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Executives

Daniel J. Platt - Treasurer

John L. Walsh - Vice Chairman of Amerigas Propane Inc - General Partner, President of Ugi - Sub of General Partner and Member of Executive Committee

Kirk R. Oliver - Chief Financial Officer

Jerry E. Sheridan - Chief Executive Officer of AmeriGas Propane Inc, President of AmeriGas Propane Inc and Director of AmeriGas Propane Inc

Hugh J. Gallagher - Chief Financial Officer of Amerigas Propane Inc and Vice President - Finance of Amerigas Propane Inc

Analysts

Theresa Chen - Barclays Capital, Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Christopher P. Sighinolfi - Jefferies LLC, Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Nathan Judge - Atlantic Equities LLP

AmeriGas Partners LP (APU) Q1 2014 Earnings Call February 4, 2014 9:00 AM ET

Operator

Good morning, and welcome to the UGI AmeriGas Q1 2014 Earnings Conference Call and Webcast. Please note that this call is being recorded today, Tuesday, February 4, at 9 a.m. Eastern Time. [Operator Instructions] I would now like to turn the meeting over to Mr. Dan Platt, Treasurer of UGI Corporation. You may begin your conference.

Daniel J. Platt

Thanks, Melissa. Good morning, and thank you for joining us.

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, but 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 business and our ability to successfully integrate acquired businesses and achieve anticipated synergies.

UGI and AmeriGas undertake no obligation to release revisions to the 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 companies. These non-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 Hugh Gallagher, CFO of AmeriGas Propane; Kirk Oliver, CFO of UGI Corporation; Jerry Sheridan, President and CEO of AmeriGas Propane; and your host, President and CEO of UGI Corporation, John Walsh. John?

John L. Walsh

Thanks, Dan. Good morning, and welcome to our call. I trust that you've all had chance to review our press releases reporting first quarter results for UGI and AmeriGas.

It was a noteworthy quarter for us on multiple fronts. I'll comment on our key activities in the first quarter and then I'll turn it over to Kirk who'll provide you with a more detailed review of UGI's financial performance. Jerry will then follow with an overview on AmeriGas. I'll wrap up with an update on our strategic initiatives.

Our Q1 GAAP earnings per share were $1.05. In the quarter, we incurred a $0.05 charge related to French tax legislation that was retroactive to 2013 and favorable $0.04 mark-to-market adjustments in our Midstream & Marketing business. This results in adjusted EPS of $1.06, which compares very favorably with our adjusted EPS of $0.88 in the first quarter of fiscal '13. Kirk will comment in more detail on our first quarter performance in a few minutes.

The strong performance in the quarter with adjusted net income up 22% reflects the positive impact of slightly colder weather in most of our service territories as well as the benefits of strong performance in the core activities that provide the foundation for our long-term performance. Unit margin management, expense control, working capital management and the delivery of organic growth.

Q1 was also noteworthy in terms of the strategic milestones achieved in the quarter. The Auburn II pipeline was placed into commercial service in Q1 by our Midstream & Marketing team. This new pipeline is another significant enhancement of our asset network in the Marcellus and will directly benefit our customers in Northeast Pennsylvania by providing direct access to Marcellus gas.

Our Gas Utility continued their strong growth trajectory with Q1 new customer additions exceeding the record levels of Q1 fiscal '13. We remain equally engaged in our infrastructure replacement program for both cast-iron and bare steel, which is moving forward on pace with our commitments. We successfully integrated the BP Poland acquisition, which we closed late in fiscal '13. We're confident that this acquisition in Eastern Europe's largest market will significantly strengthen our European LPG distribution network.

The one final point I'd like to cover in the first quarter is the strength of demand we observed for natural gas. The combination of colder than normal weather in Q1 and the growing base of natural gas customers resulted in, historically, strong demand. This demand is coming from our traditional residential and small commercial customer base as well as some large industrial and municipal users. This strong demand has benefited both our utilities and gas marketing businesses and has highlighted the need for additional pipeline and storage capacity to serve the mid-Atlantic and Northeast regions. We hope this increased recognition of an infrastructure gap on the part of both producers and consumers will enhance our Midstream team's efforts to develop new Marcellus infrastructure projects. I'll return to that theme later on the call when I comment on our strategic initiatives. But I'd like to turn it over to Kirk at this point for the financial review. Kirk?

Kirk R. Oliver

Thank you, John. As John mentioned, adjusted results are up $0.18 per share for the quarter. Adjusted results exclude the impact of mark-to-market changes in Midstream & Marketing's commodity hedging instruments and the effects of changes in French tax law that are retroactive to fiscal year 2013.

For the first quarter, we reported adjusted net income of $123.5 million or $1.06 per share compared to $101.2 million or $0.88 per share for the prior period. You can see from this slide that we benefited from a colder than normal winter in our U.S. businesses but experienced warmer than normal weather in Europe this quarter. We're reporting operating income at AmeriGas of $179.7 million, an increase of $42 million over last year. Weather for the quarter was 3.8% colder than normal and 14% colder than last year. Total margin increased by $40 million reflecting an increase in retail volume sold and slightly higher average retail unit margins.

Operating expenses decreased by $6 million due primarily to the absence of transition expenses incurred in the prior period. Synergies associated -- I'm sorry, in the prior period and synergies associated with the acquisition of Heritage Propane.

UGI International contributed $49 million in income before taxes, a slight decrease compared to the prior year period. Weather in France was warmer than normal and approximately the same as the prior period, while weather in Flaga's service territory was much warmer than normal and warmer than last year. Volumes were up reflecting incremental sales associated with the acquisition of BP Poland in September partially offset by the effects of warmer weather. The increase in total margin is driven principally from higher margin at Flaga, due in large part to the effects of BP Poland acquisition, higher margin at Avantigas reflecting higher unit margins and higher natural gas marketing margin at Antargaz. Operating expenses increased reflecting higher repair and maintenance expenses at Antargaz and expenses at Flaga associated with the integration and operations of BP Poland. The average euro to dollar translation rate for the current quarter was approximately $1.36 compared with $1.30 for the prior year period.

Turning to Slide 11. The Gas Utility is reporting income before taxes of $73.7 million, up $13.5 million or 22% versus last year's quarter. Throughput to core customers increased nearly 11% reflecting the effects of colder weather and, to a lesser extent, customer growth from oil to gas conversions. Total margin increased about $11 million or 9.1% reflecting higher core market margin of $8 million, a greater firm delivery service margin of about $3 million. Costs were down $2 million this quarter primarily driven by lower pension and benefit expenses.

Midstream & Marketing's income before taxes increased by $10 million to just over $35 million for the quarter. This 40% increase over the prior period reflects contributions from our major capital projects and the impacts of colder winter weather. Total margin increased by $12 million or about 28% reflecting higher margin from capacity management, gas gathering, electric generation and peaking services, partially offset by a lower marketing margin.

Looking now at liquidity and cash resources. We used a combination of bank facilities and cash on hand to meet our liquidity needs. Total liquidity by business, in the form of cash on hand and available credit capacity, are laid out on the table on this slide. You can see from this table that the businesses have sufficient capacity to meet their liquidity needs. Comparable ending balances at December 31, 2012, were $348 million for total cash on hand and $101.2 million for corporate cash.

On January 30, we announced that our board has approved a 10 million share repurchase program. We expect to repurchase the shares over 4 years running through fiscal year 2017. This program will provide additional flexibility for strategic use of the company's cash. Finally, we are confirming our adjusted EPS guidance for fiscal year '14 at $2.60 to $2.70 per share.

That completes my prepared remarks. And now, I'll turn the call over to Jerry for his report on AmeriGas.

Jerry E. Sheridan

Thanks, Kirk. EBITDA for the quarter for AmeriGas was $230 million, 19% above the $193 million recorded during the first quarter of last year. And we like how it was done. But we had stronger volumes, slightly higher unit margins and lower expenses. Volume for the quarter was up 23 million gallons or 7%, on weather that was 14% colder than last year. However, the degree days in December are greater than October and November combined, and as a result, a better comparison is to look at the volume-weather relationship in the month of December. Volume in December was up 19% on weather that was 22% colder than the prior year.

Despite the higher volume sold, operating expenses for the quarter were $5.9 million below last year. Even if you were to exclude the transition expenses from last year's numbers, operating expenses declined $0.5 million on the higher volume. A strong, and later than usual, crop drying season, early in the quarter, followed by the oncoming polar vortex cold event and colder than normal weather throughout the Midwest, East and parts of the South, all contributed to a significant run up in propane costs during the quarter.

Propane up at Mont Belvieu averaged $1.20 a gallon in Q1 or 35% above the prior year. The run up in costs has been steady and prolonged. As of December 31, Mont Belvieu cost was $1.26 per gallon or 41% above last year. The increase in costs continues into the second quarter and has been compounded with shortages throughout the industry as inventories are at historically low levels. U.S. propane inventories at the end of December were 46 million barrels or 21 million barrels below the same time last year, and 11 million barrels or 19% below the 5-year average.

In addition, propane exports for the quarter were 36 million barrels, a 20-million barrel or 125% increase from last year's first quarter. Clearly, the export activity is contributing to the U.S. propane supply situation along with the heavy corn drying season and colder than -- colder winter weather conditions that I noted earlier.

AmeriGas is experiencing these supply issues just like everyone else in the industry. However, unlike many of our competitors, we have an internal fleet of over 360 transport trucks, over 350 rail cars and 28 propane terminals. Our operations and supply and logistics groups have taken extraordinary measures to secure and deliver propane to our residential and commercial customers by repositioning these critical transportation and distribution assets into the areas in most need of propane. This is another area where we can clearly demonstrate the advantages of the large scale of our new AmeriGas.

In addition, we have secured over 20 million gallons from nontraditional sources, including the capture of export-bound product, to help ensure our customers stay in fuel. Although costs rose quickly during the quarter, and in fact, continue to do so, margins were up slightly and in line with our expectations, as we continue to actively manage our costs in this challenging environment.

Now turning to our growth thrust. ACE, or AmeriGas Cylinder Exchange program, increased volume 9.8% in the quarter and added 2,900 new locations quarter-to-quarter. Our National Accounts business volume increased 6 million gallons and benefited from both new accounts and the cold weather. We also added one small acquisition in the quarter in Virginia and are building a pipeline of candidates to pursue in the spring.

Our guidance remains $645 million to $675 million in EBITDA for the year and we're pleased the new AmeriGas is performing well in one of the more challenging supply and cost environments we have ever experienced. I want to personally thank our 8,500 colleagues for the hard work and perseverance in the face of very difficult weather and operating conditions as they strive to delight all of our 2 million customers this winter season.

And now, I'll turn the call back over to John.

John L. Walsh

Thanks, Jerry. As I mentioned earlier, we were pleased to start off fiscal '14 with a strong quarter and we're excited about the progress we're making on the strategic investments and programs that are critical to our future.

As Jerry noted, AmeriGas had a strong quarter with adjusted EBITDA up 19% due to volume growth, unit margin management and expense control. We're seeing continued strong performance from National Accounts and ACE cylinder exchange. It's clear that the expansion of our footprint following the Heritage acquisition has accelerated our growth rate in these 2 target segments.

Our European business had the challenge of warmer weather in Q1. Weather for Antargaz, our business in France and the Benelux countries, was 7% warmer than normal. While Flaga's weather for Central and Eastern Europe was 13% warmer than normal. Our European businesses performed well in this warmer weather environment and made solid progress on their strategic initiatives including the ramp up of our oil to LPG conversion program in Northern Europe and our natural gas marketing programs in France and Belgium. While both these programs are small, in terms of fiscal '14 contribution, we believe we are laying an important foundation for future contributions.

Activity at the Gas Utility continues at a pace well above historical levels. We're working closely with each of the 700 municipalities we serve in Pennsylvania to ensure that our infrastructure replacement programs are well planned and executed.

Our CapEx levels have increased about 40% since fiscal '12 and we expect to continue at these spending levels for the foreseeable future. Customer demand is quite strong with customer additions in Q1 running about 10% ahead of fiscal '13. Demand is up across all 3 of our segments. New residential customers, conversions and upgrades, and commercial, which is a healthy sign for us. Our demand outlook remains very positive due to the continuing large spread between natural gas and fuel oil.

Our Midstream & Marketing business got off to a very strong start in Q1 with operating income up almost 40%. This strong performance reflects expanded contributions from our LNG business, both for peaking and transport, as well as a strong quarter for the broader midstream business as colder weather and regional pipeline restrictions created opportunities to utilize our network of storage and pipeline assets in the Marcellus.

As I noted earlier, we placed our $160 million Auburn II project into commercial service in Q1. This is an important milestone for us as the pipeline enhances our growing asset network in the Marcellus. We continue to focus on developing new investment opportunities both greenfield projects and the acquisition of existing assets in the Marcellus region. We're excited about the opportunity for UGI to participate in the infrastructure build out as we strive to connect the mid-Atlantic demand markets with the abundant gas supply in the Marcellus.

Finally, while my comments this morning are focused on our strong Q1 results, I thought I should comment, as Jerry did, on the developments during these first few weeks of 2014. As our customers in the communities we serve experienced the impact of some extreme weather. While we're always pleased to see the strong demand that cold weather brings, we also recognize the critical importance of meeting the service challenges that often occur during these extreme periods. Our teams across UGI and AmeriGas did an outstanding job of preparing for the cold weather and in mobilizing our resources to address the challenges. Jerry's team at AmeriGas did a particularly outstanding job as they moved propane transports and drivers across the country to ensure that our customers in the East and Midwest would receive uninterrupted service. Many of you probably saw or heard news reports of a critical propane shortage in those regions. Fortunately, for AmeriGas and our customers, the scale of our operations, along with our team's absolute commitment to serve our customers, has enabled us to maintain very high service levels during the most challenging supply period in many years.

With that, I'll turn the call back over to Melissa, who will open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Theresa Chen of Barclays Capital.

Theresa Chen - Barclays Capital, Research Division

Jerry, going back to your comments about the spike in wholesale propane prices, what are your expectations for margins for the winter heating season as we're about a month in change into the second quarter?

Jerry E. Sheridan

Well, I just -- I described with the first quarter results, our objective is to just deal with higher costs to be able to pass them onto our customers as we have nearly every year for as long as I can remember. Our expectations were always outlined future-looking as with inflation. So our intent is to continue to do that.

Theresa Chen - Barclays Capital, Research Division

Okay. And your -- on pushback -- or the question about passing the cost onto customers, are you receiving any pushback on there? Do you see them -- in turning to conservation more or if they're paying on credit, do you think that you might have trouble with that later on?

Jerry E. Sheridan

I mean, it's a concern because the bills are going to be much larger. But it's way too early for us to see whether there's a direct increase in conservation or anything like that at this point.

Hugh J. Gallagher

Yes, we, being a distributor, whether it's propane or natural gas, clearly, we experience, over time, significant variation in product costs and we strongly prefer lower costs just because it reduces the burden on customers. But one thing we're good at is managing through the cycle. So it requires a level of intensity, whether you're talking about unit margin management or working capital management, the good thing is we have that intensity and focus. There's some challenging conditions today but we feel confident that with the focus that we have and the experience we have, we'll work through those issues and the key is execution on our end.

Operator

Your next question comes from the line of Shneur Gershuni of UBS.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Just this kind of a follow-up to the previous questions. If your expectation is to be able to maintain margins and to be able to recapture margins, and so forth and whatnot, when I look at your reaffirming your guidance, yet your first quarter results were significantly higher than what they typically are for a first quarter, relative to the entire year, it leads me to ask the question as to why the guidance range is not being moved higher, if kind of your expectations are where they are with respect to both margins and volumes for the second quarter, when January is in the books already and clearly it's been colder than normal weather, too?

Jerry E. Sheridan

That's all true but I'll at least argue is that it's still too early. Margin's one side of the equation, but volume is a huge part of the equation, and the fact that January was cold does not ensure that the second half of February or March will be. So it's just prudent for us to not to do anything at this point.

Hugh J. Gallagher

Yes, in terms of UGI as well as AmeriGas, there's still a lot of winter left. We're sitting here in the first week in February. And weather beyond a very short window is unpredictable. So basically, there's a lot of runway left. We're certainly pleased with the first quarter. Solid positive weather in January but still early days in terms of Q2 and weather, certainly later February, March and even some of April are relevant. So that's all taken into consideration.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Okay. And then, it's kind of a follow-up to sort of your view on margins and so forth. Just given how, for lack of a better word, wacky, pricing has been over the last couple of weeks, is your experience has been so far that customers have accepted the price increases and so forth, or are they still about to get the bills in the mail, and we'll have to reassess that as -- in the months ahead?

Hugh J. Gallagher

I think, I'll let Jerry comment, as well. I think general our customers have seen, over time, significant movements in terms of pricing, that's the nature of the business because we're distributing a commodity and, historically, there's been volatility in cost. So I think that's expected. There have been some significant movements but we've had periods in the past where there've been significant movements as well. So I think we just, as I noted earlier, we just have to stay focused and on top of it and support our customers, operationally, which we've done, but also recognize that it's an important period for us in terms of managing working capital, particularly, receivables, which is a big activity for us across all of our businesses, which certainly is true for AmeriGas.

Operator

[Operator Instructions] Your next question comes from the line of Chris Sighinolfi of Jefferies.

Christopher P. Sighinolfi - Jefferies LLC, Research Division

I guess, a quick question for you or for Kirk, as it pertains to the tax issues in France. Given the fact that, that new legislation was enacted in December, was that incorporated in the guidance you issued? Or is that something that sort of is additive and has to be sort of weighed on -- maybe perhaps offset from the positive domestic developments on weather and everything else?

John L. Walsh

Yes, I'll just touch briefly, and I'll turn it over to Kirk. We clearly issued guidance before that -- that legislation was passed. So we didn't anticipate it at the time of issuing guidance.

Kirk R. Oliver

Yes, Chris, it had a big impact in 2013 but on a go-forward basis, sort of normalized. I think it's going to be less than a 50-basis point impact on our effective tax rate. So it's not going to be a big impact going forward.

Christopher P. Sighinolfi - Jefferies LLC, Research Division

Okay, great. And is there something you can do, I know it's related to the deductibility of intercompany debt, is there something you can do on that basis, to sort of circumvent what is now embedded in the French -- in the tax legislation? Or is it just something that we have to accept on a go forward?

Hugh J. Gallagher

There are things you can do to optimize tax, but I think the way law this works, there's a certain part of this that you just have to accept.

Christopher P. Sighinolfi - Jefferies LLC, Research Division

Okay. Fair enough. Switching gears a bit, I was wondering, both for, I guess, the Marketing & Midstream business and also for Jerry and AmeriGas, we talked -- you talked a lot, obviously, we've talked a lot in the past about the benefits of a large system. You mentioned some of the things that you've been able to do from a supply standpoint that perhaps some of the smaller independents are not capable of doing. And so, I'm curious, more on a qualitative basis, as we move into the spring and into the summer, and get out of the heating season, what, if anything, you think, will transpire from a customer account perspective, when people suddenly reevaluate what a premium price service is worth?

John L. Walsh

Well, I think, in general, for us, for UGI and AmeriGas, certainly what we strive to do, as I noted, is to ensure that we're maintaining high service levels, particularly during challenging periods, whether it's on the natural gas side of the house or the propane side of the house. And that's first and foremost and in doing that, I think it helps to reinforce to people, through our customers, why there's a value in working with us. And so we try to demonstrate that every day. It sort of comes to the fore when you have a challenge, as we've had, and certainly, AmeriGas has seen some major challenges. On the natural gas side of the house, there've been some major sort of events in the Eastern region, involving a -- that have resulted in volatility in terms of natural gas costs and certainly, it's been beneficial for us to have a strong set -- a strong network of assets in the Marcellus, and again, we can demonstrate value to our customers, by virtue of the utilization of those resources at times of need or demand. So I think it reinforces to our customers the value in working with us. I think that's particularly true in AmeriGas, which is a national company where you're kind of about moving resources and assets large distances in response to customer needs. I'll let Jerry comment as well on that.

Jerry E. Sheridan

Yes, I mean, the way things should turn out this year, I think, we will build loyalty with our customer base. I do think there's going to be independent marketers who will suffer bit, as a result of maybe letting their customers down, but there's always another side to the coin, and that is it's is a very competitive industry and, as earlier questions have indicated, bills will be higher and some customers may view AmeriGas as having charged them too much, when, in fact, any one of the suppliers would have charged the same amount. But it's so competitive and customers have so many choices that there could be churn on the other side. So I think we're going to gain a lot and keep a lot. And I expect there's going to be some customers that are going to test the market. So I don't know if it'll be a bonanza but we're certainly there well-positioned with our story coming out of the winter.

Christopher P. Sighinolfi - Jefferies LLC, Research Division

Well, I guess, final question for me. I know it's one that probably annoys you guys because you get it on a regular basis. But we hear from clients, Philadelphia Gas Works, any additional updates or commentary you can provide relative to what you've said in the past about that business, in particular some of the assets housed within it?

John L. Walsh

Yes, no, Chris, we can't really comment on that or speculate on some M&A topics. So no further comment on us -- from me on that.

Operator

Your next question comes from the line of Sharon Lui of Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Just wondering if you guys can just touch on AmeriGas' relationship with its propane suppliers and your confidence in your ability to, I guess, procure additional or adequate supplies going forward?

Jerry E. Sheridan

Yes. This has been another case where -- now we've got a company that's 50% larger so we're a bigger deal, I guess, to a number of our suppliers. We have been able to call in a number of favors this winter where we've gotten barge shipments, we've bought entire ships that were export-bound. We're one of the few companies that could even say, yes, to an offer like that because of our size. I think our suppliers have treated us very well through this period and our supply group's relationship with them is quite strong and we continue to come through. We just have not had serious outages in any parts of the country that have been prolonged at all.

John L. Walsh

And I think as a distributor one of the basic elements for our strategy is supply diversity. So you have a diversity of supply options and then a strong execution focus. So that when you have extreme conditions or unexpected events, you're able to move quickly and, as Jerry noted, with the sort of balance sheet strength that AmeriGas has, we're able to meet commitments and address issues and take care of -- seize opportunities rapidly. So it's a combination of basic strength, of focus and then concentration on serving customers well.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. I guess, can you also touch on liquidity at AmeriGas and the ability to handle, I guess, the higher working capital requirements given the increase in propane prices?

Hugh J. Gallagher

This is Hugh, Sharon. Our liquidity -- we had a slide on that at the end of the quarter when it was strong and our revolver is not significantly different than it was then. So liquidity is not a real concern right now. We've got a large credit facility. We've got plenty of room on it. We'll be pretty rapidly in the -- towards the tail end of this quarter, we'll be coming into the period where working capital is coming down. So I don't have any major concerns on liquidity.

John L. Walsh

Yes, and that table shows that we have over $280 million of available liquidity at the end of the quarter.

Operator

Your next question comes from the line of Nathan Judge of Atlantic Equities.

Nathan Judge - Atlantic Equities LLP

I just wanted to ask, propane prices in Europe came down about 15% year-on-year. Yet margins were up only very small, I guess, 0.4%. I just wanted to -- typically, margins widen when propane prices or LPG prices fall. Can you just discuss what's going on there? I know it's quite warm, but just why wouldn't there have been a wider and better margin expansion?

John L. Walsh

Sure, Nathan, I think the primary impact there is you have sort of a mix effect due to the acquisition in Poland. So as we look across the businesses, we're executing as we expect, when we look by country, by segment, in terms of our unit margin performance, we added a lot of volume in Poland with the BP Poland acquisition. That would tend to be lower than average unit margins that are added to that overall sort of pool, so to speak, and that would result in combined lower or a moderation of the average unit margin. So when we sort of disseminate it and break it into its elements, the teams are doing a good job with managing unit margins and you're seeing the positive impact of when costs moderate during the season but it's that mix effect when you add that significant volume which wasn't present at -- in this quarter last year.

Nathan Judge - Atlantic Equities LLP

As we look forward at 2014, are we -- do you expect to see pretty similar margin growth? Or would you expect there's some type of reason why it would change throughout the year?

John L. Walsh

No. We feel across our businesses that we're well-positioned. You never know where the underlying costs are going to move but that's part of the business we're in. You have to be ready to move regardless of what happens to the underlying commodity. So we have a high degree of confidence in our businesses -- business teams and their ability to manage unit margins in any given period and across the year. So we feel good about unit margin management for the balance of '14.

Nathan Judge - Atlantic Equities LLP

Okay. I guess, just -- do we have -- do you have the number of what the margin would have been without the LPG -- or the BP acquisition in Europe?

John L. Walsh

No. I don't have that off the top of my head, Nathan. We obviously, we know it because it was a variance because of the timing of that acquisition. We typically don't go into a lot of detail on margin by country. And off the top of my head, I don't know what that impact was of blending that in, in the first quarter.

Nathan Judge - Atlantic Equities LLP

Okay. And just going to hedging, from a customer standpoint, given the volatility. I think you do offer a customer opportunity to buy in, I think, for $100 or something, to lock in prices for the year. Can you just walk through how that could change if you see that as a margin opportunity or is that something that may change the way you buy propane?

John L. Walsh

We -- I'll comment and Jerry can as well. And basically, when we offer that sort of fixed price option, it's for the segment of customers that value that certainty. And year-in, year-out, there's a varying result. Some years, they hedge and they fix their costs and costs fall. This year, costs have risen. Over time, we haven't seen a big correlation. Where there -- basically, there's a certain subset of customers that like the certainty and are willing to pay a premium, as you mentioned, in terms of the fees to lock in the result. And if you go over the last 10 or 15 years and you look at what happens in the year when the costs move up, versus the years when costs move down, it's a pretty consistent subset of customers. Personally, I don't think there's going to be a big impact in terms of buying behavior or customer behavior this year...

Jerry E. Sheridan

Yes, I'd agree. I think you described it perfectly, John. These are just customers that want certainty and on the commercial side, even, there's commercial businesses that want certainty in their cost structure and that's just the need that they have regardless of where propane is.

Nathan Judge - Atlantic Equities LLP

Okay. And just, finally, for me. Very interested with your comments on the share buyback, I just wanted to know, as you considered the share buyback versus other investment opportunities, I guess, number one, are you looking at how you compared that to perhaps growing the dividend more quickly or other organic opportunities that you have out there? Just why you came up with share buyback and when do you expect to actually start buying back shares?

John L. Walsh

Nathan, there's no definitive timeframe. Basically, what we announced is -- that the board granted us permission to repurchase up to 10 million shares over a 4-year period. When I think about it, I think about it broadly, as part of our capital allocation process that includes several key elements. One, our business consistently generates significant amounts of cash. Two, we have our dividend policy that's part of that capital allocation. Three, we're looking at a broad range of capital investment opportunities and frankly, we're in an exciting period, in terms of those opportunities. And now, four, this is an option for us and we've gotten permission to do it. So I think it's part of that overall process. So that's why the time period is extended. It's just one element that we'll balance and incorporate. It's great to have that as an option for us as we think about the most effective and efficient capital allocation for our shareholders. So the good thing is, we've got, from our perspective, lots of good opportunities for utilization of the cash that we generate, this being one -- a new option now. So that's the way we think about it. It's part of a broader question on capital allocation. That's a fundamental part of what we do as the leadership team for the company.

Nathan Judge - Atlantic Equities LLP

Just thinking back to your 2012 Analyst Day, I think you drew a graph where you're talking about your base growth rate of being 6%. And then you add on stock repurchases which would get you up to 8%. Is there anything today that you see that would change you not being able to achieve those higher growth rates then?

John L. Walsh

No, this announcement is in no way is a reflection of any change in our future view. Our future view is very strong. We feel really good about sort of the condition or the state of our businesses and the opportunities that have emerged and we believe will continue to emerge for reinvestment. So we really view this as another option for us, which we think it's important to assess. We try to be a company that assesses all of our options, as we did, I guess, it was in 2010, when we ratcheted up our dividend payout at that point. We want to make sure we're assessing, actively assessing, all the alternatives. But we feel very good about the range of opportunities and some of the developments recently in the market, in particular, on the natural gas side of the house and what we've seen across the Marcellus and the region. As I mentioned in my remarks, I think, they're beneficial and that they really highlight the need for additional infrastructure to support the significant increase in demand. And all that will mean, hopefully, quality investment opportunities for the company moving forward. So we feel very good about the range of investments, investment opportunities we have for UGI and AmeriGas.

Operator

And there are no further questions in queue. I will now turn the call back over to Mr. John Walsh for any closing comments.

John L. Walsh

Okay. Thank you, Melissa. Thank you, all, for your time this morning. Look forward to our next call where we'll update you on Q2 and we'll be through the winter. So we look forward to our next discussion. Take care.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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