Gaz Métro reports 2007 fiscal year results



    
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    HIGHLIGHTS:

    - Adjusted net income of $149.0 million, up $1.8 million over 2006 fiscal
      year
    - 7,183 new customers in Quebec. Natural gas used in 19% of new housing
      in Greater Montreal Area
    - Régie de l'énergie approves improved performance incentive mechanism
    - Acquisition of Green Mountain Power Corporation: favourable impact on
      results
    - Bureau des audiences publiques sur l'environnement and Quebec
      government give Rabaska green light
    - Three bids submitted jointly with Boralex and Séminaire de Québec in
      response to Hydro-Québec Distribution's call for tenders for
      2,000 megawatts of wind power energy
    -------------------------------------------------------------------------
    

    MONTREAL, Nov. 21 /CNW Telbec/ - Gaz Métro Limited Partnership
(TSX: GZM.UN, Gaz Métro) reports adjusted net income of $149.0 million for the
fiscal year ended September 30, 2007, which is $1.8 million higher than the
previous year. Adjusted net income does not include the impact of a
$26.2 million non-cash expense related to the recording of a future income tax
liability as a result of amendments to the Income Tax Act implementing
proposals in the Minister of Finance's Tax Fairness Plan. Including this
expense, net income for the 2007 fiscal year is $122.8 million, down
$24.4 million from 2006.
    The increase in adjusted net income during the fiscal year is
attributable to, among other things, increased income from the Quebec
distribution activity, consolidation of Green Mountain Power Corporation's
(GMP) results since April 12, 2007, recognition of non-recurring items in the
Energy Services and Other Sector and lower recorded expenditures in connection
with the proposed Rabaska liquefied natural gas (LNG) terminal, partially
offset by lower earnings in the Natural Gas Transportation Sector and an
increase in interest expense.
    Adjusted net income per unit, which excludes the impact of the future
income tax liability, is $1.24, down $0.01 from 2006. The average number of
outstanding units is 2.9 million, or 2.5%, higher in 2007, following the
October 2006 unit issue. Net income per unit is $1.02, which is $0.23 less
than in 2006.
    "In many respects, the 2007 fiscal year was a good one for Gaz Métro",
commented Sophie Brochu, President and Chief Executive Officer.
    "Based on the recommendation of the Partnership and representatives of
its customers, the Régie de l'énergie approved new terms and conditions for
its performance incentive mechanism. The new mechanism, which provides our
Partners the possibility of receiving an incentive return, brings the
expectations of our investors more in line with those of our customers and of
the general public in terms of energy efficiency".
    "Moreover, our efforts to grow the residential and commercial markets
continue to bear fruit. In 2007, more than 7,000 new customers joined the
customer ranks Gaz Métro has the privilege of serving", added Sophie Brochu.
    "The 2007 fiscal year was also marked last spring by the acquisition of
Green Mountain Power Corporation, the second largest electricity distributor
in Vermont. As Gaz Métro has already been involved in the natural gas
distribution business in Vermont for 20 years, this acquisition enables it to
pursue the targeted prudent diversification strategy for its energy
activities. This acquisition also creates wealth for our unitholders and
allows us to join forces with an enterprise that adheres to the sustainable
development values that Gaz Métro holds dear", stated Sophie Brochu.

    Consolidated Results

    Consolidated revenues for the fiscal year ended September 30, 2007 are
down $46.3 million, or 2.3%, to $1,957.5 million from $2,003.8 million the
previous year. This can be explained mainly by a reduction in the average
selling price of natural gas, partially offset by the consolidation of GMP's
sales since April 12, 2007. In Quebec, and in Vermont since October 1, 2006,
natural gas purchased by Gaz Métro is billed to customers at cost, which
minimizes the impact on gross margin and net income. This also applies to
electricity distributed by GMP.
    Consolidated gross margin of $623.6 million is up 8.2%, or $47.3 million,
compared to the previous year, mainly due to the share of GMP's gross margin
included in Gaz Métro's results since April 12, 2007 and the increase in the
gross margin generated by the Quebec distribution activity.
    Consolidated cash flows from operating activities, before change in
non-cash working capital items, are $347.6 million for the 2007 fiscal year,
an increase of $50.3 million over the 2006 fiscal year. The increase is
attributable, among other things, to greater energy consumption on account of
colder average temperatures than during the previous year and increased
distributions from companies subject to significant influence compared to the
previous year.

    Income Distribution

    Gaz Métro distributed $0.31 per unit in each quarter of the 2007 fiscal
year, for a total of $1.24 per unit, compared to $1.33 per unit in 2006.
    Gaz Métro inc., in its capacity as General Partner of Gaz Métro, declared
today a distribution of $0.31 per unit, payable on January 3, 2008, to
Partners of record at the close of business on December 15, 2007. Gaz Métro
expects to maintain this distribution level in each quarter of the 2008 fiscal
year.

    Energy Distribution Sector

    In Quebec

    Following the acquisition of GMP, the Energy Distribution Sector,
formerly the "Natural Gas Distribution Sector", is now broader and includes
all of Gaz Métro's energy distribution activities.
    Normalized (for temperatures) deliveries of natural gas in Quebec are up
13.8% to 6,250 million cubic metres during the 2007 fiscal year, compared to
5,490 million cubic metres in 2006. This can be explained by higher volumes in
the industrial market following the production start-up by a large electric
cogeneration customer in September 2006 and by increased consumption in the
metallurgy sector.
    Net income from the Quebec distribution activity is $120.9 million, which
is up $3.8 million from $117.1 million the previous year. The increase is
mainly attributable to higher distribution rates in the residential and
commercial markets as well as higher deliveries. For the 2007 fiscal year, the
rate of return allowed by the Régie de l'énergie was 9.57%, including an
incentive of 0.84%. The rate of return achieved in 2007 was 9.91%, which is
0.34% higher than projected at the beginning of the fiscal year and 0.25%
higher than the 9.66% achieved in 2006.
    In a decision rendered on October 15 2007, the Régie de l'énergie
increased the risk premium allowed to the Partners by 14 basis points, thereby
reflecting, in its view, Gaz Métro's increased business risk since 1999. The
rate of return allowed on Partners' equity is therefore 9.52% for the 2008
fiscal year, which represents 9.05% based on the formula for establishing the
base rate of return, plus an incentive of 0.47% based on anticipated
productivity gains under the performance incentive mechanism. This return
could be increased by up to 0.39% and reach 9.91% for the 2008 fiscal year if
Gaz Métro reaches the targeted consumption reductions set in the Global Energy
Efficiency Plan (GEEP).
    On November 2, 2007, the Régie de l'énergie approved the rates for the
distribution of natural gas in Quebec for the fiscal year starting October 1,
2007. The rates were agreed on by Gaz Métro and the intervenors recognized by
the Régie before it approved them. They represent an average increase of 1.9%
in customers' energy bills for distribution, transportation and load-balancing
services. The price of natural gas supplied by Gaz Métro continues to vary
each month to reflect the fluctuations in its cost, this element being billed
to customers at its cost.
    A large customer of Gaz Métro, TransCanada Energy Ltd. (TCE) in
Bécancour, could potentially stop consuming natural gas distributed by the
Partnership as of January 1, 2008, for an indefinite period of time. Following
this news and in connection with the approval required by TCE and Hydro-Québec
from the Régie de l'énergie, Gaz Métro made representations in order to
minimize the impact thereof on its customers and Partners.

    In Vermont

    In Vermont, natural gas deliveries by Vermont Gas Systems (VGS) during
the 2007 fiscal year are up 7.5% to 244 million cubic metres, compared to
227 million in 2006. However, as a result of warmer than normal average
temperatures during the 2007 fiscal year, residential consumption, which
generates the highest gross margin, was lower than what had been anticipated
and used for establishing the rates. This reduced earnings and could not be
completely offset by higher volumes in the industrial market.
    Since April 12, 2007, GMP has distributed 1,009 gigawatt hours of
electricity.
    Net income from the energy distribution activities in Vermont is down
$1.4 million to $4.6 million, mainly on account of non-recurring revenues
recorded in VGS in 2006, lower consumption in the residential market as a
result of warmer temperatures than normal in 2007 and higher financing costs
due to, among other things, the investment in GMP. GMP's net earnings of
$4.4 million since April 12, 2007 have however partially offset those
elements.

    Natural Gas Transportation Sector

    Net income for the Transportation Sector is $14.0 million for the 2007
fiscal year, compared to $22.3 million in 2006. The decrease of $8.3 million
is mainly attributable to the reduction in the rate of return allowed on the
equity of Trans Québec & Maritimes Pipeline, and lower earnings of Portland
Natural Gas Transmission System mainly attributable to the loss of two large
customers, and to the recording in 2006 of a significant non-recurring
revenue.

    Natural Gas Storage Sector

    Adjusted net income from the Storage Sector is $3.2 million in 2007,
which is $2.4 million lower than in 2006. The main reason for this decrease is
non-recurring revenues of $1.8 million the previous year and the unfavourable
$0.9 million impact in 2007 of the Régie de l'énergie's decision with respect
to the rate for the Pointe-du-Lac storage site.
    Taking the unfavourable $26.2 million non-monetary expense from the
recording of a future income tax liability arising from the amendments to the
Income Tax Act implementing the proposals in the Minister of Finance's Tax
Fairness Plan, the Storage Sector has a net loss of $23.0 million for the 2007
fiscal year, compared to net income of $5.6 million in 2006, a decrease of
$28.6 million.

    Energy Services and Other Sector

    Net income for the Sector is $8.0 million for the 2007 fiscal year,
compared to $3.7 million in 2006. The $4.3 million increase is mainly on
account of the recognition of one-third ($2.0 million) of the gain on the sale
of 50% of the units of Climatisation et Chauffage Urbains de Montréal to
Dalkia, the recording of a $1.4 million tax benefit relating to prior years in
MTO Telecom Inc. and greater activity by certain companies in the Sector.

    Development Expenditures

    During the 2007 fiscal year, Gaz Métro incurred $1.7 million of
development expenditures and non-allocated net expenses, compared to
$7.5 million the previous year. The decrease is largely due to development
expenses of $0.2 million recorded in connection with the proposed Rabaska LNG
terminal in 2007, compared to $6.6 million the previous year, a decrease of
$6.4 million.

    Business Development

    On October 24, 2007, the government of Quebec approved Rabaska Limited
Partnership's proposal to construct an LNG terminal at Lévis. The project, in
which Gaz Métro's partners are Enbridge Inc. and Gaz de France, therefore
received the government's endorsement of the favourable recommendation issued
last summer by the Commission d'examen formed by the Bureau d'audiences
publiques sur l'environnement and the Canadian Environmental Assessment
Agency. The federal government is pursuing its process for getting approval of
the project. Gaz Métro continues to work with its partners to secure a
long-term gas supply contract for the project.
    On September 18, 2007, Gaz Métro and Boralex Inc. submitted three joint
bids in response to Hydro-Québec Distribution's call for tenders for
2,000 megawatts of wind power energy to be produced by three wind farms having
a total capacity of approximately 375 megawatts to be developed on the
Seigneurie de Beaupré lands, in collaboration with the Séminaire de Québec.
Gaz Métro and its partner firmly believe they have an exceptional site for
such a project in Quebec. Hydro-Québec Distribution should announce the
projects retained in the spring of 2008.

    Taxation of Flow-through Entities

    On June 22, 2007, the House of Commons adopted Bill C-52 enacting the
Income Tax Act amendments implementing the proposals in the Minister of
Finance's Tax Fairness Plan tabled on October 31, 2006 with respect to income
trusts and limited partnerships (flow-through entities). The amendments
transfer to Gaz Métro the payment of income tax (presently paid by each
Partner) on Gaz Métro's income at the corporate tax rate, effective October 1,
2010, and treat the after-tax income distributions as dividends for tax
purposes.
    In its present form, the amendment would reduce distributable income by
the related income taxes. The impact on Partners would depend on their
individual tax status. For the 2007 fiscal year, approximately 85% of Gaz
Métro's net income comes from entities that have not been taxed to date at the
Partnership's level. Only that portion will be affected by the change in the
law as of October 1, 2010. Gaz Métro is analyzing its various alternatives.

    Impact of Fluctuations in Exchange Rate on Capital Structure

    Gaz Métro, which owns investments in U.S. companies, is exposed to the
risk of the devaluation of the U.S. dollar in relation to the Canadian dollar.
At the end of each period, it has to revalue its investments and record any
changes in Partners' equity.
    During the 2007 fiscal year, due to the appreciation of the Canadian
dollar, Gaz Métro had to write down its U.S. dollar investments by
$27.2 million, which had an impact on the debt/total capitalization ratio. If
it had not been for this write-down, this ratio would have been 64.0% instead
of 64.6% as presented. The value of the Partnership's U.S. dollar investments
as at September 30, 2007 is $199.8 million.

    Conference Call

    The Partnership will hold a telephone conference with financial analysts
to discuss its results for the 2007 fiscal year on Wednesday, November 21,
2007 at 4:00 p.m. (Eastern time). Interested parties are invited to listen in.
Sophie Brochu, President and Chief Executive Officer, and Pierre Despars,
Executive Vice President and Chief Financial Officer, will be the main
speakers.
    The conference can be accessed live by dialling 416-644-3414 or
1-800-732-6179. It will also be webcast on Gaz Métro's website
(www.gazmetro.com/investors) in the "Webcasts" section.
    Rebroadcasts can be accessed for 30 days by telephone at 416-640-1917 or
1-877-289-8525 (access code No.21252626), and for 90 days on Gaz Métro's
website.

    Gaz Métro Overview

    With more than $3.1 billion of assets and approximately 1,300 employees
in Quebec, Gaz Métro is a leading Quebec energy company and one of Canada's
largest natural gas distributors. Gaz Métro serves about 171,000 customers in
Quebec through an underground pipeline network of almost 10,000 km.
    Through its wholly-owned subsidiary, NNEEC, Gaz Métro has been active in
New England's energy industry since 1986 and has nearly 300 employees there.
NNEEC includes Vermont Gas Systems, the sole gas distributor in Vermont, and
Green Mountain Power Corporation, the second largest electricity distributor
in that State.
    Through subsidiaries or in partnership with other investors, Gaz Métro is
active in natural gas transportation and storage as well as energy services
and water and waste water systems and fibre optic networks. Gaz Métro also
participates in various development projects in the energy sector.

    FORWARD-LOOKING STATEMENTS

    To enable investors to better understand the Partnership's outlook for
the future and make more informed decisions, the matters discussed in this
report may contain forward-looking information about Gaz Métro's objectives,
strategies, financial condition, operating results and activities. Such
information expresses, as of the date hereof, the estimates, forecasts,
projections, expectations or opinions of the Partnership concerning future
events or results. Actual results may differ materially from the results
anticipated herein and, consequently, we cannot guarantee that any
forward-looking statement will materialize. Forward-looking information does
not take account of the impact transactions or non-recurring matters,
announced or arising after the statements have been made, might have on the
Partnership's activities.
    Significant risks and uncertainties could cause actual results and future
events to differ materially from current expectations. For additional
information on these and other factors, see the reports filed by Gaz Métro
with Canadian securities regulators. Gaz Métro therefore cautions readers not
to place too much reliance on forward-looking information.

    ADJUSTED INDICATORS NOT STANDARDIZED IN ACCORDANCE WITH GAAP

    In the view of Gaz Métro's management, certain "adjusted" indicators,
such as adjusted net income, adjusted net income per unit and others provide
readers with information they consider useful for analyzing its financial
results. However, they are not standardized by 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.


    
    Highlights
                                             Fiscal years ended September 30
    (in millions of dollars,                                2007        2006
     except for per unit data, in dollars)              (audited)   (audited)
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    CONSOLIDATED INCOME AND CASH FLOWS

    Revenues                                             1,957.5     2,003.8
    Gross margin                                           623.6       576.3
    Net income                                             122.8       147.2
    Adjusted net income(1)                                 149.0       147.2
    Cash flows from operating activities(2)                347.6       297.3
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    Per unit data
    Base and diluted net income                             1.02        1.25
    Adjusted base a diluted net income(1)                   1.24        1.25
    Distributions paid                                      1.24        1.33
    Weighted average number of units outstanding
     (in millions)                                         120.4       117.5
    Number of units outstanding (in millions)              120.4       117.5
    Market prices
      High                                                 18.50       22.50
      Low                                                  15.30       15.56
      Close                                                16.02       17.60
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    CONSOLIDATED BALANCE SHEETS

    Total assets                                         3,142.5     2,783.2
    Total                                                1,684.8     1,423.4
    Partners' equity                                       921.9       924.6
    Partners' equity per unit                               7.65        7.87

    Debt/total capitalization ratio (in %)                  64.6%       60.6%
    Adjusted debt/total capitalization ratio (in %)(1)      64.0%       60.6%

    Return on average equity (in %)                         12.4%       15.2%
    Adjusted return on average equity (in %)(1)             14.9%       15.2%
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    (1) Adjusted to exclude impact of the amendments to the Income Tax Act,
        adopted on June 22, 2007, implementing the proposals concerning
        income trusts and limited partnerships (flow-through entities) in the
        Minister of Finance's Tax Fairness Plan tabled on October 31, 2006.
        The amendments made it necessary to record a tax expense and a tax
        liability of $26.2 million.

    (2) Before change in non-cash working capital items.
    

    Gaz Métro's consolidated financial statements and Management's Discussion
and Analysis can be accessed in the Investors Section of the Partnership's
website at: www.gazmetro.com/investors.
    Those documents and other financial information about the Partnership are
also available on Sedar's website www.sedar.com exploited by the Canadian
Securities Administrators.




For further information:

For further information: Investors and Analysts: Caroline Warren,
Investor Relations, (514) 598-3324; Media: Frédéric Krikorian, Public and
Governmental Affairs, (514) 598-3656


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