Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Adage Capital Management Analyst Meeting (October 2019)
39 slides from Otter Tail's conference presentation, Oct 18, 2019
Slide 1: Adage Capital Management Analyst Meeting
ADAGE CAPITAL MANAGEMENT ANALYST MEETING October 18, 2019
Slide 2: Forward-Looking Statement
Forward-Looking Statement Except for historical information, all other information provided in this presentation consists of “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” are subject to risks and uncertaint
Slide 3: Agenda
Agenda Business Overview ESG Highlights Electric Platform Manufacturing Platform Financial Update 3
Slide 4: Business Overview
BUSINESS OVERVIEW
Slide 5: Target earnings contributions
MANUFACTURING PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target earnings contributions Manufacturing Manufacturing Electric Electric Competitive low-cost operations 25% Long-term growth potential 75% Constructive regulatory environment Capacity utilization Attractive rate base growth
Slide 6: Strategic Outlook
Strategic Outlook > High performing electric utility > Strong pipeline of rate base growth for at least 5 years > Supportive regulatory treatment > Solid management in place > History of excellence > Disciplined, focused set of manufacturing companies > Incremental earnings growth > Premium return >
Slide 7: ESG Highlights
ESG Highlights Environmental Social Governance We estimate by 2022 approximately Otter Tail continues to provide Otter Tail Corporation has 8 out 30% of the energy we produce to shareholder value while maintaining of 9 directors that are serve our customers will come from electric rates 30% lo
Slide 8: ESG Highlights - Environmental
ESG Highlights - Environmental ASSET PROFILE Net property and equipment as of December 31, 2018 8
Slide 9: ESG Highlights
ESG Highlights ENERGY RESOURCE MIX 2005 2022 Otter Tail Power Company does not own all the renewable energy certificates (RECs) generated by contracted wind and solar, and periodically sells its own RECs with proceeds benefiting retail customers. Accordingly, we cannot represent that 100% of carbon-
Slide 10: Electric Platform
ELECTRIC PLATFORM OnrERTAIL POWER COMPANY
Slide 11: Electric Operations
Electric Operations Net Revenue ($ in millions) $500 $427.4 $434.5 $450.3 $453.9 $400 $300 $200 $100 Highlights $0 Rate base growth opportunities 2016 2017 2018 6/30/19 Merricourt Wind Energy Center LTM Astoria Station SD transmission reliability project Rate case activity – SD Net Income
Slide 12: Electric Operations
SOTIERTAIL Electric Operations W CORPORATION CANADA Wind, 16% Solar, 0% a Coal, 55% Yo NORTH DAKOTA Purchased, 27% Hydro, 19% Le SOUTH Gil, 0% Gas, 1% DAKOTA * Service area excludes Fargo, Minot and Grand Forks, ND. Electric Revenues by Customer — 2018 Other Industrial °-5% 30.0% Residential 32.5% C
Slide 13: Competitive Advantage
Competitive Advantage Positive value Investment proposition opportunities •Low rates •Customer service Positive regulatory Strategic relationships location and constructs Dedicated, collaborative workforce Otter Tail Power has executed well on its rate base growth projects in terms of safety, constr
Slide 14: Rate Base Growth
Rate Base Growth Capital spending of $1.0 billion for 2019 to 2023 is divided among: Technology Other s ys tem 2018-2023 CAGR of 8.6% a nd repl acements and i nfra structure i nvestments a dditions $128 $103 (13%) (10%) Na tural gas $1.67 generation $150 $147 Routi ne $1.53 $1.58 a ddition (15%) (15
Slide 15: Rate Case Outcomes
Rate Case Outcomes NORTH DAKOTA (with Tax Cuts and Jobs Act) SOUTH DAKOTA 2018 Test Year 2017 Test Year INCREASE (with Transmission Rider Adj.) Original requested increase $9.7M $6.3M Original effective requested increase $7.1M $3.7M Final effective increase $4.6M $2.6M PERCENT OF INCREASE Percent o
Slide 16: Regulatory Framework
Regulatory Framework A constructive regulatory Riders Minnesota North Dakota South Dakota environment provides for Wind projects Rider recovery / Rate case Rider recovery / Rate case Rate case timely recovery Transmission Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate ca
Slide 17: Rate Base Projects
Rate Base Projects Our investment Percent Recovery Project (Millions) In service complete mechanisms Big Stone South – Brookings Co. $73 2017 100% Rider/Base Rates (CapX2020 and MVP) Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $270 2020 19% Rider/General Rate
Slide 18: Merricourt Wind Energy Center
Merricourt Wind Energy Center Project Merricourt Wind Energy Center Description 150 MWs Schedule 2017 - 2020 OTP cost $270 million • MN Resource Plan approved on March 16, 2017, allows up to 200 MW’s of wind by 2020. • Anticipate a capacity factor between 50% and 55%. • Turbines qualify for safe har
Slide 19: Astoria Station
Astoria Station Project Astoria Station Natural Gas Plant Description 245-MW simple cycle unit Schedule 2019 - 2021 OTP cost $158 million • Location intersects Big Stone–Brookings 345-KV line and Northern Border Pipeline. • MN Resource Plan approved in March 2017. • ND PSC approved Advance Determina
Slide 20: South Dakota Transmission Reliability Project
South Dakota Transmission Reliability Project Project South Dakota Reliability Project Description 115-KV transmission line Phase I - In service March 2019 Schedule Phase II - In service March 2021 OTP cost $39 million • Transmission line to improve reliability in the southern end of our service ter
Slide 21: Rate Trends
Rate Trends Total Avg Rates per kWh - MINNESOTA Total Avg Rates per kWh – NORTH DAKOTA 11.00 10.00 10.00 8.00 9.00 6.00 8.00 7.00 4.00 6.00 July July July July July' July July July July July July July July 5.00 '06 '07 '08 '09 10 '11 '12 '13 '14 '15 '16 '17 '18 July July July July July' July July Ju
Slide 22: Manufacturing Platform
MANUFACTURING PLATFORM BTD VINYLTECH TO. PLASTICS Vin PVCePIPE
Slide 23: Manufacturing
Manufacturing Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) tube bending, welding, painting, assembly $300 $268.4 $282.9 $221.3 $229.7 Growth opportunities with existing customer base $200 and expansion with new customers $100 $0 Manufacturer of plastic thermof
Slide 24: Manufacturing Locations
SOTTERTAIL W CORPORATION Manufacturing Locations 24
Slide 25: Manufacturing Sales by End Markets
Manufacturing Sales by End Markets 2018 BTD 2017 BTD L&G, 15% L&G, 16% Rec, 35% Rec, 37% Energy, 5% Transp, 0% Energy, 10% Transp, 0% Ag, 15% Ag, 11% Ind./Other, Ind./Other, Const, 17% Const, 15% 13% 11% 2018 T.O. Plastics, Inc. 2017 T.O. Plastics, Inc. Medical, 20% Medical, 22% Industrial, 11% Hort
Slide 26: Plastics
Plastics Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ in millions) $250 Approximate production capacity of 150 mm lbs $185.1 $197.8 $187.2 $200 $154.9 of PVC (~ 2.5% of total market) $150 $100 Manufactures PVC pipe in AZ $50 $0 Current capacity of 150 mm lbs 2016 2017 2018
Slide 27: Plastics Locations
SOTTERTAIL Plastics Locations 27
Slide 28: Financial Update
FINANCIAL UPDATE
Slide 29: Financial Overview ($ in Millions)
Financial Overview ($ in Millions) Revenue Sources EBITDA $916.4 $924.0 $250 $1,000 $849.4 $185.0 $199.2 $198.5 $199.0 $803.5 $800 $200 466.2 470.1 41.1 55.5 58.6 54.8 $600 376.1 414.9 $150 $400 $100 450.2 453.9 143.9 143.7 139.9 144.2 $200 427.4 434.5 $50 $0 $0 2016 2017 2018 LTM 2016 2017 2018 L
Slide 30: Q2 2019 Financial Summary
Q2 2019 Financial Summary • Reaffirms 2019 consolidated earnings per share Q2 2019 Q2 2018 guidance range of $2.10-$2.25 per diluted share. • Electric segment’s earnings decreased primarily due to increased maintenance and material expense from Operating Revenues (in millions) $229.2 $226.3 extended
Slide 31: Q2 2018 compared with Q2 2019
Q2 2018 compared with Q2 2019 Q2 EPS 2018 vs. Q2 EPS 2019 Electric Manufacturing Plastics Corporate Consolidated Q2 2018 Diluted Earnings per Share $0.26 $0.09 $0.16 ($0.04) $0.47 Increase in MN transmission and ND generation riders 0.02 0.02 Lower provisions for TCJA between quarters 0.02 0.02 Incr
Slide 32: YTD EPS 2018 vs. YTD EPS 2019
YTD EPS 2018 VS. YTD EPS 2019 YTD June EPS 2018 vs. YTD June EPS 2019 Electric Manufacturing Plastics Corporate Consolidated YTD June 2018 Diluted EPS $0.68 $0.20 $0.33 ($0.08) $1.13 Increased cost recovery requirement in base rates and renewable riders from expired PTC's 0.05 0.05 Increase in MN tr
Slide 33: Liquidity, Cap Structure & Credit Ratings
Liquidity, Cap Structure & Credit Ratings Consolidated Capital Structure OTP OTC 100% 12.0% 80% 11.5% 11.5% Line of Credit Facilities $ 170,000,000 $ 130,000,000 46.5% 46.4% 45.5% 11.0% Equity/Debt 60% 10.6% ROE 10.5% Outstanding 40% 9.8% 10.0% Borrowings 22,801,375 13,800,956 20% 53.5% 53.6% 54.5%
Slide 34: Bond Maturity Schedule
SOTERTAIL Bond Maturity Schedule (S in thousands) Coupon Rate $160,000 5 ea 7.00% 6.15% Sap ° $140,000 rs Box 547% 2 $120,000 | 4.63 {68% 5.00% $100,000 | ante om 3.52% 3.62% 40 oy 4.00% $80,000 3.07% 3.22% at 3.82%) ° 3.00% $60,000 ‘Kai 2.00% $20,000 1.00% $0 0.00% SPF MNFSPRQHI COO wywyyow yyw yyw
Slide 35: 2019 Earnings Guidance
2019 Earnings Guidance 2018 EPS by Segment 2019 Guidance 2019 Guidance 2019 Guidance February 18, 2019 May 6, 2019 August 5, 2019 Diluted Earnings Per Share Low High Low High Low High Electric $1.36 $1.46 $1.49 $1.48 $1.51 $1.48 $1.51 Manufacturing $0.32 $0.37 $0.41 $0.35 $0.39 $0.33 $0.37 Plastics
Slide 36: Costs in second-half 2018 not expected in last half 2019
Costs in second-half 2018 not expected in last half 2019 After-tax Costs in last half of 2018 impact EPS Key items: Electric segment Big Stone Plant outage $ 2,300,000 $ 0.06 OTP Foundation contribution 370,000 0.01 Corporate OTC Foundation contribution 1,500,000 0.04 OTC Uncertain tax positions 600
Slide 37: Capital Expenditures
Capital Expenditures (in millions) 2018 2019 2020 2021 2022 2023 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation $125 $ 264 $ 15 $ 82 $ 0 $ 486 Transformative Technology and Infrastructure 2 7 18 47 54 128 Transmission (includes replacements) 43 42 21 19 17 142 Ot
Slide 38: History of Dividend Growth
History of Dividend Growth Consecutive annual dividends without interruption Dividend Growth $1.40 paid since 1938 $1.23 $1.25 $1.34 $1.19 $1.21 $1.28 Indicated increase of $.06/share (4.5%) Strong balance sheet, liquidity, cash generation profile 79% 78% 79% 78% and our commitment to enhancin
Slide 39: Investment Highlights
Investment Highlights Strong and stable regulated electric operations provide cash flow to Competitive, low cost integrated electric support dividends operations Manufacturing businesses provide above Balanced Stable and Regulated rate base capex over the next 5 average earnings growth potential Gro
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