Just Energy Group Inc. (NYSE:JE)(TSX:JE)
Highlights for the year ended March 31, 2012 included:
-- Gross additions though marketing were a record 1,091,000, up 9% from the
999,000 added in fiscal 2011 and up 116% from 505,000 added in fiscal
2010.
-- Record additions of 429,000 by the Consumer (residential) division and
662,000 by the Commercial division.
-- Net customer additions, including customers acquired with Fulcrum, were
556,000 for the year. Excluding Fulcrum customers, net additions were
316,000.
-- Customer base reached 3,870,000 RCEs, up 17% year over year.
-- Customer attrition rates improved to an annual rate of 13% from 15% in
fiscal 2011. Customer renewal rates declined slightly from 65% to 64% in
fiscal 2012.
-- National Home Services water heater and HVAC installed base up 39% to
165,400. NHS revenue and gross margin were up 58% and 78%, respectively,
year over year.
-- Gross margin of $517.5 million, up 7% year over year (5% per share),
equaling published guidance.
-- Adjusted EBITDA of $283.1 million, up 9% (7% per share) versus $259.0
million in fiscal 2011, exceeding published guidance of 5% per share.
-- Dividends of $1.24 per share were paid in fiscal 2012, equal to the
dividends/distributions paid in fiscal 2011.
-- Dividend payout ratio on Adjusted EBITDA of 62%, down from 66% in fiscal
2011.
Highlights for the three months ended March 31, 2012 included:
-- Customer additions through marketing were a record 316,000, up 36% from
232,000 in Q4 fiscal 2011 and 131,000 in Q4 of fiscal 2010.
-- Net customer additions were 112,000 in Q4, up 53% from 73,000 in fiscal
2011.
-- Extremely warm winter weather causes sharp decline in gas consumption.
Heating degree days in Just Energy's gas markets were, on average,
approximately 15% warmer than normal for the quarter.
-- Gross Margin of $173.3 million, up 1%.
-- Adjusted EBITDA of $109.3 million, down 5%.
-- Dividend payout ratio on Adjusted EBITDA of 40% up from 38% in Q4 fiscal
2011.
Just Energy Fiscal 2012 Results
Just Energy announced its results for the year ended March 31, 2012.
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Three months ended March 31,
($ millions except per share) 2012 Per share 2011 Per share
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Sales $820.4 $5.80 $941.3 $6.75
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Gross margin 173.3 1.23 172.4 1.24
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Adjusted EBITDA 109.3 0.77 114.9 0.82
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Net income (loss) (76.9) (0.54) 37.1 0.27
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Dividends 44.2 0.31 43.2 0.31
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Long Term Customers 3,870,000 3,314,000
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Year ended March 31,
($ millions except per share) 2012 Per share 2011 Per share
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Sales $2,785.3 $19.70 $2,953.2 $21.38
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Gross margin 517.5 3.66 481.6 3.49
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Adjusted EBITDA 283.1 2.00 259.0 1.88
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Net income (loss) (126.6) (0.90) 352.9 2.56
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Dividends/Distributions 175.4 1.24 170.0 1.24
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Payout ratio on Adjusted EBITDA 62% 66%
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Just Energy Group converted to a TSX-listed corporation from an income trust on
January 1, 2011. It has subsequently listed on the New York Stock Exchange
effective January 30, 2012. The Company reports in its Management's Discussion
and Analysis, a detailed calculation of Adjusted EBITDA as its best measure of
operating performance.
Customer Aggregation
As a marketing company, the most important driver of Just Energy's growth is its
ability to grow its customer base. Fiscal 2012 saw record customer additions
through marketing top one million customers added for the first time. This
growth was driven by record additions in both the Consumer and the Commercial
divisions.
LONG-TERM CUSTOMER AGGREGATION
April 1,
2011 Additions Acquired Attrition
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Natural gas
Canada 656,000 63,000 - (61,000)
United States 574,000 135,000 - (134,000)
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Total gas 1,230,000 198,000 - (195,000)
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Electricity
Canada 736,000 102,000 - (71,000)
United States 1,348,000 791,000 240,000 (213,000)
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Total electricity 2,084,000 893,000 240,000 (284,000)
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Combined 3,314,000 1,091,000 240,000 (479,000)
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Failed to March 31, % increase
renew 2012 (decrease)
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Natural gas
Canada (100,000) 558,000 (15)%
United States (24,000) 551,000 (4)%
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Total gas (124,000) 1,109,000 (10)%
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Electricity
Canada (69,000) 698,000 (5)%
United States (103,000) 2,063,000 53%
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Total electricity (172,000) 2,761,000 32%
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Combined (296,000) 3,870,000 17%
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Overall, the customer base grew 17% year over year reaching almost 3.9 million.
The chart below shows the positive trend in customer additions.
To view the Quarterly Customer Additions graph, please visit the following link:
http://media3.marketwire.com/docs/JE517.jpg.
Each of the steps the Company has taken over the past three years to add
additional sales channels have been successful. The core Consumer division
residential marketing generated 429,000 new customers, up 1,000 from the
previous record 428,000 added in fiscal 2011. This increase is in addition to
the significant role the sales force plays in renewing customers.
Commercial additions were 662,000, up 16% from the previous record 571,000 added
in fiscal 2011. The growth in Commercial has far exceeded management's
expectations when Hudson Energy was acquired two years ago. The division has
grown to 1.9 million customers since its formation following the Hudson
purchase. These customers generate, by design, lower per-customer margins than
the traditional residential base but their payback is less than 18 months on
aggregation cost, just like a residential customer. While this results in slower
margin growth than the growth in the customer base, this is a very lucrative
business as each customer equivalent brings lower customer aggregation costs and
lower ongoing customer care expenses.
Other new marketing channels include initial steps into internet acquisition and
telemarketing. A very high growth vehicle is the network marketing unit,
Momentis. From a standing start with 3,500 independent representatives at the
beginning of the year, Momentis has grown to 47,800 independent representatives
at year end. With the rapid ramp-up, Just Energy is only now starting to see the
benefit of this unit in new customer contracts and sales of other products.
The year also saw the acquisition of Fulcrum which, along with 240,000 new
customers, brought an expertise in affinity marketing which the Company hopes to
roll out in other major markets in coming years.
Energy marketing is seeing success in all its channels. With the continued
confidence in these sales channels, the Company intends to invest to grow each
to its potential.
A second area of growth is National Home Services. The water heater and HVAC
rental division saw installed units increase by 39% year over year. Revenue and
gross margin are up 58% and 78%, respectively. These products are a natural
extension of Just Energy's focus on the customer's energy needs and value is
being built daily within this division, with steps being taken to move outside
of Ontario. Embedded margin within NHS contracts grew by $110 million year over
year, up 39%.
Other aspects of the Company's business also showed improvement. The level of
attrition in the customer base again declined to an annual rate of 13% from 15%
across the customer book. Improving economic conditions and higher numbers of
more stable commercial customers cause management to believe that this trend
will continue.
Renewal rates slipped slightly falling to an average of 64% this year from 65%
in fiscal 2011. Renewals are challenging in a market where customers are coming
off very high cost contracts to new market pricing which is often half what they
had been paying. Once these high price contracts roll off, improved renewal
rates are expected.
The fiscal 2012 growth in the customer base translated into margin and Adjusted
EBITDA growth. The growth was projected to be 5% per share for the year and was
well ahead of this pace until extremely warm winter weather resulted in sharply
lower natural gas consumption, particularly in the fourth quarter. Despite this,
both gross margin and Adjusted EBITDA growth ended the year in line with
forecast at 5% and 7% per share, respectively. Management took proactive steps
to hedge against warm weather through the purchase of weather index options
prior to the winter. These options contributed a net $13 million in margin that
would have been otherwise lost to warm temperatures.
Just Energy invested in a number of future expansions which increased
administrative costs during the year. Excluding these and the back office which
came with the Fulcrum acquisition, these costs grew by far less than the growth
in the customer base. Bad debt expense also saw an improvement falling to 2.4%
of relevant sales from 2.7% a year ago.
A very important measure of operating success is embedded margin, a calculation
of the cash flow which will be generated by existing contracts. At the end of
fiscal 2011, our embedded margin stood at $1,726 million. In addition, $484
million in margin was realized during the year. New contracts more than replaced
this and the embedded margin ended the year with $1,977 million, up 15% in the
year.
Future embedded gross margin
Management's estimate of the future embedded gross margin is as follows:
(millions of dollars)
March 2012 March 2012
As at As at vs. As at vs.
March 31, March 31, March 2011 March 31, March 2010
2012 2011 change 2010 change
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Canada - energy
marketing
(CAD$) $ 592.1 $ 632.6 (6)% $ 783.1 (24)%
Home Services
division
(CAD$) 393.0 282.7 39% 176.7 122%
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Canada - total
(CAD$) 985.1 915.3 8% 959.8 3%
U.S. - energy
marketing
(US$) 994.1 835.6 19% 414.6 140%
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Total (CAD$) $ 1,976.8 $ 1,725.5 15% $ 1,381.0 43%
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Three years ago, growing demand for green energy from our Consumer division
customers led to the development of JustGreen and JustClean products. These
products have been a tremendous success with now 12% of the current Consumer
electricity demand and 10% of the Consumer natural gas demand coming from green
sources. While the take-up by new customers on green slowed slightly this year
due to pricing pressures in a challenging economy, green remains a focus of the
Company.
The Company continues to initiate new products and options for green-oriented
customers. The new Hudson Solar business has generated more than $90 million in
roof-mount and ground-mount solar array capital projects for corporate and
public buildings. It is expected that this business will double in the coming
year.
CEO Ken Hartwick said, "Today, we continue to look to the future and see many
changes coming in how customers use energy. Time-of-use metering makes control
of home consumption an essential goal of homeowners and an opportunity for Just
Energy to provide products which assist customers to use energy effectively.
Looking further out, we see growth in the sales of electric cars and other
vehicles as a major driver of North American power consumption. Again, our
executive team is looking for ways to have Just Energy products at the forefront
of this growth sector."
On January 1, 2011, Just Energy implemented a dividend policy where monthly
dividends were initially set at $0.10333 per share ($1.24 annually) equal to the
former distribution rate as an income trust. This allowed many shareholders to
benefit from a more attractive tax treatment on dividends, as opposed to the
higher tax rate on the previous distributions.
Executive Chair Rebecca MacDonald stated, "Many of shareholders look to Just
Energy as an important source of steady predictable income. This will not
change. While the past year saw unfavourable weather conditions for our
operating results, we were able to meet our guidance and continued to pay our
$1.24 dividend. Our payout ratio on Adjusted EBITDA declined for the third
straight year reaching 62%, down from 66% in fiscal 2011 and 78% in fiscal
2010".
Ms. MacDonald added, "Some in the capital markets look at Just Energy's overall
payout ratio including expenditures to grow the business and think that a rising
trend threatens our dividend. Nothing could be further from the truth."
"Our growth expenditures generally pay back in less than 18 months resulting in
the very high returns on invested capital for which Just Energy is known. We do
not believe that these sales efforts should be curtailed even if small amounts
need to be borrowed to finance them. We have access to financing necessary to
fund any realistic level of accelerated growth without impacting our ability to
fund dividends. Continued profitable growth and high income will be the
result."
Fourth Quarter Results
The fourth quarter operating results were highlighted by continued strong
customer additions but were adversely impacted by extremely warm winter weather
which resulted in sharply lower natural gas consumption in Just Energy's key
markets in the Midwest and Northeast.
Customer additions through marketing were 316,000, up 36% from 232,000 in the
comparable quarter of fiscal 2010. Net additions were 112,000, up 53% from the
prior comparable quarter.
The weather had a substantial but expected effect on both margins and adjusted
EBITDA. Heating degree days in the Company's gas markets, were on average,
approximately 15% warmer than normal in the quarter. Margins were up 1% quarter
over quarter with lower energy marketing margins being offset by higher margins
at NHS and the Terra Grain Fuels ethanol plant.
Adjusted EBITDA was down 5% versus the prior fourth quarter. A number of factors
contributed to this decline. The largest was the administrative costs of Fulcrum
which are evenly spread throughout the year whereas its electricity based
margins are heavily weighted toward the summer months. Other expenditures on new
channels, such as Momentis, and new geographic territories, such as the U.K.,
required upfront expenditures prior to generating revenues.
Guidance for Fiscal 2013
In the past, Just Energy provided guidance with respect to expected growth in
gross margin and Adjusted EBITDA, a non-GAAP measure used by companies who
similarly are required to mark to market long term supply.
Management expects gross margin will grow by between 10% and 12% and Adjusted
EBITDA is expected to grow 8% to 10% for the year ended March 31, 2013. It is
expected that continued strong customer growth will result in a greater than 10%
growth in the customer book more than offsetting the expected lower average
margin per customer due to high growth from the Commercial division. In
addition, management expects that cash income tax payable for the year will be
reduced due to the input tax credits and accelerated depreciation on Hudson
Energy Solar projects. Overall cash tax payable is expected to be higher than
paid in fiscal 2012 but less than the current tax rate of 25% in Canada and 40%
in the United States.
Chief Executive Officer Ken Hartwick stated: "Our more diversified product suite
and geographic footprint gives a solid base for continued growth in the future.
You will see us begin to use technology to expand our relationship with a
customer leading to a deeper customer commitment. We expect continued profitable
growth for Just Energy for the foreseeable future."
Just Energy Group Inc.
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, Pennsylvania and Massachusetts.
Forward-Looking Statements
Just Energy's press releases may contain forward-looking statements including
statements pertaining to customer revenues and margins, customer additions and
renewals, customer attrition, customer consumption levels, general and
administrative expenses, distributable cash, and treatment under governmental
regulatory regimes. These statements are based on current expectations that
involve a number of risks and uncertainties which could cause actual results to
differ from those anticipated. These risks include, but are not limited to,
levels of customer natural gas and electricity consumption, rates of customer
additions and renewals, rates of customer attrition, fluctuations in natural gas
and electricity prices, changes in regulatory regimes and decisions by
regulatory authorities, competition and dependence on certain suppliers.
Additional information on these and other factors that could affect Just
Energy's operations, financial results or distribution levels are included in
Just Energy's annual information form and other reports on file with Canadian
securities regulatory authorities which can be accessed through the SEDAR
website at www.sedar.com or through Just Energy's website at
www.justenergygroup.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - May 17, 2012
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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 year ended
March 31, 2012, and has been prepared with all information available up to and
including May 17, 2012. This analysis should be read in conjunction with the
audited consolidated financial statements for the year ended March 31, 2012. The
financial information contained herein has been prepared in accordance with
International Financial Reporting Standards ("IFRS"), as issued by the
International Accounting Standards Board ("IASB"). 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.
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.
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 JE and, like the unitholders of the Fund,
the holders of JEEC's Exchangeable Shares received common shares of JE on a one
for one basis. JE also assumed all of the obligations under the $90m convertible
debentures and $330m convertible debentures.
On October 3, 2011, Just Energy completed the acquisition of Fulcrum Retail
Holdings LLC ("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. Just Energy used the proceeds from
the issuance of $100 million of convertible unsecured subordinated debentures
issued on September 22, 2012, which bear interest at a rate of 5.75% per annum,
to fund the Fulcrum acquisition and for other general corporate purposes.
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. Just Energy markets its gas and
electricity contracts in Canada and the U.S. under the following trade names:
Just Energy, Hudson Energy, Commerce Energy, Amigo Energy and Tara Energy. 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 will
also increase sales receptivity and improve renewal rates.
In addition, Just Energy sells and rents high efficiency and tankless water
heaters, air conditioners and furnaces to Ontario residents, through a
subsidiary under the trade name, National Home Services ("NHS"). Just Energy
also operates a network marketing division under the trade name, Momentis.
Through its subsidiary, Terra Grain Fuels, Inc. ("TGF"), Just Energy produces
and sells wheat-based ethanol. Just Energy's subsidiary, Hudson Energy Solar
Corp ("HES"), also provides a solar project development platform operating in
New Jersey, Pennsylvania and Massachusetts, under the trade name, Hudson Energy
Solar.
Just Energy also holds a 50% ownership in Just Ventures LLC and Just Ventures
L.P. (collectively "Just Ventures"), a jointly controlled entity, which is
involved in the marketing of Just Energy's gas and electricity contracts.
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 1, 2012 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
"$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 26 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 27 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 27 for further details.
"customer" does not refer to an individual customer but instead an RCE.
"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.
"Large commercial customer" means customers representing more than 15 RCEs.
"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.
Non-GAAP financial measures
Just Energy's consolidated 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 that 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 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 years ended March 31
(thousands of dollars, except where indicated and per share/unit amounts)
Per
Fiscal 2012 Per Fiscal 2011 share/
Per share Per unit
share change share change
------------------------------------------------------------
Sales $ 2,785,269 $ 19.70 (8)% $ 2,953,192 $ 21.38 20%
Gross margin 517,489 3.66 5% 481,562 3.49 9%
Administrative
expenses 122,397 0.87 9% 109,400 0.79 16%
Finance costs 60,935 0.43 14% 52,085(3) 0.38 202%
Net income
(loss)(1) (126,643) (0.90) (135)% 352,940 2.56 43%
Dividends /
distributions
(including
Special
Distributions)
(4) 175,382 1.24 0% 170,004 1.24 (14)%
Base EBITDA(2) 208,982 1.48 (12)% 231,344 1.68 (1)%
Adjusted
EBITDA(2) 283,125 2.00 7% 258,954 1.88 3%
Payout ratio on
Base EBITDA 84% 73%
Payout ratio on
Adjusted EBITDA 62% 66%
Fiscal 2010
Per
unit
--------------------
Sales $ 2,299,231 $ 17.77
Gross margin 415,333 3.21
Administrative
expenses 88,423 0.68
Finance costs 16,134 0.12
Net income
(loss)(1) 231,496 1.79
Dividends /
distributions
(including
Special
Distributions)
(4) 185,205 1.43
Base EBITDA(2) 220,000 1.70
Adjusted
EBITDA(2) 236,304 1.83
Payout ratio on
Base EBITDA 84%
Payout ratio on
Adjusted EBITDA 78%
(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" on page 2.
(3) Excludes distributions paid to holders of Exchangeable Shares prior to
Conversion included as finance costs under IFRS.
(4) No Special Distribution was paid in fiscal 2012 or 2011. Fiscal 2010
included a one-time Special Distribution of $26.7 million.
International Financial Reporting Standards
Just Energy has adopted IFRS as the basis for reporting its financial results
commencing with the interim consolidated 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.
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 acquisition 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:
Fair value recognized on acquisition
Current assets (including cash of $3,875) $ 43,528
Property, plant and equipment 758
Software 215
Customer contracts and relationships 39,533
Affinity relationships 42,359
Brand 13,034
Contract initiation costs 156
Non-controlling interest 540
-----------
140,123
Current liabilities (44,856)
Other liabilities - current (12,340)
Other liabilities - long term (3,768)
Deferred lease inducements (322)
Long-term debt (586)
-----------
(61,962)
Total identifiable net assets acquired 78,161
Goodwill arising on acquisition 21,106
-----------
Total consideration $ 99,267
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of estimated working capital adjustment $ 80,940
Contingent consideration 18,327
-----------
Total consideration $ 99,267
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
ACQUISITION OF HUDSON ENERGY SERVICES, LLC
In May 2010, Just Energy completed the acquisition of all of the equity
interests of Hudson Parent Holdings, LLC, and all of the common shares of Hudson
Energy Services, LLC (Hudson"), with an effective date of May 1, 2010. The
acquisition was funded by an issuance of $330 million in convertible debentures.
The acquisition of Hudson was accounted for using the purchase method of
accounting. The Company allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition,
as follows:
Fair value recognized on acquisition
Current assets (including cash of $24,003) $ 88,696
Property, plant and equipment 1,648
Software 911
Electricity contracts and customer relationships 200,653
Gas contracts and customer relationships 26,225
Broker network 84,400
Brand 11,200
Information technology system development 17,954
Contract initiation costs 20,288
Other intangible assets 6,545
Unbilled revenue 15,092
Notes receivable - long term 1,312
Security deposits - long term 3,544
Other assets - current 124
Other assets - long term 100
-----------
478,692
Current liabilities (107,817)
Other liabilities - current (74,683)
Other liabilities - long term (40,719)
-----------
(223,219)
Total identifiable net assets acquired 255,473
Goodwill arising on acquisition 32,317
-----------
Total consideration $ 287,790
Cash outflow on acquisition:
Cash paid $ 287,790
Net cash acquired with the subsidiary (24,003)
Holdback (9,345)
-----------
Net cash outflow $ 254,442
-----------
All contracts and intangible assets, excluding brand, are amortized over the
average remaining life at the time of acquisition. The gas and electricity
contracts and customer relationships are amortized over 30 months and 35 months,
respectively. Other intangible assets, excluding brand, are amortized over
periods of three to five years. The brand value is considered to be indefinite
and, therefore, not subject to amortization. The purchase price allocation is
considered final and, as a result, no further adjustments will be made.
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 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 was $15 million, with the total cost of these options being $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 may
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 1,000 independent contractors,
the Momentis network marketing operation and Internet-based and telephone
marketing efforts. Approximately 51% of Just Energy's customer base resides
within the Consumer Energy division, which is currently focused on longer-term
price-protected and variable rate 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 49% 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 190 independent contractors in Ontario.
Ethanol division
Just Energy owns and operates Terra Grain Fuels, 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.
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. As of March
31, 2012, there were approximately 47,800 independent representatives.
Solar division
Hudson Energy 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.
HES 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. HES 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 March 31, 2012, the division has made commitments of
approximately $90.7 million with the status of the associated projects ranging
from contracted to completed.
ADJUSTED EBITDA
For the years ended March 31
(thousands of dollars, except per share/unit amounts)
Fiscal Per Fiscal Per Fiscal
2012 share 2011 share 2010 Per unit
------------------------------------------------------------
Reconciliation
to income
statement
Profit
attributable to
shareholders of
Just Energy $ (126,522) $ (0.89) $ 355,076 $ 2.57 $ 231,496 $ 1.79
Add:
Finance costs 60,935 59,883 16,134
Provision for
income tax
expense 37,527 173,439 (100,260)
Capital tax - 188 522
Amortization 140,697 148,805 70,826
------------------------------------------------------------
EBITDA $ 112,637 $ 0.80 $ 737,391 5.34 $ 218,718 $ 1.69
Add (subtract):
Change in fair
value of
derivative
instruments 96,345 (506,047) 1,282
------------------------------------------------------------
Base EBITDA 208,982 $ 1.48 231,344 $ 1.68 220,000 $ 1.70
Add (subtract):
Selling and
marketing
expenses to add
gross margin 80,007 36,428 32,967
Maintenance
capital
expenditures (5,864) (8,818) (16,663)
------------------------------------------------------------
Adjusted EBITDA $ 283,125 $ 2.00 $ 258,954 $ 1.88 $ 236,304 $ 1.83
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted EBITDA
Gross margin per
financial
statements $ 517,489 $ 3.66 $ 481,562 $ 3.49 $ 415,333 $ 3.21
Add (subtract):
Administrative
expenses (122,397) (109,400) (88,423)
Selling and
marketing
expenses (177,302) (133,607) (95,760)
Bad debt expense (28,514) (27,650) (17,940)
Stock based
compensation (10,662) (9,914) (4,754)
Amortization
included in
cost of
sales/selling
and marketing
expenses 26,617 22,266 4,381
Other income 6,702 7,235 3,515
Transaction
costs (1,101) (1,284) -
Proportionate
share of loss
from the joint
venture (1,971) - -
Minority
interest 121 2,136 3,648
------------------------------------------------------------
Base EBITDA 208,982 $ 1.48 231,344 $ 1.68 $ 220,000 $ 1.70
Selling and
marketing
expenses to add
gross margin 80,007 36,428 32,967
Maintenance
capital
expenditures (5,864) (8,818) (16,663)
------------------------------------------------------------
Adjusted EBITDA $ 283,125 $ 2.00 $ 258,954 $ 1.88 $ 236,304 $ 1.83
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash
distributions /
dividends
(includes
Special
Distribution)
Distributions
and dividends $ 171,381 $ 161,585 $ 175,517
Class A
preference
share
distributions 4,896 7,580
Restricted share
grants/unit
appreciation
rights and
deferred share
grant/unit
grant
distributions 4,001 3,523 2,108
------------------------------------------------------------
Total
distributions/
dividends $ 175,382 $ 1.24 $ 170,004 $ 1.24 $ 185,205 $ 1.43
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted fully
diluted average
number of
units/shares
outstanding(1) 141.4m 138.1m 129.4m
(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 the value
of customer contracts is protected by entering into fixed-price supply
contracts. Under IFRS, the value of the customer contracts is 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.
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 $283.1 million ($2.00 per share) for fiscal 2012, an
increase of 9% (7% per share) from $259.0 million ($1.88 per share) in the prior
year. The increase is attributable to the increase in gross margin, offset by
higher operating expenses. Gross margin increased 7% (5% per share) overall with
energy marketing gross margin increasing by 1% and margin contributions from NHS
and TGF increasing 78% and 31%, respectively, versus the prior fiscal year.
Administrative expenses increased by 12% from $109.4 million to $122.4 million
year over year. The increase over the prior comparable year was due to the
inclusion of the administrative expenses relating to Fulcrum of $5.9 million and
investments in growth for solar and network marketing expansion. Excluding the
Fulcrum-related expenses, administrative expenses amounted to $116.5 million, a
6% increase over prior year in order to support the 10% organic growth in the
customer base. A portion of the 6% non-Fulcrum growth is attributable to the
Company's expansion into new markets where investments have been made but the
customer growth is not yet reflected in the results.
Selling and marketing expenses for the year ended March 31, 2012, were $177.3
million, a 33% increase from $133.6 million reported in the prior comparative
year. This increase is attributable to the 9% increase in customer additions as
well as the increased investments related to the build-out of the independent
representative network by Momentis. Excluding the $37.3 million of costs
associated with the building of Momentis, sales and marketing expenses increased
by 5% to $140.0 million.
The sales and marketing expenses representing the costs associated with
maintaining gross margin, which are deducted in Adjusted EBITDA, were $83.3
million for the year ended March 31, 2012, 2% lower than $84.8 million in the
prior fiscal year. Customers lost through attrition and failed to renew were
775,000 for the year up from 638,000 for the year prior reflecting a 17% higher
customer base. Margin growth from NHS and the TGF contributed to the offset of
lost margin at a relatively low sales and marketing cost.
Bad debt expense was $28.5 million for the year ended March 31, 2012, a 3%
increase from $27.7 million recorded for the prior comparable year. This
increase is a result of the 15% increase in revenue for markets which Just
Energy bears the bad debt risk year over year. For the year end March 31, 2012,
the bad debt expense of $28.5 million represents approximately 2.4% of revenue
in the jurisdictions where the Company bears the credit risk.
Dividends and distributions paid for the year ended March 31, 2012 were $175.4
million, an increase of 3% from the prior comparative year as a result of a
higher number of shares outstanding. The payout ratio on Base EBITDA was 84% for
the year ended March 31, 2012, versus 73% in fiscal 2011. For the year ended
March 31, 2012, the payout ratio on Adjusted EBITDA was 62%, versus 66% in the
prior year.
For further information on the changes in the gross margin, please refer to "Gas
and electricity marketing" on page 15 and "Administrative expenses", "Selling
and marketing expenses", "Bad debt expense" and "Finance costs", which are
further clarified on pages 21 through 23.
For the year ended March 31, 2010, gross margin was $415.3 million for the year,
reflecting lower gas consumption from the winter months being warmer than
expected. Administrative, sales and marketing and bad debt expenses amounted to
$88.4 million, $95.8 million and $17.9 million, respectively. For fiscal 2010,
adjusted EBITDA amounted to $236.3 million ($1.83 per unit) and the payout ratio
on Adjusted EBITDA was 78% for the year, reflecting higher distributions of
$1.43 per unit due to a Special Distribution of $0.20 per unit being paid.
Future embedded gross margin
Management's estimate of the future embedded gross margin is as follows:
(millions of dollars)
March 2012 March 2011
As at As at vs. As at vs.
March 31, March 31, March. 2011 March 31, March 2010
2012 2011 variance 2010 variance
------------------------------------------------------------
Canada - energy
marketing
(CAD$) $ 592.1 $ 632.6 (6)% $ 783.1 (19)%
Home Services
division (CAD$) 393.0 282.7 39% 176.7 60%
----------------------------------------------------------------------------
Canada - total
(CAD$) 985.1 915.3 8% 959.8 (5)%
U.S. - energy
marketing (US$) 994.1 835.6 19% 414.6 102%
----------------------------------------------------------------------------
Total (CAD$) $ 1,976.8 $ 1,725.5 15% $ 1,381.0 25%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Management's estimate of the future embedded gross margin amounted to $1,976.8
million at as March 31, 2012, from $1,725.5 million, an increase of 15% from
fiscal 2011. This is over and above the $484.4 million in margin realized by the
energy marketing and home services divisions in fiscal 2012. The future embedded
gross margin for Canada was up 8% with 39% higher embedded margin from the Home
Services division more than offsetting 6% lower margins from energy marketing.
The decline in Canadian energy marketing embedded margin was primarily due to a
net customer loss of 10% during the year. NHS embedded margins were up 39% in
the year reflecting a 39% increase in installed customers over the year. The
embedded margin for NHS represents the margin associated with the remaining
average life of the customer contracts.
U.S. future embedded gross margin grew 19% over the year from US$835.6 million
to US$994.1 million. The growth in energy marketing embedded margins for the
year includes US$76 million of future margin associated with customers acquired
from Fulcrum. Excluding this growth from the Fulcrum acquisition, the growth in
energy marketing embedded gross margin was lower than the 10% organic growth in
customer base as the commercial customers, which make up a growing percentage of
new additions, by design have lower margins and shorter base contract terms than
residential customers. However, the addition of commercial customers also
results in lower customer aggregation costs and lower annual customer servicing
costs, neither of which is captured in embedded margin.
The U.S. dollar strengthened 3% against the Canadian dollar over fiscal 2012,
resulting in an increase of $27.7 million in future embedded gross margin when
stated in Canadian dollars.
FUNDS FROM OPERATIONS
For the years ended March 31
(thousands of dollars, except per share/unit amounts)
Fiscal Per Fiscal Per Fiscal Per
2012 share 2011 share 2010 unit
-----------------------------------------------------
Cash inflow from
operations $ 144,390 $ 1.02 $ 145,555 $ 1.05 $ 158,273 $ 1.22
Add:
Increase in non-cash
working capital 27,032 39,063 35,523
Dividend / distribution
classified as finance
cost - 7,798 -
Other 121 354 -
Tax adjustment 3,957 4,914 3,237
-----------------------------------------------------
Funds from operations $ 175,500 $ 1.24 $ 197,684 $ 1.43 $ 197,033 $ 1.52
Payout ratio 100% 86% 94%
Add: marketing expense
to add new gross
margin 80,007 36,428 32,967
Less: maintenance
capital expenditures (5,864) (8,818) (16,663)
-----------------------------------------------------
Adjusted funds from
operations $ 249,643 $ 1.77 225,294 $ 1.63 $ 213,337 $ 1.65
-----------------------------------------------------
-----------------------------------------------------
Payout ratio 70% 75% 87%
Adjusted fully diluted
average number of
shares outstanding(1) 141.4m 138.1m 129.4m
(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 represents the cash available for distribution to the
shareholders of Just Energy. For the year ended March 31, 2012, funds from
operations were $175.5 million ($1.24 per share), an 11% decrease from $197.7
million ($1.43 per share) in the prior year. 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, for which the benefit will not
be recognized until future periods. The payout ratio on funds from operations
was 100% for the year ended March 31, 2012, versus 86% in the prior year,
reflecting investments made for future growth during the year.
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 year. These expenditures totaled $85.9
million and, with the acquisition of Fulcrum, resulted in an increase in
embedded future margin of $251.3 million. For the year ended March 31, 2012,
adjusted funds from operations was $249.6 million ($1.77 per share), an increase
of 11% over $225.3 million ($1.63 per share) in the prior year. Payout ratios
were 70% for the year ended March 31, 2012, and 75% in the prior fiscal year.
For the year ended March 31, 2010, funds from operations amounted to $197.0
million ($1.52 per unit), resulting in a payout ratio of 94%, including the
Special Distribution. Adjusted funds from operations was $213.3 million ($1.65
per unit) for fiscal 2010, resulting in a distribution payout ratio of 87%.
SELECTED CONSOLIDATED FINANCIAL DATA
(thousands of dollars, except where indicated and per share/unit amounts)
Just Energy has adopted IFRS as the basis for reporting financial results for
fiscal 2012. The comparative figures for fiscal 2011 have been restated in
accordance with the Company's IFRS accounting policies but fiscal 2010 results
are prepared in accordance with Canadian GAAP. The following table provides
selected financial information for the last three fiscal years.
Statements of operations data
For the years ended March 31
Fiscal 2012 Fiscal 2011 Fiscal 2010
-------------------------------------------
Sales $ 2,785,269 $ 2,953,192 $ 2,299,231
Gross margin 517,489 481,562 415,333
Net income (loss) (126,643) 352,940 231,496
Net income (loss) per share/unit
- basic (0.92) 2.77 1.81
Net income (loss) per share/unit
- diluted (0.92) 2.40 1.79
Balance sheet data
As at March 31
Fiscal 2012 Fiscal 2011 Fiscal 2010
-----------------------------------------
Total assets $ 1,543,044 $ 1,590,026 $ 1,310,827
Long-term liabilities 999,608 890,657 824,393
2012 compared with 2011
Sales decreased by 6% from $3.0 billion in fiscal 2011 to $2.8 billion in fiscal
2012. 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 primarily
as a result of the decrease in commodity market prices.
For the year ended March 31, 2012, gross margin increased by 7% to $517.5
million from $481.6 million reported in fiscal 2011. Gross margin related to
energy marketing increased 1% year over year despite a 17% increase in customer
base as a result of the warm winter temperatures impacting gas consumption
across all markets and the increasing percentage of lower margin commercial
customers within the overall book. Gross margin from TGF and NHS increased by
31% and 78%, respectively for the year ended March 31, 2012.
Net loss for fiscal 2012 amounted to $126.6 million, compared with net income of
$352.9 million in fiscal 2011. The change in net income (loss) is due to the
change in fair value of the derivative instruments, which showed a loss of $96.3
million in fiscal 2012, versus a gain in fiscal 2011 of $506.0 million. Under
IFRS, the customer margins are not marked to market but there is a requirement
to mark to market the future supply contracts, creating unrealized gains or
losses depending on the supply pricing.
Total assets slightly decreased to $1.5 billion in fiscal 2012 as a result of
the amortization of the intangible assets acquired through the Hudson
acquisition.
Total long-term liabilities as of March 31, 2012 were $999.6 million
representing a 12% increase over the fiscal 2011. Just Energy funded the Fulcrum
acquisition effective October 1, 2011 by issuing $100 million in convertible
debentures, which as at March 31, 2012, were valued at $85.9 million in
long-term debt. Offsetting this increase other long-term liabilities have
decreased in fiscal 2012 primarily due to the movement from long term
liabilities to short term liabilities.
2011 compared with 2010
Just Energy adopted IFRS effective April 1, 2010. As a result, fiscal 2011
results were prepared in accordance with IFRS. For the year ended March 31,
2010, the financial results from reported using Canadian GAAP. This 2011 to 2010
comparison considers the changes between the fiscal 2011 results reported under
IFRS and the fiscal 2010 results reported under Canadian GAAP.
Sales increased by 28% in fiscal 2011 due to a 45% net increase in customers as
a result of 999,000 new additions and the acquisition of Hudson. Effective May
1, 2010, Just Energy completed the acquisition of 660,000 largely commercial
Hudson customers and issued $330 million of convertible debentures in order to
finance the acquisition. For further information on the acquisition, see page 5.
As at March 31, 2011, commercial customers made up 40% of the Just Energy
customer base, and while there are lower margins associated with these
customers, the associated expenses to acquire and maintain are lower on a per
RCE basis. Gross margin increased to $481.6 million or 16% over fiscal 2010.
Net income increased by 52% from $231.5 million ($1.79 per unit) in fiscal 2010
to $352.9 million ($2.56 per share) in fiscal 2011. The change in net income
relates primarily to the change in fair value of the derivative instruments,
which showed a gain in fiscal 2011 of $506.0 million versus a loss of $1.3
million in fiscal 2010 as well as strong operating results for the year.
Offsetting this increase is the income tax provision of $173.4 million for
fiscal 2011, versus an income tax recovery of $100.3 million in fiscal 2010.
Total assets increased by 21% to $1.6 billion in fiscal 2011. The largest
components of this change relate to the property, plant and equipment,
intangible assets, goodwill and contract initiation costs recorded as part of
the Hudson acquisition.
Total long-term liabilities of $890.7 million represent an 8% increase over
fiscal 2010. Just Energy funded the Hudson acquisition by issuing $330 million
in convertible debentures, which as at March 31, 2011, were valued at $286.4
million and recorded in long-term debt. Other long-term liabilities also
decreased in fiscal 2011 primarily due to the change in mark to market valuation
of future supply positions.
SUMMARY OF QUARTERLY RESULTS
(thousands of dollars, except per share/unit amounts)
Q4 Q3 Q2 Q1
fiscal 2012 fiscal 2012 fiscal 2012 fiscal 2012
--------------------------------------------------------
Sales $ 820,412 $ 738,614 $ 600,043 $ 626,200
Gross margin 173,260 147,407 102,561 94,261
Administrative
expenses 34,031 31,308 28,774 28,284
Finance costs 16,426 16,377 14,340 13,792
Net income (loss) (76,895) (97,386) (3,494) 51,132
Net income (loss)
per share - basic (0.55) (0.70) (0.03) 0.37
Net income (loss)
per share - diluted (0.55) (0.70) (0.03) 0.35
Dividends/distributi-
ons paid 44,152 43,934 43,691 43,605
Base EBITDA 76,948 63,563 38,604 29,867
Adjusted EBITDA 109,287 88,513 47,894 37,431
Payout ratio on Base
EBITDA 57% 69% 113% 146%
Payout ratio on
Adjusted EBITDA 40% 50% 91% 116%
Q4 Q3 Q2 Q1
fiscal 2011 fiscal 2011 fiscal 2011 fiscal 2011
--------------------------------------------------------
Sales $ 941,334 $ 744,296 $ 657,878 $ 609,684
Gross margin 172,599 132,084 96,719 80,355
Administrative
expenses 28,367 26,299 25,963 28,841
Finance costs 13,646 15,679(1) 12,823(1) 9,937(1)
Net income (loss) 37,119 178,468 (133,436) 270,789
Net income (loss)
per unit - basic 0.27 1.41 (1.07) 2.19
Net income (loss)
per unit - diluted 0.23 1.16 (1.07) 1.78
Distributions paid 43,208 42,450 42,276 42,070
Base EBITDA 109,282 68,823 31,441 21,798
Adjusted EBITDA 114,934 76,800 37,497 29,726
Payout ratio on Base
EBITDA 40% 62% 134% 193%
Payout ratio on
Adjusted EBITDA 38% 55% 113% 142%
(1) Excludes distributions paid to holders of Exchangeable Shares prior to
Conversion included as finance costs under IFRS.
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 fourth quarter
Sales decreased by 13% quarter over quarter to $820.4 million from $941.3
million. Sales from gas and electricity marketing decreased by 14% quarter over
quarter primarily as a result of lower commodity prices as well as lower gas
consumption due to the extremely warm winter temperatures across Just Energy's
gas markets versus relatively cold weather the prior year. This decrease was
partially offset by higher sales for NHS and TGF. Gross margin was flat quarter
over quarter due to the increase in gross margin contribution from NHS and TGF
offsetting the 4% lower gross margin from energy marketing. The decline in
energy marketing gross margin was attributable to the extremely warm winter
weather in Just Energy markets and the impact on natural gas consumption.
Heating degree days in Just Energy's primary gas markets were 10% to 15% warmer
than normal in January and February, with March being 38% warmer than normal.
Gross margin percentage increased to 21% for fiscal 2012 versus 18% for fiscal
2011 due to improved margin per customer in energy marketing and improved
results at NHS and TGF.
The change in fair value of derivative instruments resulted in a loss of $90.2
million for the current quarter, in comparison with a gain of $139.7 million in
the fourth quarter of the prior fiscal year. Net loss for the three months ended
March 31, 2012 was $76.9 million, representing a loss per share of $0.55. For
the prior comparative quarter, net income was $37.1 million, representing income
of $0.27 and $0.23 on a basic and diluted per share basis, respectively. 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 impact of mark to
market gains and losses.
Adjusted EBITDA decreased by 5% to $109.3 million for the three months ended
March 31, 2012. This decrease is attributable to the weather impacts on energy
marketing and higher administrative, bad debt and selling and marketing expenses
to maintain gross margin, Base EBITDA (after all selling and marketing costs)
decreased by 30% to $76.9 million for the three months ended March 31, 2012,
down from $109.3 million in the prior comparable quarter primarily as a result
of higher investment in the solar and network marketing divisions as well as
investments to open new geographic territories for energy marketing. These
expenditures will support future growth for the Company. For the three months
ended March 31, 2012, the provision for income tax expense amounted to $15.8
million versus the prior comparative period expense of $162.0 million, which was
a result of a change in the deferred tax rate to the Conversion.
Dividends/distributions paid were $44.2 million, a 2% increase from $43.2
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. Payout ratio on Adjusted EBITDA was 40% for the
three months ended March 31, 2012, compared with 38% in the prior comparable
quarter.
GAS AND ELECTRICITY MARKETING
For the years ended March 31
(thousands of dollars)
Fiscal 2012
--------------------------------------------------
Sales Gas Electricity Total
--------------------------------------------------
Canada $ 476,020 $ 489,043 $ 965,063
United States 407,037 1,230,810 1,637,847
--------------------------------------------------
$ 883,057 $ 1,719,853 $ 2,602,910
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) (26)% 5% (8)%
--------------------------------------------------
Fiscal 2011
--------------------------------------------------
Sales Gas Electricity Total
--------------------------------------------------
Canada $ 660,036 $ 619,985 $ 1,280,021
United States 525,714 1,015,347 1,541,061
--------------------------------------------------
$ 1,185,750 $ 1,635,332 $ 2,821,082
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease)
--------------------------------------------------
Fiscal 2012
--------------------------------------------------
Gross margin Gas Electricity Total
--------------------------------------------------
Canada $ 85,222 $ 93,151 $ 178,373
United States 54,918 223,081 277,999
$ 140,140 $ 316,232 $ 456,372
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) (19)% 13% 1%
--------------------------------------------------
Fiscal 2011
--------------------------------------------------
Gross margin Gas Electricity Total
--------------------------------------------------
Canada $ 94,200 $ 94,749 $ 188,949
United States 78,563 183,922 262,485
$ 172,763 $ 278,671 $ 451,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease)
--------------------------------------------------
Sales for the year ended March 31, 2012 were $2.6 billion, a decrease of 8% from
$2.8 billion in the prior year. The sales decline reflects the impact of the
decrease in commodity prices within contracts signed in recent periods and the
impact on gas consumption of the extremely warm temperatures during the third
and fourth quarters. Because of the lower commodity prices, Just Energy has
experienced 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.
Gross margins were $456.4 million for the year, an increase of 1% from the
$451.4 million earned during the year ended March 31, 2011. The increase in
gross margin is primarily a result of the record number of customers added
through marketing and the Fulcrum acquisition, offset by the impact from the
warm winter partially mitigated through weather derivative options.
Gas
Sales were $883.1 million for the year ended March 31, 2012, down 26% from
$1,185.8 million in the prior year. Gross margins were $140.1 million for fiscal
2012, a decrease of 19% from $172.8 million in the prior year. The number of gas
customers has decreased by 10% during the fiscal year.
Just Energy entered into weather index derivatives for the period from November
1, 2011 through to March 31, 2012 with the intention of reducing gross margin
fluctuations from extreme weather. The maximum payout cap on the options was $15
million. The weather during the third quarter was approximately 10% to 15%
warmer than normal and accounted for approximately $9 million of the total
option payout. For the fourth quarter, weather remained approximately 10% to 15%
warmer for January and February, absorbing the remainder of the payout cap, but
then the weather was approximately 38% warmer than normal in the month of March.
The impact from the record warm winter was lost gross margin of approximately
$28 million, offset by the $15 million payout from the weather index derivative.
Canada
Canadian gas sales were $476.0 million, a decrease of 28% from $660.0 million
recorded for the year ended March 31, 2011. Gross margin totalled $85.2 million,
down 10% from the prior comparative year. The decrease in sales is a result of
the decline in commodity prices reflected in recent contract offerings, the 15%
smaller customer base and lower consumption due to the extremely warm winter.
Gross margin was 10% lower in fiscal 2012 than the prior year due to the smaller
customer base and lower consumption of gas offset, by higher realized margin per
customer.
After allowance for balancing and inclusive of acquisitions, realized average
gross margin per customer ("GM/RCE") for the year ended March 31, 2012, amounted
to $178/RCE compared to $160/RCE for the prior year. The GM/RCE value includes
an appropriate allowance for the bad debt expense in Alberta.
United States
For the year ended March 31, 2012, gas sales totalled $407.0 million, a decrease
of 23% from $525.7 million in the prior year. Gross margin for the gas markets
in the U.S. was $54.9 million, a 30% decrease versus $78.6 million reported in
the prior year. Total gas customers in the U.S decreased by 4% during fiscal
2012. The lower sales and gross margin were the result of a lower consumption
due to warmer than usual winter weather and the overall decrease in customer
base. The lower commodity price environment and its impact on recently signed
contracts also contributed to the decline in gas sales in the U.S. year over
year.
Average realized gross margin after all balancing costs for the year ended March
31, 2012, was $113/RCE, a decrease from $141/RCE. In addition to the impact from
weather, a higher proportion of commercial customers were added which have lower
margins per RCE by design. The GM/RCE value includes an appropriate allowance
for bad debt expense in Illinois, Georgia and California.
Electricity
Sales for fiscal 2012 were $1,719.9 million, an increase of 5% from $1,635.3
million for the year ended March 31, 2011. Gross margin was $316.2 million, up
13% from $278.7 million in the prior year. The number of electricity customers
has increased by 32% during the past year.
Canada
Electricity sales were $489.0 million for the year ended March 31, 2012, a
decrease of 21% from the prior comparable year due to a 5% decline in RCEs as
well as new variable rate products offered at lower sales prices. Gross margin
decreased by 2% year over year to $93.2 million versus $94.7 million in the
prior year. The substantially lower decline in margin versus customers was
largely due to higher margins associated with the JustGreen product offerings as
well as some attractive variable rate products.
Realized average gross margin per customer in Canada after all balancing and
including acquisitions for the year ended March 31, 2012, amounted to $141/RCE,
an increase from $127/RCE in the prior year. The GM/RCE value includes an
appropriate allowance for the bad debt expense in Alberta.
United States
Electricity sales in the U.S. were $1,230.8 million for the year ended March 31,
2012, an increase of 21% from $1,015.3 million in the prior year. Gross margin
for electricity in the U.S was $223.1 million, a 21% increase from $183.9
million recorded in fiscal 2011. Driving sales growth was the 53% increase in
customer base during the year, as a result of strong additions through marketing
and 240,000 RCEs added through the Fulcrum acquisition, effective October 1,
2011. These Fulcrum customers had a limited impact on sales and margins as they
will generate the majority of their annual revenue and margin in the first and
second quarters (summer months).
Average gross margin per customer for electricity during the year decreased to
$132/RCE, compared to $149/RCE in the prior year, as a result of a higher
proportion of commercial customers added which have lower margins per RCE by
design. The GM/RCE value for Texas, Pennsylvania, Massachusetts and California
includes an appropriate allowance for the bad debt expense.
LONG-TERM CUSTOMER AGGREGATION
April 1,
2011 Additions Acquired Attrition
----------------------------------------------------------------------------
Natural gas
Canada 656,000 63,000 - (61,000)
United States 574,000 135,000 - (134,000)
----------------------------------------------------------------------------
Total gas 1,230,000 198,000 - (195,000)
----------------------------------------------------------------------------
Electricity
Canada 736,000 102,000 - (71,000)
United States 1,348,000 791,000 240,000 (213,000)
----------------------------------------------------------------------------
Total electricity 2,084,000 893,000 240,000 (284,000)
----------------------------------------------------------------------------
Combined 3,314,000 1,091,000 240,000 (479,000)
----------------------------------------------------------------------------
Failed to March 31, % increase
renew 2012 (decrease)
----------------------------------------------------------------------------
Natural gas
Canada (100,000) 558,000 (15)%
United States (24,000) 551,000 (4)%
----------------------------------------------------------------------------
Total gas (124,000) 1,109,000 (10)%
----------------------------------------------------------------------------
Electricity
Canada (69,000) 698,000 (5)%
United States (103,000) 2,063,000 53%
----------------------------------------------------------------------------
Total electricity (172,000) 2,761,000 32%
----------------------------------------------------------------------------
Combined (296,000) 3,870,000 17%
----------------------------------------------------------------------------
Gross customer additions for the year were 1,091,000, up 9% from the previous
record 999,000 customers added through marketing in fiscal 2011. Net additions
from marketing were 316,000 for the year versus 361,000 net customers added in
fiscal 2011. The customer base increased by 17% during fiscal 2012, including
the 240,000 customers acquired from Fulcrum effective October 1, 2011.
Consumer customer additions amounted to 429,000 for the fiscal year, effectively
unchanged from the 428,000 customer additions recorded in fiscal 2011.
Management continues to diversify its sales platform beyond door-to-door sales
to include the Momentis network, telephone and online marketing channels.
Commercial additions were 662,000 for the year, a 16% increase from 571,000
additions in the previous fiscal year. The broker sales channel continues to
expand across Just Energy's existing markets.
Net additions from marketing exceeded 100,000 in both the third and fourth
quarters, following growth of 45,000 and 44,000 respectively for the first and
second quarter. This reflects improved performance across each of the sales
channels in both the Consumer and Commercial divisions.
Total gas customers decreased by 10% during the year, 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. Successful new
variable and monthly flat rate contracts are being sold while spot market prices
remain stable.
Total electricity customers were up 32% during the year, with a 53% growth in
the U.S. market and a 5% decrease in customers in the Canadian markets. The
growth in the U.S. is a result of the strong additions and the 240,000 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, 2011, through December 31, 2011, validating the match of
Just Energy's renewable energy and carbon offset purchases against customer
contracts. 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, 29% took JustGreen for some or all of their energy needs. On
average, these customers elected to purchase 84% of their consumption as green
supply. In the previous year, 36% of the consumer customers who contracted with
Just Energy chose to include JustGreen for an average of 90% of their
consumption. The reduction in green take up is primarily related to our gas
consumers and the high premium on the product in a low commodity price
environment. Overall, JustGreen now makes up 10% of the Consumer gas portfolio,
up from 6% a year ago. JustGreen makes up 12% of the Consumer electricity
portfolio, up from 10% a year ago.
In addition, JustClean products are being offered in some markets within Canada.
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. The Company is exploring opportunities to
expand this product offering to new markets throughout the U.S. and Canada, both
regulated and deregulated.
Attrition
Fiscal 2012 Fiscal 2011
--------------------------------
Natural gas
Canada 10% 10%
United States 24% 23%
Electricity
Canada 9% 10%
United States 13% 17%
Total attrition 13% 15%
The primary contributing factor to attrition rates experienced in fiscal 2012 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; in addition, there are generally lower
attrition rates among the growing base of commercial customers. The average rate
of attrition declined by 2% to 13%, continuing the trend of improvement seen
since the real estate crisis of 2008.
Natural gas
The annual natural gas attrition in Canada was 10% for the year, unchanged from
the attrition rate reported in the prior year. In the U.S., annual gas attrition
was 24%, a slight increase from 23% experienced a year prior.
Electricity
The annual electricity attrition rate in Canada was 9%, slightly lower than the
10% reported in the prior year. Electricity attrition in the U.S. was 13% for
fiscal 2012, a decrease from 17% reported for the prior fiscal year, due to the
increasing commercial customer base that has historically experienced lower
attrition rates.
Renewals
Consumer Commercial
Fiscal Fiscal Fiscal Fiscal
2012 2011 2012 2011
----------------------------------------
Natural gas
Canada 52% 69% 61% 49%
United States 85% 73% 62% 77%
Electricity
Canada 51% 63% 59% 58%
United States 87% 75% 64% 60%
Total renewals - consumer and
commercial divisions 64% 65%
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
customers, both consumer and commercial, was 64%, for fiscal 2012 down slightly
from 65% for the prior year. It is anticipated that Canadian renewal rates and
overall averages will improve towards target levels as more customers begin to
renew off of market priced contracts in coming years.
Gas and electricity contract renewals
This table shows the percentage of customers up for renewal in each of the
following fiscal years:
Canada - Canada - U.S. - U.S. -
gas electricity gas electricity
2013 33% 34% 24% 35%
2014 18% 15% 11% 16%
2015 18% 13% 13% 15%
2016 18% 20% 19% 15%
Beyond 2016 13% 18% 33% 19%
--------------------------------------------------------
Total 100% 100% 100% 100%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All month-to-month customers, which represent 294,000 RCEs, are excluded in the
table above.
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 need to
price closer to the very low utility floating rate alternative and substantially
lower commodity prices on new contracts versus those up for renewal or lost to
attrition. 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)
Number of
Fiscal 2012 customers
---------------------------------
Consumer customers added in the year
- Canada - gas $ 169 35,000
- Canada - electricity 123 46,000
- United States - gas 196 112,000
- United States - electricity 168 236,000
Average annual margin 170
Consumer customers renewed in the year
- Canada - gas $ 165 49,000
- Canada - electricity 140 55,000
- United States - gas 205 38,000
- United States - electricity 163 41,000
Average annual margin 162
Consumer customers lost in the year
- Canada - gas $ 193 117,000
- Canada - electricity 150 103,000
- United States - gas 211 142,000
- United States - electricity 210 159,000
Average annual margin 194
Commercial customers added in the year $ 82 662,000
Commercial customers lost in the year $ 117 254,000
(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 year amounting to 40,400 water heaters and 6,400 air conditioners and
furnaces, compared with 38,200 water heaters and 3,400 air conditioner and
furnace units installed in the prior comparable year. Overall, installations
increased by 13%, although the increase in margin from the increased base is
greater as the average monthly rental revenue for HVAC products is 2.5 times
that of a water heater. NHS currently markets through approximately 190
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 March 31, 2012, was $187.4 million. As at March
31, 2012, the balance outstanding was $147.2 million, with an average term of
6.1 years.
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 will be an asset, which will
generate strong cash returns following repayment of the HTC financing. The
embedded margin within the NHS contracts grew 39% to $393.0 million as at March
31, 2012 up from $282.7 million a year prior. NHS also realized a margin of
$28.0 million during the year in addition to the growth in embedded margin.
Selected financial information
For the years ended March 31
(thousands of dollars, except where indicated)
Fiscal 2012 Fiscal 2011
----------------------------
Sales per financial statements $ 35,642 $ 22,566
Cost of sales 7,663 6,869
----------------------------
Gross margin 27,979 15,697
Selling and marketing expenses 4,188 3,302
Administrative expenses 12,901 12,083
Finance costs 10,018 6,468
Capital expenditures 35,685 30,625
Amortization 1,799 1,902
Total number of water heaters, furnaces and
air conditioners installed 165,400 118,600
Results from operations
For the year ended March 31, 2012, NHS had sales of $35.6 million for the year,
up 58% from $22.6 million reported in fiscal 2011. Gross margin amounted to
$28.0 million for the year ended March 31, 2012, an increase of 78% from $15.7
million reported in the prior year. The increase in sales was greater than the
39% increase in the number of units installed year over year due to a full year
of revenue being earned from the installations during the prior year as well as
the fact that revenue associated with HVAC installations is approximately 2.5
times that of a water heater unit. The cost of sales for the year ended March
31, 2012 was $7.7 million, of which $6.8 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 and warehouse expenses were $12.9
million for the year ended March 31, 2012, an increase of 7% year over year due
to business growth.
Finance costs amounted to $10.0 million as a result of the financing arrangement
with HTC. Capital expenditures, including installation costs, amounted to $35.7
million for the year ended March 31, 2012.
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 year
ended March 31, 2012, the plant achieved an average production capacity of 80%,
an increase from average production capacity of 78% in the prior year as a
result of efficiencies gained.
Ethanol prices were, on average, $0.72 per litre and wheat prices averaged $213
per metric tonne for the year ended March 31, 2012. For the prior comparable
year, average ethanol prices were $0.57 per litre and wheat prices were $168 per
metric tonne. As at March 31, 2012, ethanol was priced at $0.59 per litre.
Selected financial information
For the years ended March 31
(thousands of dollars, except where indicated)
Fiscal 2012 Fiscal 2011
----------------------------
Sales per financial statements $ 130,491 $ 108,526
Cost of sales 112,659 94,901
----------------------------
Gross margin 17,832 13,625
Administrative expenses 8,229 11,231
Finance costs 6,485 6,862
Capital expenditures 250 267
Amortization 1,337 1,193
Results of operations
For the year ended March 31, 2012, TGF had sales of $130.5 million, a 20%
increase from $108.5 million in the prior comparable year. Cost of sales
amounted to $112.7 million, an increase of 19% from $94.9 million in the prior
comparable year. During fiscal 2012, the plant produced 119.3 million litres of
ethanol and 111,104 metric tonnes of DDG, resulting in a productive capacity of
80%. In the prior comparable year, TGF produced 117.7 million litres of ethanol
and 111,417 metric tonnes of DDG and experienced an average production capacity
of 78%. Administrative expenses declined 27% due to a reclassification of
certain costs to cost of sales.
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
For the year ended March 31, 2012, administrative expenses were $122.4 million,
an increase of 12% from $109.4 million in the prior year.
% increase
Fiscal 2012 Fiscal 2011 (decrease)
--------------------------------------
Energy marketing $ 97,085 $ 83,558 16%
NHS 12,901 12,083 7%
TGF 8,229 11,231 (27)%
Other 4,182 2,528 65%
--------------------------------------
Total administrative expenses $ 122,397 $ 109,400 12%
Energy marketing administrative costs were $97.1 million for fiscal 2012, an
increase of 16% from $83.6 million for the year ended March 31, 2011. This
increase is primarily attributable to the inclusion of $5.9 million in
administrative costs related to the Fulcrum acquisition. Management did 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 $91.2 million, a 9% increase in
administrative expenses year over year as a result of the additional costs
associated with supporting the growth in customer base. A portion of the 9%
non-Fulcrum growth is attributed to the Company's expansion into new markets
where investments have been made but the customer growth is not yet reflected in
the results.
Selling and marketing expenses
Selling and marketing expenses, which consist of commissions paid to independent
sales contractors, brokers and independent representatives as well as
sales-related corporate costs, were $177.3 million, an increase of 33% from
$133.6 million in fiscal 2011. Excluding the $37.3 million of costs associated
with the expansion of Momentis, sales and marketing expenses increased by 5% to
$140.0 million. New customers signed by the sales force totaled 1,091,000 during
fiscal 2012, an increase of 9% compared to 999,000 customers added through our
sales channels in the prior year. The increase in sales and marketing costs was
less than the increase in customers due to the large component of commercial
customers added. Commissions per RCE for commercial customers are lower than
those of consumer customers.
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 year ended March 31,
2012, $11.9 million in commission-related expenses was capitalized to contract
initiation costs. Of the capitalized commissions, $2.8 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 year. Selling and marketing
expenses to maintain gross margin were $83.3 million for the year ended March
31, 2012, a slight decrease from $84.8 million in fiscal 2011 as a result of the
lower commission associated with the commercial customer additions.
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 total gross margin signed from new customers
during the period. Selling and marketing expenses to add new gross margin in the
year ended March 31, 2012, totalled $80.0 million, of which, $37.3 million
related to the building of the Network Marketing division.
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. It is expected that this division will
become a significant cash flow generator in future periods.
Selling and marketing expenses included in Base EBITDA exclude amortization
related to the contract initiation costs for Hudson and NHS. For the year ended
March 31, 2012, the amortization amounted to $14.0 million, an increase of 13%
from $12.4 million reported in the prior year.
The aggregation costs per customer for the year ended March 31, 2012, for
residential and commercial customers signed by independent representatives and
commercial customers signed by brokers were as follows:
Commercial
Residential Commercial broker
customers customers customers
Natural gas
Canada $223/RCE $136/RCE $66/RCE
United States $188/RCE $76/RCE $25/RCE
Electricity
Canada $210/RCE $140/RCE $35/RCE
United States $161/RCE $151/RCE $35/RCE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total aggregation costs $181/RCE $135/RCE $35/RCE
The aggregation cost per customer added for all energy marketing for the year
ended March 31, 2012, was $103/RCE. The $35/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 $35/RCE per year for each
additional year that the customer flows. Assuming an average life of 2.8 years,
this would add approximately $64 (1.8 x $35/RCE) to the quarter's $35/RCE
average aggregation cost for commercial broker customers reported above. For the
prior comparable year, total aggregation costs per residential, commercial and
commercial brokers were $173/RCE, $122/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 year ended March 31, 2012, 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 year ended March 31, 2012, was
$28.5 million, an increase of 3% from $27.7 million expensed for the year ended
March 31, 2011. The bad debt expense increase was a result of a 15% increase in
total revenues for the current year for the markets were Just Energy bears the
credit risk to $1,187.2 million, including the additional revenue earned in
Texas from the customers acquired from Fulcrum. 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 year ended March 31, 2012, the bad debt expense of $28.5 million represents
2.4% of relevant revenue, lower than the bad debt for fiscal 2011, which
represented 2.7% of relevant revenue.
Management expects that bad debt expense will remain in the range of 2% to 3% of
relevant revenue. 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 year ended March 31, 2012 amounted to $60.9 million,
an increase from $59.9 million recorded in fiscal 2011. Excluding the $7.8
million of dividend payments made to holders of Exchangeable Shares and
equivalents classified as finance costs under IFRS in the prior year, finance
costs increased by 17%. The increase in costs primarily relates to the interest
associated with the $330m convertible debentures (which was not in place for all
of fiscal 2011), the $100m convertible debentures (which were issued in fiscal
2012) and the increase in NHS financing. These costs were partially offset by
the lower finance costs related to the credit facility.
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 year ended March 31,
2012, a foreign exchange unrealized loss of $2.4 million was reported in other
comprehensive income (loss) versus $0.4 million in the prior year.
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
For the years ended March 31
(thousands of dollars)
Fiscal 2012 Fiscal 2011
----------------------------------
Current income tax provision $ 662 $ 8,182
Future tax expense 36,865 165,257
----------------------------------
Provision for income tax $ 37,527 $ 173,439
----------------------------------
----------------------------------
Just Energy recorded a current income tax expense of $0.7 million for the year,
versus $8.2 million of expense in fiscal 2011. 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 current year.
During 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
and, as a result, a deferred tax expense of $36.9 million was recorded for the
year. During the first three quarters of fiscal 2011, Just Energy was an income
trust and as a result its timing differences between accounting and tax were
booked at the income trust tax rate of 46.41%. At the beginning of the fourth
quarter of fiscal 2011, Just Energy was converted to a taxable Canadian
corporation (see further comments below) and as a result from that point on, its
timing differences were booked at the corporate tax rate of approximately 25%
for deferred tax purposes. As a result, there was a significant reduction of its
deferred tax assets balance during the fourth quarter of fiscal 2011. In
addition, after the Conversion, the deferred tax assets related to the Class A
preference shares were eliminated due to the redemption of those shares as part
of the Conversion process. The combined effect of these factors led to a very
significant deferred tax provision of $165.3 million recorded in fiscal 2011. No
such issues arose during fiscal 2012 and as a consequence the deferred tax
expense of the current year is much lower than that of the previous year.
After the Conversion on January 1, 2011, Just Energy was 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. For fiscal 2012, taxable income of Canadian corporations under
Just Energy is subject to a tax rate of approximately 27% for current tax
purposes.
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)
Fiscal 2012 Fiscal 2011
----------------------------
Operating activities $ 144,390 $ 145,555
Investing activities (205,247) (318,847)
Financing activities, excluding
distributions/dividends 162,940 346,290
Effect of foreign currency translation 326 (908)
----------------------------
Increase in cash before
distributions/dividends 102,409 172,090
Distributions/dividends (cash payments) (146,822) (134,589)
----------------------------
Increase (decrease) in cash (44,413) 37,501
Cash - beginning of year 97,633 60,132
----------------------------
Cash - end of year $ 53,220 $ 97,633
----------------------------
----------------------------
Operating activities
Cash flow from operating activities for the year ended March 31, 2012, was
$144.4 million, a slight decrease from $145.6 million in the prior year. The
increase in gross margin was offset by higher selling and general and
administrative expenses resulting in cash flow from operations being relatively
flat year over year.
Investing activities
Just Energy purchased capital assets totalling $74.8 million during the year, an
increase from $33.4 million in the prior fiscal year. Just Energy's capital
spending related primarily to the Home Services and Solar divisions.
Financing activities
Financing activities, excluding distributions/dividends, relates primarily to
the issuance and repayment of long-term debt. During the year, $464.5 million in
long-term debt was issued, largely resulting from the $100m convertible
debentures issued on September 22, 2011 for funding the Fulcrum acquisition and
additional funding received by NHS for financing Long-term debt amounting to
$288.0 million was repaid during the year. In the prior year, $484.8 million was
issued in long-term debt relating to the $330 million in debenture to finance
the acquisition of Hudson, the credit facility and NHS financing with $150.4
million being repaid.
As of March 31, 2012, 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 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 year ended March 31, 2012, Just Energy made cash
distributions/dividends to its shareholders and holders of restricted share
grants and deferred share grants in the amount of $146.8 million, compared to
$134.6 million in the prior year.
Just Energy maintains its annual dividend rate at $1.24 per share, the same rate
that was previously paid for distributions. Investors should note that in the
past, 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.
For the year ended March 31, 2012, $8.7 million of the dividends were paid in
shares under the DRIP. The DRIP was suspended as of February 1, 2012, with the
approval of the normal course issuer bid and remained suspended as at March 31,
2012.
Just Energy will continue to utilize its cash resources for expansion into new
markets and, grow its existing energy marketing customer base, JustGreen and
JustClean products, Solar and Home Services divisions, and make accretive
acquisitions of customers as well as add dividends to its shareholders.
At the end of the quarter, the annual rate for dividends per share was $1.24.
The current dividend policy provides that shareholders of record on the 15th day
of each month or the first business day thereafter receive dividends at the end
of the month.
BALANCE SHEET AS AT MARCH 31, 2012, COMPARED TO MARCH 31, 2011
Cash decreased from $97.6 million as at March 31, 2011, to $53.2 million. The
utilization of the credit facility increased from $53.0 million to $98.5
million. The decrease in cash and the increase in the utilization of the credit
facility is a result of the funding requirements of the Solar and Networking
Marketing divisions.
As at March 31, 2012, trade receivables and unbilled revenue amounted to $299.9
million and $130.8 million, respectively, compared to one year 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
$287.1 million in the past year. The increase in accounts receivable and payable
are a result of the Fulcrum acquisition.
As at March 31, 2012, Just Energy had delivered more 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 $12.8 million
and $12.0 million respectively. This build-up of inventory at the LDCs is a
result of the consumption being lower than expected with the much warmer than
normal temperatures experienced in the winter months. At March 31, 2011, Just
Energy had accrued gas receivable and payable amounting to $26.5 million and
$19.4 million, respectively, as a result of customers' gas consumption being
greater than that which had been delivered to the LDCs. In addition, gas in
storage increased from $6.1 million as at March 31, 2011 to $11.5 million as at
March 31, 2012 due to lower consumption as a result of the mild winter
temperatures.
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
year to year due to commodity price volatility. Given that Just Energy has
purchased this supply to cover future customer usage at fixed prices, management
believes that these non-cash 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 Hudson and Universal purchases. As a result of
the Fulcrum acquisition, the intangible assets increased by $116.2 million
during the year. The total intangible asset balance decreased to $543.8 million,
from $640.2 million as at March 31, 2011, as a result of amortization.
Long-term debt (excluding the current portion) has increased from $507.5 million
to $679.1 million in the year ended March 31, 2012, primarily as a result of the
issuance of the $100 million convertible debentures during the year as well as
an increase in NHS financing.
Long-term debt and financing
(thousands of dollars)
As at March 31, As at March 31,
2012 2011
----------------------------------
Just Energy credit facility $ 98,455 $ 53,000
TGF credit facility 32,046 36,680
TGF debentures 35,818 37,001
NHS financing 147,220 105,716
$90m convertible debentures 86,101 84,706
$330m convertible debentures 291,937 286,439
$100m convertible debentures 85,879 -
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, SocieteGenerale, 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 March 31, 2012
and 2011, 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 prime rate 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, a mortgage on title to the land owned by TGF
and a general security interest on all other current and acquired assets of TGF.
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 covenants were measured as of March 31,
2012, and TGF failed to meet all required covenants. The non-compliance was
waived by the lenders but did result in a non-compliance fee of $0.1 million
representing 0.25% of the loan balance as of March 31, 2012. The non-compliance
fee was accrued as at 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. On April 1, 2011, the interest rate was increased to 12%.
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, has been extended to May 15, 2014, with a call right any time
after April 1, 2013. On March 31, 2012, TGF agreed with the debenture holders to
increase the quarterly blended payments to $1.2 million. TGF also agreed to make
an additional debt repayment after March 31, 2012, if the cash flow from
operations exceeds $0.5 million for fiscal 2013, provided that this type of
payment will not create a non-compliance issue for the corporation under the TGF
credit facility.
NHS financing
NHS has entered into a long-term financing agreement with HTC for the funding of
new and existing rental water heater and HVAC contracts. 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 air conditioner and furnace 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 March
31, 2012, 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 Gas distribution territory and 5% in the Union Gas distribution
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
non-financial covenants under the agreement and, as at March 31, 2012, all of
these covenants had 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 March 31, 2012, 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 34.09 Just Energy
common shares, representing a conversion price of $29.33 per share. Pursuant to
the $90m convertible debentures, if Just Energy fixes a record date for the
payment 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. 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 in each year, 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 which was used to purchase Fulcrum. 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 - 3 4 - 5 After 5
Total 1 year years years years
--------------------------------------------------------
Accounts payable and
accrued liabilities $ 287,145 $ 287,145 $ - $ - $ -
Bank indebtedness 1,060 1,060 - - -
Long-term debt
(contractual cash
flow) 833,962 97,611 252,570 26,433 457,348
Interest payments 261,069 47,800 84,304 67,215 61,750
Property and
equipment lease
agreements 35,184 8,296 12,231 7,570 7,087
Grain production
contracts 8,236 7,876 360 - -
Commodity supply
purchase
commitments 2,596,314 1,363,421 1,057,222 175,049 622
--------------------------------------------------------
$ 4,022,970 $ 1,813,209 $ 1,406,687 $ 276,267 $ 526,807
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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 consolidated financial statements. In the normal course of
business, Just Energy could be subject to certain contingent obligations that
become payable only if certain events were to occur. The inherent uncertainty
surrounding the timing and financial impact of any events prevents any
meaningful measurement, which is necessary to assess any material impact on
future liquidity. Such obligations include potential judgments, settlements,
fines and other penalties resulting from actions, claims or proceedings.
TRANSACTIONS WITH RELATED PARTIES
Just Energy does not have any material transactions with any individuals or
companies that are not considered independent of Just Energy or any of its
subsidiaries and/or affiliates.
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.
Accrued gas receivable/Accrued gas payable
Accrued gas receivable results 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 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 March 31, 2012,
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 or carbon
destruction. 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 U.S. operations introduce foreign exchange-related risks. Just
Energy enters into foreign exchange forwards in order to hedge its exposure to
fluctuations in cross border cash flows.
The consolidated financial statements are in compliance with IAS 32, Financial
Instruments: Presentation; IAS 39, Financial Instruments: Recognition and
Measurement; and IFRS 7, Financial Instruments: Disclosure. 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.
JUST ENERGY COMMON SHARES
As at May 17, 2012, there were 139,348,926 common shares of JE outstanding.
NORMAL COURSE ISSUER BID
During the year, 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 March 31, 2012, Just Energy purchased and cancelled
84,100 shares at an average price of $11.36 for total cash consideration of $1.0
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, 2015, 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, 2018, 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, and 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 establish 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.
IAS 1, Presentation of Financial Statements
IAS1, Presentation of Financial Statements, was amended in 2011 to expand on the
disclosures required of items within Other Comprehensive Income. The revised
standard requires that an entity distinguishes between those items that are
recycled to profit and loss versus those items that are not recycled.
Retrospective application is required and the standard is effective for annual
periods beginning on or after July 1, 2012. The Company does not expect the
amendments to IAS 1 to have a significant impact on its consolidated financial
statements.
RISK FACTORS
Described below are the principal risks and uncertainties that Just Energy can
foresee. It is not an exhaustive list, as some future risks may be as yet
unknown and other risks, currently regarded as immaterial, could turn out to be
material.
Credit, commodity and other market related risks
Availability of supply
The risk of supply default is mitigated through credit and supply diversity
arrangements. The Just Energy business model is based on contracting for supply
to lock in margin. There is a risk that counterparties could not deliver due to
business failure, supply shortage or be otherwise unable to perform their
obligations under their agreements with Just Energy, or that Just Energy could
not identify alternatives to existing counterparties. Just Energy continues to
investigate opportunities to identify or secure additional gas suppliers and
electricity suppliers. Just Energy's commodity contracts are predominantly with
Shell, BP, Bruce Power, Constellation, SocieteGenerale, EDF Trading North
America, LLC and National Bank of Canada. Other suppliers represent less than 3%
of commodity supply.
Volatility of commodity prices - enforcement
A key risk to Just Energy's business model is a sudden and significant drop in
the market price of gas or electricity resulting in some customers renouncing
their contracts. Just Energy may encounter difficulty or political resistance
for enforcement of liquidated damages and/or enactment of force majeure
provisions in such a situation and be exposed to spot prices with a material
adverse impact to cash flow. Continual monitoring of margin and exposure allows
management of Just Energy time to adjust strategies, pricing and communications
to mitigate this risk.
Availability of credit
In several of the markets in which Just Energy operates, payment is provided by
LDCs only when the customer has paid for the consumed commodity (rather than
when the commodity is delivered). Also, in some markets, Just Energy must inject
gas inventory into storage in advance of payment. These factors, along with the
seasonality of customer consumption, create working capital requirements
necessitating the use of Just Energy's available credit. In addition, some of
Just Energy's subsidiaries and affiliates are required to provide credit
assurance, by means of providing guarantees or posting collateral, in connection
with commodity supply contracts, license obligations and obligations owed to
certain LDCs and pipelines. Cash flow could be impacted by the ability of Just
Energy to fund such requirements or to provide other satisfactory credit
assurance for such obligations. To mitigate credit availability risk and its
potential impact to cash flow, Just Energy has security arrangements in place
pursuant to which commodity suppliers and the lenders under the credit facility
hold security over substantially all of the assets of Just Energy (other than
NHS, TGF and HES). The most significant assets of Just Energy consist of its
contracts with customers, which may not be suitable as security for some
creditors and commodity suppliers. To date, the credit facility and related
security agreements have met the collateral posting and operational requirements
of the business. Just Energy continues to monitor its credit and security
requirements. Just Energy's business may be adversely affected if it is unable
to meet cash obligations for operational requirements or its collateral posting
requirements.
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. Although Just
Energy balances its estimated customer requirements net of contracted commodity,
it is exposed to market risks associated with commodity prices and market
volatility where estimated customer requirements do not match actual customer
requirements or where it has not been able to exactly purchase the estimated
customer requirements. Just Energy is also exposed to interest rates associated
with its credit facility and foreign currency exchange rates associated with the
repatriation of U.S. dollar denominated funds for Canadian dollar denominated
dividends. 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, and the absolute and
relative levels of interest rates and foreign currency exchange rates. Just
Energy enters into derivative instruments in order to manage exposures to
changes in commodity prices and foreign currency rates; current exposure to
interest rates does not economically warrant the use of derivative instruments.
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 the
payment of dividends to shareholders 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.
Market risk governance
Just Energy has adopted a corporate-wide Risk Management Policy governing its
market risk management and any derivative trading activities. An internal Risk
Committee, consisting of senior officers of Just Energy, monitors company-wide
energy risk management activities as well as foreign exchange and interest rate
activities. There is also a Risk Committee of the Board that oversees
management. The Risk Office and the internal Risk Committee monitor the results
and ensure compliance with the Risk Management Policy. The Risk Office is
responsible for ensuring that Just Energy manages the market, credit and
operational risks within limitations imposed by the Board of Directors in
accordance with its Risk Management Policy. Market risks are monitored by the
Risk Office and internal Risk Committee utilizing industry accepted mark to
market techniques and analytical methodologies in addition to company-specific
measures. The Risk Office operates and reports independently of the traders. The
failure or inability of Just Energy to comply with and monitor its Risk
Management Policy could have an adverse effect on the operations and cash flow
of Just Energy.
Energy trading inherent risks
Energy trading subjects Just Energy to some inherent risks associated with
future contractual commitments, including market and operational risks,
counterparty credit risk, product location differences, market liquidity and
volatility. There is continuous monitoring and reporting of the valuation of
identified risks to the internal Risk Committee, Executive Committee and the
Risk Committee of the Board of Directors. The failure or inability of Just
Energy to monitor and address the energy trading inherent risks could have a
material adverse effect on its operations and cash flow.
Customer credit risk
In Alberta, Pennsylvania, Massachusetts, California, Texas, Georgia, Michigan
and Illinois, credit review processes have been implemented to manage customer
default as Just Energy has credit risk in these markets. The processes are also
applied to commercial customers in all of Just Energy's jurisdictions. In
addition, there is a credit policy that has been established to govern these
processes. If a significant number of residential customers or a collection of
larger commercial customers for which Just Energy has the credit risk were to
default on their payments, it could have a material adverse effect on the
operations and cash flow of Just Energy. Management factors default from credit
risk in its margin expectations for all customers in these markets and for
commercial customers where Just Energy has that credit risk.
For the remaining customers, the LDCs provide collection services and assume the
risk of any bad debts owing from Just Energy's customers for a fee. 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 or replacing contracted
foreign exchange at prevailing market rates impacting the related Canadian
dollar denominated cash flows. Counterparty limits are established within the
Risk Management Policy. Any exception to these limits requires approval from the
Board of Directors of Just Energy. The Risk Office and internal Risk Committee
monitor current and potential credit exposure to individual counterparties and
also monitor overall aggregate counterparty exposure. The failure of a
counterparty to meet its contractual obligations could have a material adverse
effect on the operations and cash flow of Just Energy.
Electricity supply - balancing risk
It is Just Energy's policy to procure the estimated electricity requirements of
its customers with offsetting electricity derivatives in advance of obtaining
customers. Depending on several factors, including weather, Just Energy's
customers may use more or less electricity than the volume purchased by Just
Energy for delivery to them. Just Energy is able to invoice some of its existing
electricity customers for balancing charges or credits when the amount of energy
used is greater than or less than the amount of energy that Just Energy has
estimated. For other customers, Just Energy bears the risk of fluctuation in
customer consumption. Just Energy monitors consumption and has a balancing and
pricing strategy to accommodate the estimated associated costs. Just Energy has
developed a policy of entering into weather-related derivative contracts which
are intended to reduce margin volatility in situations of materially higher or
lower than forecast consumer consumption. In certain circumstances, there can be
balancing issues for which Just Energy is responsible when customer aggregation
forecasts are not realized.
Natural gas supply - balancing risk
It is Just Energy's policy to procure the estimated gas requirements of its
customers with offsetting gas derivatives in advance of obtaining customers.
Depending on several factors including weather, Just Energy's customers may use
more or less gas than the volume purchased by Just Energy for delivery to them.
Just Energy does not invoice its natural gas customers for balancing and,
accordingly, bears the risk of fluctuation in customer consumption. Just Energy
monitors gas consumption and actively manages forecast differences in customer
consumption due to weather variations as well as forecast LDC balancing
requirements. To the extent that forecast balancing requirements are beyond
initial estimates, Just Energy will bear financing responsibility, be exposed to
market risk and, furthermore, may also be exposed to penalties by the LDCs. The
inability or failure of Just Energy to manage and monitor these balancing risks
could have a material adverse effect on its operations and cash flow. Just
Energy has developed a policy of entering into weather-related derivative
contracts which are intended to reduce margin volatility in situations of
materially higher or lower than forecast consumer consumption. In addition, for
certain commercial customers, Just Energy bears the risk of fluctuation in
customer consumption. Just Energy monitors consumption and has a balancing and
pricing strategy to accommodate for the estimated associated costs.
JustGreen - balancing risk
It is Just Energy's policy to procure the estimated carbon offsets or renewable
energy requirements of its customers in advance of obtaining the customers. The
balancing risk associated with this product is different in that there is no
utility reconciliation of the requirements and public perception of the product
is a more significant risk. The Risk Management Policy requires that there be no
short positions for this product and management ensures that there is an
independent review performed annually of the match of purchased supply to
committed delivery.
Operational risks
Information technology systems
Just Energy operates in a high volume business with an extensive array of data
interchanges and market requirements. Just Energy is dependent on its management
information systems to track, monitor and correct or otherwise verify a high
volume of data to ensure the reported financial results are accurate. Management
also relies on its management information systems to provide its independent
contractors with compensation information, provide its brokers with pricing and
compensation information and to electronically record each customer telephone
interaction. Independent representatives in Just Energy's network marketing
division rely entirely on information systems for sales and compensation as all
interaction is performed on-line. Just Energy's information systems also help
management forecast new customer enrollments and their energy requirements,
which helps ensure that Just Energy is able to supply its new customers'
estimated average energy requirements without exposing the Company to the spot
market beyond the risk tolerances established by the Risk Management Policy. The
failure of Just Energy to install and maintain these systems could have a
material adverse effect on the operations and cash flow of Just Energy.
Reliance on third party service providers
In most jurisdictions in which Just Energy operates, the LDCs currently perform
billing and collection services. In some areas, Just Energy is required to
invoice and receive payments directly from its customers; in others, Just Energy
is responsible for collection of defaulted amounts; in others, Just Energy is
required to invoice and receive payments from certain commercial customers; and
in others, Just Energy is responsible for collection of defaulted amounts. If
the LDCs cease to perform these services, Just Energy would have to seek a third
party billing provider or develop internal systems to perform these functions.
There is no assurance that the LDCs will continue to provide these services in
the future.
Outsourcing arrangements
Just Energy has outsourcing arrangements to support the call centre's
requirements for business continuity plans and independence for regulatory
purposes, billing and settlement arrangements for certain jurisdictions, and
operation support for its network marketing and solar installation monitoring
efforts. Contract data input is also outsourced as is some business continuity
and disaster recovery. As with any contractual relationship, there are inherent
risks to be mitigated, and these are actively managed predominantly through
quality control measures and regular reporting.
Competition
A number of companies (including Direct Energy, NRG, Superior Energy,
Constellation and NewEnergy) and incumbent utility subsidiaries compete with
Just Energy in the residential, commercial and small industrial market. It is
possible that new entrants may enter the market as marketers and compete
directly for the customer base that Just Energy targets, slowing or reducing its
market share. If the LDCs are permitted by changes in the current regulatory
framework to sell natural gas at prices other than at cost, their existing
customer bases could provide them with a significant competitive advantage. This
could limit the number of customers available for marketers including Just
Energy.
Dependence on independent sales contractors and brokers
Just Energy must retain qualified independent sales contractors to conduct its
door-to-door sales as well as brokers and inside salespeople to market to
commercial customers despite competition for these sales professionals from Just
Energy's competitors. If Just Energy is unable to attract a sufficient number of
independent sales contractors or brokers, Just Energy's customer additions and
renewals may decrease and the Company may not be able to execute its business
strategy. The continued growth of Just Energy is reliant on distribution
channels, including the services of its independent sales contractors and
brokers. There can be no assurance that competitive conditions will allow these
independent contractors and brokers, who are not employees of Just Energy or its
affiliates, to achieve these customer additions. Lack of success in these
marketing programs would limit future growth of the cash flow of Just Energy.
Just Energy has consistently taken the position that its independent sales
contractors act independently pursuant to their contracts for service, which
provide that Just Energy does not control how, where or when they provide their
services. On occasion, an independent contractor may make a claim that they are
entitled to employee benefits pursuant to legislation even though they have
entered into a contract with Just Energy that provides that they are not
entitled to benefits normally available to employees and Just Energy must
respond to these claims. Just Energy's position has been confirmed by regulatory
bodies in many instances, but some of these decisions are under appeal. Should
these appeals be ultimately successful, Just Energy would be required to remit
unpaid tax amounts plus interest and might be assessed a penalty. It could also
mean that Just Energy would have to reassess its position in respect of other
regulatory matters affecting its independent sales contractors, such as income
tax treatment. Such a decision could have a material adverse effect on the
operations and cash flow of Just Energy.
Electricity and gas contract renewals and attrition rates
As at March 31, 2012, Just Energy held long-term electricity and gas contracts
reflecting approximately 3,870,000 long-term RCEs. The renewal schedule for the
contracts is noted on page 18. In fiscal 2012, Just Energy experienced contract
attrition rates of approximately 10% in Canada and 24% in the U.S. for gas with
rates of 9% and 13% being realized for Canada and the U.S., respectively, for
electricity. Management forecasts using a combination of experienced and
expected attrition per year, however there can be no assurance that these rates
of annual attrition will not increase in the future or that Just Energy will be
able to renew its existing electricity and gas contracts at the expiry of their
terms. Changes in customer behaviour, government regulation or increased
competition may affect (potentially adversely) attrition and renewal rates in
the future, and these changes could adversely impact the future cash flow of
Just Energy. See page 18 for further discussion on "Renewals". Just Energy's
fiscal 2012 experience was that approximately 64% its customers, have renewed at
the expiry of the term of their contract, compared with 35% renewing in fiscal
2011.
Cash dividends are not guaranteed
The ability to pay dividends and the actual amount of dividends will depend upon
numerous factors, including profitability, fluctuations in working capital; debt
service requirements (including compliance with credit facility obligations);
the sustainability of margins; the ability of Just Energy to procure, at
favourable prices, its estimated commitment to supply natural gas and
electricity to its customers; the ability of Just Energy to secure additional
gas and electricity contracts; and other factors beyond the control of Just
Energy. Management of Just Energy cannot make any assurances that the Company's
affiliates will be able to pass any additional costs arising from legislative
changes (or any amendments) onto customers. Cash dividends are not guaranteed
and will fluctuate with the performance of the Company's affiliates and other
factors.
Earnings volatility
Just Energy's business is seasonal in nature. In addition to regular seasonal
fluctuations in its earnings, there is significant volatility in its earnings
associated with the requirement to mark its commodity contracts to market. The
earnings volatility associated with seasonality and mark to market accounting
may impact access to capital. Management ensures there is adequate disclosure
for both the mark to market and seasonality to mitigate this risk.
Model risk
The approach to calculation of market value and customer forecasts requires
data- intensive modellng used in conjunction with certain assumptions when
independently verifiable information is not available. Although Just Energy uses
industry standard approaches and validates its internally developed models,
results could change significantly should underlying assumptions prove incorrect
or an embedded modelling error go undetected in the vetting process.
Commodity alternatives
To the extent that natural gas and electricity enjoy a price advantage over
other forms of energy, such price advantage may be transitory and consumers may
switch to the use of another form of energy. The inherent volatility of natural
gas and electricity prices could result in these other sources of energy
providing more significant competition to Just Energy.
Capital asset and replacement risk
The retail business does not invest in a significant capital asset program;
however the Home Services division, the ethanol plant and the Solar division are
more capital-intensive businesses. The risk associated with water heater,
heating and air conditioning units and solar panel replacement is considered
minimal as there are several suppliers of high efficiency home services
appliances as well as solar panels to source replacements and, individually, the
units are not material. The risk associated with the capital assets of the
ethanol plant are more significant as parts are not standard, components have a
significant associated value and capital asset replacements could significantly
impact operations during periods of upgrade or repair. Management monitors this
risk in the ethanol business to ensure continuity of operations. Each division
is adequately insured including provisions for business continuity while
replacement assets are being sourced and installed.
Credit facilities and other debt arrangements
The credit facility maintained by Just Energy Ontario L.P. and Just Energy U.S.
Corp. is in the amount of $350 million. The lenders under such credit facility
together with certain of the suppliers of Just Energy and its affiliates, are
parties to an intercreditor agreement and related security agreements which
provide for a joint security interest over all customer contracts. There are
various covenants pursuant to the credit facility that govern the activities of
Just Energy and its subsidiaries and affiliates. The borrowers are required to
submit monthly reports addressing, among other things, mark to market exposure,
their borrowing base and a supply/demand projection. To date, Just Energy's
subsidiaries have met the requirements of the credit facility; however, should
those subsidiaries default under the terms of the credit facility, the credit
facility becomes unavailable and could have a significant material adverse
effect on the business of those subsidiaries and on the results of operations
and financial performance of Just Energy if it is not able to obtain other
financing on satisfactory terms.
TGF also has a credit facility of up to $50 million and a debenture purchase
agreement providing for the issuance of up to $40 million associated with the
Belle Plaine facility. Security for these facilities includes a first priority
security interest on all assets and undertakings of TGF. There is a risk that
these credit facilities, including the debenture purchase agreement, may not
continue to be available on the same terms.
NHS has also entered into a long-term financing agreement with respect to the
installation of water heaters. In the event this financing became unavailable,
Just Energy would have to otherwise fund the Home Services business.
Disruptions to infrastructure
Customers are reliant upon the LDCs to deliver their contracted commodity. LDCs
are reliant upon the continuing availability of the distribution infrastructure.
Any disruptions in this infrastructure would result in counterparties and
thereafter Just Energy enacting the force majeure clauses of their contracts.
Under such severe circumstances there could be no revenue or margin for the
affected areas.
Expansion strategy and future acquisitions
The Company plans to grow its business by expansion into additional deregulated
markets through organic growth and acquisitions. The expansion into additional
markets is subject to a number of risks, any of which could prevent the Company
from realizing its business strategy.
Acquisitions involve numerous risks, any one of which could harm the Company's
business, including difficulties in integrating the operations, technologies,
products, existing contracts, accounting processes and personnel of the target
and realizing the anticipated synergies of the combined businesses; difficulties
in supporting and transitioning customers, if any, or assets of the target
company may exceed the value the Company realizes, or the value it could have
realized if it had allocated the purchase price or other resources to another
opportunity; risks of entering new markets or areas in which Just Energy has
limited or no experience or are outside its core competencies; potential loss of
key employees, customers and strategic alliances from either Just Energy's
current business or the business of the target; assumption of unanticipated
problems or latent liabilities, such as problems with the quality of the
products of the target; and inability to generate sufficient revenue to offset
acquisition costs.
Future acquisitions or expansion could result in the incurrence of additional
debt and related interest expense, as well as unforeseen liabilities, all of
which could have a material adverse effect on business, results of operations
and financial condition. The failure to successfully evaluate and execute
acquisitions or otherwise adequately address the risks associated with
acquisitions could have a material adverse effect on Just Energy's business,
results of operations and financial condition. Just Energy may require
additional financing should an appropriate acquisition be identified and it may
not have access to the funding required for the expansion of its business or
such funding may not be available to Just Energy on acceptable terms. There is
no assurance that Just Energy will determine to pursue any acquisition or that
such an opportunity, if pursued, will be successful.
Legal, regulatory and securities risks
Legislative and regulatory environment
Just Energy operates in the highly regulated natural gas and electricity retail
sales industry in all of its jurisdictions. It must comply with the legislation
and regulations in these jurisdictions in order to maintain its licensed status
and to continue its operations. There is potential for change to this
legislation and these regulatory measures that may, favourably or unfavourably,
impact Just Energy's business model. As part of doing business door-to-door,
Just Energy receives complaints from consumers which may involve sanctions from
regulatory and legal authorities including those which issue marketing licenses.
Similarly, changes to consumer protection legislation in those provinces and
states where Just Energy markets to non-commercial customers may, favourably or
unfavourably, impact Just Energy's business model.
Although the rule-making for the recent financial reform act in the United
States has not been completed, it is expected that when final, Just Energy will
be required to comply with certain aspects regarding reporting of derivative
activity. Furthermore, it is expected that several of Just Energy's
counterparties will be impacted by this legislation in a significant manner. The
costs associated with Just Energy's increased reporting requirements as well as
doing business with counterparties more significantly impacted than Just Energy
cannot yet be fully determined.
In addition to the litigation referenced herein and occurring in the ordinary
course of business, Just Energy may in the future be subject to class actions,
other litigation and other actions arising in relation to its consumer contracts
and marketing practices. See the "Legal proceedings" section on page 38 of this
report. This litigation is, and any such additional litigation could be, time
consuming and expensive and could distract the executive team from the conduct
of Just Energy's daily business. The adverse resolution or reputational damage
of any specific lawsuit could have a material adverse effect on the Company's
ability to favourably resolve other lawsuits and on the Company's financial
condition and liquidity.
The Company may issue additional shares, diluting existing shareholders' interests
The Company may issue additional or unlimited number of common shares and up to
50,000,000 preferred shares without the approval of shareholders.
Financial markets
Significant events or volatility in the financial markets could result in the
lack of (i) sufficient capital to absorb the impact of unexpected losses and/or
(ii) sufficient liquidity or financing to fund operations and strategic
initiatives. Furthermore, significant volatility in exchange rates and interest
rates could have an adverse impact on product pricing, gross margins and net
interest expense. In addition, inappropriate hedging strategies for mitigating
foreign exchange, interest rate and equity exposures could cause a significant
impact on earnings.
TGF's dependence on commodity prices
TGF's results of operations, financial position and business outlook are
substantially dependent on commodity prices, especially prices for wheat,
natural gas, ethanol and dried distillers' grains. Prices for these commodities
are generally subject to significant volatility and uncertainty. As a result,
TGF's results may fluctuate substantially, and TGF may experience periods of
declining prices for TGF's products and increasing costs for TGF's raw
materials, which could result in operating losses. TGF may attempt to offset a
portion of the effects of such fluctuations by entering into forward contracts
to supply ethanol or to purchase wheat, natural gas or other items or by
engaging in other hedging transactions, however, the amount and duration of
these hedging and other risk mitigation activities may vary substantially over
time. In addition, these activities involve substantial costs and substantial
risks and may be ineffective to mitigate these fluctuations.
TGF's dependence on federal and provincial legislation and regulation
Various laws, regulations and programs of the U.S. federal government and
certain provincial and state governments are intended to lead to increased use
of ethanol in gasoline. In both the U.S. and Canada legislators and
environmental regulators could adopt or modify existing or proposed laws,
regulations or programs that could adversely affect the use of ethanol. There
can be no assurance that existing laws, regulations or programs will continue in
the future, or that proposed laws, regulations or programs will be adopted or
implemented as currently anticipated or at all. In addition, certain
jurisdictional governments may oppose the use of ethanol because those
jurisdictions might have to acquire ethanol from other jurisdictions, which
could increase gasoline prices in those jurisdictions.
Environmental, health and safety laws, regulations and liabilities
TGF owns the land on which it has built the Belle Plaine facility. TGF is
subject to various federal, provincial and local environmental laws and
regulations, including those relating to the discharge of materials into the
air, water and ground; the generation, storage, handling, use, transportation
and disposal of hazardous materials; and the health and safety of TGF's
employees. These laws and regulations require TGF to maintain and comply with
numerous environmental permits to operate its Belle Plaine facility. These laws,
regulations and permits can often require expensive pollution control equipment
or operational changes to limit actual or potential impacts on the environment.
A violation of these laws, regulations or permit conditions or contamination to
the land or neighbouring lands can result in substantial fines, natural resource
damages, criminal sanctions, permit revocations, litigation and/or facility
shutdowns. In addition, new laws, new interpretations of existing laws,
increased governmental enforcement of environmental laws or other developments
could require TGF to make additional significant expenditures. Continued
government and public emphasis on environmental issues may result in increased
future investments for environmental controls at the Belle Plaine facility.
The hazards and risks (such as fires, natural disasters, explosions, and
abnormal pressures and blowouts) associated with producing and transporting
TGF's products may also result in personal injury claims by employees, third
parties or damage to property owned by TGF or by third parties. As protection
against operating hazards, TGF maintains insurance coverage against some, but
not all, potential losses; TGF could sustain losses for uninsurable or uninsured
events, or in amounts in excess of existing insurance coverage.
Alternative fuels
Alternative fuels, additives and oxygenates are continually under development.
Alternative fuel additives that can replace ethanol may be developed, which may
decrease the demand for ethanol. It is also possible that technological advances
in engine and exhaust system design and performance could reduce the use of
oxygenates, which would lower the demand for ethanol, in which case TGF's
business, results of operations and financial condition may be materially
adversely affected.
Social or technological changes affecting home services
Within Canada, the Ontario marketplace is unique in that the vast majority of
homeowners rent their water heaters which sets precedence for acceptance of
furnace and air conditioning rentals. There can be no assurance that NHS's
customers will continue to accept the home appliance rental concept. It is also
possible that more economical or efficient technology than that which is
currently used by customers will be developed or that the economic conditions in
which the current technology is applied will change resulting in a reduction in
the number of installed water heaters, air conditioner and furnace units. A
prolonged downturn in the Ontario economy and a corresponding slowdown in new
home construction could have an adverse effect on the demand for additional
water heaters in Ontario. Management has developed alternative means of product
delivery (long-term leases) and is expanding outside the Ontario territory to
mitigate these risks.
Concentration of home appliance suppliers and product faults
Although there are a number of manufacturers of home appliances, NHS relies
principally on GSW Inc. for its supply of water heaters and Lennox for its
furnaces and air conditioners. Should these suppliers fail to deliver in a
timely manner, delays or disruptions in the supply and installation of water
heaters could result.
Although NHS maintains what it believes to be suitable product liability
insurance, there can be no assurance that NHS will be able to maintain such
insurance on acceptable terms or that any such insurance will provide adequate
protection against potential liabilities, including with respect to product
recalls.
HES' dependence on federal and state legislation and regulation
Various laws, regulations and programs of the U.S. federal government and
certain state governments are intended to lead to increased use of renewable
resources, including solar energy. For example, certain existing and proposed
laws, regulations and programs provide (or if implemented will provide) economic
incentives to solar installation. However, existing and proposed laws,
regulations and programs have limited time horizons and are constantly changing.
In both the U.S. and Canada legislators and environmental regulators could adopt
or modify existing or proposed laws, regulations or programs that could
adversely affect the economic viability of solar projects. There can be no
assurance that existing laws, regulations or programs will continue in the
future, or that proposed laws, regulations or programs will be adopted or
implemented as currently anticipated.
LEGAL PROCEEDINGS
Just Energy's subsidiaries are party to a number of legal proceedings other than
as set out below, 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.
The State of California has filed a number of complaints to the Federal Energy
Regulatory Commission ("FERC") against many suppliers of electricity, including
Commerce Energy Inc. ("CEI"), 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 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 March 31, 2012, 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 consolidated financial statements in accordance with IFRS. During the year,
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.
The disclosure controls and procedures are evaluated through regular internal
reviews which are carried out under the supervision of, and with the
participation of, the Company's management, including the Chief Executive
Officer and Chief Financial Officer. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls were effective as of March 31, 2012.
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 Fulcrum, acquired effective October 1, 2011.
Summary financial information pertaining to the Fulcrum acquisition that was
included in the consolidated financial statements of the Just Energy as at March
31, 2012 is as follows:
(In thousands of dollars) Total
---------------------
Sales(1) $ 107,305
Net loss (9,082)
Current assets 27,151
Non-current assets 103,235
Current liabilities 42,015
Non-current liabilities 3,418
---------------------
(1) Results from October 1, 2011 to March 31, 2012
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 18, 2012 Management
Proxy Circular. Just Energy actively monitors the corporate governance and
disclosure environment to ensure timely compliance with current and future
requirements.
OUTLOOK
Fiscal 2012 showed the ability of Just Energy to continue to grow profitably as
it has in past years. As in the past, at the start of the fiscal year,
management provided guidance as to expected customer additions, margin growth
and Adjusted EBITDA growth for fiscal 2012. Margin and Adjusted EBITDA were each
expected to grow by approximately 5% per share while net customer additions were
expected to exceed that growth. The higher customer growth would be necessary in
order to offset lower margins from commercial customers who were expected to be
a substantial portion of the net additions.
Realized results met or exceeded this guidance. Customer additions through
marketing were a record 1,091,000 with a further 240,000 customers added through
the acquisition of Fulcrum. As a result, the total customer base was up 17% year
over year. As expected, gross margin and Adjusted EBITDA were up by a lower
percentage, 5% and 7% per share respectively. Were it not for a near record warm
winter, these measures would have been ahead of guidance.
A key trend in Just Energy's business, which management expects to continue, is
the success of the Hudson acquisition and the growth of the commercial division.
The commercial division added 571,000 customers in fiscal 2011 with new customer
aggregation by the division far exceeding management's expectations. At the end
of fiscal 2011, the Commercial division had 1,330,000 customers, a 72% increase
over the year. At the end of fiscal 2012, the Commercial division had
approximately 1,900,000 RCEs, up 43% year over year. Management believes that
opportunities for both channel and geographic expansion will cause Commercial
division growth to exceed that of the Consumer division for the next several
years.
The growth of commercial as a percentage of the overall book will cause margins
to grow less quickly than customers. There are factors which will both add to
and detract from expected growth in fiscal 2013. The warm winter just
experienced will create negative reconciliations in the first and second
quarters of the fiscal year, similar to those experienced after the record warm
winter of 2009/2010. Offsetting this will be gross margin from Fulcrum's Texas
electricity customers over the summer months because the fiscal 2012 summer did
not include Fulcrum as the acquisition was effective October 1, 2011.
The Consumer division saw a decline in its customer base as Canadian renewal
rates were lower than historic levels. Renewals were hurt by customers coming
off very high five-year fixed-price contracts well above current prices.
Overall, renewals were down slightly to 64% for fiscal 2012 from 65% in fiscal
2011. This decline was offset by improved attrition rates. Total attrition was
an annual 13%, down from 15% a year earlier. Management believes that new
products and any return to commodity price volatility will stem the decline in
the Consumer division base and should result in improved renewal rates and
continued lower attrition.
Overall embedded margin in Just Energy's contracts rose 15% to $2.0 billion over
the year. This was the result of a number of positive factors with all sales
channels generating strong results. The impact of the fourth quarter net
customer additions will not be seen until future periods and management is
confident that the strong growth seen in the year will accelerate in the year to
come.
Growth at NHS remained steady with substantial value created in the business
over the year. The installation base grew by 39% to 165,400. Gross margin was up
by 78% reflecting both growth and higher margin furnace and air conditioner unit
installations. The best measure of the success of NHS is the growth of embedded
margin within customer contracts. Over the year, embedded margin began the year
at $282.7 million. Of this, $28.0 million was realized in the year and NHS ended
at $393.0 million, up 39% for the fiscal 2012. NHS is testing its products for
geographic expansion outside Ontario. While, the rate of growth is expected to
slow on the more substantial customer base, the impact of new markets is
expected to be positive over the coming years.
TGF had improved results for the year. Sales and gross margin were up 20% and
31% respectively. Going forward, the results at TGF will be dependent on
underlying commodity prices. Management is focused on maximizing operating
ratios at the plant and controlling costs.
Overall, management's expectation for fiscal 2013 is growth of approximately 10%
to 12% in gross margin and approximately 8% to 10% in Adjusted EBITDA. Customer
growth should exceed these levels. Management anticipates that input tax credits
and the accelerated deductibility of HES capital expenditures should result in
higher current tax expense for fiscal 2013 than fiscal 2012 but will still be
below the effective corporate tax rates.
Take up on Just Energy's green offerings declined from 34% of new consumer
customers taking 90% their consumption in green supply in fiscal 2011 to 29% of
new consumer customers taking 84% of supply in fiscal 2012. However, the green
book continues to grow. JustGreen makes up 12% of Consumer division electricity
portfolio, up from 10% a year earlier. Ten percent of the Consumer division gas
customers are on green supply up from 6% in fiscal 2011. Currently, fewer new
customers are electing green supply largely because of the substantial premium
on lower commodity price bills. Management believes that there is a certain
percentage of the public that will always elect green and that any increase in
underlying "brown" electricity or gas will result in a return to traditional
take up levels.
The Company made a substantial investment in the Momentis network marketing
division. Total expenditures of $37.1 million were made to build the network's
platform and establish an initial base of independent representatives. The
business has grown from having 3,500 independent representatives on March 31,
2011 to 47,800 at fiscal year-end. On average, a representative should generate
four to six contracts and product sales. Given the fast growth in independent
representatives in the last half of the year, total Momentis additions were less
than 50,000 RCEs to date. Management believes that the expenditures on Momentis
will generate high returns as new customer additions and the independent
representative base continue to ramp up.
For the past quarters of fiscal 2012, Just Energy's payout ratio on Adjusted
EBITDA has been down significantly from the prior year. The fourth quarter saw a
small increase in the ratio to 40% from 38% in the prior comparable quarter. Net
additions of 112,000 resulted in an increase of 3% in the total customer base
for the quarter. For the year, the ratio payout for Adjusted EBITDA declined
from 66% to 62%, a positive trend for the Company dividend. Base EBITDA had a
payout ratio of 84%, up from 73% a year prior. This was due to record customer
additions which resulted in a net increase of embedded margin within customer
contracts of 15% for the year. Management's view is that while the Adjusted
EBITDA payout ratio should decline annually, the same is not true of Base
EBITDA. Given Just Energy's high return on invested capital, the more spent on
adding long-term margin, the greater the Company's growth and long-term value.
Given the current payout ratio and expected growth in the coming year,
management sees no reason for any change to the current dividend policy and
current dividend rate.
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 has partnered on a power-purchase-agreement basis with a number of
green energy projects and plans to enter into more such partnerships
concentrated in jurisdictions where the Company has an established customer
base. Just Energy continues to monitor the progress of the deregulated markets
in various jurisdictions, which may create the opportunity for further
geographic expansion.
JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, March 31, April 1,
Notes 2012 2011 2010
------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment 5 $ 291,061 $ 234,002 $ 216,676
Intangible assets 6 543,775 640,219 528,854
Contract initiation costs 44,225 29,654 5,587
Other non-current
financial assets 11 15,315 5,384 5,027
Non-current receivables 6,475 4,569 2,014
Deferred tax asset 16 78,398 121,785 265,107
------------------------------------------
979,249 1,035,613 1,023,265
------------------------------------------
Current assets
Inventory 8 9,988 6,906 6,323
Gas delivered in excess of
consumption 12,844 3,481 7,410
Gas in storage 11,453 6,133 4,058
Current trade and other
receivables 299,945 281,685 232,579
Accrued gas receivables 2,875 26,535 20,793
Unbilled revenues 130,796 112,147 61,070
Prepaid expenses and
deposits 9,451 6,079 20,038
Other current assets 11 12,799 3,846 2,703
Corporate tax recoverable 8,225 9,135 -
Restricted cash 7 12,199 833 18,650
Cash and cash equivalents 53,220 97,633 60,132
------------------------------------------
563,795 554,413 433,756
------------------------------------------
TOTAL ASSETS $ 1,543,044 $ 1,590,026 $ 1,457,021
------------------------------------------
DEFICIT AND LIABILITIES
Deficit attributable to
equity holders of the
parent
Deficit $ (1,652,188) $ (1,349,928) $ (1,556,669)
Accumulated other
comprehensive income 12 70,293 123,919 221,969
Unitholders' capital - - 777,856
Shareholders' capital 13 993,181 963,982 -
Equity component of
convertible debenture 15 25,795 18,186 -
Contributed surplus 62,147 52,723 -
------------------------------------------
Shareholders' deficit (500,772) (191,118) (556,844)
Non-controlling interest (637) - 20,421
------------------------------------------
TOTAL DEFICIT (501,409) (191,118) (536,423)
------------------------------------------
Non-current liabilities
Long-term debt 15 679,072 507,460 231,837
Provisions 17 3,068 3,244 3,124
Deferred lease inducements 1,778 1,622 1,984
Other non-current
financial liabilities 11 309,617 355,412 590,572
Deferred tax liability 16 6,073 22,919 6,776
Liability associated with
Exchangeable Shares and
equity-based compensation 29 - - 181,128
------------------------------------------
999,608 890,657 1,015,421
------------------------------------------
Current liabilities
Bank indebtedness 1,060 2,314 8,236
Trade and other payables 287,145 275,503 177,368
Accrued gas payable 2,960 19,353 15,093
Deferred revenue 11,985 - 7,202
Unit distribution payable - 13,182
Income taxes payable 4,814 9,788 6,410
Current portion of long-
term debt 15 97,611 94,117 61,448
Provisions 17 3,226 4,006 3,884
Other current financial
liabilities 11 636,044 485,406 685,200
------------------------------------------
1,044,845 890,487 978,023
------------------------------------------
TOTAL LIABILITIES 2,044,453 1,781,144 1,993,444
------------------------------------------
TOTAL DEFICIT AND
LIABILITIES $ 1,543,044 $ 1,590,026 $ 1,457,021
------------------------------------------
Guarantees (Note 23) Commitments (Note 26)
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars, except where indicated and per share
amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2012 2011
------------------------------------
SALES 19 $ 2,785,269 $ 2,953,192
COST OF SALES 18(b) 2,267,780 2,471,630
------------------------------
GROSS MARGIN 517,489 481,562
------------------------------
EXPENSES
Administrative expenses 122,397 109,400
Selling and marketing expenses 177,302 133,607
Other operating expenses 18(a) 154,357 165,575
------------------------------
454,056 408,582
------------------------------
Operating profit 63,433 72,980
Finance costs 15 (60,935) (59,883)
Change in fair value of derivative
instruments 11 (96,345) 506,047
Proportionate share of loss from joint
venture 10 (1,971) -
Other income 6,702 7,235
------------------------------
Income (loss) before income taxes (89,116) 526,379
Provision for income taxes 16 37,527 173,439
------------------------------
PROFIT (LOSS) FOR THE YEAR $ (126,643) $ 352,940
------------------------------
Attributable to:
Shareholders of Just Energy $ (126,522) $ 355,076
Non-controlling interest (121) (2,136)
------------------------------
PROFIT (LOSS) FOR THE YEAR $ (126,643) $ 352,940
------------------------------
See accompanying notes to the consolidated financial statements
Profit (loss) per share 21
Basic $ (0.92) $ 2.77
Diluted $ (0.92) $ 2.40
JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2012 2011
--------------------------------
Profit (loss) for the year $ (126,643) $ 352,940
--------------------------
Other comprehensive income (loss) 12
Unrealized gain on translation of foreign
operations 2,386 449
Amortization of deferred unrealized gain of
discontinued hedges, net of income taxes of
$13,150 (2011 - $21,384) (56,012) (98,499)
--------------------------
Other comprehensive loss for the year, net
of tax (53,626) (98,050)
--------------------------
Total comprehensive income (loss) for the
year, net of tax $ (180,269) $ 254,890
--------------------------
Total comprehensive income (loss)
attributable to:
Shareholders of Just Energy $ (180,148) $ 257,026
Non-controlling interest (121) (2,136)
--------------------------
Total comprehensive income (loss) for the
year, net of tax $ (180,269) $ 254,890
--------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2012 2011
-------------------------------------
ATTRIBUTABLE TO THE
SHAREHOLDERS/UNITHOLDERS
Accumulated deficit
Accumulated deficit, beginning of year $ (315,934) $ (671,010)
Loss on cancellation of shares 13 (356) -
Profit (loss) for the year,
attributable to the shareholders (126,522) 355,076
--------------------------------
Accumulated deficit, end of year (442,812) (315,934)
--------------------------------
DISTRIBUTIONS/DIVIDENDS
Distributions and dividends, beginning
of year (1,033,994) (885,659)
Distributions and dividends 25 (175,382) (148,335)
--------------------------------
Distributions and dividends, end of
year (1,209,376) (1,033,994)
--------------------------------
DEFICIT $ (1,652,188) $ (1,349,928)
--------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME 12
Accumulated other comprehensive
income, beginning of year $ 123,919 $ 221,969
Other comprehensive loss (53,626) (98,050)
--------------------------------
Accumulated other comprehensive
income, end of year $ 70,293 $ 123,919
--------------------------------
SHAREHOLDERS'/UNITHOLDERS' CAPITAL 13
Shareholders'/Unitholders' capital,
beginning of year $ 963,982 $ 777,856
Shares/units exchanged and issued - 158,520
Shares/units issued on
exercise/exchange of unit
compensation 1,385 1,559
Repurchase and cancellation of shares (599) -
Dividend reinvestment plan 28,413 26,047
--------------------------------
Shareholders'/Unitholders' capital,
end of year $ 993,181 $ 963,982
--------------------------------
EQUITY COMPONENT OF CONVERTIBLE
DEBENTURES 15
Balance, beginning of year $ 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 year $ 25,795 $ 18,186
--------------------------------
CONTRIBUTED SURPLUS
Balance, beginning of year $ 52,723 $ -
Reclassification on conversion - 43,147
Gain on acquisition of non-controlling
interest - 7,957
Add:
Share-based compensation awards 10,662 2,683
Non-cash deferred share grant
distributions 147 33
Less: Share-based awards exercised (1,385) (1,097)
--------------------------------
Balance, end of year $ 62,147 $ 52,723
--------------------------------
NON-CONTROLLING INTEREST
Balance, beginning of year $ - $ 20,421
Non-controlling interest acquired 9 (540) -
Foreign exchange on non-controlling
interest 24 -
Acquisition of non-controlling
interest - (18,285)
Net loss attributable to non-
controlling interest (121) (2,136)
--------------------------------
Balance, end of year $ (637) $ -
--------------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net inflow (outflow) of cash related to
the following activities Notes 2012 2011
----------------------------------
OPERATING
Income before income taxes $ (89,116) $ 526,379
----------------------------
Items not affecting cash
Amortization of intangible assets and
related supply contracts 108,233 120,841
Amortization of contract initiation
costs 13,977 12,429
Amortization of property, plant and
equipment 5,847 5,698
Amortization included in cost of sales 12,640 9,837
Share-based compensation 10,662 9,914
Financing charges, non-cash portion 8,760 7,799
Transaction costs on acquisition 1,101 1,284
Other (150) 6,860
Change in fair value of derivative
instruments 96,345 (506,047)
----------------------------
257,415 (331,385)
----------------------------
Adjustment required to reflect net cash
receipts from gas sales 27 7,740 (1,725)
----------------------------
Changes in non-cash working capital 28 (27,032) (39,063)
----------------------------
149,007 154,206
Income tax paid (4,617) (8,651)
----------------------------
Cash inflow from operating activities 144,390 145,555
----------------------------
INVESTING
Purchase of property, plant and equipment (74,829) (33,412)
Purchase of intangible assets (5,867) (5,784)
Acquisitions, net of cash acquired 9 (93,325) (261,389)
Proceeds (advances) of long-term
receivables (1,881) 2,232
Transaction costs on acquisition (1,101) (1,284)
Contract initiation costs (28,244) (19,210)
----------------------------
Cash outflow from investing activities (205,247) (318,847)
----------------------------
FINANCING
Dividends paid (146,822) (134,589)
Shares purchased for cancellation (955) -
Decrease in bank indebtedness (1,254) (5,922)
Issuance of long-term debt 464,520 484,844
Repayment of long-term debt (288,005) (150,449)
Restricted cash (11,366) 17,817
----------------------------
Cash inflow from financing activities 16,118 211,701
----------------------------
Effect of foreign currency translation on
cash balances 326 (908)
----------------------------
Net cash inflow (outflow) (44,413) 37,501
Cash and cash equivalents, beginning of
year 97,633 60,132
----------------------------
Cash and cash equivalents, end of year $ 53,220 $ 97,633
----------------------------
Supplemental cash flow information:
Interest paid $ 52,810 $ 39,167
----------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2012
(thousands of Canadian dollars, except where indicated and per share/unit
amounts)
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1. ORGANIZATION
Just Energy Group Inc. ("JEGI", "Just Energy" or the "Company") is a corporation
established under the laws of Canada to hold securities and to distribute the
income of its directly or indirectly owned operating subsidiaries and
affiliates. Just Energy also holds a 50% ownership in Just Ventures LLC and Just
Ventures L.P. (collectively "Just Ventures"), a jointly controlled entity, which
is involved in the marketing of Just Energy's gas and electricity contracts. The
other 50% is owned by Red Ventures LLC, a South Carolina based entity which
specializes in internet based marketing.
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 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, the recording of
shareholders' equity and the reallocation of the liability associated with the
Exchangeable Shares and equity-based compensation to shareholders' equity.
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 and its subsidiaries and affiliates. The financial statements were
approved by the Board of Directors on May 17, 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. Just Energy markets its gas and
electricity contracts in Canada and the U.S. under the following trade names:
Just Energy, Hudson Energy, Commerce Energy, Amigo Energy and Tara Energy. 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 will
also increase sales receptivity and improve renewal rates.
In addition, Just Energy sells and rents high efficiency and tankless water
heaters, air conditioners and furnaces to Ontario residents, through a
subsidiary under the trade name, National Home Services ("NHS"). Just Energy
also operates a network marketing division under the trade name, Momentis.
Through its subsidiary, Terra Grain Fuels, Inc. ("TGF"), Just Energy produces
and sells wheat-based ethanol. Just Energy's subsidiary, Hudson Energy Solar
Corp ("HES"), also provides a solar project development platform operating in
New Jersey, Pennsylvania and Massachusetts, under the trade name, Hudson Energy
Solar.
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 has
commenced reporting on this basis in these consolidated financial statements. In
the consolidated financial statements, the term "CGAAP" refers to Canadian
Generally Accepted Accounting Principles before the adoption of IFRS.
The consolidated financial statements have been prepared in compliance with IFRS
as issued by the International Accounting Standards Board ("IASB"). 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 31 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 CGAAP.
(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.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing
the opening IFRS consolidated statement of financial position as at April 1,
2010, for the purposes of the transition.
(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 March 31,
2012. 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.
(c) Cash and cash equivalents
All highly liquid temporary cash investments with an original maturity of three
months or less when purchased are considered to be cash equivalents. For the
purpose of the consolidated statement of cash flows, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of outstanding bank
overdrafts.
(d) Accrued gas receivables/accrued gas payable or gas delivered in excess of
consumption/deferred revenues
Accrued gas receivables are stated at estimated realizable value and result when
customers consume more gas than has been delivered by Just Energy to local
distribution companies ("LDCs"). Accrued gas payable represents the obligation
to the LDCs with respect to gas consumed by customers in excess of that
delivered to the LDCs.
Gas delivered to LDCs in excess of consumption by customers is stated at the
lower of cost and net realizable value. Collections from customers in advance of
their consumption of gas result in deferred revenues.
Due to the seasonality of operations, during the winter months, customers will
have consumed more than what was delivered resulting in the recognition of
unbilled revenues/accrued gas payable; however, in the summer months, customers
will have consumed less than what was delivered, resulting in the recognition of
gas delivered in excess of consumption/deferred revenues.
These adjustments are applicable solely to the Ontario, Manitoba, Quebec and
Michigan gas markets.
(e) Inventory
Inventory consists of water heaters, furnaces and air conditioners for selling
purposes, gas in storage, ethanol, ethanol in process and grain inventory. Water
heaters, furnaces and air conditioners are stated at the lower of cost and net
realizable value with cost being determined on a weighted average basis.
Gas in storage represents the gas delivered to the LDCs. The balance will
fluctuate as gas is injected or withdrawn from storage.
Gas in storage, ethanol, ethanol in process and grain inventory are valued at
the lower of cost and net realizable value with cost being determined on a
weighted average basis. Net realizable value is the estimated selling price in
the ordinary course of business, less the estimated costs of completion and
selling expenses.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost, net of any accumulated
depreciation and impairment losses. Cost includes the purchase price and, where
relevant, any costs directly attributable to bringing the asset to the location
and condition necessary and/or the present value of all dismantling and removal
costs. Where major components of property, plant and equipment have different
useful lives, the components are recognized and depreciated separately. Just
Energy recognizes in the carrying amount, the cost of replacing part of an item
when the cost is incurred and if it is probable that the future economic
benefits embodied with the item can be reliably measured. All other repair and
maintenance costs are recognized in the consolidated income statement as an
expense when incurred. Depreciation is provided over the estimated useful lives
of the assets as follows:
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Asset category Depreciation method Rate/useful life
----------------------------------------------------------------------------
Furniture and fixtures Declining balance 20%
Office equipment Declining balance 20%
Computer equipment Declining balance 30%
Buildings and ethanol plant Straight line 15-35 years
Water heaters Straight line 15 years
Furnaces and air conditioners Straight line 15 years
Leasehold improvements Straight line Term of lease
Vehicles Straight line 5 years
Solar equipment Straight line 15-20 years
----------------------------------------------------------------------------
An item of property, plant and equipment and any significant part initially
recognized is derecognized upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on derecognition of
the asset is included in the consolidated income statement when the asset is
derecognized.
The useful lives and methods of depreciation are reviewed at each financial
year-end, and adjusted prospectively, if appropriate.
(g) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the fair value of the assets given, equity
instruments and liabilities incurred or assumed at the date of exchange.
Acquisition costs for business combinations incurred subsequent to April 1,
2010, are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially
at fair values on the date of acquisition, irrespective of the extent of any
non-controlling interest.
Goodwill is initially measured at cost, which is the excess of the cost of the
business combination over Just Energy's share in the net fair value of the
acquiree's identifiable assets, liabilities and contingent liabilities. Any
negative difference is recognized directly in the consolidated income statement.
If the fair values of the assets, liabilities and contingent liabilities can
only be calculated on a provisional basis, the business combination is
recognized using provisional values. Any adjustments resulting from the
completion of the measurement process are recognized within 12 months of the
date of acquisition.
After initial recognition, goodwill is measured at cost, less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of Just
Energy's operating segments that are expected to benefit from the synergies of
the combination, irrespective of whether other assets and liabilities of the
acquiree are assigned to those segments.
On first-time adoption of IFRS, Just Energy elected to not apply IFRS 3,
Business Combinations, to transactions that occurred prior to the transition
date. Accordingly, the goodwill associated with acquisitions carried out prior
to April 1, 2010, is carried at that date, at the amount reported in the last
consolidated financial statements prepared under CGAAP as at March 31, 2010.
(h) Intangible assets
Intangible assets acquired outside of a business combination are measured at
cost on initial recognition. Intangible assets acquired in a business
combination are recorded at fair value on the date of acquisition. Following
initial recognition, intangible assets are carried at cost less any accumulated
amortization and/or accumulated impairment losses. The useful lives of
intangible assets are assessed as either finite or indefinite.
Intangible assets with finite useful lives are amortized over the useful
economic life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortization method and amortization
period of an intangible asset with a finite useful life is reviewed at least
once annually. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are accounted for
by changing the amortization period or method, as appropriate, and are treated
as changes in accounting estimates. The amortization expense related to
intangible assets with finite lives is recognized in the consolidated income
statement in the expense category associated with the function of the intangible
assets.
Intangible assets consist of gas customer contracts, electricity customer
contracts, water heater customer contracts, sales network, brand and goodwill,
all acquired through business combinations, as well as software, commodity
billing and settlement systems and information technology system development.
Internally generated intangible assets are capitalized when the product or
process is technically and commercially feasible and Just Energy has sufficient
resources to complete development. The cost of an internally generated
intangible asset comprises all directly attributable costs necessary to create,
produce and prepare the asset to be capable of operating in the manner intended
by management.
The brand and goodwill are considered to have an indefinite useful life and are
not amortized, but rather tested annually for impairment. The assessment of
indefinite life is reviewed annually to determine whether the indefinite life
continues to be supportable.
Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset, and are recognized in the consolidated income statement when the
asset is derecognized.
----------------------------------------------------------------------------
Asset category Amortization method Rate
----------------------------------------------------------------------------
Customer contracts Straight line Term of contract
Contract initiation costs Straight line Term of contract
Commodity billing and settlement
systems Straight line 5 years
Sales network Straight line 5 years
Information technology system
development Straight line 5 years
Software Declining balance 100%
Other intangible assets Straight line 5 years
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(i) Impairment of non-financial assets
Just Energy assesses whether there is an indication that an asset may be
impaired at each reporting date. If such an indication exists or when annual
testing for an asset is required, Just Energy estimates the asset's recoverable
amount. The recoverable amount of goodwill and intangible assets with an
indefinite useful life, if any, as well as intangible assets not yet available
for use, are estimated at least annually. The recoverable amount is the higher
of an asset's or cash-generating unit's fair value less costs to sell and its
value-in-use. Value-in-use is determined by discounting estimated future cash
flows using a pre-tax discount rate that reflects the current market assessment
of the time value of money and the specific risks of the asset. In determining
fair value less costs to sell, an appropriate valuation model has to be used.
The recoverable amount of assets that do not generate independent cash flows is
determined based on the cash-generating unit to which the asset belongs.
An impairment loss is recognized in the consolidated income statement if an
asset's carrying amount or that of the cash-generating unit to which it is
allocated is higher than its recoverable amount. Impairment losses of
cash-generating units are first charged against the value of assets, in
proportion to their carrying amount.
In the consolidated income statement, an impairment loss is recognized in the
expense category associated with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as
to whether there is any indication that previously recognized impairment losses
may no longer exist or may have decreased. If such indication exists, Just
Energy estimates the asset's or cash-generating unit's recoverable amount. A
previously recognized impairment loss is reversed only if there has been a
change in the assumptions used to determine the asset's recoverable amount since
the last impairment loss was recognized. The reversal is limited so that the
carrying amount of the asset does not exceed its recoverable amount, nor exceed
the carrying amount that would have been determined, net of amortization, had no
impairment loss been recognized for the asset in prior years. Such a reversal is
recognized in the consolidated income statement.
Goodwill is tested for impairment annually as at March 31 and when circumstances
indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each segment to which the
goodwill relates. Where the recoverable amount of the segment is less than its
carrying amount, an impairment loss is recognized. Impairment losses relating to
goodwill cannot be reversed in future periods.
(j) Leases
The determination of whether an arrangement is, or contains, a lease is based on
the substance of the arrangement at the inception date and whether fulfilment of
the arrangement is dependent on the use of a specific asset or assets, or the
arrangement conveys a right to use the asset.
Just Energy as a lessee
Operating lease payments are recognized as an expense in the consolidated income
statement on a straight-line basis over the lease term.
Just Energy as a lessor
Leases where Just Energy does not transfer substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognized over the lease term on the
same basis as rental income.
(k) Financial instruments
Financial assets and liabilities
Just Energy classifies its financial instruments as either (i) financial assets
at fair value through profit or loss instruments, or (ii) loans and receivables,
and its financial liabilities as either (i) financial liabilities at fair value
through profit or loss or (ii) other financial liabilities. Appropriate
classification of financial assets and liabilities is determined at the time of
initial recognition or when reclassified in the consolidated statement of
financial position.
Financial instruments are recognized on the trade date, which is the date on
which Just Energy commits to purchase or sell the asset.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets
held-for-trading and financial assets designated upon initial recognition at
fair value through profit or loss. Financial assets are classified as
held-for-trading if they are acquired for the purpose of selling or repurchasing
in the near term. This category includes derivative financial instruments
entered into that are not designated as hedging instruments in hedge
relationships as defined by IAS 39, Financial Instruments: Recognition and
Measurement ("IAS 39"). Included in this class are primarily physical delivered
energy contracts, for which the own-use exemption could not be applied,
financially settled energy contracts and foreign currency forward contracts.
An analysis of fair values of financial instruments and further details as to
how they are measured are provided in Note 11. Related realized and unrealized
gains and losses are included in the consolidated income statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Assets in this
category include receivables. Loans and receivables are initially recognized at
fair value plus transaction costs. They are subsequently measured at amortized
cost using the effective interest method less any impairment. The effective
interest amortization is included in finance costs in the consolidated income
statement.
Derecognition
A financial asset is derecognized when the rights to receive cash flows from the
asset have expired or when Just Energy has transferred its rights to receive
cash flows from the asset.
Impairment of financial assets
Just Energy assesses whether there is objective evidence that a financial asset
is impaired at each reporting date. A financial asset is deemed to be impaired
if, and only if, there is objective evidence of impairment as a result of one or
more events that has occurred after the initial recognition of the asset (an
incurred "loss event") and that loss event has an impact on the estimated future
cash flows of the financial asset or the fund of financial assets that can be
reliably estimated.
For financial assets carried at amortized cost, Just Energy first assesses
whether objective evidence of impairment exists individually for financial
assets that are individually significant, or collectively, for financial assets
that are not individually significant. If Just Energy determines that no
objective evidence of impairment exists for an individually assessed financial
asset, it includes the asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. Assets that
are individually assessed for impairment and for which an impairment loss is, or
continues to be, recognized are not included in a collective assessment of
impairment.
If there is objective evidence that an impairment loss has incurred, the amount
of the loss is measured as the difference between the asset's carrying amount
and the present value of estimated future cash flows. The present value of the
estimated future cash flows is discounted at the financial asset's original
effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognized in profit or loss. Interest
income continues to be accrued on the reduced carrying amount and is accrued
using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss. The interest income is recorded as
part of other income in the consolidated income statement.
Loans and receivables, together with the associated allowance, are written off
when there is no realistic prospect of future recovery. If, in a subsequent
year, the amount of the estimated impairment loss increases or decreases because
of an event occurring after the impairment was recognized, the previously
recognized impairment loss is increased or reduced by adjusting the allowance
account. If a write-off is later recovered, the recovery is credited to other
operating costs in the consolidated income statement.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial
liabilities held-for-trading and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held-for-trading if they are acquired
for the purpose of selling in the near term. This category includes derivative
financial instruments entered into by Just Energy that are not designated as
hedging instruments in hedge relationships as defined by IAS 39. Included in
this class are primarily physically delivered energy contracts, for which the
own-use exemption could be not applied, financially settled energy contracts and
foreign currency forward contracts.
Gains or losses on liabilities held-for-trading are recognized in the
consolidated income statement.
Other financial liabilities
Other financial liabilities are measured at amortized cost using the effective
interest rate method. Financial liabilities include long-term debt issued, which
is initially measured at fair value, which is the consideration received, net of
transaction costs incurred, trade and other payables and bank indebtedness.
Transaction costs related to the long-term debt instruments are included in the
value of the instruments and amortized using the effective interest rate method.
The effective interest expense is included in finance costs in the consolidated
income statement.
Derecognition
A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying
amounts is recognized in the consolidated income statement.
(l) Derivative instruments
Just Energy enters into fixed-term contracts with customers to provide
electricity and gas at fixed prices. These customer contracts expose Just Energy
to changes in consumption as well as changes in the market prices of gas and
electricity. To reduce its exposure to movements in commodity prices, Just
Energy enters into derivative contracts.
Just Energy analyzes all its contracts, of both a financial and non-financial
nature, to identify the existence of any "embedded" derivatives. Embedded
derivatives are accounted for separately from the underlying contract at
inception date when their risks and characteristics are not closely related to
those of the underlying contracts and the underlying contracts are not carried
at fair value. An embedded derivative is a provision in a contract that modifies
the cash flow of a contract by making it dependent on an underlying measurement.
All derivatives are recognized at fair value on the date on which the derivative
is entered into and are re-measured to fair value at each reporting date.
Derivatives are carried in the consolidated statements of financial position as
other financial assets when the fair value is positive and as other financial
liabilities when the fair value is negative. Just Energy does not utilize hedge
accounting. Therefore, changes in the fair value of these derivatives are taken
directly to the consolidated income statement and are included within change in
fair value of derivative instruments.
(m) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statements of financial position if, and only if,
there is currently an enforceable legal right to offset the recognized amounts
and there is an intention to settle on a net basis, or to realize the assets and
settle the liabilities simultaneously.
(n) Fair value of financial instruments
Fair value is the estimated amount that Just Energy would pay or receive to
dispose of these contracts in an arm's-length transaction between knowledgeable,
willing parties who are under no compulsion to act. The fair value of financial
instruments that are traded in active markets at each reporting date is
determined by reference to quoted market prices, without any deduction for
transaction costs.
For financial instruments not traded in an active market, the fair value is
determined using appropriate valuation techniques that are recognized by market
participants. Such techniques may include using recent arm's-length market
transactions, reference to the current fair value of another instrument that is
substantially the same, discounted cash flow analysis, or other valuation
models. An analysis of fair values of financial instruments and further details
as to how they are measured are provided in Note 11.
(o) Revenue recognition
Revenue is recognized when significant risks and rewards of ownership are
transferred to the customer. In the case of gas and electricity, transfer of
risk and rewards generally coincides with consumption. Ethanol and dried
distillery grain sales are recognized when the risk and reward of ownership
passes, which is typically on delivery. Revenue from sales of water heaters,
furnaces and air conditioners is recognized upon installation. Just Energy
recognizes revenue from water heater and HVAC leases, based on rental rates over
the term commencing from the installation date.
Revenue is measured at the fair value of the consideration received, excluding
discounts, rebates and sales taxes.
The Company assumes credit risk for all customers in Illinois, Texas,
Pennsylvania, Maryland, Massachusetts, California and Georgia and for
large-volume customers in British Columbia and Ontario. In these markets, the
Company ensures that credit review processes are in place prior to commodity
flowing to the customer.
(p) Foreign currency translation
Functional and presentation currency
Items included in the consolidated financial statements of each of the Company's
entities are measured using the currency of the primary economic environment in
which the entity operates (the "functional currency"). The consolidated
financial statements are presented in Canadian dollars, which is the parent
company's presentation and functional currency.
Transactions
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the consolidated income
statement, except when deferred in other comprehensive income (loss) as
qualifying net investment hedges.
Translation of foreign operations
The results and consolidated financial position of all the group entities that
have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- assets and liabilities for each consolidated statement of financial
position presented are translated at the closing rate at the date of
that consolidated statement of financial position; and
-- income and expenses for each consolidated income statement are
translated at the exchange rates prevailing at the dates of the
transactions.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to other
comprehensive income (loss).
When a foreign operation is partially disposed of or sold, exchange differences
that were recorded in accumulated other comprehensive income (loss) are
recognized in the consolidated income statement as part of the gain or loss on
sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
(q) Per share/unit amounts
The computation of income per unit/share is based on the weighted average number
of units/shares outstanding during the year. Diluted earnings per unit/share are
computed in a similar way to basic earnings per unit/share except that the
weighted average units/shares outstanding are increased to include additional
units/shares assuming the exercise of stock options, restricted share grants
("RSGs"), deferred share grants ("DSGs") and convertible debentures, if
dilutive.
(r) Share-based compensation plans
Equity-based compensation liability
Prior to the Conversion to a corporation on January 1, 2011, Just Energy's
equity-based compensation plans entitled the holders to receive trust units
which under IFRS, were considered puttable financial instruments, and thus the
awards were classified as liability-based awards. The liability was measured at
the redemption value of the instruments and re-measured at each reporting date
with the gain or loss associated with the re-measurement recorded within profit.
When the awards were converted into trust units, the conversions were recorded
as an extinguishment of the liability and accordingly, the re-measured amount at
the date of conversion was then reclassified to equity.
Subsequent to the Conversion, Just Energy accounted for its share-based
compensation as equity-settled transactions as a result of the stock-based plans
that were no longer convertible into a puttable financial liability. The cost of
a share-based compensation is measured by reference to the fair value at the
date on which it was granted. Awards are valued at the grant date and are not
adjusted for changes in the prices of the underlying shares and other
measurement assumptions. The cost of equity-settled transactions is recognized,
together with the corresponding increase in equity, over the period in which the
performance or service conditions are fulfilled, ending on the date on which the
relevant grantee becomes fully entitled to the award. The cumulative expense
recognized for equity-settled transactions at each reporting date until the
vesting period reflects the extent to which the vesting period has expired and
Just Energy's best estimate of the number of the shares that will ultimately
vest. The expense or credit recognized for a period represents the movement in
cumulative expense recognized as at the beginning and end of that period.
When options, RSGs and DSGs are exercised or exchanged, the amounts credited to
contributed surplus are reversed and credited to shareholders' capital.
(s) Employee future benefits
Just Energy established a long-term incentive plan (the "Plan") for all
permanent full-time and part-time Canadian employees (working more than 20 hours
per week) of its subsidiaries. The Plan consists of two components, a Deferred
Profit Sharing Plan ("DPSP") and an Employee Profit Sharing Plan ("EPSP"). For
participants of the DPSP, Just Energy contributes an amount equal to a maximum
of 2% per annum of an employee's base earnings. For the EPSP, Just Energy
contributes an amount up to a maximum of 2% per annum of an employee's base
earnings towards the purchase of shares of Just Energy, on a matching one for
one basis.
For U.S. employees, Just Energy has established a long-term incentive plan (the
"Plan") for all permanent full-time and part-time employees (working more than
26 hours per week) of its subsidiaries. The Plan consists of two components, a
401(k) and an Employee Share Purchase Plan ("ESPP"). For participants of the
ESPP, Just Energy contributes an amount up to a maximum of 3% per annum of an
employee's base earnings towards the purchase of Just Energy shares, on a
matching one for one basis. For participants in the 401(k), Just Energy
contributes an amount up to a maximum of 4% per annum of an employee's base
earnings, on a matching one for one basis. In the event an employee participates
in both the ESPP and 401(k), the maximum Just Energy will contribute to the 401k
is 2%.
Participation in the plans in Canada or the U.S is voluntary. The plans have a
two-year vesting period beginning from the later of the plan's effective date
and an employee's starting date. During the year, Just Energy contributed $2,034
(2011 - $1,572) to the plans, which was paid in full during the year.
Obligations for contributions to the Plan are recognized as an expense in the
consolidated income statement as incurred.
(t) Trust units of the Fund
Prior to the Conversion which occurred on January 1, 2011, the Fund's
outstanding equity instruments consisted of publicly traded trust units of the
Fund, Class A preference shares of JEC and Exchangeable Shares of JEEC. Pursuant
to applicable legislation, those trust units included a redemption feature which
required Just Energy to assess the appropriate presentation of those units under
IFRS.
Generally, IFRS requires that financial instruments, which include a redemption
feature, making the instruments puttable, should be presented as a financial
liability rather than an equity item. However, an exception to this requirement
is available if the financial instrument meets certain criteria. Just Energy
determined that its trust units met the requirements for this exception and
accordingly, the trust units are presented as equity for the periods prior to
the Conversion.
Liabilities associated with the Class A preference shares of JEC and the
Exchangeable Shares of JEEC (collectively the "Exchangeable Shares")
Prior to the Conversion, the outstanding Exchangeable Shares did not meet the
criteria to be recorded as equity because the Exchangeable Shares were
ultimately required to be exchanged for trust units, which were considered
puttable financial instruments. Accordingly, the Exchangeable Shares were
recorded as a liability until exchanged for trust units. The liability was
measured at the redemption value of the instruments and re-measured at each
reporting date with the gain or loss associated with the re-measurement recorded
within profit. When the Exchangeable Shares were converted into trust units, the
conversions were recorded as an extinguishment of the liability, and
accordingly, the re-measured amount at the date of conversion was then
reclassified to equity.
Transaction costs
Transaction costs incurred by Just Energy in issuing, acquiring or selling its
own equity instruments are accounted for as a deduction from equity to the
extent that they are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided.
(u) Income taxes
Just Energy follows the liability method of accounting for deferred taxes. Under
this method, income tax liabilities and assets are recognized for 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.
Deferred tax assets/liabilities are recognized for all taxable temporary
differences, except:
-- Where the deferred tax asset/liability arises from the initial
recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; and
-- In respect of taxable temporary differences associated with investments
in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all carry forward of unused tax credits
and unused tax losses, to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses, can be utilized
except:
-- Where the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- In respect of deductible temporary differences associated with
investments in subsidiaries, deferred tax assets are recognized only to
the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting date
and are recognized to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the year when the asset is realized or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized
outside profit or loss. Deferred tax items are recognized in correlation to the
underlying transaction either in other comprehensive income or directly in
equity.
Deferred tax assets and deferred tax liabilities are offset if a legally
enforceable right exists to set off current tax assets against current income
tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
(v) Provisions
Provisions are recognized when Just Energy has a present obligation, legal or
constructive, as a result of a past event and it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Where Just
Energy expects some or all of a provision to be reimbursed, the reimbursement is
recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the consolidated
income statement, net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of
time is recognized as a finance cost in the consolidated income statement.
(w) Selling and marketing expenses and contract initiation costs
Commissions and various other costs related to obtaining and renewing customer
contracts are charged to income in the period incurred except as disclosed
below:
Commissions related to obtaining and renewing commercial customer contracts are
paid in one of the following ways: all or partially upfront or as a residual
payment over the life of the contract. If the commission is paid all or
partially upfront, it is recorded as contract initiation costs and amortized in
selling and marketing expenses over the term for which the associated revenue is
earned. If the commission is paid as a residual payment, the amount is expensed
as earned.
In addition, commissions related to obtaining customer contracts signed by NHS
are recorded as contract initiation costs and amortized in selling and marketing
expenses over the remaining life of the contract.
(x) Investment in joint venture
Just Energy accounts for its interest in joint ventures using the equity method.
Under this method any investments made increases the asset value, the
proportionate share of income/losses, increases/decreases the asset value, with
an offsetting adjustment in the consolidated statements of operations and any
dividends received decreases the asset value.
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 for 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 a 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 in accordance with the accounting policy in
Note 3 (h). 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. As at March 31, 2012, the carrying amount of capitalized development
costs was $13,343 (2011 - $16,275). This amount primarily includes costs for the
internal development of software tools for the customer billing and analysis in
the various operating jurisdictions. These software tools are developed by the
internal information technology and operations department, for the 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.
Refer to Note 3(f) and Note 3(h) for the estimated useful lives.
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 crises in California. Pursuant to the complaints, the State of
California is challenging the 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 March 31, 2012. In the general course of operations, Just Energy has made
additional provisions for litigation matters that have arisen. Refer to Note 17
for further details.
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
and 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 statements 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 11 for further details about the assumptions as well as
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, 2015, 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.
The adoption of this new section will have no impact on the Company as joint
ventures are currently accounted for using the equity method.
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 establish 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, IFRS 12 and IAS 28 have 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.
This standard will be applied by the Company 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.
IAS 1, Presentation of Financial Statements
IAS 1, Presentation of Financial Statements, was amended in 2011 to expand on
the disclosures required of items within Other Comprehensive Income. The revised
standard requires that an entity distinguishes between those items that are
recycled to profit and loss versus those items that are not recycled.
Retrospective application is required and the standard is effective for annual
periods beginning on or after July 1, 2012. The Company does not expect the
amendments to IAS 1 to have a significant impact on its consolidated financial
statements.
5. PROPERTY, PLANT AND EQUIPMENT
As at March 31, 2012
Computer Buildings and Furniture
equipment ethanol plant Land and fixtures
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2011 $ 7,750 $ 158,482 $ 299 $ 6,090
Additions /
(Disposals) 1,347 - - 441
Acquisition of
subsidiary 348 - - 8
Exchange differences 8 18 - 33
--------------------------------------------------------
March 31, 2012 9,453 158,500 299 6,572
--------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (4,958) (17,426) - (3,561)
Amortization charge
to COGS - (5,871) - -
Amortization charge
for the year (1,205) (1,201) - (569)
Disposals 12 - - -
Exchange differences (9) - - (11)
--------------------------------------------------------
Ending balance,
March 31, 2012 (6,160) (24,498) - (4,141)
--------------------------------------------------------
Net book value,
March 31, 2012 $ 3,293 $ 134,002 $ 299 $ 2,431
--------------------------------------------------------
Furnaces and
Office Water air
Vehicles equipment heaters conditioners
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2011 $ 215 $ 17,976 $ 78,223 $ 3,813
Additions /
(Disposals) (32) 1,668 28,048 7,671
Acquisition of
subsidiary 31 371 - -
Exchange differences (2) 13 - -
--------------------------------------------------------
March 31, 2012 212 20,028 106,271 11,484
--------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (88) (9,520) (6,887) (179)
Amortization charge
to COGS - - (5,961) (808)
Amortization charge
for the year (41) (1,905) - -
Disposals 21 (1) - -
Exchange differences - (9) - -
--------------------------------------------------------
Ending balance,
March 31, 2012 (108) (11,435) (12,848) (987)
--------------------------------------------------------
Net book value,
March 31, 2012 $ 104 $ 8,593 $ 93,423 $ 10,497
--------------------------------------------------------
Leasehold Solar
improvements equipment Total
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2011 $ 8,567 $ 283 $ 281,698
Additions /
(Disposals) 62 35,624 74,829
Acquisition of
subsidiary - - 758
Exchange differences 13 (118) (35)
--------------------------------------------------------
March 31, 2012 8,642 35,789 357,250
--------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (5,077) - (47,696)
Amortization charge
to COGS - - (12,640)
Amortization charge
for the year (913) (13) (5,847)
Disposals - - 32
Exchange differences (9) - (38)
--------------------------------------------------------
Ending balance,
March 31, 2012 (5,999) (13) (66,189)
--------------------------------------------------------
Net book value,
March 31, 2012 $ 2,643 $ 35,776 $ 291,061
--------------------------------------------------------
As at March 31, 2011
Computer Buildings and Furniture
equipment ethanol plant Land and fixtures
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ 6,417 $ 159,897 $ 299 $ 5,581
Additions /
(Disposals) 1,137 (2,055) - 468
Acquisition of
subsidiary 233 670 - 94
Exchange differences (37) (30) - (53)
--------------------------------------------------------
Ending balance,
March 31, 2011 7,750 158,482 299 6,090
--------------------------------------------------------
Accumulated
Amortization:
Operating balance -
April 1, 2010 (3,887) (11,104) - (2,972)
Amortization charge
to COGS - (5,256) - -
Amortization charge
for the year (1,086) (1,066) - (606)
Exchange differences 15 1 - 17
--------------------------------------------------------
Ending balance,
March 31, 2011 (4,958) (17,425) - (3,561)
--------------------------------------------------------
Net book value,
March 31, 2011 $ 2,792 $ 141,057 $ 299 $ 2,529
--------------------------------------------------------
Net book value,
April 1, 2010 $ 2,530 $ 148,793 $ 299 $ 2,609
--------------------------------------------------------
Furnaces and
Office Water air
Vehicles equipment heaters conditioners
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ 197 $ 16,724 $ 51,059 $ 317
Additions /
(Disposals) 18 684 27,164 3,496
Acquisition of
subsidiary - 621 - -
Exchange differences - (53) - -
--------------------------------------------------------
Ending balance,
March 31, 2011 215 17,976 78,223 3,813
--------------------------------------------------------
Accumulated
Amortization:
Operating balance -
April 1, 2010 (46) (7,614) (2,481) (4)
Amortization charge
to COGS - - (4,406) (175)
Amortization charge
for the year (42) (1,923) - -
Exchange differences - 16 - -
--------------------------------------------------------
Ending balance,
March 31, 2011 (88) (9,521) (6,887) (179)
--------------------------------------------------------
Net book value,
March 31, 2011 $ 127 $ 8,455 $ 71,336 $ 3,634
--------------------------------------------------------
Net book value,
April 1, 2010 $ 151 $ 9,110 $ 48,578 $ 313
--------------------------------------------------------
Leasehold Solar
improvements equipment Total
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ 8,409 $ - $ 248,900
Additions /
(Disposals) 148 297 31,357
Acquisition of
subsidiary 30 - 1,648
Exchange differences (20) (14) (207)
--------------------------------------------------------
Ending balance,
March 31, 2011 8,567 283 281,698
--------------------------------------------------------
Accumulated
Amortization:
Operating balance -
April 1, 2010 (4,116) - (32,224)
Amortization charge
to COGS - - (9,837)
Amortization charge
for the year (975) - (5,698)
Exchange differences 14 - 63
--------------------------------------------------------
Ending balance,
March 31, 2011 (5,077) - (47,696)
--------------------------------------------------------
Net book value,
March 31, 2011 $ 3,490 $ 283 $ 234,002
--------------------------------------------------------
Net book value,
April 1, 2010 $ 4,293 $ - $ 216,676
--------------------------------------------------------
6. INTANGIBLE ASSETS
As at March 31, 2012
Electricity Water heater
Gas contracts contracts contracts Goodwill
-------------------------------------------------------
Cost:
Opening balance -
April 1, 2011 $ 248,828 $ 436,339 $ 23,164 $ 227,467
Acquisition of a
subsidiary - 39,533 - 21,106
Write-down of fully
amortized assets (1,842) - - -
Additions - - 879 -
Exchange differences 3,759 3,981 - 592
-------------------------------------------------------
Ending balance, March
31, 2012 250,745 479,853 24,043 249,165
-------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (144,568) (248,673) (2,813) -
Write-down of fully
amortized assets 1,842 - - -
Amortization charge
for the year (23,902) (54,468) (1,631) -
Amortization in mark
to market (38,663) (74,330) - -
Exchange differences (2,856) (2,668) - -
-------------------------------------------------------
Ending balance, March
31, 2012 (208,147) (380,139) (4,444) -
-------------------------------------------------------
Net book value, March
31, 2012 $ 42,598 $ 99,714 $ 19,599 $ 249,165
-------------------------------------------------------
Commodity
billing and
Sales settlement
network Brand Software systems
-------------------------------------------------------
Cost:
Opening balance -
April 1, 2011 $ 80,561 $ 10,692 $ 9,540 $ 6,515
Acquisition of a
subsidiary 42,359 13,034 215 -
Write-down of fully
amortized assets - - - -
Additions - - 4,084 15
Exchange differences 158 (357) 83 51
-------------------------------------------------------
Ending balance, March
31, 2012 123,078 23,369 13,922 6,581
-------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (14,770) - (6,616) (6,453)
Write-down of fully
amortized assets - - - -
Amortization charge
for the year (19,006) - (2,890) (18)
Amortization in mark
to market - - - -
Exchange differences (508) - (22) (51)
-------------------------------------------------------
Ending balance, March
31, 2012 (34,284) - (9,528) (6,522)
-------------------------------------------------------
Net book value, March
31, 2012 $ 88,794 $ 23,369 $ 4,394 $ 59
-------------------------------------------------------
IT system
development Other Total
-------------------------------------------------------
Cost:
Opening balance -
April 1, 2011 $ 19,691 $ 9,006 $ 1,071,803
Acquisition of a
subsidiary - - 116,247
Write-down of fully
amortized assets - - (1,842)
Additions 773 116 5,867
Exchange differences 493 248 9,008
-------------------------------------------------------
Ending balance, March
31, 2012 20,957 9,370 1,201,083
-------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (3,478) (4,213) (431,584)
Write-down of fully
amortized assets - - 1,842
Amortization charge
for the year (4,089) (2,229) (108,233)
Amortization in mark
to market - - (112,993)
Exchange differences (106) (129) (6,340)
-------------------------------------------------------
Ending balance, March
31, 2012 (7,673) (6,571) (657,308)
-------------------------------------------------------
Net book value, March
31, 2012 $ 13,284 $ 2,799 $ 543,775
-------------------------------------------------------
As at March 31, 2011
Electricity Water heater
Gas contracts contracts contracts Goodwill
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ 472,756 $ 266,700 $ 23,081 $ 186,832
Acquisition of a
subsidiary 26,225 200,653 - 32,317
Write-down of fully
amortized assets (243,929) (21,083) - -
Adjustments to
goodwill - - - 9,877
Additions - - 83 -
Exchange differences (6,224) (9,931) - (1,559)
--------------------------------------------------------
Ending balance,
March 31, 2011 248,828 436,339 23,164 227,467
--------------------------------------------------------
Accumulated
Amortization:
Opening balance
April 1, 2010 (307,413) (113,862) (1,218) -
Write-down of fully
amortized assets 243,929 21,083 - -
Amortization charge
for the year (31,841) (63,642) (1,595) -
Amortization in mark
to market (53,757) (96,064) - -
Exchange differences 4,514 3,812 - -
--------------------------------------------------------
Ending balance,
March 31, 2011 (144,568) (248,673) (2,813) -
--------------------------------------------------------
Net book value,
March 31, 2011 $ 104,260 $ 187,666 $ 20,351 $ 227,467
--------------------------------------------------------
Net book value,
April 1, 2010 $ 165,343 $ 152,838 $ 21,863 $ 186,832
--------------------------------------------------------
Commodity
billing and
Sales settlement
network Brand Software systems
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ - $ - $ 5,562 $ 6,545
Acquisition of a
subsidiary 84,400 11,200 911 -
Write-down of fully
amortized assets - - - -
Adjustments to
goodwill - - - -
Additions - - 3,208 54
Exchange differences (3,839) (508) (141) (84)
--------------------------------------------------------
Ending balance,
March 31, 2011 80,561 10,692 9,540 6,515
--------------------------------------------------------
Accumulated
Amortization:
Opening balance
April 1, 2010 - - (4,198) (6,515)
Write-down of fully
amortized assets - - - -
Amortization charge
for the year (15,511) - (2,576) (22)
Amortization in mark
to market - - - -
Exchange differences 741 - 158 84
--------------------------------------------------------
Ending balance,
March 31, 2011 (14,770) - (6,616) (6,453)
--------------------------------------------------------
Net book value,
March 31, 2011 $ 65,791 $ 10,692 $ 2,924 $ 62
--------------------------------------------------------
Net book value,
April 1, 2010 $ - $ - $ 1,364 $ 30
--------------------------------------------------------
IT system
development Other Total
--------------------------------------------------------
Cost:
Operating balance -
April 1, 2010 $ 605 $ 2,377 $ 964,458
Acquisition of a
subsidiary 17,954 6,545 380,205
Write-down of fully
amortized assets - - (265,012)
Adjustments to
goodwill - - 9,877
Additions 1,949 490 5,784
Exchange differences (817) (406) (23,509)
--------------------------------------------------------
Ending balance,
March 31, 2011 19,691 9,006 1,071,803
--------------------------------------------------------
Accumulated
Amortization:
Opening balance
April 1, 2010 (21) (2,377) (435,604)
Write-down of fully
amortized assets - - 265,012
Amortization charge
for the year (3,614) (2,040) (120,841)
Amortization in mark
to market - - (149,821)
Exchange differences 157 204 9,670
--------------------------------------------------------
Ending balance,
March 31, 2011 (3,478) (4,213) (431,584)
--------------------------------------------------------
Net book value,
March 31, 2011 $ 16,213 $ 4,793 $ 640,219
--------------------------------------------------------
Net book value,
April 1, 2010 $ 584 $ - $ 528,854
--------------------------------------------------------
The capitalized internally developed costs relate to the development of new
customer billing and analysis software solutions for the different energy
markets of Just Energy. All research costs and development costs not eligible
for capitalization have been expensed and are recognized in administrative
expenses.
7. RESTRICTED CASH
Restricted cash consists of the following:
(i) As part of the acquisition of Newten Home Comfort Inc. in 2009, the Company
was required to transfer cash into a trust account, in trust for the vendors, as
part of the contingent consideration. The contingent consideration payments,
which will become payable in July 2012 are based on the number of completed
water heater installations. As of March 31, 2012, the amount of restricted cash
is $1,250.
(ii) As part of the acquisition of Fulcrum Retail Holdings LLC ("Fulcrum"), Note
9(a), Just Energy was required to transfer $10,949 into a restricted cash
account until such transfer time that the amount of the contingent consideration
is known.
8. INVENTORY
The amount of inventory recognized as an expense during the year ended March 31,
2012, was $94,349 (2011-$77,376). There have been no write-downs of inventory.
Inventory is made up of the following:
March 31, March 31, April 1,
2012 2011 2010
Raw materials $ 1,220 $ 2,224 $ 2,308
Work in progress 775 518 463
Finished goods 7,993 4,164 3,552
---------------------------------------
$ 9,988 $ 6,906 $ 6,323
---------------------------------------
9. ACQUISITIONS
(a) 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 15(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 amount, 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 $21,407 as at
March 31, 2012, 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:
Fair value recognized on acquisition
Current assets (including cash of $3,875) $ 43,528
Property, plant and equipment 758
Software 215
Customer contracts and relationships 39,533
Affinity relationships 42,359
Brand 13,034
Contract initiation costs 156
Non-controlling interest 540
--------------
140,123
Current liabilities (44,856)
Other liabilities - current (12,430)
Other liabilities - long term (3,768)
Deferred lease inducements (322)
Long-term debt (586)
--------------
(61,962)
Total identifiable net assets acquired 78,161
Goodwill arising on acquisition 21,106
--------------
Total consideration $ 99,267
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of estimated working capital adjustment $ 80,940
Contingent consideration 18,327
--------------
Total consideration $ 99,267
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 $21,106 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. Since
the last quarter, the Company decreased the working capital by approximately
$4,000, decreased the working capital adjustment by $1,500, increased other
liabilities - current by approximately $1,700 and increased customer contracts
and relationships by approximately $3,700, resulting in a net increase to
goodwill of approximately $500.
The fair value of the trade receivables amounted to $20,600 at the date of
acquisition. The gross amount of trade receivables was $27,540.
The customer contracts and relationships 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. The
brand value is considered to be indefinite and, therefore, not subject to
amortization. Brand represents the value allocated to the market awareness of
the operating names used to sell and promote its products.
From the date of acquisition, Fulcrum has contributed $107,305 of revenue and a
loss of $9,083 to the consolidated net loss before tax of Just Energy for the
period ended March 31, 2012. If the combination had taken place at the beginning
of the fiscal year, consolidated revenue would have been $2,926,157, and the
consolidated net loss before tax would have been $96,327, for the year ended
March 31, 2012.
(b) Acquisition of Hudson Energy Services, LLC
On May 7, 2010, Just Energy completed the acquisition of all of the equity
interests of Hudson Parent Holdings, LLC, and all the common shares of Hudson
Energy Corp., thereby indirectly acquiring Hudson Energy Services, LLC
("Hudson"), with an effective date of May 1, 2010. The acquisition was funded by
an issuance of $330 million in convertible debentures issued on May 5, 2010
(Note 15(e)). There is no contingent consideration involved in the business
acquisition.
The acquisition of Hudson was accounted for using the acquisition 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:
Fair value recognized on acquisition
Current assets (including cash of $24,003) $ 88,696
Property, plant and equipment 1,648
Software 911
Electricity contracts and customer relationships 200,653
Gas contracts and customer relationships 26,225
Broker network 84,400
Brand 11,200
Information technology system development 17,954
Contract initiation costs 20,288
Other intangible assets 6,545
Unbilled revenue 15,092
Notes receivable - long term 1,312
Security deposits - long term 3,544
Other assets - current 124
Other assets - long term 100
--------------
478,692
Current liabilities (107,817)
Other liabilities - current (74,683)
Other liabilities - long term (40,719)
--------------
(223,219)
Total identifiable net assets acquired 255,473
Goodwill arising on acquisition 32,317
--------------
Total consideration $ 287,790
--------------
Cash outflow on acquisition:
Cash paid $ 287,790
Net cash acquired with the subsidiary (24,003)
Holdback (9,345)
--------------
Net cash outflow $ 254,442
--------------
The transaction costs related to the acquisition of Hudson 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 $32,317 comprises the value of expected synergies from
the acquisition. None of the goodwill recognized is expected to be deductible
for income tax purposes. Goodwill associated with the Hudson acquisition is part
of the U.S. gas and electricity marketing segments. As at March 31, 2012, all
holdbacks have been paid in full.
The fair value of the trade receivables amounted to $62,022 at the date of
acquisition. The gross amount of trade receivables is $67,526. None of the trade
receivables have been impaired and it is expected that the full contractual
amount can be collected.
All contracts and intangible assets, excluding brand, are amortized over the
average remaining life at the time of acquisition. The gas and electricity
contracts and customer relationships are amortized over periods of 30 months and
35 months, respectively. Other intangible assets, excluding brand, are amortized
over periods ranging from three to five years. The brand value is considered to
be indefinite and, therefore, not subject to amortization. Brand represents the
value allocated to the market awareness of the operating names used to sell and
promote its products.
From the date of acquisition, Hudson has contributed $654,802 of revenue and
$5,914 to the net profit before tax of Just Energy for the period ended March
31, 2011. If the combination had taken place at the beginning of the prior
fiscal year, consolidated revenue would have been $2,992,531 and the
consolidated profit would have been $548,799 for the year ended March 31, 2011.
10. JOINT VENTURE
Effective July 1, 2011, Just Energy has a 50% interest in Just Ventures LLC and
Just Ventures L.P. (collectively "Just Ventures") jointly controlled entities
that are involved in the marketing of Just Energy products. The marketing
efforts of Just Ventures are primarily internet based and through telemarketing
which differs from Just Energy's traditional sales channels.
Just Ventures is currently funded by its investors and all advances are recorded
as additional capital contributions.
2012
--------------
Share of the associate's revenue and profit:
Revenue eliminated on consolidation $ 335
--------------
--------------
Loss $ (1,971)
--------------
--------------
Carrying amount of the investment $ -
--------------
--------------
At any time subsequent to the second anniversary of the joint venture
agreements, the other participant in the joint venture has the ability to sell
part or all of its interest in Just Ventures (the "Put"). The amount is
determined based on the fair value of the previous month's billed customers. As
at March 31, 2012, the Put was estimated to have a nominal value and is
therefore not reflected in these consolidated financial statements.
11. 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 statement of financial position as other assets and other
liabilities with their offsetting values recorded in change in fair value of
derivative instruments for the year ended March 31, 2012:
Change in fair value of derivative instruments
For the For the
For the year year ended For the year year ended
ended March 31, ended March 31,
March 31, 2012 March 31, 2011
2012 (USD) 2011 (USD)
Canada
Fixed-for-floating
electricity swaps (i) $ 44,269 n/a $ 232,806 n/a
Renewable energy
certificates (ii) (60) n/a (987) n/a
Verified emission-
reduction credits
(iii) 95 n/a (952) n/a
Options (iv) (1,330) n/a 333 n/a
Physical gas forward
contracts (v) 52,114 n/a 138,623 n/a
Transportation forward
contracts (vi) (39) n/a 11,365 n/a
Fixed financial swaps
(vii) (21,134) n/a (1,217) n/a
United States
Fixed-for-floating
electricity swaps
(viii) (77,879) (76,155) 45,009 44,913
Physical electricity
forward contracts
(ix) (41,463) (41,192) 46,472 46,421
Unforced capacity
forward contracts (x) (3,455) (3,535) (416) (388)
Unforced capacity
physical contracts
(xi) (2,511) (2,705) (1,955) (1,908)
Renewable energy
certificates (xii) 1,494 1,563 (1,077) (1,032)
Verified emission-
reduction credits
(xiii) 160 137 (140) (136)
Options (xiv) (1,611) (1,580) 1,160 1,142
Physical gas forward
contracts (xv) 16,525 16,618 118,077 116,831
Transportation forward
contracts (xvi) 1,534 1,547 568 578
Heat rate swaps (xvii) 22,321 22,058 (1,789) (1,592)
Fixed financial swaps
(xviii) (34,760) (34,251) (47,792) (45,967)
Foreign exchange
forward contracts
(xix) (1,213) n/a 1,116 n/a
Ethanol physical
forward contracts (135) n/a 135 n/a
Amortization of
deferred unrealized
gains on discontinued
hedges 69,162 n/a 119,883 n/a
Amortization of
derivative financial
instruments related
to acquisitions (112,993) n/a (149,821) n/a
Liability associated
with Exchangeable
Shares and equity-
based compensation - n/a (3,354) n/a
Change in fair value
of contingent
consideration (5,436) n/a n/an/a
----------------------------------------------------------------------------
Change in fair value of
derivative instruments $ (96,345) $ 506,047
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at March 31,
2012:
Other Other
Other assets Other assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps
(i) $ - $ - $ 105,794 $ 74,614
Renewable energy
certificates (ii) 154 49 158 292
Verified emission-
reduction credits
(iii) - - 387 462
Options (iv) 975 359 1,644 656
Physical gas
forward contracts
(v) - - 159,742 89,576
Transportation
forward contracts
(vi) - - 5,396 2,776
Fixed financial
swaps (vii) - - 8,192 14,159
United States
Fixed-for-floating
electricity swaps
(viii) - 11 90,698 41,425
Physical
electricity
forward contracts
(ix) - - 121,213 30,674
Unforced capacity
forward contracts
(x) 5 - 1,664 2,086
Unforced capacity
physical
contracts (xi) 724 - 4,642 1,225
Renewable energy
certificates
(xii) 266 305 750 889
Verified emission-
reduction credits
(xiii) 42 80 304 420
Options (xiv) 73 - 601 349
Physical gas
forward contracts
(xv) 40 - 29,442 7,720
Transportation
forward contracts
(xvi) 34 - 1,137 241
Heat rate swaps
(xvii) 10,307 14,511 - -
Fixed financial
swaps (xviii) - - 81,497 42,054
Foreign exchange
forward contracts
(xix) 179 - - -
Contingent
consideration -
Newten - - 1,376 -
Contingent
consideration -
Fulcrum (Note 9) - 21,407
----------------------------------------------------------------------------
As at March 31, 2012 $ 12,799 $ 15,315 $ 636,044 $ 309,617
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at April 1,
2010:
Other Other
Other assets Other assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for floating
electricity swaps
(i) $ - $ - $ 244,563 $ 212,920
Renewable energy
certificates (ii) 350 621 30 139
Verified emission-
reduction credits
(iii) 2 7 - -
Options (iv) 757 416 - -
Physical gas
forward contracts
(v) - - 237,145 203,088
Transportation
forward contracts
(vi) - - 11,060 8,439
United States
Fixed-for-floating
electricity swaps
(viii) - - 31,291 30,464
Physical
electricity
forward contracts
(ix) - - 38,015 39,035
Unforced capacity
forward contracts
(x) 523 102 445 9
Unforced capacity
physical
contracts (xi) 33 146 731 -
Renewable energy
certificates
(xii) 107 130 918 945
Verified emission-
reduction credits
(xiii) - - 167 447
Options (xiv) - - 912 915
Physical gas
forward contracts
(xv) - - 96,938 75,142
Transportation
forward contracts
(xvi) - - 1,265 2,262
Heat rate swaps
(xvii) 654 3,605 - -
Fixed financial
swaps (xviii) - - 21,720 16,767
Foreign exchange
forward contracts
(xix) 277 - - -
----------------------------------------------------------------------------
As at April 1, 2010 $ 2,703 $ 5,027 $ 685,200 $ 590,572
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes financial instruments classified as
held-for-trading as at March 31, 2012, to which Just Energy has committed:
Total
Contract Notional remaining Maturity
type volume volume date
Canada
----------------------------------------------------------------------------
(i) Fixed-for-floating 0.0001-48 7,536,951 April 30, 2012 -
electricity swaps (i) MWhMWh December 31, 2019
----------------------------------------------------------------------------
(ii) Renewable energy 10-90,000 780,310 December 31, 2012 -
certificates MWhMWh December 31, 2015
----------------------------------------------------------------------------
(iii) Verified emission- 6,000-50,000 599,000 December 31, 2013 -
reduction credits tonnes tonnes December 31, 2016
----------------------------------------------------------------------------
(iv) Options 119-33,000 713,089 April 30, 2012 -
GJ/month GJ February 28, 2014
----------------------------------------------------------------------------
(v) Physical gas forward 1-8,376 64,316,388 April 30, 2012 -
contracts GJ/day GJ March 31, 2016
----------------------------------------------------------------------------
(vi) Transportation forward 74-17,000 35,595,520 April 30, 2012 -
contracts GJ/day GJ August 31, 2015
----------------------------------------------------------------------------
(vii) Fixed financial swaps 14,000-139,500 19,853,500 March 31, 2013 -
GJ/month GJ March 31, 2017
----------------------------------------------------------------------------
United States
----------------------------------------------------------------------------
(viii) Fixed-for-floating 0.10-80 9,577,598 April 30, 2012 -
electricity swaps (i) MWhMWh March 31, 2017
----------------------------------------------------------------------------
(ix) Physical electricity 1-100 13,393,411 April 30, 2012 -
forwards MWhMWh May 31, 2017
----------------------------------------------------------------------------
(x) Unforced capacity 3-150 118,766 June 30, 2012 -
forward contracts MWCapMWCap May 31, 2014
----------------------------------------------------------------------------
(xi) Unforced capacity 1-280 5,336 April 30, 2012 -
physical contracts MWCapMWCap May 31, 2014
----------------------------------------------------------------------------
(xii) Renewable energy 300-160,000 2,987,250 December 31, 2012 -
certificates MWhMWh December 31, 2017
----------------------------------------------------------------------------
(xiii) Verified emission- 8,000-50,000 658,000 December 31, 2012 -
reduction credits tonnes tonnes December 31, 2016
----------------------------------------------------------------------------
(xiv) Options 60-60,000 1,233,065 April 30, 2012 -
mmBTU/month mmBTU December 31, 2014
----------------------------------------------------------------------------
(xv) Physical gas forward 5-2,500 7,139,328 April 2, 2012 -
contracts mmBTU/month mmBTU July 31, 2014
----------------------------------------------------------------------------
(xvi) Transportation forward 15-13,205 10,739,615 April 02, 2012 -
contracts mmBTU/day mmBTU August 31, 2015
----------------------------------------------------------------------------
(xvii) Heat rate swaps 1-50 3,248,369 April 30, 2012 -
MWhMWh October 31, 2016
----------------------------------------------------------------------------
(xviii)Fixed financial swaps 930-600,000 44,416,997 April 30, 2012 -
mmBTU/month mmBTU May 31, 2017
----------------------------------------------------------------------------
(xix) Foreign exchange ($497-$3,614) n/a April 02, 2012 -
forward contracts (US$500-$3,500) January 2, 2013
----------------------------------------------------------------------------
Fair value
Contract Fixed favourable/ Notional
type price (unfavourable) value
Canada
----------------------------------------------------------------------------
(i) Fixed-for-floating $22.20-$128.13 ($180,408) $438,180
electricity swaps (i)
----------------------------------------------------------------------------
(ii) Renewable energy $3.00-$26.00 ($247) $5,151
certificates
----------------------------------------------------------------------------
(iii) Verified emission- $6.25-11.50 ($849) $5,307
reduction credits
----------------------------------------------------------------------------
(iv) Options $7.16-$12.39 ($966) $1,832
----------------------------------------------------------------------------
(v) Physical gas forward $1.35-$10.00 ($249,318) $430,907
contracts
----------------------------------------------------------------------------
(vi) Transportation forward $0.0025-$1.5600 ($8,172) $18,079
contracts
----------------------------------------------------------------------------
(vii) Fixed financial swaps $2.34-$5.20 ($22,351) $88,642
----------------------------------------------------------------------------
United States
----------------------------------------------------------------------------
(viii) Fixed-for-floating $24.49-$136.41 ($132,112) $488,254
electricity swaps (i) (US$24.55-$136.75)(US($132.443)) (US$489,478)
----------------------------------------------------------------------------
(ix) Physical electricity $26.77-$109.97 ($151,887) $624,024
forwards (US$26.84-$110.25)(US($152,268)) (US$625,588)
----------------------------------------------------------------------------
(x) Unforced capacity $1,812-$7,980 ($3,745) $7,739
forward contracts (US$1,817-$8,000) (US($3,754)) (US$7,758)
----------------------------------------------------------------------------
(xi) Unforced capacity $848-$9,327 ($5,144) $27,672
physical contracts (US$850-$9,350) (US($5,157)) (US$27,741)
----------------------------------------------------------------------------
(xii) Renewable energy $0.55-$42.64 ($1,068) $15,992
certificates (US$0.55-$42.75) (US($1,071)) (US$16,032)
----------------------------------------------------------------------------
(xiii) Verified emission- $3.49-$8.73 ($602) $4,064
reduction credits (US$3.50-$8.75) (US($604)) (US$4,074)
----------------------------------------------------------------------------
(xiv) Options $7.73-$13.77 ($877) $166
(US$7.75-$13.80) (US($879)) (US$166)
----------------------------------------------------------------------------
(xv) Physical gas forward $2.21-$11.85 ($37,122) $58,701
contracts (US$2.22-$11.88) (US($37,215)) (US$58,848)
----------------------------------------------------------------------------
(xvi) Transportation forward $0.08-$1.50 ($1,344) $22,967
contracts (US$0.08-$1.50) (US($1,347)) (US$23,025)
----------------------------------------------------------------------------
(xvii) Heat rate swaps $14.10-$65.06 $24,817 $97,111
(US$14.14-$65.22) (US$24,879) (US$97,354)
----------------------------------------------------------------------------
(xviii)Fixed financial swaps $2.64-$9.24 ($123,549) $265,023
(US$2.65-$9.26) (US($123,859)) (US$265,687)
----------------------------------------------------------------------------
(xix) Foreign exchange $0.977-$1.048 $179 $22,630
forward contracts (US$22,687)
----------------------------------------------------------------------------
(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 approximately $32.5 million.
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: i) Commodity (predominately NYMEX), ii) Basis and iii) Foreign exchange.
NYMEX curves extend for over five years (thereby covering the length of Just
Energy's contracts); however, most basis curves 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 March 31, 2012:
Level 1 Level 2 Level 3 Total
Financial assets
Cash and short-term
deposits $ 65,419 $ - $ - $ 65,419
Loans and receivables 437,216 - - 437,216
Derivative financial
assets - - 28,114 28,114
Financial liabilities
Derivative financial
liabilities - (98,193) (847,468) (945,661)
Other financial
liabilities (1,064,888) - - (1,064,888)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (562,253) $ (98,193) $ (819,354) $ (1,479,800)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the classification of financial
assets/(liabilities) in the FV hierarchy as at March 31, 2011:
Level 1 Level 2 Level 3 Total
Financial assets
Cash and short-term
deposits $ 98,466 $ - $ - $ 98,466
Loans and receivables 398,401 - - 398,401
Derivative financial
assets - 1,077 8,153 9,230
Financial liabilities
Derivative financial
liabilities - (89,177) (751,641) (840,818)
Other financial
liabilities (886,696) - - (886,696)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (389,829) $ (88,100) $ (743,488) $ (1,221,417)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the classification of financial
assets/(liabilities) in the FV hierarchy as at April 1, 2010:
Level 1 Level 2 Level 3 Total
Financial assets
Cash and short-term
deposits $ 78,782 $ - $ - $ 78,782
Loans and receivables 295,663 - - 295,663
Derivative financial
assets - - 7,730 7,730
Financial liabilities
Derivative financial
liabilities - (38,487) (1,237,285) (1,275,772)
Other financial
liabilities (478,889) - - (478,889)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (104,444) $ (38,487) $ (1,229,555) $ (1,372,486)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the changes in net fair value of financial
assets/(liabilities) classified as Level 3 in the FV hierarchy for the year
ended March 31:
March 31, 2012 March 31, 2011
Opening balance, April 1, $ (743,488) $ (1,229,555)
Total gain/(losses) - Profit for the
period (376,121) 6,891
Purchases (201,235) (256,294)
Sales 41,547 3,795
Settlements 459,943 731,675
Transfer out of Level 3 - -
----------------------------------------------------------------------------
Closing balance $ (819,354) $ (743,488)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 March 31, 2012 Carrying amount Fair value
Cash and cash equivalents $ 53,220 $ 53,220
Restricted cash 12,199 12,199
Current trade and other
receivables 299,945 299,945
Unbilled revenues 130,796 130,796
Non-current receivables 6,475 6,475
Other financial assets 28,114 28,114
Bank indebtedness, trade and
other payables 288,205 288,205
Long-term debt 776,683 826,991
Other financial liabilities 945,661 945,661
As at March 2011 and April 1, 2010, the carrying amounts of the above
financial assets and liabilities was equal to their fair value, except for
long-term debt which had a fair value of $663,407 as at March 31, 2011 and
$302,689 as at April 1, 2010.
For the years ended March 31
2012 2011
Interest expense on financial
liabilities not held-for-
trading $ 60,935 $ 59,883
The carrying value of cash and cash equivalents, restricted cash, 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
$90m, $330m and $100m 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 March 31, 2012, 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 year would have been
$10,700 higher/lower and other comprehensive loss would have been $6,400
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 year ended March 31, 2012, of
approximately $1,112, 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.
Just Energy mitigates the exposure for variances in customer requirements that
are driven by changes in expected weather conditions, through active management
of the underlying portfolio, which involves, but is not limited to, the purchase
of options including weather derivatives. Just Energy's ability to mitigate
weather effects is limited by the severity of weather from normal.
Commodity price sensitivity - all derivative financial instruments
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 year ended March 31, 2012, would have increased (decreased)
by $149,312 ($148,598) 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
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 year ended March 31, 2012, would have increased (decreased)
by $137,213 ($136,512) 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:
March 31, 2012 March 31, 2011 April 1, 2010
Current $ 69,738 $ 61,695 $ 44,531
1 - 30 days 15,530 15,088 13,873
31 - 60 days 5,681 5,533 4,598
61 - 90 days 2,905 5,652 1,768
Over 91 days 19,947 10,322 3,973
--------------- --------------- ---------------
$ 113,801 $ 98,290 $ 68,743
--------------- --------------- ---------------
--------------- --------------- ---------------
Changes in the allowance for doubtful accounts were as follows:
March 31, 2012 March 31, 2011
Balance, beginning of year $ 25,115 $ 17,519
Allowance on acquired receivables 6,940 5,591
Provision for doubtful accounts 28,514 27,627
Bad debts written off (29,215) (23,801)
Other 3,572 (1,821)
------------------ ------------------
Balance, end of year $ 34,926 $ 25,115
------------------ ------------------
------------------ ------------------
For the remaining markets, the LDCs for a fee, provide collection services and
assume the risk of any bad debts owing from Just Energy's customers. 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 March 31, 2012, the maximum counterparty credit risk exposure amounted to
$141,915, 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 March 31, 2012:
Carrying Contractual Less than
amount cash flows 1 year
Trade and other payables $ 287,145 $ 287,145 $ 287,145
Bank indebtedness 1,060 1,060 1,060
Long-term debt(i) 776,683 833,962 97,611
Derivative instruments 945,661 2,596,314 1,363,421
----------------------------------------------------------------------------
$ 2,010,549 $ 3,718,481 $ 1,749,237
----------------------------------------------------------------------------
----------------------------------------------------------------------------
More than 5
1 to 3 years 4 to 5 years years
Trade and other payables $ - $ - $ -
Bank indebtedness - - -
Long-term debt(i) 252,570 26,433 457,348
Derivative instruments 1,057,222 175,049 622
----------------------------------------------------------------------------
$ 1,309,792 $ 201,482 $ 457,970
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 March 31, 2012, net interest payments
over the life of the long-term debt and bank credit facility are as follows:
Less than 1 More than 5
year 1 to 3 years 4 to 5 years years
Interest payments 47,800 84,304 67,215 61,750
(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 $1,756 to
accommodate for its counterparties' risk of default.
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
For the year ended March 31, 2012
Foreign
currency
translation Cash flow
adjustments hedges Total
Balance, beginning of year $ 29,033 $ 94,886 $ 123,919
Unrealized foreign currency
translation adjustment 2,386 - 2,386
Amortization of deferred
unrealized gain on
discontinued hedges net of
income taxes of $13,150 - (56,012) (56,012)
------------- -------------- --------------
Balance, end of year $ 31,419 $ 38,874 $ 70,293
------------- -------------- --------------
For the year ended March 31, 2011
Foreign
currency
translation Cash flow
adjustments hedges Total
Balance, beginning of year $ 28,584 $ 193,385 $ 221,969
Unrealized foreign currency
translation adjustment 449 - 449
Amortization of deferred
unrealized gain on
discontinued hedges net of
income taxes of $21,384 - (98,499) (98,499)
------------- -------------- --------------
Balance, end of year $ 29,033 $ 94,886 $ 123,919
------------- -------------- --------------
13. SHAREHOLDERS' CAPITAL
Subsequent to the Conversion
On January 1, 2011, Just Energy issued common shares in exchange for the
outstanding trust units of the Fund. The exchange of the trust units of the Fund
was accounted for as an exchange of equity instruments at carrying value. The
exchange of Exchangeable Shares for common shares was accounted for as an
extinguishment of the liability associated with Exchangeable Shares at the
redemption value measured on the date of the exchange.
Details of issued shareholders' capital are as follows for the year ended March
31, 2012, with comparatives for the year ended March 31, 2011:
Issued and outstanding Year ended March 31, 2012 Year ended March 31, 2011
-------------------------- -------------------------
Shares Amount Shares Amount
Balance, beginning of
year 136,963,726 $ 963,982 - $ -
Shares issued pursuant
to the Conversion
Trust units - - 126,583,148 808,848
Class A preference
shares (Note 29) - - 5,263,728 78,798
Exchangeable shares
(Note 29) - - 3,794,154 56,799
Shares issued to
minority shareholder
in exchange for
interest in TGF(i) - - 689,940 10,328
Share-based awards
exercised 91,684 1,385 86,374 1,097
Dividend reinvestment
plan(ii) 2,377,616 28,413 546,382 8,112
Repurchase and
cancellation of
shares(iii) (84,100) (599) - -
-----------------------------------------------------
Balance, end of year 139,348,926 $ 993,181 136,963,726 $ 963,982
-----------------------------------------------------
(i) Shares issued
During the year ended March 31, 2011, Just Energy issued 689,940 shares to
acquire the interest held by the minority shareholder of TGF pursuant to the
exercise of the minority holders put right. The shares were valued at $10,328
and the difference between $18,285 and $10,328 represents the value of the
minority interest of TGF at the time of issuance. The value of the shares has
been recorded as an increase to contributed surplus.
(ii) Dividend reinvestment plan
Under Just Energy's dividend reinvestment plan ("DRIP"), Canadian resident
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, provided that the common shares are issued
from treasury and not purchased on the open market. Effective February 1, 2012,
the Company has suspended the DRIP.
(iii) Repurchase and cancellation of shares
During the year, 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 year, Just Energy purchased and cancelled 84,100 common shares for a
cash consideration of $955. The average book value of $599 was recorded as a
reduction to share capital and the remaining loss of $356 was allocated to
accumulated deficit.
Prior to the Conversion
Just Energy has authorized to issue an unlimited number of common shares and
50,000 preferences shares both with no par value.
Effective January 1, 2011, Just Energy completed the Conversion from an income
trust to a corporation. As a result of the Conversion, Just Energy's trust
units, along with the issued exchangeable and Class A preference shares, were
exchanged on a one for one basis into shares of JEGI.
Prior to the Conversion, the trust units were redeemable at the option of the
Fund's unitholders. The redemption price was calculated as the lower of the
closing price on the day the units were tendered for redemption and 90% of the
market price of the units for the ten days after redemption. The Fund had no
redemptions for the period for which the trust units were outstanding.
IFRS requires financial instruments which include a redemption feature, making
the instruments puttable, to be presented as a financial liability rather than
equity. However, an exception to that requirement is available if the financial
instrument meets certain criteria. Just Energy determined that the Fund's units
met the requirements for this exception and accordingly, the trust units are
presented as equity for the periods prior to the Conversion.
Details of issued unitholders' capital are as follows for the year ended
March 31, 2011:
Issued and outstanding Units Amount
Balance, beginning of year 124,325,307 $ 777,856
Unit-based awards exercised 38,989 462
Distribution reinvestment plan 1,324,834 17,935
Exchanged from Exchangeable Shares 894,018 12,595
Units exchanged pursuant to the Conversion (126,583,148) (808,848)
-------------- ---------------
Balance, end of year - $ -
-------------- ---------------
14. SHARE-BASED COMPENSATION PLANS
(a) Stock option plan
Just Energy grants awards under its 2010 share option plan (formerly the 2001
Unit Option Plan) to directors, officers, full-time employees and service
providers (non-employees) of Just Energy and its subsidiaries and affiliates
although no share options have been granted since 2008. In accordance with the
share option plan, Just Energy may grant options to a maximum of 11,300,000
shares. As at March 31, 2012, there were 1,264,166 options still available for
grant under the plan. Of the options issued, 50,000 options remain outstanding
at year-end. The exercise price of the share options equals the closing market
price of the Company's shares on the last business day preceding the grant date.
The share options vest over periods ranging from three to five years from the
grant date and expire after five or ten years from the grant date.
A summary of the changes in Just Energy's option plan during the year and
status as at March 31, 2012, is outlined below.
Weighted
Range of average
Outstanding exercise exercise
options prices price(1)
Balance, beginning of year 135,000 $15.09-$17.47 $ 16.38
Forfeited/cancelled 85,000 $16.65-$17.47 $ 17.13
-------------------------------------------
Balance, end of year 50,000 $15.09 $ 15.09
-------------------------------------------
(1) The weighted average exercise price is calculated by dividing the
exercise price of options granted by the number of options granted.
2012
Options outstanding Options exercisable
------------------------ ------------------------
Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
outstanding life price exercisable price
Range of exercise
prices
$15.09 50,000 0.25 $ 15.09 50,000 $ 15.09
-----------------------------------------------------------
2011
Options outstanding Options exercisable
------------------------ ------------------------
Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
outstanding life price exercisable price
Range of exercise
prices
$15.09-$17.47 135,000 0.59 $ 16.38 98,000 $ 16.51
-----------------------------------------------------------
Year ended Year ended
Options available for grant March 31, 2012 March 31, 2011
Balance, beginning of year 1,179,166 961,666
Add: Cancelled/forfeited during the year 85,000 217,500
----------------------------------
Balance, end of year 1,264,166 1,179,166
----------------------------------
(b) Restricted share grants
Just Energy grants awards under the 2010 Restricted Share Grants Plan (formerly
the 2004 unit appreciation rights, "UARs") in the form of fully paid restricted
share grants ("RSGs") to senior officers, employees and service providers of its
subsidiaries and affiliates. On June 29, 2010, the unitholders of Just Energy
approved a 2,000,000 increase in the number of RSGs available for grant. As at
March 31, 2012, there were 1,657,354 RSGs (2011-1,969,883) still available for
grant under the plan. Of the RSGs issued, 3,024,023 remain outstanding at March
31, 2012 (2011-2,711,494). Except as otherwise provided, (i) the RSGs vest from
one to five years from the grant date providing, in most cases, on the
applicable vesting date the RSG grantee continues as a senior officer, employee
or service provider of Just Energy or any affiliate thereof; (ii) the RSGs
expire no later than ten years from the grant date; (iii) a holder of RSGs is
entitled to payments at the same rate as dividends paid to JEGI shareholders;
and (iv) when vested, the holder of an RSG may exchange one RSG for one common
share. On January 1, 2011, as part of the Conversion, all unit appreciation
rights outstanding on that date were replaced by RSGs.
RSGs available for grant March 31, 2012 March 31, 2011
Balance, beginning of year 1,969,883 74,472
Less: Granted during the year (823,536) (234,620)
Add: Increase in RSGs available for grant - 2,000,000
Add: Cancelled/forfeited during the year 419,323 4,668
Add: Exercised during the year 91,684 125,363
--------------------------------
Balance, end of year 1,657,354 1,969,883
--------------------------------
(c) Deferred share grants
Just Energy grants awards under its 2010 Directors' Compensation Plan (formerly
the 2004 Directors' deferred compensation plan, "UARs") to all independent
directors on the basis that each director is required to annually receive $15 of
their compensation entitlement in deferred share grants ("DSGs") and may elect
to receive all or any portion of the balance of their annual compensation in
DSGs and/or common shares. The holders of DSGs and/or common shares are also
granted additional DSGs/common shares on a monthly basis equal to the monthly
dividends paid to the shareholders of Just Energy. The DSGs vest on the earlier
of the date of the director's resignation or three years following the date of
grant and expire ten years following the date of grant. As at March 31, 2012,
there were 54,638 DSGs (201l-84,118) available for grant under the plan. Of the
DSGs issued, 146,855 DSGs remain outstanding at March 31, 2012. In accordance
with the Conversion, all outstanding directors' deferred unit grants were
replaced with DSGs.
DSGs available for grant March 31, 2012 March 31, 2011
Balance, beginning of year 84,118 108,248
Less: Granted during the year (29,480) (24,130)
--------------------------------
Balance, end of year 54,638 84,118
--------------------------------
15. LONG-TERM DEBT AND FINANCING
March 31, March 31, April 1,
2012 2011 2010
Credit facility (a) $ 98,455 $ 53,000 $ 57,500
Less: Debt issue costs (a) (1,196) (1,965) (1,381)
TGF credit facility (b)(i) 32,046 36,680 41,313
TGF debentures (b)(ii) 35,818 37,001 37,001
TGF term/operating facilities
(b)(iii) - - 10,000
NHS financing (c) 147,220 105,716 65,435
$90 million convertible
debentures (d) 86,101 84,706 83,417
$330 million convertible
debentures (e) 291,937 286,439 -
$100 million convertible
debentures (f) 85,879 - -
Capital leases (g) 423 - -
-------------------------------------------
776,683 601,577 293,285
Less: current portion (97,611) (94,117) (61,448)
-------------------------------------------
$ 679,072 $ 507,460 $ 231,837
-------------------------------------------
Future annual minimum repayments are as follows:
Less than 1 1 to 3 4 to 5 More than 5
year years yearsyears Total
Credit facility (a) $ - $ 98,455 $ - $ - $ 98,455
TGF credit facility
(b)(i) 32,046 - - - 32,046
TGF debentures
(b)(ii) 35,818 - - - 35,818
NHS financing (c) 29,472 63,967 26,433 27,348 147,220
$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) 275 148 - - 423
-------------------------------------------------------
$ 97,611 $ 252,570 $ 26,433 $ 457,348 $ 833,962
-------------------------------------------------------
-------------------------------------------------------
The following table details the finance costs for the year ended March 31.
Interest is expensed at the effective interest rate.
March 31, 2012 March 31, 2011
Credit facility (a) $ 8,818 $ 9,229
TGF credit facility (b)(i) 2,056 2,013
TGF debentures (b)(ii) 4,360 4,269
TGF term/operating facilities (b)(iii) - 515
NHS financing (c) 10,011 6,464
$90 million convertible debentures (d) 6,795 6,690
$330 million convertible debentures (e) 25,298 22,638
$100 million convertible debentures (f) 3,832 -
Capital lease interest (g) 32 -
Unwinding of discount on provisions (Note 17) (267) 267
Dividend classified as interest (Note 31) - 7,798
-------------------------------
$ 60,935 $ 59,883
-------------------------------
(a) As at March 31, 2012, 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,
SocieteGenerale, 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 March 31, 2012, the Canadian prime rate was 3.0% and the U.S. prime rate
was 3.25%. As at March 31, 2012, Just Energy had drawn $98,455 (March 31, 2011 -
$53,000) against the facility and total letters of credit outstanding amounted
to $121,054 (March 31, 2011 - $78,209). As at March 31, 2012, unamortized debt
issue costs relating to the facility are $1,196 (March 31, 2011 - $1,965). As at
March 31, 2012, Just Energy has $130,491 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 March 31, 2012, 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, a mortgage on title to the land owned by TGF
and a general security interest on all other current and acquired assets of TGF.
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 covenants were measured as at March 31,
2012 and TGF failed to meet all required covenants. The non-compliance was
waived by the lenders but did result in a non-compliance fee of $90,
representing 0.25% of the loan balance as at March 31, 2012. The non-compliance
fee was accrued as at March 31, 2012. As at March 31, 2012, the amount owing
under this facility amounted to $32,046. 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. On April 1, 2011, the interest rate was increased to 12%.
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 has been extended to May 15, 2014, with a call right any time
after April 1, 2013. On March 31, 2012, TGF agreed with the debenture holders to
increase the quarterly blended principal and interest payments to $1,186 and to
fine tune the financial covenants for fiscal 2013 to be more in line with the
expected financial results of TGF for the year. TGF also agreed to make an
additional debt repayment after March 31, 2013 if the cash-flow from operations
exceeds $500 for the year 2013, provided that this type of payment will not
create a non-compliance issue for the Company under the TGF credit facility. The
debenture holders have no recourse to the Company or any other Just Energy
entity. As at March 31, 2012, the amount owing under this debenture agreement
amounted to $35,818.
(iii) TGF term/operating facilities
TGF's term loan for $10,000 was secured by liquid investments on deposit with
the lender. The amount owing under this facility was bearing interest at prime
plus 1% and was repaid in full in the prior year.
(iv) 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
statements of financial position 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
provided security over 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 $147,220 owing under this agreement, including $6,412 relating to the
holdback provision, recorded in non-current receivables, as at March 31, 2012.
NHS is required to meet a number of non-financial covenants under the agreement.
As at March 31, 2012, 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 34.09
shares, representing a conversion price of $29.33 per common share as at March
31, 2012. 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 year ended March 31, 2012, interest
expense amounted to $6,795, 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 year ended March
31, 2012, interest expense amounted to $25,298. 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")
which was used to purchase Fulcrum. 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 year ended March 31, 2012, interest
expense amounted to $3,832.
(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.
16. INCOME TAXES
Prior to January 1, 2011, Just Energy was a specified investment flow through
trust ("SIFT") for income tax purposes. As a result, Just Energy was subject to
current taxes at the top marginal rate applicable to individuals of
approximately 46.4% on all taxable income not distributed to unitholders.
Subsequent to January 1, 2011, Just Energy completed the conversion from a SIFT
to a corporation.
(a) Tax expense
2012 2011
Tax recognized in profit and loss $ 662 $ 8,182
-------------- -------------
Current tax expense 662 8,182
-------------- -------------
Deferred tax expense
Origination and reversal of temporary
differences $ (48,861) 25,891
Benefit (expense) arising from a
previously unrecognized tax loss or
temporary difference 85,726 80,693
Reduction in tax rate resulting from
reorganization - 58,673
-------------- -------------
Deferred tax recovery 36,865 165,257
-------------- -------------
Total tax expense $ 37,527 $ 173,439
-------------- -------------
-------------- -------------
(b) Reconciliation of the effective tax rate
The provision for income taxes represents an effective rate different than
the Canadian corporate statutory rate of 27.75% (2011 - 30%). The
differences are as follows:
2012 2011
Income (loss) before income taxes $ (89,116) $ 526,379
Combined statutory Canadian federal and
provincial income tax rate 27.75% 30.00%
--------------------------------
Income tax expense (recovery) based on
statutory rate (24,730) 157,914
Increase(decrease) in income taxes resulting
from
Taxes on income attributable to
shareholders - (15,456)
Benefit (cost) of mark to market loss and
other temporary differences not
recognized 85,726 (119,200)
Variance between combined Canadian tax
rate and the tax rate applicable to U.S.
earnings (23,343) 1,910
Fair value adjustment and interest expense
on preferred shares - 86,847
Reduction in tax rate resulting from
reorganization - 58,673
Other permanent items (126) 2,751
--------------------------------
Total income tax expense $ 37,527 $ 173,439
--------------------------------
--------------------------------
(c) Recognized deferral tax assets and liabilities
Recognized deferred tax assets and liabilities are attributed to the
following:
March 31, 2012 March 31, 2011
Mark to market losses on derivative
instruments $ 113,907 $ 132,486
Tax losses and excess of tax basis
over book basis 17,697 32,012
------------------------------------
Total deferred tax asset 131,604 164,498
Offset of deferred taxes (57,754) (54,154)
------------------------------------
Net deferred tax asset 73,850 110,344
------------------------------------
------------------------------------
Partnership income deferred for tax
purposes (35,459) (14,046)
Excess of book basis over tax basis on
customer contracts (12,604) (49,141)
Mark to market gains on derivative
instruments (85) (102)
Excess of book basis over tax basis on
other assets (2,075) (2,343)
Convertible debentures (9,056) -
------------------------------------
Total deferred tax liability (59,279) (65,632)
Offset of deferred taxes 57,754 54,154
------------------------------------
Net deferred tax liability $ (1,525) $ (11,478)
------------------------------------
------------------------------------
(d) Movement in deferred tax balances
Recognized in
Balance April profit and Recognized in
1, 2011 loss equity
Partnership income
deferred for tax $ (14,046) $ (21,413) $ -
Excess of book over tax -
customer contracts (49,141) 31,378 -
Excess of book over tax
on other assets 36,875 (16,486) -
Mark to market gains
(losses) on derivative
instruments 132,888 (31,577) -
Convertible debentures (7,710) 1,233 (2,579)
---------------------------------------------------
$ 98,866 $ (36,865) $ (2,579)
---------------------------------------------------
---------------------------------------------------
Foreign
Recognized in exchange Balance March
OCI impact 31, 2012
Partnership income
deferred for tax $ - $ - $ (35,459)
Excess of book over tax -
customer contracts - - (17,763)
Excess of book over tax
on other assets 387 - 20,776
Mark to market gains
(losses) on derivative
instruments 12,961 (445) 113,827
Convertible debentures - - (9,056)
---------------------------------------------------
$ 13,348 $ (445) $ 72,325
---------------------------------------------------
---------------------------------------------------
Recognized in
Balance April profit and Recognized in
1, 2010 loss equity
Partnership income
deferred for tax $ (483) $ (13,563) $ -
Excess of book over tax -
customer contracts (73,058) 23,917 -
Excess of book over tax
on other assets 19,662 25,094 (15,728)
Mark to market (losses)
gains on derivative
instruments 228,148 (116,644) -
Convertible debentures 84,062 (84,062) -
---------------------------------------------------
$ 258,331 $ (165,258) $ (15,728)
---------------------------------------------------
---------------------------------------------------
Recognized in Foreign Balance March
OCI exchange impact 31, 2011
Partnership income
deferred for tax $ - $ - $ (14,046)
Excess of book over tax -
customer contracts - - (49,141)
Excess of book over tax
on other assets - 137 29,165
Mark to market (losses)
gains on derivative
instruments 21,384 - 132,888
Convertible debentures - - -
---------------------------------------------------
$ 21,384 $ 137 $ 98,866
---------------------------------------------------
---------------------------------------------------
(e) Unrecognized deferred tax assets
Deferred tax assets not reflected in the current period, are as follows:
2012 2011
--------------------------
Losses available for carryforward 18,669 18,406
Mark to market on losses on derivative instruments 124,531 -
Excess of book over tax basis 7,889 -
Excess of book over tax - customer contracts 3,210 -
Losses available for carryforward (recognized and unrecognized) are set to
expire as follows:
2012
--------------------
2026 11
2027 2,366
2028 34,328
2029 18,345
After 2030 175,518
--------------------
Total 230,568
--------------------
Investment Tax Credit (unrecognized) are set to expire as follows:
2012
--------------------
2030 622
In addition, there are un-deducted and unrecognized Scientific Research and
Experimental Development expenses of $14,356.
17. PROVISIONS
March 31, 2012 March 31, 2011
Cost
Balance, beginning of year $ 7,250 $ 7,008
Provisions made during the year 663 2,853
Provisions reversed and used during the year (1,506) (2,808)
Unwinding of discount (269) 462
Foreign exchange 156 (265)
--------------------------------
Balance, end of year $ 6,294 $ 7,250
--------------------------------
Current 3,226 4,006
Non-current 3,068 3,244
--------------------------------
$ 6,294 $ 7,250
--------------------------------
Legal issues
The provision for legal issues shown above includes the expected cash outflows
from major claims and for several smaller litigation matters. 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 FERC against any 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 the FERC's enforcement of its
market-based rate system. Although Commerce did not own generation, the State of
California is claiming that Commerce was unjustly enriched by the run-up caused
by the alleged market manipulation by other market participants. The proceedings
are currently ongoing. On March 18, 2010, the Administrative Law Judge granted
the motion to strike 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.
18. OTHER INCOME, EXPENSES AND ADJUSTMENTS
(a) Other operating expenses
2012 2011
Amortization of gas contracts $ 23,902 $ 31,841
Amortization of electricity contracts 54,468 63,642
Amortization of water heaters and HVAC
products 1,631 1,595
Amortization of other intangible assets 28,232 23,763
Amortization of property, plant and equipment 5,847 5,698
Bad debt expense 28,514 27,650
Transaction costs 1,101 1,284
Capital tax - 188
Share-based compensation 10,662 9,914
------------------------------
$ 154,357 $ 165,575
------------------------------
(b) Amortization and cost of inventories included in the consolidated income
statement
Included in cost of sales
2012 2011
Amortization $ 12,640 $ 9,837
Costs recognized as an expense 2,255,140 2,461,793
------------------------------
$ 2,267,780 $ 2,471,630
------------------------------
(c) Included in change in fair value of derivative instruments
2012 2011
Amortization of gas contracts $ 38,663 $ 53,757
Amortization of electricity contracts 74,330 96,064
(d) Employee benefit expense
2012 2011
Wages, salaries and commissions $ 186,122 $ 153,463
Benefits 20,631 19,398
----------------------------
$ 206,753 $ 172,861
----------------------------
19. 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.
2012
Gas Electricity
marketing marketing Ethanol
Sales $ 883,057 $ 1,719,853 $ 130,491
Gross margin 140,140 316,232 17,832
Amortization of property,
plant and equipment 1,119 3,242 1,294
Amortization of intangible
assets 31,230 75,323 43
Administrative expenses 30,822 66,263 8,229
Selling and marketing
expenses 34,546 101,236 -
Other operating expenses 7,551 31,078 -
------------------------------------------------
Operating profit (loss) for
the year $ 34,872 $ 39,090 $ 8,266
Finance costs (12,657) (31,769) (6,485)
Change in fair value of
derivative instruments 31,132 (125,966) (135)
Proportionate share of loss
from joint venture (565) (1,406) -
Other income (loss) (7,038) 12,722 166
Provision for (recovery of)
income tax 10,236 27,292 -
------------------------------------------------
Profit (loss) for the year $ 35,508 $ (134,621) $ 1,812
------------------------------------------------
Capital expenditures $ 966 $ 1,874 $ 250
------------------------------------------------
Total goodwill $ 127,055 $ 121,827 $ -
------------------------------------------------
Total assets $ 350,915 $ 904,504 $ 123,604
------------------------------------------------
Total liabilities $ 543,062 $ 1,250,564 $ 76,995
------------------------------------------------
Home services Other Consolidated
Sales $ 35,642 $ 16,226 $ 2,785,269
Gross margin 27,979 15,306 517,489
Amortization of property,
plant and equipment 168 24 5,847
Amortization of intangible
assets 1,631 6 108,233
Administrative expenses 12,901 4,182 122,397
Selling and marketing
expenses 4,188 37,332 177,302
Other operating expenses 1,432 216 40,277
------------------------------------------------
Operating profit (loss) for
the year $ 7,659 $ (26,454) $ 63,433
Finance costs (10,018) (6) (60,935)
Change in fair value of
derivative instruments (1,376) - (96,345)
Proportionate share of loss
from joint venture - - (1,971)
Other income (loss) - 852 6,702
Provision for (recovery of)
income tax - (1) 37,527
------------------------------------------------
Profit (loss) for the year $ (3,735) $ (25,607) $ (126,643)
------------------------------------------------
Capital expenditures $ 35,685 $ 36,054 $ 74,829
------------------------------------------------
Total goodwill $ 283 $ - $ 249,165
------------------------------------------------
Total assets $ 159,696 $ 4,325 $ 1,543,044
------------------------------------------------
Total liabilities $ 168,715 $ 5,117 $ 2,044,453
------------------------------------------------
2011
Gas Electricity
marketing marketing Ethanol
Sales $ 1,185,750 $ 1,635,332 $ 108,526
Gross margin 172,763 278,671 13,625
Amortization of property,
plant and equipment 1,450 2,741 1,193
Amortization of intangible
assets 46,092 73,154 -
Administrative expenses 26,736 56,822 11,231
Selling and marketing
expenses 40,930 87,360 -
Other operating expenses 7,465 29,935 -
------------------------------------------------
Operating profit (loss) for
the year $ 50,090 $ 28,659 $ 1,201
Finance costs (17,160) (29,393) (6,862)
Change in fair value of
derivative instruments 313,265 192,647 135
Other income (loss) (17,338) 25,989 (875)
Provision for (recovery of)
income tax 65,603 110,337 -
----------------------------------------------------------------------------
Profit (loss) for the year $ 263,254 $ 107,565 $ (6,401)
----------------------------------------------------------------------------
Capital expenditures $ 661 $ 1,562 $ 267
----------------------------------------------------------------------------
Total goodwill $ 126,668 $ 100,516 $ -
----------------------------------------------------------------------------
Total assets $ 609,656 $ 688,554 $ 162,252
----------------------------------------------------------------------------
Total liabilities $ 644,692 $ 929,511 $ 95,642
----------------------------------------------------------------------------
Home services Other Consolidated
Sales $ 22,566 $ 1,018 $ 2,953,192
Gross margin 15,697 806 481,562
Amortization of property,
plant and equipment 307 7 5,698
Amortization of intangible
assets 1,595 - 120,841
Administrative expenses 12,083 2,528 109,400
Selling and marketing
expenses 3,302 2,015 133,607
Other operating expenses 1,636 - 39,036
------------------------------------------------
Operating profit (loss) for
the year $ (3,226) $ (3,744) $ 72,980
Finance costs (6,468) - (59,883)
Change in fair value of
derivative instruments - - 506,047
Other income (loss) (575) 34 7,235
Provision for (recovery of)
income tax (2,501) - 173,439
----------------------------------------------------------------------------
Profit (loss) for the year $ (7,768) $ (3,710) $ 352,940
----------------------------------------------------------------------------
Capital expenditures $ 30,625 $ 297 $ 33,412
----------------------------------------------------------------------------
Total goodwill $ 283 $ - $ 227,467
----------------------------------------------------------------------------
Total assets $ 128,152 $ 1,412 $ 1,590,026
----------------------------------------------------------------------------
Total liabilities $ 111,189 $ 110 $ 1,781,144
----------------------------------------------------------------------------
Geographic information
Revenues from external customers
For the year ended For the year ended
March 31, 2012 March 31, 2011
Canada $ 1,133,244 $ 1,411,534
United States 1,652,025 1,541,658
----------------------------------------------
Total revenue per consolidated
income statement $ 2,785,269 $ 2,953,192
----------------------------------------------
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 March 31, 2012 As at March 31, 2011
Canada $ 480,452 $ 542,489
United States 354,384 331,732
------------------------------------------
Total $ 834,836 $ 874,221
------------------------------------------
20. IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLES WITH INDEFINITE LIVES
Goodwill acquired through business combinations and intangibles with indefinite
lives have been allocated to one of five cash generating units, which are also
operating and reportable segments, for impairment testing. These units are gas
marketing, electricity marketing, ethanol, home services and other.
For impairment testing, goodwill and brand have been allocated as follows:
Gas marketing Electricity marketing
2012 2011 2010 2012 2011 2010
Goodwill $ 127,055 $ 126,668 $ 126,238 $ 121,827 $ 100,516 $ 60,311
Brand 1,338 1,301 - 22,031 9,391 -
------------------------------------------------------------
$ 128,393 $ 127,969 $ 126,238 $ 143,858 $ 109,907 $ 60,311
------------------------------------------------------------
Home services Total
2012 2011 2010 2012 2011 2010
Goodwill $ 283 $ 283 $ 283 $ 249,165 $ 227,467 $ 186,832
Brand - - - 23,369 10,692 -
------------------------------------------------------------
$ 283 $ 283 $ 283 $ 272,534 $ 238,159 $ 186,832
------------------------------------------------------------
Just Energy performed its annual impairment test as at March 31, 2012. Just
Energy considers the relationship between its market capitalization and its book
value, among other factors, when reviewing for indicators of impairment. As at
March 31, 2012, the market capitalization of Just Energy was above the book
value of its equity, indicating that a potential impairment of goodwill and
intangibles with indefinite lives does not exist.
The recoverable amount of each of the units has been determined based on a value
in use calculation using cash flow projections from financial budgets covering a
five year period. The projections for the first three years have been approved
by executive committee; the assumptions used in the following two years have
been approved by executive committee. The calculation of the value in use for
each unit is most sensitive to the following assumptions:
-- Customer consumption assumptions used in determining gross margin
-- New customer additions and attrition and renewals
-- Selling costs
-- Discount rates
-- Growth rates used to extrapolate cash flows beyond the budget period
Customer consumption is forecasted using normalized historical correlation
between weather and customer consumption and weather projections. Just Energy
uses weather derivatives to mitigate the risk that weather will deviate from
expectations. An average customer consumption growth rate of 9% was used in the
projections. An isolated 5% decrease in the consumption assumptions would not
have an impact on the results of the impairment test.
New customer additions and attrition and renewal rate estimates are based on
historical results and are adjusted for new marketing initiatives that are
included in the budget. A 9% average increase in the overall customer base of
was used in the projections. An isolated 5% decrease annually in the overall
customer base would not have an impact on the results of the impairment test.
Selling costs fluctuate with customer additions, renewals and attrition. Selling
costs used in the financial forecast are based on assumptions consistent with
the above new customer additions, renewals and attritions. Rates used are based
on historical information and are adjusted for new marketing initiatives
included in the budget. An average increase of 9% was applied to selling costs
in the projections. An isolated 5% increase annually in selling costs would not
have an impact on the results of the impairment test.
Discount rates - represent the current market assessment of the risks specific
to the Company, regarding the time value of money and individual risks of the
underlying assets. The discount rate calculation is based on the specific
circumstances of Just Energy and its operating segments and is derived from its
weighted average cost of capital (WACC). The WACC takes into account both debt
and equity. The cost of equity is derived from the expected return on investment
by Just Energy's investors and the cost of debt is based on the interest bearing
borrowings the Company is obliged to service. Just Energy used a discount rate
of 9%. An isolated 5% increase in the WACC would not have an impact on the
results of the impairment test.
Financial projections used in the budget period which covers years 1, 2 and 3
have been approved by the Executive Committee. The results in years 4 and 5 are
based on year 3 results adjusted for inflation. An isolated 5% decrease in the
growth rates used to extrapolate cash flows beyond the budget period would not
have an impact on the results of the impairment test.
21. INCOME (LOSS) PER SHARE/UNIT
2012 2011
Basic income (loss) per share/unit
Net income (loss) available to shareholders $ (126,522) $ 355,076
-------------------------------
Basic shares and units outstanding 138,227,174 128,171,630
-------------------------------
Basic income (loss) per share/unit $ (0.92) $ 2.77
--------------- --------------
--------------- --------------
Diluted income (loss) per share/unit(1)
Net income (loss) available to shareholders $ (126,522) $ 355,076
Adjusted net income for dilutive impact of
convertible debentures - 14,000
Adjusted net income for financial liabilities - 9,609
-------------------------------
Adjusted net income (loss) (126,522) 378,685
-------------------------------
Basic shares and units outstanding 138,227,174 128,171,630
-------------------------------
Dilutive effect of:
Weighted average number of Class A preference
shares - 4,009,086
Weighted average number of Exchangeable
Shares - 3,098,124
Restricted share grants - 2,737,214
Deferred share grants - 93,231
Convertible debentures - 19,541,261
-------------------------------
Shares/units outstanding on a diluted basis 138,227,174 157,650,546
-------------------------------
Diluted income (loss) per share/unit $ (0.92) $ 2.40
--------------- ------------
--------------- ------------
(1) The $90 million, $330 million, $100 million convertible debentures,
restricted and deferred share grants are anti-dilutive for fiscal 2012 and
the stock option rights are anti-dilutive for fiscal 2012 and fiscal 2011.
22. CAPITAL DISCLOSURE
Just Energy defines capital as shareholders' equity (excluding accumulated other
comprehensive income) and long-term debt. Just Energy's objectives when managing
capital are to maintain flexibility by:
i) enabling it to operate efficiently;
ii) providing liquidity and access to capital for growth opportunities; and
iii) providing returns and generating predictable cash flow for dividend
payments to shareholders.
Just Energy manages the capital structure and makes adjustments to it in light
of changes in economic conditions and the risk characteristics of the underlying
assets. The Board of Directors does not establish quantitative return on capital
criteria for management, but rather promotes year over year sustainable and
profitable growth. Just Energy's capital management objectives have remained
unchanged from the prior year. Just Energy is not subject to any externally
imposed capital requirements other than financial covenants in its credit
facilities, and as at March 31, 2012 and 2011, all of these covenants have been
met.
23. GUARANTEES
(a) Officers and directors
Corporate indemnities have been provided by Just Energy to all directors and
certain officers of its subsidiaries and affiliates for various items including,
but not limited to, all costs to settle suits or actions due to their
association with Just Energy and its subsidiaries and/or affiliates, subject to
certain restrictions. Just Energy has purchased directors' and officers'
liability insurance to mitigate the cost of any potential future suits or
actions. Each indemnity, subject to certain exceptions, applies for so long as
the indemnified person is a director or officer of one of Just Energy's
subsidiaries and/or affiliates. The maximum amount of any potential future
payment cannot be reasonably estimated.
(b) Operations
In the normal course of business, Just Energy and/or Just Energy's subsidiaries
and affiliates have entered into agreements that include guarantees in favour of
third parties, such as purchase and sale agreements, leasing agreements and
transportation agreements. These guarantees may require Just Energy and/or its
subsidiaries to compensate counterparties for losses incurred by the
counterparties as a result of breaches in representation and regulations or as a
result of litigation claims or statutory sanctions that may be suffered by the
counterparty as a consequence of the transaction. The maximum payable under
these guarantees is estimated to be $112,305.
24. RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL REMUNERATION
Parties are considered to be related if one party has the ability to control the
other party or exercise influence over the other party in making financial or
operation decisions. The definition includes subsidiaries, joint ventures and
other persons.
Subsidiaries and joint ventures
Transactions between Just Energy and its subsidiaries' meet the definition of
related party transactions. These transactions are eliminated on consolidation
and are not disclosed in these financial statements. Transactions with joint
ventures are disclosed in Note 10.
Key management personnel
Just Energy's key management personnel and persons connected with them, are also
considered to be related parties for disclosure purposes. Key management
personnel are defined as those individuals having authority and responsibility
for planning, directing and controlling the activities of Just Energy and
comprise of the Chair of the Board of Directors, the Chief Executive Officer and
the Chief Financial Officer.
During the year ended March 31, 2012, Just Energy recorded the following as an
expense related to these individuals:
March 31, 2012 March 31, 2011
Salaries and benefits $ 4,242 $ 2,605
Stock-based compensation 5,490 3,530
----------------------------------
$ 9,732 $ 6,135
----------------------------------
As at March 31, 2012, these individuals held approximately 1,631,500 RSGs
(2011 - 1,324,000).
25. DISTRIBUTIONS AND DIVIDENDS PAID AND PROPOSED
For the year ended March 31, 2012, dividends of $1.24 (2011 - $1.24) per
share/unit were declared and paid by Just Energy. This amounted to $175,382
(2011 - $148,335), which was approved throughout the year by the Board of
Directors and was paid out during the year.
Declared dividends subsequent to year-end
On April 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 was paid
on April 30, 2012, to shareholders of record at the close of business on April
16, 2012.
On May 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 May 31, 2012, to shareholders of record at the close of business on May 15,
2012.
26. COMMITMENTS
Commitments for each of the next five years and thereafter are as follows:
As at March 31, 2012
Less than 1 1 to 3 4 to 5 Exceeding 5
year years years years Total
Premises and
equipment
leasing 8,296 12,231 7,570 7,087 35,184
Grain production
contracts 7,876 360 - - 8,236
Long-term gas and
electricity
contracts 1,363,421 1,057,222 175,049 622 2,596,314
-----------------------------------------------------------
$ 1,379,593 $ 1,069,813 $ 182,619 $ 7,709 $ 2,639,734
-----------------------------------------------------------
-----------------------------------------------------------
As at March 31, 2011
Less than 1 1 to 3 4 to 5 Exceeding 5
year years years years Total
Premises and
equipment
leasing $ 8,333 $ 10,955 $ 6,533 $ 4,841 $ 30,662
Master Services
Agreement with
EPCOR 4,974 - - - 4,974
Grain production
contracts 7,082 2,099 - - 9,181
Long-term gas and
electricity
contracts 1,498,293 1,405,699 267,505 2,292 3,173,789
-----------------------------------------------------------
$ 1,518,682 $ 1,418,753 $ 274,038 $ 7,133 $ 3,218,606
-----------------------------------------------------------
-----------------------------------------------------------
As at April 1, 2010
Less than 1 1 to 3 4 to 5 Exceeding 5
year years years years Total
Premises and
equipment
leasing $ 8,084 $ 10,543 $ 5,330 $ 4,828 $ 28,785
Master Services
Agreement with
EPCOR 12,132 8,088 - - 20,220
Grain production
contracts 36,059 21,438 396 - 57,893
Long-term gas and
electricity
contracts 1,494,003 1,621,623 415,680 2,065 3,533,371
-----------------------------------------------------------
$ 1,550,278 $ 1,661,692 $ 421,406 $ 6,893 $ 3,640,269
-----------------------------------------------------------
-----------------------------------------------------------
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.
27. ADJUSTMENTS REQUIRED TO REFLECT NET CASH RECEIPTS FROM GAS SALES
2012 2011
Changes in:
Accrued gas receivables $ 22,033 $ (5,749)
Gas delivered in excess of consumption (10,300) 3,763
Accrued gas payable (15,267) 4,266
Deferred revenue 11,274 (4,005)
------------------------------
$ 7,740 $ (1,725)
------------------------------
------------------------------
28. CHANGES IN NON-CASH WORKING CAPITAL
2012 2011
Accounts receivable and unbilled revenues $ 14,048 $ 4,513
Gas in storage (3,520) (2,355)
Prepaid expenses and deposits 361 15,511
Inventory (3,082) (583)
Trade and other payables and provisions (34,839) (56,149)
------------------------------
$ (27,032) $ (39,063)
------------------------------
------------------------------
29. LIABILITY ASSOCIATED WITH EXCHANGEABLE SHARES AND EQUITY-BASED COMPENSATION
PLANS
Liability associated with Exchangeable Shares
Since 2001 and up to and including January 1, 2011, Just Energy had Exchangeable
Shares outstanding. These shares 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
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 dividends
attributable to exchangeable shareholders were recorded as interest expense in
the reporting period for which the dividends were declared.
As a result of the Conversion, the Exchangeable Shares were exchanged on a one
for one basis into common shares of JEGI. There were no Exchangeable Shares
outstanding following the Conversion.
Equity-based compensation plans
As the award holders were entitled to receive Fund units, which under IFRS were
considered puttable financial instruments, the awards were classified as
liability-based awards. The fair value of awards was estimated at each reporting
period using the fair market value of the Fund units at the reporting date. The
resulting measurements of the liability were recorded as change in fair value of
derivative financial instruments.
As a result of the Conversion, Just Energy's equity-based compensation plan
awards are now settled in non-redeemable common shares resulting in equity plan
accounting under IFRS. Accordingly, the fair value of the vested portion of
outstanding awards was reclassified from liability to contributed surplus on
January 1, 2011.
The following table summarizes the changes in the liability associated with the
Exchangeable Shares and the equity-based compensation:
Exchangeable Shares Class A preference
of JEEC shares of JEC
-------------------------------------------------------
Shares $-value Shares $-value Options
Opening balance April
1, 2010 4,688,172 $ 66,947 5,263,728 $ 75,166 352,500
Exchanged (894,018) (12,595) - - -
Issued/forfeited - - - - (217,500)
Non-cash deferred
unit grant - - - - -
Unit based
compensation - - - - -
Change in fair value - 2,447 - 3,632 -
Reclassified to share
capital on the
conversion to a
corporation (3,794,154) (56,799) (5,263,728) (78,798) -
Reclassified to
contributed surplus
on the conversion to
a corporation - - - - (135,000)
-------------------------------------------------------
- - - - -
-------------------------------------------------------
Unit based awards Total
-------------------------------------------------------
DDUGS UARs $-value $-value
Opening balance April
1, 2010 84,138 2,640,723 $ 39,015 $ 181,128
Exchanged - (38,989) (461) (13,056)
Issued/forfeited 18,362 175,251 - -
Non-cash deferred
unit grant - - 87 87
Unit based
compensation - - 7,231 7,231
Change in fair value - - (2,725) 3,354
Reclassified to share
capital on the
conversion to a
corporation - - - (135,597)
Reclassified to
contributed surplus
on the conversion to
a corporation (102,500) (2,776,985) (43,147) (43,147)
-------------------------------------------------------
- - - -
-------------------------------------------------------
30. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain figures from the comparative consolidated financial statements have been
reclassified from statements previously presented to conform to the presentation
of the current year's consolidated financial statements.
31. 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 consolidated 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 financial position and equity at April 1, 2010:
----------------------------------------------------------------------------
Canadian Canadian IFRS IFRS
GAAP accounts GAAP balances adjustments reclassifications
----------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment $ 217,223 $ (547) $ -
Intangible assets 342,022 - 186,832
Goodwill 190,862 (4,030) (186,832)
Other assets long term 5,027 - -
Long-term receivable 2,014 - -
Contract initiation
costs 5,587 - -
Future income tax
assets 85,197 150,771 29,139
-----------------------------------------------------
847,932 146,194 29,139
-----------------------------------------------------
Current assets
Inventory 6,323 - -
Gas in storage 4,058 - -
Gas delivered in
excess of consumption 7,410 - -
Accounts receivable 232,579 - -
Accrued gas
receivables 20,793 - -
Unbilled revenues 61,070 - -
Prepaid expenses and
deposits 20,038 - -
Other assets - current 2,703 - -
Current portion of
future income tax
assets 29,139 - (29,139)
Cash 60,132 - 18,650
Restricted cash 18,650 - (18,650)
-----------------------------------------------------
462,895 - (29,139)
-----------------------------------------------------
TOTAL ASSETS $ 1,310,827 $ 146,194 $ -
-----------------------------------------------------
EQUITY AND LIABILITIES
Unitholders' deficiency
Deficit $ (1,423,698) $ (132,971) $ -
Accumulated other
comprehensive income 221,969 - -
Unitholders' capital 659,118 118,738 -
Contributed surplus 18,832 (18,832) -
-----------------------------------------------------
Unitholders' deficiency (523,779) (33,065) -
Non-controlling
interest 20,603 (182) -
-----------------------------------------------------
Total Unitholders'
deficiency (503,176) (33,247) -
-----------------------------------------------------
LIABILITIES
Non-current liabilities
Long-term debt 231,837 - -
Provisions - 3,270 (146)
Deferred lease
inducements 1,984 - -
Other liabilities -
long-term 590,572 - -
Future income taxes - - 6,776
Liability associated
with Exchangeable
Shares and equity-
based compensation - 181,128 -
-----------------------------------------------------
824,393 184,398 6,630
-----------------------------------------------------
Current liabilities
Bank indebtedness 8,236 - -
Accounts payable and
accrued liabilities 184,682 (7,460) 146
Accrued gas payable 15,093 - -
Deferred revenue 7,202 - -
Unit distribution
payable 13,182 - -
Corporate taxes
payable 6,410 - -
Current portion of
long-term debt 62,829 (1,381) -
Provisions - 3,884 -
Current portion future
income tax
liabilities 6,776 - (6,776)
Other liabilities -
current 685,200 - -
-----------------------------------------------------
989,610 (4,957) (6,630)
-----------------------------------------------------
TOTAL LIABILITIES $ 1,814,003 $ 179,441 $ -
-----------------------------------------------------
TOTAL EQUITY AND
LIABILITIES $ 1,310,827 $ 146,194 $ -
-----------------------------------------------------
----------------------------------------------------------------------------
Canadian IFRS IFRS
GAAP accounts balance accounts
----------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current assets
Property, plant and
equipment $ 216,676 Property, plant and equipment
Intangible assets 528,854 Intangible assets
Goodwill -
Other assets long term 5,027 Other non-current financial assets
Long-term receivable 2,014 Non-current receivables
Contract initiation
costs 5,587 Contract initiation costs
Future income tax
assets 265,107 Deferred tax asset
---------------
1,023,265
---------------
Current assets Current assets
Inventory 6,323 Inventory
Gas in storage 4,058 Gas in storage
Gas delivered in Gas delivered in excess of
excess of consumption 7,410 consumption
Accounts receivable 232,579 Current trade and other receivables
Accrued gas
receivables 20,793 Accrued gas receivables
Unbilled revenues 61,070 Unbilled revenues
Prepaid expenses and
deposits 20,038 Prepaid expenses and deposits
Other assets - current 2,703 Other current assets
Current portion of
future income tax
assets -
Cash 78,782 Cash and cash equivalents
Restricted cash -
---------------
433,756
---------------
TOTAL ASSETS $ 1,457,021 TOTAL ASSETS
---------------
EQUITY AND LIABILITIES EQUITY AND LIABILITIES
Unitholders' deficiency Equity attributable to equity holders
of the parent
Deficit $ (1,556,669) Deficit
Accumulated other Accumulated other comprehensive
comprehensive income 221,969 income
Unitholders' capital 777,856 Unitholders' capital
Contributed surplus - Contributed surplus
---------------
Unitholders' deficiency (556,844) Unitholders' deficiency
Non-controlling
interest 20,421 Non-controlling interest
---------------
Total Unitholders'
deficiency (536,423) Total Unitholders' deficiency
---------------
LIABILITIES LIABILITIES
Non-current liabilities Non-current liabilities
Long-term debt 231,837 Long-term debt
Provisions 3,124 Provisions
Deferred lease
inducements 1,984 Deferred lease inducements
Other liabilities - Other non-current financial
long-term 590,572 liabilities
Future income taxes 6,776 Deferred tax liability
Liability associated
with Exchangeable Liability associated with
Shares and equity- Exchangeable Shares and equity-
based compensation 181,128 based compensation
---------------
1,015,421
---------------
Current liabilities Current liabilities
Bank indebtedness 8,236 Bank indebtedness
Accounts payable and
accrued liabilities 177,368 Trade and other payables
Accrued gas payable 15,093 Accrued gas payable
Deferred revenue 7,202 Deferred revenue
Unit distribution
payable 13,182 Unit distribution payable
Corporate taxes
payable 6,410 Income taxes payable
Current portion of
long-term debt 61,448 Current portion of long-term debt
Provisions 3,884 Provisions
Current portion future
income tax
liabilities -
Other liabilities -
current 685,200 Other current financial liabilities
---------------
978,023
---------------
TOTAL LIABILITIES $ 1,993,444 TOTAL LIABILITIES
---------------
TOTAL EQUITY AND
LIABILITIES $ 1,457,021 TOTAL EQUITY AND LIABILITIES
---------------
Reconciliation of consolidated income statement for the year ended March 31, 2011:
----------------------------------------------------------------------------
Canadian Canadian IFRS IFRS
GAAP accounts GAAP adjustments reclassifications
----------------------------------------------------------------------------
--------------------------------------------------
SALES $ 2,953,192 $ - $ -
COST OF SALES 2,470,989 641 -
--------------------------------------------------
GROSS MARGIN 482,203 (641) -
--------------------------------------------------
EXPENSES
General and administrative 109,407 (7) -
Marketing expenses 133,607 - -
Other operating expenses - 1,284 164,291
Bad debt expense 27,650 - (27,650)
Amortization of intangible
assets and related supply
contracts 120,841 - (120,841)
Amortization of property,
plant and equipment 5,698 - (5,698)
Unit-based compensation 5,509 4,405 (9,914)
Capital tax 188 - (188)
--------------------------------------------------
$ 402,900 $ 5,682 $ -
--------------------------------------------------
Income (loss) before the
undernoted 79,303 (6,323) -
Interest expense 50,437 9,446 -
Change in fair value of
derivative instruments (509,401) 3,354 -
Other income (7,235) - -
--------------------------------------------------
Income before income taxes 545,502 (19,123) -
Provision for income tax
expense 32,142 141,297 -
--------------------------------------------------
NET INCOME FOR THE YEAR $ 513,360 $ (160,420) $ -
--------------------------------------------------
Attributable to:
Shareholders of Just
Energy $ 515,347 $ (160,271) $ -
Non-controlling interests (1,987) (149) -
--------------------------------------------------
$ 513,360 $ (160,420) $ -
--------------------------------------------------
----------------------------------------------------------------------------
Canadian
GAAP accounts IFRS IFRS accounts
----------------------------------------------------------------------------
--------------------------------------------------
SALES $ 2,953,192 SALES
COST OF SALES 2,471,630 COST OF SALES
---------------
GROSS MARGIN 481,562 GROSS MARGIN
---------------
EXPENSES EXPENSES
General and administrative 109,400 Administrative expenses
Marketing expenses 133,607 Selling and marketing expenses
Other operating expenses 165,575 Other operating expenses
Bad debt expense -
Amortization of intangible
assets and related supply
contracts -
Amortization of property,
plant and equipment -
Unit-based compensation -
Capital tax -
---------------
$ 408,582
---------------
Income (loss) before the
undernoted 72,980 Operating profit
Interest expense 59,883 Finance costs
Change in fair value of Change in fair value of derivative
derivative instruments (506,047) instruments
Other income (7,235) Other income
---------------
Income before income taxes 526,379 Income before income taxes
Provision for income tax
expense 173,439 Provision for income tax expense
---------------
NET INCOME FOR THE YEAR $ 352,940 PROFIT FOR THE YEAR
---------------
Attributable to: Attributable to:
Shareholders of Just
Energy $ 355,076 Unitholders of Just Energy
Non-controlling interests (2,136) Non-controlling interests
---------------
$ 352,940
---------------
Reconciliation of consolidated statement of comprehensive income for the year
ended March 31, 2011:
----------------------------------------------------------------------------
Canadian Canadian IFRS IFRS
GAAP accounts GAAP adjustments reclassifications
----------------------------------------------------------------------------
NET INCOME $ 513,360 $ (160,420) $ -
--------------------------------------------------
Unrealized gain on
translation of self-
sustaining operations 334 115 -
Amortization of deferred
unrealized gain on
discontinued hedges - net
of income taxes of
$21,384 (98,499) - -
--------------------------------------------------
OTHER COMPREHENSIVE LOSS (98,165) 115 -
--------------------------------------------------
COMPREHENSIVE INCOME $ 415,195 $ (160,305) $ -
--------------------------------------------------
Attributable to:
Shareholders of Just
Energy $ 417,182 $ (160,156) $ -
Non-controlling interests (1,987) (149) -
--------------------------------------------------
$ 415,195 $ (160,305) $ -
--------------------------------------------------
----------------------------------------------------------------------------
Canadian
GAAP accounts IFRS IFRS accounts
----------------------------------------------------------------------------
NET INCOME $ 352,940 NET INCOME
---------------
Unrealized gain on
translation of self- Unrealized gain on translation of
sustaining operations 449 self-sustaining operations
Amortization of deferred
unrealized gain on Amortization of deferred
discontinued hedges - net unrealized gain on discontinued
of income taxes of hedges - net of income taxes of
$21,384 (98,499) $21,384
---------------
OTHER COMPREHENSIVE LOSS (98,050) OTHER COMPREHENSIVE LOSS
---------------
COMPREHENSIVE INCOME $ 254,890 COMPREHENSIVE INCOME
---------------
Attributable to: Attributable to:
Shareholders of Just
Energy $ 257,026 Shareholders of Just Energy
Non-controlling interests (2,136) Non-controlling interests
---------------
$ 254,890
---------------
Reconciliation of financial position and equity at March 31, 2011:
----------------------------------------------------------------------------
Canadian Canadian GAAP IFRS IFRS
GAAP accounts balances adjustments reclassifications
----------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment $ 235,189 $ (1,187) $ -
Intangible assets 412,752 - 227,467
Goodwill 224,409 3,058 (227,467)
Other assets long-term 5,384 - -
Contract initiation
costs 29,654 - -
Long-term receivable 4,569 - -
Future income tax assets 85,899 (489) 36,375
---------------------------------------------------
997,856 1,382 36,375
---------------------------------------------------
Current assets
Inventory 6,906 - -
Gas in storage 6,133 - -
Gas delivered in excess
of consumption 3,481 - -
Accounts receivable 281,685 - -
Unbilled revenues 112,147 - -
Accrued gas receivables 26,535 - -
Prepaid expenses and
deposits 6,079 - -
Other assets - current 3,846 - -
Corporate tax
recoverable 9,135 - -
Current portion of
future income tax
assets 36,375 - (36,375)
Cash 97,633 - 833
Restricted cash 833 - (833)
---------------------------------------------------
590,788 - (36,375)
---------------------------------------------------
TOTAL ASSETS $ 1,588,644 $ 1,382 $ -
---------------------------------------------------
DEFICIT AND LIABILITIES
Shareholders' deficiency
Deficit $ (1,063,179) $ (286,749) $ -
Accumulated other
comprehensive income 123,804 115 -
Shareholders' capital 697,052 266,930 -
Equity component of
convertible debt 33,914 (15,728) -
Contributed surplus 22,903 29,820 -
---------------------------------------------------
TOTAL DEFICIT $ (185,506) $ (5,612) $ -
---------------------------------------------------
LIABILITIES
Non-current liabilities
Long-term debt $ 507,460 $ - $ -
Future income taxes 2,657 7,046 13,216
Deferred lease
inducements 1,622 - -
Other liabilities -
long-term 355,412 - -
Provisions - 3,244 -
---------------------------------------------------
867,151 10,290 13,216
---------------------------------------------------
Current liabilities
Bank indebtedness 2,314 - -
Accounts payable and
accrued liabilities 282,805 (7,302) -
Accrued gas payable 19,353 - -
Corporate taxes payable 9,788 - -
Current portion of long-
term debt 94,117 - -
Provisions - 4,006 -
Current portion of
future income tax
liabilities 13,216 - (13,216)
Other liabilities -
current 485,406 - -
---------------------------------------------------
906,999 (3,296) (13,216)
---------------------------------------------------
TOTAL LIABILITIES $ 1,774,150 $ 6,994 $ -
---------------------------------------------------
TOTAL DEFICIT AND
LIABILITIES $ 1,588,644 $ 1,382 $ -
---------------------------------------------------
--------------------------------------------------------------------------
Canadian
GAAP accounts IFRS balance IFRS accounts
--------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current assets
Property, plant and
equipment $ 234,002 Property, plant and equipment
Intangible assets 640,219 Intangible assets
Goodwill -
Other assets long-term Other non-current financial
5,384 assets
Contract initiation
costs 29,654 Contract initiation costs
Long-term receivable 4,569 Non-current receivables
Future income tax assets 121,785 Deferred tax asset
---------------
1,035,613
---------------
Current assets Current assets
Inventory 6,906 Inventory
Gas in storage 6,133 Gas in storage
Gas delivered in excess Gas delivered in excess of
of consumption 3,481 consumption
Accounts receivable Current trade and other
281,685 receivables
Unbilled revenues 112,147 Unbilled revenues
Accrued gas receivables 26,535 Accrued gas receivables
Prepaid expenses and
deposits 6,079 Prepaid expenses and deposits
Other assets - current 3,846 Other current assets
Corporate tax
recoverable 9,135 Corporate tax recoverable
Current portion of
future income tax
assets -
Cash 98,466 Cash and cash equivalents
Restricted cash -
---------------
554,413
---------------
TOTAL ASSETS $ 1,590,026 TOTAL ASSETS
---------------
DEFICIT AND LIABILITIES DEFICIT AND LIABILITIES
Shareholders' deficiency Equity attributable to equity
holders of the parent
Deficit $ (1,349,928) Deficit
Accumulated other Accumulated other comprehensive
comprehensive income 123,919 income
Shareholders' capital 963,982 Shareholders' capital
Equity component of Equity component of convertible
convertible debt 18,186 debt
Contributed surplus 52,723 Contributed surplus
---------------
TOTAL DEFICIT $ (191,118) TOTAL DEFICIT
---------------
LIABILITIES LIABILITIES
Non-current liabilities Non-current liabilities
Long-term debt $ 507,460 Long-term debt
Future income taxes 22,919 Deferred tax liability
Deferred lease
inducements 1,622 Deferred lease inducements
Other liabilities - Other non-current financial
long-term 355,412 liabilities
Provisions 3,244 Provisions
---------------
890,657
---------------
Current liabilities Current liabilities
Bank indebtedness 2,314 Bank indebtedness
Accounts payable and
accrued liabilities 275,503 Trade and other payables
Accrued gas payable 19,353 Accrued gas payable
Corporate taxes payable 9,788 Income taxes payable
Current portion of long- Current portion of long-term
term debt 94,117 debt
Provisions 4,006 Provisions
Current portion of
future income tax
liabilities -
Other liabilities - Other current financial
current 485,406 liabilities
---------------
890,487
---------------
TOTAL LIABILITIES $ 1,781,144 TOTAL LIABILITIES
---------------
TOTAL DEFICIT AND
LIABILITIES $ 1,590,026 TOTAL DEFICIT AND LIABILITIES
---------------
Notes to the reconciliation of equity as at March 31, 2011.
A. Property, plant and equipment
CGAAP - Component accounting required but typically not practiced in Canada.
IFRS - Where an item of property, 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 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: (i) the underlying asset or liability or (ii) 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 statements of
financial position 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 consolidated statement of cash flows.
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