BC Ferries Releases Third Quarter Results

Passenger discounts and increases in fuel rebates in effect this spring

VICTORIA, Feb. 26, 2016 /CNW/ - British Columbia Ferry Services Inc. (BC Ferries) released its third quarter results today for the fiscal year ending March 31, 2016. The company reported a net loss of $3.7 million for the three months ended December 31, 2015, as compared to a net loss of $6.1 million in the same quarter last year. Net earnings for the nine-month period ended December 31, 2015 were $99.6 million, up from $84.2 million for the same period in the previous year.

Due to the seasonality of ferry travel, BC Ferries typically generates 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. 

In the third quarter of fiscal 2016, BC Ferries carried 1.8 million vehicles and 4.4 million passengers. Vehicle traffic increased 5.3 per cent (4.4 per cent year-to-date) and passenger traffic increased 3.9 per cent (4.0 per cent year-to-date) compared to the same period in the prior year.

"The lower Canadian dollar and the falling price of gasoline have helped contribute to a strong year for BC Ferries from a traffic standpoint.  This allows us to focus on fare stability for our customers, while we ensure we operate a safe and reliable marine transportation system," said Dennis Dodo, BC Ferries' Chief Financial Officer. "With the price of fuel dropping, we are in a position to offer a larger fuel rebate this spring, offsetting the scheduled tariff increase, which is welcome news for the travelling public."

From March 10 – 29, 2016, regular passenger fares will be discounted by 30 per cent on off-peak days of the week and certain times of the day on all routes throughout the fleet. This spring promotion will help BC Ferries gather information as it prepares pricing strategies for the Fare Flexibility and Digital Experience Initiative currently scheduled to launch in 2017, which will make variable pricing a permanent part of the company's service delivery model.

On April 1, 2016, BC Ferries will increase its fuel rebate from 1.0 per cent to 2.9 per cent on the major and minor routes and will implement a 1.9 per cent fuel rebate on the northern routes. As a result, customers will not see an increase in the cost of ferry travel this spring.

Total revenue for the three-month period ended December 31, 2015 increased by $4.2 million to $186.6 million as compared to the same quarter last year. Total revenue for the nine months ended December 31, 2015 increased by $17.1 million to $696.8 million as compared to the same period last year.  Operating expenses increased by $2.2 million to $176.4 million as compared to the same quarter last year.  For the nine months ended December 31, 2015, operating expenses increased from $549.3 million to $555.0 million as compared to the same period the year prior. 

Capital expenditures in the three and nine months ended December 31, 2015 totalled $45.6 million and $110.9 million respectively. Projects included vessel replacements, upgrades and modifications, terminal marine structures, information technology, and terminal building upgrades and equipment. 

Significant events during the third quarter of fiscal 2016 include the November 12, 2015 execution of a loan agreement with KfW IPEX-Bank GmbH, a German export credit bank. This loan agreement is secured under the Master Trust Indenture and allows for three loans of up to $45 million each. These amortizing loans will be repaid over a 12-year term with an annual interest rate of 2.09 per cent. The net proceeds from the loans will be used to partially finance the purchase of the three new Salish Class vessels.

On November 19, 2015, BC Ferries officially took ownership of the new cable ferry, the Baynes Sound Connector. Following extensive crew training and familiarization, and Transport Canada certification, the vessel commenced regularly scheduled service between Buckley Bay on Vancouver Island and Denman Island on February 9, 2016. The cable ferry will provide significant fuel cost savings, using less than half the fuel of the Quinitsa which was previously on the route, and will serve the route for the next 40 years.

On November 24, 2015, the Salish Orca, the first of the new Salish Class vessels, was launched and christened at Remontowa Shipbuilding S.A. in Gdansk, Poland. The construction of the other two vessels is progressing on schedule. These vessels will be dual-fuel capable, designed to operate primarily on liquefied natural gas with marine diesel as a backup. The Salish Orca, Salish Eagle and the Salish Raven are scheduled for delivery in August 2016, November 2016 and February 2017 respectively.

On December 18, 2015, BC Ferries announced the ratification of a Memorandum of Agreement that was reached on October 30, 2015 with the BC Ferry & Marine Workers' Union. The five-year term of this Collective Agreement provides stability for employees and marks 17 years of labour stability.

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 19.8 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 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: economic conditions, traffic levels, the Salish-Class vessels, the loan agreement with KfW IPEX-Bank GmbH, the Baynes Sound Connector, pricing promotions, and fuel rebates. 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. Interim Consolidated Statements of Financial Position (unaudited) (Expressed in thousands of Canadian dollars)
		As at
			December 31, 2015		March 31, 2015
Assets
Current assets
	Cash and cash equivalents		95,408		65,574
	Restricted short-term investments		32,146		32,496
	Other short-term investments		100,510		62,098
	Trade and other receivables		12,614		19,490
	Prepaid expenses		8,688		6,177
	Inventories		25,032		25,393
			274,398		211,228
Non-current assets
	Loan receivable		24,515		24,515
	Land lease		30,802		31,146
	Property, plant and equipment		1,516,727		1,524,692
	Intangible assets		77,215		65,031
			1,649,259		1,645,384
Total assets			1,923,657		1,856,612
Liabilities
Current liabilities
	Accounts payable and accrued liabilities		39,776		57,401
	Interest payable on long-term debt		16,346		18,329
	Deferred revenue		15,947		16,957
	Derivative liabilities		16,278		4,433
	Current portion of long-term debt		24,000		24,000
	Current portion of accrued employee future benefits		2,400		2,400
	Current portion of obligations under finance lease		1,497		1,309
	Provisions		52,602		48,065
			168,846		172,894
Non-current liabilities
	Accrued employee future benefits		18,482		18,800
	Long-term debt		1,226,257		1,241,699
	Obligations under finance lease		42,385		43,514
	Other liabilities		1,500		1,500
			1,288,624		1,305,513
Total liabilities			1,457,470		1,478,407
Equity
	Share capital		75,478		75,478
	Contributed surplus		25,000		25,000
	Retained earnings		388,796		289,177
	Total equity before reserves		489,274		389,655
	Reserves		(23,087)		(11,450)
Total equity including reserves			466,187		378,205
Total liabilities and equity			1,923,657	1,856,612

British Columbia Ferry Services Inc. Interim Consolidated Statements of Comprehensive Income/(Loss) (unaudited) (Expressed in thousands of Canadian dollars)
				Three months ended		Nine months ended
				December 31		December 31
				2015	2014	2015	2014
Revenue
	Vehicle and passenger fares			117,006	111,074	452,930	422,087
	Ferry service fees			39,110	38,913	134,895	138,155
	Retail			19,275	17,386	70,830	65,887
	Federal-Provincial Subsidy Agreement			7,182	7,089	21,547	21,267
	Fuel (rebates) surcharges			(1,350)	3,045	(5,102)	13,193
	Regulated other income			3,686	2,979	14,993	12,500
	Other income			1,674	1,899	6,674	6,572
Total revenue				186,583	182,385	696,767	679,661
Expenses
	Operations			105,681	105,074	342,353	345,457
	Maintenance			18,512	19,188	52,673	48,305
	Administration			8,445	7,364	24,665	22,997
	Cost of retail goods sold			7,952	7,169	28,514	26,315
	Depreciation and amortization			35,840	35,354	106,767	106,200
Total operating expenses				176,430	174,149	554,972	549,274
Operating profit				10,153	8,236	141,795	130,387
Net finance and other expenses
	Net finance expense
		Finance income		1,048	1,056	3,401	3,092
		Finance expenses		(15,119)	(15,432)	(45,609)	(49,268)
	Net finance expense			(14,071)	(14,376)	(42,208)	(46,176)
	Gain (loss) on disposal and revaluation of property,
		plant and equipment, intangible assets and inventory		233	(5)	32	(49)
Net finance and other expenses				(13,838)	(14,381)	(42,176)	(46,225)
Net earnings (loss)				(3,685)	(6,145)	99,619	84,162
Other comprehensive loss
	Items not to be reclassified to net earnings			-	-	-	(2,890)
	Items to be reclassified to net earnings			(11,739)	(7,354)	(11,824)	(9,750)
Total other comprehensive loss				(11,739)	(7,354)	(11,824)	(12,640)
Total comprehensive income (loss)				(15,424)	(13,499)	87,795	71,522

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
			Nine months ended December 31
			2015	2014
Cash flows from operating activities
Net earnings			99,619	84,162
Items not affecting cash
	Net finance expense		42,208	46,176
	Depreciation and amortization		106,767	106,200
	(Gain) loss on disposal and revaluation of property, plant and		(32)	49
		equipment, intangible assets and inventory
	Other non-cash adjustments to property, plant and equipment		(4)	(888)
	Changes in
		Accrued employee future benefits	(318)	64
		Derivative liabilities recognized in net earnings	21	(13)
		Provisions	4,537	(3,661)
		Long-term land lease	344	344
		Accrued interest costs	(97)	55
Total non-cash items			153,426	148,326
Movements in operating working capital
	Trade and other receivables		6,876	5,770
	Prepaid expenses		(2,511)	(1,920)
	Inventories		361	(964)
	Accounts payable and accrued liabilities		(17,625)	(12,681)
	Deferred revenue		(1,010)	5
	Change in non-cash working capital		(13,909)	(9,790)
	Change attributable to capital asset acquisitions		9,417	4,229
	Change in non-cash operating working capital		(4,492)	(5,561)
Cash generated from operating activities			248,553	226,927
	Interest received		3,428	3,453
	Interest paid		(51,065)	(54,639)
Net cash generated by operating activities			200,916	175,741

BRITISH COLUMBIA FERRY SERVICES INC. Interim Consolidated Statements of Cash Flows (unaudited) (Expressed in thousands of Canadian dollars)
	Nine months ended December 31
	2015	2014
Cash flows from financing activities
Proceeds from issuance of bonds	-	200,000
Repayment of long-term debt	(15,750)	(262,000)
Repayment of finance lease obligations	(941)	(834)
Deferred financing costs incurred	-	(1,315)
Hedge losses on interest rate forward contracts	-	(7,652)
Net cash used in financing activities	(16,691)	(71,801)
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment	214	115
Purchase of property, plant and equipment and intangible assets	(116,543)	(100,237)
Changes in debt service reserves	350	3,141
Net (purchase of) proceeds from short-term investments	(38,412)	18,308
Net cash used in investing activities	(154,391)	(78,673)
Net increase in cash and cash equivalents	29,834	25,267
Cash and cash equivalents, beginning of period	65,574	71,365
Cash and cash equivalents, end of period	95,408	96,632

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, 2014		75,478	25,000	246,142	346,620	(1,691)	344,929
Net earnings for the nine months ended		-	-	84,162	84,162	-	84,162
	December 31, 2014
Other comprehensive loss for the nine		-	-	-	-	(12,640)	(12,640)
	months ended December 31, 2014
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
Balance as at March 31, 2015		75,478	25,000	289,177	389,655	(11,450)	378,205
Net earnings for the nine months ended		-	-	99,619	99,619	-	99,619
	December 31, 2015
Other comprehensive loss for the nine		-	-	-	-	(11,824)	(11,824)
	months ended December 31, 2015
Hedge losses reclassified to net earnings		-	-	-	-	187	187
Balance as at December 31, 2015		75,478	25,000	388,796	489,274	(23,087)	466,187

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)