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 February 2020

 

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 December 31, 2019 and 2018.
   
99.2 Management’s Discussion and Analysis for the three months ended December 31, 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: February 10, 2020 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)

 

 

 
 
 
 
 
 
 
 
Notes
 
 
 
  As at
Dec. 31, 2019
(Unaudited)
   
 
 
  As at
March 31, 2019
(Audited)
 
ASSETS             
Current assets             
Cash and cash equivalents     $17,988   $9,927 
Restricted cash      4,237    4,048 
Trade and other receivables  6   404,124    672,615 
Gas in storage      21,546    2,943 
Fair value of derivative financial assets  8   94,509    144,512 
Income taxes recoverable      13,160    18,973 
Other current assets  7(a)   140,923    169,240 
       696,487    1,022,258 
Non-current assets             
Investments      36,785    36,897 
Property and equipment, net      31,215    25,862 
Intangible assets, net      444,426    472,656 
Fair value of derivative financial assets  8   26,854    9,255 
Deferred income tax assets      3,444    1,093 
Other non-current assets  7(b)   48,276    49,512 
       591,000    595,275 
Assets classified as held for sale  11   9,687    8,971 
       600,687    604,246 
TOTAL ASSETS     $1,297,174   $1,626,504 
              
LIABILITIES             
Current liabilities             
Trade and other payables  9  $523,650   $714,110 
Deferred revenue  10   11,563    43,228 
Income taxes payable      3,675    11,895 
Fair value of derivative financial liabilities  8   105,406    79,387 
Provisions  14   1,377    7,205 
Current portion of long-term debt  12   274,182    37,429 
       919,853    893,254 
Non-current liabilities             
Long-term debt  12   500,418    687,943 
Fair value of derivative financial liabilities  8   94,325    63,658 
Deferred income tax liabilities      2,721    4,124 
Other non-current liabilities      39,308    61,339 
       636,772    817,064 
Liabilities classified as held for sale  11   3,330    5,200 
       640,102    822,264 
TOTAL LIABILITIES      1,559,955    1,715,518 
SHAREHOLDERS’ DEFICIT             
Shareholders’ capital  16   1,246,220    1,235,503 
Equity component of convertible debentures      13,029    13,029 
Contributed deficit      (30,819)   (25,540)
Accumulated deficit      (1,581,771)   (1,390,700)
Accumulated other comprehensive income      90,948    79,093 
Non-controlling interest      (388)   (399)
TOTAL SHAREHOLDERS’ DEFICIT      (262,781)   (89,014)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT     $1,297,174   $1,626,504 

             
Basis of presentation (Note 3b)            
Commitments and guarantees (Note 22)            
             
See accompanying notes to the interim condensed consolidated financial statements      
             
Rebecca MacDonald     H. Clark Hollands      
Executive Chair     Corporate Director      
             

 

1.

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 
 
 
 
 

Notes
 
 
  Three months
ended
Dec. 31,2019
   
 
  Three months
ended
Dec. 31,2018
   
 
  Nine months
ended
Dec. 31,2019
   
 
  Nine months
ended
Dec. 31,2018
 
                
Sales  17  $658,521   $734,205   $2,097,126   $2,241,029 
Cost of sales      516,037    569,744    1,666,966    1,794,952 
GROSS MARGIN      142,484    164,461    430,160    446,077 
EXPENSES                       
Administrative      39,616    41,921    121,885    126,330 
Selling and marketing      51,270    51,706    167,253    144,098 
Other operating expenses  18(a)   28,878    60,993    104,485    111,711 
Restructuring costs      -    2,746    -    5,982 
       119,764    157,366    393,623    388,121 
Operating profit before the following      22,720    7,095    36,537    57,956 
Finance costs  12   (28,178)   (22,762)   (80,175)   (59,198)
Change in fair value of derivative instruments and other  8   36,990    62,890    (139,547)   (67,979)
Other income, net  13   1,649    (2,963)   29,735    (291)
Profit (loss) before income taxes      33,181    44,260    (153,450)   (69,512)
Provision for income taxes  15   3,845    1,689    3,604    6,280 
Profit (loss) from continuing operations     $29,336   $42,571   $(157,054)  $(75,792)
Discontinued operations                       
Profit (loss) after income taxes for the year from discontinued operations  11   6,293    (90,156)   (8,705)   (34,666)
Profit (loss) for the period     $35,629   $(47,585)  $(165,759)  $(110,458)
Attributable to:                       
Shareholders of Just Energy     $35,642   $(47,551)  $(165,712)  $(110,313)
Non-controlling interest      (13)   (34)   (47)   (145)
PROFIT (LOSS) FOR THE PERIOD     $35,629   $(47,585)  $(165,759)  $(110,458)
                        
Earnings (loss) per share from continuing operations  19                    
Basic     $0.18   $0.27   $(1.09)  $(0.55)
Diluted     $0.16   $0.25   $(1.09)  $(0.55)
Earnings (loss) per share from discontinued operations  11                    
Basic     $0.04   $(0.60)  $(0.06)  $(0.23)
Diluted     $0.04   $(0.60)  $(0.06)  $(0.23)
Earnings (loss) per share available to shareholders  19                    
Basic     $0.22   $(0.33)  $(1.15)  $(0.78)
Diluted     $0.20   $(0.33)  $(1.15)  $(0.78)

 

See accompanying notes to the interim condensed consolidated financial statements

 

 

2.

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited in thousands of Canadian dollars)

 

 

 
 
 

 
 

Notes
 

 
  Three months
ended
Dec. 31, 2019
 
  Three months
ended
Dec. 31, 2018
   

 
  Nine months
ended
Dec. 31, 2019
   
 
  Nine months
ended
Dec. 31, 2018
 
PROFIT (LOSS) FOR THE PERIOD     $35,629   $(47,585)  $(165,759)  $(110,458)
                        
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:                       
Unrealized gain (loss) on translation of foreign operations      (6,258)   18,205    245    13,592 
Gain on translation of foreign operations disposed and reclassified to statement of income (loss)  11   11,610    -    11,610    - 
Other comprehensive income for the period      5,352    18,205    11,855    13,592 
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX     $40,981   $(29,380)  $(153,904)  $(96,866)
                        
Total comprehensive income (loss) attributable to:                       
Shareholders of Just Energy     $40,994   $(29,346)  $(153,857)  $(96,721)
Non-controlling interest      (13)   (34)   (47)   (145)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX     $40,981   $(29,380)  $(153,904)  $(96,866)

 

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)

(unaudited in thousands of Canadian dollars)

 

 

      Three months   Three months   Nine months   Nine months 
      ended   ended   ended   ended 
      Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   Notes  2019   2018   2019   2018 
ATTRIBUTABLE TO THE SHAREHOLDERS                       
Accumulated earnings                       
Accumulated earnings, beginning of period     $331,754   $712,588   $533,108   $754,639 
Adjustment for adoption of recent accounting pronouncements      -    -    -    20,711 
Profit (loss) for the period, attributable to shareholders      35,642    (47,551)   (165,712)   (110,313)
Accumulated earnings, end of period      367,396    665,037    367,396    665,037 
                        
DIVIDENDS AND DISTRIBUTIONS                       
Dividends and distributions, beginning of period      (1,949,167)   (1,880,370)   (1,923,808)   (1,835,778)
Dividends and distributions declared and paid  21   -    (21,434)   (25,359)   (66,026)
Dividends and distributions, end of period      (1,949,167)   (1,901,804)   (1,949,167)   (1,901,804)
ACCUMULATED DEFICIT     $(1,581,771)  $(1,236,767)  $(1,581,771)  $(1,236,767)
                        
ACCUMULATED OTHER COMPREHENSIVE INCOME                       
Accumulated other comprehensive income, beginning of period     $85,596   $69,458   $79,093   $91,934 
Adjustment for adoption of recent accounting pronouncements  4   -    -    -    (17,863)
Other comprehensive income      5,352    18,205    11,855    13,592 
Accumulated other comprehensive income, end of period     $90,948   $87,663   $90,948   $87,663 
                        
SHAREHOLDERS’ CAPITAL  16                    
Common shares                       
Common shares, beginning of period     $1,098,569   $1,085,991   $1,088,538   $1,079,055 
Share-based units exercised      686    1,535    10,717    8,471 
Common shares, end of period     $1,099,255   $1,087,526   $1,099,255   $1,087,526 
                        
Preferred shares                       
Preferred shares, beginning of period     $146,965   $146,984   $146,965   $136,771 
Shares issued  16   -    -    -    10,447 
Shares issuance costs      -    (19)   -    (253)
Preferred shares, end of period     $146,965   $146,965   $146,965   $146,965 
SHAREHOLDERS’ CAPITAL     $1,246,220   $1,234,491   $1,246,220   $1,234,491 
                        
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES                       
Balance, beginning of period     $13,029   $13,029   $13,029   $13,029 
Balance, end of period     $13,029   $13,029   $13,029   $13,029 
                        
CONTRIBUTED DEFICIT                       
Balance, beginning of period     $(31,798)  $(25,186)  $(25,540)  $(22,693)
Add: Share-based compensation expense  18(a)   1,683    1,379    10,469    4,495 
Discontinued operations      -    58    254    211 
Purchase of non-controlling interest      -    77    -    1,493 
Less: Share-based units exercised      (686)   (1,535)   (10,717)   (8,471)
Share-based compensation adjustment      (18)   (807)   (3,470)   (1,080)
Non-cash deferred share grant distributions      -    20    (1,815)   51 
Balance, end of period     $(30,819)  $(25,994)  $(30,819)  $(25,994)
                        
NON-CONTROLLING INTEREST                       
Balance, beginning of period     $(384)  $(399)  $(399)  $(422)
Foreign exchange impact on non-controlling interest      9    18    58    152 
Loss attributable to non-controlling interest      (13)   (34)   (47)   (145)
Balance, end of period     $(388)  $(415)  $(388)  $(415)
TOTAL SHAREHOLDERS’ DEFICIT     $(262,781)  $72,007   $(262,781)  $72,007 

 

See accompanying notes to the interim condensed consolidated financial statements

 

4.

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited in thousands of Canadian dollars)

 

 

      Three months   Three months   Nine months   Nine months 
      ended   ended   ended   ended 
      Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
Net inflow (outflow) of cash related to the following activities  Notes  2019   2018   2019   2018 
OPERATING                       
Profit (loss) before income taxes - from continuing operations     $33,181   $44,260   $(153,450)  $(69,512)
Profit (loss) before income taxes - from discontinued operations      6,579    (100,933)   (8,455)   (35,661)
Profit (loss) before income taxes      39,760    (56,673)   (161,905)   (105,173)
                        
Items not affecting cash                       
 Amortization of intangible assets  18(a)   4,953    7,174    19,414    16,158 
 Depreciation of property and equipment  18(a)   2,246    1,087    7,749    2,782 
 Amortization included in cost of sales      527    591    1,654    2,103 
 Share-based compensation  18(a)   1,683    1,379    10,469    4,495 
 Financing charges, non-cash portion      5,008    4,393    16,138    13,838 
 Other, net      (28)   (28)   (83)   (83)
 Gain on sale of subsidiaries      (45,138)   -    (45,138)   - 
 Change in fair value of derivative instruments  8   (36,990)   (62,890)   139,547    67,979 
 Adjustment required to reflect net cash receipts from gas sales      (1,259)   (1,236)   7,033    8,470 
 Net change in working capital balances      (61,062)   62,365    27,273    (54,357)
 Adjustment for discontinued operations      28,957    64,061    (4,649)   (6,890)
 Income taxes paid      (1,905)   (3,086)   (9,367)   (11,692)
Cash inflow (outflow) from operating activities      (63,248)   17,137    8,135    (62,370)
                        
INVESTING                       
 Purchase of property and equipment      (182)   (1,548)   (806)   (4,107)
 Purchase of intangible assets      (2,734)   (13,716)   (11,918)   (32,579)
 Payments for previously acquired business      -    (3,000)   (12,013)   (3,000)
 Proceeds from disposition of subsidiaries      7,672    -    7,672    - 
Cash inflow (outflow) from investing activities      4,756    (18,264)   (17,065)   (39,686)
                        
FINANCING                       
 Dividends paid      -    (21,414)   (25,335)   (65,975)
 Repayment of long-term debt  12   (3,825)   (2,222)   (6,027)   (61,795)
 Issuance of long-term debt  12   -    -    -    119,662 
 Share swap payout      -    -    -    (10,000)
 Leased asset payments      (1,471)   -    (4,460)   - 
 Debt issuance costs  12   (1,820)   (3,575)   (1,737)   (6,229)
 Credit facilities withdrawal  12   53,555    18,985    54,794    76,265 
 Issuance of preferred shares      -    -    -    10,447 
 Preferred shares issuance costs      -    (18)   -    (352)
Cash inflow (outflow) from financing activities      46,439    (8,244)   17,235    62,023 
                        
Effect of foreign currency translation on cash balances      (40)   1,046    (244)   72 
                        
Net cash inflow (outflow)      (12,093)   (8,325)   8,061    (39,961)
Cash and cash equivalents, beginning of period      30,081    17,225    9,927    48,861 
                        
Cash and cash equivalents, end of period     $17,988   $8,900   $17,988   $8,900 
                        
Supplemental cash flow information:                       
Interest paid     $12,774   $12,428   $54,480   $38,873 

 

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 nine months ended December 31, 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 February 7, 2020.

 

2.OPERATIONS

 

Just Energy is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and renewable energy options to customers. Currently operating in the United States (“U.S.”) and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, EdgePower Inc. (“EdgePower”), 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, 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 standalone 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 an approximate 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 Strategic Review. The decision was part of a strategic transition to focus on the core business in North America. The U.K. and Ireland businesses were disposed of during the three months ended December 31, 2019 as described in Note 11. The disposal of operations in Japan and Germany is expected to be completed within the next 12 months. At December 31, 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 nine months ended December 31, 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 Standards (“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 new International Financial Reporting Standards (“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

 

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 fiscal 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.

 

Certain figures in the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the current period’s consolidated financial statements.

 

As described further in Note 12, the Company has a $370 million credit facility with a syndicate of lenders and a US$250 million non-revolving multi draw senior unsecured term loan facility from another lender, maturing on September 1, 2020 and September 12, 2023 respectively. The facility maturing on September 1, 2020 has been classified in the Interim Financial Statements as a current liability and contributes to the net current liability position at December 31, 2019. At December 31, 2019, the Company was compliant with the requirements of its senior debt to EBITDA ratio covenant as a result of an amendment that provided, among other things, a temporary increase of the ratio from its lenders.

 

The Company’s business is affected by seasonality. As a result, in certain periods the Company forecasts cash shortfalls that require additional financing through support from suppliers and, in certain circumstances, actions to liquidate certain assets.

 

The Company’s ability to continue as a going concern for the next 12 months is dependent on the continued availability of its credit facilities, the Company’s ability to obtain waivers from its lenders for potential instances of non-compliance with covenants, if necessary, the ability to secure additional sources of financing, if necessary, the liquidation of available investments, and the continued support of the Company’s lenders and suppliers. These conditions indicate the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern and, accordingly, the ultimate appropriateness of the use of accounting principles applicable to a going concern.

 

The Company is actively negotiating the terms of its existing credit facility and anticipates a renewal in advance of the credit facility maturity. The Company will continue to pursue opportunities to improve the profitability of its core businesses, if necessary, secure additional funds through financing, continued support of key lenders and suppliers and, if necessary, the sale of businesses and/or investments. There can be no assurance that the Company will be successful in these initiatives that, lenders will provide further financing, relief for covenants or that the Company can refinance or repay credit facilities from new sources of financing.

 

These consolidated financial statements do not reflect the adjustments to carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the going concern assumption was deemed inappropriate. These adjustments could be material.

 

7.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

(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 December 31, 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.

 

(d)Significant estimates

 

Allowance for doubtful accounts

 

The measurement of the expected credit loss allowance for accounts receivable requires the use of management’s judgment in estimation techniques, building models, selecting key inputs and making significant assumptions about future economic conditions and credit behaviour of the customers, including the likelihood of customers defaulting and the resulting losses. The Company’s current significant estimates include the historical collection rates as a percentage of revenue and the use of the Company’s historical rates of recovery across aging buckets. Both of these inputs are sensitive to the number of months or years of history included in the analysis, which is a key input and judgment made by management.

 

4.ACCOUNTING POLICIES AND NEW STANDARDS ADOPTED

 

IFRS 16

 

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 policies

 

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

 

8.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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


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:
oThe Company has the right to operate the asset; or
oThe 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 standalone 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.


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.

9.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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


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 non-current liabilities” in the interim condensed 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.

 

The application of IFRS 16 requires significant judgments 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 standalone selling price of lease and non-lease components.

 

10.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

Key sources of estimation uncertainty in the application of IFRS 16 include 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 interim condensed consolidated statements of income (loss) and interim condensed 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.

 

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 

 

11.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

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 the property and equipment caption on the unaudited interim 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 at April 1, 2019. There was no effect to the Interim 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 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, Financial Instruments, (“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 (“FVTPL”) but physically settled by the underlying non-financial item. The IFRIC concluded that IFRS 9 neither permits nor requires an entity to reverse the accumulated gain or loss previously recognized on the derivative and recognize a corresponding adjustment to cost of goods sold or inventory when the contract is physically settled.

 

In its December 2018 meeting, the IASB confirmed its view that it expects companies to be entitled to sufficient time to implement changes in accounting policies that result from agenda decisions of the IFRIC. The Company is currently evaluating the impact of implementing the agenda decision on its Interim 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 effect the accounting change in time for its December 31, 2019 report. The Company expects to implement the change retrospectively in the 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 interim condensed consolidated statement of loss and the value of gas in storage on the interim condensed consolidated statement of financial position. There is no material impact expected to the net income of the Company.

 

12.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

6.TRADE AND OTHER RECEIVABLES

 

 
 
 
 
  As at
Dec. 31, 2019
   
 
  As at
March 31, 2019
 
Trade accounts receivable, net  $211,908   $365,008 
Accrued gas receivables   5,094    13,637 
Unbilled revenues, net   151,595    277,556 
Other   35,527    16,414 
   $404,124   $672,615 

 

7.OTHER CURRENT AND NON-CURRENT ASSETS

 

(a)

 
Other current assets
 
 
  As at
Dec. 31, 2019
   
 
  As at
March 31, 2019
 
Prepaid expenses and deposits  $21,282   $45,709 
Customer acquisition costs   81,251    75,707 
Green certificates   27,169    39,749 
Gas delivered in excess of consumption   6,879    3,121 
Inventory   4,342    4,954 
   $140,923   $169,240 

 

(b)

 
Other non-current assets
 
 
  As at
Dec. 31, 2019
   
 
  As at
March 31, 2019
 
Customer acquisition costs  $39,284   $46,416 
Income taxes recoverable   1,122    3,096 
Other long-term assets   7,870    - 
   $48,276   $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 (“CDDs”) and heating degree days (‘HDDs”) 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.

13.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 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 income (loss).

 

 
 
 
 
 
 
 
 
  Three months
ended
Dec. 31,
2019
   
 
 
 
  Three months
ended
Dec. 31,
2018
   
 
 
 
  Nine months
ended
Dec. 31,
2019
   
 
 
 
  Nine months
ended
Dec. 31,
2018
 
Change in fair value of derivative instruments and other                    
                     
Physical forward contracts and options (i)  $20,651   $50,416   $(108,787)  $(77,168)
Financial swap contracts and options (ii)   3,320    9,160    (39,994)   47,206 
Foreign exchange forward contracts   (1,804)   3,842    (106)   4,710 
Share swap   2,188    3,073    (4,839)   (2,488)
Unrealized foreign exchange on 6.5% convertible bond and 8.75% loan   5,554    (15,487)   8,029    (15,700)
6.5% convertible bond conversion feature   -    -    -    247 
Weather derivatives (iii)   6,576    (4,224)   (4,362)   (34,405)
Other derivative options   505    16,110    10,512    9,619 
Change in fair value of derivative instruments and other  $36,990   $62,890   $(139,547)  $(67,979)

 

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 December 31, 2019:

 

     Financial assets (current)      Financial assets (non-current)      Financial liabilities (current)       Financial liabilities (non-current)  
             
Physical forward contracts and options (i)  $63,669   $14,412   $41,192   $76,709 
Financial swap contracts and options (ii)   13,817    5,449    46,387    16,885 
Foreign exchange forward contracts   -    -    897    709 
Share swap   -    -    16,745    - 
Weather derivatives (iii)   7,703    -    -    - 
Other derivative options   9,320    6,993    185    22 
As at December 31, 2019  $94,509   $26,854   $105,406   $94,325 

 

14.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 December 31, 2019, to which Just Energy has committed:

 

(i) Physical forward contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 35,005,232 MWh, a weighted average price of $46.68/MWh and expiry dates up to December 31, 2029.
·Natural gas contracts with a total remaining volume of 82,319,260 GJs, a weighted average price of $2.40/GJ and expiry dates up to October 31, 2025.
·Renewable energy certificates (“RECs”) with a total remaining volume of 3,552,872 MWh, a weighted average price of $35.13/REC and expiry dates up to December 31, 2028.
·Electricity generation capacity contracts with a total remaining volume of 3,173 MWCap, a weighted average price of $5,465.16/MWCap and expiry dates up to May 31, 2023.
·Ancillary contracts with a total remaining volume of 790,560 MWh, a weighted average price of $22.78/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 12,376,822 MWh, an average price of $44.99/MWh and expiry dates up to December 31, 2024.
·Natural gas contracts with a total remaining volume of 125,146,919 GJs, an average price of $3.21/GJ and expiry dates up to October 31, 2025.
·Electricity generation capacity contracts with a total remaining volume of 30 MWCap, a weighted average price of $334,214.75/MWCap and expiry dates up to October 31, 2020.
·Ancillary contracts with a total remaining volume of 1,082,880 MWh, a weighted average price of $21.60/MWh and expiry dates up to December 31, 2020.

 

(iii) Weather derivatives consist of:

 

·Weather swaps and put options for HDDs with temperature strikes at historical averages, total tick size of $13,500 per HDD and an expiry date of March 31, 2020.
·HDD natural gas swaps with price strikes ranging from US$1.38 to US$7.56/MmBTU and temperature strikes ranging by location from 1,043 to 5,059 HDD and an expiry date of March 31, 2020.
·HDD natural gas swaps with price strikes ranging from US$1.75 to US$7.35/MmBTU and temperature strikes ranging by location from 1,051 to 5,059 HDD and an expiry date of March 31, 2021.
·HDD natural gas swaps with price strikes to be set on futures index and temperature strikes ranging by location from 1,051 to 5,059 HDD and an expiry date of March 31, 2022.
·HDD collar options with HDD strikes set at 0.8 to 1.32-degree day wide, total tick size of $15,900 per HDD and an expiry date of March 31, 2020.
·Electricity call options with price strikes of $100/MWh, temperature strikes ranging from 15 to 33 degrees Fahrenheit depending on location and an expiry date of March 31, 2020.

 

15.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

Share swap agreement

 

Just Energy has entered into a share swap agreement to manage the interim condensed consolidated statements of income (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 (loss). Just Energy records the fair value of the share swap agreement in the 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 income (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.

 

16.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 agreement, 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 December 31, 2019:

 

   Level 1  Level 2  Level 3  Total
Derivative financial assets  $-   $-   $121,363   $121,363 
Derivative financial liabilities   -    (36,846)   (162,885)   (199,731)
Total net derivative assets (liabilities)  $-   $(36,846)  $(41,522)  $(78,368)

 

17.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

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 December 31, 2019 would have increased (decreased) by $195,769 ($194,724), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

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:

 

 
 
 
 
  Nine months ended
December 31, 2019
   
 
  Year ended
March 31, 2019
 
Balance, beginning of period  $17,310   $166,364 
Total gains   29,870    19,644 
Purchases   (6,293)   11,502 
Sales   (2,371)   (25,575)
Settlements   (80,038)   (154,625)
Balance, end of period  $(41,522)  $17,310 

 

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

 

As at December 31, 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 December 31, 2019 of $776.4 million (March 31, 2019 - $740.6 million) and the interest payable on outstanding amounts is at rates that vary with bankers’ acceptances, London Interbank Offering Rate (“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.

 

18.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

Investments in equity instruments have a fair value as at December 31, 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 December 31, 2019:

 

   Level 1  Level 2  Level 3  Total
Investment in ecobee  $-   $-   $32,889   $32,889 
Investment in Energy Earth   -    3,896    -    3,896 
Total investments  $-   $3,896   $32,889   $36,785 

 

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 December 31, 2019, assuming that all the other variables had remained constant, loss for the nine months ended December 31, 2019 would have been $3.6 million lower/higher and other comprehensive income (loss) would have been $5.3 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.

19.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

A 1% increase (decrease) in interest rates would have resulted in an increase (decrease) of approximately $606 in profit (loss) before income taxes for the three months ended December 31, 2019 (December 31, 2018 - $630).

 

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. 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.

 

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, profit (loss) before income taxes for the three months ended December 31, 2019 would have increased (decreased) by $188,365 ($187,378), 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 (gas), California and Ohio (electricity), 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.

 

20.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

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

 

     As at      March 31, 2019  
     Dec. 31, 2019      (Restated)  
       
Current  $77,390   $117,095 
1–30 days   21,536    61,840 
31–60 days   6,737    34,772 
61–90 days   8,527    25,268 
Over 90 days   52,753    122,345 
   $166,943   $361,320 

 

The March 31, 2019 aging of accounts receivable from the markets described in the table above was increased by $62,617 to present certain customer accounts receivable gross of trade receivables that were in a credit position at March 31, 2019 (presented as deferred revenue in the consolidated balance sheet), primarily in the U.K. market. The difference was an increase of $203, $19,278, $12,454, $8,916 and $21,764 to the current, 1-30, 31-60, 61-90 and 90+ categories of the March 31, 2019 aging schedule, respectively. There was no change to the consolidated balance sheet at March 31, 2019.

 

Changes in the expected lifetime credit loss were as follows:

 

   As at   As at 
   Dec. 31, 2019   March 31, 2019 
         
Balance, beginning of period  $182,365   $60,121 
Provision for doubtful accounts   66,853    192,202 
Bad debts written off   (95,536)   (90,231)
Adjustment from IFRS 9 adoption   -    23,636 
Foreign exchange   1,619    (3,363)
Assets classified as held for sale/sold   (81,193)   - 
Balance, end of period  $74,108   $182,365 
           
           
Allowance for doubtful accounts on accounts receivable  $70,430   $168,728 
Allowance for doubtful accounts on unbilled revenue   3,678    13,637 
Total allowance for doubtful accounts  $74,108   $182,365 

 

In the remaining markets, the local distribution companies (“LDCs”) provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee that is recorded in cost of sales. 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.

 

21.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

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 December 31, 2019, the estimated counterparty credit risk exposure amounted to $121,363 (December 31, 2018 - $249,321), 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.

 

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

 

As at December 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  $523,650   $523,650   $523,650   $-   $-   $- 
Long-term debt1   774,600    802,807    275,919    163,650    363,238    - 
Gas, electricity and non-commodity contracts   199,731    2,984,880    406,644    1,918,497    486,002    173,737 
   $1,497,981   $4,311,337   $1,206,213   $2,082,147   $849,240   $173,737 

 

As at March 31, 2019:

 

 
 
 
 
  Carrying
amount
   
 
  Contractual
cash flows
   
 
  Less than
1 year
   
 
 
1–3 years    
 
 
4–5 years    
 
  More than
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 and 6.5% convertible bonds, which may be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.

 

22.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

In addition to the amounts noted above, as at December 31, 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  $42,162   $68,787   $35,297   $7 

 

(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 fulfill their contractual obligations. As at December 31, 2019, Just Energy has applied an adjustment factor to determine the fair value of its financial instruments in the amount of $11,409 (December 31, 2018 - $10,183) to accommodate for its counterparties’ risk of default.

 

9.TRADE AND OTHER PAYABLES

 

 
 
 
 
  As at
Dec. 31, 2019
   
 
  As at
March 31, 2019
 
Commodity suppliers' payables  $275,653   $329,760 
Accrued liabilities   62,407    112,039 
Green provisions   71,205    151,992 
Sales tax payable   17,935    22,969 
Trade accounts payable   43,165    44,051 
Payable for former joint venture partner   16,451    22,625 
Accrued gas payable   7,558    12,937 
Other payables   29,276    17,737 
   $523,650   $714,110 

 

10.DEFERRED REVENUE

 


 
 
 
 

Nine months ended

Dec. 31, 2019

   
 
  Year ended
March 31, 2019
 
Balance, beginning of period  $43,228   $38,710 
Additions to deferred revenue   17,414    569,880 
Revenue recognized during the period   (9,850)   (563,922)
Foreign exchange impact   272    (1,440)
Liabilities classified as held for sale/sold   (39,501)   - 
Balance, end of period  $11,563   $43,228 

 

23.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

11.DISCONTINUED OPERATIONS

 

(a)Discontinued operation results

 

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. On November 29, 2019, Just Energy closed its previously announced sale of Hudson U.K. to Shell Energy Retail Limited. As at December 31, 2019, these operations were classified as a disposal group held for sale and as discontinued operations. In the past, these operations were reported under the Consumer segment while a portion of the U.K. was allocated to the Commercial segment. Just Energy’s results for the prior fiscal period reported throughout the interim condensed consolidated financial statements have been adjusted to reflect continuing operation results and figures with respect to these discontinued operations. The tax impact on the discontinued operations is minimal.

 

The results of the discontinued operations are presented below for the three and nine months ended December 31, for UK the results are a period of two and eight months up to the disposal of operations as of November 29, 2019:

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2018   2019   2018 
Sales  $122,439   $232,448   $423,637   $558,924 
Cost of sales   124,206    208,396    394,914    489,617 
Gross margin   (1,767)   24,052    28,723    69,307 
Expenses                    
Administrative, selling and operating expenses   22,196    60,650    86,627    111,028 
Gain on disposal of the U.K. and Ireland operations   (45,138)   -    (45,138)   - 
Operating profit (loss)   21,175    (36,598)   (12,766)   (41,721)
Finance costs   (97)   -    (2,146)   (27)
Change in fair value of derivative instruments and other   (13,397)   (64,405)   6,914    5,976 
Other income (loss)   (1,102)   70    (457)   111 
Profit (loss) from discontinued operations before the undernoted   6,579    (100,933)   (8,455)   (35,661)
Provision for (recovery of) income taxes   286    (10,777)   250    (995)
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS  $6,293   $(90,156)  $(8,705)  $(34,666)

 

24.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 December 31, 2019 were as follows:

 

ASSETS   
Current assets     
Cash and cash equivalents  $2,867 
Current trade and other receivables   3,769 
Income taxes recoverable   12 
Other current assets   2,494 
    9,142 
Non-current assets     
Property and equipment   35 
Intangible assets   510 
ASSETS CLASSIFIED AS HELD FOR SALE  $9,687 
      
Liabilities     
Current liabilities     
Trade and other payables  $3,253 
Deferred revenue   77 
LIABILITIES CLASSIFIED AS HELD FOR SALE  $3,330 

 

(b)Disposal of Hudson Energy Supply U.K. Limited (“Hudson U.K.”)

 

On November 29, 2019, Just Energy closed its previously announced sale of Hudson U.K. to Shell Energy Retail Limited.

 

Pursuant to the share purchase agreement, the aggregate amount of the closing consideration received was £1.5 million ($2.5 million). While the capacity market payments were reinstated in the U.K. in late October, any contingent consideration due to Just Energy will be paid following the determination of Hudson U.K.’s ultimate capacity market payment for the period up to June 30, 2019, which is expected to be determined within six months of the closing date.

 

The results of the disposal of Hudson U.K. are presented below:

 

Proceeds from sale  $2,518 
Carrying value of net liabilities disposed   74,570 
Carrying value of goodwill disposed   (13,355)
Carrying value of intangible assets disposed   (8,544)
Reclassification of foreign currency translation reserve   (11,610)
Gain on sale of U.K. operations  $43,579 

 

 

25.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

(c)Disposal of Just Energy Ireland Limited (“Just Energy Ireland”)

 

On December 18, 2019, Just Energy closed its previously announced sale of substantially all of the assets of Just Energy Ireland to Flogas Natural Gas Limited (“Flogas”) for €0.6 million ($1.0 million). The Company received 75% of the purchase price in cash at closing and up to an additional 25% of the purchase price five months after closing. The net consideration payable to the Company is subject to an adjustment based on the actual number of accounts transferred to Flogas.

 

The results of the disposal of Just Energy Ireland are presented below:

 

Proceeds from sale  $649 
Carrying value of net liabilities disposed   910 
Net gain on disposal of Just Energy Ireland operations  $1,559 

 

12.LONG-TERM DEBT AND FINANCING

  

   Maturity    Dec. 31, 2019      March 31, 2019  
Credit facility (a)  September 1, 2020  $256,371   $201,577 
Less: Debt issue costs (a)      (1,737)   (1,824)
Filter Group financing (b)      11,551    17,577 
8.75% loan (c)  September 12, 2023   254,030    240,094 
6.75% $100M convertible debentures (d)  March 31, 2023   89,503    87,520 
6.75% $160M convertible debentures (e)  December 31, 2021   153,199    150,945 
6.5% convertible bonds (f)  December 31, 2020   11,683    29,483 
       774,600    725,372 
Less: Current portion      (274,182)   (37,429)
      $500,418   $687,943 

 

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)  $256,371   $-   $-   $-   $256,371 
Filter Group financing (b)   7,865    3,650    36    -    11,551 
8.75% loan (c)   -    -    263,202    -    263,202 
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)   11,683    -    -    -    11,683 
   $275,919   $163,650   $363,238   $-   $802,807 

 

 

26.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

Interest is expensed based on the effective interest rate. The following table details the finance costs for the indicated periods:

 


 

Three months

ended
Dec. 31, 2019

   
 
  Three months
ended
Dec. 31, 2018
    Nine months
ended
Dec. 31, 2019
   
 
 
  Nine months
ended
Dec. 31, 2018
 
Credit facility (a)  $5,854   $5,469   $17,900   $14,523 
Filter Group financing (b)   99    459    600    459 
8.75% loan (c)   8,655    4,318    26,275    4,318 
6.75% $100M convertible debentures (d)   2,372    1,925    7,046    6,510 
6.75% $160M convertible debentures (e)   3,462    3,399    10,354    10,168 
6.5% convertible bonds (f)   262    3,714    2,479    13,490 
Collateral cost and other (g)   7,474    3,478    15,521    9,730 
   $28,178   $22,762   $80,175   $59,198 

 

(a)As at April 18, 2018, the Company 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 extended 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. On June 28, 2019, the Company exercised its option to access the amounts relating to the accordion agreement as part of the credit facility. Certain principal amount outstanding under the letter of credit facility is guaranteed by Export Development Canada under its Account Performance Security Guarantee Program. On November 30, 2019, the Company amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1.50:1 to 2.00:1 for the third quarter of fiscal 2020.

 

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 December 31, 2019, the Canadian prime rate was 3.95% and the U.S. prime rate was 4.75%. As at December 31, 2019, $256.4 million has been drawn against the facility and total letters of credit outstanding as at December 31, 2019, amounted to $71.9 million (September 30, 2019 - $71.6 million). As at December 31, 2019, Just Energy has $41.7 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 excluding, primarily, Barbados, Ireland, Japan and German operations. Just Energy is required to meet a number of financial covenants under the credit facility agreement. On November 30, 2019, the Company amended the covenants on its senior unsecured term loan facility to increase the senior debt to EBITDA covenant ratio from 1.65:1 to 2.15:1 for the third quarter of fiscal 2020. As at December 31, 2019, the Company was compliant with all of these covenants.

 

27.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

 

(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 December 31, 2019, US$207.0 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. The US$14 million 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 (“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.

 

28.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 December 31, 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 December 31, 2019.

 

29.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 July 29, 2019.

 

A conversion right in respect of a bond could have been exercised, at the option of the holder thereof, at any time from May 30, 2014 to July 7, 2019, and was not. 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 other costs for the three months ended December 31, 2019 include primarily a supplier credit term charge of $6.2 million, accretion costs relating to the acquisition of Just Ventures of $0.8 million, collateral management costs of $0.5 million and interest expense of $0.3 million on right-of-use liabilites resulting from the implementation of IFRS 16. For the nine months ended December 31, 2019, collateral management and other costs is made up of a supplier credit term charge of $13.0 million, collateral management costs of $2.2 million, accretion costs relating to the acquisition of Just Ventures of $2.1 million and interest expense of $0.9 million on right-of-use assets resulting from the implementation of IFRS 16.

 

13.OTHER INCOME

 

(a)Filter Group

 

As at December 31, 2019, the Company recognized $nil for potential earn-out payments over the next three years related to the Filter Group acquisition. The change in fair value of the contingent consideration from $29.1 million at March 31, 2019 to $nil at September 30, 2019 results in a change of $29.1 million reported in other income, net in the interim condensed consolidated statements of income (loss). As the contingent consideration does not meet the definition of equity, it is carried at FVTPL 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.

30.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

The reduction in the Filter Group earn-out obligation at December 31, 2019 was a result of the business not achieving its 12-month EBITDA earn-out target for the twelve months ended December 31, 2019, coupled with a reduced forecasted EBITDA, a reduction in the trading price of the shares of Just Energy and a reduction in Just Energy’s dividend yield.

 

As at December 31, 2019, the Company has not recognized any contingent consideration related to the Just Energy Advanced Solutions and EdgePower acquisitions.

 

(b)Asset sale of Georgia operations

 

On December 31, 2019, the Company announced that it had sold all of its customer contracts and natural gas in storage assets in the state of Georgia to Infinite Energy, Inc., for US$3.5 million ($4.5 million). A gain on the sale of the Georgia customer contracts of $1.8 million was recorded in other income, net, within the interim condensed consolidated statements of income (loss).

 

14.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.

 

     Nine months ended Dec. 31, 2019  
Balance, March 31, 2019  $7,205 
Restructuring costs paid during the period   (5,827)
Foreign exchange impact   (1)
Balance, December 31, 2019  $1,377 

 

31.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

15.INCOME TAXES

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31, 2019   Dec. 31, 2018   Dec. 31, 2019   Dec. 31, 2018 
Current income tax expense  $2,905   $4,075   $6,417   $2,165 
Deferred tax expense (recovery)   940    (2,386)   (2,813)   4,115 
Provision for income taxes  $3,845   $1,689   $3,604   $6,280 

 

16.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:

 

   Nine months ended   Year ended 
   Dec. 31, 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   1,934,990    10,717    1,201,800    9,483 
Balance, end of period   151,530,942   $1,099,255    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   156,193,107   $1,246,220    154,258,117   $1,235,503 

 

17.REPORTABLE BUSINESS SEGMENTS

 

Just Energy’s reportable segments are the Consumer segment and the Commercial segment. 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.

 

32.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 December 31, 2019:

 

   Consumer   Commercial  

Corporate

and shared

services

     
   segment   segment   segment   Consolidated 
                 
Sales  $390,757   $267,764   $-   $658,521 
Gross margin   108,970    33,514    -    142,484 
Amortization of property, and equipment   2,220    26    -    2,246 
Amortization of intangible assets   4,221    732    -    4,953 
Administrative expenses   8,241    5,061    26,314    39,616 
Selling and marketing expenses   32,377    18,893    -    51,270 
Other operating expenses   19,717    1,962    -    21,679 
Operating profit (loss) for the period  $42,194   $6,840   $(26,314)  $22,720 
Finance costs                  (28,178)
Change in fair value of derivative instruments and other                  36,990 
Other income, net                  1,649 
Provision for income taxes                  3,845 
Profit for the period from continuing operations                 $29,336 
Profit from discontinued operations                  6,293 
Profit for the year                  35,629 
Capital expenditures  $2,290   $626   $-   $2,916 

 

 

 

 

 

 

33.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

For the three months ended December 31, 2018:

 

   Consumer   Commercial  

Corporate

and shared

services

     
   segment   segment   segment   Consolidated 
                 
Sales  $461,161   $273,044   $-   $734,205 
Gross margin   126,371    38,090    -    164,461 
Amortization of property, and equipment   1,120    51    -    1,171 
Amortization of intangible assets   6,441    866    -    7,307 
Administrative expenses   9,541    8,731    23,649    41,921 
Selling and marketing expenses   34,425    17,281    -    51,706 
Restructuring costs   2,746    -    -    2,746 
Other operating expenses   50,581    1,934    -    52,515 
Operating profit (loss) for the period  $21,517   $9,227   $(23,649)  $7,095 
Finance costs                  (22,762)
Change in fair value of derivative instruments and other                  62,890 
Change in fair value of Filter Group contingent consideration                  (5,462)
Other income                  2,499 
Provision for income taxes                  1,689 
Profit for the period from continuing operations                 $42,571 
Loss from discontinued operations                  (90,156)
Loss for the period                  (47,585)
Capital expenditures  $13,894   $1,370   $-   $15,264 

 

 

 

 

 

 

34.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

For the nine months ended December 31, 2019:

 

   Consumer   Commercial  

Corporate

and shared

services

     
   segment   segment   segment   Consolidated 
                 
Sales  $1,274,964   $822,162   $-   $2,097,126 
Gross margin   330,941    99,219    -    430,160 
Amortization of property, and equipment   7,652    97    -    7,749 
Amortization of intangible assets   17,304    2,111    -    19,415 
Administrative expenses   28,765    17,740    75,380    121,885 
Selling and marketing expenses   108,755    58,498    -    167,253 
Other operating expenses   72,069    5,252    -    77,321 
Operating profit (loss) for the period  $96,396   $15,521   $(75,380)  $36,537 
Finance costs                  (80,175)
Change in fair value of derivative instruments and other                  (139,547)
Other income                  29,735 
Provision for income taxes                  3,604 
Loss for the period from continuing operations                  (157,054)
Loss from discontinued operations                  (8,705)
Loss for the period                 $(165,759)
Capital expenditures  $11,547   $1,177   $-   $12,724 
                     
As at December 31, 2019                    
Total goodwill  $164,799   $158,336   $-   $323,135 
Total assets  $886,490   $410,684   $-   $1,297,174 
Total liabilities  $1,349,179   $210,776   $-   $1,559,955 

 

 

 

 

 

 

 

 

 

 

 

 

35.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

For the nine months ended December 31, 2018:

 

   Consumer   Commercial  

Corporate

and shared

services

     
   segment   segment   segment   Consolidated 
                 
Sales  $1,400,436   $840,593   $-   $2,241,029 
Gross margin   330,831    115,246    -    446,077 
Amortization of property, and equipment   2,876    153    -    3,029 
Amortization of intangible assets   15,068    1,579    -    16,647 
Administrative expenses   30,750    22,314    73,266    126,330 
Selling and marketing expenses   92,886    51,212    -    144,098 
Other operating expenses   85,014    7,021    -    92,035 
Restructuring costs   5,982    -    -    5,982 
Operating profit (loss) for the period  $98,255   $32,967   $(73,266)  $57,956 
Finance costs                  (59,198)
Change in fair value of derivative instruments and other                  (67,979)
Change in fair value of Filter Group contingent consideration                  (5,462)
Other expenses, net                  5,171 
Provision for income taxes                  6,280 
Loss for the period from continuing operations                 $(75,792)
Loss from discontinued operations                  (34,666)
Loss for the period                  (110,458)
Capital expenditures  $33,457   $3,229   $-   $36,686 
                     
As at December 31, 2018                    
Total goodwill  $188,714   $156,164   $-   $344,878 
Total assets  $1,055,573   $390,509   $-   $1,446,082 
Total liabilities  $1,304,847   $185,659   $-   $1,490,506 

 

 

Sales from external customers

 

The revenue is based on the location of the customer.

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31, 2019   Dec. 31, 2018   Dec. 31, 2019   Dec. 31, 2018 
Canada  $77,691   $110,854   $219,843   $283,521 
United States   580,830    623,351    1,877,283    1,957,508 
Total  $658,521   $734,205   $2,097,126   $2,241,029 

 

 

36.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 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 Dec. 31, 2019   As at March 31, 2019 
Canada  $153,425   $266,775 
United States   322,216    223,802 
International   -    7,941 
Total  $475,641   $498,518 

 

18.OTHER EXPENSES

 

(a)Other operating expenses

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2018   2019   2018 
Amortization of other intangible assets  $4,953   $7,174   $19,414   $16,158 
Depreciation of property, and equipment   2,246    1,087    7,749    2,782 
Bad debt expense   19,996    51,353    66,853    88,276 
Share-based compensation   1,683    1,379    10,469    4,495 
   $28,878   $60,993   $104,485   $111,711 

 

(b)Employee benefits expense

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2018   2019   2018 
Wages, salaries and commissions  $50,392   $41,336   $164,792   $169,863 
Benefits   5,347    3,726    15,451    20,299 
   $55,739   $45,062   $180,243   $190,162 

 

 

37.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

19.PROFIT (LOSS) PER SHARE

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2018   2019   2018 
BASIC EARNINGS (LOSS) PER SHARE                    
Profit (loss) from continuing operations  $29,336   $42,571   $(157,054)  $(75,792)
Dividend to preferred shareholders, net of tax   2,398    1,821    7,265    6,538 
Earnings (loss) available to shareholders   26,938    40,750    (164,319)   (82,330)
Basic weighted average shares outstanding   151,418,938    149,309,905    150,852,526    149,012,066 
Basic earnings (loss) per share from continuing operations   0.18    0.27    (1.09)   (0.55)
Basic earnings (loss) per share available to shareholders  $0.22   $(0.33)  $(1.15)  $(0.78)
                     
DILUTED EARNINGS (LOSS) PER SHARE                    
Profit (loss) from continuing operations  $26,938   $40,750   $(164,319)  $(82,330)
Adjustment for dilutive impact of convertible debentures   4,480    3,913    -    - 
Adjusted earnings (loss) from continuing operations  $31,418   $44,664   $(164,319)  $(82,330)
Basic weighted average shares outstanding   151,418,938    149,309,905    150,852,526    149,012,066 
Dilutive effect of:                    
Restricted share grants   2,537,560    2,238,518   3,905,803 1   2,548,751 1
Deferred share grants   185,405    151,472   269,390 1   134,458 1
Convertible debentures   39,574,831    28,440,256   33,224,644 1   39,574,831 1
Shares outstanding on a diluted basis   193,716,734    180,140,151    188,252,363    191,270,106 
Diluted earnings (loss) from continuing operations per share available to shareholders   0.16    0.25    (1.09)   (0.55)
Diluted earnings (loss) per share available to shareholders  $0.20   $(0.33)  $(1.15)  $(0.78)

 

1 The assumed conversion into shares results in an anti-dilutive position; therefore, these items have not been included in the computation of diluted earnings (loss) per share.

 

20.RELATED PARTY TRANSACTIONS

 

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.

 

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. In April 2019, $10.6 million of a deferred purchase consideration related to the acquisition of Filter Group was repaid. Other than this transaction described there have been no other related party transactions during the nine months ended December 31, 2019.

 

38.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

21.DIVIDENDS AND DISTRIBUTIONS

 

The company has not paid any dividends for common shares for the three months ended December 31, 2019. For the three months ended December 31, 2018 a dividend of $0.125 per common share was declared by Just Energy amounting to $18,662 and were approved by the Board of Directors and were paid out during the period. In the second quarter of fiscal 2020, the Company made the decision to suspend its dividend on common shares. For the nine months ended December 31, 2019, dividends of $0.125 (December 31, 2018 - $0.375) per common share were declared and paid by Just Energy. These dividends amounted to $18,714 (December 31, 2018 - $55,868), which were approved by the Board of Directors and paid out during the period.

 

The Company has not made any distributions per common share grant for the three months ended December 31, 2019. For the three months ended December 31, 2018, $0.125 per common share grant was declared by Just Energy. This distribution amounted to $295 which was approved by the Board of Directors and distributed during the period. In the second quarter of fiscal 2020, the Company made the decision to suspend its dividend on common shares, which impacted the dividend on common shares for share grants. For the nine months ended December 31, 2019, distributions of $0.125 (December 31, 2018 - $0.375) per common share for share grants were declared by Just Energy. These distributions amounted to $23 (December 31, 2018 - $1,263), which were paid in accordance with the terms of the Canadian and U.S. plans during the period.

 

The Company has not paid out any dividends on preferred shares for the three months ended December 31, 2019. For the three months ended December 31, 2018 a dividend of US$0.53125 per preferred share was declared by Just Energy. This dividend amounted to $2,477 and was approved by the Board of Directors and paid out during the period. For the nine months ended December 31, 2019, dividends of US$1.0625 (December 31, 2018 - US$1.0625) per preferred share were declared and paid by Just Energy. This amounted to $6,622 (December 31, 2018 - $8,895), which was approved by the Board of Directors and paid out during the period.

 

In connection with amendments to the credit facility and 8.75% loan agreement announced on December 2, 2019, the agreements governing both facilities have been changed to restrict the declaration and payment of dividends until the Company’s senior debt to EBITDA ratio is no more than 1.50:1 for two consecutive fiscal quarters. Accordingly, as at December 2, 2019, the Company suspended the declaration and payment of dividends on the Series A Preferred Shares until the Company is permitted to declare and pay dividends under the agreements governing its facilities. However, dividends on the Series A Preferred Shares continue to accrue in accordance with Series A Preferred Share terms during the period in which dividends are suspended. Any dividend payment following the suspended period will be credited against the earliest accumulated but unpaid dividend.

 

22.COMMITMENTS AND GUARANTEES

 

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

 

As at December 31, 2019

 

   Less than 1 year   1–3 years   4–5 years   More than 5 years   Total 
Gas, electricity and non-commodity contracts  $406,644   $1,918,497   $486,002   $173,737   $2,984,880 

 

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

 

39.

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended December 31, 2019

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

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 December 31, 2019 amounted to $66.2 million (March 31, 2019 - $70.3 million).

 

As at December 31, 2019, Just Energy had total letters of credit outstanding in the amount of $71.9 million (Note 12(a)).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40.

 

Exhibit 99.2

 

Management’s discussion and analysis – February 7, 2020

 

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 and nine months ended December 31, 2019. This MD&A has been prepared with all information available up to and including February 7, 2020. This MD&A should be read in conjunction with Just Energy’s unaudited interim condensed consolidated financial statements (“Interim Financial Statements”) for the three and nine months ended December 31, 2019. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“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 retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and renewable energy options to customers. Currently operating in the United States (“U.S.”) and Canada, Just Energy serves both residential and commercial customers providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, EdgePower Inc. (“EdgePower”), 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 7 of this MD&A.

 

Forward-looking information

 

This MD&A may contain forward-looking statements and information, including statements and information regarding, guidance for Base EBITDA and free cash flow for the fiscal year ending March 31, 2020; the Company’s ability to improve its business by boosting efficiency and lowering costs; the success of the Company’s cost reductions and optimization efforts; the ability of the Company to reduce selling, marketing and general and administrative expenses and the quantum of such reductions and the impact thereof on the Company’s current fiscal year; the Company’s ability to identify further opportunities to improve its cost structure; discussions with lenders, the timing and results of the Strategic Review process, including achieving an outcome that is in the best interest of the Company and its stakeholders; the Company’s transition from a purely RCE driven focus; improvement in the Company’s expected credit loss experience; the Company’s ability to attract and retain strong-fit customers and the impact thereof on the achievement by the Company of greater profitability; and the impact of the actions and remediation efforts taken or implemented by the Company in remediating the material weaknesses in the Company’s internal controls over financial reporting. 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, the Company’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements, 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. In fiscal 2019, US$127.6 million were tendered for repurchase by the Company. 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 30 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. See “Debt and financing for continuing operations” on page 30 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. See “Debt and financing for continuing operations” on page 30 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. See “Debt and financing for continuing operations” on page 30 for further details.

 

“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” refers to the number of customers with a distinct address rather than RCEs (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 30 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.

 

2.

 

 

“RCE” means residential customer equivalent, which is a unit of measurement equivalent to a customer using 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis or 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.

 

Non-IFRS financial measures

 

Just Energy’s Interim 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 with an adjustment for discontinued operations. 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, Texas residential enrolment and collections impairment, Strategic Review costs, discontinued operations and restructuring as well as adjustments reflecting share-based compensation, non-controlling interest and amortization of sales commissions with respect to value-added products (“VAPS”) (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, Strategic Review costs, restructuring and discontinued operations are one-time, non-recurring events. Management has isolated the impact of the incremental Texas residential enrolment and collections recorded as of June 30, 2019, as presented in Base EBITDA. All other bad debt charges including any residual bad debt from the Texas enrolment and collection issues are included in Base EBITDA from July 1, 2019 onward.

 

Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under 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 Interim Financial Statements. 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 VAPS 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, one-time impairment charge for the Texas residential enrolment and collections 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”)

 

EGM 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.

 

EGM 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 announced 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.

 

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 United Kingdom (“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.

 

On October 8, 2019, the Company entered into an agreement to sell the issued and outstanding shares of its wholly owned subsidiary Hudson Energy Supply UK Limited, to Shell Energy Retail Limited. On November 29, 2019, the Company closed its sale of the U.K. operations for proceeds of £1.5 million ($2.5 million) of cash received on closing, The Company may also receive consideration of an amount up to £8.5 million ($14.2 million) related to the reinstatement of the U.K. capacity market payments which is expected to be determined within six months of the closing date. The Company recorded a gain on the sale of the U.K. operations of $43.6 million.

 

4.

 

 

On November 6, 2019, the Company entered into an agreement to sell substantially all of the assets of its wholly owned subsidiary Just Energy Ireland Limited to Flogas Natural Gas Limited (“Flogas”) for up to €0.6 million ($1.0 million). The transaction closed in December 2019. The Company received €0.4 million ($0.7 million) representing 75% of the purchase price in cash at closing and estimates receiving an additional €0.2 million ($0.3 million) representing 25% of the purchase price five months after closing. The net consideration payable to the Company is subject to an adjustment based on the actual number of accounts transferred to Flogas. The Company recorded a gain on the sale of the assets of the Irish subsidiary of $1.6 million in its results from discontinued operations.

 

For a detailed breakdown of the discontinued operations, refer to Note 11 of the Interim Financial Statements for the three and nine months ended December 31, 2019.

 

Financial highlights
For the three months ended December 31   
(thousands of dollars, except where indicated and per share amounts)   
          
         % increase     
    Fiscal 2020    (decrease)   Fiscal 2019 
Sales  $658,521    (10)%  $734,205 
Gross margin   142,484    (13)%   164,461 
Administrative expenses   39,616    (5)%   41,921 
Selling and marketing expenses   51,270    (1)%   51,706 
Restructuring costs   -    (100)%   2,746 
Finance costs   28,178    24%   22,762 
Profit from continuing operations   29,336    (31)%   42,571 
Profit (loss) from discontinued operations   6,293    NMF3   (90,156)
Profit (loss) for the period1   35,629    NMF3   (47,585)
Earnings per share from continuing operations available to shareholders - basic   0.18        0.27 
Earnings per share from continuing operations available to shareholders - diluted   0.16        0.25 
Dividends/distributions   -    (100)%   21,434 
Base EBITDA from continuing operations2   37,950    (34)%   57,105 
Base Funds from continuing operations2   5,722    NMF3   (3,270)
Payout ratio on Base Funds from continuing operations2   0%        755% 

1Profit (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 entered into as part of the Company’s 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.

 

Just Energy’s gross margin decreased by 13% to $142.5 million for the three months ended December 31, 2019, primarily due to a decline in the residential customer base. The decline in the Company’s residential customer base is primarily a result of a shift in focus of the Company to reduce non-paying customers in Texas and to onboard higher quality customers through alternative channels, management’s decision to exit the Georgia gas market, as well as a reduction in the Company’s Canadian customer base due to regulatory restrictions in Alberta and Ontario.

 

Base EBITDA for the quarter was $38.0 million, a decrease of 34% compared to the third quarter of fiscal 2019 was driven by a decline in gross margin as well as higher commission expense due to the ramp-up of the amortization of previously capitalized residential customer acquisition costs. Base EBITDA of $38.0 million increased 68% after adjusting the comparative quarter to add back the one-time impairment charge for the Texas residential enrolment and collections impairment, demonstrating the focus of the management team to close the previously reported enrolment control gaps and to prioritize attracting and retaining higher quality and higher margin customers.

 

5.

 

 

Bad debt for the three months ended December 31, 2019 was lower compared to the three months ended September 30, 2019. In addition, the quarterly year-over-year variance has declined significantly as customers that were historically able to exploit the Company’s enrolment controls continue to decline and drop from the portfolio. The Company continues to see improvement in its expected credit loss experience since identifying and closing certain enrolment control gaps previously disclosed by the Company.

 

Administrative expenses decreased 5% from the prior comparable quarter. Excluding the impact of the Strategic Review costs of $4.2 million in the quarter, administrative expenses decreased 15% due to savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives beginning to take effect. Selling and marketing expenses remained consistent compared to the prior comparable quarter.

 

Finance costs for the three months ended December 31, 2019, amounted to $28.2 million, an increase of 24% primarily driven by higher interest expense from higher debts and higher interest rates, partially offset by the partial redemption of the 6.5% convertible bonds compared to the same quarter in fiscal 2019.

 

Financial highlights
For the nine months ended December 31   
(thousands of dollars, except where indicated and per share amounts)   
          
         % increase     
    Fiscal 2020    (decrease)   Fiscal 2019 
Sales  $2,097,126    (6)%  $2,241,029 
Gross margin   430,160    (4)%   446,077 
Administrative expenses   121,885    (4)%   126,330 
Selling and marketing expenses   167,253    16%   144,098 
Finance costs   80,175    35%   59,198 
Loss from continuing operations1   (157,054)   107%   (75,792)
Loss from discontinued operations   (8,705)   75%   (34,666)
Loss for the period   (165,759)   (50)%   (110,458)
Earnings (loss) per share from continuing operations available to shareholders - basic   (1.09)       (0.55)
Earnings (loss) per share from continuing operations available to shareholders - diluted   (1.09)       (0.55)
Dividends/distributions   25,359    (62)%   66,026 
Base EBITDA from continuing operations2   111,205    (14)%   129,292 
Base funds from continuing operations2   33,054    (27)%   45,502 
Payout ratio on Base FFO2   77%        145% 
Embedded gross margin2   1,839,800    (13)%   2,118,100 
RCE count   3,515,000    (5)%   3,701,000 
Total gross RCE additions   584,000    (24)%   764,000 
Total net RCE additions   (123,000)   NMF3   10,000 

1Loss 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 entered into 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.

 

6.

 

 

For the nine months ended December 31, 2019, sales were $2.1 billion and gross margin was $430.2 million, 6% lower and 4% lower, respectively, than the prior comparable period. Base EBITDA amounted to $111.2 million, a decrease of 14% from the first nine months of fiscal 2019. The decline in Base EBITDA was largely attributable to the decline in the residential customer base, lower commercial margins on index-priced products, and an increase in selling and marketing expenses due to the ramp-up of the amortization of previously capitalized residential customer acquisition costs partially offset by significantly lower administrative expenses, the second quarter gain in other income on the reduction of the contingent consideration from the Company’s acquisition of the Filter Group and the stronger U.S. dollar.

 

The significant decrease in bad debt for the three and nine months ended December 31, 2019 was a result of improving controls and operational processes associated with the Texas residential enrollment and collections impairment. The Company continues to see improvement in its expected credit loss experience since identifying and closing certain enrolment control gaps previously disclosed by the Company with the majority of those customers now dropped from the portfolio.

 

Administrative expenses decreased 4% from $126.3 million to $121.9 million for the nine months ended December 31, 2019. Excluding the impact of the Strategic Review costs of $7.8 million during the first nine months of fiscal 2020, administrative expenses decreased 10% due to savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives. Selling and marketing expenses increased 16% compared to the prior comparable period due to the increased residential commission costs to acquire new customers in certain channels as well as the ramp-up of the amortization of previously capitalized residential customer acquisition costs, partially offset by a $1.9 million reduction in non-commission selling expenses.

 

Finance costs were $80.2 million for the nine months ended December 31, 2019, an increase of 35% over the previous comparable period, primarily driven by higher interest expense from higher debts and higher interest rates and the premium and fees associated with the 8.75% loan, partially offset by the partial redemption of the 6.5% convertible bonds.

 

EGM amounted to $1,839.8 million as at December 31, 2019, a decrease of 13% compared to the embedded gross margin as at December 31, 2018, resulting from the decline in the North American Consumer commodity customer base.

 

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, tele-sales and door-to-door marketing. Consumer customers make up 35% 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.

 

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 approximate 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 65% 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.

 

7.

 

 

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
Manitoba, Ontario, Quebec 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, Saskatchewan, California, Illinois, Indiana, Maryland, New Jersey, New York, Ohio and Pennsylvania 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.

 

8.

 

 

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 trailing 12 months ended December 31, 2019, 59% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 86% of their consumption as green supply. For comparison, as reported for the trailing 12 months ended December 31, 2018, 34% of Consumer customers who contracted with Just Energy chose to include JustGreen for an average of 66% of their consumption. As at December 31, 2019, JustGreen makes up 9% of the Consumer gas portfolio on a trailing 12-month basis, compared to 9% a year ago. JustGreen makes up 19% of the Consumer electricity portfolio, compared to 16% in the prior comparable period.

 

ADOPTION OF NEW STANDARDS

 

Adoption of IFRS 16, Leases

 

IFRS 16, Leases (“IFRS 16”), superseded International Accounting Standards (“IAS”) 17, Leases (“IAS 17”), 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 representing those transactions.

 

The adoption of IFRS 16 resulted in:

 

• 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;

 

9.

 

 

• 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. The Company 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.

 

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 December 31
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
Reconciliation to unaudited interim condensed consolidated statements of income          
Profit (loss) for the period from continuing operations  $35,629   $(47,585)
Add (subtract):          
Finance costs   28,178    22,762 
Provision for income taxes   3,845    1,689 
Discontinued operations   (6,293)   90,156 
Depreciation and amortization   7,726    8,852 
EBITDA  $69,085   $75,874 
Add (subtract):          
Change in fair value of derivative instruments and other   (36,990)   (62,890)
Contingent consideration revaluation   -    5,462 
Texas residential enrolment and collections impairment   -    34,500 
Strategic Review costs   4,159    - 
Restructuring costs   -    2,746 
Share-based compensation   1,683    1,379 
Loss attributable to non-controlling interest   13    34 
Base EBITDA  $37,950   $57,105 

 

 

10.

 

 

Gross margin per unaudited interim condensed consolidated statements of income  $142,484   $164,461 
Add (subtract):          
Administrative expenses   (39,616)   (41,921)
Selling and marketing expenses   (51,270)   (51,706)
Bad debt expense   (19,996)   (51,353)
Texas residential enrolment and collections impairment   -    34,500 
Amortization included in cost of sales   527    591 
Strategic Review costs   4,159    - 
Other income   

1,649

    2,499 
Loss attributable to non-controlling interest   13    34 
Base EBITDA  $37,950    $57,105  

 

EBITDA
For the nine months ended December 31
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
Reconciliation to unaudited interim condensed consolidated statements of income          
Loss for the period  $(165,759)  $(110,458)
Add (Subtract):          
Finance costs   80,175    59,198 
Provision for income taxes   3,604    6,280 
Discontinued operations   8,705    34,666 
Depreciation and amortization   28,817    21,043 
EBITDA  $(44,458)  $10,729 
Add (subtract):          
Change in fair value of derivative instruments and other   139,547    67,979 
Contingent consideration revaluation   (7,091)   5,462 
Texas residential enrolment and collections impairment   4,900    34,500 
Strategic Review costs   7,791    - 
Restructuring costs   -    5,982 
Share-based compensation   10,469    4,495 
Loss attributable to non-controlling interest   47    145 
Base EBITDA  $111,205   $129,292 
           
Gross margin per unaudited interim condensed consolidated statements of income  $430,160