Strong plant availability and higher Alberta power prices lead to excellent results from the Alberta contracted plants
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, 2013. The Company also reiterated that it expects to exceed its 2013 financial guidance for normalized earnings per share and cash flow per share.
Normalized earnings attributable to common shareholders in the third quarter of 2013 were $51 million, or $0.72 per share, compared with $38 million, or $0.55 per share, in the comparable period of 2012.
Funds from operations were $122 million in the third quarter of 2013, down 5 per cent from $128 million in the third quarter of 2012. Cash flow per share for the quarter was $1.23 compared with $1.31 for the same quarter in the previous year.
Net income attributable to shareholders in the third quarter of 2013 was $44 million, or $0.55 per share, compared with net income attributable to shareholders of $39 million, or $0.55 per share, in the comparable period of 2012.
For the nine months ended September 30, 2013, normalized earnings attributable to common shareholders were $95 million, or $1.35 per share, compared with $70 million, or $1.06 per share, in the first nine months of 2012. Funds from operations totaled $310 million compared with $298 million in the comparable nine-month period last year.
“Third quarter results exceeded management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “Normalized earnings of $0.72 per share increased significantly from $0.55 per share a year ago. Alberta power prices averaged $84 per megawatt hour (MWh) in the third quarter compared to $78 per MWh in the third quarter of 2012. The combination of the higher average Alberta power prices and nearly 100% availability from our Alberta contracted plants resulted in higher availability incentive revenues, which in turn led to a strong adjusted EBITDA contribution of $55 million for this segment, up 45% compared to the same period a year ago.”
“With Alberta power prices averaging $90 per MWh in the first nine months of the year compared to $58 per MWh that was used to develop our 2013 financial targets, Capital Power remains on track to exceed our 2013 financial targets,” continued Mr. Vaasjo.
“At the end of August, we announced a refocusing of our merchant power business on Alberta, which included a number of direct and indirect cost saving initiatives that will reduce annual expenses by approximately $25 million to $30 million starting in 2014. This refinement of Capital Power’s strategy to create a leaner, more focused business with less risk is expected to provide our shareholders with a stable and growing contracted cash flow base with upside exposure to the attractive Alberta power market,” said Mr. Vaasjo.
Operational and Financial Highlights 1
|Three months ended
|Six months ended
|(millions of dollars except per share and operational amounts)||2013||2012||2013||2012|
|Electricity generation (excluding acquired Sundance PPA) (GWh)||4,317||4,575||12,205||12,296|
|Generation plant availability (excluding acquired Sundance PPA) (%)||97%||97%||93%||92%|
|Revenues and other income||$380||$394||$1,066||$1,031|
|Net income (loss) attributable to shareholders||$44||$39||$98||$47|
|Basic earnings per share||$0.55||$0.55||$1.19||$0.65|
|Diluted earnings per share||$0.51||$0.55||$1.14||$0.63|
|Dividends declared per common share||$0.3150||$0.3150||$0.9450||$0.9450|
|Normalized earnings attributable to common shareholders(2)||$51||$38||$95||$70|
|Normalized earnings per share(2)||$0.72||$0.55||$1.35||$1.06|
|Funds from operations(2)||$122||$128||$310||$298|
|Cash flow per share(2)||$1.23||$1.31||$3.13||$3.05|
|Discretionary cash flow (2)||$76||$79||$134||$120|
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 nine months ended September 30, 2013.
2 Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on disposals (adjusted EBITDA), funds from operations, 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 are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures.
Purchase of interest in Shepard Energy Centre
The Company entered into a series of agreements with ENMAX Corporation (ENMAX) to purchase a 50% interest in the 800 MW natural-gas-fuelled Shepard Energy Centre (Shepard) located on the eastern limits of the City of Calgary. Shepard is expected to begin commercial operations in the first quarter of 2015. On February 28, 2013 and September 30, 2013, respectively, the purchases of the first and second tranches of the Company’s interest in Shepard closed. Upon close of the first tranche, the Company paid $237 million and acquired a 25% interest in Shepard. Upon close of the second tranche, the Company paid an additional $325 million and acquired an additional 25% interest in Shepard bringing the Company’s total ownership interest to 50%. The total amount incurred by the Company to the date of close of the second tranche was $649 million compared with the total anticipated capital cost of $860 million. Commencing with the close of the first tranche, all decisions related to Shepard require unanimous approval by the Company and ENMAX. As a result, the Company jointly controls Shepard with ENMAX 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.
Agreement to sell North East U.S. assets and refocusing of business
On August 28, 2013, Capital Power announced that it has entered into an agreement with Emera Inc. to sell its three North East U.S. combined cycle, natural gas-fired power generation facilities for US$541 million. This transaction is expected to close in the fourth quarter of 2013, subject to regulatory approvals and other customary closing conditions. The timing of the closing may be affected by the U.S. Federal government shutdown and debt ceiling issues which could impact the Federal Energy Regulatory Commission’s regulatory approval processing time. The Company has recorded a pre-tax impairment loss of $6 million in the third quarter of 2013. When the sale is finalized, Capital Power expects to record a gain on disposal that includes the related accumulated foreign currency translation gains of $51 million that, as at September 30, 2013, were recorded in other reserves as accumulated other comprehensive income.
The Company has incurred pre-tax restructuring costs of approximately $12 million, cumulatively in the second and third quarters of 2013, as a result of its decision to exit the North East U.S. market and to refocus its merchant power business in Alberta. Future expected impacts include efficiencies in operations and maintenance spending while approximately 160 employee positions will have been eliminated by the end of 2013 resulting in approximately 700 employee positions at the beginning of 2014. The expected annual cost savings are $25 million to $30 million consisting of an estimated $22 million related to general and administration (including support services such as treasury, finance, internal audit, legal, human resources, corporate risk management, asset management, and environment, health and safety) and $8 million related to operations. The estimated costs savings consist primarily of employee compensation including benefits less margins from the discontinued trading operations.
$200 million offering of 4.50% Cumulative Rate Reset Preference Shares
On March 14, 2013, Capital Power Corporation issued 8 million Cumulative Rate Reset Preference Shares, Series 5 (Series 5 Shares) at $25 per share for aggregate gross proceeds of $200 million on a bought deal basis with a syndicate of underwriters.
The Series 5 Shares will pay fixed cumulative preferential dividends of $1.125 per share per annum, yielding 4.50% 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. These dividends are applicable for the initial period ending June 30, 2018. The Series 5 Shares are subject to specified redemption, conversion and reset rights.
Standard & Poor’s (a division of the McGraw Hill Companies, Inc.) has assigned a rating of P-3 and DBRS Limited has assigned a rating of Pfd-3 (low) for these Series 5 Shares.
Secondary offering of Capital Power common shares by EPCOR
On October 10, 2013, EPCOR exchanged 9,600,000 of its exchangeable common limited partnership units in CPLP for common shares of Capital Power on a one-for-one basis and sold 9,600,000 common shares of Capital Power to the public pursuant to a secondary offering at $21.00 per common share. The underwriters for the sale of common shares were granted an option to purchase up to an additional 1,440,000 common shares at the issue price to cover over-allotments, if any. The over-allotment option is exercisable, in whole or in part, by the underwriters at any time up to 30 days after the closing of the offering. Capital Power will not receive any of the proceeds from EPCOR’s sale of common shares. The October 10, 2013 transactions reduced EPCOR’s ownership interest in CPLP to approximately 19% from its interest of approximately 29% at September 30, 2013 and reduced EPCOR’s ownership of the common shares of Capital Power, on a diluted basis, to 19% from 29%. If the over-allotment option is fully exercised, EPCOR’s ownership interest will be further reduced to 18%. EPCOR has advised that it plans to eventually sell all or a substantial portion of its remaining interest in Capital Power subject to market conditions, its requirements for capital and other circumstances that may arise in the future.
EPCOR‘s ownership interest in the limited partnership units of CPLP has dropped below 20% as a result of these transactions. Thus, the terms of the agreement for the debt payable to EPCOR provide that EPCOR may, by advance written notice, require repayment of all or any portion of the outstanding principal amount of this debt and accrued interest thereon. The debt payable to EPCOR at September 30, 2013 was approximately $342 million. Also, EPCOR may only elect two of Capital Power’s directors compared to four previously.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on October 28, 2013 at 11:00 AM (ET) to discuss 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 1053151# followed by participant code 21543#. The replay will be available until midnight on January 28, 2014.
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) cash flow per share, (iv) discretionary cash flow, (v) normalized earnings attributable to common shareholders, and (vi) 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 common shareholders are contained in the Company’s Management’s Discussion and Analysis dated October 25, 2013 for the nine months ended September 30, 2013 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: (i) expectations regarding future earnings, (ii) expectations regarding future cash flows, and (iii) expectations regarding the sale of the North East U.S. assets and the refocusing of the Company’s merchant power business.
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 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) 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, 2012 annual Management’s Discussion and Analysis for further discussion of these and other risks.