SOURCE: Northland Power Inc.

Northland Power Inc.

August 10, 2016 18:55 ET

Northland Power Reports Strong Second Quarter Results and Significant Progress on Offshore Wind Construction

TORONTO, ON--(Marketwired - August 10, 2016) -

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Northland Power Inc. ("Northland" or "the Company") today reported financial results for the three and six months ended June 30, 2016.

"Northland continues to deliver on advancing our $6 billion construction portfolio on time and on budget," said John Brace, Chief Executive Officer. "We again saw an increase in our gross profit, adjusted EBITDA and free cash flow financial results. We achieved significant milestones on both offshore wind projects, continuing at a rapid pace with over 90% of the total wind turbines installed at Gemini, and installation of the offshore substation for Nordsee One successfully completed last month. These results demonstrate our ability to balance strong returns with steady growth."

Second Quarter Highlights:

Financial

  • Sales and gross profit increased by 6% and 21%, respectively over the same quarter in 2015 primarily due to contributions from the Grand Bend wind farm which reached commercial operations in April 2016, the completion of additional ground-mounted solar facilities, and other positive contributions from operating facilities.

  • Adjusted EBITDA increased by 14% over the same period in 2015 to $103.9 million primarily driven by positive contributions from Northland's operating facilities, including results from Grand Bend and the additional ground-mounted solar facilities.

  • Quarterly free cash flow per share was $0.27 compared to $0.20 in the second quarter of 2015 primarily due to the increase in adjusted EBITDA.
  • Net income for the quarter was $23.4 million compared to $140.3 million in the second quarter of 2015. The decrease was primarily caused by the marked-to-market non-cash adjustments on Northland's financial derivative contracts that include the interest rate swaps on the facilities' non-recourse project debt and foreign exchange contracts. These 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.

  • 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.

Construction

  • Gemini - 600 MW offshore wind farm, North Sea - Construction continues to progress with the project remaining on time and within budget. As of today, 138 wind turbines, representing over 90% of the total wind turbines, have been installed with 105 turbines producing power and earning pre-completion revenues. Installation of the wind turbines will continue throughout 2016. Full commercial operations are expected by mid 2017.
  • Nordsee One - 332 MW offshore wind farm, North Sea - Nordsee One is also progressing on time and within budget. Installation of all 54 foundation monopiles and transition pieces was achieved in April 2016. In July 2016, installation of the offshore substation was successfully completed. Installation of the in-field cables continues to progress well. Wind turbine production is ongoing, with installation expected to commence in early 2017. Full commercial operations are expected by the end of 2017.
  • Grand Bend - 100 MW onshore wind farm, Ontario - Grand Bend declared commercial operations on April 19, 2016 with all 40 wind turbines producing revenues and operating as planned. Capital cost of the project was under budget by approximately $19 million and commercial operations occurred ahead of schedule due to the contractors and suppliers taking advantage of favourable weather conditions and providing additional staff to advance commissioning. The project also successfully achieved term conversion under its senior project debt facility on July 29, 2016.

Other

  • Standard and Poor's Reconfirms Credit Rating - On July 27, 2016, Standard and Poor's reaffirmed Northland's credit rating of BBB (Stable).

  • Northland to Explore Opportunities to Enhance Growth and Shareholder Value - On July 12, 2016, Northland's Board of Directors announced that it has commenced a review of strategic alternatives to further enhance the Company's growth, shareholder value and ability to capitalize on a growing pipeline of clean energy infrastructure development opportunities. Northland does not intend to provide ongoing updates on this review until its completion unless further disclosure is otherwise required.

  • Settlement Reached with H.B. White Canada Corp. - On July 7, 2016, Northland entered into agreements with H.B. White Canada Corp. ("White") and certain of White's affiliates to settle all disputes and claims between White and Northland and certain Northland affiliates, concerning five ground-mounted solar projects located in and around Cochrane and Burks Falls West. In conjunction with the settlement, White also announced that it filed a court application for creditor protection under the Companies' Creditors Arrangement Act (the CCAA) in Ontario. The settlement agreements between White and Northland are conditional upon the plan of compromise or arrangement proposed by White in its CCAA proceeding being approved by the court and its applicable stakeholders. All ongoing arbitration and claims between White and Northland have been suspended pending the outcome of the CCAA proceeding.

  • Court Decision Regarding Appeal of Global Adjustment Case - On June 23, 2016, the Ontario Electricity Financial Corporation (OEFC) filed an application for leave to appeal to the Supreme Court of Canada the decision of the Ontario Court of Appeal. Northland and the other applicants intend to oppose the OEFC's application for leave to appeal to the Supreme Court. Pursuant to the Superior Court's decision, Northland estimates that it is entitled to retroactive payments totaling approximately $95 million (including interest, originally estimated to be $90 million) of lost revenue from the period prior to the decision. The OEFC applied to the Ontario Court of Appeal for a stay of the retroactive payments pending the outcome of its application for leave to appeal to the Supreme Court. On August 5, 2016, the Ontario Court of Appeal ruled in favour of Northland and the other applicants and denied the OEFC's application for a stay of the retroactive payments. Northland expects to include the retroactive payments in income when received.
  • Preliminary Base Shelf Prospectus - In April 2016, Northland filed a renewal of its expiring short form base shelf prospectus with the securities regulatory authorities in each of the provinces of Canada. Northland has no immediate intent to issue securities as a result of this renewal filing.
      
   Three months ended June 30 Six months ended June 30
In thousands of dollars except per share and energy unit amounts  2016  2015  2016  2015
FINANCIALS            
Sales  176,626  167,289  354,754  368,885
Gross Profit  138,026  114,234  267,368  244,391
Operating Income  59,405  59,503  126,429  133,819
Net Income (Loss)  23,376  140,281  (68,275)  109,665
Adjusted EBITDA(1)  103,930  91,370  207,867  188,503
             
Cash Provided by Operating Activities  107,762  88,237  216,582  207,849
             
Free Cash Flow(1)  46,316  34,584  91,182  84,829
Cash Dividends Paid to Common and Class A Shareholders  34,559   35,141  71,025   65,253
Total Dividends Declared to Common and Class A Shareholders(2)  46,318   45,681  92,486   88,021
         
Per Share            
Free Cash Flow(1)  0.270  0.204  0.531  0.520
Total Dividends Declared to Common and Class A Shareholders(2)  0.270   0.270  0.540   0.540
             
ENERGY VOLUMES        
Electricity (megawatt hours)  1,204,987  1,137,123  2,614,710  2,687,299
(1)See Non-IFRS Measures for a detailed description.
(2)Total dividends to Common and Class A Shareholders represent dividends declared irrespective of whether the dividend is received in cash or in shares as part of the DRIP program.
  

Second Quarter Results - Summary
Thermal facilities
Electricity production during the second quarter of 2016 was 16,487 MWh higher than the same quarter of 2015 largely due to additional economic production periods at the Thorold facility. Sales were $2.3 million higher than the second quarter of 2015 primarily due to an increase in the electricity revenue earned at the Iroquois Falls facility ($5.1 million) associated with the price escalation resulting from the OEFC court decision and an increase in the electricity revenue earned at the Thorold facility ($1.2 million) as a result of higher electricity production volumes. These results were partially offset by decreased electricity revenue at the North Battleford facility ($4.7 million) as a result of lower flow-through natural gas costs. Gross profit at $71.6 million was $7.7 million higher than the comparable period in 2015 primarily due to Iroquois Falls' contribution ($5.4 million) arising from increased volume and a higher PPA price. As a result of the above factors, operating income and adjusted EBITDA were $8 million and $7.8 million, respectively, higher than the second quarter of 2015.

Renewable facilities
Electricity production during the three months ended June 30, 2016 was 51,377 MWh higher than the comparable period in 2015 primarily due to a 37,586 MWh contribution from the Grand Bend facility as well as an additional 26,654 MWh of production primarily from four additional ground-mounted solar sites in operation compared to the same quarter of 2015, as well as higher solar resources and more favourable weather conditions. These results were partially offset by a 12,863 MWh decrease in production at the other wind facilities caused by lower wind resources. Sales for the second quarter of 2016 were $18 million higher and plant operating costs were $1 million higher than the second quarter of 2015, primarily due to the incremental contribution from the Grand Bend facility and the additional ground-mounted solar facilities in operation. Operating income and adjusted EBITDA were $8.3 million and $10.5 million, respectively, higher than the second quarter of 2015 as a result of the inclusion of the Grand Bend facility and additional ground-mounted solar facilities.

Management and administration costs
Management and administration costs at $14.8 million were $5.3 million higher than the second quarter of 2015, largely due to additional effort associated with early-stage development activities.

Finance costs, net
Finance costs, net (primarily interest expense), increased by $11 million from the second quarter of 2015 due to the inclusion of interest from Gemini, Grand Bend and the additional four ground-mounted solar facilities debt.

Non-cash fair value losses
Non-cash fair value gains of $18.3 million in the second quarter of 2016 (compared to a $167.5 million gain in the second quarter of 2015) is comprised of a $17.3 million gain in the fair value of Northland's financial derivative contracts combined with a $1 million unrealized foreign exchange gain.

Net Income
The factors described above, combined with a $3.9 million provision for current and deferred income taxes, resulted in net income of $23.4 million for the second quarter of 2016, compared to $140.3 million for the second quarter of 2015.

Adjusted EBITDA
Northland's adjusted EBITDA for the three months ended June 30, 2016 was $12.6 million higher than the second quarter of 2015. Significant factors increasing and decreasing adjusted EBITDA for the comparative quarter are described below:

  • $10.5 million increase in operating results from Northland's renewable facilities largely due to the contributions from Grand Bend and the additional ground-mounted solar facilities;
  • $7.8 million increase in operating results from Northland's thermal facilities largely due to the contribution from the Iroquois Falls facility associated with revision to the price escalator of the PPA rates resulting from the OEFC court decision; and
  • $0.8 million higher investment income earned on Northland's portion of the Gemini subordinated debt and the interest earned on the loan receivable from Grand Bend's equity partner.

These favourable results were partially offset by:

  • $2.5 million increase in corporate management, administration, and other costs largely due to early-stage development activities;
  • $2.2 million decrease in management fees from Kirkland Lake primarily due to the amended baseload gas-fired PPA rates; and
  • $1.8 million increase in plant operating costs associated with the operational wind turbines for Gemini.

Free Cash Flow, Payout Ratio and Dividends to Shareholders
Free cash flow of $46.3 million for the second quarter of 2016 was $11.7 million higher than the corresponding period in 2015; significant factors increasing or decreasing free cash flow are described below.

Factors increasing free cash flow were:

  • $18.3 million higher from Northland's operating facilities primarily due to the additional contributions from completed construction projects; and
  • $0.7 million decrease in operations-related capital expenditures.

Factors decreasing free cash flow were:

  • $3.8 million increase in scheduled debt repayments related to the additional ground-mounted solar facilities; and
  • $3.6 million increase in net interest expense primarily due to the inclusion of Grand Bend and the additional ground-mounted solar facilities debt.

For the three months ended June 30, 2016, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The increase in quarterly free cash flow from 2015, described above, was the primary reason for the decrease in the quarterly cash payout ratio to 75% or 100% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland's DRIP).

Year-to-Date Results
Sales and cost of sales were lower in the first six months of 2016 compared to the prior year primarily due to lower sales at Kirkland Lake resulting from the amended baseload gas-fired PPA rates, the expiration of Cochrane's PPA in May 2015, lower production and dispatch opportunities at Thorold (affecting sales but not gross profit), and lower flow-through of natural gas costs and electricity prices at North Battleford (affecting sales but not gross profit). These variances were partially offset by positive contributions from Iroquois Falls associated with the OEFC court decision and the additional contributions from the Grand Bend wind farm and ground-mounted solar facilities.

Net loss for the six months ended June 30, 2016 of $68.3 million was primarily due to the non-cash fair value loss associated with Northland's derivative contracts ($122.7 million loss in the first six months of 2016 versus an $83 million gain in the first six months of 2015). Of the non-cash fair value loss on the derivative contracts for the first six months of 2016, $153.1 million was associated with Gemini's and Nordsee One's interest rate swap contracts.

Northland's adjusted EBITDA for the six months ended June 30, 2016 was $19.4 million higher than the same period of 2015. Significant factors increasing and decreasing adjusted EBITDA for the comparative period are described below:

  • $13.2 million increase in operating results from Northland's thermal facilities;
  • $12.3 million increase in operating results from Northland's renewable facilities; and
  • $2.8 million higher investment income earned on Northland's portion of the Gemini subordinated debt and the loan receivable from Grand Bend's equity partner.

These favourable results were partially offset by:

  • $3.8 million increase in corporate management and administration costs primarily related to early-stage development projects;
  • $2.7 million increase in plant operating costs associated with the operational wind turbines for Gemini; and
  • $2.4 million decrease in management fees from Kirkland Lake primarily due to the amended baseload gas-fired PPA rates.

Free cash flow for the six months ended June 30, 2016 was $6.4 million higher than the same period in 2015. Favourable changes from the same period for 2015 included:

  • $25.5 million increase in results from Northland's operating facilities primarily due to the additional contributions from completed construction projects;
  • $1.7 million decrease in funds set aside for future maintenance; and
  • $1.5 million decrease in preferred share dividends due to the rate reset on September 30, 2015.

Partially offsetting these favourable variances were:

  • $7.5 million net proceeds received in 2015 from the sale of Frampton and land leases and options associated with early-stage development projects;
  • $7.5 million increase in net interest expense, related to the inclusion of Grand Bend and additional ground-mounted solar facilities debt; and
  • $7.3 million increase in scheduled debt repayments as a result of additional ground-mounted solar facilities.

Northland's cash dividend payout ratio for the six months ending June 30, 2016 was 78% of free cash flow (101% excluding the effect of dividends re-invested through the DRIP) compared to 77% and 102%, respectively in 2015.

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 six months of 2016 and through the date of this press release, 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, Canada, United States, Europe, Mexico, and Taiwan. Northland has identified a number of new 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 exchange rate of CA$1.43/euro) but excludes the lump-sum retroactive payments to Northland from past amounts owed by the OEFC pursuant to the global adjustment decision which is estimated at approximately $95 million. Northland expects to include the retroactive payments in income when received.

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 a $28 million partial payment against the purchase price of 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 August 11 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 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, August 11, 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 August 11 until August 25, 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 1,394 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 legal claims and proceedings, 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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