Valener Inc.
TSX : VNR
TSX : VNR.PR.A

Valener Inc.

February 08, 2017 07:44 ET

Valener and Gaz Metro Report Their Fiscal 2017 First Quarter Results

MONTREAL, QUEBEC--(Marketwired - Feb. 8, 2017) -

Valener

  • Adjusted net income1,2 per common share of $0.52 for the first quarter of fiscal 2017, up 18% from the same quarter of fiscal 2016; and
  • Normalized operating cash flows1 per common share of $0.32 for the first quarter of fiscal 2017 compared to $0.27 in the first quarter of fiscal 2016.

Gaz Métro

  • Adjusted net income1,3 of $88.9 million for the first quarter of fiscal 2017, a $13.6 million increase from the first quarter 2016;
  • Adjusted net income1,3 per unit of $0.53, up 18% from the first quarter of fiscal 2016;
  • Excellent results by the Québec energy distribution segment: adjusted net income up $10.7 million from the first quarter 2016 as a result of an increase in deliveries;
  • Construction of the LSR plant's second liquefaction train nearing completion and inauguration of the Bellechasse gas system; and
  • Business acquisition: acquisition of control of Climatisation et Chauffage Urbains de Montréal S.E.C. ("CCUM").
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.

Valener Inc. ("Valener") (TSX:VNR) (TSX:VNR.PR.A), the public investment vehicle in Gaz Métro Limited Partnership ("Gaz Métro"), today reported adjusted net income attributable to common shareholders of $20.3 million for the first quarter of fiscal 2017, a $3.5 million, or 20.8%, increase from the first quarter of fiscal 2016. As a result, the 2017 first quarter adjusted net income per common share stood at $0.52 compared to $0.44 in the first quarter of fiscal 2016. These increases were driven by a notable increase in Gaz Métro's adjusted net income.

Net income attributable to common shareholders stood at $23.0 million in the first quarter of fiscal 2017 compared to $39.4 million in the first quarter of fiscal 2016 mainly as a result of a one-time accounting adjustment recorded upon conversion to U.S. GAAP in the first quarter of fiscal 2016, partly offset by a notable increase in Gaz Métro's adjusted net income and a remeasurement gain recorded following a business acquisition in the first quarter of fiscal 2017.

Normalized operating cash flows stood at $12.2 million ($0.32 per common share) in the first quarter of fiscal 2017 compared to $10.4 million ($0.27 per common share) in the first quarter of fiscal 2016. The increase was mainly attributable to higher distributions received from Gaz Métro as a result of:

  • an increase in units subscribed by Valener, in proportion to its interest in Gaz Métro; and
  • an increase in Gaz Métro's quarterly distribution from $0.28 to $0.29 per unit starting in the second quarter of fiscal 2016.

"Gaz Métro's regulated and diversified portfolio, Valener's main investment, and its steady, sustained growth, directly contributed to our excellent first quarter results," said Pierre Monahan, Chairman of Valener's board of directors.

Summary of Valener's results
For the quarters ended December 31
(in millions of dollars, unless otherwise indicated) 2016 2015
Net income 24.1 40.5
Net income attributable to common shareholders 23.0 39.4
Adjusted net income attributable to common shareholders (1) 20.3 16.8
Per common share(in $) 0.52 0.44
Normalized operating cash flows (1) 12.2 10.4(2)
Per common share(in $) 0.32 0.27
(1) These financial measures are not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter.
(2) Includes Valener's proportionate share of a $12.9 million payment received from Hydro-Québec in the first quarter of fiscal 2016 relating to a note receivable for the reimbursement of certain construction costs.
Seigneurie de Beaupré wind farms - Valener and Gaz Métro
For the quarters ended December 31
2016 2015
Actual output (in MWh) - Wind Farms 2 and 3 213,312 208,915
Actual output (in MWh) - Wind Farm 4 55,232 52,141
Cash flows related to operating activities (in millions of $) - Wind Farms 2 and 3 13.5 15.2
Cash flows related to operating activities (in millions of $) - Wind Farm 4 2.3 15.8(1)
Distributions paid (in millions of $) - Wind Farms 2 and 3 - -
Distributions paid (in millions of $) - Wind Farm 4 0.7 -
(1) Includes a $12.9 million payment received from Hydro-Québec in the first quarter of fiscal 2016 relating to a note receivable for the reimbursement of certain construction costs.

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 3% increase in electric power production in the first quarter of 2017 compared to the same quarter of 2016. They generated operating cash flows for first quarter of 2017 of $15.8 million, compared to $18.1 million in the first quarter of fiscal 2016 (excluding a $12.9 million payment received from Hydro-Québec). This decrease is mainly due to a timing difference between revenue recognition and cash receipts.

Gaz Métro's results

For the first quarter of fiscal 2017, Gaz Métro's adjusted net income attributable to Partners, which excludes one-time adjustments, amounted to $88.9 million, a $13.6 million, or 18.1%, year-over-year increase driven mainly by: higher deliveries by Québec's natural gas distribution segment ("Gaz Métro-QDA"), as temperatures in first quarter of 2017 were colder than those in first quarter of 2016; higher net income generated by the Energy Distribution segment in Vermont, mainly because of an increase in the rate base of Green Mountain Power Corporation ("GMP"); and a timing difference between Gaz Métro-QDA's and GMP's revenue and cost recognition profiles.

"Gaz Métro began fiscal 2017 on solid footing. Gaz Métro-QDA's excellent results and the growth of our investments in both Québec and Vermont were the driving forces behind the nearly 20% increase in adjusted net income," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro. "What's more, with the acquisition of our partner's interest in CCUM, we are now the sole owner of this strategic asset that allows us to service, through its heating and cooling systems, the energy needs of several landmark buildings in downtown Montreal where close to 100,000 people circulate daily."

Gaz Metro's net income attributable to Partners was $101.4 million in the first quarter of fiscal 2017, compared to $154.6 million in the same quarter of fiscal 2016. This was largely the result of a one-time $79.3 million impact of a regulatory treatment related to employee future benefits recognized in the first quarter of fiscal 2016, partly offset by the above-mentioned factors as well as by a $12.5 million remeasurement gain following the business acquisition.

Gaz Métro's segment results - Adjusted net income attributable to Partners (1)
For the quarters ended December 31
(in millions of dollars) 2016 2015
Energy Distribution
Gaz Métro-QDA 64.1 53.4
Impact of recognizing regulatory assets related to employee future benefits (Gaz Métro-QDA) (2) - 79.3
Vermont (3) 20.4 18.3
84.5 151.0
Natural Gas Transportation (3) 4.9 4.5
Electricity Production (3) 0.8 0.5
Energy Services, Storage and Other (3) 1.0 1.0
Gain on remeasuring CDH following the acquisition (4) 12.5 -
13.5 1.0
Corporate Affairs (2.3 ) (2.4 )
Net income attributable to Partners 101.4 154.6
Adjustments (2) (12.5 ) (79.3 )
Adjusted net income attributable to Partners (1) 88.9 75.3
(1) This financial measure is not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter.
(2) One-time adjustment to account for a regulatory asset related to employee future benefits and resulting from the conversion to U.S. GAAP.
(3) Net of financing costs of investments in this segment. These costs consist of the interest on long-term debt incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures and entities subject to significant influence in each of these segments.
(4) $12.5 million gain on remeasuring, at fair value, Gaz Métro's interest in CDH Solutions & Operations Limited Partnership ("CDH"), which holds 100% of the issued and outstanding units of CCUM, following Gaz Métro's acquisition of an additional 50% ownership interest.

SEGMENT INFORMATION

Energy Distribution

IN QUÉBEC

Natural gas distribution in Québec ("Gaz Métro-QDA")
Rate base Authorized return Distribution network Customers
$2.0B 8.90% 10,000 km ~ 200,000

For the first quarter of fiscal 2017, Gaz Métro-QDA's adjusted net income attributable to Partners totalled $64.1 million, a $10.7 million, or 20%, year-over-year increase that was mainly due to:

  • higher deliveries caused by colder temperatures;
  • a timing difference between revenue and cost recognition (This difference, anticipated in the 2017 rate case, is expected to reverse by the end of fiscal 2017.); and
  • growth of investments in the rate base.

Gaz Métro-QDA's net income attributable to Partners was $64.1 million in the first quarter of 2017 compared to $132.7 million in the first quarter of 2016, which had included a one-time $79.3 million favourable impact of recognizing regulatory assets related to employee future benefits.

In December 2016, Gaz Métro-QDA commissioned a 72 km pipeline section in the Bellechasse region. In December 2015, the Régie had given its approval to extend the network between the municipalities of Lévis and Sainte-Claire. Given the winter season, completion of the project, consisting mainly of landscaping work, will be completed in the spring of 2017.

IN VERMONT

Energy Distribution in Vermont
Rate base Authorized return Distribution network Customers
GMP US$1.4B 9.02% 21,100 km1 ~ 265,000
VGS US$213M 9.70% 1,300 km ~ 50,000
(1) The GMP system consists of close to 18,000 km of overhead distribution lines, 1,600 km of underground distribution lines (located mostly in Vermont but also extending into New Hampshire and New York), and 1,500 km of overhead transmission lines.

Through GMP and Vermont Gas Systems ("VGS"), the Energy Distribution segment in Vermont recorded net income attributable to Partners of $20.4 million in the first quarter of fiscal 2017, a $2.1 million, or 11.5%, year-over-year increase mainly due to:

  • the increase in GMP's rate base; and
  • a timing difference between revenue and cost recognition;

partly offset by an unfavourable effect of no longer capitalizing the return on VGS's non-rate-base investments related to the Addison project since January 1, 2016, in accordance with the memorandum of understanding signed with the Vermont Public Service Board fixing project costs at US$134.0 million.

At GMP, the regulatory process surrounding the acquisition of small hydroelectric power plants from Enel Green Power North America Inc. is ongoing and expected to be finalized during the third quarter of fiscal 2017. As for VGS, it commissioned the first 17 km of its Addison project in February 2016 and was waiting on a Supreme Court of Vermont decision before completing the work required to commission the 49 km of new pipeline. In December 2016, the Supreme Court of Vermont authorized VGS to continue the work without ruling on the merits of the appeal. VGS has since been preparing to complete construction of the last kilometre of the second section and to finalize the project. Gas-up is expected to take place in spring 2017.

Natural Gas Transportation

For the first quarter of fiscal 2017, the Natural Gas Transportation segment generated net income attributable to Partners of $4.9 million, up $0.4 million from the first quarter of fiscal 2016.

Electricity Production

The Electricity Production segment recorded net income attributable to Partners of $0.8 million in the first quarter of 2017 compared to $0.5 million in the same quarter of fiscal 2016. The increase was driven by greater power production at the wind farms, as previously described, as 2017 first quarter wind conditions were stronger than those in the year-ago period.

Energy Services, Storage and Other

The Energy Services, Storage and Other segment generated adjusted net income attributable to Partners of $1.0 million in the first quarter of fiscal 2017, unchanged from the first quarter of 2016. This reflects a notable increase in LNG sales volume, which, at 8.82 million cubic metres, were more than double those of the first quarter of fiscal 2016, partly offset by higher operating expenses.

LSR plant

In addition, construction of the second liquefaction train at our natural gas liquefaction, storage and regasification plant, designed to triple the plant's liquefaction capacity, is near completion and production is slated to begin at the end of February 2017.

Business acquisition

On December 21, 2016, Gaz Métro Plus, a subsidiary of Gaz Métro Limited Partnership, acquired the interest of Veolia North America, its partner in joint venture CDH Solutions & Operations Limited Partnership ("CDH") since 2006, for a cash consideration of $25.8 million, giving it 100% of the issued and outstanding units and consequently control over CDH. Following this acquisition, the carrying value of the interest in CDH, which was previously accounted for using the equity method, was remeasured to fair value, and in turn a $12.5 million remeasurement gain was recorded in the segment's net income attributable to Partners for the first quarter of fiscal 2017. Consequently, the segment's net income attributable to Partners amounted to $13.5 million in the first quarter of fiscal 2017 compared to $1.0 million in the first quarter of fiscal 2016.

CDH owns CCUM, which owns and operates a network spanning 3 km, serves the energy needs of 1.8 million square metres of commercial space in downtown Montreal. The network is used for the heating and air conditioning of both commercial buildings and residential co-ownerships. Following this transaction, Gaz Métro Plus became the sole owner of CDH and, consequently, of CCUM. Gaz Métro plans on continuing to develop and grow CCUM over the coming years while continuing to deliver a safe and reliable energy solution at a competitive price to its existing customers.

Financial initiatives

On October 6, 2016, Gaz Métro inc. completed a $125 million private placement of first mortgage bonds, which bear interest at an annual rate of 3.28% and mature on October 9, 2046. The issuance proceeds were loaned to Gaz Métro at similar conditions and were used to repay existing debt and for general business purposes. Accordingly, on October 31, 2016, Gaz Métro inc. repaid a series of first mortgage bonds in the amount of $125 million that had matured and bore interest at an annual rate of 10.45%.

Reconciliation of non-GAAP financial measures
Valener Inc.
Reconciliation of normalized operating cash flows
For the quarters ended December 31
(in millions of dollars) 2016 2015
Cash flows related to operating activities 13.3 11.5
Dividends to preferred shareholders (1.1 ) (1.1 )
Normalized operating cash flows 12.2 10.4
Valener Inc.
Reconciliation of adjusted net income attributable to common shareholders
For the quarters ended December 31
(in millions of dollars) 2016 2015
Net income 24.1 40.5
Gain on derivative financial instruments (0.8 ) (0.1 )
Income taxes on the gain on derivative financial instruments 0.2 -
Share in the adjustments to the net income of Gaz Métro (3.6 ) (23.0 )
Income taxes on the adjustments to the net income of Gaz Métro 0.7 -
Deferred income taxes related to the outside-basis temporary difference on the interest in Gaz Métro 0.8 0.5
Cumulative dividends on Series A preferred shares (1.1 ) (1.1 )
Adjusted net income attributable to common shareholders 20.3 16.8
Gaz Métro Limited Partnership
Reconciliation of adjusted net income attributable to partners
For the quarters ended December 31
(in millions of dollars) 2016 2015
Net income attributable to Partners 101.4 154.6
Impact of recognizing regulatory assets related to employee future benefits (Gaz Métro-QDA) - (79.3 )
Gain on remeasuring CDH following the acquisition (12.5 ) -
Adjusted net income attributable to Partners 88.9 75.3
Per unit, basic and diluted (in $) 0.53 0.45

Conference call

Valener will hold a conference call today at 1:00 pm (Eastern Time) to discuss its results and those of Gaz Métro for the period ended December 31, 2016. The public is invited to join the call at 647-788-4922 or toll-free at 877-223-4471. A simultaneous webcast will also be available using the link provided under "Events and Presentations" in the "Investors" section of www.valener.com. A replay of the webcast will be archived on the Company's website for 365 days following the call; a phone replay will be available for 30 days by dialing 416-621-4642 or toll-free 800-585-8367 (access code: 40885898).

Overview of Valener

Valener Inc. is a widely held public company that serves as the investment vehicle in Gaz Métro. Through its investment in Gaz Métro, Valener offers its shareholders a solid investment in a diversified and largely regulated energy portfolio in Québec and Vermont. As a strategic partner, Valener, on the one hand, contributes to Gaz Métro's growth, and on the other, invests in wind power production in Québec alongside Gaz Métro. Valener favours energy sources and uses that are innovative, clean, competitive and profitable. Valener's common and preferred shares are listed on the Toronto Stock Exchange under the "VNR" symbol for common shares and the "VNR.PR.A" symbol for Series A preferred shares. www.valener.com

Overview of Gaz Métro

With more than $7 billion in assets, Gaz Métro is a leading energy provider. It is the largest natural gas distribution company in Québec, where its network of over 10,000 km of underground pipelines serves more than 300 municipalities and over 200,000 customers. Gaz Métro is also present in Vermont, producing and transporting electricity and distributing electricity and natural gas to meet the needs of more than 310,000 customers. Gaz Métro is actively involved in the development and operation of innovative, promising energy projects, including natural gas as fuel and liquefied natural gas as a replacement to higher emission-producing energies, the production of wind power, and the development of biomethane. Gaz Métro is a major energy sector player that 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, 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," "seeks," "targets," "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 historical results or 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 that approvals will be obtained by Gaz Métro from regulatory agencies and interested parties to carry out all of its activities and the socio-economic risks associated with such activities, uncertainty related to Québec's 2030 Energy Policy, the competitiveness of natural gas in relation to other energy sources in the context of fluctuating global oil prices, the reliability or costs of natural gas supply and electricity supply, the integrity of the natural gas and electricity distribution systems, the evolution and profitability of Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership ("Wind Farms 2 and 3") and Seigneurie de Beaupré Wind Farm 4 GP ("Wind Farm 4") and other development projects, Valener's ability to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares, the ability to complete attractive acquisitions and the related financing and integration aspects, the ability to complete new development projects, the ability to secure future financing, general economic conditions, exchange rate and interest rate fluctuations, weather conditions and other factors described in section E) Risk Factors Relating to Valener and in section R) Risk Factors Relating to Gaz Métro of Valener's MD&A for the fiscal year ended September 30, 2016 and in subsequent Valener quarterly MD&As that might address changes to these risks.
Although the forward-looking statements contained herein are based on what the management of the manager believes to be reasonable assumptions, in particular assumptions that no unforeseen changes in the legislative and regulatory framework of energy markets in Québec and in the New England states will occur; that the applications filed with various regulatory agencies will be approved as submitted; that natural gas prices will remain competitive; that the supply of natural gas and electricity will be maintained or will be available at competitive costs; that no significant event will occur outside the ordinary course of business, such as a natural disaster or other calamity, or threat to cybersecurity (or cyberattack); that Gaz Métro can continue to distribute substantially all of its net income (excluding non-recurring items); that Wind Farms 2 and 3 and Wind Farm 4 will be able to make distribution payments to their partners; that Valener will be able to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares; that Green Mountain Power Corporation will be able to continue achieving efficiency gains and synergies from the merger with Central Vermont Public Service Corporation; that Valener and Gaz Métro will be able to present their information in accordance with U.S. GAAP beyond 2018 or, after 2018, will adopt International Financial Reporting Standards ("IFRS") that permit the recognition of regulatory assets and liabilities; 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 MD&A for the period ended December 31, 2016, 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.

Photos, videos (b-roll) and logos are available in Gaz Métro's Multimedia library.

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