Capital Power Corporation (TSX: CPX) today released financial
results for the quarter ended June 30, 2024.
Financial highlights
- Generated adjusted funds from operations (AFFO) of $178 million
and net cash flows from operating activities of $136 million
- Generated adjusted EBITDA of $323 million and a net income of
$76 million
- Successfully completed the first Canadian 30-year hybrid
financing for $450 million
- Increased annual common share dividend by 6% to $2.61 per
year
Strategic highlights
- Marking our milestone of being 100% off coal, Genesee
Repowering achieved commercial operations for simple cycle for Unit
1 and Unit 2, and retired the legacy unit 2
- Continued integration of newly acquired assets at La Paloma,
Harquahala and Frederickson driving the U.S. facilities to ~43% of
Q2 adjusted EBITDA and ~25% revenues and other income
- Welcomed two new board members following one retirement
- Entered into 25-year power purchase agreements (PPAs) for
Hornet and Bear Branch solar projects in the U.S.
“Our Genesee Repowering project achieved simple cycle commercial
operation for Unit 2 during the second quarter of 2024, marking
Capital Power and Alberta’s transition off coal more than five
years ahead of the government mandate. This monumental achievement
represents the single largest decarbonization event in Alberta’s
history and enhances our competitive positioning by increasing our
capacity and efficiency,” said Avik Dey, President and CEO of
Capital Power. “We are proud of the progress made on our Battery
Energy Storage System (BESS) projects, which are advancing on time
and under budget, with construction expected to begin in the third
quarter. Meanwhile, our U.S. business continues to perform well
underscoring our ability to acquire and integrate assets. Across
our portfolio we are advancing our strategic areas of focus and
positioning our business to succeed now and in the long-term,"
stated Mr. Dey.
“The second quarter results demonstrated the success of our
geographic diversification strategy, with approximately 43% of our
adjusted EBITDA coming from our U.S. facilities, a significant
increase relative to approximately 26% seen in the second quarter
of 2023,” said Sandra Haskins, SVP Finance and CFO of Capital
Power. “In particular, we saw strong contributions from the newly
acquired assets in California, Arizona and Washington. While
financial results were in line with expectations for the quarter,
we’ve revised our annual adjusted EBITDA guidance range to $1,310
million to $1,410 million driven by lower Alberta power prices and
outages at Genesee during the first half of the year. AFFO is
expected to be at the midpoint of the original guidance range.” Ms.
Haskins added, “from a funding perspective, Capital Power
successfully closed the first Canadian 30-year Hybrid bond for
total proceeds of $450 million. This transaction demonstrates our
disciplined approach to balance sheet optimization and continued
ability to access capital to fund our growth and diversification
efforts.”
Operational and Financial
Highlights1
|
($ millions, except per share amounts) |
Three months ended June 30 |
Six months ended June 30 |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Electricity generation (Gigawatt hours) |
8,603 |
|
7,857 |
|
17,412 |
|
15,274 |
|
|
Generation facility availability |
91% |
|
95% |
|
92% |
|
94% |
|
|
Revenues and other income |
774 |
|
881 |
|
1,893 |
|
2,148 |
|
|
Adjusted EBITDA 2 |
323 |
|
327 |
|
602 |
|
728 |
|
|
Net income 3 |
76 |
|
85 |
|
281 |
|
370 |
|
|
Net income attributable to shareholders of the Company |
75 |
|
87 |
|
280 |
|
373 |
|
|
Basic earnings per share ($) |
0.51 |
|
0.68 |
|
2.06 |
|
3.06 |
|
|
Diluted earnings per share ($) |
0.51 |
|
0.67 |
|
2.06 |
|
3.05 |
|
|
Net cash flows from operating activities |
136 |
|
11 |
|
470 |
|
360 |
|
|
Adjusted funds from operations 2 |
178 |
|
151 |
|
320 |
|
361 |
|
|
Adjusted funds from operations per share ($) 2 |
1.37 |
|
1.29 |
|
2.53 |
|
3.09 |
|
|
Purchase of property, plant and equipment and other assets,
net |
226 |
|
131 |
|
444 |
|
217 |
|
|
Dividends per common share, declared ($) |
0.6150 |
|
0.5800 |
|
1.2300 |
|
1.1600 |
|
- The operational and
financial highlights in this press release should be read in
conjunction with the Management’s Discussion and Analysis and the
unaudited condensed interim financial statements for the six months
ended June 30, 2024.
- Earnings before net
finance expense, income tax expense, depreciation and amortization,
impairments, foreign exchange gains or losses, finance expense and
depreciation expense from joint venture interests, gains or losses
on disposals and unrealized changes in fair value of commodity
derivatives and emissions credits and other items that are not
reflective of the long-term performance of the Company’s underlying
business (adjusted EBITDA) and AFFO are used as non-GAAP financial
measures by the Company. The Company also uses AFFO per share which
is a non-GAAP ratio. These measures and ratios do not have
standardized meanings under GAAP and are, therefore, unlikely to be
comparable to similar measures used by other enterprises. See
Non-GAAP Financial Measures and Ratios.
- Includes
depreciation and amortization for the three months ended June 30,
2024 and 2023 of $120 million and $143 million, respectively, and
for the six months ended June 30, 2024 and 2023 of $242 million and
$284 million, respectively. Forecasted depreciation and
amortization for the remainder of 2024 is $122 million and $130
million for the third and fourth quarters, respectively.
Significant Events
Executes 25-year contracts for Hornet Solar and Bear
Branch Solar projects in North Carolina
In June 2024, the Company successfully executed 25-year PPAs
with Duke Energy Carolinas for the Hornet Solar and Bear Branch
Solar projects located in North Carolina totalling 105 MW.
Construction of the solar projects is expected to begin in the
second half of 2024 with targeted commercial operations expected in
the second half of 2026.
Genesee Generating Station is off coal
On June 18, 2024, the Company reached a significant milestone
for the Genesee Repowering project with the announcement that the
Genesee Generating Station is off coal and now 100% natural
gas-fueled, resulting in the facility being off coal more than 5
years ahead of the Alberta government mandate.
As part of the Genesee Repowering project, the facility
completed simple cycle commissioning for Units 1 and 2 on May 3 and
June 28, respectively, and Unit 3 has transitioned fully to natural
gas. The project continues to progress with combined cycle
completion expected in Q4 2024, which will result in 512 MW of
additional net high efficiency, low heat rate capacity from the
site. Both units are expected to reach 566 MWs in the first half of
2025.
During the commissioning phase, unit dispatch is driven by
project needs rather than economic dispatch; therefore, output
during simple cycle commissioning ranged between 0 and 411 MWs, and
output during combined cycle commissioning will range between 0 and
466 MWs. Due to incremental costs related to outages required for
tie in and ongoing productivity challenges, the project is expected
to come in at the updated cost of $1.55 to $1.65 billion.
$450 million Subordinated Notes offering
On June 5, 2024, the Company closed a public offering of
Fixed-to-Fixed Subordinated Notes, Series 2, in the aggregate
principal amount of $450 million (the Notes). The Notes have a
fixed interest rate of 8.125% and mature on June 5, 2054.
The Company used the net proceeds from the sale of the Notes to
repay certain amounts drawn on the Company’s credit facilities
(which include amounts drawn for the acquisition of a 50% interest
in New Harquahala Generating Company, LLC, and a 100% interest in
CXA La Paloma, LLC, and related expenses, development purposes and
in respect of ongoing operations), to redeem all of the Company’s
outstanding Cumulative Minimum Rate Reset Preferred Shares, Series
11 (TSX: CPX.PR.K), and for general corporate purposes.
Redemption of Preferred Shares, Series 11
On May 15, 2024, the Company announced its intention to redeem
all of its 6 million issued and outstanding 5.75% cumulative rate
reset preference shares, Series 11 on June 30, 2024 (Redemption
Date) at a price of $25.00 per share (Redemption Price) for an
aggregate total of $150 million, less any tax required to be
deducted and withheld by the Company. As June 30, 2024 was not a
business day payment of the Redemption Price for the share
redemption occurred on July 2, 2024.
Board of Director changes
On May 15, 2024, the Company announced the appointment of Neil
H. Smith and George Williams to the Company’s Board of Directors
effective May 15, 2024. The appointments follow Doyle Beneby’s
retirement, after serving the full 12 year term limit as a member
of the Board of Directors. With these appointments and retirement,
Capital Power’s Board of Directors consists of 11 directors, with
40% of the independent directors being women, and 30% of the
independent directors representing diverse groups beyond
gender.
Discontinuation of $2.4 billion Genesee CCS
project
Capital Power is discontinuing pursuit of the Genesee CCS
project. Through our development of the project, we have confirmed
that CCS is a technically viable technology and potential pathway
to decarbonization for thermal generation facilities including
Genesee. However, at this time, the project is not economically
feasible and as a result we will be turning our time, attention,
and resources to other opportunities to serve our customers with
balanced energy solutions. As part of our discontinuation of the
project, Capital Power will incur a pre-tax cost of $18 million,
related to termination of sequestration hub evaluation work.
Capital Power looks forward to exploring CCS at Genesee and certain
assets in our North American fleet in the future as economics
improve.
When our Genesee Repowering project is completed, the units are
expected to achieve industry-leading greenhouse gas emission
reductions of 3.4 million tonnes annually. Capital Power is on
track to meet its Scope 1 absolute emissions target at Genesee by
2030. However, our current projections show we will exceed our
corporate emission intensity and absolute emission targets for 2030
due to a combination of higher anticipated utilization of our
fleet, the discontinuation of the Genesee CCS project and growth in
accordance with our strategy. As a result of the foregoing, we are
currently assessing our overall emissions targets as well as our
pathway to net zero.
Subsequent Event
Dividend increase
On July 30, 2024, the Company’s Board of Directors approved an
increase of 6% in the annual dividend for holders of its common
shares, from $2.46 per common share to $2.61 per common share. This
increased common share dividend will commence with the third
quarter 2024 quarterly dividend payment on October 31, 2024 to
shareholders of record at the close of business on September 30,
2024.
Analyst conference call and
webcast
Capital Power will be hosting a conference call and live webcast
with analysts on July 31, 2024 at 9:00 am (MT) to discuss the
second quarter financial results. The webcast can be accessed at:
https://edge.media-server.com/mmc/p/37jo9x7j/.
Conference call details will be sent directly to analysts.
An archive of the webcast will be available on the Company’s
website at www.capitalpower.com following the conclusion of the
analyst conference call.
Non-GAAP Financial Measures and
Ratios
Capital Power uses (i) earnings before net finance expense,
income tax expense, depreciation and amortization, impairments,
foreign exchange gains or losses, finance expense and depreciation
expense from our joint venture interests, gains or losses on
disposals and unrealized changes in fair value of commodity
derivatives and emission credits (adjusted EBITDA), and (ii) AFFO
as financial performance measures.
Capital Power also uses AFFO per share as a performance measure.
This measure is a non-GAAP ratio determined by applying AFFO to the
weighted average number of common shares used in the calculation of
basic and diluted earnings per share.
These terms are not defined financial measures according to GAAP
and do not have standardized meanings prescribed by GAAP and,
therefore, are unlikely to be comparable to similar measures used
by other enterprises. These measures should not be considered
alternatives to net income, net income attributable to shareholders
of Capital Power, net cash flows from operating activities or other
measures of financial performance calculated in accordance with
GAAP. Rather, these measures are provided to complement GAAP
measures in the analysis of our results of operations from
management’s perspective.
Adjusted EBITDA
Capital Power uses adjusted EBITDA to measure the operating
performance of facilities and categories of facilities from period
to period. Management believes that a measure of facility operating
performance is more meaningful if results not related to facility
operations are excluded from the adjusted EBITDA measure such as
impairments, foreign exchange gains or losses, gains or losses on
disposals and other transactions, unrealized changes in fair value
of commodity derivatives and emission credits and other items that
are not reflective of the long-term performance of the Company’s
underlying business.
A reconciliation of adjusted EBITDA to net income (loss) is as
follows:
|
($ millions) |
Three months ended |
|
|
Jun 2024 |
|
Mar 2024 |
|
Dec 2023 |
|
Sep 2023 |
|
Jun 2023 |
|
Mar 2023 |
|
Dec 2022 |
|
Sep 2022 |
|
|
Revenues and other income |
774 |
|
1,119 |
|
984 |
|
1,150 |
|
881 |
|
1,267 |
|
929 |
|
786 |
|
|
Energy purchases and fuel, other raw materials and operating
charges, staff costs and employee benefits expense, and other
administrative expense |
(504 |
) |
(677 |
) |
(694 |
) |
(626 |
) |
(614 |
) |
(723 |
) |
(909 |
) |
(543 |
) |
|
Remove unrealized changes in fair value of commodity derivatives
and emission credits included within revenues and energy purchases
and fuel |
(8 |
) |
(200 |
) |
(14 |
) |
(151 |
) |
23 |
|
(179 |
) |
247 |
|
136 |
|
|
Remove other non-recurring items 1 |
4 |
|
- |
|
1 |
|
4 |
|
- |
|
- |
|
- |
|
- |
|
|
Adjusted EBITDA from joint ventures 2 |
57 |
|
37 |
|
36 |
|
37 |
|
37 |
|
36 |
|
36 |
|
4 |
|
|
Adjusted EBITDA |
323 |
|
279 |
|
313 |
|
414 |
|
327 |
|
401 |
|
303 |
|
383 |
|
|
Depreciation and amortization |
(120 |
) |
(122 |
) |
(142 |
) |
(148 |
) |
(143 |
) |
(141 |
) |
(139 |
) |
(133 |
) |
|
Unrealized changes in fair value of commodity derivatives and
emission credits |
8 |
|
200 |
|
14 |
|
151 |
|
(23 |
) |
179 |
|
(247 |
) |
(136 |
) |
|
Other non-recurring items |
(4 |
) |
- |
|
(1 |
) |
(4 |
) |
- |
|
- |
|
- |
|
- |
|
|
Foreign exchange (losses) gains |
(4 |
) |
(10 |
) |
(2 |
) |
(9 |
) |
4 |
|
1 |
|
3 |
|
(12 |
) |
|
Net finance expense |
(53 |
) |
(42 |
) |
(49 |
) |
(35 |
) |
(34 |
) |
(48 |
) |
(44 |
) |
(40 |
) |
|
(Losses) gains on acquisition and disposal transactions |
(17 |
) |
2 |
|
(5 |
) |
5 |
|
(3 |
) |
- |
|
(33 |
) |
(3 |
) |
|
Other items 2,3 |
(34 |
) |
(25 |
) |
(22 |
) |
(19 |
) |
(19 |
) |
(21 |
) |
(17 |
) |
(4 |
) |
|
Income tax (expense) recovery |
(23 |
) |
(77 |
) |
(11 |
) |
(83 |
) |
(24 |
) |
(86 |
) |
75 |
|
(24 |
) |
|
Net income (loss) |
76 |
|
205 |
|
95 |
|
272 |
|
85 |
|
285 |
|
(99 |
) |
31 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
1 |
|
- |
|
(2 |
) |
(2 |
) |
(2 |
) |
(1 |
) |
(1 |
) |
(3 |
) |
|
Shareholders of the Company |
75 |
|
205 |
|
97 |
|
274 |
|
87 |
|
286 |
|
(98 |
) |
34 |
|
|
Net income (loss) |
76 |
|
205 |
|
95 |
|
272 |
|
85 |
|
285 |
|
(99 |
) |
31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Other non-recurring items for the
three months ended June 30, 2024 includes costs related to the
end-of-life of Genesee coal operations.
- Total income from joint ventures as
per our consolidated statements of income (loss).
- Includes finance expense,
depreciation expense and unrealized changes in fair value of
derivative instruments from joint ventures.
Adjusted funds from operations and adjusted
funds from operations per share
AFFO and AFFO per share are measures of the Company’s ability to
generate cash from its operating activities to fund growth capital
expenditures, the repayment of debt and the payment of common share
dividends.
AFFO represents net cash flows from operating activities
adjusted to:
- remove timing impacts of cash
receipts and payments that may impact period-to-period
comparability which include deductions for net finance expense and
current income tax expense, the removal of deductions for interest
paid and income taxes paid and removing changes in operating
working capital,
- include the Company’s share of the
AFFO of its joint venture interests and exclude distributions
received from the Company’s joint venture interests which are
calculated after the effect of non-operating activity joint venture
debt payments,
- include cash from off-coal
compensation that will be received annually,
- remove the tax equity financing
project investors’ shares of AFFO associated with assets under tax
equity financing structures so only the Company’s share is
reflected in the overall metric,
- deduct sustaining capital
expenditures and preferred share dividends,
- exclude the impact of fair value
changes in certain unsettled derivative financial instruments that
are charged or credited to the Company’s bank margin account held
with a specific exchange counterparty, and
- exclude other typically
non-recurring items affecting cash from operations that are not
reflective of the long-term performance of the Company’s underlying
business.
A reconciliation of net cash flows from operating activities to
adjusted funds from operations is as follows:
|
(unaudited, $ millions) |
Three months ended June 30 |
Six months ended June 30 |
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
Net cash flows from operating activities per condensed
interim consolidated statements of cash flows |
136 |
|
11 |
|
470 |
|
360 |
|
|
Add (deduct) items included in calculation of net cash flows from
operating activities per condensed interim consolidated statements
of cash flows: |
|
|
|
|
|
Interest paid |
11 |
|
13 |
|
59 |
|
63 |
|
|
Change in fair value of derivatives reflected as cash
settlement |
(7 |
) |
30 |
|
(19 |
) |
(81 |
) |
|
Realized gain on settlement of interest rate derivatives |
(14 |
) |
(10 |
) |
(14 |
) |
(10 |
) |
|
Distributions received from joint ventures |
(3 |
) |
(9 |
) |
(11 |
) |
(18 |
) |
|
Miscellaneous financing charges paid 1 |
- |
|
2 |
|
(7 |
) |
4 |
|
|
Income taxes paid |
5 |
|
11 |
|
20 |
|
25 |
|
|
Change in non-cash operating working capital |
92 |
|
192 |
|
(70 |
) |
195 |
|
|
|
84 |
|
229 |
|
(42 |
) |
178 |
|
|
Net finance expense 2 |
(45 |
) |
(31 |
) |
(80 |
) |
(66 |
) |
|
Current income tax expense |
(6 |
) |
(30 |
) |
(22 |
) |
(81 |
) |
|
Sustaining capital expenditures 3 |
(36 |
) |
(41 |
) |
(61 |
) |
(56 |
) |
|
Preferred share dividends paid |
(9 |
) |
(8 |
) |
(18 |
) |
(15 |
) |
|
Remove tax equity interests’ respective shares of adjusted funds
from operations |
(2 |
) |
(2 |
) |
(3 |
) |
(4 |
) |
|
Adjusted funds from operations from joint ventures |
38 |
|
23 |
|
59 |
|
45 |
|
|
Other non-recurring items 4 |
18 |
|
- |
|
17 |
|
- |
|
|
Adjusted funds from operations |
178 |
|
151 |
|
320 |
|
361 |
|
|
Weighted average number of common shares outstanding
(millions) |
129.5 |
|
116.9 |
|
126.6 |
|
116.9 |
|
|
Adjusted funds from operations per share ($) |
1.37 |
|
1.29 |
|
2.53 |
|
3.09 |
|
| |
|
|
|
|
|
|
|
|
- Included in other cash items on the
condensed interim consolidated statements of cash flows to
reconcile net income to net cash flows from operating
activities.
- Excludes unrealized changes on
interest rate derivative contracts, amortization, accretion charges
and non-cash implicit interest on tax equity investment
structures.
- Includes sustaining capital
expenditures net of partner contributions of $1 million and $6
million for the three and six months ended June 30, 2024,
respectively, compared with $1 million and $4 million for the three
and six months ended June 30, 2023, respectively.
- For the three and six months ended
June 30, 2024 other non-recurring items reflects costs related to
the end-of-life of Genesee coal operations of $4 million and a
provision of $18 million for the termination fee related to
discontinuation of the Genesee CCS project (see Significant
events), net of current income tax recovery of $4 million and $5
million for the three and six months ended June 30, 2024, related
to other non-recurring items recognized in the prior and current
periods, respectively.
Forward-looking Information
Forward-looking information or statements included in this press
release are provided to inform the Company’s shareholders and
potential investors about management’s assessment of Capital
Power’s future plans and operations. This information may not be
appropriate for other purposes. The forward-looking information in
this press release is generally identified by words such as will,
anticipate, believe, plan, intend, target, and expect or similar
words that suggest future outcomes.
Material forward-looking information in this press release
includes disclosures regarding (i) status of the Company’s 2024
AFFO and adjusted EBITDA guidance, (ii) forecasted 2024
depreciation, (iii) the timing of, funding of, generation capacity
of, costs of technologies selected for, environmental benefits or
commercial and partnership arrangements regarding existing, planned
and potential development projects and acquisitions (including the
repowering of Genesee 1 and 2, La Paloma and Harquahala
acquisitions, and Halkirk 2), (iv) the financial impacts of the La
Paloma and Harquahala acquisitions, and (v) the timing of the
nuclear feasibility assessment between Capital Power and Ontario
Power Generation.
These statements are based on certain assumptions and analyses
made by the Company considering its experience and perception of
historical trends, current conditions, expected future developments
and other factors it believes are appropriate including its review
of purchased businesses and assets. The material factors and
assumptions used to develop these forward-looking statements relate
to: (i) electricity, other energy and carbon prices, (ii)
performance, (iii) business prospects (including potential
re-contracting of facilities) and opportunities including expected
growth and capital projects, (iv) status of and impact of policy,
legislation and regulations and (v) effective tax rates.
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 material risks and uncertainties are:
(i) changes in electricity, natural gas and carbon prices in
markets in which the Company operates and the use of derivatives,
(ii) regulatory and political environments including changes to
environmental, climate, financial reporting, market structure and
tax legislation, (iii) disruptions, or price volatility within our
supply chains, (iv) generation facility availability, wind capacity
factor and performance including maintenance expenditures, (v)
ability to fund current and future capital and working capital
needs, (vi) acquisitions and developments including timing and
costs of regulatory approvals and construction, (vii) changes in
the availability of fuel, (viii) ability to realize the anticipated
benefits of acquisitions, (ix) limitations inherent in the
Company’s review of acquired assets, (x) changes in general
economic and competitive conditions and (xi) changes in the
performance and cost of technologies and the development of new
technologies, new energy efficient products, services and programs.
See Risks and Risk Management in the Company’s Integrated Annual
Report for the year ended December 31, 2023, prepared as of
February 27, 2024, for further discussion of these and other
risks.
Readers are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the specified
approval date. The Company does not undertake or accept any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements to reflect any change
in the Company’s expectations or any change in events, conditions
or circumstances on which any such statement is based, except as
required by law.
Territorial Acknowledgement
In the spirit of reconciliation, Capital Power respectfully
acknowledges that we operate within the ancestral homelands,
traditional and treaty territories of the Indigenous Peoples of
Turtle Island, or North America. Capital Power’s head office is
located within the traditional and contemporary home of many
Indigenous Peoples of the Treaty 6 region and Métis Nation of
Alberta Region 4. We acknowledge the diverse Indigenous communities
that are located in these areas and whose presence continues to
enrich the community.
About Capital Power
Capital Power is a growth-oriented power producer committed to
net zero by 2045, with approximately 9,300 MW of power generation
at 32 facilities across North America. We prioritize delivering
reliable and affordable power communities can depend on today,
building clean power systems needed for tomorrow, and creating
balanced solutions for our energy future. We are Powering Change by
Changing PowerTM.
For more information, please
contact:
|
Media
Relations: Katherine
Perron(780)
392-5335 kperron@capitalpower.com |
Investor
Relations: Roy
Arthur(403)
736-3315 investor@capitalpower.com |