Valener announces its financial results for the first quarter of fiscal 2012

THE COMPETITIVE POSITION OF NATURAL GAS REMAINS STRONG BUT MILDER TEMPERATURES AFFECT GAZ MÉTRO'S RESULTS

MONTREAL, Feb. 13, 2012 /CNW Telbec/ - Valener Inc. (Valener) (TSX: VNR), which has held the public ownership interest in Gaz Métro Limited Partnership (Gaz Métro) since September 30, 2010, today announces its financial results for the first quarter of fiscal 2012 ended December 31, 2011.

Valener's results

For the first quarter of fiscal 2012, Valener posted net income of $10.1 million, or $0.27 per share, down $1.0 million or $0.04 per share from $11.1 million or $0.31 per share in the first quarter of last year. The decrease mostly stems from a $1.7 million decrease in Valener's share in the net income of Gaz Métro, i.e., an approximate 29% share in its net income, partly offset by a $1.2 million decrease in income taxes.

"Valener's first quarter results were affected by a warm start to the winter. In no way does this circumstance affect the fundamentals of Gaz Métro, our main investment, the outlook of which remains favourable thanks to the exceptional competitive advantage of natural gas. What's more, Gaz Métro continues to make remarkable progress in its prudent and well-targeted growth initiatives, which will directly benefit Valener," said Pierre Monahan, Chairman of the Board of Valener.

Mild temperatures make an impact despite the normalization mechanism
"Gaz Métro's natural gas distribution activities in Quebec benefit from a revenue normalization mechanism, which is based on normal temperatures, for its distribution and load-balancing revenues. Despite this mechanism, very mild temperatures in the first quarter still affected our results. Transportation revenues, which were affected by lower consumption among our customers, were insufficient to cover the costs incurred by Gaz Métro to ensure its transportation capacity. We are confident, however, that we will overcome much of this shortfall in the coming quarters," explained Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

A strong competitive position
"Gaz Métro's system gas price is currently at its lowest level in more than 11 years, and the outlook for its competitive position remains strong given the size of new gas reserves available in North America. Since 2008, the system gas price has fallen by nearly 60% to $3.93/GJ in December 2011. This is excellent news for our customers and a clear advantage for the commercial development of Gaz Métro's business," said Ms. Brochu.

Declaration of quarterly dividend
Valener's Board of Directors declared a quarterly dividend of $0.25 per common share payable on April 16, 2012 to shareholders of record at the close of business on March 30, 2012. Valener expects to maintain the dividend level at $0.25 per share for each quarter of fiscal 2012.

5% discount maintained under the Dividend Reinvestment Plan
The Board of Directors approved the reinvestment of dividends into additional common shares, for the dividend payable on April 16, 2012, by way of an issuance of new common shares by Valener, at a 5% discount compared to the weighted average price for the five trading days immediately preceding the dividend payment date.

Gaz Métro's results

The net income attributable to the Partners of Gaz Métro stood at $54.8 million for the first quarter of fiscal 2012, down $5.9 million from last fiscal year's first quarter.

This decrease was due, among other factors, to lower net income from natural gas distribution activities in Quebec, which is expected to partly reverse in the coming quarters as anticipated by management. It is also due to lower net income from the Energy Services and Other segment, as the interests in MTO Telecom Inc. and Aqua Data Inc. were sold in fiscal 2011, and to unfavourable non-recurring items in the Corporate Affairs and Other segment. These decreases were partly offset by higher net income from energy distribution activities in Vermont.

Gaz Métro's segment results - Consolidated net income attributable to the Partners of Gaz Métro

For the quarters ended December 31 (1)          
(in millions of dollars) 2011   2010   Change
Energy Distribution          
  Gaz Métro-QDA 43.7   47.2   (3.5)
  VGS and GMP 7.5   6.0   1.5
  Financing costs of investments in this segment (2) (1.1)   (1.0)   (0.1)
  50.1   52.2   (2.1)
Natural Gas Transportation          
  TQM, PNGTS and Champion Pipe Line Corporation Ltd 5.1   5.7   (0.6)
  Financing costs of investments in this segment (2) (1.0)   (1.0)   -
  4.1   4.7   (0.6)
Natural Gas Storage          
  Intragaz 2.2   1.8   0.4
  Financing costs of investments in this segment (2) (0.5)   (0.4)   (0.1)
  1.7   1.4   0.3
Energy Services and Other          
  Energy, water and fibre optic 0.9   2.4   (1.5)
  Financing costs of investments in this segment (2) (0.3)   (0.4)   0.1
  0.6   2.0   (1.4)
Corporate Affairs and Other          
  Corporate Affairs and Other (1.7)   0.4   (2.1)
  Gain realized by Gaz Métro Éole inc. on the sale of 49.0% of its interest in the Seigneurie de Beaupré wind power projects to Valener -   (1.1)   1.1
  CVPS acquisition costs 0.5   -   0.5
  (1.2)   (0.7)   (0.5)
Consolidated net income attributable to the Partners of Gaz Métro, excluding non-recurring items 55.3   59.6   (4.3)
Non-recurring items (0.5)   1.1   (1.6)
Consolidated net income attributable to the Partners of Gaz Métro 54.8   60.7   (5.9)

(1) Seasonal temperature fluctuations affect the amount of energy consumed by customers and in turn have an influence on Gaz Métro's interim consolidated financial results. Historically, Gaz Métro's revenues and profitability are higher in the first two quarters of a fiscal year than in the last two quarters.
(2) These costs consist of the interest on the long-term debt incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures and companies subject to significant influence of each segment.

Segment analysis of Gaz Métro's results

Quebec Natural Gas Distribution (Gaz Métro-QDA)
For the first quarter of fiscal 2012, Gaz Métro-QDA's normalized natural gas deliveries totalled 1,538 million cubic metres, 1.3% less than in the first quarter of last fiscal year.

In the industrial market, natural gas deliveries were up 1.1% from the first quarter of fiscal 2011, in part due to greater consumption, particularly in the metallurgy sector.

Normalized deliveries to the residential and commercial markets declined by 2.8% and 3.7%, respectively, from the first quarter of fiscal 2011, essentially due to energy conservation measures undertaken by Gaz Métro-QDA customers, partly offset by new sales.

Gaz Métro-QDA's net income attributable to the Partners of Gaz Métro totalled $43.7 million in the first quarter of fiscal 2012, a $3.5 million decrease from the same quarter last fiscal year that was due to:

  • lower distribution rates, as had been anticipated in the 2012 rate case;

  • lower deliveries to the residential and commercial markets combined with the fact that application of the temperature normalization mechanism did not fully eliminate the impact on revenues of considerably warmer-than-normal temperatures in the first quarter of fiscal 2012; and

  • the impact of lower transported volumes on transportation revenues that did not translate into an equivalent reduction in costs.

These factors were partly offset by lower load-balancing costs and by a decrease in the amortization expense mainly due to the amortization of the deferred credit related to the repayment of customers' share in overearnings.

Energy Distribution in Vermont
Net income attributable to the Partners of Gaz Métro from energy distribution activities in Vermont totalled $6.4 million1 for the first quarter of fiscal 2012, up $1.4 million from the first quarter of last fiscal year. The increase came mainly from a 3.2% increase in the distribution rates of Green Mountain Power Corporation (GMP) attributable to its 2012 rate case, the higher number of customers of Vermont Gas Systems, Inc. (VGS) and higher income as a result of GMP's increased investment in Vermont Transco LLC, which is involved in electricity transmission in Vermont. The increase was partly mitigated by the fact that VGS and GMP had lower natural gas and electricity deliveries in part due to warmer temperatures combined with higher operating and network maintenance costs.

Central Vermont Public Service Corporation (CVPS) acquisition project
To strengthen its presence in Vermont, on July 12, 2011, Gaz Métro announced that it had signed an agreement to purchase CVPS, the largest electricity distribution company in Vermont. Subject to the required U.S. regulatory approvals, CVPS will be acquired for an all-cash consideration of US$35.25 per share for an approximate total of US$485 million, net of transaction fees and other costs estimated at approximately US$40 million.

The transaction was approved on September 29, 2011 by a strong majority of CVPS's common shareholders. CVPS and Gaz Métro also received confirmation from the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice that no measures or action would be requested concerning the acquisition, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The acquisition is also subject to the approval of other U.S. federal and state regulators, and Gaz Métro is confident that it will obtain the additional authorizations required to finalize the acquisition by summer 2012.

Gaz Métro intends to finance this new investment with 50% debt and 50% equity. To that effect, on November 11, 2011, Gaz Métro inc. entered into a note purchase agreement with investors, by way of a private placement, in anticipation of a later issuance of notes secured by Gaz Métro, for a total capital amount of US$260.0 million. The proceeds of the issuance will be loaned to Gaz Métro on conditions similar to those of the secured notes, for purposes of partially financing the CVPS acquisition.

Once the transaction is finalized, CVPS and GMP will combine their operations under Northern New England Energy Corporation, a wholly owned subsidiary of Gaz Métro based in Vermont.

Natural Gas Transportation
For the first quarter of fiscal 2012, net income attributable to the Partners of Gaz Métro from the Natural Gas Transportation segment totalled $4.1 million2, a year-over-year decrease of $0.6 million that was mainly due to various non-recurring items related to Trans Québec & Maritimes Inc. (TQM) and the decrease in the share of income of Portland Natural Gas Transmission System (PNGTS) arising from a decline in interruptible service revenues.

Natural Gas Storage
The net income attributable to the Partners of Gaz Métro from the Storage segment totalled $1.7 million2 for the first quarter of fiscal 2012, a year-over-year increase of $0.3 million that came mainly from lower administrative expenses.

Energy Services and Other
The net income attributable to the Partners of Gaz Métro from the Energy Services and Other segment totalled $0.6 million2 in the first quarter of fiscal 2012, down $1.4 million from the same period in fiscal 2011. This decrease was mainly due to the sale, in fiscal 2011, of interests in Aqua Data Inc. and MTO Telecom Inc., and a decline in profitability at Servitech Energy Limited Partnership stemming mainly from weaker demand for its turnkey services in heating, air conditioning and plumbing.

Joint development projects between Valener and Gaz Métro

Wind power projects in Quebec:
Wind power projects of the Seigneurie de Beaupré Wind Farms 2 and 3 (wind power projects 2 and 3)
Beaupré Éole General Partnership (which is 51% indirectly owned by Gaz Métro and 49% indirectly owned by Valener) and a wholly owned subsidiary of Boralex Inc. are equal partners of two wind power projects with an installed capacity of 272 megawatts, namely wind power projects 2 and 3, expected to be commissioned in December 2013.

Completion of wind power projects 2 and 3 represents a total investment of approximately $750 million (including financing costs). On November 8, 2011, Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership (Wind Farms 2 and 3), the entity that owns these projects, completed a debt financing with a group of lenders. The total amount of the financing is $725 million and consists of:

  • a two-year construction loan of $590 million that will convert into an 18-year amortizing loan after the start of commercial operations, which represents approximately 80% of the anticipated total investment; and
  • short-term facilities, including a bridge loan and a letter of credit facility, totalling $135 million to finance certain costs reimbursable by Hydro-Québec to be incurred during construction, and to provide various letters of credit.

A $260 million portion of the financing is covered by a guarantee offered to the lenders by the Federal Republic of Germany through its export credit agency Euler-Hermes. With this financing and given the investments and the commitments of $153 million by the partners of Wind Farms 2 and 3, wind power projects 2 and 3 are fully funded.

Construction on wind power projects 2 and 3 started in May 2011. On November 25, 2011, the construction site closed for the winter. Work is expected to resume in May 2012.

Gaz Métro's main development initiatives

Kingdom Community Wind project in Vermont:
At the end of fiscal 2011, GMP began construction of the Kingdom Community Wind (KCW) project, a 63-megawatt wind power project located in Lowell, Vermont. This US$150-million, 21-turbine project will supply power to more than 24,000 households consisting of GMP customers and members of the Vermont Electric Cooperative, Inc. Construction is proceeding as planned with commissioning scheduled towards the end of 2012. As of now, construction of the access road and several of the turbine pads, as well as the power transmission line for the wind farm, have been completed. Discussions are currently underway with the Independent System Operator of New England (ISO-NE) to address how costs will be shared for the voltage control system needed to connect the project to the transmission system. The outcome of these discussions could lead to an increase in the project costs to be included in GMP's rate base.

The investments required for this project are expected to be financed by GMP through both debt and equity financing in accordance with its capital structure, as this investment is regulated and is part of its rate base. To that effect, on November 16, 2011, GMP issued, by way of a private placement, US$50.0 million in Series A First Mortgage Bonds and also entered into a bond purchase agreement for US$25.0 million in Series B First Mortgage Bonds with a planned issuance in April 2012. These issuances will serve to finance a portion of its investment in the project.

Natural gas as transportation fuel:
Gaz Métro Transport Solutions, L.P. (Transport Solutions), an indirect subsidiary of Gaz Métro created to develop natural gas for use as fuel by the transportation industry, is deploying the "Blue Road." Since July 2011, it has been installing the facilities needed to supply liquefied natural gas (LNG) to 180 freight trucks from three refuelling stations, under an agreement entered into with Transport Robert 1973 Ltée (Robert Transport). The Boucherville and Mississauga stations have been in operation since September 19, 2011 and January 16, 2012, respectively. Delivery of trucks ordered by Robert Transport began in autumn 2011 and will continue during fiscal 2012.

In October 2011, Gaz Métro announced that Transport Solutions will supply LNG to three ferries operated by the Société des traversiers du Québec. The two ferries for the Tadoussac-Baie-Sainte-Catherine crossing and the ferry for the Matane-Baie-Comeau-Godbout crossing will be supplied with LNG, in replacement of marine diesel, as of 2013 and 2014. Replacing marine diesel with natural gas for these three ferries will reduce GHG emissions by as much as 25% or 8,750 GHG tonnes each year, which is equivalent to removing 1,750 cars from the roads.

Conference call
Valener will hold a conference call with financial analysts today, Monday, February 13, 2012 at 11 a.m. (Eastern Time) to discuss its results and those of Gaz Métro for the first quarter ended December 31, 2011.

Pursuant to an administration and management support agreement entered into between Valener and Gaz Métro on September 30, 2010, Gaz Métro acts as the manager of Valener. As such, Sophie Brochu, President and Chief Executive Officer, and Pierre Despars, Executive Vice-President, Corporate Affairs and Chief Financial Officer of Gaz Métro inc., the General Partner of Gaz Métro, will be the speakers, and a question period will follow.

The call will be broadcast live and accessible by dialling 416-644-3426 or toll-free 1-800-731-5319. It will also be available via webcast on Valener's website (www.valener.com) in the Events & Presentations page of the Investors section. The media and other interested parties are invited to listen in on this conference call. After the conference call, the speakers will be available for media interviews and questions.

For 30 days afterward, a rebroadcast will be accessible by dialling 416-640-1917 or toll-free 1-877-289-8525 (access code: 4507842#). For 90 days afterward, the call can be played back on the above-mentioned website.

Annual and extraordinary shareholders' meeting
Valener will hold its annual and special shareholders' meeting on March 14, 2012 at 10 a.m. (Eastern Time) at the Palais des congrès de Montréal in Montreal, Quebec.

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 an indirect interest of 24.5% in the wind power projects developed with Gaz Métro and Boralex Inc. on the private lands of Séminaire de Québec. Valener may also pursue its own development projects and acquisition strategies subject to a non-competition agreement in favour of Gaz Métro and to applicable limitations under its credit facility. Valener's common shares are listed on the Toronto Stock Exchange under the "VNR" trading symbol. www.valener.com

Overview of Gaz Métro
With over $3.8 billion in assets as at December 31, 2011, Gaz Métro is Quebec's leading natural gas distributor. Its more than 10,000-kilometre network serves 300 municipalities. Gaz Métro has operated in this regulated industry since 1957 and is the trusted energy provider to its customers in Quebec and Vermont, who choose natural gas for its competitive price, efficiency, comfort and environmental benefits. Gaz Métro is also present in the electricity distribution market, natural gas transportation and storage, and in the development of innovative energy projects such as wind power, natural gas as fuel for transportation vehicles and biomethanation. Gaz Métro is committed to the satisfaction of its customers, its Partners (Gaz Métro inc. and Valener), its employees and the communities it serves. 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 described in the forward-looking statements, including but not limited to the general nature of the aforementioned, and as described in the Risk Factors Relating to Valener and the Risk Factors Relating to Gaz Métro sections of the Valener and Gaz Métro MD&A for the year ended September 30, 2011 and in Valener and Gaz Métro disclosure filings. Although the forward-looking statements contained herein are based upon what the management of the manager 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; 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 are indirect participants will be completed on schedule and as per specification; that Gaz Métro will obtain the required approvals from federal and state authorities for the acquisition of CVPS; that Gaz Métro will obtain sufficient capital and that GMP will be able to quickly and efficiently integrate CVPS's operations; in addition to the other assumptions described in the Valener and Gaz Métro MD&A for the quarter ended December 31, 2011, 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.

HIGHLIGHTS            
               
VALENER INC. 3 months ended December 31  
(in millions of dollars, except for share data, which is in dollars) 2011     2010  
    (unaudited)     (unaudited)  
CONSOLIDATED INCOME AND CASH FLOWS            
Share in the net income of Gaz Métro $ 15.9   $ 17.6  
Net income $ 10.1   $ 11.1  
Cash flows related to operating activities $ (4.3)   $ (1.5)  
Basic and diluted net income per share $ 0.27   $ 0.31  
Dividends declared per share to shareholders of record on December 30 $ 0.25   $ 0.25  
Weighted average number of shares outstanding (in millions)   37.4     36.4  
OTHER INFORMATION            
Market prices on Toronto Stock Exchange (TSX):            
  High $ 16.29   $ 18.37  
  Low $ 13.55   $ 16.85  
  Close $ 15.98   $ 17.10  
CONSOLIDATED BALANCE SHEETS            
  December 31,   September 30,  
  2011   2011  
    (unaudited)     (audited)  
             
Total assets $ 693.1   $ 672.7  
Total debt $ 44.2   $ -  
Shareholders' equity $ 598.3   $ 602.6  
Shareholders' equity per share $ 16.00   $ 16.13  
               
GAZ MÉTRO LIMITED PARTNERSHIP 3 months ended December 31  
(in millions of dollars, except for unit data, which is in dollars) 2011     2010  
    (unaudited)     (unaudited)  
CONSOLIDATED INCOME AND CASH FLOWS            
Revenues $ 536.6   $ 577.8  
Gross margin $ 202.8   $ 210.0  
Net income attributable to the Partners of Gaz Métro $ 54.8   $ 60.7  
Cash flows related to operating activities (before non-cash working capital items) $ 132.3   $ 135.4  
Purchases of property, plant and equipment $ 118.0   $ 46.7  
Changes in deferred charges and credits $ 42.4   $ 17.2  
Basic and diluted net income per unit attributable to the Partners of Gaz Métro $ 0.43   $ 0.48  
Distributions paid per unit to Partners of record on September 15 (3) $ 0.28   $ -  
Weighted average number of units outstanding (in millions)   126.3     126.0  
OTHER INFORMATION            
Authorized rate of return on deemed common equity
(Gaz Métro's natural gas distribution activity in Quebec) (1)
  9.69 %   9.09 %
Credit ratings            
  First mortgage bonds (Standard & Poor's (S&P)/DBRS Limited (DBRS)) (2)   A/A     A/A  
  Commercial paper (S&P/DBRS) (2)   A-1(low)/R-1(low)   A-1(low)/R-1(low)  
CONSOLIDATED BALANCE SHEETS            
  December 31,   September 30,  
  2011   2011  
    (unaudited)   (audited)  
             
Total assets $ 3,889.9   $ 3,727.2  
Total debt $ 1,877.6   $ 1,762.9  
Partners' equity attributable to the Partners of Gaz Métro $ 1,039.7   $ 1,023.3  
Partners' equity per unit attributable to the Partners of Gaz Métro $ 8.23   $ 8.10  
(1) Including the sharing of productivity gains, if applicable, and excluding the Global Energy Efficiency Plan incentive.
(2) Through its General Partner, Gaz Métro inc.
(3) No distributions were made in the first quarter of fiscal 2011, given that, as part of Gaz Métro's reorganization, a distribution of $0.31 per unit was paid on September 30, 2010 instead of on October 1, 2010.

_______________________________
1 Net of financing costs
2 Net of financing costs   

 

SOURCE VALENER INC.

For further information:

Investors and Analysts
Caroline Warren
Investor Relations
514-598-3324
www.valener.com 

Media
Audrey Giguère
Media and Public Relations
514-598-3449

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