2014

Valener ends fiscal year on a positive note: recurring net income rises 12.6% versus fiscal 2012

HIGHLIGHTS
Valener
  • $34.0 million in recurring net income, up $3.8 million;
  • At $1.07, normalized operating cash flows per common share rose $0.44 per share;
  • Seigneurie de Beaupré wind power projects:
    • Final year of construction for wind power projects 2 and 3 with full commissioning expected in December 2013; and
    • Financing completed for wind power project 4.
 
Gaz Métro
  • $165.7 million in recurring net income, up $14.1 million;
  • $25.5 million1 increase in recurring net income generated in Vermont; and
  • Green Mountain Power achieved greater-than-anticipated synergies from the merger with Central Vermont Public Service.

 

MONTREAL, Nov. 28, 2013 /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 fiscal 2013, recurring net income attributable to common shareholders totalled $34.0 million ($0.90 per common share) versus $30.2 million ($0.81 per common share) in fiscal 2012. This 12.6% or $3.8 million increase ($0.09 per common share) came mainly from an increase in the share in the net income of Gaz Métro, which benefited from the growth in Vermont energy distribution activities.

"Valener provides its shareholders with a sound investment and stake in Gaz Métro's well-targeted growth and diversification strategy, which is rigorously deployed, as evidenced by the net income growth in fiscal 2013. The strength of the dividend paid to our shareholders is further bolstered by advancements in the wind power projects, namely, the imminent commissioning of wind power projects 2 and 3 and the implementation of financing for wind power project 4" said Pierre Monahan, Chairman of Valener's board of directors.

For fiscal 2013, cash flows relating to operating activities totalled $45.2 million, a $21.4 million year-over-year increase, while normalized operating cash flows totalled $40.4 million ($1.07 per common share2), up $16.6 million ($0.44 per common share). This result shows that Valener was able to generate sufficient cash flows from operations to pay dividends to its common shareholders. The increases in both of these items came from higher distributions received from Gaz Métro given the fiscal 2012 Gaz Métro unit subscriptions and from a favourable change in non-cash working capital items.

During fiscal 2013, Valener pursued its core strategy by investing $14.5 million into Gaz Métro and $6.5 million into the development of the wind power projects, most going towards development of wind power project 4.

As for dividends, in fiscal 2013 Valener paid $1.00 per common share, in cash and shares, the same amount as in fiscal 2012.

____________________
1 Net of financing costs of investments in this segment
2 Cash flows related to operating activities less dividends paid to preferred shareholders divided by the weighted average number of common shares outstanding

Seigneurie de Beaupré wind power projects

 
Wind power projects 2 and 3
         
Installed capacity
272 MW
Fully operational
Dec. 2013
Total investment
~$750M
Valener
24.5%
Gaz Métro
25.5%

To date, the 126 wind turbines have been installed. The projects' management committee is proud to confirm that, following successful testing, Wind Farm 2 will be put into service by the end of November 2013 while the start-up of Wind Farm 3 is scheduled for December 2013. Construction of these large-scale wind farms was completed as scheduled despite the June 2013 construction strike. The success owes largely to the tireless work of the construction crew and thorough oversight by the projects' management committee.

 
Wind power project 4
         
Installed capacity
68 MW
Fully operational
Dec. 2014
Total investment
~$190M
Valener
24.5%
Gaz Métro
25.5%

The work needed for project start-up is proceeding in accordance with the key stages of the schedule. The required agreements with suppliers are in place. To date, the land has been cleared and foundation and road construction has been completed such that concrete mixers may pass. The collector systems are approximately 60% complete. The site is scheduled to close for the winter in the next few days.

On October 29, 2013, financing, a key step in the project, was completed. The total financing amount, provided by a group of lenders, is $166.1 million and consists of:

  • a $142.4 million construction loan that will convert into a 19.5-year amortizing loan, at a fixed rate of 5.66%, after the start of commercial operations scheduled for December 2014; and
  • a short-term bridge loan and a letter of credit facility, totalling $23.7 million, to finance certain construction costs reimbursable by Hydro-Québec and provide various letters of credit.

With this financing and given the investments and commitments totalling $43.8 million by partners Valener, Gaz Métro and Boralex inc., wind power project 4 is fully funded.

Next year, approximately 100 workers will be busy, among others, erecting the 28 wind turbines. In addition, road work will be completed such that turbine components can be delivered, and the remaining collector systems will be buried and connected to the electrical substation. Project start-up is scheduled for December 2014.

 
Consolidated net income attributable to common shareholders,
excluding the share in the non-recurring items of Gaz Métro, net of income taxes
For the fiscal years ended September 30   2013   2012
(in millions of dollars, unless otherwise indicated)        
Consolidated net income   41.5   29.6
Share in the non-recurring items of Gaz Métro   (4.3)   2.3
Income taxes on the share in the non-recurring items of Gaz Métro   1.1   (0.1)
Consolidated net income, excluding the share in the non-recurring items of Gaz Métro, net of income taxes    38.3   31.8
Less: Cumulative dividends on Series A preferred shares   4.3   1.6
Consolidated net income attributable to common shareholders,
excluding the share in the non-recurring items of Gaz Métro, net of income taxes (1)
  34.0   30.2
Weighted average number of common shares outstanding
(in millions of common shares)
  37.7   37.5
Consolidated net income attributable to common shareholders,
excluding the share in the non-recurring items of Gaz Métro, net of income taxes, per common share (in $) (1)
  0.90   0.81
(1)  These measures are financial measures that are not defined in the Canadian generally accepted accounting principles (GAAP). For additional information, refer to the Non-GAAP Financial Measures heading in Valener's MD&A for the fiscal year ended September 30, 2013.
 

Gaz Métro's results

Excluding non-recurring items, net income attributable to the Partners of Gaz Métro totalled $165.7 million in fiscal 2013 versus $151.6 million in fiscal 2012, a $14.1 million or 9.3% increase that came from higher net income generated by Vermont energy distribution activities following the acquisition of Central Vermont Public Service Corporation (CVPS).

"These results demonstrate our willingness to lead. Through innovation and determination, we can make Quebec a greener and more prosperous leader. Petroleum products won't be obsolete anytime soon, so we must combine the advantages that electric power can bring to private and public transportation with those that natural gas can bring to the trucking, railroad and shipping industries. Through this winning combination of energy sources, we'll reduce our environmental footprint as well as our overall energy bill. In fact, that is what we stated before Quebec's committee on energy issues (Commission sur les enjeux énergétiques). And it's thanks to projects like the one announced at the end of September by our subsidiary Gaz Métro LNG, in collaboration with Société des traversiers du Québec, that we'll reach our goal," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

Energy Distribution

 
Quebec natural gas distribution (Gaz Métro-QDA)
       
Rate base
$1.8B
Authorized return
8.90%
Distribution system
10,000 km
Customers
~192,000

For fiscal 2013, Gaz Métro-QDA's net income attributable to the Partners of Gaz Métro totalled $105.9 million, a $4.8 million year-over-year decrease that was essentially due to the parameters of the 2013 rate case. It's important to note, however, that this decrease is $1.8 million less than that anticipated in the rate case, explained by the following items:

  • realization of a new transportation service incentive return that reached $2.3 million;
  • a $0.7 million incentive return on financial optimization transactions from load-balancing and transportation; and
  • achievement of the annual energy savings target, which provided Gaz Métro-QDA with a $1.0 million Global Energy Efficiency Plan (GEEP) performance incentive that had not been anticipated in the rate case;

partly offset by:

  • a $2.2 million shortfall in the distribution service, mainly because operating expenses exceeded the authorized budget, which the Régie de l'énergie (Régie) reduced by $5.0 million in its July 2013 decision on the 2013 rate case.

For the 2014 rate case, the Régie approved a renewal of the 8.90% authorized rate of return on deemed common equity. This rate case, submitted in October 2013, was also developed on a cost-of-service basis, as was the 2013 rate case, pending a new incentive mechanism. A final decision is expected by summer 2014.

 
Energy Distribution in Vermont
Green Mountain Power (GMP) Vermont Gas Systems (VGS)
           
Rate base
US$1.1B
Authorized return
8.84%
Customers
~260,000
Rate base
US$107M1
Authorized return
9.75%
Customers
~46,000

With respect to the Vermont energy distribution activities, recurring net income attributable to the Partners of Gaz Métro totalled $45.7 million2 for fiscal 2013, a $25.5 million year-over-year increase.

This increase was due to higher net income from GMP following the June 2012 acquisition of CVPS, tempered by the related increase in financing costs and the lower electricity rates resulting from the parameters of its 2013 rate case following its merger with CVPS. Other factors underlying this increase include a favourable impact on GMP's deliveries of colder temperatures in fiscal 2013 as well as a favourable impact of VGS's new temperature normalization mechanism, its growing customer base and higher rates as per its rate case.

As for the operational integration of GMP and CVPS, GMP is working to accelerate implementation of its three-year plan such that it and its customers can benefit from the efficiencies and synergies resulting from the merger of the two entities as soon as possible. At present, GMP is ahead of its schedule and the synergies experienced in fiscal 2013 have been greater than anticipated.

As part of GMP's 2014 rate case, in September 2013 the Vermont Public Service Board (VPSB) approved a 9.58% rate of return on common equity and a 49.5% common equity ratio.

As for VGS, an application seeking regulatory approval for Phase I of its system extension to Addison County was filed in December 2012. A decision is expected by the end of the 2013 calendar year such that construction may begin in 2014. The project includes a second phase to extend natural gas service to one of International Paper Company's mills in New York State starting at the end of the 2015 calendar year. In November 2013, VGS filed an application for the regulatory approval of this second phase. If approved, these system developments (Phases I and II), estimated at US$150 million, could more than double VGS's average rate base over time. In the fourth quarter of fiscal 2013, the initially anticipated investment amount was revised upward given changes to the materials and methods that will be used to build the system extension.

As part of VGS's 2014 rate case, in October 2013 the VPSB approved a 10.26% rate of return on common equity and a 55.0% common equity ratio.

____________________
1 Including US$5 million invested in the system extension project to Addison County
2 Net of financing costs of investments in this segment

Natural Gas Transportation

In the Natural Gas Transportation segment, net income attributable to the Partners of Gaz Métro totalled $16.1 million1 for fiscal 2013, a slight $0.2 million decline from last year.

This change came mainly from lower revenues from Trans Québec & Maritimes Pipeline (TQM) (as a result of lower final rates approved by the National Energy Board in May 2013 and effective retroactively to January 1, 2013) and from the allocation of the income tax expense related to TQM, as explained below, offset by an increase in the share in the income before taxes of Portland Natural Gas Transmission System (PNGTS), which benefited from, among other factors, the decrease in natural gas available on other systems, thus increasing its short-term sales.

Note that, since the reorganization that led to the creation of 9265-0860 Québec inc. at the end of fiscal 2012, the income tax expenses related to TQM and Intragaz are recognized by Gaz Métro rather than by Valener and Gaz Métro inc.

Energy Production

This new segment consists of non-regulated energy production activities related to wind power projects 2 and 3 and wind power project 4 located on the private lands of Seigneurie de Beaupré. During fiscal 2013, these wind power projects were still under construction.

Energy Services, Storage and Other

In the Energy Services, Storage and Other segment, recurring net income attributable to the Partners of Gaz Métro totalled $7.0 million1 for fiscal 2013, down $3.0 million from fiscal 2012.

The lower net income was mainly due to the net income that had been realized by HydroSolution, L.P. in fiscal 2012, whereas the interest in this company was sold in the first quarter of fiscal 2013, and to the allocation of the income tax expense related to Intragaz, as previously explained.

Gaz Métro Transport Solutions, L.P. (Transport Solutions), a subsidiary of Gaz Métro created to promote the use of natural gas in the transportation industry, in particular for heavy transportation vehicles in Quebec, Ontario and Eastern Canada, continues to deploy liquefied natural gas (LNG) refuelling stations on the Blue Road, which runs along the Highway 20 and Highway 401 corridor between Rivière-du-Loup and Toronto. To date, four stations are supplying 124 Transport Robert 1973 Ltée trucks as well as other carriers. Furthermore, in July 2013, as part of the Blue Road initiative, Transport Solutions and La Coop fédérée announced a partnership agreement for the deployment of an innovative, multi-energy service station concept. These public stations will be the first in Eastern Canada to offer LNG as fuel and, in some cases, compressed natural gas (CNG).

On September 27, 2013, Gaz Métro LNG, L.P., a subsidiary of Gaz Métro created in fiscal 2013 to respond to rapidly growing demand in the LNG market, concluded an agreement in principle with Société des traversiers du Québec to purchase fuel to supply three ferries with LNG. These ferries will be among the first in North America to be fuelled with LNG and will be put into service in 2015.

____________________
1 Net of financing costs of investments in this segment

 
Gaz Métro's segment results - Consolidated net income attributable to Partners,
excluding non-recurring items
(in millions of dollars)   2013   2012   Change
Energy Distribution            
  Gaz Métro-QDA   105.9   110.7   (4.8)
  VGS and GMP   65.6   23.1   42.5
  Financing costs of investments in this segment (1)   (19.9)   (9.7)   (10.2)
  Costs related to the CVPS acquisition (net of income taxes)   -   6.8   (6.8)
    151.6   130.9   20.7
Natural Gas Transportation            
  TQM, PNGTS and Champion Pipe Line Corporation Ltd.   17.6   19.1   (1.5)
  Financing costs of investments in this segment (1)   (1.5)   (2.8)   1.3
    16.1   16.3   (0.2)
Energy Production (2)            
  Gaz Métro Éole inc. and Gaz Métro Éole 4 Inc.   (1.1)   (1.1)   -
  Financing costs of investments in this segment (1)   -   -   -
    (1.1)   (1.1)   -
Energy Services, Storage and Other (2)            
  Energy and storage   22.8   12.5   10.3
  Financing costs of investments in this segment (1)   (1.1)   (2.5)   1.4
  Net gain on the disposal of the interest in HydroSolution, L.P.   (14.7)   -   (14.7)
    7.0   10.0   (3.0)
Corporate Affairs (2)            
  Corporate affairs   (7.9)   (5.5)   (2.4)
  Costs related to the CVPS acquisition   -   1.0   (1.0)
    (7.9)   (4.5)   (3.4)
Consolidated net income attributable to Partners,
excluding non-recurring items (3)
  165.7   151.6   14.1
Non-recurring items   14.7   (7.8)   22.5
Consolidated net income attributable to Partners   180.4   143.8   36.6

(1)  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)  As of the first quarter of fiscal 2013, Gaz Métro modified its financial reporting structure for segment disclosures given the development of important wind power projects and the sale of certain companies. Last fiscal year's figures have been reclassified to present financial information that reflects the new business segments.
(3)  This measure is a financial measure not defined in the Canadian generally accepted accounting principles (GAAP). For additional information, refer to the Non-GAAP Financial Measures heading in Valener's MD&A for the fiscal year ended September 30, 2013.

Conference call

Valener will hold a conference call with financial analysts today, Thursday, November 28, 2013 at 11 am (Eastern Time) to discuss its results and those of Gaz Métro for the fiscal year ended September 30, 2013.

The media and other interested parties are invited to listen to this conference call 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.

For 30 days afterward, a rebroadcast will be accessible by dialling 416-849-0833 or toll-free 1-855-859-2056 (access code: 86476246) and for 90 days on Valener's Web site.

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 wind power projects developed with Gaz Métro and Boralex inc. on the private lands of Séminaire de Québec. 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 (GMi 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 they are 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 and electricity supply, the integrity of the natural gas and electricity distribution systems, the progress 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" and the "Risk Factors Relating to Gaz Métro" sections of Valener's MD&A for the year ended September 30, 2013 and in Gaz Métro's and 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, 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 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 projects in which Valener and Gaz Métro own indirect interests will be completed on schedule and as per specification; that GMP will be able 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 long-term 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 year ended September 30, 2013, 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.

SOURCE Valener Inc.



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