Northland Power Reports 2018 Third Quarter Results
Press Release
Free Cash Flow per Share Up 38% and Adjusted EBITDA Up 23%
TORONTO, Nov. 06, 2018 — Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) today reported financial results for the three and nine months ended September 30, 2018.
Third Quarter Highlights:
Financial
- Sales of $350.2 million increased 19% or $54.9 million and gross profit of $321.0 million increased 21% or $56.0 million compared to the same quarter last year primarily due to higher production at Nordsee One, which was partially complete last year and reached full commercial operations in December 2017, and higher production and wholesale market prices at Gemini. These variances were partially offset by a lower volume of natural gas resale at Iroquois Falls due to the expiration of a natural gas contract in 2017 and the rate adjustment by the system operator recognized in the second quarter of 2018 under Iroquois Falls’ Enhanced Dispatch Contract (EDC) as well as lower curtailment revenue and a maintenance outage at Kirkland Lake.
- Adjusted EBITDA (a non-IFRS measure) of $196.8 million increased 23% or $36.6 million compared to the same quarter last year primarily due to the same factors described above.
- Free cash flow per share (a non-IFRS measure) of $0.36 increased by 38% compared to $0.26 for the same quarter last year primarily as a result of contributions from Gemini’s and Nordsee One’s operations, partially offset by higher scheduled principal repayments for Gemini and Nordsee One debts.
- Net income of $93.3 million increased 194% or $61.6 million compared to $31.7 million for the same quarter last year primarily due to higher operating income and a non-cash fair value gain on derivative contracts, partially offset by higher deferred income tax expense and finance costs.
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.
“Our third quarter results demonstrate our continued focus on delivering sustainable growth, with a 38% increase to free cash flow per share and a 23% increase to our adjusted EBITDA over the same quarter last year,” said Mike Crawley, President and Chief Executive Officer. “Our Deutsche Bucht offshore wind project is progressing on time and on budget, with 13 foundations installed to date, and we continue to advance our Hai Long projects towards obtaining PPAs. With development teams on the ground in our key markets, and our offshore operations hub in Germany in place, we remain well-positioned for continued growth and operational excellence.”
Development and Construction
- Deutsche Bucht – 269 MW offshore wind project, German North Sea – The Deutsche Bucht offshore wind project is progressing according to schedule and on budget. In July 2018, the previously announced demonstrator project reached financial close. Under the demonstrator project, two additional wind turbines using ‘mono bucket foundations’ will contribute an additional 17 MW of capacity to the base 252 MW project for a total of 269 MW and result in total project costs of approximately €1.4 billion (CAD $2.0 billion). Deutsche Bucht will be the first offshore wind farm worldwide to fabricate and install this type of foundation under commercial operating conditions. Offshore installation of the foundations commenced in September 2018 with the remaining structures, including the mono bucket foundations, scheduled to be installed by mid-2019. Project completion is expected by the end of 2019.
Other
- 2018 Guidance Range Narrowed: Primarily due to the passage of three quarters, management has narrowed its guidance range for 2018 adjusted EBITDA to be in the range of $870 to $900 million (formerly, $860 to $930 million) and 2018 free cash flow per share to be in the range of $1.75 to $1.95 (formerly, $1.70 to $2.00). The narrowed range reflects Northland’s year-to-date results including unusually lower than historical average offshore wind speeds in northern Europe for the first nine months of the year.
- Dividend Re-investment Plan: Northland also announced today that the Company has reduced the discount under its dividend re-investment plan (DRIP) from the current 5% to 0%. Additionally, Northland intends to initiate the sourcing of shares for purposes of the DRIP through market purchases but reserves the right to issue shares from treasury. This change is effective with the dividend currently scheduled to be paid on December 14, 2018, to shareholders of record on November 30, 2018. Management believes the change will allow the Company to utilize its cash more effectively to increase shareholder value.
| Summary of Consolidated Results | ||||||||||||||||
| (in thousands of dollars, except per share amounts) | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| FINANCIALS | ||||||||||||||||
| Sales | $ | 350,175 | $ | 295,243 | $ | 1,174,724 | $ | 981,645 | ||||||||
| Gross profit | 320,985 | 265,006 | 1,090,236 | 871,691 | ||||||||||||
| Operating income | 149,897 | 103,511 | 561,583 | 435,670 | ||||||||||||
| Net income (loss) | 93,278 | 31,710 | 340,257 | 193,555 | ||||||||||||
| Adjusted EBITDA (1) | 196,797 | 160,226 | 670,209 | 526,501 | ||||||||||||
| Cash provided by operating activities | 193,274 | 172,505 | 842,724 | 591,365 | ||||||||||||
| Free cash flow (1) | 63,948 | 45,288 | 248,964 | 186,553 | ||||||||||||
| Cash dividends paid to common and class A | 40,219 | 33,200 | 119,458 | 100,053 | ||||||||||||
| shareholders | ||||||||||||||||
| Total dividends declared (2) | 53,122 | 47,144 | 158,815 | 140,913 | ||||||||||||
| Per share information | ||||||||||||||||
| Net income (loss) – basic | $ | 0.38 | $ | 0.12 | $ | 1.28 | $ | 0.60 | ||||||||
| Free cash flow – basic (1) | $ | 0.36 | $ | 0.26 | $ | 1.40 | $ | 1.07 | ||||||||
| Total dividends declared (2) | $ | 0.30 | $ | 0.27 | $ | 0.90 | $ | 0.81 | ||||||||
| ENERGY VOLUMES | ||||||||||||||||
| Electricity production in gigawatt hours (GWh) (3) | 1,777 | 1,562 | 5,895 | 4,886 | ||||||||||||
| (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 and nine months ended September 30, 2018, for additional information. | ||||||||||||||||
Third Quarter Results Summary
Offshore wind facilities
Electricity production, including pre-completion production, increased 113 GWh or 22% compared to the same quarter last year primarily due to all of Nordsee One’s turbines producing power during the quarter, whereas the project was under construction last year.
Sales and adjusted EBITDA of $201.4 million and $111.0 million, respectively, increased $58.4 million and $36.6 million compared to the same quarter last year as a result of Nordsee One having reached full commercial operations in December 2017 and higher production and higher wholesale market prices at Gemini. Foreign exchange rate fluctuations resulted in $9.6 million higher revenue compared to the same quarter last year.
Thermal facilities
Electricity production increased 105 GWh or 14% compared to the same quarter last year primarily due to higher production at Thorold resulting from favourable market conditions and higher production at North Battleford resulting from favourable operating conditions, partially offset by a maintenance outage at Kirkland Lake.
Sales of $96.9 million decreased $3.5 million compared to the same quarter last year primarily due to a lower volume of natural gas resale at Iroquois Falls due to the expiration of a natural gas contract in October 2017 and the rate adjustment under the EDC at Iroquois Falls. A maintenance outage and lower curtailment revenue at Kirkland Lake and lower flow-through natural gas costs at North Battleford also contributed to lower sales. These variances were partially offset by higher production at Thorold due to favourable market conditions. Operating income and adjusted EBITDAof $47.4 million and $59.2 million, respectively, decreased $0.8 million and $0.9 million primarily as a result of lower gross profit.
On-shore renewable facilities
Electricity production was largely in line with the same quarter last year because higher wind and solar resources at certain on-shore facilities offset lower wind resource at Grand Bend and Jardin as well as the loss of contribution from the on-shore German wind farms as a result of their disposition in November 2017. Sales of $51.8 million were also in line with the same quarter last year as a result of the same factors. Operating income and adjusted EBITDA for the renewable facilities was $0.8 million and $1.4 million, respectively, lower than the same quarter last year largely due to higher plant operating costs primarily associated with timing of new profit-sharing fees to the turbine maintenance provider at Mont Louis and Jardin.
General and administrative (“G&A”) costs
Corporate G&A costs (previously reported as management and administration costs) of $13.7 million decreased $4.2 million compared to the same quarter last year primarily due to the timing of expenditures related to early-stage development activities and certain non-recurring costs incurred last year, partially offset by higher personnel costs. Facilities G&A costs decreased $2.0 million primarily as a result of certain non-recurring costs incurred in the same quarter last year at Gemini and Nordsee One.
Finance costs
Finance costs, net, increased $3.8 million compared to the same quarter of last year primarily due to interest costs at Nordsee One no longer being capitalized following completion of construction activities in December 2017, partially offset by declining interest costs as a result of scheduled principal repayments.
Fair value gain on derivative contracts
Fair value gain on derivative contracts was $43.6 million compared to a $11.7 million gain in the same quarter of last year primarily due to the movement in the fair value of interest rate swaps and foreign exchange contracts.
Foreign exchange loss
Foreign exchange loss of $0.7 million is primarily due to unrealized losses from fluctuations in the closing foreign exchange rate.
Other (income) expense
Other (income) expense decreased $3.6 million primarily due to a $3.3 million gain on the sale of Northland’s indirect interest in a 28 MW biomass-fired power facility located in Chapais, Québec.
Net income
The factors described above resulted in net income of $93.3 million for the third quarter of 2018, compared to $31.7 million for the third quarter of 2017.
Adjusted EBITDA
Adjusted EBITDA of $196.8 million for the third quarter of 2018 was $36.6 million higher than the third quarter of 2017. The significant factors increasing adjusted EBITDA were:
- $19.4 million primarily due to all of Nordsee One’s turbines producing power during the quarter, whereas the project was under construction last year; and
- $16.9 million increase in operating results from Gemini due to higher production and wholesale market prices.
Factors partially offsetting the increase in adjusted EBITDA include:
- $2.5 million decrease in operating results primarily from Kirkland Lake due to a maintenance outage and lower curtailment revenue; and
- $2.2 million decrease in contributions from Northland’s other operating facilities.
Free Cash Flow
Free cash flow of $63.9 million for the third quarter of 2018 was $18.7 million higher than the third quarter of 2017 primarily due to several one-time items related to the completion of Gemini and Nordsee One.
Significant factors increasing free cash flow were:
- $42.3 million increase due to higher production at Nordsee One, which was under construction last year;
- $17.7 million increase in contributions from Gemini due to higher production and wholesale market prices; and
- $5.3 million positive variance largely associated with a lump sum payment in 2017 under North Battleford’s gas turbine maintenance agreement.
Factors partially offsetting the increase in free cash flow include:
- $45.3 million increase in scheduled principal repayments primarily for Gemini and Nordsee One debt; and
- $2.3 million decrease in contributions from Northland’s other operating facilities.
As at September 30, 2018, the rolling four quarter free cash flow net payout ratio was 48.3%, calculated on the basis of cash dividends paid, and 64.6% calculated on the basis of total dividends, compared to 44.1% and 61.4%, respectively, last year. The increase in the free cash flow payout ratios from last year was primarily due to the impact of the one-time cash distribution from Gemini in the second quarter of 2017 and due to Nordsee One making its first principal repayment in the second quarter of 2018.
Outlook
Northland actively pursues new sustainable infrastructure opportunities that encompass a range of clean technologies, including natural gas, wind, solar and hydro.
As of November 6, 2018, primarily due to the passage of three quarters, management has narrowed its guidance range for 2018 adjusted EBITDA to be in the range of $870 to $900 million (formerly, $860 to $930 million) and 2018 free cash flow per share to be in the range of $1.75 to $1.95 (formerly, $1.70 to $2.00). The narrowed range reflects Northland’s year-to-date results including unusually lower than historical average offshore wind speeds in northern Europe for the first nine months of the year.
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, 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 November 7, 2018 at 10:00 am ET to discuss its 2018 third quarter results. Mike Crawley, 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 shareholders.
Conference call details are as follows:
Date: Wednesday, November 7, 2018
Start Time: 10:00 a.m. ET
Phone Number: Toll free within North America: (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 on November 8, 2018.
ABOUT NORTHLAND POWER
Northland Power is an independent power producer founded in 1987, and publicly traded since 1997. Northland develops, builds, owns and operates sustainable infrastructure assets that produce ‘clean’ (natural gas) and ‘green’ (wind, solar, and hydro) energy, providing stable long-term value to shareholders, stakeholders, and host communities.
Northland owns or has an economic interest in 2,429 MW (net 2,014 MW) of operating power capacity and is currently constructing the 269 MW Deutsche Bucht offshore wind project located in the German North Sea. In addition, Northland has 60% equity interest in the 1,044 MW Hai Long projects (net 626 MW) under advanced development in Taiwan.
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.
For further information, please contact:
Barbara Bokla, Manager, Investor Relations, (647) 288-1438
investorrelations@northlandpower.com
www.northlandpower.com
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