UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

 

FORM 40-F

 

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 For the fiscal year ended March 31, 2019   Commission File Number: 001-35400

 

JUST ENERGY GROUP INC.

(Exact name of Registrant as specified in its charter)

 

Canada
(Province or other Jurisdiction of
Incorporation or Organization)
4924
(Primary Standard Industrial
Classification Code Number)
Not Applicable
(I.R.S. Employer Identification No.)
     

6345 Dixie Road, Suite 200
Mississauga, Ontario, Canada L5T 2E6
(905) 670-4440
(Address and telephone number of Registrant's principal executive offices)

 

Just Energy (U.S.) Corp.
5251 Westheimer Road, Suite 1000
Houston, Texas 77056
(855) 694-8529
(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)

 

_________________

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class
Common Shares, No Par Value

8.50% Series A Fixed-to-Floating
Rate Cumulative Redeemable
Perpetual Preferred Shares

Trading Symbol(s)
JE

JE.PR.A

Name of Each Exchange on Which Registered
New York Stock Exchange

New York Stock Exchange

     
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
For annual reports, indicate by check mark the information filed with this Form:
[X]  Annual information form [X]  Audited annual financial statements

 

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

 

The Registrant had 149,595,952 Common Shares outstanding and 4,662,165 Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares outstanding as at March 31, 2019

 

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒  No ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 

Emerging growth company ☐

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 

 

 

 

A.Disclosure Controls and Procedures

 

Disclosure controls and procedures are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), as those controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Rule 13a-15(e) also provides that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrant is accumulated and communicated to the Registrant's management as appropriate to allow timely decisions regarding required disclosure.

 

The Registrant’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Registrant's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as of March 31, 2019 and have determined that such disclosure controls and procedures were effective as of March 31, 2019.

 

As disclosed under the heading “Management’s Discussion and Analysis – Controls and Procedures,” contained in the Management’s Discussion and Analysis (the “MD&A”) for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report on Form 40-F (this “Annual Report”), in January 2019, the Registrant identified and remediated a deficiency in the design and operating effectiveness of certain internal controls related to the preparation, analysis and review of certain gross margin accounts in certain markets. Upon identification of the deficiency, the Registrant designed internal controls, including account reconciliations, to remediate the deficiency in design.  These new internal controls were effectively operated for the months ended February 28, 2019 and March 31, 2019, and the internal control deficiency is considered to be effectively remediated as at March 31, 2019. No other changes were made in the Registrant’s internal control over financial reporting or in other factors during the period covered by this Annual Report that have materially affected or are likely to materially affect the Registrant’s internal control over financial reporting.

 

The information provided under the heading “Management’s Discussion and Analysis – Controls and Procedures,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

B.Management's Annual Report on Internal Control Over Financial Reporting

 

Management of the Registrant is responsible for establishing and maintaining adequate internal control over the Registrant's financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. The Registrant's Chief Executive Officer and Chief Financial Officer have assessed the effectiveness of the Registrant's internal control over financial reporting as at March 31, 2019 in accordance with the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, the Registrant’s Chief Executive Officer and the Chief Financial Officer have determined that the Registrant’s internal control over financial reporting was effective as of March 31, 2019.

 

The information provided under the heading “Management’s Discussion and Analysis – Controls and Procedures – Internal Control over Financial Reporting,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

 

 

C.Attestation Report of the Registered Public Accounting Firm

 

Ernst & Young LLP (“E&Y”), the independent registered public accounting firm of the Registrant, has issued an attestation report on the effectiveness of the internal control over financial reporting of the Registrant as of March 31, 2019. For a copy of E&Y's report see Exhibit 1.3 to this Annual Report.

 

D.Changes in Internal Control Over Financial Reporting

 

During the period covered by this Annual Report, the Registrant identified and remediated a deficiency in the design and operating effectiveness of certain internal controls related to the preparation, analysis and review of certain gross margin accounts in certain markets. Upon identification of the deficiency, the Registrant designed internal controls, including account reconciliations, to remediate the deficiency in design. There have been no other changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

E.Notice of Pension Fund Blackout Period

 

The Registrant was not required by Rule 104 of Regulation BTR to send any notice to any of its directors or executive officer during the fiscal year ended March 31, 2019.

 

F.Audit Committee Financial Expert

 

The Registrant’s board of directors has determined that Mr. H. Clark Hollands, an individual serving on the audit committee of the Registrant's board of directors, is an audit committee financial expert within the meaning of General Instruction B(8)(b) of Form 40-F under the Exchange Act and is independent within the meaning of Rule 10A-3 under the Exchange Act and the listing standards of the New York Stock Exchange.

 

The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

 

G.Code of Ethics

 

The Registrant has adopted a code of ethics (the “Code of Conduct”) that applies to all directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. The Code of Conduct is available on the Registrant’s internet website, www.justenergygroup.com, under the “Corporate Governance” tab and will be provided without charge to any person that requests a copy by contacting the Corporate Secretary of the Registrant at the address that appears on the cover page of this Annual Report.

 

H.Principal Accountant Fees and Services and Audit Committee Pre-Approval Policies

 

Principal Accountant Fees

 

The information provided under the heading “Schedule “A” – Audit Committee Information Required in an AIF – External Auditor Service Fees” in the Annual Information Form for the fiscal year ended March 31, 2019, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

 2 

 

Audit Committee Pre-Approval Policies and Procedures

 

All audit and non-audit services performed by the Registrant's external auditor must be pre-approved by the audit committee of the Registrant.

 

For the fiscal year ended March 31, 2019, all audit and non-audit services performed by E&Y were pre-approved by the audit committee of the Registrant.

 

The information provided under the headings “Pre-Approval Policies and Procedures” and “External Auditor Service Fees” contained in the Annual Information Form for the year ended March 31, 2019, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

I.Off-Balance Sheet Arrangements

 

The Registrant has issued letters of credit in accordance with its credit facility totaling $94.0 million to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group and Charter Brokerage LLC, the Registrant has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2019 were $70.3 million.

 

The information provided under the heading “Management's Discussion and Analysis – Off Balance Sheet Items,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

J.Tabular Disclosure of Contractual Obligations

 

The information provided under the heading “Management's Discussion and Analysis – Contractual Obligations,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

K.Identification of the Audit Committee

 

The Registrant has established a separately-designated standing audit committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee is comprised of Messrs. Gahn, Hollands, Ross and Weld, all of whom are independent as such term is defined under Rule 10A-3 of the Exchange Act and the listing standards of the New York Stock Exchange.

 

L.Critical Accounting Policies

 

The information provided under the heading “Management's Discussion and Analysis – Critical Accounting Estimates,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

 

 3 

 

M.Interactive Data File

 

The Registrant has submitted to the SEC, included in Exhibit 101 to this Annual Report, an Interactive Data File.

 

N.Mine Safety

 

The Registrant is not currently required to disclose the information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

O.Corporate Governance Practices

 

There are certain differences between the corporate governance practices applicable to the Registrant and those applicable to U.S. companies under the NYSE listing standards. A summary of these differences can be found on the Registrant's website at www.justenergygroup.com.

 

 4 

 

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

 

A.Undertaking

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities in relation to which the obligation to file an annual report on Form 40-F arises or transactions in said securities.

 

B.Consent to Service of Process

 

The Registrant has previously filed with the SEC a Form F-X in connection with its common shares. Any change to the name or address of the agent for service of process shall be communicated promptly to the SEC by an amendment to the Form F-X.

 

EXHIBITS

The following exhibits are filed as part of this Annual Report:

 

Number Document
1.1 Annual Information Form for the year ended March 31, 2019
1.2 Management's Discussion and Analysis for the year ended March 31, 2019
1.3 Audited Consolidated Financial Statements for the year ended March 31, 2019, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, including the report of the auditors thereon
23.1 Consent of Ernst & Young LLP
31.1 Certification of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive Data File

 

 5 

 

SIGNATURE

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

 

   JUST ENERGY GROUP INC.
     
     
Dated: May 21, 2019By: /s/ Jim Brown
   Name:Jim Brown
  Title:Chief Financial Officer

Exhibit 1.1

 

 

 

 

 

 

 

 

ANNUAL INFORMATION FORM

 

JUST ENERGY GROUP INC.

 

MAY 15, 2019

 

 

 

 

 

 

 

JUST ENERGY GROUP INC.

 

May 15, 2019

 

ANNUAL INFORMATION FORM (1)(2)

 

TABLE OF CONTENTS

Page

Forward Looking StatementS 1
three year history of the company 5
BUSINESS OF JUST ENERGY 9
RISK FACTORS 22
DIVIDENDS and distributions 22
MARKET FOR SECURITIES 23
PRIOR SALES 26
Escrowed securities 26
DIRECTORS AND Executive OFFICERS OF the company 26
LEGAL PROCEEDINGS and regulatory actionS 30
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 31
AUDITORS, TRANSFER AGENT AND REGISTRAR 31
INTEREST OF EXPERTS 31
MATERIAL CONTRACTS 31
AUDIT COMMITTEE INFORMATION 32
ADDITIONAL INFORMATION 32
schedule “A” - FORM 52-110F1 33
SCHEDULE “B” - AUDIT COMMITTEE MANDATE 35
SCHEDULE “C” - GLOSSARY 39

 

(1) Except as otherwise indicated, all information in this Annual Information Form is as at May 15, 2019.

(2) All capitalized terms not otherwise defined in the body of this Annual Information Form shall have the meanings ascribed to them in Schedule C - Glossary.

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Annual Information Form and documents incorporated by reference herein constitute forward-looking statements. These statements relate to future events and future performance. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “may”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Just Energy Group Inc. (the “Company”) believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, this Annual Information Form, and the documents incorporated by reference herein, contain forward-looking statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, dividends, the ability to compete successfully and treatment under governmental regimes. Some of the risks that could affect the Company’s future results and could cause results to differ materially from those expressed in forward-looking statements include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuation in natural gas and electricity prices, extreme weather patterns, changes in regulatory regimes, decisions by regulatory authorities and competition. See “Risk Factors” for additional information on these and other factors that could affect the Company’s operations, financial results or dividend levels. These risks include, but are not limited to, risks relating to: credit, commodity and other market-related risks including availability of supply, volatility of commodity prices, availability of credit, market risk, energy trading inherent risk, customer credit risk, counterparty credit risk, electricity, and natural gas supply balancing risk; operational risks including, reliance on information technology systems, outsourcing arrangements, dependence on independent sales contractors and brokers, electricity and gas contract renewals and attrition rates, commodity alternatives, capital asset and replacement risk, credit facilities and other debt arrangements; and legal, regulatory and securities risks including legislative and regulatory environment, investment eligibility, changes in legislation, dependence on federal and provincial legislation and regulation, and the outcome of litigation. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of future results. These forward-looking statements are made as of the date of this Annual Information Form and, except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements.

 

 

Just Energy Group Inc.

 

Just Energy Group Inc. (the “Company” or “Just Energy”) is a CBCA corporation created on January 1, 2011, pursuant to a plan of arrangement approved by unitholders of the Just Energy Income Fund (the “Fund”) on June 29, 2010, and by the Alberta Court of the Queen’s Bench on June 30, 2010 (the “Trust Conversion”). See “Articles of Arrangement of the Company” on page 3 for a detailed description of the Articles and Common Shares of the Company. The head offices of the Company are located at 6345 Dixie Road, Suite 400, Mississauga, Ontario, L5T 2E6 and 5251 Westheimer Road, Suite 1000, Houston, Texas 77056. Its registered office is located at First Canadian Place, 100 King Street West, Suite 2630, Toronto, Ontario, M5X 1E1. The predecessors of the Company were founded in 1997 and went public on the Toronto Stock Exchange in April of 2001.

 

Organizational Structure of the Company

 

The following diagram sets forth the simplified organizational structure of the Company.

 

 

Notes:

 

(1)The Canadian Subsidiaries are corporations, limited partnerships, and unlimited liability companies directly or indirectly wholly-owned by the Company. The Canadian material or operating Subsidiaries are Just Energy Ontario L.P. (Ontario); Just Energy Alberta L.P. (Alberta); Just Green L.P. (Alberta); Just Energy Manitoba L.P. (Manitoba); Just Energy B.C. Limited Partnership (British Columbia); Just Energy Québec L.P. (Quebec); Just Energy Prairies L.P. (Manitoba); Just Energy Trading L.P. (Ontario); Hudson Energy Canada Corp. (Canada); Just Energy Advanced Solutions Corp. (Ontario); and Filter Group Inc. Just Energy Corp. is the general partner of each of the Canadian operating limited partnerships. Additionally, the Company indirectly holds an approximate 8% fully diluted interest in ecobee Inc., a manufacturer and distributor of smart thermostats located in Toronto, Ontario.
(2)The U.S. Subsidiaries are corporations, limited liability companies and limited partnerships indirectly wholly-owned by the Company and are incorporated or formed, as applicable, under the laws of the State of Delaware, unless otherwise noted. The U.S. material or operating Subsidiaries are Just Energy (U.S.) Corp.; Just Energy Illinois Corp.; Just Energy Indiana Corp.; Just Energy Massachusetts Corp.; Just Energy New York Corp.; Just Energy Texas I Corp.; Just Energy Texas LP (Texas); Just Energy Pennsylvania Corp.; Just Energy Solutions Inc. (California); Just Energy Marketing Corp.; Just Energy Michigan Corp.; Hudson Energy Services LLC (New Jersey); Just Energy Limited; Fulcrum Retail Energy LLC d/b/a Amigo Energy (Texas); Tara Energy, LLC (Texas); Just Solar Holdings Corp.; Interactive Energy Group LLC; EdgePower, Inc.; and Filter Group US Inc.
(3)Foreign material or operating Subsidiaries. Hudson Energy Supply UK Limited is a wholly-owned subsidiary of the Company operating in the United Kingdom. Just Energy Deutschland GmbH is an indirect subsidiary of the Company operating in Germany. JEBPO Services LLP is an indirect wholly-owned Indian subsidiary of the Company which provides services to the Company and its affiliates. Just Energy Japan K.K. and Just Energy Japan G.K. are indirect subsidiaries of the Company operating in Japan. Just Energy (Ireland) Limited is an indirect subsidiary of the Company operating in Ireland.

 

 2 

 

Brands

 

The Company operates under the following brands:

 

 

Articles of Arrangement of the Company

 

Below is a summary of the Articles of Arrangement of the Company. For a full description, please see www.sedar.com, www.sec.gov or www.justenergygroup.com.

 

Share Capital of the Company

 

The authorized share capital of the Company consists of an unlimited number of Common Shares and 50,000,000 Preferred Shares of which, as of May 15, 2019, 149,705,030 Common Shares and 4,662,165 Preferred Shares were issued and outstanding. The Company’s Common Shares are listed on the Toronto Stock Exchange (TSX: JE) and the New York Stock Exchange (NYSE: JE) and the Company’s Preferred Shares are listed on the Toronto Stock Exchange (TSX: JE.PR.U) and on the New York Stock Exchange (NYSE: JE.PR.A).

 

Common Shares

 

Each Common Share entitles the holder thereof to receive notice of and to attend all meetings of shareholders of the Company and to one vote per share at such meetings (other than meetings of another class of shares of the Company). The holders of Common Shares are, at the discretion of the Board and subject to the preferences accorded to the holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, as well as applicable legal restrictions, entitled to receive any dividends declared by the Board of Directors on the Common Shares.

 

Preferred Shares

 

The Board may at any time in accordance with the CBCA issue Preferred Shares in one or more series, each series to consist of such number of shares and rights, privileges, restrictions and conditions as may be determined by the Board prior to such issuance. Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting. The holders of each series of Preferred Shares shall be entitled, in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares, the amount of accumulated dividends, if any, specified as being payable preferentially to the holders of such series.

 

8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

The first series of Preferred Shares consists of up to 10,000,000 Preferred Shares, designated as the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “Series A Preferred Shares”).

 

The Series A Preferred Shares rank senior to the Common Shares and to any other equity securities the terms of which specifically provide that they rank junior to the Preferred Shares. The Series A Preferred Shares shall rank junior to the Company’s existing and future indebtedness.

 

Except as provided by applicable law and as provided for herein, holders of Series A Preferred Shares will have no voting rights. Holders of Series A Preferred Shares shall be entitled to vote separately as a class to: (a) amend, alter or repeal any provisions of the Company’s articles relating to the Series A Preferred Shares to affect materially and adversely the rights, privileges, restrictions or conditions of the Series A Preferred Shares; or (b) authorize, create or increase the authorized amount of, any class or series of shares having rights senior to the Series A Preferred Shares with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up.

 3 

 

Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends. During each dividend period from, and including, the date of original issuance to, but not including, March 31, 2022, dividends on the Series A Preferred Shares will accrue at the rate of 8.50% per annum of the Liquidation Preference. During each dividend period from, and including, March 31, 2022, to, but not including, March 31, 2027, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 0.50%, of the Liquidation Preference. During each dividend period from and including March 31, 2027, and thereafter, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 1.00%, of the Liquidation Preference. Dividends on the Series A Preferred Shares shall accrue daily and be cumulative from, and including, the date of original issue of each Series A Preferred Share and shall be payable quarterly on the last day of each March, June, September and December (each, a “dividend payment date”).

 

Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting.

 

On and after March 31, 2022, the Company may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. Upon the occurrence of a Change of Control (i) at any time on or after March 31, 2022, and (ii) provided that there is not a credit document prohibiting the same, the Company may, at its option, upon not less than 30 nor more than 60 days written notice, redeem the Series A Preferred Shares, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If, prior to the Change of Control Conversion Date, the Company has provided notice of redemption of some or all of the Series A Preferred Shares, the holders of Series A Preferred Shares will not have the Change of Control Conversion Right with respect to the Series A Preferred Shares so called for redemption.

 

Upon the occurrence of a Change of Control, each holder of Series A Preferred Shares will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided or provides irrevocable notice of the Company’s election to redeem the Series A Preferred Shares, in which case each such holder will only have the right with respect to the Series A Preferred Shares not called for redemption) to convert some or all of the Series A Preferred Shares held by such holder on the Change of Control Conversion Date into a number of Common Shares per Series A Preferred Share, which is equal to the lesser of (A) the quotient obtained by dividing (i) the sum of the Liquidation Preference plus the amount of any accumulated and unpaid dividends (whether or not declared) to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date for a dividend declared on the Series A Preferred Shares and prior to the corresponding dividend payment date, in which case no additional amount for such accumulated and unpaid dividend will be included in this sum) by (ii) the Common Share Price; and (B) 8.606 Common Shares.

 

Liquidation, Dissolution or Winding-up

 

In the event of the liquidation, dissolution or winding-up of the Company or other distribution of its assets among its shareholders, the holders of the Preferred Shares and Common Shares shall be entitled, after payment of all liabilities of the Company, to share in all remaining assets of the Company as follows:

 

(a)the holders of the Preferred Shares shall be entitled in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares in the amount, if any, specified as being payable preferentially to the holders of such series; and
 4 

 

(b)the holders of the Common Shares shall be entitled, subject to the preferences accorded to holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, to share equally, share for share, in the remaining property of the Company.

 

three year history of the company

 

During the past three years the Company has been involved in several significant events. These events are described below in chronological order.

 

Discontinued Operations

 

In March 2019, the Company formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to a consumer focused company. The disposal of the operations is expected to be completed within the next twelve months.

 

Cost Reduction Initiative

 

On March 21, 2019, the Company announced the elimination of over 200 positions, equating to approximately $40 million in general and administrative savings in the upcoming Fiscal Year. These actions are in direct alignment with Just Energy’s ongoing transition to a consumer company and will generate efficiencies in the Company’s income statement.

 

Addition of Insurance Wrap

 

On October 9, 2018, the Company announced that it has entered into a Multi-Year Contingent Business Interruption Insurance Agreement (the “Insurance”) with Interstate Fire & Casualty Company (“IFCC”), a subsidiary of Allianz Global Corporate & Specialty SE. USI Insurance Services (“USI”) collaborated with Just Energy to customize and place the Insurance.

 

The Insurance provides up to USD $25 million of insured limit per event, USD $50 million per year and USD $225 million of limit over an eighty month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyberattack, increased cost of supply from damage to supply and distribution infrastructure, interruption due to damage to customer property, losses in excess of Just Energy’s weather derivative program recoveries, and any unforeseen or unplanned weather related loss. The coverage period starts as at August 1, 2018, and the initial premium is USD $9.5 million per annum adjustable annually depending on loss experience. The policy structure allows for annualized amount of up to USD $6.5 million return of premiums depending on loss experience and can be cancelled annually.

 

Acquisition of Filter Group Inc.

 

On October 1, 2018, the Company acquired Filter Group Inc., a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 5 

 

Repurchase of $150 Million Convertible Bonds

 

On September 19, 2018, the Company announced the repurchase of an aggregate principal amount of US$45,600,000 of the $150 Million Convertible Bonds. On February 21, 2019, the Company announced the repurchase of an aggregate principal amount of US$60,200,000 of the $150 Million Convertible Bonds. On March 25, 2019, the Company announced that it had repurchased US$21,800,000 of the $150 Million Convertible Bonds. Following these repurchases, an aggregate principal amount of US$22,400,000 remains outstanding.

 

US$250 Million Term Financing

 

On September 12, 2018, the Company announced a US$250 million (approximately C$325 million equivalent) non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company intends to use the net proceeds of this loan to repurchase the $150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions.

 

Credit Facility Renewal

 

On April 18, 2018, the Company announced that it renegotiated an agreement with a syndicate of lenders that includes CIBC, National Bank of Canada, HSBC Bank Canada, JPMorgan Chase Bank N.A., ATB Financial and Canadian Western Bank. In addition, Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley Bank N.A., joined the syndicate. Current lenders, CIBC and National Bank of Canada served as Co-Lead Arrangers and Joint Bookrunners. The agreement extends Just Energy’s credit facility for an additional two years to September 1, 2020. The facility size was increased to $352.5 million from $342.5 million, with an accordion for Just Energy to draw up to $370 million.

 

Leadership Transition

 

On March 20, 2018, the Company announced that Deborah Merril and James Lewis will be transitioning out of their President and Co-CEO roles and Patrick McCullough, Just Energy’s current CFO, will be appointed as President and CEO and will join the Board of Directors, effective April 1, 2018. Jim Brown, the President of Just Energy’s commercial business, will replace Mr. McCullough as CFO as of April 1, 2018. Ms. Merril and Mr. Lewis will continue as directors of the Company. Ms. Merril and Mr. Lewis will also provide advisory services to the Company until December 31, 2018.

 

Early Redemption of $100 Million Convertible Debentures

 

On March 27, 2018, the Company announced that it closed the redemption of the $100 Million Convertible Debentures scheduled to mature on September 30, 2018. The Company paid in cash to the holders of such debentures a redemption price equal to $1,028.0411 for each $1,000 principal amount of debentures, being equal to the aggregate of $1,000 and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 

Normal Course Issuer Bid (2018)

 

On March 15, 2018, the Company announced its intention to initiate a normal course issuer bid for its 6.75% $160 Million Convertible Debentures and to renew its normal course issuer bid for its Common Shares. The notice provided that the Company may, during the 12-month period commencing March 19, 2018, and ending March 15, 2019, purchase on the Toronto Stock Exchange, the New York Stock Exchange (only in respect of the Common Shares) or alternative trading systems, if eligible, up to $16,000,000 of the $160 Million Convertible Debentures and up to 9,733,847 Common Shares, being 10% of the “public float” of the $160 Million Convertible Debentures and the Common Shares. The aggregate amount of the $160 Million Convertible Debentures and Common Shares that the Company may purchase during any trading day would not exceed $38,565 and 115,449, respectively, being approximately 25% of the average daily trading volume of the $160 Million Convertible Debentures and the Common Shares based on the trading volume on the TSX for the most recently completed six calendar months. Any of the $160 Million Convertible Debentures and Common Shares purchased pursuant to this normal course issuer bid will be cancelled by the Company. The price that the Company will pay for the $160 Million Convertible Debentures and Common Shares will be the market price at the time of acquisition.

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6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “6.75% 100 Million Convertible Debentures”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023.

 

EdgePower Acquisition

 

On February 5, 2018, Just Energy and Just Energy (U.S.) Corp. entered into the Share Purchase Agreement with the Sellers, pursuant to which Just Energy (U.S.) Corp. agreed to acquire all of the issued and outstanding shares of EdgePower for total consideration of approximately US$14 million on closing, subject to customary adjustments based on working capital (the “Purchase Price”). The Purchase Price consists of: (i) US$7 million in cash; (ii) US$7 million to be satisfied by the issuance of the Consideration Shares (the “Share Consideration Amount”), approximately 43% of which will be subject to a three year escrowed hold period; and (iii) a one-time performance based payout of 20% of the cumulative EBITDA over three years, up to a maximum of US$6 million subject to annual and cumulative thresholds. The specific number of Consideration Shares to be issued as part of the Purchase Price was determined by dividing (A) the Share Consideration Amount by (B) the sum of the daily dollar volume weighted average price for a Common Share on the NYSE for each of the five trading days ending on and including the second trading day immediately prior to the Closing Date, divided by five.

 

At-the-Market Offering Renewal

 

On January 5, 2018, Just Energy renewed its at-the-market offering in the United States of up to US$146,096,810 million aggregate principal amount of 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares pursuant to a prospectus supplement dated January 5, 2018. Dividends on the Preferred Shares will initially accrue at the rate of 8.50% per annum of the US$25.00 liquidation preference per Preferred Share and will thereafter accrue at a floating rate. The Preferred Shares are convertible into Common Shares upon a change of control of Just Energy.

 

Energy Broker Business

 

In the fall of 2017, the Company launched its energy broker business under the brand Interactive Energy Group, which markets energy solutions to businesses for multiple suppliers. Just Energy also provides LED retrofit services in certain markets including Ontario and Texas.

 

Termination of Exclusivity with Red Ventures LLC

 

On August 1, 2017, the Company announced that it had reached an agreement with its joint venture partner, Red Ventures LLC, to end the exclusive relationship for online sales of the Just Energy brand in North America. To facilitate the transaction, Just Energy acquired the outstanding 50% interest of Just Ventures LLC in the United States and Just Ventures L.P. in Canada.

 

At-the-Market Program in the United States for the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On May 2, 2017, the Company announced it had entered into an at-the-market issuance sales agreement dated May 1, 2017 (the “Sales Agreement”) with FBR Capital Markets & Co. (“FBR”), pursuant to which Just Energy may, at its discretion and from time-to-time during the term of the Sales Agreement, offer and sell in the United States, through FBR, acting as the Company’s agent, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares of the Company (“Preferred Shares”) having an aggregate offering price of up to US$150 million.

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Commerce Energy Re-Brand

 

On April 1, 2017, subsidiary Commerce Energy re-branded as Just Energy Solutions Inc. This change represented a transition in name only, and does not affect the status of existing customer contracts, business licenses, or any other legal documentation. Re-branding under the Just Energy name reflects Just Energy’s desire to unify the companies under a common identity and serve customers with greater efficiency and consistency as Just Energy continues to grow its footprint.

 

Normal Course Issuer Bid (2017)

 

On March 15, 2017, the Company announced its intention to renew its normal course issuer bids for its $100 Million Convertible Debentures and its Common Shares. The notice provided that the Company may, during the 12-month period commencing March 17, 2017, and ending March 16, 2018, purchase on the on the Toronto Stock Exchange, the New York Stock Exchange (only in respect of the Common Shares) or alternative trading systems, if eligible, up to $9,999,100 of the $100 Million Convertible Debentures and up to 9,655,649 Common Shares, being 10% of the “public float” of the $100 Million Convertible Debentures and the Common Shares. The aggregate amount of the $100 Million Convertible Debentures and Common Shares that the Company may purchase during any trading day would not exceed $53,754 and 77,479, respectively, being approximately 25% of the average daily trading volume of the $100 Million Convertible Debentures and the Common Shares based on the trading volume on the TSX for the most recently completed six calendar months. Any of the $100 Million Convertible Debentures and Common Shares purchased pursuant to this normal course issuer bid will be cancelled by the Company. The price that the Company will pay for the $100 Million Convertible Debentures and Common Shares will be the market price at the time of acquisition.

 

Issuance of 8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On February 7, 2017, Just Energy closed its underwritten public offering of 4,000,000 of its 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “Preferred Shares”) at a public offering price of US$25.00 per Preferred Share, for gross proceeds of US$100 million. In addition, concurrently with the closing of the public offering of Preferred Shares, Just Energy closed a non-brokered private placement of 40,000 Preferred Shares at a price of US$25.00 per Preferred Share, for gross proceeds of US$1 million. The Preferred Shares are listed on the New York Stock Exchange under the symbol JE.PR.A and on the Toronto Stock Exchange under the Symbol JE.PR.U.

 

Credit Agreement Capacity Increase of $50 Million

 

On January 3, 2017, the Company announced that it has amended and restated its credit facility with its syndicate of lenders to increase the capacity under the credit facility by CDN $50 million to $342.5 million by adding a letter of credit facility (the “LC Facility”). The principal amount outstanding under the LC Facility is guaranteed by Export Development Canada (“EDC”) under EDC’s Account Performance Security Guarantee Program.

 

Acquisition of db swdirekt GmbH and db swpro GmbH

 

On December 8, 2016, Just Energy completed the acquisition of 95% of the issued and outstanding shares of db swdirekt GmbH (“SWDirekt”), a retail energy company, and 50% of the issued and outstanding shares of db swpro GmbH, a sales and marketing company, for $6.2 million, subject to closing adjustments. Terms of the deal include a $2.2 million payment upon the achievement of sales targets. In addition, variable compensation is payable to the selling shareholders, which will be recorded as remuneration expense in the future, subject to the financial performance of the acquired businesses. SWDirekt subsequently changed its name to Just Energy Deutschland GmbH.

 

Early Redemption of $330 Million Convertible Debentures

 

On November 7, 2016, the Company announced that it closed the redemption of $225,000,000 principal amount of its $330 Million Convertible Debentures scheduled to mature on June 30, 2017. Just Energy paid in cash to the holders of such debentures a redemption price equal to $1,021.3699 for each $1,000 principal amount of the debentures, being equal to the aggregate of $1,000 and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 8 

 

On February 21, 2017, the Company announced that it closed the redemption of the outstanding $94,652,000 principal amount of its 6.0% Convertible Debentures scheduled to mature on June 30, 2017. Just Energy paid in cash to the holders of such debentures a redemption price equal to $1,008.5479 for each $1,000 principal amount of the debentures, being equal to the aggregate of $1,000 principal amount and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 

Issuance of 6.75% Convertible Debentures

 

On October 5, 2016, the Company announced the closing of its $160,000,000 public offering of convertible unsecured senior subordinated debentures (the “6.75% Debentures”) at a price of $1,000 per debenture, bearing interest at 6.75% per annum and maturing on December 31, 2021 (the “Maturity Date”). Each $1,000 principal amount of the 6.75% Debentures is convertible at the option of the holder at any time prior to the close of business on the last business day immediately preceding the earlier of the Maturity Date and the date fixed for redemption, into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain antidilution adjustments. The 6.75% Debentures are listed on the Toronto Stock Exchange under the symbol JE.DB.C.

 

Addition of JP Morgan as a Lender under the Credit Facility

 

On October 3, 2016, the Company announced that JPMorgan Chase Bank N.A. has joined the Company’s Credit Facility as a lender with a commitment of $15 million. This commitment increases the line under the Company’s accordion to $292.5 million.

 

Early Redemption of $105 Million Note

 

On March 31, 2016, the Company announced that it had early redeemed $25,000,000 of its $105 Million Note at a redemption price of $28,337,547, including accrued interest, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

On June 30, 2016, the Company announced that it had early redeemed $25,000,000 of its $105 Million Note at a redemption price of $26,218, 750, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

On October 6, 2016, the Company early redeemed the remaining principal amount of $55,000,000 of its $105 Million Note at a redemption price of $59,121,045, which amount includes accrued interest and the early redemption premium, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

BUSINESS OF JUST ENERGY

 

General

 

Just Energy 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.

 

By fixing the price of electricity or natural gas under its fixed-price energy contracts for a period of up to five years, Just Energy’s customers offset their exposure to changes in the price of these essential commodities. Variable and indexed rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat bill products offer a consistent price regardless of usage. The Company derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the price at which it purchases the associated volumes from its commodity suppliers as well as from margins obtained through the sale of home energy management services and products. Under the Company’s terrapass brand, through carbon offset and Renewable Energy Credits programs, customers can reduce the negative impact of their own day-to-day energy consumption. In certain markets, the Company bundles smart thermostats with its other services, which the Company believes increases customer loyalty and margins. The Company launched its Just Energy Perks program in 2016 which allows customers to gain points used to purchase energy efficient products or gift cards from its partner Energy Earth. The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017 which markets energy solutions to businesses for multiple suppliers. Just Energy also provides LED retrofit services in certain markets including Ontario and Texas under its Just Energy Advanced Solutions brand. Through the EdgePower brand, the Company provides lighting and heating, ventilation and air conditioning controls in over 480 facilities and enterprise monitoring for over 700 buildings in North America. Through Filter Group, the Company sells water filtration systems in Ontario, California, Nevada and Texas.

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The Company’s operating Subsidiaries currently carry on business in the United States in the states of Illinois, New York, Indiana, Michigan, Ohio, New Jersey, California, Maryland, Pennsylvania, Massachusetts, Georgia, Texas and Delaware and in Canada in the provinces of Ontario, Alberta, Manitoba, Québec, British Columbia and Saskatchewan. The Company sells electricity and natural gas in the United Kingdom to commercial customers under the Hudson brand and to residential consumers under the Green Star Energy brand. In December 2016, Just Energy entered the German retail energy market. In 2017, Just Energy entered the Japanese and Irish retail energy markets. The Company’s operations in Germany, Ireland and Japan are currently being held for sale.

 

The map in Fig-1 below shows the jurisdictions in the United States, Canada and the United Kingdom in which Just Energy operates.

 

Fig-1:

 

 

As of March 31, 2019, Just Energy had aggregated approximately 4,089,000 RCEs, with approximately 41% from its Consumer Division (residential and small business) and 59% from its Commercial Division.

 

Consumer Division

 

Electricity

 

In the Provinces of Ontario and Alberta and the States of New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California, Ohio, Delaware and Massachusetts, as well as the United Kingdom, Just Energy and its affiliates offer a variety of solutions to its electricity customers, including fixed-price, variable-price, and flat-bill products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity supply requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.

 10 

 

The Local Distribution Companies (“LDCs”) provide billing in all electricity markets except Alberta, Texas and the United Kingdom (see “Business of Just Energy – Natural Gas”). The LDCs also provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee, except in Alberta, California, Massachusetts, Texas and the United Kingdom. In California and Massachusetts, the LDC provides collection services only until the account is delinquent. In Alberta, Texas and the United Kingdom, Just Energy bills and collects itself. In Ontario, New York, Pennsylvania, New Jersey, Ohio, Illinois, Maryland and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential customers.

 

Natural Gas

 

Just Energy and its affiliates offer natural gas customers a variety of products, such as five-year fixed-price contracts, flat-bill options and month-to-month variable-price offerings in the Provinces of Ontario, Québec, British Columbia, Alberta, Manitoba and Saskatchewan, and in the States of Maryland, Michigan, New York, Illinois, Indiana, Ohio, California, Pennsylvania, New Jersey and Georgia. Although customers purchase their gas supply through Just Energy, the LDC is still mandated, on a regulated basis, to distribute the gas. Except in Alberta, Georgia and the United Kingdom, the LDCs provide billing and, except in Alberta, Illinois, Georgia, California and the United Kingdom, the LDCs provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee. In Illinois and Pennsylvania, the LDC provides collection services only until the account is delinquent. In Ontario, British Columbia, Manitoba, Quebec, New York, Ohio and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential and commercial customers. In all Canadian markets except for Alberta, the LDCs pay Just Energy for the gas when it is delivered. In other jurisdictions, including Alberta, Just Energy is paid upon consumption by the customers.

 

Filter Group

 

Acquired by the Company on October 1, 2018, Filter Group is a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Filter Group offers consumers both under-counter and whole-home water filtration systems.

 

Smart Thermostats

 

Just Energy offers customers the ability to bundle commodity contracts with smart thermostats. The smart thermostats allow customers to have more control over their energy consumption and can assist them in reducing energy costs. As of March 31, 2019, there were approximately 71,000 thermostats installed, all of which were manufactured by ecobee Inc., which are bundled with other products.

 

Just Energy Perks

 

The Company launched its customer loyalty program, Just Energy Perks, in 2016. Through this program, customers are awarded Perks points when they enroll with the Company and on a quarterly basis. These Perks points may then be redeemed for energy efficient products or shopping and dining gift cards.

 

Commercial Division

 

Just Energy’s commercial business is operated primarily through Hudson Energy. Hudson Energy offers fixed and variable rate natural gas and electricity contracts, as well as more customized products to meet the needs of specific customers. Hudson Energy generates the majority of its sales through a large network of non-exclusive Independent Brokers. Some sales are also made through Independent Contractors, exclusive brokers, and inside sales teams. With its web based sales portal, Hudson Connex, Hudson Energy has technology that enables more efficient selling of products to commercial customers by delivering customer-specific pricing and contract documents on demand. Hudson Connex also provides tools for Independent Brokers to manage their customer accounts after the sale is complete. Except in Alberta, Illinois, and Texas, the LDC provides billing and collection services for the majority of Hudson Energy customers. In New Jersey and California, the LDC provides collection services only until the account is delinquent.

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Hudson Energy UK markets electricity and natural gas in the United Kingdom and Just Energy (Ireland) Limited markets electricity and natural gas in Ireland utilizing the same technology and deal process used in North America adapted for the unique characteristics in the market. Shell Energy Europe Limited (“SEEL”) and Hudson Energy UK signed an amended and restated supply agreement on December 21, 2017, under which Shell will be the wholesale supplier for the UK businesses providing credit support and wholesale supply to cover the commodity obligation for customers.

 

Interactive Energy Group

 

The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017. This business markets energy solutions to businesses for multiple suppliers.

 

EdgePower

 

The Company acquired EdgePower, Inc. on February 5, 2018. EdgePower is an energy monitoring and management company operating out of Aspen, Colorado. EdgePower provides lighting and heating, ventilation and air conditioning controls in over 480 facilities and enterprise monitoring for over 700 buildings in North America. The acquisition of EdgePower facilitates Just Energy in continuing to build out an energy management solutions platform in the commercial space and creating synergies with Just Energy’s lighting systems and commercial commodity business.

 

Just Energy Advanced Solutions

 

The Company provides LED retrofit services, including lighting audits, solution design, installation and financing, in certain markets including Ontario and Texas under its Just Energy Advanced Solutions brand.

 

JustGreen and terrapass

 

Just Energy also offers carbon offsets and renewable energy certificates through its JustGreen Electricity and Natural Gas, and terrapass programs. Sales of these products continue to support and reaffirm the strong customer demand for green product options in all markets.

 

JustGreen™

 

The JustGreen electricity product offers customers the option of choosing renewable energy credits which contribute to ‘greening the grid’. The JustGreen Gas product offers carbon offsets which allow the customer to reduce or eliminate the carbon footprint of their home or business associated with the gas purchased from Just Energy.

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Renewable Energy Certificates (RECs) and Carbon Offset Project Locations

 

 

Just Energy believes that these JustGreen products will not only add to profits, but also increase sales receptivity. When a customer purchases a unit of JustGreen Electricity or Natural Gas, it creates a contractual obligation for Just Energy to obtain renewable energy credits or carbon offsets of a quantity at least equal to the demand created by the customer’s purchase. The Company currently sells JustGreen Gas (carbon offsets) in Ontario, Manitoba, British Columbia California, Illinois, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Illinois, and JustGreen Electricity (RECs) in Ontario, Alberta, Delaware, New York, New Jersey, Maryland, Illinois, Ohio, Texas, Massachusetts, and Pennsylvania. Of all residential customers who contracted with Just Energy in the year ending March 31, 2019, 44% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 79% of their consumption as green supply.

 

Terrapass

 

Since 2004, terrapass has been a provider of sustainable carbon emissions solutions. Terrapass supports projects throughout North America that reduce greenhouse gases and produce renewable energy. Terrapass products and services provide consumers and businesses with options to help them reduce the environmental impact of their everyday activities through carbon offsets and renewable energy credits. In 2015 a new product was added, BEF Water Restoration Certificates® (“WRC’s”). The Bonneville Environmental Foundation (“BEF”) created and operates the program which creates the WRCs and sells them to terrapass. The National Fish and Wildlife Foundation verifies each project for BEF. Each WRC is individually registered by BEF on the international Markit Environmental Registry. With growing awareness of drought and water shortages, the company believes this will be a strong product in the future.

 

The Company retains an independent auditor to validate its renewable and carbon offset purchases annually to ensure that customer requirements have been matched or exceeded with relevant carbon offsets or renewable energy certificates for both JustGreen and terrapass products. An independent auditor has performed this review since 2009 and determined that Just Energy was compliant each year.

 

Marketing

 

Residential customers are contracted through a number of sales channels including online, retail stores, telemarketing, door-to-door and affinity programs. Commercial customers are primarily obtained through Independent Brokers utilizing the Hudson Connex sales portal to solicit Energy Contracts but also uses door-to-door, telemarketing and affinity relationships.

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The elapsed period between the time when a customer contract is signed and when the first payment is received from the customer varies with each market. The time delays per market are approximately two to six months. The cost for obtaining a new customer and related expenses currently includes commissions payable to sales agents and brokers, salaries paid to the marketing and customer service departments, salaries paid to customer service representatives who verify the customer contracts, the costs of printing contracts, bonus awards, advertising costs and the costs of promotional materials.

 

Corporate Social Responsibility

 

Community Investment

 

Just Energy conducts business with a mind that its activities benefit the communities in which it operates through job creation, charitable donations and employee volunteerism.

 

Support for communities

 

As a leading energy retailer in North America, Just Energy’s vision is to support organizations in Canada and the United States that make positive contributions to energy consumers. The Company is dedicated to supporting organizations that work to provide financial aid and resources to disadvantaged/high-needs communities. Through such support, Just Energy is committed to being a strong corporate citizen and community partner to promote the livelihood and enhance the quality of life for those most vulnerable.

 

Women’s Leadership Council

 

The Women’s Leadership Council was formed in 2016 to cultivate the success and leadership of women at Just Energy. The Council hosts regular social events to encourage networking in addition to providing career coaching to women at all levels of the Company. In the fourth quarter of 2019, the Council was offered membership in the prestigious Hawthorn Club, a global network of executive women whose mission is to promote the appointment of women to senior corporate positions and boards, and to facilitate gender diversity within the energy sector. The Women’s Leadership Council participated in the Hawthorn Club’s 2019 Global Summit, collaborating with 60 of the world’s most powerful women in energy on such issues as the acceleration of the transition to low carbon energy.

 

Environmental Stewardship

 

Just Energy provides sustainable energy solutions to residential and commercial customers that allow them to reduce their environmental impact. See “Just Green” and “terrapass” on pages 12-13. Just Energy also partnered with Intuit in 2018 to create the Purely Green Program which is designed to offer discounted renewable electricity to hundreds of thousands of electricity customers across Texas. The renewable energy and renewable energy credits are sourced from EDP Renewables’ Lone Star II Wind Farm.

 

Accountability and transparency

 

Just Energy proactively evaluates its green energy sales to ensure the Company’s project investments match customers’ green energy selections. Just Energy’s green purchases are reviewed annually by Grant Thornton LLP. This validates that the money spent by customers on Just Energy’s green products through terrapass.com or with JustGreen Natural Gas and Power goes directly to renewable energy or carbon offset projects.

 

One hundred percent of the carbon offsets purchased are verified and validated against broadly accepted protocols by independent third party verifiers.

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Standards and certifications

 

Terrapass RECs are certified by Green-E Energy (U.S.) and EcoLogo (Canada) to assure transparency and quality in creation, quantification, and verification. Each REC receives a unique identification number to track every MWh of energy generated.

 

Carbon offsets are verified and retired under the Climate Action Reserve (CAR), Verified Carbon Standard (VCS), Gold Standard (GS), and the CSA Registry.

 

The National Fish and Wildlife Foundation, a widely recognized leader in freshwater restoration projects, certifies all BEF WRC® restoration projects. BEF tracks the amount of water restored by each project on the International Markit Registry which ensures no double counting. Every BEF (Bonneville Environmental Foundation) Water Restoration Certificate® created represents 1,000 gallons of water restored on a customer’s behalf. By purchasing BEF WRCs®, customers are directly contributing to the restoration of recreational and ecological vitality in critical freshwater ecosystems.

 

Terrapass is a member of Green-e Climate certification to ensure transparency and quality of offsets.

 

Generation sources

 

Just Energy seeks and purchases RECs and carbon offsets from a variety of renewable sources that reduce greenhouse gases including:

 

Farm power – working with farms to make the best possible use of animal waste.

Landfill gas capture – turns garbage into power by capturing the methane released by organic waste as it breaks down.

Coal mine methane – support methane capture projects at abandoned coal mines where methane naturally exists in coal beds and is released into the atmosphere through mine shafts.

Forest management – forests sequester carbon dioxide in the trunks, leaves, branches and roots of trees. The projects improve forest management to sequester more carbon.

Wind energy – wind energy displaces electricity that is generated by dirty fossil fuels like gas and coal.

 

Corporate Governance

 

The Company has an active Board of Directors to guide its operations and ensure transparency to investors. Just Energy’s corporate governance committee meets the recommended standards established by the Canadian and US Securities Administrators and other shareholder groups. The Company’s Board of Directors currently comprises the Executive Chair, the CEO, and six non-management directors, and is monitored by a lead independent director. The Board has delegated certain decisions to its committees that are comprised of non-management directors only. The committees are Audit; Risk; Nominating and Corporate Governance; Compensation, Human Resources, Environmental and Health and Safety; and Strategic Initiatives Committee.

 

Code of Business Conduct and Ethics Policy

 

Just Energy has implemented a Code of Business Conduct and Ethics Policy which is available on its website at www.justenergygroup.com. All employees are required to acknowledge the Code of Business Conduct and Ethics Policy annually.

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Human Resources

 

As a company, Just Energy has implemented a number of policies to foster a safe, welcoming and equitable work environment, including with respect to the following:

 

 

Supply Arrangements

 

Commodity

 

For fixed-price contracts, Just Energy purchases gas and electricity supply through physical or financial transactions with Commodity Suppliers in advance of marketing, based on forecasted customer aggregation for residential and small commercial customers. For larger commercial customers, electricity and gas supply is generally purchased concurrently with the execution of a contract. Each LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. For natural gas, some LDCs may require Just Energy to inject gas into storage in the summer for delivery to customers in the winter pursuant to a pre-set delivery schedule.

 

Just Energy attempts to mitigate exposure to weather variations through active management of the electricity and gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. This strategy provides price and volume protection, but will not eliminate all supply cost risks. The expected cost of this strategy is incorporated into the price to the customer. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected consumption, Just Energy must purchase the short supply in the spot market. Consequently, customer margin increases proportionately to the increase in consumption net of the gain or loss associated with the incremental supply purchase. Additionally, to the extent that supply balancing is not fully covered through customer pass-throughs, active management or the options employed, Just Energy’s customer gross margin may be impacted depending upon market conditions at the time of balancing.

 

Just Energy transacts with a number of different counterparties for its energy supply. Its primary suppliers in North America participate in an Intercreditor Agreement pursuant to which the Commodity Suppliers and lenders to Just Energy share in the collateral provided by the energy commodity business (other than the UK) of Just Energy. The supply participants to the Intercreditor Agreement are Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, Nextera Energy Power Marketing, LLC, Macquarie and Morgan Stanley Capital Group Inc. (collectively, the “Secured Suppliers”). Certain of these Commodity Suppliers also assist in managing, balancing and/or scheduling gas and/or power requirements in certain markets for a fee pursuant to additional agreements.

 

Just Energy’s financial obligations to the Secured Suppliers are secured by general security agreements providing for, among other things, a priority security interest over all customer contracts. If the Secured Suppliers default in their obligations to deliver gas and electricity to Just Energy, or if Just Energy defaults in its obligations to accept delivery of gas or electricity, the contractual arrangements between them contain provisions requiring, subject to force majeure, the payment of various amounts by the defaulting party to the non-defaulting party, including liquidated damages.

 

Just Energy has also entered into contractual arrangements for the physical purchase or financial hedge of energy from other Commodity Suppliers. Although the contractual arrangements with these other Commodity Suppliers are not secured on the same basis as the transactions with the Secured Suppliers, in certain circumstances, security for the obligations of Just Energy to these other Commodity Suppliers or vice versa is provided by way of letter of credit.

 

Hudson UK has entered into a strategic supply arrangement with SEEL for Hudson UK’s retail business in the United Kingdom and Ireland. Under the arrangement, SEEL will be the wholesale supplier for Hudson UK Just Energy (Ireland) Limited. The structure gives the Company access to the wholesale market and the benefit of SEEL’s market presence and knowledge.

 16 

 

JustGreen/terrapass

 

On behalf of its customers, Just Energy purchases and retires renewable energy credits and carbon offsets from certified sources for greenhouse gas reduction and green energy production offsetting their average electricity and/or natural gas use for those customers who elect to purchase JustGreen or terrapass products. Just Energy may attempt to purchase the renewable energy credits and carbon offsets from facilities, such as wind farms, solar, biomass projects and landfill gas projects, located in the local jurisdiction in which it sells its green products. The Renewable Energy Credits are Green-e Energy (U.S.) and EcoLogo (Canada) certified or comply with renewable portfolio standards where registered; the carbon offset projects are verified through Climate Action Reserve, Voluntary Carbon Standard or American Carbon Registry in the U.S., and meet the ISO 14064 Standard in Canada. Water Restoration Certificates® are purchased from the Bonneville Environmental Foundation which operates the program. The National Fish and Wildlife Foundation verifies each project. Each WRC is individually registered on the international Markit Environmental Registry.

 

Risk Management

 

Just Energy’s commodity and volume forecasts are a function of historical data and current market conditions, and have been meticulously tested and analyzed under a number of potential scenarios.

 

 

 17 

 

As detailed below, Just Energy effectively hedges its weather exposure so that weather volatility is substantially mitigated.

 

 

Just Energy’s risk management policy has established risk limits that mitigate any material downside. These include value-at-risk limits, volume thresholds for electricity, natural gas, and carbon and renewable energy credits, and weather exposure. These risk limits are reviewed on a quarterly basis by the Risk Committee and are subject to change. In addition, on October 9, 2018, the Company announced that it entered into a Multi-Year Contingent Business Interruption Insurance Agreement with Interstate Fire & Casualty Company which provides up to USD $25 million of insured limit per event, USD $50 million per year and USD $225 million of limit over an eighty month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyberattack, increased cost of supply from damage to supply and distribution infrastructure, interruption due to damage to customer property, losses in excess of Just Energy’s weather derivative program recoveries, and any unforeseen or unplanned weather related loss.

 

Competition

 

Management of Just Energy believes it has competitive advantages over a number of other energy retailers in that it has: (i) a marketing and sales organization which has achieved significant success in commodity and green product sales; (ii) a responsive customer care and customer service process; (iii) a disciplined risk management approach to commodity supply, green products, and home energy management solutions through smart thermostats; (iv) products priced to achieve stable margin growth vs. customer growth in all business sectors; (v) evolving sales channels; and (vi) growth of value-added products such as Just Energy Perks, water filtration systems and smart thermostats. The industry credibility of Just Energy is based on the long-term experience of its management team relating to the deregulation of natural gas and electricity and their innovations in providing consumer choices including its terrapass product offerings within the direct purchase market.

 

Industry Competition

 

Electricity and Natural Gas

 

Just Energy has natural gas and electricity competition in every jurisdiction in which it carries on business. Generally, competitors are local in nature with a few extending to multiple jurisdictions. There can be upwards of twenty competitors in many markets. The nature and product offerings vary by jurisdiction. It is possible that new entrants may enter the market and compete directly for the customer base that Just Energy targets, slowing or reducing its market share. Other than LDCs (discussed below), Just Energy’s largest competitors in North America are Direct Energy Marketing Ltd. (which is owned by Centrica plc), IGS Energy Inc., NRG Energy Inc., which owns Green Mountain Energy Company and Reliant Energy, and MXenergy Inc. and Constellation (which are owned by Exelon). In the United Kingdom there are approximately fifty other competitors, the most significant of which are Ovo Energy, Bulb Energy, Octopus Energy, Shell Energy and Utility Warehouse.

 18 

 

The LDCs are currently not permitted to make a profit on the sale of the gas and electricity commodity to their supply customers. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas at prices other than cost, their existing customer bases could provide them with a significant competitive advantage. This may limit the number of customers available for marketers including Just Energy. To the extent that Just Energy is successful through its marketing program in educating customers, it believes that it can be successful in signing LDC customers to its products.

 

JustGreen/terrapass

 

The most significant competitors with respect to Just Energy’s JustGreen and terrapass products are Green Mountain Energy Company, 3 Degrees Group Inc., Blue Source, LLC and Community Energy, Inc. in the United States and Bullfrog Power in Canada.

 

Water Filtration Systems

 

The Company’s most significant competitors with respect to water filtration systems are Aquasana, Inc., Culligan Water, and Brita whose North American rights are owned by The Clorox Company.

 

Environmental Protection

 

With respect to the sale of natural gas and electricity, Just Energy does not view potential environmental liabilities as a significant concern. Just Energy does not have physical control of the natural gas or electricity or any facilities used to transport it. Therefore, any potential liability of Just Energy for gas leaks or explosions during transmission and distribution is considered to be relatively remote.

 

Employees

 

As of May 15, 2019, Just Energy and its affiliates employed approximately 1,581 people.

 

 

Real Property

 

Just Energy leases space for its Canadian, U.S., and UK head offices in Mississauga, Ontario, Houston, Texas, and Milton Keynes, England, respectively; corporate office in Toronto, Ontario; operating office in Dallas, Texas, call centres in Mississauga, Ontario, Houston, Texas, and Milton Keynes, England; JEBPO office in Bangalore, India, as well as over fifteen sales offices throughout North America.

 19 

 

Industry Regulation

 

In each jurisdiction in North America, the energy markets are regulated under the oversight of a state or provincial government agency with legislated authority to regulate generally all aspects of the industry including the sale of electricity and natural gas. Although the sale of the commodity itself is considered a ‘deregulated’ service, with the exception of Quebec and Indiana, Just Energy is required to obtain a certificate of authority or license from the regulatory agency and pursuant to that license, operate in accordance with state or provincial legislation and established regulations and rules as it pertains to the marketing of energy services within the jurisdiction. In Quebec and Indiana, Just Energy markets services under a direct contractual arrangement established with the LDC and is subject to operate in accordance with rules established under the LDC’s tariffs. In the UK, the electricity and gas markets are regulated by the Gas and Electricity Markets Authority, operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem issues companies licences to carry out activities in the electricity and gas sectors, sets the levels of return which the monopoly networks companies can make, and decides on changes to market rules. In Ireland, the energy markets are regulated by the Commission for Regulation of Utilities. In Japan, the electricity market is governed by the Ministry of Economics, Trade and Industry and licensing for this market is regulated by the Organization for Cross-regional Coordination of Transmission Operators. Just Energy currently has obtained and maintains all of the licenses and contractual arrangements required to undertake its business in all of the jurisdictions in which it operates.

 

In the US, the Company is subject to regulation by the Federal Energy Regulatory Commission (“FERC”) and the North American Electricity Reliability Corporation (“NERC”). FERC regulates transportation of natural gas by interstate pipelines. Such regulation affects the Company’s access to natural gas supplies. As to the wholesale electricity sector, FERC has issued regulations that require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. The Company’s electric operations are dependent upon the availability of open access, non-discriminatory electric transmission service. FERC also regulates the sale of wholesale electricity by requiring companies who sell in the wholesale market to obtain a market-based rate authority unless they justify their rates on a cost-of-service basis. Several of the Company’s subsidiaries have market-based rate authority. If these subsidiaries do not comply with FERC’s rules on market-based rate authority be subject to sanctions, including substantial monetary penalties. The Company is also subject to mandatory reliability standards enacted by the NERC and enforced by FERC. Compliance with the mandatory reliability standards may subject the Company and others to higher operating costs and may result in increased capital expenditures. If the Company is found to be in noncompliance with the mandatory reliability standards, the Company could be subject to sanctions, including substantial monetary penalties.

 

In addition, the Dodd-Frank Act provides a regulatory regime for derivatives that generally requires derivatives to be traded on an exchange and cleared together with related collateral and margin requirements. The Company qualifies for the commercial end-user exception which allows it to continue to enter into swaps in the over-the-counter market without being subject to mandatory exchange trading and clearing. Additionally, Dodd-Frank has brought about enhanced reporting and record keeping requirements as well as expanded position limits that are still pending final adoption. A similar regulatory regime is coming online in Europe. In addition, the Canadian regulators have commenced a process to implement a similar regulatory regime for derivatives that is not yet finalized. These Canadian rules are meant to be similar to the US’s Dodd Frank Act but have differences that may be more impactful to the Company than the current US regulations.

 

Financing

 

Just Energy Credit Facility

 

Just Energy Ontario L.P. and Just Energy (U.S.) Corp., Subsidiaries of the Company, are parties to the eight amended and restated credit agreement (as amended, restated and supplemented from time to time), providing Just Energy with a credit facility of up to $352.5 Million for working capital purposes, which includes a $50 million LC Facility (the “Credit Facility”). Under the terms of the Credit Facility, Just Energy is able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.625 per cent and 3.75 per cent, prime rate advances at rates of interest that vary between bank prime plus 1.625 per cent and 2.75 per cent, and letters of credit at rates that vary between 2.625 per cent and 3.75 per cent. Interest rates are adjusted quarterly based on certain financial performance indicators. The current syndicate of lenders includes National Bank of Canada, HSBC Bank of Canada, CIBC, ATB Financial, Canadian Western Bank, JPMorgan Chase Bank N.A. and Morgan Stanley Senior Funding, Inc. The principal amount outstanding under the LC Facility is guaranteed by Export Development Canada (“EDC”) under EDC’s Account Performance Security Guarantee Program. To complement the Credit Facility, Just Energy, the Secured Suppliers and the lenders have entered into the Intercreditor Agreement pursuant to which the Secured Suppliers and the lenders jointly hold security over substantially all of the assets of the Company and its North American operating Subsidiaries. Securities with respect to the commodity business owned directly or indirectly by the Company in its North American operating Subsidiaries have been pledged to National Bank of Canada, the collateral agent, as part of the security. All receipts are directed to bank accounts over which National Bank of Canada, as collateral agent, has deposit account control agreements in place (each a “Blocked Account”). Gas Suppliers and Electricity Suppliers invoice the operating Subsidiaries of the Company directly and, provided that no event of default exists under the Credit Facility, the Intercreditor Agreement or the related security agreements, the Subsidiaries of the Company, on a periodic basis, pay the cost of commodity and related administration fees directly from the Blocked Accounts. Where an event of default exists, National Bank of Canada, as collateral agent, has the right to exercise control over each Blocked Account in any manner and in respect of any item of payment or proceeds thereof in accordance with the terms of the Intercreditor Agreement. The Credit Facility contains a number of covenants, including, without limitation, with respect to financial ratios. As of March 31, 2019, Just Energy is in compliance with all covenants under the Credit Facility. The Credit Facility matures on September 1, 2020.

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US$250 Million Term Financing

 

On September 12, 2018, the Company entered into a US$250 million (approximately C$325 million equivalent) non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company intends to use the net proceeds of this loan to repurchase the $150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions.

 

$150 Million Convertible Bonds

 

On January 29, 2014, the Company announced the closing of the European-focused offering of US$150 million of senior unsecured convertible bonds due July 2019 with a coupon of 6.5% per annum payable semi-annually in arrears. The initial conversion price is US$9.3762 share, which represents a premium of 22.5% over the 5-day volume weighted average price of Just Energy’s Common Shares on January 21, 2014 (being the day on which the offering was publicly announced). The $150 Million Convertible Bonds are subject to certain covenants. As of March 31, 2019, all of these covenants have been met. Just Energy used the net proceeds of the offering to redeem its outstanding $90 Million Convertible Debentures, and intends to make market purchases for cancellation of convertible debentures from other series as allowed under its debt covenants and to pay down the Company’s Credit Facility.

 

As of May 15, 2019, the Company has repurchased an aggregate principal amount of US$127,600,000, with US$22,400,000 of the $150 Million Convertible Bonds remaining outstanding.

 

6.75% Convertible Debentures

 

On October 5, 2016, the Company announced the closing of its $160,000,000 public offering of convertible unsecured senior subordinated debentures (the “6.75% Debentures”) at a price of $1,000 per debenture, bearing interest at 6.75% per annum and maturing on December 31, 2021 (the “Maturity Date”). Each $1,000 principal amount of the 6.75% Debentures is convertible at the option of the holder at any time prior to the close of business on the last business day immediately preceding the earlier of the Maturity Date and the date fixed for redemption, into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain antidilution adjustments. The 6.75% Debentures are listed on the Toronto Stock Exchange under the symbol JE.DB.C.

 

The 6.75% Debentures are not redeemable before December 31, 2019 (except in limited circumstances following a Change of Control as provided herein). On and after December 31, 2019 and prior to December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, and at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon, if any, provided that the current market price on the date on which notice of redemption is given is at least 125% of the conversion price. On or after December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest.

 21 

 

8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On February 7, 2017, Just Energy closed its underwritten public offering of 4,000,000 of its 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “Preferred Shares”) at a public offering price of US$25.00 per Preferred Share, for gross proceeds of US$100 million. Just Energy granted the underwriters an option exercisable for 30 days from January 30, 2017, exercisable in whole or in part, to purchase up to 600,000 additional Preferred Shares at the same price and on the same terms as the 4,000,000 Preferred Shares. In addition, concurrently with the closing of the public offering of Preferred Shares, Just Energy closed a non-brokered private placement of 40,000 Preferred Shares at a price of US$25.00 per Preferred Share, for gross proceeds of US$1 million.

 

At-the-Market Program in the United States for the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On May 2, 2017, the Company announced it has entered into an at-the-market issuance sales agreement dated May 1, 2017 (the “Sales Agreement”) with FBR Capital Markets & Co. (“FBR”), pursuant to which Just Energy may, at its discretion and from time-to-time during the term of the Sales Agreement, offer and sell in the United States, through FBR, acting as the Company’s agent, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares of the Company (“Preferred Shares”) having an aggregate offering price of up to US$150 million (the “Offering”). To date, 613,349 Preferred Shares have been sold under the At-the-Market Program for US$19.4 million.

 

6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “6.75% 100 Million Convertible Debentures”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023. The 6.75% 100 Million Convertible Debentures were used to early redeem the 5.75% Debentures on March 27, 2018.

 

RISK FACTORS

 

The business of the Company and an investment in securities of the Company are subject to certain risks. Prospective purchasers of securities of the Company should carefully consider the risk factors set forth on page 1 and under the heading “Risk Factors” at pages 48 to 54 of the Company’s Fiscal 2019 Fourth Quarter Management Discussion and Analysis (“MD&A”) (in Just Energy’s Annual Report), which portions of such documents are incorporated by reference in this Annual Information Form and are available on the SEDAR website at www.sedar.com, the U.S Securities and Exchange Commission website at www.sec.com and on Just Energy’s website at www.justenergygroup.com. The principal risks and uncertainties that Just Energy can foresee are described in the above referenced excerpts, which are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Information Form. The list may not be an exhaustive list as some future risks may be as yet unknown. Other risks currently regarded as immaterial could turn out to be material. If any such risks actually occur, the business, financial condition and/or liquidity and results of operations of the Company could be materially adversely affected and the ability of the Company to pay dividends on the Common Shares could be materially adversely affected.

 

DIVIDENDS and distributions

 

Dividends on Common Shares

 

The Company’s dividend policy provides that the amount of cash dividends, if any, to be paid on the Common Shares is subject to the discretion of the Board of Directors and may vary depending on a variety of factors, including, without limitation: (i) the prevailing economic and competitive environment; (ii) the Company’s results of operations and earnings; (iii) financial requirements for the operations and growth of the Company and its Subsidiaries; (iv) the satisfaction of solvency tests imposed by the CBCA for the declaration and payment of dividends; (v) contractual restrictions and financing agreement covenants; and (vi) other relevant factors and conditions existing from time to time.

 22 

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per Preferred Share when, as and if declared by the Company’s Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the Preferred Shares are cumulative, dividends on Preferred Shares will accrue even if they are not paid. Common shareholders will not receive dividends until the Preferred Share dividends in arrears are paid.

 

The following table sets forth the month of payment and dividends per Common Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April and May, 2019.

 

Record of Cash  Fiscal 2020  Fiscal 2019  Fiscal 2018  Fiscal 2017
Distributions/ Dividends (1)  $ Per Common Share  $ Per Common Share  $ Per Common Share  $ Per Common Share
             
June   -   0.125   0.125   0.125 
September  -   0.125   0.125   0.125 
December  -   0.125   0.125   0.125 
March   -   0.125   0.125   0.125 

 

Notes:

 

(1)Distributions are also paid on all outstanding PBGs, RSGs and DSGs equal to the dividend paid on the Common Shares. As of March 31, 2019, there were 385,214 PBGs, 1,473,989 RSGs and 184,430 DSGs outstanding.

 

Dividends on Preferred Shares

 

The following table sets forth the month of payment and dividends per Preferred Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April and May, 2019.

 

Record of Cash Distributions/  Fiscal 2020  Fiscal 2019  Fiscal 2018  Fiscal 2017
Dividends  US$ Per Preferred Share  US$ Per Preferred Share  US$ Per Preferred Share  US$ Per Preferred Share
June  -   0.53125   0.53125   - 
September  -   0.53125   0.53125   - 
December  -   0.53125   0.53125   - 
March  -   0.53125   0.53125   0.3128 

 

MARKET FOR SECURITIES

 

Common Shares of the Company

 

The Common Shares of the Company are listed for trading on the TSX and the NYSE under the symbol JE. The following tables set forth the price range and trading volume of Common Shares traded on the TSX and the NYSE for the periods indicated as reported by the TSX and the NYSE, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2018      
April $5.79 $4.53 7,454,860
May $5.40 $4.56 12,055,695
June $5.00 $4.62 7,078,463
July $5.10 $4.73 3,686,275
August $5.13 $3.66 10,154,453
September $4.07 $3.77 8,534,055
October $4.40 $3.96 6,796,703
November $5.70 $4.26 10,341,213
December $5.72 $4.19 9,998,628
2019      
January $5.00 $4.44 4,808,652
February $4.99 $4.33 6,894,430
March $5.00 $4.52 6,333,920
April $4.93 $4.53 2,928,131
May (1 to 10) $4.95 $4.75 1,396,766

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NYSE

(US$)

 

Period High ($) Low ($) Volume
2018      
April $4.54 $3.39 6,990,729
May $4.19 $3.53 7,245,029
June $3.86 $3.48 6,977,314
July $3.90 $3.60 3,926,411
August $3.95 $2.80 9,095,334
September $3.14 $2.90 6,343,537
October $3.44 $3.02 6,729,295
November $4.29 $3.25 6,405,320
December $4.34 $3.08 6,191,374
2019      
January $3.77 $3.26 3,587,723
February $3.79 $3.26 4,370,659
March $3.76 $3.38 3,040,782
April $3.67 $3.39 3,330,930
May (1 to 10) $3.69 $3.54 1,219,100

 

Preferred Shares of the Company

 

The Preferred Shares of the Company are listed for trading on the NYSE under the symbol JE.PR.A and on the TSX under the Symbol JE.PR.U. The following tables set forth the price range and trading volume of Preferred Shares traded on the NYSE and TSX for the periods indicated as reported by the NYSE and the TSX, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2018      
April $23.85 $20.26 22,830
May $24.00 $21.74 5,420
June $24.00 $23.50 700
July $23.50 $23.00 6,300
August $23.26 $22.20 13,340
September $23.00 $20.70 8,116
October $21.35 $17.25 24,213
November $20.00 $17.60 15,843
December $20.00 $15.37 11,250
2019      
January $20.00 $18.40 9,455
February $20.26 $18.50 7,210
March $20.25 $19.80 3,607
April $21.50 $20.26 650
May (1 to 10) $23.25 $21.74 750

 

 24 

 

NYSE

(US$)

 

Period High ($) Low ($) Volume
2018      
April $24.37 $20.35 1,414,512
May $24.19 $21.83 208,940
June $24.00 $22.99 112,004
July $23.74 $22.80 110,913
August $23.59 $21.97 165,687
September $23.00 $20.50 172,596
October $21.40 $17.81 213,401
November $20.38 $17.48 207,118
December $19.97 $15.09 201,463
2019      
January $20.30 $18.11 169,453
February $20.88 $18.24 333,691
March $20.70 $19.13 302,335
April $21.83 $20.35 305,154
May (1 to 10) $23.48 $21.61 305,154

 

6.75% Convertible Debentures

 

The 6.75% Convertible Debentures are traded on the TSX under the symbol JE.DB.C. The following table sets forth trading information for the 6.75% Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2018      
April $100.88 $97.27 5,510,000
May $100.05 $97.50 3,537,000
June $99.31 $97.00 1,405,000
July $99.50 $90.00 3,099,000
August $99.50 $90.00 3,099,000
September $98.00 $96.00 1,917,000
October $98.00 $93.00 2,137,500
November $96.50 $92.50 1,353,000
December $96.00 $91.01 1,021,000
2019      
January $98.00 $94.00 1,791,000
February $98.75 $93.25 1,757,000
March $99.80 $98.00 823,000
April $99.50 $97.27 2,993,000
May (1 to 10) $99.80 $98.51 363,000

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6.75% $100 Million Convertible Debentures

 

The 6.75% $100 Million Convertible Debentures began trading on the TSX under the trading symbol JE.DB.D on February 12, 2018. The following table sets forth trading information for the $100 Million Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2018      
April $96.75 $92.00 4,546,000
May $96.65 $92.26 3,085,000
June $94.00 $92.70 3,535,000
July $94.87 $92.50 1,189,000
August $93.99 $84.01 3,773,000
September $93.60 $88.50 1,950,000
October $93.19 $87.00 859,000
November $90.99 $86.51 3,120,000
December $87.01 $82.00 2,809,000
2019      
January $92.97 $86.00 3,036,000
February $93.00 $89.99 597,000
March $94.65 $91.00 982,000
April $95.00 $92.00 1,456,000
May (1-10) $95.02 $92.26 443,000

 

$150 Million Convertible Bonds

 

The $150 Million Convertible Bonds were listed on the Professional Securities Market of the LSE under the trading symbol 48IL on June 12, 2014. To date the LSE has not reported any trading activity.

 

PRIOR SALES

 

The Company issued the following securities during the most recently completed fiscal year, none of which are listed or quoted on a marketplace:

 

1.770,453 RSGs/PBGs were granted on May 16, 2018, having a grant value of $5.11 per RSG/PBG.

 

2.311,106 RSGs/PBGs were granted on May 25, 2018, having a grant value of $4.72 per RSG/PBG.

 

3.19,500 RSGs were granted on November 7, 2018, having a grant value of $4.45 per RSG.

 

4.7,848 RSGs were granted on February 9, 2019, having a grant value of $4.93 per RSG.

 

As part of their fee based compensation, DSGs or Common Shares are issued to directors at the end of each quarter at a value per DSG or Common Share equal to the 10-day simple average closing price of the Common Shares, as applicable, on the TSX preceding the quarter end.

 

The following table describes the number of DSGs or Common Shares granted, the date granted, and the 10-day simple average closing price of Common Shares, as applicable, used to determine the number of DSGs or Common Shares granted.

 

Quarter Ended

Total Number of DSGs/

Common Shares Granted

10 Day Average Closing Price

 

June 30, 2018 18,366 $4.82
September 30, 2018 12,196 $3.97
December 31, 2018 11,468 $4.51
March 31, 2019 11,221 $4.61

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Escrowed securities

 

As part of the acquisition of EdgePower on February 28, 2018, a portion of the consideration paid by Just Energy was satisfied by the issuance of 1,415,285 Just Energy Common Shares, 606,550 of which are subject to a three-year escrow hold period.

 

DIRECTORS AND Executive OFFICERS OF the company

 

Members of the Board of Directors

 

The names, municipalities of residence, year of appointment and the present principal occupations of the directors of the Company as at May 15, 2019, are as follows:

 

Name, Municipality of Residence  

Year of
Appointment(7)

 

Present Principal Occupation
During Five Preceding Years(8)

         

John A. Brussa (3)(4)(5)

Calgary, Alberta

 

  2001   Senior Partner, Burnet, Duckworth & Palmer LLP

R. Scott Gahn (1)(2)(4)(5)

Houston, Texas

 

  2013   President, Modern System Concepts, Inc.

H. Clark Hollands (1)(3)(5)

Vancouver, British Columbia

 

  2015   Chartered Accountant, Businessman and Corporate Director

Rebecca MacDonald

Toronto, Ontario

 

  2001  

Executive Chair of the Company

 

 

Patrick McCullough

Houston, Texas

 

  2018   Chief Executive Officer of the Company

Brett Perlman (2)(4)(5)

Houston, Texas

 

  2013   President, Vector Advisors

Dallas H. Ross (1)(2)(3)(4)(5)

Vancouver, British Columbia

 

  2017   General Partner and Founder - Kinetic Capital Partners

William F. Weld (1)(2)(3)(5)(6)

New York, New York

 

2012

 

 

Principal, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C (law firm)

 

 

Notes:

 

(1)Member of the Audit Committee. Mr. Hollands is the Chair of the Committee and the Financial Expert under the NYSE listing standards.
(2)Member of the Compensation, Human Resources, Environmental, Health and Safety Committee. Mr. Ross is the Chair of the Committee.
(3)Member of the Nominating and Corporate Governance Committee. Mr. Weld is the Chair of the Committee.
(4)Member of the Risk Committee. Mr. Gahn is the Chair of the Committee.
(5)Member of the Strategic Initiatives Committee. Mr. Ross is the Chair of the Committee.
(6)Appointed lead director by the Board on June 25, 2015.
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(7)Each of Ms. MacDonald and Mr. Brussa became a director of the Company on December 31, 2010, immediately prior to the Trust Conversion. Prior to the Trust Conversion, each of Ms. MacDonald and Mr. Brussa was a director of Just Energy Corp., the administrator of the Fund.
(8)Each of the Directors of the Company has held the principal occupation indicated opposite his or her name during the preceding five years except for Mr. McCullough who previously served as the Chief Financial Officer of the Company from August 2014 to March 31, 2018, and, prior to this, was Chief Executive Officer at Amonix, Inc.

 

Executive Officers of the Company

 

The names, municipality of residence and present principal occupations of the executive officers of the Company as at May 15, 2019, are as follows:

 

Name, Municipality of Residence

 

Principal Occupation
During Preceding Five Years(1)

     

Rebecca MacDonald

Toronto, Ontario

 

  Executive Chair

Patrick McCullough

Houston, Texas

 

  Chief Executive Officer

Jim Brown

Houston, Texas

 

  Chief Financial Officer

Jonah T. Davids

Toronto, Ontario

 

  Executive Vice President, General Counsel and Corporate Secretary

Sam Mavalwalla

Houston, Texas

 

  Chief Information Officer

Amir Andani

Toronto, Ontario

 

  Chief Risk Officer

Brent Moore

Houston, Texas

  Executive Vice President, President North America Retail
     

Mark Hanrahan

Toronto, Ontario

  Chief Strategy Officer
     

Alex Ince-Cushman

Toronto, Ontario

  Chief Technology Officer
     

Daniel MacDonald

Toronto, Ontario

  Senior Vice President, President, Value Added Products

 

Notes:

 

(1)Each of the officers who is not a director of the Company has held the principal occupation referred to opposite his or her name or has held other positions and offices within the Company or its subsidiaries during the past five years except:

 

(a)Mr. McCullough was Chief Financial Officer of the Company from August, 2014 to March 31, 2018. He was previously the Chief Executive Officer and Chief Financial Officer of Amonix, Inc.
(b)Mr. Brown joined the Company as Senior Vice President of Settlements on April 22, 2013. He was President of Hudson Energy from April 11, 2016 to April 2018. He was previously Vice President of Finance at NextEra Energy Resources.
(c)Mr. Moore was President of Hudson Energy from April 2018 to April 2019. He was President of Interactive Energy Group from August 2017 to April 2018. Prior to that, he founded Save On Energy in 2003 which was ultimately acquired by Red Ventures in 2012. From then he continued to serve as the President of Save On Energy as well as Senior Vice President at Red Ventures until 2017.
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(d)Mr. Hanrahan was Vice President of Integrated Planning & Performance Management at Barrick Gold Corporation from September 2015 to December 2017. He was at McKinsey & Company from October 2007 to June 2015.
(e)Mr. Ince-Cushman was an Executive with Palantir Technologies from March 2015 to November 2018. He was at McKinsey & Company from November 2008 to February 2015.
(f)Mr. MacDonald founded Filter Group Inc. in 2011 and was president of Filter Group Inc. when it was acquired by Just Energy in October of 2018.

 

 

 

 

 

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Ownership, Control and Direction of Securities by Directors and Executive Officers

 

As of May 10, 2019, the above directors and executive officers of the Company, as a group, beneficially owned, or exercised control or direction over, directly or indirectly, an aggregate of approximately 8.8 million Common Shares, PBGs, RSGs and DSGs, representing approximately 5.9% of the issued and outstanding Common Shares.

 

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company, is, as at the date hereof, or has been within the 10 years before the date hereof, a director, or executive officer of any company that, while such person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of such person ceasing to act in that capacity become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

 

John Brussa resigned as a director of Calmena Energy Services Inc. (“Calmena”) on June 30, 2014. On January 19, 2015, a senior lender of Calmena (the “Senior Lender”) made an application to the Court of Queen's Bench of Alberta (the “Court”) to appoint an interim receiver under the Bankruptcy and Insolvency Act (Canada) and trading in the common shares of Calmena was suspended by the Toronto Stock Exchange. On January 20, 2015, the Senior Lender was granted a receivership order by the Court.

 

Mr. Brussa was also a director of Enseco Energy Services Corp. (“Enseco”), a public oilfield service company, which was placed in receivership on October 14, 2015 and, in connection therewith, a receiver was appointed under the Bankruptcy and Insolvency Act (Canada). Mr. Brussa resigned as a director of Enseco on October 14, 2015. On December 21, 2015 Enseco was assigned into bankruptcy by the receiver.

 

Mr. Brussa was a director of Argent Energy Ltd. which was the administrator of Argent Energy Trust. On February 17, 2016, Argent Trust and its Canadian and United States holding companies (collectively “Argent”) commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) for a stay of proceedings until March 19, 2016. On the same date, Argent filed voluntary petitions for relief under Chapter 15 of the United States Bankruptcy Code (“Chapter 15”). On March 9, 2016, the stay of proceedings under the CCAA was extended until May 17, 2016. Additionally, on March 10, 2016 the U.S. Bankruptcy Court approved an order recognizing the CCAA as the foreign main proceedings under Chapter 15. Mr. Brussa resigned on June 30, 2016.

 

John Brussa resigned as a director of Twin Butte Energy Ltd. (“Twin Butte”) on September 1, 2016. On September 1, 2016, the senior lenders of Twin Butte (the “Senior Lenders”) made an application to the Court of Queen's Bench of Alberta (the “Court”) to appoint a receiver and manager over the assets, undertakings and property of Twin Butte under the Bankruptcy and Insolvency Act (Canada) and trading in the common shares of Twin Butte was suspended by the Toronto Stock Exchange. On September 1, 2016, the Senior Lenders were granted a receivership order by the Court.

 

Mr. Brussa was a director of Virginia Hills Oil Corp. (“VHO”), a TSX-V listed oil and gas company. On February 13, 2017, VHO received a demand notice and notice of intention to enforce security from its lenders and agreed to consent to the early enforcement of the lenders' security and the appointment of a receiver over all of the current and future assets, undertakings and properties of VHO. The receiver was appointed on February 13, 2017. Mr. Brussa resigned as a director of VHO on February 24, 2017.

 

Mr. Ross was asked to join the Board of Directors of Catalyst Paper Corporation in May 2010 to assist in the possible restructuring of the company. The company subsequently filed for CCAA protection in January 2012, reorganized its financial affairs significantly over a number of months and then successfully emerged from CCAA in September 2012, at which time a new Board representing the post recapitalization stakeholders was appointed.

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No director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company (or any personal holding company of such person), has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

Personal Bankruptcies

 

No director or executive officer of the Company, or a security holder holding sufficient securities of the Company to affect materially the control of the Company, or a personal holding company of any such persons, has, within the 10 years preceding the date of this document, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of the individual.

 

Conflicts of Interest

 

There are potential conflicts of interest to which the directors and officers of the Company will be subject in connection with the operations of the Company. In particular, certain of the directors and officers of the Company are involved in managerial or director positions with other energy companies whose operations may, from time to time, be in direct competition with those of the Company or with entities which may, from time to time, provide financing to, or make equity investments in, competitors of the Company. Conflicts, if any, will be subject to the procedures and remedies available under the CBCA. The CBCA provides that in the event that a director has an interest in a contract or proposed contract or agreement, the director shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement unless otherwise provided in the CBCA. As at the date hereof, the Company is not aware of any existing material conflicts of interest between the Company or a Subsidiary of the Company and any director or officer of the Company or a Subsidiary of the Company.

 

LEGAL PROCEEDINGS and regulatory actionS

 

Other than as set forth below, there are no outstanding legal proceedings or regulatory actions to which the Company or any of its Subsidiaries is a party or in respect of which any of their respective properties are subject, which are either: (a) individually, for claims in excess of 10% of the current asset value of the Company, or (b) material to the Company or any of its Affiliates, nor are there any such proceedings known to be contemplated.

 

In March 2012, Davina Hurt and Dominic Hill filed a lawsuit against Commerce Energy Inc. (“Commerce”), Just Energy Marketing Corp. and the Company (collectively referred to as “Just Energy”) in the Ohio Federal Court claiming entitlement to payment of minimum wage and overtime under Ohio wage claim laws and the federal Fair Labor Standards Act (“FLSA”) on their own behalf and similarly situated door-to-door sales representatives who sold for Commerce in certain regions of the United States. The Court granted the plaintiffs’ request to certify the lawsuit as a class action. Approximately 1,800 plaintiffs opted into the federal minimum wage and overtime claims, and approximately 8,000 plaintiffs were certified as part of the Ohio state overtime claims. On October 6, 2014, the jury refused to find a willful violation but concluded that certain individuals were not properly classified as outside salespeople in order to qualify for an exemption under the minimum wage and overtime requirements. On September 28, 2018, the Court issued a final judgment, opinion and order. Just Energy filed its appeal to the Court of Appeals for the Sixth Circuit on October 25, 2018. Just Energy strongly believes it complied with the law which is consistent with the recent findings in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018) and Kevin Flood, et al. v. Just Energy Marketing Group, et al. 2d Circular No. 17-0546.

 

In August 2013, Levonna Wilkins, a former door-to-door independent contractor for Just Energy Marketing Corp. (“JEMC”), filed a lawsuit against Just Energy Illinois Corp., Commerce Energy Inc., JEMC and the Company (collectively referred to as “Just Energy”) in the Illinois Federal District Court claiming entitlement to payment of minimum wage and overtime under Illinois wage claim laws and the FLSA on her own behalf and similarly situated door-to-door sales representatives who sold in Illinois. On March 13, 2015, the Court certified the class of Illinois sales representatives who sold for Just Energy Illinois and Commerce, and on June 16, 2016, the Court granted Just Energy’s motion for reconsideration which revised the class definition to exclude sales representatives who sold for Commerce. The trial is scheduled to commence on August 5, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

 31 

 

In May 2015, Kia Kordestani, a former door-to-door independent contractor sales representative for Just Energy Corp., filed a lawsuit against Just Energy Corp., Just Energy Ontario L.P. and the Company (collectively referred to as “Just Energy”) in the Superior Court of Justice, Ontario, claiming status as an employee and seeking benefits and protections of the Employment Standards Act, 2000 such as minimum wage, overtime pay, and vacation and public holiday pay on his own behalf and similarly situated door-to-door sales representatives who sold in Ontario. On Just Energy’s request, Mr. Kordestani was removed as a plaintiff but replaced with Haidar Omarali, also a former door-to-door sales representative. On July 27, 2016, the Court granted Omarali’s request for certification, refused to certify Omarali’s request for damages on an aggregate basis, and refused to certify Omarali’s request for punitive damages. On September 5, 2018, Omarali filed his motion for summary judgment and set a hearing date of June 11, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

On October 1, 2018, the Company acquired Filter Group Inc., a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

Other than as described above and in the Proxy and Management Information Circular dated May 15, 2019, which is incorporated by reference herein, there were no material interests, direct or indirect, of directors or executive officers of the Company, any person that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Common Shares, or any known associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year which has materially affected or is reasonably expected to materially affect the Company.

 

AUDITORS, TRANSFER AGENT AND REGISTRAR

 

The auditors of the Company are Ernst & Young LLP, Chartered Accountants, Toronto, Ontario. Based on the recommendation of the Audit Committee of the Company, the Board has proposed that Ernst & Young LLP continue as auditors of the Company at the Annual General Meeting of the Company to take place on June 26, 2019.

 

Computershare Investor Services Inc. at its principal transfer offices in Toronto, Ontario acts as the transfer agent and registrar for the Common Shares and Preferred Shares, and trustee for the 6.75% Convertible Debentures and the 6.75% $100 Million Convertible Debentures. US Bank Trustees Limited at their principal offices in London, England and Elavon Financial Services Limited, UK Branch act as trustees for the $150 Million Convertible Bonds.

 

INTEREST OF EXPERTS

 

There is no person or company whose profession or business gives authority to a statement, report or valuation made by such person or company and who is named as having prepared or certified a statement, report or valuation described or included in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company during, or related to, the Company’s most recently completed financial year other than Ernst &Young LLP, the Company’s current auditors. Ernst & Young LLP have confirmed that they are independent within the meaning of the rules of professional conduct of the Institute of Chartered Accountants of Ontario. In addition, none of the aforementioned persons or companies, nor any director, officer or employee of any of the aforementioned persons or companies, is or is expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company.

 32 

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into by the Company and/or its Subsidiaries are: the Credit Facility and its respective amendments, the $150 Million Convertible Bonds Trust Deed, the 6.75% Convertible Debentures Trust Indenture, the 6.75% $100 Million Convertible Debenture Trust Indenture, and the US$250 Million Term Financing Loan Agreement, each of which is described herein. Copies of the Company’s material agreements are available on the Company’s SEDAR profile at www.sedar.com or, since January 30, 2012, on the U.S. Securities Exchange Commission’s website at www.sec.com.

 

AUDIT COMMITTEE INFORMATION

 

Multilateral Instrument 52-110 of the Canadian Securities Administrators requires the Company to disclose annually in its AIF certain information relating to the Company’s Audit Committee and its relationship with its independent auditors. Schedule “A” contains the additional information contemplated by Form 52-110F1 - “Audit Committee Information required in an AIF”, including information with respect to the financial literacy and experience of each member of the Audit Committee. The text of the mandate for the Audit Committee is included in Schedule “B”.

 

ADDITIONAL INFORMATION

 

Additional information relating to the Company may be found on SEDAR at www.sedar.com, at the U.S. Securities and Exchange Commission website at www.sec.gov, or on the Company’s website at www.justenergygroup.com. Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, is contained in the Information Circular of the Company for its most recent annual meeting of Shareholders that involved the election of directors of the Company. Additional financial and other information is contained in the Financial Statements and the MD&A.

 

 

 

 

 

 33 

 

schedule “A” - FORM 52-110F1

AUDIT COMMITTEE INFORMATION REQUIRED IN AN AIF

 

The Audit Committee’s Charter.

 

The text of the Company’s Audit Committee charter as approved on February 9, 2012, is attached hereto as Schedule “B”.

 

Composition of the Audit Committee and Relevant Education and Experience.

 

At May 15, 2019, the Company’s Audit Committee consisted of H. Clark Hollands (Chair), R. Scott Gahn, William F. Weld and Dallas H. Ross. All members of the audit committee are independent and financially literate (as those terms are defined in Multilateral Instrument 52-110 – Audit Committees).

 

Mr. Hollands is a chartered accountant. He obtained his B. Comm from the University of British Columbia in 1975, his CA designation in 1977 and his FCA designation in 2008. He spent 25 years of his professional career as an international tax partner with KPMG LLP in Vancouver advising many significant Canadian based multi-national groups and large public companies on their international tax arrangements. Mr. Hollands left private practice in 2008 to devote most of his time to a variety of business and investment interests in which he is a partner and to devote more time to his family and several charitable foundations including The Jim Pattison Foundation. He also serves as a director and advisor to several other large Canadian based private foundations. Mr. Hollands’ broad background and experience in finance, accounting, business and taxation will significantly contribute, on behalf of all shareholders, to the deliberations of the Just Energy board of directors and the committees on which he will serve.

 

Mr. Gahn, formerly Executive Vice President and Chief Operating Officer of Just Energy until June 2011, was appointed to the board on December 17, 2013. Mr. Gahn is currently Chairman of Modern System Concepts, Inc., a Houston-based life-safety and security firm. Mr. Gahn has a long history in the deregulated energy industry having served on the Texas ERCOT board from 2005 to 2008 and having been involved in the sale of deregulated and regulated electricity and natural gas for 28 years. He was one of the founding shareholders and Chief Executive Officer of Just Energy Texas L. P. which was purchased by the Company in 2007, and in that capacity was responsible for North American Wholesale energy supply operations and business developments.

 

Mr. Weld currently practices with the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in Boston and New York where he specializes in government strategies, corporate governance and compliance and international business best practices. He also served as Senior Advisor to the Chair of Ivanhoe Capital Corporation, a private holding company headquartered in British Columbia. Mr. Weld has a very distinguished career in government and business. During the 1990’s, Mr. Weld served two terms as Governor of Massachusetts, being elected in 1990 and re-elected in 1994. He served as national co-chair of the Privatization Council and led business and trade missions to many counties in Asia, Europe, Latin America and Africa. He has served as a director of other public companies and is an active member of the United States Council on Foreign Relations. Prior to his election as Governor, Mr. Weld was a federal prosecutor for seven years, serving as the Assistant U.S. Attorney General in charge of the Criminal Division of the Justice Department in Washington, D.C. and the U.S. Attorney for Massachusetts during the Reagan administration. He was also a commercial litigator in Boston and Washington. Mr. Weld is currently running for President of the United States.

 

Mr. Ross is a General Partner and Founder of Kinetic Capital Partners in Vancouver, BC whose equity capital and strategic attention is focused on controlling positions in several private companies in the United States with substantial value creation underway. Mr. Ross is Chair or Senior Director of those private companies. Mr. Ross currently also serves on public company boards: he is Chair of Rogers Sugar; Director of Westshore Terminals; and a Director of Canfor Corporation. Previously he was a Director of Catalyst Paper and was brought in to assist with its financial restructuring as Chair of its Strategic Alternatives Committee; and previously was a Director of Futureshop.com. Mr. Ross was on the Board, and was the Chair of the Campus Task Force and was on the Executive Committee of Crofton House School during its substantial campus rebuild. Prior to Kinetic Capital Partners, Mr. Ross was Managing Director Investment Banking in Vancouver and Managing Director Mergers and Acquisitions in Toronto with ScotiaMcLeod. Before that Mr. Ross had qualified as a Chartered Accountant.

 34 

 

Pre-Approval Policies and Procedures

 

Recommendations are made from time to time from management to the Audit Committee for the engagement of all non-audit services. The Audit Committee considers such recommendations for pre-approval at its quarterly meetings or sooner, if necessary providing that where necessary, this function may be delegated to the Chair of the Audit Committee for approval on the basis that the Chair reports all such approvals to the Audit Committee at its next regularly scheduled meeting.

 

External Auditor Service Fees

 

Audit and Audit Related Fees

 

For fiscal 2019, fees charged by Ernst & Young LLP for professional audit services that are normally provided by external auditors in connection with statutory and regulatory filings or engagements as well as for assurance and related services rendered by it that are reasonably related to the performance of the audit or review of the Company’s financial statements were $2,192,900 (2018 — $2,013,670).

 

Tax Fees

 

Tax fees for professional services rendered by Ernst & Young LLP for tax compliance, tax advice, tax planning and other services were $257,700 (2018 — $444,857).

 

Total Fees

 

The aggregate fees billed by Ernst & Young LLP were $2,450,600 (2018 — $2,458,527). No other services were provided to Just Energy and its subsidiaries by Ernst & Young LLP.

 

 

 

 

 

 35 

 

SCHEDULE “B” - AUDIT COMMITTEE MANDATE

 

JUST ENERGY group inc.

 

1.COMPOSITION

 

(a)Applicable Canadian corporate and provincial and United States securities legislation, regulation and policies, the Toronto Stock Exchange (“TSX”) and New York Stock Exchange (“NYSE”) by-laws rules, regulation and policies and applicable provisions of the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to the extent applicable to a foreign private issuer (together “Applicable Legislation”) require that an audit committee (the “Committee”) be comprised of a minimum of three directors, each of whom will be financially literate and independent and one of whom shall be a “financial expert” as defined by Applicable Legislation and each of whom shall be independent (as set out in section 303 A.02 of the NYSE Company Manual) and shall not have any material relationship with the Company or any affiliate thereof, i.e., a relationship that could, in the view of the Company’s board of directors (the “Board”) reasonably interfere with the exercise of a member’s independent judgment.

 

(b)The Board of Directors of the Company (the “Board”) will appoint the members of the Committee annually at the first meeting of the Board after the annual meeting of shareholders of the Company and shall ensure that the members of the Committee meet the qualifications and other requirements outlined in (a) above under Applicable Legislation.

 

(c)Committee members will be appointed for a one-year term and may be reappointed subject to the discretion of the Board having regard: (i) to Applicable Legislation and, (ii) the desire for continuity and for periodic rotation of Committee members.

 

(d)One of the members of the Committee who is otherwise qualified under Applicable Legislation and who shall be a financial expert under Applicable Legislation shall be appointed Committee Chair by the Board. The Committee shall appoint a Secretary who shall be the Corporate Secretary of to the Company. Any Committee member, who for any reason, is no longer independent, ceases to be a member of the Committee.

 

(e)If an audit committee member simultaneously serves on the audit committee of more than 3 public companies, the Board must determine that such simultaneous service will not impair the ability of such member to effectively serve on the Company’s Committee.

 

2.AUTHORITY

 

(a)The Board may authorize the Committee to investigate any activity of the Company and any affiliate thereof for which the Committee has responsibility or with respect to those responsibilities imposed on audit committees herein and by Applicable Legislation. All employees are to co-operate as requested by the Committee.

 

(b)The Committee may, without the approval of management, retain persons having special expertise to assist the Committee in fulfilling its responsibilities, including outside counsel or financial experts and provide for their remuneration.

 

(c)The external auditor and internal audit shall report to the Committee.

 

3.MEETINGS

 

(a)The Committee is to meet at least four times per year preferably immediately following the meeting of the Risk Committee. The meetings will be scheduled to permit the review of the scope of the audit as presented by the Company’s auditor before commencement of the audit and the timely review of the quarterly and annual financial statements and such other annual filings required to be made by the Company and any affiliate thereof containing financial information about the Company and any affiliate thereof including the AIF, MD&A (quarterly and annual), quarterly press releases, reports to Shareholders, the management proxy circular and such other disclosure documents applicable to the Company and any affiliate thereof which contain financial data based upon, derived from or to form part of the financial statements of the Company and contemplated by Applicable Legislation.
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(b)Meetings of the Committee shall be validly constituted if a majority of members of the Committee are present in person or by telephone conference. Additional meetings may be held as deemed necessary by the Committee Chair or as requested by any member or the external auditors or any director of the Company not a member of the Committee.

 

(c)Any member of the external auditors of the Company is entitled to receive notice of every meeting of the Committee and at the Company’s expense, to attend and be heard thereat and, if requested by a member of the Committee, to attend any meeting of the Committee.

 

(d)The Committee should require the attendance of the Company’s auditors at least once each year, and at such other times as the Committee deems appropriate in the context of Applicable Legislation and its responsibilities as outlined below. The Company’s external auditor shall be requested to review and comment on all disclosure documents issued by the Company containing financial statements or information derived therefrom.

 

(e)The Committee shall meet privately with the external auditor at least quarterly excluding members of management other than the Secretary to the Committee. The Committee shall meet privately with the internal audit staff at least twice yearly excluding other members of management other than the Secretary to the Committee.

 

4.REPORTING

 

(a)The minutes of all meetings of the Committee are to be provided to the Board and to the Company’s auditor. Oral reports by the Chair on recent matters not yet minuted will be provided to the Board at its next meeting. Minutes of all Committee meetings will be subsequently reviewed and approved by the Committee.

 

(b)Supporting schedules and information reviewed by the Committee will be available for examination by any director or the Company’s auditor upon request to the Secretary of the Committee.

 

5.RESPONSIBILITIES

 

The general responsibility of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to: (i) the integrity of annual and quarterly financial statements to be provided to shareholders and regulatory bodies; (ii) compliance with accounting and finance based legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the system of internal accounting and financial reporting controls that management has established; (v) performance of the internal and external audit process and of the independent auditor; and (vi) to the extent not addressed by the Risk Committee, the implementation and effectiveness of the policies of the Company relating to Risk Management Policy and Procedures, the Policy on Dividends and such other policies of the Company approved from time to time by the Board or the Committee.

 

The specific responsibilities of the Committee shall be as follows:

 

(a)to review the Company’s quarterly and annual financial statements and any other financial statements of the Company and its affiliates required to be prepared by Applicable Legislation or otherwise for dissemination to the public, so as to be satisfied they are fairly presented in accordance with generally accepted accounting principles and in accordance with Applicable Legislation and to recommend to the Board whether the quarterly and the annual financial statements and any such other financial statements should be approved by the Board;

 

(b)prior to the dissemination to the public, to review the financial information and financial data contained in the Company’s quarterly financial statements, Annual Report to Shareholders and other financial publications of the Company or any affiliate thereof (including the Company’s interim and year end management discussions and analysis of financial condition and results of operation, annual information form, proxy information circular, quarterly press releases and material and timely disclosure reports containing any financial data) and the financial information contained in a prospectus and/or registration statement of the Company or any affiliate thereof or other document filed with any regulatory authority so as to be satisfied that the financial information and financial data is not significantly erroneous, misleading or incomplete and contains full, true and plain disclosure of all material facts or as otherwise required by Applicable Legislation and to make recommendations to the Board with respect to all such disclosure documents;
 37 

 

(c)to be satisfied that management of the Company and any affiliate thereof have implemented appropriate systems of capture of financial information and internal control over financial reporting and that these are operating effectively under Applicable Legislation and to review all reports prepared by the auditors with respect to the auditor’s attestation report;

 

(d)to be satisfied that management of the Company and the Company have implemented appropriate systems of internal control to ensure compliance with Applicable Legislation and ethical requirements and particularly to be satisfied that internal controls over financial reporting and disclosure controls and procedures are in place and that internal controls have been designed and implemented to provide reasonable assurance that the Company’s financial statements and other documents required to be mailed to shareholders or filed with regulatory authorities are fairly presented so as to enable the Chief Financial Officer and the Chief Executive Officer (and any other officer or director of the Company as may be required by Applicable Legislation) to personally certify the Company’s financial statements as required by Applicable Legislation;

 

(e)to the extent not addressed by the Risk Committee, to be satisfied that management of the Company and each affiliate thereof have implemented effective systems to identify significant financial and other risks of the business and changes to these risks including the implications of risks associated with the Company’s compensation policies and practices under Form 51-12 F6 under National Instrument 51-102. The Committee will review reports from management related to these risks and make recommendations to the Board with respect to a Risk Management Policy;

 

(f)to recommend to the Board the appointment of external auditors nominated at each annual meeting of shareholders and provide oversight with respect to the external audit engagement. The Committee will also recommend to the Board the re-appointment or appointment of the external auditors and the compensation payable to them. The Committee will pre-approve all non-audit services to be provided to the Company and its affiliates by the Company’s external auditors providing that where necessary, this function may be delegated to the Chair of the Committee for approval on the basis that the Chair reports all such approvals to the Committee at its next regularly scheduled meeting;

 

(g)to be satisfied that any significant or material matter brought to the attention of the Committee by the Company’s external auditors and internal audit or matters where there is significant disagreement between the Company’s external auditors and/or internal audit and Company officers (including the resolution or proposed resolution thereof) are communicated to the Board;

 

(h)to be satisfied that all significant matters raised in any report to management by the external auditors and internal audit are being addressed and dealt with by management in a satisfactory manner and, to the extent they are not, to make a report to the Board;

 

(i)to be satisfied that the declaration and payment of dividends by any affiliate of the Company to the Company or to any affiliate thereof and the declaration and payment of dividends by the Company to its shareholders, meet applicable legal requirements and Applicable Legislation and to make recommendations to the Board with respect thereto;

 

(j)as and when required by Applicable Legislation or as otherwise required including the laws and regulations in all jurisdictions in which it operates to establish independent procedures (A) for the receipt, retention and treatment of complaints received by the Company or any affiliate thereof regarding accounting, internal accounting controls or auditing matters, and (B) for the confidential communication of anonymous submissions to the Company or any affiliate thereof and a member of the Committee of concerns regarding questionable accounting or auditing matters from employees including the submission of those complaints and concerns by logging into www.justenergy.ethicspoint.com, selecting the Just Energy Group or JEG as the company and following the prompts which are available. This service is interactive and anonymous;
 38 

 

(k)as and when required by Applicable Legislation, to be satisfied that disclosure controls and procedures are in place to ensure that material information required to be disclosed by Applicable Legislation is recorded, processed and summarized and reported within the time periods specified in Applicable Legislation;

 

(l)to ensure that the external auditors report annually on matters of independence;

 

(m)to ensure that the external and internal auditors prepare an external audit plan which, with any changes thereto, is reviewed by and acceptable to the Committee;

 

(n)to review and approve the hiring policies of the Company and any affiliate thereof regarding partners and employees (past or current) of the present and former external auditors of the Company;

 

(o)to review semi-annually all expenses relating to consulting and professional services including legal and audit;

 

(p)to review semi-annually executive business expenses;

 

(q)to review, analyse and implement all necessary procedures, controls and other similar requirements relating to financial matters arising from proposals to amend or introduce Applicable Legislation and the implementation or promulgation thereof;

 

(r)once or more annually, as the Corporate Governance and Nominating Committee (CGN Committee) decides, to receive for consideration that Committee’s evaluation of this Mandate and any recommended changes. Review and assess the CGN Committee’s recommended changes and make recommendations to the Board for consideration.

 

(s)to carry out any other appropriate duties and responsibilities assigned to the Committee by the Board;

 

(t)to honour the spirit and intent of Applicable Legislation as it evolves, authority to make minor technical amendments to this Mandate is delegated to the Corporate Secretary, who will report any amendments to the CGN Committee at its next meeting;

 

(u)to ensure that the Terms of Reference for the Committee are published on the Company’s website; and

 

(v)to discuss the Company’s major financial risk exposure and the steps management has taken to monitor and control such exposures and to ensure that the mandate for the Risk Committee addresses each of these matters.

 

The Chair of the CGN Committee, in consultation with the Chair of the Committee, will periodically review the effectiveness of the Committee and the performance of each Committee member and report to the Board on their conclusions.

 

(Approved as amended by the Board of Directors of the Company on February 9, 2012).

 39 

 

SCHEDULE “C” - GLOSSARY

 

All capitalized terms not otherwise defined in the body of this Annual Information Form, shall have the meanings ascribed to them below.

 

6.75% $100 Million Convertible Debentures Indenture” means the trust indenture made as of February 22, 2018, between Just Energy and Computershare.

 

$90 Million Convertible Debentures” means the $90 million aggregate principal amount of 6.0% convertible unsecured subordinated debentures of the Company issued on October 2, 2007, pursuant to the $90 Million Debenture Indenture.

 

$90 Million Debenture Indenture” means the trust indenture dated as of October 2, 2007, between Universal and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of July 1, 2009, between JEEC (as successor to Universal) and Computershare and pursuant to a Second Supplemental Trust Indenture dated as of January 1, 2011, between the Company (as successor to JEEC) and Computershare.

 

$100 Million Convertible Debentures” means the $100 million aggregate principal amount of 5.75% extendible unsecured subordinated debentures of the Company issued on September 22, 2011, pursuant to the $100 Million Supplemental Debenture Indenture.

 

$100 Million Supplemental Indenture” means the supplemental indenture dated as of September 22, 2011, between the Company and Computershare, supplementing the $330 Million Debenture Indenture.

 

$105 Million Note Indenture” means the trust indenture dated as of December 12, 2012, between Just Energy and Computershare.

 

$105 Million Note” means the $105 million aggregate principal amount of the 9.75% note issued to CPPIB Credit Investments Inc. on December 12, 2012, pursuant to the $105 Million Note Indenture.

 

$150 Million Convertible Bonds” means the US$150 million aggregate principal amount of the 6.5% convertible bonds issued on January 29, 2014, pursuant to the $150 Million Convertible Bonds Trust Deed.

 

$150 Million Convertible Bonds Trust Deed” means the trust deed dated as of January 29, 2014, between the Company, US Bank Trustees Limited and Elavon Financial Services Limited, UK Branch.

 

US$250 Million Term Financing” means the US$250 Million non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager, pursuant to the US$250 Million Term Financing Loan Agreement.

 

US$250 Million Term Financing Loan Agreement” means the loan agreement dated as of September 12, 2018, between the Company, National Bank of Canada, and Sagard Credit Partners, LP.

 

$330 Million Convertible Debentures” means the $330 million aggregate principal amount of 6.0% extendible unsecured subordinated debentures of the Company issued on May 5, 2010, pursuant to the $330 Million Debenture Indenture.

 

$330 Million Debenture Indenture” means the trust indenture dated as of May 5, 2010, between the Fund and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of January 1, 2011, between the Company (as successor to the Fund) and Computershare.

 

Board” and “Board of Directors” means the board of directors of the Company.

 

BP” means collectively BP Energy Company, BP Canada Energy Marketing Corp., BP Canada Energy Group ULC and BP Corporation North America Inc. and any other related affiliate with which Just Energy contracts.

 

Bruce Power” means Bruce Power L.P.

 40 

 

CBCA” means the Canada Business Corporations Act, as amended from time to time, including the regulations promulgated thereunder.

 

CIBC” means Canadian Imperial Bank of Commerce, a Canadian chartered bank.

 

CDS” means The Canadian Depository for Securities Limited.

 

Commodity Suppliers” means Gas Suppliers and Electricity Suppliers.

 

Common Shares” means the common shares in the capital of the Company.

 

Company” means Just Energy Group Inc., a corporation created by a certificate of arrangement issued under the CBCA on January 1, 2011.

 

Computershare” means Computershare Trust Company of Canada.

 

Declaration of Trust” means the amended and restated declaration of trust for the Fund dated April 30, 2001, as amended and restated from time to time and terminated on December 31, 2010.

 

DSGs” means deferred share grants (formerly DUGs – deferred unit grants), issued to Directors pursuant to the DSG Plan as a component of compensation paid to Directors in lieu of fees payable in cash and which are exchangeable into Common Shares on a 1:1 basis.

 

DSG Plan” means the 2010 Directors’ Compensation Plan (formerly the Directors Deferred Unit Grant Plan) of the Company as amended from time to time.

 

Electricity Supplier” means a person who is an electricity producer or an electricity supply aggregator.

 

Exchangeable Shares” means exchangeable shares, series 1 in the capital of JEEC.

 

Exelon” means Exelon Generation Company, LLC, or any other related affiliate with which Just Energy contracts.

 

Financial Statements” means the audited comparative consolidated financial statements of the Company as at and for the years ended March 31, 2018, and 2017, together with the notes thereto and the auditor’s report thereon.

 

Fund” means Just Energy Income Fund, a trust established under the laws of the Province of Ontario on April 30, 2001, governed by the Declaration of Trust and wound up on December 31, 2010.

 

Gas Supplier” means a person who is a natural gas producer or natural gas supply aggregator.

 

Independent Broker” means a person who serves in the capacity of an independent broker to solicit Energy Contracts using among other things, a web-based sales portal, to small to mid-size commercial and small industrial customers primarily associated with Hudson.

 

Independent Contractor” means a person who serves in the capacity of an independent contractor to solicit energy contracts (including JustGreen and JustClean products), to residential and small commercial customers.

 

Information Circular” means the management information circular of the Company dated May 15, 2019, in respect of the annual meeting of shareholders of the Company to be held on June 26, 2019.

 

Intercreditor Agreement” means the sixth amended and restated intercreditor agreement made as of September 1, 2015, between the Company, certain of the Company’s Subsidiaries, CIBC, as Collateral Agent, Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, National Bank of Canada, Nextera Energy Power Marketing, LLC and Macquarie, as amended and supplemented from time to time.

 

JEC” means Just Energy Corp., a corporation incorporated under the laws of Ontario and the former administrator of the Fund.

 41 

 

JEEC” means Just Energy Exchange Corp., a corporation created by amalgamation under the CBCA on July 1, 2009, that amalgamated with, among others, the Company pursuant to the Trust Conversion, on January 1, 2011.

 

Just Energy” means all or any one or more of the Company and the Subsidiaries thereof as the context implies or may require.

 

LDC” means local distribution company, the natural gas or electricity distributor for a geographic franchise area.

 

Liquidation Preference” means US$25.00 per Series A Preferred Share.

 

Mid Market Swap Rate” means on the second business day in New York immediately preceding the first day of each relevant dividend period for the Series A Preferred Shares, the applicable semi-annual 5-year U.S. dollar mid market swap rate (the “5-year Mid Swap Rate”) displayed at 5:00 p.m. (New York time) as reported by Bloomberg L.P. on the IRSB page (or such other page as may replace that page as reported by Bloomberg L.P., or such other service as may be nominated by the person providing or sponsoring the information appearing there for the purposes of displaying comparable rates) on such date of determination; provided that if the 5-year Mid Swap Rate does not appear on that page, it shall be determined by a U.S. or Canadian investment banking firm selected by the Company on the basis of (i) quotations provided by the principal office of each of four major banks in the U.S. dollar swap market of the rates at which swaps for a 5 year period in U.S. dollars are offered by it at approximately 5:00 p.m. (New York time) on such date of determination to participants in the U.S. dollar swap market, and (ii) the arithmetic mean rounded, if necessary, to the nearest 0.00001 (0.000005 being rounded upwards) of such quotations.

 

Macquarie” means Macquarie Bank Limited, Macquarie Energy Canada Ltd., Macquarie Energy LLC and any other related affiliate with which Just Energy contracts

 

NYSE” means the New York Stock Exchange.

 

person” includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporate, unincorporated association or organization, governmental entity, syndicate or other entity, whether or not having legal status.

 

Preferred Shares” means the preferred shares of the Company.

 

RCE” means a residential customer equivalent which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJ’s) of natural gas on an annual basis and, as regards electricity, 10,000 kWh of electricity on an annual basis, which represents, respectively, the approximate amount of gas and electricity used by a typical household in Ontario.

 

PBGs” means the performance bonus grants of the Company granted pursuant to the Company’s 2013 Performance Bonus Incentive Plan, as amended from time to time.

 

RSGs” means restricted share grants of the Company granted pursuant to the Company’s 2010 Restricted Share Grant Plan, as amended from time to time (formerly known as unit appreciation rights (UARs) of the Fund granted pursuant to the Fund’s 2004 Unit Appreciation Right Plan, as amended from time to time).

 

Shareholders” means the holders from time to time of Common Shares and/or Preferred Shares, and includes the beneficial owners of such shares.

 

Shell” means Shell Energy North America (Canada) Inc., Shell Energy North America (U.S.) L.P., and any other related affiliate with which Just Energy contracts.

 

Spruce” means Spruce Finance, Inc., a merger of CPF and Kilowatt Financial, LLC.

 

Subsidiary” has the meaning ascribed thereto in the CBCA and includes all limited partnerships directly or indirectly controlled by the Company.

 

TSX” means the Toronto Stock Exchange.

 42 

 

Universal” means Universal Energy Group Ltd., a corporation incorporated under the CBCA and amalgamated with JEEC on July 1, 2009.

 

Words importing the singular include the plural and vice versa and words importing any gender include all genders.

 

Unless otherwise stated, all dollar amounts herein are in Canadian dollars.

 

 

 

 

 

 

 

 

43


Exhibit 1.2

 

 

Management’s discussion and analysis

– May 15, 2019

 

The following Management’s Discussion and Analysis (“MD&A”) is a review of the financial condition and operating results of Just Energy Group Inc. (“Just Energy” or the “Company”) for the year ended March 31, 2019. This MD&A has been prepared with all information available up to and including May 15, 2019. This MD&A should be read in conjunction with Just Energy’s audited consolidated financial statements for the year ended March 31, 2019. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. All dollar amounts are expressed in Canadian dollars unless otherwise noted. Quarterly reports, the annual report and supplementary information can be found on Just Energy’s corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com or on the U.S. Securities and Exchange Commission’s website at www.sec.gov.

 

Company overview

 

Just Energy is a leading consumer company focused on essential needs, including electricity and natural gas commodities; on health and well-being, through products such as water quality and filtration devices; and on utility conservation, bringing energy efficient solutions and renewable energy options to consumers. Currently operating in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), Just Energy serves both 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.

 

 

For a more detailed description of Just Energy’s business operations, refer to the “Continuing operations overview” section on page 6 of this MD&A.

 

Forward-looking information

 

This MD&A may contain forward-looking statements and information, including guidance for Base EBITDA for the fiscal year ending March 31, 2020. 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, 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, the performance of acquired companies and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or dividend levels is included in Just Energy’s Annual Information Form and other reports on file with Canadian securities regulatory authorities which can be accessed on SEDAR at www.sedar.com or by visiting the U.S. Securities and Exchange Commission’s website at www.sec.gov.

 

1.

 

 

Key terms

 

“6.5% convertible bonds” refers to the US$150 million in convertible bonds issued in January 2014, which mature on July 29, 2019. Net proceeds were used to redeem Just Energy’s outstanding $90 million convertible debentures and pay down Just Energy’s credit facility. In September 2018, US$45.6 million were tendered. A further US$82.0 million were repurchased during the fourth quarter of fiscal 2019 resulting in a balance of US$22.4 million outstanding as at March 31, 2019. See “Debt and financing for continuing operations” on page 26 for further details.

 

“6.75% $160M convertible debentures” refers to the $160 million in convertible debentures issued in October 2016, which have a maturity date of December 31, 2021. Net proceeds were used to redeem Just Energy’s outstanding senior unsecured notes on October 5, 2016 and $225 million of its 6.0% convertible debentures on November 7, 2016. See “Debt and financing for continuing operations” on page 26 for further details.

 

“6.75% $100M convertible debentures” refers to the $100 million in convertible debentures issued in February 2018, which have a maturity date of March 31, 2023. Net proceeds were used to redeem the 5.75% convertible debentures on March 27, 2018. See “Debt and financing for continuing operations” on page 26 for further details.

 

“8.75% loan” refers to the US$250 million non-revolving multi-draw senior unsecured term loan facility entered into on September 12, 2018, which has a maturity date of September 12, 2023. US$193.0 million was drawn as of March 31, 2019. Net proceeds from the initial draw were used to fund a tender offer for Just Energy’s outstanding 6.5% convertible bonds due July 29, 2019, and for general corporate purposes, including to pay down the Company’s credit facility. See “Debt and financing for continuing operations” on page 26 for further details.

 

“Active asset” means an asset (product) that has been installed and not cancelled.

 

“Active MRR” refers to monthly recurring revenue (“MRR”) from active assets (i.e., subscriptions). It represents the expected recurring revenue as at the reporting date.

 

“Commodity RCE attrition” refers to the percentage of energy customers whose contracts were terminated prior to the end of the term either at the option of the customer or by Just Energy.

 

“Customer count” is comprised of each individual customer with a distinct address rather than to an RCE (see key term below).

 

“Failed to renew” means customers who did not renew expiring contracts at the end of their term.

 

“Filter Group financing” refers to the outstanding loan balance between Home Trust Company (“HTC”) and Filter Group Inc. which was acquired by the Company on October 1, 2018. The loan bears an annual interest rate of 8.99%. See “Debt and financing for continuing operations” on page 26 for further details.

 

“Gross margin per RCE” refers to the energy gross margin realized on Just Energy’s RCE customer base, including gains/losses from the sale of excess commodity supply.

 

“LDC” means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.

 

“Maintenance capital expenditures” means the necessary capital expenditures required to maintain existing operations at functional levels.

 

“Preferred shares” refers to the 8.50%, fixed-to-floating rate, cumulative, redeemable, perpetual preferred shares that were initially issued at a price of US$25.00 per preferred share in February 2017. The cumulative feature means that preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price, as and if declared by our Board of Directors.

 

“RCE” means residential customer equivalent, which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario, Canada.

 

2.

 

 

Non-IFRS financial measures

 

Just Energy’s audited consolidated financial statements are prepared in accordance with IFRS. The financial measures that are defined below do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. These financial measures 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; however, the Company believes that these measures are useful in providing relative operational profitability of the Company’s business.

 

EBITDA

 

“EBITDA” refers to earnings before finance costs, income taxes, depreciation and amortization. EBITDA is a non-IFRS measure that reflects the operational profitability of the business.

 

Base EBITDA

 

“Base EBITDA” refers to EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments, discontinued operations and restructuring as well as reflecting an adjustment for share-based compensation, non-controlling interest and amortization of sales commissions with respect to value-added products (see below). This measure reflects operational profitability as the non-cash share-based compensation expense is treated as an equity issuance for the purposes of this calculation, since it will be settled in common shares; the mark to market gains (losses) are associated with supply already sold in the future at fixed prices; and the mark to market gains (losses) of weather derivatives are not yet realized. Restructuring and discontinued operations are one-time, non-recurring events.

 

Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under current IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing. Management believes that these short-term mark to market gains (losses) do not impact the long-term financial performance of Just Energy, and has excluded them from the Base EBITDA calculation.

 

Included in Base EBITDA are gains (losses) from the Company’s portfolio of equity investments and acquisitions which are presented in the Company’s audited consolidated statements of income (loss). The impact from fair value adjustments of contingent consideration liabilities that are related solely to performance is included in Base EBITDA, while any impact from fair value adjustments of contingent consideration liabilities relating to changes in Just Energy’s share price is excluded from Base EBITDA. Management believes that volatility in share price does not impact the financial performance of Just Energy as the contingent consideration is settled in shares.

 

Just Energy recognizes the incremental acquisition costs of obtaining a customer contract as an asset since these costs would not have been incurred if the contract was not obtained and are recovered through the consideration collected from the contract. Commissions and incentives paid for commodity contracts and value-added product contracts are capitalized and amortized over the term of the contract. Amortization of these costs with respect to commodity contracts is included in the calculation of Base EBITDA (as selling and marketing expenses). Amortization of incremental acquisition costs on value-added product contracts is excluded from the Base EBITDA calculation as value-added products are considered to be a lease asset akin to a fixed asset whereby amortization or depreciation expenses are excluded from Base EBITDA.

 

FREE CASH FLOW

 

Free cash flow (“FCF”) is the cash flow from operating activities less cash flow from investing activities.

 

Funds from operations

 

Funds from Operations (“FFO”) refers to the cash flow generated by current operations. FFO is calculated as gross margin adjusted for cash items including administrative expenses, selling and marketing expenses, bad debt expenses, finance costs, corporate taxes, capital taxes and other cash items. FFO also includes a seasonal adjustment for the gas markets in Ontario, Quebec, Manitoba and Michigan to include cash received from LDCs for gas not yet consumed by end customers.

 

3.

 

 

base Funds from operations

 

Base Funds from Operations (“Base FFO”) refers to FFO reduced by maintenance capital expenditures.

 

Base Funds from Operations Payout Ratio

 

The payout ratio for Base FFO means dividends declared and paid as a percentage of Base FFO.

 

Embedded gross margin

 

“Embedded gross margin” is a rolling five-year measure of management’s estimate of future contracted energy and product gross margin. The commodity embedded gross margin is the difference between existing energy customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for commodity RCE attrition and renewals. The product gross margin is the difference between existing value-added product customer contract prices and the cost of sales on a five-year or ten-year undiscounted basis for such customer contracts, with appropriate assumptions for value-added product attrition and renewals. It is assumed that expiring contracts will be renewed at target margin renewal rates.

 

Embedded gross margin indicates the margin expected to be realized from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to consider administrative and other costs necessary to realize this margin.

 

Strategic initiatives

 

Just Energy continues its strategic shift from a retail energy provider to a consumer company focused on differentiated value-added products, unparalleled customer satisfaction and profitable customer growth. The Company stabilized its growth platform in fiscal 2019 by establishing a solid base for long-term growth through value-added products, maturing the retail sales channel development and consolidating service functions, thereby simplifying the business and realizing cost savings. Throughout the year, Just Energy realigned its technology and service functions, culminated in the overall restructuring of its businesses, to support the fiscal 2020 strategic initiatives. In addition, Just Energy is taking steps to refine its global footprint and focus on the core profitable markets.

 

Just Energy will focus on optimization to achieve profitable growth throughout fiscal 2020 by applying customer data analytics to gain a deep understanding of customers’ needs. Additionally, Just Energy will focus on optimizing sales channels and cost-to-serve in North America to increase gross margin. Lastly, Just Energy will drive value-added products and services (“VAPS”) growth through the newly acquired Filter Group to accelerate its strategic shift to a customer centric consumer company.

 

Discontinued operations

 

In March 2019, Just Energy formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to focus on the core business in North America and the U.K. The disposal of the operations is expected to be completed within the next 12 months. As at March 31, 2019, these operations were classified as a disposal group held for sale and as discontinued operations. In the past, these operations were reported under the Consumer segment. Just Energy’s results for the past two fiscal periods reported throughout this MD&A have been adjusted to reflect continuing operation results and figures with respect to these discontinued operations. The tax impact on the discontinued operations is minimal.

 

For a detailed breakdown of the discontinued operations, reference Note 18 of the consolidated financial statements for the year ended March 31, 2019.

 

4.

 

 

Financial highlights
For the years ended March 31
(thousands of dollars, except where indicated and per share amounts)
                     
       % increase       % increase     
   Fiscal 2019   (decrease)   Fiscal 2018   (decrease)   Fiscal 2017 
Sales  $3,812,470    5%  $3,623,558    (4)%  $3,756,924 
Gross margin   712,215    11%   640,511    (8)%   696,009 
Administrative expenses   206,820    10%   187,251    12%   167,283 
Selling and marketing expenses   232,030    -      232,228    3%   226,239 
Restructuring costs   16,078    -      -      -      -   
Finance costs   88,072    57%   55,972    (28)%   78,077 
Profit (loss) from continuing operations   (100,491)   NMF  3   524,519    NMF 3   472,225 
Loss from discontinued operations   (22,379)   NMF  3   (5,945)   NMF  3   (1,342)
Profit (loss)1   (122,870)   NMF 3   518,574    NMF  3   470,883 
Profit (loss) per share from continuing operations available to shareholders - basic   (0.73)        3.45         3.03 
Profit (loss) per share from continuing operations available to shareholders - diluted   (0.73)        2.65         2.43 
Dividends/distributions   88,030    2%   86,307    12%   76,751 
Base EBITDA from continuing operations2   203,998    13%   180,151    (19)%   223,622 
Base Funds from continuing operations2   

106,826

    

10

%   96,915    (25)%   129,013 
Payout ratio on Base Funds from continuing operations2   

82%

         89%         60% 
Embedded gross margin2   2,271,200    20%   1,900,500    8%   1,757,000 
Total customers (RCEs)   4,089,000    (2)%   4,163,000    (1)%   4,202,000 
Total gross customer (RCE) additions   1,102,000    (6)%   1,171,000    40%   839,000 
Total net customer (RCE) additions   (74,000)   (54)%   (48,000)   85%   (318,000)

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. 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 3.

3 Not a meaningful figure.

 

For the year ended March 31, 2019, sales increased 5% from $3.6 billion to $3.8 billion. In fiscal 2019, gross margin was $712.2 million, 11% higher than the prior year, and Base EBITDA amounted to $204.0 million, 13% higher than fiscal 2018. The higher gross margin is largely attributable to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations, which in turn drove Base EBITDA higher. The impact from the improvements in gross margin can be also seen in the increases in Base FFO and embedded gross margin, which grew 10% and 20%, respectively, compared to the prior year.

 

Throughout the year, an unprecedented level of scrutiny has been applied across all products, contracts, operations, and regions to ensure each part of the business is operating efficiently which culminated in the restructuring announcement in the fourth quarter of fiscal 2019. This decision resulted in the reclassification of previously reported administrative costs of $6.0 million to restructuring costs. The Company incurred an additional $10.1 million as restructuring charges in the fourth quarter of fiscal 2019.

 

5.

 

Continuing operations overview

 

CONSUMER SEGMENT

 

The sale of gas and electricity to customers with annual consumption equivalent to 15 RCEs or less is undertaken by the Consumer segment. Marketing of the energy products of this segment is primarily done through retail, online and door-to-door marketing. Consumer customers make up 41% of Just Energy’s RCE base, which is currently focused on longer-term price-protected, flat-bill and variable rate product offerings, as well as JustGreen products. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer segment’s sales channels also offer these products.

 

Developments in connectivity and convergence, and changes in customer preferences, have created an opportunity for Just Energy to provide value-added products and service bundles with the Company’s energy products. As a conservation solution, smart thermostats are offered as a value-added product with commodity contracts and also sold as a stand-alone unit. These smart thermostats are currently manufactured and distributed by ecobee Inc., a company in which Just Energy holds a 8% fully diluted equity interest. On October 1, 2018, Just Energy added home water filtration systems to its line of consumer product and service offerings through the acquisition of Filter Group. See “Acquisition of Filter Group Inc.” on page 27 for further details.

 

COMMERCIAL SEGMENT

 

Customers with annual consumption equivalent to over 15 RCEs are served by the Commercial segment. These sales are made through three main channels: brokers, door-to-door commercial independent contractors, and inside commercial sales representatives. Commercial customers make up 59% of Just Energy’s RCE base. Products offered to Commercial customers range from standard fixed-price offerings to “one off” offerings, tailored to meet the customer’s specific needs. These products can be fixed or floating rate or a blend of the two, and normally have a term of less than five years. Gross margin per RCE for this segment is lower than it is for the Consumer segment, but customer aggregation costs and ongoing customer care costs per RCE are lower as well. Commercial customers also have significantly lower attrition rates than Consumer customers.

 

In addition, the Commercial segment also provides value-added products and services which include LED lighting, smart building controls, monitoring and alerts, bill audits, smart thermostats, tariff analysis, energy insights and energy procurement.

 

ABOUT THE ENERGY MARKETS

 

Just Energy offers products and services to address customers’ essential needs, including electricity and natural gas commodities; health and well-being products such as water quality and filtration devices; and utility conservation products which bring energy efficient solutions and renewable energy options to customers.

 

Natural gas

 

Just Energy offers natural gas customers a variety of products ranging from month-to-month variable-price contracts to five-year fixed-price contracts. Gas supply is purchased from market counterparties based on forecasted Consumer and small Commercial RCEs. For larger Commercial customers, gas supply is generally purchased concurrently with the execution of a contract. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat-bill products offer customers the ability to pay a fixed amount per period regardless of usage or changes in the price of the commodity.

 

6.

 

The LDCs provide historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing requirements are outside the forecasted purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s realized customer gross margin may increase or decrease depending upon market conditions at the time of balancing.

 

Territory Gas delivery method
Ontario, Quebec, Manitoba and Michigan The volumes delivered for a customer typically remain constant throughout the year. Sales are not recognized until the customer actually consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery, resulting in accrued gas receivables, and, in the summer months, deliveries to LDCs exceed customer consumption, resulting in gas delivered in excess of consumption. Just Energy receives cash from the LDCs as the gas is delivered, which is even throughout the year.
Alberta, British Columbia, New York, Illinois, Indiana, Ohio, California, Georgia, Maryland, New Jersey, Pennsylvania, Saskatchewan and the U.K. The volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore, the amount of gas delivered in the winter months is higher than in the spring and summer months. Consequently, cash flow received from most of these markets is greatest during the third and fourth (winter) quarters, as cash is normally received from the LDCs in the same period as customer consumption.

 

Electricity

 

Just Energy services various territories in Canada, the U.S. and the U.K. with electricity. A variety of electricity solutions are offered, including fixed-price, flat-bill and variable-price products on both short-term and longer-term contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions. Flat-bill products offer a consistent price regardless of usage.

 

Just Energy purchases power supply from market counterparties for residential and small Commercial customers based on forecasted customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger Commercial customers. Historical customer usage is obtained from LDCs, which, when normalized to average weather, provides Just Energy with expected normal customer consumption. Similar to gas, Just Energy mitigates exposure to weather variations through active management of the power portfolio and the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing power purchases are outside the acceptable forecast, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. Any supply balancing not fully covered through customer pass-throughs, active management or the options employed may impact Just Energy’s gross margin depending upon market conditions at the time of balancing.

 

JustGreen

 

Customers also have the ability to choose an appropriate JustGreen program to supplement their natural gas and electricity contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.

 

JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects. JustGreen’s electricity product offers customers the option of having all or a portion of the volume of their electricity usage sourced from renewable green sources such as wind, solar, hydropower or biomass, via power purchase agreements and renewable energy certificates. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

 

7.

 

 

Just Energy currently sells JustGreen gas and electricity in eligible markets across North America. Of all Consumer customers who contracted with Just Energy in the past year, 44% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 79% of their consumption as green supply. For comparison, as reported for the year ended March 31, 2018, 34% of Consumer customers who contracted with Just Energy chose to include JustGreen for an average of 71% of their consumption. As of March 31, 2019, JustGreen makes up 7% of the Consumer gas portfolio, compared to 10% a year ago. JustGreen makes up 14% of the Consumer electricity portfolio, compared to 12% a year ago.

 

Value-added products and services

 

In addition to JustGreen, Just Energy also provides energy management as well as health and wellness solutions in the form of VAPS. These products and services may be sold in a bundle with natural gas or electricity, or on a stand-alone basis.

 

Just Energy’s Commercial energy management solutions include LED lighting as well as monitoring and control solutions for lighting and HVAC systems. These solutions include custom design, procurement, utility rebate management, and management of installation services that may be purchased outright or financed through third parties.

 

Energy management for the Consumer business focuses on energy efficient and energy conserving products. Just Energy has strategic partnerships to facilitate the purchase and support of smart thermostats and home warranty products. Customers may also redeem points earned through Just Energy’s Perks loyalty program for a wide variety of free or discounted energy saving products.

 

Through the Filter Group business acquired by Just Energy on October 1, 2018, Just Energy now provides subscription-based home water filtration systems to residential customers in Canada and the United States, including under-counter and whole-home water filtration solutions.

 

The VAPS business is still in its infancy stage; the core business is still the commodity operations.

 

EBITDA from Continuing Operations
For the years ended March 31
(thousands of dollars)            
   Fiscal 2019   Fiscal 2018   Fiscal 2017 
Reconciliation to consolidated financial statements               
Profit (loss) for the year  $(122,870)  $518,574   $470,883 
Add:               
Finance costs   88,072    55,972    78,077 
Provision for income taxes   2,829    20,671    43,231 
Amortization   30,868    23,930    25,494 
EBITDA  $(1,101)  $619,147   $617,685 
Add (subtract):               
Change in fair value of derivative instruments and other   153,226    (474,356)   (374,791)
Change in fair value of investments   -      20,591    -   
Contingent consideration revaluation   7,447    -      -   
Restructuring costs   16,078    -      -   
Share-based compensation   6,182    18,353    6,076 
Discontinued operations   21,974    5,714    (877)
Loss (Profit) attributable to non-controlling interest   192    (9,298)   (24,471)
Base EBITDA from continuing operations  $203,998   $180,151   $223,622 

 

8.

 

 

Gross margin per consolidated financial statements  $712,215   $640,511   $696,009 
Add (subtract):               
Administrative expenses   (206,820)   (187,250)   (167,283)
Selling and marketing expenses   (232,030)   (232,228)   (226,239)
Bad debt expense   (81,037)   (56,331)   (56,041)
Amortization included in cost of sales   2,666    3,116    2,974 
Other income (expenses)   8,812    1,040    (1,327)
Change in fair value of investments   -      20,591    -   
Loss (Profit) attributable to non-controlling interest   192    (9,298)   (24,471)
Base EBITDA from continuing operations  $203,998   $180,151   $223,622 

 

Base EBITDA amounted to $204.0 million for the year ended March 31, 2019, an increase of 13% from $180.2 million in the prior year. The higher Base EBITDA is largely attributable to the increase in gross margin, partially offset by increased bad debt expenses and administrative expenses.

 

The Company’s continuing operational performance has been adjusted to exclude the loss from the discontinued operations totalling $22.4 million, including the impairment loss resulting from the write down assets in the discontinued operations in fiscal 2019. The comparative periods have also been adjusted for the results of this disposal group. Base EBITDA also excludes non-recurring restructuring costs which include a reclassification of previously reported administrative expenses of $6.0 million to restructuring costs and $10.1 million incurred in the last quarter of fiscal 2019.

 

Gross margin was up 11% due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. The impact from the improvements in gross margin can be also seen in the increases in Base FFO and embedded gross margin, which grew 10% and 20%, respectively, compared to the prior year.

 

Administrative expenses increased by 10% from $187.3 million to $206.8 million. The increase over the prior year was attributable to the additional administrative expenses resulting from the stabilization program to achieve operational effectiveness and from the acquisition of Filter Group together with foreign exchange fluctuations from the U.S. and U.K. operations.

 

Selling and marketing expenses for the year ended March 31, 2019 were $232.0 million, consistent with the prior year, largely due to the capitalization of the incremental customer acquisition costs under IFRS 15 and mass-market restructuring actions that reduced costs, offset by unfavourable foreign exchange fluctuations from the U.S. and U.K. operations.

 

Bad debt expense was $81.0 million for the year ended March 31, 2019, an increase of 44% from $56.3 million recorded for the prior year. For the year ended March 31, 2019, the bad debt expense represents approximately 2.3% of revenue in the jurisdictions where the Company bears the credit risk, up from 1.9% of revenue reported for the year ended March 31, 2018. Management’s target range is 2% to 3%.

 

For more information on the changes in the results from operations, refer to “Gross margin” on page 21 and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further explained on pages 22 through 23.

 

For comparative purposes, the table on the previous page includes the results for the years ended March 31, 2018 and 2017. For the year ended March 31, 2018, gross margin was $640.5 million, a decrease of 8% from $696.0 million reported in fiscal 2017, primarily due to lower realized margins per customer and the negative foreign exchange impact on gross margin earned in the U.S. markets compared with fiscal 2017. In fiscal 2018, administrative, selling and marketing, and bad debt expenses amounted to $187.3 million, $232.2 million and $56.3 million respectively, an increase of 12%, 3% and 1%, respectively. For fiscal 2018, Base EBITDA amounted to $180.2 million, a decrease of 19% from $223.6 million in fiscal 2017, reflecting a number of one-time weather related events that occurred in fiscal 2018, including the reduction of consumption arising from the abnormally mild summer weather in North America, customer disruptions caused by Hurricane Harvey and higher supply costs due to unusually colder than normal weather in January 2018 in North America.

 

9.

 

EMBEDDED GROSS MARGIN
 
Management’s estimate of the future embedded gross margin is as follows:
 
(millions of dollars)
           2019 vs.       2018 vs. 
   Fiscal   Fiscal   2018   Fiscal   2017 
   2019   2018   variance   2017   variance 
Commodity embedded gross margin  $2,230.4   $1,900.5    17%  $1,757.0    8%
VAPS embedded gross margin   40.8    -      -      -      -   
Total embedded gross margin  $2,271.2   $1,900.5    20%  $1,757.0    8%

 

Management’s estimate of the future embedded gross margin within its customer contracts amounted to $2,271.2 million as of March 31, 2019, an increase of 20% compared to the embedded gross margin as of March 31, 2018, primarily due to the improved pricing power in North America. The embedded gross margin remains stable at record highs compared to the embedded gross margin reported in the previous fiscal years.

 

Embedded gross margin includes $40.8 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 $73.1 million.

 

Embedded gross margin indicates the margin expected to be realized over the next five years from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to take into account administrative and other costs necessary to realize this margin. As our mix of customers continues to reflect a higher proportion of Commercial volume, the embedded gross margin may, depending on currency rates, grow at a slower pace than customer growth; however, the underlying costs necessary to realize this margin will also decline.

 

Just Energy’s results for the past two fiscal periods reported throughout the MD&A have been adjusted to reflect continuing operation results and figures.

 

10.

 

Funds from Continuing Operations
For the years ended March 31
(thousands of dollars)
   Fiscal 2019   Fiscal 2018   Fiscal 2017 
Cash inflow from continuing operations  $(44,455)  $62,022   $150,451 
Add (subtract):               
Changes in working capital   

124,138

    36,194    22,756 
Change in fair value of Filter Group contingent consideration   7,447    -      -   
Loss (profit) attributable to non-controlling interest   192    (9,298)   (24,471)
Discontinued operations   22,375    5,944    1,254 
Tax adjustment   6,117    18,763    (7,283)
Funds from continuing operations  $

115,814

   $113,625   $142,707 
Less: Maintenance capital expenditures   (8,988)   (16,710)   (13,695)
Base Funds from continuing operations  $

106,826

   $96,915   $129,012 
                
Gross margin per consolidated financial statements  $712,215   $640,511   $696,009 
Add (subtract):               
Administrative expenses   (206,820)   (187,250)   (167,283)
Selling and marketing expenses   (232,030)   (232,228)   (226,239)
Bad debt expense   (81,037)   (56,331)   (56,041)
Current income tax recovery   (6,333)   (2,556)   (27,123)
Adjustment required to reflect net cash receipts from gas sales   4,186    (2,876)   (681)
Amortization included in cost of sales   2,666    3,116    2,974 
Restructuring costs   (16,078)   -      -   
Other income   8,812    1,040    804 
Financing charges, non-cash   

18,223

    14,547    23,198 
Finance costs   (88,072)   (55,972)   (78,077)
Other non-cash adjustments   82    (8,376)   (24,834)
Funds from continuing operations  $

115,814

   $113,625   $142,707 
Less: Maintenance capital expenditures   (8,988)   (16,710)   (13,695)
Base Funds from continuing operations  $

106,826

   $96,915   $129,012 
Base Funds from continuing operations payout ratio   

82

%   89%   59%
Dividends/distributions               
Dividends on common shares  $74,557   $73,624   $73,717 
Dividends on preferred shares   12,189    11,380    1,657 
Distributions for share-based awards   1,284    1,303    1,377 
Total dividends/distributions  $88,030   $86,307   $76,751 

 

Base Funds from Continuing Operations for the year ended March 31, 2019 was $106.8 million, an increase of 10% compared with Base FFO of $96.9 million for the prior year. The improvement in Base FFO is largely attributable to the significant improvement in Base EBITDA and lowered maintenance capital expenditures spending, offset by higher bad debt expenses from the implementation of IFRS 9 and higher finance costs. Finance costs of $28.8 million increased by 59% in fiscal 2019 compared to the prior year as a result of higher collateral and working capital management related costs, supplier credit term extensions, interest expense from higher debts and higher interest rates, as well as an increase in non-cash accretion costs.

 

Dividends and distributions for the year ended March 31, 2019 were $88.0 million, a slight increase of 2% from fiscal 2018. The payout ratio on Base Funds from Continuing Operations was 82% for the year ended March 31, 2019, an improvement from 89% reported in fiscal 2018, primarily resulting from the higher Base FFO.

 

11.

 

Selected consolidated financial data from continuing operations
For the years ended March 31
(thousands of dollars, except per share amounts)
             
Statement of operations            
   Fiscal 2019   Fiscal 2018   Fiscal 2017 
Sales  $3,812,470   $3,623,558   $3,756,924 
Gross margin   712,215    640,511    696,009 
Profit (loss) from continuing operations   (100,491)   524,519    472,225 
Profit (loss) from continuing operations per share - basic   (0.73)   3.45    3.03 
Profit (loss) from continuing operations per share - diluted   (0.73)   2.65    2.43 

 

Balance sheet data               
As at March 31               
    Fiscal 2019    Fiscal 2018    Fiscal 2017 
Total assets  $1,746,068   $1,601,393   $1,225,318 
Long-term liabilities   

817,064

    538,191    679,645 

 

2019 COMPARED WITH 2018

 

For the year ended March 31, 2019, sales increased by 5% to $3.8 billion in fiscal 2019, compared with $3.6 billion in the prior fiscal year.

 

Gross margin increased by 11% to $712.2 million from $640.5 million reported in fiscal 2018. The increases in sales and gross margin are primarily due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

The loss for fiscal 2019 amounted to $100.5 million, compared to a profit of $524.5 million in fiscal 2018, primarily due to the change in fair value of the derivative instruments which resulted in a loss of $153.2 million, as compared to a gain of $474.4 million in fiscal 2018. Under IFRS, there is a requirement to mark to market the future supply contracts, creating unrealized non-cash gains or losses depending on the supply pricing, but the related future customer revenues are not marked to market (which would create an offsetting gain or loss to the supply gain or loss). Additionally, the loss from operations is a result of higher administrative expenses to support the Company’s growth and international operations, restructuring costs of $16.1 million to transform the Company and increased bad debt expenses. Just Energy views Base EBITDA and FFO as more relevant measures of operating performance.

 

Total assets increased by 9% to $1,746.1 million in fiscal 2019 due to increases in accounts receivable, capitalization of customer acquisition costs and acquisition of intangible assets, partially offset by the reduction of cash and the derivative financial assets. Total long-term liabilities as of March 31, 2019 were $817.1 million, representing a 52% increase from fiscal 2018. The increase in total long-term liabilities is primarily due to the additional withdrawals on the credit facility, the signing of the new 8.75% loan, and the acquisition of Filter Group which added the Filter Group financing, partially offset by the partial redemption of the 6.5% convertible debentures.

 

2018 COMPARED WITH 2017

 

Sales decreased by 4% to $3.6 billion in fiscal 2018, compared with $3.8 billion in the prior fiscal year. The decrease is primarily a result of the 1% decrease in customer base and the impact from foreign exchange, due to the weakening of the U.S. dollar.

 

For the year ended March 31, 2018, gross margin decreased by 8% to $640.5 million from $696.0 million reported in fiscal 2017, of which foreign currency translation (primarily from the weaker U.S. dollar) accounted for a decrease of $9.0 million. One-time weather events in the summer and the winter, including the reduction of consumption due to abnormally mild weather in the summer, customer disruption due to Hurricane Harvey and higher supplier costs due to extreme cold weather in the winter, adversely affected the gross margin in the fiscal 2018. Gross margin for the Consumer segment decreased to $487.2 million, down 5%, while gross margin for the Commercial segment decreased by 16% to $153.3 million.

 

The profit for fiscal 2018 amounted to $524.5 million, compared to $472.2 million in fiscal 2017. The profit increased as a result of the year over year increase in the change in fair value of the derivative instruments and other on the Company’s supply portfolio, which resulted in a gain of $474.4 million, compared with a gain of $374.8 million in fiscal 2017. Under IFRS, there is a requirement to mark to market the future supply contracts, creating unrealized non-cash gains or losses depending on the supply pricing, but the related future customer revenues are not marked to market (which would create an offsetting gain or loss to the supply gain or loss). Just Energy views Base EBITDA and FFO the better measures of operating performance.

 

12.

 

Total assets increased by 33% to $1,634.2 million in fiscal 2018 due to gains in the fair value of derivative instruments, as market prices relative to Just Energy’s future electricity supply contracts increased by an average of $9.01/MWh as compared to fiscal 2017. Total long-term liabilities as of March 31, 2018 were $538.2 million, representing a 21% decrease from fiscal 2017. The decrease in total long-term liabilities is primarily a result of reclassification of the credit facility from long-term to current liabilities and the repayment of the 5.75% convertible debentures, partially offset by the issuance of the 6.75% $100M convertible debentures in fiscal 2018.

 

Summary of quarterly results for continuing operations
(thousands of dollars, except per share amounts)    
   Q4   Q3   Q2   Q1 
   Fiscal 2019   Fiscal 2019   Fiscal 2019   Fiscal 2019 
Sales  $1,024,200   $960,657   $953,482   $874,131 
Gross margin   198,172    187,992    172,851    153,201 
Administrative expenses   48,418    50,927    55,276    52,199 
Selling and marketing expenses   69,405    56,610    56,185    49,830 
Restructuring costs   10,096    2,746    1,319    1,917 
Finance costs   (28,847)   (22,762)   (20,123)   (16,340)
Profit (loss) for the period from continuing operations   (71,413)   29,672    (19,415)   (39,335)
Loss for the period from discontinued operations   (15,608)   (2,648)   (2,035)   (2,088)
Profit (loss) for the period   (87,021)   27,024    (21,450)   (41,423)
Profit (loss) for the period from continuing operations per share – basic   (0.49)   0.19    (0.15)   (0.28)
Profit (loss) for the period from continuing operations per share – diluted   (0.49)   0.18    (0.15)   (0.28)
Dividends/distributions paid   22,004    21,434    22,330    22,261 
Base EBITDA from continuing operations   68,774    63,534    40,531    31,159 
Base Funds from continuing operations   

23,945

    34,632    28,173    20,075 
Payout ratio on Base Funds from continuing operations   

92%

    

62%

    

79%

    111% 

 

   Q4   Q3   Q2   Q1 
   Fiscal 2018   Fiscal 2018   Fiscal 2018   Fiscal 2018 
Sales  $1,012,855   $911,522   $851,767   $847,415 
Gross margin   169,132    171,229    142,667    157,484 
Administrative expenses   47,183    47,361    45,330    47,377 
Selling and marketing expenses   60,563    55,355    58,421    57,889 
Finance costs   18,195    13,266    12,521    11,990 
Profit (loss) for the period from continuing operations   267,679    209,330    (63,260)   110,772 
Loss for the period from discontinued operations   (1,906)   (915)   (1,663)   (1,463)
Profit (loss) for the period   265,773    208,415    (64,923)   109,309 
Profit (loss) for the period from continuing operations per share – basic   1.81    1.41    (0.47)   0.70 
Profit (loss) for the period from continuing operations per share – diluted   1.41    1.12    (0.47)   0.53 
Dividends/distributions paid   21,555    21,501    21,468    21,783 
Base EBITDA from continuing operations   70,680    53,357    22,184    33,930 
Base Funds from continuing operations   27,145    38,453    9,345    21,971 
Payout ratio on Base Funds from continuing operations   79%    56%    230%    99% 

 

13.

 

 

Just Energy’s results reflect seasonality, as electricity consumption is slightly greater in the first and second quarters (summer quarters) and gas consumption is significantly greater during the third and fourth quarters (winter quarters). Electricity and gas customers currently represent 75% and 25%, respectively, of the commodity customer base. Since consumption for each commodity is influenced by weather, annual quarter over quarter comparisons are more relevant than sequential quarter comparisons.

 

Fourth quarter financial highlights
For the three months ended March 31
(thousands of dollars, except where indicated and per share amounts)
             
       % increase     
   Fiscal 2019   (decrease)   Fiscal 2018 
Sales  $1,024,200    1%   $1,012,855 
Gross margin   198,172    17%    169,132 
Administrative expenses   48,418    3%    47,183 
Selling and marketing expenses   69,405    15%    60,563 
Restructuring costs   10,096         -   
Finance costs   28,847    59%    18,195 
Profit (loss) from continuing operations   (71,413)   NMF  3    267,679 
Loss from discontinued operations   (15,608)   NMF  3    (1,906)
Profit (loss)1   (87,021)   NMF  3    265,773 
Profit (loss) per share from continuing operations available to shareholders - basic   (0.49)        1.81 
Profit (loss) per share from continuing operations available to shareholders - diluted   (0.49)        1.41 
Dividends/distributions   22,004    2%    21,555 
Base EBITDA from continuing operations2   68,774    (3)%    70,680 
Base Funds from continuing operations2   

23,945

    

(12)%

    27,145 
Payout ratio on Base Funds from continuing operations2   

92

%        79%
Total gross customer (RCE) additions   245,000    (21)%    312,000 
Total net customer (RCE) additions2   (44,000)   NMF 3   49,000 

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. 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 3.

3 Not a meaningful figure.

 

For the three months ended March 31, 2019, gross margin was $198.2 million, 17% higher than the prior comparable quarter, and Base EBITDA amounted to $68.8 million, a decrease of 3% compared to fiscal 2018. The increase in gross margin is primarily due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

The decline was substantially to the gain of $20.6 million on the Company’s ecobee investment in the fourth quarter of fiscal 2018, partially offset by increase in gross margin.

 

14.

 

Fourth quarter gross margin per RCE
   Q4 Fiscal   Number of   Q4 Fiscal   Number of 
   2019   RCEs   2018   RCEs 
                 
Consumer customers added and renewed  $386    215,000   $216    242,000 
Consumer customers lost   313    168,000    200    117,000 
Commercial customers added and renewed   71    165,000    87    220,000 
Commercial customers lost   89    70,000    81    128,000 

 

For the three months ended March 31, 2019, the average gross margin per RCE for the customers added and renewed by the Consumer segment was $386/RCE, compared with $216/RCE in the prior comparable quarter. The increase in average gross margin per RCE for Consumer customers added and renewed in the quarter is a result of the Company's margin optimization efforts in focusing on ensuring customers added meet its profitability targets. The average gross margin per RCE for the Consumer customers lost during the three months ended March 31, 2019 was $313/RCE, compared with $200/RCE in the fourth quarter of fiscal 2018.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the quarter ended March 31, 2019 was $71/RCE, compared to $87/RCE in the prior comparable quarter. Customers lost through attrition and failure to renew during the three months ended March 31, 2019 were at an average gross margin of $89/RCE, an increase from $81/RCE reported in the prior comparable quarter. Management will continue its margin optimization efforts by focusing on ensuring customers added meet its profitability targets.

 

Analysis of the fourth quarter

 

Sales increased 1% to $1,024.2 million for the three months ended March 31, 2019 from $1,012.9 million recorded in the fourth quarter of fiscal 2018. The gross margin was $198.2 million, an increase of 17% from the prior comparable quarter, primarily due to improved pricing power in North America, enabled by the Company’s unique customer value enhancing product offerings coupled with loyalty rewards offered through a multi-channel approach, and margin expansion from the suite of value-added products and services, partially offset by risk management costs.

 

Administrative expenses for the three months ended March 31, 2019 increased 3% attributable to the additional operational administrative expenses from the acquisition of Filter Group, and unfavourable foreign exchange fluctuations from the U.S. and U.K. operations. Selling and marketing expenses for the three months ended March 31, 2019 increased by 15% to $69.4 million as a result of the increased commission costs to acquire new customers in certain channels, increased customer additions in Texas and growth in the residual perks points commission, offset by capitalization of certain upfront incremental customer acquisition costs under IFRS 15 and cost savings from restructuring of the marketing function.

 

Finance costs for the three months ended March 31, 2019 amounted to $28.8 million, an increase of 59% from $18.2 million reported for the three months ended March 31, 2018, primarily driven by higher collateral and working capital management related costs, supplier credit term extensions, interest expense from higher debts and higher interest rates as well as an increase in non-cash accretion costs.

 

The change in fair value of derivative instruments and other resulted in a loss of $91.2 million for the three months ended March 31, 2019, compared to a gain of $250.9 million in the prior comparable quarter, as market prices relative to Just Energy’s future electricity supply contracts decreased by an average of $2.63/MWh, offset by the increase in future gas contracts by an average of $0.02/GJ. Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under current IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts.

 

An unprecedented level of scrutiny has been applied across all products, contracts, operations, and regions to ensure each part of the business is operating efficiently throughout the year which culminated in the restructuring announcement in the fourth quarter of fiscal 2019. This decision resulted in $10.1 million of restructuring costs recognized during the fourth quarter, of which $6.6 million was accrued as at March 31, 2019.

 

15.

 

The loss for the three months ended March 31, 2019 was $87.0 million, representing a loss per share of $0.49 on a basic and diluted basis, respectively. For the prior comparable quarter, the profit was $265.8 million, representing earnings per share of $1.82 and $1.42 on a basic and diluted basis, respectively.

 

Base EBITDA was $68.8 million, a decrease of 3% as compared to the prior comparable quarter due to an increase in selling and marketing expenses to support the growth in sales, partially offsetting the increase in gross margin. The Base EBITDA excludes restructuring costs recorded in the fourth quarter.

 

Base FFO was $23.9 million for the fourth quarter of fiscal 2019, down 12% compared to $27.1 million in the prior comparable quarter as a result of the lower Base EBITDA, partially offset by lower maintenance capital expenditures.

 

Dividends and distributions paid were $22.0 million, consistent with the prior comparable quarter. The payout ratio on Base FFO for the quarter ended March 31, 2019 was 92%, compared with 79% in the prior comparable quarter. The payout ratio for the fiscal year ended March 31, 2019 was 82%, compared with 89% for the fiscal year ended March 31, 2018.

 

Just Energy’s results for the past fiscal period have been adjusted to reflect continuing operation results and figures.

 

Segmented Base EBITDA1
For the years ended March 31
(thousands of dollars)
       Fiscal 2019 
   Consumer   Commercial   Corporate
and shared
services
   Consolidated 
Sales  $2,395,624   $1,416,846   $-     $3,812,470 
Cost of sales   (1,859,913)   (1,240,342)   -      (3,100,255)
Gross margin   535,711    176,504    -      712,215 
Add (subtract):                    
Administrative expenses   (76,709)   (40,693)   (89,418)   (206,820)
Selling and marketing expenses   (158,770)   (73,260)   -      (232,030)
Bad debt expense   (72,470)   (8,567)   -      (81,037)
Amortization included in cost of sales   2,666    -      -      2,666 
Other income, net   8,703    109    -      8,812 
Loss attributable to non-controlling interest   192    -      -      192 
Base EBITDA from continuing operations  $239,323   $54,093   $(89,418)  $203,998 

 

16.

 

       Fiscal 2018 
   Consumer   Commercial   Corporate
and shared
services
   Consolidated 
Sales  $2,232,081   $1,391,477   $-     $3,623,558 
Cost of sales   (1,744,906)   (1,238,141)   -      (2,983,047)
Gross margin   487,175    153,336    -      640,511 
Add (subtract):                    
Administrative expenses   (64,282)   (29,153)   (93,815)   (187,250)
Selling and marketing expenses   (161,246)   (70,982)   -      (232,228)
Bad debt expense   (53,759)   (2,572)   -      (56,331)
Amortization included in cost of sales   3,116    -      -      3,116 
Other income, net   21,524    107    -      21,631 
Profit attributable to non-controlling interest   (9,298)   -      -      (9,298)
Base EBITDA from continuing operations  $223,230   $50,736   $(93,815)  $180,151 

1 The segment definitions are provided on page 6.

 

Consumer Energy contributed $239.3 million to Base EBITDA for the year ended March 31, 2019, an increase of 7% from $223.2 million in fiscal 2018. Consumer gross margin increased 10% due to the 22% increase in gross margin per RCE resulting from the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. Consumer administrative costs increased by 19%, attributable to the additional operational administrative expenses from the acquisition of Filter Group, and unfavourable foreign exchange fluctuations from the U.S. and U.K. operations. Consumer selling and marketing expenses were down by 2% due to the capitalization of upfront commission expense with the adoption of IFRS 15 and the reduction in non-commission selling expenses resulting from the consolidation of regional sales offices and diversification of sales channels.

 

Commercial Energy contributed $54.1 million to Base EBITDA, an increase of 7% from the year ended March 31, 2018, when the segment contributed $50.7 million. The increase in gross margin was due to the 20% increase in gross margin per RCE for Commercial customers, resulting from the pricing power improvements in North America, ramp up on sales from the Commercial VAPS businesses acquire in the latter half of fiscal 2018, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. The increase in Commercial administrative costs reflects the unfavourable foreign exchange fluctuations from the U.S. and U.K. operations.

 

17.

 

Customer aggregation
 
CUSTOMER SUMMARY
             
   As at   As at     
   March 31,   March 31,   % increase 
   2019   2018   (decrease) 
                
Commodity   1,399,000    1,556,000    (10)%
VAPS   70,000    24,000    192%
Commodity and VAPS bundle   140,000    78,000    79%
Total customer count   1,609,000    1,658,000    (3)%

 

As at March 31, 2019, the total customer count declined 3% to 1,609,000 compared to the prior period. The decline in commodity customers is a result of the Company’s focus on renewing and signing higher quality and long lasting customers. The customer count captures customers with a distinct service address. These customers can have multiple products contracted with Just Energy, multiple active assets installed by Just Energy. The total VAPS customer count also includes 27,000 distinct customers from Filter Group’s water filter subscriptions, with 33,000 active assets. Just Energy’s customer base also includes 74,000 smart thermostat customers. The significant growth in VAPS customers shows the positive reception to the Company’s strategic shift from a retail energy provider to a consumer company focused on differentiated value-added products.

 

COMMODITY RCE SUMMARY
         
   Apr. 1,           Failed to   Mar. 31,   % increase 
   2018   Additions   Attrition   renew   2019   (decrease) 
Consumer                              
Gas   640,000    139,000    (111,000)   (98,000)   570,000    (11)%
Electricity   1,196,000    360,000    (313,000)   (129,000)   1,114,000    (7)%
Total Consumer RCEs   1,836,000    499,000    (424,000)   (227,000)   1,684,000    (8)%
Commercial                              
Gas   384,000    140,000    (37,000)   (27,000)   460,000    20%
Electricity   1,943,000    463,000    (154,000)   (307,000)   1,945,000    -   
Total Commercial RCEs   2,327,000    603,000    (191,000)   (334,000)   2,405,000    3%
Total RCEs   4,163,000    1,102,000    (615,000)   (561,000)   4,089,000    (2)%

 

Just Energy’s total RCE base is currently at 4.1 million. Gross RCE additions for the year ended March 31, 2019 were 1,102,000, compared to 1,171,000 for the prior year, reflecting the transition from a purely RCE driven focus to a greater focus on attracting and retaining strong-fit customers that will drive greater profitability. Net additions were negative 74,000 for the year ended March 31, 2019, compared with a negative 48,000 net RCE additions in fiscal 2018.

 

Consumer RCE additions amounted to 499,000 for the year ended March 31, 2019, a 14% decrease from 578,000 gross RCE additions recorded in fiscal 2018, primarily driven by significant customer acquisitions in the U.K. from switching sites in the prior year, which was not repeated in fiscal 2019. As of March 31, 2019, the U.S., Canadian and U.K. segments accounted for 68%, 17% and 15% of the Consumer RCE base, respectively.

 

Commercial RCE additions were 603,000 for the year ended March 31, 2019, a 2% increase over fiscal 2018 due to improved selling efforts in the Midwest and Eastern U.S., offset by lower adds from large Commercial and Industrial customers and Interactive Energy Group RCEs. The Commercial failed to renew RCEs for the year ended March 31, 2019 improved by 37%, decreasing from 534,000 RCEs to 334,000 RCEs with the launch of the Company’s enhanced product offering, which resulted in improved renewal rates. As of March 31, 2019, the U.S., Canadian and U.K. segments accounted for 69%, 24% and 7% of the Commercial RCE base, respectively.

 

18.

 

For the year ended March 31, 2019, 44% of the total Consumer and Commercial RCE additions were generated through commercial brokers, 35% from online and other sales channels, 11% from retail channels and 10% from door-to-door sales. In fiscal 2018, 47% of RCE additions were generated from retail, online and other sales channels, 39% from commercial brokers, and 14% from door-to-door sales.

 

Overall, as of March 31, 2019, the U.S., Canadian and U.K. operations accounted for 69%, 21% and 10% of the RCE base, respectively. At March 31, 2018, the U.S., Canadian and U.K. operations represented 67%, 22% and 11% of the RCE base, respectively.

 

COMMODITY RCE ATTRITION
         
   Fiscal   Fiscal 
   2019   2018 
           
Consumer   19%   20%
Commercial   6%   4%
Total attrition   13%   12%

 

The combined attrition rate for Just Energy was 13% for the year ended March 31, 2019, an increase of one percentage point from the 12% reported for prior year. The Consumer attrition rate decreased one percentage point to 19% from a year ago while the Commercial attrition rate increased two percentage points to 6%. The decrease in the 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 customer 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.

 

COMMODITY RCE RENEWALS        
         
   Fiscal   Fiscal 
   2019   2018 
           
Consumer   70%   70%
Commercial   51%   45%
Total renewals   59%   55%

 

The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts to renew customers begin up to 15 months in advance. Overall, the renewal rate was 59% for the year ended March 31, 2019, an increase of four percentage points from 55% as at March 31, 2018. The Consumer renewal rate remained at 70%, and the Commercial renewal rate increased by 6 percentage points to 51% as compared to the prior year. The increase in the overall renewal rate is evidence that the Company’s loyalty building tactics are taking effect and improving customer retention.

 

19.

 

ENERGY CONTRACT RENEWALS
This table shows the percentage of customers up for renewal in the following fiscal periods:
                 
   Consumer   Commercial 
   Gas   Electricity   Gas   Electricity 
2020   31%   24%   26%   33%
2021   21%   34%   21%   22%
2022   22%   22%   22%   20%
Beyond 2022   26%   20%   31%   25%
Total   100%   100%   100%   100%
Note: All month-to-month customers, who represent 704,000 RCEs, are excluded from the table above.

 

Gross margin
For the years ended March 31
(thousands of dollars)
   Fiscal 2019   Fiscal 2018 
   Consumer   Commercial   Total   Consumer   Commercial   Total 
Gas  $168,092   $27,061   $195,153   $160,168   $17,729   $177,897 
Electricity   359,746    144,242    503,988    327,423    134,639    462,062 
VAPS   7,873    5,201    13,074    -      968    968 
   $535,711   $176,504   $712,215   $487,591   $153,336   $640,927 
Increase   10%    15%    11%               

 

CONSUMER ENERGY

 

Gross margin for the year ended March 31, 2019 for the Consumer segment was $535.7 million, an increase of 10% from $487.6 million recorded in fiscal 2018. Gas and electricity gross margins increased by 5% and 10%, respectively, primarily as a result of the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

Average realized gross margin for the Consumer segment for the year ended March 31, 2019 was $252/RCE, representing a 7% increase from $236/RCE reported in the prior year. This increase is primarily attributable to the margin improvement initiatives, partially offset by significantly higher bad debt expense in fiscal 2019. The gross margin/RCE value includes an appropriate allowance for bad debt expense in applicable markets.

 

Gas

 

Gross margin from gas customers in the Consumer segment was $168.1 million for the year ended March 31, 2019, an increase of 5% from $160.2 million recorded in the prior year. This change is primarily a result of the Company's margin optimization efforts, which focus on ensuring customers added meet profitability targets.

 

Electricity

 

Gross margin from electricity customers in the Consumer segment was $359.7 million for the year ended March 31, 2019, an increase of 10% from $327.4 million recorded in fiscal 2018. The increase in gross margin was primarily due to lower gross margin in fiscal 2018, impacted by the abnormally mild summer weather in North America, customer disruptions caused by Hurricane Harvey and higher supply costs due to the January deep freeze in Texas followed with warmer days that resulted in a normal monthly average.

 

20.

 

COMMERCIAL ENERGY

 

Gross margin for the Commercial segment was $176.5 million for the year ended March 31, 2019, an increase of 15% from $153.3 million recorded in the prior year.

 

Average realized gross margin for the year ended March 31, 2019 was $100/RCE, an increase of 20% from $83/RCE a year ago as a result of the margin improvement initiatives, partially offset by the increase in bad debt expense. The gross margin per RCE value includes an appropriate allowance for bad debt expense in markets where Just Energy has customer credit risk.

 

Gas

 

Gas gross margin for the Commercial segment was $27.1 million, an increase of 53% from $17.7 million recorded in fiscal 2018 due to the 20% increase in RCEs resulting from the pricing power improvements in North America, growth in the U.K. operations and favourable foreign exchange fluctuations, as compared to last fiscal year.

 

Electricity

 

Electricity gross margin for the Commercial segment was $144.2 million, an increase of 7% from $134.6 million recorded in the prior year. The increase in gross margin was due to the pricing power improvements in North America, ramp up on sales from the Commercial VAPS businesses acquired in the latter half of fiscal 2018, normalized weather compared to the extreme negative one-time customer disruptions caused by Hurricane Harvey and higher supply costs due to the January deep freeze in Texas in the prior year.

 

GROSS MARGIN ON NEW AND RENEWING CUSTOMERS

 

The table below depicts the annual margins on contracts for Consumer and Commercial customers signed during the year. This table reflects the gross margin (sales price less costs of associated supply) earned on new additions and renewals, including both brown commodities and JustGreen supply. The gross margin/RCE value includes an appropriate allowance for bad debt expense in applicable markets.

 

Annual gross margin per RCE
   Fiscal   Number of   Fiscal   Number of 
   2019   RCEs   2018   RCEs 
                 
Consumer customers added or renewed  $300    880,000   $206    995,000 
Consumer customers lost   268    605,000    198    544,000 
Commercial customers added or renewed1   76    742,000    80    891,000 
Commercial customers lost   77    386,000    78    656,000 

1Annual gross margin per RCE excludes margins from Interactive Energy Group and large Commercial and Industrial customers.

 

For the year ended March 31, 2019, the average gross margin per RCE for the customers added or renewed by the Consumer segment was $300/RCE, an increase of 46% from $206/RCE in the prior comparable period. The average gross margin per RCE for the Consumer customers lost during the year ended March 31, 2019 was $268/RCE, an increase from $198/RCE for customers lost in the prior comparable period. The increase in gross margin is attributed to the improved pricing power and continued risk management of the weather derivative costs.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the year ended March 31, 2019 was $76/RCE, a decrease of 5% from $80/RCE in the prior comparable period. Customers lost through attrition and failure to renew during the year ended March 31, 2019 were at an average gross margin of $77/RCE, a decrease from $78/RCE reported in the prior comparable period. Management continues to focus on margin optimization by focusing on small and medium-sized customers and retaining our larger margin customers.

 

21.

 

 

Just Energy’s results for the past fiscal periods reported below have been adjusted to reflect continuing operation results and figures.

 

Overall consolidated results from continuing operations
 
ADMINISTRATIVE EXPENSES
For the years ended March 31            
(thousands of dollars)            
   Fiscal 2019   Fiscal 2018  

% increase

(decrease)

 
Consumer Energy  $76,709   $64,282    19%
Commercial Energy   40,693    29,153    40%
Corporate and shared services costs   89,418    93,815    (5)%
Total administrative expenses  $206,820   $187,250    10%

 

Administrative expenses increased by 10% from $187.3 million to $206.8 million in the year ended March 31, 2019 as compared to the prior year. The Consumer segment’s administrative expenses were $76.7 million for the year ended March 31, 2019, an increase of 19% from $64.3 million recorded in fiscal 2018. The Commercial segment’s administrative expenses were $40.7 million for fiscal 2019, an increase from fiscal 2018 of 40%. The overall increase over the prior comparable year was attributable to the additional administrative expenses resulting from the stabilization program to achieve operational effectiveness and from the acquisition of Filter Group together with foreign exchange fluctuations from the U.S. and U.K. operations.

 

Just Energy’s results for the past fiscal periods reported below have been adjusted to reflect continuing operation results and figures.

 

SELLING AND MARKETING EXPENSES
For the years ended March 31            
(thousands of dollars)            
             
   Fiscal 2019   Fiscal 2018   % increase
(decrease)
 
Consumer Energy  $158,770   $161,246    (2)%
Commercial Energy   73,260    70,982    3%
Total selling and  marketing  expenses  $232,030   $232,228    -   

 

Selling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and sales agents, as well as sales-related corporate costs, were $232.0 million, consistent with the prior year.

 

The selling and marketing expenses for the Consumer segment were $158.8 million for the year ended March 31, 2019, a 2% decrease from $161.2 million recorded in fiscal 2018 due to the capitalization of the upfront commission expense with the adoption of IFRS 15.

 

The selling and marketing expenses for the Commercial segment increased 3% to $73.3 million from the prior year resulting from increased commission costs to acquire new customers, offset by capitalization of certain upfront incremental customer acquisition costs in accordance with IFRS 15 and reduction of non-commission selling expense.

 

22.

 

The aggregation costs per customer for the last 12 months for Consumer customers signed by independent representatives and Commercial customers signed by brokers were as follows:

 

   Fiscal 2019  Fiscal 2018
Consumer  $242/RCE  $199/RCE
Commercial  $51/RCE  $41/RCE

 

The average aggregation cost for the Consumer segment was $242/RCE for the year ended March 31, 2019, an increase of 22% from the $199/RCE reported in the fiscal 2018, primarily related to the weakening of the U.S. dollar.

 

The $51/RCE average aggregation cost for Commercial segment customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts are paid further commissions averaging $51/RCE per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $92 (1.8 x $51) to the year’s average aggregation cost reported above. As at March 31, 2018, the average aggregation cost for commercial brokers was $41/RCE.

 

BAD DEBT EXPENSE

 

In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia and the U.K., Just Energy assumes the credit risk associated with the collection of customer accounts. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets.

 

Bad debt expense is included in the audited consolidated statement of income under other operating expenses. Bad debt expense was $81.0 million for the year ended March 31, 2019, an increase of 44% from $56.3 million recorded for fiscal 2018, primarily as a result of the growth of revenues within Texas and in the U.K., and the adoption of the IFRS 9 expected credit loss model. For the year ended March 31, 2019, the bad debt expense represents 2.3% of relevant revenue, up from 1.9% reported in fiscal 2018.

 

FINANCE COSTS

 

Total finance costs for the year ended March 31, 2019 amounted to $88.1 million, an increase of 57% from $56.0 million recorded during fiscal 2018. The increase in finance costs was primarily driven by the premium and fees associated with the 8.75% loan, partial redemption of the 6.5% convertible bonds, higher collateral related costs associated with Texas electricity markets, supplier credit term extensions and interest expense from the increased utilization of the credit facility and higher interest rates.

 

FOREIGN EXCHANGE

 

Just Energy has exposure to U.S. dollar, U.K. pound and European euro exchange rates as a result of its international operations. Any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income. For the year ended March 31, 2019, an unrealized foreign exchange loss of $4.2 million was reported in other comprehensive income, versus an unrealized loss of $2.8 million reported in fiscal 2018. In addition to changes in the U.S. foreign exchange rate, this fluctuation is a result of the significant decrease in the mark to market liability position of the Company’s derivative financial instruments.

 

Overall, the impact from the translation of the U.S.-based operations resulted in a favourable $2.2 million on Base EBITDA for the year ended March 31, 2019.

 

Just Energy retains sufficient funds in its foreign subsidiaries to support ongoing growth; surplus cash is deployed in Canada, and hedges for cross border cash flow are placed. Just Energy hedges between 50% and 90% of the next 12 months of cross border cash flows depending on the level of certainty of the cash flow.

 

23.

 

PROVISION FOR INCOME TAX
For the years ended March 31        
(thousands of dollars)        
   Fiscal 2019   Fiscal 2018 
Current income tax expense  $6,329   $2,552 
Deferred income tax expense (recovery)   (3,500)   18,119 
Provision for income tax  $2,829   $20,671 

 

Just Energy recorded a current income tax expense of $6.3 million for the year ended March 31, 2019, versus $2.6 million in fiscal 2018. Increased gross margin and profitability in taxable jurisdictions as well as the timing of the income taxation in Canada have resulted in higher current tax expense.

 

For the year ended March 31, 2019, a deferred tax recovery of $3.5 million was recorded as compared to a deferred tax expense of $18.1 million in the prior year. The reduction in expense was primarily driven by changes in fair value of derivative instruments.

 

Liquidity and capital resources from continuing operations
 
SUMMARY OF CASH FLOWS
For the years ended March 31        
(thousands of dollars)        
   Fiscal 2019   Fiscal 2018 
Operating activities from continuing operations  $(44,455)  $62,022 
Investing activities from continuing operations   (47,823)   (21,076)
Financing activities from continuing operations, excluding dividends   141,301    35,344 
Effect of foreign currency translation   2    1,456 
Increase in cash before dividends   49,025    77,746 
Dividends (cash payments)   (87,959)   (86,261)
Decrease in cash   (38,934)   (8,515)
Cash and cash equivalents – beginning of period   48,861    57,376 
Cash and cash equivalents – end of period  $9,927   $48,861 

 

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

 

Cash flow from continuing operating activities for the year ended March 31, 2019 was an outflow of $44.5 million, compared to an inflow of $62.0 million in the prior comparable year. Cash flow from operations was lower in the current period due to the payments made upfront for residential commission on customer acquisitions and upfront costs relating to process and operational efficiency improvement activities, which depressed the changes in working capital.

 

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

 

Investing activities for the year ended March 31, 2019 included purchases of capital and intangible assets totalling $5.2 million and $38.4 million, respectively, compared with $4.8 million and $30.9 million, respectively, in fiscal 2018. Just Energy’s capital spending related primarily to information technology-related purchases for process improvement initiatives.

 

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

 

Financing activities, excluding dividends, relate primarily to the issuance and repayment of long-term financing. During the year ended March 31, 2019, Just Energy added $253.2 million of debt with the 8.75% loan and the Filter Group financing, withdrew an additional $79.5 million on the credit facility and issued an additional $10.4 million in preferred shares. These inflows were offset by the partial redemption of the 6.5% convertible debentures and a payment of $10.0 million on the share swap.

 

24.

 

Just Energy’s liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. The elapsed period between the time a customer is signed and receipt of the first payment from the customer varies with each market. The time delays per market are approximately two to nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy. In Alberta, Georgia and Texas and for commercial direct-billed customers, Just Energy receives payment directly.

 

DIVIDENDS AND DISTRIBUTIONS

 

During the year ended 2019, Just Energy paid cash dividends to its shareholders and distributions to holders of share-based awards in the amount of $88.0 million, compared to $86.3 million paid in the prior comparable year.

 

Just Energy’s annual dividend rate is currently $0.50 per common share paid quarterly. Dividends are not guaranteed and are subject to Board approval each quarter.

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per preferred share when, as and if declared by our Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the preferred shares are cumulative, dividends on preferred shares will accrue even if they are not paid. Common shareholders will not receive dividends until any preferred share dividends in arrears are paid. Dividend payment dates are quarterly on the last day of each of March, June, September and December. The dividend payment on March 31, 2019 was US$0.53125 per preferred share.

 

Balance sheet as at March 31, 2019, compared to March 31, 2018

 

Total cash decreased from $48.9 million as at March 31, 2018 to $9.9 million as at 2019. The decrease in cash is primarily attributable to the Company’s significant investment in upfront customer acquisition costs to acquire quality customers and risk management activities throughout the fiscal year.

 

As of March 31, 2019, trade receivables and unbilled revenue amounted to $506.2 million and $277.6 million, respectively, compared to March 31, 2018, when the trade receivables and unbilled revenue amounted to $357.3 million and $301.6 million, respectively. Trade payables and other increased from $590.0 million to $714.1 million during the year as a result of the extension of payment terms negotiated in fiscal 2018 for a number of commodity suppliers.

 

In certain markets, more gas has been delivered to LDCs than consumed by customers, resulting in gas delivered in excess of consumption and a deferred revenue position of $3.1 million and $43.2 million, respectively, as of March 31, 2019. These amounts increased from $2.7 million and $38.7 million, respectively, as of March 31, 2018. As at March 31, 2019, more gas was consumed by customers than Just Energy had delivered to the LDCs in Ontario and Manitoba, and as a result, Just Energy recognized an accrued gas receivable and accrued gas payable of $13.6 million and $12.9 million, respectively, down from $15.9 million and $12.3 million, respectively, as of March 31, 2018. These changes represent the normal seasonality of gas storage. Other current assets increased from $111.9 million at March 31, 2018 to $164.3 million as of March 31, 2019.

 

Fair value of derivative financial assets and fair value of financial liabilities relate entirely to the financial derivatives. The mark to market gains and losses can result in significant changes in profit and, accordingly, shareholders’ equity from year to year due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash changes are not meaningful and will not be experienced as future costs or cash outflows.

 

Long-term debt increased from $422.1 million as at March 31, 2018 to $687.9 million as at March 31, 2019. This increase is a result of reclassification of the credit facility from current to long-term liabilities together with adding the new 8.75% loan, the Filter Group financing and unfavourable foreign exchange fluctuations on the U.S. dollar debt, partially offset by the redemption of the 6.5% convertible bonds. The book value of net debt was 3.6x for Base EBITDA, higher than the 2.8x reported for March 31, 2018.

 

25.

 

   As at   As at   As at 
   Mar. 31,   March 31,   Mar. 31, 
   2019   2018   2017 
Assets:               
Cash   $9,927   $48,861   $83,631 
Trade and other receivables   783,780    658,844    582,971 
Total fair value of derivative financial assets   153,767    283,431    14,666 
                
Liabilities:               
Trade payables and other   714,110    594,732    513,747 
Total fair value of derivative financial liabilities   143,045    138,159    347,517 
Total long-term debt   725,372    543,504    498,088 
Total other liabilities   11,895    5,486    13,913 

 

Debt and financing for continuing operations

(thousands of dollars)          

 

   March 31, 2019   March 31, 2018 
         
Just Energy credit facility  $201,577   $122,115 
Filter Group financing   17,577    - 
8.75% loan   240,094    - 
6.75% $100M convertible debentures   87,520    85,760 
6.75% $160M convertible debentures   150,945    148,146 
6.5% convertible bonds   29,483    188,147 

 

The various debt instruments are described as follows:

 

• A $352.5 million credit facility expiring on September 1, 2020, supported by guarantees and secured by, among other things, a general security agreement and an asset pledge excluding, primarily, the U.K. and other international operations. Credit facility withdrawals amounted to $201.6 million as of March 31, 2019, compared with $122.1 million as of March 31, 2018. In addition, total letters of credit outstanding as at March 31, 2019 amounted to $94.0 million (March 31, 2018 - $113.4 million). The renewal on the facility agreement included an extension for an additional 2 years to September 1, 2020.

 

• An 8.99% outstanding loan between HTC and Filter Group. The loan is a result of factoring receivables. Payments on the loan are made monthly as Just Energy receives payment from the customer and will continue up to the end date of the customer contract term on the factored receivable.

 

• An 8.75% US$250 million non-revolving multi-draw senior unsecured term loan facility with a maturity date of September 2023 was entered into during the second quarter of fiscal 2019, which bears interest at a rate of 8.75% per annum payable semi-annually in arrears on June 30 and December 31. US$193 million was drawn as at March 31, 2019.

 

• A 6.75% $100M senior unsecured subordinated debenture with a maturity date of March 31, 2023 was issued during the fourth quarter of fiscal 2018 for which interest is payable semi-annually in arrears on March 31 and September 30, at a rate of 6.75% per annum.

 

  26.

 

• A 6.75% $160M senior unsecured subordinated debenture with a maturity date of December 31, 2021 was issued during the third quarter of fiscal 2017 for which interest is payable semi-annually in arrears on June 30 and December 31, at a rate of 6.75% per annum.

 

• A 6.5% European-focused senior unsecured convertible bond with a maturity date of July 29, 2019, and interest payable semi-annually in arrears on January 29 and July 29, at a rate of 6.5% per annum. As at March 31, 2019, US$127.6 million was repurchased and extinguished.

 

See Note 19 of the consolidated financial statements for further details regarding the nature of each debt agreement.

 

Acquisition of businesses

 

ACQUISITION OF EDGEPOWER, INC.

On February 28, 2018, Just Energy completed the acquisition of the issued and outstanding shares of EdgePower, Inc. (“EdgePower”), a privately held energy monitoring and management company operating out of Aspen, Colorado. EdgePower provides lighting and HVAC controls, as well as enterprise monitoring, in hundreds of commercial buildings in North America. Just Energy acquired 100% of the equity interests of EdgePower for the purposes of integrating their lighting and HVAC controls with the commercial business. The fair value of the total consideration transferred is US$14.9 million, of which US$7.5 million was paid in cash and US$7.4 million was settled through the issuance of 1,415,285 Just Energy common shares. The goodwill that was acquired as part of this acquisition relates primarily to the EdgePower workforce and synergies between Just Energy and EdgePower.

 

In addition, the former shareholders of EdgePower are entitled to a payment of up to a maximum of US$6.0 million, payable in cash, subject to continuing employment and the achievement of certain annual and cumulative performance thresholds of the EdgePower business. The payment is calculated as 20% of EBITDA for the EdgePower business for the years of 2019-2021 with minimum thresholds that must be met. The management remuneration recognized since the acquisition date is $nil. As of March 31, 2019, the acquisition accounting for EdgePower has been finalized and closed.

 

For an allocated breakdown of the purchase price to identified assets and liabilities acquired in the acquisition, see Note 17 of the consolidated financial statements for the year ended March 31, 2019.

 

ACQUISITION OF FILTER GROUP INC.

On October 1, 2018, Just Energy acquired Filter Group Inc, a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

Just Energy acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by Just Energy under the Purchase Agreement is comprised of: (i) $14.3 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this is a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and Just Energy received a fairness opinion from National Bank Financial on the transaction.

 

  27.

 

For an allocated breakdown of the purchase price to identified assets and liabilities acquired in the acquisition, see Note 17 of the consolidated financial statements for the year ended March 31, 2019. As of March 31, 2019, the acquisition accounting for Filter Group has been finalized and closed.

 

During the year ended March 31, 2019, Filter Group contributed $2.1 million in EBITDA to the overall results. Total sales added during fiscal 2019 were $6.3 million, of which $5.8 million is recurring. As the Filter Group business applies operating lease accounting, the majority of the sales earned goes directly to gross margin, with a gross margin percentage of 86% for the year ended March 31, 2019. The trailing 12 months attrition rate for the Filter Group business was 12%, one percentage point lower than the attrition rate for Just Energy’s commodity markets. On Filter Group’s 33,000 active assets, there was active MRR of $0.9 million.

 

Contractual obligations

In the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are known and non-cancellable.

 

PAYMENTS DUE BY PERIOD

(thousands of dollars)                              

 

   Less than 1 year   1 – 3 years   4 – 5 years   After 5 years   Total 
Trade and other payables  $714,110   $-   $-   $-   $714,110 
Long-term debt   39,150    210,564    531,987    -    781,701 
Interest payments   40,766    80,234    40,600    -    161,600 
Premises and equipment leasing   

5,035

    9,902    6,306    -    21,243 
Gas, electricity and non-commodity contracts   

1,899,713

    1,439,479    119,212    42,089    3,500,493 
   $2,698,774   $1,740,179   $698,105   $42,089   $5,179,147 

 

On August 1, 2017, Just Energy announced that it reached an agreement with its joint venture partner, Red Ventures LLC, to end the exclusive relationship for online sales of the Just Energy brand in North America. To facilitate the transaction, Just Energy acquired the outstanding 50% interest of each of Just Ventures LLC in the United States and Just Ventures L.P. in Canada. Under the terms of the agreement, the purchase price is a function of go-forward earnings based on the current client base and is payable in quarterly installments over five years estimated at $99.8 million. As at March 31, 2019, the current liabilities amount to $22.3 million and long-term liabilities amount to $36.4 million.

 

OTHER OBLIGATIONS

In the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included either in its accrued liabilities or in the consolidated financial statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become payable only if certain events were to occur. The inherent uncertainty surrounding the timing and financial impact of any events prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from actions, claims or proceedings.

 

Transactions with related parties

Just Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates other than the related party transaction discussed under the “Acquisition of Filter Group Inc.” section.

 

Off balance sheet items

The Company has issued letters of credit in accordance with its credit facility totalling $94.0 million (March 31, 2018 - $113.4 million) to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

  28.

 

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group and Charter Brokerage LLC, Just Energy has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2019 were $70.3 million (March 31, 2018 - $56.5 million).

 

Critical accounting estimates

The consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, selling and marketing, and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

 

The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Just Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply and as part of the risk management practice. In addition, Just Energy uses derivative financial instruments to manage foreign exchange, interest rate and other risks.

 

Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce its exposure to commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment. Certain derivative contracts were purchased to manage Electricity Reliability Council of Texas (“ERCOT”) collateral requirements.

 

Just Energy’s objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy’s policy to hedge the estimated fixed-price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy’s price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed-price or price-protected customer contracts; however, hedge accounting under IFRS 9 is not applied. Just Energy’s policy is not to use derivative instruments for speculative purposes.

 

Just Energy uses a forward interest rate curve along with a volume weighted average share price to value its share swap. The conversion feature on the 6.5% convertible bonds is valued using an option pricing model.

 

Just Energy’s U.S. and U.K. operations introduce foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows, however, hedge accounting under IFRS 9 is not applied.

 

The consolidated financial statements are in compliance with IAS 32, Financial Instruments: Presentation; IFRS 9, Financial Instruments; and IFRS 7, Financial Instruments: Disclosure. Due to commodity volatility and to the size of Just Energy, the swings in mark to market on these positions will increase the volatility in Just Energy’s earnings.

 

  29.

 

The Company’s financial instruments are valued based on the following fair value (“FV”) hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

 

Level 3 – Inputs that are not based on observable market data.

 

The main cause of changes in the fair value of derivative instruments is changes in the forward curve prices used for the fair value calculations. For a sensitivity analysis of these forward curves, see Note 14 of the consolidated financial statements for the year ended March 31, 2019. Other inputs, including volatility and correlations, are driven off historical settlements.

 

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

The allowance for uncollectible accounts reflects Just Energy’s best estimates of losses on the accounts receivable balances. Just Energy determines the allowance for doubtful accounts on customer receivables by applying loss rates based on historical results to the outstanding receivable balance. Just Energy is exposed to customer credit risk on its continuing operations in Alberta, Texas, Illinois, Ohio, Delaware, California, Michigan, Georgia, the U.K. and commercial direct-billed accounts in British Columbia. Credit review processes have been implemented to perform credit evaluations of customers and manage customer default. If a significant number of customers were to default on their payments, it could have a material adverse effect on the operations and cash flows of Just Energy. Management factors default from credit risk in its margin expectations for all the above markets.

 

Revenues related to the sale of energy are recorded when energy is delivered to customers. The determination of energy sales to individual customers is based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The measurement of unbilled revenue is affected by the following factors: daily customer usage, losses of energy during delivery to customers and applicable customer rates.

 

Increases in volumes delivered to the utilities’ customers and favourable rate mix due to changes in usage patterns in the period could be significant to the calculation of unbilled revenue. Changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.

 

IMPAIRMENT OF NON-FINANCIAL ASSETS

 

Just Energy assesses whether there is an indication that an asset may be impaired at each reporting date. If such an indication exists or when annual testing for an asset is required, Just Energy estimates the asset's recoverable amount. The recoverable amounts of goodwill and intangible assets with an indefinite useful life are tested annually. The recoverable amount is the higher of an asset's or cash-generating unit's (“CGU”) fair value less costs to sell and its value in use. Value in use is determined by discounting estimated future pre-tax cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. The recoverable amount of assets that do not generate independent cash flows is determined based on the CGU to which the asset belongs.

 

The recoverable amount of each of the operating segments has been determined based on a fair value less costs of disposal model using fiscal 2019’s EBITDA of the operating segment multiplied by the entity’s EBITDA multiple. The EBITDA multiple and the EBITDA of the segment that has been utilized in the fair value less costs of disposal model are consistent with external sources of information and are considered a Level 2 input within the fair value hierarchy.

 

  30.

 

DEFERRED TAXES

 

In accordance with IFRS, Just Energy uses the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are recognized on the differences between the carrying amounts of assets and liabilities and their respective income tax basis.

 

The tax effects of these differences are reflected in the consolidated statements of financial position as deferred income tax assets and liabilities. An assessment must be made to determine the likelihood that our future taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent that such recovery is not probable, deferred income tax assets must be reduced. The reduction of the deferred income tax asset can be reversed if the estimated future taxable income improves. No assurances can be given as to whether any reversal will occur or as to the amount or timing of any such reversal. Management must exercise judgment in its assessment of continually changing tax interpretations, regulations and legislation to ensure deferred income tax assets and liabilities are complete and fairly presented. Assessments and applications differing from our estimates could materially impact the amount recognized for deferred income tax assets and liabilities.

 

Deferred income tax assets of $9.5 million and $9.4 million have been recorded on the consolidated statements of financial position as at March 31, 2019 and March 31, 2018, respectively. These assets primarily relate to mark to market losses on our derivative financial instruments in the UK. Management believes there will be sufficient taxable income that will permit the use of these future tax assets in the tax jurisdictions where they exist.

 

When evaluating the future tax position, Just Energy assesses its ability to use deferred tax assets based on expected taxable income in future periods and other taxable temporary differences such as the book gain on fair value of derivative financial instruments. As at March 31, 2019, no net deferred tax assets were recognized in the U.S.

 

Deferred income tax liabilities of $4.1 million and $6.9 million have been recorded on the consolidated statements of financial position as at March 31, 2019 and March 31, 2018, respectively. The decrease in the deferred tax liabilities is primarily due to mark to market losses on the derivative financial instruments in the U.K.

 

DISCONTINUED OPERATIONS

 

Management used judgment in concluding on the discontinued operations classification as a major separate geographical area of operations, as part of a single coordinated disposal plan to resell the business in the new fiscal year. There is also a high level of judgment involved in estimating the fair value less cost to sell of the disposal group and the significant carrying amounts of the assets and liabilities related to assets held for sale.

 

Just Energy common and preferred shares

 

As at May 15, 2019, there were 149,705,030 common shares and 4,662,165 preferred shares of Just Energy outstanding.

 

In May 2017, Just Energy announced it entered into an at-the-market issuance (“ATM offering”) sales agreement pursuant to which Just Energy may, at its discretion and from time to time, offer and sell in the United States preferred shares having an aggregate offering price of up to US$150 million. As at May 15, 2019, Just Energy has issued a cumulative 338,865 preferred shares in fiscal 2019 for aggregate total gross proceeds of $10.4 million under the ATM offering.

 

New accounting pronouncements adopted in fiscal 2019

 

Adoption of IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

 

On April 1, 2018, Just Energy adopted IFRS 15 and has applied it using the modified retrospective method. As such, transition adjustments have been recognized in equity as at April 1, 2018.

 

Upon the adoption of IFRS 15, incremental costs to obtain a contract with a customer within the North American Consumer business are capitalized if these costs are expected to be recovered. Similar costs pertaining to other segments have been capitalized in the past. Accordingly, Just Energy has changed its accounting policy to allow for capitalizing all upfront sales commissions, incentives, and third party verification costs paid based on customer acquisitions that met the criteria for capitalization. Just Energy has elected, under the practical expedient, to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is less than one year. Costs of obtaining a contract are deferred and amortized over the average customer relationship period (estimated to be between two and five years, based on historical blended attrition rates, inclusive of expected renewal periods by region). The majority of Just Energy’s customer contracts meet IFRS 15’s B16 practical expedient where Just Energy has the right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance completed to date.

 

  31.

 

The adoption of IFRS 15 resulted in an increase of $28.4 million in the opening balance of customer acquisition costs capitalized, an increase in deferred tax liabilities of $7.6 million and an opening retained earnings adjustment of $20.7 million.

 

IFRS 15 has no impact on the economics of the business. That being said, the implementation of IFRS 15 will result in a change in the timing and recognition of commission expense, but has no effect on the cash flows of Just Energy. IFRS 15 does impact the relationship between FFO and operating cash flow, with operating cash flow lagging behind FFO, as incremental customer acquisition costs are paid upfront and capitalized.

 

For further description of the impact of the accounting policy change, refer to Note 7 in the consolidated financial statements for the year ended March 31, 2019.

 

Adoption of IFRS 9, Financial Instruments (“IFRS 9”)

 

Effective April 1, 2018, Just Energy adopted IFRS 9, which among other things, introduces a new expected lifetime credit loss impairment model which replaces the existing incurred loss impairment model under IAS 39.

 

Under the previous accounting standard, IAS 39, a collective allowance for losses was recorded on trade receivables when a loss event had occurred as at, or prior to, the balance sheet date. An incurred loss event provides objective evidence to establish an allowance for loss against these receivables. IAS 39 did not allow the recognition of any allowance for losses expected in the future if a loss event had not yet occurred on the balance sheet date.

 

Under IFRS 9, Just Energy is required to apply a lifetime expected credit loss model, where credit losses that are expected to transpire in future years, irrespective of whether a loss event has occurred or not, as at the balance sheet date, are provided for. The expected lifetime credit loss is calculated based on the weighted average expected cash collected shortfall against the carrying value of the receivable and unbilled revenue and considers reasonable and supportable information about past events, current conditions, and forecasts of future events and economic conditions that may impact the credit profile of the receivables.

 

IFRS 9 requires that forward-looking indicators are considered when determining the impact on credit risk and measuring lifetime expected credit losses and are incorporated in the risk parameters as relevant. Based on the analysis performed by Just Energy, it was determined that the following forward-looking indicators could have an impact on the credit performance of the receivables, and they were considered in the calculation of the allowance for losses:

 

-Interest rates;
-Unemployment rates;
-Commodity prices; and
-The Consumer Price Index.

 

IFRS 9 does not require the restatement of comparative period financial statements except in limited circumstances related to aspects of hedge accounting. Just Energy made the decision not to restate comparative period financial information and has recognized any measurement differences between the previous carrying amounts and the new carrying amounts on April 1, 2018, through an adjustment to opening retained earnings, net of deferred tax.

 

In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia and the U.K., Just Energy has customer credit risk, and therefore, credit review processes have been implemented to perform credit evaluations of customers and manage customer default. Just Energy’s bad debt expense as a percentage of revenue for these markets, as determined under IAS 39, for the year ended March 31, 2018, was 1.9%.

 

  32.

 

Under IFRS 9, for the year ended March 31, 2019, the same metric was determined to be 2.3%. This increase in bad debt expense as a percentage of revenue was not indicative of a change in the expected recovery value of the underlying customer receivables but rather a function of extending the allowance for expected lifetime credit losses to provide for expected future losses over a longer future time frame as required under IFRS 9. The standard required that a provision for expected lifetime credit losses be calculated for unbilled revenues, as they meet the definition of a contract asset under IFRS 15, whereas previously, under IAS 39, these receivables would not have a provision under the incurred loss model.

 

In the remaining markets, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. Management believes that the risk of LDCs failing to deliver payment to Just Energy is minimal.

 

The following table summarizes the transition adjustment that was required to adopt IFRS 9 as at April 1, 2018 for the markets above:

 

(in thousands of dollars)  IAS 39 carrying
amount as at
March 31, 2018
   Transition
adjustment
   IFRS 9 carrying
amount as at
April 1, 2018
 
Trade receivables  $395,730   $(11,237)  $384,493 
Unbilled revenues  $301,577   $(12,399)  $289,178 

 

Due to the transition from an incurred loss model to a future expected lifetime credit loss model as required under IFRS 9, if forecast of events or change of economic condition are expected to give rise to change of the credit loss, the bad debt expenses will be changed prior to the occurrence of the future event. This would theoretically result in a greater bad debt expense and a corresponding decrease in reported net income when compared to net income reported under IAS 39 in situations where the future expected event leads to deterioration of the credit loss.

 

Just Energy’s results for the past two fiscal periods reported throughout the MD&A have been adjusted to reflect continuing operation results and figures.

 

Accounting standards issued but not yet applied

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the consolidated financial statements are disclosed below. Just Energy intends to adopt these standards, if applicable, when they become effective. For more information on the new accounting pronouncements not yet applied, as well as the Company’s analysis of accounting impacts, reference Note 8 of the consolidated financial statements for the year ended March 31, 2019.

 

 

 

 

  33.

 

Standard Change summary Effective for fiscal years commencing after:
IFRS 16, Leases (“IFRS 16”) IFRS 16 brings most leases onto the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. January 1, 2019
IFRIC 23, Uncertainty over Income Tax Treatments (“IFRIC 23”) IFRS 23 clarifies the uncertainty in certain income tax treatments in complex situations and scenarios. January 1, 2019

 

The IFRS Interpretations Committee (“IFRIC”) reached a decision IFRIC Agenda Paper 11, Physical Settlement of Contracts to Buy or Sell a Non-Financial Item (“Agenda Paper 11), during its meeting on March 5 - 6, 2019. The decision was in respect to a request about how an entity applies IFRS 9 to particular contracts to buy or sell a non-financial item at a fixed price.

 

The Company has reviewed the agenda decision and determined that a change is required in its accounting policy related to contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments. These are contracts the Company enters into which are accounted for as derivatives at fair value through profit or loss but physically settled by taking delivery of the underlying non-financial item. The IFRIC concluded that IFRS 9 neither permits or requires an entity to reverse the accumulated gain or loss previously recognized on the derivative and recognize a corresponding adjustment to cost of goods sold or inventory when the contract is physically settled.

 

In its December 2018 meeting, the International Accounting Standards Board (IASB) confirmed its view that it expects companies to be entitled to sufficient time to implement changes in accounting policy that result from agenda decisions of the IFRIC. The Company is currently evaluating the impact of implementing the agenda decision on its financial statements, systems and processes. Given the nature of its current systems and processes and the volume of transactions effected, the Company determined it was not possible to affect the accounting change in time for its March 31, 2019 reporting. The Company expects to implement the change retrospectively in the first half of its fiscal 2020 year. While the impact has not been quantified, the Company expects there will be material movements between cost of sales and change in fair value of derivative instruments and other in Just Energy’s consolidated statement of operations and the value of gas in storage on the statement of financial position. There is no impact on the net income of the Company.

 

Risk factors

 

Described below are the principal risks and uncertainties that Just Energy can foresee. It is not an exhaustive list, as some future risks may be yet unknown and other risks, currently regarded as immaterial, could turn out to be material.

 

MARKET RISK

 

Market risk is a potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity.

 

Commodity price risk

 

Just Energy’s cost to serve its retail energy customers is exposed to fluctuations in commodity prices. Although Just Energy enters into commodity derivative instruments with its suppliers to manage the commodity price risks, it is exposed to commodity price risk where estimated customer requirements do not match actual customer requirements or where it is not able to exactly purchase the estimated customer requirements. In such cases, Just Energy may suffer a loss if it is required to sell excess supply in the spot market (compared to its weighted average cost of supply) or to purchase additional supply in the spot market. Such losses could have a material adverse impact on Just Energy’s operating results, cash flow and liquidity.

 

A key risk to Just Energy’s business model is a sudden and significant drop in the commodity market price resulting in an increase in customer churn, regulatory pressure and resistance on enforcement of liquidation damages and enactment of provisions to reset the customer price to current market price levels which could have a significant impact on Just Energy’s business.

 

Commodity volume balancing risk

 

Depending on several factors including weather, Just Energy’s customers may use more or less commodity than the volume purchased by Just Energy for delivery to them. Just Energy bears the financial responsibility, is exposed to market risk and, furthermore, may also be exposed to penalties by the LDCs for balancing the customer volume requirements. Although Just Energy manages the volume balancing risk through balancing language in some of its retail energy contracts, enters into weather derivative and insurance transactions to mitigate weather and volume balancing risk, and leverages natural gas storage facilities to manage daily delivery requirements, increased costs and/or losses resulting from occurrences of volume imbalance net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s operating results, cash flow and liquidity.

 

Interest rate risk

 

Just Energy is exposed to interest rate risk associated with its working capital facility, supplier payment terms, perpetual preferred shares and refinancing of its debt instruments. Just Energy may enter into derivative instruments to mitigate interest rate risk; however, large fluctuations in interest rates and increases in interest costs net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s cash flow and liquidity.

 

  34.

 

Foreign exchange rate risk

 

Just Energy is exposed to foreign exchange risk on foreign investment outflow and repatriation of foreign currency denominated income against Canadian dollar denominated common share dividends. In addition, Just Energy is exposed to translation risk on foreign currency denominated earnings and foreign investments. Just Energy enters into foreign exchange derivative instruments to manage the cash flow risk on foreign investments and repatriation of foreign funds. Currently, Just Energy does not enter into derivative instruments to manage foreign exchange translation risk. Large fluctuations in foreign exchange rates may have a significant impact on Just Energy’s earnings and cash flow. In particular, a significant rise in the relative value of the Canadian dollar to the U.S. dollar or U.K. pound could materially reduce reported earnings and cash flow.

 

LIQUIDITY RISK

 

Just Energy is at risk of not being able to settle its future debt obligations including the Credit Agreement, subordinated debt, convertible debentures and commercial notes. An increase in liquidity risk may put Just Energy’s cash dividend at risk or require Just Energy to raise additional funds. Liquidity risk may cause Just Energy to close down, sell or otherwise dispose of all or part of the business of Just Energy’s subsidiaries.

 

Credit agreement and other debt

 

Just Energy maintains a credit facility of up to $352.5 million for working capital purposes, pursuant to a credit agreement with various lenders (the “Credit Agreement”). The lenders under the Credit Agreement, together with certain suppliers of Just Energy and its affiliates, are party to the Credit Agreement and related security agreement, which provide for a joint security interest over all customer contracts in North America. There are various covenants pursuant to the Credit Agreement that govern activities of Just Energy and its affiliates. The restrictions in the Credit Agreement may adversely affect Just Energy’s ability to finance its future operations and capital needs and to pursue available business opportunities. Should Just Energy or its subsidiaries default under the terms of the Credit Agreement, the credit facility thereunder may become unavailable and may materially reduce Just Energy’s liquidity. There can be no assurance that Just Energy would be able to obtain alternative financing or that such financing would be on terms favourable to Just Energy. In addition, Just Energy may not be able to extend, renew or refinance the credit facility on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy’s liquidity position, in which case Just Energy could be forced to sell assets or secure additional financing to make up for any shortfall in its payment obligations under unfavourable circumstances.

 

On September 12, 2018, Just Energy entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility during the year to fund a tender offer for its U.S. dollar denominated convertible unsecured subordinated bonds, for general corporate purposes, including to pay down the Company’s credit facility, and for future acquisitions. The term loan contains usual and customary covenants for this type of financing, including but not limited to financial covenants and limitations on debt incurrence, distributions, asset sales, and transactions with affiliates. The restrictions in the loan facility may adversely affect Just Energy’s liquidity position and ability to finance its future operations and capital needs and to pursue available business opportunities.

 

Just Energy has significant levels of other debt, including convertible debentures, which could further limit Just Energy’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, restructuring, acquisitions or general corporate purposes, which could make Just Energy more vulnerable to economic downturns and adverse industry developments or limit flexibility in planning for or reacting to changes in its business. There can be no assurance that Just Energy would be able to refinance or replace such debt on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy's liquidity position.

 

  35.

 

Working capital requirements (availability of credit)

 

In several markets where Just Energy operates, payment is provided to Just Energy by LDCs only when the customer has paid the LDC for the consumed commodity, rather than when the commodity is delivered. Just Energy also manages natural gas storage facilities where Just Energy must inject natural gas in advance of payment. These factors, along with seasonality in energy consumption, create a working capital requirement necessitating the use of Just Energy’s available credit. In addition, Just Energy and its subsidiaries are required to post collateral to LDCs and Electricity System Operators. Any changes in payment terms managed by LDCs, any termination of extended payment terms by commodity suppliers, any increase in cost of carrying natural gas storage inventory, and any increase in collateral posting requirements could result in significant liquidity risk to Just Energy.

 

Earnings seasonality and volatility

 

Just Energy’s business is seasonal in nature. In addition to regular seasonal fluctuations in its earnings, there is significant volatility in its earnings associated with the requirement to mark its commodity contracts to market. The earnings volatility associated with seasonality and mark to market accounting may affect the ability of Just Energy to access capital and increase its liquidity risk.

 

Cash dividends are not guaranteed

 

The ability to pay dividends on common and preferred shares and the actual amount of dividends on common shares will depend upon numerous factors, including profitability, fluctuations in working capital, debt service requirements (including compliance with Credit Agreement obligations), additional issuance of senior preferred shares or indebtedness and the sustainability of margins. Cash dividends are not guaranteed and will fluctuate with the performance of Just Energy and the availability of cash liquidity from ongoing business operations.

 

Share ownership dilution

 

Just Energy may issue an unlimited number of common shares and up to 50,000,000 preferred shares without the approval of shareholders which would dilute existing shareholders’ interests. As of the date hereof, 149,705,030 common shares and 4,662,165 preferred shares have been issued.

 

SUPPLY COUNTERPARTY RISK

 

Counterparty risk is a loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations.

 

Credit risk

 

Just Energy enters into long-term derivative contracts with its counterparties. If a derivative counterparty were to default on its contractual obligations, Just Energy would be required to replace its contracted commodities or instruments at prevailing market prices, which may negatively affect related customer margin or cash flows. Just Energy mitigates credit risk by procuring a majority of its derivatives from investment grade rated counterparties, therefore restricting its exposure to unrated counterparties.

 

Supply delivery risk

 

Just Energy’s business model is based on contracting for supply of electricity or natural gas to deliver to its customers. Failure by Just Energy’s supply counterparties to deliver these commodities to Just Energy due to business failure, supply shortage, force majeure, or any other failure of such counterparties to perform their obligations under the applicable contracts would put Just Energy at risk of not meeting its delivery requirements with LDCs, thereby resulting in penalties, price risk, liquidity and collateral risk and may have a significant impact on the business, financial condition, results of operations and cash flows of Just Energy. Just Energy attempts to mitigate supply delivery risk by diversifying its commodity procurement, purchasing from multiple suppliers and purchasing business interruption insurance.

 

 

  36.

 

LEGAL AND REGULATORY RISK

 

Legal and regulatory risk is a potential loss that may be incurred as a result of changes in regulations or legislation affecting Just Energy’s business model, costs or operations, as well as being a risk of potential litigation against Just Energy resulting in impact to Just Energy’s cash flow.

 

Regulatory environment

 

In most jurisdictions in which Just Energy operates, Just Energy is required to be licensed by the relevant regulatory authority. Just Energy’s commodity business is dependent on continuing to be licensed in existing markets and receiving approval for additional licenses in new and existing markets. If Just Energy is denied a license, has a license revoked or is not granted renewal of a license, Just Energy’s financial results may be negatively impacted. Additionally, the denial or revocation or non-renewal of a license in one jurisdiction may adversely impact Just Energy’s current or future licenses in other jurisdictions and relationships with the various regulatory agencies.

 

Just Energy is able to operate in deregulated segments of the natural gas and electricity industries under currently effective state, provincial and federal regulations. If the competitive restructuring of the natural gas and electricity utility industries is altered, reversed, discontinued or delayed, Just Energy’s business, financial condition, results of operations and cash flows could be materially adversely affected. The retail energy industry is highly regulated. Regulations may be revised or reinterpreted, or new laws and regulations may be adopted or become applicable to Just Energy or its operations. Such changes may have a detrimental impact on Just Energy’s business, including Just Energy’s ability to use its sales and marketing channels. In certain deregulated electricity markets, proposals have been made by governmental agencies and/or other interested parties to partially or fully re-regulate areas of these markets. Other proposals to re-regulate may be made and legislated or other attention to the electric and gas restructuring process may: (i) delay or reverse the deregulation process; (ii) interfere with our ability to do business; (iii) inhibit our growth; (iv) increase our commodity, operating or financing costs; or (v) otherwise impact Just Energy’s profitability. If competitive restructuring of electricity and natural gas markets is altered, reversed, discontinued or delayed, our business, financial condition, results of operations and cash flows could be adversely affected. For example, in December 2016, the New York Public Service Commission (“PSC”) established an evidentiary hearing process to consider whether to adopt a complete prohibition on retail energy supplier service to mass market customers, or other market reforms such as requiring that retail energy suppliers' charges be no greater than utility supply charges, and requiring the tariffing of retail energy suppliers' service, including the potential for the PSC to void existing retail energy supply contracts if it tariffs retail energy services. The New York PSC is also considering the extent to which retail energy suppliers should be subject to Article 4 of the Public Service Law, which sets forth the PSC's authority to establish rates to ensure that they are just and reasonable rates and to accordingly regulate such rates. Similarly, several other states are taking preliminary actions to more closely monitor and control marketing activities, in particular as those activities relate to retail electricity markets. Negative outcomes in these matters or any future litigation or regulatory actions could result in significant settlements, damages or other penalties and could also increase legal costs, divert management attention from other business issues or harm Just Energy’s reputation with customers, any of which could adversely affect our financial results and the viability of Just Energy’s business.

 

Just Energy may receive complaints from consumers which may involve sanctions from regulatory and legal authorities. The most significant potential sanction is the suspension or revocation of a license which would prevent Just Energy from selling in a particular jurisdiction.

 

Just Energy is exposed to changes in energy market regulations that may put the onus on Just Energy to adhere to stricter renewable energy compliance standards, procure additional volume of capacity and transmission units and pay regulated tariffs and charges for transmission and distribution of energy, which may change from time to time. In certain cases, Just Energy may not be able to pass through the additional costs from changes in energy market regulations to its customers which may impact Just Energy’s business, financial condition and cash flows.

 

Just Energy’s business model involves entering into derivative financial instruments to manage commodity price and supply risk. Financial reforms in the U.S., Canada and Europe may require Just Energy to comply with certain aspects of reporting, record keeping, position limits and other risk mitigation and price transparency rules that result in increased scrutiny of commodity procurement activities. Costs resulting from Just Energy’s compliance with certain new regulatory requirements as well as increased costs of doing business with Just Energy’s counterparties who may be subject to even greater regulatory requirements could have a material impact on Just Energy’s business.

 

  37.

 

In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum. The decision to withdraw has created significant uncertainty about the future relationship between the U.K. and the European Union, including determining which European Union-derived laws to replace or replicate in the event of the U.K.’s withdrawal. These developments, or the perception that they can occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, which may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity, restrict our access to capital or disrupt the operations and growth strategies of our subsidiaries in the region, which could have a material adverse effect on our business, financial condition and results of operations.

 

Litigation

 

In addition to the litigation referenced herein (see “Legal proceedings” on page 43) and occurring in the ordinary course of business, Just Energy may in the future be subject to class actions and other actions arising in relation to its consumer contracts and marketing practices. This litigation is, and any such additional litigation could be, time consuming and expensive and could distract the executive team from the conduct of Just Energy’s daily business and may result in costly settlement arrangements. An adverse resolution or reputational damage of any specific lawsuit could have a material adverse effect on Just Energy’s business or results of operations and the ability to favourably resolve other lawsuits.

 

In certain jurisdictions, independent contractors that contracted with Just Energy to provide door-to-door sales have made claims, either individually or as a class, that they are entitled to employee benefits such as minimum wage or overtime pursuant to legislation, even though they have entered into a contract with Just Energy that provides that they are not entitled to benefits normally available to employees. Just Energy’s position has been confirmed in some instances and overturned by regulatory bodies and courts in others, and some of these decisions are under appeal. Should the regulatory bodies or claimants ultimately be successful, Just Energy would be required to remit unpaid tax amounts plus interest and might be assessed a penalty, of which amounts could be substantial.

 

RETAIL RISK

 

Retail customer risk is a potential loss that may be incurred as a result of change in customer behaviour and from an increase in competition in the retail energy industry.

 

Consumer contract attrition and renewal rates

 

Just Energy may experience an increase in attrition rates and lower acceptance rates on renewal requests due to commodity price volatility, increased competition or change in customer behaviour. There can be no assurance that the historical rates of annual attrition will not increase substantially in the future or that Just Energy will be able to renew its existing energy contracts at the expiry of their terms. Any such increase in attrition or failure to renew could have a material adverse impact on Just Energy’s business, financial condition, operating results, cash flow, liquidity and prospects.

 

Customer credit risk

 

Just Energy has customer credit risk in various markets where bills are sent directly to customers for energy consumption from Just Energy. If a significant number of direct bill customers were to default on their payments, it could have a material adverse effect on the results of operations, cash flow and liquidity of Just Energy.

 

For the remaining customers, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. There is no assurance that the LDCs that provide these services will continue to do so in the future, which would mean that Just Energy would have to accept additional customer credit risk.

 

  38.

 

Competition

 

A number of companies and incumbent utility subsidiaries compete with Just Energy in the residential, commercial and small industrial market. It is possible that new entrants may enter the market as marketers and compete directly for the customer base that Just Energy targets, slowing or reducing its market share. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas or electricity at prices other than at cost, their existing customer bases could provide them with a significant competitive advantage. This could limit the number of customers available for marketers, including Just Energy, and impact Just Energy’s growth and retention.

 

Sales channel risk

 

Just Energy’s residential customers are generally acquired through the use of online advertising, retail stores, telemarketing and door-to-door sales. Commercial customers are primarily solicited through commercial brokers and independent sales agents. Just Energy’s ability to increase revenues in the future will depend significantly on the success of these marketing techniques, as well as its ability to expand into new sales channels to acquire customers. There is no assurance that competitive conditions will allow this sales channel strategy to continue or whether new sales channels will be successful in signing up new customers. Further, if Just Energy’s services are not attractive to, or do not generate sufficient revenue for commercial brokers, retail stores and sales partners, Just Energy may lose these existing relationships, which would have a material adverse effect on the business, revenues, results of operations and financial condition of Just Energy.

 

Retailer and product acceptance risk

 

Just Energy’s profitability and growth depends upon the customer’s broad acceptance of energy retailers and their products. There is no assurance that customers will widely accept Just Energy or its retail energy and value-added products. The acceptance of Just Energy’s products may be adversely affected by Just Energy’s ability to offer a competitive value proposition, and customer concerns relating to product reliability and general resistance to change. Unfavourable publicity involving customer experiences with other energy retailers could also adversely affect Just Energy’s acceptance. Lastly, market acceptance could be affected by regulatory and legal developments. Failure to achieve deep market penetration may have material adverse effects on Just Energy’s business, financial condition and results of operations.

 

BUSINESS OPERATIONS RISKS

 

Business operations risk is a potential loss occurring from an unplanned interruption or cyber-attack, manual or system errors, or business earnings risk unique to the retail energy sales industry.

 

Cyber risk

 

Just Energy’s business requires retaining important customer information that is considered private, such as name, address, banking and payment information, drivers’ licenses, and Social Security and Social Insurance numbers. Although Just Energy protects this information with restricted access and enters into cyber risk insurance policies, there could be a significant adverse impact to the Company’s, reputation and customer relations should the private information be compromised due to a cyber-attack on Just Energy’s information technology systems.

 

Just Energy’s vendors, suppliers and market operators rely on information technology systems to deliver services to Just Energy. These systems may be prone to cyber-attacks, which could result in market disruption and impact Just Energy’s business operations, finances and cash.

 

Just Energy is also subject to federal, state, provincial and foreign laws regarding privacy and protection of data. Changes to such data protection laws may impose more stringent requirements for compliance and impose significant penalties for non-compliance. Just Energy’s failure to comply with federal, state, provincial and foreign laws regarding privacy and protection of data could lead to significant fines and penalties imposed by regulators, as well as claims by our customers. There can be no assurance that the limitations of liability in Just Energy’s contracts would be enforceable or adequate or would otherwise protect Just Energy from any such liabilities or damages with respect to any particular claim. The successful assertion of one or more large claims against Just Energy that exceeds its available insurance coverage could have an adverse effect on our business, financial condition and results of operations.

 

  39.

 

Information technology systems

 

Just Energy relies on information technology (“IT”) systems to store critical information, generate financial forecasts, report financial results and make applicable securities law filings. Just Energy also relies on IT systems to make payments to suppliers, pay commissions to brokers and independent contractors, enroll new customers, send monthly bills to customers and collect payments from customers. Failure of these systems could have a material adverse effect on Just Energy’s business and financial prospects or cause it to fail to meet its reporting obligations, which could result in a suspension or delisting of its common shares.

 

Model risk

 

The approach to calculation of market value and customer forecasts requires data-intensive modelling used in conjunction with certain assumptions when independently verifiable information is not available. Although Just Energy uses industry standard approaches and validates its internally developed models, should underlying assumptions prove incorrect or an embedded modelling error go undetected in the vetting process, this could result in incorrect estimates and thereby have a material adverse impact on Just Energy’s business, financial condition, results of operations, cash flow and liquidity.

 

Accounting estimates risks

 

Just Energy makes accounting estimates and judgments in the ordinary course of business. Such accounting estimates and judgments will affect the reported amounts of Just Energy’s assets and liabilities at the date of its financial statements and the reported amounts of its operating results during the periods presented. Additionally, Just Energy interprets the accounting rules in existence as of the date of its financial statements when the accounting rules are not specific to a particular event or transaction. If the underlying estimates are ultimately proven to be incorrect, or if Just Energy’s auditors or regulators subsequently interpret Just Energy’s application of accounting rules differently, subsequent adjustments could have a material adverse effect on Just Energy’s operating results for the period or periods in which the change is identified. Additionally, subsequent adjustments could require Just Energy to restate historical financial statements.

 

Risks from adoption of new accounting standards or interpretations

 

Implementation of and compliance with changes in accounting rules and interpretations could adversely affect Just Energy's operating results or cause unanticipated fluctuations in its results in future periods. The accounting rules and regulations that Just Energy must comply with are complex and continually changing. While Just Energy believes that its financial statements have been prepared in accordance with IFRS, Just Energy cannot predict the impact of future changes to accounting principles or Just Energy's accounting policies on its financial statements going forward.

 

Risks from deficiencies in internal control over financial reporting

 

Just Energy may face risks if there are deficiencies in its internal control over financial reporting and disclosure controls and procedures. The Board of Directors, in coordination with the Audit Committee, is responsible for assessing the progress and sufficiency of internal control over financial reporting and disclosure controls and procedures and makes adjustments as necessary. Any deficiencies, if uncorrected, could result in Just Energy’s financial statements being inaccurate and in future adjustments or restatements of Just Energy’s historical financial statements, which could adversely affect the business, financial condition and results of operations of Just Energy.

 

Outsourcing and third party service agreements