Valener and Énergir, L.P. Report Their 2018 Fourth Quarter and Annual Results
November 23, 2018

MONTRÉAL, Nov. 23, 2018 (GLOBE NEWSWIRE) — Valener Inc. (“Valener”) (TSX: VNR) (TSX: VNR.PR.A), the public investment vehicle in Énergir, L.P., today reported its 2018 fourth quarter and annual results. The results of Énergir, L.P., Valener’s primary investment, are also presented in this press release.

Summary of Valener’s results

FINANCIAL HIGHLIGHTS

  • Increase in the annualized dividend from $1.16 to $1.20 per common share
  • Adjusted net income(1),( 2) of $54.1 million ($1.39 per common share) for fiscal 2018 compared to $53.0 million ($1.37 per common share) for fiscal 2017
    • Adjusted net loss(1),(2) of $(0.01) per common share for the fourth quarter of fiscal 2018 compared to $(0.07) per common share in the fourth quarter of fiscal 2017
  • Normalized operating cash flows(1) of $1.48 per common share for fiscal 2018, up 3% from fiscal 2017
    • Normalized operating cash flows(1) of $0.50 per common share in the fourth quarter of fiscal 2018 compared to $0.46 per share in the fourth quarter of fiscal 2017

“In line with our announced target of 4% compound annual dividend growth until 2022, and thanks to the excellent performance of Énergir and the Seigneurie de Beaupré wind farms, we are raising Valener’s quarterly dividend from $0.29 to $0.30 per share, the fifth increase in four years,” said Pierre Monahan, Chairman of Valener’s Board of Directors.

  For the three months
ended September 30
    For the fiscal years
ended September 30
 
               
(in millions of dollars, unless otherwise indicated) 2018
    2017     2018
    2017  
Net income (loss) (0.1 )   (2.2 )   51.0     57.4  
Net income (loss) attributable to common shareholders (1.2 )   (3.2 )   46.4     53.1  
Per common share (in $) (0.03 )   (0.08 )   1.19     1.37  
Adjusted net income (loss) attributable to common shareholders (1) (0.3 )   (2.7 )   54.1     53.0  
Per common share (in $) (1) (0.01 )   (0.07 )   1.39     1.37  
Normalized operating cash flows (1) 19.5     18.1     57.6     56.0  
Per common share (in $) (1) 0.50     0.46     1.48     1.44  
Distributions received from Énergir, L.P. 15.0     14.5     59.8     56.7  
Distributions received from Beaupré Éole and Beaupré Éole 4 6.3     5.6     9.6     8.3  

For fiscal 2018, Valener generated adjusted net income attributable to common shareholders of $54.1 million compared to $53.0 million in fiscal 2017. These results were driven mainly by growth in Énergir, L.P.’s adjusted net income and from wind power generation in Québec, partly offset by a higher interest expense on the credit facility. Adjusted net income per common share was $1.39 in fiscal 2018, up $0.02 per share from fiscal 2017.

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

At $46.4 million, the fiscal 2018 net income attributable to common shareholders was down $6.7 million year over year, mainly due to the above-mentioned items and an unfavourable impact of Valener’s share in Énergir, L.P.’s net income adjustments of $9 million, mainly related to the US tax reform and the gains on buying and selling of assets, and of a $0.8 million gain realized on swaps in fiscal 2017.

Valener generated normalized operating cash flows of $57.6 million in fiscal 2018, a 3% year-over-year increase that was mainly due to:

  • a $3.1 million increase in the distributions received from Énergir, L.P. given Valener’s subscription to Énergir, L.P. units, in proportion to its economic interest, on March 31, 2017, and an increase in Énergir, L.P.’s quarterly distribution from $0.29 to $0.30 per unit since the first quarter of fiscal 2018; and
  • a $1.4 million increase in the distributions received from the SDB Wind Farms(3);

partly offset by:

  • a $2.1 million increase in income taxes paid due to a timing difference in the payment of taxes payable; and
  • a $0.6 million increase in interest paid arising from a higher interest rate on the credit facility.
Seigneurie de Beaupré Wind Farms

The SDB Wind Farms generated a combined 1,118,457 MWh of electric power in fiscal 2018, a 10% year-over-year increase driven by stronger winds than those of fiscal 2017.

As a result, the SDB Wind Farms generated $71.6 million in operating cash flows for fiscal 2018, a $9 million or 14% year-over-year increase.

Énergir, L.P.

FINANCIAL HIGHLIGHTS

  • Adjusted net income(1),(4) of $234.6 million for fiscal 2018 compared to $228.3 million in fiscal 2017
    • Adjusted net loss(1),(3) of $3.4 million in the fourth quarter of fiscal 2018 compared to an adjusted net loss of $14.2 million in the fourth quarter of 2017
  • Nonwithstanding the dilutive effect of 2.3 million units issued in March 2017, adjusted net income(1),(4) per unit of $1.37 for fiscal 2018, unchanged from fiscal 2017
  • Québec Energy Distribution (“QDA”): Net income exceeded the 2018 rate case projection by $12 million

“For fiscal 2018, Énergir generated over $234 million in adjusted net income, surpassing the record adjusted net income achieved in fiscal 2017 by close to 3%,” said Sophie Brochu, President and Chief Executive Officer of Énergir. “Our energy distribution business in Québec has benefited from the strong Québec economy, with QDA’s net income exceeding the initial rate case projection by $12 million. We are also excited about the outlook for renewable natural gas, which has not been available for long but continues to attract more and more new customers. What’s more, our diversification strategy is paying off: the significant wind power generated at the SDB Wind Farms this year has reconfirmed the impressive quality of this wind field,” she concluded.

BUSINESS HIGHLIGHTS

  • QDA: Highest normalized delivery volumes in 20 years
  • SDB Wind Farms: Record wind power generation levels in fiscal 2018
  • Standard Solar Inc.: In-service projects totalling 20 MW and approximately 35 MW in under-construction projects as at September 30, 2018
  • Natural Gas Transportation: $2.2 million increase in adjusted net income, mainly due to new long-term contracts of Portland Natural Gas Transmission Systems (“PNGTS”) coming into effect
  • Energy Services, Storage and Other: Overall increase in the segment’s profitability
         
(3)  Seigneurie de Beaupré Wind Farms 2 and 3 General Partnership and Seigneurie de Beaupré Wind Farm 4 General Partnership (collectively, the “SDB Wind Farms”).
(4)  Adjusted net income (loss) attributable to Partners.

Énergir, L.P.’s segment results – Adjusted net income (loss) attributable to Partners (1)
 
(in millions of dollars, unless otherwise indicated)              
Segments Q4 2018
    Q4 2017     12M-2018
    12M-2017  
QDA (28.8 )   (30.4 )   145.1     147.6  
Distribution in Vermont 28.0     26.4     106.7     103.1  
Natural Gas Transportation 4.7     2.6     20.2     18.0  
Electricity Production     (1.7 )   4.4      
Energy Services, Storage and Other 3.1     1.9     8.8     6.4  
Corporate Affairs (10.4 )   (13.0 )   (50.6 )   (46.8 )
Total (3.4 )   (14.2 )   234.6     228.3  
Basic and diluted weighted average number of units outstanding (in millions) 171.8     171.8     171.8     169.5  
Basic and diluted per unit (in $) (0.02 )   (0.08 )   1.37     1.35  

For fiscal 2018, Énergir, L.P.’s adjusted net income (loss) attributable to Partners (which excludes one-time adjustments) totalled $234.6 million compared to $228.3 million in fiscal 2017. This change was driven mainly by the higher rate bases of the regulated Vermont entities, Green Mountain Power Corporation (“GMP”) and Vermont Gas Systems, Inc. (“VGS”), by an increase in the net income of the Natural Gas Transportation segment resulting from PNGTS’s higher transported volumes and from lower tax rates, by an overall increase in the profitability of the Energy Services, Storage and Other segment, partly offset by a decrease in the return-bearing investments of QDA’s activities. Also having a positive impact on the fiscal 2018 results was the application of the hypothetical liquidation at book value method during the allocation of net income to Standard Solar Inc. when accounting for the Solar I Partnership, LLC. ($11.9 million).

Énergir, L.P.’s fiscal 2018 net income attributable to Partners totalled $215.9 million compared to $240.8 million in fiscal 2017. This change was a result of the above-mentioned factors, the impact of the U.S. tax reform in effect since the first quarter of fiscal 2018, the gains realized by Gaz Métro Plus following the sale of its server hosting assets in the second quarter of fiscal 2018, and the Q1-2017 acquisition of an additional interest in CDH Solutions & Opérations Limited Partnership (CDH) and, indirectly, in its ECCU(5) subsidiary.

QUÉBEC ENERGY DISTRIBUTION

For fiscal 2018, Énergir, L.P.’s distribution activities, carried out through QDA, generated $145.1 million in net income, a $2.5 million year-over-year decrease attributable essentially to the various parameters of the 2018 rate case, which had projected a $14.9 million decrease in income, offset by a $12.6 million share in overearnings generated mainly by higher normalized natural gas deliveries. The authorized rate of return on deemed common equity remains unchanged at 8.9%.

2019 rate case

In November 2018, the Régie approved QDA’s 2019 rate case which includes, among other items, an overall average decrease in rates of 2,6% and an average rate base of $2,157 million, up $39,0 million from that of the 2018 rate case.

2018-2019 Québec Budget

In its latest budget, the Government of Québec confirmed that it will issue a call for proposals seeking to bring liquefied natural gas supply to the province’s Côte-Nord region. Specifically, in August 2018, the ministry of energy and natural resources (Ministère de l’Énergie et des Ressources naturelles), in conjunction with Société du Plan Nord, launched a call for projects to supply the Côte-Nord region with liquefied natural gas. The Côte-Nord is one of the only regions in Québec that is not currently supplied with natural gas, even though the region has one of the highest rates of petroleum consumption. Énergir has participated in this call for projects, and the winning submission is expected to be announced in spring 2019.

         
(5)  Énergir, chaleur et climatisation urbaines, s.e.c., formerly Climatisation et Chauffage Urbains de Montréal, s.e.c. (“CCUM”).

ENERGY DISTRIBUTION IN VERMONT

For fiscal 2018, the Vermont Energy Distribution segment, through GMP and VGS, generated adjusted net income attributable to Partners of $106.7 million, a $3.6 million year-over-year increase reflecting the higher GMP and VGS rate bases, partly offset by an unfavourable impact of the appreciation of the Canadian dollar.

The segment’s fiscal 2018 net income attributable to Partners totalled $101.4 million compared to $103.1 million in fiscal 2017. This change was a result of the above-mentioned factors and the impact of the U.S. tax reform in effect since the first quarter of fiscal 2018.

GMP – 2019 rate case

In April 2018, GMP filed its 2019 rate case with the Vermont Public Utility Commission (“VPUC”). Prepared on a cost-of-service basis, it provides for an authorized rate of return on common equity of 9.30% and a 49.8% common equity ratio, and it covers the period of January 1, 2019 to September 30, 2019 to reset the rate period to a fiscal year basis. The rate case also provides for an average rate base of US$1,563 million, a US$130 million increase to reflect greater investments in property, plant and equipment, in its ownership interest in Transco, and in solar power projects. Lastly, the rate case contains a provision whereby US$13.9 million will be returned to GMP’s customers as a result of the synergy savings resulting from the merger with CVPS over the nine-month period covered by this rate case. The VPUC is expected to issue a decision in December 2018.

VGS – 2019 rate case

In February 2018, VGS filed a cost-of-service proposal for its 2019 fiscal year with the VPUC. The cost of service proposed by VGS provides for an 8.5% rate of return on common equity and a 50% common equity ratio. VGS is also proposing an average rate base of US$264.2 million, an increase of US$16 million.

In August 2018, VGS reached an agreement with the Vermont Department of Public Service regarding the 2019 rate case. The agreement provides for a 3.9% increase in distribution rates and an average rate base of US$255.5 million. In October 2018, the agreement was approved by the VPUC and the new rates took effect on November 1, 2018.

To see the financial report, click here.

Reconciliation of non-GAAP financial measures

 

For additional information on non-GAAP financial measures, refer to Valener’s MD&A for the fiscal years ended September 30, 2018 and 2017.
 
Valener
Reconciliation of normalized operating cash flows
 
  For the three months
ended September 30
    For the fiscal years
ended September 30
 
(in millions of dollars) 2018
    2017     2018
    2017  
Cash flows related to operating activities 20.7     19.1     62.2     60.3  
Dividends to preferred shareholders (1.2 )   (1.0 )   (4.6 )   (4.3 )
Normalized operating cash flows 19.5     18.1     57.6     56.0  
Per common share (in $) 0.50     0.46     1.48     1.44  

 

Valener
Reconciliation of adjusted net income (loss) attributable to common shareholders

  For the three months
ended September 30
    For the fiscal years
ended September 30
 
(in millions of dollars) 2018
    2017     2018
    2017  
Net income (loss) (0.1 )   (2.2 )   51.0     57.4  
Gain on derivative financial instruments             (0.8 )
Income taxes on the gain (loss) on derivative financial instruments             0.2  
Share in Énergir, L.P.’s net income adjustments 0.2         5.4     (3.6 )
Income taxes on Énergir, L.P.’s net income adjustments         0.2     0.7  
Deferred income taxes related to the outside-basis temporary
difference on the interest in Énergir, L.P.
0.8     0.5     2.1     3.4  
Cumulative dividends on Series A preferred shares (1.2 )   (1.0 )   (4.6 )   (4.3 )
Adjusted net income (loss) attributable to common shareholders (0.3 )   (2.7 )   54.1     53.0  
Basic and diluted per common share (in $) (0.01 )   (0.07 )   1.39     1.37  

 

Énergir, L.P.

Reconciliation of adjusted net income (loss) attributable to Partners

(in millions of dollars, unless otherwise indicated) Q4 2018
    Adjustments  
Segments Net income (loss)
attributable to
Partners

  Impact of the U.S.
tax reform (1)
  Other gains (2)   Adjusted net
income (loss)
attributable to
Partners 
(3)
 
QDA (28.8 )     (28.8 )
Distribution in Vermont 28.7   (0.7 )   28.0  
Natural Gas Transportation 4.7       4.7  
Electricity Production        
Energy Services, Storage and Other 3.0   0.1     3.1  
Corporate Affairs (11.7 ) 1.3     (10.4 )
Total (4.1 ) 0.7     (3.4 )
Basic and diluted weighted average number of units outstanding (in millions) 171.8       171.8  
Basic and diluted per unit (in $) (0.02 )     (0.02 )

 

(in millions of dollars, unless otherwise indicated) Q4 2017
    Adjustments  
Segments Net income (loss)
attributable to
Partners
  Other gains (2)   Adjusted net
income (loss)
attributable to
Partners (3)
 
QDA (30.4 )   (30.4 )
Distribution in Vermont 26.4     26.4  
Natural Gas Transportation 2.6     2.6  
Electricity Production (1.7 )   (1.7 )
Energy Services, Storage and Other 1.9     1.9  
Corporate Affairs (13.0 )   (13.0 )
Total (14.2 )   (14.2 )
Basic and diluted weighted average
number of units outstanding (in millions)
171.8     171.8  
Basic and diluted per unit (in $) (0.08 )   (0.08 )

 

(in millions of dollars, unless otherwise indicated) Fiscal year ended September 30, 2018
    Adjustments  
Segments Net income
(loss)
attributable to
Partners

  Impact of the U.S.
tax reform (1)
  Other gains (2)   Adjusted net
income (loss)
attributable to
Partners 
(3)
 
QDA 145.1       145.1  
Distribution in Vermont 101.4   5.3     106.7  
Natural Gas Transportation 22.8   (2.6 )   20.2  
Electricity Production 4.4       4.4  
Energy Services, Storage and Other 13.1     (4.3 ) 8.8  
Corporate Affairs (70.9 ) 20.3     (50.6 )
Total 215.9   23.0   (4.3 ) 234.6  
Basic and diluted weighted average
number of units outstanding (in millions)
171.8       171.8  
Basic and diluted per unit (in $) 1.26       1.37  

 

(in millions of dollars, unless otherwise indicated) Fiscal year ended September 30, 2017
    Adjustments  
Segments Net income (loss)
attributable to
Partners
  Impact of the U.S.
tax reform (1)
  Other gains (2)   Adjusted net
income (loss)
attributable to
Partners (3)
 
QDA 147.6       147.6  
Distribution in Vermont 103.1       103.1  
Natural Gas Transportation 18.0       18.0  
Electricity Production        
Energy Services, Storage and Other 18.9     (12.5 ) 6.4  
Corporate Affairs (46.8 )     (46.8 )
Total 240.8     (12.5 ) 228.3  
Basic and diluted weighted average number of units outstanding (in millions) 169.5       169.5  
Basic and diluted per unit (in $) 1.42       1.35  

(1)    For additional information, refer to Valener’s MD&A for the fiscal year ended September 30, 2018.
(2)    In February 2018, Gaz Métro Plus realized a $4.3 million gain on the sale of its server hosting assets. In addition, in December 2016, Énergir, L.P., through its subsidiary Gaz Métro Plus, acquired an additional 50% ownership interest in CDH (ECCU), giving it control thereover and resulting in the recognition of a $12.5 million gain upon the remeasurement of assets already held. For additional information, refer to Valener’s MD&A for the fiscal years ended September 30, 2018 and 2017.
(3)   This financial measure is not defined by GAAP.

Conference call

Valener will hold a conference call today at 1:30 pm (Eastern Time) to discuss its results and those of Énergir, L.P. for the year ended September 30, 2018. 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: 7280069).

Overview of Valener

Valener is a public company held entirely by its shareholders and serves as the investment vehicle in Énergir, L.P. Through its investment in Énergir, L.P., Valener offers its shareholders a solid investment in a diversified and largely regulated energy portfolio in Québec and Vermont. As a strategic partner, Valener, on the one hand, contributes to the growth of Énergir, L.P., and on the other, invests in wind power production in Québec alongside Énergir, L.P. 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 Énergir

With more than $7 billion in assets, Énergir, L.P. is a diversified energy company whose mission is to meet the energy needs of approximately 520,000 customers and the communities it serves in an increasingly sustainable way. Énergir, L.P. is the largest natural gas distribution company in Québec; through its subsidiaries, it also generates electricity from wind power. In the United States, through its subsidiaries, the company operates in nearly fifteen states, where it produces electricity from hydraulic, wind and solar sources, in addition to being the leading electricity distributor and the sole natural gas distributor in Vermont. Énergir, L.P. values energy efficiency and invests both resources and efforts in innovative energy projects such as renewable natural gas and liquefied and compressed natural gas. Through its subsidiaries, it also offers a wide range of energy services. Énergir, L.P. is seeking to become the partner of choice for those striving toward a better energy future. www.energir.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 Énergir Inc., in its capacity as General Partner of Énergir, L.P., 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,” “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 beyond the control of the management of the manager. A number of factors could cause the actual results of Valener or of Énergir, L.P. to differ significantly from historical results or current expectations, as described in the forward-looking statements, including but not limited to the general nature of the aforementioned, terms of decisions rendered by regulatory agencies, uncertainty that approvals will be obtained by Énergir, L.P. from regulatory agencies and interested parties to carry out all of its activities and the socio-economic risks associated with such activities, uncertainty 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 supply 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, uncertainty surrounding the December 2017 U.S. tax reform commonly referred to as Tax Cuts and Jobs Act, the weather conditions and other factors described in section E) Risk Factors Relating to Valener and in section R) Risk Factors Relating to Énergir, L.P. of Valener’s MD&A for the fiscal year ended September 30, 2018 and in subsequent Valener quarterly MD&As that might address changes to these risks. Although the forward-looking statements contained in this press release are based on what the management of the manager believes to be reasonable assumptions, in particular 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 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 Énergir, L.P. can continue to distribute substantially all of its adjusted 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 Énergir, L.P. will be able to present their information in accordance with U.S. GAAP beyond 2023 or, after 2023, will adopt International Financial Reporting Standards (“IFRS”) that permit the recognition of regulatory assets and liabilities; that liquidity needs for Énergir, L.P.’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 the Valener MD&A for the fiscal year ended September 30, 2018, 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. 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 to not place undue reliance on these forward-looking statements.

For additional information:

Investors and Analysts Media
Mathieu Lepage Catherine Houde
514-598-3035 Public Affairs and Communications
www.valener.com 514-598-3449
  Twitter: @Energir_
  www.energir.com/en/about/media/news/
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