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Press release from Marketwire

Northland Power Announces Strong First Quarter Results and Updates Construction and Development Progress

Wednesday, May 09, 2012

Northland Power Announces Strong First Quarter Results and Updates Construction and Development Progress19:01 EDT Wednesday, May 09, 2012TORONTO, ONTARIO--(Marketwire - May 9, 2012) -NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OR ITS POSSESSIONS. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.Northland Power Inc. ("Northland") (TSX:NPI)(TSX:NPI.PR.A)(TSX:NPI.DB.A) today reported its financial results for the first quarter ended March 31, 2012. Significant Events During the quarter and until the date of this release, Northland achieved a number of milestones in its construction and development programs.Construction of Northland's $677 million North Battleford project advanced as expected during the quarter, with the construction contractor reporting that approximately 75% of its contract milestones were completed by March 31, 2012. The project is within budget and remains on schedule for a June 2013 commercial operation date, following the completion of construction, final commissioning and synchronization with the SaskPower grid.Northland's development of approximately $1.2 billion of projects (McLean's Mountain, Grand Bend, ground-mounted solar and Kabinakagami), contracted under the Ontario Power Authority's (OPA) feed-in-tariff (FIT) program also progressed well during the quarter. The first six of Northland's thirteen 10 megawatt (MW) solar ground-mounted projects have received their renewable energy approvals (REA). Northland expects to close long-term non-recourse project debt financing during the second quarter of 2012 with commercial operation of all six sites expected in 2013. An additional three sites are also expected to reach commercial operation in 2013, with the remaining four sites coming on-line in 2014.In January, Northland announced the conversion of certain securities issued related to the 2009 merger of the then privately held Northland Power Inc. and Northland Power Income Fund (the "Merger"). The securities conversions resulted from the determination of value attributed to certain development projects owned by Northland Power Inc. at the time of the Merger. On March 23, 2012, Northland filed a base shelf prospectus. The prospectus will allow Northland, at a future date, to offer common shares, preferred shares, unsecured subordinated debentures and subscription receipts to the public up to a total initial offering of $500 million, as may be required from time to time. The specific terms of any future offerings would be described in a prospectus supplement. Funds raised from the issuance of the above mentioned securities would be used primarily to fund the equity portion of construction costs for projects Northland is currently developing or may develop in the future. Summary of Financial Results Collectively, Northland's facilities operated within management's expectations for the three months ending March 31, 2012, including the Mont Louis wind farm and Spy Hill thermal facility, which began commercial operations in September and October 2011, respectively.The complete first quarter report for 2012, including management's discussion and analysis and unaudited condensed interim financial statements, is available at www.sedar.com and www.northlandpower.ca. The following table summarizes the consolidated financial and operating results.Three Months Ended March 3120122011FINANCIALS (thousands, except per share amounts)Sales$100,609$96,271Gross profit$66,390$55,547EBITDA(1)$54,787$43,896Operating income$38,414$30,024Net income$49,699$55,308Free cash flow(1)$22,587$18,664Cash dividends paid to Common and Class A Shareholders$20,552$20,368Total dividends declared to Common and Class A Shareholders(2)$30,669$20,461Per ShareFree cash flow$0.20$0.25Total dividends declared to Common and Class A Shareholders(2)$0.27$0.27Energy VolumesElectricity (megawatt hours)871,583883,613(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 planNorthland's first quarter consolidated sales and earnings before interest, taxes, depreciation and amortization (EBITDA) were $100.6 million and $54.8 million respectively, compared to $96.3 million and $43.9 million in the same quarter of 2011. Free cash flow of $22.6 million was up $3.9 million from the same period last year. Major variances at Northland facilities compared to the first quarter of 2011 are discussed below.Earnings before interest, taxes, depreciation and amortizationIn the first quarter of 2012, EBITDA increased by $10.9 million due largely to the factors described below.Northland's operating facilities contributed an additional $8.4 million in EBITDA over 2011, primarily due to contributions from Mont Louis and Spy Hill, partially offset by lower results from Thorold. A maintenance shutdown at the Welland Canal caused a reduction in Thorold's operating hours in order to comply with permit requirements, and unseasonably warm weather and low spot natural gas prices resulted in fewer economic production periods throughout the quarter. Despite lower operating hours during the quarter, Thorold's gross profit is expected to meet management's expectations for the year.In 2012, Northland earned performance incentive fees from the Kirkland Lake facility that is managed on behalf of third-party owners. The incentive fee entitles Northland to share in Kirkland Lake's cash flows after all operating and financing expenditures. During the first quarter of 2012, Northland earned $4.3 million (2011 - $nil) in Kirkland Lake performance incentive fees. Corporate costs reduced EBITDA by $1.6 million from 2011 due to higher corporate expenditures commensurate with additional headcount, timing of expenditures and the increased level of early-stage development activity. Net IncomeNet income for the first quarter of 2012 at $49.7 million includes the following items. Northland recorded the following non-cash adjustments during the quarter: (i) $48.9 million in gains associated with changes in fair value, including $43.3 million on the fair value changes in the valuation of interest rate swaps on the facilities' non-recourse project debt due to an increase in long-term market interest rates and a $5.6 million reduction in the liability associated with the fair value on convertible shares; and (ii) a $0.2 million unrealized foreign exchange loss on Northland's U.S. and euro foreign exchange contracts not designated as a part of a hedging relationship. These non-cash amounts were the result of the continued strengthening of the Canadian dollar vs. the U.S. dollar during the first quarter and changes in the interest rate forward yield curve. Finance lease income was up $3.6 million as a result of the inclusion of Spy Hill. As described in the 2011 Annual Report, Spy Hill's long-term contract with SaskPower is considered a finance lease for accounting purposes. As a result, the monthly capacity payments from SaskPower are treated as lease income, while electricity sales are recognized in sales revenue. The accounting treatment of Spy Hill's contract as a finance lease has no impact on Northland's EBITDA or free cash flow. Finance costs, primarily interest expense at $16.5 million, increased this quarter largely due to the recognition of interest charges on the Spy Hill and Mont Louis loans (previously capitalized during construction), partially offset by lower convertible debenture interest and the maturity of the 2011 convertible debentures in June 2011.Other income was down because 2011 included the sale of Northland's South Kent wind development project.The above factors, combined with a $0.9 million provision for current taxes and a $15.4 million provision for future income taxes, resulted in net income for the first quarter of $49.7 million. Dividends to Shareholders, Payout Ratio and Free Cash FlowFree cash flow of $22.6 million was $3.9 million higher than in 2011. This was primarily a result of the items affecting EBITDA as well as (i) higher net interest costs ($3.9 million), predominantly due to Spy Hill and Mont Louis, partially offset by a lower number of convertible subordinated debentures; (ii) increased scheduled loan repayments ($0.9 million); (iii) $1.5 million in funds set aside pending the finalization of the purchase of certain British Columbia wind development rights and related assets; and other miscellaneous operational items ($0.7 million). Management expects the cash dividend payout ratio for the full fiscal year 2012 to be 135-145% of free cash flow excluding reinvested dividends, and 185-195% on an all-cash dividend basis. The payout ratio in excess of free cash flow largely reflects the level of spending on growth initiatives and payment of dividends on equity capital raised to fund construction projects, for which corresponding cash flows will not be received until 2013. For 2012, Northland's payout ratio in the first quarter was 91% of free cash flow (124% on an all cash dividend basis) compared to 109% in the first quarter of 2011. Outlook Northland continues to pursue a proven business strategy that provides stability and long-term growth to its shareholders. Northland's primary focus is to maximize the results from its existing operating facilities in order to maintain predictable cash flow streams over their asset lives, while safeguarding the environment, health and safety of its employees and the communities in which it operates. Northland's proactive management of all construction disciplines and established industry relationships are expected to continue its record of on-time and on-budget project completion. For current and future development projects Northland intends to continue its strategy of utilizing long-term sales, supply and maintenance agreements to ensure stable margins, and non-recourse project finance structures to reduce risk. Northland will continue to exercise judgment, discipline and acumen in its development activities to ensure maximum success. The discipline that has been applied to operations, construction and development underpins management's confidence in Northland's ability to continue to meet its commitments to its stakeholders.In 2012, management continues to expect Northland to generate EBITDA of approximately $170 million to $180 million. Management expects the annualized EBITDA with the addition of the combined cash flows of the projects in construction and the advanced development pipeline to be in the range of $360 million to $400 million on an annualized basis starting in 2014 when these projects are completed.Northland's board and management are committed to maintaining the current dividend of $1.08 per share on an annual basis, payable monthly. Northland's 2012 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 raised for construction projects, for which corresponding cash flows will not be received until future years. For 2012, management continues to expect the cash dividends to be 135-145% of free cash flow excluding reinvested dividends and 185-195% of free cash flow on an all-cash dividend basis. Management expects the free cash flow to fully fund or exceed dividend payments on an annualized basis in the second half of 2013 with the addition of the combined cash flows of the ground-mounted solar and North Battleford projects, unless significant additional equity investments are made as a result of future development success. 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 from operating cash flows, the DRIP, cash and cash equivalents on hand and, if necessary, use of its line of credit. Non-IFRS Measures The press release includes references to Northland's free cash flow and EBITDA which are not measures prescribed by IFRS. Free cash flow and 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 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 10th at 10:00 am EDT to discuss its first 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 May 10, 2012State Time: 10:00 a.m. Eastern Daylight TimePhone Number: Toll free with North America: 1-800-709-0218 or Local 416-641-6202For 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 10th until May 24, 2012.ABOUT NORTHLANDNorthland Power Inc. (TSX:NPI) owns or has a net economic interest in 1,005 MW of operating generating capacity, and 260 MW of generating capacity in advanced construction. Northland is also actively developing 340 MW of wind, solar and run-of-river hydro projects awarded PPAs and approximately 2,200 MW of additional power generation opportunities. Northland's assets comprise facilities that produce electricity from "clean" natural gas and "green" renewable sources such as wind, solar and biomass. Electricity generation and capacity is primarily sold under long-term contracts with creditworthy customers. Northland's operating thermal power assets are located in the provinces of Ontario and Saskatchewan, Canada, and include the 120 MW Iroquois Falls cogeneration facility, the 110 MW Kingston combined-cycle power facility, the 265 MW Thorold cogeneration facility, the 86 MW Spy Hill peaking facility and an economic interest in two natural-gas- and biomass-fired generation facilities as well as a 19% equity interest in the 230 MW Panda-Brandywine combined-cycle power facility located outside Washington, D.C. Northland's operating renewable power facilities include the 128 MW Jardin d'Éole wind farm and the 100 MW Mont Louis wind farm both located in Quebec, two wind farms totaling 22 MW of installed capacity located in Germany and several rooftop solar power facilities in Ontario. Northland owns the 260 MW North Battleford project, which is currently under construction in Saskatchewan, Canada. Northland's cash flows are diversified over five geographically separate regions and regulatory jurisdictions.Northland's common shares, preferred shares and convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A and NPI.DB.A, respectively. FORWARD-LOOKING STATEMENTSThis 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 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 2011 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 9, 2012. 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: Barb BoklaNorthland Power Inc.Manager, Investor Relations647-288-1438(416) 962-6266 (FAX)ORAdam BeaumontNorthland Power Inc.Director of Finance647-288-1929(416) 962-6266 (FAX)investorrelations@northlandpower.cawww.northlandpower.ca