Capstone Infrastructure Corporation Reports Strong First Quarter
2014 Performance
Highlights:
- Revenue increased by 21.4% over the same period in 2013 mostly
due to higher overall power production, and the favourable foreign
currency impact and higher regulated water rates at Bristol
Water
- Adjusted EBITDA increased by 28.9% and AFFO increased by 45.7%
over the same period last year, mostly due to the contribution from
the expanded wind power portfolio
- Entered into new long-term agreements for Cardinal with
Ontario Power Authority and Ingredion Canada Incorporated,
supporting Capstone's dividend over the long term
- Subsequent to quarter end, completed the financing for the
Skyway 8 wind power project
TORONTO, ONTARIO--(Marketwired - May 12, 2014) - Capstone
Infrastructure Corporation
(TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the
"Corporation") today reported unaudited results for the first
quarter of fiscal 2014 ended March 31, 2014. The Corporation's
Management's Discussion and Analysis and unaudited consolidated
financial statements are available at
www.capstoneinfrastructure.com and on SEDAR at www.sedar.com. All
amounts are in Canadian dollars.
Financial
Review
|
|
|
|
|
In millions of Canadian dollars or on a per share basis
unless otherwise noted |
|
Quarter ended Mar 31 |
|
Variance |
2014 |
|
2013 |
|
(%) |
Revenue |
|
114.4 |
|
94.3 |
|
21.4 |
Net income |
|
19.5 |
|
15.9 |
|
22.6 |
Adjusted EBITDA1,2 |
|
41.7 |
|
32.3 |
|
28.9 |
AFFO1,3 |
|
19.9 |
|
13.6 |
|
45.7 |
AFFO per share1,3 |
|
0.207 |
|
0.180 |
|
14.9 |
Dividends per share |
|
0.075 |
|
0.075 |
|
- |
Payout ratio1 |
|
36% |
|
42% |
|
(13.0) |
(1) |
|
"Adjusted EBITDA", "Adjusted Funds from Operations", and "Payout
Ratio" are non-GAAP financial measures and do not have any
standardized meaning prescribed by International Financial
Reporting Standards ("IFRS"). As a result, these measures may not
be comparable to similar measures presented by other issuers.
Definitions of each measure are provided on page 6 of Management's
Discussion and Analysis with reconciliation to IRFS measures
provided on page 7. |
(2) |
|
Adjusted EBITDA for investments in subsidiaries with
non-controlling interests are included at Capstone's proportionate
ownership interest. |
(3) |
|
For
businesses that are not wholly owned, the cash generated by the
business is only available to Capstone through periodic dividends.
For these businesses, AFFO is equal to distributions received. |
"Our operational performance was in line with our expectations
while our financial results were ahead of plan, largely due to the
continuing positive foreign currency exchange translation at
Bristol Water," said Michael Bernstein, President and Chief
Executive Officer. "During the quarter, we signed a new 20-year
non-utility generator contract for our Cardinal gas cogeneration
facility with the Ontario Power Authority while entering into an
agreement to renew our energy savings agreement with Ingredion
Canada, thereby securing Cardinal's future and helping to support
our dividend over the long term. We are also advancing our
near-term wind power pipeline on time and budget, with two projects
currently under construction and a third expected to get underway
in June. The value of our portfolio is growing and we are confident
in our ability to deliver an attractive total return to our
shareholders as we complete the build out of our development
pipeline and pursue new growth opportunities."
Financial
Highlights
Revenue increased by 21.4%, or $20.1 million, over the same
quarter in 2013. The increase was mostly due to the Corporation's
expanded operating wind power portfolio following the acquisition
of Renewable Energy Developers Inc. ("ReD") on October 1, 2013. The
revenue variance at Bristol Water reflected favourable foreign
currency translation along with revenue growth arising from higher
regulated water rates, which increase annually, and higher water
consumption.
Total expenses increased by 15.0%, or $7.9 million, over the
first quarter of 2013. The variance reflected higher operating
expenses, primarily at Bristol Water due to foreign currency
translation and greater repairs and maintenance activities. In the
power segment, higher operating expenses reflected the
Corporation's expanded wind power portfolio, partially offset by
lower gas transportation and fuel costs at Cardinal. Administrative
expenses in the quarter increased by 100.6%, or $2.2 million,
primarily reflecting the reversal of an accrual in the first
quarter of 2013, resulting in lower expenses for that period, and
increased compensation costs arising from growth in staffing
levels.
Adjusted EBITDA increased by 28.9%, or $9.3 million, primarily
reflecting the expansion of the Corporation's operating power
portfolio and lower operating costs at Cardinal, and the positive
foreign currency impact and higher revenue at Bristol Water.
Adjusted Funds from Operations (AFFO) increased by 45.7%, or $6.2
million, reflecting the growth in Adjusted EBITDA partially offset
by higher debt service and maintenance capital expenditures
resulting from the larger power portfolio. AFFO per common share
increased by 15.0% to $0.207 from $0.180 in the same quarter last
year, reflecting the performance drivers described above as well as
the greater number of common shares outstanding compared with the
first quarter of 2013.
Financial Performance
Highlights by Segment
Power Infrastructure:
|
|
|
|
|
In millions of Canadian dollars unless otherwise
noted |
|
Quarter ended Mar 31 |
|
Variance |
2014 |
|
2013 |
|
(%) |
Power generated (GWh) |
|
558.8 |
|
510.6 |
|
9.4 |
Revenue |
|
58.2 |
|
50.2 |
|
16.0 |
Adjusted EBITDA |
|
31.9 |
|
23.4 |
|
36.4 |
AFFO |
|
23.3 |
|
16.1 |
|
44.2 |
Revenue increased by 16.0%, or $8.0 million, mostly attributable
to the Corporation's larger operating wind power portfolio, higher
production at Amherstburg Solar Park and the hydro power
facilities, and higher contractual power rates at Cardinal.
Adjusted EBITDA increased by 36.4%, or $8.5 million, reflecting
higher revenue and lower operating expenses at Cardinal primarily
due to lower gas transportation costs. AFFO increased by 44.2%, or
$7.2 million, due to the growth in Adjusted EBITDA, distributions
received from the Amherst wind power facility and lower maintenance
expenditures at the hydro power facilities than in the first
quarter of 2013. These drivers were partially offset by additional
debt service and maintenance capital expenditures related to the
Corporation's expanded wind power portfolio.
Utilities:
Water
|
|
|
|
|
In millions of Canadian dollars unless otherwise
noted |
|
Quarter ended Mar 31 |
|
Variance |
|
2014 |
|
2013 |
|
(%) |
Water supplied (megalitres) |
|
19,638 |
|
19,238 |
|
2.1 |
Revenue |
|
56.2 |
|
44.1 |
|
27.5 |
Adjusted EBITDA before non-controlling interest |
|
26.9 |
|
20.8 |
|
29.3 |
Adjusted EBITDA |
|
13.4 |
|
10.4 |
|
29.3 |
AFFO1 |
|
1.9 |
|
1.6 |
|
N/A |
(1) |
|
Bristol Water's contribution to Capstone's AFFO consists of
dividends and does not reflect the amount of cash generated by the
business. |
Revenue increased by 27.5%, or $12.1 million. Excluding the
foreign currency impact, revenue increased by 9.2%, or $4.7
million, reflecting the annual increase in regulated water rates
that occurred on April 1, 2013, and increased water consumption.
Bristol Water's Adjusted EBITDA contribution to the Corporation
increased by 29.3%, or $3.0 million, reflecting higher revenue
partially offset by increased operating expenses.
Bristol Water paid dividends of $1.9 million to the Corporation
in the quarter compared with $1.6 million in the same quarter last
year, reflecting the effect of a more favourable foreign exchange
rate.
During the quarter ended March 31, 2014, Bristol Water made $50
million in capital expenditures as part of its approximately $542
million capital program for the current five-year asset management
plan ("AMP5"), which concludes in March 2015. As at March 31, 2014,
Bristol Water had cumulative capital expenditures of $444 million
over the AMP5 period, which was $13 million lower than the
regulatory plan but consistent with management's expectations.
Bristol Water expects to achieve its planned cumulative capital
expenditures by the end of the AMP5 period.
District Heating
|
|
|
|
|
In millions of Canadian dollars unless otherwise
noted |
|
Quarter ended Mar 31 |
|
Variance |
2014 |
|
2013 |
|
(%) |
Heat production (GWh) |
|
367 |
|
432 |
|
(15.0) |
Interest income |
|
0.8 |
|
0.7 |
|
14.3 |
Adjusted EBITDA and AFFO1 |
|
0.8 |
|
0.7 |
|
14.3 |
(1) |
|
Varmevarden's contribution to Capstone's Adjusted EBITDA and AFFO
consists of interest income and dividends and does not reflect the
amount of cash generated by the business. |
Värmevärden paid interest income of $0.8 million in the quarter
compared with $0.7 million in the same quarter last year,
reflecting favourable foreign currency translation. Värmevärden was
not scheduled to pay a dividend in the first quarter of 2014, which
was consistent with 2013.
Financial
Position
As at March 31, 2014, the Corporation had unrestricted cash and
cash equivalents of $67.3 million, including $38.5 million from the
power segment and $14.6 million from Bristol Water. Bristol Water
has an additional $57.1 million in credit capacity to support its
capital expenditure program. Approximately $34.3 million of the
Corporation's total cash and cash equivalents is available for
general corporate purposes. In addition, during the quarter, the
Corporation increased the amount of credit available under its new
corporate credit facility, which was established in November 2013,
to $50 million from $32.5 million. As at March 31, 2014, the
Corporation's debt to capitalization ratio was 63.6%.
Subsequent
Events
On April 17, 2014, the Corporation secured $21.4 million in
project-level financing for the construction of the Skyway 8 wind
project. The construction term of the credit facility matures no
later than February 28, 2015 and bears an interest rate of 5.25%.
Upon maturity, the debt, which will fully amortize over 20 years,
converts to a three-year term facility bearing interest at a
variable rate based on 1.05% over the lender's posted three-year
commercial mortgage rate.
Outlook1
The Corporation expects continuing stable performance from its
power facilities, some growth from its utilities businesses, and a
full year of contribution from its expanded wind power portfolio.
Based on the greater than anticipated favourable impact of foreign
exchange rates at Bristol Water in the first quarter and the
expectation of better economics from Cardinal, the Corporation now
expects Adjusted EBITDA in 2014 to be between $150 million and $160
million compared with $140 million to $150 million previously.
Other assumptions underlying the Corporation's 2014 outlook include
but are not limited to:
- The Corporation deploying its internally generated cash and
credit into its development projects and that the projects proceed
as expected;
- That the Swedish krona to Canadian dollar and British pound
sterling to Canadian dollar exchange rates remain consistent with
recent rates;
- The implementation of Bristol Water plc's allowed real 3.8%
(plus retail price index, or "RPI") price increase, which was
effective April 1, 2014; and
- Business development activity that is consistent with
historical levels.
A detailed outlook for the Corporation's power, utilities and
corporate segments is available on pages 15 to 19 of the quarterly
report. The Corporation's strategic priorities for 2014
include:
Advancing its pipeline of power development
projects.
The Corporation is focused on advancing its near-term wind power
projects on time and on budget. The 10 MW Skyway 8 and 24 MW
Saint-Philémon projects, currently under construction in Ontario
and Quebec, respectively, are expected to achieve commercial
operations in 2014. On April 17, 2014, the Environmental Review
Tribunal delivered a decision upholding the Renewable Energy
Approval issued by the Ministry of Environment for the
Corporation's 25-megawatt Goulais wind project, enabling the
project to proceed with construction starting in June 2014. The
balance of the pipeline is currently anticipated to enter
commercial operations over 2015 and 2016, assuming the projects
receive the various regulatory approvals and permits they require
to proceed with construction.
Maximizing the performance of its existing
businesses.
The Corporation is focused on further enhancing the operational
performance of its businesses, which includes preventive and
predictive maintenance, detailed planning for capital expenditures
that boost value, and finding new ways to increase cash flow.
Advancing organic growth initiatives.
The Corporation is working with management at Bristol Water to
complete the company's capital expenditure program for the current
regulatory period, which commenced in April 2010 and concludes in
March 2015 ("AMP5"). This program is driving significant growth in
Bristol Water's regulated capital value, which supports growing
revenue and cash flow over time, which in turn increases the value
of the Corporation's ownership interest. The Corporation is also
supporting the Bristol Water team on the company's regulatory
submission for the next five-year regulatory period, which
commences in April 2015 and concludes in March 2020 ("AMP6").
During the price review process, UK Water Services Regulation
Authority (Ofwat) will approve Bristol Water's capital program and
set the rates Bristol Water may charge customers in AMP6.
Focusing on acquisitions that will increase the
Corporation's value.
The Corporation is focused on building its portfolio across four
targeted core infrastructure categories: utilities, power,
public-private partnerships and transportation. The Corporation's
business development efforts are concentrated primarily on North
America, the United Kingdom, and Western and Northern Europe, with
Australia and New Zealand remaining markets of interest.
Dividend
Declarations
The Board of Directors today declared a quarterly dividend of
$0.075 per common share on the Corporation's outstanding common
shares for the quarter ending June 30, 2014. The dividend will be
payable on July 31, 2014 to shareholders of record at the close of
business on June 30, 2014.
The Board of Directors also declared a dividend on the
Corporation's Cumulative 5-Year Rate Reset Preferred Shares, Series
A (the "Preferred Shares") of $0.3125 per Preferred Share to be
paid on or about July 31, 2014 to shareholders of record at the
close of business on July 15, 2014. The dividend on the Preferred
Shares covers the period from May 1, 2014 to July 31, 2014.
In respect of the Corporation's July 31, 2014 common share
dividend payment, the Corporation will issue common shares in
connection with the reinvestment of dividends to shareholder
enrolled in the Corporation's Dividend Reinvestment Plan. The price
of common shares purchased with reinvested dividends will be the
previous five-day volume weighted average trading share price on
the Toronto Stock Exchange, less a 5% discount.
The dividends paid by the Corporation on its common shares and
the Preferred Shares are designated "eligible" dividends for
purposes of the Income Tax Act (Canada). An enhanced
dividend tax credit applies to eligible dividends paid to Canadian
residents.
A distribution of $0.075 per unit will also be paid on July 31,
2014 to holders of record on June 30, 2014 of Class B Exchangeable
Units of MPT LTC Holding LP, which is a subsidiary entity of the
Corporation.
Dividend Reinvestment
Plan
Learn more about the Corporation's Dividend Reinvestment Plan
("DRIP") at
http://www.capstoneinfrastructure.com/InvestorCentre/StockInformation/DRIP.aspx.
Q1 Conference Call and
Webcast
The Corporation will hold a conference call and webcast (with
accompanying slides) on Tuesday, May 13, 2014 at 8:30 a.m. EDT to
discuss first quarter results. To listen to the call from Canada or
the United States, dial 1-800-319-4610. If calling from elsewhere,
dial +1-604-638-5340. A replay of the call will be available until
May 27, 2014. For the replay, from Canada or the United States,
dial 1-800-319-6413 and enter the code 1385#. From elsewhere, dial
+1-604-638-9010 and enter the code 1385#. The event will be webcast
live with an accompanying slide presentation on the Corporation's
website at www.capstoneinfrastructure.com.
About Capstone
Infrastructure Corporation
Capstone's mission is to provide investors with an attractive
total return from responsibly managed long-term investments in core
infrastructure in Canada and internationally. The company's
strategy is to develop, acquire and manage a portfolio of high
quality utilities, power and transportation businesses, and
public-private partnerships that operate in a regulated or
contractually-defined environment and generate stable cash flow.
Capstone currently has investments in utilities businesses in
Europe and owns, operates and develops thermal and renewable power
generation facilities in Canada with a total installed capacity of
net 439 megawatts2. Please visit www.capstoneinfrastructure.com for
more information.
(1) - See Notice to Readers.
(2) - Reflects Capstone's economic interest in its various power
facilities.
Notice to Readers
Certain of the statements contained within this document are
forward-looking and reflect management's expectations regarding the
future growth, results of operations, performance and business of
the Capstone Infrastructure Corporation (the "Corporation") based
on information currently available to the Corporation.
Forward-looking statements and financial outlook are provided for
the purpose of presenting information about management's current
expectations and plans relating to the future and readers are
cautioned that such statements may not be appropriate for other
purposes. These statements and financial outlook use
forward-looking words, such as "anticipate", "continue", "could",
"expect", "may", "will", "intend", "estimate", "plan", "believe" or
other similar words. These statements and financial outlook are
subject to known and unknown risks and uncertainties that may cause
actual results or events to differ materially from those expressed
or implied by such statements and financial outlook and,
accordingly, should not be read as guarantees of future performance
or results. The forward-looking statements and financial outlook
within this document are based on information currently available
and what the Corporation currently believes are reasonable
assumptions, including the material assumptions set out in the
management's discussion and analysis of the results of operations
and the financial condition of the Corporation ("MD&A") for the
year ended December 31, 2013 under the heading "Results of
Operations", as updated in subsequently filed MD&A of the
Corporation (such documents are available under the Corporation's
SEDAR profile at www.sedar.com).
Other potential material factors or assumptions that were
applied in formulating the forward-looking statements and financial
outlook contained herein include or relate to the following: that
the business and economic conditions affecting the Corporation's
operations will continue substantially in their current state,
including, with respect to industry conditions, general levels of
economic activity, regulations, weather, taxes and interest rates;
that there will be no material delays in the Corporation's wind
development projects achieving commercial operation; that the
Corporation's power infrastructure facilities will experience
normal wind, hydrological and solar irradiation conditions, and
ambient temperature and humidity levels; an effective TCPL gas
transportation toll of approximately $1.65 per gigajoule in 2014;
that there will be no material changes to the Corporation's
facilities, equipment or contractual arrangements; that there will
be no material changes in the legislative, regulatory and operating
framework for the Corporation's businesses, that there will be no
material delays in obtaining required approvals and no material
changes in rate orders or rate structures for the Corporation's
power infrastructure facilities, Värmevärden or Bristol Water, that
there will be no material changes in environmental regulations for
power infrastructure facilities, Värmevärden or Bristol Water; that
there will be no significant event occurring outside the ordinary
course of the Corporation's businesses; the refinancing on similar
terms of the Corporation's and its subsidiaries' various
outstanding credit facilities and debt instruments which mature
during the period in which the forward-looking statements and
financial outlook relate; market prices for electricity in Ontario
and Alberta; the re-contracting of the PPA for the Sechelt hydro
power generating station; that there will be no material change to
the accounting treatment for Bristol Water's business under
International Financial Reporting Standards, particularly with
respect to accounting for maintenance capital expenditures; that
there will be no material change to the amount and timing of
capital expenditures by Bristol Water; that there will be no
material changes to the Swedish Krona to Canadian dollar and UK
pound sterling to Canadian dollar exchange rates; and that Bristol
Water will operate and perform in a manner consistent with the
regulatory assumptions underlying asset management plan ("AMP") 5
and those expected under AMP6, including, among others: real and
inflationary increases in Bristol Water's revenue, Bristol Water's
expenses increasing in line with inflation, and capital investment,
leakage, customer service standards and asset serviceability
targets being achieved.
Although the Corporation believes that it has a reasonable basis
for the expectations reflected in these forward-looking statements
and financial outlook, actual results may differ from those
suggested by the forward-looking statements and financial outlook
for various reasons, including: risks related to the Corporation's
securities (dividends on common shares and preferred shares are not
guaranteed; volatile market price for the Corporation's securities;
shareholder dilution; and convertible debentures credit risk,
subordination and absence of covenant protection); risks related to
the Corporation and its businesses (availability of debt and equity
financing; default under credit agreements and debt instruments;
geographic concentration; foreign currency exchange rates;
acquisitions, development and integration; environmental, health
and safety; changes in legislation and administrative policy; and
reliance on key personnel); risks related to the Corporation's
power infrastructure facilities (power purchase agreements;
completion of the Corporation's wind development projects;
operational performance; fuel costs and supply; contract
performance and reliance on suppliers; land tenure and related
rights; environmental; and regulatory environment); risks related
to Värmevärden (operational performance; fuel costs and
availability; industrial and residential contracts; environmental;
regulatory environment; and labour relations); and risks related to
Bristol Water (Ofwat price determinations and changes to Instrument
of Appointment; failure to deliver capital investment programs;
economic conditions; operational performance; failure to deliver
water leakage target; service incentive mechanism ("SIM") and the
serviceability assessment; pension plan obligations; regulatory
environment; competition; seasonality and climate change; and
labour relations). For a comprehensive description of these risk
factors, please refer to the "Risk Factors" section of the
Corporation's Annual Information Form dated March 26, 2014 as
supplemented by risk factors contained in any material change
reports (except confidential material change reports), business
acquisition reports, interim financial statements, interim
management's discussion and analysis and information circulars
filed by the Corporation with securities commissions or similar
authorities in Canada (which are available under the Corporation's
SEDAR profile at www.sedar.com).
The assumptions, risks and uncertainties described above are not
exhaustive and other events and risk factors could cause actual
results to differ materially from the results and events discussed
in the forward-looking statements and financial outlook. The
forward-looking statements and financial outlook within this
document reflect current expectations of the Corporation as at the
date of this document and speak only as at the date of this
document. Except as may be required by applicable law, the
Corporation does not undertake any obligation to publicly update or
revise any forward-looking statements and financial outlook.
Capstone Infrastructure CorporationSarah Borg-OlivierSenior Vice
President, Communications(416)
649-1325sborgolivier@capstoneinfra.comwww.capstoneinfrastructure.com
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