Atco Ltd. Class I · TSX:ACO.X
Atco Ltd. Class I — Investor Presentation (October 2020)
64 slides from Atco Ltd. Class I's investor presentation, October 2020
Slide 1: Disclaimer
DISCLAIMER Due to uncertainty surrounding the application of recent amendments to the Competition Act (Canada), the documents incorporated by reference herein are referenced for historical information purposes only and do not constitute active or current representations of ATCO Ltd. or any of its re
Slide 2: Investor Presentation October 2020
& INVESTOR PRESENTATION October 2020
Slide 3: Legal Disclaimer
LEGAL DISCLAIMER Statements made by representatives for ATCO Ltd. and Canadian Utilities Limited and information provided in this presentation may be considered forward-looking statements. By their nature, such statements are subject to numerous known and unknown risks and uncertainties and therefor
Slide 4: Table of Contents
TABLE OF CONTENTS 1 ATCO Group Overview Page 4 2 Financial Strength Page 6 3 Sustainability – ESG Highlights Page 12 4 Canadian Utilities Limited Page 16 Regulated Utility Businesses Page 21 Puerto Rico T&D Contract Page 27 Energy Infrastructure Businesses Page 36 5 ATCO Investments Page 40 Structur
Slide 5: ATCO Group Overview
ATCO GROUP OVERVIEW
Slide 6: Organizational Structure
ORGANIZATIONAL STRUCTURE (TSX: ACO.X / ACO.Y) ~$5 billion common equity capitalization (TSX: CU / CU.X) ~$9 billion common equity capitalization INVESTOR PRESENTATION OCTOBER 2020 5
Slide 7: Financial Strength
ATCO FINANCIAL STRENGTH
Slide 8: Track Record of Earnings
TRACK RECORD OF EARNINGS $608 million $365 million ATCO in 2019 Canadian Utilities 2016 Alberta wildfires 2015 GCOC decision and in 2019 2016 Alberta wildfires global commodity price declines 2015 GCOC decision and 2013 Calgary Floods global commodity price declines Long track record of earnings gro
Slide 9: Track Record of Success: Dividends
TRACK RECORD OF SUCCESS: DIVIDENDS ATCO $1.74 Canadian Utilities $1.74 27 years of annual dividend increases* per share 48 years of annual dividend increases* per share Longest track record of annual dividend increases of any Canadian publicly traded company 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Slide 10: ATCO Q2 2020 YTD Earnings
ATCO Q2 2020 YTD EARNINGS ($ millions) $190 M Prior period impact of Q2 2019 regulatory decision $7 M $15 $176 M Forgone earnings from businesses sold in 2019 $25 M Normalized Q2 2019 YTD adjusted earnings $158 M $46 Q2 2019 YTD Q2 2020 YTD INVESTOR PRESENTATION OCTOBER 2020 9
Slide 11: Strong Credit Ratings
STRONG CREDIT RATINGS ATCO Ltd. A (low) Stable “ATCO’s rating is supported by the credit strength of CU, which is an intermediate holding company with a sizable portion of Canadian Utilities Limited (CU) A Stable low-risk, well-diversified regulated businesses that has generated strong CU Inc. A (hi
Slide 12: Debt Maturity Profile
DEBT MATURITY PROFILE $200M $220M $200M $200M $185M $160M $160M $150M $125M $120M $125M $100M 2021 2022 2023 2024 2028 2034 2035 2036 2037 2038 2039 CU Inc. CU INVESTOR PRESENTATION OCTOBER 2020 11
Slide 13: Sustainability
SUSTAINABILITY Environment, Social and Governance
Slide 14: 2019 Sustainability Report-ESG Highlights
2019 SUSTAINABILITY REPORT-ESG HIGHLIGHTS Energy Stewardship 3.5% hydrogen successfully blended with natural gas as part of the Clean Energy Innovation Hub in Australia, with a long-term goal of blending up to 15% hydrogen. 23 electric vehicle charging stations installed in Alberta through the Peaks
Slide 15: Changing Electricity Generation Portfolio
CHANGING ELECTRICITY GENERATION PORTFOLIO 2019 GENERATION PORTFOLIO CHANGES 2020 GENERATION PORTFOLIO • In September 2019, Canadian Utilities sold the Expanding Renewable Electricity entire Canadian fossil fuel-based power Generation Capabilities generation portfolio for aggregate proceeds of $821 m
Slide 16: Canadian Utilities Direct Greenhouse Gas Emissions
CANADIAN UTILITIES DIRECT GREENHOUSE GAS EMISSIONS INVESTOR PRESENTATION OCTOBER 2020 15
Slide 17: Canadian Utilities
ATCO CANADIAN UTILITIES
Slide 18: Canadian Utilities Capital Investment Approach
CANADIAN UTILITIES CAPITAL INVESTMENT APPROACH • Disciplined and prudent approach • Utility and utility-like assets: regulated or long-term contracted • “A” range credit rating focus • The ability to leverage our operating model • Geographic diversification: Outside Alberta, North America, Latin Ame
Slide 19: Organizational Structure
ORGANIZATIONAL STRUCTURE CU Inc. Canadian Utilities ~$8 billion (TSX: CU / CU.X) debt ~$9 billion common capitalization equity capitalization INVESTOR PRESENTATION OCTOBER 2020 18
Slide 20: Q2 2020 YTD Earnings
Q2 2020 YTD EARNINGS ($ millions) $326 M Prior period impact of Q2 2019 regulatory decision $15 M $15 Forgone earnings from businesses sold in 2019 $46 M $273 M Normalized Q2 2019 YTD adjusted earnings $265 M $46 Q2 2019 YTD Q2 2020 YTD INVESTOR PRESENTATION OCTOBER 2020 19
Slide 21: High Quality Earnings
HIGH QUALITY EARNINGS 2019 Adjusted Earnings 73% 95% 73% 27% 4% 5% 9% 14% Regulated Earnings Other Earnings INVESTOR PRESENTATION OCTOBER 2020 20
Slide 22: Regulated Utilities
REGULATED UTILITIES ELECTRICITY TRANSMISSION ELECTRICITY DISTRIBUTION $5.3B Rate Base $2.7B Rate Base NATURAL GAS DISTRIBUTION NATURAL GAS TRANSMISSION INTERNATIONAL NATURAL GAS $2.8B Rate Base $2.0B Rate Base DISTRIBUTION $1.2B Rate Base (1) 2019 Mid Year Rate Base filed with regulator and included
Slide 23: Alberta Utilities Achieve Top Tier Returns on Equity
ALBERTA UTILITIES ACHIEVE TOP TIER RETURNS ON EQUITY 10.8% 10.7% 8.9% 9.1% 8.5% 8.5% CU Inc.’s average ROE +2.3% above average AUC approved over last 10 years (+2.2% over last 3 years) Operational excellence and lower costs benefit our 10 Year Average (2010-2019) 3 Year Average (2017-2019) customers
Slide 24: Alberta Utilities - Operational Excellence
ALBERTA UTILITIES - OPERATIONAL EXCELLENCE Electric Distribution Electric Transmission Gas Distribution Costs Costs per KM of Line Costs per KM of Line per Customer $2,800 $151 20% Lower $14,013 38% Lower $TBD $TBD $2,180 57% Lower $8,656 $65 Industry ATCO Industry ATCO Industry ATCO Average Average
Slide 25: Regulatory Update
REGULATORY UPDATE 2020 2021 2022 2023 Electric Transmission 2020- Decision 2022 General Tariff Expected Application (GTA) Gas Transmission 2021-2023 General Application Decision Rate Application Filed Expected (GRA) 2021 to 2022 AUC Finalizes 2022 GCOC Generic AUC 8.5% ROE & Proceeding Suspends 37%
Slide 26: Regulatory Update
REGULATORY UPDATE (% of 2019 Consolidated Mid-Year Rate Base) ATCO Electric Transmission (38%) and ATCO Pipelines (14%) Rates are spread across all customers in the province. Changes in customers’ demand and use are reflected in customer transmission rates over time. We do not expect material change
Slide 27: Pioneer Pipeline Acquisition
PIONEER PIPELINE ACQUISITION • On October 1, 2020 we announced the purchase of the Pioneer Natural Gas Pipeline from Tidewater Midstream & Infrastructure Ltd. for a purchase price of $255 million • The 131 km pipeline transports natural gas to TransAlta’s generating units at Sundance and Keephills i
Slide 28: Puerto Rico Electric T&D Contract
PUERTO RICO ELECTRIC T&D CONTRACT In June 2020, the Puerto Rico Public-Private Partnerships Authority (P3A) selected LUMA Energy to manage and modernize Puerto Rico’s electric transmission and distribution (T&D) system $15 16-year contract to operate the T&D system: → 1-year transition period began
Slide 29: Puerto Rico Electric T&D System Overview
PUERTO RICO ELECTRIC T&D SYSTEM OVERVIEW ▪ One of the largest U.S. public utilities serving nearly 1.5 million customers $15 ▪ PREPA currently owns and operates the T&D system and generation facilities → LUMA will operate T&D system, while$46 PREPA continues to operate generation assets ▪ Network of
Slide 30: LUMA Consortium
LUMA CONSORTIUM • 50 per cent joint venture owner • Operator of world-class utility businesses delivering safe, reliable and affordable energy to customers $15 • Market capitalization of C$9 bn ✓ Purpose-built utility company • 50 per cent joint venture owner Best-in-class operational and customer •
Slide 31: Key Contract Terms & Objectives
KEY CONTRACT TERMS & OBJECTIVES Operating and maintenance services contract that leverages CU’s and Quanta’s best-in- class capabilities to deliver significant benefits to the people of Puerto Rico ▪ ~1-year transition period underway – efficient $15 and effective transition of operations from PREPA
Slide 32: Key Contract Terms & Objectives
KEY CONTRACT TERMS & OBJECTIVES Front-End O&M Services Period Transition Period (2021 – 2035) (2020 – 2021) $15 • Preparatory work to enable • LUMA assumes responsibility for all in-scope operational matters to transform full transition of operations the T&D system into an efficient and modern utili
Slide 33: Compensation
COMPENSATION ($US millions) Front-End Service Fee Fixed Fee Potential Incentive Fee (Paid Monthly) Transition Period 60 $15 Contract Year 1 70 13 Contract Year 2 90 17 Contract Year 3 100 19 Contract Year 4+ 105 20 • All compensation figures above are at the LUMA level. Canadian Utilities Limited ho
Slide 34: Key Organizations LUMA Is Working With
KEY ORGANIZATIONS LUMA IS WORKING WITH • Corporation responsible for power • Government agency responsible for Counterparties to O&M Agreement generation and T&D in Puerto Rico administering P3s in Puerto Rico • Counterparty to O&M Agreement • Counterparty to and administrator of O&M • Owner of all
Slide 35: LUMA – Top Risks and Risk Mitigation
LUMA – TOP RISKS AND RISK MITIGATION • Transition and Operating Cost Risks ➢ LUMA was selected, in part, due to its well designed and thorough transition plan ➢ LUMA working with P3A, PREPA and PREB to finalize key items for full transition and build a roadmap to a safe and reliable T&D system ➢ The
Slide 36: Opportunity Highlights
OPPORTUNITY HIGHLIGHTS ▪ LUMA has been selected to plan and execute a historic transformation and modernization of the electricity system working with the local workforce, PREPA and other parties to provide significant benefits to the people of Puerto Rico $15 ▪ Long-term contracted cash flows and e
Slide 37: Energy Infrastructure Businesses
ENERGY INFRASTRUCTURE BUSINESSES ELECTRICITY GENERATION ELECTRICITY GENERATION ELECTRICITY GENERATION CANADA AUSTRALIA LATIN AMERICA 24 MW 176 MW 47 MW INDUSTRIAL WATER SERVICES HYDROCARBON STORAGE NATURAL GAS STORAGE CANADA CANADA CANADA 85,200 m3/day 400,000 m3 52 PJ INVESTOR PRESENTATION OCTOBER
Slide 38: Electricity Generation Portfolio
ELECTRICITY GENERATION PORTFOLIO CAPACITY SHARE RUN-OF-RIVER HYDRO (24%) (MW) 1 OLDMAN RIVER 24 2 VERACRUZ 35 NATURAL GAS (75%) Highly Contracted 3 SAN LUIS POTOSI 9 Portfolio 4 KARRATHA 86 6 5 OSBORNE 90 Long-Term Contracted 220 MW (89%) Solar (1%) Merchant 6 CABRERO 3 27 MW (11%) TOTAL 247 INVESTO
Slide 39: Storage & Industrial Water
STORAGE & INDUSTRIAL WATER We build, own and operate energy infrastructure assets across Alberta and the Northwest Territories ▪ We provide integrated water services including pipeline transportation, storage, water treatment, recycling and disposal to a number of our industrial customers. ▪ The nat
Slide 40: Canadian Utilities Summary
CANADIAN UTILITIES SUMMARY 10.8% 8.5% 8.9% 95% Regulated Earnings 5% Other Earnings AUC AB AUC Peers CU Inc. CUInc. Inc. AUC PEERS CU ROE Peers 10 Year Average (2010-2019) UTILITIES ACHIEVE HIGH QUALITY EARNINGS LONG TRACK RECORD OF TOP TIER RETURNS ON EQUITY EARNINGS & DIVIDEND GROWTH INVESTOR PRES
Slide 41: ATCO Investments
ATCO ATCO INVESTMENTS
Slide 42: ATCO Focus: Global Essential Services
ATCO FOCUS: GLOBAL ESSENTIAL SERVICES INVESTOR PRESENTATION OCTOBER 2020 41
Slide 43: Structures & Logistics
ATCO STRUCTURES & LOGISTICS
Slide 44: Structures & Logistics
STRUCTURES & LOGISTICS Lodging & Support Services Modular Structures • Lodging, catering • Permanent modular construction • Maintenance • Relocatable modular buildings • Waste management Logistics and Facility O&M Services Workforce Housing & Space Rentals • Facility operations • Mobile office trail
Slide 45: Structures and Logistics
STRUCTURES AND LOGISTICS Infrastructure • Since 2015, on-going diversification of customer base into new market segments such as infrastructure Rentals Hotels projects, public education facilities, high density residential housing, hotels and correctional facilities. • Not reliant on O&G sector. Edu
Slide 46: Structures & Logistics Adjusted Earnings
STRUCTURES & LOGISTICS ADJUSTED EARNINGS $37M $28M $15M $6M FY2017 FY2018 FY2019 Q2 YTD 2020 INVESTOR PRESENTATION OCTOBER 2020 45
Slide 47: Structures & Logistics
STRUCTURES & LOGISTICS Modular Structures rental fleet grew by 2,375 units or 14% since 2017 19,539 18,424 2,772 18,095 2,774 3,008 17,164 3,708 16,767 15,321 15,416 13,456 2017 2018 2019 Q2 YTD 2020 Global Space Rentals Global Workforce Housing INVESTOR PRESENTATION OCTOBER 2020 46
Slide 48: Structures & Logistics
STRUCTURES & LOGISTICS Winning key large workforce housing contracts to support major private sector and infrastructure projects • LNG Canada Cedar Valley Lodge Manufacturing completed in Q2 2020 with installation activities expected to continue into 2021 on this 4,500 person camp in Kitimat, BC. •
Slide 49: Permanent Modular Construction
PERMANENT MODULAR CONSTRUCTION Diversifying the global customer base into non-traditional modular markets such as public education facilities, high density urban residential housing, hotels and correctional facilities • COVID-19 support in Mexico $65M Awarded a design, supply and installation contra
Slide 50: Structures & Logistics Key Highlights
STRUCTURES & LOGISTICS KEY HIGHLIGHTS Diversifying our customer Growing rental fleet Constantly replenishing our base into new market global customer lead list segments 19,539 17,164 2017 Q2 YTD 2020 Total Rental Fleet Size INVESTOR PRESENTATION OCTOBER 2020 49
Slide 51: Neltume Ports
ATCO NELTUME PORTS
Slide 52: Neltume Ports
NELTUME PORTS • ATCO acquired a 40% ownership interest in Neltume Ports in September 2018 • Neltume Ports is a leading port operator in South America with 16 ports in 4 countries, and 1 port under construction in Alabama INVESTOR PRESENTATION OCTOBER 2020 51
Slide 53: Neltume Ports Operations
NELTUME PORTS OPERATIONS DIVERSIFIED BY CARGO TYPE AND GEOGRAPHY BY CARGO TYPE IN 2019 BY GEOGRAPHY IN 2019 5% 13% Container 29% Brazil Break Bulk Approx. Uruguay Approx. 18% Bulk 46 M 46 M Chile 50% Tonnes Tonnes Argentina 64% 21% *Based on 100% of volumes of ports where Neltume Ports has an owners
Slide 54: Port Overview
PORT OVERVIEW PERCENT TERMINAL Puerto Angamos (PANG) Montecon (MON) PORT COUNTRY KEY CARGO OWNERSHIP TYPE Terminal Puerto Arica 50% CHL Container Mixed Terminal Puerto Angamos 40% CHL Multi Copper Terminal Graneles del Norte 40% CHL Dry Bulk Coal/Copper Puerto Mejillones 50% CHL Dry Bulk Coal/Copper
Slide 55: Commercial Real Estate
ATCO COMMERCIAL REAL ESTATE
Slide 56: Commercial Real Estate
COMMERCIAL REAL ESTATE • Held properties can be monetized opportunistically • Increase portfolio occupancy with 3rd party tenants • Increase portfolio value and earnings by investing in commercial real estate projects on high potential sites, already in our portfolio ASSET TYPE & NBV ($188 MILLION)
Slide 57: Key ATCO Highlights
KEY ATCO HIGHLIGHTS GEOGRAPHIC GLOBAL ESSENTIAL LONG TRACK RECORD DIVERSIFICATION SERVICES OF DIVIDEND GROWTH INVESTOR PRESENTATION OCTOBER 2020 56
Slide 58: Appendix
ATCO APPENDIX
Slide 59: ATCO Global Assets
ATCO GLOBAL ASSETS Canadian Utilities and Structures & Logistics Canadian Utilities, Structures & Logistics and Commercial Real Estate Structures & Logistics Canadian Utilities Neltume Ports, Structures & Logistics, and Canadian Utilities Neltume Ports INVESTOR PRESENTATION OCTOBER 2020 58
Slide 60: Electricity Distribution & Transmission
ELECTRICITY DISTRIBUTION & TRANSMISSION We build, own and operate electrical distribution and transmission facilities ▪ 260,000 farm, business and residential customers in 242 Alberta communities ▪ Approximately 11,000 km of transmission lines, and delivers power to and operates 4,000 km of lines ow
Slide 61: Natural Gas Distribution & Transmission
NATURAL GAS DISTRIBUTION & TRANSMISSION We build, own and operate natural gas distribution facilities in Alberta ▪ Alberta’s largest natural gas distribution company ▪ Serves over 1.2 million customers in nearly 300 Alberta communities ▪ We build, maintain, and operate 41,000 km of natural gas distr
Slide 62: Australia Utility
AUSTRALIA UTILITY We provide safe and reliable natural gas service to the Perth metropolitan area and the wider Western Australian community ▪ Approximately 761,000 customers ▪ 14,000 km of natural gas distribution pipelines INVESTOR PRESENTATION OCTOBER 2020 61
Slide 63: Financial Strength: Balance Sheet as at Q2 2020
FINANCIAL STRENGTH: BALANCE SHEET AS AT Q2 2020 ATCO Canadian Utilities 10% 11% 52% 54% 38% 35% Debt (net of cash) Preferred Shares Equity Debt (net of cash) Preferred Shares Equity INVESTOR PRESENTATION OCTOBER 2020 62
Slide 64: Investor Relations Contact
www.ATCO.com www.canadianutilities.com Tel: 403.292.7500 Investor Relations 5302 Forand Street SW Calgary, Alberta T3E 8B4 Canada