VALENER REPORTS ITS RESULTS AND THOSE OF GAZ MÉTRO FOR THE FIRST QUARTER OF FISCAL 2011

A series of accomplishments for Valener's first quarter

MONTREAL, Feb. 14 /CNW Telbec/ - Valener Inc. ("Valener") (TSX: VNR) is pleased to announce its results and those of Gaz Métro Limited Partnership ("Gaz Métro") for the first quarter ended December 31, 2010.

Incorporated on June 15, 2010, Valener acquired its interest in Gaz Métro on September 30, 2010 as part of Gaz Métro's corporate reorganization. First quarter 2011 is the very first fiscal quarter for Valener, which holds the public ownership interest in Gaz Métro.

Valener's results

For the first quarter of fiscal 2011, Valener posted net income of $11.1 million, or $0.31 per share. The income essentially consists of an approximate 29% share in Gaz Métro's earnings, i.e., $17.6 million, and a $5.9 million income tax expense. As at December 31, 2010, Valener had total assets of $682.5 million.

"Valener's very first quarter was marked by a series of accomplishments, including a $29 million subscription of Gaz Métro units, a public offering of 2.3 million shares for a net amount of approximately $38 million, and the acquisition of a 24.5% indirect interest in the Seigneurie de Beaupré wind power projects upon exercising the option granted by Gaz Métro as part of its corporate reorganization. These accomplishments were all in step with Valener's plan to foster growth and create shareholder value," said Pierre Monahan, Chairman of the Board of Valener.

"Share ownership changes have also been recently announced with respect to Noverco, which indirectly owns 71% of Gaz Métro. Specifically, the Caisse de dépôt et placement du Québec and Enbridge Inc. have announced that they will increase their investment in Noverco by purchasing the entire 17.56% share held by Laurentides Investissements S.A.S., a subsidiary of GDF Suez. This additional investment in Noverco by two current, significant shareholders clearly demonstrates their renewed confidence in the investment quality of Valener's main asset, Gaz Métro," added Mr. Monahan.

Valener's quarterly dividend declaration

Valener's Board of Directors declared a quarterly dividend of $0.25 per common share payable on April 15, 2011 to shareholders of record at the close of business on March 31, 2011.

Acquisition of an interest in the Seigneurie de Beaupré wind power projects

As part of the corporate reorganization of Gaz Métro, Valener was granted an option under which it could acquire, directly or indirectly, a 49% interest in Gaz Métro's direct or indirect interest in the Seigneurie de Beaupré wind power projects. On December 20, 2010, this option was exercised in its entirety at an acquisition cost of $2.9 million, subject to certain adjustments. Following the transaction, Beaupré Éole General Partnership (Beaupré Éole), which is 51% indirectly owned by Gaz Métro and 49% indirectly owned by Valener, became an equal partner of Boralex Inc. (Boralex) in the consortium that is developing the three Seigneurie de Beaupré wind farms, which will have a total installed capacity of 341 megawatts.

Gaz Métro's results

Valener's main asset is its approximate 29% interest in Gaz Métro. As Gaz Métro Limited Partnership is now private, its results are presented below to allow Valener's shareholders to monitor the changes in their investment.

In the first quarter of fiscal 2011, Gaz Métro recorded $60.7 million in net income, for a year-over-year decrease of $17.4 million that is essentially due to the impacts of the 2011 rate case and to a temporary timing difference between the revenue recognition profile, which follows the customers' consumption profile, and that of costs for the natural gas distribution activity in Quebec, as described below. Management expects the difference to partially reverse in the coming quarters.

Segment analysis of Gaz Métro's results

Quebec Natural Gas Distribution (Gaz Métro-QDA)

The average supply rate (system gas) was $4.72/gigajoule during the first quarter of fiscal 2011, down 9.1% from $5.19/gigajoule during the same quarter last year.

"Natural gas prices have remained low, keeping with the trend of almost two years. Natural gas is therefore enjoying an enviable and advantageous competitive position in all of Gaz Métro's markets, especially in the industrial market where regular and short-term interruptible service sales remain high. In the commercial market, natural gas has been the least expensive energy source for the past 12 years1 and, as the cleanest fossil fuel, it can make a large and immediate contribution to reducing greenhouse gas emissions," said Sophie Brochu, President and Chief Executive Officer of Gaz Métro.

For the first quarter of fiscal 2011, Gaz Métro-QDA's normalized natural gas deliveries totalled 1,559 million cubic metres, down 2.7% from the same quarter last year.

  • In the industrial market, first quarter deliveries were up 1.5% from the same quarter last year. The increase was in part due to greater consumption, particularly in the refinery and petrochemical sector.
  • In the commercial market and the residential market, normalized deliveries were down 6.1% and 6.7%, respectively, from the first quarter of fiscal 2010. Contributing factors to these decreases include the lower volumes created by energy efficiency measures and the lower volumes resulting from the application of a new method for establishing the normal temperature.

Gaz Métro-QDA posted $47.2 million in net income for the first quarter of fiscal 2011, down $17.4 million from the same quarter last year. The decrease reflects the impact of the 2011 rate case, which drove down revenue, and of higher operating and maintenance expenses and transportation and load-balancing costs, partly offset by the provision for anticipated overearnings that had been recorded in the first quarter of fiscal 2010. This decrease in net income is expected to partially reverse in the coming quarters, as it relates to a temporary timing difference between the revenue recognition profile, which follows the customers' consumption profile, and that of costs.

It is important to point out that the rate reduction authorized by the Régie de l'énergie for fiscal 2011 reflects a $13.5 million decline in net income compared to fiscal 2010, for the following reasons:

  • a decrease in the income taxes and capital tax included in the rates charged to customers and subsequently assumed by the Partners of Gaz Métro;
  • a decrease in the average rate base;
  • a decrease in the authorized rate of return on deemed common equity for the fiscal year (9.09% versus 9.20%); and
  • Gaz Métro-QDA's share of overearnings realized in fiscal 2010 for an amount of $6.7 million.

Energy distribution in Vermont

Net income from energy distribution activity in Vermont stood at $5.0 million2 for the first quarter of fiscal 2011, up $1.2 million from the first quarter of last year. This increase was mainly due to a 3.1% rate increase for Green Mountain Power Corporation (GMP) and to higher natural gas and electricity deliveries by Vermont Gas Systems, Inc. (VGS) and GMP, resulting in part from colder temperatures.

Natural Gas Transportation

In the Natural Gas Transportation segment, Gaz Métro posted $4.7 million2 in net income for the first quarter of fiscal 2011. Excluding the favourable non-recurring impact of a $2.9 million interim rate adjustment for fiscal 2009 for Trans Québec & Maritimes Pipeline Inc. (TQM) approved by the National Energy Board (NEB) during the first quarter of Gaz Métro's fiscal 2010 and of a $2.0 million income tax recovery ($1.2 million net of income taxes) that had been recorded in the first quarter of fiscal 2010 by Portland Natural Gas Transmission System (PNGTS) resulting from the State of New Hampshire tax review, net income was up $1.0 million compared to the first quarter last year.

This increase in net income, excluding the non-recurring items, was mainly due to TQM's lower amortization expense and lower financial expense.

Natural Gas Storage

In the Natural Gas Storage segment, Gaz Métro recorded net income of $1.4 million2 in the first quarter of fiscal 2011, up $0.2 million from the adjusted net income of last year's first quarter, which excluded an unfavourable non-monetary adjustment of $0.5 million related to future income taxes. The increase was mainly attributable to an indexing of rates.

Energy Services and Other

The Energy Services and Other segment posted net income of $2.0 million3 for the first quarter of fiscal 2011, up $1.1 million from the adjusted net income excluding non-recurring items of last year's first quarter, which excluded an unfavourable non-monetary adjustment of $0.1 million related to future income taxes and a $0.8 million gain on the sale of Teldig Systems Inc. that had been completed in the first quarter of 2010. This increase was due to higher net income from MTO Telecom Inc., which completed a major fibre optic network contract. In addition, Servitech Energy Limited Partnership experienced improved profitability as demand was up for its turnkey services in heating, air conditioning and plumbing for the industrial, institutional and commercial markets.

Capital management 

The debt/total capitalization ratio was 62.2% as at December 31, 2010, down from the ratio of 64.4% as at December 31, 2009. On October 7, 2010, Gaz Métro issued units for net proceeds of approximately $100 million to which Valener and Gaz Métro inc. subscribed in proportion to their respective interests. In so doing, Gaz Métro brought its capital structure to a level more comparable to that which it had maintained before the 2007 acquisition of GMP that had been entirely financed by debt.

Main development projects 

Wind power:

Having successfully passed the key environmental approval stage, the consortium formed of Beaupré Éole (51% indirectly owned by Gaz Métro) and Boralex are proceeding with the work needed to commission the two wind power projects, scheduled for December 2013, with an installed capacity of 272 megawatts (Seigneurie de Beaupré wind farms 2 and 3) on the private lands of Seigneurie de Beaupré and is staying the course with the key planning stages to complete them, in particular applying for construction permits, signing the final agreements with Enercon Canada Inc., the supplier of turbines and maintenance services, signing a final agreement for the civil engineering work, and implementing financing.

In November 2010, the consortium acquired a third project with an installed capacity of 69 megawatts, assigned by Kruger inc. with the consent of Hydro-Québec. This third project, called Seigneurie de Beaupré wind farm 4, will also be developed on the private lands of Seigneurie de Beaupré with commissioning scheduled for December 2014. The environmental impact study of this third wind farm was filed with the Ministère du Développement Durable, de l'Environnement et des Parcs in December 2010. This project will be subject to the same authorizations as the Seigneurie de Beaupré wind farms 2 and 3.

Natural gas for the transportation industry:

Gaz Métro has decided to begin developing natural gas for the transportation industry, freight transportation in particular. The most promising market is that of heavy transport, for which natural gas, both compressed and liquefied, is a real environmental alternative to diesel fuel. Gaz Métro Transportation Solutions, L.P., (Transport Solutions), an indirect subsidiary of Gaz Métro created for this market, signed an agreement with Transport Robert 1973 Ltée (Transport Robert) in summer 2010. The agreement covers the LNG fuelling of trucks. To this end, Transport Solutions will have to install the facilities needed to supply trucks from three refuelling stations. The material needed to build the facilities has been ordered. The permitting process has been longer than anticipated, and the facilities will therefore be ready in summer 2011 rather than in the spring. This delay will not significantly impact the agreement with Transport Robert.

Gaz Métro segment results - Net income and adjusted net income, excluding non-recurring items

  3 months ended December 31 (1)
(in millions of dollars) 2010   2009   Change
Energy Distribution          
  Gaz Métro-QDA 47.2   64.6   (17.4)
  VGS and GMP 6.0   4.8   1.2
  Financing costs of investments in this segment (2) (1.0)   (1.0)              -
  52.2   68.4   (16.2)
Natural Gas Transportation          
  TQM, PNGTS and Champion Pipe Line Corporation Ltd 5.7   8.7   (3.0)
  Financing costs of investments in this segment (2) (1.0)   (0.9)   (0.1)
  The NEB's favourable decision on TQM's rate of return for 2009         -   (2.9)   2.9
  Impact of the State of New Hampshire's tax review (net of income taxes)         -   (1.2)   1.2
     4.7   3.7   1.0
Natural Gas Storage          
  Intragaz Group 1.8   1.2   0.6
  Financing costs of investments in this segment (2) (0.4)   (0.5)   0.1
  Non-monetary impact related to future income taxes (3)         -   0.5   (0.5)
  1.4   1.2   0.2
Energy Services and Other          
  Energy, water and fibre optic 2.4   2.0   0.4
  Financing costs of investments in this segment (2) (0.4)   (0.4)              -
  Non-monetary impact related to future income taxes (3)         -   0.1   (0.1)
  Gain on the sale of Teldig Systems Inc.         -   (0.8)   0.8
     2.0   0.9   1.1
Corporate Affairs and Other            
  Corporate affairs and other 0.4   (0.4)   0.8
  Non-monetary impact related to future income taxes (3)         -   0.4   (0.4)
  Gain realized by Gaz Métro Éole on the sale of 49.0% of its interest in the Seigneurie de Beaupré wind power projects (1.1)              -   (1.1)
     (0.7)              -   (0.7)
Consolidated adjusted net income, excluding non-recurring items 59.6   74.2   (14.6)
  Non-monetary impact related to future income taxes (3)         -   (1.0)   1.0
Consolidated net income, excluding non-recurring items 59.6   73.2   (13.6)
  Non-recurring items 1.1   4.9   (3.8)
Consolidated net income 60.7   78.1   (17.4)

(1)    Operating results for interim periods are not necessarily representative of the results expected for the fiscal year. Seasonal temperature fluctuations affect Gaz Métro's interim financial results, particularly in the fourth quarter of the fiscal year when Gaz Métro has historically shown a loss because of the typically low demand for energy in the summer months.
(2) Financial expenses incurred by Gaz Métro to finance investments in the subsidiaries, joint ventures, and companies subject to significant influence of each segment.
(3) Adjustment to future income taxes related to Gaz Métro's subsidiaries and joint ventures formed as limited partnerships that do not qualify as rate-regulated enterprises as defined in the Canadian Institute of Chartered Accountants Handbook. As a result of the corporate reorganization, Gaz Métro no longer has to account for this future income tax adjustment.

Conference call

Valener will hold a conference call with financial analysts on Monday, February 14, 2011, at 11 a.m. (Eastern Time) to discuss its results and those of Gaz Métro for the first quarter ended December 31, 2010.

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 webcast on Valener's website (www.valener.com) in the Investors section under "Events & Presentations". The media and other interested parties are invited to listen in on this conference call. The speakers will be available after the conference call 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: 4402491#). For 90 days afterward, the call can be played back on the above-mentioned webpage.

Annual and extraordinary shareholders' meeting

Valener will hold its annual and extraordinary shareholders' meeting on March 23, 2011 at 2 p.m. (Eastern Time) at the Palais des congrès de Montréal in Montréal, Québec. 

Overview of Valener

Valener is a new publicly listed corporation that 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 jointly developed by Beaupré Éole General Partnership 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 $3.6 billion in assets, Gaz Métro is Quebec's leading natural gas distributor. Operating in this regulated industry for over 50 years, Gaz Métro has become the trusted energy provider to more than 180,000 customers in Quebec and 135,000 customers in Vermont while developing the skills and expertise needed to diversify beyond natural gas. In line with its prudent growth strategy, Gaz Métro is present in the electricity distribution market in Vermont and in the development of wind power projects in Quebec. Showing a competitive spirit, Gaz Métro is committed to its customers, Partners, employees and the community. 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 Gaz Métro and Valener to differ significantly from the results discussed in the forward-looking statements, including, but not limited to, with respect to Gaz Métro and Valener, the decisions rendered by regulatory agencies, general economic conditions, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supply, the reliability of electricity supply, the integrity of the natural gas distribution system, exchange rate fluctuations, progress on development projects such as the Seigneurie de Beaupré wind power projects, and with respect to Valener alone, the uncertainty related to future dividend payments, the uncertainty related to Valener's capacity to finance its share in the development of the Seigneurie de Beaupré wind power projects, and other factors described in the "Risk Factors of the Company" and "Risk Factors of the Partnership" sections of Valener's Management's Discussion and Analysis for the year ended September 30, 2010 and in Valener's and Gaz Metro's 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 Seigneurie de Beaupré wind power projects will be completed on schedule and as per specification, and the other assumptions described in Valener's Management's Discussion and Analysis for the first quarter ended December 31, 2010, 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.

Adjusted indicators not standard under GAAP

In the opinion of the management of GMi, the General Partner of Gaz Métro, acting as manager of Valener, certain "adjusted" indicators, such as adjusted net income and adjusted net income per unit of Gaz Métro provide readers with information it considers useful for analyzing the financial results of both Valener and Gaz Métro. However, these indicators 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.

___________________________
1 For businesses using high-efficiency heating equipment whose annual average natural gas consumption is 15,000 cubic metres.
2 Net of financing costs.
3 Net of financing costs.

 
HIGHLIGHTS
VALENER INC.   3 months ended December 31
(in millions of dollars, except for share data, which is in dollars)   2010    
    (unaudited)    
CONSOLIDATED INCOME AND CASH FLOWS        
Share in earnings of Gaz Métro Limited Partnership $ 17.6    
Net income $ 11.1    
Cash flows related to operating activities $ (1.5)    
Basic and diluted net income per share $ 0.31    
Dividend declared per share to shareholders of record on December 30, 2010 $ 0.25    
Weighted average number of shares outstanding (in millions)   36.4    
OTHER INFORMATION        
Market prices on Toronto Stock Exchange (TSX):        
  High $ 18.37    
  Low $ 16.85    
  Close $ 17.10    
CONSOLIDATED BALANCE SHEETS        
    December 31,
2010
  September 30,
2010
    (unaudited)   (audited)
         
Total assets $ 682.5    $ 631.3
Shareholders' equity $ 624.8 $ 589.1
Shareholders' equity per share $ 16.76 $ 16.86
GAZ MÉTRO LIMITED PARTNERSHIP   3 months ended December 31
(in millions of dollars, except for unit data, which is in dollars)   2010   2009
    (unaudited)   (unaudited)
CONSOLIDATED INCOME AND CASH FLOWS        
Revenues $ 577.8 $ 602.7
Net income $ 60.7 $ 78.1
Adjusted net income (1) $ 60.7 $ 79.1
Cash flows related to operating activities (before non-cash working capital items)     $ 132.0 $ 149.1
Purchases of property, plant and equipment $ 38.8 $ 38.3
Changes in deferred charges and credits and intangible assets $ 38.3 $ 26.8
Basic and diluted net income per unit $ 0.48 $ 0.65
Basic and diluted adjusted net income per unit (1) $ 0.48 $ 0.66
Distributions paid per unit to Partners of record on September 15 (2) $ - $ 0.31
Weighted average number of units outstanding (in millions)   126.0   120.5
OTHER INFORMATION        
Authorized rate of return on deemed common equity
(Quebec distribution activity) (3)
  9.09%   9.20%
Credit ratings        
  First mortgage bonds (Standard & Poor's (S&P)/DBRS Limited (DBRS)) (4)   A/A   A/A
  Commercial paper (S&P/DBRS) (4)   A-1(low)/R-1(low)   A-1(low)/R-1(low)
CONSOLIDATED BALANCE SHEETS        
    December 31,
2010
  September 30,
2010
    (unaudited)   (audited)
         
Total assets $ 3,689.8 $ 3,666.6
Total debt $ 1,731.3 $ 1,858.6
Partners' equity $ 1,050.5 $ 932.6

(1)    Adjusted to exclude a $1.0 million unfavourable non-monetary adjustment related to future income taxes for the first quarter of fiscal 2010. Since September 30, 2010, as a result of its reorganization, Gaz Métro no longer has to account for future income tax adjustments.
(2) No distributions were made in the first quarter of fiscal 2011, given that, as part of the reorganization of Gaz Métro, a distribution of $0.31 per unit was paid on September 30, 2010 instead of on October 1, 2010. The distributions per unit paid to Partners of record on September 15, 2009 were paid on October 1, 2009.
(3) Including the sharing of productivity gains, if applicable, and excluding the Global Energy Efficiency Plan (GEEP) incentive.
(4) Through its General Partner, Gaz Métro inc.

SOURCE VALENER INC.

For further information:

Investors and analysts     
Caroline Warren
Investor relations
514-598-3324
www.valener.com
Media
Marie-Noëlle Cano
Media and Public Relations
514-598-3449
www.valener.com

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