Constellation Energy Corporation · NASDAQ:CEG
Constellation Energy — UBS Natural Gas & Utilities Conference (February 2005)
34 slides from Constellation Energy's conference presentation, Feb 17, 2005
Slide 1: UBS Natural Gas & Utilities Conference
UBS Natural Gas & Utilities Conference E. Follin Smith Executive VP, CFO and CAO February 17, 2005
Slide 2: Forward-looking Statements Disclaimer
Forward-looking Statements Disclaimer: Certain statements made in this presentation are forward-looking statements, and may contain words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” and other similar words. We also disclose non-historical information that represents management’
Slide 3: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures: It is important to recognize that in certain instances in this presentation we have adjusted our actual financial results, prepared in accordance with generally accepted accounting principles (“GAAP”), for special items (which we define as items that are not relat
Slide 4: Focus on Execution
Focus on Execution • Growing commercial platform – Extending market share – Entering new underserved markets • Running existing businesses more efficiently – Operating leverage and scale benefits – Productivity savings (six sigma, etc.) • Generating cash flow and earnings growth – Redeploying capita
Slide 5: Operating in All Areas of Energy Value Chain
Operating in All Areas of Energy Value Chain • Baltimore Gas and Electric – Transportation and distribution utility for 1.2 million electricity customers and 620,000 gas customers in Central Maryland • Constellation Generation – Owns 12,500 Megawatts of primarily base load coal and nuclear generatio
Slide 6: Earnings Composition
Earnings Composition ($ EBIT in millions) 2004 % of EBIT BGE 364 33% Merchant Generation 479 44% Competitive Supply * 228 21% Other Non-regulated 19 2% Total 1,090 100% * Competitive Supply EBIT includes approximately $50 million of expenses in 2004 related to gas-fired plants in Mid-Con, PJM and Te
Slide 7: Competitive Supply: Load Serving Focus
Competitive Supply: Load Serving Focus Unique combination of physical and risk management capabilities drives load serving success 7
Slide 8: Power Value Chain Profit Opportunities
Power Value Chain Profit Opportunities • T&D - $2 per MWh POLR Adder Margin Default (excluding wires charge) Collected at Utility Price Competitive Full Req. • Competitive Supply Supply Margin Price Margin of $2 -$4 per MWh Full Requirements Risk Mgmt. Costs Generation Fleet Wholesale • Generation M
Slide 9: Sustainable Value Proposition
Sustainable Value Proposition Customer requirements beyond block power Baseload Generator • Managing optionality provided to fixed price Customer Load Profile full requirements customers • Congestion: cost to move power from generator to load pocket • ICAP & ancillary products • Unit outage risk • P
Slide 10: Leveraging the Power Model
Leveraging the Power Model • Coal – Improved performance of our own coal supply chain, reducing cost by $10-20 million per year – Developed capabilities for a customer-oriented, global coal business – Expect to deliver 11 – 12 million tons at margins of $2 - $4 per ton in 2005 • Gas – Targeting smal
Slide 11: Lower Cost per Unit
Lower Cost per Unit CCNPP & NMP Production Costs vs U. S. Nuclear Fleet (Top Decile & Quartile Range Based on '01 & '02 TwoYear Average Benchmark Data for 1600-1850 MWe 2 Unit Plants) 20 Top Quartile NMP Top Decile 18 $/MWHr 16 CCNPP 14 12 10 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Higher
Slide 12: Strong Cash Flow
Strong Cash Flow • Cash flow devoted to strengthening the balance sheet through sometime in 2006 when achieve 40% debt to total capital Net Debt to Total Capital 60% 54.6% Net Debt to Total 52.9% 49.9% 50% 46.5% 42% 40% 30% 2001 2002 2003 2004 2005E • Thereafter, cash flow will be devoted to more di
Slide 13: Growth on All Fronts
Growth on All Fronts 3-Year 12/31/2001 12/31/2004 Change Revenue $3.9 B $12.5 B $8.6 B Financial Earnings per Share * $2.41 $3.24 34% ROIC 6.9% 8.2% 1.3 ppts Net Debt to Capitalization 54.6% 46.5% (8.1) ppts Number of Merchant Customers 300 10,500 10,200 Wholesale Electric Load Served ▬ Peak MW 8,00
Slide 14: Growing Acquisition Track Record
Growing Acquisition Track Record NewEnergy Ginna 125 75 104 * 95 100 56 $ EBIT in millions $ EBIT in millions 75 67 50 50 50 50 . 49 45 42 40 25 36 35 0 25 2003 2004 2005 2004 2005 2006 Acquisition Financial Acquisition Financial Actual / Current Projections Actual / Current Projections • We are dis
Slide 15: Our Customers
Our Customers New York Life Verizon SEARS Home Depot 15
Slide 16: Shareholder Value Creation
Shareholder Value Creation 150% Price Appreciation (10/31/01 to 2/11/05) CEG +134% 125% Dividend Growth 100% 2001 $0.48 2005 $1.34 75% 50% 25% S&P +13% 0% (25%) DJ Util. +10% (50%) 10/31/2001 12/31/2001 2/28/2002 4/30/2002 6/30/2002 8/31/2002 10/31/2002 12/31/2002 2/28/2003 4/30/2003 6/30/2003 8/31/
Slide 17: 2005 EPS
2005 EPS $ per share 2004 * 2005E * % Change Merchant $2.36 $2.50 - 2.70 6% - 14% Utility 0.88 0.81 - 0.91 (8%) - 3% Other Non-regulated - (0.05) - (0.01) N.M. Earnings $3.24 $3.35 - 3.60 3% - 11% 2002 – 2005 Annual Growth of 12% * Excludes special items See Appendix 17
Slide 18: 2005 EPS Walk
2005 EPS Walk Generation/HQ $3.75 Cost Productivity Inflation 0.21 (0.09) Interest/ Dilution Divestiture Mid- NewEnergy 0.03 (0.03) Other New Atlantic NewEnergy Settlements (0.09) Wholesale Fleet 0.03 (0.06) 3.35 Comp. Supply Ginna 0.05 to Business (0.05) 3.60 Already 0.12 $3.50 Orig. Wholesale Comp
Slide 19: Long-term Growth Drivers
Long-term Growth Drivers • Fundamental growth drivers – Building leading commercial platform for energy delivery • Aggregating market share in deregulated Wholesale and C&I electric load serving • Pursuing underserved areas in coal and gas markets – Driving productivity gains – Prudently reinvesting
Slide 20: 2005-2007 EPS
2005-2007 EPS $5.50 Mid-Atlantic 4.75- Generation/HQ 0.43 5.00 $5.00 Other Cost Buyback/Interest Productivity Inflation 0.24 (0.18 ) 0.26 (0.15 ) Ginna $4.50 Wholesale NewEnergy 0.12 Comp. 0.15 Supply 0.65 $4.00 3.35 - 3.60 $3.50 17% - 20% Growth Rate (CAGR) $3.00 2005 2007 20
Slide 21: Competitive Supply Growth
Competitive Supply Growth • Electricity Estimated Market Share of Target Estimated Market Share of Retail 150,000 Wholesale Market 75,000 Switched Market 100,000 50,000 Peak MWs Peak MWs 50,000 25,000 - 0 2002 2003 2004 2005 2002 2003 2004 2005 CCG Peak MW Wholesale Target Market NewEnergy Peak MW R
Slide 22: Productivity Gains
Productivity Gains • Permanent reduction in cost base • Incremental gross margin from fleet 200 $60 150 $ millions 100 $50 50 $80 - 2005 2006 2007 Cumulative ¢/share 28¢ 46¢ 68¢ 22
Slide 23: Return on Invested Capital
Return on Invested Capital Total Company ROIC v. WACC 2002 - 2007 11% 10% 9% 8% 7% 6% 2002 2003 2004 2005 2006 2007 WACC Average ROIC 23
Slide 24: Long-term Growth Drivers
Long-term Growth Drivers • Already originated business Wholesale Competitive • Pattern of building backlog Supply Growth • Assuming moderating new business growth • Realistic switched market growth NewEnergy Growth • Modest market share gains • Renewal rates at historical levels • Specific targets P
Slide 25: Outlook for the future
Outlook for the future • Focus on execution drives sustained EPS growth – Grow presence in competitive energy markets – Deliver productivity gains – Redeploy capital at above risk-adjusted hurdle rates / share repurchases • Realize benefit of today’s higher market prices on fleet’s generation output
Slide 26: UBS Natural Gas & Utilities Conference
UBS Natural Gas & Utilities Conference E. Follin Smith Executive VP, CFO and CAO February 17, 2005
Slide 27: Glossary of Terms
Glossary of Terms • Debt to Total Capital: Debt to Total Capital is a non-GAAP ratio that excludes unamortized discounts and premiums, reduces debt by our cash balance, and includes minority interests in equity. We separately reflect the impact had we consolidated High Desert at December 31, 2002 an
Slide 28: EPS Excl. Special Items YTD 2004 & 2003
EPS Excl. Special Items YTD 2004 & 2003 We exclude Special Items because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We believe such a measure provides a picture of our results that is comparable among
Slide 29: EPS Excl. Special Items YTD 2002 & 2001
EPS Excl. Special Items YTD 2002 & 2001 We exclude Special Items because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We believe such a measure provides a picture of our results that is comparable among
Slide 30: 2004 Merchant Gross Margin, Below Gross Margin, and EBIT
2004 Merchant Gross Margin, Below Gross Margin, and EBIT We utilize the non-GAAP financial measure of Gross Margin to highlight the relationship between the costs of and prices for energy in our Merchant Energy business categories (i.e., Mid-Atlantic Fleet, Plants with PPAs, Wholesale Competitive Su
Slide 31: NewEnergy EBIT
NewEnergy EBIT We utilize the non-GAAP financial measure of EBIT to highlight the primary driver of earnings at NewEnergy. We believe this non-GAAP measure helps investors to better understand the changes in the level of NewEnergy operating results from period to period. RECONCILIATION: Year Ended D
Slide 32: Utility Gross Margin, Below Gross Margin, EBIT, and EBITDA
Utility Gross Margin, Below Gross Margin, EBIT, and EBITDA We utilize the non-GAAP financial measure of Gross Margin to highlight the relationship between the costs of and prices for energy in our Regulated Utility. We believe this non-GAAP measure helps investors to better understand the changes in
Slide 33: Other Nonregulated EBIT
Other Nonregulated EBIT We utilize the non-GAAP financial measure of EBIT to highlight the primary driver of earnings at our other nonregulated businesses. We believe this non- GAAP measure helps investors to better understand the changes in the level of our other nonregulated businesses operating r
Slide 34: Debt to Total Capital
Debt to Total Capital Debt to Total Capital is a non-GAAP ratio that excludes unamortized discounts and premiums, reduces debt by our cash balance, and includes minority interests in equity. We separately reflect the impact had we consolidated High Desert at December 31, 2002 and 2001. In addition,
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