Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Q2 2019 Earnings Presentation
29 slides from Otter Tail's earnings presentation, Aug 6, 2019
Slide 1: 2019 Second Quarter Earnings Conference Call
2019 SECOND QUARTER EARNINGS CONFERENCE CALL August 6, 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: Management Team
Management Team Chuck MacFarlane President and Chief Executive Officer Kevin Moug Senior Vice President and Chief Financial Officer 3
Slide 4: 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 5: 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 $226.3 extended
Slide 6: ESG Highlights
ESG Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWERfrom owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels beto33% compared the lower through power national average purchase agreements than 2005 levels. 6
Slide 7: ESG Highlights
ESG Highlights ENERGY RESOURCE MIX 2005 2022 Otter Tail Power Company does not own all the renewable energy certificates (RECs) generated by contracted wind and solar, and periodically sells its own RECs with proceeds benefiting retail customers. Accordingly, we cannot represent that 100% of carbon-
Slide 8: ESG Highlights
ESG Highlights ASSET PROFILE Net property and equipment as of December 31, 2018 2018 2022 8
Slide 9: Electric Platform
ELECTRIC PLATFORM OrrerTain POWER COMPANY
Slide 10: Electric Operations
Electric Operations Net Revenue ($ 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 11: Rate Base Growth
Rate Base Growth Capital spending of $1.0 billion for 2019 to 2023 is divided among: RGB COLORS Technology Other system 2018-2023 CAGR of 8.6% and replacements and infrastructure investments additions $128 $103 (13%) (10%) Natural gas $1.67 generation $150 $147 Routine $1.53 $1.58 addition (15%) (15
Slide 12: 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 13: 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 14: 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 15: 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 16: 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 17: 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 $2.6M PERCENT OF INCREASE Percent o
Slide 18: Manufacturing Platform
MANUFACTURING PLATFORM BTD VINYLTECH TO. PLASTICS V PV Gs PIPE
Slide 19: Manufacturing
Manufacturing ◼ Contract metal fabrication – stamping, machining, Net Revenues ($ 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 $0 ◼ Manufacturer of plastic thermof
Slide 20: Plastics
Plastics ◼ Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ 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 21: Financial Update
FINANCIAL UPDATE
Slide 22: 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 23: 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 24: 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% ROE 10.6% 10.5% Outstanding 40% 9.8% 10.0% Borrowings 22,801,375 13,800,956 20% 53.5% 53.6% 54.5%
Slide 25: 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 26: 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 27: 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 28: 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 29: 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