Kingsey Falls Aug 5, 2015 (Thomson StreetEvents) -- Edited Transcript of Boralex Inc earnings conference call or presentation Wednesday, August 5, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Marc Jasmin Boralex Inc. - Director IR * Patrick Lemaire Boralex Inc. - President and CEO * Jean-Francois Thibodeau Boralex Inc. - VP and CFO ================================================================================ Conference Call Participants ================================================================================ * Nelson Ng RBC Capital Markets - Analyst * Rupert Merer National Bank Financial - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. My name is Jessa and I will be your conference operator today. At this time I would like to welcome everyone to the Boralex Inc. Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions). Thank you. Mr. Marc Jasmin, Investor Relations Director, you may begin your conference. -------------------------------------------------------------------------------- Marc Jasmin, Boralex Inc. - Director IR [2] -------------------------------------------------------------------------------- Thank you, operator, good morning, ladies and gentlemen. Welcome to Boralex's second quarter results conference call. Joining me today are Mr. Patrick Lemaire, President and Chief Executive Officer; Mr. Jean-Francois Thibodeau, Vice President and Chief Financial Officer; Mr. Guy D'Aoust, Director, Finance and Treasury and Miss Bianka Monette, Corporate Controller. Mr. Lemaire will begin with his comments and afterwards Mr. Thibodeau will carry on with some financial highlights. During this call, we will discuss historical as well as forward-Looking matters. When we talk about the future, there are a variety of risk factors that have been listed in our different filings with securities regulators, which can materially change our actual results. These documents are all available for consultation at sedar.com. Boralex's unaudited interim report is available on our website and on SEDAR. It contains certain financial measures that do not conform to international financial reporting standards and such measures are reconciled to the most directly comparable measures in the section entitled, Non-IFRS Measures Found in this Interim Report. In our webcast, the disclosed results are presented both under IFRS and on a proportionate consolidation basis. Under the proportionate consolidation method, which is no longer permitted under the IFRS, the interest in joint ventures and sharing earnings of the joint ventures items are eliminated and replaced by Boralex's shared 50% and all items in the financial statements, meaning revenues, expenses, assets and liabilities. Since the information that Boralex uses to perform internal analysis and make strategic and operating decisions is compiled on a proportionate consolidation basis, management has considered it's relative to present these numbers to help investors understand the concrete impacts of decisions made by the corporation. Moreover, tables reconciling IFRS data with data presented on a proportionate consolidation basis are included in the Interim Report. Following a review by the AMS, which is done on a continuous basis for public companies, you will note that in the presentation we now use the EBITDAA acronym which in short means adjusted EBITDA. The difference between EBITDA and the adjusted number includes items such as discontinued operations, the net loss on financial instruments and the foreign exchange gains or losses. Please note that we have not changed the method for calculating EBITDA but only the term involved [terminology]. A full reconciliation of EBITDA for this figure can also be found in the Interim Report filed this morning. In addition, all the comments made in this webcast will be on a quarterly basis. However, for your convenience we've also included some year-to-date figures on specific slide in the core of the presentation. Finally, the press release and a copy of today's presentation are posted on Boralex's website at boralex.com. If you wish to receive a copy of either of these documents, please do not hesitate to contact us. Take note that we will take questions only from certified financial analysts who currently have an active coverage on Boralex. Mr. Lemaire will now start with this conference. Patrick? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [3] -------------------------------------------------------------------------------- Thank you, Marc. Good morning, everyone. For the second quarter, considering the full contribution of assets, either built or acquired over the last 12 months, I am very pleased to report once again higher production, revenues from energy sales, EBITDA, EBITDA margins and cash flows from operations. The results of the second quarter are mainly explained by better wind conditions in Canada and France, the favorable evolution of the US dollar and better hydro conditions in Canada. Given our strong cash flow generation and financial flexibility, we continued during the quarter executing on our growth strategy and reshaping our capital structure. First, following an oversubscribed equity issuance completed earlier this year, we've issued in June a second series of convertible debentures for a total net proceeds of nearly $137 million, which allowed to fully reimburse our revolving credit facility while adding the cash reserves. These debentures were issued with a 4.5% coupon, a five-year maturity and a $19.60 conversion price. Second, Boralex closed a $75 million term credit facility, which is available until March 31st, 2016 and if drawn will mature in June 2018. The rationale behind this term facility is to provide Boralex with additional flexibility to either fund acquisition, capital projects or for general corporate purposes including the eventual redemption of the 2010 convertible debentures. Operationally, in addition to ongoing construction milestones relating to our existing growth path, we were active in further developing our French pipeline and on our Danish near shore initiatives. Over and above we've purchased in early June an option to acquire a 25% economic interest in the 230 megawatt Niagara Region Wind Farm project. Boralex will choose to exercise or not this option if certain financial conditions are met at the time of the signature of a project financing agreement expected later this fall. We remind you that our track record in acquiring, building, financing and operating various types and size of renewable energy access is excellent. This is particularly important considering that we currently have contracts to build another 154 megawatt by the end of 2017 in addition to the 300 megawatt we expect to build out of our existing pipeline of Greenfield Projects in France over the next three to five years. In fact, considering our current asset base of 970 megawatts our growth path and other opportunities set to materialize, we believe that we will be able to deliver on average 10% capacity growth per year over the next five years, which obviously implies all things being equal considering growth in EBITDA and cash flows. This means that our profile will continue improving and clearly supports our revised goal of reaching $260 million of EBITDA by the end of 2017. I will now turn the conference over to our CFO, Jean-Francois Thibodeau, to further discuss our results and review our operations and financial situation. I will be back later for my closing remarks and the question period. Jean-Francois? -------------------------------------------------------------------------------- Jean-Francois Thibodeau, Boralex Inc. - VP and CFO [4] -------------------------------------------------------------------------------- Thank you, Patrick. Good morning, everyone. For the second quarter of 2015 in comparison with 2014 on a proportionate consolidation basis, Boralex reports a 33% increase in production, a 36% increase in revenues, a 45% increase in EBITDA and a 125% increase in cash flows from operations. Accordingly, revenues came in at $73 million and EBITDA stood at $46.6 million representing margins of 64%. As for cash flows from operations, these totaled $27.5 million compared to $12.2 million last year. The net loss stands at $4.5 million, which compares to a new loss of $4.7 million in 2014. The $200,000 improvement in the corporation net loss from the corresponding quarter of 2014 resulted on one hand from the increase in EBITDA of $14.5 million arising from the substantial expansion in its asset base over the past year as well as a foreign exchange positive impact of CAD1.9 million. This increase was partially offset by expected higher amortization expense and financing costs for CAD15 million. The year-to-date numbers are on slide 10 for your benefit. The number I wish to bring to your attention on this slide is the LT CAD1.47 per share of cash flow from operation on a proportionate consolidation basis. Moving on to slide 11 with the quarterly comparative EBITDA by segment, Wind was considerably stronger. Hydro was weaker and the Thermal, Solar and Corporate segments were relatively similar compared with the current [suborning] quarter in 2014. I will later provide further details on each individual operating segment. Moving forward to slide 13 with the review of the quarterly EBITDA variance of CAD14.4 million, the commissioning of new assets including the Enel acquisition provided an additional CAD13.3 million. Higher volumes explain CAD1.8 million. Lower raw material costs and the foreign exchange FX explain another CAD500,000. However, these positive factors were mitigated by lower overall selling prices and other factors totaling CAD1.2 million. Again, moving forward two slides, let's now look at each segment's contribution starting with the Wind segment. Taking into account the newly acquired and newly commissioned assets, wind production has all increased by 72%. In Canada we were up 47%, in France double its production. When excluding the new sites production grew by 11% for the existing sites where France grew by 9% and Canada by 13%. The overall utilization factor was in line with our expectations at around 26.5%. However, Canada achieved 34% on a target of 30% and France reached 22% on a target of approximately 23%. The new Quebec sites, Seigneurie de Beaupre phase two and Temiscouata I, contributed CAD4.6 million to the EBITDA. In France the new sites add CAD8.9 million positive contribution to EBITDA. In view of the above items, revenues increased by 66% to CAD51.8 million and EBITDA increased by 63% from CAD24.6 million to CAD40.1 million representing margins of 78%. Moving on to Hydro in slide 17, this quarter's overall blended production was 8% lower than last year, 22% higher in Canada but 25% lower in the US. In comparison with historical averages and excluding Jamie Creek the blended production was 4% lower, 1% higher in Canada and 8% lower in the US. Price wise the average price for all our US assets decreased by nearly 5% due mainly to very low merchant prices and thus impacted EBITDA by CAD400,000. Considering the above factors in the strengthening of the US dollar, quarterly revenues decreased by CAD800,000 to CAD16.8 million while EBITDA came in at CAD12.7 million in comparison to CAD14 million last year. As for margins, they stood at 76%. The Thermal and Solar segments on a combined basis represent less than CAD200,000 of consolidated quarterly EBITDA compared to a negative contribution of CAD200,000 last year. At the bottom of slides 18 and 19 we have provided a few comments to which you can refer. I will now comment on the corporate sector on slide 20. Development expenses totaled CAD2 million which compares to CAD1.7 million in Q2 of 2014. Administrative expenses stood at CAD4.7 million compared with CAD3.8 million in Q2 2014. The slight increase in administrative expenses is a reflection of the growth in the Company with more employees and more projects to sustain. The administrative expenses are relatively stable. As at Q2 2015 they represent 6.4% of revenues compared to 7.1% as at Q2 2014. The annual target is still expected to be maintained at approximately 5% of revenues. Considering all of the above items, corporate EBITDA stands at a negative CAD6.4 million comparable to a negative CAD6.3 million last year. I will now briefly discuss our cash flow generation as seen on slide 21. Cash flows from operation came in at CAD27.5 million for the quarter, up 125% from CAD12.2 million in 2014. During the second quarter we spent a total amount of CAD58 million on investing activities, more precisely for the construction we spent CAD52 million including CAD40 million on Temiscouata, the second part, and another CAD8 million on the Frampton wind project, both of which are in Canada. In France we invested CAD2.4 million on the Montfort-Peyruis solar project. Lastly, financing activities provided a net amount of CAD84.2 million. We received CAD138 million of net proceeds from our recent debenture issue, drew additional project related debt for CAD69 million and non-controlling shareholders contributed CAD5.6 million for a total inflow of CAD212.6 million. These funds allowed us to repay CAD104 million under the revolving credit facility, another CAD17.4 million of project related debt and to give our shareholders a CAD6.2 million dividend. Considering these factors, cash stood at CAD141.4 million. Furthermore, Boralex held CAD11.8 million of restricted cash. With respect to the seven projects currently under construction presented in our growth path on slide six, we expect to spend approximately CAD233 million in property, plant and equipment for the remainder of 2015 and another CAD68 million in 2016 and 2017. These investments will essentially be financed by debt drawdowns. For the next 12 months debt reimbursements will amount to approximately CAD128 million including the EUR16 million payment owed to Cube. Finally, yesterday Boralex Board of Directors has declared another CAD0.13 dividend, which will be paid on September 16 to registered shareholders at the close of markets on August 31st. I will now turn the conference over to Patrick for a few closing remarks before the question period. Patrick? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [5] -------------------------------------------------------------------------------- To conclude, I would like to convey once again how strongly I believe in the tremendous opportunities that lie ahead for Boralex. On the heels of a major acquisition, which should significantly improve our scale, we are clearly well positioned for further future growth in additional value creation for our shareholders. With a strong cash flow generation profile, a clearly identified growth path and many other projects set to materialize over the next few years, our team has all the ingredients to deliver sustainable value for our shareholders. To sum up, with excellent balance sheet flexibility, positive cash flow generation and financial discipline Boralex is in excellent position to continue delivering strong value going forward. Thank you for your attention. Operator, we will now take questions from the participants. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Your first question comes from the line of Nelson Ng from RBC Capital Markets. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [2] -------------------------------------------------------------------------------- Just a quick clarification on I think you mentioned earlier that you expect to develop 250 to 300 megawatts of new wind projects in France. So those are kind of in addition to what's already identified, right? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [3] -------------------------------------------------------------------------------- Yes we have a few projects under construction actually and this 250 to 300 is going to come out either from new opportunities or our 500 megawatt of pipeline that was developed from Boralex Europe and also in the acquisition of Enel there was a pipeline of 300 megawatts project there. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [4] -------------------------------------------------------------------------------- I see and then in terms of the typical profile of the development projects, are they usually in the kind of 10 to 30 megawatt size? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [5] -------------------------------------------------------------------------------- Yes France, it's very hard to do a larger projects and it's the size of projects that is common over there so it means it's going to be to execute 250 to 300 megawatts it's going to be at least a dozen projects, minimum dozen projects to do that. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [6] -------------------------------------------------------------------------------- Okay got it and then just on in terms of Europe, I know when you acquired the Enel Green Power business in France you entered into some hedges in terms of euros for about 10 years. As you grow in Europe are you looking to increase your hedges or I guess what's your strategy there? Are you looking to generally increase a fixed percentage of European cash flows or just how are you looking to take that on? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [7] -------------------------------------------------------------------------------- Yes the goal is to hedge roughly between 75% and 85% of the expected cash flow on an annual basis so as cash flow grows, we will hedge more. For now, as we said, that currently we have hedged 75% of the current -- I would say current size of project or our current operation for the next 10 years at the rate of 1.52 or 1.53, around that so but as cash flow will grow we will hedge further around 80% of the expected cash flow. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [8] -------------------------------------------------------------------------------- ;; Okay and then just one last question regarding he payout ratio, so your guidance says 40% to 60% payout ratio and like are you looking to publish your actual payout ratios achieved going forward? -------------------------------------------------------------------------------- Jean-Francois Thibodeau, Boralex Inc. - VP and CFO [9] -------------------------------------------------------------------------------- Yes we will pay out -- we will by in the annual report of 2015 we will start disclosing everything around the cash flow available for distribution and the payout ratio. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [10] -------------------------------------------------------------------------------- Okay because I was just trying to calculate it myself and I noticed the current portion of the debt is about CAD128 million. I think other than the amount payable to Cube is the rest of that considered advertising project level debt? -------------------------------------------------------------------------------- Jean-Francois Thibodeau, Boralex Inc. - VP and CFO [11] -------------------------------------------------------------------------------- Yes there's probably another CAD5 million in there for what we call in France we get loans for the taxes over there so sometimes we -- when we calculate our payout ratio we remove those because they're purely a working cap kind of financing so in the CAD128 million if I remember correctly there's about CAD5 million out of that. The rest is project debt. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [12] -------------------------------------------------------------------------------- Okay and then just on that in terms of calculating distributable cash, what's a fair run rate for maintenance CapEx with the current portfolio? -------------------------------------------------------------------------------- Jean-Francois Thibodeau, Boralex Inc. - VP and CFO [13] -------------------------------------------------------------------------------- Currently our -- it's about CAD5 million on a yearly basis. -------------------------------------------------------------------------------- Nelson Ng, RBC Capital Markets - Analyst [14] -------------------------------------------------------------------------------- Okay thanks. Those are my questions for now. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions). Rupert Merer, National Bank. -------------------------------------------------------------------------------- Rupert Merer, National Bank Financial - Analyst [16] -------------------------------------------------------------------------------- I'm wondering if you can give a little more color on the progress of your Niagara project. You mentioned that you'd have a go, no go decision in the fall but if you can give us a sense of what the hurdles are to reach financial close and then how you might manage a risk on execution when that project would need to be reaching COD? -------------------------------------------------------------------------------- Patrick Lemaire, Boralex Inc. - President and CEO [17] -------------------------------------------------------------------------------- Okay let's say there are certain miles -- the milestone is getting a finance, debt financing for this project, so it means that let's say the project will be -- all the costs will be mainly all buttoned up and we'll know what's going to lie ahead on spending for -- to execute this project and we'll know then the return. And if the return is within the range of Boralex's usual return, we will exercise this option and if it's too low, then we'll get a payout or we'll get some cash refund of all our investment that we've done, mainly time of the team, of the Boralex Team so this is what's going to happen. So but the confidence to execute the project by the fall of 2016 is very high so no problems seen there. -------------------------------------------------------------------------------- Rupert Merer, National Bank Financial - Analyst [18] -------------------------------------------------------------------------------- Okay and so if it does go forward in the fall there, there's not a lot of risk to hitting your COD requirement in 2016, okay great. And then you gave us an update on the plan for the 2010 convertible debenture. How do you think that could play out over the next couple of months and what are the opportunities for looking at dividend increases in the fall? -------------------------------------------------------------------------------- Jean-Francois Thibodeau, Boralex Inc. - VP and CFO [19] -------------------------------------------------------------------------------- On the debenture we've put in place we've issued a new debenture and we stated at the time that we're using that cash to reimburse our credit facilities to make sure that we have a flexibility to reimburse so I think if the overall conditions in the market and our stock trading and the overall general economic conditions follow, we have the intention of redeeming those but, as I said, there's no decision as we speak because we have a certain delay and we'll reduce the market risk so we have a 30-day delay so we'll wait and see how things evolve and because there's no obligation on our part. It's a function of if we feel that it makes the best sense for everyone involved but just on the other subject also, not that evident but we've also increased our credit line so right now we have full flexibility plus the cash that we have on hand so we're in pretty good shape to realize this venue. On the dividend we are maintaining our target payout ratio of anywhere as in between 40% and 60% obviously as cash flow goes and we will -- we could consider at some point it's just a function that we're not there yet but obviously as cash flow goes we'll be inside our band by the end of the year and we'll see further on it's a function also of all the growth projects that we have on the table at the time and stuff so this is where we are right now. -------------------------------------------------------------------------------- Rupert Merer, National Bank Financial - Analyst [20] -------------------------------------------------------------------------------- All right I'll leave it there. Thanks very much. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- There are no further questions at this time. I'll turn the call back over to the presenters. -------------------------------------------------------------------------------- Marc Jasmin, Boralex Inc. - Director IR [22] -------------------------------------------------------------------------------- Thank you for your participation. Please note that the replay of this conference call will be available until next August 12th. Thank you. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.
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