August 8, 2018 - 6:53 PM EDT
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Northland Reports Second Quarter Results

1,044 MW of Offshore Wind Projects Allocated in Taiwan

TORONTO, Aug. 08, 2018 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX:NPI) today reported financial results for the three and six months ended June 30, 2018.

“We continue to make great progress on our 2018 priorities,” said Mike Crawley, Chief Executive Officer. “In addition to the 300 MW allocated to the Hai Long offshore wind project in April under Taiwan’s Feed-In-Tariff program, Northland and its partner were allocated an additional 744 MW in June under Taiwan’s offshore wind auction program, increasing the projects’ total allocation to 1,044 MW. We continue to advance the Hai Long projects toward securing PPAs. Furthermore, we entered into a new $1.25 billion corporate credit facility and secured 17 MW of additional capacity on our Deutsche Bucht offshore wind project, which is advancing on schedule and on budget. These achievements, together with our second quarter financial results, reflect our ongoing commitment to balancing significant growth with stable returns.”

Second Quarter Highlights:

Financial

  • Sales of $338.2 million increased 5% or $15.8 million and gross profit of $314.7 million increased 11% or $31.1 million compared to the same quarter last year primarily due to higher production at Nordsee One, which was partially complete last year and reached full commercial operations in December 2017, and higher production at the solar facilities. These variances were partially offset by lower wind resource in the North Sea, a reduced rate escalation estimate related to sales at Iroquois Falls, and a longer scheduled maintenance outage at Kirkland Lake.

  • Adjusted EBITDA (a non-IFRS measure) of $183.0 million increased 9% or $14.8 million compared to the same quarter last year primarily due to the same factors described above.

  • Free cash flow per share (a non-IFRS measure) of $0.21 decreased by 63% compared to $0.57 for the same quarter last year primarily as a result of the commencement of scheduled principal repayments for Gemini and Nordsee One as well as several one-time items such as finance costs paid as a result of a new corporate credit facility and the impact of last year’s €31 million cash distribution received from Gemini.

  • Net income of $69.0 million increased 12% or $7.3 million compared to $61.7 million for the same quarter last year primarily due to a non-cash fair value gain on derivative contracts partially offset by lower operating income, a higher tax expense, and higher finance costs.

Sales and net income, as reported under IFRS, include consolidated results of entities not wholly-owned by Northland, whereas the above non-IFRS measures, adjusted EBITDA and free cash flow only include Northland’s proportionate interest.

Development and Construction

  • Hai Long 1,044 MW offshore wind projects, Taiwan Strait – During the quarter, Northland and its 40% partner, Yushan Energy Co. Ltd. (“Yushan Energy”), were allocated a total of 1,044 MW (626 MW net to Northland) by the Bureau of Energy of Taiwan under a Feed-in-Tariff (“FIT”) program and an offshore wind auction program. The combined allocations are significant milestones since they advance the projects’ ability to execute 20-year power purchase agreements, subject to permitting and financial close. Northland and Yushan Energy have economic interests in the Hai Long projects of 60% and 40%, respectively. Key aspects of the Hai Long projects are presented below:
ProjectAwardedMW Procured (Gross)MW Procured (Net) (1)Year of Grid ConnectionType of Procurement
Hai Long 2AApril 20183001802024FIT
Hai Long 2BJune 20182321392025Auction
Hai Long 3June 20185123072025Auction
Total 1,044626  
(1)  Represents Northland’s 60% economic interest.
  • Deutsche Bucht269 MW offshore wind project, German North Sea – The Deutsche Bucht offshore wind project is progressing according to schedule and on budget. Offshore installation of the foundation structures will commence within the third quarter of 2018, ahead of schedule. Project completion is expected by the end of 2019. On July 19, 2018, the previously announced Deutsche Bucht demonstrator project reached financial close, with all debt required fully committed by project lenders. Under the pilot project, two additional wind turbines using ‘mono bucket foundations’ will contribute an additional 17 MW of capacity to the base 252 MW project for a total of 269 MW and bring the total project cost to approximately €1.4 billion (CAD $2.0 billion). Deutsche Bucht will be the first offshore wind farm worldwide to test this new type of foundation structure under commercial operating conditions.

  • Increase in 2020 Guidance for Deutsche Bucht – As a result of the financial close of the Deutsche Bucht demonstrator project in July 2018, once the construction of the offshore wind project is completed and is fully operational in 2020, management expects Deutsche Bucht to generate adjusted EBITDA of approximately €165 to €185 million annually, up from the range disclosed in the 2017 Annual Report of €155 to €175 million annually.

 Other

  • New Corporate Credit Facility – In June 2018, Northland entered into a new $1.25 billion corporate credit facility with a syndicate of financial institutions. The new credit facility consists of a $1.0 billion revolving facility and $250 million term loan and replaces Northland’s previous $700 million syndicated credit facility (which comprised a $450 million revolving facility and a $250 million term loan). The revolving facility will be used to fund development opportunities and acquisitions, provide letters of credit to secure obligations that would otherwise be funded in cash, and for general corporate purposes including working capital. The term loan was used to replace the previous term loan.

  • Retirement of John Brace and Appointment of Mike Crawley as Chief Executive Officer – Following the May 2018 announcement, Northland’s former Chief Executive Officer, John Brace, retired effective August 4, 2018, after 30 years with the Company. Mike Crawley, formerly Executive Vice President, Development of Northland, has been appointed to the role of Chief Executive Officer. Mr. Brace will continue to serve as a Director on Northland’s board.

  • Northland Renews Base Shelf Prospectus – In May 2018, Northland filed a short form base shelf prospectus to replace the expiring $500 million base shelf prospectus and to enable the Company to offer an aggregate of up to $1.0 billion of debentures, preferred shares, common shares and subscription receipts, or any combination thereof, over a 25-month period. Northland has no immediate intent to issue securities as a result of this renewal filing. The increase in size from $500 million to $1.0 billion is commensurate with the relative growth in Northland’s enterprise value since the previous base shelf prospectus filed in 2012.
       
Summary of Consolidated Results      
(in thousands of dollars, except per share amounts)Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
FINANCIALS       
 Sales$338,177 $322,351 $824,549 $686,402
 Gross profit314,694 283,603 769,251 606,685
 Operating income130,532 144,527 411,686 332,159
 Net income (loss)69,024 61,733 246,979 161,845
 Adjusted EBITDA (1)182,991 168,158 473,412 366,275
 Cash provided by operating activities343,320 142,155 633,085 418,860
 Free cash flow (1)36,969 99,717 185,016 141,265
 Cash dividends paid to common and class A shareholders40,108 33,298 79,239 66,853
 Total dividends declared (2)
52,938 46,964 105,693 93,769
         
Per share information       
 Net income (loss) - basic$0.29 $0.19 $0.90 $0.49
 Free cash flow - basic (1)$0.21 $0.57 $1.05 $0.81
 Total dividends declared (2)$0.30 $0.27 $0.60 $0.54
         
ENERGY VOLUMES       
 Electricity production in gigawatt hours (GWh) (3)1,790 1,431 4,117 3,325
(1)  Refer to the Non-IFRS Financial Measures section of this press release for additional information.
(2)  Represents total dividends declared to common and class A shareholders including dividends in cash or in shares under the DRIP.
(3)  For 2017, includes Gemini and Nordsee One pre-completion production volumes. Refer to SECTION 4.1 Operating Facilities’ Results of the Management’s Discussion and Analysis for the three and six months ended June 30, 2018, for additional information.
 

Second Quarter Results Summary

Offshore wind facilities

Electricity production, including pre-completion production, increased 172 GWh or 33% compared to the same quarter last year primarily due to all of Nordsee One’s turbines producing power during the quarter, whereas the project was under construction last year, partially offset by lower wind resource in the North Sea.

Sales and adjusted EBITDA of $192.6 million and $103.7 million, respectively, increased $31.9 million and $21.1 million compared to the same quarter last year as a result of Nordsee One having reached full commercial operations in December 2017, partially offset by lower wind resource in the North Sea. Foreign exchange rate fluctuations resulted in $11.0 million higher revenue compared to the same quarter last year.

Thermal facilities

Electricity production increased 160 GWh or 27% compared to the same quarter last year primarily due to higher production at Thorold and higher on-peak production at North Battleford, partially offset by a longer scheduled maintenance outage at Kirkland Lake.

Sales of $84.7 million decreased $21.6 million compared to the same quarter last year primarily due to lower natural gas resales at Iroquois Falls due to the expiration of a natural gas contract in October 2017 ($11.5 million) and a reduced rate escalation estimate from the system operator under the Enhanced Dispatch Contract (EDC) at Iroquois Falls (including a $4.1 million adjustment related to 2017). A longer scheduled maintenance outage at Kirkland Lake ($3.3 million), and lower flow-through natural gas costs at North Battleford ($3.9 million) also contributed to lower sales. Operating income and adjusted EBITDA of $36.1 million and $51.1 million, respectively, decreased $7.9 million and $6.4 million primarily as a result of lower gross profit.

On-shore renewable facilities

Electricity production increased 27 GWh or 9% compared to the same quarter last year primarily due to higher wind and solar resources at most facilities, partially offset by lower wind resource at Grand Bend and the sale of the German wind farms in November 2017. Sales of $60.9 million increased $5.6 million compared to the same quarter last year as a result of the same factors. Similarly, operating income and adjusted EBITDA for the renewable facilities was $5.6 million and $4.9 million, respectively, higher than the same quarter last year.

General and administrative (“G&A”) costs

Corporate G&A costs (previously reported as management and administration costs) of $20.5 million increased $4.9 million compared to the same quarter last year primarily due to the higher early-stage development activities ($2.0 million) and higher personnel costs ($2.0 million). Facilities G&A costs decreased $0.4 million primarily as a result of certain non-recurring costs incurred in the same quarter last year at Gemini and Nordsee One.

Finance costs

Finance costs, net, increased $6.3 million compared to the same quarter of last year primarily due to interest costs at Nordsee One no longer being capitalized following completion of construction activities in December 2017 as well as costs incurred on entering into the new corporate credit facility.

Fair value gain on derivative contracts

Fair value gain on derivative contracts was $48.5 million compared to a $0.1 million gain in the same quarter of last year primarily due to the movement in the fair value of interest rate swaps and foreign exchange contracts.

Foreign exchange loss

Foreign exchange loss of $7.5 million is primarily due to unrealized losses from fluctuations in the closing foreign exchange rate.

Net income

The factors described above resulted in net income of $69.0 million for the second quarter of 2018, compared to $61.7 million for the second quarter of 2017.

Adjusted EBITDA

Adjusted EBITDA of $183.0 million for the second quarter of 2018 was $14.8 million higher than the second quarter of 2017. The significant factors increasing adjusted EBITDA were:

  • $43.4 million increase primarily due to all of Nordsee One’s turbines producing power during the quarter, whereas the project was under construction last year;

  • $4.3 million increase in production at the solar facilities; and

  • $3.3 million increase in operating income from Northland’s other operating facilities.

Factors partially offsetting the increase in adjusted EBITDA include:

  • $21.9 million decrease at Gemini primarily due to lower wind resource in the North Sea and the return of an alleged overpayment to Gemini by the off-taker related to production from 2016 that Gemini is contesting (€4.4 million net to Northland);

  • $8.5 million decrease primarily due to a reduced rate escalation estimate from the system operator for 2017 and 2018 under the Iroquois Falls’ Enhanced Dispatch Contract; and

  • $5.1 million increase in corporate G&A costs primarily related to the timing of early-stage development activities.

Free Cash Flow

Free cash flow of $37.0 million for the second quarter of 2018 was $62.7 million lower than the second quarter of 2017 primarily due to several one-time items related to the completion of Gemini and Nordsee One.

Significant factors decreasing free cash flow were:

  • $63.4 million due to one-time events, such as the completion distribution received from Gemini last year (€31 million) and the return of an alleged overpayment to Gemini by the off-taker related to production from 2016 that Gemini is contesting (€4.4 million net to Northland);

  • $56.2 million increase in scheduled principal repayments primarily for Gemini and Nordsee One debt;

  • $23.3 million increase in net interest expense primarily due to costs at Gemini and Nordsee One no longer being capitalized following completion of construction activities;

  • $8.5 million decrease primarily due to a reduced rate escalation estimate at Iroquois Falls;

  • $5.1 million increase in corporate G&A costs primarily related to the timing of early-stage development activities;

  • $4.1 million increase in funds set aside for a revised decommissioning estimate at Nordsee One; and

  • $3.6 million increase in current taxes related to Nordsee One.

Factors partially offsetting the decrease in free cash flow include:

  • $46.9 million increase due to higher production at Nordsee One, which was under construction last year;

  • $24.9 million increase due to a full quarter of contributions from Gemini, which reached full commercial operations in April 2017, partially offset by lower wind resource;

  • $14.6 million of contingent consideration paid in 2017 in connection with the acquisition of Gemini;

  • $7.2 million higher operating income from Northland’s other operating facilities; and

  • $5.4 million from Gemini interest income on the subordinated debt (excluded from free cash flow until commencement of cash interest payments in the third quarter of 2017).

As at June 30, 2018, the rolling four quarter free cash flow net payout ratio was 48.9%, calculated on the basis of cash dividends paid, and 66.7% calculated on the basis of total dividends, compared to 46.4% and 63.7%, respectively, last year. The increase in the free cash flow payout ratios from last year was primarily due to the impact of the one-time cash distribution from Gemini in the second quarter of 2017 and due to Nordsee One making its first principal repayment this quarter.

Outlook

Northland actively pursues new power development opportunities that encompass a range of clean technologies, including natural gas, wind, solar and hydro.

As of August 8, 2018, Northland continues to expect adjusted EBITDA in 2018 to be in the range of $860 to $930 million and free cash flow per share in 2018 to be in the range of $1.70 to $2.00.

As a result of the financial close of the Deutsche Bucht demonstrator project in July 2018, once the construction of the offshore wind project is completed and is fully operational in 2020, management expects Deutsche Bucht to generate adjusted EBITDA of approximately €165 to €185 million annually, up from the range disclosed in the 2017 Annual Report of €155 to €175 million annually.

Refer to the Management’s Discussion and Analysis included in Northland’s 2017 Annual Report for additional information on Northland’s outlook for 2018.

Non-IFRS Measures

This press release includes references to Northland’s adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts, which are not measures prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts do not have any standardized meaning under IFRS and, as presented, may not be comparable to similar measures presented by other companies. These measures should not be considered alternatives to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. Rather, these measures are provided to complement IFRS measures in the analysis of Northland’s results of operations from management’s perspective. Management believes that adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations. Refer to the SECTION 1: Overview, SECTION 4.4: Adjusted EBITDA and SECTION 4.5: Free Cash Flow of the current Management’s Discussion and Analysis, which can be found on SEDAR at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.com, for an explanation of these terms and for reconciliations to the nearest IFRS measure.

Earnings Conference Call

Northland will hold an earnings conference call on August 9, 2018 at 10:00 am ET to discuss its 2018 second quarter results. Mike Crawley, Northland’s Chief Executive Officer, and Paul Bradley, Northland’s Chief Financial Officer, will discuss the financial results and company developments before opening the call to questions from analysts and shareholders.

Conference call details are as follows: 
Date: Thursday, August 9, 2018
Start Time: 10:00 a.m. ET 
Phone Number: Toll free within North America: 1 (844) 284-3434

For those unable to attend the live call, an audio recording will be available on Northland’s website at www.northlandpower.com from August 10 until August 24, 2018.

ABOUT NORTHLAND

Northland is an independent power producer founded in 1987, and publicly traded since 1997. Northland develops, builds, owns and operates facilities that produce ‘clean’ (natural gas) and ‘green’ (wind, solar, and hydro) energy, providing sustainable long-term value to shareholders, stakeholders, and host communities.

The Company owns or has an economic interest in 2,458 MW (net 2,029 MW) of operating generating capacity and 269 MW of generating capacity under construction, representing the Deutsche Bucht offshore wind project in the North Sea, in addition to its 60% equity stake in the 1,044 MW Hai Long projects under development in Taiwan.

Northland’s cash flows are diversified over four geographically separate regions and regulatory jurisdictions in Canada and Europe.

Northland’s common shares, Series 1, Series 2 and Series 3 preferred shares and Series B and Series C convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.B, NPI.PR.C, NPI.DB.B, and NPI.DB.C, respectively.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements that are provided for the purpose of presenting information about management’s current expectations and plans. Readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as “expects,” “anticipates,” “plans,” “predicts,” “believes,” “estimates,” “intends,” “targets,” “projects,” “forecasts” or negative versions thereof and other similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” These statements may include, without limitation, statements regarding future adjusted EBITDA, free cash flows, dividend payments and dividend payout ratios; the construction, completion, attainment of commercial operations, cost and output of development projects; litigation claims; plans for raising capital; and the future operations, business, financial condition, financial results, priorities, ongoing objectives, strategies and outlook of Northland and its subsidiaries. These statements are based upon certain material factors or assumptions that were applied in developing the forward-looking statements, including the design specifications of development projects, the provisions of contracts to which Northland or a subsidiary is a party, management’s current plans and its perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. Although these forward-looking statements are based upon management’s current reasonable expectations and assumptions, they are subject to numerous risks and uncertainties. Some of the factors that could cause results or events to differ from current expectations include, but are not limited to, contract, contract counterparties, operating performance, variability of renewable resources and climate change, offshore wind concentration risk, market power prices, fuel supply, transportation and price, operations and maintenance, permitting, construction, development prospects and advanced stage development projects, financing, interest rates, refinancing, liquidity, credit rating, currency fluctuations, variability of cash flows and potential impact on dividends, taxes, natural events, environmental, health and safety, government regulations and policy, international activities, relationship with stakeholders, reliance on information technology, reliance on third parties, labour relations, insurance, co-ownership, bribery and corruption, legal contingencies, and the other factors described in the “Risks Factors” section of Northland’s 2017 Annual Information Form dated February 22, 2018, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.com. Northland’s actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur.

The forward-looking statements contained in this release are based on assumptions that were considered reasonable on August 8, 2018.  Other than as specifically required by law, Northland undertakes no obligation to update any forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

For further information, please contact:

Barbara Bokla, Manager, Investor Relations, (647) 288-1438
[email protected]
www.northlandpower.com

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Source: GlobeNewswire (August 8, 2018 - 6:53 PM EDT)

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