Capital Power reports second quarter 2016 results and announces a 6.8% dividend increase for its common shares
EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released financial results for the second quarter ended June 30, 2016. The Company also announced that its Board of Directors approved a 6.8% dividend increase for its common shares. Accordingly, effective for the third quarter 2016 dividend payment, the quarterly dividend will increase from $0.365 to $0.39 per common share, representing an annualized dividend of $1.56 per common share.
Net income (loss) attributable to shareholders in the second quarter of 2016 was $23 million and basic earnings (loss) per share attributable to common shareholders was $0.19 per share, compared with $(34) million, or $(0.39) per share, in the comparable period of 2015. Normalized earnings attributable to common shareholders in the second quarter of 2016, after adjusting for one-time items and fair value adjustments, were $29 million or $0.30 per share compared with $10 million or $0.10 per share in the second quarter of 2015.
Net cash flows from operating activities were $70 million in the second quarter of 2016 compared with $14 million in the second quarter of 2015. Funds from operations were $106 million in the second quarter of 2016, up 51%, on a comparable basis, from $70 million in the second quarter of 2015.
For the six months ended June 30, 2016, net income attributable to shareholders was $17 million and basic earnings (loss) per share attributable to common shareholders was $0.07 per share compared with $6 million and $(0.06) for the six months ended June 30, 2015. Net cash flows from operating activities were $201 million for the six months ended June 30, 2016 compared with $121 million for the six months ended June 30, 2015.
For the six months ended June 30, 2016, normalized earnings attributable to common shareholders were $61 million, or $0.63 per share, compared with $37 million, or $0.40 per share, in the first six months of 2015. Funds from operations totaled $215 million compared with $178 million in the comparable six month period last year.
“Capital Power’s second quarter financial performance exceeded management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “We continue to see the benefits of strong portfolio optimization activities that contributed to the strong quarterly results. Our trading desk captured an average realized Alberta power price of $61 per megawatt hour (MWh) in the second quarter, well above the average spot price of $15 per MWh that primarily reflected excess supply in the market, low natural gas prices, and conservative offer strategies from market participants. In addition, our Alberta contracted assets delivered favourable results in the quarter driven by savings during the Genesee 2 major maintenance outage due to a shorter than anticipated outage as well as lower than anticipated outage costs.”
“Normalized earnings of $0.30 per share in the second quarter were significantly higher than the $0.10 per share a year ago. We generated strong funds from operations of $106 million in the second quarter, a 51% increase from the same period a year ago. With $215 million in funds from operations generated in the first half of 2016 and based on our outlook for the remainder of the year, we remain on track to meet our $380 to $430 million annual financial target range,” said Mr. Vaasjo.
“Based on Capital Power’s projected cash flows and consistent with our 7% annual dividend growth guidance that was discussed at our December 2015 Investor Day, I am pleased to announce that the Board of Directors has approved a 6.8% or $0.10 per share increase to an annual dividend of $1.56 per share effective with the third quarter 2016 quarterly dividend payment.”
“We continue to be engaged with the Alberta government to ensure fair compensation is received for the proposed accelerated closure of coal-fired generating units by 2030 under the Alberta government’s Climate Leadership Plan,” added Mr. Vaasjo. “Discussions with the government-appointed facilitator are on-going and we remain optimistic that a fair and appropriate outcome will be reached for our shareholders. We expect the Alberta government will provide more details on the implementation of their Climate Leadership Plan in the third and fourth quarters of this year.”
|Operational and Financial Highlights 1
|Three months ended June 30 ||Six months ended June 30 |
|(millions of dollars except per share and operational amounts)||2016||2015||2016||2015|
|Electricity generation (excluding Sundance power purchase arrangement (PPA)) (GWh)||3,707||3,553||7,605||6,951|
|Generation plant availability (excluding Sundance PPA) (%)||90%||90%||93%||94%|
|Adjusted EBITDA 2||$108||$47||$228||$194|
|Net income (loss)||$20||$(48)||$12||$2|
|Net income (loss) attributable to shareholders of the Company||$23||$(34)||$17||$6|
|Basic and diluted earnings (loss) per share||$0.19||$(0.39)||$0.07||$(0.06)|
|Normalized earnings attributable to common shareholders 2||$29||$10||$61||$37|
|Normalized earnings per share 2||$0.30||$0.10||$0.63||$0.40|
|Net cash flows from operating activities||$70||$14||$201||$121|
|Funds from operations 2||$106||$70||$215||$178|
|Purchase of property, plant and equipment and other assets||$81||$35||$112||$87|
|Dividends per common share, declared||$0.3650||$0.3400||$0.7300||$0.6800|
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, 2016.
2 Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense from joint venture, and gains or losses 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.
Completion of contract for output for Bloom Wind
On April 25, 2016, Capital Power announced that construction of its Bloom Wind project (Bloom Wind) is expected to commence in the third quarter of 2016. Bloom Wind is a 178 megawatt (MW) facility in southwestern Kansas consisting of 54 3.3 MW turbines and is anticipated to cost $358 million (US$272 million). Commercial operation of the facility is expected in the third quarter of 2017. Capital Power will operate Bloom Wind under a 10-year fixed price contract with Allianz Risk Transfer (rated AA- stable by Standard & Poor’s), a subsidiary of Allianz SE, the worldwide insurance and asset management group, covering 100% of the project’s output. Under the contract, which was executed on April 21, 2016, Capital Power will swap the market revenue of the project’s generation for a fixed annual payment for a 10-year term. The agreement will secure long-term predictable revenues and mitigate generation volume uncertainty related to wind resources, allowing Bloom Wind to secure renewable energy tax equity financing and provide Capital Power the opportunity to complete its first wind development project in the growing U.S. renewables market.
Approval of normal course issuer bid
On April 25, 2016, Capital Power announced that the Toronto Stock Exchange (TSX) approved the Company’s normal course issuer bid (NCIB) to purchase and cancel up to 8.6 million of its outstanding common shares during the one year period from April 28, 2016 to April 27, 2017. Capital Power purchased and cancelled 7.1 million common shares under its prior NCIB approved by the TSX on March 25, 2015 for the period from April 7, 2015 to April 6, 2016, but has not yet purchased and cancelled any common shares under the NCIB approved on April 25, 2016.
Termination of the Sundance PPA
On March 24, 2016, Capital Power notified the Balancing Pool of the Company’s decision to terminate its role as Buyer of the Sundance PPA effective March 24, 2016. Capital Power exercised its right to terminate the Sundance PPA under the Change in Law provisions of the arrangement, following changes to the Specified Gas Emitters Regulation (SGER) that took effect at the start of 2016. As a result of this termination, no further economic benefits are expected from the Sundance PPA and the related intangible asset was derecognized. The Company has recorded a non-cash pre-tax loss of $53 million ($46 million post-tax) with respect to the derecognition of the Sundance PPA asset. The Balancing Pool and Capital Power could differ in opinion as to the effective termination date.
Climate Leadership Plan (CLP) Update
On March 16, 2016, the Alberta government appointed a Facilitator to oversee the transition away from coal-fired generation in Alberta by 2030. The Facilitator’s background is with large public power providers and centrally dispatched power systems and advising energy leaders in numerous countries around the world. The Facilitator’s mandate is to provide options and preferred approaches to the Alberta government to phase out emissions from coal-fired generation by 2030 that will maintain the reliability of Alberta’s electricity grid and price stability for consumers while preventing unnecessarily stranding capital assets. Throughout this process, the Alberta government has indicated that it intends to ensure that affected workers, communities and companies are treated fairly. It is expected that the Facilitator will report to the Alberta government on this mandate in the latter half of 2016. Capital Power is participating in the Facilitator process to ensure that fair compensation is received for the proposed accelerated closure of the Company’s coal facilities.
On January 26, 2016, the Alberta government tasked the Alberta Electric System Operator (AESO) to develop and implement a plan to bring on new renewable electricity generation capacity to the grid by 2030 in connection with the CLP. The Alberta government mandated that the process must be carefully managed and operate in concert with the retirement of the current coal generating units. The Alberta government also confirmed that it has not chosen to fundamentally alter the current wholesale electricity market structure. The AESO undertook a process to receive industry perspectives regarding various elements of the Renewable Energy Program (REP), and provided its recommendations regarding the REP to the Alberta government on May 31, 2016. The recommendations have not been made public. It is currently expected that the Alberta government will provide direction on the REP by the third quarter of 2016, and the AESO currently expects to initiate the process for the first procurement by year-end.
As of July 22, 2016, the Alberta government has yet to initiate formal consultations relating to the Carbon Competitiveness Regulation (CCR Regulation). The CCR Regulation will establish the performance standard and carbon pricing framework that will apply to facilities that are currently subject to the Specified Gas Emitters Regulation (SGER), and will replace SGER effective January 1, 2018. The CLP provided general direction that the performance standard for the electricity sector will be based on the emissions performance of the cleanest natural gas-fired facility in Alberta, with specific details to be developed through consultation.
Preferred Shares (Series 1) dividend rate reset
On February 18, 2016 the Board of Directors of Capital Power declared a quarterly dividend of $0.19125 per share on the Company’s Cumulative 5-Year Rate Reset Preference Shares, Series 1 (Series 1 Shares). This quarterly dividend was paid on March 31, 2016. The Annual Fixed Dividend Rate for the Series 1 Shares for the next five year period was reset from 4.60% to 3.06% on December 31, 2015 at a rate equal to the sum of the then Government of Canada bond yield and 2.17%. The Annual Fixed Dividend Rate will be next reset on December 31, 2020 and every five years thereafter.
On July 25, 2016 the Company announced that its Board of Directors approved a 6.8% increase in the annual dividend for holders of its common shares, from $1.46 per common share to $1.56 per common share. This increased common dividend will commence with the third quarter 2016 quarterly dividend payment payable on October 31, 2016 to shareholders of record at the close of business on September 30, 2016.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on July 25, 2016 at 9:00 am (MDT) to discuss the second quarter financial results. The conference call dial-in numbers are:
(604) 638-5340 (Vancouver)
(403) 351-0324 (Calgary)
(416) 915-3239 (Toronto)
(514) 375-0364 (Montreal)
(800) 319-4610 (toll-free from Canada and USA)
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 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 to 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 (loss), funds from operations to net cash flows from operating activities and normalized earnings attributable to common shareholders to net income (loss) attributable to shareholders of the Company are contained in the Company’s Management’s Discussion and Analysis, prepared as of July 22, 2016, for the six months ended June 30, 2016 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) compensation to be received by the Company from the Government of Alberta in respect of the proposed early retirement of coal facilities (ii) the structure and stability of Alberta’s merchant power market and (iii) growth opportunities that may come to the Company as a result of new renewable electricity generation capacity.
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 July 22, 2016, for further discussion of these and other risks.
Click here to view the management’s discussion and analysis and consolidated financial statements.