March 17, 2010 - Speeches
March 17, 2010
Address given by Sophie Brochu the president and chief executive officer.
(Check against delivery)
Good afternoon, Ladies and Gentlemen. And welcome!
As you know, 2009 was engulfed by a worldwide economic storm. A storm of such rare intensity that it unfortunately swept away many crews.
It is said that foul weather and adversity are sure-fire ways of telling if a ship is sound.
Gaz Métro was certainly not spared by the turbulence in the global economy, but the storm that raged did confirm one important thing: your company was well prepared.
Well prepared to face the stormy weather. Well prepared also to take full advantage of all the sunny breaks that showed through, here and there, during the year.
To put everything into perspective, I intend to do three things today:
Fiscal year 2009
To return briefly to 2009, many prudent investors took refuge under the sails of Gaz Métro during those difficult economic conditions. They were right.
Between September 1, 2008 – the symbolic date of the start of the global financial crisis –and March 12, 2010, TSX index slid by 12.8%. Over the same period, Gaz Métro's unit value increased by 3.1%, and your total annualized return reached 12 %.
The confidence of our investors was also rewarded by the company's financial results.
In fact, Gaz Métro's adjusted net income rose to $159.6 million in 2009, $6.3 million more than in the previous fiscal year.
This resulted in adjusted net income of $1.32 per unit, $0.05 more than in fiscal year 2008.
Thus, despite a generalized adverse economic climate, Gaz Métro maintained its distributions to its Partners at $1.24 per unit in 2009, the same level as in the preceding fiscal year.
And this trend is not declining: Gaz Métro has already indicated that it expects to pay distributions of $0.31 per unit in each quarter of fiscal year 2010. The next distribution is in fact payable on April 1 next.
A complementary portfolio
The good financial results are the result of the continuous efforts made by the whole organization to make natural gas a source of energy valued by a constantly growing number of Quebecers. They also are the fruits of the strategy that Gaz Métro has been pursuing for the last few years of diversifying its activities, territories and operations in a judicious and targeted manner.
A glance at the Gaz Métro portfolio will help you appreciate its soundness and complementarity. Let's take a few minutes to look at some of these characteristics.
Of course, natural gas distribution in Québec remains the company's flagship. That said, in the last fiscal year, activities other than gas distribution in Québec represented more than 25% of the company's adjusted net income. That compares with 18% in 2008.
Some of our activities are more sensitive to the economic climate than others. This is so for retail activities such as the distribution of natural gas and electricity, as well as the energy services that we offer to individuals and companies.
Other activity sectors are less sensitive to the cyclical ups and downs of the economy. This is so for the transportation and storage of natural gas.
Most of our earnings are generated in Canadian dollars, but a not insignificant part is earned in U.S. currency. This is even more the case since we acquired Green Mountain Power in 2007.
Another characteristic that we also need to remember: a very large majority of the activities in our portfolio are covered by regulations, whether provincial, federal, or American.
Overall, Gaz Métro has a portfolio of resilient and complementary activities that offer the balance and stability its Partners seek.
Year after year, these activities generate the liquidities that enable Gaz Métro to invest in the maintenance and expansion of its infrastructures as well as maintain strong distributions to its Partners.
However, let me assure you that we take nothing for granted. Gaz Métro manages its financial capacities with much rigour and vigilance.
The company also benefits from high quality credit ratings and makes all the efforts required to maintain them.
First quarter 2010
Let's turn now to fiscal year 2010.
Gaz Métro ended the first financial quarter with adjusted net income of $79.1 million, or $0.66 per unit. That is an increase of more than 11% in adjusted net income compared with the same period a year ago.
These good results are explained primarily by two factors.
The current market conditions are what observers describe as abundant in gas supplies.
Over the last 18 months, a substantial gap has been created between the supply and demand for natural gas in North America.
South of the border, new exploration technology using horizontal drilling has led to the discovery and exploitation of considerable natural gas reserves from geological shale formations.
In just two years, the production of natural gas in the United States has increased by 12%. That's a lot when we know that production was stagnant for the last decade!
Horizontal drilling has completely changed the dynamics of the North American gas market. It has both increased the productivity of wells in production and significantly reduced operating costs.
This is the trump card that no one expected, and it has radically changed the game.
That's true in the United States, and also in Western Canada, where observers are also anticipating a larger and larger contribution from shale gas in the coming years.
Of course, we are following with great interest the exploration work currently being pursued by several producers in Québec. Their interests are in the St. Lawrence Valley, between Montréal and Québec City, which is right in the middle of the territory already served by our network. Gaz Métro is therefore well positioned to deliver to market any gas eventually discovered on its territory.
No matter what transpires, we can expect that continental natural gas supplies are going to remain robust in the near future.
This established fact will contribute to keeping natural gas prices relatively low and stable in the short and medium term. This will be the case in Québec, as well as in the rest of North America, despite the gradual recovery of the economy, which will inevitably lead to a firming up of demand.
I should remind you that Gaz Métro is not a producer of natural gas. Our profitability is therefore not in the least affected by the lower prices which have, otherwise, benefited our customers.
Already, the growing role of non-classic resources is bringing to an end the relationship that always existed between the price of oil and that of natural gas.
Over the last 12 months, Gaz Métro has offered natural gas to its customers at a price below that of the last six years.
Natural gas is now competitive on all markets and compared with all other forms of energy.
This has been the case for many years in the business market. Today, its price is also beating that of electricity and fuel oil for residential, commercial, institutional and industrial customers.
Our competitive advantage is contributing directly to the vitality in Gaz Métro's new contract signings.
At the end of fiscal year 2009, the number of customers in Québec was just under 180,000.
During the first quarter of 2010, the number of new contracts signed in residential and commercial markets in Québec increased by almost 15% compared with the same period a year ago.
We even surpassed, by more than 2%, the contracts signed in the first quarter of fiscal year 2008, a record year for Gaz Métro!
Two years ago, on this same podium, I affirmed our intention of doing everything we could to win back the industrial customers who had deserted us for heavy fuel oil.
Today, I am delighted to confirm the return in force of natural gas in the industrial sector. Where Gaz Métro's network is accessible, it has out placed heavy fuel oil for more than one year.
This is excellent news for Gaz Métro and its Partners.
It is also good news for the environment, since natural gas emits 31% less greenhouse gases (GHGs) than fuel oil and, unlike fuel oil, emits practically no atmospheric contaminants.
Diversifying and growing with “blue”
The strong trend to unite energy and environment brings me to the third part of my address: our projects for the future.
The first of these projects for Gaz Métro is to extend its commercial reach into the transportation sector, where we are absent today.
Replicating Californian and Australian initiatives, our aspiration is to make natural gas the fuel of choice, especially by the fleets of heavy trucks that currently run on diesel.
We ought to know that the road transport sector in Québec is the largest emitter of GHGs, with 40% of total emissions.
Heavy freight transportation alone generates 32% of GHGs emissions by road transport in Québec.
The largest concentration of heavy truck traffic is between Québec and Ontario, the fourth-ranked economic zone in North America, with 48,000 movements per week on Highways 20 and 401.
We know that vehicles that use natural gas can reduce GHG emissions by approximately 25% compared with diesel and other petroleum fuels. It is an existing and applicable solution for reducing the environmental footprint of economic activity.
We have high hopes of bringing this field of activity to life in Québec. It is a promising field, both in terms of the environment and also in commercial terms, since it would be a totally new market for natural gas.
This same principle, based on the compatibility of energy and the environment, is paving the way for another commercial opportunity for Gaz Métro – the methanation of organic wastes.
On the instigation of the Québec government, organic wastes will no longer be sent to landfill sites, as in the past, but instead will be diverted to biomethanation centres where they will be converted into, more or less, natural gas.
Gaz Métro is thus working with various partners to determine technical and economical ways of injecting this new type of gas into its network, while continuing to ensure a reliable and secure service.
We would be able to transport this renewable natural gas right to the markets that we serve.
Our business and our assets are, in effect, eminently compatible with this solution, which Gaz Métro believes is a promising way of helping meet Québec's energy needs.
Gaz Métro will be a commercial partner of this future energy field... all in the best interests of our customers and our investors.
Energy and the environment are also behind the development of our major wind power project.
Last summer, Gaz Métro and its partner, Boralex Inc., obtained a decree from the Québec government authorizing the implementation of two projects on the Seigneurie de Beaupré lands, which belong to the Séminaire de Québec.
The equipment on the Seigneurie lands will have a total installed capacity of 272 megawatts, making it one of the largest wind farm projects currently planned in Canada.
In 2010 we will be developing, among other things, our financing strategy for this project, worth about $800 million, which also has a 20-year contract with Hydro‑Québec.
The construction work would mostly be done in 2012 and 2013. The project is expected to be commissioned in December 2013.
Just a word about Rabaska, to tell you that the project is still active.
In recent months, Rabaska has exercised all of its purchase options on the lands needed for the eventual construction of the facilities required for transhipping natural gas.
The project team is currently concluding transactions worth about $7.5 million with the land owners concerned.
All these transactions, of course, respect the commitments made with the Québec government and the city of Lévis.
The project team is continuing its work to secure the long-term liquefied natural gas supplies for the terminal.
As you can see, Gaz Métro is on the move, Gaz Métro is evolving, Gaz Métro is growing!
While firmly anchored in our business as a natural gas distributor, we are becoming a committed energeticist, proposing sustainable energy solutions to its customers.
Building on the solid foundations laid by the transportation and distribution of natural gas, “blue” is today leaning toward promising energy operations and projects:
In short, our complementary and inclusive vision of energy sustains our ambition to make Gaz Métro an avant-garde company in the field of energy and an essential partner in a Québec society resolutely looking toward the future.
Like many of you, I am a Partner of Gaz Métro and I am confident.
Confident that the results achieved in the last fiscal year and in the first quarter of 2010 will pave the way for our commercial and financial progress.
I often say that Gaz Métro has a strong genetic code... that of a company guided by a long-term vision in its efforts to ensure its development and increase market shares,
... that of an organization which values customer satisfaction.
An organization whose men and women strive every day to earn the confidence of our customers, our Partners and the whole society.
Gaz Métro is alive and well and has everything it needs to be even better tomorrow.
Before I turn the meeting over to our Chairman, I would like to give you an update on the Tax Fairness Plan of the federal government.
The Board of Directors of Gaz Métro inc., the General Partner of Gaz Métro Limited Partnership and a wholly-owned subsidiary of Noverco Inc., continues to analyze the various options available to Gaz Métro in the context of the changes to the tax treatment of limited partnerships and income trusts which qualify as “specified investment flow-through” entities (SIFT).
In relation thereto, a committee of the board composed of independent directors only has been created to assess the implications for public unit holders of the contemplated options, and discussions have been initiated with the Canada Revenue Agency. I would like to clarify that the intention is that the public investors would remain stakeholders of Gaz Métro.
Regardless of the alternative chosen, it is expected to be effective on or around September 30, 2010 in order to benefit for as long as possible from the attractive tax treatment provided by the current structure.That said, I thank you for your attention and give the floor back to Mr. Gignac.