Company exceeds its 2013 financial targets
EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released strong financial results for the fourth quarter and year ended December 31, 2013.
Funds from operations were $109 million in the fourth quarter of 2013, an increase of 31% from $83 million in the fourth quarter of 2012. Cash flow per share for the quarter was $1.11 compared with $0.84 for the same quarter in the previous year. Normalized earnings attributable to common shareholders in the fourth quarter of 2013 were $28 million, or $0.35 per share, compared with $16 million, or $0.23 per share, in the comparable period of 2012. Net income attributable to shareholders in the fourth quarter of 2013 was $77 million and basic earnings per share were $0.89 compared with net income attributable to shareholders of $15 million and basic earnings per share of $0.19 in the comparable period of 2012.
For the year ended December 31, 2013, funds from operations totaled $419 million compared with $381 million for the year ended December 31, 2012. Cash flow per share for 2013 was $4.24 compared with $3.89 for 2012. Normalized earnings attributable to common shareholders were $123 million or $1.69 per share compared with $86 million or $1.29 per share for 2012. Net income attributable to shareholders in 2013 was $175 million and basic earnings per share were $2.13 compared with net income attributable to shareholders of $62 million and basic earnings per share of $0.84 in 2012.
“Capital Power’s fourth quarter financial results highlighted the strong cash flow that is being produced by the Company’s modern fleet of power generation facilities,” said Brian Vaasjo, President and CEO of Capital Power. The 105-megawatt Port Dover and Nanticoke wind project in Ontario was added to our fleet when it began commercial operations in the fourth quarter and was the third wind project added to the fleet over the past 16 months. With production largely contracted, these wind projects are contributing to our growing contracted cash flow profile, which is expected to improve further when the Shepard Energy Centre and K2 Wind projects are completed by 2015.”
“For the full 2013 year, our financial results benefited from higher Alberta spot power prices that averaged $80 per megawatt hour compared to our forecast assumption of $58 per megawatt hour which enabled us to exceed all our annual financial targets,” said Mr. Vaasjo. “This included cash flow and normalized earnings per share measures which increased 9% and 31%, respectively, compared with 2012. With Alberta power prices currently forecasted in the mid-$50 per megawatt hour for 2014, we are on track to achieve our funds from operations target for this year.”
Operational and Financial Highlights 1
|Three months ended
|Year ended December 31|
|(millions of dollars except per share and operational amounts)||2013||2012||2013||2012|
|Electricity generation (excluding acquired Sundance PPA) (GWh)||3,925||4,159||16,130||16,455|
|Generation plant availability (excluding acquired Sundance PPA) (%)||93%||89%||93%||91%|
|Net income attributable to shareholders of the Company||$77||$15||$175||$62|
|Normalized earnings attributable to common shareholders(2)||$28||$16||$123||$86|
|Basic earnings per share||$0.89||$0.19||$2.13||$0.84|
|Diluted earnings per share||$0.89||$0.19||$2.08||$0.84|
|Normalized earnings per share(2)||$0.35||$0.23||$1.69||$1.29|
|Funds from operations(2)||$109||$83||$419||$381|
|Cash flow per share(2)||$1.11||$0.84||$4.24||$3.89|
|Purchase of property, plant and equipment and other assets||$59||$165||$943||$598|
|Discretionary cash flow (2)||$61||$12||$195||$132|
|Dividends per common share, declared||$0.315||$0.315||$1.26||$1.26|
1 The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the audited Consolidated Financial Statements for the year ended December 31, 2013..
2 Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on disposals (adjusted EBITDA), normalized earnings attributable to common shareholders, normalized earnings per share, funds from operations, cash flow per share, and discretionary cash flow are non-GAAP financial measures and do not have standardized meanings under GAAP and are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures.
Sale of North East U.S. subsidiaries and refocusing of business
On November 19, 2013, Capital Power completed the sale of 100% of its equity interests in the entities that own the three North East U.S. combined cycle, natural gas-fired power generation facilities (the North East U.S. assets). The sale to Emera Inc. was for proceeds of $576 million (US$549 million) less transaction costs of $8 million (US$8 million). The Company recorded a pre-tax impairment loss of $6 million in the third quarter of 2013 and a pre-tax gain on disposal of $76 million primarily consisting of accumulated foreign currency translation gains related to these North East U.S. foreign subsidiaries.
The Company incurred pre-tax restructuring costs of approximately $13 million as a result of its decision to exit the North East U.S. market and to refocus its merchant power business in Alberta including the elimination of trading desk operations outside of Alberta. Future expected impacts include lower spending due to efficiencies in operations and maintenance while approximately 160 employee positions were eliminated by the end of 2013 resulting in approximately 700 active employee positions at the beginning of 2014.The expected annual cost savings are $25 million to $30 million consisting of an estimated $22 million related to general and administration (including support services such as treasury, finance, internal audit, legal, human resources, corporate risk management, asset management, and environment, health and safety) and $8 million related to operations. The estimated cost savings primarily consist of employee compensation including benefits less margins from the discontinued trading operations.
Port Dover and Nanticoke facility begins commercial operations
On November 7, 2013, the Port Dover and Nanticoke wind project in Ontario began commercial operations. The 105 megawatt (MW) wind facility was completed on time and under its $340 million budget, with final construction costs expected to be approximately $300 million. This is 12% lower than budget primarily due to strong project management including the impact of up-front planning and project execution steps such as value engineering, constructability improvements and supply chain optimization. The Port Dover and Nanticoke wind project was awarded a 20-year power purchase agreement with the Ontario Power Authority (OPA), as part of the OPA’s Feed-in-Tariff program. The contracted price for power at commercial operations is $144 per megawatt hour and thereafter, 20% of the contract price will escalate annually at inflation throughout the 20-year term.
Secondary offering of Capital Power common shares by EPCOR
On October 10, 2013, EPCOR exchanged 9,600,000 of its exchangeable common limited partnership units in CPLP for common shares of Capital Power on a one-for-one basis and sold 9,600,000 common shares of Capital Power to the public pursuant to a secondary offering at $21.00 per common share. Capital Power did not receive any of the proceeds from EPCOR’s sale of common shares. These transactions reduced EPCOR’s ownership interest in CPLP to approximately 19% from its interest of approximately 29% at September 30, 2013 and reduced EPCOR’s ownership of the common shares of Capital Power, on a diluted basis, to 19% from 29%. EPCOR has advised that it plans to eventually sell all or a substantial portion of its remaining interest in Capital Power subject to market conditions, its requirements for capital and other circumstances that may arise in the future.
EPCOR‘s ownership interest in the limited partnership units of CPLP dropped below 20% as a result of these transactions. Thus, the terms of the agreement for the debt payable to EPCOR provide that EPCOR may, by advance written notice, require repayment of all or any portion of the outstanding principal amount of this debt and accrued interest thereon. The debt payable to EPCOR at December 31, 2013 was $341 million. Also, EPCOR may only elect two of Capital Power’s directors compared to four previously.
Purchase of interest in Shepard Energy Centre and development of Genesee 4 & 5
The Company entered into a series of agreements with ENMAX Corporation (ENMAX) to purchase a 50% interest in the 800-MW natural-gas-fuelled Shepard Energy Centre (Shepard) located on the eastern limits of the City of Calgary. Shepard is expected to begin commercial operations in the first quarter of 2015. On February 28, 2013 and September 30, 2013, respectively, the purchases of the first and second tranches of the Company’s interest in Shepard closed. Upon close of the first tranche, the Company paid $237 million and acquired a 25% interest in Shepard. Upon close of the second tranche, the Company paid an additional $325 million and acquired an additional 25% interest in Shepard bringing the Company’s total ownership interest to 50%. The total amount incurred by the Company to the date of close of the second tranche was $649 million compared with the total anticipated capital cost of $821 million. Commencing with the close of the first tranche, all decisions related to Shepard require unanimous approval by the Company and ENMAX. As a result, the Company jointly controls Shepard with ENMAX upon close of the first tranche. Based on the terms of the Shepard agreements, the Company will account for the Shepard joint arrangement as a joint operation.
In the fourth quarter of 2013, Capital Power and ENMAX announced their letter of intent to pursue joint arrangement agreements to develop, construct, own and operate the Genesee 4 & 5 facility (formerly Capital Power Energy Centre).
$200 million offering of 4.50% Cumulative Rate Reset Preference Shares
On March 14, 2013, Capital Power Corporation issued 8 million Cumulative Rate Reset Preference Shares, Series 5 (Series 5 Shares) at $25 per share for aggregate gross proceeds of $200 million on a bought deal basis with a syndicate of underwriters.
The Series 5 Shares will pay fixed cumulative preferential dividends of $1.125 per share per annum, yielding 4.50% per annum, payable on the last business day of March, June, September and December each year, as and when declared by the Board of Directors of Capital Power Corporation. These dividends are applicable for the initial period ending June 30, 2018. The Series 5 Shares are subject to specified redemption, conversion and reset rights.
Standard & Poor’s (a division of the McGraw Hill Companies, Inc.) (S&P) assigned a rating of P-3 and DBRS Limited (DBRS) assigned a rating of Pfd-3 (low) for the Series 5 Shares.
Sundance force majeure claim settlement
In July 2012, the Sundance plant owner made a force majeure claim for $39 million with respect to the 2011 third quarter outage of Unit 6 due to a transformer failure. The Company has a 52% interest in the Sundance acquired PPA for Units 5 and 6 and thus was contractually responsible for paying its share of the claimed amount in advance of final determination of whether or not a force majeure situation, as specified in the PPA, occurred. Accordingly, Capital Power paid its share of the claimed amount and, based on the Company’s view that the claim would not meet the PPA specified force majeure tests, recorded it as an amount receivable until final resolution of the claim. The claim was under arbitration but the Company entered into settlement negotiations with the plant owner. At the time of payment in 2012, the Company recorded its $20 million payment as an amount receivable included in other financial assets. Based on the analysis performed in preparation for the arbitration and potential settlement with the plant owner, the Company reduced the amount receivable to $10 million in the fourth quarter of 2013. In February 2014, the Company reached a settlement with the plant owner and will receive payments consistent with the revised amount receivable. The settlement also resolves a 2012 dispute relating to Index 9 of the PPA with immaterial consequences to the Company.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on March 3, 2014 at 11:00 AM (ET) to discuss the fourth quarter results. The conference call dial-in numbers are:
(604) 681-8564 (Vancouver)
(403) 532-5601 (Calgary)
(416) 623-0333 (Toronto)
(514) 687-4017 (Montreal)
(855) 353-9183 (toll-free from Canada and USA)
Participant access code for the call: 21543#
A replay of the conference call will be available following the call at: (855) 201-2300 (toll-free) and entering conference reference number 1149970# followed by participant code 21543#. The replay will be available until midnight on April 1, 2014.
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conference call.
Non-GAAP Financial Measures
The Company uses (i) adjusted EBITDA, (ii) funds from operations, (iii) cash flow per share, (iv) discretionary cash flow, (vi) normalized earnings attributable to common shareholders, and (vi) normalized earnings per share as financial performance measures. These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP, and are, therefore, unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to gross income, net income, net income attributable of shareholders of the Company, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective. Reconciliations of adjusted EBITDA to gross income, operating income and net income, funds from operations to net cash flows from operating activities and normalized earnings attributable to common shareholders to net income attributable to shareholders of the Company are contained in the Company’s Management’s Discussion and Analysis dated February 28, 2014 for the year ended December 31, 2013 which is available under the Company’s profile on SEDAR at www.SEDAR.com.
Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes information with respect to expectations regarding: (i) future cash flows, (ii) completion of capital projects, and (iii) the impact of refocusing the Company’s merchant power business including cost savings.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) performance, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status and impact of policy, legislation and regulation, and (v) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation, (iv) power plant availability and performance including maintenance expenditures, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in market prices and availability of fuel, and (viii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis dated February 28, 2013 for further discussion of these and other risks.