Net Earnings & Revenue
Our net earnings attributable to equity holders (net earnings) were $266 million ($0.67 per share diluted) compared to $450 million ($1.14 per share diluted) in 2011 mainly due to:
- a $168 million write-down of our investment in the Kintyre project
- lower earnings from our uranium business as a result of lower realized prices and an increase in the cost of product sold
- lower earnings from our fuel services business as a result of a decrease in sales volumes
- higher earnings from our electricity business due to higher generation and lower costs
- lower taxes due mainly to lower pre-tax earnings and a decrease in the expense recorded in 2012 related to our transfer pricing dispute with the Canadian Revenue Agency (CRA). See Income taxes for details.
Our net earnings normally trend with revenue, but in recent years have been significantly influenced by unusual items.
In 2011, our net earnings were $66 million lower than in 2010 primarily due to recording losses on foreign exchange derivatives compared to gains in 2010. We recorded an after tax loss of $3 million on foreign exchange derivatives in 2011 compared to an after tax profit of $55 million in 2010.
Impairment charge on non-producing property
During the fourth quarter of 2012, we recorded a $168 million write-down of the carrying value of our interest in Kintyre, our advanced uranium exploration project in Australia. Due to the weakening of the uranium market since the asset was purchased in 2008, no increase in mineral resources in 2012 and the decision not to proceed with the feasibility study, we concluded it was appropriate to recognize an impairment charge for this asset. Kintyre remains an important asset in our portfolio. However, given the current state of the market, it was necessary to reduce its carrying value at this time. The amount of the write-down was determined as the excess of the carrying value over the fair value less cost to sell based on the implied fair value of the resources in place using comparable market transaction metrics.
Non-IFRS measures
Adjusted Net Earnings
Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and adjusted for impairment charges on non-producing properties.
Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently so you may not be able to make a direct comparison to similar measures presented by other companies.
To facilitate a better understanding of these measures, the table below reconciles adjusted net earnings with our net earnings for the years ended 2012, 2011 and 2010, as reported in our financial statements.
| ($ millions) | 2012 | 2011 | 2010 |
|---|---|---|---|
|
|||
| Net earnings attributable to equity holders | 266 | 450 | 516 |
| Adjustments | |||
| Adjustments on derivatives1 (pre-tax) | 17 | 80 | (26) |
| Income taxes on adjustments to derivatives | (4) | (21) | 7 |
| Impairment charge on non-producing property | 168 | – | – |
| Adjusted net earnings | 447 | 509 | 497 |
The table below shows what contributed to the change in adjusted net earnings for 2012.
| ($ millions) | ||
|---|---|---|
| Adjusted net earnings – 2011 | 509 | |
| Change in gross profit by segment (we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits) |
||
| Uranium | Lower sales volume | (7) |
| Lower realized prices ($US) | (50) | |
| Foreign exchange impact on realized prices | (1) | |
| Higher costs | (70) | |
| Hedging benefits | (14) | |
| change – uranium | (142) | |
| Fuel services | Lower sales volume | (7) |
| Higher realized prices ($Cdn) | 9 | |
| Higher costs | (14) | |
| Hedging benefits | (2) | |
| change – fuel services | (14) | |
| Electricity | Higher sales volume | 9 |
| Higher realized prices ($Cdn) | 9 | |
| Lower costs | 66 | |
| change – electricity | 84 | |
| Other changes | ||
| Contract termination charge | (30) | |
| Higher administration expenditures | (24) | |
| Higher exploration expenditures | (12) | |
| Lower income taxes | 75 | |
| Other | 1 | |
| Adjusted net earnings – 2012 | 447 | |
Three-Year Trend
Our adjusted net earnings were relatively stable from 2010 to 2011 but declined in 2012.
The 2% increase from 2010 to 2011 resulted from:
- higher earnings from our uranium business due to higher realized prices, and an increase in sales volumes partially offset by:
- an increase in the cost of product sold
- lower earnings from our electricity business mainly due to higher costs, lower realized prices and lower sales volumes
- lower earnings from our fuel services business resulting from higher costs, partially offset by higher sales volumes
- higher income taxes
The 12% decrease from 2011 to 2012 resulted from:
- lower earnings from our uranium business due to lower realized prices and an increase in our unit costs
- higher charges for administration and exploration partially offset by:
- higher earnings from our electricity business mainly due to lower costs and higher sales volumes
- lower income taxes
Revenue
The table below shows what contributed to the change in revenue this year.
| ($ millions) | |
|---|---|
| Revenue — 2011 | 2,384 |
Uranium |
|
| Lower sales volume | (19) |
| Lower realized prices ($Cdn) | (51) |
Fuel services |
|
| Lower sales volume | (37) |
| Higher realized prices ($Cdn) | 8 |
Electricity |
|
| Higher output | 33 |
| Higher realized prices ($Cdn) | 9 |
| Other | (6) |
| Revenue — 2012 | 2,321 |
See 2012 Financial results by segment for more detailed discussion.
Three-Year Trend
In 2011, revenue increased by 12% to a record $2.4 billion, due to higher sales volumes and record realized prices in our uranium business.
In 2012, revenue declined by 3% mainly due to a lower realized price for uranium, which was $1.57 per pound lower than the record price of $49.18 per pound in 2011.
| 2012 | 2011 | 2010 | Change From 2011 To 2012 |
||
|---|---|---|---|---|---|
|
|||||
| Uranium1 | $US/lb | 47.62 | 49.17 | 43.63 | (3)% |
| $Cdn/lb | 47.61 | 49.18 | 45.81 | (3)% | |
| Fuel services | $Cdn/kgU | 17.24 | 16.71 | 16.86 | 3% |
| Electricity | $Cdn/MWh | 55 | 54 | 58 | 2% |
Outlook For 2013
Effective January 1, 2013, with the adoption of IFRS 11 – Joint Arrangements, we will apply the equity method of accounting for our interest in BPLP and will no longer consolidate our share of their revenues. Our revenue outlook for 2013 does not include BPLP. For comparative purposes, our revenue for 2012 was $1,851,000 excluding BPLP. Furthermore, our outlook for 2013 presented below does not include any revenues expected to be recognized through NUKEM.
We expect consolidated revenue to be up to 5% higher in 2013 due to:
- an increase in realized prices in the uranium business
- higher sales volumes in the fuel services business
- an increase in realized prices in the fuel services business
In our uranium and fuel services segments, our customers choose when in the year to receive deliveries, so our quarterly delivery patterns, and therefore our sales volumes and revenue, can vary significantly. In 2013, we expect that deliveries will be lower in the first quarter with only about 15% of the year’s deliveries scheduled for the first three months. We expect uranium sales for the balance of 2013 to be more heavily weighted (~60%) to the second half of the year. However, not all delivery notices have been received to date, which could alter the delivery pattern. Typically, we receive notices six months in advance of the requested delivery date.