AGM Finance Update
Derrick Sturge, Vice-President, Finance & CFO
June 4, 2014
Overview
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Financial Reporting
2013 Financial Highlights
Financing Growth and Re-investment
2014 Financial Outlook
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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
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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 $5.0 billion completed with financial close in
December 2013
– Interest rates locked in for the life of the debt financing
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Financial Overview
2006
2012
2013
Revenue ($ millions)
548
726
785
Net Income ($ millions)
70
93
96
Cash from Operations ($ millions)**
121
218
241
Capital Assets ($ millions)
1,791
2,811
3,771
Total Assets ($ millions)*
2,216
3,447
9,537
61
449
1,009
Capital Expenditures ($ millions)
* 2013 total assets includes $5.0 billion of proceeds from the LCP debt issue
** Before working capital adjustments
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Business Unit Results
($ millions)
Regulated Hydro
Churchill Falls
Energy Marketing
Oil and Gas
Bull Arm Fabrication
Corporate and Other
Net Income
6
2012
2013
Net income
Net income
17.1
28.3
21.2
32.7
4.2
(10.8)
92.7
0.5
23.2
33.2
37.5
15.5
(14.3)
95.6
Capital Expenditures
($ millions)
2013 2014
Hydro 81
244
CF
49
51
Oil and Gas 195
240
LCP Phase 1 695 1,213
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$2006
2007
2008
2009
Base Business
2010
2011
Growth (LCP and O&G)
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2012
2013
2014(F)
Total Assets
($ millions)
2013 2014
Hydro 1,954 2,074
CF
472
476
Oil and Gas
580
781
LCP Phase 1 6,320 6,685
$12,000
$10,000
$8,000
Investment of
proceeds from LCP
debt issue
$6,000
$4,000
$2,000
$0
2006
2007
2008
2009
2010
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2011
2012
2013
2014(F)
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
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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
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Hydro Financing
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Hydro has not issued long-term debt since 2006
Over the next five years Hydro’s capital program will be approximately $1.2 billion
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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
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Structured For Growth
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
70%
65%
30%
35%
2006
2007
56%
44%
2008
47%
53%
2009
38%
43%
62%
57%
2010
Equity
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2011
Debt
39%
72%
68%
28%
32%
60%
61%
2012
2013
40%
2014 (F) 2020 (F)
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)
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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
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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
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Thank You