TORONTO, ON--(Marketwired - May 09, 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 first quarter ended March 31, 2017.
"2017 is off to a very strong start," said John Brace, Chief Executive Officer. "We completed Gemini, our first offshore wind farm, ahead of schedule and under budget, achieved significant milestones on Nordsee One and added a third offshore wind project to our portfolio. This was accomplished while also achieving a 91% increase in Adjusted EBITDA. Our first quarter results reflect our ongoing commitment to balancing significant growth with robust shareholder returns."
First Quarter Highlights:
- Sales increased by 104% or $185.9 million and gross profit increased by 150% or $193.7 million over the first quarter of 2016 primarily due to pre-completion revenues earned from Gemini, additional contributions from the Grand Bend wind farm which reached commercial operations in April 2016, partially offset by lower production at the Kingston facility due to the expiration of the pricing mechanism in the power purchase agreement (PPA) on January 31, 2017;
- Adjusted EBITDA (a non-IFRS measure) for the first quarter of 2017 increased by 91% over the same period in 2016 to $198.1 million primarily driven by Gemini pre-completion revenues and overall positive contributions from Northland's operating facilities, including results from Grand Bend and Iroquois Falls. These positive variances were partially offset by the expiration of the pricing mechanism in Kingston's PPA on January 31, 2017;
- Quarterly free cash flow per share (a non-IFRS measure) for the first quarter of 2017 was $0.24 versus $0.26 in the first quarter of 2016 because, despite a significant increase in adjusted EBITDA, Gemini was still in the construction phase as at March 31, 2017 and therefore its results are not included in free cash flow. Gemini achieved full completion on April 28, 2017, as described below, thus its results from that date will be included in free cash flow. The decline in free cash flow was primarily due to an increase in adjusted EBITDA being offset by higher interest related to Grand Bend and scheduled debt repayments largely related to McLean's; and
- Net income for the quarter was $100.1 million compared to a net loss of $91.7 million in the first quarter of 2016. The increase in net income was a combination of operating income and the mark-to-market non-cash adjustments on Northland's financial derivative contracts being partially offset by higher finance costs. New for this quarter, Northland early adopted IFRS 9 and elected to apply hedge accounting effective January 1, 2017 to minimize mark-to-market adjustments in net income resulting from volatility of foreign currency and interest rate movements. If Northland had not applied hedge accounting under IFRS 9, an additional $26.9 million in mark-to-market gains would have been recorded in net income for the first quarter of 2017. 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.
- Gemini - 600 MW offshore wind farm, North Sea - On April 28, 2017, Northland announced that the 600 MW Gemini offshore wind farm achieved full completion. The project was completed ahead of schedule and under its total budget of EUR2.8 billion. All 150 turbines have been operating since October 2016 and, to date, have generated over EUR250 million of net pre-completion revenues. All of the terms required to satisfy the project lenders for term conversion have been achieved. Concurrent with completion, Gemini successfully and favourably restructured the project's EUR2 billion senior debt. This restructuring reduced the weighted average all-in interest rate to 3.8%, removed the original cash sweep requirements in year five under the previous mini-perm financing, and significantly improved distributions to Gemini's owners. Gemini made its first cash distribution to its owners; Northland received a one-time distribution totaling approximately EUR31 million comprised of its share of excess net pre-completion revenues and unused construction contingency. Regular distributions to shareholders from Gemini operations are expected to commence in December 2017 and occur semi-annually thereafter.
- Nordsee One - 332 MW offshore wind farm, North Sea - On March 31, 2017, Northland announced that the first wind turbine installed on the 332 MW Nordsee One offshore wind farm successfully started to generate power and is feeding green electricity into the German grid. Installation of the project's 54 wind turbines began in March 2017 and fourteen turbines have been installed to date. Northland expects the installation and commissioning of all 54 Nordsee One wind turbines to be completed by the end of 2017.
- Acquisition of 252 MW German Offshore Wind Project- On March 3, 2017, Northland announced that it had signed a definitive agreement to acquire 100% of Deutsche Bucht ("Debu"), a 252 MW offshore wind project currently in advanced development. DeBu, which is located in the German North Sea, is Northland's third offshore wind project. The total estimated project cost is approximately EUR1.2 billion (approximately CAD $1.8 billion). Northland expects to invest approximately $400 million of corporate funds, which Northland intends to source from cash on hand and corporate liquidity. Financial close is expected mid-2017. Completion of Northland's acquisition of DeBu is subject to achieving certain conditions which are anticipated to be completed over the next few months.
- Sam Mantenuto, Northland's Chief Operating Officer will retire effective June 1, 2017 after 19 years with Northland Power. Sam has held numerous positions across Northland including Chief Development Officer and worked closely with the founding leaders of the company and has developed new leaders to take the company forward. He has influenced many areas of the business including project development and the creation of the energy services and the commercial and asset management groups. John Brace, Northland's Chief Executive Officer, said, "We are grateful for Sam's contribution to Northland and greatly appreciated his energy, drive and commitment. We wish him and his family all the best in the future."
- Strategic Review - The previously announced Northland strategic review process is continuing. Any announcements regarding the process will be made as appropriate.
|SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
|| ||3 Months Ended March 31
|FINANCIALS (in thousands of dollars, except per share and energy unit amounts)
| ||Gross profit
| ||Operating income
| ||Net income (loss)
| ||Adjusted EBITDA(1)
| || || || || || || |
| ||Cash Provided by Operating Activities
| ||Free cash flow(1)
| ||Cash Dividends paid to Common and Class A Shareholders
| ||Total Dividends declared to Common and Class A Shareholders(2)
| ||Free cash flow - basic
| ||Dividends declared to Shareholders(2)
| ||Electricity sales volume (megawatt hours) (3)
|(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.
|(3) Energy volumes exclude 629,252 MWhs of Gemini production for the three month period ended March 31, 2017 and 11,000 MWhs for the three months ended March 31, 2016.|| |
First Quarter 2017 Results - Summary
Offshore wind facilities
Electricity production during the first quarter of 2017 was 618,252 MWh higher than the same quarter of 2017 due to Gemini's production. Gemini and Nordsee One were under construction at the end of the quarter, however Gemini achieved full completion on April 28, 2017. Sales of $177.4 million and adjusted EBITDA of $95.9 million were driven largely by pre-completion revenue reported for Gemini. Gemini retroactively commenced its two power contracts effective March 1, 2016, and July 1, 2016. Commencing the power contracts entitled the project to begin receiving its contracted subsidy in addition to market revenues for the subsequent 15 years. The operating results this quarter reflect full revenues on all MWh generated.
Electricity production during the first quarter of 2017 was 436,369 MWh lower than the same quarter of 2016 largely due to the Iroquois Falls facility operating under a four-month enhanced dispatch arrangement with the facility not being dispatched during the period. The arrangement results in reduced greenhouse gas emissions and cost savings for Ontario electricity consumers while maintaining electricity resource security for the grid. Northland was able to maintain equal or better economics as a result of savings from reduced costs related to cap and trade, maintenance, natural gas and gas transportation, as well as other variable cost savings. The expiration of the pricing mechanism under Kingston's PPA on January 31, 2017, and fewer dispatch hours at the Thorold facility also contributed to the decrease in production. Sales were $14.4 million lower than the first quarter of 2016 primarily due to the lower results at Kingston ($18.3 million), as previously explained. This decrease in sales was partially offset by higher flow-through gas costs at the North Battleford facility ($4 million). Operating income for the thermal facilities for the first quarter of 2017 was in line with the comparable period in 2016 because lower gross profit was offset by lower plant operating and other costs. As a result of the above factors, adjusted EBITDA for the thermal facilities was lower than the first quarter of 2016.
On-shore renewable facilities
Electricity production during the first quarter of 2017 was 106,454 MWh higher than the same quarter of 2016 primarily due to a 110,385 MWh contribution from the Grand Bend facility, which declared commercial operations in April 2016. There was an additional 8,213 MWh of wind production at McLean's as a result of higher wind resources, and an additional 5,401 MWh of solar production as a result of higher solar resources and more favourable weather conditions. These results were partially offset by a 17,545 MWh decrease in production at the other wind facilities caused by lower wind resources. Sales for the first quarter of 2017 were $20.6 million higher and plant operating costs were $2 million higher than the first quarter of 2016, primarily due to the incremental contribution from the Grand Bend facility. Operating income and adjusted EBITDA for the renewable facilities were $14.2 million and $9.8 million, respectively, higher than the first quarter of 2016 as a result of the contributions from the Grand Bend facility and solar facilities.
Management and administration costs
Management and administration costs at $24.7 million were $13.2 million higher than the first quarter of 2016. Corporate management and administration costs were $10.8 million higher than the comparable period of 2016 largely due to early-stage development activities ($6.8 million) and personnel costs ($3.4 million). Facility management and administration costs were $2.4 million higher primarily due to the inclusion of Gemini costs that were capitalized in 2016, including personnel, office and other costs that are now being expensed since wind turbines have been commissioned.
Investment income was $1 million lower than the first quarter of 2016 due to the repayment of loan receivables from Northland's equity partners in McLean's and Grand Bend in the first and third quarters of 2016, respectively.
Finance costs, net (primarily interest expense), increased by $44.4 million from the first quarter of 2016 due to the inclusion of interest from Gemini and Grand Bend.
Amortization of contracts and other intangible assets at $1.7 million was $3.2 million lower than the first quarter of 2016 largely due to the expiration of the pricing mechanism in the Kingston PPA on January 31, 2017.
Non-cash fair value gains
Non-cash fair value gains of $30.3 million in the first quarter of 2017 (compared to a $142.3 million loss in the first quarter of 2016) is comprised of a $29.4 million gain in the fair value of Northland's financial derivative contracts and a $1 million unrealized foreign exchange gain. A portion ($18 million) represents the consolidated mark-to-market adjustment on the interest rate swaps entered into by the Gemini and Nordsee One projects. Effective January 1, 2017, Northland early 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. Further details are provided in Note 4 of the unaudited interim consolidated financial statements for the period ended March 31, 2017.
Other expense (income)
Other expense at $14.6 million represents the EUR10.4 million accrual of contingent consideration in connection with the 2014 acquisition of Gemini, which is expected to be paid in 2017.
The factors described above, combined with $1.4 million and $19.4 million, respectively of current and deferred taxes, resulted in net income of $100.1 million for the first quarter of 2017, compared to a net loss of $91.7 million for the first quarter of 2016.
Northland's adjusted EBITDA for the three months ended March 31, 2017 was $94.2 million higher than the first quarter of 2016. Significant factors increasing adjusted EBITDA for the comparative quarter are described below:
- $97.2 million increase in operating results from the recognition of Gemini's pre-completion revenues; and
- $9.7 million increase in operating results from Northland's on-shore renewable facilities largely due to the contributions from Grand Bend.
These favourable results were partially offset by:
- $9.8 million increase in corporate management and administration costs, excluding costs associated with the strategic review, primarily related to early-stage development projects and higher personnel costs; and
- $2.9 million decrease in operating results from Northland's thermal facilities largely due to results from the Kingston facility, partially offset by contributions from Iroquois Falls and North Battleford.
Free Cash Flow, Payout Ratio and Dividends to Shareholders
Free cash flow of $41.5 million for the first quarter of 2017 was $3.3 million lower than the corresponding period in 2016 largely due to the results from Kingston, as previously disclosed. Significant factors increasing or decreasing free cash flow are described below.
Factors decreasing free cash flow were:
- $7.4 million increase in corporate management and administration costs;
- $1.7 million increase in net interest expense primarily due to the inclusion of Grand Bend debt; and
- $1.3 million increase in scheduled debt repayments related to the additional ground-mounted solar facilities.
Factors increasing free cash flow were:
- $7 million increase in adjusted EBITDA from Northland's operating facilities primarily due to the additional contributions from Grand Bend and Iroquois Falls, partially offset by the expiration of the pricing mechanism in Kingston's PPA.
For the three months ended March 31, 2017, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The decrease in quarterly free cash flow from 2016, described above, was the primary reason for the decrease in the quarterly cash payout ratio to 81% or 113% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland's DRIP).
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 $660 million to $710 million.
Additionally, management continues to expect the 2017 free cash flow per share to be in the range of $1.03 to $1.18 per share. This free cash flow per share guidance includes Northland's share of Gemini net pre-completion revenue in excess of the amount required by the project lenders to fund construction costs and operating income subsequent to the project reaching full operations in April 2017. 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.
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.
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 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 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 May 10 at 10:00 am EDT to discuss its 2017 first 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 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: Wednesday, May 10, 2017
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 (www.northlandpower.ca) from the afternoon of May 10 until May 24, 2017.
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 1,724 MW of operating generating capacity and 332 MW (282 MW net to Northland) of generating capacity under construction, representing an 85% equity stake in Nordsee One, a 332 MW offshore wind project, both located in the North Sea. The Company also recently announced the acquisition of a 100% equity stake in a 252 MW offshore wind project DeBu currently in advanced development 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.
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, dividend payment 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 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 2016 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.
The forward-looking statements contained in this release are based on assumptions that were considered reasonable on May 9, 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.