Q4 2020 UGI Corp Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stand back and get they piece and.
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Ladies and gentlemen, thank you for standing by and welcome to the UGI I Corporation fiscal 2020 earnings Conference call at this time all bets.
And the bids and not listen only mode. After the speakers presentation, there will be a question and answer session Ashley.
That's a good question day session, you and need to press Star one on your telephone. Please be advised on today's conference is being recorded if.
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I would now they tend to comp and yes, we get today a lot of the Hora manager of Investor Relations. Please go ahead ma'am.
Thanks, John well good morning, everyone and thank you for joining US with me today are tied distress <unk> CFO of UGI Corporation, Bob year, Executive Vice President natural gas Roger.
Roger Perot Executive Vice President of Global LPG, and John Walsh, President and CEO of UGI I before.
Before we begin let me remind you that our comments today include certain forward looking statements, which management believes to be reasonable as of today's date only actual results may differ significantly because of risks and uncertainties that are difficult to predict please.
Please read our earnings release and our annual report on form 10-K for an extensive list of factors that could affect results.
We assume no duty to update or revise forward looking statements to reflect events or circumstances that are different from expectation and well also describe our business using certain non-GAAP financial measures reconciliations of these measures to the comparable GAAP measures are available on slide 10 of our presentation now let me turn the call over to John.
Thanks, a lot and good morning, and welcome to our call I.
I hope that Youve, all had a chance to review our press release reporting you judge full year results.
On today's call I'll comment on our major achievements over the course of fiscal 20 and review our guidance for fiscal 21.
Well, then turn it over to Ted who will provide more detail on your judge financial performance, Roger Perot and bar Beard room and reviewed critical developments across our businesses.
And all and conclude by providing an update on our EPS GE activities.
And UGI I strategic positioning for growth and renewable energy solutions.
We reported full year fiscal 20, GAAP EPS of $2.54, while our adjusted EPS was $2.67.
Our adjusted EPS was roughly 17% above our fiscal 19 adjusted EPS of $2.28.
We're very pleased with the results delivered and fiscal 20.
Those results reflect the strong performance of the UGI Appalachia systems acquired last year and the full year impact of the amerigas by and which closed in Q4 fiscal 19.
While we faced significant challenges due to the pandemic and warm weather across all of our operations. We responded quickly and effectively to those challenges are.
Our results reflect our strong emphasis on expense and cash flow management as well.
We also significantly benefited from tax legislation that was part of the carriers and.
Ted will provide more details on our financial performance during his comments.
As we look to our fiscal 21 guidance, we took a number of key factors into account.
As noted on our Q3 earnings call, we've decided to use 10 year average weather as our basis for fiscal 21.
We believe this weather assumption provides a better foundation for both financial and operational planning.
We've assumed that we'll see certain of our customer segments impacted by the Covis pandemic through Q1.
We also took a tax benefit specific to fiscal 20 into accounts those cares act tax benefits total approximately 17 cents.
Our fiscal 21 guidance range, which now factors in the tenure and over whether the Q1 volume and pack from Covidien and removes the 17 cents cares and tax benefits specific to fiscal 20 is $2.65 to $2.95.
The midpoint of our guidance is approximately 12% above our fiscal 20 tax adjusted EPS of $2.50 Ted.
Ted will provide further details on our EPS guidance later in the call.
We were extremely pleased with our overall performance in fiscal 20.
As we address the many challenges presented by warmer weather and the pandemic, while also focusing significant attention on the needs of our communities.
We will provide you with much more information on our financial performance throughout the call. So I'd like to spend a few minutes discussing UGI eyes important role and the communities we serve.
There is no doubt that those communities have suffered greatly over the past nine months.
As the pandemic made critical issues, such as food and security and homelessness, even more urgent.
Those same communities were also severely impacted by the burden of racial and justice as we saw a number of tragic avoidable events impacting those communities.
In response, our leadership team our board and all of our employees stepped up to provide financial and volunteer support to food banks, such as Phil abundance.
Emergency services organizations, such as the American Red Cross and the Salvation Army.
And critical educational teams such as reading is fundamental.
We also achieved record levels of support for a long term partner the United way.
We strive to be a force for good and a voice for change in our communities, but it is clear that we need to do more.
For that reason, we have significantly enhanced those efforts during the past year and intend to continue to strengthen and expand those efforts and the coming months.
Also committing to change within UGI as we strive to ensure that you guys a leader in terms of diversity and inclusion.
We recently created a belonging inclusion diversity and equity or BYD initiative two.
To ensure that our entire team knows that they truly belong at UGI pie.
And the diversity of thought perspective and experience they bring to US is vitally important to our future success.
We'll be providing updates on these critical social activities in the coming months.
I'd like to highlight a few quick points before I hand over to Ted.
Our first full operating year for UGI Appalachia was a strong one.
EBIT and cash flow from the systems, we acquired exceeded our expectations and demonstrated the value of systems located on well developed acreage supported by long term take or pay contracts.
Throughput volumes on those systems were up almost 6% versus prior year. Despite the challenge of lower commodity pricing during the first half of fiscal 20.
We're excited about the opportunities that will emerge with more attractive natural gas pricing environment, particularly for systems, such as ours, serving proven acreage where production can be efficiently expanded.
We completed construction of our Bethlehem LNG storage and vaporization system and that plan is and service as we approach the fiscal 21 winter season.
The Bethlehem system as an important addition to our LNG network and supports our significant portfolio of long term, peaking contracts.
Peaking services is a critical business for UGI Hi, Jim.
Jim generating almost $90 million EBIT annually with virtually all of the EBIT generated by long term take or pay contracts.
The net work that we've developed over the past decade to serve our peaking demand is also utilize to serve other segments, such as transportation and distributed generation.
Our commitment to consistent expansion of our LNG network has position you guys a leader in both peaking services and commercial LNG supply and the mid Atlantic and northeast.
Utilities had another busy year as we deployed near record levels of capital while addressing the critical challenges of the pandemic.
Our consistent investment in infrastructure replacement is evident in our operational and environmental performance.
We see a clear trend and reduce methane emissions and fewer leak system wide as we move to eliminate cast iron and bare steel segments in our networks.
We also continue to grow our customer base and utilities as we added over 12000, new commercial and residential heating customers.
We also concluded a rate case and the latter part of fiscal 20 with the first of a two phase rate increase going into effect in January.
Amerigas had another very strong year of growth and our ace and national accounts programs.
Our ace volumes were up almost 18% as we saw the combined impact of our expanding customer base and strong cobot related demand in the spring and summer.
Our national accounts program grew volumes this year, despite the impact of coded on some key customer groups, such as school bus fleets and the hospitality sector.
National accounts is well positioned for growth as these impacted customers return to normal demand levels in fiscal 21.
UGI International had an outstanding year with the combined impact of operating efficiencies and effective margin management, enabling us to deliver record adjusted EBIT of $259 million.
This was despite weather that was considerably warmer than normal and warmer than prior year as well as stringent March through June covered lockdowns in many of our European countries, including France.
Our beard and Roger Pro will provide more details on our operating performance and a few minutes I'd like to turn it over to Ted at this point for the financial review Ted.
Thanks, John and as John mentioned, we're pleased to report a very strong year.
Before we get into full year results I wanted to reconcile a few moving parts that took place in our fourth quarter.
On our third quarter earnings call, we provided an update guidance range at $2.45 to $2.55, which included an estimate of roughly 10 cents of additional tax benefit.
The new high tax legislation are guilty came out just days before that call and when taken together with the cares Act and our particular net operating loss position provided considerably higher than anticipated compounding benefits as we carried losses back fully five years.
The resulting tax benefit for the quarter was an additional 10 cents are fully 20 cents for the full year.
The remainder of the difference from our guidance reflected lower coal that impacts and better performance at the businesses looking ahead to our guidance for 2021, we're including approximately 10 cents cultivate headwinds for the year and minimal tax benefit related to the new legislation.
Our fiscal 2021 guidance range keeps us well positioned to deliver on our long term annual growth.
Of 6% to 10%.
As mentioned earlier, we delivered adjusted EPS of $2.67 versus $2.28 and the prior year.
This table lays out our GAAP and adjusted earnings per share for fiscal 20 compared to fiscal 19.
Our adjusted earnings exclude a number of items such as the impact of Mark to market changes and commodity hedging instruments, a gain of 39 cents this year versus a loss of 82 cents and fiscal 19.
This year, we had a 12 cents loss on foreign currency derivative instruments compared to a 13 sales gain and the prior year as.
As you can see we adjusted out 21 cents of expenses associated with our LPG business transformation initiatives, both amerigas and UGI international exceeded their commitments to realize $30 million and 5 million euros, respectively.
Permanent annual benefits right.
Roger will touch on targets for fiscal 21, a bit later in the call.
Lastly, I wanted to point out the 18 cents loss related to the disposition of both the Conemaugh and HVAC businesses.
We touched on the EPS GE drivers of the economy must sale on previous calls the H. back business was identified as a non core asset during our regular strategic reviews and sold as we continue to focus on the strengthening and expansion of our core core business portfolio.
As John mentioned earlier 2020 was a challenging year, but our business did an excellent job executing on the fundamentals, making progress on key initiatives and expanding our business and key areas like natural gas infrastructure and renewable natural gas as you.
You can see all of our businesses experienced warmer weather is on last year, but still delivered adjusted earnings per share growth of 17%.
Primary drivers of the year over year growth includes the full year impact of the UGI Felicia acquisition, new base rates at the utilities Ace and national accounts growth at Amerigas and margin management at UGI International.
Consistent with our discussions on recent calls our increased focus on a more agile approach to cost management was able to offset a considerably larger proportion of the warm weather impact we experienced this year as compared to historical norms, our transformation initiatives and continue to expand.
And the cost improvement capabilities will only further improve our ability to mitigate the impact of warmer than expected weather in the future.
UGI is now initiated transformation project for our support functions, including finance procurement HR and IP.
This transformation, which began in fiscal year 2000, who will review redesign and established processes within each of these departments using a global lens to.
Standardize activities across our global platform.
Incorporate best practices leveraging technology.
Increase efficiency and connectivity between our businesses and provide more employee development opportunities.
This is the start of an important centralization and efficiency project that we will manage over the next three years and we anticipate we will provide a foundation for years to come up.
We expect non recurring investment costs of $40 million over the next two to three years, roughly half of which will be attributable to opex.
The result, and going annual savings of $15 million.
Turning to the Amerigas business.
EBIT decreased 8% versus last year retail volume declined 6%, primarily due to the impact of weather that was 5% warmer than 2019, the co bid 19 impact on commercial and industrial volumes and other residential volume loss.
Some of the volume impact on margin was offset by record Ace and National accounts total margin slightly higher price business unit margins, while ace only accounts for a small small portion of total volume we.
We did see a tailwind from cold it and a 23% uptick and the second half of the year compared to 2019 volumes.
Slightly higher unit margins, primarily related to the customer mix offset a portion of the impact from lower overall volume.
The $39 million of lower operating expenses at Amerigas are due to a number of items, including progress on the LPG transformation initiatives, which Roger will discuss in a few minutes.
UGI International EBIT increased 11% compared to last year.
The international team delivered very strong results. Despite another year of warm weather and the impact of coated 90.
Total margin decreased slightly compared to last year has strong margin management efforts and lower LPG costs helped to offset the impact of lower volumes.
As you can see operating and administrative expenses decreased $38 million, largely due to lower compensation and distribution expenses.
Our hedging strategy, which is intended to offset the impact of foreign currency changes worked as anticipated and the year over year improvement at the EBIT level and dollars and euros are roughly equal.
Turning to the natural gas side of the house midstream and marketing reported EBIT of $168 million and 2020 compared to $114 million last year.
Acquisition of UGI I Appalachian was the main driver of the 47% year over year improvement total.
Total margin operating and administrative expenses depreciation and amortization and other income all reflect the impact of the acquisition.
Other income is being driven by higher equity income from the pennant system that was acquired by as part of UGI Felicia.
UGI utilities reported EBIT of $229 million, and 2020, which was slightly higher than 2090.
Core market volume decreased 6% deals and warm weather and covered 90.
Total margin for the year increased by $14 million, which was largely driven by the increase and base rates, which became effective October 11th 2019.
On that topic, we're pleased to report that the order for our new base rates was adopted and entered on October Eightth Bob.
Bob will speak to this more in a moment.
Like other businesses, the utilities had lower opex compared to the prior year.
This result was driven by decreases and contractor costs and transportation expenses, and partially offset by higher IP maintenance and consulting expenses.
Lastly, we had higher depreciation expense versus last year as a result of our ongoing distribution system and Ti capex activity.
And I want to finish up by talking about our liquidity position UGI continues to maintain a strong balance sheet position, serving us well to deal with the continued uncertainty and the Cove and 19 situation.
On a consolidated basis, UGI Corporation had $1.5 billion and available liquidity as of fiscal year end up from the $1.1 billion position at the close of fiscal 2019.
Staying on the balance sheet.
And seen a reduction in our consolidated leverage and fiscal 2020, despite the impact of cold and 90.
We expect this trend to continue with earnings growth, assuming normal weather and as we continue to pay down debt.
With that I'll turn the call over to Bob Bob.
Thanks Ted.
Q4 was a good quarter for and natural gas businesses with the teams at both energy services and utilities performing very well.
While managing the effects of the Coke and 19 pandemic.
Despite us why 20, whether that was 6% warmer both utilities and energy services versus the prior year.
The natural gas businesses saw a year over year increase in EBIT of nearly 16%.
The primary drivers of this growth and EBIT growth.
The contribution of UGI I Appalachian.
The adoption of new base rates at utilities.
And the efforts of the natural gas teams to control operating expenses.
As John mentioned energy services recently completed the Bethlehem LNG facility.
Which will deliver 70000 dekatherms per day of reliable on system supply into the UGI utilities distribution system.
This 62 million dollar project came in on budget and on schedule.
And much credit should be given to the energy services team for executing so well.
During such challenging times.
Our midstream business continues to do very well as we see UGI Appalachian meet or exceed our business case assumptions, even with low commodity pricing for most of the flight one.
We remain encouraged with the outlook for on midstream business as we expect demand for natural gas.
On the remains strong.
We're focused on opportunities and the renewable energy space and we continue to see significant activity in the sales.
We've been very pleased with the performance of G.H. on the.
The renewable natural gas company, we acquired in August and.
And believe G.H. I will be a platform for continued growth and the renewable natural gas space for UGI on.
Just earlier this week, we took another important step in this process.
As energy services entered into a definitive agreement to make a small investment and utility scale RMG project in Idaho.
The New project consists of an acquisition and upgrade to an existing dairy digester facility to.
Commissions and 2012 that is currently generating renewable electricity.
The upgrade involves a new gas processing plant.
Upgrades to the existing processing equipment, and the pipeline and compressor station to move the RMG to Interstate mode.
Once it is expanded to reach full production and 2022.
The plan is expected to generate several hundred million cubic feet of RMG annually.
And additional R&D production is expected to commence in late 2021.
On the regulated front, our utility is pursuing more than a dozen RMG projects throughout our service territory.
As we work with developers to bring their gas to move.
As we consider needs as we continue to see the demand for renewable energy growth and.
And considering a deep commodity marketing and customer service experience.
I believe UGI is well positioned to serve as a significant enabler of a cleaner more sustainable energy grid.
A few other items of note I'd like to mention include.
Utility Capex.
Utility had another strong year of capital be to.
Investing more than $348 million up.
Of particular note is the mileage of H pipeline tired and reflect one.
Utilities retired nearly 72 miles of bare steel and cast on main exceeding our annual commitment to the regulators.
Replacing aging infrastructure has enabled UGI to significantly reduce steel tube equivalent admissions.
Since 2009 utilities has reduced these emissions by more than 30% and we and we expect an additional 35% reduction over the next 10 years as a result of our facility replacement program.
Customer growth.
Despite the headwind of the COVID-19 and done over the past few months, we have seen meaningful increases in new construction starts including in the commercial more.
As we continue to see strong demand for natural gas across our service territory.
Conemaugh.
During the third quarter call, we announced the sale of UGI is approximately 6% interest and the kind of mall electric generating facility to Montour LLC.
The sale of this non core asset will reduce UGI is direct C. O two equivalent emissions by more than 30% and is consistent with our focus on on midstream and gas utility business as we intensify our SG efforts.
Over four.
Energy services commenced service on all been flow for project during Q1 of EPS light twin.
As a result of this expansion volume through the all burn system increased almost 66 bcf year over year or 90%.
Annual margin from the Albers system, and F. Whitewave was $34.6 million and importantly, nearly all of that margin is fixed fee.
This project is a good example of how the energy services team is driving growth even during times of low natural gas price.
Utilities rate case.
On October Eightth.
The Pennsylvania public utility Commission formally approved UGI utilities gas rate case.
In addition to an increasingly base rates and important provision of this rate case is how bad debt will be addressed as we continue to navigate the effects of the Cove and 19 point them.
Going forward.
Debt expense for natural gas utility will be kept on our current plan level.
Therefore, any coated related bad debt expense that exceeds this level will be treated as a regulatory asset.
Included in our next rate case, and amortized over 10 years.
We view this as a very positive settlement provision as it mitigates piano and cash flow risk due to the effects of cold.
Lastly, pennies.
Penn East is working cooperatively with all of the regulatory agencies that have some purview for phase one, including the Pennsylvania Department of Environmental protection.
The US Army Corps of engineers as well as for.
The agencies are conducting the appropriate due diligence.
And we expect to know more in the near future.
Now I'll turn it over to Roger.
Thanks, Bob.
The global LPG businesses deliver very strong results and the fourth quarter, despite lower commercial and industrial volumes driven by cold and in both Europe and the United States.
Even with the challenges of significantly warmer than normal weather and Cohmad Amerigas and UGI International delivered full fiscal year EBIT roughly in line with last year.
We're pleased with this result, as and demonstrate the value of our diversified portfolio of customers application.
Applications geographies, and our ability to manage expense and margin to offset the effects of warm weather.
During the last quarter, our teams continued to execute on our transformation efforts underway at Amerigas and UGI International.
These efforts provided financial benefits that exceeded our commitment with amerigas, realizing over $40 million and international realizing over 7 million euros in fiscal year 20.
Our dedicated professionals across Amerigas and international faced our business challenges head on through expense and pricing management generating an additional $45 million and expense reduction and $30 million and additional margin in fiscal 20.
Which helped compensate for the volume shortfalls.
We remain confident that global LPG businesses are well positioned to deliver strong results. Despite the uncertainties of the pandemic and warm weather.
In addition to carefully managing expenses and margins our teams demonstrated their commitment to our communities by providing reliable energy solutions growth customers throughout the historic Hurricane season, and our service territory in the southeast and wildfires in the Western USA.
The U.S. team also had on increased demand in our home delivery service branded a finch and increased demand and our cylinder exchange businesses in both us and Europe, while remaining focused on the safety of our customers and employees.
Now, let's move to more specifics at Amerigas.
As a reminder, the.
The previously announced transformation program at Amerigas includes a total investment of $175 million that we expect will provide annual benefits and excess of $120 million by the end of fiscal 2002.
As we look forward, we expect to exceed our initial estimate and deliver approximately $140 million at a slightly higher investment of $200 million.
And as benefit will more than offset the impacts of inflation. So.
Structural conservation.
Customer churn and the mix effect of our evolving business.
As mentioned on our third quarter call, we have earmarked a portion of the benefits achieved and the program for investment in the business to support a proactive approach and targeted customer retention and growth.
Focused on high value customers.
As such we are allocating approximately one third of the savings towards strategic initiatives to drive improved customer retention and growth and our core business.
The approach to a customer lifetime value pricing strategy.
The focus on digitizing business processes, and they continue to drive for efficiencies will deliver an exceptional customer experience and position amerigas for long term growth and market share gain.
I would like to highlight a few additional items that will be beneficial in the coming year.
Since has been rolled out and 17 cities across the USA and we will continue to grow to additional cities to reach a total of 40 over the coming two years.
Our National accounts program continues to see solid growth. Despite the near term challenges of the pandemic.
Our reengineering of key processes and systems that are part of the transformation efforts are now operational and.
In fact, this new fiscal year will be managed with a centralized customer engagement services center.
And of the art customer management tools and.
New routing and logistics tool and most importantly, a mindset and satisfying our customers and the most efficient way possible.
We're excited about the work that has been achieved and we look forward to continuously improving the various customer touch points with new digital tools.
As demonstrated in fiscal 20, our teams will continue the diligent management of discretionary expenses to offset the lingering effects of coal EBIT and unpredictable weather patterns.
Now moving on to our international business.
As mentioned on previous earnings calls our international team is also focused on driving efficiencies and improving the customer experience with investments of 555 million euros that will deliver over 30 million euros of annual benefits by the end of fiscal 2002.
I am pleased to report that these objectives are still very much on track.
In addition to the laser focus on driving efficiencies our international team demonstrated tremendous resilience in fiscal 20, and offset nearly all of the headwind generated by significantly more of a normal weather.
Our recent investments and transformation initiatives provide a path for continued strong EBIT performance.
Another component of our transformation effort is organizational design.
We have established to centers of excellence that are now fully in place and delivering value.
The first brings operational excellence this.
This center is focused on the sharing and implementation of best practices between our various operating entities, including Amerigas.
The other center of excellence and focused on commercial excellence, which includes renewable solutions.
We're excited about having and renewable team in place. This effort is instrumental and leveraging our existing assets and capabilities as we continue to de fossilize our supply infrastructure.
In closing.
Fiscal year 20, Robbie unprecedented challenges through our operations and the U.S. and Europe and yet our performance demonstrated the high level of commitment of our employees, while also validating our transformation efforts.
Our continued focus on operational efficiencies and cost management contributed to the solid results in a year that was significantly impacted by the cold and pandemic and warm weather.
Our strategy of geographic diversification across 18 countries and multiple customer segments proved successful yet again.
And all of this was underpinned by the dedication to safety customer and community of our 10000 plus employees.
Now back to John.
Thanks Roger.
I'd now like to spend a few minutes looking ahead and sharing our thoughts about the strength of UGI guys position at a time when new challenges and opportunities have emerged due to the significant change underway in the energy distribution sector.
UGI I as always focus on the environmental social and governance commitments, we make to our employees customers and investors and the communities we serve.
We provided significant detail on those efforts and our SG reports and stated our commitment to accelerate those efforts I.
I commented earlier about the importance of our social programs and our focus on making a difference in our communities, particularly where we can support individuals and families who have been impacted by the pandemic and racial and justice.
Turning to the environmental and climate changes, we're all facing today, we're equally focused on our commitments to reduce UGI guys carbon footprint, while also identifying and developing attractive investment opportunities that will drive future growth.
Those growth opportunities are beginning to come into focus for us.
This past summer, we announced the acquisition of G.H.I. or renewable natural gas company, primarily serving transportation customers in California with RMG sourced across the US we're committed to building on this platform to offer a range of renewable energy solutions.
As Bob mentioned, just this week, we announced and RMG feedstock project and Idaho that aligns perfectly with this commitment.
We are actively exploring a number of additional RMG opportunities involving both distribution and RMG feedstock infrastructure.
We believe that you guys, particularly well positioned to develop investment opportunities in this rapidly emerging market.
Our experience and project development project execution gas transportation and storage and energy marketing are directly applicable to RMG feedstock management.
From an environmental standpoint, our engineers and outstanding solution since it is a zero carbon or negative carbon solution, depending on the feedstock.
We're also actively developing bio LPG sources to augment our existing bio LPG source and Sweden.
Similar to our LNG the range of growth opportunities and bio LPG includes potential investments and feedstock infrastructure.
The addition of RMG and bio LPG to our supply portfolio is particularly attractive for our customers and our communities.
We can utilize our existing natural gas and LPG distribution infrastructure to deliver RMG and buyer LPG to the 3 million plus customers directly served by UGI.
These renewable solutions can be brought to our customers with no additional local infrastructure no incremental investments by our customers and no community disruption related to infrastructure build out.
We're excited about the significant growth potential of these renewable solutions as we address the fundamental needs of our communities for affordable reliable resilient and renewable energy solutions.
We see our LNG and bio LPG as the areas of most significant potential on the short term.
But we're also exploring the opportunities around renewable hydrogen battery storage and other promising technologies.
We found many of the companies developing new solutions are eager to work with us there.
They recognize that our physical connection to over 3 million customers and our large team of field service personnel, serving those customers can provide crucial support when commercializing new solutions.
We will provide much more detail on our renewable solutions activities at our Investor Day next month.
We're excited about our progress to date and believe these emerging opportunities will enable us to achieve several strategic objectives.
First accelerate the rebalancing of UGI guys business mix with LPG continuing to play an important role, but almost all growth capital invested in net gas and renewables.
Create and new renewable solutions team to accelerate the development of new growth opportunities.
Those efforts will leverage our existing Nat gas and LPG infrastructure and resources.
But expand our reach well beyond our existing footprint.
And physician UGI, Ais, a leader in sourcing and delivering carbon free and negative carbon energy solutions to residential commercial and industrial and transport customers across the us in Europe.
After that pretty quick to our future I'd like to return to fiscal 21 and comment on the outlook for the year.
Our guidance of $2.65 to $2.95 assumes our new normal tenure weather and some lingering covert volume impact mainly in Q1, which will impact EPS by roughly 10 cents to.
The midpoint of our fiscal 2000 guidance represents a 12% increase and EPS over our tax adjusted fiscal 20 performance of $2.50 as Ted noted, we remain very well positioned to continue to meet our long term annual EPS growth commitment of 6% to 10%.
We're excited about on expanding portfolio of growth opportunities and strengthened by the exceptional work performed by our teams over the past year.
I can say with confidence that we're in and outstanding position to deliver on our commitments for future earnings growth.
Positively impact and the quality of life and our communities as we deliver low carbon and renewable carbon solutions.
We're looking forward to keeping you updated on our progress throughout the year with the first opportunity being our Investor day on December seven we.
With that I'll turn the call back over to the operator, who will open it up for your questions.
Thank you as a reminder to ask a question you and need to press star one on your telephone so let's try a question press the pound key please stand by moving compare the current day last day.
Our first question comes from snack and shiny with EPS. Your line is now open.
Hi, good morning, everyone. Good to see that everyone is safe and well.
I was wondering if maybe we can start with the thought process away on the guidance for fiscal 2001.
And you you sort of having a coke and impact Jesper for one Q and so forth.
Wondering if you can sort of talk about that for a little bit is there potential obviously with where cases or could there be an impact into twoq that you would then have to adjust for.
Alternatively are there some other pluses and minuses like and extended cylinder exchange season due to restaurants using lamps, that's you're sort of thinking its kind of and offset just wondering if you can sort of give us the kind of the thought process and and the sensitivities we need to be thinking about as we watch cases globally.
Sure. Thanks Schneur.
In terms of.
Estimating the cobot impact.
As we enter the the fiscal year.
As you point out it has sort of a differential impact on different.
Customer segments or demand segments in our business without a doubt we see incremental demand in the cylinders segment.
I have seen it since the beginning of the pandemic, which sort of continues that the general growth that we're seeing and that part of our business. We also see very strong demand.
Non residential customers because.
Most families.
Our home.
As opposed to being.
And school full time and working so core residential demand is quite strong and then offsetting that we see.
The hospitality segment and some of the transportation segments.
Impacted as well so.
The estimate is based on that sort of balanced view our view is that.
We're likely to see that through Q1 and begin to work through it.
The situation is fluid but.
Having.
The experience that we have now after nine of approximately nine months working with this and looking at the the core demand that we're seeing we feel like.
We've done the absolute best job, we can in terms of incorporating that into our guidance, but it's very much a mixed bag.
Bag with different.
Sectors of demand different segments customer segments being impacted in different ways.
We were relatively accurate in terms of what we estimated for F. Y 20 in terms of how we saw that impact and.
That's why we felt we could provide some.
Some specificity around.
The impact as we move into flight 21.
Okay. So basically people are at homestead, and they still need keeping and effectively.
Okay.
And then just a transition a little bit here.
When I sort of think about your guidance for this year and that sort of think about where your capex might end up.
Obviously, your EBITDA is going up.
Which changes your leverage calculation, but at the same time it appears that you're going to be and free cash flow positive after dividends type of situation, which obviously can bring leverage and further.
When you hit whatever target that you'd like to achieve does that put you in a position to.
And have a material step up and the dividend or.
Pursue buybacks and or is there. Some other approach that you're thinking about I was just wondering if you can talk about that fortunate situation that you see yourself and.
Sure I'll comment briefly on and now I'll, certainly, let Ted comment as well.
Fundamentally we're.
We're fortunate to have.
The cash generation capabilities across our businesses that we have so.
So as you noted that puts us on a really strong position in terms of being able to address the priorities, which for us are and the short term or paying down debt and as we move forward and and execute on that strategy and then opens up a range of alternatives in terms of how we apply that incremental cash.
So.
We have a range of options moving forward I think our priorities are clear and the short term, but I'll turn it over to tell at this point to comment as well shneur.
Yeah, just to build on those themes shneur as we've talked in the past, we Wanna get Amerigas.
Debt levels down to that lower kind of for multiple Florida four in a quarter. We're not there yet we see that as a paid on that we'll be doing over the next couple of years and and also as weve been fairly consistent and sharing we we'd like to clear most of the debt off of the.
Corporate books that we have now that we took on as we get the.
UGI I Appalachian.
Acquisition, and the Amerigas by and and some of that will be shifting debt directly to some of the business unit. So it won't all just go away for the entire corporation, but we see that as a focus for the next several years.
I guess, if everything otherwise states static over the next three or four years, yeah, what youre, suggesting up absolutely starts to become true we will start to really generate a lot of cash we won't have the debt paydown facing thats. The way we will over the next couple of years.
We will have to revisit what are potentially our dividend strategy looks like at that point, but thats a couple of years out.
Perfect I really appreciate that maybe just a couple of small clarifications.
If you can remind us on.
First of all it like you changed the 15 year, whether to tenure, whether if I remember correctly and your prior call that was about a negative four cents impact a little more sort of comparing apples to Apple and you've got two different transformations going on and so forth are there any opex related charges that are contemplated and.
Fiscal 21, either for the Aipu business transformation or what you're doing at the corporate level.
Uh huh.
Sure. This is John just on the whether you're right on the weather impact on the third quarter call, we talked about that change and it was roughly four cents.
The.
On your question on the transformation, there will certainly be through and why 21.
And and into 22 additional charges related to those transformations because they are ongoing.
And certainly we will provide more detail on that and.
On Investor day as well.
But I can.
Let Roger comment as well in terms of.
And sort of the ongoing transformation efforts both.
Domestically with Amerigas and across Europe.
Yes, Thanks, Don and good morning Shneur Yeah.
As John mentioned, we certainly are continuing to execute the transformation efforts and there. Our opex. There is on Capex that we will be spending and fiscal 21, and we estimate that to be.
Approximately 50 $657 million of Opex, and and the rest being capex and as we've highlighted by the end of fiscal 21.
We will have executed our transformation initiatives and and the benefits of the initiatives will continue to roll in.
Now.
21 and 22.
Alright and.
I would add shneur that with the support function transformation, we will be making investments through 23 on that and totally investments will be about $40 million and about half of that will be on opex.
Yes, that's on it if that could be what I was trying to figure out is like I knew you have to spend some money on it what was classified as capex versus Opex and I saw that your slides that just trying to wondering if that was kind of like and negative on debt incorporated into your guidance that you're assuming and meet these opex.
Charges related to these transformations Perkins and so ex that because that would not be on going once you finish. The transformation. Then you would you would remove that that opex essentially correct.
And we would remove that opex.
From so we're adjusting for that one time.
Investment.
Right and and once we've made those investments we will no longer be making adjustments for for it.
I mean these are one time non recurring investment costs right that are made up of capital and Opex and the Opex portion we're pulling out.
Right now that that's exactly what I wanted to understand that and that there was an opex charge that isn't necessarily recurring over the long run.
So that was super helpful. Thank you guys really appreciate the color.
Thanks and are.
Thank you. Our next question comes from Maxim Sito with Barclays.
Your line is now open.
Hi, good morning and more.
And just wondering just a point of clarification on your 2021 guided what are you guys, assuming as far as savings related to the transformation initiatives like what are you guys thinking and.
Why don't I, let Roger.
Comment on that that the.
Certainly the most significant transformations are the two ongoing at.
Amerigas and UGI International.
Matt Thanks, John Yes, so as I, just mentioned were and Matt full ramp up of of reaching 140 million and international and reaching that 30 million euros or Brad sorry for 140 million at Amerigas.
Amerigas and $30 million at international.
In fiscal 21, we think it's going to be about $85 million that will be generated in in the fiscal year at amerigas and 7 million euros that.
International.
Great and then I think you and I think in the past you guys.
You mentioned that you'll you'll be sharing some of those benefits with your customers, who like just curious net I get to European now like how should we think about what you are factoring in and your guidance.
Yes. So so as we mentioned were taking about a third of the benefits and really applying it to a segment of our market that we.
Look at where the turn level is quite high and that's really the small commercial and residential segment here on the left.
Where there is very competitive landscape and with our advanced analytics, we've been able to identify if we had different programs across those segments, we could likely reduce that churn. Therefore, there's a good rate of return on that on that investment.
Thats an area that we're going to continue to develop and will continue to provide color as we go forward as to what the benefit. We're seeing is from that investment that we're making to help improve that efficiency when it comes to customer churn.
Got it okay.
And then shifting gears a little bit just on pennies I Wonder if you could provide an update on that what's the path forward is for that project, both and current on the regulatory front and also on the commercial side.
Yes. This is John I'll comment briefly on I'll, let Bob comment essentially on pennies that this time, we're working through a.
Case and awaiting feedback on.
Supreme Court case, that's been filed.
And essentially that's a key driver in terms of next steps for the project.
We're looking for.
Input from the Solicitor general and the very near future and we'll have feedback following that from this we expect feedback from the Supreme Court as to whether they will hear the case, so thats a really important milestone on the project that.
We're hoping we're hoping is upcoming but also let bob comment on that as well.
No that's right John and we also continue to work with the regulatory agencies, who be issuing permits and working with us on.
Construction scheduling and what have you and as far as the commercial front.
We continue to work the project, we continue to talk to potential shippers and as John said, we wait on that.
The decision by the Supreme Court as to whether or not that and the take up the case.
Great. Thank you.
Thank you Mark.
Thank you and.
Not showing any further questions at this time and I now like to turn the call back over to John Walsh for closing remarks.
Okay. Thank you very much for your time. This morning, we look forward to keeping you updated on our progress with the next opportunity being our Investor day on the afternoon of December 7th So look forward to seeing all of you then take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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