Just Energy Reports Fiscal Second Quarter 2020 Results
Previously Announced Strategic Review Progressing
Base EBITDA from Continuing Operations of
Impact of Cost Control Efforts Beginning to Yield Results
Gross margin and Base EBITDA from continuing operations increased in the current quarter despite a reduction in sales, largely due to improved margin optimization in
“While the strategic review is ongoing, we remain focused on running our business well. We are driving performance improvements and focusing on best-in-class customer service, as we shape a brighter future for Just Energy,” said Just Energy’s President and Chief Executive Officer,
“In addition, we have implemented stringent controls and disposed of non-core operations to allow us to focus on our higher-margin North American operations,”
(compared to second quarter fiscal 2019, unless otherwise stated)
- The previously announced strategic review remains active and is progressing. The Company has made progress in disposing of non-core, lower-margin operations, along with identifying approximately
$60 millionin costs savings to date in fiscal 2020.
- Gross margin increased 4% to
$155.4 million, despite a 4% reduction in sales, primarily due to lower hedged supply costs in Texas, partially offset by a decline in the North American consumer customer base.
- Administrative expenses decreased 7% to
$41.5 million, due to savings from the restructuring actions in fiscal 2019 and as the impact of additional cost cutting initiatives began to take effect. Costs associated with the Company’s strategic review of $3.6 millionpartly offset the impact of the Company’s improving cost structure. Excluding the impact of the strategic review costs, administrative expenses were 14% lower than the same quarter last year.
- Selling and marketing expenses from continuing operations were
$54.3 million, up 8% as the Company focused on enhancing the quality of its customer base. Selling and marketing expenses increased largely as a result of higher customer acquisition costs, higher marketing charges in different channels, partially offset by the capitalization of new upfront incremental customer acquisition costs.
- Base EBITDA from continuing operations, which reflects the Company’s decision to dispose of its business in the
U.K., was $49.1 million, 31% higher than the prior comparable quarter. Improved profitability in the second quarter was driven by improvements in gross margin, lower administrative expenses and a gain on the reduction of the $15.2 millioncontingent consideration from the Company’s acquisition of Filter Group, partially offset by higher bad debts and an increase in selling expenses to support growth in new sales channels.
- Finance costs amounted to
$28.5 million, an increase of 41% primarily driven by increased interest expense from higher debts and higher interest rates
- Base funds from continuing operations of
$26.0 millionincreased from $25.0 milliona year ago.
- The payout ratio on base funds from continuing operations was 13% for the three months ended
September 30, 2019, compared to 89% as at September 30, 2018, largely driven by the Company’s decision to improve liquidity and suspend its dividend in the previous quarter.
- Total Residential Customer Equivalent (“RCE”) count from continuing operations decreased 6% year-over-year to 3.5 million RCEs, reflecting Just Energy’s greater focus on attracting and retaining high quality customers with a potential for multiple product sales, that will drive greater profitability and brand loyalty.
- Embedded gross margin from continuing operations is
$1.9 billion, a year-over-year reduction of 10% due to a decrease in the North American consumer commodity customer base.
- As part of its strategy to narrow its focus to higher-margin operations the Company agreed to sell its
U.K.operations. The Company will receive £2 million ( $3.4 million) of cash on closing, subject to maintaining customary pre-close conditions, and an amount up to £8.5 million ( $14.2 million) subject to the determination of the U.K.capacity market payment due at the close of the transaction.
- To further advance its disposal of non-core operations,
Just Energyentered into a sale of operations for its wholly-owned subsidiary Just Energy (Ireland) Limitedto Flogas Natural Gas Limitedfor up to €0.7 million ( $1.0 million).
|For the three months ended
|(thousands of dollars, except where indicated and per share amounts)|
|Fiscal 2020||(decrease)||Fiscal 2019|
|Selling and marketing expenses||54,279||8%||50,427|
|Profit (loss) from continuing operations||83,581||NMF3||(54,335)|
|Profit (loss) from discontinued operations||(9,809)||NMF3||32,885|
|Profit (loss) per share from continuing operations available to shareholders – basic||0.55||(0.38)|
|Profit (loss) per share from continuing operations available to shareholders – diluted||0.45||(0.38)|
|Base EBITDA from continuing operations2||49,069||31%||37,380|
|Base Funds from continuing operations2||25,960||4%||25,022|
|Payout ratio on Base Funds from continuing operations2||13%||89%|
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” in Q2 fiscal 2020’s Management’s Discussion and Analysis.
3 Not a meaningful figure
The impact of cost cutting initiatives implemented to date is evident in the second quarter results and
The recent sale of two non-core operations demonstrates Just Energy’s commitment to focus on its higher-margin North American operations. The sale of the
The previously announced strategic review remains active and is progressing. Just Energy has not set a speciﬁc timeframe for the conclusion of the strategic review. The Company plans to provide an update when the Board has approved a speciﬁc course of action.
The strategic review has provided necessary insights into understanding how best to unlock additional value from the business through a comprehensive review of capital expenditures, streamlining the organization, and further refinement of the geographic footprint via disposition of non-core businesses.
Management is maintaining its previously issued fiscal year 2020 Base EBITDA from continuing operations in the range of
|Embedded Gross Margin
|Management’s estimate of the future embedded gross margin is as follows:
|(millions of dollars)
|As at||As at||As at||2019 vs.|
|Value-added products and services (“VAPS”) EGM||39.5||44.1||(10)%||45.2||(13)%|
|Total EGM from continuing operations||$||1,892.0||$||1,914.9||(1)%||$||2,095.8||(10)%|
- Embedded gross margin from continuing operations of
$1.9 billiondecreased 10% year-over-year due to the decline in the North American customer base. The embedded gross margin includes $39.5 millionfrom Filter Group, which was acquired by Just Energyon October 1, 2018.
|As at||As at|
|Commodity and VAPS bundle||20,000||31,000||(35)%|
|Total customer count||1,198,000||1,305,000||(8)%|
Total customer count decreased 8% to 1,198,000 in the second fiscal quarter compared to the prior comparable quarter excluding discontinued operations. The decline in customers is a result of the Company’s focus on renewing and signing higher quality and long-lasting customers, as well as the natural attrition of the customer base. The customer count captures customers with a distinct service address. These customers can have multiple products contracted with
|Gross Margin per RCE|
|Q2 Fiscal||Number of||Q2 Fiscal||Number of|
|Consumer customers added and renewed||$||314||161,000||$||322||220,000|
|Consumer customers lost||331||157,000||190||147,000|
|Commercial customers added and renewed1||87||110,000||96||179,000|
|Commercial customers lost||91||45,000||81||100,000|
1 Annual gross margin per RCE excludes margins from
- The average gross margin per RCE for the customers added and renewed by the Consumer segment was
$314/RCE in the quarter, a decrease of 2% from $322/RCE in the prior comparable quarter. The average gross margin per RCE for the Consumer customers lost during the quarter was $331/RCE, an increase from $190/RCE for customers lost in the prior comparable quarter. The increase in gross margin on customers lost is a result of the natural attrition in response to the pricing actions implemented in fiscal 2019.
- For the Commercial segment, the average gross margin per RCE for the customers signed during the quarter was
$87/RCE, a decrease of 6% from $96/RCE in the prior comparable quarter. Customers lost through attrition and failure to renew during the quarter were at an average gross margin of $91/RCE, an increase from $81/RCE reported in the prior comparable quarter. This increase is a result of competitive pricing pressures in North America.
|COMMODITY RCE SUMMARY|
|July. 1,||Failed to|
|2019||Additions||Attrition||renew||2019||% decrease||2018||% decrease|
|Total Consumer RCEs||1,341,000||71,000||(112,000||)||(28,000||)||1,272,000||(5)%||1,495,000||(15)%|
|Total Commercial RCEs||2,224,000||97,000||(43,000||)||(50,000||)||2,228,000||-||2,230,000||-|
- Total RCE base of 3.5 million declined 6% compared to the prior year.
- Gross RCE additions for the quarter were 168,000 compared to 256,000 for the second quarter of fiscal 2019, 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.
- Net additions were negative 65,000 for the quarter, compared with a positive 9,000 net RCE additions in second quarter of fiscal 2019.
- Consumer segment gross RCE additions amounted to 71,000 for the quarter, a 41% decrease from 120,000 gross RCE additions recorded in fiscal 2019. The variance was primarily driven by a greater focus on attracting and retaining strong-fit customers that will drive greater profitability and the natural attrition in response to the pricing actions implemented in fiscal 2019.
- Consumer customers failed to renew RCEs for the three months ended
September 30, 2019decreased from 42,000 RCEs to 28,000 RCEs due to improved retention offerings including the perks points loyalty program.
- Commercial segment RCE additions were 97,000 for the second fiscal quarter, a 29% 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 52,000 RCEs to 50,000 RCEs.
- The combined attrition rate was 15% for the trailing 12 months ended
September 30, 2019, a 2% increase with the prior comparable quarter. The Consumer attrition rate increased one percentage point to 23% and the Commercial attrition rate increased two percentage points to 8%. The increase in the Consumer and overall attrition rate is a result of the decline and drop off of lower-quality Texasresidential customers.
- The increase in the attrition rates reflect a very competitive market for renewals with competitors pricing aggressively, and Just Energy’s focus on improving retained customers’ profitability.
- The renewal rate for the trailing 12 months ended
September 30, 2019was 59%, an increase of three percentage points from 56% as at September 30, 2018. The Consumer renewal rate decreased by two percentage points to 69%, while the Commercial renewal rate increased by six percentage points to 53% compared to the prior trailing 12 months. The increase in the overall renewal rate is driven by better retention of Commercial customers.
Balance Sheet & Liquidity
- Total cash and short-term investments increased from
$9.9 millionas at March 31, 2019to $30.1 millionas at September 30, 2019, driven by the cash savings from the restructuring actions that occurred in fiscal 2019, along with suspension of the Company’s dividend and seasonality of the Company’s operations.
- Total debt remained consistent at
$725.4 millionas at September 30, 2019and March 31, 2019. Although there were redemptions during the first six months of fiscal 2020, the issuances and withdrawals during the same period resulted in no change in the overall debt balance outstanding.
- Base funds from continuing operations of
$26.0 millionincreased 4% in the second quarter of fiscal year 2020. The increase was driven by the improvements in Based EBITDA and lower maintenance capital expenditure, partially offset by higher financing costs and costs incurred to support the strategic review.
- The payout ratio on base funds from continuing operations was 13% for the three months ended
September 30, 2019, compared to 89% reported a year ago.
- Dividends and distributions for the three months ended
September 30, 2019were $3.3 millionreflecting the Company’s decision to suspend its dividend on common shares after the first quarter of fiscal 2020.
The Company will host a conference call and live webcast with
Just Energy Conference Call and Webcast
Thursday, November 7th, 2019 10:00 a.m. ET
Those who wish to participate in the conference call may do so by dialing 1-877-501-3160 in the
A webcasted replay for the call will also be archived on the JE investor relations website a few hours after the event.
This 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, statements and information regarding the completion of the sale of Hudson Energy Supply UK and
The financial measure such as “EBITDA”, “Base EBITDA”, “FFO”, “Base FFO”, “Base FFO Payout Ratio”, “free cash flow” 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
FOR FURTHER INFORMATION PLEASE CONTACT:
Chief Financial Officer
Phone: (617) 982-0475
Source: Just Energy Group Inc.