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Northland Power Reports Full Year and Fourth Quarter 2018 Results

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Results Reflect Successful Growth Strategy with Free Cash Flow per Share Up 30% and Adjusted EBITDA Up 17%

TORONTO, Feb. 21, 2019 (GLOBE NEWSWIRE) -- Northland Power Inc. (“Northland” or the “Company”) (TSX: NPI) today reported financial results for the three months and year ended December 31, 2018.

“2018 was a significant year for Northland. We continued to operate safely and efficiently, achieving strong growth in free cash flow and adjusted EBITDA,” said Mike Crawley, President and Chief Executive Officer of Northland. “Construction of Deutsche Bucht project remains on time and on budget, and we also remain well-positioned for continued growth. Our expansion into Asia has gained further traction, with the first of the three Hai Long offshore wind projects securing all approvals and permits. The next step for this 300 MW project will be executing its PPA.”

Highlights:

2018 Financial Results

  • Sales increased 13% from $1.4 billion in 2017 to $1.6 billion and gross profit increased 17% to $1.4 billion primarily as a result of all of Nordsee One’s turbines producing power in 2018 (whereas the project was under construction in 2017), higher wholesale market prices at Gemini and higher production at Thorold and North Battleford.
  • Adjusted EBITDA (a non-IFRS measure) increased 17% from $765 million in 2017 to $891 million primarily due to the same factors that increased sales and gross profit. Adjusted EBITDA of $891 million was at the upper end of the guidance range of $870 to $900 million.
  • Free cash flow per share (a non-IFRS measure) increased 30% from $1.46 in 2017 to $1.90 primarily as a result of contributions from Nordsee One, partially offset by higher scheduled principal debt repayments. Free cash flow per share was at the upper end of the guidance range of $1.75 to $1.95 per share.
  • Net income increased 47% from 2017 to $406 million primarily due to an increase in gross profit and improved other income, as well as non-cash fair value gain on derivative contracts.

Sales, gross profit and net income, as reported under IFRS, include consolidated results of entities not wholly-owned by Northland, whereas the above non-IFRS measures, adjusted EBITDA and free cash flow, only include Northland’s proportionate interest. Refer to Northland’s 2018 Annual Report for additional information on 2018 results.

2019 Outlook

  • In 2019, management expects adjusted EBITDA to be in the range of $920 to $1,010 million. The increase is primarily due to the addition of pre-completion earnings from Deutsche Bucht. Management expects free cash flow per share to be in the range of $1.65 to $1.95 per share in 2019, which includes the first full year of scheduled debt repayments at Nordsee One and higher costs related to the timing and the expanded scope of Northland’s international development activities.
  • Refer to the Outlook section of Northland’s 2018 Annual Report for additional information.

Construction Update

  • Deutsche Bucht 269 MW offshore wind project, North Sea, Germany – The Deutsche Bucht offshore wind project is progressing according to schedule and is on budget. As of today’s date, offshore installation of 31 monopile foundations was completed, with the two mono bucket foundations scheduled to be installed with the balance of plant during 2019. Project completion is expected by the end of 2019 with the project expected to add to free cash flow in 2020.
             
Summary of Consolidated Results            
(in thousands of dollars, except per share amounts) Three months ended December 31,   Year ended December 31,
    2018   2017   2018   2017
FINANCIALS              
  Sales $ 380,863     $ 394,611     $ 1,555,587     $ 1,376,256  
  Gross profit 351,130     365,026     1,441,366     1,236,717  
  Operating income 170,686     196,456     732,848     632,126  
  Net income (loss) 65,251     82,281     405,508     275,836  
  Adjusted EBITDA (1) 221,275     238,675     891,484     765,176  
  Cash provided by operating activities 291,160     257,642     1,133,884     849,007  
  Free cash flow (1) 88,659     69,547     337,623     256,100  
  Cash dividends paid to common and class A shareholders 44,147     34,254     163,605     134,307  
  Total dividends declared (2)
53,538     49,068     212,353     189,981  
                 
Per share information              
  Net income (loss) - basic $ 0.23     $ 0.25     $ 1.50     $ 0.85  
  Free cash flow - basic (1) $ 0.50     $ 0.40     $ 1.90     $ 1.46  
  Total dividends declared (2) $ 0.30     $ 0.28     $ 1.20     $ 1.09  
                 
ENERGY VOLUMES              
  Electricity production in gigawatt hours (GWh) (3) 2,359     2,307     8,254     7,193  
(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 Management’s Discussion and Analysis for year ended December 31, 2018, for additional information.
 

Fourth Quarter Results Summary

Offshore wind facilities

Electricity production, including pre-completion production, decreased 45 GWh (or 4%) compared to the same quarter of 2017 primarily due to lower wind resource in the North Sea, partially offset by the effect of all of Nordsee One’s turbines producing power in 2018, whereas the project was under construction in 2017.

Sales and adjusted EBITDA of $220.9 million and $132.8 million decreased $12.6 million and $11.7 million, respectively, compared to the same quarter of 2017 as a result of a change in an accounting estimate at Gemini in the quarter totaling €10.2 million (or $9.2 million at Northland’s interest) to account for a lower subsidy as a result of a higher than expected average wholesale market price for the year. The change in estimate did not affect the full year results. Foreign exchange rate fluctuations resulted in $2.2 million higher revenue compared to the same quarter of 2017.

Thermal facilities

Electricity production increased 102 GWh or 13% compared to the same quarter of 2017 primarily due to higher production at Thorold, resulting from favourable market conditions, and at North Battleford, resulting from favourable operating conditions and the loss of production in 2017 from a major maintenance outage. These positive variances were partially offset by a maintenance outage at Kirkland Lake in the fourth quarter of 2018.

Sales of $107.7 million decreased $4.4 million compared to the same quarter of 2017 primarily due to a maintenance outage and lower curtailment revenue at Kirkland Lake as well as a reduced rate escalation factor from the system operator recognized in the second quarter of 2018 at Iroquois Falls. These variances were partially offset by higher production at North Battleford and Thorold. Operating income of $56.7 million decreased $2.0 million compared to the same quarter of 2017 primarily as a result of lower gross profit. Adjusted EBITDA of $72.9 million increased $1.4 million compared to the same quarter of 2017 primarily due to management fees received from Kirkland Lake which offset the decrease in operating income.

On-shore renewable facilities

Electricity production was largely in line with the same quarter of 2017 because lower wind resource at Jardin and lower solar resource offset higher production at Grand Bend. Sales of $47.9 million were $1.1 million lower than the same quarter of 2017 primarily due to cloud cover at the solar facilities, partially offset by higher production at Grand Bend. Operating income and adjusted EBITDA for the renewable facilities was $1.2 million and $1.7 million, respectively, lower than the same quarter of 2017 largely due to lower production at the solar facilities.

General and administrative (“G&A”) costs

Corporate G&A costs of $19.8 million increased $5.8 million compared to the same quarter of 2017 primarily due to the timing of expenditures related to project development activities and higher personnel costs. Facilities G&A costs decreased $4.5 million primarily as a result of certain non-recurring costs incurred in the same quarter of 2017 at Gemini associated with project completion.

Finance costs

Finance costs, net, decreased $11.4 million compared to the same quarter of 2017 primarily due to declining interest costs as a result of scheduled principal repayments.

Net income

The factors described above, combined with fair value losses on derivative contracts due to movements in the fair value of interest rate swaps and foreign exchange contracts, partially offset by other income comprising insurance proceeds received, contributed to net income of $65.3 million in the fourth quarter of 2018 compared to net income of $82.3 million for the same quarter of 2017.

Adjusted EBITDA

Adjusted EBITDA of $221.3 million for the fourth quarter of 2018 was $17.4 million lower than the fourth quarter of 2017. The significant factors decreasing adjusted EBITDA were:

  • $9.2 million decrease due to a change in an accounting estimate at Gemini in the quarter to account for a lower subsidy as a result of a higher than expected average wholesale market price for the year;
  • $6.6 million decrease at Nordsee One primarily due to higher plant operating costs in 2018 since the project was under construction in 2017, as well as lower sales due to extended periods of negative power pricing during which Nordsee One did not receive its tariff; and
  • $5.9 million increase in relevant corporate G&A costs primarily due to the timing of expenditures related to project development activities and higher personnel costs.

The primary factors partially offsetting the decrease in adjusted EBITDA was:

  • $3.9 million increase due to higher wholesale market prices at Gemini compared to the same period in 2017; and
  • $3.8 million increase in operating results from North Battleford primarily due to favourable operating conditions, gas optimization activities and the effect of the 2017 major maintenance outage at the facility.

Free Cash Flow

Free cash flow of $88.7 million for the fourth quarter of 2018 was $19.1 million higher than the fourth quarter of 2017.

Significant factors increasing free cash flow were:

  • $83.8 million increase at Nordsee One, which was under construction in 2017; and
  • $5.0 million increase due to higher wholesale market prices at Gemini compared to the same period in 2017.

Factors partially offsetting the increase in free cash flow include:

  • $36.7 million increase in scheduled principal repayments primarily for Gemini and Nordsee One debt;
  • $11.2 million increase in current taxes related to Nordsee One;
  • $9.2 million decrease due to a change in an accounting estimate at Gemini in the quarter to account for a lower subsidy as a result of a higher than expected average wholesale market price for the year;
  • $5.8 million increase in relevant corporate G&A costs primarily due to the timing of expenditures related to project development activities and higher personnel costs; and
  • $3.5 million increase in funds set aside for maintenance, debt and decommissioning reserves primarily due to decommissioning reserve funding at Nordsee One.

As at December 31, 2018, the rolling four quarter free cash flow net payout ratio was 48.5%, calculated on the basis of cash dividends paid and 62.8% calculated on the basis of total dividends, compared to 52.4% and 73.4%, respectively, in 2017. The improvement in the free cash flow payout ratios from 2017 was primarily due to contributions from Nordsee One.

For management’s discussion and analysis of Northland’s full year 2018 results, refer to the Company’s 2018 Annual Report.

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 5.4: Adjusted EBITDA and SECTION 5.5: Free Cash Flow of the current Management’s Discussion and Analysis, which can be found on SEDAR at www.sedar.com under Northland’s profile and on Northland’s website at northlandpower.com, 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 22, 2019 to discuss its 2018 fourth quarter results. Mike Crawley, 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 shareholders.

Conference call details are as follows: 
Friday, February 22, 2019 10:00 a.m. ET
Toll free (North America):    (844) 284-3434
Toll free (International):       (949) 877-3040

For those unable to attend the live call, an audio recording will be available on Northland’s website at northlandpower.com on February 25, 2019.

ABOUT NORTHLAND POWER

Northland Power is an independent power producer founded in 1987, and publicly traded since 1997. Northland develops, builds, owns and operates sustainable infrastructure assets that produce ‘clean’ (natural gas) and ‘green’ (wind, solar, and hydro) energy, providing stable long-term value to shareholders, stakeholders, and host communities.

Northland owns or has an economic interest in 2,429 MW (net 2,014 MW) of operating power capacity and is currently constructing the 269 MW Deutsche Bucht offshore wind project located in the German North Sea. In addition, Northland has 60% equity interest in the 1,044 MW Hai Long projects (net 626 MW) under advanced development in Taiwan.

Northland’s common shares, Series 1, Series 2, and Series 3 preferred shares and Series C convertible debentures trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A, NPI.PR.B, NPI.PR.C, 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, revenue contracts, 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, permitting, construction risks, project development 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, health and worker safety risks, market compliance risk, government regulations and policy 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 2018 Annual Information Form dated February 21, 2019, 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 February 21, 2019.  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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