SOURCE: Northland Power Inc.

Northland Power Inc.

May 11, 2016 19:43 ET

Northland Power Reports First Quarter Results and Continued Progress on Offshore Wind Construction

TORONTO, ON--(Marketwired - May 11, 2016) -

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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 months ended March 31, 2016.

"Northland's first quarter results reflect continued progress in several key areas," said John Brace, Chief Executive Officer. "We delivered our Grand Bend project into operations, while continuing to make significant advancements on both of our offshore wind projects currently under construction. We were pleased to see the Ontario Court of Appeal uphold the original decision relating to the price escalators for power sold under our affected power purchase agreements. Our adjusted EBITDA continues to increase, and we have reaffirmed our 2016 guidance in anticipation of another successful year. We remain well-positioned to continue growing the company while delivering robust returns to our shareholders."

First Quarter Highlights:

Financial

  • Gross profit of $129.3 million for the first quarter of 2016 was in line with the first quarter of 2015 primarily due to higher PPA rates at Iroquois Falls and contributions from the newly operating ground-mounted solar facilities, offset by lower baseload gas-fired PPA rates at Kirkland Lake and the loss of revenue from Cochrane in 2016, whose operations ceased in May 2015 due to its PPA expiry;
  • Sales were 12% lower than first quarter of 2015 primarily due to lower sales at Kirkland Lake, the expiration of Cochrane's PPA, and lower natural gas pass-through costs at Thorold and North Battleford facilities partially offset by positive contributions from Iroquois Falls and the additional ground-mounted solar facilities;
  • Quarterly adjusted EBITDA for the first quarter of 2016 increased by 7% over the same period in 2015 to $103.9 million primarily driven by positive contributions from thermal and renewable operating segments and the establishment of decommissioning reserves in 2015 related to the Cochrane facility;
  • Quarterly free cash flow per share was $0.26 in the first quarter of 2016 versus $0.33 in the first quarter of 2015 primarily due to net proceeds received in 2015 from the sale of the Frampton wind farm and higher debt payments relating to the newly operating ground-mounted solar facilities; and
  • An accounting net loss of $91.7 million for the quarter versus a net loss of $30.6 million in the first quarter of 2015, was primarily a result of marked-to-market non-cash adjustments on Northland's financial derivative contracts.

 Construction

  • Gemini - 600 MW offshore wind farm, North Sea -- Construction continues to progress with the project remaining on time and within budget. In February, Northland announced that the first wind turbine was installed and commenced producing power. As of today, 50 wind turbines, representing over a third of the total wind turbines, have been installed with 27 wind turbines producing power and earning pre-completion revenues. Installation of the wind turbines will continue throughout 2016, and may continue into early 2017. Full commercial operations are expected by mid 2017.
  • Nordsee One - 332 MW offshore wind farm, North Sea -- Nordsee One continues to progress as expected with the project remaining on time and within budget. In April 2016, the project announced that all 54 foundation monopiles and transition pieces had been successfully installed. The offshore substation jacket foundation was also successfully installed in early May 2016. Construction of the offshore substation topside continues on schedule for installation in the summer of 2016. Production of in-field cables is nearly complete and production of the wind turbines has commenced. Full commercial operations are expected by the end of 2017.
  • Grand Bend - 100 MW onshore wind farm, Ontario -- The project declared commercial operations on April 19, 2016 with all 40 wind turbines producing revenues and operating as planned. Commercial operations was ahead of previously disclosed timing due to the contractors and suppliers taking advantage of favourable weather conditions and providing additional staff to advance commissioning. Capital cost of the project was within budget.

Other

  • On April 19, 2016, the Ontario Court of Appeal released its decision in favour of Northland and other industry participants upholding the March 12, 2015 decision by the Ontario Superior Court of Justice with respect to the price escalator for power sold under power purchase agreements with the Ontario Electricity Financial Corporation (OEFC). Northland estimates its share of past and future lost revenue over the life of the relevant agreements would have been in the range of $225 million (originally estimated to be $200 million) had the appeal overturned the original decision. The OEFC has the right to seek leave to appeal the Court of Appeal's decision to the Supreme Court of Canada on the basis that the matter is of national or public importance. Subject to the right to seek leave to appeal, and the outcome of the appeal if leave is granted, Northland anticipates that approximately $90 million of retroactive payments, of the $225 million, will be received in 2016. Going forward, rates under the contracts will continue to be indexed according to the interpretation confirmed by the courts, consistent with the rates that have been applied since February 2015.
  • In March 2016, Kirkland Lake closed a $25 million bank credit facility consisting of a $15 million term loan and $10 million letter of credit facility. The financing will fund the costs of plant upgrades associated with the baseload PPA contract extension negotiated in the summer of 2015, the long-term gas transportation costs and the credit requirements for the new peaking facility's PPA.
  • Management continues to re-iterate 2016 adjusted EBITDA and free cash flow per share guidance. See more detail in the Outlook section of this press release.
         
SUMMARY OF CONSOLIDATED FINANCIAL RESULTS   3 Months Ended March 31
    2016   2015
FINANCIALS (in thousands of dollars, except per share and energy unit amounts)        
  Sales   178,128   201,596
  Gross profit   129,342   130,157
  Adjusted EBITDA(1)   103,937   97,133
  Operating income   67,024   74,316
  Net loss   (91,651)   (30,616)
           
  Free cash flow(1)   44,866   50,245
  Cash Dividends paid to Common and Class A Shareholders   36,466   30,112
  Total Dividends declared to Common and Class A Shareholders(2)   46,168   42,340
         
Per Share        
  Free cash flow – basic   0.26   0.33
  Dividends declared to Shareholders(2)   0.27   0.27
Energy Volumes        
  Electricity sales volume (megawatt hours)   1,409,723   1,550,176
  (1) See "Non-IFRS measures" for a detailed description.
  (2) Total dividends to Common and Class A Shareholders represent cash dividends plus share dividends issued as part of Northland's dividend reinvestment plan.
         

First Quarter Results - Summary

Thermal facilities
Electricity production during the first quarter of 2016 was approximately 11% lower than the same quarter of 2015 primarily due to a decrease in production at Thorold as a result of fewer economic production periods and dispatch requests. These results were partially offset by increases in production at Spy Hill and North Battleford due to higher dispatch requests than the same quarter of 2015. However, the quantity of electricity produced at those three facilities had a minimal impact on gross profit given the nature of their PPAs. Gross profit at $84.9 million was $6.1 million higher than the same period in 2015 primarily due to the Iroquois Falls' contribution ($5.4 million), associated with the price escalation court decision with the OEFC, as well as a one-time charge of $2.3 million incurred by Thorold in the first quarter of 2015 related to a settlement for plant start-up costs. As a result of the above factors, operating income and adjusted EBITDA were $5.6 million and $5.4 million higher, than the first quarter of 2015.

Renewable facilities
Electricity production during the three months ended March 31, 2016 was 1,664 MWh lower than the same period in 2015 primarily due to a net 10,485 MWh decrease in production at the wind facilities caused by lower wind resources. This decrease was partially offset by an additional 8,821 MWh of production from the ground-mounted solar sites due to the additional solar facilities in operation compared to the first quarter of 2015. Sales during the first quarter of 2016 of $34.9 million were 10% higher than the first quarter of 2015 primarily due to the incremental contribution from the additional ground-mounted solar sites in operation. Plant operating costs during the first quarter of 2016 of $5.3 million were $0.7 million higher than the first quarter of 2015, primarily due to the incremental costs associated with the additional ground-mounted solar sites in operation.

Operating income was $2.3 million lower than the first quarter of 2015 largely due to the inclusion of depreciation on the additional ground-mounted solar facilities while adjusted EBITDA was $1.8 million higher than the same quarter of 2015 largely due to contributions from the additional ground-mounted solar facilities in operation.

Management and administration costs
Management and administration costs were $1.3 million higher than the first quarter of 2015 largely due to higher project development costs.

Finance costs, net
Finance costs, net (primarily interest expense), increased by $4.6 million from the first quarter of 2015 due to the inclusion of interest on the final four ground-mounted solar project debt.

Non-cash fair value losses
Non-cash fair value loss of $142.3 million in the first quarter of 2016 (compared to an $84.3 million loss in the first quarter of 2015) is comprised of a $140.0 million loss in the fair value of Northland's financial derivative contracts combined with a $2.3 million unrealized foreign exchange loss.

Net Loss
The factors described above, combined with a $1.4 million provision for current taxes and a $26.4 million recovery of deferred income taxes, resulted in a net loss of $91.7 million for the first quarter of 2016, compared to a net loss of $30.6 million for the first quarter of 2015.

Adjusted EBITDA
Northland's adjusted EBITDA for the three months ended March 31, 2016 was $6.8 million higher than the first quarter of 2015. Significant factors increasing and decreasing adjusted EBITDA for the comparative quarter are described below:

  • $5.4 million increase in operating results from Northland's thermal facilities largely due to the contribution from the Iroquois Falls facility associated with the OEFC court decision's revision to the price escalator of the PPA rates;
  • $2.1 million increase in management fees from Cochrane due to the establishment of decommissioning reserves in 2015;
  • $1.9 million higher investment income earned on Northland's portion of the Gemini subordinated debt, which is now included in investment income since some wind turbines are operational, and the interest earned on the loan receivable from Grand Bend's equity partner; and
  • $1.8 million increase in operating results from Northland's renewable facilities largely due to the contribution from the additional ground-mounted solar facilities.

These favourable results were partially offset by:

  • $2.3 million increase in corporate management, administration, and other costs; and
  • $2.0 decrease in management fees from Kirkland Lake primarily due to the amended baseload gas-fired PPA rates.

Free Cash Flow, Payout Ratio and Dividends to Shareholders
Free cash flow of $44.9 million for the first quarter of 2016 was $5.4 million lower than the corresponding period in 2015. Significant factors increasing or decreasing free cash flow are described below:

Factors decreasing free cash flow were:

  • $7.5 million net proceeds received in 2015 from the sale of the Frampton wind farm and land leases and options associated with early stage development projects;
  • $3.9 million net interest expense increase primarily due to the inclusion of additional ground-mounted solar project debt; and
  • $3.5 million increase in scheduled debt repayments also related to the ground-mounted solar projects.

Factors increasing free cash flow were:

  • $6.8 million higher adjusted EBITDA from Northland's operating facilities reduced by $1.0 million of investment income from Gemini, which will be included in free cash flow only when cash is received; and
  • $1.2 million decrease in funds set aside for future maintenance.

For the three months ended March 31, 2016, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The decrease in quarterly free cash flow from 2015, described above, was the primary reason for the increase in the quarterly free cash flow payout ratio to 81% or 103% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through 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.

During the first three months of 2016 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 but not limited to, North America, Europe, 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 expect adjusted EBITDA in 2016 to be approximately $500 to $530 million. This adjusted EBITDA guidance includes Northland's share of pre-completion revenues from Gemini (EUR80 to EUR90 million at an assumed average rate of CA$1.48/euro) but excludes the lump-sum retroactive payments to Northland from the amounts owed by the OEFC pursuant to the Global Adjustment decision which is estimated at $90 million. The settlement is pending a decision by the OEFC to appeal with the Supreme Court of Canada as previously described.

In 2016, commensurate with adjusted EBITDA guidance, management continues to estimate the free cash flow per share range guidance of $0.93 to $1.08 per share. This free cash flow per share guidance includes $28 million of expected proceeds from the sale of 37.5% of four ground-mounted solar projects that is subject to meeting certain conditions. Similar to adjusted EBITDA guidance, free cash flow per share guidance excludes the impact from the expected lump-sum retroactive payments pursuant to the Global Adjustment settlement.

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 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, free cash flow payout ratio, free cash flow per share and adjusted EBITDA which are not measures prescribed by International Financial Reporting Standards (IFRS). Free cash flow, free cash flow payout ratio, free cash flow per share and adjusted EBITDA, do not have any standardized meaning under IFRS and 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, free cash flow payout ratio, free cash flow per share, 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 May 12 at 10:00 am EDT to discuss its first quarter financial 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 and 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: Thursday, May 12, 2016
Start Time: 10:00 a.m. EDT
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 May 12 until May 26, 2016.

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 1,388 MW of operating generating capacity and 932 MW (642 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.

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 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 adjusted EBITDA, free cash flows, free cash flow payout ratio, free cash flow per share, dividend payment and dividend payout ratios, the construction, completion, attainment of commercial operations, cost and output of development projects, the resolution of the arbitration claims, 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 2015 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.

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