TORONTO, ON--(Marketwired - November 09, 2015) -
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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) reported its financial results today for the quarter ended September 30, 2015.
Highlights:
- Significant advancements have been made on the construction of Northland's 600 MW Gemini offshore wind project. Both jacket foundations and high voltage offshore platforms have now been installed and secured to the seabed. Installation of all 150 wind turbine foundations (monopiles and transition pieces), which commenced on July 1, 2015 was completed in October after a total of only 109 days (71 days ahead of schedule). All export cable has been laid into place. In addition, all infield cables connecting turbines to offshore platforms are either in-place on the sea bed or are being transported by vessel for installation, ahead of schedule for this milestone. The first turbines are expected to be installed in the spring of 2016. The project remains on time and on budget.
- The Nordsee One offshore wind project advanced as expected during the third quarter of 2015 and remains on budget and on schedule. Production of the major balance of plant components is proceeding as planned, with nine of 54 foundation monopiles manufactured as of the date of this release. Other components, such as the offshore substation platform and infield cables are in advanced fabrication. Installation of foundations and other major components is scheduled to commence in 2016.
- All 13 ground-mounted solar projects are now in operation and operating at or better than Northland's expectations. All major construction activities for the last four 10 MW ground-mounted solar projects were completed during the third quarter and subsequent to quarter-end and are now fully operational.
- Construction activities at the Grand Bend onshore wind farm are proceeding as expected. Procurement of major electrical equipment is substantially complete. The project remains on budget. Completion of the project is expected near the end of the third quarter of 2016 due to the anticipated late delivery of wind turbines by the vendor, for which Northland will be partially compensated on a financial basis.
- The Ontario Electricity Financial Corporation (OEFC) calculated and made payments based on the Ontario Superior Court of Justice decision in favour of Northland and a number of other power producers in Ontario in relation to the interpretation of past and future price escalator provisions in certain of their respective power purchase agreements (PPA) with the OEFC. The decision was appealed by the OEFC and as of September 30, 2015, Iroquois Falls and Kirkland Lake have received a total of $16.7 million from the OEFC representing recalculated payments from February 2015 through to August 2015. Recalculated payments relating to the pre-decision period will be determined after the final appeal process is completed.
- All three components of the 132 MW Kirkland Lake biomass, peaking gas and baseload gas facility are now contracted through 2030 and, in the case of the peaking facility, through 2035. An amendment to the PPA for the 40-year baseload gas-fueled portion of the plant was finalized in August 2015.
- On September 30, 2015, Northland closed financing on a $100 million corporate letter of credit facility. The facility provides additional capacity to support the letters of credit Northland is required to provide as security for its operating, construction and development activities.
- On September 30, 2015, Northland announced that 1,498,435 of its 6,000,000 cumulative rate reset preferred shares, Series 1 have been converted on a one-for-one basis, into cumulative floating rate preferred shares, Series 2.
Financial Highlights:
- Sales and gross profit were 9% and 22% higher, respectively, than the same period in 2014. The increase in sales of $15.2 million was primarily a result of higher electricity revenues achieved at the Iroquois Falls and Kirkland Lake facilities associated with the OEFC court decision and favourable performance and additional contributions from the solar facilities, partially offset by lost revenues from the expiration of Cochrane's PPA. These variances, combined with lower natural gas costs at the Iroquois Falls facility resulted in a $24.4 million increase in gross profit.
- Adjusted EBITDA increased 37% from the same quarter in 2014, primarily due to overall favourable results from Northland's operating facilities.
- Net loss for the quarter was $91.1 million compared to a net loss of $43.8 million in the third quarter of 2014. The increase was primarily caused by 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. A portion of the third quarter net loss of 2015 represents the fair value accounting treatment of Gemini and Nordsee One's interest rate swaps and foreign exchange contracts that are marked-to-market and consolidated within Northland's operating results.
- Cash provided by operating activities increased by $43.5 million from the same quarter in 2014 primarily as a result of favourable gross profit, lower operating costs and the timing of payables, receivables, and deposits.
- Free cash flow of $63.1 million was 77% higher than the third quarter of 2014, again due mainly to favourable gross profit, combined with lower operating costs from Northland's operating facilities.
- The quarterly cash dividend payout ratio was 57% of free cash flow in the third quarter of 2015 compared to 82% in the third quarter of 2014 (73% excluding the effect of the Dividend Reinvestment Plan (DRIP) versus 112% in the third quarter of 2014). The improvement is attributable to an increase in quarterly free cash flow partially offset by dividends declared on the additional shares issued to fund the Gemini, Nordsee, and Grand Bend projects.
- Due to the strong performance at its operating facilities over the first nine months of 2015, Northland has increased its adjusted EBITDA forecast range for 2015 upward by $15 million to $395 to $405 million. The forecasted payout ratio range for 2015 was also favourably adjusted to be in the range of 95 to 105% of free cash flow on a total dividend basis.
Northland achieved strong third quarter results while continuing to make significant progress on our substantial construction portfolio," said John Brace, CEO of Northland. "We are continuing to see the fruits of our labour, as represented by the completion of our ground-mounted solar projects, the excellent results of our operating facilities, and the 37% increase in Northland's Adjusted EBITDA over 2014. We are very proud of our team for achieving some significant milestones this quarter, including the installation of Gemini's 150 turbine foundations in remarkable time. Our accomplishments to date reflect our commitment to deliver sustained growth and stable, long-term revenues."
Summary of Financial Results
Northland's interim consolidated financial results for the three months and nine months ended September 30, 2015 include the financial results for the Gemini and Nordsee projects due to Northland's acquisition of a controlling interest in Gemini in May 2014 and Nordsee in September 2014.
| | | | | |
| | Three months ended Sept. 30 | | Nine months ended Sept. 30 | |
| In thousands of dollars except per share and energy unit amounts | 2015 |
| 2014 |
| 2015 |
2014 |
|
| FINANCIALS | | | | | | | |
| Sales |
187,700 |
| 172,505 |
| 556,585 |
571,874 |
|
| Gross Profit |
135,147 |
| 110,759 |
| 379,538 |
347,898 |
|
| Operating Income |
79,740 |
| 54,346 |
| 213,559 |
188,752 |
|
| Net Income (Loss) |
(91,100 |
) | (43,791 |
) | 18,565 |
(107,060 |
) |
| Adjusted EBITDA(1) |
119,204 |
| 86,784 |
| 307,707 |
270,333 |
|
| Cash Provided by Operating Activities |
118,000 |
| 74,493 |
| 325,849 |
291,945 |
|
| |
|
| |
| |
|
|
| Free Cash Flow(1) |
63,072 |
| 35,621 |
| 147,901 |
123,742 |
|
| Cash Dividends Paid to Common and Class A Shareholders |
35,708 |
| 29,158 |
| 100,961 |
86,056 |
|
| Total Dividends Declared to Common and Class A Shareholders(2) |
45,870 |
| 40,059 |
| 133,891 |
117,028 |
|
| | | | | | | | |
| Per Share |
|
| |
| |
|
|
| Free Cash Flow(1) |
0.371 |
| 0.239 |
| 0.870 |
0.853 |
|
| Total Dividends Declared to Common and Class A Shareholders(2) |
0.270 |
| 0.270 |
| 0.810 |
0.810 |
|
| ENERGY VOLUMES |
|
| |
| |
|
|
| Electricity (megawatt hours) |
1,255,330 |
| 1,145,672 |
| 3,942,629 |
3,735,744 |
|
| | | | | | | | |
| (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. |
Total Sales
Total Sales increased by 9% and were $15.2 million higher in the third quarter of 2015 compared to the same period in 2014 due to overall favourable results from Northland's operating facilities but largely due to contributions from Iroquois Falls and the ground-mounted solar projects.
Net loss
Net loss for the three months ended September 30, 2015 was $91.1 million compared to a net loss of $43.8 million in the third quarter of 2014. The increase was primarily caused by 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. A portion of the third quarter net loss represents the fair value accounting treatment of Gemini and Nordsee One's interest rate swaps and foreign exchange contracts that are marked-to-market and consolidated within Northland's operating results.
Adjusted EBITDA (a non-IFRS measure)
Adjusted EBITDA for the three months ended September 30, 2015 was $32.4 million higher than the prior period primarily due to: (i) overall favourable results from Northland's thermal facilities ($13 million) and renewable facilities ($5.3 million); and (ii) higher management fees earned from Kirkland Lake ($14.2 million).
Free Cash Flow, Payout Ratio (non-IFRS measures) and Dividends to Shareholders
Free cash flow of $63.1 million for the third quarter of 2015 was $27.5 million higher than the corresponding period in 2014 primarily due to higher contributions from Northland's operating facilities, as previously discussed. Significant factors increasing and decreasing free cash flow for the comparative quarter are described below.
Factors increasing free cash flow in the third quarter of 2015 over the same quarter of 2014 primarily relate to:
- $18.3 million higher adjusted EBITDA from Northland's operating facilities, as previously discussed;
- $14.2 million higher adjusted EBITDA from management fees earned from Kirkland Lake largely due to the increase in PPA rates, as previously discussed; and
- $1 million decrease in operations-related capital expenditures.
Factors offsetting the increased free cash flow in the third quarter of 2015 over the same quarter of 2014 mainly relate to:
- $2.8 million increase in funds set aside for future maintenance; and
- $2.7 million net interest expense increase primarily due to the inclusion of additional ground-mounted solar project debt, and interest on the 2020 Debentures.
For the three months ended September 30, 2015, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The increase in quarterly free cash flow from 2014, described above, was the primary reason for a decreased quarterly cash payout ratio of 57% or 73% if all dividends were paid out in cash (i.e. excluding the effect of dividends re-invested through Northland's DRIP).
For additional details on the third quarter results, please see the Management, Discussion and Analysis in Northland's 2015 Third Quarter Report.
Year-to-Date Results
Northland's net income and adjusted EBITDA for the nine months ended September 30, 2015 were higher than the same period of 2014.
Sales decreased by 3% or were $15.3 million lower in the first nine months of 2015 compared to the prior year largely due to lower contributions from Thorold and North Battleford and non-recurring natural gas resale margins earned during the first quarter of 2014, partially offset by higher contributions from Iroquois Falls and the additional ground-mounted solar farms.
Net income for the nine months ended September 30, 2015 of $18.6 million was primarily due to the non-cash fair value losses associated with Northland's derivative contracts ($79.4 million loss in the first nine months of 2015 versus a $197.8 million loss in the first nine months of 2014). Of the non-cash fair value loss on the derivative contracts for the first nine months of 2015, Gemini's and Nordsee One's interest rate swap contracts contributed an $11 million gain.
Year to date adjusted EBITDA was $37.4 million higher than the prior year primarily due to:
- $16 million increase in operating results from Northland's renewable facilities;
- $14.5 million increase in operating results from the Iroquois Falls facility associated with the OEFC court decision's increase in PPA rates;
- $9.6 million higher management fees earned from Kirkland Lake and Cochrane;
- $5.2 million write-off of deferred development costs in 2014; and
- $5.1 million higher investment income earned on Northland's portion of the Gemini subordinated debt.
These favourable results were partially offset by:
- $5.2 million lower contributions from Thorold largely due to the one-time charge associated with an IESO generator cost recovery program;
- $3.7 million lower investment income largely due to dividends received in 2014 from Northland's Panda-Brandywine investment;
- $2.6 million of lower contributions from Kingston due to non-recurring gas resale margins in 2014; and
- $0.7 million from an additional receipt in 2014 pursuant to the 2011 sale of an early-stage wind development project.
Free cash flow for the nine months ended September 30, 2015 was $24.2 million higher than the same period in 2014. Favourable changes from the same period in 2014 included:
- $37.4 million increase in adjusted EBITDA reduced by the $5.9 million of investment income from Gemini which will be included in free cash flow as received;
- $6.8 million net proceeds from the sale of the Frampton wind farm and land leases and options associated with early-stage development projects;
- $2.6 million of fees related to the renewal and expansion of Northland's corporate credit facility in 2014; and
- $1.1 million decrease in operating capital expenditures.
Partially offsetting these favourable variances were:
- $9.9 million net interest expense increase, related to the inclusion of McLean's, additional ground-mounted solar project debt, and interest on the 2020 convertible unsecured subordinated debentures;
- $4.3 million increase in scheduled debt repayments as a result of including additional ground-mounted solar projects and higher scheduled repayments on Thorold's credit facility; and
- $3.7 million increase of funds set aside for future major maintenance.
Outlook
Based on strong performance during the quarter, and the receipt of the recalculated global adjustment payments from the OEFC for most of 2015, management has improved and narrowed its expected adjusted EBITDA in 2015 to be approximately $395 to $405 million, an increase from the forecast of $380 to $400 million in the prior quarter.
Northland's 2015 dividend payments, on a total dividend basis, may 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. The corresponding cash flows will not be received until the projects for which the capital is raised are completed. For 2015, commensurate with adjusted EBITDA guidance, management has improved its payout ratio forecast and expects cash dividends to be 70-80% of free cash flow, including the impact of reinvested dividends through the DRIP, and 95-105% of free cash flow excluding the impact of reinvested dividends through the DRIP (compared with 70% and 95%, respectively, in 2014). This is attributable to the significant capital costs for Northland's investment in Nordsee and Grand Bend. Additional corporate capital was required in early 2015 to fund the projects; as a result, the payout ratio may exceed 100% until Gemini and Nordsee are 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 construction of Gemini and Nordsee to be significantly lower than during the growth period experienced by Northland from 2009 to 2014.
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 adjusted EBITDA, free cash flow, payout ratio and free cash flow per share, measures not prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA, free cash flow, payout ratio and free cash flow per share, 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, free cash flow, payout ratio and free cash flow per share 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 November 10th at 10:00 a.m. EST to discuss its third quarter financial results. Paul Bradley, Northland's Chief Financial Officer, Mike Crawley, Northland's Executive Vice President of Development, and Adam Beaumont, Northland's Director of Finance 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: Tuesday, November 10, 2015
Start Time: 10:00 a.m. EST
Phone Number: Toll free within North America: 1-800-945-9434 or Local: 416-981-9013
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, 2015.
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 1,338 MW of operating generating capacity and 1,032 MW (692 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; as well as a 100 MW onshore wind farm in Grand Bend, Ontario currently in 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, 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 adjusted EBITDA, free cash flows, 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 2014 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 November 9, 2015. 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.