Capital Power Files Business Acquisition Report
Report Includes Second Quarter Financial Results and Updated Outlook
As described in Capital Power's prospectus dated
While the acquisition was not completed until the third quarter of Capital Power's fiscal year, the BAR includes pro forma consolidated financial information for the second quarter and six months ended
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Operational and Financial Three months ended Six months ended
Highlights(1) (unaudited) June 30 June 30
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(millions of dollars) 2009 2008 2009 2008
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Electricity generation (GWh) 3,492 2,875 7,160 6,230
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Generation plant
availability (%) 93% 84% 95% 89%
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Revenues $537 $686 $1,246 $1,319
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Gross margin(2) $250 $247 $449 $483
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Adjusted EBITDA(2) $148 $149 $265 $302
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Funds from operations(2) $28 $49 $109 $119
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Historical net income (loss) $2 $(18) $56 $17
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Pro forma net income(3) $11 n/a $30 n/a
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(1) The operational and financial highlights in this press release are
derived from and should be read in conjunction with the financial
statements and other information contained in the BAR.
(2) Gross margin, adjusted Earnings before interest, taxes, depreciation
and amortization (EBITDA), and Funds from operations are non-GAAP
financial measures and do not have standardized meanings under GAAP,
and therefore, may not be comparable to similar measures used by
other enterprises. Reconciliations to these non-GAAP financial
measures to net income in the case of gross margin and adjusted
EBITDA, and cash provided by operating activities in the case of
funds from operations are included at the end of this press release.
(3) Adjusted for IPO-related changes to capital structure, fair value and
public company costs as detailed in Note 3 to the Unaudited Pro Forma
Financial Consolidated Statements of Income for the six months ended
June 30, 2009 contained in the BAR.
"Our second quarter results reflect weak power prices in the Alberta market, which are a function of low natural gas prices and strong availability of power generation units in the province," said Brian Vaasjo, President and Chief Executive Officer of Capital Power. "Alberta power prices averaged
Despite the weak pricing environment, Capital Power's year-over-year performance in the second quarter with respect to gross margin and adjusted EBITDA was essentially flat. This reflected a number of positive and negative variances, as described in the BAR report. Notable among these was a decline from the year earlier period in the contribution from the Company's Alberta commercial plants, while the contribution from contracted facilities and the EPCOR Power L.P. (EPLP) increased.
Outlook
Alberta forward power prices declined in the first half of 2009 and are expected to remain low in the near term, mainly due to low natural gas prices. Consistent with the second quarter results, lower power prices are expected to reduce adjusted EBITDA, excluding fair value adjustments, and cash flow from operations for the remainder of 2009, as approximately 53% of the Company's Alberta commercial portfolio is exposed to the spot market. The remaining 47% has been sold forward at an average price in the mid-$60/MWh range. The Alberta commercial plants represent approximately 40% to 50% of adjusted EBITDA, before unrealized fair value changes, excluding the non-controlling interest in EPLP.
For 2010, approximately 80% of the Alberta commercial portfolio position has been sold forward at an average price in the mid-$60/MWh range, which should reduce the exposure to decreases in power prices. For 2011, the Alberta commercial portfolio's open position is expected to increase to approximately 60% to 65% of the total portfolio, which could introduce more variability in adjusted EBITDA and cash flow, depending on changes in power prices. The average contracted price is in the low
The sensitivity to an increase/decrease of
The Company also outlined in the "Outlook" section of the BAR various factors that are expected to impact its results for the remainder of 2009 and for 2010.
"Looking forward, Capital Power has a strong balance sheet, a modern and efficient fleet, a diversified portfolio of assets, long-term contracts including power purchase arrangements, and an investment-grade credit rating," added
Webcast of Analyst Conference Call
Capital Power will be hosting a conference call with analysts on
About Capital Power
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Capital Power is a growth-oriented North American independent power producer, building on more than a century of innovation and reliable performance. The Company's vision is to be recognized as one of North America's most respected, reliable and competitive power generators. Headquartered in
Forward-Looking Statements
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This news release contains forward-looking statements, including "forward-looking statements" within the meaning of applicable Canadian and
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 and expected future developments and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements include, but are not limited to: (i) the operation of the Company's facilities; (ii) power plant availability, including those subject to acquired PPAs (iii) the Company's financial position and credit facilities (iv) the Company's assessment of commodity and power markets; (v) the Company's assessment of the markets and regulatory environments in which it operates; (vi) weather; (vii) availability and cost of labour and management resources; (viii) performance of contractors and suppliers; (ix) availability and cost of financing; * foreign exchange rates; (xi) management's analysis of applicable tax legislation; (xii) the currently applicable and proposed tax laws will not change and will be implemented; (xiii) currently applicable and proposed environmental regulations will be implemented; (xiv) counterparties will perform their obligations; (xv) renewal and terms of PPAs (xvi) ability to successfully integrate and realize benefits of its acquisitions (xvii) ability to implement strategic initiatives which will yield the expected benefits; and (xviii) the Company's assessment of capital markets and ability to complete future share offerings.
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 risks and uncertainties include, but are not limited to risks relating to: (i) operation of the Company's facilities (ii) power plant availability and performance; (iii) unanticipated maintenance and other expenditures; (iv) availability and price of energy commodities; (v) electricity load settlement; (vi) regulatory and government decisions including changes to environmental, financial reporting and tax legislation; (vii) weather and economic conditions; (viii) competitive pressures; (ix) construction; * availability and cost of financing; (xi) foreign exchange; (xii) availability and cost of labour, equipment and management resources; (xiii) performance of counterparties, partners, contractors and suppliers in fulfilling their obligations to the Company; (xiv) developments in the North American capital markets; (xv) compliance with financial covenants; (xvi) ability to successfully realize the benefits of acquisitions and investments; (xvii) the tax attributes of and implications of any acquisitions; and (xviii) other factors and assumptions discussed in the section entitled Risk Factors in the Prospectus and in other documents filed with provincial securities commissions in
Non-GAAP Financial Measures
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The Company uses (i) gross margin, (ii) adjusted EBITDA, (iii) funds from operations, and (iv) funds from operations excluding non-controlling interests in EPLP as financial performance measures. These terms are not defined financial measures according to Canadian GAAP and do not have standardized meanings prescribed by GAAP, and therefore may not be comparable to similar measures used by other enterprises. These measures should not be considered an alternative to net earnings, cash flow from operating activities or other measures of financial performance calculated in accordance with Canadian GAAP. Rather, these measures are provided as additional information to complement those Canadian GAAP measures by providing further understanding of the Company's results of operations from management's perspective.
Gross margin and adjusted EBITDA
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Capital Power uses gross margin and adjusted EBITDA to measure the
operating performance of plants and groups of plants from period to period. A
reconciliation of gross margin and adjusted EBITDA to net income is as
follows:
Three months Six months
(unaudited, $ millions) ended June 30 ended June 30
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2009 2008 2009 2008
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Revenues......................... $ 537 $ 686 $ 1,246 $ 1,319
Energy purchases and fuel...... 287 439 797 836
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Gross margin..................... 250 247 449 483
Deduct (add):
Operations, maintenance, and
administration................ 102 98 184 181
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Adjusted EBITDA.................. 148 149 265 302
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Deduct (add):
Depreciation, amortization, and
asset retirement accretion.... 43 46 89 91
Foreign exchange losses (gains) 2 (3) 2 10
Gain on sale of power purchase
arrangement and related
transactions.................. - - (30) (34)
Net financing expenses......... 63 50 127 101
Income taxes................... 7 6 12 11
Non-controlling interests...... 31 68 9 106
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Net income (loss)................ $ 2 $ (18) $ 56 $ 17
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Funds from operations and funds from operations excluding non-controlling
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interests in EPLP
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Capital Power uses funds from operations to measure the Company's ability
to generate funds from current operations and measures its interest in cash
flows by excluding the non-controlling interest in EPLP's cash flows. A
reconciliation of funds from operations and funds from operations excluding
non-controlling interests in EPLP to cash provided by operating activities is
as follows:
Three months Six months
(unaudited, $ millions) ended June 30 ended June 30
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2009 2008 2009 2008
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Funds from operations excluding
non-controlling interests
in EPLP......................... $ 2 $ 33 $ 64 $ 77
Funds from operations due to
non-controlling interests
in EPLP....................... 26 16 45 42
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Funds from operations............ 28 49 109 119
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Change in non-cash operating
working capital............... 34 (7) (20) (10)
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Cash provided by operating
activities...................... $ 62 $ 42 $ 89 $ 109
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Changes in working capital are primarily made up of intercompany payables
and receivables between the Company and EPCOR and are not representative of
how working capital would be managed by the Company on a stand-alone basis.
Therefore, the Company uses funds from operations as its primary operating
cash flow measure.
Three Six
(unaudited, $ millions) months months
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Funds from operations for the periods
ended June 30, 2008 $ 49 $ 119
Higher Genesee PPA availability incentive income..... 27 42
Higher adjusted EBITDA from EPLP..................... 11 2
Lower Genesee 1,2 and 3 maintenance expenses......... 16 26
Lower (higher) current income taxes.................. (2) 8
Higher financing expenses............................ (13) (26)
Lower adjusted EBITDA from other portfolio activities (8) (2)
Higher administration expense, excluding EPLP........ (19) (22)
Lower Alberta commercial plants electricity margin... (21) (25)
Other................................................ (12) (13)
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(Decrease) (21) (10)
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Funds from operations for the periods ended
June 30, 2009 $ 28 $ 109
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For further information: Media Contact: Mike Long, (780) 392-5207; Investor Relations Contact: Randy Mah, (780) 392-5305, (866) 896-4636 (toll-free)
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