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Northland Power Reports Strong First Quarter Results With Free Cash Flow Up 256% and Adjusted EBITDA Up 47%

May 09, 2018

Hai Long Offshore Wind Project Allocated 300 MW Under Taiwan’s Feed-In-Tariff Program

TORONTO, May 09, 2018 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX:NPI) today reported financial results for the three months ended March 31, 2018.

“2018 is off to an excellent start,” said John Brace, Chief Executive Officer. “Northland’s Hai Long 2 offshore wind project in Taiwan was allocated 300 MW under Taiwan’s Feed-In Tariff program, our operating assets are performing well, and construction on our Deutsche Bucht offshore wind project continues on schedule. We achieved a 250% increase in free cash flow per share and a 47% increase in adjusted EBITDA over the same quarter last year. We continue to focus on generating disciplined growth and robust shareholder returns.”

First Quarter Highlights:

Financial

  • Sales increased 34% or $122.3 million to $486.4 million and gross profit increased 41% or $131.5 million to $454.6 million compared to the same quarter last year primarily due to Nordsee One reaching full commercial operations in December 2017 and higher wind resources at Gemini, partially offset by the expiry of Kingston’s power purchase agreement (PPA) in January 2017.
  • Adjusted EBITDA (a non-IFRS measure) increased 47% or $92.3 million to $290.4 million compared to the same quarter last year primarily due to contributions from Nordsee One and Gemini, partially offset by the expiry of Kingston’s PPA.
  • Free cash flow per share (a non-IFRS measure) increased 250% or $0.60 to $0.84 compared to the same quarter last year primarily as a result of contributions from Gemini’s and Nordsee One’s operations partially offset by Kingston and the commencement of scheduled principal repayments for Gemini and Nordsee One.
  • Net income increased 78% or $77.8 million to $178.0 million compared to the same quarter last year primarily due to higher operating income from Gemini and Nordsee One partially offset by a non-cash fair value loss on derivative contracts ($2.8 million loss compared to a $29.4 million gain in the first quarter of 2017) and an $11.6 million increase in the provision for current taxes.

Sales and net income, as reported under IFRS, include consolidated results of entities not wholly-owned by Northland, whereas the above non-IFRS measures, adjusted EBITDA and free cash flow, only include Northland’s proportionate interest.

Development and Construction

  • Hai Long 2 – 300 MW offshore wind project, Taiwan Strait – On April 30, 2018, the Bureau of Energy of Taiwan allocated 300 MW (180 MW net to Northland) to the Hai Long 2 offshore wind project (“Hai Long 2”) under Taiwan’s Feed-in-Tariff (“FIT”) program. This is a significant milestone for the project, located approximately 50 km off the coast of Taiwan, as it allocates capacity for Hai Long 2 to connect to Taiwan’s grid in 2024, and advances the project’s ability to execute a 20-year power contract under Taiwan’s FIT program. Northland and its partner Yushan Energy Pte. Ltd. (“Yushan”) have economic interests of 60% and 40% in Hai Long 2, respectively.
  • Deutsche Bucht – 252 MW offshore wind project, German North Sea – The Deutsche Bucht offshore wind project is progressing according to schedule and budget. Manufacturing of the main components is on schedule and the first offshore activities have been completed. Offshore installations will commence in the second half of 2018 with project completion expected by the end of 2019. The total estimated project cost is approximately €1.3 billion.

Other

  • Appointment of John Brace to Northland’s Board of Directors – On April 4, 2018, Northland expanded its Board of Directors from six to seven members and appointed Chief Executive Officer, John W. Brace, to the Board. Mr. Brace has been with Northland since 1988 and has served as Northland’s Chief Executive Officer since 2005.
     
Summary of Consolidated Results    
(in thousands of dollars, except per share amounts) Three months ended March 31,
   2018 2017
FINANCIALS    
 Sales $486,372  $364,051 
 Gross profit 454,557  323,082 
 Operating income 281,154  187,632 
 Net income (loss) 177,955  100,112 
 Adjusted EBITDA (1) 290,421  198,117 
 Cash provided by operating activities 289,765  276,705 
 Free cash flow (1) 148,047  41,548 
 Cash dividends paid to common and class A shareholders 39,131  33,555 
 Total dividends declared (2)

 52,755  46,805 
      
Per share information    
 Net income (loss) - basic $0.61  $0.30 
 Free cash flow - basic (1) $0.84  $0.24 
 Total dividends declared (2) $0.30  $0.27 
      
ENERGY VOLUMES    
 Electricity production in gigawatt hours (GWh) (3) 2,327  1,894 
(1)  Refer to the Non-IFRS Financial Measures section of this press release for additional information.
(2)  Represents total dividends declared to common and class A shareholders including dividends in cash or in shares under the DRIP.
(3)  For 2017, includes Gemini and Nordsee One pre-completion production volumes. Refer to SECTION 4.1 Operating Facilities’ Results of the Management’s Discussion and Analysis for the three months ended March 31, 2018, for additional information.
 

First Quarter Results Summary

Offshore wind facilities

Electricity production, including pre-completion production, increased 60% or 380 GWh compared to the first quarter of last year. The increase was primarily due to all of Nordsee One’s turbines producing power in the first quarter of 2018, whereas the project was under construction last year.

Sales and adjusted EBITDA of $316.1 million and $186.5 million, respectively, reflect an increase of $138.7 million and $90.6 million compared to the same quarter last year primarily as a result of Nordsee One reaching full commercial operations in December 2017 and higher wind resources at Gemini compared to the same quarter last year. Foreign exchange rate fluctuations resulted in $45.5 million higher revenue compared to the same quarter last year.

Thermal facilities

Electricity production increased 6% or 55 GWh compared to the first quarter of last year primarily due to higher production at Thorold and North Battleford, partially offset by the impact of the expiration of Kingston’s PPA in January 2017. 

While sales of $116.6 million decreased $14.6 million compared to the same quarter last year largely due to the impact of the expiration of the Kingston PPA, operating income and adjusted EBITDA of $64.3 million and $78.0 million, respectively, decreased $5.4 million and $3.9 million primarily as a result of improved margins from lower natural gas costs compared to the same quarter last year.

On-shore renewable facilities

Electricity production of 388 GWh was comparable to the first quarter of last year. Sales for the first quarter of 2018 totaled $53.7 million or $1.8 million lower than the same quarter last year primarily due to the sale of the German wind farms in November 2017 and lower production at McLean’s and Grand Bend.

As a result of these factors, operating income and adjusted EBITDA for the renewable facilities were lower by $1.1 million and $0.9 million, respectively.

General and administrative (G&A) costs

G&A costs (previously reported as management and administration costs) of $16.9 million were $7.0 million lower than the first quarter of last year, of which corporate G&A costs were $6.8 million lower primarily due to the timing of early-stage development activities as well as the certain non-recurring personnel costs incurred last year. Facility G&A costs decreased $0.2 million primarily due to lower costs at Nordsee One and Gemini, partially offset by incremental costs at Deutsche Bucht.

Finance costs

Finance costs, net, increased $4.8 million compared to the first quarter of last year primarily due to interest costs at Nordsee One no longer being capitalized following completion of construction activities.

Fair value loss on derivative contracts

Fair value loss on derivative contracts was $2.8 million compared to a $29.4 million gain in the first quarter of last year primarily due to the movement in the fair value of interest rate swaps and foreign exchange contracts.

Foreign exchange gain

Foreign exchange gain of $15.1 million is primarily due to the realized gain on a foreign exchange contract settled this quarter ($5.9 million) combined with unrealized gains from favourable closing foreign exchange rate.

Other (income) expense

Other (income) expense decreased $17.6 million compared to the first quarter of last year primarily due to a $2.4 million gain on sale of Northland’s interest in the idled Cochrane thermal facility in March 2018 and the one-time $14.6 million (€10.4 million) contingent consideration expensed last year in connection with the acquisition of Gemini.

Net income

The factors described above resulted in net income of $178.0 million for the first quarter of 2018, compared to $100.1 million for the first quarter of 2017.

Adjusted EBITDA

Adjusted EBITDA of $290.4 million for the first quarter of 2018 was $92.3 million higher than the first quarter of 2017. The significant factors increasing adjusted EBITDA were:

  • $69.5 million as a result of Nordsee One reaching full commercial operations in December 2017;
  • $21.8 million as a result of higher wind production at Gemini;
  • $5.8 million decrease in corporate G&A costs primarily related to the timing of early-stage development projects; and
  • $2.3 million higher operating income from Northland’s other operating facilities.

Factors partially offsetting the increase in adjusted EBITDA include:

  • $6.4 million decrease in operating income as a result of the expiration of the PPA at Kingston in January 2017.

Free Cash Flow

Free cash flow of $148.0 million for the first quarter of 2018 was $106.5 million higher than the first quarter of 2017. Significant factors increasing free cash flow were:

  • $192.3 million increase due to Gemini and Nordsee One reaching full commercial operations in 2017;
  • $5.4 million from Gemini interest income on the subordinated debt (excluded from free cash flow until commencement of cash interest payments in the third quarter of 2017); and
  • $5.8 million decrease in corporate G&A costs primarily related to the timing of early-stage development projects.

Factors decreasing free cash flow were:

  • $48.0 million increase in scheduled principal repayments related to Gemini and Nordsee One debt;
  • $29.4 million increase in net interest expense due to the inclusion of Gemini and Norsdsee One debt;
  • $10.6 million increase in current taxes related to Nordsee One; and
  • $6.4 million decrease in operating income due to the expiration of the PPA at Kingston in January 2017.

For the three months ended March 31, 2018, the rolling four quarter free cash flow net payout ratio was 38.6%, calculated on the basis of cash dividends paid, and 53.4% calculated on the basis of total dividends, compared to 57.3% and 77.5%, respectively, last year. The improvement in the free cash flow payout ratios from last year was primarily due to contributions from Gemini and Nordsee One.

Outlook

Northland actively pursues new power development opportunities that encompass a range of clean technologies, including natural gas, wind, solar and hydro.

As of May 9, 2018, Northland continues to expect adjusted EBITDA in 2018 to be in the range of $860 to $930 million and free cash flow per share in 2018 to be in the range of $1.70 to $2.00. Refer to the Management’s Discussion and Analysis included in Northland’s 2017 Annual Report for additional information on Northland’s outlook for 2018.

Non-IFRS Measures

This press release includes references to Northland’s adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts, which are not measures prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts 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 and free cash flow and applicable payout ratio and per share amounts are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations. Refer to the SECTION 1: Overview, SECTION 4.4: Adjusted EBITDA and SECTION 4.5: Free Cash Flow of the current Management’s Discussion and Analysis (MD&A), which can be found on SEDAR at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.com, for an explanation of these terms and for reconciliations to the nearest IFRS measure.

Earnings Conference Call

Northland will hold an earnings conference call on May 10, 2018 at 10:00 am EDT to discuss its 2018 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 will discuss the financial results and company developments before opening the call to questions from analysts and shareholders.

Conference call details are as follows: 
Date: Thursday, May 10, 2018
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.com from the morning of May 10 until May 24, 2018.

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 2,029 MW of operating generating capacity and 252 MW of generating capacity under construction, representing the Deutsche Bucht offshore wind project, in addition to the 300 MW (net 180 MW) awarded to the Hai Long 2 offshore wind project.

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 press release contains certain forward-looking statements that 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,” “predicts,” “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 payments 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 future operations, business, financial condition, financial results, 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 and 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, contract, contract counterparties, operating performance, variability of renewable resources and climate change, offshore wind concentration risk, market power prices, fuel supply, transportation and price, operations and maintenance, permitting, construction, development prospects and advanced stage development projects, financing, interest rates, refinancing, liquidity, credit rating, currency fluctuations, variability of cash flows and potential impact on dividends, taxes, natural events, environmental, health and safety, government regulations and policy, international activities, relationship with stakeholders, reliance on information technology, reliance on third parties, labour relations, insurance, co-ownership, bribery and corruption, legal contingencies, and the other factors described in the “Risks Factors” section of Northland’s 2017 Annual Information Form dated February 22, 2018, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.com. 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, 2018.  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:

Barbara Bokla, Manager, Investor Relations, (647) 288-1438
investorrelations@northlandpower.com
www.northlandpower.com

 

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