TORONTO, ONTARIO--(Marketwired - Dec. 18, 2014) - Capstone Infrastructure Corporation (TSX:CSE)(TSX:CSE.DB.A)(TSX:CSE.PR.A)(TSX:CPW.DB) (the "Corporation") today provided its financial outlook for fiscal 2015 and an update on Bristol Water's recent regulatory outcome.
"The evolution of Capstone's business and portfolio is generally proceeding according to our expectations," said Michael Bernstein, President and Chief Executive Officer. "Our wind development projects are steadily coming on line, with the Skyway 8 Wind Farm having reached commercial operations this year, Saint-Philémon in Quebec in the final stages of commissioning and our Goulais wind farm in Ontario expected to reach commercial operations in the second quarter of 2015. The medium-term wind development projects are progressing through their respective approvals. Our operating power facilities are performing well, including the Cardinal plant, which will begin operating as a cycling plant on January 1, 2015. On the utilities side, the Värmevärden district heating system continues to deliver good performance. At Bristol Water, the December 12 release of the UK regulator's final determination for the upcoming five-year regulatory period (AMP6) was disappointing and significantly different from what Bristol's management had proposed. Discussions are now underway to determine whether to refer the matter to the Competition and Markets Authority (CMA) for a binding review."
Outlook for 20151
The Corporation expects a higher contribution from its growing portfolio of wind power generation businesses, a lower contribution from Cardinal and a return to normal dividends from its district heating utility. Bristol Water will operate under the final determination issued by Ofwat, the economic regulator for water utilities in the UK, after the first quarter of 2015. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")2 in 2015 is anticipated to be approximately $115 million to $125 million. This compares with the 2014 outlook of $150 million to $160 million and reflects the lower contribution from Cardinal under its non-utility generator contract, and the impact of the final determination at Bristol Water.
Capstone's operating portfolio along with its strong liquidity will support the $0.30 per share dividend. The Corporation has no plans to change its dividend policy. Management's expectation is that Capstone will achieve its target Adjusted Funds from Operations ("AFFO")2 payout ratio of 80% with the development of the Corporation's medium-term wind projects, and other initiatives that impact AFFO, in 2017 or before.
The assumptions underlying the Corporation's 2015 outlook include but are not limited to:
- Cardinal operates as a dispatchable facility under the incoming 20-year contract with the Ontario Power Authority;
- That existing water rates at Bristol Water will remain in place for the first quarter, until the AMP6 final determination takes effect on April 1, 2015, reducing rates by 14% (real) for the remainder of the year;
- Full year of contributions from the newly completed Skyway 8 Wind Farm;
- Contribution from the Saint-Philémon and Goulais wind projects, expected to reach commercial operations in January and April of 2015 respectively;
- Whitecourt generates $3 million in Adjusted EBITDA based on projected Alberta power pool prices and successfully working with stakeholders;
- That the Swedish krona to Canadian dollar and British pound to Canadian dollar exchange rates remain consistent with recent rates.
Bristol Water
The Corporation also provided an overview of the final determination for the AMP6 period, issued on December 12, 2014 by Ofwat. The Corporation holds a 50% interest in Bristol Water.
Highlights of the differences between the final determination for AMP6, which commences on April 1, 2015 and concludes on March 31, 2020, and Bristol Water's proposed plan include:
- Total expenditure of £409 million, compared with Bristol Water's proposal of ~£500 million (excluding new reservoir);
- A phased-in 21% real reduction in customer rates, compared with Bristol Water's proposed 4.5% real reduction;
- Weighted average cost of capital of 3.6%, in contrast to Bristol Water's proposal of 4.4%.
"The final determination is not the outcome Bristol Water had sought in the extensively vetted and diligently prepared business plan it submitted, which was developed in consultation with its customers, 92% of whom viewed the plan as favourable," said Mr. Bernstein. "The decision of whether to reject Ofwat's final determination and have the matter referred to the CMA for a binding review will be reached among the Board of Directors of Bristol Water, the management team and the owners, including Capstone. However, our view is that the final determination is based on a methodology that did not factor in Bristol Water's unique attributes, lacked consistency with previous decisions and analysis, and did not adequately reflect the wishes of Bristol Water's customers. Regardless of the final determination, Bristol Water remains a well-run company, delivering high quality drinking water to more than a million customers, while providing good service for good value."
Bristol Water has until February 12, 2015 to decide whether to reject the final determination, and the subsequent CMA process is expected to conclude in August 2015. There is precedent for this process at Bristol Water, which rejected the final determination for the previous regulatory period, AMP5. That outcome was appealed to the Competition Commission, the predecessor organization to the CMA, with the ultimate result that Bristol Water received a significantly improved business plan.
Conference Call
- Capstone will host an investor call on Friday, December 19 at 8:30 a.m. EST.
- The call will be hosted by Michael Bernstein, President and Chief Executive Officer, and Michael Smerdon, Executive Vice President and Chief Financial Officer.
- To listen to the call from Canada or the United States, dial 1-800-319-4610. If calling from elsewhere, dial +1-604-638-5340. A replay of the call will be available until January 26, 2015.
- The event will be webcast live with an accompanying slide presentation on the Corporation's website at www.capstoneinfrastructure.com.
About Capstone Infrastructure Corporation