Enbridge Income Fund Holdings Inc.
TSX : ENF

Enbridge Income Fund Holdings Inc.

July 29, 2016 07:00 ET

Enbridge Income Fund Holdings Inc. Reports Second Quarter 2016 Results; Declares Monthly Dividend

CALGARY, ALBERTA--(Marketwired - July 29, 2016) -

Q2 HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Earnings were $67 million or $0.57 per common share for the second quarter and $119 million or $1.11 per common share for the six-month period
  • Fund Group available cash flow from operations (ACFFO) was $383 million and $898 million for the second quarter and six-month period, respectively
  • Oil sands production that was curtailed for northeastern Alberta wildfires has substantially come back on line with the Fund Group's liquids mainline system utilization returning to more anticipated levels
  • Appointments of Laura A. Cillis and M. George Lewis as independent directors and trustees

Enbridge Income Fund Holdings Inc. (the Company or ENF) (TSX:ENF) announced today second quarter earnings of $67 million or $0.57 per common share representing a quarter-over-quarter increase in earnings per share of 32.6%. The increase in quarterly earnings per share was underpinned by the growth in cash flows generated by the businesses within the Fund Group.

The Fund Group is comprised of Enbridge Income Fund (the Fund), Enbridge Commercial Trust (ECT), Enbridge Income Partners LP (EIPLP) and the subsidiaries and investees of EIPLP. EIPLP holds the operating entities of the Fund Group and grew significantly in scope and scale after the transformative acquisition of certain Canadian liquids pipelines, storage and renewable energy assets from Enbridge Inc. (Enbridge) in September 2015 (the 2015 Transaction).

Fund Group ACFFO was $383 million and $898 million for the three and six months ended June 30, 2016, respectively, representing significant increases period-over-period. The increase in quarterly Fund Group ACFFO was driven primarily by stronger contributions from EIPLP's Liquids Pipelines segment, reflecting the impacts of the 2015 Transaction, and new system expansion projects coming into service in late 2015. Volume throughput on the mainline system reached record levels in the first quarter of 2016 on the strength of these system expansions, driving growth in Fund Group ACFFO; however, extreme wildfires in northeastern Alberta in May 2016 adversely impacted Fund Group ACFFO in the second quarter. Oil sands production from facilities in the vicinity of Fort McMurray, Alberta was curtailed longer than originally anticipated, given the severity and longevity of the wildfires, which adversely impacted EIPLP's mainline system deliveries during the quarter. On average, deliveries were lower by approximately 255,000 barrels per day (bpd) during the months of May and June. This represents an approximate 10% decrease in throughput compared with the throughput EIPLP was delivering prior to the wildfires.

The impact of reduced system deliveries on revenues negatively impacted EIPLP's adjusted earnings before interest and income taxes (EBIT) and ACFFO in the second quarter by $36 million. Oil sands production substantially came back on line by the end of June and throughput on EIPLP's mainline system and overall system utilization are expected to return to levels anticipated at the outset of the year, during the third quarter. Notwithstanding the impact of the wildfires, Fund Group ACFFO is still expected to be within the full-year 2016 guidance range of $1.75 billion to $2.05 billion.

"The safety of our people, the community that we operate in and the environment is, as always, our primary focus. We are committed to join with the residents, communities and industry of northern Alberta as they work to rebuild from the devastating wildfires.

"We've also worked closely with our customers, supporting their efforts to bring production back on line. By the end of May, most of our systems had returned to normal operation," said Company President, Perry Schuldhaus.

"While the wildfires tempered a record start to the year, the impact was transitory and is not expected to have a lasting effect. Our financial performance through this challenging period for industry serves to reinforce the strength and resilience of our business model. We hold the premier position in Canadian liquids pipelines; an investment in a fully contracted and highly utilized natural gas pipeline; and a growing renewables-based power generation business which all support the reliability and predictability of the cash flow we generate and the dividends we pay to our shareholders. Looking forward, we are on track to complete close to $9 billion of growth capital projects over the next three years, approximately $4 billion of which will come into service in 2017. On the strength of this organic growth, and growing cash flow from recently completed projects, we continue to expect the Company to generate annual dividend growth of approximately 10% through 2019."

The Company is pleased to announce the appointments of Laura A. Cillis and M. George Lewis to the Board of Directors of the Corporation, the Board of Trustees of ECT and the Board of Directors of Enbridge Pipelines Inc. (EPI), a subsidiary of EIPLP. Ms. Cillis and Mr. Lewis have joined the ECT Conflicts Committee and the Audit Committee of the Company and the Audit, Finance and Risk Committees of both ECT and EPI. Please refer to the Company's website for full biographies of Ms. Cillis and Mr. Lewis.

"I am very pleased with the appointments of our new directors and trustees, which will add significant expertise, depth and strength to the Corporation and the Fund Group," concluded Mr. Schuldhaus.

The Company's Board of Directors declared a cash dividend of $0.1555 per common share to be paid on August 15, 2016 to shareholders of record at the close of business on August 2, 2016. On July 26, 2016 the Company's Board of Directors declared a cash dividend of $0.1555 per common share to be paid on September 15, 2016 to shareholders of record at the close of business on August 31, 2016. The dividends are designated eligible dividends for Canadian tax purposes which qualify for the enhanced dividend tax credit. The Company offers a Dividend Reinvestment and Share Purchase Plan (DRIP) to enable participants to reinvest their dividends in common shares of the Company at a 2% discount to market price and to make additional optional cash payments to purchase common shares at the market price, free of brokerage or other charges. The DRIP participation rate for the dividend paid on July 15, 2016 was approximately 27%.

FORWARD-LOOKING INFORMATION

Forward-looking information, or forward-looking statements, have been included in this news release to provide information about the Company and its investee, the Fund, and the Fund's direct and indirect investments and joint ventures (collectively, the Fund Group), including management's assessment of future plans and operations of the Company and the Fund Group. This information may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe", "likely" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included or incorporated by reference in this document include, but are not limited to, statements with respect to the following: expected EBIT or expected adjusted EBIT; expected earnings/(loss) or adjusted earnings/(loss); expected earnings/(loss) per share; expected or target ACFFO; expected future cash flows; expected costs related to projects under construction; expected in-service dates for projects under construction; expected capital expenditures; expected equity funding requirements for the Fund Group's commercially secured growth program; estimated future dividends or distributions; expectations regarding the impact of the wildfires in northeastern Alberta, including on adjusted EBIT and ACFFO; expected future actions of regulators; expected costs related to leak remediation and potential insurance recoveries; expectations regarding commodity prices; supply forecasts; future distributions to the Company by the Fund and dividend payout expectation.

Although the Company and the Fund Group believe these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about the following: the expected supply of and demand for crude oil, natural gas, natural gas liquids (NGL) and renewable energy; prices of crude oil, natural gas, NGL and renewable energy; exchange rates; completion of growth projects; inflation; interest rates; availability and price of labour and construction materials; operational reliability; impact of the wildfires in northeastern Alberta; customer and regulatory approvals; maintenance of support and regulatory approvals for the Fund Group's projects; anticipated in-service dates; weather; the impact of the dividend policy on the Company's or the Fund Group's future cash flows; capital project funding; the Fund Group's credit ratings; expected EBIT or expected adjusted EBIT; expected earnings/(loss) or adjusted earnings/(loss); expected earnings/(loss) per share; expected future cash flows and expected future ACFFO; and estimated future dividends or distributions. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements.
These factors are relevant to all forward-looking statements as they may impact current and future levels of demand for the Fund Group's services. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which the Company and the Fund Group operate and may impact levels of demand for the Fund Group's services and cost of inputs, and are therefore inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to expected earnings/(loss), adjusted EBIT, ACFFO and associated per share amounts or estimated future dividends or distributions. The most relevant assumptions associated with forward-looking statements on projects under construction, including estimated completion dates and expected capital expenditures include the following: the availability and price of labour and construction materials; the effects of inflation and foreign exchange rates on labour and material costs; the effects of interest rates on borrowing costs; the impact of weather; and customer and regulatory approvals on construction and in-service schedules.

The Company's and the Fund Group's forward-looking statements are subject to risks and uncertainties pertaining to ACFFO guidance, operating performance, regulatory parameters, project approval and support, weather, economic and competitive conditions, public opinion, changes in tax law and tax rate increases, exchange rates, interest rates, commodity prices and supply of and demand for commodities, including but not limited to those risks and uncertainties discussed in this news release and in the Company's and the Fund Group's other filings with Canadian securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and the Company's or the Fund Group's future course of action depends on management's assessment of all information available at the relevant time. Except to the extent required by applicable law, the Company and the Fund Group assume no obligation to publicly update or revise any forward-looking statements made in this news release or otherwise, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or the Fund Group or persons acting on the Company's or the Fund Group's behalf, are expressly qualified in their entirety by these cautionary statements.

NON-GAAP MEASURES

This news release contains references to adjusted EBIT and ACFFO. Adjusted EBIT represents EIPLP EBIT, adjusted for unusual, non-recurring or non-operating factors on both a consolidated and segmented basis. These factors, referred to as adjusting items, are reconciled and discussed in the financial results sections.

Fund Group ACFFO consists of adjusted EBIT further adjusted for non-cash items, representing cash flow from the Fund Group's underlying businesses, less deductions for maintenance capital expenditures, interest expense, applicable taxes and further adjusted for unusual, non-recurring or non-operating factors not indicative of the underlying or sustainable cash flows of the business. ACFFO is important to unitholders as the Fund Group's objective is to provide a predictable flow of distributions to unitholders. ACFFO represents the Fund Group's cash available to fund distributions to unitholders, as well as for debt repayments and reserves.

Management believes the presentation of adjusted EBIT and ACFFO give useful information to investors and unitholders as they provide increased transparency and insight into the performance of the Company and the Fund Group. Management uses adjusted EBIT and ACFFO to set targets, including the distribution payout target, and to assess the performance of the Company and the Fund Group. Adjusted EBIT and ACFFO are not measures that have standardized meanings prescribed by generally accepted accounting principles in the United States of America (U.S. GAAP) and are not U.S. GAAP measures. Therefore, these measures may not be comparable with similar measures presented by other issuers.

Please see the tables in the Performance Overview section which summarize the reconciliations of the GAAP and non-GAAP measures.

SECOND QUARTER 2016 PERFORMANCE OVERVIEW

For more information on the operating results of the Company, the Fund and EIPLP, please see the respective Management's Discussion and Analysis (MD&A) on the Company's website at http://www.enbridgeincomefund.com/Find-Shareholder-Information/Reports-and-Filings/English.aspx. The documents are also filed on SEDAR under Enbridge Income Fund Holding Inc.'s profile for the Company and under Enbridge Income Fund's profile for the Fund and EIPLP.

ENBRIDGE INCOME PARTNERS LP
Adjusted Earnings Before Interest and Income Taxes1
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
Liquids Pipelines 252 641 1,289 70
Gas Pipelines 47 49 108 77
Green Power 36 36 75 82
Eliminations and Other 13 (11 ) (27 ) 68
Earnings before interest and income taxes 348 715 1,445 297
Retrospective adjustments2:
2015 Transaction - Liquids Pipelines - (565 ) - (1 )
2015 Transaction - Green Power - (14 ) - (31 )
2015 Transaction - Eliminations and Other - (1 ) - (9 )
Adjusting items:
Changes in unrealized derivative fair value (gains)/loss 17 (19 ) (597 ) 41
Unrealized (gains)/loss on translation of United States dollar intercompany loan receivable
(5
)
16

55

(55
)
Make-up rights adjustments 19 - 34 -
Northeastern Alberta wildfires pipelines and facilities restart costs 21 - 21 -
Other 6 (9 ) 1 (10 )
Gain on sale of non-core assets - (22 ) - (22 )
Adjusted earnings before interest and income taxes 406 101 959 210
Comprised of:
Liquids Pipelines 316 38 763 78
Gas Pipelines 47 37 96 77
Green Power 35 22 72 51
Eliminations and Other 8 4 28 4
Adjusted earnings before interest and income taxes 406 101 959 210
1 Adjusted EBIT is a non-GAAP measure that does not have any standardized meaning prescribed by U.S. GAAP. See definition within Non-GAAP Measures.
2 In accordance with U.S. GAAP, EBIT has been retrospectively adjusted to furnish comparative information related to the 2015 Transaction. The impact of the retrospective adjustments has been removed from adjusted EBIT to reflect earnings generated under EIPLP's ownership effective September 1, 2015. Retrospective adjustments also include the impacts of significant, unusual, non-recurring or non-operating factors included in the retrospectively adjusted amounts for U.S. GAAP purposes.

Earnings Before Interest and Income Taxes

EIPLP's EBIT for the second quarter of 2016 decreased to $348 million from $715 million in the same period of 2015 primarily driven by a reduced contribution from its Liquids Pipelines segment given a lower average International Joint Tariff Residual Benchmark Toll, which decreased effective April 1, 2016, as well as changes in unrealized derivative fair value losses recognized during the current quarter.

For the six months ended June 30, 2016, EBIT was $1,445 million compared with $297 million in the same period of 2015. The Canadian Mainline contribution increased primarily due to higher throughput that resulted from strong oil sands production in western Canada combined with contributions from the new assets placed into service in 2015, offset by the factors discussed previously for the discrete second quarter.

Adjusted Earnings Before Interest and Income Taxes

Excluding the impacts of the retrospective adjustments and significant unusual, non-recurring or non-operating factors, including changes in unrealized derivative fair value losses and system restart costs incurred as a result of the wildfires, EIPLP's adjusted EBIT for the three and six months ended June 30, 2016 were $406 million and $959 million, respectively. The significant increases over the same periods of 2015 reflected the impact of the assets acquired in 2015 from Enbridge as well as increased capacity as a result of the expansion of EIPLP's mainline system in the third quarter of 2015 and the reversal and expansion of Line 9B in the fourth quarter of 2015, which have provided access to the eastern Canada markets. However, the positive effect of the increased capacity on liquids pipelines throughput was substantially negated in the second quarter by the impact of the extreme wildfires in northeastern Alberta. The wildfires resulted in a curtailment of production from oil sands facilities and certain of EIPLP's upstream pipelines and terminal facilities were temporarily shut down resulting in a disruption of service on EIPLP's Regional Oils Sands System, with corresponding impacts on EIPLP's downstream pipelines deliveries, including the Canadian Mainline. Reduced system deliveries resulted in a negative impact of approximately $36 million to EIPLP's adjusted EBIT for the second quarter of 2016.

FUND GROUP
Available Cash Flow from Operations1
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
EIPLP adjusted earnings before interest and income taxes 406 101 959 210
Depreciation and amortization expense 158 34 319 69
Distributions from Southern Lights Class A units2 4 5 9 10
Cash distributions less than equity earnings (8 ) (8 ) (10 ) (16 )
Maintenance capital expenditures3 (8 ) (4 ) (33 ) (7 )
Interest expense4 (86 ) (3 ) (177 ) (6 )
Current income taxes4 (30 ) (13 ) (48 ) (20 )
Special interest rights distributions - IDR (12 ) - (23 ) -
Other adjusting items 13 - 10 -
EIPLP ACFFO 437 112 1,006 240
Fund and ECT operating, administrative and interest expense (54 ) (30 ) (108 ) (62 )
Fund Group ACFFO 383 82 898 178
Distributions to Enbridge 336 47 672 92
Distributions to ENF 66 32 118 66
Fund Group distributions declared 402 79 790 158
Fund Group payout ratio 88 % 89 %
1 ACFFO is a non-GAAP measure that does not have any standardized meaning prescribed by U.S. GAAP. See definition within Non-GAAP Measures.
2 Prior to the close of the 2015 Transaction, EIPLP received distributions on Class A units from both Enbridge subsidiaries that indirectly own the Canadian and United States portions of the Southern Lights Pipeline. Subsequent to the close of the 2015 Transaction, EIPLP received distributions on Class A units from the Enbridge subsidiary that indirectly owns the United States portion of the Southern Lights Pipeline only.
3 Maintenance capital expenditures are expenditures that are required for the ongoing support and maintenance of the existing pipeline system or that are necessary to maintain the service capability of the existing assets (including the replacement of components that are worn, obsolete or completing their useful lives). For the purpose of ACFFO, maintenance capital excludes expenditures that extend asset useful lives, increase capacities from existing levels or reduce costs to enhance revenues or provide enhancements to the service capability of the existing assets.
4 These balances are presented net of adjusting items.

Fund Group ACFFO underpins its ability to pay distributions to its unitholders, including the Company. For the three and six months ended June 30, 2016, Fund Group ACFFO increased to $383 million and $898 million, respectively, from $82 million and $178 million for the comparable periods of 2015 primarily due to the significant cash flow contributions from the 2015 Transaction. These increases were partially offset by higher interest and current income taxes expenses in EIPLP attributable to higher business activity associated with the increased asset base, which also resulted in increased maintenance capital expenditures over the comparable period. Maintenance capital expenditures are expected to further increase in the second half of 2016. The impact of the wildfires in northeastern Alberta, mentioned previously, also partially offset the increase in Fund Group ACFFO.

The Fund Group's payout ratio for the first half of 2016 was consistent with the comparable period of 2015 reflecting an increase in Fund Group ACFFO and distributions, both driven by the substantial increase in the scale and scope of the Fund Group's operations as a result of the 2015 Transaction.

ENBRIDGE INCOME FUND HOLDINGS INC.

Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
Distribution income 66 32 118 66
Dividends declared 58 27 103 54

The Company's distribution income represents substantially all of the Company's earnings and cash flows and is derived from the Fund Group distributions paid to the Company. For the three and six months ended June 30, 2016, distribution income increased significantly over the comparable periods of 2015 reflecting the Company's additional investments in the Fund Group in late 2015 and the first half of 2016 combined with an increase in the distribution rate on ordinary trust units of the Fund (Fund Units), which is underpinned by Fund Group ACFFO.

The following table summarizes the dividends declared by the Company for the six months ended June 30, 2016 and 2015 and the quarters therein.

2016 2015
Dividend
per Share
Total Dividend
per Share
Total
(unaudited; millions of Canadian dollars except dividend rate)
Three months ended March 31, 0.4665 45 0.3855 27
Three months ended June 30, 0.4665 58 0.3855 27
Six months ended June 30, 0.9330 103 0.7710 54

CONFERENCE CALL

The Company will hold a joint conference call with Enbridge on Friday, July 29, 2016 at 9 a.m. Eastern Time (7 a.m. Mountain Time) to discuss the 2016 second quarter results. Analysts, members of the media and other interested parties can access the call toll-free at 1-866-215-5508 or within and outside North America at 1-514-841-2157 using the access code 42767653#. The call will be audio webcast live at http://edge.media-server.com/m/p/hghgffou. A webcast replay and podcast will be available approximately two hours after the conclusion of the event and a transcript will be posted to the website within 24 hours. The replay will be available at toll-free 1-888-843-7419 or within and outside North America at 1-630-652-3042 (access code 42767653#) for seven days after the call.

The conference call will begin with a presentation by Enbridge's President and Chief Executive Officer and the Chief Financial Officer, followed by a question and answer period with Enbridge and ENF management for investment analysts. A question and answer period for members of the media will then immediately follow.

Enbridge Income Fund Holdings Inc. is a publicly traded corporation. The Company, through its investment in Enbridge Income Fund, which holds an indirect investment in Enbridge Income Partners LP, holds high quality, low risk energy infrastructure assets. Enbridge Income Partners LP's assets include a portfolio of liquids transportation and storage businesses, including the Canadian Mainline, a 50% interest in the Canadian and United States portions of Alliance Pipeline, which transports natural gas, and renewable and alternative power generation assets. Enbridge Income Fund Holdings Inc. shares trade on the Toronto Stock Exchange under the symbol ENF. For more information visit www.enbridgeincomefund.com. None of the information contained in, or connected to, the Company's website is incorporated in or otherwise forms part of this news release.

HIGHLIGHTS
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars, except per share amounts)
ENBRIDGE INCOME FUND HOLDINGS INC.
Earnings
Distribution and other income1 68 34 120 68
Income taxes (1 ) (3 ) (1 ) (6 )
Earnings 67 31 119 62
Basic earnings per common share 0.57 0.43 1.11 0.87
Diluted earnings per common share 0.54 0.43 1.07 0.87
Cash flow data
Cash provided by operating activities 62 32 110 62
Dividends
Dividends declared 58 27 103 54
Dividends per common share 0.4665 0.3855 0.9330 0.7710
Shares outstanding (millions)
Common shares outstanding2 123 70 123 70
Weighted average common shares outstanding 118 70 107 70
ACFFO
EIPLP Segmented Adjusted EBIT
Liquids Pipelines 316 38 763 78
Gas Pipelines 47 37 96 77
Green Power 35 22 72 51
Eliminations and Other 8 4 28 4
Adjusted earnings before interest and income taxes 406 101 959 210
Depreciation and amortization expense 158 34 319 69
Distributions from Southern Lights Class A units 4 5 9 10
Cash distributions less than equity earnings (8 ) (8 ) (10 ) (16 )
Maintenance capital expenditures (8 ) (4 ) (33 ) (7 )
Interest expense (86 ) (3 ) (177 ) (6 )
Current income taxes (30 ) (13 ) (48 ) (20 )
Special interest rights distributions - IDR (12 ) - (23 ) -
Other adjusting items 13 - 10 -
EIPLP ACFFO 437 112 1,006 240
Fund and ECT operating, administrative and interest expense (54 ) (30 ) (108 ) (62 )
Fund Group ACFFO 383 82 898 178
Distributions to Enbridge3 336 47 672 92
Distributions to ENF 66 32 118 66
Fund Group distributions declared 402 79 790 158
Fund Group payout ratio 88 % 89 %
EIPLP OPERATING RESULTS4
Liquids Pipelines - Average deliveries (thousands of bpd)
Canadian Mainline5 2,242 - 2,392 -
Regional Oil Sands System6 616 - 752 -
Gas Pipelines - Average throughput (millions of cubic feet per day)
Alliance Pipeline Canada 1,559 1,500 1,587 1,567
Alliance Pipeline US 1,698 1,662 1,724 1,726
Green Power (thousands of megawatt hours produced)
Wind Facilities 587 233 1,307 575
Solar Facilities 53 49 80 82
Waste Heat Facilities 24 15 50 35
1 Includes Fund Unit distributions
2 As at June 30, 2016 and 2015.
3 Includes EIPLP Class C Unit, ECT Preferred Unit and Fund Unit distributions paid to Enbridge.
4 Reflects statistics of operating assets held by direct or indirect investees of the Fund Group for the period they were held.
5 Canadian Mainline throughput volume represents deliveries ex-Gretna, Manitoba which is made up of United States and eastern Canada deliveries originating from western Canada.
6 Volumes are for the Athabasca mainline and Waupisoo Pipeline and exclude laterals on the Regional Oil Sands System.

Contact Information