UGI Corporation — FY2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended September 30, 2023, not a standalone calendar-quarter report. UGI distributes and markets energy through four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and regulated Utilities. Financial amounts below are in U.S. dollars; “million” and “billion” are used for readability.
Financial performance
- Revenue: $8.928 billion, down 12% from $10.106 billion in FY2022. Lower energy prices and sales volumes, particularly in energy marketing and LPG, were significant factors.
- GAAP earnings: Net loss attributable to UGI was $1.502 billion, or $7.16 per diluted share, versus net income of $1.073 billion, or $4.97 per diluted share, in FY2022. Results included large unrealized commodity-derivative losses and a goodwill impairment.
- Adjusted earnings: Management’s non-GAAP adjusted net income was $613 million, or $2.84 per diluted share, compared with $626 million, or $2.90, in FY2022. Management excludes derivative gains and losses not associated with current-period transactions and other specified items; this measure is not a substitute for GAAP results.
- Operating performance by segment: The following table shows segment revenue, total margin, and operating income for FY2023. Total margin is revenue less cost of sales; segment operating income is not directly comparable to consolidated GAAP operating loss, which includes significant corporate and unusual items.
| Segment | Revenue | Total margin | Operating income |
|---|---|---|---|
| AmeriGas Propane | $2.581 billion | $1.331 billion | $268 million |
| UGI International | $2.965 billion | $920 million | $215 million |
| Midstream & Marketing | $1.847 billion | $487 million | $285 million |
| Utilities | $1.854 billion | $877 million | $357 million |
- Cash flow and investment: Operating cash flow was $1.107 billion, up from $716 million; cash used by operating working capital and collateral deposits fell to $151 million from $553 million. Cash capital expenditures were $974 million, versus $804 million. FY2024 capital expenditures are estimated at $832 million.
- Debt and liquidity: Total debt was $7.249 billion at September 30, 2023, compared with $7.000 billion a year earlier. Cash and cash equivalents were $241 million, with a further $99 million of restricted cash. Available liquidity, including cash and undrawn revolving capacity, was approximately $1.6 billion, down from $1.7 billion. Interest expense rose to $379 million from $329 million. UGI reported compliance with debt covenants at fiscal year-end.
- Shareholder distributions: FY2023 common dividends totaled $1.47 per share, up from $1.41. The Board declared a $0.375-per-share dividend payable January 1, 2024.
Material changes versus FY2022
- Consolidated revenue declined, while GAAP results swung from profit to a substantial loss. The main unusual items included $656 million of non-cash AmeriGas goodwill impairment, $221 million of losses on disposal of UGI International energy marketing businesses, and $1.252 billion of net losses on commodity and certain foreign-currency derivatives not associated with current-period transactions. FY2022 had $494 million of gains on those derivatives.
- Adjusted net income declined modestly. AmeriGas adjusted earnings fell amid lower retail gallons and higher operating costs; UGI International faced warmer weather, lower LPG volumes, and European customer conservation. Utilities and Midstream & Marketing earnings increased, supported by utility rate changes and acquired gathering assets, respectively.
- AmeriGas retail gallons sold decreased 7%; UGI International LPG retail gallons decreased 9%. UGI International temperatures were 10.5% warmer than normal, while Utilities’ gas territories were 11.7% warmer than normal.
- UGI continued exiting European energy marketing: it sold the U.K. business in October 2022 and Belgium in September 2023, sold substantially all of the French business on October 1, 2023, and was winding down the Netherlands business. UGI also recorded a $19 million impairment on certain Netherlands business assets.
- AmeriGas issued $500 million of 9.375% senior notes due 2028 and used the proceeds, cash, and parent support to redeem $675 million of 5.625% notes due 2024. AmeriGas had breached leverage and interest-coverage covenants in March 2023, cured the breach with parent capital contributions, and was compliant at September 30 without relying on an equity cure. UGI amended the facility after year-end, reducing the revolver commitment from $600 million to $400 million and easing the minimum interest-coverage requirement for a period.
Outlook, commentary, risks and contingencies
- In August 2023, UGI began a strategic review focused on its LPG businesses, including potential strategic alternatives and cost optimization, to seek shareholder value, reduce earnings volatility, and strengthen the balance sheet. No specific transaction, outcome, or completion timetable was assured.
- Management expects adequate propane supply for AmeriGas in FY2024 and adequate gas supply and pipeline capacity for the regulated utilities. The filing warns that supply interruptions, transportation constraints, rapid commodity-price changes, or inability to pass costs through promptly could pressure margins and liquidity.
- UGI expects FY2024 capital expenditures of $832 million, including $499 million for Utilities and $163 million for Midstream & Marketing. Higher Midstream & Marketing spending reflects renewable-energy projects and LNG facilities.
- Key risks include weather-driven seasonality, warmer winters and conservation, competition and energy transition, European LPG supply and geopolitical conditions, inflation and interest rates, debt and refinancing needs, regulatory cost recovery, cyber incidents, and environmental liabilities. UGI highlighted a heightened risk of further AmeriGas goodwill impairment; $1.3 billion of AmeriGas goodwill remained at year-end. UGI International’s goodwill fair value exceeded carrying value by approximately 10%, leaving sensitivity to weaker results or higher discount rates.
- West Reading explosion: The March 2023 explosion caused fatalities, injuries, and property damage. Investigations and related lawsuits were ongoing; the cause had not been determined, and UGI said it could not reasonably estimate a loss range or determine the ultimate financial effect. UGI stated that claims above its deductible were believed to be recoverable under insurance.
- EY issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of September 30, 2023.
Important facts for investors to verify
- Progress and outcome of the strategic review, including any asset sales, cost actions, or changes to capital allocation and dividends.
- AmeriGas operating trends, covenant headroom, parent support needs, higher-cost debt, and potential additional goodwill impairment.
- Cash flow quality and liquidity, especially the effects of commodity derivatives, collateral requirements, and working-capital movements.
- Timing, costs, and remaining customer or contract obligations associated with the European energy marketing exits and Netherlands wind-down.
- Developments in the West Reading investigation and litigation, including insurance coverage and any change in the ability to estimate exposure.
- Ability to fund planned capital expenditures and address scheduled debt maturities, including $1.687 billion of principal scheduled for FY2025.