While net earnings are down 15.92% over the same period last year, they were anticipated and the results exceeded the budget planned for at the start of 1999. The decline is partly the result of the expected losses from Quantum Communications Limited (Quantum) including the provision for mortgage revenue from the Quantum fiber lease. This added provision was not made last year as it was anticipated that these lease revenues would be collectible as Quantum was still operating as a going concern. Quantum's major stakeholders, Holdings and Cable & Wireless Bermuda Limited, are currently in negotiations over the sale of Quantum.
The decline in net earnings is also the result of anticipated increased costs incurred by Bermuda Electric Light Company Limited (BELCO). This increase was impacted by the preparation for the Year 2000 (Y2K) which involved the upgrading or replacement of several software packages as well as the advancement of several engine overhauls to ensure Y2K preparedness. This, in addition to an overall increase in the number of overhauls falling due in the first six months of 1999, caused a significant increase in maintenance costs during the period. All systems and generating units are now 2000 compliant and contingency plans have been finalised.
Bermuda Gas & Utility (BGU) total sales were up 8.9% compared to the same period last year, with increases of 1% in gas sales and 20% in appliance sales and service. Gross profits from sales were up 13.15%. Overall income from BGU increased 64.5%.
Sales from BESCO, now in its fourth year of operation, continued to improve during the first half of 1999 with net earnings up 34%. Contributing to BESCO's improved results is its involvement in several large engineering projects. Additionally, with increased marketing resources, BESCO has seen growth in sales of its surge suppressor and uninterrupted power supply (UPS) equipment.
"Despite the anticipated decline, we are pleased with the results achieved by the BELCO Holdings group for the first six months of 1999,'' said President and CEO Mr. Garry A. Madeiros. "These results are consistent with those we had forecast at the beginning of the year. We look forward to meeting targeted sales and expenditure levels for the remainder of 1999, which will allow us to achieve basic operating results similar to those of last year. Unfortunately, we will have to account for further write-downs in our investment in Quantum, which will likely result in a decline in overall results for the year. These write downs haven't been accounted for to date and will not be done until there is some resolution of the sale of Quantum."