August 5, 2010 - Financial releases
Énergir announces the name of the new company that will hold the public investors' interest in Énergir: Valener Inc.
Montreal, August 5, 2010 – Gaz Métro Limited Partnership (Gaz Métro) (TSX: GZM.UN) reports adjusted net income1 of $7.4 million, or $0.06 per unit, for the third quarter of its 2010 fiscal year, which is $1.9 million, or $0.01 per unit, higher than adjusted net income for the third quarter of the previous fiscal year. For the first nine months of the current fiscal year, adjusted net income1 is $190.5 million, or $1.58 per unit, down $5.8 million, or $0.05 per unit from the corresponding period of the previous fiscal year, which included a number of favourable non-recurring items.
“Natural gas is clearly very competitive and this has been helping the Quebec distribution activity for several quarters now. Coupled with relatively favourable economic growth, the competitiveness of natural gas continued to boost our deliveries in Quebec during the third quarter. They are 7% higher than the same period last year. This is most notable in the industrial market where volumes rose 15% during the quarter”, said Sophie Brochu, President and Chief Executive Officer.
Énergir also disclosed the name of the new company that will hold the public investors’ interest in Gaz Métro. “We recently announced a strategic corporate reorganization in response to the federal government’s Tax Fairness Plan. The reorganization specifically provides for the creation of a new publicly-traded entity that will henceforth hold the public investors’ interest in Énergir. Over the years, our objective has always been to create value for our two main groups of unitholders, namely Énergir inc. and the public unitholders. We are enthusiastic about the idea of pursuing this objective with the transformation of Énergir’s public ownership structure into a new dividend-paying public corporation, Valener Inc., representing the combination of “value” and “energy”. This proposed reorganization, which is the product of a diligent process, represents the most attractive solution because it optimizes payout, maintains stability and provides growth opportunities for public investors”, stated Ms. Brochu.
On June 22, 2010, Énergir declared a distribution of $0.31 per unit, payable on September 30, 2010, to Partners of record at the close of business on September 15, 2010, as part of the strategic corporate reorganization announced on that date. This distribution would have been payable on October 1, 2010 without the context of this reorganization.
Quebec Natural Gas Distribution (Énergir-QDA)
Énergir-QDA’s net income is $3.0 million for the third quarter of the 2010 fiscal year and $158.3 million for the first nine months, up $0.8 million over the third quarter of the previous fiscal year and down $1.1 million from the first nine months of the 2009 fiscal year.
Énergir’s normalized deliveries during the third quarter and the first nine months of the current fiscal year are 7.0% and 5.0% higher respectively than during the same periods the previous fiscal year. The increases are entirely in the commercial and industrial markets.
In the industrial market, heavier consumption in the refining, petrochemical and metallurgy sectors, higher short-term interruptible service sales and a relatively more favourable economic growth over the last few months boosted volumes by 7.8%.
Relatively favourable economic growth and the maturation of new sales are some of the reasons volumes were up 4.4% during the first nine months of the 2010 fiscal year in the commercial market.
Customers’ energy efficiency initiatives are basically the reason natural gas volumes are down 2.5% in the residential market for the first nine months of this fiscal year. This is partially offset by the maturation of new sales.
The higher volumes translate into an excess return of $27.0 million for the first nine months of the 2010 fiscal year. However, this excess return is virtually entirely allocated to customers as a reimbursement of the advance they made to Énergir-QDA in connection with the 2010 rate case in which Énergir-QDA anticipated a productivity loss for the 2010 fiscal year.
Energy Distribution in Vermont
Net income from the energy distribution activity in Vermont is $0.6 million2 for the third quarter of the current fiscal year and $11.1 million for the first nine months of that year, down $0.8 million and $4.2 million respectively from the corresponding periods of the previous fiscal year. These decreases are mainly attributable to lower natural gas and electricity deliveries, which is a reflection, among other things, of warmer temperatures than during the first nine months of the 2009 fiscal year as well as the depreciation of the US dollar in relation to the Canadian dollar.
Natural Gas Transportation
Net income from the natural gas transportation sector is $1.6 million for the third quarter of the 2010 fiscal year and $15.0 million for the first nine months, down $0.7 million and $2.7 million respectively from the corresponding periods of the previous fiscal year. The decrease for the first nine months is mainly due to the recognition, during the 2009 fiscal year, of the $6.7 million favourable impact of a rate adjustment for the 2007 and 2008 fiscal years that the National Energy Board (NEB) approved in March 2009 for Trans Québec & Maritimes Pipeline Inc. (TQM) as well as interest income of $0.8 million related to that decision. This decrease was partially offset by the recognition, in the first quarter of the 2010 fiscal year, of the $2.9 million favourable impact of an interim rate adjustment for TQM for the 2009 fiscal year. Portland Natural Gas Transmission System’s (PNGTS) pre-tax income is down $0.5 million for the first nine months of the current fiscal year, reflecting lower short-term sales and interruptible service sales, offset by an income tax recovery of $2.0 million paid to the State of New Hampshire in the first quarter of the current fiscal year.
Energy Services and Other
Adjusted net income3 for the Energy Services and Other segment is $2.1 million for the third quarter of the 2010 fiscal year and $5.2 million for the first nine months, up $3.3 million and $1.9 million respectively over the corresponding periods of the previous fiscal year. These increases are mainly due to a favourable $2.3 million settlement during the third quarter of the current fiscal year arising from a dispute involving HydroSolution, L.P., the $1.6 million write-down of the Aqua-Rehab Inc. goodwill during the 2009 fiscal year and the sale of all the shares of Teldig Systems Inc. in the first quarter of the current fiscal year, which generated a gain of $0.8 million. These favourable items are partially offset by the recognition of $2.0 million in the 2009 fiscal year, being the last third of the gain on the sale of 50% of the units of Climatisation et Chauffage Urbains de Montréal, s.e.c. to Dalkia Canada Inc. in February 2006.
Cash and Capital Management
During the first nine months of the current fiscal year, cash flows from operations of $368.2 million, before change in non-cash working capital items, were down $50.4 million compared to the corresponding period of the previous fiscal year. This decrease basically reflects the $5.7 reduction in net income, higher normalization of Quebec natural gas distribution revenues on account of warmer temperatures ($30.8 million), an $11.2 million decrease in the amortization of deferred charges and credits, financing costs and intangible assets, and a $3.9 million decrease in distributions received from companies subject to significant influence.
The debt/total capitalization ratio is 62.4% as at June 30, 2010, compared to 65.1% as at September 30, 2009 and 62.6% as at June 30, 2009.
In coming months, Énergir has a number of projects that flow from its complementary and inclusive energy vision, which is counting on the compatibility of energy and environment. A few of these projects are described below.
Wind power: After receiving a decree from the government of Quebec, Énergir and its partner, Boralex Inc. are proceeding with the development of the two Seigneurie de Beaupré wind power projects in accordance with the planned timetable. The specific steps planned to carry out the projects are applying for construction permits, signing final agreements with Enercon Canada Inc., the supplier of turbines and maintenance services, signing a final agreement for the civil engineering work and arranging financing. The private land of the Séminaire de Québec, where the consortium’s projects will be located, gives them distinct advantages. Apart from the exceptional wind resources, the site is not close to any urban or residential centres, thereby making the visual and noise impacts almost non-existent for the neighbouring communities. The projects, which will have total installed capacity of 272 megawatts, should be commissioned around December 2013.
Smart electricity distribution system in Vermont: In connection with the federal government’s stimulus package for businesses, Green Mountain Power Corporation (GMP) received financial assistance for a state-wide smart electricity distribution system in Vermont. The assistance will finance part of the investment GMP will make over the next three years. This three-year project involves, among other things, replacing the present customer information system, buying and installing smart meters at customers’ premises and participating in dynamic rates pilot projects with other electricity utilities in Vermont. GMP and the other electricity utilities in Vermont have signed the contract and have started implementing this major project. In GMP’s opinion, the success of the project could transform its relationship with its customers and the way it manages its operations by integrating state-of-the-art technology in its activities.
Natural gas for the transportation industry: Énergir is working on expanding its commercial scope in the road transportation sector, which is responsible for 40% of greenhouse gas (GHG) emissions in Quebec. Énergir is specifically targeting heavy-duty diesel fleets. Vehicles that use natural gas emit 25% less GHG than diesel and other petroleum fuels. Énergir has signed an agreement in principle with a large freight carrier to supply several trucks with liquefied natural gas (LNG). Énergir will have to be in a position to install the facilities required to supply trucks from three refuelling stations. The parties’ intention is that the contract will have been signed and the facilities built by the end of the 2010 calendar year. As Énergir already has liquefaction equipment at the LSR plant, the investments required would be limited to the refuelling stations and the tanks for transporting LNG.
Biomethanation: Énergir believes that waste reclamation is a promising solution to Quebec’s energy needs and would reduce GHG emissions. The Partnership is therefore very receptive to the government of Quebec’s biomethanation program, which aims to divert organic residues from landfill sites for reclamation purposes. Énergir intends to play a key role in ensuring these initiatives are economically viable, in particular by providing access to its distribution system for moving biomethane. Énergir wants to facilitate the short-term development of this activity and is working with various partners to define the technical and economic modalities for injecting this new natural gas supply source into its network, while continuing to provide reliable and safe service.
Shale gas: Énergir is presently in discussions with certain natural gas producers who operate in the St. Lawrence Valley about moving natural gas that would be extracted from wells to consumption markets. On May 26, 2010, Énergir filed an application with the Régie de l’énergie to have the rate principles applicable to the new services related to this activity approved.
Strategic Corporate Reorganization
Following the announcement by the federal government and subsequent enactment of the legislation with respect to the taxation of publicly traded income trusts and partnerships (the specified investment flow-through (SIFT) rules), the Board of Directors of Énergir inc. (GMi), in its capacity as General Partner of Énergir, created an independent committee composed solely of independent Directors to review the strategic objectives, evaluate available options and assess their implications for public unitholders.
After analyzing a number of alternatives, the Independent Committee determined that the proposed reorganization, represents the most attractive available alternative to address the impact of
the SIFT rules, which aims to create a compelling investment vehicle for public unitholders while maintaining an efficient capital structure for Énergir and its controlling partner, GMi.
On the recommendation of the Independent Committee, on June 22, the independent and non-interested Directors (the other Directors abstained from voting) on the Board of Directors of GMi unanimously approved a strategic corporate reorganization to transform the public ownership structure of Énergir into a new dividend-paying public company, Valener Inc. (Valener). The Valener shares will be listed on the Toronto Stock Exchange, under the symbol “VNR”.
The reorganization involves the exchange, on a one-for-one basis, of all publicly held units of Énergir, which collectively represent a 29% economic interest in Énergir, for common shares of Valener. Following the exchange, Valener will become a partner of Énergir along with GMi who will maintain its interest in the Partnership. Public unitholders will retain their current proportionate economic interest in Énergir indirectly through Valener, and will benefit, also through Valener, from an increase in Énergir distributions otherwise payable to Valener by an aggregate amount of $20 million over a three-year period. In addition to its interest in Énergir, Valener will have the ability to pursue, for its own benefit, certain development and acquisition strategies, including pursuant to an option to be granted by Énergir to acquire 49% of its 50% indirect interest in the Seigneurie de Beaupré wind power project, subject to obtaining all required consents.
S&P and DBRS have confirmed that the proposed reorganization will not affect the credit ratings of Gaz Métro and GMi.
On July 28, 2010, the Superior Court of Québec granted an interim order in connection with the proposed reorganization facilitating the calling of an extraordinary unitholders’ meeting scheduled on September 14, 2010 and prescribing among other matters the conduct of the meeting.
An information circular dated July 28, 2010 was mailed to unitholders of record at the close of business on July 23, 2010. The circular was accompanied by a proxy or voting form for the extraordinary unitholders’ meeting. Information about this reorganization is accessible on Énergir’s Web site (www.gazmetro.com/investors) or on SEDAR at www.sedar.com. The reorganization is expected to be completed around September 30, 2010.
Énergir will hold a telephone conference with financial analysts on Thursday, August 5, 2010, at 3:00 p.m. (Eastern time) to discuss the results for its third quarter ended June 30, 2010. Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice President, Corporate Affairs, and Chief Financial Officer, will be the speakers. This will be followed by a question period. Media and other interested individuals are invited to listen in.
The conference can be accessed live by dialling 647-427-7450 or toll-free 1-888-231-8191. It will also be Webcast on Énergir’s Web site (www.gazmetro.com/investors) in the “Webcasts” section.
Rebroadcasts can be accessed for 30 days by telephone at 416-849-0833 or toll-free at 1-800-642-1687 (access code: 88759445), and for 90 days on Énergir’s Web site.
With over $3.6 billion in assets, Énergir is Quebec’s leading natural gas distributor. Operating in this regulated industry for over 50 years, Énergir has become the trusted energy provider to some 180,000 customers in Quebec and 136,000 customers in Vermont while developing the skills and expertise needed to diversify beyond natural gas. Énergir’s prudent growth strategy has been marked by the successful entry into electricity distribution in Vermont and development of wind power projects in Quebec. Offering historically strong and stable distributions and showing a competitive spirit, Énergir is committed to its customers, Partners, employees and the community. Énergir’s units are listed on the Toronto Stock Exchange under the symbol GZM.UN. www.gazmetro.com
Cautionary note regarding forward-looking statements
Certain statements in this press release may be forward-looking pursuant to applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Énergir inc. (GMi), Énergir’s general partner, and is based on information currently available to management and on assumptions with respect to future events. The words “plans”, “expects”, “estimates”, “forecasts”, “intends”, “anticipates” or “believes”, or similar expressions, including the negative of these terms and future or conditional forms, often identify forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties and other factors outside management’s control. A number of factors could cause actual results of Énergir and GMi to differ materially from the results discussed in the forward-looking statements, including, but not limited to, terms of decisions rendered by regulatory bodies, general economic conditions, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supplies, the integrity of the natural gas distribution system, exchange rates fluctuations, the evolution of development projects, SIFT rules and the announced strategic corporate reorganization and other factors described in the 2009 Annual Information Form of each of Énergir and GMi under the item “Risks”, and in the Management’s Discussion and Analysis of each of Énergir and GMi for the fiscal year ended September 30, 2009. A description of factors, risks and assumptions related to the announced strategic corporate reorganization is provided in Énergir’s July 28, 2010 information circular on the reorganization. Although the forward looking statements contained herein are based upon what management believes to be reasonable assumptions, including assumptions to the effect that no unforeseen changes in the legislative and regulatory framework of energy markets in Quebec and the New England states will occur, that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur, and other assumptions described in the Management’s Discussion and Analysis of each of Énergir and GMi for the quarter ended June 30, 2010, management 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 management 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 not to place undue reliance on these forward-looking statements.
Non-GAAP financial measures
In management’s view, certain “adjusted” indicators, such as adjusted net income and adjusted net income per unit provide readers with information it considers useful for analyzing its financial results. However, they are not standardized in accordance with Canadian generally accepted accounting principles (GAAP) and should not be considered in isolation or as substitutes for other performance measures that are in accordance with GAAP. The results obtained might not be comparable with similar indicators used by other issuers and should therefore only be considered as complementary information.
1Adjusted net income excludes an unfavourable non-monetary adjustment of $0.3 million in the third quarter of the 2010 fiscal year ($1.4 million unfavourable for the first nine months of the 2010 fiscal year) and an unfavourable non-monetary adjustment of
$0.2 million in the third quarter of the 2009 fiscal year ($1.5 million unfavourable for the first nine months of the 2009 fiscal year), related to future income taxes.
2 Net of financing costs
3 Adjusted net income excludes non-moneteray adjustments related to future income taxes
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