"On Monday, September 10, 2001, we were expressing appreciation and thanks for another near miss that we experienced with Hurricane Erin. We made every preparation and then braced ourselves for what appeared to be a direct hit from a Category 3 hurricane. Once again, we were blessed. One day later, our concern for the hurricane seemed inconsequential in comparison to the events that unfolded. The heinous acts of violence inflicted on, and profound tragedy suffered by, innocent and unsuspecting people will forever change the lives of their families and the way of life in the United States. At times like this, words are inadequate to really express our feelings. On behalf of all of us in the BELCO Holdings group I express our deepest symapthies and convey our sadness and prayers to all the families and friends of victims of the horrific events of September 11, 2001.
In addition to the devastating loss of human life, the terrorists managed to dramatically impact the global economy and we immediately began to see the effects of these events. At home, we too are deeply impacted. Both tourism and international business have been hit hard. Our multi-billion dollar reinsurance market is estimating that claims will reach above $2 billion. Every indication now is that the companies involved - ACE Lmiited, XL Capital, and Partner Re among them - have managed their risk well and maintained disciplined underwriting practices, positioning themselves well to weather these events.
Our tourism industry, however, is not in such a strong position. For many months prior to the events of September 11, our tourism industry was in decline. We are now reading in the media that airlines, in particular US airlines, are making significant cuts to flight schedules, that layoffs have already begun in the Island's large hotels, that some hotels will close early for the winter, and even that some may have to close permanently. We have heard that retailers are considering a four day work week, and that other tourism-related businesses, including restaurants and taxi services, are already seeing a significant slowdown in business. We expect to see other sectors of the economy impacted as well.
It is important now more than ever, that we are realistic about the impact to Bermuda, to Bermuda companies, and to each of us as individuals. We cannot simply adopt a "wait and see" attitude. We must prepare ourselves and the Country for a severe economic downturn. The magnitude of our challenge is something most of us have never experienced; hence we have no reference point. Revenues to the Government coffers and the community will be dramatically reduced and will require a corresponding reduction in expenditure, but the balance must be right or part of the solution will become part of the problem. The ripple effect of both of these factors throughout our economic fabric will provide dramatic consequences that will test our resolve. It will require courage to come together like we never have before - Government, Opposition, business, labour, and the people of Bermuda.
At BELCO, we are assessing the impact to our business, to our shareholders, customers, and ultimately to our employees. Last year, we began the process of repositioning ourselves so that we could respond quickly and effectively rather than react to changes in our operating environment, in particular further decline in our tourism industry and any threats to the international business sector that could significantly impact our business. We did not anticipate anything so soon nor to the extent of what we now must prepare for.
As of August 31, our financial position remains strong, with two of our three main operating subsidiaries delivering increased earnings over the same eight month period in 2000. While we anticipate that we will finish the year in a strong position, we do however expect to feel some impact from these events during the fourth quarter.
The Board of Directors has declared a dividend of 38.5¢ per share for the third quarter. A cheque is enclosed for shareholders who have requested direct payment. Those who designated a deposit to their savings or current account have been given credit effective today. As of September 25, the market price per share was $25.50.
BELCO
BELCO's total kilowatt hour sales through August 2001 were up 3.3 percent over the same period in 2000, driven by growth in all sectors. Sales in the residential sector were up 5.3 percent due to an increase in the number of customer and increased usage by existing customers.
Small commercial sales were up 5 percent also as a result of increased usage, while demand sales rose marginally as XL Capital and ACE Limited continued to increase electricity usage in their new buildings, offsetting losses by hotel properties since last year.
Hotter temperatures and increased usage in August this year pushed the daytime peak load up 3.1 percent to reach a new high of 106.2 megawatts (MWs) from last year's record of 103 MWs. The evening peak also increased slightly to 103 MWs from 102.4 MWs during August when compared to the same period last year.
The average price per barrel of fuel, including customs duty of $15.10 per barrel, was $50.12 through August this year compared to $47.25 for the same period in 2000, representing a 6.3 percent increase year over year. However, we did see a decrease of 7.7 percent in the price per barrel of fuel for the month of August to $47.18 compared to $51.09 for the same period last year. This will result in lower fuel adjustment rates and hence, slightly lower electricty costs for our customers.
Bermuda Gas
Bermuda Gas continued its strong performance with sales up 3.7 percent through August compared to the same period in 2000.
Gas sales were up 5.3 percent, with the commercial sector leading the way with an increase of 5.4 percent in gas deliveries. Residential deliveries were also up, by 4.8 percent, and small cylinder sales increased 7.7 percent during the period. Service and parts sales increased 4.5 percent through the eight-month period when compared to the same period last year. Appliance sales, however, were down during the period as a result of fewer sales in Bermuda Gas' high-end appliance lines and stiff competition in the air-conditioning sales market.
BESCO
Business was steady during the third quarter of 2001 as BESCO continued work at Bermuda College, the Mechanics Building in Hamilton, and Bermuda Land Development Company (BLDC) at Southside, St. George's as well as other projects. It is expected that BESCO will see the benefits to their bottom line from these projects in the fourth quarter.
Sales of uninterruptible power supply (UPS) equipment have doubled through August this year compared to the first eight months of last year, while sales of surge suppression products were steady during the period.
Technology
We have completed the implementation of our fully integrated operations resource management system. Like all new systems, we have experienced some minor setbacks but on the whole, the system is operating well. The system links all our systems - customer information, outage reporting, mapping and facilities management, interactive voice response and related engineering applications. All interfaces have been completed except for the interface with the SCADA (Supervisory Control and Data Acquisition) system, which is due to take place during the fourth quarter.
The system allows us to analyse customer calls; to improve reporting and analysis capabilities on the performance of our network, on the cause of outages and on historical information and past outages; to dispatch crews more effectively during outages; and to monitor trucks in the field through global positioning.
We have also recently launched the interactive phase of our website and are now offering customers the ability to pay their BELCO bills on-line. Customers can now view their bills, their account history, their payment history, and pay their bill from the convenience of their home or office. Customers can also e-mail us with any service requests - transfers, increases in service, shifts in services, as well as password changes, address and telephone number changes.
To register for on-line services, customers can simply log on to www.belco.bm, and double click on the "Your Account" button in the bottom left corner. There are a few simple steps to signing on: print off the on-line registration form, fill out the details, and send the form to BELCO's head office on Serpentine Road. Registration forms will be processed within one working day and customers are then free to request services, view their account details, and pay bills on-line.
The BELCO site is incorporated into a larger BELCO Holdings website, along with other subsidiaries Bermuda Gas & Utility Company Limited and BELCO Energy Services Company Limited (BESCO). The first phase of the site was launched 18 months ago providing a comprehensive information source on Holdings' investment information, products and services offered by BELCO, Bermuda Gas and BESCO, hurricane preparedness, electricity and gas safety, energy efficiency and much more.
Community Support
BELCO is proud to be the title sponsor of this year's Visitor Industry Partnership Execellence Awards. The Excellence Awards recognise and reward individuals who demonstrate excellence in the hospitality industry. The 3rd Annual BELCO VIP Excellence Awards banquet will be held on Friday, November 30 at the Fairmont Southampton Princess.
BELCO recognises the importance of tourism to the future of Bermuda and Bermudians. We have committed to supporting many initiatives aimed at improving tourism including the Bermuda Culinary Arts Festival which was due to be held November 2-5 but which has been postponed until next Spring.
The VIP was formed to promote tourism and inspire all Bermudians to be a part of revitalising the industry. They do this through community, education, and recognition programmes. It is vital, now more than ever, that we all support the industry and the efforts of the VIP.
Employee News
Please join me in congratulating the BELCO employees who were selected by their colleagues as Employees of the Quarter for the second quarter 2001: Jay O'Connor in Generation, David Humphrey in Engineering & Planning, and Orrin Caines in Shared Services. We applaud their spirit of excellence."
Signed,
Garry A. Madeiros
President & Chief Executive Officer