Northland Power Inc. (NPI) Earnings Call Transcript & Summary

Good morning. And welcome to the 2020 Annual and Special Meeting of Shareholders of Northland Power Inc. The host for today's meeting is Mr. John Brace, Chairman of the Board. [Operator Instructions] I would like to now turn the call over to your host. Mr. Brace, you may begin.

Thank you very much. Good morning, afternoon or evening, wherever you are. I am John Brace, the Chairman of Northland Power and I will act as the chair of this meeting. I want to welcome you and thank you for attending this annual meeting of Northland Power's shareholders. I hope that each of you and your families have managed to stay safe and healthy in these difficult times. I would like to take a minute to express to you that the health and safety of our employees, contractors, suppliers and partners is our #1 priority. We are taking all precautions necessary to ensure that we minimize health and safety risks as our business continues to operate amid the COVID-19 pandemic. I'm also proud to note that despite the challenges of COVID-19, we are in a position to give back. Northland Power has made and is continuing to make donations to organizations around the globe that service those communities in which we conduct business. You will hear more about this during the management presentation at the end of this meeting from our President and CEO, Mike Crawley. I would also like to take a moment to introduce our current directors and senior officers of Northland Power, as well as the 2 new director nominees, all of whom are joining us remotely via webcast today. You have biographical information in the management information circular, so I will keep my remarks very brief. First, our current directors, James Temerty, Founder, Director and former Chair. He's been a Director since inception in 1997. Marie Bountrogianni, Chair of the Governance and Nominating Committee, a Director since 2009; Barry Gilmour, Chair of the Compensation Committee, he's been a Director since 2014; Russell Goodman, Lead Independent Director and Chair of the Audit Committee, a Director since 2014; Keith Halbert, a Director Since 2019; and Linda Bertoldi, a Director since 2011. Next, the 2 new nominees to the Board. Lisa Colnett. Lisa has had a career of senior Executive and director roles for companies with global operations in the resource and high-tech sectors. Ian Pearce has had a career of senior Executive and Director roles in Global resource related industries. Finally, our senior management, Mike Crawley, President and Chief Executive Officer; Pauline Alimchandani, our new Chief Financial Officer; Troy Patton, Chief Operations Officer; Michael Shadbolt, Vice President and General Counsel; David Powell, Executive Vice President, Development; Morten Melin, Executive Vice President, Construction; and Tracy Robillard, Corporate Secretary. Before formally calling the meeting to order, I would like to address some logistical matters. Historically, Northland Power has held in-person annual shareholder meetings and all current directors, director nominees and senior officers attended and participated in the formal business of the meeting. However, in light of the health impacts of COVID-19, including social distancing and various restrictions on gathering in Ontario, this meeting is being conducted as a virtual-only meeting. In order to reduce the potential of technical difficulties, Mike Crawley, our President and CEO; and Michael Shadbolt, our VP and General Counsel, both executives and both shareholders of the corporation have agreed to move and second to each motion. This meeting is being recorded and will be made available to you on our website and on the website of Broadridge Investor Communications Solutions. With regard to voting, if you are a registered shareholder, or duly appointed proxy holder, and have not voted on any matter and wish to vote at the meeting or should you desire to vote at the meeting after having completed and submitted a proxy, thereby overriding your earlier selections, you were able to do so through the live webcast platform by selecting the Vote Here button on the right-hand side of the screen, which will become available to you when the voting portion of the meeting opens. Your results will be tabulated and included in the final scrutineer's report, which becomes available to the corporation after the meeting has closed. I am advised that the proxies deposited with this meeting are sufficient to carry all matters proposed for the meeting. Notwithstanding this, given that we cannot vote by a way of a show of hands, after each motion is made, we will ask shareholders who have not done so to vote online. A copy of the scrutineer's report on the voting results for all matters voted on at the meeting will be annexed to the minutes of the meeting. In addition, a press release will be issued as required by the majority voting policy mandated by the TSX, announcing the results of the proxies submitted for the election of Northland's directors. With regard to questions, if shareholders or proxy holders wish to submit a question during the meeting, we invite you to do so by typing your question into the Ask A Question field and click submit. Questions pertinent to the formal resolutions and other meeting matters will be answered during the meeting subject to time constraints. Questions regarding personal matters or questions that are not pertinent to meeting matters will not be answered. With regard to technical issues, if you encounter any technical difficulties with the meeting platform, please call 1-800-586-1548, if you are located in Canada or the United States, or 1 (303) 562-9288, if you are located outside of Canada or the United States for assistance. I will now call the meeting to order. We will first deal with the formal business, followed by a presentation from management. I will ask Tracy Robillard, the Secretary of the corporation, to act as Secretary of the meeting and to deal with the formal business of the meeting. Tracy?

Thank you, John, and welcome to all. I would like to welcome Jerry Trotter and Joanne Di Benedetto, of Broadridge Investor Communications Solutions, who will act as scrutineers today. Based on the scrutineer's report, I determine there is a quorum of shareholders present. The notice calling this meeting and the accompanying materials were mailed to the shareholders of the corporation, and I have received proof of mailing of the notice. Accordingly, the reading of the notice of the meeting will be dispensed with. I declare the meeting to be duly called and properly constituted for the transaction of business. The purpose of today's meeting is to: one, receive the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 2019; second, to elect the directors for the corporation; Three, reappoint the corporation's incumbent auditors, Ernst & Young LLP and authorize the directors to fix the auditor's remuneration; four, vote on an advisory basis on the corporation's approach to executive compensation; five, consider the resolution confirming the advance notice bylaw adopted by the directors; and six, consider the resolution approving the administrative changes to the corporation's bylaw to permit for virtual-only shareholder meetings and to change the quorum requirement for shareholder meetings from 10% to 25%. The first item of business. I wish to present to the meeting the audited consolidated financial statements of the corporation for the fiscal year ended December 31, 2019, and the report of the auditors on those statements. Copies of these financial statements were provided to all shareholders of the corporation, who specifically requested them and are also available on Northland's website. It is not proposed to read the financial statements to the meeting nor to ask shareholders to approve the financial statements. However, if you submit your questions electronically, after conclusion of the formal business of the meeting, Wassem Khalil, Northland's Senior Director of Investor Relations and Strategy, would be pleased to answer any questions concerning the financial statements. The next item of business is the election of directors for the corporation. The Board has determined that the number of directors to be elected at this meeting is 9. As required by the rules of the TSX, the corporation has adopted a majority voting policy and has provided in the proxies the right for shareholders to vote for each individual director. I am advised each of the directors has received sufficient votes to ensure their election. As noted before, the official tally of votes will be provided at the end of the meeting when the final scrutineer's report is generated. Based on the recommendation of the corporation's governance and nominating committee, the Board has nominated James Temerty; Marie Bountrogianni; Linda Bertoldi; Russell Goodman; Barry Gilmour; John Brace, Keith Halbert; Lisa Colnett and Ian Pearce to be elected to the Corporation's Board of Directors. Ms. Colnett's and Mr. Pearce's backgrounds are described in this year's management information circular. I will now pause briefly for any questions on this proposal. As there have been no questions relating to the election of directors submitted to the meeting, I will now ask for a nomination of the 9 directors.

This is Mike Crawley. I nominate James Temerty; Marie Bountrogianni; Linda Bertoldi; Russell Goodman; Barry Gilmour; John Brace, Keith Halbert, Lisa Colnett and Ian Pearce for election to the Corporation's Board of Directors.

May I have a second?

This is Michael Shadbolt, and I second the nomination.

As the bylaws of the corporation require advanced notice of any other nominees to the Board, none of which has been made, I declare the nominations closed. Since there are 9 nominees and 9 vacancies, may I have a motion to elect the nominees as directors?

This is Mike Crawley. I move that the individuals who have been nominated be elected as directors of the corporation to hold office until the next annual meeting or until their successors are elected or appointed subject to the provisions of the bylaws of the corporation.

May I have a second?

This is Michael Shadbolt, and I second the motion.

If you have not voted on the election of directors and would like to do so, please do so now by using the voting button on your screen. If you have already sent in your proxy or voting instruction form, you do not need to do anything. Your vote has already been recorded. The next item of business is the appointment of auditors and the authority for the Board to fix their remuneration. I will now pause briefly for any questions on this proposal. As there have been no questions relating to this proposal, I will now ask for the motion to be moved.

I move that Ernst & Young LLP, chartered accountants, be reappointed auditors of the corporation and that the remuneration as such be fixed by the directors.

May I have a second?

This is Michael Shadbolt, and I second the motion.

If you have not voted on the reappointment of the auditors and fixing their remuneration and would like to do so, please do so now. The next item of business is for a vote in favor of or against on an advisory basis, a nonbinding resolution on the corporation's approach to executive compensation. The purpose of this advisory vote is to allow shareholders to give their opinion annually on the corporation's approach to the compensation of its executive directors as disclosed in the section entitled statement of executive compensation in Northland's management information circular. As this is an advisory vote, its result will not bind the Board. However, the Board, together with the compensation committee will take the result of the vote into account when considering its review of executive compensation. I'll now pause briefly for any questions on this proposal. As there have been no questions relating to this proposal, I now ask for the motion to be moved.

I move that on a nonbinding advisory basis, the shareholders accept the approach to executive compensation disclosed in Northland's management information circular delivered in advance of this meeting.

May I have a second?

This is Michael Shadbolt, and I second the motion.

If you have not voted on the nonbinding resolution on the corporation's approach to executive compensation, and would like to do so, please do so now. The next item of business is to consider, and if thought advisable, pass a resolution confirming and approving the advanced notice bylaw that was described in and attached as Schedule B to the management information circular. In December 2019 and as further amended in April 2020, upon the recommendation of the governance and nominating committee, the Board adopted a bylaw setting out advance notice requirements for the nomination of directors. This is referred to as the advanced notice bylaw. The purpose of the advanced notice bylaw is to provide shareholders, directors and management of the corporation with a clear framework respecting the nomination of persons for election as directors. It fixes a deadline by which shareholders must submit such nominations prior to any annual or special meeting of shareholders and sets forth the information that must be included in the notice to the corporation in order for a nominee to be eligible for election as Director. In order for the advanced notice bylaw to remain in effect following termination of this meeting, it must be confirmed and approved by a simple majority of the votes cast by shareholders at this meeting. I will now pause briefly for any questions on this proposal. As there have been no questions relating to this proposal, I will now ask for the motion to be moved.

I move the resolution to approve the advanced notice bylaw.

May I have a second?

This is Michael Shadbolt and I second the motion.

If you have not voted on the resolution confirming the advanced notice bylaw and would like to do so, please do so now. The next item of business is to consider and approve, if thought advisable, administrative amendments to the corporation's bylaw. On April 15, 2020, the Board approved amendments to the corporation's bylaw to; one, clarify that the corporation may hold a shareholder meeting by telephonic, electronic or other communication facility; and two, change the quorum requirement at shareholder meetings from 2 persons owning 10% or more of the outstanding voting shares to 2 persons owning 25% or more of the outstanding voting shares. These changes are collectively referred to as the administrative bylaw amendments. Prior to the Board approval of the administrative bylaw amendments, the corporation's bylaw provided that a meeting of shareholders must occur in a place selected by the Board. The bylaw did not expressly provide that a virtual meeting would constitute such a place. In light of the health impacts of COVID-19, including social distancing and various restrictions on gatherings in Ontario, the corporation has decided, if necessary to hold a virtual shareholders meeting. The amendments, if approved, will also permit the holding of virtual shareholder meetings in the future, should that be necessary or advisable. Further, prior to Board approval of the administrative bylaw amendments, the corporation's bylaw provided that a quorum for the transaction of business at any meeting of shareholders or the holders of any class or series of shares shall be 2 persons, each being a shareholder entitled to vote thereat or a duly appointed representative proxy holder for an absent shareholder so entitled, representing in the aggregate, at least 10% of the votes attached to the outstanding shares of the corporation. In order to better align with Canadian best practice standards, the Board has determined it is appropriate to amend the corporation's bylaw to increase the quorum requirement from 10% to 25%. In order for the administrative bylaw amendments to remain in effect following termination of the meeting, they must be confirmed and approved by a simple majority of the votes cast by shareholders at this meeting. I will now pause briefly for any questions on this proposal.

There is a question in relation to the pandemic and future dividends. And we'll defer that question to after management's presentation and Mike Crawley, our President and CEO, will address the question at that time.

Thank you. As there have been no further questions relating to this proposal, I will now ask for the motion to be moved.

I move the resolution to approve the administrative bylaw amendments.

May I have a second?

This is Michael Shadbolt and I second the motion.

If you have not voted on the resolution confirming the administrative bylaw amendments and would like to do so, please do so now. [Voting]

I will now pause to allow for the tabulation of the votes. The polls are now closed. I can now advise that based on the preliminary voting results, the motions made before the meeting have been approved and are therefore carried. As noted above, the final voting results will be included in the scrutineer's report and will be made available as required by applicable securities law on SEDAR, promptly following the meeting. The formal business of the meeting is now complete, and I ask for a motion to conclude the meeting.

This is Mike Crawley. I move that the meeting be concluded.

May I have a second?

This is Michael Shadbolt and I second the motion.

As nobody has sent in any questions or requests for the meeting to continue, I declare the motion carried and the formal meeting to be concluded.

Thank you, Tracy. I would like to thank you all for attending the meeting. You will now have a presentation on the Corporation's business by Mike Crawley, the Corporation's President and CEO.

Thank you, John, and thank you all for joining us here today. I'm looking forward to providing you with an update on our activities and our achievements over the past year, along with a look ahead at what is in the pipeline for Northland going forward. Since our inception over 30 years ago, Northland has evolved from an ambitious Canada-focused start-up to a global leader in developing, financing, constructing and operating sustainable infrastructure assets. Our entrepreneurial spirit and disciplined approach have enabled us to grow the company while delivering solid results. Today, we have a diversified global asset portfolio of over 2.6 gigawatts of power generation and have recently added a regulated utility. We are also excited about our development pipeline that will accelerate Northland's growth even more. Now these 3 strategic pillars underpin everything we do. Number one, creating and sourcing high-quality clean energy projects; two, being an early mover into growth markets and technologies like offshore wind, and three, operating our facilities with a view to both optimizing worker safety and optimizing financial performance while minimizing any environmental impact. In fact, sustainability really is at the heart of everything we do at Northland. We are helping power up the world with sustainable power and contributing to the transition to a low carbon future. We believe that governments are not the only responsible agents in building sustainable societies and that the private sector has an important role and responsibility in that regard. We want our investors and stakeholders to know that we are adding value to our host communities, including by partnering with indigenous communities on a number of projects and overall being a responsible member of those communities. We also believe that a robust governance framework is essential to keeping Northland aligned with our shareholders, our communities and all other key stakeholders. Looking at our growth. While we've grown significantly in size and capabilities, most importantly, we have delivered robust returns to our shareholders. Over the last decade, we have consistently outperformed the TSX and our peers, as you can see, delivering a total annual shareholder return of 14% over the last 10 years and 19% over the last 5. And in fact, if an investor who came into the IPO back in April 1997, would have had over that last period, well over 1,300% return on that initial investment. Now let's take a look just at 2019. We completed the construction of our Deutsche Bucht offshore wind project in the North Sea, a 252 megawatt $1.3 billion project. We announced and commenced the construction of La Lucha in Mexico, 130-megawatt solar project. We diversified our portfolio with the addition of our first regulated utility in Colombia, which is a platform for growth in a market that we really think has a lot of potential. We advanced our high long project, securing a PPA on the 300-megawatt feed-in tariff portion of that 1 gigawatt project. And we expanded our presence in Asia with our partnership with Shizen Energy on 2 offshore wind projects as that country moves to make offshore wind a big part of their supply mix moving forward. We have continued this momentum into 2020 with a strong first quarter operating and financial results, 43% increase in EBITDA over first quarter 2019 and a 39% increase in free cash flow per share over the first quarter in 2019. We declared COD on Deutsche Bucht, marking the end of construction and the commencement of operations, and we also added to our development pipeline with offshore wind projects in South Korea and Canada. Like every other business, government and organization, Northland has had to move quickly to react to the COVID-19 pandemic. As a global company, we've been managing the impact of the pandemic as it moved around the world. Our first priority has been protecting the health and safety of our employees, our contractors and our neighbors. As such, we implemented a work-from-home policy at the -- at all our corporate and development offices. Our power plants and EBSA, the Colombian utility, are essential infrastructure, and we have implemented rigorous health protocols to ensure our workers stay safe while those plants and the utility can deliver energy to their communities, their regions and their countries. Our facility employees should be very proud of the fact that our plants have not only maintained the high availability that they were performing at prior to the pandemic, but in a few cases, actually operated at even higher availability than prior to the pandemic. We've also responded to the impact of the pandemic on the hospitals and the health care system and on the communities as the lockdown has had some significant economic impacts. We have donated collectively $0.75 million into the communities where we have facilities and offices around the world and implemented a matching program so that employees can match -- can donate and the corporation will match those donations. Now let's take a look ahead. With a strong first quarter, we are in good shape to deliver on our financial targets for adjusted EBITDA and free cash flow for the year. Despite the pandemic, we are very pleased to be able to affirm the guidance we issued in February. And so in response to the question that came up during the formal part of the meeting of the AGM, we had -- we are affirming that we will be able to, again, meet the same guidance, the same financial results that we indicated in February. As we look at Northland today, we have expanded both the geographies and technologies we work in, in order to ensure that we remain ahead of the curve in securing growth. This agility has served us well, becoming the first Canadian independent power producer to enter the offshore wind sector now with 3 facilities in operation. We also expanded our footprint in Asia with offshore wind projects in Taiwan, Japan and South Korea under development. We established a position in Mexico with our La Lucha project and are now establishing a power marketing platform that will allow us to match our generation directly to industrial customers in that country. As I mentioned, we also acquired our first regulated utility, EBSA, in Colombia, which will serve as a growth platform in that country. We have established a strong global presence, including development teams in multiple locations worldwide, which has allowed us to truly evolve into an international organization. We have a presence in Northeast Asia, Latin America, Europe and North America. These regional offices follow the entrepreneurial, but rigorous Northland approach to development. But in those office, the language may be Mandarin, Korean, Spanish or Japanese. There's no doubt that our move into offshore wind has been fruitful. Since our entry into European offshore wind in 2014 with our Gemini project, we have grown our presence with 2 more projects, Nordsee One and Deutsche Bucht. Now as new markets embrace offshore winds like Japan and Korea, we are getting in at the ground level. The next decade, we'll see global grids exit coal and oil fire generation and add a tremendous volume of renewable power. Where there is a strong solar resource and available land, you will see solar become the dominant source of new energy, like in Mexico. Where there are land constraints and coastline, like in Taiwan, Korea, Northern Europe, Japan, I believe you will see offshore wind be the dominant source of new generation going forward. Now picking up on solar. La Lucha represents an exciting step in the evolution of Northland's generation business, being our first project focused on the commercial and industrial customer segment. The value creation opportunity here is in selling low-cost solar energy and shaping it into a product that lowers the overall cost of industrial clients in that country. We also -- what we also liked about the EBSA deal, the Colombian utility was that utility had grandfathered rights that allowed it to acquire and develop generation, transmission and even roll up other utilities. And that's really was quite unique for that utility in Colombia. So that allows us to establish a platform to develop solar, which the team is quite active on looking at a number of opportunities right now as well as transmission. Now the decarbonization of the energy sector over the next decade will create a tremendous need for new investment in infrastructure. And as always, Northland intends to be foot forward at the forefront of that change. So thank you for your attention today, and I very much look forward to any questions you may have. So I think I addressed the first question in the presentation, but more directly, the question is what impact has a pandemic had on both revenues and future dividends. So the main impact on revenues for the corporation of the pandemic relate to the lockdown in a number of markets around the world, but in our case, specifically in Europe. And what we saw in both Germany and the Netherlands were lower market prices for power as demand fell dramatically in the month of March. And there were strong wins and a lot of sun time. So there's a lot of renewable production during that period as well. So each of our contracts for our German and for our Dutch offshore wind projects, have a provision that allows for -- that impacts us if the power prices or supply -- power prices go below a certain level or if supply -- or if there's an oversupply situation. So in the 2 German projects, there was some impact in terms of uncompensated curtailment, and there will be some impact on the revenues from our Dutch project, Gemini. But in the first quarter, those impacts were more than offset by strong production.

Ladies and gentlemen, thank you for participating in today's conference. This session has now concluded. You may now disconnect.