Remarks to Shareholders
Duke Energy Annual Meeting
Richard B. Priory
Chairman, President and CEO
Duke Energy
What a difference a year makes!
When I reflect on the past 15 months, I am struck by the tremendous growth in the value of our company—and by the extreme market movements we’ve seen during that time. Since we last met, the market value of your ownership in Duke Energy grew approximately $13 billion.
A year ago, technology stocks were valued in the stratospheric range. Energy companies and other blue chips couldn’t approach their market valuations, even though we were delivering strong, bankable results.
I joked about changing our name to “Duke Energy.com,” to take advantage of the market’s captivation with all things Internet-related. But a welcome sense of valuation sobriety has set in, and I’m glad no one took my suggestion seriously! In fact, if the current market trend continues, we may begin to see Internet companies adding “dot energy” to their names!
Today, investors are seeking companies with the growing and staying power to prevail. And no company is better prepared to reap those rewards than Duke Energy. We are the “real deal” when it comes to energy. We deliver far more than lofty forecasts—we deliver the earnings and the growth fundamentals that investors expect. Consistently. Increasingly. Across all lines of our business.
In 12 months, we saw our stock price nearly double.
In a year in which market fluctuations sent many companies scrambling for new strategies and short-term survival tactics, Duke Energy held fast to the principles of productivity and performance for which we are known. Earlier this week we set a new all-time high for our stock price, when it reached $46.75 per share on Tuesday.
We were particularly pleased to deliver record-level, appreciating value to you, our shareholders. Total shareholder return for 2000 exceeded 75 percent. At year-end, we administered a two-for-one stock split that further rewarded shareholders and ensured that our shares remain affordable. DUK has become a “must own” stock and today is widely held by virtually every major mutual fund.
Four years ago, I stood before you and pledged that Duke Energy would deliver eight to 10 percent annual earnings growth. We did that—and more.
We reported ongoing earnings per share for 2000 of $2.10, a 17 percent increase over 1999. Revenue for the year increased 127 percent to $49.3 billion.
Our performance caught the eye of market watchers. We are ranked No. 17 on the Fortune 500 list, moving up from No. 300 just four short years ago. Business Week magazine named us nineteenth on the list of the nation’s top-50 performers, and among the top 10 in sales growth.
Duke Energy is not a flash in the pan—we’re a proven standout investment, growing revenues and earnings at an impressive, sustained level over the past 10 years. According to Fortune:
- We rank 12th in one-year revenue growth, with a 127 percent increase in 2000.
- And we rank 8th in 10-year revenue growth, with 30 percent annual revenue growth from 1990 through 2000.
* * * * *
Last year’s performance did more than fulfill an annual growth goal. It honored a promise made to you in 1997, when we began blazing the trail of energy convergence.
Four years ago, we committed that we would transform your company to succeed in—and lead—the new world of energy. We promised big, bold, transformational results that would drive record earnings growth, broaden our market base and reward shareholders with new levels of value.
We talked of rich potential—within our company and throughout global markets that were opening, expanding and embracing competitive change.
Like all good trailblazers, we put a stake in the ground—a vow to unlock value by unleashing the intellect and initiative of our energy team. The vision we shared with you then wasn’t the end of a single trail, but the beginning of many new ones.
In 2000, for the first time ever, our competitive businesses generated more than 50 percent of our earnings—and about 90 percent of our revenue. Compare that to just three years earlier, when our competitive businesses accounted for just eight percent of earnings.
That 50 percent milestone, and the transition it marked, drew upon the distinct capabilities of Duke Energy employees to translate knowledge into action, and action into results.
We exceeded rigorous growth expectations—consistently and increasingly. We outpaced our pledge of eight to 10 percent annual earnings growth—a goal that four years ago seemed, to some observers, wildly improbable. Today we’ve set our sights on annual earnings growth of 10 to 15 percent.
Results for first quarter 2001 indicate that we’re well on track! Last week we reported ongoing earnings per share were up 51 percent, to 74 cents, versus a split-adjusted 49 cents last year. Revenue for the quarter increased 126 percent over the prior year quarter to $16.5 billion.
We continued to make bold, decisive, trailblazing moves, and our knowledge of market cycles allowed us to do so at the right time.
Both domestically and internationally, we have positioned businesses and assets along growth pathways. We’ve moved into key natural gas supply basins, strategically increased our gas storage capacity, and developed the natural gas transportation systems to supply growing power generation needs—which we are meeting through our merchant energy businesses.
To deliver real results and value, Duke Energy moves with speed and decisiveness. Opportunities don’t stand still and wait.
No where is that clearer than in our North American Wholesale Energy business. Today we own, operate or have under construction 10,300 megawatts of electric generation in North America. We have another 13,500 megawatts in advanced development that will be operational by 2004.
This year, we will bring on six facilities. In 2002 and 2003, we will deliver 10 to 11 facilities—each year.
There is a compelling imperative for us to move quickly with our wholesale merchant business. The tightness of supply that we’re seeing in the West and other regions didn’t develop overnight. It will take time, leadership, innovation and investment to resolve. But to consumers in California and other hard-hit areas, time is also in very short supply.
So we’re working hard and fast to restore balance, deliver new generation in record time, and maximize the output of existing fleets.
I wrote to you in February regarding the steps Duke Energy is taking to help resolve California’s energy crisis. We continue to work around-the-clock to generate the power needed by the California grid today—and to generate the ideas and solutions that will assure long-term market stability.
Outlook for the months ahead is not good, and we expect California to struggle this summer with the painful dilemma of inadequate supply resources.
I expect you’ve heard the allegations being leveled at electricity and fuel suppliers in that state by politicians and others. I cannot speak for any other company, but I can assure you that Duke Energy adheres to the highest standards of integrity—in California and in every corner of the world where we do business.
I will also assure you that we have taken aggressive steps to limit our financial exposure to uncertainties in California’s energy market. We have sold a significant portion of output from our plants through fixed-price, forward contracts to creditworthy entities. And we are prudently managing and lowering the level of questionable receivables.
A final point I will make here is that we continue to strongly support open, competitive electric markets—in the Carolinas and elsewhere—that send proper pricing signals and deliver new levels of value and performance to customers.
* * * * *
Beyond North America, we are blazing new trails in all parts of the world.
We continue to tap the extraordinary potential of Latin America markets that attracted Duke Energy into Argentina, Bolivia, Brazil, Ecuador, El Salvador and Peru.
Our investments in Brazil are the cornerstone of our Latin American strategy. Last year we acquired additional interests in the Paranapanema hydroelectric system, bringing our ownership in one of Brazil’s largest generating companies to 95 percent.
Last year we completed the 495-mile Eastern Gas Pipeline in Australia, in time for the Summer Olympics, bringing competition to that country’s natural gas market for the first time. We are also building new power generation resources to connect to the pipeline. And this summer, we’ll begin construction of a pipeline to serve the Australian State of Tasmania, a project that will provide immediate and long-term economic benefit to the region.
We established ourselves as an energy trading and marketing company in Europe with the purchase of Megas, the leading independent gas marketing company in the Netherlands. We are building upon this initial platform to offer additional energy and risk management services to meet the changing needs of energy customers throughout Europe.
True to our strategy, Duke Energy is a market leader, not just a participant, in every segment of our integrated energy businesses. We are:
- The second largest energy company in the country, based on market value; and the largest in the country based on earnings;
- The second largest natural gas trader in the U.S.;
- The third largest electric power trader;
- The number one producer of Natural Gas Liquids in the U.S.
- The number one fossil-fired power plant builder in the U.S.
Strong positions across these major lines of business, along with our global presence and resource base, allow us to deliver consistent earnings growth.
And our ability to integrate Duke Energy businesses represents a powerful competitive advantage in that it provides significant incremental margin.
* * * * *
Duke Energy’s ability to venture boldly into new competitive markets and positions is due in large part to financial strength, scope and flexibility.
A strong balance sheet and a diverse earnings base protect us against inevitable market downturns and allow us to create upside value from price volatility.
Just last month we completed an offering of 28.75 million shares of common stock and $875 million in equity units—the largest such offering of all time for the U.S. energy industry. The offering recharges our balance sheet, further strengthens our financial standing, and is right in line with our value growth strategy. Duke Energy is one of very few companies that could have attracted $2 billion of new investment in today’s uncertain marketplace.
* * * * *
The energy industry has long been driven by pioneers and trailblazers, men and women with a unique view of the future.
More than 120 years ago, Thomas Edison completed his first successful test of the incandescent lamp. He labored for 13 months, testing more than 2,000 different materials, before settling on the model of the modern light bulb.
But success in this vital industry requires more than great ideas. It requires the ability to act, to persevere, and to translate ideas into meaningful results. Edison translated his vision into a legacy of remarkable innovation.
The solitary task of perfecting that light bulb was just the beginning for Edison. He then faced the enormous challenge of having to invent, manufacture, and perfect hundreds of related components that the earth had never seen.... from the complex switches and meters in the generating plants to the simple switches and meters in the homes of consumers...and everything in between.
Just a few years later, Dr. Gil Wylie and Buck Duke envisioned a series of electric generation facilities along the Catawba River that would parlay Mr. Edison’s idea into economic vigor for the textile communities of the Carolinas. They were able to see the promise of Edison’s light bulb—and how it could enlighten and enable the future. They also recognized the powerful potential of the Catawba’s flowing water, and were able to connect electricity, the river, industry and quality of life.
It is that ability to execute, to ground lofty ideas in practical, transforming application, that is at the heart of what Duke Energy does best.
We see a world that is hungry for the opportunities that energy affords, and we work passionately to turn vision into reality. We roll up our sleeves and get things done. We make a difference.
Thomas Edison once said: “I have more respect for the fellow with a single idea who gets there than for a fellow with a thousand ideas who does nothing.”
The power plants and offices and trading floors of Duke Energy are full of smart, creative, “idea” people. The key is that our ideas generate results. Whether we’re working to keep the lights on in California, bring electricity to the jungles of Peru, fuel the Olympic torch in Australia, or recycle agricultural waste to serve an industrial customer in the Midwest, we’re generating what’s next in energy.
We’re generating the next innovation, the next solution, the next new trail. Indeed, “we generate what’s next” is not just our new tagline.
It is shorthand for what we do at Duke Energy everyday wherever we operate.
* * * * *
I am proud of the strides we made last year, and of the progress we’ve made since the creation of Duke Energy. But I am prouder by far of the men and women of our company.
Their talent, wisdom and commitment drive the success we’re celebrating today. They are a bold force that brings positive change to our industry and world. And just as they bring value to you as shareholders, they enrich the communities we serve through their spirited involvement and leadership.
The team of trailblazers I am privileged to lead is uniquely poised to create growing, lasting value in today’s energy world. They are the first to see and seize the opportunities that abound in a growing, evolving marketplace.
I began my remarks by reflecting on what a difference a year makes. I’d like to close by acknowledging the difference each of you makes as shareholders. It is your confidence and investment that allows us to grow, explore and realize the full potential of our company.
For that we are profoundly grateful—and motivated to seek out and deliver new value, greater growth and the rewards of “what’s next” in energy!
