BC Ferries releases second quarter results

VICTORIA, Nov. 21, 2014 /CNW/ - British Columbia Ferry Services Inc. (BC Ferries) announced its second quarter results today with net earnings of $76.4 million and $90.3 million for the three and six-month periods ended September 30, 2014, up from $64.3 million and $68.6 million for the three and six-month periods ended September 30, 2013.  These net earnings reflect the effect of increased traffic on our major routes, continued growth in ancillary businesses including catering, retail and vacation packages as well as higher ferry transportation fees, lower financing costs and our annual fare adjustment. These increases are partially offset by lower social program fees and operating cost increases.

"It's important to note that due to the seasonality of ferry travel, we typically generate higher net earnings in the first and second quarters, which are subsequently reduced by net losses in the last two quarters of the fiscal year," said Mike Corrigan, BC Ferries' President and CEO.  "Traffic volumes are much higher in the spring and summer months, and in the fall and winter months, traffic drops-off at a time when we must make substantial investments in our vessels and terminals during the refit season to maintain a safe, reliable service."  

Total revenue for the three-month period ended September 30, 2014 increased from $271.5 million to $284.2 million compared to the same period last year.  Operating expenses increased from $189.2 million to $192.6 million compared to the same period last year.  For the six months ended September 30, 2014, total revenue was $497.3 million, up from $471.4 million in the prior year.  Operating expenses for the same period were $375.1 million, up from $368.0 million in the prior year. 

"Over the next 12 years, we plan to invest over $3 billion to replace aging vessels, marine structures, information technology systems and other capital assets to ensure the long-term sustainability of the coastal ferry system," said Corrigan.  "All profits we realize are invested in the future of the company and help fund capital initiatives such as new fuel efficient vessels and new systems that will offer customers opportunities for discounted fares for off-peak travel times and the ability to book in advance without a reservation fee."

Capital expenditures in the three and six-months ended September 30, 2014 totalled $26.6 million and $52.7 million, respectively.  Projects included terminal marine structures, vessel upgrades and modifications, information technology, and terminal and building upgrades and equipment. 

During the three months ended September 30, 2014, BC Ferries provided over 45,000 sailings, compared to 48,000 sailings during the same period in the prior year. This reduced level of sailings represents service level adjustments announced in February 2014.  During this period, the company carried 6.9 million passengers and 2.5 million vehicles.  Vehicle traffic was 0.3 per cent lower in both the three and six months ended September 30, 2014, compared to the same periods in the prior year. Passenger traffic was 0.3 per cent higher in the first quarter of fiscal 2015 but 0.3 per cent lower in the second quarter, resulting in year-to-date passenger traffic levels which are the same as in the prior year. On the major routes, vehicle traffic increased 0.5 per cent and passenger traffic increased 0.9 per cent year-to-date. 

Significant events during the second quarter include the July 3, 2014 award of contracts to Remontowa Shipbuilding S.A. of Gdansk, Poland totaling $165 million to build three new intermediate class vessels.  The total project budget of $252 million includes financing and project management costs and includes $51 million for Canadian taxes and federal import duties.  The vessels will be delivered in 2016 and 2017 and will replace the 49-year old Queen of Burnaby and the 50-year old Queen of Nanaimo.  The new vessels will be dual-fuel capable, so they can operate on either liquefied natural gas or marine diesel fuel. 

On September 3, 2014, construction of BC Ferries' new cable ferry commenced at Seaspan's Vancouver Shipyards Co. Ltd. in North Vancouver.  The vessel will accommodate 50 vehicles and 150 passengers and crew.  The cable ferry will provide BC Ferries with substantial cost savings in the order of $80 million, prior to inflation, over the 40-year life of the project compared to the current service, and these significant cost savings will help with fare affordability across the coastal ferry system.  The cable ferry will provide service between Buckley Bay and Denman Island and is expected to be in service in the summer of 2015.

On September 22, 2014, the company submitted an application to the BC Ferries Commissioner for approval to proceed with mid-life upgrades, including conversion to dual fuel, of its two largest vessels, the Spirit of Vancouver Island and the Spirit of British Columbia.
BC Ferries expects the conversion and hull modifications will result in significant savings of over $9 million per year, prior to inflation.  The Spirit of Vancouver Island's mid-life upgrade is planned to be complete in the spring of 2017 and the Spirit of British Columbia's mid-life upgrade in the spring of 2018.  A ruling from the BC Ferries Commissioner is expected during the third quarter of fiscal 2015.

BC Ferries' full financial statements, including notes and Management's Discussion and Analysis, 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 19.7 million passengers and 7.6 million vehicles during the fiscal year ended March 31, 2014.  BC Ferries provides frequent year-round ferry transportation services to the west coast of Canada on 24 routes, currently supported by 35 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: traffic levels, capital expenditure levels, the vessel replacement program for the Queen of Burnaby and the Queen of Nanaimo, the cable ferry initiative, and the Spirit Class mid-life upgrades. 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 traffic volume and tariff revenue risk, safety and security, asset risk, accident risk, tax risk, environmental risk, regulatory risk, labour disruption risk, risk of default under material contracts and aboriginal land 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 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. Interim Consolidated Statements of Financial Position (unaudited) (Expressed in thousands of Canadian dollars)
		As at,
		September 30, 2014		March 31, 2014
Assets
Current assets
Cash and cash equivalents			116,154	71,365
Restricted short-term investments			32,746	35,792
Other short-term investments			56,035	81,006
Trade and other receivables			12,619	16,577
Prepaid expenses			11,961	6,934
Inventories			27,198	25,073
			256,713	236,747
Non-current assets
Long-term loan receivable			24,515	24,515
Long-term land lease			31,375	31,604
Property, plant and equipment			1,515,577	1,539,162
Intangible assets			58,476	53,164
			1,629,943	1,648,445
Total assets			1,886,656	1,885,192
Liabilities
Current liabilities
Accounts payable and accrued liabilities			32,605	48,134
Interest payable on long-term debt			18,432	19,634
Deferred revenue			14,785	14,563
Derivative liabilities			5	5,274
Current portion of long-term debt			24,000	270,250
Current portion of accrued employee future benefits			2,204	2,204
Current portion of obligations under finance lease			1,120	1,120
Provisions			46,662	51,801
			139,813	412,980
Non-current liabilities
Accrued employee future benefits			19,026	15,931
Long-term debt			1,253,498	1,066,531
Obligations under finance lease			44,264	44,821
			1,316,788	1,127,283
Total liabilities			1,456,601	1,540,263
Equity
Share capital			75,478	75,478
Contributed surplus			25,000	25,000
Retained earnings			336,449	246,142
Total equity before reserves			436,927	346,620
Reserves			(6,872)	(1,691)
Total equity including reserves			430,055	344,929
Total liabilities and equity			1,886,656	1,885,192

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Comprehensive Income (unaudited) (Expressed in thousands of Canadian dollars)
		Three months ended		Six months ended
		September 30,		September 30,
		2014	2013	2014	2013
Revenue
Vehicle and passenger fares		179,641	171,162	311,013	295,545
Ferry service fees		54,195	57,120	99,242	101,179
Retail		28,557	28,075	48,501	47,730
Federal-Provincial Subsidy Agreement		7,089	7,093	14,178	14,186
Fuel surcharges ^1		5,786	-	10,148	-
Regulated other income		6,122	5,737	9,521	8,680
Other income		2,777	2,283	4,673	4,119
Total revenue		284,167	271,470	497,276	471,439
Expenses
Operations		125,359	124,712	240,383	238,889
Maintenance		12,468	12,186	29,117	27,746
Administration		8,020	7,491	15,633	14,522
Cost of retail goods sold		11,157	10,685	19,146	18,410
Depreciation and amortization		35,612	34,114	70,846	68,427
Total operating expenses		192,616	189,188	375,125	367,994
Operating profit		91,551	82,282	122,151	103,445
Net finance and other expenses
Net finance expense
Finance income		969	726	2,036	1,525
Finance expenses		(16,124)	(18,672)	(33,836)	(36,364)
Net finance expense		(15,155)	(17,946)	(31,800)	(34,839)
Gain (loss) on disposal of property, plant and equipment		23	(16)	(44)	(12)
Net finance and other expenses		(15,132)	(17,962)	(31,844)	(34,851)
Net earnings		76,419	64,320	90,307	68,594
Other comprehensive (loss) income
Items not to be reclassified to net earnings		(2,890)	104	(2,890)	104
Items to be reclassified to net earnings		-	-	(2,396)	-
Total other comprehensive (loss) income		(2,890)	104	(5,286)	104
Total comprehensive income		73,529	64,424	85,021	68,698

^{______________________________________
1} For 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 10 to BC Ferries' Interim Consolidated Financial Statements for the six months ended September 30, 2014 and 2013.

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
	Six months ended
	September 30,
	2014	2013
Cash flows from operating activities
Net earnings	90,307	68,594
Items not affecting cash
Net finance expense	31,800	34,839
Depreciation and amortization	70,846	68,427
Loss on disposal of property, plant and equipment	44	12
Other non-cash adjustments to property, plant and equipment	(1,781)	(662)
Changes in
Long-term accrued employee future benefits	205	(415)
Derivative liabilities recognized in net earnings	(14)	(11)
Provisions	(5,139)	(2,871)
Long-term land lease	229	229
Accrued interest costs	246	236
Total non-cash items	96,436	99,784
Movements in operating working capital
Trade and other receivables	3,958	(167)
Prepaid expenses	(5,027)	586
Inventories	(2,125)	(2,384)
Accounts payable and accrued liabilities	(15,529)	(14,357)
Deferred revenue	222	(50)
Change in non-cash working capital	(18,501)	(16,372)
Change attributable to capital asset acquisitions	7,103	5,670
Change in non-cash operating working capital	(11,398)	(10,702)
Cash generated from operating activities	175,345	157,676
Interest received	1,827	1,230
Interest paid	(36,167)	(39,594)
Net cash generated by operating activities	141,005	119,312

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
	Six months ended
	September 30,
	2014	2013
Cash flows from financing activities
Proceeds from issuance of bonds	200,000	-
Repayment of long-term debt	(258,250)	(144,500)
Proceeds from short-term debt	-	39,966
Repayment of finance lease obligations	(557)	(530)
Deferred financing costs incurred	(1,315)	-
Hedge losses on interest rate forward contracts	(7,652)	-
Net cash used in financing activities	(67,774)	(105,064)
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment	72	32
Purchase of property, plant and equipment and intangible assets	(56,531)	(50,343)
Decrease of debt service reserves	3,046	4,415
Proceeds from short-term investments	24,971	8,895
Net cash used in investing activities	(28,442)	(37,001)
Net increase (decrease) in cash and cash equivalents	44,789	(22,753)
Cash and cash equivalents, beginning of period	71,365	36,641
Cash and cash equivalents, end of period	116,154	13,888

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Changes in Equity (unaudited) (Expressed in thousands of Canadian dollars)
	Share capital	Contributed surplus	Retained earnings	Total equity before reserves	Reserves	Total equity including reserves
Balance as at March 31, 2013	75,478	25,000	234,187	334,665	3,233	337,898
Net earnings for the six months ended September 30, 2013	-	-	68,594	68,594	-	68,594
Other comprehensive income for the six months ended September 30, 2013	-	-	-	-	104	104
Balance as at September 30, 2013	75,478	25,000	302,781	403,259	3,337	406,596
Balance as at March 31, 2014	75,478	25,000	246,142	346,620	(1,691)	344,929
Net earnings for the six months ended September 30, 2014	-	-	90,307	90,307	-	90,307
Other comprehensive income for the six months ended September 30, 2014	-	-	-	-	(5,286)	(5,286)
Hedge losses reclassified to net earnings					105	105
Balance as at September 30, 2014	75,478	25,000	336,449	436,927	(6,872)	430,055

SOURCE: British Columbia Ferry Services Inc.

For further information: Media Contact: BC Ferries, Media Relations, Victoria: [phone]; Customer Contact: Victoria: [phone], Toll-free: 1-888-BCFERRY (1-888-223-3779)