Just Energy Group, Inc. (TSX:JE)(NYSE:JE), a competitive retailer
of natural gas and electricity, today announced results for its
third quarter of fiscal 2013.
Key 3Q Highlights:
-- Strong energy customer additions of 341,000, increased 10% year over
year
-- Strong National Home Services growth with installed base of 222,000,
increased 44% year over year
-- Customer base growth to 4.3 million, increased 11% year over year
-- Gross Margin of $142.5 million, decreased 3% year over year
-- Embedded Gross Margin of $2.2 billion ($15.19 per share), increased 12%
year over year
-- Adjusted EBITDA of $72.5 million, decreased 18% year over year
-- Earnings per Share(1) (diluted) of $0.28 increased from a loss of $0.70
in the same period of last year. Trailing 12 month Earnings per Share(1)
(diluted) of $2.02
-- Completion of $105 million private placement of unsecured debentures
-- Board decision to reallocate capital priorities to focus on strategic
growth initiatives and debt reduction
(1) Profit for the period includes the impact of unrealized
gains (losses), which represents the mark to market of future
commodity supply acquired to cover future customer demand. The
supply has been sold to customers at fixed prices, minimizing any
realizable impact of mark to market gains and losses.
----------------------------------------------------------------------------
Three months ended December 31, Per Per
($ millions except per share) F2013 share F2012 share
----------------------------------------------------------------------------
Sales $ 733.9 $ 5.10 $ 738.6 $ 5.21
----------------------------------------------------------------------------
Gross margin 142.5 0.99 147.4 1.04
----------------------------------------------------------------------------
General and administrative 36.7 0.25 31.3 0.22
----------------------------------------------------------------------------
Financing costs 19.7 0.14 16.4 0.12
----------------------------------------------------------------------------
Adjusted EBITDA 72.5 0.50 88.5 0.62
----------------------------------------------------------------------------
Funds from Operations 38.3 0.27 51.6 0.36
----------------------------------------------------------------------------
Profit (loss) for the period 40.2 0.28 (97.4) (0.70)
----------------------------------------------------------------------------
Dividends/distributions 44.6 0.31 43.9 0.31
----------------------------------------------------------------------------
Payout ratio - Base EBITDA 83% 69%
----------------------------------------------------------------------------
Payout ratio - Adjusted EBITDA 62% 50%
----------------------------------------------------------------------------
Nine months ended December 31,
($ millions except per share and Per Per
customers) F2013 share F2012 share
----------------------------------------------------------------------------
Sales $ 2,083.6 $ 14.52 $ 1,964.9 $ 13.94
----------------------------------------------------------------------------
Gross margin 374.0 2.61 344.2 2.44
----------------------------------------------------------------------------
General and administrative 108.1 0.75 88.4 0.63
----------------------------------------------------------------------------
Financing costs 57.5 0.40 44.5 0.32
----------------------------------------------------------------------------
Adjusted EBITDA 164.2 1.14 173.8 1.23
----------------------------------------------------------------------------
Funds from Operations 54.3 0.38 119.7 0.85
----------------------------------------------------------------------------
Profit (loss) for the period 392.0 2.73 (49.7) (0.36)
----------------------------------------------------------------------------
Dividends/distributions 133.4 0.93 131.2 0.93
----------------------------------------------------------------------------
Payout ratio - Adjusted EBITDA 81% 75%
----------------------------------------------------------------------------
Payout ratio - Base EBITDA
(LTM)(1) 102% 72%
----------------------------------------------------------------------------
Payout ratio - Adjusted EBITDA
(LTM)(1) 65% 60%
----------------------------------------------------------------------------
Payout ratio - Base Funds from
Operations (LTM)(1) 172% 96%
----------------------------------------------------------------------------
Energy customers (RCEs) 4,124,000 3,758,000
----------------------------------------------------------------------------
Home Services customers
(installed units) 222,000 154,000
----------------------------------------------------------------------------
Total number of customers 4,346,000 3,912,000
----------------------------------------------------------------------------
(1)Last 12 months
----------------------------------------------------------------------------
Commenting on the quarterly results, CEO Ken Hartwick stated:
"Just Energy's third quarter was another strong quarter of growth
as reflected in our 341,000 new customers resulting in 10% year
over year growth in our base and 14% year over year growth in our
future embedded gross margin. We were able to generate this growth
despite a challenging commodity environment, heightened competition
and poor economics for our ethanol business, all of which
contributed to weaker year over year margin and adjusted EBITDA.
These results contributed to the increase in our payout ratio to
levels above our targeted range. With an embedded margin of $15.19
per Just Energy share to end the quarter, there is a solid
underpinning to our equity and evidence of our future financial
strength which will allow us to continue executing on our long-term
growth strategy.
"Our management team and Board of Directors regularly review
Just Energy's debt levels and our payout ratio. Management's
recommendation to the Board was based on the quality of Just
Energy's investment opportunities and the available access to the
capital markets for funding our continued growth. The conclusion
was that the long term interests of shareholders would be better
served by a reduction of the current dividend to $0.84 per year, an
amount which should allow us to reduce our payout below 100% in
fiscal 2014, fund our growth and build a cash reserve to pay down
our debt on maturity. This new dividend level still leaves Just
Energy as one of the highest yielding investment options in our
industry and in the markets in general."
Executive Chair Rebecca MacDonald added: "Our Board of Directors
reviews our dividend policy and capital allocation annually. In the
review for the coming year, they considered the best long term
interests of our shareholders and the management's recommendations
for use of capital. In line with this effort, we have elected to
reduce our dividend rate effective the April 30, 2013 payment and
reallocate our capital priorities toward what we believe to be high
return investments that have and will continue to increase the
future embedded margin in our contracts. As this margin is
realized, we expect our payout ratio on funds from operations to
fall into the target range of 60% to 65% by the end of fiscal
2015."
Third Quarter Operating Performance
The third quarter financial results showed continued strong
growth in Just Energy's core business as reflected in both number
of customers and the future embedded margin those customers will
generate. Both measures were up double digits from a year earlier.
A challenging commodity price environment combined with poor
markets for the non-core ethanol business resulted in weaker than
expected margin and EBITDA from the Company.
Growth
Customer additions in the third quarter were 341,000, up 10%
from fiscal 2012 and the second highest total registered in Just
Energy's history. The overall customer base, including National
Home Services ("NHS") installations, grew to 4.3 million, up 11%
from a year earlier.
New additions were solid in all segments of the business led by
150,000 new residential customers, up 34% from the 112,000 added in
the third quarter of fiscal 2012. Commercial additions totaled
191,000, down slightly from the record 198,000 added in the prior
fiscal year. NHS saw a 44% year over year growth in total
installations growing to 222,000 customers.
To view the Graph associated with this release, please visit the
following link: http://media3.marketwire.com/docs/JEGraph.pdf.
The Company maintains its focus on the preservation and
profitability of the energy customer base. A total of 241,000
customers were lost during the quarter and replaced by new
additions. This compares to 195,000 lost a year earlier and 297,000
lost in Q2.
In addition to the 341,000 new customers added to offset this, a
further 203,000 customers renewed their contracts during the
quarter. The Company's traditional salesforce was augmented by
strong results from telemarketing, internet sales and network
marketing. With the opening of new markets such as the U.K., Just
Energy's sales capacity remains at its highest level in history.
The recent U.K. supply agreement with Shell shows the progress
being made in Europe.
Long-term energy customer aggregation
October 1, Failed to
2012 Additions Attrition renew
----------------------------------------------------------------------------
Natural gas
---------------------------------------------------
Canada 557,000 20,000 (11,000) (42,000)
---------------------------------------------------
United States 469,000 47,000 (28,000) (7,000)
----------------------------------------------------------------------------
Total gas 1,026,000 67,000 (39,000) (49,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Electricity
---------------------------------------------------
Canada 660,000 25,000 (15,000) (22,000)
---------------------------------------------------
United States 2,331,000 246,000 (57,000) (59,000)
---------------------------------------------------
United Kingdom 7,000 3,000 - -
----------------------------------------------------------------------------
Total electricity 2,998,000 274,000 (72,000) (81,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined 4,024,000 341,000 (111,000) (130,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term energy customer aggregation
December December
31, % increase 31, % increase
2012 (decrease) 2011 (decrease)
----------------------------------------------------------------------------
Natural gas
----------------------------------------------------
Canada 524,000 (6)% 571,000 (8)%
----------------------------------------------------
United States 481,000 3% 566,000 (15)%
----------------------------------------------------------------------------
Total gas 1,005,000 (2)% 1,137,000 (12)%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Electricity
----------------------------------------------------
Canada 648,000 (2)% 678,000 (4)%
----------------------------------------------------
United States 2,461,000 6% 1,943,000 27%
----------------------------------------------------
United Kingdom 10,000 43% - -
----------------------------------------------------------------------------
Total electricity 3,119,000 4% 2,621,000 19%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined 4,124,000 2% 3,758,000 10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The attrition rate was 13% on a trailing 12-month basis, down
from 14% in the prior year period, with U.S. gas markets higher and
U.S. electricity markets lower. Canadian attrition was unchanged at
10%. Overall attrition remains at target levels.
Renewal rates were near target at an average 69% for the last 12
months. Canadian consumer renewals were weak, at approximately 50%
while the U.S. was over 80%, better than target. Management
believes that there is an opportunity for further improvement in
renewal rates, however, commercial renewal rates can be volatile on
a quarter to quarter basis.
Profitability
Operating profits lagged the overall Company growth during the
quarter. Gross margin for the quarter was $142.5 million, down 3%
from $147.4 million in fiscal 2012. Adjusted EBITDA was $72.5
million, down 18% from $88.5 million in the prior year. This
resulted in payout ratios of 62% on Adjusted EBITDA versus 50% well
above target levels, and 124% on Base Funds from Operations versus
88% in the comparable quarter of fiscal 2012.
The following factors drove quarterly profitability:
-- Gas margin was down 21% versus Q3 F2012 reflecting a 12% decline in
customers, lower realized commercial margins per customer and $0.9
million in payout on weather options versus $9.0 million in fiscal 2012.
-- Electricity margin was up 11% due to a 19% increase in customers and
high residential margins driven by JustGreen consumption offset by lower
margins per new customer in the commercial book.
-- New customer annual margins averaged $169 per RCE for residential
customers and $64 per RCE for commercial customers, less than the annual
margin on customers lost of $182 per RCE for residential and $94 per RCE
for commercial. The lower commercial margins reflect a stabilized level
in major markets. While less profitable than in the past, commercial
customers continue to generate margins more than double annual
aggregation costs maintaining it as a very profitable business segment.
-- Aggregation cost per residential customer was down 22% to $158 from $203
a year prior. Commercial customer aggregation costs were, on average,
down slightly. This continued positive trend has been driven by the use
of multiple sales channels and economies of scale as fixed marketing
costs are spread across more customers.
-- NHS saw its gross margin grow 32% year over year to $9.5 million up from
$7.2 million. NHS EBITDA was $6.4 million, up 21% from $5.3 million a
year earlier.
-- The TGF ethanol plant saw both lower ethanol prices and higher wheat
feedstock costs. The result was sharply lower margins of $2.2 million,
down from $6.5 million in Q3 F2012. While ethanol remains a mandated
component of gasoline, its prices have fallen below historic levels.
Management cannot forecast when the performance of TGF will improve.
-- Administrative costs per customer were an annual $34, up slightly from
$32 a year earlier. Management believes that this measure will fall to
the $30 range as new markets like the U.K. and new channels like
Momentis begin to reach their potential.
-- Bad debt expense was down 25%, reflecting markets where Just Energy
bears credit risk. Bad debt equaled 2.1% of relevant sales down from
2.5% in the third quarter of fiscal 2012.
-- Financing costs were $19.7 million for the quarter, up from $16.4
million a year earlier. The increase reflects inclusion of the new $105
million unsecured debentures, the convertible debenture funding for the
acquisition of Fulcrum and higher drawings on the working capital line
of credit as a result of our accelerated growth levels.
Gross margin and Adjusted EBITDA are tracking below targeted
levels with margin up 9% and Adjusted EBITDA down 6% year to date.
On a quarterly basis, the operating costs deducted in Adjusted
EBITDA are relatively unaffected by margin fluctuations.
Accordingly, the lower level of realized margin has a significantly
larger percentage impact on Adjusted EBITDA.
Just Energy has taken several steps toward creating value
through targeted growth expenditures over the last two years. As
announced last week, the signing of a five year supply agreement
with Shell gives our new U.K. platform a base to add profitable
growth. The work to establish smart thermostats as a long term
access point to consumer's commodity needs requires capital
financing and will bring the solid returns Just Energy investments
have traditionally generated. Hudson Solar creates profitable, tax
advantaged green projects raising the Company's profile. The
success and return on capital from continued investment in NHS is
reflected in its results. These businesses do not require large
amounts of capital (or, in the case of NHS and Hudson Solar, are
non-recourse funded) and the future of Just Energy will benefit
from focused profitable investments like these.
Management believes that a broadening of the customer
relationship is the next step in the evolution of Just Energy.
While the funding platform for NHS supports this growth in Canada,
there is a need to provide the capital to expand the business in
the U.S. This step will contribute to an increasingly profitable
customer relationship less impacted by natural gas prices.
Past growth expenditures have created clear tangible long term
value for shareholders. Management believes that a key measure of
this value is embedded gross margin. Embedded margin is an estimate
of cash flow from existing contracts based on the spread between
contract price and underlying supply. The table below shows the
increase in this value over the quarter and the last year.
EMBEDDED GROSS MARGIN
Management's estimate of the future embedded gross margin is as follows:
(millions of dollars)
Dec. 2012
As at As at vs. As at Dec. vs.
Dec. 31, Dec. 31, Dec. 2011 Sept. 30, Sept. 2012
2012 2011 variance 2012 variance
--------------------------------------------------------------
Canada energy
marketing
(C$) $ 547.8 $ 587.7 (7)% $ 571.0 (4)%
--------------------------------------------------------------
Home Services
division (C$) 574.0 352.0 63% 510.7 12%
----------------------------------------------------------------------------
Canada total
(C$) 1,121.8 939.7 19% 1,081.7 4%
--------------------------------------------------------------
U.S. energy
marketing
(US$)(1) 1,081.1 973.4 11% 1,065.7 1%
----------------------------------------------------------------------------
Total (C$) $ 2,197.4 $ 1,929.7 14% $ 2,129.5 3%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dividend Policy
Dividends were $0.31 per share in the quarter, unchanged from
those paid a year earlier. Payout ratio on Adjusted EBITDA
increased to 62%, up from 50% a year ago. The Company's dividend
obligations will exceed Funds from Operations for the year.
Payout ratio remains an area of focus. As highlighted in the
second quarter report, both Adjusted EBITDA and Funds from
Operations ("FFO") were trending below forecast and that trend
remains. Payout on Adjusted EBITDA is 65% over the past 12 months,
versus 60% a year earlier. Payout ratio on FFO is 172% for the same
period up from 96%. It is clear that the payout ratio on FFO will
remain well above 100% for the fiscal year and, in all likelihood,
the year to come based on current forecasts and dividend
levels.
Just Energy remains focused on its debt level and the need to
refinance notes coming due in fiscal 2015 and fiscal 2018. In
December 2012, the Company was able to access the capital markets
raising $105 million through a private placement of debt during the
quarter. While the based on the liquidity provided by this
issuance, both corporate growth and the dividends can be financed
from these proceeds. However, management believes that there needs
to be a focus on profitable growth and debt reduction as well as
dividends.
Management and the Board of Directors has concluded that it
would be appropriate to reduce the dividend effective April 2013 to
a level which would allow the funding of necessary growth capital
expenditures and the cash repayment of the entire fiscal 2015 $90
million convertible debenture issue if necessary. In addition, the
new level of dividend will allow Just Energy to build a cash
reserve to potentially purchase a portion of its other outstanding
convertible debentures. The Company plans, subject to Toronto Stock
Exchange approval, to commence a normal course issuer bid for its
three issues of convertible debentures listed on the TSX as well as
its shares.
At its regularly scheduled February meeting, the Board of Just
Energy has implemented a new dividend policy effective with the
April 30, 2013 dividend payment which calls for a monthly dividend
of $0.07 per share. That is an annualized $0.84 versus the current
$1.24 per share. This level of dividend is intended to fund growth,
reduce debt and will target a payout ratio for Funds from
Operations of between 60% and 65% in the future.
By creating a more stable financial platform and balance sheet,
Just Energy expects to generate continued growth and income for its
shareholders.
Outlook
The Company's published guidance calls for 10% to 12% gross
margin growth and 8% to 10% Adjusted EBITDA growth for fiscal 2013.
Although overall margin is up 9% year to date, management does not
expect it to reach the 10%-12% target range projected for the
fiscal year. Continued weak results from the TGF ethanol business
and delays in the positive cash impact of colder winter
temperatures causes management to currently estimate no more than
8% margin growth for the fiscal year.
Administrative and sales and marketing expenses are growing more
quickly than margin as the the expenses more closely track the
number of customers in our base. Therefore, roughly flat fourth
quarter margins, which is the current forecast, would result in
Adjusted EBITDA remaining in the current range of 6% less than the
prior fiscal year. The major factors that will continue to impact
margin and EBITDA in the fourth quarter will be stabilization of
commercial margins around the $64 per RCE level seen in Q3 and the
reduced seasonality of the Company's business overall as the
percentage of natural gas customers in the overall base declines.
As well, the initial margins received from new Momentis independent
representatives will slow due to amended compensation plans.
"We remain cautious about the near-term as challenging market
conditions have resulted in mixed results across our portfolio of
businesses," Hartwick said, commenting on the outlook for the
Company. "While these conditions persist, our growth and the
resultant growth of our embedded margin indicate that Just Energy's
future is bright. As in the past, we have adjusted our business
model to market reality and are working to ensure that customer and
margin growth lead to bottom line results. Strategic investment
today will lead to a stronger balance sheet and higher returns in
the coming years."
Earnings Call
The Company will host a conference call and live webcast to
review the third quarter results beginning at 8:30 AM eastern
daylight time on Friday February 8, 2013 followed by a question and
answer period. Those who wish to participate in the conference call
may do so by dialing (866) 200-6965 and entering pass code
93743454#. The call will also be webcast live over the internet at
the following link:
http://event.onlineseminarsolutions.com/r.htm?e=571721&s=1&k=D89F120F34C16CBA5AFFDCF5F4FE57C2.
About Just Energy Group Inc.
Established in 1997, Just Energy is primarily a competitive
retailer of natural gas and electricity. With offices located
across the United States, Canada and the United Kingdom, Just
Energy serves close to 2 million residential and commercial
customers (4.3 million RCEs) through a wide range of energy
programs and home comfort services, including fixed-price or
price-protected energy program contracts, the rental of water
heaters, furnaces and air conditioners and the installation of
solar panels. The Company's JustGreen®products provide consumers
with the ability to help them reduce the environmental impact of
their everyday energy use. Just Energy is the parent to Amigo
Energy, Commerce Energy, Hudson Energy, Hudson Energy Solar,
National Home Services, Momentis, Tara Energy and Terra Grain
Fuels.
FORWARD-LOOKING STATEMENTS
Just Energy's press releases may contain forward-looking
statements including statements pertaining to customer revenues and
margins, customer additions and renewals, customer attrition,
customer consumption levels, general and administrative expenses,
dividends, distributable cash and treatment under governmental
regulatory regimes. These statements are based on current
expectations that involve a number of risks and uncertainties which
could cause actual results to differ from those anticipated. These
risks include, but are not limited to, levels of customer natural
gas and electricity consumption, rates of customer additions and
renewals, rates of customer attrition, fluctuations in natural gas
and electricity prices, changes in regulatory regimes and decisions
by regulatory authorities, competition and dependence on certain
suppliers. Additional information on these and other factors that
could affect Just Energy's operations, financial results or
dividend levels are included in Just Energy's annual information
form and other reports on file with Canadian securities regulatory
authorities which can be accessed through the SEDAR website at
www.sedar.com, on the U.S. Securities Exchange Commission's website
at www.sec.gov or through Just Energy's website at
www.justenergygroup.com.
Neither the Toronto Stock Exchange nor the New York Stock
Exchange has approved nor disapproved of the information contained
herein.
Contacts: Just Energy Group Inc. Ms. Beth Summers, C.A. Chief
Financial Officer (905) 795-4206bsummers@justenergy.com
www.justenergygroup.com FTI Consulting Michael Cummings Investor
Relations (617) 897-1532Michael.Cummings@FTIConsulting.com
Just Energy (NYSE:JE)
Historical Stock Chart
From May 2024 to Jun 2024
Just Energy (NYSE:JE)
Historical Stock Chart
From Jun 2023 to Jun 2024