Q3 2019 Earnings Call
Thank you.
[noise] [noise] welcome to the North one power conference call to discuss the 2019 third quarter results.
In the presentation, all participants will be and I listen only mode. Afterwards, we will conduct a question and answer session.
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As a reminder, this conference is being recorded Thursday November seven 2019 at 10 am Eastern time.
Conducting this call for Northland power, or Mike Crawley, President and Chief Executive Officer.
Paul Bradley Chief Financial Officer.
In Washington, <unk> Senior director of Investor Relations and strategy before we begin nor claims management has asked we remind you.
Listeners that all figures presented on the <unk> 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 materially from management's expected or forecasted results. Please read the forward looking statement section in yesterdays release.
Announcing those Lynn powers results I'd be guided by its on content.
It making investment decisions or recommendations that releases available at www Dot Northland power dotcom.
I'll now turn the call over to Mike Raleigh. Please go ahead.
Thank you operator, and good morning, everyone.
Thanks for joining us today. This morning, we will review our 2019th third quarter Financial results Center development and construction progress I'm also very pleased to be joined today by our new executive Vice President for development David Pavel.
We had another productive quarter continuing to make progress towards achieving our 29 team growth in financial objectives first looking at our financial results in the quarter, we achieved healthy growth in or adjusted EBITDA and free cash flow, we recorded a 14% increase in our adjusted EBITDA to a total of $224 million compare.
Her to $197 million the same quarter last year.
Our free cash flow per share also increased by 14% to 41 cents compared to 36 cents for the same quarter and 28 team.
No Paul will provide a more detailed look into the financial numbers later in the call.
On the acquisition front the quarter was highlighted by our and our announcement of the purchase of the regulated utility and pass a day now he Oh boy ACA.
Or epsa for short for approximately 1 billion Canadian dollars Epsa, it's a midsized regulated distribution utility in Colombia market in Latin America that we think it's particularly attractive from an economic political and infrastructure investment perspective.
As you May recall summer 2018, Investor Day, we identified Latin America as a key development market from Northland and earlier this year, we announced or first project in Latin America. The 130 megawatt Luke just solar project in Mexico.
With the Epsa acquisition, we are further developing our commitment and our platform in Latin America.
The acquisition of Epsa is very exciting for us as it provides us with a high quality business with the perpetual and stable cash flow and which operates under a stable regulatory framework. We see this is complementary to our growing portfolio contracted generating assets and offer some important diversification.
Furthermore, and perhaps more importantly, the EPS acquisition provides a platform for additional development of new infrastructure in Colombia, we were very excited about the prospects at Columbia has to offer and how these prospects will help continue to deliver strong shareholder returns while progressing our evolution as a global player in the power infrastructure sector.
As communicated previously the closing of the acquisition is dependent on the receipt of final approval of EPS is 2019 to 2023 rate tariff by the Colombian energy and utility regulator for supposed to person puts steeply for referred to it as Craig.
North Platte expects receipt of the tariff approval by Craig in the coming weeks and closing of the acquisition would follow shortly thereafter.
Now turning to our construction activities I'm happy to report that we made significant progress on our Deutsche Boot offshore wind project. The 31 Mano pile foundations were installed by the end of 20, a end of August 2019 ahead of schedule and regenerating powered by the end of September work continues on the installation of the remain.
Going to model bucket Foundation turbines, which are expected to be installed by the end of fourth quarter 2019. This year.
This installation could however extend into the first quarter of 2020 due to delays in fabrication caused by supplier disruptions and the potential for adverse weather in the fourth quarter of this year.
These delays are not expected to have a material impact on the financial contributions from Deutsche booked in 2020, which Paul will touch upon shortly.
Once fully complete Deutsche booked will add 269 megawatts of offshore wind power to our portfolio, helping meet the power needs of approximately 328000 households.
Hi, Lucia construction activities continue as scheduled and the project remains on budget North Platte owns 100% of Lucia our first project to be underpinned by commercial and industrial customer offtake.
Project completion is expected in the second half of 2020.
With a high lawn project in Taiwan, we're moving into the procurement phase as we have line of sight to finalizing the permits for the 744 megawatt auction allocation portion in this regard, we recently announced a preferred supplier agreement on the balance of plant with a joint venture between an experienced European offshore wind contractor to me.
And at Taiwanese shipbuilder CSPC.
The project will also be submitting its localization plan later this month.
We still should be in a position to sign <unk> on the 744 megawatt allocation in Q4 this year.
However, there is now a possibility that we may elect to defer signing until a new version of the PPA becomes available in Q1 2020.
With the final quarter of 2019, well underway. We're pleased with the progress that we've made this year being able to deliver solid financial results.
While laying the foundation for sustained growth balancing near term financial performance with long term investments in growth is fundamental to our business I will now turn the call over to Paul for a more detailed review of our financial results.
Thank you, Mike and good morning, everyone.
Last night, North and power released its 2019 third quarter results.
As we have done throughout the year north it continued to deliver solid predictable financial results as evidenced by our third quarter results.
In the quarter, North and delivered adjusted EBITDA of $224 million.
Which was an increase of 14% or nearly $28 million.
Compared with $197 million recorded in the same period last year.
The increase in adjusted EBITDA year over year resulted from a contribution of $16 million of pre completion revenues from our Georgia Boot project.
Which is Mike alluded to earlier had installed and powered 31 turbines ahead of schedule.
Also contributing to higher adjusted EBITDA.
Increased operating results at our two offshore wind projects Gemini and towards Q1.
Due to higher production year over year, resulting in a combined 12 million dollar increase to adjusted EBITDA.
Offsetting these gains were the effects of higher corporate expenses relating to the timing of expenditures on project development activities.
With respect to free cash flow worsen generated a total of $74 million in the third quarter.
This represents an increase of 16% or a 10 million dollar increase from the $64 million generated in the third quarter of 2080.
On a per share basis.
Free cash flow increased 14% year over year to 41 cents in the third quarter of 2019.
Compared to 36 cents recorded in the third quarter of 2018.
The drivers behind the year over year change in cash flow was a $15 million increase in overall earnings primarily due to higher production at our offshore wind projects mentioned earlier.
Also contributing to the higher cash flow was an $8 million decrease in our net interest expense, resulting from lower interest costs due to scheduled principal repayments on facility level loans lower outstanding balance on corporate credit facilities and redemption of the convertible debentures in December 28.
Team.
Offsetting this higher cash flow was a 7 million dollar increase in current taxes related to the offshore wind facilities and a 4 million dollar increase in corporate Gionee expenses due to the timing of expenditures related to development activities.
This level of cash flow resulted in a rolling four quarter free cash flow payout ratio.
Calculated on a total dividend basis ended September 30, 2019 equal to 63%.
Compared to 65% payout ratio last year.
GAAP net income of $111 million in the third quarter.
Increased by $17 million or 19% from $93 million in the third quarter of 2018.
This increase in net income year over year was primarily due to higher gross profit and lower finance costs mentioned earlier.
Offset by higher tax expense and higher expenses due to the timing of development expenditures.
Turning to financing activities in connection with the acquisition of Epsa, North and completed a public offering of 14.289 million subscription receipts in the quarter, resulting in gross proceeds of $347 million.
These subscription receipts will convert to an equivalent number of common shares upon closing of the acquisition.
Initially the acquisition of Epsa will be supported by a fully committed 12 month 1.1 billion dollar bridge loan.
And longer term the financing strategy will be funded with the proceeds from the subscription receipts nonrecourse project level debt and use of our corporate credit facilities.
I will now take a moment to highlight our 2019, adjusted EBITDA and free cash flow per share guidance as we get closer to the ended the year, we're now able to narrow the guidance range, reflecting nine months of actual results achieved.
For the full year 2019, adjusted EBITDA, we expect the range to be between $950 million and $1 billion compared to the previous range of 920 million and $1.1 billion.
Free cash flow for sure expectations have also been narrowed to a range of $1.65 cents to $1.80 per share from the previous range of $1.65 to $1.95 per share.
The narrowed range reflects north is year to date results ending September Thirtyth 29 team.
And incorporates the effects of lower than forecast offshore wind production as well as unpaid curtailment at North Sea one for the first nine months of the year.
Due to both negative pricing and grid repairs.
The new adjusted EBITDA range also takes into account the same factors, but also includes higher than forecast Recompletion revenues from Deutsche moved.
However, noting that pre completion revenues are not included in the free cash flow figures.
Lastly, with 31 of the 33 turbines installed and operational on our Deutsche project.
I wanted to take a moment to provide an update to the expected 2020, adjusted EBITDA guidance for the project.
Following the experience at North Sea, one in 2019, and the expectation that the industry in Germany will continue to experience unpaid curtailments in 2020.
Management has revised Deutsche books contribution to adjusted EBITDA in 2020.
To be between 155 million euros to 175 million euros down from the previous range of 165 million euros to 185 million euros.
I'll now turn the call back to Mike for concluding remarks. Thank you Paul since our inception over 30 years ago. North plan has evolved from an ambitious Canadian focused developer to an international player in the power infrastructure space. We continue this journey with our entry into Colombia in the quarter following our EPS to acquisition.
Absent not only puts us into new country, but also diversifies our portfolio by adding a new asset class to complement our existing assets well, we've grown significantly in size and capabilities what hasn't changed our focus on delivering robust returns, providing steady sustainable growth and effectively managing the inherent risks in the activities we undertake.
Hey.
Our business strategy remains focused on enabling us to meet our commitment to our investors. This commitment is clear and unwavering our plan going forward. We'll see has continued to grow our global presence through our current projects under construction and development, but also through the continued identification and assessment of power generation and related infrastructure opportunities.
That fit our investment objectives and help sustain our growth trajectory.
That concludes my prepared remarks, we look forward to providing further updates for their fourth quarter and year end 2019 results in February in the meantime, we want to thank you for your continued cannot confidence and support and now we'd be happy to take your questions. Operator. Please open the queue for questions, ladies and gentlemen.
I would like to register a question. Please press star one on your telephone. If your question has been answered and you would like to where maybe yourself from registration. Please press the pound <unk>.
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Our first question comes from the line of Sean Stuart with TD Securities.
Thanks, Good morning, everyone.
Couple of questions to start.
Last week, we saw our stead revise the the capacity factor assumptions for there the European offshore wind.
Platform due to blockage and wake effect assumptions, how do you guys think about that with respect to your portfolio does that inform any of your outlook long term for for your European assets.
So what we do with any of our assets is we wait a couple of years after cod, usually roughly and we'll do an assessment.
The production and see if any of our.
The assumptions in our investment thesis have changed so we have not yet done that on North Sea. One we did do that as you may recall on Gemini and made some adjustments.
But at present the the only.
Adjustment or that we're making in terms of our view on North Sea, one is related to a negative pricing, which we've referenced already.
But beyond that there's no adjustment that we'd be making.
At this point and Matt ill point out that in terms of or stead.
Or any other developer and owner of offshore wind assets.
They would have had their own assumptions that would have underpinned their investment thesis and I wouldn't assume that we would have been using the same assumptions that they use necessarily.
Got it.
And then following on that.
Paul talked about the the lower 2020, EBITDA expectations that the view rate it related to curtailment I guess, just a bit more detail. There is the revision just based on what you've seen it north sea. One this year are you forecasting that much more congestion and.
Basing your your forecasts on that just maybe a little more context on what's driving the the modest reduction there yeah, hi, Sean good morning. It. So it's one of those things that is a little bit tough to get your arms around because there's really two underlying drivers to at one is the congestion and that's probably the lions share of it there's also a growing component.
Where.
As we saw at the very very end of last year during the holidays when demand was extremely low.
And actually that's when you got your most productive wind we had a number of curtailments from the six hour negative pricing syndrome, and that was a little bit of a nimble out of the the revenue kind of last last minute and we believe with more renewable generation online in 2020 that you'll probably see a few more those incidents.
Those maybe sort of longer term, but it really depends what happens with some of the other generation in Germany, and whether it's turned down turned off retired in or do you carbonized or what have you.
As far as the congestion goes there are certainly plans in place on the German grid to reinforce transmission capabilities between the North Sea, where you're generating all this offshore wind and the southern part where there's usually a much higher demand so that part we.
Our thesis is what that will slowly decrease after it peaks probably next year.
But for some of the very end of year low demand high production periods, we may see that persist, but kind of impossible to get it.
A much narrower than that.
That's a that's helpful. Thanks, guys I'll get back in the Q.
Your next question comes from the line of Rupert Merer with Nice National Bank.
Good morning.
Morning.
Sticking with the boot can you talk about the timing to start the contract there I assume you choose when you want to start the contract and you probably want to hold off until.
Youve installed the two turbine for the mono buckets, but it's got to be a trade off here too at the time value of money for how how are you thinking about the.
But they do you turn on the Bill.
Yes, So Rupert you may recall with nordson, one that the contracts actually are kind of based on the individual turbine. So we are actually earning our pre completion revenues at the contracted rate as soon as we take over turbine the contract for that turbine kicks in so there is no differential between.
Okay. So theres not a waiting to point, where we invoke the contract that was true with Gemini because the whole farm had to be completed or a certain percentage of had to be completed but in Germany. Its terminal turbine by turbine, but what you're seeing is the delay Indeed corporation to free cash flow the revenues being generated by those turbines.
We typically do not include that until we have gone through our term conversion process with our banks simply because of the cash flow was locked up until that point.
Even though it is building up in the distribution account.
Of course that has to be settled against any unspent contingency or overspend contingency as well as a certain threshold of pre completion revenues, which you know at this point, we'll we'll handily beat so if all goes according to plan here in the first quarter of next year, you'll see us reach that term conversion there will be a settlement with the bank as far as what we do.
On the loan and what we can disperse into the distribution to shareholders and then you'll see some of the you'll see a bit of early spike from the pre completion revenues hit our free cash flow in Q1, and then from Q2 onward, it should be a fairly normalized operation.
Okay, great. Thanks for the color and since we have.
David on the call wondering if you can give us an update on the opportunities in South Korea, and maybe in Japan.
Yes, yes, good morning.
Certainly can so we we have progressed with that the activities, which I think it's been referenced before in terms of what we're looking at him in those key markets of off Japan, and South Korea, we have recruiting new people often in the market that so thats, obviously boosting our them opposition to pursue those opportunities.
And we remain very positive about the opportunities in the.
Particularly in the offshore arena in those two heavier so more more on that forward as I as I get settled into my role.
So you have a partner for the South Korean market are you targeting partnership in the the Japanese market as well.
Yes, I mean of course, they the model I think you've seen as adopt around the world is one where partnerships. So important. So we will we will convince continue to pursue that and on report about as we find divide that by type of pump and to what we had to be clear Rupert I wouldn't view.
Kept going to see the announcement around KEPCO and see as as signaling that KEPCO and see as our sole partner.
In Korea, we continue to look for other partners, which we may work.
On projects with KEPCO GNC or we May work independently. So kept going he is an important relationship obviously in south Korea, but not by any means going to be only relationship that we have.
In that market.
Okay, maybe just one final question on.
On those markets how long do you think it will be before.
You could have visibility on project opportunities.
I think both <unk> personally for myself I have to get up to speed of any being have efforts for two three weeks. So I've spent a good period last couple of my first three weeks in the business out there so I'm going to put a timing on it but in the nets in the near term and then if you Geo, let you'll hit something about progress forgot.
In the market I think what you're seeing Rupert is is the that the Japanese market at this point for offshore wind is now progressing.
Probably.
Go ahead of South Korea, just by virtue of.
The regulatory framework in the procurement process.
Program that has started in Japan and will extend we think for the next decade. So that is a certainly.
Causing us to focus probably a bit more in Japan, but we continue to look at Korea, where it's a.
Different process, but we think will eventually generate a lot of.
Development and construction of offshore wind in the near to medium term in Korea, but its a.
I'd say at this point a bit less clear up process then it isn't in Japan, Yes, I think it'd be fair to say that most of our Asia propositions. Your Rupert are sort of in our medium to longer term free cash flow EBITDA job buckets.
By design and by knowledge, including Taiwan, which is even though we've got better visibility on it it's still going to be sort of mid decade, before we really seeing the.
The fruits of that labor.
Very good thanks for color.
Your next question comes from the line as Brian fast with Raymond James.
Yes, thanks, good morning, guys.
On an ABS.
Could you comment on your early experience, there and if you're starting to see.
Incremental opportunities on the generation side.
For sure I think our near term focus.
After upset closes in terms of growth opportunities in Colombia.
We will likely be more on transmission that on generation.
I think thats, where.
As you as you May recall, Brian we.
Participant in a procurement for.
Hi, voltage transmission lines, but a year and a half ago.
Were unsuccessful on that but that is the.
An area that we're interested in and an area where there are planned procurements over the next to.
18 to 24 month in Colombia cited I would not be surprised if we.
Participated in those procurements going forward that probably would be the first priority for us.
Okay. Good thanks, and then them to from Valuta.
Just where are you in terms of contract in the off at this point.
Yes, so where are we remain committed to.
Having contracts in place for a portion of the output of Lucia by Cod.
We are engaged in discussions with a number of potential off takers, but will also we're also doing is determining right now the best path to market. So the.
Be more clear that's either by contracting through an existing qualified supplier or power market or with their referred to as power a qualified suppliers in Mexico.
In order to contract with an end and customer or.
By creating our own or establishing an interest in an existing qualified suppliers to that we actually can control.
That contracting process so thats.
What we're currently working our way through right now.
Perfect. Thanks.
Thank you.
Our next question comes from the line of Louis Baker, a private investor.
Hi.
Good morning, Good morning couple of question.
Your next year with a higher tax expense of $8 million.
Unexpected or going to be recurring matter or there.
The tax expenses are basically result of operation. So as we get higher income, obviously, you're going to have higher tax expense and sometimes based on various accounting principles. The way, we treated for books and the way we treated as cash flow or are two different items. So I I wouldn't read too much into that.
Thats basically largely a noncash item.
For the most part but.
We're still enjoying a fairly high degree of tax pools that we have from RCC allowances and.
We're not in a very high paying cash tax position at this point.
Correct something that you expected.
You're welcome a surprise.
No no it wasn't as big surprise as we see our income go up of course, our tax expense is going to go up.
All right. The other is a million dollar increase.
Good day.
Yeah, we're much of that regarding the.
Thank you know satellite offices and the Pacific.
Some of that is but a fair bit of it was also what we would call our development expenditures, which some would classify as more of an investment than than an expense from our accounting policy. We are fairly conservative in the way we treat those expenses that we typically expense them until the project gets to a certain level of MACI.
Surety so it isn't all necessarily overhead, but some of that and maybe.
Less than a third of that would be for expansion of offices and the rest would probably be the development expenses.
And quarter by quarter. It's a question of timing too in terms of when these expenses end up occurring too yes.
So where it would be part of your very low budget okay.
All right.
Yes for is a large part yes.
As you recall the the narrative here is quarter over quarter as opposed to as versus budget.
On this call.
Alright, then last question have regard.
The engine expansion.
You are anticipating satellite offices.
So we.
Hey.
Sorry go ahead.
And.
So so sorry <unk> the in terms of satellite offices in Asia.
We have a small office in Seoul Korea.
Where we have to two professionals working out of that office, we anticipate having a small office in Tokyo established.
Very soon.
And we recently.
Hired a country manager for Japan, who will walk out of that office and as you know we also have a project office focused on the high long projects that we share with our partner in Taipei. So those are the two offices. We have currently in the one offs in Tokyo that will be open shortly but the.
Offices in Seoul, and Tokyo to be clear ours are small losses in there there are purely development offices at this point.
Yes, no doubt that Robert Baird.
Area.
For your answers.
Thank you.
Your next question is from Donald Watt, a private investor.
Good morning, good morning, winning.
In a in Europe .
Germany, I guess in particular.
Are they giving any consideration to.
Flow battery storage on their grids to to try and mitigate some of the variations in the.
In the wind farm. It seems there seemed to lead good power go down the road when there's a way of doing it.
Good question Donald idea.
So there's a number of kind of initiatives I guess going on in a Germany related to some of these congestion.
Related issues and mismatch of supply demand just temporal mismatch of supply demand. So a number one or add up kind of.
More traditional level there is.
Transmission expansions that are being.
Planned and developed a to allow more of the power to move essentially from the north to the south but also to remove.
South where there is more load, but also to remove some of the congestion in the north itself as well to allow powered and move around there. So thats one thing thats going on.
Already which is the which were obviously tracking closely because we have an interest in that being resolved secondly to your point. There is some initiatives going on looking at battery storage, but also looking at hydrogen as well, which is a growing focus in Europe .
Use of hydrogen essentially as a storage.
Method for for excess generation at certain times. So we're also tracking that closely as well, yes, I'd say, it's probably around the world. The Holy Grail is to try to find some type of cost effective and operationally effective storage that does balanced this renewable energy equation with kind of our historical demand patterns.
I think we'll see more and more of that but it side is a long R&D.
Effort and it's going to take some time before some of these things that we would really like that see now, but it's going to take quite a number of years on become operational so let's hope that.
Our respective authorities continue to encourage R&D and other investments in these technologies. So he CNR and the adjustment on the guidance for Deutsche booked I mean, I think we're being realistic and certain extent conservative on that.
But in the medium to long term we.
We do have some optimism optimism that any congestion issues will will get addressed through one of the means that the that I referred to.
Well, we'll continue this discussion in the spring though.
Exactly exactly thanks, Eric Thanks for your question. Thanks for your your interest in Northland right.
Your next question from the line of Jeremy Rosenfield, and industrial and appliance.
Yes. Thanks.
Two questions here just on Taiwan, if we can go back to that for a second can you explain the options that are open to Northland with regard to signing those last two PA.
Yeah for sure. So so there is.
There is it would go out going into too much detail.
There is an existing a PPA.
Available to be signed a with with type how are the offtaker that we could sign as soon as our final permit is secured on.
The two projects that are there were a bit into the auction that add up to a total of 744 megawatts. We expect those final permits are that final permit to be secured by the end of the year, putting us in a position to be able to sign that PA. What the project team is currently evaluating is whether we want to sign that particular.
<unk> or.
Whether we would want to wait and sign a a new PA thats being drafted in developed which will have some additional provisions that we probably would prefer to have any off take agreement that will be available at some point in Q1 2020, hopefully early 2020. So it's just a determination as to why.
Whether or not we could sign that first PA and easily access and transition to the other PVA or whether if there's any.
Friction or any difficulty doing that then maybe we would wait.
To sign the other PPI and Q1 2020, so the team is man.
To be fairly Canada team team is right now just working through that.
That will come into a decision shortly.
If you just to clarify if you.
Choose not to immediately sign that 2019 version.
Does that window closed for you once the 2020 version is released.
No. So I mean, they did there's nothing if we if we choose to wait till Q1, 2020, having secured our permits and plenty 19.
Does it put us in any worse position in terms of securing the offtake for those two protein right. So different different situation than we had with the first hi long project, where we had a feed in tariff and getting the P.A. in 2017, or sorry, 2018 was the big gold because there was a an expectation.
Tariff would drop unfortunately, nobody in the industry got their PPA phase in 2018, and we're all deferred to 2019 and everybody suffered a bit of a hair cut in the tariff price here in these in the 744 megawatts that Mike referenced we bid those it and we have the price locked in so it's really just.
A matter of arbitraging, the various contract provisions.
If you are super Conservative and want to just lock it in and you can do that pretty quickly here once we get the stab fishman permit but.
The Taiwan market is developing and there are merging.
And potentially some options to have more flexibility in those ERP is which may be worth waiting, but we don't see that is a big legal risk if we let it defer to 2020.
Okay different situation and we had last year a year ago.
Yes, okay. Thank you.
And then just a couple of other questions with regard to.
I guess the timing for introducing 2020 free cash flow guidance would you think about providing a little bit more detail on that as we move into the beginning of 2020, So with Q4 results.
Traditionally we have released our 2020 guidance with our Q4 results.
And.
I suppose there so and ability to do it a tad earlier, but at some point. It yeah. We just will follow our tradition in all likelihood for 2020 guidance.
Would it be safe to say that.
The board will be considering an update to the dividend policy around the same timeline.
Well, there's we've been mentioning all along Jeremy that the board will be looking up the dividend in that and it's always matched against what kind of capital requirements. We have ahead of us and to the extent that we've got generous capital.
Investments in front of US then that sort of puts a little bit of question Mark on the prudency of raising the dividend. So we'll have to balanced out when the time comes.
Great. Okay. Thank you.
Your next question comes from the line of Ben Sam with BMO.
Okay. Thanks, good morning.
I want to go back today due to.
<unk> adjustment to the 20 to 20 guidance and and maybe that that goes in your favor and 21 beyond what was what happens.
And I know, it's it's when you look at the reduction overall Northland consolidated not not really material, but I guess when you run the math on just they do I mean.
Hi, elaborate up I mean, I ours, an accurate dropped 200 basis points are so I get that somewhat material on a project level.
Is there anything you guys can do on a free cash flow level like lower interest expense on and that I might attach offsets on the EBITDA.
Russia.
Yeah, I mean, if you follow the the historical precedence on Gemini in order to one when we did the term conversions. We also did a a sort of recasting, we didnt refinance them, but we do effectively restructured the financing is get quite a bit of lower pricing on there. So that's always an upside.
With these offshore wind projects, they're just going to be you know about a bit of uncertainty in them and this one on four is really nothing to do it the wind resource or the turbine performance. This one has to do with it was let's call. It a manmade syndrome, which is this negative pricing curtailment.
So.
It's it's something that we cannot avoid and so we're trying to be a.
Leased adjusted numbers for 2020 that we think we'll see but as you've been following that I had some of the other questions. We've been discussing how we see some relief on this coming in the future, but some of it may be there for some time.
And so but for the 2020 view, we want to be you know with our usual degree of conservatism in say just given what we've seen this year and what we see coming next year, probably best to just put the one here with a 10 million euros down on both up and down side of the guidance. So you know it is is that going to affect a long term IR Ben.
That's you can run your numbers on that.
Okay.
And maybe some of it.
Commentary.
Sean earlier on.
On or is that comments and.
I guess, what you guys you guys have been private more diligent look returns on them. So directory, you're probably in a better spot.
None comes down.
But can you remind me how how is that utilization calculated on your project who.
It is engineered is going and looking at.
The last few years I mean, maybe just just an update on on how do you how would we do a.
<unk> the reevaluation of a project after a couple years of operations now how do you get how do you get your long term production assumptions, because I mean, I guess of onshore wind.
The criticism there.
Beginning it was quite elevated thing to robots and.
There has been downward adjustments and so I guess, there's a bit of a fear now that offshore wins on that same path, maybe not but well let's say.
Well to be clear for our Deutsche Boot guidance that we've for Justice has nothing to do with wind studies are forecasts or anything of that nature, It's a manmade.
Provision in the contracts that has to do with a supply and demand and certain congestion equations on the grid.
So just to make sure before my.
Talks about how it's done let's say, if we had a brand new project today, just wanted to be clear that we're not talking about what we've just released for the Deutsche book guidance. So any any exactly 20 any post Ah operational true up or adjustment benefits such as we did on on Gemini.
We would take a look at kind of how the.
Wind has been at the site versus the long term reference met mast, which is same thing you do on an onshore wind project, we take a look at our operating cost for example, see if there's anything different than what was in our investment case once we get into operations in our operating for a year or two.
And as those sort of things that would would factor into.
A.
A post a post operations devaluation of the project. So it's a at this point all we know is that we experienced as Paul said.
Some negative pricing.
The impact of that in terms of curtailment unpaid curtailment on North Sea, one and it's reasonable to assume that that may be a risk on Deutsche boots. So we've.
Made up a realistic slas conservative adjustment in the guidance on that basis, but that's all that we're doing at this point and.
Like I said the.
Or said.
We don't know what underpinned their investment thesis on any of their assets in the North Sea.
We know what underpinned our investment thesis and at this point.
We're not changing anything other than accounting for a near term negative pricing.
Alright very helpful. Thank you.
Okay, operator, I think were.
Out of questions here.
Yes that is correct I will now turn it back to you for closing remarks.
Okay, well, thanks, everybody for joining us today, we're going to hold our next call. Following the release of our fourth quarter and full year 2019 results in February we look forward to talking to you that.
Ladies and gentlemen that does conclude the conference call for today. Thank you for participating and have a pleasant day.
Yes.