Energia
Northland Power Reports First Quarter 2021 Results and Releases Fourth Annual Sustainability Report
Northland ” or the “ Company ”) (TSX: NPI) today reported financial results for three months ended March 31, 2021. All dollar amounts set out herein are in thousands of Canadian dollars, unless otherwise stated.
“We are off to a good start in 2021 with healthy first quarter financial results and strong progress on our growth plan,” said Mike Crawley, Northland's President and Chief Executive Officer. “Our near-term strategy has been to further diversify our portfolio and bolster our cash flow profile, to support the advancement of our 4 – 5 GW of identified development projects. We are very pleased to have made significant progress on this front, with our recent announcement of the acquisition of a 540 MW onshore renewables portfolio in Spain. This new portfolio helps diversify our asset base while adding high-quality regulated cash flows that will help fund the development of our large offshore wind projects, particularly as new markets and opportunities continue to emerge for offshore wind globally.”
First Quarter Highlights
“As a global operator of renewable energy projects, primarily focused on offshore wind, over 60% of our Adjusted EBITDA is generated from our offshore wind facilities in the North Sea,” said Pauline Alimchandani, Northland's Chief Financial Officer. “This segment experiences natural variations in wind resource, not only year over year, but also within any given year, resulting in variability in our business from quarter to quarter and year over year. However, over the course of time, this variability typically balances out. Our comparative performance in the first quarter 2021 was below long-term averages, compared to the performance in the first quarter of 2020 where offshore wind was well above historical norms. Even so, we generated solid financial results in the quarter and when combined with the relative stability in performance across the rest of our operating facilities and with offshore wind variability assumed to perform closer to long-term averages for the balance of the year, our full-year 2021 financial results are expected to remain in-line with guidance. Lastly, our balance sheet remains in solid position with approximately $875 million of liquidity on hand, following our recent $990 million equity raise, providing the Company with sufficient liquidity to execute on our identified growth initiatives.”
Financial Results
Sales, gross profit and net income, as reported under IFRS, include consolidated results of entities not wholly-owned by Northland, whereas non-IFRS financial measures include Northland's proportionate interest.
First Quarter Results Summary
Offshore wind facilities
A key performance indicator for the offshore wind facilities is historical long-term average (LTA), where available, of the power production of each offshore wind facility. The following table summarizes actual electricity production and the LTA:
Electricity production was 19% or 304 GWh lower than the same quarter of 2020, primarily due to low wind resource in the North Sea compared to last year, although consistent with quarterly and seasonal variability for offshore wind.
Sales of $371 million decreased 17% or $74 million compared to the same quarter of 2020 primarily due to lower wind resource in the North Sea, partially offset by $10 million of favourable foreign exchange rate fluctuations. Operating income and Adjusted EBITDA of $243 million and $242 million, respectively, decreased 24% or $78 million and 20% or $62 million compared to the same quarter of 2020 primarily due to low wind resource in the North Sea compared to the same quarter last year.
The following table summarizes Northland's share of lost revenues from factors other than the low wind resource:
Gemini's revenue arrangement includes a mechanism that tops up the average Dutch wholesale market price for the year (the “ APX ”) to a fixed contractual rate per megawatt hour ( MWh ), though subject to a floor price ( “SDE floor” ) of approximately €44/MWh. The SDE floor exposes Gemini to some market price risk if the APX falls below the SDE floor. The APX has averaged below the SDE Floor for four of the facility's five years of operation.
In 2020, Gemini experienced a significant decline in the APX below the SDE floor as a result of reduced energy consumption caused by pandemic-related lockdowns in Europe. As a result of this and the uncertainty relating to the duration of the pandemic, in the second quarter of 2020, Northland entered into financial derivatives for 2021, and to a lesser extent 2022 and 2023. These derivatives were effective in mitigating downside risk, with some exposure to lost revenues should the APX increase above the SDE Floor. Refer to Section 4.1: Operating Results of the MD&A for the three months ended March 31, 2021 and the 2020 Annual Report for additional information.
Through the first quarter of 2021, the APX increased above the SDE floor, in part prompted by continued rising natural gas and carbon prices in the European Union, resulting in $4 million of lost revenue, compared to $10 million in the prior year period. Subsequent to the first quarter, the APX has continued to increase and as a result, Northland commenced entering into financial derivatives that will limit Gemini's lost revenue for 2021 to similar levels as 2020.
As summarized in the table above, for the three months ended March 31, 2021, the German offshore wind facilities incurred fewer unpaid curtailments compared to the same quarter of 2020 due to fewer periods of negative prices.
Efficient natural gas facilities
Electricity production decreased 5% or 56 GWh compared to the same quarter of 2020 primarily due to lower overall production, including fewer dispatches at Thorold and lower off-peak production at North Battleford despite high availability across all facilities.
Sales for the three months ended March 31, 2021, increased 5% or $6 million compared to the same quarter of 2020 primarily due to higher flow through gas costs at North Battleford and annual price escalation at North Battleford and Thorold. Adjusted EBITDA was in line with the same quarter of 2020 largely due to the contractual structure of the efficient natural gas facilities which generally ensures stable operating results as long as the facilities remain available.
Onshore renewable facilities
Electricity production was in line with the same quarter of 2020 primarily due to a higher solar resource partially offset by a lower wind resource. Sales of $53 million were in line with the same period of 2020 primarily due to the same variances noted in electricity production. Adjusted EBITDA of $35 million was also similarly in line with the same period of 2020.
Utilities
Sales of $57 million for the three months ended March 31, 2021, increased 15% or $7 million compared to the same quarter of 2020 primarily due to partial contribution from EBSA last year as a result of its acquisition effective January 14, 2020 and due to optimization of operations under the regulated framework since the acquisition. Adjusted EBITDA increased 8% or $2 million compared to the same quarter of 2020 primarily due to the same factors, partially offset by the effect of differences in timing of recognition of regulated sales and associated pass-through costs.
General and administrative (G&A) costs
G&A costs of $16 million increased 27% or $3 million compared to the same quarter of 2020. Of this, G&A costs at the operating facilities were largely in line with the same quarter of 2020, while corporate G&A increased $3 million primarily due to higher personnel costs to support Northland's growth.
Development costs
Development costs of $14 million decreased 29% or $5 million compared to the same quarter of 2020 mainly due to the effect of the commencement of capitalization of the Hai Long project in the third quarter of 2020 and timing of acquisition costs incurred, partially offset by the increased business development and personnel costs.
Finance costs
Net finance costs of $87 million decreased 7% or $6 million compared to the same quarter of 2020 primarily due to lower facility-level loan balances as a result of scheduled principal repayments. The first quarter of 2020 also included interest on the convertible debentures which were redeemed in the second quarter of 2020.
Foreign exchange
Foreign exchange loss of $30 million is primarily due to unrealized losses from fluctuations in the closing foreign exchange rate.
Fair value gain on derivative contracts
Fair value gain on derivative contracts was $55 million compared to a $35 million loss in the same quarter of 2020 primarily due to the movement in the fair value of interest rate swaps and foreign exchange contracts.
Net income
Net income of $151 million decreased 45% or $124 million in the first quarter of 2021 compared to the same quarter of 2020 primarily as a result of the factors described above, as well as a goodwill write-off of $30 million on the Iroquois Falls facility and accelerated depreciation expense of $14 million on Iroquois Falls's property, plant and equipment due to the expiry of its PPA in December 2021, partially offset by a $2 million lower tax expense.
Adjusted EBITDA
Adjusted EBITDA of $360 million for the three months ended March 31, 2021, decreased 14% or $61 million compared to the same quarter of 2020. The significant factors decreasing Adjusted EBITDA include:
Factors partially offsetting these decreases in Adjusted EBITDA were:
Free Cash Flow
Free Cash Flow of $134 million for the three months ended March 31, 2021, was 36% or $77 million lower than the same quarter of 2020. The significant factors decreasing Free Cash Flow include:
The decrease in Free Cash Flow was partially offset by a $10 million decrease in current tax expense primarily due to lower contribution from offshore wind facilities.
Adjusted Free Cash Flow of $147 million for the three months ended March 31, 2021, was 34% or $77 million lower than the same quarter of 2020 due to the same factors affecting Free Cash Flow, with growth expenditures remaining relatively consistent year over year.
As at March 31, 2021, the rolling four quarter Free Cash Flow and the adjusted net payout ratio were 73% and 58%, respectively, calculated on the basis of cash dividends paid, compared to 58% and 52%for same quarter ending March 31, 2020. The increase in both net payout ratios was primarily due to lower Free Cash Flow and Adjusted Free Cash Flow partially offset by the reinstatement of the DRIP since September of 2020.
Sources of liquidity in addition to Free Cash Flow – In addition to Free Cash Flow generated, Northland utilizes additional sources of liquidity to fund growth and capital investments. Additional liquidity sourced by management during the three months ended March 31, 2021 is summarized as follows:
Significant Events and Updates
Outlook
Northland is committed to increasing shareholder value by creating high-quality projects underpinned by revenue arrangements that deliver predictable cash flows. Management actively seeks to invest in technologies and jurisdictions where Northland can benefit from an early-mover advantage and establish a meaningful presence while striving for excellence in managing Northland's operating facilities by enhancing their performance and value.
As of May 12, 2021, management continues to expect Adjusted EBITDA in 2021 to be in the range of $1.1 billion to $1.2 billion, Free Cash Flow per share in 2021 to be in the range of $1.30 to $1.50 and Adjusted Free Cash Flow per share in 2021 to be in the range of $1.80 to $2.00.
Northland continues to have sufficient liquidity available to address the impact of COVID-19, while executing on its growth objective. As a result, the Company will have approximately $875 million of liquidity on hand to fund growth initiatives, including its identified pipeline of offshore wind projects and other opportunities. Management continues to monitor global developments and their potential impacts on Northland's business activities and financial results.
First-Quarter Earnings Conference Call
Northland will hold an earnings conference call on May 13, 2021, to discuss its 2021 first 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.
Conference call details are as follows:
Thursday, May 13, 2021 10:00 a.m. ET
Conference ID: 6996410
Toll free (North America): (833) 693-0550
Toll free (International): (661) 407-1589
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 May 14, 2021.
Northland's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2021, and related Management's Discussion and Analysis can be found on SEDAR at www.sedar.com under Northland's profile and on northlandpower.com .
Annual and Special Meeting of Shareholders
Northland Power will hold its Annual Meeting of Shareholders (“Meeting”) on Wednesday, May 19, 2020, at 11 a.m. ET. Northland Power's Annual and Special meeting of shareholders will be held in a virtual-only meeting format. Shareholders will not be able to attend the meeting physically. Shareholders can attend the Meeting online, vote their shares electronically and submit questions during the Meeting, by visiting www.virtualshareholdermeeting.com/NPI2021 . Instructions are available at northlandpower.com/en/investor-centre/annual-general-meeting.aspx
Documents relating to the meeting are filed 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 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 to mid-stage development opportunities encompassing approximately 4 to 5 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 the Company's adjusted earnings before interest, income taxes, depreciation and amortization (“ Adjusted EBITDA ”), Free Cash Flow, Adjusted Free Cash flow and applicable payout ratios and per share amounts, measures not prescribed by International Financial Reporting Standards ( IFRS ), and therefore do not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. Non-IFRS financial measures are presented at Northland's share of underlying operations. These measures should not be considered alternatives to net income (loss), 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 Northland's non-IFRS financial measures and applicable payout ratio and per share amounts are widely accepted and understood financial indicators used by investors and securities analysts to assess the performance of a company, including its ability to generate cash through operations. For reconciliations of these non-IFRS financial measures to their nearest IFRS measure, refer to SECTION 4.5: Adjusted EBITDA for a reconciliation of consolidated net income (loss) under IFRS to reported Adjusted EBITDA and SECTION 4.6: Free Cash Flow and Adjusted Free Cash Flow for a reconciliation of cash provided by operating activities under IFRS to reported Free Cash Flow and Adjusted Free Cash Flow.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements including certain future oriented financial information 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. Northland's actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, the events anticipated by the forward-looking statements may or may not transpire or occur. 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 Northland's expectations or ability to complete the acquisition of the Spanish Portfolio in the third quarter of 2021, on the terms negotiated by Northland or at all, Northland's ability to integrate the Spanish Portfolio if the acquisition closes, the source of proceeds to pay for the acquisition of the Spanish Portfolio, future Adjusted EBITDA, Free Cash Flows (and as adjusted) and per share amounts, dividend payments and dividend payout ratios, guidance, and the closing date of the Offering, the completion of construction, completion, attainment of commercial operations, the potential for future production from project pipelines, 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, the ability to satisfy all closing conditions to the acquisition of the Spanish Portfolio and the Offering, respectively, risks associated with assets such as those in the Spanish Portfolio, Northland's ability to integrate the Spanish Portfolio, revenue contracts, impact of COVID-19 pandemic, Northland's reliance on the performance of its offshore wind facilities at Gemini, Nordsee One and Deutsche Bucht for approximately 60% of its adjusted EBITDA and Free Cash Flow, 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 2020 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 May 12, 2021. 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
2321 Rosecrans Avenue. Suite 2200
90245 El Segundo Stati Uniti