Numerous Headwinds, Mostly Non-Recurring,
Negatively Impacted Quarterly Performance
Just Energy Group, Inc. (TSX:JE) (NYSE:JE), a leading retail energy
provider specializing in electricity and natural gas commodities,
energy efficiency solutions, and renewable energy options, today
announced results for its second quarter and full fiscal year 2018.
Key Highlights:
- Sales of $851.9 million and gross margin of $142.7 million, 14%
and 22% lower, respectively than the prior comparable quarter. Base
EBITDA of $20.5 million, a decrease of 64% compared to the second
quarter of fiscal 2017. The Company experienced a number of
challenges in the quarter, many of which are
non-recurring.
- The EBITDA was below our expectation due to reduced
per-customer consumption arising from the abnormally mild summer
weather in North America and hurricane and tropical storm patterns,
including customer disruptions caused by Hurricane Harvey.
Competitive market conditions also resulted in a one-time reduction
in Texas renewal margins. The lower EBITDA in the quarter was also
attributable to the Company’s significant investments in strategic
sales growth initiatives.
- The Company continues to control costs with administrative
expenses remaining flat; selling and marketing expenses also
roughly flat; and finance costs improving 22% during the quarter,
offsetting strategic investments.
- Net debt to the trailing 12-month Base EBITDA was 2.6x, roughly
in line with the 2.4x reported one year ago.
- Gross RCE additions of 310,000 represented an increase of 58%
year-over-year (Consumer up 47%; Commercial up 74%) and 27%
sequentially (Consumer up 26%; Commercial up 27%).
- Net RCE additions of 11,000 improved by 86,000 RCEs
year-over-year, and by 146,000 RCEs sequentially.
- Just Energy’s total customer count increased by 7% during
fiscal 2018 from 1,474,000 to 1,580,000.
- Continued execution of retail channel expansion strategy with
152 new store launches across eleven different retail partners for
a total of 237 stores. Company remains on track to achieve its goal
of being present in 500 stores by fiscal year-end.
- Combined attrition improved to a Company record 11%, driven by
a four-percentage point improvement in Consumer attrition and a
three-percentage point improvement in Commercial attrition
year-over-year.
- Total renewal rate declined slightly year-over-year, with
Consumer declining by five percentage points and Commercial
declining by one percentage point. Consumer renewals in Canada have
been negatively impacted by new regulations in Alberta and Ontario
which prohibit selling energy products door-to-door, ban
contracting with consumers at their home and disallow the automatic
renewal or extension of expiring contracts.
- The Company officially launched operations in Ireland under the
Just Energy brand in mid-September, making it the only energy
company in the country to introduce an unlimited tariff.
- The Company revised its fiscal 2018 Base EBITDA guidance to
better reflect business challenges in the first half of the year,
one-time weather events and year-to-date financial
performance.
|
Financial highlights |
For the
three months ended September 30 |
|
|
|
(thousands
of dollars, except where indicated and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase |
|
|
|
|
|
Fiscal 2018 |
|
|
(decrease) |
|
Fiscal 2017 |
|
Sales |
|
$ |
851,927 |
|
|
(14)% |
|
$ |
992,828 |
|
Gross margin |
|
|
142,663 |
|
|
(22)% |
|
|
183,534 |
|
Administrative
expenses |
|
|
46,806 |
|
|
0% |
|
|
46,717 |
|
Selling and marketing
expenses |
|
|
58,577 |
|
|
(1)% |
|
|
59,454 |
|
Finance costs (net of
non-cash finance charges) |
|
|
9,936 |
|
|
(22)% |
|
|
12,705 |
|
Profit (loss) for the
period1 |
|
|
(64,923) |
|
|
NMF3 |
|
|
(161,608) |
|
Profit per share
available to shareholders – basic |
|
|
(0.47) |
|
|
|
|
|
(1.13) |
|
Profit per share
available to shareholders – diluted |
|
|
(0.47) |
|
|
|
|
|
(1.13) |
|
Dividends/distributions |
|
|
21,468 |
|
|
14% |
|
|
18,814 |
|
Base EBITDA2 |
|
|
20,548 |
|
|
(64)% |
|
|
56,851 |
|
Base FFO2 |
|
|
7,683 |
|
|
(85)% |
|
|
52,561 |
|
Payout
ratio on Base FFO2 |
|
|
279% |
|
|
|
|
|
36% |
|
|
|
Financial highlights |
For the six
months ended September 30 |
|
|
|
(thousands
of dollars, except where indicated and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase |
|
|
|
|
|
Fiscal 2018 |
|
|
(decrease) |
|
Fiscal 2017 |
Sales |
$ |
1,699,633 |
|
|
(10)% |
|
|
$ |
1,891,237 |
|
Gross margin |
|
300,226 |
|
|
(13)% |
|
|
|
346,206 |
|
Administrative
expenses |
|
95,437 |
|
|
4% |
|
|
|
91,418 |
|
Selling and marketing
expenses |
|
116,653 |
|
|
(1)% |
|
|
|
117,244 |
|
Finance costs (net of
non-cash finance charges) |
|
19,323 |
|
|
(28)% |
|
|
|
26,954 |
|
Profit (loss) for the
period1 |
|
44,386 |
|
|
NMF3 |
|
|
|
321,063 |
|
Profit per share
available to shareholders – basic |
|
0.24 |
|
|
|
|
|
|
2.10 |
|
Profit per share
available to shareholders – diluted |
|
0.22 |
|
|
|
|
|
|
1.71 |
|
Dividends/distributions |
|
43,251 |
|
|
15% |
|
|
|
37,607 |
|
Base EBITDA2 |
|
53,057 |
|
|
(46)% |
|
|
|
97,992 |
|
Base FFO2 |
|
28,191 |
|
|
(64)% |
|
|
|
78,230 |
|
Payout ratio on Base
FFO2 |
|
153% |
|
|
|
|
|
48% |
|
Embedded gross
margin2 |
|
1,615,000 |
|
|
(15)% |
|
|
|
1,894,600 |
|
Total
customers (RCEs) |
|
4,087,000 |
|
|
(5)% |
|
|
|
4,311,000 |
|
|
|
|
|
|
|
|
|
|
|
|
1 Profit 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.2 See “Non-IFRS financial
measures” on page 2 of MD&A. 3 Not a meaningful
figure.
“Our fiscal second quarter was adversely
affected by the non-recurring impact of the abnormally mild summer
weather and the effects of the hurricanes that hit the U.S. We also
made the focused investments in our business to drive future
growth,” commented Just Energy’s Co-CEO, Deb Merril. “We improved
overall customer attrition to an all-time Company record, delivered
strong gross and net customer additions, and made significant
progress along our retail channel expansion strategy. However,
despite our diverse business profile, we were not immune to the
severe weather events witnessed during the quarter and the
milder-than-expected summer weather across many of our markets. The
hurricanes drove lower consumption in parts of the South due to our
consumers’ living disruptions and the operating disruptions we
faced. Additionally, the tropical storms and hurricanes brought
cooler air to our North American markets, thereby dramatically
reducing consumption. We experienced softness of renewal pricing in
Texas and shrinking RCE base.”
“Fortunately, we’ve built a diversified business
that is well-positioned to withstand these weather events and
prolonged periods of relative complacency in the retail energy
markets without hindering our ability to pursue our long-term
strategy. The near-term headwinds did not deter us from continuing
to make strategic growth investments to seed our new international
operations, expand our retail sales channels, and further invest in
product and geographic growth initiatives, particularly in the U.K.
We are having great success in our retail channel expansion
efforts. We have expanded into 152 new stores across our eleven
retail partners for a total of 237 stores and we plan to be in 500
stores by the end of fiscal 2018. While we remain confident we are
setting the stage for prolonged, profitable growth on a global
scale, we did revise our Base EBITDA guidance to reflect the actual
performance in the first half of the fiscal year, the significant
one-time impact of recent weather events and our investment in
strategic sales growth initiatives.”
Co-CEO, James Lewis added, “We are pleased with
the positive customer trends we are delivering and remain confident
we can build on this momentum. We achieved a record-low attrition
rate this quarter. Our ability to add new RCEs is strengthening
with gross and net RCE additions increasing on a comparative
sequential and year-over-year basis. We continue to receive great
customer reception and feedback around our growing suite of
value-add products and long-term loyalty programs. In line with our
expanding product offering, we are beginning to shift our focus to
a total customer count metric. Our total customer count has
increased seven percent since fiscal year-end, a trend we’re
confident will continue as we introduce our growing suite of
value-add products into our robust customer base. We also continue
to aggressively pursue the milestone of reaching the one million
customer threshold for enrollment in our customer loyalty
program. We believe these efforts will support continued
improvement in the overall customer profile and long-term
profitable growth.”
Co-CEO, Deb Merril concluded, “Our refined,
innovative, value-driven products will allow us to maximize our
channel presence throughout our growing markets and our initiatives
are starting to gain traction. We are aggressively pursuing growth
opportunities while preserving our improved balance sheet and are
maintaining the current dividend on our common and preferred
shares. We want to thank our loyal shareholders for their support
of our strategy. Today, we are capable of delivering more value to
customers than ever in our history and we are squarely on the path
to future sustained growth.”
Second Quarter Operating
Performance
Photos accompanying this announcement are
available at:
http://www.globenewswire.com/NewsRoom/AttachmentNg/0f8564a2-c97d-44fb-82d0-747939b5ca96
http://www.globenewswire.com/NewsRoom/AttachmentNg/48c700f6-1a41-4aa6-9c76-4bdec0608f5e
- Sales decreased by 14% to $851.9 million in the second quarter
of fiscal 2017, primarily due to abnormally mild summer weather in
North America, hurricane and tropical storm patterns, including
customer disruptions caused by Hurricane Harvey, softness of
renewal pricing in Texas, and shrinking customer base year over
year.
- Gross margin was $142.7 million, a decrease of 22% from the
prior comparable quarter due to the one-time weather events and the
resulting reduction in consumption.
- Administrative expenses remained flat at $46.8 million as cost
containment efforts offset higher costs required to support
customer growth in the U.K., international expansion and new
strategic initiatives.
- Selling and marketing expenses of $58.6 million remained
consistent with the selling and marketing expenses reported during
the same period last year.
- Finance costs (net of non-cash finance charges) of $9.9 million
decreased 22% as a result of the redemption of the 6.0% convertible
debentures and the senior unsecured notes, offset by the finance
costs from the issuance of the 6.75% convertible debentures.
- Base EBITDA decreased 64% to $20.5 million due to the mix of
conditions that affected sales, gross margin and expenses during
the quarter.
|
|
|
|
|
|
|
|
Annual gross margin per RCE |
|
|
|
|
|
|
|
|
|
|
Q2 Fiscal |
|
Number of |
|
|
Q2
Fiscal |
|
Number
of |
|
|
|
2018 |
|
customers |
|
|
2017 |
|
customers |
|
|
|
|
|
|
|
|
|
|
|
Consumer customers
added and renewed |
|
$ |
197 |
|
285,000 |
|
$ |
208 |
|
223,000 |
Consumer customers
lost |
|
|
201 |
|
186,000 |
|
|
199 |
|
153,000 |
Commercial customers
added and renewed |
|
|
88 |
|
180,000 |
|
|
89 |
|
170,000 |
Commercial customers
lost |
|
|
78 |
|
112,000 |
|
|
76 |
|
118,000 |
|
|
|
|
|
|
|
|
|
|
|
- The average gross margin per RCE for the customers added and
renewed by the Consumer division was $197/RCE, a decrease from
$208/RCE added in the prior comparable period, but up sequentially.
The decrease is a result of a higher proportion of customer
additions in the U.K. signed under 12-month contracts which carry a
lower gross margin but significantly better cash flow, lower
underlying expenses, and future retention potential.
- The average gross margin per RCE for the Commercial customers
signed during the quarter was $88/RCE, a decrease from $89/RCE
added in the prior comparable period. Customers lost through
attrition and failure to renew during the three months ended
September 30, 2017 were at an average gross margin of $78/RCE, an
increase from $76/RCE reported in the prior comparable period due
to the customers being added at higher margins in recent periods.
Management will continue its margin optimization efforts by
focusing on ensuring customers added meet profitability
targets.
|
|
|
|
|
Customer aggregation |
|
|
|
|
|
|
|
|
|
|
|
|
|
RCE
SUMMARY |
|
|
|
|
|
July
1, |
|
|
Failed
to |
|
September 30, |
%
increase |
|
September 30, |
%
increase |
|
|
2017 |
Additions |
Attrition |
|
renew |
|
2017 |
(decrease) |
|
2016 |
(decrease) |
|
Consumer Energy |
|
|
|
|
|
|
|
Gas |
628,000 |
43,000 |
(27,000) |
|
(17,000) |
|
627,000 |
- |
|
624,000 |
0% |
|
Electricity |
1,182,000 |
126,000 |
(98,000) |
|
(42,000) |
|
1,168,000 |
(1)% |
|
1,205,000 |
(3)% |
|
Total
Consumer RCEs |
1,810,000 |
169,000 |
(125,000) |
|
(59,000) |
|
1,795,000 |
(1)% |
|
1,829,000 |
(2)% |
|
Commercial Energy |
|
|
|
|
|
|
Gas |
278,000 |
66,000 |
(4,000) |
|
(3,000) |
|
337,000 |
21% |
|
245,000 |
38% |
|
Electricity |
1,988,000 |
75,000 |
(23,000) |
|
(85,000) |
|
1,955,000 |
(2)% |
|
2,237,000 |
(13)% |
|
Total
Commercial RCEs |
2,266,000 |
141,000 |
(27,000) |
|
(88,000) |
|
2,292,000 |
1% |
|
2,482,000 |
(8)% |
|
Total
RCEs |
4,076,000 |
310,000 |
(152,000) |
|
(147,000) |
|
4,087,000 |
- |
|
4,311,000 |
(5)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Just Energy’s total RCE base is currently 4.1 million, a 5%
decrease from one year ago. In addition to the RCEs referenced in
the above table, the Consumer RCE base also includes 46,000 smart
thermostat customers.
- Gross RCE additions for the quarter were 310,000, an increase
of 58% year-over-year , and 27% sequentially.• Consumer gross
RCE additions amounted to 169,000 during the quarter, a 47%
increase year-over-year and a 26% increase sequentially, primarily
driven by U.S. market growth.• Commercial gross RCE
additions were 141,000, a 74% increase year-over-year and a 27%
increase sequentially as a result of increased additions from large
natural gas Commercial and Industrial RCEs.
- Net RCE additions of positive 11,000, improved compared with a
negative 75,000 net RCE additions in the second quarter of last
year, and negative 135,000 net RCE additions last quarter (fiscal
Q1).
- Just Energy’s geographic footprint continues to diversify
outside of North America. The U.K. operations increased their RCE
base by 23% to 429,000 RCEs year-to-date. As of September 30, 2017,
the U.S., Canadian and U.K. segments accounted for 67%, 22% and 11%
of the RCE base, respectively.
- The combined attrition rate for Just Energy was 11% for the
trailing 12 months, a four-percentage point improvement from the
15% reported a year prior, and a three percentage point improvement
sequentially. The continued attrition improvement is the direct
result of Just Energy’s trusted advisor strategy and long-term
loyalty programs.• Consumer attrition of 22% improved
four percentage points year-over-year, and increased one percentage
point sequentially.• Commercial attrition of 5% improved
three percentage points from the year ago period and improved two
percentage points sequentially.
- The renewal rate was 61% for the trailing 12 months, in line
with a year ago.• Consumer renewal rate declined by five
percentage points to 73%, while the Commercial renewal rate
declined by one percentage point to 52%.
Balance Sheet & Liquidity
- Cash and short-term investment were $81.2 million as of
September 30, 2017, a decrease of 3% from $83.6 million reported
one year ago, primarily attributable to the lower gross margin
earned in the current period offset by increase in credit facility
withdrawals.
- Long-term debt increased from $498.1 million as of March 31,
2017 to $540.4 million as at September 30, 2017 as a result of the
withdrawal of $49.3 million on the credit facility.
- As of September 30, 2017, Just Energy’s book value net debt to
the trailing 12-month Base EBITDA was 2.6x, higher than 1.8x
reported for March 31, 2017 and 2.4x reported the prior comparable
period, respectively, but within managements’ comfort level.
- Base FFO of $7.7 million was down 85% primarily as a result of
lower sales due to mild summer weather associated with hurricane
and tropical storm patterns in North America, Hurricane Harvey
customer disruption and competitive market conditions.
- The payout ratio for the trailing 12 months ending September
30, 2017 was 106%, compared with 50% for the trailing 12 months
ended September 30, 2016, primarily resulting from the lower Base
FFO.
- Dividends and distributions for the three months ended
September 30, 2017 were $21.5 million, an increase of 14% from the
prior comparable quarter in fiscal 2017, reflecting the issuance of
preferred shares.
- Common share repurchases totaled $11.9 million as of September
30, 2017.
Outlook
Just Energy continues to deploy its strategy to
become a world-class consumer enterprise delivering superior value
to its customers through a range of energy management solutions and
a multi-channel approach. The Company has recently completed a
phase of internal transformation centered on repairing its balance
sheet and overall debt structure, as well as improving the
profitability profile of its customer base. Just Energy’s growth
plans center on customer growth, geographic expansion, channel
growth and enhancements, strategic acquisitions, and new products
and structures.
Management believes that the Company will deliver fiscal 2018
Base EBITDA in the range of $175 million to $190 million, compared
to previously issued guidance of $210 million to $220 million.
These expectations reflect the impact of the significant one-time
weather events in the second fiscal quarter, combined with the low
commodity pricing environment and the Company’s ongoing actions to
improve profitability in the second half of the fiscal year. To
date, Just Energy has implemented revenue pricing improvement
actions and undertaken cost cutting initiatives. Furthermore, the
Company is making significant investments to seed international
operations, to further invest in product and geographic growth
initiatives, and to pay up-front commissions related to customer
growth in fiscal 2018. Just Energy will continue to carry out
additional cost reduction programs through productivity enhancing
and cost efficiency initiatives.
Earnings Call
The Company will host a conference call and live
webcast to review the fiscal second quarter results beginning at
10:00 a.m. Eastern Standard Time on November 9th, 2017 followed by
a question and answer period. Rebecca MacDonald, Executive Chair,
President & Co-Chief Executive Officers James Lewis and Deborah
Merril, and Chief Financial Officer Patrick McCullough will
participate on the call.
Just Energy Conference Call and Webcast
- Thursday, November 9th, 2017
- 10:00 a.m. EST
Those who wish to participate in the conference
call may do so by dialing 1-877-870-4263 and ask to be joined into
the Just Energy call. The call will also be webcast live over the
internet at the following link:
https://www.webcaster4.com/Webcast/Page/1731/22951
An audio tape rebroadcast will be available
starting one hour after the conference and will be available until
November 16th, 2017. To access the rebroadcast please dial
1-877-344-7529 and use replay access code 10113053. The webcast
will also be archived on the JE investor relations website for one
year.
About Just Energy Group
Inc.Established in 1997, Just Energy (NYSE:JE) (TSX:JE) is
a leading retail energy provider specializing in electricity and
natural gas commodities, energy efficiency solutions, and renewable
energy options. With offices located across the United States,
Canada, the United Kingdom and Germany, Just Energy serves
approximately 1.5 million residential and commercial customers
providing homes and businesses with a broad range of energy
solutions that deliver comfort, convenience and control. Just
Energy Group Inc. is the parent company of Amigo Energy, Green Star
Energy, Hudson Energy, Interactive Energy Group, Just Energy
Advanced Solutions, Tara Energy and TerraPass.
FORWARD-LOOKING STATEMENTS
This press release may contain forward-looking
statements and information, including guidance for EBITDA for the
fiscal year ending March 31, 2018. 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 general
economic, business and market conditions, the ability of management
to execute its business plan, levels of customer natural gas and
electricity consumption, extreme weather conditions, rates of
customer additions and renewals, rates of customer attrition,
fluctuations in natural gas and electricity prices and interest and
exchange rates, actions taken by governmental authorities including
energy marketing regulation, increases in taxes and changes in
government regulations and incentive programs, changes in
regulatory regimes, results of litigation 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 or by visiting EDGAR on the SEC’s website at
www.sec.gov.
NON-IFRS MEASURES
The financial measure such as “EBITDA”, Base
EBITDA, FFO, Base FFO, Base FFO Payout Ratio and Embedded Gross
Margin do not have a standardized meaning prescribed by
International Financial Reporting Standards (“IFRS”) and may not be
comparable to similar measures presented by other companies. This
financial measure should not be considered as an alternative to, or
more meaningful than, net income (loss), cash flow from operating
activities and other measures of financial performance as
determined in accordance with IFRS, but the Company believes that
this measure is useful in providing relative operational
profitability of the Company’s business. Please refer to “Key
Terms” in the Company’s management’s discussion and analysis of
financial condition and results of operations of the Corporation
for the three and six months ended September 30, 2017 for the
Company’s definition of “EBITDA” and other none-IFRS measures.
Neither the Toronto Stock Exchange nor the New
York Stock Exchange has approved nor disapproved of the information
contained herein.
FOR FURTHER INFORMATION PLEASE
CONTACT:
Pat McCulloughChief Financial OfficerJust Energy
713-933-0895pmccullough@justenergy.com
or
Michael CummingsInvestor RelationsAlpha IR Group
617-461-1101michael.cummings@alpha-ir.com