Business Context and Reporting Period
Company: Brookfield Renewable Partners L.P. (BREP)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Year ended December 31, 2015
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: BREP is a Bermuda exempted limited partnership and one of the world's largest publicly-traded pure-play renewable power portfolios. It operates hydroelectric, wind, biomass, and natural gas-fired facilities across North America, Latin America, and Europe. As of December 31, 2015, the portfolio included 7,284 MW of installed capacity. Brookfield Asset Management holds approximately 62% of the economic interest.
Key Financial Metrics (Year Ended Dec 31, 2015)
| Metric | 2015 (USD Millions) | 2014 (USD Millions) |
|---|---|---|
| Revenues | $1,628 | $1,704 |
| Adjusted EBITDA | $1,177 | $1,216 |
| Funds From Operations (FFO) | $467 | $560 |
| Adjusted Funds From Operations | $407 | $502 |
| Net Income | $103 | $203 |
| Operating Cash Flow | $588 | $700 |
| Long-term Debt & Credit Facilities | $7,338 | $7,678 |
| Total Assets | $19,507 | $19,849 |
| Debt to Total Capitalization | 39% | 40% |
| Distributions per LP Unit | $1.66 | $1.55 |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased by $76 million (4.5%) to $1,628 million. This was primarily driven by a $142 million reduction due to the appreciation of the U.S. dollar against the Canadian dollar, Euro, and Brazilian Real, and lower generation in North American hydroelectric assets.
- Generation Variance: Total actual generation was 23,332 GWh, below the long-term average of 25,543 GWh. North American hydro generation was lower due to hydrological conditions, while wind generation in North America decreased due to weak conditions. Conversely, European wind generation increased due to improved conditions.
- FFO Decrease: Funds From Operations declined by $93 million to $467 million, reflecting lower revenues and higher non-controlling interest costs, partially offset by portfolio growth contributions of $24 million.
- Net Income Drop: Net income fell to $103 million from $203 million, resulting in earnings per LP Unit of $0.01 compared to $0.42 in 2014. This was impacted by depreciation, unrealized financial instrument losses, and the aforementioned revenue pressures.
- Portfolio Growth: Despite the decline in metrics, the company added significant capacity through acquisitions in Brazil (488 MW), Portugal (123 MW), and a wind development pipeline in Scotland (1,200 MW).
Guidance, Outlook, and Risks
- Distribution Policy: The company targets a long-term payout ratio of approximately 70% of Funds From Operations and an annual distribution growth rate of 5% to 9%. In February 2016, BREP announced an increase in the quarterly distribution to $0.445 per unit ($1.78 annually).
- Strategic Acquisitions: In January 2016, BREP acquired a 57.6% controlling interest in Isagen S.A. (Colombia), a major hydroelectric generator, for approximately $2.0 billion. This marks entry into the Colombian market and adds 3,032 MW of capacity.
- Key Risks:
- Hydrology and Weather: Revenue is highly dependent on water flows and wind conditions. While Brazil's hydrological balancing pool (MRE) mitigates some risk, prolonged droughts or low wind can impact cash flows.
- Currency Exposure: Significant operations are in non-U.S. dollar currencies (CAD, BRL, EUR). Appreciation of the U.S. dollar negatively impacts reported revenues and assets.
- Contract Expirations: Approximately 17% of generation is uncontracted or subject to re-contracting. The company faces risks in renewing Power Purchase Agreements (PPAs) on favorable terms.
- Regulatory and Tax: Changes in government incentives for renewables (e.g., feed-in tariffs) and tax laws in operating jurisdictions could adversely affect returns.
Investor Verification Checklist
- Isagen Integration: Verify the final purchase price allocation and the timeline for the mandatory tender offers to acquire remaining Isagen shares.
- Currency Hedging: Review the effectiveness of foreign currency hedging strategies given the significant impact of USD appreciation on 2015 results.
- Contract Profile: Confirm the weighted-average remaining duration of PPAs (reported as 17 years) and the specific terms of contracts expiring in the near term.
- Debt Maturity: Assess the maturity ladder of the $7.3 billion debt portfolio, noting that approximately $770 million is due in 2016 and requires refinancing.
- Non-IFRS Reconciliations: Review the detailed reconciliations of Adjusted EBITDA and Funds From Operations to Net Income to understand the impact of non-cash items and non-controlling interests.