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| 8-K - CTWS FORM 8-K FEBRUARY 3, 2015 - CONNECTICUT WATER SERVICE INC / CT | ctwsform8-k02x03x2015.htm |
Connecticut Water Service, Inc. NASDAQ: CTWS Investor Presentation February 2015
NASDAQ: CTWS www.ctwater.com 2 Forward Looking Statements Except for the historical statements and discussions, some statements contained in this presentation constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward looking statements are based on current expectations and rely on a number of assumptions concerning future events, and are subject to a number of uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from such statements. These forward-looking statements speak only as of the date of this presentation. Connecticut Water does not assume any obligation to update or revise any forward-looking statement made in this presentation or that may, from time to time, be made by or on behalf of the Company. Neither this presentation nor any verbal communication shall constitute an invitation or inducement to any person to subscribe for or otherwise acquire any Connecticut Water securities. For further information regarding risks and uncertainties associated with Connecticut Water’s business, please refer to Connecticut Water’s annual, quarterly and periodic SEC filings which can be found on the investor relations page of the company’s website www.ctwater.com and at www.sec.gov.
NASDAQ: CTWS www.ctwater.com 3 Connecticut Water Overview
NASDAQ: CTWS www.ctwater.com 4 Connecticut Water New England’s Largest Publicly Traded Water Utility Market Data As of 12/31/14 unless otherwise noted • $ 534.8 Million Total Enterprise Value1 (9/30/14) • $403 Million Market Capitalization • $102.2 Million Total Revenues LTM2 (9/30/14) • 93% Regulated, 7% Non-regulated • 73.6% 5 Year Total Shareholder Return3 • 2.9% Dividend Yield • Low Beta of 0.654 • S&P ‘A’ Rating (affirmed January 2015) Resources • 400,000 people served • 2,100 Miles of Pipeline • 263 Employees • 77 Communities • 122,500 regulated customers • $348 Million Rate Base5 (9/30/14) CTWS: NASDAQ 1 Total enterprise value is calculated as (Market cap + Long-Term Debt +Preferred stock) - Cash (Reconciliation in Appendix). 2 Last Twelve Months (LTM) 3 Total Shareholder Return is the return to an investor that includes stock price change and the reinvestment of dividends over a specific period. 4 Beta measures the volatility of a security relative to the overall market. A beta of less than one indicates lower risk than the market; a beta of more than one indicates higher risk than the market. 5 Rate Base value is calculated as (Net Utility Income + Materials and Supplies + Working Capital Adjustment) – (Advances for Construction + Unamortized Contributions in Aid of Construction + Deferred Federal and State Income Taxes + Unamortized Investment Tax Credits).
NASDAQ: CTWS www.ctwater.com 5 CTWS Creates Shareholder Value Strong Core Business plus Best In Class Tools for Success Strong Predictable Revenue (WRA) Minimal Regulatory Lag (WICA, WISC) Efficiently Manage Costs
NASDAQ: CTWS www.ctwater.com 6 Connecticut Water Value Proposition • Regionally focused, regulated water utilities (93% regulated earnings) • Maine acquisitions provide diversified, multi-state utility base and greater business scale • Constructive regulatory environment with attractive investment recovery mechanisms Diversified, Regulated Utility Business Conservative growth strategy focused on utility infrastructure investment Proven track record executing accretive acquisitions Complementary, low-risk, non-regulated utility services business Focus on maintaining a strong balance sheet and liquidity “A” credit rating from S&P (as of January 17, 2015) Balanced approach to financing growth and prudent operating cost management Consistently raised dividend payments for 45+ consecutive years High-quality, well-maintained asset system Experienced management team with an average of 25 years utility experience ≥ 85% customer satisfaction distinction in each of the last 14 years (GreatBlue – Independent Research Firm) Low Risk, Regulated Growth Plan Strong Financial Profile Operational Excellence
NASDAQ: CTWS www.ctwater.com 7 Conservative Financial Management • S&P credit rating: ‘A’/Stable (as of January 2015) • No near-term debt maturities/ Equity offerings (excluding on-going Dividend Reinvestment Plan) • Balanced debt-equity ratio • NASDAQ U.S. Dividend Achievers Select Index (since February 2012) • 51% earnings growth over a 5 year period (2008 – 2013)
NASDAQ: CTWS www.ctwater.com 8 • Prudent acquisitions of other water systems • CapEx investment in water utility infrastructure and earning a return “of and on” that investment • Constructive regulatory relations with state commissions to align customer and shareholder interests • Supplement regulated earnings with low risk, core water utility services where a competitive advantage exists Our Growth Strategy
NASDAQ: CTWS www.ctwater.com 9 Regulated Business • 93% of net income attributable to regulated operations • Core regulated subsidiaries: – Connecticut Water Company (CWC) – Maine Water Company (MWC) • 122,500 utility customers (~90% residential) • 2,100 miles of pipe • 237 active wells / 25 surface water supplies • Safe, dependable yield = 176 million gallons/day • 80% safe yield from surface water supplies • Rate Base $348 Million as of 9/30/14 – $297M in Connecticut – $51M in Maine • 263 employees Connecticut Presence Maine Presence
NASDAQ: CTWS www.ctwater.com 10 Water Infrastructure Investment The Need is There! • Approximately 1 million miles of water pipe in the U.S. • More than 650 water main breaks occur each day in the U.S. according to estimates • American Water Works Association (AWWA) estimates that $1 trillion in pipe replacement is needed over the next 25 years – $1.7 trillion in pipe replacement by 2050 Source: American Society of Civil Engineers and AWWA
NASDAQ: CTWS www.ctwater.com 11 Infrastructure Investment Drives Rate Base Growth • Attractive, near-term regulated growth opportunities through investment in core infrastructure • Strategy to balance investment and rate recovery time • Approximately $143 million of identified infrastructure investment (2015 – 2017) 2015 Planned Capital Spending Capital Expenditures / WICA & WISC Expenditures ($ in millions) Annual WICA/WISC $3.4 $10.1 $13.2 $14.0 $13.4 $13.7 $19.7 $15.6 $19.9 $27.6 $26.2 $22.9 $24.7 $32.7 $45.6 $55.1 $0.0 $15.0 $30.0 $45.0 $60.0 $75.0 2008 2009 2010 2011 2012 2013 2014E 2015E WICA/WISC $15.8MM 28.6% Treatment 21.9MM 39.7% Non-WICA/WISC $5.6MM 10.1% IT $4.2MM 7.6% Other $6.1MM 11.1% Facilities $1.6MM 2.9% Total CapEx
NASDAQ: CTWS www.ctwater.com 12 1 After tax return in Connecticut Regulated Model Earnings Growth CapEX Drives Earnings Invest in Water Plant $70.00 Capitalize 50% with Debt $35.00 Capitalize 50% with Equity (1 share of CTWS) $35.00 9.75% 1 Regulatory Return on Equity (per new share of CTWS) $3.41 2013 Earnings per Share $1.68
NASDAQ: CTWS www.ctwater.com 13 Constructive Regulatory Environment Connecticut Maine Infrastructure Surcharge Program Single Tariff Revenue Decoupling 6 Month Rate Case Streamlined Rate Case
NASDAQ: CTWS www.ctwater.com 14 CTWS Acquisitions: Opportunity for Growth • Industry leading acquisitions since 2012 • 32,000 customers, 36% growth, through acquisitions of Aqua Maine and the Biddeford & Saco Water Company • 60 total water system acquisitions in 25 years – over 40 in the past 7 years • With over 800 separate water systems and over 300 wastewater operations, Connecticut and Maine are attractive acquisition markets
NASDAQ: CTWS www.ctwater.com 15 Recent Acquisitions Aqua Maine – Closed January 1, 2012 – $53.5 million enterprise value (100% cash consideration) – 16,000 Maine customers – Retained highly regarded local management team • Biddeford and Saco Water Company – Closed December 10, 2012 – $19.8 million enterprise value (stock-for-stock consideration) – 15,500 Maine customers – Merged into Maine Water in 2014 – Rate request filed in November 2014 – virtually no negative reaction • Rate Base of Maine acquisitions is approximately $51 million as of 9/30/14
NASDAQ: CTWS www.ctwater.com 16 • Selected as long-term water provider for UConn and surrounding area – Acquiring 150+ off-campus customers served by University – Supplemental source of supply for growing university • Securing necessary regulatory permits • Locks in expanded service area Expanding Service
NASDAQ: CTWS www.ctwater.com 17 UConn/Mansfield Existing Service Area UConn Mansfield Pipeline
NASDAQ: CTWS www.ctwater.com 18 Efficiently Managing Costs Win for Shareholders and Customers • Manage Employee Benefits – Closed plans to new hires – Subsidizing prescription drug coverage • Repair Tax Adoption • Manage Interest Expense • Consolidation of corporate functions in Maine • Procurement initiative • Ongoing expense control program – Led by senior managers more than $2 million in sustained O&M expense reductions offsetting other increases (2011 – 2013)
NASDAQ: CTWS www.ctwater.com 19 New England Water Utility Services (NEWUS) in Connecticut and Maine Water in Maine provide a variety of complementary water- and wastewater-related utility services to residential, commercial, industrial, and municipal clients ◦ Contract operation of water and wastewater systems for other utilities, businesses, municipalities, and the University of Connecticut’s Storrs campus (80 client contracts) ◦ Linebacker® program (>21,000 residential customers enrolled) Offers basic and expanded plans to include water service line, wastewater line and in-home plumbing Pilot to non-customers in 2015 Low Risk Non-Regulated Business Services & Rentals Segment Net Income ($ in millions) Highlights Complementary geographic focus (Connecticut and Maine) Low risk, fee-based revenue No capital at risk $0.9 $1.0 $1.4 $1.5 $1.5 $0.0 $0.5 $1.0 $1.5 $2.0 2010 2011 2012 2013 2014 LTM 1 As of 9/30/14 1
FINANCIAL OVERVIEW
NASDAQ: CTWS www.ctwater.com 21 $61.3 $59.4 $66.4 $69.4 $83.8 $91.5 $35 $50 $65 $80 $95 2008 2009 2010 2011 2012 2013 87,361 88,534 89,204 90,023 121,791 121,768 75,000 85,000 95,000 105,000 115,000 125,000 2008 2009 2010 2011 2012 2013 Consistent Financial Performance Customers Revenue (in millions) CAGR 7% CAGR 8%
NASDAQ: CTWS www.ctwater.com 22 High Quality Earnings $10.2 $9.8 $11.3 $13.6 $18.2 $20.9 $5 $10 $15 $20 $25 2009 2010 2011 2012 2013 2014 LTM Net Income $1.19 $1.13 $1.29 $1.55 $1.68 $1.91 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 2009 2010 2011 2012 2013 2014 LTM Earnings Per Share (in millions) 1 1 1 As of 9/30/14 CAGR 14% CAGR 9%
NASDAQ: CTWS www.ctwater.com 23 Stable & Growing Dividend • Dividend yield 2.9% as of 12/31/14 • Dividend paid without interruption or reduction for 234 consecutive quarters • Increased dividend payments for 45+ consecutive years • 2013 Dividend Payout Ratio = 59% Annual Dividend $0.855 $0.865 $0.88 $0.90 $0.92 $0.94 $0.96 $0.98 $1.01 $1.03 $0.80 $0.90 $1.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Annualized On January 22, 2015, the Board declared a dividend per common share of $0.2575 payable on March 16, 2015, to shareholders of record as of March 2, 2015
NASDAQ: CTWS www.ctwater.com 24 Solid Financial Foundation • S&P credit rating: A (as of January 2015) • No near-term debt maturities • Balanced debt-equity ratio Long-Term Debt to Capitalization Ratio 2 45.5% 44.3% 49.1% 49.0% 46.9% 30% 40% 50% 2009 2010 2011 2012 2013
NASDAQ: CTWS www.ctwater.com 25 2013 Settlement Agreement • 2013 Settlement Agreement in CT: – Federal repair deduction refund returned to customers ($12 million) – Water Revenue Adjustment established in 2013 – General rate case “stay out” until 2015 – WICA • Reset to zero • Then current surcharge of 7.89% rolled into base rates • WICA investment continues • Federal Repair Tax Deduction – Method change adoption in CT – Permission requested in ME • Refund used to lower rate request/refunded to Maine Water customers
NASDAQ: CTWS www.ctwater.com 26 Performance 11.1% 12.6% 9.8% 0% 2% 4% 6% 8% 10% 12% 14% CTWS S&P Utility Sector Peer Average Average Annual 5 Year Total Shareholder Return @ 12/31/14 1 Connecticut Water delivered an average annual 5 year total return to shareholders (assuming reinvestment of dividends) of 11.1% for the five-year period 2010–2014 according to Standard & Poor’s. 1 Small Cap peers (ARTNA, AWR, CWT, MSEX, SJW, YORW)
NASDAQ: CTWS www.ctwater.com 27 $24.77 $27.88 $27.13 $29.78 $35.51 $36.29 $20.00 $24.00 $28.00 $32.00 $36.00 $40.00 2009 2010 2011 2012 2013 2014 Stock Price CAGR 8% Closing Stock Price on 12/31
NASDAQ: CTWS www.ctwater.com 28 CTWS Creates Shareholder Value Strong Core Business plus Best In Class Tools for Success Strong Predictable Revenue (WRA) Minimal Regulatory Lag (WICA, WISC) Efficiently Manage Costs
NASDAQ: CTWS www.ctwater.com 29 Our Vision… Serving our Customers, Shareholders and Employees at World Class levels Appendix
NASDAQ: CTWS www.ctwater.com 30 Company Strategy Environment Shareholders/Growth Customers Employees Passionate about stewardship of water Protect and manage water & watershed for sustainability to serve current and future generations Harness power of WRA to reduce carbon footprint and resource consumption Business is water service – not selling water Leverage regulatory compact Infrastructure investment and earning a return “of and on” investment Low risk, supplemental non-regulated earnings Maintain constructive regulatory relationships Deliver acquisitions that deliver shareholder value Provide high-quality water Responsive and courteous service High level of community engagement Deliver world-class service Customer satisfaction is a compensation metric for all employees Passionate employees delivering a life sustaining service Values-based, team-oriented approach Employee satisfaction is executive compensation metric Safe and secure workplace
NASDAQ: CTWS www.ctwater.com 31 • Invest and maintain infrastructure to deliver high quality water and reliable service • Responsive and Courteous Service • Leverage technology to drive convenience and efficiency • Customer Satisfaction! – World Class 14 straight years Customer Strategy
NASDAQ: CTWS www.ctwater.com 32 • Leadership is a privilege • Values based • Team & service oriented • Professionals • “Satisfied Employees Satisfy Customers” • Employee Satisfaction – Executive Compensation Metric Employee Strategy
NASDAQ: CTWS www.ctwater.com 33 Environmental Strategy • Leverage CT’s WRA to promote water conservation • Donate/sell unneeded land as protected open space • Replace aging pipe, valves and pumps to conserve natural resources • Aggressively manage energy usage • Invest in and protect watershed lands
NASDAQ: CTWS www.ctwater.com 34 Recent Regulatory & Legislative Developments • Water Revenue Adjustment (WRA) in CT – Revenue certainty regardless of water sales – “Service rather than sales” • Expanded WICA in CT – Cap between cases raised to 10% – Eligibility expanded
NASDAQ: CTWS www.ctwater.com 35 6 month regulatory timeline (shortest of all states) Water Infrastructure and Conservation Adjustment (WICA) Expanded in 2013 Water Revenue Adjustment enacted in 2013 2013 Settlement Agreement Allowed ROE = 9.75% Constructive Regulatory Environments Streamlined rate approach with fair and balanced results Virtually all cases “Settled” Water Infrastructure Surcharge (WISC) Nearly all plant eligible Allowed ROE = 9.5% to 10% CT Public Utilities Regulatory Authority ME Public Utilities Commission
NASDAQ: CTWS www.ctwater.com 36 Infrastructure Recovery Mechanisms Connecticut (WICA) Maine (WISC) Water Infrastructure and Conservation Adjustment 1st used in 2009 DSIC–type infrastructure recovery mechanism 5.0% annual cap 10% maximum adjustment $13 – $15 million per year in pipeline replacement Current surcharge 1.59% Water Infrastructure Charge 1st used in 2014 DSIC–type infrastructure recovery mechanism Annual Cap 6% to 10% depending on size of water system 10% to 20% maximum adjustment depending on size of water system $2 - $3 million per year in pipeline replacement Surcharge varies by water system
NASDAQ: CTWS www.ctwater.com 37 Selected Income Statement Nine Months Ended September 30, 2014 Operating Revenues $73,273 Other Water Activities Revenues 1,052 Real Estate Revenues 7 Service and Rentals Revenues 4,391 Total Revenues $78,723 Operating Expenses $51,587 Other Utility Income, Net of Taxes $564 Total Utility Operating Income $22,250 Gain (Loss) on Property Transactions, Net of Taxes $4 Non-Water Sales Earnings (Services and Rentals), Net of Taxes $1,209 Net Income $18,924 Net Income Applicable to Common Shareholders $18,895 Basic Earnings Per Average Common Share $1.74 Diluted Earnings Per Average Common Share $1.70 Basic Weighted Average Common Shares Outstanding 10,886 Diluted Weighted Average Common Shares Outstanding 11,083 Book Value Per Share $18.91
NASDAQ: CTWS www.ctwater.com 38 Condensed Balance Sheet Nine Months Ended September 30, 2014 (In thousands) ASSETS Net Utility Plant $494,571 Current Assets 39,300 Other Assets 112,586 Total Assets $646,457 CAPITALIZATION AND LIABILITIES Shareholders’ Equity $210,128 Preferred Stock 772 Long-Term Debt 173,395 Current Liabilities 21,075 Other Liabilities and Deferred Credits 241,087 Total Capitalization and Liabilities $646,457
NASDAQ: CTWS www.ctwater.com 39 Reconciliation of Enterprise Value Market Capitalization 9/30/14 (NASDAQ) $360,736,155 + Long-Term Debt (CTWS Form 10-Q filed 9/30/14) 173,395,000 + Current Portion of Long-Term Debt (CTWS Form 10-Q filed 9/30/14) 1,546,000 + Preferred Stock (CTWS Form 10-Q filed 9/30/14) 772,000 - Cash/Cash Equivalents - 1,626,000 Enterprise Value $534,823,155 Connecticut Water’s annual, quarterly and periodic SEC filings which can be found on the investor relations page of the company’s website www.ctwater.com and at www.sec.gov under ticker symbol CTWS
NASDAQ: CTWS www.ctwater.com 40 Water, the basic ingredient of Life…
