AltaGas Canada Inc. Delivers Solid Full-Year Financial Results with Strong Earnings Growth from Both Utilities and Renewables
Calgary, Alberta--(Newsfile Corp. - March 5, 2020) - AltaGas Canada Inc. (TSX: ACI) ("ACI") today announced its fourth quarter and full year 2019 financial results.
- Achieved normalized net income1 of $45.3 million ($1.51 per share) for 2019, an increase of approximately 12 percent over 2018 adjusted normalized net income of $40.5 million ($1.35 per share)2;
- Delivered five percent growth in combined utilities rate base, which increased to $941 million at year end 2019 compared to $895 million at the end of 20183;
- Received approval from the British Columbia Utilities Commission ("BCUC") for a new rate required in the proposed auction process to allocate reactivated capacity on Pacific Northern Gas' western transmission pipeline (the "PNG Reactivation Application");
- ACI continues to execute on its robust growth capital program and expects to spend $450 - $525 million between 2020 - 2024;
- ACI expects approximately six percent compound annual normalized net income growth over the 2020 - 2024 period; and
- Shareholders of ACI and the Alberta Utilities Commission ("AUC") have approved the indirect acquisition of ACI by the Public Sector Pension Investment Board ("PSP Investments") and the Alberta Teachers' Retirement Fund Board ("ATRF"). The transaction remains on track for closing in the first half of 2020.
For the full year 2019, net income after taxes was $42.1 million ($1.40 per share) compared to $45.3 million ($1.51 per share) in 2018. Normalized net income for 2019 was $45.3 million ($1.51 per share) compared to adjusted normalized net income of $40.5 million ($1.35 per share) in 2018.
"We are very pleased with our 2019 results which clearly demonstrate the strength of our business," said Jared Green, President and Chief Executive Officer of ACI. "We have a great trajectory in front of us and numerous growth opportunities to capitalize on. 2020 will be instrumental to our growth plans as we move ahead with the reactivation of our PNG natural gas transmission line."
Normalized net income for 2019 increased over 2018 primarily due to strong rate base growth at all utilities, higher approved rates, colder weather in Nova Scotia and stronger results from the Northwest Hydro facilities.
In the fourth quarter of 2019, net income after taxes was $16.1 million ($0.54 per share) compared to $20.8 million ($0.69 per share) for the same period in 2018. Normalized net income for the fourth quarter 2019 was $18.6 million ($0.62 per share) compared to $20.0 million ($0.67 per share) in the fourth quarter of 2018. While results benefited from rate base growth, higher approved rates, colder weather in Alberta and higher overall renewable generation, these were offset primarily due to increases in operating and administrative expenses, depreciation and income tax expense.
2020 - 2024 Capital Program and Outlook
Over the 2020 to 2024 time period, ACI expects to achieve approximately six percent compound annual normalized net income growth. Over this period, ACI expects to spend $450 to $525 million at its utilities. The expected capital program includes the PNG Reactivation Project as well as investments in system betterment projects to maintain the safety and reliability of ACI's utility infrastructure, new business opportunities and technology improvements. In 2020, ACI expects capital spend to be in the range of $75 to $85 million.
PNG Reactivation Application
On June 28, 2019, PNG submitted an application to the 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 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.
On February 28, 2020, PNG received BCUC approval for the PNG Reactivation Application and now plans to conduct a binding open season auction where shippers will 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 $120 million.
Pending Acquisition of ACI
On October 21, 2019, ACI announced it had entered into a definitive arrangement agreement pursuant to which the PSP Investments and ATRF will indirectly acquire through PSPIB Cycle Investments Inc., all of the issued and outstanding Common Shares of ACI for $33.50 in cash per Common Share pursuant to a plan of arrangement under the Canada Business Corporations Act (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, unanimously determined that the Arrangement is in the best interests of ACI and fair to the Shareholders and therefore unanimously recommended that holders of Common Shares vote in favour of the Arrangement.
On December 19, 2019, the Shareholders voted to approve the Arrangement and on December 20, 2019, ACI received an Order from the Court of Queen's Bench of Alberta approving the transaction.
ACI has received a "no-action letter" from the Canadian Competition Bureau confirming that the Commissioner of Competition does not intend to challenge the proposed acquisition, as well as approval of the transaction from the AUC.
Closing of the Arrangement remains subject to approval of the transaction from the BCUC and the satisfaction or waiver of other customary closing conditions. The Arrangement is expected to close in the first half of 2020.
ACI Dividend Declaration
On March 4, 2020 the Board of Directors of ACI declared a dividend of $0.26 per Common Share, payable on March 31, 2020 to Shareholders of record at the close of business on March 13, 2020. The ex-dividend date is March 12, 2020. This dividend is an eligible dividend for Canadian income tax purposes.
Selected Financial Information
The following tables summarize key financial results:
|Three Months Ended||Year Ended|
|December 31||December 31|
|($ millions)||2019|| ||2018|| ||2019|| ||2018|| |
|Net income after taxes||16.1||20.8||42.1||45.3|
|Normalized net income(1)||18.6||20.0||45.3||41.8|
|Total long-term liabilities||852.4||815.4||852.4||815.4|
|Net additions to property, plant and equipment||27.4||24.7||69.7||68.2|
|Cash from operations||17.2||26.4||76.6||89.9|
|Normalized funds from operations(1)||34.7||28.6||79.9||88.1|
|Three Months Ended||Year Ended|
|December 31||December 31|| |
|($ per Common Share, except Common Shares outstanding)||2019||2018||2019||2018|
|Net income after taxes - basic||0.54||0.69||1.40||1.51|
|Net income after taxes - diluted||0.53||0.69||1.40||1.51|
|Normalized net income - basic(1)||0.62||0.67||1.51||1.39|
|Cash from operations||0.57||0.88||2.55||3.00|
|Normalized funds from operations(1)||1.16||0.95||2.66||2.94|
|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 "'Non-GAAP Financial Measures" section of the MD&A as at and for the year ended December 31, 2019.
(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 pickup. The comparative periods have been revised to conform to the current period presentation. Please refer to "Non-GAAP Financial Measures" section of the MD&A as at and for the year ended December 31, 2019.
(3) Dividend declared per Common Share after the completion of the initial public offering ("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 January 1, 2018.
Adjusted Normalized Net Income and Net Income After Taxes
|For year ended December 31, 2018 ($ millions)||As reported||Adjustments||Adjusted|
|Operating income||$||76.0||$||-||$||76.0|| |
|Interest expense (1)||(28.5||)||(1.8||)||(30.3||)|
|Income tax expense (2)||(2.2||)||0.5|| ||(1.7||)|
|Net income after taxes||$||45.3|| ||$||(1.3||)||$||44.0|| |
|Unrealized loss on foreign exchange contracts||(1.7||)||-||(1.7||)|
|Part VI.1 revenue from AltaGas Ltd.||(1.8||)||-|| ||(1.8||)|
|Normalized net income (3)||$||41.8||$||(1.3||)||$||40.5|
(1) Adjustment to reflect financing charges and expenses associated with incremental debt additions at ACI 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 December 31, 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 year ended December 31, 2019.
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 $450 - $525 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 plan to conduct a binding open season auction; expected compound annual normalized net income growth of approximately 6 percent between 2020 - 2024; expected 2020 capital spend in the range of $75 to $85 million; and timing of the March 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: that the Arrangement may not be completed on a timely basis, if at all; the conditions to the Arrangement, including receipt of approval from BCUC, may not be satisfied; 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, 2019, will be 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 December 31, 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 ACI. 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.
Normalized EBITDA is a measure of ACI'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 ACI 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 assess the ability to generate funds for use in investing and financing activities.
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 December 31, 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.
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