Capstone Infrastructure Corporation
(TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the "Corporation") today
reported audited results for the fiscal year ended December 31, 2013. The
Corporation's 2013 Annual Report to shareholders, including Management's
Discussion and Analysis and audited consolidated financial statements, is
available at www.capstoneinfrastructure.com and on SEDAR at www.sedar.com. All
amounts are in Canadian dollars.
"We achieved annual Adjusted EBITDA of $128.4 million, which was at the high end
of our forecasted range, reflecting strong performance across our businesses as
well as three months of contribution from our recently acquired operating wind
power facilities. We successfully advanced our growth strategy, acquiring
Renewable Energy Developers and further expanding our power development
capabilities, and continued to enhance the cash flow potential of our business,"
said Michael Bernstein, President and Chief Executive Officer. "Over the past
three years, we have deliberately re-focused our portfolio to reduce risk,
extend our cash flow profile and establish a solid platform for the future. In
particular, our investments in Bristol Water and Varmevarden have fundamentally
changed Capstone's risk profile by offering perpetual, increasing cash flow and
the potential for considerable organic growth. In addition, our growing power
development platform positions us to deliver value to our shareholders. We
expect our strategy to deliver steady long-term income and capital appreciation
to shareholders in the years ahead."
Financial Review
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In millions of Canadian
dollars or on a per
share basis unless Quarter ended Year ended
otherwise noted Dec 31 Variance Dec 31 Variance
2013 2012 (%) 2013 2012 (%)
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Revenue 110.3 94.7 16.5 389.5 357.6 8.9
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Expenses 60.2 55.0 9.4 220.4 207.2 6.4
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Net income 16.0 16.9 (5.4) 67.2 46.0 46.2
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Adjusted EBITDA(1), (2) 38.0 31.3 21.5 128.4 120.3 6.7
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AFFO(1), (3) 13.9 13.6 2.8 39.9 35.6 12.3
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AFFO per share(1), (3),
(4) 0.145 0.179 (18.9) 0.493 0.473 4.1
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Dividends per share 0.075 0.075 0.0 0.300 0.450 (33.3)
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Payout ratio(1) 52% 41% - 61% 95% -
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(1) "Adjusted EBITDA", "Adjusted Funds from Operations", "Adjusted Funds
from Operations per Share" and "Payout Ratio" are non-GAAP financial
measures and do not have any standardized meaning prescribed by
International Financial Reporting Standards ("IFRS"). As a result,
these measures may not be comparable to similar measures presented by
other issuers. Definitions of each measure are provided on pages 22 and
23 of Management's Discussion and Analysis with reconciliation to IFRS
measures provided on page 23.
(2) Adjusted EBITDA for investments in subsidiaries with non-controlling
interests are included at Capstone's proportionate ownership interest.
(3) For businesses that are not wholly owned, the cash generated by the
business is only available to Capstone through periodic dividends. For
these businesses, AFFO is equal to distributions received.
(4) The weighted average number of common shares outstanding at the end of
the fourth quarter and year ended December 31, 2013 was 95,830,743 and
81,033,357, respectively.
Fiscal 2013 Highlights
Consolidated revenue for the year increased by 8.9%, or $31.9 million, primarily
due to Bristol Water, where regulated water tariffs and water consumption were
higher than in 2012, and to higher power production attributable to the Cardinal
gas cogeneration facility, Erie Shores and the contribution from the operating
wind power facilities acquired on October 1, 2013.
Total expenses increased by 6.4%, or $13.3 million, which was largely
attributable to higher operating expenses at Bristol Water, the addition of
ReD's operating wind facilities, and greater fuel expenses at Cardinal due to
increased production partially offset by lower gas transportation costs. Project
development costs increased by $5.2 million, primarily due to
acquisition-related costs and expenses arising from the Corporation's power
development subsidiary and wind projects currently under construction.
Adjusted EBITDA increased by 6.7%, or $8.1 million, driven primarily by Bristol
Water's performance and higher power production at Cardinal and Erie Shores
along with the contribution from the wind facilities acquired from ReD. These
drivers were partially offset by higher corporate project development costs.
AFFO increased by 12.3%, or $4.4 million, due to positive contributions from the
power segment, which was partially offset by lower AFFO from Bristol Water due
to the sale of a 20% interest in the business in May 2012.
Fourth Quarter Financial Highlights
During the fourth quarter, the Corporation's revenue increased by 16.5%, or
$15.6 million, over the same period in fiscal 2012, primarily reflecting higher
revenue at Bristol Water attributable to an increase in the regulated water rate
charged to customers. Higher fourth quarter revenue also reflected revenue
growth in the power segment due to the contribution from the wind facilities
acquired with ReD. Total expenses increased by 9.4%, or $5.2 million, primarily
due to higher operating expenses and inflationary increases for energy,
consumables, wages and salaries at Bristol Water, and expenses related to the
operation of the new wind facilities and the acquisition of ReD. Adjusted EBITDA
in the quarter increased 21.5%, or $6.7 million, reflecting these various
drivers partially offset by higher corporate project development costs. Fourth
quarter AFFO increased by 2.8%, or $0.4 million, reflecting the impact of higher
corporate project development expenses and additional interest expense for ReD
project debt and convertible debentures.
Financial Performance Highlights by Segment
Power Infrastructure:
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In millions of Canadian
dollars unless otherwise Quarter ended Year ended
noted Dec 31 Variance Dec 31 Variance
2013 2012 (%) 2013 2012 (%)
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Power generated (GWh) 581.9 499.9 16.4 2,160.5 1,858.8 16.2
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Revenue 57.0 49.1 16.3 193.9 179.2 8.2
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Adjusted EBITDA 28.6 22.6 26.5 89.1 78.2 14.0
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AFFO 20.2 14.6 38.3 53.4 43.9 21.8
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Fiscal 2013 power segment revenue increased 8.2%, or $14.7 million, in 2013,
primarily attributable to increased power production and power rates at
Cardinal, which completed scheduled maintenance in 2012, and to the contribution
from the new wind power facilities as well as Erie Shores.
Adjusted EBITDA increased by 14.0%, or $11.0 million, reflecting increased
revenue and lower gas transportation costs at Cardinal. These drivers were
partially offset by higher fuel expenses at the facility as more fuel was
consumed in production, and by higher costs related to the Corporation's power
development subsidiary, which was established in December 2012. AFFO increased
by 21.8%, or $9.6 million, reflecting the same factors as well as lower
maintenance costs at Cardinal partially offset by higher debt amortization at
the hydro power facilities compared with 2012 as well as debt service costs
related to the wind facilities acquired with ReD.
Utilities:
Water
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In millions of Canadian
dollars unless Quarter ended Year ended
otherwise noted Dec 31 Variance Dec 31 Variance
2013 2012(1) (%) 2013 2012(1) (%)
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Water supplied
(megalitres) 20,372 19,875 2.5 82,125 81,245 1.1
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Revenue 53.3 45.6 16.8 195.6 178.4 9.6
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Adjusted EBITDA before
non-controlling
interest 26.5 20.6 28.7 95.8 85.2 12.5
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Adjusted EBITDA 13.2 10.1 31.5 47.9 48.2 (0.7)
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AFFO(2) 1.8 3.2 (45.0) 6.5 8.1 (19.1)
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(1) Capstone's interest in Bristol Water was reduced to 50% from 70% on May
10, 2012 following the sale of an interest representing 20% of Bristol
Water to a subsidiary of ITOCHU Corporation.
(2) Bristol Water's contribution to Capstone's AFFO consists of dividends
and does not reflect the amount of cash generated by the business.
In 2013, revenue increased by 9.6%, or $17.2 million, in 2013 primarily due to a
6.9% annual increase in water tariffs, which occurred on April 1, 2013, along
with higher water consumption. Foreign exchange appreciation represented $3.4
million of the variance. Bristol Water's Adjusted EBITDA contribution to the
Corporation's results declined by 0.7%, or $0.3 million, primarily reflecting
the Corporation's lower ownership interest. Adjusted EBITDA before
non-controlling interests increased by 12.5%, or $10.6 million, reflecting
revenue growth partially offset by increased operating expenses. Capstone's AFFO
from Bristol Water declined by 19.1%, or $1.5 million, reflecting the reduced
ownership interest.
During 2013, Bristol Water made $167 million in capital expenditures, thereby
reducing its capital expenditure shortfall by 60%, as part of its approximately
$520 million capital program for the current five-year asset management plan
("AMP5"), which concludes in March 2015. As at December 31, 2013, Bristol Water
had cumulative capital expenditures of $394.0 million over the AMP5 period,
which was $20 million lower than the regulatory plan approved in 2010 but
consistent with management's expectations. Bristol Water expects to achieve its
planned cumulative capital expenditures by the end of the AMP5 period.
District Heating
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In millions of Canadian
dollars unless Quarter ended Year ended
otherwise noted Dec 31 Variance Dec 31 Variance
2013 2012 (%) 2013 2012 (%)
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Heat production (GWh) 323 352 (8.2) 1,091 1,078 1.2
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Interest income 0.7 0.7 8.1 2.9 3.4 (14.7)
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Adjusted EBITDA and
AFFO(1) 0.7 1.7 (56.7) 6.0 5.4 11.3
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(1) Varmevarden's contribution to Capstone's Adjusted EBITDA and AFFO
consists of interest income and dividends and does not reflect the
amount of cash generated by the business.
In 2013, Varmevarden paid $2.9 million of interest income to the Corporation
compared with $3.4 million in 2012. The variance reflected the Corporation's
repatriation of approximately $49.4 million of its initial investment in March
2012, thereby reducing the balance outstanding on the shareholder loan
receivable. Varmevarden also paid $3.1 million in dividends during 2013 compared
with $2.0 million in 2012. As a result, Varmevarden contributed $6.0 million to
the Corporation's Adjusted EBITDA and AFFO during the year compared with $5.4
million in 2012.
Financial Position
As at December 31, 2013, the Corporation had unrestricted cash and cash
equivalents of $45.8 million, including $29.0 million from the power segment and
$9.1 million from Bristol Water with the balance at corporate. Bristol Water
also has $70.5 million of credit available to support Bristol Water's capital
investment program. Approximately $18.5 million of the Corporation's total cash
and cash equivalents is available for general corporate purposes. As at December
31, 2013, the Corporation's debt to capitalization ratio was 65.7%, which
primarily reflects the increase in Bristol Water's debt to fund ongoing capital
expenditures, foreign exchange appreciation and depreciation in the
Corporation's share price partially offset by the acquisition of ReD, where the
ratio of debt assumed to equity issued was lower than that of the Corporation
prior to the transaction.
Subsequent Events
In January 2014, the Corporation increased the amount of credit available under
its new corporate credit facility, which was established in November 2013, to
$50 million from $32.5 million. The facility, which has a three-year term
maturing in October 2016, is structured as a revolver and bears an initial
effective interest rate of approximately 3.5%.
Outlook(1)
The Corporation expects continuing stable performance from its power facilities,
some growth from its utilities businesses, and a full year of contribution from
the operating wind power facilities acquired from ReD. Adjusted EBITDA in 2014
is anticipated to be between $140 million and $150 million. The assumptions
underlying the Corporation's 2014 outlook include but are not limited to:
-- That the Corporation's internally generated cash and credit is deployed
into its new development projects and that the projects proceed as
expected;
-- That the Swedish krona to Canadian dollar and British pound sterling to
Canadian dollar exchange rates remain consistent with recent rates;
-- That Bristol Water plc implements its allowed real 3.8% (plus retail
price index, or "RPI") price increase effective April 1, 2014; and
-- Business development activity that is consistent with historical levels.
The Corporation's strategic priorities for 2014 include:
Completing a new PPA for Cardinal.
The Corporation anticipates securing a new 20-year PPA for Cardinal and is
working to bring the process to a conclusion in advance of the December 31, 2014
expiry of Cardinal's current PPA. The Corporation is advancing its plans to
convert the facility and prepare it for dispatchable operations.
Advancing its pipeline of development projects.
The Corporation is focused on advancing its near-term wind power projects on
time and on budget. The 10 MW Skyway 8 and and 24 MW Saint-Philemon projects,
currently under construction in Ontario and Quebec, respectively, are expected
to achieve commercial operations in 2014. The balance of the pipeline is
currently anticipated to enter commercial operations over 2015 and 2016.
Maximizing the performance of its existing businesses.
The Corporation is focused on further enhancing the operational performance of
its businesses, which includes preventive and predictive maintenance, detailed
planning for capital expenditures that boost value, and finding new ways to
increase cash flow such as the use of WindBOOST at Erie Shores in 2013.
Pursuing organic growth initiatives.
The Corporation is working closely with management at Bristol Water to complete
the company's capital expenditure program for the current regulatory period,
which commenced in April 2010 and concludes in March 2015. This program is
driving significant growth in Bristol Water's regulated capital value, which
supports growing revenue and cash flow over time, which in turn increases the
value of the Corporation's investment.
Pursuing new investment opportunities.
The Corporation's strategy is to develop, acquire and manage a portfolio of high
quality power, utilities and transportation infrastructure businesses and
public-private partnerships. Geographically, the Corporation is focusing its
business development efforts primarily on North America, the United Kingdom, and
Western and Northern Europe with Australia and New Zealand remaining markets of
interest.
Dividend Declarations
The Board of Directors today declared a quarterly dividend of $0.075 per common
share for the quarter ending March 31, 2014 on the Corporation's outstanding
common shares. The dividend will be payable on April 30, 2014 to shareholders of
record at the close of business on March 31, 2014.
The Board of Directors also declared a dividend on its Cumulative 5-Year Rate
Reset Preferred Shares, Series A (the "Preferred Shares") of $0.3125 per
Preferred Share to be paid on or about April 30, 2014 to shareholders of record
at the close of business on April 14, 2014. The dividend on the Preferred Shares
covers the period from February 1, 2014 to April 30, 2014.
In respect of the Corporation's April 30, 2014 common share dividend payment,
the Corporation will issue common shares in connection with the reinvestment of
dividends to shareholders enrolled in the Corporation's Dividend Reinvestment
Plan. The price of common shares purchased with reinvested dividends will be the
previous five-day volume weighted average trading share price on the Toronto
Stock Exchange, less a 5% discount.
The dividends paid by the Corporation on its common shares and the Preferred
Shares are designated "eligible" dividends for purposes of the Income Tax Act
(Canada). An enhanced dividend tax credit applies to eligible dividends paid to
Canadian residents.
A distribution of $0.075 per unit will also be paid on April 30, 2014 to holders
of record on March 31, 2014 of Class B Exchangeable Units of MPT LTC Holding LP,
which is a subsidiary entity of the Corporation.
Dividend Reinvestment Plan
Learn more about the Corporation's Dividend Reinvestment Plan ("DRIP") at
www.capstoneinfrastructure.com/InvestorCentre/StockInformation/DRIP.aspx.
Fiscal 2013 Results Conference Call and Webcast
The Corporation will hold a conference call and webcast (with accompanying
slides) on Friday, March 7, 2014 at 8:30 a.m. EST to discuss fiscal 2013
results. To listen to the call from Canada or the United States, dial
1-800-319-4610. If calling from elsewhere, dial +1-604-638-5340. A replay of the
call will be available until March 21, 2014. For the replay, from Canada or the
United States, dial 1-800-319-6413 and enter the code 1385#. From elsewhere,
dial +1-604-638-9010 and enter the code 1385#. The event will be webcast live
with an accompanying slide presentation on the Corporation's website at
www.capstoneinfrastructure.com.
About Capstone Infrastructure Corporation
Our mission is to provide investors with an attractive total return from
responsibly managed long-term investments in core infrastructure in Canada and
internationally. Capstone's portfolio comprises investments in Canada's power
infrastructure, including gas cogeneration, wind, hydro, biomass and solar power
generating facilities, representing approximately net 439(2) megawatts of
installed capacity, and contracted wind power development projects totaling an
expected net 79 megawatts of capacity. Capstone also invests in utilities,
including a 33.3% interest in a district heating business in Sweden, and a 50%
interest in a regulated water utility in the United Kingdom. Please visit
www.capstoneinfrastructure.com for more information.
(1) See Notice to Readers.
(2) Reflects Capstone's economic interest in its various power facilities.
Notice to Readers
Certain of the statements contained within this document are forward-looking and
reflect management's expectations regarding the future growth, results of
operations, performance and business of Capstone Infrastructure Corporation (the
"Corporation") based on information currently available to the Corporation.
Forward-looking statements and financial outlook are provided for the purpose of
presenting information about management's current expectations and plans
relating to the future and readers are cautioned that such statements may not be
appropriate for other purposes. These statements and financial outlook use
forward-looking words, such as "anticipate", "continue", "could", "expect",
"may", "will", "estimate", "plan", "believe" or other similar words, and
include, among other things, statements found in the "Message to Shareholders",
"Strategic Overview" and "Results of Operations". These statements and financial
outlook are subject to known and unknown risks and uncertainties that may cause
actual results or events to differ materially from those expressed or implied by
such statements and financial outlook and, accordingly, should not be read as
guarantees of future performance or results. The forward-looking statements and
financial outlook within this document are based on information currently
available and what the Corporation currently believes are reasonable
assumptions, including the material assumptions set out in the management's
discussion and analysis of the results of operations and the financial condition
of the Corporation ("MD&A") for the year ended December 31, 2013 under the
heading "Results of Operations", as updated in subsequently filed MD&A of the
Corporation (such documents are available under the Corporation's profile on
www.sedar.com).
Other potential material factors or assumptions that were applied in formulating
the forward-looking statements and financial outlook contained herein include or
relate to the following: that the business and economic conditions affecting the
Corporation's operations will continue substantially in their current state,
including, with respect to industry conditions, general levels of economic
activity, regulations, weather, taxes and interest rates; that there will be no
material delays in the Corporation's power infrastructure development projects
achieving commercial operation; that the Corporation's power infrastructure
facilities will experience normal wind, hydrological and solar irradiation
conditions, and ambient temperature and humidity levels; an effective TCPL gas
transportation toll of approximately $1.65 per gigajoule in 2014; that there
will be no material change in the level of gas mitigation revenue historically
earned by the Cardinal facility; that there will be no material changes to the
Corporation's facilities, equipment or contractual arrangements, no material
changes in the legislative, regulatory and operating framework for the
Corporation's businesses, no material delays in obtaining required approvals and
no material changes in rate orders or rate structures for the Corporation's
power infrastructure facilities, Varmevarden or Bristol Water, no material
changes in environmental regulations for the power infrastructure facilities,
Varmevarden or Bristol Water and no significant event occurring outside the
ordinary course of business; that the amendments to the regulations governing
the mechanism for calculating the Global Adjustment (which affects the
calculation of the DCR escalator under the PPA for the Cardinal facility and
price escalators under the PPAs for the hydro power facilities located in
Ontario) will continue in force; that there will be no material change to the
accounting treatment for Bristol Water's business under International Financial
Reporting Standards, particularly with respect to accounting for maintenance
capital expenditures; that there will be no material change to the amount and
timing of capital expenditures by Bristol Water; that there will be no material
changes to the Swedish krona to Canadian dollar and UK pound sterling to
Canadian dollar exchange rates; and that Bristol Water will operate and perform
in a manner consistent with the regulatory assumptions underlying AMP5,
including, among others: real and inflationary increases in Bristol Water's
revenue, Bristol Water's expenses increasing in line with inflation, and capital
investment, leakage, customer service standards and asset serviceability targets
being achieved.
Although the Corporation believes that it has a reasonable basis for the
expectations reflected in these forward-looking statements and financial
outlook, actual results may differ from those suggested by the forward-looking
statements and financial outlook for various reasons, including: risks related
to the Corporation's securities (dividends on common shares and preferred shares
are not guaranteed; volatile market price for the Corporation's securities;
shareholder dilution; and convertible debentures credit risk, subordination and
absence of covenant protection); risks related to the Corporation and its
businesses (availability of debt and equity financing; default under credit
agreements and debt instruments; geographic concentration; foreign currency
exchange rates; acquisitions and development (including risks related to the
integration of the business operated by Renewable Energy Developers Inc.;
environmental, health and safety; changes in legislation and administrative
policy; and reliance on key personnel); risks related to the Power
Infrastructure Facilities (power purchase agreements; operational performance;
fuel costs and supply; contract performance; land tenure and related rights;
environmental; and regulatory environment); risks related to Bristol Water
(Ofwat price determinations; failure to deliver capital investment programs;
economic conditions; operational performance; failure to deliver water leakage
target; SIM and the serviceability assessment; pension plan obligations;
regulatory environment; competition; seasonality and climate change; and labour
relations); and risks related to Varmevarden (operational performance; fuel
costs and availability; industrial and residential contracts; environmental;
regulatory environment; and labour relations). For a comprehensive description
of these risk factors, please refer to the "Risk Factors" section of the
Corporation's annual information form dated March 21, 2013, as supplemented by
disclosure of risk factors contained in any subsequent annual information form,
material change reports (except confidential material changes reports), business
acquisition reports, interim financial statements, interim MD&A and information
circulars filed by the Corporation with the securities commissions or similar
authorities in Canada (which are available under the Corporation's profile on
profile on www.sedar.com).
The assumptions, risks and uncertainties described above are not exhaustive and
other events and risk factors could cause actual results to differ materially
from the results and events discussed in the forward-looking statements and
financial outlook. The forward-looking statements and financial outlook within
this document reflect current expectations of the Corporation as at the date of
this document and speak only as at the date of this document. Except as may be
required by applicable law, the Corporation does not undertake any obligation to
publicly update or revise any forward-looking statements and financial outlook.
This document is not an offer or invitation for the subscription or purchase of
or a recommendation of securities. It does not take into account the investment
objectives, financial situation and particular needs of any investors. Before
making an investment in the Corporation, an investor or prospective investor
should consider whether such an investment is appropriate to their particular
investment needs, objectives and financial circumstances and consult an
investment adviser if necessary.
FOR FURTHER INFORMATION PLEASE CONTACT:
Capstone Infrastructure Corporation
Sarah Borg-Olivier
Senior Vice President, Communications
(416) 649-1325
sborgolivier@capstoneinfra.com
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