.
However, in early 2007 the government appointed Athanasopoulos, a well-respected businessman with extensive international experience, tasking him with turning around the company. And in November, the Greek government approved a series of staggered tariff increases that PPC had requested, saying they would bring revenues more in line with the company's costs.
"As expected, profitability was constrained by an unfavorable generation mix, i.e. low hydro generation on low rainfalls and tariff hikes that proved inadequate to cover increased generation and energy purchases costs," HSBC Pantelakis said in a report.
"That said, we already expect a sharp profits recovery in 2008-2009, given the recent circa 15% tariff hikes and some normalization in hydro-generation," the report added.