UGI Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. UGI is a diversified energy company operating through AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities. This is an annual report, not a quarterly filing.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $7.447 billion | $6.559 billion |
| Operating income | $2.350 billion | $982 million |
| Net income attributable to UGI | $1.467 billion | $532 million |
| Diluted EPS, GAAP | $6.92 | $2.54 |
| Adjusted net income | $629 million | $561 million |
| Adjusted diluted EPS | $2.96 | $2.67 |
| Operating cash flow | $1.481 billion | $1.102 billion |
| Capital expenditures | $690 million | $655 million |
| Total debt | $6.816 billion | $6.381 billion |
GAAP earnings were substantially affected by commodity derivative gains not associated with current-period transactions. UGI reported a $1.001 billion after-tax adjustment for these gains in reconciling GAAP net income to adjusted net income; the gains largely reflect mark-to-market movements as commodity prices rose. Adjusted diluted EPS, which excludes these and other specified items, increased 11%.
Cash and cash equivalents were $855 million, including $468 million of derivative collateral that could be returned as commodity prices or derivative values change. Available liquidity was approximately $2.2 billion, also including that collateral. UGI reported compliance with debt covenants and no near-term senior-note or term-loan maturities. The common dividend was $1.35 per share for FY2021, versus $1.31 in FY2020.
Segment trends and material changes
- AmeriGas Propane: Revenue rose to $2.614 billion from $2.381 billion, while total margin fell 2% to $1.397 billion. Retail gallons declined 2% to 968 million; operating income increased 3% to $385 million, supported by lower expenses and other income.
- UGI International: Revenue increased 25% to $2.651 billion and total margin increased 16% to $1.053 billion. Colder weather, higher volumes and margins, and stronger euro and sterling translation contributed to growth.
- Midstream & Marketing: Revenue rose 13% to $1.406 billion, total margin rose 5% to $373 million, and operating income rose 14% to $160 million. Higher capacity-management and renewable-energy margins were partly offset by the prior-year comparison including assets sold in 2020.
- UGI Utilities: Revenue increased 5% to $1.079 billion and operating income increased 5% to $241 million, reflecting higher rates, customer growth, and the Mountaineer acquisition, partly offset by higher expenses and depreciation.
UGI acquired Mountaineer Gas Company on September 1, 2021, for $540 million, including assumed debt; the acquisition added nearly 214,000 West Virginia gas customers and was funded with borrowings, equity-unit proceeds, and cash. FY2021 results include only one month of Mountaineer activity.
Outlook, commentary, risks and unusual items
- UGI estimated FY2022 capital expenditures of $990 million, principally for utility infrastructure replacement and expansion, Mountaineer investment, and midstream and renewable-energy projects. No numeric consolidated earnings or EPS guidance is stated in the provided filing text.
- AmeriGas and UGI International transformation initiatives were substantially complete. Management expected annual benefits exceeding $150 million and €30 million, respectively, by FY2022-end. Corporate-services transformation was expected to cost about $40 million and generate more than $15 million in annualized savings by FY2023-end.
- UGI announced a target to reduce enterprise Scope 1 greenhouse-gas emissions 55% over five years from a FY2020 baseline, while continuing to grow EPS and dividends. Renewable projects were in development; projected output and completion dates are not guaranteed results.
- Unusual items included a $93 million impairment of the PennEast investment after the project ceased development, a $20 million customer-relationship intangible impairment at DVEP, and $13 million of Mountaineer transaction costs. A $23 million Italian tax-law election benefit also supported FY2021 results.
- Key risks include seasonal and weather-sensitive demand; LPG supply, transport, and commodity-price volatility; potential delays in passing costs through to customers; competition and energy transition; regulation and environmental remediation; customer and counterparty credit risk; cyber incidents; COVID-19 effects; and execution, integration, and supply-chain risks.
The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded the recently acquired Mountaineer and Redeo Energies businesses.
Important facts for investors to verify
- How much of the reported GAAP earnings and cash-flow improvement reflects derivative mark-to-market gains and associated collateral, versus recurring operating performance.
- Whether the projected FY2022 transformation benefits and $990 million capital program are achieved without materially increasing leverage or weakening liquidity.
- Mountaineer’s ongoing contribution, integration progress, and final purchase-price allocation; FY2021 included only one month of its results.
- Exposure to customer credit deterioration in Midstream & Marketing gathering assets and any resulting impairment beyond the PennEast and DVEP charges already recorded.
- Debt repayment capacity, subsidiary restrictions on cash transfers, and the sustainability of dividends amid seasonality and substantial investment needs.