Interest expense
Bond interest 63.3 63.4 63.4 63.3
KfW bank group (KfW) loans 8.3 9.4 9.4 10.5 Interest on finance lease 2.3 2.4 2.4 1.2
Short-term debt 0.4 0.2 0.2 0.2
Interest on deferred accounts n/a n/a – 0.3 Structured Financing Facility (SFF) program (0.4) (1.5) (1.5) (0.5) Capitalized interest (1.8) (2.0) (2.0) (2.9) Total interest expense 72.1 71.9 71.9 72.1 Less: finance income (2.9) (2.4) n/a n/a
net finance expense 69.2 69.5 n/a n/a
(Gain) on foreign exchange n/a n/a (0.2) (0.2) Loss (gain) on disposal of property, plant and equipment 0.1 0.3 0.3 (8.6) Total net finance and other expenses 69.3 69.8 72.0 63.3
Partially offset by;
• $1.1 million in lower interest rate support through the SFF program offered by the Government of Canada, reflecting the completion of the funding related to the life extension of the Quinsam; and
• $0.2 million less interest capitalized.
year to year coMparison oF cgaap expenses 2012 – 2011
The $2.2 million increase in fiscal 2012 operations expenses consists of:
• $4.0 million or 4.1% increase in fuel expense as a result of higher fuel prices, partially offset by a 0.4% decrease in fuel consumption; Partially offset by:
• $0.8 million reduction in advertising and public relations; and
• $1.0 million reduction in a number of miscellaneous items. The $0.6 million increase in maintenance costs reflects an increase in vessel maintenance reflecting the variations in vessel refit scheduling, mainly offset by reductions in terminal maintenance. We completed 26 refits in fiscal 2012 and had one in progress at March 31, 2012. Administration expenses remained at a similar level to the prior year. Amortization increased $8.5 million reflecting higher amortization resulting from the new capital assets entering service during fiscal 2012. Interest expenses decreased $0.2 million primarily due to:
• $1.0 million in higher interest rate support through the SFF program offered by the Government of Canada, reflecting the funding related to the life extension of the Quadra Queen II; and
• $1.1 million less interest due to principal repayments of $45 million on the 12-year amortizing KfW loans and $9 million on the 2.95% loan. Partially offset by;
• $1.2 million increased interest on the capital lease of the new corporate office building reflecting a full year of the lease being in effect compared to a partial year in fiscal 2011; and
• $0.9 million less interest capitalized.
On November 1, 2010, our former corporate office building was sold for $11.0 million, resulting in a gain on sale of $9.3 million being recognized in fiscal 2011.
year to year coMparison oF iFrs expenses 2013 – 2012
The $3.6 million increase in fiscal 2013 operations expenses consists of:
• $5.0 million increase in wage and benefits costs mainly due to wage rate increases and higher benefit costs;
• $1.3 million increase in fuel expense reflecting an increase of $3.3 million or 1.1% due to higher fuel prices, partially offset by a $2.0 million or 1.7% decrease in fuel consumption. While IFRS does not permit accounting for rate-regulated entities, we are in fact rate-regulated. For purposes of rate regulation, $11.3 million of our fuel expense for fiscal 2013 ($19.4 million for fiscal 2012) is recorded in deferred fuel cost accounts for future recovery. (See “The Effect of Rate Regulation” above for more detail);
Partially offset by:
• $1.2 million decrease in materials, supplies and contracted services;
• $0.9 million decrease in insurance premiums and claims; and
• $0.6 million decrease in several other operational areas including rental and lease expenses, telecommunications costs, and advertising and public relations costs.
The $4.1 million increase in maintenance costs reflects an increase in vessel maintenance reflecting the variations in vessel refit scheduling and an increase in terminal maintenance.
The $1.6 million decrease in administration expenses is mainly due to lower wages and benefits, including lower executive compensation which is due to a reduced number of senior executive positions and a lower average compensation per executive position.
The $0.4 million increase in cost of retail goods sold reflects the increase in overall sales and a change in sales mix with a decrease in food sales with a lower cost and an increase in gift shop sales with a higher cost. Depreciation and amortization increased $2.1 million reflecting higher amortization resulting from the new capital assets entering service during fiscal 2013. (See “Investing in our Capital Assets” below for details of capital asset expenditures in fiscal 2013.)
Net finance and other expenses decreased $0.5 million primarily due to:
• $1.1 million reduction in interest due to lower interest rates on the Tranche B than on the Tranche A components of the 12-year KfW loans and $9.0 million of principal repayments on the 2.95% KfW loan. (See “Liquidity and Capital Resources – Long-Term Debt” below for more detail);
• $0.5 million increase in finance income; and
• $0.2 million reduction in losses on disposal of property, plant and equipment;
We target maintaining a strong investment-grade credit rating to allow capital market access at reasonable interest rates. Our credit ratings at March 31, 2013, were “A” (DBRS) with a stable trend and “A+” (S&P) with a stable outlook. On February 14, 2013, we were advised by S&P that they affirmed our long-term rating of “A+” and revised our outlook from negative to stable, reflecting their view of an improvement in regulatory certainty. S&P also based their rating on their view of our “near-monopoly position, strong service area, moderately strong financial
risk profile, and credit support provided from government fees for the service of non-profitable, smaller routes.”
On September 30, 2012, the Commissioner issued Order 12-02 which established price cap increases for the balance of PT3. These price cap increases are sufficient to enable us to meet our debt obligations and maintain access to borrowing rates that, in the opinion of the Commissioner, are reasonable. The order indicated that the Commissioner had established the price caps with the intention of allowing us to achieve, by the end of PT3, equity not less than 17.5% of total capitalization and a DSCR of 2.5 or greater.