Northland Power Inc. (“
Northland” or the
“
Company”) (TSX:
NPI) reported
today financial results for the three and nine months ended
September 30, 2022. All dollar amounts set out herein are in
thousands of Canadian dollars, unless otherwise stated.
“Our financial and operating performance through
the third quarter and nine months of the year has been strong,
supported by high availability across our portfolio leading to
solid operational performance and higher power prices in
Europe,” said Mike Crawley, Northland’s President and Chief
Executive Officer. “We are affirming our full-year guidance for
2022, which was updated with our second quarter results in August
and subsequently reflects our decision to pay down more debt in the
fourth quarter on our facilities with the cash flows realized from
higher operational performance in 2022. Operationally, we are
particularly proud of our German operations team in leading a very
successful bearings replacement campaign at Nordsee One on budget
and ahead of schedule, maximizing the potential for revenue
generation in the fourth quarter of 2022. In Asia, we continue to
advance Hai Long with the project signing significant construction
contracts for key elements including turbines, foundations, cable
arrays and substations. In Europe, energy security continues to be
a top priority and expanding the build out of renewable energy
remains a primary objective. Northland remains a key player in
European energy security ambitions with nearly 2.0GW of development
projects in Europe set to hit financial close within the next two
years.”
Third Quarter Highlights
Financial Results
-
Sales increased to $556 million from $432 million
in 2021 and Gross profit increased to $484 million
from $383 million in 2021.
- Adjusted
EBITDA (a non-IFRS measure) increased to $290 million from
$211 million in 2021.
- Adjusted
Free Cash Flow per share (a non-IFRS measure) increased to
$0.28 from $0.15 in 2021.
- Free
Cash Flow per share (a non-IFRS measure) increased to
$0.19 from $0.05 in 2021.
- Net
income increased to $76 million from net loss of $5
million in 2021.
-
Financial Guidance: management is re-affirming its
full-year expectations for Adjusted EBITDA, Adjusted Free Cash Flow
(“AFCF”) and Free Cash Flow
(“FCF”) per share. Refer to the Financial Outlook
section for additional information.
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 ownership interest.
Summary of Consolidated Results |
|
|
|
|
|
|
(in thousands of
dollars, except per share amounts) |
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
FINANCIALS |
|
|
|
|
|
|
|
|
Sales |
$ |
555,854 |
|
$ |
432,078 |
|
|
$ |
1,807,700 |
|
$ |
1,453,165 |
|
Gross profit |
|
484,103 |
|
|
383,449 |
|
|
|
1,604,818 |
|
|
1,299,884 |
|
Operating income |
|
216,466 |
|
|
89,018 |
|
|
|
821,757 |
|
|
513,170 |
|
Net income (loss) |
|
76,089 |
|
|
(4,668 |
) |
|
|
631,535 |
|
|
140,351 |
|
Adjusted EBITDA (a non-IFRS
measure) |
|
289,763 |
|
|
210,669 |
|
|
|
1,045,105 |
|
|
773,356 |
|
|
|
|
|
|
|
|
|
|
Cash provided by operating
activities |
|
523,338 |
|
|
280,397 |
|
|
|
1,282,294 |
|
|
1,049,927 |
|
Adjusted Free Cash Flow (a
non-IFRS measure) |
|
66,367 |
|
|
34,665 |
|
|
|
420,362 |
|
|
204,354 |
|
Free Cash Flow (a non-IFRS
measure) |
|
44,670 |
|
|
11,068 |
|
|
|
364,588 |
|
|
151,060 |
|
Cash dividends paid |
|
49,673 |
|
|
44,728 |
|
|
|
145,508 |
|
|
128,067 |
|
Total dividends declared
(1) |
$ |
71,957 |
|
$ |
67,817 |
|
|
$ |
210,410 |
|
$ |
196,199 |
|
|
|
|
|
|
|
|
|
Per
Share |
|
|
|
|
|
|
|
|
Weighted average number of
shares - basic (000s) |
|
238,011 |
|
|
225,964 |
|
|
|
232,712 |
|
|
216,264 |
|
Net income (loss) - basic |
$ |
0.33 |
|
$ |
(0.03 |
) |
|
$ |
2.32 |
|
$ |
0.36 |
|
Adjusted Free Cash Flow -
basic (a non-IFRS measure) |
$ |
0.28 |
|
$ |
0.15 |
|
|
$ |
1.81 |
|
$ |
0.94 |
|
Free Cash Flow - basic (a
non-IFRS measure) |
$ |
0.19 |
|
$ |
0.05 |
|
|
$ |
1.57 |
|
$ |
0.70 |
|
Total dividends declared |
$ |
0.30 |
|
$ |
0.30 |
|
|
$ |
0.90 |
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
ENERGY
VOLUMES |
|
|
|
|
|
|
|
|
Electricity production in gigawatt hours
(GWh) |
|
2,129 |
|
|
1,815 |
|
|
|
7,130 |
|
|
5,929 |
(1) Represents
total dividends paid to common shareholders including dividends in
cash or in shares under the DRIP. |
Third Quarter Results Summary
Offshore wind facilities
Electricity production increased 9% or 67GWh
compared to the same quarter of 2021 primarily due to higher wind
resource, no unpaid curtailments related to negative prices and
fewer uncompensated grid outages at the German facilities.
Sales of $278 million increased 41% or $80
million compared to the same quarter of 2021 primarily due to
higher market prices and electricity production across all offshore
wind facilities, partially offset by the foreign exchange rate
fluctuations due to weakening of the Euro. The continued strength
in energy prices across Europe resulted in revenue above the
respective SDE and FIT rates at the three offshore wind facilities
in the quarter. Wholesale market prices exceeding the FIT and the
SDE at the offshore wind facilities allowed for the realization of
$76 million (at Northland’s share) of higher sales in the quarter.
Adjusted Free Cash Flow and Free Cash Flow are largely hedged and
therefore virtually unaffected by foreign exchange rate
fluctuations. The final revenues realized for 2022 will depend on
the average APX prices over the course of the year, which could
vary from what has been recorded for the three and nine months
ended September 30, 2022.
Adjusted EBITDA of $176 million increased 69% or
$72 million compared to the same quarter of 2021. The increase was
primarily driven by higher wind resource and higher market prices
across all offshore wind facilities, no unpaid curtailments related
to negative prices in Germany and fewer uncompensated outages at
the German facilities, partially offset by foreign exchange rate
fluctuations.
An important indicator for performance of
offshore wind facilities is the historical average power production
of the facility, where available. The following table summarizes
actual electricity production and the historical average, high and
low for the applicable operating periods of each offshore
facility:
Three months ended September 30, |
2022 (1) |
|
2021 (1) |
|
Historical Average (2) |
|
Historical High
(2) |
|
Historical Low
(2) |
Electricity production (GWh) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gemini |
436 |
|
397 |
|
446 |
|
524 |
|
397 |
Nordsee One |
179 |
|
173 |
|
192 |
|
220 |
|
173 |
Deutsche Bucht |
185 |
|
164 |
|
173 |
|
185 |
|
164 |
Total |
800 |
|
734 |
|
|
|
|
|
|
(1) Includes GWh
produced and attributed to paid curtailments. |
(2) Represents the
historical power production for the period since the commencement
of commercial operation of the respective facility (2017 for Gemini
and Nordsee One, and 2020 for Deutsche Bucht) and excludes unpaid
curtailments. |
Nordsee One Component Issue (Bearings
Replacement Campaign)
Nordsee One’s campaign to replace the main rotor
shaft assembly (RSA) on all 54 turbines has been successfully
completed ahead of schedule. Completion of the campaign resulted in
lower revenue loss and more importantly, will ensure the
availability of the turbines ahead of the fourth quarter, which is
typically a stronger period for wind resource. The total cost of
the campaign was in line with previously disclosed expectations and
was effectively covered by the warranty bond settlement proceeds of
€58 million ($67 million at Northland’s share) received in 2020
relating to then-outstanding warranty obligations of Nordsee One’s
turbine manufacturer.
Onshore renewable
facilities
Electricity production was 38% or 133GWh higher
than the same quarter of 2021 due to higher onshore wind and solar
resources generally across all onshore facilities.
Sales of $95 million were 27% or $20 million
higher than the same quarter of 2021 primarily due to the
contribution from the Spanish portfolio and taking into account the
increase in 2022 posted prices in the current regulatory period in
Spain. Effective mid-2022, these regulatory amendments raised the
posted price from €49/MWh to €122/MWh, retroactive from January 1,
2022, thus allowing generation facilities to realize higher sales
in the year.
Adjusted EBITDA of $61 million was higher than
the same quarter of 2021. Excluding the contribution from the
Spanish portfolio, sales and Adjusted EBITDA in the third quarter
would have been 8% and 5% higher, respectively, compared to the
same quarter of 2021, primarily due to higher wind and solar
resource.
Efficient natural gas facilities
Electricity production increased 16% or 115GWh
compared to the same quarter of 2021 due to the effect of a
maintenance outage last year at Thorold and higher dispatches at
Kirkland Lake, partially offset by the sale of Iroquois Falls.
Sales of $111 million increased 9% or $9 million
compared to the same quarter of 2021 primarily due to higher
production at Thorold and Kirkland, partially offset by the sale of
Iroquois Falls.
Adjusted EBITDA of $52 million decreased 18% or
$11 million compared to the same quarter of 2021 primarily due to
the expiry of the PPA at (and subsequent sale of) Iroquois
Falls.
Utilities
Sales and Adjusted EBITDA of $70 million and $30
million, respectively, increased 24% or $13 million and 29% or $7
million compared to the same quarter of 2021 largely due to rate
escalations, driven by a higher Colombian producer price index,
positively affecting EBSA’s 2022 financial performance.
As previously disclosed, in December 2021,
Northland restructured and upsized EBSA’s long-term, non-recourse
financing (the “EBSA Facility”), resulting in $84
million of incremental cash proceeds to Northland, net of closing
costs. The upsizing of the EBSA Facility was completed on the basis
of growth in EBSA’s projected EBITDA growth for 2022, based on
increases in the rate base. Net upsizing proceeds of $27 million,
in excess of EBSA’s expansionary capital expenditure needs were
included in Adjusted Free Cash Flow and Free Cash Flow for the
first nine months of 2022.
Consolidated statement of income (loss)
General and administrative
(G&A) costs of $19 million in the third
quarter increased 27% or $4 million compared to the same quarter of
2021 primarily due to personnel costs and other costs supporting
Northland’s global growth, in line with management’s
expectations.
Development costs of $21 million decreased 7.2%
or $2 million compared to 2021 primarily due to the Spanish
portfolio’s acquisition cost incurred last year, partially offset
by higher costs incurred in 2022 to advance early to mid-stage
development projects.
Net finance costs of $78 million in the third
quarter decreased 3% or $2 million compared to the same quarter of
2021 primarily due to scheduled repayments on facility-level
loans.
Fair value loss on derivative contracts was $43
million in the third quarter primarily due to net movement in the
fair value of derivatives related to commodity, interest rates and
foreign exchange contracts.
Foreign exchange gain of $40 million in the
third quarter was primarily due to unrealized gain from
fluctuations in the closing foreign exchange rates.
Net income of $76 million in the third quarter
increased by $81 million compared to the same quarter of 2021
primarily due to the factors described above, partially offset by
$20 million higher tax expense.
Adjusted EBITDA
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net income (loss) |
$ |
76,089 |
|
|
$ |
(4,668 |
) |
|
$ |
631,535 |
|
|
$ |
140,351 |
|
Adjustments: |
|
|
|
|
|
|
|
Finance costs, net |
|
77,814 |
|
|
|
80,186 |
|
|
|
237,054 |
|
|
|
242,806 |
|
Gemini interest income |
|
3,344 |
|
|
|
3,961 |
|
|
|
10,800 |
|
|
|
11,967 |
|
Acquisition costs |
|
138 |
|
|
|
3,674 |
|
|
|
757 |
|
|
|
6,007 |
|
Provision for (recovery of) income taxes |
|
47,410 |
|
|
|
26,979 |
|
|
|
233,672 |
|
|
|
73,464 |
|
Depreciation of property, plant and equipment |
|
132,416 |
|
|
|
166,962 |
|
|
|
424,445 |
|
|
|
457,399 |
|
Amortization of contracts and intangible assets |
|
14,042 |
|
|
|
9,235 |
|
|
|
39,645 |
|
|
|
28,878 |
|
Fair value (gain) loss on derivative contracts |
|
38,238 |
|
|
|
(33,583 |
) |
|
|
(334,937 |
) |
|
|
(75,489 |
) |
Foreign exchange (gain) loss |
|
(39,668 |
) |
|
|
5,858 |
|
|
|
27,281 |
|
|
|
51,889 |
|
Impairment loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29,981 |
|
Elimination of non-controlling interests |
|
(56,897 |
) |
|
|
(44,542 |
) |
|
|
(198,715 |
) |
|
|
(185,974 |
) |
Finance lease (lessor) |
|
(1,563 |
) |
|
|
(1,761 |
) |
|
|
(4,841 |
) |
|
|
(6,024 |
) |
Others(1) |
|
(1,600 |
) |
|
|
(1,632 |
) |
|
|
(21,591 |
) |
|
|
(1,899 |
) |
Adjusted EBITDA |
$ |
289,763 |
|
|
$ |
210,669 |
|
|
$ |
1,045,105 |
|
|
$ |
773,356 |
|
(1) Others
primarily include share of results from equity investments, loss
(gain) on sale of assets and share of joint venture project
development costs. |
Adjusted EBITDA of $290 million in the third
quarter, increased 38% or $79 million compared to the same quarter
of 2021. The significant factors increasing Adjusted EBITDA
include:
- $72 million
increase in operating results at the offshore wind facilities
primarily due to higher market prices and higher wind
resource;
- $9 million
increase in operating results primarily due to rate escalations at
EBSA and higher wind resource at the Canadian renewable facilities;
and
- $6 million
higher contribution from the Spanish renewables portfolio resulting
from a full quarter of compared to a partial quarter in 2021.
The factor partially offsetting the increase in
Adjusted EBITDA was:
- $17 million
decrease in operating results due to the loss in contribution as a
result of the expiry of the PPA and subsequent sale of Iroquois
Falls in April 2022.
Adjusted Free Cash Flow and Free Cash Flow
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Cash provided by operating activities |
$ |
523,338 |
|
|
$ |
280,397 |
|
|
$ |
1,282,294 |
|
|
$ |
1,049,927 |
|
Adjustments: |
|
|
|
|
|
|
|
Net change in non-cash working capital balances related to
operations |
|
(189,623 |
) |
|
|
(78,387 |
) |
|
|
(148,631 |
) |
|
|
(180,513 |
) |
Non-expansionary capital expenditures |
|
(14,263 |
) |
|
|
(15,210 |
) |
|
|
(45,573 |
) |
|
|
(32,824 |
) |
Restricted funding for major maintenance, debt and decommissioning
reserves |
|
(228 |
) |
|
|
(628 |
) |
|
|
(11,326 |
) |
|
|
(9,799 |
) |
Interest |
|
(75,396 |
) |
|
|
(25,684 |
) |
|
|
(223,429 |
) |
|
|
(177,066 |
) |
Scheduled principal repayments on facility debt |
|
(52,044 |
) |
|
|
(22,711 |
) |
|
|
(400,429 |
) |
|
|
(357,234 |
) |
Funds set aside (utilized) for scheduled principal repayments |
|
(153,735 |
) |
|
|
(123,226 |
) |
|
|
(170,661 |
) |
|
|
(119,316 |
) |
Preferred share dividends |
|
(2,811 |
) |
|
|
(2,704 |
) |
|
|
(8,252 |
) |
|
|
(8,101 |
) |
Consolidation of non-controlling interests |
|
(1,707 |
) |
|
|
(10,568 |
) |
|
|
(43,513 |
) |
|
|
(49,782 |
) |
Investment income(1) |
|
4,268 |
|
|
|
5,140 |
|
|
|
12,666 |
|
|
|
15,403 |
|
Proceeds under NER300 and warranty settlement at Nordsee One |
|
16,911 |
|
|
|
10,763 |
|
|
|
55,787 |
|
|
|
27,872 |
|
Others(2) |
|
(10,040 |
) |
|
|
(6,114 |
) |
|
|
65,655 |
|
|
|
(7,507 |
) |
Free Cash Flow |
$ |
44,670 |
|
|
$ |
11,068 |
|
|
$ |
364,588 |
|
|
$ |
151,060 |
|
Add back: Growth expenditures |
|
21,697 |
|
|
|
23,597 |
|
|
|
55,774 |
|
|
|
53,294 |
|
Adjusted Free Cash Flow |
$ |
66,367 |
|
|
$ |
34,665 |
|
|
$ |
420,362 |
|
|
$ |
204,354 |
|
(1) Investment
income includes Gemini interest income. |
(2) Others mainly
include net proceeds from sale of two efficient natural gas
facilities, EBSA refinancing, effect of foreign exchange rates and
hedges, Nordsee One interest on shareholder loans, share of joint
venture project development costs, acquisition costs, lease
payments, interest received and other non-cash expenses adjusted in
working capital excluded from Free Cash Flow in the period. |
Adjusted Free Cash Flow of $66 million for the
three months ended September 30, 2022, was 91% or $32 million
higher than the same quarter of 2021.
The significant factors increasing Adjusted Free
Cash Flow were:
- $79 million
increase in overall contribution generally across all facilities
leading to higher Adjusted EBITDA;
- $10 million
increase primarily from the net proceeds of the EBSA refinancing;
and
- $6 million
increase in warranty bond settlement relating to RSA replacement
campaign.
The factors partially offsetting the increase in
Adjusted Free Cash Flow were:
- $27 million
increase in current taxes primarily at the offshore wind facilities
as a result of better financial results; and
- $41 million
increase in scheduled debt repayments on facility-level loans,
mainly at Gemini and Spanish portfolio.
Free Cash Flow, which includes growth
expenditures, totaled $45 million for the three months ended
September 30, 2022, and was $34 million higher than the same
quarter of 2021 due to the same factors as Adjusted Free Cash
Flow.
The following table reconciles Adjusted EBITDA
to Adjusted Free Cash Flow.
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Adjusted EBITDA |
$ |
289,763 |
|
|
$ |
210,669 |
|
|
$ |
1,045,105 |
|
|
$ |
773,356 |
|
Adjustments: |
|
|
|
|
|
|
|
Scheduled debt repayments |
|
(163,945 |
) |
|
|
(123,113 |
) |
|
|
(459,499 |
) |
|
|
(379,309 |
) |
Interest expense |
|
(61,808 |
) |
|
|
(59,908 |
) |
|
|
(183,112 |
) |
|
|
(181,605 |
) |
Income taxes paid |
|
(33,535 |
) |
|
|
(6,916 |
) |
|
|
(122,644 |
) |
|
|
(42,752 |
) |
Non-expansionary capital expenditure |
|
(12,160 |
) |
|
|
(13,345 |
) |
|
|
(38,828 |
) |
|
|
(29,644 |
) |
Utilization (funding) of maintenance and decommissioning
reserves |
|
(228 |
) |
|
|
(627 |
) |
|
|
(10,458 |
) |
|
|
(8,862 |
) |
Lease payments, including principal and interest |
|
(4,234 |
) |
|
|
(1,549 |
) |
|
|
(7,357 |
) |
|
|
(5,599 |
) |
Preferred dividends |
|
(2,811 |
) |
|
|
(2,704 |
) |
|
|
(8,252 |
) |
|
|
(8,101 |
) |
Foreign exchange hedge gain (loss) |
|
8,125 |
|
|
|
28 |
|
|
|
56,216 |
|
|
|
12,209 |
|
Proceeds under NER300 and warranty settlement at Nordsee One |
|
14,376 |
|
|
|
9,149 |
|
|
|
47,420 |
|
|
|
23,692 |
|
EBSA Refinancing proceeds, net of growth capital expenditures |
|
10,119 |
|
|
|
— |
|
|
|
26,896 |
|
|
|
— |
|
Others(1) |
|
1,008 |
|
|
|
(616 |
) |
|
|
19,101 |
|
|
|
(2,325 |
) |
Free Cash Flow |
$ |
44,670 |
|
|
$ |
11,068 |
|
|
$ |
364,588 |
|
|
$ |
151,060 |
|
Add Back: Growth expenditures |
|
21,697 |
|
|
|
23,597 |
|
|
|
55,774 |
|
|
|
53,294 |
|
Adjusted Free Cash Flow |
$ |
66,367 |
|
|
$ |
34,665 |
|
|
$ |
420,362 |
|
|
$ |
204,354 |
|
(1) Others mainly include Gemini interest income, net proceeds from
sale of two efficient natural gas facilities, shareholder loan to
Kirkland Lake and interest received on third-party loans to
partners. |
Refer to Northland’s 2021 Annual Report for additional
information on sources of liquidity in addition to Adjusted Free
Cash Flow.
Significant Events and Updates
Northland’s global activities are exposed to
general economic and business conditions including elevated
inflation levels, higher interest rates and capital costs,
fluctuations in currency, economic conditions in the countries and
regions in which the Company conducts business, and potential
interruptions to the global supply chains. The Company’s activities
are also subject to regulatory risks and changes in regulation or
legislation affected by political developments and by national and
local laws and regulations such as restrictions on production,
changes in taxes, and other amounts payable to governments or
governmental agencies, price or rate controls that result in
changes to market prices for power generated, reduced revenues or
cash flows for operating assets, higher cost of operations, and
introduce legal and administrative hurdles. Should one or more of
these risks or uncertainties materialize, or should any of the
Company’s assumptions prove incorrect, actual results may vary in
material respects from those projected in the forward-looking
statements.
The Company continues to monitor these and other
developments and is taking actions intended to minimize exposure to
and impact of these global macroeconomic events. These actions
include, but not limited to, conducting targeted debt refinancing
for existing operating facilities to enhance cash flows and
corporate liquidity, and implementing hedging strategies on
development assets to provide certainty to costs and to preserve
economic returns of the projects. In addition, the Company
consistently looks for opportunities to optimize its portfolio to
create value, enhance financial flexibility and drive enhanced
performance in line with its strategic objectives.
Balance Sheet:
- Spain
Debt Restructuring – Subsequent to quarter end, Northland
restructured the multiple long-term debts of its Spanish portfolio
in order to optimize the structure into a single facility-level
loan as well as optimizing the tax structure. The restructuring
resulted in the reduction in the size of the debt to €613 million
from €675 million and extended the loan maturity date to 2042. The
restructured loan continues to be denominated in Euros, with the
all-in interest rate reduced to 2.0% from 2.1%. The reduction in
the loan size to €613 million resulted in a one-time principal
payment of €61 million (approximately $82 million), which was paid
subsequent to the third quarter. This principal payment is
reflected in the 2022 financial guidance. Northland funded the
principal payment from the cash flow realized from higher realized
pool prices since acquisition, consequently, the payment did not
affect Northland’s available liquidity. The restructuring of the
debt is expected to result in enhanced cash flows in the coming
years primarily due to lower debt service costs and tax
optimizations, as well as, enhanced project economics. The
restructured debt qualifies as a green financing in accordance with
Northland’s green financing framework.
- Gemini
Debt Restructuring – Subsequent to quarter end, Northland
successfully restructured €1.6 billion of its senior and junior
debt relating to Gemini. The key elements of the restructuring
included: (i) partially replacing higher-cost junior debt with
lower-cost senior debt; (ii) decreasing senior debt loan margins;
(iii) replacing the all cash Debt Service Reserve Account with a
Debt Service Reserve Facility, resulting in additional liquidity of
€30 million ($29 million at Northland’s share); and (iv)
accelerating repayment of the Northland junior debt portion. The
restructuring will improve Adjusted Free Cash Flow to Northland
over the next several years and reflects the strong and consistent
operational and financial performance of Gemini. The restructured
facility continues to be denominated in Euros, with the all-in
interest rate reduced slightly to 3.9% from 4.0%. The restructuring
will reduce Adjusted Free Cash Flow in 2022 by €72 million ($68
million at Northland’s share), which has been funded with available
cash flow generated from higher energy prices and, accordingly,
will not impact Northland’s available liquidity. The restructured
debt qualifies as a green financing in accordance with Northland’s
green financing framework.
-
At-The-Market Equity Program – Northland renewed
its at-the-market equity (“ATM program”) on September 7, 2022
allowing the Company to issue up to an additional $750 million of
common shares from treasury, at the Company’s discretion. The ATM
program was renewed following the termination of the previous ATM
equity program as a result of having exercised the full allotment
permitted under the program. As at November 9, 2022, the
Company issued a total of 16,687,382 common shares for gross
proceeds of $703 million under both ATM programs at an average
price of $42.11. The proceeds raised to date are intended to be
used to fund projects that are expected to achieve financial close
in 2023 - further details below.
Renewables Growth:
- Hai Long
Offshore Wind Project - Progress continues at Hai Long. To
date, the project has executed the majority of the key contracts
with suppliers for various elements of the project including
turbines, foundations, cable arrays and both the offshore and
onshore substations. The project signed an agreement for deployment
of the Siemens 14MW turbine for the project along with a 15-year
service contract covering offshore wind logistics and operations
and maintenance. The project also signed a jacket foundation
fabrication and pin pile fabrication contracts for the supply of
foundations. Following the signing of the Corporate PPA for Hai
Long 2b and 3 in July, efforts have focused on securing
non-recourse project level debt financing, which has garnered
lender interest from various global and local financial
institutions in lending to the project for the long term. While the
project continues to progress, delays in finalizing the Corporate
PPA, longer than expected negotiations relating to supply contracts
and certain market conditions pushed back the launch of the project
financing and slowed its initial progress. The project financing is
progressing, however financial close is expected to occur in 2023
rather than in 2022.
- Baltic
Power Offshore Wind Project - The Baltic Power offshore
wind project in Poland continues to make significant progress as it
also advances towards its anticipated financial close in 2023. In
the third quarter, Baltic Power signed preferred supplier
agreements for key elements of the project including wind turbines,
export cables and the offshore and onshore substations. The project
selected the Vestas 15MW turbines, and additional contracts
covering the design, manufacturing and installation of the offshore
and onshore export cables are also signed. In addition, the project
signed a booking agreement for the transport and installation of
the turbines and for the foundations of all substation elements and
offshore substations. The project continues work on securing the
remaining key elements and service contracts for the project ahead
of anticipated financial close in 2023. Northland holds a 49%
interest in the project with PKN Orlen holding 51%.
- Nordsee
Offshore Wind Cluster - Development of the Nordsee Cluster
in Germany is progressing with the team working towards securing
preferred supplier agreements for key aspects of the offshore
projects. In addition, two of the projects within the Cluster,
Nordsee Two and Godewind achieved a key regulatory milestone after
receiving Conformity Statements required for operations under
German offshore wind law. In July, Nordsee Two was pre-selected for
funding by the EU Innovation Fund as a result of driving
technological advancements. The project was awarded a grant of €95
million to demonstrate the technical and commercial feasibility of
producing hydrogen at sea. The cluster encompasses four projects
with over 1.5GW of offshore wind and is expected to achieve
commercial operations between 2026 and 2028. Northland holds a 49%
interest in the Cluster with RWE holding 51%.
- New York
Onshore Wind Projects – Construction activities at the
112MW Bluestone project are progressing with all turbines expected
to be installed before end of the year. However, interconnection
and final commissioning are now expected to follow in early 2023.
At the 108MW Ball Hill project, as a result of delays in turbine
delivery to the fourth quarter, the commercial operations date for
both projects, which was scheduled for the end of the year, is now
expected in 2023, Northland expects to mitigate the impacts of the
delays. The projects were previously awarded 20-year indexed REC
agreements with the New York State Energy Research and Development
Authority.Northland finalized its first ever tax equity commitment
with a leading U.S. financial institution for Ball Hill and
Bluestone. The commitment will provide tax equity investment of up
to US$190 million (approximately $250 million) to assist with
funding the projects. Following the conclusion of the tax equity
investment at commercial operations, the long-term structure of the
projects will be comprised of tax equity, back-levered non-recourse
debt and equity to fund the approximate $0.6 billion of capital
costs.
-
Colombian Solar Projects – Development progress at
the 130MW Suba solar projects in Colombia continues, with the team
working to secure agreements and contracts needed as the projects
progress toward financial close. The solar projects will benefit
from 15-year offtake agreements with multiple energy distribution
and commercial entities in Colombia. Northland effectively holds a
50% of economic interest in Suba and its partner, EDF Renewables
holding the remaining 50%. Commercial operations is expected in
2024.
Other:
- Business
Realignment – Northland’s global footprint has grown
significantly with operating assets in three continents and
development projects in 12 countries. The Company’s expected growth
over the next decade, will see production grow to over 10GW by
2030. As such, management will be implementing changes to its
operating structure, resulting in a more streamlined business that
is better oriented towards the expected growth by technology.
Additional details on the changes will be provided in early
2023.
2022 Financial Outlook
With strong year-to-date financial performance
through the first nine months of the year, including the realized
strength in European power prices and even after accounting for the
debt repayments subsequent to the quarter at the Spanish and Gemini
facilities, which amounted to an incremental $150 million or
approximately $0.64 per share, management is reaffirming its 2022
financial guidance for Adjusted EBITDA, Adjusted Free Cash Flow,
and Free Cash Flow per share.
For 2022, Adjusted EBITDA is expected to be in
the range of $1.25 billion to $1.35 billion, Adjusted Free Cash
Flow per share is expected to be in the range of $1.85 to $2.05 and
Free Cash Flow per share is expected to be in the range of $1.40 to
$1.60.
On September 29, 2022, in response to the surge
in wholesale electricity markets, the EU Council established a cap
on market revenues on renewable energy producers of €180/MWh
effective across the European Union from December 1, 2022, to at
least June 30, 2023. Each member state has an obligation to
implement the cap and the flexibility to adapt the EU’s structure
based on the structure of their individual markets. Depending how
each EU member state finalizes its implementation
mechanism, with some member states indicating their intention
to adopt an earlier date for implementation, there is
potential for impact to Northland’s financial results. As of the
date of this press release, the 2022 financial guidance has been
re-affirmed and includes management’s interpretations of the
current proposed legislative/regulatory changes, even though they
are subject to change and have not yet been finalized or enacted
into law. 2022 financial guidance also reflects that almost all of
the higher cash flows realized to date from higher market prices
have or will be used to repay project level debt.
The Company remains well positioned to fund its
growth objectives. Northland has access to $1.2 billion of
available liquidity including $0.5 billion of cash on hand and
approximately $0.7 billion available on its corporate revolving
credit facility as at November 9, 2022, which can be utilized to
fund growth projects that ultimately advance to financial close.
Borrowings under the credit facilities are revolving, such that
they are ultimately repaid from project financings at financial
close, corporate and/or project-level financing optimizations
and/or sell downs at or before financial close.
Pauline Alimchandani, Northland’s Chief
Financial Officer said, “with the higher power prices across Europe
thus far in 2022, Northland’s financial position has been enhanced
by higher realized cash flows across our portfolio. With an
uncertain economic backdrop of higher interest rates and
inflationary pressures, we have proactively taken steps to
refinance €2.2 billion of aggregate Gemini and Spain debt
facilities, using the higher cash flows generated in 2022 to
deleverage these assets and enhance our long-term cash flow and
corporate liquidity. These actions will ensure the performance of
these assets remain resilient going into the next few years.
Furthermore, both facilities benefited from improved market
conditions and financing terms. The strong global lender support
for both financings, demonstrates the quality of our assets. We
continue to evaluate potential refinancing and sell-down
opportunities within our portfolio to generate both additional
value, liquidity and cash flows to Northland.”
Northland’s Adjusted Free Cash Flow finances
growth expenditures, and corporate costs that support growth and
new initiatives. With a focus on its BBB (Stable) credit rating
from S&P and Fitch, Northland considers it preferable to employ
low-cost corporate credit to fund investments in its capitalized
growth projects. To the extent there is excess Adjusted Free Cash
Flow generated by the Company through financial and operational
outperformance, these additional cash flows will be used fund
capitalized growth projects, thereby reducing the need for
corporate debt or equity funding.
Northland also intends to execute a selective
sell-down strategy of partial interests of certain of its
development projects on or before financial close to allow the
Company to: (i) manage jurisdictional exposures, (ii) crystallize
some development profit prior to construction as a result of the
de-risking of the project; (iii) enhance our Adjusted Free Cash
Flow and liquidity position; and (iv) increase project returns,
amongst other considerations. The Company will assess each
opportunity individually and intends to remain a long-term owner in
the renewable projects it develops. The Company’s first notable
development asset sell-down may occur in 2022 or 2023, pending
terms satisfactory to Northland.
The following table summarizes Northland’s
sources of liquidity that have been sourced by the management to
fund dividends, and growth and capital investments, including
Adjusted Free Cash Flow generated:
|
September 30, 2022 |
|
December 31, 2021 |
Dividend Reinvestment Program (DRIP) |
$ |
63,175 |
|
$ |
88,975 |
Release of funds from debt
service reserve (1) |
|
— |
|
|
73,723 |
Proceeds from Canadian
facility up-financing(s) |
|
— |
|
|
39,600 |
EBSA financing, net of prior
debt repayment and costs |
|
— |
|
|
83,959 |
Equity offering (net proceeds)
(2) |
|
649,581 |
|
|
950,421 |
Liquidity Generated Before Adjusted Free Cash
Flow |
$ |
712,756 |
|
$ |
1,236,678 |
Adjusted Free Cash Flow |
|
420,362 |
|
|
386,366 |
Total Liquidity Generated |
$ |
1,133,118 |
|
$ |
1,623,044 |
(1) 2021
represents the release of cash from Deutsche Bucht’s debt service
reserve account following the implementation of a debt service
reserve facility when the senior debt was restructured. |
(2) 2022 net
proceeds resulting from activity under the ATM program. |
Third-Quarter Earnings Conference Call
Northland will hold an earnings conference call
on November 10, 2022, to discuss its 2022 third quarter
results. The call will be hosted by Northland’s Senior Management,
who will discuss the financial results and company developments as
well as answering questions from analysts.
Conference call details are as follows:
Thursday, November 10, 2022, 10:00 a.m. ET
Participants wishing to join the call and ask
questions must register using the following URL below:
https://register.vevent.com/register/BI781c431021bd43b4884409b9b5d32f84
For all other attendees, the call will be
broadcast live on the internet, in listen-only mode and can be
accessed using the following link:
Webcast URL:
https://edge.media-server.com/mmc/p/4o86pc5c
For those unable to attend the live call, an
audio recording will be available on northlandpower.com on November
11, 2022.
Northland’s unaudited interim condensed
consolidated financial statements for the three and nine months
ended September 30, 2022, 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,
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 3.0GW (net 2.6GW) of operating capacity. The Company
also has a significant inventory of projects in construction and in
various stages of development encompassing over 14GW 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”),
Adjusted Free Cash Flow, Free Cash Flow and applicable payout
ratios and per share amounts, which are 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.
FORWARD-LOOKING STATEMENTS
This press release contains statements that
constitute forward-looking information within the meaning of
applicable securities laws (“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.
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 not historical facts and 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, Adjusted Free Cash Flow and Free Cash Flow, respective per
share amounts, dividend payments and dividend payout ratios,
guidance, the timing for the completion of construction,
acquisitions, dispositions, investments or financings, 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 the 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,
estimates and assumptions 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 include, but are not limited to, risks
associated with sales contracts, Northland’s reliance on the
performance of its offshore wind facilities at Gemini, Nordsee One
and Deutsche Bucht for approximately 50% of its Adjusted EBITDA,
counterparty risks, contractual operating performance, variability
of sales from generating facilities powered by intermittent
renewable resources, offshore wind concentration, natural gas and
power market risks, operational risks, recovery of utility
operating costs, Northland’s ability to resolve issues/delays with
the relevant regulatory and/or government authorities, permitting,
construction risks, project development risks, acquisition risks,
financing risks, disposition and joint-venture risks, interest rate
and refinancing risks, liquidity risk, inflation risks, impact of
regional or global conflicts, 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 Management’s Discussion and Analysis and Annual
Information Form for the year ended December 31, 2021, which can be
found at www.sedar.com under Northland’s profile and on Northland’s
website at northlandpower.com. Northland has attempted to identify
important factors that could cause actual results to materially
differ from current expectations, however, there may be other
factors that cause actual results to differ materially from such
expectations. 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 and Northland cautions you not to place undue
reliance upon any such forward-looking statements.
The forward-looking statements contained in this
release are, unless otherwise indicated, stated as of the date
hereof and are based on assumptions that were considered reasonable
as of the date hereof. 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
Relations647-288-1019investorrelations@northlandpower.comnorthlandpower.com
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