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Good morning. My name is Simons, and I will be your conference operator today. At this time, I would like to welcome everyone to the Boralex Inc. Fourth Quarter Results Conference Call. [Operator Instructions][Foreign Language]Mr. Stéphane Milot, you may begin your conference.
Well, thank you, operator, and good morning, everyone. Welcome to Boralex year-end and fourth quarter conference call. Joining me today are Patrick Lemaire, President and Chief Executive Officer; Bruno Guilmette, Vice President and Chief Financial Officer; and Jean-François Thibodeau, Former Vice President and Chief Financial Officer, who will be retiring at the end of the month. And also with us are other members of our management team and finance team.Mr. Lemaire will begin with the comments about the key elements of the year at the end of the quarter. Afterwards, Mr. Guilmette will carry on with some financial highlights. And we will then be available to answer your questions.As you know, during this call, we will discuss historical as well as forward-looking information. When talking 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 estimated 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 combined basis. The particularities of combined basis have been explained previously as well as the reasons why we use it. Unless otherwise stated, all comments made in this presentation will be referred to combined basis figures. The press release, the MD&A and the consolidated financial statements as well as a copy of today's presentation are all posted on the Boralex website at boralex.com. If you wish to receive a copy of either of those -- these documents, please do not hesitate to contact me.So Mr. Lemaire will now start with his comments. Please go ahead, Patrick.
Thank you, Stéphane. Good morning, everyone. Before getting into the explanation of our performance, I would like to welcome to our team our new Vice President and Chief Financial Officer, Bruno Guilmette. Bruno is a great addition to our team. He brings his extensive experience in financial management and the acquisition and financing of infrastructure projects around the world. He also has a remarkable track record in the leadership roles in rapidly growing companies.I would also like to bring this opportunity to thank Jean-François for all the hard work, dedication and passion he put into this company in the past 16 years. After 60 quarterly calls, this would be Jean-François' last call. I wish you all the best for your retirement, Jean-François.
Thank you, Pat.
Let's now talk about our results. As mentioned in our press release, 2018 was a record year for Boralex in terms of capacity growth. We will, in fact, reach our target of 2,000 megawatts in 2019, a year in advance of our plan. As of today, our total capacity stands at 100 -- 1,942 megawatts. We added 2 acquisition and commissioning of new projects close to 500 megawatts last year, representing 32% growth in capacity. This is a great accomplishment, which will generate strong results going forward with the expected synergies. And yes, for those who are wondering, there is more to come.Let me now highlight the main contributors to our growth and other key initiatives undertook during the year. First, the acquisition of Catésis portfolio in France, which added 163 megawatts of capacity with an average 8 years remaining on the contract and a pipeline of 158 megawatts, which is almost as big as the existing assets acquired. Expected synergies from this acquisition will mainly come from the pipeline of projects acquired. Please note that we already commissioned a 10-megawatt project out of this pipeline.Second, the acquisition of a participation in 5 wind sites in Québec from Invenergy for a total net capacity of 201 megawatts with average 16 years remaining on the contract. We expect synergies from this acquisition will be gradually generated as well as will bring in-house maintenance-related activities, which, over time, will drive better machine availability and higher margin.Third, the commissioning of 6 wind projects in France, totaling 122 megawatts or 25% of our annual capacity growth. There are 126 megawatt of projects commissioned for 2019 and 2020 and much more in our plan for coming years, as potential in Europe and some parts of North America remains very strong.Fourth, upon the closing of the Invenergy transaction and considering its confidence toward the future, our Board of Directors approved last September the increase of our dividend by 4.8%, representing the second increase in 2018 or 10% since the beginning of that year. Accordingly, the dividend now stands at $0.66 per year for a dividend yield of 3.5%.I would like to take this opportunity to thank all the employees at Boralex, who work really hard at integrating all these assets into our portfolio and putting together the related financing. With spring break coming, we clearly deserve some vacation in order to get back in top shape to continue executing our growth.In terms of financial results, annual production increased by 13%. Revenues increased by 16%, and EBITDA increased by 11%. In the fourth quarter, production increased by 33%, revenues increased by 21% and EBITDA increased by 17%. In spite of this increase over 2017, results for the year and the fourth quarter are slightly below our expectation, mainly because of elements out of our control in the second and third quarter and some unusual item recorded in the last quarter. Bruno will cover in detail these elements in his presentation. However, it was important to highlight that from an operational point of view, we delivered results close to our expectation. We are confident about upcoming quarters as market condition in France, while staying volatile, were more in line with long-term average in the fourth quarter. We will also continue to focus on the development of new sites in upcoming request for proposal as well as the realization of expected synergies from acquisition. In the short term, we remain on track to deliver our run rate combined target EBITDA between $480 million to $500 million by the end of 2020, which represents a 16% to 19% compounded annual growth rate. On top of this, we have a strong pipeline of projects in France at different stage of development. The French market still offers very strong growth potential. In fact, potential request for proposal are 1.62 gigawatt in 2019, 1.82 gigawatt in 2020 and 2 gigawatt per year from 2021 up to 2024, for a total of 11.4 gigawatt onshore wind from 2019 to 2024.For solar, the planned request for proposal in 2019 is 1.8 gigawatt and 2 gigawatt per year from 2020 to 2024 for a total of 11.8 gigawatt. Given our leadership and expertise in France, we will definitely be a strong contender for these contracts. As you know, we are working on the upgrade of our strategic plan and are eager to share with you our new objective as soon as the exercise will be completed. Our focus will definitely continue to be on finding the best opportunities to continue growing at a fast pace, while generating good returns.I will now let Bruno cover the financial result in more detail, and we'll be back later for the question period.
Thank you, Patrick. Good morning, everyone. It's a great pleasure to meet with you here today for my first quarterly call at Boralex. I'm obviously thrilled by this new challenge and to thank -- I want to take this opportunity to thank Jean-François for helping me make a smooth transition into this new role.Now let's start with a summary of our fourth quarter performance. And for reference, I'm on Slide 9 of our presentation document. We generated 1,389 gigawatt hours of electricity, a 33% increase over the 1,042 generated in 2017, excluding contributions from newly acquired and commissioned power stations. Production at existing power stations remained relatively stable between the periods, particularly as a result of a return of weather conditions closer to seasonal norms at existing wind farms. Revenues were $178 million, 21% higher compared with the same period in 2017. EBITDA for the quarter totaled $121 million, up 17% from the $104 million in 2017. As for production, the growth is mainly attributable to acquisitions and new power stations.Please note that a total of $7 million of nonrecurring items were recorded in the fourth quarter, including deployment cost and production penalties at the Buckingham and Cham Longe sites, which have stopped production while undergoing repowering work, which will eventually increase their capacity. Excluding the guidance, EBITDA would have been $128 million, up 24% over 2017.Cash flows from operations totaled $84 million, $4 million higher than 2017 number. Net earnings attributable to shareholders amounting to $6 million or $0.06 per share compared with $26 million or $0.34 per share in 2017. The year-over-year decline resulted primarily from a $25 million increase in amortization expense and $8 million increase in financial expenses relating to the expansion of the company as well as an $8 million decrease in tax recovery, which, altogether, more than offset the increase in EBITDA. Please note that last year, we recorded a positive $12 million tax adjustment following new rules adopted in the U.S. and France.Getting into more details about EBITDA growth, as you can see on Slide 11, the wind sector had a strong increase in contribution on a year-over-year basis, while the thermal and solar sectors were stable. The hydro sector was slightly lower, while corporate expenses were higher. I will provide further details later on each individual segment.Moving forward to Slide 13 with an analysis of the quarterly $17 million positive year-over-year EBITDA variance at the bottom of the page. The acquisition and commissioning of new assets provided an additional $32 million EBITDA contribution. These elements were partially offset by lower volume from existing sites, representing a net $6 million, including the Niagara Region Wind Farm compensation, $3 million more on development cost this year compared to last year and $8 million in other elements. As previously mentioned, we recorded $7 million in nonrecurring items in the quarter, $4 million relating to a payment of development cost on Ecotera and $2 million for penalties relating to the repairing of Buckingham and Cham Longe stations and some other smaller items.Moving to Slide 15 with a review of the wind segment. Considering the newly acquired or commissioned assets, but without the adjustment for the foregone energy from the curtailment at Niagara in both 2017 -- 2018 and 2017, global wind production increased by 39%. In Canada, it was 31% higher, while in France it was 50% higher.On a comparable basis, excluding the contribution of newly commissioned sites, same site production for the sector was equivalent to last year. In Canada, it was 5% lower, while in France it was 2% higher. If we look at it from the perspective of wind factors, expectations were for a 39% capacity factor in Canada and a 33% factor in France for a blended 36%. In reality, the overall blended capacity factor adjusted for Niagara on a combined basis or not adjusted for Niagara on a combined basis came in at 33%, considering Canada achieved 35%, while France achieved a 30% factor.In dollar terms, the contribution of the newly commissioned sites had a favorable impact on revenues and EBITDA of $39 million and $32 million, respectively, which represent the wind sites commissioned in France over the last 12 months and the Kallista and Invenergy acquisitions.To conclude in view of the above items, revenues increased by 25% to $156 million, while EBITDA increased by 20% to $127 million, representing margins of 81%.Moving on to the hydro sector, on Slide 17. This quarter's overall production was 6% higher compared to last year. It was 31% lower in Canada and 35% higher in the U.S. Q4 2018 was an exceptional quarter in the U.S., as production was 22% above historical averages. In Canada, please note that production at the Buckingham power station is stopped during the work to increase its capacity. This year, in comparison with historical averages, blended production was 2% higher, 28% lower in Canada and 22% higher in the U.S. Taking into account the Buckingham effect, production was only 3% lower than historical average in Canada. As a result, and also considering that the contract prices of the Hudson Falls facility decreased as expected by 40% year-over-year, quarterly revenues decreased from $14 million to $11 million, and EBITDA from $10 million to $8 million. As for margins, we stood at 66% compared to 70% last year.Taking into account the Buckingham effect, revenues went from $12 million in 2017 to $11.9 million in 2018. EBITDA went from $8.1 million in 2017 to $7.8 million in 2018 and margin stood at 66% compared to 67% last year.We have no specific comments on the thermal and solar sectors. However, we provided additional details on Page 25 and 26 of the Appendix section.I will now comment on the corporate sector at top of Slide 18. Development expenses within the corporate sector totaled $5 million, the same level as last year. Administrative expenses within the corporate sector stood at $9 million compared with $7 million in Q4 2017 and reflect, amongst others, the company's growth. Considering all of the above items, corporate EBITDA came in at negative $17 million in comparison to a negative $15 million last year.Let me now discuss cash flow generations in our financial position as seen on Slide 19 and -- 19 to 21. Take note that I will refer to IFRS numbers, which can be reconciled to combine figures using the notes in the financial statement. Quarterly cash flows from operations before changes in noncash items came in at $71 million, slightly higher than the $69 million in 2017. During the quarter, we spent a total amount of $85 million on investing activity. We invested $59 million in property plant and equipment, including $52 million allocated to our European wind pipeline, $5 million for our Canadian Hydro projects and another $2 million towards other various projects. Financing activities provided a net amount of $93 million. We increased our borrowings by $190 million of project-related debt. We made debt repayments of $51 million, consisting of $36 million of project debt and $15 million of sales tax-related bridge loans. We paid $15 million in dividends to our shareholders and another $1 million to project-level noncontrolling shareholders.Finally, we paid $27 million to buy back an interest rate hedge. As being set on an IFRS basis, cash stood at $157 million at the end of the quarter, in addition to $96 million in restricted cash.Moving to Slide 22. Please note that the data presented on this slide are on a combined basis. For the 126 megawatt of projects identified in our growth path on Slide 22 -- 23, sorry, we expect to spend $249 million in property, plant and equipment for 2019 and 2020. These investments would be financed by additional debt drawdown estimated at $193 million and an estimated $56 million of project-related equity. In 2019, we expect to invest $182 million, including $56 million of equity and $126 million of project-related debt. For 2019, project debt reimbursement should amount to approximately $352 million.In conclusion, as mentioned by Patrick, our focus in the short term remains on delivering our run rate combined target EBITDA between $480 million to $500 million by the end of 2020, while continuing to add to our pipeline of projects. This represents $126 million to $146 million increase in EBITDA or a 16% to 19% compounded annual growth rate.Thank you for your attention. We are now ready to take your questions.
[Operator Instructions] [Foreign Language] Your first question [Foreign Language] comes from the line of Nelson Ng with RBC Capital Markets. [Foreign Language]
My first question relates to the Invenergy portfolio. Patrick, you mentioned that you expect to realize some cost savings. Could you just give some color in terms of timing? I was just wondering if there were any outsourcing contracts or OEM contracts that would be expiring soon for you to take the opportunity of realized savings?
It's going to start this year as soon as we have the -- let's say, all the amongst the approvals, but we get the papers signed with the turbine manufacturer. So our biggest -- there are some delays with that. So we should get -- start getting the savings this year. And after this -- or over the next 2.5 years, we're going to get all the 4 -- or the 3 other sites because there are 4 sites that are -- where we have saving involved. So -- out of the 5.
Okay. Got it. And then my next question. In terms of overhead and development cost, there was a decent increase that we saw in 2018. What do you expect in 2019, given that you are looking at being more active in France?
Up to now, the -- it's supposed to be the same, could be a little more, but as soon as we know the strategic review, we'll give indication where our, let's say, development cost will go then, okay? Because for sure, if we enter into a new geographic, let's say, potential, our cost will -- could increase and the development cost.
Okay. And then just one in terms of a modeling question. Can you provide a rough estimate for the amortizing, I guess, project debt for 2019 just for us to calculate our payout ratio?
What's the question. Repeat, can you?
Sure. The -- what's the level of debt amortizing in 2019 for a payout ratio calculation?
We'll come back to you on that.
Your next question [Foreign Language] comes from the line of David Quezada with Raymond James.[Foreign Language]
My first question just on the development portfolio in France. Obviously, you've got quite a bit of projects in development there. And it sounds like there's a lot of RFPs happening. I'm just wondering if you can give us some sense of the timing in terms of permitting and if you've seen any improvement on that in France. I know that they've been working on trying to get -- to reduce the red tape there.
Yes. So I'm sure the -- let's say, the [ eliminate in appeal ] court, so this could accelerate the process. And -- but -- so -- but we have so many projects. There are over 1,000 megawatt in the development over there in different stage of development. So I'm going to answer your question, like, as -- let's say, for the 1,600 gigawatt of RFP scheduled this year, we should have 200 to 300 megawatt to bid with that, depending on the criteria. That's the reason why I'm saying $200 million to $300 million, depending on the RFP's criteria. And as time goes, over the next 2 to 3 years, we've said in the past that we should have, over 3 years, about 600 megawatt out of the 1,000 megawatt being eligible for the next 3 years.
Okay. Great. That's helpful. And then I guess, just maybe an update as well on the projects that you have in development in Scotland.
Yes. In Scotland, through the partnership with Invenergy over there, let's say, we hope that we're going to get our first, let's say, project permitted by the next, let's say, month or so. And it's a 90-megawatt project that is in the final permitting procedures, actually.
Your next question [Foreign Language] comes from the line of Rupert Merer with National Bank.[Foreign Language]
Wondering if you can give us a little more color on the non-production penalties. You had them in Q4. Do you expect those to roll over much into 2019? What should we be looking for?
There will be some more in 2019 because of [ Cham Longe] and Buckingham, but -- yes, because the facility is down until, let's say, third, fourth quarter, some as earlier. So there will be other penalties. This is contractual when you don't deliver a minimum megawatt hour on the yearly basis. And so...
And I think what we can add to that is we've obviously made the calculation that these were good projects to do, including the penalties. So we took that into account.
Are you able to quantify the scale of those penalties for the remainder of this year?
We'll come back to you on that. I'm sorry. It's not that material.
But we'll come back.
Okay. Great. Switching gears, I see the Moulin de Lohan project is under review. Sounds like there may be some decisions made there in the next couple months. Can you give us a little more color on the outlook for that project and the potential for it come back into your development pipeline?
It's less than a couple of months. The -- we should get the answer on the decision of the judges next week, on March 5.
And that decision, is that a final decision? If it doesn't go your way or if it does, are there any appeals that would be remaining?
I'll have Pascal answer you on the legal side.
Well, there's a potential for both parties to appeal to the highest court in France and depending upon arbitrary of the judgment, whether we win or not. Well, if we don't, of course, we'll likely appeal. But if we win this appeal that we're waiting decision for next week, then we'll carefully review the judgment and determine whether we pursue construction right away or we wait until appeal periods to the highest court are extinguished before moving forward.
And I think this is on the disclosure. So can you remind me how much capital is needed in the investment of that project?
CAD 60 million, around EUR 38 million.
Okay. And if doesn't go forward, is there any ability to recover some of that cost?
There is -- if we were to lose that appeal and, eventually, the subsequent appeal, we would have a recourse against the [ Aide de France ] or the French government to actually issue the permit without merit essentially. So we would have a recourse against the French government.
Your next question [Foreign Language] comes from the line of Sean Steuart with TD Securities.[Foreign Language]
Just one question. It looks like your wind generation in France this quarter, the negative variance versus expectations narrowed quite a bit. And I just want to make sure I'm looking at the right frame of reference. Are you adjusting expectations quarter to quarter now based on more recent performance for the assets? Have your assessments of long-term average for that region been changed?
No, no, no. No, we're not. And I've mentioned this in the past, until someone tells us, let's say, the experts or whatever that tell the renewable energy companies in Northern France that wind from now on is going to be ex percent less than the expectation from the past, we won't change our -- for our, let's say, for our forecast.
But just to add some color over there. On the quarterly basis, we don't change the forecast. On a yearly basis, when we do our forecast for the next year or budget and everything, we do take into consideration long-term averages of many plants, those who have more than 5, 6 years of operation. We take into consideration the average. So when we look at the forecast the next year, it takes -- but it doesn't take into where -- what's the view of the future, as Patrick is mentioning. But you do -- we do take into consideration the average, what the long-term average that they've been producing.
And Jean-François, that's on an annual basis, correct?
It's done on the annual basis. We don't review on a quarterly basis. After, obviously, we split that into quarterly for the expectation. But we don't review on a quarterly basis afterwards.
Your next question [Foreign Language] comes from the line of Mark Jarvi with CIBC Capital Markets.[Foreign Language]
There's been some media reports and different things suggest that you guys might do some refinancing of your debt, either in France or Canada. Maybe just update us on the progress on that and whether or not that's just to reduce interest expense. Or would you guys see that as a way to pull out a bit of extra capital to fund growth?
We were -- the refinancing that you're mentioning, there is one in France, and you're right, and some in Canada, mainly for the one of the plants that we just bought from Invenergy, where the -- a short-term loan. So we're refinancing. Actually, in terms -- we expect -- because of the overall market conditions in both these markets, we expect to generate more cash from the refinancing and using debt as, let's say, for general corporate purposes, including, obviously, the growth of the company. But this is -- we're not finalized. These are based on the market conditions we see, so far, and our view of the market. We expect to be able to generate, but we'll see -- these will not be closing. The France will probably be closing in the third quarter. And in Canada, that could be a little bit earlier, sometime in the second quarter.
Okay. And then -- and just going back to wind conditions in France. You guys talked about the capacity factors. And then also in the MD&A, you outlined sort of expected versus realized. You didn't break it out for the quarter in the MD&A. Can you just help us kind of get to what exactly was sort of the -- how much below expected production you were in France for the quarter?
In the last quarter?
Yes.
We -- it's not the 2% that we said in terms in product, Are you talking in terms of production or in terms of...
Yes, yes. I kind of backed into subtracting the 9 month, around 1% to 2%. Is that correct?
If you look in the presentation, you -- documents, we get on Slide 15 on the -- Page 15, production was 2% higher, excluding the contribution of newly commissioned assets.
Yes. I'm trying to find it relative to the anticipated production levels, like sort of long-term average.
I didn't understand your question.
Can you break it up?
I just want to clarify. Is the 2% relative to your expectations or 2% year-over-year increase?
No, no. It's 2% against expectation for same-store sale or same site on a comparable basis. That does not include what we were expecting for the production of the newly commenced site.
Yes. I guess, what I'm trying to get to is putting aside what the change in the same store sales just relative to those assets relative to what you would expect for normalized production levels or wind conditions, what did production come in?
What you're saying is the all-in, let's say, on the organic, plus the commission anticipated versus the reality.
Yes.
We'll get back to you with this figure, okay?
Okay.
But it's going to be, I would say, roughly speaking, around minus 1 or something like that, should be around that.
I have an answer for -- I don't recall who asked the question about the debt reimbursement for the calculation of our discretionary cash flow. It should be around $200 million to $210 million next year.
Your next question [Foreign Language] comes from the line of Ben Pham with BMO Capital Markets.[Foreign Language]
Okay. I want to clarify. Did you say you had over 1 gigawatts of development in France?
Yes.
Yes.
Okay. All right. And I was wondering, on the Dunkirk project recognizing it's going to be a very competitive process, it is a pretty large one, too, when you look at your potential share. How do -- if do you win that, how do you anticipate financing that project?
Well, the -- there is some cash needed for the next couple of years, but not major -- let's say, major injection of cash because the COD is scheduled the end of 2025, 2026. So from now till, let's say, construction that would start in '24, there will be development costs mainly. So there won't be huge cash injections is what I can say to you now.
Yes. No, Patrick is referring to the equity we need to put in the -- to develop the project. But obviously, once this project, if it wins, and as a long-term contract, we should expect a -- some kind of a capital structure in line, probably not the same exactly like 80%, but something in the 70% range, but we're not there yet.
Okay. Can I ask you -- like, I don't want to steal your thunder, you've got the strategic plan coming up 2019, but can you talk about, high level, what are 2 or 3 things that you want to flush out or conclude for that plan that you're most focused on?
For sure that. I'll tell you 2 to 3 things. The -- well, France is going to still be a main focus. As you -- as I mentioned, there's a 20,000 or so gigawatt that will be -- not 20,000, 20 gigawatt of new capacity. So for sure, France. We'll get more involved in solar. And also, let's say, the states, we're going to focus on the nearby states of Quebec. So that's along the same work because we won't do to -- we won't need to do anything until the day it's going to be done. Now the thing we want to put numbers, like I mentioned earlier, development cost. This, we're going to come out with a full-blown thing that tell you that we're going to increase expenses for XYZ and to be achieved over and above that and set goals.
Okay. And you expect to put us all, like, one other quarters you report, you put all together and you talk about it.
Your question is when we're going to talk about it.
Yes. It's usually what's -- I mean, I guess, it's usually when you report your result, then we see something like that, right? And that -- is that the plan? Or...
Well, the plan is to come out, let's say, some time in May, June with the -- without -- we could do an investor's day or something like this to do a one-shot thing.
Yes, we would -- that's probably the way we're going to take like it to make a big event out of it. We'd give everyone the possibility also to ask all questions and the possibility also to spend some time with management team. So we'll be hoping for you on board, so that we -- we thought that this could be a good format to use. So well, stay tuned. We'll get back to you on that. The first thing is that we need to complete this plan. And then as soon as it's completed, we'll communicate it.
[Operator Instructions] [Foreign Language] There are no further questions at this time. Presenters, please continue.
Well, maybe before we leave, it's Jean-François, I would like to thank everyone over the last 15 years, every analyst I've meet and every people in the financial community for the support, but also to -- for all your knowledge. And it was -- I had a lot of fun at the same time by -- while learning a lot of stuff from you guys. And thank you for the support. I'd like to wish Bruno good luck, and I feel the company is in good shape. And I'm very positive about the future of this company. So hope to meet anyone or every one of you over the next -- the future. Thank you.
Thank you, Jean François, and best of luck on your new career or projects. So well, thanks a lot for your attention. And if you've any questions, please call me at (514) 213-1045. I'll make sure to answer your questions rapidly. For your information, Bruno, Jean-François and I will be available in the coming hour and also later this afternoon to answer any questions. So just want to make sure that it's -- that the messages are clear for everyone and that everyone knows where we're going. So our next event will be our annual general meeting and disclosure of first quarter results. That's going to be on May 8. So everyone, have a great day and a great weekend ahead. So thank you, again. Cheers, all.
Thank you. Buh-bye.
This concludes today's conference call. You may now disconnect.[Foreign Language]