EDMONTON, Alberta, April 29, 2019 (GLOBE NEWSWIRE) -- Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended March 31, 2019.
First Quarter Highlights
- Achieved excellent operating performance with 96% facility availability
- Generated net cash flows from operating activities of $286 million and adjusted funds from operations of $117 million
- Entered into a heat rate call option agreement with an investment grade counterparty covering periods outside of Arlington Valley’s existing summer tolling agreements
Net cash flows from operating activities were $286 million in the first quarter of 2019 compared with $143 million in the first quarter of 2018. Adjusted funds from operations (AFFO) were $117 million in the first quarter of 2019, compared to $85 million in the first quarter of 2018. AFFO per share was $1.15 in the first quarter of 2019 compared to $0.82 in the first quarter of 2018.
Net income attributable to shareholders in the first quarter of 2019 was $61 million and basic earnings per share was $0.49 per share, compared with net income attributable to shareholders of $41 million, and basic earnings per share of $0.30, in the comparable period of 2018. Normalized earnings attributable to common shareholders in the first quarter of 2019, after adjusting for non-recurring items and fair value adjustments, were $30 million or $0.29 per share compared with $29 million or $0.28 per share in the first quarter of 2018.
“Capital Power’s financial results for the first quarter of 2019 were in line with management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “Alberta spot power price averaged $69 per megawatt hour (MWh) in the first quarter due to unseasonably cold temperatures and higher natural gas prices and was the highest quarterly power price in over five years. Our financial results benefitted from strong operating performance in Alberta with nearly 100% availability and higher electricity generation. This contributed to the Company capturing an average realized power price of $58/MWh compared to $47/MWh for the same period a year ago.”
“We continue to have a positive outlook for Alberta power prices that has averaged nearly $60/MWh in the last 12 months. Based on our forecast for the remainder of the year, we now expect adjusted funds from operations for 2019 to be in the upper end of our annual guidance range,” stated Mr. Vaasjo.
| Operational and Financial Highlights 1 (unaudited) | Three months ended March 31 | |||||
| (millions of dollars except per share and operational amounts) | 2019 | 2018 | ||||
| Electricity generation (Gigawatt hours) | 5,782 | 5,026 | ||||
| Generation facility availability | 96 | % | 96 | % | ||
| Revenues and other income3 | $ | 397 | $ | 313 | ||
| Adjusted EBITDA 2, 3 | $ | 202 | $ | 179 | ||
| Net income 3 | $ | 60 | $ | 39 | ||
| Net income attributable to shareholders of the Company 3 | $ | 61 | $ | 41 | ||
| Basic and Diluted earnings per share 3 | $ | 0.49 | $ | 0.30 | ||
| Normalized earnings attributable to common shareholders 2, 3 | $ | 30 | $ | 29 | ||
| Normalized earnings per share 2, 3 | $ | 0.29 | $ | 0.28 | ||
| Net cash flows from operating activities | $ | 286 | $ | 143 | ||
| Adjusted funds from operations 2 | $ | 117 | $ | 85 | ||
| Adjusted funds from operations per share 2 | $ | 1.15 | $ | 0.82 | ||
| Purchase of property, plant and equipment and other assets | $ | 51 | $ | 40 | ||
| Dividends per common share, declared | $ | 0.4475 | $ | 0.4175 | ||
1 The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019.
2 Earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA), normalized earnings attributable to common shareholders, normalized earnings per share, adjusted funds from operations and adjusted funds from operations per share are non-GAAP financial measures and do not have standardized meanings under GAAP and are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures.
3 Prior quarter amounts have been restated to reflect the IAS 8 accounting policy change resulting from the transition to IFRS 16 - Leases.
Significant Events
Heat rate call option at Arlington Valley
During the first quarter of 2019, the Company entered into a heat rate call option agreement (“HRCO”) with an investment grade counterparty covering the periods outside of Arlington Valley’s existing summer tolling agreements. The HRCO commenced on April 1, 2019 and terminates December 31, 2025, covering (i) April and November-December 2019 and (ii) January-May and October-December 2020-2025. Pursuant to the HRCO the counterparty has the right to call the plant in exchange for fixed monthly premiums plus reimbursements for fuel at an indexed price, variable operating and maintenance expense and start charges. Adjusted EBITDA and AFFO from the Arlington Valley facility during the period covered by the HRCO is expected to be consistent with the guidance provided at the time the acquisition was announced.
Appointment to the Board of Directors
Effective March 1, 2019, Jane Peverett was appointed to the Capital Power Board of Directors.
Subsequent Event
Appointment to the Board of Directors
Effective April 26, 2019, Robert Phillips was appointed to the Capital Power Board of Directors.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on April 29, 2019 at 9:00 am (MDT) to discuss the first quarter financial results. The conference call dial-in numbers are:
(604) 638-5340 (Vancouver)
(403) 351-0324 (Calgary)
(416) 915-3239 (Toronto)
(514) 375-0364 (Montreal)
(800) 319-4610 (toll-free from Canada and USA)
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conclusion of the analyst conference call.
Non-GAAP Financial Measures
The Company uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA), (ii) adjusted funds from operations, (iii) adjusted funds from operations per share (iv) normalized earnings attributable to common shareholders, and (v) normalized earnings per share as financial performance measures.
These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net income attributable to shareholders of the Company, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective.
Adjusted EBITDA
Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure. Commencing with the company’s March 31, 2019 quarter-end, adjusted EBITDA excludes unrealized changes in fair value of commodity derivatives and emission credits which were previously included in adjusted EBITDA. This change was made to better align the Company’s measure of adjusted EBITDA with its other non-GAAP measures, as both the adjusted funds from operations and the normalized earnings per share measures exclude the impacts of unrealized changes in fair value of commodity derivatives and emission credits. This change also results in improved period over period comparability of adjusted EBITDA.
Comparative figures have been restated to reflect the above change to the adjusted EBITDA metric.
A reconciliation of adjusted EBITDA to net income is as follows:
| (unaudited, $ millions) | Three months ended | |||||||||||||||||
| Mar 2019 | Dec 2018 | Sep 2018 | Jun 2018 | Mar 2018 | Dec 2017 | Sep 2017 | Jun 2017 | |||||||||||
| Revenues and other income 2 | 397 | 340 | 395 | 369 | 313 | 267 | 352 | 207 | ||||||||||
| Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense | (167 | ) | (233 | ) | (261 | ) | (152 | ) | (153 | ) | (125 | ) | (198 | ) | (119 | ) | ||
| Remove unrealized changes in fair value of commodity derivatives and emission credits included within revenues and energy purchases and fuel | (34 | ) | 53 | 35 | (22 | ) | 1 | 18 | 3 | 29 | ||||||||
| Adjusted EBITDA from joint ventures 1 | 6 | 11 | 10 | 12 | 18 | 18 | 10 | 14 | ||||||||||
| Adjusted EBITDA | 202 | 171 | 179 | 207 | 179 | 178 | 167 | 131 | ||||||||||
| Depreciation and amortization 2 | (98 | ) | (85 | ) | (83 | ) | (83 | ) | (84 | ) | (80 | ) | (83 | ) | (74 | ) | ||
| Unrealized changes in fair value of commodity derivatives and emission credits | 34 | (53 | ) | (35 | ) | 22 | (1 | ) | (18 | ) | (3 | ) | (29 | ) | ||||
| Impairments | - | - | - | - | - | - | (83 | ) | - | |||||||||
| Gain on disposal of joint venture | - | 159 | - | - | - | - | - | - | ||||||||||
| Foreign exchange (loss) gain | (4 | ) | 6 | (2 | ) | 3 | 3 | (4 | ) | 21 | 9 | |||||||
| Net finance expense | (36 | ) | (33 | ) | (28 | ) | (29 | ) | (33 | ) | (32 | ) | (31 | ) | (25 | ) | ||
| Finance expense and depreciation expense from joint ventures 1 | (8 | ) | (10 | ) | (7 | ) | (8 | ) | (7 | ) | (13 | ) | (6 | ) | (2 | ) | ||
| Income tax (expense) recovery 2 | (30 | ) | (19 | ) | (7 | ) | (46 | ) | (18 | ) | (45 | ) | 9 | 95 | ||||
| Net income (loss) | 60 | 136 | 17 | 66 | 39 | (14 | ) | (9 | ) | 105 | ||||||||
| Net income (loss) attributable to: | ||||||||||||||||||
| Non-controlling interests | (1 | ) | (2 | ) | (1 | ) | (2 | ) | (2 | ) | (3 | ) | (2 | ) | (2 | ) | ||
| Shareholders of the Company | 61 | 138 | 18 | 68 | 41 | (11 | ) | (7 | ) | 107 | ||||||||
| Net income (loss) | 60 | 136 | 17 | 66 | 39 | (14 | ) | (9 | ) | 105 | ||||||||
1 Total income from joint ventures as per the Company’s consolidated statements of income (loss). Prior quarters’ values include Capital Power’s share of K2 Wind up until the December 31, 2018 disposal date.
2 Prior quarters’ amounts have been restated to reflect the IAS 8 accounting policy change resulting from the transition to IFRS 16.
Adjusted funds from operations and adjusted funds from operations per share
The Company uses adjusted funds from operations as a measure of the Company’s ability to generate cash from its current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company’s shareholders.
Adjusted funds from operations represents net cash flows from operating activities adjusted to include net finance expense and current income tax expense and exclude changes in operating working capital and distributions received from the Company’s joint venture interests. Net finance expense and current income tax expense are included as the timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. Changes in operating working capital are excluded from adjusted funds from operations as the timing of cash receipts and payments also affects the period-to-period comparability. Distributions received from the Company’s joint venture interests are excluded as the distributions are calculated after the effect of joint venture debt payments, which are not considered operating activities. Adjusted funds from operations is reduced by the tax equity financing project investors’ shares of adjusted funds from operations associated with assets under tax equity financing structures to ensure that only the Company’s share is reflected in the overall metric. Adjusted funds from operations also excludes the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company’s bank margin account held with a specific exchange counterparty. Adjusted funds from operations is reduced by sustaining capital expenditures and preferred share dividends and adjusted to include the Company’s share of the adjusted funds from operations of its joint venture interests and cash from coal compensation that will be received annually.
Adjusted funds from operations per share is determined by applying adjusted funds from operations to the weighted average number of common shares used in the calculation of basic, diluted and normalized earnings per share.
A reconciliation of net cash flows from operating activities to adjusted funds from operations is as follows:
| (unaudited, $ millions) | Three months ended March 31 | |||
| 2019 | 2018 | |||
| Net cash flows from operating activities per condensed interim consolidated statements of cash flows | 286 | 143 | ||
| Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows: | ||||
| Interest paid | 21 | 25 | ||
| Realized loss on settlement of interest rate derivatives | 6 | - | ||
| Change in fair value of derivatives reflected as cash settlement | (7 | ) | (9 | ) |
| Distributions received from joint ventures | (3 | ) | (13 | ) |
| Miscellaneous financing charges paid 1 | 1 | 2 | ||
| Income taxes paid | 2 | 1 | ||
| Change in non-cash operating working capital | (147 | ) | (16 | ) |
| (127 | ) | (10 | ) | |
| Net finance expense 2 | (28 | ) | (25 | ) |
| Current income tax expense 3 | 2 | (4 | ) | |
| Sustaining capital expenditures 4 | (9 | ) | (21 | ) |
| Preferred share dividends paid | (11 | ) | (10 | ) |
| Remove tax equity interests’ respective shares of adjusted funds from operations | (1 | ) | (2 | ) |
| Adjusted funds from operations from joint ventures | 5 | 14 | ||
| Adjusted funds from operations | 117 | 85 | ||
| Weighted average number of common shares outstanding (millions) | 101.8 | 104.2 | ||
| Adjusted funds from operations per share ($) | 1.15 | 0.82 | ||
1 Included in other cash items on the condensed interim consolidated statements of cash flows to reconcile net income to net cash flows from operating activities.
2 Excludes unrealized changes on interest rate derivative contracts, amortization, accretion charges and non-cash implicit interest on tax equity investment structures.
3 Excludes current income tax expense related to the disposal of the Company’s interest in the K2 Wind joint venture as the amount is considered an investing activity.
4 Includes sustaining capital expenditures net of partner contributions of $2 million for each of the three months ended March 31, 2019 and 2018, respectively.
Normalized earnings attributable to common shareholders and normalized earnings per share
The Company uses normalized earnings attributable to common shareholders and normalized earnings per share to measure performance by period on a comparable basis. Normalized earnings per share is based on earnings (loss) used in the calculation of basic earnings (loss) per share according to GAAP and adjusted for items that are not reflective of performance in the period such as unrealized fair value changes, impairment charges, unusual tax adjustments, gains and losses on disposal of assets or unusual contracts, and foreign exchange gain or loss on the revaluation of U.S. dollar denominated debt. The adjustments, shown net of tax, consist of unrealized fair value changes on financial instruments that are not necessarily indicative of future actual realized gains or losses, non-recurring gains or losses, or gains or losses reflecting corporate structure decisions.
| (unaudited, $ millions except per share amounts and number of common shares) | Three months ended | |||||||||||||||
| Mar 31 2019 | Dec 31 2018 | Sep 30 2018 | Jun 30 2018 | Mar 31 2018 | Dec 31 2017 | Sep 30 2017 | Jun 30 2017 | |||||||||
| Basic earnings (loss) per share ($)2 | 0.49 | 1.24 | 0.08 | 0.55 | 0.30 | (0.21 | ) | (0.15 | ) | 1.01 | ||||||
| Net income (loss) attributable to shareholders of the Company per condensed interim consolidated statements of income (loss) 2 | 61 | 138 | 18 | 68 | 41 | (11 | ) | (7 | ) | 107 | ||||||
| Preferred share dividends including Part VI.1 tax | (11 | ) | (11 | ) | (10 | ) | (11 | ) | (10 | ) | (11 | ) | (9 | ) | (8 | ) |
| Earnings (loss) attributable to common shareholders 2 | 50 | 127 | 8 | 57 | 31 | (22 | ) | (16 | ) | 99 | ||||||
| Unrealized changes in fair value of derivatives 1 | (20 | ) | 35 | 26 | (19 | ) | 25 | 14 | (31 | ) | 23 | |||||
| Gain on disposal of joint venture | - | (134 | ) | - | - | - | - | - | - | |||||||
| Non-cash tax equity adjustment | - | - | - | (15 | ) | - | - | - | - | |||||||
| Realized foreign exchange (gain) loss on settlement of foreign currency derivative instruments | - | - | - | - | (29 | ) | - | 12 | - | |||||||
| Asset held for sale accounting treatment of K2 Wind | - | 3 | - | - | - | - | - | - | ||||||||
| Income tax adjustment | - | - | - | (2 | ) | 2 | - | - | - | |||||||
| Impairments | - | - | - | - | - | - | 53 | - | ||||||||
| Unrealized foreign exchange (gain) loss on revaluation of U.S. dollar denominated debt | - | - | - | - | - | (1 | ) | 44 | (12 | ) | ||||||
| Realized foreign exchange gain on revaluation of U.S. dollar denominated debt | - | - | - | - | - | (1 | ) | (35 | ) | - | ||||||
| Recognition of U.S. deferred tax assets related to non-capital losses | - | - | - | - | - | - | - | (86 | ) | |||||||
| Provision for Line Loss Rule Proceeding | - | - | - | - | - | 7 | - | - | ||||||||
| U.S. tax reform rate decrease | - | - | - | - | - | 31 | - | - | ||||||||
| Success fee received related to development project | - | - | - | - | - | (3 | ) | - | - | |||||||
| Release of tax liability on foreign domiciled investment | - | - | - | - | - | (1 | ) | - | - | |||||||
| Normalized earnings attributable to common shareholders 2 | 30 | 31 | 34 | 21 | 29 | 24 | 27 | 24 | ||||||||
| Weighted average number of common shares outstanding (millions) | 101.8 | 102.3 | 102.4 | 103.1 | 104.2 | 104.3 | 104.1 | 98.1 | ||||||||
| Normalized earnings per share ($)2 | 0.29 | 0.30 | 0.33 | 0.20 | 0.28 | 0.23 | 0.26 | 0.24 | ||||||||
1 Includes impacts of the interest rate non-hedge held the Company’s joint venture and recorded within income from joint venture on the Company’s statements of income.
2 Prior quarters’ amounts have been restated to reflect the IAS 8 accounting policy change resulting from the transition to IFRS 16.
Forward-looking Information
Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes disclosures regarding expected impacts on adjusted EBITDA and AFFO from the Arlington Valley facility driven by the HRCO signed in the quarter as well as expected AFFO performance compared to guidance for 2019.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity, other energy and carbon prices, (ii) performance, (iii) status of and impact of policy, legislation and regulations, and (iv) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) changes in market prices and availability of fuel, and (vii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis for the year ended December 31, 2018, prepared as of February 15, 2019, for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
For more information, please contact:
| Media Relations: | Investor Relations: | |
| Katherine Perron | Randy Mah | |
| (780) 392-5335 | (780) 392-5305 or (866) 896-4636 (toll-free) | |
| kperron@capitalpower.com | investor@capitalpower.com |