Just Energy Group, Inc. (TSX:JE)(NYSE:JE), a competitive retailer
of natural gas and electricity, today announced results for its
second quarter of fiscal 2013.
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Three months ended September 30, Per Per
($ millions except per share) F2013 share F2012 share
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Sales $703.7 $4.91 $600.0 $4.26
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Gross margin 117.2 0.82 102.6 0.73
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General and administrative 35.3 0.25 28.8 0.20
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Financing costs 20.0 0.14 14.3 0.10
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Adjusted EBITDA 49.4 0.34 47.9 0.34
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Funds from Operations 35.4 0.25 52.4 0.37
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Profit for the period 23.1 0.16 (3.5) (0.02)
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Dividends/distributions 44.4 0.31 43.7 0.31
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Payout ratio - Base EBITDA 159% 113%
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Payout ratio - Adjusted EBITDA 90% 91%
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Six months ended September 30, Per Per
($ millions except per share and customers) F2013 share F2012 share
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Sales $1,349.8 $9.43 $1,226.2 $8.72
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Gross margin 231.5 1.62 196.8 1.40
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General and administrative 71.4 0.50 57.1 0.41
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Financing costs 37.8 0.26 28.1 0.20
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Adjusted EBITDA 91.7 0.64 85.3 0.61
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Funds from Operations 64.7 0.45 84.9 0.60
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Profit for the period 351.7 2.46 47.6 0.34
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Dividends/distributions 88.8 0.62 87.3 0.62
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Payout ratio - Adjusted EBITDA 97% 102%
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Payout ratio - Base EBITDA (LTM) (1) 96% 70%
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Payout Ratio - Adjusted EBITDA (LTM) (1) 61% 62%
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Payout Ratio - Base funds from Operations 151 95
(1) % %
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Energy customers (RCEs) 4,024,000 3,403,000
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Home Services customers (installed units) 187,300 143,800
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Total number of customers 4,211,300 3,546,800
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(1) Last twelve months
Key Q2 Highlights:
-- Record customer additions of 344,000, up 45% year over year
-- Net customer additions of 47,000 (122,000 net of one large, very low
margin commercial customer) up 4% in fiscal 2013
-- Gross margin of $117.2 million, an increase of 14% year over year
-- Embedded Gross Margin of $2.1 billion, up 15% year over year
-- Adjusted EBITDA of $49.4 million, up 3% year over year
Commenting on the quarterly results, Executive Chair Rebecca
MacDonald stated, "We are pleased with the continued record
customer aggregation during the second quarter, as efforts to
further diversify our channels to market as well as expand our
geographic footprint, continued to gain traction. This growth will
drive future embedded margin and cash flow in the foreseeable
future. Looking ahead, driving account growth remains a key
strategic objective and we are committed to further investment to
enhance our growth profile."
CEO Ken Hartwick added, "We are pleased with our operational and
financial performance during the quarter, specifically the record
growth of customer additions and strong margins. We have set
aggressive targets of 10% to 12% margin growth and 8% to 10%
Adjusted EBITDA growth, and we are progressing toward these
targets. We also continue to look for new opportunities to broaden
our relationship with our customers and their energy needs through
the sale of multiple products. Energy use control through smart
thermostats is a high potential offering and we also remain a
leader in Green energy sales where we continue to seek new ways to
serve the environmentally conscious. We are a leader in the North
American energy market and are focused on enhancing our
industry-leading position going forward."
Additional Q2 Highlights:
-- Gross residential customer equivalent ("RCEs") additions of 344,000, up
45% from 238,000 in fiscal 2012
-- Residential additions were 166,000, up 98% from fiscal 2012. Commercial
additions of 178,000 were up 16% year over year
-- Added first 7,000 customers from the newly opened U.K. office
-- Total customer base reached 4,024,000 RCEs, up 18% from a year earlier
-- National Home Services' installed water heaters and HVAC units increased
to 187,300, 30% higher than a year prior, and gross margin increased 41%
year over year
-- Payout ratio on Adjusted EBITDA was 90% for the quarter versus 91% for
the three months ended September 30, 2011. Payout ratio over the past 12
months is 61%m versus 62% a year earlier
-- Payout ratio on Base Funds from operations of 151% over the past 12
months, up from 95% a year earlier as cash from operations was used to
fund growth expenditures which have rapid payback periods
Second Quarter Operating Performance
The second quarter financial results demonstrated the
continuation of the fundamental strengths of the Company growth and
profitability.
Growth
Customer additions in the second quarter were 344,000, up 45%
from Q2 fiscal 2012 and representing the highest in Just Energy's
history. Net additions of 47,000 were up 4% year over year however
this was skewed by a single very low margin 75,000 RCE customer
that was not renewed. Excluding this customer, net additions of
122,000 were in line with recent record additions by the Company.
The overall customer base of 4,024,000 is up 18% from a year
earlier.
Customer additions were solid in both segments of the energy
business with 166,000 residential additions, up 98% from the 84,000
added in the second quarter of fiscal 2012, and 178,000 commercial
additions, up 16% from the 154,000 added in the prior fiscal year.
For the six months year to date, residential additions are up 101%,
commercial additions are up 17% and total additions are up 47%. The
quarter includes the first 7,000 customers from the newly opened
U.K. commercial office.
To view the "Quarterly Customer Additions", please visit the
following link: http://media3.marketwire.com/docs/JEqca.jpg.
The second key to growth is the preservation of the existing
customer base. As can be seen in the table on the next page,
297,000 customers were lost during the year and replaced by new
additions during the year. This is a function of the increasing
size of the Company's book.
Long Term Energy Customer Aggregation
July 1 Failed to
2012 Additions Attrition renew
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Natural gas
Canada 561,000 19,000 (12,000) (11,000)
United States 544,000 40,000 (31,000) (84,000)
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Total gas 1,105,000 59,000 (43,000) (95,000)
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Electricity
Canada 683,000 15,000 (18,000) (20,000)
United States 2,189,000 263,000 (71,000) (50,000)
United Kingdom - 7,000 - -
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Total electricity 2,872,000 285,000 (89,000) (70,000)
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Combined 3,977,000 344,000 (132,000) (165,000)
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September % increase September % increase
30, 2012 (decrease) 30, 2011 (decrease)
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Natural gas
Canada 557,000 (1)% 597,000 (7)%
United States 469,000 (14)% 570,000 (18)%
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Total gas 1,026,000 (7)% 1,167,000 (12)%
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Electricity
Canada 660,000 (3)% 688,000 (4)%
United States 2,331,000 6% 1,548,000 51%
United Kingdom 7,000 - - -
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Total electricity 2,998,000 4% 2,236,000 34%
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Combined 4,024,000 1% 3,403,000 18%
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The attrition rate was 14% on a trailing 12-month basis, up
slightly from 13% 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 within the Company's
target range.
Renewal rates were impacted by a one-time non-renewal of a 75,000 RCE
very low margin U.S. gas customer (approximately 45% of all quarterly
failures to renew). This customer had annual margins of less than $2 per
RCE (average: residential customers $181 per RCE; commercial customers
$70 per RCE). When it was apparent that the customer would require
similar low margins going forward, the Company did not actively pursue
renewal. There are no similar customers remaining in the Just Energy
book. Despite this, renewal rates for the last 12 months were 70%, up
from 67% for the year earlier. 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.
National Home Services ("NHS") also continued its strong growth.
The Home Services operation saw its water heater, air conditioner
and furnace installations grow to 187,300 units, up 30% from a year
earlier. Including NHS, Just Energy's customer base has grown by
19% to 4,211,000 over the past year.
While growth in Energy Marketing was very strong in the quarter,
the Company's original markets in Canada remain the weak point in
this growth. Flat commodity prices and strict consumer protection
laws have seen Canadian customer additions fall steadily over past
quarters. Combined with this, customers coming off high price
contracts signed five years ago have been reticent to renew their
contracts for a further term. While overall renewal rates are at
70%, current Canadian renewals are well under target at less than
50%. Management expects that the renewal rates will remain low for
the next 12 months as the last high price contracts expire with
improvement thereafter. The expectation is that Canadian additions
will be heavily skewed toward commercial customers for the
foreseeable future.
Profitability
The Company's customer growth translated directly into gross
margin growth. Gross margin for the quarter was $117.2 million, up
14% from $102.6 million in fiscal 2012. Adjusted EBITDA was $49.4
million, up 3% from $47.9 million in the prior year, resulting in a
payout ratio of 90% versus 91% in the comparable quarter of fiscal
2012.
The following factors drove profitability:
-- Realized gas margin per customer was down 3% in Canada and 17% in the
U.S. due to final reconciliations with local utilities balancing under
consumption during the extremely warm winter of fiscal 2012.
-- Realized electricity margin per customer was up 47% in Canada but down
11% in the United States. Canadian margins were helped by higher margins
from JustGreen and other new products.
-- New customer annual margins averaged $181 per RCE for residential
customers and $70 per RCE for commercial customers, exceeding the annual
margin on customers lost of $177 per RCE for residential and $50 per RCE
for commercial. This reverses the trend over the past several quarters
although the margin on commercial customers lost was impacted by the
inclusion of the 75,000 RCE customer lost with less than $2 annual
margins.
-- Aggregation cost per residential customer was down 21% to $160 from $203
a year prior. Commercial customer aggregation costs were, on average,
down slightly. This 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 41% year over year to $9.2 million up from
$6.5 million. NHS EBITDA was $6.8 million, up 62% from $4.2 million a
year earlier.
-- Administrative costs per customer were an annual $34, up slightly, from
$33 a year earlier. Management believes that this measure will fall as
new markets like the U.K. and new channels like Momentis begin to reach
their potential.
-- Bad debt equaled 2.3% of relevant sales, down from 2.5% in the second
quarter of fiscal 2012. Bad debt expense was up 20% due to a 33%
increase in sales in markets where Just Energy bears bad debt risk.
-- Financing costs were $20 million for the quarter, up from $14.3 million
a year earlier. The increase reflects inclusion of the convertible
debenture funding the acquisition of Fulcrum and higher drawings on the
working capital line of credit as a result of our accelerated growth
levels.
All of these factors contributed not only to the Company's
profitability but also to the growth in the long-term value of the
business. Management believes that a key measure of this value is
embedded gross margin. Embedded margin is an estimate of cashflow
from existing contracts based on the spread between contract price
and underlying supply.
The table below shows the increase in this value over the
quarter and the last year.
Embedded Gross Margin
(millions of dollars)
Sept. 2012
As at As at vs. Sept. As at Sept. vs.
Sept. 30, Sept. 30, 2011 June. 30, June 2012
2012 2011 variance 2012 variance
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Canada energy
marketing (C$) $ 571.0 $ 603.9 (5)% $ 587.7 (3)%
Home Services division
(C$) 510.7 335.7 52% 465.7 10%
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Canada total (C$) 1,081.7 939.6 15% 1,053.4 3%
U.S. energy marketing
(US$)(1) 1,065.7 866.7 23% 1,023.0 4%
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Total (C$) $ 2,129.5 $ 1,848.1 15% $ 2,094.9 2%
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(1)U.S. energy marketing also includes embedded gross margin related to
Momentis, HES and the U.K. operations
Funding Growth Investment
One of the impacts of the rapid growth seen year to date is
higher than expected demands for investment capital. The result of
this is a high payout ratio on Funds from Operations and an
increase in drawdowns on the Company's working capital line. Payout
for the last 12 months was 152%, up from 95% a year earlier,
reflecting expenditures on high growth. The nature of these
investments is that they payback very quickly and generate high
returns as reflected in the growth of embedded gross margin above.
Based on results to date, it is clear that the annual payout ratio
on Funds from Operations ("FFO") will exceed 100% for the fiscal
year. This will require financing through the Company's operating
line, as has been utilized year to date, or other financing
sources. Over the longer term, the Company targets a payout ratio
of no more than 85%-90% on FFO, consistent with the cash flow
profile of the Company's business. Based on Just Energy's current
growth level, FFO payout is expected to be in this range for fiscal
2015.
Dividends were $0.31 per share in the quarter, unchanged from
those paid a year earlier. Payout ratio on Adjusted EBITDA improved
to 90%, down from 91% a year ago. Removing seasonality using the
last 12 months, payout ratio was 61%, down from 62% a year earlier.
This continues a trend of improved payouts after the replacement of
all lost embedded margin for the period. As noted above, the
Company's dividend obligations will exceed funds from operations
for the year. The rapid payback on Just Energy's investments should
begin to offset this situation once all newly signed customers flow
and the Company is in the process of arranging funding to maintain
this potential accelerated growth rate, capital expenditures and to
pay down the operating line.
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 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
JustGreenĀ® 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. Mr. Ken Hartwick, C.A. Chief
Executive Officer & President (905) 795-3557 Just Energy Group,
Inc. Ms. Beth Summers, C.A. Chief Financial Officer (905)
795-4206