UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2019

 

Commission File Number: 001-35400

 

 

 

JUST ENERGY GROUP INC.

(Translation of registrant’s name into English)

 

 

 

6345 Dixie Road, Suite 200

Mississauga, Ontario, Canada L5T 2E6

(Address of principal executive offices)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  ¨            Form 40-F  x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

 

 

 

 

DOCUMENTS INCLUDED AS PART OF THIS REPORT

 

 

Exhibit  
   
99.1 Consolidated Interim Financial Statements (Unaudited) for the three months ended June 30, 2019 and 2018.
   
99.2 Management’s Discussion and Analysis for the three months ended June 30, 2019.

 

 

 

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

    JUST ENERGY GROUP INC.
    (Registrant)
     
Dated: August 15, 2019 By: /s/ Jim Brown  
  Name: Jim Brown  
  Title: Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.1

 

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian dollars)

 

 

      As at   As at 
      June 30, 2019   March 31, 2019 
   Notes  (Unaudited)   (Audited) 
ASSETS             
Current assets             
Cash and cash equivalents     $2,531   $9,927 
Restricted cash      4,708    4,048 
Trade and other receivables  6   456,962    672,615 
Gas in storage      11,321    2,943 
Fair value of derivative financial assets  8   73,476    144,512 
Income taxes recoverable      17,009    18,973 
Other current assets  7   127,555    169,240 
       693,562    1,022,258 
Non-current assets             
Investments      36,815    36,897 
Property and equipment, net      37,980    25,862 
Intangible assets, net      452,393    472,656 
Fair value of derivative financial assets  8   28,733    9,255 
Deferred income tax assets  14   4,131    1,092 
Other non-current assets  7   45,388    49,512 
       605,440    595,274 
Assets classified as held for sale  11   237,813    8,971 
       843,253    604,245 
TOTAL ASSETS     $1,536,815   $1,626,504 
              
LIABILITIES             
Current liabilities             
Bank overdraft     $2,921   $- 
Trade and other payables  9   527,550    714,110 
Deferred revenue  10   3,299    43,228 
Income taxes payable      4,825    11,895 
Fair value of derivative financial liabilities  8   168,261    79,387 
Provisions  13   3,470    7,205 
Current portion of long-term debt  12   37,164    37,429 
Other current liabilities      4,077    - 
       751,567    893,254 
Non-current liabilities             
Long-term debt  12   737,721    687,943 
Fair value of derivative financial liabilities  8   107,887    63,658 
Deferred income tax liabilities  14   4,169    4,124 
Other non-current liabilities      72,030    61,339 
       921,807    817,064 
Liabilities relating to assets classified as held for sale  11   244,663    5,200 
       1,166,470    822,264 
TOTAL LIABILITIES      1,918,037    1,715,518 
SHAREHOLDERS' DEFICIT             
Shareholders’ capital  15   1,242,463    1,235,503 
Equity component of convertible debentures      13,029    13,029 
Contributed deficit      (25,202)   (25,540)
Accumulated deficit      (1,687,911)   (1,390,700)
Accumulated other comprehensive income      76,795    79,093 
Non-controlling interest      (396)   (399)
TOTAL SHAREHOLDERS' DEFICIT      (381,222)   (89,014)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT     $1,536,815   $1,626,504 
              
Commitments and guarantees (Note 21)             

 

See accompanying notes to the interim condensed consolidated financial statements      

 

Approved on behalf of Just Energy Group Inc.

 

/s/ Rebecca MacDonald    /s/ H. Clark Hollands   
Rebecca MacDonald   H. Clark Hollands  
Executive Chair   Corporate Director  

 

 

  1.

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED JUNE 30
(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

   Notes  2019   2018 
CONTINUING OPERATIONS             
Sales  16  $670,165   $702,515 
Cost of sales      537,873    569,921 
GROSS MARGIN      132,292    132,594 
EXPENSES             
Administrative      40,803    39,931 
Selling and marketing      61,704    41,965 
Other operating expenses  17(a)   35,765    23,359 
Restructuring costs      -    1,917 
       138,272    107,172 
Operating profit (loss) before the following      (5,980)   25,422 
Finance costs  12   (23,546)   (16,313)
Change in fair value of derivative instruments and other  8   (241,999)   (68,441)
Other expenses, net  17(a)   (740)   (13)
Loss from continuing operations before income taxes      (272,265)   (59,345)
Provision for (recovery of) income taxes  14   (2,294)   4,683 
LOSS FROM CONTINUING OPERATIONS     $(269,971)  $(64,028)
              
DISCONTINUED OPERATIONS             
Profit (loss) from discontinued operations  11   (5,189)   22,605 
LOSS FOR THE PERIOD     $(275,160)  $(41,423)
              
Attributable to:             
Shareholders of Just Energy     $(275,140)  $(41,377)
Non-controlling interest      (20)   (46)
LOSS FOR THE PERIOD     $(275,160)  $(41,423)
              
              
Loss per share from continuing operations  18          
Basic     $(1.82)  $(0.45)
Diluted     $(1.82)  $(0.45)
Earnings per share from discontinued operations  11          
Basic     $(0.03)  $0.16 
Diluted     $(0.03)  $0.16 
Loss per share available to shareholders  18          
Basic     $(1.85)  $(0.29)
Diluted     $(1.85)  $(0.29)

 

See accompanying notes to the interim condensed consolidated financial statements

 

  2.

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED JUNE 30
(unaudited in thousands of Canadian dollars)

 

 

   2019   2018 
LOSS FOR THE PERIOD  $(275,160)  $(41,423)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:          
Unrealized (loss) gain on translation of foreign operations   (2,298)   3,750 
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD, NET OF TAX  $(277,458)  $(37,673)
           
Total comprehensive loss attributable to:          
Shareholders of Just Energy  $(277,438)  $(37,627)
Non-controlling interest   (20)   (46)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD, NET OF TAX  $(277,458)  $(37,673)

 

See accompanying notes to the interim condensed consolidated financial statements      

 

 

 

 

 

 

  3.

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ EQUITY (DEFICIENCY)

FOR THE THREE MONTHS ENDED JUNE 30
(unaudited in thousands of Canadian dollars)

 

 

   Notes  2019   2018 
ATTRIBUTABLE TO THE SHAREHOLDERS             
Accumulated earnings             
Accumulated earnings, beginning of period     $533,107   $768,847 
Adjustment for adoption of recent accounting pronouncements      -    20,711 
Loss for the period, attributable to shareholders      (275,140)   (41,377)
Accumulated earnings, end of period      257,968    748,181 
              
DIVIDENDS AND DISTRIBUTIONS             
Dividends and distributions, beginning of period      (1,923,808)   (1,835,778)
Dividends and distributions declared and paid  20   (22,070)   (22,262)
Dividends and distributions, end of period      (1,945,879)   (1,858,040)
ACCUMULATED DEFICIT     $(1,687,911)  $(1,109,859)
              
ACCUMULATED OTHER COMPREHENSIVE INCOME             
Accumulated other comprehensive income, beginning of period     $79,093   $91,934 
Adjustment for adoption of recent accounting pronouncements  4   -    (17,863)
Other comprehensive income (loss)      (2,298)   3,750 
Accumulated other comprehensive income, end of period     $76,795   $77,821 
              
SHAREHOLDERS’ CAPITAL  15          
Common shares             
Common shares, beginning of period     $1,088,538   $1,079,055 
Share-based units exercised      6,960    4,979 
Common shares, end of period     $1,095,498   $1,084,034 
              
Preferred shares             
Preferred shares, beginning of period     $146,965   $136,771 
Shares issued  15   -    10,447 
Shares issuance costs      -    (235)
Preferred shares, end of period      146,965    146,983 
SHAREHOLDERS’ CAPITAL     $1,242,463   $1,231,017 
              
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES             
Balance, beginning of period     $13,029   $13,029 
Balance, end of period     $13,029   $13,029 
              
CONTRIBUTED DEFICIT             
Balance, beginning of period     $(25,540)  $(22,693)
Add:    Share-based compensation expense  17(a)   7,118    1,694 
Discontinued operations      137    81 
Non-cash deferred share grant distributions      23    14 
Purchase of non-controlling interest      -    1,566 
Less: Share-based units exercised      (6,960)   (4,979)
Share-based compensation adjustment      20    (273)
Balance, end of period     $(25,202)  $(24,590)
              
NON-CONTROLLING INTEREST             
Balance, beginning of period     $(399)  $(422)
Foreign exchange impact on non-controlling interest      23    60 
Loss attributable to non-controlling interest      (20)   (46)
Balance, end of period     $(396)  $(408)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)     $(381,222)  $187,010 

 

See accompanying notes to the interim condensed consolidated financial statements            

 

  4.

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30

(unaudited in thousands of Canadian dollars)

 

 

Net inflow (outflow) of cash related to the following activities  Notes  2019   2018 
OPERATING             
Loss from continuing operations before income taxes     $(272,265)  $(59,345)
Profit (loss) from discontinued operations before income taxes  11   (5,299)   25,883 
Loss before income taxes      (277,564)   (33,462)
              
Items not affecting cash             
Amortization of intangible assets  17(a)   7,612    4,070 
Depreciation of property and equipment  17(a)   2,988    889 
Amortization included in cost of sales      578    782 
Amortization of commission      760    - 
Share-based compensation  17(a)   7,118    1,694 
Financing charges, non-cash portion      4,316    3,467 
Other      (28)   (27)
Change in fair value of derivative instruments and other  8   241,999    68,441 
Adjustment required to reflect net cash receipts from gas sales      2,758    4,581 
Net change in working capital balances      27,181    (54,909)
Adjustment for non-cash discontinued operations      (26,064)   365 
Income taxes paid      (5,703)   (8,437)
Cash outflow from operating activities      (14,049)   (12,546)
              
INVESTING             
Purchase of property and equipment      (562)   (1,929)
Purchase of intangible assets      (9,409)   (7,926)
Payments for previously acquired business  19   (12,013)   - 
Cash outflow from investing activities      (21,984)   (9,855)
              
FINANCING             
Dividends paid  20   (22,047)   (22,249)
Repayment of long-term debt      (1,645)   - 
Leased asset payments      (1,468)   - 
Debt issuance costs      (190)   (2,173)
Credit facilities withdrawal      54,155    31,210 
Issuance of preferred shares      -    10,447 
Preferred shares issuance costs      -    (334)
Cash inflow from financing activities      28,805    16,901 
              
Effect of foreign currency translation on cash balances      (168)   (1,277)
              
Net cash outflow      (7,396)   (6,777)
Cash and cash equivalents, beginning of period      9,927    48,861 
              
Cash and cash equivalents, end of period     $2,531   $42,084 
              
Supplemental cash flow information:             
Interest paid     $15,208   $11,225 

 

  See accompanying notes to the interim condensed consolidated financial statements

 

  5.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

1.ORGANIZATION

 

Just Energy Group Inc. (“Just Energy” or the “Company”) is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates. The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The unaudited interim condensed consolidated financial statements (“Interim Financial Statements”) consist of Just Energy and its subsidiaries and affiliates. The Interim Financial Statements were approved by the Board of Directors on August 14, 2019.

 

2.OPERATIONS

 

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.”) and Canada, Just Energy serves residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., (“Filter Group”), Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy and TerraPass.

 

Just Energy’s current commodity product offerings include fixed, variable, index and flat rate options. By fixing the price of natural gas or electricity under its fixed-price or price-protected program 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 rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat-bill products allow customers to pay a flat rate each month regardless of usage. Just Energy 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 related price at which it purchases the associated volumes from its suppliers.

 

Through the Filter Group business acquired by Just Energy on October 1, 2018, Just Energy provides subscription-based, home water filtration systems to residential customers, including under-counter and whole-home water filtration solutions. In addition, Just Energy markets smart thermostats, offering the thermostats as a stand-alone unit or bundled with certain commodity products. The smart thermostats are currently manufactured and distributed by ecobee Inc. (“ecobee”), a company in which Just Energy holds a 8% fully diluted equity interest. Just Energy also offers green products through its JustGreen program. The JustGreen electricity product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, solar, hydropower or biomass. The JustGreen gas product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses. 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. Just Energy also provides energy management solutions to both Consumer and Commercial customers in the form of value-added products and services, which include, but are not limited to, LED retrofit lighting and HVAC controls, as well as enterprise monitoring.

 

Just Energy markets its product offerings through several sales channels including brokers, online marketing, retail and affinity relationships, and door-to-door.

 

In March 2019, Just Energy formally approved and commenced a process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, Just Energy also formally approved and commenced a process to dispose of its business in the United Kingdom (“U.K.”), as part of the Company’s the strategic review. The decision was part of a strategic transition to focus on the core business in North America. The disposal of the operations is expected to be completed within the next 12 months. At June 30, 2019, these operations were classified as a disposal group held for sale and as a discontinued operation. Previously, these operations were reported within the Consumer segment while a portion of the U.K. was allocated to the commercial segment.

 

  6.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

3.FINANCIAL STATEMENT PREPARATION

 

(a)Statement of compliance with IFRS

 

These Interim Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), utilizing the accounting policies Just Energy outlined in its March 31, 2019 annual audited consolidated financial statements except the adoption of a new International Financial Reporting Standard (“IFRS”) described in Note 4. Accordingly, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with IFRS, as issued by the IASB, have been omitted or condensed.

 

(b)Basis of presentation and interim reporting

 

These Interim Financial Statements should be read in conjunction with and follow the same accounting policies and methods of application as those used in the annual audited consolidated financial statements for the years ended March 31, 2019 and 2018 except for the adoption of IFRS 16, Leases (“IFRS 16”) as discussed in Note 4.

 

The Interim Financial Statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand, except where otherwise indicated. The Interim Financial Statements are prepared on a going concern basis under the historical cost convention, except for certain financial assets and liabilities that are stated at fair value.

 

The interim operating results are not necessarily indicative of the results that may be expected for the full year ending March 31, 2020, due to seasonal variations resulting in fluctuations in quarterly results. Gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September. Electricity consumption is lowest in October through December and April through June.

 

(c)Principles of consolidation

 

The Interim Financial Statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at June 30, 2019. Subsidiaries and affiliates are consolidated from the date of acquisition and control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries and affiliates are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, sales, expenses and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

 

  7.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

4.ACCOUNTING POLICIES AND NEW STANDARDS ADOPTED

 

IFRS 16 Leases

 

IFRS 16 supersedes IAS 17, Leases and related interpretations and is effective for annual periods beginning on or after January 1, 2019. The Company adopted the standard, effective April 1, 2019, using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognized in equity as an adjustment to the opening balance of accumulated deficit for the current period. Prior periods have not been restated.

 

Accounting policy

 

At inception of a contract, the Company assesses whether a contract is, or contains, a lease.  A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 
To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:


•The contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

• The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

• The Company has the right to direct the use of the asset.  The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of the asset if either:

• The Company has the right to operate the asset; or

• The Company designed the asset in a way that predetermines how and for what purpose it will be used.

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone price.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.


The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.  The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment.  In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.


The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.


  8.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Lease payments included in the measurement of the lease liability comprise the following:

 

• Fixed payments, including in-substance fixed payments;

• Variable lease payments that depend on an index or a rate, initially measured using the relevant index or rate as at the commencement date;

• Amounts expected to be payable under a residual value guarantee; and

• The exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.


The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in the relevant index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.


The Company presents right-of-use assets in “property and equipment” and lease liabilities in “other long-term debt” in the consolidated statement of financial position.


Short-term leases and leases of low-value assets


The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of property and equipment that have a lease term of 12 months or less and leases of low-value assets, such as some IT-equipment.  The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Nature of leased assets


The Company leases various offices, equipment and vehicles.  Rental contracts are typically made for fixed periods of one to ten years but may have extension options as described below.  Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.  Leased assets may not be used as security for borrowing purposes. Some leases provide for additional rent payments based on changes in inflation.


Extension and termination options


Some office leases include an option to renew the lease for an additional period after the non-cancellable contract period.  Where practicable, the Company seeks to include extension options in new leases to provide operational flexibility. The Company assesses at lease commencement whether it is reasonably certain to exercise the extension options.  The Company reassesses its portfolio of leases to determine whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control.  The Company considers all facts and circumstances when making this decision. The Company examines whether there is an economic incentive or penalty that would affect the decision to exercise the option, for example, whether the lease option is below market value or whether the Company has made significant investments in leasehold improvements. Where it is not reasonably certain that the lease will be extended or terminated the Company will not recognize these options.


  9.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The application of IFRS 16 “Leases” requires significant judgements and certain key estimations to be made including:


• Identifying whether a contract (or part of a contract) includes a lease;

• Determining whether it is reasonably certain that an extension or termination option will be exercised;
• Determining whether variable payments are in-substance fixed;

• Establishing whether there are multiple leases in an arrangement; and

• Determining the stand-alone selling price of lease and non-lease components.

 

Key sources of estimation uncertainty in the application of IFRS 16 includes the following:


• Estimating the lease term;

• Determining the appropriate rate to discount lease payments; and

• Assessing whether a right-of-use asset is impaired.


Unanticipated changes in these judgments or estimates could affect the identification and determination of the fair value of lease liabilities and right-of-use assets at initial recognition, as well as the subsequent measurement of lease liabilities and right-of-use assets. These items could potentially result in changes to amounts reported in the consolidated statements of income and consolidated statements of financial position in a given period.

 

Initial application

 

The Company has elected the practical expedient to not reassess whether a contract is, or contains, a lease at April 1, 2019, the date of initial application of IFRS 16. The Company has also elected the practical expedient to not separate non-lease components from lease components, accounting for them as a single lease component. On transition to IFRS 16, the weighted average incremental borrowing rate applied to the calculation of lease liabilities is 6.75%.

 

For previously recognized operating leases, the Company has elected the practical expedient to measure the right-of-use assets equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognized immediately before the date of initial application. Additionally, the Company has elected the practical expedient to not include initial direct costs in the measurement of the right-of-use asset for these leases as at the initial application date.

 

For previously recognized operating leases with an initial lease term of 12 months or less (short-term leases) and for leases of low value assets, the Company has applied the optional recognition exemptions to not recognize the right-of-use assets and related lease liabilities for these leases. In addition, the Company has elected the practical expedient to account for previously recognized operating leases with a remaining lease term of 12 months or less upon transition as short-term leases. The Company is accounting for the lease expense on a straight-line basis over the remaining lease term. The Company's former operating leases consist of office facility leases.

 

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Company has elected the practical expedient to rely on its historic assessment as to whether leases were onerous immediately before the initial application date.

 

  10.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Impact on interim condensed consolidated financial statements

 

The following is a reconciliation of total operating lease commitments at March 31, 2019 to the lease liabilities recognized at April 1, 2019:

 

Total operating lease commitments disclosed at March 31, 2019  $21,243 
Short-term leases and other minor adjustments   (707)
Operating lease liabilities before discounting   20,536 
Discounted using the incremental borrowing rate    (2,011)
Total lease liabilities recognized under IFRS 16 at April 1, 2019  $18,525 

 

As at April 1, 2019, the financial statement impact of IFRS 16 was as follows:

 

·Right-of-use assets of $18.5 million have been recognized in relation to former operating leases and have been included in property and equipment caption on the interim unaudited condensed consolidated statements of financial position.

 

·Additional lease liabilities of $18.5 million have been recognized in relation to former operating leases and have been included in other current and non-current liabilities on the unaudited interim condensed consolidated statements of financial position, depending on the maturity of the lease.

  

IFRS Interpretations Committee (“IFRIC”) 23, Uncertainty over Income Tax Treatment (“IFRIC 23”)

 

The Company adopted IFRIC 23 on April 1, 2019. There was no effect to the consolidated financial statements as a result of adoption of the standard

 

5.ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

 

IFRIC Agenda Paper 11, Physical Settlement of Contracts to Buy or Sell a Non-Financial Item (“Agenda Paper 11”)

 

The IFRS Interpretations Committee (“IFRIC”) reached a decision on Agenda Paper 11 during its meeting on March 5 to 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 that are accounted for as derivatives at fair value through profit or loss but physically settled by 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, 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 consolidated financial statements, systems and processes. Given the nature of its current systems and processes and the volume of transactions affected, the Company determined it was not possible to affect the accounting change in time for its June 30, 2019 reporting. The Company expects to implement the change retrospectively in 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 loss and the value of gas in storage on the consolidated statement of financial position. There is no impact on the net income of the Company.

 

 

  11.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

6.TRADE AND OTHER RECEIVABLES

 

   As at   As at 
   June 30, 2019   March 31, 2019 
Trade accounts receivable, net  $260,724   $365,008 
Accrued gas receivables   6,331    13,637 
Unbilled revenues   152,728    277,556 
Other   37,179    16,414 
   $456,962   $672,615 

 

7.OTHER CURRENT AND NON-CURRENT ASSETS

 

(a) Other current assets

 

   As at   As at 
   June 30, 2019   March 31, 2019 
Prepaid expenses and deposits  $20,849   $45,709 
Customer acquisition costs   74,973    75,707 
Green certificates   21,198    39,749 
Gas delivered in excess of consumption   4,476    3,121 
Inventory   6,059    4,954 
   $127,555   $169,240 

 

(b) Other non-current assets

 

   As at   As at 
   June 30, 2019   March 31, 2019 
Customer acquisition costs  $43,872   $46,416 
Income taxes recoverable   1,516    3,096 
   $45,388   $49,512 

  

 

8.FINANCIAL INSTRUMENTS

 

(a)Fair value of derivative financial instruments and other

 

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Management has estimated the value of financial swaps, physical forwards and option contracts for electricity, natural gas, carbon and renewable energy certificates, and generation and transmission capacity contracts using a discounted cash flow method, which employs market forward curves that are either directly sourced from third parties or developed internally based on third-party market data. These curves can be volatile, thus leading to volatility in the mark to market with no immediate impact to cash flows. Gas options have been valued using the Black option pricing model using the applicable market forward curves and the implied volatility from other market traded options. Management periodically uses non-exchange-traded swap agreements based on cooling degree days and heating degree days measured in its utility service territories to reduce the impact of weather volatility on Just Energy’s electricity volumes, commonly referred to as “weather derivatives”. The fair value of these swaps on a given measurement station indicated in the derivative contract is determined by calculating the difference between the agreed strike and expected variable observed at the same station.

  12.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The following table illustrates gains (losses) related to Just Energy’s derivative financial instruments classified as fair value through profit or loss (“FVTPL”) and recorded on the interim condensed consolidated statements of financial position as fair value of derivative financial assets and fair value of derivative financial liabilities, with their offsetting values recorded in change in fair value of derivative instruments and other on the interim condensed consolidated statements of loss.

 

   Three   Three 
   months ended   months ended 
   June 30, 2019   June 30, 2018 
Change in fair value of derivative instruments and other          
           
Physical forward contracts and options (i)  $(224,974)  $(130,196)
Financial swap contracts and options (ii)   (15,635)   68,804 
Foreign exchange forward contracts   (227)   2,304 
Share swap (iii)   836    (3,263)
6.5% convertible bond conversion feature   -    232 
Unrealized foreign exchange on 6.5% convertible bond   5,815    (3,997)
Weather derivatives   (3,021)   - 
Other derivative options   (4,793)   (2,325)
Change in fair value of derivative instruments and other  $(241,999)  $(68,441)

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statement of financial position as at June 30, 2019:

 

   Financial
assets
(current)
   Financial
assets
(non-current)
   Financial
liabilities
(current)
   Financial
liabilities
(non-current)
 
                 
Physical forward contracts and options (i)  $20,769   $13,588   $102,555   $87,213 
Financial swap contracts and options (ii)   35,695    14,085    52,448    17,388 
Foreign exchange forward contracts   -    1    1,344    384 
Share swap (iii)   -    -    11,070    - 
Weather derivatives   12,951    -    -    - 
Other derivative options   4,061    1,059    844    2,902 
As at June 30, 2019  $73,476   $28,733   $168,261   $107,887 

 

  13.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded   in the consolidated statement of financial position as at March 31, 2019:

 

   Financial
assets
(current)
   Financial
assets
(non-current)
   Financial
liabilities
(current)
   Financial
liabilities
(non-current)
 
                 
Physical forward contracts and options  $115,483   $7,237   $49,601   $50,174 
Financial swap contracts and options   18,212    1,876    16,142    8,583 
Foreign exchange forward contracts   -    56    1,555    - 
Share swap   -    -    11,907    - 
Other derivative options   10,817    86    182    4,901 
As at March 31, 2019  $144,512   $9,255   $79,387   $63,658 

 

Below is a summary of the financial instruments classified through profit or loss as at June 30, 2019, to which Just Energy has committed:

 

(i)Physical forward contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 36,492,959 MWh, a weighted average price of $48.14/MWh and expiry dates up to March 31, 2029.

 

·Natural gas contracts with a total remaining volume of 102,602,953 GJs, a weighted average price of $2.66/GJ and expiry dates up to October 31, 2025.

 

·Renewable energy certificates (“RECs”) and emission-reduction credit contracts with a total remaining volume of 3,614,716 MWh and 55,000 tonnes, respectively, a weighted average price of $37.79/REC and $3.40/tonne, respectively, and expiry dates up to December 31, 2028 and December 31, 2021.

 

·Electricity generation capacity contracts with a total remaining volume of 3,787 MWCap, a weighted average price of $4,766.12/MWCap and expiry dates up to May 31, 2023.

 

·Ancillary contracts with a total remaining volume of 624,964 MWh, a weighted average price of $22.72/MWh and expiry dates up to December 31, 2020.

 

(ii)Financial swap contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 14,860,376 MWh, an average price of $41.38/MWh and expiry dates up to November 30, 2024.

 

·Natural gas contracts with a total remaining volume of 133,532,922 GJs, an average price of $3.34/GJ and expiry dates up to October 31, 2025.

 

·Electricity generation capacity contracts with a total remaining volume of 48 MWCap, a weighted average price of $462,953.59/MWCap and expiry dates up to October 31, 2020.

 

·Ancillary contracts with a total remaining volume of 990,825 MWh, a weighted average price of $21.23/MWh and expiry dates up to December 31, 2020.

 

  14.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

(iii)Share swap agreement

 

Just Energy has entered into a share swap agreement to manage the interim condensed consolidated statements of loss volatility associated with the Company’s restricted share grants and deferred share grants Plans. The value, on inception, of the 2,500,000 shares under this share swap agreement was approximately $33,803. On August 22, 2018, Just Energy reduced the notional value of the share swap to $23,803 through a payment of $10,000 and renewed the share swap agreement for an additional year. Net monthly settlements received under the share swap agreement are recorded in other income. Just Energy records the fair value of the share swap agreement in the non-current derivative financial liabilities on the interim condensed consolidated statements of financial position. Changes in the fair value of the share swap agreement are recorded through the interim condensed consolidated statements of loss as a change in fair value of derivative instruments and other.

 

These derivative financial instruments create a credit risk for Just Energy since they have been transacted with a limited number of counterparties. Should any counterparty be unable to fulfill its obligations under the contracts, Just Energy may not be able to realize the financial assets’ balance recognized in the interim condensed consolidated financial statements.

 

Fair value (“FV”) hierarchy of derivatives

 

Level 1

 

The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted unadjusted market prices.

 

Level 2

 

Fair value measurements that require observable inputs other than quoted prices in Level 1, either directly or indirectly, are classified as Level 2 in the FV hierarchy. This could include the use of statistical techniques to derive the FV curve from observable market prices. However, in order to be classified under Level 2, significant inputs must be directly or indirectly observable in the market. Just Energy values its New York Mercantile Exchange (“NYMEX”) financial gas fixed-for-floating swaps under Level 2.

 

Level 3

 

Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the FV hierarchy. For the power supply contracts, Just Energy uses quoted market prices as per available market forward data and applies a price-shaping profile to calculate the monthly prices from annual strips and hourly prices from block strips for the purposes of mark to market calculations. The profile is based on historical settlements with counterparties or with the system operator and is considered an unobservable input for the purposes of establishing the level in the FV hierarchy. For the natural gas supply contracts, Just Energy uses three different market observable curves: (i) Commodity (predominately NYMEX), (ii) Basis and (iii) Foreign exchange. NYMEX curves extend for over five years (thereby covering the length of Just Energy’s contracts); however, most basis curves extend only 12 to 15 months into the future. In order to calculate basis curves for the remaining years, Just Energy uses extrapolation, which leads natural gas supply contracts to be classified under Level 3.

 

  15.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Weather derivatives are non-exchange-traded financial instruments used as part of a risk management strategy to mitigate the impact adverse weather conditions have on gross margin. The fair values of the derivatives are determined using an internally developed model that relies upon both observable inputs and significant unobservable inputs. Accordingly, the fair values of these derivatives are classified as Level 3. Market and contractual inputs to these models vary by contract type and would typically include notional amounts, reference weather stations, strike prices, temperature strike values, terms to expiration, historical weather data and historical commodity prices. The historical weather data and commodity prices were utilized to value the expected payouts with respect to weather derivatives and, as a result, are the most significant assumptions contributing to the determination of fair value estimates, and changes in these inputs can result in a significantly higher or lower fair value measurement.

 

For the share swap, Just Energy uses a forward interest rate curve along with a volume weighted average share price to model out its value. As the inputs have no observable market, it is classified as Level 3.

 

Just Energy’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

 

Fair value measurement input sensitivity

 

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. Just Energy provides a sensitivity analysis of these forward curves under the “Market risk” section of this note. Other inputs, including volatility and correlations, are driven off historical settlements.

 

The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at June 30, 2019:

 

   Level 1   Level 2   Level 3   Total 
Derivative financial assets  $-   $-   $102,209   $102,209 
Derivative financial liabilities   -    (30,646)   (245,502)   (276,148)
Total net derivative assets (liabilities)  $-   $(30,646)  $(143,293)  $(173,939)

 

The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at March 31, 2019:

 

   Level 1   Level 2   Level 3   Total 
Derivative financial assets  $-   $-   $153,767   $153,767 
Derivative financial liabilities   -    (6,588)   (136,457)   (143,045)
Total net derivative assets (liabilities)  $-   $(6,588)  $17,310   $10,722 

 

Commodity price sensitivity – Level 3 derivative financial instruments  

 

If the energy prices associated with only Level 3 derivative financial instruments including natural gas, electricity, verified emission-reduction credits and RECs had risen (fallen) by 10%, assuming that all of the other variables had remained constant, profit (loss) before income taxes for the period ended June 30, 2019 would have increased (decreased) by $198,793 ($197,498), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

  16.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

A key assumption used when determining the significant unobservable inputs included in Level 3 of the FV hierarchy consists of up to 5% price extrapolation to calculate monthly prices that extend beyond the market observable 12- to 15-month forward curve.

 

The following table illustrates the changes in net fair value of financial assets (liabilities) classified as Level 3 in the FV hierarchy for the following periods:

 

   Three months ended   Year ended 
   June 30, 2019   March 31, 2019 
Balance, beginning of period  $17,310   $166,364 
Total gains (losses)   (199,072)   19,644 
Purchases   (41,251)   11,502 
Sales   20,561    (25,575)
Settlements   59,159    (154,625)
Balance, end of period  $(143,293)  $17,310 

 

(b)Classification of non-derivative financial assets and liabilities

 

As at June 30, 2019 and March 31, 2019, the carrying value of cash and cash equivalents, bank overdraft, restricted cash, trade and other receivables, and trade and other payables approximates their fair value due to their short-term nature.

 

Long-term debt recorded at amortized cost has a fair value as at June 30, 2019 of $774.9 million (March 31, 2019 - $740.6 million) and the interest payable on outstanding amounts is at rates that vary with bankers’ acceptances, LIBOR, Canadian bank prime rate or U.S. prime rate, with the exceptions of the 8.75% loan, 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures, which are fair valued based on market value. The 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures are classified as Level 1 in the FV hierarchy.

 

Investments in equity instruments have a fair value as at June 30, 2019 of $36.8 million (March 31, 2019 - $36.9 million) and are measured based on Level 2 of the fair value hierarchy for the investment in Energy Earth and Level 3 of the fair value hierarchy for the investment in ecobee.

 

No adjustments were made in the period in valuing the investment in ecobee or Energy Earth. Movements are related to foreign exchange revaluations.

 

The following table illustrates the classification of investments in the FV hierarchy as at June 30, 2019:

 

   Level 1   Level 2   Level 3   Total 
Investment in ecobee  $-   $-   $32,889   $32,889 
Investment in Energy Earth   -    3,926    -    3,926 
Total investments  $-   $3,926   $32,889   $36,815 

 

 

  17.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The risks associated with Just Energy’s financial instruments are as follows:

 

(i)Market risk

 

Market risk is the potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity. Components of market risk to which Just Energy is exposed are discussed below.

 

Foreign currency risk

 

Foreign currency risk is created by fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates and exposure as a result of investments in U.S. operations.

 

The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy’s income, as a portion of Just Energy’s income is generated in U.S. dollars and is subject to currency fluctuations upon translation to Canadian dollars. Due to its growing operations in the U.S., Just Energy expects to have a greater exposure to foreign currency fluctuations in the future than in prior years. Just Energy has economically hedged between 50% and 100% of forecasted cross-border cash flows that are expected to occur within the next 12 months and between 0% and 50% of certain forecasted cross-border cash flows that are expected to occur within the following 13 to 24 months. The level of economic hedging is dependent on the source of the cash flows and the time remaining until the cash repatriation occurs.

 

Just Energy may, from time to time, experience losses resulting from fluctuations in the values of its foreign currency transactions, which could adversely affect its operating results. Translation risk is not hedged.

 

With respect to translation exposure, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar for the period ended June 30, 2019, assuming that all the other variables had remained constant, loss for the three months ended June 30, 2019 would have been $15.4 million lower/higher and other comprehensive loss would have been $13.5 million lower/higher.

 

Interest rate risk

 

Just Energy is only exposed to interest rate fluctuations associated with its floating rate credit facility. Just Energy’s current exposure to interest rates does not economically warrant the use of derivative instruments. Just Energy’s exposure to interest rate risk is relatively immaterial and temporary in nature. Just Energy does not currently believe that its long-term debt exposes the Company to material interest rate risks but has set out parameters to actively manage this risk within its Risk Management Policy.

 

A 1% increase (decrease) in interest rates would have resulted in an increase (decrease) of approximately $606 in loss before income taxes for the three months ended June 30, 2019 (June 30, 2018 - $361).

 

Commodity price risk

 

Just Energy is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not match actual customer requirements. Management actively monitors these positions on a daily basis in accordance with its Risk Management Policy. This policy sets out a variety of limits, most importantly thresholds for open positions in the gas and electricity portfolios, which also feed a value at risk limit. Should any of the limits be exceeded, they are closed expeditiously or express approval to continue to hold is obtained. Just Energy’s exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets. Just Energy enters into derivative instruments in order to manage exposures to changes in commodity prices. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand and thereby fix margins such that shareholder dividends can be appropriately established. Derivative instruments are generally transacted over the counter. The inability or failure of Just Energy to manage and monitor the above market risks could have a material adverse effect on the operations and cash flows of Just Energy. Just Energy mitigates the exposure to variances in customer requirements that are driven by changes in expected weather conditions through active management of the underlying portfolio, which involves, but is not limited to, the purchase of options including weather derivatives. Just Energy’s ability to mitigate weather effects is limited by the degree to which weather conditions deviate from normal.

  18.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Commodity price sensitivity – all derivative financial instruments

 

If all the energy prices associated with derivative financial instruments including natural gas, electricity, verified emission-reduction credits and RECs had risen (fallen) by 10%, assuming that all of the other variables had remained constant, loss before income taxes for the three months ended June 30, 2019 would have increased (decreased) by $192,662 ($191,367), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

(ii)Credit risk

 

Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another party. Just Energy is exposed to credit risk in two specific areas: customer credit risk and counterparty credit risk.

 

Customer credit risk

 

In Alberta, Texas, Illinois, California, Delaware, Ohio and Georgia, Just Energy has customer credit risk and, therefore, 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.

 

The aging of the accounts receivable from the above markets was as follows:

 

   June 30, 2019   March 31, 2019 
         
Current  $118,467   $116,892 
1–30 days   41,634    42,562 
31–60 days   22,374    22,317 
61–90 days   23,564    16,352 
Over 90 days   130,210    100,580 
   $336,249   $298,703 

 

Changes in the expected lifetime credit loss were as follows:

 

   June 30, 2019   March 31, 2019 
         
Balance, beginning of period  $192,586   $60,121 
Provision for doubtful accounts   17,287    202,423 
Bad debts written off   (16,677)   (90,231)
Adjustment from IFRS 9 adoption   -    23,636 
Foreign exchange   (802)   (3,363)
Assets classified as held for sale   (46,928)   - 
Balance, end of period  $145,466   $192,586 

 

  19.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

In the remaining markets, the local distribution companies (“LDC”) 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 the LDCs failing to deliver payment to Just Energy is minimal. There is no assurance that the LDCs providing these services will continue to do so in the future.

 

Counterparty credit risk

 

Counterparty credit risk represents the loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations. This risk would manifest itself in Just Energy replacing contracted supply at prevailing market rates, thus impacting the related customer margin. Counterparty limits are established within the Risk Management Policy. Any exceptions to these limits require approval from the Board of Directors of Just Energy. The Risk Department and Risk Committee monitor current and potential credit exposure to individual counterparties and also monitor overall aggregate counterparty exposure. However, the failure of a counterparty to meet its contractual obligations could have a material adverse effect on the operations and cash flows of Just Energy.

 

As at June 30, 2019, the estimated counterparty credit risk exposure amounted to $102,209 (June 30, 2018 - $213,268), representing the risk relating to Just Energy’s exposure to derivatives that are in an asset position.

 

(iii)Liquidity risk

 

Liquidity risk is the potential inability to meet financial obligations as they fall due. Just Energy manages this risk by monitoring detailed daily cash flow forecasts covering a rolling 13-week period, cash forecasts for the next 12 months, and quarterly forecasts for the following two-year period to ensure adequate and efficient use of cash resources and credit facilities.

 

 

 

 

 

 

 

 

  20.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities:

 

As at June 30, 2019:

 

   Carrying   Contractual   Less than           More than 
   amount   cash flows   1 year   1–3 years   4–5 years   5 years 
Trade and other payables  $528,670   $528,670   $528,670   $-   $-   $- 
Long-term debt1   774,884    829,194    38,487    264,719    525,988    - 
Gas, electricity and non-commodity contracts   276,148    3,628,720    1,524,002    1,631,593    357,763    115,362 
   $1,579,702   $4,986,584   $2,091,159   $1,896,312   $883,751   $115,362 

 

As at March 31, 2019:

 

   Carrying   Contractual   Less than           More than 
   amount   cash flows   1 year   1–3 years   4–5 years   5 years 
Trade and other payables  $714,110   $714,110   $714,110   $-   $-   $- 
Long-term debt1   725,372    781,701    39,150    210,564    531,987    - 
Gas, electricity and non-commodity contracts   143,045    3,500,493    1,899,713    1,439,479    119,212    42,089 
   $1,582,527   $4,996,304   $2,652,973   $1,650,043   $651,199   $42,089 

1 Included in long-term debt are the 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures, which may be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.

 

In addition to the amounts noted above, as at June 30, 2019, the contractual net interest payments over the term of the long-term debt with scheduled repayment terms are as follows:

 

   Less than
1 year
   1–3 years   4–5 years   More than
5 years
 
Interest payments  $40,286   $79,301   $39,901   $- 

 

(iv)Supplier risk

 

Just Energy purchases the majority of the gas and electricity delivered to its customers through long-term contracts entered into with various suppliers. Just Energy has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customers is reliant upon the ongoing operations of these suppliers and their ability to fulfil their contractual obligations. As at June 30, 2019, Just Energy has applied an adjustment factor to determine the fair value of its financial instruments in the amount of $8,246 (2019 - $4,999) to accommodate for its counterparties’ risk of default.

 

 

  21.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

9.TRADE AND OTHER PAYABLES

 

   As at   As at 
   June 30, 2019   March 31, 2019 
Commodity suppliers' payables  $174,814   $189,554 
Accrued liabilities   87,468    112,039 
Green provisions   43,218    151,992 
Sales tax payable   36,925    22,969 
Trade accounts payable   136,412    184,257 
Payable for former joint venture partner   20,602    22,625 
Accrued gas payable   10,407    12,937 
Other payables   17,704    17,737 
   $527,550   $714,110 

 

As at June 30, 2019, the Company has recognized $31.1 million related to the potential earn-out payments over the next three years relating to the Filter Group acquisition. The change in fair value of the contingent consideration from $29.1 million at March 31, 2019 to $31.1 million at June 30, 2019 results in a change of $2.0 million reported in other expenses, net in the interim condensed consolidated statements of loss. As the contingent consideration does not meet the definition of equity, it is carried at fair value through profit or loss and is revalued at each reporting period. Significant assumptions affecting the measurement of contingent consideration each quarter include the Just Energy share price and the performance of Filter Group. Each quarter, the contingent consideration is revalued. To estimate the number of Just Energy common shares that are exchanged in each period, a Monte Carlo simulation model was used where the trailing 12-month adjusted EBITDA for each period is forecasted based on a Geometric Brownian Motion process. Inputs used in the Monte Carlo simulation model are as follows:

 

• Adjusted trailing 12-months EBITDA as at each quarter end date;

 

• Average EBITDA forecasts for new periods;

 

• Implied asset volatility;

 

• Equity volatility of Just Energy;

 

• Underlying asset price of Just Energy common shares;

 

• Dividend yield; and

 

• Risk-free rate.

 

As at June 30, 2019, the Company has not recognized any contingent consideration related to the Just Energy Advanced Solutions and EdgePower Inc. acquisitions.

 

  22.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

10.DEFERRED REVENUE

 

   Three months     
   ended   Year ended 
   June 30,   March 31, 
   2019   2019 
Balance, beginning of period  $43,228   $38,710 
Additions to deferred revenue   16,154    569,880 
Revenue recognized during the period   (22,959)   (563,922)
Foreign exchange impact   (586)   (1,440)
Liabilities held for sale   (32,538)   - 
Balance, end of period  $3,299   $43,228 

 

11.DISCONTINUED OPERATIONS

 

In March 2019, Just Energy formally approved and commenced a process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, Just Energy formally approved and commenced a process to dispose of its business in the U.K, as part of the Company’s the strategic review. The decision was part of a strategic transition to focus on the core business in North America. The disposal of the operations is expected to be completed within the next 12 months. At June 30, 2019, these operations were classified as a disposal group held for sale and as a discontinued operation. Previously, these operations were reported within the Consumer segment while a portion of the U.K. was allocated to the Commercial segment. The tax impact on the discontinued operations is minimal.

 

The results of the discontinued operations are presented below for the three months ended June 30:

 

   2019   2018 
Sales  $168,113   $173,942 
Cost of sales   152,410    153,004 
Gross margin   15,703    20,938 
Expenses          
Administrative, selling and operating expenses   38,123    26,871 
Operating loss   (22,420)   (5,933)
Finance costs   (1,358)   (27)
Change in fair value of derivative instruments and other   17,600    31,885 
Other income (loss)   879    (42)
Profit from discontinued operations before the undernoted   (5,299)   25,883 
Provision for income taxes   (110)   3,278 
PROFIT FROM DISCONTINUED OPERATIONS  $(5,189)  $22,605 
           
Cash inflow from operating activities  $872    30,969 
Cash outflow from investing activities  $(1,734)  $(2,661)
Cash outflow from financing activities  $(18,669)  $(23,614)

 

  23.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Assets and liabilities of the discontinued operations classified as held for sale as at June 30, 2019 were:

 

ASSETS    
Current assets     
Cash and cash equivalents  $12,589 
Current trade and other receivables   161,327 
Income taxes recoverable   2,623 
Other current assets   38,481 
    215,020 
Non-current assets     
Property and equipment   3,426 
Intangible assets   18,757 
Other non-current assets   610 
ASSETS CLASSIFIED AS HELD FOR SALE  $237,813 
      
Liabilities     
Current liabilities     
Trade and other payables  $184,687 
Deferred revenue   32,538 
Other current liabilities   23,559 
    240,784 
Non-current liabilities     
Other non-current liabilities   3,879 
      
LIABILITIES RELATING TO ASSETS CLASSIFIED AS HELD FOR SALE  $244,663 

 

12.LONG-TERM DEBT AND FINANCING

 

      June 30,   March 31, 
   Maturity  2019   2019 
Credit facility (a)  September 1, 2020  $255,732   $201,577 
Less: Debt issue costs (a)      (2,014)   (1,824)
Filter Group Financing (b)      15,933    17,577 
8.75% loan (c)  September 12, 2023   236,172    240,094 
6.75% $100M convertible debentures (d)  March 31, 2023   88,169    87,520 
6.75% $160M convertible debentures (e)  December 31, 2021   151,675    150,945 
6.5% convertible bonds (f)  December 31, 2020   29,218    29,483 
       774,885    725,372 
Less: Current portion      (37,164)   (37,429)
      $737,721   $687,943 

 

  24.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Future annual minimum repayments are as follows:

 

   Less than
1 year
   1–3 years   4–5 years   More than
5 years
   Total 
                     
Credit facility (a)  $-   $255,732   $-   $-   $255,732 
Filter Group financing (b)   9,217    8,987    1,186    -    19,390 
8.75% loan (c)   -    -    264,803    -    264,803 
6.75% $100M convertible debentures (d)   -    -    100,000    -    100,000 
6.75% $160M convertible debentures (e)   -    -    160,000    -    160,000 
6.5% convertible bonds (f)   29,270    -    -    -    29,270 
   $38,487   $264,719   $525,989   $-   $829,195 

 

The following table details the finance costs for the quarter ended June 30. Interest is expensed based on the effective interest rate.

 

   2019   2018 
Credit facility (a)  $6,052   $4,407 
Filter Group financing (b)   384    - 
8.75% loan (c)   7,337    - 
6.75% $100M convertible debentures (d)   2,337    2,292 
6.75% $160M convertible debentures (e)   3,430    3,370 
6.5% convertible bonds (f)   804    4,147 
Collateral management and others (g)   3,202    2,097 
   $23,546   $16,313 

 

(a)As at April 18, 2018, the Company has renegotiated an agreement with a syndicate of lenders that includes Canadian Imperial Bank of Commerce, National Bank of Canada, HSBC Bank Canada, JPMorgan Chase Bank N.A., Alberta Treasury Branches, Canadian Western Bank and Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley Bank N.A. 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. A certain principal amount outstanding under the credit facility is guaranteed by Export Development Canada under its Account Performance Security Guarantee Program.

 

Interest is payable on outstanding loans at rates that vary with bankers’ acceptance rates, LIBOR, Canadian bank prime rate or U.S. prime rate. Under the terms of the operating credit facility, Just Energy is able to make use of bankers’ acceptances and LIBOR advances at stamping fees of 3.750%. Prime rate advances are at a rate of bank prime (Canadian bank prime rate or U.S. prime rate) plus 2.750% and letters of credit are at a rate of 3.750%. Interest rates are adjusted quarterly based on certain financial performance indicators.

 

As at June 30, 2019, the Canadian prime rate was 3.95% and the U.S. prime rate was 5.5%. As at June 30, 2019, $328.9 million has been drawn against the facility and total letters of credit outstanding as of June 30, 2019, amounted to $73 million (March 31, 2019 - $94 million). As at June 30, 2019, Just Energy has $13.5 million of the facility remaining for future working capital and/or security requirements. Just Energy’s obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates and secured by a general security agreement and a pledge of the assets and securities of Just Energy and the majority of its operating subsidiaries and affiliates. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at June 30, 2019, the Company was compliant with all of these covenants.

 

  25.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The renewal on the facility agreement included an extension for an additional two years to September 1, 2020. On June 28, 2019, the Company exercised its option to access the amounts relating to the accordion agreement as part of the credit facility. On July 2, 2019, the Company withdrew $17.5 million on the addition on the credit facility.

 

(b)Filter Group, which was acquired on October 1, 2018, has an outstanding loan payable to Home Trust Company (“HTC”). The loan is a result of factoring receivables to finance the cost of rental equipment over a period of three to five years with HTC and bears interest at 8.99% per annum. Principal and interest are repayable on a monthly basis.

 

(c)On September 12, 2018, Just Energy entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility (the “8.75% loan”) with Sagard Credit Partners, LP and certain funds managed by a leading U.S.-based global fixed income asset manager. The 8.75% loan bears interest at 8.75% per annum payable semi-annually in arrears on June 30 and December 31 in each year plus fees and will mature on September 12, 2023. Counterparties were issued 7.5 million warrants at a strike price of $8.56 each, convertible to one Just Energy common stock. The value of these warrants has been assessed as nominal. The 8.75% loan has three tranches. The first tranche of US$50 million is earmarked for general corporate purposes, including to pay down Just Energy's credit facility. The second tranche of US$150 million is earmarked towards the settlement of Just Energy's 6.5% convertible bonds. The third tranche of US$50 million is earmarked for investments and future acquisitions. As at June 30, 2019, US$193.0 million was drawn from the 8.75% loan. On July 29, 2019, the Company drew US$7.0 million from the second tranche and US$7.0 million from the third tranche. These draws were secured by a personal guarantee from a director of the Company.

 

(d)On February 22, 2018, Just Energy issued $100 million of convertible unsecured senior subordinated debentures (the “6.75% $100 million convertible debentures”). The 6.75% $100 million convertible debentures bear interest at an annual rate of 6.75%, payable semi-annually in arrears on March 31 and September 30 in each year, and have a maturity date of March 31, 2023. Each $1,000 principal amount of the 6.75% $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 112.3596 common shares of Just Energy, representing a conversion price of $8.90, subject to certain anti-dilution provisions. Holders who convert their debentures will receive accrued and unpaid interest for the period from and including the date of the latest interest payment up to, but excluding, the date of conversion.

 

The 6.75% $100 million convertible debentures will not be redeemable at the option of the Company on or before March 31, 2021. After March 31, 2021 and prior to March 31, 2022, the 6.75% $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the Toronto Stock Exchange (the “TSX”) for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after March 31, 2022, the 6.75% $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

 

  26.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The conversion feature of the 6.75% $100 million convertible debentures has been accounted for as a separate component of shareholders’ deficit in the amount of $9.7 million. Upon initial recognition of the convertible debentures, Just Energy recorded a deferred income tax liability of $2.6 million and reduced the equity component of the convertible debentures by this amount. The remainder of the net proceeds of the 6.75% $100 million convertible debentures has been recorded as long-term debt, which is being accreted up to the face value of $100 million over the term of the 6.75% $100 million convertible debentures using an effective interest rate of 10.7%. If the 6.75% $100 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. No amounts of the 6.75% $100 million convertible debentures have been converted or redeemed as at June 30, 2019.

 

(e)On October 5, 2016, Just Energy issued $160 million of convertible unsecured senior subordinated debentures (the “6.75% $160 million convertible debentures”). The 6.75% $160 million convertible debentures bear interest at an annual rate of 6.75%, payable semi-annually in arrears on June 30 and December 31 in each year and have a maturity date of December 31, 2021. Each $1,000 principal amount of the 6.75% $160 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain anti-dilution provisions. Holders who convert their debentures will receive accrued and unpaid interest for the period from and including the date of the latest interest payment up to, but excluding, the date of conversion.

 

The 6.75% $160 million convertible debentures will not be redeemable at the option of the Company on or before December 31, 2019. After December 31, 2019 and prior to December 31, 2020, the 6.75% $160 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the TSX for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after December 31, 2020, the 6.75% $160 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

 

The conversion feature of the 6.75% $160 million convertible debentures has been accounted for as a separate component of shareholders’ deficit in the amount of $8.0 million. Upon initial recognition of the convertible debentures, Just Energy recorded a deferred income tax liability of $2.1 million and reduced the equity component of the convertible debentures by this amount. The remainder of the net proceeds of the 6.75% $160 million convertible debentures has been recorded as long-term debt, which is being accreted up to the face value of $160 million over the term of the 6.75% $160 million convertible debentures using an effective interest rate of 9.1%. If the 6.75% $160 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. No amounts of the 6.75% $160 million convertible debentures have been converted or redeemed as at June 30, 2019.

 

  27.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

(f)On January 29, 2014, Just Energy issued US$150 million of European-focused senior convertible unsecured convertible bonds (the “6.5% convertible bonds”). The 6.5% convertible bonds bear interest at an annual rate of 6.5%, payable semi-annually in arrears in equal installments on January 29 and July 29 in each year and have a maturity date of December 31, 2020.

 

A conversion right in respect of a bond may be exercised, at the option of the holder thereof, at any time from May 30, 2014 to July 7, 2019. The initial conversion price is US$9.3762 per common share (being C$10.2819) but is subject to adjustments. In the event of the exercise of a conversion right, the Company may, at its option, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation in cash equal to the market value of the underlying shares to be received.

 

As a result of the debt being denominated in a different functional currency than that of Just Energy, the conversion feature is recorded as a financial liability instead of a component of equity. Therefore, the conversion feature of the 6.5% convertible bonds has been accounted for as a separate financial liability with an initial value of US$8,517. The remainder of the net proceeds of the 6.5% convertible bonds has been recorded as long-term debt, which is being accreted up to the face value of $150.0 million over the term of the 6.5% convertible bonds using an effective interest rate of 8.8%. At each reporting period, the conversion feature is recorded at fair value with changes in fair value recorded through profit or loss. On July 29, 2019, the Company redeemed US$13.2 million of the 6.5% convertible bonds. The remaining lenders of $9.2 million of the 6.5% convertible bonds elected to extend the maturity date of the bonds from July 29, 2019 to December 31, 2020, pursuant to an option offered by the Company announced on July 17, 2019.

 

(g)Collateral management and others include primarily collateral management costs of $1.2 million, a supplier credit term charge of $1.2 million and accretion costs relating to the acquisition of Just Ventures of $0.5 million.

 

13.PROVISIONS

 

During fiscal 2019, Just Energy’s management team approved several restructuring actions including targeted workforce reductions. These actions include the elimination of over 200 positions. The actions are in direct alignment with Just Energy’s ongoing transition to a consumer-focused company and are expected to generate future cost savings.

 

   Three months ended
June 30, 2019
 
Balance, beginning of the period   6,616 
Restructuring costs paid during the quarter   (3,146)
Balance, end of the period  $3,470 

 

 

  28.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

14.INCOME TAXES

 

   Three months   Three months 
   ended   ended 
   June 30, 2019   June 30, 2018 
Current income tax expense (recovery)  $462   $(1,257)
Deferred income tax expense (recovery)   (2,756)   5,940 
Provision for (recovery of) income taxes  $(2,294)  $4,683 

 

15.SHAREHOLDERS’ CAPITAL

 

Just Energy is authorized to issue an unlimited number of common shares and 50,000,000 preference shares issuable in series, both with no par value. Shares outstanding have no preferences, rights or restrictions attached to them.

 

Details of issued and outstanding shareholders’ capital are as follows:

 

   Three months ended   Year ended 
   June 30, 2019   March 31, 2019 
   Shares   Amount   Shares   Amount 
Common shares:                
                 
Issued and outstanding                    
Balance, beginning of period   149,595,952   $1,088,538    148,394,152   $1,079,055 
Share-based awards exercised   1,344,288    6,960    1,201,800    9,483 
Balance, end of period   150,940,240   $1,095,498    149,595,952   $1,088,538 
                     
Preferred shares:                    
                     
Issued and outstanding                    
Balance, beginning of period   4,662,165   $146,965    4,323,300   $136,771 
Shares issued for cash   -    -    338,865    10,447 
Preferred shares issuance cost   -    -    -    (253)
Balance, end of period   4,662,165   $146,965    4,662,165   $146,965 
                     
Shareholders' capital   155,602,405   $1,242,463    154,258,117   $1,235,503 

 

16.REPORTABLE BUSINESS SEGMENTS

 

Just Energy’s reportable segments are Consumer Energy and Commercial Energy. Just Energy has aggregated the operating segments into these reportable segments on the basis that the operating segments share economic characteristics. These characteristics include the nature of the product and services sold, the distribution methods, and the type of customer class and regulatory environment.

 

Transactions between segments are in the normal course of operations and are recorded at the exchange amount. Allocations made between segments for shared assets or allocated expenses are based on the number of residential customer equivalents in the respective segments.

  29.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the interim financial statements.

 

Corporate and shared services report the costs related to management oversight of the business units, public reporting and filings, corporate governance and other shared services functions.

 

For the three months ended June 30, 2019:

 

   Consumer   Commercial   Corporate and     
   segment   segment   shared services   Consolidated 
                 
Sales  $409,998   $260,167   $-   $670,165 
Gross margin   105,976    26,316    -    132,292 
Depreciation of property and equipment   2,950    38    -    2,988 
Amortization of intangible assets   6,920    692    -    7,612 
Administrative expenses   11,235    6,151    23,417    40,803 
Selling and marketing expenses   41,800    19,904    -    61,704 
Other operating expenses   23,730    1,435    -    25,165 
Operating profit (loss) for the period  $19,341   $(1,904)  $(23,417)  $(5,980)
Finance costs                  (23,546)
Change in fair value of derivative instruments and other                  (241,999)
Other expenses, net                  (740)
Recovery of income taxes                  2,294 
Loss for the period from continued operations                  (269,971)
Loss from discontinued operations                  (5,189)
Loss for the period                 $(275,160)
                     
Capital expenditures  $9,170   $749   $-   $9,919 
                     
As at June 30, 2019                    
Total goodwill  $172,072   $165,324   $-   $337,396 
Total assets  $1,117,434   $419,380   $-   $1,536,814 
Total liabilities  $1,713,787   $204,250   $-   $1,918,037 

 

  30.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

For the three months ended June 30, 2018:

 

   Consumer   Commercial   Corporate and     
   segment   segment   shared services   Consolidated 
                 
Sales  $434,364   $268,151   $-   $702,515 
Gross margin   100,807    31,788    -    132,595 
Depreciation of property and equipment   844    45    -    889 
Amortization of intangible assets   3,728    342    -    4,070 
Administrative expenses   7,224    6,683    26,024    39,931 
Selling and marketing expenses   26,923    15,042    -    41,965 
Other operating expenses   16,234    2,166    -    18,400 
Restructuring costs   1,612    305    -    1,917 
Operating profit (loss) for the period  $44,242   $7,205   $(26,024)  $25,423 
Finance costs                  (16,313)
Change in fair value of derivative instruments and other                  (68,441)
Other expenses, net                  (13)
Provision for income taxes                  4,683 
Loss for the period from continued operations                 $(64,028)
Profit from discontinued operations                  22,605 
Loss for the period                  (41,423)
                     
Capital expenditures  $9,181   $674   $-   $9,855 
                     
As at June 30, 2018                    
Total goodwill  $148,375   $157,018   $-   $305,393 
Total assets  $1,222,492   $404,308   $-   $1,626,800 
Total liabilities  $1,216,190   $223,600   $-   $1,439,790 

 

Sales from external customers

 

The revenue is based on the location of the customer.

 

   Three   Three 
   months ended   months ended 
   June 30, 2019   June 30, 2018 
Canada  $75,485   $89,228 
U.S.   594,680    613,287 
Total  $670,165   $702,515 

 

  31.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Non-current assets

 

Non-current assets by geographic segment consist of property and equipment and intangible assets and are summarized as follows:

 

   As at June 30, 2019   As at March 31, 2019 
Canada  $196,843   $266,775 
United States   293,531    223,802 
International   -    7,941 
Total  $490,374   $498,518 

 

17.OTHER EXPENSES

 

(a)Other operating expenses

 

   Three   Three 
   months ended   months ended 
   June 30, 2019   June 30, 2018 
Amortization of intangible assets  $7,612   $4,070 
Depreciation of property and equipment   2,988    889 
Bad debt expense   17,287    16,706 
Share-based compensation   7,118    1,694 
Other   760    - 
   $35,765   $23,359 

 

(b)Employee benefits expense

 

   Three   Three 
   months ended   months ended 
   June 30, 2019   June 30, 2018 
Wages, salaries and commissions  $61,757   $61,508 
Benefits   7,270    4,881 
   $69,027   $66,389 

 

 

  32.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

18.LOSS PER SHARE

 

   For the three   For the three 
   months ended   months ended 
   June 30, 2019   June 30, 2018 
BASIC LOSS PER SHARE          
Loss from continuing operations available to shareholders  $(269,971)  $(64,028)
Dividend to preferred shareholders - net of tax   2,450    2,343 
Loss from continuing operations available to shareholders - net   (272,421)   (66,371)
Basic weighted average shares outstanding   149,846,539    148,472,715 
Basic loss per share from continuing operations available to shareholders  $(1.82)  $(0.45)
Basic loss per share available to shareholders  $(1.85)  $(0.29)
           
DILUTED LOSS PER SHARE          
Loss from continuing operations available to shareholders  $(272,421)   (66,371)
Adjusted loss from continuing operations available to shareholders  $(272,421)  $(66,371)
Basic weighted average shares outstanding   149,846,539    148,472,715 
Dilutive effect of:          
Restricted share and performance bonus grants   3,123,247 1   3,034,501  1
Deferred share grants   184,546 1   115,184  1
Convertible debentures   30,662,288 1   44,438,208  1
Shares outstanding on a diluted basis   183,816,620    196,060,608 
Diluted loss from continuing operations per share available to shareholders  $(1.82)  $(0.45)
Diluted loss per share available to shareholders  $(1.85)  $(0.29)

 

1 The assumed conversion into shares results in an anti-dilutive position; therefore, these items have not been included in the computation of diluted loss per share. The potentially dilutive instruments are the convertible features on the 6.5% convertible bonds, 6.75% $160M convertible debentures and 6.75% $100M convertible debentures as well as the stock options and share grants.

 

19.RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL REMUNERATION

 

Parties are considered to be related if one party has the ability to control the other party or exercise influence over the other party in making financial or operating decisions. The definition includes subsidiaries and other persons.

 

  33.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The acquisition of Filter Group gives rise to a related party transaction as the CEO of Filter Group is the son of the Executive Chair of Just Energy. During the three months ended June 30, 2019, $10.6 million of deferred purchase consideration related to the acquisition of Filter Group was repaid.

 

20.DIVIDENDS PAID

 

For the quarter ended June 30, 2019, dividends of $0.125 (2018 - $0.125) per common share were declared by Just Energy. These dividends amounted to $18,714 (2018 - $19,074) and were approved by the Board of Directors and were paid out during the period.

 

For the quarter ended June 30, 2019, distributions of $0.125 (2018 - $0.125) per common share for share grants were declared by Just Energy. These distributions amounted to $23 (2018 - $525), which was paid in accordance with the terms of the Canadian and U.S. Plans during the period.

 

For the quarter ended June 30, 2019, dividends of US$0.53125 (2018 - $0.53125) per preferred share were declared by Just Energy. These dividends amounted to $3,333 (2018 - $3,188) and were approved by the Board of Directors and were paid out during the period.

 

21.COMMITMENTS AND GUARANTEES

 

Commitments for each of the next five years and thereafter are as follows:

 

As at June 30, 2019

 

   Less than
1 year
   1–3 years   4–5 years   More than
5 years
   Total 
Gas, electricity and non-commodity contracts  $1,524,002   $1,631,593   $357,763   $115,362   $3,628,720 

 

On October 9, 2018, Just Energy announced that it has entered into a Multi-Year Contingent Business Interruption Insurance Agreement (the “Insurance”).

 

The Insurance primarily complements Just Energy’s risk management program and is intended to mitigate the impacts to the Company due to, among other things, natural disasters and unusual winter freezes in Texas.

 

The Insurance provides up to US$25 million of insured limit per event, US$50 million per year and US$225 million of limit over an 80-month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyber-attack, 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.

 

Guarantees

 

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 June 30, 2019 amounted to $65.5 million.

 

  34.

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2019

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

As at June 30, 2019, Just Energy had total letters of credit outstanding in the amount of $73.0 million (Note 12(a)).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35.


Exhibit 99.2

 

Management’s discussion and analysis

– August 14, 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 three months ended June 30, 2019. This MD&A has been prepared with all information available up to and including August 14, 2019. This MD&A should be read in conjunction with Just Energy’s unaudited interim condensed consolidated financial statements for the three months ended June 30, 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 (“IASB”). 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 (“SEC”) 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.”) and Canada, Just Energy serves both residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., (“Filter Group”) 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, customer credit risk, 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 through the SEDAR website at www.sedar.com or by visiting EDGAR on the SEC’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 December 31, 2020. Net proceeds were used to redeem Just Energy’s outstanding $90 million convertible debentures and pay down Just Energy’s credit facility. In fiscal 2019, US$127.6 million were tendered. A further US$13.2 million were repurchased in July 2019, resulting in a balance of US$9.2 million outstanding as at June 30, 2019. See “Debt and financing for continuing operations” on page 23 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 23 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 23 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 in fiscal 2019, and an additional US$14.0 million was drawn in July 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 23 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 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, 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 23 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 unaudited interim condensed 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, Texas residential enrolment and collections impairment, the United Kingdom (“U.K.”) receivables impairment 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. The Texas residential enrolment and collections impairment, the U.K. receivables impairment, restructuring and discontinued operations are one-time, non-recurring events. Management considers these events to be non-recurring as the operational issues that led to that impairments in the Texas market have been resolved to prevent further losses and management is continuing to implement operational improvements in the U.K.

 

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 unaudited interim condensed 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.

 

3.

 

 

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, Texas residential enrolment and collections impairment and the U.K. receivables impairment, 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.

 

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 (“EGM”)

 

“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 review

 

On June 6, 2019, the Company’s Board of Directors decided to undertake a formal review process to evaluate strategic alternatives available to the Company (the “Strategic Review”). This decision follows expressions of interest from a number of parties concerning potential transactions involving the Company. 

 

The Company has not established a definitive timeline to complete the Strategic Review, no decisions related to any strategic alternative have been reached at this time and there is no assurance that a transaction will result from the Strategic Review.

 

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, culminating 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 Filter Group acquisition to accelerate its strategic shift to a customer centric consumer company.

 

4.

 

 

Discontinued operations

 

In March 2019, Just Energy formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, as part of the Company’s Strategic Review, the U.K. was added to the disposal group. The decision was part of a strategic transition to focus on the core business in North America. Just Energy is in advanced discussions with a potential buyer and the disposal of the operations is expected to be completed within the next 12 months. As at June 30, 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 while a portion of the U.K. was allocated to the Commercial segment. Just Energy’s results for the prior fiscal period reported throughout this MD&A has 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, refer to Note 11 of the interim condensed consolidated financial statements for the three months ended June 30, 2019.

 

Financial highlights
For the three months ended June 30   
(thousands of dollars, except where indicated and per share amounts)   
          
         % increase      
    Fiscal 2020    (decrease)    Fiscal 2019 
Sales  $670,165    (5)%  $702,515 
Gross margin   132,292    -      132,594 
Administrative expenses   40,803    2%   39,931 
Selling and marketing expenses   61,704    47%   41,965 
Restructuring costs   -      -      1,917 
Finance costs   23,546    44%   16,313 
Loss from continuing operations   (269,971)   NMF3    (64,028)
Profit (loss) from discontinued operations   (5,189)   NMF3    22,605 
Loss1   (275,160)   NMF3    (41,423)
Loss per share from continuing operations available to shareholders - basic   (1.82)        (0.45)
Loss per share from continuing operations available to shareholders - diluted   (1.82)        (0.45)
Dividends/distributions   22,070    (1)%   22,261 
Base EBITDA from continuing operations2   24,185    (31)%   34,807 
Base Funds from continuing operations2   1,370    (94)%   23,750 
Payout ratio on Base Funds from continuing operations2   

1,611

%        94%
Embedded gross margin from continuing operations2   1,914,900    12%   1,713,100 
Total customers (RCEs) from continuing operations   3,565,000    (4)%   3,716,000 
Total gross customer (RCE) additions   196,000    (32)%   290,000 
Total net customer (RCE) additions   (73,000)   NMF3    24,000 

 

1 Profit (loss) includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand as well as weather hedge contracts as part of the risk management practice. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.

 

2 See “Non-IFRS financial measures” on page 3.

 

3 Not a meaningful figure.

 

5.

 

 

Just Energy’s gross margin remained consistent for the three months ended June 30, 2019, mainly due to improved margin optimization in North America, and margin from the acquisition of Filter Group in the third quarter of fiscal 2019, which offset the 5% drop in sales, caused by the 4% decline in the customer base. Sales revenue decreased to $670.2 million during the three months ended June 30, 2019, from $702.5 million in the first quarter of fiscal 2019.

 

Base EBITDA was $24.2 million, a decrease of 31% as compared to the first quarter of fiscal 2019 due to improvements in gross margin, offset by the decline in the customer base, commodity resettlements from the prior periods, cooler than normal spring weather and higher amortization of customer acquisition costs in the period.

 

Administrative expenses increased 2% due to upfront costs relating to process and operational efficiency improvement activities and ongoing support for business expansion for Filter Group and unfavourable foreign exchange fluctuations. The Company continues its efforts to reduce administrative expenses through greater automation and consolidation of support activities. Selling and marketing expenses increased 47% compared to the prior comparable quarter due to the increased commission costs to acquire new customers and ramp-up of the amortization of previously capitalized acquisition costs, and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs.

 

Finance costs for the three months ended June 30, 2019 amounted to $23.5 million, an increase of 44% from $16.3 million reported for the three months ended June 30, 2018, primarily driven by interest expense from higher debts and higher interest rates, the premium and fees associated with the 8.75% loan and supplier credit term extensions.

 

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 may be offered as a value-added product with commodity contracts and are 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 an 8% fully diluted equity interest. In fiscal 2019, Just Energy added home water filtration systems to its line of consumer product and service offerings through the acquisition of Filter Group.

 

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.

 

6.

 

 

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.

 

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 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 and Saskatchewan 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 and the U.S. 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.

 

7.

 

 

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.

 

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 trailing 12 months ended June 30, 2018, 36% of Consumer customers who contracted with Just Energy chose to include JustGreen for an average of 71% of their consumption. As of June 30, 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.

 

Just Energy’s management for the Consumer business focuses on energy efficient and energy conserving 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.

 

8.

 

 

ADOPTION OF NEW STANDARDS

 

Adoption of IFRS 16, Leases

 

IFRS 16 Leases (“IFRS 16”) superseded International Accounting Standards (“IAS”) 17 Leases and all related interpretations when it became effective. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions.

 

The introduction of IFRS 16 resulted in the following changes:

 

• Explicit definition for a lease where a contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

• Measurement direction where the lessee recognizes a right-of-use asset and a lease liability upon lease commencement for leases with a lease term of greater than one year. The right-of-use asset is initially measured at the amount of the lease liability plus any initial direct costs incurred by the lessee. The lease liability is initially measured at the present value of the lease payments payable over the lease term and discounted at the implied lease rate. If the implied lease rate cannot be readily determined, the lessee uses its incremental borrowing rate. Subsequent re-measurement is required under specific circumstances. Previously, the Company classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company;

 

• Detailed guidance on determining the lease term when there is an option to extend the lease; and

 

• Extensive disclosure requirements, differing from those in the past.

 

Just Energy adopted IFRS 16, as issued by the IASB in January 2016, on April 1, 2019, in accordance with the transitional provisions in IFRS 16, comparative figures have not been restated. Just Energy adopted IFRS 16 using the modified retrospective method, applying the practical expedient in paragraph C5(c) under which the aggregate effect of all modifications on the date of initial application is reflected. Accordingly, transition adjustments have been recognized through equity as at April 1, 2019.

 

On transition to IFRS 16, the Company elected to apply the following practical expedients:

 

• Exemption for short-term leases with a remaining lease term of 12 months or less as at April 1, 2019 and low value leases, which will be accounted for as operating leases;

 

• Use of a single discount rate on a portfolio of leases with reasonably similar characteristics;

 

• Exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;

 

• Use of historical information in determining the lease term where contracts contain options to extend or terminate the lease;

 

• Adjustments to the right-of-use asset amounts for any onerous contract provisions immediately before the date of initial application; and

 

• Measurement of the right-of-use assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments relating to that lease immediately before the date of initial application.

 

9.

 

 

The following table summarizes the transition adjustments required to adopt IFRS 16 as at April 1, 2019:

 

   IAS 17       IFRS 16 
   carrying amount       carrying amount 
   as at   Transition   as at 
(thousands of dollars)  March 31, 2019   adjustment   April 1, 2019 
             
Property and equipment, net  $25,862   $

18,525

   $

44,387

 
Other current liabilities   -      

2,942

    

2,942

 
Other non-current liabilities   61,339    15,583    76,922 

 

EBITDA
For the three months ended June 30
(thousands of dollars)        
   Fiscal 2020   Fiscal 2019 
Reconciliation to interim condensed consolidated financial statements        
Loss for the period  $(275,160)  $(41,423)
Add (subtract):          
Finance costs   23,546    16,313 
Provision for (recovery of) income taxes   (2,294)   4,683 
Discontinued operations   (16,352)   (28,580)
Texas residential enrolment and collections impairment   4,900      
Depreciation and amortization   12,081    6,025 
EBITDA  $(253,279)  $(42,982)
Add (subtract):          
Change in fair value of derivative instruments and other   241,999    68,441 
Contingent consideration revaluation   6,929    -   
Restructuring costs   -      1,917 
Share-based compensation   7,254    1,775 
Discontinued operations   

21,262

    5,610 
Loss attributable to non-controlling interest   20    46 
Base EBITDA  $24,184   $34,807 
           
Gross margin per interim condensed consolidated financial statements  $132,292   $132,594 
Add (subtract):          
Administrative expenses   (40,803)   (39,931)
Selling and marketing expenses   (61,704)   (41,965)
Bad debt expense   (17,287)   (16,706)
Texas residential enrolment and collections impairment   4,900    -   
Amortization included in cost of sales   578    782 
Other income (expenses)   6,189    (13)
Loss attributable to non-controlling interest   20    46 
Base EBITDA  $24,184   $34,807 

 

For the three months ended June 30, 2019, Base EBITDA was $24.2 million, a decrease of $10.6 million as compared to the first quarter of fiscal 2019 due to improvements in gross margin, offset by the decline in the customer base, commodity resettlements from the prior periods, cooler than normal spring weather and higher amortization of customer acquisition costs in the period.

 

Sales decreased 5% for the first quarter ended June 30, 2019. The Consumer and Commercial division’s sales decreased 6% and 3%, respectively, for the three months ended June 30, 2019 due to the decrease in the customer base of 4% and 2%, respectively. Gross margin was $132.3 million consistent with the prior comparable quarter, mainly due to improved margin optimization in North America and margin from the acquisition of Filter Group in the third quarter of fiscal 2019, which offset the 5% drop in sales, caused by the 4% decline in the customer base.

 

10.

 

 

Administrative expenses increased 2% from $39.9 million to $40.8 million. The increase over the prior comparable quarter resulted from upfront costs relating to process and operational efficiency improvement activities, ongoing support for business expansion including Filter Group, and unfavorable foreign exchange fluctuations.

 

Selling and marketing expenses for the three months ended June 30, 2019 were $61.7 million, an increase of 47% compared with the prior comparable quarter as a result of increased commission costs to acquire new customers, ramp up of the amortization of previously capitalized acquisition costs, and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs.

 

Finance costs for the three months ended June 30, 2019 amounted to $23.5 million, an increase of 44% from $16.3 million reported for the three months ended June 30, 2018, primarily driven by interest expense from higher debts and higher interest rates, the premium and fees associated with the 8.75% loan and supplier credit term extensions.

 

Bad debt expense was $17.3 million for the three months ended June 30, 2019, an increase of 3% from $16.7 million recorded for the prior comparable quarter, attributable to the non-recurring Texas residential enrolment and collections impairment, partially offset by the decrease in revenues.

 

For more information on the changes in the results from operations, please refer to “Gross margin” on page 17 and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further clarified on pages 19 through 20.

 

EMBEDDED GROSS MARGIN
                         
Management’s estimate of the future embedded gross margin is as follows:

 

         
(millions of dollars)                    
   As at   As at   June 30 vs.   As at   2019 vs. 
   June 30   March 31,   March 31   June 30,   2018 
   2019   2019   variance   2018   variance 
Commodity EGM  $1,870.8   $2,056.9    (9)%  $1,713.1    9%
VAPS EGM   44.1    40.8    8%   -      -   
Total EGM from continuing operations  $1,914.9   $2,097.7    (9)%  $1,713.1    12%
Discontinued operations EGM  $175.6   $173.4    1%  $250.6    (30)%
Total EGM  $2,090.5   $2,271.1    (8)%  $1,963.7    6%

 

Management’s estimate of the total future embedded gross margin for continuing operations within its customer contracts amounted to $1,914.9 million as of June 30, 2019, an increase of 12% compared to the embedded gross margin as of June 30, 2018. The 9% increase in the commodity embedded gross margin is due to gross margin optimization initiatives across the North American Consumer commodity markets (primarily US electricity) implemented in Q2 of last year partially offset by the decline in the North American Consumer commodity customer base and, to a lesser extent, the weaker US dollar. U.K.’s embedded gross margin $175.6 million declined 30% compared to its embedded gross margin as of June 30. 2018 due to a decline in its consumer customer base.

 

Management’s embedded gross margin estimate decreased by 8% compared to the embedded gross margin as of March 31, 2019. The 9% decrease in the commodity embedded gross margin is primarily due to the decline in the North American consumer commodity customer base as well as the weaker US dollar.

 

Embedded gross margin includes $44.1 million from Filter Group, which was acquired by Just Energy on October 1, 2018, on a five-year undiscounted basis. On a ten-year undiscounted basis, the embedded gross margin for Filter Group is $81.1 million.

 

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 consider 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.

 

11.

 

 

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

 

Funds from continuing operations
For the three months ended June 30
(thousands of dollars)    
   Fiscal 2020   Fiscal 2019 
Cash outflow from operating activities  $(14,049)  $(12,546)
Add (subtract):          
Changes in working capital   (27,181)   54,909 
Change in fair value of Filter Group contingent consideration   6,929    -   
Loss attributable to non-controlling interest   20    46 
Discontinued operations   

31,363

    (26,249)
Tax adjustment   5,344    10,949 
Funds from continuing operations  $2,426   $27,109 
Less: Maintenance capital expenditures   (1,056)   (3,359)
Base Funds from continuing operations  $1,370   $23,750 
           
Gross margin per interim condensed consolidated financial statements  $132,292   $132,594 
Add (subtract):          
Administrative expenses   (40,803)   (39,931)
Selling and marketing expenses   (61,704)   (41,965)
Bad debt expense excluding Texas Residential enrolment and collections impairment   (12,387)   (16,706)
Texas Residential enrolment and collections impairment   (4,900)   -   
Current income tax (expense) recovery   (360)   2,512 
Adjustment required to reflect net cash receipts from gas sales   2,758    4,581 
Amortization included in cost of sales   578    782 
Restructuring costs   -      (1,917)
Other income (expenses)   6,189    (13)
Financing charges, non-cash   4,316    3,467 
Finance costs   (23,546)   (16,313)
Other non-cash adjustments   (7)   18 
Funds from continuing operations  $2,426   $27,109 
Less: Maintenance capital expenditures   (1,056)   (3,359)
Base Funds from operations  $1,370   $23,750 
Base Funds from continuing operations payout ratio   1,611%   94%
Dividends/distributions          
Dividends on common shares  $18,714   $18,549 
Distributions for share-based awards   23    525 
Total dividends/distributions  $22,070   $22,262 

 

12.

 

 

Base FFO for the three months ended June 30, 2019 amounted to $1.4 million, a decrease of 94% compared with Base FFO of $23.8 million for the prior comparable quarter. The decrease in Base FFO was a result of the 31% decrease in Base EBITDA in the current quarter, the one-time impairment charge relating to the non-recurring Texas residential enrolment and collections impairment, partially offset by lower maintenance capital expenditures.

 

Dividends and distributions for the three months ended June 30, 2019 were $22.1 million, a decrease of 1% from the prior comparable quarter in fiscal 2019, reflecting lower issuances of share-based awards during the quarter. The payout ratio on Base Funds from continuing operations was 1,611% for the three months ended June 30, 2019, compared to 94% reported in the first quarter of fiscal 2019. The payout ratio for the trailing 12 months ended June 30, 2019 was 195%, compared with 100% for the trailing 12 months ended June 30, 2018.

 

Summary of quarterly results for continuing operations
(thousands of dollars, except per share amounts)    
   Q1   Q4   Q3   Q2 
   Fiscal 2020   Fiscal 2019   Fiscal 2019   Fiscal 2019 
Sales  $670,165   $797,409   $734,205   $804,309 
Gross margin   132,292    172,430    164,461    149,021 
Administrative expenses   40,803    35,019    39,355    41,594 
Selling and marketing expenses   61,704    62,685    51,245    49,997 
Restructuring costs   -      10,096    2,746    1,319 
Finance costs   (23,546)   (28,874)   (22,762)   (20,123)
Profit (loss) for the period from continuing operations   (269,971)   (53,731)   35,500    (51,025)
Profit (loss) for the period from discontinued operations   (5,189)   (78,246)   (83,085)   29,574 
Loss for the period   (275,160)   (131,977)   (47,585)   (21,451)
Profit (loss) for the period from continuing operations per share – basic   (1.82)   (1.56)   0.23    (0.36)
Profit (loss) for the period from continuing operations per share – diluted   (1.82)   (1.56)   0.19    (0.36)
Dividends/distributions paid   22,070    22,004    21,434    22,330 
Base EBITDA from continuing operations   24,185    (63,388)   60,133    40,693 
Base Funds from continuing operations   1,370    18,534   (3,270)   28,336 
Payout ratio on Base Funds from continuing operations   1,611%   119%   

115

%   79%
                     
    Q1    Q4    Q3    Q2 
    Fiscal 2019    Fiscal 2018    Fiscal 2018    Fiscal 2018 
Sales  $702,515   $750,777   $694,668   $716,641 
Gross margin   132,594    144,468    147,748    127,894 
Administrative expenses   39,931    33,299    40,249    36,484 
Selling and marketing expenses   41,965    52,714    49,315    52,525 
Restructuring costs   1,917    -      -      -   
Finance costs   (16,313)   7,447    13,266    12,521 
Profit (loss) for the period from continuing operations   (64,028)   260,074    183,693    (50,336)
Profit (loss) for the period from discontinued operations   22,605    5,699    24,722    (14,587)
Profit (loss) for the period   (41,423)   265,773    208,415    (64,923)
Profit (loss) for the period from continuing operations per share – basic   (0.45)   1.76    1.25    (0.37)
Profit (loss) for the period from continuing operations per share – diluted   (0.45)   1.37    1.00    (0.37)
Dividends/distributions paid   22,261    21,555    21,501    21,468 
Base EBITDA from continuing operations   34,807    68,854    32,669    50,911 
Base Funds from continuing operations   23,750    24,287    29,084    9,319 
Payout ratio on Base Funds from continuing operations   94%   89%   74%   230%

 

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 76% and 24%, 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.

 

Analysis of the first quarter

 

Sales decreased 5% to $670.2 million for the three months ended June 30, 2019 from $702.5 million recorded in the first quarter of fiscal 2019. The gross margin was $132.3 million, consistent with the prior comparable quarter, mainly due to improved margin optimization in North America and the acquisition of Filter Group in the third quarter of fiscal 2019, which offset the 5% drop in sales, caused by the 4% decline in the customer base.

 

Administrative expenses for the three months ended June 30, 2019 increased 3% attributable to process and operational efficiency improvement activities as well as ongoing support for business expansion in Filter Group partially offset by a reduction in employee expenses and unfavourable foreign exchange fluctuations. Selling and marketing expenses for the three months ended June 30, 2019 increased by 47% to $61.7 million as a result of the increased commission costs to acquire new customers, ramp up of the amortization of previously capitalized acquisition costs and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs.

 

Finance costs for the three months ended June 30, 2019 amounted to $23.5 million, an increase of 44% from $16.3 million reported for the three months ended June 30, 2018, primarily driven by interest expense from higher debts and higher interest rates, the premium and fees associated with the 8.75% loan and supplier credit term extensions.

 

The change in fair value of derivative instruments and other resulted in a non-cash loss of $242.0 million for the three months ended June 30, 2019, compared to a non-cash loss of $68.4 million in the prior comparable quarter, as market prices relative to Just Energy’s future electricity supply contracts decreased by an average of $3.87/MWh and future gas contracts decreased by an average of $0.05/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.

 

The loss for the three months ended June 30, 2019 was $275.2 million, representing a loss per share of $1.82 on a basic and diluted basis, respectively. For the prior comparable quarter, the loss was $41.4 million, representing a loss per share of $0.45 on a basic and diluted basis, respectively.

 

Base EBITDA was $24.2 million, a decrease of 31% as compared to the prior comparable quarter due to improvements in gross margin, offset by the decline in the customer base, commodity resettlements from the prior periods, a cooler than expected spring weather and higher amortization of customer acquisition costs in the period. The Base EBITDA for the three months ended June 30, 2018 excludes restructuring costs recorded in the quarter.

 

Base FFO was $1.4 million for the first quarter of fiscal 2020, down 94% compared to $23.8 million in the prior comparable quarter as a result of the lower Base EBITDA and the one-time impairment charge relating to the non-recurring Texas residential enrolment and collections impairment, partially offset by lower maintenance capital expenditures.

 

14.

 

 

Dividends and distributions paid were $22.1 million, for the three months ended June 30, 2019, a decrease of 1% from the prior comparable quarter in fiscal 2019, reflecting lower issuances of share-based awards during the quarter. The payout ratio on Base FFO for the quarter ended June 30, 2019 was 1,611%, compared with 94% in the prior comparable quarter. The payout ratio for the trailing 12 months ended June 30, 2019 was 195%, compared with 100% for the trailing 12 months ended June 30, 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 three months ended June 30
(thousands of dollars)
       Fiscal 2020 
   Consumer   Commercial   Corporate and shared services   Consolidated 
Sales  $409,998   $260,167   $-     $670,165 
Cost of sales   (304,022)   (233,851)   -      (537,873)
Gross margin   105,976    26,316    -      132,292 
Add (subtract):                    
Administrative expenses   (11,235)   (6,151)   (23,417)   (40,803)
Selling and marketing expenses   (41,800)   (19,905)   -      (61,705)
Bad debt expense   (16,138)   (1,149)   -      (17,287)
Texas residential enrolment and collections impairment   4,900    -      -      4,900 
Amortization included in cost of sales   578    -      -      578 
Other income, net   6,077    112    -      6,189 
Loss attributable to non-controlling interest   20    -      -      20 
Base EBITDA from continuing operations  $48,378   $(777)  $(23,417)  $24,184 

 

       Fiscal 2019 
   Consumer   Commercial   Corporate and shared services   Consolidated 
Sales  $434,364   $268,151   $-     $702,515 
Cost of sales   (333,553)   (236,368)   -      (569,921)
Gross margin   100,811    31,783    -      132,594 
Add (subtract):                    
Administrative expenses   (7,224)   (6,683)   (26,024)   (39,931)
Selling and marketing expenses   (26,923)   (15,042)   -      (41,965)
Bad debt expense   (14,697)   (2,009)   -      (16,706)
Amortization included in cost of sales   782    -      -      782 
Other income (expenses), net   (38)   25    -      (13)
Loss attributable to non-controlling interest   46    -      -      46 
Base EBITDA from continuing operations  $52,757   $8,074   $(26,024)  $34,807 

 

1 The segment definitions are provided on page 6.

 

15.

 

 

Consumer Energy contributed $48.4 million to Base EBITDA for the three months ended June 30, 2019, a decrease of 8% from $52.8 million in the prior comparative quarter. Consumer gross margin increased 5%, primarily due to the process and operational efficiency improvement activities, ongoing support for business expansion in Filter Group and unfavourable foreign exchange fluctuations. Consumer administrative costs were up 56% in the first quarter of fiscal 2020, primarily related to the process and operational efficiency improvement activities, ongoing support for business expansion in Filter Group and unfavourable foreign exchange fluctuations partially offset by a reduction in employee expenses. Selling and marketing expenses increased 55% compared to the prior comparable quarter as a result of higher selling costs in the North American Consumer market, foreign exchange and the timing of selling expenses related to the Commercial division. Bad debt expense during the three months ended June 30, 2019, net of the Texas residential and enrolment and collections impairment, decreased 22% to $11.2 million due to lower revenues in the markets where Just Energy bears the credit risk. Consumer administrative costs were up 56% for the three months ended June 30, 2019 reflecting higher process and operational efficiency improvement activities and unfavourable foreign exchange fluctuations. Selling and marketing expenses for the Consumer segment increased by 55% as a result of higher commissions costs to acquire customers, ramp up of the amortization of previously capitalized acquisition costs and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs.

 

Commercial Base EBITDA for the three months ended June 30, 2019 contributed negative $0.8 million to the Base EBITDA, a decrease of 110% from the prior comparable quarter. Commercial gross margin decreased 17% to $26.3 million as a result of attrition in higher margin customers from competitive pricing pressures, as well as unfavourable commodity resettlements. Commercial administrative costs were down 8% for the three months ended June 30, 2019 reflecting the realization of cost savings as a result of the restructuring actions in fiscal 2019. Selling and marketing expenses for the Commercial segment increased 32% as a result of higher commissions costs to acquire customers, ramp up of the amortization of previously capitalized acquisition costs and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs

 

Corporate and shared services costs relate to management oversight of the business units, public reporting and filings, corporate governance and other shared services functions. The corporate expenses decreased 10% due to cost saving realized from the restructuring actions in fiscal 2019.

 

Customer aggregation
       
CUSTOMER SUMMARY      

 

  As at   As at     
  June 30,   April 1,     
   2019   2019   % decrease 
Commodity   1,172,000    1,248,000    (6)%
VAPS   67,000    70,000    (4)%
Commodity and VAPS bundle   23,000    28,000    (18)%
Total customer count   1,262,000    1,346,000    (6)%

 

As at June 30, 2019, the total customer count decreased 6% to 1,262,000 compared to the prior comparable quarter excluding discontinued operations. The decline in customers is a result of the Company’s focus on renewing and signing higher quality and long-lasting customers as well as the natural attrition of the customer base. The customer count captures customers with a distinct service address. These customers can have multiple products contracted with Just Energy and multiple active assets installed by Just Energy. The total VAPS customer count also includes 25,000 distinct customers from Filter Group’s water filter subscriptions, with 31,000 active assets. Just Energy’s customer base also includes 73,000 smart thermostat customers.

 

16.

 

 

COMMODITY RCE SUMMARY
 
  Apr. 1,         Failed to   Jun. 30,        Jun. 30,   % increase 
   20191   Additions   Attrition   renew   2019   % decrease   2018   (decrease) 
Consumer                                
Gas   406,000    13,000    (28,000)   (7,000)   384,000    (5)%   472,000    (19)%
Electricity   993,000    62,000    (75,000)   (23,000)   957,000    (4)%   1,050,000    (9)%
Total Consumer RCEs   1,399,000    75,000    (103,000)   (30,000)   1,341,000    (4)%   1,522,000    (12)%
Commercial                                        
Gas   436,000    15,000    (12,000)   (4,000)   435,000    -      408,000    7%
Electricity   1,803,000    106,000    (52,000)   (68,000)   1,789,000    (1)%   1,786,000    -   
Total Commercial RCEs   2,239,000    121,000    (64,000)   (72,000)   2,224,000    (1)%   2,194,000    1%
Total RCEs   3,638,000    196,000    (167,000)   (102,000)   3,565,000    (2)%   3,716,000    (4)%

1 The starting position of fiscal 2020 reflects an adjustment made from a default RCE valuation of 0.72 RCEs to the actual RCE valuation, resulting in an adjustment of negative 24,000 RCEs to the total customer count.

 

Just Energy’s total RCE base is currently at 3.6 million. Gross RCE additions for the quarter ended June 30, 2019 were 196,000, compared to 290,000 for the first quarter of fiscal 2019, 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 73,000 for fiscal 2020, compared with a positive 24,000 net RCE additions in the first quarter of fiscal 2019.

 

Consumer RCE additions amounted to 75,000 for the quarter ended June 30, 2019, a 36% decrease from 117,000 gross RCE additions recorded in fiscal 2019, primarily driven by a greater focus on attracting and retaining strong-fit customers that will drive greater profitability, the addition of customers through the Ohio gas standard choice offer auction in the prior comparable quarter and the natural attrition in response to the pricing actions implemented in fiscal 2019. The Consumer failed to renew RCEs for the three months ended June 30, 2019 remained consistent at 30,000 RCEs. As of June 30, 2019, the U.S. and Canadian operations accounted for 80% and 20% of the Consumer RCE base, respectively.

 

17.

 

 

Commercial RCE additions were 121,000 for the three months ended June 30, 2019, a 30% decrease over the prior comparable quarter of fiscal 2019 due to competitive pressures and the natural attrition in response to the fiscal 2019 pricing actions. The Commercial failed to renew RCEs for the three months ended June 30, 2019 decreased from 114,000 RCEs to 72,000 RCEs. As of June 30, 2019, the U.S. and Canadian operations accounted for 74% and 26% of the Commercial RCE base, respectively.

 

For the three months ended June 30, 2019, 70% of the total Consumer and Commercial RCE additions were generated through commercial brokers, 15% from retail channels, 8% from online and other sales channels and 7% from door-to-door sales. In fiscal 2019, 43% of RCE additions were generated from commercial brokers, 11% from retail, 33% from online and other sales channels, and 13% from door-to-door sales.

 

Overall, as of June 30, 2019, the U.S. and Canadian operations accounted for 76% and 24% of the RCE base, respectively, consistent with the prior quarter.

 

COMMODITY RCE ATTRITION
 
  Trailing 12 months   Trailing 12 months 
  ended June 30,   ended June 30, 
   2019   2018 
Consumer   22%   23%
Commercial   7%   5%
Total attrition   14%   14%

 

18.

 

 

The combined attrition rate for Just Energy was 14% for the trailing 12 months ended June 30, 2019, consistent with the prior comparable quarter. The Consumer attrition rate decreased one percentage point to 22% while the Commercial attrition rate increased two percentage points to 7%. The decrease in 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.

 

COMMODITY RCE RENEWALS
 
  Trailing 12 months   Trailing 12 months 
  ended June 30,   ended June 30, 
   2019   2018 
Consumer   69%   73%
Commercial   54%   46%
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 trailing 12 months ended June 30, 2019, an increase of four percentage points from 55% as at June 30, 2018. The Consumer renewal rate decreased by four percentage point to 69%, and the Commercial renewal rate increased by eight percentage points to 54% as compared to the trailing 12 months ended June 30, 2018. The increase in the overall renewal rate is driven by better retention of Commercial customers.

 

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 
Remainder of fiscal 2020   19%   17%   21%   21%
Fiscal 2021   23%   32%   21%   25%
Fiscal 2022   25%   25%   22%   22%
Fiscal 2023   11%   10%   22%   20%
Beyond fiscal 2024   22%   16%   14%   12%
Total   100%   100%   100%   100%

 

Note: All month-to-month customers, who represent 759,000 RCEs, are excluded from the table above.

 

Gross margin

For the three months ended June 30

(thousands of dollars)

 

  Fiscal 2020   Fiscal 2019 
  Consumer   Commercial   Total   Consumer   Commercial   Total 
Gas  $17,073   $2,092   $19,165   $25,500   $4,938   $30,438 
Electricity   86,277    22,309    108,586    75,307    25,461    100,768 
VAPS   2,626    1,915    4,541    -      1,389    1,389 
   $105,976   $26,316   $132,292   $100,807   $31,788   $132,595 

 

20.

 

 

CONSUMER ENERGY

 

Gross margin for the three months ended June 30, 2019 for the Consumer division was $106.0 million, an increase of 5% from $100.8 million recorded in the prior comparable quarter. Gas gross margin decreased 33%, while electricity gross margin increased 15%.

 

Average realized gross margin for the Consumer division for the rolling 12 months ended June 30, 2019 was $241/RCE, an increase of 4% from $232/RCE reported in the prior comparable period. The increase is primarily attributable to the margin optimization improvements on power customers.

 

Gas

 

Gross margin from gas customers in the Consumer division was $17.1 million for the three months ended June 30, 2019, a decrease of 33% from $25.5 million recorded in the prior comparable quarter. The change is primarily a result of the decline in the customer base in North America.

 

Electricity

 

Gross margin from electricity customers in the Consumer division was $86.3 million for the three months ended June 30, 2019, an increase of 15% from $75.3 million recorded in the prior comparable quarter. The change is primarily a result of the gross margin optimization across U.S. markets as well as a favourable foreign exchange impact from the strengthening of the U.S. dollar.

 

COMMERCIAL ENERGY

 

Gross margin for the Commercial division was $26.3 million for the three months ended June 30, 2019, a decrease of 17% from $31.8 million recorded in the prior comparable quarter. Gas and electricity gross margins decreased by 58% and 12%, respectively.

 

Average realized gross margin for the rolling 12 months ended June 30, 2019 was $86/RCE, an increase of 9% from $79/RCE reported in the prior comparable period.

 

Gas

 

Gas gross margin for the Commercial division was $2.1 million, a decrease of 58% from $4.9 million recorded in the prior comparable quarter, due to gas resettlements in the first quarter of fiscal 2020.

 

Electricity

 

Electricity gross margin for the Commercial division was $22.3 million, a decrease of 12% from $25.5 million recorded in the prior comparable quarter, due to power resettlements in Texas.

 

GROSS MARGIN ON NEW AND RENEWING CUSTOMERS

 

The table below depicts the annual margins on contracts for Consumer and Commercial customers signed during the quarter. 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.

 

21.

 

 

Annual gross margin per RCE
 
  Q1 Fiscal   Number of   Q1 Fiscal   Number of 
   2020   RCEs   2019   RCEs 
Consumer customers added or renewed  $357    218,000   $229    279,000 
Consumer customers lost   309    194,000    216    150,000 
Commercial customers added or renewed1   76    182,000    81    305,000 
Commercial customers lost   80    105,000    79    169,000 

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

 

For the three months ended June 30, 2019, the average gross margin per RCE for the customers added or renewed by the Consumer segment was $357/RCE, an increase of 56% from $229/RCE in the prior comparable period. The average gross margin per RCE for the Consumer customers lost during the three months ended June 30, 2019 was $309/RCE, an increase from $216/RCE for customers lost in the prior comparable period. The increase in gross margin is attributed to the improved margin optimization.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the three months ended June 30, 2019 was $76/RCE, a decrease of 6% from $81/RCE in the prior comparable period. Customers lost through attrition and failure to renew during the three months ended June 30, 2019 were at an average gross margin of $80/RCE, an increase from $79/RCE reported in the prior comparable period. This increase is a result of competitive pricing pressures in North America.

 

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

 

VAPS contribution to continuing operations

 

VAPS PERFORMANCE

 

VAPS include the Just Energy Advanced Solutions, EdgePower Inc. and Filter Group brands. During the three months ended June 30, 2019, VAPS operations contributed $4.5 million to gross margin compared to $1.4 million in the prior comparable quarter, a 227% increase due to the addition of various VAPS businesses and ramp up in sales of existing products. Filter Group contributed $2.6 million in gross margin, 58% of the total VAPS margin added during the three months ended June 30, 2019.

 

VAPS CONTINGENT CONSIDERATION

 

As at June 30, 2019, the Company has not recognized any contingent consideration related to the Just Energy Advanced Solutions and EdgePower Inc. acquisitions. The contingent consideration relating to the potential earn-out payments over the next three years was valued at approximately $31.1 million as at June 30, 2019. The change in fair value of the contingent consideration from $29.1 million at March 31, 2019 to $31.1 million at June 30, 2019 results in a change of $2.0 million reported in other expenses, net, in the interim condensed consolidated statements of loss. As the contingent consideration does not meet the definition of equity, it is carried at fair value through profit or loss and is revalued at each reporting period.

 

22.

 

 

Overall consolidated results from continuing operations

 

ADMINISTRATIVE EXPENSES
For the three months ended June 30
(thousands of dollars)                

 

         % increase  
  Fiscal 2020   Fiscal 2019   (decrease) 
Consumer Energy  $11,235   $7,224    56%
Commercial Energy   6,151    6,683    (8)%
Corporate and shared services costs   23,417    26,024    (10)%
Total administrative expenses  $40,803   $39,931    2%

 

Administrative expenses increased by 2% from $39.9 million to $40.8 million in the three months ended June 30, 2019 as compared to fiscal 2019. The Consumer segment’s administrative expenses were $11.2 million for the three months ended June 30, 2019, an increase from $7.2 million recorded in fiscal 2019. The Commercial segment’s administrative expenses were $6.2 million for fiscal 2020, a decrease from fiscal 2019 of 8%. The increase in Consumer administrative expenses over the prior comparable quarter was attributable to the upfront costs relating to process and operational efficiency improvement activities, ongoing support for business expansion including Filter Group and unfavourable foreign exchange fluctuations offset by a reduction in employee expenses. The reduction in Commercial administrative expenses and corporate administrative expenses are due to cost savings realized from the restructuring actions in fiscal 2019.

 

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

 

SELLING AND MARKETING EXPENSES
For the three months ended June 30
(thousands of dollars)                

 

  Fiscal 2020   Fiscal 2019   % increase 
Consumer Energy  $41,800   $26,923    55%
Commercial Energy   19,904    15,042    32%
Total selling and marketing expenses  $61,704   $41,965    47%

 

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 $61.7 million, an increase of 47% from $42.0 million recorded in the prior comparable quarter as a result of the increased commission costs to acquire new customers, ramp up of the amortization of previously capitalized acquisition costs and higher marketing charges in different channels, offset by capitalization of new upfront incremental customer acquisition costs.

 

The selling and marketing expenses for the Consumer segment were $41.8 million for the three months ended June 30, 2019, a 55% increase from 26.9 recorded in fiscal 2019 due to higher customer acquisition costs.

 

The selling and marketing expenses for the Commercial segment increased 32% to $19.9 million from the prior year resulting from increased commission costs to acquire new customers and offset by capitalization of certain upfront incremental customer acquisition costs in accordance with IFRS 15, Revenue from Contracts with Customers.

 

23.

 

 

The acquisition 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 2020  Fiscal 2019
Consumer  $277/RCE  $199/RCE
Commercial  $54/RCE  $42/RCE

 

The average acquisition cost for the Consumer segment was $277/RCE for the three months ended June 30, 2019, an increase of 39% from the $199/RCE reported in the fiscal 2019, primarily related to the increased commission costs to acquire new customers, ramp up of the previously capitalized acquisition costs and unfavourable foreign exchange fluctuations.

 

The $54/RCE average acquisition cost for Commercial RCE was 29% higher than the prior comparable period due to increased commission costs. As at June 30, 2018, the average aggregation cost for commercial brokers was $42/RCE.

 

BAD DEBT EXPENSE

 

In Alberta, Texas, Illinois, California, Delaware, Ohio and Georgia, 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 interim condensed consolidated statement of loss under other operating expenses. Bad debt expense was $17.3 million for the three months ended June 30, 2019, an increase of 3% from $16.7 million recorded for fiscal 2019, attributable to the non-recurring Texas residential enrolment and collections impairment, partially offset by the decrease of revenues. For the three months ended June 30, 2019, the bad debt expense represents 5.1% of relevant revenue, up from 3.1% reported in fiscal 2019. The significant increase in the rate for the first quarter of fiscal 2020 is attributable to the non-recurring Texas residential enrolment and collections impairment.

 

24.

 

 

FINANCE COSTS

 

Total finance costs for the three months ended June 30, 2019 amounted to $23.5 million, an increase of 44% from $16.3 million recorded during fiscal 2019. The increase in finance costs was primarily driven by the premium and fees associated with the 8.75% loan, 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 the U.S. dollar 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 three months ended June 30, 2019, an unrealized foreign exchange loss of $2.3 million was reported in other comprehensive income, versus an unrealized gain of $3.8 million reported in fiscal 2019. 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 $0.7 million increase on Base EBITDA for the three months ended June 30, 2019.

 

Just Energy retains operating funds in its foreign subsidiaries to support ongoing operations; surplus cash is deployed in Canada, and hedges for cross border cash flow are placed. Just Energy hedges between 50% and 100% of the next 12 months of cross border cash flows depending on the level of certainty of the cash flow.

 

PROVISION FOR INCOME TAX
For the three months ended June 30          
(thousands of dollars)          

 

  Fiscal 2020   Fiscal 2019 
Current income tax expense (recovery)  $462   $(1,257)
Deferred income tax expense (recovery)   (2,756)   5,940 
Provision for income tax  $(2,294)  $4,683 

 

Current income tax expense of $0.5 million for the three months ended June 30, 2019, versus a $1.3 million recovery in the prior comparable period is the result of not being able to carryback current year losses arising from the increased operating expenses and financing costs. The prior comparable period reported a tax recovery as a result of the carryback opportunity available.

 

During the three months ended June 30, 2019, a deferred tax recovery of $2.8 million was recorded as compared to a deferred tax expense of $5.9 million in the prior comparable quarter. The year over year variance is primarily attributable to movement in derivative financial instruments as well as the carryforward of current period tax losses to future periods.

 

 

25.

 

  

Liquidity and capital resources from continuing operations      
           
SUMMARY OF CASH FLOWS          
For the three months ended June 30          
(thousands of dollars)          

 

  Fiscal 2020   Fiscal 2019 
Operating activities from continuing operations  $(14,049)  $(12,546)
Investing activities from continuing operations   (21,984)   (9,855)
Financing activities from continuing operations, excluding dividends   50,852    39,150 
Effect of foreign currency translation   (168)   (1,277)
Increase in cash before dividends   

14,651

    15,472 
Dividends (cash payments)   (22,047)   (22,249)
Decrease in cash   (7,396)   (6,777)
Cash and cash equivalents – beginning of period   9,927    48,861 
Cash and cash equivalents – end of period  $

2,531

   $42,084 

 

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

 

Cash flow from continuing operating activities for the three months ended June 30, 2019 was an outflow of $14.0 million, compared to an outflow of $12.5 million in the prior comparable quarter. Cash flow from operations was lower in the current period due to the seasonality of payments relating to the commodity business moving from winter to spring, the impact of the Texas residential and enrolment impairment, the payments related to the Filter Group acquisition, and the payments made upfront for process and operational efficiency improvement activities, partially offset by cost savings realized from the restructuring actions in fiscal 2019.

 

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

 

Investing activities for the three months ended June 30, 2019 included purchases of capital and intangible assets totalling $0.5 million and $9.4 million, respectively, compared with $1.9 million and $7.9 million, respectively, in fiscal 2019. Just Energy’s capital spending related primarily to information technology-related purchases for process improvement initiatives.

 

26.

 

 

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

 

Financing activities, excluding dividends, relate primarily to the issuance and repayment of long-term financing. During the three months ended June 30, 2019, Just Energy withdrew an additional $54.2 million on the credit facility. This inflow was offset by the repayment of $1.6 million of the Filter Group financing. As part of the initial adoption of IFRS 16, there were also lease payments made of $1.5 million during the three months ended June 30, 2019.

 

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 three months ended June 30, 2019, Just Energy paid cash dividends to its shareholders and distributions to holders of share-based awards in the amount of $22.1 million, compared to $22.3 million paid in the prior comparable quarter.

 

Just Energy’s annual dividend rate for the trailing 12 months is $0.50 per common share paid quarterly. Dividends are not guaranteed and are subject to Board approval each quarter. As part of the strategic review the Board of Directors has decided to suspend its common share dividend until further notice.

 

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 June 30, 2019 was US$0.53125 per preferred share.

 

Balance sheet as at June 30, 2019, compared to March 31, 2019

 

Total cash decreased from $9.9 million as at March 31, 2019 to net $0.4 million negative as at June 30, 2019. The decrease in cash is primarily attributable to the seasonality of the payments relating to the commodity business moving from winter to spring, the impact of the Texas Residential enrolment and collections impairment and the payments related to the Filter Group acquisition.

 

As of June 30, 2019, trade receivables and unbilled revenue amounted to $304.2 million and $152.8 million, respectively, compared to March 31, 2019, when the trade receivables and unbilled revenue amounted to $395.1 million and $277.6 million, respectively. Trade payables and other decreased from 714.1 million to $527.6 million during the quarter as a result of the classification of the U.K. operations to discontinued operations; $190.4 million related to the U.K. as at March 31, 2019.

 

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 $4.5 million and $3.3 million, respectively, as of June 30, 2019. These amounts changed from $3.1 million and $43.2 million, respectively, as of March 31, 2019. As at June 30, 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 $6.3 million and $10.4 million, respectively, down from $13.6 million and $12.9 million, respectively, as of March 31, 2019. These changes represent the normal seasonality of gas storage. Other current assets decreased from $169.2 million at March 31, 2019 to $127.6 million as of June 30, 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. Give