SOURCE: Northland Power Inc.

Northland Power Inc.

August 13, 2015 19:50 ET

Northland Announces Second Quarter Results and Continues to Execute on Over $6 Billion of Construction Projects

TORONTO, ON--(Marketwired - August 13, 2015) -

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Northland Power Inc. ("Northland" or "the Company") (TSX: NPI) (TSX: NPI.PR.A) (TSX: NPI.PR.C) (TSX: NPI.DB.B) (TSX: NPI.DB.C) reported its financial results today for the quarter ended June 30, 2015.

Highlights:

  • The 600MW Gemini offshore wind project located in the North Sea reached a milestone with the successful installation of the first steel foundation, or monopile, on July 1, 2015, as allowed under environmental permits. Installation activity continues to progress with 54 monopiles (over one third) installed as of this date, and associated transition pieces being installed on 52 of the monopiles. The two jacket foundations for the offshore high voltage platforms have been completed and have been placed in-water and secured to the seabed. The two high voltage offshore platforms are substantially complete, are on a barge, and are waiting to be taken to sea to be installed on top of the jacket foundations. In addition, 100% of the 209 kms of the underwater electrical cable connecting the wind farm to the Dutch grid has been manufactured and approximately 92% has been laid on or in the seabed. These are significant acheivements for the project as it continues to progress according to plan.
  • Our remaining construction projects are also proceeding according to plan. Construction of the 332 MW Nordsee One offshore wind project advanced as expected and remains on schedule, with activities related to the start of manufacturing of foundation and platform components. At the 100 MW Grand Bend onshore wind farm, project financing was closed on March 31, 2015, and construction and manufacturing activities have commenced. Lastly, two, of the final four, 10 MW Phase III ground-mounted solar projects commenced operations after the quarter and have applied to the Independent Electricity System Operator (IESO) for approval of commercial operations, with the last two ground-mounted solar projects expected to be completed during the third quarter of 2015. Additional investments by Northland have been required to complete the 130 MW solar project portfolio. See "General Update - Ground-mounted Solar Projects" in the MD&A.
  • In June 2015, Northland completed the sale of 37.5% equity interest in Northland's four Phase III ground-mounted solar projects ("Cochrane Solar") to two First Nations. The total consideration for the equity interest is approximately $45.7 million.
  • Sales and gross profit were 2% lower and 10% higher, respectively, than the same period in 2014. The decrease in sales was primarily due to higher electricity revenues achieved by two thermal facilities in 2014, partially offset by favourable contributions from the wind and solar facilities. More importantly, the increase in gross profit was primarily due to increased electricity production from the wind and solar facilities and strong gross margins at Northland's thermal facilities;
  • Quarterly adjusted EBITDA increased 12% from 2014 primarily due to overall favourable results from Northland's operating facilities;
  • Net income of $140.3 million for the quarter increased from a loss of $91.8 million in the second quarter of 2014, primarily due to a $168.9 million marked-to-market non-cash adjustment on Northland's financial derivative contracts largely from the interest rate swaps associated with the Gemini and Nordsee projects;
  • Cash provided by operating activities decreased by $77.8 million primarily due to the timing of payables, receivables and deposits partially offset by favourable operating results;
  • Free cash flow of $34.6 million was 10% higher than the second quarter of 2014 primarily due to favourable results from Northland's operating facilities; and
  • The quarterly cash dividend payout ratio was 102% of free cash flow in the second quarter of 2015 compared to 93% in the second quarter of 2014 (132% excluding the effect of the Dividend Reinvestment Plan (DRIP) versus 126% in 2014) primarily due to dividends declared on the additional shares issued to fund the Gemini, Nordsee, and Grand Bend projects.

"After an extremely busy first quarter, our second quarter activity focused on continued execution of our $6 billion construction portfolio," said John Brace, Chief Executive Officer. "Our strong quarterly results demonstrate ongoing progress in accomplishing our 2015 goals.We are making great strides and achieving significant milestones on our European offshore wind projects, and we look forward to producing our first megawatt of power less than a year from now."

Summary of Financial Results
Northland's interim consolidated financial results for the three months and six months ended June 30, 2015 include the financial results for the Gemini and Nordsee projects due to Northland's acquisition of a controlling interest in Gemini in May 2014 and Nordsee in September 2014.

  Three months ended June 30  Six months ended June 30
In thousands of dollars except per share and energy unit amounts 2015  2014  2015  2014
FINANCIALS           
Sales 167,289  169,945  368,885  399,369
Gross Profit 114,234  103,701  244,391  237,139
Operating Income 59,503  50,397  133,819  134,406
Net Income (Loss) 140,281  (91,845)  109,665  (63,269)
Adjusted EBITDA(1) 91,370  81,452  188,503  183,549
            
Cash Provided by Operating Activities 88,237  166,064  207,849  217,452
            
Free Cash Flow(1) 34,584  31,369  84,829  88,121
Cash Dividends Paid to Common and Class A Shareholders
35,141
 
 29,281
 
65,253
 
 56,898
Total Dividends Declared to Common and Class A Shareholders(2)
45,681
 
39,787
 
88,021
 
 76,969
Per Share           
Free Cash Flow(1) 0.204  0.213  0.520  0.618
Total Dividends Declared to Common and Class A Shareholders(2)
0.270
 
 0.270
 
0.540
 
 0.540
            
ENERGY VOLUMES
Electricity (megawatt hours)
1,137,123  1,099,457  2,687,299  2,590,072
            
(1)See Non-IFRS Measures for a detailed description.
(2)Total dividends to Common and Class A Shareholders represent dividends declared irrespective of whether the dividend is received in cash or in shares as part of the DRIP program.
  

Second Quarter Results
Northland's net income, adjusted EBITDA, and free cash flow for the three months ended June 30, 2015 were higher than the same period in 2014.

Total Sales
Total Sales decreased by 2% or were $2.7 million lower in the second quarter of 2015 compared to the same period in 2014 mainly due to lower natural gas costs at both Thorold and North Battleford facilities. Gas costs are largely contractually passed-through to the customer and therefore are a component of total electricity revenues, as further discussed in SECTION 3: Facility Results in the MD&A. These were partially offset by favourable contributions from Northland's other operating facilities.

Net income
Net income for the three months ended June 30, 2015 of $140.3 million, compared to a loss of $91.8 million for the same period last year, was primarily due to the non-cash fair value gains associated with Northland's derivative contracts ($168.9 million gain in the second quarter of 2015 versus a $130.4 million loss in the second quarter of 2014).

Adjusted EBITDA (a non-IFRS measure)
Adjusted EBITDA for the three months ended June 30, 2015 was $9.9 million higher than the prior period primarily due to: (i) overall favourable results from Northland's renewable facilities ($8.2 million) and thermal facilities ($1.2 million); (ii) higher performance incentive fees earned from Kirkland Lake ($2.2 million); and (iii) interest earned on Northland's portion of the Gemini subordinated debt ($1.3 million). Partially offsetting these favourable variances were: (i) lower investment income ($2.6 million) largely due to the 2014 dividends from Panda-Brandywine; and (ii) $0.7 million earned in 2014 related to the sale of Northland's South Kent wind development project.

Free Cash Flow, Payout Ratio (non-IFRS measures) and Dividends to Shareholders
Free cash flow of $34.6 million for the second quarter of 2015 was $3.2 million million higher than the corresponding period in 2014 primarily due to higher contributions from Northland's operating facilities, as previously discussed. Significant factors increasing and decreasing free cash flow for the comparative quarter are described below.

Factors increasing free cash flow in the second quarter of 2015 over the same quarter of 2014 primarily relate to:

  • $9.4 million higher adjusted EBITDA from Northland's operating facilities, as previously discussed;
  • $2.6 million of fees related to the renewal and expansion of Northland's corporate credit facility in 2014; and
  • $2.2 million increase in management fees from Kirkland Lake and Cochrane largely due to the settlement of Kirkland Lake's long-term debt, as previously discussed.

Factors decreasing free cash flow in the second quarter of 2015 over the same quarter of 2014 mainly relate to:

  • Increased financing payments, including $4.1 million net interest expense increase primarily due to the inclusion of McLean's and Ground-mounted Solar Phase II debt, interest on the 2020 Debentures and Northland's corporate term facility, and $1.8 million increase in scheduled debt repayments and funds set aside for debt repayments as a result of including Ground-mounted Solar Phase II projects and higher scheduled repayments on Thorold's credit facility;
  • $2.6 million decrease in investment income largely due to higher dividends received in 2014 from Northland's Panda-Brandywine investment;
  • $1.4 million of net proceeds received in 2014 related to the sale of Northland's wood chipping facility and early stage development assets;
  • $0.3 million increase in funds set aside for future maintenance; and
  • $0.8 million decrease in other miscellaneous items.

For the three months ended June 30, 2015, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The increase in quarterly free cash flow from 2014, described above, and combined with increased share count as a result of capital raises during the first quarter of 2015 were primary reasons for an increased quarterly cash payout ratio of 102% or 132% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland's DRIP) versus 93% and 126% in 2014 respectively. Northland's financial results are also affected by expected seasonal factors that result in quarterly variations in certain operating facilities' performance.

For additional details on the second quarter results, please see the Management, Discussion and Analysis in Northland's 2015 Second Quarter Report.

Year-to-Date Results
Northland's net income and adjusted EBITDA for the six months ended June 30, 2015 were higher than the same period of 2014.

Sales and cost of sales were lower in the first six months of 2015 compared to the prior year due to contributions from Thorold and North Battleford and non-recurring natural gas resale margins earned during the first quarter of 2014, as discussed in SECTION 3: Facility Results in the MD&A. Lower steam sales and a one-time charge associated with an IESO generator cost recovery program at Thorold also contributed to lower sales.

Net income for the six months ended June 30, 2015 of $109.7 million, compared to a loss of $63.3 million for the same period last year, was primarily due to the non-cash fair value gains associated with Northland's derivative contracts ($83 million gain in the first six months of 2015 versus a $138.8 million loss in the first six months of 2014). Of the non-cash fair value gain on the derivative contracts for the first six months of 2015, $68.9 million was associated with Gemini's and Nordsee One's interest rate swap contracts.

Year-to-date adjusted EBITDA was $5 million higher than the prior year primarily due to: (i) favourable results from Northland's renewable facilities ($10.6 million); (ii) the write-off of deferred development costs in 2014 ($5.2 million); (iii) interest earned on Northland's portion of the Gemini subordinated debt ($4.9 million); and (iv) a $1.6 million increase in contributions from Iroquois Falls. These favourable results were partially offset by: (i) lower contributions from Kingston ($3.6 million) due to non-recurring gas resale margins in 2014, and Thorold ($4.4 million) due to lower production and the one-time charge associated with an IESO generator cost recovery program; (ii) lower performance incentive fees from Cochrane and Kirkland Lake ($4.6 million) also mainly due to 2014 gas resale margins; (iii) lower investment income of $3.4 million (Panda dividends and interest on the MMPLP loan) and (iv) $0.7 million earned in 2014 on the sale of the early stage wind development project.

Free cash flow for the six months ended June 30, 2015 was $3.3 million lower than the same period in 2014. Favourable changes from the same period in 2014 included:

  • $6.8 million net proceeds from the sale of the Frampton wind farm and land leases and options associated with early stage development projects; and
  • $2.6 million of fees related to the renewal and expansion of Northland's corporate credit facility in 2014.

Offsetting these favourable variances were:

  • $7.3 million net interest expense increase, related to the inclusion of McLean's and Ground-mounted Solar Phase II debt and interest on the 2020 convertible unsecured subordinated debentures and Northland's corporate term facility;
  • $3.9 million increase in scheduled debt repayments as a result of including Ground-mounted Solar Phase II projects and higher scheduled repayments on Thorold's credit facility;
  • $5 million increase in adjusted EBITDA reduced by $5.3 million of investment income from Gemini which will be included in free cash flow as received;
  • $0.9 million increase of funds set aside for future major maintenance; and
  • $0.3 million of other miscellaneous items.

Northland's cash dividend payout ratio for the six months ending June 30, 2015 was 77% of free cash flow (102% excluding the effect of dividends re-invested through the DRIP) compared to 65% and 86%, respectively in 2014. The increase in the payout ratio resulted from lower free cash flow compared to the prior period combined with additional shares issued to fund the Gemini, Nordsee One, and Grand Bend projects.

Outlook
Management continues to expect adjusted EBITDA in 2015 to be approximately $380 to $400 million, guiding towards the lower end of the range in the event that the Ontario Electricity Financial Corporation (OEFC) does not provide for recalculated payments in 2015 pursuant to the power producers' successful court decision against OEFC in March 2015. The OEFC has appealed the decision and asked that the power producers relieve it of the requirement to adjust payments for the period of time since the court's decision pending the results of the appeal. The power producers have declined and await the OEFC's response.

Northland's 2015 dividend payments, on a total dividend basis, are expected to exceed free cash flow due largely to the level of spending on growth initiatives and payments of dividends and interest on capital raised for construction projects. The corresponding cash flows will not be received until the projects for which the capital is raised are completed. For 2015, management continues to expect the cash dividends to be 75-85% of free cash flow, including the impact of reinvested dividends through the DRIP, and 100-115% of free cash flow excluding the impact of reinvested dividends through the DRIP (compared with 70% and 95%, respectively, in 2014). Anticipated free cash flow for 2015, includes proceeds from the sale of the Frampton wind project and proceeds from the sale of 37.5% of four ground-mounted solar projects which is expected to be received in the fall of 2015 upon our partners meeting certain financing conditions. Due to the significant capital costs for Northland's investment in Nordsee and Grand Bend, additional corporate capital was raised in 2015 to fund the projects, and as a result the payout ratio is expected to exceed 100% until Gemini and Nordsee are completed in 2017. Northland has sufficient liquidity to bridge the payout of the current dividend in excess of free cash flow during this period. Management expects the payout ratio during construction of Gemini and Nordsee to be significantly lower than during the growth period experienced by Northland from 2009 to 2014.

Northland's Board and management are committed to maintaining the current monthly dividend of $0.09 per share ($1.08 per share on an annual basis). Northland's management and Board have anticipated the impact of growth on the payout ratio and are confident that Northland has adequate access to funds to meet its dividend commitment, including operating cash flows, cash and cash equivalents on hand and, if necessary, use of its line of credit or external financing. Management expects to continue its DRIP to provide an additional source of liquidity.

Non-IFRS Measures
This press release includes references to Northland's adjusted EBITDA, free cash flow, payout ratio and free cash flow per share, measures not prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA, free cash flow, payout ratio and free cash flow per share, 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, free cash flow, payout ratio and free cash flow per share are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations.

Earnings Conference Call
Northland will hold an earnings conference call on August 14th at 11:00 a.m. EDT to discuss its first quarter financial results. John Brace, 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 members of the media.

Conference call details are as follows:

Date: Friday, August 14, 2015
Start Time: 11:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-772-0453 or Local: 416-981-9014

For those unable to attend the live call, an audio recording will be available on Northland's website at (www.northlandpower.ca) from the afternoon of August 14 until August 28, 2015.

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 a net economic interest in 1,326 MW of operating generating capacity and 1,052 MW (712 MW net to Northland) of generating capacity under construction, including a 60% equity stake in Gemini, a 600 MW offshore wind project, and an 85% equity stake in Nordsee One, a 332 MW offshore wind project, both located in the North Sea; as well as a 100 MW onshore wind farm in Grand Bend, Ontario currently in construction.

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

Northland's common shares, Series 1 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.C, NPI.DB.B, and NPI.DB.C, respectively.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements which 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," "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 adjusted EBITDA, free cash flows, dividend payment and dividend payout ratios, the construction, completion, attainment of commercial operations, cost and output of development projects, plans for raising capital, and the operations, business, financial condition, 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, 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, construction risks, counterparty risks, operational risks, foreign exchange rates, regulatory risks, maritime risks for construction and operation, and the variability of revenues from generating facilities powered by intermittent renewable resources and the other factors described in the "Risks and Uncertainties" section of Northland's 2014 Annual Report and Annual Information Form, both of which can be found at www.sedar.com under Northland's profile and on Northland's website www.northlandpower.ca. 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 13, 2015. 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.

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