UGI Corporation (UGI) Earnings Call Transcript & Summary

Good day, and welcome to the UGI Corporation 2020 Annual Meeting of Shareholders. [Operator Instructions] Now I'd like to turn the conference over to Frank Hermance. Please go ahead.

Good morning, ladies and gentlemen. The 2021 annual meeting of the shareholders of UGI Corporation will now come to order. In light of public health concerns relating to the COVID-19 pandemic. We are holding this year's annual meeting of shareholders through this virtual format. I am Frank Hermance, Chair of the Board of Directors, and I will be presiding over this meeting. I'd like to welcome all of you here today and thank you for your support and interest in UGI. Monica Gaudiosi, who has joined virtually is Vice President, General Counsel and Secretary of the company. She will act as secretary of this meeting. If you are a shareholder of UGI Corporation that logged in using your unique 16 digit control number, you will find a link to the grant of proxy authority, the proxy statement, the annual report on Form 10-K and the rules of conduct under the Meeting Materials section in the center of the screen. We intend to follow the meeting agenda and rules of conduct in carrying out the business of this meeting. Let me now introduce our director nominees, all of whom are also current directors and who have joined vertically -- virtually, excuse me. In addition to myself, John Walsh, UGI's President and Chief Executive Officer; Shawn Bort; Ted Dosch; Alan Harris; Mario Longhi; William Marrazzo; Cindy Miller, Kelly Romano and Jim Stalling. Also here today is Marv Schlanger, who will be retiring from the Board following today's meeting. In addition, we also have members of our management team joining us virtually. At this time, I'd like to take a minute to remind you about some of the recent changes to the Board. First, Marv has decided to retire from the Board of Directors after serving for more than 23 years. Marv joined the Board in 1998 and currently serves as the company's vice chair following his service as Chair of the Board from January of 2016 to January of 2020. During his tenure, Marv also served as a Director of AmeriGas Propane, Inc. a subsidiary of the company from 2009 until August of 2019 when UGI acquired all outstanding AmeriGas Partners common units. It is appropriate at this time to acknowledge Marv's many years of service to UGI Corporation and its subsidiaries and to formally extend the entire Board's sincere gratitude to him, for his vision, leadership and significant contributions to UGI's success. In addition, Rick Turner, who has served on the Board since September of 2019 is not standing for reelection today. Prior to his service on the company's Board, Rick served as a Director of AmeriGas Propane, Inc. from 2012 until 2019. We also thank Rick for his collaboration, industry expertise and many contributions during his tenure. Marvin, Rick are and will continue to be held by the entire Board in the highest esteem. Thank you, both. Second, new directors joined the Board in 2020. Mario Longhi in April of 2020 and Cindy Miller in September of 2020. We are delighted to have them as part of the Board, their extensive experience as executives and public company directors has already been tremendous value to the company. Third, I'd like to introduce Bob Watters and Alyson Filippone, the representatives of Ernst & Young the company's independent registered public accounting firm, who have also joined virtually. I will now address some housekeeping matters. The notice of the annual meeting and the availability of the company's proxy materials were mailed, beginning on December 18, 2020, to shareholders of record on November 18, 2020. The business portion of the meeting will be brief. After the meeting adjourns, there will be a management presentation and the management team will be available to respond to questions at that time. Broadridge Financial Solutions was appointed as the judge of election by the Board of Directors. Broadridge is represented today by Louis Larsen. I have been informed by Broadridge that more than a majority of the issued and outstanding shares of UGI common stock entitled to vote at this meeting are present in person or by proxy, and accordingly, a quorum is present to conduct the business of the meeting. Therefore, I declare that this meeting is legally convened. As described in detail in our proxy statement, there are 4 matters before this meeting for action by shareholders. The Board recommends that the shareholders vote for proposals 1 through 4. To summarize, the proposals are as follows: First, electing the 10 director nominees named in the proxy statement. Second, approving a resolution regarding the compensation of UGI's named executive officers. Third, approving the company's 2021 incentive award plan. And fourth, ratifying the selection of Ernst & Young as the company's independent registered public accounting firm for 2021. If any shareholder has submitted questions through the web portal, that relate to items of business being voted on at this meeting, we will attempt to answer them now. As a reminder, you must have logged in using your unique control number to submit a question. We'll answer as many questions as time allows, but only questions that relate to the items of business at this meeting. If you have questions relating to UGI, but not specifically related to the items of business covered at the meeting, you will have an opportunity to ask those questions following the management presentation. As always, you may reach out to UGI's Investor Relations department with any questions or concerns.

It appears, no questions have been submitted that relate to the items of business before shareholders at this meeting.

We are now ready for voting on the matters presented by the Board of Directors to be acted on at this meeting, and I declare the polls open for balloting. Will anyone who desires to vote in person, please click on the Vote Here button on the annual meeting website. If you have already voted via internet, telephone or by filling in a proxy card, it would simplify the count if you do not use the Vote Here button, unless you wish to change your vote. I declare that the polls are closed. The vote has been tabulated, and I will now ask the secretary to summarize the results of voting.

Mr. Chairman, on the basis of the report of the judge of election, I declare, on the first item, the election of the Board of Directors, all 10 director nominees were elected. On the second item, the proposal to approve the compensation pay to the company's main executive officers was approved. On the third item, the company's 2021 incentive award plan was approved. On the fourth item, appointment of Ernst & Young as the company's independent registered public accounting firm for fiscal 2021 was ratified.

Thank you, Monica. These results are subject to review and verification. The final results will be reported in a Form 8-K. The following will be filed with the records of the meeting: the notice of the meeting, the proxy statement, the form of proxy, the annual report, the affidavits of mailing and notice of meeting, the ballots and the certificate of inspector of election. Ladies and gentlemen, thank you for your attendance, we hope to have the pleasure of meeting with all of you again next year. I now declare the meeting adjourned. At this time, I'd like to introduce John Walsh, the company's President and Chief Executive Officer, to provide you with a presentation about UGI Corporation and its subsidiaries. Thank you very much.

Thank you, Frank. I appreciate this opportunity to update you on our progress in a number of important areas. This past fiscal year was marked with unprecedented change, but through it all, UGI worked to serve its employees, customers, shareholders and communities. I'll be commenting on some of our major achievements over the course of fiscal '20, review our financial performance and address our renewables growth strategy. I'll also provide an update on an important acquisition that we recently announced, Mountaineer Gas Company, which is an exciting opportunity that will help us rebalance our portfolio. Lastly, I'll conclude with comments on our commitment to grow sustainably to position UGI as a leader of a renewable energy future to continuing to deliver value to our shareholders as well as valued services and support to our customers and the communities we serve. We made some major strides in this dynamic year, which was marked by growth as well as change. While we faced significant challenges due to the pandemic and warmer weather across all of our operating, we responded quickly and effectively to those challenges. We're very pleased with the results delivered in fiscal '20, which included the full year earnings impact and expanded cash flow from the AmeriGas buy-in and strong performance of the UGI Appalachia systems acquired last year. Our investments in the LPG transformation initiatives are delivering benefits as both AmeriGas and UGI International exceeded their commitments to realize $30 million and EUR 5 million, respectively, of permanent annual benefits in fiscal '20. We have now identified and will deliver $145 million in permanent annual savings by fiscal '22 at AmeriGas at a cost of approximately $200 million, and we will invest about 1/3 of the benefits on high-value customer retention with a very attractive return. Likewise, at UGI International, we will deliver EUR 30 million in permanent annual benefits with an investment of approximately EUR 55 million. With our changing external environment, we continue to strive to be a force for good and a voice for change in our communities. We recently created a belonging, inclusion, diversity and equity, or BIDE, initiative to ensure that our entire team knows that they truly belong at UGI and that the diversity of thought, perspective and experience they bring to UGI is vitally important to our future success. We're also focusing on our partnerships with agencies and organizations addressing the critical needs in our local communities, such as food and security, quality primary education and racial injustice. We've relied on critical existing partnerships, such as the United Way, Salvation Army and Reading is Fundamental as well as launching or strengthening other partnerships, such as the Urban Affairs Coalition, Big Brothers Big Sisters and Philabundance. We continue to maintain momentum in several key areas, including our EPS and dividend commitments that I'll comment on later in the presentation. As we look at our businesses, there are numerous highlights. In our midstream business, we completed construction of our Bethlehem LNG storage and vaporization system, which is an important in addition to our LNG network. Our commitment to consistent expansion of our LNG network has positioned UGI as a leader in both peaking services and commercial supply in the Mid-Atlantic and Northeast. Despite the critical challenges of the pandemic, utilities had another year of near record levels of capital deployment, which demonstrates our commitment to infrastructure replacement. We also continue to grow our customer base in utilities as we added over 12,000 new commercial and residential heating customers. AmeriGas had another very strong year of growth in our ACE and National Accounts programs. Our ACE volumes were up almost 18% as we saw the combined impact of our expanding customer base and strong COVID-related demand in the spring and summer. UGI International had an outstanding year due to the combined impact of operating efficiencies and effective margin management. We also extended our footprint in Europe, completing 5 small LPG acquisitions across Belgium, the U.K., Switzerland and the Netherlands. 2020 was a year of significant progress on our environmental, social and governance activities. The range of our ESG activities is broad and its impact is significant. In August, we acquired GHI, a renewable natural gas company, and we've been pleased with its performance. Since then, we also made an investment in a renewable natural gas feedstock infrastructure project in Idaho. And we're very excited about the platform for future RNG growth. Continuing with our focus on ESG, we sold UGI's interest in the Conemaugh coal-fired electric generating facility that reduced UGI's Direct CO2 equivalent emissions by more than 30%. As I mentioned before, in a challenging environment, we were able to deliver strong results with consistent execution. Our business did a great job executing on the fundamentals, making progress on our core initiatives and expanding our business in key areas such as natural gas infrastructure and renewable natural gas. Despite warmer-than-normal weather in all businesses, we delivered adjusted earnings per share growth of 17%, largely driven by the full-year impact of the UGI Appalachia acquisitions, new base rates at the utilities, ACE and National Accounts growth at AmeriGas and margin management at UGI International. We have continued to deliver on our long-term financial commitments of 6% to 10% annual EPS growth and 4% annual dividend growth. Over the past 10 years, our EPS has grown at a rate of 6.8% per year, while our growth has averaged approximately 7%. Over the past 20 years, our EPS growth rate has been over 10%. We believe we're very well positioned to continue to deliver on these commitments. 2020 marked the [ 1306th ] consecutive year of UGI paying common dividends and the 33rd consecutive year of increasing our dividend. At this point, I would briefly comment on our performance and stability. Over the last 20 years, we have provided a total annual shareholder return of over 13%, a number significantly higher than the mid-single-digit return provided by the S&P 500 over the same period. Our cash flow growth and stability continues to be a key differentiator for UGI with our average cash flow over the last 10 years being the highest across all our peers. As we navigated the impact of the pandemic and the broad-based social issues facing our communities, our vision to be a safe, reliable, affordable and sustainable energy solutions provider became even clearer. We strongly believe that we're positioned as a differentiated renewable energy solutions provider, given the strength of our strategic assets, our proven competencies and our ability to successfully execute against our strategy. In the last 5 years, we've made a series of investments as we ramped up our renewable solutions activities. We began sourcing and marketing Bio-LPG in Northern Europe, and we've seen strong demand for that product. As I mentioned earlier, in fiscal '20 we made an important investment in renewable natural gas with our acquisition of GHI. Since then, we've continued to grow our capability as a differentiated renewable energy solutions provider. We recently made a small investment in a utility-scale RNG project in Idaho. We're excited about those 2 investments. And in the short time that we've owned GHI, we've identified numerous other opportunities for us to execute quality renewable solutions investments. As we look forward, there's a great opportunity for us. So one of the keys we've determined as we've developed other businesses over time is building a quality team and having the resources and capabilities to truly develop a significant business. We see the opportunity to invest up to $1 billion over the next 5 years in renewable solutions opportunities. Over the past 2 years, we've shared our commitment to rebalancing our portfolio through investments in our natural gas business. The acquisition of Mountaineer Gas, the largest gas LDC in West Virginia, that we announced in December, will accelerate that rebalancing effort. Mountaineer serves approximately 215,000 customers across 50 of West Virginia's 55 counties and operates approximately 6,000 miles of pipeline. We see a significant opportunity to invest in the distribution system over the next decades as we replace older infrastructure and grow our customer base. The transaction is accretive to earnings in our first full year of combined operations, but more importantly, we have the opportunity to invest and grow as we serve Mountaineer's customers and communities. We expect the acquisition to close in the second half of 2021. The Mountaineer acquisition will increase our utilities customer base by almost 30% and our utilities rate base by just under 15%. As we look at our overall gas utility operations, the addition of Mountaineer increases our total gas pipelines network to over 18,000 miles, adds over $50 million to our annual CapEx program and increases our rate base to $2.75 billion. West Virginia has a positive environment for natural gas development with opportunities for increased industrial use of natural gas and longer-term conversion to natural gas from other fuel sources. So taken together, we see a number of investment opportunities at Mountaineer over the next several decades, and expect 10% to 12% average annual rate base growth over the long term. Looking forward, UGI remains extremely well positioned to deliver on the long-term commitments of 6% to 10% earnings growth and 4% dividend growth. We feel equally strongly about our ability to position UGI as a leader in terms of delivery of renewable energy solutions. We'll continue to focus on building a weather-resilient business, making critical investments in infrastructure and focus on the environmental, social and governance commitments we have made to our employees, customers, investors and the communities we serve. We look to accelerate our development and positioning of the renewable solutions business, and we're making great progress and have a breadth of opportunity upon which to build that foundation. I'd like to close by thanking our team for their diligent efforts throughout 2020 and our Board for their guidance and insight during this unique and challenging year. A special word of thanks to our retiring Board members, Rick Turner and Marv Schlanger. Rick served on both the AmeriGas and UGI Boards during his 8 years with us. Marv is retiring after 23 years of service as a Board member for both UGI and AmeriGas and UGI's chair from 2016 to 2020. Rick and Mark have made enduring contributions to our success, and it has been a real privilege for all of us to work with them. And with that, I'll open it up for your questions.

What is UGI's position on making future political contributions, including through UGI's pact to local, state or national elected representatives or candidates who supported the denial of the certification of a state's electoral results?

Okay. Well, thanks so much for that question. Certainly, we share your disappointment and your concern with these recent events and those actions that disrupted some of our fundamental political processes at both the federal level and the state level. As the events unfolded, our political action committee, the team that oversees and directs our political contributions, made the decision that we'll suspend all political contributions for the next 3 months at minimum. We'll use this time, the PAC will use this time to review positions and actions of our elected officials to ensure that those actions are consistent with our values. It's certainly important for us to support policymakers who understand and support our industry, but it is equally important to support policymakers who share our values. We share the disappointment of you and many others over recent events, and we'll certainly take this time over the next 3 months to evaluate how we participate in the political process going forward and which elected officials we support.

And there are no additional questions.

Okay. Thank you. Thank you so much for your time and attention this morning. We look forward to speaking with you next on our first quarter earnings call on February 4. So we'll speak with you then. Take care.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.