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Northland Power Reports Second Quarter 2020 Results

August 12, 2020

Continued Resilience and Stability Amid the Uncertainty Created by the COVID-19 Pandemic

TORONTO, Aug. 12, 2020 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) today reported financial results for three and six months ended June 30, 2020. All dollar amounts are in Canadian dollars, unless otherwise stated.

“Our business has demonstrated resilience during the first half of the year amidst the challenges presented to the economy as a result of the COVID-19 pandemic,” said Mike Crawley, Northland’s President and Chief Executive Officer. “We are pleased with the financial results of our business and are extremely proud of how our employees have responded to the crisis." "Our efforts remain focused on ensuring our employees, contractors and communities across our global operations are safe and healthy, while continuing to deliver our essential services. During the period, we strengthened our senior executive team and added expertise to enhance Northland’s sustainability and power purchase agreement origination initiatives. We also increased our liquidity position through new financings that provided us with ample resources to advance our development projects as part of our long-term growth strategy.”

Second Quarter Highlights

Financial Results

  • Sales increased 25% to $429 million from $344 million in 2019 and gross profit increased 20% to $386 million from $322 million.
  • Adjusted EBITDA (a non-IFRS measure) increased 17% to $227 million from $194 million in 2019.
  • Free cash flow per share (a non-IFRS measure) decreased 55% to $0.09 from $0.20 in 2019.
  • Net income decreased 3% to $74 million from $76 million in 2019.
  • 2020 Financial Guidance remains unchanged with management continuing to expect adjusted EBITDA in 2020 to be in the range of $1.1 billion to $1.2 billion and free cash flow per share in 2020 to be in the range of $1.70 to $2.05.

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

  • COVID-19 Business Update – 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.

    The impact of COVID-19 has had significant effects across global economies and sectors, including reduced power demand within the renewable energy sector. 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 half of 2020 have had a moderately negative effect on Northland’s revenues. Construction activities at La Lucha solar project in Mexico are currently progressing on schedule but could be affected by construction services and contractor unavailability as a result of COVID-19. 

    Management believes Northland has sufficient liquidity available to limit the impact of COVID-19. Primarily as a result of two facility-level financings completed in the quarter, as at June 30, 2020, Northland had access to $561 million of cash and liquidity, comprising $106 million of corporate cash on hand and $455 million of liquidity available under its syndicated revolving facility.
  • Northland Reinstates the Treasury Dividend Reinvestment Plan – On August 12, 2020, Northland announced a change to the discount rate applicable to its DRIP, whereby common shareholders and Class A shareholders may elect to reinvest their dividends in common shares of Northland at 3% discount, from the previous 0% discount. Additionally, Northland intends to issue shares from treasury for purposes of the DRIP participants, but reserves the right to source shares through market purchases. This change is effective with the dividend currently scheduled to be paid on September 15, 2020, to shareholders of record on August 31, 2020. Management expects the net result will be a reinvestment of cash dividends into Northland, thus contributing to the funding of select growth initiatives.

  • EBSA, Colombian Regulated Power Distribution Utility Acquisition On July 7, 2020, Northland finalized the purchase price for its January 14, 2020 acquisition of a 99.2% interest in a power distribution utility, Empresa de Energía de Boyacá (“EBSA”), in Colombia for a total purchase price of COP 2,530 billion ($1,007 million) including existing debt of COP 550 billion ($219 million) (the “EBSA Acquisition”). Pursuant to the share purchase agreement, the purchase price had been subject to post-closing adjustments following a review of the final tariff resolution. Concurrent with the final tariff resolution, the final purchase price was adjusted from COP 2,412 billion ($960 million).

  • EBSA Financing Update – On June 24, 2020, Northland entered into a long-term, non-recourse financing agreement on behalf of EBSA for an aggregate amount of approximately $465 million (“EBSA Facility”), inclusive of a Canadian dollar tranche and a Colombian peso tranche. The financing closed in July 2020 and replaced the interim bridge credit facility (“EBSA Bridge”) previously in place as well as facility-level borrowings. The EBSA Facility is structured as a $450 million term loan and a $15 million debt service reserve credit facility, for an initial two-year term, which Northland expects to renew annually. The facility has a blended interest rate of 5.3% and provides Northland with the ability to upsize EBSA’s capital structure annually by increasing leverage commensurate with expected increases in EBSA’s operating results.

  • North Battleford Upsizing of Non-Recourse Debt – On June 30, 2020, Northland upsized the debt on the North Battleford loan, generating gross proceeds of $52 million at an effective interest rate of 2.1%. The bond principal increased by $44 million to $577 million. Net proceeds will be used for general corporate purposes and to fund growth.

  • Base Shelf Prospectus Renewal – On June 9, 2020, Northland filed a base shelf prospectus with the securities regulatory authorities to replace Northland's expiring base shelf prospectus dated May 24, 2018. The base shelf prospectus will enable Northland to offer an aggregate of up to $1 billion of common shares, preferred shares, warrants, unsecured debentures, subscription receipts and units or any combination thereof, over a 25-month period.

  • Addition to Northland’s Executive Team – On June 23, 2020, Northland announced the appointment of Wendy Franks as Executive Vice President, Strategy and Investment Management, effective June 29, 2020. Ms. Franks brings to Northland more than 15 years of leadership in business strategy, investment management, and making strategic investments in transformative growth opportunities (both organic and M&A focused) across multiple technologies and jurisdictions within the renewable energy and infrastructure asset sectors.
       
Summary of Consolidated Results      
(in thousands of dollars, except per share amounts)Three months ended June 30, Six months ended June 30,
 2020 2019 2020 2019
FINANCIALS       
Sales$429,231 $343,822 $1,096,926 $842,362
Gross profit385,509 322,003 1,004,284 780,926
Operating income149,141 145,945 543,692 433,533
Net income (loss)74,277 76,234 349,296 280,464
Adjusted EBITDA (1)226,513 194,034 647,284 487,709
Cash provided by operating activities365,127 341,441 732,721 649,235
        
Free cash flow (1)17,448 35,174 228,911 177,013
Cash dividends paid to common and class A shareholders (2)59,150 54,062 121,867 108,124
Total dividends declared (2)

59,820 108,143 123,979 108,143
        
Per share information       
Weighted average number of shares - basic (000s)198,842 180,246 195,711 180,225
Common and class A shares outstanding (000s) (3)201,626 180,392 201,626 180,392
Net income (loss) - basic$0.26 $0.28 $1.27 $1.06
Free cash flow - basic (1)$0.09 $0.20 $1.17 $0.98
Total dividends declared to common and class A shareholders$0.30 $0.30 $0.60 $0.60
        
ENERGY VOLUMES       
Electricity production in gigawatt hours (GWh) (4)1,785 1,797 4,759 4,336


(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 June 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 June 30, 2020, for additional information.
  

Second Quarter Results Summary

Offshore wind facilities

Electricity production increased 10% or 65 GWh compared to the same quarter of 2019. The increase was primarily due to the additional production from Deutsche Bucht partially offset by lower wind resource in the North Sea and increased periods of unpaid curtailment due to a significant unscheduled outage by the system operator for grid repairs that affected Nordsee One and Deutsche Bucht.

Sales of $215 million increased 11% or $22 million compared to the same quarter of 2019 primarily due to $40 million of revenue from Deutsche Bucht and $3 million of favourable foreign exchange rate fluctuations, net of losses of $2 million from a lower wholesale market price below the SDE floor at Gemini, $13 million from unpaid curtailments due to grid repairs and $6 million from negative prices at Nordsee One and Deutsche Bucht. Operating income of $87 million decreased 4.9% or $4 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 $126 million increased 18% or $19 million compared to the same quarter of 2019 primarily driven by the start of Deutsche Bucht operations, as discussed above.

Thermal facilities

Electricity production decreased 10% or 83 GWh compared to the same quarter of 2019 primarily due to lower off-peak production at North Battleford. Sales, operating income and adjusted EBITDA of $92 million, $49 million and $60 million, respectively, were largely in line with the same quarter of 2019 primarily due to offsetting factors across the thermal 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 largely in line with the same quarter of 2019, primarily due to a higher solar resource partially offset by overall lower wind resource. Sales of $61 million increased 5% or $3 million compared to the same quarter of 2019 primarily due to higher solar production. Production variances at the solar facilities have a larger effect on sales than the wind facilities since solar facilities receive a higher contracted price per MW. Operating income and adjusted EBITDA of $32 million and $43 million, respectively, increased 22% or $6 million and 9% or $4 million primarily due to higher production and lower operating costs.

Utilities

Utilities include results of EBSA, a regulated power distribution utility in Colombia, which was acquired January 14, 2020. For the three months ended June 30, 2020, EBSA operations contributed approximately $23 million or 10% of total adjusted EBITDA largely in line with the first quarter of 2020.

General and administrative (G&A) costs

G&A costs of $35 million increased 62% or $13 million compared to the same quarter of 2019, of which, corporate G&A costs increased $11 million primarily due to $8 million higher development costs related to the Hai Long offshore wind project as well as higher personnel costs to support Northland’s growth. Operations G&A increased $2 million primarily due to costs incurred at EBSA.

Finance costs

Net finance costs of $88 million increased 11% or $8 million compared to the same quarter of 2019 primarily due to the effect of previously capitalized interest costs on Deutsche Bucht loan, interest on EBSA’s credit facilities and on borrowings to finance the EBSA Acquisition, partially offset by declining interest costs as a result of scheduled principal repayments on facility-level loans.

Fair value gain on derivative contracts

Fair value gain on derivative contracts was $30 million up $4 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 loss of $20 million is primarily due to unrealized losses from fluctuations in the closing foreign exchange rates.

Other (income) expense

Other (income) expense totaled $32 million of income primarily as a result of proceeds received from the sale of turbines originally intended for use with mono-bucket foundations at Deutsche Bucht as well as accrued insurance proceeds related to construction of Deutsche Bucht.

Net income

Net income of $74 million decreased 3% or $2 million in the second quarter of 2020 compared to the same quarter of 2019 primarily as a result of the factors described above, as well as a $6 million higher tax expense.

Adjusted EBITDA

Adjusted EBITDA of $227 million for the second quarter of 2020 was 17% or $32 million higher than the second quarter of 2019. The significant factors increasing adjusted EBITDA include:

  • $31 million increase as a result of operating results from Deutsche Bucht which achieved commercial operations on March 31, 2020;
  • $23 million increase as a result of operations at EBSA, which is consolidated from the acquisition date of January 14, 2020; and
  • $4 million increase in operating results from onshore renewables facilities due to higher solar resource.

Factors partially offsetting the increase in adjusted EBITDA include:

  • $13 million increase in corporate items in adjusted EBITDA primarily due to an increasing level of project development activities, including $8 million higher costs from the Hai Long offshore wind project;
  • $7 million decrease in operating results from Nordsee One primarily due to lower wind resource and unpaid curtailments due to unscheduled grid maintenance by the system operator; and
  • $5 million decrease in operating results from Gemini due to lower wind resource in the second quarter and the wholesale market price falling below the SDE floor.

Free Cash Flow

Free cash flow of $17 million for the second quarter of 2020 was 50% or $18 million lower than the second quarter of 2019.

The significant factors decreasing free cash flow include:

  • $41 million increase in scheduled principal repayments, primarily due to Deutsche Bucht’s first repayment in June 2020 and principal repayments at Grand Bend, which began in the first quarter of 2020;
  • $12 million increase in corporate G&A primarily due to an increasing level of project development activities, including $8 million higher costs from the Hai Long offshore wind project;
  • $9 million increase in net interest expense primarily due to the effect of previously capitalized interest costs on Deutsche Bucht loan, interest on EBSA’s credit facilities and on borrowings to finance the EBSA Acquisition, partially offset by declining interest costs as a result of scheduled principal repayments on facility-level loans; and
  • $2 million of non-expansionary capital expenditures primarily at EBSA.

Partially offsetting the decrease in free cash flow was a $46 million increase in overall earnings primarily due to the factors improving adjusted EBITDA, such as contributions from Deutsche Bucht and EBSA.

As at June 30, 2020, the rolling four quarter free cash flow net payout ratio was 62.1%, calculated on the basis of cash dividends paid compared to 58.4% 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 from the conversion of subscription receipts in January 2020 and the redemption of the convertible debentures into common shares in May 2020.

Outlook

Northland actively pursues new sustainable infrastructure opportunities that encompass a range of clean technologies, including wind, solar and natural gas power generation as well as electricity grid networks and is an operator of a regulated utility.

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 half of 2020 have had a moderately negative effect on Northland’s revenues. Construction activities at La Lucha solar project in Mexico are currently progressing on schedule but could be affected by construction services and contractor unavailability as a result of COVID-19. 

While Northland’s offshore wind facility results have been affected by low wholesale prices for the six months ended June 30, 2020, as of August 12, 2020, management continues to expect adjusted EBITDA in 2020 to be in the range of $1.1 billion to $1.2 billion and free cash flow per share in 2020 to be in the range of $1.70 to $2.05, unchanged from February 2020.

Earnings Conference Call

Northland will hold an earnings conference call on August 13, 2020, to discuss its 2020 second 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:

Thursday, August 13, 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 August 14, 2020.

Northland’s unaudited interim condensed consolidated financial statements for the three and six months ended June 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 developer, owner and operator of sustainable infrastructure assets that deliver predictable cash flows. Headquartered in Toronto, Canada, Northland was founded in 1987 and has been publicly traded since 1997 on the Toronto Stock Exchange (TSX: NPI).

The Company owns or has an economic interest in 2,681 MW (net 2,266 MW) of operating generating capacity and 130 MW of generating capacity under construction, representing the La Lucha solar project in Mexico. Northland also owns a 60% equity stake in the 1,044 MW Hai Long project under development in Taiwan and operates a regulated utility business in Colombia.

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 (“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 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, 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 August 12, 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.

For further information, please contact:

Mr. Wassem Khalil, Senior Director, Investor Relations
647-288-1019
investorrelations@northlandpower.com
northlandpower.com

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