Ascendant Group Limited Issues 2014 Earnings Release BELCO Kilowatt Hour (kWh) Sales Continue Multi-Year Decline

Hamilton, Bermuda – 12 May, 2015 – In a filing with the Bermuda Stock Exchange (“BSX”), Ascendant Group Limited (the "Ascendant Group" or “Company”; Ticker: AGL.BH) today reported 2014 consolidated net earnings for the year ended December 31, 2014 of $5.9 million, a $1 million increase over 2013 earnings. The increase was due primarily to accounting adjustments on certain prior-year-non-recurring items.

Ascendant Group President and Chief Executive Officer Walter Higgins explained, “excluding accounting adjustments made by BELCO, 2014 has been a flat financial year for Ascendant Group, which follows several consecutive years of earnings declines.

“Ascendant Group continues to grapple with the effects of Bermuda’s prolonged economic recession, rising health care costs, aging electricity infrastructure and increased competition across all lines of business.  With the exception of the slight increase in net earnings in 2014, due mostly to accounting adjustments, Ascendant Group has experienced eight years of generally declining net earnings since 2005 when the Company reported $28.5 million, compared to the current 2014 net earnings of $5.9 million. The weakened economy and a declining local population have negatively impacted electricity sales, as well as revenues from the sale of goods and services provided by the Company’s other operations during the year,” Mr. Higgins said. 

While reported earnings per share increased to $0.53 in 2014 from $0.39 in 2013, the market price for Ascendant Group’s shares continued to decline from $10.25 as at December 31, 2013 to $5.40 at 2014 year-end. The Company also made the difficult decision to reduce the dividend.

In light of the downward trend in financial performance and the need to retain capital, in June 2014, the Board of Directors of Ascendant Group reduced the annual dividend paid to shareholders from 85¢ to 30¢ in order to retain more of the Company’s earnings and cash-flow for capital investment. The reduced dividend remained in effect in quarters three-and-four 2014 and quarter one 2015.

BELCO’s core electricity sales have declined annually since 2009.   In 2014, BELCO continued to feel the effects of diminishing customer electricity usage due to the departure of both Bermudians and the non-Bermuda work force as international companies consolidated operations outside of Bermuda or reduced the level of staffing on the Island. In addition, many customers are voluntarily conserving and reducing their electric energy consumption, adding to the downward pressure on sales. Collectively, these are the primary drivers for the steady decline in kilowatt hour (kWh) sales that continued in 2014 with a decline of 9.3 million kWh, or 1.59%, from 586.7 million kWh sold in 2013 to 577.4 million kWh sold in 2014.

The continued growth of the renewable energy sector is also impacting BELCO.  In 2014, BELCO purchased 573,416 kWh with a net cost to the Company of $139,288. The total cost of net metering since its inception in November 2010 has been $254,000. To date, BELCO has not passed on the cost of purchasing electricity from net-metered renewable energy systems to its customers.

Electricity sales revenues, net of fuel adjustment, totaled $143.3 million in 2014, approximately the same as reported in 2013.  However, electricity sales revenues recognized in 2013 had been reduced by $2.36 million, as the Company established a provision for over-billed metered sales, determined during an audit of demand and commercial customer meter installations in 2013.  In 2014, the Company restored approximately $615,000 to electricity sales revenues, following a positive adjustment to the remaining year-end provision for over-billed metered sales. In instances where a customer was over-billed, the Company credited the customer’s account for the error.  In instances where a customer had been under-billed, the Company did not seek recovery of any unbilled amounts from the customer. At the end of 2014, 98.6% of all demand metered installations (large customers) and 74.0% of commercial accounts had been audited.  The audit of these two groups is expected to be completed in 2015.

Also, in 2013, BELCO had established a $500,000 year-end provision for the likely settlement of a contingent liability stemming from a dispute with an IT systems vendor over end-users’ license fees associated with the implementation of a work management system.  In 2014, this matter was successfully settled resulting in $258,858 written back to income in 2014.  

Fuel adjustment revenues (FAR) decreased $4.3 million from $95.8 million in 2013 to $91.5 million in 2014 because the average price paid for a barrel of fuel consumed (including taxes, shipping and handling) fell from $131.47 in 2013 to $128.60 in 2014, which accounts for $2.6 million of the total decrease. The balance of the decrease, or $1.7 million, is attributed primarily to a decrease in volume as approximately 18,750 fewer barrels were consumed in the year, which is directly related to the decrease in kWh sales demand. BELCO does not incur any profit or loss on fuel adjustment which is offset by identical fuel costs.

Ascendant Group’s total operating expenses decreased $4.6 million in 2014 to $238.9 million, compared to $243.5 million in 2013.  In addition to decreased fuel costs, other contributors to reduced expenses included a decrease in the cost of the Company’s Defined Benefit (DB) pension plan from $2.6 million in 2013 to $1.4 million in 2014.  DB Plan expenses in 2013 were higher, stemming from amendments to the DB Plan’s investment policy and to a higher amortization of accumulated actuarial losses resulting from a decrease in the discount rate used in the DB Plan’s actuarial assumptions. Only employees who joined the Company prior to January 1, 2006 participated in the DB Plan, all others are enrolled in a Defined Contribution (DC) Plan. At the end of 2011, the Company partly froze benefits accruing to active members of the DB Plan and they were enrolled in the DC Plan.

Restoration and rehabilitation expenses incurred as a result of Hurricanes Fay and Gonzalo totaled $2.9 million, of which $1.4 million was expensed, and the balance was capitalized as it represents system improvements.

Given the prolonged erosion of sales revenues in a capital intensive and high fixed cost, regulated business, BELCO’s overall return on equity remains unacceptably low as the continued decline in electricity demand has resulted in a significant corresponding reduction in revenues. In 2014, overall cash flow also remained strained under increased operating costs and the capital investment needed to maintain an aging generation fleet. BELCO will shortly be submitting a rate filing to Bermuda’s Energy Commission to adjust tariffs in order to achieve an acceptable rate of return that will allow it to continue to provide reliable service and attract investment for needed electricity infrastructure. The requirement to file a rate case was mandated by Bermuda’s Energy Commission in an order issued in 2014.

The Company is finalizing the development of an Integrated Resource Plan (IRP) and will submit the Plan to Government this year.  A key component of the IRP is a proposal to convert Bermuda’s primary electricity generating resource from fuel oil to natural gas which would be transported to the Island as Liquefied Natural Gas (LNG). This is a means to stabilize the overall cost of electricity to Bermuda’s consumers, as well as ensure lower costs during periods of high world oil prices. The IRP also includes a major initiative to diversify the energy portfolio by deploying roof-top solar thermal systems and utility-scale solar renewable energy systems. It also focuses on energy efficiency initiatives intended to capture electricity demand reductions, on the premise that it is less expensive to save a kilowatt hour (kWh), than to generate one.  It is anticipated that LNG infrastructure, renewable energy deployment and energy efficiency programs would create over 150 jobs for Bermudians.

In the meantime, the Company continually seeks ways to manage and reduce operating costs without disruption to customer service.  Fuel represents the largest cost incurred by the Company, representing approximately 49% of total expenses, so every effort is made to secure the best fuel prices, as well as to use fuel efficiently.   Compensation and benefits represent the second largest category of expenses for the Company.  Over the last several years Ascendant Group has taken steps to control compensation and benefits costs through early retirements, changes to employee benefits and careful scrutiny of all job vacancies.  The Company is reviewing a number of options to reduce overall compensation and benefits costs while ensuring an optimal number of skilled, competent staff to meet operational requirements and maximize productivity in a safe, secure working environment.

Ascendant Group Limited’s Annual General Meeting is scheduled for 9:30 a.m. on Friday, June 5, 2015 at the Bermuda Underwater Exploration Institute (BUEI).

Ascendant Group Limited is a Bermuda-based publicly traded holding company that provides energy and infrastructure solutions.  Ascendant Group Limited (AGL.BH) is listed on the Bermuda Stock Exchange (BSX). This Earnings Release may contain forward-looking statements which involve inherent risks and uncertainties.  Statements that are not historical facts, including statements about beliefs and expectations are forward-looking statements. These statements are based upon current plans, estimates and expectations. Actual results may differ materially from those projected in such forward-looking statements and, therefore, undue reliance should not be placed on them.

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For further information about Ascendant Group Limited, visit www.ascendant.bm

Contact: Linda Smith,

SVP Corporate Relations

441-299-2814

lsmith@ascendant.bm