TORONTO, ONTARIO — (Marketwire) — 11/08/12 — Just Energy Group, Inc. (TSX: JE)(NYSE: JE), a competitive retailer of natural gas and electricity, today announced results for its second quarter of fiscal 2013.
Key Q2 Highlights:
Commenting on the quarterly results, Executive Chair Rebecca MacDonald stated, “We are pleased with the continued record customer aggregation during the second quarter, as efforts to further diversify our channels to market as well as expand our geographic footprint, continued to gain traction. This growth will drive future embedded margin and cash flow in the foreseeable future. Looking ahead, driving account growth remains a key strategic objective and we are committed to further investment to enhance our growth profile.”
CEO Ken Hartwick added, “We are pleased with our operational and financial performance during the quarter, specifically the record growth of customer additions and strong margins. We have set aggressive targets of 10% to 12% margin growth and 8% to 10% Adjusted EBITDA growth, and we are progressing toward these targets. We also continue to look for new opportunities to broaden our relationship with our customers and their energy needs through the sale of multiple products. Energy use control through smart thermostats is a high potential offering and we also remain a leader in Green energy sales where we continue to seek new ways to serve the environmentally conscious. We are a leader in the North American energy market and are focused on enhancing our industry-leading position going forward.”
Additional Q2 Highlights:
Second Quarter Operating Performance
The second quarter financial results demonstrated the continuation of the fundamental strengths of the Company growth and profitability.
Growth
Customer additions in the second quarter were 344,000, up 45% from Q2 fiscal 2012 and representing the highest in Just Energy–s history. Net additions of 47,000 were up 4% year over year however this was skewed by a single very low margin 75,000 RCE customer that was not renewed. Excluding this customer, net additions of 122,000 were in line with recent record additions by the Company. The overall customer base of 4,024,000 is up 18% from a year earlier.
Customer additions were solid in both segments of the energy business with 166,000 residential additions, up 98% from the 84,000 added in the second quarter of fiscal 2012, and 178,000 commercial additions, up 16% from the 154,000 added in the prior fiscal year. For the six months year to date, residential additions are up 101%, commercial additions are up 17% and total additions are up 47%. The quarter includes the first 7,000 customers from the newly opened U.K. commercial office.
To view the “Quarterly Customer Additions”, please visit the following link: .
The second key to growth is the preservation of the existing customer base. As can be seen in the table on the next page, 297,000 customers were lost during the year and replaced by new additions during the year. This is a function of the increasing size of the Company–s book.
Long Term Energy Customer Aggregation
The attrition rate was 14% on a trailing 12-month basis, up slightly from 13% in the prior year period, with U.S. gas markets higher and U.S. electricity markets lower. Canadian attrition was unchanged at 10%. Overall attrition remains within the Company–s target range.
National Home Services (“NHS”) also continued its strong growth. The Home Services operation saw its water heater, air conditioner and furnace installations grow to 187,300 units, up 30% from a year earlier. Including NHS, Just Energy–s customer base has grown by 19% to 4,211,000 over the past year.
While growth in Energy Marketing was very strong in the quarter, the Company–s original markets in Canada remain the weak point in this growth. Flat commodity prices and strict consumer protection laws have seen Canadian customer additions fall steadily over past quarters. Combined with this, customers coming off high price contracts signed five years ago have been reticent to renew their contracts for a further term. While overall renewal rates are at 70%, current Canadian renewals are well under target at less than 50%. Management expects that the renewal rates will remain low for the next 12 months as the last high price contracts expire with improvement thereafter. The expectation is that Canadian additions will be heavily skewed toward commercial customers for the foreseeable future.
Profitability
The Company–s customer growth translated directly into gross margin growth. Gross margin for the quarter was $117.2 million, up 14% from $102.6 million in fiscal 2012. Adjusted EBITDA was $49.4 million, up 3% from $47.9 million in the prior year, resulting in a payout ratio of 90% versus 91% in the comparable quarter of fiscal 2012.
The following factors drove profitability:
All of these factors contributed not only to the Company–s profitability but also to the growth in the long-term value of the business. Management believes that a key measure of this value is embedded gross margin. Embedded margin is an estimate of cashflow from existing contracts based on the spread between contract price and underlying supply.
The table below shows the increase in this value over the quarter and the last year.
Embedded Gross Margin
(millions of dollars)
Funding Growth Investment
One of the impacts of the rapid growth seen year to date is higher than expected demands for investment capital. The result of this is a high payout ratio on Funds from Operations and an increase in drawdowns on the Company–s working capital line. Payout for the last 12 months was 152%, up from 95% a year earlier, reflecting expenditures on high growth. The nature of these investments is that they payback very quickly and generate high returns as reflected in the growth of embedded gross margin above. Based on results to date, it is clear that the annual payout ratio on Funds from Operations (“FFO”) will exceed 100% for the fiscal year. This will require financing through the Company–s operating line, as has been utilized year to date, or other financing sources. Over the longer term, the Company targets a payout ratio of no more than 85%-90% on FFO, consistent with the cash flow profile of the Company–s business. Based on Just Energy–s current growth level, FFO payout is expected to be in this range for fiscal 2015.
Dividends were $0.31 per share in the quarter, unchanged from those paid a year earlier. Payout ratio on Adjusted EBITDA improved to 90%, down from 91% a year ago. Removing seasonality using the last 12 months, payout ratio was 61%, down from 62% a year earlier. This continues a trend of improved payouts after the replacement of all lost embedded margin for the period. As noted above, the Company–s dividend obligations will exceed funds from operations for the year. The rapid payback on Just Energy–s investments should begin to offset this situation once all newly signed customers flow and the Company is in the process of arranging funding to maintain this potential accelerated growth rate, capital expenditures and to pay down the operating line.
About Just Energy Group Inc.
Established in 1997, Just Energy is primarily a competitive retailer of natural gas and electricity. With offices located across the United States, Canada and the United Kingdom, Just Energy serves close to 2 million residential and commercial customers through a wide range of energy programs and home comfort services, including fixed-price or price-protected energy program contracts, the rental of water heaters, furnaces and air conditioners and the installation of solar panels. The Company–s JustGreen® products provide consumers with the ability to help them reduce the environmental impact of their everyday energy use. Just Energy is the parent to Amigo Energy, Commerce Energy, Hudson Energy, Hudson Energy Solar, National Home Services, Momentis, Tara Energy and Terra Grain Fuels.
FORWARD-LOOKING STATEMENTS
Just Energy–s press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, general and administrative expenses, dividends, distributable cash and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy–s operations, financial results or dividend levels are included in Just Energy–s annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at , on the U.S. Securities Exchange Commission–s website at or through Just Energy–s website at .
Neither the Toronto Stock Exchange nor the New York Stock Exchange has approved nor disapproved of the information contained herein.
Contacts:
Just Energy Group, Inc.
Mr. Ken Hartwick, C.A.
Chief Executive Officer & President
(905) 795-3557
Just Energy Group, Inc.
Ms. Beth Summers, C.A.
Chief Financial Officer
(905) 795-4206