Valener announces its financial results for the third quarter of fiscal 2014

HIGHLIGHTS

Valener

  • Normalized operating cash flows1 of $0.31 per share;
  • Seigneurie de Beaupré wind power projects: electricity production exceeded expectations thanks to favourable wind conditions; and
  • Quarterly dividend of $0.25 per share to be maintained for fiscal 2015.

Gaz Métro

  • Natural gas deliveries rose above anticipated volumes; and
  • The Central Vermont Public Service acquisition continues to produce synergies.

__________________________________
1 Cash flows related to operating activities less dividends paid to preferred shareholders

MONTREAL, Aug. 8, 2014 /CNW Telbec/ - Valener Inc. (Valener) (TSX: VNR), the public investment vehicle in Gaz Métro Limited Partnership (Gaz Métro), is today announcing its financial results.

For the first nine months of fiscal 2014, Valener recorded recurring net income attributable to common shareholders of $43.2 million ($1.14 per common share), up $5.1 million ($0.13 per common share) compared to the same period last year. This performance reflects higher natural gas and electricity deliveries by Gaz Métro in Quebec and Vermont as well as the synergies achieved from integrating the operations of Green Mountain Power (GMP) with those of Central Vermont Public Service (CVPS).

For the third quarter of fiscal 2014, on a recurring basis, Valener recorded a net loss attributable to common shareholders of $1.7 million ($0.04 per common share) compared to a net loss of $0.2 million ($0.01 per common share) for the same period last year. As expected, this decrease essentially reflects a reversal of part of the increase in net income generated by Gaz Métro's natural gas distribution activities in Quebec during the first six-month period given the seasonal nature of its operations.

"Valener is continuing to reap the benefits of Gaz Métro's growth strategy. As planned, Valener will maintain at $1.00 per share the dividend paid to its shareholders during fiscal 2015, thanks to the forthcoming cash flows stemming from its economic interest in the Seigneurie de Beaupré wind power projects, as well as the solid distributions from its investment in Gaz Métro," said Pierre Monahan, Chairman of Valener's board of directors.

"In accordance with its strategic plan, Gaz Métro is expanding its presence as an energy distributor in Vermont, strengthening its position as an energy distributor in Quebec, and undertaking promising energy projects. Such positioning has delivered results," said Sophie Brochu, Gaz Métro's President and Chief Executive Officer. "During the fiscal year, Valener and Gaz Métro became wind power producers following the commissioning of phase one of the Seigneurie de Beaupré wind power projects, whose productivity is exceeding our expectations thanks to favourable wind conditions."

For the third quarter of fiscal 2014, Valener recorded normalized operating cash flows of $11.6 million or $0.31 per common share. These cash flows were sufficient to cover the dividend payment made to common shareholders during the third quarter of fiscal 2014 even though the Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership has not yet begun making distributions to its partners.

Seigneurie de Beaupré wind power projects       


Wind power projects 2 and 3

Installed capacity

272 MW

Commercial start-up

 Dec. 2013

Total investment

~$750M

Valener

24.5%

Gaz Métro

25.5%

As initially scheduled, these projects began commercial operations at the end of 2013, and the 126 wind turbines of this first phase are now in service.

These projects generated 184,441 megawatthours of electricity during the third quarter of fiscal 2014 and 461,682 megawatthours since being commissioned, exceeding expectations thanks to favourable wind conditions.


Wind power project 4

Installed capacity

68 MW

Scheduled start-up

 Dec. 2014

Total investment

~$190M

Valener

24.5%

Gaz Métro

25.5%

 

Construction on this second phase resumed in May 2014 and is continuing according to schedule, with a planned commissioning in December 2014.


Summary of Valener's results


3 months ended June 30


9 months ended June 30

(in millions of dollars, unless otherwise indicated)

2014

2013


2014

2013

Net income (loss) attributable to common shareholders

(1.7)

(0.2)


43.2

41.3

Recurring net income (loss) attributable to common shareholders (1)

(1.7)

(0.2)


43.2

38.1

Per common share (in $)

(0.04)

(0.01)


1.14

1.01

Normalized operating cash flows (1)

11.6

10.6


28.0

29.9

Per common share (in $)

0.31

0.28


0.74

0.80

(1)

These measures are financial measures not defined in Canadian generally accepted accounting principles (GAAP). For additional information, refer to the Non-GAAP Financial Measures section in Valener's MD&A for the quarter ended June 30, 2014.

 

Gaz Métro's results

For the first nine months of fiscal 2014, Gaz Métro recorded recurring net income attributable to Partners of $205.0 million, up $19.0 million or 10.2% from the same period of fiscal 2013. For the third quarter of fiscal 2014, the net loss attributable to Partners stood at $3.3 million on a recurring basis compared to recurring net income attributable to Partners of $2.4 million last fiscal year, down $5.7 million. As expected and announced, this year-over-year third-quarter decline came from a reversal of part of the increase in net income generated by natural gas distribution activities in Quebec during the first six months of fiscal 2014.


Gaz Métro's segment results – Net income (loss) attributable to Partners, excluding non-recurring items


3 months ended June 30


9 months ended June 30

(in millions of dollars)

2014

2013

Change


2014

2013

Change

Energy Distribution









Gaz Métro-QDA

(10.6)

(5.5)

(5.1)


156.3

139.0

17.3


GMP and VGS (1)

8.0

7.9

0.1


42.5

35.2

7.3


(2.6)

2.4

(5.0)


198.8

174.2

24.6

Natural Gas Transportation (1)

2.8

2.7

0.1


13.1

13.1

-

Energy Production (1)

(0.3)

(0.5)

0.2


0.5

(0.7)

1.2

Energy Services, Storage and Other (1)

(1.4)

0.1

(1.5)


(1.8)

4.7

(6.5)

Corporate Affairs (1)

(1.8)

(2.3)

0.5


(5.6)

(5.3)

(0.3)

Net income (loss) attributable to Partners, excluding non-recurring items (2)

(3.3)

2.4

(5.7)


205.0

186.0

19.0

Net gain on the disposal of the interest in HydroSolution LP

-

-

-


-

14.7

(14.7)

Net income (loss) attributable to Partners

(3.3)

2.4

(5.7)


205.0

200.7

4.3

(1)

Net of financing costs of investments in this segment. These costs consist of the interest on the long-term debt incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures and entities subject to significant influence of each segment.

(2)

This measure is a financial measure not defined in Canadian GAAP. For additional information, refer to the Non-GAAP Financial Measures section in Valener's MD&A for the quarter ended June 30, 2014.

 

Performance in the Energy Distribution segment


Quebec natural gas distribution (Gaz Métro-QDA)

Rate base

$1.9B

Authorized return

8.90%

Distribution network

~ 10,000 km

Customers

~192,000

 

In May 2014, the Régie de l'énergie ("Régie") issued a final decision on the complete rate case for fiscal 2014. Based on this decision, the rate case translates into an anticipated increase of $0.7 million in Gaz Métro-QDA's net income compared to the net income realized in fiscal 2013.

For the first nine months of fiscal 2014, Gaz Métro-QDA's net income increased $17.3 million year over year. The increase was mainly due to:

  • a timing difference between the revenue recognition profile, which follows the customers' consumption profile, and that of costs. This $16.1 million difference, anticipated in the 2014 rate case, should largely reverse at the end of fiscal 2014; and
  • a $1.2 million favourable variance compared to the earnings projected in the 2014 rate case, essentially arising from the recognition of a share in the anticipated overearnings of the distribution service. These anticipated overearnings mainly result from higher natural gas deliveries caused by much colder-than-normal temperatures in winter 2014.

The timing difference between the revenue recognition profile and that of costs, as anticipated in the 2014 rate case, also explains the $5.1 million increase in net loss recorded in the third quarter of fiscal 2014 compared to the same quarter last year.


Energy distribution in Vermont

Green Mountain Power (GMP)

Vermont Gas Systems (VGS)

Rate base

US$1.2B

Authorized return

9.58%

Customers

~ 260,000

Rate base

US$144M

Authorized return

10.26%

Customers

~ 46,000

 

Net income from energy distribution activity in Vermont was up $0.1 million for the third quarter and up $7.3 million for the first nine months of fiscal 2014 compared to the same periods last year.

Aside from the favourable impacts of GMP's and VGS's 2014 rate cases, these increases were mainly due to the favourable impact of colder temperatures in winter 2014 on GMP's deliveries, to synergy-related savings resulting from the operational integration of GMP and CVPS, and to the appreciation of the U.S. dollar versus the Canadian dollar.

GMP is continuing to integrate its operations with those of CVPS. As at June 30, 2014, GMP was ahead of schedule and had already achieved sufficient synergies to reach the US$5.0 million attributable to customers for fiscal 2014 in accordance with the sharing mechanism established at the time of the CVPS acquisition.

As for VGS, it is continuing to work on its system development project to serve the communities of Vergennes and Middlebury in Addison County (Phase I) and International Paper Company in New York state (Phase II).

With respect to Phase I, approved by the Vermont Public Service Board (VPSB) in December 2013, VGS began the preconstruction work in June 2014 after obtaining all the necessary permits. This phase is expected to be completed in autumn 2015. In early July, VGS filed an update application with the VPSB in order to raise the project budget from US$86.6 million to US$121.6 million. This increase in the projected project costs stems mainly from the higher costs for the specialized labour needed for this type of project and from changes to the pipeline route and to the engineering methods used after consultation with residents and other stakeholders. As at June 30, 2014, US$24.3 million had been invested in the project.

The VPSB is expected to issue a decision on the regulatory approval of Phase II by December 2014. VGS's goal is to supply gas to this customer by the end of 2015.

Performance in other segments

For the third quarter and first nine months of fiscal 2014, net income from the Natural Gas Transportation segment remained relatively stable year over year.

The share in earnings of Portland Natural Gas Transmission System (PNGTS) increased during the third quarter and first nine months of fiscal 2014, reflecting higher sales resulting from the signing of new short-term contracts and from higher demand due to colder temperatures. These increases were, however, mitigated by the increase in income tax expense related to PNGTS and by the higher maintenance costs of Trans Québec & Maritimes Pipeline (TQM).

The Energy Production segment consists of the non-regulated energy production activities related to wind power projects 2 and 3 and wind power project 4 developed by Valener in conjunction with Gaz Métro and Boralex inc. on the private lands of the Seigneurie de Beaupré.

The net income generated since wind power projects 2 and 3 were commissioned in December 2013 explains the increases of $0.2 million and $1.2 million recorded for the third quarter and the first nine months of fiscal 2014 compared to the same periods last year.

Recurring net income from the Energy Services, Storage and Other segment was down $1.5 million for the third quarter and down $6.5 million for the first nine months of fiscal 2014 compared to the same periods last year.

These decreases were mainly due to lower net income from Intragaz following the Régie's May 2013 decision and to a decline in profitability at Climatisation et Chauffage Urbains de Montréal, s.e.c. as fuel costs were higher given the cold temperatures of winter 2014. They exclude the $14.7 million net gain that had been realized on the sale of the interest in HydroSolution LP during the first quarter of fiscal 2013.

Conference call

Valener will hold a conference call with financial analysts today at 2:30 pm (Eastern Time) to discuss its results and those of Gaz Métro for the third quarter ended June 30, 2014.

The call will be broadcast live and is accessible by dialling 647-427-7450 or toll free 1-888-231-8191. For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 73182558). It will also be available via webcast on Valener's website (www.valener.com) in the Events and Presentations page of the Investors section and can be heard during the 90 days following the initial call.

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 a 24.5% indirect interest in the Seigneurie de Beaupré Wind Farms developed with Gaz Métro and Boralex inc., with the 272-megawatt Phase I in service since December 2013. Valener's common shares and preferred shares are listed on the Toronto Stock Exchange under the "VNR" symbol for common shares and under the "VNR.PR.A" symbol for Series A preferred shares. www.valener.com

Overview of Gaz Métro

With more than $5 billion in assets, Gaz Métro is a leading energy provider. It is the largest natural gas distribution company in Quebec, where its network of over 10,000 km of underground pipelines serves 300 municipalities and more than 190,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 305,000 customers. Gaz Métro is actively involved in the development of innovative, promising energy projects such as the production of wind power, the use of natural gas as a transportation fuel and the development of biomethane. Gaz Métro is a major energy sector player who takes the lead in responding to the needs of its customers, regions and municipalities, local organizations, and communities while also satisfying the expectations of its Partners (Gaz Métro inc. and Valener) and employees. 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, uncertainty about obtaining approvals from regulatory agencies and interested parties to carry out activities in Gaz Métro's various business segments and the socio-economic risks associated with such activity, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas and electricity supply, the integrity of the natural gas and electricity distribution systems, the progress and profitability of wind power projects and other development projects, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to secure future financing, general economic conditions, exchange rate and interest rate fluctuations, weather conditions and other factors described in the risk factors relating to valener section and in the risk factors relating to gaz métro section of Valener's MD&A for the fiscal year ended September 30, 2013 and in Valener's and Gaz Métro's disclosure filings. Although the forward-looking statements contained herein are based on what the management of the manager believes to be reasonable assumptions, in particular 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 the applications filed with the Régie will be approved as submitted; that natural gas prices will remain competitive; that the supply of natural gas and electricity will be maintained; that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur; that Gaz Métro will be able to continue distributing substantially all of its net income (excluding non-recurring items); that the wind power project in which Valener and Gaz Métro own indirect interests will be completed on schedule and as per specification; that Wind Farms 2 and 3 will be able to make distributions to its Partners; that GMP will be able to continue to quickly and effectively integrate CVPS's operations; that liquidity needs for Gaz Métro's development projects will be obtained through a combination of operating cash flows, borrowings on credit facilities, capital injections from Partners, and issuances of debt securities; and that the subsidiaries will obtain the required authorizations and funds needed to finance their development projects; in addition to the other assumptions described in the Valener and Gaz Métro MD&As for the quarter ended June 30, 2014, 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. These statements do not reflect the potential impact of any unusual item or any business combination or other transaction that may be announced or that may occur after the date hereof. Readers are cautioned to not place undue reliance on these forward-looking statements.

SOURCE Valener Inc.



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