Press release from Marketwire
Northland Power Announces Second Quarter Results and Updates Construction and Development Progress
Wednesday, August 07, 2013
Northland Power Announces Second Quarter Results and Updates Construction and Development Progress20:13 EDT Wednesday, August 07, 2013
TORONTO, ONTARIO--(Marketwired - Aug. 7, 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 second quarter ended June 30, 2013.
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™ 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 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 $9.8 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.
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
|FINANCIAL (in thousands of dollars, except per share and energy unit amounts)|
|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|
|Free cash flow||0.19||0.16||0.44||0.36|
|Dividends declared to Shareholders(2)||0.27||0.27||0.54||0.54|
|Electricity sales volume (megawatt hours)||733,006||734,947||1,711,041||1,606,530|
- See "Non-IFRS measures" for a detailed description. Adjusted EBITDA was previously reported as EBITDA.
- 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.
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.
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.
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.
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.
Manager, Investor Relations
Northland Power Inc.
Director of Finance
(416) 962-6266 (FAX)