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UGI Corporation (NYSE:UGI)

F1Q 2014 Earnings Conference Call

February 4, 2014 9:00 AM ET

Executives

Daniel J. Platt – Treasurer of UGI Corporation

Hugh J. Gallagher – Chief Financial Officer of AmeriGas Propane

Kirk R. Oliver – Chief Financial Officer of UGI Corporation

Jerry E. Sheridan – President and Chief Executive Officer of AmeriGas Propane

John L. Walsh – President and Chief Executive Officer of UGI Corporation

Analysts

Theresa Chen – Barclays Capital

Shneur Gershuni – UBS

Christopher Sighinolfi – Jefferies & Company

Sharon Lui – Wells Fargo

Nathan Judge – Atlantic Equity

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 AM Eastern Time. After the presentation, we will conduct a question-and-answer session; instructions will be provided at that time.

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 managements 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 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 businesses and our ability to successfully integrate acquired businesses and achieve anticipated synergies. UGI and AmeriGas undertake no obligation to release revisions to their forward-looking statements to reflect events or circumstances occurring after today.

In addition, our remarks will reference certain non-GAAP financial measures that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the 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 a 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 initiative.

Our Q1 GAAP earning 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 a favorable – and favorable $0.04 mark-to-market adjustments in our Midstream & Marketing business. This results an adjusted EPS of $1.06 which compares very favorably with our adjusted EPS of $0.88 in the first quarter of fiscal 2013. 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 a 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 in the 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 North East Pennsylvanian by providing direct access to Marcellus gas.

Our gas utility continued very strong growth trajectory with Q1 new customer addition exceeding the record levels of Q1 fiscal 2013. We remain equally engaged on 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 2013. We are confident that this acquisition in Eastern Europe’s largest market will significantly strengthen our European LPG distribution network.

One final point I would like to cover in the first quarter is the strength of demand we observe 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 larger 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 to serve the Mid-Atlantic and North East 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 project. I’ll return that theme later on the call when I would comment on our strategic initiatives, but I would like to turn it over to Kirk at this point for the financial review. Kirk.

Kirk R. Oliver

Thank you John, as mentioned, adjusted results are up $0.18 per share for the quarter, adjusted results exclude the impact of mark-to-market changes and 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 $1.6 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 weather in our U.S. businesses but experience 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 the 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 volumes 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 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 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 the 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 of Antargaz and expenses at Flaga associated with the integration and operation to BP Poland. The average Euro to Dollar translation rate for the current quarter was approximately a $1.36 compared with a $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 and greater firm delivery service margin of about $3 million. Costs were up $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 a 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 lower marketing margin.

Looking now at liquidity and cash resources, we use 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 in a 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 a $101.2 million for corporate cash.

On January 30, we announced that our board as approved 10 million shares repurchase program. We expect to repurchase the shares over four 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 2014 at $2.60 to $2.70 per share. That completes my prepared remarks and I’ll now 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 reported during the first quarter of last year and we like how it was done, 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 to 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 number, operating expenses declined $0.5 million on the higher volume. The strong and later than usual crop drying season early in the quarter followed by the on coming core vortex cold event and colder than normal weathers throughout the Midwest East and parts of the South all contributed to a significant run up in propane cost during the quarter.

Propane of Mont Belvieu averaged $1.20 gallon in Q1 were 35% above the prior year. There run up in costs has been steady and prolonged. As a December 31, Mont Belvieu cost was $1.26 per gallon or 41% above last year. The increasing cost continued in the second quarter and has been compounded with shortages throughout the industry as inventories were 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 five 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 railcars and 28 propane terminals. Our operations in 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 most need of propane. This is another area where we can clearly demonstrate the advantage of the large scale of our new AmeriGas.

In addition, we have secured over 20 million gallons from non-traditional sources including the capture of export bound product to help insure our customer stay in fuel. Although cost 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 cost in this challenging environment.

Now turning to our growth thrusts. ACE our AmeriGas Cylinder Exchange program increased volume 9.8% in the quarter and added 2900 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 remain $645 million to $675 million in EBITDA for the year and we are pleased the new AmeriGas is performing well in one of the more challenging supply and cost environment we have ever experienced. I want to personally thank our 8500 colleagues for the hard work and perseverance in the phase 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 are pleased to start off fiscal 2014 with a strong quarter and we are excited about the progress we are 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, expense control. We are seeing continued strong performance from national accounts and A Cylinder Exchange. It’s clear that the expansion of our foot print following the Heritage acquisition has accelerated our growth rate in these two 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 initiative 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 of these programs are small in terms of fiscal 2014 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 are working closely with each of the 700 municipalities we serve in Pennsylvania to ensure that our infrastructure replacement program are well planned and executed.

Our CapEx levels have increased about 40% since fiscal 2012 and we expect to continue to at the expanding levels for the foreseeable future. Customer demand is quite strong with customer addition in Q1 running about 10% ahead of fiscal 2013. Demand is up across all three 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 contribution from our O&G 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 are 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 experience the impact of some extreme weather. While we are always pleased to see the strong demand that cold weather brings, we also recognize a critical importance of meeting the service challenges that often occur during these extreme period. Our teams across UGI and AmeriGas did an outstanding job of preparing for the cold weather and immobilizing our resources to address the challenges.

Jerry’s team at AmeriGas did a particularly outstanding job as they move propane transports and drivers across the country to insure 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 as 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 question.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Theresa Chen of Barclays Capital. Your line is open.

Theresa Chen – Barclays Capital

Good morning.

Jerry E. Sheridan

Good morning.

Theresa Chen – Barclays Capital

Jerry going back to your comments about the spike in wholesale propane prices, what is your expectation for margins for the winter heating season as where you had a month end change into the second quarter?

Jerry E. Sheridan

Well, as I described with the first quarter results our objective is just deal with higher cost and be able to pass them on to our customers as we have certainly 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

Okay and your – excuse me hello.

Jerry E. Sheridan

We are breaking up. Hold it.

John L. Walsh

Go ahead.

Theresa Chen – Barclays Capital

On the pushback or the question about passing the cost on to customers, are you receiving any pushback on there, do you see them in turning to conservation more or if they are paying on credit do you think they 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 is a direct increase in conversation or anything like that at this point.

Kirk R. Oliver

Yes, we – being a distributor whether its propane or natural gas, clearly we experience overtime significant variation in product cost and we strongly prefer a lower cost just because it reduces the burden on customers, but one thing we are good at is managing through the cycles, so it requires a level of intensity whether you are talking about unit margin management or working capital management. The good thing is we have that intensity and focus there are some challenging conditions today, but we feel confident that with the focus that we have and the experience we will work through those issues and the key is execution on our end.

Theresa Chen – Barclays Capital

Great, thank you very much.

John L. Walsh

Okay, thanks.

Operator

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

Shneur Gershuni – UBS

Hi, good morning guys.

John L. Walsh

Good morning.

Shneur Gershuni – UBS

Just kind of a follow-up to the previous questions. If your expectations is to be able to maintain margins and to be able to recapture margins and so forth and what not, when I look at you are reaffirming your guidance yet your first quarter results were significantly higher than what they typically are for first quarter relative to the entire year, at least need to – question is 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 fairly it’s been colder than normal weather too.

Jerry E. Sheridan

Well that’s all true, but I think our view is that it’s still too early, margin is once 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 cannot do anything at this point.

John L. Walsh

Yes, in terms of UGI as well as AmeriGas, there is still a lot of winter left, we are sitting here in the first week in February and weather beyond a very short window is unpredictable. So basically there is a lot of runway left, we are 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 Gershuni – UBS

Okay and then it’s kind of a follow-up to sort of your view on margins so forth, just given how for lack of a better word waggy the pricing has been over the last couple of weeks, is your experience had been so far that 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?

John L. Walsh

I think I’ll let Jerry comment as well, I mean I think in general our customers have seen overtime significant movements in terms of pricing, that’s the nature of the business, because we are distributing a commodity and historically there has been volatility in costs. so I think that’s expected, there have been some significant movements but we’ve had periods in the past where there had 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 operations, 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 and across all of our businesses that certainly is true for AmeriGas.

Shneur Gershuni – UBS

Great, thank you very much guys.

Jerry E. Sheridan

Okay. thank you.

Operator

(Operator Instructions). Your next question comes from the line of Chris Sighinolfi of Jefferies. Your line is open.

Christopher Sighinolfi – Jefferies & Company

Hey guys good morning.

John L. Walsh

Good morning.

Christopher Sighinolfi – Jefferies & Company

Thanks for the time John…

John L. Walsh

Sure.

Christopher Sighinolfi – Jefferies & Company

And you added color this morning. 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 off hand some of the positive domestic developments on weather and everything else?

John L. Walsh

Yes, I’ll just touch brief and I’ll turn over to Kirk. I mean we clearly issued guidance before 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 50 basis point impact on our effective tax rate. so it’s not going to be a big impact going forward.

Christopher Sighinolfi – Jefferies & Company

Okay, great Kirk, 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 circum that what is now embedded in the French tax legislation or is it just something that we have to accept going forward?

Kirk R. Oliver

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

Christopher Sighinolfi – Jefferies & Company

Okay fair enough. Switching gears a bit, I was wondering both for I guess the Marketing & Midstream business and also for Jerry and AmeriGas, you know 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 have 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 this spring and into a 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 a natural gas side of the house or the propane side of the house and that’s first and foremost and then during that I think it helps to reinforce to people, to our customers why there is a value in working with us, and so we tried to demonstrate that every day; it sort of comes to the core 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 have been some major sort of events in the Eastern region.

Involving – that have resulted in volatility in terms of natural gas costs and certainly has been beneficial for us to have a strong set – 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 think it reinforces to our customers the value in working with us I think it’s particularly true in AmeriGas which is a national company where you are talking about moving resources and asset, Large distances in response to customer needs. So I’ll let Jerry comment as well on it.

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 is going to be independent marketers who will suffer a bit as result of maybe letting their customers down, but there is always another side of the coin and that is it’s a very competitive industry and as earlier questions have indicated bills will be higher and some customers may view AmeriGas as having charging too much when in fact anyone of the suppliers would have charged the same amount, but it so competitive and customers have so many choice that there could be turn on the other side. So I think we are going to gain a lot and keep a lot and I expect there is going to be some customers that are going to assess the market. So I don’t know it will be a bonanza, but we’re certainly very well positioned with our story coming out of the winter.

Christopher Sighinolfi – Jefferies & Company

Okay great, well I guess final question for me and I know it’s one of that probably annoys you guys basically I don’t know on a regular basis. But we hear from client, Philadelphia Gas Works any additional update or commentary you can provide relative to what you have said in the past about that business in particular some of the asset house within it.

John L. Walsh

Yes. No, no Chris we can’t really comment on that or speculate on sort of M&A topic, so no further comment on our side – from me on that.

Christopher Sighinolfi – Jefferies & Company

Okay, thanks John, thanks guys.

John L. Walsh

All right, thanks.

Operator

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

Sharon Lui – Wells Fargo

Hi good morning.

Kirk R. Oliver

Good morning Sharon.

Sharon Lui – Wells Fargo

I’m just wondering if you guys can just touch on AmeriGas’ relationship with its propane suppliers and your confidence and your ability I guess procure additional or adequate supplies going forward.

Jerry E. Sheridan

Yes, this has been another case where that would go to a company that’s 50% larger, so we are a bigger deal I guess to number of our suppliers. We have been able to call in a number of favors this winter where we’ve gotten barge shipments, we bought entire ships that were export bound, we are one of the few companies 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 groups relationship with them is quite strong and we continue to come through, we just have not had serious additives in any parts of the company that have been prolonged at all.

John L. Walsh

And I think as a distributor one of the basic elements of 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 are able to move quickly and as Jerry noted with the sort of balance sheet strength AmeriGas has we are able to make 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

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.

Jerry E. Sheridan

Sure.

Hugh J. Gallagher

Yes well, this is Hugh Sharon, our liquidity – we had a slide on that at the end of the quarter which 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 will be pretty rapidly towards the tail end of this quarter we will 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, the table shows that we have over 280 million of available liquidity at the end of the quarter.

Sharon Lui – Wells Fargo

Okay, great. Thank you.

John L. Walsh

Okay, thank you.

Operator

Your next question comes from the line of Nathan Judge of Atlantic Equity. Your line is open.

Nathan Judge – Atlantic Equity

Good morning.

John L. Walsh

Good morning.

Nathan Judge – Atlantic Equity

Just for gas – propane prices in Europe came down about 15% year-on-year, yet margins were up only very small as 0.4%. I just wanted – to typically margins wind when propane prices or LPG prices call. Could you just discuss what is going on there and I know it’s quite warn but just why wasn’t there have been quieter and better margin expansion.

John L. Walsh

Sure Nathan, yes I think the primary impact there is you have sort of a mix effect due to the acquisition in Poland. So if – as we look across the businesses we are 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 moderation of the average unit margin. So when we sort of disseminated and break it into its element the teams are doing a good job with managing unit margins and you are seeing the positive impact – when costs moderate during the season, but it’s that mix effect when you add that significant volume which wasn’t present in this quarter last year.

Nathan Judge – Atlantic Equity

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

Jerry E. Sheridan

No we feel across our businesses that we are well positioned, you never know where the underlying costs are going to move, but that’s part of the business we are 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 2014.

Nathan Judge - Atlantic Equity

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

Jerry E. Sheridan

No I don’t have that off the top of my head Nathan, we obviously we note it because it was a very – at 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 Equity

Okay and just going to hedging from 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. Well 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?

Hugh J. Gallagher

We – I’ll comment and Jerry can as well. I mean basically when we offer that sort of fixed price option it’s for the segment of customer that value that certainty and year-in year-out there is a varying results, some years they hedge and they fix their cost and cost fall this year, costs have risen. Overtime, we haven’t seen a big correlation, where there – basically there is a certain subset of customer that like this certainty and are willing to pay a premium as you mentioned in terms of the fee to lock in the result and if you go over the last 10 years or 15 years and you look at what happens in the year when that cost move up versus the years when costs moved down, it’s a pretty consistent subset of customers. So personally I don’t think there is going to be a big impact in terms of buying behavior or customer behavior this year on it.

Jerry E. Sheridan

Hugh and I would agree, I think you just can’t perfectly guarantee these, these are just customers that wants certainty and on the commercial side even there is commercial businesses that’s wants certainty in their cost structure and that’s just a need that they have regardless of where propane is.

Nathan Judge – Atlantic Equity

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

Jerry E. Sheridan

Yes Nathan there is no definitive timeframe; basically what we announced is that the board granted us permission to repurchase up to 10 million shares over a four year period. when I think about it I think it – I think about it broadly as part of our capital allocation process. We – that includes several key elements. One, our business consistently generate significant amounts of cash. Two, we have our policy that’s part of that capital allocation. Three, we are looking at a broad range of capital investment opportunities and frankly we are 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 will 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 – new option now. so that’s what we think about it, its apart 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 Equity

Just thinking back to your 2012 analyst day, you drew a graph where you were talking about your base growth rate will be in 6% and then you add on stock repurchases which gets 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

Now the – 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 we’ll continue to emerge for investment. 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 assess 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 are 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 house and what we’ve seen across the Marcellus and the region as I mentioned in my remarks I think are beneficial in 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.

Nathan Judge – Atlantic Equity

Thank you very much for your time, appreciate it.

John L. Walsh

Okay. thank you Nathan.

Operator

And there are no further questions in queue. I’ll 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, we look forward to our next call where we’ll update you on Q2 and we’ll be through the winter. So 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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