Q4 2021 Atco Ltd Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Op Co Ltd fourth quarter and year end 2021 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 questions.
Joined the question queue, you May Press Star then one on your telephone keypad.
She they need assistance during the conference call you may seek learned an operator by pressing star and theater.
I would now like to turn the conference over to Mr. Colin Jackson Senior Vice President Finance Treasury risk and sustainability. Please go ahead Mr. Jackson.
Thank you. Good morning, everyone. We're pleased you could join us for <unk> fourth quarter 2021 conference call.
With me today is executive Vice President and Chief Financial and investment Officer Katie Patrick.
Kt will begin today with some opening comments on recent company developments and our financial results.
Following these prepared remarks, we will take questions from the investment community.
Please note that a replay of the conference call and a transcript will be available on our website at <unk> dot com and can be found in the investors section under the heading events and presentations.
I would 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 and uncertainties. Please see the reports filed by <unk> with the Canadian Securities regulators.
And finally I'd like to point out that during this presentation, we may refer to certain non-GAAP or segment measures such as adjusted earnings adjusted earnings per share and capital investment.
These measures do not have any standardized meaning under <unk> and <unk>.
As a result, they may not be comparable to similar measures presented in other entities.
And now I'll turn the call over to Katie for her opening remarks.
Thanks, Tom and good morning, everyone. Thank.
Thank you all very much for joining us today for our fourth quarter of 2021 conference call.
And it's been a few years since we posted a quarterly conference call for <unk>.
I'd like to provide.
Overview of Alco strategy, and also introduce myself and the role that I hope that's helpful.
Specifically I think it would be helpful for the audience here to touch on as a core strategy and how this differs from the strategy of our largest investment Canadian utilities limited.
And just for clarity what I'm talking about Canadian utilities are often referred to it as <unk>.
Yes.
As soon as a globally diversified holding company with a multi generational investment horizon and a focus on investments and the essential services space.
Typically we target investments across six central service categories energy.
Shelter real estate.
Agriculture.
In addition to the transportation.
The maturity and scale of our investments in each of these categories varies with energy shelter and transportation logistics being the most advance of water and power.
Sure and real estate being longer term strategies for us.
Collectively investments across these categories provide economic resilience and stability through business cycles and allow us to demonstrate our corporate values in the market.
Investments in these categories are also well mine with our core capabilities and provide a pathway to the returns and growth profile that we demand from our investments.
While we continue to explore new investments in support of this strategy, it's worth talking through the current composition of our portfolio.
These investments align with our strategy.
Currently our top core investments include a controlling interest in <unk>, a 40% interest and now two main parts and a 100% interest and a prescription and logistics ease.
These investments provide our portfolio with direct direct exposure to the energy shelter real estate and transportation and logistics segments.
Basically these investments also places our business isn't adjacent activity and key players and other thickness of our strategy, but we see further growth opportunities.
As most people are aware our largest investment is our controlling interest in <unk>.
This investment serves as our portfolio of primary energy investment vehicle.
It provides exposure to the Alberta, Australia, Puerto Rican utilities, along with energy transition investments in renewable generation clean fuels and energy storage segments.
Yes.
This investment provides a stream of stable and reliable earnings and cash flow.
Which supports new investment.
That's the level and the funding of our dividend.
With that overview I wanted to quickly touch on the joint well I Hope I hope does that cause executive Vice President and Chief financial and investment Officer.
This rule is a nod to the diversified holding company strategy of that though.
In this role I have traditional financial oversight responsibilities.
It also oversee <unk> portfolio composition and helped drive its growth strategy.
Moving on to the 2020 , one year I wanted to touch briefly on a few of our recent achievements.
2021 was a busy year in our business.
Delivered year over year earnings growth, despite lingering margin pressure related to the COVID-19 pandemic.
Because he didn't work across our businesses, which span multiple years and allows for the issuance of formal ESG targets in January of this year.
<unk> participated in a competitive bidding process for the government of Canada, North warning system operations and maintenance contract.
Secured key Australian contract in our Aerostructures business for the construction of workforce housing.
And so our see your investments to make significant strides in both energy transition strategy and delivery of electricity. So let's see.
The city of transmission and distribution services for the people of Puerto Rico.
Luna energy business, which Brian spoke more freely about joining the <unk> call.
We're truly proud of these results and there are people, who live with values of our company to deliver service excellence across the portfolio in 2021.
Taking this discussion back to our financial performance and as alluded to previously 2021 was a great year for us.
We achieved adjusted earnings of $382 million or $3.
And 35 cents per share for 2021. This is $30 million.27 per share higher in 2020.
This growth in year over year earnings was primarily driven by our CEO investment. So many of our other businesses had significant project wins.
And we made continued progress in our strategic diversification within the structures business.
See you thoughts on adjusted earnings growth of $51 million from $535 million in 2000 $20 million to $586 million in 2020 one.
At the Opco level.
Related to year over year earnings growth from our investment in <unk>, a $30 million.
The strong performance from CEO was primarily driven by the energy business and continued strong performance from its actual gas Australia business.
Which benefited from favorable inflation trends and low dynamics through 2021.
I know Brian spoke in detail about numerous operations during the <unk> conference call earlier.
But I would encourage anyone who isn't familiar with.
Let's take a look at both disclosures within our <unk> financial statements and M. DNA and also look at the Luna energy website for a better sense of the great work that the team in Puerto Rico is doing.
Moving onto restructures and logistics business, which comprises both aero structures and that will protect.
The team had a number of project successes in 2021.
In the fourth quarter of 2021 construction was awarded a contract for the construction of a workforce housing facility.
I'll wrap up Australia.
This project with long term partner Bechtel will provide accommodations for 2005 hundred workers involved in the Pluto train two LNG expansion.
This brownfield expansion, we'll see the construction of a second natural gas processing train significantly increasing the capacity for this facility.
Well the business has done a great job of back filling project earnings with more diversified and stable fleet and train sales earnings major projects will continue to provide a strong supplement to the segment's earnings.
The advancement of this project signals restarting of major projects that were largely postponed due to the COVID-19, pandemic and suggest strengthening economic activity levels.
On the phone text side of the business. The team actively participated in the government of Canada, North warning system RFP process through 2021.
I'm happy to report that these efforts executed for another type of joint venture with a pen Arctic Logistics Corporation.
The successful and were awarded a seven year contract to operate and maintain the north warning system beginning in April of 2022.
The seven year contract, which is valued at $592 million includes four two year.
Extension options and represents an incredible opportunity for <unk> to demonstrate our technical expertise both in the northern territory.
And as a trusted contractor to the government of Canada.
This contract also reinforces our commitment to Intuit and first nations within Canada and demonstrates the importance we place on truth reconciliation and.
And the accretion of economic opportunities.
This portfolio wide commitment was a driving factor in our inclusion of an indigenous economic benefits target within our recently announced ESG targets and this project is a key stepping stone in advancing this objective.
Yes.
Next I would like to touch on our notes, who may ports investment, which overall continues to provide a solid base of earnings to agco amid the challenging economic environment.
Now to me had an active fourth quarter and saw the business acquire a 70% interest entitled Transport and trading USA.
It provided a full scale marine operation services in the United States.
This acquisition fits well with us now to make the overall strategy and highlights our desire to further strengthen our presence in the U S.
Significant dry powder remains and then they'll have to make business to support new investment and drive growth.
While the pandemic slowed our deployment of capital in the business, we're optimistic about the investment opportunities we're seeing already.
For 2022.
Global trade and economic activity continues to improve.
Overall <unk> had a great 2021 that saw us deliver strong year over year earnings growth well, while also advancing numerous aspects of our corporate strategy, including the issuance of ESG targets are.
Our team has done a great deal of work not only to weather the COVID-19 pandemic.
That should drive performance. Despite these factors.
And she prepare at each of our businesses for growth as economic conditions improve.
We're well positioned heading into 2022 and I am excited to leverage the work we've done to date as we continue advancing our portfolio strategy.
Yeah.
That concludes my prepared remarks, and I will now turn the call back to Colin.
Thank you Katy and the interest of time, we ask that you limit yourself to two questions. If you have additional questions you are welcome to rejoin the queue.
Hello, now I'll turn it over to Claudio The conference coordinator for your questions.
Thank you to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone and knowledge in your request.
If you're using a speaker phone please pick up your handset before pressing any keys.
To withdraw from the question queue. Please press Star then two.
What cause participants had a welcome to click on the submit question tab near the top of the West coast frame and types of your question. The Investor Relations team will follow up with you by email after the call.
Once again anyone on the conference call, who wishes to ask a question May Press Star then one at this time.
Yes.
Our first question is from Maurice Choy with RBC capital markets. Please go ahead.
Thank you and good morning. My first question is on these structures and logistics segment.
Obviously <unk> had another year, where earnings were above $50 million a far cry from the single digit earnings result in 2017, and I recognize that a contract earnings can be lumpy, but.
But would you say that the business has reached a point where earnings are not sustainable at these levels and if not what portion do you think it's a reliable run rate, particularly when you think about the rental business probably would be a fun type business, where the terms tend to be a little bit longer.
Yeah, Hi, Maurice and thanks very much for that question I think in short the answer is I think we have reached that point, where theres, a relatively stable trajectory underlying our structures.
Business as we know we had a large contribution in 2020 from LNG, Canada and in 2020 , one with more than overcame that through to the base business growth. So I think that yes, that's been our focus to try and get some stability behind that earnings and have a predictable go forward.
Base business.
That will be some visits I would just to be clear.
From some of those large projects from time to time, such as the <unk>.
Pluto project that I mentioned, so I think yes in short I think we have reached a point of having a relatively stable base business.
And we will continue to grow that through additional fleet.
Within structures.
Great and my second question relates to milk to me ports globally. There obviously has been.
Supply chain issues in some ports have seen record setting volumes I recognize that note to me ports has a wide range of ports with different contracts Guardians products and diversity here should generally mean predictable results that said under what market conditions are good.
We see this business do greater than say $3 million to $4 million per quarter run rate.
Yeah, that's a that's a great question.
I think the you know, it's a very diversified portfolio, which is great because it gives us that stability of earnings that we have seen since making our investment.
It's exposed to a number of different industry factors geographies all economic cycles.
But as you say you know what what would drive higher returns for that.
There's a few things that I can.
Quickly say.
Certainly it's it still remains it's predominantly based in Chile, which has strong exposure to the commodity cycles. So you know upswings in commodities would certainly help.
Drive higher earnings.
But the number one thing that we're gonna see drive growth from within now to me is the deployment of that capital that we provided as part of our equity investment.
And there's a there's a healthy pipeline and I think we should be seeing some of the efforts. They have come to fruition shortly to help bolster and grow that earnings that we've seen come from them now to my investment.
Yeah.
And just as a quick follow up how do you compare the returns that you know they'll too many ports fees for these capital deployment opportunities versus say the types of opportunities.
But at school as a whole hum.
He's right now.
Yeah.
Yeah, I mean, I think you know we you know our internal lingo, we call not only one of our beta investments, which is that it's got a very good stability of earnings and cash flows coming from it.
And the returns are comparable to other.
All the infrastructure type investments.
We also are seeking to add some faster earnings growth and some of the energy transition projects would fall into that category.
But I think the returns are relatively comparable to say our investment and overall and in the utility segment.
It's a it's obviously got some benefit from being exposed to potentially some higher growth.
The overseas so should those start to go faster than we could see some retrenchment and also many investment.
Great. Thank you very much photo response, then thank you for this call.
Thanks, Chris.
Our next question is from Linda It's Eric Dey, you Lisa with TD Securities. Please go ahead.
Yeah.
Thank you I have a question about your structures and logistics.
Our approach to managing and mitigating gating risk there was an unfortunate incident at another a work camp on the coastal gas link site last week and I'm, just wondering whether if you view that as somewhat of a unique circumstance or do you see that as potentially a data point are suggesting.
There might be more risk in terms of work remote work locations, how might that affect your business way and you know might that reflect it would be reflected in maybe more resilient.
Structure design or operations can you can you comment on what changes if any might be coming and what sort of costs might be associated with that.
Yeah that was it.
You know a very unfortunate incident that you know no one in western Canada, and Super happy about and I think and.
At <unk> safety of our employees and our contractors and the people on our side. It is absolutely our number one priority so.
That is always in the forefront of our mind. We are you know we have a.
75 year history, probably of working in remote locations and dealing with the challenges that are faced there.
So I think it's a very unfortunate incident, and we will obviously, we will continue to.
Monitor our security protocols and any of the remote areas that we work.
So I think we have very good experience as I said in dealing with that and we will continue to prioritize the safety.
In terms of any specific.
Modifications to the structures or our materials I don't think just anything necessarily there on the table at the moment.
It's always going to be difficult when someone is trying in a specific.
We'd like that to try and.
700% protect your assets and the people are the most important part.
Yes agreed and maybe moving back to <unk> now to me.
There have been some geopolitical developments are and potential implications for a trade of goods globally and obviously.
That is influencing them, how you approach a where you invest and I think you know your South American focus.
It serves you well in that regard, but I'm, just wondering how that might influence the.
The activity in your businesses that you have right now and how you approach them what sort of investments you make them not just in South America, but and in the U S. I guess and potentially elsewhere over time in terms of bad debt.
The flow of trade globally.
Yeah, I mean, I think we're all adjusting to the overnight.
News and then how what that's going to mean for the world as a whole in terms of a go forward.
Generally speaking agco we are.
Any of our assets as you know are in.
Very well developed and stable countries, where we see the risk.
To be relatively low.
Instead, we have we do have to note an important investment, but even then I'm you know Chile is one of the leaders in South America in terms of its long term stability. So I think we're very mindful of the current geopolitical environment and continued to focus on our core.
Geographies being Canada and Australia.
In the United States as well as one of our growth areas.
But I don't think at the moment, we don't have any any claims for new new endeavors in new geographies beyond what we've already talked about and.
Obviously like the whole world, we're gonna have to watch and monitor what the implications of the current geopolitical issues in Russia, and Ukraine or for our business.
Thank you.
Our next question is from Andrew Kuske with Credit Suisse. Please go ahead.
Thanks, Good morning, I guess my question is really the Katy on the come.
Quality cycle, and how we think about that in relation to the structures business is historically, it's been beneficial when we see more robust.
Market prices on a series of commodities for future development projects in the structures business, but yeah.
You'll also get this dynamic where some smaller regional competitors that brought into that space.
Most of which ends badly for the competition.
I guess, just where do you think we are at this point in the cycle.
It is in particular in the structures business.
Yeah, I mean, I think we have a very healthy pipeline of potential opportunities.
You know the the rebound in the commodities, particularly in Western Canada, and the more recent rebound, though I think the people.
People are still reluctant to invest significant capital.
Into that the commodities are increasing the capacity of the commodities as we now so I don't I don't from a large project perspective, I don't expect there to be an absolute flurry of opportunities there and really the the size of our pipeline growing is a lot can be a lot attributed to our.
Our strategy to diversify into you know smaller workforce housing projects as well as our base business and space rentals.
So I think we may see and we are seeing obviously a bit of a spike in the commodity cycle right here, but I don't think that necessarily will be.
We won't see the same capital investments that we may have seen it in wellness really translate into.
A huge number of massive projects for structures, but theres still a solid pipeline behind them right now.
Cause that's that's helpful color and context on and then maybe related on.
Albeit slightly different when you think about just the permanent structures in particular for affordable housing.
How big is that market opportunity.
But you can see them deploying capital went to maybe expanding that business is something that's more meaningful in the future.
Yeah, No. That's a you know a little bit of a niche business within that we've been focusing on within structures. I. Certainly you know, it's a great skill to have them. We continue to look for opportunities for the permanent modular construction.
But it does represent at the moment, a relatively small portion of the overall structures business.
Uh-huh and you know I think it will grow.
You know well incrementally I don't think you'll see.
A significant huge jump in growth in that but there continues to be a push for.
Looking for new opportunities within that business.
Okay.
Yeah.
Once again, if you have a question. Please press Star then one on your telephone.
Our next question is from Mark Jarvi with CIBC capital markets. Please go ahead.
Thanks, let's come back to the structure and logistics.
In particular, the Q4 results top line revenue is pretty good but sort of EBITDAR earnings a little lower or was there anything in particular with the contract Nicholas thinking about how it flows through subsequent quarters in terms of the margin profile.
Yeah, No I think there was a few things that were going on in Q4. The biggest thing is that Q4 2020, we still had some of the impacts of LNG, Canada and.
Even though overall the margin profile. This year was better it's hard to make up for the volume.
And then we had there we had some you know we have some projects that had a little bit more difficulty with as well.
That may have contributed to a little bit lower on the earnings side of the equation.
But I think going forward.
Hmm.
The Big thing is trying to exclude that impact of LNG, Canada in Q4, 2020 on a year over year basis to try and get a normalized view of earnings.
And then when you.
You mentioned there were difficulties is that on cost on the equipment side is it labor and if there's anything you're seeing that carry through into this year at this point.
Yeah, No no we're working with some of our international projects, we had a bit of a difficulty a few different areas within it.
And overall, we're just we are trying to make sure that we maintain.
We maintain our commitment to the client, but it probably will result in a bit of some losses related to.
Challenges on costs.
Covid related challenges just some overall logistical issues with this one particular project that hampered the earnings that quarter.
Okay and then last question just you know there was a negative outlook from S&P on the academic credit rating. So we learned how important it is to preserve a minus rating.
Is it doesn't hamper your ability to deploy capital or Neil issue a lot of debt at the Opco limited level, so that wouldn't be comfortable going down to triple B plus.
Yeah, No I think we've had that we've had this negative outlook on for a couple of years. So.
We're aware of that and I think overall the impact from the move to from a minus to triple B plus if that were to transpire, but have limited impact on our overall business. We do have you know for lack of a better term greenfield ring fencing in place for <unk>, which is our.
Our primary debt issuer.
So that will maintain its strong access to capital markets, but I think even then I don't anticipate big concerns with accessing capital.
The CPU level or the actual level.
Shouldn't there be any change to the S&P outlook.
Waiting for us.
Okay, that's great.
Sure.
Once again, if you have a question. Please press Star then one on your telephone.
There are no further questions registered at this time I would like to turn the conference back over to Mr. Calling Jackson for any closing remarks.
Thank you Claudia and thank you all for participating today. We appreciate your interest in Agco, Let me look forward to speaking with you again soon thanks.
Thanks again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].