Northland Power Inc.
TSX : NPI
TSX : NPI.PR.A
TSX : NPI.PR.C
TSX : NPI.DB.A
TSX : NPI.DB.B

Northland Power Inc.

November 13, 2014 20:42 ET

Northland Increases European Growth While Delivering Strong Third Quarter Results

TORONTO, ONTARIO--(Marketwired - Nov. 13, 2014) -

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Northland Power Inc. ("Northland" or "the Company") (TSX:NPI)(TSX:NPI.PR.A)(TSX:NPI.PR.C)(TSX:NPI.DB.A)(TSX:NPI.DB.B) reported its financial results today for the quarter ended September 30, 2014.

Third Quarter Highlights:

  • Acquired 85% stake in three offshore wind projects in Germany, with one 332 megawatt (MW) near-term project to commence construction in 2015 - Nordsee One;
  • 13% and 11% increase in consolidated sales and gross profit, respectively, compared to the third quarter of 2013;
  • Marked-to-market non-cash adjustments on Northland's financial derivative contracts increased GAAP net loss by $85 million over prior year;
  • 2% decrease in cash provided by operating activities, mainly due to the timing of interest expenditures;
  • 15% increase in quarterly adjusted EBITDA from 2013;
  • 10% decrease in quarterly free cash flow compared to 2013 primarily because North Battleford and Ground-mounted Solar Phase I and II were not required to make scheduled debt repayments in the third quarter of 2013 even though they were operational; and
  • Quarterly cash payout ratio increased to 82% of free cash flow from 63% in the third quarter of 2013 (112% excluding the effect of the Dividend Reinvestment Plan (DRIP) versus 83% in 2013) due to lower free cash flow compared to the prior year quarter combined with additional shares issued to fund the Gemini project.

"We are pleased to report robust financial results in the third quarter along with continued growth of our operating assets," said John Brace, Chief Executive Officer. "The purchase of a majority stake in the Nordsee projects demonstrates our ability to deliver on our strategy of securing attractive longer-term, offtaker backed opportunities to create attractive growth.
Concurrently, we achieved a 15% increase in quarterly adjusted EBITDA over the same quarter last year. Our strong results and continued execution of our offshore wind strategy ensures a prosperous future ahead for Northland."

Summary of Financial Results
Northland's consolidated financial results for the three and nine months ended September 30, 2014 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.

3 Months Ended Sept. 30 9 Months Ended Sept. 30
2014 2013 2014 2013
FINANCIAL (in thousands of dollars, except per share
and energy unit amounts)
Sales 172,505 152,373 571,874 382,907
Gross profit 110,759 99,632 347,898 241,395
Operating income 54,346 51,240 188,752 121,365
Net income (loss)(1) (43,791) 41,265 (107,060) 145,011
Adjusted EBITDA(2) 86,784 75,681 270,333 180,310
Cash Provided by Operating Activities 74,493 76,034 291,945 178,594
Free cash flow(2) 35,621 39,654 123,742 92,049
Cash Dividends paid to Common and Class A Shareholders 29,158 25,087 86,056 71,523
Total Dividends declared to Common and Class A Shareholders(3) 40,059 34,241 117,028 97,442
Per Share
Free cash flow(2) 0.239 0.320 0.853 0.768
Dividends declared to Shareholders(3) 0.270 0.270 0.810 0.810
Energy Volumes
Electricity sales volume (megawatt hours) 1,145,672 1,075,512 3,735,744 2,786,553
(1) Net income (loss) as reported in the financial statements includes non-cash fair value gains and losses on derivative contracts that are explained below.
(2) See "Non-IFRS measures" for a detailed description.
(3) Total dividends to Common and Class A Shareholders represent cash dividends declared irrespective of whether the dividend is received in cash or in shares as part of the DRIP.

Third Quarter Results

Northland's consolidated sales, operating income and adjusted EBITDA for the three months ended September 30, 2014 were significantly higher than the same period in 2013.

Total Sales

The $20.1 million increase in sales from the same period in 2013 is primarily due to contributions from McLean's and the ground-mounted solar projects, partially offset by lower wind resources at Northland's other wind facilities. Increased economic production periods at Thorold also contributed to higher sales.

Net income (loss)

The third quarter net loss exceeded the prior year because the increase in adjusted EBITDA was more than offset by higher finance costs and a fair value loss on derivative contracts. A significant portion ($58 million) of the loss represents the fair value accounting treatment of Gemini's interest rate swaps that are marked-to-market and consolidated with Northland's operating results. These fair value adjustments are non-cash items that will reverse over time, and have no impact on the cash obligations of Northland or its projects.

Adjusted EBITDA (a non-IFRS measure)

The $11.1 million increase in adjusted EBITDA from the same period in 2013 was primarily due to: (i) an $8.1 million contribution from McLean's and the Ground-mounted Solar Phase I and II projects; (ii) a $4.8 million increase in adjusted EBITDA from Northland's other facilities, including higher one-time dividends from Panda-Brandywine and investment income earned on the Gemini subordinated debt; and (iii) a $1.8 million increase in performance and management fees from Kirkland Lake and Cochrane substantially due to achieving certain conditions which entitles Northland to share in the Cochrane cash flows after all operating and financing expenses. Offsetting these favourable variances were: (i) a $1.2 million decrease from Northland's existing thermal and wind facilities, largely due to lower electricity prices at Kingston and calm wind conditions at the Jardin wind facility; and (ii) $1.4 million of higher corporate costs.

Free Cash Flow, Payout Ratio (non-IFRS measures) and Dividends to Shareholders

Free cash flow of $35.6 million for the quarter was $4 million lower than the corresponding period in 2013 largely due to the timing of scheduled debt repayments for North Battleford and ground-mounted solar in 2013; significant factors increasing and decreasing free cash flow for the comparative quarter are described below.

Factors increasing free cash flow in the third quarter of 2014 over the same quarter of 2013:

  • $6.8 million higher adjusted EBITDA from Northland's operating facilities, as described in the "Adjusted EBITDA" section above;
  • $1.2 million increase in adjusted EBITDA generated from one-time Panda dividends and interest earned from the McLean's partner equity loan;
  • $1.8 million increase in management fees from Kirkland Lake and Cochrane, as described in the "Adjusted EBITDA" section above; and
  • $1.9 million reduction in funds previously set aside for future major maintenance that were either not required or were utilized to fund the steam turbine inspection and overhaul at Iroquois Falls.

Factors decreasing free cash flow in the third quarter of 2014 over the same quarter of 2013:

  • $3.5 million net interest expense increase primarily due to the inclusion of McLean's and Ground-mounted Solar Phase I and II debt and Northland's corporate term facility, which was utilized to assist with the funding of Project Gemini;
  • $8.1 million increase in scheduled debt repayments as a result of including North Battleford and Ground-mounted Solar Phase I projects (no scheduled payments in 2013);
  • $1.4 million increase in corporate general and administration costs;
  • $0.7 million negative variance associated with milestone payments to GE related to Kingston's gas turbine maintenance contract;
  • $0.9 million increase in operations-related capital expenditures largely related to a steam turbine inspection and overhaul at Iroquois Falls. Funds were drawn from the reserve account to partially cover this expenditure; and
  • $1.1 million increase in other miscellaneous items.

For the three month period ended September 30, 2014, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. This is equivalent to a cash payout ratio of 82% or 112% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland's DRIP). The increase in the payout ratio resulted from lower free cash flow compared to the prior year combined with additional shares issued to fund the Gemini project.

For additional details on the third quarter results, please see the Management, Discussion and Analysis in Northland's third quarter report.

Year-to-Date Results

Northland's consolidated sales, adjusted EBITDA and operating income for the nine months ended September 30, 2014 were significantly higher than the same period of 2013.

Sales were higher in the first nine months of 2014 compared to the prior year and primarily reflect the inclusion of financial results from North Battleford, McLean's, the ground-mounted solar projects and Kirkland Lake and Cochrane.

The net loss for the nine months ended September 30, 2014 exceeded the prior year because the increase in adjusted EBITDA was more than offset by higher finance costs, a write-off of deferred development costs associated with the Kabinakagami hydro project and a non-cash fair value loss on derivative contracts.

The increase in adjusted EBITDA reflects a full nine months of contributions from North Battleford and the operational Ground-mounted Solar Phase I and II projects, overall favourable results from Northland's other operating facilities largely due to natural gas resales, favourable wind conditions at Mont Louis and the German wind farms, higher investment income (Gemini sub debt interest, Panda dividends and interest on the McLean's loan) and performance incentive fees earned from Cochrane and Kirkland Lake. These favourable results were partially offset by increased corporate management and administration costs and the write-off of deferred development costs in the first quarter.

Free cash flow for the nine months ended September 30, 2014 was $31.7 million higher than 2013. Favourable changes from the same period in 2013 included:

  • $90 million increase in adjusted EBITDA reduced by the $5.6 million of investment income from Gemini which will be included in free cash flow as received;
  • $0.6 million reduction in funds previously set aside for future major maintenance that were either not required or was utilized to fund the Iroquois Falls steam turbine inspection and overhaul at Iroquois Falls;
  • $0.9 million favourable change in other liabilities associated with contracted gas turbine maintenance milestone payments to GE; and
  • $1.2 million of other miscellaneous items, including proceeds from the sale Northland's chipping facility in April 2014.

Partially offsetting these favourable variances was:

  • $29.5 million net interest expense increase related to the inclusion of North Battleford, McLean's and Ground-mounted Solar Phase I and II projects (North Battleford became operational in June 2013, McLean's was not operational in 2013, and only five Ground-mounted solar entities were operational for more than seven days by the third quarter of 2013) and funds raised related to Northland's Project Gemini investment (Northland's term facility and the March 5, 2014 issuance of convertible unsecured subordinated debentures);
  • $22.1 million increase in scheduled debt repayments, largely due to the timing of North Battleford and Ground-mounted Solar Phase I and II repayments (these entities were not required to make scheduled debt repayments during the first nine months 2013, despite being operational);
  • $1.3 million of additional non-expansionary capital expenditures; and
  • $2.6 million of fees related to the renewal and expansion of Northland's corporate credit facility.

For additional details on the year-to-date results, please see the Management, Discussion and Analysis in Northland's third quarter report.

Outlook

During the first nine months of 2014 and through the date of this report, Northland continued to expand its earlier-stage development pipeline, pursuing opportunities that meet the Company's investment criteria in targeted markets including North America, Europe, Latin America and Mexico. Northland has identified a number of opportunities in these jurisdictions, in addition to several projects already under development. Northland's sustained focus is on purposefully advancing those development opportunities that align with the Company's business strategy while prudently managing the cost exposure of earlier-stage projects.

Management continues to reaffirm its previous guidance of 2014 adjusted EBITDA to be approximately $350 to $360 million and the 2015 adjusted EBITDA forecast to be approximately $380 to $400 million.

For 2014, management has improved its payout ratio forecast and expects cash dividends to be 75-85% of free cash flow, including the impact of reinvested dividends through the DRIP, and 95-105% of free cash flow excluding the impact of reinvested dividends through the DRIP (compared with 76% and 101%, respectively, in 2013). Prior to its investment in Project Gemini, management expected the dividend payout ratio to drop below 100% in 2014 on a total dividend basis, based on the successful conclusion of a period of significant growth and capital expenditures for Northland. Due to the significant capital costs for Northland's investment in Project Gemini, additional corporate capital has been raised in 2014 to fund the project, and additional capital is likely to be raised in early 2015 to fund a portion of the Nordsee One project. As a result Northland's payout ratio may exceed 100% until Project Gemini is 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 the construction of Gemini and Nordsee One to be significantly lower than during the growth period experienced by Northland from 2009 to 2013.

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, free cash flow payout ratio, payout ratio and free cash flow per share, measures not prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA, free cash flow, free cash flow payout ratio, payout ratio and free cash flow per share, 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, free cash flow payout ratio, payout ratio and free cash flow per share are widely accepted financial indicators used by investors and securities analysts to assess the performance of a company, including its ability to generate cash through operations. Readers should refer to the Management, Discussion and Analysis in Northland's third quarter report; SECTION 4: Consolidated Results for a reconciliation to the nearest IFRS measure.

Earnings Conference Call

Northland will hold an earnings conference call on November 14th at 10:00 a.m. EST to discuss its third quarter financial results. John Brace, Northland's Chief Executive Officer, Sean Durfy, Northland's President and Chief Development 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, November 14, 2014
Start Time:
10:00 a.m. EST
Phone Number: Toll free within North America: 1-800-269-0310 or Local: 416-981-9080

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 November 14 until November 28, 2014.

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 1,345 MW of operating generating capacity; 640 MW (400 MW net to Northland) of generating capacity under construction, including a 60% equity stake in Gemini, a 600 MW (360 MW net to Northland) offshore wind project in the North Sea near the Netherlands; and 456 MW (348 MW net to Northland) of projects with awarded power contracts under advanced development, including an 85% equity stake in Nordsee One, a 332 MW (282 MW net to Northland) offshore wind project in the North Sea near Germany. 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 convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.C, NPI.DB.A and NPI.DB.B, 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 plans for raising capital. These statements are based upon certain material factors or assumptions that were applied in developing the forward-looking statements, including 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, operational risks, foreign exchange rates, regulatory risks, 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 2013 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 November 13, 2014. 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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