BC Ferries releases third quarter results

VICTORIA, Feb. 13, 2015 /CNW/ - British Columbia Ferry Services Inc. (BC Ferries) released its third quarter results today for fiscal 2014/15.  The company reported a net loss of $6.1 million for the three months ended December 31, 2014, as compared to a net loss of $12.3 million in the same quarter last year.  Net earnings for the nine-month period ended December 31, 2014 were $84.2 million, up from $56.3 million for the same period in the previous year. 

"Due to the seasonality of ferry travel, we typically generate higher earnings in the first and second quarters, which are followed by net losses in the third and fourth quarters when traffic is down and we make significant investments in maintaining our fleet and terminals," said Mike Corrigan, BC Ferries' President and CEO.  "We will continue to focus on fare affordability for our customers while we ensure we operate a safe and reliable marine transportation system."

Total revenue for the three-month period ended December 31, 2014 increased by $7.6 million to $182.4 million as compared to the same quarter last year.  Total revenue for the nine months ended December 31, 2014 increased by $33.4 million to $679.7 million as compared to the same period last year.  Operating expenses increased by $3.1 million to $174.2 million as compared to the same quarter last year.  For the nine months ended December 31, 2014, operating expenses increased from $539.1 million to $549.3 million as compared to the same period the year prior.  These operating expenses increased as a result of higher maintenance costs and depreciation and amortization costs from new capital assets that have entered service, partially offset by a decrease in fuel expenses.

Capital expenditures in the three and nine-months ended December 31, 2014 totalled $48.3 million and $101.0 million respectively.  Projects included vessel replacements, upgrades and modifications, terminal marine structures, information technology, and terminal building upgrades and equipment. 

During the three months ended December 31, 2014, BC Ferries provided over 41,000 sailings, compared to 45,000 sailings during the same period in the prior year.  This reduction in the number of sailings reflects service level adjustments announced by the Province in February 2014.   These service level adjustments have generated year-to-date savings in fuel and labour that more than offset the decline in revenue as a result of lower traffic levels and will help reduce upward pressure on future fares. System-wide, capacity utilization has improved by 1.7 per cent year-to-date as a result.  Since the implementation of the sailing reductions, capacity utilization on the affected routes has improved by 4.5 per cent.

During the quarter, the company carried 1.7 million vehicles and 4.2 million passengers.  Vehicle traffic decreased 0.7 per cent and passenger traffic decreased 1.1 per cent compared to the same quarter in the prior year.  Year to date, vehicle traffic decreased 0.4 per cent and passenger traffic decreased 0.3 per cent compared to the same period last year.  This reflects service level adjustments, reductions to passenger fare discounts for BC seniors and reduced student travel as a result of the teachers' labour dispute during the first two quarters of fiscal 2014/15.  On the major routes, year-to-date vehicle and passenger traffic levels are 0.3 per cent and 0.5 per cent higher respectively, than the prior year.  BC Ferries is optimistic that it will see a continued increase in major route traffic as a result of the weak Canadian dollar and lower gasoline prices.   

Significant events during the third quarter of fiscal 2014/15 include the November 25, 2014 approval of BC Ferries' application to the BC Ferries Commissioner to proceed with mid-life upgrades of the Spirit of Vancouver Island and Spirit of British Columbia, including conversion to dual-fuel propulsion, so they can operate on LNG or marine diesel fuel.  The company expects the conversion and hull modifications will result in significant fuel savings.

On November 28, 2014, the keel-laying of the cable ferry, which will provide service between Buckley Bay and Denman Island, took place at Seaspan's Vancouver Shipyards in North Vancouver.  The vessel is expected to enter into service in the summer of 2015.

On December 17, 2014, BC Ferries removed all fuel surcharges as a result of declining fuel prices and locking in pricing for a significant portion of the company's forecasted fuel consumption to the end of fiscal 2015/16.  This pricing is favourable to the set price established by the Commissioner at the start of Performance Term Three. When fuel prices are lower than the set price, it translates into a net benefit to customers.

On January 16, 2015, the first steel cut for the first of the three new intermediate class ferries took place at Remontowa Shipbuilding SA in Gdansk, Poland.  The new vessels are scheduled for delivery in August 2016, October 2016 and February 2017.  Two of the vessels will replace the 50-year old Queen of Burnaby and the 51-year old Queen of Nanaimo. The third vessel will augment service during the peak and shoulder season and provide relief when other vessels are in refit. The new vessels will be dual-fuel capable.

On February 2, 2015, conditional approval of the company's application for the Fare Flexibility and Digital Experience Initiative was received from the BC Ferries Commissioner.

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 amount of savings to be achieved through service level reductions, the vessel replacement program for the Queen of Burnaby and the Queen of Nanaimo, the cable ferry initiative, the Spirit Class mid-life upgrades, and the Fare Flexibility and Digital Experience 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 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, capacity utilized, and number of sailings. 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,
		December 31, 2014		March 31, 2014
Assets
Current assets
Cash and cash equivalents			96,632	71,365
Restricted short-term investments			32,651	35,792
Other short-term investments			62,698	81,006
Trade and other receivables			10,807	16,577
Prepaid expenses			8,854	6,934
Inventories			26,037	25,073
			237,679	236,747
Non-current assets
Long-term loan receivable			24,515	24,515
Long-term land lease			31,260	31,604
Property, plant and equipment			1,525,607	1,539,162
Intangible assets			61,184	53,164
			1,642,566	1,648,445
Total assets			1,880,245	1,885,192
Liabilities
Current liabilities
Accounts payable and accrued liabilities			35,453	48,134
Interest payable on long-term debt			16,563	19,634
Deferred revenue			14,568	14,563
Derivative liabilities			7,359	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			1,225	1,120
Provisions			48,140	51,801
			149,512	412,980
Non-current liabilities
Accrued employee future benefits			18,885	15,931
Long-term debt			1,249,847	1,066,531
Obligations under finance lease			43,882	44,821
Long-term liabilities			1,500	-
			1,314,114	1,127,283
Total liabilities			1,463,626	1,540,263
Equity
Share capital			75,478	75,478
Contributed surplus			25,000	25,000
Retained earnings			330,304	246,142
Total equity before reserves			430,782	346,620
Reserves			(14,163)	(1,691)
Total equity including reserves			416,619	344,929
Total liabilities and equity			1,880,245	1,885,192

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Comprehensive Income (unaudited) (Expressed in thousands of Canadian dollars)
		Three months ended		Nine months ended
		December 31,		December 31,
		2014	2013	2014	2013
Revenue
Vehicle and passenger fares		111,074	105,206	422,087	400,751
Ferry service fees		38,913	40,643	138,155	141,822
Retail		17,386	17,172	65,887	64,902
Federal-Provincial Subsidy Agreement		7,089	7,094	21,267	21,280
Fuel surcharges ^1		3,045	-	13,193	-
Regulated other income		2,979	2,978	12,500	11,658
Other income		1,899	1,718	6,572	5,837
Total revenue		182,385	174,811	679,661	646,250
Expenses
Operations		105,074	106,253	345,457	345,142
Maintenance		19,188	17,431	48,305	45,177
Administration		7,364	7,428	22,997	21,950
Cost of retail goods sold		7,169	6,842	26,315	25,252
Depreciation and amortization		35,354	33,148	106,200	101,575
Total operating expenses		174,149	171,102	549,274	539,096
Operating profit		8,236	3,709	130,387	107,154
Net finance and other expenses
Net finance expense
Finance income		1,056	1,078	3,092	2,603
Finance expenses		(15,432)	(17,039)	(49,268)	(53,403)
Net finance expense		(14,381)	(15,961)	(46,176)	(50,800)
Loss on disposal of property, plant and equipment		(5)	(57)	(49)	(69)
Net finance and other expenses		(14,381)	(16,018)	(46,225)	(50,869)
Net (loss) earnings		(6,145)	(12,309)	84,162	56,285
Other comprehensive (loss) income
Items not to be reclassified to net earnings		-	-	(2,890)	104
Items to be reclassified to net earnings		(7,354)	-	(9,750)	-
Total other comprehensive (loss) income		(7,354)	-	(12,640)	104
Total comprehensive (loss) income		(13,499)	(12,309)	71,522	56,389

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
	Nine months ended
	December 31,
	2014	2013
Cash flows from operating activities
Net earnings	84,162	56,285
Items not affecting cash
Net finance expense	46,176	50,800
Depreciation and amortization	106,200	101,575
Loss on disposal of property, plant and equipment	49	69
Other non-cash adjustments to property, plant and equipment	(888)	(62)
Changes in
Long-term accrued employee future benefits	64	(443)
Derivative liabilities recognized in net earnings	(13)	(12)
Provisions	(3,661)	326
Long-term land lease	344	344
Accrued interest costs	55	(1,020)
Total non-cash items	148,326	151,577
Movements in operating working capital
Trade and other receivables	5,770	5,082
Prepaid expenses	(1,920)	2,107
Inventories	(964)	(1,711)
Accounts payable and accrued liabilities	(12,681)	(10,018)
Deferred revenue	5	(511)
Change in non-cash working capital	(9,790)	(5,051)
Change attributable to capital asset acquisitions	4,229	(91)
Change in non-cash operating working capital	(5,561)	(5,142)
Cash generated from operating activities	226,927	202,720
Interest received	3,453	3,586
Interest paid	(54,639)	(56,589)
Net cash generated by operating activities	175,741	149,717

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
	Nine months ended
	December 31,
	2014	2013
Cash flows from financing activities
Proceeds from issuance of bonds	200,000	200,000
Repayment of long-term debt	(262,000)	(144,500)
Repayment of finance lease obligations	(834)	(800)
Deferred financing costs incurred	(1,315)	(1,387)
Hedge losses on interest rate forward contracts	(7,652)	-
Net cash (used in) generated by financing activities	(71,801)	53,313
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment	115	39
Purchase of property, plant and equipment and intangible assets	(100,237)	(86,524)
Changes in debt service reserves	3,141	(287)
Net proceeds from (purchase of) short-term investments	18,308	(53,111)
Net cash used in investing activities	(78,673)	(139,883)
Net increase in cash and cash equivalents	25,267	63,147
Cash and cash equivalents, beginning of period	71,365	36,641
Cash and cash equivalents, end of period	96,632	99,788

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 nine months ended December 31, 2013	-	-	56,285	56,285	-	56,285
Other comprehensive income for the nine months ended December 31, 2013	-	-	-	-	104	104
Balance as at December 31, 2013	75,478	25,000	290,472	390,950	3,337	394,287
Balance as at March 31, 2014	75,478	25,000	246,142	346,620	(1,691)	344,929
Net earnings for the nine months ended December 31, 2014	-	-	84,162	84,162	-	84,162
Other comprehensive income for the nine months ended December 31, 2014	-	-	-	-	(12,640)	(12,640)
Hedge losses reclassified to net earnings					168	168
Balance as at December 31, 2014	75,478	25,000	330,304	430,782	(14,163)	416,619

_______________________________
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 11 to BC Ferries' Interim Consolidated Financial Statements for the nine months ended December 31, 2014 and 2013.

SOURCE British Columbia Ferry Services Inc.

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