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Good morning, ladies and gentlemen, and welcome to the Boralex First Quarter of 2023 Financial Results Conference Call. [Operator Instructions] Please also note that this conference is being recorded. For webcast participants, you can also ask questions during this conference. But they will be answered by e-mail after the call. Finally, media representatives are invited to contact Camille Laventure, Advisor, Public Affairs and External Communications at Boralex. Her contact information is provided at the end of the quarterly press release.
I would now like to turn the conference over to Stephane Milot, Vice President, Investor Relations for Boralex. Please go ahead.
Thank you, operator, and good morning, everyone. So welcome to Boralex’s first quarter results conference call. Joining me today on the call is Patrick Decostre, our President and Chief Executive Officer; Bruno Guilmette, our Executive Vice President and Chief Financial Officer; and other members of our management and finance teams. Mr. Decostre will begin with comments about market conditions and the highlights of the quarter. Afterwards, Mr. Guilmette will carry on with financial highlights and then we will be available to answer your questions.
As you know, during this call, we will discuss historical as well as forward-looking information. I’m talking about the future. There’s a variety of risk factors that have been listed in our different filings with the Securities or the regulators, which can materially change our estimated results. So these documents are all available for consultation at sedar.com. In our webcast presentation document, the disclosed results are presented both on a consolidated basis and on a combined basis. When talking about the results, we generally refer to combined numbers, and we referring to cash flow and balance sheet we generally refer to consolidated numbers. Please note that combined is non-GAAP financial measures and does not have a standardized meaning under IFRS.
Accordingly, combined may not be comparable to similarly named measures used by other companies. For more details, see the non-IFRS and other financial measures section in the MD&A. The press release, the MD&A, the consolidated financial statements and a copy of today’s presentation are all posted on the Boralex’s website at boralex.com under the Investors section. If you wish to receive a copy of these documents, please contact me.
Mr. Decostre will now start with his comments. Please go ahead, Patrick.
Thank you, Stephane. Good morning everyone. It’s a pleasure for me to present our results and achievements for the first quarter. Our teams have been very active on the growth and diversification strategic orientations in the quarter. I’m very proud to say we reached 6 gigawatt of project pipelines by adding 117 megawatt of wind, 121 megawatt of solar and 230 megawatt of storage projects in the quarter.
Total production increased by 22% in the first quarter compared to 2022. The integration of wind farm acquired in the U.S., the commissioning of wind and solar farms in France, the favorable wind conditions in France and favorable hydro conditions in North America more than compensated for unfavorable wind conditions in Canada.
EBITDA for the quarter was CAD192 million, up CAD9 million or 5% over 2022, reflecting the contribution from the U.S. acquisition and commissioning of assets as well as high level of electricity prices in France, which more than offset the decrease in production in Canada. Please note that the comparable figure in the first quarter of 2022 included a CAD16 million positive effect coming from certain feed-in premium contract in France, which was taken out in the third quarter of 2022 after the enactment of the Supplementary Budget Act. Excluding this element, the EBITDA growth would have been 15%.
We got the same effect on the AFFO level, which would have seen a 7% increase if we exclude the CAD16 million effect. Finally, we maintain our financial flexibility in the quarter and ended the quarter, with a solid balance sheet. Bruno will provide further details on this point in his section. I won’t go in all the details of market conditions. But in general, I would say that for all markets in which we operate and develop favorable programs are being discussed or put in place similar to the IRA in the U.S.
The latest one is the ITC in Canada. The federal government announced on March 28, its intention to adopt a series of measures to advance the greening economy, including the adoption of the 30% Investment Tax Credit, ITC, for capital expenditures related to renewable energy production, energy storage and clean manufacturing. In addition to the ITC, the Canadian government committed to support electrical systems upgrades, clean energy investments by Indigenous communities and Crown corporations and other measures to reduce emissions. In Quebec, on March 31, Hydro-Quebec issued a tender call for 1.5 gigawatt of wind power. The issuance of the tender is part of a larger plan to quadruple wind power capacity over the next 15 years to meet growing energy demand of 25 terawatt hour.
I will now rapidly review the main variances in our portfolio of projects and growth path. The increase in the early stage was mainly due to additions of 5 new wind projects and 4 new solar projects in Europe, totaling 163 and 2 solar projects in North America for a total of 75 megawatt. The change in the mid-stage was mainly due to progression of one solar project in Europe to the mid-stage phase, adding 11 megawatt change to the expected capacity of 1 wind project and 1 solar project in Europe for a reduction of 12 megawatt and progression of 2 wind projects in Europe to the advanced stage.
In total, our pipeline now comprises project totaling 4.3 gigawatt of solar and wind projects and 1 gigawatt of storage projects. In storage, we’re waiting for the results of the February auction in Ontario, in which we bid 380 megawatt. We are also preparing for the upcoming bid in September. In the growth path, no project progress to the secured or ready-to-build phases. We continue to work on the optimization of our solar project in the U.S. and are expecting feedback from NYSERDA in the coming months. Project in construction are progressing as planned. The two largest ones, Aquitaine in Quebec and Limekiln in Scotland are expected to be commissioned in 2024. I won’t cover in all details. The progress made in our growth and diversification strategic directions as I have already talked about the major highlights. On the customer strategic direction, we continue to have discussions with numerous corporations in France and the UK.
In terms of optimization, I would like to highlight all the work done by our teams to integrate our most recent acquisition in the U.S. The integration is going according to plan. Higher EBITDA contribution than expected is mainly due to the differences in production tax credit, PTC, accounting in IFRS standards versus U.S. GAAP. One last point about optimization. We continue to in-source maintenance in Canada. We also continued to optimize our capital structure and strengthen our balance sheet with the early repayment of a CAD58 million loan in a – CAD58 million loan in France.
This completes my part. I will now let Bruno cover the financial portion in more detail, and we’ll be back later for the question period.
Thank you, Patrick. Good morning, everyone. I will start with a review of the progress made in light of our 2025 corporate objectives. Our balance sheet remains solid with more than CAD330 million in available cash and authorized financing facilities. An amount of CAD77 million under the revolving credit facility will be transferred to the letter of credit facility guaranteed by EDC, which was increased by CAD125 million, bringing its total authorized amount to CAD200 million in April 2023.
We continue to make good progress on the EBITDA and AFFO when taking into account the CAD16 million effect mentioned by Patrick earlier. The reinvestment ratio of 56% is in line with our targeted range. Our CSR strategy progress is presented on Slide 16. For more detailed information, including data on CO2 emissions and work done in relation to the climate change and the TCFD initiatives, I invite you to read our third CSR report, which was published at the end of February.
I will now cover the financial results for the quarter, starting with production. Overall, total combined wind production for the quarter, combining Canada, the U.S. and France was in line with anticipated production and 29% higher than last year. Good conditions in France and the U.S. compensated for unfavorable wind conditions in Canada, especially in Quebec, where we got more important hazing periods than usual.
Turning to hydro now, total production for the hydro sector was 18% higher than anticipated and 10% higher than last year. Both markets, Canada and U.S. had favorable weather conditions. Finally, production from solar assets was 3% lower than anticipated and 12% lower than the same quarter last year, mainly due to unfavorable conditions in the U.S. In summary, total production for the quarter was 1% higher than anticipated and 22% higher than last year. First quarter combined revenues were up 32% compared to last year, mostly due to the integration of our acquisition in U.S., commissioning of assets and high prices of electricity in France.
Combined EBITDA increased by 5% in the first quarter, and operating income increased by 1%. Please note that the CAD12 million increase in corporate expenses is related to increase in the workforce for the growth of the corporation. AFFO was CAD65 million compared to CAD77 million in the same quarter last year. As mentioned by Patrick, the first quarter of 2022 included a positive CAD16 million effect relating to feed-in premium contracts. Excluding this amount, AFFO would have increased by CAD4 million or 7%.
Our financial position is solid with our net debt to total market capital ratio of 38% compared to 40% at the end of 2022. In conclusion, it’s a good start for 2023 as we continue to discipline the execution of our plan. We added 468 megawatt to our project pipeline. Our pipeline of projects and development in construction reached 6 gigawatt and 96% increase over 2020, the reference date for our 2025 strategic plan. Combined production was in line with anticipated production and increased by 22% over the first quarter of 2022. EBITDA reached CAD192 million, a CAD9 million increase over 2022. We maintained a solid financial position with more than CAD330 million in available cash resources and authorized financing and a net debt to total capital ratio of 38%. And finally, market environment continues to be highly favorable for development activities in all our markets.
Thank you for your attention. We are now ready to take your questions.
[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Rupert Merer from National Bank of Canada. Please ask you question.
Hi, good morning, everyone. Patrick, you touched briefly on the corporate PPA market in France. Can you give us a little more color on how that corporate PPA market is evolving? And what’s the outlook for that market? And with that, if you look at your portfolio projects in France, you have some contracts that have fairly short durations here. What do you do next? Do you contract those projects? Or do you stay merchant near-term?
Yes, good morning, Rupert. It’s – essentially, we have a lot of demand for say which a short 3 years, long 10 and 20 years contract in France from different corporations. So we have typically extended the contract for – which was signed with Ocean. We extended for 3 years at an interesting price considering that – and it’s good for the customer also because the expected price for the next 3 years are high. If you – to further hits the contract, the lower the price, but the price is still at a high level, almost three digits, which is good, in France, in euro. So it also give us optionality to finance projects, new projects and additional projects. So that’s what we see in France. And I think it’s very promising for the future of the company, and it’s very promising because we have many contracts coming to an end in the next 8 years in France, if you look to ‘23, and this is – I’m very confident we will find off-takers for our electricity at the reasonable price for us.
So looking at the French market, can you give us an update on what you anticipate as far as government calls for power go? And what’s the pricing in those government calls expected to be? How does it compare to the corporate market? Or do you just think that perhaps in the future, you’ll build directly under corporate PPAs instead?
Yes. It’s a very good question. You have seen that the last RFP in France, they have just selected four projects, I think, on 60, which were bid. This is typically due to the fact that the curve is no inverted, meaning that the price is not going down, it’s going up, because there is more cost on our side, but optionality also, as you mentioned, was corporation. So there is an RFP on May 12 in France for 925-megawatt in wind. There is an RFP for 1.5 gigawatt in solar in July. There is net then probably a neutral RFP during the summer and then another 925-megawatt wind in September. Like in the past, there would probably not be enough project to bid authorized project to bid. So price will be under pressure on the right side for us. And as I mentioned in the first question, we have options to sell to corporations of use, and the price of corporate PPA are generally higher with corporation today, because – and it’s – I think it’s normal to have a higher price. This was the case for typically mature market in PPA like Spanish market to have RFP price a little bit lower than PPA price.
Alright. I will leave it there. Thanks for the color.
Thank you.
[Operator Instructions] And the questions come from the line of Ben Pham from BMO. Please ask your question.
Hi, thanks. Can you maybe give us an update on how you think about your funding position? Is that at this point in time, how do you think about the split between the debt side to get to the 4.4 gigawatts of capacity?
Ben, so thank you for the question. In terms of funding, as I mentioned, we have availability between cash and our credit facilities of about CAD330 million plus we will transfer the CAD77 million to EDC, so close to CAD400 million overall, in terms of fairly accessible easy financing. So we’re good for probably the rest – certainly the rest of this year, if we need to, in terms of excluding M&A, always as I say. In terms of our strategy in financing, we mentioned that we want to look at the possibility to have more corporate debt probably following our credit rating. So the credit rating objective remains in terms of an objective for 2025. The market for project financing for our type of project is still quite good, quite strong. So for example, we’re working on the financing of the [indiscernible] project, and it’s going well. So in general, we have availability on our credit facilities, a portion of cash, the long-term financing of projects. So at some point, we will see what we need in terms of additional equity, especially to balance with our desire to reach investment-grade rating. Does that answer your question, Ben?
Yes. That’s great. Thanks for the update. And I know you talked about the European policies and France in your remarks. Can you give us an update on the events in the last RFP, what happened there? And then also, how do you think about the time line going forward with upcoming RFPs to super France?
Yes, Ben, it’s Patrick. On the last RFP, essentially, what the regulation commission said, it’s an administrative problem, the form of healthy, that energy, transition and environment minister – Energy Transition Minister, Agnes Pannier-Runacher was not happy with the answer of the regulator and say, we will start quickly two other rounds, and they will be – as I mentioned, they will be around in May, and they will be around in September for wind, 925 megawatt both and they will be around in July for solar. And the team are working to bid on that RFP. And the second point about general say, legislation in France, the PPE, which is the planning of electricity production for the next years is coming this summer. So there is a lot of consultation. And obviously, our industry is pushing hard to say, the only solution on the short-term is renewable. And then we will see where the government will go. I think it will be positive. And more generally speaking about the French market, price in Q4 and Q1 next year are at the high level presently, especially because they have been up very high level in May – in April, sorry, they are still at a high level today because there is, again, question on the nuclear fleet for the next winter in France.
Okay, great. Thanks a lot, guys.
Thank you.
[Operator Instructions] And the questions come from the line of Sean Steuart from TD Securities. Please ask your question.
Thank you. Good morning. Bruno, I think you mentioned that you consider the company funded for this year if there is no M&A, and that’s separate. Can you speak to Patrick or Bruno, your interest in M&A? Are you actively considering possibilities and if so, any context on scale and geographic or technology focus?
Yes. Thank you, Sean, for the question. We continue to look at a number of opportunities. I mean, not all in details, but certainly, we continue to monitor the market to look at opportunities, both in – especially in the U.S. and in Europe. These are not so much in Canada at the moment. And we see a transition, I would say, in the market. We see that gradually, the buyers are shifting a little bit their expectations in terms of return. They are increasing their expectations in terms of returns, but it’s happening gradually, which to us is important because we believe that the cost of capital has increased, certainly on the debt side, and we were seeing people paying a little bit too much a few months ago. That’s changing gradually. And we’re certainly looking at different opportunities. Now in terms of types of targets, it’s – I mean, it needs to be accretive. It needs to be a good financial target, but certainly, also on the operations side, we need to be able to add value on the operations side. And if we see a pipeline possibility, which fits with our strategic targets, diversification is key also in terms of our decision-making process in that criteria. So we look at a number of opportunities. We are very selective and we continue to be disciplined on the return expectation and the accretion of those.
Okay. Thanks for that. And then on the other side of that, any updated thoughts on asset recycling as a funding source and how you – after this year, I suppose, would weigh the potential economics of asset recycling to fund earlier stage development growth versus issuing equity at this point?
Yes. I think it continues to be a possibility in – I’d say, in the medium-term. So certainly, we have some interesting assets. You’ve all seen the transaction we did in France, which was quite positive for us and recycling cash, keeping a very significant foothold in France, but at the same time, joining forces with EIP and getting a good price on that transaction. So we will be selectively looking at other possibilities in the portfolio. And we believe that there are some, but we’re waiting for the right moment where we think that the value would be there. The potential partner would be interesting for us and the price. So to get the right partnership long-term is important, but we’re considering that more in the medium term, I would say.
Okay, that’s all I have, thanks very much.
Thank you.
And the questions come from the line of Gabriel Moreau from iA Capital Markets. Please ask your question.
Hi, good morning. Can you give us an update on your – can you give us an update on your solar development project in New York?
Yes. We are optimizing the cost of the first 200-megawatt, the cost of construction. We have already some conversation with NYSERDA, not just Boralex but the all industry to see how the price should be adapted of this – the 2019, 2020 contract. And I am confident that we will find something acceptable for the different parties in the future and a good indicator for NYSERDA is obviously the price that has been bid on the last RFP by the industry. I have an idea of what Boralex has done, not the others, but I’m pretty sure that everyone has a higher price proposed there. So they would know what to do. And on our side, we bid 260-megawatt on this RFP in April. And we are also the result of this standard will be known in the summer, and we are also preparing for the 2023 RFP, which is planned in the fall and ready to bid some projects also there.
Interesting. Thank you. And what are your – sorry on – there was a deal recently in New York that allowed the New York Power Authority to build their own solar power project? Do you think there is going to be any impact on new capacity award to private sector and developer?
I’m not convinced about this. Incidentally, I had the meeting with NYPA CEO 2 weeks ago in New York, and this was not on the top of his table. So I think they are more partnering with people like us. And so I’m not expecting that this is a dangerous competition for us. So no.
Thank you very much. And that’s it for me.
Thank you.
We have no further questions at this time. I would now like to hand back the conference to you for closing remarks. Thank you.
Right. So thank you, everyone, for your attention. If you have additional questions, please call me at 514-213-1045. I’ll make sure to answer quickly all your questions as usual. Our next call to announce second quarter results will be on Monday, August 14 at 11:00 a.m. Have a nice day everyone. Thank you.
Thank you.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.