Caribbean Utilities Company, Ltd. (CUPU) Earnings Call Transcript & Summary

You have heard the motion and now have an opportunity to ask any questions you may have. All Class A ordinary shareholders in favor signify in the usual manner by raising your hand. Any to the contrary? The motion is carried. Our next order of business is the consideration of a resolution amending the compensation for members of the Board of Directors. The Governance and Sustainability Committee of the Board of Directors have reviewed the compensation of the directors and committee members. The last amendment for director compensation was approved by shareholders in May 2019. The committee and the Board recommend the amendments as set out in the Management Information Circular dated March 13, 2023. I will dispense with the reading of the resolution, which is summarized on Pages 10 and 11 and set out in full on Schedule A of Page 38 of the management information circular. Mr. Robert Whorms will move the approval of the resolution relating to the amendment of the compensation for members of the Board of Directors.

Madam Chair, I'm [indiscernible] related to the [indiscernible]

Mr. Alvin Calub will second the motion.

I second the motion.

You have heard the motion and now have an opportunity to ask any questions you may have. All Class A ordinary shareholders in favor signify in the usual manner by raising their hand. Any to the contrary? The motion is carried. The next item of business is a resolution to approve the amendment to the employee share purchase plan of the company. As set out on Page 11 and in Schedule B of the management information circular, the company proposes to amend the purchase plan to increase the number of Class A ordinary shares reserve for issuance under the purchase plan by 200,000 Class A ordinary shares for future issuance under the terms and conditions of the shareholder approved plan. The CUC employee share purchase plan was established in 1996 to encourage employees of the company to own shares in their company. Employee share ownership is an important element in focusing company activity on shareholder value. Over 68% of CUC employees own Class A ordinary shares in the company. Management believes that the proposed amendment would provide additional opportunities for our employees to participate and invest in the company. The resolution set out as Appendix B to the management information circular sent to all shareholders in advance of the meeting requires approval by a simple majority of shareholders present at the meeting. Mr. Wesley Cullum will move the motion.

Madam Chair, [indiscernible]

Mr. Keith Whyte will second the motion.

I second the motion.

You have heard the motion and now have an opportunity to ask any questions you may have. All Class A ordinary shareholders in favor signify in the usual manner by raising their hand. Any to the contrary? The motion is carried. I'm now pleased to invite Mr. Richard Hew to deliver his report to our shareholders at this time.

Madam Chair, Board of Directors, shareholders, officers, employees and guests. Good day, and welcome to the Annual General Meeting of Caribbean Utilities Company, Ltd. Welcome to those of you who are also joining us virtually. I will also add my recognition and thanks to our retiring directors, and welcome to our past Chairman, David Rich; and former CEO and Director, Peter Thompson. The following is a review of the company's operations for the year 2022. 2022 was a successful year for the company despite the global fuel price spike, which impacted the cost of electricity. The company recorded significant improvements in its safety and reliability performance, completed several major capital projects. Saw a 2% increase in kilowatt-hour generation and grew earnings per Class A ordinary shares by 9%. During the year, there was a 3% increase in our customer numbers as well as the successful reorganization of the company's structure and the creation and issuance of the first sustainability report. Our safety performance continued to show improvement during 2022, although we did experience 1 lost time injury for the year. At year-end, we attained an all-injury frequency rate of 1.8 injuries per 200,000 man-hours worked. Our best performance over the past 5 years. We aim for continued improvements in safety performance brought about by our commitment to a comprehensive health and safety management system. There was an increase in the company's customer base during 2022. The total customer count as at year-end was 33,119, an increase of 934 customers or 3% compared to 32,185 customers as at December 31, 2021. Due to the significant spike in fuel costs during the year, the company provided a fuel relief program to all customers as approved by the Cayman Islands Utility Regulation and Competition Office. The program aimed to reduce the impact of fuel costs and consumers' electricity bills and capped and deferred the amount of fuel factor paid by customers to USD 0.24 per kilowatt-hour for consumption between October 1 and December 31. The Cayman Islands government relief program also capped fuel costs at $0.18 per kilowatt-hour for eligible residential customers. CUC's relief program proved beneficial to mitigate the impact of the high fuel costs, particularly for commercial customers. Net earnings for fiscal 2022 were $33.2 million, a $2.9 million increase from net earnings of $30.3 million for fiscal 2021. This increase was primarily attributable to higher operating income and slightly lower finance charges. Sales in kilowatt-hours for 2022 were 674.1 million, an increase of 13.6 million kilowatt-hours or 2% compared to 660.5 million kilowatt-hours for 2021. The increase was driven by the 3% growth in overall customer numbers in 2022 compared to 2021 and the 2% increase in the average kilowatt-hour consumption of commercial customers. This was partially offset by a 2% decrease in the average kilowatt-hours of residential customers. A new record peak load of 113.6 megawatts was experienced on September 11, 2022. This was marginally higher than the peak load in 2019. Operating income for 2022 totaled $32.1 million, a $1.9 million increase from operating income of $30.2 million for the year ended December 31, 2021. This increase was primarily attributable to a 2% increase in kilowatt-hour sales and a 5.4% base rate increase effective June 1, 2022. These factors were partially offset by higher general and administration costs, consumer services costs and maintenance costs. After the adjustment for dividends on the preference shares of the company, earnings on Class A ordinary shares for fiscal 2022 were $32.2 million or $0.86 per share as compared to $29.3 million or $0.79 per share for fiscal 2021. I am pleased that following a period of uncertainty related to the COVID-19 pandemic that the company recently announced the increase in its dividends to $0.72 per share from $0.70 per share for shareholders of record on June 15, 2023. In September 2022, the company signed an agreement with the technology group, Wärtsilä for the supply of 2 10-megawatt energy storage systems to be installed at our Hydesville and Prospect substations. These systems will complement the operation of diesel engines to provide significant reductions in fuel consumption and reliability benefits and are expected to be commissioned in the first quarter of 2024. In November 2022, CUC and the regulator OfReg announced 2 independent studies on distributed generation energy solar programs. The study carried out by CUC analyzed the impact of additional renewable energy on the fuel efficiency of our existing generating units. The study conducted by OfReg analyzed the value of solar. OfReg study is still ongoing. The findings of the study completed by CUC concluded that additional renewable energy within appropriate limitations would cause no significant impact of fuel efficiency. As a result of these findings, on March 1, 2023, OfReg announced the release of an additional 3 megawatts of capacity allocated to the customer-owned renewable energy, or CORE and the Distributed Energy Resources or DER programs. CUC anticipates a further general capacity allocation of 6 megawatts this summer under a new distributed renewable generation program. This will bring the total capacity offered to the public to 29 megawatts. The company remains dedicated to the promotion and implementation of renewable energy on Grand Cayman and looks forward to continuing to work collaboratively with the regulator and all stakeholders to meet the goals of the national energy policy and to ensure a sustainable, reliable, and affordable energy future for our consumers. As we look to the future, our company continues to strengthen the renewable energy enabling environment through the necessary global best practice studies and integrated planning processes for both utility scale and customer level systems. The regulator has indicated that utility-scale solar will be acquired through a competitive process, and CUC looks forward to submitting its bid when the tender process begins. In November 2022, the company signed an agreement with MAN Energy Solutions for the life cycle upgrades of 5 existing engines at the North Sound plant totaling 68 megawatts of capacity. These upgrades will bring the engines up to the most current and improved fuel efficiency specifications, prepare them for natural gas fuel and extend their useful life by 25 years. The company responded well in the aftermath of Tropical Storm Ian on September 26, 2022, with only 13% of customers experiencing outages. All customers were restored within 6 hours of the storm passing. The company continued to work in its Reliability 2.0 program aimed at providing customers with a maximum of 2 outage hours per average customer per year, consistent with North American reliability standards. With a focus on that program, the company was able to achieve an average outage duration time of 2.1 hours per customer in 2022 as compared to 2.3 hours in 2021 and down from 6 hours in 2018. The company is now pivoting to grid resiliency and modernization as a strategic objective. 2022 saw the completion and significant progress of several major capital projects, 2 new 13-kilovolt feeders were completed and put into service. These feeders will provide electricity and improve reliability for approximately 13,000 residential customers in the prospect and new lens areas. The final phase of the control, automation and protection system upgrade at Hydesville Substation was completed in the third quarter. The project involved the replacement of an outdated system with a more advanced protection and control system that provides both the transmission and distribution network with improved security and service reliability. Approximately, 10 megawatts of additional firm generation capacity was added to the grid. In the third quarter 2022, a 4.6-megawatt combustion turbine was commissioned and is supplying power to the grid and 5 megawatts of temporary rental generation has been secured. The additional generation capacity will provide a reserve margin adequate to ensure acceptable levels of reliable service. These interim measures have been taken in lieu of the expected addition of the dispatchable utility scale solar plus storage to be tendered by the regulator. The new OSI SCADA system in the control room provides additional functionalities such as automation, outage management and demand management. It allows the company to have greater ability to respond to the increase in demand for distributed resources such as solar power. The first phase of the SCADA system was completed in the third quarter 2022 and the second phase is in an advanced stage of completion. The CUC electric vehicle charging network was rolled out with 5 stations installed during 2022. There was a plan for an additional 40 stations to be installed within the next year in partnerships with businesses and multiresidency facility owners. In 2022, the company signed an agreement with Hitachi Energy for the installation of indoor gas-insulated switchgear at the Frank Sound substation in place of the existing temporary outdoor switchgear. This will enhance the reliability of the Eastern Loop 69 kV transmission system and facilitate accelerating load growth and future integration of renewable energy sources in the districts of Eastern and North side. The new switchgear is expected to be in operation in 2024. The company's average cost of fuel for 2022 increased by 61% to $4.67 per imperial gallon compared to $2.90 for the year 2021. The cost of fuel and lubricating oil is passed on to consumers without markup. As mentioned earlier, the fuel cost relief and deferral programs assisted our customers to cope with these significant increases. The Cayman Islands Economic and Statistics office, reported that the residential fuel relief program by the Cayman Islands government reduced the year-on-year inflation to 7.5% from 9.2%. The number of CUC's full-time employees was 253, up by 6% from December 31, 2021. The company maintains a stable employee base, which approximately 82% are Caymanians. The remaining employees represent 18 other countries from across the globe. In 2022, CUC continued to expand its commitment to being a respectful and inclusive workplace by renewing the local gender equality Cayman pledge. The company also remained involved with the Fortis Inc. diversity, equity and inclusion initiatives. In 2022, the company underwent a reorganization to better position the company to achieve its long-term strategic goals. This process resulted in the introduction of new director roles reporting to the executive team. This also opened opportunities for growth and internal promotions. In addition to aligning human resources with strategic objectives, the company places a high priority on teamwork and succession planning. The reorganization is also intended to enhance growth opportunities, career development and progression for high-potential employees. The company continues to provide training and development opportunities for all of its employees. Over 9,245 hours were devoted to employee training. In 2022, an additional time was dedicated to informal training, various workshops and employee coaching. There was a continued focus on safety, enhancing performance, skills development and recertification. The National Center for Construction, Education and Research curriculum continued to be offered at CUC for various technical programs in partnership with the Inspire Cayman training center. 20 employees from across the company were registered in the Institute of Leadership and Management or ILM certificate program. The participants were provided with a range of leadership and management skills focusing on effective techniques for motivating and engaging their team members. The group graduated in September last year. We are sincerely grateful to our employees who have worked hard to achieve these positive results for 2022. CUC thrives from the significant efforts, innovation and commitment they have made to the company over these many years. In May 2022, the company celebrated 29 employees who received long service awards for having career spanning from 10 to 40 years. Together, they have given the company 615 years of service. The company bid farewell to Mr. Clinton Stewartson and Mrs. Marlene Galbraith, who retired after serving the company for 40 years. The community involvement program continues to provide the opportunity for a wide cross-section of the company's employees to give up their time and talent to the Cayman community through volunteerism. As the country recovered from the impact of the COVID-19 pandemic, a number of in-person events resumed. At the end of December 2022, employees had volunteered 919 hours. This is an increase of 221 hours over 2021. Some of the projects and events that volunteers participated in included meals on wheels, activities with the Lighthouse School, Earth Day cleanups and support for the Sunrise Adult training center. The company continues to sponsor the Mangrove environmental education program, which exposes primary school children to Grand Cayman's marine and wetlands environment and conveys its importance. CUC remains committed to the ongoing development of the community in which we live and work. Fellow shareholders, as stated earlier, the achievements during fiscal 2022 would not have been possible without the hard work, commitment and dedication of all of our employees and we are grateful to them for their loyalty to the company. The Board of Directors continue to provide guidance and support. We thank them for their ongoing contributions as we pursue our vision of empowering Cayman to be a global leader. I am sincerely grateful to our leadership team, who provide unwavering support and who will continue to work hard to help the company meet its objectives. We remain committed to our mission, which is to be a leader in the growth of our community by delivering safe and reliable energy service at competitive costs and with respect for the environment, while remaining a model corporate citizen and providing a fair return to our shareholders. Thank you very much for your attention.

Thank you, Mr. Hew. At this time, we would like to open the meeting for questions of myself, Mr. Hew or Ms. Lawrence. Claire will read the questions received online. The relevant member of the panel will respond. Responses to all questions will be posted following the meeting.

Are there any questions from the floor. Peter?

My comments related to [indiscernible] shareholder and in [indiscernible] to continue, hopefully, on an annual basis to look at the increase, the dividend for shareholders and in particular [indiscernible] so I'm just here to say thank you for...

Thank you for those comments, Peter. Seeing no further questions from the floor. I now ask that Claire read any questions received online. There are no questions received online. There being no further questions. Are there any other matters of business to come before this meeting? There being none, I believe that Mr. Jonathan Martin has a motion that the formal portion of this meeting be terminated. Mr. Wesley Cullum will second the motion.

I second the question.

All in favor, signify in the usual manner. Any to the contrary? The motion is carried. I now declare that the 2023 Annual General Meeting of Shareholders of Caribbean Utilities Company, Ltd., is terminated. On behalf of the Board of Directors and the management team at CUC, I would like to thank you all for attending this Annual General Meeting of the shareholders.