Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — EEI Financial Conference 2019
41 slides from Otter Tail's conference presentation, Nov 10, 2019
Slide 1: EEI Financial Conference
EEI FINANCIAL CONFERENCE SOTTERTAIL W CORPORATION
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 4
Slide 5: Company Overview
COMPANY OVERVIEW MANUFACTURING PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target earnings contributions Manufacturing Electric 25% Electric 75% Manufacturing ▪ Competitive low-cost operations ▪ Long-term growth potential ▪ Constructive regulatory environment ▪ Capacity utilization ▪ Attractive
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
ESG ESG HIGHLIGHTS Highlights ASSET PROFILE Net property and equipment as of December 31, 2018 2018 2022 8
Slide 9: ESG Highlights
ESG ESG HIGHLIGHTS Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWER from owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels compared to the through power beresidential national 33% lower purchase agreements
Slide 10: ESG Highlights
ESG HIGHLIGHTS ENERGY RESOURCE MIX 2005 2022 * 10 * More than 99% of this is natural gas. Less than 1% is oil. 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 retai
Slide 11: Electric Platform
ELECTRIC PLATFORM Orenian POWER COMPANY
Slide 12: Electric Operations
ELECTRIC Electric OPERATIONS Operations Net Revenue ($ in millions) $500 $427.4 $434.5 $450.3 $462.8 $400 $300 Highlights $200 $100 $0 ▪ Rate base growth opportunities 2016 2017 2018 9/30/19 ▪ Merricourt wind project LTM ▪ Astoria gas plant Net Income ($ in millions) ▪ SD transmission reliability pr
Slide 13: Electric Operations
ELECTRIC OPERATIONS Energy by Source - 2018 Wind, 16% Solar, 0% NN Purchased, Va 27% Coal, 55% f Hydro, 1% Lae, 1% Electric Retail Revenues by State — 2018 SD 8.8% Service Area* CANADA n SOUTH DAKOTA = 2 2 m a ° > * Service area excludes Fargo, Minot and Grand Forks, ND. Electric Revenues by Custome
Slide 14: 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 15: Rate Base Growth
RATE BASE GROWTH CapitalCapital spending of $1.0 spending billion of $1.0 billionfor for2019 to2023 2019 to 2023is divided among: divided among: Technology and Other system infrastructure replacements and investments $103 additions $128 (10%) Routine (13%) distribution Natural gas $147 replacements
Slide 16: 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 17: Regulatory Framework
REGULATORY FRAMEWORK A constructive regulatory Riders Minnesota North Dakota South Dakota environment Wind projects Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case provides for timely recovery Transmission Rider recovery / Rate case Rider recovery / Rate case Rider r
Slide 18: Rate Base Projects
RATE BASE PROJECTS Our investment Percent Recovery mechanisms Project (Millions) In service complete 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 $258 2020 19% Rider/General Rate
Slide 19: Merricourt Wind Energy Center
MERRICOURT WIND ENERGY CENTER Project Merricourt Wind Energy Center Description 150 MWs Schedule 2017 - 2020 OTP cost $258 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 20: 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 21: South Dakota Transmission Reliability Project
South SOUTH DAKOTA Dakota Transmission TRANSMISSION Reliability RELIABILITY Project PROJECT Project South Dakota Reliability Project Description 115-KV transmission line Phase I - In service March 2019 Schedule Phase II - In service June 2021 OTP cost $39 million • Transmission line to improve relia
Slide 22: Rate Trends
RATE TRENDS Total Avg Rates per kWh - MINNESOTA Total Avg Rates per kWh – NORTH DAKOTA 11.00 10.00 10.00 8.00 9.00 6.00 8.00 7.00 4.00 6.00 July July July July July' July July July July July July July July 5.00 '06 '07 '08 '09 10 '11 '12 '13 '14 '15 '16 '17 '18 July July July July July' July July Ju
Slide 23: Manufacturing Platform
MANUFACTURING PLATFORM BTD VINYLTECH TO. PLASTICS V PV Gs PIPE
Slide 24: Manufacturing
MANUFACTURING ◼ Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) $300 $268.4 $281.6 tube bending, welding, painting, assembly $250 $221.3 $229.7 ◼ Growth opportunities with existing customer base $200 and expansion with new customers $150 $100 $50 ◼ Manufacturer of plas
Slide 25: Manufacturing Locations
MANUFACTURING LOCATIONS en 25
Slide 26: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS 2018 BTD 2017 BTD L&G, 15% L&G, 16% Rec, 35% Rec, 37% Energy, 5% Transp, 0% Energy, 10% Transp, 0% Ag, 15% Ag, 11% Ind./Other, Ind./Other, Const, 17% Const, 15% 13% 11% 2018 T.O. Plastics, Inc. 2017 T.O. Plastics, Inc. Medical, 20% Medical, 22% Industrial, 11% Hort
Slide 27: Plastics
PLASTICS ◼ Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ in millions) ◼ Approximate production capacity of 150 mm lbs of $250 $185.1 $197.8 PVC (~ 2.5% of total market) $200 $180.6 $154.9 $150 ◼ Manufactures PVC pipe in AZ $100 ◼ Current capacity of 150 mm lbs $50 (~ 2.5% of total
Slide 28: Plastics Locations
PLASTICS LOCATIONS 28
Slide 29: Financial Update
FINANCIAL UPDATE
Slide 30: Financial Overview
FINANCIAL OVERVIEW ($ IN MILLIONS) Revenue Sources EBITDA $1,000 $916.4 $925.0 $250 $849.4 $199.2 $198.5 $199.2 $803.5 $185.0 $800 $200 466.2 462.2 41.1 55.5 58.6 52.4 $600 376.1 414.9 $150 $400 $100 450.2 462.8 143.9 143.7 139.9 146.8 $200 427.4 434.5 $50 $0 $0 2016 2017 2018 LTM 2016 2017 2018 LTM
Slide 31: Q3 2019 Financial Summary
Q3 2019 FINANCIAL SUMMARY • Narrowed 2019 consolidated earnings per share Q3 2019 Q3 2018 guidance range to $2.10-$2.20 from $2.10-$2.25 per diluted share. • Electric segment’s earnings increased primarily due Operating Revenues (in millions) $228.7 $227.7 to final rates implemented from the South D
Slide 32: Q3 2018 Compared With Q3 2019
Q3 2018 COMPARED WITH Q3 2019 Q3 EPS 2018 vs. Q3 EPS 2019 Electric Manufacturing Plastics Corporate Consolidated Q3 2018 Diluted Earnings per Share $0.37 $0.07 $0.16 ($0.02) $0.58 Increase in electric base rates 0.05 0.05 Increase kwh sales, non weather related 0.02 0.02 Increased cost recovery requ
Slide 33: YTD EPS 2018 vs. YTD EPS 2019
YTD EPS 2018 VS. YTD EPS 2019 YTD September EPS 2018 vs. YTD September EPS 2019 Electric Manufacturing Plastics Corporate Consolidated YTD September 2018 Diluted EPS $1.05 $0.27 $0.49 ($0.10) $1.71 Increased cost recovery requirement in base rates and renewable riders from expired PTC's 0.06 0.06 In
Slide 34: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS OTP OTC Consolidated Capital Structure Line of Credit Facilities $ 170,000,000 $ 130,000,000 100% 12.0% Outstanding 80% 11.5% 11.5% 46.5% 46.4% Borrowings 73,160,050 35,837,258 45.5% 11.0% Equity/Debt Letters of Credit 16,561,050 - 60% ROE 10.6% 10.5% Unused
Slide 35: Bond Maturity Schedule
BOND MATURITY SCHEDULE ($ in thousands) $160,000 $140,000 $120,000 $100,000 $80,000 463' 6.37% 4 3.55% 4.68% °° 6.47% 3.52% 3.62% ° 5.47% 4 1 3.07% 3.22% ° 2 $60,000 + 35
Slide 36: 2019 Earnings Guidance
2019 EARNINGS GUIDANCE 2018 EPS by 2019 Guidance 2019 Guidance 2019 Guidance 2019 Guidance Segment February 18, 2019 May 6, 2019 August 5, 2019 November 4, 2019 Diluted Earnings Per Share Low High Low High Low High Low High Electric $1.36 $1.46 $1.49 $1.48 $1.51 $1.48 $1.51 $1.48 $1.50 Manufacturing
Slide 37: Costs in Q4 '18 Not Expected in Q4 '19
COSTS IN Q4 ‘18 NOT EXPECTED IN Q4 ‘19 Costs in fourth quarter of 2018 EPS Key items: Electric segment Big Stone Plant outage $ 0.04 OTP Foundation contribution 0.01 Corporate OTC Foundation contribution 0.04 OTC Uncertain tax positions 0.02 OTC Valuation allowance 0.02 Total $ 0.13 37
Slide 38: 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 39: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Dividend Growth ▪ Consecutive annual dividends $1.21 $1.23 $1.25 $1.28 $1.34 $1.40 $1.19 without interruption paid since 1938 ▪ Indicated increase of $.06/share 79% 78% 79% 78% 71% 65% 65% (4.5%) ▪ Strong balance sheet, liquidity, cash generation profile and our commitment
Slide 40: Investment Highlights
INVESTMENT HIGHLIGHTS Total Dividend yield ~ 3% 5-7% EPS growth- Shareholder Dividend growth in based off from 2018 EPS Return line with EPS growth while maintaining a ~ 8-10% payout ratio of 60-70% 40
Slide 41: 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