fiscal 2017 fourth quarter and full year results · 11/24/2017 · generate sufficient cash to...
TRANSCRIPT
Fiscal 2017 Fourth Quarter and Full Year Results
Conference Call
November 24, 2017
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Cautionary NoteThis presentation 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 Limited Partnership (Gaz Métro) and
acting as manager of Valener Inc. (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”, “seeks”, “targets”,
“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 outside the control of the management of the manager. A number of factors could cause the
actual results of Valener and Gaz Métro to differ significantly from the results described in the forward-looking statements, including, but not limited to, terms of
decisions rendered by regulatory agencies, uncertainty that approvals will be obtained by Gaz Métro from regulatory agencies and interested parties to carry out all of
its activities and the socio-economic risks associated with such activities, uncertainties related to the implementation of Québec’s 2030 Energy Policy, the
competitiveness of natural gas in relation to other energy sources in the context of fluctuating global oil prices, the reliability or costs of natural gas and electricity
supply, the integrity of the natural gas and electricity distribution and transportation systems, the evolution and profitability of Seigneurie de Beaupré Wind Farms 2
and 3 General Partnership (Wind Farms 2 and 3) and Seigneurie de Beaupré Wind Farm 4 GP (Wind Farm 4) and other development projects, Valener’s ability to
generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares, the ability to complete attractive acquisitions and the
related financing and integration aspects, the ability to complete new development projects, the ability to secure future financing, general economic conditions,
exchange rate and interest rate fluctuations, weather conditions and other factors described in the “Risk Factors Relating to Valener” and “Risk Factors Relating to
Gaz Métro" sections of Valener’s Management’s Discussion and Analysis (MD&A) for the fiscal year ended September 30, 2017 and in subsequent quarterly MD&As
that might address changes to these risks. Although the forward-looking statements contained herein are based on what the management of the manager believes to
be reasonable assumptions, including among others, assumptions that no unforeseen changes in the legislative and regulatory framework of energy markets in
Québec and in the United States will occur; that the applications filed with the various regulatory agencies will be approved as submitted; that natural gas prices will
remain competitive; that the supply of natural gas and electricity will be maintained or will be available at competitive costs; that no significant event will occur outside
the ordinary course of business, such as a natural disaster or any other type of calamity, a major service interruption, or a threat to cybersecurity (or cyberattack); that
Gaz Métro can continue to distribute substantially all of its net income; that Wind Farms 2 and 3 and Wind Farm 4 will be able to make distribution payments to their
partners; that Valener will be able to generate sufficient cash to support its anticipated target annual dividend growth rate on its common shares; that Green Mountain
Power Corporation will be able to continue achieving efficiency gains and synergies from the merger with Central Vermont Public Service Corporation; that Valener
and Gaz Métro will be able to present their information in accordance with U.S. GAAP beyond 2018 or, after 2018, will adopt International Financial Reporting
Standards (IFRS) that permit the recognition of regulatory assets and liabilities; that liquidity needs for Gaz Métro’s development projects will be obtained through a
combination of operating cash flows, borrowings on credit facilities, capital injections from partners, and issuances of debt securities; and that the subsidiaries will
obtain the required authorizations and funds needed to finance their development projects; in addition to the other assumptions described in Valener’s MD&A for the
fiscal year ended September 30, 2017, 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 under applicable securities laws. These statements do not reflect the potential impact of any unusual item or
any business combination or other transaction that may be announced or that may occur after the date hereof. Readers are cautioned not to place undue reliance on
these forward-looking statements.
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures.
2017 Highlights
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record results
2017 adjusted net income (1) of $228.3M, up 6% from 2016
2nd distribution increase in two years (now $0.30/unit/quarter)
CFO transition complete
Éric Lachance to be officially named Chief Financial Officer in January
record results
2017 adjusted net income (1) of $53.0M, up 6%
2017 normalized operating cash flows (1) of $56.0M; up 7%
4th dividend increase announced (now $0.29/share/quarter) and 4%
common dividend CAGR target extended from 2018 to 2022
Gaz Métro marks
60th year in
operation
Project Updates
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Two projects completed totalling 2 MW
Projects under construction or in preliminary engineering stage: 12 MW
Exclusive LOIs signed: 27 MW
Expect that Standard Solar will be able to add capacity of ~100 MW/year
GM+BLX jointly submitted, with Hydro-Québec, three proposals to supply Massachusetts with 1,000 MW of energy (300 MW from SBx)
SBx would consist of the 4th phase of the SdB Wind Farms, bringing them to over 600 MW of installed capacity – Valener would have the right to elect whether or not to participate in the project
2nd liquefaction train officially commissioned
LNG production capacity now tripled to over 9 bcf/year
65M m3 of LNG shipped in 2017
Project to strengthen and reinforce the network in the Saguenay completed on time and budget
New compression station in La Tuque; upgraded compression station in Saint-Maurice
Infrastructure now in place to better respond to existing and future customer needs in the region
LSR (1) plant expansion
(1) Liquefaction, storage and regasification
Saguenay project
$80M
investment
Selected
projects to be
announced
early 2018
$119M
investment
Project Updates
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72 km extension of the distribution network between Lévis and Sainte-Claire complete
Project will help reduce GHG emissions by almost 9k tonnes and reduce the region’s energy bill
by ~ $2.5M/year
Acquisition of 12 hydroelectric power plants from Enel complete; total capacity of 14 MW
B Corp recertification – GMP 1st utility in the world to become B Corp certified 3 years ago
B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency
Addison County Natural Gas Project, the largest in VGS’s history, now complete
Added 66 km of pipeline to the network,
To date: 600 new customers signed up, of which about 250 have been turned on
Bellechasse
$40M
investment,
$7M
excluding
subsidies
US$16.3M
investment
Increases
rate base
by
US$134M
Diverse portfolio offering
Natural gas and LNG
Renewable natural gas
Hydro, solar and wind energy
Leader in energy efficiency
First energy distributor in QC to implement a global energy efficiency
plan
More than 120,000 energy efficiency projects implemented
Saving our customers over $100M annually
Avoided the emission of nearly 1 million tonnes of GHG
Innovative solutions
In collaboration with Groupe Desgagnés, Port of Montreal now LNG-ready
City of Saint-Hyacinthe and BioM committed to injecting our network with
RNG
Acting on Opportunities and Innovating to Grow
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Leader in energy
efficiency
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Higher VNR cash
flows a result of
greater Gaz Métro
and SdB (2)
distributions
Valener Highlights
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures
(2) Seigneurie de Beaupré
Adjusted Net Income (1) Normalized Operating Cash Flows (1)
in millions of CAN$ per share, in $ per share
Q4 2017 Q4 2016
Adjusted net income (in C$M) (2.7) (0.7)
Adjusted net income per
share (in C$)
(0.07) (0.02)
Q4 2017 Q4 2016
Normalized operating cash
flows (in C$M)
18.1 16.8
Normalized operating cash
flows per share (in C$)
0.46 0.44
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2017 adjusted net
income up 6.3%
Gaz Métro Adjusted Net Income (Loss) (1) (2)
Gaz Métro
in millions of CAN$ per unit, in $ per unit
Gaz Métro - Energy Distribution
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures
(2) Attributable to Partners
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(in millions of CAN$)
Gaz Métro Segment Performance
Gaz Métro-QDA – Adjusted Net Income (1)
Anticipated Net Income – Based on the 2018 Rate Case
2018 Rate Case
8.9% ROE,
unchanged from
2017
$74M rate base
increase
Parameters in the 2017 rate case delivering a $6.6M
gain over 2016
$8.4M share of overearnings driven by higher
distribution revenues from new sales and overall
economic growth
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures
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GMP & VGS – Adjusted Net Income (1)
(in millions of CAN$)
Gaz Métro Segment Performance
Natural Gas Transportation – Net Income
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures
(2) Allowance for funds used during construction
(3) Portland Natural Gas Transmission Systems
GMP 2018-19 rate
cases
2018 ROE: 9.1%
2019 ROE: 9.3%
Note: a $16.5M impairment of noncurrent assets was recorded for VGS's Addison project during the third quarter of
fiscal 2016. This amount has been excluded from adjusted net income.
Increase in GMP’s average rate base
US$1.3M increase in GMP’s share of synergy
savings
Partly offset by:
- the unfavorable effect of no longer capitalizing
AFUDC (2) related to the Addison project
- Lower short-term volumes transported by PNGTS (3)
Energy Services, Storage and Other – Adjusted Net Income (1)
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(in millions of CAN$)
Gaz Métro Segment Performance
Electricity Production – Net Income
(1) Non-GAAP measure. Refer to Appendix A for a definition and reconciliation of non-GAAP measures
- Focused efforts on implementing Standard Solar’s
new business model
Seigneurie de Beaupré Wind Farms
The SdB wind farms paid out $33.7M in distributions in
2017, up from $28.3M in 2016, mainly from higher
operating cash flows.
Higher deliveries of LNG
Favorable effect of $700k in relation to the CDH
acquisition
Standard Solar
2MW to be
commissioned
soon
12MW under
construction/
preliminary
engineering
LOIs signed for
27MW
Note: a one-time, non-cash gain of $12.5M was recorded in the first quarter
of fiscal 2017 for the remeasurement of CDH to fair market value following
the acquisition of the 50% interest the Company did not own. This amount
has been excluded from adjusted net income.
Cash and Liquidity
Gaz Métro invested $510M (1) in capex in fiscal 2017. Q4 capex was $126M and includedinvestments in:
the LSR plant’s capacity expansion
Standard Solar’s investments in solarparks
maintenance capex
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2018E Capex2017
Increased its quarterly distributions to partners from $0.29/unit to $0.30/unit
Represents additional cash inflow of approximately $0.5M/quarter for Valener
Extended 4% CAGR target on common dividends by 4 years, from 2018 to 2022
Increased annualized dividend on common shares from $1.12/share to $1.16/share
(1) Includes interests in entities subject to significant influence and other investments
Reconciliation of Non-GAAP Measures
APPENDIX A
In management’s opinion, certain financial measures provide readers with additional information considered useful for analyzing Valener and
Gaz Métro’s financial performance. However, some of these financial measures are not defined by GAAP and should not be considered in
isolation or as substitutes for other financial measures that are in accordance with GAAP. In addition, results obtained from these financial
measures may not be comparable with the results of similar financial measures used by other issuers. For these reasons, non-GAAP financial
measures are presented as complementary information. This section provides a description of each of these measures, including a reconciliation
with GAAP financial measures. For additional information on non-GAAP financial measure, refer to Valener’s MD&A for the twelve-month periods
ended September 30, 2017 and 2016.
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For the three months
ended September 30,
For the twelve months
ended September 30,
(in millions of CAN$, except per share amounts) 2017 2016 2017 2016
Net income (loss) (2.2) (0.8) 57.4 66.5
Loss (gain) on derivative financial instruments - 0.5 (0.8) 4.6
Income taxes on the gain (loss) on derivative financial
instruments- (0.1) 0.2 (1.2)
Share in Gaz Métro’s net income adjustments - - (3.6) (18.2)
Income taxes related to Gaz Métro’s net income adjustments - - 0.7 -
Deferred income taxes related to the outside-basis temporary
difference on the interest in Gaz Métro0.5 0.7 3.4 2.5
Cumulative dividends on Series A preferred shares (1.0) (1.0) (4.3) (4.3)
Adjusted net income (loss) attributable to common
shareholders(2.7) (0.7) 53.0 49.9
Adjusted net income (loss) attributable to common
shareholders per common share (in $)(0.07) (0.02) 1.37 1.30
Reconciliation of adjusted net income attributable to common
shareholders
Valener
The net income (loss) attributable to common shareholders, net of the specific items identified by the management of the manager as not being part of
the ongoing operations of Valener and of Gaz Métro. These adjustments consist of (i) the gains or losses on derivative financial instruments (net of the
related income taxes), (ii) the share in the adjustments to the net income of Gaz Métro (net of the related income taxes), and (iii) the deferred income tax
expense (benefit) related to the outside-basis temporary difference on the interest in Gaz Métro. The deferred income tax expense (benefit) related to the
outside-basis temporary difference is the difference between the carrying value of the interest in Gaz Métro and the tax basis assuming a disposal of the
investment on the balance sheet date. The management of the manager believes this assumption is not reflective of Valenerʼs mission given the
permanency of its investment in Gaz Métro.
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For the three months
ended September 30,
For the twelve months
ended September 30,
(in millions of CAN$, except per share amounts) 2017 2016 2017 2016
Cash flows relating to operating activities 19.1 17.8 60.3 56.7
Dividends to preferred shareholders (1.0) (1.0) (4.3) (4.3)
Normalized operating cash flows 18.1 16.8 56.0 52.4
Normalized operating cash flows per common share (in $) 0.46 0.44 1.44 1.36
Reconciliation of normalized operating cash flows
Valener
Normalized operating cash flows are cash flows related to operating activities less cumulative dividends paid to preferred
shareholders.
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For the three months
ended September 30,
For the twelve months
ended September 30,
(in millions of CAN$) 2017 2016 2017 2016
Net income (loss) attributable to Partners (14.2) (10.9) 240.8 277.5
Gain on remeasuring CDH following the acquisition - - (12.5) -
Impact of recognizing regulatory assets related to
employee future benefits - - - (79.3)
Impairment of noncurrent assets recorded for VGS's
Addison project- - - 16.5
Adjusted net income attributable to Partners (14.2) (10.9) 228.3 214.7
Basic and diluted adjusted net income per unit
attributable to Partners(0.08) (0.06) 1.35 1.28
Reconciliation of adjusted net income attributable to Partners
Gaz Métro
Net income (loss) attributable to Partners, net of specific items identified by management as being outside Gaz Métro’s ongoing
operations.
Dividends & Distributions
APPENDIX B
Increasing Distributions and Dividends
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Valener Dividends DeclaredGaz Métro Distributions Declared
Quarterly Dividends
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Dividend
per shareRecord date Payable
DRIP
Discount
Common
shares $0.29 December 31, 2017 January 15, 2018
2% on newly
issued shares
Series A
preferred
shares
$0.28875 January 8, 2018 January 15, 2018 Not applicable
Dividends declared November 24, 2017
4% CAGR target
on common
dividend extended
through 2022
Natural Gas
APPENDIX C
Gaz Métro-QDA Realized Net Income in Fiscal 2017
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(in millions of CAN$)
Gaz Métro-QDA Projected 2018 Net Income By Quarter
22
(in millions of CAN$)
(1) Gaz Métro-QDA’s authorized ROE includes 0.79% in productivity gain.
(2) 2018 rate case currently under review by the Vermont Public Utility Commission (VPUC). 2018 and 2019 ROEs based on the Memorandum of
Understanding entered into with the VDPS in November. Unlike in prior years, the period covered by GMP’s 2018 rate case will be from January 1, 2018
to December 31, 2018.
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9.69%
8.90% 8.90% 8.90% 8.90%8.90% 8.90%
9.93%
8.84%9.58% 9.60% 9.44%
9.02% 9.10%9.30%
10.25%
9.75%
10.26% 10.20% 10.09%
8.50% 8.50% 8.50%
2012 2013 2014 2015 2016 2017 2018 2019
Gaz Métro-QDA GMP VGS
FISCAL YEAR
(1)
Authorized ROE on Common Equity
Energy Distribution Segment Outlook
(2) (2)
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MARKET COMPETING ENERGY SAVINGS (1)
Industriale.g. large companies in petrochemical and metallurgical
industries
#6 fuel oil up to 56%
Commercial and institutionale.g. hospitals, schools, restaurants
Electricity39% (small business)
57% (large business)
#2 fuel oil37% (small business)
51% (large business)
Residential heating (2)
Electricity 14% to 31%
#2 fuel oil 16% to 31%
(1) For the natural gas distribution activity in Québec. Based on prices as at November 1, 2017.(2) Using high-efficiency equipment.
Natural Gas in Québec – Current CompetitivePosition
Seigneurie de Beaupré Wind Farms
APPENDIX D
100%
(in millions of CAN$, unless otherwise
indicated)
Wind Farms 2 and 3 and Wind Farm 4
Q4 2017 Q4 2016
Production (MWh) 202,360 228,581
Utilization factor (1) (%) 27.0 30.5
Cash flows relating to operating
activities13.8 14.3
Total distributions paid 22.7 19.3
Revenues from power sales 21.9 24.6
EBITDA (3) 19.6 20.0
EBITDA (3) margin (%) 89.5 90.9
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(1) Utilization factor is calculated as electricity produced divided by installed capacity (in MWh)
(2) EBITDA is a non-U.S. GAAP financial measure. Valener defines it as income (loss) before interest on long-term debt, income taxes,
depreciation and amortization. Management considers EBITDA to be useful for measuring the financial performance of the wind farms, as
this measure is commonly used in the industry and focuses on operational performance.
VALENER : 24.5% GAZ MÉTRO : 25.5%
Wind Farms Update – Q4
100%
(in millions of CAN$, unless otherwise
indicated)
Wind Farms 2 and 3 and Wind Farm 4
2017 2016
Production (MWh) 1,017,612 1,016,051
Utilization factor (1) (%) 34.2 34.0
Cash flows relating to operating
activities62.6 73.4
Total distributions paid 33.7 28.3
Special distributions paid - 80.0
Revenues from power sales 110.2 109.4
EBITDA (4) 96.2 92.8
EBITDA (4) margin (%) 87.3 84.8
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(1) Utilization factor is calculated as electricity produced divided by installed capacity (in MWh)
(2) Includes a $12.9 million payment received from Hydro-Québec related to a note receivable for the reimbursement of certain construction costs.
(3) Return-of-capital distribution received on May 4, 2016 as a result of the refinancing of Wind Farms 2 and 3.
(4) EBITDA is a non-U.S. GAAP financial measure. Valener defines it as income (loss) before interest on long-term debt, income taxes, depreciation
and amortization. Management considers EBITDA to be useful for measuring the financial performance of the wind farms, as this measure is
commonly used in the industry and focuses on operational performance.
VALENER : 24.5% GAZ MÉTRO : 25.5%
Wind Farms Update – Annual
(2)
(3)