Enbridge Income Fund Holdings Inc.
TSX : ENF

Enbridge Income Fund Holdings Inc.

November 03, 2016 07:00 ET

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

CALGARY, ALBERTA--(Marketwired - Nov. 3, 2016) -

Q3 HIGHLIGHTS

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

  • Earnings were $66 million or $0.53 per common share for the third quarter and $185 million or $1.64 per common share for the nine-month period

  • Fund Group available cash flow from operations (ACFFO) was $448 million and $1,346 million for the third quarter and nine-month period, respectively

  • Fund Group announced the sale of liquids pipelines and related assets in the South Prairie Region for $1.075 billion

Enbridge Income Fund Holdings Inc. (the Company or ENF) (TSX:ENF) announced today third quarter earnings of $66 million or $0.53 per common share representing an increase in earnings per share of 3.9% over the comparable three month period in 2015. The increase in quarterly earnings per share was underpinned by the growth in cash flows generated by the businesses within the Fund Group, partially offset by higher current income taxes in 2016.

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 $448 million and $1,346 million for the three and nine months ended September 30, 2016, respectively, representing significant increases over the same periods last year. 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 which came into service in late 2015. Throughput on the liquids mainline averaged over 2.35 million barrels per day (bpd) in the third quarter, rebounding from lower throughput in the second quarter after the extreme wildfires experienced in northeastern Alberta in May 2016 which curtailed deliveries to the mainline in the second quarter of this year. Oil Sands production substantially came back online by the end of June 2016 and as a result, throughput on EIPLP's liquids mainline system has strengthened and the impact of the wildfires on ACFFO for the nine months ended September 30, 2016 remained at $36 million, unchanged from the impact reported in the second quarter.

"We are pleased with this quarter's solid earnings and cash flow performance which reflects the strength and resilience of our business model and contributions from our organic growth capital program," said Company President Perry Schuldhaus. "Volumes on our mainline have strengthened following the wildfires, and we expect strong mainline throughput throughout the rest of the year. Despite the impacts of the wildfires, we are on track to deliver full-year 2016 ACFFO within our guidance range of $1.75 billion to $2.05 billion."

During the quarter, the Company announced that a subsidiary within the Fund Group entered into an agreement to sell the South Prairie Region Liquids Pipeline assets for $1.075 billion in cash. Proceeds from the sale will be re-invested in the Fund Group's $9 billion portfolio of secured organic growth projects and will be sufficient to meet all of the Fund's currently anticipated equity capital requirements through 2017.

"The sale of these non-core assets will provide low-cost funding for the Fund Group's substantial growth capital program which is expected to drive 10 percent annual increases in ENF's dividend through 2019," said Mr. Schuldhaus.

The Company's Board of Directors previously declared a cash dividend of $0.1555 per common share which will be paid on November 15, 2016 to shareholders of record at the close of business on October 31, 2016. On November 1, 2016 the Company's Board of Directors declared a cash dividend of $0.1555 per common share to be paid on December 15, 2016 to shareholders of record at the close of business on November 30, 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 two percent 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 October 17, 2016 was approximately 24 percent.

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 Mainline throughput; expected or target ACFFO; expected future cash flows; expectations on impact of hedging program; use of proceeds from the sale of the South Prairie Region assets; expected equity funding requirements for the Fund Group's commercially secured growth program; estimated future dividends or distributions; 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, demand and prices for crude oil, natural gas, natural gas liquids (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; expected earnings before interest and income taxes (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 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, 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.

THIRD 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 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 Nine months ended
September 30, September 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
Liquids Pipelines 344 (357 ) 1,633 (287 )
Gas Pipelines 47 31 155 108
Green Power 28 27 103 109
Eliminations and Other 17 63 (10 ) 131
Earnings/(loss) before interest and income taxes 436 (236 ) 1,881 61
Retrospective adjustments2:
2015 Transaction - Liquids Pipelines - 325 - 324
2015 Transaction - Green Power - (5 ) - (36 )
2015 Transaction - Eliminations and Other - - - (9 )
Adjusting items:
Changes in unrealized derivative fair value (gains)/loss 8 214 (589 ) 255
Unrealized (gains)/loss on translation of United States dollar intercompany loan receivable (2 ) (55 ) 53 (110 )
Make-up rights adjustments (4 ) 2 30 -
Northeastern Alberta wildfires pipeline and facilities restart costs 18 - 39 -
Other - - 1 (8 )
Gain on sale of non-core assets - - - (22 )
Adjusted earnings before interest and income taxes 456 245 1,415 455
Comprised of:
Liquids Pipelines 366 178 1,129 256
Gas Pipelines 48 37 144 114
Green Power 27 22 99 73
Eliminations and Other 15 8 43 12
Adjusted earnings before interest and income taxes 456 245 1,415 455
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 third quarter of 2016 increased to $436 million from a loss of $236 million in the same period of 2015 primarily due to differences in the changes in unrealized derivative fair value gains and losses reported in the quarter, partially offset by a lower average International Joint Tariff Residual Benchmark Toll on the Canadian Mainline.

For the nine months ended September 30, 2016, EBIT was $1,881 million compared with $61 million in the same period of 2015. In addition to the factors discussed previously for the discrete quarter, the Canadian Mainline contribution increased primarily due to higher throughput that resulted from strong oil sands production in western Canada combined with contributions from new assets placed into service in 2015, offset by the impact of the northeastern Alberta wildfires.

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 nine months ended September 30, 2016 were $456 million and $1,415 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 increased access to the eastern Canada markets. For the year-to-date period, the positive effect of the increased capacity on liquids pipelines throughput was partially offset by the impacts of the northeastern Alberta wildfires during the second quarter. Reduced system deliveries resulted in a negative impact of approximately $36 million to EIPLP's adjusted EBIT for the nine months ended September 30, 2016. Also bolstering EIPLP adjusted EBIT were higher contributions from EIPLP's Gas Pipelines segment resulting from the strong demand for seasonal firm service under Alliance Pipeline's new services framework which commenced in the fourth quarter of 2015.

FUND GROUP
Available Cash Flow from Operations1
Three months ended Nine months ended
September 30, September 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
EIPLP adjusted earnings before interest and income taxes 456 245 1,415 455
Depreciation and amortization expense 156 75 475 144
Distributions from Southern Lights Class A units2 4 6 13 16
Cash distributions in excess of/(less than) equity earnings 2 1 (8 ) (15 )
Maintenance capital expenditures3 (38 ) (27 ) (71 ) (34 )
Interest expense4 (86 ) (27 ) (263 ) (33 )
Current income taxes4 16 (36 ) (32 ) (56 )
Special interest rights distributions - IDR5 (12 ) - (35 ) -
Other adjusting items 4 - 14 -
EIPLP ACFFO 502 237 1,508 477
Fund and ECT operating, administrative and interest expense (54 ) (37 ) (162 ) (99 )
Fund Group ACFFO 448 200 1,346 378
Distributions to Enbridge 335 129 1,007 220
Distributions to ENF 67 33 185 100
Fund Group distributions declared 402 162 1,192 320
Fund Group payout ratio 89 % 85 %
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 owned 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.
5 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. SIR were first issued on September 1, 2015 pursuant to the 2015 Transaction.

Fund Group ACFFO underpins the Fund Group's ability to pay distributions to its unitholders, including the Company. For the three and nine months ended September 30, 2016, Fund Group ACFFO increased to $448 million and $1,346 million, respectively, from $200 million and $378 million for the comparable periods of 2015, primarily due to the significant cash flow from assets transferred in the 2015 Transaction. Fund Group ACFFO growth was also bolstered by higher contributions from EIPLP's Gas Pipelines segment that resulted from the strong demand for seasonal firm service under Alliance Pipeline's new services framework which commenced in the fourth quarter of 2015. These increases were partially offset by higher interest expense in EIPLP attributable to the increased asset base, which also resulted in increased maintenance capital expenditures over the comparable period. The impact of the wildfires in northeastern Alberta, mentioned previously, also partially offset the increase in Fund Group ACFFO for the nine month period in 2016.

ENBRIDGE INCOME FUND HOLDINGS INC.
Three months ended Nine months ended
September 30, September 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars)
Distribution income 67 33 185 100
Dividends declared 58 28 161 82

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 nine months ended September 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 growth in Fund Group ACFFO.

The following table summarizes the dividends declared by the Company for the nine months ended September 30, 2016 and 2015 are set out below.

2016 2015
Dividend Dividend
Per Share Total 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
Three months ended September 30, 0.4665 58 0.3984 28
Nine months ended September 30, 1.3995 161 1.1694 82

CONFERENCE CALL

The Company will hold a joint conference call with Enbridge on Thursday, November 3, 2016 at 9 a.m. Eastern Time (7 a.m. Mountain Time) to discuss the third quarter 2016 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 of 43519906#. The call will be audio webcast live at http://edge.media-server.com/m/p/yhjnw6ve. 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 43519906#) for seven days after the call.

The conference call will begin with presentations 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, indirectly holds high quality, low risk energy infrastructure assets. The Fund's indirectly owned assets consist of a portfolio of Canadian liquids transportation and storage businesses, including the 2,306-kilometre Canadian segment of the Mainline System (the largest conduit of oil into the United States), 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 US segment of the Southern Lights Pipeline, a 50 percent interest in the Alliance Pipeline, which transports natural gas from Canada to the U.S., and interests in more than 1,400 megawatts of renewable and alternative power generation capacity. Enbridge Income Fund Holdings Inc. shares trade on the Toronto Stock Exchange under the symbol ENF. Information about Enbridge Income Fund Holdings Inc. 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 Nine months ended
September 30, September 30,
2016 2015 2016 2015
(unaudited; millions of Canadian dollars, except per share amounts)
ENBRIDGE INCOME FUND HOLDINGS INC.
Earnings
Distribution and other income1 67 33 187 101
Income taxes (1 ) 2 (2 ) (4 )
Earnings 66 35 185 97
Basic earnings per common share 0.53 0.51 1.64 1.38
Diluted earnings per common share 0.53 0.50 1.60 1.37
Cash flow data
Cash provided by operating activities 67 32 177 94
Dividends
Dividends declared 58 28 161 82
Dividends per common share 0.4665 0.3984 1.3995 1.1694
Shares outstanding(millions)
Common shares outstanding2 124 70 124 70
Weighted average common shares outstanding 123 70 113 70
ACFFO
EIPLP Segmented Adjusted EBIT
Liquids Pipelines 366 178 1,129 256
Gas Pipelines 48 37 144 114
Green Power 27 22 99 73
Eliminations and Other 15 8 43 12
Adjusted earnings before interest and income taxes 456 245 1,415 455
Depreciation and amortization expense 156 75 475 144
Distributions from Southern Lights Class A units 4 6 13 16
Cash distributions in excess of/(less than) equity earnings 2 1 (8 ) (15 )
Maintenance capital expenditures (38 ) (27 ) (71 ) (34 )
Interest expense (86 ) (27 ) (263 ) (33 )
Current income taxes 16 (36 ) (32 ) (56 )
Special interest rights distributions - IDR (12 ) - (35 ) -
Other adjusting items 4 - 14 -
EIPLP ACFFO 502 237 1,508 477
Fund and ECT operating, administrative and interest expense (54 ) (37 ) (162 ) (99 )
Fund Group ACFFO 448 200 1,346 378
Distributions to Enbridge3 335 129 1,007 220
Distributions to ENF 67 33 185 100
Fund Group distributions declared 402 162 1,192 320
Fund Group payout ratio 89 % 85 %
EIPLP OPERATING RESULTS4
Liquids Pipelines - Average deliveries (thousands of bpd)
Canadian Mainline5 2,353 2,221 2,379 2,221
Regional Oil Sands System6 996 624 834 624
Gas Pipelines - Average throughput (millions of cubic feet per day)
Alliance Pipeline Canada 1,544 1,336 1,571 1,490
Alliance Pipeline US 1,683 1,489 1,709 1,646
Green Power (thousands of megawatt hours produced)
Wind Facilities 525 320 1,832 895
Solar Facilities 52 53 132 135
Waste Heat Facilities 20 13 70 48
1 Includes Fund Unit distributions.
2 As at September 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.

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