Just Energy Group Inc. (TSX:JE; NYSE:JE) (“Just Energy” or the
“Company”), a leading consumer company focused on essential needs
including electricity and natural gas commodities, health and
well-being products, and utility conservation, today announced
results for its first quarter fiscal 2020.
Key Developments:
- Industry veteran Walter M. Higgins
III will join the Board of Directors to strengthen board
independence and to provide deep industry expertise to support the
ongoing strategic review process.
- Previously announced strategic
review is ongoing and progressing within the special committee’s
expectations.
- During the first quarter, the
Company took actions to significantly increase cash flow including
exercising the accordion option associated with its credit
facility, repaying and extending the remaining portion of the
Company’s 6.5% Convertible Bond and taking operational measures to
decrease negative cash flows associated with bad debt in Texas.
With operational actions taken to reduce Texas bad debt
and fourth fiscal quarter 2019 cost reductions beginning to
take effect the Company has confidence in its ability to generate
positive cash flows from the business.
- As part of the strategic review the
Board of Directors has decided to suspend its common share dividend
until further notice.
- Company plans to dispose of its
assets in the U.K. due to a decision taken during the strategic
review. The disposal of these assets is expected to occur during
the strategic review process.
- Gross margin from continuing
operations was flat at $132.3 million due to margin optimization in
North America despite a smaller book of business, prior period
adjustment related to the winter delivery period as compared to the
prior year, and the bad debt impairment.
- Base EBITDA from continuing
operations, which reflects the Company’s decision to dispose of its
business in the U.K., was $24.2 million, a year-over-year decrease
of 31% with gross margin flat to the prior year, and higher
amortization of customer acquisition costs in the
quarter.
- Embedded gross margin amounted to
$2.1 billion (including $175.6 million of discontinued operations
embedded gross margin), a decrease of 3% due to decline in the
North American customer base in part associated with bad debt in
Texas, which was partially offset by gross margin optimization
initiatives and a favorable foreign exchange impact.
- Administrative expenses from
continuing operations increased 2% to $40.8 million, due to a
stronger US dollar and increased professional fees in the first
quarter of fiscal 2020 offset by cost savings initiatives announces
at year end. Fourth fiscal quarter 2019 administrative cost
reductions will begin to accrue in the second fiscal quarter
2020 and beyond.
- Selling and marketing expenses from
continuing operations were $61.7 million, an increase of 47%
primarily due to higher amortization of capitalized commissions due
to the impact of fiscal year 2019 IFRS 15 accounting changes.
- Finance costs amounted to $23.5
million, an increase of 44% due to higher interest expense from the
increased utilization of the credit facility, higher interest
rates, higher premiums and fees, collateral related costs
associated with Texas electricity markets, and supplier credit term
extensions.
- Total RCE count from continuing
operations decreased 4% year-over-year to 3,565,000 as a result of
the Company’s focus on renewing and signing higher quality
customers, natural attrition of the customer base, and the impact
of the bad debt impairment
- Management revised its fiscal year
2020 base EBITDA from continuing operations guidance range to be
$180 million to $200 million and fiscal year 2020 free cash flow
guidance of between $50 million to $70 million, excluding U.K.
discontinued operations. Fiscal year 2020 free cash flow was
negatively impacted by impairment of Texas bad debt.
- During the quarter, management
identified operational issues in customer enrolment and non-payment
of accounts receivable in the Texas residential market, resulting
in an aggregate adjustment of $58.6 million. Management also
proceeded to identify collection issues in the U.K. market,
resulting in an aggregate adjustment of $74.1 million. As a result,
the Company recorded additional allowances for doubtful accounts
which are included in the Company’s restated third quarter and
year-end financial statements for fiscal year 2019, and in the
Company’s first quarter results for fiscal year 2020, as referenced
within each respective management discussion and analysis.
Financial
Highlights |
For the three
months ended June 30 |
|
|
|
(thousands of
dollars, except where indicated and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase |
|
|
|
|
Fiscal 2020 |
|
|
(decrease) |
|
Fiscal 2019 |
|
Sales |
$ |
670,165 |
|
|
(5)% |
|
$ |
702,515 |
|
Gross margin |
|
132,292 |
|
|
- |
|
|
132,594 |
|
Administrative expenses |
|
40,803 |
|
|
2% |
|
|
39,931 |
|
Selling and marketing
expenses |
|
61,704 |
|
|
47% |
|
|
41,965 |
|
Restructuring costs |
|
- |
|
|
|
|
|
1,917 |
|
Finance costs |
|
23,546 |
|
|
44% |
|
|
16,313 |
|
Profit (loss) from continuing
operations |
|
(269,971 |
) |
|
NMF3 |
|
|
(64,028 |
) |
Profit (loss) from
discontinued operations |
|
(5,189 |
) |
|
NMF3 |
|
|
22,605 |
|
Profit (loss)1 |
|
(275,160 |
) |
|
NMF3 |
|
|
(41,423 |
) |
Profit (loss) per share from
continuing operations available to shareholders – basic |
|
(1.82 |
) |
|
|
|
|
(0.45 |
) |
Profit (loss) per share from
continuing operations available to shareholders – diluted |
|
(1.82 |
) |
|
|
|
|
(0.45 |
) |
Dividends/distributions |
|
22,070 |
|
|
(1)% |
|
|
22,261 |
|
Base EBITDA from continuing
operations2 |
|
24,185 |
|
|
(31)% |
|
|
34,807 |
|
Base Funds from continuing
operations2 |
|
1,370 |
|
|
(94)% |
|
|
23,750 |
|
Payout ratio on Base Funds
from continuing operations2 |
|
1,611 |
% |
|
|
|
|
94 |
% |
Embedded gross margin from
continuing operations2 |
|
1,914,900 |
|
|
12% |
|
|
1,713,000 |
|
Total customers (RCEs) |
|
3,565,000 |
|
|
(4)% |
|
|
3,716,000 |
|
Total gross customer (RCE)
additions |
|
196,000 |
|
|
(32)% |
|
|
290,000 |
|
Total
net customer (RCE) additions |
|
(73,000 |
) |
|
NMF3 |
|
|
24,000 |
|
1 Profit (loss) includes the impact of
unrealized gains (losses), which represents the mark to market of
future commodity supply acquired to cover future customer demand as
well as weather hedge contracts as part of the risk management
practice. 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 the
MD&A. 3 Not a meaningful figure
“While Just Energy’s first fiscal quarter
financial performance was impacted by the previously announced
impairment as well as the implementation of IFRS 15, we mitigated
some of the decline through our strategic improvement initiatives
that supported margin and supply optimization, and improved
internal controls,” said Just Energy’s president and chief
executive officer, Scott Gahn. “Since the day we launched our
strategic review for the future of Just Energy, the process has
been effective and remains on track while we continue to operate
the business. Our core committed business remains strong and we
believe we are returning to sales run rates that are in line with
our initial expectations for the year. We must make significant
progress in signing high quality customers with our suite of
value-added products and services, while simultaneously reducing
our costs by eliminating redundancies and improving processes.”
Mr. Gahn continued, “I am honored to help guide
the organization through this critical junction in our history. I
am committed to helping drive our strategic review and make the
tough decisions required to maximize shareholder value. Having
served on the board of directors since 2013 and previously served
as Just Energy’s chair operating officer, in my new role as
president and chief executive office, I have hit the ground running
to work with each of our critical business leaders to understand
how we can better drive efficiencies, improve performance, and
ultimately maximize shareholder value. I look forward to updating
the market on the progress of our strategic review.”
Embedded
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management’s
estimate of the future embedded gross margin is as follows: |
|
|
|
|
|
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
June 30 vs. |
|
|
As at |
|
2019 vs. |
|
June 30, |
|
March 31, |
|
March 31 |
|
June 30, |
|
2018 |
|
2019 |
|
|
2019 |
|
variance |
|
2018 |
|
variance |
Commodity EGM |
$ |
1,870.8 |
|
$ |
2,056.9 |
|
(9)% |
|
$ |
1,713.1 |
|
9% |
VAPS
EGM |
|
44.1 |
|
|
40.8 |
|
8% |
|
|
- |
|
- |
Total EGM from continuing
operations |
$ |
1,914.9 |
|
$ |
2,097.7 |
|
(9)% |
|
$ |
1,713.1 |
|
12% |
Discontinued operations EGM |
$ |
175.6 |
|
$ |
173.4 |
|
1% |
|
$ |
250.6 |
|
(30)% |
Total
EGM |
$ |
2,090.5 |
|
$ |
2,271.1 |
|
(8)% |
|
$ |
1,963.7 |
|
6% |
- Embedded gross margin for
continuing operations of $1.9 billion as of June 30, 2019 increased
12% compared to the embedded gross margin as of June 30, 2018. This
was due to gross margin optimization initiatives across the North
American consumer commodity markets implemented in the second
quarter of last year but was partially offset by the decline in the
North American consumer commodity customer base and, to a lesser
extent, the weaker U.S. dollar. The embedded gross margin includes
$44.1 million from Filter Group, which was acquired by Just Energy
on October 1, 2018, on a five-year undiscounted basis. On a
ten-year undiscounted basis, the embedded gross margin for Filter
Group is $81.1 million. The U.K.’s discontinued operations embedded
gross margin $175.6 million declined 30% compared to its embedded
gross margin as of June 30. 2018 due to a decline in its consumer
customer base.
Annual
Gross Margin per RCE |
|
|
|
|
|
|
|
|
|
|
|
Q1 Fiscal |
|
Number of |
|
|
Q1 Fiscal |
|
Number of |
|
|
|
2020 |
|
RCEs |
|
2019 |
|
RCEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer customers added and
renewed |
|
$ |
357 |
|
218,000 |
|
$ |
229 |
|
279,000 |
|
Consumer customers lost |
|
|
309 |
|
194,000 |
|
|
216 |
|
150,000 |
|
Commercial customers added and
renewed1 |
|
|
76 |
|
182,000 |
|
|
81 |
|
305,000 |
|
Commercial customers lost |
|
|
80 |
|
105,000 |
|
|
79 |
|
169,000 |
|
1
Annual gross margin per RCE excludes margins from Interactive
Energy Group and large Commercial and Industrial customers.
- The average gross margin per RCE
for the customers added and renewed by the Consumer segment was
$357/RCE in the quarter, an increase of 56% from $229/RCE in the
prior comparable period. The increase in gross margin is attributed
to the improved pricing power and continued risk management of the
weather derivatives costs.
- For the Commercial segment, the
average gross margin per RCE for the customers signed during the
quarter was $76/RCE, a decrease of 6% from $81/RCE in the prior
comparable period.
Commodity
RCE Summary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr. 1, |
|
|
|
|
Failed to |
|
Jun. 30, |
|
% |
|
Jun. 30, |
|
% increase |
|
|
20191 |
|
Additions |
|
Attrition |
|
renew |
|
2019 |
|
decrease |
|
2018 |
|
(decrease) |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
Gas |
406,000 |
|
13,000 |
|
(28,000 |
) |
(7,000 |
) |
384,000 |
|
(5)% |
|
472,000 |
|
(19)% |
|
Electricity |
993,000 |
|
62,000 |
|
(75,000 |
) |
(23,000 |
) |
957,000 |
|
(4)% |
|
1,050,000 |
|
(9)% |
|
Total
Consumer RCEs |
1,399,000 |
|
75,000 |
|
(103,000 |
) |
(30,000 |
) |
1,341,000 |
|
(4)% |
|
1,522,000 |
|
(12)% |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
Gas |
436,000 |
|
15,000 |
|
(12,000 |
) |
(4,000 |
) |
435,000 |
|
- |
|
408,000 |
|
7% |
|
Electricity |
1,803,000 |
|
106,000 |
|
(52,000 |
) |
(68,000 |
) |
1,789,000 |
|
(1)% |
|
1,786,000 |
|
- |
|
Total
Commercial RCEs |
2,239,000 |
|
121,000 |
|
(64,000 |
) |
(72,000 |
) |
2,224,000 |
|
(1)% |
|
2,194,000 |
|
1% |
|
Total
RCEs |
3,638,000 |
|
196,000 |
|
(167,000 |
) |
(102,000 |
) |
3,565,000 |
|
(2)% |
|
3,716,000 |
|
(4)% |
|
1 The starting
position of fiscal 2020 reflects an adjustment made from a default
RCE valuation of 0.72 RCEs to the actual RCE valuation resulting in
an adjustment of negative 24,000 RCEs to the total customer
count. |
- Total RCE base of 3.6 million
declined 2% compared to the prior year.
- Gross RCE additions for the quarter
were 196,000, compared to 290,000 RCEs in the year ago period,
reflecting the transition from a purely RCE driven focus to a
greater emphasis on attracting and retaining strong-fit customers
that will drive greater profitability, as well as the impact of the
bad debt impairment.
- Net additions were negative 73,000
for the quarter, compared with a positive 24,000 net RCE additions
in the year ago period.
- Consumer segment gross RCE
additions amounted to 75,000 for the quarter, a 36% decrease from
117,000 gross RCE additions in the year ago period. The variance
was primarily driven by the bad debt impairment, the exit of the
California market, the addition of customers through Ohio gas
standard choice offer auction in the prior quarter and the natural
attrition in response to the pricing actions implemented in fiscal
2019.
- Commercial segment RCE additions
were 121,000 for the first fiscal quarter, a 30% decrease over the
prior comparable quarter in fiscal 2019 due to competitive
pressures and the natural attrition in response to the fiscal 2019
pricing actions. The commercial segment failed to renew RCEs in the
quarter fell from 114,000 RCEs to 72,000 RCEs.
- The combined attrition rate was
even at 14% for the trailing 12 months ended June 30, 2019,
consistent with the prior comparable quarter. The Consumer
attrition rate decreased one percentage point to 22% while the
Commercial attrition rate increased two percentage points to 7%.
The decrease in Consumer attrition rate is a result of Just
Energy’s focus on margin optimization while working to become the
customers’ “trusted advisor” and providing a variety of energy
management solutions to its customer base to drive loyalty.
- The increase in the Commercial
attrition rate reflected a very competitive market for Commercial
renewals with competitors pricing aggressively, and Just Energy’s
focus on improving retained customers’ profitability rather than
pursuing low margin growth.
- The renewal rate for the trailing
12 months ended June 30, 2019 was 59%, an increase of four
percentage points from 55% as at June 30, 2018. The Consumer
renewal rate decreased by four percentage points to 69%, and the
Commercial renewal rate increased by eight percentage points to 54%
as compared to the trailing 12 months. The increase in the overall
renewal rate is evidence that the Company’s loyalty building
tactics are taking effect and improving customer retention.
Balance Sheet &
Liquidity
- Cash and short-term investments
decreased from $9.9 million to net balance of negative $0.4 million
as at June 30, 2019. The decrease in cash is due to the seasonality
of the payments relating to the commodity business moving from
winter to spring, the impact of the Texas Residential enrollment
and collections impairment, the U.K. receivables impairment and the
payments related to the Filter Group acquisition.
- Total long-term debt of $774.9
million increased from $725.4 million. This increase is a result of
additional drawings on credit facility of $54.2 million and
unfavorable foreign exchange fluctuations on the U.S. dollar
debt.
- Just Energy’s book value of net
debt to the fiscal year’s base EBITDA was 4.1x, higher than the
3.2x reported as at March 31, 2019.
- Dividends and distributions for the
three months ended June 30, 2019 were $22.1 million, a decrease of
1% from the prior comparable quarter in fiscal 2019, reflecting
lower issuances of share-based awards during the quarter.
- Since June 30, 2019 the Company has
taken actions to improve liquidity. Actions include exercising the
$17.5M accordion option associated with the credit facility and the
extension of the remaining portion of the Company’s 6.5%
Convertible Bond. In addition, cash flow from operations continues
to improve as bad debt decreases and the impact of cost reductions
begin to take effect.
Outlook
On June 6, 2019, Just Energy announced it was
initiating a strategic review of the business. The special
committee is pleased with the progress of the review. The special
committee’s aim is to complete its strategic review in a time frame
that optimizes the value of the Company and provides the optimal
outcome for shareholders.
While Just Energy remains focused on best in
class service to its customers, the strategic review has provided
insights into how best to unlock value from the business through a
comprehensive review of capital expenditures, streamlining the
organization, enhance internal controls, and further refinement of
the geographic footprint. As part of this process the Company has
decided to dispose of the U.K. business.
Due to the reclassification of the U.K.
business, the accounts receivable impairment, and first quarter
fiscal 2020 performance, management is revising its fiscal year
2020 base EBITDA from continuing operations to now be in the range
of $180 million to $200 million, as well as fiscal 2020 free cash
flow guidance of between $50 million to $70 million, defined as
cash flow from operating activities minus cash flow from investing
activities and excluding U.K. discontinued operations.
Earnings Call
The Company will host a conference call and live
webcast with Chief Executive Officer, R. Scott Gahn, Chief
Financial Officer, Jim Brown and Executive Chair, Rebecca MacDonald
to review the fiscal first quarter results beginning at 10:00 a.m.
Eastern Time on August 15th, 2019.
- Just Energy Conference Call and Webcast:
- Thursday, August 15th, 2019
- 10:00 a.m. ET
Those who wish to join the conference call may
do so by dialing 1-877-501-3160 in the U.S. and Canada.
International callers may join the call by dialing 1-786-815-8442.
The Conference ID# is 2394795. The call will also be webcast live
over the internet at the following link:
https://edge.media-server.com/mmc/p/rpwc65h8
A webcasted replay for the call will also be
archived on the JE investor relations website a few hours after the
event.
About Just Energy Group
Inc.
Just Energy (TSX:JE; NYSE:JE) is a leading
consumer company focused on essential needs, including electricity
and natural gas commodities; health and well-being, such as water
quality and filtration devices; and utility conservation, bringing
energy efficient solutions and renewable energy options to
consumers. Currently operating in the United States, Canada and the
United Kingdom, Just Energy serves residential and commercial
customers. Just Energy is the parent company of Amigo Energy,
EdgePower Inc., Filter Group Inc., Green Star Energy, Hudson
Energy, Interactive Energy Group, Just Energy Advanced Solutions,
Tara Energy, and Terrapass. Visit www.justenergy.com to learn
more.
FORWARD-LOOKING STATEMENTSThis
press release may contain forward-looking statements. 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 and market conditions, 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, 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 on the U.S.
Securities and Exchange Commission’s website at www.sec.gov or
through Just Energy’s website at
https://investors.justenergy.com.
Neither the Toronto Stock Exchange nor the New
York Stock Exchange has approved nor disapproved of the information
contained herein.
NON-IFRS MEASURES
The financial measure such as “EBITDA”, “Base
EBITDA”, “FFO”, “Base FFO”, “Base FFO Payout Ratio”, “FCF” 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 these measures are useful in providing relative
operational profitability of the Company’s business. Please refer
to “Key Terms” in the Just Energy Fiscal 2019 Annual Report’s
management’s discussion and analysis for the Company’s definition
of “EBITDA” and other non-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:
Jim BrownChief Financial OfficerJust
Energy713-544-8191jbrown@justenergy.com
or
Michael CummingsInvestor RelationsAlpha IR Group
617-982-0475michael.cummings@alpha-ir.com
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