BC Ferries Releases Year-End Results
British Columbia Ferry Services Inc. (BC Ferries) released its year-end results today for fiscal 2015. Consolidated net earnings were $49.1 million for fiscal 2015, compared to the prior year’s net earnings of $18.0 million.
“For customers, the direct benefit of the company’s strong financial performance will be realized in the Fourth Performance Term (April 1, 2016 through March 31, 2020), with annual fare increases set at or below projected inflation. This is one full performance term sooner than originally anticipated,” said Mike Corrigan, BC Ferries’ President and CEO.
“It’s extremely important that BC Ferries produces strong financial results so that we can fund our $3 billion capital program going forward to replace aging ships, assets and information technology. BC Ferries has to replace one ship per year over the next 12 years beginning with our cable ferry and the three intermediate class ferries,” said Corrigan. “Strong financial results are essential to maintain sustainable operations, meet our debt covenants, and to maintain our current strong investment-grade credit rating to ensure financing is affordable.”
Revenues for the year increased from $800.2 million to $841.1 million, mainly due to higher traffic levels, an increase in other revenue, the impact of fuel surcharges, and higher tariffs. Operating expenses increased from $714.3 million to $722.5 million compared to the year prior. The $8.2 million increase in fiscal 2015 operating expenses mainly consists of increases in maintenance and depreciation costs.
Capital expenditures in the three and twelve months ended March 31, totalled $48.8 million and $149.8 million, respectively. For fiscal 2015, these investments include: $69.0 million in vessel upgrades and modifications; $47.6 million in terminal marine structures; $23.5 million in information technology; and $9.7 million in terminal and building upgrades and equipment.
In the last quarter of fiscal 2015, traffic was significantly higher than in the comparable period of the year before. Vehicle traffic was up 5.1 per cent and passenger traffic was up 4.2 per cent. Over the fiscal year, BC Ferries experienced a 0.6 per cent increase in vehicle traffic and a 0.5 per cent increase in passenger traffic compared to fiscal 2014.
On March 18, the BC Ferries Commissioner issued his report regarding the efficiency of BC Ferries, along with several other performance review and assessment reports. The efficiency report confirmed that BC Ferries demonstrates good cost control and has a strong culture of efficiency. The report also indicated that administrative expenses have declined by 15.1 per cent on an inflation adjusted basis since 2009. The report also confirmed that overtime hours have declined and absenteeism rates are below the average for comparable businesses.
The Commissioner also released the Preliminary Decision on Price Caps for the Fourth Performance Term, in which he has set the increase in price caps (or average fare increases) at 1.9 per cent per year. The Commissioner will issue his decision on final price caps by no later than Sept. 30.
Significant events during or subsequent to fiscal 2015 include: the April 28, 2014 completion of a private placement of $200 million of 30-year senior secured bonds with accredited investors. These bonds bear interest at a rate of 4.289 per cent per annum, payable semi-annually. The effective rate of this issue, net of hedging, is 4.45 per cent, the lowest effective bond interest rate in the 12-year history of the company.
On July 3, 2014, BC Ferries entered into contracts with Remontowa Shipbuilding S.A. of Gdansk, Poland to build three new dual-fuel intermediate class vessels. These contracts, with a total value of $165 million, form the majority of the total project budget of $252 million. This budget also includes $51 million for Canadian taxes and federal import duties.
On Nov. 24, the Commissioner conditionally approved the company’s application to proceed with mid-life upgrades, including conversion to dual-fuel, of the two largest ships in the fleet, the Spirit of Vancouver Island and the Spirit of British Columbia. BC Ferries expects a conversion would result in significant savings in fuel costs.
On Dec. 17, fuel surcharges of 3.4 per cent on average were removed from the major and minor routes and a fuel rebate of 1.0 per cent was implemented on April 1, as a result of declining fuel prices and locking in pricing for a significant portion of forecast fuel consumption to the end of fiscal 2016. On the northern routes, no fuel surcharges were in place and no fuel rebates are in effect.
On Feb. 2, the Commissioner conditionally approved the company’s application in support of the Fare Flexibility and Digital Experience Initiative. This initiative will introduce a new system to manage fares, improve operational efficiency through better capacity management, provide customers with a modernized e-commerce platform with greater online functionality and booking options, and provide better access for mobile, tablet and desktop channels.
On May 8, BC Ferries unveiled the name of its new cable ferry, the Baynes Sound Connector, at a special naming ceremony. Compared to the current service, it is projected that, over 40 years, the cable ferry will provide over $80 million in cost savings as well as significant environmental benefits. The cable ferry will accommodate 50 vehicles and 150 passengers and crew.
The ship will commence service between Buckley Bay on Vancouver Island and Denman Island later this year.
BC Ferries’ full financial statements, including notes and Management’s Discussion and Analysis, as well as the Statement of Executive Compensation, are filed on SEDAR and will be available online.
