Northland Power Reports Second Quarter 2019 Results
Press Release
TORONTO, Aug. 07, 2019 — Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) today reported financial results for the three and six months ended June 30, 2019.
“Northland continues to deliver solid financial results from our diverse portfolio, while advancing construction activities on growth projects,” said Mike Crawley, President and Chief Executive Officer of Northland. “During the quarter, we announced the La Lucha solar project and commenced construction activities as a first step in our broader planned expansion into Mexico. In Europe, our attention is focused on Deutsche Bucht, where wind turbine installation is well underway. The project remains on schedule and achieved a significant milestone in late July, with the generation of its first megawatt of power.”
Second Quarter Highlights:
Financial Results
- Sales increased 2% to $344 million from $338 million in the second quarter of 2018 and gross profit increased 2% to $322 million from $315 million.
- Adjusted EBITDA (a non-IFRS measure) increased 6% to $194 million from $183 million in the second quarter of 2018.
- Free cash flow per share (a non-IFRS measure) decreased 5% to $0.20 from $0.21 in the second quarter of 2018.
- Net income increased 10% to $76 million from $69 million in the second 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
- 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. 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 is progressing according to schedule and is on budget. Installation of the project’s 33 wind turbines began in June 2019, with 25 turbines installed to date. The total estimated project cost remains at approximately €1.4 billion (CAD $2.0 billion) with project completion expected by the end of 2019.
- 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.
Environmental, Social and Governance
- Sustainability Report – In July, Northland released its 2018 Sustainability Report, which provides expanded information on the Company’s environmental, social and governance performance for 2018 as well as a comprehensive overview of its clean and green energy commitments and sustainable business objectives. In 2018, Northland continued to maintain excellent health and safety standards and attained lower greenhouse gas emissions compared to 2017. The full report is available on Northland’s website at northlandpower.com.
| Summary of Consolidated Results | ||||||||||||||
| (in thousands of dollars, except per share amounts) | Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||
| FINANCIALS | ||||||||||||||
| Sales | $ | 343,822 | $ | 338,177 | $ | 842,362 | $ | 824,549 | ||||||
| Gross profit | 322,003 | 314,694 | 780,926 | 769,251 | ||||||||||
| Operating income | 145,945 | 131,119 | 433,533 | 412,273 | ||||||||||
| Net income (loss) | 76,234 | 69,024 | 280,464 | 246,979 | ||||||||||
| Adjusted EBITDA (1) | 194,034 | 182,991 | 487,709 | 473,412 | ||||||||||
| Cash provided by operating activities | 341,441 | 343,320 | 649,235 | 649,450 | ||||||||||
| Free cash flow (1) | 35,174 | 36,969 | 177,013 | 185,016 | ||||||||||
| Cash dividends paid to common and class A shareholders | 54,062 | 40,108 | 108,124 | 79,239 | ||||||||||
| Total dividends declared (2) | 54,081 | 52,938 | 108,143 | 105,693 | ||||||||||
| Per share information | ||||||||||||||
| Net income (loss) – basic | $ | 0.28 | $ | 0.29 | $ | 1.06 | $ | 0.90 | ||||||
| Free cash flow – basic (1) | $ | 0.20 | $ | 0.21 | $ | 0.98 | $ | 1.05 | ||||||
| Total dividends declared (2) | $ | 0.30 | $ | 0.30 | $ | 0.60 | $ | 0.60 | ||||||
| ENERGY VOLUMES | ||||||||||||||
| Electricity production in gigawatt hours (GWh) | 1,797 | 1,790 | 4,336 | 4,117 | ||||||||||
| (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. | ||||||||||||||
Second Quarter Results Summary
Offshore wind facilities
Electricity production decreased 7% or 49 GWh compared to the same quarter of 2018 primarily due to cable and other repairs at Gemini combined with unpaid curtailment from periods of negative market pricing at Nordsee One. Sales of $193 million were largely in line with the same quarter of 2018 primarily as a result of similar factors affecting production combined with unfavourable foreign exchange rate fluctuations of $5 million. The unfavourable variances were offset by the effect of the return of a 2017 overpayment to Gemini by the off-taker in the second quarter of 2018. Operating income and adjusted EBITDA of $91 million and $106 million, respectively were 8% or $6 million and 2% or $3 million higher than the same quarter of 2018 primarily due to lower plant operating costs.
Thermal facilities
Electricity production increased 8% or 62 GWh compared to the same quarter of 2018 primarily due to an increase in off-peak production and new incremental capacity at North Battleford, partially offset by fewer dispatches at Thorold as a result of market conditions in Ontario.
Sales of $91 million increased 7% or $6 million compared to the same quarter of 2018 primarily due to higher off-peak production and new incremental capacity revenue at North Battleford. Further contributing to the positive variance is the effect of lower reported sales at Iroquois Falls in the second quarter of 2018 due to the effect of the reduced rate escalation by the system operator as well as a maintenance outage at another facility last year. Operating income of $48 million increased 33% or $12 million primarily due to higher gross profit and lower plant operating costs. Adjusted EBITDA of $61 million increased 19% or $10 million primarily due to the factors described above.
On-shore renewable facilities
Electricity production was largely in line with the same quarter of 2018. Sales of $58 million decreased 5% or $3 million compared to the same quarter of 2018 primarily due to rain and cloud cover at the solar facilities. 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 $26 million and $39 million, respectively, decreased 17% or $5 million and 9% or $4 million largely due to lower production at the solar facilities and higher plant operating costs at certain wind facilities.
General and administrative (G&A) costs
G&A costs of $22 million decreased 13% or $3 million compared to the same quarter of 2018 primarily due to the timing of expenditures related to project development activities.
Finance costs
Net finance costs of $80 million decreased 6% or $5 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 $76 million in the second quarter of 2019 was 10% or $7 million higher compared to net income of $69 million for the same quarter of 2018. The increase in net income year over year was primarily due to an increase in gross profit and a $1 million lower tax expense.
Adjusted EBITDA
Adjusted EBITDA of $194 million for the second quarter of 2019 was 6% or $11 million higher than the second quarter of 2018. The significant factors increasing adjusted EBITDA include:
- $8 million increase at Iroquois Falls due to the effect of the reduced rate escalation adjustments recorded in the second quarter of 2018. This positive variance was partially offset by a reduction in PPA rates for 2019;
- $6 million increase at Gemini primarily due to the effect of an adjustment totaling €7.3 million (€4.4 million net to Northland) recorded in the second quarter of 2018 relating to the return of a 2017 overpayment to Gemini by the off-taker as well as lower plant operating costs in the quarter, partially offset by lower production as a result of repairs; and
- $3 million improvement in corporate items in adjusted EBITDA primarily due to the timing of expenditures related to project development activities and the effect of certain non-recurring costs incurred in 2018.
Factors partially offsetting the increase in adjusted EBITDA include:
- $4 million decrease at Nordsee One due to lower unpaid curtailment as a result of negative market prices; and
- $3 million decrease as a result of lower production at the solar facilities due to rain and cloud cover during the quarter.
Free Cash Flow
Free cash flow of $35 million for the second quarter of 2019 was 5% or $2 million lower than the second quarter of 2018 primarily due to a $17 million increase in scheduled principal repayments, primarily for Nordsee One debt. Factors offsetting the decrease in free cash flow include:
- $10 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; and
- $5 million increase in overall earnings primarily due to the similar factors affecting adjusted EBITDA partially offset by higher current taxes.
As at June 30, 2019, the rolling four quarter free cash flow net payout ratio was 58%, calculated on the basis of cash dividends paid and 65% calculated on the basis of total dividends, compared to 49% and 67%, 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.
Management continues to expect adjusted EBITDA in 2019 to be in the range of $920 to $1,010 million and free cash flow per share in 2019 to be in the range of $1.65 to $1.95. Refer to Northland’s 2018 Annual Report for additional information on Northland’s outlook for 2019.
Earnings Conference Call
Northland will hold an earnings conference call on August 8, 2019, to discuss its 2019 second 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, August 8, 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 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.
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, 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.PR.A, NPI.PR.B, NPI.PR.C, and NPI.DB.C, respectively.
For further information, please contact:
Mr. Wassem Khalil, Senior Director, Investor Relations, 647-288-1019
investorrelations@northlandpower.com
northlandpower.com
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