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Just Energy Reports Negative Impact On Quarterly Results From Extreme Cold

Records Third Consecutive Quarter Of Customer Growth

May 17, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Just Energy reported results for the three months ended March 31, 2018 (fourth quarter of fiscal 2018).

Fourth quarter Base EBITDA of $68.9 million (all $ Canadian) decreased 8% versus the $75.0 million recorded a year ago, "driven by continued commitment to and investment in strategic sales growth initiatives, including channel expansion and diversification, combined with higher supply costs due to Texas’s deep freeze in January 2018," Just Energy said

"The January Texas deep freeze and U.S. extreme cold weather patterns adversely affected Base EBITDA by $21.0 million. With the Company’s current weather risk management program, the net impact was reduced to $10.0 million which is isolated to a highly unusual one-time Texas freeze event," Just Energy said

The adverse conditions were offset by an investment gain relating to Just Energy's equity investment in Ecobee

Just Energy's Residential Customer Equivalents (RCEs) stood at 4.163 million as of March 31, 2018, up from 4.114 million as of December 31, 2017, and versus 4.211 million a year ago

The net growth of 49,000 RCEs compares to net growth of 27,000 RCEs from September 30, 2017 to December 31, 2017

Just Energy has recorded net RCE additions in the past three quarters of fiscal 2018 due to significant investments in strategic sales growth initiatives, the company said

Gross RCE additions for the quarter ending March 31, 2018 were 312,000, versus 304,000 during the quarter ended December 31, 2017, and 228,000 a year ago

During the quarter ending March 31, 2018, Consumer (mass market) gross RCE additions were 170,000, versus 105,000 during the quarter ended December 31, 2017, primarily driven by growth in U.K. business.

Commercial gross RCE additions were 142,000 during the quarter ending March 31, 2018, versus 199,000 during the quarter ended December 31, 2017, as a result of the large number of renewals in the quarter coupled with the company’s margin enhancing objective.

Just Energy said that it has exceeded its previously reported retail channel expansion goal of being present in 500 stores at fiscal year end (March 31, 2018), by adding 195 new store launches across 18 different retail partners during the year, for a total of 543 stores

The retail channel added nearly 33,000 new RCEs during the fourth quarter

For the year ending March 31, 2018, 47% of RCE additions were generated from online and non-door-to-door sales channels. Commercial brokers were responsible for 39% of RCE additions, and door-to-door accounted for 14% of RCE additions

In terms of the number of customers (not RCEs), Just Energy was serving 1.659 million customers as of March 31, 2018, versus 1.474 million as of a year ago. With its diversification of products to offer more than just commodity supply, Just Energy said that it expects customer count to become an increasingly relevant metric going forward

Just Energy said that combined attrition improved three percentage points to 12% for the trailing 12 months, with improvements in both the Consumer and Commercial divisions.

The renewal rate was 55% for the trailing 12 months, declining ten percentage points year-over-year, "reflecting a very competitive market with competitors pricing aggressively while Just Energy remained focused on improving retained customers’ profitability rather than pursuing low margin growth," Just Energy said

The Consumer attrition rate improved four percentage points to 20% from a year ago and the Commercial attrition rate improved three percentage points to 4%. "The continued attrition improvement is the direct result of Just Energy’s trusted advisor strategy and long-term loyalty program," Just Energy said

During the fourth quarter, the average gross margin per RCE for the customers added and renewed by the Consumer division was $216/RCE, an increase from $192/RCE added in the prior comparable period. The average gross margin per RCE for the Consumer customers lost during the fourth quarter was $200/RCE, an increase from $196/RCE margin lost on customers in the prior comparable period.

The average gross margin per RCE for the Commercial customers signed during the fourth quarter was $87/RCE, up sequentially, but a slight decrease from $88/RCE added in the prior comparable period of last year. Customers lost through attrition and failure to renew during the fourth quarter were at an average gross margin of $81/RCE, a decrease from $83/RCE reported in the prior comparable period.

Fourth quarter gross margin was $169.4 million, a decrease of 3% from the prior $175.4 million posted in the comparable quarter, primarily attributable to the higher supply costs due to colder than normal weather in January in North America and the decline in the customer base in North America.

Sales for the fourth quarter were $1.0 billion, versus $947 million a year ago

Fourth quarter administrative expenses increased 51% to $48.9 million as a result of costs to serve the growing customer base in the U.K., international expansion costs and change in executive team.

Selling and marketing expenses of $60.8 million in the fourth quarter increased 13% due to the company’s investments in sales growth initiatives including channel expansion and diversification.

"Fiscal 2018 was an important year for Just Energy as we successfully executed very meaningful growth initiatives and made critical steps along our path of transforming from a retail energy provider to a consumer company," said Just Energy’s CEO, Pat McCullough. "We did face some significant headwinds related to unique weather events, one-time expense items and intense competitive pressures, while also investing in our future growth. However, we were able to overcome most of this adversity and deliver on our stated financial objectives for the year. We also exceeded an aggressive goal in our retail channel expansion strategy, establishing a presence in 500 stores across 18 different retail partners by year end. During the quarter, we continued to deliver strong customer addition and positive net RCE additions in total during each of the past three quarters. We believe we can continue this momentum into fiscal 2019 and beyond as Just Energy deploys a more consistent value creation product strategy across our consumer business and, ultimately, transform from an historical offering of price-based commodities sold through third-parties to a future of a more profitable offering of value add products and services where Just Energy owns and controls the customer relationships."

"Moving forward, we’re committed to executing a strategic shift from a retail energy provider to a consumer company. As a part of our transformation objectives, our stakeholders can expect Just Energy to take the necessary measures to remove the volatility and improve the transparency in our results. As we continuously expand our capability in risk management and incorporate a broad selection of risk management instruments, we become much more stable and predictable, which allows us to plan for our future of strong growth and performance," McCullough said

"In fiscal 2019, we will build upon the strategic growth investments we made over the past year, seek to drive sales growth through our primary channels while developing additional strategic, alternative channels, and deliver solid earnings growth. We remain committed to preserving our balance sheet strength, generating superior returns on our invested capital, and maintaining our dividend. Our exciting future as a consumer company centers on real value creation and value delivery, while we participate in the significant global growth opportunities," McCullough said

Just Energy said that it is, "executing a strategic shift from a retail energy provider to a consumer company focused on differentiated value-add products, unparalleled customer satisfaction, and profitable customer growth. Historically, Just Energy operated as a retail energy provider viewed as offering price-based invisible products which consumers didn’t fully understand. Today, Just Energy is transforming from an era of price-based commodities sold through third-parties to a future of customer centric consumer company with more profitable offering of tangible value add products and services where Just Energy owns and controls the customer relationships. Just Energy’s future as a consumer company centers on real value creation and value delivery, while participating in the significant growth opportunities supported by the Company’s sales, marketing and customer service expertise."

"To achieve profitability and optimize growth in fiscal 2019 and beyond, Just Energy will drive sales growth through its retail and other primary channels while developing additional strategic, alternative channels. Just Energy will also deploy a consistent value creation product strategy across the consumer business," the company said

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