Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Siebert Williams Shank West Coast Utilities Virtual Conference 2020
37 slides from Otter Tail's conference presentation, Mar 18, 2020
Slide 1: Siebert Williams Shank West Coast Utilities Virtual Conference
SIEBERT WILLIAMS SHANK WEST COAST UTILITIES VIRTUAL CONFERENCE Wednesday, March 18, 2020
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: 2019 Financial Summary & Highlights
2019 FINANCIAL SUMMARY & HIGHLIGHTS • Consolidated EPS of $2.17, up 5.3%. 2019 2018 • Increased the annual dividend rate 4.5% from $1.34 to $1.40. Annual indicated rate for 2020 is $1.48 or 5.7% increase over the 2019 rate. Operating Revenues (in $919.5 $916.4 • Total shareholder return has grown at
Slide 7: Strategic Outlook
STRATEGIC OUTLOOK • High performing electric utility • Strong pipeline of rate base growth for at least 5 years • Supportive regulatory treatment • Solid management in place • History of excellence • Disciplined, focused set of manufacturing companies • Incremental earnings growth • Premium return •
Slide 8: ESG Highlights
ESG HIGHLIGHTS Environmental Social Governance https://www.ottertail.com/annual-report-and- proxy-statement/Index?KeyGenPage=1073752420 https://www.ottertail.com/custompage/Index?KeyGenPage=351348 These 3 documents provide details of Otter Tail Corporation’s ESG practices 8
Slide 9: ESG Highlights
ESG HIGHLIGHTS ESG Highlights 2022 Projections 30% 30% 30% RENEWABLE CARBON LOWER RESOURCES REDUCTION RATES that we own or secure from 2005 levels compared to the through power national residential purchase agreements average 9
Slide 10: Cleaner Energy Future
CLEANER ENERGY FUTURE Typical Residential Bills Lower then National Average Energy Resource Mix 15 13.62 13.16 2012 2022 11.65 2002 10.4 10.12 9.73 Cents per kwh 9 9.32 10 12% 13% 20% 5 0% 9% 14% 31% 53% 0 78% MN ND SD U.S. Average 64% 2% OTP State Average 4% Source: Typical Bills and Average Rates
Slide 11: Electric Platform
ELECTRIC PLATFORM 11
Slide 12: Electric Operations
Electric ELECTRICOperations OPERATIONS Net Revenue ($ in millions) $500 $450.3 $459.1 $427.4 $434.5 $400 $300 Highlights $200 ▪ Rate base growth opportunities $100 ▪ Merricourt Wind Energy Center $0 2016 2017 2018 2019 ▪ Astoria Station natural gas-fired plant ▪ SD transmission reliability project N
Slide 13: Electric Operations
ELECTRIC OPERATIONS Energy by Source - 2019 Service Area* Wind, 15.0% Coal, 46.0% Purchased, 37.0% Gas, Hydro, 1.0% 1.0% Revenues by State - 2019 Revenues by Customer - 2019 Other, 2.3% Residential, ND, 32.3% 37.7% Industrial, 30.0% MN, 52.3% SD, Commercial, 10.0% 35.4% 13
Slide 14: Competitive Advantage
COMPETITIVE ADVANTAGE Positive value proposition Investment •Low rates opportunities •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 Capital spending of $897 million from 2020 to 2024 divided among: Other system Technology and replacements and infrastructure additions investments $169 $118 $1.74 (19%) (13%) $1.63 $1.69 Routine distribution $1.57 replacements and Natural gas $134 $1.42 generation $99 (15%) additio
Slide 16: Regulatory Framework
REGULATORY FRAMEWORK A constructive regulatory environment Riders Minnesota North Dakota South Dakota provides for Wind projects Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case timely recovery of capital Transmission Rider recovery / Rate case Rider recovery / Rate c
Slide 17: Rate Base Projects
RATE BASE PROJECTS Recovery Our investment Percent mechanisms Project (Millions) In service complete Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $258 2020 19% Rider/General Rate Case Phase I 2019 100% SD transmission reliability project $39 Rider/General Rate
Slide 18: Merricourt Wind Energy Center
MERRICOURT WIND ENERGY CENTER Project Merricourt Wind Energy Center 150 MWs Description Capacity factor ~ 50% to 55% Schedule 2017 - 2020 OTP cost $258 million • MN PUC approved 2017 Resource Plan. • MN PUC approved rider recovery with a cost cap. • ND PSC approved Advance Determination of Prudence.
Slide 19: Astoria Station
ASTORIA STATION Project Astoria Station Natural Gas Plant Description 245-MW simple cycle unit Schedule 2020-2021 OTP cost $158 million • MN PUC approved 2017 Resource Plan. • ND PSC approved Advance Determination of Prudence and use of generation cost recovery rider. • SD PUC issued site permit and
Slide 20: South Dakota Transmission Reliability Project
South Dakota Transmission Reliability SOUTH DAKOTA TRANSMISSION 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 $39 million • Transmission line to improve relia
Slide 21: Manufacturing Platform
MANUFACTURING PLATFORM 21
Slide 22: Manufacturing
MANUFACTURING Net Revenues ($ in millions) ◼ Contract metal fabrication – stamping, machining, $300 $277.2 tube bending, welding, painting, assembly $268.4 $250 $229.7 $221.3 ◼ Growth opportunities with existing customer base $200 and expansion with new customers $150 $100 $50 ◼ Manufacturer of plas
Slide 23: Manufacturing Locations
MANUFACTURING LOCATIONS 23
Slide 24: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS 2019 BTD 2018 BTD L&G, 15% L&G, 15% Rec, 37% Rec, 35% Energy, 4% Energy, 5% Transp, 0% Transp, 0% Ag, 14% Ag, 15% Ind./Other, 14% Const, 16% Ind./Other, 13% Const, 17% 2019 T.O. Plastics, Inc. 2018 T.O. Plastics, Inc. Medical, 22% Medical, 20% Industrial, 11% Indus
Slide 25: Plastics
PLASTICS ◼ Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ in millions) ◼ Approximate production capacity of 150 mm lbs of $250 PVC (~ 2.5% of total market) $197.8 $200 $185.1 $183.3 $154.9 $150 ◼ Manufactures PVC pipe in AZ $100 ◼ Current capacity of 150 mm lbs $50 (~ 2.5% of total
Slide 26: Plastics Locations
PLASTICS LOCATIONS 26
Slide 27: Financial Update
FINANCIAL UPDATE 27
Slide 28: Financial Overview ($ in millions)
FINANCIAL OVERVIEW ($ IN MILLIONS) Revenue Sources EBITDA $916.4 $919.5 $250 $1,000 $199.2 $198.5 $208.7 $900 $803.5 $849.4 $185.0 $800 $200 53.2 $700 466.2 460.5 41.1 55.5 58.6 376.1 414.9 $150 $600 $500 $400 $100 $300 143.9 143.7 155.5 434.5 450.2 459.0 139.9 $200 427.4 $50 $100 $0 2016 2017 2018
Slide 29: Q4 EPS 2018 vs. Q4 2019
Q4 EPS 2018 VS. Q4 2019 Q4 EPS 2018 vs. Q4 EPS 2019 Electric Manufacturing Plastics Corporate Consolidated Q4 2018 Diluted Earnings per Share $0.31 $0.05 $0.11 ($0.12) $0.35 Fuel and purchase power (Net) 0.06 0.06 MN transmission rider 0.05 0.05 2018 Big Stone Plant Outage Costs 0.05 0.05 Renewable
Slide 30: YE 2018 Compared with YE 2019
YE 2018 COMPARED WITH YE 2019 YTD EPS 2018 vs. YTD EPS 2019 Electric Manufacturing Plastics Corporate Consolidated 2018 Diluted EPS $1.36 $0.32 $0.60 ($0.22) $2.06 Transmission cost recovery riders 0.19 0.19 Fuel and purchase power (net) 0.06 0.06 SD rate case and reversal of SD TCJA refund 0.06 0.0
Slide 31: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS OTP OTC Consolidated Capital Structure 100% 11.6% 12.0% Line of Credit Facilities $ 170,000,000 $ 170,000,000 11.5% 11.5% 80% 10.6% Outstanding 46.4% 45.5% Equity/Debt 47.1% 11.0% 60% Borrowings - 6,000,000 ROE 10.5% Letters of Credit 15,476,139 - 40% 10.0%
Slide 32: Bond Maturity Schedule
BOND MATURITY SCHEDULE $160,000 7.00% 6.47% 6.37% 6.15% $140,000 6.00% 5.47% $120,000 ($ in thousands) 4.68% 5.00% 4.63% (Coupon Rate) $100,000 4.07% 3.92% 3.52% 3.62% 4.00% 3.55% $80,000 3.82% 3.07% 3.22% 3.00% $60,000 2.00% $40,000 $20,000 1.00% $0 0.00% OTP OTP - New Debt Issuance OTC 32
Slide 33: 2020 Earnings Guidance
2020 EARNINGS GUIDANCE 2019 EPS by 2020 EPS Guidance Segment Low High Electric $1.48 $1.67 $1.70 Manufacturing $0.32 $0.31 $0.35 Plastics $0.51 $0.43 $0.47 Corporate ($0.14) ($0.19) ($0.15) Total $2.17 $2.22 $2.37 Return on Equity 11.6% 11.0% 11.7% 33
Slide 34: Capital Expenditures
CAPITAL EXPENDITURES (in millions) 2019 2020 2021 2022 2023 2024 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation $ 260 $ 18 $ 51 $ 30 $ -- $ 359 Technology and Infrastructure 7 18 47 54 43 169 Distribution Plant Replacements 22 27 34 25 26 134 Transmission (includ
Slide 35: 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 $1.48 $1.19 without interruption paid since 1938 ▪ Indicated increase of $.08/share (5.7%) 79% 78% 79% 78% 71% ▪ Strong balance sheet, liquidity, cash 65% 65% 64% generation profile and our
Slide 36: Investment Highlights
INVESTMENT HIGHLIGHTS Total Shareholder Dividend yield ~ 3% 5-7% EPS growth- based off from 2019 EPS Return Dividend growth in line with EPS growth while maintaining a ~ 8-10% Payout ratio of 60-70% Strong and stable regulated electric operations provide cash flow to Competitive, low cost integrated
Slide 37: www.ottertail.com
www.ottertail.com Copyright 2019
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