Northland Power Inc.

Northland Power Inc.

August 05, 2014 20:05 ET

Northland Power Delivers 43% Increase in Second Quarter Free Cash Flow

Company achieves strong results in the quarter while continuing to expand portfolio of operating assets

TORONTO, ONTARIO--(Marketwired - Aug. 5, 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)

Second Quarter Highlights:

  • 63% increase in quarterly earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") from 2013;
  • 43% increase in quarterly free cash flow from 2013;
  • Decreased quarterly cash payout ratio to 93% of free cash flow from 108% in the second quarter of 2013 (126% excluding the effect of the Dividend Reinvestment Plan versus 144% in 2013);
  • Completed the acquisition of a 60% controlling interest in Project Gemini, a 600 megawatt (MW) offshore wind project located off the coast of the Netherlands in the North Sea;
    • Subsequent to the acquisition, Project Gemini reached financial close, having placed all of the EUR2.8 billion of equity and debt commitments required for the project.
  • Declared commercial operations on Northland's 60 MW (30 MW net interest) McLean's wind project located on Manitoulin Island, Ontario, on May 1, 2014. The project was completed on time and on budget, and has a 20-year power purchase agreement (PPA) with the Ontario Power Authority (OPA) under Ontario's renewable energy Feed-in-Tariff (FIT) Program;
  • Commenced construction on the final remaining ground-mounted solar projects ("Cluster 4") and completed $240 million of non-recourse project financing for the remaining unfinanced solar projects; and
  • Due to the strong performance in our operations over the first half of 2014, Northland has increased its adjusted EBITDA forecast range for 2014 upward by $5 million to $350 million to $360 million. The forecasted payout ratio range for 2014 was also favourably adjusted to be in the range of 100% to 110% of free cash flow on a total dividend basis.

Northland reported its financial results today for the quarter ended June 30, 2014.

"We delivered excellent financial results in the second quarter while continuing to grow the megawatts in our operating asset base," said John Brace, Chief Executive Officer. "Our free cash flow increased by 43% over the same quarter last year, and adjusted EBITDA increased by 63%. We completed our 60 MW McLean's wind project on time and on budget, and closed financing on our five remaining Ontario ground-mounted solar projects. We also reached financial close on Gemini, representing the largest-ever financing for an offshore wind farm; the project has now entered construction and is proceeding well. These results demonstrate Northland's ongoing focus and strength: delivering long-term value to our shareholders through steady growth and a commitment to excellence in all that we do. Finally, I want to thank all the Northland employees for their dedication and effort in helping to achieve these outstanding results."

Summary of Financial Results

Due to Northland acquiring a controlling interest in Project Gemini in May 2014, Northland's consolidated financial results for the three and six months ending June 30, 2014 include the financial results for the Gemini project.

3 Months Ended June 30 6 Months Ended June 30
2014 2013 2014 2013
FINANCIAL (in thousands of dollars, except per share and energy unit amounts)
Sales 169,945 124,400 399,369 230,534
Gross profit 103,701 73,779 237,139 141,763
Adjusted EBITDA(1) 81,452 50,064 183,549 104,629
Operating income 50,397 32,755 134,406 70,125
Net income (loss)(2) (91,845 ) 80,129 (63,269 ) 103,746
Free cash flow(1) 31,369 21,977 88,121 52,395
Cash Dividends paid to Common and Class A Shareholders 29,281 23,754 56,898 46,436
Total Dividends declared to Common and Class A Shareholders(2) 39,787 31,718 76,969 63,201
Per Share
Free cash flow 0.21 0.19 0.62 0.45
Dividends declared to Shareholders(3) 0.27 0.27 0.54 0.54
Energy Volumes
Electricity sales volume (megawatt hours) 1,099,457 733,006 2,590,072 1,711,042
(1) See "Non-IFRS measures" for a detailed description. Adjusted EBITDA was previously reported as EBITDA.
(2) Net income (loss) as reported in the financial statements includes non-cash fair value gains and losses on derivative contracts that are explained below.
(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 program.

Second Quarter Results

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

Adjusted EBITDA

The $31.4 million increase in adjusted EBITDA from the same period for 2013 was primarily due to (i) a $32.2 million contribution from a full second quarter of North Battleford and the Ground-mounted Solar Phase I and II projects, and the introduction of adjusted EBITDA from McLean's in this quarter; and (ii) a $5.4 million increase in adjusted EBITDA from Northland's other facilities, including higher dividends from Panda-Brandywine and interest on the Gemini subordinated debt. Offsetting these favourable variances were: (i) a $4 million decrease from Northland's existing thermal and wind facilities, largely due to scheduled maintenance outages at Kingston and Iroquois Falls and calm wind conditions at all wind facilities; (ii) a $0.5 million decrease in performance and management fees from Kirkland Lake and Cochrane; and (iii) $2.3 million of higher corporate costs.

Free Cash Flow, Payout Ratio and Dividends to Shareholders

Free cash flow of $31.4 million for the quarter was $9.4 million higher (43%) than the corresponding period in 2013; 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 2014 over the same quarter of 2013:

  • $28.2 million higher adjusted EBITDA from Northland's operating facilities, as previously discussed;
  • $3.4 million increase in adjusted EBITDA generated from Northland's managed and other facilities;
  • $1.3 million positive variance associated with Kingston and North Battleford's payments to General Electric related to their gas turbine maintenance contracts;
  • $0.7 million increase in other income related to contingent sales proceeds from the 2011 sale of Northland's South Kent wind development project;
  • $0.8 million in proceeds from the sale of Northland's wood chipping facility; and
  • $1 million increase in other miscellaneous items.

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

  • $12.8 million net interest expense increase primarily due to the full quarter inclusion of North Battleford and Ground-mounted Solar Phase I and II debt;
  • $7.2 million increase in scheduled debt repayments as a result of including the full quarter of North Battleford and Ground-mounted Solar Phase I projects;
  • $2.3 million increase in corporate general and administration costs;
  • $2.6 million of fees related to the renewal and expansion of Northland's corporate credit facility;
  • $0.5 million decrease in management fees from Kirkland Lake and Cochrane; and
  • $0.6 million increase in operations related capital expenditures and funds set aside for future major maintenance.

For the three months ending June 30, 2014, Northland's dividend payout ratio was 93% of free cash flow or 126% if all dividends were paid out in cash (i.e. excluding the effect of dividends reinvested through the Dividend Reinvestment Plan (DRIP)) compared to 108% and 144%, respectively in 2013.

Net income

The second quarter net loss exceeded the prior year because the increase in adjusted EBITDA was more than offset by higher finance costs, a fair value loss on derivative contracts that include interest rate swaps on the facilities' non-recourse project debt, the long term financial hedge related to future natural gas prices at Iroquois Falls and foreign exchange contracts associated with the Gemini project and the write down of the Panda investment due to termination of the PPA and the transfer of the facility's assets to the PPA offtaker, JP Morgan in May 2014.

A significant portion ($109.2 million) of the second quarter net loss represents the fair value accounting treatment of Project Gemini's interest rate swaps that are marked to market and consolidated with Northland's operating results. Changes in interest and currency rates give rise to non-cash marked to market adjustments each quarter as a result of Northland's and Project Gemini's accounting election to forego the application of hedge accounting. 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.


During the first six 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 and Latin America. We have identified a number of opportunities in these jurisdictions, in addition to several projects already under development. Our 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.

Due to the strong performance in our operations over the first half of 2014, management has increased its 2014 adjusted EBITDA forecast to approximately $350 to $360 million.

Management continues to expect adjusted EBITDA of $380 to $400 million in 2015 based on the current completion schedules for Northland's projects with power contracts.

Northland's 2014 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 for which corresponding cash flows will not be received until the projects for which the capital is raised are completed. For 2014, commensurate with EBITDA guidance, 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 100-110% 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 as a result the 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 Project Gemini's construction 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 free cash flow and adjusted EBITDA which are not measures prescribed by International Financial Reporting Standards (IFRS). Free cash flow and adjusted 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 adjusted 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 August 6th at 10:00 a.m. EDT to discuss its second 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: Wednesday, August 6, 2014
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-381-7839 or Local: 416-981-9037

For those unable to attend the live call, an audio recording will be available on Northland's website at ( from the afternoon of August 6 until August 20, 2014.


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 1,335 MW of operating generating capacity, with an additional 650 MW (410 MW net to Northland) of generating capacity currently in construction, and another 124 MW (66 MW net to Northland) of projects with awarded power contracts. The above includes Northland's majority equity stake in Gemini, a 600 MW (360 MW net to Northland) offshore wind project in the North Sea currently under 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 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.


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 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 August 5, 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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