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| 8-K - THE LACLEDE GROUP 8-K 5-13-2011 - SPIRE MISSOURI INC | form8k.htm |
Exhibit 99.1
Investor Presentation
AGA Financial Forum
May 2011
AGA Financial Forum
May 2011
AGA Financial Forum
May 2011
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
§ Company established in 1857
§ Public utility holding company
formed 2001
formed 2001
§ Consistent earnings performance
paired with a strong balance sheet
and credit rating
paired with a strong balance sheet
and credit 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 transport of
petroleum products
petroleum products
§ Non-regulated activities
including propane sales
and storage
including propane sales
and storage
§ Potential growth platform
for related investments
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
See Appendix for further discussion of non-GAAP measures
2,830
$56.1
Laclede Group at a Glance
5
Strategic Objectives
§ Build on success of the core regulated utility
business
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
• 16,000+ miles of pipe
• 2010 revenues of $875 million
• 2010 net economic earnings of $39.7
million
million
§ Diversified gas supply
• 28 suppliers
• Access to conventional and shale supplies
• Transportation on 7 interstate pipelines,
providing access to all major producing
regions
§ Significant operating storage capacity
• In-market storage
– ~4 Bcf natural gas
– ~3 Bcfe liquid propane (~1 Bcfe
dedicated for peak shaving)
dedicated for peak shaving)
• Upstream contracted storage: 23 Bcf
Diversified Gas Supply
9
Customer Base
§ Stable customer base
§ Diverse commercial and industrial market with minimal by-pass threat
Therms sold and transported exclude fiscal 2010 off-system sales.
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Continuous Improvement § Customer care • Organizational alignment focused on continuous service improvements § Strategic technology upgrades • Mobile computing platforms • Core system upgrades • GPS § Strategic sourcing • Better pricing, contractual performance from vendors § Employee engagement and development programs
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Regulatory Strategy
§ Long-standing focus on customer service, safety and reliability • Pipeline integrity – Company and state programs more stringent than federal requirements –Active partner with AGA in legislative and regulatory proceedings § Rate mechanisms support stable earnings • Largely de-coupled rate design – Recovery through customer charge and first block usage – Mitigates exposure to weather and customer conservation • Infrastructure System Replacement Surcharge (ISRS) – Provides timely recovery of mandated safety, relocation and replacement costs between rate cases – Requires general rate case at least every 3 years •Purchased Gas Adjustment clause to ensure recovery of gas costs Consistent recovery of operating costs and reasonable returns on ongoing investments in rate base
12
Recent Rate Activity
§ Latest general rate case became effective September 1, 2010
• Increased base rates by a net $20.5 million after factoring in current ISRS
revenues
revenues
• Continued weather mitigation rate design
• Improved pension cost recovery
§ ISRS
• $2.5 million annualized increase effective January 7, 2011
• Filed May 2, 2011 for additional $2.4 million increase
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Consumer Awareness
Creates partnership between
customer and business objectives
customer and business objectives
§ Promotes energy efficiency
§ Identifies additional uses for natural gas
Enhances customer awareness
§ Educates customer on environmental advantages of
natural gas
§ Provides practical ways of reducing carbon footprint
Incorporates all customer touch points
§ Advertising
§ Newsletters
§ Websites/online presence
§ Direct marketing
§ Collateral materials
www.OriginalGreenEnergy.com
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Laclede Energy Resources - Profile
§ Non-regulated natural gas marketer
§ Operates primarily in the central United States on 12
interstate pipelines
interstate pipelines
§ Transactions normally settled with the physical
delivery of gas
delivery of gas
§ Offers combination of firm and interruptible pipeline
services and flexible pricing alternatives
services and flexible pricing alternatives
§ Experienced management team
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Diverse Customer and Supplier Base
§ Long-term relationships with high-quality
counterparties
counterparties
§ ~250 large-volume end users and wholesale
customers, including
customers, including
• Utilities, municipalities and power generators
• Marketing affiliates of utilities and producers
• Diverse group of large Midwestern end-users
• Small independent producers with varying needs
§ ~80 different onshore suppliers
• Top 5 Suppliers (by volume)
- Shell Energy North America - Chesapeake Energy
- ConocoPhillips - PetroQuest Energy
- Newfield Exploration
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Henry Hub
Barnett
Fayetteville
Woodford
Marcellus
Eagleford
Active supply centers
Shale supplies
St. Louis
Supply Shift
§ Shale supplies represent a more cost-effective and plentiful on-shore alternative § Spurred significant new pipeline development, especially from the Midcontinent and Midwest to the East
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Henry Hub
Columbia Gas Transmission
(TCO)
(TCO)
Existing Markets
Expansion Focus
§ Geographic expansion leveraging existing relationships
§ Targeting gas-fired electric generation opportunities and asset management
arrangements
arrangements
§ Focus on margin quality, not volume quantity
Customer Growth Strategy
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Operating Strategy
§ Long-term revenue and margin growth
§ Optimize operations
• Portfolio of upstream assets
• Long-term supply arrangements
• Pursue market-based park and loans and physical storage
• Renegotiate transportation service contracts at renewal
• Maintain focus on profitability and target higher margin transactions
§ Manage risks closely
• Formal price and business risk management policy with strong oversight
• Daily monitoring of key risk metrics (value at risk, mark-to-market, etc.)
• Manage credit exposure via master netting arrangements, letters of credit
and prepayments
and prepayments
• Ongoing review of counterparty limits and liquidity requirements
Opportunities
Natural Gas Industry
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Rational, disciplined approach
Current Focus
§ Growth investment potential in
• Complementary upstream market opportunities
• Other distribution properties
• Leveraging existing assets/expertise, including
– Laclede Pipeline
– Propane and storage
§ Capital capacity, including available cash reserves
§ Managing a strategic balance of regulated and non-
regulated businesses
regulated businesses
Financial Overview
24
Financial Profile
§ Solid core operating earnings
§ Strong balance sheet and stable free cash flow
§ Top-tier credit rating
§ Sustainable dividend provides additional return
25
See Appendix for further discussion of non-GAAP measures
§ Earnings decline reflected
higher utility earnings offset
by lower, market-driven LER
results
higher utility earnings offset
by lower, market-driven LER
results
§ Laclede Gas earnings driven
by
by
• Non-regulated propane
transaction
transaction
• Controlling operating costs
• Increased ISRS recovery
• General rate increase effective
September 1, 2010
September 1, 2010
§ LER earnings declined due to
• Industry-wide narrowing of
regional basis spreads
regional basis spreads
• Partially offset by park and loan
transactions and higher volumes
transactions and higher volumes
• Remained solidly profitable
FY 2010 Earnings
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See Appendix for further discussion of non-GAAP measures
Six months ended March 31
§ Utility earnings continued to
improve
improve
§ Laclede Gas earnings were 7%
higher as a result of
higher as a result of
• General rate increase
• Lower operating costs
• Partially offset by Q1 2010
propane transaction
propane transaction
§ LER earnings were lower due
to market conditions
to market conditions
• Lower margins and volumes reflect
narrow regional basis differentials
and seasonal spreads
narrow regional basis differentials
and seasonal spreads
First Half FY 2011 Earnings
r il April propane sale to be reflected in Q3 2011 results
• ~$6.1 million in net earnings
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§ Cash flow continues to support business requirements
§ Capital spending is marginally higher, reflecting prudent
investment in utility infrastructure
investment in utility infrastructure
All amounts shown are from continuing operations and exclude working capital; see Appendix for discussion
of non-GAAP measures
of non-GAAP measures
Cash Flow
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§ Dividend paid continuously since 1946
§ Quarterly dividend increased to $.405 per share in FY 2011; eighth consecutive annual increase
§ Dividend Yield: 4.2%
* FY 2008 payout ratio calculation excludes the gain on disposal of SM&P and related disposal costs
63%
62%
53%
Payout Ratio
65%
Dividends
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§ Strong credit ratings
§ Ample credit facilities to finance short-term needs
• Renewals in process ahead of expirations later in 2011
– Laclede Group: $ 50 million
– Laclede Gas: $320 million
• No external short-term borrowing at March 31, 2011 (despite LTD
retirement of $25 million in November 2010)
§ Next long-term debt maturity of $25 million due October 2012
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Laclede Group
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Laclede Gas
FMB
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Laclede Gas
CP
|
|
S & P
|
A
|
A
|
A-1
|
|
Moody’s
|
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A2
|
P-2
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|
Fitch
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A-
|
A+
|
F1
|
Liquidity and Financial Capacity
30
2,830
$56.1
Laclede Group - Key Takeaways
§ Solid core regulated utility business
§ Financial strength and strong cash flow
§ Leveraging knowledge and expertise to capitalize on market
opportunities
opportunities
§ Seeking logical organic and acquisitive long-term growth
opportunities
opportunities
Appendix
32
(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, 2011
and 2010, the amount of income tax benefit included in the reconciling items above are $0.3 million and $(1.4) million. For fiscal years
ended September 30, 2010 and 2009, the amount of income tax expense (benefit) included in the reconciling items above are ($1.3)
million and $2.2 million, respectively.
ordinary income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the six months ended March 31, 2011
and 2010, the amount of income tax benefit included in the reconciling items above are $0.3 million and $(1.4) million. For fiscal years
ended September 30, 2010 and 2009, the amount of income tax expense (benefit) included in the reconciling items above are ($1.3)
million and $2.2 million, respectively.
This presentation includes the non-GAAP financial measure of “net economic earnings.” The Laclede Group’s non-regulated subsidiary
(LER) and, to a lesser extent, Laclede Gas account for certain transactions through fair value measurements. 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. This internal non-GAAP operating metric 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:
(LER) and, to a lesser extent, Laclede Gas account for certain transactions through fair value measurements. 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. This internal non-GAAP operating metric 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
33
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 its 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 its 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