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CMS Energy Corporation (



Q4 2011 Earnings Call

February 23, 2012 9:00 AM ET


Laura Mountcastle – VP and Treasurer

John Russell – President and CEO

Tom Webb – EVP and CFO


Daniel Eggers – Credit Suisse

Mark Barnett – Morningstar

Ali Agha – SunTrust

Jonathan Arnold – Deutsche Bank

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Brian Russo – Ladenburg Thalmann



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Good morning everyone, and welcome to the CMS Energy 2011 Results and Outlook call. This call is being recorded. Just a reminder, there will be a rebroadcast of this conference call today beginning at noon Eastern Time running through March 1st. This presentation is also being webcast, and is available on CMS Energy’s website in the Investor Relations section.

At this time, I would now like to turn the call over to Ms. Laura Mountcastle, Vice President and Treasurer. Please go ahead ma’am.

Laura Mountcastle

Thank you. Good morning and thank you for joining us today. With me are John Russell, President and CEO; and Tom Webb, Executive Vice President and Chief Financial Officer.

Our earnings press release issued earlier today and the presentation used in this webcast are available on our website. This presentation contains forward-looking statements. These statements are subject to risks and uncertainties and should be read in conjunction with our Form 10-Ks and 10-Qs. The forward-looking statements and information and risk factors section discuss important factors that could cause results to differ materially from those anticipated in such statements.

This presentation also includes non-GAAP measures. A reconciliation of each of these measures to the most directly comparable GAAP measure is included in the appendix and posted in the Investor section of our website. Reported earnings could vary because of several factors, such as legacy issues associated with prior asset sales. Because of those uncertainties, the company isn’t providing reported earnings guidance.

Now, I’ll turn the call over to John.

John Russell

Thanks Laura. Let me welcome everyone for joining us today in our call. Since I will see many of you next week, excuse me, I’ll keep my comments brief and be available for questions after Tom covers the results. 2011 was another year of strong financial performance. Our adjusted EPS was a $1.45 slightly exceeding the guidance set back in February and up nearly 7% from the $1.36 in adjusted EPS reported in 2010.

This was the ninth consecutive year we achieved or exceeded our original EPS target. Gross operating cash flow continues to grow primarily driven by our investments in the utility. In 2011, this cash flow was $1.6 billion. It is expected to continue to grow at about $100 million a year over the next five years. Our shareholders experienced an attractive 24% TSR last year and nearly a 150% TSR over the past three years.

It appears the market has recognized our consistent financial performance and significant dividend increases over this period. Although we have made good progress increasing our PE multiples, we still have more work to do to fully eliminate the peer discount. Few weeks ago, we raised the dividend 14% to a payout level of 62% which is in line with our peers.

This is a sign of the Board’s confidence with our progress and with our long-term business outlook. Overall, I am very pleased with the results in 2011 and look forward to building on our success in 2012. One of our top priorities in 2012 is to focus on our customers’ needs as fundamental as this may seen, we can do a better job. Last year, we launched the customer value initiative which focuses on moving up the value chain. We will talk more about this important initiative next week at our Investor Meeting.

We also want to firmly align with you, our shareholders. We will continue to be transparent with our business model, clearly identifying the financial and operational metrics most important to you and delivering the results. We are fortunate to have a good energy law in Michigan that provides the foundation for investment decisions and lays the groundwork for regulatory decisions. However I believe there is room for improvement, for improvement in the process that will be in the best interest of all parties.

I believe the few process changes could make Michigan’s regulatory model one of the best in the country. Risk is one of the key elements of any investment or business decision. We focus on identifying financial and business risk and evaluating the alternatives along with the cost of mitigation. I have confidence that we have mitigated as much risk as possible or have backup plans in place for the various risks we may encounter.

We are establishing our 2012 adjusted EPS guidance at a $1.52 to $1.55 per share in a tight range of 5% to 7%. This should support continued TSR performance in the 9% to 11% range. Now I’ll turn the call over to Tom to share more insights about 2011 and 2012.

Tom Webb

Thanks John. Let me welcome to everybody on the call today. Nearly 10 years ago, we established a course to rebuild the company and grow EPS at what we call the mid single-digit pace. That evolved in the 6% to 8% a year. We met that goal and we met it at the high end of the range. We dipped once in 2007 to reflect the planned sale of international assets before the full-year benefits kicked in. The full-year benefit of lower debt and interest expense and higher utility equity and earnings occurred in 2008 as planned.

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