All amounts in Canadian dollars unless specified otherwise
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the full release here:
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Figure 1: Illustrative framework of
Westinghouse revenue flow for reactor new build project (Graphic:
Business Wire)
Cameco (TSX: CCO; NYSE: CCJ) announced that the
acquisition of Westinghouse Electric Company (Westinghouse) in a
strategic partnership with Brookfield Asset Management alongside
its publicly listed affiliate Brookfield Renewable Partners
(Brookfield) and institutional partners closed today.
Cameco now owns a 49% interest and Brookfield owns the remaining
51% in Westinghouse, one of the world’s largest nuclear services
businesses.
“This is a historic day for Cameco as we join Brookfield to
complete our purchase of Westinghouse,” said Tim Gitzel, president
and CEO of Cameco. “Since first announcing this deal a year ago, we
believe the business prospects for Westinghouse have significantly
improved. The sustained and positive momentum for nuclear energy
has been undeniable as countries and companies around the world
strive to meet their net-zero commitments and growing energy needs
through clean and secure supply.
“Cameco’s 35 years of experience in uranium mining and nuclear
fuel production combined with Brookfield’s expertise in clean
energy is expected to provide a solid foundation for Westinghouse’s
continued success in the provision of nuclear plant technologies,
products and services, and to create a powerful platform for
strategic growth across the nuclear sector. The partners, together
with Westinghouse, are well-positioned to provide global solutions
for the increasing need for secure, reliable and emissions-free
baseload power.
“Our priorities over the coming weeks will include Cameco and
Brookfield conducting our first Westinghouse board meeting focused
on its strategic business plan. Cameco also has a number of
international commitments to fulfil over the next month with some
of the most influential countries, world leaders and global
organizations who are seeking our advice on how to help nuclear
power realize its full potential and further amplify its
contributions to a clean and secure energy future. Once those
commitments have been fulfilled, Cameco will host a virtual
investor day on December 19, 2023, to further discuss the exciting
business prospects we see moving forward for Westinghouse,” Gitzel
said. Additional information and registration details for the
virtual investor day can be found at the end of this release and on
Cameco’s website.
The total enterprise value of $7.9 billion (US) was adjusted for
working capital balances at the close, resulting in a final
enterprise value of $8.2 billion (US). Westinghouse has $3.8
billion (US) in outstanding debt commitments, for which it
maintains responsibility after closing and which reduces the equity
cost of the acquisition.
To finance Cameco’s 49% share of the purchase price, equaling
$2.1 billion (US), we used $1.5 billion (US) of cash and drew the
full amount of both $300 million (US) tranches of the term loan put
in place concurrently with the execution of the acquisition
agreement, and which mature two years and three years from the date
of close. The $280 million (US) bridge commitment that we also
secured concurrently with the acquisition agreement was not
required to complete the transaction and has been terminated.
The mix of capital sources to finance our share of the
acquisition was chosen to preserve our balance sheet and ratings
strength while maintaining healthy liquidity. We expect to maintain
the financial strength and flexibility to execute on our strategy
and take advantage of value-adding growth opportunities, while
navigating by our investment-grade rating and self-managing risk.
With exposure to improving prices under our long-term contract
portfolio and the ongoing ramp-up to our tier-one run rate, we
expect to see continued improvement in our earnings and cash flow
profile.
Today, we believe the demand outlook for nuclear power is better
and more durable than ever, driven by the recognition of the
critical role it must play in helping to solve the world’s dual
climate and energy security crises. We expect this acquisition will
enhance Cameco’s participation in the nuclear fuel cycle at a time
when there is tremendous growth on the horizon for our industry.
Globally, policy makers are focused on how to accelerate investment
in the expansion of the nuclear reactor fleet by removing barriers
and strengthening the nuclear fuel supply chain needed to allow
nuclear power to deliver on its promise to help provide a clean and
secure energy future.
We expect this strategic and transformative acquisition will be
accretive to Cameco. We are enhancing our ability to compete for
more business by investing in additional nuclear fuel cycle assets
that we expect will augment the core of our business and offer more
solutions to our customers across the nuclear fuel cycle. Like
Cameco, Westinghouse has nuclear assets that are strategic, proven,
licensed and permitted, and that are in geopolitically attractive
jurisdictions. We expect these assets, like ours, will participate
in the growing demand profile for nuclear energy.
Westinghouse has a stable and predictable core business
generating durable cash flows. Like Cameco, Westinghouse has a
long-term contract portfolio, which positions it well to compete
for growing demand for new nuclear reactors and reactor services,
as well as the fuel supplies and services needed to keep the global
reactor fleet operating safely and reliably. This strong base of
business also helps protect Westinghouse from macro-economic
headwinds as utility customers run their critical nuclear power
plants. Its durable and growing business is expected to allow
Westinghouse to self-fund its approved annual operating budget, to
maintain its existing capacity to service its annual financial
obligations from de-risked cash flows, and to pay annual
distributions to its owners.
Westinghouse financial performance for the nine-month period
ended September 30, 2023
The following financial information is derived from the
consolidated financial statements of Westinghouse, which are
reported in US dollars and prepared in accordance with US GAAP.
EBITDA, Adjusted EBITDA, Levered free cash flow, and Adjusted
EBITDA Margin are non-GAAP financial measures and should not be
considered in isolation or as a substitute for financial
information prepared according to accounting standards. Other
companies may calculate these measures differently, so a direct
comparison to similar measures presented by other companies may not
be possible. The table below reconciles these measures to the
closest US GAAP measure. See Westinghouse non-GAAP Measures below
for more information.
We believe Westinghouse is well-positioned for long-term growth
driven by the expected increase in global demand for nuclear power.
Cameco will receive the economic benefit of its ownership in
Westinghouse as of today’s close. Cameco will account for its
proportionate interest in Westinghouse on an equity basis.
Westinghouse summary financial information and 2023
outlook
YEAR ENDED
NINE MONTHS
DECEMBER 31
ENDED SEPTEMBER 30
OUTLOOK
($USD MILLIONS)
2021
2022
2022
2023
2023
Net earnings (loss)
126
440
393
(50)
0-40
Depreciation and amortization
314
371
270
230
300-310
Finance income
(1)
(2)
(1)
(8)
(9-11)
Finance costs
187
202
148
223
290-310
Income tax expense (recovery)
(17)
(392)
(424)
10
20-40
EBITDA
609
619
386
405
610-650
Other (income) expenses
10
(5)
(7)
12
10-15
(Gain) loss on disposal of fixed
assets
7
(4)
(5)
4
3-5
Loss on derivatives
2
-
-
-
-
Restructuring & acquisition related
costs
67
92
66
76
85-95
Gain on disposition of businesses
-
-
-
(14)
(14)
Adjusted EBITDA
695
702
440
483
690-750
Capital expenditures
154
165
95
125
170-190
Required debt payments
30
37
25
32
40-45
Levered adjusted free cash flow
511
500
320
326
475-525
Revenue
3,286
3,784
2,564
3,051
4,200-4,400
Adjusted EBITDA margin
21%
19%
17%
16%
16%-18%
US GAAP
Note: the ranges for 2023 outlook for EBITDA, Adjusted EBITDA
and Levered Adjusted Free Cash Flow are not determined using the
high and low estimates of the ranges provided for each of the
detailed reconciling line items.
The expected outlook for Revenue is based on work already in
backlog or additional work expected based on past trends. The
expected margins are aligned with the year-to-date margins with
slight variability expected from product mix in the fourth quarter
as compared to previous quarters.
The primary drivers of the expected improvement in Revenue for
2023 are the contributions from new business opportunities in
markets such as Central and Eastern Europe and the benefits
accruing from key business acquisitions made in 2022, which have
increased sales volumes in the core business. The expected Adjusted
EBITDA for 2023 is being impacted by planned expenditures for
strategic initiatives, including the development of the AP300™
small modular reactor (SMR) and the eVinci™ microreactor. These
investments are expected to provide new business opportunities for
Westinghouse in an emerging segment of our industry, and we are
optimistic about the potential for the future deployment of these
technologies to make a meaningful contribution to Westinghouse’s
long-term financial performance.
In 2023, over 95% of Westinghouse’s Adjusted EBITDA is expected
to come from its core recurring business, which is stable and
characterized by long-term contracts. The remaining 2023 projected
Adjusted EBITDA is expected to come from the energy systems
business unit.
In general, the new reactor activity is driven by large, binary
decisions by countries and companies to use Westinghouse’s
technology, such as the licensed AP1000® reactor design, for the
construction of new nuclear power plants. Once contracts are signed
and work begins, these projects are expected to generate multi-year
revenue streams and EBITDA for Westinghouse.
In addition to the AP1000 reactors already deployed in the US
and China, Poland recently signed an engineering services contract
for three AP1000 reactors for its new nuclear energy program.
Ukraine has also selected the AP1000 reactor for nine units and has
signed an engineering services contract for the first unit, and
Bulgaria has chosen the AP1000 reactor for two units at the
Kozloduy nuclear site. Engineering services contracts are required
before work can begin. See AP1000 reactor new build framework below
for more information.
Cash distributions
Annually, the partners approve a budget and business plan which
outline the financial projections and capital allocation
priorities. The determination of whether to make cash distributions
to the partners will be reviewed quarterly based on the approved
budgeted expenditures and capital allocation priorities, including
growth investment opportunities, as well as available cash
balances. However, the timing of cash distributions is expected to
be aligned with the timing of Westinghouse’s cash flows, which are
typically higher in the fourth quarter. Due to the timing of the
close of this transaction, we do not expect to receive any cash
distributions in 2023.
Core growth beyond 2023
Westinghouse’s core business is characterized by recurring and
predictable revenue and cash flow streams, the majority of which
are secured in advance under long-term contracts with durations
that can range from 3 to more than 10 years, depending on the
product or service being provided. Amid the ongoing demand growth
and global energy security concerns, we expect there will be new
opportunities for Westinghouse to compete for and win new business.
Westinghouse’s reputation as a global leader in the nuclear
industry and its position as a non-Russian alternative supplier for
certified VVER fuel assemblies are expected to benefit its core
business as Eastern European countries seek to develop a reliable
fuel supply chain independent of Russia. Revenue and Adjusted
EBITDA over the next three years in Westinghouse’s core business
are expected to grow at approximately the anticipated average
annual growth rate of the nuclear industry, which, based on the
World Nuclear Association’s Reference Case, is estimated at
3.6%.
AP1000 reactor new build framework
In addition to growth in its core business, the focus on the
importance of nuclear power in providing carbon-free, secure and
affordable baseload power as an essential part of the electricity
grid in many countries is creating new opportunities for
Westinghouse’s proven AP1000 reactor design, as well as the smaller
reactor designs it has in development. Its technology and
experience provide a competitive advantage as the engineering and
procurement aspects of new build programs are initiated.
Westinghouse undertakes its role in the design, development,
engineering and procurement of equipment for new reactors. It does
not provide construction services or assume any construction risk.
This segment has the potential to add significant long-term value
during the construction phase, and then to the core of the business
through reactor services and fuel supply contracts once the reactor
begins commercial operation.
Following an announcement of a successful bid, there are a
number of contracts that must be signed before revenue is realized.
As these large, one-time decisions by utilities to construct new
nuclear power plants using Westinghouse’s proven AP1000 reactor
design are made and as the associated engineering and procurement
contracts are signed, we expect it will drive growth beyond that of
its core business described above. However, until the contracts are
signed, they will not be incorporated in the growth
expectations.
The following is an illustrative framework for the expected
timing of revenue flows and profitability of the energy systems
business unit. (See Figure 1)
Assumptions and estimates:
- Cost to construct new AP1000 reactor in US based on MIT
(Massachusetts Institute of Technology) study: $6 billion to $8
billion (US), although it can vary significantly depending on
in-country labour and construction productivity rates. There is a
measured and noticeable scale effect where multiple reactors have
been built – for example, in China, where four AP1000 reactors are
in operation and six more are under construction, and the US, where
two were built and one is in operation.
- Engineering and procurement work: 25% to 40% of total plant
cost, depending on the scope of the project – excluding China,
where Westinghouse scope is typically less than 10% of the total
project cost.
- EBITDA margin for new build activity is expected to be aligned
with the overall core business, although it can vary between 10% to
20%.
Other growth opportunities
In addition to its AP1000 reactor design, Westinghouse has
submitted its pre-application Regulatory Engagement Plan with the
US Nuclear Regulatory Commission for the development of its AP300
SMR, which is based on the proven and licensed AP1000 reactor
design. Its eVinci microreactor design was recently awarded US
Department of Energy funding for a test reactor FEED (front-end
engineering design) at Idaho National Lab. The AP300 SMR and the
eVinci microreactor are expected to offer the same carbon-free
baseload benefits as larger nuclear reactor technologies, but are
tailored for specific applications, including industrial, remote
mining, off-grid communities, defense facilities and critical
infrastructure. As with the AP1000 reactor, they are expected to
have applications beyond electricity generation, including district
and process heat, desalination and hydrogen production. We are
optimistic about the future competitiveness of these technologies
and their potential to make a meaningful contribution to
Westinghouse’s long-term financial performance. However, they are
presently still in the development phase.
Background
The acquisition of Westinghouse was completed in the form of a
limited partnership with Brookfield. The board of directors
governing the limited partnership consists of six directors, three
appointed by Cameco and three appointed by Brookfield.
Decision-making by the board corresponds to percentage ownership
interests in the limited partnership (49% Cameco and 51%
Brookfield). However, decisions with respect to certain reserved
matters under the partnership agreement, such as the approval of
the annual budget, require the presence and support of both Cameco
and Brookfield appointees to the board as long as certain ownership
thresholds are met.
Westinghouse is a nuclear reactor technology original equipment
manufacturer and a leading provider of highly technical aftermarket
products and services to commercial nuclear power utilities and
government agencies globally. The company has recurring and
predictable revenue and cash flow profiles due to the critical and
non-discretionary nature of its products and services to the
operation of nuclear power plants around the world. Like Cameco,
Westinghouse enables zero-emission baseload and dispatchable energy
that is needed to support the energy transition, and it is
therefore well-positioned for long-term growth.
Westinghouse’s core business includes:
- The critical engineering design and analysis of operating
plants to enhance safety, availability and reliability. It delivers
advanced products and services for outage support, including plant
components, inspections, maintenance, repair and modification, and
replacement. In addition, it engineers and manufactures specialized
components for new and operating plants, including safety and
non-safety instrumentation and control products, and provides
services throughout the full nuclear power plant operating
lifecycle. This work represents a large component of its core
business and is built on long-term customer relationships
characterized by long-term contracts. These customers seek
solutions to ensure their reactors operate efficiently and
reliably, and the business therefore results in recurring and
predictable revenue streams.
- The design, manufacture and delivery of nuclear fuel products
and services to customers across the globe and across multiple
light water reactor technologies.
- The provision of nuclear sustainability, environmental
stewardship and remediation services for retired nuclear power
plants and site management to government customers.
As noted earlier, in addition to its core business, Westinghouse
is involved in the design, development, engineering and procurement
of equipment for new AP1000 plant projects and is also active in
the design and development of next-generation nuclear technologies,
including its AP300 SMR and eVinci microreactor.
Westinghouse non-GAAP measures
The non-GAAP measures referenced in this document are used as
indicators of the financial performance of Westinghouse. Management
believes that these non-GAAP measures provide useful information to
investors, securities analysts and other interested parties in
assessing the operational performance of Westinghouse and its
ability to generate cash. These measures are not recognized
measures under US GAAP, do not have a standardized meaning, and are
therefore unlikely to be comparable to similar measures presented
by other companies. Accordingly, these measures should not be
considered in isolation or as a substitute for the financial
information reported under US GAAP.
EBITDA
Westinghouse’s EBITDA is defined as Westinghouse’s net earnings,
adjusted for the costs related to the impact of the company’s
capital and tax structure including: (a) depreciation and
amortization, (b) finance income, (c) finance costs (net, including
accretion), and (d) income tax expense (recovery).
Adjusted EBITDA
Westinghouse’s Adjusted EBITDA is defined as Westinghouse’s
EBITDA, adjusted for the impact of certain expenses, costs, charges
or benefits incurred in such period, which are either not
indicative of underlying business performance or that impact the
ability to assess the operating performance of Westinghouse’s
business, including: (a) other (income) expenses, (b) (gain) loss
on disposal of fixed assets, (c) loss on derivatives, (d)
restructuring and acquisition-related costs, and (e) gain on
disposition of businesses. Westinghouse may realize similar gains
or incur similar expenditures in the future.
Adjusted levered free cash flow
Westinghouse’s Adjusted levered free cash flow is defined as
Westinghouse’s Adjusted EBITDA less capital expenditures and
required debt repayments for the appropriate period.
Adjusted EBITDA margin
Westinghouse’s Adjusted EBITDA margin is defined as
Westinghouse’s Adjusted EBITDA divided by revenue for the
appropriate period.
EBITDA, Adjusted EBITDA, Adjusted levered free cash flow, and
Adjusted EBITDA margin are supplemental measures which are used by
Cameco and other users, including Cameco’s lenders and investors,
to assess Westinghouse’s results of operations from a management
perspective without regard to its capital structure. Cameco
believes that these measures are useful to management, lenders and
investors in assessing the underlying performance of its ongoing
operations and its ability to generate cash flows to fund its cash
requirements.
Investor Day
Cameco will be hosting a Virtual Investor Day on December 19,
2023, starting at 9:30 a.m. Eastern to discuss Westinghouse, its
future business prospects, and the expected impact on Cameco’s
business operations and financial performance.
The webcast will be open to all investors and the media.
Interested parties can register for this event at www.cameco.com or
https://edge.media-server.com/mmc/p/c9xowjww.
Profile
Cameco is one of the largest global providers of the uranium
fuel needed to energize a clean-air world. Our competitive position
is based on our controlling ownership of the world’s largest
high-grade reserves and low-cost operations. Utilities around the
world rely on our nuclear fuel products to generate safe, reliable,
carbon-free nuclear power. Our shares trade on the Toronto and New
York stock exchanges. Our head office is in Saskatoon,
Saskatchewan, Canada.
Caution Regarding Forward-Looking Information and
Statements
This news release includes statements and information about our
expectations for the future, which we refer to as forward-looking
information. Forward-looking information is based on our current
views, which can change significantly, and actual results and
events may be significantly different from what we currently
expect.
Examples of forward-looking information in this news release
include: our expectation on maintaining financial strength and
flexibility; our expectation for improvement in earnings and cash
flows; our expectation of the demand outlook for nuclear power; our
expectation that the acquisition will enhance our participation in
the nuclear fuel cycle; our expectation of accretion from the
acquisition on us; our expectation that the investment will augment
the core of our business; our expectation of Westinghouse being
able to participate in the growing demand profile for nuclear
energy; our expectation that Westinghouse’s durable and growing
business will allow Westinghouse to self-fund its approved annual
operating budget, maintain its existing capacity to service its
annual financial obligations from de-risked cash flows, and pay
annual distributions to its owners; our expectation in respect of
an increase in global demand for nuclear power; our 2023 outlook
for Westinghouse’s Adjusted EBITDA, capital expenditures and
Revenue; our expectation for 95% of Westinghouse’s Adjusted EBITDA
coming from its core recurring business; our expectation for the
remaining 2023 projected Adjusted EBITDA coming from energy systems
business unit which reflects the planned 2023 investments in
strategic initiatives, including the development of the AP300 small
modular reactor (SMR) and the eVinci microreactor; our expectation
that such investments providing new business opportunities for
Westinghouse will make a meaningful contribution to Westinghouse’s
long-term financial performance; our expectation for Westinghouse
projects generating multi-year revenue streams and EBITDA for
Westinghouse; our expectation that the timing of cash distributions
from Westinghouse will be aligned with the timing of Westinghouse’s
cash flows; our expectation that Westinghouse’s new opportunities
will allow Westinghouse to compete for and win new business; our
expectation that Westinghouse’s reputation and position will
benefit its core business as Eastern European countries seek to
develop a reliable fuel supply chain; our expectation on the growth
of Westinghouse’s revenue and Adjusted EBITDA over the next three
years; our estimates in respect of the framework for the timing of
revenue flows and profitability of contracts under a new build
project; our expectation with respect to the development of its
AP300 SMR and our expectation on Westinghouse being
well-positioning for future growth.
Material risks that could lead to different results include:
unexpected changes in uranium supply, demand, long-term
contracting, and prices; changes in consumer demand for nuclear
power and uranium as a result of changing societal views and
objectives regarding nuclear power, electrification and
decarbonization; the risk that our views regarding nuclear power,
its growth profile, and benefits may prove to be incorrect; the
risk that we and Westinghouse may not be able to meet sales
commitments for any reason; the risk that Westinghouse may not
achieve the growth in its business; the risk to Westinghouse’s
business associated with potential production disruptions,
including those related to global supply chain disruptions, global
economic uncertainty, political volatility, labour relations
issues, and operating risks; the risk that Westinghouse may not be
able to implement its business objectives in a manner consistent
with its or our environmental, social, governance and other values;
the risk that Westinghouse’s strategies may change, be
unsuccessful, or have unanticipated consequences; the risk that
Westinghouse may be unsuccessful in respect of its new business;
and the risk that Westinghouse may be delayed in announcing its
future financial results.
In presenting the forward-looking information, we have made
material assumptions which may prove incorrect about: nuclear power
and uranium demand, supply, consumption, long-term contracting,
growth in the demand for and global public acceptance of nuclear
energy, and prices; Westinghouse’s production, purchases, sales,
deliveries, and costs; the assumptions and discussion set out above
under the heading Westinghouse summary financial information and
2023 outlook; the market conditions and other factors upon which we
have based Westinghouse’s future plans and forecasts;
Westinghouse’s ability to mitigate adverse consequences of delays
in production and construction; the success of Westinghouse’s plans
and strategies; the absence of new and adverse government
regulations, policies or decisions; that there will not be any
significant adverse consequences to Westinghouse’s business
resulting from business disruptions, including those relating to
supply disruptions, economic or political uncertainty and
volatility, labour relation issues, and operating risks; and
Westinghouse’s ability to announce future financial results when
expected.
Please also review the discussion in our 2022 annual MD&A,
our 2023 third quarter MD&A and our most recent annual
information form for other material risks that could cause actual
results to differ significantly from our current expectations, and
other material assumptions we have made. Forward-looking
information is designed to help you understand management’s current
views of our near-term and longer-term prospects, and it may not be
appropriate for other purposes. We will not update this information
unless we are required to by securities laws.
Preliminary Financial Information
Westinghouse reports its financial results in accordance with US
GAAP. All projected financial information and metrics in this
presentation are preliminary. These estimates are not a
comprehensive statement of Westinghouse’s financial position and
results of operations. There is no assurance that Westinghouse will
achieve its forecasted results within the relevant period or
otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231107426694/en/
Investor inquiries: Cory Kos 306-716-6782
cory_kos@cameco.com
Media inquiries: Veronica Baker 306-385-5541
veronica_baker@cameco.com
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