South Jersey Industries Posts Earnings Of $43.7 Million In Q1 2009

Published: 11-May-2009

South Jersey Industries, Inc. (South Jersey Industries), an energy services holding company, has reported financial results for the first quarter of 2009. It has reported economic earnings of $43.7 million, or $1.46 per share, for the first quarter of 2009, compared with the economic earnings of $39.2 million, or $1.32 per share, in the year-ago quarter.

“Despite the turbulent economic environment, South Jersey Industries achieved record first quarter performance, which sets us up for another strong year in 2009,” said South Jersey Industries chairman & chief executive officer Edward J. Graham. “Strong performance at key non-utility businesses, coupled with ongoing initiatives to boost efficiency throughout the organization, continue to drive our performance. South Jersey Industries continues to have bright prospects for the remainder of 2009 and beyond,” continued Graham.

South Jersey Industries Highlights:

-- Economic Earnings per share up 11% for the quarter.

-- Entered into an agreement with the Northeast Maryland Waste Disposal Authority to develop a landfill-gas-to-electricity project.

-- Received approval from the New Jersey board of public utilities for South Jersey Industries proposal to improve SJG infrastructure and create jobs in support of NJ Governor Jon Corzine’s economic stimulus plan.

-- Maintained a strong balance sheet: equity-to-capitalization ratio was 53% at March 31, 2009.

-- SJG’s senior secured rating was upgraded to “A3” with a positive outlook by Moody’s Investor Services.

Non-Utility Posts Strong Results: Non-utility operations reported income from continuing operations on a GAAP basis of $6.6 million in the first quarter of 2009, compared with a loss of $0.4 million from continuing operations for the same period in 2008.

On an economic earnings basis, non-utility income from continuing operations for the first quarter of 2009 was $18.7 million, compared with $14.1 million for the same period of 2008. The increase in economic earnings was due primarily to strong performance in South Jersey Industries asset management and marketing and on-site energy production businesses. Performance in the company’s key non-utility business lines was as follows:

-- Asset Management & Marketing - Economic earnings in the first quarter of 2009 for this business line rose to $16.7 million compared with $12.2 million in first quarter of 2008. Economic Earnings for 2009 benefited significantly from the increased value of pipeline capacity, which served to offset market conditions that produced tighter margins for storage capacity. Having 12.2 Bcf of gas storage capacity under management and 153,000 dekatherms per day of pipeline capacity creates opportunities for this business to lock in attractive margins resulting from volatility in market pricing.

For the 2008-2009 winter seasons South Jersey Industries produced $39.5 million in pretax profits. This is a 16% improvement over the level previously projected in the company’s year-end 2008 earnings release. The improvement was the result of first quarter hedge gains realized due to a decision to shut-in gas in storage.

For the upcoming 2009-2010 winter season and based upon current market conditions, South Jersey Industries’ portfolio of storage and transportation assets are expected to produce $35.8 million in pre-tax profits. About 70% of this portfolio is currently being used and South Jersey Industries has no material open positions. The 2009-2010 portfolios reflect the improved value of storage and an additional 30,500 dekatherms per day of pipeline capacity that the company has acquired in early 2009. South Jersey Industries has also begun to hedge the 2010-2011 winter seasons and, based upon current market conditions, the assets are expected to generate $30.9 million of pre-tax profits.

About 15% of this portfolio is currently used and those positions are hedged. As South Jersey Industries accomplished during the 2008-2009 winter season, it will continue to optimize both the 2009-2010 and 2010-2011 portfolios to further enhance the value of these assets by trading opportunistically around market spreads; however, it is reasonable to expect that the company will experience some offsetting realized hedge losses, particularly as it enters the coming summer season.

South Jersey Energy was recently awarded a two-year contract to supply electricity to 400 New Jersey school districts. This contract will add about $4.5 million in pre-tax income over the 2-year period while saving the school districts an estimated $36 million in electricity costs. The savings will help maintain important education programs for the company’s children and hopefully alleviate some of the burden on New Jersey taxpayers.

-- On-Site Energy Production- Marina Energy, South Jersey Industries on-site energy production business, contributed $1.4 million in Economic Earnings to South Jersey Industries bottom line in the first quarter of 2009, compared with $1.2 million in the prior year.

Looking to other energy project opportunities, South Jersey Industries announced a fifth landfill gas-to-electricity project, which is a joint-venture to develop a facility for eight jurisdictions in northeastern Maryland. South Jersey Industries completed work on a multi-million dollar solar project for an educational facility, which commenced full operation in March 2009.

The company has also signed a letter of intent with three parties to evaluate the feasibility of designing and potentially developing a combined heat and power facility in Atlantic county, N.J. South Jersey Industries will continue to pursue energy project opportunities similar to these, as well as other combined heat and power (CHP or cogeneration) projects in line with the recently announced New Jersey Energy Master Plan and energy initiatives at the Federal level. Medical, educational and governmental facilities are particularly well-suited applications for these projects. Marina develops, owns and operates on-site energy plants. South Jersey Industries expects these projects to provide annuity-like income streams under long-term contracts.

-- Retail Services- Retail services, which include appliance warranty and repair, HVAC installation, and meter reading, contributed $0.6 million in the first quarter of 2009, compared with $0.7 million in the same period last year.

Utility Business Performance: South Jersey Gas posted first quarter 2009 net income of $25.0 million, which was unchanged from the first quarter of 2008. Performance drivers for the quarter were higher net margin, improved operating performance and lower interest expense, which offset significantly higher pension expense and other post-retirement benefit costs.

Regulatory Update – In April 2009, SJG received approval from the NJ board of public utilities to improve the utility’s infrastructure, which will enhance the delivery of safe and reliable service to customers, while also creating jobs in support of government. Corzine’s economic stimulus plan. The initiative involves extensive infrastructure improvement projects over the next two years totaling $103 million that are incremental to SJG’s normal capital programs scheduled for 2009 and 2010.

These expenditures, which were otherwise planned to occur over the next five years, will be compressed into the next two years to complete construction projects important to SJG’s gas delivery systems and simultaneously generate more jobs. The infrastructure program allows SJG to earn a return of, and a return on, these specific infrastructure investments as the funds are spent. SJG also agreed to file a full base rate case with the NJBPU as part of the infrastructure program. By that time, the company expects to have invested over $380 million in infrastructure since the completion of its last base rate case in 2004.

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