TORONTO, ONTARIO--(Marketwired - Aug. 12, 2014) - Capstone Infrastructure Corporation (TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) -
Highlights:
- Quarterly and year-to-date revenue increased by 13.8% and 17.6% respectively, attributable to higher wind power production and increased contribution from Bristol Water
- Quarterly and year-to-date Adjusted EBITDA increased by 24.1% and 26.5% respectively, a result of growth in the wind portfolio, lower expenses at Cardinal and higher contribution from Bristol Water
- Quarterly and year-to-date AFFO increased by 33.5% and 40.9% respectively, reflecting increased contribution from the power segment and lower taxes
- On August 7, we commissioned the Skyway 8 wind facility, achieving one of several milestones with our development wind projects
Capstone Infrastructure Corporation (TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the "Corporation") today reported unaudited results for the second quarter of fiscal 2014 ended June 30, 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 Jun 30 |
Variance (%) | Six months ended Jun 30 |
Variance (%) |
||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Revenue | 106.4 | 93.5 | 13.8 | 220.8 | 187.8 | 17.6 | ||||||
| Net income | 8.4 | 14.6 | (42.5 | ) | 27.9 | 30.5 | (8.7 | ) | ||||
| Adjusted EBITDA1,2 | 39.5 | 31.8 | 24.1 | 81.2 | 64.2 | 26.5 | ||||||
| AFFO1,3 | 12.0 | 9.0 | 33.5 | 31.9 | 22.7 | 40.9 | ||||||
| AFFO per share1,3 | 0.125 | 0.119 | 5.2 | 0.331 | 0.298 | 11.1 | ||||||
| Dividends per share | 0.075 | 0.075 | - | 0.150 | 0.150 | - | ||||||
| Payout ratio1 | 60 | % | 63 | % | (4.9 | ) | 45 | % | 50 | % | (10.0 | ) |
| 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 and 7 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 solid financial results reflect the stability of our diverse portfolio of well-run, high-quality infrastructure assets," said Michael Bernstein, President and Chief Executive Officer. "Capstone's power and utilities operations delivered higher returns through increased production, higher regulated rates and the positive impact of foreign currency exchange. After successfully completing several significant corporate strategic objectives earlier this year, we moved forward in the second quarter with significant progress in our near-term development pipeline, arranged financing at the project and corporate level, invested in our system at Bristol Water and submitted an updated business plan to the UK Water Services Regulation Authority for the Price Review 14 process. We were also involved in the ongoing evaluation of potential acquisitions across our targeted infrastructure pillars."
Financial Highlights
Revenue increased by 13.8%, or $12.9 million, over the same quarter in 2013, and by 17.6%, or $33.0 million, on a year-to-date basis. The increase was due to higher power generation capacity following the acquisition of Renewable Energy Developers (ReD) on October 1, 2013, and lower fuel and transportation costs at Cardinal. A regulated rate increase and favourable foreign currency exchange rates lifted the contribution from Bristol Water.
Total expenses increased by 3.8%, or $2.1 million, in the second quarter, and by 9.3%, or $10.0 million, in the first six months of the year. The variance reflected higher operating costs at Bristol Water and at our expanded wind power operations. These factors were partially offset by corporate-level project development costs, which were significantly lower than they were during an intensive due diligence period for the ReD transaction in the second quarter of 2013.
Adjusted EBITDA increased by 24.1%, or $7.7 million, in the quarter, and by 26.5%, or $17.0 million year to date, reflecting higher wind power production and lower operating expenses at Cardinal. Beneficial foreign exchange impacts, as well as higher revenues from Bristol Water were partially offset by higher operating costs.
AFFO increased by 33.5%, or $3.0 million, in the quarter and by 40.9%, or $9.3 million, in the year-to-date period, the result of higher EBITDA and lower corporate taxes paid this year related to preferred dividends. These factors were offset by higher debt interest and principal payments related to the projects acquired from ReD. On a per-share basis, AFFO increased 5.2% in the quarter, to $0.12, and rose 11.1% to $0.33 year to date.
Financial Performance Highlights by Segment
Power Infrastructure:
| In millions of Canadian dollars unless otherwise noted | Quarter ended Jun 30 |
Variance (%) | Six months ended Jun 30 |
Variance (%) | ||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Power generated (GWh) | 406.8 | 482.2 | (15.6 | ) | 966.4 | 992.8 | (2.7 | ) | ||||
| Revenue | 47.0 | 46.2 | 1.7 | 105.2 | 96.4 | 9.1 | ||||||
| Adjusted EBITDA | 24.3 | 20.3 | 19.7 | 56.2 | 43.7 | 28.6 | ||||||
| AFFO | 13.6 | 10.6 | 27.7 | 36.8 | 26.8 | 37.7 | ||||||
Revenue increased by 1.7%, or $0.8 million in the first quarter mostly attributable to capacity gained from the ReD acquisition. Year to date, revenue was higher by 9.1%, or $8.8 million, as a result of increased revenue from higher first quarter production at the Amherstburg Solar Park, and greater contribution from the hydro facilities. This was partially offset by lower revenue in the first and second quarters because of lower production at Cardinal and lower average power pool prices at Whitecourt.
Adjusted EBITDA increased by 19.7%, or $4.0 million, reflecting higher power rate revenue at Cardinal coupled with lower operating expenses from gas mitigation and decreased gas transportation costs. AFFO increased by 27.7%, or $3.0 million, due to the growth in Adjusted EBITDA, lower maintenance expenditures at the power assets, and distributions received from the Amherst wind power facility. 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 Jun 30 |
Variance (%) | Six months ended Jun 30 |
Variance (%) | ||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Water supplied (megalitres) | 20,812 | 20,695 | 0.6 | 40,450 | 39,933 | 1.3 | ||||||
| Revenue | 59.4 | 47.3 | 25.5 | 115.6 | 91.4 | 26.5 | ||||||
| Adjusted EBITDA before NCI | 30.3 | 23.3 | 30.1 | 57.1 | 44.0 | 29.7 | ||||||
| Adjusted EBITDA | 15.1 | 11.6 | 30.1 | 28.5 | 22.0 | 29.7 | ||||||
| AFFO | 2.4 | 1.5 | 63.2 | 4.3 | 3.1 | 40.7 | ||||||
| 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 was $12.1 million, or 25.5%, higher for the quarter and $24.2 million, or 26.5%, higher year-to-date. Excluding foreign currency, revenue was $3.8 million, or 6.9% higher for the quarter and $8.5 million, or 8.0% on a year-to-date basis. The balance of the variance was attributable to $3.5 million and $7.2 million in higher water tariffs for the quarter and year-to-date, respectively, following the annual increase on April 1, 2014. In addition, higher water consumption contributed $0.3 million and $1.4 million for the quarter and year-to-date, respectively.
Bristol Water paid dividends of $2.4 million to the Corporation in the quarter compared with $1.5 million in the same quarter last year, reflecting a scheduled increase and the effect of a more favourable foreign exchange rate.
As at June 30, 2014, cumulative capital expenditures incurred during AMP5 were $482 million, which were in line with the original plan agreed with the Water Services Regulation Authority ("Ofwat"). Bristol Water mitigated the previously identified shortfall in AMP5 by increasing cumulative capital expenditures for regulatory purposes over the last three years and made up the final shortfall of $38.0 million during the quarter ended June 30. Capstone expects its cumulative capital expenditures over AMP5 to achieve the regulator-approved capital expenditure.
District Heating
| In millions of Canadian dollars unless otherwise noted | Quarter ended Jun 30 |
Variance (%) | Six months ended Jun 30 | Variance (%) | ||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Heat production (GWh) | 204 | 209 | (2.4 | ) | 571 | 641 | (10.9 | ) | ||||
| Interest income | 0.7 | 0.7 | 3.0 | 1.5 | 1.4 | 5.9 | ||||||
| Adjusted EBITDA and AFFO | 3.8 | 3.8 | (1.5 | ) | 4.5 | 4.5 | 0.1 | |||||
| 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. |
During the second quarter of 2014, Värmevärden paid the corporation a dividend of $3.0 million, which was $0.08 million lower year-to-date than in the first six months of 2013. Värmevärden paid interest income of $0.7 million in the quarter, consistent with the same quarter last year; year-to-date, the change reflects favourable foreign currency translation.
Financial Position
As at June 30, 2014, the Corporation had unrestricted cash and cash equivalents of $68.6 million, including $28.0 million from the power segment and $9.5 million from Bristol Water. Bristol Water has an additional $45.7 million in credit capacity to support its capital expenditure program. Approximately $41.9 million of the Corporation's total cash and cash equivalents is available for general corporate purposes. As at June 30, 2014, the Corporation's debt to capitalization ratio was 63.7%.
Outlook1
The Corporation expects continuing stable performance from the majority of its power facilities, some growth from Cardinal and its utilities businesses, and a full year of contribution from its expanded wind power portfolio. The Corporation expects Adjusted EBITDA in 2014 to be between $150 million and $160 million, as articulated in our first quarter report. 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 currency exchange rates between the Canadian dollar relative to the British pound sterling and the Swedish krona remain consistent with recent rates; 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 12- 20 of the quarterly report.
The Corporation's strategic priorities for 2014 include:
Maximizing the performance of its existing businesses.
The Corporation is focused on continuing to enhance the operational performance of its businesses by conducting preventive and predictive maintenance, carefully planning for capital expenditures that boost value, and finding new ways to increase cash flow.
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 facility was commissioned on August 7, 2014, with a declared commercial operation date of August 14, 2014. The 24 MW Saint-Philémon project, under construction in Quebec, is expected to achieve commercial operation in early 2015, and construction began on the 25 MW Goulais project in June. The balance of the wind pipeline is now going through the permitting process and is anticipated to enter commercial operations by 2017; the recently elected majority government in Ontario makes this outcome more likely.
Advancing organic growth initiatives.
The Corporation is working with management at Bristol Water to complete the utility's capital expenditure program for the current regulatory period, which concludes in March 2015 ("AMP5"). Bristol Water has eliminated an earlier capital expenditure shortfall and is again on pace to achieve AMP5 targets. The Corporation is also supporting the Bristol Water team on the regulatory submission for the next five-year period, which commences in April 2015 and concludes in March 2020 ("AMP6"). The most recent AMP6 business plan was submitted to Ofwat on June 27, 2014.
Focusing on acquisitions that will increase the Corporation's value.
The Corporation is focused on building its portfolio across categories that may include 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 September 30, 2014. The dividend will be payable on October 31, 2014 to shareholders of record at the close of business on September 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 October 31, 2014 to shareholders of record at the close of business on October 15, 2014. The dividend on the Preferred Shares covers the period from August 1, 2014 to October 31, 2014.
In respect of the Corporation's October 31, 2014 common share dividend payment, the Corporation will issue common shares in connection with the reinvestment of dividends to shareholders 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 October 31, 2014 to holders of record on September 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.
Q2 Conference Call and Webcast
The Corporation will hold a conference call and webcast (with accompanying slides) on Wednesday, August 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 August 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.
Contact Information:
Aaron Boles
Vice President, Communications
(416) 649-1325
aboles@capstoneinfra.com
www.capstoneinfrastructure.com