Boralex Inc. (OTCPK:BRLXF) Q4 2016 Earnings Conference Call March 3, 2017 11:00 AM ET
Marc Jasmin - IR
Patrick Lemaire - CEO
Jean-François Thibodeau - CFO
Rupert Mayer - National Bank Financials
Nelson Ng - RBC Capital Markets
Ian Woodward - CIBC World Markets
John Mould - TD Securities
David Quezada - Raymond James
Good morning, my name is Sylvie. And I will be your conference operator today. At this time, I would like to welcome everyone to the Boralex's Fourth 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. Marc Jasmin, Investor Relations, you may begin you conference.
Thank you, operator. Good morning ladies and gentlemen. Welcome to the Boralex's fourth quarter and year-end results conference call. Joining me today are Mr. Patrick Lemaire, President and CEO; Mr. Jean-François Thibodeau, Vice President and CFO. 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 security regulators, which can materially change our actual results. These documents are all available for consultation at sedar.com.
In our webcast, the disclosed results are presented both under IFRS and on a proportionate consolidation basis. The particularities of proportionate consolidation have been explained previously, as well as the reason why we use it. In addition most of the comments made on this webcast will be on a quarterly basis. However, for your convenience we've also included some year-to-date figures on specific slides in the core of the presentation.
The press release with the company's audited consolidated financial statements and a copy of today's presentation are posted on the Boralex Web site at boralex.com. And the annual report including the MD&A and the complete audited annual financial statements are available on SEDAR. If you wish to receive a copy of either of these documents, please do not hesitate contacting us.
Finally, take note that we will take questions only from sell-side financial analysts, who currently have an active coverage on Boralex. Mr. Lemaire will now start with his comments. Patrick?
Thank you, Marc. Good morning, everyone. For the fourth quarter, Boralex reports lower results driven by a significant year-over-year decrease in French wind and U.S. hydro conditions. Despite these results explained by nature related events over which we have no control, we continued overall delivering strong growth to our shareholders as we recently completed the largest acquisition of our history, namely the 230 megawatt Niagara Region Wind Farm project for an enterprise value exceeding $1 billion.
This transaction which is expected to be double digit accretive 2017 cash flow per share was financed through existing cash flow availability following an increase in our revolving credit facilities from $360 million to $460 million and the issuance of $10.4 million subscription receipts which were converted into common shares in January.
We are very pleased by investors response, as they clearly supported the transaction and the issue was largely oversubscribed. Along with this significant acquisition Boralex increased it's 2017 year-end run rate annualized EBITDA guidance from $290 million to $375 million and on the same basis, increased its annualized run rate discretionary cash flow target to $95 million. More so, along with this transaction the Board of Directors announced a 7.1% quarterly dividend increase from $0.14 to $0.15 per share starting with the next dividend set to be paid on March 15. This transaction led to a nearly 16% increase in the numbers of shares outstanding to 75.7 million shares. We gained increased liquidity as our public flow now stands at roughly 75% of our outstanding shares. The combination of increased liquidity and float size makes us closer than ever of being included in the TSX Composite Index, a milestone we hope to achieve this year.
Moving on the execution and expansion of our pipeline. We’ve commissioned during the quarter, 22-megawatt of wind projects, including the 10-megawatt Port Ryerse in Ontario and the first 12 of 16-megawatt of Plateau de Savernat in France. Considering NRWF and other assets commissioned, our installed capacity grew by 25% to 1,365-megawatt.
Generally speaking, the execution of our growth plan is running smoothly as we are staying on budget and not encountering any material cost overruns. On the other hand, in France, we anticipate that given quicker than expected interconnection, we will be ahead of schedule with the 51-megawatt Moulin de Lohan project, which is now targeted to be commissioned in the second half of 2018 or one year earlier than originally planned.
On the acquisition front, we’ve entered during the quarter into an agreement with the Alberta Wind Energy Corporation and created the Alberta Renewable Power Limited Partnership, where Boralex retains 52% ownership. This collaboration in Alberta provides for a unique opportunity to leverage our expertise in the development of projects in the province, renewable electricity program, which calls for the development of 5,000-megawatt of renewable capacity between now and 2030. Seen as a whole, our recent acquisition, the 202-megawatt of project currently under construction and our extended pipeline supports Boralex revised target of 2,000-megawatt by the end of 2020 or nearly 50% more than today.
In the context, our recent regulatory changes in France, where the market is transitioning from the season tariff scheme to a contract for difference one, including future request for proposal. You should note that in addition to the 152-megawatt currently under construction in France, we have 87-megawatt which has non-recourse building permits, guaranteed interconnection and a fixed rate. Additionally, as of December 31, we formally had requested a fixed rate for another 235-megawatt for which the permitting process has been initiated.
I will now turn the conference over to our CFO, Jean-François Thibodeau, to further discuss our results and review our operations and financial situation. I will be back later for the closing remarks and the question period. Jean-François?
Thank you, Patrick. Good morning everyone. Before I get into the specifics of the numbers, I would like to mention that going forward starting with our yearly 2016 numbers we will be reporting figures rounded in millions of dollars and all variations and percentage are still calculated from their value in thousands of dollars.
For the fourth quarter of 2016 fiscal year, in comparison with 2015 on a proportionate consolidation basis, as seen on the right Side of slide 8, Boralex reports a 6% decrease in production, a 7% decrease in revenues, a 10% decrease in EBITDA and 19% decrease in cash flow from operations. Accordingly, revenues came in at $89 million and EBITDA stood at $57 million representing margins of 64%. As for cash flows from operations they totaled $36 million compared with $46 million last year.
Net earnings attributable to Boralex shareholders stands at $1 million or $0.02 per share which compares to net earnings of $6 million or $0.09 per share in 2015. The difference between both years is mostly explained by the year-over-year EBITDA variance.
I will now comment on the full year numbers on Slide 9. Despite a weaker unexpected fourth quarter but because of a very first -- strong first quarters, sorry, Boralex recorded in fiscal 2016 an 8% growth in production, driving revenues to $354 million, a 10% rise in EBITDA to $231 million and 9% increase of cash flows from operation to $144 million.
Moving on to Slide 10 with the quarterly comparative EBITDA by segment. For the reasons outlined previously wind and hydro were weaker while the corporate, thermal and solar sectors remained unchanged. I will later provide details on each individual segment.
Moving forward to Slide 12, with the review of the quarterly EBITDA variance, the commissioning of new assets provided an additional $5 million contribution. However lower wind regimes in France and water levels in the U.S. adding negative $12 million impact. To put things in perspective, I would like to remind listeners that the first months of 2016 demonstrated excellent wind regimes in trend and they were actually ahead of our expectations. The levels of wind achieved this year were unseen since 1990. Based on various data, it is however impossible to drive a long-term change in wind trends. This year was just anomaly.
Again moving forward two slides, let's look at each segments contributions starting with wind. Taking into account the newly acquired and commissioned assets, wind production decreased by 5%. In Canada it was up by 20% while in France it decreased by 24%. On a comparable basis, excluding the contribution of commissioned sites production decreased by 17%. In France it was 28% lower and in Canada it was down by 1%.
Expectations were for a 38% power factor in Canada and 30% in France for a blended 34%. Actually the overall blended power factor came in at 28%. Canada achieve a 37% top factor while France achieved a 22% factor.
Looking ahead to 2017. Recognizing the importance of the quarterly power factor assumptions for your forecast, we provided on Page 24 of this presentation, our 2017 power factor estimates for the wind sector broken down by quarter and country.
Now the full contribution of the newly commissioned site in Canada mainly Côte-de-Beaupré, Témiscouata II, Frampton, and Port Ryerse, contributed 4 million to EBITDA. With respect to Canadian assets I wish to point out that despite the fact that the Niagara Wind project was commissioned in early November. We will only account for its results. Starting January 18, 2017 the date of the closing of the acquisition.
Moving on to France. The new sites of Calmont, Touvent, and the First Phase of Plateau Savernat explain a 1 million positive contribution to EBITDA. In view of the above mentioned items, revenues decreased by 6% to 69 million and EBITDA decreased by 9% from 61 million to 55 million representing margins of 81%.
Moving on to hydro on Slide 16. This quarters overall production was 11% lower than last year. It was 7% higher in Canada, but 25% lower in the U.S. In comparison with historical averages, blended production was 17% lower where as in Canada it was 7% higher and 33% lower in the U.S.
Lower production in the U.S. was however partly mitigated by better prices, lower developments and maintenance expenses. Given the above factors quarterly revenues decreased by 3 million to 12 million while EBITDA came in at 9 million or 1 million less than last year. As for margins, they stood at 68% slightly above of what was achieved last year.
We have no specific comments on Thermal and Solar sectors as they each generated 1 million of EBITDA, unchanged from last year. We have however provided in the appendix section of the webcast additional details on production, revenue and EBITDA.
Now commenting on the corporate sector on Slide 17. Development expenses totaled 3 million unchanged from last year. Administrative expenses in the corporate sector stood at 5 million compare with 4 million in Q4 2015, reflecting the company’s growth.
Finally, other expenses decreased from 2 million to 1 million, offsetting the increase in administrative expenses. Considering all of the above, items corporate EBITDA remained at negative 9 million. Looking ahead to 2017, we forecast administrative expenses in the $20 million range and development expenses in the $13 million range. For a total corporate EBITDA of around 35 million in line with the full year of 2016.
Now turning to our cash flow generation as seen on Slide 18 as well as our cash flexibility and payout ratio. Cash flows from operations before changes in non-cash items came in at 36 million for the quarter, down from 46 million in 2015. During the fourth quarter, we spent a total amount of 85 million on investing activities more precisely, we spent 53 million to mainly build our growth path, invested 60 million on business acquisitions, drew 13 million from reserve cash and allocated $3 million to other items.
Financing activities provided a net amount of 80 million. More specifically, we drew new project related debt for 102 million and incurred a 64 million bridge loan relating to the acquisition of ready to build projects and land in France and Scotland.
This inflow of cash allowed us to reimburse 17 million of capital on existing projects, 43 million on our revolving credit facility, and another 14 million consisting for the most part of bridge loans, related to reimbursable costs from HydroQuebec We also paid 4 million in distribution to non-controlling shareholders and 9 million in dividends to Boralex shareholders.
Finally, net proceeds of 107 million from the issuance of 10.3 million subscription receipts was designated as restricted cash. This being said, as seen on Slide 20, cash stood at 109 million at the end of the year in addition to 193 million of restricted cash. As of today, our cash flexibility at the corporate level stands at around 100 million, considering covenants, financial instruments, mark-to-market and outstanding letters of credit.
With respect to the upcoming year and projects identified in our growth path on Slide 5, but excluding NRWF, we expect to spent approximately 334 million in property, plant and equipment this year. These investments will be financed by additional drawdowns of approximately 312 million and equity injection in these projects from Boralex of approximately 17 million and finally around $5 million from minority shareholders. For 2017, project debt reimbursement should amount to approximately $110 million.
I will now discuss our payout ratio. For 2016 it stands at 83% outside our target of 40% to 60% of discretionary cash flows. This situation is a direct consequence of lower volume than expected from our French wind and U.S. hydro operations. In fact, considering our revised 2017 cash flow CSFD guidance of $95 million on an annualized run-rate basis the recent quarterly dividend increase from $0.14 to $0.15 and a revised share count we expect our payout ratio to fall within our guidance within the foreseeable future.
I will now turn the conference over to Patrick for a few closing remarks before a question period. Patrick?
To conclude I would like to mention that despite the weaker than expected quarter, we are in great position to provide our shareholders a balanced mix of growth and return the capital for foreseeable future. With the strong cash flow generation profile, a solid and flexible capital structure, we clearly identified growth pattern pipeline and very favorable interest rates we have everything needed to continue creating long-term sustainable value. More so with an improved liquidity profile and potential inclusions in the TSX Composite Index, we believe we can attract new shareholders to our story who will further support us over the long-term.
Thank you for your attention. Operator we'll now take question from the participants.
[Operator Instructions]. Your first question comes from the line of Rupert Mayer of National Bank Financials. Please go ahead.
Could you talk a little about your growth in France, and looking at your growth pipeline you've got that 87 megawatts advanced stage projects in planning. How long until you have a better view on the time to move those to construction and what's left to be done with those projects before you can get there?
It's a minor thing, but this project will come online as year ago, this year goes and the other 235, little bit on the same page, but a year late from the 87 megawatts. And the 235 I want to mention and that's why we always said, it's not guaranteed that all of that will be granted all the permits, but we're confident we'll get most of it.
So I understand you might be looking for slightly better economics on those 87 megawatts. How much better can be economics be than say your baseline alternative?
We've always said that these 87 megawatts will generate returns in the -- with rather be mid-teens than low double-digit returns that we see on a normal basis for other projects. So that's really the guidelines we can tell.
Okay, and then secondly, about that land package you acquired in France and Scotland. Can you give us any updates on the thinking and the timing for selling that land package and where the value could fall relative to your outstanding finance against the real-estate?
We just assign advisor, I'm going to say, to sell those. It's not the right term, but for advisors, but we've just assigned some for Scotland and another one for the French left, and we gave ourselves -- like we've said in the past, we gave ourselves two years to sell them, but we are confident we'll sell them that for the two-year term.
Okay, and your expectation is that you should realize at least as much as the outstanding debt on the property is that right?
Alright. Thank you, I'll leave it there. Thank you.
Our next question comes from the line of Nelson Ng of RBC Capital Markets. Please go ahead.
Just a quick question regarding that French wind development. Do you have a sense of when France will do a Wind RFP and when will that competitor process start, like does that depend on the result of the election?
It should be an RFP this year, but it's still not clear, it's not that well defined up to now. They have changed regime kind of fast I'm going to say and that's the reason why that we've pushed to get some raise granted for many megawatts to be able to keep on growing for the years, this year and the next year till the RFP process comes with a better, even more intangible deals.
And just on that, so if they hold on RFP this year does it make sense for you to I guess submit any -- you mentioned that you've submitted 235 megawatts into the feed and tariff process, but are you going to like -- will you participate in the in an RFP if one takes places? Like would you look at your other projects that didn’t make it into that 235 or would you look at that group of 235 megawatts and consider putting some of that into to this RFP?
I'm going to say all options are open, we'll see as the RFP and the conditions of the RFP comes out and if it's -- not to forget that we are over and above that 235 megawatts, we have another we're saying total in total was 700 so we had another 500 so megawatt of projects available, so we could submit some of the 500 projects in developments. And we'll see, because like I'm saying, it's not -- we don’t have all of the parameters yet, so as they come we'll see what we are going to do with those.
Okay, and then just a quick question for Jean-Francois. In terms of the PP&A of 334 and you mentioned that, I guess if I add the equity and minority shareholder that's only 22 million of equity funding 334 million of PP&E, that seems like the leverage is pretty high on -- from a -- to fund that CapEx. Could you comment on that? And is all the debt project non-recourse advertising?
Thanks. Good question. It seems that -- let’s not forget that some of the equity has been put this year into some projects that were not financed. So what happens during a year or so, you could have -- when you go into the project finance, you recover some of the equity that you have. So on the overall basis, it looks little, but all the projects are all between 80% and I would say up to 85% project there. So it’s really the $17 million, is really the reflection of multiple changes. Some that we reprise from the one we draw the project debt and stuff like that. So you should not look only at the 17 as a percentage of equity to be put in these projects. It’s still in the 20% margin.
Okay, thanks. And then just one last question, kind of more longer term. I think, in the past you mentioned that you might not need any external equity to fund your growth through 2020, but subject to the timing of some projects, is that kind of still the case?
Yes. As we said, there’s a big criteria, unless a major chunk of projects would come very, very early in the process, we’ll see. But yes, based on our forecast, we were able to finance the growth pipeline at the stead basis over the next few years. And just to give you an example, our target is to generate cash, distributable cash of $95 million. So over -- and if we distribute 50% of that, you can make that math and you can see that will be -- we’re in a good position to finance all the pipeline.
Got it. Okay. Thank you.
Your next question comes from the line of Ian Woodward of CIBC World Markets. Please go ahead.
Hi, this is Ian Woodward on behalf of Rob Cattelier. Thank you for taking my questions. One sort of small housekeeping item just to kick off. In the notes, I see that receivables greater than 90 days, is at 17% compared to 2% in 2015? And I was just wondering what have driven that change?
I’m not sure I got the question, sorry about that.
The receivables in the financial statements greater than 90 days, the percentage outstanding was it sort of 17% of receivables or greater than 90 days? Which was sort of a bit higher than the 2% in 2015? I was just wondering what was driving that.
Let’s not forget, the receivables are what you asked to remove two things there. There’s the -- I would say the receivables from the operations, where they are very minimal and there is no difference between this and other years, we usually have about a month of production that we sell to various counterparty.
Sometimes in the receivables you may have from projects, stuff that we could recuperate, and let’s say from HydroQuebec and stuff like that. We have what we call the PV [ph] -- in France the NOL [ph] to translate that, it's a tax that you will recuperate. So it does mislead a little bit the value of the receivable. But one thing I can tell you our core operations receivable are not higher and we don't have any bad debt provisions in that. They are still very strong.
Okay thank you. And then in Canada sort of outside of the procurement that's expected in Alberta, how do you view opportunities either for new development or M&A?
Like we said in the past we're looking at the U.S., mainly the Northeast. And actually, we're meeting and having discussion with let's say Northeastern United State developers to see what can be done, a partnership or acquisition of develop -- partially or fully develop projects. So we'll inform as we go on that aspects.
Okay and then my last question is just if you could provide any updates on the 200 megawatts partnership opportunity with the Inundation [ph]?
Yeah this goes along, we're still having discussion with the Inundation. And also we're eager to have a meeting with HydroQuebec in the next in the months of come. So this is going be a probably a longer process and we usually we have, but we're still moving along.
Okay. Thank you very much.
Your next question comes from the line of John Mould of TD Securities. Please go ahead.
Just a quick follow up on the 235 megawatts submitted in France. What's the timeline for confirming you've got the both the rate, the fixed rate side of things and the building permit side?
I think the timeframe is about 12 to 15 months. So that's like I said earlier the 87 is going to mainly come this year as we go, and the 235 for the years to come after that.
Okay, got it. All my other questions have been answered. Thanks very much.
[Operator Instructions]. Your next question comes from the line of David Quezada of Raymond James. Please go ahead.
Maybe just a broader question on the French market. With the change in the contract for difference for FIT. I'm just curious and I certainly appreciate that you guys already have a very attractive pipeline there of projects. But I'm wondering if you could comment at all on how the M&A environment seems there and is your phone still ringing in terms of development portfolios that are available out there and has there been any change on that front?
I'm going to say I think that we made the partnership on the acquisition at the right time. Actually, as we see, if you follow the renewable energy market, we see very aggressive acquisition or low return acquisition, I think Boralex has moved at the right time. And if an opportunity comes in the months to come, at the right return Boralex will always look at that. But actually, we see very very aggressive returns on the M&A side.
Okay great, thank you. And that's all I have for now.
There are no further questions at this time. I will turn the call back over to the presenters.
Thank you for your attention. A recording of the webcast is available until March 10. Thank you.
This concludes today's conference call. You may now disconnect.
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