March 18, 2009 - Speeches
March 18, 2009, 2 PM
Address given by Sophie Brochu the president and chief executive officer.
(Check against delivery)
Welcome, ladies and gentlemen, and good afternoon!
It is always a pleasure for me to address you and to be able to talk to you in person about our achievements, about the issues with which we are dealing, and about the projects for the future that we are working toward accomplishing.
Today, I want to talk about three things. First, I shall give an overview of our achievements in 2008 – achievements of which the whole organization can be proud.
I shall then talk about our results for the first quarter of the current fiscal year and the very special setting in which they were achieved – the very complex economic context through which we are manoeuvring very carefully.
Lastly, I also want to speak about our priorities for 2009 and the years to come.
One example is the determination we have shown over the last 10 years to take our place in the residential market. We are pleased to note that a growing number of Quebecers are concerned about using the right energy in the right place and are questioning the systematic recourse to electricity for residential heating. It is better and better understood, by a more and more diversified range of players in Québec society, that that energy must be reserved for applications only it can serve, such as operating electronic appliances or mechanical equipment, or as an input in industrial processes.
For its part, natural gas is more and more known and valued by Québec residential customers, who appreciate the versatility of all the applications it can serve.
The result of our commercial efforts culminated in 2008 when we concluded a record number of new sales in the residential sector. Since 2001, our share of the new construction market has more than doubled, reaching 12.3% last year. In the greater Montréal area, we even exceeded the 20% mark for new houses that chose natural gas and life in blue – that’s one home in five!
We are extremely proud of this, but we still keep in mind that this is well below the market share that natural gas occupies in new construction elsewhere in Canada. This clearly shows that we have to continue our efforts and that we can raise the bar even higher.
In the industrial market, we have vowed to replace heavy oil everywhere where we can, for reasons both economic and environmental.
Fiscal year 2008 was extremely positive in this regard. The favourable prices supported a more than 25% increase in volumes delivered to our interruptible industrial customers, that is, those who can consume either natural gas or oil at will. These sales generated total revenues of over $90 million. They also helped avoid emitting almost 140,000 tonnes of carbon dioxide and an appreciable quantity of atmospheric contaminants, including those that pollute the air of Montréal and several regions of Québec.
Last fall, in the wake of the collapse of prices for petroleum products, several Québec industrials went back to heavy oil. Like many of them, we believe that this back-and-forth is untenable in the long term because of the increasingly severe regulations on carbon emissions and atmospheric contaminants. Hence we are working full out with our industrial customers to help them stay with natural gas.
What I have just said illustrates perfectly Gaz Métro’s determination to advance, at one and the same time, the interests of its investors, its customers, and the community. Our customers benefit from the advantages natural gas affords in reliability, efficiency and versatility. The community benefits from cleaner air and fewer greenhouse gas emissions. And our investors benefit from a broader commercial base.
We have adopted the same approach in another area where Gaz Métro has stood apart for many years – and that’s energy efficiency. Helping our customers consume better and consume less – that’s an idea that may seem counter-intuitive for an energy distributor. But we believe that it is our responsibility to help our customers be more efficient and more productive. This is even more true in today’s economic context. Over the last 8 years, more than 66,000 customers have taken advantage of our energy efficiency programs. Together, they have saved the equivalent of the annual heating load of 62,000 single-family homes.
That said, we have deployed these programs while ensuring that our investors also benefit. Your interests are, in fact, fully respected under the regulatory framework that we proposed to the Régie de l’énergie, supported by our stakeholders. In 2008, our investors thus received $4 million in specific remuneration, thanks to the achievement of our corporate energy efficiency objectives.
Our investors can also take satisfaction in the fact that, last year, Gaz Métro was crowned Canadian champion for the disclosure of its carbon footprint by the Carbon Disclosure Project, a prestigious, independent, not-for-profit organization. The organization interrogates major public companies the world over about their greenhouse gas emissions and the means they use to contain them. This year, Gaz Métro came in first out of the 106 Canadian companies that responded to the invitation. It is a great honour for Gaz Métro to stand out among the major companies that aspire to show world-class environmental leadership.
Contributing to sustainable development means not only being concerned about our natural environment, but also about our human environment. Gaz Métro’s head office is located in the Centre-Sud-Hochelaga-Maisonneuve borough, one of the worst economic ghettos in Canada. More than two in five young people between the ages of 15 and 24 no longer go to school. Half the population lives below the poverty line. And people die younger there than anywhere else in Montréal.
As responsible citizens, Gaz Métro and its employees want to do their part to help the children from this corner of the world – children from more than 70 cultural communities.
Last year, Gaz Métro co-founded, with a community organization, a quite unique neighbourhood project, 80, ruelle de l’Avenir, a place of learning for several hundred children from local primary and secondary schools. To achieve this ambitious project, we mobilized many of our business partners – several of them here with us today – and I want to express my gratitude to them. We pooled our human and financial efforts to achieve, in just a few months, a project that gives renewed hope to young people in our neighbourhood and their parents and offers the children a better future and the tools they need to begin to build it.
The distribution of natural gas in Québec contributed to the growth in our income, but there is no doubt that the most notable fact is the significant contribution from our energy distribution subsidiaries in the United States, on the one hand, and from energy services on the other.
Vermont Gas and Green Mountain Power have seen their net income, before financial expenses, increase by $2 million, thanks to the increase in the volume of natural gas distributed and to the appreciation of the U.S. dollar versus the Canadian dollar.
The subsidiaries in the energy services sector have also seen their net income before financial expenses grow by $1.4 million in the first quarter, compared with the same period a year earlier.
And we cannot stay silent about the confidence we have in financial markets. Last October, in a very difficult economic context, we succeeded in floating $150 million in bonded debt. The premium paid, called the credit spread, turned out to be three times higher than what we are used to, but since the underlying interest rates had begun to fall, the overall cost of the borrowing, at 5.24% for 5 years, remains very reasonable.
We learned later that there was only one debt transaction on account of a company in North America on October 8, that is, ours. That demonstrates the confidence we succeeded in inspiring in the worst of all possible financial environments.
But we take nothing for granted. Gaz Métro manages its financial resources with much rigour and vigilance. And, since no company can escape the repercussions of a severe economic downturn like the one we are currently experiencing, our investors can take comfort in Gaz Métro’s defensive characteristics. The fact that its principal activity, natural gas distribution, is closely linked to heating homes and businesses, gives it a certain financial stability.
The DBRS credit rating agency has also recognized the quality of Gaz Métro’s credit. Last January, DBRS renewed its A rating, with a stable perspective, of our first mortgage bonds. In the opinion of DBRS, this evaluation reflects the sound business profile and financial stability of our principal activity, natural gas distribution. DBRS also noted that the acquisition of Green Mountain Power offers Gaz Métro geographical and operational advantages, without changing its risk profile.
It is also interesting to point out that Gaz Métro is not a producer of natural gas. Our profitability is therefore not at all affected by the reduction in the prices of natural gas that is accompanying the slowdown in economic activity. This price reduction, which hit 18 % over the course of the last year, is passed on in its entirety to our customers. It contributes to strengthening our competitive position and to supporting the demand for natural gas. This is even more advantageous at a time when our customers are watching their expenses more closely than ever.
We have no control over the cost of the price of natural gas or over the general state of the economy. On the other hand, we do control our operations and we are totally responsible for our company’s performance. Nothing is perfect, but I can confirm that Gaz Métro’s operational performance has reached remarkable levels that never cease to improve. Under the aegis of the Mouvement québécois de la qualité, last year we conducted an evaluation of all our business processes. The results obtained show remarkable progress compared with the preceding evaluation, conducted only two years ago. The results achieved place Gaz Métro in a select group of Québec leaders in quality. This is an extraordinary performance, which the whole Company is extremely proud of achieving.
All these factors contribute to making Gaz Métro a good investment in troubled economic times, like those we are currently experiencing. The stock market has reflected this. Between August 29, 2008, at the start of the financial crisis, and the close of the markets on March 11 last week, the price of a Gaz Métro unit had declined 13.4%, whereas the TSX composite index of major Canadian company shares lost more than 40 % of its value over the same period.
It is not because we are considered a relatively good security in a difficult economic context that we can refrain from being very vigilant. To better predict the impact of the economic showdown on our income, we are closely following three major indicators: our deliveries, our new sales, and late payments by our customers.
These three indicators are currently telling us that while the situation is not great, it is not alarming. Our deliveries have certainly shown a downward trend, but not a dramatic one. Since they are intimately linked to the construction cycle, our new sales have also been somewhat lower than those in the first quarter of last year. As for payments from customers, they are sometimes a little slower, but for the moment that lateness has not yet translated into seriously bad debts.
It would be an illusion to believe that we will come unscathed through the economic tempest that is assailing us. However, we are confident that we can come out of it quite well. By maintaining rigorous financial management and improving our ways of doing business, we will be in a good position when economic activities recover their vigour.