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| 8-K - THE LACLEDE GROUP, INC 8K 5-17-2010 - SPIRE MISSOURI INC | form8k.htm |
AGA Financial Forum
May 17, 2010
May 17, 2010
AGA Financial Forum
May 17, 2010
This presentation contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by
words such as, but not limited to, “estimates,” expects,” “anticipates,” “intends,” and similar
expressions. Although our forward-looking statements are based on our reasonable
assumptions, future performance or results may be different than those currently anticipated.
Our forward-looking statements in this presentation speak only as of today, and we assume no
duty to update them. Factors that could cause actual results to differ materially from those
expressed or implied are discussed in our most recent annual report on Form 10-K and other
filings with the Securities and Exchange Commission in the “Risk Factors” section as well as
under the “Forward-Looking Statements” heading.
Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by
words such as, but not limited to, “estimates,” expects,” “anticipates,” “intends,” and similar
expressions. Although our forward-looking statements are based on our reasonable
assumptions, future performance or results may be different than those currently anticipated.
Our forward-looking statements in this presentation speak only as of today, and we assume no
duty to update them. Factors that could cause actual results to differ materially from those
expressed or implied are discussed in our most recent annual report on Form 10-K and other
filings with the Securities and Exchange Commission in the “Risk Factors” section as well as
under the “Forward-Looking Statements” heading.
3
www.thelacledegroup.com
* Excluding the 2008 sale of our locating and marking subsidiary
§ Proud 153-year tradition
§ Public utility holding company
formed 2001
formed 2001
§ Consistent earnings performance
(including seven consecutive
years of record earnings*)
(including seven consecutive
years of record earnings*)
§ Strong balance sheet and credit
rating
rating
§ Rewarding shareholders with a
continuous and growing dividend
continuous and growing dividend
§ Listed on the NYSE (LG) for over
120 years
120 years
§ S&P Small Cap 600 Company
4
§ Pipeline provides
transport of various
petroleum products,
including LDC
peaking needs
transport of various
petroleum products,
including LDC
peaking needs
§ Potential growth
platform for related
investments
platform for related
investments
§ Core natural gas utility
§ Stable, primarily
residential customer
base
residential customer
base
§ Investing to improve
customer service and
operating efficiency
customer service and
operating efficiency
§ Established mix of
wholesale and retail
customers
wholesale and retail
customers
§ Leverages expertise in
the natural gas market
the natural gas market
§ Opportunities to
expand
expand
Laclede Group at a Glance
5
Strategic Objectives
§ Build on success of the core regulated utility business
§ Leverage LER’s competencies and strengths
§ Pursue logical growth opportunities
§ Enhance our financial strength
7
Our System and Strengths
§ Largest LDC in Missouri
• 630,000 Customers
• Over 16,000 miles of pipe
• 2009 Revenues of $1.1 billion; net
income of $33 million
income of $33 million
§ Diversified gas supply
• 30 suppliers, with limited exposure to
Gulf supply issues
Gulf supply issues
• Transportation on 7 interstate pipelines
• Ready access to conventional and
shale supplies
shale supplies
§ Significant operating storage capacity
• Market area: ~4 Bcf natural gas, ~3
Bcfe liquid propane
Bcfe liquid propane
• Upstream contracted storage: 23 Bcf
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Diversified Conventional Gas Supply
Peak day
Flowing gas capacity
1.1 Bcf
0.7 Bcf
Top 5 gas suppliers:
§ ONEOK Energy
§ Southwestern
Energy
Energy
§ ConocoPhillips
§ Virginia Power
(Dominion)
(Dominion)
§ CenterPoint Energy
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Henry Hub
Barnett
Fayetteville
Woodford
Marcellus
Eagleford
Active supply centers
Shale supplies
Supply Shift
§ Impact of new shale supplies
• More prevalent gas-on-gas competition
• Increased pipeline construction, with supplier-push pipeline projects targeting eastern markets
10
Customer Base
§ Stable customer base
§ Diverse commercial and industrial market with minimal by-pass threat
Therms sold and transported exclude fiscal 2009 off-system sales.
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Regulatory Strategy
§ Consistent recovery of operating costs and reasonable returns
§ Long-standing focus on customer service, safety and reliability
§ Stability of rates
• Largely de-coupled rate design
– Mitigates exposure to weather and customer conservation
– Shifts recovery from total usage to customer charge and first block usage
• Infrastructure System Replacement Surcharge (ISRS)
– Allows for timely recovery of facility-related costs (depreciation, property taxes and rate of
return) between rate cases
return) between rate cases
– Currently recovering $10.9 million annually
• Long-established Purchased Gas Adjustment (PGA) clause to ensure recovery of
gas costs
gas costs
• Prudent hedging programs to reduce gas cost volatility
§ Advocacy
• Missouri Energy Development Association
• Missouri Utility Shareholders Association
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Pending Rate Case
§ Company filed for a rate increase with the Missouri Public Service
Commission in December 2009
Commission in December 2009
• Requested an increase in net annual revenues of $52.6 million
• Assumed ROE of 11.1% on an as-filed rate base of $755.0 million
• Incorporated an additional $8.1 million of ISRS recovery in rates at the time
of filing
of filing
§ Hearing scheduled for August 2010
§ Decision expected by November 2010, at the latest
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Improved Branding
Supports business objectives
§ Promote energy efficiency
§ Increase burner tips
Enhances customer awareness
Makes customers aware that using natural gas
versus electricity lowers their carbon footprint
versus electricity lowers their carbon footprint
Incorporates at all customer touch points
§ Advertising
§ Newsletters
§ Websites/online presence
§ Direct marketing
§ Collateral materials
www.OriginalGreenEnergy.com
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Key Accomplishments:
§ Improved Customer Care
• New call system
• Reorganized reporting structure
§ Shortened Read-to-Bill Cycle
• Improves cash flow
• Reduces borrowing costs
§ Strategic Sourcing Initiative
• Better pricing, performance from vendors
§ E-bill Promotion
• Increased daily number of customer sign-ups since last summer
§ GPS Technology
• Quicker response times, improved work flow
Continuous Improvement
16
Laclede Energy Resources
§ Business profile
• Non-regulated natural gas marketer
– Serving large end-users since 1996
– Growing wholesale business since 2002
– Provide customers flexible pricing alternatives
• Operating primarily in the central United States
• Transactions predominantly settled with the physical delivery of
gas
gas
• Anchored by capacity on 13 interstate pipelines
• Experienced management team
§ 2009 operating results
• Revenues of $837 million
• Net income of $31 million
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Target Markets
§ Long-term relationships with high-quality, credit-worthy
customers
customers
§ Major customer groups
• Utilities, municipalities and power generators
• Marketing affiliates of utilities and producers
• Diverse group of large Midwestern end-users
• Small independent producers with varying needs
§ Capture incremental opportunities using combination of
firm and interruptible pipeline services
firm and interruptible pipeline services
18
Henry Hub
Barnett
Fayetteville
Woodford
Marcellus
Market dynamics are shifting dramatically due to new supply sources
that are abundant and economical to produce
that are abundant and economical to produce
Eagleford
Active supply centers
Shale supplies
Shifting Supply
19
Supply Portfolio
§ Diverse supplier base
• 70 different suppliers used (fiscal YTD 2010)
• 100% onshore production
§ Top 5 Suppliers (by volume)
• Shell Energy North America
• ConocoPhillips
• Newfield Exploration (shale)
• Chesapeake Energy (shale)
• PetroQuest Energy (shale)
20
LER Risk Management
§ Conservative approach with strong oversight
§ Formal price and business risk management policy with
daily monitoring
daily monitoring
§ Credit and liquidity exposure
• Strategy incorporates master netting arrangements, letters of
credit and pre-payments to manage customer credit exposure
and liquidity requirements
credit and pre-payments to manage customer credit exposure
and liquidity requirements
• Exposures and counterparty limits reviewed daily
• Focuses on margin quality, not volume quantity, to manage both
credit exposure and liquidity risk
credit exposure and liquidity risk
21
Six months ended
March 31
March 31
LER Volume Growth
22
Volume Growth
§ Volume growth driven by
• Expansion of overall portfolio
– Additional long-term transportation capacity and gas supplies
– Increased number of counterparties
• Growth in sales base
– New retail / wholesale customers
– Producer services
– Customer asset management
§ Resulting FY 2009 sales volumes increased 49% over
FY 2008
FY 2008
§ FY 2010 volumes were essentially flat through first six
months
months
23
* See Appendix for further discussion of non-GAAP measures
Good Core Earnings
§ Record FY 2009 net income
• Captured significant locational basis differential
• Leveraged favorable long-term firm transportation contracts
• FY 2009 net income was 63% above FY 2008
§ FY 2010 earnings are under downward pressure
• Smaller regional price differentials and reduced price volatility
• Partially offset by
– Increased seasonal basis differential opportunities through
additional park and loan transactions
additional park and loan transactions
– Continued operating cost control
• Resulting net economic earnings* of $8.4 million for the first six
months of FY 2010
months of FY 2010
24
Henry Hub
TCO
Existing Markets
Current Expansion Focus
LER continues to execute on a measured expansion approach,
reflecting current market conditions
reflecting current market conditions
Measured Expansion
Opportunities
27
Rational, disciplined approach
Current Focus
§ Better utilization of existing peak-shaving assets
§ Investments in other distribution properties and
complementary upstream market opportunities
complementary upstream market opportunities
§ Leveraging Laclede Pipeline
§ Managing a strategic balance of regulated and non-
regulated businesses
regulated businesses
Financial Overview
29
Financial Profile
§ Solid core operating earnings
§ Strong balance sheet and free cash flow
§ Top-tier credit rating
§ Sustainable dividend provides additional yield
30
§ Net economic earnings reflects earnings on actual settled transactions
• Excludes earnings volatility and timing differences associated with fair value accounting (as
required by GAAP) for transactions that have not yet been completed or settled.
required by GAAP) for transactions that have not yet been completed or settled.
§ See Appendix for further discussion of non-GAAP measures
GAAP and Net Economic Earnings
31
Earnings
§ FY 2009
• Record annual operating earnings (excluding the gain on sale of
SM&P in 2008)
SM&P in 2008)
• Laclede Gas earnings were down slightly due to higher
unrecovered operating costs and lower volumes
unrecovered operating costs and lower volumes
• LER’s transport position captured significant value through
unprecedented locational basis spreads
unprecedented locational basis spreads
§ First Half FY 2010
• Laclede Gas benefits from
– Sale of propane in the non-regulated market
– Discipline in controlling operating costs
– Increased ISRS recovery
• LER earnings decline due to industry-wide narrowing of margins,
but remains solidly profitable
but remains solidly profitable
32
§ Strengthened cash flow continues to support business requirements
§ Capital spending reflects prudent investment in utility infrastructure
* See Appendix for discussion of non-GAAP measures
Cash Flow
33
§ Dividend paid continuously since 1946
§ Dividend Yield: 4.5%
72%
61%
63%
62%*
53%
Payout Ratio
* FY 2008 payout ratio calculation excludes the gain on disposal of SM&P and related disposal costs
Dividends
34
§ Strong credit ratings
§ Ample credit facilities to finance short-term needs
• Laclede Group: $ 50 million
• Laclede Gas: $320 million
§ Upcoming long-term debt maturities
• $25 million at November 2010
• $25 million at October 2012
|
|
Laclede Group
|
Laclede Gas
FMB
|
Laclede Gas
CP
|
|
Standard
& Poor’s |
A
|
A
|
A-1
|
|
Moody’s
|
|
A2
|
P-2
|
|
Fitch
|
A-
|
A+
|
F1
|
Liquidity and Financial Capacity
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Laclede Group - Key Takeaways
§ Solid core regulated utility business
§ Financial strength and cash flow to support current needs
and future investments
and future investments
§ Able to leverage knowledge and expertise to capitalize on
market opportunities
market opportunities
§ Seeking logical expansion opportunities to deliver long-term
growth
growth
Appendix
37
(1) Amounts presented net of income taxes. Income taxes are calculated by applying federal, state, and local income tax rates applicable to
ordinary income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the six months ended March 31, 2010
and 2009, the amount of income tax expense (benefit) included in the reconciling items above are $(1.4) million and $1.4 million,
respectively. For the fiscal year ended September 30, 2009, the amount of income tax expense included in the reconciling item above is
$2.2 million.
ordinary income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the six months ended March 31, 2010
and 2009, the amount of income tax expense (benefit) included in the reconciling items above are $(1.4) million and $1.4 million,
respectively. For the fiscal year ended September 30, 2009, the amount of income tax expense included in the reconciling item above is
$2.2 million.
This presentation includes the non-GAAP financial measure of “net economic earnings.” As LER continues to expand its business, the
number of transactions accounted for through fair value measurements has increased. As a result, management also uses this non-
GAAP measure internally when evaluating the Company’s performance. Net economic earnings exclude from net income the after-tax
impacts of net unrealized gains and losses on energy-related derivatives resulting from the current changes in the fair value of financial
and physical transactions prior to their completion and settlement. Management believes that excluding these timing differences
provides a useful representation of the economic impact of only the actual settled transactions and their effects on results of operations.
These internal non-GAAP operating metrics should not be considered as an alternative to, or more meaningful than, GAAP measures
such as net income. The schedule below provides a reconciliation of this non-GAAP measure to the most directly comparable GAAP
measure:
number of transactions accounted for through fair value measurements has increased. As a result, management also uses this non-
GAAP measure internally when evaluating the Company’s performance. Net economic earnings exclude from net income the after-tax
impacts of net unrealized gains and losses on energy-related derivatives resulting from the current changes in the fair value of financial
and physical transactions prior to their completion and settlement. Management believes that excluding these timing differences
provides a useful representation of the economic impact of only the actual settled transactions and their effects on results of operations.
These internal non-GAAP operating metrics should not be considered as an alternative to, or more meaningful than, GAAP measures
such as net income. The schedule below provides a reconciliation of this non-GAAP measure to the most directly comparable GAAP
measure:
Net Economic Earnings Reconciliation
38
This presentation includes the non-GAAP measures of “free cash flow” and “operating cash flow from continuing operations (excluding working capital).”
Management uses these non-GAAP measures when evaluating the Company’s performance. Operating cash flow from continuing operations (excluding working
capital) is calculated as income from continuing operations plus depreciation, amortization, and accretion expense (from continuing operations), plus certain non-
cash charges (credits) to income (which are reflected in the “Other-net” line of the Statement of Cash Flows), minus certain tax-related benefits recorded pursuant
to FIN 48 (as codified in ASC 740). Free cash flow is operating cash flow from continuing operations (excluding working capital) reduced for capital expenditures
from continuing operations and dividends paid. Management believes that these measures provide a useful representation of the cash flows from continuing
operations generated by the Company because they exclude temporary working capital and other changes, which are primarily attributable to variations in the
timing of the collections of Laclede Gas’ gas cost and the utilization of the Company’s gas inventories. Further, by reflecting cash requirements for capital
expenditures and dividends, management believes that free cash flow provides an additional useful measure of the Company’s cash flow performance. These
internal non-GAAP measures should not be considered as an alternative to, or more meaningful than, GAAP measures such as net cash provided by (used in)
operating activities. The schedule above provides a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
Management uses these non-GAAP measures when evaluating the Company’s performance. Operating cash flow from continuing operations (excluding working
capital) is calculated as income from continuing operations plus depreciation, amortization, and accretion expense (from continuing operations), plus certain non-
cash charges (credits) to income (which are reflected in the “Other-net” line of the Statement of Cash Flows), minus certain tax-related benefits recorded pursuant
to FIN 48 (as codified in ASC 740). Free cash flow is operating cash flow from continuing operations (excluding working capital) reduced for capital expenditures
from continuing operations and dividends paid. Management believes that these measures provide a useful representation of the cash flows from continuing
operations generated by the Company because they exclude temporary working capital and other changes, which are primarily attributable to variations in the
timing of the collections of Laclede Gas’ gas cost and the utilization of the Company’s gas inventories. Further, by reflecting cash requirements for capital
expenditures and dividends, management believes that free cash flow provides an additional useful measure of the Company’s cash flow performance. These
internal non-GAAP measures should not be considered as an alternative to, or more meaningful than, GAAP measures such as net cash provided by (used in)
operating activities. The schedule above provides a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
Cash Flow Reconciliation