BC Ferries releases year-end results

Strong financial performance helps provide for fare increases at or below
projected inflation beginning in 2016

VICTORIA, June 19, 2015 /CNW/ - British Columbia Ferry Services Inc. (BC Ferries) released its year-end results today for fiscal 2015. Consolidated net earnings were $49.1 million for fiscal 2015, compared to the prior year's net earnings of $18.0 million.

"For customers, the direct benefit of the company's strong financial performance will be realized in the Fourth Performance Term (April 1, 2016 through March 31, 2020), with annual fare increases set at or below projected inflation. This is one full performance term sooner than originally anticipated," said Mike Corrigan, BC Ferries' President and CEO.

"It's extremely important that BC Ferries produces strong financial results so that we can fund our $3 billion capital program going forward to replace aging ships, assets and information technology.  BC Ferries has to replace one ship per year over the next 12 years beginning with our cable ferry and the three intermediate class ferries," said Corrigan. "Strong financial results are essential to maintain sustainable operations, meet our debt covenants, and to maintain our current strong investment-grade credit rating to ensure financing is affordable."

Revenues for the year increased from $800.2 million to $841.1 million, mainly due to higher traffic levels, an increase in other revenue, the impact of fuel surcharges, and higher tariffs. Operating expenses increased from $714.3 million to $722.5 million compared to the year prior. The $8.2 million increase in fiscal 2015 operating expenses mainly consists of increases in maintenance and depreciation costs. 

Capital expenditures in the three and twelve months ended March 31, 2015 totalled $48.8 million and $149.8 million, respectively. For fiscal 2015, these investments include: $69.0 million in vessel upgrades and modifications; $47.6 million in terminal marine structures; $23.5 million in information technology; and $9.7 million in terminal and building upgrades and equipment. 

In the last quarter of fiscal 2015, traffic was significantly higher than in the comparable period of the year before.  Vehicle traffic was up 5.1 per cent and passenger traffic was up 4.2 per cent. Over the fiscal year, BC Ferries experienced a 0.6 per cent increase in vehicle traffic and a 0.5 per cent increase in passenger traffic compared to fiscal 2014. 

On March 18, 2015, the BC Ferries Commissioner issued his report regarding the efficiency of BC Ferries, along with several other performance review and assessment reports. The efficiency report confirmed that BC Ferries demonstrates good cost control and has a strong culture of efficiency.  The report also indicated that administrative expenses have declined by 15.1 per cent on an inflation adjusted basis since 2009. The report also confirmed that overtime hours have declined and absenteeism rates are below the average for comparable businesses.

The Commissioner also released the Preliminary Decision on Price Caps for the Fourth Performance Term, in which he has set the increase in price caps (or average fare increases) at 1.9 per cent per year. The Commissioner will issue his decision on final price caps by no later than September 30, 2015.

Significant events during or subsequent to fiscal 2015 include: the April 28, 2014 completion of a private placement of $200 million of 30-year senior secured bonds with accredited investors. These bonds bear interest at a rate of 4.289 per cent per annum, payable semi-annually. The effective rate of this issue, net of hedging, is 4.45 per cent, the lowest effective bond interest rate in the 12-year history of the company. 

On July 3, 2014, BC Ferries entered into contracts with Remontowa Shipbuilding S.A. of Gdansk, Poland to build three new dual-fuel intermediate class vessels. These contracts, with a total value of $165 million, form the majority of the total project budget of $252 million.  This budget also includes $51 million for Canadian taxes and federal import duties. 

On November 24, 2014, the Commissioner conditionally approved the company's application to proceed with mid-life upgrades, including conversion to dual-fuel, of the two largest ships in the fleet, the Spirit of Vancouver Island and the Spirit of British Columbia.  BC Ferries expects a conversion would result in significant savings in fuel costs. 

On December 17, 2014, fuel surcharges of 3.4 per cent on average were removed from the major and minor routes and a fuel rebate of 1.0 per cent was implemented on April 1, 2015 as a result of declining fuel prices and locking in pricing for a significant portion of forecast fuel consumption to the end of fiscal 2016.  On the northern routes, no fuel surcharges were in place and no fuel rebates are in effect.   

On February 2, 2015, the Commissioner conditionally approved the company's application in support of the Fare Flexibility and Digital Experience Initiative.  This initiative will introduce a new system to manage fares, improve operational efficiency through better capacity management, provide customers with a modernized e-commerce platform with greater online functionality and booking options, and provide better access for mobile, tablet and desktop channels.

On May 8, 2015, BC Ferries unveiled the name of its new cable ferry, the Baynes Sound Connector, at a special naming ceremony. Compared to the current service, it is projected that, over 40 years, the cable ferry will provide over $80 million in cost savings as well as significant environmental benefits. The cable ferry will accommodate 50 vehicles and 150 passengers and crew.  The ship will commence service between Buckley Bay on Vancouver Island and Denman Island later this year.

BC Ferries' full financial statements, including notes and Management's Discussion and Analysis, as well as the Statement of Executive Compensation, are filed on SEDAR and will be available at www.sedar.com

Under contract to the Province of British Columbia, BC Ferries is the service provider responsible for the delivery of safe, efficient and dependable ferry service along coastal British Columbia.

BC Ferries is one of the largest ferry operators in the world based on passengers transported annually and transportation infrastructure, and carried 19.8 million passengers and 7.7 million vehicles during the fiscal year ended March 31, 2015.  BC Ferries provides frequent year-round ferry transportation services to the west coast of Canada on 24 routes, currently supported by 34 vessels and 47 terminals, and also manages other remote routes through contracts with independent operators.

FORWARD LOOKING STATEMENTS
This release contains certain "forward looking statements". These statements relate to future events or future performance and reflect management's expectations regarding our growth, results of operations, performance, business prospects and opportunities and industry performance and trends. They reflect management's current internal projections, expectations or beliefs and are based on information currently available to management. Some of the market conditions and factors that have been considered in formulating the assumptions upon which forward looking statements are based include traffic, the Canadian Dollar relative to the US Dollar, fuel costs, construction costs, the state of the local economy, fluctuating financial markets, demographics, tax changes, and the requirements of the Coastal Ferry Services Contract.

Forward looking statements included in this release include statements with respect to: capital expenditure levels, the Spirit Class mid-life upgrades, the Fare Flexibility and Digital Experience Initiative, and the cable ferry initiative. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. In evaluating these statements, prospective investors should specifically consider various factors including, but not limited to, the risks and uncertainties associated with: vendor non-performance; capital market access; interest rate, foreign currency, fuel price, and traffic volume fluctuations; the implementation of major capital projects; security, safety, and environmental incidents; confidential or sensitive information breaches; changes in laws; vessel repair facility limitations; economic regulatory environment changes; tax changes; and First Nation claims.

Actual results may differ materially from any forward looking statement. Although management believes that the forward looking statements contained in this release are based upon reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this release, and British Columbia Ferry Services Inc. assumes no obligation to update or revise them to reflect new events or circumstances except as may be required by applicable law.

In addition to providing measures prepared in accordance with International Financial Reporting Standards (IFRS), we present certain supplemental non-IFRS measures. These include, but are not limited to, vehicle and passenger traffic. These measures do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. These supplemental non-IFRS measures are provided to assist readers in determining our ability to generate cash from operations and improve the comparability of our results from one period to another. We believe these measures are useful in assessing operating performance of our ongoing business on an overall basis.

BRITISH COLUMBIA FERRY SERVICES INC.


Consolidated Statements of Financial Position


(Expressed in thousands of Canadian dollars)



As at March 31,


2015

2014

Assets



Current assets




Cash and cash equivalents

65,574

71,365


Restricted short-term investments

32,496

35,792


Other short-term investments

62,098

81,006


Trade and other receivables

19,490

16,577


Prepaid expenses

6,177

6,934


Inventories

25,393

25,073


211,228

236,747

Non-current assets




Loan receivable

24,515

24,515


Land lease

31,146

31,604


Property, plant and equipment

1,524,692

1,539,162


Intangible assets

65,031

53,164


1,645,384

1,648,445

Total assets

1,856,612

1,885,192




Liabilities



Current liabilities




Accounts payable and accrued liabilities

57,401

48,134


Interest payable on long-term debt

18,329

19,634


Deferred revenue

16,957

14,563


Derivative liabilities

4,433

5,274


Current portion of long-term debt

24,000

270,250


Current portion of accrued employee future benefits

2,400

2,204


Current portion of obligations under finance lease

1,309

1,120


Provisions

48,065

51,801


172,894

412,980

Non-current liabilities




Accrued employee future benefits

18,800

15,931


Long-term debt

1,241,699

1,066,531


Obligations under finance lease

43,514

44,821


Other liabilities

1,500

-


1,305,513

1,127,283

Total liabilities

1,478,407

1,540,263




Equity




Share capital

75,478

75,478


Contributed surplus

25,000

25,000


Retained earnings

289,177

246,142


Total equity before reserves

389,655

346,620


Reserves

(11,450)

(1,691)

Total equity including reserves

378,205

344,929




Total liabilities and equity

1,856,612

1,885,192



BRITISH COLUMBIA FERRY SERVICES INC.


Consolidated Statements of Comprehensive Income


(Expressed in thousands of Canadian dollars)



Years ended


March 31,

2015

2014




Revenue




Vehicle and passenger fares

519,991

489,305


Ferry service fees

175,935

180,076


Retail

80,635

78,932


Federal-Provincial Subsidy Agreement

28,355

28,373


Fuel surcharges 1

13,195

2,689


Regulated other income

14,511

13,458


Other income

8,526

7,328

Total revenue

841,148

800,161




Operating expenses




Operations

447,261

451,670


Maintenance

68,070

63,240


Administration

32,023

31,636


Cost of retail goods sold

32,405

30,860


Depreciation and amortization

142,806

136,896

Total operating expenses

722,565

714,302




Operating profit

118,583

85,859




Net finance and other expenses




Net finance expenses





Finance income

4,310

3,721



Finance expenses

(64,689)

(71,030)


Net finance expenses

(60,379)

(67,309)


Loss on disposal and revaluation of property, plant and equipment and intangible assets

(9,131)

(557)

Net finance and other expenses

(69,510)

(67,866)




Net earnings

49,073

17,993




Other comprehensive loss




Items not to be reclassified to net earnings

(3,138)

116


Items to be reclassified to net earnings

(6,850)

(5,040)

Total other comprehensive loss

(9,988)

(4,924)




Total comprehensive income

39,085

13,069

____________________________
1For the purpose of rate regulation, fuel surcharges collected are applied to deferred fuel cost accounts and not included as revenue in determination of earnings. For additional information see Note 22 to BC Ferries' Consolidated Financial Statements for the years ended March 31, 2015 and 2014.


BRITISH COLUMBIA FERRY SERVICES INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars)


        Years ended


          March 31,

2015

2014




Cash flows from operating activities






Net earnings

49,073

17,993

Items not affecting cash




Net finance expense

60,379

67,309


Depreciation and amortization

142,806

136,896


Loss on disposal and revaluation of property, plant and equipment and intangible assets

9,131

557


Other non-cash adjustments to property, plant and equipment

(926)

523


Changes in





Accrued employee future benefits

175

(569)



Derivative liabilities recognized in net earnings

(39)

222



Provisions

(3,736)

962



Long-term land lease

458

459



Accrued interest costs

(298)

(1,110)

Total non-cash items

207,950

205,249

 

Movements in operating working capital




Trade and other receivables

(2,913)

1,541


Prepaid expenses

757

3,772


Inventories

(320)

(1,816)


Accounts payable and accrued liabilities

9,267

(3,669)


Deferred revenue

2,394

929


Change in non-cash working capital

9,185

757


Change attributable to capital asset acquisitions

4,652

(1,908)


Change in non-cash operating working capital

13,837

(1,151)




Cash generated from operating activities

270,860

222,091





Interest rate support received

442

-


Interest received

4,582

4,554


Interest paid

(69,188)

(71,402)




Net cash generated by operating activities

206,696

155,243



BRITISH COLUMBIA FERRY SERVICES INC.


Consolidated Statements of Cash Flows


(Expressed in thousands of Canadian dollars)



       Years ended


          March 31,

2015

2014




Cash flows from financing activities






Proceeds from issuance of bonds

200,000

200,000

Repayment of long-term debt

(270,250)

(149,000)

Repayment of finance lease obligations

(1,118)

(1,072)

Dividends paid on preferred shares

(6,038)

(6,038)

Deferred financing costs incurred

(1,326)

(1,390)

Hedge losses on interest rate forward contracts

(7,652)

-




Net cash (used in) generated by financing activities

(86,384)

42,500







Cash flows from investing activities






Proceeds from disposal of property, plant and equipment

121

53

Purchase of property, plant and equipment and intangible assets

(148,428)

(125,252)

Changes in debt service reserve

3,296

(217)

Net proceeds from (purchase of) short-term investments

18,908

(37,603)




Net cash used in investing activities

(126,103)

(163,019)




Net (decrease) increase in cash and cash equivalents

(5,791)

34,724




Cash and cash equivalents, beginning of year

71,365

36,641




Cash and cash equivalents, end of year

65,574

71,365








BRITISH COLUMBIA FERRY SERVICES INC.







Consolidated Statements of Changes in Equity







(Expressed in thousands of Canadian dollars) 








Share capital

Contributed
surplus

Retained
earnings

Total equity
before reserves

Reserves

Total equity
including reserves








Balance as at April 1, 2013

75,478

25,000

234,187

334,665

3,233

337,898








Net earnings for the year ended March 31, 2014

-

-

17,993

17,993

-

17,993








Other comprehensive loss for the year ended March 31, 2014

-

-

-

-

(4,924)

(4,924)








Preferred share dividends

-

-

(6,038)

(6,038)

-

(6,038)








Balance as at March 31, 2014

75,478

25,000

246,142

346,620

(1,691)

344,929








Net earnings for the year ended March 31, 2015

-

-

49,073

49,073

-

49,073








Other comprehensive loss for the year ended March 31, 2015

-

-

-

-

(9,988)

(9,988)








Hedge losses reclassified to net earnings

-

-

-

-

229

229








Preferred share dividends

-

-

(6,038)

(6,038)

-

(6,038)








Balance as at March 31, 2015

75,478

25,000

289,177

389,655

(11,450)

378,205

SOURCE British Columbia Ferry Services Inc.

For further information: Media Contact: BC Ferries, Media Relations, Victoria: (250) 978-1267; Customer Contact: Victoria: (250) 386-3431, Toll-free: 1-888-BCFERRY (1-888-223-3779)

RELATED LINKS
http://www.bcferries.ca

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