Business Context and Reporting Period
This Form 6-K, dated April 11, 2018, transmits the 2017 Annual Report for Algonquin Power & Utilities Corp. (APUC). APUC is a diversified utility holding company operating two primary North American business units: Liberty Power (non-regulated renewable and thermal generation) and Liberty Utilities (regulated electric, natural gas, and water distribution). The reporting period covers the fiscal year ended December 31, 2017.
Key Financial Metrics (2017)
| Metric (C$ Millions) | 2017 | 2016 |
|---|---|---|
| Total Revenue | 1,977.8 | 1,096.0 |
| Adjusted EBITDA | 883.4 | 476.9 |
| Adjusted Net Earnings | 292.1 | 161.6 |
| Adjusted Funds from Operations | 614.5 | 356.4 |
| Net Earnings (GAAP) | 193.1 | 130.9 |
| Dividends Declared | 242.5 | 149.2 |
| Total Assets | 10,533.6 | 8,249.5 |
| Long-Term Debt | 3,864.5 | 4,272.0 |
Note: All figures are in Canadian dollars unless otherwise noted. Adjusted measures are non-GAAP.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 80.5% to C$1,977.8 million, driven primarily by the acquisition of The Empire District Electric Company ("Empire") on January 1, 2017, which added approximately C$827 million in revenue.
- Profitability: Adjusted EBITDA grew 85.2% and Adjusted Net Earnings grew 81.0%, reflecting the integration of Empire and strong performance in Liberty Power.
- Customer Base: Liberty Utilities connections increased 35% to 762,000, largely due to Empire's 221,000 customers.
- Capital Structure: The company raised approximately C$2.5 billion in 2017 to fund growth, including a C$576 million common share offering and the conversion of C$1.15 billion in convertible debentures.
- International Expansion: APUC announced a joint venture with Abengoa (AAGES) and a 25% equity investment in Atlantica Yield plc (pending closing in Q1 2018).
Guidance, Outlook, and Risks
- 2018 Capital Investment: APUC plans to spend between C$1.2 billion and C$1.4 billion on capital investments in 2018, including C$700–C$800 million for the Atlantica investment.
- Dividend Growth: The company declared a 10% increase in its dividend in January 2017, marking the seventh consecutive year of double-digit growth. The Q1 2018 dividend was declared at US$0.1165 per share.
- U.S. Tax Reform: The Tax Cuts and Jobs Act (reducing the U.S. corporate tax rate from 35% to 21%) resulted in a one-time non-cash charge of C$22.4 million in 2017. Management expects the 2018 impact to be neutral to slightly positive for EPS but 2-3% negative for EBITDA.
- Reporting Currency: Effective Q1 2018, APUC will report financial results in U.S. dollars, as over 90% of revenue and assets are U.S.-based.
- Risks: Key risks include regulatory lag in rate cases, credit rating downgrades, commodity price volatility, and the successful integration of international joint ventures.
Investor Verification Checklist
- Empire Integration: Verify the realization of synergies and the successful integration of Empire's 221,000 customers into Liberty Utilities.
- Atlantica Investment: Confirm the closing of the 25% equity stake in Atlantica Yield plc and the associated C$608 million (US$) outflow.
- Regulatory Rate Cases: Monitor pending rate cases (e.g., EnergyNorth, Missouri Gas) which represent potential revenue increases of approximately US$44.9 million.
- Debt Refinancing: Track the maturity profile of long-term debt, particularly the US$600 million term credit facility maturing in December 2018.
- Tax Reform Impact: Assess the final impact of U.S. Tax Reform on deferred tax assets and regulatory liabilities in 2018 filings.