Q1 2021 UGI Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the UGI Corp, first quarter 'twenty 'twenty One earnings conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question the one day.
You would need the press Star then one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero out.
And I like the hand, the topics over to your host today to make the Morris director of Investor Relations. Please go ahead.
Thank you.
Good morning, everyone and thank you for joining us.
With me today are John Walsh, President and CEO of UGI cadre of Trotsky CFO of UGI Corporation, Bob Beard Executive Vice President natural gas.
Roger Perreault Executive Vice President of Global LPG.
Before we begin let me remind you that our comments today include certain forward looking statements, which management 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 please read our earnings release and our annual report on form 10-K for an extensive list of factors that could affect the results with you.
Date or revise forward looking statements to reflect the events or circumstances that are different from expectations. We'll also describe our business using certain non-GAAP financial measures.
A reconciliation of these measures to the comparable GAAP measures are available on slide seven of our presentation.
Now, let me turn the call over to John.
Thanks, Tim Good morning, and welcome to our call I.
I hope that you've all had a chance to review our press release reported first quarter results.
UGI posted a very strong Q1, as we surpassed our prior high point for Q1, adjusted EPS achieved last year.
Our strong performance in the quarter is a clear demonstration of our ability to meet our financial commitments, while addressing the challenges presented by warmer than normal weather and the continued impact of the pandemic on some customer segments. We.
We benefited from the geographic and operational diversity of our businesses. Our proactive response to this quarter's challenges and a strong focus on delivering results.
This was an important quarter for the company.
During the last week of the quarter, we announced our agreement to acquire Mountaineer gas company the largest LDC in West Virginia, We're excited about the opportunity to expand our gas utilities business and eager to welcome the mountaineer team and their customers to the UGI family later in 2021.
Earlier in the quarter, we announced our investment in the utility scale renewable natural gas project in Idaho, which follows our acquisition of GH shy on the RMG distributor in Q4 of fiscal 'twenty.
These investments as well as additional opportunities under development will accelerate the strategic rebalancing of our business portfolio and enhance our ESG efforts.
On today's call I'll comment on our achievements in Q1, I'll turn it over to Ted who will provide you with the financial review of our Q1 performance, Bob Beard, and Roger Perreault will comment on critical developments across our businesses.
I'll, then conclude by providing an update on our environmental social and governance activities and the comment on the outlook for the balance of fiscal 'twenty one.
Our Q1, GAAP EPS was $1.44, while our adjusted Q1 EPS was $1 18.
As I noted earlier, our adjusted EPS was just above our Q1 fiscal 'twenty adjusted EPS of $1 17.
Despite weather that was warmer than prior year in all service territories, except Europe.
Both quarters have been adjusted for the Mark to market valuation of unsettled hedges and other items, which Ted will cover later.
This very strong earnings performance reflected the strength of our diversified businesses.
International had a particularly strong quarter as we benefited from weather that was close to normal and enjoyed the benefits of our LPG transformation work.
The midstream and marketing had a very solid quarter as well despite weather that was 11% warmer than Q1 fiscal 'twenty.
Our significant foundation of fee based margin was the key contributor. We also benefited from increased capacity management margin in the quarter.
Our teams across all our business did an exceptional job executing as we address the weather and pandemic challenges to deliver of very strong quarter, while remaining focused on safety service levels and sustainability.
Before I turn the call over to Ted I'd like to comment on the progress achieved in several key areas with major developments in Q1.
Our ace cylinder exchange program at Amerigas continues to see high levels of demand.
Right to the continued expansion of our customer base and new demand created by changing consumer habits due to the pandemic.
These factors are extending our season for Reis has more grilling and outdoor dining is happening all year round, even in colder weather.
We're also continuing to see strong demand for our cinch home delivery service.
<unk> is now available in 20 major markets across the U S and we expect the double the number of markets, where cinches offered over the next 18 months.
Total <unk> volumes were up 25% in Q1 versus the same period last year.
Our customer base at UGI utilities continues to grow as we added more than 3900, new heating customers.
We continue to be a leader in our work with major transport companies as they strive to reduce emissions by converting fleets to compressed natural gas.
We've just commenced construction on a project to deliver natural gas to EPS for a large regional fleet of CMG vehicles.
For the CMG facility is expected to be among the largest of its kind of North America and will help <unk> achieved significant emission reductions.
Utilities also remained focused on our long term infrastructure replacement program.
We exceeded our 2020 goals for infrastructure replacement, despite some disruptions to our project schedules and the spring due to the pandemic and expect to establish new record levels of replacement and betterment spend in fiscal 'twenty one.
Our new Bethlehem LNG storage and Vaporization unit was placed into full service in December.
This expansion of our LNG network had 70000 deck of terms of day of peaking capacity at a critical delivery point that serves the Lehigh Valley.
This is another important step in the ongoing development of our peaking services business.
I'll return later on the call to comment on our ESG initiatives, but I'd like to turn it over to Ted at this point for the financial review Ted.
Thanks, John.
As John mentioned, we're pleased with the strong results for the quarter.
We delivered adjusted diluted EPS of $1 18, compared to $1 17 in the prior fiscal quarter.
Reportable segments, EBIT was $414 million compared to $419 million in the prior year.
This table lays out our GAAP and adjusted diluted earnings per share for fiscal 'twenty, one compared to fiscal 'twenty as you can see our adjusted diluted earnings exclude a number of items such as the impact of Mark to market changes in commodity hedging instruments of gain of 40 cents. This year versus the loss of five cents in the first quarter.
Order of fiscal 'twenty.
Last year, we had a six net loss on foreign currency derivative instruments compared to a seven cent loss this year.
We had <unk> losses, this quarter that related to the mountaineer acquisition announced in December.
Lastly, you can see we adjusted out six cents of expenses associated with our LPG business transformation initiatives that is consistent with the amount in the prior year.
With regards to liquidity cash flows remained strong with year to day cash provided by operating activities growing 28% versus the same period in the prior year.
As of the end of the quarter UGI had available liquidity of $1 $5 billion, which is consistent with the last fiscal year end position.
And half of 1 billion more than Q1 of fiscal 'twenty.
We're particularly pleased with our cash generation and the liquidity position because we typically have higher seasonal working capital requirements in our first quarter.
We're also comfortable with the financing capacity across all of our business units and remain well within our debt covenants.
Additionally on February 3rd our board of Directors declared a quarterly dividend of 33 per share UGI has paid common dividends for 136 consecutive years and raised its dividend each of the last 33 years.
As I mentioned earlier for the first quarter, we delivered adjusted diluted EPS of $1 18, which was one cent over the prior year period, despite warmer than prior year, whether in our domestic businesses and COVID-19 headwinds, which did not exist in the first quarter of fiscal 2012.
<unk>.
With regards to COVID-19, I'd like to note that based on our experience. This quarter, we expect that we will be well within the 10 full year impact of COVID-19 that we shared last quarter.
As John mentioned, we saw the benefits of our geographic and operational diversification this quarter stronger margins in our international business continued progress on the LPG transformation initiatives and disciplined expense management were the biggest drivers of the results for the quarter.
This quarter, we also had a five cent pick up in corporate that was primarily tax credit.
The new tax legislation in the prior fiscal year will not be leverage to the extent it was last year, but given its introduction in the second half of the prior year. Our current full year estimated tax rate, which is reflected in Q1 of fiscal year 'twenty one for <unk>.
The gain versus our results in Q1 last year.
As a reminder of this year, we transitioned from the 15 year, whether history two of 10 year history.
And they are also now waiting whether data by volume for LPG and utilities businesses the price.
Prior year amounts have been restated to conform to this change.
Turning to the individual businesses.
Amerigas reported EBIT of $141 million compared to $165 million in the prior year quarter. This was largely due to weather that was eight 2% warmer than the prior year period structural conservation other residual volume loss and the continued impact from Covid.
19 on our commercial volumes.
The total volume decline was partially offset by the 25% increase in cylinder volume during the quarter as John already mentioned.
Lower operating expenses, primarily from our transformation initiatives also partially offset the margin decline.
UGI International delivered strong results, achieving EBIT of $136 million compared to all of $100 million in fiscal 2020, and whether that was four 9% colder than prior year, partially offset by the effects of COVID-19.
Total margin benefited from strong crop drying and heating related bulk volumes and due to our continued focus on margin management.
The large increase in total margin was also driven by favorable short term movement in underlying costs, given that propane was roughly 8% lower in cost than the prior year period.
<unk> recovery of costs associated with energy conservation certificates and higher margins from our energy marketing business.
I should also point out that this improvement in results was supported by the translation effects of the stronger euro compared to the prior year period outstripping the effects of our currency hedging approach led to dampen exchange swings.
Like Amerigas and UGI International continues to make progress on the transformation initiatives, we expect to realize the full 7 million euro and incremental ongoing benefits in fiscal 'twenty 'twenty, one and the.
Are on track to deliver the full 30 million euro and benefits for the by the end of fiscal 2022.
Moving to the natural gas side of the house midstream and marketing reported EBIT of $59 million in the quarter, which was roughly flat compared to prior year, despite significantly warmer than prior year of weather.
We saw favorable capacity management margin in comparison to the prior year as of few short periods of relative cold provided higher value for our asset portfolio.
UGI utilities reported EBIT that was 15% below the prior year period, largely due to significantly warmer than normal weather in the quarter and volume reductions due to COVID-19.
Spike the warmer weather, we saw higher volumes from our large firm and interruptible delivery service customers Opex was $2 million higher compared to the prior year period due to increased employee compensation and benefits expenses in corporate allocation expenses.
Lastly, our depreciation expense increased versus the prior year quarter due to continued distribution system and it capital expenditure activity.
With that I will turn the call over to Bob for an update on our natural gas business.
Ted.
Natural gas business has experienced weather that was approximately 10% warmer than normal in Q1, which affected margin at both utilities and energy services.
While the energy services has experienced no measurable change in margin or throughput utilities continues to see the effects of the Covid pandemic.
Excluding the effects of weather and Covid, both utilities and energy services exceeded expectations in Q1 of the fundamentals of our core businesses remain strong.
As John mentioned, we recently announced the acquisition of Mountaineer gas company.
The largest distribution company in West Virginia.
Mountaineer serves approximately 215000 customers and 50 of the 55 counties and what is importantly, an energy friendly state.
We're excited about this opportunity and plan to invest in and grow mountaineer gas much as we have done with our Pennsylvania utilities.
The petition to acquire mountaineer was submitted to the West Virginia PSC on January 27, and.
And we expect the deal to close in the second half of 'twenty and 'twenty one.
We look forward to welcoming all of the mountaineer employees the the UGI family of companies as we become part of the West Virginia community.
In addition to the acquisition of Mountaineer gas, we continue to see growth at both natural gas businesses with.
With the utilities, adding more than 3900 heating customers in the first quarter and energy services seeing continued strong activity in our midstream business.
Utilities Capex program remains of significant drivers of growth and we fully expect to execute on our plan to invest approximately $425 million in FY 'twenty one.
As I mentioned on the prior calls an important provision of the settlement agreement for last week case was resetting the plant in service threshold, the triggers or use of the disc mechanism.
As a result.
We will realize the disc revenue earlier, which will result in additional margin of approximately $4 million in FY 'twenty one.
The more significant contributions in FY 'twenty two.
We have made clear our plan to focus on investments that will improve our environment.
And we have seen positive developments in this area with our involvement in two significant projects for.
First as John mentioned.
We will be partnering with UBS to provide natural gas to their location the Middletown, Pennsylvania.
<unk> plans to convert its fleet to natural gas, thereby achieving significant reductions in emissions.
In addition, we have executed an interconnect agreement with the landfill gas developers for a large renewable natural gas project in northeast, Pennsylvania.
This project will provide access to the renewable fuel source on the UGI distribution system.
Once online this project will be the largest of its kind in the country.
These are just two examples of many opportunities we are evaluating to help facilitate environmentally friendly energy solutions, including expanding our reach in the renewable natural gas space.
I'll be making more detailed announcements about these projects in the near future.
Finally, as we continue to navigate the COVID-19 outbreak.
Our primary focus remains on the safety of our employees and our customers.
Our teams of both natural gas companies have done an exceptional job ensuring all critical work continues and that we maintain our key safety and customer service metrics and I'm pleased to report that these critical areas remains solid.
With that I'll turn it over to Roger.
Thanks, Bob.
The global LPG businesses delivered very strong results in the first quarter, despite lower commercial and industrial volumes driven by the Covid pandemic in both Europe and the United States.
Even with the challenges of warmer than prior year weather out of Amerigas, Our global LPG line of business delivered first quarter EBIT in excess of prior year by $12 million or for 5%.
We're very pleased with this result, as it demonstrates the value of our diversified portfolio of customers applications John.
<unk> fees and our ability to manage our business fundamentals to offset the effects of warmer weather.
During the first quarter, our teams are dedicated to serving our customers in the midst of the pandemic, while continuing to also execute on our ongoing transformation efforts at Amerigas and UGI International.
We remain confident that the global LPG businesses are well positioned to deliver strong results. Despite the uncertainties of the current environment.
The U S team continued to experience increased demand in our cylinder exchange business, including our home delivery service brand is a cinch.
The European team experienced some solid grain drawing campaigns and some margin expansion stemming partially from the lower cost of energy conservation certificates and partially from increased demand and heating segments and in the higher margin home cooking cylinder segment.
Now, let's move to more specifics at Amerigas.
As a reminder, the previously announced transformation program at Amerigas includes the total investment of $200 million that we expect will provide annual benefits of approximately $140 million by the end of fiscal 'twenty two.
We are progressing with our reengineering of key processes and systems that are part of the transformation efforts.
In fact in the first quarter, we rolled out more broadly the use of centralized customer engagement services Center.
Enhanced customer management tools, and the new routing and logistics tool.
All with the goal of satisfying our customers in the most efficient way possible.
The first quarter was the first winter season that we were nearly fully operational with our new operating model.
We have experienced service issues with the volume of calls in our ability to answer phones and in certain pockets of the country with distribution.
We are addressing these issues and have made major progress in the last 30 days.
We continue to dedicate significant resources to address these issues and anticipate continued improvement over the coming months as we settle into the new operating model.
I would like to highlight a few additional items that will be beneficial in the remainder of the year and beyond.
As John noted since has been rolled out in 20 cities across the USA and we expect to continue the rollout of traditional cities to reach a total of 40 cities by the end of fiscal 'twenty two.
Overall, our cylinder exchange program experienced the 25% increase in volume over prior year in Q1.
Due to unprecedented demand for cylinders, and especially outright purchases of cylinders. There is currently a shortage of cylinders in the U S market.
We are actively working this issue from both the supply and demand standpoint, so that we can best serve this market during this unprecedented time.
Our National accounts program continues to see solid growth. Despite the near term challenges of the pandemic.
We're excited about the work that has been achieved with our transformation initiatives and we look forward to continuously improving the various customer touch points with their new digital tools and our customer engagement services Center.
As demonstrated previously our teams will continue the diligent management of discretionary expenses to offset the lingering effects of COVID-19.
And unpredictable weather patterns.
Now moving onto our international business.
As mentioned on previous earnings calls our international team is also focused on driving efficiencies and improving the customer experience with investments of 55 million euros that will deliver over 30 million euros of recurring annual benefits by the end of fiscal year 'twenty two.
I am pleased to report, where we are still very much on track to achieve these objectives.
In addition to the laser focus on driving efficiencies on the international team continued to demonstrate tremendous resilience in the first quarter and more than offset the headwind generated by Covid, where in general shutdowns are much more restrictive than in the U S.
Our investments in transformation of providing us with the solid foundation for continued strong EBIT performance.
As mentioned during our last earnings call.
Other components of our international transformation effort is the organizational design.
We have established two centers of excellence that are now fully in place and delivering value.
The first brings the operational excellence. This center is focused on the sharing and implementation of best practices between our various operating entities, including Amerigas.
The other center of excellence is focused on commercial excellence, which includes the renewable solutions.
We're excited about having the renewables team in place and we're pleased with the very recent announcement of the <unk> partnership for the supply and development of renewable bio of LPG in Europe.
This effort is instrumental and leveraging our existing assets and capabilities as we continue to deep fossilize our supply infrastructure.
In closing the first quarter continued to bring challenges to our operations in the U S and Europe.
We are pleased that despite these challenges our performance demonstrated the high level of commitment of our employees, while also making strides with our transformation efforts.
Our continued focus on operational effectiveness cost management and ongoing customer experience improvements contributed to the solid results in the quarter that was impacted by the COVID-19, pandemic and warm weather in the U S.
Our strategy of geographic diversification across 18 countries in multiple customers segments again proved successful.
And all of this was underpinned by the dedication of our 10000 plus employees the safety our customers and the communities we serve.
Now back to John.
Thanks Roger.
I'd like to comment on the significant progress we've made on our ESG program over the past few months and close with a discussion on our fiscal 'twenty one outlook.
As the calendar turned to 2021, we were all hopeful that the new year would bring stability peace and health.
Therefore, we were disheartened with the events of really January in our nation's capital.
While we still believe the better days lie ahead recent events reinforce the importance of our belonging inclusion diversity in equity for bide commitments at UGI.
These efforts form a significant element of our social platform for ESG at UGI.
We're committed to being of voice for change kind of force for good in our communities and we've continued to expand our activities to engage and support those in need.
We've relied on critical existing partnerships to provide the support such as the United Way Salvation Army and reading is fundamental while also launching our strengthening other partnerships such as the urban Affairs Coalition Big Brothers Big Sisters and fill abundance.
We've also been very active on the environmental front of crucial element of our ESG program.
In addition to the <unk> investment and the RMG feedstock infrastructure project in Idaho, We've moved forward on several other exciting new projects in recent weeks.
As Bob mentioned UGI utilities executed of renewable natural gas interconnect agreement with the landfill gas developer in northeast, Pennsylvania.
This interconnect will enable the landfill to significantly reduce methane emissions and will provide shippers with access to a renewable fuel source when fully operational this interconnect will become the largest RMG supply point in the United States.
As Roger noted the UGI International just announced the new supply and development partnership with Eco bins of Polish company with a proprietary process to convert bio ethanol to bio LPG.
Renewable form of propane and butane.
This renewable fuel was produced for the conversion of organic industrial waste materials.
Two bio ethanol and then to bio LPG.
UGI has secured exclusive rights to <unk> of the supply of bio LPG.
We're excited about this opportunity to source and distribute this renewable solution to our customers.
This product can be easily and safely blended with conventional LPG and used for the same applications.
These properties will be key for our customers as they strive to achieve their emission reduction goals.
We see this as the potential key enabler to achieving net zero carbon mandates.
Last month, the UGI energy services in UGI utilities joined the coalition, our nation's energy future for one future that is focused on sharing best practices to accelerate our collective efforts to achieve greenhouse gas emission targets.
We have the opportunity to learn from others as new technologies and practices reshape our operations.
One future provides a great for them for best practice sharing in this key area.
We also established a dedicated ESG team within UGI led by Brendan Heck, Brendan and his team will work closely with our teams across the entire company.
To ensure that we're meeting our ESG commitments and identifying opportunities to accelerate our efforts while striving to be of positive voice for change in our communities.
Yeah.
While our practices to review full year earnings guidance. After the winter season, I can comment on current conditions and outlook where cash.
Currently experiencing relatively normal winter weather conditions across our service territories and our demand is reflecting those normal conditions.
I'd also reiterate Ted's comments regarding Covid impact, we're confident that the full year impact of the pandemic will be comfortably within the Tencent estimate included in our guidance.
We will comment on our guidance on the Q2 earnings call.
With that I'll turn the call back over to the operator, who will open it up for your questions.
Before we begin Q&A, we would like to turn the call over to Bob for some brief remarks.
Thank you and good morning.
Regarding the pennies pipeline, we were pleased to learn yesterday that the Supreme Court has agreed to take up this critical case and we look forward to hearing their decision sometime in the June timeframe.
In the meantime, we're waiting for FERC to act on our request to bifurcate the project.
We still believe that an additional source of natural gas into eastern Pennsylvania, and New Jersey as necessary, but the timing of the project remains unclear.
Spending on the project in FY 'twenty, one will be very minimal.
So with that I'll turn it back to the operator.
Yeah.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Harry Poland from Bank of America. Your line is now open.
Hi, Thanks for taking my question.
Good morning dose starting off.
Could you walk through the moving pieces why the amerigas.
Business total margin was down so much of here, despite the cylinders up 25% and the savings through the transformation initiatives I just want to understand.
How much C&I volumes were down to see the kind of the puts and takes here.
And then as you talk about the the current cylinder shortage U S. How are you guys thinking about debt and then heading into the net the rest of the year.
I'll comment thanks for that question I'll comment briefly and then turn it over to Roger.
I think the number one the <unk>.
Factor of.
Yes.
Impacting volume was weather.
And that John was coupled with the.
The other impacts around specific segments impacted by the pandemic, but Roger wanted to comment in more detail.
Absolutely, yes, so just to reemphasize definitely whether it was the.
It was really what drove some of those volume shortfalls you mentioned in your question here that some offsets for experience with cylinder volumes that is true we did experience.
Good cylinder volumes up 25% on our cylinder exchange not enough to offset the COVID-19 impact. However, we continue to see commercial segments being.
Quite low.
Restaurant Industries Entertainment in particular, when you think of resorts for example that are currently shut down.
You also asked about cylinder shortages, yes. Unfortunately, the industry as a whole is experiencing the cylinder shortage of the present time driven by a couple of things driven by customers wanting the stock up. So we have seen an unprecedented amount of cylinder sales where customers are buying of cylinder.
And therefore, clearly stocking up on this during this this time.
This isn't unique to the amerigas, it's an industry wide complexity right now we're buying new cylinders has been very difficult. So we've been.
Use of utilizing all of our resources to do a couple of things gives us many new cylinders as possible into our business, but also looking at how we're managing inventories and cylinder rotations and ensuring to get cylinders for the.
The high volume points of sale of as much as possible, so where we're really trying to manage this on the on all fronts and as a matter of fact, we actually have some of our cylinder distributors now that I've started putting some limitations as to how many cylinders of customer can buy.
Yeah.
So more to come on that as we continue to work through throughout the year.
Got it that's helpful.
I guess the on the European side.
And LPG.
Can you talk about the scope of this bio LPG partnership in terms of what percent of your.
Traditional propane volumes you could potentially replace with this bio LPG.
Looking at anything like this in the U S side.
Yes so.
A couple of comments on the first of all we're excited about this.
At Investor Day, we talked about are our real dedicated focus on developing renewable.
The PG and.
Really the fossilized of Decarbonising, our supply of LPG. So we have several projects that we are looking at in the various technologies now this one in particular.
As.
As a proprietary technology, where were the are converting our partners are converting.
Bile.
Ethanol to bio LPG and we in Europe, Europe has been quite a third of its development.
File requirements of the carbonization, So we have markets, especially in the Nordic countries. For example, where we can bring this product and get immediate value.
Relatively small I don't don't want to and I'm not at Liberty to say the exact size of this but these projects of the way I see it is that we're going to continue to see these relatively small assets. This is a small commercial scale just beyond the pilot scale, but are going to continue to develop and what we.
Like about this approach to Decarbonising is we can leverage our infrastructure, we have assets throughout all of <unk> 18 countries, including the U S, where it's very likely that some of these projects will be localized to where raw material feeds exist whether that be.
Harming products human waste or in the in this particular case ethanol.
The fact that these projects we are going to be relatively modest in size.
Distributed helps us leverage our infrastructure and enables us to leverage our customer base all of our storage terminals. The assets, we have to move product from those production sites to the end customers.
And absolutely we are following projects.
Everywhere everywhere, we operate.
Got it so this will be the first.
As a matter of money, yes, I would just add this is John to Rogers comments.
As he noted as Roger noted, we love the the sort of the attributes of this in terms of being able to leverage our infrastructure. We can blend this product with <unk>.
Conventional.
LPG or deliberate.
As a pure of buyer of LPG product.
It's immediate hopefully this will be the first of many investments in some of those attributes of shared as we look at per.
Projects on the renewable natural gas side as well those attributes of being able to blend in utilizing our existing <unk>.
Networks.
And deliver solutions that are immediate solutions to customers, who are looking to achieve certain mandates or certain goals in terms of their emission reductions.
Yeah.
Got it that's super helpful.
As you think of all of them here.
One more if I could squeeze of then regarding your recent out near acquisition any update on how you intend to finance that.
Transaction.
Sure Ted do you want to just comment on kind of status right now of our.
Process looking at the.
Financing.
Sure. So so there really isn't the change from our earlier comments, we are still working through the details it will be a combination of of cash on hand liquidity thats available.
Some amount of debt and some amount that will be covered through some kind of likely mandatory convertible instrument and and the exact proportions of that are still being worked through so the so no real change yet we will we will share an update when we've locked down on the best approach.
Got it. Thank you I appreciate it guys.
Thank you. Our next question comes from the line of Sheila <unk> from UBS. Your line is now open.
Hi, good morning, guys.
I've got a bunch of questions. So you can tell me if I need to read signal at some point, but.
Start off I was wondering if you can provide some color around the margin performance in the international segment. There was a comment about conservation for certificates.
Just wondering if this is related to the issue I think it was last year in France.
Returning to a more normal level or is it something else just any color you can provide around that that would be super helpful.
Sure I'll, let Roger.
The comment I think the only comment I would make with regard to that is.
So we've had a focused effort over the last few years to make sure. We had a process within the company for kind of optimizing our approach to satisfy the required satisfying the requirements for energy certificates in France, and I think some of what we're seeing this quarter and last year as well.
Kind of shows the debt.
That focus, but I'll, let Roger provide the details on that.
Yeah. Thanks, Thanks for the question.
Yeah, absolutely I think this the dedication we have of just continuing to find ways to source. These energy conservation certificates. The most cost effective manner has proved to be beneficial. So we've seen some upside.
I'd like to point out that in the first quarter.
And the margin and you look at a few things that we talk about we talked about.
These energy conservation certificates and our ability to secure the some of these are one time adjustments and we estimate the one time adjustments would be roughly three.
The rest is really ongoing good margin management that we the.
And we've demonstrated we're able to do and continue to do.
Okay.
That makes perfect sense, and then maybe to the follow up.
You've talked about across the company expense control has been the contributor to your performance over the last year.
Clearly some of them probably pandemic related but I'm not sure. If it's just sort of accelerated the program in the first place so.
The sort of think about future years, not just this year.
How sustainable is this benefit the permanent step down in cost and improving the optimization.
Yeah, I don't know if you can put a percentage on it do you expect to permanently capture as we think on the go forward basis.
I think generally shneur.
The if we look at our particularly the transformation programs and some of the work we're doing now and aligning our some of the critical functions across the company.
The majority of those savings.
Our permanent savings.
Of the pandemic related.
Savings.
And the Zip.
There are some of some lower operational cost associated with the <unk>.
Some limits on activity.
Things like travel.
There'll be some recovery in that but thats, a relatively small item anyways I would say that in.
In addition to the transformation the form of transformation work. The other thing we're doing as we move through the period, we're in right now and think about.
The evolution of the pandemic and.
Returning to for.
For normalized conditions, we are learning we have learned a lot.
There are opportunities.
The <unk> that have come about and then sort of crystallized by the experience of the pandemic around need for office space et cetera that will lead to future cost reductions as well.
Just because we will work differently.
Moving forward than we did in the past so.
I think the predominant.
Percentage of.
The savings will be ongoing there will be some elements of our cost per but not a material percentage that will return but.
That's going to be offset by changing the way we work.
On an ongoing basis as well out of Ted if theres anything you want to add on that.
Yes.
Guess, what I'd add Shneur again good morning.
What I'd add is that the transformation of events really were one time.
Focus significant changes in our in our business and the operating models.
But and then barking on those transformations, we basically establish the platform that will be a continuous improvement platform. So I think what youre, saying is this kind of one time dramatic change that comes with changing how we do our business.
But we're very much expecting to maintain a level of savings certainly nothing like the size of the transformation that would allow us to maintain cash flow growth for <unk>.
Garden list of of what we're seeing and any potential structural changes in volume.
Got it.
Just a pair of for instance, so at the end of the day.
A significant percentage of this will be maintained longer term.
It's kind of the result of all of the exchanges am I paraphrasing that correctly.
Yes, yes.
Yes, okay.
Perfect, Okay excellent glad to hear that.
Just continuing on.
With the West Virginia acquisition.
The acquisition that you did does this expand the area of focus for future utility acquisitions.
In the are you continuing to evaluate the LPC acquisitions or is the focus right now, let's let's just close what we've done and then we will be.
We think going forward.
I'll comment briefly share in.
The bump we're in as well.
But for sure our focus in the short term is working with the the mountaineer team and with all the the.
The regulatory authority.
On the process for.
Moving forward in West, Virginia, having said that.
We certainly would look favorably on other potential opportunities to expand our utilities business in the future.
And way of.
A number of factors.
Around the regulatory environment et cetera. So we would continue in the future to certainly be open to that.
And more and more.
As we progress with the.
The renewable solutions.
<unk> focus in the company, we will look at how that impacts the utilities sector.
And the opportunities for us to play a role in terms of the introduction and expansion of renewable natural gas solutions as part of.
Our own utilities portfolio and others.
Bob anything you'd like to add in terms of the focus on gas ldcs.
Yeah, John Thanks, and good morning Shneur.
We continually keep our eye on the landscape of LDC. So.
What we focus on along with what John said as far as opportunities to grow our ESG presence is regulatory environment in a given state. So yeah I'll just echo what John said we.
We are continually kind of scanning the landscape and staying on top of what might become a reality in the regulatory landscape is extremely important so that that certainly will govern where we were where we would look.
Perfect day step two more for you guys don't mind share.
The continued continuing on what you said on the R&D side.
What are your expected returns that you're targeting with respect to those of us.
Yeah sure we've been really pleased with what we've seen obviously each investment stands on its own.
We're looking for returns that are.
We will support the <unk>.
Long term earnings growth commitments, we've made and the company.
As we assess different types of forms of investments.
We look for cases, where we can leverage our existing infrastructure, our existing sort of demand and ability to incorporate.
The port renewable output into our supply chain so.
As I said.
Each of each investment will will stand on its own but we've been encouraged with the returns we've seen.
With the types of renewable solutions investments, we've been looking at and they look in many ways very similar to <unk>.
The investments returns, we see across the rest of the company.
We'll see how that evolves moving forward, but so far so good in terms of having attractive returns that contribute positively to <unk>.
EPS growth of the company.
Over the long term, but also.
The projects, we're looking at it become accretive very quickly.
I appreciate the color on that and maybe one final question.
Weighted into the propane.
Tank exchange business and just in general on that side, but.
Okay.
The significant increase in the installed base of.
I guess burner tips related to propane tank exchange, whether its at homes restaurants land. So.
And so forth.
Any thoughts on whether there can be a lasting impact on the cylinder exchange business post pandemic I mean, maybe not at the 25 per cent increase in volume as you saw last quarter, but.
Is there going to be kind of the new normal level of debt.
That is potentially higher than where it has been.
Or are you seeing a similar trend in Europe that you are able to capitalize on as well.
I'll comment briefly on the Roger expand because he's much.
A much more detailed knowledge than I do but.
The consumer level, yes, I do think that similar to I referenced us sort of a learning certain lessons during the pandemic about our business and how we operate I do think that.
Individual consumers are experiencing different things over the last 10 of 11 months here and I do think it will fundamentally change.
Consumer demand and their own habits. So.
See more outdoor dining extending for longer periods of people like.
That.
Experience, so I think.
We've seen a surge, but I think we're going to see tracks.
Traction for.
Increased demand for certain.
In certain areas for certain types of cylinder exchanged demand and the other thing that the pandemic has accelerated.
As on the Cinch side.
We're more and more people who are attracted to having the cylinders brought to them versus having to go out and get them.
That was certainly initially accelerated by the pandemic, but I think once people get used to the convenience of that.
Service.
I don't think the many of them are growing back so to speak so Roger what would you add to that yes, just the maybe a couple of things to the to the first part of your question Shneur.
It's possible that debt.
Our populations are going to continue to the enjoy the LIFO doors right. I mean, we're seeing a lot more patio type heating applications, where restaurants are are encourage neither one of the encouraging but enabling outdoor eating so.
Is that going to continue.
It's certainly possible.
The answer more specifically your question in Europe, we're not seeing the same type of pickup.
And again.
The the type of market, we're serving in Europe, and Europe cylinder business is not really of leisure product.
It's a product that's used in everyday cooking.
No doubt we've seen some pick up because people are not dining out and in many countries in Europe. The lockdowns are much more strict than what we're seeing here in the U S. So we do see that pickup, but it's not the surge in pickup that we saw here in the U S where.
With patio eating them, but there's just a lot of new applications of mobile propane tanks have taken place of taken hold over the last over the last year.
Alright, perfect. Thank you for letting me ask so many questions really do appreciate all of that and John.
So thank you very much and have a safe day. Thank you.
Okay.
Yes.
Thank you at this time I am showing no further questions I would like to turn the call back over to John Walsh CEO for closing remarks.
Thank you very much for your time and attention on our call. This morning, we certainly look forward to keeping you updated on developments as the.
The weeks of months progress and look forward to speaking with you again on our Q2 earnings call take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
The deal.
John.
Yes.