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| 8-K - LACLEDE GROUP INC 8-K 12-6-2011 - SPIRE MISSOURI INC | form8k.htm |
Exhibit 99.1
Investor Presentation
December 2011
December 2011
Investor Presentation
December 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.
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.
4
Laclede Group at a Glance
§ Pipeline transport of
petroleum products
petroleum products
§ Non-regulated activities
including propane sales
and storage
including propane sales
and storage
§ Potential growth platform
§ Core natural gas utility
§ Stable, primarily residential
customer base
customer base
§ Investing in infrastructure
to maintain customer
service and improve
operating efficiency
to maintain customer
service and improve
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
See Appendix for further discussion of non-GAAP measures
2,682
$62.4
thelacledegroup.com
6
History of Success
§ Solid utility earnings and cash flow
§ Organically grew non-regulated marketing business that
adds earnings and growth opportunities
adds earnings and growth opportunities
§ Strengthened capital structure and added capacity to
support both current businesses and strategic growth
initiatives
support both current businesses and strategic growth
initiatives
§ Unlocked value in under-utilized assets
§ Delivered third highest earnings in Company history
(2011)
(2011)
§ Announced our 9th consecutive dividend increase
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Strategic Priorities
§ Invest in infrastructure
§ Leverage LER’s competencies to enhance
growth
growth
§ Develop and invest in emerging technologies
§ Pursue regulated and non-regulated enterprise
growth
growth
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Laclede Gas - System Overview
§ Largest LDC in Missouri
• ~625,000 customers
• 16,000+ miles of pipe
• 2011 operating results
‒ Revenues of $932 million
‒ Net economic earnings of $46.9 million
§ Diversified gas supply
• 28 suppliers
• Access to conventional and shale supplies
• Transportation on 7 interstate pipelines;
access to all major producing regions
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)
for peak shaving)
• Upstream contracted storage: 23 Bcf
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Laclede Gas - Strengths
§ Long-standing focus on customer service, safety and reliability
§ Strong market position
• Stable retail customer base with high penetration
• Diverse commercial / industrial market with minimal by-pass threats
§ Rate mechanisms support stable earnings
• Largely de-coupled rate design
• Infrastructure System Replacement Surcharge (ISRS) provides timely
recovery of mandated safety, relocation and replacement costs
recovery of mandated safety, relocation and replacement costs
• Purchased Gas Adjustment clause to ensure recovery of gas costs
§ Expanding rate base
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Laclede Energy Resources
§ Established natural gas marketer operating in the central US (12 interstate
pipelines)
pipelines)
§ Diverse customer and supplier base
§ Value-added services benefit
• Customers
• Small to mid-sized producers
§ Closely manage risks
• Formal risk management policy
• Daily risk and liquidity monitoring
§ In response to current market conditions, LER has
• Optimized its portfolio of assets
• Moved into new market services
• Varied duration of supply arrangements
• Renegotiated transportation service contracts
• Maintained focus on profitability
§ Company remains solidly profitable and cash generative
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LER - Growth Opportunities
Henry Hub
Columbia Gas Transmission
(TCO)
(TCO)
Existing Markets
Expansion Focus
§ Geographic expansion leveraging existing relationships
§ Targeting gas-fired electric generation opportunities, asset management
arrangements, and long term producer relationships
arrangements, and long term producer relationships
§ Focus on margin quality, not volume quantity
Financial Overview
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Solid and Growing Core Earnings
§ Higher Laclede Gas earnings reflect
• General rate increase effective September 1, 2010
• Higher non-regulated earnings from sales of propane inventories no longer required to serve
utility customers
utility customers
§ LER earnings reflect current market conditions that have reduced margins and lowered
natural gas sales volumes
natural gas sales volumes
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Consistent Dividend Growth
§ Dividend paid continuously since 1946
§ Annual dividend increase of $0.04 per share approved by the Board of Directors for
2012; ninth consecutive annual increase
2012; ninth consecutive annual increase
§ Dividend Yield: 4.2%
* FY 2008 payout ratio calculation excludes the gain on disposal of SM&P and related disposal costs
62%
53%
65%
Payout Ratio
56%
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Stable Cash Flow
§ Cash flow supports ongoing business requirements
§ 2012 capital spending of $104 million reflects
• Acceleration of distribution system replacement (+ $5-10 million annually)
• Over 40% of capital spending is ISRS eligible
• Multi-year IT infrastructure replacements and upgrades (incremental $20
million above 2011 spend)
million above 2011 spend)
All amounts shown are from continuing operations and exclude working capital; see Appendix for discussion of non-GAAP measures
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§ Strong credit ratings
– Laclede Group: $ 50 million
– Laclede Gas: $300 million
§ Next long-term debt maturity of $25 million due October 2012
§ Group equity capitalization at 9/30/11 of 61%
Strong Balance Sheet and Capital Capacity
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Laclede Group
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Laclede Gas
FMB
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Laclede Gas
CP
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S & P
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A
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A
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A-1
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Moody’s
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A2
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P-2
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Fitch
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A-
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A
■ Ample credit facilities to finance short-term needs
• Five-year renewals completed in July 2011
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F1
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17
Laclede Group - Key Takeaways
§ Financial strength and cash flow to support dividends and
strategic investments
strategic investments
§ Solid utility with expanding rate base
§ Established non-regulated marketing competencies provide
growth opportunities
growth opportunities
§ Pursuing regulated and non-regulated enterprise growth
2,682
$62.4
thelacledegroup.com
Appendix
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Laclede Gas - Customer Breakdown
§ Stable customer base
§ Diverse commercial and industrial market with minimal by-pass threat
Therms sold and transported exclude fiscal 2011 off-system sales.
625,077
885,416
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LER Customer and Supplier Base
§ Long-term relationships with high-quality counterparties
§ ~270 large-volume end users and wholesale customers,
including
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)
- Newfield Exploration - ConocoPhillips
- PetroQuest Energy - Macquarie Energy
- Shell Energy North America
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Laclede Gas - Regulatory Strategy
§ Long-standing focus on customer service, safety and reliability
• Pipeline integrity
– Company and state programs more stringent than federal requirements
– Active AGA partner 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
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
ongoing investments in rate base
22
Laclede Gas - 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
• $2.3 million annualized increase effective July 8, 2011
• Cumulative recovery since last general rate case of $4.8 million
• Filed for new ISRS totaling $2.0 million on November 9, 2011
23
LER - Supply Shift
Henry Hub
Barnett
Fayetteville
Woodford
Marcellus
Eagleford
Active supply centers
Shale supplies
St. Louis
§ 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
§ Lower near-term price volatility and basis differentials as a result of robust supply and slow economic
growth
growth
24
LER - Operating Strategy
§ Long-term revenue and margin growth
§ Optimize operations
• Portfolio of upstream assets
• Supply arrangements with varying durations
• 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
25
Net Economic Earnings Reconciliation
(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 twelve months ended September 30, 2011, 2010
and 2009, the amount of income tax expense (benefit) included in the reconciling items above are $0.9 million, ($1.3) million and $2.2 million,
respectively.
income to the amounts of unrealized gain (loss) on energy-related derivative contracts. For the twelve months ended September 30, 2011, 2010
and 2009, the amount of income tax expense (benefit) included in the reconciling items above are $0.9 million, ($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:
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:
26
Cash Flow Reconciliation
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.
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.