toronto, october 7, 2004 gaz métro limited partnership scotia capital investing for income...
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Toronto, October 7, 2004
Gaz Métro Limited Partnership
Scotia Capital
Investing for Income Conference
2
Table of Contents
I. Company Overview
II. Consolidated Financial Data
III. Growth Possibilities
IV. Five Strong Characteristics of Gaz Métro Units
V. Conclusion
VI. Appendix
Company Overview
4
Gaz Métro Overview
Pure regulated utility play with a limited partnership structure
Attractive 6.4% distribution yield 14.8% annualized total return since 1993
Distribution of business income
Units not considered as foreign property in a RRSP
General partner management fees limited to $50,000/year
Limited responsibility of unitholders
Strong ownership
5
Gaz Métro Strategy
Provide stable income to unitholders
Maintain strong credit rating
Consider strategic acquisitions with low risk and predictable and stable revenues
Achieve continuous growth
6
Natural Gas Distribution
Gaz Métro core business (100% regulated):
97% of Québec Province gas distribution
Vermont sole gas distributor
More than 10,000 km of gas distribution
pipeline
In % of 2003 consolidated results:
Revenues 93%
Gross Margin 85%
Assets 78%
7
Natural Gas DistributionPositioning
3rd largest natural gas distributor in Canada
#1 natural gas distributor in
Québec(97% market share)
Sole natural gas distributor in
Vermont, United States
8
Natural Gas DistributionGMLP
Normalized Volumes:
194 Bcf
System length:
9,318 km
Number of Customers:
153,684
2005 base rate of return:
9.69%
Capital Structure:
54% debt
7.5% deemed prefered equity
38.5% common equity
Regulated by the Régie de l’énergie
Quebec gas transport and supply system
9
Natural Gas DistributionVermont Gas
Normalized Volumes:
8 Bcf
System length:
935 km
Number of Customers:
35,032
2004 base rate of return:
10.98%
Capital Structure:
36.9% debt
63.1% common equity
Regulated by the Vermont Public Service Board
10
Natural Gas Transportation
Participation in two transportation
networks:
TQM: 50% participation
PNGTS: 38.3% participation
In % of 2003 consolidated results:
Revenues 4%
Gross Margin 11%
Assets 18%
11
Natural Gas Transportation TQM
System length:
572 km
2004 base rate of return:
9.56%
Capital Structure:
70% debt
30% common equity
Regulated by the National Energy Board
Regulated framework: cost of service and performance incentive mechanism
12
Natural Gas TransportationPNGTS
System length:
489 km
Capacity
500 million cubic feet per day
2004 base rate of return:
12.50%
Capital Structure:
60% debt
40% common equity
Regulated by the Federal Energy Regulatory Commission
13
Non-Regulated Activities
Participation in businesses operating in
various sectors, including: Water sector:
Aqua Data (100%) Aqua-Rehab (100%)
VDN Cable (20.57%)
CCUM (100%)
In % of 2003 consolidated results:
Revenues 3%
Gross Margin 4%
Assets 4%
Consolidated Financial Data
15
Highlights (As at September 30, 2003)
Annual Gas deliveries1 201.8 Bcf(Normalized)
System length 1 10,219 Km
Number of customers 1 188,716
Number of employees 1 1,250
Credit ratings 2-3 (S&P/DBRS) A / A
Stability ratings 3-4 (S&P/DBRS) SR-1/STA-1 (low)
Gaz Métro was included in the S&P/TSX Capped Income Trust
Index in May 2004(1) Québec and Vermont natural gas distribution.(2) Long-term debt.(3) Reiterated on February 25, 2004 by DBRS(4) Reiterated on July 13, 2004 by S&P
16
Gaz Métro enterprise value grew from $1.7 billion in 1993 to $3.6 billion in 2003
Enterprise Value
17
In millions of $, CAGR = compounded annual growth rate
Historical Financial Review
Funds from operations: before change in non-cash working capital
18
Historical Financial Review
PBR was put in place in October 2000
Projects in Development
20
Growth Opportunities
Cogeneration / Generation Take advantage of development of electricity and steam generation
plants using natural gas
TCE Energy (600 MW)
Cogeneration’s request for proposal to be issued by Hydro-Québec
Natural Gas Distribution Increase volumes in all markets
Landfill Gas Take part in development of landfill gas in Québec
Opportunities in energy sector infrastructure through development or acquisition
Five Strong Characteristics ofGaz Métro Units
22
#1: Low Business Risk
97% of revenues regulated - ROE linked with long-term Canada bond
Exclusive distribution rights in Québec
Attractive performance incentive mechanism Upside potential of up to 375 basis points and limited downside risk
Pass-through costs: commodity, transportation and storage
Weather normalization
Market risk mitigated by: natural gas attributes, high conversion costs, need for natural gas in certain
industrial processes, take-or-pay contracts with large industrial customers
23
#2: Very High Stability in Cash Distributions
Gaz Métro policy is to distribute between 95% and 100% of its earnings, keeping its free cash flow ($100 M per year) to support its business growth
24
#3: Long-Term Sustainable Growth
In a bull or bear market, Gaz Métro units create value
* From January 1995 to August 2004
Source: Bloomberg
25
Gaz Métro benefits from high quality credit ratings maintained over the years
#4: High Quality Credit Ratings
Stability rating SR-1 STA-1(low)
Long-term debt A A
26
#5: Growth Potential
Potential growth through densification of actual network and through generation and cogeneration projects
Low cost of capital put Gaz Métro in a competitive situation for investing
Conclusion
28
Conclusion
Strong and stable businessStrong and stable business
Very high stability in cash distributionsVery high stability in cash distributions
Long-term sustainable growth Long-term sustainable growth
Low risk / low maintenance investmentLow risk / low maintenance investment
Strong and stable businessStrong and stable business
Very high stability in cash distributionsVery high stability in cash distributions
Long-term sustainable growth Long-term sustainable growth
Low risk / low maintenance investmentLow risk / low maintenance investment
GAZ MÉTRO OFFERS TO ITS UNITHOLDERS:GAZ MÉTRO OFFERS TO ITS UNITHOLDERS:
Appendix
30
Market Data
As of September 27, 2004
Ticker (TSX) GZM.UN
Market price $21.13
Units outstanding 114.5 M
Market capitalization $2,419.4 M
Public float $612.1 M
Enterprise Value $3,515.7 M
Earnings per unit 1 $1.39
Price/Earnings 15.2x
Annual cash distribution 2 $1.36
Actual distribution yield 6.4%
(1) As of September 30, 2003. (2) Annualized distribution.
Source: Gaz Métro, Bloomberg
31
Mission and Objectives
Mission:
Transport and distribute natural gas in Québec and the northeastern portion of the United States
Pursue non-regulated activities in the energy, water and fibre optics fields
Objectives:
Financial: Provide stable and predictable return accompanied by growth in value over time
Commercial: Provide high-quality energy services at the lowest possible cost
32
Enbridge
Noverco Inc.
Natural gas transportationNatural gas distribution
Gaz de FranceCapital
Infragaz L.P.
GMi
GMLP
General Partner
Limited Partners
Public25.3%
100%
74.7%
GMi: Gaz Métro inc.GMLP: Gaz Métro Limited PartnershipCaisse: Caisse de dépôt et placement du QuébecBC investment Management Corporation: two trust members of the group hold respectively 9.44% (bcIMC (PPSAF) Investment trust No.1) and 1.67% (bcIMC (WCBAF-PPSAF) Investment Trust No.1) of the participation
Corporate Structure (As of July 23, 2004)
50.38% 32.06% 17.56%
52.78% 16.67% 11.11% 11.11%
Caisse(General Partner)
Solidarity Fund QFL
SNC Lavalin Inc.BC Investment Management Corporation
Non-regulated activities
Régime des rentes du mouvement
Desjardins
8.33%
33
Fiscal Considerations
Eligible investment for RRSP purposes without any restrictions. Since January 1999, units of the Partnership
are no longer deemed to be foreign property.
Income is taxable as business income and partners have to file a Federal Income Tax Return as well as a Québec
Income Tax Return, regardless of their residency status.
Partners are allocated their share of the Partnership’s taxable income on a pro rata basis in accordance with distributions received. Income tax information slips (T5013 for federal purposes and Relevé 15 for Québec purposes) are prepared and issued by the brokers in accordance with a guide prepared by the Partnership. Also, the Partnership prepares
an explanatory guide for the preparation of corporate and individual Income Tax Returns. This guide is sent
with the tax information slips.
34
Fiscal Considerations (cont'd)
The Partnership’s income for tax purposes differs from accounting income due to differences between
accounting principles and tax legislation. For the fiscal year ended September 30, 2003, income for tax purposes exceeded distributions by 10.2% for federal purposes and 9.7% for Québec purposes (based on financial statement figures).
Partners that hold their units in a non-taxable vehicle, such as a RRSP, are in no way affected by the difference between income for tax purposes and distributions received. Income earned in such a vehicle is taxable only when investments are withdrawn.
Under the terms of the Partnership Agreement, a partner who is a “non-resident” of Canada can be
required to sell his units to a person who is not a “non-resident” of Canada accorded to the Income Tax Act.
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