EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released financial results for the second quarter ended June 30, 2015. The Company also announced that its Board of Directors approved a 7.4% dividend increase for its common shares. Accordingly, effective for the third quarter 2015 dividend payment, the quarterly dividend will increase from $0.34 to $0.365 per common share, representing an annualized dividend rate of $1.46 per common share.
Net (loss) income attributable to shareholders in the second quarter of 2015 was $(34) million and basic earnings (loss) per share attributable to common shareholders was $(0.39) per share compared with $20 million and $0.17 per share in the comparable period of 2014. Net cash flows from operating activities were $14 million in the second quarter of 2015 compared with $98 million in the second quarter of 2014.
Normalized earnings attributable to common shareholders in the second quarter of 2015, after adjusting for one-time items and fair value adjustments, were $10 million or $0.10 per share compared with $6 million or $0.07 per share in the second quarter of 2014. Funds from operations were $70 million in the second quarter of 2015, down 18% from $85 million in the second quarter of 2014.
For the six months ended June 30, 2015, net income attributable to shareholders was $6 million and basic earnings (loss) per share attributable to common shareholders was $(0.06) per share compared with $52 million and $0.50 per share for the six months ended June 30, 2014. Net cash flows from operating activities were $121 million for the six months ended June 30, 2015 compared with $182 million for the six months ended June 30, 2014.
For the six months ended June 30, 2015, normalized earnings attributable to common shareholders were $37 million, or $0.40 per share, compared with $32 million, or $0.39 per share, in the first six months of 2014. Funds from operations totaled $178 million compared with $177 million in the comparable six-month period last year.
“Financial results in the second quarter were slightly below our expectations primarily due to a 28-day unplanned outage at the Shepard Energy Centre (Shepard) relating to a heat recovery steam generator outage,” said Brian Vaasjo, President and CEO of Capital Power. “Repair work on this defect has been completed and the Shepard facility returned to operations in late June.”
“The Shepard outage occurred primarily in June coinciding with other non-Capital Power operated plant outages and warmer weather with Alberta spot power prices averaging $97 per megawatt-hour in June compared with $21 per megawatt-hour in April and $54 per megawatt-hour in May. As a result, with commercial production 100% sold forward in June, we were required to cover a short market position. The higher spot power prices in June caused a temporary increase in forward rates that benefited our portfolio optimization position for the balance of the year. Based on the year-to-date results and expectations for the balance of the year, our outlook has modestly improved but remains at the low end of our $365 to $415 million funds from operations target range,” said Mr. Vaasjo.
“We have recently added 490 megawatts of owned capacity from the Shepard facility and K2 Wind that have strengthened our contracted cash flow base,” continued Mr. Vaasjo. “Based on this growing contracted cash flow base, Capital Power is well-positioned to consistently grow its dividends and accordingly, I am pleased to announce that the Board of Directors has approved a 7.4% dividend or $0.10 per share increase effective with the third quarter 2015 dividend.”
|Operational and Financial Highlights 1
|Three months ended June 30 ||Six months ended June 30 |
|(millions of dollars except per share and operational amounts)||2015||2014||2015||2014|
|Electricity generation (excluding acquired Sundance PPA) (GWh)||3,553||2,711||6,951||5,952|
|Generation plant availability (excluding acquired Sundance PPA) (%)||90%||92%||94%||94%|
|Adjusted EBITDA 2||$45||$78||$192||$191|
|Net (loss) income||$(48)||$21||$2||$59|
|Net (loss) income attributable to shareholders of the Company||$(34)||$20||$6||$52|
|Basic and diluted earnings (loss) per share||$(0.39)||$0.17||$(0.06)||$0.50|
|Normalized earnings attributable to common shareholders 2||$10||$6||$37||$32|
|Normalized earnings per share 2||$0.10||$0.07||$0.40||$0.39|
|Net cash flows from operating activities||$14||$98||$121||$182|
|Funds from operations 2||$70||$85||$178||$177|
|Purchase of property, plant and equipment and other assets||$35||$63||$87||$138|
|Dividends per common share, declared||$0.3400||$0.3150||$0.6800||$0.6300|
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, 2015.
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 and funds from operations 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.
Significant Events During the Second Quarter 2015
On July 27, 2015, the Company announced that its Board of Directors approved a 7.4% increase in the annual dividend for holders of its common shares, from $1.36 per common share to $1.46 per common share. This increased common dividend will commence with the third quarter 2015 quarterly dividend payment payable on October 30, 2015 to shareholders of record at the close of business on September 30, 2015.
Changes to Alberta’s emissions regulations and review of climate change policy
On June 25, 2015, the Alberta government announced changes to Alberta’s regulations governing carbon emissions and a comprehensive review of Alberta’s climate change policy. The changes to the Specified Gas Emitters Regulation (SGER) will increase the required reduction in emissions intensity from 12% to 15% in 2016 and 20% in 2017, and increase the cost of contributions to the Climate Change and Emissions Management Fund from $15 per tonne of greenhouse gases to $20 per tonne in 2016 and $30 per tonne in 2017.
Capital Power expects that, between 2016 and 2020, the increase in the Company’s emissions compliance costs will be partly mitigated by higher wholesale power prices directly caused by the new regulations while its inventory of low-cost carbon offset credits are expected to offset the balance of its increased compliance costs through 2020. The projected impact post 2020 is a $10 million to $15 million reduction in adjusted EBITDA once its existing carbon offset credits inventory is fully utilized and assuming no actions by Capital Power to further reduce carbon dioxide emissions. Capital Power will actively participate in the consultation process that is expected to lead to a climate change strategy being announced later in 2015.
K2 Wind begins commercial operation
On May 29, 2015, Capital Power, Samsung Renewable Energy Inc. and Pattern Energy Group LP announced that K2 Wind is fully operational and capable of generating 270 MW of electricity for the province of Ontario and operates under a 20-year power purchase agreement with the Independent Electricity System Operator. Capital Power owns 90 MW or 33.3% of the capacity of this facility. Capital Power’s share of final construction costs are expected to be $310 million.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on July 27, 2015 at 11:00 AM (ET) to discuss its second 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 1181930# followed by participant code 21543#. The replay will be available until October 25, 2015.
Interested parties may also access the live webcast at www.capitalpower.com with an archive of the webcast available following the conclusion of the analyst conference call.
Non-GAAP Financial Measures
The Company uses (i) adjusted EBITDA, (ii) funds from operations, (iii) normalized earnings attributable to common shareholders, and (iv) 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, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to 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 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, prepared as of July 24, 2015, for the three months ended June 30, 2015 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 expectations regarding: (i) funds from operations, (ii) consistent growth of dividends, and (iii) the impact of environmental regulations including emissions compliance costs.
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, 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 of equipment, (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, prepared as of February 20, 2015, for further discussion of these and other risks.