Valener And Gaz Metro Report Their Fiscal 2017 Third Quarter Results

Announced Date :  Aug 09, 2017


Valener Inc. ("Valener") the public investment vehicle in Gaz Metro Limited Partnership ("Gaz Metro"), has reported adjusted net income attributable to common shareholders of $2.5 million for the third quarter of fiscal 2017, up $0.8 million from the third quarter of fiscal 2016.
Adjusted net income per common share was $0.06 for the third quarter of fiscal 2017 compared to $0.04 per common share for the third quarter of fiscal 2016.

Net income attributable to common shareholders was $1.8 million for the third quarter of fiscal 2017 compared to a net loss of $3.8 million for the third quarter of fiscal 2016.

Normalized operating cash flows stood at $14.4 million ($0.37 per common share) in the third quarter of fiscal 2017, up $0.5 million compared to the third quarter of fiscal 2016.

In addition, in line with its compound annual growth target for its common share dividends, Valener announced a dividend increase. "In accordance with our goal of achieving compound annual growth of 4% until 2022, we are raising Valener's quarterly dividend from $0.28 to $0.29 per share," said Pierre Monahan, Chairman of Valener's board of directors. "This increase, the fourth in less than three years, can be credited to the quality and profitability of Valener's underlying assets."

(1)Financial measures not defined by U.S. generally accepted accounting principles ("GAAP").

(2)Adjusted net income attributable to common shareholders.

(3)Adjusted net income attributable to Partners.

A reconciliation of non-GAAP financial measures is presented hereafter.

Decision regarding Series A preferred shares

On August 8, 2017, Valener's board of directors decided that it was in its interest, based on the conditions applicable to the Series A preferred shares, to not exercise the redemption option coming into effect on October 15, 2017.

Gaz Metro's results

For the third quarter of fiscal 2017, net income attributable to the Partners of Gaz Metro totalled $11.1 million, a $1.3 million year-over-year increase owing mainly to higher net income generated by natural gas distribution activities in Québec ("Gaz Metro-QDA") and Vermont.

"Gaz Metro's solid results for this third quarter-a quarter typically affected by the seasonal nature of our operations-are testament to the quality and skillful management of our assets," said Sophie Brochu, President and Chief Executive Officer of Gaz Metro. "What's more, our earnings and distributions growth confirm the soundness of the geographical and commercial diversification strategy we adopted ten years ago and that continues today with our recent acquisition of Standard Solar, a leader in the U.S. solar power industry. With this acquisition, we have positioned ourselves to further invest in the United States and have entered into the highly promising area of solar energy, which complements our current renewable energies offering."

Seigneurie de Beaupré wind farms - Valener and Gaz Metro

In the third quarter of fiscal 2017, Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership ("Wind Farms 2 and 3") and Seigneurie de Beaupré Wind Farm 4 General Partnership ("Wind Farm 4") generated a combined 239,409 MWh of electricity, a year-over-year increase of 17,322 MWh, or 7.2%, resulting from stronger winds than those of the third quarter of fiscal 2016. The resulting operating cash flows for the third quarter of fiscal 2017 totalled $19.2 million, up $2.7 million from the same quarter in fiscal 2016.

Wind Farms 2 and 3 and Wind Farm 4 used these cash flows to pay distributions of $10.3 million in the third quarter of fiscal 2017. In the third quarter of fiscal 2016, the wind farms had paid a total of $89.0 million in distributions, specifically, $9.0 million in regular distributions and an $80.0 million return-of-capital distribution as a result of the refinancing of the long-term debt of Wind Farms 2 and 3.

Increase in quarterly distribution

Gaz Metro announced an increase to its quarterly distribution starting with its next distribution on October 2, 2017. "Given the success of our strategic plan and sustained growth of our regulated activities, we're able to raise the distributions to our partners, including Valener, for the second time in two years," said Sophie Brochu. "The distributions will be raised from $0.29 to $0.30 per unit, an increase of 3.4%."

SEGMENT INFORMATION

Energy Distribution

In Québec

Gaz Metro-QDA recorded a net loss attributable to Partners of $0.5 million compared to a net loss of $3.6 million in the third quarter of fiscal 2016, a $3.1 million year-over-year improvement that was mainly due to:

a higher return on investments; and

the favourable impact of recognizing a $2.1 million share in overearnings during the third quarter of fiscal 2017.

Given this recognition of the share in overearnings, Gaz Metro expects that the fiscal 2017 net income generated by the Québec Energy Distribution segment will exceed the earnings projected in the 2017 rate case by more than $5.0 million.

Renewable natural gas

The project to purchase renewable natural gas (RNG) produced by the city of Saint-Hyacinthe and inject it into our distribution network continues to move forward. The city will produce up to 13 million cubic metres of RNG per year, most of which will be injected into Gaz Metro's network. Québec's natural gas consumers will in turn gain access to a locally produced source of renewable energy.

2030 Energy Policy and network extensions

In July 2017, the Québec government announced that a financial contribution would be allocated to three different projects to extend the distribution network. This financial support, for a maximum amount of $27.4 million, will help connect the municipalities of Saint-Éphrem-de-Beauce, Saint-Marc-des-Carrières located in the Portneuf RCM and various sectors in the Appalaches RCM.

In Vermont

Through Green Mountain Power Corporation ("GMP") and Vermont Gas Systems Inc. ("VGS"), the Energy Distribution segment in Vermont recorded adjusted net income attributable to Partners of $12.4 million in the third quarter of fiscal 2017, a $0.9 million or 7.8% year-over-year increase owing mainly to a weaker Canadian dollar and to an increase in GMP's rate base, partly offset by a timing difference between the revenue and expense recognition profiles.

In the third quarter of fiscal 2016, a $5.0 million net loss attributable to Partners had been recorded given the recognition of a before-tax US$20.6 million impairment of noncurrent assets (C$26.5 million before taxes) in connection with the Addison project, the effect of which was a $16.5 million unfavourable impact on net income.

Hydroelectricity

In May 2017, GMP completed its project to acquire small hydroelectric power plants located mainly in New England. These plants have a total capacity of 14 MW and are valued at US$16.3 million.

Natural Gas Transportation

For the third quarter of fiscal 2017, the Natural Gas Transportation segment generated net income attributable to Partners of $1.9 million, down $1.1 million year over year, mainly because of:

a decrease in volumes transported by Portland Natural Gas Transmission System (a Gaz Metro entity subject to significant influence) given fewer short-term contracts; and

a penalty paid by Trans Québec & Maritimes Pipeline Inc. ("TQM") in May 2017 as a result of prepaying and refinancing a $100 million debt due in September 2017.

Electricity Production

The Electricity Production segment posted a net loss attributable to Partners of $0.7 million in the third quarter of fiscal 2017 compared to a net loss attributable to Partners of $0.2 million in the third quarter of last year. This change was essentially the result of concentrated efforts to develop a new business model for Standard Solar Inc. ("Standard Solar"), a leading solar power company acquired by Gaz Metro in April 2017, partly offset by a 7.2% increase in wind power production given favourable wind conditions in 2017.

As a result of Standard Solar's efforts since the acquisition, we expect solar power development projects with a capacity of more than 20 MW will move into construction phase by September 30, 2017, representing approximately US$50 million in investments in property, plant and equipment. As of June 30, 2017, 10 MW were already under construction.

In addition, on July 28, 2017, Gaz Metro and Boralex submitted three bids in response to a request for proposals issued on March 31, 2017 by the State of Massachusetts. The proposed project, named SBx, is a 300 MW wind power project located on the private land of Seigneurie de Beaupré that would be entirely developed, financed, built and operated by Gaz Metro and Boralex. The proposals submitted by Gaz Metro and Boralex would provide the State of Massachusetts with a long-term supply of clean, stable, and sustainable energy. The selected projects are expected to be announced in early 2018.

Energy Services, Storage and Other

For the third quarter of fiscal 2017, the Energy Services, Storage and Other segment recorded net income attributable to Partners of $0.6 million compared to $1.4 million in the third quarter of fiscal 2016.

Sale of liquefied natural gas

On April 24, 2017, the new infrastructure aimed at tripling the production capacity of the liquefaction, storage and regasification plant came into service. The results of this operation, which had previously been reported entirely in the financial statements of Gaz Metro, will now be reflected in a proportion of 58%, which corresponds to Gaz Metro's ownership interest in the project. Our partner, Investissement Québec, owns 42%.

Financial initiatives

On May 16, 2017, Gaz Metro inc. completed a $200 million private placement of first mortgage bonds bearing interest at an annual rate of 3.53% and maturing on May 16, 2047. The issuance proceeds were loaned to Gaz Metro at similar conditions and were used to repay existing debt and for general business purposes.

GMP issued, by way of private placement, first mortgage bonds for an aggregate principal amount of US$80.0 million, comprised of a series of US$15.0 million issued in April 2017 and a series of US$65.0 million issued in June 2017. These series of bonds, which will mature in April 2047 and June 2029, bear interest at annual rates of 4.17% and 3.45%, respectively.

During the third quarter of fiscal 2017, TQM refinanced a $100 million debt that bore interest at 4.25%, replacing it with a debt bearing interest at 2.57%.

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