UGI's CEO Hosts 2012 Analyst Day Conference Call (Transcript)

Oct.17.12 | About: UGI Corporation (UGI)

UGI Corporation (NYSE:UGI)

2012 Analyst Day Call

October 17, 2012 8:30 am ET

Executives

Hugh Gallagher – Treasurer

Lon R. Greenberg – Chairman and Chief Executive Officer

Robert F. Beard – President and Chief Executive Officer, UGI Utilities, Inc.

Jerry E. Sheridan – President and Chief Executive Officer, AmeriGas, Inc.

John L. Walsh – President and Chief Executive Officer

Bradley C. Hall – President and Chief Executive Officer, UGI Energy Services, Inc.

Hugh Gallagher

Okay everyone, it’s 8:30. If everyone could take their seats and we’ll get stated. Good morning everyone. I’d like to welcome everyone who is here in person and on the webcast to UGI’s 2012 Analyst Day. Thanks for taking the time to be with us this morning. We think we have an informative program for everyone today, and we look forward to telling the story. I am Hugh Gallagher, the Treasurer of UGI and I’ll get things started with introductions and a quick overview of the agenda for today.

But before we begin, let me remind you that our presentation materials and comments today will include certain forward-looking statements which management of UGI believes 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 including propane, natural gas, electricity and fuel oil; increased customer conservation measures; the impact of pending and future legal proceedings; domestic, international, political, regulatory and economic conditions; currency exchange rate fluctuations, particularly the euro; and the timing and development of Marcellus Shale gas production; timing and success of commercial initiatives to grow our businesses and our ability to successfully integrate acquired businesses, including Heritage Propane and achieve anticipated synergies. UGI undertakes no obligation to release revisions to its forward-looking statements to reflect events or circumstances occurring after today.

In addition, our presentations 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 the operations of the company. 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 activity.

Now, let me quickly introduce the management team that’s here to present and in attendance today. We’ll start with UGI Corporation. Lon Greenberg, Chairman and Chief Executive Officer; John Walsh, President and Chief Executive Officer; Kirk Oliver, UGI’s Chief Financial Officer; Davinder Athwal, Vice President of Accounting and Financial Control, Chief Accounting Officer and Chief Risk Officer, Davinder also was the winner of the longest title contest. Second, who won this title contest is in the back of the room, Simon Bowman, Manager of Investor Relations and Treasury, he is manning the webcast. Monica Gaudiosi is here, she is our Vice President, General Counsel and Secretary; Jessica Milner, Chief Securities Counsel and Governance Counsel. And from the business units at AmeriGas, we have Jerry Sheridan, Chief Executive Officer of AmeriGas; John Iannarelli, Chief Financial Officer; and Paul Grady, Chief Operating Officer.

From UGI Energy Services, our midstream and marketing business, Brad Hall, President and Chief Executive Officer; Angela Rodriguez, Chief Financial Officer. UGI Utilities, Bob Beard, President and Chief Executive Officer and Donald Brown, Chief Financial Officer.

And finally our International Propane Management that will be presenting today, include Neil Murphy the Managing Director of AvantiGas, our UK propane distribution business; Eric Naddeo, Chief Executive Officer of Antargaz and Reinhard Schödlbauer, Chief Executive Officer of Flaga.

Our presentation materials have been provided to everyone in attendance today and are available on our website www.ugicorp.com under Investor Relations. A recording of the webcast along with today’s slide presentation will be available on our website starting tonight. I’d be remiss and Simon will be very disappointed if I didn’t point out that we are in the process of updating our websites for both UGI and AmeriGas for investor relations content. The AmeriGas site has already been updated, the UGI – say we expect to be up and running in November. We think these upgrades will provide – make both sites a little bit more user-friendly and easier to navigate for everyone.

Quickly through today's agenda, Lon will be up next with his opening remarks, followed by the Utilities discussion at 9 o'clock; AmeriGas at 9:25 and the International Propane Panel discussion at 9:55 that will include John Walsh, Eric, Leo and Reinhard. I will then take a 15 minute break around 10:35; Brad Hall's presentation on the Midstream & Marketing business will follow at 10:50; followed by John Walsh's financial outlook for UGI Corporation at 11:30 and then Lon's closing remarks and a general Q&A session starting at 11:45.

In addition to the Q&A session at the end of the program, we set up today so that each segment will have a little bit of time for Q&A on that particular segment. We expect to wrap up the formal presentation at 12:30 with a lunch for those here in the room.

And with that, I'll kick things off by introducing Lon Greenberg, Chairman and Chief Executive Officer of UGI. Lon?

Lon R. Greenberg

Thank you, welcome everybody. For those of you on the web, we are actually at a new location compared to where we used to go. We are at the W Hotel now. This is the new cool UGI. Be mindful however we're still the usual cheap UGI, so it's costing us no more money than it used to cost us for this.

One of the things, I will draw from Hugh’s comments that you should really take a look at is, there are only three or four people who were here last time we had an analyst meeting and presentation. It’s not that the folks who Hugh introduced were not with the company by and large they were with the company. But we've had a transition of management, and I think you're going to find that the folks that we promoted from within have done an outstanding job and will do an outstanding job today and you'll understand why they've achieved the new roles they have. Also I want to welcome Kirk with us, some of you wondered if we would ever hire a CFO. John was really liking that title until he got the opportunity to get my title. And so welcome Kirk, I'm sure many of you know him already.

My task today, I noticed I’ve got 25 minutes and I was really thrilled to have 25 minutes. Usually I get allocated 15 and I go 25, it’s because I give everybody else's presentation. So today they gave me really 15 minutes of slides and 25 minutes of time. And so, I am going to take my time and scare Monica and Jess sitting in the back occasionally as I do so.

But I want to stay at a hide level. And today we’re going to make a – really take a step forward make an effort to what I would call demystify UGI for many of you. We have felt for many years there is an information gap and that information gap of course creates opportunities for investors.

Yet as we proceeded over the last several years, we've noticed that that information gap has cost our securities to trade at a discount to what we consider a comparable group. And so one of the things we need to do is close that information gap, so most of you can understand what we’re doing, why we’re doing it, hoard hands together and what our prospects are not just for one year, but our prospects over a series of year and why we are so confident that we can earn 6% to 10% on average growth in earnings, and why we know, we will raise our dividend at least 4% a year as we go forward. So that’s my task. And then we'll turn it over to the folks who got more information for you to move forward. So if we can see what we’ve got here, okay.

First slide is who are we? We are as it is. We’re a distributor and marketer of energy products and services and we have been that for the last 20 years. That’s what we try to be, that’s what we are. Two really kinds of business, we got gas and electric businesses, and we got propane businesses.

On the gas and electric side, some are regulated, so we have regulated utilities in Pennsylvania, others are not regulated. Most of our Midstream and Marketing business is not regulated.

So one side of the business is gas and electric, the other side propane. That propane, looking more broadly is liquefied petroleum gas because we also sell other liquefied petroleum gases. And we are domestic in the U.S., and we’re also international in 16 countries.

The map that you’ll see right here is intended to show you where we do business, although I must say it’s one of the most complex maps I’ve ever seen because of all the colors. The red and you can see the United States there even though the West Coast seems to be covered up a little bit, that's where we do our propane business, we’re in 50 states and we serve customers everywhere in the United States. On the propane side again the green that’s where we are, overseas, 16 European countries overseas.

And if you look at the Midstream and Marketing business, we've had a theory of being focused in region and so we’re in the mid of Atlantic region, and I think that's your orangey dots overlapping the red in the mid-Atlantic part. And then the kind of greenish blue dots in Pennsylvania are our Utilities. Really, we run three gas utilities as units, but we are the largest gas utility in Pennsylvania and we also have a small electric utility in Pennsylvania.

Often times we are asked, why you have these businesses? What unites them? Why don’t you just break the company up into different pieces? And our view is, what we have is one and one equals three, and there are common attributes to these functionally related businesses. If you start with customers, all our customers use our products for the same reason, cooking, commercial applications, heating.

Secondly, customer mix, we serve the whole spectrum of customers from retail customers like you and me all the way through to industrial customers with commercial customers in the middle. So our customer base in all these businesses is very similar. Suppliers, we are buying energy products. So there is a commonality of suppliers to our businesses because those folks are selling energy products.

Next, the attributes of the businesses are similar. They’re distribution businesses whether the distribution is by truck, by pipe or otherwise wire. These are distribution businesses and the importance of distribution across all of the businesses pervades how we operate those businesses.

Next, we have common approaches to running the businesses. Our hedging policies are similar across all the businesses. The emphasis on operating expenses is similar across all businesses. And again, these are functionally related businesses all the under the energy umbrella of distribution and marketing.

So we think those common attributes make us better in every business we have and then we would be where we’re just a utility and didn’t have the benefit of the other businesses or we were just a propane company and didn’t have the benefit of the midstream marketing businesses and the utility businesses.

We’ve talked about this next concept for many years and I hope all of you understand it because it’s an economic growth that even President Obama and Governor Romney could agree on, if they could agree on anything. Diversification reduces risk and within our energy umbrella, we have diversification, we’ve got the obvious diversification. We operate in a lot of geographies. And in theory, except for 2012, the warmest year on record in the universe, that diversification of geography should help us because certain areas will be cold, certain areas will be warmer and that will reduce risk over time.

We are diversified in commodities. We sell gas, electricity, propane, butane. And that diversification again is important, we see low gas prices, sometimes we see high propane prices, and we get the reverse, we get low propane prices, high gas prices and electricity riding with gas most of the time. But that diversity helps us because it reduces risk, one business unit has a challenge; other business units have the tailwinds that are helping them.

Value chain, we are diversified across the value chain. Our operations range from a small generating business, so we produce a commodity through gathering the commodity, storing the commodity, transporting the commodity and of course selling that commodity to end users. So the storage business at certain times can be great and can provide us with benefits; other times, it’s a little slower, but the diversification creates opportunities on other sides of our business.

So we are not going to be cyclical like many of the other companies out there who you might follow because they have one business line. The diversification we have tends to smooth things out and that could really be seen in the 2008, 2009, 2010 time period where we saw a lot of companies struggling who are in various segments that we are in, we didn’t struggle, we had very good years during that time period.

So again, diversification, less risk for all of you and that risk also has translated to very good returns and I will get to that in a minute. But that diversification also gives us several sources of income, several sources of cash flow; and at the end of the day, several sources of investment opportunity to place that cash flow to grow earnings for the future and grow our cash flow.

So let’s talk growth first. We talked about diversified opportunities to grow. I get asked all the time and I give the silly answer, I’ll give you, but which business do you want to invest in more? Which is your favorite business? And I treat it like and I use to say, my children, I love them all, now children are all grown and now I have grandchildren on all sides and I love all my grandchildren. And so we’d like all the businesses. We think they are very good businesses each with different opportunities at different times.

So if we were again just a utility for example, we might not have the opportunity to invest all the time, because some investments are so indicatives, same thing with the propane business, et cetera. So you will see opportunities that we’ve seized to invest in all of our businesses, international propane being green for example, acquisitions, natural gas marketing in France.

We can go to the Utilities side on the far right, where we’ve got – we’ve done acquisitions in the past as well. Customer conservations, natural gas prices are low, heating oil prices are high. We’ve got a machine that is converting people from oil to natural gas. On the Midstream, tremendous opportunities for us there, storage, gathering, pipeline and we will talk about all these things as we go through.

And then finally, domestic propane, of course, the acquisitions will stand out to all of you, with the large acquisition we’ve made in Heritage this past year, but also the regular rollup strategy of acquisitions still under exchange, national accounts. This is just a number of things that we can seize and the engine that drives that is our excess cash flow.

So at the end of the day, we are a total return balanced growth and income vehicle. We have the balance between growth, 6% to 10% earnings, and income, 4% dividend increases that averaged a lot more as we go along. So if you think about total return as earnings plus dividends that you get, our base businesses give us about 3% to 4% in earnings power. And we will get into specifics on this so you understand where that 3% to 4% comes from.

Raise our dividend 4% a year, total return and prospect just of our base businesses before we invest in known projects or invest in other opportunities that our cash flow affords us the opportunity to do. Kind of an 8% kind of total return vehicle.

At known projects, these are projects that we’ve announced that we are working on, that will come to fruition in the next couple of years. That will give us another 2% to 3% in our earnings, so our earnings goes to the kind of 6% to 8% range just from those known projects. Total return goes up from that 8% to that 10% kind of range.

We generate and one of the great strengths of the company as we generate excess cash beyond our capital needs, beyond our balance sheet needs, kind of $125 million, and it grows to $150 million a year, excess cash for reinvestment, buying back stock, whatever we think is the right thing to do over time.

If you look at the reinvestment of cash each year at modest ROEs, 8% ROEs, 10% ROEs and you get 3% to 4% additional earnings of that. So all of a sudden we’re at 14% returns. We can range from 8% to 14% overtime in total returns to shareholders by virtue of the way we do our business, the nature of our businesses, and our skill set and core competencies in the companies to grow through known projects and the grow through reinvestment of that cash.

So I talked about that cash flow and if you think about us in the broadest sense, we have a very virtuous circle that starts with our base business, that base business creates cash, its earnings for us obviously, but creates cash and that's the cash, I’m not going to dimension all of these things for you. If that cash flow comes into the door, what do we do with the cash? We pay dividends with it. We also invest it. Once we invest it and our track record speaks for itself that produces more cash that produces more earnings, so you see the arrow going to the incremental earnings growth side of it and incremental earnings growth then provides higher based earnings, provides more cash flow for dividends in organic investment.

And you have a very virtuous circle, it is I’ve emphasized it over the years and I truly believe it, if you have a company that produces excess cash flow, it is a delight to be associated with the management. And it’s because you have a strength that so many companies do not have who have to access capital markets all the time to satisfy their needs. It is a remarkable engine, and so I look at this chart and are mindful now that I’m a grandparent of the little engine that could. This is kind of the big engine that can and has done, and so you start with that base earnings growth to 3% to 4%.

Total cash flow of those base businesses is $250 million to $290 million, that’s after those businesses take care of their capital needs, their ordinary growth, their maintenance capital, take care of their balance sheets as well, keeping their debt cap ratios in line, pay their interest pay whatever else’s do. That excess cash of $250 million to $ 290 million then gets paid out in dividends, $125 million to $140 million, these are multi-year averages by the way.

Pays out dividends to our shareholders, allows us to raise that dividend 4% a year and we target that 35% to 45% pay out ratio in doing so. But after we pay our dividends and raise it 4% a year, the fact that we keep our pay out ratio at 35% to 45% leaves over $125 million to $150 million of cash in the red box. And again apply an 8% ROE, a 9% ROE, a 7% if I really sink, a 6% ROE it’s going to create excess earnings, the incremental earnings there of 3% to 6% over time which is then in turn going to produce higher based earnings by our levels of cash flow.

And that circle keeps spinning and spinning and it’s driven by the engine of cash flow in our base businesses. Though it’s a great story for us and a great strength for us that has driven our track record over time, so that virtue of circle is really important. So we talk about and since the late 90’s, we have talked about goals of raising our dividend, it used to be 3% and then a five, six, seven, eight years ago we changed it to 4% dividend growth and we’ve raised our dividend religiously 4% a year. Talked about our 6% to 10% earnings growth target and what have we accomplished and these are over ten year periods. We’ve raised our dividend actually 7.3% now I’ll explain why and our EPS growth over that 10 year period on a compounded annual growth rate basis has been 13%.

Dividends as I said before, we are targeting those in the range of 35% to 45% as earnings grow, as we redeploy the cash as the base businesses grow. We end up moving the payout ratios down to the lower end from the 45% and to the 35% end. Then we do one time step ups in dividend, so you will see us 4% a year and then maybe we will do a 10% and then we will go back to 4.4%, and one year we did at 25%, and then we go back to 4.4%, we are in the 4.4%. But as you look at our earnings capacity that we are going to talk about today, you will see the payout ratio dropping and the opportunity again in the out years of our planning for another more substantial dividend increase as we go along.

Talking about the dividends, I’ve been the CEO a long time but not certainly 128 years although it might seem like that the people who work at the company. And we've increased the dividend for 25 consecutive years as well. One of the short-term – we were in Europe, it is not the longest period of consecutive dividends, 128 but is not far from it and we will stand on that record.

Talking about returns, I talked about that virtuous cycle, I talked about how we think about life, what has it produced and I'll give you the chart on total returns to the shareholders. You can see it, three years on a 12%, five-year 7.6%, 10 years 13.7%, at the high-end of the targeted returns to shareholders.

You know there are people who recommend stocks in this group or who manage money in this group or who are listening on the phone. If 10 years ago someone could have told you invest in UGI you will get a 13.7% compounded annual return and you did it, you would be rock stars in your organizations, you would be rock stars. Even five years ago if you could have gotten [known], you could have gotten 7.6% compounded annual in UGI compared to the S&P 500 or the others on there that you see. You’d be rock stars investing in UGI.

And our message to you today is you might not be rock stars in three years, but you’d be fired. And so our message to you today is and I feel this very strongly as I start to being my exit from the company, we are incredibly well positioned to repeat those kind of returns over time. Yes, we are going to try your patience, it’s going to be a record warm year every once in a while and our earnings are going to dip in that process and I can tell you over that 10 years there were probably 2 years in there that tired yours and our patients for the investments we’ve made and we didn’t produce as much as we’d like to.

But if you hung in the there and you believe as all of us in management did, you got to retire early in management. I can’t tell you how many people retired in the 50s from this company. And again, you got to take for your, the people you represent, be they bondholders, be they shareholders of the company, whoever you are, whatever your constituency is, you did very well investing in this company. And we are at the precipice of another period like that and we will explain details to you, but I encourage you to listen carefully because we are proud of that record and believe it can be replicated as we go forward.

We put out guidance yesterday, as I told the folks obviously the guidance was reasonably well received, yesterday’s stock was up, so I challenged all the management today, I told them those games are there to loose today and so we will see how they do, of course I’m done by the time the market open so that I’m not at risk at all, but you saw that that guidance were in good shape.

Again, meeting the growth goals, let me summarize for you there. That’s the 14% that I talked about before on the left side. On the right side is how we are going to do it and it’s granular, so I’m not going to go through all that granular information because the people making the presentations on the business units will go through it. But the utility is growing, Amerigas is growing, our international businesses are going. And in particular our midstream and marketing businesses present us with opportunities and if you look at the red box which is a known projects that we are working on today, those take us to that additional EPS growth of 2% to 3%.

We also have the reinvestment of cash in the Marriott of opportunities in keeping up the microphone. Marriott of opportunities out there to invest that cash. The important thing is it does not burn a hole in our pocket, we've accumulated $300 million, $400 million over the years, it is there to buy stock if you set back and just wanted to put our feet up on our desk and run the business everyday, buying back stock in the kind of the 8% compounded annual growth rate in our earnings along with the excess cash.

Every study we've done says if you invest the cash more wisely you can do better than that, hence we've been investing the money than we think wisely and the track record has shown that. But we are not embarrassed to buy stock over time and certainly is something that's on our radar screen that we evaluate from time to time as we get a two-minute cash flow. But we have got claws on the cash for the near-term, we've got lots of opportunities to invest that extra $125 million to $150 million. We’ll say we have got the leaders of businesses who can produce the base growth and earnings and bring those projects to fruition. And so we're feeling great, we're feeling great about where we are today and what we need is a little bit of weather and I'll assure you, you will feel great to.

We're going to – as I said, we are going to sort of remove the clock of secrecy around UGI today a little bit and get more specific than we have in the past. The cone of silence is lifting off this room, and off the Internet. So 2013 guidance, you see there that was the $245 million to $255 million for UGI and AmeriGas will talk about their guidance a little bit more too.

2014, how do we get to that $2.75 you see, and these are indicative rates so where we can be. This is an official, so we just to kind of jump out of our chair, it’s not an official guidance if you will, but these are indications of how we're going to get to where we go, base business growth in blue, loan projects red, reinvestment of cash flow in green. And you see the power of what we can do, we can be earning in 2015 more than $3 of share from our base, but we believe will be to $2.45 to $2.55 this year we said, we’re on an equivalent basis with $1.75 – yeah $1.75 plus $0.14, so $1.89 this year kind of what you take out transition charges and financing charges.

So that’s the effective whether on us, and it wasn't whether within the normal confines, this was the warmest 12 month period on a rolling basis for the last millennium, I don't know, since the universe was created, I guess. So we don't expect that again this year, and I think weather forecasters don’t expect that again this year. So you can see the power of where we can go over $3 a share so really its several years down the road and that will of course, I mean important things not only for our earnings, but our ability to raise our dividend as well as our payout ratio to begins the drop.

So here we are, this is what we’ve done 7.3% dividend growth, 13% plus earnings growth over 10 years, and yet, and yet we traded a discount on a forward P/E basis to a peer group of companies that's written in tiny little print, but they're really good companies, and we consider them companies that some of you may invest in as oppose to investing in us. So we are at a discount that average forward P/E is kind of in the 15.4 range and somewhere between 15 and 16 let’s call it. We’re below 13; I can’t tell you why, I mean other than it allows you whether year or last year. And with the track record there, I say that track record we’d stack it up for three years, we’d stake it up for five years, we’d stack it up for 10 years, stack it up for 15 years they got to stop somewhere against all of those companies that are out there who are trading in the higher multiple than we are.

And our argument to you is, there is a value gap. That value gap is demonstrated by that P/E ratio, and it’s exacerbated by the fact that some of you have difficulty in following us in understanding some of our businesses, some of those businesses are straightforward, some of them are little less straightforward. So we’re going to close the information gap as one of the ways to address that P/E multiple discount.

And as we close an information gap, we’re also going to heighten our investor outreach. We are going to become more active in investor outreach as a tool to close that information gap. So today we’re starting with a lot more detailed information about the today of UGI, the tomorrow of UGI. We are going to convey that information more broadly, and we are vigorously and we think that will close the information gap that exists. And we think that together with just performing at our guidance levels and our plans as we go forward that P/E ratio, there is no reason we should trade at a discount.

But even if you put a modest discount on us, you can get a stock price to get pretty close to $40 from the $31 and change $32 we are today. And given the history of returns we’ve had, that’s not unreasonable thing that one could think as possible as we go forward.

So key takeaways from today, we want you to have a clear understanding of what our growths are, they’re understanding of each business unit’s strategic objectives, we want you to understand what the sources of earnings are, the sources of cash flow are and walk away with confidence that we are a balanced growth and income vehicle that can grow their earnings 6% to 10% a year, raised their dividend to at least 4% a year that you understand where the cash flow comes, you agree that it’s in that $125 million range. You’d walk away with confidence in the management team that you’re going to hear from today. And that at the end of the day, you walk away thinking that this is a good place to have your investors’ money via that bond money or equity money in that company.

So with that, I’ll turn the microphone over to Bob Beard. Bob came to us in an acquisition that we made several years ago, demonstrated outstanding leadership and was promoted from within after being with us during that period of time. And I think you’ll find he is a real utility better in and a star in that industry. So, Bob?

Robert F. Beard

I hope I don’t disappoint. I noticed that Hugh work the [clicker] for Lon however on my own. Okay, good morning everybody. As Lon said, I’m Bob Beard. I’ll be talking today a little bit about the UGI Utilities, certainly welcome any in all questions as well. Some of the things that we’ll talk about our keys to success service territory, financial performance, growth, infrastructure management, which is a big part of our life these days, and how we see the company moving forward. And I’m sure that there is a laser point, I’m here, but I won’t risk it. What I want to point out, for us, in the utilities space, we have a very good story to tell around customer growth as good as any that I know albeit and I’ll hit on that.

And I think to boil this down really there’s two messages, customer growth, which again you’ll see we've done very well with in execution, but it's not a hugely complex business, but it requires execution day in day out, so growth in the execution.

Operations are focused on the fundamentals, again pipe and wires that's what we do. We have very good operating people. We have good engineering staffs. We have good people to design and operate our systems. Growth you'll see that we've over very difficult economic times throughout Pennsylvania, we've grown substantially 1% to 2%.

Service, we remain a leader in customer satisfaction in Pennsylvania, and on the East Coast, and regulation, I’ve spend a lot of my time, my staff spend lot of their time in Harrisburg meeting with legislators, lawmakers, regulators to make sure that we understand their concerns, and they understand the direction of the business.

We operate three natural gas utilities; UGI Gas has been in operation for 130 years. UGI Penn Natural was acquired in 2006; UGI Central Penn was acquired in 2008 that's the acquisition that I came to UGI through. And we’ve been in the electric business since 1925. And idea of what our footprint is, most interesting because this comes into play when we start talking about the effective Marcellus Shale and how important it is to us and just what a positive that can be for us going forward. The traditional, if UGI Gas has shown in red, PNG green, CPG blue, and the Electric Utility in brown.

You'll see, if you've ever seen the map that shows where the Marcellus Shale is basically this under most of our service territory in the Northwest and Northeastern part of the state.

We are in 45 of 67 counties, we cover a lot of territory, we provide service to six of the top 10 population centers across the state, and we’re in just about 710 municipalities. Closing in on 600,000 gas customers and we have about 60,000 electric customers. Attractive growth, our UGI Gas grew at about 2% in 2012, which is great. We cover about 28% of the total square mileage of the state and we’ve got 12,000 miles of main and that’s only main, that does not include service piping, we have a lot of main.

A snapshot of our financials, point here is, we see continuing improvement over the last five years and as long alluded to – we’re really positive about what we see going forward in the utility a lot of opportunity for growth.

Conservative financial management, I think that we mange our debt very prudently. We have favorable ratings. We’ve repaid a outstanding debt of $40 million I think primarily – by cash with cash in 2012. And we’ve got a revolver of about $300 million of which I think we have access to $290 million.

Focus on growth. This is would be 1.9% growth across UGI Gas; across all three gas utilities we saw positive growth. The time of the acquisitions CPG and PNG I think were flat or very minor growth. Since then we’ve seen an inflection and we see both CPG and PNG growing at a nice pace. So when you look at the landscape in Pennsylvania, we’re in a good position from a geography standpoint, a customer base standpoint, and an opportunity standpoint.

We estimate that there are 500,000 potential customers within 80 feet of our existing main, remember I said, we have 12,000 miles of existing main. Historically, up until the housing market crisis, roughly two-thirds of our growth was driven by new housing starts, one-third by conversions from oil or electric or propane to natural gas. Today it's very cyclical, roughly two-thirds of our growth is driven by conversions from alternative fuels, one-third from housing growth.

We're hoping to see and our marketing folks tell us we probably are going to see an inflection point in the new housing starts in our territory. We keep an eye on that, we hope for that over the last few years and we are hopeful that that will occur.

And the chart shows average savings of a UGI Gas customer over oil, roughly $1,500 a year annual savings. I think that's for 1,800 square foot home, significant savings and we see that that has driven a lot of our conversion activity. It's a good story to tell.

Historical growth residential, you'll see 2012, this chart actually can be updated. We will exceed 12,000 new residential customers in 2012. We will also have 2,000 to 3,000 maybe closer to 4,000 commercial customers added in 2012 and the dotted line, a point that I’d like to make as you see it, it’s not always trending upward.

In 2006, the company acquired PNG that added about 160,000 customers – 170,000 customers and in 2008 they acquired CPG, so the denominator got bigger, so it’s not that growth really slowed, it’s just that we’re working off of a larger customer base.

Commercial, another great opportunity for us. We see since 2003 average of about 1.4 compounded growth rate. These are good customers for us, and this is a good story with the Marcellus Shale. As Marcellus Shale gets good airtime in Pennsylvania, we’re starting to see areas that were less vibrant from an economic development standpoint, really start to develop.

A lot of those commercial and residential numbers I just talked about driven by an awareness that there is locally produced lower cost natural gas available to people. And we’re focusing always on the residential market with special emphasis now on the commercial and industrial market because that $1,500 savings we saw for a residential customer fails in comparison to what we can see in the commercial and in the industrial space and we’ve seen growth because of that.

Increased interest in NGV, in Pennsylvania in general the question is, and I attended a meeting with some legislators a few weeks ago, it’s a great resource, we have the Marcellus Shale literally in our backyard and under our feet. However, when you look at Pennsylvania and many of the areas that we serve, they are remote.

So the question is how do we go about expanding our system to reach those customers that are more remote? Marcellus Shale for us is a boom because it gives us access to lower cost gas, but more competitive. Economic growth in general spread by Marcellus, which we’ve seen and then we are starting to see legislators get involved and wondering how can we make this market available, this product available to more people and things like natural gas vehicles, extending our service territory and such.

Infrastructure management has been at the forefront for the last few years. UGI Utilities is in an admirable position, all the companies in Pennsylvania we have the newest system, 85% of our facilities are constructed of contemporary material, materials that we would install today, versus an average of 73% for the other Pennsylvania utilities. And this is not skewed by one of the three utilities at UGI, it literally is 84%, 85%, and 86% for the three UGI Gas utilities. So it’s a good story to tell. We have a fairly new system, but as I’ll talk about, we’re also going to become even more aggressive than we have been in facility replacement, and we have been aggressive. 531 miles of cast iron has been retired over the last 10 years, so lot of pipeline.

We propose in a settlement with the Public Utility Commission that we would retire all of our cast iron main approximately 400 miles in the next 14 years. And that we would retire our bare steel pipelines approximately 1,200 miles to 1,300 miles in the next 30 years.

We’ve accelerated our spending the 2012 number was a placeholder, we’ve actually spent a little bit more than that, but you’ll see that increase as we continue to focus on infrastructure replacement and betterment. And what I wanted to emphasize on this chart is, this is not a new found thing for us, we’ve been accelerating infrastructure replacement since 2009 and we are going to do so, we’re going to do more so going forward.

In our business, obviously very important to have a good rapport and a good understanding of what the regulators are thinking. In Pennsylvania, we saw a disk mechanism approved in 2012 which is essentially a rider that you could add to a belt to help cover the cost of infrastructure replacement. Water companies have had this, in Pennsylvania for quite sometime now and I think it’s a good thing for Pennsylvania.

All of our universal service, customer service, assistance programs allow for full cost recovery. When we do go in for rate cases which is really not that frequently, we try to increase the fixed monthly charge so that we have that much of a fixed charge going forward and we’re not completely weather related.

And then all of the MGP manufactured gas plant related costs are fully recoverable from PNG and CPG, good mechanism that we’ve had there. We’ve been recovering for, at least at CPG for the last 15 years, so it’s a good mechanism.

Driving – is that my que to stop, when I start hearing my cellphone. Driving earnings growth, again, customer growth for us at UGI Utilities is a big part of what we do. It’s a great opportunity for us. We’re fortunate to be in the space that we are geographically and also as a company that’s willing to invest in continued infrastructure replacement and an expansion of our systems.

We’re not afraid to invest in infrastructure, we’ve demonstrated that. We’d always invested at a very good phase and infrastructure. Addition of Marcellus Shale means a lot to us, to our customers. Gas suppliers in the area, it’s a big issue in Pennsylvania. And then operational productivity. Again, every day when I come to work it’s growth and execution, growth and execution, how do we grow and how we continue to execute. Do you think it’s right, raise the bar, find ways to do things, new and better as we move forward to accommodate the growth.

Question-and-Answer Session

Robert F. Beard

Questions? All right, I’ll slowly walk – there you go.

Unidentified Analyst

(Inaudible)

John L. Walsh

Right.

Unidentified Analyst

(Inaudible)

Robert F. Beard

Question that would be a little more relevant than the reality today because we proposed with the Public Utility Commission to not seek disk recovery for the next two years, so – for all the utilities. So we felt it was important as part of the settlement to show the regulators in the state that we are serious about the infrastructure and that we would be absorbing whatever incremental cost or forgoing the opportunity is a better way to say, forgoing the opportunity to recover those costs. We’ll let you know in two years what that looks like.

Unidentified Analyst

(Inaudible)

Robert F. Beard

Our marketing department, we meet quite regularly on this. It’s not that – well there are 500,000 customers waiting and ready to switch from oil to gas. Really it’s a timing issue. It’s not likely that people go out when they see a $1,500 potential savings and say, well, I’m going to change out my perfectly good oil burner and put in gas. So we need to be very opportunistic and make sure that we’re in front of these people that we’re a known quantity, so when they do have an energy need, when they need a new central feeding unit, they think of us.

We do that through a variety of programs. In particular, commercial this year, we – I don’t know, I can get into too many specifics, but really emphasizing customer contact not through mass mailings, but really targeted contact with customers we know something about. We’ve done a lot of work on demographics. We’ve taken a look at – across when you’re in 45 counties across the state of Pennsylvania things are different across those areas, so the different drivers and different counties and such things like that.

So it really is getting in front of the customer making sure that they’re aware of what we offer and that we are there when they need. We changed out their oil burners in this case. Did that answers your question?

Unidentified Analyst

(Inaudible)

Robert F. Beard

All right. Yeah.

Unidentified Analyst

(Inaudible)

Robert F. Beard

When we are in proximity of a housing development and we pipe the development, we are well in excess of 90% capture of the market. You can’t say 100%, but it is close to 100% you can get.

Unidentified Analyst

Okay, thank you.

Jerry E. Sheridan

Well, good morning, everyone. And welcome to UGI Day and thank you very much for your interest in AmeriGas today. So I’ll take you through the business and overview of the AmeriGas business in general, take you through the new AmeriGas, what we look like post-Heritage, giving update on how the integration is going and wrap up with some financial numbers of course.

So let’s start with AmeriGas itself, 53-year-old business, great rollup story over 165 acquisitions since the early 80s. Three very large deals characterize the step change in the growth of the company, Cal Gas in the mid-80s; Petrolane in the early 90s; Columbia Gas in the early 2000s, and of course Heritage Propane this past year and public since the mid-90s.

And of course Heritage Propane, great story, another great rollup about half the size of the legacy AmeriGas business, but going to the market a little differently, 160 brands where AmeriGas had a very national brand, everything is AmeriGas as Heritage rolled up businesses, they would actually keep many of the high brand equity brands in the towns in which they operate it.

So what do we look like as a new company? We have 2,000 locations, we have over 8,500 employees, 1.2 billion gallons a year, we’ve got one of the top 10 trucking fleets in America. So this is a great new company serving all 50 states, we can reach any customer in any state including Alaska and Hawaii.

Okay. So, we really do believe that the bigger is better in this industry and here are a couple of the real competitive advantages that as the AmeriGas we have. Unmatched geographic coverage, so we got the best footprint in the industry by far, it allows us to have national businesses with our national accounts as well as our cylinder exchange business, but we have lots and lots of customers, nothing better than a business that has 2 million customers, so no dependents on any particular customer.

And in the distribution business that gives us an opportunity to very efficient roots, heavy customer density. We’ve got great geographic and end use diversity, which I will speak to. We’re in a lot of places, but our customers were actually using propane for many different things as well.

Great purchasing advantage; we’ve already seen some of that with the Heritage acquisition that we are now the largest purchaser of tanks and cylinders and parts and fittings and uniforms, so all these things give us great strategic opportunities to purchase better.

Our cylinder exchange business is a summer business, so that comes in handy, keeps our drivers in field busy during that period from Memorial Day through Labor Day. And we also have a nice fee stream. So there are certain services that we provide to our customers that allow us to charge fee, that have nothing to do with volume. We have an AmeriGuard, which allows us to fix the customer a price for the season. We’ll take care of the hedging, take care of all that for the customer in return for a fee.

We have a great track record, of course, of acquisitions. You saw the 165 since the early 80s. Acquisition and integration is just part of the DNA of AmeriGas. And a strong balance sheet is one of the key principles of the company and as you’ve seen over the years and you will see going forward.

Okay. So now let’s just take a few minutes and talk about the propane industry itself on both the supply and the demand side. So, we all have heard about the acceleration of propane coming out of the Marcellus Shale, now there is a race to create as much export capability as possible with such a huge difference between the cost of propane in the U.S. and the world price. The supply will obviously continue to grow, but we believe that we’ve reached an equilibrium at least in the near-term with a nice price tag between $0.90 and $1.

If we look at the chart, the red bars represent the demand over time. This is information from API. There has been about a 3% decline in the demand for propane since 2005. Now the interesting thing here is that in 2005, the cost of propane was $0.99; in 2011, $1.50. So there’s been a terrific run-up in the cost of propane and some of that is translated into the decline in the demand.

Forecasted retail demand; flat to slightly increasing in the near-term and we expect some economic recovery to overcome some of this 2.9% decline.

Okay. So how does AmeriGas win in this propane environment? Three key initiatives, national accounts, so we saw our national footprint that allows us to sell to one customer, give them one bill and serve multiple locations. We also have our AmeriGas Cylinder Exchange, so this is our barbecue propane business. we serve the entire country, 41,000 that we’re able to deliver cylinder exchange. And of course, acquisitions will continue to be at the heart of our growth strategy.

Okay. So national accounts, ACE, acquisitions, all these benefit from this great footprint. the red dots represent the old AmeriGas, the blue dots represent the old Heritage. So combined the best footprint in America and allows us to have these great national businesses.

If we go into 2013 with a real position of strength, we got a 15% market share, we are almost as big as our next two competitors. But the really nice thing about this chart is that you will see 60% of the market share is over 3,000 small companies that we can continue to rollout.

Okay. I spoke about diversity whether it’s a customer or geographic. So on the customer side, we are about 50/50 between residential and commercial end users. On the geographic side, if you look at our footprint we're nicely balanced with all four quadrants of the United States. So as Lon did mentioned earlier, it's always going to cold somewhere as weather comes through the United States, we're going to be enjoying volume in some part of the country. So again, another reason why bigger is better for us.

Okay. Now a little deeper dive on our two key initiatives. AmeriGas Cylinder Exchange, you see the chart at the bottom, this has been a real growth story in an industry that otherwise has seen some challenge with volume with both conservation and some price and economic effect. This is a growth business; this is a convenience offering where a customer can exchange their old cylinder for a new one. This has gained greater acceptance. We are moving over 13 million cylinders now and a nice compound average growth rate of 11%. We’re serving it from 41,000 locations nationally now.

National Accounts, so this also benefits from the footprints that you saw just a few minutes ago. We served over 200 accounts, 31,000 locations. Again, like AmeriGas Cylinder Exchange, this is a business that grows. And we can grow this 5 million to 10 million gallons per year.

Okay. If we talk about what is the cost of propane due to our profitability, and we’ve see – the blue bars here represents the cost of Mt. Belvieu Propane and the run-up in the 2008, the crash in 2009 and the subsequent run-up. The red line represents our margin per gallon that we are able to charge. But we are able to manage through regardless of the movement in the underlying commodity, our own profitability. So you talk about what does Marcellus do to propane? So far, it has allowed the cost of propane to come down back into $0.90 level, but regardless AmeriGas has the ability to manage our pricing in such a way that we can continue to grow our margins with inflation.

Okay. So it’s October 17, exactly a year from the day that AmeriGas announced that we would be buying Heritage Propane, so here is the update on where we are. And I think what you should take from this timeline is that we have done everything we said we are going to do. So beginning with the closing of the deal in January, we are able to finance it, $1.5 billion, all in less than 7%, subsequent equity offering in the spring to bring debt down to levels that we feel comfortable with going into 2013.

We had a rigorous management selection process with the objective of making sure we get the best management team possible and if you look at what we’ve done, we have 800 top managers across our 750 stores and at corporate. At each level, the management team is now either 50/50 or 60/40 in favor of AmeriGas, which was a larger company. That is where they are from.

So we truly have a blend of two different companies, which will be really transformational in the way we manage. We’ve raised again in how we manage in the field and that’s kind of an undollarized synergy of the deal.

In June, we finalized our new business model. You are putting two very large companies together. If you think about AmeriGas with now 6,000 employees, Heritage with 4,000 a total of 10,000, we are going to end up with 9,000 for 8,500 when it's all done, so a lot of change and a lot of folks used to doing fleet safety distribution different ways. We have to come up with the unify business model and that's what we did in summertime.

Then we moved to close down the corporate headquarters of Heritage Propane in Helena, Montana. We closed that office, consolidated all back office functions into Valley Forge. And then in September, we’ve finished the first round of store consolidations across the country. We always said this was the two-step integration, so we're going to have to freeze going into this winter which we have done now, get through the valuable earning season, and then come back in the spring with 200 additional blends. We always said that this would be a deal with somewhere north of $50 million of synergy and now we’ll put in stretch targets and achieve them.

Integration had a rigorous process; we appointed an integration management office, team of five or six folks that make sure that 17 individual teams did what they said they were going to do. So each team is signed to a particular piece of synergy realization and/or integration and all that is going well with all of our projects on schedule.

Okay, so much is going well with the Heritage acquisition. We've exceeded the synergy target, we're now looking at 60 million net synergies, the whole change management program and putting 8,500 people together to act as one company, new leadership team as I described with a great mix of both Heritage and AmeriGas leadership and putting two different cultures together on the course of nine months. If there’s anything good that is come of this warmest winter ever it is that allowed us to move faster and more thoroughly in the integration.

From other side benefits of the integration, the red slice of this pie represents the number of locations that are in excess of 3,000,000 gallons. So for AmeriGas before the deal 5%, now 17%. Larger districts mean greater profitability, we know that in our business, we've seen in the Heritage business.

When you have larger locations, you are able to have a more professional critical mass team, you can have distribution talent, you can afford to pay a manager more money, you have specialization between sales and administrative, you really have a great professional occasion as opposed to some of our stores of course have less than 1,000,000 gallons, it's a smaller workforce and can cause people to have to do multiple things. So continuing to grow this capability, critical mass is more profitability and organic growth in our earnings.

So our commitment is really a 3% to 4% increase in EBITDA overtime. These are the building blocks, starts with the front-line, delighting the customer, great customer service. We're putting a lot of money into retraining the combined new organization in great customer service. Now we are doing a better job on segmentation, 2 million customers we can't treat them all the same, we have to understand their willingness to pay their wants and needs and segment accordingly.

We got the biggest sales force in the industry so we've got a 180 sales professionals so we got more boots on the ground than anyone, the next nearest competitor we believe is just a little less than 100 and it goes down very fast from there, so we’ve got more sales coverage on the ground than any other company. Giving a lot of detail on ACE and National Accounts, they’ve been great growth engines for us in an industry that has been challenged with conservation but these are growth businesses and then of course acquisitions, we get lots and lots of run way to roll up that we began.

Okay, so goals versus commitments. 5% distribution growth, we have met that commitment every year for the last six years, 3% or 4% EBITDA growth we have exceeded that 5.6%, and so six and we have a commitment to all of our investors to have strong liquidity and a sound balance sheet. And we have a $525 million revolving credit facility lots and lots of headroom going into this winter.

Or just to talk about a few numbers this is our EBITDA since 2006, you’ll see in 2012, we have exceeded the midpoint of our guidance at $382 million you saw that announcement and the blue bar represents the midpoint of the guidance we’ve given you $630 million to $660 million that we are showing $645 million on these charts.

Distribution per unit, so that has grown you saw at north of 5% you can see we already met the 5% increased commitment every year. We have actually exceeded it because we had a two step increase in 2012, 3% when we closed the deal and then a normal 5% spring increase in the distribution. And coverage, you can see that 645 midpoint of our guidance we will be back to historical levels on distribution coverage of $1.3 million. So again our commitment to maintain strong financial situation.

And finally, our commitment to strong conservative financial management reflected in our debt to EBITDA. So this is our leverage you can see next year we are going to end up $645 million is our EBITDA 3.7 historically that looks great. You can see where we brought leverage down in preparation for some big deal and of course Heritage was the one. Better rating with Moody’s, finally rating with Ba2 all in long term debt under 7%. Great news on maturities, none large maturities till 2019, so we are in great shape with long term debt and I mentioned the revolving credit facility.

Our coverage goals 1.2 times, you see we will be 1.3 next year, 3.5 leverage overtime so we will be very close to that even in 2013 and continue to make sure our balance sheet is prepared for other opportunities as they come.

So now I’ll take any questions on AmeriGas. Hope we have the microphone.

Question-and-Answer Session

Unidentified Analyst

The propane industry has been a very eventful industry in the last 12 months. My question relates to the 60% Mom & Pop. What is the acquisition pipeline look like these days particularly having come through a very rough winter and what multiples these days?

Jerry E. Sheridan

Okay. So the landscape itself is great through this warm winter like we just had. Many of the independent marketers begin to get concerned because it can be a draw on their cash flow, so they’ll get worried and if still of age where they are thinking about getting out, it might accelerate that position. We were still able to get a 11 small deals quietly done this past year on top of Heritage. So our acquisition program continues, pipeline is strong, Heritage is no longer acquiring anymore and we believe others may be quite for a while too, so that we think demand gets great for our acquisition capability.

Oh, you need a microphone if we want to hear you.

Unidentified Analyst

Just in terms of granularity, when you think about the way you all did it on utility earnings growth, so when you think about how much of the 3% to 4% EBITDA growth will come from base growth in just the propane business if you are right that you can see some growth in volumes. how much are you targeting in terms of acquisitions annually, and then how much do you think you’ll come, may come from the National Accounts and also the Cylinder Exchange program?

Jerry E. Sheridan

We have not typically gone into detail as to where the 3% to 5% growth is going to come from, and I know if we did many years, we would probably be wrong. but what we have done and as you’ve seen there’s combination of those three has consistently allowed us to deliver the 3% to 5%. So all I can tell you is that with the Heritage deal, we’re seeing more and more internal organic opportunities to grow the earnings of the combined companies and acquisitions like this tend to give and give and give and give for years to come. so I think we’re going to find opportunity even beyond the National Accounts and ACE.

Unidentified Analyst

Yeah.

Jerry E. Sheridan

I’m sorry. Where you’ve seen we’ve been able to grow that really with inflation over time?

John L. Walsh

It is on the acquisition side. probably on average, we would think 1.5% kind of growth than EBITDA ahead of acquisitions. $10 million is your EBITDA that we think we can control, that is through the small program, 1%, 1.5% through that and on the margin, Jerry answered the margin that we think over time, margins move with an inflation and your operating expense. So…

Jerry E. Sheridan

Microphone, can’t hear you. You might be on, I guess you just have to talk about, so I can hear you.

Unidentified Analyst

Good morning. Congratulations first of all. If I want you take you back to the map that you showed us of the United States, and if you were to look at the density, you mentioned that the smaller businesses are roughly about 60%, but if we were to look at the locations where you are, and where the larger opportunities to take you to the 3 million gallons per district center and whatever that volume that you are looking at, what is your market share vis-à-vis the small distribution competitors in those areas and how much room do we have vis-à-vis either market growth and/or acquisitions?

Jerry E. Sheridan

Yeah, well, that’s what’s good and what’s bad about our situation is that depending on the town, we still have anywhere from three to 12 competitors, so it depends on town to town to town. But I can tell you in just about everyone of our 750 stores, we can continue to do acquisitions and not be the only game in town by any stretch.

Unidentified Analyst

And is this fair assumption that over time the competitive nature of the distribution gives you, has given you already a leg-up and with Heritage it’s now 20%, 30% vis-à-vis the competitor?

Jerry E. Sheridan

It depends on the location, right. But in some places sure, I mean, we’ve gone up in our market share in that particular town by 30%, 40%. It will always be competitive though, it’s a very low barrier entry to business, you’ve seen from the numbers, we’re letting a fair number of people go that are propane people, so that’s what they do. So we’re always just mindful that new competitors do popup.

Unidentified Analyst

Thank you.

Unidentified Company Representative

Can I just add to that? I think one of the things Jerry mentioned is, these opportunities kind of give and give and give over a long period of time and he mentioned the importance of rolling up districts and one of the opportunity for us is to utilize technology, utilize our scale, so advanced logistics technology, telemetry, if we go forward, three years five years, a lot of it is within our control. We get more efficient, we lower our cost to serve customers. We become more competitive. So it’s a great opportunity for us, it extends over a long period of time.

Unidentified Analyst

Just follow-up to [Yves] question about the margins, you know, you don’t want to break down to 3% to 4% going forward, because you just be rolling the forecast. But how about going backward, how much of gross margins gone up, because my model it’s more than inflation. I don’t know how – can you talk about sort of your pricing versus your competitors, what’s happened with gross margins, and what happened with net margins historically and kind of compare that I’m sensing a story about how synergies and things will be a more part of that, but that’s a net margin story. So could you just kind of talk about that a little bit?

Jerry E. Sheridan

Yeah, they have been – had inflation over time. There was great margin expansion for the whole industry in the year when propane improved crashed. So I mean, it spends on the period of time, you’re looking at, but margin growth is certainly moderated recently. So that was a nice step change and that may have led into and depending on the period maybe it’s more than inflation for some small place. AmeriGas will always be a premium price company, that’s we believe, we provide greater safety, capability with customer. So that all of things that we believe we’re the top Sheldon propane company. So over time, we expect that margin expansion not to be any greater, than inflation. And there is some dynamic change in the industry where we see another huge crash in the cost of propane, unlike all our competitors’ profitability would come down to purse (inaudible) any industry.

Unidentified Analyst

And just on the cost side, just talking net margins in terms of how much of that you put up a bottom line and maybe its weight for the midstream discussion, but just in terms of on the supply side in addition to cash or operating cost side.

Unidentified Analyst

So you’re just saying what's happening to your OpEx per gallon and something like that…

Jerry E. Sheridan

Yes, just want to understand.

Unidentified Company Representative

Well, I mean that's what we come back to the deal keeps on giving. So as we continue to find opportunities to further consolidate within our own operations, we would be looking for operating expenses to continue to be a less than inflation. So our objective is margins there OpEx something less than that and more goal to bottom line.

Unidentified Analyst

And how’s that compared with history. Have you been able on a per gallon basis to lower your costs or keep your cost below inflation?

Unidentified Company Representative

Not over the last several years there, because our OpEx, we have to remember includes diesel, and diesel has just run and so that has prevented us – almost every other line item that we've been able to handle it, but that's a big piece of our OpEx and you can only overcome that with fuel recovery team…

Unidentified Analyst

Well, I have these – they have these trucks that run on propane and natural gas…

Unidentified Company Representative

We're working on that.

Unidentified Analyst

Okay, thanks.

Unidentified Company Representative

In terms of the future just refer our future dynamic for I think Jerry [maintained] a good picture. And I can pay the really simple thing. You get a local density, local scale is really critical, because for example as Jerry pointed out the smaller district you might need four trucks there to deliver and your efficiency of delivery is not great, because you're driving longer distances. So your fixed expense at district is your driver, your vehicle cost, and it depending upon the density of customers you're driving longer distances you have fewer deliveries and you’re less efficient.

To the combination of technology that John referred to and broadening the geography and density of your customers all of us suddenly began to look like our dream which (inaudible) and Antargaz for example they have 300,000 customers, it’s a size of Texas, and the density they have and the operating expense per unit that they have is much lower, because of that density and the uses of technology that they have.

So in the ideal world if you think about operating expenses when you combine a Heritage within AmeriGas, you get this immediate benefit in terms of one clerk in an office can do that much more work, because of the synergies that are involved, fewer divers, because of the density. and over time as you deploy technology – routing technology, metering on customer tanks, at the end of the day, telemetry, which is out there today, which we’ve deployed in certain areas.

You get significant expense synergies over time that will fall to the bottom line. Nirvana for this industry is truly something on a customer’s tank that tells a supplier how much inventory is in the tank. the hardest part of this business is figuring out how much inventory is in someone’s tank. So do you know how much inventory is the tank is, you can deliver at exactly the right time instead of guessing when you should deliver? Secondly, if you have telemetry, you can build the customer monthly on their actually usage and you begin to look like natural gas utility.

so instead of three times a year getting a $1,000 bill, all of the sudden people are paying $100 a month or $175 a month. And the usage shock that comes from higher prices, which Jerry described before it goes away. And so over time, the density that comes from acquisitions, the technology that will be deployed is going to continue to drive its operating expenses down in these businesses. And that’s the real benefit over time.

Unidentified Analyst

Yeah. That’s what I wanted to get, because everyone looks at the $60 million numbers as a one-time thing. I’m just trying to understand when we talk about growth numbers that agree to which your budgets Lon include those types of mechanical abilities to lower cost, because it's still going to go up, they'll just go up less than inflation or less than the rate they’ve had in the past.

Robert F. Beard

Absolutely right. We have that, in fact and the interesting thing in these budgets and things that we do is, John really said it and Jerry said it. Somehow this is undefined because we are at a new level of scale that the industry has not seen before. So you got into the secret meetings. In AmeriGas, you would see these guys chopping it a bit to deploy the technology and to seize the annual, they could get the things giving that Jerry referred to in the future. So that will be really helpful to the industry and for us. Thanks.

John L. Walsh

One more here. Yeah.

Unidentified Analyst

Just in terms of the Heritage blending, of the 200 locations how many locations have you blended already and are you still comfortable with that 18 months timeframe that you initially put out and also what's the main driver for the increased guidance and the synergies?

Robert F. Beard

Okay so the – I'll answer the last one first. The additional synergies that we are able to achieve really came from almost all facets, so we got some from the field, some from the corporate headquarters consolidation. So we really challenged all those 17 teams, I described, can you find us another 10% or 20% and just about all of them came through on that piece.

The 200 stores that we’ve basically frozen integration activities that will pick up in the spring, some of the consolidation of those stores has already been done. So in some cases we have one manager in lot of those stores. We've completed 70 of them. The 70 are done, 200 are kind of partially done and really the big advantage we have in the spring is just to get the consolidation locations onto one system and we just didn't want people not being familiar with the system they were working on for the valuable winter earnings season, so we are waiting. But that’s the last piece. We’ve done nationally all the management changes that we are going to, but now this is just about putting stores together, eliminating rent and those sorts of things.

Unidentified Analyst

Will it be done by the end of next summer?

Robert F. Beard

Oh yes, at least spring.

Unidentified Analyst

In the spring. Okay, great. Thank you.

Robert F. Beard

Sure.

Unidentified Analyst

How big a deal is the new propane supplies in terms of, are you doing anything differently on supply procurement and how big an advantage do you think you can have just by – sort of realized you are in Valley Forge, but does the Marcellus really mean a big game changer to you in terms of supply procurement?

Robert F. Beard

Well, we hope it does. We are working on a number of projects that may do just that, but I really can’t give you any details that’s solid at this point. But all I can tell you is, if you look at where Marcellus is and you look at our propane demand through the neighboring state just that whole northeast region, we are huge. We are a big consumer. So it’s us coming up with a way to play that game properly and we are working on it.

Unidentified Company Representative

And just to amplify a second and then we’re going to shut it down and then move on. One of the things we’ve noticed in the industry is the midstream players taking in larger and larger share of margin. If you go back several years ago, you basis used to be Mont Belvieu plus 10, Mont Belvieu plus 20, it’s kind of like Mont Belvieu plus 20 now. And so you got concentration in the midstream side and a run on NGLs that has created profit opportunity for the midstream players and we are kind of looking at that and saying it’s not right from our standpoint because they are taking margin not only away from us, but they are forcing higher prices on our customers and the higher the price the less the consumption because there is a tie between high prices and likely consumption.

So we are working on a number of things as Jerry said to right that balance I would say a little bit between the midstream players and us. And if it entails us taking advantage of Marcellus Shale activity that would be helpful on the midstream side of things for Brad and benefit the propane side, we’ll do it. And again the beauty of UGI, one and one is going to be three because we have a midstream organization that works in the Marcellus area and we got a propane business that could use the NGLs as well.

And so we are exploring those things but there is room for with our new scale, there is room for us to do better on the purchasing side. Yeah, obviously it went from Mont Belvieu plus, we’re going to raise Mont Belvieu plus 10, 12 to Mont Belvieu plus 30, so let’s say there is $0.18 in there. Every penny for us is 6 million bucks in margin.

Jerry E. Sheridan

$10 million.

Robert F. Beard

$10 million. And so obviously to the extent we can rustle several pennies away that becomes meaningful overtime. Again, not happening tomorrow but it is something strategically important not only to us but the propane distribution industry that we look at that and not the midstream guys, buzzing our customer prices to go up. Yeah, 300 million gallons demand in the northeast alone which could be served at the Marcellus.

John L. Walsh

Okay. We are going to have to move on to the midstream and I mean, to the International Propane panel discussion. As we get set up, just don’t leave the room, just take a minute so that you can stand up and stretch and we’ll get the front setup.

Okay, I think we’re going to get started. We’ve got the panel together. While you’re getting seated, I’ll just make one quick general comment on acquisition, integration because we touch on and we just talked about integration programs for acquisitions. And it’s relevant to the International Propane business, it’s been relevant in our history in Utilities.

We do take a long term kind of forever view on acquisition, integration, so we have sort of a Phase I integration and Jerry was talking about that. But we keep – we’re very mindful about mid and long-term opportunities in terms of acquisition, integration which is so critical. In Heritage case, we’ve done it with our Utilities acquisitions, we are four or five years later we are taking steps that we outlined at the beginning to further enhance the value brought by the acquisition. We will do the same thing with Heritage. So it’s not a short-term view on integration, it’s a long-term view.

Welcome to the International Propane panel/Town Hall meeting. What we like to do today is, as Lon said at the outset, one of our primary objectives today is to provide you with greater insight into key elements of our business. We all recognize that you probably don’t spend a lot of time thinking about propane distribution in Europe other than when you’re talking to us or thinking about UGI. So it’s great opportunity for us today to outline our business, provide detail and to give you a greater insight into what we think is a very, very attractive business and a business that's really well aligned with UGI from a strategy standpoint.

I'll be joined by the business leaders, you'll hear from them individually, from Eric, Reinhard and Neil on their businesses, what I will do is, provide you an overview.

Lon talked at the beginning about the value of the common attributes that cut across our businesses and one of the questions we get asked a lot is about European propane and how it differs from propane distribution in the US. Sometimes we give a short answer and say it's really not that different, we thought if we might expand on that a little bit, expand on it and provide you a lot more detail into why we believe that propane distribution in Europe shares many, many common attributes and aligns really close to what we do in the US.

From any perspective as you look at this business the alignment with propane distribution between the US and Europe is strong. When we look at customer segments, we share common customer segments, the one outlier is motor fuel which tends to be in certain markets in Europe, a highly developed segment not so much in the US. But other than that, the customer segments we serve at the core that drive these businesses both in US and Europe are the same.

Competitive landscape is one where clearly there are significant differences. Jerry just talked about the fragmented market in the US over 3,000 propane distributors. In Europe as you go country-by-country, market-by-market, you tend to have fewer competitors, you might have three, four or five competitors in a geography in Europe. So that's the significant difference, doesn't really significantly change our strategy in terms of execution, but clearly it's a different element in terms of the structure of the market.

We used to historically talk about pricing and margin management as the basis for difference between the US and Europe, that differential in terms of how we execute our strategy has really changed significantly over time. So if you look at unit margin management, pricing strategy, execution in the U.S. and you compare it today to what we do in these markets in Europe, they are very closely aligned. It’s a dynamic pricing environment; as the commodity moves, we move with the commodity, we look closely at our units margins. And they are not absolutely aligned, the U.S. is still a little bit more dynamic in terms of frequency of price changes, but that gap has narrowed to a great degree. And the tools and approaches we use for unit margin delivery in Europe clearly mirror those in the U.S., the types of reports that we look at, the way the team assess this unit margin opportunity is very closely aligned.

And lastly and most critically, when we look at the competitive advantages that we need to focus on and leverage across our businesses are common. The critical things in terms of safety, customer service, density, we just – well, I’ll touch on the importance of density and for example, the advantages we have in France is based on the density of our network there, common. That’s common ground. We get huge value

Within Europe, as the business teams work together across U.S. and Europe as we share best practices, it is fundamentally the same business as we look at our customers, as we look at our operations and what we need to do to execute as we look at delivery of margin, unit margin management, it is absolutely [essential] business. And from a UGI Corporation standpoint, that’s critically important. We can gain a lot of value by leveraging that common ground. It’s fundamental to UGI Corp. and it’s fundamental to our – the success of our propane distribution businesses.

So a little bit more detail of course for all this is good background here. When you look at our propane businesses just from a scale standpoint, we’re now a significant business, a business of significant scale in Europe. It’s about 600 million retail gallons in Europe versus the 1.2 billion in the U.S. As Lon mentioned, we are active in 16 countries that’s changed significantly over the last three or four years with the acquisitions. You see the brand, our identity in various markets in Europe. Antargaz across not only France, but the Benelux countries; Flaga across, where the core Flaga market is now across Eastern Europe; Kosangas, gas which is up in Scandinavia; and AmeriGas, which is our brand in Poland. So we went through a branding exercise in Poland, looked at a lot of alternatives, AmeriGas is a great brand, has been well received. and finally, you’ll hear from Neil that AvantiGas is our friend, a new brand that was created in the UK.

Again, very much common ground; I draw you to the volume segment, a breakdown that’s right at the bottom of that slide. Autogas is an outlier, which is really an opportunistic business for us. When we see an opportunity, we take advantage for that, that’s really focused on certain markets in Europe; Poland for example is a significant autogas market. But when you put autogas aside and look at the balance of that sort of segmental breakdown, it just reinforces again how similar all of our businesses are and the strength we draw from that.

We get a – asked a lot of questions about Europe. And as UGI, we look at Europe through our eyes; and for our eyes, Europe is the 16 countries where we operate, which is Northern and Central Europe. And we look at that economic environment and look at the factors that impact demand for our products and services, we see an environment that is very similar to the U.S., there’s some regional differences market-by-market.

but in general, we’ve got certain markets that are low growth brands, lower growth UK, lower growth are picking up, what we call modest growth in emerging Europe. We’d love to have 3% GDP growth in the U.S., that’d be great, since it’s about moderate growth. So we see some markets within Europe that have pretty healthy growth, and you’ll hear more from Reinhard about Poland, which is a pretty attractive market.

The good news for our business is that what we sell delivery of energy is a absolute requirement. Our customers need the products and services we provide, they’re not discretionary, so that doesn’t make us completely immune from economic cycles, but it certainly dampens those economic cycles.

So as I said, when we look at Europe and the operating environment in Europe, we see conditions and opportunities that very much mirror the conditions in the U.S. And how do you response to that? We respond by focusing on best practice, execution whether that’s on the operational side, customer service side, safety side and that’s nothing new for us, but in more challenging times when things slow, you work harder to find growth, you make sure you’re very specific where you see the growth opportunities, and you also make sure you have a specific plan for executing and delivering on those growth opportunities. And that’s the discipline we have that serves you well in any economic environment and it’s particularly important in a challenging economic environment.

Jerry just took you through unit margin management for AmeriGas; this is the Antargaz margin history. It’s a similar story. You see our ability over the long-term to increase our unit margins, but being very focused by staying on the movement that takes place as commodities rise and fall, and over time Antargaz has a strong track record as you can see in terms of delivering enhanced unit margin performance.

The broad-based goal over an extended period is the same way and that Jerry mentioned is basically keep up with inflation in terms of building unit margins over time. You do have situations such as in 2009, you can see the extraordinary drop there in the plats average cost that creates a short-term opportunity and you can see the margin expansion there, you come off of that, but you get back onto that long-term curve. That’s an extremely critical discipline that all of our propane businesses have.

I mentioned the evolution over time over the last five or six years in terms of our execution of unit margin management across Europe, it’s what we bring to the acquisitions and it’s just an excellent example here. You show this chart, you compare to the chart Jerry shows and it’s exactly the same message. A lot of work goes into delivering that, but it’s a fundamental part of how we execute in this business.

You can hear a lot more about these specific opportunities from the business leaders, but when we look across Europe, we see a nice range, a very healthy range of growth opportunities from heating oil conversions to penetration of new segments with in certain geographies.

In some markets, we are looking at channel strategies in terms of going direct to customers versus using distributors. And I think what you see when you step back, you look across our activities now in 16 countries, we are looking to sort of refocus, reenergize, and enhance our growth initiatives in our existing businesses that we’ve been managing for an extend period of time and particularly when we acquire new companies to make sure we bring that focus on growth to those newly acquired business.

And we found that those businesses had responded very favorably and we really feel positive and optimistic about our ability to continue to grow this business and to take advantage of the growth opportunities both organic and acquisition growth across all of Europe.

So with that, that’s a lead into the business leaders who will take you through the details on the businesses, we will then come back at the end, I mean, in my Candy Crowley role, I’ll fill the questions and let the folks answer them for your. So, Eric?

Eric Naddeo

Good morning. My name is Eric Naddeo. I’m the CEO of Antargaz. And through some slides, Antargaz is – to present to you the activity of Antargaz. Antargaz is present in France as a LPG and a Nat gas player and in the Benelux as a LPG player.

So for France, what is the position of Antargaz in France? We are one of the largest LPG distributor in France. We have a large customer base around 200,000 bulk customer, so we have spoken about density; it is the figure to prove it. We did over around 300 million gallons a year. About the cylinder which delivers the main part of the activity of the company; we have 3 million cylinder customers. And the market share of the company in France is 24%.

We have some advantage on the market. Perhaps the main point is the supply structure. We have an independent supply structure. It’s a very good thing for us. And to give you a figure about this, you must know that we are involved in four of the six import brands in France, so it’s a good position. The customer density, we have spoken about this, so far what it means, it means a better efficiency mainly for distribution to improve – to reduce our cost of distribution.

We are a strong logistic organization. On this map, you have all the industry owned plants we have in France. We have also the Benelux, but for the France, if you count the number of plants, you will arrive at the number as 27. So with this number, we can say that we have one of the best industrial networks in France and with the advantage I mentioned is the supply front.

What we are focused on? First of all is the customer satisfaction of course. To do that we make some innovations and we see that on coming slide, and we are developing new market segments, so basically for [trans] acquisition.

Some words about the Benelux, Benelux for us is a result of the share acquisition in 2011. So by this we consolidate supply gas positions. We have a strong position both in cylinder and bulk segments. The amount of the volume we deliver is around 50 million gallons for the three countries of the Benelux, Belgium, the Netherlands and Luxembourg. Our position on this different markets, we are the market leader in Belgium, in Luxembourg. The significant share in the Netherlands in fact we are the second player on this market.

The portfolio is over 35,000 of bulk customer, so a good (inaudible) to run the deliveries in the three countries. And for the cylinder network, it consists of more than 1000 cylinder.

Of course there are synergies between France and Benelux for instance, the marketing. We have the same red name for the four countries. We developed together the different product. Of course we manage supply industry old plant and as you speak together to find savings for instance for the deliveries because of true borders. We can use both depots in the two countries with France in this case and Belgium. And we develop new market for instance nat gas.

What are the potential growth for us in the Benelux is the heating oil conventions you must know that in Belgium and particularly the share of the heating oils is important around 45% of the population use heating oil to heat. So for us, it’s a good target. And we have a potential growth is the nat gas, reach the feedback for France and we see the nat gas position later.

For the back in front about our position on the market, as I said we have a strong position combined with steady profitability, and which leads us to our ambitious growth programs. The profitability is the result of the stability of the customer base. If you look at for the bulk, we have long-term contracts. We have a low churn rates at 3%. It’s a good one for us. The duration of the relationship with our customers is strong 15 years, so it’s a good point.

For the cylinder, we have developed through the year, close links with the supermarket chains. We are important players on this segment. We are present in more than 7,000 point of sales. We developed a successful partnership with the Carrefour Group, which is an important one particularly in France of course.

And now we have with the red cylinder, you can see it’s a composite cylinder, it’s a new product. It’s the result of the innovation for us. So we are by this complete range of products to meet the consumer need. From the basic product to the high tech one, and this red cylinder we have a range of 10 kind of cylinder to cope with the customers.

So nat gas, the Antargaz market, two years ago and for us we think that it’s a new and promising market. We are authorized by the government in 2009 as the new natural oil gas player. It’s necessary to get the approval of government to do this activity. So we have this agreement.

We are the only propane company in the country active in these gas activity, the nat gas activity. So it’s a special fund, a good fund for us to improve our portfolio of customers. We are focused on the most profitable segment of the nat gas market in France, it means the 700,000 small C&I customer. We are in fact similar approach in the U.S. and today we are over 4 million dekatherms as shown in 2012.

We have to do that to develop it – developed strategy of sales, marketing, (inaudible) that supply and the IT resources to assure a steady growth. So we can say that about perspective, in a fully deregulated market, Antargaz, I think that should be able to convert approximately 10% of the market available for the alternative nat gas player in France.

What we expected about the EBITDA, we expected a contribution between €2 million to €5 million under the next years. And I can give you an additional information is that, we have reached now the breakeven point of this new activity for us.

Back to the market position for the LPG. In fact, we are I speak about the position of Antargaz, we have a good market share on the market, I spoken about 24%. You can see that is the case for two segments, Butane Cylinder and Propane Cylinder, we are around 24% on the two segments, and you can see that for some years we came from 22% or 21% to now 24% so it's a good position. And during this time in fact, we keep good strong margin on this segment, which are the main segment for us on the chart. The more contributive segment for Antargaz, these three segments Small Bulk, Propane Cylinder and Butane Cylinder is more than 70% of the gross margin of the company, and you can see that the unit gross margin is steady.

So to conclude, we said that Antargaz is a strong, well-known brand name now. We have significant market share of the French LPG market, but in the Benelux II. We have strong position in all segments, segment for us is bulk on cylinder. We focus on innovation of flexibility and adaptability to keep going improving on these different segments of the market. And you continue to seek new growth opportunities both in the LPG and the nat gas market. Thanks.

Reinhard Schödlbauer

Yeah. Hello, good morning. My name is Reinhard Schödlbauer, I’m the CEO of Flaga Group. We are a leading LPG distributor in Central Eastern Europe and also in Scandinavia covering now 11 countries out of the 16 in Europe for UGI. We are selling on an annual basis of about 200 million gallons and we operated about 900 employees in over 11 countries and headquarter is in Vienna in Austria.

Our product portfolio is mainly concentrating on bulk, which is almost two third of our total volume and we have also packed business. We are still in the 21% and as mentioned earlier, autogas in Eastern Europe is although a big deal which covers here although as the main part is autogas for vehicles and the smaller part is pack business for work lift cylinders.

The history of Flaga, it was a family-run business. It was founded in 1947 by Mr. Bauer and they entered into the bulk business in the ‘60s and before the end of this entry, last entry UGI acquired Flaga, which was at this time operating in Austria, Czech Republic and Slovakia current three countries, selling about 30 million gallons at this time.

Then we had some significant steps in growth, some had been organic growth where we established for instance in the new subsidiary in Switzerland, which is quite successful at this time already, and we had some major steps; one was in 2006, we formed a joint venture with a German company for Eastern Europe where we bought the remaining share then in 2008, end of 2008 of the joint venture, which means we're running now 100% of this former joint venture.

And then two further big steps in 2010 and 2011, the acquisition of Shell Gas in Hungary and in Poland, and the DT operation in Denmark, this was 2010. And 2011, another big step is where we bought the Shell Gas operation in old Scandinavia that means covering Denmark, Norway, Sweden and Finland.

Some information about the recent acquisition, which was taken place in 2011, this was the Shell LPG business in Scandinavia. As mentioned before, in Denmark, we already had taken over the BP operation in 2010, integrated this operation into our group, and a year later we got the Shell operation. So that we have two major oil companies coming together in one group with a different kind of philosophy, although it was a biggest challenge for us to get them our philosophy, it means we have more focusing on customers margin, operation expenses and this kind of things, they had been more focusing on let’s say processes HSSE which we also doing, but it’s not our main concern.

We blended the two businesses together and we made one let’s say operation out of the two operations, and we could achieve about 25% headcount reduction in total. The operational and the integration, we can see there is now complete after one year time period, as an end of August everything including the legal matter was concluded. What we are very proud of is that we didn’t loose any customer to the competition in this time period. We even could increase our market share in certain countries with this. Yeah, and what we also, what we tell our shareholders [today] is that we will fulfill all the promise what we have done during the pre-acquisition phase in the business plan.

Something about Poland, because we see the significant growth opportunities; first, to Poland, you’ll see this is – this green country there in the northeastern part of Europe, it is size wise similar to the three states of Pennsylvania, New York and New Jersey to get all close to 40 million people living there and covering this 120,000 square miles. The economic data is maybe a little least living; it’s not minus 2.5%, it’s plus 2.5% actually. Poland although hit in the – at the peak of the first financial crisis, back in 2008, 2009, they’ve always had positive growth rates, they’ve never had negative growth rate unlike to other countries in Europe or somewhere in the world.

Debt to GDP ratio with 56% is a quite healthy rate, and its expectation is that in 2004, ‘14 it will be down to 50%. The market in Poland for LPG is the third biggest market in Europe. they’re selling their total 1.2 billion gallons, a big part of this is autogas, because 10% of the total tars, they have the number of tars available in Poland are running on LPG.

The market consolidation is underway. we see there are still some strong local players, but they’re getting less and less, because the entrance barrier in Europe is higher than what we’ve seen in U.S., because of safety regulations, legal requirements, and so on that it disposes let’s say some consolidation, and we are also taking part of this consolidation, because we took over as we had the first footstep in Poland with the joint-venture back in 2006 with Flaga. And then we took over in 2011 as the financial year 2011, the Polish operation of Shell and also planned them to get and other players also did similar things. So as we see accelerated consolidation of the market in the last two or three years.

Our size currently with UGI Poland is around 65 million gallons, which covers approximately one-fourth of our total annual volume. We see in Poland significant growth opportunities, because since years now, we have really the highest number of new bulk installations, and this is mainly in the residential area. But we also see a strongly growing commercial, industrial segment in Poland, because Poland is still what we consider a rapid developing economy. There it’s coming from the former Soviet Union. It became member of the EU back in 2004 and since this time we see growth rates between 3% and 5%. This also leads to a lot of new business as a commercial business and industrial business. At the country side where LPG is a strong source for energy.

We also apply a similar system what our quality in France are doing with pipe networks and communities or new housing developments, which we as Flaga a very successful business. We are here in this segment, this growth segment, the market leader in Poland. And additionally, may be this is a potential for the future, Poland contains the largest shale gas field in Europe. In the development it’s some years, I think behind U.S., but it will come with some potential there.

What are our midterm growth opportunities in our service territory? Of course, as similar like in U.S, and all the other areas would be in Europe, increased to customer density in our existing market. This will utilize us to get lower operating expenses, higher margins and better opportunities for increasing our results. Customer conversions from heating oil is becoming increasingly important, we are very successful in heating oil conversions to LPG in Scandinavia. Mainly in the commercial business, this was started three, four years ago, and we have two big [arguments] there for converting oil to LPG. One is price, and second is environmental friendly this is a big issue in Europe. In Scandinavia heating oil most probably will be banned from 2018 onwards for new installations.

We see also in the eastern European countries lots of opportunities for organic growth. I’ve already have mentioned Poland is a good example for this where we can take new market segments. We are also looking for some additional acquisitions to increase our market share in our existing – at our existing foot print. And we are also looking for further expansion in some new markets maybe Germany, and maybe some other countries around. Now the potential volume for our growth is additional 100 million gallons of the midterm perspective.

Okay, thank you.

Neil Murphy

Thank you. Good morning ladies and gentlemen. My name is Neil Murphy of AvantiGas. I’ve been the Managing Director of AvantiGas for almost four months now. Prior to that, I’ve spent more than 28 years in the industrial gases business. Taking commercial general management to marketing roles based in North America, Europe, some work in the Middle East and Israel.

The four things I’d like to leave you with, that I’d like to touch on are transition, best practice sharing, prioritization, and the biggest is really opportunity. AvantiGas came from Shell and this week we finished our first year as AvantiGas, and we supply in liquid form, liquid bulk form all the segments of agriculture, commercial, domestic, industrial, and importantly aerosol which I’ll touch on later. The 130 U.S. gallons business of which 42% of that volume goes into our bulk market, and 57% goes into the wholesale market, and we have a nominal presence in autogas. We have 13% of the bulk LPG market share, but we also have a national position, national UK position in terms of distribution and therefore we have nationwide coverage.

Anybody who’s ever asked the question what is difference between Great Britain and the UK can see on this map. What you see here is the black dots represent the coverage of our customer base. Now for those who don’t know Great Britain is defined as Scotland, Wales and England, and the minute you include Northern Island, you can then call it the United Kingdom. The trivial pursuit answer if you ever asked the question, I know that answer. But the point, I raised it is, because it’s again about opportunity. So the first year, we’ve been going through the transition from Shell to AvantiGas and now we’re looking at all the opportunity we have. What you can see is that in Scotland, we have the facility of Mossmorran, which is in the east and we have a very strong position in taking the deodorized LPG. The reason that is important is because that facilitates LPG to be used in the aerosol segment. About third of our business is providing LPG to the aerosol segment. Once CFCs were banned as a propellant in that market, deodorized LPG has moved in to take that space. As I said, a third of our business is in that particular sector.

As you go further down and you look at England, we’re well positioned in England. You can see a scattering of the customer base in England. We also noticed in South Wales, we’ve yet to have much coverage. And so when we look at opportunity, we have the geographic opportunity. Without even mentioning Northern Ireland, which as you can see there is no – none of our customers are based there. We are AvantiGas UK.

Also Ireland, Ireland is the home front of our two major competitors. We don’t play there. And so, geographically there is opportunity.

Let me talk a little bit about the residential, it would be the domestic market. The UK government recently put out a paper that said, there were 4 million household to a off grid. Those 4 million household in the UK are using either fuel oil or LPG. Our estimates are that about 200,000 are on LPG today. The point one is that there was tremendous conversion capability and opportunity to go from fuel oil to LPG, as Reinhard mentioned in Central Europe and also we have about only 1% of the LPG market.

So in summary, I mentioned about best practice sharing, AvantiGas is wholesale liquid bulk today. We have some tremendous opportunity to share from Antargaz and Flaga from AmeriGas. As we look at these opportunities, which then need to be prioritized not only into a strategy but more importantly into the tactical plan that will deliver the strategy.

And for example, the cylinder market, we don’t play in the cylinder market but there are opportunities with composite materials. As Eric mentioned, they’re very exciting, we need to look at. Obviously AmeriGas is a veteran and a tremendous player in that cylinder market. We have one piece of paper. So best part of sharing, by prioritizing our plans, by looking to the new geographical opportunity, we see that we have a very bright future.

Also looking to aerosol, coming back to aerosol, we really need to question, are we obtaining most value from that segment and this is where we can often share with our sister companies to see if there is a play that they can also make in this particular segment. And in fact that’s something that I picked up with Paul and with Jerry and we will be looking at that as an opportunity where we have hopefully sharing on an export basis rather importing all the tremendous ideas from the family.

Lot’s of acquisitions, we will be looking at that. As you saw from the pie, it’s about 10% of the market, it’s still independent. So that will be part of our movement going forward, to look at those acquisitions that take us into some of these new geographical areas and maybe help us promote into the domestic residential segment. Thank you.

John L. Walsh

Thanks Neil. Just a couple of quick comments before we open up for questions. Hopefully, as we went through and particular the business specific reviews, you saw two things, you saw – are you gaining more insight into the specifics around these three businesses, but also you saw the common themes that came out as each of them talked about their businesses and the sharing of best practice across Europe, sharing the best practice with America comes back to that common grounds, common attributes, elements that’s so crucial to our success moving forward.

And secondly, we talked about the success of the acquisition integration. We’ve done a great job across Europe in integrating the acquisitions that have taken place over the last two to three years, but another key element of those acquisitions that are critical element of our success moving forward is that in addition to that, we’ve significantly strengthened our leadership team across Europe. and that was the theme that Jerry mentioned as well. One of the great benefits of the Heritage acquisition is what it’s done for the quality and the breadth and depth of our leadership team in the U.S., the same thing is absolutely true across Europe. In addition to gaining the benefits of increased scale and synergies through these acquisitions, we significantly have strengthened our leadership team in Europe, so it’s a great, great attribute and win for us, and puts us in great standing moving forward.

With that, I’ll open it up for questions that anybody might have about our European business.

Question-and-Answer Session

Unidentified Analyst

Thank you. It’s kind of a cross question, so it might be best for you John, but that it looks like great growth opportunities on the volume side filling in et cetera. The question I have is more on unit margin and unit margin progression and this may be an over simplification, but we’ve always kind of thought of Antargaz gas mature and stable, Flaga emerging as the GDP per capital grows over time et cetera. We might have the ability to have Flaga margins approach Antargaz. So the question really is, maybe you take it over 10 year timeframe, but is there the possibility for unit margins to grow at a rate that is greater than inflation, relative to recent history, because of this kind of secular move in the emerging countries, is this something that you all are expecting to see where should collectively as investors we kind of really think of it as just sort of a blended rate of inflation in the growth?

John S. Iannarelli

Yeah, the way we think about unit margins whether it's across Europe or whether it's within the U.S., they're competitive markets and then in to some degree for most of the segments are local markets. So first of all you have to deliver exceptional service, you have to be competitive particularly from a service standpoint. And then we strive to over time deliver that consistent growth in unit margin, so we don't necessarily cap it at inflation, obviously we want to distinguish ourselves in the customer’s eye in terms of the service and the quality of service we provide. We can turn that into an advantage from a customer’s perspective, and enhance unit margins by virtue of either superior service, better packaged goods and services, we’ll do that.

So we have sort of a long-term objective that tracks inflation, but when you get specifically done into markets or in the case of Europe into countries there’s certainly opportunities to do more, and then particularly in Europe, when you look across the various geographies and markets there is quite significant difference in unit margins and you've got some markets.

And Reinhard talked about Poland that's kind of early-stage evolution really of that market, so there could be some exciting opportunities there and that’s coupled with us taking a hard look at our channel strategies for example in Poland and transitioning customers from being served through a distributor to being served directly.

So there's many sort of roads we can take to enhancing unit margins and for example, restructuring our channel strategy is part of that because that would deliver accelerated unit margin growth as we change how we service those customers. So the inflation is sort of a high level target or objective on a day in day out, year in year out, we are executing and raising the bar as appropriate within each market and setting targets for unit margins. So we don’t see that as a cap, we see it as a nice objective.

Unidentified Analyst

Thanks.

Unidentified Analyst

Could you touch on the balance of trade and supply of LPGs in greater Europe and is it basically a crude based pricing?

John S. Iannarelli

Across Europe, certainly it’s dollar based commodity. In Europe, the structure of energy pricing in Europe in general is in many cases benchmarking against a basket of energy currencies. Typically, over time, you see our premium in Europe over the U.S. in terms of relative cost per ton. What we’ve seen in recent years through some supply anomalies is that differential between the U.S. and Europe, between cost per barrel, cost per ton that will be on a benchmark, it has increased over time based on those supply discrepancies.

Moving forward, we will see how that balances out. We certainly would love to see a moderation of costs in Europe. There is enhanced supply from the U.S., with some exports to Europe certainly and people positioning to supply more product to Europe and we hope over the long-term we see a moderation in front. The way the business is positioned, we are positioned to execute kind of regardless of the supply scenario ideally and based on the fact as we see, we’re hopeful that we see a moderation which will be a great thing for our business, but we’re prepared for anything.

John L. Walsh

Okay. One last question. Steve.

Unidentified Analyst

Yeah, I had a question on the slide in the Antargaz presentation, in your slide 73, our slide 72. What is the difference between a butane cylinder and a propane cylinder? And is one used for something different than the other, is one market growing faster that the other, because there seems to be a big difference in the profitability between the two?

John L. Walsh

Yeah.

Lon R. Greenberg

Eric, go ahead.

John L. Walsh

Go ahead, Eric.

Lon R. Greenberg

You can come up.

Eric Naddeo

I am sorry, there is the difference. And so the customers are not the same for butane in France. And the butane is used by the residential customers, it’s mainly for cooking, it’s the main use of the butane cylinder – butane in France, but it’s mainly cooking. And for propane, the main part of the activity, in the segment – the professional segment. So the – of course, the unit margin is different because for the butane activity, customer is significant (inaudible). And for the propane, so the customers are professional customers.

Unidentified Analyst

The difference…

Eric Naddeo

Can I add something, in the propane, your specific segment is the forklift segment, which is another segment of the cylinder activity.

Unidentified Analyst

And just the different sizes of the two?

Unidentified Company Representative

(Inaudible)

John L. Walsh

Okay. At this point, we are going to cut out. We are going to take a short break and we’ll start up again at 10:55. Thank you very much.

[Break-out Session]

Hugh Gallagher

Okay. Could everyone take your seat, we are going to get started again. I’ll introduce Bradley Hall; he is the President and CEO of UGI Energy Services, our Midstream and Marketing business with his update.

Bradley C. Hall

Good morning. I’m Brad Hall, I’m the President of Energy Services, a position that I’ve held since it’s an inception about 17 years ago. so that would make me one of the three or four managers that Lon mentioned earlier that is actually – was doing this same presentation two years ago. I’ve had years of being lumped into the other miscellaneous income category, so it’s actually great to finally have a chance to have my own timeslot to talk to you and sitting at the grownup table.

My goal this morning is to demystify, pull back the curtains, show you the business, give you some dimension as to the scale of each of the segments of the business, and also I’d give you a little bit of a directional framework of where we see the growth coming from in Energy Services.

We’d call that Energy Services, but that doesn’t really mean anything to anybody that either don’t know what that means or it means a lot of different things to different companies. So in our case, we’re going to tell you what we actually do for a change.

midstream, marketing and generation, those are the three pieces of the business. And if you look at this slide, you’ll see that businesses – our business started with marketing. It started with natural gas marketing back in 1995 and it’s approximately 100 Bcf marketer in the mid-Atlantic area.

about five years ago, we expanded into the power marketing business when it became available to us. and mostly, we have the same market areas for both of those product lines. Our generation business, we’ve started with some of the legacy assets from utilities, again, during deregulation in Pennsylvania. And then we’ve added on to them. And you’ll see that theme several times in our business.

We start with some assets, small, we work with them, develop some expertise, we get some good success and then we expand them. And so we’ve got a very small generation portfolio. And our midstream business, again, another emerging business for us; we have a peaking business, which is a niche business and I’ll explained that a little bit more.

(Audio gap) but we really started with a small demand, so that is new in our business. And as well as the large LNG storage, a peaking plant that we’ve added, that also just became commissioned in August of this year. So a lot of this business really started with marketing and now we’re expanding over into midstream and the upper half of that section.

The growth in the business, back in 2001, we were a $4 million net income business; fiscal year 2011, we are a $53 million business. One would think this could get at some slide, instead of having to show that information, but I wanted – this is where we get to kind of dimension the scale of the businesses for you.

Our marketing has been a little over half of the historical EBIT in our business and it’s projected to pretty much stay fairly steady going forward. On the generation business, we peaked in 2008 and we’re projecting that going forward; we’d see the EBIT contribution from that segment to be roughly half; just about half of what it was in 2008. So, again, not a big part of our future anticipated growth in the business. And then Midstream, well, it was 32% of our historical EBIT; it’s actually going to be one of the much bigger segments and drivers of growth going forward for our business.

The Commodity Marketing business; for those of you have been in at this as long as I have been, you have every right to be skeptical of commodity marketing. I spend most of my time telling people what we don’t do, what we’re not willing to do. In this case, I want to make it very clear to you that this is the most conservative, disciplined, boring way you can possibly do commodity marketing.

We do not speculate on the market. It is a back-to-back business. We have a very experienced sales team; many of them work for competitors and no longer in the business. They came to us; they are highly incentivized, highly compensated, they get a piece of the margin action. As a result, we get good customer relationships, high retention rates, it’s a fairly diversified customer network, no single customer is a significant portion of our margin.

And again, this is a transaction business. Customers are – each one of these is a customized transaction; 30,000 to 40,000 customers making several purchasing decisions during the year; you can get hundreds of thousands of transactions. So again, quite a very strong back office system and hedging policy and discipline to make sure that you keep this business because again it’s high revenue, low margin business for the most part.

We have at any given time 50 to 60 suppliers that we use to diversify. We do that to get maximum value of supplier credit and we have a very low bad debt rate. And we also on our larger accounts will actually go out and contract with the third party for credit insurance.

So I’m telling you all this, you’ve heard this before, the only way I can assure you that this words is by showing you the track record. I have on here the margin history of our commodity marketing business and you can see the large bar on the bottom that is natural gas. Starting with the Enron collapse which was late 2001 but our fiscal year 2002 and then I show the TXU acquisition right here. My purpose of showing you that is, that was our last acquisition. So the growth since then has really all been organic growth. This is not a acquisition business model or roll up, this is really pretty much a organic growth story.

And then I showed several disruptions and peoples in the market and I do this because if we weren’t back to back and we weren’t minding the terms of our contracts whether the bad debt or any of those other issues, our margin – there is no way you could have had a growth chart or a trend like this during those (inaudible). We had the Katrina read up hurricane which caused energy prices to triple in the period of a couple of weeks. We had, as you know, the 2008, 2009 commodity price spike. Oil went up to $140 a barrel, natural gas went to $13 dekatherm. To be followed 10 months later, it dropped to $3 a dekatherm. If you have any long-term contracts, the margin calls, the exposures, the stress in this system during that time period, you can see that our business was plugging along. So I do this to try to allay your concerns about some of the stories that took place and have and continue to take place in the commodity marketing business. And then also you can see the growth in the retail power business in the last few years.

Here is an attempt to break out the EBIT contribution from commodity marketing in our business. I put the slide in here under great protest but I was told I needed to pull back the curtains and show you this contribution of the segment. And so I reluctantly do so, but here again the story you can see that the natural gas margin has been other than FY12 which we had – you’ve heard the story about the weather in 2012. So you can see that the retail power marketing has grown to almost a quarter of our commodity margin as well as some of the [allocation] expenses.

By the way we do not report EBIT by the business segment I’ve shown here. So what we have here is really contrived, here we’ve attempted to show you by allocating expenses so you could see what the EBIT contribution. And the reason for that is because we show a lot of the back office and skills of our employees.

We are a 200 employee organization and we are doing these three segments. So that we don’t necessarily, you are doing this, you are doing that, this is an attempt for this purpose to show what the allocated expenses will be for this business. And you can also see at the very bottom, some little bit more transparency about the number of our LDCs which we transport, were up to 33 utilities, we’re in eight state area of the Mid-Atlantic, and we’re on 19 electric distribution companies which for the most part and with some small exceptions is a complete overlap of our commodity marking footprint.

And again, our strategy in this area, this is an organic growth story, we’re projecting 5% to 7% organic growth in this segment. We are looking to increase retention rates and improve the growth and the margin in this category by selling both products to the same customer. Again we’re happy to say, we can leverage the same sales force and back office by doing so. And again, get another hook into the customer.

Electric generation portfolio, I’ll briefly go over this. Again, we started with electric generation assets of a coal plant called Conemaugh and a small coal plant in Hunlock, which were transferred as part of the electric industry deregulation in Pennsylvania, both the assets came into our portfolio. They initially helped us with balancing support for our retail commodity marketing, and they reduced our need to go to third-parties for supply of credit, which was crucial during the high energy prices living up to 2009.

Today we own a 6% ownership in an 1,800 megawatt coal-fired plant in Western Pennsylvania. This plant is scrubbed, it’s a low cost coal plant. That’s a 102 megawatt. We have a – we took up 43 megawatt Hunlock coal plant which we inherited from the electric utility and we converted it to natural gas. We did so by putting two GE turbines on the front-end of the plant, shown on the other picture. And then used waste heat boilers to take the waste heat off those turbines and then run it through the same steam turbine that was used by the cold fire plant. So by using a Brownfield site, we are able to save approximately $25 million in cost, build a combined cycle gas plant and save jobs in the area. So it was a great story for us, that plant has been fully online both units since this past summer with a great run record and it didn't hurt that since we stared this project about 30 miles north of this, they discovered some of the most prolific wells in the world. So that was not a bad result as well.

We've also started a small by growing renewable portfolio, starting with the Broad Mountain – what we call the Broad Mountain landfill gas project. That is an 11 megawatt landfill gas project taking methane from landfill and converting it into power and selling it into the grid. It is one of the largest in the country. Landfill projects are typically much smaller and then we also have between six – about 6 megawatts of installed solar power and another 2 megawatts or 3 megawatts under construction or underdevelopment again in our Penn-Jersey-Maryland footprint.

So again going forward, while our income in 2008 was around $15 million from the electrical assets, for the future we're projecting this to stay between the $4 million and $8 million level as we wait for electric prices to start to recover.

Natural gas peaking, this is a niche business and let me just start by explaining what we do here. We take natural gas of the interstate system, super-cool it to minus 260 degrees Fahrenheit, store it in a tank and then during periods of cold weather, we vaporize it and put it right back into the grid. This is – works like an insurance contract for Utilities.

Utilities typically design their send out systems for the coldest winter in 20 years, the coldest day in 20 years. So 19 out of 20 years, they are probably not going to need this. And so it’s insurance policy and like an insurance policy, we sell it we get a fixed demand charge for being available to provide the service. And we can sell this at a significant discount to interstate pipeline capacity, because utility in the northeast could never afford to contract for 365 days of pipeline capacity to serve that coldest day in 20 years.

So here is the opportunity for us with the niche business. We started with the core Bcf tank with about 55,000 day send out capability. So it would take you five days to empty it, and we sold all the peaking that we had. We have sold out, 2008, we started plans to expand our peaking fleet and we recently completed the $120 million project you expand that plant with the fourfold increase by adding a storage tank which is shown at the bottom. And these plants are next to each other and they show the same liquefaction system. And we sell – we’ve increased our peaking revenue by $11 million since we started the construction of this plant.

And this plant is available for the first time this winter. The average length of our contracts with Utility – Utility peaking service area is over three years, and there’s been another fringe benefit that comes from these LNG plants and that is with the decoupling of natural gas pricing from oil pricing. There is currently about 5:1 ratio between the price of oil, heating oil or diesel on the Btu equivalent with natural gas. So we are now working on some of these new applications using the fact that we have a very low cost liquefier that is used to fill these plants, and we can use that liquefier to actually sell LNG via truck to these new emerging markets.

And the new emerging markets, we did a press release recently about serving a Marcellus drill rig, that drill rig was in West Virginia, and we sold a couple of loads of LNG to that, and basically what they are doing is, they are using the on-site generators, which normally we’d run on diesel fuel, they are running on LNG. And we are currently working with some much larger Marcellus producers in the northeastern part of Pennsylvania and re-anticipate the fact could just those active – well, we have active discussions, we believe that could lead to about 1 billion cubic feet per year of additional sales opportunities that are coming from this LNG plant, but in a completely new in emerging market.

Again, not only as a diesel for the drilling rigs in Marcellus, but this goes for any diesel engine and most notably the over-the-road vehicle market, which lends itself very well to LNG, and we’re working with a lot of the major fleets in our area on how as we can use our large LNG asset to that branch as well.

When you saw Bob Beard’s presentation about the UGI Utilities Service area, and the Marcellus footprint as it goes over there, I showing this map, because it – I’ll show you some of the assets that we have in the area. The two red dots up there are storage facilities that we own and operate. And then you can see some of our peaking plants throughout the utility service area, and the two major interstate pipelines that go to the Northern Tier of the Marcellus. Tennessee that one on top and Transco is lightly lined of the one just below that.

So our midstream strategy with the – as it pertains to Marcellus is to link the markets to the supply and the demand. Now we’re obviously somewhat new to the midstream market or we’ve been in the peaking business, but we’re new to the storage business, and as we start getting into the large transmission lines and compressor station build outs that are needed for this infrastructure.

We’re basically trying to use every home field advantage that we have. We have 12,000 miles of pipeline that’s already in Pennsylvania, this is the home court from a regulatory and from a local government standpoint and we’re also one of the largest buyers of energy between utilities and our large commodity market, which I talked to about. we are a large buyer and all of that energy that we have been buying historically has come from the long-haul interstate pipelines, moving gas from the southwest up to the mid-Atlantic market.

And so again, we’re looking at a way to transform the business model that we’re using from a supply standpoint, not relying on renting space on these long-haul interstate lines, but to build bullet lines that tie in the fields to our market area. You’ll see a few examples of this in a minute. But again our goal is to link a very prolific section of the Marcellus area to our substantial market.

Furthermore we want to integrate a lot of the pipeline infrastructure that will be needed with our existing asset, so we can tie it into our storage or going to peaking in generation assets. And then using that bundled services, shale services to utilities and marketers in the area and give them some enhanced supply options. And then finally to go to the producer community and start selling them and delivering and selling gathering services to them.

Here is an example of our storage facility. I’m going to back up here for a second. So storage facilities are shown up here. Let me jump forward, so you can now see the more detailed version of that. What I want to show you in this storage facility is that, of ways that we can use these assets and leverage them given the new dynamics of the Marcellus, here is the Dominion pipeline, which traverses 14 Bcf of our storage facilities. We own 11 Bcf here, which we joint venture with Dominion. By the way, 11 Bcf is our share though, okay. And then we have 3 Bcf here in an isolated field. This Dominion pipeline moves up here, this is the Tennessee pipeline down here.

The Tennessee pipeline is highly congested because of all the Marcellus development along this line. There is a nine mile difference between these two pipelines and the spreads between the gas prices on those two pipelines over the last two summers has been as high as $1/decatherm.

So we have this pipeline as part of our storage assets that connects Tennessee up to Dominion. Unfortunately we don't have the horsepower to move the gas off of Tennessee and to move into that area, so we are building a compressor station, which we’re locating up here, the benefits of that compressor station; it allows us to take gas off of Tennessee and Dominion. Right now that storage facility is a one trick pony. It’s only taking gas on and taking gas off and putting it back on Dominion, so now we’re able to tie in the highly congested pipeline of Tennessee and bring gas from there to the 14 Bcf of demand on that storage facility they are buying.

Some other wrinkles here; there is another pipeline that moves along with Tennessee line there you can see, but shown there in the purple and that is a utility line, so utility transmission line, which is very lightly and gently used and we have filed with the FERC and the State PUC to transfer that line over to UGI's FERC regulated storage company, that would be in our midstream business. By doing so we have a wheeling [care], again FERC approved market-based rates to move gas all throughout that line and to wheel it between the two interstate pipelines in the area. So that gives us an opportunity to have some arbitrage value between two congested pipelines and using this more like a market liquid hub.

Another point here, I’d like to point out is that Shell and Ultra large Marcellus producer in this area has a direct connect into that line. So we have the ability to now offer producers the opportunity to bypass the entire interstate market altogether, get into 14 Bcf of buying power, buyers that are in that storage field as well as will they gas up to another pipeline if they would rather do so. They’d not have pay the [pan kicking] of rates between the interstate. It gives us an opportunity to arbitrage that value.

And then finally, we are looking at opportunities that we might be able to use that line to extend that and so there maybe opportunities to do additional tabs with other Marcellus producers by just extending that line into a even more production intensive area further east.

There is another example of leveraging our existing assets in the Marcellus area. This project is called Auburn I project, it went online this year. Basically that picture will show a line that comes from the Tennessee pipeline, and you can see the active wells that are on that interstate pipeline in that picture. There is a line that comes down here serving utility customers. But the very end is utilities largest customer Procter & Gamble, they have a diaper manufacturing plant there. And they found in that vicinity some of the most prolific wells in the northeastern portion of the Marcellus. So the gas that is coming down here is now we are reversing the flow, so this 12-inch pipeline, which once served industrial customer, the gas is now flowing in the other direction.

We added compressors so we can make that happen and we are now moving 120 million cubic feet a day back into the interstate market. And the producer in this case is Citrus Energy.

Citrus Energy had more gas in that area than they could move in that pipeline, the capacity of that pipeline. So we worked with them on expanding, lying down into the Transco market area. And that is the $160 million project that we also mentioned, which we called Auburn II, both of these projects are secured by long-term demand charges, and then dedication of the acreage to the projects.

Furthermore, this line well it comes down here to the Transco pipeline, so that the producer now has the ability to go North and South. We also built a little – we’re building a little spur down here, because that’s shown there in the blue, is the distribution system of UGIs PNG System, or our utility system. So that last spur there allows the utility to take gas directly from the Marcellus, this will be our first major – significant opportunity of actually taking gas produced in Pennsylvania certainly for all part of the state and moving in directly into our utility and avoiding the interstate market.

And just by the way these pipelines appear, they don't serve Pennsylvania, they go on to New York, New England, New Jersey, there’s nothing wrong with that, accept from a regulatory story and development of the local resource, it is a very strong and compelling argument that we can make with the regulators and that is we're using a resource in Pennsylvania and we're going to start bringing this gas to the market in Pennsylvania. But that project we expect to be available for our fiscal year 2014.

And then there is the much larger project that we’ve announced, that we are in a joint development agreement with Energy and Washington Gas Light for a much larger project, which would go from the terminus of Energy’s MARC I line down to the Eagle interconnect point between Columbia and Transco.

On the way, it would be serving markets in UGI, as well as our partner who – once they get into this liquid interconnect point can bring gas to points either north or south along those interstate lines.

We are working. We had an open season that was non-binding. We got lot of interests during that period. We are now in the process of working and refining the route of the line based upon the ability to actually press the agreements with potential shippers. We’re working on this and we’ll probably have next 60days, 90 days which will be working and trying to refine that now, that process.

And again, one of the major distinctions of these lines is, most of the Marcellus infrastructure built out so far has been producer pushed, producers are building because of congestion. They're trying to debottleneck the area. They're trying to move their gas into liquid supply points. In many cases it's just the nearest interstate, which is probably not good enough. We are looking now to try to debottleneck this and bring the gas directly to our markets, avoiding interstate as much as possible.

Here is the similar growth that we’re showing for – in commodity marketing as we’re showing for midstream segment. You can see the peaking margin has grown steadily. During this time period, most of that is no box money that shows up every month whether it's warm or cold.

Capacity management margin, capacity management this is where we take contracts, supply contracts for utilities. We pay a fee for them and then we manage those assets giving them their storage capacity when they need in no other times but then arbitraging and using the value of that storage to supplement offset purchases for our commodity market business when they don’t need it.

This last winter, when it was warm a lot of volatility was gone, so FY12 is down, but you can see the historical contribution from that business line.

And then the storage, which the real story there is, FY12 was our first full year of having the storage assets under market based rates. Part of that, they were under cost of service rates at a much lower level.

The other thing I’d point out here is that we are projecting and targeting a 15% to 20% growth in the midstream category. So you can see this will be our emphasis going forward.

I’d like to open up for any questions. Is there a microphone?

Question-and-Answer Session

Unidentified Analyst

The gathering business in your part of the world is a big chess game and you have probably a big math to remove with lots of write away in mosaics et cetera, et cetera. How big could this business be for you?

Bradley C. Hall

The gathering business is – it’s a difficult business to get into. I mean, because in many cases the producers that are coming into this area already have their relationships or their affiliated companies from another basin they may have worked. So we are looking to get into gathering business, we think it could be a significant part of our business going forward, but we are also – you can see that mostly the stuff that we’ve been talking about is building on something we already have. We got storage facility, that’s increased the interconnection opportunities with it. Let's look for direct caps – we can do the in-filled gathering where that may be opportunity but for most cases that's going to have to be a virgin production area because the production that’s already taken place or they already have their gatherers relationship stand. So I – just to be cautious, I think it's potentially a big business, but I just think it's going to be a much longer-term to development that.

Unidentified Analyst

Could you talk about maybe for Bob’s businesses well on gas supply where – also for your midstream business, where are you procuring most of the gases, they’re coming up from the Gulf Coast or are you actually using Marcellus Shale gas and is that potentially transformative for you in terms of how you think of gas supply for both businesses?

Bradley C. Hall

Okay.

Unidentified Analyst

And before you answer that, the other part of that question, do you have any sort of contracts that roll over that UGI opportunity to perhaps source cheaper gas?

Bradley C. Hall

Okay. As far as the question of the magnitude of being able to transform from Southwestern production to the Marcellus, I would say that we are somewhat limited still on our ability to buy Marcellus gas because of the congestion that's taking place and the fact that most of the Marcellus production is going on to those pipelines which were in Northern Pennsylvania for a reason. They went up there to get around the market because they were going on the way to New England and New York. So we don't have a lot of capacity, we don't buy a lot of capacity from those pipes to be able to swap production. So we're still using long line pipes and the Marcellus production is still a significant minority in our supply picture right now. And I’d say that’s true with the utilities as well.

John L. Walsh

Is this on?

Bradley C. Hall

Okay. I’m sorry. It is relatively a small portion of our portfolio right now, but growing. And to your question about other long haul contracts that we let expire and bring on Marcellus Shale absolutely something we talk about on a regular basis, something we’ve done last year, this year and we will do again next.

Unidentified Company Representative

I’m going to say, yes. I can’t tell you what our total throughput per year is. Marcellus is probably still in the single digit, but as wellhead prices start to moderate or come up a little bit, drilling activity fix up again in the northeastern part of the state and as these contracts, long haul contracts expire, it will become more and more an integral component of our supply strategy.

Unidentified Company Representative

Just one quick thing I would add, because of the overlap here, we have some really interesting opportunities in the – that Auburn II project that Brad spoke about as one of them were the opportunity to access Marcellus supply via that pipeline coincided with the exploration of our contract on that PNG services territories. So Bob’s supply team, they shed that contract, replace it with a lower cost solution, so you’re pushing down your purchase gas costs, which flow to the customers and help underwrite the project. So we will continually look for opportunities like that. In the Utilities, we have maybe $100 million a year of sort of pipeline contract commitments and as that evolves over time and shifts from the southwest to the mid-Atlantic obviously we will look for opportunities to reshape that portfolio.

Unidentified Company Representative

I would just add that the pipeline contract are probably not the issue with interstate simply because to the extent that we don’t need an interstate pipeline contract, there is already market for it, it’s just part of their east. Interstate pipeline rates are typically postage stamp rates. You pay the same whether you move into New Jersey or you are moving to Pennsylvania. So there is a market in New Jersey for that capacity. We can just release that capacity to them. There is a secondary market for capacity where you can get rid of capacity at the maximum rate.

So that’s not so much of the issue, it’s really the ability. Right now, we are taking the low hanging fruit. We are going down, we are building to our Northern most edge of our territory, but we are going to continue to be looking for opportunities like this to build secure, reliable firm service to the city gate so that we can safely swap that for the interstate capacity we are currently using.

Unidentified Analyst

On slide 102, the 15% to 20% target, is that an EBITDA target and operating income target? And over what time period does that target apply? Thanks.

Bradley C. Hall

So that looks like an EBIT, basically an EBIT line, even though we don’t do EBIT at that level, yes, it’s the EBIT.

Unidentified Analyst

(Inaudible)

Bradley C. Hall

That’s basically our business plan here, which is basically a budget in three year plan year. That’s basically the horizon that we are projecting.

Unidentified Analyst

Understanding that the local sourcing is positive for your purchase gas cost for the utility and that might have a positive impact I would imagine when you are going into rate action on those two utilities. Just curious is that specifically something that the regulators have asked you for or asked, I guess to Bob, the utility for local sourcing of gases, is that…?

Bradley C. Hall

Bob, how many times you’re been asked are you buying Marcellus gas?

Robert F. Beard

We get asked at every day, every time I’m in Harrisburg, it’s a very good story. The commission is being asked by legislators from the Northeastern and the Central part of the state. They see a great opportunity. So really it is a topic of almost every discussion that we have in Harrisburg, how we are bringing Marcellus into our portfolio. So, absolutely.

Bradley C. Hall

You know the price of gas has dropped dramatically because of the whole Shale phenomenon and one rather recession, whatever. But one of the things that we remind our regulators and our audience is that almost half of the bill that you get for energy is delivery. And that’s probably more than half of it is the delivery of energy to your business or to your home, and so by finding more cost-effective ways to short haul and save on the transportation side that is going to be a significant part of the savings for the consumer and industry.

Unidentified Analyst

Could you just discuss your margin outlook for commodity marketing, specifically natural gas margins, it has come down in 2012. What do you look like going forward?

Bradley C. Hall

Commodity margin as a whole came down in 2012, but that was volume related. But we do – we have not disclosed our unit margins or give guidance on unit margins in the commodity marketing segment. That’s a highly competitive area.

Unidentified Analyst

Considering that gas prices are probably less volatile, what would be the real driver to expansion or do you look for stable margins or?

Bradley C. Hall

I don’t, actually, I don’t think natural gas world stay stable, I think it will continue to be volatile for all the reasons that I showed on the slide on commodity marketing, there will be events that cause liquidity issues, credit issues, it is a self correcting mechanism. The glut of natural gas and low prices has shown up in the form of less drilling. So again, it cures itself over time. I’ve been in this 17 years, I’m not going to state where gas prices are going by confident, but there will continue to be cycles in this industry both gas and electricity of high and low prices.

Hugh Gallagher

Okay. We’re going to cut the questions off there, so we can stay on time. We’ll have a Q&A session at the end of lunch or closing remarks, and we can pick it up any remaining questions there. So now I’ll turn it over to John for the financial update.

John L. Walsh

Good morning again. This is the sort of Princeton Review or my generation of Cliff Notes version of this presentation. What I’ll do is try to quickly go through and highlight some of the critical points that we’ve made and the various presenters have made this morning about UGI, our present position and where we’re heading.

All of you know UGI has a balanced growth and income invest. I think what’s critically important to us is, when you look at the businesses and you think about what you’ve heard today from the businesses, each of our businesses has that balance as well. So whether you’re talking about our propane distribution businesses, talking about delivery of synergies, executions in terms of operational efficiency, driving for organic growth, identifying growth segments, they show that balance.

The utility shows that balance in terms of organic growth, conversions, infrastructure, management, efficiency. And Brad, as you’ve just heard, also strikes that balance in terms of complete commitment to execution, doing the little things well, which generates the cash and then being open and broad in thinking within the strategic framework to identify the reinvestment opportunity. So the engine that drives UGI’s ability to maintain that great balance is the fact that each of our businesses demonstrates that as well.

You’ve heard a lot and Lon took you through this sort of building block approach. It’s critically important to us. We like to very much understand where we are heading and how we’re going to get there. So we look block-by-block in terms of how that base business is going to drive the organic growth. You’ve heard the business discuss critically important we do not take that for granted. There is a tremendous effort that goes into actually executing the plans and programs that delivers that consistent organic sort of base EPS growth in the businesses.

Major focus on selection of projects and execution of projects, which is that red block, and then a significant time at the business unit level and at the corporate level, looking at investment opportunities, looking through our strategy build to make sure they make sense to us, assessing the viability, assessing the economics, and then moving forward. So that’s reinvestment, again, that cycle, the virtuous cycle, that Lon talked about earlier this morning is critically important, it’s kind of embedded in what we do day in and day out.

We’ve got a great track record as you’ve seen in terms of dividend growth that’s driven by our cash generation, over time we deliver over 7% compound annual growth. We have our payout ratios. If we start to fall below as we did in 2010, you see that sort of ratcheting up which was a major 25% increase in the dividends in 2010. So that’s something we have been doing for 128 years. We’ve grown them consecutively for 25 years, so it’s part of our DNA as a company.

Where is that growth going to come from? It’s going to come from those building blocks that we’ve been talking about, that base growth, and you’ve got a much better feel hopefully today as the business is talked about and just how much effort goes in to delivering that base growth. It’s not something that we take for granted or just calculate as a number, those are plans that people are executing, that are reviewed, assessed, to ensure, assure ourselves that we’ve got plan to actually deliver that 3% to 4% across all of our businesses.

Same focus goes into the assessment of projects and once we commit to a project like the projects Brad just talk about around successfully executing and delivering the business case and finally reinvestment of cash. So you can see those building blocks moving forward from the 2013 guidance and I’ll talk a little bit more detail about that in a second. Moving forward, you see the contributions from base business growth, projects and development and execution and then fundamental reinvestment of cash.

In terms of that base growth, I mentioned we do not take this for granted. Here is a – looking over the next three or four years, here is kind of a breakout of where that organic growth comes from. It’s $0.10 a year basically that’s delivered by the businesses. Massive effort goes into that, it’s made up from a diverse stream of organic growth contributions, which is key, we are not looking at one area, we are not just looking at the conversion activity in utilities to fund organic growth.

We are looking across all of our business, they all have that organic growth focus, they are all as you see committed to contributing to that incremental base growth and EPS. And again that diversification in terms of streams of income and contribution is critically important in terms of our confidence level and our ability to deliver that $0.10 a year.

Looking at 2013, you saw our guidance that we issued yesterday. You see in ’12 the impact of normalized weather, huge weather year this year or lack of weather, lack thereof, we also had (inaudible) on earlier transition and that extinguish some expenses. If you look at our base business growth that roughly is $0.10, incremental contribution from Hunlock, incremental contribution from projects that takes us to the guidance we issued yesterday. Confidence level is high in our ability to execute.

When we look beyond ’13 you start with ’13 as the base, and again it’s a building block approach. We like this approach, we just came through the annual process in terms of budget three year plan. We like to confirm every year, our ability to actually deliver on these commitments. We see the base growth, examine that, we look at our individual projects, examine how we’re doing on those and our ability to deliver.

We look at the cash we are generating and our ability to successfully re-invest, and I think it has been mentioned several times and Lon touched on it. We feel really good about the breadth of opportunities that we have, the breadth of business and the reach our businesses have, enhances that flow of project opportunities for us. So our ability to find quality projects using the incremental cash thrown off by the businesses is high.

Thinking of cash, cash is the fundamental engine for the company. You can see there on the top line that circled, the cash generated by the business units and you generate that cash as a distribution company by doing thousands of little things right and consistently and effectively and never loosing focus and that’s a strength across all our businesses. We consistently generate cash, but we never take cash generation for granted, because it takes a huge amount of effort to be able to consistently generate cash.

And you can see, we worked down, I’ll go through the details, obviously you pay the dividends, you fund your projects and you end up with incremental cash available. The bottom line there shows the build up of cash on our balance sheet over time based on what we know today, we know the projects that are in front of us that we’re going to be spending money on. As we move forward obviously there were fewer of those projects identified. so you end up as you go through a planning process with that incremental cash building on our balance sheet, our cash doesn’t burn a whole in our pocket, we’ve got great processes for assessing opportunities. but over the course of time, we’ve taken great advantage of that, the Utilities acquisition that took place in 2006 and 2008, great examples of that where we had accumulated cash in our balance sheet, we’re able to use that cash to really fund half of those utility investments along with that.

You see the split of cash, each of our businesses generate cash, there’s a pretty even split across the businesses. they all have cash generation capability. I’ve been asked once or twice about the cash generation from International Propane, the reason that’s slightly below what you would think would be average there is because over the course of the next three or four years, there’s actually some debt amortization that’s taking place in Europe. So the available cash is slightly constrained by that, but that’s just a normal debt amortization process that’s ongoing in Europe. but the fundamental cash generation capabilities across our European propane business is very much mirror of what we can do in the U.S.

Again, we like simple things, building blocks, planning approach. this is our 6% to 10% target, how do you get there? We do a million things well and you deliver your 3% to 4%, you execute the projects that are in front of you, that get’s you up on that sort of bottom line, meaning everything we know that’s within our control, projects underway, organic growth gets to the bottom end of that 6% to 10% range. and then as part of our discipline and planning process as you look at various scenarios, there’s different things we can do with that cash. You can repurchase stock, and that sort of set’s the bar in terms of an option if we can’t find quality projects, if we can’t invest in quality investments that meet our strategic objectives, that remains an option and also kind of sets the bar as we think about projects and assess how we invest in opportunities, we then start layering again, okay if we can invest that available cash that we just talked about at a targeted ROE level where does that take us in terms of our range of commitments on EPS growth. We do that at roughly 8% ROE, you can see we’re kind of right on top of that stock repurchase line.

If we deliver returns that are more in line with the type of investments, we’ll be looking at 10%, 12% ROEs, so it takes us right to the top of that 6% to 10% range. So it's pretty simple, straight forward process. We like that. We like to understand things. It's a great way for us each year going through that process to kind of test the various elements, those various building blocks and to make sure they still stack up to where we need to get to.

Again, just an overview, if you look at EPS contribution that balance again critically important. We’re not overly depended on any one business. You saw that $0.10 a year contribution that cuts across all the businesses. All these business contribute to our growth, all the businesses contribute to projects that are being executed, and all of our businesses also contribute in terms of new opportunities that will emerge over the next three years for reinvestment of cash.

And we are equally disposed, as Lon said to invest in any of those four businesses, four major businesses, we’ve got a track record of doing just that. If you go back over the last decade, we've made major investments in each of our business because of the quality of the investments was there, the quality was there and our confidence in terms of the leadership teams within the business was there, in terms of their ability to execute on the investment.

And again, just to summarize in terms of those blocks. You see, we've touched on all these projects and opportunities today, we've talked about reinvestment of cash, we've touched on the process we go through in terms of accessing our opportunities, evaluating them, making good decisions around reinvestment of cash in projects that are quality projects, strategic fit for UGI and that’s a fundamental process that goes on day-in day-out between ourselves and the corp team working with the business is to make sure we have a healthy range of options and we have quality projects and we have the execution plans in place to deliver on the investment case.

With that, I’m going to turn over the line and we’re going to hold the questions till Lon completes.

Lon R. Greenberg

I get the joy of summarizing and one of the things I get accused of at home and in the office is either repeating myself several times which I will do. We are saying it louder in case you didn’t understand it and which I will do also.

So let me take you through couple of points I want to reinforce. Diversification, we’ve talked about that several times today, we talked about it over the years for you. It’s not a broad diversification where we are in different industry, its focused diversification as an energy product distributor and marketer, and you’ve heard about its geography, its value chain, its customer breadth, commodities, all of those things create less risk for all of you and heighten returns.

If you build your portfolios as you add things and I get people from time to time approach me. They don’t want to stick me all in one area, they want me to diversify around things and they would add it and then they would say to get a higher relative return given the risk you are taking. Well, you get a higher relative return given the risk is demonstrated by our history here.

And again, if you look at the return build up, 8% sort of from just our base business isn’t the base dividend, 10% known projects, base dividend then you get to the 14% known projects, base businesses, reinvestment of cash, base dividend and then potentially some greater dividend increases than our base dividend as that payout ratio drops and that’s a mechanical process as the payout ratio drops.

This is my little engine that could – this is really the driver, the virtuous circle for UGI that we’ve referred to today. Base business produces cash; cash produces total return through dividends, reinvestments; reinvestment then comes right up the other side produces more earnings, therefore your earnings are growing faster, you are producing more cash; you reinvest it all and pay some out in dividends and you just keep going in that virtuous circle and it’s driven by the number one thing and the number one attribute we have is excess cash flow. We are a very fortunate company indeed to have that excess cash flow.

So goals, John went over the goals, I won’t go over it again with you. However, I will emphasize the history one last time. Our goal of a 4% dividend increase, what have we done? 7.3%. Our goals of 6% to 10% EPS growth, what have we done over time? 13% over 10 years. Total return that came off all of that, I think in the next slide here, there it is again, rock star on the right or already maybe even in the middle, not fired on the left, and again with the security like ours, we are not going to create all this, what used to call it, heart stopping volatility for you and for your investors and for the lenders to our organization.

We are going to be out there, you will get above average long-term returns from this organization as demonstrated by that, and again as I sit here today I got excited, I'm going to retire. So John made it so appealing. Now the management team would do that, they would have a much dampened presentation for you today. So they are caught in the conflict, get the stock price or have them stay and even I get excited about the prospects for the company and I hope you do too that we have the management team, who is here to do it and I hope you’ve concluded that this is a team that can carry the organization forward led by John.

We're fortunate to have John rejoin us in 2005-ish time frame. He is ready to take over the reins and lead this group of people forward to achieve these things. I'll be watching it from my perch as non-executive chair which will be a delight for me to do and watch you all the progress as we move forward. So again, I hope you have understanding of our growth, our cash flow, our initiatives, our business units, our management team and why we are so excited about the future of this company, and why we think you ought to be as well.

That's my summary. However, I get also accused of other things. One of the things I get accused of is giving everybody else's presentation. I didn't do it today, but I can't resist myself. So instead of turning it over to a Q&A for you, I think I’m going to ask the questions that I think you would ask and give your side of it. So first, natural gas is making significant inroads into areas traditionally served by fuel oil.

Answer is, yes, that is true. We are taking share and I’m sure you hear from other national gas distributors. We are taking share from heating oil out there. We're particularly good at it and we're particularly good at it because of the Heritage we have of growing our utilities. He does a lot of hard work, it is locking and tackling every day because we can't control it, we just provide the gas, we can't force anyone to change out their furnaces and it's a cumbersome process, those of you who live in homes and go through that. It's cumbersome to change out furnaces and things and timing sometimes enters into it but the paybacks are immense.

You saw the extra payback almost $2,000 a year, doesn’t take very long to pay that back but there is a lot of friction in the system and you got to work day-in, day-out, person-by-person to get that done, we're good at it and we've got lots of opportunities, 500,000 customers within I think 100 feet of our mains out there. So lots of opportunities, very true natural gas is taking significant share from fuel oil and the reason is fuel oil is close to the existing lines.

So next question that you should ask, natural gas is also making significant in-roads on areas served by propane. The answer there is false, that is not true. Certainly it's true if you're talking to another utility, entity in natural gas utility that they maybe expanding into a town, that's suburban town served by propane and sure you'll lose some customers there, but we got 2 million customers in AmeriGas, we lose about 3,000 a year to natural gas and the reason is for the very reason that we make changes in heating oil, propane customers generally are not 75 feet to 100 feet away from existing mains, its not low hanging fruit.

Typically if you're going to take propane customers you're going to run a main and you got to have density to run that main, otherwise you are going to be told you are not being prudent by your commissions because you can't put capital out there just for the sake of connecting to 5, 6, 7, 8, 10 customers. For propane customers by and large are further away from the gas mains that exists and if they are close to those mains there is a topographic reason why they are not connected, either there are lots of block or their huge lot sizes and there is again one of the benefits we get, where gas utility.

So we would like to connect customers but we see what’s practical, what’s efficient for all of our existing customers and its not to take propane customers, it is to take heating customers. So again, we don’t lose that much to natural gas expansion.

Next question that you should ask us, do we have a lot of commodity exposure out there in our energy marketing business? I think Brad answered this and I’ll pair it pretty much what he said. No, we don’t take positions. We don’t have a lot of assets that we’ve got to protect by selling commodities out there. We are basically providing a value added services that is to involve the commodity. So if someone wants a fixed price to avoid fluctuations, we provide that service to them, we provide that value added product to them, but we lock in as soon as we are providing that service and the product to them. So we don’t have that hot stuffing volatility on commodity exposure that’s out there.

We live through a year when commodity prices drop like a stone we were fine, others had bigger problems and again we are not trying to protect assets, we are trying to provide a value added service out there. And we are mindful of risk management around it. Average contract lines we talk about is kind of nine months for our products. So if you get a significant drop in price, it runs off very quickly and so we don’t have that worry that we’ve got three year contracts, four year contracts out there with lots of exposure and you get the tangent margin cost that’s associated with that. So again not significant energy exposure in our marketing business as demonstrated by Brad’s really beautiful chart over a long period of time where we’ve made money under all circumstances.

Last issue, UGI is hard to model. I reluctantly say for some of you, however, again there is an information gap, there is opportunity and that difficulty for those willing to put in the work to see through that, and we need to make it easier for you, which we hope we did today. We need to close that information gap, but inefficiencies caused by information gaps create opportunities, and we need to help you cease those opportunities, and that's why we are spending as much time as we're spending trying to educate you about the businesses, where we make our money, what our expectations are and what you should expect not just in 2013 or fiscal 2014, 2015, 2016 and beyond, one of the drivers for those businesses and why are we comfortable as John said that we can execute and that we can deliver on these things.

So we will continue to close that information gap, we will continue to accelerate all our communication efforts with institutional holders and then both on the lending side and on the equity side. So we are very comfortable that what I described as that significant discount in P/E between us and any kind of comparable group the companies you want to choose, and we didn’t choose a group that just picked the highest. In fact, we had an earlier group that are much higher P/E ratio than that growth, but fixed-rate utilities take mid cap utilities, take diversified utilities that's a matter of what group you take, you will see a significant discount in P/E for us, that we think is unwarranted by and large, because of our performance, but understandable because of facets of our business, which we are now trying to attack by closing that information gap.

So that's not intended to me by suggesting to you should have no other questions, because of the questions we get us a lot, and I wanted to get to those and John why don't you come up and answer some of these as well. Yes, just Bill, turned around over in the back I think. You got it.

Question-and-Answer Session

Unidentified Analyst

You earn a fair amount of real estate in Pennsylvania. Do you own much in the way of mineral rights, through your leasing opportunities for you?

Unidentified Company Representative

Yeah, not really. We don’t have a lot of mineral rights I think occasionally you find some timber or something, – yeah timber rights. You never know what you have but now we don’t have a lot of mineral rights.

Thank you, Mike.

Unidentified Analyst

It struck me that the 8% to 10% ROE seems little bit light for re-investment. Can you discuss what kind of returns you are actually looking at?

Unidentified Company Representative

Good. The issue – you are right. In fact what we tried to do is try to maintain credibility with all of you, but we for really bad if I want to get 10% ROE I know where to go, I can invest all day in the utility and get a 10% ROE. So obviously our target is not 8% ROE’s I just wanted to illustrate as we all did that were pretty bad. We should get 8% ROE, we generally speak out IRRs in the I would say in the low end in the 10% range maybe little bit lower 9.5% these days. All the way through to 14% IRRs which had the cap structures we used translate into ROE’s and I would say 12 to kind of 16%, 17% area. But again there is ramp up in some of these things that occur as well, and so we wanted to give put out a number which everyone should draw some comfort from.

Unidentified Company Representative

And that is really an internal task where we go through it every year and it’s clearly – we are striving we do deliver a higher ROE that has been our history. But in terms of our own discipline when we test that and our ability to deliver we feel it, keep building some buffer particularly if you have a year or two on unexpected developments occur.

Unidentified Company Representative

Back left.

Unidentified Analyst

This can be a hard hitting question on the dividend. Why not increase the growth rate to 6% or 7% on an annual basis, it wouldn't use much of the cash you’re generating, it might make it easier for the investors so really see what’s going on?

John S. Iannarelli

Good, good question. My analogous question is, when I go to shareholder meetings, one of the employee who retired from us, privately meet me next year asks to increase the pension for everybody. Why aren’t you increasing the pension plans, so we can have higher pensions? It's a really math for us, and the math is and again these are judgmental questions. The 35% to 45% payout ratio we put out enough cash, invested properly at the returns we can invest that to create, 6% to 10%.

So they are net together, and now could we break the netting, there are some investors out there who say, give us 5% to 6% dividends and take your earnings rate down to from 6% to 10%, to 4% to 8%, and we’ll be just as happy with that. But they are tied together and we found that the right balance historically has been 6% to 10% for nominally with an occasional two to three year interval; we will do 10% or something like that. But it's a judgment call as to what produces the best returns.

Unidentified Company Representative

Certainly driven by the quality of the reinvestment and historically what we’ve done is identifying high-quality projects for reinvestment, and once those investments start to [throw] out cash we got the payout ratio as our guide that's why historically it is 7% plus, because once we generate cash may make very good investments and which is the idea at the focus, you then going to – you’re going to actually drive dividend growth well beyond that minimum 4% that we committed.

Unidentified Analyst

Cash on an annual basis from your growth cash available?

Unidentified Company Representative

Yeah, that's true and what we have learned that was the compounding of that over time creates – it creates a hole. And again, these are judgmental calls, and when we go out and visit people, we talk about this allocating capital, and what’s the right way to think about the company. Our sense has been that sort of that combination of balanced growth and income at the 6 to 10 and forward or whatever on the dividend side higher. This is kind of the right place to be. Well, we’re especially reluctant in today’s environment by too much around what the dividend, we don’t know what the dividend taxation will be and so things need to settle down as we consider that kind of thing.

Unidentified Analyst

This was really good transparency. Most of the presentation I’d say is the land of numbers. But when you went overseas, it kind of became the land of nouns and adjectives. Will there be more kind of in-depth profit growth numbers, margins, net margins, numbers upon numbers for that business in future years?

Unidentified Company Representative

Absolutely no. Yeah, yeah, we will I think one of the things that’s been apparent from at least the historical stuff is, at least that stuff has been broken out where you can look at it, I think some of the other stuff has been less apparent. But yeah, we can do that we can break it out between Flaga, that portion of the business AvantiGas and Antargaz as well.

Unidentified Analyst

It’s just the divers of the growth. I mean, you are very good about showing the math about the drivers in the growth for reinvestment, and that’s Yves question about the reinvestment rates and kind of had a gap when we got overseas for that stuff. It’s harder for me to understand where the profit is going and where it’s been?

Unidentified Company Representative

Yeah, overseas is – we try to demystify it by telling you that it is the same business that the economies are. The big concern today is, well, the economies overseas are going to hell and we get asked all the time and we saw growth rates that, at least from one advisor, which is fairly consistent, we didn’t cherry pick advisors. That suggests where we are, it’s not too bad. John made the point, I thought effectively that our product is a product, which is needed by consumers and it’s not something that’s a discretionary spend, so our demand has been relatively flat there and give us sometime to think about how to approach that, because we have sort of some markets that we call income markets, some markets like Poland, John referred to are more growth markets and we combine them in a way to present, but we’ll take that comment on…

John S. Iannarelli

Yeah, I think the balance today was for international propane, a little bit more background to bringing people up to speed, certainly we can shift and provide more data and metrics moving forward.

Unidentified Company Representative

As soon as those guys tell us.

Unidentified Analyst

Thank you. Actually a couple of questions, first one more on the micro side, and Brad was talking about Common Wealth for instance and hey, we might have a better cost estimate over the next 60 days, and I was wondering if you could help us with kind of perhaps tone of negotiating those present agreements, I mean is this something where we’ll know that in 60 days, because I mean what’s possible that we’ll get through negotiating those agreements at that time or is that still a 2014 event, is there any kind of sense of timing you can help us with that?

Unidentified Company Representative

Yeah, my perspective is that it’s clearly a dynamic environment, it’s a high level of interest all potential shippers on that line or anybody that’s an LDC or directly serving customer is thinking about positioning overtime how do they balance their supply portfolio. So they’re going through the same mental gymnastics that we have in terms of how this plays into their supply portfolio over the next 10 or 15 years. It takes some time obviously we’re pushing, there’s a high level of interest, we’re engaged, we’re hopeful we can move those processes forward, we believe there’s a great opportunity over the next 60 to 90 days, but it's a dynamic process.

Unidentified Analyst

Okay, fair enough. And then second question this is more sort of from a cash standpoint kind of a high level and appreciate all the detail that's been broken out, but we kind of start at this call 250 to 290 of net cash to UGI, and part of this is just comparability between different companies and the like. But as you look at that number, you guys sort of report that not only after maintenance, but perhaps maybe the debt amortization at international, maybe some organic growth that was being used at the company, is there anyway to give us a sense of just a zip code of how much cash is above that 250 or how much cash is used that is going to support that growth to go to the international debt amortization that's a little bit different in a part from just strictly maintenance.

Unidentified Company Representative

I think we do some of that. We and in a footnotes to the K put in capital we expected to be spent by each business unit.

Unidentified Company Representative

It is a little more difficult to do that, because generally the way we look at the cash is actually dividends coming over to us. So we forecasted the dividends and that sort of the sum afterwards, but one way you could kind of get back to that would be to look at, look at the capital expenditures that will put out in our 10-K, and you might be able to add back to that growth number. But we tend to look at it as UGI on a net basis as the dividends, distributions from AmeriGas, dividend from utilities, dividends from Europe that are being generated. The difference there would be in Brad’s business, he is generating cash and a lot of it is going back into projects that are known. So his cash is going right back into his business, but we’re still breaking that out and its part of the 250.

Unidentified Analyst

No, that’s very helpful. So I understand kind of the dividend and the CapEx maybe the missing question then here is, of the CapEx for instance that’s not at AmeriGas, what of that CapEx is maintenance?

Unidentified Company Representative

I think that’s good feedback. I think we put a lot of focus on cash generation if there is more detail we can provide that highlights. For example, how much growth capital is spent in utilities every year, that’s the number we can provide because that’s funding that conversion. That’s driving that conversion growth that’s embedded in the utilities performance. So I mean there is clearly steps we can take that would be helpful. We will break that out.

Unidentified Analyst

Okay, thank you.

Unidentified Company Representative

Let’s think about that for the 10-Ks note, because that will be a place that will be easy to do it.

Unidentified Analyst

A related question on the cash flow. With respect to the debt amortization at the international businesses, can you quantify over the time period in which you gave the cash flow table, how much of those debt amortizations are and related, are you really creating more debt capacity there by amortizing that debt for other actual credit reasons why you have to amortize?

John S. Iannarelli

Yeah, I could take that one. What we did, when we initially did the Antargaz and Flaga deals was put in that facilities that were not amortizable, and our last negotiations we happen to be negotiating at a particularly difficult time for institutions and rather than renew it on the same basis, they gave us three year no amortization and then at least that Antargaz gave us the fourth year of amortization and fifth year it was due. We have leverage, we can pull to fund those amortization payments differently if we choose to, but really what we are looking at is that facility is due well in ’16?

Unidentified Company Representative

’16.

Lon R. Greenberg

2016. And you are exactly right, by paying down the amortization you are creating debt capacity and the question is when do you refinance that debt, what’s the optimal time to refinance that debt and you want to get it at a time when financial institutions overseas are healthier and therefore they are willing to take more risk associated with it, although the interest coverage at Antargaz is 6 times or something. So there’s been a whole lot of risk there, but the environment was such that amortization was needed.

Unidentified Analyst

What’s the standpoint of it?

Unidentified Company Representative

From a standpoint of the magnitude James it’s €30 million, €30 million to €35 million in that range, that’s in our 10-K. Yeah.

Unidentified Analyst

I guess effectively, to the extent you can reissue that debt at some point, you are actually creating equity value there, because you can redeploy that cash?

Lon R. Greenberg

Absolutely. Yeah. You are exactly right.

Unidentified Analyst

Well, I’m just wondering if you can talk a little bit on how you see acquisition opportunities, I mean going back a couple of Analyst Day’s ago, you’d just close PPL, you talked about how the majors would likely be divesting in Europe and there will some opportunities to take advantage of that. You talked about 20 million in annual demand trying to pick that up through AmeriGas, and then ever or larger publicly traded opportunity retail value, you can pursue it down that, so you sort of hit all three. I’m wondering on a go forward, assume you guys will be interested in still looking at everything, but where do you think the incremental best opportunities are right now?

Lon R. Greenberg

Near-term I would say, they are on an acquisition front, the rollup kind of acquisitions in AmeriGas and still some acquisitions overseas and the propane side still have major oil companies continuing divestiture processes. An order of scale those are probably under €100 million kind of transactions that we're seeing because they are broken up into pieces generally so.

And so I would tell you, I'd be surprised if in the next year AmeriGas doesn't get some roll up acquisitions done and that we don't have plenty of opportunities to look overseas for acquisitions. We do hear about midstream acquisitions in the U.S., utility acquisitions on an occasional basis, but we're of course as you know, we’re disciplined where we want to look, we're not believers and there are some companies who've done well having a different view but we're not believers. You can make utility acquisitions work off cutting overheads and corporate offices that you got to have some bases other than that to make them work.

Generally speaking on a utility acquisitions you are paying a multiple of rate base and if regulators these days are offering 10% ROEs at best, and you've got them, you are paying a multiple of rate base, I mean if your ROE you're going to be allowed, as it’s going to be more than 10%, maybe it's 8%, maybe it's 7% and 6% depending upon what you paid, and that's not the kind of think we want to do.

So what we're trying to do on the utility side is find opportunities in out spear of influence where we can get non-regulated opportunities to lever and therefore drive the overall ROEs up, which is what we've done in the past. So if we have assets in place, customers in place, intellectual capital that gives us some other bases for running the businesses differently, we’ll look at those.

So generally speaking utility acquisitions in the Mid Atlantic area would meet those criteria. And occasionally there are people in the Northeast who are selling, that are just outside our sphere of influence or southeast which are outside our sphere of influence. So we are pretty targeted on the utilities side. Right side, we do see midstream opportunities, one of the deviling things about MLPs is, they think about fundamental economics differently than at least other companies. They are more concerned about distribution coverage and they are fundamental returns, were return oriented companies.

So we have been outbid on a couple of midstream opportunities that we had seen. It doesn’t mean we won’t be able to them, but as a growing a midstream business, it’s not a particularly good place to do it in MLP, because of the cash requirements going out the door, if we got matured MLP-able asset it can be a different story. So we do see opportunities there, but they are a little bit tougher given the environment.

Bradley C. Hall

Yeah, I think one of the exciting thing for us is as you’ve mentioned, Chris, we’ve gone through a five or six year period, we’ve been very active and done a number of major acquisitions and we feel as good about doing acquisitions today as we did five years or ten years ago meaning, we spend a good story and we have done a good job executing.

And particularly important for us, we did the two acquisitions in utilities, which haven’t done an acquisition in 50 years. We did the acquisitions in Europe, which again for some of the European leadership team was new experience and we performed in both those cases extremely well. So we now feel that we’ve got an organization globally that’s really well equipped when we see quality opportunities to engage, move forward and then deliver on an acquisition.

Lon R. Greenberg

One of the good things that happens to us is we have a reputation that if we are interested we will get it done. And so bankers will approach us when – in our area of influence and know that we are reliable buyer that we are good for what we say we are going to do and they can get the transaction done for sellers if that’s what they are trying to get done. That’s worked out very well.

Okay, that looks like the end of the question-and-answer period. I want to thank you for having us due today, I was – actually, I learned more from Brad today than I have learned in all the years like manage them. So I want to really appreciate your willingness to have Brad step forward like that.

Apparently there is – is it really true? We have a lunch, but apparently next door or there was – Michelle Obama was here, in some kind of fundraiser in a room next door or something. So if you saw police when you came in as I did, I wasn’t charged to get in the hotel, but I was glad I got in and I didn’t know if there is any restrictions on leaving or us eating, but apparently not.

So enjoy your food. The management team will be around to talk to you. So thank you very much for your attention.

John L. Walsh

And everyone, the food is outside, you can just grab something to eat and come back in and we’ll try to mingle around with you. Thanks.

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