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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) today reported the financial
results for the second quarter ended June 30, 2013.
Significant Events
Northland's wholly-owned 260 megawatt (MW) North Battleford natural gas-fired
combined cycle facility achieved commercial operations on June 5, 2013, after
completing all required tests. The facility is located in west central
Saskatchewan and provides baseload power to the Saskatchewan power grid under a
20-year Power Purchase Agreement (PPA) with Saskatchewan Power Corporation
("SaskPower"). With North Battleford in operation, Northland now generates over
340 MW of electricity in Saskatchewan. The facility was constructed by Kiewit
Power Partners under an engineering, procurement and construction contract. The
project was completed on schedule and under budget following a 33-month
construction period.
Northland has thirteen 10 MW ground-mounted solar projects that were contracted
under the Ontario Power Authority's (OPA) feed-in-tariff (FIT) program. The
projects were divided into three phases for implementation. Phase I consists of
six projects, of which four achieved commercial operations on June 21, 2013. The
fifth achieved commercial operations on July 27, 2013 and the sixth is expected
to achieve commercial operations in late September. Phase I is expected to be
completed within budget. Phase II consists of three projects. Preliminary
construction activities began on two of these during the second quarter of 2013
and they are anticipated to commence commercial operations in early 2014. Phase
III consists of the final four projects. Permitting activities for these are in
progress.
On April 1, 2013, Northland acquired from The Probyn Group(TM) the controlling
interest in Canadian Environmental Energy Corporation (CEEC) and all the shares
of Chapais Power Services Inc. CEEC owns the voting shares in Kirkland Lake
Power Corp. ("Kirkland Lake") and Cochrane Power Corporation ("Cochrane") which
respectively own the 132 MW Kirkland Lake and 40 MW Cochrane biomass and natural
gas-fired power facilities which were already managed and operated by Northland.
CEEC also owns the voting shares of the general partner of Chapais Energie,
Societe en Commandite ("Chapais"), owner of the 28 MW biomass-fired power
facility in Chapais, Quebec. The cash consideration paid for the transaction was
$9.8 million ($3.8 million, net of cash acquired at CEEC). Northland will
continue to manage the Kirkland Lake and Cochrane generating stations, and as of
April 1, now also manages, through Chapais Power Services Inc., the operations
of the Chapais generating station. As a result of this transaction, Northland
will receive management fees from Chapais and dividend income from Kirkland Lake
and Cochrane.
As a result of North Battleford and four of the first six Ground-mounted Solar
Phase I projects reaching commercial operations and the additional economic
interests in the Kirkland Lake and Cochrane facilities, Northland had 1,309 MW
in operation at quarter-end.
Construction of Northland's 60 MW McLean's Mountain wind project progressed as
expected during the quarter. The site access roads are nearly complete, the
installation of foundations for the turbines, main substation, and switching
station is underway, and work on the transmission line and submarine cable
crossing is progressing. The project is scheduled to achieve commercial
operations in early 2014.
Development of Northland's projects under the OPA FIT program (including the
Grand Bend wind project, the remaining seven ground-mounted solar projects and
the Kabinakagami run-of-river project) progressed during the quarter, primarily
on permitting, initial engineering and construction contractor negotiations.
During the quarter, Northland entered into a long-term financial hedge related
to the price of future Iroquois Falls natural gas purchases for the period from
2016 to 2021.
Subsequent Events
On July 26, 2013, Northland's corporate operating line of credit was amended to
allow the Company to reduce applicable pricing and add the ability to issue Euro
denominated letters of credit to address any future requirements.
On August 1, 2013, Northland announced it had entered into agreements for the
rights to acquire a majority equity stake in Gemini, a 600 MW offshore wind
project currently in advanced development. Gemini is located 85 kilometres off
the coast of the Netherlands in the North Sea, which combines one of the
strongest and most reliable wind resources in the world with favourable sea bed
conditions.
Project Gemini's total cost is projected to be $3.8 billion, and is expected to
be financed with a combination of non-recourse project debt, mezzanine financing
and equity from the consortium. Northland's final investment in Gemini is
subject to meeting conditions for closing, formal documentation and the approval
of Northland's Board of Directors. If such conditions are met, Northland's total
net investment is expected to be approximately $400 million, consisting of
mezzanine and equity financing, in addition to credit support in the amount of
approximately $32 million.
Construction of Gemini is expected to start in late 2014; it is expected to
reach commercial operations in 2017. The project is expected to be accretive on
a free cash flow per share basis upon its completion, and provide project
returns commensurate with Northland's investment criteria.
The complete second quarter report for 2013, including management's discussion
and analysis and unaudited condensed interim financial statements, is available
at www.sedar.com under Northland's profile and www.northlandpower.ca.
Northland's consolidated financials for the second quarter include the results
for Kirkland Lake, Cochrane and CEEC following Northland's April 1, 2013
acquisition of the controlling interest in CEEC. Fees and dividends earned by
Northland following the acquisition are considered intercompany amounts and
eliminate on consolidation. However, in the calculation of adjusted EBITDA and
free cash flow, Northland includes the fees and dividends earned rather than all
adjusted EBITDA and free cash flow generated by these entities.
Summary of Financial Results
----------------------------------------------------------------------------
3 Months Ended 6 Months Ended
June 30 June 30
2013 2012 2013 2012
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FINANCIAL (in thousands of dollars,
except per share and energy unit
amounts)
Sales 124,400 85,288 230,534 185,816
Gross profit 73,779 53,926 141,763 120,235
Adjusted EBITDA(1) 50,064 42,796 104,629 97,583
Operating income 32,755 26,296 70,125 64,700
Net income (loss) 80,129 (34,914) 103,746 14,785
Free cash flow(1) 21,977 17,694 52,395 40,281
Cash Dividends paid to Common and
Class A Shareholders(2) 23,754 23,111 46,436 43,663
Total Dividends declared to Common
and Class A Shareholders(2) 31,718 30,859 63,201 61,528
Per Share
Free cash flow 0.19 0.16 0.44 0.36
Dividends declared to 0.27 0.27 0.54 0.54
Shareholders(2)
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Energy Volumes
Electricity sales volume 733,006 734,947 1,711,041 1,606,530
(megawatt hours)
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1. See "Non-IFRS measures" for a detailed description. Adjusted EBITDA was
previously reported as EBITDA.
2. Total dividends to Common and Class A Shareholders represent cash
dividends plus share dividends issued as part of Northland's dividend
reinvestment plan.
Second Quarter Results
Net income for the second quarter of 2013 at $80.1 million was $115 million
higher than the same period last year. The following section describes
significant factors contributing to this change:
Total Sales, cost of sales, gross profit and plant operating costs all increased
largely due to the inclusion of North Battleford, the four operational
Ground-mounted Solar Phase I projects, and consolidation of results from the
Kirkland Lake and Cochrane facilities. Higher natural gas sales and higher PPA
prices at Kingston, along with strong winds and fewer outage periods at Jardin
and Mont Louis also had a favourable impact on sales and gross profit. Partially
offsetting these favourable factors were lower PPA prices at Iroquois Falls, a
planned 16-day outage at Thorold and weaker wind conditions at the German Wind
Farms.
Other sales, which include management and incentive fees earned from services
provided to Cochrane and Kirkland Lake, were down $3 million from the second
quarter of 2012, as they are now considered intercompany and eliminated on
consolidation.
Management and administration expenditures increased $1.9 million from the prior
year largely due to expanded development activities.
Finance lease income was in line with the same period of 2012. As described in
Northland's 2012 Annual Report, Spy Hill's long-term PPA with SaskPower is
considered a finance lease for accounting purposes. As a result, the monthly
availability payments from SaskPower are treated as lease income, while
electricity sales are recognized in sales revenue. The accounting treatment of
Spy Hill's PPA as a finance lease has no impact on Northland's adjusted EBITDA
or free cash flow.
Net finance costs, primarily interest expense, increased by $1.1 million from
the prior year due to the inclusion of interest on North Battleford's debt,
partially offset by the replacement of Spy Hill's bank debt with project bonds
and repayment of Kingston's term loan, and lower convertible debenture interest
due to conversions of debentures into common shares. Finance costs in 2012 also
included interest on bridge loans at Jardin and Mont Louis which were repaid in
full during the second quarter of 2012.
Amortization of contracts and other intangible assets of $5.1 million was higher
than the same period last year due to the inclusion of the new facilities.
Non-cash fair value gains of $90.7 million (compared to a $51.5 million loss in
2012) comprised: (i) a $77.7 million gain in the fair value of Northland's
financial derivatives that include, interest rate swaps on the facilities'
non-recourse project debt and the long term financial hedge related to future
natural gas prices at Iroquois Falls; (ii) a $11.3 million decrease in the
liability associated with the fair value of Northland's Class B Shares; and
(iii) $1.7 million in unrealized foreign exchange gains. Northland's policy is
to hedge interest rate and foreign exchange exposures where material. Changes in
market rates give rise to non-cash mark-to-market adjustments each quarter as a
result of Northland's accounting election to forego the application of hedge
accounting. These fair value adjustments are non-cash items that will reverse
over time, and have no impact on the cash obligations of Northland or its
projects.
The factors described above, combined with a $21.1 million provision for current
and future income taxes, resulted in net income for the quarter of $80.1
million.
Adjusted earnings before interest, taxes, depreciation and amortization
Adjusted EBITDA from Northland's operating facilities was $8 million higher than
the second quarter of 2012 primarily due to the inclusion of North Battleford
and the first four operational Ground-mounted Solar Phase I projects towards the
end of the quarter, favourable operating results at Kingston, Jardin and Mont
Louis, partially offset by lower results from Thorold and Germany as discussed
above.
In the second quarter of 2013, Northland's incentive fees earned from the
Kirkland Lake facility (which are not eliminated for adjusted EBITDA and free
cash flow purposes) were $0.7 million higher than the previous year. Corporate
costs reduced adjusted EBITDA by $1.5 million from the second quarter of 2012
due to higher corporate expenditures commensurate with an increased level of
early-stage development activities.
Year to Date
Sales and cost of sales were higher in the first six months of 2013 compared to
the prior year and primarily reflect the inclusion of the financial results for
North Battleford, the four operational Ground-mounted Solar Phase I facilities,
and Kirkland Lake and Cochrane. Plant operating expenses were up due to the
inclusion of the entities described above and the completion of a scheduled
outage at Thorold. Management and administration costs increased from the prior
year largely due to additional development activities.
For the year to date, Northland recorded $103.8 million in non-cash fair value
gains comprised of: (i) $90.6 million gain in the fair value of Northland's
financial derivatives that include, interest rate swaps on the facilities'
non-recourse project debt and the long term financial hedge related to natural
gas prices at Iroquois Falls; (ii) a $10.6 million reduction in the liability
associated with the fair value of Northland Class B Shares; and (iii) a $2.6
million unrealized foreign exchange gain on Northland's foreign exchange
contracts.
Dividends to Shareholders and Payout Ratio and Free Cash Flow
Free cash flow for the second quarter was within the range of management's
expectations and exceeded the prior year by $4.3 million due to: (i) the $7.3
million increase in adjusted EBITDA; (ii) a $0.7 million decrease in
non-expansionary capital expenditures and funds set aside for future major
maintenance; and (iii) a $0.2 million positive variance related to funds that
were set aside in 2012 pending the closing of the purchase of the British
Columbia wind development assets; and (iv) a $0.2 million increase in
miscellaneous items. Offsetting these favourable increases were (i) $0.9 million
increase in preferred share dividends commensurate with the issuance of series 3
cumulative rate reset preferred shares in May 2012; (ii) a $2.1 million increase
in scheduled principal payments and net interest expense due to the addition of
new facilities and refinancings; and (iii) a $1.1 million decrease in Kingston's
other liabilities associated with a milestone payment related to its maintenance
contract with General Electric and its subsidiaries (collectively, GE).
Management expects the dividend payout ratio for the full fiscal 2013 year to be
80-90% of free cash flow. If all dividends were paid out in cash (i.e. excluding
the effect of dividends re-invested through Northland's Dividend Reinvestment
Plan (DRIP)) the dividend payout ratio for the full fiscal 2013 year would be
expected to be 115-125%. For 2013, Northland's dividend payout ratio in the
second quarter was 108% of free cash flow (144% excluding the effect of
dividends re-invested through the DRIP) compared to 131% and 176%, respectively
in the second quarter of 2012.
Outlook
Northland actively pursues new power development opportunities that encompass a
range of clean technologies, including natural gas, wind, solar and hydro, to
provide a sustainable source of energy in various geographic regions and
political jurisdictions. Northland believes this diversified strategy will
mitigate the risk of adverse changes to local demographics or governmental
policies.
In the first six months of 2013 and through the date of this report, Northland
continued to execute on its strategy of expanding its earlier-stage development
pipeline in its targeted traditional Canadian market as well as moving into the
US and other jurisdictions that meet the company's investment criteria. A number
of opportunities have been identified and are being developed across all
technologies in Canada, the US and other markets. These new opportunities are in
addition to several projects Northland already has under development, such as
the Marmora pumped storage project in Ontario and the Queen's Quay combined heat
and power project in the GTA, wind and hydro projects in BC and wind projects in
Quebec. Northland's approach continues to be one of ensuring the balance between
progressing development opportunities which meet the Company's investment
criteria, while prudently managing the Company's cost exposure to earlier stage
projects.
In 2013, management continues to expect Northland to generate EBITDA of
approximately $245 to $255 million for the year. Management expects that
adjusted EBITDA will increase to a range of $380 to $400 million in 2015 based
on all current construction projects, the remaining solar projects and the Grand
Bend project being completed on the currently estimated schedules. Previously
management had guided that adjusted EBITDA would increase to a range of $360 to
$400 million on an annualized basis starting in 2014 once the projects in
construction and advanced development are completed and begin commercial
operations. This change primarily results from the estimate of Grand Bend's
completion date being changed from the end of 2014 to mid-2015.
Northland's board and management are committed to maintaining the current
dividend of $1.08 per common share and Class A Share on an annual basis, payable
monthly. Excluding the effect of dividends re-invested through the DRIP,
Northland's 2013 dividend payments are expected to exceed free cash flow due
largely to the level of spending on growth initiatives and payments of dividends
on equity capital already raised for construction projects for which
corresponding cash flows will not be received until future years. Excluding the
effect of dividends re-invested through Northland's DRIP, management continues
to expect the 2014 dividend payout ratio to drop below 100% however, dividend
payments could exceed free cash flow if significant additional equity
investments are made as a result of future development successes, such as the
recently announced Gemini off-shore wind development project. Northland's
management has anticipated this and has put in place various measures, including
the DRIP and the $250 million credit facility, to ensure there is sufficient
liquidity to maintain the annual $1.08 dividend on common shares and Class A
Shares.
Non-IFRS Measures
This press release includes references to Northland's free cash flow and
adjusted EBITDA (previously reported as 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 August 8 at 10:00 am EDT to
discuss its second quarter financial results. John Brace, 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 members of the media.
Conference call details are as follows:
Date: Thursday, August 8, 2013
Start Time: 10:00 a.m. EDT
Phone Number: Toll free within North America: 1-800-734-8582 or Local: 416-
981-9011
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 August 8
until August 29, 2013.
ABOUT NORTHLAND
Northland Power is an independent power producer founded in 1987, and publicly
traded since 1997. Northland produces '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 1,319 MW of operating generating capacity, with an additional 90 MW
of generating capacity currently in construction, and another 200 MW of wind,
solar and run-of-river hydro projects with awarded power contracts. In addition,
Northland has acquired the rights to a majority equity stake in Gemini, a 600 MW
offshore wind project located 85 km off the coast of the Netherlands 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 Power'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 and NPI.DB.A, 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 future adjusted EBITDA, cash flows and
dividend payments, the construction, completion, attainment of commercial
operations, cost and output of development projects, plans for raising capital,
and the operations, business, financial condition, 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, 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, construction risks,
counterparty risks, operational risks, 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 2012
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 August 7, 2013. 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
Northland Power Inc.
Adam Beaumont
Director of Finance
647-288-1929
(416) 962-6266 (FAX)
investorrelations@northlandpower.ca
www.northlandpower.ca
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