Keyera Corp. (KEY) Earnings Call Transcript & Summary

[Audio Gap] is Doug Haughey, our Lead Independent Director and Chair of our Compensation and Governance Committee. Eileen Marikar, Keyera's Chief Financial Officer is also online to answer any questions. The remainder of our Board of Directors and Keyera's executive team as well as representatives of Deloitte LLP, Keyera's independent auditors, are also attending today's meeting virtually. Before beginning the formal part of the meeting, I wish to take a few moments on behalf of the board to acknowledge 3 individuals, who have been instrumental to Keyera and its success. First, I would like to acknowledge David Smith, Keyera's former CEO, who retired at the end of 2020. I wish to thank David for his leadership over his 22 years with Keyera. David's vision and industry knowledge were instrumental in the development of Keyera's business model and his commitment to financial discipline and integrity has positioned Keyera among Canada's most resilient and well-respected energy infrastructure companies. We wish David and his family all the best in his retirement. I also wish to acknowledge current director, Don Nelson, who is not standing for reelection at this meeting. On behalf of the Board and management, I wish to extend deep appreciation to Don for his many contributions as Director, including the Chair of our Health, Safety and Environment Committee. Don's industry experience an unwavering commitment to safety and responsible environmental stewardship have been invaluable to our Board and company. Don, we wish to thank you for your service as Director and extend our best wishes to you and your family for the future. Finally, I wish to acknowledge the recent passing of former Director, Neil Nichols, on April 3, 2021. Neil served as Director from 2003 until 2016. He was an outstanding Director and a key contributor to the Board during his tenure. On behalf of the Board, I wish to extend our sympathies to Neil's family. Our memories of Neil are extremely fond, and he will certainly be missed. I will now ask Nancy to take us through the details of the meeting.

Thank you, Jim, and welcome to our shareholders and all other guests who are participating in the meeting this afternoon. Today, we are joined online by our Board of Directors. As Jim has noted, current Director, Don Nelson, is not standing for reelection to the Board at this meeting. Dean Setoguchi, who assumed the role of Keyera's President and Chief Executive Officer on January 1 this year is standing for election to the Board as a Non-independent Director for the first time. All of our meaning directors and Mr. Setoguchi have been nominated by the Board for election at this meeting. Our nominated directors standing for election at this meeting are therefore as follows: Jim Bertram; Doug Haughey; Blair Goertzen; Gianna Manes; Michael Norris; Tom O'Connor; Charlene Ripley; Dean Setoguchi; and Janet Woodruff. Today, we will conduct the meeting in 3 parts. First, we will conduct the business portion of the meeting, during which shareholders will have the opportunity to vote and to submit questions on each item of business described in our notice of meeting. Following the business portion of the meeting, our CEO, Dean Setoguchi, will present a brief business update on Keyera. The final portion of the meeting will consist of a question-and-answer session to address inquiries submitted online during the meeting. Please be reminded that only shareholders and proxy holders who have logged on to the meeting using their 15-digit control number are able to vote during today's meeting. These shareholders and proxy holders may vote on any and all business items at any time during the business portion of the meeting. Thank you to those shareholders, who voted prior to the meeting. If you voted in advance and do not wish to change your vote, there's nothing further you need to do. If you wish to now change your vote, you can submit your vote online during the meeting. This action will have the same effect as revoking your previously submitted proxy. Instructions on how to vote will appear on your screens. To vote, please click on the voting tab shown on the online platform. Voting polls will remain open until conclusion of the business portion of the meeting. Shareholders and proxy holders may also submit questions at any time during the meeting. To submit a question, please use the Ask a Question tab at the top of the online platform. You may submit a question at any time from now until the conclusion of the Q&A portion of the meeting. We will endeavor to answer questions submitted during the meeting. Questions we are not able to answer due to time constraints will be addressed on our website at www.keyera.com shortly following the meeting. I would also like to remind you that some statements made during this meeting may be considered forward-looking. We also encourage you to review the cautionary statements and other information contained in our filings on SEDAR, which outline a number of factors that could cause actual results to differ materially from those projected in any forward-looking statement made during the meeting. Copies of these filings are available on our website at www.keyera.com or on SEDAR at www.sedar.com. As the virtual format of this meeting depends on technology and the coordination of individuals, who are -- who due to social distancing are not in the same room, we appreciate your patience in the event we do need to pause or if we experience technical difficulties during the meeting. I will now invite our Board Chair, Mr. Bertram, to call this meeting to order.

Thank you, Nancy. It is now shortly after 2:00 p.m. Mountain Standard Time, on May 11, 2021. This meeting is officially called to order. As provided in our bylaws, I will act as Chairman of this meeting. Nancy Brennan will act as Secretary. Stephanie Tuss and Reymer Espinas of Computershare Trust Company of Canada have been appointed to act as scrutineers for the meeting. We will now deal with the business items specified in the notice of meeting. Voting on these items will be conducted by poll. You may vote on all or any 1 of the business items at any time prior to closing of the polls. I now declare voting to be open on all resolutions. I now ask Nancy to lead us through each of these business items. Nancy?

Thank you, Jim. I can confirm that on April 6, 2021, the notice of meeting, related management information circular and form of proxy were mailed to our shareholders of record as of March 24, 2021. The scrutineer's report shows that a quorum of shareholders is present for the transaction of the meeting. A copy of the scrutineers report, along with an affidavit confirming the mailing of the notice of meeting and related meeting materials, will be filed with the records of today's meeting. With respect to the formal portion of the meeting, I will address each business item in turn. We will then pause briefly to enable shareholders and proxy holders and opportunities to vote and to confirm whether any related questions have been submitted to us through the online platform. Where a question has been received on a specific business item, we will seek to address it at that time. Questions of a more general nature will be addressed during the Q&A portion of the meeting. Please submit any questions regarding these items using the online platform now. As Jim has noted, voting for all business items is now open. Voting will remain open until the last item of business is concluded and voting is declared to be closed. Certain shareholders have volunteered to move or to second the motions in respect of each item of business. I will call upon these individuals at the appropriate time. Preliminary voting results will be received and announced at the conclusion of the formal portion of this meeting. The first item of business is to receive the audited consolidated financial statements for the year ended December 31, 2020. The financial statements have been approved by the Board of Directors and have been previously mailed to shareholders. I can confirm that we have received no questions on the financial statements. As no vote by shareholders is required or proposed with respect to the financial statements, I will now proceed to the next business item. The second item of business is the election of directors. The Board has fixed the number of directors to be elected at this meeting at 9. Accordingly, there are 9 directors nominated for election at this meeting. Information about each of our 9 director nominees is provided at Pages 19 through 23 of our 2021 management information circular. Shareholders have the ability to vote for or against each individual director nominee. In accordance with the advanced notice provisions of our bylaws, the only persons nominated to stand for election of this meeting are the director nominees set forth in our management information circular. As there are no further nominees, I declare the nominations closed. May I please have a motion on this item?

My name is Michael Reid. I'm a shareholder, and I move that each of Jim Bertram; Doug Haughey; Blair Goertzen; Gianna Manes; Michael Norris; Tom O'Connor; Charlene Ripley; Dean Setoguchi; and Janet Woodruff be hereby elected directors of Keyera Corp. to hold office until the next Annual Meeting of Shareholders or until their respective successors have been appointed.

May name is Jennifer Lamb. I am a shareholder, and I second the motion.

Thank you, Jennifer. Mr. Chairman, I can confirm that we've received no questions on the election of directors. Shareholders and proxy holders are invited to submit their vote now if they have not already done so. If you have already voted or sent in a proxy, there is no need to do anything unless you wish to change your vote at this time. The next item involves the appointment of Deloitte LLP, chartered accountants, as the corporation's independent auditors for the upcoming year. The Board of Directors recommends the appointment of Deloitte LLP as auditor. May I please have a motion on this matter?

My name is Michael Reid. I'm a shareholder, and I move that Deloitte LLP, chartered accountants, be appointed auditors of the corporation to hold office until the next Annual Meeting of Shareholders of the corporation at such enumerated -- remuneration as shall be fixed by the Board of Directors.

My name is Jennifer Lamb. I am a shareholder, and I second the motion.

Thank you, Jennifer. Mr. Chairman, I can confirm we've received no questions on the appointment of auditors. Shareholders and proxy holders may submit their vote now if they have not already done so. Those who have already voted or sent in a proxy need not take any action unless you wish to change your vote at this time. The last item of business is an advisory vote on the corporation's approach to executive compensation, commonly referred to as a say-on-pay vote. The full text of this advisory resolution is set out at Page 17 of our management information circular. I will now ask for a motion on this matter.

My name is Michael Reid. I'm a shareholder, and I move that the ordinary resolution set out at Page 17 of the management information circular with respect to the corporation's approach to executive compensation be approved.

My name is Jennifer Lamb. I am a shareholder, and I second the motion.

Thank you, Jennifer. Mr. Chairman, I can confirm that we have received no questions on this item. We invite shareholders and proxy holders to submit their vote now if you have not already done so. As this is the last item of business before the meeting, for those, who have not voted on all resolutions, please do so now. [Voting]

Jim, I confirm that shareholders have now had an opportunity to vote.

Thank you, Nancy. As everyone has now had an opportunity to vote, I and now declare the voting polls for the meeting to be closed. Nancy, I would ask you to now please read the preliminary voting results for the meeting.

Thank you, Jim. I have now received the scrutineer's report and can confirm preliminary voting results to be as follows: each of the nominated directors have been elected, with an average support of approximately 99% of shares voted or represented at the meeting; Deloitte LLP have been duly appointed as the corporation's auditors for the upcoming year, with average support of approximately 86% of shares voted or represented at the meeting; finally, the say-on-pay advisory resolution has also been duly approved with support of over 98% of shares voted or represented at the meeting. Final voting results will be filed on our website as well as SEDAR as soon as possible following the meeting.

Thank you, Nancy. As that concludes the formal business of the meeting, I now declare the formal business portion of the meeting to be terminated. I will now turn the meeting over to Keyera's CEO, Dean Setoguchi, who will provide a brief management presentation. Dean's presentation will be followed by a question-and-answer session to respond to questions submitted during the meeting. You may continue to submit questions using online platform until conclusion of the question-and-answer session of the meeting. Dean?

Thanks, Jim, and good afternoon, everyone. Thank you all for joining us today. I'm pleased to have the opportunity to address you as my first AGM as Keyera's CEO. Although we can't meet in person for this year, I'm grateful that we can still gather safely using virtual technology. Before I continue, I'd like to remind everyone about the risks associated with the forward-looking statements and non-GAAP measures included in this presentation. Our company's performance in 2020 demonstrate the resilience of our business and the strength of our team. I'm proud of how we successfully navigated these uncharted waters. Our #1 priority continues to be the safety of our employees and the community, and we took swift action to preserve shareholder value. These actions included deferring our capital program and eliminating the dividend reinvestment plan to avoid further dilution, implementing cost reduction and asset optimization initiatives and ensuring we had plenty of liquidity in place to manage uncertainties. We also grew our presence in the liquids-rich Montney region by completing the Pipestone gas plant ahead of schedule and completing Phase 2 of the Wapiti gas plant. The result was delivery of $718 million in annual distributable cash, which is a new record for our company, and we distributed $423 million in dividends back to our shareholders. We exited the year with a strong balance sheet and investment-grade credit ratings. And in 2020, we also published our inaugural ESG report. Being responsible corporate citizens, has always been a part of our DNA at Keyera. So we're further formalizing this by putting the systems and processes in place to ensure we're tracking and improving our performance and transparently reporting on it. This includes emissions reductions, indigenous inclusion, governance and diversity. It was a busy year, particularly with the pandemic. And as I said at the beginning, I'm very proud of our performance. Just a few moments ago, we released our financial results for the first quarter of 2021, which reflects strong performance across all 3 business segments. In the G&P segment, we're seeing drilling activity amongst our customers pick up, and we're starting to see the volumes at our facilities increase. The Liquids Infrastructure segment delivered a new record for margins with continued strong demand for our fractionation, condensate handling, turmoiling and storage services. In our Marketing segment, fundamentals have strengthened, allowing us to increase our 2021 margin guidance to between $260 million to $290 million. Right now, we're very encouraged to see the energy markets continue to recover. Over the next 2 years, our largest capital investment will be for the delivery of our KAPS project. KAPS is an outstanding made in Alberta story. In the photo at the top right, you can see the pipe being rolled in Camrose, Alberta. The first joint was produced in March. On the bottom right, you can see that we've already been clearing the right-of-way and are ready for construction to begin this summer. The clearing work was awarded to 5 different indigenous affiliated contractors. The KAPS pipeline system will transport NGLs from the liquids-rich Montney and Duvernay areas to our liquids hub in Fort Saskatchewan. This project is highly desired by industry and it's especially important project for Keyera because it allows us to provide a competitive and fully integrated solution for our customers in Northwest Alberta. They will provide a very stable stream of cash flow, which is underpinned by long-term contracts. It will drive further utilization and margin capture across the rest of our value chain, and it unlocks future growth opportunities. We're excited about the benefits of this project can bring for all stakeholders. We believe it's important to be continuously improving. That's why we've committed to the following 3 goals: #1 in total shareholder return; #1 in customer recognition; and #1 in safety performance. These 3 goals are strongly linked to our vision of being the leading North American provider of energy infrastructure solutions. We set a high bar for safety and to reach this goal, we must remain accountable. That means every Keyera employee must own safety and strive for continuous improvement. And we must recognize that safety and reliability are key factors that drive discipline and delivering the other 2 #1 goals, customer recognition and total shareholder return, and we take it very seriously. Keyera is a reliable operator, but will always strive to do better. For #1 in customer recognition, it's very clear. We work for our customers, how we interact with them, the relationships we build, the reliability of our facilities and the efficiency of our services are the elements that positively impact our customers. Our performance in these areas are what differentiates us as a company. We care about our customers. We want to build long-term relationships and find win-win solutions that are sustainable. As part of that process, we've committed to conducting annual customer recognition surveys used to indicate where we're successful and areas that require improvement. Succeeding in being #1 in safety and #1 in customer recognition, will contribute to us also being #1 in total shareholder return. The financial priorities on this slide ensure we maintain financial discipline and also support our efforts to be #1 in TSR. To do this, we aim to carry lower debt leverage, maintain a sustainable dividend payout ratio, drive higher cash flow stability and ensure we direct our capital investments to the best opportunities for value creation. Here, you can see how we measured up on these financial priorities. We maintain our investment credit ratings. We ended the year with net debt to adjusted EBITDA of 2.9x within our conservative range of 2.5 to 3x. We maintained a conservative dividend payout ratio of 59%, well within our long-term targeted range of 50% to 70%. We made good progress towards increasing contributions from fee-for-service business. And overall, in the pandemic year, we demonstrated the resilience of our business model and delivered a return on adjusted capital of 11.4%, which is within our target. Keyera is proud of its long-standing focus on being a responsible energy infrastructure company, doing the right things for the right reasons. We believe focusing on ESG principles is consistent with reducing risk and generating value over the long term. In 2020, we formalized these efforts by publishing our inaugural ESG report. The report identifies the following 6 most material ESG areas of focus: safety, people and culture, emissions, community and indigenous engagement, land management and water. We're committed to incorporating these factors into decision-making. Consistent with that commitment in 2020, the Board approved linking ESG performance to compensation. In 2021, we look forward to building on these efforts. You can expect Keyera to provide an ESG performance summary for the year 2020, set corporate emissions reduction targets, and we anticipate sharing these targets and aligning our climate reporting with TCFD recommendations in the second half of this year. Another area where we see great potential is in driving further efficiencies through innovation and technology. We formalized this effort by assembling an internal innovation and transformation team in early 2021. This team will be focused on ways to enhance overall returns by improving safety and reliability, increasing efficiencies, reducing costs and lowering our emissions. Our mission is connecting energy for life, and we'll do so in a sustainable and responsible manner. The world is undergoing a transition toward a lower carbon future with investor momentum and government policy, further enabling this transition. Keyera is well positioned to adapt to these changes, which will bring new opportunities with them. Across these opportunities, we want to ensure we remain focused on generating returns for our shareholders and leveraging our existing core competencies and asset base. We continue to look for ways to reduce emissions produced by the facilities we operate. For instance, our current optimization initiative will drive higher utilization to reduce emissions intensity. We'll also pursue asset gas injection and other carbon capture and sequestration technologies. We also look for options to reduce emissions from the power we use at our facilities. This includes a further use of solar, cogeneration and potentially wind power. Lastly, we're also seeking ways to help our customers reduce their emissions. To close out, we believe in the strength, resilience and adaptability of the Canadian energy industry, and we're confident about Keyera's role within it. We're encouraged by the positive signs of recovery that we've seen year-to-date and look forward to continuing our focus on generating strong returns for shareholders. On behalf of Keyera's Board of Directors and management team, I'd like to thank our employees, customers, shareholders and other stakeholders for your continued support.

Thank you, Dean. We will now open the question-and-answer session to respond to any questions submitted during the meeting. Nancy, can you please read any questions that have been submitted during this meeting?

Thank you, Jim. I can confirm that we've received no questions during the meeting.

Seeing as there is no formal questions. This concludes our question-and-answer period. On behalf of the Board and management of Keyera, I wish to thank you for your participation today and for your continued support of Keyera. We wish you all the best and hope each of you and your loved ones stay healthy and safe. Thank you, and good afternoon.