SOURCE: Northland Power Inc.

Northland Power Inc.

November 08, 2017 18:23 ET

Northland Power Reports 23% Higher Third Quarter Gross Profit and 13% Higher Adjusted EBITDA

Company Plans 11% Dividend Increase

TORONTO, ON--(Marketwired - November 08, 2017) -

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Northland Power Inc. ("Northland" or the "Company") (TSX: NPI) (TSX: NPI.PR.A) (TSX: NPI.PR.B) (TSX: NPI.PR.C) (TSX: NPI.DB.B) (TSX: NPI.DB.C) today reported financial results for the three and nine months ended September 30, 2017.

"The third quarter represented another period of great progress across the business," commented John Brace, Northland's Chief Executive Officer. "Deutsche Bucht, 100% owned by Northland Power, successfully achieved financial close. Nordsee One is nearing completion, and already earning significant pre-completion revenues." Mr. Brace continued, "Looking ahead, we continue to pursue an exciting pipeline of domestic and international development projects. And we have added Troy Patton to our team in the role of Chief Operations Officer, further demonstrating our ability to attract top performers and our commitment to maximize the value of our operating assets throughout their lifecycle. We continue to be confident about the future of the Company and accordingly, our Board plans to increase the Company's dividend for the first dividend payable in January 2018 by 11% to $0.10 per share monthly, which is an increase to $1.20 per share annually."

Third Quarter Highlights:

Financial

  • Sales increased 11.1% or $29.5 million and gross profit increased 23.0% or $49.5 million compared to the same quarter last year primarily due to contributions from Gemini and pre-completion revenues from Nordsee One, combined with positive contributions from McLean's and Grand Bend. These positive variances were partially offset by lower contributions from Kingston.
  • Adjusted EBITDA (a non-IFRS measure) increased 13% or $18.3 million compared to the same quarter last year primarily due to contributions from Gemini and pre-completion revenues from Nordsee One, partially offset by higher plant operating costs and management and administration costs.
  • Free cash flow per share (a non-IFRS measure) increased to $0.26 from $0.19 in the same quarter last year primarily as a result of a full quarter of contribution from Gemini partially offset by a lower contribution from Kingston and the commencement of scheduled loan repayments at Gemini in the quarter.
  • Net income increased $63.6 million compared to the same quarter last year primarily due to non-cash gains related to financial derivative contracts and an increase in gross profit, partially offset by higher depreciation expense, plant operating costs and corporate management and administration costs, lower deferred tax recoveries 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 net interest.

Construction

  • Nordsee One - 332 MW offshore wind farm, German North Sea - Construction continues to progress according to the project plan. On September 22, 2017, the 54th and final wind turbine was successfully installed and all turbines were earning pre-completion revenues at full rates. As at November 8, 2017, 53 turbines have completed their reliability test. Takeover activities have commenced and Northland expects the commissioning of all turbines and earning of full project revenues to occur by the end of 2017. Final construction close-out and term conversion of the financing is expected to occur prior to the end of the first quarter of 2018.
  • Deutsche Bucht - 252 MW offshore wind project, German North Sea - On August 17, 2017, Northland acquired a 100% interest in the Deutsche Bucht Offshore Wind project ("DeBu"). Financial close for DeBu, with all equity contributed and all debt required fully committed by project lenders, occurred on August 18, 2017. All key construction contracts have been signed and manufacturing has commenced, with project completion expected by the end of 2019. The total estimated project cost is approximately EUR1.3 billion (CAD $1.9 billion). Northland has invested EUR460.6 million of corporate funds, sourced from EUR279.6 million of cash on hand and EUR181.0 million from Northland's corporate revolver facility.

Other

  • Planned Increase in Dividend - The Board of Directors plans to approve an increase in Northland's common share dividend from $0.09 per month ($1.08 annually) at present to $0.10 per month ($1.20 annually) commencing with the dividend record date of December 29, 2017 for dividends payable on January 15, 2018. The Board of Directors expects to review the dividend policy on a regular basis to balance growth requirements and investor preferences.
  • Appointment of Chief Operations Officer - On September 18, 2017, Troy Patton joined Northland as its Chief Operations Officer. Mr. Patton has more than 20 years of experience in the power generation industry, including operations with naval nuclear reactors and gas turbines, wind and solar plants. His post-military career includes senior roles at General Electric and Vestas Wind Systems. Mr. Patton has worked extensively in Europe and Asia and most recently served as Chief Executive Officer of Northern Power Systems, a U.S.-based provider of utility and distributed power solutions.
  • Restructuring of Ground-Mounted Solar Debt - On August 22, 2017, Northland favourably restructured the project debt relating to seven of its ground-mounted solar facilities primarily to align the financing with Northland's ownership interest and reduce loan margins and certain reserving requirements.
          
Summary of Consolidated Results         
(in thousands of dollars, except per share amounts)  Three months ended September 30,  Nine months ended September 30,
   2017  2016  2017  2016
FINANCIALS                
 Sales  $ 295,243  $ 265,746    $ 981,645  $ 620,500  
 Gross Profit   265,006   215,522     871,691   482,890  
 Operating Income   103,511   105,559     435,670   231,988  
 Net Income (Loss)   31,710   (31,901 )   193,555   (100,176 )
 Adjusted EBITDA (1)   160,226   141,916     526,501   349,783  
 Cash Provided by Operating Activities   172,505   158,806     591,365   375,388  
 Free Cash Flow (1)   45,288   32,144     186,553   123,326  
 Cash Dividends Paid to Common and Class A Shareholders   33,200   34,075     100,053   105,100  
 Total Dividends Declared to Common and Class A Shareholders (2)   47,144   46,484     140,913   138,970  
                 
Per share information                
 Free Cash Flow (1)  $ 0.260  $ 0.187    $ 1.070  $ 0.716  
 Total Dividends Declared to Common and Class A Shareholders (2)  $ 0.270  $ 0.270    $ 0.810  $ 0.810  
                 
ENERGY VOLUMES                
 Electricity (megawatt hours) (3)   1,409,409   1,641,555     4,430,747   4,356,820  
(1) Refer to the Non-IFRS Financial Measures section of this press release for further information.
(2) Total dividends to Common and Class A Shareholders represent dividends declared including dividends received in cash or in shares under the DRIP.
(3) Includes Gemini and Nordsee One pre-completion production volumes, which totalled 120,262 and 963,470 MWhs for the three and nine months ended September 30, 2017, respectively, and 279,247 and 379,802 MWhs for the same periods last year. A portion of the related pre-completion revenues are included in sales.
 

Third Quarter Results Summary

Offshore wind facilities
Electricity production, including pre-completion production, during the three months ended September 30, 2017 was 244,250 MWh higher compared to the same quarter last year primarily due to all of Gemini's turbines producing power throughout the quarter. Nordsee One project remained under construction at the end of the quarter but generated 120,262 MWh in pre-completion production. Sales of $143.0 million and adjusted EBITDA of $74.3 million were driven by revenues from Gemini and a portion of pre-completion revenues from Nordsee One. Adjusted EBITDA includes Northland's share of both projects' overhead costs (management and administration) during construction which do not qualify for capitalization under IFRS.

Thermal facilities
Electricity production was 467,486 MWh lower compared to the same quarter last year primarily due to a lack of dispatches being made under the Kingston Remarketing Initiative and the Iroquois Falls EDC and fewer dispatch starts and hours at Thorold. While sales were $30.3 million lower as a result of these factors compared to the same quarter last year, operating income and adjusted EBITDA were only $6.4 million and $10.0 million lower, respectively, primarily as a result of lower plant operating and other costs.

On-shore renewable facilities
Electricity production of 264,456 MWh was comparable to the same quarter last year. Sales for the third quarter of 2017 were consistent with the same quarter in 2016 as a result of higher results at Grand Bend and McLean's being offset by the impact of higher than usual cloud cover at the solar facilities. Plant operating costs were $1.4 million higher primarily due to one-time maintenance costs. As a result of the above factors, operating income and adjusted EBITDA for the renewable facilities were lower by $1.3 million and $1.6 million, respectively.

Management and administration costs
Management and administration (M&A) costs of $21.4 million were $4.5 million higher than the same quarter last year, of which corporate M&A costs were $2.7 million higher primarily due to higher personnel costs ($0.9 million) and higher early-stage development activities ($0.3 million). Facility M&A costs were $1.8 million higher primarily due to personnel, office and other costs related to Gemini that are no longer capitalized due to commencement of commercial operations.

Finance costs
Finance costs, net, increased $9.1 million compared to the third quarter of last year primarily due to interest costs at Gemini no longer being capitalized.

Non-cash fair value gains
Non-cash fair value gains of $12.8 million for the third quarter of 2017 (compared to a $79.3 million loss last year) is primarily due to an $11.7 million gain in the fair value of Northland's financial derivative contracts. Effective January 1, 2017, Northland has adopted IFRS 9 and elected to apply hedge accounting which allows Northland to record the effective portion of mark-to-market adjustments on its derivative contracts in other comprehensive income. The fair value adjustments are non-cash items which will reverse over time, and have no impact on the cash obligations of Northland or its projects. Further details are provided in Note 5 of the unaudited interim condensed consolidated financial statements for the period ended September 30, 2017.

Net income
The factors described above resulted in net income of $31.7 million for the third quarter of 2017, compared to a $31.9 million loss for the third quarter of 2016.

Adjusted EBITDA
Northland's adjusted EBITDA for the three months ended September 30, 2017 was $18.3 million higher than the third quarter of 2016.

The significant factors increasing adjusted EBITDA were:

  • $19.3 million as a result of pre-completion revenues at Nordsee One;
  • $10.9 million as a result of full commercial operations at Gemini; and
  • $2.3 million as a result of higher availability at Kirkland Lake.

The favourable results were partially offset by:

  • $11.6 million as a result of the Kingston Remarketing Initiative;
  • $1.3 million as a result of lower production at the solar facilities;
  • $0.4 million increase in relevant corporate M&A costs primarily related to personnel costs and early-stage development projects; and
  • $0.5 million lower operating income from Northland's other operating facilities.

Free Cash Flow, Payout Ratio and Dividends to Shareholders

Free cash flow of $45.3 million for the third quarter of 2017 was $13.1 million higher than the corresponding period in 2016.

Significant factors increasing free cash flow were:

  • $54.7 million increase in contributions at Gemini which operated for a full quarter;
  • $5.4 million increase in Northland's portion of the Gemini interest income now being recognized; and
  • $4.1 million reduction in operations-related capital expenditures.

Factors decreasing free cash flow were:

  • $28.3 million increase in net interest expense related to Gemini senior debt;
  • $11.6 million decrease due to the impact of the Kingston Remarketing Initiative;
  • $4.9 million negative variance largely associated with prepayments to North Battleford's gas turbine maintenance agreement provider;
  • $3.0 million increase in debt service costs primarily due to the inclusion of Gemini and Grand Bend debt; and
  • $2.7 million increase in relevant corporate M&A costs primarily related to early-stage development projects and personnel costs.

For the three months ended September 30, 2017, common share and Class A Share dividends declared for the quarter totaled $0.27 per share. The increase in quarterly free cash flow from 2016, described above, was the primary reason for the improvement in the quarterly cash payout ratio to 73.3%, or 104.0% if all dividends were paid out in cash (i.e. excluding the effect of Northland's DRIP).

Outlook

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

Management continues to expect adjusted EBITDA in 2017 to be in the range of $710 million to $750 million and free cash flow per share to be in the range of $1.18 to $1.30 per share. Nordsee One's net pre-completion revenue is excluded from the free cash flow calculation because the expected cash generated is primarily used to fund construction costs pursuant to the credit agreement.

Non-IFRS Measures

This press release includes references to Northland's adjusted EBITDA and free cash flow which are not measures prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA and free cash flow 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 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 4.2: Consolidated Results and SECTION 6: Equity, Liquidity and Capital Resources of the current MD&A 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 November 9 at 10:00 am EST to discuss its 2017 third quarter results. John Brace, Northland's Chief Executive Officer, Paul Bradley, Northland's Chief Financial Officer, and Mike Crawley, Northland's Executive Vice President, Business Development 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, November 9, 2017
Start Time: 10:00 a.m. EST
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.ca) from the afternoon of November 10 until November 24, 2017.

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 1,754 MW of operating generating capacity and 584 MW (534 MW net interest to Northland) of generating capacity under construction, representing an 85% equity stake in Nordsee One and a 100% interest in Deutsche Bucht.

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, natural events, construction risks, counterparty risks, operational risks, risks relating to co-ownership, the variability of revenues from generating facilities powered by intermittent renewable resources, power market risks and possible inflation risks and the other factors described in the "Risks and Uncertainties" section of Northland's 2016 Annual Report and the 2016 Annual Information Form dated March 2, 2017, both of which can be found at www.sedar.com under Northland's profile and on Northland's website at 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 8, 2017. 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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