Q4 2019 Earnings Call

Thank you for standing by this is the conference operator, welcome to that I called limited year end 2019 results conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask a question.

To join the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, one operator by pressing star zero.

I would now like to turn the conference over to Mr miles to getting the director of Investor Relations. Please go ahead Mr. Jurgen.

Thank you and Hello, everyone. We're pleased to join US for our fourth quarter 2019 conference call.

With me today, as executive Vice President and Chief Financial Officer, Dentists to Champlain, Senior Vice President Controller, Derek Cook, and Vice President Finance Treasury and risks calling Jackson.

Dennis will begin today with some opening comments on our financial results in a recent company developments. Following his prepared remarks, well take questions from the investment community.

Please note that a replay of the conference call. It a transcript will be available on our website at <unk> Co. Dot com can be found at the Investor section under the heading events and presentations like to remind you all that our remarks. Today will include forward looking statements that are subject to important risks and uncertainties for more information on these risks.

Uncertainties. Please see the reports filed by our cope with Canadian Securities regulators.

And finally I'd like to point out that during this presentation, we may refer to certain non-GAAP measures such as adjusted earnings adjusted earnings per share funds generated by operations and capital investment. These measures should not have any standardized meaning under I press hasn't result, they may not be comparable to similar measures presented.

In other entities.

And now I'll turn the call over to Dennis for his opening remarks.

Thanks miles and good morning, everyone.

Thank you very much for joining us today on our fourth quarter 2019 conference call.

Oh achieved adjusted earnings of $365 million in 2019 or $10 million higher than 2018.

I close ability to grow its adjusted earnings during a period of slowing go global economic activity and significant political economic and social change is a testament to act was diversified portfolio and resiliency.

Higher 2019 earnings were partially due to incremental earnings from actual structures, which was busy working on the LNG, Canada Cedar Valley large large contract.

Cost structures is also successfully repositioned its business to capture new opportunities and customers.

ACO structures continued to grow its global space rental and workforce housing rental earnings in 2019 by adding to the existing rental fleet.

They also opened a new space rental branch office in Colorado to supplement the established workforce housing business and growth in permanent modular construction in the United States [noise].

They have diversified their customer base in the last few years by expanding into permanent modular construction of multifamily housing schools hospitals and other institutional buildings.

In 2019 permanent modular construction of hotels was added to the expanding list of diverse structures. They can manufacture.

They completed the manufacturing supply from Marriott Fairfield Inn, located near Oakland, California.

Manufacturing work for a second Marriott Hotel in California is already underway and will be completed in 2020.

He's diversification opportunities supplement the ongoing workforce housing projects, we are well known for and continue providing for our global natural resource customers.

I'd go from attack generated higher earnings in 2019.

Some additional north American campus services and maintenance contract.

This includes the Tuscan rich contract and Chico, California under contract expansion at the BC Hydro Sightsee to reverse lodge in northern British Columbia.

Echo front Tech also continues to be busy with various facility operation and maintenance contracts for government military organizations.

In 2019, Frontex secured a contract extension with NATO in Bosnia and won a contract rebid with NATO and Kosovo.

2019 was also at coast first full year of ownership and now to make ports.

No two may recorded adjusted earnings $15 million in 2019 $11 million higher than in 2018.

Now to make completed another acquisition in 2019.

In February of that here, they acquired an additional 15% ownership in the terminal Porto Rico part, bringing the total ownership to 50%.

This acquisition gave no two may operational control of the port and strengthened its port operator role in the concession.

More recently in January 2020.

Well two may entered into a 50 50 joint venture partnership with timber now cirrhotic to build and operate a role on roll off automobile terminal and mobile Alabama.

The sport is in construction now and is expected to be an operation in 2021 [noise].

Their partner terminals are all day.

Operates the largest roll on roll off automobile terminal in Latin America.

This investment opportunity in Alabama allows no two made to work with an experience and respected partner.

While growing diversifying by both geography and product type.

Now to many parts has been a steady earnings performer for us so far in our short ownership tenure in 2019, there were some headwinds to increasing cargo volumes because of global trade disputes, but we see these issues. This temporary and believe our investment thesis will hold true in the medium and long term.

On the energy side Canadian utilities continues to be a steady earnings contributor for Atco in 2019.

Maintaining stable year over year earnings was quite an achievement considering that 2018 adjusted earnings included $18 million associated with the Alberta balancing pools termination of the Battle River unit five P.P.A.

Canadian Utilities also recorded $6 million an earnings in 2018 due to an early energization incentive Alberta power line for completing construction ahead of schedule.

Due to all the great work of Canadian utilities employees, they close that earning gap in 2019.

In January we declared a first quarter 2020 dividend with a 7.5% increase over the dividends paid in 2019.

Hi, coal has increased its common share dividend every year for 27 consecutive years.

We're very proud of that track record of dividend increases.

Of course dividend payout ratio continues to be lower than the average of Canadian utility peer payout ratios that lower payout ratio gave out go some additional room to grow the dividend, while maintaining its financial strength.

Going forward, we will continue to work to create additional value and create the rate environment for future dividend increases.

That does conclude my prepared remarks, I'll now turn the call back over to Myles.

Thank you Dennis enrolled I'll turn the call over to the conference coordinator now for questions.

Thank you.

Well now begin the question and answer session.

And the interest of time, we ask you to limit yourself to two questions. If you have additional questions. You are welcome to rejoin the queue.

He joined the question Q you May Press Star then one on your telephone keypad.

Here are telling acknowledging your request.

If you are using a speakerphone please pick up your handset before pricing any Keith.

To withdraw from the question Q. Please press Star then too.

Webcast participants are welcome to click on the submitted questions have near the top of the webcast frame and type their question. The Atco Investor Relations team will follow up with few by email after the call.

Once again anyone on the conference call, who wishes to ask a question May Press Star one at this time.

Our very first question comes from Linda Ezergailis with TD Securities. Please go ahead.

Thank you I'm wondering if you could give us some context beyond just some of the trade dispute headwinds <unk> emerging last year related to your parts investment.

Are you seeing any impact of the Corona virus on your parts business and might you see some prospectively how are you adjusting your outlook to reflect this that development.

Oh, thanks lunch and good morning.

There's been very limited impact that we've seen so far in our.

In our ports business, you know that it's a diversified 16 parts.

That we have but there there's been no material impact yet on the as a result of the the Corona virus.

Okay, and and that would be your expectation going forward or I guess, a dynamic situation yet rich [laughter] who's to know a Europe went up in flames and just a.

A few days so we'll see a where are you worried we have a we have our a pandemic plans are known to man has their pandemic plans of them are continuing to ER to operate and right now where our operations are not materially impacted.

That's all hope they continue not to be.

Yes, yes. So Furthermore, on your unable to meet business I'm very interesting interesting toehold into a Alabama and I'm a different type of.

A different type of a role on roll off terminal I can you talk about what sort of additional opportunities there might be in North America. The cadence of those might be and then can you comment on.

The roll on roll off of it is not expected to be a significant new line of business No to me or is this more of maybe an opportunistic partnership.

Oh I'm sorry, thanks to the question in terms of a North America, and <unk> and you talked about cadence I mean, the deal flow at at Bell to me.

Yes.

I'll say relatively high yield they're continuing to offer it to examine opportunities.

In North America, and South America, as well or kind of like the the home base. So you know including parts in Canada like you know there we're looking at Oh opportunities there.

The cadence North America terms of partnerships.

Or sorry, his role on roll off the kind of a new new element that we want to get into I mean.

That terminals rothsay. They are the large they operate the largest role on roll off in Atlanta, so to be able to partner with them Kinda helps too.

Potentially open doors for us is with future role on roll offs as a as the business progressive.

Cadence you know, we when we made our investment in no. Two may there was a you know a sizable amount of that purchase price was on now to amaze balance sheet to find out its growth or they have eroded into some of that cash they still have.

Have a very healthy cash balance to to fund their growth efforts. So right now they haven't there hasn't been a a cash call so to speak to fund new growth.

They do have their or their growth funds and finances in place to continue to execute on a lot of these transactions that we've been seeing from now to me.

That's helpful context, Thank you I'll jump back into queue.

Our next question comes from Murray's choice with RBC capital markets. Please go ahead.

Thanks, and good morning. The first question I want to speak on is on structures and logistics obvious yeah fairly strong.

Close to the year I Wonder if first can you could give us little bit of a insight as to the progress on the the project coastal gaslink, if any recent headlines and activities.

Caused your work there too to change and if there's any earnings and cash flow impact into 2020.

Good morning. Thanks, Mary you know, we've got a couple of projects up in a in northern B.C. You know we do have you know we have I'll say completed the project for coastal Gaslink.

And those camps are.

Operating so to speak.

To the extent that you know our our element is done and their cant remember if that's a was the sale or rental for those coastal gaslink projects.

In terms of or other main project up in northern Bdcs for LNG, Canada that a progress that project is progressing well say ahead of schedule and I think that's what a help to give a structures maybe a bigger boost then.

Then where we were tracking throughout the year. The manufacturing has been going let's say exceedingly well to date and that allowed us probably a little bit more of a kind of in earnings uplift then what than what people were expecting.

And that is unimpacted by any of the.

Social unrest associated with coastal Gaslink.

I suppose that's a full up you.

Expecting I'm 2020 structures and logistics to be strong as this year or should we think about it as being some of the 2020 results would have been recorded has been.

Pushed at 29 team.

Yeah, there's there there's a little bit of kind of advancement from those 2020 earnings into 2019.

We.

We continue to secure new contracts in our Alco structures business, particularly in Australia and in the United States. They have a strong lead list say you know we do expect to 2020 to be a similar type of your frac cost structure in 2019 and.

Perhaps even better if we can secure some of those additional leads.

Great and.

For Christian just to finish off and perhaps a full up from.

The conference called <unk>.

But you just had its about dividend and dividend payout ratio.

As you mentioned there is some room and TCO, a payout ratio to rise a little bit further enhanced.

Higher percentage of increase.

2020.

What do you see us an appropriate payout ratio for an infrastructure company like Echo.

And to Internet and.

Who are.

Got it appears that you think off.

And you said your Mark.

Yeah.

Right right now given given that the heavy weighting.

Oh that coasts portfolio in Canadian utilities.

I think got cold, probably around 80% or regulated earnings.

Earnings true.

Its investment in see you.

That's where we were up kind of.

Those are my comments of compared to utility peers <unk> compared to conglomerates you know what we're looking at four well, we're looking for for growth out Atco our.

Our dividend income in ER and not coal or is it.

So far in excess of its dividend outflow. So we are retaining cash in order to help the financial strength and fund growth prospects at Atco Pink right now or let's say, we're comfortable with that or the payout ratio in atco in those.

As a in a 50% the fifties I'll call them.

For outcome.

Great. Thank you very much.

Thanks first.

Once again, if you have a question. Please press Star then one.

Our next question comes from Mark Jarvi would see a B C capital markets. Please go ahead.

Thanks, just wanted to clarify a little bit on the commentary around me a bit on the pull forward it and structures in logistics and just looking at a the timing on some of the contracts in California, Australia.

<unk> expectation then even just for 2020 to the front half will be stronger than the back half or do you guys have line of sight on potentially backfilling the back half a 2022 customers out there earnings and growth.

Just.

Yeah, but good question Mark I don't have a.

Quarterly forecast a in front of me for structures.

You know we were slow out at the gate in 2019 and structures you know I'm kind of backend weighted into Q3, and Q4, especially as LNG, Canada got rolling. So we'll continue continued to see LNG, Canada Rolling.

Through Q1 in Q2.

Given the you know my my earlier comments about you know, we expect a relatively similar here and I cost structures or maybe a little bit better. If we can get some of the new leads that the new leads with fill the backend of the year agile.

We'll see kind of more of Oh, levelized a much more levelized earnings in 2020 than we saw in 2019.

Okay, and then going back to the comments about.

Opportunities in the port business and terminals and.

Interest in the first one here in North America, three and no two main but what about.

Oh itself and you know taking you know maybe outside of North to me, whether maybe partner yourself with no to me or what's the options for I go to put more of its own capital to work, maybe not directly through known to man.

Not segment.

Yeah, I mean, if it comes to ports have been little or no I think the opportunities really come through now to me I mean, we do have provisions if.

Yes, Ultramar partner does not want to proceed we could proceed.

And vice versa. If they want to proceed and that's not to proceed then they could go well go for it kind of outside of now to me.

We haven't we haven't faced any of those issues yet, but the the potential is there for us to.

To either of us to go it alone should we choose <unk> ex that being said, we're probably not up the up the curve, yes on our port Operatorship expertise right [laughter], given our short run now.

Okay.

Thanks Mark.

Uh huh.

This concludes the question answer session.

I would like to turn the conference back over to Mr miles dougan for any closing remark.

Thank you Anastasia and thank you all participating today, we appreciate your interest in our Coke and we look forward to speaking with you again soon bye for now.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

[music].