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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen. Welcome to the AltaGas Income Trust 2008 fourth quarter conference call and webcast. I would now like to turn the meeting over to Ms. Sheena McKellar of Investor Relations.
SHEENA MCKELLAR, IR, ALTAGAS INCOME TRUST: Good morning, everybody. Welcome to AltaGas's fourth-quarter and year-end conference call. With me today are David Cornhill, Chairman and Chief Executive Officer; Richard Alexander, President and Chief Operating Officer; and Debbie Stein, Vice President Finance and Chief Financial Officer. After some formal comments, we will have a question-and-answer session.
Before we begin, let me remind you that certain information presented today may constitute forward-looking statements. Such statements provide the Trust's current expectations, estimates, projections, and assumptions. These forward-looking statements are not guarantees of future performance and they are subject to certain risks which could cause actual performance and financial results to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please take a look at our annual information form under the heading risk factors. I will now turn the call over to David.
DAVID CORNHILL, DIRECTOR, CHAIRMAN, CEO, ALTAGAS INCOME TRUST: Good morning and welcome to our fourth-quarter and year-end conference call. I am pleased to report record net income of CAD163.6 million for the fiscal year of 2008, representing 50% growth over 2007, or CAD2.38 per unit. For the quarter, net income was CAD39.6 million, or CAD0.55 per unit.
These all-time high earnings highlight our straightforward business model and reflect our stable and growing business base. The strategy of building a pure infrastructure business with strong performing assets, underpinned by long-term contracts and an effective risk management strategy, continues to reward and serve our unitholders well.
We are currently facing the most challenging economic climate in the past 50 years. The AltaGas management team began in the fall of 2008 to take action to reduce risks of the economic downturn on AltaGas. We aggressively hedged our 2008 and -- 2009, 2010 power price and frac spread. We have over 66% of our power hedged for 2008 and 50% hedged for 2010. We have hedged our frac spreads 60% in 2009 and 15% in 2010.
We aggressively moved to contain our operating costs and G&A expense. We aggressively moved to enhance our liquidity. Our balance sheet is strong. This month, we raised CAD100 million in equity. Debt to total cap is about 32%.
We have commitments for a new CAD250 million credit facility at market-competitive rates. We've had well over CAD300 million worth of bank commitments from eight banks, totaling CAD300 million.
These actions have eliminated any refinancing risk for 2009 and secured AltaGas's strong liquidity position.
Going forward, we will term-out our debt when the opportunity arises and meets our targets. This will include project financing for the Bear Mountain Wind Park.
Our distributions to unitholders is secure at current levels. The payout ratio may rise from 2008's 68%. The Board has reviewed the distribution level and are very comfortable with current levels through our conversion to incorporation in 2010.
At this time -- at that time, we will pay a dividend that is competitive with corporate peers, we will have a portfolio of long-term assets, and over a quarter billion dollars worth of EBITDA per year. We will realize growth opportunities, supported by our strong balance sheet, and will pay little income tax for the first few years following conversion.
The return to a corporate structure will not change our business practices. AltaGas will continue to focus on earnings and returns. We are -- and we expect to pay a competitive dividend and continue to provide strong returns to our investors.
2009 is expected to be another good year for AltaGas because of the steps taken by management. Our power hedge position going into 2009 is as strong as 2008. We expect that our power business will have the second-best year in our history, despite the current trends in spot prices.
Bear Mountain will be commissioned by year end and will add significantly to 2010.
Our gas business should report similar results to 2008. The majority of our gas business revenue are contractually underpinned. As projects are commissioned, the benefit of our 2008 and 2009 capital program will be realized.
Field Gathering and Processing will see a challenging year, with current low activities in drilling. However, Extraction and Transmission is expected to add another good year without the drag of turnarounds.
Finally, our Energy Services business will see a better year as a result of hard work by the team.
The capital program at Harmattan has already boosted volume and expected to provide about CAD10 million worth of EBITDA in 2009. And 60% of 2009 extraction volumes exposed to frac spreads have been hedged at more than CAD27.
2010 and beyond, AltaGas is extremely well-positioned. Our future is bright. We will continue to optimize our current operations while acquiring and developing new infrastructure assets.
We are excited about the projects coming into service in 2009. These include Bear Mountain Wind Park, volume additions at Harmattan, natural gas storage in Ontario, and our sour gas expansion at Pouce Coupe processing facilities. Together in 2010, these projects are expected to add more than CAD25 million worth of EBITDAR.
We are executing our business plan. We have positioned ourselves to be able to take advantage of other growth opportunities once the economic conditions improve. I would now like to turn it over to Debbie.
DEBBIE STEIN, VP FINANCE, CFO, ALTAGAS INCOME TRUST: Good morning, everyone. As David mentioned, net income in 2008 was CAD163.6 million, which was CAD55 million higher than in 2007. As there were several large non-recurring tax items in 2000 and 2008 -- 2007, sorry, and 2008, I would highlight that our net income before tax in 2008 was CAD162 million, compared to CAD114.7 million in 2007, a 41% increase.
Interest expense in 2008 was CAD27.4 million, compared to CAD11.9 million in 2007. The increase was due to higher average debt balances of CAD581 million, compared to CAD234.9 million in 2007. The average borrowing rate for 2008 was 5.3%, consistent with 2007.
In the fourth quarter, we unwound a bond [forward] which was done mid-last year, in anticipation of completing a medium-term note issue. Unwinding the hedge resulted in a CAD2 million charge, which was reported as interest expense.
In 2008, the Trust implemented changes to its legal structure and intercompany debt arrangements. The changes to the structure resulted in an income tax recovery of approximately CAD12 million as a result of applying our lower corporate tax rate to the reversal of timing differences.
Future income taxes were also lower by approximately CAD13 million as a result of higher intercompany interest, which was partially offset by higher future taxes as a result of higher income.
Invested capital for 2008 totaled CAD825 million. Growth capital was over CAD800 million, including approximately CAD600 million for the Taylor acquisition. Additional capital was spent on the major projects, such as Bear Mountain Wind Park, the Harmattan initiative, and the EDS upgrade, as well as the building out of our portfolio of renewable projects under development.
Our 2009 CapEx program remains at CAD250 million, with committed spending of approximately CAD200 million. The CAD250 million is expected to be split approximately 28% gas and 72% power, and the 72% includes a significant portion for the completion of the construction of the Bear Mountain Wind Park.
The remainder of the committed dollars are for the Sarnia storage project, the sour gas processing expansion at Pouce Coupe, and our continued progress...
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