TORONTO, ON—(Marketwired – May 11, 2015) –
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Northland Power Inc. (“Northland” or “the Company“) (TSX: NPI) (TSX: NPI.PR.A) (TSX: NPI.PR.C) (TSX: NPI.DB.B) (TSX: NPI.DB.C) reported its financial results today for the quarter ended March 31, 2015.
First Quarter Transaction Highlights:
Successfully completed offerings of $157.5 million of convertible unsecured subordinated debentures and $281 million of common shares, primarily used to fund a portion of Northland's investments in Nordsee One and the Grand Bend wind farm in Ontario;
Reached financial close on the 332 MW Nordsee One offshore wind project, with all of the equity and debt totalling EUR1.2 billion required for the project;
Achieved financial close on the 100 MW Grand Bend wind farm, with all of the equity and debt totalling $384 million required for the project;
Sold its 66.7% interest in the 24 MW Frampton wind project for net proceeds of approximately $10.2 million;
Successfully refinanced the Thorold senior bank term loan which matures in March 2030; and
Northland received a favourable ruling with respect to its claim against Ontario Electricity Financial Corporation on changes made to the methodology of calculating electricity rates to be received by certain Northland facilities under their respective PPAs. The ruling was subsequently appealed, please see Northland's First Quarter Report for additional details.
First Quarter Financial Highlights:
Sales and gross profit were 12% and 2% lower, respectively, than the same period in 2014 primarily due to non–recurring natural gas resale margins earned in the first quarter of 2014;
Quarterly adjusted EBITDA and free cash flow (non–IFRS measures) were 5% and 11% lower than 2014, largely attributable to non–recurring natural gas resale margins in 2014;
Net loss of $30.6 million for the quarter was primarily due to an $85.9 million marked–to–market non–cash adjustment on Northland's financial derivative contracts; and
Quarterly cash dividend payout ratio was 60% of free cash flow in the first quarter of 2015 compared to 49% in the first quarter of 2014 (81% excluding the effect of the Dividend Reinvestment Plan versus 63% in 2014) primarily due to lower quarterly free cash flow combined with dividends declared on the additional shares issued to fund the Gemini and Nordsee projects.
“Our first quarter results demonstrated great progress in accomplishing our 2015 priorities,” said John Brace, Chief Executive Officer. “We continued to advance our European offshore wind portfolio, with financial close achieved on Nordsee One. The 332 MW project is now in construction, along with Project Gemini (600 MW), which is progressing well. Concurrently, we moved forward on our Canadian projects; with the successful financial close of the Grand Bend wind farm. Construction is now underway, and we are also continuing work on the final four of our 13 ground–mounted solar projects. These projects, once completed, will provide attractive, secure, and long–term returns to investors. Overall, our first quarter results are in alignment with our commitment to balance significant growth with stable returns.”
Summary of Financial Results
Northland's interim consolidated financial results for the three months ended March 31, 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.
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Three months ended March 31
In thousands of dollars except per share and energy unit amounts
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2015
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2014
FINANCIALS
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Total Sales
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201,596
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229,424
Gross Profit
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130,157
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133,438
Operating Income
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74,316
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84,009
Net Income (Loss)
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(30,616
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28,576
Adjusted EBITDA(1)
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97,133
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102,097
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Cash Provided by Operating Activities
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119,612
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51,388
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Free Cash Flow(1)
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50,245
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56,752
Cash Dividends Paid to Common and Class A Shareholders
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30,112
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27,617
Total Dividends Declared to Common and Class A Shareholders(2)
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42,340
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37,182
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Per Share
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Free Cash Flow(1)
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0.330
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0.413
Total Dividends Declared to Common and Class A Shareholders(2)
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0.270
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0.270
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ENERGYÂ VOLUMES
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Electricity (megawatt hours)
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1,550,176
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1,490,615
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(1)Â See Non–IFRS Measures for a detailed description.
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(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.
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First Quarter Results
Total Sales
The $27.8 million decrease in sales from the same period in 2014 is primarily due to non–recurring natural gas resale margins earned at the Kingston facility ($6.3 million lower resale margins than in the same period in 2014). Lower steam sales and a one–time charge associated with an Independent Electricity System Operator (IESO) generator cost recovery program at Thorold also contributed to lower sales and cost of sales.
Net income (loss)
The net loss for the three months ended March 31, 2015 of $30.6 million was primarily due to the $85.9 million non–cash fair value losses associated with Northland's derivative contracts in the first quarter of 2015 versus an $8.5 million loss in the first quarter of 2014. A significant portion ($75.2 million) of the loss represents the fair value accounting treatment of Gemini's and Nordsee One's interest rate swaps that are marked–to–market and consolidated with Northland's operating results. 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.
Adjusted EBITDA (a non–IFRS measure)
Adjusted EBITDA for the three months ended March 31, 2015 was $5 million lower than the prior period primarily due to: (i) lower contributions from Kingston ($4.7 million) due to non–recurring gas resale margins in 2014, and Thorold ($3.9 million) due to the one–time charge associated with an IESO generator cost recovery program; (ii) lower performance incentive fees earned from Cochrane and Kirkland Lake ($6.8 million) also mainly due to the 2014 gas resale margins; (iii) lower investment income ($0.8 million) largely due higher 2014 dividends from Panda–Brandywine; and (iv) increased corporate management and administration costs ($0.4 million). Partially offsetting these unfavourable variances were: (i) the write–off of deferred development costs in 2014 ($5.2 million); (ii) interest earned on Northland's portion of the Gemini subordinated debt ($3.6 million); and (iii) inclusion of results from McLean's ($3.2 million), which became operational on May 1, 2014.
Free Cash Flow, Payout Ratio (non–IFRS measures) and Dividends to Shareholders
Free cash flow of $50.2 million for the first quarter of 2015 was $6.5 million lower than the corresponding period in 2014 primarily due to lower contributions from Kingston and Thorold, 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 first quarter of 2015 over the same quarter of 2014 primarily relate to:
$7.5 million net proceeds (after deducting deferred development costs) from the sale of the Frampton wind farm and land leases and options associated with early stage development projects; and
$5.2 million write–off of deferred development costs in the first quarter of 2014, as previously discussed.
Factors decreasing free cash flow in the first quarter of 2015 over the same quarter of 2014 mainly relate to:
$6.8 million decrease in management fees from Kirkland Lake and Cochrane due to the funding of cash reserves for severance and decommissioning at the Cochrane facility should its PPA not be renewed or extended and lower results from both facilities because the first quarter of 2014 included the benefit of gas resale margins, as previously discussed;
$5.2 million lower adjusted EBITDA from Northland's operating facilities largely due to the 2014 non–recurring natural gas resale margins and the one–time charge associated with an IESO generator cost recovery program at Thorold;
$3.2 million net interest expense increase primarily due to the inclusion of McLean's and Ground–mounted Solar Phase II debt, interest on the debentures issued in March 2014 and January 2015 and corporate term facility;
$2 million increase in scheduled debt repayments and funds set aside for debt repayments as a result of including Ground–mounted Solar Phase II projects and higher scheduled repayments on Thorold's credit facility;
$1 million increase in funds set aside for future major maintenance and corporate general administration costs; and
$0.8 million decrease in investment income largely due to higher dividends received in 2014 from Northland's Panda–Brandywine investment.
For the three–month period ended March 31, 2015, common share and Class A Share dividends declared for the quarter totalled $0.27 per share. The decrease in quarterly free cash flow from 2014, described above, and increased share count as a result of capital raises during the quarter were primary reasons for an increased quarterly cash payout ratio of 60% or 81% 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 first quarter results, please see the Management, Discussion and Analysis in Northland's 2015 First Quarter Report.
Outlook
Northland continues to expand its earlier–stage development pipeline, pursuing opportunities that meet the Company's investment criteria in targeted markets including North America, Europe, Latin America 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.
In 2015, management continues to expect adjusted EBITDA of approximately $380 to $400 million guiding towards the lower end of the range in the event of unfavourable outcomes of: (i) the Cochrane contract extension, and (ii) the determination of interim arrangements on the OEFC's appeal of the global adjustment court decision.
Northland's 2015 dividend payments, on a total dividend basis, are expected to exceed free cash flow due largely to the level of spending on growth initiatives including payments of dividends and interest on capital raised for construction projects for which corresponding cash flows will not be received until those projects are completed. For 2015, management continues to expect the cash dividends to be 75–85% of free cash flow, including the impact of reinvested dividends through the DRIP, and 100–115% of free cash flow excluding the impact of reinvested dividends through the DRIP (compared with 70% and 95%, respectively, in 2014). Anticipated free cash flow for 2015, includes proceeds from the sale of the Frampton wind project and 37.5% of four ground–mounted solar projects which is expected to occur in 2015 upon meeting certain sale conditions. Due to the significant capital costs for Northland's investment in Nordsee and Grand Bend, additional corporate capital was raised in 2015 to fund the projects, and as a result the payout ratio is expected to 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 May 12th at 10:00 a.m. EDT to discuss its first quarter financial results. John Brace, Northland's Chief Executive Officer, Sean Durfy, Northland's President and Chief Development 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: Tuesday, May 12, 2015
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1–800–772–0453 or Local: 416–981–9014
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, 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 1,345 MW of operating generating capacity; 1,072 MW (732 MW net to Northland) of generating capacity under construction, including the 600 MW (360 MW net interest to Northland) Gemini offshore wind project, the 332 MW (282 MW net interest to Northland) Nordsee One offshore wind project, the 100 MW (50 MW net interest to Northland) Grand Bend wind project, and the 40 MW of ground–mounted solar projects. 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 Series B and Series C convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, 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, 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 May 11, 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.