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

Valener Inc.

August 09, 2017 07:15 ET

Valener and Gaz Metro Report Their Fiscal 2017 Third Quarter Results

MONTRÉAL, QUÉBEC--(Marketwired - Aug. 9, 2017) -

Valener

  • Adjusted net income(1,2) of $0.06 per common share in the third quarter of fiscal 2017 compared to $0.04 per share in the third quarter of fiscal 2016;
  • Normalized operating cash flows(1) per common share of $0.37 for the third quarter of fiscal 2017, up 3% from the third quarter of fiscal 2016; and
  • Increase in the annualized dividend from $1.12 to $1.16 per common share.

Gaz Métro

  • Adjusted net income(1,3) of $11.1 million for the third quarter of fiscal 2017, up $1.3 million from the third quarter of fiscal 2016;
  • Adjusted net income(1,3) per unit of $0.06, unchanged from the third quarter of fiscal 2016;
  • Increase in the annualized distribution from $1.16 to $1.20 per unit.

Valener Inc. ("Valener") (TSX:VNR)(TSX:VNR.PR.A), the public investment vehicle in Gaz Métro Limited Partnership ("Gaz Métro"), today reported adjusted net income1 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.

Summary of Valener's results

For the three months
ended June 30
For the nine months
ended June 30
(in millions of dollars, unless otherwise indicated) 2017 2016 2017 2016
Net income (loss) 2.9 (2.7 ) 59.6 67.3
Net income (loss) attributable to common shareholders 1.8 (3.8 ) 56.3 64.0
Adjusted net income attributable to common shareholders(1) 2.5 1.7 55.7 50.6
Per common share (in $)(1) 0.06 0.04 1.44 1.31
Normalized operating cash flows(1) 14.4 13.9 37.9 35.6
Per common share (in $)(1) 0.37 0.36 0.98 0.92
(1) These financial measures are not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter.

Gaz Métro's results

For the third quarter of fiscal 2017, net income attributable to the Partners of Gaz Métro 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 Métro-QDA") and Vermont.

"Gaz Métro'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 Métro. "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 Métro

For the three months
ended June 30
For the nine months
ended June 30
2017 2016 2017 2016
Actual output of Wind Farms 2 and 3 (in MWh) 188,267 175,494 646,698 628,363
Actual output of Wind Farm 4 (in MWh) 51,142 46,593 168,554 159,107
Cash flows related to the operating activities of Wind Farms 2 and 3 (in millions of $) 15.5 13.5 40.1 37.6
Cash flows related to the operating activities of Wind Farm 4 (in millions of $) 3.7 3.0 8.7 21.5
Distributions paid by Wind Farms 2 and 3 (in millions of $) 7.4 6.7 7.4 6.7
Distributions paid by Wind Farm 4 (in millions of $) 2.9 2.3 3.6 2.3
Special distribution(2) paid (in millions of $) - 80.0 - 80.0
(1) Includes a one-time $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.
(2) Return-of-capital distribution.

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.

Gaz Métro's segment results - Adjusted net income (loss) attributable to Partners(1)

For the three months
ended June 30
For the nine months
ended June 30
(in millions of dollars) 2017 2016 2017 2016
Energy Distribution
Gaz Métro-QDA (0.5 ) (3.6 ) 178.0 162.7
Impact of recognizing regulatory assets related to employee future benefits (Gaz Métro-QDA)(2) - - - 79.3
Vermont(3) 12.4 11.5 55.2 50.3
Impairment of noncurrent assets recorded for VGS's Addison project(4) - (16.5 ) - (16.5 )
11.9 (8.6 ) 233.2 275.8
Natural Gas Transportation(3) 1.9 3.0 13.5 14.9
Electricity Production(3) (0.7 ) (0.2 ) 1.6 1.8
Energy Services, Storage and Other(3) 0.6 1.4 3.2 3.3
Gain on remeasuring CDH following the acquisition(5) - - 12.5 -
0.6 1.4 15.7 3.3
Corporate Affairs (2.6 ) (2.3 ) (9.0 ) (7.4 )
Net income (loss) attributable to Partners 11.1 (6.7 ) 255.0 288.4
Adjustments(2) (4) (5) - 16.5 (12.5 ) (62.8 )
Adjusted net income attributable to Partners(1) 11.1 9.8 242.5 225.6
(1) Financial measure not defined by GAAP. A reconciliation of non-GAAP financial measures is presented hereafter.
(2) One-time adjustment to account for regulatory assets related to employee future benefits and resulting from the conversion to 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) During the third quarter of fiscal 2016, VGS recognized a before-tax US$20.6 million impairment of noncurrent assets (C$16.5 million after taxes) in connection with the Addison project. This impairment charge was recorded as a result of a new cost estimate placing the Addison project costs at US$165.6 million, whereas an agreement reached with the Vermont Department of Public Service had set a US$134.0 million cap on the project costs that could be recovered through rates.
(5) $12.5 million gain on remeasuring, at fair value, Gaz Métro's ownership interest in CDH Solutions & Operations Limited Partnership ("CDH"), an entity that owns 100% of the issued and outstanding units of Climatisation et Chauffage Urbains de Montréal, s.e.c., following Gaz Métro's acquisition of an additional 50% equity interest.

Increase in quarterly distribution

Gaz Métro 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 Métro-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 Métro 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 Métro'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 Métro 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 Métro 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 Métro 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 Métro and Boralex. The proposals submitted by Gaz Métro 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 Métro, will now be reflected in a proportion of 58%, which corresponds to Gaz Métro's ownership interest in the project. Our partner, Investissement Québec, owns 42%.

Financial initiatives

On May 16, 2017, Gaz Métro 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 Métro 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%.

Reconciliation of non-GAAP financial measures

For additional information on non-GAAP financial measures, refer to Valener's MD&A for the three-month and nine-month periods ended June 30, 2017 and 2016.

Valener

Reconciliation of normalized operating cash flows

For the three months
ended June 30
For the nine months
ended June 30
(in millions of dollars) 2017 2016 2017 2016
Cash flows related to operating activities 15.5 15.0 41.2 38.9
Dividends to preferred shareholders (1.1 ) (1.1 ) (3.3 ) (3.3 )
Normalized operating cash flows 14.4 13.9 37.9 35.6

Valener

Reconciliation of adjusted net income attributable to common shareholders

For the three months
ended June 30
For the nine months
ended June 30
(in millions of dollars) 2017 2016 2017 2016
Net income (loss) 2.9 (2.7 ) 59.6 67.3
Loss (gain) on derivative financial instruments - 1.4 (0.8 ) 4.1
Income taxes on the gain (loss) on derivative financial instruments - (0.4 ) 0.2 (1.1 )
Share in Gaz Métro's net income adjustments - 4.8 (3.6 ) (18.2 )
Income taxes related to Gaz Métro's net income adjustments - - 0.7 -
Deferred income taxes related to the outside-basis temporary difference on the interest in Gaz Métro 0.7 (0.3 ) 2.9 1.8
Cumulative dividends on Series A preferred shares (1.1 ) (1.1 ) (3.3 ) (3.3 )
Adjusted net income attributable to common shareholders 2.5 1.7 55.7 50.6

Gaz Métro Limited Partnership

Reconciliation of adjusted net income attributable to Partners

For the three months
ended June 30
For the nine months
ended June 30
(in millions of dollars) 2017 2016 2017 2016
Net income (loss) attributable to Partners 11.1 (6.7 ) 255.0 288.4
Gain on remeasuring CDH following the acquisition - - (12.5 ) -
Impact of recognizing regulatory assets related to employee future benefits (Gaz Métro-QDA) - - - (79.3 )
Impairment of noncurrent assets recorded for VGS's Addison project - 16.5 - 16.5
Adjusted net income attributable to Partners 11.1 9.8 242.5 225.6
Per unit, basic and diluted (in $) 0.06 0.06 1.44 1.33

Conference call

Valener will hold a conference call today at 1 pm (Eastern Time) to discuss its results and those of Gaz Métro for the period ended June 30, 2017. 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: 51052297).

Overview of Valener

Valener is a public company held entirely by its shareholders and 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 205,000 customers. Gaz Métro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 315,000 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 and solar 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 the implementation of 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 and electricity supply, the integrity of the natural gas and electricity distribution and transportation 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 United 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 any other type of calamity, a major service interruption, or a threat to cybersecurity (or cyberattack); that Gaz Métro can continue to distribute substantially all of its net income; 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 quarter ended June 30, 2017, 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 not to 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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