Energy in motion. Year-end fiscal 2018 earnings results. November 15, 2018

Transcription

1 Energy in motion Year-end fiscal 2018 earnings results November 15, 2018

2 Participants on today s call Suzanne Sitherwood President and Chief Executive Officer Steven L. Lindsey Executive Vice President and Chief Operating Officer, Distribution Operations Steven P. Rasche Executive Vice President and Chief Financial Officer 2

3 Forward-looking statements and use of non-gaap measures This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Our forwardlooking statements in this presentation speak only as of today, and we assume no duty to update them. Forward-looking statements are typically identified by words such as, but not limited to: estimates, expects, anticipates, intends, and similar expressions. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. For a more complete description of these uncertainties and risk factors, see our Form 10-K for the fiscal year ended September 30, 2018 to be filed today with the Securities and Exchange Commission. This presentation also includes net economic earnings, net economic earnings per share, contribution margin, adjusted EBITDA, and adjusted long-term capitalization, non-gaap measures used internally by management when evaluating the Company s performance and results of operations. Net economic earnings exclude from net income the after-tax impacts of fair-value accounting and timing adjustments associated with energy-related transactions, the impacts of acquisition, divestiture, and restructuring activities and the largely non-cash impacts of other nonrecurring or unusual items such as certain regulatory, legislative, or GAAP standard-setting actions. In fiscal 2018, these items included the revaluation of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act and the write-off of certain long-standing assets related to pension costs and property sold as a result of disallowances in our Missouri rate proceedings. The fair value and timing adjustments, which primarily impact the Gas Marketing segment, include net unrealized gains and losses on energy-related derivatives resulting from the current changes in fair value of financial and physical transactions prior to their completion and settlement, lower of cost or market inventory adjustments, and realized gains and losses on economic hedges prior to the sale of the physical commodity. Management believes that excluding these items provides a useful representation of the economic impact of actual settled transactions and overall results of ongoing operations by facilitating comparisons of year-overyear results. Contribution margin is defined as operating revenues less natural and propane gas costs and gross receipts tax expense, which are directly passed on to customers and collected through revenues. These internal non-gaap operating metrics should not be considered as an alternative to, or more meaningful than, GAAP measures such as operating income or net income. Adjusted EBITDA is earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. Reconciliations of net income to net economic earnings and of contribution margin to operating income are contained in our SEC filings and in the Appendix to this presentation. Reconciliations of adjusted EBITDA to net income and of capitalization per balance sheet to adjusted long-term capitalization are also contained in the Appendix. Note: Years shown in this presentation are fiscal years ended September 30, unless otherwise indicated. Investor Relations contact Scott W. Dudley Jr. Managing Director, Investor Relations Scott.Dudley@SpireEnergy.com 3

4 Putting our energy in motion Our mission Answer every challenge, advance every community and enrich every life through the strength of our energy. Transforming our company 1. Growing organically 2. Investing in infrastructure 3. Acquiring and integrating 4. Innovation and technology 4

5 Strengthening leadership to support our growth Joe Hampton President, Spire Alabama, Gulf Coast and Mississippi Scott Carter President, Spire Missouri 5

6 Strengthening leadership to support our growth Pat Strange President, Spire Marketing Scott Jaskowiak President, Spire STL Pipeline and Spire Storage 6

7 We believe that energy exists to help people, and we believe that how we do our work matters. 7

8 While working through complexities of multiple regulatory resets in 2018, we re proud to report that we delivered NEE of $3.72 per share. 8

9 Building Spire STL Pipeline Received FERC Notice to Proceed on November 5 Completed project construction schedule Targeting in-service date in second half of calendar 2019 Ready to mobilize for construction once land acquisition is completed Total project investment targeted at $210 - $225 million 9

10 Advancing our gas-related businesses Positioning Spire Marketing for further growth and success New business center in Houston being led by industry veterans Expanding our geographic reach and customer base Strong FY18 results reflect our growth initiatives and favorable market conditions Building Spire Storage Completed acquisition of two adjacent facilities, including minority interest Integrating and upgrading operational capabilities Expanding service offerings Marketing to broad range of customers (utilities, power generators, pipelines, producers and marketers) Total investment through fiscal year end of $56M 10

11 Increasing earnings and dividends Affirming long-term earnings per share growth target of 4% - 7% Establishing guidance for FY19 NEEPS of $ $3.80 Increasing our dividends per share 2019 dividend raised 5.3% to $ consecutive years of increases 74 years of continuous payment Maintained conservative payout ratio and target range of 55% - 65% 11

12 We re driving earnings growth Net Economic Earnings (NEE) Gas utility $ $ $ 3.71 $ 3.86 Gas marketing Other (22.3) (20.7) (0.45) (0.44) $ $ $ 3.72 $ 3.56 Average shares outstanding Year ended September 30, Millions Per diluted share Net economic earnings +$16.1M (10%) on growth in both business segments Gas Utility +$1.6M Higher contribution margin and the benefit of the lower income tax rate Offset in part by higher operating expenses Gas Marketing NEE +$16.1M on improved market conditions Other expenses reflect higher after-tax interest and other corporate costs, partially offset by higher Spire STL Pipeline AFUDC earnings NEE per share +4.5% including our successful 2.3 million share offering in May 1 See Net economic earnings (non-gaap) reconciliation in Appendix. 2 Average Shares Outstanding in millions. 12

13 Increasing revenues and margin Years ended September 30, Millions Change (Millions) $ % Operating Revenues Gas utility $ 1,888.4 $ 1,667.9 $ % Gas marketing (7.7) -10% Other and eliminations 5.0 (6.5) 11.5 NM $ 1,965.0 $ 1,740.7 $ % Contribution Margin 1 Gas utility $ $ $ 8.5 1% Gas marketing % Other and eliminations % $ $ $ % Revenues grew 13%, reflecting higher demand and higher commodity costs Gas Utility contribution margin increased by $8.5M as a result of: + Higher usage volumes from winter weather, ISRS and modest customer growth Seasonal rate design change at Missouri utilities and lower utility rates due to tax reform Gas Marketing margin up $29.7M on colder weather and improved market conditions 1 Contribution margin is operating revenues less gas costs and gross receipts taxes. See Contribution margin (non-gaap) reconciliation in Appendix. 13

14 Controlling expenses Millions Change (Millions) $ % Operating Expenses Gas Utility Years ended September 30, Natural & propane gas $ $ $ % Operation and maintenance (O&M) % Depreciation & amortization % Taxes, other than income taxes % Gas Marketing (31.6) -22% Other % Interest Expense % Higher volumes, commodity prices drove utility fuel costs and gross receipts taxes Utility O&M expenses +$14.0M excluding MO rate case write-offs ($36.6M) Reflects higher amortization of MO benefit costs ($7.0M) All other expenses up $7.0M on higher weather driven employee and bad debt expenses Higher depreciation and amortization reflect increased capital investment Other operating expenses reflect Spire Storage operating and restructuring costs Interest expense reflects new utility LT debt issued and higher overall rates, offset by lower ST debt levels 14

15 Income tax expense Income taxes includes the non-cash benefit from revaluing net deferred tax liabilities for the Tax Cuts and Jobs Act using current Treasury guidance Net of those benefits, the effective tax rate for 2018 was 18.6% Lower than prior year due to tax reform Year ended September 30, Quarter ended September 30, (Millions) GAAP expense (benefit) before ADIT amortization 1 $ (23.0) $ 77.6 $ (19.2) $ (6.7) Amortization of excess ADIT (3.5) (3.5) GAAP income tax expense (benefit) $ (26.5) $ 77.6 $ (22.7) $ (6.7) Benefit from revaluation of net def. tax liab. (TCJA) Other tax adjustments (0.6) - Run rate income tax expense (benefit) $ 34.9 $ 77.6 $ (17.2) $ (6.7) Effective tax rate 18.6% 32.4% 39.2% 33.5% Includes the benefit of amortizing excess ADIT returned to Missouri customers 2019 effective tax rate anticipated to be 17% - 18%, reflecting a full 12-month amortization of excess ADIT amortization 1 Excess Accumulated Deferred Income Taxes (ADIT). 15

16 Fourth quarter highlights Net Economic Earnings (NEE) Gas utility $ (25.0) $ (5.8) $ (0.49) $ (0.12) Gas marketing Other (6.3) (7.8) (0.12) (0.16) Average shares outstanding Quarter ended September 30, Millions Per diluted share $ (26.6) $ (10.5) $ (0.52) $ (0.22) Fourth quarter seasonal loss due to lower demand during warm summer quarter 2018 loss also reflects change in Missouri rate design Shifts earnings from summer (Q3 and Q4) into winter heating season (Q1 and Q2) Paired with weather normalization, which reduces overall recovery risk Gas Marketing was able to take advantage of continued strong market conditions 1 See Net economic earnings (non-gaap) reconciliation in Appendix. 2 Average Shares Outstanding in millions. 16

17 Strengthening our financial position FY18 adjusted EBITDA 1 of $493M Stronger long-term capitalization Equity improved 350bp from last year Near-term equity needs covered by May 2018 offering $975 million credit facility Extended through 2023 Helps meet seasonal liquidity needs heading into winter Capacity will increase with planned Spire Alabama and Spire Missouri debt issuances over the next few months Spire Missouri received $500M in new financing authority through 2021 FY18 adjusted EBITDA 1 (Millions) $500 $400 $482 FY17 Long-term capitalization 2 (at September 30, 2018) Equity Debt $493 FY % 47.8% 1 Adjusted EBITDA is Earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. 2 See Adjusted long-term capitalization reconciliation in Appendix. 17

18 Gaining regulatory certainty 2018 marked the completion of regulatory resets across our footprint The last major component was the reset of Spire Alabama s Rate Stabilization and Equalization (RSE) metrics As expected, we reset ROEs and CCM benefit sharing and harmonized capital structures across Alabama Gained incentive for infrastructure upgrades Spire Alabama Spire Gulf Current Prior Current Prior Return on Equity (ROE) Range 10.15% % 10.50% % 10.45% % 10.45% % Adjusting point 10.40% 10.80% 10.70% 10.80% Equity capitalization 55.50% 56.50% 55.50% 56.00% Infrastructure incentive AIM: +/-10 bps ROE CIMFR: 75% eq ratio > baseline thru 2019 Cost Control Measurement (CCM) Metric O&M / customer Total O&M O&M / customer Total O&M Base year /- band 1.50% 1.75% 1.50% 1.75% 18

19 Investing for long-term growth 5-year capital investment forecast increased to $2.6B, up from $2.5B Capital spend target for 2019 is set at $650M Driven by higher utility spend Supported by infrastructure upgrade programs with lives up to 20 years Evenly spread across our footprint More than 85% of planned utility spend to be recovered with minimal regulatory lag or reflected in earnings Also reflects progress in Spire STL Pipeline and Spire Storage Capital expenditures forecast (Millions) $ $485 $495 $ Utility, with minimal lag and new business 5-year forecast: $2.6B $650 Other utility Balanced 5-year spending Missouri East Missouri West Alabama/Mississippi 33% Pipelines and storage 27% Pipelines and storage 10% 30% 19

20 Driving long-term earnings growth Long-term NEEPS growth target of 4% - 7% Reflects ~6% annual utility rate base growth and regulatory certainty Growing contribution from all businesses Base year is run-rate FY18, removing 17 of Spire Marketing 2018 earnings (due to weather and market conditions that are not expected to recur) Earnings mix will remain predominately regulated Net economic earnings per share 20

21 2019 NEEPS guidance Initiating 2019 NEEPS guidance of $ $3.80 Gas Utility growth driven by organic initiatives and infrastructure upgrades more than offsetting full-year impact of rate resets in Missouri (~3 ) and Alabama (~11 ) Increasing contribution as we develop Spire STL Pipeline combined with contributions from Spire Marketing and Spire Storage Other cost reductions (interest and other corporate costs) largely offset full-year impact of May equity offering 21

22 Delivering strong operating performance and growth Improved safety, system performance and service Continued growth in customers and margins Increased investment in infrastructure upgrades, new business and technology 22

23 Enhancing system operations Capital investment drives gains in safety, system integrity and service Improved employee safety with injury rates 18% lower than last year Record performance in other areas of safety and system integrity Improved leak response times Reduced leaks per 1,000 system miles Reduced damage rate by 11% Achieved overall appointment attainment rate of 98% 23

24 Moving forward confidently Regulatory resets allow us to execute on our plans with confidence Completed two Missouri rate cases in March Increased return and improved capitalization Weather normalization for residential customers mitigates margin exposure Received approval for first post-rate case ISRS of $8M effective October 8 RSE resets for our Alabama utilities Regulatory changes provide opportunities to pursue growth Economic Development and Negotiated Gas Service riders in Missouri Energy assistance and energy efficiency in Missouri Accelerated Infrastructure Modernization (AIM) rider in Alabama Supplemental Growth rider in Mississippi 24

25 Growing organically Increased the number of homes and businesses we served in FY18 New business capital investment up 44% to $85 million Installed record 11,000+ new meters Contracted 4,600 multi-family units Achieved higher Gas Utility margin Focused on managing costs across our utilities, post the regulatory resets Driving future growth Enhancing our business and economic development efforts Leveraging data and technology to identify and track opportunities Contribution margin Gas Utility (Millions) 1,000 $939 $ $ O&M expenses per customer 1 $270 $270 $260 $252 $255 $250 $244 $241 $250 $240 $ Operation and maintenance (O&M) expenses and customers for Spire Missouri, Spire Alabama and Spire Gulf for all years (in orange) excludes pension and other amortization ($8M) associated with rate proceedings in MO and AL.

26 Driving growth through investment Spire capital expenditures (Millions) $650 FY18 utility capital spend of $456M, up 10% $279M for infrastructure upgrades Replaced 382 miles of pipelines, up 7% Increasing utility spend in FY19 Total investment $475M, up 4% Nearly 85% of utility spend recovered with minimal lag or reflected in earnings Driving long-term rate base growth of 6% $ $ FY17 FY18 FY19 Utility, with minimal lag and new business Rate base 1 growth (Billions) Other utility Pipelines and storage $2.6 $ Rate base for Missouri utilities per order authorized 2/21/18 for cases C-GR and C-GR , plus retained shareholders equity for Spire Alabama and Spire Gulf per RSE filings on 10/26/18, and Spire Mississippi rate base per stipulation 4/10/18, all with estimated growth subject to prudence review.

27 Inspiring innovation through technology Technology helps us connect with and better serve our customers Using machine learning and iterative forecasting to identify and target growth opportunities Inspiring new and innovative ways to bring people and energy together Elected Steve Schwartz to our board of directors, further supporting our innovation imperative 27

28 At Spire, we re always in motion, using our energy to get the job done today while exploring new and innovative ideas for tomorrow. 28

29 Appendix 29

30 Our Spire utility portfolio Alabama Gulf Mississippi MO East MO West Founded Primary office Birmingham Mobile Hattiesburg St. Louis Kansas City Employees , Customers 420,600 83,900 18, , ,300 Pipeline miles ~23,000 ~4,300 ~1,200 ~16,000 ~14,000 Rate base (In Millions) $509 2 $92 2 $23 3 $2,200 4 ROE 10.40% % 9.34% 9.80% % 4 Equity capitalization 55.5% % 50.0% 54.2% 54.2% 1 Employees for Gulf and Mississippi utilities combined. 2 The Rate Stabilization and Equalization (RSE) mechanism uses avg common equity for year ended 9/30/18 for Alabama and Gulf utilities, rather than rate base, for ratemaking purposes. 3 Mississippi net assets less def. taxes for Rate Stabilization Adjustment (RSA) purposes as of 6/30/17. 4 Estimated FY18 year-end rate base at Spire Missouri reflecting growth since amended MoPSC order dated March 7, 2018, establishing rate base in MO East of $1,221M and MO West of $807M. Growth in rate base subject to prudence review. 5 Terms of renewed Rate Stabilization and Equalization (RSE), effective 10/1/18 through 9/30/22. 30

31 Dividends per share Dividend payout ratio Raising our dividend by 5.3% Annualized dividends per share $2.50 $2.37 Dividend Yield 3.2% 2 70% $2.30 $ % $2.10 $2.10 $ % $1.90 $1.84 $1.70 $1.66 $1.70 $ % $ % Annualized dividend increased to $2.37 per share 5.3% increase supported by our Long-term earnings growth targets Conservative payout ratio and target range of 55% - 65% 16 consecutive years of increases; 74 years of continuous payment 1 Quarterly dividend of $ per share effective January 3, 2019, annualized. 2 Based on $2.37 per share dividend and SR average closing stock price of $73.87 for calendar 4 th quarter 2018 through Nov

32 Net economic earnings (non-gaap) reconciliation (Millions, except per share amounts) Gas Utility Gas Marketing Other Total Per diluted share 2 Three months ended September 30, 2018 Net (Loss) Income (GAAP) $ (21.8) $ 4.9 $ (9.0) $ (25.9) $ (0.51) Adjustments, pre-tax: Unrealized gain on energy-related derivatives - (0.6) - (0.6) (0.01) Acquisition, divestiture and restructuring activities Income tax effect of adjustments (0.9) (0.6) (0.01) Effects of the Tax Cuts and Jobs Act (3.3) 0.2 (3.0) (6.1) (0.12) Net Economic (Loss) Earnings (Non-GAAP) $ (25.0) $ 4.7 $ (6.3) $ (26.6) $ (0.52) Diluted EPS (GAAP) $ (0.43) $ 0.10 $ (0.18) $ (0.51) Net Economic EPS (Non-GAAP) 2 $ (0.49) $ 0.09 $ (0.12) $ (0.52) Three months ended September 30, 2017 Net (Loss) Income (GAAP) $ (6.5) $ 1.5 $ (8.3) $ (13.3) $ (0.28) Adjustments, pre-tax: Unrealized loss (gain) on energy-related derivatives Realized gain on economic hedges prior to the sale of the physical commodity - (0.1) - (0.1) - Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (0.5) (1.1) (0.2) (1.8) (0.04) Net Economic (Loss) Earnings (Non-GAAP) $ (5.8) $ 3.1 $ (7.8) $ (10.5) $ (0.22) Diluted EPS (GAAP) $ (0.14) $ 0.03 $ (0.17) $ (0.28) Net Economic EPS (Non-GAAP) 2 $ (0.12) $ 0.06 $ (0.16) $ (0.22) 1 Income tax effect is calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items and then adding any estimated effects of enacted state or local income tax laws for periods before the related effective date. 2 Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation. 32

33 Net economic earnings (non-gaap) reconciliation (Millions, except per share amounts) Gas Utility Gas Marketing Other Consolidated Per diluted share 2 Year ended September 30, 2018 Net Income (GAAP) $ $ 24.9 $ 44.9 $ $ 4.33 Adjustments, pre-tax: Missouri regulatory adjustments Unrealized gain on energy-related derivatives (4.0) (4.0) (0.08) Realized gain on economic hedges prior to the sale of the physical commodity (0.3) (0.3) (0.01) Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (9.1) 1.2 (2.4) (10.3) (0.21) Effects of the Tax Cuts and Jobs Act (78.2) (60.1) (1.21) Net Economic Earnings (Loss) (Non-GAAP) $ $ 22.9 $ (22.3) $ $ 3.72 Diluted EPS (GAAP) $ 2.92 $ 0.50 $ 0.91 $ 4.33 Net Economic EPS (Non-GAAP) 2 $ 3.71 $ 0.46 $ (0.45) $ 3.72 Year ended September 30, 2017 Net Income (Loss) (GAAP) $ $ 3.4 $ (22.3) $ $ 3.43 Adjustments, pre-tax: Unrealized loss on energy-related derivatives Realized gain on economic hedges prior to the sale of the physical commodity (0.3) (0.3) (0.01) Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (0.6) (2.2) (0.9) (3.7) (0.08) Net Economic Earnings (Loss) (Non-GAAP) $ $ 6.8 $ (20.7) $ $ 3.56 Diluted EPS (GAAP) $ 3.83 $ 0.07 $ (0.47) $ 3.43 Net Economic EPS (Non-GAAP) 2 $ 3.86 $ 0.14 $ (0.44) $ Income tax effect is calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items and then adding any estimated effects of enacted state or local income tax laws for periods before the related effective date. 2 Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation. 33

34 Contribution margin (non-gaap) reconciliation (Millions) Gas Utility Gas Marketing Other Eliminations Consolidated Three months ended September 30, 2018 Operating (Loss) Income (GAAP) $ (17.3) $ 6.1 $ (8.4) $ $ (19.6) Operation and maintenance (2.6) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (11.3) (11.3) Contribution Margin (non-gaap) (2.6) Natural and propane gas costs (0.3) 65.8 Gross receipts tax expense Operating Revenues $ $ 16.3 $ 5.0 $ (2.9) $ Three months ended September 30, 2017 Operating Income (Loss) (GAAP) $ 1.3 $ 2.3 $ (1.7) $ $ 1.9 Operation and maintenance (1.6) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (12.6) (12.6) Contribution Margin (non-gaap) (1.6) Natural and propane gas costs (0.1) 80.6 Gross receipts tax expense Operating Revenues (GAAP) $ $ 17.5 $ 2.0 $ (1.7) $

35 Contribution margin (non-gaap) reconciliation (Millions) Gas Utility Gas Marketing Other Eliminations Consolidated Year ended September 30, 2018 Operating Income (Loss) (GAAP) $ $ 33.8 $ (16.3) $ $ Operation and maintenance (10.1) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (98.3) (0.1) (98.4) Contribution Margin (non-gaap) (10.1) Natural and propane gas costs (1.4) Gross receipts tax expense Operating Revenues (GAAP) $ 1,888.4 $ 71.6 $ 16.5 $ (11.5) $ 1,965.0 Year ended September 30, 2017 Operating Income (Loss) (GAAP) $ $ 5.2 $ (5.1) $ $ Operation and maintenance (5.5) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (83.0) (0.1) (83.1) Contribution Margin (non-gaap) (5.5) Natural and propane gas costs (8.7) Gross receipts tax expense Operating Revenues (GAAP) $ 1,667.9 $ 79.3 $ 7.7 $ (14.2) $ 1,

36 Adjusted EBITDA 1 (non-gaap) reconciliation (Millions) Net Income $ $ Add back: Year ended September 30, Interest charges Regulatory asset write-offs Income tax (benefit) expense (26.5) 77.6 Depreciation & amortization EBITDA $ $ Adjusted long-term capitalization reconciliation As of September 30, 2018 As of September 30, 2017 (Millions) Equity Debt Total Equity Debt Total Capitalization per balance sheet $ 2,263.3 $ 1,900.1 $ 4,163.4 $ 1,991.3 $ 1,995.0 $ 3,986.3 Current portion of long-term debt Adjusted long-term capitalization $ 2,263.3 $ 2,075.6 $ 4,338.9 $ 1,991.3 $ 2,095.0 $ 4,086.3 % of Total 52.2% 47.8% 100.0% 48.7% 51.3% 100.0% 1 Adjusted EBITDA is Earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. 2 Largely non-cash, pre-tax impacts of regulatory asset and expense write-offs disallowed in Missouri rate cases. Note: Redeemable noncontrolling interest included in Equity ($7.9M) as of September 30,