Enbridge Income Fund Holdings Inc.
TSX : ENF

Enbridge Income Fund Holdings Inc.

August 03, 2017 07:00 ET

Enbridge Income Fund Holdings Inc. Reports Second Quarter Results

CALGARY, ALBERTA--(Marketwired - Aug. 3, 2017) -

Q2 HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Earnings were $77 million or $0.54 per common share for the second quarter and $144 million or $1.08 per common share for the six-month period
  • Fund Group available cash flow from operations (ACFFO) was $501 million and $923 million for the second quarter and six-month period, respectively
  • The Company announced today that Enbridge Pipelines Inc. (EPI) will begin construction to replace certain segments of the Line 3 pipeline in Canada this summer; all permits to proceed with construction in Canada have now been obtained. The Canadian Line 3 Replacement Program (Canadian L3R Program) is expected to come into service in the second half of 2019
  • The $1.3 billion Norlite Pipeline System was placed into commercial service on May 1, 2017

Enbridge Income Fund Holdings Inc. (TSX:ENF) (ENF or the Company) announced second quarter earnings of $77 million, or $0.54 per common share.

Fund Group ACFFO was $501 million for the three months ended June 30, 2017 and $923 million year-to-date. Cash distributions paid year-to-date were $805 million, resulting in a payout ratio of 87 percent of ACFFO through June 30, 2017. Second quarter ACFFO was up year over year on strong performance from the Liquids Pipelines and Green Power segments. Liquids Pipelines performance improved due to a higher Canadian Mainline International Joint Tariff (IJT) Residual Benchmark Toll that became effective on April 1, 2017. Canadian Mainline throughput was also higher quarter-over-quarter despite being impacted by an unexpected outage and accelerated maintenance at a customer's upstream facility.

Up until the month of June, the Canadian Mainline had been delivering near record throughput and was operating under apportionment in heavy crude oil service. Earnings before interest and income taxes (EBIT) generated by Liquids Pipelines is expected to grow over the second half of 2017 as throughput is expected to return to record levels achieved earlier in the year. This is driven in part by capacity optimization projects completed in the first half of the year that will address capacity constraints and help alleviate apportionment.

"This quarter's strong results highlight the strength and quality of our asset base," said Perry Schuldhaus, Company President. "Despite the unexpected supply disruption into the Canadian Mainline during the quarter, we were still able to deliver strong earnings and cash flow growth year-over-year."

Mr. Schuldhaus continued, "We look forward to the second half of the year as we continue to benefit from the higher IJT Residual Benchmark Toll, and additional capacity optimization initiatives on the Canadian Mainline. We remain on track to deliver on our 2017 Fund Group ACFFO guidance of $1.9 to $2.1 billion and look forward to bringing another $1.5 billion of capital into service before year end, including the $1.3 billion Wood Buffalo Extension pipeline. By the end of this year, we will have brought into service, on time and on budget, $3.7 billion of new capital projects."

The Company announced today that EPI will begin construction this summer on certain sections of the Canadian L3R Program as all required regulatory permitting is in place to proceed in these areas.

Given the updated execution plan, the finalized cost estimate for the Canadian L3R Program is now $5.3 billion. The revised cost is approximately 8 percent above the original estimate at the time of project sanctioning in 2014, and primarily reflects delays in the regulatory process, scope changes and route modifications as well as other changes that resulted from the extensive consultation process. The impact of these additional costs on project returns are fully offset by lower estimated operating costs and a stronger United States dollar relative to the original project assumptions.

"We are very pleased to see construction starting on the Line 3 Replacement program," said Mr. Schuldhaus. "This is an important project that will enhance the reliability of the liquids mainline system, support the Canadian economy and drive cash flow growth for the Fund Group investors going forward."

The Company holds a 66.9 percent ordinary trust unit (Fund Unit) interest in Enbridge Income Fund (the Fund) and an approximate 19.2 percent overall economic interest in the Fund Group. The Fund Group is comprised of 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.

On July 31, 2017, the Company's Board of Directors declared a monthly cash dividend of $0.1711 per common share to be paid on September 15, 2017 to shareholders of record at the close of business on August 31, 2017.

These dividends are designated eligible dividends for Canadian tax purposes, which qualify for the enhanced dividend tax credit. Eligible shareholders may elect to participate in the Company's Dividend Reinvestment and Share Purchase Plan (DRIP), where they may automatically reinvest their dividends in additional shares at a 2 percent discount to the share price without brokerage fees. Details of the DRIP are available on the Company's website. Shareholders who wish to participate in the DRIP should contact their investment dealer for further information and to enroll.

NON-GAAP MEASURES

This news release contains references to adjusted earnings before interest and income taxes (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 of this news release.

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, and 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 are useful 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 Second Quarter 2017 Performance Overview section that provide a reconciliation of the GAAP and non-GAAP measures.

SECOND QUARTER 2017 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 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 Taxes
1

Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
(unaudited; millions of Canadian dollars)
Liquids Pipelines 645 252 1,163 1,289
Gas Pipelines 46 47 105 108
Green Power 43 36 84 75
Eliminations and Other (6 ) 13 (5 ) (27 )
Earnings before interest and income taxes 728 348 1,347 1,445
Adjusting items:
Changes in unrealized derivative fair value (gains)/loss2 (280 ) 17 (445 ) (597 )
Unrealized (gains)/loss on translation of United States dollar intercompany loan 20 (5 ) 26 55
Leak remediation costs 5 - 12 -
Leak insurance recoveries (1 ) - (4 ) (5 )
Make-up rights adjustments3 - 19 - 34
Northeastern Alberta wildfires pipelines and facilities restart costs - 21 - 21
Other - 6 - 6
Adjusted earnings before interest and income taxes 472 406 936 959
Comprised of:
Liquids Pipelines 373 316 734 763
Gas Pipelines 43 47 100 96
Green Power 42 35 81 72
Eliminations and Other 14 8 21 28
Adjusted earnings before interest and income taxes 472 406 936 959
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 Changes in unrealized derivative fair value gains and losses are presented net of amounts realized on the settlement of derivative contracts during the applicable period.
3 Effective January 1, 2017, EIPLP no longer makes such an adjustment to its EBIT.

Earnings Before Interest and Income Taxes
The comparability of EIPLP's earnings was impacted by a number of unusual, non-recurring or non-operating factors, the most significant of which relates to changes in unrealized derivative fair value gains and losses as well as pipeline and facilities restart costs that resulted from the extreme wildfires that occurred in northeastern Alberta in the second quarter of 2016.

EIPLP's EBIT for the three months ended June 30, 2017 was $728 million, an increase of $380 million over the corresponding period in 2016. Excluding the impact of unusual, non-recurring or non-operating factors, the most significant of which relates to the changes in unrealized derivative fair value gains of $280 million, EIPLP EBIT increased for the second quarter of 2017 compared with the second quarter of 2016, primarily due to a higher average Canadian Mainline IJT Residual Benchmark Toll as well as stronger throughput on the Canadian Mainline. These positive results were partially offset by an unexpected outage and accelerated maintenance at a customer's upstream facility that impacted volumes in the second quarter of 2017.

Despite the strong results of the second quarter, EIPLP EBIT decreased in the first half of 2017 due to lower first quarter EBIT. First quarter results were impacted by a lower average Canadian Mainline IJT Residual Benchmark Toll, a lower foreign exchange hedge rate used to record United States dollar denominated Canadian Mainline revenues and lower surcharge revenue. The decrease in EIPLP EBIT in the first half of 2017 was partially offset by positive contributions from the Green Power segment, driven by stronger wind resources in the second quarter of 2017.

Up until the month of June, the Canadian Mainline had been delivering near record volumes and was operating under apportionment in heavy crude oil service. EBIT generated by Liquids Pipelines is expected to grow over the second half of 2017 as throughput on the Canadian Mainline is expected to return to record levels achieved earlier. This is driven in part by capacity optimization projects completed in the first half of the year that will address capacity constraints and help alleviate apportionment.

Adjusted Earnings Before Interest and Income Taxes
EIPLP adjusted EBIT for the second quarter of 2017 was $472 million compared with $406 million for the second quarter of 2016. The increase is primarily attributable to stronger contributions from the Liquids Pipelines segment, largely due to stronger volumes on the Canadian Mainline and Regional Oil Sands System and the higher quarter-over-quarter average Canadian Mainline IJT Residual Benchmark Toll, which increased on April 1, 2017. These positive results were partially offset by an unexpected outage and accelerated maintenance at a customer's upstream facility that impacted volumes in the second quarter of 2017.

On a year-to-date basis, adjusted EBIT decreased compared to the same period in 2016 due to the lower quarter-over-quarter average Canadian Mainline IJT Residual Benchmark Toll in the first quarter of 2017 and a lower foreign exchange hedge rate used to record United States dollar denominated Canadian Mainline revenues. The IJT Benchmark Toll and its components are set in United States dollars, and the majority of EIPLP's foreign exchange risk on Canadian Mainline revenues is hedged. The effective hedge rate for the translation of Canadian Mainline United States dollar transactional revenues for the first half of 2017 was $1.04 compared with $1.08 for the corresponding period in 2016. In addition, Liquids Pipelines reported performance was further impacted by a change in practice whereby EIPLP no longer includes cash received under certain take-or-pay contracts with make-up rights in its determination of adjusted EBIT. Adjusted EBIT for the remainder of the year is expected to be positively impacted by increased throughput optimization on the Canadian Mainline and the effect of new projects coming into service in the second half of 2017.

FUND GROUP
Available Cash Flow from Operations
1

Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
(unaudited; millions of Canadian dollars)
EIPLP Adjusted earnings before interest and income taxes 472 406 936 959
Depreciation and amortization expense 164 158 323 319
Cash distributions in excess of/(less than) equity earnings 18 (8 ) 7 (10 )
Maintenance capital expenditures2 (10 ) (8 ) (29 ) (33 )
Interest expense3 (99 ) (86 ) (193 ) (177 )
Current income taxes3 (6 ) (30 ) (30 ) (48 )
Special interest rights distributions - IDR4 (12 ) (12 ) (24 ) (23 )
Other adjusting items5 24 17 36 19
EIPLP ACFFO 551 437 1,026 1,006
Fund and ECT operating, administrative and interest expense (50 ) (54 ) (103 ) (108 )
The Fund Group ACFFO 501 383 923 898
Distributions paid to Enbridge 323 336 659 672
Distributions paid to ENF 79 66 146 118
Fund Group distributions declared 402 402 805 790
Fund Group payout ratio 87 % 88 %
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 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. Maintenance capital expenditures occur primarily within EIPLP's Liquids Pipelines segment.
3 These balances are presented net of adjusting items.
4 Incentive Distribution Right (IDR) refers to the cash component of the Special Interest Rights (SIR) distributions. IDR distributions are declared monthly and paid in cash to holders of the SIR in the following month.
5 Primarily relates to cash received for revenue that is deferred, including make-up rights recognized for certain take-or-pay tolling arrangements. Prior to January 1, 2017, EIPLP included make-up rights recognized for certain take-or-pay tolling arrangements in its determination of adjusted EBIT.

Fund Group ACFFO underpins the Fund Group's ability to pay distributions to holders of Fund Units, including the Company. The Fund Group's ACFFO increased to $501 million and $923 million for the three and six months ended June 30, 2017 from $383 million and $898 million in the comparable periods of 2016, respectively.

Similar to adjusted EBIT, the increase in ACFFO was driven by stronger contributions from EIPLP's Liquids Pipelines segment following the increase in the Canadian Mainline IJT Residual Benchmark Toll in April 2017 and stronger throughput on the Canadian Mainline and Regional Oil Sands System, largely driven by the negative impacts of the northeastern Alberta wildfires in the second quarter of 2016. The increase in average quarter-over-quarter throughput on the Canadian Mainline and Regional Oil Sands System was partially offset by an unexpected outage and accelerated maintenance at a customer's upstream facility in the second quarter of 2017.

Although EIPLP adjusted EBIT was lower year-over-year for the first half of 2017, ACFFO increased as a result of greater distributions relative to equity earnings from Alliance Pipeline.

ENBRIDGE INCOME FUND HOLDINGS INC.

Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
(unaudited; millions of Canadian dollars)
Distribution income 79 66 146 118
Dividends declared 75 58 139 103

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, 2017, distribution income was $79 million and $146 million, an increase of approximately 20 percent and 24 percent from the comparable periods of 2016, respectively, as a result of the increased number of Fund Units held by the Company in the second quarter of 2017 compared with the same period in 2016.

The following table summarizes the dividend rate and total dividends declared by the Company for the six months ended June 30, 2017 and 2016 and the quarters therein.

2017 2016
Dividend
per Share
Total Dividend
per Share
Total
(unaudited; millions of Canadian dollars except dividend rate)
Three months ended March 31, 0.5133 64 0.4665 45
Three months ended June 30, 0.5133 75 0.4665 58
Six months ended June 30, 1.0266 139 0.9330 103

CONFERENCE CALL

The Company will hold a joint conference call with Enbridge, Enbridge Energy Partners, L.P. and Spectra Energy Partners, LP on Thursday, August 3, 2017 at 9 a.m. Eastern Time (7 a.m. Mountain Time) to discuss the second quarter 2017 results. Analysts, members of the media and other interested parties can access the call toll-free at (877) 930-8043 or outside North America at (253) 336-7522 using the access code of 51403910#. The call will be audio webcast live at http://edge.media-server.com/m/p/7gd26ak2. 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 approximately 24 hours. An audio replay will be available for seven days after the call toll-free at (855) 859-2056 or outside North America at (404) 537-3406 using the replay passcode 51403910#.

The conference call format will include prepared remarks from the executive team followed by a question and answer session for the analyst and investor community only. Enbridge's media and investor relations teams will be available after the call for any additional questions.

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: mainline system throughput; expected or target ACFFO; cash flows; equity capital requirements; in-service dates of projects; safety and reliability of pipeline systems; regulatory approvals; impact of the hedging program; shareholder returns; future dividends and distributions by the Fund; and dividend increases.

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: 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; 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; earnings before interest and taxes (EBIT) or adjusted EBIT; earnings/(loss) or adjusted earnings/(loss); earnings/(loss) per share; future cash flows and future ACFFO; and 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 earnings/(loss), adjusted EBIT, ACFFO and associated per share amounts or dividends or distributions. The most relevant assumptions associated with forward-looking statements on projects under construction, including completion dates and capital expenditures include the following: availability and price of labour and construction materials; effects of inflation and foreign exchange rates on labour and material costs; effects of interest rates on borrowing costs; and the impact of weather and customer, government and regulatory approvals on construction and in-service schedules and cost recovery regimes.

The Company's and the Fund Group's forward-looking statements are subject to risks and uncertainties pertaining to future dividends, ACFFO guidance, operating performance, regulatory parameters, project approval and support, weather, economic and competitive conditions, public opinion, changes in tax laws and tax rates, exchange rates, interest rates, commodity prices, political decisions 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.

ABOUT ENBRIDGE INCOME FUND HOLDINGS INC.
Enbridge Income Fund Holdings Inc., through its investment in the Fund, indirectly holds high quality, low-risk energy infrastructure assets. The Fund's assets consist of a portfolio of Canadian liquids transportation and storage businesses, including the Canadian Mainline, the Regional Oil Sands System, the Canadian segment of the Southern Lights Pipeline, Class A units entitling the holder to receive defined cash flows from the United States segment of the Southern Lights Pipeline, a 50 percent interest in the Alliance Pipeline, which transports natural gas from Canada to the United States, and interests in more than 1,400 megawatts of renewable and alternative power generation assets. Enbridge Income Fund Holdings Inc. is a publicly traded corporation on the Toronto stock exchange under the symbol ENF; information about the Company is available on the Company's website at 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,
2017 2016 2017 2016
(unaudited; millions of Canadian dollars, except per share amounts)
ENBRIDGE INCOME FUND HOLDINGS INC.
Earnings
Distribution and other income1 80 68 148 120
Income taxes (3 ) (1 ) (4 ) (1 )
Earnings 77 67 144 119
Earnings per common share 0.54 0.57 1.08 1.11
Diluted earnings per common share 0.52 0.54 1.05 1.07
Cash flow data
Cash provided by operating activities 74 62 142 110
Dividends
Dividends declared 75 58 139 103
Dividends per common share 0.5133 0.4665 1.0266 0.9330
Shares outstanding (millions)
Common shares outstanding 147 123 147 123
Weighted average common shares outstanding 142 118 133 107
AVAILABLE CASH FLOW FROM OPERATIONS
EIPLP Adjusted EBIT
Liquids Pipelines 373 316 734 763
Gas Pipelines 43 47 100 96
Green Power 42 35 81 72
Eliminations and Other 14 8 21 28
Adjusted earnings before interest and income taxes 472 406 936 959
Depreciation and amortization expense 164 158 323 319
Cash distributions in excess of/(less than) equity earnings 18 (8 ) 7 (10 )
Maintenance capital expenditures (10 ) (8 ) (29 ) (33 )
Interest expense (99 ) (86 ) (193 ) (177 )
Current income taxes (6 ) (30 ) (30 ) (48 )
Special interest rights distributions - IDR (12 ) (12 ) (24 ) (23 )
Other adjusting items 24 17 36 19
EIPLP ACFFO 551 437 1,026 1,006
Fund and ECT operating, administrative and interest expense (50 ) (54 ) (103 ) (108 )
Fund Group ACFFO 501 383 923 898
Distributions to Enbridge2 323 336 659 672
Distributions to ENF 79 66 146 118
Fund Group distributions declared 402 402 805 790
Fund Group payout ratio 87 % 88 %
EIPLP OPERATING RESULTS
Liquids Pipelines - Average deliveries (thousands of bpd)
Canadian Mainline3 2,449 2,242 2,521 2,392
Regional Oil Sands System4 1,171 823 1,228 987
Gas Pipelines - Average throughput (millions of cubic feet per day)
Alliance Pipeline Canada 1,519 1,559 1,574 1,587
Alliance Pipeline US 1,623 1,698 1,674 1,724
Green Power (thousands of megawatt hours produced)
Wind Facilities 652 587 1,358 1,307
Solar Facilities 49 53 75 80
Waste Heat Facilities 22 24 50 50
1 Includes Fund Unit distributions.
2 Includes EIPLP Class C unit, ECT Preferred Unit and Fund Unit distributions paid to Enbridge.
3 Canadian Mainline average throughput volume represents deliveries ex-Gretna, Manitoba, which is made up of United States and eastern Canada deliveries originating from western Canada.
4 Volumes are for the Athabasca mainline, Athabasca Twin, Waupisoo Pipeline and Woodland Pipeline and exclude laterals on the Regional Oil Sands System.

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