Innergex's (INGXF) CEO Michel Letellier on Q2 2014 Results - Earnings Call Transcript

| About: Innergex Renewable (INGXF)

Innergex Renewable Energy Inc. (OTC:INGXF) Q2 2014 Results Earnings Conference Call August 8, 2014 10:00 AM ET


Marie-Josée Privyk - Director, Investor Relations

Michel Letellier - President and CEO

Jean Trudel - Senior Vice President, Communications and CIO

Jean Perron - Senior Vice President and CFO


Rupert Merer - National Bank Financial

Nelson Ng - RBC Capital Markets

Sean Steuart - TD Securities

Ben Pham - BMO Capital Markets


Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Innergex Renewable Energy’s Conference Call and Webcast for the 2014 Second Quarter Results and Mid-Year Review. [Foreign Language]

At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for analysts and institutional investors, and instructions will be provided at that time for you to queue up for questions. (Operator Instructions)

I would like to remind everyone that these conference call and webcast is being recorded today, Friday, August 8, 2014 at 10 a.m. Eastern Time. I will now turn the conference over to Marie-Josée Privyk, Director, Investor Relations. Please go ahead.

Marie-Josée Privyk

Thank you. [Foreign Language] Good morning, ladies and gentlemen. If you haven’t done so already and would like to access the webcast, please go to our website at

I’m here today with Mr. Michel Letellier, President and CEO of Innergex; and Mr. Jean Trudel, Chief Investment Officer and Senior Vice President, Communications. Also joining us is Mr. Jean Perron, Chief Financial Officer and Senior Vice President. Please note that the presentations will be in English.

However, you are welcome to address your questions either in French or English. [Foreign Language] I would also like to point out that journalists are invited to call us afterwards if they wish to address any questions.

In a minute, Mr. Trudel will provide some details on our financial results for the second quarter ended June 30, 2014. Mr. Letellier will then provide a mid-year review of our activities. And we will then open the Q&A session with all three senior executives.

The financial statements and the MD&A have been filed on SEDAR and are readily accessible via the internet. You may also access the press release, financial statements and the MD&A on the Innergex website in the Investors section.

During this conference call and webcast, we will refer to financial measures such as adjusted EBITDA, free cash flow and payout ratio that are not recognized measures according International Financial Reporting Standards, as they do not have a standardized meaning.

Also please be advised that this conference call and webcast will contain forward-looking information that reflects the corporation’s expectations with respect to future results or developments.

For explanations concerning the principle assumption used by the corporation to derive this forward-looking information and the principle risks and uncertainties that could cause actual results to differ materially from those anticipated, I invite you to consult the first pages of the webcast presentation, as well as the Innergex’s annual information form.

I now turn the conference to Mr. Jean Trudel.

Jean Trudel

Merci, Marie-Josée. Good morning, everyone, and thank you for joining the call. It’s a pretty straight-forward quarter, so I will be very brief on the results part and I guess, we will allow more time for the mid-year review and the Q&A at the end.

So, to start, I guess, our diversification played its role again this quarter, hydro facilities produced close to their long-term average with some weakness is experienced in Ontario and our solar facility continued to perform above average. However, wind regimes were below expectations and actually during May and June the wind conditions were in some cases the worst experienced since 2006.

Fortunately, availability rates were close to 100% at all our facilities during the quarter. This resulted in a quarterly production of 899-gigawatt hour of electricity or 96% of the expected long-term average. The shortfall in terms of revenues for the quarter is approximately $3.4 million.

Nevertheless, with more facilities in operations, revenues increased by 10% to $69.6 million year-over-year. Of course, due a greater number of facilities in operation, operating expenses and G&A expenses increased as expected in the quarter.

Since most of these expenses are not correlated to production level adjusted EBITDA and adjusted EBITDA margins decreased for the quarter. So, adjusted EBITDA stood at $53.8 million or an increase of 5% year-over-year.

The net loss experienced in the quarter is mainly the results of unrealized losses on derivative financial instruments. These unrealized losses on derivatives results from a decrease in benchmark interest rate during the period and is a non-cash expense.

The derivatives are in place to protect the economic value of our projects. Excluding these unrealized losses and related income tax, the net earnings would have been $8.5 million, compared to $11.3 million for the same quarter in 2013.

Just giving and also for July, I guess, it’s somewhat positive with the strong hydrology in the Ontario and the strong wind regimes at each of our wind facilities, and coupled with an above average result at our solar facility, it still remains weak in BC. So, overall, July is very close to the long-term average in terms of production.

It is important to note that when we include the recently acquired Sainte-Marguerite-1 hydro facility that we acquired on June 20. Innergex grew its production capacity by almost 700-gigawatt hour, which represents about 30% growth year-over-year. So we are therefore well-positioned to deliver growing revenues and free cash flow over the coming quarters provided Mother Nature is on our side of course.

So, I will now turn the line to, Michel, who will provide you with the mid-year process report and discussion on our growth opportunities. Michel?

Michel Letellier

Okay. Thank you, Jean, and good morning, everybody. Just in term of agenda, we will cover little bit of the objective that we have given you about six months ago. So we're already at the mid-year and we'll talk a little bit about our profile for 2017, and then we will go the question period. Jean, will cover the financing activities that we have engaged during 2014 as well.

So in terms of objective, operating performance, we said that we would add up about 20% more EBITDA since for 2014, compared to 2013. So, this year we will have a full contribution through Magpie hydroelectric facility that we bought last year in BC, Kwoiek Creek and Northwest Stave will contribute for full year as well.

So in terms of progress report, even though as Jean said, the hydrology was weak in Q1 and then the wind weak in Q2. I think we are still very confident on long-term forecast. So, therefore we still believe that will have a good contribution close to about our 20% contribution this year. And also SM-1, latest acquisition will contribute this year as well. So, again, we are very focused on long-term forecast and we will probably meet our 20% target as we said before.

In terms of project development activities, we said we would start Big Silver Creek in BC and we would sign our PPA with Mesgi'g Ugju's'n project, more simply called MU project with the Mi'gmaq 150 megawatt wind farm facility.

Glad to report that we have started the construction as plan with Big Silver and we have signed our PPA with the MU project. And furthermore, we have completed the environmental study and glad to report as well that we have no environmental hearing, so that's great news in terms of timing.

If we go back to updated our project development, as you know we have four hydro facilities under construction and one wind project in Québec is under development. So the first project that we are covering is Tretheway Creek.

The construction started last year, very, very happy with the development on the construction, the whether is very good actually this summer in that area, so works are progressing very well. Matter of fact, we think we are a little bit in advance, but things can change but we are very positive towards the construction right now.

Boulder Creek and Upper Lillooet, our two projects that are closed together and it’s a big portfolio of project. It’s a big construction. We have two tunnels. We have 75 kilometers of high transmission voltage line. So and we have to build the camp and facility in order to facilitate the stay of 350 people.

So it’s a big, big construction site, very happy the work has been done in terms of advancing the tunnel, both tunnel have now been started, so very happy on that. Little bit slower on establishing the campaign and making sure all the facility and prior to construction was a little bit slower. But things are now under control and we are very committed towards meeting the expected duty in 2016.

Big Silver on other hand had started on time and its advancing very well. Big Silver is the same area Tretheway in terms of location and so far the construction is going very well, advancing as plan, if not little bit faster. So, again, very pleased on Big Silver.

And as I mentioned, our project, the MU project, the wind project in Québec, very pleased to have the team being able to finish the permitting and for such a big project, 150-megawatt, having no environmental hearing, public hearing demanded by the populations. It’s a great tribute to the development team that has done a great job in explaining the project to the population. So I’m very happy on that one.

Also we have initiated -- not initiated, we’re very advanced in negotiating with the wind turbine manufacturer. And so far the type of turbine that is proposed to the site is to some degree very positive. I think that the mix of new turbine that we would be installing in these -- in this project is providing little bit more energy than we had anticipated. So a very good news for the project.

In terms of project financing, I’ll turn the mike to Jean Trudel.

Jean Trudel

Okay. So while, all this great contracted -- this great contracted pipeline obviously calls for important construction because that needs to be financed. So the goal for 2014 as we had mentioned early in the year is to close the financing on three of these five development projects and of course implement the hedging program that also needs to be put in place to protect the economic value of these project.

We also had one project, Umbata Falls, where we had term financing ending 2014. So we need to refinance Umbata Falls. So far if I start with Umbata Falls, I mean we’ve received some terms and conditions to extend Umbata Falls or refinance Umbata Falls. We’re still negotiating -- we’re negotiating the terms and conditions to make sure that our partners, particularly, First Nations, and ourselves get the better -- the best deal possible.

So in the meantime, we’ve extended -- we seem to extend the maturity data of this loan and we still expect to finalize the extent order renegotiation of this facility by the end of the year. And in terms of the financing report, our strategy is to finance these projects using non-recourse project financing at the project level.

We’ve received their commitment. We’ve signed actually [Québec] (ph) commitment together in term sheet with two lead lenders and is going very well. So we are in the documenting process to complete refinancing over the coming months. We also launched the call for bids for the Upper Lillooet River and the Boulder Creek financings. These are obviously -- these two assets put together make it a very substantial financing.

So we are really anxious to see the bid that we will receive by the end of this month and then to implement the documentation to close this financing before the year end. We also completed hedging program for all our pipelines now by completing the hedging program for the Mesgi'g Ugju's'n project. So we completed that early in the year. So right now, we can say that virtually all our projects have been hedged and we’re just waiting to implement the financing strategy.

So on the next slide, you will see the summary of the financing activity that I just discussed and the amount that we seek to obtain. What I can say about this structure for us an important point is that you see a differential between the construction cost and the financing amounts that we need to have. And that will present the equity portion that we intend to invest in these projects. And it’s just important to note that all -- this equity has been already invested.

So there is no need for us to go to the markets to raise further equity. It’s all been already invested and only the financing needs to be realized. Innergex has two ways to finance our things and I just want to make the point on this. We have a very significant revolving term facility at the holdco level that is secured by ‘13 unencumbered projects.

And this facility is really helping us to construct the project, start the construction of the project or potentially help us in when there’s a timing difference for acquisitions, for example or for the development of our projects. It’s a very important structure in our capital structure. But going forward, all our project’s intention is to finance as I mentioned with the non-recourse project financing at the project level.

All our capital structure, when it comes to debt, we are very careful and we hedge ourselves using swaps or bond forwards in the case of projects that needs to be financed in the coming months. And so virtually while I get 95% of all the outstanding debt carry either fixed interest rate or is hedged or not really exposed to fluctuation in interest rates as it’s been.

So on this I guess, I would pass it on back then mike to Michel.

Michel Letellier

All right. Thank you. So we’re on the slide talking about objective of 2014 growth opportunities. We said that we were focused on the RFP in Québec, the 450 megawatt. We would advance in Nulki Hills wind project and other prospective project in BC and advance prospective project in view of an eventual RFP in Ontario.

While we've been very busy submitting or preparing project for the RFP, the Québec RFP, the matter of fact that it is due on September 3. We’re ready. We have done all the open analysis with project. We have been talking with local community. And we think that we have some very good project obviously. This is a very competitive RFP but we’re confident with the project that we have.

On the other end, if we are turning to BC, we have advanced on Nulki Hills project, which is very close to future LNG. We have secured, if you remember, the support of the First Nations, supporting this project. So this is a nice project that it could be as big as 200 megawatt to 250 megawatt.

So again advancing on that proposal and we were happy to see the liberal winning in majority government in Ontario and confirming the future RFP of both 2015 and 2016. So we’re getting prepared to do the pre-bid qualification for promoter which is due just one day the submission of Hydro- Québec on September 4, so getting ready there as well.

Obviously, if we’re talking about BC we have the judgment from the Supreme Court in BC confirming some traditional rights on title for First Nation. For us, it’s not a big surprise and obviously we have been focusing long time ago. I think we’ve been a pioneer in establishing First Nation partnership throughout Canada.

So we didn’t need a Supreme Court ruling to start doing it. I think that First Nation appreciate the way we’re doing business. So this judgment in our view is just in line with our philosophy of consulting and getting opportunity to First Nation to participate in future project. So all in all, I think this is to some degree some positive news also for Innergex. And so in short, we’re not changing our strategy and matter of fact, we think that strategy of being open with First Nation is opening up maybe future opportunity.

If we go to the next slide, we said that we would pursue external growth opportunity that we would complete the acquisition of Hydroméga assets and pursue future acquisition opportunity. Well, I’m glad to report that we have finally closed on SM-1 facility. It was a long process but I think it was worth it. We’ll explain this a little bit later on the next slide.

Pursuing future acquisition, I’ll talk a little bit also on our criteria further down the presentation. Always interesting but we’re already mindful that any acquisition will have to be accretive. So if we go to, just to have a quick reminder of SM-1 acquisition, it’s a 30 megawatt hydrofacility, one characteristic of this facility that is that we own the water rights. So this is a very long life assets for us. That’s the type of asset we love to have.

We have also created a partnership with Desjardins pension fund that enable us to be quite accretive in the first year. Sometimes it’s a challenge with hydro assets. But this time we have structured a cash flow sharing that enable us to capture most of the cash flow in the first 10 years of the life of the -- it fits well -- life of the next 10 years. So it’s enables us to have a good cash on cash and matter of fact, it’s helping bringing down our payout ratio if things are equal by about 3% and it’s bringing us about free cash flow of $5 million.

So it’s a meaningful acquisition. Again under a long-time contract with Hydro-Québec and long-life assets. So we’re very happy to have concluded this transaction and again to have tested this new capital structure with pension fund that might help us do some other acquisition that will enable us to be accretive or better accretion to Innergex shareholder.

In terms of development and acquisition strategy, if you look at that slide, obviously we have always said that we are very, very mindful on return -- risk-return relationship and this slide is showing just that. Obviously, if we’re buying an operating asset with the long-term EPA and with hydro or very well-known technology, this is probably where you going to have the lowest return because the risk is low. But obviously, if you’re going on to the metrics of taking little bit more risk in the development and prospective project, obviously we would record greater internal rate of return.

So this is -- this is the -- for us, this is the culture, this is the way we’re looking at project. We’re not looking -- we are not looking into enterprise value divided by EBITDA ratio. This might be a rule of thumb measure, but for us, it’s the internal rate of return based on the life of the asset that is the most important thing. Obviously, we’re mindful of the cash on cash aspect on the first two years of the project because we’re paying a dividend, but we’re focused on creating value more than looking at ratios.

So the goal in trying to diversify or to make acquisition is making sure that we’re diversifying ourselves but very important to be renewable energy and long term PPA, long life asset is what we’re seeking. We want to be able to pay the dividend for very long time. The sustainability of our dividend is in our mind in every way.

Now, if we switch to the profile of 2017, sometimes I know that we’re repeating this quite often but I just want to make sure that people understand what we’re doing. We have had an EBITDA of $149 million in 2013. Well, with the project that we just described the five project, four project under development and one wind project under -- sorry, four hydro facility under-construction and one project under development with existing PPA. We will be doubling power EBITDA.

So without even having to go into the marketplace to raise equity as Jean mentioned. So this represents about 18% growth per year, compounded growth per year. Obviously, if we look at the cash flow, it might be little bit lower than that but it will be higher than 10% average compounded growth because obviously, we have to put the project finance as Jean mentioned. But this is very significant for us in terms of creating value.

And that doesn’t take into account any future project or acquisition that we might get since -- for that day. So for us very important and that’s why we have been focusing in 2014 on these project and making sure that we can deliver it on time and on budget these projects.

So if we go the -- I’m sorry. So this obviously, will create more cash flow that just to give you a little bit of guidance on our payout ratio, just like creating all that cash flow. If we are not doing anything else, we’ll bring our payout ratio well below the 80% range that some people see as a good benchmark or good conservative payout ratio. So having these project being on service late 2016, 2017 years will be very, I guess, important milestone for us.

So in summary, I think that what is very important to mention is that we are delivering. I think we’re delivering a great business model, low risk. I think we’re providing a good mix of project and growth opportunity sustainable dividend -- our dividend is sustainable. We have future growth opportunity. We have great management team. I think we have a great track record in terms of being able to build greenfield project. So we see our growth very positively.

We are in the midst of looking into our strategic planning for post 2016. This will enable us to focus on maybe going out of Canada, in terms of targeting some niche market to make sure that we will create value with the expertise that we have. So we’re very mindful that Canada has slowed down in terms of opportunity, although we’re very, very positive on the market that we are working with.

As I mentioned, we see Québec is active in Ontario, but we’re mindful that the rest of the world is developing as well. We just wanted to make sure that we had our foot strong underground with the project that we had. And now this is the time to start thinking about the future. So again, we think that renewal energy has great future and we want to be part of it. Thank you very much.

Marie-Josée Privyk

Thank you, Michel. This completes our presentation. We now invite you to ask your question. [Foreign Language]

Question-and-Answer Session


Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) Your first question comes from the line of Rupert Merer.

Rupert Merer - National Bank Financial

Hi. Good morning, everyone.

Michel Letellier

Good morning, Rupert.

Rupert Merer - National Bank Financial

One of you can start by giving a little more color on outlook for the Québec RFP. And if you could remind us how many projects you’re bidding into Québec call and maybe talk a little bit about how much you anticipate spending on development in the coming quarters in Québec BC and Ontario?

Michel Letellier

Well, as you imagine Rupert, I won’t be going to expand too much on much project and where and what have you because it’s a very competitive project. But we are very active in the Gaspé and (Indiscernible) area. And we’re bidding more than the 450 megawatt that is being offer. So I won't go into explaining more about our strategy there. We’ll have plenty of time to talk about this later on.

In terms of cost to develop, we have done most of the expenses for the Québec RFP already. Obviously, we have had met mass and we have done the early environmental study. We have done all open houses on our project as well. So there's not much going on in the next few quarters, unless we win something in the RFP and Québec.

Ontario, we've been in active in Ontario as well. But we’re still, I would say, in line with the $4 million to $5 million type of prospective project budget as we said prior. We haven't changed that budget. And we’re fairly in line with it. I don’t know if that had answer to your question, Rupert.

Rupert Merer - National Bank Financial

No. Okay. That’s great. Then following up on that comment about looking at your strategy post 2016 and maybe going outside of Canada, if you have any initial thoughts on which jurisdictions you might target and why you like to target those specific areas? And are you engaged outside of Canada at all yet?

Michel Letellier

Well, we haven’t -- I’m not prepared to go too deep in there but obviously the U.S. is improving a little bit in terms of structure, capital structure. The one reason why we had little interest in the past, in the U.S. it was the fact that the tax equity component of the capital structure, of the project in the U.S. was not well suited for us because most of the tax equity participant wanted to be repaid first and that drove the cash-on-cash on project for the first few years to be very, very low and unpredictable for the common shares.

And this is not fitting very well with the company that has to pay a dividend. So that’s why the U.S was not so interesting for us in the past but these structures are changing a little bit. The tax equity guys are little bit more flexible. And the component or the importance of those tax equity to some degree, decreased with other opportunity of selling and offering credit and also the cost to build the project and the technology in the wind and both solar are improving in terms of cost.

So, we see the U.S. as being a little bit more attractive than before. And obviously, if you have Europe, your hands on America that we’re looking but we’re trying to find niche market where we can create value with the knowledge that we have.

Rupert Merer - National Bank Financial

All right. Thanks. I will jump back in the queue.

Michel Letellier

Thank you.


Your next question comes from Nelson Ng with RBC Capital Markets. Please go ahead.

Nelson Ng - RBC Capital Markets

Great. Thanks. So quick question on Hydromega, so now that SM-1 is acquired, are you now looking to start discussions on the Kapuskasing hydro project or are you guys still exclusive or do you think Hydromega will run a competitive process?

Michel Letellier

We’re not exclusive anymore. We have decided to take a pause in negotiating both. I think both parties were a little bit tired of negotiating for the last two years, but obviously, we have done a lot of extensive due diligence for other process. So I would not comment more. Obviously, people at Hydromega are now shareholders of Innergex. So it will open but not working actively on that particular file for the moment.

Nelson Ng - RBC Capital Markets

Okay. Thanks. And then just a quick question on the payout ratio, so if the last 12 month generation was in line with the long-term average roughly, what would be the payout ratio be?

Michel Letellier

Well, this in on payout, can you answer that Jean.

Jean Perron

Well, the big chunk is really the effect is coming from the sale. So if we will add that revenues inline with the budget, on the long term average, the payout ratio will have dropped from about 118% to 98%. So it’s strictly related to weak hydrology. There us not the big fundamental flaw in our forecast or guidance that we had provided in the past just a weak hydrology, weak wind and hydro -- weak revenue side, year. Mother Nature was not very generous with us this year.

Nelson Ng - RBC Capital Markets

Okay. Thanks. Those are my questions.

Michel Letellier

Thank you.


(Operator Instruction) Your next question comes from Sean Steuart with TD Securities. Your line is now open.

Sean Steuart - TD Securities

Thanks. Good morning, everyone. A couple questions, with respect to, I think, its 450 megawatts of perspective wind projects in Ontario you have? And with respect to, I guess, your submissions to the RFQ? Can you speak to how transmission issues affect that process and you are thinking around that…

Michel Letellier

You are right. Ontario, the biggest problem with Ontario is the wind where there is a lot of people. There is capacity there. But as everybody knows there is big pushback in the population for wind development in the South of Ontario. So we are not getting there. We are a little bit further down. We have project in the East of Ontario that seems to be easier to interconnect and easier to have social acceptance.

We already -- we have announced that we have negotiated or advancing negotiation with First Nation in order to support this project. Things are very, I would say, underway very. The Northwest side of Ontario has great potential and I think, we have very good project over there. But it’s still a big problem in terms of transmission capacity.

The jury is still out there to understand if future investment by Hydro One will be done in the future. There is discussion about developing big mine in -- in or around the Ring of Fire. So there is some possibility down the road that this area will see some investment in terms of line. But we are not going down in the South of the Ontario. We are concentrating ourselves in two places where we think we can interconnect and obviously, we can have the social support of the population.

Sean Steuart - TD Securities

Okay. Thanks.

Michel Letellier

And also we have solar, we have quiet a good portfolio of solar project that we intent to build as well.

Sean Steuart - TD Securities

Okay. Thanks, Michel. And then second question is, with respect to the BC water rights payments and it sounds like you guys appealed to Environmental Appeal Board in BC? Can you give us any detail on how that process is expected to play in terms of timing?

Michel Letellier

I’ll let Jean Perron. He is the luck one negotiating with them.

Jean Perron

Well, we were expecting, sorry, that’s it for quicker process. We are asking, sorry, we have asked the government to get some document about internal document and because of that we will see 700 pages of document and the process I think postponed. So our decision will be made by October 1st. So we are not expecting to have a solution in the next few months. It will be sometimes next month or there will be might (indiscernible) get a decision on that. In the meantime, we are looking the expense in our financial statement, as a measure, we have heard we are winning, that would be good news on that.

Michel Letellier

Obviously, Jean, I don’t know if you mentioned it before, but there is other ways that we could avoid the long-term payment by moving these water rights in other entities. The thing why -- it might be little bit of capital invested in First, because they may trigger some in this pull taxes, transfer tax. But there is a way to mitigate that on the long-term basis, even if we lose on the appeal court. The reason why we are not going there right away is that, if we can win the ruling we wouldn’t have to pay the upfront cost of municipal tax transfer.

Sean Steuart - TD Securities

Okay. That’s great detail. Thanks very much guys.

Michel Letellier



Your next question comes from Ben Pham with BMO Capital Markets. Your line is now open.

Ben Pham - BMO Capital Markets

All right. Thanks, and good morning, everybody.

Michel Letellier

Good morning.

Ben Pham - BMO Capital Markets

I just wanted to go back to your commentary about look at niche areas outside of Canada and maybe you can comment a bit on technology preference outside of Canada and if you are looking more potentially early-stage projects or just something more a little bit later on with the PPA in hand?

Michel Letellier

Yeah. Like I said, well, you know, I am glad that you’re asking question. But I’m not sure I should have gone on this one, without having finalize our planning for 2000. But anyway, obviously, we will be going into renewable energy.

We always said that we like to go out, if we go out to new markets, we like to have a good spin on the technology. So we have three technologies. We have wind, hydro and solar. I think we are -- we are good in building hydro and operating hydro. If there is some places where we can put that expertise to work we would be happy. Obviously, wind is quicker to build and put into commercial operation, so, obviously, this something that we would be very interesting as well.

Solar has to be competitive in some places of the world it’s getting closer and closer. We like solar. We are ready to put more money towards solar, just a little bit some times, little bit more challenging to get to the -- to be competitive and might require a little bit more structured support from government.

But these three technology, obviously, would meet to our criteria and again, if we could put our engineering, know-how in building small hydro around the world would be a great idea, but around the world we’d be very focus on places where we feel we can be comfortable owning that an asset for a long period of time.

And that’s what it is challenging because when you go out in other part of world as a builder or as a supplier of services, your timeframe is maybe four, five years of this 25, 40 years. So we are -- we want to make sure that would pick the right place to invest.

Ben Pham - BMO Capital Markets

Okay. Perfect. And then, Michel, you mentioned that you’re on track to hit your ‘17 target and you also mentioned, getting down the payout ratio 80% at that time. So, I was just wondering, once you reach that phase, I mean, is 80% a level of that, come from what from a sustainable perspective, I mean, are you able to push out payout a little bit higher, just given the high level of contracts you have at that stage.

Michel Letellier

Again, that’s a good question, little bit hard to answer. But what I said is that, we would be well below the 80% target range, if we don’t change anything else. So, what we feel is that 80% is very comfortable and enable some cash flow in order to continue the development or reinvest in the prospective and creating value on green filed project.

Going much lower depends on the ability of finding good project. We are always, as I said, in the past we all were mindful that shareholder likes to see dividend increases, especially at least to cover the inflation and to protect against interest rate going up.

So, we’re very mindful of that, the 80% range is just an average, it's a -- when I say it’s a hard target. But, just wanted to mention that by 2017 we will be well below that if things are same, meaning that, if we win something else, if we reinvest in the green filed project that might change, if we raise the dividend that might change a little bit as well.

But, just trying to give comfort to investors that 2017 year will bring a lot more cash flow again because obviously we will bring about 30% more installed capacity to our fleet of projects. So, it’s very meaningful.

Ben Pham - BMO Capital Markets

Okay. And then maybe lastly with respect to the Hydro-Québec KPI you have expiring in the near-term? Is there any additional color there you can add, just with the post-economics?

Michel Letellier

Well, the industry is trying to have a group negotiation with both the department and the Hydro-Québec folks. I must say it’s a little bit difficult. But we have very good confidence in our ability to renew the contract the way we are reading our contract is that, actually we have already first pulling, we have 7-megawatt facility days due to renewal on December 1st. The way we read the contract is that we just give the notice to Hydro-Québec which has been done. So the contract is renewed.

Our view is that the conditions are just going to apply with the old contract. Hydro-Québec doesn’t necessarily agree on that aspect, but there is -- at worse, there is arbitration process that can be seeked and we intent to fully in force the right that we believe in our contract.

Ben Pham - BMO Capital Markets

Okay. Very good. That’s it for me. Thanks everybody.


Ms. Privyk, there are no further questions at this time.

Marie-Josée Privyk

Thank you. Thank you everyone. We appreciate this opportunity to provide an update on our company. Please do not hesitate to contact us if you have any other questions. [Foreign Language]

Michel Letellier

Thank you very much.

Jean Trudel

Thank you.


Ladies and gentlemen, that concludes our conference call and webcast. Please note that a replay of the conference call and the copy of webcast presentation will be available on the Innergex website later today. Thank you. You may now disconnect your lines.

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