Northland Power Continues to Deliver: Announces Strong 2013 Third Quarter Results and Continued Advancements on Construction and Development Pipeline

T.NPI

Marketwire

TORONTO, ONTARIO--(Marketwired - Nov. 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)

Highlights

  • Strong financial results for quarter:
    • Quarterly adjusted EBITDA increased by 101% from $37.6 million in 2012 to $75.7 million in 2013, primarily due to contributions from newly operating North Battleford and ground-mounted solar facilities;
    • Quarterly free cash flow increased by 550% over same period 2012; from $6 million to $39 million, commensurate with the higher adjusted EBITDA;
    • The quarterly payout ratio was 63% of free cash flow (84% excluding the effect of dividends re-invested through the Dividend Reinvestment Plan);
  • Announced project Gemini, a 600 MW offshore wind power generation project currently in advanced development, for which Northland has the rights to acquire a majority (55%) equity stake. The project has already achieved significant development milestones;
  • Completed construction on two more ground-mounted solar facilities; and
  • Successfully completed approximately $900 million of project financings.

Northland reported its financial results today for the quarter ended September 30, 2013. The complete third quarter report for 2013, including management's discussion and analysis and unaudited interim condensed consolidated financial statements, is available at www.sedar.com under Northland's profile and www.northlandpower.ca.

"We are continuing to deliver on our commitments by generating strong results across our increasingly diverse operating portfolio, which now includes six ground-mounted solar projects in Ontario," said John Brace, President and CEO. "We are seeing the positive results from our development and construction pipelines. Our third quarter results demonstrate that we are well-positioned to deliver a stable dividend to our shareholders while continuing our growth trajectory. Our projects under construction and in advanced development are progressing as expected and we are making progress towards finalizing development of the Gemini offshore wind project."

Summary of Financial Results

  3 Months Ended Sept. 30   9 Months Ended Sept. 30  
  2013   2012   2013 2012  
FINANCIAL (in thousands of dollars, except per share and energy unit amounts)              
  Sales 152,373   82,689   382,907 268,505  
  Gross profit 99,632   49,971   241,395 170,206  
  Adjusted EBITDA(1) 75,681   37,575   180,310 135,158  
  Operating income 51,240   21,181   121,365 85,881  
  Net income (loss) 41,265   (22,158 ) 145,011 (7,375 )
               
Free cash flow(1) 39,654   5,709   92,049 45,990  
Cash Dividends paid to Common and Class A Shareholders (2) 25,087   22,613   71,523 66,276  
Total Dividends declared to Common and Class A Shareholders(2)  34,241   31,074   97,442 92,602  
               
Per Share              
  Free cash flow 0.320   0.050   0.768 0.402  
  Dividends declared to Shareholders(2) 0.270   0.270   0.810 0.810  
Energy Volumes              
  Electricity sales volume (megawatt hours) 1,075,512   755,058   2,786,553 2,361,588  
               
(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.

Significant Events

On August 1, 2013, Northland announced that it had entered into agreements for the rights to acquire a majority equity stake in a consortium which owns Gemini, a 600 MW offshore wind project currently in advanced development located 85 kilometres off the coast of the Netherlands in the North Sea.

Gemini's total cost is projected to be approximately EUR2.8 billion and is expected to be funded from a combination of non-recourse project debt, mezzanine financing and equity from the consortium. Northland, and Gemini's other equity investors, including Siemens (20%), Van Oord (10%), NV HVC (10%) and Typhoon Offshore (5%), are working to obtain financing terms from major international lenders, export credit and other governmental agencies, and pension funds. Northland's investment in Gemini will consist of funding its pro-rata share of the equity and possibly an investment in the project's mezzanine financing. Northland's total investment is expected to be between $350 and $460 million, depending on the amount of the project's mezzanine financing supplied by Northland. After deducting net proceeds from revenues during construction and term loans for parts of the project that will be settled at commercial operations, Northland's net equity investment is expected to be in the range of $180 to $290 million, depending on the amount of mezzanine financing supplied by Northland. As previously stated, approximately $55 million has already been raised by the financing of the company's North Battleford project in September. Potential sources for the remaining amount are Northland's corporate line of credit, the issuance of preferred shares, convertible debentures and/or common shares. Management's objective is to minimize the amount of dilutive equity raised while prudently maintaining healthy credit metrics. Additional information regarding Northland's investment and the sources of capital are further enumerated in Northland's September 2013 Investor Day materials. Development on Gemini is progressing well and according to schedule. Approximately thirty commercial banks have expressed serious interest and are expected to seek credit approval for the senior debt financing. Project Gemini remains on track to close financing in the first half of 2014.

On August 22, 2013, Northland announced that as a result of the successful completion of the North Battleford project and the majority of the Ground-mounted solar Phase I projects, all of the remaining 4,289,808 Class C Convertible Shares ("Class C Shares") and all of the 8,067,723 Class B Convertible Shares ("Class B Shares") were converted to Class A Shares and were subsequently converted into the equivalent number of common shares of Northland. Additionally, all of Northland's remaining Replacement Rights were converted into common shares pursuant to the terms of those securities.

On September 20, 2013, Northland's wholly owned subsidiary, North Battleford Power L.P., issued $667.3 million of 4.958% senior secured amortizing Series A bonds. The bonds were rated A (low) by Dominion Bond Rating Service and will be fully amortized by their maturity in December 2032. The net proceeds were predominately used to repay North Battleford's existing bank debt and settle the associated interest rate swaps, with the remainder used for general corporate purposes.

During the quarter, two more of Northland's 13 ground-mounted solar projects achieved commercial operations within budget; one on July 27, 2013 and the other on September 23, 2013, completing phase I of Northland's ground-mounted solar portfolio. Northland now has six ground-mounted solar projects in operations. On September 24, 2013, Northland completed $84 million of non-recourse project financing with a syndicate of banks for two of the three projects in phase II. The third project in phase II is expected to be financed in the near future. The all-in rate including interest rate swaps and credit spreads is 5.735%.

On September 21, 2013, Northland, with deep regret, announced the sudden passing of Pierre R. Gloutney, a member of Northland's Board of Directors and Chairman of the Audit Committee. Mr. Gloutney had served on the Board since the inception of the Northland Power Income Fund in 1997. He worked extensively in the stock and commodity sectors for 40 years, retiring as CEO from MF Global Canada in 2008. After his retirement, Pierre continued to provide significant wisdom and valuable contributions to the Board of Directors.

V. Peter Harder, a member of the Audit Committee since 2010, has assumed Pierre's position as Chairman of the Audit Committee.

Subsequent Events

On October 1, 2013, Northland's subsidiary, McLean's Mountain Wind Limited Partnership, entered into a non-recourse credit facility with a syndicate of institutional lenders for a $135 million senior secured construction and term loan. The senior debt will be repaid through quarterly blended payments of principal and interest starting on March 31, 2017 until maturity on March 31, 2034, with the principal payments fully amortizing the loan over this period. Concurrent with the financing, Northland transferred 50% of the McLean's Mountain Wind Limited Partnership ownership to the United Chiefs and Councils of Mnidoo Mnising First Nations.

Financial Highlights

Northland's consolidated financials for the third quarter include the results for Kirkland Lake, Cochrane and Canadian Environmental Energy Corporation (CEEC) following Northland's April 1, 2013 acquisition of the controlling interest in CEEC. Kirkland Lake and Cochrane fees and dividends earned by Northland following the acquisition are considered intercompany amounts and eliminate on consolidation. However, in the calculation of adjusted earnings before interest, taxes, depreciation and amortization ("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.

Third Quarter Results

Net income for the third quarter of 2013 at $41.3 million was $63.4 million higher than the same period last year. The following section describes significant factors contributing to this change:

Total Sales, cost of sales and plant operating costs all increased largely due to the inclusion of North Battleford, the Ground-mounted Solar Phase I projects, and consolidation of results from the Kirkland Lake and Cochrane facilities. 

Other sales, which include management and incentive fees earned from services provided to Cochrane and Kirkland Lake, decreased $2.9 million from the third quarter of 2012, as they are now considered intercompany and eliminated on consolidation.

Corporate management and administration expenditures increased $0.7 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 power purchase agreement (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 $11.2 million from the prior year due to the inclusion of interest on North Battleford and Ground-mounted Solar Phase I project debt, partially offset by the replacement of Spy Hill's bank debt with project bonds and repayment of Kingston's term loan in late January 2013, and lower convertible debenture interest due to conversions of debentures into common shares. 

Amortization of contracts and other intangible assets of $5.1 million were higher than the same period last year due to the CEEC acquisition on April 1, 2013.

Non-cash fair value gains of $29.7 million (compared to a $24.6 million loss in 2012) comprised: (i) a $13.2 million gain in the fair value of Northland's financial derivative contracts; (ii) a $17.3 million decrease in the liability associated with the fair value of Northland's Class B Shares; and (iii) $0.8 million in unrealized foreign exchange losses. 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 an $8.8 million provision for current taxes and future income taxes, resulted in net income for the quarter of $41.3 million.

Adjusted earnings before interest, taxes, depreciation and amortization

Third quarter adjusted EBITDA was higher than the prior year largely due to the inclusion of North Battleford and the operational Ground-mounted Solar Phase I projects, overall favourable results from Northland's operating facilities, partially offset by increased corporate management and administration costs, and lower performance incentive fees earned from Kirkland Lake (which are not eliminated for adjusted EBITDA and free cash flow purposes).

Year to Date

Sales and cost of sales were higher in the first nine months of 2013 compared to the prior year and primarily reflect the inclusion of the financial results for North Battleford, the Ground-mounted Solar Phase I facilities, Kirkland Lake and Cochrane. Plant operating expenses were up largely due to the inclusion of the entities described above. Management and administration costs increased from the prior year largely due to additional development activities as previously described.

For the year to date, Northland recorded $133.5 million in non-cash fair value gains (compared to a $27.4 million loss in 2012) comprised of: (i) $103.8 million gain in the fair valued financial derivative contracts; (ii) a $27.8 million reduction in the liability associated with the fair value of Northland's Class B Shares; and (iii) a $1.9 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 third quarter exceeded management's expectations and the prior year by $33.9 million. Favourable changes from the same period for 2012 included: (i) a $38.1 million increase in adjusted EBITDA; (ii) a $2.9 million favourable change in other liabilities associated with contracted gas turbine maintenance milestone payments to General Electric and its subsidiaries; (iii) a $5.6 million decrease in scheduled debt repayments as a result of the full repayment of Kingston's debt in January 2013; and (iv) a $0.2 million decrease in non-expansionary capital expenditures. Partially offsetting these favourable increases were (i) a $11.1 million net interest expense increase primarily due to the inclusion of North Battleford and Ground-mounted Solar Phase I; (ii) a $1.7 million increase in funds set aside for future major maintenance and (iii) $0.1 million increase in other miscellaneous items. 

For 2013, Northland's dividend payout ratio in the third quarter was 63% of free cash flow (84% excluding the effect of dividends re-invested through the Dividend Reinvestment Plan (DRIP)) compared to 396% and 546%, respectively in the third 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 nine 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 adjusted EBITDA of approximately $245 to $255 million for the year. Management continues to expect adjusted EBITDA 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 current schedules. 

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 continues to expect the dividend payout ratio for the full fiscal 2013 year to be 80-90% of free cash flow, and 105-115% excluding the effect of dividends re-invested through the DRIP. 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 November 11 at 10:00 am EST to discuss its third 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: Monday, November 11, 2013

Start Time: 10:00 a.m. EST

Phone Number: Toll free within North America: 1-800-709-0218 or Local: 416-641-6202

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 November 11 until November 26, 2013.

ABOUT NORTHLAND

Northland 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 1,329 MW of operating generating capacity, with an additional 90 MW (60 MW net to Northland) of generating capacity currently in construction, and another 190 MW (119 MW net to Northland) 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'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 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, 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 November 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.

Northland Power Inc.
Barb Bokla
Manager, Investor Relations
(416) 962-6266
647-288-1438
investorrelations@northlandpower.ca

Northland Power Inc.
Adam Beaumont
Director of Finance
(416) 962-6266
647-288-1929
investorrelations@northlandpower.ca
www.northlandpower.ca


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