Energy in motion Year-end fiscal 2018 earnings results November 15, - - PowerPoint PPT Presentation
Energy in motion Year-end fiscal 2018 earnings results November 15, 2018 Participants on todays call Suzanne Sitherwood President and Chief Executive Officer Steven L. Lindsey Executive Vice President and Chief Operating Officer,
Year-end fiscal 2018 earnings results
November 15, 2018
Spire | Year -end fiscal 2018 earnings results 2
President and Chief Executive Officer
Executive Vice President and Chief Operating Officer, Distribution Operations
Executive Vice President and Chief Financial Officer
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward- looking 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
energy-related transactions, the impacts of acquisition, divestiture, and restructuring activities and the largely non-cash impacts of other non- recurring 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-over- year 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 314-342-0878 Scott.Dudley@SpireEnergy.com
Spire | Year -end fiscal 2018 earnings results 3
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 Spire | Year -end fiscal 2018 earnings results 4
Spire | Year -end fiscal 2018 earnings results 5
President, Spire Alabama, Gulf Coast and Mississippi
President, Spire Missouri
Spire | Year -end fiscal 2018 earnings results 6
President, Spire Marketing
President, Spire STL Pipeline and Spire Storage
7 Spire | Year -end fiscal 2018 earnings results
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Spire | Year -end fiscal 2018 earnings results 9
‒ 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
‒ 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
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share growth target of 4% - 7%
NEEPS of $3.70 - $3.80
– 2019 dividend raised 5.3% to $2.37 – 16 consecutive years of increases – 74 years of continuous payment – Maintained conservative payout ratio and target range of 55% - 65%
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‒ Gas Utility +$1.6M
‒ 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
1See Net economic earnings (non-GAAP) reconciliation in Appendix. 2Average Shares Outstanding in millions.
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Net Economic Earnings (NEE)1 2018 2017 2018 2017 Gas utility 183.1 $ 181.5 $ 3.71 $ 3.86 $ Gas marketing 22.9 6.8 0.46 0.14 Other (22.3) (20.7) (0.45) (0.44) 183.7 $ 167.6 $ 3.72 $ 3.56 $ Average shares outstanding2 49.3 47.0 Year ended September 30, Millions Per diluted share
+ 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
conditions
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1Contribution margin is operating revenues less gas costs and gross receipts taxes. See Contribution margin (non-GAAP) reconciliation in Appendix.
(Millions)
2018 2017 $ %
Operating Revenues Gas utility
1,888.4 $ 1,667.9 $ 220.5 $ 13%
Gas marketing
71.6 79.3 (7.7)
Other and eliminations
5.0 (6.5) 11.5 NM 1,965.0 $ 1,740.7 $ 224.3 $ 13%
Contribution Margin1 Gas utility
947.5 $ 939.0 $ 8.5 $ 1%
Gas marketing
41.3 11.6 29.7 256%
Other and eliminations
6.1 1.9 4.2 221% 994.9 $ 952.5 $ 42.4 $ 4% Years ended September 30, Millions Change
‒ Reflects higher amortization of MO benefit costs ($7.0M) ‒ All other expenses up $7.0M on higher weather driven employee and bad debt expenses
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(Millions)
2018 2017 $ % Operating Expenses Gas Utility Natural & propane gas 770.1 $ 570.5 $ 199.6 $ 35% Operation and maintenance (O&M) 455.6 405.0 50.6 12% Depreciation & amortization 167.0 153.5 13.5 9% Taxes, other than income taxes 152.5 137.8 14.7 11% Gas Marketing 109.2 140.8 (31.6)
Other 30.9 11.4 19.5 171% Interest Expense 98.4 89.1 9.3 10% Years ended September 30, Millions Change
liabilities for the Tax Cuts and Jobs Act using current Treasury guidance
‒ Lower than prior year due to tax reform ‒ Includes the benefit of amortizing excess ADIT returned to Missouri customers
amortization of excess ADIT amortization
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1Excess Accumulated Deferred Income Taxes (ADIT).
(Millions)
2018 2017 2018 2017 GAAP expense (benefit) before ADIT amortization1 (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) 60.1
1.3
34.9 $ 77.6 $ (17.2) $ (6.7) $ Effective tax rate 18.6% 32.4% 39.2% 33.5% Year ended September 30, Quarter ended September 30,
‒ Shifts earnings from summer (Q3 and Q4) into winter heating season (Q1 and Q2) ‒ Paired with weather normalization, which reduces overall recovery risk
Spire | Year -end fiscal 2018 earnings results 16
1See Net economic earnings (non-GAAP) reconciliation in Appendix. 2Average Shares Outstanding in millions.
Net Economic Earnings (NEE)1 2018 2017 2018 2017 Gas utility (25.0) $ (5.8) $ (0.49) $ (0.12) $ Gas marketing 4.7 3.1 0.09 0.06 Other (6.3) (7.8) (0.12) (0.16) (26.6) $ (10.5) $ (0.52) $ (0.22) $ Average shares outstanding2 50.7 48.3 Quarter ended September 30, Per diluted share Millions
$482 $493 $400 $500 FY17 FY18
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‒ Equity improved 350bp from last year
‒ Near-term equity needs covered by May 2018 offering
‒ 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
new financing authority through 2021
1Adjusted EBITDA is Earnings before interest, income taxes, depreciation and
amortization, plus largely non-cash write-offs related to Missouri rate cases.
2See Adjusted long-term capitalization reconciliation in Appendix.
FY18 adjusted EBITDA1
(Millions)
52.2% 47.8% Equity Debt
Long-term capitalization2
(at September 30, 2018)
and Equalization (RSE) metrics
structures across Alabama
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Current Prior Current Prior Return on Equity (ROE) Range 10.15% - 10.65% 10.50% - 10.95% 10.45% - 10.95% 10.45% - 10.95% 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 2018 2007 2017 2014 +/- band 1.50% 1.75% 1.50% 1.75% Spire Alabama Spire Gulf
393 400 405 410 420 63 75 65 70 70 43 175 15 15 15 2018 2019 2020 2021 2022
Utility, with minimal lag and new business
increased to $2.6B, up from $2.5B
at $650M
– 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
Pipeline and Spire Storage
Capital expenditures forecast
5-year forecast: $2.6B
Pipelines and storage Other utility
$499 $650 $485 $495 $505
(Millions)
Balanced 5-year spending
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33% 27% 30% 10%
Missouri East Missouri West Alabama/Mississippi Pipelines and storage
– Reflects ~6% annual utility rate base growth and regulatory certainty – Growing contribution from all businesses
(due to weather and market conditions that are not expected to recur)
Spire | Year -end fiscal 2018 earnings results 20
Net economic earnings per share
– Gas Utility growth driven by organic initiatives and infrastructure upgrades more than
– 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
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new business and technology
Spire | Year -end fiscal 2018 earnings results 22
safety, system integrity and service
injury rates 18% lower than last year
‒ Improved leak response times ‒ Reduced leaks per 1,000 system miles ‒ Reduced damage rate by 11%
attainment rate of 98%
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‒ Completed two Missouri rate cases in March
‒ Received approval for first post-rate case ISRS of $8M effective October 8 ‒ RSE resets for our Alabama utilities
‒ 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
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Spire | Year -end fiscal 2018 earnings results 25
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
utilities, post the regulatory resets
– Enhancing our business and economic development efforts – Leveraging data and technology to identify and track opportunities Contribution margin – Gas Utility
$844 $939 $948
600 700 800 900 1,000
2016 2017 2018 (Millions)
O&M expenses per customer1
$270 $252 $244 $241 $255 $250 $230 $240 $250 $260 $270 2014 2015 2016 2017 2018
1Operation and maintenance (O&M) expenses and customers for Spire Missouri, Spire
Alabama and Spire Gulf for all years. 2018 (in orange) excludes pension and other amortization ($8M) associated with rate proceedings in MO and AL.
‒ $279M for infrastructure upgrades ‒ Replaced 382 miles of pipelines, up 7%
‒ Total investment $475M, up 4% ‒ Nearly 85% of utility spend recovered with minimal lag or reflected in earnings
growth of 6%
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Spire capital expenditures
(Millions)
358 393 400 63 75 FY17 FY18 FY19 $650 $438 55 $499 175 25 43
Rate base1 growth
(Billions)
Utility, with minimal lag and new business Pipelines and storage Other utility
$2.6 $2.8
2017 2018 2019 2020 2021 2022
1Rate base for Missouri utilities per order authorized 2/21/18 for cases C-GR-2017-0215 and
C-GR-2017-0216, 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.
Spire | Year -end fiscal 2018 earnings results 27
and better serve our customers
iterative forecasting to identify and target growth opportunities
ways to bring people and energy together
supporting our innovation imperative
Spire | Year -end fiscal 2018 earnings results 28
Spire | Year -end fiscal 2018 earnings results
29
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Alabama Gulf Mississippi MO East MO West Founded 1852 1836 1933 1857 1867 Primary office Birmingham Mobile Hattiesburg
Kansas City Employees 861 1561 1,721 600 Customers 420,600 83,900 18,500 653,600 516,300 Pipeline miles ~23,000 ~4,300 ~1,200 ~16,000 ~14,000 Rate base (In Millions) $5092 $922 $233 $2,2004 ROE 10.40%5 10.70% 9.34% 9.80%4 9.80%4 Equity capitalization 55.5%5 55.5% 50.0% 54.2% 54.2%
1Employees for Gulf and Mississippi utilities combined. 2The 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. 3Mississippi net assets less def. taxes for Rate Stabilization Adjustment (RSA) purposes as of 6/30/17. 4Estimated 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.
5Terms of renewed Rate Stabilization and Equalization (RSE), effective 10/1/18 through 9/30/22.
1Quarterly dividend of $0.5925 per share effective January 3, 2019, annualized. 2Based on $2.37 per share dividend and SR average closing stock price of $73.87 for calendar 4th quarter 2018 through Nov. 13.
Dividend Yield 3.2%2
Spire | Year -end fiscal 2018 earnings results 31
‒ Long-term earnings growth targets ‒ Conservative payout ratio and target range of 55% - 65%
$1.66 $1.70 $1.76 $1.84 $1.96 $2.10 $2.25 $2.37 50% 55% 60% 65% 70%
$1.50 $1.70 $1.90 $2.10 $2.30 $2.50
2012 2013 2014 2015 2016 2017 2018 2019
Annualized dividends per share
Dividend payout ratio Dividends per share
1Income 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.
2Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
Spire | Year -end fiscal 2018 earnings results 32
(Millions, except per share amounts)
Gas Utility Gas Marketing Other Total Per diluted share2 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
(0.01) Acquisition, divestiture and restructuring activities
6.6 0.13 Income tax effect of adjustments1 0.1 0.2 (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
0.06 Realized gain on economic hedges prior to the sale of the physical commodity
1.2
1.9 0.04 Income tax effect of adjustments1 (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) $
1Income 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.
2Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
Spire | Year -end fiscal 2018 earnings results 33
(Millions, except per share amounts)
Gas Utility Gas Marketing Other Consolidated Per diluted share2 Year ended September 30, 2018 Net Income (GAAP) 144.4 $ 24.9 $ 44.9 $ 214.2 $ 4.33 $ Adjustments, pre-tax: Missouri regulatory adjustments 30.6 — — 30.6 0.62 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 0.2 — 13.4 13.6 0.28 Income tax effect of adjustments1 (9.1) 1.2 (2.4) (10.3) (0.21) Effects of the Tax Cuts and Jobs Act 17.0 1.1 (78.2) (60.1) (1.21) Net Economic Earnings (Loss) (Non-GAAP) 183.1 $ 22.9 $ (22.3) $ 183.7 $ 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) 180.5 $ 3.4 $ (22.3) $ 161.6 $ 3.43 $ Adjustments, pre-tax: Unrealized loss on energy-related derivatives 0.1 5.9 — 6.0 0.13 Realized gain on economic hedges prior to the sale of the physical commodity — (0.3) — (0.3) (0.01) Acquisition, divestiture and restructuring activities 1.5 — 2.5 4.0 0.09 Income tax effect of adjustments1 (0.6) (2.2) (0.9) (3.7) (0.08) Net Economic Earnings (Loss) (Non-GAAP) 181.5 $ 6.8 $ (20.7) $ 167.6 $ 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) $ 3.56 $
Spire | Year -end fiscal 2018 earnings results 34 (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
110.6 2.3 12.5 (2.6) 122.8
Depreciation and amortization
45.1 — 0.4 — 45.5
Taxes, other than income taxes
24.3 — 0.4 — 24.7
Less: Gross receipts tax expense
(11.3) — — — (11.3)
Contribution Margin (non-GAAP)
151.4 8.4 4.9 (2.6) 162.1
Natural and propane gas costs
58.1 7.9 0.1 (0.3) 65.8
Gross receipts tax expense
11.3 — — — 11.3
Operating Revenues
220.8 $ 16.3 $ 5.0 $ (2.9) $ 239.2 $
Three months ended September 30, 2017 Operating Income (Loss) (GAAP)
1.3 $ 2.3 $ (1.7) $ — $ 1.9 $
Operation and maintenance
107.4 1.5 3.4 (1.6) 110.7
Depreciation and amortization
39.5 — 0.2 — 39.7
Taxes, other than income taxes
25.6 0.2 — — 25.8
Less: Gross receipts tax expense
(12.6) — — — (12.6)
Contribution Margin (non-GAAP)
161.2 4.0 1.9 (1.6) 165.5
Natural and propane gas costs
67.1 13.5 0.1 (0.1) 80.6
Gross receipts tax expense
12.6 — — — 12.6
Operating Revenues (GAAP)
240.9 $ 17.5 $ 2.0 $ (1.7) $ 258.7 $
Spire | Year -end fiscal 2018 earnings results 35 (Millions)
Gas Utility Gas Marketing Other Eliminations Consolidated
Year ended September 30, 2018 Operating Income (Loss) (GAAP)
262.2 $ 33.8 $ (16.3) $ — $ 279.7 $
Operation and maintenance
464.1 7.4 30.3 (10.1) 491.7
Depreciation and amortization
167.0 — 1.4 — 168.4
Taxes, other than income taxes
152.5 0.2 0.8 — 153.5
Less: Gross receipts tax expense
(98.3) (0.1) — — (98.4)
Contribution Margin (non-GAAP)
947.5 41.3 16.2 (10.1) 994.9
Natural and propane gas costs
842.6 30.2 0.3 (1.4) 871.7
Gross receipts tax expense
98.3 0.1 — — 98.4
Operating Revenues (GAAP)
1,888.4 $ 71.6 $ 16.5 $ (11.5) $ 1,965.0 $
Year ended September 30, 2017 Operating Income (Loss) (GAAP)
321.6 $ 5.2 $ (5.1) $ — $ 321.7 $
Operation and maintenance
409.1 5.9 11.8 (5.5) 421.3
Depreciation and amortization
153.5 0.1 0.5 — 154.1
Taxes, other than income taxes
137.8 0.5 0.2 — 138.5
Less: Gross receipts tax expense
(83.0) (0.1) — — (83.1)
Contribution Margin (non-GAAP)
939.0 11.6 7.4 (5.5) 952.5
Natural and propane gas costs
645.9 67.6 0.3 (8.7) 705.1
Gross receipts tax expense
83.0 0.1 — — 83.1
Operating Revenues (GAAP)
1,667.9 $ 79.3 $ 7.7 $ (14.2) $ 1,740.7 $
1Adjusted EBITDA is Earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. 2Largely 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, 2018.
Spire | Year -end fiscal 2018 earnings results 36 (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 — 175.5 175.5 — 100.0 100.0 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% As of September 30, 2018 As of September 30, 2017
(Millions)
2018 2017 Net Income 214.2 $ 161.6 $ Add back: Interest charges 98.4 89.1 Regulatory asset write-offs2 38.4 — Income tax (benefit) expense (26.5) 77.6 Depreciation & amortization 168.4 154.1 EBITDA 492.9 $ 482.4 $ Year ended September 30,