Market Overview

Just Energy Reports Fiscal Second Quarter 2020 Results

Share:

Previously Announced Strategic Review Progressing

Base EBITDA from Continuing Operations of $49.1 million

Impact of Cost Control Efforts Beginning to Yield Results

TORONTO, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Just Energy Group Inc. ("Just Energy") or (the "Company") (TSX:JE, NYSE:JE) announced solid second quarter fiscal 2020 results with improved gross margin and higher Base EBITDA from continuing operations compared to both the same quarter last year and first quarter of fiscal 2020.

Gross margin and Base EBITDA from continuing operations increased in the current quarter despite a reduction in sales, largely due to improved margin optimization in North America, lower administrative costs and a $15.2 gain on the contingent consideration associated with the Filter Group acquisition, partially offset by higher selling and marketing and bad debt expenses.

"While the strategic review is ongoing, we remain focused on running our business well. We are driving performance improvements and focusing on best-in-class customer service, as we shape a brighter future for Just Energy," said Just Energy's President and Chief Executive Officer, R. Scott Gahn.  "Our objective for the remainder of the fiscal year is clear: we are focused on signing high-quality customers while we continue to lower our cost structure and drive improved profitability."

"In addition, we have implemented stringent controls and disposed of non-core operations to allow us to focus on our higher-margin North American operations," Mr. Gahn added. "I am confident that our unwavering commitment to balance sheet discipline, focus on superior returns on invested capital, and drive for performance improvements will set the stage for predictable, prolonged and stable growth for Just Energy."

Key Developments:

(compared to second quarter fiscal 2019, unless otherwise stated)

  • The previously announced strategic review remains active and is progressing. The Company has made progress in disposing of non-core, lower-margin operations, along with identifying approximately $60 million in costs savings to date in fiscal 2020.
     
  • Gross margin increased 4% to $155.4 million, despite a 4% reduction in sales, primarily due to lower hedged supply costs in Texas, partially offset by a decline in the North American consumer customer base.
     
  • Administrative expenses decreased 7% to $41.5 million, due to savings from the restructuring actions in fiscal 2019 and as the impact of additional cost cutting initiatives began to take effect. Costs associated with the Company's strategic review of $3.6 million partly offset the impact of the Company's improving cost structure. Excluding the impact of the strategic review costs, administrative expenses were 14% lower than the same quarter last year.
     
  • Selling and marketing expenses from continuing operations were $54.3 million, up 8% as the Company focused on enhancing the quality of its customer base. Selling and marketing expenses increased largely as a result of higher customer acquisition costs, higher marketing charges in different channels, partially offset by the capitalization of new upfront incremental customer acquisition costs.
     
  • Base EBITDA from continuing operations, which reflects the Company's decision to dispose of its business in the U.K., was $49.1 million, 31% higher than the prior comparable quarter. Improved profitability in the second quarter was driven by improvements in gross margin, lower administrative expenses and a gain on the reduction of the $15.2 million contingent consideration from the Company's acquisition of Filter Group, partially offset by higher bad debts and an increase in selling expenses to support growth in new sales channels.
     
  • Finance costs amounted to $28.5 million, an increase of 41% primarily driven by increased interest expense from higher debts and higher interest rates
     
  • Base funds from continuing operations of $26.0 million increased from $25.0 million a year ago.
     
  • The payout ratio on base funds from continuing operations was 13% for the three months ended September 30, 2019, compared to 89% as at September 30, 2018, largely driven by the Company's decision to improve liquidity and suspend its dividend in the previous quarter.
     
  • Total Residential Customer Equivalent ("RCE") count from continuing operations decreased 6% year-over-year to 3.5 million RCEs, reflecting Just Energy's greater focus on attracting and retaining high quality customers with a potential for multiple product sales, that will drive greater profitability and brand loyalty.
     
  • Embedded gross margin from continuing operations is $1.9 billion, a year-over-year reduction of 10% due to a decrease in the North American consumer commodity customer base.
     
  • As part of its strategy to narrow its focus to higher-margin operations the Company agreed to sell its U.K. operations. The Company will receive £2 million ($3.4 million) of cash on closing, subject to maintaining customary pre-close conditions, and an amount up to £8.5 million ($14.2 million) subject to the determination of the U.K. capacity market payment due at the close of the transaction.
     
  • To further advance its disposal of non-core operations, Just Energy entered into a sale of operations for its wholly-owned subsidiary Just Energy (Ireland) Limited to Flogas Natural Gas Limited for up to €0.7 million ($1.0 million).
Financial Highlights
For the three months ended September 30, 2019      
(thousands of dollars, except where indicated and per share amounts)      
               
        %
increase
     
  Fiscal 2020   (decrease)   Fiscal 2019
Sales $ 768,440   (4)%   $ 804,309
Gross margin   155,384   4%     149,022
Administrative expenses   41,466   (7)%     44,478
Selling and marketing expenses   54,279   8%     50,427
Restructuring costs   -   -     1,319
Finance costs   28,451   41%     20,123
Profit (loss) from continuing operations   83,581   NMF3     (54,335)
Profit (loss) from discontinued operations   (9,809)   NMF3     32,885
Profit (loss)1   73,772   NMF3     (21,450)
Profit (loss) per share from continuing operations available to shareholders – basic   0.55         (0.38)
Profit (loss) per share from continuing operations available to shareholders – diluted   0.45         (0.38)
Dividends/distributions   3,289   (85)%     22,330
Base EBITDA from continuing operations2   49,069   31%     37,380
Base Funds from continuing operations2   25,960   4%     25,022
Payout ratio on Base Funds from continuing operations2   13%         89%

1 Profit (loss) includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand as well as weather hedge contracts as part of the risk management practice. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.
2 See "Non-IFRS financial measures" in Q2 fiscal 2020's Management's Discussion and Analysis.
3 Not a meaningful figure

Outlook

Just Energy continues to focus on enhancing its customer base by adding new high-quality customers and providing a variety of energy management solutions to its customer base to drive customer loyalty and improved profitability.

The impact of cost cutting initiatives implemented to date is evident in the second quarter results and Just Energy expects this progress to continue as additional changes are made. The Company has identified approximately $60 million in cost cutting initiatives in fiscal year 2020 and will continue to review its operations for additional ways to improve efficiencies and lower its cost structure.

The recent sale of two non-core operations demonstrates Just Energy's commitment to focus on its higher-margin North American operations. The sale of the U.K. and Ireland operations are expected to close by the end of 2019.  The Company continues to actively market its remaining non-core operations.

The previously announced strategic review remains active and is progressing. Just Energy has not set a specific timeframe for the conclusion of the strategic review. The Company plans to provide an update when the Board has approved a specific course of action.

Just Energy remains focused on best-in-class service to its customers while the review is underway.

The strategic review has provided necessary insights into understanding how best to unlock additional value from the business through a comprehensive review of capital expenditures, streamlining the organization, and further refinement of the geographic footprint via disposition of non-core businesses.

Management is maintaining its previously issued fiscal year 2020 Base EBITDA from continuing operations in the range of $180 million to $200 million, as well as fiscal 2020 free cash flow guidance of between $50 million to $70 million, defined as cash flow from operating activities minus cash flow from investing activities.

Embedded Gross Margin
 
Management's estimate of the future embedded gross margin is as follows:
 
(millions of dollars)
  As at    As at   Sept. 30 vs.   As at   2019 vs.  
  Sept. 30, June 30,   June 30   Sept. 30,   2018  
  2019 2019   variance   2018   variance  
Commodity EGM $ 1,852.5   $ 1,870.8   (1)%   $ 2,050.6   (10)%  
Value-added products and services ("VAPS") EGM   39.5     44.1   (10)%     45.2   (13)%  
Total EGM from continuing operations $ 1,892.0   $ 1,914.9
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com