EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released its financial results for the third quarter and nine months ended September 30, 2014.
Normalized earnings attributable to common shareholders in the third quarter of 2014, after adjusting for one-time items and fair value adjustments, were $10 million, or $0.12 per share, compared with $51 million, or $0.72 per share, in the comparable period of 2013.
As reported on October 17, 2014, the Company incurred a $73 million non-cash write-down of deferred tax assets in the third quarter of 2014. This charge, in conjunction with the timing of both unplanned outages and the extension of a planned outage, resulted in a net loss attributable to shareholders in the third quarter of 2014 was $45 million, or $0.62 per share, compared with net income attributable to shareholders of $44 million, or $0.55 per share, in the comparable period of 2013. Funds from operations were $83 million in the third quarter of 2014, down 34 per cent from $125 million in the third quarter of 2013 reflecting the impact of the timing of the outages and lower average power prices.
For the nine months ended September 30, 2014, normalized earnings attributable to common shareholders were $42 million, or $0.51 per share, compared with $95 million, or $1.35 per share, in the first nine months of 2013. Funds from operations totaled $260 million compared with $316 million in the comparable nine-month period last year.
“Financial results in the third quarter were below our expectations, primarily due to an extended planned outage and unplanned outages at the acquired Sundance PPA units and other plant derates,” said Brian Vaasjo, President and CEO of Capital Power. “These outages occurred primarily in July coinciding with a period of pricing volatility, with Alberta spot power prices in July averaging $122 per megawatt-hour (MWh) compared with $45 per MWh in August and $24 per MWh in September. As a result, with commercial production 100% sold forward in July, we were required to cover a short market position that negatively impacted our portfolio optimization position in the quarter. With the expected output from our commercial plants fully hedged in the high-$50 per MWh for the remainder of the year, we expect funds from operations in 2014 to be at the low end of our annual financial target range of $360 to $400 million.”
“Capital Power’s owned plants achieved strong availability of 97% in the third quarter, which was consistent with expectations,” continued Mr. Vaasjo. “However, due to lower plant availability at the acquired Sundance PPA units, other plant derates and lower Alberta wind generation, overall electricity generation production was below expectations.”
“In the third quarter, net income was impacted by the non-cash $73 million write-down of deferred tax assets relating to U.S. income tax loss carryforwards that can no longer be recognized for accounting purposes based on our current long term forecast for U.S. taxable income,” said Mr. Vaasjo. “For income tax purposes, these U.S. net operating losses do not expire until the 2027 to 2033 period. Accordingly, they retain economic value and as we continue to pursue U.S. contracted power opportunities, the Company could record deferred tax assets in the future. Importantly, the write-down is a non-cash item and has no impact on our operations or other key performance measures.”
|Operational and Financial Highlights 1
|Three months ended September 30||Nine months ended June 30|
|(millions of dollars except per share and operational amounts)||2014||2013||2014||2013|
|Electricity generation (excluding acquired Sundance PPA) (GWh)||3,220||4,317||9,174||12,205|
|Generation plant availability (excluding acquired Sundance PPA) (%)||97||97||95||93|
|Adjusted EBITDA 2||91||151||282||390|
|Net (loss) income||(57)||59||2||130|
|Net (loss) income attributable to shareholders of the Company||(45)||44||7||98|
|Normalized earnings attributable to common shareholders 2||10||51||42||95|
|Basic (loss) earnings per share||(0.62)||0.55||(0.12)||1.19|
|Diluted (loss) earnings per share||(0.62)||0.51||(0.12)||1.14|
|Normalized earnings per share 2||0.12||0.72||0.51||1.35|
|Funds from operations 2||83||125||260||316|
|Purchase of property, plant and equipment and other assets||25||422||163||884|
|Dividends per common share, declared||0.3400||0.3150||0.9700||0.9450|
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 nine months ended September 30, 2014.
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.
Write-down of deferred tax assets
Capital Power’s third quarter 2014 net income was negatively impacted by a non-cash write-down of deferred tax assets of $73 million. The write-down related to the accounting impact of U.S. income tax loss carryforwards that can no longer be recognized for accounting purposes based on the Company’s current long-term forecast for U.S. taxable income. The forecast showed a decline in taxable income over the latter years of the forecast period. For income tax purposes, these U.S net operating losses do not expire until the 2027 to 2033 period. Accordingly, they retain economic value and could result in the Company recording deferred tax assets in the future. The Company continues to pursue U.S. contracted power opportunities and the U.S. business development pipeline is active. Importantly, the write-down is a non-cash item and has no impact on operations or other key performance measures.
On July 25, 2014, the Company announced that its Board of Directors approved a 7.9% increase in the annual dividend for holders of its common shares, from $1.26 per common share to $1.36 per common share. This increased common dividend will commence with the third quarter 2014 quarterly dividend payment payable on October 31, 2014 to shareholders of record at the close of business on September 30, 2014.
Genesee coal mine
Capital Power is a party to various agreements with Prairie Mines & Minerals Royalty Ltd. (PMRL) in relation to the operations of the Genesee coal mine (Genesee Coal Mine Agreements). Pursuant to the Genesee Coal Mine Agreements, PMRL operates the Genesee coal mine. In connection with the acquisition by Westmoreland Coal Company (Westmoreland) of PMRL and the acquisition by Altius Minerals Corporation (Altius) of the royalty assets of PMRL, the Genesee Coal Mine Agreements and certain related agreements have, among other things, been amended to: (a) confirm the acquisitions by Westmoreland and Altius; (b) provide for certain amendments to the Genesee Coal Mine Agreements; and (c) provide for a payment to Capital Power of $20 million on completion of the acquisitions; the payment was received in the second quarter of 2014.
Genesee 4 and 5
On April 24, 2014, Capital Power and ENMAX Corporation (ENMAX) executed a purchase and sale agreement in support of a joint arrangement agreement to jointly develop, construct, and operate the Genesee 4 and 5 power project. The joint arrangement agreement provides for, among other things, an agreement for ENMAX to purchase approximately 225 megawatts (MW) from Capital Power for eight years. The joint arrangement agreement closing occurred in July 2014.
Construction of K2 Wind Power Project commences
On March 24, 2014, construction of the K2 Wind Power Project (K2 Wind) commenced following the successful completion of an $850 million financing in the form of a construction loan that will convert to long-term project debt once K2 Wind starts commercial operations. K2 Wind is a 270 MW wind power project located in Goderich, Ontario that is under joint development by Samsung Renewable Energy, Inc., Pattern Energy Group LP and Capital Power with operations expected to commence in the second half of 2015. The total estimated project cost has been revised upward to $930 million from the previous upper end of range of $900 million primarily due to foreign exchange changes on U.S. contract deliverables. Capital Power’s share is $310 million. As a higher portion of the project is expected to be financed with project debt than originally forecast, Capital Power expects higher equity returns on the project.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on October 27, 2014 at 11:00 AM (Eastern Time) to discuss the third 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 1165968# followed by participant code 21543#. The replay will be available until midnight on January 27, 2015.
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) 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 are, therefore, 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 dated October 24, 2014 for the nine months ended September 30, 2014, 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 based on expected output of commercial plants and hedged position, and (ii) completion of K2 Wind.
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 December 31, 2013 annual Management’s Discussion and Analysis for further discussion of these and other risks.