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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)
First Quarter Highlights:
-- 87% increase in quarterly adjusted EBITDA from 2013;
-- 87% increase in quarterly free cash flow from 2013;
-- Began commercial operations on two additional 10 MW ground-mounted solar
projects, bringing the total solar operations to 80 MW;
-- Decreased quarterly payout ratio to 49% of free cash flow (63% excluding
the effect of dividends reinvested through the Dividend Reinvestment
Plan), compared to 75% in the first quarter of 2013;
-- Successfully completed offering and placement of $286.3 million to be
used to fund Project Gemini; and
-- Announced the addition of Sean Durfy, former CEO of WestJet, to its
executive team as President and Chief Development Officer.
Northland reported its financial results today for the quarter ended March 31,
2014.
"2014 is off to a very strong start," said John Brace, Chief Executive Officer.
"Our performance this quarter again demonstrates our proficiency in delivering
robust financial results while achieving substantial growth targets. Our
adjusted EBITDA and free cash flow have grown by 87% over last year following
the commissioning of North Battleford and the first two phases of our
ground-mounted solar facilities. Our portfolio of long-term contracted renewable
energy assets continues to expand with the completion of two additional
ground-mounted solar projects and the McLean's Mountain wind project. As we move
forward on Gemini, our biggest project yet, the addition of Sean Durfy to our
executive team positions us well for the significant growth ahead. We remain
focused on delivering value to our shareholders now and into the future through
a business strategy that is both measured and progressive."
Subsequent Events
McLean's Mountain Achieves Commercial Operations
On May 1, 2014, Northland's 60 MW (30 MW net interest) McLean's Mountain wind
project located on Manitoulin Island, Ontario, declared commercial operations.
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 Program.
$240 million Solar Financing
On April 24, 2013, Northland completed $240 million of non-recourse project
financing for the five remaining ground-mounted solar projects ("Cluster 4")
with a syndicate of banks based on an 18-year amortization period.
Sale of Wood Chipping Facility
Northland sold its wood chipping facility in British Columbia for $0.8 million
on April 23, 2014.
Gemini
Project Gemini, the 600 MW offshore wind project in the North Sea, with a
estimated capital cost of EUR2.8 billion continued to make significant progress;
in April 2014, Northland received final board approval to proceed with its
equity investment, sub-debt investment, its share purchase for its 60% interest
in the project, and for certain early capital expenditures for longer lead time
items on the project. As of the date hereof, $167 million has been funded by
Northland for the share purchase and advancement of capital expenditures and
EUR24 million in letters of credit have been provided that will be returned upon
the project reaching financial close. All amounts funded or expected to be
funded for Project Gemini will be sourced from previous capital raises, the term
facility and cash on hand.
The project is also nearing completion of its approximately EUR2 billion
non-recourse project financing with a consortium of creditors including major
international lenders, export credit and other governmental agencies, and
subordinated debt. Management expects full financial close to be finalized
before the end of May 2014.
Northland entered into foreign exchange contracts with several members of its
corporate banking syndicate to effectively fix the foreign exchange conversion
rate at an average of $1.65 CAD:EURO on a portion of its projected
EURO-denominated cash inflows from Project Gemini.
Short Form Prospectus
On April 21, 2014, Northland renewed its existing short form base shelf
prospectus that was set to expire at the end of April. This will enable
Northland to offer an aggregate of up to $500 million of securities to assist in
maintaining financial flexibility and providing an efficient access to the
Canadian capital markets when capital is required.
Summary of Financial Results
----------------------------------------------------------------------------
Three Months Ended March 31
2014 2013
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FINANCIAL (in thousands of dollars, except per share and
energy unit amounts)
Sales 229,424 106,134
Gross profit 133,438 67,984
Adjusted EBITDA(1) 102,097 54,565
Operating income 84,009 37,370
Net income 28,576 23,617
Free cash flow(1) 56,752 30,418
Cash dividends paid to Common and Class A
Shareholders 27,617 22,682
Total dividends declared to Common and Class A
Shareholders(2) 37,182 31,483
Per Share
Free cash flow 0.413 0.261
Dividends declared to Shareholders(2) 0.270 0.270
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Energy Volumes
Electricity sales volume (megawatt hours) 1,490,615 978,036
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(1) See "Non-IFRS measures" for a detailed description.
(2) Total dividends to Common and Class A Shareholders represent cash
dividends plus share dividends issued as part of Northland's dividend
reinvestment plan.
First Quarter Results
Northland's consolidated sales, adjusted earnings before interest, taxes,
depreciation and amortization ("adjusted EBITDA") and operating income for the
three months ending March 31, 2014 were significantly higher than the same
period of 2013. Major variances at Northland facilities compared to the first
quarter of 2013 are discussed below.
Adjusted EBITDA
Northland's consolidated adjusted EBITDA for the first quarter of 2014 of $102.1
million was $47.5 million or 87% higher than the prior year primarily due to:
(i) a $36.1 million contribution from North Battleford and the Ground-mounted
Solar Phase I and II projects, which were not operational at this time last
year; (ii) $11.7 million from Northland's existing thermal and wind facilities,
largely due to favourable wind conditions and $9.5 million of natural gas resale
profits; and (iii) $5.3 million of additional performance and management fees
from Kirkland Lake and Cochrane (Northland was not entitled to performance fees
from Cochrane at this time last year). Offsetting these favourable variances
were: (i) a $5.2 million write- off of deferred development costs; and (ii) $0.4
million of higher corporate costs.
Free Cash Flow, Payout Ratio and Dividends to Shareholders
Free cash flow for the quarter of $56.8 million was $26.3 million (87%) higher
than the same period in 2013; significant factors increasing and decreasing free
cash flow in 2014 are described below.
Factors increasing free cash flow in the first quarter of 2014 over the same
quarter of 2013:
-- $47.9 million higher adjusted EBITDA from Northland's operating
facilities;
-- $6 million increase in adjusted EBITDA generated from Northland's
managed and other facilities;
-- $0.3 million positive variance associated with Kingston and North
Battleford payments to General Electric related to their gas turbine
maintenance contracts; and
-- $0.7 million favourable increase in non-cash items.
Factors decreasing free cash flow in the first quarter of 2014 over the same
quarter of 2013 were:
-- $13.8 million net interest expense increase primarily due to the
inclusion of North Battleford and Ground-mounted Solar Phase I and II
debt;
-- $6.7 million increase in scheduled debt repayments as a result of
including North Battleford and Ground-mounted Solar Phase I projects;
-- $5.2 million write-off of deferred development costs related to
Northland's Kabinakagami project;
-- $1 million increase in funds set aside for future major maintenance;
-- $0.7 million decrease in other income;
-- $0.4 million increase in corporate general and administration costs;
-- $0.6 million negative variance related to funds that were set aside in
2012 pending the closing of the British Columbia wind development
assets; and
-- $0.2 million increase in current income taxes and other miscellaneous
items.
For the three months ending March 31, 2014, Northland's dividend payout ratio
was 49% of free cash flow or 63% if all dividends were paid out in cash (i.e.
excluding the effect of dividends reinvested through the Dividend Reinvestment
Plan (DRIP)) compared to 75% and 103%, respectively in 2013.
Net income
Net income for the first quarter of 2014 at $28.6 million exceeded the prior
year due to higher adjusted EBITDA, partially offset by higher finance costs, a
fair value loss on derivative contracts and higher current and deferred income
taxes.
Outlook
During the first three months of 2014 and through the date of this release,
Northland continued to execute its strategy of expanding its earlier-stage
development pipeline in its targeted traditional Canadian market, as well as
increased activity in other jurisdictions that meet the Company's investment
criteria. A number of opportunities in these jurisdictions have been identified
and are in addition to several projects Northland already has under development.
Northland's approach continues to be one of ensuring a balance between advancing
development opportunities that meet the Company's investment criteria, while
prudently managing the Company's cost exposure to earlier-stage projects.
In 2014, management continues to expect Northland to generate adjusted EBITDA of
approximately $345 to $355 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, management
continues to expect cash dividends to be 75-85% of free cash flow, including the
impact of reinvested dividends through the DRIP, and 105-120% of free cash flow
excluding the impact of reinvested dividends through the DRIP. 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 May 13th at 10:00 a.m. EDT to
discuss its first 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: Tuesday, May 13, 2014
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-732-6870 or Local: 416-
981-9007
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 13
until May 27, 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 1,379 MW of operating
generating capacity, with an additional 50 MW of generating capacity currently
in construction, and another 750 MW (439 MW net to Northland) of wind and solar
projects with awarded power contracts. The above includes Northland's majority
equity stake in Gemini, a 600 MW (360 MW net to Northland) of offshore wind
project in the North Sea. Northland's cash flows are diversified over five
geographically separate regions and regulatory jurisdictions in Canada, Europe
and the United States.
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 May 12, 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
investorrelations@northlandpower.ca
Northland Power Inc.
Adam Beaumont
Director of Finance
647-288-1929
(416) 962-6266 (FAX)
www.northlandpower.ca
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