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Gaz Mtro Limited Partnership. Scotia Capital Investing for Income Conference. Toronto, O ctober 7, 2004. Table of Contents. I.Company Overview II.Consolidated Financial Data III. Growth Possibilities IV.Five Strong Characteristics of Gaz Mtro Units V.Conclusion VI.Appendix. - PowerPoint PPT Presentation

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  • Gaz Mtro Limited PartnershipScotia CapitalInvesting for Income ConferenceToronto, October 7, 2004

  • Table of Contents

    I.Company Overview

    II.Consolidated Financial Data

    III. Growth Possibilities

    IV.Five Strong Characteristics of Gaz Mtro Units

    V.Conclusion

    VI.Appendix

  • Company Overview

  • Gaz Mtro 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

  • Gaz Mtro StrategyProvide stable income to unitholders

    Maintain strong credit rating

    Consider strategic acquisitions with low risk and predictable and stable revenues

    Achieve continuous growth

  • Natural Gas DistributionGaz Mtro core business (100% regulated):97% of Qubec Province gas distributionVermont sole gas distributor

    More than 10,000 km of gas distributionpipeline

    In % of 2003 consolidated results:Revenues93%Gross Margin85%Assets78%

  • Natural Gas DistributionPositioning

    3rd largest natural gas distributor in Canada #1 natural gas distributor in Qubec (97% market share) Sole natural gas distributor in Vermont, United States

  • Natural Gas DistributionGMLPNormalized Volumes: 194 BcfSystem length: 9,318 kmNumber of Customers: 153,6842005 base rate of return: 9.69%Capital Structure: 54% debt 7.5% deemed prefered equity 38.5% common equityRegulated by the Rgie de lnergie

  • Natural Gas DistributionVermont GasNormalized Volumes: 8 BcfSystem length: 935 kmNumber of Customers: 35,0322004 base rate of return: 10.98%Capital Structure: 36.9% debt 63.1% common equityRegulated by the Vermont Public Service Board

  • Natural Gas TransportationParticipation in two transportationnetworks:TQM: 50% participationPNGTS: 38.3% participation

    In % of 2003 consolidated results:Revenues4%Gross Margin11%Assets18%

  • Natural Gas Transportation TQMSystem length: 572 km2004 base rate of return: 9.56%Capital Structure: 70% debt 30% common equityRegulated by the National Energy BoardRegulated framework: cost of service and performance incentive mechanism

  • Natural Gas TransportationPNGTSSystem length: 489 kmCapacity 500 million cubic feet per day 2004 base rate of return: 12.50%Capital Structure: 60% debt 40% common equityRegulated by the Federal Energy Regulatory Commission

  • Non-Regulated ActivitiesParticipation in businesses operating invarious sectors, including:Water sector: Aqua Data (100%) Aqua-Rehab (100%)VDN Cable (20.57%)CCUM (100%)

    In % of 2003 consolidated results:Revenues3%Gross Margin4%Assets4%

  • Consolidated Financial Data

  • Highlights (As at September 30, 2003)Annual Gas deliveries1201.8 Bcf (Normalized)System length 110,219 Km Number of customers 1188,716Number of employees 11,250Credit ratings 2-3 (S&P/DBRS)A / AStability ratings 3-4 (S&P/DBRS)SR-1/STA-1 (low)Gaz Mtro was included in the S&P/TSX Capped Income Trust Index in May 2004(1) Qubec 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

  • Enterprise ValueGaz Mtro enterprise value grew from $1.7 billion in 1993 to $3.6 billion in 2003

  • Historical Financial ReviewIn millions of $, CAGR = compounded annual growth rateFunds from operations: before change in non-cash working capital

  • Historical Financial ReviewPBR was put in place in October 2000

  • Projects in Development

  • Growth Opportunities Cogeneration / GenerationTake advantage of development of electricity and steam generation plants using natural gasTCE Energy(600 MW)Cogenerations request for proposal to be issued by Hydro-QubecNatural Gas DistributionIncrease volumes in all markets Landfill GasTake part in development of landfill gas in Qubec Opportunities in energy sector infrastructure through development or acquisition

  • Five Strong Characteristics ofGaz Mtro Units

  • #1: Low Business Risk 97% of revenues regulated - ROE linked with long-term Canada bond

    Exclusive distribution rights in Qubec

    Attractive performance incentive mechanismUpside 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

  • #2: Very High Stability in Cash DistributionsGaz Mtro 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

  • #3: Long-Term Sustainable GrowthIn a bull or bear market, Gaz Mtro units create value* From January 1995 to August 2004Source: Bloomberg

  • #4: High Quality Credit Ratings Stability ratingSR-1 STA-1(low)

    Long-term debtA A

    Gaz Mtro benefits from high quality credit ratings maintained over the years

  • #5: Growth PotentialPotential growth through densification of actual network and through generation and cogeneration projects

    Low cost of capital put Gaz Mtro in a competitive situation for investing

  • Conclusion

  • ConclusionStrong and stable businessVery high stability in cash distributionsLong-term sustainable growth Low risk / low maintenance investment

    GAZ MTRO OFFERS TO ITS UNITHOLDERS:

  • Appendix

  • Market DataAs of September 27, 2004Ticker (TSX)GZM.UNMarket price$21.13Units outstanding114.5 MMarket capitalization$2,419.4 MPublic float$612.1 MEnterprise Value$3,515.7 MEarnings per unit 1$1.39Price/Earnings 15.2xAnnual cash distribution 2$1.36Actual distribution yield6.4% (1) As of September 30, 2003. (2) Annualized distribution.Source: Gaz Mtro, Bloomberg

  • Mission and ObjectivesMission:Transport and distribute natural gas in Qubec and the northeastern portion of the United StatesPursue non-regulated activities in the energy, water and fibre optics fields

    Objectives: Financial:Provide stable and predictable return accompanied by growth in value over timeCommercial:Provide high-quality energy services at the lowest possible cost

  • Corporate Structure (As of July 23, 2004)EnbridgeNoverco Inc.Natural gas transportationNatural gas distributionGaz de FranceCapital Infragaz L.P.GMiGMLPGeneral PartnerLimited PartnersPublic25.3%100%74.7%GMi: Gaz Mtro inc.GMLP: Gaz Mtro Limited PartnershipCaisse: Caisse de dpt et placement du QubecBC 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 participation50.38%32.06%17.56%52.78%16.67%11.11%11.11%Caisse(General Partner)Solidarity Fund QFLSNC Lavalin Inc.BC Investment Management CorporationNon-regulated activitiesRgime des rentes du mouvement Desjardins8.33%

  • 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 Qubec Income Tax Return, regardless of their residency status. Partners are allocated their share of the Partnerships taxable income on a pro rata basis in accordance with distributions received. Income tax information slips (T5013 for federal purposes and Relev 15 for Qubec 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.

  • Fiscal Considerations (cont'd) The Partnerships 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 Qubec 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 wheninvestments 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.