Fortis Reports First Quarter Earnings of $162 Million
May 3, 2016
Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS), a leader in the North American electric and gas utility industry, released its first quarter results today. The Corporation’s net earnings attributable to common equity shareholders were $162 million, or $0.57 per common share, compared to $198 million, or $0.72 per common share, for the first quarter of 2015.
On an adjusted basis, net earnings attributable to common equity shareholders for the first quarter were $190 million, or $0.67 per common share, an increase of $11 million, or $0.02 per common share, over the first quarter of 2015. A reconciliation of adjusted net earnings and adjusted earnings per common share is provided in the Corporation’s Interim Management Discussion and Analysis for the three months ended March 31, 2016.
“We have had a strong start to the year,” said Mr. Barry Perry, President and Chief Executive Officer of Fortis. “We continued to make progress on our capital program and business initiatives and our financial results were on track as we reap the benefits of our diversified portfolio of utilities.
“In the first quarter we also announced the acquisition of ITC in an accretive transaction valued at approximately US$11.3 billion. ITC – a high quality transmission business in the heart of the Midwest United States – will increase our earnings growth rate, support our dividend growth guidance and provide further diversification of our utility portfolio,” concluded Mr. Perry.
Stable first quarter earnings and cash flow; capital expenditure plan on track
- Factors that resulted in growth in adjusted earnings included:
- contribution of $4 million from the Waneta Expansion hydroelectric generating facility, which came online in early April 2015, and increased production in Belize due to higher rainfall;
- the strength of the US dollar relative to the Canadian dollar. Approximately 45% of Fortis’ assets are denominated in US dollars. On an annual basis, earnings per common share are affected by approximately $0.01 for each $0.01 change in the US dollar relative to the Canadian dollar;
- a higher allowance for funds used during construction at FortisBC Energy, largely associated with the ongoing construction of the Tilbury liquefied natural gas (“LNG”) facility expansion (“Tilbury 1A”) in British Columbia; and
- strong performance from the utilities in the Caribbean.
- Earnings growth was tempered by the timing of quarterly earnings at FortisBC Electric compared to first quarter of 2015, and higher Corporate and Other expenses.
- Excluding the impact of foreign exchange, on an adjusted basis, earnings at UNS Energy were comparable with the first quarter of 2015. The impacts of higher lost fixed-cost recovery revenue and higher retail electricity sales due to warmer temperatures were largely offset by an increase in operating expenses. UNS Energy’s utilities operate under historical test years for setting customer rates and are currently engaged in regulatory proceedings to reset customer rates.
- Cash flow from operating activities was $483 million, an increase of 7% over the first quarter of 2015.
- Capital expenditures were $426 million, representing almost one quarter of the consolidated capital expenditure forecast of $1.9 billion for 2016.
Execution of growth strategy
On February 9, 2016, Fortis announced the acquisition of ITC Holdings Corp. (“ITC”) in a transaction (the “Acquisition”) valued at approximately US$11.3 billion, based on the closing price for Fortis common shares and the foreign exchange rate on February 8, 2016. ITC is the largest independent electric transmission company in the United States. Under the terms of the transaction, ITC shareholders will receive US$22.57 in cash and 0.7520 of a Fortis common share per ITC share, representing total consideration of approximately US$6.9 billion, and Fortis will assume approximately US$4.4 billion of ITC consolidated indebtedness.
In April 2016 Fortis announced that it reached a definitive agreement with an affiliate of GIC Private Limited, Singapore’s sovereign wealth fund, to acquire a 19.9% equity interest in ITC for aggregate consideration of US$1.228 billion in cash upon the closing of the Acquisition. This completes a significant component of the ITC Acquisition financing plan. The closing of the Acquisition is subject to ITC and Fortis shareholder approvals, the satisfaction of other customary closing conditions, and certain regulatory, state and federal approvals. The closing of the Acquisition is expected to occur in late 2016.
On April 1, 2016, Fortis completed the acquisition of the Aitken Creek gas storage facility in British Columbia (“Aitken Creek”) for approximately US$266 million. Aitken Creek is the only underground gas storage facility in British Columbia and has a total working gas capacity of 77 billion cubic feet. The facility is an integral part of Western Canada’s natural gas transmission network.
Construction continues on Tilbury 1A in British Columbia, the Corporation’s largest ongoing capital project, at an estimated cost of $440 million. Approximately $352 million has been invested in Tilbury 1A to the end of the first quarter of 2016 and the facility is expected to be in service around the end of 2016.
The Corporation continues to pursue additional LNG infrastructure investment opportunities in British Columbia. Woodfibre LNG has received an export license from the National Energy Board and received various environmental assessment approvals, which are significant milestones. FortisBC Energy’s potential pipeline expansion, which is subject to various environmental approvals, is conditional on Woodfibre LNG proceeding with its LNG export facility. A final investment decision by Woodfibre LNG is targeted for late 2016.
Fortis continues to navigate ongoing regulatory proceedings and is focused on maintaining constructive regulatory relationships and outcomes across its utilities.
The most significant regulatory proceeding underway is Tucson Electric Power Company’s (“TEP”) general rate application, in which TEP has requested new retail rates to be effective January 1, 2017, using the year ended June 30, 2015 as a historical test year. Since its last approved rate order in 2013, which used a 2011 historical test year, TEP’s total rate base has increased by approximately US$0.6 billion and the common equity component of capital structure has increased from 43.5% to approximately 50%. UNS Electric and Newfoundland Power are also awaiting the outcomes of general rate applications. The Corporation’s utilities in British Columbia and Alberta are currently participating in generic cost of capital proceedings initiated by the respective regulators.
Fortis expects to close the Acquisition of ITC by the end of 2016. The Acquisition is expected to be accretive to earnings per common share in the first full year following closing, excluding one-time acquisition‑related expenses. The Acquisition represents a singular opportunity for Fortis to significantly diversify its business in terms of regulatory jurisdictions, business risk profile and regional economic mix.
Over the five-year period through 2020, excluding ITC, the Corporation’s capital program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase rate base to more than $20 billion in 2020. Fortis expects long‑term sustainable growth in rate base, resulting from investment in its existing utility operations and strategic acquisitions, to support continuing growth in earnings and dividends.
Fortis continues to target 6% average annual dividend growth through 2020. This dividend guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at the Corporation’s utilities, the successful execution of the five‑year capital expenditure plan, and management’s continued confidence in the strength of the Corporation’s diversified portfolio of utilities and record of operational excellence. The Acquisition of ITC supports this dividend guidance.
Teleconference to Discuss First Quarter 2016 Results
A teleconference and webcast will be held on May 3 at 9:00 a.m. (Eastern). Barry Perry, President and Chief Executive Officer, Fortis, and Karl Smith, Executive Vice President, Chief Financial Officer, Fortis, will discuss the Corporation’s first quarter 2016 results.
Analysts, members of the media and other interested parties in North America are invited to participate by calling 1.877.223.4471. International participants may participate by calling 647.788.4922. Please dial in 10 minutes prior to the start of the call. No pass code is required.
A live and archived audio webcast of the teleconference will be available on the Corporation’s website, www.fortisinc.com.
A replay of the conference will be available two hours after the conclusion of the call until June 3, 2016. Please call 1.800.585.8367 or 416.621.4642 and enter pass code 88662322.
View for the Management Discussion and Analysis and Financial Statements and Notes for the three months ended on March 31, 2016 and 2015.
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