Valener and Gaz Metro report 2017 3Q results

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Valener and Gaz Metro report 2017 3Q results

Wed, 08/09/2017 - 10:16am -- tim

Vermont Business Magazine Valener Inc (TSX: VNR)(TSX: VNR.PR.A), the public investment vehicle in Gaz Metro Limited Partnership, today reported adjusted net income attributable to common shareholders of $2.5 million for the third quarter of fiscal 2017, up $0.8 million from the third quarter of fiscal 2016. Adjusted net income per common share was $0.06 for the third quarter of fiscal 2017 compared to $0.04 per common share for the third quarter of fiscal 2016. Gaz Metro is the parent company of Green Mountain Power and Vermont Gas Systems. The Vermont operations saw a 7.8% year-over-year increase, mainly because of a stronger US dollar. The Addison gas pipeline loss was attributed in 2016.

Valener net income attributable to common shareholders was $1.8 million for the third quarter of fiscal 2017 compared to a net loss of $3.8 million for the third quarter of fiscal 2016.

Normalized operating cash flows stood at $14.4 million ($0.37 per common share) in the third quarter of fiscal 2017, up $0.5 million compared to the third quarter of fiscal 2016.

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

Gaz Metro

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

In addition, in line with its compound annual growth target for its common share dividends, Valener announced a dividend increase. "In accordance with our goal of achieving compound annual growth of 4% until 2022, we are raising Valener's quarterly dividend from $0.28 to $0.29 per share," said Pierre Monahan, Chairman of Valener's board of directors. "This increase, the fourth in less than three years, can be credited to the quality and profitability of Valener's underlying assets."

(1)   Financial measures not defined by U.S. generally accepted accounting  
      principles ("GAAP").                                                  
(2)   Adjusted net income attributable to common shareholders.              
(3)   Adjusted net income attributable to Partners.                         
                                                                            
A reconciliation of non-GAAP financial measures is presented hereafter.     

Decision regarding Series A preferred shares

On August 8, 2017, Valener's board of directors decided that it was in its interest, based on the conditions applicable to the Series A preferred shares, to not exercise the redemption option coming into effect on October 15, 2017.

Summary of Valener's results

                                   For the three months  For the nine months
                                          ended June 30        ended June 30
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(in millions of dollars, unless                                             
 otherwise indicated)                    2017      2016       2017      2016
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Net income (loss)                         2.9      (2.7)      59.6      67.3
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Net income (loss) attributable to                                           
 common shareholders                      1.8      (3.8)      56.3      64.0
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Adjusted net income attributable to                                         
 common shareholders(1)                   2.5       1.7       55.7      50.6
Per common share (in $)(1)               0.06      0.04       1.44      1.31
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Normalized operating cash flows(1)       14.4      13.9       37.9      35.6
Per common share (in $)(1)               0.37      0.36       0.98      0.92
============================================================================

(1)   These financial measures are not defined by GAAP. A reconciliation of 
      non-GAAP financial measures is presented hereafter.                   

Gaz Metro's results

For the third quarter of fiscal 2017, net income attributable to the Partners of Gaz Metro totalled $11.1 million, a $1.3 million year-over-year increase owing mainly to higher net income generated by natural gas distribution activities in Quebec ("Gaz Metro-QDA") and Vermont.

"Gaz Metro's solid results for this third quarter-a quarter typically affected by the seasonal nature of our operations-are testament to the quality and skillful management of our assets," said Sophie Brochu, President and Chief Executive Officer of Gaz Metro. "What's more, our earnings and distributions growth confirm the soundness of the geographical and commercial diversification strategy we adopted ten years ago and that continues today with our recent acquisition of Standard Solar, a leader in the U.S. solar power industry. With this acquisition, we have positioned ourselves to further invest in the United States and have entered into the highly promising area of solar energy, which complements our current renewable energies offering."

Seigneurie de Beaupre wind farms - Valener and Gaz Metro

                                   For the three months  For the nine months
                                          ended June 30        ended June 30
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                                         2017      2016       2017      2016
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Actual output of Wind Farms 2 and 3                                         
 (in MWh)                             188,267   175,494    646,698   628,363
Actual output of Wind Farm 4 (in                                            
 MWh)                                  51,142    46,593    168,554   159,107
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Cash flows related to the operating                                         
 activities of Wind Farms 2 and 3                                           
 (in millions of $)                      15.5      13.5       40.1      37.6
Cash flows related to the operating                                         
 activities of Wind Farm 4 (in                                              
 millions of $)                           3.7       3.0        8.7      21.5
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Distributions paid by Wind Farms 2                                          
 and 3 (in millions of $)                 7.4       6.7        7.4       6.7
Distributions paid by Wind Farm 4                                           
 (in millions of $)                       2.9       2.3        3.6       2.3
Special distribution(2) paid (in                                            
 millions of $)                             -      80.0          -      80.0
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(1)   Includes a one-time $12.9 million payment received from Hydro-Quebec  
      in the first quarter of fiscal 2016 relating to a note receivable for 
      the reimbursement of certain construction costs.                      
(2)   Return-of-capital distribution.                                       

In the third quarter of fiscal 2017, Seigneurie de Beaupre Wind Farms 2 and 3 General Partnership ("Wind Farms 2 and 3") and Seigneurie de Beaupre Wind Farm 4 General Partnership ("Wind Farm 4") generated a combined 239,409 MWh of electricity, a year-over-year increase of 17,322 MWh, or 7.2%, resulting from stronger winds than those of the third quarter of fiscal 2016. The resulting operating cash flows for the third quarter of fiscal 2017 totalled $19.2 million, up $2.7 million from the same quarter in fiscal 2016.

Wind Farms 2 and 3 and Wind Farm 4 used these cash flows to pay distributions of $10.3 million in the third quarter of fiscal 2017. In the third quarter of fiscal 2016, the wind farms had paid a total of $89.0 million in distributions, specifically, $9.0 million in regular distributions and an $80.0 million return-of-capital distribution as a result of the refinancing of the long-term debt of Wind Farms 2 and 3.

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

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

Increase in quarterly distribution

Gaz Metro announced an increase to its quarterly distribution starting with its next distribution on October 2, 2017. "Given the success of our strategic plan and sustained growth of our regulated activities, we're able to raise the distributions to our partners, including Valener, for the second time in two years," said Sophie Brochu. "The distributions will be raised from $0.29 to $0.30 per unit, an increase of 3.4%."

SEGMENT INFORMATION

Energy Distribution

In Quebec

Gaz Metro-QDA recorded a net loss attributable to Partners of $0.5 million compared to a net loss of $3.6 million in the third quarter of fiscal 2016, a $3.1 million year-over-year improvement that was mainly due to:

--  a higher return on investments; and 
--  the favourable impact of recognizing a $2.1 million share in
    overearnings during the third quarter of fiscal 2017. 

Given this recognition of the share in overearnings, Gaz Metro expects that the fiscal 2017 net income generated by the Quebec Energy Distribution segment will exceed the earnings projected in the 2017 rate case by more than $5.0 million.

Renewable natural gas

The project to purchase renewable natural gas (RNG) produced by the city of Saint-Hyacinthe and inject it into our distribution network continues to move forward. The city will produce up to 13 million cubic metres of RNG per year, most of which will be injected into Gaz Metro's network. Quebec's natural gas consumers will in turn gain access to a locally produced source of renewable energy.

2030 Energy Policy and network extensions

In July 2017, the Quebec government announced that a financial contribution would be allocated to three different projects to extend the distribution network. This financial support, for a maximum amount of $27.4 million, will help connect the municipalities of Saint-Ephrem-de-Beauce, Saint-Marc-des-Carrieres located in the Portneuf RCM and various sectors in the Appalaches RCM.

In Vermont

Through Green Mountain Power Corporation ("GMP") and Vermont Gas Systems Inc. ("VGS"), the Energy Distribution segment in Vermont recorded adjusted net income attributable to Partners of $12.4 million in the third quarter of fiscal 2017, a $0.9 million or 7.8% year-over-year increase owing mainly to a weaker Canadian dollar and to an increase in GMP's rate base, partly offset by a timing difference between the revenue and expense recognition profiles.

In the third quarter of fiscal 2016, a $5.0 million net loss attributable to Partners had been recorded given the recognition of a before-tax US$20.6 million impairment of noncurrent assets (C$26.5 million before taxes) in connection with the Addison project, the effect of which was a $16.5 million unfavourable impact on net income.

Hydroelectricity

In May 2017, GMP completed its project to acquire small hydroelectric power plants located mainly in New England. These plants have a total capacity of 14 MW and are valued at US$16.3 million.

Natural Gas Transportation

For the third quarter of fiscal 2017, the Natural Gas Transportation segment generated net income attributable to Partners of $1.9 million, down $1.1 million year over year, mainly because of:

--  a decrease in volumes transported by Portland Natural Gas Transmission
    System (a Gaz Metro entity subject to significant influence) given fewer
    short-term contracts; and 
--  a penalty paid by Trans Quebec & Maritimes Pipeline Inc. ("TQM") in May
    2017 as a result of prepaying and refinancing a $100 million debt due in
    September 2017. 

Electricity Production

The Electricity Production segment posted a net loss attributable to Partners of $0.7 million in the third quarter of fiscal 2017 compared to a net loss attributable to Partners of $0.2 million in the third quarter of last year. This change was essentially the result of concentrated efforts to develop a new business model for Standard Solar Inc. ("Standard Solar"), a leading solar power company acquired by Gaz Metro in April 2017, partly offset by a 7.2% increase in wind power production given favourable wind conditions in 2017.

As a result of Standard Solar's efforts since the acquisition, we expect solar power development projects with a capacity of more than 20 MW will move into construction phase by September 30, 2017, representing approximately US$50 million in investments in property, plant and equipment. As of June 30, 2017, 10 MW were already under construction.

In addition, on July 28, 2017, Gaz Metro and Boralex submitted three bids in response to a request for proposals issued on March 31, 2017 by the State of Massachusetts. The proposed project, named SBx, is a 300 MW wind power project located on the private land of Seigneurie de Beaupre that would be entirely developed, financed, built and operated by Gaz Metro and Boralex. The proposals submitted by Gaz Metro and Boralex would provide the State of Massachusetts with a long-term supply of clean, stable, and sustainable energy. The selected projects are expected to be announced in early 2018.

Energy Services, Storage and Other

For the third quarter of fiscal 2017, the Energy Services, Storage and Other segment recorded net income attributable to Partners of $0.6 million compared to $1.4 million in the third quarter of fiscal 2016.

Sale of liquefied natural gas

On April 24, 2017, the new infrastructure aimed at tripling the production capacity of the liquefaction, storage and regasification plant came into service. The results of this operation, which had previously been reported entirely in the financial statements of Gaz Metro, will now be reflected in a proportion of 58%, which corresponds to Gaz Metro's ownership interest in the project. Our partner, Investissement Quebec, owns 42%.

Financial initiatives

On May 16, 2017, Gaz Metro inc. completed a $200 million private placement of first mortgage bonds bearing interest at an annual rate of 3.53% and maturing on May 16, 2047. The issuance proceeds were loaned to Gaz Metro at similar conditions and were used to repay existing debt and for general business purposes.

GMP issued, by way of private placement, first mortgage bonds for an aggregate principal amount of US$80.0 million, comprised of a series of US$15.0 million issued in April 2017 and a series of US$65.0 million issued in June 2017. These series of bonds, which will mature in April 2047 and June 2029, bear interest at annual rates of 4.17% and 3.45%, respectively.

During the third quarter of fiscal 2017, TQM refinanced a $100 million debt that bore interest at 4.25%, replacing it with a debt bearing interest at 2.57%.

Reconciliation of non-GAAP financial measures

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

Valener Reconciliation of normalized operating cash flows

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

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

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

Valener will hold a conference call today at 1 pm (Eastern Time) to discuss its results and those of Gaz Metro for the period ended June 30, 2017. The public is invited to join the call at 647-788-4922 or toll-free at 877-223-4471. A simultaneous webcast will also be available using the link provided under "Events and Presentations" in the "Investors" section of www.valener.com. A replay of the webcast will be archived on the Company's website for 365 days following the call; a phone replay will be available for 30 days by dialing 416-621-4642 or toll-free 800-585-8367 (access code: 51052297).

Overview of Valener

Valener is a public company held entirely by its shareholders and serves as the investment vehicle in Gaz Metro. Through its investment in Gaz Metro, Valener offers its shareholders a solid investment in a diversified and largely regulated energy portfolio in Quebec and Vermont. As a strategic partner, Valener, on the one hand, contributes to Gaz Metro's growth, and on the other, invests in wind power production in Quebec alongside Gaz Metro. Valener favours energy sources and uses that are innovative, clean, competitive and profitable. Valener's common and preferred shares are listed on the Toronto Stock Exchange under the "VNR" symbol for common shares and the "VNR.PR.A" symbol for Series A preferred shares. www.valener.com

Overview of Gaz Metro

With more than $7 billion in assets, Gaz Metro is a leading energy provider. It is the largest natural gas distribution company in Quebec, where its network of over 10,000 km of underground pipelines serves more than 300 municipalities and over 205,000 customers. Gaz Metro is also present in Vermont, producing electricity and distributing electricity and natural gas to meet the needs of more than 315,000 customers. Gaz Metro is actively involved in the development and operation of innovative, promising energy projects, including natural gas as fuel and liquefied natural gas as a replacement to higher emission-producing energies, the production of wind and solar power, and the development of biomethane. Gaz Metro is a major energy sector player that takes the lead in responding to the needs of its customers, regions and municipalities, local organizations and communities while also satisfying the expectations of its Partners (Gaz Metro inc. and Valener) and employees. www.gazmetro.com

MONTREAL, QUEBEC--(Marketwired - August 09, 2017) - Valener