Northland Power Reports Third Quarter 2021 Results

TORONTO, Nov. 10, 2021 (GLOBE NEWSWIRE) -- Northland Power Inc. ("Northland" or the "Company") (TSX: NPI) today reported financial results for three and nine months ended September 30, 2021. All dollar amounts set out herein are in thousands of Canadian dollars, unless otherwise stated.

"Abnormally low wind conditions in the North Sea persisted in the third quarter, resulting in reduced financial contribution from our three large offshore wind facilities. However, consistent with last quarter, we remain on track to meet the low end of our 2021 financial guidance, largely due to the performance of our onshore portfolio as well as the increasing diversification within our operating portfolio, thanks to our Colombian utility, EBSA and the recently acquired solar and wind portfolio in Spain, both of which are performing well," said Mike Crawley, Northland's President and Chief Executive Officer.

"Strategically, we continue to advance to position ourselves for strong growth this decade with a portfolio of identified projects that will add 4 to 5 GW of renewable energy capacity. Specifically, we exercised our right to match the winning bid and secure the lease for our 433MW German Nordsee Two offshore wind project, established our Spanish growth platform by closing the acquisition of 551MWs of operating wind and solar assets, successfully won a joint-bid for 130MW of solar projects in an offtake auction in Colombia and achieved key milestones on two of our prospective Japanese offshore wind projects. Finally, we continued to strengthen Northland's financial position, available capital and liquidity, while at the same time advancing our ESG objectives."

Third Quarter Highlights

Financial Results

• Sales decreased 8% to $432 million from $471 million in 2020 and gross profit decreased 8% to $383 million from $418 million.
• Adjusted EBITDA (a non-IFRS measure) decreased 17% to $211 million from $254 million in 2020.
• Free Cash Flow per share (a non-IFRS measure) decreased 83% to $0.05 from $0.30 in 2020.
• Adjusted Free Cash Flow per share (a non-IFRS measure) decreased 61% to $0.15 from $0.38 in 2020.
• Net Loss of $5 million from a net income of $109 million in 2020.
• No change to 2021 Financial Guidance: management continues to expect Adjusted EBITDA, Free Cash Flow ("FCF") per share to be at the low end of their respective original guidance ranges. For Adjusted Free Cash Flow per share, management continues to expect a range of $1.60 to $1.70. Refer to the 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 interest.

Significant Events and Updates

Balance Sheet and ESG Advancements:

• Extension of $1.0 Billion Revolving Corporate Credit Facility and Completion of Sustainability Linked Loan Overlay ? In September 2021, Northland renewed and extended by two years (from 2024 to 2026) the term of its $1 billion revolving corporate credit facility with a syndicate of Canadian and international financial institutions and executed amendments to increase liquidity available to fund growth. Concurrently, the Company implemented a Sustainability Linked Loan (SLL) overlay on the credit facility. The implementation of the SLL is an important milestone for Northland and aligns with the Company's Environmental, Social and Governance (ESG) initiatives and green financing framework introduced in February 2021. The SLL is based on achieving defined targets around both increasing renewable generating capacity and reducing carbon emissions intensity and is expected to provide Northland with cost savings when the targets are met. The SLL is an important step in integrating Northland's ESG performance with its financing objectives. All margin savings are expected to be used to fund the Company's global sustainability initiatives.
• Canadian Solar Portfolio Debt Restructuring ? In the third quarter, Northland restructured and upsized the senior debt on a number of its Canadian solar facilities, resulting in one-time cash distribution to Northland totaling $40 million ($0.18 per share). This refinancing constitutes green project financing supporting Northland's ESG initiatives. To date in 2021, Northland has received cash distributions amounting to $113 million ($0.50 per share) from optimizing and upsizing project finance and other debt structures to further enhance liquidity to fund growth. These cash distributions are not included in Free Cash Flow or Adjusted Free Cash Flow.
• Fitch Rating ? In September 2021, Northland received a second corporate credit rating of BBB (stable) from Fitch Ratings Inc., one of the top global rating agencies. This investment-grade rating aligns with Northland's existing investment grade rating of BBB (stable) last affirmed by Standard and Poor's (S&P) Global Ratings in March 2021. Fitch's rating was converted to a public rating in October 2021.
  

Renewables Growth:

• Nordsee Two and Nordsee Three 850MW Offshore Wind Projects ? Following the completion of a competitive lease auction in September 2021, Northland and its German partner exercised their step-in rights to match the winning bid in the auction to secure the lease for Nordsee Two. As a result, Northland and its German partner will pursue the development of the project including securing long-term corporate and/or utility offtake agreements as a result of the winning bid in the auction being a zero bid. Northland also has similar step-in rights for Nordsee Three, which is expected to come to auction in 2023. These two potential offshore wind projects are expected to have a combined grid capacity of approximately 850MW.
• Colombian 130MW Solar Projects ? Subsequent to the third quarter, Northland, in partnership with EDF Renewables, a subsidiary of Électricité de France S.A. (EPA:EDF), successfully submitted a joint-bid into the renewables auction in Colombia and were awarded the right to build two solar projects with a total combined capacity of 130MW. The solar projects will benefit from Power Purchase Agreements (PPAs) with multiple energy distribution and commercial entities in Colombia, starting in 2023 and lasting for 15 years. The PPAs will be denominated in Colombian pesos and will have annual indexation to the Colombian Producer Price index (PPI). In addition, the projects will receive a reliability charge in US dollars, which will account for approximately 10% of total revenues of the projects. Northland has a 50 percent interest in the projects with commercial operations expected in the second half of 2023. These projects represent further execution on Northland's growth platform in Colombia, leveraging its existing position in EBSA to secure and develop additional renewable projects. These solar projects closely follow the development of Northland's 16MW Helios solar project, which achieved financial close in the second quarter of 2021.
• Japan Offshore Wind ? In September, the Japanese government designated four new sea areas as "promising areas" for the development of offshore wind under its Round Three process. Included in these four areas was Isumi City, Chiba Prefecture, where Northland is progressing with the development of its Chiba offshore wind project, in consortium with Shizen Energy and Tokyo Gas. Additionally, Katagami, Akita Prefecture, where Northland continues to explore an opportunity through a consortium with Mitsui and Osaka Gas, was also designated in the promising areas list. The designation as "promising areas" for these two regions is a key milestone in the early-stage development processes for these two projects, that could have a total productive capacity of up to 900MW when complete.

Third Quarter Results Summary

Offshore wind facilities

Electricity production was 13% or 107 GWh lower than the same quarter of 2020, primarily due to the historically low wind resource at all three offshore facilities, as well as reduced turbine availability at Nordsee One due to the rotor shaft assembly replacement campaign.

Sales of $197 million decreased 23% or $60 million compared to the same quarter of 2020 largely due to similar factors affecting production and foreign exchange rate fluctuations.

Adjusted EBITDA of $104 million decreased 31% or $46 million primarily due to low wind resource in the North Sea compared to the same quarter last year.

An important indicator for the offshore wind facilities is historical average of the power production of each offshore wind 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:

Sales were also adversely affected by factors other than wind resource, as summarized in the following table:

Gemini has subsidy agreements with the Government of the Netherlands which expire in 2031. Under the agreements, revenue is earned through a combination of annual average Dutch wholesale market price (APX), a subsidy top-up (SDE) and a markup to compensate for annual profile and imbalance (P&I) costs from the offtaker, which are variable from year to year. The SDE mechanism tops-up the APX to a set price of ?169 per megawatt hour (MWh) for up to 2,385 gigawatt hours of annual production ("Gemini Subsidy Cap"). The SDE mechanism is designed to ensure the full subsidy is received by Gemini annually. For production beyond the Gemini Subsidy Cap, revenue is earned at the APX less P&I costs.

The SDE is subject to an annual contractual floor price ("SDE floor"), thereby exposing Gemini to market price risk when the APX falls below the annual SDE floor, approximately ?46/MWh for 2021. The APX has been below the SDE floor for the majority of Gemini's five years of operation, with the exception of 2021.

Management has purchased (fixed cost) APX put options (the preferred hedging instrument) to protect Northland against 100% of its downside APX exposure in 2021 and 2022 should the APX fall below the SDE floor price.

Nordsee One Component Issue

At Nordsee One, to date in 2021, ten rotor shaft assemblies (RSA) have been replaced, minimizing downtime of the wind turbines during the fourth quarter, when wind resource tends to be stronger. The replacement of all the RSA at Nordsee One (the "replacement campaign") will resume in the second quarter of 2022 and management expects to complete the replacement of the remaining 44 RSA in 2022 and 2023, as parts continue to become available and weather conditions allow.

In some cases, Nordsee One may need to curtail the performance of turbines to extend their life until replacement of the RSA, which would affect production and may lead to lost revenues in 2022 and 2023. This issue is not expected at Gemini or Deutsche Bucht, which utilize different turbines. For the nine months ended September 30, 2021, Northland experienced ?4 million ($6 million at Northland's share) of lost revenues pertaining to curtailment of turbines under this replacement campaign.

The ten RSA were replaced at a cost of ?13 million ($16 million at Northland's share) and the total cost to replace all 54 RSA is now expected to be slightly lower than estimated last quarter, and within a range of ?50 million and ?60 million ($65 million and $75 million at Northland's share). The costs are expected to be almost fully covered by the warranty bond settlement received in 2020 relating to outstanding warranty obligations of Nordsee One's turbine manufacturer upon its insolvency.

Efficient natural gas facilities

Electricity production decreased 20% or 179 GWh compared to the same quarter of 2020 due to Kirkland Lake operating under the enhanced dispatch contract commencing in the third quarter of 2021, compared to the baseload PPA in 2020, as well as a planned major maintenance outage in the third quarter at another facility.

Sales for the three months ended September 30, 2021, increased 7% or $6 million compared to the same quarter of 2020 largely due to higher production at one facility and annual rate escalations at multiple facilities. Adjusted EBITDA of $64 million increased 6% or $4 million compared to the same quarter of 2020 largely due to the same factors affecting sales.

Onshore renewable facilities

Electricity production was 23% or 66 GWh higher than the same quarter of 2020 due to the recent Spanish acquisition, partially offset by lower solar and wind resources at the Canadian facilities.

Sales of $74 million were 40% or $21 million higher than the same quarter of 2020 primarily due to higher electricity production. Adjusted EBITDA of $53 million was also higher than the same quarter of 2020.

Utilities

Sales of $56 million for the three months ended September 30, 2021, were in line with the same quarter of 2020. Adjusted EBITDA of $23 million increased 4% or $1 million compared to the same quarter of 2020 largely due to certain optimization of operations.

Statement of income (loss)

G&A costs of $15 million increased 18% or $2 million compared to the same quarter of 2020 due to higher personnel and other costs in support of Northland's global growth.

Development costs of $23 million increased 46% or $7 million compared to the same quarter of 2020 primarily due to the timing of development activities.

Net finance costs of $80 million decreased 10% or $9 million compared to the same quarter of 2020 primarily as a result of scheduled repayments on facility-level loans and repayment of borrowings on the corporate revolving facility as a result of the equity offering in April 2021.

Fair value gain on derivative contracts was $34 million compared to a $15 million gain in the same quarter of 2020 primarily due to net movement in the fair value of derivatives related to the APX, interest rates and foreign exchange contracts.

Foreign exchange loss of $6 million is primarily due to unrealized losses from fluctuations in the closing foreign exchange rates.

Net loss of $5 million decreased 104% or $114 million in the third quarter of 2021 compared to the same quarter of 2020 primarily as a result of the factors described above as well as accelerated amortization expense on Iroquois Falls' property, plant and equipment due to the expiry of its PPA in December 2021 combined with an $8 million higher total tax expense.

Adjusted EBITDA

Adjusted EBITDA of $211 million for the three months ended September 30, 2021, decreased 17% or $44 million compared to the same quarter of 2020. The significant factors decreasing Adjusted EBITDA include:

• $37 million decrease in operating results at Gemini primarily due to the lower wind resource and APX hedge losses realized;
• $10 million decrease in operating results at Nordsee One primarily due to lower wind resource and turbine availability compared to the same period of 2020; and
• $15 million increase in corporate costs primarily driven by an increasing level of project development activities and associated corporate activities to support growth.
  

The factor partially offsetting the decrease in Adjusted EBITDA was $19 million contribution from the recent acquisition of the portfolio of solar and wind facilities in Spain, which closed on August 11, 2021.

Free Cash Flow

Free Cash Flow of $11 million for the three months ended September 30, 2021, was 82% or $50 million lower than the same quarter of 2020. The significant factor decreasing Free Cash Flow was the $63 million decrease in overall earnings across all facilities, as described above, but primarily due to lower wind resource at the offshore wind facilities.

The factors partially offsetting the decrease in Free Cash Flow was a $3 million contribution, net of debt payments, from the recent acquisition of the portfolio of solar and wind facilities in Spain and an $8 million decrease in current tax expense primarily due to lower earnings from the offshore wind facilities.

Adjusted Free Cash Flow, which excludes growth expenditures, amounted to $35 million for the three months ended September 30, 2021, and was 55% or $42 million lower than the same quarter of 2020. The significant factors decreasing Adjusted Free Cash Flow were as described for Free Cash Flow.

Refer to Northland's MD&A for the Third Quarter of 2021 for additional information on sources of liquidity in addition to Adjusted Free Cash Flow.

Outlook

The offshore wind resources experienced in the first nine months of the year is trending well below the historical average across the three offshore wind facilities. Despite the weakness in the offshore wind resources experienced year-to-date, management remains on track to achieve the low end of its 2021 financial guidance in large part, due to the efforts to diversify Northland's operating portfolio through recent acquisitions, as well as the continued strong financial performance of Northland's Canadian portfolio and EBSA. EBSA's Adjusted EBITDA and Free Cash Flow are benefiting from the current inflationary environment in Colombia that is resulting in indexed escalations within its regulated framework. In addition, the financial performance of the recently acquired portfolio of solar and wind facilities in Spain, is expected to lessen the relative financial impact from the weakness in the North Sea offshore wind resource.

For Adjusted EBITDA and Free Cash Flow per share, management continues to expect full year results to be at the low end of the guidance range released in February 2021, of $1.1 to $1.2 billion and $1.30 to $1.50 per share, respectively, unchanged from last quarter. For Adjusted Free Cash Flow per share, management continues to expect a range of $1.60 to $1.70 as disclosed last quarter (formerly $1.80 to $2.00 in February 2021).

Management believes the Company continues to have sufficient liquidity available to execute on its growth objectives. As at September 30, 2021, Northland had access to $824 million of cash and liquidity, comprising $784 million of liquidity available under a syndicated revolving facility and $40 million of corporate cash on hand.

Third-Quarter Earnings Conference Call

Northland will hold an earnings conference call on November 11, 2021, to discuss its 2021 third quarter results. The call will be hosted by Mike Crawley, Northland's President and Chief Executive Officer, and Pauline Alimchandani, Northland's Chief Financial Officer, who will discuss the financial results and company developments before opening the call to questions from analysts.

Conference call details are as follows:

Thursday, November 11, 2021, 10:00 a.m. ET

Conference ID: 7569409

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 November 12, 2021.

Northland's unaudited interim condensed consolidated financial statements for the three months ended September 30, 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.

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 3.2 GW (net 2.8 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 future Adjusted EBITDA, Free Cash Flows (and as adjusted) and per share amounts, dividend payments and dividend payout ratios, guidance, the timing for energization, testing and commencement of commercial operations at La Lucha as well as related costs, 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, risks associated with 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, Northland's ability to resolve issues/delays with the relevant regulatory and/or government authorities in Mexico, 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 November 10, 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
[email protected] 
northlandpower.com