UGI Corporation — FY2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended September 30, 2020, not a standalone fourth quarter. UGI operates four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and regulated UGI Utilities. Results reflect UGI’s first full fiscal year owning all of AmeriGas Partners following the August 2019 merger, alongside the inclusion of acquired UGI Appalachia assets for a full year.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $6.559 billion | $7.320 billion |
| Operating income | $982 million | $617 million |
| Net income attributable to UGI | $532 million | $256 million |
| Diluted EPS | $2.54 | $1.41 |
| Adjusted net income attributable to UGI (non-GAAP) | $561 million | $413 million |
| Adjusted diluted EPS (non-GAAP) | $2.67 | $2.28 |
| Cash from operating activities | $1.102 billion | $1.078 billion |
| Capital expenditures | $665 million | $706 million |
| Total debt at year-end | $6.381 billion | $6.600 billion |
| Cash and cash equivalents | $336 million | $447 million |
| Available liquidity, including cash and borrowing capacity | Approximately $1.5 billion | Approximately $1.1 billion |
| Cash dividends declared per common share | $1.31 | $1.145 |
Profitability and cash flow. Operating income rose $365 million, while revenue declined 10%. Reported results included substantial year-over-year swings in unrealized commodity and foreign-currency derivative gains and losses, tax benefits, and disposal losses. Operating cash flow increased $24 million; cash flow before working-capital changes was $1.176 billion, compared with $1.025 billion in FY2019. Working-capital changes used $74 million, versus providing $53 million in the prior year. Cash interest paid was $311 million.
Margins and segments. The filing reports segment total margin, defined as revenue less cost of sales, rather than a consolidated gross margin: AmeriGas $1.421 billion (down $70 million); UGI International $936 million (down $20 million); Midstream & Marketing $355 million (up $80 million); and UGI Utilities $577 million (up $14 million). Segment operating income was $373 million, $241 million, $140 million, and $229 million, respectively. Consolidated interest expense rose to $322 million from $258 million, largely due to debt used to finance the AmeriGas merger and CMG acquisition.
Liquidity and debt. Total debt declined $219 million, despite $6.034 billion of long-term debt and $347 million of short-term borrowings at year-end. The debt-to-capitalization ratio was 60.7%, down from 63.3%. Management said UGI and its subsidiaries complied with debt covenants. Cash balances declined, but available liquidity increased, helped by lower commodity prices and reduced collateral requirements. The company reported no near-term senior note or term-loan maturities, although scheduled principal payments include $339 million in FY2022 and $1.516 billion in FY2024.
Material changes versus FY2019
- AmeriGas Propane: Revenue fell 11% and retail gallons declined 6%, reflecting warmer weather, COVID-19 effects, conservation and other volume losses. Segment operating income fell 8% to $373 million, as lower margin outweighed reduced operating expenses. UGI’s full ownership of the Partnership affects year-over-year comparisons and share count.
- UGI International: Revenue declined 10% and retail LPG gallons fell 9%, with temperatures 12.1% warmer than normal and lower commercial and industrial demand during the pandemic. Operating income increased 5%, supported by $38 million lower operating and administrative expenses.
- Midstream & Marketing: Revenue fell 18%, chiefly because of lower natural-gas prices and the sale of HVAC and Conemaugh assets. Total margin rose 29%, primarily from UGI Appalachia gathering operations acquired in 2019; operating income increased 33% to $140 million.
- UGI Utilities: Total margin increased 2% and operating income increased 2%. The benefit from higher Gas Utility base rates and lower expenses was partly offset by warmer weather and COVID-related volume reductions.
- Unusual items: FY2020 included $54 million of pre-tax losses on disposal of Conemaugh and HVAC, $62 million of costs for LPG transformation initiatives, and gains on commodity derivatives not associated with current-period transactions. The non-GAAP reconciliation adds back selected items and removes derivative gains and losses; adjusted figures are not GAAP measures.
Outlook, management commentary and risks
- Management expects FY2021 capital expenditures of approximately $850 million, funded substantially from operating cash and cash on hand. The increase reflects resumed spending, transformation programs, midstream expansion, and utility infrastructure replacement.
- AmeriGas transformation initiatives generated more than $40 million of FY2020 benefits; management expects more than $140 million of annual savings when complete, with estimated total costs of approximately $200 million, including about $100 million of capital spending. UGI International’s Project Alliance generated approximately €7 million of FY2020 savings; management expects over €30 million in annual savings when complete, at an estimated total cost of approximately €55 million.
- Corporate support-function transformation is expected to cost about $40 million over two to three years and produce more than $15 million in annualized savings by FY2023.
- UGI Utilities’ approved settlement provides for a $20 million annual base distribution revenue increase in two phases beginning January and July 2021. Gas Utility expects adequate supply and pipeline capacity through FY2021. Its $1.265 billion gas infrastructure plan covers 2020–2024.
- COVID-19 negatively affected FY2020 results and created uncertainty around customer demand and collections, supply availability, projects, asset values, and future liquidity. Management could not estimate the pandemic’s duration or ultimate financial effect.
- Other material risks include weather sensitivity and seasonality, LPG supply concentration and transportation disruptions, commodity-price and margin volatility, competition from alternative energy, foreign-exchange exposure, regulatory cost recovery, environmental remediation, and the PennEast pipeline litigation. The PennEast outcome could delay or prevent the project and impair some or all of UGI’s investment.
- Environmental remediation includes a recorded $8 million undiscounted liability for the Saranac Lake site; the ultimate cost could be materially higher or lower. The AmeriGas cylinder-fill antitrust litigation had a direct-purchaser settlement approved in June 2020, and the company reached an agreement in principle on remaining indirect-purchaser claims, subject to court approval.
- The Board raised the quarterly dividend to $0.33 per share in 2020 and declared another $0.33 dividend payable January 1, 2021. Dividend payment remains subject to Board approval and subsidiary cash availability.
Most important facts for investors to verify
- Reconcile GAAP earnings growth with derivative mark-to-market effects, CARES Act and GILTI tax benefits, disposal losses, and non-GAAP adjustments.
- Assess the durability of segment earnings, especially AmeriGas and UGI International volumes under warmer weather, pandemic-related demand pressure, and secular LPG declines.
- Track debt maturities, covenant headroom, available liquidity, subsidiary distributions to the holding company, and funding for the FY2021 capital program and dividend.
- Test whether transformation savings materialize on schedule and exceed related implementation, capital, and execution costs.
- Monitor the PennEast legal and permitting outcome, environmental remediation estimates, customer receivables and collections, and the final resolution of remaining cylinder litigation.