Fiscal 2011 Results Presentation

Transcription

1 Fiscal 2011 Results Presentation March 8, 2012

2 Disclaimer Certain of the statements contained within this document are forward-looking and reflect management s expectations regarding Capstone Infrastructure Corporation s (the Corporation ) future growth, results of operations, performance and business based on information currently available to the Corporation. Forwardlooking 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 use forward-looking words, such as anticipate, continue, could, expect, may, will, estimate, believe or other similar words, and include, among other things, statements found in Strategic Overview and Results of Operations. These statements 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, 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 for each of the Corporation s assets 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, 2011 under the heading Results of Operations (such documents are available under the Corporation s profile on Other material factors or assumptions that were applied in formulating the forward-looking statements and financial outlook contained herein include 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; a full year of contribution from the Corporation s Amherstburg Solar Park, Swedish district heating business ( Värmevärden ) and the UK water distribution business ( Bristol Water ); a TransCanada Pipelines Limited ( TCPL ) gas transportation rate of $2.24 per gigajoule in 2012; the level of gas mitigation revenue earned by the Corporation s Cardinal cogeneration facility ( Cardinal ); that there will be no unplanned material changes to the Corporation s facilities, equipment or contractual arrangements, no unforeseen changes in the legislative and operating framework for the Corporation s businesses, no delays in obtaining required approvals, no unforeseen changes in rate orders or rate structures for the Corporation s power business, Värmevärden or Bristol Water, no unfavourable changes in environmental regulation and no significant event occurring outside the ordinary course of business; that there will be a stable regulatory environment and favourable decisions will be received from regulatory bodies concerning outstanding rate and other applications; that the Corporation s senior credit facility, used to partially fund the Bristol Water acquisition, will be repaid on or prior to its maturity on October 3, 2012; refinancing of the credit facility in place at the Corporation s Capstone Power Corporation and Cardinal Power of Canada, L.P. subsidiaries and the project financing of the Corporation s hydro power facilities (that potentially include amortization profiles); the completion of the previously-announced follow-on Värmevärden bond offering; the implementation of the Government of Ontario s amendments to the application of the Global Adjustment Mechanism which comprises a portion of the revenue escalator in the power purchase agreements for Cardinal and the Corporation s hydro facilities located in Ontario; the accounting treatment for Bristol Water s business under International Financial Reporting Standards, particularly with respect to accounting for maintenance capital expenditures; the amount of capital expenditures by Bristol Water; the UK pound sterling to Canadian dollar exchange rate and Swedish kroner to Canadian dollar exchange rate; and that Bristol Water will operate and perform in a manner consistent with the regulatory assumptions underlying its current asset management plan ( AMP ), 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. Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forwardlooking statements and the financial outlook, actual results may differ from those suggested by the forwardlooking statements and financial outlook for various reasons, including risks related to power infrastructure (operational performance; power purchase agreements (in particular, the risk associated with Cardinal s power purchase agreement expiring in the fourth quarter of 2014); fuel costs and supply (including increases in the gas transportation rate charged by TCPL); contract performance; development risk; technology risk; default under credit agreements; land tenure and related rights; regulatory regime and permits; environmental, health and safety requirements; climate change and the environment; and force majeure); to the Corporation s investment in Värmevärden (general business risks inherent in the district heating business; fuel costs and supply; reliance on industrial customers and ability of residential customers to cancel contracts on short notice; geographic concentration; government regulation; environmental health and safety liabilities; reliance on key personnel; labour relations; enforcement of indemnities against the vendors of Värmevärden; minority interest; and foreign exchange); to the Corporation s investment in Bristol Water (revenue is substantially influenced by price determinations made by Ofwat; failure to deliver capital investment programs; failure to deliver water leakage targets; the imposition of penalties under Ofwat s new comparative incentive mechanism; the economic downturn impacting the lending environment, as well as debt and capital markets, resulting in more costly financing and inflation negatively impacting leverage and key financial ratios, which may have a negative impact on credit ratings, as well as increasing the cost of capital expenditures; pension plan obligations may require Bristol Water to make additional contributions; failure to meet existing regulatory requirements and the potentially adverse impact of future legislative and regulatory changes; the ability for a Special Administrator to be appointed by the UK Secretary of State for the Environment, Food and Rural Affairs or Ofwat in certain circumstances (including the breach by Bristol Water of its licence); foreign exchange; operational risks (including significant interruption of the provision of its services and catastrophic damage resulting in loss of life, environmental damage or economic and social disruption); development of competition within the water sector; reliance on key personnel; default under its Artesian loans, bonds, debentures or credit facility; geographic concentration; potential seasonality and climate change; labour relations; and enforcement of indemnities against the vendors of Bristol Water); and to the Corporation (tax-related risks; variability and payment of dividends, which are not guaranteed; geographic concentration and non-diversification; insurance; environmental, health and safety regime; availability of financing; shareholder dilution; and the unpredictability and volatility of the common share price of the Corporation. For a more comprehensive description of these and other possible risks, please see the risks set out in this document under the heading Risks and Uncertainties, as updated in subsequently filed interim MD&A, subsequent Annual Information Forms of the Corporation and other filings by the Corporation with Canadian securities regulatory authorities (such documents are available under the Corporation s profile on 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 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 or financial outlook. 2

3 Fiscal 2011 Highlights Converted from income fund to a corporation & adopted International Financial Reporting Standards Transitioned from external management structure to being an independent company Acquired interests in Värmevärden, the district heating business in Sweden, & Bristol Water, a regulated water utility in UK Commenced commercial operations at Amherstburg Solar Park at end of June on time & on budget Diversified portfolio by infrastructure category & geography, and complemented cash flow profile of our power facilities with Bristol Water, a growing business 3

4 Fiscal 2011 A much larger, more diversified company Adjusted EBITDA ~ In $ millions E Extending the Cash Flow Duration of our Portfolio Growth in Total Assets 1, % over 2010 In $ millions Excludes internalization costs. 2 - Please refer to slide 28 for a description of the assumptions underlying Capstone s 2012 Adjusted EBITDA outlook. 3 Total assets for 2008 is presented in Canadian GAAP.

5 Fiscal 2011 Highlights In line with or ahead of expectations 32.9% increase in Adjusted EBITDA excluding internalization costs In millions of Canadian dollars or on a per share basis unless otherwise noted Quarter ended Dec 31 Variance Fiscal Year Ended Dec 31 Variance (%) (%) Revenue Net income (2.4) (2.6) 7.8 (3.3) 15.5 (120.5) Adjusted EBITDA 1,2 excluding internalization costs AFFO 1 excluding internalization costs AFFO 1 per share excluding internalization costs (3.3) (18.7) Dividends per share Payout ratio 1 excluding internalization costs % 88.4% % 93.9% "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 slide While Bristol Water s revenue and expenses are fully consolidated into Capstone s financial results, Capstone s Adjusted EBITDA only includes its 70% economic interest in Bristol Water. 3 - In 2011, Capstone recorded $19.7 million in one-time costs related to the internalization of management on April 15,

6 Power Segment Performance Three main drivers Strong production at Erie Shores, Whitecourt & the hydro power facilities For the year ended, Dec 31, 2011 (in millions of Canadian dollars unless Gas Wind Biomass 1 Hydro Solar 2 Total otherwise noted) Power generated (GWh) 1, ,874.4 Capacity factor 95.0% 27.2% 95.9% 51.4% 19.9% n.m.f Availability 97.6% 96.9% 96.6% 98.8% 95.6% n.m.f Revenue Adjusted EBITDA Includes interest and loan receivable receipts from Capstone s 33% equity interest in the Chapais facility. Statistics for power generated, capacity factors and availability do not include the Chapais facility. 2 Amherstburg Solar Park commenced commercial operations on June 30, Start of commercial operations at Amherstburg Solar Park Higher electricity rates at Cardinal, partially offset by higher TCPL rates +1% The heritage power portfolio includes Cardinal, Erie Shores Wind Farm, the hydro power facilities & Whitecourt. Increase in Adjusted EBITDA from heritage power portfolio 2

7 Power Segment Performance Quarterly & annual production by asset Production up 0.7% & 2.0% in the quarter & year, respectively (including Amherstburg) Power Generation (GWh) Three Months Ended Dec 31 Variance (%) Year Ended Dec 31 Variance (%) Cardinal (0.2) Erie Shores Hydro Power Facilities (32.9) Whitecourt Amherstburg Total % increase at Erie Shores & 5.2% increase at Whitecourt +1% 7 Increase in annual production excluding Amherstburg

8 Utilities Segment Performance Bristol Water Värmevärden Results for period of ownership from Oct 5 - Dec 31, 2011 (in millions of Canadian dollars unless otherwise noted) Water supplied (megalitres) 19,700 Revenue 43.6 Adjusted EBITDA 15.6 Results for period of ownership from Mar 31 - Dec 31, 2011 (in millions of Canadian dollars unless otherwise noted) Heat production (GWh) 733 Interest income 5.0 Adjusted EBITDA 5.0 Stable revenue Generally performing in line with expectations Higher Adjusted EBITDA than expected due to lower operating expenses ᅳ Lower capex ᅳ Fewer pipe bursts due to warmer than expected weather 8

9 A Stronger Business Today New additions to portfolio will enhance long-term stability 2011 Adjusted EBITDA by Country Adjusted EBITDA by Business 1 5% 17% 78% 2010 Adjusted EBITDA by Country Adjusted EBITDA by Business 1 100% Acquisitions completed in 2011 are expected to enhance investment quality of our company 9 1 Chart illustrates contribution from the businesses & excludes corporate component

10 Our 2012 Priorities Addressing our challenges Executing our refinancing strategy Completed recapitalization of Värmevärden on February 24th Negotiations on Cardinal are progressing Five meetings with OPA since mid-december Working through analysis of future dividend policy Expect to establish & implement new dividend in first half of 2012 Committed to delivering certainty on our capital structure & future dividend policy on this timeline 10

11 Revenue Growth 36.2% increase over 2010 PPAs provide price certainty for 98.7% of power generated by our facilities Regulatory framework for water utilities enables Bristol Water to earn a reasonable return on the capital it invests Revenue in 2011 was more than 97% derived from water sales & grew in proportion to regulatory inflation & prescribed rate increases 3% 97% 11

12 Expenses Total expenses increased by 50.7%, including internalization costs ~33% (in millions of Canadian dollars or on a per share basis unless otherwise noted) Fiscal Year Ended Dec 31 Variance (%) Corporate Power segment Utilities segment Water Social (100.0) Total expenses Increase in expenses excluding internalization costs 1 Includes $19.7M in costs related to the internalization of management in April % of Bristol Water s expenses from the date of acquisition to December 31, 2011 are consolidated in Capstone s results. Variance attributable to Bristol Water & higher gas transportation tolls at Cardinal First reporting period that includes Bristol Water ᅳ Operating expenses lower than planned due to lower repairs & maintenance $6M increase in gas transportation costs in

13 Cash Resources 2011 balance reflects redeployment of surplus funds generated from sale of Leisureworld (in millions of Canadian dollars or on a per share basis unless otherwise noted) As at Dec Power Utilities- Water Social Corporate Unrestricted cash & cash equivalents Consolidation of Bristol Water resulted in $39.5M of additional unrestricted cash ᅳᅳ Additional $82.3M in short-term deposits Funds earmarked for capital expenditure projects 13

14 14 Debt Profile

15 Financial Position Continuing to comfortably meet all covenants Covenant Dec 31, 2011 CPC - Cardinal Total Leverage Ratio Max 3.50x 2.73x Interest Coverage Ratio Min 3.00x 5.76x Erie Shores Debt DSCR Min 1.20x 1.81x Amherstburg Debt DSCR Min 1.15x 1.34x Bristol Water Debt Interest Coverage Ratio Min 1.4x 1.5x Net debt to RCV Max 86% 58% 15

16 Financing Initiatives Värmevärden Recapitalization Completed on February 24, 2012 Parent of Värmevärden issued ~$138M in senior secured bonds with option to issue up to an additional ~$12M Repatriated ~$46M in capital used to repay a portion of the senior credit facility Potential to repatriate up to an additional ~$4M in capital Favourable terms offering better certainty & cash flow from dividend perspective Hydro Financing Expected to be Completed by end of Q1 or early April Hydro power facilities are currently unlevered Expect pricing to be better than the ~7% rate anticipated last fall Expect net size of debt facility to be in range of ~$70 - $75M Lenders taking more conservative view on longer term power market dynamics in light of recent weaker power prices 16

17 2012 Outlook Expect stable performance & Adjusted EBITDA of ~$120M Power Portfolio Expected to Perform in Line with LTA Production DRIVERS Steady production across portfolio subject to wind, water flows & sunlight Full year of contribution from Amherstburg Solar Park MITIGATING FACTORS FOR ADJUSTED EBITDA Lower revenue at Cardinal ᅳ Lower gas mitigation revenue ᅳ Lower rate of revenue growth due to government amendments to GAM, a pricing index in our PPA Higher costs at Cardinal ᅳ Expect interim TCPL rate of $2.24 per GJ to remain in effect all year 17

18 2012 Outlook Expect stable performance & Adjusted EBITDA of ~$120M Bristol Water Expected to Deliver > ~$8M in Dividends in 2012 DRIVERS Steady demand with little seasonal variation Expected to benefit from a ~3.9% real increase & a 5.2% inflationary increase in its regulated revenue (total increase of ~9.1%) effective April 1, 2012 MITIGATING FACTORS Expected to complete capital expenditures of ~$ M in line with the regulator- approved business plan Funded internally with cash on hand, cash generated by the business, or debt capacity at Bristol Water ᅳ Will drive growth in Bristol Water s RCV, which increases overall value of our investment 18

19 2012 Outlook Expect stable performance & Adjusted EBITDA of ~$120M Full Year Contribution from Värmevärden Leverage in business following the recapitalization Expect to receive ~$4M in cash flow from this investment in 2012 ᅳ ᅳ Continuing emphasis on operational efficiency Building & enhancing relationships with customers 19

20 2012 Priorities Refinancing $119M CPC-Cardinal Credit Facility $78M Senior Credit Facility ~$46M paid on Senior Credit Facility Leaves ~$150M to refinance in 2012 Expect to raise net $70M - $75M on Hydro Facility Financing by end of Q1/early April Will leave ~$75M - $80M to be refinanced in 2012 Balance to be addressed through new corporate facility, hold co debt at Bristol Water, issue of securities or portfolio optimization initiatives, or combination thereof Expect to complete hydro financing by end of Q1 or early April 20

21 2012 Priorities Cardinal Negotiations continuing ᅳ Five meetings since mid-december Better insight today although significant work remains to be done ᅳ Complex negotiations Expect to have better sense of Cardinal s future profile during first half of 2012 ᅳ OPA drives timing & process Our goal is to obtain a fair outcome that recognizes Cardinal s high quality, contribution to the electricity supply mix & its industrial, economic, social & community importance Given current Ontario power market & fiscal dynamics, anticipate lower cash flow from Cardinal post 2014 Expect better clarity in first half of

22 2012 Objectives Dividend Establish & implement new dividend policy in first half of 2012 ᅳ Objective As certainty is gained on financings & more information on the outcome at Cardinal Philosophy is Unchanged Continue to expect a majority of the total return we deliver to shareholders to be in form of dividends Strike a balance between near-term income for shareholders & long-term value creation Establish dividend based on Cardinal s post-ppa cash flow, which will result in lower payout ratios through Basis from which to grow as we build scale & value of our business Announce & implement new dividend in first half of

23 Ongoing Objectives Maximize performance at power businesses Power Segment Maintaining high availability Sale of renewable energy credits (RECs) at Whitecourt ᅳ ᅳ Additional ~$450K in revenue Exploring similar opportunities at Erie Shores & hydro power facilities History of High Availability 23

24 Ongoing Objectives Maximize performance at Bristol Water Utilities Segment Bristol Water Executing capital projects, which will drive growth in RCV Focused on achieving regulatory targets ᅳ Leakage of < 51M litres/day in ᅳ Top quartile ranking in 2012 on Ofwat s SIM customer service measure following on strong result Bristol Water has a history of meeting & exceeding regulatory targets 24

25 Ongoing Objectives Re-focus on growth after completion of financings, dividend decision Shifting the mix & cash flow characteristics of the businesses in our portfolio should contribute to steady dividends & capital appreciation in years ahead 25

26 Enduring Strengths Positioned to deliver on 2012 objectives An active management approach that drives strong asset performance A disciplined approach to growing our portfolio with a focus on enhancing returns Capabilities & relationships that span the infrastructure sector, which over the longer term will enable us to focus on diversifying the mix of assets in our portfolio with power assets in Canada & core infrastructure businesses in OECD countries 26

27 Non-IFRS Performance Measures Definitions This presentation contains figures that are performance measures not defined by International Financial Reporting Standards (IFRS). These non- GAAP and additional GAAP performance measures do not have any standardized meaning prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other issuers. The non-gaap and additional GAAP measures used in presentation are defined below. Earnings before Interest Expense, Taxes, Depreciation and Amortization (EBITDA) EBITDA is net income (loss), including that net income (loss) related to the non-controlling interest and interest income excluding interest expense, income taxes, depreciation and amortization. EBITDA represents Capstone s continuing capacity to generate income from operations before taking into account management s financing decisions and costs of consuming tangible capital assets and intangible assets, which vary according to their vintage, technological currency, and management s estimate of their useful life. EBITDA is presented on the consolidated statement of income. Adjusted EBITDA Adjusted EBITDA is calculated as revenue less operating and administrative expenses plus interest income and dividends / distributions received from equity accounted investments. Amounts attributed to any non-controlling interest are deducted. Adjusted EBITDA is reconciled to EBITDA by removing equity accounted income, other gains and losses (net), foreign exchange gains and losses, and adding in dividends/distributions from equity accounted investments. Adjusted Funds from Operations (AFFO) The Corporation uses AFFO as a measure of the cash generating ability of operating activities. The Corporation defines AFFO as Adjusted EBITDA plus principal received from loans receivable on equity accounted investments less interest paid, dividends paid on the Corporation s preferred shares and income taxes paid, maintenance capital expenditures and scheduled repayment of principal on debt, net of changes to the levelization liability. For the Utilities-Water segment, Capstone defines maintenance capital expenditures as the amount, including adjustments for inflation, required by the regulator for the Asset Management Period ( AMP ) to maintain the productive capacity of the business. Differences between the regulatory required and actual maintenance capital expenditures are adjusted during the AMP when the difference is determined to be permanent. Payout Ratio Payout ratio measures the proportion of cash generated from operations that is paid as dividends. The payout ratio is calculated as dividends declared divided by AFFO. AFFO may not reflect actual cash movements in the form of dividends from Capstone s infrastructure businesses in particular a portion of Bristol Water s AFFO is reinvested in the business. 27

28 Assumptions The material factors or assumptions that were applied in formulating the Corporation s financial outlook include 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; a full year of contribution from Amherstburg Solar Park, Värmevärden and Bristol Water; a TransCanada Pipelines Limited gas transportation rate of $2.24 per gigajoule in 2012; the level of gas mitigation revenue earned by the Cardinal facility; that there will be no unplanned material changes to the Corporation s facilities, equipment or contractual arrangements, no unforeseen changes in the legislative and operating framework for the Corporation s businesses, no delays in obtaining required approvals, no unforeseen changes in rate orders or rate structures for the Corporation s power businesses, Värmevärden or Bristol Water, no unfavourable changes in environmental regulation and no significant event occurring outside the ordinary course of business; that there will be a stable regulatory environment and favourable decisions will be received from regulatory bodies concerning outstanding rate and other applications; that the Corporation s senior credit facility, used to partially fund the Bristol Water acquisition, will be repaid on or prior to its maturity on October 3, 2012; refinancing of the credit facility in place at the Corporation s Capstone Power Corporation and Cardinal Power of Canada, L.P. subsidiaries and the project financing of the Corporation s hydro power facilities (that potentially include amortization profiles); the recapitalization of Värmevärden; the implementation of the Government of Ontario s amendments to the application of the Global Adjustment Mechanism which comprises a portion of the revenue escalator in the power purchase agreements for Cardinal and the Corporation s hydro facilities located in Ontario; the accounting treatment for Bristol Water s business under International Financial Reporting Standards, particularly with respect to accounting for maintenance capital expenditures; the amount of capital expenditures by Bristol Water; the UK pound sterling to Canadian dollar exchange rate and the Swedish kroner to Canadian dollar exchange rate; and that Bristol Water will operate and perform in a manner consistent with the regulatory assumptions underlying its current asset management plan, 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. 28

29 Additional Details Glossary AMP Asset management plan, which is developed by water utilities in the UK every five years & approved by Ofwat. Annual long-term average production (LTA) An average production figure based on the actual electricity production of a facility since the start of full operations. Availability The number of hours that a generating unit is able to provide service at full output, whether or not it is actually in service, as a percentage of total hours in the period. Quick Facts Investor Information Common shares outstanding 70,957,368 Preferred shares outstanding 3,000,000 Convertible debentures 42,749 outstanding Class B exchangeable units 3,249,390 Securities symbols & exchange Ownership TSX: CSE; CSE.DB.A; CSE.PR.A ~21,000 shareholders ML/d Millions of litres of water per day. Ofwat The UK Water Services Regulation Authority. RCV The regulated capital value, or capital base, that is used by Ofwat to set the prices a water utility may charge it customers in each AMP. SIM Service Incentive Mechanism, a new incentive mechanism introduced by Ofwat to reward or penalize water companies service performance. 29 Contact 155 Wellington Street West Suite 2930 Toronto, Ontario M5V 3H1 T: info@capstoneinfrastructure.com Events Annual General Meeting June 5, a.m. ET TSX Broadcast Centre Gallery