Just Energy Group Inc. (NYSE:JE)(TSX:JE) -
Highlights for the three months ended December 31, 2011 included:
-- Gross residential customer equivalent additions through marketing of
310,000 and net additions of 115,000, up from 238,000 and 45,000 in the
second quarter.
-- Completion of the Fulcrum Retail Holdings LLC ("Fulcrum") acquisition
adding 240,000 customers.
-- Total customer base reached 3,758,000 residential customer equivalents,
up 10% in the quarter.
-- National Home Services' water heaters and HVAC units increased to
153,700 installations to date, 39% higher than a year prior. This growth
has led to a 65% increase in unit gross margin from $4.4 million to $7.2
million.
-- Total gross margin of $147.4 million, up 12% (9% per share).
-- Adjusted EBITDA of $88.5 million, up 15% (12% per share) reflecting
earnings before marketing expenditures to add new gross margin.
-- Embedded future gross margin increased to $1,930 million, up 4% for the
quarter.
-- Payout ratio on Adjusted EBITDA was 50% for the quarter, versus 55% for
the three months ended December 31, 2010. This is the third consecutive
quarter with lower payout ratio than its comparable quarter in fiscal
2011.
Highlights for the nine months ended December 31, 2011 included:
-- Gross margin of $344.2 million, up 11% (9% per share).
-- Adjusted EBITDA of $173.8 million, up 21% (18% per share).
-- Payout ratio on Adjusted EBITDA was 75% for the year to date, versus 88%
for the nine months ended December 31, 2010.
-- Year to date results exceed published guidance of 5% per share growth in
gross margin and Adjusted EBITDA.
-- In a press release dated October 3, 2011, Just Energy's management
reaffirmed the 2012 gross margin and Adjusted EBITDA growth guidance and
results to date support the Company's ability to maintain its existing
$1.24 per year dividend.
Just Energy Fiscal 2012 Third Quarter Results
Just Energy announced its results for the three months and nine months ended
December 31, 2011
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Three months ended December 31,
($ millions except per share/unit Per
and customers) F2012 share F2011 Per unit
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Sales $738.6 $5.21 $744.3 $5.39
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Gross margin 147.4 1.04 132.1 0.96
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Administrative expenses 31.3 0.22 26.2 0.19
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Finance costs 16.4 0.12 15.7(1) 0.11
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Adjusted EBITDA 88.5 0.62 76.8 0.56
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Base EBITDA 63.6 0.45 68.8 0.50
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Net profit (loss) (97.4) (0.69) 178.5 1.29
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Dividends/distributions 43.9 0.31 42.5 0.31
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Payout ratio - Adjusted EBITDA 50% 55%
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Long Term Customers 3,758,000 3,241,000
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Nine months ended December 31,
($ millions except per share/unit Per
and customers) F2012 share F2011 Per unit
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Sales $1,964.9 $13.94 $2,011.9 $14.61
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Gross margin 344.2 2.44 309.2 2.25
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Administrative expenses 88.4 0.63 81.0 0.59
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Finance costs 44.5 0.32 38.4(1) 0.28
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Adjusted EBITDA 173.8 1.23 144.0 1.05
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Base EBITDA 132.0 0.94 122.1 0.89
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Net profit (loss) (49.7) (0.35) 315.8 2.29
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Dividends/distributions 131.2 0.93 126.8 0.93
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(1)Excludes distributions paid to holders of exchangeable shares included as
finance costs prior to Conversion under IFRS.
Just Energy is a TSX and NYSE listed corporation and it reports in its
Management's Discussion and Analysis, a detailed review of its operating results
as measured by gross margin, Adjusted EBITDA and Base EBITDA. Just Energy also
reports the profit for the period but management believes that the inclusion of
non-cash mark to market on future supply positions makes this measure less
valuable in measuring performance as this future supply has been sold at fixed
prices.
Third Quarter Operating Performance
The third quarter of fiscal 2012 marks the clearest evidence to date that Just
Energy's diversification efforts over the last two years have been successful in
re-energizing the Company's growth. The continued success of the Commercial
division as well as strong residential additions through the Consumer division
allowed the Company to add a record 310,000 new customers through marketing
("customer" is defined as a residential customer equivalent). This total
exceeded the previous record by 19% and was up 30% from the 238,000 added in the
second quarter. Net additions through marketing were 115,000, up 156% from the
second quarter. Added to this were 240,000 new customers included with the
acquisition of Fulcrum Retail Holdings LLC ("Fulcrum"), which closed on October
3, 2011. Overall, Just Energy's customer base increased by 10% in the third
quarter and now totals 3.758 million Residential Customer Equivalents.
Fulcrum is a Texas marketer who specializes in affinity sales, a channel Just
Energy had not previously pursued. This acquisition is not only a strategic fit,
but their existing base of customers made the transaction immediately accretive
to our shareholders.
In addition, the Momentis network marketing channel is growing very rapidly.
Total Momentis agents reached 25,300 in the quarter, up from 11,100 three months
earlier. Network marketing does not overlap the Company's traditional
door-to-door sales channel and tends to generate sales to customers who would
not otherwise buy from a door-to-door salesperson.
The Hudson acquisition has resulted in an expansion of Just Energy's presence in
the commercial gas and electricity markets. Since acquiring Hudson, the Company
has exceeded the prior record level of customer acquisition (137,000) for seven
consecutive quarters. Higher customer additions have allowed Just Energy to
offset a difficult price environment and resultant weak renewals, maintaining
our gross margin and EBITDA.
The Company's move into green commodity supply through the JustGreen and
JustClean programs has been a continued success. Over the past 12-months, green
takeup was 33% of new residential customers, who purchased an average of 87%
green supply. The overall Green book is now 9% of the Company's natural gas
needs (up from 5% a year ago) and 12% for electricity (up from 10% last year).
In order to match customer demand with green supply, Just Energy has
participated in more than 25 green projects across our markets.
In addition, Hudson Solar division has made commitments of approximately $62.5
million to date. These projects build relationships with regulators and generate
attractive returns on investment. Overall, Just Energy's commitment to green
products and projects strengthens our long-term margins, builds a stronger
customer and regulatory relationships and allows our customers and employees to
be proud of their contribution to a cleaner environment.
The National Home Services water heater and HVAC rental and sales operation had
another strong quarter with installations growing 39% from 110,700 units to
153,700. Our margin from this business was up 65% year over year.
These expansions were seen both in continued marketing success in the third
quarter and operating results which exceeded published growth targets for the
year.
Management has set targets of 5% per share growth for both gross margin and
Adjusted EBITDA for the year.
The 310,000 customers added through marketing in the third quarter was a record
for the Company and the net additions of 115,000 effectively equaled the prior
record.
To view the Quarterly Customer Additions graph, please visit the following link:
http://media3.marketwire.com/docs/0209jea.jpg
New Commercial customers made up 198,000 of the 310,000 quarterly additions, up
29% from the 154,000 added in the second quarter. These customers have lower
annual margins but their aggregation cost and annual customer service costs are
commensurately lower as well. Consumer division customer additions were 112,000,
up 33% from 84,000 in the second quarter. Overall, as can be seen below, our
customer base is up 10% in the quarter. This includes 240,000 customers acquired
with the Fulcrum acquisition.
October 1,
2011 Additions Acquired Attrition
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Natural gas
Canada 597,000 14,000 - (15000)
United States 570,000 33,000 - (28,000)
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Total gas 1,167,000 47,000 - (43,000)
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Electricity
Canada 688,000 26,000 - (17,000)
United States 1,548,000 237,000 240,000 (58,000)
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Total electricity 2,236,000 263,000 240,000 (75,000)
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Combined 3,403,000 310,000 240,000 (118,000)
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December 31, % Increase
Failed to renew 2011 (decrease)
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Natural gas
Canada (25,000) 571,000 (4%)
United States (9,000) 566,000 (1%)
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Total gas (34,000) 1,137,000 (3%)
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Electricity
Canada (19,000) 678,000 (1%)
United States (24,000) 1,943,000 26%
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Total electricity (43,000) 2,621,000 17%
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Combined (77,000) 3,758,000 10%
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Higher customer numbers and improved operations at both NHS and Terra Grain
Fuels led to higher margins for the quarter. Margins were up 12% (9% per share)
reaching $147.4 million for the quarter. This was despite warmer winter
temperatures that reduced gas consumption in Just Energy's gas markets. Lost
margin of approximately $12 million, the majority of which was recorded in the
third quarter but the remaining impact will not be recognized until the fourth
quarter which will also see the impact of warmer weather in January. To offset
this, the Company had implemented a winter hedging strategy utilizing weather
derivative options to mitigate the impact of warm weather. These options return
a maximum of $15 million in the case of a warmer than normal winter. During the
third quarter, the options returned $9 million against their quarterly cost of
$0.8 million.
Operational measures, such as bad debt, remained well under control. Losses were
2.5% on the 43% of sales where Just Energy bears this risk, down from 2.6% a
year ago. Attrition rates were in line with management's expectations and down
significantly from those in fiscal 2011. Canadian attrition was 10%, down from
11% a year ago. U.S. natural gas attrition (our market most affected by the
housing and employment crisis) was 21%, down from the 25% rate reported a year
ago. U.S. electricity attrition was 13%, lower than the 18% reported a year ago.
Renewal rates remained soft in a very low price environment with Canadian
Consumer division renewals at 60% for gas and 50% for electricity down from 69%
and 65% a year ago. U.S. renewal rates were stronger in the Consumer division
showing 89% for gas and 71% for electricity from 76% and 74% a year ago.
Commercial division renewals are generally a lower percentage and more volatile.
They were 47% for Canadian gas and 57% for electricity versus 51% and 62% a year
earlier. U.S. Commercial renewals were 61% for gas and 66% for electricity
versus 70% and 76% a year ago.
The current stable low commodity price environment is the worst for our core
products however we have focused on renewals by giving the customer a range of
options including Blend and Extend pricing, our new JustClean products and, most
recently, innovative variable price offerings.
Higher margins led to significant growth in Adjusted EBITDA. This measure shows
cashflow available after the cost of replacement of all margin lost during the
quarter. The Company reports future embedded margin within its contracts each
quarter. This measure reached $1,930 million, up 4% for the quarter. Adjusted
EBITDA was $88.5 million, up 15% (12% per share), the third consecutive quarter
with a double digit increase.
On October 3, 2011, Just Energy issued a press release reaffirming its guidance
that the 5% targets for gross margin and Adjusted EBITDA growth are expected to
be achieved in fiscal 2012. Year to date, gross margin is up 9% per share with
Adjusted EBITDA up 18% per share. As can be seen from these results, Just Energy
remains well ahead of the pace necessary to realize these goals after nine
months. The press release also stated that, based on these operating results and
those expected for the remainder of the year, Just Energy will be able to
comfortably maintain its current $1.24 annual dividend for the foreseeable
future. A third consecutive quarter of significantly lower payout ratio supports
that conclusion.
Dividends for the quarter were $0.31 per share, equal to unit distributions paid
in the prior comparable quarter. Payout ratio on Adjusted EBITDA was 50%, down
from 55% a year ago. The payout ratio for nine months ended December 31, 2011 is
75%, down from 88% a year prior. Traditionally, the fourth quarter has the
lowest payout ratio of the year.
As regards to the third quarter, CEO Ken Hartwick noted: "Our record customer
additions show clearly that consumers remain responsive to our suite of products
despite very low commodity prices."
"The acquisition of Fulcrum completed at the beginning of the quarter is another
example of a strategic move into a new marketing channel, in this case affinity
sales. Past expansions such as Hudson and National Home Services have added
substantial value to Just Energy. Like these acquisitions, Fulcrum's existing
customer base makes the acquisition accretive day one."
"With our customer base up 10% in the quarter, we were able to withstand warm
winter weather and generate above target growth in both margin and Adjusted
EBITDA with the assistance of a weather derivative hedging program we put in
place in November."
Chair Rebecca MacDonald added: "Our third quarter results were very strong
making it clear that our business model and dividend policy are sound. Our
continued growth in customers and cashflow in the United States made the listing
of our shares on the NYSE a logical step. It is our intention to bring the Just
Energy story to U.S. investors and to build greater liquidity for our shares."
"Our growth year to date is well ahead of the 5% per share targeted for gross
margin and Adjusted EBITDA. Our payout ratio in each of the first three quarters
was below that of the prior year, a year in which we comfortably paid $1.24 to
our shareholders. Just Energy has shown its ability to adjust to market
conditions and continue to generate the operating returns we have realized
throughout our history. With a stronger, more diversified business, Just Energy
is poised to be a leading player in retail energy for years to come."
Just Energy
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts and green energy products. 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. Just Energy, which commenced business in 1997, 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 matched term price at
which it purchases the associated volumes from its suppliers. Just Energy also
offers "green" products through its JustGreen and JustClean programs. The
electricity JustGreen product offers the customer the option of having all or a
portion of his or her electricity sourced from renewable green sources such as
wind, run of the river hydro or biomass. The gas JustGreen product offers carbon
offset credits which will allow the customer to reduce or eliminate the carbon
footprint of their home or business.
JustClean products are essentially carbon offsets from carbon capture and
reduction projects as well as green power renewable energy certificates from
green generators. This product can be offered in all states and provinces and is
not dependent on energy deregulation. Management believes that the green
products will not only add to profits, but also increase sales receptivity and
improve renewal rates.
In addition, through National Home Services, Just Energy sells and rents high
efficiency and tankless water heaters, air conditioners and furnaces to Ontario
residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and
sells wheat-based ethanol. Just Energy has also launched, Hudson Solar, a solar
project development platform in New Jersey.
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, administrative
expenses, Base EBITDA, adjusted EBITDA 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 dividends 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 www.sedar.com or through Just Energy's website at
www.justenergygroup.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - February 8, 2012
OVERVIEW
The following discussion and analysis is a review of the financial condition and
results of operations of Just Energy Group Inc.("JE" or "Just Energy" or the
"Company") (formerly Just Energy Income Fund (the "Fund")) for the three and
nine months ended December 31, 2011, and has been prepared with all information
available up to and including February 8, 2012. This analysis should be read in
conjunction with the unaudited consolidated financial statements for the three
and nine months ended December 31, 2011. The financial information contained
herein has been prepared in accordance with International Financial Reporting
Standards ("IFRS"), as issued by the International Accounting Standards Board
("ISAB"). Just Energy's date of transition to IFRS was April 1, 2010. All dollar
amounts are expressed in Canadian dollars. 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 EDGAR at www.sec.gov.
Effective January 1, 2011, Just Energy completed the conversion from the Fund to
Just Energy (the "Conversion"). As part of the Conversion, Just Energy Exchange
Corp. ("JEEC") was amalgamated with JEGI and, like the unitholders of the Fund,
the holders of JEEC's Exchangeable Shares received common shares of JEGI on a
one for one basis. JEGI also assumed all of the obligations under the $90m
convertible debentures and $330m convertible debentures.
Just Energy is a corporation established under the laws of Canada and holds
securities and distributes the income of its directly or indirectly owned
operating subsidiaries and affiliates: Just Energy Ontario L.P., Just Energy
Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership,
Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy
Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just
Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp.,
Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy,
Inc. ("Commerce" or "CEI"), National Energy Corp. (which operates under the
trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and
Hudson Energy Canada Corp. (collectively "Hudson" or "HES"), Momentis Canada
Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels,
Inc. ("TGF"), Hudson Energy Solar Corp. ("Hudson Solar"), Just Energy Limited
("JEL") and Fulcrum Retail Holdings LLC and its subsidiaries (operating under
the trade names Tara Energy and Amigo Energy) ("Fulcrum").
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts. 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. 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.
Just Energy also offers green products through its JustGreen and JustClean
programs. The electricity JustGreen product offers customers the option of
having all or a portion of their electricity sourced from renewable green
sources such as wind, run of the river hydro or biomass. The gas JustGreen
product offers carbon offset credits that allow customers to reduce or eliminate
the carbon footprint of their homes or businesses. JustClean products allow
customers in certain jurisdictions to offset their carbon footprint without
purchasing commodity from Just Energy. JustClean can be offered in all states
and provinces and is not dependent on energy deregulation. Management believes
that the JustGreen and JustClean products will not only add to profits, but also
increase sales receptivity and improve renewal rates.
In addition, through National Home Services, Just Energy sells and rents high
efficiency and tankless water heaters, air conditioners and furnaces to Ontario
residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and
sells wheat-based ethanol. Just Energy's subsidiary, Hudson Solar, also provides
a solar project development platform operating in New Jersey, Pennsylvania and
Massachusetts.
On October 3, 2011, Just Energy completed the acquisition of Fulcrum with an
effective date of October 1, 2011. Fulcrum is a retail electricity provider
operating in Texas and focuses on residential and small to mid-size commercial
customers. Fulcrum markets primarily online and through targeted affinity
marketing channels under the brands, Tara Energy, Amigo Energy and Smart Prepaid
Electric. Just Energy used the proceeds from the issuance of $100 million of
convertible unsecured subordinated debentures, which bear interest at a rate of
5.75% per annum, to fund the Fulcrum acquisition and for other general corporate
purposes.
FORWARD-LOOKING INFORMATION
This management's discussion and analysis ("MD&A") contains certain
forward-looking information pertaining to customer additions and renewals,
customer consumption levels, EBITDA, Base EBITDA, Adjusted EBITDA 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,
extreme weather conditions, rates of customer additions and renewals, customer
attrition, fluctuations in natural gas and electricity prices, changes in
regulatory regimes, decisions by regulatory authorities and competition, and
dependence on certain suppliers. Additional information on these and other
factors that could affect Just Energy's operations, financial results or
distribution levels are included in the June 20, 2011 Annual Information Form
and other reports on file with Canadian security regulatory authorities, which
can be accessed on our corporate website at www.justenergygroup.com or through
the SEDAR website at www.sedar.com or EDGAR at www.sec.gov.
KEY TERMS
"Failed to renew" means customers who did not renew expiring contracts at the
end of their term.
"Gross margin per RCE" represents the gross margin realized on Just Energy's
customer base, including both low margin customers acquired through various
acquisitions and gains/losses from the sale of excess commodity supply.
"$90m convertible debentures" represents the $90 million in convertible
debentures issued by Universal Energy Group Ltd. ("Universal") in October 2007.
Just Energy Exchange Corp. assumed the obligations of the debentures as part of
the Universal acquisition on July 1, 2009 and Just Energy assumed the
obligations of the debentures as part of the Conversion. See "Long-term debt and
financing" on page 28 for further details.
"$100m convertible debentures" represents the $100 million of convertible
debentures issued by the Company to finance the purchase of Fulcrum, effective
October 1, 2011. See "Long-term debt and financing" on page 28 for further
details.
"$330m convertible debentures" represents the $330 million in convertible
debentures issued by the Fund to finance the purchase of Hudson, effective May
1, 2010. Just Energy assumed the obligations of the debentures as part of the
Conversion. See "Long-term debt and financing" on page 28 for further details.
"LDC" means a local distribution company; the natural gas or electricity
distributor for a regulatory or governmentally defined geographic area.
"RCE" means residential customer equivalent which is a unit of measurement
equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or
1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards
electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which
represents the approximate amount of gas and electricity, respectively, used by
a typical household in Ontario.
"customer" does not refer to an individual customer but instead a RCE.
"Large commercial customer" means customers representing more than 15 RCEs.
Non-GAAP financial measures
Just Energy's financial statements are prepared in compliance with IFRS. All
non-GAAP financial measures do not have standardized meanings prescribed by IFRS
and are therefore unlikely to be comparable to similar measures presented by
other issuers.
Just Energy converted from an income trust to a corporation on January 1, 2011.
Under the corporate structure, management believes that Adjusted EBITDA is the
best basis for analyzing the financial results of Just Energy.
EBITDA
"EBITDA" represents earnings before finance costs, taxes, depreciation and
amortization. This is a non-GAAP measure which reflects the pre-tax
profitability of the business.
Base EBITDA
"Base EBITDA" represents EBITDA adjusted to exclude the impact of mark to market
gains (losses) arising from IFRS requirements for derivative financial
instruments on future supply positions. This measure reflects operating
profitability as mark to market gains (losses) are associated with supply
already sold at future fixed prices.
Just Energy ensures that customer margins are protected by entering into
fixed-price supply contracts. Under IFRS, the customer margins are not marked to
market but there is a requirement to mark to market the future supply contracts.
This creates unrealized gains (losses) depending upon current supply pricing
volatility. Management believes that these short-term mark to market non-cash
gains (losses) do not impact the long-term financial performance of Just Energy
and have therefore excluded it from the Base EBITDA calculation.
Adjusted EBITDA
"Adjusted EBITDA" represents Base EBITDA adjusted to deduct selling and
marketing costs sufficient to maintain existing levels of gross margin and
maintenance capital expenditures necessary to sustain existing operations. This
adjustment results in the exclusion of the marketing that Just Energy carried
out and the capital expenditures that it had made to add to its future
productive capacity. Management believes this is a useful measure of operating
performance for investors.
Funds from operations
"Funds from operations" refers to the net cash available for distribution to
shareholders. Base funds from operations is calculated by Just Energy as gross
margin adjusted for cash items including administrative expenses, selling and
marketing expenses, bad debt expenses, finance costs, corporate taxes, capital
taxes and other items. The gross margin used includes a seasonal adjustment for
the gas markets in Ontario, Quebec, Manitoba and Michigan in order to include
cash received.
Adjusted funds from operations
"Adjusted funds from operations" refers to the funds from operations adjusted to
deduct the selling and marketing costs sufficient to maintain existing levels of
gross margin and maintenance capital expenditures necessary to sustain existing
operations. This adjustment results in the exclusion of the marketing carried
out and the capital expenditures that it made by Just Energy to add to its
future productive capacity.
Embedded gross margin
"Embedded gross margin" is a rolling five-year measure of management's estimate
of future contracted energy gross margin as well as the margin associated with
the average remaining life of National Home Services' customer contracts. The
energy marketing embedded margin is the difference between existing customer
contract prices and the cost of supply for the remainder of term, with
appropriate assumptions for customer attrition and renewals. It is assumed that
expiring contracts will be renewed at target margin and renewal rates.
FINANCIAL HIGHLIGHTS
For the three months ended December 31
(thousands of dollars, except where indicated and per
unit/share amounts)
Fiscal 2012 Fiscal 2011
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Per
share/unit
Per share change Per unit
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Sales $ 738,614 $ 5.21 (3)% $ 744,296 $ 5.39
Gross margin 147,407 1.04 9% 132,084 0.96
Administrative expenses 31,308 0.22 16% 26,229 0.19
Finance costs 16,377 0.12 2% 15,679(3) 0.11
Net income (loss)(1) (97,386) (0.69) (153)% 178,468 1.29
Dividends/distributions 43,934 0.31 0% 42,450 0.31
Base EBITDA(2) 63,563 0.45 (10)% 68,823 0.50
Adjusted EBITDA(2) 88,513 0.62 12% 76,800 0.56
Payout ratio on Base
EBITDA 69% 62%
Payout ratio on
Adjusted EBITDA 50% 55%
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(1)Net income (loss) includes the impact of unrealized gains (losses), which
represents the mark to market of future commodity supply acquired to cover
future customer demand. The supply has been sold to customers at fixed
prices, minimizing any realizable impact of mark to market gains and losses.
(2)See discussion of non-GAAP financial measures.
(3)Excludes distributions paid to holders of Exchangeable Shares prior to
Conversion included as finance costs under IFRS.
FINANCIAL HIGHLIGHTS
For the nine months ended December 31
(thousands of dollars, except where indicated and per
unit/share amounts)
Fiscal 2012 Fiscal 2011
-----------------------------------------------------
Per
share/unit
Per share change Per unit
-----------------------------------------------------
-----------------------------------------------------
Sales $ 1,964,857 $ 13.94 (5)% $ 2,011,858 $ 14.61
Gross margin 344,229 2.44 9% 309,158 2.25
Administrative expenses 88,366 0.63 6% 81,033 0.59
Finance costs 44,509 0.32 13% 38,439(3) 0.28
Net income (loss)(1) (49,748) (0.35) (115)% 315,821 2.29
Dividends/distributions 131,230 0.93 0% 126,796 0.93
Base EBITDA(2) 132,034 0.94 6% 122,062 0.89
Adjusted EBITDA(2) 173,838 1.23 18% 144,023 1.05
Payout ratio on Base
EBITDA 99% 104%
Payout ratio on
Adjusted EBITDA 75% 88%
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(1)Net income (loss) includes the impact of unrealized gains (losses), which
represents the mark to market of future commodity supply acquired to cover
future customer demand. The supply has been sold to customers at fixed
prices, minimizing any realizable impact of mark to market gains and losses.
(2)See discussion of non-GAAP financial measures.
(3)Excludes distributions paid to holders of Exchangeable Shares prior to
Conversion included as finance costs under IFRS.
International Financial Reporting Standards
Just Energy has adopted IFRS as the basis for reporting its financial results
commencing with the interim financial statements of fiscal 2012 and using April
1, 2010 as the transition date. The comparative figures for fiscal 2011 have
been restated in accordance with the Company's IFRS accounting policies. The
interim financial statements and MD&A for the three months ended June 30, 2011,
include additional disclosure relating to the transition to IFRS, and therefore,
should be read in conjunction with the MD&A and financial statements for the
three and nine months ended December 31, 2011.
ACQUISITION OF FULCRUM RETAIL HOLDINGS LLC
On October 3, 2011, Just Energy completed the acquisition of Fulcrum with an
effective date of October 1, 2011. The acquisition was funded by an issuance of
$100 million in convertible debentures.
The consideration for the acquisition was US$79.4 million paid at the time of
closing and subject to customary working capital adjustments. Just Energy will
also pay up to US$11.0 million in cash and issue up to 867,025 common shares
(collectively the "Earn-Out" amount) to the seller 18 months following the
closing date, provided that certain EBITDA and billed volume targets are
satisfied by Fulcrum during the Earn-Out period.
In addition, the Company will pay, as part of the contingent consideration, an
additional 4.006% on the cash portion of the contingent consideration and $1.86
for each of the common shares that are issued at the end of the Earn-Out period.
The acquisition of Fulcrum was accounted for using the purchase method of
accounting. Just Energy allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
Net assets acquired:
Working capital (including cash of $3,665) $ 3,235
Property, plant and equipment 973
Contract initiation costs 156
Customer contracts and relationships 35,697
Affinity relationships 42,359
Brand 13,034
Goodwill 20,652
Non-controlling interest 198
Other liabilities - current (10,845)
Other liabilities - long term (3,620)
Deferred lease inducements (322)
Long-term debt (586)
---------
Total consideration $ 100,931
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of estimated working capital
adjustment $ 82,604
Contingent consideration 18,327
---------
Total consideration $ 100,931
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The electricity customer contracts and affinity relationships are amortized over
the average remaining life at the time of acquisition. The electricity contracts
and customer relationships are amortized over 3.5 years. The affinity
relationships are amortized over eight years.
OPERATIONS
Natural gas
Just Energy offers natural gas customers a variety of products ranging from
month-to-month variable-price offerings to five-year fixed-price contracts. For
fixed-price contracts, Just Energy purchases gas supply through physical or
financial transactions with market counterparts in advance of marketing, based
on forecast customer aggregation for residential and small commercial customers.
For larger commercial customers, gas supply is generally purchased concurrently
with the execution of a contract.
The LDC provides historical customer usage which, when normalized to average
weather, enables Just Energy to purchase the expected normal customer load.
Furthermore, 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
mitigate weather effects is limited by the severity of weather from normal. To
the extent that balancing requirements are outside the forecast purchase, Just
Energy bears the financial responsibility for fluctuations in customer usage.
Volume variances may result in either excess or short supply. In the case of
under consumption by the customer, excess supply is sold in the spot market
resulting in either a gain or loss compared to the weighted average cost of
supply. Further, customer margin is lowered proportionately to the decrease in
consumption. In the case of greater than expected gas consumption, Just Energy
must purchase the short supply in the spot market resulting in either a gain or
loss compared to the weighted average cost of supply. Consequently, customer
margin increases proportionately to the increase in consumption. To the extent
that supply balancing is not fully covered through active management or the
options employed, Just Energy's customer gross margin may be reduced or
increased depending upon market conditions at the time of balancing. Under some
commercial contract terms, this balancing may be passed onto the customer.
Just Energy has entered into weather index derivatives for the third and fourth
quarters of fiscal 2012 with the intention of reducing gross margin fluctuations
from extreme weather. The maximum payout associated with the weather derivatives
for fiscal 2012 will be $15 million. As at December 31, 2011, the warmer than
normal temperatures across Just Energy's gas markets has resulted in the
potential payout of approximately $9 million of the $15 million payout. The
total cost of these options was $2 million.
Ontario, Quebec, British Columbia and Michigan
In Ontario, Quebec, British Columbia and Michigan, the volumes delivered for a
customer typically remain constant throughout the year. Just Energy does not
recognize sales until the customer actually consumes the gas. During the winter
months, gas is consumed at a rate that is greater than delivery and, in the
summer months, deliveries to LDCs exceed customer consumption. Just Energy
receives cash from the LDCs as the gas is delivered, which is even throughout
the year.
Manitoba, Alberta and Saskatchewan
In Manitoba, Alberta and Saskatchewan, the volume of gas delivered is based on
the estimated consumption for each month. Therefore, the amount of gas delivered
in winter months is higher than in the spring and summer months. Consequently,
cash received from customers and LDCs will be higher in the winter months.
New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey and Pennsylvania
In New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey 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 winter months is higher than in the spring and summer months. Consequently,
cash flow received from these states 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
In Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey,
Maryland, Michigan, California and Massachusetts, Just Energy offers a variety
of solutions to its electricity customers, including fixed-price and
variable-price products on both short-term and longer-term electricity
contracts. Some of these products provide customers with price-protection
programs for the majority of their electricity requirements. The customers
experience either a small balancing charge or credit (pass-through) on each bill
due to fluctuations in prices applicable to their volume requirements not
covered by a fixed price. Just Energy uses historical usage data for all
enrolled customers to predict future customer consumption and to help with
long-term supply procurement decisions.
Just Energy purchases power supply through physical or financial transactions
with market counterparties in advance of marketing for residential and small
commercial customers based on forecast customer aggregation. Power supply is
generally purchased concurrently with the execution of a contract for larger
commercial customers. The LDC provides historical customer usage which, when
normalized to average weather, enables Just Energy to purchase to expected
normal customer load. Furthermore, Just Energy mitigates exposure to weather
variations through active management of the power portfolio. The expected cost
of this strategy is incorporated into the price to the customer. Our ability to
mitigate weather effects is limited by the severity of weather from normal. In
certain markets, to the extent that balancing requirements are outside the
forecast purchase, Just Energy bears the financial responsibility for excess or
short supply caused by fluctuations in customer usage. In the case of under
consumption by the customer, excess supply is sold in the spot market resulting
in either a gain or loss in relation to the original cost of supply. Further,
customer margin is lowered proportionately to the decrease in consumption. In
the case of greater than expected power consumption, Just Energy must purchase
the short supply in the spot market resulting in either a gain or loss in
relation to the fixed cost of supply. Customer margin generally increases
proportionately to the increase in consumption. To the extent that supply
balancing is not fully covered through customer pass-throughs or active
management or the options employed, Just Energy's customer gross margin may be
impacted depending upon market conditions at the time of balancing.
JustGreen
Customers have the ability to choose an appropriate JustGreen program to
supplement their electricity and natural gas contracts, providing an effective
method to offset their carbon footprint associated with the respective commodity
consumption.
JustGreen programs for electricity customers involve the purchase of power from
green generators (such as wind, solar, run of the river hydro or biomass) via
power purchase agreements and renewable energy certificates. JustGreen programs
for gas customers involve the purchase of carbon offsets from carbon capture and
reduction projects.
JustClean
In addition to its traditional commodity marketing business, Just Energy allows
customers to effectively manage their carbon footprint without buying energy
commodity products by signing a JustClean contract. The JustClean products are
essentially carbon offsets from carbon capture and reduction projects as well as
green power renewable energy certificates from green generators. This product
can be offered in all states and provinces and is not dependent on energy
deregulation.
Blend and Extend program
As part of Just Energy's retention efforts, electricity and natural gas
customers may be contacted for early renewal of their contracts under a Blend
and Extend offer. These customers are offered a lower rate, compared to their
current contracted rate, but the term of their contract is extended up to five
more years. Consequently, Just Energy may experience a reduction in margins in
the short term but will gain additional future margins.
Consumer (Residential) Energy division
The sale of gas and electricity to customers of 15 RCEs and less is undertaken
by the Consumer Energy division. The marketing of energy products of this
division is primarily done door-to-door through 870 independent contractors, the
Momentis network marketing operation and Internet-based and telephone marketing
efforts. Approximately 52% of Just Energy's customer base resides within the
Consumer Energy division, which is currently focused on longer-term
price-protected offerings of commodity products, JustGreen and JustClean. To the
extent that certain markets are better served by shorter-term or enhanced
variable rate products, the Consumer Energy independent contractors also offer
these products.
Commercial Energy division
Customers with annual consumption over 15 RCEs are served by the Commercial
Energy division. These sales are made through three main channels: door-to-door
commercial independent contractors; inside commercial sales representatives; and
sales through the broker channel using the commercial platform acquired with the
Hudson purchase. Commercial customers make up about 48% of Just Energy's
customer base. Products offered to commercial customers can range from standard
fixed price offerings to "one off" offerings, which are tailored to meet the
customer's specific needs. These products can be either fixed or floating rate
or a blend of the two, and normally have terms of less than five years. Margin
per RCE for this division is lower than consumer margins but customer
aggregation costs and ongoing customer care costs are lower as well on a per RCE
basis. Commercial customers tend to have combined attrition and failed-to-renew
rates that are lower than those of consumer customers.
Home Services division
NHS began operations in April 2008 and provides Ontario residential customers
with a long-term water heater, furnace and air conditioning rental, offering
high efficiency conventional and power vented tanks and tankless water heaters
and high efficiency furnaces and air conditioners. NHS markets through
approximately 240 independent contractors in Ontario. See page 21 for additional
information.
Ethanol division
Just Energy owns and operates TGF, a 150-million-litre capacity wheat-based
ethanol plant located in Belle Plaine, Saskatchewan. The plant produces
wheat-based ethanol and high protein distillers dried grain ("DDG"). On January
4, 2011, Just Energy acquired the 33.3% interest in TGF that was previously
owned by EllisDon Design Build Inc. ("EllisDon") pursuant to a put option
exercised by EllisDon. See page 22 for additional information on TGF.
Network Marketing division
Just Energy owns and operates Momentis, a network marketing company operating
within Canada and the U.S. Independent representatives educate consumers about
the benefits of energy deregulation and sell them products offered by Just
Energy as well as a number of other products. Independent representatives are
rewarded through commissions earned based on new customers added. For the three
months ended December 31, 2011, there were 14,200 independent representatives
added, bringing the total number to 25,300 as of December 31, 2011.
Solar division
Hudson Solar, a solar project development platform operating in New Jersey,
Pennsylvania and Massachusetts, brings renewable energy directly to the
consumer, enabling them to reduce their environmental impact and energy costs.
Hudson Solar installs solar systems on residential or commercial sites,
maintaining ownership of the system and providing maintenance and monitoring of
the system for a period of up to 20 years. Hudson Solar sells the energy
generated by the solar panels back to the customer. This division will
contribute to operating metrics through commodity sales, renewable energy credit
offset sales and tax incentives. As of December 31, 2011, the division has made
commitments of approximately $62.5 million with the status of the associated
projects ranging from contracted to completed.
ADJUSTED EBITDA
For the three months ended December 31
(thousands of dollars)
Fiscal Per Fiscal
2012 share 2011 Per unit
--------------------------------------------
Reconciliation to income
statement
Profit attributable to
shareholders of Just Energy $ (97,262) $ (0.69) $ 178,281 $ 1.29
Add:
Finance costs 16,377 17,877
Provision for income tax expense (429) 69,167
Capital tax - 172
Amortization 34,156 38,254
--------------------------------------------
EBITDA $ (47,158) $ (0.33) $ 303,751 $ 2.20
Subtract:
Change in fair value of
derivative instruments 110,721 (234,928)
--------------------------------------------
Base EBITDA 63,563 $ 0.45 68,823 $ 0.50
Add (subtract):
Selling and marketing expenses
to add gross margin 26,600 11,293
Maintenance capital expenditures (1,650) (3,316)
--------------------------------------------
Adjusted EBITDA $ 88,513 $ 0.62 $ 76,800 $ 0.56
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted EBITDA
Gross margin per financial
statements $ 147,407 $ 1.04 $ 132,084 $ 0.96
Add (subtract):
Administrative expenses (31,308) (26,229)
Selling and marketing expenses (48,866) (34,469)
Bad debt expense (8,269) (6,458)
Stock based compensation (3,054) (2,648)
Amortization included in cost of
sales/selling and marketing
expenses 6,308 6,603
Other income 2,299 127
Transaction costs (1,078) -
Minority interest 124 (187)
--------------------------------------------
Base EBITDA 63,563 $ 0.45 68,823 $ 0.50
Selling and marketing expenses
to add gross margin 26,600 11,293
Maintenance capital expenditures (1,650) (3,316)
--------------------------------------------
Adjusted EBITDA $ 88,513 $ 0.62 $ 76,800 $ 0.56
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash distributions/dividends
Distributions and dividends $ 42,962 $ 39,925
Class A preference share
distributions - 1,632
Restricted share grants/units
appreciation rights and
deferred share grant/deferred
unit grant distributions 972 893
--------------------------------------------
Total distributions/dividends $ 43,934 $ 0.31 $ 42,450 $ 0.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted fully diluted average
number of shares/units
outstanding(1) 141.7m 138.2m
(1)The per share/unit amounts are calculated on an adjusted fully diluted
basis, removing the impact of the $330m, $100m and $90m convertible
debentures as all will be anti-dilutive in future periods.
ADJUSTED EBITDA
For the nine months ended
December 31
(thousands of dollars)
Fiscal 2012 Per share Fiscal 2011 Per unit
----------------------------------------------
Reconciliation to income
statement
Profit attributable to
shareholders of Just Energy $ (49,624) $ (0.35) $ 317,957 $ 2.31
Add:
Finance costs 44,509 46,237
Provision for income tax
expense 21,717 11,422
Capital tax - 331
Amortization 109,304 112,454
----------------------------------------------
EBITDA $ 125,906 $ 0.89 $ 488,401 3.55
Subtract:
Change in fair value of
derivative instruments 6,128 (366,339)
----------------------------------------------
Base EBITDA 132,034 $ 0.94 122,062 $ 0.89
Add (subtract):
Selling and marketing expenses
to add gross margin 47,073 28,363
Maintenance capital
expenditures (5,269) (6,402)
----------------------------------------------
Adjusted EBITDA $ 173,838 $ 1.23 $ 144,023 $ 1.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted EBITDA
Gross margin per financial
statements $ 344,229 $ 2.44 $ 309,158 $ 2.25
Add (subtract):
Administrative expenses (88,366) (81,033)
Selling and marketing expenses (118,722) (101,177)
Bad debt expense (21,534) (18,901)
Stock based compensation (7,660) (7,231)
Amortization included in cost
of sales/selling and
marketing expenses 19,743 17,564
Other income 5,298 2,830
Transaction costs (1,078) (1,284)
Minority interest 124 2,136
----------------------------------------------
Base EBITDA 132,034 $ 0.94 122,062 $ 0.89
Selling and marketing expenses
to add gross margin 47,073 28,363
Maintenance capital
expenditures (5,269) (6,402)
----------------------------------------------
Adjusted EBITDA $ 173,838 $ 1.23 $ 144,023 $ 1.05
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash distributions/dividends
Distributions and dividends $ 128,204 $ 119,273
Class A preference share
distributions - 4,896
Restricted share grants/unit
appreciation rights and
deferred share grant/deferred
unit grant distributions 3,026 2,627
----------------------------------------------
Total distributions/dividends $ 131,230 $ 0.93 $ 126,796 $ 0.93
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted fully diluted average
number of units/shares
outstanding(1) 141.0m 137.7m
(1)The per share/unit amounts are calculated on an adjusted fully diluted basis,
removing the impact of the $330m, $100m and $90m convertible debentures as all
will be anti-dilutive in future periods.
Base EBITDA differs from EBITDA in that the impact of the mark to market gains
(losses) from the financial instruments is removed. This measure reflects
operating profitability as mark to market gains (losses) are associated with
supply already sold at future fixed prices. Just Energy ensures that customer
margins are protected by entering into fixed-price supply contracts. This
creates unrealized gains (losses) depending upon current supply pricing
volatility. Management believes that these short-term mark to market non-cash
gains (losses) do not impact the long-term financial performance of Just Energy.
For Adjusted EBITDA, selling and marketing expenses used for increasing gross
margin are also removed along with maintenance capital expenditures being
deducted. As a corporation, management believes that Adjusted EBITDA is the best
measure of operating performance.
Adjusted EBITDA amounted to $88.5 million ($0.62 per share) in the third quarter
of fiscal 2012, an increase of 15% (12% per share/unit) from $76.8 million
($0.56 per unit) in the prior comparable quarter. The increase is attributable
to the increase in gross margin, offset by higher operating expenses. Gross
margin increased 12% (9% per share/unit) overall with energy marketing gross
margin increasing by 5% and margin contributions from NHS and TGF increasing 65%
and 12%, respectively, versus the comparable quarter.
Administrative expenses increased by 19% from $26.2 million to $31.3 million
quarter over quarter. The increase over the prior comparable quarter was due to
the inclusion of the administrative expenses relating to Fulcrum of $2.6 million
and investments in growth for solar and network marketing expansion. Excluding
the Fulcrum-related expenses, administrative expenses amounted to $28.7 million,
consistent with the administrative expenses recorded in the prior three
quarters.
Selling and marketing expenses for the three months ended December 31, 2011,
were $48.9 million, a 42% increase from $34.5 million reported in the prior
comparative quarter. This increase is attributable to the 23% increase in
customer additions as well as the increased investments related to the build-out
of the independent representative network by Momentis. The sales and marketing
expenses representing the costs associated with maintaining gross margin, which
are deducted in Adjusted EBITDA, were $19.2 million for the three months ended
December 31, 2011, relatively unchanged from $19.1 million in the prior
comparable quarter.
Bad debt expense was $8.3 million for the three months ended December 31, 2011,
a 28% increase from $6.5 million recorded for the prior comparable quarter. This
increase is a result of the 20% increase in revenue for markets which Just
Energy bears the bad debt risk quarter over quarter. In addition, during the
quarter, there were higher customer defaults in Texas after the peak billing
during the seasonally warmer summer months. For the three months ended December
31, 2011, the bad debt expense of $8.3 million represents approximately 2.6% of
revenue.
Dividends and distributions paid for the three months ended December 31, 2011
were $43.9 million, an increase of 3% from the prior comparative quarter as a
result of the dividends paid to JEEC shareholders being only 66.67% of that
which was paid to JE shareholders and a higher number of shares versus units
outstanding. The payout ratio on Base EBITDA was 69% for the three months ended
December 31, 2011, versus 62% in the prior comparative quarter. For the three
months ended December 31, 2011, the payout ratio on Adjusted EBITDA was 50%,
versus 55% in the prior comparative quarter.
For the nine months ended December 31, 2011, Adjusted EBITDA amounted to $173.8
million ($1.23 per share), an increase of 21% (18% per share/unit) from $144.0
million ($1.05 per unit) in the prior comparable period. For the current nine
months, gross margin increased by 11% (9% per share/unit). Dividends and
distributions for the nine months ended December 31, 2011, were $131.2 million
($0.93 per share), an increase of 3% from the prior comparative period. The
payout ratio on Base EBITDA was 99% for the nine months ended December 31, 2011,
versus 104% in the prior comparative period. For the nine months ended December
31, 2011, the payout ratio on Adjusted EBITDA was 75% versus 88% in the prior
comparative period.
For further information on the changes in the gross margin, please refer to "Gas
and electricity marketing" on page 14 and "Administrative expenses", "Selling
and marketing expenses", "Bad debt expense" and "Finance costs", which are
further clarified on pages 21 through 25.
Future embedded gross margin
Management's estimate of the future embedded gross
margin is as follows:
(millions of dollars)
Dec 2011 Dec 2011
As at vs. Sept. vs. Dec
As at Dec Sept. 30 2011 As at Dec 2010
31, 2011 2011 variance 31, 2010 variance
------------------------------------------------------
National Home Services
(CAD$) $ 352.0 335.7 5% 263.8 33%
Canada - energy
marketing (CAD$) $ 587.7 $ 603.9 (3)% $ 678.9 (13)%
------------------------------------------------------
Total (CAD$) 939.7 939.6 -% 942.7 -%
U.S. - energy
marketing (US$) 973.4 866.7 12% 822.4 18%
Total (CAD$) $ 1,929.7 $ 1,848.1 4% $ 1,760.7 10%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Management's estimate of the future embedded gross margin amounted to $1,929.7
million at as December 31, 2011, an increase of 4% during the quarter. The
future embedded gross margin for Canada was unchanged with higher embedded
margin from National Home Services offsetting lower margins from energy
marketing. The decline in embedded Canadian energy marketing margin was entirely
due to a net customer loss of 3% during the quarter. NHS embedded margins were
up 5% in the quarter reflecting a 7% increase in installed customers over the
quarter. The embedded margin associated with National Home Services represents
the margin associated with the remaining average life of the customer contracts.
U.S. future embedded gross margin grew 12% over the quarter from US$866.7
million to US$973.4 million. The growth in energy marketing embedded margins for
the quarter includes US$76 million of future margin associated with customers
acquired from Fulcrum. The growth in energy marketing embedded gross margin
remains lower than the 16% growth in customer base as the commercial customers,
which make up a growing percentage of new additions, have lower margins and
shorter base contract terms than residential customers. However, the commercial
customer base also results in lower customer aggregations costs and lower annual
customer servicing costs, which are not captured in embedded margin.
The U.S. dollar weakened 3% against the Canadian dollar during the quarter,
resulting in a lowering of $30.4 million in total future embedded gross margin
when stated in Canadian dollars. Excluding the impact from foreign exchange and
Fulcrum, the embedded margin from energy marketing increased by approximately
$15 million.
Future embedded margin associated with TGF or Hudson Solar is currently
immaterial and is therefore excluded from the embedded margin outlined above.
As of December 31, 2011, Hudson Solar has made commitments of approximately
$62.5 million, with the status of the associated projects ranging from
contracted to completed. Completed projects make up a very small percentage of
the commitments, therefore embedded margin from these projects is not yet
material.
ADJUSTED FUNDS FROM OPERATIONS
For the three months ended December 31
(thousands of dollars)
Fiscal 2012 Per share Fiscal 2011 Per unit
--------------------------------------------
Cash inflow from operations $ 17,473 $ 0.12 $ 9,021 $ 0.07
Add:
Increase in non-cash working
capital 33,998 46,354
Dividend/distribution classified
as finance cost - 2,198
Other 124 (1,059)
Tax adjustment 22 34
--------------------------------------------
Funds from operations $ 51,617 $ 0.36 $ 56,548 $ 0.41
Payout ratio 85% 75%
Add: marketing expense to add
new gross margin 26,600 11,293
Less: maintenance capital
expenditures (1,650) (3,316)
--------------------------------------------
Adjusted funds from operations $ 76,567 $ 0.54 64,525 $ 0.47
--------------------------------------------
--------------------------------------------
Payout ratio 57% 66%
Adjusted fully diluted average
number of shares outstanding(1) 141.7m 138.2m
(1)The per share/unit amounts are calculated on an adjusted fully diluted
basis, removing the impact of the $330m, $100m and $90m convertible
debentures as all will be anti-dilutive in future periods.
ADJUSTED FUNDS FROM OPERATION
For the nine months ended December 31
(thousands of dollars)
Fiscal Fiscal
2012 Per share 2011 Per unit
--------------------------------------------
Cash inflow from operations $ 66,847 $ 0.47 $ 42,958 $ 0.31
Add:
Increase in non-cash working
capital 43,293 63,375
Dividend/distribution classified
as finance cost - 7,798
Other 124 354
Tax adjustment 9,404 8,288
--------------------------------------------
Funds from operations $ 119,668 $ 0.85 $ 122,773 $ 0.89
Payout ratio 110% 103%
Add: marketing expense to add
new gross margin 47,073 28,363
Less: maintenance capital
expenditures (5,269) (6,402)
--------------------------------------------
Adjusted funds from operations $ 161,472 $ 1.15 144,734 $ 1.05
--------------------------------------------
--------------------------------------------
Payout ratio 81% 88%
Adjusted fully diluted average
number of shares outstanding(1) 141.0m 137.7m
(1)The per share/unit amounts are calculated on an adjusted fully diluted
basis, removing the impact of the $330m, $100m and $90m convertible
debentures as all will be anti-dilutive in future periods.
Funds from operations
Funds from operations represent the cash available for distribution to the
shareholders of Just Energy. For the three months ended December 31, 2011, funds
from operations was $51.6 million ($0.36 per share), a 9% decrease from $56.5
million ($0.41 per unit) in the prior comparable quarter. This decrease is a
result of the additional spending associated with the expansion of the solar and
network marketing divisions in the current fiscal year. The payout ratio on
funds from operations was 85% for the three months ended December 31, 2011,
versus 75% in the prior comparable quarter. For the nine months ended December
31, 2011, funds from operations was $119.7 million ($0.85 per share), resulting
in a payout ratio of 110%. In the prior comparable period, funds from operations
was $122.8 million ($0.89 per unit), resulting in a payout ratio of 103%.
Adjusted funds from operations is adjusted to deduct only the sales and
marketing expenses associated with maintaining gross margin as well as the
maintenance capital expenditures for the quarter. For the three months ended
December 31, 2011, adjusted funds from operations was $76.6 million ($0.54 per
share), an increase of 19% over $64.5 million ($0.47 per unit) in the prior
comparable period. For the nine months ended December 31, 2011, adjusted funds
from operations was $161.5 million ($1.15 per share), an increase of 12% over
the prior comparable period. Payout ratios were 57% and 81% for the three and
nine months ended December 31, 2011, respectively, opposed to 66% and 58% in the
prior comparable period.
SUMMARY OF QUARTERLY RESULTS
(thousands of dollars, except per unit/share amounts)
Q3 Q2 Q1 Q4
fiscal fiscal fiscal fiscal
2012 2012 2012 2011
------------------------------------------------------------
Sales $ 738,614 $ 600,043 $ 626,200 $ 941,334
Gross margin 147,407 102,561 94,261 172,599
Administrative
expenses 31,308 28,774 28,284 28,367
Finance costs 16,377 14,340 13,792 13,646
Net income
(loss) (97,386) (3,494) 51,132 37,119
Net income
(loss) per
share - basic (0.70) (0.03) 0.37 0.27
Net income
(loss) per
share - diluted (0.70) (0.03) 0.35 0.23
Dividends/
distributions
paid 43,934 43,691 43,605 43,208
Base EBITDA 63,563 38,604 29,867 109,282
Adjusted EBITDA 88,513 47,894 37,431 114,934
Payout ratio on
Base EBITDA 69% 113% 146% 40%
Payout ratio on
Adjusted EBITDA 50% 91% 116% 38%
Q3 Q2 Q1 Q4 (1)
fiscal fiscal fiscal fiscal
2011 2011 2011 2010
---------------------------------------------------------
Sales $ 744,296 $ 657,878 $ 609,684 $ 838,596
Gross margin 132,084 96,719 80,355 155,815
Administrative
expenses 26,299 25,963 28,841 22,405
Finance costs 15,679 (2) 12,823 (2) 9,937 (2) 5,565
Net income
(loss) 178,468 (133,436) 270,789 (79,211)
Net income
(loss) per unit
- basic 1.41 (1.07) 2.19 (0.59)
Net income
(loss) per unit
- diluted 1.16 (1.07) 1.78 (0.59)
Distributions
paid 42,450 42,276 42,070 68,161 (3)
Base EBITDA 68,823 31,441 21,798 107,036
Adjusted EBITDA 76,800 37,497 29,726 108,962
Payout ratio on
Base EBITDA 62% 134% 193% 64%
Payout ratio on
Adjusted EBITDA 55% 113% 142% 63%
(1)Quarterly information prepared using Canadian ("GAAP) as prior to IFRS
transition date.
(2)Excludes distributions paid to holders of Exchangeable Shares prior to
Conversion included as finance costs under IFRS.
(3)Includes Special Distribution of $26.7 million paid in January 2010.
Just Energy's results reflect seasonality, as consumption is greatest during the
third and fourth quarters (winter quarters). While year over year quarterly
comparisons are relevant, sequential quarters will vary materially. The main
impact of this will be higher Base EBITDA and Adjusted EBITDA and lower payout
ratios in the third and fourth quarters, and lower Base EBITDA and Adjusted
EBITDA and higher payout ratios in the first and second quarters.
Analysis of the third quarter
Sales decreased by 1% quarter over quarter to $738.6 million from $744.3
million. Sales from gas and electricity marketing decreased by 3% quarter over
quarter primarily as a result of lower commodity prices as well as lower gas
consumption due to the seasonally warmer temperatures in the current quarter.
However, this decrease was offset by higher sales for NHS and TGF. Gross margin
increased by 12% quarter over quarter due to a 5% increase in energy margin
contribution as well as increased margin from NHS and TGF.
Net loss for the three months ended December 31, 2011 was $97.4 million,
representing a loss per share of $0.70, on a basic and diluted basis. For the
prior comparative quarter, net income was $178.5 million, representing income of
$1.41 and $1.16, both on a basic and diluted per unit basis, respectively. The
change in fair value of derivative instruments resulted in a loss of $110.7
million for the current quarter, in comparison with a gain of $234.9 million in
the third quarter of the prior fiscal year. The fair value of derivative
instruments represents the mark to market of future commodity supply acquired to
cover future customer demand. The supply has been sold to customers at future
fixed prices, minimizing any realizable impact of mark to market gains and
losses.
Adjusted EBITDA increased by 15% to $88.5 million for the three months ended
December 31, 2011. This increase is attributable to the increase in gross margin
less the higher administrative, bad debt and selling and marketing expenses to
maintain gross margin. Base EBITDA (after all selling and marketing costs)
decreased by 8% (10% per share/unit) to $63.6 million for the three months ended
December 31, 2011, down from $68.8 million in the prior comparable quarter
primarily as a result of higher investment in the solar and network marketing
divisions to support future growth.
Dividends/distributions paid were $43.9 million, a 3% increase from $42.5
million paid in the prior comparative quarter. The increase is due to the higher
number of outstanding shares as the annual dividend/distribution rate was
unchanged at $1.24 per year. In the prior year, JEEC Exchangeable Shares were
paid dividends equal to 66.67% of the Fund's distributions. These shares have
now been exchanged for JE common shares and receive the $1.24 annual dividends.
Payout ratio on Adjusted EBITDA was 50% for the three months ended December 31,
2011, compared with 55% in the prior comparable quarter.
GAS AND ELECTRICITY MARKETING
For the three months ended December 31
(thousands of dollars)
Fiscal 2012 Fiscal 2011
--------------------- --------------------
-----------------------------------------------------------------
United United
Sales Canada States Total Canada States Total
----------------------------------------------------------------------------
Gas $ 131,787 $ 122,371 $ 254,158 $ 171,495 $ 156,525 $ 328,020
Electricity 119,326 312,856 432,182 146,469 236,728 383,197
-----------------------------------------------------------------
$ 251,113 $ 435,227 $ 686,340 $ 317,964 $ 393,253 $ 711,217
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase
(decrease) (21)% 11% (3)%
----------------------------------------------------------------------------
Gross United United
margin Canada States Total Canada States Total
----------------------------------------------------------------------------
Gas $ 24,568 $ 24,448 $ 49,016 $ 29,283 $ 25,530 $ 54,813
Electricity 22,591 56,879 79,470 19,457 47,573 67,030
-----------------------------------------------------------------
$ 47,159 $ 81,327 $ 128,486 $ 48,740 $ 73,103 $ 121,843
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase
(decrease) (3)% 11% 5%
----------------------------------------------------------------------------
GAS AND ELECTRICITY MARKETING
For the nine months ended December 31
(thousands of dollars)
Fiscal 2012 Fiscal 2011
--------------------- --------------------
United United
Sales Canada States Total Canada States Total
----------------------------------------------------------------------------
-----------------------------------------------------------------
Gas $ 309,471 $ 238,942 $ 548,413 $ 378,824 $ 285,500 $ 664,324
Electricity 365,037 914,126 1,279,163 472,677 783,717 1,256,394
-----------------------------------------------------------------
$ 674,508 $1,153,068 $1,827,576 $ 851,501 $1,069,217 $1,920,718
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase
(decrease) (21)% 8% (5)%
----------------------------------------------------------------------------
Gross United United
margin Canada States Total Canada States Total
----------------------------------------------------------------------------
Gas $ 48,793 $ 34,889 $ 83,682 $ 44,350 $ 30,353 $ 74,703
Electricity 60,530 157,449 217,979 73,258 142,244 215,502
-----------------------------------------------------------------
$ 109,323 $ 192,338 $ 301,661 $ 117,608 $ 172,597 $ 290,205
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase
(decrease) (7)% 11% 4%
----------------------------------------------------------------------------
Sales for the three months ended December 31, 2011 were $686.3 million, a
decrease of 3% from $711.2 million in the prior comparable quarter. The sales
decline was the result of a gradual reduction in average price within the
customer base as new customers signed and customer renewals are at lower prices
than that of customers expiring or lost through attrition because of the
decrease in commodity market prices. Gross margins were $128.5 million for the
quarter, an increase of 5% from the $121.8 million earned during the three
months ended December 31, 2010. The increase in gross margin is primarily a
result of the inclusion of the margin associated with the record number of
customers added through marketing and the 240,000 customers acquired with
Fulcrum.
In past years, the warm weather experienced in third quarter (10% to 15% warmer
than normal in Just Energy's gas markets) would have resulted in substantial
losses compared to the contracted margins of the customers. Following the losses
seen in the record winter of 2009/2010, management developed a program of
purchasing weather derivative options that are intended to offset margin lost
due to warmer winter weather. Management estimates that the margin lost in the
third quarter would have totalled approximately $12 million including
reconciliations expected to be quantified in the fourth quarter, as a result of
the lower consumption. Payout to the Company on the weather options has totalled
$9 million in the quarter largely offsetting the losses. There is a payout cap
on the options of $15 million.
For the nine months ended December 31, 2011, sales were $1,827.6 million, a
decrease of 5% from $1,920.7 million reported in the prior comparable period.
Gross margin was $301.7 million for the nine months ended December 31, 2011, an
increase of 4% from $290.2 million earned in the first nine months of fiscal
2011.
Canada
Sales were $251.1 million for the three months ended December 31, 2011, down 21%
from $318.0 million in the prior comparable quarter. Gross margins were $47.2
million in the third quarter, a decrease of 3% from $48.7 million in the prior
comparable period. For the nine months ended December 31, 2011, sales and gross
margin were $674.5 million and $109.3 million, respectively, representing a
decrease of 21% in sales and 7% in gross margin over the comparative period of
fiscal 2011. The number of customers in Canada has decreased by 12% during the
past year.
Gas
Canadian gas sales were $131.8 million, a decrease of 23% from $171.5 million
recorded for the three months ended December 31, 2010. The decrease is a result
of the Canadian gas customer base falling by 15% year over year lower
consumption of gas due to the warmer than usual winter weather and the decline
in commodity prices reflected in recent contract offerings. Gross margin
totalled $24.6 million, down 16% from the prior comparative quarter. During the
quarter, Just Energy entered into weather derivative options up to March 31,
2012 with the intention of reducing gross margin fluctuations from extreme
weather. The weather index derivative mitigated any further loss that would have
otherwise been experienced in the quarter.
For the nine months ended December 31, 2011, sales amounted to $309.5 million, a
decrease of 18% from $378.8 million recorded in the prior comparable quarter due
to a declining customer base, lower gas consumption due to warmer weather as
well as lower contract prices. Gross margin increased by 10% from $44.4 million,
to $48.8 million as a result of the impact of weather index derivatives
recapturing lost margin.
After allowance for balancing and inclusive of acquisitions, realized average
gross margin per customer ("GM/RCE") for the rolling 12 months ended December
31, 2011, amounted to $171/RCE compared to $179/RCE for the prior comparable
quarter. The GM/RCE value includes an appropriate allowance for the bad debt
expense in Alberta.
Electricity
Electricity sales were $119.3 million for the three months ended December 31,
2011, a decrease of 19% from the prior comparable quarter due to a 9% decline in
RCEs as well as variable rate product offerings being at lower prices. Gross
margin increased by 16% quarter over quarter to $22.6 million versus $19.5
million in the comparable three-month period. This increase in margin was a
result of the higher margin associated with the JustGreen product offerings as
well as some attractive variable rate products.
For the nine months ended December 31, 2011, sales amounted to $365.0 million, a
decrease of 23% from $472.7 million recorded in the prior comparable period due
to the declining customer base. Gross margin decreased by 17% to $60.5 million
for the nine months ended December 31, 2011, over the prior comparable period.
Realized average gross margin per customer in Canada after all balancing and
including acquisitions for the rolling 12-months ended December 31, 2011,
amounted to $122/RCE, a decrease from $132/RCE in the prior comparative period
due to the cumulative effect of new lower margin contracts necessary to compete
against the very low utility price in the Ontario market. The GM/RCE value
includes an appropriate allowance for the bad debt expense in Alberta.
United States
Sales for the third quarter of fiscal 2012 were $435.2 million, an increase of
11% from $393.3 million for the three months ended December 31, 2010. Gross
margin was $81.3 million, up 11% from $73.1 million in the prior comparable
period. For the nine months ended December 31, 2011, sales increased by 8% to
$1,153.1 million over the prior comparable period. Gross margin for the nine
months ended December 31, 2011, was $192.3 million, an increase of 11% from
$172.6 million recorded in the prior comparable period.
Gas
For the three months ended December 31, 2011, gas sales and gross margin in the
U.S. totalled $122.4 million and $24.4 million, respectively, versus $156.5
million and $25.5 million, respectively, in the prior comparable quarter. Total
gas customers remained relatively unchanged year over year. The sales decrease
of 22% was the result of a lower consumption due to warmer than usual winter
weather and a gradual reduction in average price within the customer base as
renewals and new customers signed are at lower prices than those for customers
expiring or lost through attrition.
Despite the 22% decrease in sales, the decrease in gross margin year over year
was 4%. The negative impact of the warmer weather experienced during the quarter
was lessened as a result of the weather derivatives put in place at the
beginning of November, 2011.
For the nine months ended December 31, 2011, sales amounted to $238.9 million, a
decrease of 16% from $285.5 million recorded in the prior comparable period due
to the change in product pricing and lower consumption due to weather. Gross
margin increased by 15% from $30.4 million to $34.9 million for the nine months
ended December 31, 2011, primarily as a result of weather index derivatives and
the prior comparable period experiencing losses on sale of excess gas.
Average realized gross margin after all balancing costs for the rolling 12
months ended December 31, 2011, was $151/RCE, an increase from $142/RCE. This is
primarily due to the lower losses on sale of excess gas this year compared to
the previous year. The GM/RCE value includes an appropriate allowance for bad
debt expense in Illinois and California.
Electricity
U.S. electricity sales and gross margin for the three months ended December 31,
2011 were $312.9 million and $56.9 million, respectively, versus $236.7 million
and $47.6 million, in the third quarter of fiscal 2011. Sales increased 32% due
to a 55% increase in long-term customers year over year, as a result of strong
additions through marketing and 240,000 RCEs added through the Fulcrum
acquisition. Sales increased less than the increase in customers due to a higher
number of commercial customers and lower commodity pricing. Gross margin
increased by 20% due to the higher customer base being offset by lower margins
on the large number of commercial customers added.
For the nine months ended December 31, 2011, sales amounted to $914.1 million,
an increase of 17% from $783.7 million recorded in the prior comparable period.
Gross margin increased 11% from $142.2 million to $157.4 million for the nine
months ended December 31, 2011. Customers were up sharply but the majority of
the net customer additions are lower margin commercial customers.
Average gross margin per customer for electricity during the current quarter
decreased to $127/RCE, compared to $165/RCE in the prior comparable quarter, as
a result of lower margins per RCE by design for commercial customers added. The
GM/RCE value for Texas, Pennsylvania, Massachusetts and California includes an
appropriate allowance for the bad debt expense.
LONG-TERM CUSTOMER AGGREGATION
October 1,
2011 Additions Acquired Attrition
----------------------------------------------------------------------------
Natural gas
Canada 597,000 14,000 - (15,000)
United States 570,000 33,000 - (28,000)
----------------------------------------------------------------------------
Total gas 1,167,000 47,000 - (43,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Electricity
Canada 688,000 26,000 - (17,000)
United States 1,548,000 237,000 240,000 (58,000)
----------------------------------------------------------------------------
Total electricity 2,236,000 263,000 240,000 (75,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined 3,403,000 310,000 240,000 (118,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LONG-TERM CUSTOMER AGGREGATION
Failed to December 31, % increase
renew 2011 (decrease)
----------------------------------------------------------------
Natural gas
Canada (25,000) 571,000 (4)%
United States (9,000) 566,000 (1)%
----------------------------------------------------------------
Total gas (34,000) 1,137,000 (3)%
----------------------------------------------------------------
----------------------------------------------------------------
Electricity
Canada (19,000) 678,000 (1)%
United States (24,000) 1,943,000 26%
----------------------------------------------------------------
Total electricity (43,000) 2,621,000 17%
----------------------------------------------------------------
----------------------------------------------------------------
Combined (77,000) 3,758,000 10%
----------------------------------------------------------------
----------------------------------------------------------------
Gross customer additions for the quarter were 310,000, up 23% from the 252,000
customers added through marketing in the third quarter of fiscal 2011 and an
increase of 30% from the 238,000 customers added in the second quarter of fiscal
2012. Gross additions for the quarter were at record levels, exceeding Just
Energy's previous record gross additions of 261,000 recorded in the first
quarter of fiscal 2011. Net additions were 355,000 for the quarter, resulting in
a 10% growth in the customer base for the third quarter, including the
additional 240,000 customers acquired with Fulcrum effective October 1, 2011.
Consumer customer additions amounted to 112,000, an increase of 33% from 84,000
customer additions recorded in the second quarter of fiscal 2012. Additions for
the second quarter of fiscal 2012 were below management's expectations with the
third quarter's additions being more in line with expectations. Management
continues to diversify its sales platform beyond door-to-door sales to include
the Momentis network, telephone and online marketing channels and responded to
the current price environment with a change in product offerings to include
variable-based products.
Commercial additions were 198,000 for the quarter, a 29% increase from 154,000
additions in the second quarter of fiscal 2012. The broker sales channel
continues to expand across Just Energy's existing markets. Commercial additions,
which consists of customers representing 15 RCEs or higher, will fluctuate
quarterly depending on the size of the contracts signed.
Total gas customers decreased by 3% during the last three months, reflecting a
difficult price environment with a large disparity between utility spot prices
and the five-year prices. The extended period of low, stable gas prices has
reduced the customer appetite for the stability of higher priced long-term fixed
contracts. As a result, Just Energy has moved to a variety of consumer products
that provide a different value proposition in the current environment.
Profitable new capped variable rate and monthly flat-rate contracts are being
sold while spot market prices remain stable.
Total electricity customers were up 17% during the quarter, with a 26% growth in
the U.S. market and a 1% decrease in customers in the Canadian markets. The
growth in the U.S. is a result of the strong additions and the acquired Fulcrum
customers, while the Canadian electricity market, particularly in Ontario,
continues to face competitive challenges due to low utility pricing.
JustGreen and JustClean
Sales of the JustGreen products remain strong despite premium pricing in a
low-price environment. The JustGreen program allows customers to choose to
purchase units of green energy in the form of renewable energy or carbon
offsets, in an effort to reduce greenhouse gas emissions. When a customer
purchases a unit of green energy, it creates a contractual obligation for Just
Energy to purchase a supply of green energy at least equal to the demand created
by the customer's purchase. A review was conducted by Grant Thornton LLP of Just
Energy's Renewable Energy and Carbon Offsets Sales and Purchases report for the
period from January 1, 2010, through December 31, 2010, validating the match of
Just Energy's renewable energy and carbon offset purchases against customer
contracts. Just Energy will have a similar review conducted for calendar 2011.
Just Energy has contracts with over 25 carbon offset and renewable energy
projects across North America and is actively pursuing new projects to meet our
growing demand for green energy alternatives. Just Energy purchases carbon
offsets and renewable energy credits for the current and future use of our
customers. Our purchases help developers finance their projects.
The Company currently sells JustGreen gas in the eligible markets of Ontario,
Quebec, British Columbia, Alberta, Michigan, New York, Ohio, Illinois and
Pennsylvania. JustGreen electricity is sold in Ontario, Alberta, New York, Texas
and Pennsylvania. Of all consumer customers who contracted with Just Energy in
the past year, 33% took JustGreen for some or all of their energy needs. On
average, these customers elected to purchase 87% of their consumption as green
supply. In the previous comparative period, 43% of the consumer customers who
contracted with Just Energy chose to include JustGreen for an average of 90% of
their consumption. Overall, JustGreen supply now makes up 9% of the overall gas
portfolio, up from 5% a year ago. JustGreen supply makes up 12% of the
electricity portfolio, up from 10% a year ago.
In addition, JustClean products are being offered in Ontario, Quebec and
Florida. JustClean products are carbon offsets from carbon capture and reduction
projects as well as green power renewable energy certificates from green
generators. The JustClean product can be offered in all states and provinces and
is not dependent on energy deregulation. We are actively investing to expand
this product offering throughout the U.S. and Canada to new markets, both
regulated and deregulated.
Attrition
Trailing Trailing
12-month 12-month
attrition- attrition-
Dec 31, Dec 31,
2011 2010
-------------------------------
Natural gas
Canada 10% 11%
United States 21% 25%
Electricity
Canada 10% 12%
United States 13% 18%
The past year saw an improvement in attrition rates across all markets. The
primary contributing factor is that most customers signed in the past three
years are on prices consistent with current market prices. The attrition from
these customers and their eventual renewal will benefit from this pricing. As
well, there are generally lower attrition rates among the growing base of
commercial customers. In addition, improved economic conditions and diligent
credit reviews have contributed to lower attrition rates in Canada and the U.S.
gas markets. The improved attrition helps offset some of the impact of the
softer renewals experienced in the past year.
Natural gas
The annual natural gas attrition in Canada was 10% for the trailing 12-months,
slightly lower than the 11% attrition rate reported in the prior comparable
quarter. In the U.S., annual gas attrition was 21%, a decrease from 25%
experienced a year prior due to new product offerings and greater economic
stability within the U.S customer base.
Electricity
The annual electricity attrition rate in Canada was 10%, lower than the 12%
reported in the prior comparable quarter. Electricity attrition in the U.S. was
13% for the trailing 12-months, in line with management's ongoing expectations.
Renewals Consumer Commercial
Trailing Trailing Trailing Trailing
12-month 12-month 12-month 12-month
renewals - renewals - renewals - renewals -
Dec 31, Dec 31, Dec 31, Dec 31,
2011 2010 2011 2010
----------------------------------------------------
Natural gas
Canada 60% 69% 47% 51%
United States 89% 76% 61% 70%
Electricity
Canada 50% 65% 57% 62%
United States 67% 72% 66% 80%
The Just Energy renewal process is a multifaceted program that aims to maximize
the number of customers who choose to renew their contract prior to the end of
their existing contract term. Efforts begin up to 15 months in advance, allowing
a customer to renew for an additional period. Management's targeted renewal
rates for consumer customers are to be in the range of 70% overall, assuming
commodity price volatility remains low. Renewal rates for commercial customers
are expected to be more volatile than those of consumer customers as a
commercial renewal is often a function of a competitive bid process and these
customers regularly change suppliers. The combined renewal rate for all gas and
electricity markets for consumer and commercial was 61% and 62%, respectively,
for the trailing 12-month period versus 70% and 64% respectively for the
comparative period.
Natural gas
The current trailing annual renewal rate for Canadian gas consumer and
commercial customers were 60% and 47%, respectively, lower than the rate of 69%
and 51% reported in the prior comparable quarter. In the Ontario gas market,
residential customers who do not positively elect to renew or terminate their
contract receive a one-year fixed price for the ensuing year. Of the total
Canadian gas customer renewals for the trailing 12-months, 39% were renewed for
a one-year term. The Canadian gas market continues to be challenged in renewals
largely due to the current high differential between the five-year price and the
utility spot price. The long period of stable low gas prices has reduced
customer interest in renewing at higher fixed prices. Just Energy has introduced
some enhanced variable-price offerings and JustGreen products in hope of
improving renewal rates.
In the U.S. markets, Just Energy had primarily Illinois and New York gas
customers up for renewal. Consumer and commercial gas renewals for the U.S. were
89% and 61%, respectively.
Electricity
The electricity renewal rate for Canadian consumer and commercial customers were
50% and 57%, respectively, for the trailing 12 months. There continues to be
solid demand for JustGreen products, supporting renewals in Canadian electricity
but, due to the disparity between the spot and five-year prices and low
volatility in the spot prices, customers have been reluctant to again lock into
fixed-price products again. Just Energy has introduced some enhanced
variable-price electricity offerings and JustClean products to improve renewal
rates.
During the rolling 12-months ended December 31, 2011, Just Energy had Texas,
Illinois and New York electricity customers up for renewal. The electricity
renewal rate for consumer and commercial customers were 67% and 66%,
respectively, with strong renewals in Texas being offset by weaker renewals in
Illinois and New York.
Gas and electricity contract renewals
This table shows the percentage of customers up for renewal in each of the
following fiscal years:
Canada - U.S. -
Canada - gas electricity U.S. - gas electricity
--------------------------------------------------------
2012 5% 6% 22% 23%
2013 32% 34% 19% 24%
2014 18% 16% 8% 12%
2015 17% 11% 11% 13%
Beyond 2015 28% 33% 40% 28%
--------------------------------------------------------
Total 100% 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All month-to-month customers, are included in the chartable (above under the
current period (2012).
Just Energy continuously monitors its customer renewal rates and continues to
modify its offering to existing customers in order to maximize the number of
customers who renew their contracts. To the extent there is continued customer
take-up on Blend and Extend offers, some renewals scheduled for 2012 and 2013
will move to 2015 and beyond.
GROSS MARGIN EARNED THROUGH NEW MARKETING EFFORTS
Annual gross margin per customer for new and renewed customers
The table below depicts the annual margins on contracts of residential and
commercial customers signed during the quarter. This table reflects all margin
earned on new additions and renewals including both the brown commodity and
JustGreen. Customers added through marketing or renewal had lower margins than
the customers lost through attrition or failure to renew due to the competitive
price environment. However, JustGreen is being aggressively marketed for
renewals, with the expectation that rates similar to those for new customers can
be achieved. Sales of the JustGreen products remained strong, with approximately
33% of all residential customers added in the past 12-months taking some or all
green energy supply. Customers that have purchased the JustGreen product
elected, on average, to take 87% of their consumption in green supply. For large
commercial customers, the average gross margin for new customers added was
$82/RCE. The aggregation cost of these customers is commensurately lower per RCE
compared to a residential customer.
Annual gross margin per customer(1)
Q3 Number of
fiscal 2012 customers
-------------------------------
Consumer customers added in the quarter
- Canada - gas $ 205 7,000
- Canada - electricity 124 8,000
- United States - gas 196 30,000
- United States - electricity 179 67,000
Average annual margin 181
Consumer customers renewed in the quarter
- Canada - gas $ 185 8,000
- Canada - electricity 110 9,000
- United States - gas 191 15,000
- United States - electricity 174 15,000
Average annual margin 169
Consumer customers lost in the quarter
- Canada - gas $ 195 27,000
- Canada - electricity 150 22,000
- United States - gas 208 29,000
- United States - electricity 222 39,000
Average annual margin 199
Commercial customers added in the quarter $ 82 198,000
Commercial customers lost in the quarter $ 112 78,000
(1) Customer sales price less cost of associated supply and allowance for
bad debt.
HOME SERVICES DIVISION (NHS)
NHS provides Ontario residential customers with long-term water heater rental
programs that offer conventional tanks, power vented tanks and tankless water
heaters in a variety of sizes as well as high efficiency furnaces and air
conditioners. NHS continues its strong customer growth with installations for
the quarter amounting to 9,900 water heaters, air conditioners and furnaces,
compared with 9,700 units installed in the prior comparable quarter. The
installations for the current quarter consisted of 8,400 water heaters and 1,500
HVAC units, compared to 8,600 water heaters and 1,100 HVAC units installed in
the prior comparative quarter. Installations increased by 2%, although the
overall contribution is greater as the average monthly rental revenue for HVAC
products is 2.6 times that of a water heater. As of December 31, 2011, the
cumulative installed customer base was 153,700 units, an increase of 39% from
the prior year. Management is confident that NHS will continue to contribute to
the long-term profitability of Just Energy. NHS currently markets through
approximately 240 independent contractors.
As NHS is a high growth, relatively capital-intensive business, Just Energy's
management believes that, in order to maintain stability of dividends, separate
non-recourse financing of this capital is appropriate. NHS entered into a
long-term financing agreement with Home Trust Company ("HTC") for the funding of
the water heaters, furnaces and air conditioners in the Enbridge Gas (January
2010) and Union Gas (July 2010) distribution territories. Under the HTC
agreement, NHS receives funds equal to the amount of the five-, seven- or
ten-year cash flow (at its option) of the water heater, furnace and air
conditioner contracts discounted at the contracted rate, which is currently
7.99%. HTC is then paid an amount that is equal to the customer rental payments
on the water heaters for the next five, seven or ten years as applicable. The
funding received from HTC up to December 31, 2011, was $173.1 million
Management's strategy for NHS is to self-fund the business through its growth
phase, building value within the customer base. This way, NHS will not require
significant cash from Just Energy's core operations nor will Just Energy rely on
NHS's cash flow to fund dividends. The result should be a valuable asset, which
will generate strong cash returns following repayment of the HTC financing.
Selected financial
information
(thousands of dollars,
except where indicated)
Three months Three months Nine months Nine months
ended ended ended ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------
Sales per financial
statements $ 9,411 $ 5,976 $ 25,589 $ 15,589
Cost of sales 2,223 1,611 5,624 4,606
----------------------------------------------------
Gross margin 7,188 4,365 19,965 10,983
Selling and marketing
expenses 1,188 756 3,066 2,420
Administrative expenses 2,968 2,896 9,305 8,777
Finance costs 2,648 1,733 7,165 4,564
Capital expenditures 8,056 7,044 26,607 24,350
Amortization 461 373 1,338 1,419
----------------------------------------------------
Total number of water
heaters, furnaces and
air conditioners
installed 153,700 110,700 153,700 110,700
----------------------------------------------------
----------------------------------------------------
Results from operations
For the three months ended December 31, 2011, NHS had sales of $9.4 million for
the quarter, up 57.5% from $6.0 million reported in the third quarter of fiscal
2011. Gross margin amounted to $7.2 million for the three months ended December
31, 2011, an increase of 65% from $4.4 million reported in the comparable
period. The cost of sales for the three months ended December 31, 2011 was $2.2
million, of which $1.8 million represents the non-cash amortization of the
installed water heaters, furnaces and air conditioners for the customer
contracts signed to date. Administrative costs, which relate primarily to
administrative staff compensation, warehouse expenses and the opening of
additional warehouses to support expansion throughout Ontario, were $3.0 million
for the three months ended December 31, 2011, an increase of 2% quarter over
quarter. The increase in administrative expenses was a result of the business
growth year over year.
Finance costs amounted to $2.6 million as a result of the financing arrangement
with HTC. Capital expenditures, including installation costs, amounted to $8.1
million for the three months ended December 31, 2011.
For the nine months ended December 31, 2011, sales were $25.6 million, an
increase of 64% over $15.6 million in sales recorded for the same period in
fiscal 2011, consistent as a result of the 39% increase in installed base and
the higher revenue contribution from the HVAC products. Gross margin was $20.0
million for the nine months ended December 31, 2011, an 82% increase over
margins of $11.0 million from the prior comparable period as a result of the
increase in installation base. Selling and marketing and administrative expenses
for the nine months of fiscal 2012 increased by 27% and 6%, respectively, over
the prior comparable period due to the continued growth in customer base.
Capital expenditures increased by 9% to $26.6 million for the nine months ended
December 31, 2011.
The growth of NHS has been rapid and, combined with the HTC financing, is
expected to be self-sustaining on a cash flow basis.
ETHANOL DIVISION (TGF)
TGF continues to remain focused on improving the plant production and run time
of the Belle Plaine, Saskatchewan, wheat-based ethanol facility. For the three
months ended December 31, 2011, the plant achieved an average production
capacity of 84%, an increase from average production capacity of 80% in the
second quarter of fiscal 2012 as a result of efficiencies gained from scheduled
maintenance performed in the previous quarter.
Ethanol prices were, on average, $0.76 per litre and wheat prices averaged $207
per metric tonne for the three months ended December 31, 2011. For the prior
comparable quarter, ethanol prices were lower and averaged $0.60 per litre and
wheat prices were $160 per metric tonne. As at December 31, 2011, ethanol was
priced at $0.60 per litre. For the three months ended December 31, 2011, the
average price per DDG was $168 per metric tonne in the prior comparative
quarter. The Ethanol division has separate non-recourse financing in place such
that capital requirements and operating losses will not impact Just Energy's
core business and its ability to pay dividends.
Selected financial information
(thousands of dollars, except where indicated)
Three months Three months Nine months Nine months
ended ended ended ended
December 31 December 31 December 31 December 31
2011 2010 2011 2010
------------------------------------------------------
Sales per financial
statements $ 37,540 $ 26,879 $ 104,111 $ 74,876
Cost of sales 31,074 21,082 88,888 67,403
------------------------------------------------------
Gross margin 6,466 5,797 15,223 7,473
Administrative
expenses 1,426 2,788 6,249 8,417
Finance costs 1,620 1,789 4,913 5,398
Capital expenditures 64 37 186 216
Amortization 291 299 938 892
------------------------------------------------------
Results of operations
For the third quarter of fiscal 2012, TGF had sales of $37.5 million, a 40%
increase from $26.9 million in the prior comparable quarter. Cost of sales
amounted to $31.1 million, an increase of 47% from $21.1 million in the three
months ended December 31, 2010. During the quarter, the plant produced 31.4
million litres of ethanol and 27,159 metric tonnes of DDG. In the prior
comparable quarter, TGF produced 31.6 million litres of ethanol and 31,683
metric tonnes of DDG and experienced the same average production capacity as
this current quarter, 84%. For the three months ended December 31, 2011, TGF
incurred $1.4 million in administrative expenses and $1.6 million in finance
costs.
For the nine months ended December 31, 2011, TGF increased sales by 39% from
$74.9 million to $104.1 million over the prior comparable period. Gross margin
was $15.2 million for the nine months ended December 31, 2011, a 104% increase
over the prior comparable period due to a loss experienced in the first quarter
of fiscal 2011 as a result of plant inefficiency and low ethanol and DDG prices.
TGF receives a federal subsidy related to the ecoEnergy for Biofuels Agreement
initially signed on February 17, 2009, based on the volume of ethanol produced.
The subsidy is $0.08 per litre for fiscal 2012. The subsidy amount declines
through time to $0.05 per litre of ethanol produced in fiscal 2015, the last
year of the agreement.
OVERALL CONSOLIDATED RESULTS
Administrative expenses
Administrative costs were $31.3 million for the three months ended December 31,
2011, representing a 19% increase from $26.2 million in the third quarter of the
prior fiscal year as well as a 9% increase over the administrative expense
recorded in the second quarter of fiscal 2012. For the nine months ended
December 31, 2011, administrative expenses were $88.4 million, an increase of 9%
from $81.0 million in the prior comparable period.
Three Three Nine Nine
months months months months
ended ended % ended ended %
December December Increase December December Increase
31 2011 31 2010 (decrease) 31 2011 31 2010 (decrease)
-----------------------------------------------------------------
Energy
marketing $ 25,679 $ 20,000 28% $ 69,055 $ 62,360 11%
NHS 2,968 2,896 2% 9,305 8,777 6%
TGF 1,426 2,788 (49)% 6,249 8,417 (26)%
Other 1,235 545 127% 3,757 1,479 154%
-----------------------------------------------------------------
Total
admini-
strative
expenses $ 31,308 $ 26,229 19% $ 88,366 $ 81,033 9%
Energy marketing administrative costs were $25.7 million in the third quarter of
fiscal 2012, an increase of 28% from $20.0 million for the three months ended
December 31, 2010. This increase is primarily attributable to the inclusion of
$2.6 million in administrative costs related to the Fulcrum acquisition.
Management does not anticipate any material synergies to be gained from the
Fulcrum acquisition with respect to the administrative expenses. Excluding the
Fulcrum-related costs, administrative expenses amounted to $28.7 million,
consistent with the administrative expenses recorded in the prior three
quarters. For the nine months ended December 31, 2011, administrative expenses
for energy marketing were $69.1 million, an increase of 11% over the prior
comparable period.
Administrative expenses for TGF were $1.4 million, a decrease of 49% from $2.8
million in the comparable period as a result of a reallocation of expense to
cost of sales.
Other administrative costs were $1.2 million and $3.8 million for the three and
nine months ended December 31, 2011. These expenses represent costs associated
with the establishment of Hudson Solar and the expansion of network marketing
through Momentis. Just Energy will continue to invest in Hudson Solar and
Momentis in order to build growth platforms.
Selling and marketing expenses
Selling and marketing expenses, which consist of commissions paid to independent
sales contractors, brokers and independent representatives for signing new
customers, as well as sales-related corporate costs, were $48.9 million, an
increase of 42% from $34.5 million in the third quarter of fiscal 2011. New
customers signed by our sales force were 310,000 during the third quarter of
fiscal 2012, an increase of 23% compared to 252,000 customers added through our
sales channels in the prior comparable quarter. For the nine months ended
December 31, 2011, selling and marketing expenses amounted to $118.7 million, an
increase of 17% from $101.2 million recorded in the prior comparable period.
Sales and marketing expenditures at NHS were up 57% and 27%, respectively, for
the three and nine months ended December 31, 2011.
Commissions related to obtaining and renewing Hudson commercial contracts are
paid all or partially upfront or as residual payments over the life of the
contract. If the commission is paid all or partially upfront, the amortization
is included in selling and marketing expenses as the associated revenue is
earned. If the commission is paid as a residual payment, the amount is expensed
as earned. Of the current total commercial customer base, approximately 62% are
commercial broker customers and approximately 63% of these commercial brokers
are being paid recurring residual payments. During the three months ended
December 31, 2011, $2.7 million in commission-related expenses were capitalized
to contract initiation costs. Of the capitalized commissions, $0.8 million
represents commissions paid to maintain gross margin and therefore, is included
in the maintenance capital deducted in the Adjusted EBITDA calculation.
Selling and marketing expenses to maintain gross margin are allocated based on
the ratio of gross margin lost from attrition as compared to the gross margin
signed from new and renewed customers during the period. Selling and marketing
expenses to maintain gross margin were $19.2 million for the three months ended
December 31, 2011, a slight increase from $19.1 million in the third quarter of
fiscal 2011. For the nine months ended December 31, 2011, selling and marketing
expenses to maintain gross margin amounted to $61.1 million, an increase of 10%
from $62.5 million in the prior comparable period.
Selling and marketing expenses to add new gross margin are allocated based on
the ratio of net new gross margin earned on the customers signed, less
attrition, as compared to the gross margin signed from new customers during the
period. Selling and marketing expenses to add new gross margin in the three
months ended December 31, 2011, totalled $26.6 million, an increase of 136% from
$11.3 million in the third quarter of fiscal 2011. For the nine months ended
December 31, 2011, sales and marketing expenses to add new gross margin were
$47.1 million, an increase of 66% from $28.4 million in the prior comparable
period. The increase over the prior comparable period is attributable to the
increase in net additions in fiscal 2012 as well as the inclusion of the
spending related to the growth of network marketing during the current fiscal
year.
Included within selling and marketing expenses for the three and nine months
ended December 31, 2011 is an amount of $11.5 million and $16.0 million,
respectively, representing the investment to grow the independent representative
base for Momentis. In contrast to door-to-door marketing, there is an initial
cost of building the Momentis channel as a result of the expansion of an
independent representative base that will contribute to the number of customers
on a go-forward basis. This cost is expensed immediately, with the margin for
customer aggregation recognized over future periods. The customers signed by
independent representatives are not customers that would normally been signed by
the traditional door-to-door marketing channel and typically experience lower
attrition and better renewal rates.
Selling and marketing expenses included in Base EBITDA exclude amortization
related to the contract initiation costs for Hudson and NHS. For the three
months ended December 31, 2011, the amortization amounted to $3.1 million, a
decrease of 24% from $4.1 million reported in the prior comparable quarter. The
amortization related to the contract initiation costs for the nine months ended
December 31, 2011 and 2010 was $10.6 million and $10.3 million, respectively.
The actual aggregation costs per customer for the nine months December 31, 2011,
for residential and commercial customers signed by independent representatives
and commercial customers signed by brokers were as follows:
Residential Commercial Commercial broker
customers customers customers
Natural gas
Canada $231/RCE $130/RCE $82/RCE
United States $208/RCE $91/RCE $27/RCE
Electricity
Canada $217/RCE $133/RCE $36/RCE
United States $188/RCE $115/RCE $35/RCE
Total aggregation costs $203/RCE $122/RCE $34/RCE
The actual aggregation per customer added for all energy marketing for the nine
months ended December 31, 2011, was $96/RCE. The $34/RCE average aggregation
cost for the commercial broker customers is based on the expected average annual
cost for the respective customer contracts. It should be noted that commercial
broker contracts are paid further commissions averaging $34/RCE per year for
each additional year that the customer flows. Assuming an average life of 2.8
years, this would add approximately $61 (1.8 x $34/RCE) to the quarter's $34/RCE
average aggregation cost for commercial broker customers reported above. For the
prior comparable nine months, total aggregation costs per residential,
commercial and commercial brokers were $172/RCE, $108/RCE and $35/RCE,
respectively, with a combined cost of $104/RCE.
Bad debt expense
In Illinois, Alberta, Texas, Pennsylvania, California, Massachusetts, Michigan
and Georgia, Just Energy assumes the credit risk associated with the collection
of customer accounts. In addition, for commercial direct-billed accounts in
British Columbia, New York and Ontario, Just Energy is responsible for the bad
debt risk. NHS has also assumed credit risk for customer account collection for
certain territories within Ontario. Credit review processes have been
established to manage the customer default rate. Management factors default from
credit risk into its margin expectations for all of the above-noted markets.
During the three months ended December 31, 2011, Just Energy was exposed to the
risk of bad debt on approximately 43% of its sales.
Bad debt expense is included in the consolidated income statement under other
operating expenses. Bad debt expense for the three months ended December 31,
2011, was $8.3 million, an increase of 28% from $6.5 million expensed for the
three months ended December 31, 2010. The bad debt expense increase was a result
of a 20% increase in total revenues for the current three-month period to $315.2
million, including the additional revenue earned in Texas from the customers
acquired from Fulcrum. In addition, the write-offs in Texas were higher than
normal in the quarter as a result of the write-offs associated with the higher
bills from the warmer weather experienced during the previous summer. Management
integrates its default rate for bad debts within its margin targets and
continuously reviews and monitors the credit approval process to mitigate
customer delinquency.
For the nine months ended December 31, 2011, the bad debt expense of $21.5
million represents approximately 2.5% of revenue, slightly lower than the 2.6%
reported for the prior comparable period with $18.9 million of bad debt expense.
Management expects that bad debt expense will remain in the range of 2% to 3%
for the fiscal year. For each of Just Energy's other markets, the LDCs provide
collection services and assume the risk of any bad debt owing from Just Energy's
customers for a regulated fee.
Finance costs
Total finance costs for the three months ended December 31, 2011 amounted to
$16.4 million, a decrease from $17.9 million recorded in the third quarter of
fiscal 2011. Excluding the $2.2 million of dividend payments made to holders of
Exchangeable Shares and equivalents classified as finance costs under IFRS in
the prior comparable quarter, finance costs increased by 4%. The increase in
costs primarily relates to the interest associated with the $100m convertible
debentures and the increase in NHS financing, which is offset by the lower
finance costs related to the credit facility.
For the nine months ended December 31, 2011, finance costs amounted to $44.5
million, an increase of 16% from $38.4 million in finance costs for the prior
comparable period, excluding the impact of $7.8 million in dividend payments
classified as finance costs. In addition to the increase in interest paid
related to NHS financing, finance costs relating to the $330m and $100m
convertible debentures were higher in the current period. The $330m convertible
debentures were issued in May 2010 to fund the Hudson acquisition, resulting in
only five months of related costs in the prior comparable period. The $100m
convertible debentures were issued in September 2011 to fund the Fulcrum
acquisition, resulting in no comparable costs being recorded in the prior fiscal
year.
Foreign exchange
Just Energy has an exposure to U.S. dollar exchange rates as a result of its
U.S. operations and any changes in the applicable exchange rate may result in a
decrease or increase in other comprehensive income. For the three months ended
December 31, 2011, a foreign exchange unrealized loss of $9.4 million was
reported in other comprehensive income (loss) versus $4.1 million in the prior
comparable period. For the nine months ended December 31, 2011, a foreign
exchange unrealized gain of $6.1 million was recorded compared to a gain of $5.2
million in the prior comparable period.
Overall, a weaker U.S. dollar decreases the value of sales and gross margin in
Canadian dollars but this is partially offset by lower operating costs
denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to
support ongoing growth and surplus cash is repatriated to Canada. U.S. cross
border cash flow is forecasted annually, and hedges for cross border cash flow
are placed. Just Energy hedges between 25% and 90% of the next 12 months' cross
border cash flows depending on the level of certainty of the cash flow.
Provision for income tax
(thousands of dollars)
For the For the For the For the
three three nine nine
months months months months
ended ended ended ended
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
Current income tax
provision (recovery) $ 987 $ 3,490 $ (3,174) $ 292
Deferred tax provision
(recovery) (1,416) 65,677 24,891 11,130
-------------------------------------------------
Provision for (recovery of)
income tax $ (429) $ 69,167 $ 21,717 $ 11,422
-------------------------------------------------
-------------------------------------------------
Just Energy recorded a current income tax provision of $1.0 million for the
third quarter of fiscal 2012, versus $3.5 million in the same period last year.
A current tax recovery of $3.2 million has been recorded for the nine-month
period of fiscal 2012, versus a provision of $0.3 million for the same period
last year. The change is mainly attributable to a U.S. income tax recovery
generated by higher tax losses incurred by the U.S. entities during the first
three quarters of this fiscal year.
For the first nine months of this fiscal year, the mark to market losses from
financial instruments decreased as a result of a change in fair value of these
derivative instruments during this period and, as a result, a deferred tax
expense of $24.9 million was recorded for this period. During the same period of
fiscal 2011, Just Energy was an income trust and only included timing
differences that were going to reverse subsequent to conversion when assessing
its future tax position, as a result of fluctuations in mark to market losses on
contracts that were to settle subsequent to January 1, 2011. Consequently a
deferred tax provision of only $11.1 million was recorded for the same period
last year.
After the Conversion on January 1, 2011, Just Energy has been taxed as a taxable
Canadian corporation. Therefore, the deferred tax asset or liability associated
with Canadian liabilities and assets recorded on the consolidated balance sheets
as at that date will be realized over time as the temporary differences between
the carrying value of assets in the consolidated financial statements and their
respective tax bases are realized. Current Canadian income taxes are accrued to
the extent that there is taxable income in Just Energy and its underlying
corporations. Canadian corporations under Just Energy are subject to a tax rate
of approximately 28%.
Under IFRS, Just Energy recognized income tax liabilities and assets based on
the estimated tax consequences attributable to the temporary differences between
the carrying value of the assets and liabilities on the consolidated financial
statements and their respective tax bases, using substantively enacted income
tax rates. A deferred tax asset will be recognized for the carry forward of
unused tax losses and unused tax credits to the extent that it is probable that
future taxable profit will be available against which the unused tax losses and
unused tax credits can be utilized. The effect of a change in the income tax
rates used in calculating deferred income tax liabilities and assets is
recognized in income during the period in which the change occurs.
Liquidity and capital
resources
Summary of cash flows
(thousands of dollars)
Three Three
months months Nine months Nine months
ended ended ended ended
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
---------------------------------------------------
Operating activities $ 17,473 $ 9,021 $ 66,847 $ 42,958
Investing activities (120,313) (19,132) (162,724) (302,505)
Financing activities,
excluding
distributions/dividends 48,764 27,522 179,062 336,973
Effect of foreign
currency translation (2,351) 749 (2,207) 7,794
---------------------------------------------------
Increase (decrease) in
cash before
distributions/dividends (56,427) 18,160 80,978 85,220
Distributions/dividends
(cash payments) (33,533) (32,685) (104,398) (99,526)
---------------------------------------------------
Decrease in cash (89,960) (14,525) (23,420) (14,306)
Cash - beginning of
period 165,006 79,001 98,466 78,782
---------------------------------------------------
Cash - end of period $ 75,046 $ 64,476 $ 75,046 $ 64,476
---------------------------------------------------
---------------------------------------------------
Operating activities
Cash flow from operating activities for the three months ended December 31,
2011, was $17.5 million, an increase from $9.0 million in the prior comparative
quarter. The increase is a result of the increase in gross margin and improved
changes in non-cash working capital quarter over quarter. For the nine months
ended December 31, 2011, cash flow from operating activities was $66.8 million,
an increase of 56% from $43.0 million reported for the prior comparable period.
Investing activities
Just Energy purchased capital assets totalling $21.1 million during the third
quarter of the fiscal year, a significant increase from $8.7 million in the
third quarter of the prior fiscal year. This increase is due to increased
capital investments made in the Home Services business and Hudson Solar.
Contract initiation costs relating to Hudson and NHS amounted to $5.4 million
for the three months ended December 31, 2011, a decrease of over 6.8 million
recorded in the prior comparable quarter.
Financing activities
Financing activities, excluding distributions/dividends, relates primarily to
the issuance and repayment of long-term debt. During the three months ended
December 31, 2011, $104.9 million in long-term debt was issued, with the
majority relating to increases in the credit facility and NHS financing with
repayments of long-term debt amounting to $56.8 million for the quarter. In the
prior comparable quarter, $47.8 million was issued in long-term debt relating to
the credit facility and NHS financing with $22.1 million being repaid.
For the nine months ended December 31, 2011, $353.0 million was issued in
long-term debt with repayments amounting to $176.2 million, resulting in net
borrowing of $176.8 million. In addition to the $100 million issued, there were
increases to the borrowings related to the credit facility and NHS financing.
For the nine months ended December 31, 2010, $414.8 million was issued in long
term debt with $72.3 million being repaid. The issuance of long-term debt was
primarily related to the $330m convertible debentures issued to finance the
Hudson acquisition in May 2010.
As of December 31, 2011, Just Energy had a credit facility of $350 million
expiring on December 31, 2013. As Just Energy continues to expand in the U.S.
markets, the need to fund working capital and collateral posting requirements
will increase, driven primarily by the number of customers aggregated, and to a
lesser extent, by the number of new markets. Based on the markets in which Just
Energy currently operates and others that management expects the Company to
enter, funding requirements will be fully supported through the credit facility.
Just Energy's liquidity requirements are driven by the delay from the time that
a customer contract is signed until cash flow is generated. For residential
customers, approximately 60% of an independent sales contractor's commission
payment is made following reaffirmation or verbal verification of the customer
contract, with most of the remaining 40% being paid after the energy commodity
begins flowing to the customer. For commercial customers, commissions are paid
either as the energy commodity flows throughout the contract or partially
upfront once the customer begins to flow.
The elapsed period between the time when a customer is signed to when the first
payment is received from the customer varies with each market. The time delays
per market are approximately two to nine months. These periods reflect the time
required by the various LDCs to enroll, flow the commodity, bill the customer
and remit the first payment to Just Energy. In Alberta and Texas, Just Energy
receives payment directly from the customer.
Distributions/dividends (Cash payments)
During the three months ended December 31, 2011, Just Energy made cash
distributions/dividends to its shareholders and holders of restricted share
grants and deferred share grants in the amount of $33.5 million, compared to
$32.7 million in the prior comparable period. For the nine months ended December
31, 2011, cash dividends were $104.4 million, an increase from $99.5 million
paid in distributions in the prior comparable period.
Just Energy maintains its annual dividend rate at $1.24 per share, the same rate
that was previously paid for distributions. The current dividend policy provides
that shareholders of record on the 15th of each month receive dividends at the
end of the month.
Investors should note that due to the dividend reinvestment plan ("DRIP"), a
portion of dividends (and prior to January 1, 2011, distributions) declared are
not paid in cash. Under the program, shareholders can elect to receive their
dividends in shares at a 2% discount to the prevailing market price rather than
the cash equivalent. With the commencement of the normal course issuer bid on
December 16, 2011, Just Energy announced its intention to suspend the ability of
shareholders to participate in its DRIP until further notice effective February
1, 2012. For the three and nine months ended December 31, 2011, dividends paid
in shares under the DRIP amount to $7.7 million and $26.5 million, respectively.
Just Energy will continue to utilize its cash resources for expansion into new
markets, growth in its existing energy marketing customer base, JustGreen and
JustClean products, and in the Solar and Home Services division, as well as to
make accretive acquisitions for its customers as well as to provide dividends to
its shareholders.
Balance sheet as of December 31, 2011, compared to March 31, 2011
Cash decreased from $98.5 million as at March 31, 2011, to $75.0 million. The
utilization of the credit facility increased from $53.0 million to $104.3
million during the nine months ended December 31, 2011 as a result of normal
seasonal working capital requirements. Working capital requirements in the U.S.
and Alberta are a result of the timing difference between customer consumption
and cash receipts. For electricity, working capital is required to fund the lag
between settlements with the suppliers and settlement with the LDCs.
As at December 31, 2011, trade receivables and unbilled revenue amounted to
$281.6 million and $146.5 million, respectively, compared to nine months earlier
when the trade receivables and unbilled revenue amounted to $281.7 million and
$112.1 million, respectively. Trade payables have increased from $275.5 million
to $283.7 million in the past nine months.
As at December 31, 2011, Just Energy had delivered less gas to the LDCs than had
been consumed by customers in Ontario, Manitoba, Quebec and Michigan, resulting
in gas delivered in excess of consumption and deferred revenue of $62.7 million
and deferred revenue of $68.9 million, respectively. This build-up of inventory
at the LDCs is in the normal course of operations and will decrease over the
remaining winter months as consumption by customers continues to exceed
deliveries. At March 31, 2011, Just Energy had accrued gas receivable and
payable amounting to $26.5 million and $19.4 million, respectively. In addition,
gas in storage increased from $6.1 million as at March 31, 2011 to $45.0 million
as at December 31, 2011, due to the seasonality of the customer gas consumption.
Other assets and other liabilities relate entirely to the fair value of the
financial derivatives. The mark to market gains and losses can result in
significant changes in net income and, accordingly, shareholders' equity from
quarter to quarter due to commodity price volatility. Given that Just Energy has
purchased this supply to cover future customer usage at fixed prices, management
believes that these non-cash quarterly changes are not meaningful.
Intangible assets include the goodwill, acquired customer contracts as well as
other intangibles such as brand, broker network and information technology
systems, primarily related to the Fulcrum, Hudson and Universal purchases. The
total intangible asset balance decreased to $582.8 million, from $640.2 million
as at March 31, 2011, primarily as a result of amortization, but offset by the
increase in intangibles associated with the Fulcrum acquisition.
Long-term debt (excluding the current portion) has increased from $507.5 million
to $677.8 million in the nine months ended December 31, 2011, primarily as a
result of the issuance of the $100 million convertible debentures as well as an
increase in HTC financing.
Long-term debt and financing
(thousands of dollars)
As at December 31 As at March 31
2011 2011
--------------------------------
Just Energy credit facility $ 104,316 $ 53,000
TGF credit facility 33,205 36,680
TGF debentures 35,881 37,001
NHS financing 140,083 105,716
$90m convertible debentures 85,744 84,706
$330m convertible debentures 290,510 286,439
$100m convertible debentures 85,655 -
Just Energy credit facility
Just Energy holds a $350 million credit facility to meet working capital
requirements. The syndicate of lenders includes Canadian Imperial Bank of
Commerce, Royal Bank of Canada, National Bank of Canada, Societe Generale, The
Bank of Nova Scotia, Toronto Dominion Bank and Alberta Treasury Branches. Under
the terms of the credit facility, Just Energy was able to make use of Bankers'
Acceptances and LIBOR advances at stamping fees that vary between 2.88% and
3.38%, prime rate advances at rates of interest that vary between bank prime
plus 1.88% and 2.38%, and letters of credit at rates that vary between 2.88% and
3.38%. Interest rates are adjusted quarterly based on certain financial
performance indicators.
Just Energy's obligations under the credit facility are supported by guarantees
of certain subsidiaries and affiliates, excluding among others, TGF and NHS, and
secured by a pledge of the assets of Just Energy and the majority of its
operating subsidiaries and affiliates. Just Energy is required to meet a number
of financial covenants under the credit facility agreement. As at December 31,
2011 and 2010 all of these covenants had been met.
TGF credit facility
A credit facility of up to $50 million was established with a syndicate of
Canadian lenders led by Conexus Credit Union and was arranged to finance the
construction of the ethanol plant in 2007. The facility was revised on March 18,
2009, and was converted to a fixed repayment term of ten years commencing March
1, 2009, which includes interest costs at a rate of prime plus 3%, with
principal repayments commencing on March 1, 2010. The facility was further
revised on June 30, 2010, postponing the principal payments due for April 1,
2010 to June 1, 2010, and to amortize them over the six-month period commencing
October 1, 2010, and ending March 31, 2011. The credit facility is secured by a
demand debenture agreement, a first priority security interest on all assets and
undertakings of TGF, and a general security interest on all other current and
acquired assets of TGF, all of which have no recourse to the Company or any
other Just Energy entity. The credit facility includes certain financial
covenants, the more significant of which relate to current ratio, debt to equity
ratio, debt service coverage and minimum shareholders' equity. The covenants
will be measured as of March 31, 2012, and non-attainment may result in a
non-compliance fee up to 0.25% of the loan balance as of March 31, 2012.
TGF debentures
A debenture purchase agreement with a number of private parties providing for
the issuance of up to $40 million aggregate principal amount of debentures was
entered into in 2006. TGF was in recent negotiations with the lender and
adjusted the covenant levels. In addition the interest rate was increased to
12%, and quarterly blended principal and interest payments of $1.1 million were
established. The agreement includes certain financial covenants, the more
significant of which relate to current ratio, debt to capitalization ratio, debt
service coverage, debt to EBITDA and minimum shareholders' equity. Compliance
with the new covenants, which are more favourable than the original covenants,
will be measured annually beginning with the fiscal 2012 year end. The maturity
date was extended to May 15, 2014, with a call right any time after April 1,
2012. The debenture holders have no recourse to the Company or any other Just
Energy entity.
NHS financing
In fiscal 2010, NHS entered into a long-term financing agreement with HTC for
the funding of new and existing rental water heater and HVAC contracts in the
Enbridge Gas distribution territory. In July, 2010, the financing arrangement
was expanded to the Union Gas territory. Pursuant to the agreement, NHS will
receive financing of an amount equal to the net present value of the first five,
seven or ten years (at its option) of monthly rental income, discounted at the
agreed upon financing rate of 7.99%, and is required to remit an amount
equivalent to the rental stream from customers on the water heater and HVAC
contracts for the first five, seven or ten years, respectively. Under the
agreement, up to one third of rental agreements may be financed for each of the
seven- or ten-year terms. As at December 31, 2011, the average term of the HTC
funding was 6.1 years.
The financing agreement is subject to a holdback provision, whereby 3% in the
Enbridge territory and 5% in the Union Gas territory of the outstanding balance
of the funded amount is deducted and deposited to a reserve account in the event
of default. Once all of the obligations of NHS are satisfied or expired, the
remaining funds in the reserve account will immediately be released to NHS. HTC
holds security over the contracts and equipment it has financed. NHS is required
to meet a number of covenants under the agreement and, as at December 31, 2011,
all of these covenants have been met.
$90m convertible debentures
In conjunction with the acquisition of Universal on July 1, 2009, Just Energy
assumed the obligations of the convertible unsecured subordinated debentures
issued by Universal in October 2007, which have a face value of $90 million. The
fair value of the convertible debenture was estimated by discounting the
remaining contractual payments at the time of acquisition. This discount will be
accreted using an effective interest rate of 8%. These instruments mature on
September 30, 2014, unless converted prior to that date, and bear interest at an
annual rate of 6%, payable semi-annually on March 31 and September 30 of each
year. As at December 31, 2011, each $1,000 principal amount of the $90m
convertible debentures is convertible at any time prior to maturity or on the
date fixed for redemption, at the option of the holder, into approximately 33.25
Just Energy common shares, representing a conversion price of $30.08 per share.
Pursuant to the $90m convertible debentures, if Just Energy fixes a record date
for the making of a dividend on its shares, the conversion price shall be
adjusted in accordance therewith.
On and after October 1, 2010, but prior to September 30, 2012, the $90m
convertible debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at Just Energy's
sole option on not more than 60 days' and not less than 30 days' prior notice,
provided that the current market price on the date on which notice of redemption
is given is not less than 125% of the conversion price ($22.50). On and after
September 30, 2012, but prior to the maturity date, the $90m convertible
debentures are redeemable, in whole or in part, at a price equal to the
principal amount thereof, plus accrued and unpaid interest, at Just Energy's
sole option on not more than 60 days' and not less than 30 days' prior notice.
$330m convertible debentures
To fund the acquisition of Hudson, Just Energy entered into an agreement with a
syndicate of underwriters for $330 million of convertible extendible unsecured
subordinated debentures issued on May 5, 2010. The $330m convertible debentures
bear an interest rate of 6.0% per annum payable semi-annually in arrears on June
30 and December 31 of each three months, with maturity on June 30, 2017. Each
$1,000 of principal amount of the $330m convertible debentures is convertible at
any time prior to maturity or on the date fixed for redemption, at the option of
the holder, into approximately 55.6 shares of Just Energy, representing a
conversion price of $18 per share.
The $330m convertible debentures are not redeemable prior to June 30, 2013,
except under certain conditions after a change of control has occurred. On or
after June 30, 2013, but prior to June 30, 2015, the debentures may be redeemed
by Just Energy, in whole or in part, on not more than 60 days' and not less than
30 days' prior notice, at a redemption price equal to the principal amount
thereof, plus accrued and unpaid interest, provided that the current market
price on the date on which notice of redemption is given is not less than 125%
of the conversion price. On or after June 30, 2015, and prior to the maturity
date, the debentures may be redeemed by Just Energy, in whole or in part, at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest.
$100m convertible debentures
On September 22, 2011, Just Energy issued $100 million of convertible unsecured
subordinated debentures to fund the acquisition of Fulcrum and for other
corporate purposes on October 3, 2011. The $100 million convertible debentures
bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and
September 30 in each year, commencing March 31, 2012 and have a maturity date of
September 30, 2018. Each $1,000 principal amount of the $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 56.0 common shares of
Just Energy, representing a conversion price of $17.85.
The $100 million convertible debentures are not redeemable at the option of the
Company on or before September 30, 2014. After September 30, 2014 and prior to
September 30, 2016, the $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 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 September 30, 2016, the $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.
CONTRACTUAL OBLIGATIONS
In the normal course of business, Just Energy is obligated to make future
payments for contracts and other commitments that are known and non-cancellable.
Payments due by period
(thousands of
dollars)
Less than 1 4 - 5 After 5
Total year 1 - 3 years years Years
----------------------------------------------------------
Accounts payable
and accrued
liabilities $ 283,659 $ 283,659 $ - $ - $ -
Bank indebtedness 5,035 5,035 - - -
Long-term debt
(contractual cash
flow) 833,999 96,691 256,184 26,290 454,834
Interest payments 282,596 47,528 86,833 66,903 81,332
Property and
equipment lease
agreements 37,184 8,415 12,666 8,074 8,029
Grain production
contracts 4,666 3,973 693 - -
Commodity supply
purchase
commitments 2,769,643 1,358,817 1,197,724 208,798 4,304
----------------------------------------------------------
$ 4,216,782 $ 1,804,118 $ 1,554,100 $ 310,065 $ 548,499
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other obligations
In the opinion of management, Just Energy has no material pending actions,
claims or proceedings that have not been included in either its accrued
liabilities or in the financial statements. In the normal course of business,
Just Energy could be subject to certain contingent obligations that become
payable only if certain events were to occur. The inherent uncertainty
surrounding the timing and financial impact of any events prevents any
meaningful measurement, which is necessary to assess any material impact on
future liquidity. Such obligations include potential judgments, settlements,
fines and other penalties resulting from actions, claims or proceedings.
TRANSACTIONS WITH RELATED PARTIES
Just Energy does not have any material transactions with any individuals or
companies that are not considered independent of Just Energy or any of its
subsidiaries and/or affiliates.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements of Just Energy have been prepared in
accordance with IFRS. Certain accounting policies require management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, cost of sales, selling and marketing, and administrative expenses.
Estimates are based on historical experience, current information and various
other assumptions that are believed to be reasonable under the circumstances.
The emergence of new information and changed circumstances may result in actual
results or changes to estimated amounts that differ materially from current
estimates.
The following assessment of critical accounting estimates is not meant to be
exhaustive. Just Energy might realize different results from the application of
new accounting standards promulgated, from time to time, by various rule-making
bodies.
Unbilled revenues/Accrued gas accounts payable
Unbilled revenues result when customers consume more gas than has been delivered
by Just Energy to the LDCs. These estimates are stated at net realizable value.
Accrued gas accounts payable represents Just Energy's obligation to the LDC with
respect to gas consumed by customers in excess of that delivered and valued at
net realizable value. This estimate is required for the gas business unit only,
since electricity is consumed at the same time as delivery. Management uses the
current average customer contract price and the current average supply cost as a
basis for the valuation.
Gas delivered in excess of consumption/Deferred revenues
Gas delivered to LDCs in excess of consumption by customers is valued at the
lower of cost and net realizable value. Collections from LDCs in advance of
their consumption results in deferred revenues, which are valued at net
realizable value. This estimate is required for the gas business unit only since
electricity is consumed at the same time as delivery. Management uses the
current average customer contract price and the current average supply cost as a
basis for the valuation.
Allowance for doubtful accounts
Just Energy assumes the credit risk associated with the collection of all
customers' accounts in Alberta, Illinois, Texas, Pennsylvania, California,
Massachusetts, Michigan and Georgia. In addition, for large direct-billed
accounts in B.C., New York and Ontario, Just Energy is responsible for the bad
debt risk. NHS has also assumed credit risk for customer accounts within certain
territories in Ontario. Management estimates the allowance for doubtful accounts
in these markets based on the financial conditions of each jurisdiction, the
aging of the receivables, customer and industry concentrations, the current
business environment and historical experience.
Goodwill
In assessing the value of goodwill for potential impairment, assumptions are
made regarding Just Energy's future cash flow. If the estimates change in the
future, Just Energy may be required to record impairment charges related to
goodwill. An impairment review of goodwill was performed as at June 30, 2011,
and as a result of the review, it was determined that no impairment of goodwill
existed.
FAIR VALUE OF DERIVATIVES FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Just Energy has entered into a variety of derivative financial instruments as
part of the business of purchasing and selling gas, electricity and JustGreen
supply. Just Energy enters into contracts with customers to provide electricity
and gas at fixed prices and provide comfort to certain customers that a
specified amount of energy will be derived from green generation. These customer
contracts expose Just Energy to changes in market prices to supply these
commodities. To reduce the exposure to the commodity market price changes, Just
Energy uses derivative financial and physical contracts to secure fixed-price
commodity supply to cover its estimated fixed-price delivery or green
commitment.
Just Energy's objective is to minimize commodity risk, other than consumption
changes, usually attributable to weather. Accordingly, it is Just Energy's
policy to hedge the estimated fixed-price requirements of its customers with
offsetting hedges of natural gas and electricity at fixed prices for terms equal
to those of the customer contracts. The cash flow from these supply contracts is
expected to be effective in offsetting Just Energy's price exposure and serves
to fix acquisition costs of gas and electricity to be delivered under the
fixed-price or price-protected customer contracts. Just Energy's policy is not
to use derivative instruments for speculative purposes.
Just Energy's expansion into the U.S. has introduced foreign exchange-related
risks. Just Energy enters into foreign exchange forwards in order to hedge its
exposure to fluctuations in cross border cash flows.
The financial statements are in compliance with IAS 32, Financial Instruments:
Presentation, IAS 39, Financial Instruments: Recognition and Measurement and
IFRS 7, Financial Instruments: Disclosure. Up to June 30, 2008, the financial
statements also applied Section 3865 of the CICA Handbook, which permitted a
further calculation for qualified and designated accounting hedges to determine
the effective and ineffective portions of the hedge. This calculation permitted
the change in fair value to be accounted for predominantly in the consolidated
statements of comprehensive income. As of July 1, 2008, management decided that
the increasing complexity and costs of maintaining this accounting treatment
outweighed the benefits. This fair value (and when it was applicable, the
ineffectiveness) was determined using market information at the end of each
quarter. Management believes Just Energy remains economically hedged
operationally across all jurisdictions.
JUST ENERGY COMMON SHARES
As at February 8, 2012, there were 139,339,241 common shares of JE outstanding.
NORMAL COURSE ISSUER BID
During the quarter, Just Energy announced that it had received approval to make
a normal course issuer bid to purchase for cancellation up to 13,200,917 of its
common shares, approximately 10% of the public float, during a 12-month period
commencing December 16, 2011 and ending December 15, 2012. A maximum of 82,430
shares, approximately 25% of the average daily trading volume, may be purchased
on any trading day. As at December 31, 2011. Just Energy purchased and cancelled
36,000 shares at an average price of $11.02 for total cash consideration of $0.4
million.
RECENTLY ISSUED ACCOUNTING STANDARDS
New accounting pronouncements adopted
Fiscal 2012 is Just Energy's first fiscal year reporting under IFRS. Accounting
standards effective for annual reporting periods ended on March 31, 2011, have
been adopted as part of the transition to IFRS.
Recent pronouncements issued
IFRS 9 Financial Instruments
As of April 1, 2013, Just Energy will be required to adopt IFRS 9, Financial
Instruments, which is the result of the first phase of the IASB's project to
replace IAS 39, Financial Instruments: Recognition and Measurement. The new
standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 10 Consolidated Financial Statements
As of April 1, 2013, IFRS 10, Consolidated Financial Statements will replace
portions of IAS 27 Consolidated and Separate Financial Statements and
Interpretation SIC-12, Consolidation - Special Purpose Entities. The new
standard requires consolidated financial statements to include all controlled
entities under a single control model. The Company will be considered to control
an investee when it is exposed, or has rights to variable returns from its
involvement with the investee and has the current ability to affect those
returns through its power over the investee.
As required by this standard, control is reassessed as facts and circumstances
change. All facts and circumstances must be considered to make a judgment about
whether or not the Company controls another entity; there are no clear lines.
Additional guidance is given on how to evaluate whether certain relationships
give the Company the current ability to affect its returns, including how to
consider options and convertible instruments, holding less than a majority of
voting rights, how to consider protective rights, and principal-agency
relationships (including removal rights), all of which may differ from current
practice. The Company has not yet assessed the impact of the standard or
determined whether it will adopt the standard early.
IFRS 11 Joint Arrangements
On April 1, 2013, Just Energy will be required to adopt IFRS 11, Joint
Arrangements, which applies to accounting for interests in joint arrangements
where there is joint control. The standard requires the joint arrangements to be
classified as either joint operations or joint ventures. The structure of the
joint arrangement would no longer be the most significant factor when
classifying the joint arrangement as either a joint operation or a joint
venture. In addition, the option to account for joint ventures (previously
called "jointly controlled entities") using proportionate consolidation will be
removed and replaced by equity accounting.
Due to the adoption of this new section, the Company will transition the
accounting for joint ventures from the proportionate consolidation method to the
equity method by aggregating the carrying values of the proportionately
consolidated assets and liabilities into a single line item. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 12 Disclosure of Interests in Other Entities
On April 1, 2013, Just Energy will be required to adopt IFRS 12, Disclosure of
Interests in Other Entities, which includes disclosure requirements about
subsidiaries, joint ventures, and associates, as well as unconsolidated
structured entities and replaces existing disclosure requirements. Due to this
new section, the Company will be required to disclose the following: judgments
and assumptions made when deciding how to classify involvement with another
entity, interests that non-controlling interests have in consolidated entities,
and nature of the risks associated with interests in other entities. The Company
has not yet assessed the impact of the standard or determined whether it will
adopt the standard early.
IFRS 13 Fair Value Measurement
On April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value
Measurement." The new standard will generally converge the IFRS and Canadian
("GAAP") requirements for how to measure fair value and the related disclosures.
IFRS 13 establishes a single source of guidance for fair value measurements,
when fair value is required or permitted by IFRS. Upon adoption, the Company
will provide a single framework for measuring fair value while requiring
enhanced disclosures when fair value is applied. In addition, fair value will be
defined as the "exit price" and concepts of 'highest and best use and "valuation
premise" would be relevant only for non-financial assets and liabilities. The
Company has not yet assessed the impact of the standard or determined whether it
will adopt the standard early.
IAS 27 Separate Financial Statements
On April 1, 2013 Just Energy will be required to adopt IAS 27, Separate
Financial Statements. As a result of the issue of the new consolidation suite of
standards, IAS 27 has been reissued to reflect the change as the consolidation
guidance has recently been included in IFRS 10.
In addition, IAS 27 will now only prescribe the accounting and disclosure
requirements for investments in subsidiaries, joint ventures and associates when
the Company prepares separate financial statements. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 28 Investments in Associates and Joint Ventures
On April 1, 2013, Just Energy will be required to adopt IAS 28, Investments in
Associates and Joint Ventures.
As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been
amended and will further provide the accounting guidance for investments in
associates and will set out the requirements for the application of the equity
method when accounting for investments in associates and joint ventures.
The company will apply this standard when there is joint control or significant
influence over an investee.
Significant influence is the power to participate in the financial and operating
policy decisions of the investee but does not include control or joint control
of those policy decisions. When determined that the Company has an interest in a
joint venture, the Company will recognize an investment and will account for it
using the equity method in accordance with IAS 28. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
LEGAL PROCEEDINGS
Just Energy's subsidiaries are party to a number of legal proceedings. Just
Energy believes that each proceeding constitutes a routine legal matter
incidental to the business conducted by Just Energy and that the ultimate
disposition of the proceedings will not have a material adverse effect on its
consolidated earnings, cash flows or financial position.
In addition to the routine legal proceedings of Just Energy, the State of
California has filed a number of complaints to the Federal Energy Regulatory
Commission ("FERC") against many suppliers of electricity, including CEI with
respect to events stemming from the 2001 energy crisis in California. Pursuant
to the complaints, the State of California is challenging the FERC's enforcement
of its market-based rate system. Although CEI did not own generation facilities,
the State of California is claiming that CEI was unjustly enriched by the run-up
in charges caused by the alleged market manipulation of other market
participants. On March 18, 2010, the Administrative Law Judge in the matter
granted a motion to strike the claim for all parties in one of the complaints,
holding that California did not prove that the reporting errors masked the
accumulation of market power. California has appealed the decision. CEI
continues to vigorously contest this matter which is not expected to have a
material impact on the financial condition of the Company.
CONTROLS AND PROCEDURES
At December 31, 2011, the Chief Executive Officer and Chief Financial Officer of
the Company, along with the assistance of senior management, have designed
disclosure controls and procedures to provide reasonable assurance that material
information relating to Just Energy is made known to the CEO and CFO, and have
designed internal controls over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with IFRS. During the interim period,
there have been no changes in Just Energy's policies and procedures that
comprise its internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
LIMITATION ON SCOPE OF DESIGN
Section 3.3(1) of National Instrument 52-109, "Certification of Disclosure in
Issuer's Annual and Interim Filings", states that the Company may limit its
design of disclosure controls and procedures and internal controls over
financial reporting for a business that it acquired not more than 365 days
before the end of the financial period to which the certificate relates. Under
this section, the Company's CEO and CFO have limited the scope of the design,
and subsequent evaluation, of disclosure controls and procedures and internal
controls over financial reporting to exclude controls, policies and procedures
of the acquired Fulcrum Retail Holdings, LLC ("Fulcrum") acquired effective
October 1, 2011.
Summary financial information pertaining to the Fulcrum acquisition that was
included in the consolidated financial statements of the Fund as at December 31,
2011 is as follows:
(In thousands of dollars) Total
-------
Sales(1) $53,655
Net income 9,900
Current assets 36,571
Non-current assets 98,736
Current liabilities 39,307
Non-current liabilities 4,971
-------
(1) Results from October 1, 2011 to December 31, 2011
CORPORATE GOVERNANCE
Just Energy is committed to transparency in our operations and our approach to
governance meets all recommended standards. Full disclosure of our compliance
with existing corporate governance rules is available on our website at
www.justenergygroup.com and is included in Just Energy's May 20, 2011,
management information circular. Just Energy actively monitors the corporate
governance and disclosure environment to ensure timely compliance with current
and future requirements.
OUTLOOK
The third quarter of fiscal 2012 was highlighted by record marketing success.
The past decisions to diversify beyond the core long term, fixed rate gas and
electricity products resulted in gross customer additions through marketing of
310,000, 19% more customers than the prior record quarterly total of 261,000 and
up 30% from the second quarter. Net customer additions through marketing were
115,000, up 156% from the second quarter. Management anticipates that this level
of marketing success can be sustainable over the long term, although fourth
quarter customer additions are normally lower than those of the third quarter
due to the aftermath of the holiday period. Both consumer and commercial
customer additions increased in the quarter, with the majority of new customers
being commercial. Just Energy's total customer base increased by 10% in the
quarter, which includes the customers acquired with Fulcrum.
Commercial customers show several different characteristics when compared to
traditional residential customers. They are generally signed at lower annual
margins per RCE but are acquired with commensurately lower aggregation cost and
lower ongoing administrative cost. The customers have a similar average life to
residential customers but are subject to lower annual attrition and higher
failure to renew at contract end in order to reach this life. Overall, the
continued rapid growth of the commercial business will result in higher customer
growth than margin growth in future periods; this trend was witnessed in the
third quarter. The commercial customer base grew from 33% at the time of the
Hudson acquisition to 48% at the end of the quarter due to marketing success and
the acquisition of Fulcrum. The diversification of products and sales channels
continues at Just Energy. Over the past three years, Just Energy's management
has taken a number of steps intended to use new products and markets to provide
growth as the current commodity price environment, which has been an extended
period of stable low prices, is not conducive to the sale of long-term
fixed-price offerings. The acquisition of Fulcrum has provided an entry into
affinity-based sales, a market segment which Just Energy had not previously
pursued. Recently developed telemarketing and Internet sales as well as the
Momentis network marketing division are also further diversifications of the
Company's sales platform. With our platform of independent representatives, we
will begin to sell NHS products in Ontario and green products throughout North
America.
Green products continued to grow as a portion of the residential base. JustGreen
as a percentage of the natural gas residential book, almost doubled to 9%, up
from 5% year over year while JustGreen currently makes up 12% of the electricity
residential book up from 10%. These profitable products are saleable to a broad
spectrum of the residential market and contribute to improved renewal rates at
the end of the contracts. Just Energy has more than 25 contracts with green
energy projects across the Company's markets and continues to look for more
opportunities as the business expands.
National Home Services also contributed to growth this quarter. The number of
installed units was up 39% year over year with margin from those units up 65% to
$7.2 million in the quarter. This growth, along with improved results at the
Company's ethanol plant, more than offsets lower growth in margins in the energy
marketing business. Just Energy expects continued contributions from these
businesses, particularly as NHS expands into new geographic territories.
As has been the case for all of fiscal 2012, the third quarter showed the
continued benefit of past diversifications as well as the weather mitigation
impact of the Company's hedging program. Gross margin was up 12% (9% per
share/unit) versus the prior comparable quarter. For the nine months ended
December 31, 2011, gross margin was up 11% (9% per share/unit), ahead of the
published fiscal 2012 guidance of 5% per share. Adjusted EBITDA, which
management believes is the best measure of operating performance, was up 15%
(12% per share) for the quarter, the third consecutive quarter with double digit
per share growth. Year to date, Adjusted EBITDA is up 21% (18% per share), again
well ahead of the Company's 5% guidance for fiscal 2012 and consistent with
management's expectation. Adjusted EBITDA reflects the business profit after
maintenance capital and before selling and marketing costs to grow future
embedded gross margin.
Base EBITDA (EBITDA after all marketing costs) was down 8% for the quarter but
this is to be expected given the record customer additions through marketing and
the resulting increase in future embedded margin within customer contracts over
the quarter. As in the past, Just Energy customers have a very rapid payback on
the cost of acquisition and one time higher commission costs associated with
increased future margins are a positive event and should be quickly recovered.
The combination of higher than targeted growth in all key operating measures
through three quarters and the record gross and net customer additions year to
date provides confidence that the 5% guidance for both gross margin growth per
share and Adjusted EBITDA growth per share will be exceeded in fiscal 2012. One
of the key factors preventing an increase in this guidance is the continued warm
winter weather and its impact on gas consumption. Just Energy's weather index
derivatives provide a maximum of $15 million in mitigation of lost margin and $9
million of that was realized in the third quarter. Continued warm weather could
bring margin growth for the year down to target levels with a proportionately
lower increase in Adjusted EBITDA.
For the third consecutive quarter, Just Energy's payout ratio has been down
significantly from the prior year. Payout ratio on Adjusted EBITDA was 50% for
the quarter down from 55% in the prior year. For the nine months ended December
31, 2011, the payout ratio was 75%, down from 88% in the prior comparative
period with the largest EBITDA quarter still to come. Given that Just Energy
comfortably paid $1.24 per unit to its shareholders/unitholders in fiscal 2011
and the sharply lower payout ratio to date in fiscal 2012, management does not
foresee any circumstance in which the current dividend cannot be maintained.
Furthermore, the majority of the margin benefit of the Fulcrum acquisition will
not be seen until the first two quarters of fiscal 2013, which is the
electricity cooling season in Texas, Fulcrum's core market.
The Company continues to actively monitor possible acquisition opportunities
within its current business segments.
Effective January 30, 2012, Just Energy's common shares were listed for trading
on the New York Stock Exchange. Management believes this will expose the shares
to a wider investment audience and that the result, over time, will be greater
liquidity in the market.
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, March 31,
Notes 2011 2011
ASSETS
Non-current assets
Property, plant and equipment $ 264,870 $ 234,002
Intangible assets 582,847 640,219
Contract initiation costs 38,930 29,654
Other non-current financial assets 7 9,463 5,384
Non-current receivables 6,088 4,569
Deferred tax asset 90,364 121,785
-------------------------------
$ 992,562 $ 1,035,613
-------------------------------
Current assets
Inventories 8,691 6,906
Gas delivered in excess of
consumption 62,725 3,481
Gas in storage 44,954 6,133
Current trade and other
receivables 281,601 281,685
Accrued gas receivables - 26,535
Unbilled revenues 146,536 112,147
Prepaid expenses and deposits 9,049 6,079
Other current assets 7 13,764 3,846
Corporate tax recoverable 9,479 9,135
Cash and cash equivalents 75,046 98,466
-------------------------------
651,845 554,413
-------------------------------
TOTAL ASSETS $ 1,644,407 $ 1,590,026
-------------------------------
DEFICIT AND LIABILITIES
Deficit attributable to equity
holders of the parent
Deficit $ (1,530,923) $ (1,349,928)
Accumulated other comprehensive
income 8 86,038 123,919
Shareholders' capital 9 991,440 963,982
Equity component of convertible
debentures 10(e)(f) 25,795 18,186
Contributed surplus 59,251 52,723
-------------------------------
(368,399) (191,118)
Non-controlling interest (322) -
-------------------------------
TOTAL DEFICIT (368,721) (191,118)
-------------------------------
Non-current liabilities
Long-term debt 10 677,829 507,460
Provisions 3,622 3,244
Deferred lease inducements 1,809 1,622
Other non-current financial
liabilities 7 331,340 355,412
Deferred tax liability 8,238 22,919
-------------------------------
1,022,838 890,657
Current liabilities
Bank indebtedness 5,035 2,314
Trade and other payables 283,659 275,503
Accrued gas payable - 19,353
Deferred revenue 68,894 -
Income taxes payable 1,623 9,788
Current portion of long-term debt 10 96,691 94,117
Provisions 3,351 4,006
Other current financial
liabilities 7 531,037 485,406
-------------------------------
990,290 890,487
-------------------------------
TOTAL LIABILITIES 2,013,128 1,781,144
-------------------------------
TOTAL DEFICIT AND LIABILITIES $ 1,644,407 $ 1,590,026
-------------------------------
Commitments (Note 16)
See accompanying notes to the interim consolidated financial statements.
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED INCOME STATEMENTS
(thousands of Canadian dollars, except where indicated and per share/unit
amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months Three months Nine months Nine months
ended ended ended ended
December December December December
31, 31, 31, 31,
Notes 2011 2010 2011 2010
------------------------------------------------------------
SALES 11 $ 738,614 $ 744,296 $ 1,964,857 $ 2,011,858
COST OF SALES 591,207 612,212 1,620,628 1,702,700
----------------------------------------------------
GROSS MARGIN 147,407 132,084 344,229 309,158
----------------------------------------------------
EXPENSES
Administrative
expenses 31,308 26,229 88,366 81,033
Selling and
marketing
expenses 48,866 34,469 118,722 101,177
Other
operating
expenses 12(a) 40,249 40,929 119,833 122,637
----------------------------------------------------
120,423 101,627 326,921 304,847
----------------------------------------------------
Operating profit 26,984 30,457 17,308 4,311
Finance costs 10 (16,377) (17,877) (44,509) (46,237)
Change in fair
value of
derivative
instruments 7 (110,721) 234,928 (6,128) 366,339
Other income 2,299 127 5,298 2,830
----------------------------------------------------
Income (loss)
before income
tax (97,815) 247,635 (28,031) 327,243
Provision for
(recovery of)
income tax 13 (429) 69,167 21,717 11,422
----------------------------------------------------
PROFIT (LOSS)
FOR THE PERIOD $ (97,386) $ 178,468 $ (49,748) $ 315,821
----------------------------------------------------
Attributable to:
Shareholders/
Unitholders of
Just Energy $ (97,262) $ 178,281 $ (49,624) $ 317,957
Non-controlling
interest (124) 187 (124) (2,136)
----------------------------------------------------
PROFIT (LOSS)
FOR THE PERIOD $ (97,386) $ 178,468 $ (49,748) $ 315,821
----------------------------------------------------
See accompanying notes to the interim consolidated financial statements
Profit (loss)
per share/unit 14
Basic $ (0.70) $ 1.41 $ (0.36) $ 2.53
Diluted $ (0.70) $ 1.16 $ (0.36) $ 2.22
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months Three months Nine months Nine months
ended ended ended ended
December December December December
31, 31, 31, 31,
Notes 2011 2010 2011 2010
-----------------------------------------------------------
Profit (loss) for
the period $ (97,386) $ 178,468 $ (49,748) $ 315,821
----------------------------------------------------
Other
comprehensive
income (loss) 8
Unrealized gain
(loss) on
translation of
foreign
operations (9,441) (4,070) 6,086 5,177
Amortization of
deferred
unrealized gain
of discontinued
hedges net of
income taxes of
$3,447 (2010 -
$5,421) and
$9,961 (2010 -
$15,860) for the
three and nine
months ended
December 31,
respectively 7 (14,203) (25,227) (43,967) (77,145)
----------------------------------------------------
Other
comprehensive
loss for the
period, net of
tax (23,644) (29,297) (37,881) (71,968)
----------------------------------------------------
Total
comprehensive
income (loss)
for the period,
net of tax $ (121,030) $ 149,171 $ (87,629) $ 243,853
----------------------------------------------------
Total
comprehensive
income (loss)
attributable to:
Shareholders/Unit
holders of Just
Energy $ (120,906) $ 148,984 $ (87,505) $ 245,989
Non-controlling
interest (124) 187 (124) (2,136)
----------------------------------------------------
Total
comprehensive
income (loss)
for the period,
net of tax $ (121,030) $ 149,171 $ (87,629) $ 243,853
----------------------------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED DECEMBER 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2011 2010
---------------------------------------
ATTRIBUTABLE TO THE
SHAREHOLDERS/UNITHOLDERS
Accumulated deficit
Accumulated deficit, beginning of
period $ (315,934) $ (671,010)
Loss on cancellation of shares 9 (141) -
Profit (loss) for the period,
attributable to the
shareholders/unitholders (49,624) 317,957
--------------------------------
Accumulated deficit, end of period (365,699) (353,053)
--------------------------------
DISTRIBUTIONS/DIVIDENDS
Distributions and dividends,
beginning of period (1,033,994) (885,659)
Distributions and dividends (131,230) (105,127)
--------------------------------
Distributions and dividends, end of
period (1,165,224) (990,786)
--------------------------------
DEFICIT $ (1,530,923) $ (1,343,839)
--------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME 8
Accumulated other comprehensive
income, beginning of period 123,919 $ 221,969
Other comprehensive loss (37,881) (71,968)
--------------------------------
Accumulated other comprehensive
income, end of period $ 86,038 $ 150,001
--------------------------------
SHAREHOLDERS'/UNITHOLDERS' CAPITAL 9
Shareholders'/Unitholders' capital,
beginning of period $ 963,982 $ 777,856
Shares/units exchanged - 12,595
Shares/units issued on
exercise/exchange of unit
compensation 1,239 462
Repurchase and cancellation of shares (256) -
Dividend reinvestment plan 26,475 17,935
--------------------------------
Shareholders'/Unitholders' capital,
end of period $ 991,440 $ 808,848
--------------------------------
EQUITY COMPONENT OF CONVERTIBLE
DEBENTURES 10
Balance, beginning of period $ 18,186 $ -
Allocations of new convertible
debentures issued 10,188 33,914
Future tax impact on convertible
debentures (2,579) (15,728)
--------------------------------
Balance, end of period $ 25,795 $ 18,186
--------------------------------
CONTRIBUTED SURPLUS
Balance, beginning of period $ 52,723 $ -
Add: share-based compensation awards 7,660 -
non-cash deferred share grant
distributions 107 -
Less: share-based awards exercised (1,239) -
--------------------------------
Balance, end of period $ 59,251 $ -
--------------------------------
NON-CONTROLLING INTEREST
Balance, beginning of period $ - $ 20,421
Non-controlling interest acquired 6 (198) -
Net income attributable to non-
controlling interest (124) (2,136)
--------------------------------
Balance, end of period $ (322) $ 18,285
--------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three Nine Nine
Net outflow of months months months months
cash related to ended ended ended ended
the following December December December December
activities Notes 31, 2011 31, 2010 31, 2011 31, 2010
----------------------------------------------------------------------------
OPERATING
Income (loss)
before income tax $ (97,815) $ 247,635 $ (28,031) $ 327,243
----------------------------------------------------
Items not
affecting cash
Amortization of
intangible
assets and
related supply
contracts 26,317 29,572 85,254 88,999
Amortization of
contract
initiation
costs 3,072 4,056 10,570 10,327
Amortization of
property, plant
and equipment 1,531 2,079 4,307 5,891
Amortization
included in
cost of sales 3,236 2,547 9,173 7,237
Share-based
compensation 3,054 2,648 7,660 7,231
Financing
charges, non-
cash portion 2,390 2,057 6,330 5,700
Transaction
costs on
acquisition 1,078 - 1,078 1,284
Other 5 101 (182) 175
Change in fair
value of
derivative
instruments 110,721 (234,928) 6,128 (366,339)
----------------------------------------------------
151,404 (191,868) 130,318 (239,495)
Adjustment
required to
reflect net cash
receipts from gas
sales (1,109) (66) 14,083 26,897
Changes in non-
cash working
capital (33,998) (46,354) (43,293) (63,375)
----------------------------------------------------
18,482 9,347 73,077 51,270
Income tax paid (1,009) (326) (6,230) (8,312)
----------------------------------------------------
Cash inflow from
operating
activities 17,473 9,021 66,847 42,958
----------------------------------------------------
INVESTING
Purchase of
property, plant
and equipment (21,112) (8,688) (43,113) (29,080)
Purchase of
intangible assets (902) (919) (4,396) (1,814)
Acquisitions, net
of cash acquired (91,103) (2,425) (93,326) (259,188)
Proceeds
(advances) of
long-term
receivables (702) (332) (1,488) 2,901
Transaction costs
on acquisition (1,078) - (1,078) (1,284)
Contract
initiation costs (5,416) (6,768) (19,323) (14,040)
----------------------------------------------------
Cash outflow from
investing
activities (120,313) (19,132) (162,724) (302,505)
----------------------------------------------------
FINANCING
Dividends paid (33,533) (32,685) (104,398) (99,526)
Shares purchased
for cancellation 9 (397) - (397) -
Increase
(decrease) in
bank indebtedness 1,054 1,827 2,721 (5,546)
Issuance of long-
term debt 104,924 47,789 352,983 414,771
Repayment of long-
term debt (56,817) (22,094) (176,245) (72,252)
----------------------------------------------------
Cash inflow from
financing
activities 15,231 (5,163) 74,664 237,447
----------------------------------------------------
Effect of foreign
currency
translation on
cash balances (2,351) 749 (2,207) 7,794
----------------------------------------------------
Net cash outflow (89,960) (14,525) (23,420) (14,306)
Cash and cash
equivalents,
beginning of
period 165,006 79,001 98,466 78,782
----------------------------------------------------
Cash and cash
equivalents, end
of period $ 75,046 $ 64,476 $ 75,046 $ 64,476
----------------------------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2011
(thousands of Canadian dollars, except where indicated and per unit/share amounts)
1. ORGANIZATION
Effective January 1, 2011, Just Energy completed the conversion from an income
trust, Just Energy Income Fund (the "Fund"), to a corporation (the
"Conversion"). A plan of arrangement was approved by unitholders on June 29,
2010, and by the Alberta Court of the Queen's Bench on June 30, 2010, and going
forward operates under the name, Just Energy Group Inc. ("JEGI", "Just Energy"
or the "Company"). JEGI was a newly incorporated entity for the purpose of
acquiring the outstanding units of the Fund, Exchangeable Shares of Just Energy
Exchange Corp. ("JEEC") and the Class A preference shares of Just Energy Corp.
("JEC") in each case on a one for one basis for common shares of JEGI. There was
no change in the ownership of the business, and therefore, there is no impact to
the consolidated financial statements except for the elimination of unitholders'
equity and the recording of shareholders' equity in the same amount.
Just Energy 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: Just Energy Ontario L.P., Just Energy
Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership,
Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy
Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just
Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp.,
Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy,
Inc. ("Commerce" or "CEI"), National Energy Corporation (which operates under
the trade name of National Home Services ("NHS")), Hudson Energy Services, LLC,
and Hudson Energy Canada Corp. (collectively, "Hudson" or "HES"), Momentis
Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain
Fuels Inc. ("TGF"), Hudson Energy Solar Corp. ("Hudson Solar"), Just Energy
Limited ("JEL") and Fulcrum Retail Holdings LLC and its subsidiaries operating
under the trade names Tara Energy and Amigo Energy ("Fulcrum").
The registered office of Just Energy is First Canadian Place, 100 King Street
West, Toronto, Ontario, Canada. The consolidated financial statements consist of
Just Energy, its subsidiaries and affiliates. The financial statements were
approved by the Board of Directors on February 9, 2012.
2. OPERATIONS
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts. 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. 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. Just Energy also offers green products
through its JustGreen and JustClean programs. The electricity JustGreen product
offers customers the option of having all or a portion of their electricity
sourced from renewable green sources such as wind, run of the river hydro or
biomass. The gas JustGreen product offers carbon offset credits that will allow
customers to reduce or eliminate the carbon footprint of their homes or
businesses. JustClean products allow customers in certain jurisdictions to
offset their carbon footprint without purchasing commodity from Just Energy.
JustClean can be offered in all states and provinces and is not dependent on
energy deregulation. Management believes that the JustGreen and JustClean
products will not only add to profits but will also increase sales receptivity
and improve renewal rates.
In addition, through NHS, Just Energy sells and rents high efficiency and
tankless water heaters, air conditioners and furnaces to Ontario residents.
Through its subsidiary, TGF, Just Energy produces and sells wheat-based ethanol.
Just Energy's subsidiary, Hudson Solar, also provides a solar project
development platform in New Jersey, Pennsylvania and Massachusetts.
3. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
In 2010, the Canadian Institute of Chartered Accountants ("CICA") Handbook was
revised to incorporate International Financial Reporting Standards ("IFRS") and
requires publicly accountable enterprises to apply such standards effective for
years beginning on or after January 1, 2011. Accordingly, the Company commenced
reporting on this basis for the interim financial statements for fiscal 2012.
These consolidated financial statements have been prepared in accordance with
IFRS applicable to the preparation of interim financial statements, including
International Accounting Standard ("IAS") 34, Interim Financial Reporting, and
IFRS 1, First-time Adoption of International Financial Reporting Standards.
Subject to certain transition elections, the Company has consistently applied
the same accounting policies in its opening IFRS consolidated balance sheet at
April 1, 2010, and throughout all periods presented, as if these policies had
always been in effect. Note 17 discloses the impact of the transition to IFRS on
the Company's reported financial position, financial performance and cash flows,
including the nature and effect of significant changes in accounting policies
from those used in the Company's audited annual consolidated financial
statements for the year ended March 31, 2011, prepared under Canadian generally
accepted accounting principles ("CGAAP").
The policies applied in these consolidated financial statements are based on
IFRS issued and outstanding as of December 31, 2011. Any subsequent changes to
IFRS pertaining to the Company's annual consolidated statements of financial
position, income and comprehensive income for the year ending March 31, 2012,
could result in a restatement of these consolidated financial statements,
including the transition adjustments recognized on changeover to IFRS.
The consolidated financial statements should be read in conjunction with the
Company's CGAAP audited annual consolidated financial statements for the year
ended March 31, 2011, as well as the Company's first IFRS unaudited interim
consolidated financial statements for the three-month period ended June 30,
2011. Note 17 to these consolidated financial statements discloses the impact of
the transition to IFRS on the Company's reported financial position and results.
(a) Basis of presentation
The consolidated financial statements are presented in Canadian dollars, the
functional currency of Just Energy, and all values are rounded to the nearest
thousand. The consolidated financial statements are prepared on an historical
cost basis except for the derivative financial instruments, which are stated at
fair value.
(b) Principles of consolidation
The consolidated financial statements include the accounts of Just Energy and
its directly or indirectly owned subsidiaries and affiliates as at December 31,
2011. 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, income, expenses, and unrealized gains and
losses resulting from intercompany transactions are eliminated on consolidation.
4. (i) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements requires the use of
estimates and assumptions to be made in applying the accounting policies that
affect the reported amounts of assets, liabilities, income, expenses and the
disclosure of contingent liabilities. The estimates and related assumptions are
based on previous experience and other factors considered reasonable under the
circumstances, the results of which form the basis of making the assumptions
about carrying values of assets and liabilities that are not readily apparent
from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised. Judgments made by management in the application of IFRS
that have significant impact on the consolidated financial statements relate to
the following:
Impairment of non-financial assets
Just Energy's impairment test is based on value-in-use calculations that use a
discounted cash flow model. The cash flows are derived from the budget for the
next five years and are sensitive to the discount rate used as well as the
expected future cash inflows and the growth rate used for extrapolation
purposes.
Deferred taxes
Significant management judgment is required to determine the amount of deferred
tax assets that can be recognized, based upon the likely timing and the level of
future taxable income realized, including the usage of tax-planning strategies.
Development costs
Development costs are capitalized when the product or process is technically and
commercially feasible and sufficient resources have been allocated to complete
development. Initial capitalization of costs is based on management's judgment
that technical and economical feasibility is confirmed, usually when a project
has reached a defined milestone according to an established project management
model. At December 31, 2011, the carrying amount of capitalized development
costs was $14,912 (March 31, 2011 - $16,275). This amount primarily includes
costs for the internal development of software tools for customer billing and
analysis in the various operating jurisdictions. These software tools are
developed by the internal information technology and operations department for
specific regional market requirements.
Useful life of key property, plant and equipment and intangible assets
The amortization method and useful lives reflect the pattern in which management
expects the asset's future economic benefits to be consumed by Just Energy.
Provisions for litigation
The State of California has filed a number of complaints to the Federal Energy
Regulatory Commission ("FERC") against many suppliers of electricity, including
Commerce, a subsidiary of Just Energy, with respect to events stemming from the
2001 energy crisis in California. Pursuant to the complaints, the State of
California is challenging FERC's enforcement of its market-based rate system. At
this time, the likelihood of damages or recoveries and the ultimate amounts, if
any, with respect to this litigation are not certain; however, an estimated
amount has been recorded in these consolidated financial statements as at
December 31, 2011. In the general course of operations, Just Energy has made
additional provisions for litigation matters that have arisen.
Trade receivables
Just Energy reviews its individually significant receivables at each reporting
date to assess whether an impairment loss should be recorded in the consolidated
income statement. In particular, judgment by management is required in the
estimation of the amount and timing of future cash flows when determining the
impairment loss. In estimating these cash flows, Just Energy makes judgments
about the borrower's financial situation and the net realizable value of
collateral. These estimates are based on assumptions about a number of factors.
Actual results may differ, resulting in future changes to the allowance.
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in
the consolidated statement of financial position cannot be derived from active
markets, they are determined using valuation techniques including discounted
cash flow models. The inputs to these models are taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required
in establishing fair values. The judgment includes consideration of inputs such
as liquidity risk, credit risk and volatility. Changes in assumptions about
these factors could affect the reported fair value of financial instruments.
Refer to Note 7 for further details about the assumptions as well as a
sensitivity analysis.
Acquisition accounting
For acquisition accounting purposes, all identifiable assets, liabilities and
contingent liabilities acquired in a business combination are recognized at fair
value on the date of acquisition. Estimates are used to calculate the fair value
of these assets and liabilities as at the date of acquisition.
(ii) ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED
IFRS 9, Financial Instruments
As of April 1, 2013, Just Energy will be required to adopt IFRS 9, Financial
Instruments, which is the result of the first phase of the IASB's project to
replace IAS 39, Financial Instruments: Recognition and Measurement. The new
standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 10, Consolidated Financial Statements
As of April 1, 2013, IFRS 10, Consolidated Financial Statements, will replace
portions of IAS 27, Consolidated and Separate Financial Statements, and
Interpretation SIC-12, Consolidation: Special Purpose Entities. The new standard
requires consolidated financial statements to include all controlled entities
under a single control model. The Company will be considered to control an
investee when it is exposed or has rights to variable returns from its
involvement with the investee and has the current ability to affect those
returns through its power over the investee.
As required by this standard, control is reassessed as facts and circumstances
change. All facts and circumstances must be considered to make a judgment about
whether the Company controls another entity; there are no clear lines.
Additional guidance is given on how to evaluate whether certain relationships
give the Company the current ability to affect its returns, including how to
consider options and convertible instruments, holding less than a majority of
voting rights; how to consider protective rights and principal-agency
relationships (including removal rights), all of which may differ from current
practice. The Company has not yet assessed the impact of the standard or
determined whether it will adopt the standard early.
IFRS 11, Joint Arrangements
On April 1, 2013, Just Energy will be required to adopt IFRS 11, Joint
Arrangements, which applies to accounting for interests in joint arrangements
where there is joint control. The standard requires the joint arrangements to be
classified as either joint operations or joint ventures. The structure of the
joint arrangement would no longer be the most significant factor when
classifying the joint arrangement as either a joint operation or a joint
venture. In addition, the option to account for joint ventures (previously
called "jointly controlled entities") using proportionate consolidation will be
removed and replaced by equity accounting.
Due to the adoption of this new section, the Company will transition the
accounting for joint ventures from the proportionate consolidation method to the
equity method by aggregating the carrying values of the proportionately
consolidated assets and liabilities into a single line item. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 12, Disclosure of Interests in Other Entities
On April 1, 2013, Just Energy will be required to adopt IFRS 12, Disclosure of
Interests in Other Entities, which includes disclosure requirements about
subsidiaries, joint ventures and associates as well as unconsolidated structured
entities and replaces existing disclosure requirements. Due to this new section,
the Company will be required to disclose the following: judgments and
assumptions made when deciding how to classify involvement with another entity,
interests that non-controlling interests have in consolidated entities, and
nature of the risks associated with interests in other entities. The Company has
not yet assessed the impact of the standard or determined whether it will adopt
the standard early.
IFRS 13, Fair Value Measurement
On April 1, 2013, Just Energy will be required to adopt IFRS 13, Fair Value
Measurement. The new standard will generally converge the IFRS and CGAAP
requirements for how to measure fair value and the related disclosures. IFRS 13
establishes a single source of guidance for fair value measurements, when fair
value is required or permitted by IFRS. Upon adoption, the Company will provide
a single framework for measuring fair value while requiring enhanced disclosures
when fair value is applied. In addition, fair value will be defined as the "exit
price" and concepts of "highest and best use" and "valuation premise" would be
relevant only for non-financial assets and liabilities. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 27, Separate Financial Statements
On April 1, 2013, Just Energy will be required to adopt IAS 27, Separate
Financial Statements. As a result of the issue of the new consolidation suite of
standards, IAS 27 has been reissued to reflect the change as the consolidation
guidance has recently been included in IFRS 10.
In addition, IAS 27 will now only prescribe the accounting and disclosure
requirements for investments in subsidiaries, joint ventures and associates when
the Company prepares separate financial statements. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 28, Investments in Associates and Joint Ventures
On April 1, 2013, Just Energy will be required to adopt IAS 28, Investments in
Associates and Joint Ventures. As a consequence of the issue of IFRS 10, IFRS 11
and IFRS 12, IAS 28 has been amended and will further provide the accounting
guidance for investments in associates and will set out the requirements for the
application of the equity method when accounting for investments in associates
and joint ventures.
The Company will apply this standard when there is joint control or significant
influence over an investee. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but does not
include control or joint control of those policy decisions. When determined that
the Company has an interest in a joint venture, the Company will recognize an
investment and will account for it using the equity method in accordance with
IAS 28. The Company has not yet assessed the impact of the standard or
determined whether it will adopt the standard early.
5. SEASONALITY OF OPERATIONS
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.
6. ACQUISITION OF FULCRUM RETAIL HOLDINGS LLC
On October 3, 2011, Just Energy completed the acquisition of the equity interest
of Fulcrum with an effective date of October 1, 2011. The acquisition was funded
by an issuance of $100 million in convertible debentures (Note 10(f)).
The consideration for the acquisition was US$79.4 million paid at the time of
closing, subject to customary working capital adjustments. Just Energy paid
US$7.3 million in connection with the preliminary working capital adjustment
still subject to finalization. Just Energy will also pay up to US$11.0 million
in cash and issue up to 867,025 common shares (collectively, the "Earn-Out"
amount) to the sellers 18 months following the closing date, provided that
certain EBITDA and billed volume targets are satisfied by Fulcrum. On the
Earn-Out, Just Energy will pay 4.006% interest on the cash portion and $1.86 per
share issued at the end of the Earn-Out period. The $11.0 million is being held
in a restricted cash account until the amount is finalized.
The fair value of the contingent consideration at acquisition was estimated to
be $18,327. Changes in the fair value of the contingent consideration will be
recorded in the consolidated income statement as a change in fair value of
derivative instruments. The contingent consideration was valued at $19,756 as of
December 31, 2011, and is included in other non-current financial liabilities.
The acquisition of Fulcrum was accounted for using the purchase method of
accounting. Just Energy allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
Net assets acquired:
Working capital (including cash of $3,665) $ 3,235
Property, plant and equipment 973
Contract initiation costs 156
Customer contracts and relationships 35,697
Affinity relationships 42,359
Brand 13,034
Goodwill 20,652
Non-controlling interest 198
Other liabilities - current (10,845)
Other liabilities - long term (3,620)
Deferred lease inducements (322)
Long-term debt (586)
-----------
Total consideration $ 100,931
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of estimated working capital adjustment $ 82,604
Contingent consideration 18,327
-----------
Total consideration $ 100,931
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The transaction costs related to the acquisition of Fulcrum have been expensed
and are included in other operating expenses in the consolidated income
statement. The transaction costs related to the issuance of the convertible
debentures have been capitalized and were allocated to the equity and liability
component of the convertible debt in relation to the fair value of both the
components. Goodwill of $20,652 comprises the value of expected ongoing
synergies from the acquisition. None of the goodwill recognized is expected to
be deductible for income tax purposes. Goodwill associated with the Fulcrum
acquisition is part of the electricity marketing segment. The purchase price
allocation is considered preliminary, and as a result, it may be adjusted during
the 12-month period following the acquisition, in accordance with IFRS 3.
The fair value of the trade receivables amounted to $40,227 at the date of
acquisition. The gross amount of trade receivables is $44,197.
The electricity customer contracts and affinity relationships are amortized over
the average remaining life at the time of acquisition. The electricity contracts
and customer relationships are amortized over 42 months (3.5 years). The
affinity relationships are amortized over eight years.
From the date of acquisition, Fulcrum has contributed $53,655 of sales and
($6,480) to the net loss before tax of Just Energy for the period ended December
31, 2011. If the combination had taken place at the beginning of the fiscal
year, total sales would have been $2,109,098 and the total net loss before tax
would have been $35,414.
7. FINANCIAL INSTRUMENTS
(a) Fair value
Fair value is the estimated amount that Just Energy would pay or receive to
dispose of these supply contracts in an arm's length transaction between
knowledgeable, willing parties who are under no compulsion to act. Management
has estimated the value of electricity, unforced capacity, heat rates, heat rate
options, renewable and gas swap and forward contracts using a discounted cash
flow method, which employs market forward curves that are either directly
sourced from third parties or are developed internally based on third party
market data. These curves can be volatile thus leading to volatility in the mark
to market with no impact to cash flows. Gas options have been valued using the
Black option value model using the applicable market forward curves and the
implied volatility from other market traded gas options.
Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting.
Accordingly, all the mark to market changes on Just Energy's derivative
instruments are recorded on a single line on the consolidated income statement.
Due to the commodity volatility and size of Just Energy, the quarterly swings in
mark to market on these positions will increase the volatility in Just Energy's
earnings.
The following tables illustrate gains/(losses) related to Just Energy's
derivative financial instruments classified as held-for-trading and recorded on
the consolidated balance sheet as other assets and other liabilities with their
offsetting values recorded in change in fair value of derivative instruments for
the three and nine months ended December 31, 2011:
Change in fair value of derivative instruments
For the For the
three three
For the three months For the three months
months ended ended months ended ended
December 31, December December 31, December
2011 31, 2011 2010 31, 2010
(USD) (USD)
Canada
Fixed-for-floating
electricity swaps
(i) $ 6,756 n/a $ 51,906 n/a
Renewable energy
certificates (ii) (604) n/a (843) n/a
Verified emission-
reduction credits
(iii) 134 n/a 300 n/a
Options (iv) 610 n/a (309) n/a
Physical gas
forward contracts
(v) (21,575) n/a 64,420 n/a
Transportation
forward contracts
(vi) (3,109) n/a 4,830 n/a
Fixed financial
swaps (vii) (13,960) n/a (2,141) n/a
United States
Fixed-for-floating
electricity swaps
(viii) (51,085) (49,936) 34,041 33,606
Physical
electricity
forward contracts
(ix) (20,008) (19,558) 43,417 42,868
Unforced capacity
forward contracts
(x) 86 84 (624) (616)
Unforced capacity
physical contracts
(xi) 5,113 4,998 (1,306) (1,289)
Renewable energy
certificates (xii) (421) (412) 1,054 1,041
Verified emission-
reduction credits
(xiii) 505 493 408 402
Options (xiv) 165 161 (433) (427)
Physical gas
forward contracts
(xv) 3,212 3,140 83,841 82,781
Transportation
forward contracts
(xvi) 118 116 403 398
Heat rate swaps
(xvii) 13,078 12,784 5,031 4,968
Fixed financial
swaps (xviii) (23,518) (22,989) (40,947) (40,430)
Foreign exchange
forward contracts
(xix) 1,483 n/a 756 n/a
Ethanol physical
forward contracts (50) n/a - n/a
Amortization of
deferred
unrealized gains
on discontinued
hedges 17,650 n/a 30,648 n/a
Amortization of
derivative
financial
instruments
related to
acquisitions (23,264) n/a (37,881) n/a
Liability
associated with
Exchangeable
Shares and equity-
based compensation - - (1,643) n/a
Change in fair
value of
contingent
consideration (2,037) n/a n/a n/a
----------------------------------------------------------------------------
Change in fair value
of derivative
instruments $ (110,721) $ 234,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in fair value of derivative instruments
For the For the
nine nine
For the nine months For the nine months
months ended ended months ended ended
December 31, December December 31, December
2011 31, 2011 2010 31, 2010
(USD) (USD)
Canada
Fixed-for-floating
electricity swaps
(i) $ 79,652 n/a $ 186,142 n/a
Renewable energy
certificates (ii) (59) n/a (989) n/a
Verified emission-
reduction credits
(iii) 105 n/a (889) n/a
Options (iv) 4,811 n/a 545 n/a
Physical gas
forward contracts
(v) 38,892 n/a 86,575 n/a
Transportation
forward contracts
(vi) (879) n/a 16,747 n/a
Fixed financial
swaps (vii) (14,390) n/a (2,141) n/a
United States
Fixed-for-floating
electricity swaps
(viii) (35,092) (33,415) 34,113 33,861
Physical
electricity
forward contracts
(ix) (29,196) (28,939) 37,218 37,035
Unforced capacity
forward contracts
(x) (2,935) (3,016) (993) (973)
Unforced capacity
physical contracts
(xi) 916 718 (2,204) (2,161)
Renewable energy
certificates (xii) 1,972 2,040 (785) (736)
Verified emission-
reduction credits
(xiii) 157 134 74 82
Options (xiv) 1,265 1,292 496 468
Physical gas
forward contracts
(xv) 8,004 8,106 103,160 101,702
Transportation
forward contracts
(xvi) 785 799 195 199
Heat rate swaps
(xvii) 15,647 15,391 (2,490) (2,303)
Fixed financial
swaps (xviii) (28,388) (27,889) (66,688) (65,131)
Foreign exchange
forward contracts
(xix) (1,586) n/a 1,003 n/a
Ethanol physical
forward contracts (135) n/a - n/a
Amortization of
deferred
unrealized gains
on discontinued
hedges 53,928 n/a 93,005 n/a
Amortization of
derivative
financial
instruments
related to
acquisitions (97,565) n/a (112,401) n/a
Liability
associated with
Exchangeable
Shares and equity-
based compensation - n/a (3,354) n/a
Change in fair
value of
contingent
consideration (2,037) n/a n/a n/a
-----------------------------------------------------
Change in fair value
of derivative
instruments $ (6,128) $ 366,339
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at December 31,
2011:
Other Other
Other assets Other assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps
(i) $ - $ - $ 88,208 $ 56,816
Renewable energy
certificates (ii) 153 49 156 289
Verified emission-
reduction credits
(iii) - - 382 457
Options (iv) 1,293 622 - -
Physical gas
forward contracts
(v) - - 161,842 100,736
Transportation
forward contracts
(vi) 240 - 5,459 3,794
Fixed financial
swaps (vii) - - 5,226 10,381
United States
Fixed-for-floating
electricity swaps
(viii) - - 60,466 30,761
Physical
electricity
forward contracts
(ix) 151 6 91,464 49,427
Unforced capacity
forward contracts
(x) - - 641 2,650
Unforced capacity
physical
contracts (xi) 756 - 1,168 1,352
Renewable energy
certificates
(xii) 361 303 649 618
Verified emission-
reduction credits
(xiii) 42 60 304 415
Options (xiv) 178 - 136 8
Physical gas
forward contracts
(xv) 492 - 35,418 11,578
Transportation
forward contracts
(xvi) - - 1,894 237
Heat rate swaps
(xvii) 10,098 8,423 - -
Fixed financial
swaps (xviii) - - 77,430 42,065
Foreign exchange
forward contracts
(xix) - - 194 -
Contingent
consideration
(Note 6) - - - 19,756
----------------------------------------------------------------------------
As at December 31,
2011 $ 13,764 $ 9,463 $ 531,037 $ 331,340
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at March 31,
2011:
Other Other
Other assets Other assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for floating
electricity swaps
(i) $ - $ - $ 131,279 $ 93,397
Renewable energy
certificates (ii) 194 196 158 417
Verified emission-
reduction credits
(iii) - - 315 628
Options (iv) 815 692 4,403 -
Physical gas
forward contracts
(v) - - 166,634 134,847
Transportation
forward contracts
(vi) - 24 5,301 2,858
Fixed financial
swaps (vii) - 1,037 2,235 19
United States
Fixed-for-floating
electricity swaps
(viii) 125 45 29,028 25,719
Physical
electricity
forward contracts
(ix) - 310 55,548 37,535
Unforced capacity
forward contracts
(x) 309 177 581 118
Unforced capacity
physical
contracts (xi) 100 410 1,606 1,280
Renewable energy
certificates
(xii) 44 49 1,037 1,610
Verified emission-
reduction credits
(xiii) 13 36 275 491
Options (xiv) 1 - 1,056 165
Physical gas
forward contracts
(xv) 40 - 32,883 19,354
Transportation
forward contracts
(xvi) - - 1,526 1,281
Heat rate swaps
(xvii) 639 2,408 180 131
Fixed financial
swaps (xviii) 40 - 51,361 35,562
Foreign exchange
forward contracts
(xix) 1,391 - - -
Ethanol physical
forward contracts 135 - - -
----------------------------------------------------------------------------
As at March 31, 2011 $ 3,846 $ 5,384 $ 485,406 $ 355,412
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes financial instruments classified as
held-for-trading as at December 31, 2011, to which Just
Energy has committed:
Total
Contract type Notional volume remaining Maturity date
volume
Canada
----------------------------------------------------------------------------
(i) Fixed-for-floating 0.0001-48 8,119,739 January 31, 2012 -
electricity swaps
(i) MWh MWh March 1, 2018
----------------------------------------------------------------------------
(ii) Renewable energy 10-90,000 780,310 December 31, 2012 -
certificates MWh MWh December 31, 2015
----------------------------------------------------------------------------
(iii) Verified emission- 6,000-50,000 636,500 December 31, 2012 -
reduction credits tonnes tonnes December 31, 2016
----------------------------------------------------------------------------
(iv) Options 119-28,500 1,949,778 January 31, 2012 -
GJ/month GJ February 28, 2014
----------------------------------------------------------------------------
(v) Physical gas
forward 1-16,510 73,093,923 January 31, 2012 -
contracts GJ/day GJ March 31, 2016
----------------------------------------------------------------------------
(vi) Transportation
forward 74-2,874 42,403,992 January 31, 2012 -
contracts GJ/day GJ August 31, 2015
----------------------------------------------------------------------------
(vii) Fixed financial
swaps 14,000-139,500 19,751,100 January 31, 2012 -
GJ/month GJ December 31, 2016
----------------------------------------------------------------------------
United States
--------------------------------------------------------------------
(viii) Fixed-for-floating 0.10-80 9,832,686 January 31, 2012 -
electricity swaps
(i) MWh November 30, 2016
----------------------------------------------------------------------------
(ix) Physical
electricity 1-33 11,825,405 January 31, 2012 -
forwards MWh MWh September 30, 2016
----------------------------------------------------------------------------
(x) Unforced capacity 5-150 132,485 January 31, 2012 -
forward contracts MWCap MWCap May 31, 2014
----------------------------------------------------------------------------
(xi) Unforced capacity 2-160 2,992 January 31, 2012 -
physical contracts MWCap MWCap May 31, 2014
----------------------------------------------------------------------------
(xii) Renewable energy 300-160,000 2,217,250 December 31, 2012 -
certificates MWh MWh December 31, 2016
----------------------------------------------------------------------------
(xiii) Verified emission- 8,000-50,000 658,000 December 31, 2012 -
reduction credits tonnes tonnes December 31, 2016
----------------------------------------------------------------------------
(xiv) Options 60-90,000 2,296,940 January 31, 2012 -
mmBTU/month mmBTU December 31, 2014
----------------------------------------------------------------------------
(xv) Physical gas
forward 2-4,300 6,829,678 January 3, 2012 -
contracts mmBTU/month mmBTU July 31, 2014
----------------------------------------------------------------------------
(xvi) Transportation
forward 8-25,000 23,960,603 January 1, 2012 -
contracts mmBTU/day mmBTU August 31, 2015
----------------------------------------------------------------------------
(xvii) Heat rate swaps 1-25 3,144,398 January 31, 2012 -
MWh MWh June 30, 2016
----------------------------------------------------------------------------
(xviii) Fixed financial
swaps 930-1,300,000 49,846,568 January 31, 2012 -
mmBTU/month mmBTU May 31, 2017
----------------------------------------------------------------------------
(xix) Foreign exchange ($485-$3,630) n/a January 03, 2012 -
forward contracts (US$500-$3,500) October 1, 2012
----------------------------------------------------------------------------
Fair value
Contract type Fixed price favourable/ Notional
(unfavourable) value
Canada
----------------------------------------------------------------------------
(i) Fixed-for-floating $28.75-$128.13 ($145,024) $478,296
electricity swaps
(i)
----------------------------------------------------------------------------
(ii) Renewable energy $3.00-$26.00 ($243) $5,151
certificates
----------------------------------------------------------------------------
(iii) Verified emission- $6.00-11.50 ($839) $5,307
reduction credits
----------------------------------------------------------------------------
(iv) Options $7.16-$12.39 1,915 $3,711
----------------------------------------------------------------------------
(v) Physical gas
forward $2.40-$10.00 ($262,577) $505,444
contracts
----------------------------------------------------------------------------
(vi) Transportation
forward $0.01-$2.70 ($9,013) $20,173
contracts
----------------------------------------------------------------------------
(vii) Fixed financial
swaps $4.22-$5.20 ($15,607) $84,670
----------------------------------------------------------------------------
United States
--------------------------------------------------------------------
(viii) Fixed-for-floating $24.71-$139.07 ($91,227) $ 530,067
electricity swaps
(i) (US$24.30-$136.75) (US($89,702)) (US$521,206)
----------------------------------------------------------------------------
(ix) Physical
electricity $22.37-$112.12 ($140,735) $ 579,038
forwards (US$22.00-$110.25) (US($138,382)) (US$569,359)
----------------------------------------------------------------------------
(x) Unforced capacity $1,848-$8,136 ($3,290) $ 9,095
forward contracts (US$1,817-$8,000) (US($3,235)) (US$8,943)
----------------------------------------------------------------------------
(xi) Unforced capacity $864-$8,899 ($1,763) $ 16,465
physical contracts (US$850-$8,750) (US($1,734)) (US$16,190)
----------------------------------------------------------------------------
(xii) Renewable energy $1.22-$29.24 ($604) $ 13,241
certificates (US$1.20-$28.75) (US($594)) (US$13,020)
----------------------------------------------------------------------------
(xiii) Verified emission- $3.56-$8.90 ($617) $ 4,142
reduction credits (US$3.50-$8.75) (US($607)) (US$4,074)
----------------------------------------------------------------------------
(xiv) Options $7.88-$14.03 $34 $ 3,078
(US$7.75-$13.80) (US$33) (US$3,027)
----------------------------------------------------------------------------
(xv) Physical gas
forward $2.87-$12.08 ($46,504) $ 79,748
contracts (US$2.82-$11.88) (US($45,727)) (US$78,415)
----------------------------------------------------------------------------
(xvi) Transportation
forward $0.0025-$1.1390 ($2,131) $ 33,692
contracts (US$0.0025-
$1.1200) (US($2,095)) (US$33,129)
----------------------------------------------------------------------------
(xvii) Heat rate swaps $17.79-$58.71 $18,522 $101,493
(US$17.49-$57.73) (US$18,212) (US$99,796)
----------------------------------------------------------------------------
(xviii) Fixed financial
swaps $3.23-$9.42 ($119,495) $ 307,071
(US$3.18-$9.26) (US($117,498)) (US$301,938)
----------------------------------------------------------------------------
(xix) Foreign exchange $0.969-$1.048 ($194) $ 29,812
forward contracts (US$29,390)
----------------------------------------------------------------------------
(i) Some of the electricity fixed-for-floating contracts related to the Province
of Alberta and the Province of Ontario are load-following, wherein the quantity
of electricity contained in the supply contract "follows" the usage of customers
designated by the supply contract. Notional volumes associated with these
contracts are estimates and are subject to change with customer usage
requirements. There are also load shaped fixed-for-floating contracts in these
and the rest of Just Energy's electricity markets wherein the quantity of
electricity is established but varies throughout the term of the contracts.
The estimated amortization of deferred gains and losses reported in accumulated
other comprehensive income that is expected to be amortized to net income within
the next 12 months is a gain of $43,340.
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 other asset balance recognized in the
consolidated financial statements.
Fair value ("FV") hierarchy
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. Just Energy
values its cash and cash equivalent, accounts receivable, unbilled revenue, bank
indebtedness, trade and other payables and long-term debt under Level 1.
Level 2
Fair value measurements that require 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,
inputs must be substantially 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 electricity 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: 1) Commodity (predominately NYMEX), 2) Basis and 3) Foreign Exchange.
NYMEX curves extend for over five years (thereby covering the length of Just
Energy's contracts); however, most basis curves only extend 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.
Fair value measurement input sensitivity
The main cause of changes in the fair value of derivative instruments are
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 financial
assets/(liabilities) in the FV hierarchy as at December 31, 2011:
Level 1 Level 2 Level 3 Total
Financial assets
Cash and short-
term deposits $ 75,046 $ - $ - $ 75,046
Loans and
receivables 287,689 - - 287,689
Derivative
financial assets - - 23,227 23,227
Financial
liabilities
Derivative
financial
liabilities - (135,102) (727,275) (862,377)
Other financial
liabilities (1,063,214) - - (1,063,214)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (700,479) $ (135,102) $ (704,048) $ (1,539,629)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the changes in net fair value of financial
assets/(liabilities) classified as Level 3 in the FV
hierarchy for the nine months ended December 31, 2011:
December 31, 2011
Opening balance, April 1, 2011 $ (743,488)
Total gain/(losses) - Profit for the period (68,044)
Purchases (35,914)
Sales 3,901
Settlements 139,497
Transfer out of Level 3 -
----------------------------------------------------------------------------
Closing balance, December 31, 2011 $ (704,048)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Classification of financial assets and liabilities
The following table represents the fair values and carrying amounts of financial
assets and liabilities measured at amortized cost.
As at December 31, Carrying
2011 amount Fair value
Cash and cash
equivalents $ 75,046 $ 75,046
Current trade and
other receivables $ 281,601 $ 281,601
Unbilled revenues $ 146,536 $ 146,536
Non-current
receivables $ 6,088 $ 6,088
Other financial
assets $ 23,227 $ 23,227
Bank indebtedness,
trade and other
payables $ 288,694 $ 288,694
Long-term debt $ 774,520 $ 805,240
Other financial
liabilities $ 862,377 $ 862,377
For the For the For the For the
three three nine nine
months months months months
ended ended ended ended
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
Interest expense on
financial
liabilities not
held-for-trading $ 16,377 $ 17,877 $ 44,509 $ 46,237
The carrying value of cash and cash equivalents, current trade and other
receivables, unbilled revenues and trade and other payables approximates the
fair value due to their short-term liquidity.
The carrying value of long-term debt approximates its fair value as the interest
payable on outstanding amounts is at rates that vary with Bankers' Acceptances,
LIBOR, Canadian bank prime rate or U.S. prime rate, with the exception of the
$90 million, $330 million and $100 million convertible debentures, which are
fair valued, based on market value.
(c) Management of risks arising from financial instruments
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 investment in U.S. operations.
A portion of Just Energy's income is generated in U.S. dollars and is subject to
currency fluctuations. The performance of the Canadian dollar relative to the
U.S. dollar could positively or negatively affect Just Energy's income. Due to
its growing operations in the U.S., Just Energy expects to have a greater
exposure to U.S. fluctuations in the future than in prior years. Just Energy has
hedged between 25% and 90% of certain forecasted cross border cash flows that
are expected to occur within the next year. The level of hedging is dependent on
the source of the cash flow 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, as at December 31, 2011, if the Canadian
dollar had been 5% stronger or weaker against the U.S. dollar, assuming that all
the other variables had remained constant, net loss for the period would have
been $3,900 higher/lower and other comprehensive loss would have been $2,400
higher/lower.
Interest rate risk
Just Energy is also 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 this long-term debt exposes it to
material financial risks but has set out parameters to actively manage this risk
within its Risk Management Policy.
A 1% increase (decrease) in interest rates would have resulted in a decrease
(increase) in income before income taxes for the three and nine months ended
December 31, 2011, of approximately $265 and $754, respectively.
Commodity price risk
Just Energy is exposed to market risks associated with commodity prices and
market volatility where estimated customer requirements do not match actual
customer requirements. Management actively monitors these positions on a daily
basis in accordance with its Risk Management Policy. This policy sets out a
variety of limits; most importantly, thresholds for open positions in the gas
and electricity portfolios which also feed a Value at Risk limit; should any of
the limits be exceeded, they are closed expeditiously or express approval to
continue to hold is obtained. Just Energy's exposure to market risk is affected
by a number of factors, including accuracy of estimation of customer commodity
requirements, commodity prices, volatility and liquidity of markets. Just Energy
enters into derivative instruments in order to manage exposures to changes in
commodity prices. The derivative instruments that are used are designed to fix
the price of supply for estimated customer commodity demand and thereby fix
margins such that shareholder dividends can be appropriately established.
Derivative instruments are generally transacted over the counter. The inability
or failure of Just Energy to manage and monitor the above market risks could
have a material adverse effect on the operations and cash flow of Just Energy.
Commodity price sensitivity - all derivative financial instruments
As at December 31, 2011, if the energy prices including natural gas,
electricity, verified emission-reduction credits and renewable energy
certificates had risen (fallen) by 10%, assuming that all the other variables
had remained constant, income before taxes for the quarter ended December 31,
2011, would have increased (decreased) by $168,837 ($168,366) primarily as a
result of the change in the fair value of Just Energy's derivative instruments.
Commodity price sensitivity - Level 3 derivative financial instruments
As at December 31, 2011, if the energy prices including natural gas,
electricity, verified emission-reduction credits and renewable energy
certificates had risen (fallen) by 10%, assuming that all the other variables
had remained constant, income before taxes for the quarter ended December 31,
2011, would have increased (decreased) by $153,612 ($153,165) primarily as a
result of the change in the fair value of Just Energy's derivative 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, British Columbia, New York, Massachusetts,
Pennsylvania, California, Michigan and Georgia Just Energy has customer credit
risk and, therefore, credit review processes have been implemented to perform
credit evaluations of customers and manage customer default. If a significant
number of customers were to default on their payments, it could have a material
adverse effect on the operations and cash flows of Just Energy. Management
factors default from credit risk in its margin expectations for all the above
markets.
The aging of the accounts receivable from the above markets was as follows:
December 31, 2011 March 31, 2011
Current $ 64,897 $ 61,695
1 - 30 days 12,276 15,088
31 - 60 days 5,047 5,533
61 - 90 days 4,614 5,652
Over 91 days 19,550 10,322
--------------------------------------
$ 106,384 $ 98,290
--------------------------------------
--------------------------------------
For the nine months ended December 31, 2011, changes in the allowance for
doubtful accounts were as follows:
Balance, beginning of period $ 25,115
Allowance on acquired receivables 3,867
Provision for doubtful accounts 21,534
Bad debts written off (22,711)
Other 4,556
-------------
Balance, end of period $ 32,361
-------------
-------------
For the remaining markets, the local distribution companies provide collection
services and assume the risk of any bad debts owing from Just Energy's customers
for a fee. Management believes that the risk of the LDCs failing to deliver
payment to Just Energy is minimal. There is no assurance that the LDCs that
provide these services will continue to do so in the future.
Counterparty credit risk
Counterparty credit risk represents the loss that Just Energy would incur if a
counterparty fails to perform under its contractual obligations. This risk would
manifest itself in Just Energy replacing contracted supply at prevailing market
rates, thus impacting the related customer margin. Counterparty limits are
established within the Risk Management Policy. Any exceptions to these limits
require approval from the Board of Directors of JEGI. 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, 2011, the maximum counterparty credit risk exposure amounted
to $129,611, representing the risk relating to the Company's derivative
financial assets and accounts receivable.
(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 weekly cash flow
forecasts covering a rolling six-week period, monthly 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, 2011:
More
Carrying Contractual Less than 1 to 3 4 to 5 than
amount cash flows 1 year years years 5 years
Trade and
other
payables $ 283,659 $ 283,659 $ 283,659 $ - $ - $ -
Bank
indebtedness 5,035 5,035 5,035 - - -
Long-term
debt(i) 774,520 833,999 96,691 256,184 26,290 454,834
Derivative
instruments 862,377 2,769,643 1,358,817 1,197,724 208,798 4,304
----------------------------------------------------------------------------
$1,925,591 $ 3,892,336 $1,744,202 $1,453,908 $235,088 $459,138
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Included in long-term debt is $330,000, $100,000 and $90,000 relating to
convertible debentures, which may be settled through the issuance of shares at
the option of the holder or Just Energy upon maturity.
In addition to the amounts noted above, at December 31, 2011, net interest
payments over the life of the long-term debt and bank credit facility are as
follows:
Less than 1 to 3 4 to 5 More than
1 year years years 5 years
----------------------------------------------------------------------------
Interest payments 47,528 86,833 66,903 81,332
----------------------------------------------------------------------------
(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. Just
Energy has discounted the fair value of its financial assets by $1,957 to
accommodate for its counterparties' risk of default.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME
For the nine months ended
December 31, 2011
Foreign
currency
translation Cash flow
adjustments hedges Total
Balance, beginning of period $ 29,033 $ 94,886 $ 123,919
Unrealized foreign currency
translation adjustment 6,086 - 6,086
Amortization of deferred
unrealized gain on discontinued
hedges net of income taxes of
$9,961 - (43,967) (43,967)
--------------------------------------------
Balance, end of period $ 35,119 $ 50,919 $ 86,038
--------------------------------------------
For the nine months ended
December 31, 2010
Foreign
currency
translation Cash flow
adjustments hedges Total
Balance, beginning of period $ 28,584 $ 193,385 $ 221,969
Unrealized foreign currency
translation adjustment 5,177 - 5,177
Amortization of deferred
unrealized gain on discontinued
hedges net of income taxes of
$15,860 - (77,145) (77,145)
--------------------------------------------
Balance, end of period $ 33,761 $ 116,240 $ 150,001
--------------------------------------------
9. SHAREHOLDERS' CAPITAL
Details of issued shareholders' capital are as follows for the nine months ended
December 31, 2011:
Issued and outstanding
----------------------------------
Shares Amount
Balance, beginning of period 136,963,726 $ 963,982
Dividend reinvestment plan (i) 2,209,374 26,475
Share-based awards exercised 81,999 1,239
Repurchase and cancellation of shares(ii) (36,000) (256)
----------------------------------
Balance, end of period 139,219,099 $ 991,440
----------------------------------
(i) Dividend reinvestment plan
Under Just Energy's dividend reinvestment plan ("DRIP"), shareholders holding a
minimum of 100 common shares can elect to receive their dividends in common
shares rather than cash at a 2% discount to the simple average closing price of
the common shares for five trading days preceding the applicable dividend
payment date, providing the common shares are issued from treasury and not
purchased on the open market. Effective February 1, 2012, the Company has
suspended the DRIP due to the normal course issuer bid.
(ii) Repurchase and cancellation of shares
During the quarter, Just Energy obtained approval from its Board of Directors
and the Toronto Stock Exchange to make a normal course issuer bid to purchase up
to 13,200,917 common shares, for the 12-month period commencing December 16,
2011, and ending December 15, 2012. A maximum of 82,430 common shares can be
purchased during any trading day.
During the quarter, Just Energy purchased and cancelled 36,000 common shares for
a cash consideration of $397. The average book value of $256 was recorded as a
reduction to share capital and the remaining loss of $141 was allocated to
accumulated deficit.
10. LONG-TERM DEBT AND FINANCING
December 31, 2011 March 31, 2011
Credit facility (a) $ 104,316 $ 53,000
Less: debt issue costs (a) (1,388) (1,965)
TGF credit facility (b)(i) 33,205 36,680
TGF debentures (b)(ii) 35,881 37,001
NHS financing (c) 140,083 105,716
$90 million convertible debentures (d) 85,744 84,706
$330 million convertible debentures (e) 290,510 286,439
$100 million convertible debentures (f) 85,655 -
Capital leases (g) 514 -
------------------------------------
774,520 601,577
Less: current portion (96,691) (94,117)
------------------------------------
$ 677,829 $ 507,460
------------------------------------
Future annual minimum repayments are as follows:
Less than 1 to 3 4 to 5 More than
1 year years years 5 years Total
Credit facility (a) $ - $ 104,316 $ - $ - $ 104,316
TGF credit facility
(b)(i) 33,205 - - - 33,205
TGF debentures
(b)(ii) 35,881 - - - 35,881
NHS HTC financing (c) 27,324 61,635 26,290 24,834 140,083
$90 million
convertible
debentures (d) - 90,000 - - 90,000
$330 million
convertible
debentures (e) - - - 330,000 330,000
$100 million
convertible
debentures (f) - - - 100,000 100,000
Capital leases (g) 281 233 - - 514
-------------------------------------------------------
$ 96,691 $ 256,184 $ 26,290 $ 454,834 $ 833,999
-------------------------------------------------------
-------------------------------------------------------
The following table details the finance costs for the three and nine months
ended December 31. Interest is expensed at the
effective interest rate.
For the For the
three months three months For the nine For the nine
ended ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Credit facility (a) $ 2,194 $ 4,146 $ 6,257 $ 6,930
TGF credit facility
(b)(i) 506 657 1,571 1,528
TGF debentures
(b)(ii) 1,076 1,075 3,285 3,257
TGF term/operating
facilities (b)(iii) - 15 - 571
NHS financing (c) 2,646 1,733 7,159 4,564
$90 million
convertible
debentures (d) 1,704 1,677 5,088 5,009
$330 million
convertible
debentures (e) 6,324 6,310 18,921 16,379
$100 million
convertible
debentures (f) 1,831 - 1,992 -
Capital lease
interest (g) 20 - 20 -
Unwinding of
discount on
provisions 76 66 216 201
Dividend classified
as interest (Note
17) - 2,198 - 7,798
--------------------------------------------------------
$ 16,377 $ 17,877 $ 44,509 $ 46,237
--------------------------------------------------------
(a) As at December 31, 2011, Just Energy has a $350 million credit facility to
meet working capital requirements. The syndicate of lenders includes Canadian
Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada,
Societe Generale, The Bank of Nova Scotia, The Toronto-Dominion Bank and Alberta
Treasury Branches. The term of the facility expires on December 31, 2013.
Interest is payable on outstanding loans at rates that vary with Bankers'
Acceptances, 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 that vary between 2.88% and
3.38%. Prime rate advances are at rates of interest that vary between bank prime
plus 1.88% and 2.38% and letters of credit are at rates that vary between 2.88%
and 3.38%. Interest rates are adjusted quarterly based on certain financial
performance indicators.
As at December 31, 2011, the Canadian prime rate was 3.0% and the U.S. prime
rate was 3.25%. As at December 31, 2011, Just Energy had drawn $104,316 (March
31, 2011 - $53,000) against the facility and total letters of credit outstanding
amounted to $141,984 (March 31, 2011 - $78,209). As at December 31, 2011,
unamortized debt issue costs relating to the facility are $1,388 (March 31, 2011
- $1,965). As at December 31, 2011, Just Energy has $103,700 of the facility
remaining for future working capital and 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, among others, NHS, Hudson Solar
and TGF. Just Energy is required to meet a number of financial covenants under
the credit facility agreement. As at December 31, 2011 and 2010, all of these
covenants had been met.
(b) In connection with an acquisition, Just Energy acquired the debt obligations
of TGF, which currently comprise the following separate facilities:
(i) TGF credit facility
A credit facility of up to $50,000 was established with a syndicate of Canadian
lenders led by Conexus Credit Union and was arranged to finance the construction
of the ethanol plant in 2007. The facility was revised on March 18, 2009, and
was converted to a fixed repayment term of ten years, commencing March 1, 2009,
which includes interest costs at a rate of prime plus 3% with principal
repayments scheduled to commence on March 1, 2010. The credit facility is
secured by a demand debenture agreement, a first priority security interest on
all assets and undertakings of TGF, and a general security interest on all other
current and acquired assets of TGF. As a result, the facility is fully
classified as a current obligation. The facility was further revised on June 30,
2010, to postpone the principal payments due for April 1, 2010 to June 1, 2010
and to amortize them over the six-month period commencing October 1, 2010 and
ending March 1, 2011. The credit facility includes certain financial covenants,
the most significant of which relate to current ratio, debt to equity ratio,
debt service coverage and minimum shareholders' capital. The lenders deferred
compliance with the financial covenants until April 1, 2011. The covenants will
be measured as of March 31, 2012, and non-attainment may result in a
non-compliance fee up to 0.25% of the loan balance as of March 31, 2012. As at
December 31, 2011, the amount owing under this facility amounted to $33,205. The
lenders have no recourse to the Company or any other Just Energy entity.
(ii) TGF debentures
A debenture purchase agreement with a number of private parties providing for
the issuance of up to $40,000 aggregate principal amount of debentures was
entered into in 2006. TGF was in recent negotiations with the lender and
adjusted the covenant levels. In addition, the interest rate was increased to
12% and quarterly blended principal and interest payments of $1,139 were
established. The agreement includes certain financial covenants, the more
significant of which relate to current ratio, debt to capitalization ratio, debt
service coverage, debt to EBITDA and minimum shareholders' equity. Compliance
with the new covenants will be measured annually beginning with the fiscal 2012
year-end. The maturity date was extended to May 15, 2014, with a call right any
time after April 1, 2012. The debenture holders have no recourse to the Company
or any other Just Energy entity. As of December 31, 2011, the amount owing under
this debenture agreement amounted to $35,881.
(iii) TGF has a working capital operating line of $7,000 bearing interest at a
rate of prime plus 2%. In addition to the amount shown on the consolidated
balance sheet as bank indebtedness, TGF has total letters of credit issued of
$250.
(c) NHS entered into a long-term financing agreement for the funding of new and
existing rental water heater and HVAC contracts in the Enbridge and Union Gas
distribution territories. Pursuant to the agreement, NHS receives financing of
an amount equal to the present value of the first five, seven or ten years of
monthly rental income, discounted at the agreed upon financing rate of 7.99%
and, as settlement, is required to remit an amount equivalent to the rental
stream from customers on the water heater and HVAC contracts for the first five,
seven or ten years. As security for performance of the obligation, NHS has
pledged the water heaters, HVAC equipment and rental contracts, subject to the
financing rental agreement, as collateral.
The financing agreement is subject to a holdback provision, whereby 3% in the
Enbridge territory and 5% in the Union Gas territory of the outstanding balance
of the funded amount is deducted and deposited into a reserve account in the
event of default. Once all obligations of NHS are satisfied or expired, the
remaining funds in the reserve account will immediately be released to NHS.
NHS has $140,083 owing under this agreement, including $5,850 relating to the
holdback provision, recorded in non-current receivables, as at December 31,
2011. NHS is required to meet a number of covenants under the agreement. As at
December 31, 2011, all of these covenants had been met.
(d) In conjunction with an acquisition, the Company also acquired the
obligations of the convertible unsecured subordinated debentures (the "$90
million convertible debentures") issued in October 2007. The fair value of the
$90 million convertible debentures was estimated by discounting the remaining
contractual payments at the time of acquisition. This discount will be accreted
using an effective interest rate of 8%. These instruments have a face value of
$90,000 and mature on September 30, 2014, unless converted prior to that date,
and bear interest at an annual rate of 6% payable semi-annually on March 31 and
September 30 of each year. Each $1,000 principal amount of the $90 million
convertible debentures is convertible at any time prior to maturity or on the
date fixed for redemption, at the option of the holder, into approximately 33.25
shares, representing a conversion price of $30.08 per common share as at
December 31, 2011. Pursuant to the $90 million convertible debentures, if the
Company fixes a record date for the payment of a dividend, the conversion price
shall be adjusted in accordance therewith. During the three and nine months
ended December 31, 2011, interest expense amounted to $1,704 and $5,088,
respectively.
On and after October 1, 2010, but prior to September 30, 2012, the $90 million
convertible debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at Just Energy's
sole option on not more than 60 days' and not less than 30 days' prior notice,
provided that the current market price on the date on which notice of redemption
is given is not less than 125% of the conversion price. On and after September
30, 2012, but prior to the maturity date, the $90 million convertible debentures
are redeemable, in whole or in part, at a price equal to the principal amount
thereof, plus accrued and unpaid interest, at Just Energy's sole option on not
more than 60 days' and not less than 30 days' prior notice. On January 1, 2011,
as part of the Conversion, Just Energy assumed all of the obligations under the
$90 million convertible debentures.
The Company may, at its option, on not more than 60 days' and not less than 30
days' prior notice, subject to applicable regulatory approval and provided no
event of default has occurred and is continuing, elect to satisfy its obligation
to repay all or any portion of the principal amount of the $90 million
convertible debentures that are to be redeemed or that are to mature, by issuing
and delivering to the holders thereof that number of freely tradable common
shares determined by dividing the principal amount of the $90 million
convertible debentures being repaid by 95% of the current market price on the
date of redemption or maturity, as applicable.
(e) In order to fund the acquisition of Hudson, on May 5, 2010, Just Energy
issued $330 million of convertible extendible unsecured subordinated debentures
(the "$330 million convertible debentures"). The $330 million convertible
debentures bear interest at a rate of 6.0% per annum payable semi-annually in
arrears on June 30 and December 31, with a maturity date of June 30, 2017. Each
$1,000 principal amount of the $330 million convertible debentures is
convertible at any time prior to maturity or on the date fixed for redemption,
at the option of the holder, into approximately 55.6 shares of the Company,
representing a conversion price of $18 per share. During the three and nine
months ended December 31, 2011, interest expense amounted to $6,324 and $18,921,
respectively. The $330 million convertible debentures are not redeemable prior
to June 30, 2013, except under certain conditions after a change of control has
occurred. On or after June 30, 2013, but prior to June 30, 2015, the $330
million convertible debentures may be redeemed by the Company, in whole or in
part, on not more than 60 days' and not less than 30 days' prior notice, at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest, provided that the current market price (as defined herein) on the date
on which notice of redemption is given is not less than 125% of the conversion
price ($22.50). On and after June 30, 2015, and prior to maturity, the $330
million convertible debentures may be redeemed by Just Energy, in whole or in
part, at a redemption price equal to the principal amount thereof, plus accrued
and unpaid interest.
The Company may, at its own option, on not more than 60 days' and not less than
40 days' prior notice, subject to applicable regulatory approval and provided
that no event of default has occurred and is continuing, elect to satisfy its
obligation to repay all or any portion of the principal amount of the $330
million convertible debentures that are to be redeemed or that are to mature, by
issuing and delivering to the holders thereof that number of freely tradable
common shares determined by dividing the principal amount of the $330 million
convertible debentures being repaid by 95% of the current market price on the
date of redemption or maturity, as applicable.
The conversion feature of the $330 million convertible debentures has been
accounted for as a separate component of shareholders' deficit in the amount of
$33,914. The remainder of the net proceeds of the $330 million convertible
debentures has been recorded as long-term debt, which will be accreted up to the
face value of $330,000 over the term of the $330 million convertible debentures
using an effective interest rate of 8.8%. If the $330 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. On
January 1, 2011, as part of the Conversion, Just Energy assumed all of the
obligations under the $330 million convertible debentures.
As a result of adopting IFRS, Just Energy has recorded a deferred tax liability
of $15,728 on its convertible debentures and reduced the value of the equity
component of convertible debentures by this amount.
(f) On September 22, 2011, Just Energy issued $100 million of convertible
unsecured subordinated debentures (the "$100 million convertible debentures").
The $100 million convertible debentures bear interest at an annual rate of
5.75%, payable semi-annually on March 31 and September 30 in each year
commencing March 31, 2012, and have a maturity date of September 30, 2018. Each
$1,000 principal amount of the $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 56.0 common shares of
Just Energy, representing a conversion price of $17.85. The $100 million
convertible debentures are not redeemable at the option of the Company on or
before September 30, 2014. After September 30, 2014, and prior to September 30,
2016, the $100 million convertible debentures may be redeemed by the Company, in
whole or in part, on not more than 60 days' and not less than 30 days' prior
notice, at a price equal to their principal amount plus accrued and unpaid
interest, provided that the weighted average trading price of the common shares
is at least 125% of the conversion price. On or after September 30, 2016, the
$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.
The Company may, at its option, on not more than 60 days' and not less than 30
days' prior notice, subject to applicable regulatory approval and provided no
event of default has occurred and is continuing, elect to satisfy its obligation
to repay all or any portion of the principal amount of the $100 million
convertible debentures that are to be redeemed or that are to mature, by issuing
and delivering to the holders thereof that number of freely tradeable common
shares determined by dividing the principal amount of the $100 million
convertible debentures being repaid by 95% of the current market price on the
date of redemption or maturity, as applicable.
The conversion feature of the $100 million convertible debentures has been
accounted for as a separate component of shareholders' deficit in the amount of
$10,188. Upon initial recognition of the convertible debenture, Just Energy
recorded a deferred tax liability of $2,579 and reduced the equity component of
the convertible debenture by this amount. The remainder of the net proceeds of
the $100 million convertible debentures has been recorded as long-term debt,
which will be accreted up to the face value of $100,000 over the term of the
$100 million convertible debentures using an effective interest rate of 8.6%. If
the $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. During the three and nine months ended December 31,
2011, interest expense amounted to $1,831 and $1,992.
(g) The Company through its subsidiary Fulcrum, leases certain computer, office
equipment and software. These financing arrangements bear interest at rates
ranging from 0% to 29% and mature between April 20, 2013 and June 30, 2014.
11. REPORTABLE BUSINESS SEGMENTS
Just Energy operates in the following reportable segments: gas marketing,
electricity marketing, ethanol, home services and other. Other represents Hudson
Solar and Momentis. Reporting by products and services is in line with Just
Energy's performance measurement parameters.
Transfer prices between operating segments are on an arm's length basis in a
manner similar to transactions with third parties.
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 consolidated
financial statements. Just Energy is not considered to have any key customers.
The following tables present Just Energy's results by operating segments:
For the three months ended December 31, 2011
Electricity
Gas marketing marketing Ethanol
Sales $ 254,158 $ 432,182 $ 37,540
Gross margin 49,016 79,470 6,466
Amortization of property, plant
and equipment 227 965 290
Amortization of intangible
assets 5,293 21,609 1
Administrative expenses 336 25,343 1,426
Selling and marketing expenses 5,665 30,517 -
Other operating expenses 2,417 8,267 -
---------------------------------------------
Operating profit (loss) for the
period $ 35,078 $ (7,231) $ 4,749
Finance costs (2,820) (9,288) (1,620)
Change in fair value of
derivative instruments (45,846) (63,374) (1,501)
Other income 870 880 171
Provision for (recovery of)
income tax 3,290 (3,670) -
---------------------------------------------
Profit (loss) for the period $ (16,008) $ (75,343) $ 1,799
---------------------------------------------
Capital expenditures $ 266 $ 361 $ 64
---------------------------------------------
Home services Other Consolidated
Sales $ 9,411 $ 5,323 $ 738,614
Gross margin 7,188 5,267 147,407
Amortization of property, plant
and equipment 42 7 1,531
Amortization of intangible
assets 419 1 27,323
Administrative expenses 2,968 1,235 31,308
Selling and marketing expenses 1,188 11,496 48,866
Other operating expenses 711 - 11,395
---------------------------------------------
Operating profit (loss) for the
period $ 1,860 $ (7,472) $ 26,984
Finance costs (2,648) (1) (16,377)
Change in fair value of
derivative instruments - - (110,721)
Other income - 378 2,299
Provision for (recovery of)
income tax - (49) (429)
---------------------------------------------
Profit (loss) for the period $ (788) $ (7,046) $ (97,386)
---------------------------------------------
Capital expenditures $ 8,056 $ 12,365 $ 21,112
---------------------------------------------
For the three months ended December 31, 2010
Gas Electricity
marketing marketing Ethanol
Sales $ 328,020 $ 383,197 $ 26,879
Gross margin 54,813 67,030 5,797
Amortization of property, plant
and equipment 625 1,067 299
Amortization of intangible
assets 8,911 20,374 -
Administrative expenses 3,275 16,725 2,788
Selling and marketing expenses 7,931 25,278 -
Other operating expenses 4,070 4,668 (53)
---------------------------------------------
Operating profit (loss) for the
period $ 30,001 $ (1,082) $ 2,763
Finance costs (5,057) (9,298) (1,789)
Change in fair value of
derivative instruments 128,899 106,029 -
Other income (loss) (19,182) 18,963 785
Provision for (recovery of)
income tax 27,690 42,593 -
---------------------------------------------
Profit (loss) for the period $ 106,971 $ 72,019 $ 1,759
---------------------------------------------
Capital expenditures $ 571 $ 1,036 $ 37
---------------------------------------------
Home services Other Consolidated
Sales $ 5,976 $ 224 $ 744,296
Gross margin 4,365 79 132,084
Amortization of property, plant
and equipment 86 2 2,079
Amortization of intangible
assets 287 - 29,572
Administrative expenses 2,896 545 26,229
Selling and marketing expenses 756 504 34,469
Other operating expenses 592 1 9,278
---------------------------------------------
Operating profit (loss) for the
period $ (252) $ (973) $ 30,457
Finance costs (1,733) - (17,877)
Change in fair value of
derivative instruments - - 234,928
Other income (loss) (447) 8 127
Provision for (recovery of)
income tax (1,116) - 69,167
---------------------------------------------
Profit (loss) for the period $ (1,316) $ (965) $ 178,468
---------------------------------------------
Capital expenditures $ 7,044 $ - $ 8,688
---------------------------------------------
For the nine months ended December 31, 2011
Electricity
Gas marketing marketing Ethanol
Sales $ 548,413 $ 1,279,163 $ 104,111
Gross margin 83,682 217,979 15,223
Amortization of property, plant
and equipment 885 2,357 930
Amortization of intangible
assets 26,190 58,844 8
Administrative expenses 17,815 51,240 6,249
Selling and marketing expenses 24,626 75,050 -
Other operating expenses 5,040 22,884 -
---------------------------------------------
Operating profit (loss) for the
period $ 9,126 $ 7,604 $ 8,036
Finance costs (9,723) (22,702) (4,913)
Change in fair value of
derivative instruments 33,277 (37,819) (1,586)
Other income 1,834 2,770 171
Provision for (recovery of)
income tax 11,006 10,811 -
---------------------------------------------
Profit (loss) for the period $ 23,508 $ (60,958) $ 1,708
---------------------------------------------
Capital expenditures $ 1,011 $ 1,808 $ 186
---------------------------------------------
Total goodwill $ 127,325 $ 122,674 $ -
---------------------------------------------
Total assets $ 550,289 $ 754,615 $ 156,169
---------------------------------------------
Total liabilities $ 827,375 $ 951,914 $ 85,239
---------------------------------------------
Home services Other Consolidated
Sales $ 25,589 $ 7,581 $ 1,964,857
Gross margin 19,965 7,380 344,229
Amortization of property, plant
and equipment 121 14 4,307
Amortization of intangible
assets 1,217 1 86,260
Administrative expenses 9,305 3,757 88,366
Selling and marketing expenses 3,066 15,980 118,722
Other operating expenses 1,342 - 29,266
---------------------------------------------
Operating profit (loss) for the
period $ 4,914 $ (12,372) $ 17,308
Finance costs (7,165) (6) (44,509)
Change in fair value of
derivative instruments - - (6,128)
Other income - 523 5,298
Provision for (recovery of)
income tax - (100) 21,717
---------------------------------------------
Profit (loss) for the period $ (2,251) $ (11,755) $ (49,748)
---------------------------------------------
Capital expenditures $ 26,607 $ 13,501 $ 43,113
---------------------------------------------
Total goodwill $ 283 $ - $ 250,282
---------------------------------------------
Total assets $ 170,383 $ 12,951 $ 1,644,407
---------------------------------------------
Total liabilities $ 148,462 $ 138 $ 2,013,128
---------------------------------------------
For the nine months ended December 31, 2010
Electricity
Gas marketing marketing Ethanol
Sales $ 664,324 $ 1,256,394 $ 74,876
Gross margin 74,703 215,502 7,473
Amortization of property, plant
and equipment 1,798 2,971 892
Amortization of intangible
assets 30,893 56,913 -
Administrative expenses 20,025 42,335 8,417
Selling and marketing expenses 31,648 65,826 -
Other operating expenses 6,944 19,542 (53)
---------------------------------------------
Operating profit (loss) for the
period $ (16,605) $ 27,915 $ (1,783)
Finance costs (13,727) (22,548) (5,398)
Change in fair value of
derivative instruments 195,654 170,685 -
Other income (loss) (18,128) 20,576 826
Provision for (recovery of)
income tax 5,290 8,633 -
---------------------------------------------
Profit (loss) for the period $ 141,904 $ 187,995 $ (6,355)
---------------------------------------------
Capital expenditures $ 1,728 $ 2,786 $ 216
---------------------------------------------
Total goodwill $ 127,014 $ 101,664 $ -
---------------------------------------------
Total assets $ 758,207 $ 854,272 $ 168,403
---------------------------------------------
Total liabilities $ 911,826 $ 1,143,014 $ 100,466
---------------------------------------------
Home services Other Consolidated
Sales $ 15,589 $ 675 $ 2,011,858
Gross margin 10,983 497 309,158
Amortization of property, plant
and equipment 226 4 5,891
Amortization of intangible
assets 1,193 - 88,999
Administrative expenses 8,777 1,479 81,033
Selling and marketing expenses 2,420 1,283 101,177
Other operating expenses 1,313 1 27,747
---------------------------------------------
Operating profit (loss) for the
period $ (2,946) $ (2,270) $ 4,311
Finance costs (4,564) - (46,237)
Change in fair value of
derivative instruments - - 366,339
Other income (loss) (447) 3 2,830
Provision for (recovery of)
income tax (2,501) - 11,422
---------------------------------------------
Profit (loss) for the period $ (5,456) $ (2,267) $ 315,821
---------------------------------------------
Capital expenditures $ 24,350 $ - $ 29,080
---------------------------------------------
Total goodwill $ 283 $ - $ 228,961
---------------------------------------------
Total assets $ 117,505 $ 1,982 $ 1,900,369
---------------------------------------------
Total liabilities $ 93,517 $ 65 $ 2,248,888
---------------------------------------------
Geographic information
Revenues from external customers
For the three For the three For the nine For the nine
months months months months
ended December ended December ended December ended December
31, 2011 31, 2010 31, 2011 31, 2010
Canada $ 298,878 $ 350,893 $ 805,594 $ 942,286
United States 439,736 393,403 1,159,263 1,069,572
------------------------------------------------------------
Total revenue
per
consolidated
income
statement $ 738,614 $ 744,296 $ 1,964,857 $ 2,011,858
------------------------------------------------------------
The revenue is based on the location of the customer.
Non-current assets
Non-current assets for this purpose consist of property, plant and equipment and
intangible assets and are summarized as follows:
As at December 31, As at December 31,
2011 2010
Canada $ 483,934 $ 575,093
United States 363,783 372,740
--------------------------------------------
Total $ 847,717 $ 947,833
--------------------------------------------
12. OTHER INCOME, EXPENSES AND ADJUSTMENTS
(a) Other operating expenses
For the For the
three three For the nine For the nine
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Amortization of
gas contracts $ 5,556 $ 6,914 $ 19,086 $ 25,028
Amortization of
electricity
contracts 13,725 16,531 46,158 47,329
Amortization of
water heaters
and HVAC
products 419 398 1,217 1,193
Amortization of
other
intangible
assets 6,617 5,811 18,793 15,531
Amortization of
property, plant
and equipment 1,531 1,997 4,307 5,809
Bad debt expense 8,269 6,458 21,534 18,901
Transaction
costs 1,078 - 1,078 1,284
Capital tax - 172 - 331
Share-based
compensation 3,054 2,648 7,660 7,231
------------------------------------------------------------
$ 40,249 $ 40,929 $ 119,833 $ 122,637
------------------------------------------------------------
(b) Included in change in fair value of derivative instruments
For the For the
three three For the nine For the nine
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Amortization of
gas contracts $ 7,765 $ 13,179 $ 33,406 $ 39,623
Amortization of
electricity
contracts 15,499 24,702 64,159 72,778
(c) Employee benefit expense
For the For the
three three For the nine For the nine
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Wages, salaries
and commissions $ 50,133 $ 40,231 $ 127,956 $ 115,953
Benefits 4,365 4,380 14,426 14,550
------------------------------------------------------------
$ 54,498 $ 44,611 $ 142,382 $ 130,503
------------------------------------------------------------
13. INCOME TAXES
For the three For the three For the nine For the nine
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Current income tax
provision
(recovery) $ 987 $ 3,490 $ (3,174) $ 292
Deferred tax
provision
(recovery) (1,416) 65,677 24,891 11,130
----------------------------------------------------------
Provision for
(recovery of)
income tax $ (429) $ 69,167 $ 21,717 $ 11,422
----------------------------------------------------------
Just Energy's previous income trust structure required certain temporary
differences to be measured at higher deferred tax rates under IFRS. When Just
Energy converted to a corporation on January 1, 2011, Just Energy re-measured
its deferred tax balances in accordance with IFRS Standing Interpretations
Committee ("SIC") Standards - Standard 25, Changes in Tax Structure of an
Entity, using the tax rates applicable to a corporation.
14. INCOME (LOSS) PER SHARE/UNIT
For the For the
three three For the nine For the nine
months ended months ended months ended months ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Basic income
(loss) per
share/unit
Net income (loss)
available to
shareholders $ (97,262) $ 178,281 $ (49,624) $ 317,957
----------------------------------------------------------
Basic units and
shares
outstanding 138,602,194 126,364,236 137,872,427 125,550,897
----------------------------------------------------------
Basic income
(loss) per
share/unit $ (0.70) $ 1.41 $ (0.36) $ 2.53
----------------------------------------------------------
----------------------------------------------------------
Diluted income
(loss) per
share/unit
Net income (loss)
available to
shareholders $ (97,262) $ 178,281 $ (49,624) $ 317,957
Adjusted net
income for
dilutive impact
of convertible
debentures 7,002 6,596 18,492 13,779
Adjusted net
income for
financial
liabilities - 3,086 - 9,609
----------------------------------------------------------
Adjusted net
income (loss) (90,260) 187,963 (31,132) 341,345
----------------------------------------------------------
Basic shares and
units outstanding 138,602,194 126,364,236 137,872,427 125,550,897
Dilutive effect
of:
Weighted average
number of Class A
preference shares - 5,263,728 - 5,263,728
Weighted average
number of
Exchangeable
Shares - 3,697,919 - 4,070,665
Restricted share
grants 3,017,451 2,766,925 3,026,838 2,723,448
Deferred share
grants 122,247 96,628 115,036 90,570
Convertible
debentures 26,927,596 23,733,043 23,382,905 16,066,667
----------------------------------------------------------
Shares/units
outstanding on a
diluted basis 168,669,488 161,922,479 164,397,206 153,765,975
----------------------------------------------------------
Diluted income
(loss) per
share/unit $ (0.70)(1) $ 1.16 $ (0.36)(1) $ 2.22
----------------------------------------------------------
----------------------------------------------------------
(1) The assumed conversion into shares/units results in an anti-dilutive
position; therefore, the diluted per share/unit value is equal to the basic loss
per share/unit value
15. DISTRIBUTIONS AND DIVIDENDS PAID AND PROPOSED
For the three months ended December 31, 2011, dividends of $0.31 (2010 - $0.31)
per share/unit were declared by Just Energy. This amounted to $43,934 (2010 -
$26,138), which was approved throughout the period by the Board of Directors and
was paid out during the quarter. For the nine months ended December 31, 2011,
dividends of $0.93 (2010 - $0.93) per share/unit were declared and paid by Just
Energy. This amounted to $131,230 (2010 - $105,127), which was approved
throughout the period by the Board of Directors and was paid out during the
period.
Declared dividends subsequent to quarter-end
On January 3, 2012, the Board of Directors of Just Energy declared a dividend in
the amount of $0.10333 per common share ($1.24 annually). The dividend was paid
on January 31, 2012, to shareholders of record at the close of business on
January 15, 2012.
On February 2, 2012, the Board of Directors of Just Energy declared a dividend
in the amount of $0.10333 per common share ($1.24 annually). The dividend will
be paid on February 29, 2012, to shareholders of record at the close of business
on February 15, 2012.
16. COMMITMENTS
Commitments for each of the next five years and thereafter are as follows:
As at December 31, 2011
Less than 1 to 3 4 to 5 Exceeding
1 year years years 5 years Total
Premises and
equipment leasing 8,415 12,666 8,074 8,029 37,184
Grain production
contracts 3,973 693 - - 4,666
Long-term gas and
electricity
contracts 1,358,817 1,197,724 208,798 4,304 2,769,643
-------------------------------------------------------
$1,371,205 $1,211,083 $ 216,872 $ 12,333 $2,811,493
-------------------------------------------------------
-------------------------------------------------------
As at December 31, 2010
Less than 1 to 3 4 to 5 Exceeding
1 year years years 5 years Total
Premises and
equipment leasing $ 8,367 $ 10,944 $ 6,152 $ 5,137 $ 30,600
Master Services
Agreement with EPCOR 8,432 - - - 8,432
Grain production
contracts 32,276 2,237 693 - 35,206
Long-term gas and
electricity
contracts 1,542,490 1,555,313 314,289 10,471 3,422,563
-------------------------------------------------------
$1,591,565 $1,568,494 $ 321,134 $ 15,608 $3,496,801
-------------------------------------------------------
-------------------------------------------------------
Just Energy is also committed under long-term contracts with customers to supply
gas and electricity. These contracts have various expiry dates and renewal
options. Just Energy has entered into leasing contracts for office buildings and
administrative equipment. These leases have a leasing period of between one and
eight years. For the main office building of Just Energy, there is a renewal
option for an additional five years. No purchase options are included in any
major leasing contracts.
17. EXPLANATION OF TRANSITION TO IFRS
For all periods up to and including the year ended March 31, 2011, Just Energy
prepared its financial statements in accordance with CGAAP. Just Energy has
prepared financial statements which comply with IFRS for periods beginning on or
after April 1, 2011, as described in the accounting policies set out in Note 3.
In preparing these financial statements, Just Energy's opening consolidated
statement of financial position was prepared as at April 1, 2010 (Just Energy's
date of transition).
In preparing the opening IFRS consolidated statement of financial position, Just
Energy has adjusted amounts previously reported in consolidated financial
statements prepared in accordance with CGAAP. An explanation of how the
transition from CGAAP to IFRS has affected Just Energy's financial position,
financial performance and cash flows is set out in the following tables and the
notes that accompany the tables.
(a) Elective exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1,
First-time Adoption of International Financial Reporting Standards ("IFRS 1"),
Just Energy has applied certain optional exemptions from full retrospective
application of IFRS. The optional exemptions are described below.
(i) Business Combinations
Just Energy has applied the business combinations exemption in IFRS 1 to not
apply IFRS 3, Business Combinations, retrospectively. Accordingly, Just Energy
has not restated business combinations that took place prior to the transition
date.
(ii) Share-based Payments
Just Energy has elected to apply IFRS 2, Share-based Payments, to equity
instruments granted on or before November 7, 2002, or which are vested by the
transition date.
(iii) Borrowing Costs
IAS 23, Borrowing Costs, requires that Just Energy capitalize the borrowing
costs related to all qualifying assets for which the commencement date for
capitalization is on or after April 1, 2010. Just Energy elected not to adopt
this policy early and has, therefore, expensed all borrowing costs prior to
transition.
(b) Mandatory exemptions to retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1,
Just Energy has applied certain mandatory exemptions from full retrospective
application of IFRS. The mandatory exceptions applied from full retrospective
application of IFRS are described below.
(i) Estimates
Hindsight was not used to create or revise estimates, and accordingly, the
estimates previously made by Just Energy under CGAAP are consistent with their
application under IFRS.
(ii) Hedge accounting
Hedge accounting can only be applied prospectively from the transition date to
transactions that satisfy the hedge accounting criteria in IAS 39 at that date.
Hedging relationships cannot be designated retrospectively and the supporting
documentation cannot be created prospectively. Just Energy has not applied any
hedge accounting at or after the transition date.
Prior to July 1, 2008, Just Energy utilized hedge accounting for its customer
contracts and formally documented the relationship between hedging instruments
and the hedged items as well as its risk management objective and strategy for
undertaking various hedge transactions. Effective July 1, 2008, Just Energy
ceased the utilization of hedge accounting. The balance still remaining in
accumulated other comprehensive income relates to the effective portion of the
hedges that are still expected to occur as of the transition date.
Reconciliation of consolidated income statement for the three months ended
December 31, 2010
----------------------------------------------------------------------------
IFRS IFRS
Canadian GAAP Canadian adjust- reclassi-
accounts GAAP ments fications IFRS IFRS accounts
----------------------------------------------------------------------------
SALES $ 744,296 $ - $ - $ 744,296 SALES
COST OF SALES 612,018 194 - 612,212 COST OF SALES
---------------------------------------------
GROSS MARGIN 132,278 (194) - 132,084 GROSS MARGIN
---------------------------------------------
EXPENSES EXPENSES
General and Administrative
administrative 26,283 (54) - 26,229 expenses
Marketing Selling and
expenses marketing
34,469 - - 34,469 expenses
Other operating Other operating
expenses - - 40,929 40,929 expenses
Bad debt expense 6,458 - (6,458) -
Amortization of
intangible
assets and
related supply
contracts 29,654 - (29,654) -
Amortization of
property, plant
and equipment 1,997 - (1,997) -
Unit-based
compensation 1,302 1,346 (2,648) -
Capital tax 172 - (172) -
---------------------------------------------
$ 100,335 $ 1,292 $ - $ 101,627
---------------------------------------------
Income before Operating
the undernoted 31,943 (1,486) - 30,457 profit
Interest expense 15,081 2,796 - 17,877 Finance costs
Change in fair Change in fair
value of value of
derivative derivative
instruments (236,571) 1,643 - (234,928) instruments
Other income (127) - - (127) Other income
---------------------------------------------
Income before Income before
income tax 253,560 (5,925) - 247,635 income tax
Provision for Provision for
income tax income tax
expense 35,901 33,266 - 69,167 expense
---------------------------------------------
NET INCOME FOR PROFIT FOR THE
THE PERIOD $ 217,659 $ (39,191) $ - $ 178,468 PERIOD
---------------------------------------------
Attributable to: Attributable
to:
Unitholders of Unitholders of
Just Energy $ 217,407 $ (39,126) $ - $ 178,281 Just Energy
Non-controlling Non-controlling
interests 252 (65) - 187 interests
---------------------------------------------
NET INCOME FOR PROFIT FOR THE
THE PERIOD $ 217,659 $ (39,191) $ - $ 178,468 PERIOD
---------------------------------------------
Reconciliation of consolidated income statement for the nine months ended
December 31, 2010
----------------------------------------------------------------------------
IFRS IFRS
Canadian GAAP Canadian adjust- reclassi-
accounts GAAP ments fications IFRS IFRS accounts
----------------------------------------------------------------------------
SALES $2,011,858 $ - $ - $2,011,858 SALES
COST OF SALES 1,702,254 446 - 1,702,700 COST OF SALES
-------------------------------------------------------------
GROSS MARGIN 309,604 (446) - 309,158 GROSS MARGIN
-------------------------------------------------------------
EXPENSES EXPENSES
General and Administrative
administrative 81,066 (33) - 81,033 expenses
Marketing Selling and
expenses marketing
101,177 - - 101,177 expenses
Other operating Other operating
expenses - 1,284 121,353 122,637 expenses
Bad debt
expense 18,901 - (18,901) -
Amortization of
intangible
assets and
related supply
contracts 89,081 - (89,081) -
Amortization of
property,
plant and
equipment 5,809 - (5,809) -
Unit based
compensation 3,925 3,306 (7,231) -
Capital tax 331 - (331) -
-------------------------------------------------------------
$ 300,290 $ 4,557 $ - $ 304,847
-------------------------------------------------------------
Income before Operating
the undernoted 9,314 (5,003) - 4,311 profit
Interest
expense 36,857 9,380 - 46,237 Finance costs
Change in fair Change in fair
value of value of
derivative derivative
instruments (369,693) 3,354 - (366,339) instruments
Other income (2,830) - - (2,830) Other income
-------------------------------------------------------------
Income before Income before
income tax 344,980 (17,737) - 327,243 income tax
Provision for
income tax Provision for
expense 8,731 2,691 - 11,422 income tax
-------------------------------------------------------------
NET INCOME FOR PROFIT FOR THE
THE PERIOD $ 336,249 $(20,428) $ - $ 315,821 PERIOD
-------------------------------------------------------------
Attributable Attributable
to: to:
Unitholders of Unitholders of
Just Energy $ 338,236 $(20,279) $ - $ 317,957 Just Energy
Non-controlling Non-controlling
interests (1,987) (149) - (2,136) interests
-------------------------------------------------------------
NET INCOME
(LOSS) FOR THE PROFIT FOR THE
PERIOD $ 336,249 $(20,428) $ - $ 315,821 PERIOD
-------------------------------------------------------------
Reconciliation of consolidated statement of comprehensive income for the
three months ended December 31, 2010
----------------------------------------------------------------------------
IFRS IFRS
Canadian GAAP Canadian adjust- reclassi-
accounts GAAP ments fications IFRS IFRS accounts
----------------------------------------------------------------------------
NET INCOME PROFIT FOR THE
$ 217,659 $ (39,191) $ - $ 178,468 PERIOD
--------------------------------------------
Unrealized gain o Unrealized gain
translation of on translation
foreign of foreign
operations (4,090) 20 - (4,070) operations
Amortization of Amortization of
deferred deferred
unrealized gain unrealized gain
on discontinued on discontinued
hedges - net of hedges - net of
income taxes of income taxes of
$5,421 (25,227) - - (25,227) $5,421
--------------------------------------------
OTHER
COMPREHENSIVE COMPREHENSIVE
LOSS (29,317) 20 - (29,297) LOSS
--------------------------------------------
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME $ 188,342 $ (39,171) $ - $ 149,171 INCOME
--------------------------------------------
Attributable to: Attributable
to:
Unitholders of Unitholders of
Just Energy $ 188,090 $ (39,106) $ - $ 148,984 Just Energy
Non-controlling Non-controlling
interests 252 (65) - 187 interests
--------------------------------------------
$ 188,342 $ (39,171) $ - $ 149,171
--------------------------------------------
Reconciliation of consolidated statement of comprehensive income for the
nine months ended December 31, 2010
----------------------------------------------------------------------------
IFRS IFRS
Canadian GAAP Canadian adjust- reclassi-
accounts GAAP ments fications IFRS IFRS accounts
----------------------------------------------------------------------------
NET INCOME PROFIT FOR THE
$ 336,249 $ (20,428) $ - $ 315,821 PERIOD
--------------------------------------------
Unrealized gain Unrealized gain
on translation on
of self- translation of
sustaining foreign
operations 5,136 41 - 5,177 operations
Amortization of Amortization of
deferred deferred
unrealized gain unrealized gain
of discontinued on
hedges - net of discontinued
income taxes of hedges - net of
$15,860 income taxes of
(77,145) - - (77,145) $15,860
--------------------------------------------
OTHER OTHER
COMPREHENSIVE COMPREHENSIVE
LOSS (72,009) 41 - (71,968) LOSS
--------------------------------------------
COMPREHENSIVE COMPREHENSIVE
INCOME $ 264,240 $ (20,387) $ - $ 243,853 INCOME
--------------------------------------------
Attributable to: Attributable
to:
Unitholders of Unitholders of
Just Energy $ 266,227 $ (20,238) $ - $ 245,989 Just Energy
Non-controlling Non-controlling
interests (1,987) (149) (2,136) interests
--------------------------------------------
$ 264,240 $ (20,387) $ - $ 243,853
--------------------------------------------
Reconciliation of financial position and equity at December 31, 2010
------------------------------------------------------------
Canadian GAAP IFRS
Canadian GAAP accounts balances adjustments
------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment $ 236,994 $ (993)
Intangible assets 482,871 -
Goodwill 234,222 (5,261)
Other assets long term 4,043 -
Contract initiation
costs 29,231 -
Long-term receivables 3,952 -
Future income tax
assets 51,625 145,688
------------------------------------
1,042,938 139,434
Current assets
Inventory 7,275 -
Gas in storage 34,203 -
Gas delivered in
excess of consumption 89,508 -
Accounts receivable
and unbilled revenues 416,431 -
Accrued gas
receivables 1,083 -
Prepaid expenses and
deposits 5,780 -
Other assets - current 3,323 -
Corporate tax
recoverable 10,878 -
Current portion of
future income tax
assets 85,040 -
Cash 63,768 -
Restricted cash 708 -
------------------------------------
717,997 -
------------------------------------
TOTAL ASSETS $ 1,760,935 $ 139,434
------------------------------------
EQUITY AND LIABILITIES
Unitholders' deficiency
Deficit $ (1,197,082) $ (146,757)
Accumulated other
comprehensive income 149,960 41
Unitholders' capital 677,515 131,333
Equity component of
convertible debentures 33,914 (15,728)
Contributed surplus 22,382 (22,382)
------------------------------------
(313,311) (53,493)
Non-controlling interest 18,616 (331)
------------------------------------
Total equity $ (294,695) $ (53,824)
------------------------------------
Liabilities
Non-current liabilities
Long-term debt $ 547,884 $ -
Future income taxes 2,812 14,640
Deferred lease
inducements 1,708 -
Other liabilities -
long term 432,871 -
Provisions - 3,256
Shares and equity-
based compensation - 178,743
------------------------------------
985,275 196,639
Current liabilities
Bank indebtedness 2,690 -
Accounts payable and
accrued liabilities 314,457 (6,711)
Accrued gas accounts
payable 918 -
Deferred revenue 111,910 -
Corporate taxes
payable 4,046 -
Current portion of
long-term debt 59,288 -
Provisions - 3,330
Current portion future
income tax
liabilities 17,526 -
Other liabilities -
current 559,520 -
------------------------------------
1,070,355 (3,381)
------------------------------------
TOTAL LIABILITIES $ 2,055,630 $ 193,258
------------------------------------
TOTAL DEFICIT AND
LIABILITIES $ 1,760,935 $ 139,434
------------------------------------
----------------------------------------------------------------------------
IFRS
reclassifi-
Canadian GAAP accounts cations IFRS balance IFRS accounts
----------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current
assets
Property, plant and Property, plant
equipment $ - $ 236,001 and equipment
Intangible assets Intangible
228,961 711,832 assets
Goodwill (228,961) -
Other assets long term Other non-
current
financial
- 4,043 assets
Contract initiation Contract
costs initiation
- 29,231 costs
Long-term receivables Non-current
- 3,952 receivables
Future income tax Deferred tax
assets 85,040 282,353 asset
-------------------------------------
85,040 1,267,412
Current assets Current assets
Inventory - 7,275 Inventories
Gas in storage - 34,203 Gas in storage
Gas delivered in Gas delivered
excess of consumption in excess of
- 89,508 consumption
Accounts receivable Current trade
and unbilled revenues and other
- 416,431 receivables
Accrued gas Accrued gas
receivables - 1,083 receivables
Prepaid expenses and Prepaid
deposits expenses and
- 5,780 deposits
Other assets - current Other current
- 3,323 assets
Corporate tax Corporate tax
recoverable - 10,878 recoverable
Current portion of
future income tax
assets (85,040) -
Cash Cash and cash
708 64,476 equivalents
Restricted cash (708) -
-------------------------------------
(85,040) 632,957
-------------------------------------
TOTAL ASSETS $ - $ 1,900,369 TOTAL ASSETS
-------------------------------------
EQUITY AND LIABILITIES DEFICIT AND
LIABILITIES
Unitholders' deficiency Equity
attributable to
equity holders
of the parent
Deficit $ - $ (1,343,839) Deficit
Accumulated other Accumulated
comprehensive income other
comprehensive
- 150,001 income
Unitholders' capital Unitholders'
- 808,848 capital
Equity component of Equity
convertible debentures component of
convertible
- 18,186 debentures
Contributed surplus Contributed
- - surplus
-------------------------------------
- (366,804)
Non-controlling interest Non-controlling
- 18,285 interest
-------------------------------------
Total equity $ - $ (348,519) Total deficit
-------------------------------------
Liabilities LIABILITIES
Non-current liabilities Non-current
liabilities
Long-term debt $ - $ 547,884 Long-term debt
Future income taxes Deferred tax
17,526 34,978 liability
Deferred lease Deferred lease
inducements - 1,708 inducements
Other liabilities - Other non-
long term current
financial
- 432,871 liabilities
Provisions - 3,256 Provisions
Shares and equity- Shares and
based compensation equity-based
- 178,743 compensation
-------------------------------------
17,526 1,199,440
Current liabilities Current
liabilities
Bank indebtedness Bank
- 2,690 indebtedness
Accounts payable and Trade and other
accrued liabilities - 307,746 payables
Accrued gas accounts Accrued gas
payable - 918 payable
Deferred revenue Deferred
- 111,910 revenue
Corporate taxes Income taxes
payable - 4,046 payable
Current portion of Current portion
long-term debt of long-term
- 59,288 debt
Provisions - 3,330 Provisions
Current portion future
income tax
liabilities (17,526) -
Other liabilities - Other current
current financial
- 559,520 liabilities
-------------------------------------
(17,526) 1,049,448
-------------------------------------
TOTAL LIABILITIES TOTAL
$ - $ 2,248,888 LIABILITIES
-------------------------------------
TOTAL DEFICIT AND TOTAL EQUITY
LIABILITIES $ - $ 1,900,369 AND LIABILITIES
-------------------------------------
Notes to the reconciliation of equity as at December 31, 2010.
A. Property, plant and equipment
CGAAP - Component accounting required but typically not practiced in Canada.
IFRS - Where an item of plant and equipment comprises major components with
different useful lives, the components are accounted for as separate items.
Management has reassessed the significant parts of the ethanol plant, which has
resulted in a decrease in amortization of the ethanol plant.
B. Transaction costs
CGAAP - The cost of the purchase includes the direct costs of the business
combination.
IFRS - Transaction costs of the business combination are expensed as incurred.
Transaction costs relating to the acquisition of Hudson have been expensed under
IFRS. In addition, and in accordance with IAS 39, management has allocated
transaction costs directly attributable to the credit facility which were
previously included as part of a business combination, to the related long-term
debt. These costs are now expensed using the effective interest rate method over
the life of the related debt.
C. Stock-based compensation and contributed surplus
CGAAP - For grants of share-based awards with graded vesting, the total fair
value of the award is recognized on a straight-line basis over the employment
period necessary to vest the award.
IFRS - Each tranche in an award; graded vesting is considered a separate grant
with a different vesting date and fair value. Each grant is accounted for on
that basis. As a result, Just Energy adjusted its expense for share-based awards
to reflect this difference in recognition.
D. Provisions
CGAAP - Accounts payable, accrued liabilities and provisions are disclosed on
the consolidated statement of financial position as a single line item.
IFRS - Provisions are disclosed separately from liabilities and accrued
liabilities and require additional disclosure. Under IFRS, provisions are also
measured at the present value of the expenditures expected to be required to
settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
This has resulted in an adjustment to Just Energy.
E. Deferred tax asset/liability
CGAAP - Deferred taxes are split between current and non-current components on
the basis of either: (1) the underlying asset or liability or (2) the expected
reversal of items not related to an asset or liability.
IFRS - All deferred tax assets and liabilities are classified as non-current.
F. Impairment
CGAAP - A recoverability test is performed by first comparing the undiscounted
expected future cash flows to be derived from the asset to its carrying amount.
If the asset does not recover its carrying value, an impairment loss is
calculated as the excess of the asset's carrying amount over its fair value.
IFRS - The impairment loss is calculated as the excess of the asset's carrying
amount over its recoverable amount, where recoverable amount is defined as the
higher of the asset's fair value less costs to sell and its value-in-use. Under
the value-in-use calculation, the expected future cash flows from the asset are
discounted to their net present value. The change in measurement methodology did
not result in additional impairment to Just Energy under IFRS.
G. Exchangeable Shares and equity-based compensation
CGAAP - The Class A preference shares and Exchangeable Shares issued by a
subsidiary of an income fund are presented on the consolidated balance sheets of
the income fund as part of unitholders' capital if certain criteria are met.
Just Energy had met the criteria and the Class A preference shares and
Exchangeable Shares were recorded as part of unitholders' capital.
IFRS - As a result of the Class A preference shares, Exchangeable Shares and
equity-based compensation being exchangeable into a puttable liability, the
shares and equity-based compensation did not meet the definition of an equity
instrument in accordance with IAS 32, Financial Instruments: Presentation, and
accordingly, were classified as financial liabilities. The Exchangeable Shares
and equity-based compensation were recorded upon transition to IFRS at
redemption value and subsequent to transition were adjusted to reflect the
redemption value at each reporting date. The resulting change from carrying
value to redemption value was recorded at transition and at each reporting
period to retained earnings and earnings respectively as a change in fair value
of derivative instruments. All distributions were recorded as interest expense
in the reporting period for which the dividends were declared.
H. Deferred taxes
CGAAP - There was an exemption that allowed issuers of convertible debentures to
treat the difference in the convertible debentures as a permanent difference
between tax and accounting. This exemption does not exist under IFRS.
Under CGAAP, Just Energy's deferred tax balances were calculated using the
enacted or substantively enacted tax rates that were expected to apply to the
reporting period(s) when the temporary differences were expected to reverse.
IFRS - The discount on the convertible debentures has been included in assessing
the Company's future tax position. IAS 12, Income Taxes, requires the
application of an "undistributed tax rate" in the calculation of deferred taxes,
whereby deferred tax balances are measured at the tax rate applicable to Just
Energy's undistributed profits during the periods when Just Energy was an income
trust.
Deferred taxes have been recalculated on the revised accounting values for the
adjustments A to G.
I. Acquisition of minority interest
CGAAP - The gain on the acquisition of minority interest, which occurred on
January 1, 2011, was treated as a reduction to goodwill on the original
acquisition.
IFRS - The gain was reallocated to contributed surplus as this is considered an
equity transaction.
J. Cash flow statements
Cash flow statements prepared under IAS 7, Statement of Cash Flows, present cash
flows in the same manner as under previous GAAP. Other than the adjustments
noted above, reclassifications between net earnings and the adjustments to
compute cash flows from operating activities there were no material changes to
the statement of cash flows.
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