Northland Power Delivers Excellent 2017 Results With Gross Profit Up 37% and Adjusted EBITDA Up 22%

TORONTO, Feb. 22, 2018 (GLOBE NEWSWIRE) — Northland Power Inc. (“Northland” or the “Company”) (TSX:NPI) today reported financial results for the year ended December 31, 2017.

“Northland achieved outstanding financial, operational and development results in 2017,” noted John Brace, Northland’s Chief Executive Officer. “Our thirtieth year in business was highlighted by several notable achievements. We completed two offshore wind projects totalling €4.0 billion on or ahead of schedule and under budget, bringing our total operating capacity to over 2 GW. We also acquired a third offshore wind project, with a total project cost of €1.3 billion. We achieved a 22% increase in adjusted EBITDA and a 6% increase in free cash flow over 2016, with the 11% dividend increase announced in December reflecting our strong performance. Our competitive position is strong, and we remain confident and excited about our continued ability to grow while generating robust long-term value for our shareholders.”

Highlights:

2017 Financial Results

  • Sales increased 25% from .1 billion in 2016 to .4 billion and gross profit increased 37% to .2 billion primarily due to contributions from Gemini, pre-completion revenue from Nordsee One and positive contributions from the on-shore wind facilities, primarily Grand Bend. These positive variances were partially offset by the impact of the one-time receipt of retroactive payments in connection with the Global Adjustment Decision in 2016 (.7 million net impact included in 2016 adjusted EBITDA and free cash flow; refer to Northland’s 2017 Annual Report for additional information). Contributions from Kingston were also lower than in 2016 as a result of the expiration of its PPA in January 2017, referred to as the “Kingston Remarketing Initiative”.
  • Adjusted EBITDA (a non-IFRS measure) increased 22% from 7 million in 2016 to 5 million primarily due to contributions from the Gemini and Nordsee One offshore wind facilities, partially offset by the Global Adjustment Decision, the Kingston Remarketing Initiative, and higher plant operating and management and administration costs. Adjusted EBITDA of 5 million exceeded the most recent guidance range issued of 0 to 0 million primarily as a result of higher than expected wholesale market prices at Gemini in the fourth quarter, favourable foreign exchange movements and timing of certain development expenditures.
  • Free cash flow per share (a non-IFRS measure) increased 4% from .40 in 2016 to .46 primarily as a result of contributions from Gemini, partially offset by the impact of the Kingston Remarketing Initiative, the Global Adjustment Decision, and higher interest expense. Free cash flow per share exceeded the most recent guidance range issued of .18 to .30 per share primarily as a result of the same factors affecting adjusted EBITDA.
  • Net income increased 45% from 2016 to 6 million primarily due to an increase in operating income combined with a non-cash fair value gain associated with derivative contracts (.8 million gain compared to a .8 million loss in 2016). The positive variances were partially offset by higher depreciation and finance costs in connection with completed projects.

Sales and net income, as reported under IFRS, include consolidated results of entities not wholly-owned by Northland, whereas adjusted EBITDA and free cash flow only include Northland’s net economic interest.

2018 Outlook

  • Financial Guidance – In 2018, management expects adjusted EBITDA to be in the range of 0 to 0 million, an increase of approximately 17% from 2017. In 2018, management expects the free cash flow per share to be in the range of .70 to .00 per share, an increase of approximately 27% over 2017. Refer to the Outlook section of this press release for additional information.

Construction

  • Nordsee One – 332 MW offshore wind farm, German North Sea – In December 2017, the Nordsee One offshore wind project achieved final completion, which marked the end of construction and the start of commercial operations, and commenced the term-loan phase of the project debt. The project was completed on schedule and under its total budget of €1.2 billion. Concurrently with final completion, Nordsee One renegotiated the project’s €840 million senior debt, reducing loan margins by 150 basis points.
  • Deutsche Bucht – 252 MW offshore wind project, German North Sea – Subsequent to the project’s acquisition and financial close in August 2017, key associated construction contracts have been signed, and manufacturing of the offshore substation, monopiles and transition pieces has commenced. Project completion is expected by the end of 2019. The total estimated project cost is approximately €1.3 billion. Northland has invested {$content}.4 billion of corporate funds into the project.
 
Summary of Consolidated Results            
(in thousands of dollars, except per share amounts) Three months ended December 31,   Year ended December 31,
    2017   2016   2017   2016
FINANCIALS              
  Sales $ 394,611     $ 478,500     $ 1,376,256     $ 1,099,000  
  Gross profit 365,026     422,870     1,236,717     905,760  
  Operating income 196,456     276,649     632,126     508,637  
  Net income (loss) 82,281     290,735     275,836     190,559  
  Adjusted EBITDA (1) 238,675     277,096     765,176     626,879  
  Cash provided by operating activities 257,642     344,424     849,007     719,812  
  Free cash flow (1) 69,547     118,998     256,100     242,324  
  Cash dividends paid to common and class A shareholders 34,254     34,790     134,307     139,890  
  Total dividends declared to common and class A shareholders (2) 49,068     46,648     189,981     185,606  
                 
Per share information              
  Free cash flow (1) $ 0.40     $ 0.69     $ 1.46     $ 1.40  
  Total dividends declared to common and class A shareholders (2) $ 0.28     $ 0.27     $ 1.09     $ 1.08  
                 
ENERGY VOLUMES              
  Electricity production in gigawatt hours (GWh) (3) 2,125     2,035     6,556     6,392  
(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 DRIP.
(3)  Includes Gemini and Nordsee One pre-completion production volumes. Refer to SECTION 5.1 Operating Facilities’ Results of the 2017 Annual Report for additional information.
 

Fourth Quarter Results Summary

Offshore wind facilities

Electricity production, including pre-completion production, during the three months ended December 31, 2017 was 530 GWh higher compared to the same quarter last year primarily due to all of Gemini’s turbines producing power throughout the quarter. Nordsee One earned the equivalent of 326 GWh in pre-completion production, including paid curtailment.

Sales and adjusted EBITDA increased .4 million and .5 million, respectively, compared to the same quarter last year primarily as a result of pre-completion revenue from Nordsee One, partially offset by lower results at Gemini. Gemini’s 15-year subsidy agreements with the Government of the Netherlands tops up the wholesale market-based revenue to a fixed, contractual rate per megawatt hour (MWh). The subsidy is subject to an annual production ceiling (the “Gemini Subsidy Cap”), beyond which, production earns revenue at wholesale market rates. In addition, the top up to a fixed contractual rate is subject to a floor price, thereby exposing Gemini to market price risk when wholesale prices fall below the contractual floor price. Sales were lower in the fourth quarter of 2017 due to the annual Gemini Subsidy Cap being achieved in November 2017. Plant operating costs increased .1 million compared to the same period last year because wind turbines were not fully commissioned in the prior year.

Thermal facilities

Electricity production decreased 473 GWh compared to the same quarter of 2016 primarily due to the Kingston Remarketing Initiative and a change in management’s operating strategy at the Iroquois Falls facility as a result of the Enhanced Dispatch Contract (EDC) executed in 2017 and fewer dispatches at Thorold.

Sales decreased 6.8 million compared to the same quarter of 2016 as a result of these factors and the receipt of one-time payments of 4.5 million associated with the Global Adjustment Decision in 2016. Operating income and adjusted EBITDA were 7.2 million and .9 million lower, respectively, primarily as a result of lower sales, partially offset by lower plant operating and other costs.

On-shore renewable facilities

Electricity production of 381 GWh was higher than the same quarter last year. Sales for the fourth quarter of 2017 were consistent with the same quarter in 2016 due to higher production at Jardin and Mont Louis being offset by the impact of a shutdown at Grand Bend to complete a one-time planned substation reactor installation. As a result of the above factors, operating income and adjusted EBITDA for the renewable facilities increased by .2 million and .5 million, respectively.

Management and administration (M&A) costs comprised of corporate and facility related costs, decreased .3 million compared to the fourth quarter of last year. Corporate M&A costs decreased .7 million primarily due to the timing of early-stage development activities, as well as the impact of certain non-recurring costs in 2016, partially offset by higher personnel costs in 2017. Facility M&A costs increased .4 million primarily due to higher costs at Gemini as a result of partial capitalization of M&A costs during commissioning in 2016.

Finance costs, net (primarily interest expense) increased .9 million compared to the fourth quarter of the prior year primarily due to interest costs at Gemini and Nordsee One no longer being capitalized following completion of construction activities.

Impairments were nil in 2017. The .1 million charge in 2016 primarily related to changes in cash flow forecasts for the Kingston facility.

Non-cash fair value gains totalled .9 million, including a .7 million gain in the fair value of financial derivative contracts, compared to a 7.5 million gain in the fourth quarter of last year, primarily due to the adoption of hedge accounting. The fair value adjustments in 2017 are non-cash items which will reverse over time, and have no impact on the cash obligations of Northland or its projects.

Other expense (income) increased .3 million compared to the fourth quarter of last year primarily due to a .3 million fair value adjustment under IFRS 9 on a third-party partner loan, partially offset by a gain on the sale of the German on-shore wind farms.

Net income

Mainly due to the factors described above, combined with a .4 million higher depreciation expense and a .0 million lower deferred income tax expense, net income was .3 million for the fourth quarter of 2017 compared to 0.7 million for the same quarter last year.

Adjusted EBITDA

Northland’s adjusted EBITDA for the three months ended December 31, 2017 was .4 million lower than the fourth quarter of 2016. The significant factors decreasing adjusted EBITDA include:

  • .7 million as a result of the one-time receipt in 2016 of retroactive payments in connection with the Global Adjustment Decision;
  • .2 million as a result of lower sales at Gemini due to the annual Gemini Subsidy Cap having been achieved in November 2017, after which production generated revenue solely at wholesale market rates;
  • .1 million as a result of the expiration of the PPA at Kingston in January 2017; and
  • .3 million as a result of a planned major outage at North Battleford which did not occur in 2016.

Factors partially offsetting the decrease in adjusted EBITDA include:

  • .4 million as a result of pre-completion revenue (net of certain operating costs) from Nordsee One;
  • .4 million higher operating income from Northland’s other operating facilities;
  • .5 million as a result of higher operating income under the Enhanced Dispatch Contract executed by Iroquois Falls in 2017; and
  • .9 million decrease in relevant corporate M&A costs related to timing of development projects partially offset by increased personnel costs.

Free Cash Flow

Free cash flow of .5 million for the fourth quarter of 2017 was .5 million lower than the corresponding period in 2016. Significant factors decreasing free cash flow include:

  • .7 million due to the one-time receipt in 2016 of retroactive payments in connection with the Global Adjustment Decision;
  • .4 million increase in net interest expense primarily related to a full year of Gemini senior debt;
  • .1 million decrease due to the expiration of the PPA at Kingston in January 2017; and
  • .8 million increase in scheduled debt repayments related to Gemini and McLean’s.

Factors partially offsetting the decrease in free cash flow include:

  • .7 million increase in contributions from Gemini, partially offset by the impact of the annual Gemini Subsidy Cap being reached during the quarter;
  • .5 million increase in operating income from the Enhanced Dispatch Contract at Iroquois Falls executed in 2017;
  • .3 million decrease in relevant corporate M&A costs related to the timing of development projects;
  • .1 million increase in Gemini interest income on the subordinated debt; and
  • .6 million increase in operating income from Northland’s other operating facilities.

Outlook

Northland actively pursues new power development opportunities that encompass a range of clean technologies, including natural gas, wind, solar and hydro.

Adjusted EBITDA

  • In 2017, adjusted EBITDA of 5 million exceeded the most recent guidance range issued of 0 to 0 million primarily as a result of higher than expected wholesale market prices at Gemini in the fourth quarter, favourable foreign exchange movements and timing of certain development expenditures.
  • In 2018, management expects adjusted EBITDA to be in the range of 0 to 0 million, an increase of approximately 17% over 2017, assuming a CAD/euro exchange rate of 1.52.
  • In 2020, once the construction of the Deutsche Bucht offshore wind project is completed and is fully operational, management expects Deutsche Bucht to generate adjusted EBITDA of approximately €155 to €175 million annually.

Free Cash Flow

  • In 2017, free cash flow of .46 per share exceeded the most recent guidance range issued of .18 to .30 per share primarily as a result of the same factors affecting adjusted EBITDA.
  • In 2018, management expects the free cash flow per share to be in the range of .70 to .00 per share, an increase of approximately 27% over 2017.

Refer to the Management’s Discussion and Analysis included in Northland’s 2017 Annual Report for additional information on Northland’s outlook for 2018.

Non-IFRS Measures

This press release includes references to Northland’s adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts, which are not measures prescribed by International Financial Reporting Standards (IFRS). Adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts do not have any standardized meaning under IFRS and, 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 adjusted EBITDA and free cash flow and applicable payout ratio and per share amounts are widely accepted financial indicators used by investors to assess the performance of a company and its ability to generate cash through operations. Refer to the SECTION 1: Overview, SECTION 5.3: Adjusted EBITDA and SECTION 5.4: Free Cash Flow of the Management’s Discussion and Analysis (MD&A) included in Northland’s 2017 Annual Report, which can be found on SEDAR at www.sedar.com under Northland’s profile and on Northland’s website at www.northlandpower.ca, for an explanation of these terms and for reconciliations to the nearest IFRS measure.

Earnings Conference Call

Northland will hold an earnings conference call on February 23 at 10:00 am EST to discuss its 2017 fourth quarter results. John Brace, Northland’s Chief Executive Officer, Paul Bradley, Northland’s Chief Financial Officer, and Mike Crawley, Northland’s Executive Vice President, Business Development will discuss the financial results and company developments before opening the call to questions from analysts and shareholders.

Conference call details are as follows: 
Date: Friday, February 23, 2018
Start Time: 10:00 a.m. EST 
Phone Number: Toll free within North America: 1-844-284-3434

For those unable to attend the live call, an audio recording will be available on Northland’s website at (www.northlandpower.ca) from the morning of February 23 until March 18, 2018.

ABOUT NORTHLAND

Northland is an independent power producer founded in 1987, and publicly traded since 1997. Northland develops, builds, owns and operates facilities that produce ‘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 2,029 MW of operating generating capacity and 252 MW of generating capacity under construction, representing the Deutsche Bucht offshore wind project. Northland’s cash flows are diversified over four geographically separate regions and regulatory jurisdictions in Canada and Europe.

Northland’s common shares, Series 1, Series 2 and Series 3 preferred shares and Series B and Series C convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.B, NPI.PR.C, NPI.DB.B, and NPI.DB.C, respectively.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements that 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,” “predicts,” “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, free cash flows, dividend payments and dividend payout ratios; the construction, completion, attainment of commercial operations, cost and output of development projects; litigation claims; plans for raising capital; and the future operations, business, financial condition, financial results, 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 and 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, contract, contract counterparties, operating performance, variability of renewable resources and climate change, offshore wind concentration risk, market power prices, fuel supply, transportation and price, operations and maintenance, permitting, construction, development prospects and advanced stage development projects, financing, interest rates, refinancing, liquidity, credit rating, currency fluctuations, variability of cash flows and potential impact on dividends, taxes, natural events, environmental, health and safety, government regulations and policy, international activities, relationship with stakeholders, reliance on information technology, reliance on third parties, labour relations, insurance, co-ownership, bribery and corruption, legal contingencies, and the other factors described in the “Risks Factors” section of Northland’s 2017 Annual Information Form dated February 22, 2018, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at 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 February 22, 2018.  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:

Barbara Bokla, Manager, Investor Relations, (647) 288-1438
Adam Beaumont, Senior Director, Corporate Finance, (647) 288-1929
investorrelations@northlandpower.ca
www.northlandpower.ca