CALGARY, AB – Keyera Corp. (TSX: KEY) (“Keyera”) announced its 2020 year-end financial results today, the highlights of which are included in this news release. The entire news release can be viewed by visiting Keyera’s website at www.keyera.com. To view the MD&A and financial statements, visit either Keyera’s website or Keyera’s filings on SEDAR at www.sedar.com.
Corporate Highlights
Business Segment Highlights and Project Updates
1 |
Keyera uses certain “Non-GAAP Measures” such as EBITDA, adjusted EBITDA, funds from operations, distributable cash flow, distributable cash flow per share, payout ratio and return on invested capital. See section titled “Non-GAAP Financial Measures”, “Dividends: Funds from Operations and Distributable Cash Flow” and “EBITDA” of the MD&A for further details. |
2 |
Net earnings for 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy” section of the MD&A for further details. For further details on impairment charges, refer to the “Net Impairment Expense” section of the MD&A. |
3 |
Ratio is calculated in accordance with the covenant test calculations related to the company’s credit facility and senior note agreements and excludes hybrid notes. |
4 |
Realized margin is not a standard measure under GAAP and excludes the effect of $12 million in non-cash losses from commodity-related risk management contracts. See “Non-GAAP Financial Measures” in the MD&A. |
Summary of Key Measures |
Three months ended December 31, |
Twelve months ended December 31, |
||
(Thousands of Canadian dollars, except where noted) |
2020 |
2019 |
2020 |
2019 |
Net (loss) earnings |
(74,777) |
29,718 |
62,030 |
443,609 |
Per share ($/share) – basic |
(0.34) |
0.14 |
0.28 |
2.07 |
Cash flow from operating activities |
116,446 |
213,676 |
688,173 |
887,935 |
Funds from operations1 |
155,812 |
200,871 |
810,436 |
754,254 |
Distributable cash flow1 |
132,629 |
158,261 |
718,176 |
593,584 |
Per share ($/share) 1 |
0.60 |
0.73 |
3.26 |
2.77 |
Dividends declared |
106,091 |
104,280 |
423,485 |
396,862 |
Per share ($/share) |
0.48 |
0.48 |
1.92 |
1.85 |
Payout ratio %1 |
80% |
66% |
59% |
67% |
Adjusted EBITDA2 |
168,145 |
261,387 |
873,582 |
944,101 |
Gathering and Processing |
||||
Gross processing throughput (MMcf/d) |
1,307 |
1,483 |
1,274 |
1,496 |
Net processing throughput (MMcf/d) |
1,106 |
1,186 |
1,057 |
1,191 |
Liquids Infrastructure |
||||
Gross processing throughput3 (Mbbl/d) |
155 |
157 |
149 |
170 |
Net processing throughput3 (Mbbl/d) |
75 |
70 |
73 |
79 |
AEF iso-octane production volumes (Mbbl/d) |
8 |
9 |
12 |
12 |
Marketing |
||||
Inventory value |
162,823 |
93,682 |
162,823 |
93,682 |
Sales volumes (Bbl/d) |
153,900 |
177,300 |
149,900 |
150,100 |
Acquisitions |
240 |
50 |
1,870 |
599 |
Growth capital expenditures |
76,129 |
253,722 |
563,178 |
986,125 |
Maintenance capital expenditures |
10,889 |
29,732 |
29,116 |
105,077 |
Total capital expenditures |
87,258 |
283,504 |
594,164 |
1,091,801 |
Weighted average number of shares outstanding – basic and diluted |
221,023 |
216,938 |
220,442 |
214,186 |
As at December 31, |
||||
2020 |
2019 |
|||
Long-term debt4 |
2,940,701 |
2,548,468 |
||
Credit facility |
280,000 |
90,000 |
||
Working capital (surplus) deficit5 |
(147,824) |
160,684 |
||
Net debt |
3,072,877 |
2,799,152 |
||
Common shares outstanding – end of period |
221,023 |
217,916 |
Notes: |
|
1 |
Payout ratio is defined as dividends declared to shareholders divided by distributable cash flow. Payout ratio, funds from operations, and distributable cash flow are not standard measures under Generally Accepted Accounting Principles (“GAAP”). See the section titled, “Dividends: Funds from Operations and Distributable Cash Flow”, for a reconciliation of funds from operations and distributable cash flow to the most closely related GAAP measure. |
2 |
Adjusted EBITDA is defined as earnings before finance costs, taxes, depreciation, amortization, impairment expenses, unrealized gains/losses and any other non-cash items such as gains/losses on the disposal of property, plant and equipment. EBITDA and adjusted EBITDA are not standard measures under GAAP. See section of the MD&A titled “EBITDA” for a reconciliation of adjusted EBITDA to its most closely related GAAP measure. |
3 |
Fractionation throughput in the Liquids Infrastructure segment is the aggregation of volumes processed through the fractionators and the de-ethanizers at the Keyera and Dow Fort Saskatchewan facilities. |
4 |
Long-term debt includes the total value of Keyera’s hybrid notes which receive 50% equity treatment by Keyera’s rating agencies. The hybrid notes are also excluded from Keyera’s covenant test calculations related to the company’s credit facility and senior note agreements. |
5 |
Working capital is defined as current assets less current liabilities. |
Message to Shareholders
No one could have predicted the unprecedented developments the world faced resulting from the COVID-19 pandemic in 2020, which in turn posed tremendous challenges for the energy industry. Our highest priority has been and will continue to be the safety and health of our people and communities. I’m proud of how people adapted in order to safely maintain operations at our facilities.
At Keyera, we demonstrated our resilience by relying on our commitment to safety, the strength of our team and the quality of our integrated assets to quickly adapt to the changing environment. The actions we took – deferring capital spending, discontinuing the dividend reinvestment plan, maintaining ample liquidity, implementing cost reduction programs, delivering the Pipestone gas plant ahead of schedule, combined with the proven effectiveness of our risk management programs, ensured we preserved value for our shareholders.
In 2020, Keyera delivered $874 million in adjusted EBITDA. This was the second-best result in the history of the company, and we exited the year with leverage metrics within our targeted range.
In overcoming significant challenges this year, we continue to have confidence in Keyera’s ability to focus on capital discipline, manage risks, position for the energy transition and deliver returns for our shareholders which by extension, will bring value for all stakeholders for decades to come.
Management Succession
We would like to recognize and thank former CEO David Smith for his tremendous contribution and stewardship over his 22 years at Keyera. His focus on building deep bench strength allowed for a seamless transition of the senior executive management team upon his retirement at the end of 2020.
Under our new senior executive team, Keyera’s value proposition continues to be delivery of a sustainable dividend underpinned by low leverage and an asset base and strategy aimed at steady growth in distributable cash flow per share. Furthermore, we have integrated assets that are well positioned to capture the upside of a recovery in global energy demand, and participate in a low-carbon energy transition.
To align the organization with delivering value to all stakeholders, we have set priorities with the goal to achieve:
Strong Focus on Capital Discipline and Shareholder Returns
Keyera has a long history of delivering returns for shareholders. Since 2008, the company has grown distributable cash flow at a compounded annual growth rate of 9% allowing for consistent growth of the dividend. We target annual returns on invested capital (“ROIC”) to be in the range of 10% to 15%. In 2020, we delivered a 11.4% ROIC amidst a global pandemic that upended global economies and the energy industry alike. We will continue to practice prudent financial management guided by our financial priorities:
In addition to the above financial priorities, our team is focused on increasing the stability of cash flows. We can achieve this, in part, by growing our Liquids Infrastructure segment, which has a high degree of long-term take-or-pay commitments.
We are making solid progress on our cost reduction and optimization initiatives. In 2020, we shared our plan to achieve $45 million to $65 million in annual sustained cost savings. Most of the benefits are expected to take hold by the end of 2021 further contributing to our profitability.
Accelerating Technology and Innovation
We are prioritizing the use of technology and have formalized this effort by assembling an internal Innovation and Transformation team. We expect these efforts will increase overall returns by improving safety and reliability, increasing efficiencies, reducing costs and lowering our emissions.
Keyera’s Role in the Energy Transition
Conducting business responsibly has been a long-standing commitment and a source of great pride at Keyera. In 2020, we further enhanced our commitment to ESG principles by publishing Keyera’s inaugural ESG report which aligns with guidance set out by SASB.
Through robust stakeholder engagement we have identified six material ESG factors – Safety, People and Culture, Emissions, Community and Indigenous Engagement, Land Management and Water. ESG factors are incorporated into strategic planning, capital allocation and investment decisions and have oversight at the board of directors level. In 2020, the board also approved the inclusion of key ESG performance measures, including safety, reliability and emissions into our annual scorecard, used to determine bonuses for executives and employees. We have also committed to setting carbon emission reduction targets in 2021 and aligning with phase 1 TCFD disclosures.
Keyera’s assets position the company to be a leader in the transition to a low carbon future. We will reduce our own carbon footprint, but also help our customers reduce theirs.
Business Development
There are many reasons to be optimistic about the near-term outlook for the company.
We are seeing business conditions improving with volumes in our Gathering and Processing segment beginning to slowly improve. In this segment, we will be focused on growing margins and improving competitiveness through cost reduction and efficiency gains. This will allow our customers to achieve the highest netbacks, further cementing Keyera as their service provider of choice. The Pipestone gas plant was commissioned in the fourth quarter, ahead of schedule and its initial throughput has exceeded our expectations.
The Liquids Infrastructure segment is where we are focusing our growth efforts. Volumes in this part of our business are now surpassing pre-COVID levels as demand remains high for our industry leading condensate system. This business has high barriers to entry and produces our highest returns with the least volatility of cash flow given its contracted nature and quality of counterparties. The one-year delay in the KAPS pipeline project in 2020 allowed us to preserve balance sheet strength during a period of heightened uncertainty. In the US, Galena Park which was commissioned in December 2020 and the Wildhorse Terminal, which is expected to be operational in mid-2021 is anticipated to further grow our realized margins.
Outlook
I am proud of our performance in 2020 across all aspects of our business. We have demonstrated our resilience and positioned ourselves to keep the momentum going in 2021. The commodity markets and the outlook for our customers appear to be improving and we have several catalysts in the near-term contributing to growing distributable cash flow. Furthermore, we intend to keep our focus on all aspects of ESG performance, and we will investigate ways to continue to play an active role in the energy transition.
We are excited by the outlook for Keyera and are confident we have the people and the assets to succeed for decades to come.
Dean Setoguchi
President and Chief Executive Officer
Keyera Corp.
Fourth Quarter and Annual 2020 Results Conference Call and Webcast
Keyera will be conducting a conference call and webcast for investors, analysts, brokers and media representatives to discuss the financial results for the fourth quarter and year-end of 2020 at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on Wednesday, February 10, 2021. Callers may participate by dialing 888-231-8191 or 647-427-7450. A recording of the call will be available for replay until 10:00 p.m. Mountain Time (12:00 a.m. Eastern Time) on February 24, 2021 by dialing 855-859-2056 or 416-849-0833 and entering pass code 1489089.
Internet users can listen to the call live on Keyera’s website at www.keyera.com/news/events. Shortly after the call, an audio archive will be posted on the website for 90 days.
About Keyera Corp.
Keyera Corp. (TSX:KEY) operates an integrated Canadian-based energy infrastructure business with extensive interconnected assets and depth of expertise in delivering energy solutions. Its predominantly fee-for-service based business consists of natural gas gathering and processing; natural gas liquids processing, transportation, storage and marketing; iso-octane production and sales; and an industry-leading condensate system in the Edmonton/Fort Saskatchewan area of Alberta. Keyera strives to provide high quality, value-added services to its customers across North America and is committed to conducting its business ethically, safely and in an environmentally and financially responsible manner.