Northland Power Inc.

Northland Power Inc.

November 06, 2012 19:55 ET

Northland Power Announces Third Quarter Results and Updates Construction and Development Progress

TORONTO, ONTARIO--(Marketwire - Nov. 6, 2012) -


Northland Power Inc. ("Northland") (TSX:NPI)(NPI.PR.A)(NPI.PR.C)(NPI.DB.A) today reported its results for the third quarter ended September 30, 2012.

"Northland's geographically and technologically diverse portfolio of generating assets performed well in the third quarter," said John Brace, Northland's President and CEO. "Our facilities largely performed to our expectations, and subsequent to quarter end our Kingston, Ontario facility completed its planned major maintenance outage on schedule. Looking ahead, Northland is well-positioned to continue to deliver strong and stable returns to our shareholders as we complete our current projects and continue to advance our pipeline of attractive new development opportunities."

By 2015, Northland expects to complete over $1.5 billion of projects currently in advanced development or construction. They include the $677 million North Battleford facility, as well as approximately $900 million of additional projects under the Ontario Power Authority's (OPA) feed-in-tariff (FIT) program.

Significant Events

Construction continued on the first six of Northland's thirteen ground-mounted solar projects contracted under the OPA FIT program, with the installation of underground cabling and panel supports underway and 96% of the photovoltaic modules delivered by November 6, 2012. Long-term non-recourse project debt financing for the six projects was finalized on July 16, 2012 with a syndicate of banks for $227 million and a $30 million letter of credit facility with an 18-year loan from commercial operation. The projects remain within budget and generally on schedule for their respective commercial operations, which will occur sequentially from early to mid 2013.

Construction of Northland's $677 million North Battleford project progressed as expected during the quarter, with approximately 91% of the construction contractor's milestones completed by the end of September. The natural gas pipeline connection was completed in August and the focus of site activities is transitioning from construction to commissioning and startup, with first fire of the gas turbine expected in December. The project remains within budget and on schedule for commercial operations by the end of the second quarter of 2013 following the completion of construction, commissioning and synchronization with the SaskPower grid.

Northland's development of approximately $900 million of additional projects under the OPA FIT program (including the McLean's Mountain and Grand Bend wind projects, the remaining seven ground-mounted solar projects and the Kabinakagami run-of-river project) also progressed during the quarter, primarily on permitting, initial engineering and construction contractor negotiations.

Subsequent Events

On October 29, 2012, Standard & Poor's reaffirmed Northland's debt rating of BBB- with a positive outlook. Standard & Poor's report credited Northland's stable cash flows from long-term power purchase agreements (PPAs) with provincial agencies and government-owned utilities, and consistent financial strategy, along with continued diversification as the basis for reaffirming Northland's rating and outlook.

On October 29, 2012, Kingston recommenced operations after its planned major maintenance outage was completed on schedule.

On October 31, 2012, Northland's McLean's Mountain wind project that is being developed through a 50/50 partnership with the United Chiefs and Councils of Mnidoo Mnising First Nations received its renewable energy approval (REA).

Summary of Financial Results

For the three months ended September 30, 2012, Northland's thermal facilities operated within management's expectations, while the results at the wind farms were below the long-term forecasts due to Hydro-Québec outages and Northland planned outages at both Jardin and Mont Louis.

The complete third quarter report for 2012, including management's discussion and analysis and unaudited condensed interim financial statements, is available at and

The following table summarizes the consolidated financial and operating results.

3 Months Ended Sept. 30 9 Months Ended Sept. 30
2012 2011 2012 2011
FINANCIAL (in thousands of dollars, except per share and energy unit amounts)
Sales 82,919 80,854 269,057 257,373
Gross profit 50,201 43,124 170,758 143,999
EBITDA1 37,575 30,049 135,158 105,448
Operating income 21,333 16,237 86,199 63,626
Net loss (22,158 ) (71,547 ) (7,375 ) (39,866 )
Free cash flow1 5,709 2,842 45,990 32,075
Cash Dividends paid to Common and Class A Shareholders2 22,613 20,963 66,276 61,956
Total Dividends declared to Common and Class A Shareholders2 31,074 20,974 92,602 62,198
Per share
Free cash flow 0.05 0.04 0.40 0.42
Dividends declared to Shareholders2 0.27 0.27 0.81 0.81
Energy Volumes
Electricity sales volume (megawatt hours) 755,058 709,626 2,361,588 2,164,544
1 See "Non-IFRS measures"
2 Total dividends to common and Class A Shareholders represent cash dividends plus dividends re-invested in common shares issued as part of Northland's dividend re-investment plan

Northland's third quarter consolidated sales and earnings before interest, taxes, depreciation and amortization (EBITDA) were $82.9 million and $37.6 million respectively, compared to $80.9 million and $30 million in the same quarter of 2011. Free cash flow of $5.7 million was up $2.9 million from the same period last year. Major variances at Northland facilities compared to the third quarter of 2011 are discussed below.

Earnings before interest, taxes, depreciation and amortization

In the third quarter of 2012, EBITDA increased by $7.5 million due largely to the following factors.

Northland's operating facilities contributed an additional $6.7 million in EBITDA over 2011, primarily due to: (i) a full quarter of contributions from the Mont Louis wind farm (which commenced operations on September 17, 2011), and the Spy Hill facility (which commenced operations on October 19, 2011); (ii) favourable results from Kingston due to PPA rate increases related to the pass-through of 2011 TransCanada toll increases; and (iii) a performance incentive fee from the Kirkland Lake managed facility. These were partially offset by lower results at Thorold and Germany, largely due to equipment inspections and repairs.

Management and administration expenses for the three months ended September 30, 2012 were up from the prior year largely due to higher head count and expanded efforts associated with Northland's early-stage development activities across a range of technologies and geographic locations.

Net Loss

Net loss for the third quarter of 2012 at $22.2 million includes the following items.

Non-cash fair value losses of $24.6 million comprised of: (i) a $7.6 million loss in the fair value of interest rate swaps on the facilities' non-recourse project debt due to a decrease in long-term market interest rates; (ii) a $16 million increase in the liability associated with the fair value of Northland Class B convertible shares due to an increase in Northland's common share price during the quarter, and (iii) a $1.1 million unrealized foreign exchange loss on Northland's US dollar and Euro foreign exchange contracts.

Finance lease income was up $3.5 million as a result of the inclusion of Spy Hill. As described in Northland's 2011 Annual Report, Spy Hill's long-term PPA with SaskPower is considered a finance lease for accounting purposes. As a result, the monthly capacity payments from SaskPower are treated as lease income, while electricity sales are recognized in sales revenue. The accounting treatment of Spy Hill's PPA as a finance lease has no impact on Northland's EBITDA or free cash flow.

Finance costs, primarily interest expense, increased by $3.4 million as the recognition of interest charges on the Spy Hill and Mont Louis debt (capitalized during construction) was partially offset by lower convertible debenture interest due to conversions of debentures into common shares.

Amortization of contracts and other intangible assets of $5 million approximated the prior year.

The above factors, combined with a $1.3 million provision for current taxes and a $2.9 million recovery of future income taxes, resulted in a net loss for the third quarter of $22.2 million.

Year to Date

Sales were higher in the first nine months of 2012 compared to the prior year and primarily reflect the inclusion of the financial results for the Spy Hill and Mont Louis facilities, higher PPA prices at Kingston and the performance incentive fee received from Kirkland Lake. The cost of sales was down due to lower natural gas costs and lower production at Thorold during the first and third quarters of 2012. Plant operating costs were up due to the inclusion of Spy Hill and Mont Louis, the scheduled inspection of the combustion turbine electrical generator at Iroquois Falls in the second quarter of 2012, and the additional third quarter maintenance expenditures at Thorold, Jardin and the German wind farms as discussed previously. Management and administration costs related to operations and development were higher than the prior year as previously discussed.

Finance lease income was up $10.6 million as a result of the inclusion of Spy Hill. For the year to date, Northland recorded a $27.3 million non-cash fair value loss comprised of: (i) an $11.6 million loss in the fair value of interest rate swaps on the facilities' non-recourse project debt; (ii) a $15.1 million increase in the liability associated with the fair value of Northland Class B Shares due to an increase in Northland's common share price, and (iii) a $0.6 million unrealized foreign exchange loss on Northland's foreign exchange contracts.

Dividends to Shareholders, Payout Ratio and Free Cash Flow

For the three-month period ending September 30, 2012, common and Class A share dividends declared for the quarter totalled $0.27 per share.

Free cash flow of $5.7 million for the quarter was $2.9 million higher than in 2011 as the $7.5 million increase in EBITDA as discussed previously and a $0.4 million decrease in non-expansionary capital expenditures were partially offset by: (i) a $3.3 million increase in net interest expense, largely related to Mont Louis and Spy Hill which capitalized interest costs during construction; (ii) a $1.2 million increase in scheduled principal payments; (iii) $1.5 million higher preferred dividends as a result of the second quarter issuance of the cumulative rate reset preferred shares, series 3 ("Series 3 Preferred Shares"); (iv) $0.6 million in higher current taxes, largely associated with the additional preferred share dividends; and (v) a $2.5 million milestone payment related to Kingston's gas turbine maintenance agreement with General Electric and its subsidiaries ("GE"), net of a $1.7 million maintenance reserve utilization to fund its planned major outage that began in late September.

Management continues to expect the cash dividend payout ratio for the full fiscal year 2012 to be 135-145% of free cash flow excluding reinvested dividends, and 185-195% on an all-cash dividend basis. The payout ratio in the third quarter, historically the quarter with the lowest free cash flow, was 396% or 546% excluding the effect of the DRIP largely due to the impact of seasonality and timing of scheduled debt repayments. The payout ratio in excess of 100% largely reflects the level of spending on growth initiatives and payment of dividends on equity capital raised to fund construction projects, for which corresponding cash flows will not be received until 2013 and beyond.


Northland actively pursues new power development opportunities that encompass a range of clean technologies, including natural gas, wind, solar, and hydro, to provide a sustainable source of energy in various geographic regions and political jurisdictions. Northland believes this diversified strategy will mitigate the risk of adverse changes to local demographics or governmental policies.

In the third quarter of 2012 and through the date of this report, Northland continued to execute on its strategy of expanding its earlier stage development pipeline in its targeted market areas. Examples of new initiatives include the partnership formed in August with Innu Takuaikan Uashat Mak Mani-Utenam (ITUM) in Quebec to pursue the development of up to 250 MW of wind energy projects, and in October the acquisition of rights to develop two gas-fired peaking plants of 100 MW each in Illinois. Additional progress has been made on wind power projects in both Quebec and British Columbia, and on additional hydroelectric power projects in British Columbia. Prospecting for new natural gas-fired power projects and renewable energy projects in the U.S. continues to increase. Northland continues to consider its Ontario developments, particularly the Oshawa and Queen's Quay cogeneration projects, the Marmora pumped storage project, and other projects to be excellent prospects in the medium to longer-term, despite the difficult political climate that has emerged over the last several months. Northland's approach continues to be one of ensuring the balance between progressing development opportunities which meet the company's investment criteria, while prudently managing the company's cost exposure to earlier stage projects.

In 2012, management continues to expect Northland to generate EBITDA of approximately $170 million to $180 million. Management expects that EBITDA will increase to a range of $360 to $400 million on an annualized basis starting in 2014 once the projects in construction and advanced development are completed and begin commercial operations.

Northland's board and management are committed to maintaining the current dividend of $1.08 per common share and Class A Share on an annual basis, payable monthly. Northland's 2012 dividend payments are expected to exceed free cash flow due largely to the level of spending on growth initiatives and payments of dividends on equity capital raised for construction projects for which corresponding cash flows will not be received until future years. For 2012, management continues to expect the cash dividends to be 135-145% of free cash flow excluding reinvested dividends and 185-195% of free cash flow on an all-cash dividend basis. Management expects the free cash flow to fully fund or exceed dividend payments on an annualized basis in the second half of 2013 with the addition of the combined cash flows of the ground-mounted solar and North Battleford projects. Dividend payments could continue to exceed free cash flow if significant additional equity investments are made as a result of future development successes. 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 planned future dividends from operating cash flows, DRIP, cash and cash equivalents on hand and, if necessary, use of its line of credit.

Non-IFRS Measures

This press release includes references to Northland's free cash flow and EBITDA which are not measures prescribed by International Financial Reporting Standards (IFRS). Free cash flow and EBITDA, 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 free cash flow and EBITDA 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 November 7th at 9:00 am EST. John Brace, Northland's President and 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: Wednesday November 7, 2012

State Time: 9:00 a.m. Eastern Standard Time

Phone Number: Toll free within North America: 1-800-269-0310 or Local 416-352-0507

For those unable to attend the live call, an audio recording will be available on Northland's website at ( from the afternoon of November 7 until November 21, 2012.


Northland Power Inc. owns or has a net economic interest in 1,005 MW of operating generating capacity, and 320 MW of generating capacity in construction. Northland is also actively developing 280 MW of wind, solar and run-of-river hydro projects already awarded PPAs, and approximately 2,200 MW of additional power generation opportunities. Northland's assets comprise facilities that produce electricity from "clean" natural gas and "green" renewable sources such as wind, solar and biomass. Electricity generation and capacity is primarily sold under long-term contracts with creditworthy customers. Northland's operating thermal power assets are located in the provinces of Ontario and Saskatchewan, Canada, and include the 120 MW Iroquois Falls cogeneration facility, the 110 MW Kingston combined-cycle power facility, the 265 MW Thorold cogeneration facility, the 86 MW Spy Hill peaking facility and an economic interest in two natural-gas- and biomass-fired generation facilities as well as a 19% equity interest in the 230 MW Panda-Brandywine combined-cycle power facility located outside Washington, D.C. Northland's operating renewable power facilities include the 128 MW Jardin d'Eole wind farm and the 100 MW Mont Louis wind farm both located in Quebec, two wind farms totalling 22 MW of installed capacity located in Germany and several rooftop solar power facilities in Ontario. Northland owns the 260 MW North Battleford project, which is currently under construction in Saskatchewan, Canada, and is currently constructing 60 MW of ground-mounted solar projects located in various communities in eastern and central Ontario. Northland's cash flows are diversified over five geographically separate regions and regulatory jurisdictions.

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 and NPI.DB.A, respectively.


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 future EBITDA, cash flows and dividend payments, 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, 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 2011 Annual Report and Annual Information Form, both of which can be found at under Northland's profile and on Northland's website 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 6, 2012. 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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