Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — FY2021 Earnings Presentation
37 slides from Otter Tail's earnings presentation, Feb 15, 2022
Slide 1: 2021 Earnings Conference Call
2021 EARNINGS CONFERENCE CALL February 15, 2022
Slide 2: Forward-Looking Statement
FORWARD-LOOKING STATEMENT Except for historical information contained here, the statements in this presentation are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “could,” “estimate,” “expect
Slide 3: Company Overview
COMPANY OVERVIEW MANUFACTURING PLATFORM ELECTRIC PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target Earnings Contributions Electric Platform Manufacturing Platform • Competitive low-cost operations • Long-term growth potential • Constructive regulatory environment • Capacity utilization • Attrac
Slide 4: 2021 Financial Summary and Highlights
2021 FINANCIAL SUMMARY AND HIGHLIGHTS • Diluted earnings per share of $4.23, up 80.4 percent from 2020 2021 2020 • Consolidated return on equity of 19.2 percent on an equity ratio of 53.7 percent Operating Revenues $ 1,196.8 $ 890.1 • Increased the 2021 annual dividend 5.4 percent from $1.48 to $1.5
Slide 5: EPS Compared with Original EPS Guidance Range
EPS COMPARED WITH ORIGINAL EPS GUIDANCE RANGE $4.50 Initiated 2021 EPS Guidance range of $2.39-$2.54. 2021 EPS of $4.23 primarily due to strong performance in Plastics segment $4.00 $3.50 Plastic Segment $3.00 outperforms Strong performance guidance in Plastic Segment & $2.50 impact of tax reform $2
Slide 6: Cleaner Energy Future
CLEANER ENERGY FUTURE OTP Energy Resource Mix Based on filed Otter Tail Power Company CO2 Trend Coal Renewable Purchased Gas/Oil Integrated (Owned Resources) 2005 - 2025 Resource Plan 6.0 CO2 Emissions (million 4.4 —% 1% 4% 5% 4.3 4.0 4.0 3.6 23% short tons) 37% 32% 36% 2.9 9% 2.4 2.1 28% 33% 2.0 68
Slide 7: ESG Highlights
ESG HIGHLIGHTS By 2023, our customers will receive approximately 30% of their energy from renewable resources.* Continue to execute on energy transition to lower carbon generation. Carbon emission reductions targeted to • Closure of Hoot Lake Coal Plant be 50% lower than 2005 levels by 2025 • Comple
Slide 8: ESG Highlights
ESG HIGHLIGHTS Safety - Safety is one of our core values. We focus on the safety of our employees and have implemented safety programs and management practices to promote a culture of safety. Safety is also a metric used and evaluated in determining annual incentive compensation. Human Capital We ar
Slide 9: Electric Platform
ELECTRIC PLATFORM OrEnian POWER COMPANY
Slide 10: Electric Operations
ELECTRIC OPERATIONS Operating Revenue (in millions) $600.0 $459.1 $480.3 $446.1 $400.0 2021 Highlights • MN rate case filed in November 2020. ◦ Interim rates approved and effective January 1, 2021 $200.0 ◦ Final order received February 1, 2022 ◦ Final rates are expected to be implemented mid-year $—
Slide 11: Hoot Lake Solar
HOOT LAKE SOLAR Project Hoot Lake Solar Description 49.9-MW self-build solar Schedule 2020-2023 Otter Tail Power Cost ~ $60 million Project Summary • Qualifies for investment tax credit of 26%; safe harbor equipment secured. • Eligible to meet utility scale portion of MN Solar Energy Standard (1.5%
Slide 12: Ashtabula III Purchase
ASHTABULA III PURCHASE Project Ashtabula III Description 62.4-MW wind farm Schedule Expected closing in early 2023 Otter Tail Power Cost ~ $50 million Project Summary • Purchase power agreement (PPA) with NextEra Energy began in 2013 • Due diligence is occurring and regulatory proceedings are underw
Slide 13: MN Integrated Resource Plan/ND Regional Haze Plan
MN INTEGRATED RESOURCE PLAN/ND REGIONAL HAZE PLAN Project Summary • Filed September 2021, jointly in MN, ND, & SD • Required filing in Minnesota. North Dakota recently passed legislation requiring an IRP filing, but specific rulemaking is not complete. • Preferred 5-year plan, requested authority to
Slide 14: Minnesota Rate Case
Minnesota Rate Case • Previous Minnesota rate case filed in 2016. • Incorporating approved lower depreciation rates and pension expense, amended rate case request on April 30, 2021, to net increase of $8.2 million or 3.83% in rebuttal testimony. • Interim rates were implemented in January 2021. • Fi
Slide 15: 2021 Key Regulatory Matters
2021 KEY REGULATORY MATTERS Estimated Regulatory Matter MN ND SD Date February ü North Dakota Advance Determination of Prudence for AMI Filing X 2021 Minnesota Hoot Lake Solar Filing Rate Review Evidentiary Hearing & March ü Order X 2021 April ü Minnesota Depreciation Order X 2021 July ü Minnesota R
Slide 16: 2022 Key Regulatory Matters
2022 KEY REGULATORY MATTERS Estimated Regulatory Matter MN ND SD Date Minnesota Electric Utility Infrastructure Costs (EUIC) Approval for AMI X Q2 2022 Filing Minnesota Depreciation Order X Q2 2022 Q2 2022/ Minnesota Rate Review Finalized/Final Rate Implemented X Q3 2022 Minnesota Integrated Resourc
Slide 17: Rate Base Growth
RATE BASE GROWTH Rate Base $978M of Capital Spending from 2022 to 2026 Renewables & Natural Gas, 46% in billions $2.10 $1.98 $1.86 $1.75 $1.63 2022-2026 $1.58 Other, 15% Total 5.9 % R of 26 CAG 1 - 20 Transformative 202 Technology & Infrastructure, 8% Transmission (incl. replacement), 13% Distributi
Slide 18: Regulatory Framework
REGULATORY FRAMEWORK Minnesota North Dakota South Dakota Renewable Riders Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case Tranmission Riders Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate case A constructive regulatory environment In stat
Slide 19: Rate Base Projects
RATE BASE PROJECTS Our Investment Project (millions) In Service % Complete Recovery Mechanisms Merricourt Wind Energy Center $260 2020 100% Rider/General Rate Case Rider/General Rate Case - ND & SD Astoria Station natural gas simple-cycle combustion turbine $153 2021 100% General Rate Case - MN Phas
Slide 20: Electric Rates
Electric Rates Average Summer Residential Rate per KWH Otter Tail Power has maintained rates 15.0 13.1 13.2 13.2 13.5 lower than the national average in 13.0 13.1 recent years while major projects 12.5 have been constructed and put in Cents per KWH service. 10.0 10.5 10.0 10.2 9.8 9.5 9.7 Continuous
Slide 21: Manufacturing Platform
MANUFACTURING PLATFORM BTD TO. PLASTICS p northern pipe products VINYLTECH Vil EV Gerlee 21
Slide 22: Manufacturing Operations
MANUFACTURING OPERATIONS Operating Revenue (in millions) • Contract metal fabrication – stamping, machining, tube bending, tool & die, laser cutting, welding, painting, assembly. A one stop shop for customer needs. $400 • Growth opportunities with existing customer base and expansion with new $336.3
Slide 23: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS Agriculture, 13% Energy, 3% 2020 Agriculture, 15% Energy, 1% 2021 Rec. Vehicle, 34% Rec. Vehicle, 41% Lawn & Garden, 16% Lawn & Garden, 20% Construction, 14% Industrial, 12% Industrial, 13% Construction, 18% 2020 2021 Other, 1% Other, 1% Industrial, 4% Industrial,
Slide 24: Plastics Operations
PLASTICS OPERATIONS Operating Revenue (in millions) $400 $380.2 • Manufactures and sells PVC (polyvinyl chloride) pipe to distributors. Pipe is used in municipal water, rural water, wastewater, and storm drainage systems. $300 • Plants located Fargo ND & Phoenix AZ. $205.2 • Approximate production c
Slide 25: Historical Resin, Pipe Price and Spreads
HISTORICAL RESIN, PIPE PRICE AND SPREADS Spread Relationship to Price Resin shortages driven by Hurricane Ida, COVID, and a polar vortex have driven margins to record levels Hurricane Harvey, followed by a series of resin disruptions, have reset margins for the past several years A downward slide in
Slide 26: Financial Update
FINANCIAL UPDATE 26
Slide 27: Financial Overview
FINANCIAL OVERVIEW Operating Revenues Operating Income Net Income in millions in millions in millions $1,500 $300 $200 2021 earnings mix was not $176.8 the targeted 70% Utility / $249.7 $1,250 $1,196.8 $250 30% Manufacturing mix due to the strong Plastic $150 segment performance as $1,000 $919.5 $20
Slide 28: Diluted EPS: Q4 2020 vs Q4 2021
DILUTED EPS: Q4 2020 vs Q4 2021 Electric Manufacturing Plastics Corporate Total Q4 2020 DILUTED EARNINGS PER SHARE $ 0.30 $ 0.06 $ 0.16 $ (0.07) $ 0.45 Increase in retail revenue from interim rate increase, net of PTC credits 0.04 — — — 0.04 Increased rider recovery for Merricourt and Astoria Statio
Slide 29: Diluted EPS: 2020 vs 2021
DILUTED EPS: 2020 vs 2021 Electric Manufacturing Plastics Corporate Total 2020 DILUTED EARNINGS PER SHARE $ 1.63 $ 0.27 $ 0.67 $ (0.23) $ 2.34 Increased rider recovery for Merricourt and Astoria Station operating costs 0.12 — — — 0.12 Increase in retail revenue from interim rate increase, net of PTC
Slide 30: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS Liquidity: Line of Credit Availability Consolidated Capital Structure & ROE Otter Tail Corporation Otter Tail Power Company 19.2% 20% 100% Borrowing Capacity of $170M in millions Equity / Debt Percentage 46.3% 18% 75% 47.1% 49.3% Return on Equity $88.3 $104.
Slide 31: 2022 Earnings Guidance
2022 EARNINGS GUIDANCE Actual 2022 Guidance Diluted EPS 2020 2021 Low High Electric $ 1.63 $ 1.73 $ 1.81 $ 1.85 Manufacturing 0.27 0.41 0.42 0.46 Plastics 0.67 2.34 1.81 2.00 Corporate (0.23) (0.25) (0.26) (0.23) Total $ 2.34 $ 4.23 $ 3.78 $ 4.08 Return on Equity 11.6 % 19.2 % 15.3 % 16.3 % 31
Slide 32: Five Year Financing Plan
FIVE YEAR FINANCING PLAN Long-Term Financing 2021 2022-2026 in millions (Actual) (Planned) LONG-TERM DEBT Otter Tail Power Issuances $ 140.0 $ 380.0 Retirements — (30.0) Otter Tail Corporation (Parent) Issuances $ — $ 80.0 Retirements (0.2) (80.0) Net Debt Increase $ 139.8 $ 350.0 EQUITY - No materi
Slide 33: Bond Maturity Schedule
BOND MATURITY SCHEDULE $150 in millions Balanced and manageable maturity schedule 7.00% 6.47% Weighted average interest 6.37% 6.15% rate of 4.29% $125 6.00% 5.47% $100 5.00% Debt Maturity Interest Rate 4.45% $75 4.07% 3.92% 3.82% 3.77% 4.00% 3.62% 3.69% 3.55% 3.52% $50 3.22% 2.74% 3.00% $25 $0 // //
Slide 34: Capital Expenditures
CAPITAL EXPENDITURES Total in millions 2021 2022 2023 2024 2025 2026 2022-2026 Electric Segment Renewables & Natural Gas Generation $ 30 $ 80 $ 92 $ 92 $ 160 $ 454 Technology & Infrastructure 26 30 18 — — 74 Distribution Plant Replacements 37 35 35 35 33 175 Transmission (incl. replacements) 26 28 2
Slide 35: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Our Dividend Story Dividend Growth & Payout Ratio CAGR = 5.2% • Paid annual dividend without interruption $1.65 since 1938 CAGR = 1.8% $1.56 $1.48 $1.40 $1.34 $1.28 • 5.8% increase, or $9 cents per share, $1.19 $1.21 $1.23 $1.25 indicated for 2022 • Strong balance sheet, a
Slide 36: OTTR Investment Theme
OTTR INVESTMENT THEME Total Shareholder Return1 8-10% Long-Term EPS Growth Rate (2020 Base Year) 5-7% Dividend Yield ~ 3% Long-Term Targeted Dividend Payout Ratio 60-70% Dividend Growth Rate 5-7% 1 Defined as EPS growth rate plus dividend yield Balanced Growth & Income Strategy Stable & Growth Utili
Slide 37: www.ottertail.com
S OTIERTAIL W CORPORATION www.ottertail.com