Fortis Franchise Earns 38.8 Million USD in Third Quarter
Posted on: 19/12/2006
The Fortis energy franchise has reported net earnings applicable to common shares of $38.8 million, or $0.37 per common share, for the third quarter of 2006 compared to earnings of $37.4 million, or $0.36 per common share, for the third quarter of 2005.
Year-to-date net earnings applicable to common shares were $113.3 million, or $1.09 per common share, compared to earnings of $114.8 million, or $1.13 per common share, for the same period last year.
Canadian Regulated Utilities contributed $25.3 million to earnings for the third quarter compared to $22.4 million for the same quarter last year. Excluding $1.6 million of earnings during the third quarter last year associated with the favourable resolution of a corporate income tax reassessment at FortisOntario, earnings were $4.5 million higher quarter over quarter. The increase was largely driven by lower corporate taxes at FortisAlberta and increased electricity rates at FortisBC and FortisOntario.
On August 28, 2006, Fortis acquired 2 electric utilities, P.P.C. Limited and Atlantic Equipment & Power (Turks and Caicos) Ltd., in the Turks and Caicos Islands for aggregate consideration of approximately US$90 million. The utilities serve approximately 7,500 customers, or 80 per cent of electricity customers, in the Turks and Caicos Islands pursuant to 50-year licences that expire in 2036 and 2037.
Caribbean Regulated Utilities delivered earnings of $7.7 million, $1.5 million higher than earnings of $6.2 million for the third quarter of 2005. The increase was largely driven by one month of earnings contribution from the utilities in the Turks and Caicos Islands and improved earnings at Belize Electricity primarily due to lower finance charges.
"In our regulated utility business, which accounts for 84 per cent of our assets, FortisAlberta and FortisBC were the main drivers of performance this quarter. The robust economic growth in western Canada continues to translate into significant capital investment and strong earnings for our western utilities," explains Stan Marshall, President and Chief Executive Officer, Fortis Inc.
"Our recent acquisition of electric utilities in the Turks and Caicos Islands is immediately accretive to earnings. The Turks and Caicos Islands is experiencing rapid growth in electricity demand, driven by its strong local economy," says Marshall.
Non-regulated Fortis Generation contributed earnings of $7.8 million, comparable to the same quarter last year. Improved earnings from Belize, driven by increased hydroelectric production, virtually offset the impact of lower average wholesale energy prices in Ontario. During the third quarter of 2006, the average wholesale energy price per megawatt hour in Ontario was $46.59 compared to $85.91 for the same quarter last year.
"Our hydroelectric generating facilities in Belize have generated 125 gigawatt hours of production year to date. In 2006, production from our Belize operations is expected to be more than double that experienced in 2005, primarily due to the operation of the Chalillo storage facility," explains Marshall.
Fortis Properties delivered earnings of $6.3 million compared to $4.9 million for the third quarter of 2005. The $1.4 million increase in earnings was primarily due to contributions from expansions to hotel and real estate properties and lower effective corporate income taxes.
On October 19, 2006, Fortis Properties announced an agreement to purchase 4 internationally branded hotels in Alberta and British Columbia for an aggregate purchase price of $51.6 million, including assumed debt.
"This acquisition is expected to be immediately accretive to earnings of Fortis," says Marshall. "It enables Fortis Properties to continue to grow earnings while building on its reputation for superior customer service combined with high-quality, well-situated hotels."
Corporate expenses were $8.3 million compared to $3.9 million for the third quarter last year. Corporate expenses during the third quarter of 2005 were reduced by a $3.8 million ($3.1 million after-tax) unrealized foreign currency translation gain associated with unhedged US dollar-denominated debt.
"Our history of profitable growth has enabled Fortis to increase annual dividend payments for 33 consecutive years, the longest record of any public corporation in Canada", says Marshall.
On September 28, 2006, the Board of Directors of Fortis declared an 18.75 per cent increase in the quarterly common share dividend to 19 cents per common share from 16 cents per common share, commencing with the fourth quarter dividend payable December 1, 2006.
Also on September 28, 2006, Fortis issued 5,000,000 4.90% First Preference Shares, Series F for gross proceeds of $125 million, or approximately $122.5 million net of after-tax expenses. The net proceeds were largely used to partially fund the recent acquisition of the utilities in the Turks and Caicos Islands and to fund equity injections into FortisAlberta and FortisBC in support of their extensive capital expenditure programs.
"By year end, Fortis will have invested approximately $475 million in its 2006 consolidated capital program. More than 70 per cent of this investment is being driven by our western utilities to meet customer growth and enhance reliability of their electricity systems," says Marshall. "Over the next 5 years, more than $2 billion of utility capital projects is expected to drive organic earnings.
Fortis is principally a diversified, international electric utility holding company with investments primarily in regulated electric distribution utilities in Canada and the Caribbean region. The Corporation serves more than 1,000,000 electricity customers and meets a peak demand of approximately 5,000 megawatts ("MW"). Fortis also owns and operates non-regulated generation assets, commercial real estate and hotels.
The key goals of the Corporation's regulated utilities are to operate sound electricity systems and deliver safe, reliable electricity to customers at reasonable, prudently incurred costs. Its core business of electricity distribution is highly regulated and Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets.
The Corporation's non-regulated generation assets, operating in 3 countries, are mainly hydroelectric with a combined generating capacity of 195 MW. Including the 4 hotels for which an agreement to purchase has been entered into on October 19, 2006, the Corporation, through its non-regulated subsidiary Fortis Properties, owns and operates 18 hotels with over 3,200 rooms in 7 Canadian provinces and 2.7 million square feet of commercial real estate in Atlantic Canada.
Fortis has adopted a strategy of profitable growth with earnings per common share as the primary measure of performance. Key financial highlights, including segmented earnings, for the third quarter and year-to-date periods ended September 30, 2006 and September 30, 2005 are provided in the following table.
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