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Northland Power Inc. ("Northland" or "the Company")
(TSX:NPI)(TSX:NPI.PR.A)(TSX:NPI.PR.C)(TSX:NPI.DB.A)(TSX:NPI.DB.B)
Second Quarter Highlights:
-- 63% increase in quarterly earnings before interest, taxes, depreciation
and amortization ("adjusted EBITDA") from 2013;
-- 43% increase in quarterly free cash flow from 2013;
-- Decreased quarterly cash payout ratio to 93% of free cash flow from 108%
in the second quarter of 2013 (126% excluding the effect of the Dividend
Reinvestment Plan versus 144% in 2013);
-- Completed the acquisition of a 60% controlling interest in Project
Gemini, a 600 megawatt (MW) offshore wind project located off the coast
of the Netherlands in the North Sea;
-- Subsequent to the acquisition, Project Gemini reached financial
close, having placed all of the EUR2.8 billion of equity and debt
commitments required for the project.
-- Declared commercial operations on Northland's 60 MW (30 MW net interest)
McLean's wind project located on Manitoulin Island, Ontario, on May 1,
2014. The project was completed on time and on budget, and has a 20-year
power purchase agreement (PPA) with the Ontario Power Authority (OPA)
under Ontario's renewable energy Feed-in-Tariff (FIT) Program;
-- Commenced construction on the final remaining ground-mounted solar
projects ("Cluster 4") and completed $240 million of non-recourse
project financing for the remaining unfinanced solar projects; and
-- Due to the strong performance in our operations over the first half of
2014, Northland has increased its adjusted EBITDA forecast range for
2014 upward by $5 million to $350 million to $360 million. The
forecasted payout ratio range for 2014 was also favourably adjusted to
be in the range of 100% to 110% of free cash flow on a total dividend
basis.
Northland reported its financial results today for the quarter ended June 30, 2014.
"We delivered excellent financial results in the second quarter while continuing
to grow the megawatts in our operating asset base," said John Brace, Chief
Executive Officer. "Our free cash flow increased by 43% over the same quarter
last year, and adjusted EBITDA increased by 63%. We completed our 60 MW McLean's
wind project on time and on budget, and closed financing on our five remaining
Ontario ground-mounted solar projects. We also reached financial close on
Gemini, representing the largest-ever financing for an offshore wind farm; the
project has now entered construction and is proceeding well. These results
demonstrate Northland's ongoing focus and strength: delivering long-term value
to our shareholders through steady growth and a commitment to excellence in all
that we do. Finally, I want to thank all the Northland employees for their
dedication and effort in helping to achieve these outstanding results."
Summary of Financial Results
Due to Northland acquiring a controlling interest in Project Gemini in May 2014,
Northland's consolidated financial results for the three and six months ending
June 30, 2014 include the financial results for the Gemini project.
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3 Months Ended June 30 6 Months Ended June 30
2014 2013 2014 2013
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FINANCIAL (in thousands of
dollars, except per share
and energy unit amounts)
Sales 169,945 124,400 399,369 230,534
Gross profit 103,701 73,779 237,139 141,763
Adjusted EBITDA(1) 81,452 50,064 183,549 104,629
Operating income 50,397 32,755 134,406 70,125
Net income (loss)(2) (91,845) 80,129 (63,269) 103,746
Free cash flow(1) 31,369 21,977 88,121 52,395
Cash Dividends paid to
Common and Class A
Shareholders 29,281 23,754 56,898 46,436
Total Dividends declared to
Common and Class A
Shareholders(2) 39,787 31,718 76,969 63,201
Per Share
Free cash flow 0.21 0.19 0.62 0.45
Dividends declared to
Shareholders(3) 0.27 0.27 0.54 0.54
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Energy Volumes
Electricity sales volume
(megawatt hours) 1,099,457 733,006 2,590,072 1,711,042
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(1) See "Non-IFRS measures" for a detailed description. Adjusted EBITDA was
previously reported as EBITDA.
(2) Net income (loss) as reported in the financial statements includes non-
cash fair value gains and losses on derivative contracts that are explained
below.
(3) Total dividends to Common and Class A Shareholders represent cash
dividends declared irrespective of whether the dividend is received in cash
or in shares as part of the DRIP program.
Second Quarter Results
Northland's consolidated sales, adjusted EBITDA and operating income for the
three months ending June 30, 2014 were significantly higher than the same period
of 2013.
Adjusted EBITDA
The $31.4 million increase in adjusted EBITDA from the same period for 2013 was
primarily due to (i) a $32.2 million contribution from a full second quarter of
North Battleford and the Ground-mounted Solar Phase I and II projects, and the
introduction of adjusted EBITDA from McLean's in this quarter; and (ii) a $5.4
million increase in adjusted EBITDA from Northland's other facilities, including
higher dividends from Panda-Brandywine and interest on the Gemini subordinated
debt. Offsetting these favourable variances were: (i) a $4 million decrease from
Northland's existing thermal and wind facilities, largely due to scheduled
maintenance outages at Kingston and Iroquois Falls and calm wind conditions at
all wind facilities; (ii) a $0.5 million decrease in performance and management
fees from Kirkland Lake and Cochrane; and (iii) $2.3 million of higher corporate
costs.
Free Cash Flow, Payout Ratio and Dividends to Shareholders
Free cash flow of $31.4 million for the quarter was $9.4 million higher (43%)
than the corresponding period in 2013; significant factors increasing and
decreasing free cash flow for the comparative quarter are described below.
Factors increasing free cash flow in the second quarter of 2014 over the same
quarter of 2013:
-- $28.2 million higher adjusted EBITDA from Northland's operating
facilities, as previously discussed;
-- $3.4 million increase in adjusted EBITDA generated from Northland's
managed and other facilities;
-- $1.3 million positive variance associated with Kingston and North
Battleford's payments to General Electric related to their gas turbine
maintenance contracts;
-- $0.7 million increase in other income related to contingent sales
proceeds from the 2011 sale of Northland's South Kent wind development
project;
-- $0.8 million in proceeds from the sale of Northland's wood chipping
facility; and
-- $1 million increase in other miscellaneous items.
Factors decreasing free cash flow in the second quarter of 2014 over the same
quarter of 2013:
-- $12.8 million net interest expense increase primarily due to the full
quarter inclusion of North Battleford and Ground-mounted Solar Phase I
and II debt;
-- $7.2 million increase in scheduled debt repayments as a result of
including the full quarter of North Battleford and Ground-mounted Solar
Phase I projects;
-- $2.3 million increase in corporate general and administration costs;
-- $2.6 million of fees related to the renewal and expansion of Northland's
corporate credit facility;
-- $0.5 million decrease in management fees from Kirkland Lake and
Cochrane; and
-- $0.6 million increase in operations related capital expenditures and
funds set aside for future major maintenance.
For the three months ending June 30, 2014, Northland's dividend payout ratio was
93% of free cash flow or 126% if all dividends were paid out in cash (i.e.
excluding the effect of dividends reinvested through the Dividend Reinvestment
Plan (DRIP)) compared to 108% and 144%, respectively in 2013.
Net income
The second quarter net loss exceeded the prior year because the increase in
adjusted EBITDA was more than offset by higher finance costs, a fair value loss
on derivative contracts that include interest rate swaps on the facilities'
non-recourse project debt, the long term financial hedge related to future
natural gas prices at Iroquois Falls and foreign exchange contracts associated
with the Gemini project and the write down of the Panda investment due to
termination of the PPA and the transfer of the facility's assets to the PPA
offtaker, JP Morgan in May 2014.
A significant portion ($109.2 million) of the second quarter net loss represents
the fair value accounting treatment of Project Gemini's interest rate swaps that
are marked to market and consolidated with Northland's operating results.
Changes in interest and currency rates give rise to non-cash marked to market
adjustments each quarter as a result of Northland's and Project Gemini's
accounting election to forego the application of hedge accounting. These fair
value adjustments are non-cash items that will reverse over time, and have no
impact on the cash obligations of Northland or its projects.
Outlook
During the first six months of 2014 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 North America, Europe and Latin America. We have identified a number
of opportunities in these jurisdictions, in addition to several projects already
under development. Our 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.
Due to the strong performance in our operations over the first half of 2014,
management has increased its 2014 adjusted EBITDA forecast to approximately $350
to $360 million.
Management continues to expect adjusted EBITDA of $380 to $400 million in 2015
based on the current completion schedules for Northland's projects with power
contracts.
Northland's 2014 dividend payments, on a total dividend basis, are expected to
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 for which corresponding cash flows will not be received until the
projects for which the capital is raised are completed. For 2014, commensurate
with EBITDA guidance, management has improved its payout ratio forecast and
expects cash dividends to be 75-85% of free cash flow, including the impact of
reinvested dividends through the DRIP, and 100-110% of free cash flow excluding
the impact of reinvested dividends through the DRIP (compared with 76% and 101%,
respectively, in 2013). Prior to its investment in Project Gemini, management
expected the dividend payout ratio to drop below 100% in 2014 on a total
dividend basis, based on the successful conclusion of a period of significant
growth and capital expenditures for Northland. Due to the significant capital
costs for Northland's investment in Project Gemini, additional corporate capital
has been raised in 2014 to fund the project, and as a result the payout ratio
may exceed 100% until Project Gemini is 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
Project Gemini's construction to be significantly lower than during the growth
period experienced by Northland from 2009 to 2013.
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 free cash flow and
adjusted EBITDA which are not measures prescribed by International Financial
Reporting Standards (IFRS). Free cash flow and adjusted EBITDA, 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 August 6th at 10:00 a.m. EDT
to discuss its second quarter financial results. John Brace, Northland's Chief
Executive Officer and Paul Bradley, Northland's Chief Financial Officer 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, August 6, 2014
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-381-7839 or Local: 416-
981-9037
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 6
until August 20, 2014.
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 1,335 MW of operating
generating capacity, with an additional 650 MW (410 MW net to Northland) of
generating capacity currently in construction, and another 124 MW (66 MW net to
Northland) of projects with awarded power contracts. The above includes
Northland's majority equity stake in Gemini, a 600 MW (360 MW net to Northland)
offshore wind project in the North Sea currently under 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 and Series 3 preferred shares and
convertible debentures trade on the Toronto Stock Exchange under the symbols
NPI, NPI.PR.A, NPI.PR.C, NPI.DB.A and NPI.DB.B, 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 plans for raising capital. These
statements are based upon certain material factors or assumptions that were
applied in developing the forward-looking statements, including 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, operational risks, foreign exchange rates, regulatory risks, 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 2013 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 August 5, 2014. 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Northland Power Inc.
Barb Bokla
Manager, Investor Relations
647-288-1438
Northland Power Inc.
Adam Beaumont
Director of Finance
647-288-1929
(416) 962-6266 (FAX)
investorrelations@northlandpower.ca
www.northlandpower.ca
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