Valener announces its financial results for the second quarter of fiscal 2012
SOLID OUTLOOK DESPITE AN ESPECIALLY MILD WINTER
MONTREAL, May 14, 2012 /CNW Telbec/ - Valener Inc. (Valener) (TSX: VNR), which has held the public ownership interest in Gaz Métro Limited Partnership (Gaz Métro) since September 30, 2010, today announces its financial results for the second quarter ended March 31, 2012.
For the second quarter of fiscal 2012, Valener posted net income of $21.7 million, or $0.58 per share, compared to $22.4 million or $0.60 per share in the second quarter of last year. For the first six months of fiscal 2012, net income totalled $31.8 million, or $0.85 per share, compared to $33.5 million, or $0.91 per share, in the same period last year.
These circumstantial declines of $0.7 million, or $0.02 per share, for the second quarter of fiscal 2012 and of $1.7 million, or $0.06 per share, for the first six months were mainly due to a lower share in the net income of Gaz Métro, whose results were affected by especially mild temperatures.
"Nevertheless, despite those climatic factors, natural gas prices remain extremely favourable to the commercial development of Gaz Métro, our primary investment," said Pierre Monahan, Chairman of the Board of Valener.
Solid outlook for natural gas
"Given the abundance of natural gas in the North American market and the corresponding impact on prices, natural gas continues to enjoy a highly advantageous competitive position in all of Gaz Métro's markets, especially the industrial market. It's a situation that has prompted consideration of providing service to the Côte-Nord region, which is the last of Quebec's major industrial regions that does not yet benefit from the environmental and economic advantages of natural gas. Such a project would require an investment of about $750 million and add approximately 40% to the value of the rate base of our gas distribution activity in Quebec. To make a fully informed decision on a project of such magnitude, the Quebec government and Gaz Métro will diligently carry out feasibility studies, which will begin shortly with conclusions expected by the end of 2012," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.
While the decline in the price of natural gas has an impact on Gaz Métro's revenues, it does not affect the company's net income since natural gas purchased by Gaz Métro is billed to customers at cost.
Declaration of quarterly dividend
Valener's Board of Directors declared a quarterly dividend of $0.25 per common share payable on July 16, 2012 to shareholders of record at the close of business on June 29, 2012. With this dividend, Valener will have paid to its shareholders, as planned, an annual dividend of $1.00 per share for fiscal 2012.
5% discount maintained under the Dividend Reinvestment Plan
As approved by the Board of Directors, reinvestments of dividends into additional common shares, for the dividend payable on July 16, 2012, shall be carried out by way of an issuance of new Valener common shares at a discount of 5% to the weighted average price during the five trading days immediately preceding the dividend payment date.
Wind power projects of the Seigneurie de Beaupré Wind Farms 2 and 3
(wind power projects 2 and 3)
Beaupré Éole General Partnership (which is 51% and 49% indirectly owned by Gaz Métro and Valener respectively) and a wholly owned subsidiary of Boralex inc. are equal partners in two wind power projects with an installed capacity of 272 megawatts, namely, wind power projects 2 and 3, which are scheduled for commissioning in December 2013.
Completion of these wind power projects requires a total investment of approximately $750 million (including financing costs). On November 8, 2011, Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership, the entity that owns these projects, completed a debt financing with a group of lenders. This $725 million financing (including a construction loan and short-term facilities) is non-recourse to Gaz Métro and Valener.
Construction on wind power projects 2 and 3 began in May 2011. On November 25, 2011, the construction site closed for the winter, and activity resumed on May 7, 2012.
Gaz Métro's results
Net income attributable to the Partners of Gaz Métro totalled $106.3 million for the second quarter of fiscal 2012 and $161.1 million for the first six months, year-over-year decreases of $1.9 million and $7.8 million, respectively. These decreases were due, among others, to lower net income from the natural gas distribution activity in Quebec (as explained below), lower net income from the Energy Services and Other segment as the interests in MTO Telecom Inc. and Aqua Data Inc. were sold in fiscal 2011, and unfavourable non-recurring items in the Corporate Affairs and Other segment.
Mild temperatures have an impact on results despite the normalization
Gaz Métro's natural gas distribution activity in Quebec benefits from a revenue normalization mechanism, which is based on normal temperatures, for its distribution and load-balancing revenues. Given the considerably warmer-than-normal temperatures in the first six months of the fiscal year, application of this mechanism did not fully eliminate the impact on Gaz Métro's revenues. Moreover, the impact of lower transported volumes on transportation revenues, a result of lower consumption by customers, did not translate into an equivalent reduction in costs.
Gaz Métro's segment results - Consolidated net income attributable to the Partners of Gaz Métro
|3 months ended March 31 (1)||6 months ended March 31 (1)|
|(in millions of dollars)||2012||2011||Change||2012||2011||Change|
|VGS and GMP||8.2||8.5||(0.3)||15.7||14.5||1.2|
Financing costs of investments in this
|Natural Gas Transportation|
TQM, PNGTS and Champion Pipe Line
Financing costs of investments in this
|Natural Gas Storage|
Financing costs of investments in this
|Energy Services and Other|
|Energy, water and fibre optic||1.3||1.1||0.2||2.2||3.5||(1.3)|
Financing costs of investments in this
|Corporate Affairs and Other|
|Corporate Affairs and Other||(1.4)||(0.7)||(0.7)||(3.1)||(0.3)||(2.8)|
Gain realized by Gaz Métro Éole inc.
on the sale of 49.0% of its interest in
the Seigneurie projects
|Costs related to the CVPS acquisition||0.3||-||0.3||0.8||-||0.8|
Consolidated net income attributable
to the Partners of Gaz Métro, excluding
non- recurring items
Consolidated net income attributable
to the Partners of Gaz Métro
|(1)||Seasonal temperature fluctuations influence the energy consumption levels of customers and in turn influence Gaz Métro's interim consolidated financial results. Historically, Gaz Métro's revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.|
|(2)||These costs consist of the interest on the long-term debt incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures and companies subject to significant influence of each segment.|
Segment analysis of Gaz Métro's results
Quebec Natural Gas Distribution (Gaz Métro-QDA)
For the second quarter of fiscal 2012, Gaz Métro-QDA's normalized natural gas deliveries totalled 1,985 million cubic metres, up 0.7% from the same quarter last year.
For the first six months of fiscal 2012, deliveries totalled 3,524 million cubic metres, down 0.2% from the first six months of last year.
In the industrial market, natural gas deliveries were up 1.6% from the first six months of fiscal 2011, partly due to greater consumption, particularly in the metallurgy sector and, to a lesser extent, in the refining and pulp and paper sectors.
Normalized deliveries to the residential and commercial markets declined 0.2% and 2.8%, respectively, from the first six months of fiscal 2011, essentially due to slow economic growth combined with energy conservation measures undertaken by Gaz Métro-QDA customers, partly offset by the maturation of new sales.
The above-listed reasons also explain the 2012 second quarter declines in Gaz Métro-QDA's normalized natural gas deliveries.
Gaz Métro-QDA's net income attributable to the Partners of Gaz Métro totalled $92.4 million for the second quarter of fiscal 2012 and $136.1 million for the first six months, year-over-year decreases of $1.0 million and $4.5 million, respectively, that were mainly due to:
lower deliveries to the residential and commercial markets combined with
the fact that application of the temperature normalization mechanism
did not fully eliminate the impact on revenues of considerably
warmer-than-normal temperatures; and
- the combined impact of lower transported volumes on transportation revenues and of a higher average cost of transportation tools resulting from a change in demand by industrial customers and considerably warmer-than-normal temperatures.
These items were partly offset, among other factors, by the favourable impact of a decline in anticipated overearnings attributed to customers for the first six months of fiscal 2012 in relation to the anticipated overearnings in the same period of fiscal 2011 and by a greater number of financial optimization transactions in the load-balancing service.
Project to serve the Côte-Nord region
The Côte-Nord region is the last of Quebec's major industrial regions that does not yet benefit from the environmental and economic advantages of natural gas.
Large amounts of heavy oil are currently consumed in the Côte-Nord. However, the distance separating the Côte-Nord from Gaz Métro-QDA's existing infrastructures is considerable. More than 450 km of pipeline would have to be laid down to connect Saguenay to Sept-Îles, passing through the other major industrial centres of Baie-Comeau and Port-Cartier.
Such a project would require an investment of about $750 million and add approximately 40% to the value of Gaz Métro-QDA's rate base. To make a fully informed decision on a project of such magnitude, the Quebec government and Gaz Métro will diligently carry out the following three comprehensive feasibility studies:
market studies to determine the expected potential energy consumption in
the Côte-Nord if natural gas were available;
environmental and social studies to select the lowest-impact route for
the gas pipeline; and
- technical and financial feasibility studies, including engineering, to optimize the design and confirm the costs.
These studies will be initiated very shortly and the conclusions are expected by the end of 2012. If the conclusions are positive, Gaz Métro-QDA will continue the regulatory and environmental approval process in 2013. Thereafter, if all the necessary approvals are obtained, the preparatory work and construction of Gaz Métro-QDA's Côte-Nord service could start in 2014 with a view to commence operations at the end of 2015 or in 2016.
Energy Distribution in Vermont
Net income attributable to the Partners of Gaz Métro from energy distribution activities in Vermont totalled $7.4 million1 for the second quarter of fiscal 2012, down $0.2 million from the second quarter of last year. This slight decline was mainly due to lower natural gas and electricity deliveries by Vermont Gas Systems, Inc. (VGS) and Green Mountain Power Corporation (GMP), partly because temperatures were considerably warmer this second quarter than last year's second quarter, and to an increase in VGS's and GMP's operating and maintenance expenses, partly offset by a 3.2% increase in GMP's distribution rates attributable to its 2012 rate case and a slightly higher number of customers for VGS.
For the first six months, net income attributable to the Partners of Gaz Métro from energy distribution activities in Vermont totalled $13.8 million1, a $1.2 million year-over-year increase that was primarily due to favourable parameters in GMP's 2012 rate case and to income generated on GMP's increased investment, in December 2010, in Vermont Transco LLC, which is involved in electricity transmission in Vermont. These favourable items were partly mitigated by the fact that VGS and GMP had lower natural gas and electricity deliveries combined with higher operating and maintenance expenses.
Acquisition of Central Vermont Public Service Corporation (CVPS)
In order to strengthen its presence in Vermont, on July 12, 2011, Gaz Métro announced that it had signed a final agreement to purchase CVPS, the largest electricity distribution company in Vermont. Subject to required U.S. regulatory approvals, CVPS will be acquired for an all-cash consideration of US$35.25 per share for an approximate total of US$485 million, net of transaction and other costs estimated at approximately US$40 million.
The transaction was approved on September 29, 2011 by a strong majority of CVPS's common shareholders. CVPS and Gaz Métro also received confirmation from the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice that, with respect to this acquisition, no measures or action would be requested under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. On March 6, 2012, the Federal Energy Regulatory Commission (FERC) issued its decision in favour of the transaction. The acquisition is also subject to the approval of other U.S. federal and state regulators, including the Vermont Public Service Board. Gaz Métro is confident that it will obtain the additional authorizations required to finalize the acquisition by summer 2012.
Gaz Métro intends to finance this new investment with 50% debt and 50% equity. On November 11, 2011, Gaz Métro inc. (GMi) entered into a note purchase agreement with investors, by way of private placement, in anticipation of a later issuance of notes secured by Gaz Métro, for a total capital amount of US$260 million. The proceeds of the issuance will be loaned to Gaz Métro on conditions similar to those of the secured notes, for purposes of partially financing the acquisition of CVPS shares. GMi has sent investors the requisite prior notice for a May 15, 2012 note issuance. Gaz Métro has also sent an issuance notice for the issuance of $260 million in Gaz Métro units to GMi and Valener under their pre-emptive rights, as set out in Gaz Métro's Limited Partnership Agreement. Upon receipt of this notice, both GMi and Valener confirmed that they will exercise their pre-emptive rights and subscribe their full respective shares in the issuance.
Once the transaction is finalized, CVPS and GMP will combine their operations under Northern New England Energy Corporation (NNEEC), a wholly owned subsidiary of Gaz Métro based in Vermont.
Kingdom Community Wind (KCW) project
At the end of fiscal 2011, GMP began construction of the KCW project, a 63-megawatt wind power project located in Lowell, Vermont. This US$150-million, 21-turbine project will supply power to more than 24,000 households consisting of GMP customers and members of the Vermont Electric Cooperative, Inc. Construction is proceeding as planned with commissioning scheduled for the end of 2012.
The Independent System Operator of New England (ISO-NE) published a final system impact study requiring GMP to obtain a new voltage control system needed to connect the project to the transmission system. GMP estimates the cost of this system to be about US$11 million, corresponding to an increase in project costs to be included in GMP's rate base. GMP is currently reviewing the final study to determine whether or not it will contest its conclusion before the FERC.
The investments required for this project are expected to be financed by GMP through both debt and equity financing in accordance with its capital structure, as this investment is regulated and consequently is part of its rate base. To that effect, on November 16, 2011, GMP issued, by way of private placement, US$50.0 million in Series A First Mortgage Bonds. On April 2, 2012, GMP issued the second tranche of Series B First Mortgage Bonds in the amount of US$25.0 million. These issuances will be used to finance part of GMP's investment in the project, with the remainder being financed by an equity injection from Gaz Métro, through NNEEC.
Natural Gas Transportation
Net income attributable to the Partners of Gaz Métro from the Natural Gas Transportation segment totalled $5.4 million1 for the second quarter of fiscal 2012, down $0.4 million from the second quarter of fiscal 2011. This decline was mainly due to a decrease in the share of income of Portland Natural Gas Transmission System stemming from lower interruptible service revenues, partly offset by an increase in the revenues of Trans Québec & Maritimes Pipeline Inc. (TQM).
For the first six months, net income from this segment was down $1.0 million due to these same factors and to a favourable adjustment that had been recognized in the first six months of fiscal 2011 after the amortization rates for TQM's property, plant and equipment were revised downward upon approval by the National Energy Board.
Natural Gas Storage
Net income attributable to the Partners of Gaz Métro from the Natural Gas Storage segment totalled $1.4 million1 for the second quarter of fiscal 2012 and $3.1 million1 for the first six months, up $0.1 million and $0.4 million, respectively, from the same periods last year. These moderate increases were mainly due to lower operating expenses attributable to delays in certain maintenance projects.
Energy Services and Other
The net income attributable to the Partners of Gaz Métro from the Energy Services and Other segment totalled $1.1 million1 in the second quarter of fiscal 2012, up $0.3 million from the same period in fiscal 2011. This slight increase was mainly due to the higher profitability of Climatisation et Chauffage Urbains de Montréal, s.e.c., stemming primarily from lower fuel costs due to lower consumption volumes and a lower average cost, partly mitigated by the impact of the sale of the interests in Aqua Data Inc. and MTO Telecom Inc. in fiscal 2011.
For the first six months, net income totalled $1.7 million1, down $1.1 million from the same period in fiscal 2011. This decrease was mainly due to the sale, in fiscal 2011, of the interests in Aqua Data Inc. and MTO Telecom Inc. and to an increase in expenses of Gaz Métro Transport Solutions, L.P. (Transport Solutions), which commenced operations during fiscal 2011. Being in the start-up phase, Transport Solutions has started to execute its first liquefied natural gas (LNG) supply contract for vehicles, in addition to building the refuelling stations. These factors were partly offset by HydroSolution L.P.'s higher profitability owing to higher rental rates for water heaters and to a greater volume of unit sales in the electric water heater business as well as to additional revenues from the sale of heating and air conditioning equipment that began in March 2011.
Natural gas as transportation fuel
Transport Solutions, an indirect subsidiary of Gaz Métro created to develop natural gas for use as fuel by the transportation industry, is deploying the Blue Road. Since July 2011, it has been installing the facilities needed to supply LNG to 180 freight trucks from three refuelling stations, under an agreement entered into with Transport Robert 1973 Ltée (Robert Transport). The Boucherville and Mississauga stations have been in operation since September 19, 2011 and January 16, 2012, respectively. For Transport Solutions, the project represents an investment of approximately $5 million. Delivery of trucks ordered by Robert Transport began in autumn 2011 and is continuing in fiscal 2012.
Valener will hold a conference call with financial analysts today, Monday, May 14, 2012 at 11 a.m. (Eastern Time) to discuss its results and those of Gaz Métro for the second quarter ended March 31, 2012.
Pursuant to an administration and management support agreement entered into between Valener and Gaz Métro on September 30, 2010, Gaz Métro acts as the manager of Valener. As such, Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice-President, Corporate Affairs and Chief Financial Officer of Gaz Métro inc., the General Partner of Gaz Métro, will be the speakers, and a question period will follow.
The call will be broadcast live and accessible by dialling 647-427-7450 or toll-free 1-888-231-8191. It will also be available via webcast on Valener's website (www.valener.com) in the Events & Presentations page of the Investors section.
The media and other interested parties are invited to listen in on this conference call. After the conference call, the speakers will be available for media interviews and questions.
For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 74592225). For 90 days afterward, the call can be played back on the above-mentioned website.
Overview of Valener
Valener owns an economic interest of approximately 29% in Gaz Métro. Valener therefore has a stake in the energy industry and benefits from Gaz Métro's diversified profile, both in terms of geography and business segment. Valener also owns an indirect interest of 24.5% in the wind power projects developed with Gaz Métro and Boralex inc. on the private lands of Séminaire de Québec. Valener may also pursue its own development projects and acquisition strategies subject to a non-competition agreement in favour of Gaz Métro and to applicable limitations under its credit facility. Valener's common shares are listed on the Toronto Stock Exchange under the "VNR" trading symbol. www.valener.com
Overview of Gaz Métro
With over $3.8 billion in assets as at March 31, 2012, Gaz Métro is Quebec's leading natural gas distributor. Its more than 10,000-kilometre network serves 300 municipalities. Gaz Métro has operated in this regulated industry since 1957 and is the trusted energy provider to its customers in Quebec and Vermont, who choose natural gas for its competitive price, efficiency, comfort and environmental benefits. Gaz Métro is also present in the electricity distribution market, natural gas transportation and storage, and in the development of innovative energy projects such as wind power, natural gas as fuel for the transportation industry and biomethanation. Gaz Métro is committed to the satisfaction of its customers, its Partners (Gaz Métro inc. and Valener), its employees and the communities it serves. www.gazmetro.com
Cautionary note regarding forward-looking statements
This press release may contain forward-looking information within the meaning of applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Gaz Métro inc. (GMi), in its capacity as General Partner of Gaz Métro, and acting as manager of Valener (the management of the manager) and is based on information currently available to the management of the manager and assumptions about future events. Forward-looking statements can often be identified by words such as "plans," "expects," "estimates," "forecasts," "intends," "anticipates" or "believes," or similar expressions, including the negative and conjugated forms of these words. Forward-looking statements involve known and unknown risks and uncertainties and other factors beyond the control of the management of the manager. A number of factors could cause the actual results of Valener or of Gaz Métro to differ significantly from current expectations, as described in the forward-looking statements, including but not limited to the general nature of the aforementioned, terms of decisions rendered by regulatory agencies, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supply, the integrity of the natural gas distribution system, the progress of wind power projects and other development projects, the ability to complete attractive acquisitions (such as CVPS) and the related financing and integration aspects, the ability to secure future financing, general economic conditions, exchange rate fluctuations, and other factors described in the Risk Factors Relating to Valener and the Risk Factors Relating to Gaz Métro sections of Valener's and Gaz Metro's MD&As for the year ended September 30, 2011 and in Valener's disclosure filings. Although the forward-looking statements contained herein are based on what the management of the manager believes to be reasonable assumptions, among others, assumptions to the effect that no unforeseen changes in the legislative and regulatory framework of energy markets in Quebec and in the New England states will occur; that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur; that Gaz Métro can continue to distribute substantially all of its net income (excluding non-recurring items); that the wind power projects in which Valener and Gaz Métro are indirectly involved will be completed on time and within the defined parameters; that Gaz Métro will obtain the required approvals from federal and state authorities for the acquisition of CVPS; that Gaz Métro will obtain sufficient capital for the CVPS acquisition; that GMP will be able to quickly and effectively integrate CVPS's operations; and that the conclusions of studies on the Côte-Nord project will be positive and that the required regulatory approvals will be obtained in addition to the other assumptions described in the MD&A of Valener and Gaz Métro for the quarter ended March 31, 2012, the management of the manager cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of this date, and the management of the manager assumes no obligation to update or revise them to reflect new events or circumstances, except as required pursuant to applicable securities laws. Readers are cautioned to not place undue reliance on these forward-looking statements.
1 Net of financing costs
|VALENER INC.||3 months ended March 31||6 months ended March 31|
|(in millions of dollars, except for share data, which is in dollars)||2012||2011||2012||2011|
|CONSOLIDATED INCOME AND CASH FLOWS|
|Share in the net income of Gaz Métro||$||30.8||$||31.4||$||46.7||$||49.0|
|Cash flows related to operating activities||$||9.4||$||11.0||$||5.1||$||9.5|
|Basic and diluted net income per share||$||0.58||$||0.60||$||0.85||$||0.91|
Dividends declared per share to shareholders of record on
December 30, 2011 and on March 30, 2012
|Weighted average number of shares outstanding (in millions)||37.4||37.3||37.4||36.9|
|Market prices on Toronto Stock Exchange (TSX):|
|CONSOLIDATED BALANCE SHEETS|
|Shareholders' equity per share||$||16.33||$||16.13|
|GAZ MÉTRO LIMITED PARTNERSHIP||3 months ended March 31||6 months ended March 31|
|(in millions of dollars, except for unit data, which is in dollars)||2012||2011||2012||2011|
|CONSOLIDATED INCOME AND CASH FLOWS|
|Net income attributable to the Partners of Gaz Métro||$||106.3||$||108.2||$||161.1||$||168.9|
|Cash flows related to operating activities||$||245.5||$||236.9||$||325.7||$||312.8|
|Purchases of property, plant and equipment||$||58.2||$||30.6||$||176.2||$||77.3|
|Changes in deferred charges and credits||$||25.5||$||26.5||$||67.9||$||43.7|
Basic and diluted net income per unit attributable to the Partners
of Gaz Métro
|Distributions paid per unit to Partners (1)||$||0.28||$||0.28||$||0.56||$||0.28|
|Weighted average number of units outstanding (in millions)||126.3||126.3||126.3||126.1|
Authorized rate of return on deemed common equity
(Gaz Métro's natural gas distribution activity in Quebec) (2)
First mortgage bonds (Standard & Poor's (S&P)/DBRS Limited
|Commercial paper (S&P/DBRS) (3)||A-1(low)/R-1(low)||A-1(low)/R-1(low)|
|CONSOLIDATED BALANCE SHEETS|
|Partners' equity attributable to the Partners of Gaz Métro||$||1,108.4||$||1,023.3|
|Partners' equity per unit attributable to the Partners of Gaz Métro||$||8.77||$||8.10|
|(1)||No distributions were made in the first quarter of fiscal 2011, given that, as part of the reorganization of Gaz Métro, a distribution of $0.31 per unit was paid on September 30, 2010 instead of on October 1, 2010.|
|(2)||Including the sharing of productivity gains, if applicable, and excluding the Global Energy Efficiency Plan incentive..|
|(3)||Through its General Partner, Gaz Métro inc.|
SOURCE VALENER INC.