Tag Archives: political

Stable Belgium Can Give A Decent Profit

Summary EWK, an ETF based on Belgian shares, has significant relative strength. There are no serious threats to the Belgian economy. Government crisis and bankruptcies in the banking sector are in the distant past. The iShares MSCI Belgium Capped ETF (NYSEARCA: EWK ), based on the shares of Belgian companies, ranks extremely high in the ETF World Matrix with Cash list, edited by investment company Dorsey Wright. To gauge whether this extremely interesting ETF’s ranking is justified, it’s worth looking at what exactly the situation in the Belgium economy is like. First, we should explain how the ranking is done. Dorsey Wright compares selected ETFs with each other (one each for each). There are 34 ETFs that are ranked. The main factor is relative strength of each fund. Relative strength tells us how much the price of the company (or of the fund) grows in comparison to other companies (funds). The relative strength indicator, in conjunction with fundamental analysis is quite effective. Why? On the stock exchange, there is a principle of inertia: a company (or fund) that is growing strongly is hard to stop. Below, you can see top of the World ETF Matrix with Cash ranking order. EWK is in third position. The Guggenheim S&P 500 Equal Weight ETF (NYSEARCA: RSP ) is ranked first and the iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) is second. (click to enlarge) Source: Dorsey Wright So, let’s take a glance at the fundamental situation in Belgium. The Political Situation The political situation in Belgium is now stable. Charles Michel has been at the helm of the government since 11th October, 2014. The Kingdom of Belgium is a federal parliamentary democracy under a constitutional monarchy. It is divided into 3 regions: Brussels – the Capital Region, the Flemish Region and the Walloon Region. Since 1993, there are three levels of government (federal, regional, and linguistic community). In 2012, the sixth state reform transferred additional competencies from the federal state to the regions and linguistic communities. It is worth recalling that a few years ago, Belgium was without a viable government due to a political deadlock between the Flemish and Walloons . This political crisis had paralyzed the country’s political apparatus from June 2010 till December 2011 (for 589 days, Belgium was without a federal government). In this period, the 20 biggest companies index, BEL20, went down 23%, and the 10-year bond yield went up from 3,097 to 5,910 (91%). Euronext Brussels BEL20 Index (BEL20) vs. BELGIUM 10-Year Bond Yield (10BEY.B) Source: Stooq The European Parliament is based in Brussels. For this reason, the city is often witness to protests. Economy and Finances Belgium is a small but highly urbanized and industrialized country. Poor in natural resources, it imports raw materials in great quantity and processes them largely for export. Exports account for around two-thirds of Belgium’s GDP. Almost 75% of its foreign trade is with other European Union countries, so the country is highly exposed to business tendencies in the EU. Belgium is the world’s most congested country, with drivers losing 51 hours a year , on average, to traffic jams (in Brussels, 74 hours). The cost of traffic jams in Belgium is 10.58 euros per hour , according to Leuven transport researcher Sven Maerivoet. Efficient mobility is a big problem for society of Belgium, and traffic jams are causing real harm to the economy. From Q2 2013, Belgium’s GDP growth rate is stable, but rather poor (0-0.5%). In Q2 2015, the country’s economy expanded 0.4% over the previous quarter. The indicator almost perfectly reproduces what is happening in the EU economy (please look at the chart below). The unemployment rate is projected to decrease from a ten-year high of 8.5% last year to 8.1% in 2016 as job creation in the private sector picks up – according to European Commission data. We can name it a “slow-moving recovery”. GDP growth rate: Belgium vs. the EU (click to enlarge) Source: Trading Economics What are the weaknesses of Belgium’ economy according to the European Commission’s “Country Report Belgium 2015” ? Chronic underutilisation of labour, with a low aggregate employment rate A high overall tax burden Competition in several key service sectors remains low One of the most interesting facts about Belgium’s labour market is presented at the chart below. Labour costs in the country are indirectly linked to productivity developments. Productivity and Wage Evolution (2009 = 100) It is no wonder that Belgium falls lower and lower on the index of economic freedom. Belgium – Index of Economic Freedom in 2015, Score: 68.8 (100 represents the maximum freedom) Source: Knoema What is worrying is that the country’s ability to make future payments on its debt is decreasing. Government debt as a percent of GDP (106.50% in 2014) is skyrocketing from 2008 and is higher than the EU average (92%). But what’s interesting is, it’s still below Belgium’s average level from years 1980-2014 (108.96%). Government Debt-to-GDP: Belgium vs. the EU (click to enlarge) Source: Trading Economics Public finances in Belgium are in a condition that is characteristic of those in almost all EU countries: poor, but stable. The country can only dream of having a budgetary surplus. (click to enlarge) We need to put a question mark on the 2015 budget. The Federal state budget deficit plan for 2015 was 8.50 bln EUR . As the end of July, it was 8.33 bln EUR. Yes, the budget deficit is seasonal (tax revenues are notably higher in the second half of the year than in the first half), but it seems that the first half of the year was a bit too wasteful. We should remember also that foreign investors own a majority of Belgium’s treasury certificates and linear bonds. This dependence makes the country very susceptible to a loss of market confidence. And what about ratings? Fitch Ratings : Rating AA affirmed, outlook negative (24/07/2015) S&P : Rating AA affirmed, outlook stable (17/07/2015) Moody’s : Rating Aa3 affirmed, outlook changed from negative to stable (07/03/2014) DBRS : Rating AA (high) confirmed, stable trend (13/03/2015) Japanese Credit Rating Agency : Rating AAA affirmed, outlook stable (01/07/2014) Rating and Investment Information, Inc . : Rating AA+ affirmed, outlook stable (31/08/2015) The Banking Sector In the years 2008-11, Belgium was struggling with a banking sector crisis, which revealed the incompetence of EU regulators and ratings agencies. In October 2011, the country nationalized big bank Dexia ( OTC:DXBGF ), which had passed stress tests year earlier. What’s the situation right now? KBC Bank ( OTCPK:KBCSF ) has repaid 7 bln EUR of federal loans, and it’s in good condition. Dexia is not an active bank. Fortis was rebranded as Ageas ( OTC:AGESF ), and is now an insurer (without toxic assets). What is interesting is that in the next three years, a great consolidation is expected in the Belgian banking sector – according to Ernst & Young’s “European Banking Barometer – 2015” presentation . According to the same report, Belgian bankers expect stabilization in the economy and in the banking market. The Real Estate Market If we look at the chart below, the bubble appears to be growing… (click to enlarge) … but property price levels remain moderate compared to those in other EU member states. Average price/m² of a 120 m² apartment located in the capital (in EUR) (BE – Belgium) Source: Global Property Guide Remember, of course, that in the charts above, we see the effects of extreme easing of monetary conditions in EU. Summary The political situation in Belgium is stable. The economy is in a slow recovery. Federal state finances are not in good shape, but where are they so (speaking about the EU)? The banking sector is recovering. Belgium does not stand out like on the plus side, but there are no serious threats for this country either. The investment mood has been very good, despite China’s fundamental problems. In fact, there are a few good reasons to invest in European equities . For example, quantitative easing provides support to consumption and money supply in the eurozone. Result? Better growth. Those who are already invested in the European and Belgian markets could patiently wait for further developments. For investors who like medium amounts of risk, invest in ETFs with exposure to Belgium. How to invest in the country There are some ETFs with exposure to stocks listed in Belgium. EWK has the largest exposure. 5 ETFs with the largest exposure to Belgium (click to enlarge) Source: ETFdb.com And here we have the most economical solutions: 5 cheapest ETFs with exposure to Belgium (click to enlarge) Source: ETFdb.com You may ask: Where is EWK in this ranking? Well, it’s in the 11th position, with ER = 0.47%. Not so bad. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Alterra Power’s (MGMXF) CEO John Carson on Q2 2015 Results – Earnings Call Transcript

Executives Ross Beaty – Executive Chairman Lindsay Murray – Interim Chief Financial Officer John Carson – Chief Executive Officer Paul Rapp – Vice President, Wind and Geothermal Power Jay Sutton – Vice President, Hydro Power Asgeir Margeirsson – CEO, HS Orka Analysts Marin Katusa – KCR Fund Jonathan Lo – Raymond James Mike Plaster – Salman Partners Alterra Power Corp. ( OTCPK:MGMXF ) Q2 2015 Earnings Conference Call August 12, 2015 11:30 PM ET Operator Good morning, ladies and gentlemen and welcome to the Alterra Power Corp Second Quarter Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] I would like to now remind everyone that this call is being recorded on Wednesday, August 12, 2015. I would now like to turn the conference over to Ross Beaty. Please go ahead. Ross Beaty Thank you very much operator and welcome ladies and gentlemen to our second quarter conference call of our financial and operational results for Alterra Power Corp. I am pleased to be here in Vancouver with our senior management team and I’ll let John Carson our CEO introduce some when it comes time to that. I would welcome everybody. We’ve all have questions out there and remind everyone as well that we will making a number of forward looking statements today. We see Safe Harbor for these, we have a disclosure statement in our website and in our, all of our materials and I would direct your attention to those. The web presentation that we usually accompanies us is there and we can’t seem to find it ourselves, it’s just been put up and you can go into our website alterrapower.ca to follow along with presentation today as we provide it. So I’m going to turn things over right now to John Carson who will be referring to the web presentation, you can look at simultaneous with presentation as, both his material and our operating and financial team today and just go straight check it out. So John over to you. John Carson Thank you, Ross. It’s been a quarter for us. We did close the Shannon wind project financing this quarter; we’re very excited about that. We have two large projects under construction and so you’ll hear a lot about those projects as we go through the call today. I’d like to introduce the members of senior management that are here with me. You’ll hear first from Lindsay Murray our Interim CFO, then you’ll hear from Jay Sutton, our Head of Hydro, Paul Rapp, our Head of Geothermal and Wind. Also with me today is our General Counsel, Shannon Webber and also on the phone from Iceland is our CEO of the business there Asgeir Margeirsson. So with that, I’d like to proceed into the presentation and turn it over to Lindsay. Lindsay Murray Thanks, John. As you all have seen from our financial statement and MD&A release yesterday, Q2 is another busy quarter for Alterra, with the advancement of construction at the Jimmie Creek and Shannon projects, execution of project financing, partnership and tax equity agreements at Shannon and strong operating results. Although, there has been a lot going on at Alterra during the quarter, Shannon had the biggest impact on our financial statement presentation. On June 30th, we successfully closed at $287 million credit facility and concurrently partnered with Starwood Energy Group, which resulted in both parties owning 50% of the project. Shannon has been recorded as an equity investment in the June 30th financial statements, where previously it had been consolidated into our results. As you all have seen in our financial statements, we have deconsolidated the assets and liabilities of Shannon, recorded our equity investment at $62.7 million and received a $750,000 construction management fee, $1.5 million developer fee and will continue to manage the project. The completion of both the financing, partnership and tax equity agreement further demonstrates the strength of our company and executive team, as we were able to obtain new equity and financing partners from key players in the market, adding to our great partners on our existing projects. As for the project, construction is well underway at site and I will Paul Rapp, our VP of Wind to provide you with an update on construction. However, I’d like to highlight that following completion of the construction loan and equity contribution, the company does not expect to make any further equity contributions towards the project. Moving on to our operating results and for all of you following along the analyst presentation, I refer you to slide four. At June 30th, we continue to consolidate the results of our geothermal facilities in Iceland owned by our Icelandic subsidiary HS Orka of which we own 66.6%. EBITDA and gross profit increased 17% and 44%, respectively as a result of increased retail sales and decreased costs at HS Orka, increased revenue at Toba Montrose and foreign exchange. Foreign exchange had a significant impact on our results during the quarter as both the Canadian dollar and Icelandic krona weakened. Our consolidated revenues decreased $3 million against the comparative quarter and due to the sale of Soda Lake in January 2015, as well as, foreign exchange as revenues in ISK were up quarter-on-quarter. Consistent with the comparative quarter, our income statement fluctuated significantly due to the non-cash movements and foreign exchange. In the current and comparative quarter, such non-cash movements were due to movements in the company’s holding company bonds and derivatives as well as the gain on the deconsolidation of Shannon’s net assets. Consistent with previous reporting presentations, the company continues to monitor the performance of our operating results on an interest rate basis. Net interest reflects our ownership percentage at June 30th being 66.6% of HS Orka, 40% of Toba Montrose and 25.5% of Dokie 1. During the quarter, the company benefited from strong fleet generation achieving 103% of budget. Both Toba Montrose and Dokie 1’s generation increased over the comparative quarter due to strong water and wind, respectively resulting in increased revenue and EBITDA. In fact, our statements don’t give a true picture of the exceptional performance of Toba Montrose in the quarter as foreign exchange almost entirely offset a 10% increase in generation. Although, HS Orka’s revenues declined quarter-on-quarter, this is entirely due to foreign exchange. Lastly, development and head office costs decreased due to lower reoccurring costs and fluctuations in foreign exchange. Turning to the balance sheet, total assets decreased 6% to $586 million, since December 31st. This is in part due to the sale of Soda Lake, repayments of loans and foreign exchange, which on average decreased 8% since December 31, 2014. The company’s working capital available cash and liquidity has decreased against December, primarily due to cash spend on Shannon coupled with debt repayments and spend on plant and equipment at HS Orka. However, it should be noted that the company has a $20 million Canadian revolving credit facility available to fund its working capital needs and received distributions from Toba Montrose and Dokie 1 of C$8.1 million subsequent to the quarter end. The final slide I will talk to is slide eight. This slide provides details of all the long-term debt held by the company on a net interest basis, including debt service paid in the quarter. You will see the addition of the Shannon construction loan in the quarter, which is short-term and expected to be repaid in late 2015 or early 2016 when tax equity investors will fund $219 million to the project and repay the loan. The key point to highlight is the company’s operating projects continue to pay down their debt. That concludes my presentation, I now hand back to John. John Carson Thanks, Lindsay. And Lindsay we’re happy to have here as our interim CFO, our regular CFO Lynda Freeman is on temporary maternity leave, but Lindsay has done a fantastic job this quarter, especially logging the addition of the Shannon project. So with that I’d like to turn our attention to operations and for that I’ll turn it over to Jay Sutton and Paul Rapp. Jay? Jay Sutton Thanks, John. So referring to slide nine, TMGP had a very successful second quarter of 2015, producing 270 gigawatt hours of energy versus our forecast of 229 gigawatt hours. A warm spring and hot summer resulted in continued higher than forecast inflows and as a result, we achieved on 118% of our forecast generation in Q2 and our 118% of forecast generation year-to-date. Our strong generations continue into our third quarter and we achieved 99% of the forecast for the month of July and are currently at 95% of our provided forecast for the month of August. As we stand all four units are currently running and operating – generating just under 200 megawatts. In the second quarter we did make some further improvements to settlement exclusion at our Montrose plant that will result in reduced annual outage time and further reduction in our long-term operating costs. Our crews continue to operate and maintain the plant safely and according to our environmental commitments and there are no significant operating issues at either of the facilities. That’s all I have for Toba. Over to you Paul. Paul Rapp Thanks, Jay. Over for everybody to slide 10 for the Dokie 1 highlights. The Dokie wind farm performed slightly below plan in Q2, it produced about 61.6 gigawatt hours of electricity or 90% of the budget. The production was negatively impacted by low wind in May, which was seen throughout the region at all our neighboring wind farms as well. Production recovered well and exceeded plan in both June and July and we’re tracking at plan through August as of this morning. Production overall is at 95% of the year-to-date plan. The Dokie facility continues to operate well, we have no safety or environmental issues, no equipment issues and we’re exceeding our availability targets. Moving on to slide 11 for highlights at our Iceland operations, at Svartsengi and Reykjanes, both plants performed well in the second quarter and production was at 97% of plan for the quarter and 98% of the plan year-to-date. Focus up in Iceland right now is on capital works, for operational improvements at our Svartsengi plant. We’ve completed setting surface casing for two planned production drill holes, adjacent to the Svartsengi field; drilling in the two holes will commence in September, one hole is a makeup to provide additional steam to the plant and the second hole is an exploratory hole as we look to expand the field. At Svartsengi, we’re also continued to work on a new fluid disposal pipeline and we’ve commenced construction of the outlook works to the sea and construction of the pipe alignment. This pipeline will allow better control of fluid discharge at the plant and will allow for increased power production at the plant. At Reykjanes the main capital work continued to focus on construction of a pipeline from the plant, which will transport geothermal fluid from power production to the previously addressed ability for the Reykjanes plant. I’ll hand it back over Jay and talk about some of our active construction projects. Jay Sutton Thanks, Paul. So referring to slide 12 now. Jimmie Creek continues to make great progress. At a high level, we are expecting to complete civil work on the project by the end of this year and then focus on the electrical and mechanical insulations through the winter to the spring, we’ll begin our commissioning. Up at the intake, we are more than 65% completed the concrete for the intake in rubber dam and is scheduled to divert the flows back into our new intake structure in late September. The river and tributary diversions have functioned well through the high summer flows and the intake is on schedule to be complete by the end of the year. Down the penstock construction, the contractor continues to make great progress with nearly 80% of the penstock installed both in backfilled, including the bifurcation in pipe bridge sections. We expect to complete the installation of the penstock in October of this year. Then as you can see on the photo, we’ve completed the construction of the steel superstructure and bridge crane for the powerhouse. And we are now working on the control room and electrical balance of plant inside the powerhouse. Construction of the switchyard foundation is complete and we are ready for the delivery of the transformer which is scheduled for later this month. Members of our engineering team are wrapping up their site visits for the factory acceptance tests of electrical and mechanical equipment and we’ve been very pleased with the quality of the equipment being supplied. So all of the key components have now been shipped with the exception of the nozzles that are currently being assembled for shipment at the end of August. So early September, everything will be in shipment or on-site. We’ve got a great project team and great contractors performing the work and we extend our thanks to them for keeping this project on schedule and on budget. So it’s all that for Jimmie Creek, Paul, back to you. John Carson Great. Thanks, Jay. Let’s start off with Shannon, just talking about the financing, which is just closed on June 30. We did close a $287 million U.S. construction credit facility that was provided by affiliates of Citi, Santander and RBC. With that we also closed a commitment to tax equity of $212 million, could move up a little bit from of Berkshire Hathaway and Citi affiliates. So we’re very pleased that after a long process of getting really a global class financing done for a large wind farm in Texas with great participants. We’re going to hold these assets in a 50% partnership with Starwood. We’ve known them corporately for a lot of years and we’re very happy to have this deal completed with them. We expect strong cash flows and EBITDA about $7.5 million of EBITDA out the gate and close to that in cash flow from the project. So this is a very positive project for us, we’re excited about it to hold with our partners with Starwood. With that, I’m going to turn over to Paul, and to give an update of the construction activities. Paul Rapp Sure. Thanks, John. Construction activity has been ongoing since December as we reported in the last quarterly call and ended strongly prior to financial close. So to date we have completed construction of all site roads, all the wind turbine foundations, the underground collector system, the overhead transmission line and the project substation. The project main power transformer has been delivered and it’s ready for energization. Energization of our project substation from the Oncor interconnection substation is scheduled to be completed this month. Wind turbine erection is in full swing and as of yesterday, we had a total of 14 wind turbines fully completed and a further of 34 in progress. Wind turbine deliveries are well underway and the photo on slide 13 shows one of the wind turbine rotors being installed earlier this week. Our construction contractor Margeirsson is doing a great job and has a very high quality crew on site and they’re really getting efficient in their turbine erection as we’re really getting into full swing. Project is expected to reach commercial operations in late 2015 to early 2016. John Carson Thanks, Paul. With that, I’ll refer you to slide 14, which is the last slide we’ll speak to today. This is just a bit of looking ahead in brief. The big thing that I’m looking forward to personally is something I’ve been involved with for years and Ross Beaty, our Executive Chairman even longer, as our South American asset in Chile, the Mariposa field, where we own a fantastic prospect there with our partner Energy Development Corporation. We are going to commence drilling there in a couple of months, we think in October, maybe November, but depending on the weather. So we’re very excited about this, it’s the big opportunity for us. It will be funded by our partner and we couldn’t be more excited about the prospects. We’re also looking at multiple wind opportunities in the USA and other places, so you’ll be hearing more about these hopefully in the coming days. We’re working very hard initially on a 20 megawatt solar opportunity in Chile in a different region from our Mariposa asset. There were also, as you heard last time working on several early stage hydro projects both in Canada and in Iceland. Right now we’re very active on 90 megawatts in our larger portfolio with many more megawatts is behind those after we get these earlier stage once done we’ll be able to focus hopefully more on those. In meantime, as Paul has emphasized we’re continuing our asset optimization plan, we’re working on the Reykjanes field and expanding the Svartsengi fields. You’ll be hearing more about that later and our hopes and plans for continued increase in generations there in Iceland. With that Ross, its back to you, that’s our quarter. Ross Beaty Thank you very much, John and everybody here today. My final comments here are involving more of the macro space. I think we’ve had quite a year this year in the renewable energy business in North America and the world. Renewable energy is now a mainstream form of power generation and growing very, very rapidly outpacing all other forms of electricity generation in the world. I think with the announcements by the G7 that they are going to drive to phasing out fossil fuel use by the end of the century and particularly the announcement by President Obama last month, said he was going to aggressively push phasing out of coal-fired electricity regeneration in favor of renewable energy generation. We’re going to see continued interest by governments, by communities, by a lot of people to get more and more of renewable energy because it is the ultimate sustainable energy solution for the world. This has helped to drive our own share price up, we’ve outperformed the market. We’ve had a good year so far, but it’s also being the growth that we’ve seen in our own development assets. Jimmie Creek and Shannon particular you’ve seen, we’re hitting our generation targets, we’re really doing well right on, as a company and so it’s very enjoyable time to be part of this company and part of this business. I don’t see that changing any time soon. I still think our stock is very undervalued and I think we’re going to have a continuing good year ahead. So with that, listeners I will stop the editorial here and open the call to questions and we can take questions right now, operator. Question-and-Answer Session Operator [Operator Instructions] Your first question is from Marin Katusa, KCR Fund. Please go ahead. Marin Katusa Hey, guys. Great job. I’ve got a quick question. I couldn’t quite hear the part regarding Shannon. Will the commercial operation be declared for January 1, 2016? John Carson We’re shooting to have it done before the end of the year, but it really is dependent on exactly how the turbine erection and commissioning schedule goes. It’s going to come in either December or January. Marin Katusa Is it on budget right now because with all the floods that happen, I haven’t seen any like, there was no literature on, are we above budget or are we behind budget or –? John Carson Yeah, Marin, thanks. We’re just approximately about $2 million over-budget due to floods that we’d had, some rain events in the year. We’d hope to make those savings back before the project is done. But yeah we’re just slightly over budget due to delays that were caused by heavy rains in the area, which were well publicized. Marin Katusa My final question is a reiteration from the last call. Just wondering if there has been anything on the board level regarding a dividend or what Ross’ and the board’s opinion is on that? John Carson Thanks for that, it’s Carson, Marin. We constantly talk about when, not if we’re going to be able to pay a dividend. We’re looking at all sorts of different scenarios right now. I would say let’s give us another quarter to come up with more definitive discussion about that subject. Operator Thank you. Your next question is Jonathan Lo, Raymond James. Please go ahead. Jonathan Lo Hi, thanks. Just two questions. First one, the cash, the net interest cash declined quite a bit. Is that from the Shannon investment? Lindsay Murray It would be from the Shannon investment as well as, repayment of debt at HS Orka. We were also doing capital projects at HS Orka which would have decreased our cash. Jonathan Lo For reinjection wells at Reykjanes, do you have an idea of the expected impact those will have on the generation there? Paul Rapp Yeah, the intent for those that provide pressure support to keep the field at its current output. It’s the typical, I guess, evolution of a geothermal field is as it matures, you need to provide reinjection support for the fluids you’re extracting, so that’s the intent here. It’s to try and provide pressure support to maintain the existing output. Jonathan Lo Thank you. Operator Thank you. Your next question is from Mike Plaster, Salman Partners. Please go ahead. Mike Plaster Hi, thanks very much. I guess, just sticking with HS Orka. We’ve seen aluminum prices coming off a bit this year and the value of the krona coming down. Just wondering if that’s put any pressure on the local market power prices. I know previously you were saying they’re fairly strong, is that still the case? Ross Beaty Yeah, it’s continuing strong and we don’t see that changing. Mike Plaster Okay, great. Now there has been some talk of potentially lifting the capital controls in Iceland. Do you think, that could open up some new opportunities there if it brings in more foreign capital? Ross Beaty Yes, we do and we do see that changing, it’s an actively evolving space right now, it’s got lots of issues around it. But absolutely, we think it will be very positive for our business there and other businesses when it ultimately happens. John, do you have any — John Carson No. I think you got it, Ross. Mike Plaster Do you any sort of sense on timing or is there something that could be kind of bogged down in the political process for a while? Ross Beaty Well, we have our Iceland manager with us today Asgeir Margeirsson. Asgeir, do you have any comments on that question. I think you could probably answer that more wholesomely than anyone here in Vancouver. Asgeir Margeirsson Thank you, Ross. There is a master plan in place, it was introduced by the government recently. It was extremely well accepted by the market. It will be a step wise process, but they haven’t put out yet the exact details of it. And bulk of it has to do with a states with fallen backs [ph] and their assets. So there is a master plan in place, we have yet to see more of the details over there. I underline, it’s been extremely well accepted by the markets. So we’re very happy about the progress. Ross Beaty Thanks Asgeir. Mike Plaster Okay. Great, thank you. Just shifting over to BC, we’ve certainly seen lots of forest fires going on in the province right now. Do you see any risks to any of your operations from any of them? John Carson It’s always risk, but so far I’m speaking Jay and Paul, so far we haven’t had any issues and the summer is rapidly drawing to an end here and so we expect to see fall ratings come in when that happens, the issue is going to be behind us. So, so far so good, but it is a constant threat and we have to keep vigilant. Paul Rapp One of the things I’d like to add is last year, we publicized the fact that the Mount McAllister forest fire approached closely to our Dokie 1 wind facility. The fact that it did so, which was a natural occurrence and subsided and did touch the facility actually gives us some additional safety in coming years for a while, since brush and trees et cetera have been the burned down for a bit around and near the plant. So there is safety there at Dokie 1. Mike Plaster Okay, fair enough. And then I guess with Jimmie Creek, if there were any fire related delays, presumably there is insurance for that. Jay Sutton It could be fires, floods, hurricanes, landslides, we got to make sure it’s all out. But let’s hope it doesn’t happen. Mike Plaster Yeah, okay, great. Thank you, that’s it for me. Operator [Operator Instructions] There are no further questions at this time. You may proceed. John Carson Thank you, operator and thank you, all. I think that’s all we need to say today. It was a good quarter once again. The company hasn’t had a good run this year and we don’t see that ending anytime soon. We’ve got some interesting new things we’re looking up and we look forward to reporting on those in the next quarterly reporting three months time. Thank you all for joining us today and we’ll end the call now. Thank you, operator. Operator Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

Ormat Technologies’ (ORA) CEO Isaac Angel on Q2 2015 Results – Earnings Call Transcript

Ormat Technologies, Inc. (NYSE: ORA ) Q2 2015 Earnings Conference Call August 04, 2015 9:00 am ET Executives Jeff Stanlis – Hayden MS, IR Isaac Angel – Chief Executive Officer Doron Blachar – Chief Financial Officer Smadar Lavi – Vice President of Corporate Finance and Investor Relations Analysts Paul Coster – JPMorgan Dan Mannes – Avondale Partners JinMing Liu – Ardour Capital Ella Fried – Leumi Operator Good day and welcome to the Ormat Technologies Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeff Stanlis MS/Hayden IR. Please go ahead sir. Jeff Stanlis Thank you, operator. Hosting the call today are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; as well as Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives and expectations for future operations and are based on management’s current estimates and projections, future results or trends. Actual results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see the risk factors as described in Ormat Technologies’ annual report on Form 10-K filed with the SEC. In addition during the call, we will present non-GAAP financial measures, such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management reasons for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on the company’s website. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company’s website at www.ormat.com, under the Events & Presentations link that’s found on the Investor Relations tab. With all that said, I would like to turn the call over to Isaac Angel. Isaac, the call is yours. Isaac Angel Thank you very much, Jeff, and good morning everyone. Thank you for joining us today for the presentation of our second quarter 2015 results. I’ll start with slide number four. The second quarter was a strong quarter in which we delivered both revenue and profit growth. Similar to the first quarter this year, oil and natural gas prices had a material impact in our electricity segment. However, the new capacity that came online along with the improved efficiency of our operating portfolio mitigated this impact and supported good results in the segment. This is a direct outcome of the enhancements and improvements we are implementing throughout the entire value chain. This quarter, we also had a progress with our expansion plan and began executing our initiatives to set the stage for our next growth phase. As we have stated, our multiyear plan is designed to elevate Ormat from a leading geothermal company to a recognized global leader in the larger renewable energy industry. I’d like now to turn the call over to Doron to discuss our financial results for the quarter. Doron Blachar Thank you, Isaac, and good morning everyone. Let me start by providing an overview of our financial results for the second quarter ended June 30, 2015. Starting with slide six, total revenue for the second quarter of 2015 were $140.5 million compared to $127.6 million in the second quarter of 2014 with 65% of revenue coming from the electricity segment. In our electricity segment, as you can see on slide seven, revenues were $90.9 million in the second quarter of 2015 compared with $91.7 million in the second quarter of last year. The slight decrease was mainly due to lower energy rates resulting from lower oil and natural gas prices that amounted to approximately $9 million. Additionally, we had lower generation at Puna power plant due to the well field maintenance that was required as a result of last summer hurricane. The decrease was partially offset by the contribution from the second phase of McGinness Hills in Nevada. McGinness Hills was also the main driver for the 12.4% increase in our generation project. Following our risk management policy, we recently entered into the derivative transaction to reduce 50% of our exposure to fluctuations in natural gas prices at a fixed price of $3 to MMbtu until December 31, 2015. In the product segment on slide eight, revenues were $49.6 million compared to $35.9 million in the second quarter of 2014, which represented a 38% increase. As many of you already know, our product segment is characterized by fluctuations in quarterly revenue. In the first quarter, we accelerated the construction of the Don Campbell Phase 2 project in order to commence commercial operation by the end of 2015 and in the second quarter we focused on delivering against our backlog to third party. We remain on schedule with our contract with third party customer and on track with our full year guidance. Moving to slide nine, the company combined gross margin for the second quarter was 36.1% compared to 31.3% in the second quarter of 2014. In the product segment, gross margin was 45.2% compared to 43.4% in the prior year’s quarter. I would like to emphasize that the product segment gross margin vary between the quarter and should be analyzed on a yearly basis. In the electricity segment, gross margin was 31.2% compared to 26.6% last year. As Isaac mentioned in this opening remarks, this is mainly a result of increasing efficiency that is translated to higher margins despite the significant impact of the lower oil and natural gas prices on our revenue. Moving to slide 10, second quarter operating income was $38.6 million compared to $22.3 million in the second quarter of 2014. Excluding an $8.1 million write off in the second quarter of last year, we had an increase of 27% in operating income. Operating income attributable to our electricity segment for the second quarter of 2015 was $20.9 million compared to $9.5 million for the second quarter of last year. Operating income attributable for our product segment was $17.7 million compared to $12.8 million in the second quarter of 2014. Moving to slide 11, interest expense net of capital interest for the second quarter of 2015 was $18.9 million compared to $22.1 million last year. This decrease was primarily due to lower interest expense as a result of debt payments partially offset by an increase in interest expense related to a new loan we took in August 2014 to finance the construction of the second phase of McGinness Hills power plant. Moving to slide 12, net income attributable to the company’s stockholders for the second quarter of 2015 was $14.4 million or $0.28 per diluted share in the second quarter of 2015 compared to $9.1 million or $0.20 per share basic and diluted for the second quarter of 2014. The net income includes $1.7 million related to loss from extinguishment of liability resulted from the partial repurchase of OFC Senior Secured Notes as well as $0.4 million expense associated with due diligence related to a potential M&A transaction we weren’t delivering [ph]. After the evaluation, we made a decision not to pursue the transaction. Although this transaction did come to fruition, it demonstrates our intention to identify appropriate and accretive acquisition opportunities. Those expenses are adjusted to our EBITDA. Please move to slide 13. Adjusted EBITDA for the second quarter of 2015 was $67.8 million compared to $61.8 million in the same quarter last year. Turning to slide 14, cash and cash equivalents as of June 30, 2015 was $137.7 million. We generated $112.7 million in cash from operating activities. The accompanying slide breaks down the use of cash during the first half of 2015. Our long-term debt as of June 30, 2015 and the payment schedule are presented on slide 15 of the presentation. The average cost of debt for the company stands at 6.07%. Turning to slide 16 for financing update, during the quarter, we repurchased certain portion of OFC Senior Secured Note of $30.6 million. The repurchase of the OFC loan would save the company in annual interest expense of approximately $2.5 million over the next three years. On Friday, we closed a 12 year limited recourse term loan in the principal amount of $42 million to refinance 20 megawatt of Amatitlan power plant in Guatemala. Under the agreement with Banco Industrial, Guatemala’s largest bank and its affiliate Westrust Bank, Ormat has the flexibility to expand the Amatitlan power plant to which financing to be provided either via equity, additional debt from Banco Industrial or from other lenders. Funding of this loan is expected shortly. This agreement replaces the senior secured project loan from EIG global formally PCW which Ormat signed in May 2009 and prepaid full in September 2014 from corporate funds. On August 03, 2015, Ormat Board of Directors approved payment of the quarterly dividend of $0.06 per share for the second quarter. The dividend will be paid on September 02, 2015 to shareholders of record as of closing of business on August 18, 2015. In addition, the company expects to pay quarterly dividends of $0.06 per share in the next quarter. That concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac? Isaac Angel Thank you, Doron. Starting with slide 18 for an update on operations, our portfolio generation in the second quarter increased by 12.4% from 1 million megawatt hours to 1.2 megawatt hours in the second quarter 2015. This increase is mainly due to contribution of McGinness Hills complex. The generation increase was offset by lower generation in the Puna plant in Hawaii due to well field maintenance related to last year’s hurricane. Moving to slide 19 to other projects, we are on track with the construction of Don Campbell Phase 2 in Nevada and are expecting it online towards the end of this year. In Olkaria, Kenya, we are on schedule with the construction of the 24 megawatt expansion. The fourth plant is expected to bring the complex generation capacity to 134 megawatts and the commercial operation is expected in the second half of 2016. And with regards to Sarulla, Indonesia, engineering, procurement and construction are in progress and infrastructure work has been completed. The construction has successfully drilled part of the plant production wells and drilling of additional production and injection wells is underway. The first phase is expected to commence operation in the second half of 2016 and the remaining two phases are scheduled to commence within 18 months thereafter. The projects I just described as well as additional projects on the various stages of development are expected to add between 90 and 115 megawatts by the end of 2017. Besides the investments in new projects, we are continuing our exploration and business development activities to support further growth. If you could please turn to slide 20, you will see our CapEx requirements for the remainder of 2015. We plan to invest a total of $50 million in capital expenditures or new projects under construction and enhancements. An additional $29 million are budgeted for development and exploration activities, maintenance capital for projects and investments in machinery and equipment. In addition, $37 million will be required for debt repayment. Turning to slide 21 for an update on Product segment, in May, we signed approximately $100 million EPC contract for a geothermal project in Chile. Our backlog as of August 03 stands at $347.5 million and it will support our revenues in the next two to three years. Moving to slide 22 for a regulatory update, we continue to see strong demand for renewable energy. Moreover, jurisdictions around the world are increasingly seeing the positive value of geothermal as a stable based-out renewable technology, and legislation being considered in many countries. We believe that these initiatives will boost long-term demand. The market opportunity in the U.S. was further reinforced yesterday when President Obama announced the U.S. Environment Protection Agency’s final Clean Power Plan. The plan will catch U.S. carbon pollution from the power sector by 870 million tons or 32% below 2005 levels in 2030. While power plants are responsible for approximately one-third of all carbon dioxide emissions in the United States, there were no nation limits on carbon pollution until today. The plan is expect to drive more aggressive investment in clean energy technologies, placing a significant emphasize on the renewable energy resources aimed at cutting wasted energy, improving efficiency and reducing pollution. Under the plan states are required identify tax forward [ph] using either current or new electricity production and pollution control policies to meet the goals of the program. The compliance period begins in 2022, which gives states and utilities seven years for planning and early implementation. We expect that this plan will benefit renewable resource developers and will further support our initiatives to pursue our multiyear plan. Another encouraging development in the United States, two weeks ago, the Senate tax-writing committee passed a bill extending the PTC for geothermal projects that will being construction by 2016 and commencing operation by 2018. The legislation needs to pass the House and the full Senate to become a law. If passes, we anticipate a number of projects to benefit from this legislation. The acknowledgement of renewable benefit and regulation support, as well as the energy shortage in many of the developing countries create opportunities for Ormat. In my opening remarks, I mentioned ongoing effort to evaluate and implement our multiyear plan. This plan has several moving parts and a long-term view and we will share more details in the upcoming calls. I’m confident that we will be able to capitalize on the opportunities before us and believe Ormat is uniquely positioned to succeed in the evolving renewable market. Turning to slide 23, we reiterate our 2015 revenue guidance. Oil and gas prices remain a reducing factor in our electricity revenues and we expect its annual impact to increase and be approximately $28.6 million. We expect the electricity segment revenues to be between $380 million and $390 million and product segment revenues to be between $180 million and $190 million, for that total revenues of between $560 million and $580 million. We reiterate our adjusted EBITDA guidance of $280 million to $290 million for the full year. We expect Northleaf’s portion of the 2015 annual adjusted EBITDA guidance to be approximately $14 million. And that concludes our remarks for today. Thank you for your continued support and now the questions, operator, if you please. Question-and-Answer Session Operator Thank you, sir. [Operator Instructions] And our first question will come from Paul Coster of JPMorgan. Please go ahead. Paul Coster Yeah, thanks very much for taking my questions. So, the first one really relates to oil and gas prices. All of your electricity contracts, did they have some sensitivity to oil and gas prices, perhaps you can give us some color around that and also on a go forward basis, the new PPAs that get signed, are they also expressing sensitivity to oil and gas? Isaac Angel Paul, first of all, thanks for participating in the call. In all our new PAAs, they don’t have any connection to oil and gas prices, we have three old contracts actually that they are – two of them are linked to the gas prices and one of them in Hawaii, Puna is linked to the oil price. One of these gas price linked contract is going away at the end of this year, which means about one-third of our exposure is going – more or less is going away by the end of this year and we will remain with two more – two years? We will have two years and then we will remain only with one of them for a long time to come. Paul Coster On a go forward basis, new PPAs will not include a sensitivity to gas and oil, is that correct statement? Isaac Angel That’s correct. Paul Coster Okay. And then my follow-up question, obviously, you are delivering against a backlog here and the backlog is still pretty healthy, but it’s coming down. I imagine though you’ve got a lot of stuff in your late state pipeline. Can you give us any color regarding the components of the late state pipeline? Is it all sort of the traditional Ormat business or are you starting to see a broader side of renewables in that portfolio, can you give us some sense of what the geographies might be and what kind of timeline before we see it start to enter sort of the contractual state? Isaac Angel Paul, as you mentioned before, we have a very healthy pipeline. We just added $100 million to the power plant a quarter ago, which is a contract we signed in Chile for EPC and we should also remember that we have a serious amount of a pipeline – in the pipeline of Sarulla project that it will be running with us until 2018, which – and we don’t expect every month or every quarter to sign $100 million or $200 million deal. On the other hand, we have small deals that are adding to the pipeline, which will be probably joining us before the end of this year. But from the product sales point of view, the company is concentrating today mainly in few countries, in South America, Africa, and Far East. We are expecting – we have – as you mentioned before, we have a few deals on that is – that are close to fruition. We don’t know if they are going to hit sometime in Q3, Q4, or next year, in any case, we feel very comfortable from the backlog point of view looking forward two to three years. Paul Coster Okay. Thank you very much. Operator Our next question will come from Dan Mannes of Avondale Partners. Please go ahead. Dan Mannes Thanks. Good morning, everyone. Doron Blachar Hi, Dan. Isaac Angel Hi, Dan, thank you for joining. Dan Mannes Of course. The first question for Isaac, you talked a lot about, it’s a regulatory backdrop, but I want to talk about what’s going on real time. I mean we’ve seen a number of Power Purchase Agreements signed in Texas and California and Nevada, that’s in very, very low prices for solar. I was wondering if you could talk at all about geothermals competitiveness in this kind of environment, number one. And number two, maybe cross reference that with some of your initiatives as it relates to direct to consumer sales. Because I guess what I’m trying to figure out with the outlook is for new plants in that kind of environment? Isaac Angel Dan, as you know, we will not – we don’t have the liberty to talk about PPAs which are under discussion or preparation or at the final stage, we only announce them after they are signed. But obviously we are aware of those low price solar PPAs that were signed in the last few weeks, but regardless – you know that there is a huge advantage between an intermediate power, which is affecting the grid and on the other hand, base load power, which is adding to the stability of the grid. There is still more than certain appetite for geothermal PPAs that we are working on and that the most I can say at this stage. I am not worried on the immediate stage in the state. The case can change in the upcoming years but that’s why the company has changed, not changed but added focus in going elsewhere we changed the whole structure of our sales and marketing team with focusing on counties which is outside of the U.S., which is the appetite for geothermal is not necessarily driven against solar prices, but are driven because of other reasons which are availability of the resource access to the resource and frankly lack of energy and other political reasons even in some countries that are driving these requests and those markets in one hand are pushing our product sales and in other end are pushing our ability to build our own power plants and we have new concessions in new African countries that we got and I think overall looking I am very optimistic in the future. Dan Mannes So, if I can just briefly summarize and make sure I understand. So from your perspective even in spite of how well solar may be going, there is still enough of in advantage for being base load that you can get a relative premium price that makes it attractive to continue to develop, both U.S. and abroad right now. Isaac Angel Yes, it is absolutely true at least in the immediate years in the U.S. Dan Mannes Okay. And then two other quick questions. Isaac Angel Has to be true within the next five years. That we don’t know. Dan Mannes In your project development you obviously gave us an update on both OREG 3 as well as Campbell 2, can you may be give us any update on what’s going on at [indiscernible] I know those are kind of the next two projects that you have identified there, I think we still have, hopefully coming online in 2017. Isaac Angel [indiscernible] is still at the lender stage, which means we went beyond certain stages in the process and we have located lenders and we are working to finalize contracts with them and it’s a go project at this stage. Dan Mannes And [indiscernible]? Isaac Angel And [indiscernible] we are in exploration phase, and we have successfully went few exploration phases, but we didn’t finish yet and unfortunately I cannot say it is a go project yet. I am very optimistic and positive, but will let you guys know in due time. Dan Mannes Okay. And then lastly just on the product side, we looked at the margins in the quarter obviously very strong, we know they’re lumpy , can you just confirm was there anything unique in this quarter, I don’t know if you had a project closing out or something that happened that maybe help margins out? Isaac Angel Yes we have few projects in this quarter and the upcoming few quarters, which I don’t want to mention name because of obvious reasons which are more profitable than the others. As Doron mentioned this profitability will not be able to be maintained in the long term of yield, but it will be a – that we can maybe run in this rate a few quarters and then it will be on the regular basis. Doron Blachar I think – it is Doron and if I may add. I think that when you look at the product segment, the best way to look at the margin is to look at the 12 month trailing and see over the last four quarters and then 12 months back and then move back a few quarters, still you can get probably a much more standardized margins in just looking into one quarter or swiftly of just 12 months trailing for the quarter. Dan Mannes Understood. Great we will take a look at that. Thanks guys. Operator [Operator Instructions] The next question will come from JinMing Liu of Ardour Capital, please go ahead. JinMing Liu Good morning. Thanks for taking my question. Isaac Angel Thanks for joining. JinMing Liu No problem. First of all regarding [indiscernible] the EPA clean par announced yesterday, my understanding is that that could well be ultimately enforced by each individual state paving the locations of your facilities, do you kind of lead by the user demand for energy within those space or do you have the ability to export power to other states that are in need of the energy? Isaac Angel It is very individual to a state. There are states that we are – we have the ability to export such as between Nevada and California, but on the other hand there are other states that – the import of power from other states and then you have to look at it on state by state basis. As a matter of fact we have today a few contracts which are interstate as we speak. JinMing Liu Okay, got that. Switch to the Northleaf transaction, it looks like to me a portion of the proceed was allocated to our equity, so what was it that [indiscernible] investments? Doron Blachar It’s Doron, the way the location of the cash was that it is split between two parts both of them in the equity, one is the non-controlling interest that represents the equity part of what they acquire and there was an additional paid in capital increase that represents basically the theoretical profit that Ormat has from this transaction. Today, according to U.S. GAAP unless you sell control you cannot recognize the revenue from selling equity. You put it into additional paid in capital. JinMing Liu Oh, I see. I see, that’s why – okay, I got that. I understand those two will add. Lastly, regarding the cost of electricity in the second quarter is increase slightly against a first quarter, even I back out the benefit from the first quarter. How much was the start-up cost regarding about – from the McGinness Hills second phase? Isaac Angel Give us one second please. JinMing Liu Okay. Isaac Angel You were talking on dollar basis, or negative power base? JinMing Liu Just dollar. Isaac Angel On dollar basis. JinMing Liu Right. Isaac Angel Do we give dollar number basis. Doron Blachar We don’t usually… Isaac Angel We don’t disclose the dollar number per power plant basis, unfortunately. Doron Blachar But obviously you can expect the second phase in a power plant has the relatively lower additional cost compared to the revenue yields. Most of the existing man power, so the additional cost is lower that the new power plant. Isaac Angel But JinMing, I want to mention here something that you should be aware of the fact that since the last three quarters we are basically concentrating on each and every power plant and trying to effect the profitability of those power plants and not necessarily and sometimes even reducing the generated output on the gains increasing profitability. We have few power plants, the generation was simply cut by the fact that we stopped very old steam turbine, which effectively were not profitable. So, you can see now few power plants that the generation went down, but the profitability went up seriously and if you look at our profitability of the electricity segment it is going on quarter on quarter basis. So, just comparing the total generation, quarter after quarter is not necessarily only the addition of the new power plant, but sometimes there is also reduction of some megawatt hours comparing to the quarter before. JinMing Liu Okay got that. All right. Thanks. Isaac Angel Thank you. Operator The next question will come from Ella Fried of Leumi. Please go ahead. Ella Fried Good afternoon. I also have three questions, two of them are follow-up questions. The first one is to Dan’s question, your plans to expand in the solar business. Additional tax I didn’t quite get it, additional tax in terms of expanding in U.S. or outside the U.S., and then how do you view all the recent developments in addition to what you mentioned regarding the base load. Isaac Angel First of all, I want to clarify something. We are not abandoning to geothermal in becoming a solar developer. That was… Ella Fried Yes. It’s clear. Isaac Angel And the idea was that wherever its possible we will be able also to offer a solar solution which we are doing. That mainly relating to C&I customers which are enterprise customers which are looking for a comprehensive solution to their electricity problem if we may call it. And when we are offering them a solution, this solution may also include a solar plant and we have a pipeline of those types of offer that we are working on in the U.S. but mainly outside of the U.S. And as I said before, we will not become a solar developer out of the blue that was not the intention. Ella Fried So it’s more using the existing infrastructure and adding solar megawatts, and then other forms of energy that are available at the location. Isaac Angel Yes and also we are working very diligently which is not easy thing to do, so add solar complimentary power into our existing facility, it is something that we are working on for a long time now and not very successfully so far, but I am optimistic we all realize that from the logical point of view it works unfortunately from the PPA and PUC point of view, it’s a difficult thing to do but we are – I am personally very optimistic yet and we are working on it diligently and that was the idea with the solar. Ella Fried Okay. Thank you. That sounds very interesting. About your exposure to natural gas, I just didn’t catch it. In terms of megawatts, how many megawatts will be left exposed to natural gas in the end of 2015? Isaac Angel We have today about 140 megawatts that are exposed to natural gas, prices out of the almost 650 that we have. Out of this 140, about a third is ending the relationship together we have – we signed already a contract in Heber [indiscernible] at the end of this year. So in 2016, we see about 100 megawatts only tied to natural gas pricing. We have also – when we signed the Heber contracts, we said that – will increase EBITDA about $8 million adjusted changing price. And out of the 100 megawatt that are left, we have about half of that, 50 megawatt. The contract ends at the end of 2017 and the rest is further down the road. Ella Fried Okay. Thank you. And the last question, you mentioned that North Brawley incurred some expenses, does it mean that it’s not – is it breakeven operationally or is it breakeven EBITDA wise or does it incur some more expenses? Isaac Angel North Brawley as illustrated on slide 7 had higher cost in Q2 of last year. This quarter, it had lower cost. The plant is still not profitable and then we are working very hard and diligently to bring it to be profitable. And Again, we made lots of changes in North Brawley. When I arrived to Ormat a bit more than a year ago, this is one of the challenges we took as new management and I am certain that we will be able to overcome this challenge and bring this plant to be profitable. As I said, we did lots of changes in North Brawley during the last two quarters. Ella Fried Okay. Thank you. And one more question to Doron, income tax provision went up about $1 million approximately. Is there an explanation? Doron Blachar I think it basically relates to the higher profit that we have before income tax as a percentage wise I think we went down a little bit. And in addition according to U.S. GAAP, the tax provision is done on forecasted basis basically looking at the entire year we do it, but it went up and profit also went up entirely. Ella Fried Okay. Thank you. And congratulations on great results. Doron Blachar Thank you. Isaac Angel Thank you very much and thanks for joining. Operator And ladies and gentlemen, at this time, we will conclude the question-and-answer session. I would like to hand the call back to management for any closing remarks. Isaac Angel Good morning again, ladies and gentlemen. Thank you very much for your ongoing support and we will be probably seeing you during the quarter on our road shows. Thank you very much. Bye-bye. Operator Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.