Fortis Reports Strong Third Quarter Earnings of $151 Million; $1.7 Billion in Capital Invested Year to Date
St. John’s, NL (November 6, 2015):
Fortis Inc. (“Fortis” or the “Corporation”) (TSX:FTS), a leader in the North American electric and gas utility industry, released its third quarter results today. Driven by its U.S. utility acquisitions, completion of the Waneta Expansion, and strong results from its other utilities, Fortis’ net earnings attributable to common equity shareholders were $151 million, or $0.54 per common share, and $145 million, or $0.52 per common share, on an adjusted basis.
“All of our businesses contributed to our strong third quarter earnings,” said Barry Perry, President and Chief Executive Officer of Fortis. “With our exit from the commercial real estate and hotel business, we have tightened our focus on the growth of our core utility business.”
Strong earnings and cash flow; capital expenditure plan on track
- Net earnings attributable to common equity shareholders for the third quarter were $151 million, or $0.54 per common share, compared to $14 million, or $0.06 per common share, for the third quarter of 2014.
- On an adjusted basis, net earnings attributable to common equity shareholders for the third quarter were $145 million, or $0.52 per common share, an increase of $78 million, or $0.21 per common share, over the third quarter of 2014.
- Factors that resulted in earnings growth included:
- a full quarter’s contribution from UNS Energy, which was acquired in mid-August 2014. UNS Energy’s earnings are highly seasonal, with the second and third quarter representing approximately 75% of annual earnings, due to the use of air conditioning and other cooling equipment.
- a $5 million contribution from the Waneta Expansion hydroelectric generating facility, which came online in early April 2015.
- higher capital tracker revenue and customer growth at FortisAlberta.
- the resetting of customer rates at Central Hudson, effective July 1, 2015.
- the continued strength of the U.S. dollar relative to the Canadian dollar. Approximately 41% of Fortis’ assets are in the United States. On an annual basis, earnings per common share are affected by approximately $0.01 for each $0.01 change in the US dollar exchange rate.
- lower operating expenses and a higher equity component of allowance for funds used during construction at FortisBC Energy.
- Earnings growth was tempered by timing of regulatory deferral mechanisms at FortisBC Energy, that are expected to reverse in the fourth quarter.
- Cash flow from operating activities for the first nine months of 2015 totalled $1.3 billion, almost double compared to the same period last year. The increase was driven by the acquisition of UNS Energy.
- Proforma unused credit facilities totalled approximately $2.3 billion as at September 30, 2015, after considering the closing of the sale of hotels in October 2015.
- Almost $400 million in debt was raised at the regulated utilities in the quarter, and $1.0 billion was raised year to date, at attractive interest rates.
- Capital expenditures were $0.5 billion in the quarter and $1.7 billion year to date. Consolidated capital expenditures for 2015 are forecast to be approximately $2.2 billion.
Increasing total shareholder return and sharpening focus on the core utility business
During the third quarter Fortis increased its dividend per common share over 10% to $0.375 per quarter, or $1.50 on an annualized basis. This increase follows a 6.25% increase that was implemented in March 2015. Fortis also announced dividend guidance in the quarter, targeting annual dividend per common share growth through 2020 of 6% based on a 2016 dividend of $1.50.
After the sale of the commercial real estate and hotel assets, as well as the disposition of non‑regulated generation assets in New York and Ontario, substantially all of Fortis’ assets are comprised of regulated utilities and long-term contracted energy infrastructure. Net proceeds of almost $900 million from these sales were used by the Corporation to repay credit facility borrowings, largely associated with the acquisition of UNS Energy, and for other general corporate purposes. The sale of the hotel assets closed in mid-October.
“We remain committed to profitable growth, and we believe building on the strength of our core business and further diversifying our asset base in regulated utilities will achieve this,” continued Mr. Perry. “Our confidence in our business, supported by investing in additional energy infrastructure opportunities, and executing on a robust capital expenditure plan, supports our forecast rate base growth and our targeted annual dividend growth rate of 6% through 2020.”
Regulatory and Legal Proceedings
In November 2015 Tucson Electric Power Company (“TEP”), UNS Energy’s largest utility, filed a general rate application with the Arizona Corporation Commission requesting new retail rates to be effective January 1, 2017, using 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 increased from approximately 43.5% to approximately 50%.
The Corporation’s regulatory calendar for its utilities in Canada continues to be extensive. Newfoundland Power and Maritime Electric recently filed general rate applications for 2016 and FortisBC Energy, the benchmark utility in British Columbia, filed its application to review cost of capital for 2016. The regulator in Alberta has also initiated a generic cost of capital proceeding for 2016 and 2017, which will impact FortisAlberta.
In August 2015 the Corporation agreed to terms of a settlement with the Government of Belize (“GOB”) regarding the GOB’s expropriation of the Corporation’s approximate 70% interest in Belize Electricity Limited (“Belize Electricity”) in June 2011. The terms of the settlement included a one‑time US$35 million cash payment to Fortis from the GOB and an approximate 33% equity investment in Belize Electricity.
Fortis’ focus, and virtually all of the Corporations’ assets, are low‑risk, regulated utility businesses and long‑term contracted energy infrastructure. No single regulatory jurisdiction comprises more than one third of total assets.
Over the five-year period through 2020, the Corporation’s capital program is expected to be approximately $9 billion. This investment in energy infrastructure is expected to increase rate base to approximately $20 billion in 2020 and produce a five-year compound annual growth rate of approximately 4.5%. In addition to the base capital expenditure program, Fortis is pursuing additional investment opportunities in existing and new franchise areas, including further investment in natural gas related infrastructure. Fortis expects this capital investment to support growth in earnings and dividends.
During the third quarter of 2015, Fortis initiated dividend guidance. Fortis is targeting annual dividend growth of 6% through 2020. This guidance takes into account many factors, including the expectation of reasonable outcomes for regulatory proceedings at its utilities, the successful execution of its $9 billion five‑year capital plan, and management’s continued confidence in the strength of its diversified portfolio of assets and record of operational excellence.
Teleconference to Discuss Third Quarter 2015 Results
A teleconference and webcast will be held on November 6 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 third quarter 2015 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 November 17, 2015. Please call 1.800.585.8367 or 416.621.4642 and enter pass code 15840401.
View PDF for the Management Discussion and Analysis and Financial Statements and Notes for the three months and six months ended on September 30, 2015.
Fortis Inc. (the “Corporation”) includes forward-looking information in this earnings release within the meaning of applicable securities laws in Canada. The purpose of the forward-looking information is to provide management’s expectations regarding the Corporation’s future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes. All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation. Forward-looking statements are typically identified by words such as “anticipates”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “may”, “opportunity”, “projects”, “pending”, “schedule”, “should”, “target”, “would” and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements included in this earnings release include, but are not limited to, statements related to the Corporation’s forecast gross consolidated capital expenditures for 2015 and the total capital spending for the five-year period 2015 through 2020; additional opportunities including natural gas related infrastructure and generation; targeted annual dividend growth through 2020; the expectation that midyear rate base will increase from 2015 through 2020; the nature, timing, and expected costs of certain capital projects; and the expected timing of filing of regulatory applications and receipt and outcome of regulatory decisions.
Forward-looking statements involve significant risk, uncertainties and assumptions. Certain material factors or assumptions have been applied in drawing the conclusions contained in the forward-looking statements. These factors or assumptions are subject to inherent risks and uncertainties surrounding future expectations generally. Such risk factors or assumptions include, but are not limited to, reasonable decisions by utility regulators, the implementation of the Corporation’s five-year capital plan, no material capital project and financing cost overrun related to any of the Corporation’s capital projects, the realization of additional opportunities including natural gas related infrastructure and generation, the Board exercising its discretion to declare dividends, taking into account the business performance and financial conditions of the Corporation, the expectation that capital investment will support growth in earnings and dividends, and fluctuating foreign exchange. Fortis cautions readers that a number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and undue reliance should not be placed on the forward-looking statements. For additional information with respect to certain of these risks or factors, reference should be made to the Corporation’s continuous disclosure materials filed from time to time with Canadian securities regulatory authorities. Except as required by law, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Unless otherwise specified, all financial information referenced is in Canadian dollars.
For further information, please contact:
Vice President, Investor Relations