Northland Power Inc.

Ladies and gentlemen, thank you for standing by. Welcome to this Northland Power conference call to discuss the 2020 fourth quarter results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star one on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Tuesday, February 23, 2021, 10 a.m. Conducting this call for Northland Power are Mike Crawley, President and Chief Executive Officer, Pauline Alimchandani, Chief Financial Officer, and Waseem Khalil, Senior Director of Investor Relations and Strategy. Before we begin, Northland's management has asked me to remind listeners that all figures presented are in Canadian dollars and to caution that certain information presented and responses to questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ maturely from management's expected or forecasted results. Please read the forward-looking statements section in yesterday's news release announcing Northland Power's results and be guided by its contents in making investment decisions or recommendations. The release is available at www.larklandpower.com. I will now turn the call over to Mike Crawley. Please go ahead.

Thank you, operator, and good morning, everyone. Thanks for joining us today. This morning, we will review our fourth quarter and full year 2020 financial and operating results. Following our remarks, we'll look forward to addressing your questions. Since the emergence of COVID last year, we have put the health and safety of our employees and stakeholders first. Through diligent planning and rigorous adherence to health protocols, we have maintained high levels of facility availability, delivering essential supply of energy to consumers and industry in Europe, Canada, and Colombia. We remain steadfast in our resolve and continue to deliver on our objectives despite the challenges we faced in the year. We finished the year on a very positive note, posting solid year-over-year growth in our operating and financial results, and we also significantly expanded our development portfolio. I'll have more to say on that shortly. First, looking at the financial results for the year, we reported adjusted EBITDA of $1.17 billion compared to $985 million in 2019, representing a 19% increase. A free cash flow of $344 million was 8% higher compared to the $318 million in 2019. On a per share basis, We achieved $1.73 in 2020, which was a small decline from the $1.77 per share in 2019. Pauline will provide a more detailed look into the financials later in the call. As we've seen, the direction of travel for power generation grids globally is now unmistakable. Carbon-intensive generation will largely be replaced with new renewable power capacity. Northland has a growing footprint globally with positions in key target markets to participate in this growth. As we outlined at our Investor Day held on February 4th of this year, Northland is very well positioned in renewables in general, but specifically in offshore wind. The opportunities that we have ahead of us are, of course, very exciting. We have a big growth pipeline already, and we intend to add more to this. By the end of the decade, We have a strategy that aims to more than double the size of the company in terms of our operating capacity and our adjusted EBITDA. We have identified development projects with the potential to add four to five gigawatts of capacity, and our development teams are advancing these projects forward. These opportunities represent $15 billion to $20 billion in overall investments on a gross basis. Once operational by the latter half of the decade, these projects are expected to more than double our adjusted EBITDA at our ownership space share. At the heart of this strategy is our focus on offshore wind. We already have an established operating portfolio in Europe, and leveraging this position and expertise, we are now expanding from this critical mass and base for further offshore wind growth in both Europe and Asia. The latest example of this is our partnership with PKN Orlin announced on January 29th for the Baltic Power Offshore Wind Project. Now, just to frame the transaction, Northland acquired a 49% position in Baltic Power, a mid-stage offshore wind development project with the potential for up to 1,200 megawatts of capacity to be built in the Polish Baltic Sea in the middle of this decade. Poland offers an attractive investment destination with an emerging offshore wind market. It is a sizable country with an investment-grade credit rating and a growing economy with increasing electricity demand. It has a clear energy policy that foresees a lot of renewable investment with a clear emphasis on offshore wind. We will be in a joint venture partnership with PKN Orland, the Polish oil and gas company, and a very strong and influential local partner in that country. They selected Northland based on our top 10 global position in offshore wind but they also wanted a true partner, one with whom they could work on an equal footing in an open and collaborative framework. It is this knowledge and expertise that local developers like PK and Orland value and the reason why they choose Northland to help them develop offshore wind in their domestic markets. Baltic Power provides Northland with a number of advantages and benefits. It gives us a scale entry into a new market alongside a very strong and influential local partner. It is a mid-stage development project, which gives us a healthy balance between reducing the risks of new market entry on the one hand and still leaving development to be done and value to be extracted on the other hand. The project will also benefit from the first round of revenue support, which will not be competitively tendered, but instead is expected to secure a 25-year revenue support agreement, a tenor difficult to find in power generation these days. We expect to reach financial close in 2023 and commercial operations in 2026, which fits nicely with our other offshore wind projects in Asia. While offshore wind will provide us the longer-term growth, we are also enhancing our near-term development pipeline. This past year, we marked our entry into the U.S. market with the acquisition of three onshore wind assets in New York State. These projects provide a total of 300 megawatts of onshore wind capacity. We really see this as an opportunity to leverage this presence, build a platform, and potentially expand it to solar and storage in that space. The projects are progressing, and in late November, we received confirmation for the conversion of the fixed REC offtake agreements into index REC offtake agreements, effectively 20-year all-in offtake agreements for the three projects. Late last week, we received the contract price offers from NYSERDA, and our teams are currently analyzing them. This is a key milestone in the development of the projects and moves the projects closer towards financial close, which we expect to execute for two of the three projects later this year, with one following in 2022. Commercial operations for the first two are expected by late 2022, and the last one follows in 2023. Turning to our construction activities, construction of La Lucha, which commenced in May 2019, with planned completion scheduled in the second half of 2020, has been delayed. Mexico, as you may know, has been severely struck by the pandemic, and this has had an impact on the timing of the schedule of this project. Activities have been affected by COVID, requiring additional precautions, including coordination of communications protocols with contractors, subcontractors, and added safety measures intended to minimize the potential transmission of the virus. Government offices have also been working at a lower level of capacity in terms of processing permits. The project is largely complete. We expect it to begin producing power in the next two to three months with official commercial operations to follow later in the year. Work also continues on securing offtake agreements for La Lucha. However, it is taking longer for them to migrate end users from the regulated tariff regime to the qualified supplier, the open market. Delay is mainly due to COVID as government agencies are either officially closed or operating with very limited resources. Until they have more certainty on timing, we are unable to finalize agreements because that implies a commitment to start taking energy from Alucha at an agreed date. At our Heilong offshore wind project in Taiwan, the team continues to make progress towards securing corporate offtake power purchase payments for the remaining 744 megawatt of allocation that was secured under the auction process. We are also happy to report that that Northland recently made its intention to begin developing additional offshore wind projects in Taiwan, which we plan on bidding into the upcoming third round of tenders, which starts in 2022. The additional projects would have a combined capacity of about 1.8 gigawatts. Now, the development of all of these onshore and offshore renewable power projects, which I've referenced, will create huge value for Northland's shareholders, I will now turn the call over to Pauline for a more detailed review of our financial results.

Thank you, Mike, and good morning, everyone. Last night, Northland Tower released operating and financial results for the fourth quarter and full year 2020. These results showcase the continued strength and resilience of our financial performance despite the challenges we face this year amidst the pandemic. We did face some challenges in the year that were outside of our control and did impact our financial results. As disclosed in our MD&A, our German wind facilities incurred higher unpaid curtailments due to periods of negative prices, as well as grid repairs by the German system operator at both the North Sea One and Dubu facilities over the course of the year. North Sea One was particularly affected by these grid outages and repairs during the fourth quarter. These outages are not expected to be recurring in nature. In total, due to lower Dutch market prices, negative prices, and grid outages, we incurred approximately $87 million of lost revenue during the year. This was significantly higher than the $24 million of lost revenue in the prior year period. In the fourth quarter, we generated adjusted EBITDA of approximately $269 million, which was a slight decrease from the $273 million we generated a year ago. The main factor is leading to the slight drop year-over-year related primarily to lower wholesale market pricing at Gemini and unpaid curtailments at North Say One mentioned earlier, which resulted in a $28 million loss in the quarter. In addition, higher costs and growth expenditures further affected results by $11 million compared to the fourth quarter of 2019, though the expenses were in line with management's expectations. These events were partially offset by the positive contributions from EBSA, which added approximately $23 million to EBITDA for the quarter. On a full-year basis, adjusted EBITDA was approximately $1.17 billion, which was the higher end of our guidance of $1.1 to $1.2 billion, a strong result despite the lost revenues we incurred during the year. Year over year, adjusted EBITDA increased 19% from the same period a year ago due to contributions from DEBU and EPSA of approximately $138 million and $90 million, respectively. These positive contributions were offset by $28 million of higher growth expenditures and $62 million of lost revenue due to the factors I previously discussed. With respect to free cash flow, Northland generated approximately $56 million in the fourth quarter. This was a decrease of approximately $11 million, or 16%, compared to the prior year. In addition to the factors affecting adjusted EBITDA, the single largest driver behind the year-over-year decrease in free cash flow was the $43 million scheduled principal repayment at DEBU, which we previously communicated in our third quarter results upon revising our guidance range. Also contributing to the decrease were higher expenses related to an increasing level of development activity, as well as higher interest costs and non-expansionary capital expenditures relating to EPSA. On a full-year basis, free cash flow in 2020 was $344 million, up from $318 million in the prior year, representing an increase of $25 million, or 8%, year-over-year. The main driver behind the year-over-year increase in free cash flow were contributions from DEBU and EBSA. These increases were partially offset by $164 million of scheduled principal repayments, $38 million increase in current tax expense as a result of the acquisition of EBSA and increased taxes at Gemini and Dibu, which were in line with our expectations. In addition, there was $54 million of higher interest expense and non-expansionary capital expenditures associated with EBSA. On a per share basis, these figures translated into $0.28 in the fourth quarter and $1.73 for full year 2020. These were 24% and 2% lower, respectively, compared to the same periods in 2019, but were in line with our expectations. Our rolling four-quarter free cash flow payout ratio, calculated on a cash dividend basis for the year ended December 31, improved to 63%, down from 68% last year. As communicated at our Investor Day held on February 4th, and commencing with our fourth quarter results, Northland reported a new supplementary non-IFRS cash flow measure, adjusted free cash flow, which is now disclosed in our MD&A. This measure is calculated by excluding growth-related expenditures from free cash flow. Management believes this measure provides a relevant presentation of Northland's ability to generate cash flow after ongoing obligations to reinvest in growth and fund dividend payments. Reinvesting in growth is a key part of Northland's long-term strategy. Accounting for these adjustments, our adjusted free cash flow for the fourth quarter was $79 million and $415 million on a full-year basis for 2020. The level of adjusted free cash flow would result in a rolling four-quarter payout ratio of 53%. Expanding a little on growth expenditures, you will note the change in presentation of growth expenditures in our annual report, which we believe will present with more transparency the nature of these expenditures. We have now distinguished between business development and project development expenses. Business development expenses are incurred to identify and secure prospective business and development opportunities. These are ultimately expected to result in identifiable development projects intended to be pursued to completion and include costs for transactions not ultimately pursued to acquisition. On the other hand, project development expenditures are attributable to certain early to mid-stage development projects under active development that we have identified to the market in current or previous disclosures and are likely to generate cash flow in future periods. In 2020, project development costs were primarily attributable to Heilong and to New York Wind prior to the commencement of their respective capitalization dates under IFRS, as well as DataOcean, Chiba, and BalticPower, compared to primarily just Heilong in 2019. More information is provided in our MD&A. Also in the quarter, as a result of achieving certain milestones, Northland commenced the capitalization of development costs attributable to our New York Wind project in accordance with IFRS. As a reminder, financial close for New York Wind is expected in 2021 with commercial operation dates in 2022 and 2023 across three projects. In addition to free cash flow generated, Northland utilizes additional sources of liquidity to fund growth expenses and capital investments. For the year ended December 31, 2020, as now included in our disclosures, we sourced additional liquidity through net proceeds from the EBSA non-recourse financing, proceeds from up-financing of North Battleford's non-recourse debt issuance, release of funds from Gemini's debt service reserve facility, as well as cash conservation from reinstating the DRIP. Altogether, these initiatives generated additional proceeds of approximately $280 million, which were primarily used to fund growth and repay corporate debt on optimal terms. With respect to our balance sheet and liquidity, Northland remains in a very strong position with ample liquidity to help fund our development initiatives. As of December 31st, Northland had access to $559 million of cash and liquidity, comprising of $491 million of liquidity available on our revolver and $68 million of corporate cash on hand to help us fund growth. Looking ahead, as we announced at our Investor Day in February, our green financing strategy will enable us to green and optimize our balance sheet in the future while benefiting from the growing demand for green issuances. Our plan is to secure either or both green corporate and project financing starting in 2021 that are expected to result in a number of benefits, including allowing us to diversify our funding sources, reduce our cost of financing, and optimize our liquidity. Turning to our 2021 financial outlook, as we noted in our press release, for our adjusted EBITDA, we expect to generate between $1.1 to $1.2 billion this year, This level is expected to remain consistent relative to our 2020 guidance levels. 2021 free cash flow per share of $1.30 to $1.50 is expected to be lower than the 2020 free cash flow per share of $1.73. This is primarily due to increased growth expenditures and higher corporate costs in pursuit of the company's continued execution of its global growth strategy, including project spend. These increased expenditures relate to the development and advancement of Baltic Power in Poland, Chiba in Japan, NATO Ocean in South Korea, and other offshore wind projects. 2021 growth expenditures are expected to total approximately $100 million, or 50 cents per share, of 2021 free cash flow. In addition to growth expenditures, the company expects to incur capital investments of approximately $100 million in 2021 to advance high-long-term New York Wind, and other projects. Capital investments are largely expected to be funded through cash on hand and through Northlands corporate credit facilities and do not impact free cash flow. Northlands adjusted free cash flow for 2021 is expected to be in the range of $1.80 to $2 per share, adjusting for growth expenditures noted above. This compares with adjusted free cash flow of $2.01 for 2019. Overall, Despite all the puts and takes, it was a solid financial year for the company. We also took meaningful steps to increase our liquidity position in 2020, at first to be in a position of defense through the early months of the COVID-19 pandemic and the related uncertainties, and then to be in a position of offense as we ended the year in a solid position to accelerate our spending on growth. All in all, it was a productive year for the company, and we look forward to delivering on our objectives in 2021. With that, I will now turn the call back over to Mike for his concluding remarks.