08:42:50 EDT Fri 29 Mar 2024
Enter Symbol
or Name
USA
CA



Hydro One Ltd
Symbol H
Shares Issued 595,940,880
Close 2019-02-21 C$ 20.55
Market Cap C$ 12,246,585,084
Recent Sedar Documents

Hydro One earns $802-million in 2018

2019-02-21 08:06 ET - News Release

Mr. Paul Dobson reports

HYDRO ONE REPORTS POSITIVE FOURTH QUARTER RESULTS

Hydro One Ltd. has provided its financial and operating results for the fourth quarter ended Dec. 31, 2018.

Fourth quarter highlights

  • Favourable weather and lower taxes contributed to earnings per share (EPS) of 27 cents and adjusted EPS of 30 cents, compared with 26 cents and 29 cents, respectively, for the same period in 2017. For the full year, 2018 EPS of $1.31 and adjusted EPS of $1.35 demonstrate growth over $1.11 and $1.17 in 2017, respectively.
  • A disciplined approach to project management resulted in $1.8-billion of assets being placed into service in the year, which was consistent with the $1.8-billion of aggregate in-servicing plans put forward to the Ontario Energy Board (OEB), providing a continuation of strong project execution in terms of scope, schedule and budget adherence.
  • Continued positive outcomes from the company's new vegetation management program that reduces the tree trimming cycle from 10 years to three years. Forestry teams did three times as much work while holding operation, maintenance and administration (OM&A) costs at a nominal increase.
  • Productivity savings of $135.5-million represent a 52-per-cent increase year over year. Total productivity savings since 2015 amount to $250-million.
  • Distribution reliability improved year over year with a 1.1-hour (14.2 per cent) reduction in total outage duration over 2017.
  • The company achieved its 2018 safety target with 1.1 recordable incidents per 200,000 hours worked, a 35-per-cent improvement compared with 2015.
  • On Dec. 21, the company's Merivale transmission station was fully restored to normal status. The facility had been serving Ottawa area customers in a temporary operational state since a devastating storm and tornado destroyed the station in September.
  • Quarterly dividend declared at 23 cents per share, payable March 29, 2019.

Recent events

  • As required by legislation, the company posted its proposed reduced executive compensation framework on its website on Feb. 14, 2019, for approval by the Ontario government. The government has not approved the framework in the form posted. Discussion of the framework is continuing.
  • Last month, Avista Corp. and Hydro One mutually agreed to terminate the merger agreement. Hydro One paid a termination fee of $103-million (U.S.) to Avista on Jan. 24.
  • Hydro One was recognized in January with two awards from the Edison Electric Institute for restoring major outages due to storms. Hydro One also further solidified its international reputation by providing mutual support to California restoration efforts following devastating wildfires.
  • Hydro One was recognized by Forbes as one of Canada's best employers for 2019.

"Hydro One had a strong fourth quarter and made considerable progress in driving down costs, improving service reliability and increasing operational efficiencies throughout 2018 as part of our commitment to deliver greater value to shareholders and customers," said Paul Dobson, acting president and chief executive officer. "With regard to Avista, given the regulatory circumstances, Hydro One and Avista mutually agreed to terminate the acquisition. Hydro One has been proudly serving customers for over 100 years, with excellent business fundamentals, and has a team of dedicated, engaged and resilient employees determined to innovate and improve all aspects of the business every day."

   
   
               SELECTED CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS
      (amounts throughout in millions of Canadian dollars, except as otherwise noted)            

                                         Three months ended Dec. 31,        Year ended Dec. 31,
                                                2018           2017        2018           2017

Revenues                                      $1,559         $1,439      $6,218         $5,990
Purchased power                                  741            662       2,899          2,875
Revenues, net of purchased power                 818            777       3,319          3,115
Net income attributable to common
shareholders                                     162            155         778            658
Costs related to acquisition of Avista,
after tax                                         14             15          29             36
Adjusted net income attributable to
common shareholders                              176            170         807            694
Basic EPS                                      $0.27          $0.26       $1.31          $1.11
Diluted EPS                                    $0.27          $0.26       $1.30          $1.10
Basic adjusted EPS                             $0.30          $0.29       $1.35          $1.17
Diluted adjusted EPS                           $0.29          $0.28       $1.35          $1.16
Net cash from operating activities               399            523       1,575          1,716
Capital investments                              467            431       1,575          1,567
Assets placed in service                         952            733       1,813          1,592
Transmission: average monthly Ontario
60-minute peak demand (mw)                    19,416         18,946      20,485         19,587
Distribution: electricity distributed
to Hydro One customers (gwh)                   7,004          6,784      27,338         25,876

Key financial highlights

In the fourth quarter of 2018, the company reported net income attributable to common shareholders of $162-million (2017 -- $155-million), a 4.5-per-cent increase from last year, and EPS of 27 cents (2017 -- 26 cents). Adjusted EPS, which excludes the after-tax impact of costs ($14-million) related to the recently terminated Avista acquisition, was 30 cents for the quarter (2017 -- 29 cents).

Revenues, net of purchased power, for the fourth quarter were higher than last year by 5.3 per cent. This reflects increased transmission and distribution revenues due to higher energy consumption resulting from favourable weather, as well as higher transmission revenues driven by increased OEB-approved transmission rates.

The comparability of fourth quarter earnings was impacted by higher vegetation management costs arising from a change to an improved vegetation program resulting in greater coverage and better reliability, higher non-recurring savings in 2017, including property taxes, HST recovery and insurance proceeds, and higher stations and lines maintenance costs.

Lower income tax expense for the fourth quarter of 2018, compared with 2017, was primarily attributable to an increase in tax deductions arising from higher in-service additions coupled with an increased allocation to a higher depreciation class, as well as higher pension and other postemployment benefit (OPEB) contributions for tax purposes. The company is required to accrue taxes based on the tax liability without considering the temporary differences as prescribed by the regulator.

Hydro One continues to invest in the reliability and performance of Ontario's electricity transmission and distribution systems, address aging power system infrastructure, facilitate connectivity to new load customers and generation sources, and improve service to customers. The company made capital investments of $467-million during the fourth quarter, and placed $952-million worth of new assets in service. For the full year, the company placed $1.8-billion of assets into service, which was consistent with the $1.8-billion of aggregate capital in-servicing plans put forward to the OEB. This was achieved due to considerable discipline throughout the year on project execution, scope, scheduling and budget controls.

For the year, the company reported net income of $778-million (2017 -- $658-million), an 18.2-per-cent increase from last year, and EPS of $1.31 (2017 -- $1.11). Adjusted EPS is $1.35 for the year. Year-to-date results were impacted by similar factors to those noted above.

In addition, year-to-date results were affected by higher project write-offs due to revision of asset replacement strategies and alternatives not pursued, and obsolete inventory and technology, savings related to the renewed information technology (IT) outsourced contract, and lower costs related to the recently terminated acquisition of Avista. Higher financing charges were driven by increased interest expense on the convertible debentures, partially offset by year-to-date revaluation of the foreign exchange contract.

Higher year-to-date income tax expense was primarily attributable to higher earnings in 2018, partially offset by higher temporary differences arising from higher in-service additions in 2018, compared with 2017.

Selected operating highlights

The increase in OM&A in the fourth quarter was associated with the company's new innovative vegetation management program that reduces the cycle time for tree trimming from 10 years to three years. By working the lines more frequently to address trees or other vegetation that could impact service, it improves the safety and reliability of the distribution network. In 2018, the company completed vegetation work on approximately 30,000 kilometres of lines, representing more than three times the work completed compared with 2017, but with only a marginal increase in cost. Adjusted for one-time costs, the increase in total OM&A costs was nominal.

The company built on its strong performance from last year with productivity savings of $135.5-million in 2018, primarily through initiatives such as better procurement, fleet reduction, lower IT costs and more efficient cable locate programs. The total productivity savings since 2015 increased to over $250-million.

Reliability of the company's distribution system improved with a 1.1-hour reduction in total average outage duration over the 2017 metric of 7.9 hours. This improvement was the result of the new vegetation management program discussed above, strategically applied upgrades to circuits, modernizing equipment in the grid and a more pro-active approach to storm preparation.

Management continued its focus on ensuring safety was top of mind for all employees. With 1.1 recordable incidents per 200,000 hours worked in 2018, the company extended the downward trend of safety incidents that has resulted in a 35-per-cent reduction since 2015.

Following a thunderstorm and multiple tornados in the Ottawa area on Sept. 23 that destroyed the company's Merivale transmission station, crews restored service to Hydro Ottawa and Hydro One customers in the area with an innovative, but temporary, solution within 48 hours. This was followed by a permanent restoration that was completed on Dec. 21, returning the station back to normal operation.

The Edison Electric Institute recognized Hydro One with two emergency recovery award awards for its efforts in 2018. The first award was for the company's response in restoring power after a May, 2018, windstorm while the second was for the above-mentioned thunderstorm and tornado event the following September.

Subject to approval by the management board of the cabinet, a new framework for executive compensation was released by Hydro One on Feb. 14, 2019. The program was developed by the company's independent board of directors, is competitive and will support efforts to both attract as well as retain an experienced leadership team, including president and chief executive officer. Further, the framework continues to support the company's commitment to driving exceptional customer service, improved reliability, cost reductions and greater shareholder value.

Following denials from the Washington Utilities and Transportation Commission in December and the Idaho Public Utilities Commission in January regarding the company's Avista merger proposal, the Oregon Public Utility Commission issued a notice of abeyance. On Jan. 23, both companies announced they had mutually agreed to terminate the merger agreement.

Hydro One brand recognition was heightened internationally after the company supported a California-based utility after devastating wildfires affected the electrical system in the state. Two teams of approximately 20 forestry technicians each worked in central California for system inspection and quality control to support restoration efforts from Nov. 26 to Dec. 20.

On Jan. 29, Forbes recognized Hydro One on its list of Canada's best employers for 2019. Based on a survey of over 8,000 people working at Canadian businesses with over 500 employees, the company's performance demonstrates its efforts to create an engaged work force and positive working environment.

Common share dividends

Following the conclusion of the fourth quarter, on Feb. 20, 2019, the company declared a quarterly cash dividend to common shareholders of 23 cents per share to be paid on March 29, 2019, to shareholders of record on March 13, 2019.

                                    CONSOLIDATED INCOME STATEMENTS
                           (millions of dollars, except per share amounts)

                                                    Three months ended Dec. 31,    Year ended Dec. 31,
                                                           2018           2017        2018       2017
Revenues                                                                                             
Distribution                                             $1,138         $1,049      $4,422     $4,366
Transmission                                                410            379       1,754      1,578
Other                                                        11             11          42         46
                                                          1,559          1,439       6,218      5,990
Costs                                                                                                
Purchased power                                             741            662       2,899      2,875
Operation, maintenance and administration                   308            244       1,105      1,066
Depreciation and amortization                               217            214         837        817
                                                          1,266          1,120       4,841      4,758
Income before financing charges and taxes                   293            319       1,377      1,232
Financing charges                                           123            119         459        439
Income before taxes                                         170            200         918        793
Income taxes                                                  1             38         116        111
Net income                                                  169            162         802        682
Other comprehensive income                                    2              -           4          1
Comprehensive income                                        171            162         806        683
Net income attributable to                                                                          
Non-controlling interest                                      2              2           6          6
Preferred shareholders                                        5              5          18         18
Common shareholders                                         162            155         778        658
                                                            169            162         802        682
Comprehensive income attributable to                                                                
Non-controlling interest                                      2              2           6          6
Preferred shareholders                                        5              5          18         18
Common shareholders                                         164            155         782        659
                                                            171            162         806        683
Basic EPS                                                 $0.27          $0.26       $1.31      $1.11
Diluted EPS                                               $0.27          $0.26       $1.30      $1.10
Basic adjusted EPS                                        $0.30          $0.29       $1.35      $1.17
Diluted adjusted EPS                                      $0.29          $0.28       $1.35      $1.16


  

Quarterly investment community teleconference

The company's fourth quarter 2018 results teleconference with the investment community will be held on Feb. 21, 2019, at 8 a.m. ET, a webcast of which will be available at the company's website. Members of the financial community wishing to ask questions during the call should dial 1-855-716-2690 prior to the scheduled start time and request access to Hydro One's fourth quarter 2018 results call, conference ID 4376998 (international callers may dial 1-440-996-5689). Media and other interested parties are welcome to participate on a listen-only basis. A webcast of the teleconference will be available at the same link following the call. Additionally, investors should note that from time to time Hydro One management presents at brokerage sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Hydro One's website and are posted generally at least two days before the conference.

About Hydro One Ltd.

The company is Ontario's largest electricity transmission and distribution provider with almost 1.4 million valued customers, over $26.4-billion in assets and 2018 annual revenues of over $6.2-billion. Its team of approximately 8,600 skilled and dedicated employees proudly builds and maintains a safe and reliable electricity system which is essential to supporting strong and successful communities. In 2018, Hydro One invested almost $1.6-billion in its 30,000 circuit km of high-voltage transmission and 123,000 circuit km of primary distribution networks, and injected approximately $1.3-billion into the economy by buying goods and services in Ontario.

We seek Safe Harbor.

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