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11.08.2023 03:14:36 - dpa-AFX: GNW-Adhoc: Northland Power Reports Second Quarter 2023 Results
TORONTO, Aug. 10, 2023 (GLOBE NEWSWIRE) -- Northland Power Inc. ("Northland" or
the "Company") (TSX: NPI) reported today financial results for the three and six
months ended June 30, 2023. All dollar amounts set out herein are in thousands of Canadian dollars, unless otherwise stated.
"In a challenging time for renewable power projects globally, I was pleased to see our team complete our corporate funding plan this year with the proceeds secured from the Green Subordinated Hybrid Note issuance. With respect to projects expected to achieve financial close in 2023, Baltic Power advanced to the final stages of confirmatory diligence and signed all of the supply chain contracts for the project; Hai Long continued to make progress in its final credit approval processes and secured changes in the Corporate PPA contract ("CPPA"). Once complete, these projects are expected to materially enhance all of Northland's key financial metrics. Finally, I am pleased to re-affirm the lower end of Adjusted EBITDA, Adjusted Free Cash Flow and Free Cash Flow guidance range for 2023, despite the impact of the recent regulatory changes in Spain, as a result of better than expected performance on other planned activities in 2023, including sell downs," Mike Crawley, Northland's President and Chief Executive Officer noted.
Second Quarter Highlights
Financial results for the three months ended June 30, 2023 were lower compared to the same quarter of 2022 primarily due to lower revenue generated from the Spanish portfolio, the non-recurrence of the unprecedented spike in market prices in Europe realized in the second quarter of 2022 and slightly lower production across our offshore wind and onshore renewables facilities.
Financial Results
Sales, gross profit, operating income and net income, as reported under IFRS, include consolidated results of entities not wholly owned by Northland, whereas Northland's non-IFRS financial measures include only Northland's proportionate ownership interest.
Summary of Consolidated Results
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(in thousands of
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FINANCIALS
Per Share
ENERGY VOLUMES
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(1) Represents total dividends paid to common shareholders, including
dividends in cash or in shares under the DRIP.
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Second Quarter Results Summary
Offshore wind facilities
Electricity production for the three months ended June 30, 2023, decreased 3% or
22GWh compared to the same quarter of 2022. This was primarily due to lower wind
resource across all offshore wind facilities and higher unpaid curtailments related to negative prices in Germany, partially offset by higher turbine availability at Nordsee One following the completion of the rotor shaft assembly
("RSA") replacement campaign in 2022 and fewer uncompensated grid outages at the
German facilities.
Sales of $221 million for the three months ended June 30, 2023, decreased 10% or
$25 million compared to the same quarter of 2022, primarily due to the non- recurrence of the unprecedented spike in market prices realized in the first half of 2022 by $40 million and slightly lower production across all offshore wind facilities by $6 million. These declines were partially offset by higher turbine availability at Nordsee One following the completion of the RSA replacement campaign in 2022 and the effect of foreign exchange fluctuations due
to the strengthening of the Euro and other items by $21 million.
Adjusted EBITDA of $121 million for the three months ended June 30, 2023,
decreased 14% or $20 million compared to the same quarter of 2022, due to the same factors noted above.
An important indicator for performance of offshore wind facilities is the current and historical average power production of the facility. The following tables summarize actual electricity production and the historical average, high and low, for the applicable operating periods of each offshore facility:
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Three months
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Electricity
production
(GWh)
Deutsche
Bucht 160 170 159 170 141
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Total 781 804
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(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.
Regulatory Market Price Cap Changes Effective from December 1, 2022, to June 30, 2023
In response to the unprecedented surge in energy prices across Europe for most of 2022, in September 2022, the EU Council established a cap on market revenues on renewable energy producers effective from December 1, 2022, to June 30, 2023
(the "EU price cap"). Following the implementation of the EU price cap, any revenue above the contracted power purchase price for each facility is capped. The EU price cap has not been extended by the Netherlands or Germany. However, the respective market prices are lower than the subsidy prices, so no upside is planned for with respect to previously issued guidance on the offshore wind facilities in 2023.
Onshore renewable facilities
Electricity production was 11% or 66GWh lower than the same quarter of 2022, due
to lower wind resource across the Canadian and Spanish onshore wind facilities, partially offset by higher solar resource at the Canadian solar facilities.
Sales of $98 million were 25% or $33 million lower than the same quarter of 2022, primarily due to lower merchant revenue by $46 million from Spanish portfolio, partially offset by the increase in band adjustments by $14 million.
Adjusted EBITDA of $66 million was 38% or $41 million lower than the same quarter of 2022, due to the same factors as above.
Adjusted EBITDA from the Spanish portfolio of $24 million for the three months ended June 30, 2023, decreased 63% or $41 million compared to the same quarter of 2022, primarily due to lower merchant revenue by $46 million from Spanish portfolio, partially offset by increase in band adjustments by $14 million. Free
Cash Flow from Spanish portfolio of negative $17 million for the three months ended June 30, 2023, decreased by $49 million compared to the same quarter of 2022, due to the same factors discussed above.
The recent Spain regulatory framework change enacted on June 29, 2023, has resulted in a reduction to our key financial metrics in 2023 by effectively deferring the timing of revenue recognition from 2023 to 2025 and beyond. During
the second quarter we reversed $11 million of "band adjustment" revenue related to the Spanish portfolio that was previously recorded in the first quarter. While the regulatory changes are expected to impact the Spanish portfolio's full
year Adjusted EBITDA for 2023 by approximately $90 million (inclusive of the $11
million reversal), the changes do not impact the returns expected to be generated from the Spanish facilities, given its fixed regulatory return construct. The Company's original investment thesis upon entering the Spain market in 2021 remains intact despite the recent regulatory changes. Further details are discussed below and in the Outlook sections of this press release and our second quarter Management's Discussion and Analysis ("MD&A").
Change in Spanish Regulatory Framework
On June 29, 2023, a new Royal Decree-Law ("RDL") was published with a number of measures, which will have an impact on our Spanish portfolio. Refer to the table
below for the comparison between our expectations pre and post the regulatory framework changes for 2023:
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Regulatory posted
price (per MWh)
2023 Revenue
impacts (in
millions)
Return on
Investment ("Ri")
revenue EUR 39 $ 57 EUR 41 $ 60 EUR 2 $ 3
Band adjustment
revenue, net of
other items 75 111 12 18 (63 ) (93 )
Merchant revenue
(average 2023) 90 131 90 131 - -
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2023 Total Revenue EUR 204 $ 299 EUR 143 $ 209 EUR (61 ) $ (90 )
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2023 Adjusted
EBITDA (in
millions) EUR 170 $ 250 EUR 110 $ 160 EUR (60 ) $ (90 )
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(1) Table above assumes EUR/CAD exchange rate of $1.46. Refer to MD&A for
definitions of Ri, band adjustments, and merchant revenues. 2023 production
from the Spanish portfolio assumed at 1,030GWh with full year captured
merchant price assumed at EUR85/MWh.
While the band adjustment revenue is lower in 2023, it is only a matter of deferring the timing of revenue recognition to 2025 and beyond, under the regulatory framework and therefore not expected to impact the overall return of Spanish portfolio. Irrespective of the regulatory change, Northland expects to achieve its designated regulatory return over the remaining regulated asset lives and there is no change in view on the portfolio or its value contribution to Northland.
The Spanish portfolio is comprised of onshore wind (435MW), solar photovoltaic (66MW), and concentrated solar (50MW) assets located throughout Spain. The Spanish portfolio operates under a regulated asset base framework that guarantees a specified pre-tax rate of return of 7.4% for 20 sites and 7.1% for 13 sites, over the full regulatory life of the facilities, regardless of settled
wholesale merchant power price.
Upon acquisition of the portfolio in August 2021 ("acquisition date"), the 5- year average annual EBITDA (2021-2025) was expected to be EUR90 million ($135
million). With the impact of the new regulatory changes and the actual amounts earned since 2021, on a comparable basis over the same timeframe, this is expected to be slightly higher, at EUR105 million ($155 million).
From the acquisition date to 2030, we expect average annual Adjusted EBITDA to be approximately EUR95 million ($140 million).
Efficient natural gas facilities
Electricity production increased 4% or 31GWh compared to the same quarter of 2022, mainly due to higher market demand for dispatchable power and lower unplanned outages.
Sales of $76 million decreased 26% or $27 million compared to the same quarter of 2022, primarily due to lower energy rates triggered by lower natural gas prices, which is a pass-through cost.
Adjusted EBITDA of $49 million for the three months ended June 30, 2023,
decreased 45% or $40 million, compared to the same quarter of 2022, primarily due to Kirkland Lake's one-time management fee received in 2022.
Utility
Sales and gross profit of $73 million and $50 million, respectively, for the three months ended June 30, 2023, increased 4% or $3 million and 2% or $1 million, compared to the same quarter of 2022, primarily due to higher market demand and rate escalations, partially offset by the foreign exchange fluctuations due to the weakening of the Colombian Peso.
Adjusted EBITDA of $30 million for the three months ended June 30, 2023,
remained in line with the same quarter of 2022.
Consolidated statement of income (loss)
General and administrative ("G&A") costs of $31 million in the second quarter increased $11 million compared to the same quarter of 2022, primarily due to increased costs and resources to support Northland's projects and global platform and higher administrative costs to support the sustainable operations.
Development costs of $28 million increased $13 million compared to the same quarter of 2022, primarily due to timing of spending to advance early to mid- stage development projects.
Net finance costs of $71 million in the second quarter decreased $6 million compared to the same quarter of 2022, primarily due to scheduled repayments on facility-level loans and higher loan repayments related to loan restructurings that occurred in 2022.
Fair value gain on derivative contracts was $16 million in the second quarter, primarily due to net movement in the fair value of derivatives related to commodity, interest rate and foreign exchange contracts.
Foreign exchange loss of $5 million in the second quarter was primarily due to unrealized loss from fluctuations in the closing foreign exchange rates.
Other income of $32 million increased 93% or $15 million compared to the same quarter of 2022, primarily due to the gains associated with two offshore wind assets in Europe in 2023.
Net income of $22 million in the second quarter decreased by $246 million compared to the same quarter of 2022, primarily as a result of the factors described above.
Adjusted EBITDA
The following table reconciles net income (loss) to Adjusted EBITDA:
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Net income (loss) $ 21,662 $ 267,866 $ 128,799 $ 555,446
Adjustments:
Finance costs,
net 71,064 77,736 138,278 159,240
Gemini interest
income 4,163 3,749 6,262 7,456
Provision for
(recovery of)
income taxes 37,169 85,708 76,024 186,262
Depreciation of
property, plant
and equipment 145,882 144,614 291,057 292,029
Amortization of
contracts and
intangible assets 14,342 15,545 28,042 25,603
Fair value (gain)
loss on
derivative
contracts (17,936 ) (239,730 ) 63,003 (373,175 )
Foreign exchange
(gain) loss 4,526 34,575 (24,648 ) 66,949
Elimination of
non-controlling
interests (54,042 ) (40,964 ) (133,009 ) (141,818 )
Finance lease
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Adjusted
EBITDA((2)) $ 232,255 $ 335,192 $ 583,954 $ 755,341
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(1) Others primarily include Northland's share of profit (loss) from equity
accounted investees, Northland's share of Adjusted EBITDA from equity
accounted investees, gains from partial asset sell-down, acquisition costs and
other expenses (income).
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Adjusted EBITDA of $232 million for the three months ended June 30, 2023,
decreased 31% or $103 million compared to the same quarter of 2022. The significant factors decreasing Adjusted EBITDA include:
* $41 million decrease in the contribution from the Spanish renewables
portfolio, as discussed above. Please refer to MD&A for further breakdown of
across all offshore wind facilities. These declines were partially offset by
The factor partially offsetting the decrease in the Adjusted EBITDA were:
* $23 million in gains from partial asset sell-down.
Adjusted Free Cash Flow and Free Cash Flow
The following table reconciles cash flow from operations to Adjusted Free Cash Flow and Free Cash Flow:
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Cash provided by
operating
activities $ 204,278 $ 312,337 $ 501,340 $ 758,956
Adjustments:
Net change in non-
cash working
capital balances
related to
operations 55,170 25,883 135,025 40,992
Non-expansionary
capital
expenditures (414 ) (18,480 ) (899 ) (31,310 )
Restricted funding
for major
maintenance, debt
and
decommissioning
Scheduled
principal
repayments on
facility debt (274,157 ) (307,944 ) (325,642 ) (348,385 )
Funds set aside
(utilized) for
scheduled
principal
repayments 104,016 125,152 (8,166 ) (16,926 )
Preferred share
dividends (1,521 ) (2,741 ) (3,003 ) (5,441 )
Consolidation of
non-controlling
interests (16,670 ) 4,644 (61,653 ) (41,804 )
Investment
income((1)) 9,755 4,222 17,270 8,398
Proceeds under
NER300 and
warranty
settlement at
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Free Cash
Flow((3)) $ 41,289 $ 145,543 $ 195,981 $ 319,918
Add back:Growth
expenditures 28,859 16,467 54,237 34,077
Less:Historical
growth
expenditures'
recovery due to
sell-down (7,445 ) - (7,445 ) -
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Adjusted Free Cash
Flow((3)) $ 62,703 $ 162,010 $ 242,773 $ 353,995
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(1) Investment income includes Gemini interest income and repayment of Gemini
subordinated debt.
(2) Others mainly include the effect of foreign exchange rates and hedges,
interest rate hedge, Nordsee One interest on shareholder loans, share of joint
venture project development costs, acquisition costs, lease payments, interest
income, Northland's share of Adjusted Free Cash Flow from equity accounted
investees, gains from sales of development assets, interest on corporate-level
debt raised to finance capitalized growth project and other non-cash expenses
adjusted in working capital excluded from Free Cash Flow in the period.
(3) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Adjusted Free Cash Flow of $63 million for the three months ended June 30, 2023, was 61% or $99 million lower than the same quarter of 2022.
The significant factors decreasing Adjusted Free Cash Flow were:
The factors partially offsetting the decrease in Adjusted Free Cash Flow were:
Free Cash Flow, which is reduced by growth expenditures, totaled $41 million for
the three months ended June 30, 2023, and was 72% or $104 million lower than the
same quarter of 2022, due to the same factors as Adjusted Free Cash Flow.
The following table reconciles Adjusted EBITDA to Adjusted Free Cash Flow.
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Adjusted
EBITDA((2)) $ 232,255 $ 335,192 $ 583,954 $ 755,341
Adjustments:
Scheduled debt
Non-expansionary
capital
expenditure (413 ) (15,749 ) (720 ) (26,668 )
Utilization
(funding) of
maintenance and
decommissioning
reserves (6,347 ) (5,574 ) (2,645 ) (10,230 )
Lease payments,
including
principal and
interest (1,464 ) (116 ) (4,529 ) (3,123 )
Preferred
dividends (1,521 ) (2,741 ) (3,003 ) (5,441 )
Foreign exchange
hedge gain (loss) 6,830 32,929 30,288 48,091
Proceeds under
NER300 and
warranty
settlement at
Nordsee One - 17,989 - 33,044
EBSA Refinancing
proceeds, net of
growth capital
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Free Cash
Flow((2)) $ 41,289 $ 145,543 $ 195,981 $ 319,918
Add Back: Growth
expenditures 28,859 16,467 54,237 34,077
Less:Historical
growth
expenditures'
recovery due to
sell-down (7,445 ) - (7,445 ) -
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Adjusted Free Cash
Flow((2)) $ 62,703 $ 162,010 $ 242,773 $ 353,995
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(1) Others mainly include Gemini interest income, repayment of Gemini
subordinated debt, interest rate hedge settlement, gains from sales of
development assets, and interest received on third-party loans to partners.
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
In the second quarter, in order to accommodate the transactions that occurred during the period, the Company aligned its non-IFRS measures to more accurately reflect the economic reality of its operations. Management implemented certain changes to the compositions of Adjusted EBITDA, Adjusted Free Cash Flow and Free
Cash Flow. The revised definitions provide for the inclusion of partial sell- down gains (losses) in Adjusted EBITDA. All other changes had a minor impact to the calculation of the aforementioned non-IFRS measures and are fully described on the Section 4.7: Reconciliation to 'Non-IFRS Measures Before Definition Change' of the MD&A. With respect to Adjusted EBITDA, management believes the adjustments are appropriate as the revised definition better aligns with the ongoing performance of the business and Northland's previously disclosed strategy.
Significant Events and Updates
Balance Sheet:
Series 2023-A, due June 30, 2083 ("Green Notes"). The Green Notes will carry
no activity under the ATM program resulting in no shares being issued by the
Renewables Growth:
* Nordsee Cluster Offshore Wind Project - On May 25, 2023, Northland announced
liabilities and committed contractual obligations relating to NSC, to RWE in
which are focused on road construction and site preparation before receiving
works program and fabrication of key components continue to progress. During
* Baltic Power Offshore Wind Project - Baltic Power continued to make progress
continues, with commercial operations expected to occur in 2023. On February
June 2023. The project has been generating revenues since being connected to the Mexican energy grid and is expected to contribute $6 million of Adjusted
Outlook on 2023 Funding Plan
Having successfully achieved financial close of the Oneida energy storage project in 2023, Northland's focus is on achieving financial close on the Baltic
Power and Hai Long offshore wind projects. Both projects are progressing towards
financial close in 2023, though Hai Long continues to be more challenging than expected due to market specific factors. Each project is presently in active workstreams with resources and efforts focused on securing all necessary milestones and conditions precedent to achieve financial close. Collectively the
project finance processes are being supported by a diverse group of Northland's project partners, lenders, including global financial institutions, local lenders, ECAs, government infrastructure lenders and multi-lateral agencies. At this time, Northland intends to utilize non-recourse project-level financing as the primary source of funding, with Northland's equity requirements expected to be supported by available liquidity on hand, proceeds from sell-downs, assets sales and the net proceeds from the recently issued Green Notes. Other than closing on the respective project financings and the 29.4% sell-down to Gentari,
there are no further external funding needs for Northland to achieve financial close. At this time and based on current market conditions, management believes the Company will have access to the necessary capital required to achieve financial close of the two aforementioned offshore wind projects. Taking into account the proceeds from the Green Notes issuance Northland has access to $1,012 million of available liquidity, including $73 million of cash on hand and
approximately $939 million of capacity on its corporate revolving credit facilities as at June 30, 2023.
2023 and Long-term Outlook
As of August 10, 2023, management's 2023 financial outlook remains unchanged from prior guidance, albeit now at the lower end, as a result of the aforementioned regulatory changes in Spain. Adjusted EBITDA in 2023 is expected to be in the range of $1.2 billion to $1.3 billion, Adjusted Free Cash Flow per share in 2023 is expected to be in the range of $1.70 to $1.90 and Free Cash Flow per share in 2023 is expected to be in the range of $1.30 to $1.50. As discussed previously, the regulatory change impact is expected to reduce Adjusted EBITDA by approximately $90 million and Adjusted Free Cash Flow and Free Cash Flow by $75 million in 2023 due to the recent regulatory changes. However, the noted impacts are expected to be mitigated through better than expected performance on other planned activities in 2023, including sell downs, that continue to be part of our ongoing business strategy.
Northland continues to implement a selective partnership strategy to sell interests in certain development projects on or before financial close. The Company will assess each opportunity individually and intends to remain a long- term owner of the renewable power assets it develops.
Over the longer term, Northland remains positioned to achieve substantial growth
in Adjusted EBITDA by 2027, upon achieving targeted commercial operations of Oneida, Baltic Power and Hai Long, each with long-term contracted revenues of between 20 to 30 years.
With over 3 gigawatts (GW) of gross operating capacity and a robust development pipeline of approximately 16GW, the Company is well positioned for an accelerating global energy transition. Northland intends to be selective and pursue only projects within its pipeline that meet its strategic objectives and targeted returns closely monitoring macroeconomic conditions surrounding renewables development globally.
Second-Quarter Earnings Conference Call
Northland will hold an earnings conference call on August 11, 2023, to discuss its 2023 second quarter results. The call will be hosted by Northland's Senior Management, who will discuss the Company's financial results and developments as
well as answering questions from analysts.
Conference call details are as follows:
Friday, August 11, 2023, 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/BI4601ceef5c7a4348b73c48e8550ac53f
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/snhk5ze8 (http://edge.media- server.com/mmc/p/snhk5ze8)
For those unable to attend the live call, an audio recording will be available on northlandpower.com (https://www.northlandpower.com) on August 14, 2023.
Northland's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2023, and related Management's Discussion and Analysis can be found on SEDAR at www.sedarplus.ca (https://www.sedarplus.ca/) under Northland's profile and on northlandpower.com (https://www.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 over 3.0GW (net 2.7GW) of operating capacity. The Company also has a significant inventory of projects in construction and in various stages of development encompassing over 15GW of potential capacity.
Publicly traded since 1997, Northland's common shares, Series 1 and Series 2
preferred shares trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A and NPI.PR.B, 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, including the anticipated impact from the recently announced Spain's regulatory framework, respective per share amounts, dividend payments and dividend payout ratios, guidance, the completion of construction, acquisitions, dispositions, investments or financings and the timing thereof, attainment of financial close and commercial operations, the potential for future production from project pipelines, cost and output of development projects, litigation claims, anticipated results from the optimization of the Thorold Co-Generation facility and the timing related thereto, plans for raising capital and future funding requirements, the allocation of the net proceeds from the Green Notes offering, and the future operations, business, financial condition, financial results, priorities, ongoing objectives, strategies and the outlook of Northland, its subsidiaries and joint ventures. There is a risk that delays in closing the financings, failure to obtain the anticipated level of finance commitments and failure to close one or more financings could affect construction schedules and/or Northland's cash or credit position and capital funding needs. 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, the ability to obtain necessary approvals, satisfy any closing conditions, or obtain adequate financing regarding contemplated construction, acquisitions, dispositions, investments or financings, 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 further regulatory and policy changes in Spain
which could impair current guidance and expected returns, risks associated with merchant pool pricing and revenues, risks associated with sales contracts, the emergence of widespread health emergencies or pandemics, Northland's reliance on
the performance of its offshore wind facilities at Gemini, Nordsee One and Deutsche Bucht for over 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, commodity price 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, procurement and supply chain risks, financing risks, disposition and joint-venture risks, competition risks, interest rate and refinancing risks, liquidity risk, inflation risks, impacts 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, climate change, health and worker safety risks, market compliance risk, government regulations and policy risks, utility rate regulation risks, international activities, cybersecurity, data protection and reliance on information technology, labour relations, reputational risk, insurance risk, risks relating to co-ownership, bribery and corruption risk, terrorism and security, 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, 2022, which can be found at www.sedarplus.ca (https://www.sedarplus.ca/) 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:
Adam Beaumont, Vice President
Dario Neimarlija, Vice President
647-288-1929
investorrelations@northlandpower.com
northlandpower.com
Â
months ended June 30, 2023. All dollar amounts set out herein are in thousands of Canadian dollars, unless otherwise stated.
"In a challenging time for renewable power projects globally, I was pleased to see our team complete our corporate funding plan this year with the proceeds secured from the Green Subordinated Hybrid Note issuance. With respect to projects expected to achieve financial close in 2023, Baltic Power advanced to the final stages of confirmatory diligence and signed all of the supply chain contracts for the project; Hai Long continued to make progress in its final credit approval processes and secured changes in the Corporate PPA contract ("CPPA"). Once complete, these projects are expected to materially enhance all of Northland's key financial metrics. Finally, I am pleased to re-affirm the lower end of Adjusted EBITDA, Adjusted Free Cash Flow and Free Cash Flow guidance range for 2023, despite the impact of the recent regulatory changes in Spain, as a result of better than expected performance on other planned activities in 2023, including sell downs," Mike Crawley, Northland's President and Chief Executive Officer noted.
Second Quarter Highlights
Financial results for the three months ended June 30, 2023 were lower compared to the same quarter of 2022 primarily due to lower revenue generated from the Spanish portfolio, the non-recurrence of the unprecedented spike in market prices in Europe realized in the second quarter of 2022 and slightly lower production across our offshore wind and onshore renewables facilities.
Financial Results
* Sales decreased to $472 million from $557 million in 2022.
* Gross Profit decreased to $427 million from $485 million in 2022.
* Adjusted EBITDA (a non-IFRS measure) decreased to $232 million from $335
million in 2022.
* Adjusted Free Cash Flow per share (a non-IFRS measure) decreased to $0.25
from $0.70 in 2022.
* Free Cash Flow per share (a non-IFRS measure) decreased to $0.16 from $0.63
in 2022.
* Net income decreased to $22 million from $268 million in 2022.
Sales, gross profit, operating income and net income, as reported under IFRS, include consolidated results of entities not wholly owned by Northland, whereas Northland's non-IFRS financial measures include only Northland's proportionate ownership interest.
Summary of Consolidated Results
-------------------------------------------------------------------------------
(in thousands of
dollars, except per Three months ended
share amounts) June 30, Six months ended June 30,
2023 2022 2023 2022
-------------------------------------------------------------------------------
FINANCIALS
Sales $ 471,547 $ 556,792 $ 1,093,268 $ 1,251,846 Gross profit 427,468 484,951 996,371 1,120,715 Operating income 102,625 215,780 375,167 579,176 Net income (loss) 21,662 267,866 128,799 555,446 Net income (loss) attributable to common shareholders 4,341 238,032 74,235 467,174 Adjusted EBITDA (a non-IFRS measure)((2)) 232,255 335,192 583,954 755,341 Cash provided by operating activities 204,278 312,337 501,340 758,956 Adjusted Free Cash Flow (a non-IFRS measure)((2)) 62,703 162,010 242,773 353,995 Free Cash Flow (a non-IFRS measure)((2)) 41,289 145,543 195,981 319,918 Cash dividends paid 51,148 48,442 101,195 95,835 Total dividends declared((1)) $ 75,749 $ 69,957 $ 151,065 $ 138,454
Per Share
Weighted average number of shares - basic and diluted (000s) 252,356 232,321 251,579 230,019 Net income (loss) attributable to common shareholders - basic and diluted $ 0.01 $ 1.01 $ 0.28 $ 2.01 Adjusted Free Cash Flow - basic (a non- IFRS measure)((2)) $ 0.25 $ 0.70 $ 0.96 $ 1.54 Free Cash Flow - basic (a non-IFRS measure) $ 0.16 $ 0.63 $ 0.78 $ 1.39 Total dividends declared $ 0.30 $ 0.30 $ 0.60 $ 0.60
ENERGY VOLUMES
Electricity production in gigawatt hours (GWh) 2,024 2,082 4,855 5,003
-------------------------------------------------------------------------------
(1) Represents total dividends paid to common shareholders, including
dividends in cash or in shares under the DRIP.
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Second Quarter Results Summary
Offshore wind facilities
Electricity production for the three months ended June 30, 2023, decreased 3% or
22GWh compared to the same quarter of 2022. This was primarily due to lower wind
resource across all offshore wind facilities and higher unpaid curtailments related to negative prices in Germany, partially offset by higher turbine availability at Nordsee One following the completion of the rotor shaft assembly
("RSA") replacement campaign in 2022 and fewer uncompensated grid outages at the
German facilities.
Sales of $221 million for the three months ended June 30, 2023, decreased 10% or
$25 million compared to the same quarter of 2022, primarily due to the non- recurrence of the unprecedented spike in market prices realized in the first half of 2022 by $40 million and slightly lower production across all offshore wind facilities by $6 million. These declines were partially offset by higher turbine availability at Nordsee One following the completion of the RSA replacement campaign in 2022 and the effect of foreign exchange fluctuations due
to the strengthening of the Euro and other items by $21 million.
Adjusted EBITDA of $121 million for the three months ended June 30, 2023,
decreased 14% or $20 million compared to the same quarter of 2022, due to the same factors noted above.
An important indicator for performance of offshore wind facilities is the current and historical average power production of the facility. The following tables summarize actual electricity production and the historical average, high and low, for the applicable operating periods of each offshore facility:
-------------------------------------------------------------------------------
Three months
ended June Historical Historical Historical 30, 2023((1)) 2022((1)) Average((2)) High((2)) Low((2))
-------------------------------------------------------------------------------
Electricity
production
(GWh)
Gemini 433 444 439 493 385 Nordsee One 188 190 187 220 150
Deutsche
Bucht 160 170 159 170 141
-------------------------------------------------------------------------------
Total 781 804
-------------------------------------------------------------------------------
(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.
Regulatory Market Price Cap Changes Effective from December 1, 2022, to June 30, 2023
In response to the unprecedented surge in energy prices across Europe for most of 2022, in September 2022, the EU Council established a cap on market revenues on renewable energy producers effective from December 1, 2022, to June 30, 2023
(the "EU price cap"). Following the implementation of the EU price cap, any revenue above the contracted power purchase price for each facility is capped. The EU price cap has not been extended by the Netherlands or Germany. However, the respective market prices are lower than the subsidy prices, so no upside is planned for with respect to previously issued guidance on the offshore wind facilities in 2023.
Onshore renewable facilities
Electricity production was 11% or 66GWh lower than the same quarter of 2022, due
to lower wind resource across the Canadian and Spanish onshore wind facilities, partially offset by higher solar resource at the Canadian solar facilities.
Sales of $98 million were 25% or $33 million lower than the same quarter of 2022, primarily due to lower merchant revenue by $46 million from Spanish portfolio, partially offset by the increase in band adjustments by $14 million.
Adjusted EBITDA of $66 million was 38% or $41 million lower than the same quarter of 2022, due to the same factors as above.
Adjusted EBITDA from the Spanish portfolio of $24 million for the three months ended June 30, 2023, decreased 63% or $41 million compared to the same quarter of 2022, primarily due to lower merchant revenue by $46 million from Spanish portfolio, partially offset by increase in band adjustments by $14 million. Free
Cash Flow from Spanish portfolio of negative $17 million for the three months ended June 30, 2023, decreased by $49 million compared to the same quarter of 2022, due to the same factors discussed above.
The recent Spain regulatory framework change enacted on June 29, 2023, has resulted in a reduction to our key financial metrics in 2023 by effectively deferring the timing of revenue recognition from 2023 to 2025 and beyond. During
the second quarter we reversed $11 million of "band adjustment" revenue related to the Spanish portfolio that was previously recorded in the first quarter. While the regulatory changes are expected to impact the Spanish portfolio's full
year Adjusted EBITDA for 2023 by approximately $90 million (inclusive of the $11
million reversal), the changes do not impact the returns expected to be generated from the Spanish facilities, given its fixed regulatory return construct. The Company's original investment thesis upon entering the Spain market in 2021 remains intact despite the recent regulatory changes. Further details are discussed below and in the Outlook sections of this press release and our second quarter Management's Discussion and Analysis ("MD&A").
Change in Spanish Regulatory Framework
On June 29, 2023, a new Royal Decree-Law ("RDL") was published with a number of measures, which will have an impact on our Spanish portfolio. Refer to the table
below for the comparison between our expectations pre and post the regulatory framework changes for 2023:
Prior to June Post June
29,2023 29,2023 Change
Euro Dollars Euro Dollars Euro Dollars
-------------------------------------------------------------------------------
Regulatory posted
price (per MWh)
2023 EUR 208 $ 304 EUR 109 $ 159 EUR (99 ) $ (145 ) 2024 130 190 109 159 (21 ) (31 ) 2025 and beyond 78 114 89 130 11 16
2023 Revenue
impacts (in
millions)
Return on
Investment ("Ri")
revenue EUR 39 $ 57 EUR 41 $ 60 EUR 2 $ 3
Band adjustment
revenue, net of
other items 75 111 12 18 (63 ) (93 )
Merchant revenue
(average 2023) 90 131 90 131 - -
-------------------------------------------------------------------------------
2023 Total Revenue EUR 204 $ 299 EUR 143 $ 209 EUR (61 ) $ (90 )
-------------------------------------------------------------------------------
2023 Adjusted
EBITDA (in
millions) EUR 170 $ 250 EUR 110 $ 160 EUR (60 ) $ (90 )
-------------------------------------------------------------------------------
(1) Table above assumes EUR/CAD exchange rate of $1.46. Refer to MD&A for
definitions of Ri, band adjustments, and merchant revenues. 2023 production
from the Spanish portfolio assumed at 1,030GWh with full year captured
merchant price assumed at EUR85/MWh.
While the band adjustment revenue is lower in 2023, it is only a matter of deferring the timing of revenue recognition to 2025 and beyond, under the regulatory framework and therefore not expected to impact the overall return of Spanish portfolio. Irrespective of the regulatory change, Northland expects to achieve its designated regulatory return over the remaining regulated asset lives and there is no change in view on the portfolio or its value contribution to Northland.
The Spanish portfolio is comprised of onshore wind (435MW), solar photovoltaic (66MW), and concentrated solar (50MW) assets located throughout Spain. The Spanish portfolio operates under a regulated asset base framework that guarantees a specified pre-tax rate of return of 7.4% for 20 sites and 7.1% for 13 sites, over the full regulatory life of the facilities, regardless of settled
wholesale merchant power price.
Upon acquisition of the portfolio in August 2021 ("acquisition date"), the 5- year average annual EBITDA (2021-2025) was expected to be EUR90 million ($135
million). With the impact of the new regulatory changes and the actual amounts earned since 2021, on a comparable basis over the same timeframe, this is expected to be slightly higher, at EUR105 million ($155 million).
From the acquisition date to 2030, we expect average annual Adjusted EBITDA to be approximately EUR95 million ($140 million).
Efficient natural gas facilities
Electricity production increased 4% or 31GWh compared to the same quarter of 2022, mainly due to higher market demand for dispatchable power and lower unplanned outages.
Sales of $76 million decreased 26% or $27 million compared to the same quarter of 2022, primarily due to lower energy rates triggered by lower natural gas prices, which is a pass-through cost.
Adjusted EBITDA of $49 million for the three months ended June 30, 2023,
decreased 45% or $40 million, compared to the same quarter of 2022, primarily due to Kirkland Lake's one-time management fee received in 2022.
Utility
Sales and gross profit of $73 million and $50 million, respectively, for the three months ended June 30, 2023, increased 4% or $3 million and 2% or $1 million, compared to the same quarter of 2022, primarily due to higher market demand and rate escalations, partially offset by the foreign exchange fluctuations due to the weakening of the Colombian Peso.
Adjusted EBITDA of $30 million for the three months ended June 30, 2023,
remained in line with the same quarter of 2022.
Consolidated statement of income (loss)
General and administrative ("G&A") costs of $31 million in the second quarter increased $11 million compared to the same quarter of 2022, primarily due to increased costs and resources to support Northland's projects and global platform and higher administrative costs to support the sustainable operations.
Development costs of $28 million increased $13 million compared to the same quarter of 2022, primarily due to timing of spending to advance early to mid- stage development projects.
Net finance costs of $71 million in the second quarter decreased $6 million compared to the same quarter of 2022, primarily due to scheduled repayments on facility-level loans and higher loan repayments related to loan restructurings that occurred in 2022.
Fair value gain on derivative contracts was $16 million in the second quarter, primarily due to net movement in the fair value of derivatives related to commodity, interest rate and foreign exchange contracts.
Foreign exchange loss of $5 million in the second quarter was primarily due to unrealized loss from fluctuations in the closing foreign exchange rates.
Other income of $32 million increased 93% or $15 million compared to the same quarter of 2022, primarily due to the gains associated with two offshore wind assets in Europe in 2023.
Net income of $22 million in the second quarter decreased by $246 million compared to the same quarter of 2022, primarily as a result of the factors described above.
Adjusted EBITDA
The following table reconciles net income (loss) to Adjusted EBITDA:
-------------------------------------------------------------------------------
Three months ended June
30, Six months ended June 30,
2023 2022 2023 2022
-------------------------------------------------------------------------------
Net income (loss) $ 21,662 $ 267,866 $ 128,799 $ 555,446
Adjustments:
Finance costs,
net 71,064 77,736 138,278 159,240
Gemini interest
income 4,163 3,749 6,262 7,456
Provision for
(recovery of)
income taxes 37,169 85,708 76,024 186,262
Depreciation of
property, plant
and equipment 145,882 144,614 291,057 292,029
Amortization of
contracts and
intangible assets 14,342 15,545 28,042 25,603
Fair value (gain)
loss on
derivative
contracts (17,936 ) (239,730 ) 63,003 (373,175 )
Foreign exchange
(gain) loss 4,526 34,575 (24,648 ) 66,949
Elimination of
non-controlling
interests (54,042 ) (40,964 ) (133,009 ) (141,818 )
Finance lease
(lessor) (1,511 ) (1,614 ) (2,969 ) (3,278 ) Others((1)) 6,936 (12,293 ) 13,115 (19,373 )
-------------------------------------------------------------------------------
Adjusted
EBITDA((2)) $ 232,255 $ 335,192 $ 583,954 $ 755,341
-------------------------------------------------------------------------------
(1) Others primarily include Northland's share of profit (loss) from equity
accounted investees, Northland's share of Adjusted EBITDA from equity
accounted investees, gains from partial asset sell-down, acquisition costs and
other expenses (income).
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Adjusted EBITDA of $232 million for the three months ended June 30, 2023,
decreased 31% or $103 million compared to the same quarter of 2022. The significant factors decreasing Adjusted EBITDA include:
* $41 million decrease in the contribution from the Spanish renewables
portfolio, as discussed above. Please refer to MD&A for further breakdown of
Spanish portfolio revenue by component;
* $37 million decrease in the contribution primarily from a one-time
management fee from Kirkland Lake received in 2022;
* $20 million decrease in operating results at the offshore wind facilities
primarily due to the non-recurrence of the unprecedented spike in market
prices realized in the first half of 2022 and slightly lower production
across all offshore wind facilities. These declines were partially offset by
higher turbine availability at Nordsee One following the completion of the
RSA replacement campaign in 2022 and the effect of foreign exchange
fluctuations due to the strengthening of the Euro and other items; and
* $24 million increase in G&A costs and development expenditures, with the
latter driven by timing of spend.
The factor partially offsetting the decrease in the Adjusted EBITDA were:
* $23 million in gains from partial asset sell-down.
Adjusted Free Cash Flow and Free Cash Flow
The following table reconciles cash flow from operations to Adjusted Free Cash Flow and Free Cash Flow:
-------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2023 2022 2023 2022
-------------------------------------------------------------------------------
Cash provided by
operating
activities $ 204,278 $ 312,337 $ 501,340 $ 758,956
Adjustments:
Net change in non-
cash working
capital balances
related to
operations 55,170 25,883 135,025 40,992
Non-expansionary
capital
expenditures (414 ) (18,480 ) (899 ) (31,310 )
Restricted funding
for major
maintenance, debt
and
decommissioning
reserves (6,811 ) (6,004 ) (2,653 ) (11,098 ) Interest (97,345 ) (75,521 ) (139,610 ) (148,033 )
Scheduled
principal
repayments on
facility debt (274,157 ) (307,944 ) (325,642 ) (348,385 )
Funds set aside
(utilized) for
scheduled
principal
repayments 104,016 125,152 (8,166 ) (16,926 )
Preferred share
dividends (1,521 ) (2,741 ) (3,003 ) (5,441 )
Consolidation of
non-controlling
interests (16,670 ) 4,644 (61,653 ) (41,804 )
Investment
income((1)) 9,755 4,222 17,270 8,398
Proceeds under
NER300 and
warranty
settlement at
Nordsee One - 21,164 - 38,876 Others((2)) 64,988 62,831 83,972 75,693
-------------------------------------------------------------------------------
Free Cash
Flow((3)) $ 41,289 $ 145,543 $ 195,981 $ 319,918
Add back:Growth
expenditures 28,859 16,467 54,237 34,077
Less:Historical
growth
expenditures'
recovery due to
sell-down (7,445 ) - (7,445 ) -
-------------------------------------------------------------------------------
Adjusted Free Cash
Flow((3)) $ 62,703 $ 162,010 $ 242,773 $ 353,995
-------------------------------------------------------------------------------
(1) Investment income includes Gemini interest income and repayment of Gemini
subordinated debt.
(2) Others mainly include the effect of foreign exchange rates and hedges,
interest rate hedge, Nordsee One interest on shareholder loans, share of joint
venture project development costs, acquisition costs, lease payments, interest
income, Northland's share of Adjusted Free Cash Flow from equity accounted
investees, gains from sales of development assets, interest on corporate-level
debt raised to finance capitalized growth project and other non-cash expenses
adjusted in working capital excluded from Free Cash Flow in the period.
(3) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
Adjusted Free Cash Flow of $63 million for the three months ended June 30, 2023, was 61% or $99 million lower than the same quarter of 2022.
The significant factors decreasing Adjusted Free Cash Flow were:
* $103 million decrease in contribution from the operating facilities leading
to lower Adjusted EBITDA primarily due to the factors described above; and
* $30 million net proceeds from the sale of two efficient natural gas
facilities in April 2022.
The factors partially offsetting the decrease in Adjusted Free Cash Flow were:
* $15 million decrease in current taxes primarily at offshore wind facilities
and the Spanish portfolio as a result of lower operating results; and
* $12 million gains from sales of offshore wind development assets in Europe
and foreign exchange hedge settlements.
Free Cash Flow, which is reduced by growth expenditures, totaled $41 million for
the three months ended June 30, 2023, and was 72% or $104 million lower than the
same quarter of 2022, due to the same factors as Adjusted Free Cash Flow.
The following table reconciles Adjusted EBITDA to Adjusted Free Cash Flow.
-------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2023 2022 2023 2022
-------------------------------------------------------------------------------
Adjusted
EBITDA((2)) $ 232,255 $ 335,192 $ 583,954 $ 755,341
Adjustments:
Scheduled debt
repayments (144,207 ) (147,853 ) (283,543 ) (295,554 ) Interest expense (54,744 ) (60,023 ) (99,160 ) (121,304 ) Current taxes (17,694 ) (32,725 ) (64,690 ) (89,109 )
Non-expansionary
capital
expenditure (413 ) (15,749 ) (720 ) (26,668 )
Utilization
(funding) of
maintenance and
decommissioning
reserves (6,347 ) (5,574 ) (2,645 ) (10,230 )
Lease payments,
including
principal and
interest (1,464 ) (116 ) (4,529 ) (3,123 )
Preferred
dividends (1,521 ) (2,741 ) (3,003 ) (5,441 )
Foreign exchange
hedge gain (loss) 6,830 32,929 30,288 48,091
Proceeds under
NER300 and
warranty
settlement at
Nordsee One - 17,989 - 33,044
EBSA Refinancing
proceeds, net of
growth capital
expenditures - 3,953 - 16,777 Others((1)) 28,594 20,261 40,029 18,094
-------------------------------------------------------------------------------
Free Cash
Flow((2)) $ 41,289 $ 145,543 $ 195,981 $ 319,918
Add Back: Growth
expenditures 28,859 16,467 54,237 34,077
Less:Historical
growth
expenditures'
recovery due to
sell-down (7,445 ) - (7,445 ) -
-------------------------------------------------------------------------------
Adjusted Free Cash
Flow((2)) $ 62,703 $ 162,010 $ 242,773 $ 353,995
-------------------------------------------------------------------------------
(1) Others mainly include Gemini interest income, repayment of Gemini
subordinated debt, interest rate hedge settlement, gains from sales of
development assets, and interest received on third-party loans to partners.
(2) See Forward-Looking Statements and Non-IFRS Financial Measures below.
Further, note that non-IFRS measures during the three and six months ended
June 30, 2023, include the effect of changes in the definition of non-IFRS
measures. For a reconciliation of these non-IFRS financial measures to the
ones before definition change, please refer to the MD&A.
In the second quarter, in order to accommodate the transactions that occurred during the period, the Company aligned its non-IFRS measures to more accurately reflect the economic reality of its operations. Management implemented certain changes to the compositions of Adjusted EBITDA, Adjusted Free Cash Flow and Free
Cash Flow. The revised definitions provide for the inclusion of partial sell- down gains (losses) in Adjusted EBITDA. All other changes had a minor impact to the calculation of the aforementioned non-IFRS measures and are fully described on the Section 4.7: Reconciliation to 'Non-IFRS Measures Before Definition Change' of the MD&A. With respect to Adjusted EBITDA, management believes the adjustments are appropriate as the revised definition better aligns with the ongoing performance of the business and Northland's previously disclosed strategy.
Significant Events and Updates
Balance Sheet:
* Green Subordinated Notes - On June 21, 2023, Northland closed its inaugural
offering of $500 million of Fixed-to-Fixed Rate Green Subordinated Notes,
Series 2023-A, due June 30, 2083 ("Green Notes"). The Green Notes will carry
a fixed coupon of 9.25% per annum until the first reset date on June
30, 2028, and have an estimated after-tax cash cost in Euros to the Company
of approximately 6.2%, taking into consideration the benefit of a Canadian
dollar to Euro hedge and applicable corporate tax deductions. The Green
Notes are rated BB+ by both S&P Global Ratings ("S&P") and Fitch Ratings
Inc. ("Fitch") and will benefit from 50% equity treatment by both credit
agencies. Northland intends to allocate the net proceeds from the Green
Notes offering toward investments in green projects that meet the
eligibility criteria of Northland's Green Financing Framework.
* At-The-Market Equity Program - During the second quarter of 2023, there was
no activity under the ATM program resulting in no shares being issued by the
program, except for the remaining share settlements post March 31, 2023.
Subsequent to quarter end, the ATM program wasterminated in accordance with
its terms upon the expiry of the Company's short form base shelf prospectus
on July 16, 2023.
* Corporate Credit Rating Re-affirmed - In May 2023, Northland's corporate
credit rating was reaffirmed at BBB (stable) by Fitch, a global rating
agency, in addition to S&P's BBB (stable) rating.
Renewables Growth:
* Nordsee Cluster Offshore Wind Project - On May 25, 2023, Northland announced
the sale of its 49% ownership stake in the Nordsee Cluster offshore wind
portfolio ("NSC") to its partner on the portfolio, RWE Offshore Wind GmbH
("RWE"). The sale provided RWE with 100% ownership of the projects for a
cash consideration of approximately EUR35 million, which included a premium to
Northland's costs incurred to date. The transaction transferred all assets,
liabilities and committed contractual obligations relating to NSC, to RWE in
the second quarter of 2023. The sale of NSC is consistent with Northland's
strategy to prioritize projects within its development pipeline that are
strategically and financially consistent with its investment approach.
* ScotWind Partnership - On May 9, 2023, Northland signed a partnership
agreement with ESB, a leading Irish energy company for a 24.5% interest in
both projects. The partnership with ESB demonstrates the strong interest in
ScotWind and in developing offshore wind in Scotland and provides an
opportunity to bring in a strong, long-term partner to share in the costs
and help advance the development process.
* Oneida Energy Storage Project - On May 15, 2023, the Oneida energy storage
project reached financial close, as the project successfully completed all
necessary financing conditions. Construction activities have commenced,
which are focused on road construction and site preparation before receiving
the major equipment. Northland currently owns 74% of the project, which is
being developed in partnership with NRStor Inc., Six Nations of the Grand
River Development Corporation and Aecon Group Inc. Full commercial
operations for the project are expected to commence in 2025.
* Hai Long Offshore Wind Project - The Hai Long project early construction
works program and fabrication of key components continue to progress. During
the first quarter, the project received its major construction permit as
planned and signed an amendment to the CPPA that resulted in the extension
of CPPA tenor by two years from 20 to 22 years. Subsequent to quarter end,
the project signed another amendment to the CPPA that extended its tenor by
a further eight years from 22 to 30 years and signed amendments to extend
the long stop dates of certain key supplier contracts.
The project financing is progressing towards financial close in 2023 and is
advancing through its credit approvals, albeit at a slower pace and under
more challenging conditions than initially expected due to market specific
factors. The final credit approval process was launched in March 2023 to
secure the necessary funding commitments from local and international
lenders and Export Credit Agencies ("ECAs") to achieve financial close and
remains ongoing.
On December 14, 2022, Northland signed an agreement with Gentari
International Renewables Pte. Ltd. ("Gentari") to sell 49% of its current
stake in Hai Long. Upon closing, the transaction will result in Gentari
holding a 29.4% indirect equity interest in Hai Long. Northland will hold a
30.6% interest in the project upon the achievement of transaction close and
will continue to take the lead role in its construction and operation.
* Baltic Power Offshore Wind Project - Baltic Power continued to make progress
during the quarter having signed all of the supply chain contracts for the
project. The financing process continues to advance with a consortium of
local and international banks as well as ECAs. The project continues to
advance to financial close, expected in 2023. Northland has a 49% working
interest in Baltic Power, with its partner Orlen S.A. holding the remaining
51%. The project's 25-year Contract for Difference ("CfD") offtake
agreement, now denominated in Euros, includes an inflation indexation
feature commencing with a base year of 2021, providing offsetting benefits
to the higher inflationary price pressures experienced. Northland's equity
funding expectations and returns remain in line with previously disclosed
expectations as a result of the inflation indexation, which has offset the
impact of previously disclosed cost increases experienced.
* New York Onshore Wind Projects - Work towards achieving commercial
operations on the 108MW Ball Hill project and 112MW Bluestone project
continues, with commercial operations expected to occur in 2023. On February
17, 2023, Northland entered into an agreement to sell a 100% stake in the
High Bridge project. The transaction is expected to close by the third
quarter of 2023, subject to the satisfaction of certain customary closing
conditions.
* South Korean Offshore Wind Project - Electricity Business Licenses ("EBLs")
for up to 1,270MW capacity at Dado have been secured, providing exclusivity
over the development areas. In addition, Northland's second project, the
616MW Bobae project, has also been awarded the requisite EBLs. Other
development activities for the projects are continuing to advance.
* La Lucha Mexican Solar Project - Northland has completed all connection and
energization activities relating to its 130MW La Lucha solar power project
in Mexico, with the project having achieved full commercial operations in
June 2023. The project has been generating revenues since being connected to the Mexican energy grid and is expected to contribute $6 million of Adjusted
EBITDA towards the 2023 financial results.
* Suba Colombian Solar Projects - Northland holds a 50% economic interest in
the 130MW Suba projects in Colombia. Its partner, EDF Renewables, holds the
remaining 50%. After an in-depth evaluation, Northland and EDF Renewables
have jointly elected not to proceed with the development of the Suba
projects.
Outlook on 2023 Funding Plan
Having successfully achieved financial close of the Oneida energy storage project in 2023, Northland's focus is on achieving financial close on the Baltic
Power and Hai Long offshore wind projects. Both projects are progressing towards
financial close in 2023, though Hai Long continues to be more challenging than expected due to market specific factors. Each project is presently in active workstreams with resources and efforts focused on securing all necessary milestones and conditions precedent to achieve financial close. Collectively the
project finance processes are being supported by a diverse group of Northland's project partners, lenders, including global financial institutions, local lenders, ECAs, government infrastructure lenders and multi-lateral agencies. At this time, Northland intends to utilize non-recourse project-level financing as the primary source of funding, with Northland's equity requirements expected to be supported by available liquidity on hand, proceeds from sell-downs, assets sales and the net proceeds from the recently issued Green Notes. Other than closing on the respective project financings and the 29.4% sell-down to Gentari,
there are no further external funding needs for Northland to achieve financial close. At this time and based on current market conditions, management believes the Company will have access to the necessary capital required to achieve financial close of the two aforementioned offshore wind projects. Taking into account the proceeds from the Green Notes issuance Northland has access to $1,012 million of available liquidity, including $73 million of cash on hand and
approximately $939 million of capacity on its corporate revolving credit facilities as at June 30, 2023.
2023 and Long-term Outlook
As of August 10, 2023, management's 2023 financial outlook remains unchanged from prior guidance, albeit now at the lower end, as a result of the aforementioned regulatory changes in Spain. Adjusted EBITDA in 2023 is expected to be in the range of $1.2 billion to $1.3 billion, Adjusted Free Cash Flow per share in 2023 is expected to be in the range of $1.70 to $1.90 and Free Cash Flow per share in 2023 is expected to be in the range of $1.30 to $1.50. As discussed previously, the regulatory change impact is expected to reduce Adjusted EBITDA by approximately $90 million and Adjusted Free Cash Flow and Free Cash Flow by $75 million in 2023 due to the recent regulatory changes. However, the noted impacts are expected to be mitigated through better than expected performance on other planned activities in 2023, including sell downs, that continue to be part of our ongoing business strategy.
Northland continues to implement a selective partnership strategy to sell interests in certain development projects on or before financial close. The Company will assess each opportunity individually and intends to remain a long- term owner of the renewable power assets it develops.
Over the longer term, Northland remains positioned to achieve substantial growth
in Adjusted EBITDA by 2027, upon achieving targeted commercial operations of Oneida, Baltic Power and Hai Long, each with long-term contracted revenues of between 20 to 30 years.
With over 3 gigawatts (GW) of gross operating capacity and a robust development pipeline of approximately 16GW, the Company is well positioned for an accelerating global energy transition. Northland intends to be selective and pursue only projects within its pipeline that meet its strategic objectives and targeted returns closely monitoring macroeconomic conditions surrounding renewables development globally.
Second-Quarter Earnings Conference Call
Northland will hold an earnings conference call on August 11, 2023, to discuss its 2023 second quarter results. The call will be hosted by Northland's Senior Management, who will discuss the Company's financial results and developments as
well as answering questions from analysts.
Conference call details are as follows:
Friday, August 11, 2023, 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/BI4601ceef5c7a4348b73c48e8550ac53f
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/snhk5ze8 (http://edge.media- server.com/mmc/p/snhk5ze8)
For those unable to attend the live call, an audio recording will be available on northlandpower.com (https://www.northlandpower.com) on August 14, 2023.
Northland's unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2023, and related Management's Discussion and Analysis can be found on SEDAR at www.sedarplus.ca (https://www.sedarplus.ca/) under Northland's profile and on northlandpower.com (https://www.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 over 3.0GW (net 2.7GW) of operating capacity. The Company also has a significant inventory of projects in construction and in various stages of development encompassing over 15GW of potential capacity.
Publicly traded since 1997, Northland's common shares, Series 1 and Series 2
preferred shares trade on the Toronto Stock Exchange under the symbols NPI, NPI.PR.A and NPI.PR.B, 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, including the anticipated impact from the recently announced Spain's regulatory framework, respective per share amounts, dividend payments and dividend payout ratios, guidance, the completion of construction, acquisitions, dispositions, investments or financings and the timing thereof, attainment of financial close and commercial operations, the potential for future production from project pipelines, cost and output of development projects, litigation claims, anticipated results from the optimization of the Thorold Co-Generation facility and the timing related thereto, plans for raising capital and future funding requirements, the allocation of the net proceeds from the Green Notes offering, and the future operations, business, financial condition, financial results, priorities, ongoing objectives, strategies and the outlook of Northland, its subsidiaries and joint ventures. There is a risk that delays in closing the financings, failure to obtain the anticipated level of finance commitments and failure to close one or more financings could affect construction schedules and/or Northland's cash or credit position and capital funding needs. 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, the ability to obtain necessary approvals, satisfy any closing conditions, or obtain adequate financing regarding contemplated construction, acquisitions, dispositions, investments or financings, 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 further regulatory and policy changes in Spain
which could impair current guidance and expected returns, risks associated with merchant pool pricing and revenues, risks associated with sales contracts, the emergence of widespread health emergencies or pandemics, Northland's reliance on
the performance of its offshore wind facilities at Gemini, Nordsee One and Deutsche Bucht for over 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, commodity price 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, procurement and supply chain risks, financing risks, disposition and joint-venture risks, competition risks, interest rate and refinancing risks, liquidity risk, inflation risks, impacts 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, climate change, health and worker safety risks, market compliance risk, government regulations and policy risks, utility rate regulation risks, international activities, cybersecurity, data protection and reliance on information technology, labour relations, reputational risk, insurance risk, risks relating to co-ownership, bribery and corruption risk, terrorism and security, 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, 2022, which can be found at www.sedarplus.ca (https://www.sedarplus.ca/) 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:
Adam Beaumont, Vice President
Dario Neimarlija, Vice President
647-288-1929
investorrelations@northlandpower.com
northlandpower.com
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| Name | WKN | Börse | Kurs | Datum/Zeit | Diff. | Diff. % | Geld | Brief | Erster | Schluss | |
|---|---|---|---|---|---|---|---|---|---|---|---|
 |
NORTHLAND POWER INC. | A1H5MB | Frankfurt | 15,985 | 05.07.24 16:18:47 | +0,550 | +3,56% | 0,000 | 0,000 | 15,540 | 15,985 |
