Boralex Inc. (BLX) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Boralex. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrant to Computershare and the corporation that you first obtained all required consents for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. [Operator Instructions] It is now my pleasure to turn today's meeting over to Alain Rheaume, Chairman of the Board of Boralex, Inc. Mr. Rheaume, the floor is yours.

Thank you. Good morning, everyone. My name is Alain Rheaume, and I'm Chair of the Board of Directors of Boralex. I would like to welcome all of you to our shareholders' Annual Meeting. We have chosen the virtual format for this meeting after having taken into account, among other considerations, the uncertainty surrounding the COVID-19 pandemic at a time when this meeting was called. The health and safety of our colleagues, employees, shareholders and stakeholders remain a priority for us, as always. Now repeating everything in English. Please note that this assembly will be conducted in French. Having said this, any shareholders' question may be asked in English, to which we will be pleased to answer in English also. 2021 was a challenging one for Boralex in many respects. There were significant achievements on the business front. And among them, review of the strategic plan, which led to the adoption of a set of targets that are more ambitious than ever before. Ongoing growth of a number of important milestones reached at the Apuiat project in Quebec and the Moulins du Lohan project in France, but to name a few; the acceptance of a number of our project bids in North America and Europe; the acquisition of solar farms in the United States in early 2021; the creation and implementation of energy commercialization operations; signing of a first sustainability-linked loan; and more recently, the signing of an agreement with EIP, Energy Infrastructures Partner, allowing us to divest 30% stake in Boralex's activities in France. I'd like to switch in English for a moment, knowing that representatives of EIP have dialed in. I would not want to miss this opportunity to extend my greetings to [ Jalan, Tim, Ian ], and your colleagues who may also be on the line. We are excited to partner with a world-class firm like EIP, and we look forward to working with you and your team. All this was accomplished while the pandemic raged on and while we were in the midst of a leadership transition. As Patrick Decostre was taking over the reins from Patrick Lemaire, our ongoing President and CEO. The Board is proud of everything that was achieved during the year. With the global trends leading more and more toward renewable energy sources, the outlook of Boralex's growth is very favorable indeed. Many countries will be investing massively in the energy transition. Renewable energy development and deployment have benefited from a drop in production costs over the years. Boralex's reputation has never been stronger. The company's financial flexibility and rock-solid balance sheet are key to supporting its ambitions and managing inflation, a situation that comes with plenty of challenges but plenty of opportunities as well. And finally, the continuing optimization of Boralex's portfolio in operations have helped hone its competitive edge. I hereby call the Annual Shareholders Meeting to order. I will be serving as chair of the meeting. The Boralex executive team is also in attendance. Here with me are Patrick Decostre, President and CEO; Bruno Guilmette, Vice President and Chief Financial Officer; and Pascal Hurtubise, Vice President and Chief Legal Officer. Pascal will be taking on the role as Secretary. Good morning, Patrick. Good morning, Alain.

Good morning, Alain.

Good morning. Hello, Bruno, I would like to ask Pascal Hurtubise in his capacity as Meeting Secretary to go over some of the procedural matters.

Thank you, Alain. Since the meeting is being held virtually via a live audio webcast, we think it's best to establish a few ground rules to ensure everything proceeds smoothly. First off, a reminder that this meeting is being recorded. As indicated in the management proxy circular, duly appointed proxy holders needed to register with our proxy officer and obtain a registration number prior to this meeting to be able to attend, vote and ask questions. As a result, only registered shareholders or their duly appointed proxy holders may officially attend this meeting, ask questions and cast to vote. Proxy holders who are not duly appointed may attend as guests. Registered shareholders and duly appointed proxy holders who wish to submit or ask a question or given notification may do so using the instant messaging function of the virtual interface. Please note that there may be a short lag in the posting of messages. [Operator Instructions] Questions will be answered during the Q&A session at the end of the meeting, and -- although matters of procedure and questions directly related to a motion being tabled may be addressed during the meeting. Any questions or comments that contain inappropriate language or that disrupt the order of the meeting will not be posted and will be ignored. Any questions that have already been answered or that are redundant or repetitive will be ignored. For the purpose of today's meeting, any matters subject to a vote will be submitted to participants with voting rights by way of a single ballot. Registered shareholders while -- and duly appointed proxy holders will be asked to vote on each item on the agenda after all the items have been presented. In other words, all at once. If you are eligible to vote, you will receive a message on the virtual interface asking you to cast your electronic ballot. You will have plenty of time to vote on each item. Although please note, there is a set time limit.

Thank you, Pascal. I would now ask the meeting secretary to table the meeting notice and the proxy form, along with the slide confirmation that these documents were mailed to shareholders on March 31, 2022, and to ensure that these documents are kept in Boralex's corporate records.

I confirm that the documents have been tabled.

Thank you, Pascal. Computershare Inc., the transfer agent and registrar for Boralex, will serve as scrutineers for this meeting. They will count the proxy ballots and their ballots cast online today. I've been told that their report on the meeting attendance is now ready. I would ask them to share the results with us. Mr. Gilbert from Computershare, please?

Yes. Good morning, Mr. President. We, the scrutineers of Computershare Inc., say that there are at least 7 shareholders present at this meeting, representing in person or by proxy 74,074,000, 72.6% of the shares that have been emitted and are in circulation for Boralex. I have signed it myself, Steve Gilbert, from Computershare. Thank you.

Thank you, Mr. Gilbert. I hereby declare the meeting duly convened and properly constituted to discuss the items on the agenda. As mentioned earlier by the Secretary, voting rights may be exercised for all questions put to vote via a single electronic ballot. When it comes time to proceed, you will receive a message via the virtual interface instructing you to vote. The time allotted to cast your vote is limited. Once all the items on the agenda have been voted on, the scrutineers will tally the votes for each. The next item on the agenda is the receipt of Boralex's consolidated financial statements for the financial year ended December 31, 2021, along with independent auditor's report. I would ask the Secretary to table Boralex's consolidated financial statements for the fiscal year ended December 31, 2021, along with the independent auditor's report for the same period. I would also ask you provide signed confirmation that copies of these documents were mailed on March 31, 2022, to all shareholders who requested them.

I confirm that the documents have been tabled.

Thank you, Pascal. The next item on the agenda is the election of the 11 candidates nominated to the Board of Directors by the Executive Committee. You undoubtedly noticed in the management proxy circular that Mr. Edward H. Kernaghan will be stepping down once his term is up after 15 years on the Board. On behalf of the shareholders, the Board of Directors, management and employees of Boralex, I would like to acknowledge his many years of valued contributions and thank him for his period and dedication and his wise counsel. Thank you, Mr. Kernaghan. Under the bylaws, on advance notice adopted by the Board of Directors on March 1, 2018, and ratified by shareholders on May 9, 2018, a specific set of procedures must be followed, and a set time frames must be complied with for a nominee to be accepted as a candidate for a Board position. No other motion to nominate candidates following the issuance of a notice, in accordance with this bylaw will be put to a vote, with the sole exception of a nomination made in the management proxy circular. Could one of the registered holders of Class A shares or duly appointed proxy holders now move to nominate 11 proposed candidates?

My name is Pascal Hurtubise, shareholder. Mr. Chair, I move that the following individuals be nominated affiliate positions of Boralex's Board of Directors: Mr. André Courville; Ms. Lise Croteau; Mr. Patrick Decostre; Mr. Ghyslain Deschamps; Ms. Marie-Claude Dumas; Ms. Marie Giguère; Ms. Ines Kolmsee; Mr. Patrick Lemaire; Mr. Alain Rhéaume; Mr. Zin Smati; and Ms. Dany St-Pierre.

Thank you, Pascal. Could one of the registered holders of Class A shares or a duly appointed proxy holder now move to elect each of these nominees? Mr. Guilmette perhaps.

My name is Bruno Guilmette, a shareholder. Mr. Chair, I move that each of the 11 nominees be elected as a member of the Boralex Board of Directors and that they remain so until the following annual general meeting or until their successor is elected.

Thank you, Mr. Guilmette. Do we have a seconder? Mr. Hurtubise?

My name is Pascal Hurtubise, shareholder. Mr. Chair, I second the motion.

Thank you, Mr. Hurtubise. The motion has been made and seconded. As mentioned at the beginning of the proceedings, all votes will be cast on a single electronic vote at the end of the meeting. We will therefore move on to the next item on the agenda. The agenda shows that the next item is the appointment of an independent auditor for the 2022 fiscal year. The Board of Directors and the Audit Committee recommend that PricewaterhouseCoopers Canada, chartered accounting firm, be appointed as the independent auditor for Boralex. I believe that Patrick Decostre would like to make a motion in this regard.

Yes, Mr. President, my name is Patrick Decostre, shareholder. Mr. Chair. I move that PwC Canada, chartered accounting firm, be appointed as the independent auditor for the coming fiscal year for the company and that the professional fees be established by the Board of Directors.

Thank you, Patrick. would any one like to second the motion?

My name is Bruno Guilmette, shareholder. Mr. Chair, I second the motion.

Thank you, Bruno. The motion has been duly moved and seconded. A reminder that votes will be cast on a single electronic ballot at the end of the meeting. We will, therefore, proceed with the next item on the agenda. The next item on the agenda is the approval of the advisory say on pay motion accepting Boralex's executive compensation approach as described in the management proxy circular. I believe Pascal has a motion concerning the subject.

Yes. My name is Pascal Hurtubise, shareholder. I move that the nonbinding advisory motion accepting Boralex's approach to executive compensation be adopted.

Thank you, Pascal. Bruno, would you like to second?

My name is Bruno Guilmette, shareholder. Mr. Chair, I second the motion.

The motion has been duly moved and seconded. As mentioned earlier, all votes will be cast on a single electronic ballot. We will, therefore, proceed to vote on the items on the agenda, namely the election of Board members, the appointment of an independent auditor and approval of the advisory motion accepting Boralex's executive compensation approach. You will now be able to vote on each of these 3 items on the agenda. When prompted to continue, go to the Voting page and first select the In Favor or Abstain button beside each of the names of the people nominated for a position on the Board of Directors. Secondly, press on, click on In Favor or Abstain beside the motion to appoint PricewaterhouseCoopers Canada as the independent auditor. And thirdly, click on In Favor, Abstain or Opposed beside the advisory motion on Boralex's executive compensation approach. Once the electronic ballots have been cast, the page will disappear, and your votes will be automatically recorded. And so I think Computershare will now open -- be open to voting. We will take a few moments while the electronic ballots are being completed. Registered shareholders and proxy holders will be given about 2 minutes to submit their electronic ballots. Once the voting is done, I would ask the scrutineers to compile a report on the results of all the items on the agenda. And we will be back in a few moments with the scrutineer's report and the vote results. [Voting]

Mr. Gilbert, has the scrutineers finished their task?

Yes, Mr. Chair. We've just closed the voting period, so the results are available to you.

Thank you, Mr. Gilbert, and thank you all for your patience. I received a report from the scrutineers on the preliminary vote results and can confirm the following. For the elections of the Board of Directors, I'm happy to confirm that Mr. André Courville; Ms. Lise Croteau; Mr. Patrick Decostre; Mr. Ghyslain Deschamps; Ms. Marie-Claude Dumas; Ms. Marie Giguère; Ms. Ines Kolmsee; Mr. Patrick Lemaire, myself, Alain Rhéaume; Mr. Zin Smati; and Ms. Dany St-Pierre has been elected. I'm also pleased to announce that the motion to appointing PricewaterhouseCoopers Canada as the company's independent auditor and the advisory motion on Boralex's executive compensation approach have both been carried. A press release on the results of the shareholders' votes will be issued today after this meeting. I would now invite Patrick Decostre to share his take on where the company is now, and then Mr. Bruno Guilmette will present the financial results for fiscal year 2021. If both presentations are available in English and in French.

Thank you, Alain. Esteemed shareholders, distinguished members of the Board, partners, employees and friends of Boralex, good morning, and welcome to our Annual General Meeting for the 2021 fiscal year and our first quarter of 2022. I appreciate you being here with us today. It's always a tremendous pleasure to meet with you and inform you of the achievements [indiscernible] with pride and the outlook we have for the future. This outlook relies heavily on our ability to meet 2 conditions: the world's growing energy needs and our commitment to stepping up our efforts to reach our targets and the fight against climate change. Addressing these 2 issues where we have a real potential to make a difference is an absolute must in building a fair, more peaceful and more sustainable world. They may not be the only pressing problems, but they are the ones that need to be dealt with these days. But they are certainly high on the list. The way I see it, we will remain at a standstill unless we come up with fast and effective solutions with these into consideration. On the one hand, there is the enormity of the challenge of climate change, which is critical -- which is a critical worldwide issue. We are all aware of the most recent findings of the Intergovernmental Panel on Climate Change, telling us to limit global warming to 1.5 degrees by 2015. We need to reserve the curve of greenhouse gas emissions within 3 years at the latest. This means taking action now and committing to concrete change by 2025. On the other hand, we are facing serious economic struggles, including enduring supply chain problems in response to which many developed economies have decided to reshore their industrial production. Likewise, some governments, in a bid to tap into high-growth areas such as electrifying transportation, are developing new production opportunities. Quebec, for example, has decided to ramp up battery manufacturing. But let's remember that with any growth in Western industrialization requires energy and lots of energy. So for these 2 driving forces that are expanding in the simultaneous and complementary rather than conflicting way, renewable energy will be the key to moving forward. This will be the impetus behind our decision to sell the last 2 thermal energy assets in our portfolio. The result is that 100% of the energy generated by Boralex now comes from renewable sources. There is no doubt in our minds that we have to take that intermediate action, which is while we have adopted an ambitious CSR strategy here at Boralex, one that is embedded in everything we do and when the focus is on accelerating 2021. We hired a Director of CSR whose job is to ensure that our 10 CSR priorities are on track with our goals. In February, we published our second CSR report, which contains even more information on our KPIs and our policies and our business processes. If you have not read it yet, I suggest you do so at your first opportunity. Now it is the deliberate choice to embrace environmental, social and governance considerations. A hindrance to our growth? Absolutely not. In fact, the opposite is true. Our strategic plan for 2021, 2025 is built around our CSR objectives. We see this as yet another catalyst for our long-term growth. Boralex is about much more than generating profits for our shareholders. Our company has the capacity, the capability and the commitment to contribute to decarbonizing the planet by building and operating renewable energy production plants that respect people and nature. As I said earlier, the world is going to need energy, and we are confident that we will be able to meet some of this need through our renewable energy assets, especially when you consider that the significantly lower production cost of renewable energy now make Boralex much more attractive than our competitors have to offer. We are now more than ever in solutions mode when it comes to the target market in our strategic plan. We currently have 3,890 megawatts of projects under development or construction. In light of all of this, we can confirm that our company is in an excellent position to take advantage of the growing number of opportunities out there, and in doing so, help to win several major economies of carbon-based fuels. We have already made some major strides toward forward in our 4 main thrusts outlined in our strategic plan. In terms of growth, we acquired a majority interest in 7 solar farms in the United States and commissioned 4 projects in France. We have also signed a contract to purchase electricity from the Apuiat wind farm in Quebec, which we will do in partnership with the Innu Nation. Moreover, we have made progress from standpoint of diversification by adding solar energy and storage projects to our portfolio. And not only that, but we have considerably expanded our foothold on the U.S. market, which will continue to increase this year. We have -- with regard to our [ thirst ] strategic, we have signed 3 contracts in 2021 to provide electricity to commercial and industrial corporations in France, namely IBM France, L'Oreal and METRO France. As a result, we have now have 5 corporate customers and friends, which we expect to keep growing, fueled by prevailing market conditions. Last but not least, optimization was anything but an afterthought during the year. We made it a point to carry out the required changes so that our teams could streamline their own efforts. This involves decentralizing our development teams and our team markets, strengthening our resources, and mergers and acquisitions and enhancing maintenance and service in our wind farms in Canada. At this moment, there shows no sign of slowing down thus far in 2022. We have signed a long-term partnership agreement with EIP, a Swiss-based global investment manager specializing in the energy sector. I'm very proud of the transaction on which our teams have worked very much in 2021 and 2022. In France, 3 of our wind farm projects were selected, following an onshore wind call for tenders conducted by France's ministry for ecological transition. With all the new projects that have been selected following 9 wind power tenders issued by the ministry, we are now 1 of the top 3 companies that have won the most megawatts since the beginning of onshore wind power tenders in the country in France. Back home in Quebec. We signed an equal partnership deal with Energir and Hydro-Quebec to develop 3 wind projects in Seigneurie de Beaupré. So as you can see, we have already made enormous headway in 2022, and the year is far from over. All our teams are pulling together in the same direction and working hard to make the most of the current situation by targeting opportunities aligned with our vision of growth, which is rooted in the sustainable expansion of our company while contributing to global decarbonization efforts. Going forward, we plan to accelerate our growth in the U.S., especially in the solar market, step up our development activities to be more proactive in renewable energy production and diversify our regional presence in Europe. Obviously, we will be leaning heavily on our driven and determined teams and the new talent we plan to add. To make this happen, I'm pleased to say we're already and very fortunate in this regard. We have been able to attract some of the best and brightest in our country, people whose expertise is matched only by their work ethic, their passion and the levels of engagement. It's because of all of them that we are able to deliver on our ambitions. I would also like to acknowledge and thank the members of our Board of our direction for their virtual contributions. These are their unwavering support and their invaluable expertise. Ladies and gentlemen, your insights are essential to our ongoing success and to achieving our goals, and I'm deeply grateful to have you on our team. In closing I would like to say a special thank you to all our shareholders for their trust and confidence in Boralex. And rest assured, we are working very hard to deliver the best possible financial results to you. I would like to turn the things over to our Vice President and CFO, Bruno Guilmette, for a more detailed report on our financial performance.

Thank you, Patrick. Ladies and gentlemen, partners, employees and friends of Boralex. It is my turn to bid you a warm welcome and to thank you for joining us today. I'll start by presenting our financial highlights for fiscal year 2021. Last year, Boralex produced 5,552 gigawatt hours of electricity or 17% more than in 2020. This increase is due primarily to acquisitions and commissioning during the year in addition to favorable wind conditions in the second half of the year. This translated to a 13% increase in EBITDA, which rose to $490 million. On a combined basis, this comes to $535 million, up 4%. Operating results were up 7% for 2021, reaching $182 million. On a combined basis, this amount of $219 million or 3% lower than 2020. Net cash flows related to the operating activities were $345 million in 2021, down 5% compared to $362 million the previous year. This is attributable to payments made towards noncurrent loads. For this discretionary cash flow, the amount of $132 million compared to $146 million in 2020 because of the decrease. I would also like to bring your attention to a significant financial achievement made during the year, namely the finalization of our first [ sustainability-linked ] loan in September 2021. Boralex extended $525 million revolving credit facilities in the letter of credit to facility until September 2026. Thereby obtaining a reduction in the interest rate of a corresponding line of credit. The agreement was also enhanced to include an accordion clause that provides an additional amount of $150 million, which can be drawn on as needed in the future under the same terms and conditions as the line of credit. This credit facility then qualified as a [ sustainability-linked ] loan. Let me take a moment to explain what this entails. These claims are relatively new and are tied to specific ESG factors, which are agreed upon between the lender and the borrower for the duration of the loan, while the loan is active, the borrowing conditions will vary depending on how well the borrower meets the ESG targets for our credit facility, the targets we set with the lender focused on reducing carbon dioxide emissions and increasing gender diversity on our management roles. We are very proud of this first [ sustainability-linked ] loan. Patrick mentioned how important corporate social responsibility is to Boralex. And this shows you how seriously we take this commitment. Let us now move to the highlights of the first quarter of 2022, the results of which are excellent. In the first 3 months of this year, Boralex produced 1,681 gigawatt hours of electricity or 3% more than the 1,630 gigawatt hours posted for the first quarter of 2021. On a combined basis, production came to 1,835 megawatt hours, which is an increase of 2% over the same period last year. This can be attributed to the commissioning of new wind farms in France, the increase of wind production in Canada and the increase of hydroelectric and solar production in the United States, all of which benefited from favorable conditions. According to the [indiscernible] posted a 15% increase year-over-year, rising to $173 million. On a combined basis, this amount of 14% and represents $184 million. As far as operating results are concerned, they came to $91 million, up 18% over the same quarter in 2021. This translates to $105 million on a combined basis or an increase of 17%. This momentum in EBITDA and operating results is fueled primarily by 2 factors. First, the proceeds from energy sales for the site in French with the feed and premium contacts were more than anticipated, driven by higher market prices. Without getting into too much detail, let me just say that this is a direct result of how the feed and premium contracts are structured for operating wind farms. In contrast, the second factor isn't difficult at all to explain. It's simply attributable to the increase of production and volumes. Operating activities generated net cash flows of $134 million, up to 3% of the corresponding year. And the flux of discretionary cash flows, up to $77 million, a progression of 28% higher than the $160 million posted this time last year. So as you can see, Boralex is posting impressive results, due in large part to the methodological implementations of our strategic plan and favorable conditions, as Patrick outlined for you earlier. We are, therefore, in an excellent position to face the future and cement our reputation in the global energy transition. Thank you for your attention, and now back to the Chair of our Board of Directors.

Thank you, Patrick. Thank you, Bruno. We're now opening the floor to questions. We would be happy to answer any questions that any registered shareholders or duly appointed proxy holders wish to bring to this group attention. Please feel free to ask your questions in English if you have any. For each question put to us, we will summarize the content and read it out the name of the person asking the question and the entity they are representing, if applicable. For obvious reasons, any questions we have already answered or that are redundant or repetitive will be ignored. I would ask anyone who wishes to ask a question to use the instant messaging function on the virtual interface to do so. We will answer as many questions as we can. [Operator Instructions] It seems that there are no questions, so we will now conclude the question period. Now all the subjects, that meeting is adjourned. Thank you for your presence. Thank you very much, and take care.

This concludes the assembly. You can now de-connect.