UGI Corp (UGI) 2012 Q4 法說會逐字稿

Welcome to your fourth quarter 2012 UGI Corporation conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Hugh Gallagher, Treasurer. Mr. Gallagher, the floor is yours, sir.

Thank you. Good afternoon everyone and thanks for joining us today.

As we begin, let me remind you that our comments today will include certain forward-looking statements, which 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 our annual reports on Form 10-K for a more extensive list of factors that could affect results, among them are adverse weather conditions; cost volatility and availability of all energy products; increased customer conservation measures; the impact of pending and future legal proceedings; domestic and international political, regulatory and economic conditions; currency exchange rate fluctuations; the timing of development of Marcellus Shale gas production; the timing and success of our commercial initiatives and investments to grow our businesses; and our ability to successfully integrate acquired businesses including Heritage Propane and achieve anticipated synergies.

UGI and AmeriGas undertake no obligation to release revisions to their forward-looking statements to reflect events or circumstances occurring after today. In addition, our remarks 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. Thesenon-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with performance measures such as cash flow from operating activities.

With me today are Jerry Sheridan, President and CEO of AmeriGas Propane; Kirk Oliver CFO of UGI Corporation; John Walsh, President and COO of UGI, and your host Chairman and CEO of UGI, Lon Greenberg. Lon.

Thanks, Hugh. Let me welcome everybody to our call as well. I hope you have all had the opportunity to review our press releases. Given that we just had our analyst meeting several weeks ago, there obviously was not too much new in our press releases. Our fiscal year earnings per share at UGI, and our EBITDA at AmeriGas for fiscal year 2012 were consistent with our prior announcements. Probably the only new information in that release was that we are off to a good start this fiscal year, although we all know it is quite early in the fiscal year. Weather was close to normal levels during October, and our businesses performed consistent with our expectations during that time.

During this call you are going to hear from Kirk, John and Jerry and they will provide you with a lot more substantive information about out accomplishments during fiscal year 2012 and our financial position as we move forward. Following their remarks, I will jump back in and give you a few closing observations. So with no further ado, Kirk, the floor is yours.

Thanks, Lon, and good afternoon, everybody. This is my first conference call here at UGI, and I am really excited about being a member of the team and a part of this Company's futures. I will be providing a brief overview of results for the year followed by a discussion of liquidity, debt, cash flow and capital expenditures.

Earlier today we reported a seasonal net loss for the fourth quarter of $14.7 million or $0.13 per share compared with a seasonal net loss of $22.4 million or $0.20 per share in the prior year quarter. The current year quarter included the impact of $0.04 in acquisition and transition expenses. Last year's quarter included the negative impact of about $0.08 related to losses on extinguishment of debt and currency hedges, so on an adjusted basis the seasonally net loss for the current year quarter was slightly better than last year. For the fiscal year end September 30, 2012, we reported net income attributable to UGI of $199.4 million or $1.76 per diluted share compared to $232.9 million or $2.06 per diluted share in fiscal 2011. This these result are in line with the guidance we first issued in April and recently updated at our analyst day three weeks ago.

Fiscal 2012 was marked by record setting warm weather in the U.S. that had a significant impact on all of our domestic businesses. Weather was also much warmer than normal in Europe resulting in a difficult operating environment for International Propane as well. In addition to the impact of warm weather, current year results include the negative impact of about $0.14 of adjustments related to acquisition and transition expenses and extinguishments of debt. Fiscal 2011 results included unusual items of about $0.04 and that expense is outlined in our earnings release.

In the interest of time I am going to refrain from going through the details of each of our segments. We have already covered this ground in today's release and at our recent analyst day. I will use the rest of my time to go over cash flow debt, liquidity and capital expenditures in the businesses. UGI balance sheet is very strong and we remain committed to maintaining a strong balance sheet as a means of supporting our growth initiatives. UGI's consolidated cash position excluding restricted cash was approximately $320 million at September 30, 2012.

AmeriGas had about $60 million in cash on hand and $427.2 million in borrowing capacity under its revolving credit facility at September 30, 2012. The credit facility matures in October 2016 assuring AmeriGas strong liquidity position for fiscal 2013. Total long term debt at AmeriGas was $2.3 billion compared with $934 million at September 30, 2011. The increase in debt is largely due to the debt incurred in connection with the Heritage acquisition. It is worth pointing out that since the acquisition of Heritage last January, AmeriGas has repaid over $250 million in long term debt through a combination of tender offers, debt retirements and scheduled maturities.

UGI Utilities had $1.3 million in cash on hand and about $290 million in borrowing capacity under its revolving credit facility at September 30, 2012. Long term debt at Utilities is $600 million at September 30, 2012, compared with $640 million last year. Utilities repaid a medium term note that matured in September, and we intend to finance this maturity along with some additional pending maturities on a more permanent basis later this year. The midstream and marketing business had $13 million in cash on hand and a total of $120 million in capacity available under its revolving credit and accounts receivable facilities at September 30. We intend to extend the term of these facilities prior to their schedule maturities in 2013.

Turning now to Europe. Antargaz had no borrowings outstanding under its EUR40 million revolver and approximately EUR57.4 of cash on hand September 30, 2012. Flaga had approximately EUR19.5 million of cash on hand and EUR22.5 million in capacity available on its primary revolving credit facilities at September 30. AvantiGas our propane operation in the UK had cash on hand of approximately GBP10.5 million at September 30 and it has no debt. Total long term debt at International Propane was EUR446.3 million at September 30, 2012. The only note worthy change in long term debt during the year was the addition of a EUR19.1 million term loan at Flaga last December to fund a portion of the Shell acquisition.

As we have said many times we look to each of our businesses to generate cash that we can redeploy to drive growth. Excluding cash held by our operating subsidiaries UGI had about $107.9 million of cash available for investment and general corporate purposes at September 30, 2012, compared with $81.4 million last year. Capital expenditures during the year total $339 million, at AmeriGas $103.1 million in capital including $40.5 million in growth, $45.1 million in maintenance, and $17.6 million in transition capital.

At Utilities $114.1 million in capital including $45.7 million in growth and $68.4 million in maintenance capital. The $68.4 million in maintenance capital included approximately $60 million related to infrastructure replacement . International Propane capital expenditures were $60.4 million. Midstream and marketing spent $60 million in capital including capital related to LNG expansion, natural gas storage,Hunlock and Auburn I and II.

Looking ahead to fiscal 2013 we are forecasting total capital expenditures of $510 million. AmeriGas plans to invest about $52 million in growth, $58 million in maintenance and $20 million in transition capital for a total of approximately $130 million. UGI Utilities expects to spend approximately $118 million, $37.7 million in growth, and 80.3 million in maintenance capital. UGI's maintenance capital forecast includes about $70 million in spending related to infrastructure replacement. International Propane expects to spend about $70 million in capital during fiscal 2013 including $53 million at Antargaz much of this is maintenance capital. The midstream and marketing segment plans to invest about $185 million next year with the vast majority of these expenditures going to growth related investments primarily related to the Auburn II gas gathering project and storage enhancements.

That concludes my remarks. I look forward to working with all of you, and I will now turn it over to John for his update on operations.

Thanks, Kirk. 2012 was a note worthy year for UGI. While much of our discussion during the year focused on the unusually warm weather and its impact on our businesses in the long run the most critical events of 2012 for UGI were the strategic investments made over the past 12 months. This has been a year of intense activity for us as we address the challenges presented by the warm weather while driving forward with our strategic activities of acquisition integration and capital project execution. We covered many of these activities in detail during our recent analyst day, so I will provide brief updates in a few key areas.

This has been an unprecedented year of activity for our Gas Utility team. Our infrastructure replacement program has been enhanced with a record level of investments in fiscal year 2012. We recently filed a settlement agreement with the Pennsylvania PUC on the Allentown investigation with specific time tables for infrastructure replacement. We are awaiting the PUC's decision on our proposed settlement and are prepared to execute the accelerated program. We also set a new record for growth in the Gas Utility driven by the unprecedented demand for fuel oil to natural gas conversions. Our residential conversions and upgrades were up over 50% versus last year and our commercial account additions were up about 20%. Net customer growth in our Gas Utility topped 2% for the year.

Acquisition integration was the major focus for our propane business in both U.S. and Europe. We had a full 12 months to execute our integration plan in Europe for the businesses we acquired from Shell. Our teams achieved our synergy goals and incurred most of the transition expenses in FY 2012, so we are in a strong position as we start the new fiscal year. We have also made great progress on our integration program at AmeriGas in the 10 months since the Heritage acquisition closed.

All critical milestones for integration activities have been hit and the field teams are aligned and prepared for the upcoming winter season. We are very confident that we will achieve the operational, service and growth targets that drove the business case for the investment. We have increased our synergy target and that enhanced synergy performance is reflected in the guidance we provided at our analyst day and confirmed today. Jerry will provide additional details on the integration work during his comments.

Execution on our range of capital investments was the other key priority in FY 2012. It has been a busy, but very productive year for us on projects. Our gas fired 125 megawatt power generation facility in Hunlock, PA was restarted in late June, is operating at its full capacity. We completed the expansion of our LNG peaking facility in Temple, Pennsylvania in Q4 quadrupling our storage capacity and the plant is fully operational for the 2012, 2013 winter peaking season. Our two Marcellus pipeline infrastructure projects are also progressing. the Auburn II projects which will expand our existing Auburn line southward to connect with Transco is in the field execution phase.

The expected in-service date for Auburn II is early FY 2014. The Commonwealth Pipeline our proposed 120 mile project with energy midstream and WGL is in the marketing phase as we work to sign precedented agreements with additional shippers the outcome of which will shape the timing, route and rates for the project. Although 2012 presented us with numerous challenges, we are very pleased with the progress we have made on our key projects and excited about the prospects for strong performance in FY 2013.

I would like to close with a brief update on the impact of Hurricane Sandy on our businesses and the communities we serve. Our thoughts are with the millions of family in our region that were impacted and continue to be impacted by this huge storm. UGI's businesses felt the impact on our mid Atlantic and Northeast operations, but fortunately our serviced areas were spared worst of the hurricane. Our electric utility had almost 30% of its customers without power at the height of the storm on October 30, but power was restored to virtually all customers within about 30 hours. All of our businesses were in normal operating mode by November 1st. We are working with AGA and our sister utility companies to offer mutual aid to gas utilities in the region that were most severely impacted.

I would now like to turn it over to Jerry, who will take you through the AmeriGas performance in Q4. Jerry.

Thanks, John. For AmeriGas earnings in the fourth quarter met our expectations. We finished the fiscal year with adjusted EBITDA of $384.3 million. This is at the high end of our guidance that we issued in July and slightly higher than the update we provided at UGI's analyst day in October. For fiscal 2012, weather was a record 19% warmer than normal compared to weather that was essentially normal in fiscal 2011. Retail gallons sold were 1 billion gallons up 16% for the year due to the roughly nine months of Heritage volume included in our results offset by the impact of the record warm heating season temperatures. Retail unit margins increased over prior year as we benefited from a significant decline in the underlying cost of product which averaged 5% lower than fiscal 2011.

Cost drops such as these are historically beneficial to margins, although the timing of this year's product cost drop was off season and did not have the same impact as similar price decline would have had in the peak heating season months. (Inaudible). costs as of September 30th was $0.91 down 40% from a year earlier. Stability and costs at these lower level is very helpfully to the industry as it results in more affordable heating bills for customers thus reducing the focus on conservation.

Despite the significantly warmer temperatures the dramatically effect volume and earnings for AmeriGas and the entire retail propane industry fiscal 2012 was successful in the sense we were able to accomplish all of our objective for the Heritage acquisition including closing the acquisition in mid January in line with our expectations when we announce the deal in October. Financing the debt portion of the transaction at under 7% also in line with our original expectations; selection of our field management team with a great blend of top talent from both AmeriGas and Heritage, and we really view this management upgrade as a critical enabling synergy from the deal;consolidation of all the back office activities into the AmeriGas Valley Forge, Pennsylvania location; and finally completion of the first waive of store consolidations.

The fourth quarter also marked the final consolidations activities related to the Heritage before heading in to the critical winter earnings season. The integration plan we established for Heritage prior to the closing consisted of two phases with a pause in the fiscal 2013 winter. Phase one is completed and we will now realize net synergies of over $60 million in 2013 above the original $50 million expectation. Further phase two of the integration is on track to be completed this spring with our final store consolidations in the field.

In addition to the acquisition integration 2012 was also a year of accomplishment in our key strategic trust. ACE our AmeriGas Cylinder Exchange business which is a summer counter cyclical business for us saw nice volume growth. Year-to-date fiscal 2012 volume was up 9%, and same-store sales were up 1%, which was equivalent to same-store sales growth in 2011. The majority of our volume growth was from new accounts and expansion of existing customer locations. ACE is now available at 41,000 convenient locations across the United States. Further our national accounts business added customers with almost 4,000 locations, and we now serve approximately 200 customers at over 31,000 locations.

Finally our acquisition program that was slowed during the Heritage integration still delivered eight small deals which will add 10 million gallons on an annualized basis. We are pleased with how well the Heritage has gone, and we are well positioned as we move into the 2013 heating season. The year has gotten off to a good start with weather nationally in October that was 1.4% warmer than normal and 11.5% colder than last year. We certainly look forward to a continuation of more normal weather for the remainder of the year.

You have seen from our earnings release guidance for fiscal 2013 this put adjusted EBITDA in the range of $630 million to $660 million excluding approximately $23 million in transition costs. We look forward to demonstrating the tangible benefits of the Heritage acquisition for years to come, and we continue to target EBITDA growth of between 3% and 4%, and distribution growth of 5%, while maintaining strong liquidity a strong balance sheet and solid distribution coverage.

In closing, I really want to thank the over 9,000 AmeriGas employees for their commitment and great flexibility through the entire integration. Now back to you, Lon.

Thanks, Jerry. Let me close with the following few comments. I want to reiterate our guidance for 2013, which was contained in the release, at $2.45 to $2.55 a share, and Jerry mentioned the guidance for AmeriGas as well. I hope you what is implicit in that guidance is that we expect a very good year this year, and as we have said we are off to good start doing that.

We base our views on our guidance on the progress we made last year. John and Jerry very ably described that progress, and, of course, as Jerry said we are banking on a return to what is sometimes referred to as more normal winter weather. Kirk also did a great job of describing our very strong financial position which, of course, allows us to pursue the strategies we have. In that regard we continue to make progress in pursuing those strategies both John and Jerry talked about that, and we continue to make progress on our acquisition strategy as we described at our offsite meeting.

We stated in the press release today and on the call probably several times it is very early in the fiscal year, so we do not want to get too excited, but it is better to start this October the way we did rather than the way we started last October given the warm weather we encountered both in October and November last year. So we are feeling good as we sit here today about our ability to move forward productively and show you what the earnings power of our businesses are. Let me conclude by thanking you for your support, and we look forward to talking to you again in January after the conclusion of our first quarter earnings. At this point, Michael, we can open it up to people and ask some questions.

Yes, sir. (Operator Instructions). The first question we have comes from Carl Kirst of BMO Capital Markets. Please go ahead.

Thanks. Good afternoon everybody. Not a whole lot new here, but just really a couple of questions. And first, John, appreciate the update on Sandy on the [uts]. I apologize if this was said in the prepared comments, but was there any quantifiable impact to AmeriGas from Sandy be that on the negative or even people perhaps talking up on propane on the positive? Will we see any impact of that in this December quarter?

I will let Jerry comment. There was significant activity since we have operations across the whole region. It is not material. As I mentioned on an overall basis basically the entire Company was back to normal operating mode by November 1st, but I think the AmeriGas team did a great job first of all getting their operations fully back on stream and provided coverage but then also working with some key customers. Maybe Jerry can comment on that.

It certainly effected some of our location that lost power temporary and hurricanes traditionally very good for our ACE business, but not a significant (Inaudible). force.

Okay. I appreciate that. And second on Sandy, and this is really a question I'm not sure if it would have -- it is hard to imagine how, but if it would have any impact on the Commonwealth negotiations, and I am thinking more here about given the path of the storm has there been any impact on possible routeing or thoughts of different routes? I would not think so, but just want to confirm that.

No. No impact at all. In fact from a flooding standpoint certainly in the areas which are non coastal areas where we operate was much less of an event than the events last year between Hurricane Irene and Tropical Storm Lee were much more problematic in terms of flooding. No impact on the Commonwealth Pipeline, and for our facilities on the gas distribution side which are inland very, very limited impact.

Understood. Thank you. Last question is I do not think I called this down from the analyst day notes, but can you refresh us where we stand on the euro hedges for both fiscal 2013 and 2014 as far as percent hedge and the level?

Carl, it is Hugh. We are following our normal program. So we are hedged for fiscal 2013 fully, and fiscal 2014 we typically have around two-thirds of our needs hedged. We usually layer in full two-thirds, one-third, and we are following that program again.

Fair enough. Did you have the level ?

It is slightly above $1.30

At a $1.31 this year.

Would that hold into 2014 as well?

It is pretty close to that.

Thanks guys.

Thank you.

The next question we have comes from Sharon Lui of Wells Fargo . Please go ahead.

Hi, good afternoon.

Hi, Sharon.

Just to confirm no damage was sustained from Sandy on the physical assets either?

Nothing appreciable.

Minimal. Nothing appreciable, nothing material. We were very fortunate with the path of the storm.

Our electric division by the way did an absolutely outstanding job of getting people back online as John mentioned. We had a high percentage of our customers who lost electricity, but our team was well prepared, we had extra resources available and as John mentioned with 30 hours or so virtually everybody was back with electricity in our area and that was a very concerted effort on our part it to be prepared and have the right resources there.

Great. Thank you very much.

Your welcome.

Next we have Mark Barnett of Morningstar. Please go ahead.

Good afternoon. Just a couple of quick questions on the AmeriGas side. Is there any chance you could give a little detail on your normalized volume projections underpinning the 2013 forecast maybe to give us a better idea of some of the attrition that you saw after the combination and kind of a weather normalized run rate going forward?

As you know we do not generally talk about specifically volumes or margin targets in our plans. Certainly we also plan on a deal of this magnitude to have some degree of attrition when we are combining locations there is some customer upset, but we are so far on track with our expectations on the volume side.

So far it has been very fairly limited on the attrition, I guess.

Right within our expectations, Mark. One of the hard parts of the volume in this environment was it was so warm last year that your base of volume you have is difficult enough to try to figure out because customers used significantly less last year and all of the weather normalization models people have are based on assumed rates of degree day usage, so when you adjust those volumes for degrees days when it is so warm it becomes hard to get a true understanding of your base. We have a better feel of numbers of customers if you will, and we are right within our expectations and as Jerry mentioned no undue loss of customers associated with the acquisition in fact we are probably doing a little better in many areas than we expected.

One final point I would make on demand and Jerry touch on his comments is the beneficial impact of lower product costs which is helpful. You have price influenced conservation and we are pleased that our customers are seeing lower prices our costs are lower, so that is a good thing in terms of demand.

I will say on margins I think Jerry said at the offset in response to a question we are not expecting margins to be significantly higher or significantly lower we see stability with margins and overtime margins increases with inflation and operating expenses and things, but from the margin side of your equation we are not expecting there to be significant changes either way up or down in margins compared to where we were last year or the year before.

Okay. One more quick question, now that you have had a little bit more time to fully realize the synergies you initially projected obviously you talked a little bit generally about some further upside in the future do you have a better idea of a range you might be expecting there or is it still too early for that?

Too early. We are happy that we got ahead of the $50 million we are up to $60 million now that we will certainly will realise this year. And as we get into phase two, we will see if that numbers grows, but we are in no position to be saying it has.

Okay. Fair enough. Thanks guys.

(Operator Instructions). It appears that we have no further questions at this time. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen.

That is fantastic, Mike. Thank you. We are happy to close out the call. We appreciate all of your interest particularly given that we just had our analyst call. We look forward to reporting to you at the next quarterly call, and we are comfortable we are on the right track and we will demonstrate that to you in the future. So talk to you in January, and everybody have a safe and happy holiday as we move forward. Bye- bye.

We thank you, sir, and the rest of management for your time. And you also have a great holiday season. The conference call is now concluded. We thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you, and take care everyone.