2013 guidance unchanged
Edmonton, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released its financial results for the fourth quarter and year ended December 31, 2012. Normalized earnings and cash flow in the fourth quarter were impacted by two specific events that reduced results in 2012, but are not expected to impact 2013 expectations.
Normalized earnings attributable to common shareholders in the fourth quarter of 2012 were $16 million, or $0.23 per share, compared with $20 million, or $0.36 per share, in the comparable period of 2011. Funds from operations excluding non-controlling interests in CPILP were $83 million in the fourth quarter of 2012, a decrease of 6% from $88 million in the fourth quarter of 2011. Cash flow per share for the quarter was $0.84 compared with $0.90 for the same quarter in the previous year.
For the year ended December 31, 2012, normalized earnings attributable to common shareholders were $86 million or $1.29 per share compared with $55 million or $1.24 per share for 2011. Funds from operations excluding non-controlling interests in CPILP totaled $381 million compared with $352 million for the year ended December 31, 2011. Cash flow per share for both years was $3.89.
“Fourth quarter 2012 results were generally in line with expectations before two events,” said Brian Vaasjo, President and CEO of Capital Power. “First, the North East U.S. plants incurred a net pre-tax loss of $10 million relating to a heat rate option on the Bridgeport facility and action taken to mitigate the natural gas exposure associated with the option. The heat rate option, which was in place when Bridgeport was acquired in 2011, settled at a loss in November and December due to a significant shift in the underlying locational basis risk associated with the option. This basis risk existed because Bridgeport delivers power to and procures gas from locations differing from those referenced in the heat rate option. The basis risk has historically been minimal because the pricing correlation between the locations has consistently been very high for both power and gas. However, in November and December 2012, there was a spike in northeast U.S. natural gas demand combined with unexpected supply constraints in specific markets. These factors led to an anomalous widening of the price spread between the Bridgeport plant’s natural gas consumption point and the heat rate option location, resulting in the loss. Importantly, the gas price differential risk has been fully mitigated for 2013 coinciding with the heat rate option expiring at the end of this year.”
“Second was significantly lower-than-normal wind for two months at the Quality Wind facility, which began commercial operations in early November 2012,” added Mr. Vaasjo. “Based on historical wind data, the period from November to January typically has the strongest wind regime and our forecast assumed an average capacity factor of 47% for this three month period. The actual capacity factor for November and December averaged 27% and resulted in lower-than-forecasted operating margins of approximately $6 million. The capacity factor for January and February 2013 was in line with expectations.”
|Operational and Financial Highlights(1)||Three months ended December 31 ||Twelve months ended December 31 |
|(millions of dollars except per share and operational amounts)||2012||2011||2012||2011|
|Electricity generation (excluding acquired Sundance PPA and CPILP plants) (GWh)||4,078||3,780||16,374||13,659|
|Generation plant availability (excluding acquired Sundance PPA and CPILP plants) (%)||89%||87%||91%||92%|
|Revenues and other income||$296||$407||$1,331||$1,770|
|Net income attributable to shareholders||$15||$84||$62||$77|
|Basic earnings per share||$0.19||$1.47||$0.84||$1.60|
|Diluted earnings per share||$0.19||$1.39||$0.84||$1.59|
|Dividends declared per common share||$0.315||$0.315||$1.26||$1.26|
|Normalized earnings attributable to common shareholders(2)||$16||$20||$86||$55|
|Normalized earnings per share(2)||$0.23||$0.36||$1.29||$1.24|
|Funds from operations(2)||$83||$99||$381||$433|
|Funds from operations excluding non-controlling interests in CPILP(2)||$83||$88||$381||$352|
|Cash flow per share(2)||$0.84||$0.90||$3.89||$3.89|
|Discretionary cash flow (2)||$12||$8||$132||$131|
(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, 2012.
(2) Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on disposals (adjusted EBITDA), Funds from operations, Funds from operations excluding non-controlling interests in CPILP, Cash flow per share, Discretionary cash flow, Normalized earnings attributable to common shareholders, and Normalized earnings per share are non-GAAP financial measures and do not have standardized meanings under GAAP and, therefore, may not be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures. Reconciliations of these non-GAAP financial measures to Net income attributable to shareholders, Earnings per share and Net cash flows from operating activities are included in the Company’s Management’s Discussion and Analysis dated March 1, 2013, which is available under the Company’s profile on SEDAR at www.SEDAR.com.
$150 million offering of 4.60% Cumulative Rate Reset Preference Shares
On December 18, 2012, Capital Power Corporation issued 6 million Cumulative Rate Reset Preference Shares, Series 3 at $25 per share for aggregate gross proceeds of $150 million on a bought deal basis with a syndicate of underwriters.
The Series 3 Shares will pay fixed cumulative preferential dividends of $1.15 per share per annum, yielding 4.60% 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, for the initial period ending December 31, 2018. The Series 3 Shares are subject to specified redemption, conversion and reset rights.
Standard & Poor’s (a division of the McGraw Hill Companies, Inc.) (S&P) has assigned a rating of P-3 and DBRS Limited (DBRS) has assigned a rating of Pfd-3 (low) for these Series 3 Shares.
Announcement of major expansion plans
In December 2012, Capital Power announced expansion plans including its joint venture agreement with ENMAX Corporation for the construction, ownership and operations of the Shepard Energy Centre with scheduled completion in early 2015 and its intention to develop the Capital Power Energy Centre, a large natural gas facility that is scheduled for completion in the 2017 to 2020 timeframe when additional generation in Alberta is required to meet growing demand and replace generation from the retirement of coal-fired units.
Completion and commercial operations commencement of wind projects
Capital Power completed construction of its 150 MW Halkirk facility located in central Alberta. The Alberta Electric System Operator declared Halkirk’s commercially operational date on December 1, 2012. The facility was completed slightly ahead of scheduled timing and approximately 8% under budgeted cost of $357 million. Capital Power also completed construction of its 142 MW Quality Wind facility located in British Columbia with its commercial operation date being November 6, 2012. Construction was completed on time and approximately 10% below its $455 million budget.
Impairment of North East U.S. assets
During the second quarter of 2012, Capital Power recognized a pre-tax impairment charge of $74 million with respect to its North East U.S. plants which reduced the carrying amount of the related property, plant and equipment and goodwill. This impairment was based on reduced expected operating margins for the Bridgeport, Rumford and Tiverton plants largely as a result of weaker spark spreads in the North East U.S power markets. The reduction in spark spreads is attributable to market and other changes since the April 2011 acquisition of the North East U.S. assets; the fair value paid was consistent with other transactional values in the market at the time of acquisition. If expected operating margins strengthen, a portion of the impairment loss could be reversed. The impairment charge, after income taxes and non-controlling interests, was excluded from net income attributable to shareholders in determining normalized earnings per share. The impairment charge had no cash flow impact.
Sale of hydro facilities
On October 12, 2012, Capital Power completed the sale of its two British Columbia hydro facilities, Brown Lake and Miller Creek. The two facilities, which generate 40 MW into the British Columbia power grid, were sold to Innergex Renewable Energy Inc. for approximately $69 million and a pre-tax gain of $15 million was recorded in the Company’s consolidated statement of income. The gain on disposal, after income taxes and non-controlling interests, was excluded from net income attributable to shareholders in determining normalized earnings per share. The gain on disposal had no cash flow impact.
Debt and equity base shelf prospectuses
On June 12, 2012, CPLP filed a Canadian base shelf prospectus, which expires in July 2014, under which it may offer and issue medium-term notes, due not less than one year from the date of issue, to the public in an aggregate principal amount not to exceed $1 billion.
On February 16, 2012, Capital Power filed a Canadian base shelf prospectus, which expires in March 2014, under which it may raise up to $2 billion collectively in common shares of the Company, preferred shares of the Company and subscription receipts exchangeable for common shares and/or other securities of the Company.
Secondary offering of Capital Power common shares by EPCOR
Effective April 5, 2012, EPCOR exchanged 9,775,000 of its exchangeable common limited partnership units in CPLP for common shares of Capital Power on a one-for-one basis and sold 9,775,000 common shares of Capital Power to the public pursuant to a secondary offering at $23.55 per common share. Capital Power did not receive any of the approximate $230 million of proceeds from EPCOR’s sale of common shares. This transaction reduced EPCOR’s ownership interest in CPLP to approximately 29% from its interest of approximately 39% at December 31, 2011. EPCOR has advised that it intends to sell all or a portion of its remaining interest in CPLP as its demands for capital require and market conditions permit.
$250 million debt issue
On February 21, 2012, CPLP completed a public offering of $250 million unsecured medium-term notes. The notes have a coupon rate of 4.85%, with interest payable semi-annually commencing on August 21, 2012 and mature on February 21, 2019. The net proceeds of the offering were used for repayment of amounts owing under credit facilities, financing on ongoing capital projects, working capital requirements, and general corporate purposes.
Sale of Atlantic Power shares
On February 10, 2012, the Company completed the sale of its shares in Atlantic Power, which were acquired in November 2011 as part of the Atlantic Power acquisition of CPILP, for proceeds of $52 million on a bought deal basis. These shares were initially recorded at $48 million and subsequently adjusted to their fair value of $53 million as of December 31, 2011 resulting in an unrealized gain of $5 million recognized in 2011. In the first quarter of 2012, the Company recognized a realized pre-tax gain of $4 million with income taxes estimated to be $1 million offset by the reversal of the unrealized gain of $5 million recognized in the previous year.
On February 28, 2013, the purchase of the first tranche of the Company’s interest in Shepard closed. Upon close of this transaction, the Company paid $237 million and acquired a 25% interest in Shepard. The total amount incurred by the Company to the date of close was $287 million compared with the total anticipated capital cost of $860 million. The second tranche, expected to close in the first quarter of 2014, will result in the Company’s acquisition of an additional 25% interest in Shepard bringing its total ownership interest to 50%. Subsequent to the close of the first tranche, and prior to the close of the second tranche, all decisions related to Shepard will require unanimous approval by the Company and the third party. As a result, the Company jointly controls Shepard with the third party upon close of the first tranche. Based on the terms of the Shepard agreements, the Company will account for the Shepard joint arrangement, under the new accounting standard for joint arrangements, as a joint operation.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on March 4, 2013 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 952238# followed by participant code 21543#. The replay will be available until midnight on April 1, 2013.
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) funds from operations excluding non-controlling interests in CPILP, (iv) cash flow per share, (v) discretionary cash flow, (vi) normalized earnings attributable to common shareholders, and (vii) 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 and funds from operations excluding non-controlling interests in CPILP 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 March 1, 2013 for the year ended December 31, 2012 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 the non-recurrence of losses related to the Bridgeport heat rate option and the Quality Wind capacity factor 2013 performance being closer to historical performance.
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) power plant availability and performance including maintenance expenditures, (ii) changes in commodity prices in markets in which the Company operates and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation, (iv) acquisitions and developments including timing and costs of regulatory approvals and construction; (v) ability to fund current and future capital and working capital needs, (vi) changes in energy commodity market prices and use of derivatives, and (vii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis dated March 1, 2013 for further discussion of these and other risks.