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Energy World needs to squeeze out more juice

Producer and seller of power and natural gas Energy World Corporation (ASX: EWC) announced a fall in revenue and profit for 2013. Revenue came in at $132.9 million versus the previous $145.6 million, down 8.7%. Net earnings were proportionately lower than that, with a 19.8% drop from $20.4 million to $16.4 million.

The company explained that the main reason for the decrease was mostly from lower revenue from the Indonesia power generation business, which supplies power into the power grid of Indonesian power corporation called Perusahaan Listrik Negara (PLN).

Power demand from PLN was down by about 5% because of the additional power generation from the existing power grid in Indonesia. This resulted in an 8.9% drop in revenue from that segment.

A small drop in gas delivery in its Indonesian oil and gas segment was also said to be from reduced power demand from PLN.

The company owns gas and power operations in Indonesia, and in Australia produces power through its wholly owned subsidiary that operates its Alice Springs gas-fired power station. In addition, oil and gas production in Queensland is operated by another wholly owned subsidiary, which has prospecting licences within the Eromanga and Gilmore gas field areas.

Profit levels over the past four years have been decreasing since hitting a high of $25.3 million in 2011. Debt has been rising during this time while more capital expenditure is going into gas plant and energy generation facilities.

In the half-year report previously it stated that they are developing an LNG hub and power plant in the Philippines for the first time. Further development of its Sengkang power plant expansion also accounted for the majority of its capex.

Looking at financials, the net profit margin stands at 12.3%, which has been scaling down since 2008 when it usually was above 20%. With larger capital spending and lower profits, return on equity has slipped to 2.8%. Gross gearing is close to 70%, so that can become a weight for the company until more production can come online.

Foolish takeaway

The company doesn’t have the exploration and production capabilities of Woodside Petroleum (ASX: WPL) or Santos (ASX: STO), and would not be as stable of an energy stock in an investor’s portfolio. More production development is needed, as well as more end-user diversification to make sure power generation is maximised.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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