Vectren Corporation Investor Day New York, NY March 16, 2015
Agenda 10:00 AM Welcoming Remarks Robert Goocher 10:05 AM CEO Remarks Carl Chapman 10:15 AM Financial Overview Susan Hardwick 10:25 AM Regulatory Review Ron Christian 10:35 AM Utility Infrastructure Programs Rick Schach 10:50 AM…
Attendees from Vectren Carl Chapman Chairman, President and CEO Jerry Benkert Exec. VP and Chief Administrative Officer Ron Christian Exec. VP and Chief Legal & External Affairs Officer Susan Hardwick Senior VP and CFO Rick…
Presenter Bios
Carl L. Chapman Chairman, President and Chief Executive Officer Carl was named president and chief executive officer of Vectren Corporation in June 2010 and assumed the chairman of the board title in May 2011. Prior to his current…
M. Susan Hardwick Senior Vice President and Chief Financial Officer Susan was named senior vice president and chief financial officer of Vectren Corporation effective June 1, 2014. Prior to that and since March 31, 2000, she served as…
Ronald (Ron) E. Christian Executive Vice President and Chief Legal & External Affairs Officer, Vectren Corporation Ron is the Executive Vice President, Chief Legal and External Affairs Officer of Vectren Corporation. Ron has been a…
Eric (Rick) J. Schach Senior Vice President, Utility Operations and President, VUHI Rick was named senior vice president of utility operations and president of Vectren Utility Holdings, Inc. (VUHI) in June 2014. Prior to his current…
Gregory (Greg) F. Collins President, Vectren Energy Services Greg is President of Vectren Energy Services (VESCO), a leading energy services provider. VESCO, through its subsidiary Energy Systems Group (ESG), specializes in energy…
Douglas (Doug) S. Banning President, Vectren Infrastructure Services Doug is President of Vectren Infrastructure Services (VISCO), whose subsidiaries are two of the nations premier natural gas distribution, transmission pipeline and…
Vectren Overview CEO Perspective Carl Chapman Chairman, President and CEO
Vectren in 2015 & Beyond Infrastructure Opportunities Leading the Way Over the last four years, Vectren has developed a utility growth strategy focused on gas system investment and narrowed its nonutility business mix Driven by a…
Vectrens Compelling Business Mix Vectren Vectren Utility Nonutility Indiana - Vectren Distribution & North (Gas) Infrastructure Transmission Pipeline 574,000 Customers Services Construction 1.1 million total utility customers…
Strategies to Achieve Financial Goals Utility Execute investment & cost control strategies to achieve utility earnings growth target Gas system infrastructure investment to drive consistent earnings growth, while enhancing reliability…
Summary of Updated Financial Targets Originally Shared November 2014 Current Previous Annual total shareholder return* 9-11% 8-10% Consolidated earnings growth 5-7% 4-5% Consolidated payout ratio 60% 65% Long-term dividend growth…
Long Dividend Record Continues Executing on Strategy Gives Confidence for Bright Future Growing EPS and Declining Payout Ratio Positioned Vectren to Significantly Increase the Dividend Growth Rate Since 2010, Vectren has…
Excellent Shareholder Returns Vectrens achievement of consistent earnings growth over the last five years has driven excellent annual shareholder returns We believe our strategy of focusing on our core, premier utility business and…
Vectren Financial Overview Susan Hardwick Senior VP and CFO
2014 Marks Another Successful Year Vectrens EPS Growth Continues; Guidance Expectations Met Again Consolidated Results* Strong close to the year 2014 EPS of 2.28, in line with guidance and up 7.5% vs. 2013 EPS of 2.12 Consistent…
2015 Consolidated Guidance Affirmed Consistent Earnings Growth to Continue 2015 Consolidated EPS Guidance of 2.40-2.55 per share affirmed Utility midpoint of 1.90 per share Nonutility updated midpoint of 0.58 per share Vectrens…
Utility Financial Outlook 2015 utility EPS guidance midpt. of 1.90 per share, up 5.6% from 2014 EPS of 1.80 Earnings growth driven by return on investment in new gas infrastructure Control operating costs as culture of performance…
Utility Rate Base & Sources of Funding Faster Gas Rate Base Growth with Continuing Opportunity to Earn At or Near Overall Allowed Return via Recovery Mechanisms and Cost Control Growth in rate base over the next five years funded…
Nonutility Financial Outlook 2015 updated EPS guidance midpt. of 0.58 per share, up from 0.47 per share in 2014, excluding Coal Mining results Expect VISCO to contribute EPS of approx. 0.57 per share in 2015 (guidance midpoint) vs.…
Track Record for Consistent Earnings and Dividend Growth Continues Executing on Strategy Leads to Growing Track Record, Bright Future Approvals in place for gas utility infrastructure investments and framework for current recovery…
Vectren Regulatory Review Ron Christian Exec. VP and Chief Legal & External Affairs Officer
Very Constructive States for Utility Operations IN OH Legislative support for investment by utilities has been strong in each state IN Senate Bill 251 (federal mandates) IN Senate Bill 560 (infrastructure) IN Senate Bill 29 (clean…
Vectrens Top Tier Regulatory Framework Gas Electric IN-South IN-North Ohio IN-South Infrastructure Replacement Recovery Under SB 560 Recovery of Federal Mandates Under SB 251 Infrastructure Environmental CapEx Recovery Under SB…
Recent Regulatory and Legislative Highlights Gas system infrastructure replacement Commission-approved cost recovery in place for significant capital investments In Indiana, 900 million over 7 years (cap ex thru 2020) In Ohio, 200…
Other Electric Matters EPAs Clean Power Plan Issued June 2, 2014 Vectren is fully engaged on the proposed plan; we are focused on protecting our customers (bill impacts) and on reducing carbon emissions as details of this rule evolve…
Vectren Utility Infrastructure Programs Rick Schach Senior VP, Utility Operations and President, VUHI
Overview Review of Safety Regulations Driving Gas Utility Investments 34 Capital Expenditure Plans Summary 35 Bare steel/cast iron replacement program 36 Gas transmission modernization program 37 Gas distribution modernization…
Safety Regulations Driving Gas Infrastructure Programs Pipeline Safety Improvement Act of 2002 Transmission Integrity Management Program (TIMP) Pipeline Safety Act of 2006 - Distribution Integrity Management Program (DIMP)…
Utility Cap Ex Utility growth driven by expected investments in gas system infrastructure in millions Forecast 5-Yr Total Utility Cap Ex 2014 2015 2016 2017 2018 2019 2015-2019 Indiana 167 165 210 185 160 165 885 Ohio 87 105 85 80…
Bare Steel/Cast Iron (BSCI) Gas Main Replacement Program BSCI Program began in 2008 and has now accelerated 90 Total program investment of 1B 80 70 to retire approximately 1,800 miles of 60 millions BSCI main and related…
Gas Transmission Modernization Programs Background TIMP risk-based infrastructure modernization plan developed for the transmission pipeline system (1,000 miles); focuses on integrity assessments of condition of pipeline; integrity…
Case Study - Gas Transmission Modernization Project Evansville, Indiana Kasson Station & 16 Pipeline (10 miles) 7M project that addressed several different risk factors by bundling projects into one larger project Rebuilt entire…
Gas Distribution Modernization Programs Background DIMP risk based infrastructure modernization plan was developed for the distribution pipeline system (21,000 miles) Plan focuses on the elimination of leaks, replacement of…
Other Utility Investments in the 5-Year Plan (15-19) Gas Infrastructure Upgrades, Improvements, Relocations, & New Services 225M for service replacements & system improvements, incl. automated meter reading 75M for public…
Summary - Utility Infrastructure Programs Safety Regulations Driving Utility Infrastructure Programs Further new PHMSA rules related to the 2011 Act expected in late 2015 Utility Growth Driven by Planned Investments in Gas System…
Brief Q&A
Vectren Energy Services (VESCO) Greg Collins President, VESCO
Overview Financial Outlook 45 VESCO Business Segments, Customers, & Competitive Overview 46 VESCO Value Proposition 50 Representative Projects 52 Current Market Environment 56 Prospects for Long-Term Growth 59 44
Positive Financial Outlook for 2015 & Beyond Market appears to have turned a corner after multi-year downturn tied to recession Record new construction orders in 2014 - 189 million provides strong backlog to support 2015-16 revenue…
VESCO at a Glance Primary subsidiary, Energy Systems Group, founded in 1994 Accredited by the National Association of Energy Service Companies (NAESCO) Licensed to do business in 46 states, the U.S. Virgin Islands,…
VESCO Business Segments Performance Contracting Sustainable Infrastructure Operations & Maintenance Public & Federal Sectors Public, Private and Federal Sectors Focus on plants and projects built by Design and construction of…
Market Sectors and Customers Municipalities One of 16 DOE qualified ESCOs Water and Wastewater Utilities One of 15 ACOE* qualified ESCOs Electric and Gas Utilities Department of Energy Solid Waste Authorities Department of Defense…
Competitive Landscape Power System Engineering Services Performance Contracting Sustainable Infrastructure (CHP, Biomass) 2014 Navigant Consulting, Inc. All rights reserved. 49
Projects can include a range of technologies Energy efficient lighting Water conservation measures HVAC Building controls systems Building envelope improvements Automated metering infrastructure from simple retrofits, CNG…
Performance Contracting Public Sector Northern Illinois University Location: DeKalb, IL Total Construction Value: 59 million Since 2000, ESG has been awarded 11 projects to implement energy conservation measures and infrastructure…
Sustainable Infrastructure Federal Sector National Interagency Biodefense Campus Central Utility Plant Location: Fort Detrick, MD Total Construction Value: 180 million in two phases Enhanced Use Lease / Energy Services Agreement…
Sustainable Infrastructure Public Sector Frederick-Winchester Service Authority Location: Winchester, VA Total Construction Value: 45 million Opequon Water Reclamation Facility Design and construction of anaerobic digesters,…
Operations & Maintenance Federal Sector North Chicago Energy Center 24/7 Critical Care Facility Round-the-clock onsite operations and maintenance serving: James Lovell VA Medical Center Electricity Steam Chilled Water John Paul…
Current Market Environment Public Sector Still recovering from the recession no longer in crisis mode, but governing bodies continue to be very cautious on significant commitments Impact is a lengthening sales cycle to accommodate…
Typical Project Sales & Delivery Cycle Investment Grade Energy Project Audit/Scope Implementation Energy Audit Development, Project / Customer Proposal Contract, and Revenues Drivers Response Financing Recognized RFP/RFQ…
New Orders Up Significantly Recession hit Public Sector late delayed somewhat by federal stimulus funds in 2010 250 222 But, heavy impact on performance contracting industry in 2011-2013 188 200 Mood in market began to improve…
Long-Term Industry Outlook ESCO Revenue by Customer Type, United States: 20102020 Growth Drivers Cost reductions energy, operational, and 2014-2019 CAGR: 7.5% maintenance Environmental conservation reducing carbon…
VESCOs Growth Outlook Key Long-Term Growth Initiatives Focus on continuing to win projects in the growing federal market Expand the public sector business as demand for energy efficiency projects continues to recover Grow the…
Overview Financial Outlook 63 VISCO Business Segments, Geography, and Services 65 Review of Construction Markets 66 Customers and Competitive Landscape 73 Prospects for Long-Term Growth 76 62
VISCOs Growth Has Exceeded Expectations, Delivered Solid Value to Shareholders Expecting VISCO to contribute EPS of approx. 0.57 per share in 2015 (guidance midpt.) vs. 0.52 per share in 2014 and growing 0.05-0.07 per share…
VISCO Growth Outlook Continues to be Strong Demand for construction work expected to remain strong in 2015 Total estimated backlog of 625 million as of 12/31/2014 compared to 535 million at 12/31/2013 No significant impact on VISCOs…
Infrastructure Services at a Glance Minnesota Limited Miller Pipeline Miller Pipeline Transmission Division Distribution Division Water/Wastewater Div. Pipeline construction and maintenance Pipeline construction and Pipeline…
Gas/Oil/Liquids Transmission Construction Industry Outlook INGAA Midstream Infrastructure Study Segment B % Study comparison Pipelines 310 48.3% The 641B of investment estimated Lease Equipment Investment 169 26.4% in the current…
Gas/Oil/Liquids Transmission Construction Changes in the market and strategies Changes in market : Shale market driving changes in supply geographically (historically reliant on Mid-Continent, Western Canada, and Rockies) Current…
Natural Gas Distribution Construction Industry Outlook See legend below Current VISCO distribution construction territory Source: AGA analysis and Continuum Advisory Group proprietary analysis of each state PUC Our current…
Natural Gas Distribution Construction Changes in the Market and Strategies Changes in market : Existing customers seeking to secure construction New Market resources to execute current replacement plans Opportunities Regulatory…
Industry Changes Create Opportunities REAFFIRMING OUR OUTLOOK AND OPPORTUNITY 40% INCREASE IN SPENDING DRIVEN BY 25% INCREASE IN SPENDING DRIVEN BY Shale gas and oil exploration and expansion Interstate transmission replacement…
Water / Wastewater Rehab Market Industry Outlook Source: Continuum Advisory Group Our current market Market opportunities Capital investment needs for the nations wastewater and Since 2007, the agencies have signed consent…
Water / Wastewater Rehab Market Changes in the Market and Strategies Changes in market : Regulatory agencies seeking to close the gap between capital needs and current spending levels There are an estimated 240,000 water main breaks per…
Long-Term Customer Relationships Long-term customers Long-term customer relationships are key Relationship with top 10 distribution customers averages 25 years Reputation for high quality construction work and customer service Shared…
Competitive Landscape Changes in competitive landscape Consolidation continues in our industry Market preference for larger contractors Fragmented market many small family-owned contractors still servicing geographic territories…
Market Risks and Opportunities Impact of sustained lower oil prices 85% of VISCOs revenues are not directly related to oil shale E&P Economic changes in our markets typically lag an economic change by 8-12 months due to the fact that…
VISCO - Strategically Well-Positioned for Continued Earnings Growth Key Growth Drivers Capitalize on demand from the very long construction cycle in the gas distribution, gas and oil transmission, and water/wastewater markets Demand…
Closing Remarks Carl Chapman Chairman, President and CEO
Q&A Panel
Appendix
Appendix Consolidated 2014 Results 3 Months 12 Months Ended Dec 31 Ended Dec 31 In millions, except per share amounts 2014 2013 2014 2013 Utility Group 39.8 37.2 148.4 141.8 Nonutility Group Infrastructure Services 15.5 13.8 43.1…
Appendix Indiana Infrastructure Recovery Legislation SB251 Summary (Gas/Electric) July 2011 legislation allowing for cost recovery, including financing costs, on capital investments needed to comply with defined federal mandates…
Appendix Ohio Infrastructure Recovery Legislation Distribution Replacement Rider (DRR) (Gas) Initially approved in Vectrens 2009 rate case, this mechanism grants current cost recovery, including financing costs, on capital…
Appendix Energy Services Metrics 12 Months 3 Months 2015E Ended Dec 31 Ended Dec 31 in millions Midpoint 2014 2013 2014 2013 Revenue 220 129.8 91.3 37.3 27.5 Gross Margin as % of Revenue 20% 24% 27% 22% 26% EBITDA (1) 6 (5.9)…
Appendix Infrastructure Services Metrics 12 Months 3 Months 2015E Ended Dec 31 Ended Dec 31 in millions Midpoint 2014 2013 2014 2013 Gross Revenue 850 779.0 783.5 232.5 203.0 Gross Margin as % of Gross Revenue 18% 18% 18% 18%…
Appendix Infrastructure Services Estimated Backlog General Description of Types of Customer Contracts for Infrastructure Services Infrastructure Services operates primarily under two types of contracts blanket contracts and bid…
Appendix Non-GAAP Measures The following table reconciles consolidated net income, consolidated basic EPS, and Nonutility Group net income to those results excluding Coal Mining results in 2014 and ProLiance results in 2013, the…
Appendix Use of Non-GAAP Performance Measures and Per Share Measures Results Excluding Coal Mining and ProLiance Management uses consolidated net income, consolidated earnings per share, and Nonutility Group net income, excluding…
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