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Northland Power Reports Third Quarter 2019 Results

Expands Global Footprint with Acquisition of Regulated Utility in Colombia

TORONTO, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (NPI.TO) today reported financial results for the three and nine months ended September 30, 2019.

“Northland continued to deliver healthy, sustainable results in the quarter with a 14% increase in adjusted EBITDA and free cash flow per share over last year,” noted Mike Crawley, President and Chief Executive Officer of Northland. “Most significantly, we acquired EBSA, a high-quality regulated Colombian utility. EBSA operates under a stable regulatory environment with an inflation-protected perpetual cash flow and is expected to serve as a platform for future growth for Northland in Colombia.”

Mr. Crawley continued, “This quarter was also highlighted by the significant progress in our construction activities, where the installation and commissioning of 31 turbines at Deutsche Bucht was completed, ahead of schedule, resulting in generation of power by the end of September.”

Third Quarter Highlights:

Financial Results

  • Sales increased 8% to $378 million from $350 million in the third quarter of 2018 and gross profit increased 11% to $356 million from $321 million.

  • Adjusted EBITDA (a non-IFRS measure) increased 14% to $224 million from $197 million in the third quarter of 2018.

  • Free cash flow per share (a non-IFRS measure) increased 14% to $0.41 from $0.36 in the third quarter of 2018.

  • Net income increased 19% to $111 million from $93 million in the third quarter of 2018.

Sales, gross profit 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.

Construction and Development Update

  • Acquisition of EBSA – On September 9, 2019, Northland announced it entered into an agreement to purchase a 99.2% interest in a Colombian regulated utility, Empresa de Energía de Boyacá (“EBSA”), for approximately $1.05 billion, including existing debt of COP 550 billion (approximately $215 million), subject to certain purchase price adjustments (the “Acquisition”). Closing of the Acquisition is expected in the fourth quarter and, under the terms of the purchase agreement, the final purchase price will take into account EBSA’s rate tariff for the 2019-2023 period, which is expected to be approved by the Colombian energy and utility regulator (Comisión de Regulación de Energía y Gas or “CREG”) in the fourth quarter.

  • La Lucha 130 MW solar project, Durango, Mexico – In May 2019, Northland announced the final investment decision followed by the commencement of the construction of its 100%-owned La Lucha 130 MW solar project in the State of Durango, Mexico, which Northland originated as part of its broader Mexico development strategy. The project is progressing according to schedule and on budget. Total capital cost for the project is approximately $190 million with project completion expected in the second half of 2020.

  • Deutsche Bucht 269 MW offshore wind project, North Sea, Germany – The construction of Northland’s Deutsche Bucht offshore wind project remains on budget and all 31 monopile foundation turbines were installed by the end of August 2019, ahead of schedule, and generating power by the end of September 2019. Installation of the two turbines utilizing mono bucket foundations is expected to begin in the fourth quarter of 2019; however, full completion may extend into the first quarter of 2020 due to delays in the manufacturing of the mono bucket foundations resulting from supplier disruptions and the potential for adverse weather. The total estimated project cost remains at approximately €1.4 billion (CAD $2.0 billion).

  • Hai Long 1,044 MW offshore wind project, Taiwan Strait – Since the execution of a 20-year power purchase agreement (PPA) with Taipower for the Hai Long 2A 300 MW offshore wind project in February 2019, Northland remains engaged in developing Hai Long 2B and Hai Long 3 sub-projects and expects to execute their respective PPAs with Taipower in 2019.

  • Addition to Northland’s Executive Team – In October 2019, David Povall joined Northland as the Executive Vice President, Development. David will be based out of the Toronto office and will be responsible for leading the company’s development initiatives in key markets around the globe. David brings to Northland more than 20 years of experience in the international power generation industry, including greenfield project development spanning multiple jurisdictions and technologies. Most recently, he served as Chief Executive Officer of Acacia Renewables, a Macquarie-owned developer focused on the Japanese market.
             
Summary of Consolidated Results            
(in thousands of dollars, except per share amounts) Three months ended September 30,   Nine months ended September 30,
    2019   2018   2019   2018
FINANCIALS              
  Sales $ 378,437     $ 350,175     $ 1,220,799     $ 1,174,724  
  Gross profit 355,945     320,985     1,136,871     1,090,236  
  Operating income 176,900     149,889     610,433     562,162  
  Net income (loss) 110,621     93,278     391,085     340,257  
  Adjusted EBITDA (1) 224,312     196,797     712,021     670,209  
  Cash provided by operating activities 241,554     193,274     890,789     842,724  
  Free cash flow (1) 74,112     63,948     251,125     248,964  
  Cash dividends paid to common and class A shareholders 54,119     40,219     162,243     119,458  
  Total dividends declared (2)

54,122     53,122     162,265     158,815  
                 
Per share information              
  Net income (loss) - basic $ 0.42     $ 0.38     $ 1.48     $ 1.28  
  Free cash flow - basic (1) $ 0.41     $ 0.36     $ 1.39     $ 1.40  
  Total dividends declared (2) $ 0.30     $ 0.30     $ 0.90     $ 0.90  
                 
ENERGY VOLUMES              
  Electricity production in gigawatt hours (GWh) 2,058     1,777     6,394     5,895  
(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 dividend re-investment plan (DRIP). For 2019, cash dividends equal total dividends since shares under the DRIP are sourced from the secondary market.
 

Third Quarter Results Summary

Offshore wind facilities

Electricity production, including pre-completion production, increased 33% or 214 GWh compared to the same quarter of 2018 primarily due to pre-completion production from Deutsche Bucht and higher wind resource in the North Sea, partially offset by lower grid availability due to repairs by the system operator at Nordsee One. Sales of $231 million increased 15% or $30 million compared to the same quarter of 2018 primarily due to factors affecting production, partially offset by unfavourable foreign exchange rate fluctuations of $8 million. Operating income and adjusted EBITDA of $127 million and $139 million, respectively were 31% or $30 million and 25% or $28 million higher than the same quarter of 2018 primarily due to higher sales and lower plant operating costs.

Thermal facilities

Electricity production increased 7% or 58 GWh compared to the same quarter of 2018 primarily due to an increase in off-peak production and new incremental capacity at North Battleford and the effect of a maintenance outage in 2018 at another Northland facility.

Sales of $94 million decreased 3% or $3 million compared to the same quarter of 2018 primarily due to lower cost of sales at Thorold resulting in lower reimbursements by the counterparty. Operating income of $49 million increased 3% or $2 million compared to the same quarter of 2018 primarily due to favourable operating results at Iroquois Falls and North Battleford, partially offset by the effect of a maintenance outage. Adjusted EBITDA of $61 million increased 4% or $2 million primarily due to the factors described above.

On-shore renewable facilities

Electricity production was 3.4% or 9 GWh higher than the same quarter of 2018 largely due to higher wind resource. Sales of $52 million increased 1% or $1 million compared to the same quarter of 2018 primarily due to higher production at the wind facilities, as described above. Production variances at the solar facilities have a larger effect on sales than the wind facilities since solar facilities receive a higher contracted price per MW. Operating income and adjusted EBITDA of $20 million and $37 million, respectively, increased 6% or $1 million and 6% or $2 million largely due to higher production at the wind facilities and lower plant operating costs at certain wind facilities.

General and administrative (G&A) costs

G&A costs of $21 million increased 38% or $6 million compared to the same quarter of 2018 primarily due to the timing of expenditures related to project development activities and higher personnel costs to support Northland’s growth.

Finance costs

Net finance costs of $78 million decreased 7% or $6 million compared to the same quarter of 2018 primarily due to declining interest costs as a result of scheduled principal repayments on facility-level loans, a lower outstanding balance on corporate credit facilities and the redemption of convertible debentures in December 2018.

Net income

Net income of $111 million in the third quarter of 2019 was 19% or $17 million higher compared to net income of $93 million for the same quarter of 2018. The increase in net income year over year was primarily due to an increase in gross profit partially offset by an $8 million higher tax expense.

Adjusted EBITDA

Adjusted EBITDA of $224 million for the third quarter of 2019 was 14% or $28 million higher than the third quarter of 2018. The significant factors increasing adjusted EBITDA include:

  • $16 million increase as a result of net pre-completion revenues at Deutsche Bucht;

  • $8 million increase in operating results from Gemini due to higher production as well as lower insurance costs; and

  • $4 million increase in operating results from Nordsee One primarily due to higher production as well as lower costs from operating efficiencies.

Factors partially offsetting the increase in adjusted EBITDA include:

  • $4 million increase in corporate items in adjusted EBITDA primarily due to the timing of expenditures related to project development activities.

Free Cash Flow

Free cash flow of $74 million for the third quarter of 2019 was 16% or $10 million higher than the third quarter of 2018.

 Factors increasing free cash flow include:

  • $15 million net increase in overall earnings primarily due to the factors affecting adjusted EBITDA except net pre-completion revenues from Deutsche Bucht, which are excluded from free cash flow; and

  • $8 million decrease in net interest expense due to declining interest costs as a result of scheduled principal repayments on facility-level loans, lower outstanding balance on corporate credit facilities and redemption of convertible debentures in December 2018.

Factors partially offsetting the increase in free cash flow include:

  • $7 million increase in current taxes related to the offshore wind facilities; and

  • $4 million increase in corporate G&A primarily due to the timing of expenditures related to project development activities.

As at September 30, 2019, the rolling four quarter free cash flow net payout ratio was 61%, calculated on the basis of cash dividends paid and 63% calculated on the basis of total dividends, compared to 48% and 65%, respectively, in 2018. The increase in the free cash flow payout ratio calculated on the basis of cash from 2018 was primarily due to an increase in the number of shares due to the redemption of the convertible debentures in December 2018 and also due to a drop in the DRIP participation since the discount was reduced to nil.

Outlook

Northland aims to increase shareholder value by creating high-quality projects underpinned by revenue arrangements that deliver predictable cash flows. Management actively seeks to invest in technologies and jurisdictions where Northland can benefit from an early-mover advantage and establish a meaningful presence while striving for excellence in managing Northland’s operating facilities by enhancing their performance and value.

As of November 6, 2019, primarily due to the passage of three quarters, management has narrowed its guidance range for 2019 adjusted EBITDA to be in the range of $950 to $1,000 million (formerly, $920 to $1,010 million) and 2019 free cash flow per share to be in the range of $1.65 to $1.80 (formerly, $1.65 to $1.95). The narrowed range reflects Northland’s year-to-date results including lower than forecast offshore wind production as well as unpaid curtailments at Nordsee One. Additionally, as a result of the industry expecting unpaid curtailments to continue in 2020, management has revised Deutsche Bucht’s contribution to adjusted EBITDA in 2020 to between €155 to €175 million (formerly, €165 to €185 million). Refer to Northland’s 2018 Annual Report for additional information on Northland’s financial outlook for 2019.

Earnings Conference Call

Northland will hold an earnings conference call on November 7, 2019, to discuss its 2019 third quarter results. Mike Crawley, Northland’s President and 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 shareholders.

   
Conference call details are as follows:
Thursday, November 7, 2019 10:00 a.m. ET 
Toll free (North America):    (844) 284-3434
Toll free (International):  (949) 877-3040
   

The call will also be broadcast live on the internet, in listen-only mode and may be accessed on northlandpower.com. For those unable to attend the live call, an audio recording will be available on northlandpower.com on August 9, 2019.

ABOUT NORTHLAND POWER

Northland Power is a global developer, owner and operator of sustainable infrastructure assets that deliver predictable cash flows. Headquartered in Toronto, Canada, Northland was founded in 1987 and has been publicly traded since 1997 on the Toronto Stock Exchange (NPI.TO).

The Company owns or has an economic interest in 2,429 MW (net 2,014 MW) of operating generating capacity and 399 MW of generating capacity under construction, representing the Deutsche Bucht offshore wind project in the North Sea and the La Lucha solar project in Mexico, in addition to its 60% equity stake in the 1,044 MW Hai Long projects under development in Taiwan.

Northland’s common shares, subscription receipts, Series 1, Series 2, and Series 3 preferred shares and Series C convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.R, NPI.PR.A, NPI.PR.B, NPI.PR.C, and NPI.DB.C, respectively.

NON-IFRS FINANCIAL MEASURES

This press release includes references to Northland’s adjusted earnings before interest, income taxes, depreciation and amortization (“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, SECTION 4.5: Free Cash Flow and SECTION 5: CHANGES IN FINANCIAL POSITION of the current Management’s Discussion and Analysis, which can be found on SEDAR at www.sedar.com under Northland’s profile and on northlandpower.com, for an explanation of these terms and for reconciliations to the nearest IFRS measure.

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, revenue contracts, counterparty risks, contractual operating performance, variability of revenue from generating facilities powered by intermittent renewable resources, offshore wind concentration, natural gas and power market risks, operational risks, permitting, construction risks, project development risks, financing risks, interest rate and refinancing risks, liquidity risk, credit rating risk, currency fluctuation risk, variability of cash flow and potential impact on dividends, taxation, natural events, environmental, health and worker safety risks, market compliance risk, government regulations and policy risks, international activities, reliance on information technology, labour relations, reputational risk, insurance risk, risks relating to co-ownership, bribery and corruption risk, legal contingencies, and the other factors described in the “Risks Factors” section of Northland’s 2018 Annual Information Form dated February 21, 2019, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at 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 November 6, 2019.  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:

Mr. Wassem Khalil, Senior Director, Investor Relations, 647-288-1019
investorrelations@northlandpower.com
northlandpower.com