UGI Corp (UGI) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the UGI and AmeriGas Partners fourth-quarter fiscal year 2010 earnings conference call and live audio webcast. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to our host, Mr. Bob Krick. Sir, you may begin.

Good afternoon and thank you all for joining us today. As we begin, let me remind you that our comments will contain certain forward-looking statements which the management of UGI and AmeriGas believe to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond management's control.

You should read the Annual Report on Form 10-K for a fuller list of factors that could affect results but among them are adverse weather conditions; price volatility and availability of all energy products, including natural gas, propane and fuel oil; increased customer conservation measures; the impact of pending and future legal and regulatory proceedings; political, economic, legislative, and regulatory changes in the US and abroad; currency exchange rate; the timing and success of our acquisitions and investments to grow our business; and competition from the same and alternative energy sources.

UGI and AmeriGas undertakes no obligations to release revisions to these forward-looking statements to reflect events or circumstances occurring after today. In addition, our remarks today will reference certain non-GAAP financial measures that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the Company. These non-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with other performance measures, such as cash flows from operating activities.

With us today are John Walsh, President and COO of UGI, Gene Bissell, President and CEO of AmeriGas, and Peter Kelly, CFO of UGI, and of course, your host, Chairman and CEO of UGI, Lon Greenberg. Lon?

Thank you, Bob. Let me also welcome you all to our call. I trust you've had the opportunity to review our press releases, reporting our 2010 results.

As you might imagine, there were no surprises in those press releases. The results for both UGI and AmeriGas are entirely consistent with our pre-announcement at our Analyst Day a few weeks ago.

UGI had earnings per share of $2.36 a share which included a gain of $0.16 from the sale of a terminal and a loss of $0.05 from the termination of an AmeriGas interest rate hedge and AmeriGas litigation reserve. Adjusting for these two atypical events, EPS were $2.25. Similarly, AmeriGas reported earnings per unit of $2.80, which included the effects of the interest-rate protection and litigation reserve I mentioned earlier. Adjusted EBITDA at AmeriGas was 340.2 -- $340.2 million.

Our earnings performance was, as I noted earlier, consistent with our pre-announcement a few weeks ago. It was also in the middle of the range we gave for earnings at the beginning of our fiscal year 2010.

We are obviously pleased, not only with our financial performance this year, but the substantial progress we made during the year to set the stage for what we think of as a very bright future for UGI and AmeriGas. Our confidence in our future this year was reinforced earlier in 2010 when our Board at UGI decided to raise our dividend 25% and the Board at AmeriGas decided to raise the distribution 5%.

I will have more to say about our prospects later. But now I'll turn the call over to Peter, John, and Gene. Peter?

Thanks, Lon. As Lon covered cupboard in his remarks, 2010 was a strong year for UGI, with our diversified model, once again, showing its ability to drive growth in both earnings and dividends. In my comments I will discuss our results for 2010, give some color on each of our businesses before moving on to our balance sheet and liquidity.

Now, our EPS for the year was $2.36, in line with the same figure reported for 2009. 2010 was a relatively normal winter across our businesses, with the exception of our Utility business which, although benefiting from new rates that came into effect at the start of the year, suffered from a very warm March and April.

Our Propane Unit margins returned to more normal levels, and all of our businesses were impacted by the general economic conditions. Our major capital investments in our Temple LNG plant and the repowering from coal to gas of our Hunlock electric generation facility are progressing as expected, and our gas and power marketing businesses had an excellent year.

Finally, we continued to look for good businesses to acquire and, in addition to the 15 businesses AmeriGas acquired, we were able to buy four businesses in Europe, extending our international reach to Denmark and adding scale in Hungary and Switzerland. As mentioned earlier, overall EPS in 2010 was $2.36 per share. Our net income attributable to UGI shareholders was $261 million and included in this figure were interest costs of approximately $134 million, down $7 million on 2009, primarily in AmeriGas at an effective tax rate of 32% compared to 29.4% recorded in 2009 and, as a result -- which was a result of a higher percentage of our operating income being generated in the USA and outside of our MLP. The $2.36 reported also included a $0.16 gain from the sale of our Atlantic Energy terminal as well as a $0.05 loss at AmeriGas for the termination earlier in the year of an interest-rate protection agreement and a legal charge in the fourth quarter.

Overall, 2010 once again demonstrated both the strength of our model and our management team. Unit margins were managed effectively, operating costs were reduced, and we continued to put our capital to good work identifying major capital investments, new European acquisitions as well as freeing of capital the key divestiture of an encore asset.

Turning to the balance sheet, our consolidated debt of $2.2 billion was down about $90 million compared to the end of fiscal 2009. Our consolidated cash position was $295 million compared to the $287 million reported this time last year. Restricted cash included in these numbers was approximately $35 million this year compared to the $7 million reported last year.

Included in the $295 million at the end of this year, we had about $112 million of cash available at our holding company to reinvest for growth. At our current annual dividend rate, we would typically expect to generate on average about $100 million to $125 million of such investable cash per year. Of the $2.2 billion of debt at the end of September, approximately $2 billion is long-term debt, including $0.6 billion classified as current maturities of long-term debt.

By business and compared to September last year, AmeriGas had $882 million of debt, up $17 million from last year. Utilities had $657 million of debt, a reduction of $137 million. And the International business was approximately $654 million, up $31 million on last year. We currently plan to refinance EUR380 million of debt in France before it becomes due next spring.

From a property, plant, and equipment perspective, we have almost $3.1 billion in net fixed assets, [but for] approximately $150 million on last year. Capital expenditures were approximately $353 million with depreciation and amortization of $210 million.

By business, capital expenditures in 2010 were as follows -- AmeriGas, $83 million; International, $59 million; our Gas Utility, $74 million; the Electric Utility $8 million with Midstream & Marketing at 116 million. For 2011, the equivalent numbers are AmeriGas, $80 million; International, $61 million; our Gas Utility, $77 million; the Electric Utility, $10 million; and our Midstream & Marketing business plans to spend $178 million.

Turning to liquidity, overall, we have strong liquidity and the ability to fund our requirements throughout all of our operating subsidiaries. In Utilities we have a line of credit in place for $350 million. We have $370 million of financing capacity in our Midstream & Marketing business and $275 million in lines of credits at AmeriGas. And at Antargaz, we have a facility of EUR50 million which we plan to extend when we refinance our long-term debt.

At the end of September, AmeriGas had used $91 million of its revolver and had a cash balance of $8 million. Utility had used $17 million of its revolver with cash on hand of $9 million. Antargaz had pulled EUR50 million on its revolver with $180 million of cash available. And Energy Services used $12 million of its facility and had cash on hand of $34 million.

So overall, a good year with our business model responding well, despite the headwind caused by the warm weather for our Utilities business and a return to more normal margins in the Propane business.

As we move into 2011, and assuming relatively normal weather, our guidance is $2.30 to $2.40. And for those of you who follow it, we have been making dividend payments for 126 years and have increased our dividend in 23 consecutive years.

So with that, let me pass the call over to John to discuss our operational performance.

Thanks, Peter. Lon and Peter have provided you with an overview of our performance in 2010.

While there's no doubt that the economic conditions in our primary markets remain mixed, we made significant progress on a number of critical business initiatives. Today I would like to focus on key developments that will positively impact our performance on two of our long-term strategic objectives -- growing our core businesses and reinvesting cash in high-quality projects.

First, in terms of growing our core businesses, one of our strengths over the past decade has been identifying growth opportunities that emerge as the energy sector evolves. This has been particularly true over the past 12 to 24 months as a combination of factors, such as the housing recession, the emergence of Marcellus Shale and the further opening of gas and power markets domestically and internationally, impacted our growth strategy. We are excited about the new opportunities that have emerged and the positions we have established in these segments. And now, a bit more about those segments.

Our Gas Utility concluded a successful year for customer growth, despite the continued sluggishness in the new housing market. While new customer additions lagged FY09 by about 18%, Utilities finished fiscal year '10 with a net increase of almost 5,000 heating customers. Over the past decade, we have added almost 60,000 new residential heating customers in Utilities and we've averaged almost 2% growth per annum.

While we were not immune from the impact of the housing recession, our growth over the past two years demonstrates the attractiveness of natural gas as a long-term energy solution for our target customers. We will focus on fuel oil and electric conversions in FYI '11 while continuing to work closely with residential and commercial developers as activity in those segments recovers.

Our energy marketing business continues to enhance its position in two new customer segments, Power Marketing and Small Commercial Gas. We are now marketing power on 13 local distribution systems within the PJM network and we have had very good success adding power to our portfolio with existing gas customers. A significant percentage of our natural gas customers are within the PJM grid so power is an actual extension of our supply relationship. Our Small Commercial Gas program concluded another successful year. We have added approximately 10,000 new customer locations over the past 24 months, using innovative marketing techniques to reach these small commercial accounts.

And finally, Antargaz is now actively marketing natural gas throughout France. We are finding that commercial customers in France are looking for alternatives and see the value in working with Antargaz, an experienced energy distributor. Although it is early, we are less than 90 days into the national program, we are very encouraged by our early win. We remain confident that this will develop into an attractive long-term opportunity.

The confidence is based on Antargaz's strong brand awareness, our established commercial sales network in France and the positive response from key commercial customers as we roll out our initial programs. And now we will look at reinvesting cash in high-quality projects.

I will comment on three critical areas for reinvestment. We continue to make good progress on the two major midstream and generation capital projects that are in the construction phase. Our $125 million Hunlock project to repower our coal-fired electric generating station as a larger gas-fired facility remains on schedule, and we expect the unit to come onstream later this fiscal year. At this point, all major equipment has been delivered to the site and activity is focused on interconnect work and equipment commissioning and testing.

The second project, the $120 million expansion of our LNG peaking facility in Temple, Pennsylvania is also on track. We expect mechanical completion at Temple in mid-2012 with start-ups scheduled for late 2012.

We recently expanded and strengthened our European Propane business with several acquisitions. We entered one new market, Denmark, and added scale to our position in two large Eastern European markets, Poland and Hungary. In addition to doubling Flaga sales volume, we added a number of experienced managers who will strengthen Flaga's leadership team.

Finally, we announced in August our plans to invest approximately $300 million in infrastructure projects to support the development of natural gas in the Marcellus Shale region. These investments are likely to cover a range of new opportunities including interstate pipelines, local gathering systems and gas storage.

Our August announcement referred to one of these projects, a jointly developed natural gas pipeline project in northeastern Pennsylvania with NiSource. We have been actively marketing the project with producers over the past 90 days, as well as developing our project estimates. We'll keep you advised of progress on our upcoming calls.

One additional development related to our Marcellus program was the approval by the FERC in mid-October of the transfer of our 15 bcf gas storage facility in north central Pennsylvania to FERC regulation at market-based rates. This storage asset, which has been under Pennsylvania [PUC] regulation will transfers by April 1, 2011. We work closely with Pennsylvania PUC and others during the FERC transfer process to ensure that UGI Utility's customers wouldn't be negatively impacted by this transfer.

I would now like to turn it over to Gene who will provide you with the details on AmeriGas's performance in Q4.

AmeriGas's adjusted EBITDA for the 2010 fiscal year at $340.2 million was in line with our expectations and the range we originally forecasted at the start of the year, although we didn't get there the way we would have predicted last year at this time. Volume for the year was 4% below prior year due to customer conservation and weak economy, but we were able to offset the impact of lower volume by carefully managing our expenses.

Excluding the legal reserve, expenses were $13 million below prior year. Our favorable expense performance was a result of lower insurance and payroll expenses, where improvements in our safety performance in recent years and our flexible workforce initiative paid off. I was pleased that we could demonstrate our ability to modify our strategies and tactics in order to meet our financial target.

One of the challenges we faced last year was the rising wholesale cost of propane. The average cost of propane at Mount Bellevue was $1.12, an increase of 45% over the prior year. While we were able to maintain our unit margin, these rising prices certainly gave customers more reason to conserve.

Since the end of the fiscal year, the wholesale cost has continued to rise and is now at $1.28, up about 14% from last year's average.

Turning to our core strategies, our ACE cylinder exchange business performed very well last year, with volume up almost 3% compared to last year as a result of the new locations that we added. We continued to gain new accounts due to our self-service vending machines and our reputation for excellent service.

We now have close to 1,300 vending machines at 10 different retailers and we currently have a backlog of 3,000 new ACE locations to install that will help us grow our volume in 2011. Our strategic accounts volume also increased almost 3%. Here again, the growth in volume is due to adding more customer locations. The accounts we gained last fiscal year will add 7 million gallons to our volume in 2011. We now service over 22,000 locations for our 200 strategic account customers.

We closed several small acquisitions in the fourth quarter, bringing the total annualized gallons acquired for the year to 14 million. We completed 15 acquisitions during the year, generally in locations that overlapped our existing footprint, enabling us to achieve significant synergies by combining the businesses.

Looking forward, we will continue to focus on growing our EBITDA through effective execution of our growth strategies, acquisitions, growth in ACE and strategic accounts, and by striving to be the most reliable [stasis] and most responsive propane company in every markets that we serve. Based on our plans for fiscal year 2011, given normal weather, we are reiterating EBITDA guidance of between $345 million and $355 million this year.

I would like to finish my remarks by thanking our employees for their hard work last year and for their continued commitment to safety and customer service, two fundamental building blocks of our success. And with that, let me turn it back to Lon.

As you all know, we gave guidance for both UGI and AmeriGas a few weeks ago, and at our Analyst Day, and in fact, Peter and Gene repeated the guidance respectively for each of the companies. So of course nothing has changed since our Analyst Day meeting and we continue to expect UGI's earnings to be between $2.30 and $2.40 and AmeriGas to earn between 340 -- $345 million and $355 million of EBITDA.

At the Analyst Day, we gave a detailed view of our businesses and commented on why we are optimistic about our prospects. John, in his comments, spoke about a number of the projects that will fuel our growth in the future, but to reiterate, these include our Hunlock gas-fired generation plant; our LNG storage plant expansion; Marcellus Shale storage gathering line and pipeline infrastructure projects; recently completed acquisitions in our International Propane operations, as well as the development of the natural gas marketing opportunities in France; execution of our growth strategies in AmeriGas; and execution of our Utility strategies as well as obtaining rate relief to permit us to recover a fair return on our investments for our customers.

Finally, our attention to superior execution in all phases of our businesses is critical to our future success.

As you all know, we have a tradition of success in our Companies. We have more than met our long-standing financial goals and, along the way, satisfied our overarching goal of delivering above average total returns to our owners, in both UGI and in AmeriGas. And as we look at the future, we certainly look forward to doing just the same thing as we go forward.

Shannon, that is all of our prepared remarks and we would be happy to take any questions that are out there.

(Operator Instructions). Darren Horowitz with Raymond James.

Good afternoon. Gene, I just have a couple of quick questions for you and I appreciate the color that you gave us, not only on this call, but also at the Analyst Day. But when you think about leveraging your scale as it relates to managing expenses, how do you think about further costs rationalization on the operating and administrative line going forward?

We are always looking for those kinds of opportunities to rationalize our expenses. The way I look at it, we hope that those kinds of opportunities help us to offset the impact of inflation. So I don't see order of magnitude changes and expenses, but we will continue to pursue leveraging our scale in order to control our expenses going forward.

Okay and then just shifting gears over to the acquisition front, I think at the Analyst Day, you detailed that the current bid ask spread was around 5 to 7 times as a multiple on EBITDA. Has anything changed there and as you look across your geographic footprint, has anything come maybe into a bit more of a sharp focus as of late?

No. I wouldn't say there has really been any significant change. The range in multiples is just where we talked about when we were at the meeting. So nothing new to report on that front.

(Operator Instructions). I am showing no further questions at this time. I would now like to turn the conference back over to Mr. Greenberg.

Thank you very much, Shannon. It's -- we typically get a lot more questions as those of you on the phone know, but we had an Analyst Day three weeks ago or so and had a large turnout and lots of questions at that time and, apparently, we did a good enough job as to deter you from asking any other questions at this call.

So we appreciate your interest, we appreciate your support and we look forward to talking to you at our January earnings conference call and so we will have first-quarter earnings at that time. Thanks, again, and we look forward to talking with you. Bye-bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.