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News

Enbridge Income Fund Holdings Inc. Reports 2017 Fourth Quarter and Full Year Results

February 16, 2018

CALGARY, Feb. 16, 2018 /CNW/ - Enbridge Income Fund Holdings Inc. (TSX: ENF) (ENF or the Company) today reported fourth quarter and full year 2017 financial results and provided a quarterly business update.

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Earnings were $86 million, or $0.56 per common share for the fourth quarter and $307 million or $2.16 per common share for the full year

  • Fund Group Distributable Cash Flow (DCF) was $565 million and $1,976 million for the fourth quarter and full year, respectively

  • Fund Group brought a total of $3.7 billion of growth projects into service in 2017

  • Fund Group advanced the $5.3 billion Line 3 Replacement Project with construction underway in Canada; Minnesota regulatory process reaffirmed with Minnesota Public Utilities Commission (MPUC) permit decisions expected in the second quarter of 2018

  • Announced details of the Company's updated business and financial outlook though 2020; provided Fund Group DCF range of $2.45 billion to $2.65 billion for 2018

  • Declared a cash dividend of $0.1883 per common share paid on February 15, 2018, representing a 10% increase over 2017, and extended 10% annual dividend growth guidance by an additional year, through 2020

  • Raised approximately $700 million through a common share issuance, which is expected to satisfy the Fund Group's external equity funding requirements through 2020.

PRESIDENT'S COMMENT

"Overall, 2017 was a very successful year for ENF," said Perry Schuldhaus, Company President. "Financial results were in line with our expectations, driven by the solid performance of the Liquids Pipelines' segment where Canadian Mainline volumes reached a record throughput of over 2.7 million barrels per day in December and continued strength from Alliance Pipeline and the green power business. In addition, we had significant contributions from the $3.7 billion of new projects brought into service throughout the year, primarily within the Regional Oil Sands business.

"We also further strengthened the balance sheet in 2017 with a $0.7 billion common equity issuance in December. This sets us up well to achieve our target credit metrics by the end of this coming year and supports a strong, investment grade credit rating for the Fund Group.

"Looking forward to 2018, we anticipate a continuation of our strong business performance, driven by strong volumes on the Canadian Mainline and a full year contribution from the new capital projects that came into service in 2017. We'll also continue work on the Line 3 Replacement Project which we expect to be in service in the second half of 2019. The strength of this financial outlook underpins our annual 10% dividend growth guidance through 2020."

FINANCIAL RESULTS

The Company reported financial results for the three and twelve months ended December 31, 2017, compared to the same periods in 2016, as summarized in the table below:




Three months ended


Year ended




December 31,


December 31,


2017

2016


2017

2016

(millions of Canadian dollars)




Earnings

86

67


307

252

Earnings per common share

0.56

0.54


2.16

2.18

EIPLP adjusted EBITDA

748

624


2,665

2,514

Fund Group DCF

565

491


1,976

1,837

Fund Group annual payout ratio



82%

87%


A schedule reconciling EIPLP adjusted EBITDA is available at www.enbridgeincomefund.com and as an Appendix to this news release.

 

The Company's fourth quarter and full year earnings increased by $19 million and $55 million, respectively. This was primarily driven by a higher number of Fund Units held by the Company in 2017.

Fourth quarter and full year EIPLP adjusted EBITDA were up by $124 million and $151 million, respectively. Period-over-period growth was driven largely by the Canadian Mainline and by new projects that were brought into service during the year. Contributions from the Canadian Mainline were up year-over-year as a result of higher crude oil throughput and higher tolls. Alliance Pipeline and the Fund Group's portfolio of green power assets also contributed to EBITDA growth.

Fund Group DCF increased as a result of the same factors noted above. As this DCF growth was greater than the 10% dividend increase for the year, the Fund Group payout ratio decreased to 82% in 2017.

PROJECT UPDATES

In 2017, $3.7 billion of growth projects were brought into service by the Fund Group, substantially on time and on budget. This included the $1.3 billion Athabasca Twin pipeline, the $1.3 billion Wood Buffalo Extension Pipeline, the $0.8 billion Norlite diluent line, all of which in part support the Fort Hills oil sands project. In addition, the $0.2 billion JACOS Hangingstone Project came into service in the third quarter. This execution success highlights the Fund Group's strong project management capability and its commitment to managing all critical stakeholder relationships. These projects provided DCF growth in 2017, with higher contributions expected in 2018 and 2019 as contracted capacity ramps up on certain projects and all contribute a full year of earnings and cash flow.

The $5.3 billion Canadian portion of the Line 3 Replacement project continues to progress well. Following the receipt of all required regulatory permitting in Canada, construction began in August 2017 on certain segments of the pipeline and construction will continue through the winter.

The U.S. portion of the Line 3 Replacement project is being constructed by Enbridge Energy Partners, L.P. Regulatory permitting is in place in North Dakota as well as in Wisconsin where construction is substantially complete. In Minnesota, the MPUC is expected to vote on the Certificate of Need and Route Permit at the end of the second quarter of 2018. In parallel with this process, additional clarification and analysis will be provided to support the adequacy of the Final Environmental Impact Statement, as requested by the MPUC in December. Management continues to anticipate an in-service date for the project in the second half of 2019.

Alliance Pipeline announced a non-binding request for expressions of interest for additional transportation service on the Alliance Pipeline Canada and Alliance Pipeline US systems. Alliance Pipeline continues to engage with interested parties and assess the addition of more compression facilities along the system in order to increase throughput capacity by up to 500 mmcf/d. In conjunction with this engagement and assessment, extensions of the terms of the current transportation contracts portfolio are being discussed. In October 2017, all of Alliance Pipeline's eligible annual firm service customers renewed their contracts for a minimum of a one-year term with the majority of the renewals for two and three year terms.

U.S TAX REFORM

Within the Fund Group's asset portfolio, it holds investments that are subject to the "Tax Cuts and Jobs Act" (TCJA) enacted in the US on December 22, 2017. Substantially all of the provisions of the TCJA are effective for taxation years beginning after December 31, 2017.  The most significant change included in the TCJA with respect to EIPLP's 2017 financial statements was a reduction in the corporate federal income tax rate from 35% to 21% resulting in a $52 million deferred tax expense. The Fund Group expects that its cash flows will be positively impacted by a higher Canadian Mainline IJT Residual Benchmark Toll as a result of the tax rate reduction's anticipated impact on Enbridge Energy Partners, L.P.'s tolls related to the income tax allowance component for its FERC regulated cost-of-service based Facility Surcharge Mechanism (FSM) projects. The magnitude of this positive impact does not alter the Fund Group's previously established guidance as set out below.

GUIDANCE AND LONG TERM OUTLOOK

In November, the Company announced 2018 DCF guidance of $2.45 billion to $2.65 billion for the Fund Group. This includes core maintenance capital expenditures of between $65 million and $100 million and cash taxes in the range of $200 million to $260 million. The Company also extended its 10% annual dividend growth guidance by an additional year to 2020. The Fund Group expects to maintain distribution coverage of 1.2x-1.3x.

The Fund Group credit metrics are expected to strengthen over the forecast horizon as a result of growing EBITDA from its strong business performance and secured capital program, and by the approximately $0.7 billion common equity investment made by the Company as announced on November 29, 2017. Debt to EBITDA levels are forecast to be below 5.0x by the end of 2018 and are expected to remain below this level.

DIVIDENDS AND OWNERSHIP STRUCTURE

The ENF Board of Directors announced a cash dividend of $0.1883 per common share to be paid on March 15, 2018 to shareholders of record at the close of business on February 28, 2018. This represents a 10% increase in the monthly dividend rate over 2017, consistent with previously announced guidance.

These dividends are designated eligible dividends for Canadian tax purposes, which qualify for the enhanced dividend tax credit. Eligible shareholders may elect to participate in the Company's Dividend Reinvestment and Share Purchase Plan (DRIP), where they may automatically reinvest their dividends in additional shares at a two percent discount to the share price without brokerage fees. Details of the DRIP are available on the Company's website. Shareholders who wish to participate in the DRIP should contact their investment dealer for further information and to enroll.

The Company holds a 70.6 percent ordinary trust unit (Fund Unit) interest in Enbridge Income Fund (the Fund) and an approximate 21.8 percent overall economic interest in the Fund Group. The Fund Group is comprised of the Fund, Enbridge Commercial Trust (ECT), Enbridge Income Partners LP (EIPLP) and the subsidiaries and investees of EIPLP. EIPLP holds the operating entities of the Fund Group.

FOURTH QUARTER AND YEAR END 2017 FINANCIAL RESULTS

For more information on the operating results of the Company, the Fund and EIPLP, please see the respective Management's Discussion and Analysis on the Company's website at http://www.enbridgeincomefund.com/Find-Shareholder-Information/Reports-and-Filings/English.aspx. The documents are also filed on SEDAR under Enbridge Income Fund Holding Inc.'s profile for the Company and under Enbridge Income Fund's profile for the Fund and EIPLP.

EIPLP

Adjusted EBITDA1




Three months ended


Year ended




December 31,


December 31,


2017

2016


2017

2016

(unaudited; millions of Canadian dollars)




Liquids Pipelines

599

507


2,149

2,030

Gas Pipelines

56

40


205

184

Green Power

71

62


255

242

Eliminations and Other

22

15


56

58

Adjusted EBITDA

748

624


2,665

2,514



1

The above table summarizes adjusting items by segment. For a detailed listing of adjusting items by segment, refer to segment discussions and the appendices to this news release.

 

EIPLP OPERATING RESULTS





Three months ended


Year ended


December 31,


December 31,


2017

2016


2017

2016

Liquids Pipelines - Average deliveries (thousands of barrels per day)





Canadian Mainline1

2,586

2,481


2,530

2,405


Regional Oil Sands System2

1,392

1,197


1,301

1,032


Canadian Mainline IJT Residual Toll

$1.64

$1.47


$1.59

$1.51


Canadian Mainline Effective FX Rate

$1.07

$1.06


$1.06

$1.07

Gas Pipelines - Average throughput (millions of cubic feet per day)





Alliance Pipeline Canada

1,564

1,429


1,560

1,532


Alliance Pipeline US

1,684

1,541


1,669

1,668

Green Power (thousands of megawatt hours produced)





Wind Facilities

840

707


2,669

2,539


Solar Facilities

22

24


148

156


Waste Heat Facilities

29

19


101

89

1

Canadian Mainline average throughput volume represents deliveries ex-Gretna, Manitoba, which is made up of United States and eastern Canada deliveries originating from western Canada.

2

Volumes are for the Athabasca mainline, Athabasca Twin, Waupisoo Pipeline and Woodland Pipeline and exclude laterals on the Regional Oil Sands System.

 

EIPLP adjusted EBITDA for the quarter and year ended December 31, 2017 increased by $124 million and $151 million respectively. The key period-over-period performance drivers included:

  • Higher Canadian Mainline revenues due to increases in the Canadian Mainline IJT Residual Benchmark Toll from US$1.47 to US$1.62 in April 2017, which was further increased to US$1.64 in July 2017;
  • Strengthened Canadian Mainline throughput driven by growing oil sands production in western Canada along with capacity optimization initiatives implemented in 2017, partially offset by lower throughput in the second quarter of 2017 due to an unexpected outage and accelerated maintenance at a customer's upstream facility;
  • Additional revenue generated on the Regional Oil Sands System due to new projects that went into service in 2017;
  • Increased throughput and strong demand for firm seasonal service on Alliance;
  • Stronger wind resources in the fourth quarter.

FUND GROUP

Distributable Cash Flow1



Three months ended


Year ended



December 31,


December 31,


2017

2016


2017

2016

(unaudited; millions of Canadian dollars)




EIPLP adjusted earnings before interest, income taxes and depreciation and amortization

748

624


2,665

2,514


Cash distributions in excess of equity earnings

9

23


22

15


Maintenance capital expenditures2

(30)

(38)


(72)

(109)


Interest expense3

(104)

(80)


(398)

(343)


Current income taxes3

(27)

(2)


(76)

(34)


Special interest rights distributions - IDR4

(12)

(12)


(48)

(47)


Other adjusting items5

32

28


89

55

EIPLP DCF

616

543


2,182

2,051


Fund and ECT interest expense, net

(19)

(21)


(78)

(89)


ECT incentive fee

(31)

(30)


(123)

(121)


Fund and ECT operating and administrative expense

(1)

(1)


(5)

(4)

Fund Group DCF

565

491


1,976

1,837

Distributions paid to Enbridge

325

336


1,309

1,343

Distributions paid to ENF

84

67


309

252

Fund Group distributions declared

409

403


1,618

1,595

Fund Group annual payout ratio



82%

87%

1

DCF is a non-GAAP measure that does not have any standardized meaning prescribed by U.S. GAAP. See definition within Non-GAAP Reconciliations Appendices.

2

Maintenance capital expenditures are expenditures that are required for the ongoing support and maintenance of the existing pipeline system or that are necessary to maintain the service capability of the existing assets (including the replacement of components that are worn, obsolete or completing their useful lives). For the purpose of DCF, maintenance capital excludes expenditures that extend asset useful lives, increase capacities from existing levels or reduce costs to enhance revenues or provide enhancements to the service capability of the existing assets. Maintenance capital expenditures occur primarily within EIPLP's Liquids Pipelines segment.

3

These balances are presented net of adjusting items.

4

Incentive Distribution Right (IDR) refers to the cash component of the Special Interest Rights (SIR) distributions. IDR distributions are declared monthly and paid in cash to holders of the SIR in the following month.

5

Primarily relates to cash received for revenue that is deferred, including make-up rights recognized for certain take-or-pay tolling arrangements. Prior to January 1, 2017, EIPLP included make-up rights recognized for certain take-or-pay tolling arrangements in its determination of adjusted EBITDA.

 

Fund Group DCF underpins the Fund Group's ability to pay distributions to holders of Fund Units, including the Company. The Fund Group's DCF increased by $74 million and $139 million for the three and twelve months ended December 31, 2017, respectively. The key period-over-period performance drivers included:

  • The same business performance factors as discussed in the EIPLP Adjusted EBITDA section above, as well as the net effect of the following:
  • Lower maintenance capital expenditures in 2017 due to the timing of maintenance activities;
  • Higher interest expense due to an increase in debt outstanding in 2017;
  • Higher current income taxes due to higher earnings in 2017.

ENBRIDGE INCOME FUND HOLDINGS INC.










Three months ended


Year ended




December 31,


December 31,


2017

2016


2017

2016

(unaudited; millions of Canadian dollars)




Distribution income

84

67


309

252

Dividends declared

80

58


295

219

 

The Company's distribution income represents substantially all of the Company's earnings and cash flows and is derived from the Fund Unit distributions paid to the Company. For the quarter and year ended December 31, 2017, distribution income increased over the comparable periods of 2016, as a result of the increased number of Fund Units held by the Company in 2017.

CONFERENCE CALL

The Company will hold a joint conference call and webcast on February 16, 2018 at 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) with Enbridge Inc., Enbridge Energy Partners, L.P. and Spectra Energy Partners, LP to provide an enterprise wide business update and review 2017 fourth quarter and year-end financial results. Analysts, members of the media and other interested parties can access the call toll free at (877) 930-8043 or within and outside North America at (253) 336-7522 using the access code of 4939158#. The call will be audio webcast live at https://edge.media-server.com/m6/p/rudushbf. A webcast replay and podcast will be available approximately two hours after the conclusion of the event and a transcript will be posted to the website within 24 hours. The replay will be available for seven days after the call toll-free (855) 859-2056 or within and outside North America at (404) 537-3406 (access code 4939158#).

The conference call format will include prepared remarks from the executive team followed by a question and answer session for the analyst and investor community only. The Company's media and investor relations teams will be available after the call for any additional questions.

FORWARD-LOOKING INFORMATION
Forward-looking information, or forward-looking statements, have been included in this news release to provide information about the Company and its investee, the Fund, and the Fund's direct and indirect investments and joint ventures (collectively, the Fund Group), including management's assessment of future plans and operations of the Company and the Fund Group. This information may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe", "likely" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included or incorporated by reference in this document include, but are not limited to, statements with respect to the following: 2018 guidance; expected or target DCF; cash flows; financial strength and flexibility; equity capital requirements; target credit metrics; debt to EBITDA levels; expected performance of the Fund Group's businesses; in-service dates of projects; expected capital expenditures; safety and reliability of pipeline systems; regulatory approvals; shareholder returns; future dividends and distributions by the Company and the Fund; and dividend increases.

Although the Company and the Fund Group believe these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about the following: expected supply of and demand for crude oil, natural gas, natural gas liquids (NGL) and renewable energy; prices of crude oil, natural gas, NGL and renewable energy; exchange rates; inflation; interest rates; availability and price of labor and construction materials; operational reliability; customer and regulatory approvals; maintenance of support and regulatory approvals for the Fund Group's projects; government legislation; anticipated in-service dates; weather; the impact of the dividend policy on the Company's or the Fund Group's future cash flows; capital project funding; the Fund Group's credit ratings; EBITDA or adjusted EBITDA; earnings/(loss) or adjusted earnings/(loss); earnings/(loss) per share; future cash flows and future DCF; and dividends or distributions. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements as they may impact current and future levels of demand for the Fund Group's services. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which the Company and the Fund Group operate and may impact levels of demand for the Fund Group's services and cost of inputs, and are therefore inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to earnings/(loss), adjusted EBITDA, DCF and associated per share amounts or estimated dividends or distributions. The most relevant assumptions associated with forward-looking statements on announced projects and projects under construction, including completion dates and capital expenditures include the following: availability and price of labor and construction materials; effects of inflation and foreign exchange rates on labor and material costs; effects of interest rates on borrowing costs; and the impact of weather and customer, government and regulatory approvals on construction and in-service schedules and cost recovery regimes.

The Company's and the Fund Group's forward-looking statements are subject to risks and uncertainties pertaining to future dividends, DCF guidance, operating performance, regulatory parameters, project approval and support, weather, economic and competitive conditions, public opinion, changes in tax laws and tax rates, changes in trade agreements, exchange rates, interest rates, commodity prices, political decisions and supply of and demand for commodities, including but not limited to those risks and uncertainties discussed in this news release and in the Company's and the Fund Group's other filings with Canadian securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and the Company's or the Fund Group's future course of action depends on management's assessment of all information available at the relevant time. Except to the extent required by applicable law, the Company and the Fund Group assume no obligation to publicly update or revise any forward-looking statements made in this news release or otherwise, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or the Fund Group or persons acting on the Company's or the Fund Group's behalf, are expressly qualified in their entirety by these cautionary statements.

ABOUT ENBRIDGE INCOME FUND HOLDINGS INC.
Enbridge Income Fund Holdings Inc., through its investment in the Fund, indirectly holds high quality, low-risk energy infrastructure assets. The Fund's assets consist of a portfolio of Canadian liquids transportation and storage businesses, including the Canadian Mainline, the Regional Oil Sands System, the Canadian segment of the Southern Lights Pipeline, Class A units entitling the holder to receive defined cash flows from the United States segment of the Southern Lights Pipeline, a 50 percent interest in the Alliance Pipeline, which transports natural gas from Canada to the United States, and interests in more than 1,400 megawatts of renewable and alternative power generation assets. Enbridge Income Fund Holdings Inc. is a publicly traded corporation on the Toronto stock exchange under the symbol ENF; information about the Company is available on the Company's website at www.enbridgeincomefund.com.

None of the information contained in, or connected to, the Company's website is incorporated in or otherwise forms part of this news release.

FOR FURTHER INFORMATION PLEASE CONTACT:

Media

Investment Community

Suzanne Wilton

Nafeesa Kassam

Toll Free: (888) 992-0997

Toll Free: (800) 481-2804

Email: suzanne.wilton@enbridge.com

Email: nafeesa.kassam@enbridge.com

 

NON-GAAP RECONCILATIONS APPENDICES

This news release contains references to adjusted earnings before interest, income taxes and depreciation and amortization (adjusted EBITDA) and distributable cash flow (DCF). Adjusted EBITDA represents EIPLP earnings before interest, income taxes and depreciation and amortization (EBITDA), adjusted for unusual, non-recurring or non-operating factors on both a consolidated and segmented basis. These factors, referred to as adjusting items, are reconciled and discussed in the financial results sections of this news release and in these appendices.

Fund Group DCF consists of adjusted EBITDA further adjusted for non-cash items, representing cash flow from the Fund Group's underlying businesses, less deductions for maintenance capital expenditures, interest expense, and applicable taxes and further adjusted for unusual, non-recurring or non-operating factors not indicative of the underlying or sustainable cash flows of the business. DCF is important to unitholders as the Fund Group's objective is to provide a predictable flow of distributions to unitholders. DCF represents the Fund Group's cash available to fund distributions to unitholders, as well as for debt repayments and reserves.

Management believes the presentation of adjusted EBITDA and DCF are useful to investors and unitholders as they provide increased transparency and insight into the performance of the Company and the Fund Group. Management uses adjusted EBITDA and DCF to set targets, including the distribution payout target, and to assess the performance of the Company and the Fund Group. Adjusted EBITDA and DCF are not measures that have standardized meanings prescribed by generally accepted accounting principles in the United States of America (U.S. GAAP) and are not U.S. GAAP measures. Therefore, these measures may not be comparable with similar measures presented by other issuers.

The table below provides a reconciliation of the non-GAAP measures to comparable GAAP measures.

APPENDIX A

ENBRIDGE INCOME PARTNERS LP

EBITDA to Adjusted EBITDA


Three months ended


Year ended


December 31,


December 31,


2017

2016


2017

2016

(unaudited; millions of Canadian dollars)




Liquids Pipelines

695

1,261


3,016

3,288

Gas Pipelines

57

39


213

194

Green Power

73

63


261

247

Eliminations and Other

15

4


(2)

(6)

Earnings before interest, income taxes and

depreciation and amortization

840

1,367


3,488

3,723

Adjusting items:





Changes in unrealized derivative fair value

(gains)/loss1

(100)

87


(891)

(502)


Unrealized loss on translation of United States dollar intercompany loan receivable

7

(10)


58

43


Leak remediation costs

1


16


Leak insurance recoveries


(6)

(5)


Make-up rights adjustments2

1


31


Northeastern Alberta wildfires pipelines and facilities restart costs

8


47


Gain on sale of South Prairie Region assets

(850)


(850)


Employee severance cost allocation

21


21


Other


6

Adjusted earnings before interest, income taxes and

depreciation and amortization

748

624


2,665

2,514



1

Changes in unrealized derivative fair value gains and losses are presented net of amounts realized on the settlement of derivative contracts during the applicable period.

2

Effective January 1, 2017, EIPLP no longer makes such an adjustment to our EBITDA.

 

SOURCE Enbridge Income Fund Holdings Inc.