Northland Power Reports Third Quarter 2019 Results

Press Release

Expands Global Footprint with Acquisition of Regulated Utility in Colombia

TORONTO, Nov. 06, 2019 — Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) 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

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