Maintains full year revised financial guidance despite lower power prices
EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released its financial results for the quarter ended June 30, 2012.
Normalized earnings attributable to common shareholders in the second quarter of 2012, after adjusting for one-time items and fair value adjustments, were $5 million, or $0.07 per share, compared with $3 million, or $0.07 per share, in the comparable period of 2011.
Funds from operations excluding non-controlling interests in CPILP were $54 million in the second quarter of 2012, down 17% from $65 million in the second quarter of 2011. Cash flow per share for the quarter was $0.55 compared with $0.74 for the same quarter in the previous year.
For the six-month period ending June 30, 2012, normalized earnings attributable to common shareholders was $32 million or $0.50 per share compared with $14 million or $0.38 per share in the first six months of 2011. Funds from operations excluding non-controlling interests in CPILP totaled $170 million compared with $147 million in the six-month period ending June 30, 2011.
“Second quarter financial performance is typically weaker due to seasonally lower power prices and outage scheduling,” said Brian Vaasjo, President & CEO. “This year, second quarter normalized earnings were about $8 million below our expectations due to an unplanned outage at the Bridgeport facility and higher maintenance and fuel costs at the North Carolina facilities. Operating performance in the quarter generally met our expectations, with average plant availability of 82% reflecting planned outages at Genesee 2, Rumford and Tiverton, and the impact of the unscheduled Bridgeport outage. With first half average plant availability of 89%, we are on track to meet the 2012 target of 91% or better.”
In the second quarter of 2012, the net loss attributable to shareholders was $32 million or a loss of $0.50 per share, compared to a loss of $25 million or a loss of $0.67 per share in the comparable period of 2011. In 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, based on reduced expected operating margins for these facilities largely as a result of weaker spark spreads in the North East U.S. power market. The impairment charge has no cash flow impact. As noted in the Company’s MD&A for the year ended December 31, 2011, impairment charges and reversals of impairment charges are expected to occur more frequently than reported in the past due to changes in Canadian GAAP.
“Our latest financial guidance for 2012 has not changed despite a decline in power prices in the second quarter in both the Alberta and New England markets,” continued Mr. Vaasjo. “Spot power prices in Alberta averaged $40 per megawatt hour (MWh) in the second quarter compared to $60/MWh in the first quarter of this year while the New England mass hub price was US$29/MWh in the second quarter, US$4/MWh lower than the US$33/MWh in the first quarter of 2012. Should these weaker power prices continue in the last half of the year, financial performance for the full year 2012 is expected to be slightly under the low end of our target range for normalized earnings of $1.50 to $1.70 per share.”
“We continue to see the benefits of strong portfolio optimization activities that captured an Alberta power price of $60/MWh in the second quarter, well above the average spot price of $40/MWh”, said Mr. Vaasjo. “For the last half of the year, approximately 91% of the generation from the baseload generation in the Alberta commercial portfolio has now been hedged in the high-$60/MWh range.”
|Operational and Financial Highlights(1)(unaudited)||Three months ended
|Six months ended
|(millions of dollars except per share and operational amounts)||2012||2011||2012||2011|
|Electricity generation (excluding acquired Sundance PPA and CPILP plants) (GWh)||3,499||3,207||7,721||5,658|
|Generation plant availability (excluding acquired Sundance PPA and CPILP plants) (%)||82%||91%||89%||92%|
|Revenues and other income||$261||$472||$641||$930|
|Net income (loss) attributable to shareholders||$(32)||$(25)||$8||$(22)|
|Earnings (loss) per share||$(0.50)||$(0.67)||$0.08||$(0.69)|
|Diluted earnings per share||$(0.57)||$(0.67)||$0.06||$(0.69)|
|Dividends declared per common share||$0.315||$0.315||$0.63||$0.63|
|Normalized earnings attributable to common shareholders(2)||$5||$3||$32||$14|
|Normalized earnings per share(2)||$0.07||$0.07||$0.50||$0.38|
|Funds from operations(2)||$54||$87||$170||$190|
|Funds from operations excluding non-controlling interests in CPILP(2)||$54||$65||$170||$147|
|Cash flow per share(2)||$0.55||$0.74||$1.74||$1.75|
|Dividend coverage ratio(2)||0.2||1.3||1.6||1.9|
(1) The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the unaudited Condensed Interim Consolidated Financial Statements for the six months ended June 30, 2012.
(2) Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on acquisitions and disposals (EBITDA), Funds from operations, Funds from operations excluding non-controlling interests in CPILP, Cash flow per share, Dividend coverage ratio, 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 July 26, 2012, which is available under the Company’s profile on SEDAR at www.SEDAR.com.
Impairment of North East U.S. assets
As noted in the Company’s MD&A for the year ended December 31, 2011, impairment charges or reversals of impairment charges are expected to occur more frequently than reported in the past due to changes in Canadian GAAP. Assets that are acquired or developed are initially recorded at their fair value which is subject to change as company, industry and general economic conditions fluctuate. The Company performs impairment testing or current assessments of fair value of its assets on a regular basis which may result in the recognition of impairment losses or reversals of losses.
During the three months ended June 30, 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 market. It results from 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. If expected operating margins strengthen, a portion of the impairment loss could be reversed. The impairment charge, after income taxes and non-controlling interests, has been excluded from net income attributable to shareholders in determining normalized earnings per share. The impairment charge has no cash flow impact.
Sale of hydro facilities
In June 2012, the Company announced that it had entered into an agreement to sell the limited partnership that owns the two British Columbia hydro facilities, Brown Lake and Miller Creek. This sale is expected to be finalized in August 2012. The related net assets, at their carrying amount of $49 million, are classified as held for sale in the Company’s June 30, 2012 statement of financial position. A pre-tax gain of $16 million is expected to be recognized in the third quarter upon closing of the transaction.
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 and reduced EPCOR’s ownership of the common shares of Capital Power on a diluted basis to 29% from 39%. 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.
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. For the three months ended March 31, 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.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on July 27, 2012 at 1:00 PM (ET) to discuss second quarter results. The conference call dial-in numbers are:
(403) 532-5601 (Calgary)
(604) 681-8564 (Vancouver)
(416) 623-0333 (Toronto)
(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 779288# followed by participant code 21543#. The replay will be available until midnight on August 30, 2012.
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) EBITDA, (ii) funds from operations, (iii) funds from operations excluding non-controlling interests in CPILP, (iv) cash flow per share, (v) dividend coverage ratio, (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 therefore may not 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 EBITDA to net income, funds from operations and funds from operations excluding non-controlling interests in CPILP to net cash flows from operating activities, normalized earnings attributable to common shareholders to net income attributable to common shareholders, and normalized earnings per share to earnings per share are contained in the Company’s Management’s Discussion and Analysis dated July 26, 2012 for the three months ended June 30, 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 impact of power prices and expectations regarding frequency of the recognition of impairment losses.
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 electricity prices in markets in which the Company operates, (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, (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 March 13, 2012 for further discussion of these and other risks.