Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — FY2017 Earnings Presentation
37 slides from Northwestern Energy's earnings presentation, Feb 13, 2018
Slide 1: 2017 Earnings Webcast
2017 Earnings Webcast February 13, 2018
Slide 2: Presenting Today; Forward Looking Statements
Presenting Today 2 Bob Rowe, President & CEO Brian Bird, Vice President & CFO Forward Looking Statements During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forwar
Slide 3: Recent Significant Activities
• 2017 operating income increased $15.5 million, or 6.3%, as compared to 2016 due primarily to improved gross margin driven by favorable weather and customer growth. • 2017 net income was down $1.5 million, or 0.9%, as compared to 2016 due primarily to a $17.0 million tax benefit included in our 201
Slide 4: Summary Financial Results (Full Year)
Summary Financial Results (Full Year) 4
Slide 5: Gross Margin (Full Year)
5 Gross Margin (Full Year) (dollars in millions) Twelve Months Ended December 31, 2017 2016 Variance Electric $ 703.1 $ 678.8 $ 24.3 3.6% Natural Gas 192.3 177.5 14.8 8.3% Gross Margin $ 895.4 $ 856.3 $ 39.1 4.6% Increase in gross margin due to the following factors: $ 15.7 Electric retail volumes 1
Slide 6: Weather - 2017 versus Normal (Full Year)
Weather- 2017 versus Normal (Full Year) 6 Heating Degree Days Cooling Degree Days We estimate favorable weather in 2017 contributed approximately $3.4 million pretax benefit as compared to normal and $18.6 million pretax benefit as compared to 2016. Source: National Centers for Environmental Informa
Slide 7: Operating Expenses (Full Year)
Operating Expenses (Full Year) 7 Increase in operating expenses due mainly to the following factors: $2.2 million increase in OG&A $ 1.9 Bad debt expense 1.5 Operating expenses recovered in trackers 1.2 Maintenance costs (1.5) Employee benefits and compensation costs (1.0) Insurance reserves 0.1 Oth
Slide 8: Operating to Net Income (Full Year)
Operating to Net Income (Full Year) 8 $2.7 million decrease in interest expense was primarily due to refinancing $250 million of debt in November 2017 and $2.9 million of interest included in our 2016 results associated with an MPSC disallowance offset partially by higher interest expense on short-t
Slide 9: Income Tax Reconciliation (Full Year)
Income Tax Reconciliation (Full Year) 9 The increase in income tax expense was primarily due to higher pretax income and the inclusion in our 2016 results of a $17.0 million income tax benefit due to the adoption of a tax accounting method change related to the costs to repair generation assets (of
Slide 10: Balance Sheet
Balance Sheet 10 Debt to total capitalization decreased to 53.7% and now within targeted 50%-55% range.
Slide 11: Cash Flow
Cash Flow 11 Improvement in cash from operations is primarily due to refunds in 2016 associated with the DGGS FERC ruling and interim rates in our South Dakota electric rate case of approximately $30.8 million and 7.2 million, respectively.
Slide 12: Adjusted Earnings (Full Year '17 vs '16)
Adjusted Earnings (Full Year ‘17 vs ’16) 12 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calcula
Slide 13: Adjusted Earnings (Fourth Quarter '17 vs '16)
The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP. Adjusted Earnin
Slide 14: 2018 Earnings Guidance
2018 Earnings Guidance 14 NorthWestern’s 2018 earnings guidance range of $3.35 - $3.50 per diluted share is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • Equitable regulatory treatment in the
Slide 15: 2017 to 2018 EPS & Dividend Bridge
2017 to 2018 EPS & Dividend Bridge 15 2017 Non-GAAP → 2018 Midpoint Prior to ATM Equity Dilution: $3.30 → $3.53 = 7.0% Increase After anticipated ATM Equity Dilution: $3.30 → $3.43 = 3.9% Increase Dividend Growth $2.10 → $2.20 = 4.8% increase NorthWestern’s 2018 earnings guidance range of $3.35 - $3
Slide 16: Estimated Impacts of the Tax Cuts & Jobs Act
Estimated Impacts of the Tax Cuts & Jobs Act 16 Tax reform had no impact on our net income in 2017. As a result of the reduction in the federal corporate tax rate, we reduced our deferred tax liability by approximately $321 million. This reduction was offset in regulatory assets and liabilities. • O
Slide 17: Financing Activities
Financing Activities 17 Long-Term Debt Refinancing • In October 2017, we priced $250 million principal, 4.03% - 30 year Montana First Mortgage Bonds • We closed the transaction in early November 2017. • Proceeds used to redeem existing $250 million – 6.34% Montana First Mortgage Bonds due in 2019 $1
Slide 18: Montana Property Tax Tracker Filing; Tax Cuts and Jobs Act
Montana Property Tax Tracker Filing • On January 29th the MPSC issued an order in our 2017 property tax tracker filing by further reducing our recovery of Montana property taxes by a total of $3.5 million impacting both 2017 and 2018 (approximately $1.75 million each year). This change was a result
Slide 19: Montana Critical Capacity Shortfall
NorthWestern’s current planning reserve margin is negative 28% and projected to grow to negative 50% by 2035 without the addition of incremental owned or contracted portfolio resources. Montana Critical Capacity Shortfall 19 • The resource initiatives and actions developed in our Montana 2015 Electr
Slide 20: Capital Spending Forecast
Capital Spending Forecast 20 The updated current estimated cumulative 5 year capital spending for is $1.596 billion (previously $1.582 billion). We anticipate funding the expenditures with a combination of cash flows (aided by NOLs available into 2020), the remainder of our current equity distributi
Slide 21: Significant Achievements
Significant Achievements 21 Strong year for safety at NorthWestern • Continue to be a top performer among Edison Electric Institute member companies. Record best customer satisfaction scores with JD Power & Associates • Once again received our best JD Powers overall satisfaction survey score in 2017
Slide 22: Looking Forward
Looking Forward 22 Spending on the generation assets will be subject to the development of a plan for clear regulatory recovery. Regulatory • Regulatory treatment of tax reform - determine best way to provide long-term benefit to customers and system • Working toward successful implementation of new
Slide 23: Conclusion
Conclusion 23 Best Practices Corporate Governance Pure Electric & Gas Utility Solid Utility Foundation Strong Earnings & Cash Flows Attractive Future Growth Prospects
Slide 24: Appendix
24 Appendix
Slide 25: Electric Segment (Full Year)
25 Electric Segment (Full Year)
Slide 26: Natural Gas Segment (Full Year)
26 Natural Gas Segment (Full Year)
Slide 27: Segment Results (Full Year)
27 Segment Results (Full Year)
Slide 28: Summary Financial Results (Fourth Quarter)
Summary Financial Results (Fourth Quarter) 28
Slide 29: Gross Margin (Fourth Quarter)
29 Gross Margin (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2017 2016 Variance Electric $ 175.0 $ 167.9 $ 7.1 4.2% Natural Gas 60.5 55.0 5.5 10.0% Gross Margin $ 235.5 $ 222.9 $ 12.6 5.7% Increase in gross margin due to the following factors: $ 3.4 Electric retail volumes
Slide 30: Weather (Fourth Quarter)
Weather (Fourth Quarter) 30 Mean Temperature from Normal Oct.-Dec. 2017 Favorable weather has contributed approximately $1.8 million pretax benefit for the quarter as compared to normal, and $2.8 million pretax benefit as compared to same period in the prior year.
Slide 31: Operating Expenses (Fourth Quarter)
Operating Expenses (Fourth Quarter) 31 Increase in operating expenses due mainly to the following factors: $3.5 million decrease in OG&A $ (3.7) Employee benefits and compensation costs $ (0.4) Bad debt expense $ (0.2) Maintenance costs $ (0.2) Natural gas production gathering expense $ 1.0 Non-empl
Slide 32: Operating to Net Income (Fourth Quarter)
Operating to Net Income (Fourth Quarter) 32 $0.7 million decrease in interest expense was primarily due to refinancing of debt in November 2017. $1.2 million increase in other income due primarily to higher capitalization of allowance for funds used during construction (AFUDC) and a $1.0 million inc
Slide 33: Income Tax Reconciliation (Fourth Quarter)
Income Tax Reconciliation (Fourth Quarter) 33 Our income taxes are higher in fourth quarter 2017 versus the prior year largely due to higher pre-tax income and lower plant and depreciation of flow through items.
Slide 34: Segment Results (Fourth Quarter)
34 Segment Results (Fourth Quarter)
Slide 35: NorthWestern Energy Profile
NorthWestern Energy Profile 35
Slide 36: Non-GAAP Financial Measures
These materials include financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Diluted EPS, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company's financi
Slide 37: Delivering a bright future
Upelivering a bright future Energy