Press release from Marketwire
Northland Power Announces First Quarter Results and Updates Construction and Development Progress
Wednesday, May 08, 2013
Northland Power Announces First Quarter Results and Updates Construction and Development Progress19:38 EDT Wednesday, May 08, 2013
TORONTO, ONTARIO--(Marketwired - May 8, 2013) -
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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 quarter ended March 31, 2013.
"We're off to a strong start in 2013, and anticipate another successful year," said John Brace, Northland's President and CEO. "With several projects starting operations this year, and a number of promising development opportunities in our pipeline, we look forward to sustained and sustainable growth, while continuing to deliver steady returns to our shareholders."
During the first quarter and until the date of this release, Northland achieved a number of milestones in its construction and development programs.
Commissioning of Northland's 260 megawatt (MW), North Battleford project progressed during the quarter and achieved two significant milestones: first fire of the gas turbine on January 26, 2013 and synchronization with the Saskatchewan electricity grid on February 11, 2013. The project remains within budget and on schedule to begin commercial operations before the end of the second quarter of 2013.
Construction continued on the first six ("Ground-mounted Solar Phase I projects") of Northland's thirteen ground-mounted solar projects contracted under the Ontario Power Authority's (OPA) feed-in-tariff (FIT) program. Commercial operations are scheduled to begin in the second quarter of 2013 and all six projects are expected to be operational by the end of the third quarter. All six projects remain within budget.
Northland's 60 MW McLean's Mountain wind project continued site clearing for turbines, access roads and electrical connections during the quarter. Major construction activities are anticipated to begin in the second quarter of 2013, including the start of wind turbine deliveries from General Electric and its subsidiaries (collectively, GE). The project is scheduled to achieve commercial operations in early 2014.
On January 21, 2013, Northland announced the closing of a $156.3 million 4.14% senior secured amortizing Series A bond issued by its wholly owned subsidiary, Spy Hill Power L.P. The bonds were rated A (stable) by Dominion Bond Rating Service and will be fully amortized by their maturity in March 2036. The net proceeds were used to repay Spy Hill's existing bank debt, with the remainder being used for general corporate purposes.
On January 23, 2013, Northland's wholly owned Kingston subsidiary, repaid in full its non-recourse bank term loan and senior secured note and settled its associated interest rate swaps.
On March 28, 2013, Northland announced it had entered into a 50/50 partnership with the Aamjiwnaang and Bkejwanong First Nations to develop the 100 MW Grand Bend wind project located near Grand Bend, Ontario, which has a 20-year power purchase agreement (PPA) under the OPA FIT program.
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.
On April 1, 2013, Northland announced that it had acquired from The Probyn Group™ the controlling interest in Canadian Environmental Energy Corporation (CEEC) and all the shares of Chapais Power Services Inc. (formerly known as Probyn Power Services Inc.). CEEC owns the voting shares in Kirkland Lake and 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 Énergie, Société en Commandite ("Chapais"), owner of the 28 MW biomass-fired power facility in Chapais, Quebec. The cash consideration paid for the transaction was $9.5 million ($3.6 million, net of cash acquired).
Northland will continue to manage the Kirkland Lake and Cochrane generating stations, and will now also manage, through Chapais Power Services Inc., the operations of the Chapais generating station as of April 1. As a result of this transaction, Northland will receive management fees from Chapais and additional dividend income from Kirkland Lake and Cochrane.
The complete first quarter report for 2013, including management's discussion and analysis and unaudited condensed interim financial statements, is available at www.sedar.com under Northland's profile and www.northlandpower.ca.
Summary of Financial Results
|Three Months Ended March 31|
|FINANCIALS (thousands, except per share amounts)|
|Free cash flow(1)||$||30,418||$||$22,587|
|Cash dividends paid to Common and Class A Shareholders||$||22,682||$||$20,552|
|Total dividends declared to Common and Class A Shareholders(2)||$||31,483||$||$30,669|
|Free cash flow||$||0.261||$||$0.202|
|Total dividends declared to Common and Class A Shareholders(2)||$||0.270||$||$0.270|
|Electricity (megawatt hours)||978,036||871,583|
|(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|
First Quarter Results
Northland's consolidated sales exceeded the first quarter of 2012, while adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") for the three months ending March 31, 2013 was lower than that of 2012. Major variances at Northland facilities compared to the first quarter of 2012 are discussed below.
Adjusted earnings before interest, taxes, depreciation and amortization
Adjusted EBITDA from Northland's operating facilities was $0.5 million lower than the first quarter of 2012 primarily because of unfavourable results from the Iroquois Falls facility due to an electricity rate decrease and lower production at two of Northland's wind farms due to downtime at Mont Louis to allow for GE to implement turbine upgrades and calm winds at Germany. Offsetting these decreases were favourable contributions from the Jardin wind farm and the Kingston and Thorold facilities.
In the first quarter of 2013, Northland's performance incentive fees earned from the Kirkland Lake facility were $1.7 million higher than the previous year. The incentive fee entitles Northland to share in Kirkland Lake's cash flows after all operating and financing expenditures. Northland also earned $0.2 million in higher dividends from the Panda facility.
Corporate costs reduced adjusted EBITDA by $2.3 million from the first quarter of 2012 due to higher corporate expenditures commensurate with an increased level of early-stage development activities.
Net income for the first quarter of 2013 at $23.6 million includes the following items.
Northland recorded $13.1 million of non-cash adjustments during the quarter comprised of: (i) a $12.9 million gain on the fair value of interest rate swaps on the facilities' non-recourse project debt due to an increase in long-term market interest rates; (ii) a $0.7 million increase in the liability associated with the fair value of Northland Class B convertible shares; and (iii) a $0.9 million unrealized foreign exchange gain on Northland's foreign exchange contracts. 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. Non-cash fair value gains during the first quarter of 2012 amounted to $48.8 million.
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 capacity 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, decreased by $1.8 million due to 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.
Other income was $0.7 million higher than the same period last year due to earnings related to the 2011 sale of Northland's South Kent wind development project.
The above factors, combined with an $8.2 million provision for current and deferred income taxes, resulted in net income for the first quarter of $23.6 million.
Dividends to Shareholders and Payout Ratio Free Cash Flow
Free cash flow for the first quarter was within the range of management's expectations and exceeded the prior year by $7.8 million due to (i) a $2 million decrease in net interest expense, largely related to the Spy Hill refinancing and Kingston debt repayment; (ii) a $4.6 million decrease in scheduled principal payments, also associated with the debt repayments; (iii) a $1.1 million decrease in funds set aside for major maintenance; and (iv) a $2.1 million positive variance related to funds that were set aside in 2012 pending the closing of the British Columbia wind development assets. Offsetting these favourable increases were $0.2 million of lower adjusted EBITDA, the $1.5 million increase in preferred share dividends commensurate with the issuance of series 3 cumulative rate reset preferred shares in the second quarter of 2012 and a $0.3 million increase in other items.
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 first quarter was 75% of free cash flow (102% excluding the effect of dividends re-invested through the DRIP) compared to 91% and 124%, respectively in the first quarter of 2012.
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 quarter 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, the Queen's Quay and General Motors combined heat and power projects in the GTA, wind and small 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.
Due to construction delays at the Ground-mounted Solar Phase I projects and a change in management's forecasted date within the second quarter for North Battleford to achieve commercial operations, management has adjusted Northland's 2013 short-term guidance. Although, the Ground-mounted Solar Phase I delays will affect adjusted EBITDA and free cash flow in 2013, the economic impact to Northland will be partially mitigated by the receipt of liquidated damages as provided for under project's construction contracts. Management now expects adjusted EBITDA to be approximately $245 to $255 million for the year (compared to the expectation of $255 to $265 million provided last quarter). Management continues to expect that adjusted EBITDA will 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.
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. Management now expects the dividend payout ratio for the full fiscal 2013 year to be 80-90% of free cash flow, and 115-125% excluding the effect of dividends re-invested through the DRIP (compared to 75-85% and 105-115% respectively, provided last quarter). 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. 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.
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 May 9th 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 9, 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 May 9 until May 31, 2013.
Northland will be holding its annual meeting of shareholders at the TSX Conference Centre, on May 23, 2013 at 11:00 a.m. EDT. A copy of the Management Information Circular is available at www.sedar.com under Northland's profile and www.northlandpower.ca. Shareholders of record at the close of business on April 18, 2013 will receive a formal notice of meeting.
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 1,005 MW of operating generating capacity, with an additional 320 MW of generating capacity currently in construction, and another 280 MW of wind, solar and run-of-river hydro projects with awarded power contracts. Northland's cash flows are diversified over five geographically separate regions and regulatory jurisdictions in Canada, Germany 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.
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 May 8, 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.
Manager, Investor Relations
(416) 962-6266 (FAX)
Northland Power Inc.
Director of Finance
(416) 962-6266 (FAX)