BC Ferries reports year-end results

British Columbia Ferry Services Inc. (BC Ferries) has released its year-end results for fiscal 2011. BC Ferries is one of the largest ferry operators in the world and carried 20.7 million passengers and 8.1 million vehicles during the fiscal year ended March 31, 2011. BC Ferries provides year-round ferry transportation services to the West Coast of Canada on 25 routes, currently supported by 35 vessels and 47 terminals, and also manages other remote routes through contracts with independent operators.

Consolidated net earnings were C$3.8 million for the year ended March 31, 2011, up from C$3.4 million the previous year. Lower than expected traffic levels were off-set by cost containment measures and a one-time C$9.3 million gain on the sale of BC Ferries former corporate office building. BC Ferries’ fleet and asset renewal program for the major and northern routes is now substantially complete. However, the company continues to invest significantly in its vessels on minor routes and in its terminals.

Revenues for the year increased from C$732.3 million to C$739.3 million, while operating expenses increased from C$660.0 million to C$672.2 million. The C$12.2 million increase in fiscal 2011 operating expenses includes C$6.7 million in increased wages and benefits which are largely contractual in nature; C$2.9 million in increased fuel expenses as a result of higher prices; and C$3.3 million due to the implementation of the HST.

On October 1, 2010, the Government of Canada announced that BC Ferries’ request for duty remission on the four vessels built in Germany had been granted. The C$119.4 million in remission of import taxes and related GST has been utilized in an across the board ferry fare reduction of approximately 2 per cent effective October 18, 2010, and will reduce future fare increases in performance term three. C$20.0 million of this amount has been allocated to upgrade key assets in the ship repair and maintenance business in British Columbia.

Capital expenditures in the three and twelve months ended March 31, 2011 totaled C$39.5 million and C$128.7 million, respectively. For fiscal 2011, these investments include: C$45.4 million in vessel upgrades and modifications; C$41.6 million in terminal marine structures; C$24.5 million in terminal and building upgrades and equipment; and C$17.2 million in information technology. In addition, the company entered into agreements which constitute a capital lease for space in a new corporate office building.

BC Ferries experienced a 1.6 per cent decline in vehicle traffic and a 1.4 per cent decline in passenger traffic in fiscal 2011 compared to the year prior, bringing traffic to levels similar to those experienced in fiscal 2009. During fiscal 2011, vehicle fuel prices climbed while tourism remained lower than in years prior to fiscal 2009.

“The year ahead is going to be a challenging one for the tourism business and for BC Ferries,” said David L. Hahn, BC Ferries’ President and CEO. “We are planning to post a loss of approximately C$20 million in fiscal 2012, which is attributed to continued low traffic volumes as well as our commitment to fund on-going vessel maintenance and repair, and to expand our safety management and training programs. Our strategy is to not repeat past practices of cutting capital expenditures and other important programs to the detriment of British Columbia’s ferry service.”

Fourth quarter revenues decreased from C$142.3 million to C$140.7 million compared to the same quarter the year prior, while total expenses increased from C$179.1 million to C$179.7 million. BC Ferries reported a fourth quarter loss of C$39.0 million compared to a C$36.8 million loss in the same quarter the previous year. Due to the seasonality of ferry travel, BC Ferries typically generates higher earnings in the first two quarters, which are usually offset by net losses in the third and fourth quarter of the fiscal year.

During the fiscal year ended March 31, 2011, the C$32 million multi-year project for replacement and refurbishment of one of the major berths at Tsawwassen terminal was completed. The Quadra Queen II returned to service after completion of a C$15 million life extension project to prepare it for another 20 years of service. In addition, the Queen of Cumberland underwent a C$6 million combined refit and asset improvement project.

July 7, 2011