A Letter From
Standing Strong. Embracing Change. Shaping Our Future.
The theme for the Chesapeake Utilities Corporation Annual Report speaks directly to the Company’s exceptional performance in a challenging year as well as our optimistic outlook for future growth and continued success. 2020 was an extraordinarily eventful year. A global pandemic, actions for social justice and political turmoil took center stage. Millions of our fellow citizens struggled to make ends meet as businesses closed or were downsized, jobs were lost and the economy stalled. In the energy industry, we saw an increasing emphasis on climate change and the transformation to a lower carbon future. In addition to these dramatic events challenging our businesses, we started the year with a significantly milder-than-normal winter season.
Jeff Householder, President and CEO, conducts an all-employee call from the Company’s Florida operations headquarters in Yulee, Florida. During these monthly discussions, Jeff and members of the senior leadership team provide employees with updates related to the pandemic; the Company’s initiatives and ongoing performance; and the safety and well-being of our colleagues, customers and communities.
Given the list of challenges, you might not expect that Chesapeake Utilities Corporation could deliver another year of record-breaking performance. However, that is exactly what our team accomplished. We grew Diluted earnings per share from continuing operations by 13.2% in 2020, our 14th consecutive year of record earnings.
We paid a dividend to shareholders for the 60th consecutive year. In fact, Chesapeake Utilities Corporation was one of the few energy companies that delivered a positive Total Shareholder Return in 2020, achieving an annual return over 15%.
While our financial success was notable, I am most proud of our unwavering focus on advancing the important initiatives that will continue our long history of growth and upper-quartile performance. We strengthened our safety culture and further expanded initiatives that embrace our Environmental, Social and Governance (ESG) responsibilities. Our teams identified numerous opportunities to grow our business, while continuing to focus on reducing greenhouse gas emissions. And, we accelerated a business transformation process to address the organizational and technology enhancements that will support our continued growth. It was a difficult year, but Chesapeake Utilities Corporation’s employees rose to the occasion, delivering uninterrupted energy services to our customers and outstanding financial results to our shareholders.
growth in diluted earnings per share
from continuing operations
of consecutive dividend payments
As I write this letter, the COVID-19 pandemic continues to dramatically impact our nation. We are ever mindful of the millions of people who have been touched by this virus and especially those that have lost family members, friends and coworkers.
At Chesapeake Utilities Corporation, the pandemic has tested our processes, our technology, our safety protocols, our employee policies and our financial strength. Of greater importance, it tested our ability to work remotely and collaborate as a team, making tough and informed decisions, acting quickly, standing strong together and supporting each other. It’s that sense of community, of uniting in common purpose to succeed no matter the obstacle, that I will most remember about our team in 2020. It was a year where we could have easily opted to defer our growth plan, delayed construction projects, postponed important process and technology advances and just focused on maintaining minimum service levels. We decided early on that was not for us. We moved quickly to strengthen our cash liquidity, reassured employees that their jobs were safe, engaged with our communities, scoured the globe for personal protective equipment, and instituted virus protocols to keep our frontline operations employees as safe as possible. We figured out how to operate with half of our employees working remotely. As a Company, collectively, we were determined that the pandemic would not sidetrack our long-standing growth and earnings achievements.
I am pleased to report that Chesapeake Utilities Corporation delivered record Diluted earnings per share for 2020 of $4.26. Let me share a few additional financial highlights:
We continued our strong record of investment growth in 2020. Capital expenditures totaled $195.9 million.
In 2018, we provided capital investment guidance to investors indicating projected expenditures of $750 million to $1 billion over the 5-year period 2018-2022. Our investment levels for the 2018-2020 period alone are already approaching the lower end of the guidance range, two years early.
Annual margin growth in 2020 was $25.2 million in a year where we experienced reduced margins of approximately $5.3 million attributable to COVID-19 volume reductions and another approximately $4.3 million weather related margin loss.
Net Income for 2020 was $71.5 million, an increase of 9.7%; another record performance year.
The Chesapeake Utilities Corporation Board of Directors declared a 2020 annualized dividend of $1.76 per share, an increase of 8.6%; our 17th consecutive year of increased dividends.
We have doubled our annualized dividend over the past 10 years.
Our Return on Equity from Continuing Operations for 2020 was 11.5%.
Including 2020, our Total Shareholder Return CAGR over 1, 3, 5, 10 and 20-year historic periods has exceeded 13% for each period.
Chesapeake Utilities Corporation was selected for inclusion in the S&P Small Cap 600 Index, a premier benchmark for U.S. small cap companies.
We issued equity of $89.7 million which helped strengthen our balance sheet and achieve our targeted 50% debt and 50% equity capital structure at year end.
Our stock price and market capitalization reached all-time closing highs at the end of 2020, $108.21 per share and $1.9 billion, respectively.
2020 annualized dividend per share
an increased of 8.6%
The outstanding 2020 financial achievements listed above were the result of continued solid growth and performance in both our regulated and non-regulated businesses. Let me highlight a few significant contributors to that growth. Reflecting the higher demand for our energy delivery services, our regulated natural gas customer growth in both Florida and on the Delmarva Peninsula continues to be twice the national average. We completed the acquisitions of two propane companies (Boulden Propane in Delaware and Western Natural Gas in Florida) and the Elkton Gas natural gas system in Maryland. The Callahan Intrastate Pipeline in Florida went into service early and under budget, producing additional margins. We executed a settlement agreement approved by Florida regulators for the recovery of Hurricane Michael capital investments and expenses. We benefited from lower interest rates and taxes. And, we effectively managed our expenses across the Company to offset pandemic related costs.
2020 changed not only the way we conduct our business, but the way we approached problem-solving and our view of the future. We finished a tough year as a stronger organization, more confident in our abilities and decision-making, with an intense focus on meeting both investor and societal long-term expectations.
I think the success we achieved in modifying our policies and operating practices to overcome the pandemic has energized and accelerated our efforts to address diversity and inclusion, environmental sustainability, and the business transformation required to support growth. The lessons learned and actions taken during 2020, both operationally and culturally, will help propel our Company to greater success in the years to come.
One of our most important objectives is the continued support of a culture that encourages diversity, inclusion and acceptance. We understand clearly that our stated values must be tied to actions. We made significant progress in 2020. Our Board of Directors now includes two female Directors, an African American Director and a Director who is of Middle Eastern descent. Our Women in Energy initiative, which has been active for a number of years, supported increased gender diversity in the Company that has resulted in several female employees moving into leadership positions. We established an Equity, Diversity and Inclusion (EDI) Council in 2020 to build on this momentum. The Council oversees our efforts to improve diversity in recruitment, employee development and advancement, cultural awareness and related policies. We also acknowledge our obligations to be leaders in the communities where we live and work. Chesapeake Utilities Corporation’s employees have a long history of assuming leadership roles and supporting, through contributions and volunteerism, organizations that serve our diverse communities. We will continue to take an active role in opposing racial inequality while ensuring that our Company reflects the communities we serve, is inclusive and welcomes diversity of thoughts and ideas.
Chesapeake Utilities Corporation has a long history of responsible, community-centric and ethical business practices. This year, we are formally highlighting many of the Company’s accomplishments to date in our inaugural ESG Report. The call for a lower carbon energy future aligns with actions we already have underway, but also necessitates additional action on our part. We are pursuing a three-part plan. First, we have identified a number of internal actions to reduce greenhouse gas emissions, ranging from the completion of our pipeline replacement programs to improved emission detection technology at our pipeline compressor stations. We are also working with our contractors and suppliers to encourage their environmental efforts. Second, we are committed to supporting our customers’ efforts to reduce end-use emissions through conservation programs that promote high-efficiency appliances and technical assistance for large volume customers to identify emission reduction opportunities. Third, we are actively supporting the development of several waste to energy Renewable Natural Gas (RNG) projects. Our participation extends from transporting the RNG to market by pipeline or our Marlin Gas Services’ compressed natural gas (CNG) trailers to potential investment in a biogas plant and, in some cases, solar energy facilities to provide electricity to a plant and significantly improve the RNG carbon intensity score. In our inaugural ESG report, which will be published later this year, you will find more details on our community giving, award-winning governance practices and our continued steps down the path to a sustainable energy future.
In 2020, we remained steadfast in identifying growth opportunities that will significantly grow the Company over the next five years, similar to our historical track record. To meet this growth, we have continued to make progress on our Business Transformation initiative. This included ensuring that our organizational structure, processes, employee skills, diversity and technology were able to keep pace with our growth objectives. We have simplified our organization and business unit management structure and are working to achieve greater process standardization across our units.
We completed construction of our Safety Town facility in Dover, Delaware, to provide both hands-on and classroom training for our operations technicians. We also committed to the implementation of a comprehensive Safety Management System and completed development of a safety roadmap to guide policy, process and training initiatives for execution in 2021. Several technology enhancement projects went into service in 2020: the Power Plan asset management system, an automated work order management system and a new customer portal for our propane business were among the most notable. We also continued to commit significant resources to cybersecurity, including a network-wide assessment to assure that no damage was caused by the recent SolarWinds Corp event. We have also accelerated adoption of improved technology to advance communications and support the “new normal” work environment likely to continue even after the pandemic recedes.
Chesapeake Utilities Corporation was named as a 2021 Top Workplaces USA award recipient for mid-size companies. This inaugural honor celebrates our employee-focused culture and all of our employees as they continue to come together, providing solutions, creating innovation and embracing change in support of our customers, communities, and each other.
Shaping Our Future
In my letter to shareholders last year, I noted that out of challenging times come new opportunities. Little did I know what was ahead of us in 2020. In spite of the challenges, we moved forward. We invested close to $138 million in major projects that will directly produce customer margins or serve to support our continued growth. Just one great example is the Del-Mar Energy Pathway, a transmission infrastructure project that is approximately $50 million and currently under construction to bring natural gas for the first time to Somerset County, Maryland. The project will enable our Delmarva natural gas distribution system to expand and serve thousands of new customers. As our transmission and distribution systems continue to expand toward the Delaware beaches over the next few years, we will convert approximately 10,000 underground propane system customers currently served by our Sharp Energy propane affiliate to natural gas. Our Florida distribution systems also continue to expand, adding several thousand customers per year with several years of pipeline replacement investments to complete. The propane acquisitions we integrated this year will continue to grow and deliver future results. Finally, Marlin Gas Services’ CNG transport business doubled its margins in 2020 and will continue to expand our ability to serve large load requirements in 2021 with the addition of liquefied natural gas (LNG) transport tankers.
I hope I have conveyed my confidence that we are well positioned for growth in 2021. I anticipate another solid year of capital investment in projects with attractive margins that contribute to meaningful earnings. I assure you that we will continue our long-standing practice of disciplined capital deployment, appropriately weighing earnings projections against risk. These are interesting and exciting times filled with possibilities for those willing to work hard and be creative. Even in this time of industry transformation, we see great opportunities to build on our strong foundation of related businesses and continue to deliver exceptional value to shareholders. Thank you for your investment.
Jeffry M. Householder
President and Chief Executive Officer
"We finished a tough year as a stronger organization, more confident in our abilities and decision-making, with an intense focus on meeting both investor and societal long-term expectations."
As many in-person opportunities have transformed to online events, our employees remain connected with peers and colleagues, representing the Company at numerous virtual speaking engagements. Top, left to right, are Debbie Smith, Community Engagement Manager; and Kira Lake, Director of Growth and Retention; joining Devon Rudloff, Assistant Vice President, Human Resources, bottom right, for the Florida Women in Energy Leadership Forum - Facebook Live. Hosted by Board Member Lila Jaber, and founder of Florida Women in Energy Leadership Forum, this live event enabled teammates to share insight and professional and personal experiences that impacted their careers, especially in the energy industry.