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AGM Finance Update Derrick Sturge , Vice-President, Finance & CFO June 4, 2014

AGM Finance Update Derrick Sturge , Vice-President, Finance & CFO June 4, 2014. Overview. Financial Reporting 2013 Financial Highlights Financing Growth and Re-investment 2014 Financial Outlook. IFRS and Financial Reporting.

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AGM Finance Update Derrick Sturge , Vice-President, Finance & CFO June 4, 2014

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  1. AGM Finance Update Derrick Sturge, Vice-President, Finance & CFOJune 4, 2014

  2. Overview • Financial Reporting • 2013 Financial Highlights • Financing Growth and Re-investment • 2014 Financial Outlook

  3. IFRS and Financial Reporting • All numbers in this presentation are in accordance with Canadian GAAP • Nalcor will be completing transition to International Financial Reporting Standards (IFRS) in 2014 • Nalcor has previously deferred adoption of IFRS due to uncertainty with regulatory accounting • A new standard has been released which will allow Nalcor to continue accounting for its regulatory assets and liabilities under IFRS • Beginning with the third quarter of 2014, Nalcor will be issuing its financial statements to the public on a quarterly basis

  4. 2013 Financial Highlights • Net income of $96 million continues to trend upwards • Solid overall financial results • Hydro requires new rates to support higher costs and significant re-investment in capital assets • A General Rate Application was filed in July 2013; regulatory process is ongoing • Continue to invest in all areas of the business • Capital expenditures of $1.0 billion were the highest level ever • Lower Churchill financing of $5.0 billion completed with financial close in December 2013 • Interest rates locked in for the life of the debt financing

  5. Financial Overview * 2013 total assets includes $5.0 billion of proceeds from the LCP debt issue ** Before working capital adjustments

  6. Business Unit Results($ millions)

  7. Capital Expenditures($ millions) 20132014 Hydro 81 244 CF 49 51 Oil and Gas 195 240 LCP Phase 1 695 1,213

  8. Total Assets($ millions) 20132014 Hydro 1,954 2,074 CF 472 476 Oil and Gas 580 781 LCP Phase 1 6,320 6,685 Investment of proceeds from LCP debt issue

  9. Financing Growth & Re-Invesment • Since 2006 all cash generated from operations has been invested back in the business • Strong earnings in all business units is key to investment plans • Continue to receive equity support from our shareholder • Debt Financing • Lower Churchill financing completed • Multi-year debt financing program for Hydro under development • Oil and Gas and Churchill Falls investments all financed by equity • Five year outlook on capital structure is in the range of 60% debt /40% equity

  10. LCP Financing • Throughout 2013 activities were ongoing to satisfy conditions required to facilitate issuance of $5.0 billion of debt guaranteed by Canada • $2.6 billion to Muskrat Falls/Labrador Transmission and $2.4 billion to Labrador-Island Link • Commercial Agreements between LCP project entities and Hydro to support financing and secure long-term power supply completed • Equity Agreements between Nalcor and LCP project entities completed • LCP debt assigned a AAA credit rating • The Canada guarantee provided a weighted average interest rate of 3.8% which is locked in for 35 years for MF/LTA and 40 years for LIL • Provides savings of over $1 billion over the life of the project on a discounted basis

  11. Hydro Financing • Hydro has not issued long-term debt since 2006 • Over the next five years Hydro’s capital program will be approximately $1.2 billion • Ongoing and growing re-investment in existing assets • New 100 MW gas turbine at Holyrood • New transmission line in Labrador West • New transmission line from Bay D’Espoir to Western Avalon • In addition several existing bond issues will mature during this period • These expenditures will be financed through the issue of long-term debt and internally generated equity

  12. Structured For Growth

  13. 2014 Financial Outlook • Forecasting higher net income in 2014, primarily driven by: • Increased oil production • Stronger electricity prices in the US markets • Approval of rate increase for Hydro • Forecast capital expenditures $1.8 billion • Ramp up in construction activities for Muskrat Falls ($1,213 million) • Continued re-investment in Hydro and Churchill Falls ($295 million) • Continue to invest in offshore oil projects ($240 million)

  14. Summary • New investments starting to produce cash flow • Growth in income and cash from operations to continue over next several years, leading up to Hebron and Muskrat Falls in-service • Capital expenditures at highest levels ever in each business unit • Financing for Lower Churchill completed • Financing program for Hydro investments under development • Continue to re-invest 100% of our cash generated by operations back in the business • Strategy developed in 2006 to finance growth and re-investment and make sound long-term investments is playing out as planned

  15. Thank You

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