Q4 2019 Earnings Call
After the speakers presentation, there will be a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, if you'd like to withdraw your question press the pound Keith Please be advised of today's conference is being recorded I would now like to hand, the conference over to your speaker today Scott Pacings. Please go ahead.
Thank you sure. Thank you all for joining US this morning for America's fourth quarter, 2019 conference call and live webcast.
Fourth quarter earnings release was distributed this morning three newswire.
Actual statements.
Discussion and analysis and the presentation being referred to on this call are available on our website out of Merit Dot com.
Joining me for this morning's call or Scott, all four and ours.
And Chief Executive Officer, right in London, Ameris, Chief Financial Officer, and other members of the in our management.
[music].
Before we begin I'll take a moment to advise you that this morning discussion will include forward looking information, which is subject to the cautionary statements contained on supporting spot.
Today's discussion in presentation will also include references to non-GAAP financial measure.
Sure you should refer to the appendix for Duck initial information a reconciliation some historical non-GAAP measures to the closest GAAP financial measure.
And now I'll turn things over to Scott.
[noise] fixed costs and good morning, everyone.
This morning, we reported fourth quarter adjusted earnings per share 60 cents at full year 2019 adjusted earnings per share of $2.59.
Well consolidated results are down compared to last year, the core purposes or portfolio of regulated utilities remain strong and performed very well delivering adjusted earnings growth.
10% for the year.
We're very pleased with this level of growth, which was primarily driven by strong earnings from temple electric or gas utilities.
It's similar to our Q3 results the financial results for 2019 were weaker due to four main factors.
Two of those factors were expected.
The loss of earnings contributions for merchant gas plants that we sold in the first quarter 29.
And the nonrecurring tax benefits, we recorded in the third quarter last year.
The other two factors for the impacts of Hurricane Dorian.
And unfavorable market conditions negatively impacting or energy's marketing trading operations.
Collectively the earnings impact of these four items at ways to grow our utilities for the year.
It varies portfolio of regulated utilities continues to be the primary driver growth.
And the underlying performance of these businesses is delivering strong earnings growth consistent with our expectations.
The contributions from our portfolio utilities has been steadily and predictably growing through both ongoing rate base investments answer Greenfield investments like the Maritime Lincoln Library, I don't like projects.
Over the past six years, we've grown contributions from our portfolio of regulated utilities by an average annual earnings growth rate of 11%.
Growth has been achieved by making smart investments in fuel to assets and on the jeep into assets opportunities.
Like disciplined on a management and by working constructively with our regulators and customer groups, all helping to avoid putting pressure on customer rates over the same period.
[noise] with over 95% of earnings now coming from our regulated operations, you overall quality and predictability of our earnings and cash flow has improved.
And the continued execution of our strategy, making investments to provide cleaner and more reliable energy to our customers, while ensuring the energy remains affordable, we'll continue to drive or growth looking forward.
And the strategic reallocation of capital to our strongest and fastest growing businesses strengthens our asset base and further improves our growth profile.
Our third quarter call I highlighted the impact of hurricane during and Graham <unk> power company.
I'm pleased to say that despite significant damage from the store operations have rebounded well.
Currently GBDC reconnected all homes that can safely receive power, which represents 17800 customers as compared to 19300 prior to the store.
Commercial and residential customers that are not ready to receive power of had jury is still the damage primarily due to flooding and require extensive renovations.
It's expense it's expected that most of these remaining customers will be conducted over the next two years.
Currently this lawsuit customers represent approximately 13% of the pre storm mode.
Our team has been working with the regulator and have developed a recovery plan for startup cost for customers over the course every five year period.
And finally, we continue to work with the insurers and property and business interruption claims that we anticipate will be resolved in the first half of 2020.
[noise] the sales than me. Our main is an important piece or were funding plans and to date. We've received all required approvals except for the approval by the main public Utilities Commission.
Our team has been working with at Max and the various stakeholders in the state of me to finalize this approval.
A stipulation was filed with the come with the commission in December which contains a settlement and has the support of ENMAX Amir mean, and a number of interveners, including the office of the public advocate.
Currently the commission is working to review the stipulation.
We remain confident that stipulation meets the net benefit test in the state and we look forward to closing this transaction in the coming coming month or two.
And so of course looking forward, we do not expect to have earnings contribution from in their main beyond Q1 of 2020.
I'm ever made contributed 27 U.S. million dollars in the last three quarters of 2019.
This creates a period of transition as we redeployed capital into our continuing businesses to replace the lost earnings contributions from the asset sales.
Reallocating, our capital to prudently address customer changing customer needs better positioned to merit to balance ongoing rate base improvements with long term returns.
On February 26 will be hosting or Investor day in Tampa, Florida.
As you know 55% of a marriage rate base is now in the state of Florida and that proportion is expected to grow given temple electric and peoples gas account for nearly 70% of are planned capital investments over the next three years.
We look forward to our best Investor events is it's a way for us to show our strategy connection.
This event also gives people the opportunity to interact with other members of our team from across multiple affiliates.
Good day will include presentations for management team has had an electric no push power peoples gas into Mexico guess.
Greg and I will give them their updates and discuss company priorities as we look ahead over the forecast period.
These presentations will be available by Greg webcast, if you're not able to attend in person.
Following the presentations well have site tours of the Big Bend modernization project and Big Bend solar energy storage site.
A regulated utility business continues to perform extremely well and as I reflect on the performance for the year I'm pleased with the growth we've delivered for our shareholders.
2019 was an important year for a business as we made difficult, but important decisions and then executed on those decisions to better position amira for the future.
In the first quarter 2019, we completed the sale of the merchant gas plants and use the proceeds to delever, our balance sheet by repaying debt at the Holdco level.
We also made significant progress on the sale of a mere mains and match.
In addition, we refreshed refreshed or capital forecast from 2020 to 2022.
Our baseline capital forecast of $6.9 billion reflects several opportunities to deliver or in our strategy to continue to reduce our carbon footprint and recruit increased reliability across a regulated businesses.
In addition to the 6.9 billion dollar capital program or teams continue to finance development opportunities are approximately what happened to $1 billion.
Excluding the development opportunities, we're forecasting over 7% growth in rate base between 20 to 20, and 2022, which will position in there for long term earnings growth.
We look forward to discussing this and our development opportunities in greater detail at our Investor day in Tampa in the next week.
Finally, all of our regulated companies has made significant progress on their strategic initiatives, most notably temp electric now has 520 megawatts of sold solar installers, mostly as part of the solar wave one.
And is there Steve major milestones on the Big Bend modernization project.
These two projects will fundamentally change generation mix of tap electric and provide cleaner and more cost effective energy to customers.
Overall, our portfolio contains some of the highest quality regulated utilities, North American and our proven strategy, which is rooted in the transition of or portfolio from higher to lower carbon energy is particularly relevant today as we see increased global focus on de carbonization.
As they look at the <unk> growth opportunities in front of US I'm confident we will continue to deliver the competitive long term system and Rick basis improvements and earnings growth that our customers and shareholders have come to expect.
And with that I'll turn it over to Greg to take you through or financial results.
Thank you Scott and thank you all for joining us this morning.
As Scott referenced our 2019 results were impacted by the sale of her merchant gas plants, hurricane Doreen and weaker marketing and trading conditions.
However, we continue to be very pleased with the earnings growth that is being delivered from a regulated portfolio.
As a walk you through in a moment strong growth from regulated utilities as fully offset the earnings impact on the sale of our gas plants and we expect are regulated earnings to continue to grow in 2020.
This growth combined with the opportunities identified in our new capital program reinforces our confidence that we will continue to deliver long term earnings growth to our shareholders.
Well the growth in a regulated earnings with significant for the year. This growth did not offset the impact of hurricane Orient and weaker marketing and trading conditions. As a result, we experienced lower annual adjusted earnings per share and 2018.
Without these negative impacts adjusted earnings per share for 2019, what has been consistent with a normalized 2018 results. Despite the sale of our gas plants in Q1.
And now look in the detailed the quarter.
In the fourth quarter of 2018 America delivered adjusted earnings per share up 71 cents or 62 cents on a normalized basis.
Growth from the normalized 2018 basis 62 cents was largely driven by very strong performances by the Canadian electric utilities and the gas utilities.
During the quarter, Nova Scotia powered and our new plant contributed $50 million of earnings an increase of $11 million over the fourth quarter of 2018.
Brooklyn quarter was driven by increasing come from our equity investments in the maritime linked 11 around link decreased income taxes and lower non current service pension costs.
Earnings growth in the gas utilities infrastructure segment was largely driven by favorable weather in new Mexico customer growth of peoples gas and lower depreciation and amortization of peoples gas.
The Q4 results like Q3 were impacted by hurricane during with earnings being negatively impacted by $12 million or five cents per share for the quarter.
Fourth quarter earnings one Murray Energys, Mark and treating business were $6 million can even lower than Q4, 2018 or three cents for sure.
And the Q4 2019 earnings contribution from Tampa Electric was down 3 million us dollars for two cents per share compared to Q4 2018 due to unfavorable weather.
Drivers for the year to date period are largely consistent with the quarter with strong growth in the U.S. utilities being largely offset by lower marketing training margins and the earnings impact of Hurricane Doreen.
Year to date, Tampa Electric increased earnings by 22 million U.S. dollars.
This increases from higher base revenues related to in service solar generation and customer growth.
These increases were partially offset by higher depreciation and interest expenses, resulting capital investments.
Vermeers gas utilities recall that most peoples gas in new Mexico cast is wrong years with earnings increases of 19 million U.S. dollar after removing the 14 million U.S. impact for one time items related to new Mexicos cast recognition of tax benefits.
Your Mexicos results benefited from favorable weather and incremental earnings from an asset management agreement.
And at peoples gas earnings benefited from lower depreciation rates and increased earnings related to ongoing cast iron bare steel replacement investment.
Okay and utilities experiences from 2019 was an increase in adjusted net income up $11 million.
This growth was primarily driven by increased investments in both Maritime Lincoln Labrador Island link our Nonfuel revenues timing of deferrals, lower non current pension costs and lowering prices.
And as I previously discussed summer energy experienced difficult market conditions in Q2 in Q3 of this year.
For the year to date period, and Mark venturing returned to profitability with earnings of $5 million gain for the year.
The impact of Hurricane Dorian continued into Q4 due to loss load in the corporate share of all recoverable losses Americas earnings were negatively impacted by $28 million Canadian or 12 cents for the year.
Should be noted that we are also recorded goodwill impairment charge of $34 million relate to grab a Hong power company gets reported net income, but not the adjusted net income.
Charges taken due to decrease and expect to future cash flows, resulting from the impact of hurricane or install recovery.
Consistent with previous year share dilution had an impact on adjusted EPS as American has continued participation in the dividend reinvestment plan.
And the aftermarket equity program in 2019, approximately 8 million common shares were issued through these plans and programs.
Year over year, the EBITDA earnings before interest taxes, depreciation and amortization was consistent decreasing by 33 million or 1%.
Operating cash flow before working capital for 2019 was down $208 million compared to 2018 to sell enriching gas plants caused $92 million of the decrease.
The remaining difference related to hurricane Dorian timing of AMTI credit payments and lower marketing trading margins.
Partially offsetting these decreases was the growth in our operating cash flow from our regulated businesses, which grew by 6% as compared to 2018.
This growth was led by Tampa Electric which grew cash flows by $8 million for a 10% increase year over year.
This increase in the regulated operating cash flows are signal of improving quality of our cash flows which remains a priority for our team.
And with that I'll turn the presentation back over to Scott.
Thank you Greg. This concludes the presentation, we would now I'd like to open the call for questions from analysts.
If you like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you're likely to your question press the pound Kenya, we'll pause for just a moment took up all the Q any roster.
First question comes from a line of Ben Pham. Please go ahead.
Hi, Thanks, Oh, good morning, I'm, just wondering are your slides you highlights.
Well, let your utility businesses.
Hi, good growth he looked at normalizing all to hold out Justin just seen during the quarter.
I'm sorry. My question My question as I mean, I guess, it's a good point to highlight from from your standpoint, when you guys look at a.
Calculating deep gas trajectory and and year your payout ratios and whatnot targets. So you do you guys taking that same approach. We are just mostly what kinda utility business ignoring.
Came or energy trading, which can be volatile every year.
If the fed it's been a Scott, let me take a crack and Gregg Goodnight.
Greg can add on May look a bit of course, where we're looking at our consolidated adjusted.
S.
S EPS growth, but what we're wanting to highlight as we go through this this transition is of course with lots of contributions from from the merchant gas leads and then.
Prospectively from EMEA remain a really just trying to highlight is what's going on.
Within the core and continuing business profile. A is these businesses are performing really well and delivering growth and yes, you know when their energy will the marketing trading operation will continue to add to have some some volatility to it would highlight of course that it's a it's a small portion of the.
Overall, two and half billion dollars $2.4 billion of EBITDA the to that this business generates so if you look at that sort of core.
Portfolio of regulated utilities, which represents 95% to go in for business.
Those businesses are driving strong growth year over year. They have been for some time and we expect that will continue to be the case and future.
And then Greg the only thing I would add to that is maybe to try to address your specific question, when we targeted dividend payout ratio and growth overtime.
Yeah, we would and our long term forecast expect Mira energies and marketing trading side of the business to deliver that $15 million to $30 million.
Slide basis, recognizing that there will be.
Years won't be above that range midpoint that range of years will be followed similar Nike.
Okay Alright.
And that can you remind us the the development opportunity that 0.5 to one going what's what's in that and maybe just just a refreshing the timeline and the storm hardening.
Pick they will will give you will give some some some deeper color to that at Investor day, but but it's continuing to include the same theme of things that we've talked about a.
Before as we continue to refine expectations around.
Things like more solar investments in Florida things like that storm hardening as that becomes clear a continued to at cleaning the generation fleet in.
End of Scotia powers, who worked on.
On some refurbishment of hydro related resources. So those those kinds of things all form all form part of that will give some more color to add to that in investor day.
Alright, alright.
Sounds good and a.
Good timing on the capacity came in just the swapping out of that I don't think lot.
Thanks.
Next question comes from Linda Ezergailis with TD Securities.
Thank you.
If you could just give us a sense I'm just further to Ben's question about storm hardening and your capital I know, you're gonna be and providing some more disclosure at your Investor day, but in Canada. The CSC is looking at implementing some more resiliency standards and I'm wondering if given your recent experience I was Nova Scotia power if that might suggest.
Some opportunities to further storm hardening that utility or yes that is already kind of is as resilient as it can get given the maritime not geography.
So I'll start and.
I don't feel free to that end, it's a it's a it's helpful. So look.
I'd say, making reliability investments every utility is is focused on on on on that including including ours and of course, including that was which power.
Of course, the topography the geology in Nova Scotia means Undergrounding system here is it's very difficult to very expensive.
A lot.
A significant amount of I've effort has gone in by no squished power over the last number of years to continue to to start harden. The system is as what we're seeing is increases in in wind speeds peak, which speaks.
More frequently and so.
The team continues to work to ensure this system is is improving its reliability as we continue to respond to what we're seeing is.
As at times word Windsor are just stronger more frequently than they used to be a and so a good part of items, which powers a maintenance and capital program is focused on that Wayne anything like that.
When I just would say that a couple of things. So reliability, obviously is critically important to us and our customers. So we continue to look at ways to improve that so Scott has highlighted we've been doing now for quite some time and continue to look for new ways to do that so we've engaged with customers and the regulators here on some.
Innovative projects some pilot projects that allow us to test out things like micro grids in batteries.
We do see that is a growing opportunity for us going into the future as we look to improve upon reliability and make the great more resilient.
Thank you.
My follow up maybe on your Q4 results specifically in 2019, maybe you could just give us an update on your thinking about the long term outlook in benefits related to your marketing and trading business I know he's still historically there was a view that provided kind of strategic and industry insights that kind of punch.
About the weight of the you on the direct contribution but now that you sold your gas plants and given some of the volatility in softness we're seeing I'm wondering if we're thinking about changing the scope of what you do there or where the strategy or or isn't expected to see continuing for the foreseeable future.
Mandates Judy so the marketing and trading business existed for 10 years before we own the gas plant.
So it's kind of raise on Dec lira has been around for a lot longer than that five year term you know what do you kind of look and see it operates within its earnings range generally of 15 to 30, and if you kind of look over the last several years to set the averages around 28 or 29, which.
Very close to the top into that range 2019 was a hard year for it.
But that was frankly more unusual than normal circumstances, we still think theres opportunity and and that this that and our goal continues to be to manage it was an appropriate downside risk and be there on that for the times when it can provide us with outsized returns.
Yes.
Okay.
And then maybe just a quick question on your new Mexico gas business.
Can you comment on the biggest changes in your regulatory application and where you expect most of the discussion you see as it goes through the regulatory process.
So so yeah look I don't I don't think brands rides on it so Ryan feel free to speak up but this would be the second rate case that.
We filed in new Mexico since since we acquired.
New Mexico gas a the first rate case was which was seeking a modest increase in a in a in a in revenue.
But to also seeking.
On a or whether tracker, if you will wear in new Mexico, It's it's principally a a winter based.
System, providing gas for home heating, but the winter season can be quite short and so.
The first application successfully on a on a pre trial basis.
Right to place a weather tracking system that we think this is a constructive for customers, but also important for utility or the second rate case, it's really just catching up to some of the some of the capital investment.
<unk>.
Initiatives that are going on in the system a in a into Mexico.
Adding to the resiliency of a of that a that system a improving the integrity of that Oh that system and so seeking additional revenues in order to support that says that capital investments that a interest rate cases being done on a forward test year basis. This will be the first for gesture.
Basis for <unk> for new Mexico rate application.
Thank you.
Next question comes from Robert Kwan with RBC capital markets.
Morning.
If I can just turn to slide 13, you provided the normalized 2018 number and you've shown the waterfall to 2019 I'm just wondering what would that normalized number for 2019, no look like when you think about energy services, enjoying which you've outlined but as well as things like nm GC, whether in some of the regular.
Tory I guess, just as well if you can comment on.
Do you have what the earned or are we used to be utilities were for for 2019.
[noise] Robert its Greg.
If you.
Slide 13.
Took the Twoq 15 online and adjusted to a midpoint for marketing and trading and Hurricane Orient you effectively get back to.
The 278 level that we would have had gain in 2018. So it's really those two items that would have been the difference between what we reported in 2018 remember absent that Florida tax adjustment and what we realized in 2019, obviously there was a lot of other differences.
Through through the individual line items, but for the most part is result of that in terms of are always NSPI had an era, we towards the top end of their band very consistent with what they had over the last number of years at around nine in the quarter percent.
TEP electric and peoples gas, we're both kind of in around the.
Turning the corner that had an a half percent are we.
Mexico I believe was nine.
Yeah.
I'd have to get back you Robert.
Good luck to those kind of in the high nines last year when it have to get back to you on that to confirm the exact number.
Okay, and I guess, just on that though for PGS, how far below do you expect PGS to be 2020.
It'll be.
It'll be somewhat weather dependent Robert <unk> and won't be.
I wouldn't expect to be to materially below the low end of the bad.
Okay, but obviously enough to follow right yes.
Yeah, we don't need to be below the ban to file for rates, but we do need rates for 2021, and as you would expect in particular steel, Florida as you get a euro from requiring rates you generally have a degradation of euro either and that's what we're seeing.
But.
Regardless of what we would expect to receive in 2020 without new rates that number would be lower 2021.
Got it if I can just finished with sustainability or U.S.G. related topic can you talk about a lot about that within your presentation things that you're doing I'm. Just wondering how do you think about your gas distribution businesses, whether that's just the way the market's viewing gas distribution or.
More long term the existential risks to those businesses.
Yeah, we're already seeing you know, it's it's a good question and one that we're mindful about I will say certainly today in both the state of Florida, and New Mexico.
Both the stated ourselves.
In many ways see the gas LDC as an enabler to the.
Continued electrification and de carbonization of the electricity sector in those.
In those states and so you know we know that Oh. This is a this is a growing a growing topic, but the reality is is that natural natural gas.
It's demanded by our customers in those a in those states is seen as a cleaner affordable.
Fueled is as high efficiency factor of course of Oh that supply direct to to the customer a and so you know what this at this point as I say, we see those ltcs, enabling the de carbonization of the electricity sector, but of course, you know we're paying attention to what's going on in a it in other market.
But right now I think we're going to places like Mexico in Florida.
Okay. Thanks very much.
Our next question comes from Andrew Pesky with Credit Suisse.
Thank you good morning, what are your expectations around giving your block of power off of Muskrat falls for later in 2020.
Yes, so we continue to.
Two.
Back that we'll see the Muskrat falls.
Protect said commissioned in delivering delivering energy for us in the in mid 2020, and so you know our Ah.
As we see if we continue to to be sort of tracking our expectation for notes, which of our consisted of course with the with numbers representations as well so mid 2020.
Appreciate that and then how much headroom does that give you on multiple fronts on effectively lowering fuel costs in Nova Scotia for rate payers.
The emissions profile and really transitioning out of the Petcoke the oil and then Nicole.
Yes, so clearly merits maritime link has long been an important part of of no squish powers journey to to reduce reduce it's a it's it's co related generation, but particularly to reduce its carbon emissions.
We are.
We'll be would benefit of.
Muskrat at a must grid energy once that starts to be delivered at 40% renewable and don't switch power a it's almost 60% not a bidding and so when you think about that in the context of the the cop 21.
Objective singles that were were set which was a 60%.
Production by 2030.
The journey for Nova Scotia has been the there's been a really good one and so well we would expect to see sort of bone up on a full year basis in 2020, 140% renewable and 60% not emitting which is which is great great progress for the production of Scotia.
Great. Thank you one one final one just on expectations around the northern pulp mill I do see any impact on just regional low dynamics.
Oh.
Its way so northern Paul.
As you know is no longer running the dynamics, probably more are on the pulp and paper industry as compared to our overall.
Load or generation, so, it's probably north or no keenly felt in that sector. We have a biomass facility in port Hawkesbury that John can burn more what if we can I get it at the right price. So so that's probably the biggest impact last to our overall load on an annual basis.
Okay. That's great. Thank you.
Once again, if he'd like to ask a question. Please press star one on your telephone keypad. They don't question from Julien Dumoulin Smith with Bank of America.
Morning, guys is actually ran greenwell on Brazil in thanks for taking my question.
Just kind of curious how you guys are framing dps growth for 29 to given the discrete headwinds that emerged in the back half the year any color you guys kind of right there.
Hi, This is Greg as you're probably where we don't provide earnings.
Earnings or as a growth.
Targets are for guidance, what we have provided is a three year capital plan.
That's a rate base prone by roughly 7% and we would expect all things being equal over that planning period, he EPS growth would approximate that.
Fair enough and then I guess, how are you guys kind of thinking about your ability to earn authorized returns in the outer years, you guys want to go in for.
In the keep subsidiaries here in Florida.
Oh.
Yes, Brian its Greg again, I mean, what has been our experiences as you have the year, leading up to or the years, leading up to the need for rates that you often see some degradation.
Generally our experience is once you come out of getting new rate set that we would have an expectation to be at the midpoint or slightly higher than that over that period of time until he will you have to go back in for reasons or bigger music.
Got it and then just lastly, as you guys kind to think about your rate base predominantly being in Florida and had to be analyst day down there next week.
Just kind of curious on your latest thoughts of potential for a possible U.S. listing.
Yeah, right I don't I don't think anything's changed when we think of you know what the benefits and cost start with the U.S. lifting you know, we don't certainly see that theres a material valuation gap between where we think we would trade if we were dual list.
Did versus just Canada, and we reached that conclusion by looking at some of our peers that are our are listed in both countries.
You know, we've we don't feel like we have any kind of restrictions on access to capital or anything like that so we'll continually monitor but right now it's not something that's a priority for us.
Got it thanks, Dan.
Thanks, Mike.
Once again, if you like to ask a question. Please press Star then the number one on your telephone keypad once again that start one to ask a question.
And we do not have any telephone questions at this time I love to turn the call over to the presenters.
Well. Thank you for for attending the Q4 2019 of our call or if you have a follow up questions. Please feel free to reach out.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
[music].