South Jersey Industries, Inc. (NYSE: SJI) CEO Interview


South Jersey Industries, Inc.
Interview with:
Edward J. Graham

Company Info
South Jersey Industries, Inc. (SJI) is an energy services holding company that provides a variety of energy related products and services through its five wholly owned subsidiaries: South Jersey Gas Company (SJG), South Jersey Energy Company (SJE), South Jersey Resources Group, LLC (SJRG), Marina Energy, LLC (Marina) and South Jersey Energy Service Plus, LLC (SJESP). SJI operates in several operating segments. Gas Utility Operations (SJG) consists primarily of natural gas distribution to residential, commercial and industrial customers. Wholesale Gas Operations include SJRG’s activities. SJE is involved in both retail gas and retail electric activities. Retail Gas and Other Operations include natural gas acquisition and transportation service business lines. Retail Electric Operations consist of electricity acquisition and transportation to commercial and industrial customers. On-Site Energy Production consists of Marina’s thermal energy facility and other energy-related projects.

Interview Highlights

Juan Costello:
What were the drivers behind South Jersey Industries ‘s full year results from last year, which were particularly strong?

Edward Graham:
Well I think is, if you look at our company, we have a main business, South Jersey Gas, our utility business and than we have three main non-utility businesses which are our on-site energy production, our asset management, storage business and (inaudible) retail business. And I am happy to say that all were up year-over-year in terms of performance. So we had contributions from every part of our business this year. That grew over the prior year.

In particular, I think our asset management and storage business was up far more significantly than the other businesses, but again all were great contributors.

Juan Costello:
Is it important to note that you also declared your quarterly dividend?

Edward Graham: Yes we did and for those, that they may not have recalled back in November, actually our Board of Directors approved the dividend increase of 10% which was I think $0.11 over the prior year which gives an annualized dividend of $1.19. And what’s really important about that is not only have we had increased our dividend over last seven years, but our board has a policy to grow the dividend by at least 6% to 7% a year and they target a payout ratio of 50% to 60%.

And what they found with our past performance and what they stand front of us, they have great comfort in increasing the dividend at that level. And in addition over the last three years we have grown the dividend by over 30%.

Juan Costello: South Jersey Industries is on its 58th consecutive year of paying dividends. Can you talk about some of the developing trends that you see in the market and how well positioned the company is to capitalize on these trends?

Edward Graham:
We are one of the early companies in the country to adopt it and our Board of Public Utilities approved it. And what it does is really shifts our earnings from customers we serve as opposed to how much gas they consume.

So it already made us indifferent in to consumption impact we are having in the conservation. So with that as a center piece, we now have businesses that can go out and benefit from stimulus packages and our own efforts to make customers more efficient to conserve energy and also to reduce the carbon footprint.

Juan Costello:
What differentiates South Jersey Industries from the other players in the sector?

Edward Graham:
Well clearly the first thing is that we are a utility that continues to grow in our South Jersey Gas subsidiary, and also with the speed is decoupling our conservation incentive program. We are positioned well in an environment where conservation and efficiency is going to be the future monitor of the industry and of the country. Secondarily, we have developed very successful non-regulated business, they capitalize on building, design building and on an operating projects where most from industrial customers take advantage of efficiency and renewable.

Juan Costello:
Looking ahead to the company’s strategic plans for the future, what objectives has management set for the company over the next two to three years?
(Please view audio for the response)

Juan Costello: What are key reasons SJI represents a good long-term investment potential to investors?

Edward Graham: Well clearly the starting place is in terms of our credibility of past performance and the wealth of opportunities in front of us. In terms of past performance over the last five years, our total shareholder return has averaged 80% a year which as we look at our peer group, stands I think rates us at the top if not the number one out of at least 45 plus companies.

In terms of future opportunities, I think clearly people look where you are going next. In terms of the utility I think some things there to highlight is an infrastructure program as part of the utility stimulus package for New Jersey that we are going through process to get approval to spend an incremental $100 million on our infrastructure and earn on that yearly. So that’s unprecedented in our state and we are on a path hopefully to have that approved by April.

Secondarily, as part of that we have been asked file by the end of this year or early next year a rate case with the State of New Jersey. Which in our case there would be at least $380 million of infrastructure that we have built excluding this $100 million that is not been reflected in rates and at least half or more of that are projects that would generate incremental earnings for the company once completed.

In terms of the non-utility side we have got several exciting things that will be borne our storage and our pipeline capacity and have actually already hedged $34 million of pre-tax profit in this winter season. And we are 66% hedged on a value portfolio of $37.5 million.

They are by far the largest numbers we have ever seen on our non-rate side in our asset management business. The other exciting thing is that we are partners in property in the Marcellus Shale 20,000 acres. We have already leased that to St. Mary’s to a production company and look to down the road besides the royalty payments. Well the royalty and working interest that we hope to realize in the future, we have already received cash payments up front as well that will recognize during the life of the lease.

So and there is a host of other projects that are out there as well in terms of CHP or combining power and renewable that we’re working on the, on the non-regulated side. So have got more opportunity in front of us than we have ever had before. So we hope to replicate our past performance in the future.

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