EDMONTON, Alberta, April 30, 2018 (GLOBE NEWSWIRE) -- Capital Power Corporation (Capital Power, or the Company) (TSX:CPX) today released financial results for the quarter ended March 31, 2018.
Net cash flows from operating activities were $143 million in the first quarter of 2018 compared with $99 million in the first quarter of 2017. Adjusted funds from operations were $85 million in the first quarter of 2017, compared to $88 million in the first quarter of 2017.
Net income attributable to shareholders in the first quarter of 2018 was $43 million and basic earnings per share was $0.32 per share, compared with net income attributable to shareholders of $50 million, and basic earnings per share of $0.44, in the comparable period of 2017. Normalized earnings attributable to common shareholders in the first quarter of 2018, after adjusting for one-time items and fair value adjustments, were $31 million or $0.30 per share compared with $33 million or $0.34 per share in the first quarter of 2017.
“Capital Power continued its organic growth in the United States renewables market with the commencement of our third wind development project,” said Brian Vaasjo, President and CEO of Capital Power. “The development of the Cardinal Point Wind project is underway now that we have finalized a 12-year fixed price hedge agreement in April 2018 with an investment grade U.S. financial institution for 85 per cent of the facility’s output. We continue to leverage our competitive advantages in development and construction to invest in wind projects in the U.S. Cardinal Point Wind is a 150-megawatt wind facility located in Illinois, with commercial operations expected to commence in March of 2020.”
“Our first quarter results benefitted from strong operating performance with average facility availability of 96 per cent, and contributions from assets that we acquired and developed in 2017, offset by the timing of planned Genesee outages in 2018 compared to 2017,” continued Mr. Vaasjo. “We expect the power prices in Alberta to increase over the next 6-12 months consistent with current forward prices.”
“The Alberta power market continues to experience demand growth, and the impact of higher carbon costs combined with coal plants coming off-line, resulting in an average Alberta spot price of $35 per megawatt hour (MWh) in the first quarter of 2018. This was the highest quarterly power price since the second quarter of 2015, and higher than the $22 per MWh average in 2017. With nearly 500 megawatts of peaking natural gas and wind facilities, Capital Power is well-positioned to benefit from expected higher power prices as reflected in average forward prices in the mid-$50/MWh range for the remainder of 2018 and 2019. Management expects adjusted funds from operations in 2018 to be above the mid point of the $360 million to $400 million guidance range,” said Mr. Vaasjo.
“By mid-2018, the Alberta Electric System Operator should have finalized its proposed capacity market design for Alberta’s electricity market, which will provide clarity on the future of the Alberta power market,” said Mr. Vaasjo. “The recent release of Draft 2 of the Comprehensive Market Design by AESO continues to be consistent with our view of a properly designed capacity market for Alberta.”
In the first quarter, the Company was active in its Normal Course Issuer Bid (NCIB) by purchasing and cancelling 713,100 common shares for a total cost of $17 million. Under its TSX approved NCIB, the company can purchase and cancel up to 9.3 million common shares during the one-year period ending February 20, 2019.
| Operational and Financial Highlights 1 (unaudited) | Three months ended March 31 | |||||
| (millions of dollars except per share and operational amounts) | 2018 | 2017 | ||||
| Electricity generation (Gigawatt hours) | 5,026 | 3,962 | ||||
| Generation facility availability | 96 | % | 97 | % | ||
| Revenues and other income | $ | 307 | $ | 338 | ||
| Adjusted EBITDA 2 | $ | 172 | $ | 143 | ||
| Net income | $ | 41 | $ | 47 | ||
| Net income attributable to shareholders of the Company | $ | 43 | $ | 50 | ||
| Basic earnings per share | $ | 0.32 | $ | 0.44 | ||
| Diluted earnings per share | $ | 0.32 | $ | 0.43 | ||
| Normalized earnings attributable to common shareholders 2 | $ | 31 | $ | 33 | ||
| Normalized earnings per share 2 | $ | 0.30 | $ | 0.34 | ||
| Net cash flows from operating activities | $ | 143 | $ | 99 | ||
| Adjusted funds from operations 2,3 | $ | 85 | $ | 88 | ||
| Adjusted funds from operations per share 2 | $ | 0.82 | $ | 0.91 | ||
| Purchase of property, plant and equipment and other assets | $ | 40 | $ | 85 | ||
| Dividends per common share, declared | $ | 0.4175 | $ | 0.3900 | ||
| 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 three months ended March 31, 2018. | |
| 2 | Earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, and gains or losses on disposals (adjusted EBITDA), normalized earnings attributable to common shareholders, normalized earnings per share, adjusted funds from operations and adjusted funds from operations 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. | |
| 3 | Commencing with the Company’s March 31, 2018 quarter-end, the reported adjusted funds from operations measure was refined to better reflect the purpose of the measure (see Non-GAAP Financial Measures). The applicable comparable periods have been adjusted to conform to the current period’s presentation. | |
Subsequent Event
Completion of contracts for Cardinal Point Wind
On April 30, 2018, Capital Power announced that the construction of Cardinal Point Wind will proceed once all applicable regulatory approvals are received. Cardinal Point Wind is a 150 MW facility to be constructed in the McDonough and Warren Counties, Illinois, and is anticipated to cost between $289 million and $301 million (US$236 million to US$246 million). Commercial operation of the facility is expected in March of 2020. Capital Power will operate Cardinal Point Wind under a 12-year fixed price contract with an investment grade U.S. financial institution covering 85% of the facility’s output. Under the contract, Capital Power will swap the market revenue of the facility’s generation for a fixed price payment over a 12-year term. In addition, the Cardinal Point Wind project has secured 15-year, fixed-price Renewable Energy Credit (REC) contracts with three Illinois utilities. The REC and output contracts will secure long-term predictable revenues, allowing Cardinal Point Wind to secure renewable energy tax equity financing and provide Capital Power the opportunity to complete its third wind development project in the growing U.S. renewables market.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on April 30, 2018 at 9:00 am (MDT) to discuss the first 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) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, and gains or losses on disposals (adjusted EBITDA), (ii) adjusted funds from operations, (iii) adjusted funds from operations per share (iv) normalized earnings attributable to common shareholders, and (v) 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.
Adjusted EBITDA
Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure.
A reconciliation of adjusted EBITDA to net income is as follows:
| (unaudited, $ millions) | Three months ended | |||||||||||||||
| Mar 31 2018 | Dec 31 2017 | Sep 30 2017 | Jun 30 2017 | Mar 31 2017 | Dec 31 2016 | Sep 30 2016 | Jun 30 2016 | |||||||||
| Revenues and other income | 307 | 261 | 346 | 201 | 338 | 280 | 374 | 226 | ||||||||
| Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense | (153 | ) | (125 | ) | (198 | ) | (119 | ) | (208 | ) | (148 | ) | (232 | ) | (127 | ) |
| Adjusted EBITDA from joint ventures 1 | 18 | 18 | 10 | 14 | 13 | 12 | 6 | 9 | ||||||||
| Adjusted EBITDA | 172 | 154 | 158 | 96 | 143 | 144 | 148 | 108 | ||||||||
| Depreciation and amortization | (75 | ) | (72 | ) | (74 | ) | (65 | ) | (60 | ) | (53 | ) | (53 | ) | (54 | ) |
| Impairments | - | - | (83 | ) | - | - | - | (6 | ) | - | ||||||
| Losses on termination of power purchase arrangement | - | - | - | - | - | (20 | ) | - | - | |||||||
| Foreign exchange gain (loss) | 3 | (4 | ) | 21 | 9 | 2 | (4 | ) | 3 | (1 | ) | |||||
| Net finance expense | (33 | ) | (32 | ) | (31 | ) | (25 | ) | (20 | ) | (24 | ) | (21 | ) | (19 | ) |
| Finance expense and depreciation expense from joint ventures 1 | (7 | ) | (13 | ) | (6 | ) | (2 | ) | (3 | ) | (3 | ) | (3 | ) | (4 | ) |
| Income tax (expense) recovery | (19 | ) | (46 | ) | 8 | 94 | (15 | ) | (14 | ) | (4 | ) | (10 | ) | ||
| Net income (loss) | 41 | (13 | ) | (7 | ) | 107 | 47 | 26 | 64 | 20 | ||||||
| Net income (loss) attributable to: | ||||||||||||||||
| Non-controlling interest | (2 | ) | (3 | ) | (2 | ) | (2 | ) | (3 | ) | (2 | ) | (2 | ) | (3 | ) |
| Shareholders of the Company | 43 | (10 | ) | (5 | ) | 109 | 50 | 28 | 66 | 23 | ||||||
| Net income (loss) | 41 | (13 | ) | (7 | ) | 107 | 47 | 26 | 64 | 20 | ||||||
| 1 | Total income from joint ventures as per the Company’s consolidated statements of income (loss). | |
Adjusted funds from operations and adjusted funds from operations per share
The Company uses adjusted funds from operations as a measure of the Company’s ability to generate cash from its current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company’s shareholders. Commencing with the Company’s March 31, 2018 quarter-end, the Company made several adjustments to its adjusted funds from operations measure to better reflect the purpose of the measure. These changes included the following:
- The reduction for sustaining capital expenditures historically included costs associated with the Company’s Genesee performance standard project. These costs have been considered further and given that the intent of this project is to improve efficiency of the facility, management considers these costs to be growth in nature, and hence they should not be considered sustaining capital expenditures that would be deducted in the adjusted funds from operations measure.
- In prior periods, there has been an addback included for Part VI.1 preferred dividend tax impacts which effectively contemplated the associated tax deduction related to preferred share dividends that reduced current tax payable. Upon further consideration, since that deduction offsets the cash tax payable related to Part VI.1 preferred dividend taxes, the cash effects of the preferred dividend tax impacts should offset. The remaining impact to adjusted funds from operations should therefore be the current income tax expense without any adjustment pertaining to preferred dividend tax impacts.
- Historically, the impacts of tax equity financing structures on adjusted funds from operations have been insignificant. With the commencement of commercial operations of Bloom Wind in 2017, management has revisited the flow of these operations through the adjusted funds from operations metric. Similar to the treatment of joint venture interests, the treatment of assets under tax equity financing structures has been adjusted to reflect the Company’s share of the adjusted funds from operations of these assets within consolidated adjusted funds from operations. To give effect to this change, the deduction for net finance expense now excludes non-cash implicit interest expense pertaining to tax equity financing structures. However, a deduction is made to remove the tax equity project investors’ respective shares of the adjusted funds from operations of the assets under tax equity financing structures, as determined by their shares of the distributable cash of the respective operations.
Comparative figures have been restated to reflect the above refinements to the adjusted funds from operations metric.
Adjusted funds from operations represents net cash flows from operating activities adjusted to include net finance expense and current income tax expense and exclude changes in operating working capital and distributions received from the Company’s joint venture interests. Net finance expense and current income tax expense are included as the timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. Changes in operating working capital are excluded from adjusted funds from operations as the timing of cash receipts and payments also affects the period-to-period comparability. Distributions received from the Company’s joint venture interests are excluded as the distributions are calculated after the effect of joint venture debt payments, which are not considered operating activities. Adjusted funds from operations is reduced by the tax equity financing project investors’ shares of adjusted funds from operations associated with assets under tax equity financing structures to ensure that only the Company’s share is reflected in the overall metric. Adjusted funds from operations also excludes the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company’s bank margin account held with a specific exchange counterparty. Adjusted funds from operations is reduced by sustaining capital expenditures and preferred share dividends and adjusted to include the Company’s share of the adjusted funds from operations of its joint venture interests and cash from coal compensation that will be received annually.
Commencing with the quarter ended March 31, 2018, the Company began presenting adjusted funds from operations per share. This metric is determined by applying adjusted funds from operations to the weighted average number of common shares used in the calculation of basic, diluted and normalized earnings per share.
A reconciliation of net cash flows from operating activities to adjusted funds from operations is as follows:
| (unaudited, $ millions) | Three months ended March 31 | |||
| 2018 | 2017 | |||
| Net cash flows from operating activities per condensed interim consolidated statements of cash flows | 143 | 99 | ||
| Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows: | ||||
| Interest paid | 25 | 14 | ||
| Change in fair value of derivatives reflected as cash settlement | (9 | ) | 2 | |
| Distributions received from joint ventures | (13 | ) | (8 | ) |
| Miscellaneous financing charges paid 1 | 2 | 2 | ||
| Income taxes paid | 1 | - | ||
| Change in non-cash operating working capital | (16 | ) | 2 | |
| (10 | ) | 12 | ||
| Net finance expense 2 | (25 | ) | (17 | ) |
| Current income tax expense | (4 | ) | (2 | ) |
| Sustaining capital expenditures 3 | (21 | ) | (4 | ) |
| Preferred share dividends paid | (10 | ) | (8 | ) |
| Remove tax equity interests’ respective shares of adjusted funds from operations | (2 | ) | (2 | ) |
| Adjusted funds from operations from joint ventures | 14 | 10 | ||
| Adjusted funds from operations | 85 | 88 | ||
| Weighted average number of common shares outstanding (millions) | 104.2 | 96.3 | ||
| Adjusted funds from operations per share ($) | 0.82 | 0.91 | ||
| 1 | Included in other cash items on the condensed interim consolidated statements of cash flows to reconcile net income to net cash flows from operating activities. | |
| 2 | Excludes unrealized changes on interest rate derivative contracts, amortization, accretion charges and non-cash implicit interest on tax equity investment structures. | |
| 3 | Includes sustaining capital expenditures net of partner contributions of $2 million for each of the three months ended March 31, 2018 and 2017, respectively. | |
Normalized earnings attributable to common shareholders and normalized earnings per share
The Company uses normalized earnings attributable to common shareholders and normalized earnings per share to measure performance by period on a comparable basis. Normalized earnings per share is based on earnings (loss) used in the calculation of basic earnings (loss) per share according to GAAP and adjusted for items that are not reflective of performance in the period such as unrealized fair value changes, impairment charges, unusual tax adjustments, gains and losses on disposal of assets or unusual contracts, and foreign exchange gain or loss on the revaluation of U.S. dollar denominated debt. The adjustments, shown net of tax, consist of unrealized fair value changes on financial instruments that are not necessarily indicative of future actual realized gains or losses, non-recurring gains or losses, or gains or losses reflecting corporate structure decisions.
| (unaudited, $ millions except per share amounts and number of common shares) | Three months ended | |||||||||||||||
| Mar 31 2018 | Dec 31 2017 | Sep 30 2017 | Jun 30 2017 | Mar 31 2017 | Dec 31 2016 | Sep 30 2016 | Jun 30 2016 | |||||||||
| Basic earnings (loss) per share ($) | 0.32 | (0.20 | ) | (0.13 | ) | 1.03 | 0.44 | 0.21 | 0.63 | 0.19 | ||||||
| Net income (loss) attributable to shareholders of the Company per condensed interim consolidated statements of income (loss) | 43 | (10 | ) | (5 | ) | 109 | 50 | 28 | 66 | 23 | ||||||
| Preferred share dividends including Part VI.1 tax | (10 | ) | (11 | ) | (9 | ) | (8 | ) | (8 | ) | (8 | ) | (5 | ) | (5 | ) |
| Earnings (loss) attributable to common shareholders | 33 | (21 | ) | (14 | ) | 101 | 42 | 20 | 61 | 18 | ||||||
| Realized foreign exchange (gain) loss on settlement of foreign currency derivative instruments | (29 | ) | - | 12 | - | - | - | - | - | |||||||
| Unrealized changes in fair value of derivatives 1 | 25 | 14 | (31 | ) | 23 | (7 | ) | (8 | ) | (22 | ) | 10 | ||||
| Income tax adjustment | 2 | - | - | - | - | - | - | - | ||||||||
| Impairment losses | - | - | 53 | - | - | - | 4 | - | ||||||||
| Unrealized foreign exchange (gain) loss on revaluation of U.S. dollar denominated debt | - | (1 | ) | 44 | (12 | ) | (1 | ) | 3 | 1 | 1 | |||||
| Realized foreign exchange gain on revaluation of U.S. dollar denominated debt | - | (1 | ) | (35 | ) | - | - | - | - | - | ||||||
| Recognition of U.S. deferred tax assets related to non-capital losses | - | - | - | (86 | ) | - | - | - | - | |||||||
| Losses on termination of the Sundance power purchase arrangement | - | - | - | - | - | 15 | - | - | ||||||||
| Change in unrecognized tax benefits | - | - | - | - | - | - | (27 | ) | - | |||||||
| Provision for Line Loss Rule Proceeding | - | 7 | - | - | - | - | - | - | ||||||||
| U.S. tax reform rate decrease | - | 31 | - | - | - | - | - | - | ||||||||
| Deferred income tax (reduction) expense related to temporary difference on investment in subsidiary | - | - | - | - | - | (1 | ) | 13 | - | |||||||
| Success fee received related to development project | - | (3 | ) | - | - | - | (3 | ) | - | - | ||||||
| Release of tax liability on foreign domiciled investment | - | (1 | ) | - | - | (1 | ) | - | - | - | ||||||
| Normalized earnings attributable to common shareholders | 31 | 25 | 29 | 26 | 33 | 26 | 30 | 29 | ||||||||
| Weighted average number of common shares outstanding (millions) | 104.2 | 104.3 | 104.1 | 98.1 | 96.3 | 96.1 | 96.1 | 96.1 | ||||||||
| Normalized earnings per share ($) | 0.30 | 0.24 | 0.28 | 0.27 | 0.34 | 0.27 | 0.31 | 0.30 | ||||||||
| 1 | Includes impacts of the interest rate non-hedge held by one of the Company’s joint ventures and recorded within income from joint ventures on the Company’s statements of income. | |
Forward-looking Information
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 disclosures regarding expected results in relation to the 2018 AFFO guidance range and expectations pertaining to the construction cost and commercial operations date for Cardinal Point 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, 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, other energy and carbon prices, (ii) anticipated facility performance, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, 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, market structure and tax legislation, (iv) facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) 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 for the year ended December 31, 2017, prepared as of February 15, 2018, for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
For more information, please contact:
| Media Relations: Michael Sheehan (780) 392-5222 msheehan@capitalpower.com | Investor Relations: Randy Mah (780) 392-5305 or (866) 896-4636 (toll-free) investor@capitalpower.com | |