AltaGas Canada Inc. Announces Strong Third Quarter 2019 Results
Calgary, Alberta--(Newsfile Corp. - November 7, 2019) - AltaGas Canada Inc. (TSX:ACI.TO) ("ACI") today announced its third quarter 2019 financial results.
- Achieved normalized net income 1 of $2.4 million ($0.08 per share) for the third quarter of 2019 compared to an adjusted normalized net loss 2 of $1.3 million ($0.04 per share) in the third quarter of 2018;
- Achieved net income after tax of $2.8 million ($0.09 per share) for the third quarter of 2019 compared to $0.5 million ($0.02 per share) in the third quarter of 2018;
- ACI's 2019 capital spend is expected to be in the range of $75 - $80 million with an expected year-end rate base of approximately $940 million 3 ;
- ACI's 5-year capital program of $425 - $500 million (2019 - 2023) is well in hand and ACI continues to expect approximately 6 percent compound annual normalized net income growth over the same period;
- Entered into an Arrangement Agreement to be acquired by the Public Sector Pension Investment Board ("PSP Investments") and the Alberta Teachers' Retirement Fund Board ("ATRF") in a $1.7 billion transaction; and
- PSP Investments and ATRF will support ACI as it continues to foster strong stakeholder relations and provide safe, reliable and affordable service to its customers.
"Our third quarter results demonstrate the strength of our overall business and the positive impact our renewable portfolio can have in a seasonally warmer period for utilities," said Jared Green, President and Chief Executive Officer of ACI. "With our first full year behind us, we are tracking very well on business growth and operational performance. We are excited that PSP and ATRF have recognized the value of our business and we look forward to continuing to grow while providing the same safe and reliable service to our customers that we always have."
For the third quarter of 2019, net income after taxes was $2.8 million ($0.09 per share), compared to $0.5 million ($0.02 per share) in the third quarter of 2018. Normalized net income for the third quarter of 2019 was $2.4 million ($0.08 per share) compared to an adjusted normalized net loss of $1.3 million ($0.04 per share) in the third quarter of 2018.
Third quarter of 2019 normalized net income increased over the third quarter of 2018 adjusted normalized net income primarily due to higher approved rates and rate base growth at the utilities and higher earnings from ACI's renewable assets. These gains were partially offset by higher operating and administrative expenses and warmer weather in Alberta.
ACI's combined Utility rate base grew to approximately $922 million in the third quarter of 2019, up approximately 5.6 percent from the third quarter of 2018, and ACI remains on track to deliver a year-end rate base of approximately $940 million. Rate base growth at ACI's Utilities tends to result in a higher degree of seasonality as certain expenses such as depreciation and operating and administrative expenses increase and are distributed more evenly throughout the year.
In the second and third quarters, ACI's Utilities produce lower net income as a result of warmer seasonal weather and lower customer demand, while the first and fourth quarters produce higher net income due to colder seasonal weather and higher customer demand, which generally more than offsets the additional expenses resulting from growth.
Third quarter of 2019 renewable results were higher than third quarter of 2018. In the third quarter of 2019, wind generation at the Bear Mountain Wind Park was 29.2 gigawatt hours (GWh) which was below the long-term average for the third quarter of approximately 33.5 GWh, but above the 28.1 GWh produced in the third quarter of 2018.
Renewable generation in the third quarter of 2019 at the Northwest Hydro Facilities was 54.7 GWh, which includes 4.2 GWh of deemed deliveries, a strong improvement over the third quarter 2018 which had unseasonably cool and dry weather. Third quarter of 2019 generation was in line with the third quarter average generation since the start-up of all three facilities.
PNG Reactivation Application
On June 28, 2019, PNG submitted an application to the British Columbia Utilities Commission ("BCUC") for approval of a large volume industrial transportation rate required in its proposed process for allocation of reactivated capacity on its existing pipeline system (the "PNG Reactivation Application"). The proposed reactivation involves natural gas deliveries from Station 4a on the Enbridge Westcoast Energy Inc. southern mainline near Summit Lake, British Columbia to three termination points: Terrace, Kitimat, and Prince Rupert, British Columbia. Should the BCUC approve the PNG Reactivation Application, PNG plans to conduct a binding open season where shippers would have the opportunity to bid on capacity of up to approximately 88 million standard cubic feet per day based on either firm Transportation Service Agreements ("TSA") or reserve capacity through Transportation Reservation Agreements. PNG has garnered strong interest from a number of potential shippers. Provided there are sufficient shipper commitments backed by TSAs, PNG would commence system reactivation and recommissioning work to prepare for returning the system back to full utilization, subject to BCUC approvals. Depending on shipper demands and the requested delivery points, PNG estimates the capital cost for the reactivation, recommissioning and system reinforcement could be up to approximately $120 million.
On October 25, 2019, the BCUC provided the next steps with respect to the PNG Reactivation Application. PNG expects to begin the binding open season in the first quarter of 2020.
2019 - 2023 Capital Program and Outlook
ACI expects a capital program of $425 - $500 million between 2019 and 2023, including the potential reactivation of PNG's transmission pipeline and the Etzikom lateral pipeline project. The capital program also consists of investments in system betterment projects to maintain the safety and reliability of ACI's utility infrastructure, new business opportunities and technology improvements. ACI expects to continue utilizing a self-funded financing model for its capital program.
Over the 2019 - 2023 time period ACI expects approximately 6 percent compound annual normalized net income growth from the adjusted normalized net income of $40.5 million achieved in 2018.
In 2019, ACI continues to expect growth in adjusted normalized net income to be driven primarily by additions to rate base at the utilities and stronger expected results from the renewable power assets, partially offset by higher expected income tax expense. ACI expects capital spend to be in the range of $75 to $80 million. The expected capital spend includes approximately $10 million for the Etzikom Lateral Pipeline Project which is currently under construction and is expected to be completed in the fourth quarter of 2019.
ACI Dividend Declaration
On November 6, 2019 the Board of Directors of ACI declared a dividend of $0.26 per common share, payable on December 31, 2019 to shareholders of record at the close of business on November 29, 2019. The ex-dividend date is November 28, 2019. This dividend is an eligible dividend for Canadian income tax purposes.
PENDING ACQUISITION OF ACI
On October 21, 2019, ACI announced it had entered into a definitive arrangement agreement (the "Arrangement Agreement") pursuant to which PSP Investments and the ATRF, (together, the "Consortium") will indirectly acquire through PSPIB Cycle Investments Inc. (the "Purchaser"), all of the issued and outstanding Common Shares of ACI for $33.50 in cash per Common Share (the "Arrangement").
The Board of Directors, after receiving the unanimous recommendation of an independent committee of the Board of Directors formed to review and consider various strategic and financial options available to ACI and in consultation with its financial and legal advisors, has unanimously determined that the Arrangement is in the best interests of ACI and fair to the holders of Common Shares and is therefore unanimously recommending that holders of Common Shares vote in favour of the Arrangement. The Arrangement will be carried out under the Canada Business Corporations Act and its completion will be subject to customary closing conditions, including approval by 66 2/3% of the Common Shares voted in person or by proxy at a special meeting of holders of Common Shares to be called to approve the Arrangement. In addition to such shareholder approval, closing of the Arrangement is also subject to the approval by the Court of Queen's Bench of Alberta and to certain regulatory approvals, including approval under the Competition Act (Canada), approval from the Alberta Utilities Commission and approval from the British Columbia Utilities Commission. The Arrangement is expected to close in the first half of 2020.
Selected Financial Information
The following tables summarize key financial results:
| || ||Three Months Ended|| || ||Nine Months Ended|| |
| || ||September 30|| || ||September 30|| |
|($ millions)|| ||2019|| || ||2018|| || ||2019|| || ||2018|| |
|Normalized EBITDA (1)(2)|| ||17.7|| || ||15.0|| || ||73.4|| || ||71.1|| |
|Operating income|| ||9.9|| || ||8.0|| || ||47.0|| || ||48.8|| |
|Net income after taxes|| ||2.8|| || ||0.5|| || ||26.0|| || ||24.4|| |
|Normalized net income (loss) (1)|| ||2.4|| || ||(1.0||)|| ||26.7|| || ||21.8|| |
|Total assets|| ||1,498.6|| || ||1,590.1|| || ||1,498.6|| || ||1,590.1|| |
|Total long-term liabilities|| ||820.9|| || ||641.0|| || ||820.9|| || ||641.0|| |
|Net additions to property, plant and equipment|| ||23.3|| || ||21.2|| || ||42.3|| || ||43.5|| |
|Dividends declared (3)|| ||7.8|| || ||-|| || ||22.1|| || ||-|| |
|Cash from operations|| ||16.9|| || ||4.4|| || ||59.4|| || ||63.5|| |
|Normalized funds from operations (1)|| ||6.7|| || ||2.8|| || ||45.2|| || ||59.5|| |
| || |
| || ||Three Months Ended|| || ||Nine Months Ended|| |
| || ||September 30|| || ||September 30|| |
|($ per Common Share, except Common Shares outstanding)|| ||2019|| || ||2018|| || ||2019|| || ||2018|| |
|Net income after taxes - basic|| ||0.09|| || ||0.02|| || ||0.87|| || ||0.81|| |
|Net income after taxes - diluted|| ||0.09|| || ||0.02|| || ||0.86|| || ||0.81|| |
|Normalized net income (loss) - basic (1)|| ||0.08|| || ||(0.03||)|| ||0.89|| || ||0.73|| |
|Dividends declared (3)|| ||0.2600|| || ||-|| || ||0.7350|| || ||-|| |
|Cash from operations|| ||0.56|| || ||0.15|| || ||1.98|| || ||2.12|| |
|Normalized funds from operations (1)|| ||0.22|| || ||0.09|| || ||1.51|| || ||1.98|| |
|Weighted average number of Common Shares outstanding - basic (millions) (4)|| ||30.0|| || ||30.0|| || ||30.0|| || ||30.0|| |
(1) Non-GAAP financial measure; see discussion in the advisories section of this news release and reconciliation to U.S. GAAP financial measures shown in ACI's MD&A as at and for the period ended September 30, 2019, which is available on www.sedar.com .
(2) Effective January 1, 2019, ACI revised the calculation of normalized EBITDA to incorporate ACI's proportionate share of normalized EBITDA from its equity investments instead of just the equity pick-up. The comparative period has been revised to conform to the current period presentation. Please refer to "Non-GAAP Financial Measures" section of this MD&A.
(3) Dividends declared per Common Share after the completion of the IPO.
(4) For comparative purposes, the Common Shares issued under the IPO including the Over-Allotment Option, have been assumed to be outstanding as of the beginning of each period, including the periods prior to the acquisition of ACI's assets from AltaGas Ltd.
Adjusted Normalized Net Income and Net Income After Taxes
|For the three months ended September 30, 2018 ($ millions)|| ||As reported|| || ||Adjustments|| || ||Adjusted|| |
|Operating income||$||8.0|| ||$||-|| ||$||8.0|| |
|Interest expense (1)|| ||(7.2||)|| ||(0.4||)|| ||(7.6||)|
|Income tax expense (2)|| ||(0.3||)|| ||0.1|| || ||(0.2||)|
|Net income after taxes||$||0.5|| ||$||(0.3||)||$||0.2|| |
|Unrealized loss on foreign exchange contracts|| ||0.3|| || ||-|| || ||0.3|| |
|Part VI.1 revenue from AltaGas|| ||(1.8||)|| ||-|| || ||(1.8||)|
|Normalized net loss (3)||$||(1.0||)||$||(0.3||)||$||(1.3||)|
(1) Adjustment to reflect financing charges and expenses associated with incremental debt additions at the Company as if they had occurred at the beginning of the period. Please refer to the Capital Resources section of the MD&A as at and for the period ended September 30, 2019 for the capital structure subsequent to the acquisition of ACI's assets from AltaGas Ltd. and the IPO.
(2) Tax shield associated with incremental cost adjustments assuming a 27 percent statutory tax rate.
(3) Non-GAAP financial Measures. See Non-GAAP Financial Measures section of the MD&A as at and for the period ended June 30, 2019.
|1.||Non-GAAP measure; see discussion in the advisories of this news release and reconciliation to U.S. GAAP financial measures shown in ACI’s Management's Discussion and Analysis (MD&A) as at and for the period ended September 30, 2019, which is available on www.sedar.com.|
|2.||Non-GAAP measure; see discussion in the advisories as well as the reconciliation to U.S. GAAP financial measures in this press release.|
|3.||Includes work-in-progress on multi-year projects which accrue allowance for funds used during construction.|
ACI is a Canadian company with natural gas distribution utilities and renewable power generation assets. ACI serves approximately 130,000 customers, delivering low carbon energy, safely and reliably. For more information visit: www.altagascanada.ca .
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This news release contains forward-looking information (forward-looking statements). Words such as "may", "can", "would", "could", "should", "will", "intend", "plan", "anticipate", "believe", "expect", "project", "target", "potential", "objective", "continue", "outlook", "opportunity" and similar expressions suggesting future events or future performance, as they relate to ACI or any affiliate of ACI, are intended to identify forward-looking statements. In particular, this news release contains forward-looking statements with respect to, among other things, business objectives, expected growth, results of operations, performance, business projects and opportunities and financial results. Specifically, such forward-looking statements included in this document include, but are not limited to: expectations regarding the Arrangement (as defined herein), including the expected closing date; expectation that ACI's 5-year capital spend program will be $425 - $500 million; expected 2019 year-end rate base of approximately $940 million; expectations regarding arrangements in relation to the PNG Reactivation Application (as defined herein), including the reactivation process, process for determining customer demand and allocating capacity, the estimated capital cost for the reactivation, commissioning and system reinforcement and the expected timing of the binding open season; expected compound annual normalized net income growth of approximately 6 percent between 2019 - 2023 from the 2018 adjusted normalized net income; anticipated drivers of growth in adjusted normalized net income; expected 2019 capital spend in the range of $75 to $80 million; capital spend of approximately $10 million on the Etzikom Lateral Pipeline Project; expected completion date for the Etzikom Lateral Pipeline Project; and timing of December dividend payment.
ACI's forward-looking statements are subject to certain risks and uncertainties which could cause results or events to differ from current expectations, including, without limitation: legislative and regulatory environment; demand for natural gas; access to and use of capital markets; market value of ACI's securities; ACI's ability to pay dividends; ACI's ability refinance its debt; prevailing economic conditions; the potential for service interruptions and physical damage to infrastructure; natural gas supply; ability of the company to maintain, replace and expand its regulated assets; and impact of labour relations and reliance on key personnel. Applicable risk factors are discussed more fully under the heading "Risk Factors" in ACI's Annual Information Form for the year ended December 31, 2018, which is available on www.sedar.com .
Many factors could cause ACI's actual results, performance or achievements to vary from those described in this news release, including, without limitation, those listed above and the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release as intended, expected, projected or targeted and such forward-looking statements included in this news release, should not be unduly relied upon. The impact of any one assumption, risk, uncertainty or other factor on a particular forward-looking statement cannot be determined with certainty because they are interdependent and ACI's future decisions and actions will depend on management's assessment of all information at the relevant time. Such statements speak only as of the date of this news release. ACI does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this news release are expressly qualified by these cautionary statements.
Financial outlook information contained in this news release about prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.
This news release contains references to certain financial measures used by ACI that do not have a standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other entities. Readers are cautioned that these non-GAAP measures should not be construed as alternatives to other measures of financial performance calculated in accordance with U.S. GAAP. The non-GAAP measures and their reconciliation to US GAAP financial measures are shown in ACI's MD&A as at and for the period ended September 30, 2019. These non-GAAP measures provide additional information that Management believes is meaningful in describing ACI's operational performance, liquidity and capacity to fund dividends, capital expenditures, and other investing activities. The specific rationale for, and incremental information associated with, each non-GAAP measure is discussed below.
Normalized net income represents net income after taxes adjusted for after tax impact of unrealized gain (loss) on foreign exchange contracts and other typically non-recurring items. This measure is presented in order to enhance the comparability of results, as it reflects the underlying performance of the Company. Normalized net income as presented should not be viewed as an alternative to net income after taxes or other measures of income calculated in accordance with U.S. GAAP as an indicator of performance.
Adjusted normalized net income reflects Management's estimates of ACI's normalized net income for the third quarter ended September 30, 2018 assuming the IPO had been closed at the beginning of the period. Although many of the adjustments are estimates and are not objectively determinable, ACI believes that the amounts represent reasonable estimates of its normalized net income for the third quarter ended September 30, 2018 based on the assumptions made. ACI believes adjusted normalized net income is useful to investors and analysts when trying to determine what the results of operations for 2018 would have been if it was under ACI's capital structure going forward.
Normalized EBITDA is a measure of the Company's operating profitability prior to how business activities are financed, assets are amortized, or earnings are taxed. Normalized EBITDA is calculated using operating income adjusted for depreciation and amortization expense, accretion expenses, foreign exchange gain (loss), unrealized gain (loss) on foreign exchange contracts, and other typically non-recurring items. Normalized EBITDA is frequently used by analysts and investors in the evaluation of entities within the industry as it excludes items that can vary substantially between entities depending on the accounting policies chosen, the book value of assets and the capital structure.
Normalized funds from operations is used to assist Management and investors in analyzing the liquidity of the Company without regard to changes in operating assets and liabilities in the period as well as other non-operating related expenses. Management uses this measure to understand the ability to generate funds for use in investing and financing activities.
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