Company Expands Footprint with Acquisition of 300 MW Onshore Wind Development Projects in New York State to Establish U.S. Growth Portfolio and Updates 2020 Financial Guidance
TORONTO, Nov. 10, 2020 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) today reported financial results for three and nine months ended September 30, 2020. All dollar amounts are in Canadian dollars, unless otherwise stated.
“We continue to execute on our key strategic priorities to position our business for long-term growth and success, despite the ongoing pandemic,” said Mike Crawley, Northland’s President and Chief Executive Officer. “Our business is resilient and performing well, delivering strong operational results in a challenging environment. We are investing in our development pipeline and this quarter we successfully closed the acquisition of three onshore wind development projects in New York State, which is a growth jurisdiction for Northland. We achieved the necessary milestones to capitalize costs of our Hai Long offshore wind project in Taiwan and since March of this year, we have increased our liquidity which improves the Company’s financial flexibility to continue to pursue new growth opportunities.”
Third Quarter Highlights
Financial Results
Sales increased 24% to $471 million from $378 million in 2019 and gross profit increased 18% to $418 million from $356 million.
Adjusted EBITDA (a non-IFRS measure) increased 13% to $254 million from $224 million in 2019.
Free cash flow per share (a non-IFRS measure) decreased 27% to $0.30 from $0.41 in 2019.
Net income decreased 1% to $109 million from $111 million in 2019.
Sales, gross profit and net income, as reported under IFRS, include consolidated results of entities non wholly-owned by Northland, whereas adjusted EBITDA and free cash flow measures include Northland’s proportionate interest.
Significant Events and Updates
Business Update – The COVID-19 pandemic ("COVID-19") has had significant effects across global economies and sectors, including reduced power demand within the renewable energy sector. Each of Northland’s operating facilities are deemed to be essential infrastructure and, as such, are operating uninterrupted as expected. Preventative measures remain in place in accordance with Northland’s crisis response plans and applicable local government directives. Management continues to actively monitor the situation, which remains uncertain, and may take further actions as required or recommended by authorities.
While the vast majority of Northland’s revenues are contracted under long-term agreements with creditworthy counterparties, there is some, yet limited, exposure to the wholesale market price of electricity at the offshore wind facilities. Wholesale market prices in the first nine months of 2020 have had a moderately negative effect on Northland’s revenues. The German offshore wind facilities were also affected by periods where the market power price remains negative for longer than six consecutive hours as well as unpaid curtailments by the German system operator for scheduled and unscheduled grid repairs.
Management believes Northland has sufficient liquidity available to address the impacts of COVID-19. As at September 30, 2020, Northland had access to $704 million of cash and liquidity, comprising $125 million of corporate cash on hand and $579 million of liquidity available under its syndicated revolving facility.
2020 Financial Guidance – Management continues to expect 2020 adjusted EBITDA to be in the range of $1.1 to $1.2 billion, which speaks to strong operational results, which offset the lower offshore wind revenues realized due to negative and low wholesale market pricing experienced as a result of COVID-19 and unusually high third party grid outages affecting our German facilities.
For free cash flow, Northland has delivered strong results, amounting to $289 million or $1.46 per share for the first nine months of the year, in spite of the aforementioned lower revenues experienced within the offshore wind facilities. Within the financial guidance released in February 2020, Northland’s assumptions included optimizing the Deutsche Bucht project by refinancing its $1.5 billion debt, including the deferral of a €38 million ($0.30 per share) scheduled principal debt repayment due in the second half of 2020. COVID-19 adversely affected lending markets, and as a result Northland opted to change its refinancing strategy for Deutsche Bucht. Taking advantage of an improving lending environment, the refinancing of Deutsche Bucht’s debt is now expected to be completed in 2021. Consequently, the project's future cash flows from 2021 onwards are now expected to improve. The non-deferral of Deutsche Bucht scheduled debt repayment in December 2020 will reduce free cash flow by approximately $0.30 per share for the year, of which $0.15 has been deducted in the third quarter.
As a result of the above decision, management expects 2020 free cash flow per share to be in the range of $1.60 to $1.70 (formerly, $1.70 to $2.05).
Service Agreement for Nordsee One – Subsequent to the third quarter, Northland Power Europe (NPE), a subsidiary of Northland signed a service agreement with Nordsee One whereby NPE will provide turbine operations and maintenance (O&M) services to the facility. The contract will be effective December 2020 through 2027. The advantages to Northland of being able to provide these services include gaining a better fundamental understanding of the cost assumptions underpinning this offshore wind investment and will position the Company for cost-competitiveness in the post-tariff landscape. Furthermore, with the expertise and knowledge gained though the execution of these services, Northland will be able to apply these learnings to future offshore developments to enhance project profitability while ensuring a more balanced operational risk profile.
Preferred Shares Series 1 Rate Reset – On August 31, 2020, Northland announced the fixed quarterly dividends on the cumulative rate reset preferred shares, series 1 (“Series 1 Preferred Shares”) will be payable at an annual rate of 3.2% ($0.2001 per share per quarter) until September 29, 2025.
New York Onshore Wind Projects Acquisitions – In the third quarter of 2020, Northland expanded its North American portfolio with its entry into the U.S. renewables market through the closing of the acquisition of three onshore wind projects in New York State with a total gross capacity of approximately 300 megawatts and a purchase price of $5.6 million. Management expects to incur development costs related to the projects in 2020. These projects position Northland to actively participate in the growing renewables market in New York State, which is expected to grow by 26 GW by 2030. The acquisition of these projects is a continuation of Northland’s long-standing strategy of early entry into a project and leveraging its substantial experience and expertise in offshore and onshore wind to execute its first investment into the U.S. renewable energy sector.
Hai Long 1,044 MW Offshore Wind Development Project Update – Northland continues to develop the Hai Long 2B and Hai Long 3 sub-projects, allocated a total of 744 MW under auction, and expects to execute their respective offtake agreements in 2021. Additionally, as a result of the achievement of certain milestones, Northland commenced capitalization of Hai Long development costs in the third quarter in accordance with IFRS. For the nine months ended September 30, 2020, Northland incurred $29 million of development expenditures related to Hai Long, of which $16 million was expensed with the remainder being capitalized.
Addition to Northland’s Executive Team – Northland is pleased to announce that Rachel Stephenson will join Northland as Chief People Officer, effective January 1, 2021. Ms. Stephenson will succeed Mr. John Hannah, who will be retiring in early 2021. Ms. Stephenson will be responsible for leading all of Northland’s human resources functions globally. Ms. Stephenson will work closely with the Executive team to ensure Northland continues to build a culture that attracts, retains and develops high performance talent to deliver on its global growth objectives. Ms. Stephenson brings to Northland more than 15 years of leadership in human resources, including extensive experience leading human resources strategies and functions for national and global organizations across multiple sectors, and technologies covering North America, Europe, Asia and Latin America. Most recently, Ms. Stephenson served as Vice President Human Resources for a leading consumer goods company, where she led and oversaw the execution of the human resources strategic growth objectives for over 6,000 employees.
Summary of Consolidated Results
(in thousands of dollars, except per share amounts)
Three months ended September 30,
Nine months ended September 30,
2020
2019
2020
2019
FINANCIALS
Sales
$
470,867
$
378,437
$
1,567,793
$
1,220,799
Gross profit
418,403
355,945
1,422,687
1,136,871
Operating income
179,477
176,900
723,169
610,433
Net income (loss)
108,964
110,621
458,260
391,085
Adjusted EBITDA (1)
254,297
224,312
901,581
712,021
Cash provided by operating activities
278,381
241,554
1,011,102
890,789
Free cash flow (1)
60,582
74,112
289,494
251,125
Cash dividends paid to common shareholders (2)
55,399
54,119
177,266
162,243
Total dividends declared (2)
60,147
162,265
184,126
162,265
Per share information
Weighted average number of shares - basic (000s)
201,626
180,403
197,697
180,285
Common and class A shares outstanding (000s) (3)
201,753
180,392
201,753
180,392
Net income (loss) - basic
$
0.40
$
0.42
$
1.66
$
1.48
Free cash flow - basic (1)
$
0.30
$
0.41
$
1.46
$
1.39
Total dividends declared to common and class A shareholders
$
0.30
$
0.30
$
0.90
$
0.90
ENERGY VOLUMES
Electricity production in gigawatt hours (GWh) (4)
2,045
2,058
6,804
6,394
(1)
Refer to the Non-IFRS Financial Measures section of this press release for additional information.
(2)
Represents total dividends paid or declared to common and class A shareholders including dividends in cash or in shares under the dividend re-investment plan (DRIP), as well as the dividend equivalent payment to subscription receipt holders upon conversion to common shares on January 14, 2020.
(3)
As at September 30.
(4)
Includes Deutsche Bucht pre-completion production volumes. Refer to SECTION 4.1 Operating Results of the Management’s Discussion and Analysis for the period ended September 30, 2020, for additional information.
Third Quarter Results Summary
Offshore wind facilities
Electricity production was in line with the same quarter of 2019, after accounting for the incremental production from a full quarter of production from Deutsche Bucht in 2020. Excluding the contributions from Deutsche Bucht, production in the quarter was lower year over year with the decrease primarily due to low wind resource in the North Sea in the third quarter.
Sales of $257 million increased 11% or $25 million compared to the same quarter of 2019 primarily due to a $32 million increase in revenue from Deutsche Bucht and $15 million of favourable foreign exchange rate fluctuations, net of losses of $10 million from a lower wholesale market price at Gemini, and $3 million from unpaid curtailments due to grid repairs and $1 million from negative prices at Nordsee One and Deutsche Bucht. Operating income of $119 million decreased 5.8% or $7 million compared to the same period in 2019 primarily due to higher sales and operating costs, combined with depreciation charges at Deutsche Bucht since reaching final completion in March 2020. Adjusted EBITDA of $151 million increased 8% or $11 million compared to the same quarter of 2019 primarily driven by the start of Deutsche Bucht operations, as discussed above.
Efficient natural gas facilities
Electricity production decreased 3% or 31 GWh compared to the same quarter of 2019 primarily due to lower off-peak production at North Battleford, partially offset by higher production at Thorold due to favourable market conditions. Sales of $96 million were 2.1% or $2 million higher than the same quarter of 2019 primarily due to price escalation and higher production at Thorold due to favourable market conditions. Operating income of $48 million was in line with the same quarter of 2019 and adjusted EBITDA of $60 million was also largely in line with the same quarter of 2019 primarily due to offsetting factors across the efficient natural gas facilities and their contractual structure which generally ensures stable operating results as long as the facility is available.
On-shore renewable facilities
Electricity production was 5.6% or 15 GWh higher than the same quarter of 2019 primarily due to a higher wind resource partially offset by lower solar resource. Sales of $53 million were in line with the same period of 2019 primarily due to the same variances noted in electricity production. Operating income and adjusted EBITDA of $23 million and $38 million, respectively, were similarly also in line with the same period of 2019.
Utilities
Utilities include results of EBSA, a regulated power distribution utility in Colombia, which was acquired January 14, 2020. For the three months ended September 30, 2020, EBSA operations contributed approximately $22 million or 9% of total adjusted EBITDA largely in line with the past quarters of 2020.
General and administrative (G&A) costs
G&A costs of $28 million increased 31% or $7 million compared to the same quarter of 2019, of which, corporate G&A costs increased $4 million primarily due to increasing level of project development activities and higher personnel costs to support Northland’s growth. Operations G&A increased $3 million primarily due to the acquisition of EBSA and costs related to new energy marketing activities.
Finance costs
Net finance costs of $89 million increased 14% or $11 million compared to the same quarter of 2019 primarily due to the effect of previously capitalized interest costs on Deutsche Bucht loan ($6 million), interest on EBSA’s credit facilities and on borrowings to finance the EBSA Acquisition ($10 million), partially offset by lower interest costs as a result of scheduled principal repayments on facility-level loans ($2 million).
Fair value gain on derivative contracts
Fair value gains on derivative contracts were $15 million up $25 million from the same quarter of 2019 primarily due to the movement in the fair value of interest rate swaps and foreign exchange contracts.
Foreign Exchange
Foreign exchange gains of $37 million were primarily due to unrealized gains from fluctuations in the closing foreign exchange rates.
Other (income) expense
Other (income) expense totaled $5 million of income compared to a $1 million expense in 2019. The current year income primarily relates to several EBSA transactions.
Net income
Net income of $109 million decreased 1% or $2 million in the third quarter of 2020 compared to the same quarter of 2019 primarily as a result of the factors described above, as well as a $5 million lower tax expense.
Adjusted EBITDA
Adjusted EBITDA of $254 million for the three months ended September 30, 2020, increased 13.4% or $30 million compared to the same quarter of 2019. The significant factors increasing adjusted EBITDA include:
$22 million increase as a result of operations at EBSA, which is consolidated from the acquisition date of January 14, 2020; and
$21 million increase as a result of operating results from Deutsche Bucht which achieved commercial operations on March 31, 2020.
Partially offsetting these increases in adjusted EBITDA were:
$3 million increase in corporate items in adjusted EBITDA primarily due to an increasing level of project development activities;
$6 million decrease in operating results from Gemini due to lower wind resource in the third quarter and a lower wholesale market price; and
$4 million decrease in operating results from Nordsee One primarily due to lower wind resource and unpaid curtailments due to unscheduled grid repairs by the system operator.
Free Cash Flow
Free cash flow of $61 million for the three months ended September 30, 2020, was 18.3% or $14 million lower than the same quarter of 2019. The significant factors decreasing free cash flow include:
$43 million increase in scheduled principal repayments, primarily due to Deutsche Bucht and Grand Bend, which began in the first quarter of 2020;
$8 million increase in net interest expense primarily due to the effect of previously capitalized interest costs on Deutsche Bucht loan ($6 million), interest on EBSA’s credit facilities and on borrowings to finance the EBSA, partially offset by lower interest costs as a result of scheduled principal repayments on facility-level loans ($2 million);
$5 million increase in current tax expense primarily due to the addition of EBSA as well as higher current taxes at the offshore wind facilities, including Gemini becoming taxable in 2020; and
$3 million of non-expansionary capital expenditures primarily at EBSA.
Partially offsetting the decrease in free cash flow was a $49 million increase in overall earnings primarily due to the factors improving adjusted EBITDA, such as contributions from Deutsche Bucht and EBSA.
As at September 30, 2020, the rolling four quarter free cash flow net payout ratio was 64.8%, calculated on the basis of cash dividends paid compared to 60.7% for the same period in 2019. The increase in the free cash flow payout ratio, calculated on the basis of dividends paid was primarily due to higher cash dividends paid upon conversion of subscription receipts in January 2020 and the redemption of the convertible debentures into common shares in May 2020.
Outlook
Northland has successfully established a global platform with geographic and technology diversification across four continents. The Company actively pursues new sustainable infrastructure opportunities that encompass a range of clean technologies, including onshore and offshore renewables as well as electricity grid networks and is an operator of a regulated utility. The Company’s long-term growth strategy is centered on the development of its extensive pipeline of offshore wind projects in Europe and Asia which have the ability to increase long-term cash flow growth potential of the Company. These current projects encompass the 1,044 MW Hai Long, 600 MW Chiba and 1,000 MW Dado Ocean projects in Taiwan, Japan and South Korea, respectively. In addition to these projects, Northland continues to pursue further offshore development opportunities in Asia and Europe.
These longer-term opportunities are complemented by short- and mid-term development opportunities in onshore renewable projects in Europe, North America and Latin America. Current projects encompass the recently acquired 300 MW onshore wind projects in New York State and onshore renewable development opportunities in Colombia.
This strategy aligns with the view that the global decarbonization movement will result in profound growth within the industry. Successful implementation and execution of these development opportunities will position Northland to be key participant in this movement and will allow the Company to significantly grow its global position over the next 5 to 10 years. Today, Northland is a top-ten owner and developer of offshore wind assets globally by megawatt capacity.
Activity Update
Construction activities at Northland’s La Lucha solar project in Mexico are progressing with completion expected by end of the year.
As noted earlier, Northland closed the acquisition of three onshore wind development projects in New York State during the quarter with a total gross capacity of approximately 300 MW. The U.S. has a growing renewable energy market and Northland intends to expand its presence by leveraging the New York wind portfolio to target other projects and markets in the Northeast U.S. and establish a portfolio of onshore renewable projects in excess of 1.0 GW. Commercial operations is expected in 2022 and Northland intends to use a common non-recourse financing structure for the projects that will take full advantage of the qualifying U.S. renewable energy production tax credits.
In Colombia, Northland has leveraged its acquisition of EBSA and is actively pursuing onshore renewable development opportunities as part of its strategy of developing a platform for growth.
Investor Day
Northland will be hosting a virtual Investor Day in January 2021 to showcase the Company’s extensive development pipeline and outline its growth objectives for the next five years. In addition, the Company will provide an update on its environmental, social and governance (ESG) initiatives and other corporate developments. Additional details regarding the event will be provided in December 2020.
Third-Quarter Earnings Conference Call
Northland will hold an earnings conference call on November 11, 2020, to discuss its 2020 third quarter results. The call will be hosted by Mike Crawley, Northland’s President and Chief Executive Officer, and Pauline Alimchandani, Northland’s Chief Financial Officer, who will discuss the financial results and company developments before opening the call to questions from analysts and shareholders.
Conference call details are as follows:
Wednesday, November 11, 2020 10:00 a.m. ET
Toll free (North America): (866) 864-6943
Toll free (International): (949) 877-3040
The call will also be broadcast live on the internet, in listen-only mode and may be accessed on northlandpower.com. For those unable to attend the live call, an audio recording will be available on northlandpower.com on November 12, 2020.
Northland’s unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2020, and related Management’s Discussion and Analysis can be found on SEDAR at www.sedar.com under Northland’s profile and on northlandpower.com.
ABOUT NORTHLAND POWER
Northland Power is a global power producer dedicated to helping the clean energy transition by producing electricity from clean renewable resources. Founded in 1987, Northland has a long history of developing, building, owning and operating clean and green power infrastructure assets and is a global leader in offshore wind. In addition, Northland owns and manages a diversified generation mix including onshore renewables, solar and efficient natural gas energy, as well as supplying energy through a regulated utility.
Headquartered in Toronto, Canada, with global offices in eight countries, Northland owns or has an economic interest in 2.7 GW (net 2.3 GW) of operating generating capacity and a significant inventory of early stage development opportunities encompassing nearly 4.0 GW of potential capacity.
Publicly traded since 1997, Northland's common shares, Series 1, Series 2 and Series 3 preferred shares trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.B and NPI.PR.C, respectively.
NON-IFRS FINANCIAL MEASURES
This press release includes references to Northland’s adjusted earnings before interest, income taxes, depreciation and amortization (“adjustedEBITDA”) 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 4.4: Adjusted EBITDA, SECTION 4.5: Free Cash Flow and SECTION 5: CHANGES IN FINANCIAL POSITION of the current Management’s Discussion and Analysis, which can be found on SEDAR at www.sedar.com under Northland’s profile and on northlandpower.com, for an explanation of these terms and for reconciliations to the nearest IFRS measure.
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, revenue contracts, impact of COVID-19 pandemic, counterparty risks, contractual operating performance, variability of revenue from generating facilities powered by intermittent renewable resources, offshore wind concentration, natural gas and power market risks, operational risks, recovery of utility operating costs, permitting, construction risks, project development risks, acquisition risks, financing risks, interest rate and refinancing risks, liquidity risk, credit rating risk, currency fluctuation risk, variability of cash flow and potential impact on dividends, taxation, natural events, environmental risks, health and worker safety risks, market compliance risk, government regulations and policy risks, utility rate regulation risks, international activities, reliance on information technology, labour relations, reputational risk, insurance risk, risks relating to co-ownership, bribery and corruption risk, legal contingencies, and the other factors described in the “Risks Factors” section of Northland’s 2019 Annual Information Form, which can be found at www.sedar.com under Northland’s profile and on Northland’s website at northlandpower.com. 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 10, 2020. 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.
