Capstone’s mission is to build and responsibly manage a high quality portfolio of infrastructure businesses in Canada and internationally in order to deliver a superior total return to shareholders by providing reliable income and capital appreciation.


Since 2004, we have significantly diversified our investments, increased revenue and grown cash flow.


(1) Excludes internalization costs.
(2) Figures presented for 2004 to 2009 reflect Canadian Generally Accepted Accounting Principles (“GAAP”).
(3) Chart illustrates contribution for the businesses and excludes the development and corporate components.









Related Links
Letter from CFO
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CEO’s Message
Chairman’s Message




















Shareholders can be confident in Capstone’s strong fundamentals, which include a high quality portfolio, financial flexibility and an active approach to capital management.



Dear Fellow Shareholders,
In 2012, Capstone delivered Adjusted EBITDA of $120.7 million, which was slightly ahead of our expectations and reflected the diverse mix and inherent characteristics of our infrastructure businesses.

A key focus for us in the first half of the year was to refinance or repay the approximately $200 million in debt coming due under various corporate and power segment credit facilities in 2012. I am pleased to report that we have successfully reduced our total leverage, lowered our refinancing risk and have limited exposure to movements in interest rates. Our financing initiatives included:

The recapitalization of Värmevärden in March 2012, which enabled us to repatriate approximately $49.5 million of capital;


The sale of a 20% interest in Bristol Water to ITOCHU Corporation in May 2012 for net proceeds of $68 million, representing an attractive premium to our original investment;


The recapitalization of our hydro power facilities, through which we raised approximately $100 million in senior secured and subordinated secured bonds; and


The establishment of a new corporate credit facility, which includes a $15 million revolving facility that is available along with cash on hand to support development and growth initiatives.

Our outstanding debt is almost entirely fixed rate or linked to inflation and is predominantly secured at the operating business level, which means it is non-recourse to Capstone. In our power segment, approximately 95% of debt is scheduled to amortize over the various PPA terms. At Bristol Water, which is a long-term, perpetual business, our debt primarily consists of non-amortizing debt, which means we pay interest over the term but the principal is due at maturity. Approximately 92% of Bristol Water’s debt has a term greater than 10 years. Overall, this debt profile represents a significant de-risking of our balance sheet.

Another priority in the first half of the year was to set a new dividend that is intended to provide stable income to our shareholders with the potential for capital appreciation.

Our new dividend reflects what we believe are reasonable possible outcomes at Cardinal, and accordingly, the long-term cash flow profile of that facility. It also provides some buffer in the unlikely event we receive less cash flow from Cardinal than we currently expect or if we experience unforeseen events in our business. Based on our current portfolio and outlook, we expect this dividend level to result in a long-term average payout ratio of 70% to 80%, which will allow us to retain cash that can be reinvested in growth. Our payout ratio in 2013 and 2014 will be significantly lower than this level and it may be slightly higher in 2015 and beyond depending on the final outcome of Cardinal.

In the second half of 2012, we shifted our focus back to pursuing acquisition opportunities. A key part of my job is to direct capital management planning to make sure we have the resources to support growth, including:

Ensuring an appropriate capital structure at the corporate and subsidiary level that aligns with the cash flow profile and duration of our businesses;


Maintaining sufficient liquidity to meet short- and medium-term operating needs; and


Establishing relationships with investors and lenders, including establishing a new corporate credit facility, to enhance our capacity to seize growth opportunities as they arise.


For 2013, we expect to achieve Adjusted EBITDA of approximately $110 million to $120 million, which, while consistent with our 2012 performance, represents an approximately 5% increase in Adjusted EBITDA over 2012 on a pro forma basis had we held our 50% interest in Bristol Water for the full 2012 year. This anticipated performance will support our new dividend level while allowing us to retain cash. At the same time, we now have a much stronger balance sheet to support our growth strategy.

Shareholders can be confident in Capstone’s strong fundamentals, which include a high quality portfolio, financial flexibility and an active approach to capital management. In addition, we are well positioned to participate in the burgeoning infrastructure opportunity that is emerging in our target markets. We are just beginning to write Capstone’s next chapter and are optimistic about the possibilities before us to create enduring value for shareholders: today, tomorrow and for years to come.























Financial Risk Management

We continually monitor, analyze and seek to minimize the risks within our capital structure with a view to maintaining an optimal financing mix that suits the nature of our businesses and that generates value for shareholders.




Our team is squarely focused on meeting — and exceeding — planned business performance expectations, which improves our company’s stability, value and future prospects.



We seek to manage our capital structure so that it remains flexible and offers room for expansion.



Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
EBITDA is net income (loss), including that net income (loss) related to the non-controlling interest and interest income excluding interest expense, income taxes, depreciation and amortization. EBITDA represents Capstone’s continuing capacity to generate income from operations before taking into account management’s financing decisions and costs of consuming tangible capital assets and intangible assets, which vary according to their vintage, technological currency, and management’s estimate of their useful life.

Adjusted EBITDA is calculated as revenue less operating and administrative expenses plus interest income and dividends or distributions received from equity accounted investments. Amounts attributed to any non-controlling interest are deducted. Adjusted EBITDA for the investment in Bristol Water is included at Capstone’s proportionate ownership interest. Adjusted EBITDA is reconciled to EBITDA by removing equity accounted income, other gains and losses (net), foreign exchange gains and losses, and adding in dividends or distributions from equity accounted investments.

Adjusted Funds from Operations (AFFO)
Capstone’s definition of AFFO measures cash generated by its infrastructure business investments that is available for dividends and general corporate purposes. For wholly owned businesses, AFFO is equal to Adjusted EBITDA less interest paid, repayment of principal on debt, income, taxes paid and maintenance capital expenditures. For businesses that are not wholly owned, the cash generated by the business is only available to Capstone through periodic dividends. For these businesses, AFFO is equal to distributions received. Also deducted are corporate expenses and dividends on preferred shares.

Asset management plan, which is developed by water utilities in the United Kingdom every five years and approved by Ofwat.

Annual long-term average production
An average production figure based on the actual electricity production of a facility since the start of full operations.

Availability is the number of hours that a generating unit is able to provide service at full output, whether or not it is actually in service, as a percentage of total hours in the period.
Base load facility
A base load facility produces electricity at an essentially constant rate and runs continuously.
Capacity is the net amount of electricity generated by a generating unit as a percentage of the total possible generation over the period.

Cogeneration refers to the simultaneous production of electricity and thermal energy in the form of heat or steam from a single fuel source, a process that results in high efficiency and an effective use of energy.

Consumer Price Index (CPI)
The CPI is an indicator of inflation that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.

A period during which a power facility continues to operate but at less than capacity.
Direct Customer Rate (DCR)
The Direct Customer Rate, which is set by the Ontario Electricity Financial Corporation, is calculated based on a three-year average of the total market cost of electricity to industrial customers.
Gigajoule (GJ)
One GJ is equivalent to the amount of energy available from 26.1 m3 of natural gas.

Gigawatt hour (GWh)
A unit of electrical energy equal to 1,000 megawatt hours.

Green metric tonne (GMT)
A unit of weight equal to 1,000 kilograms.
The effect of precipitation and evaporation upon the occurrence and distribution of water in streams, lakes and on or below the land surface.
K Factor
The regulated annual rate by which each licenced water company can increase its charges annually on top of inflation.

Kilowatt (kW)
This commercial unit of electrical power refers to 1,000 watts of electrical power. This is the total amount of power needed to light 10 light bulbs of 100 watts each.

Thousands of pounds of steam.
Megawatt (MW)
A megawatt is 1,000 kilowatts.

Megawatt hour (MWh)
This is a measure of energy production or consumption equal to one million watts produced or consumed in one hour (total amount of power required to light 10,000 100-watt light bulbs).

Millions of litres of water per day.

A unit of heat equal to one million British thermal units. A British thermal unit is the quantity of energy necessary to raise the temperature of one pound of water by one degree Fahrenheit.
The UK Water Services Regulation Authority.

A period of time when a power generation facility does not produce any electricity.
Payout ratio
Payout ratio measures the proportion of AFFO that is paid as dividends to common shareholders. The payout ratio is calculated as dividends declared divided by AFFO.

Peaking facility
A peaking power facility is reserved for operation during the hours of highest daily, weekly or seasonal loads.

Power Purchase Agreement (PPA)
A PPA is an agreement to purchase electricity at a specified rate for a defined period of time.

Public-Private Partnership (P3)
A partnership between the public and private sectors to deliver infrastructure projects.
The regulated capital value, or capital base, that is used by Ofwat to set the prices a water utility may charge its customers in each asset management plan period.

A renewable energy credit is a certificate issued by a government agency to a power company that uses environmentally-friendly methods to generate electricity. The RECs can in turn be sold and traded to third parties or on the open market.

The Retail Price Index is a measure of inflation in the United Kingdom. The rates Bristol Water may charge its customers increase by RPI each year.
Service Incentive Mechanism, a new incentive mechanism introduced by Ofwat to reward or penalize water companies’ service performance.

Solar photovoltaic (PV) power
The generation of electricity directly from sunlight.
Total return
The total return on an investment includes income from dividends, as well as share price appreciation or depreciation, over a given time period.
A watt is the scientific unit of electric power.
Yield refers to the amount of dividends paid per share over the course of a year divided by the trading price of the common shares.

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