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Just Energy Reports Fiscal Second Quarter 2013 Results

TORONTO, ONTARIO -- (Marketwire) -- 11/08/12 -- Just Energy Group, Inc. (TSX:JE)(NYSE:JE), a competitive retailer of natural gas and electricity, today announced results for its second quarter of fiscal 2013.


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September 30,                        Per             Per 
($ millions except per share)                  F2013  share    F2012  share 
----------------------------------------------------------------------------
Sales                                         $703.7  $4.91   $600.0  $4.26 
----------------------------------------------------------------------------
Gross margin                                   117.2   0.82    102.6   0.73 
----------------------------------------------------------------------------
General and administrative                      35.3   0.25     28.8   0.20 
----------------------------------------------------------------------------
Financing costs                                 20.0   0.14     14.3   0.10 
----------------------------------------------------------------------------
Adjusted EBITDA                                 49.4   0.34     47.9   0.34 
----------------------------------------------------------------------------
Funds from Operations                           35.4   0.25     52.4   0.37 
----------------------------------------------------------------------------
Profit for the period                           23.1   0.16     (3.5) (0.02)
----------------------------------------------------------------------------
Dividends/distributions                         44.4   0.31     43.7   0.31 
----------------------------------------------------------------------------
Payout ratio - Base EBITDA                       159%            113%       
----------------------------------------------------------------------------
Payout ratio - Adjusted EBITDA                    90%             91%       
----------------------------------------------------------------------------
Six months ended September 30,                          Per             Per 
($ millions except per share and customers)    F2013  share    F2012  share 
----------------------------------------------------------------------------
Sales                                       $1,349.8  $9.43 $1,226.2  $8.72 
----------------------------------------------------------------------------
Gross margin                                   231.5   1.62    196.8   1.40 
----------------------------------------------------------------------------
General and administrative                      71.4   0.50     57.1   0.41 
----------------------------------------------------------------------------
Financing costs                                 37.8   0.26     28.1   0.20 
----------------------------------------------------------------------------
Adjusted EBITDA                                 91.7   0.64     85.3   0.61 
----------------------------------------------------------------------------
Funds from Operations                           64.7   0.45     84.9   0.60 
----------------------------------------------------------------------------
Profit for the period                          351.7   2.46     47.6   0.34 
----------------------------------------------------------------------------
Dividends/distributions                         88.8   0.62     87.3   0.62 
----------------------------------------------------------------------------
Payout ratio - Adjusted EBITDA                    97%            102%       
----------------------------------------------------------------------------
Payout ratio - Base EBITDA (LTM) (1)              96%             70%       
----------------------------------------------------------------------------
Payout Ratio - Adjusted EBITDA (LTM) (1)          61%             62%       
--------------------------------------------------------------------------- 
Payout Ratio - Base funds from Operations        151              95        
 (1)                                                %               %       
--------------------------------------------------------------------------- 
Energy customers (RCEs)                    4,024,000       3,403,000        
----------------------------------------------------------------------------
Home Services customers (installed units)    187,300         143,800        
----------------------------------------------------------------------------
Total number of customers                  4,211,300       3,546,800        
----------------------------------------------------------------------------
----------------------------------------------------------------------------
  (1) Last twelve months                                                    

Key Q2 Highlights:


--  Record customer additions of 344,000, up 45% year over year
    
    
--  Net customer additions of 47,000 (122,000 net of one large, very low
    margin commercial customer) up 4% in fiscal 2013
      
--  Gross margin of $117.2 million, an increase of 14% year over year 
    
    
--  Embedded Gross Margin of $2.1 billion, up 15% year over year 
    
    
--  Adjusted EBITDA of $49.4 million, up 3% year over year 

Commenting on the quarterly results, Executive Chair Rebecca MacDonald stated, "We are pleased with the continued record customer aggregation during the second quarter, as efforts to further diversify our channels to market as well as expand our geographic footprint, continued to gain traction. This growth will drive future embedded margin and cash flow in the foreseeable future. Looking ahead, driving account growth remains a key strategic objective and we are committed to further investment to enhance our growth profile."

CEO Ken Hartwick added, "We are pleased with our operational and financial performance during the quarter, specifically the record growth of customer additions and strong margins. We have set aggressive targets of 10% to 12% margin growth and 8% to 10% Adjusted EBITDA growth, and we are progressing toward these targets. We also continue to look for new opportunities to broaden our relationship with our customers and their energy needs through the sale of multiple products. Energy use control through smart thermostats is a high potential offering and we also remain a leader in Green energy sales where we continue to seek new ways to serve the environmentally conscious. We are a leader in the North American energy market and are focused on enhancing our industry-leading position going forward."

Additional Q2 Highlights:


--  Gross residential customer equivalent ("RCEs") additions of 344,000, up
    45% from 238,000 in fiscal 2012 
    
    
--  Residential additions were 166,000, up 98% from fiscal 2012. Commercial
    additions of 178,000 were up 16% year over year
    
    
--  Added first 7,000 customers from the newly opened U.K. office
    
    
--  Total customer base reached 4,024,000 RCEs, up 18% from a year earlier 
    
    
--  National Home Services' installed water heaters and HVAC units increased
    to 187,300, 30% higher than a year prior, and gross margin increased 41%
    year over year 
    
--  Payout ratio on Adjusted EBITDA was 90% for the quarter versus 91% for
    the three months ended September 30, 2011. Payout ratio over the past 12
    months is 61%m versus 62% a year earlier 
    
    
--  Payout ratio on Base Funds from operations of 151% over the past 12
    months, up from 95% a year earlier as cash from operations was used to
    fund growth expenditures which have rapid payback periods 

Second Quarter Operating Performance

The second quarter financial results demonstrated the continuation of the fundamental strengths of the Company growth and profitability.

Growth

Customer additions in the second quarter were 344,000, up 45% from Q2 fiscal 2012 and representing the highest in Just Energy's history. Net additions of 47,000 were up 4% year over year however this was skewed by a single very low margin 75,000 RCE customer that was not renewed. Excluding this customer, net additions of 122,000 were in line with recent record additions by the Company. The overall customer base of 4,024,000 is up 18% from a year earlier.

Customer additions were solid in both segments of the energy business with 166,000 residential additions, up 98% from the 84,000 added in the second quarter of fiscal 2012, and 178,000 commercial additions, up 16% from the 154,000 added in the prior fiscal year. For the six months year to date, residential additions are up 101%, commercial additions are up 17% and total additions are up 47%. The quarter includes the first 7,000 customers from the newly opened U.K. commercial office.

To view the "Quarterly Customer Additions", please visit the following link: http://media3.marketwire.com/docs/JEqca.jpg.

The second key to growth is the preservation of the existing customer base. As can be seen in the table on the next page, 297,000 customers were lost during the year and replaced by new additions during the year. This is a function of the increasing size of the Company's book.

Long Term Energy Customer Aggregation


                               July 1                             Failed to 
                                 2012   Additions   Attrition         renew 
----------------------------------------------------------------------------
Natural gas                                                                 
Canada                        561,000      19,000     (12,000)      (11,000)
United States                 544,000      40,000     (31,000)      (84,000)
----------------------------------------------------------------------------
Total gas                   1,105,000      59,000     (43,000)      (95,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Electricity                                                                 
Canada                        683,000      15,000     (18,000)      (20,000)
United States               2,189,000     263,000     (71,000)      (50,000)
United Kingdom                      -       7,000           -             - 
----------------------------------------------------------------------------
Total electricity           2,872,000     285,000     (89,000)      (70,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined                    3,977,000     344,000    (132,000)     (165,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                           September  % increase     September  % increase  
                            30, 2012  (decrease)      30, 2011  (decrease)  
----------------------------------------------------------------------------
Natural gas                                                                 
Canada                       557,000          (1)%     597,000          (7)%
United States                469,000         (14)%     570,000         (18)%
----------------------------------------------------------------------------
Total gas                  1,026,000          (7)%   1,167,000         (12)%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Electricity                                                                 
Canada                       660,000          (3)%     688,000          (4)%
United States              2,331,000           6%    1,548,000          51% 
United Kingdom                 7,000           -             -           -  
----------------------------------------------------------------------------
Total electricity          2,998,000           4%    2,236,000          34% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Combined                   4,024,000           1%    3,403,000          18% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The attrition rate was 14% on a trailing 12-month basis, up slightly from 13% in the prior year period, with U.S. gas markets higher and U.S. electricity markets lower. Canadian attrition was unchanged at 10%. Overall attrition remains within the Company's target range.


    Renewal rates were impacted by a one-time non-renewal of a 75,000 RCE   
    very low margin U.S. gas customer (approximately 45% of all quarterly   
    failures to renew). This customer had annual margins of less than $2 per
    RCE (average: residential customers $181 per RCE; commercial customers  
    $70 per RCE). When it was apparent that the customer would require      
    similar low margins going forward, the Company did not actively pursue  
    renewal. There are no similar customers remaining in the Just Energy    
    book. Despite this, renewal rates for the last 12 months were 70%, up   
    from 67% for the year earlier. Management believes that there is an     
    opportunity for further improvement in renewal rates; however,          
    commercial renewal rates can be volatile on a quarter to quarter basis. 

National Home Services ("NHS") also continued its strong growth. The Home Services operation saw its water heater, air conditioner and furnace installations grow to 187,300 units, up 30% from a year earlier. Including NHS, Just Energy's customer base has grown by 19% to 4,211,000 over the past year.

While growth in Energy Marketing was very strong in the quarter, the Company's original markets in Canada remain the weak point in this growth. Flat commodity prices and strict consumer protection laws have seen Canadian customer additions fall steadily over past quarters. Combined with this, customers coming off high price contracts signed five years ago have been reticent to renew their contracts for a further term. While overall renewal rates are at 70%, current Canadian renewals are well under target at less than 50%. Management expects that the renewal rates will remain low for the next 12 months as the last high price contracts expire with improvement thereafter. The expectation is that Canadian additions will be heavily skewed toward commercial customers for the foreseeable future.

Profitability

The Company's customer growth translated directly into gross margin growth. Gross margin for the quarter was $117.2 million, up 14% from $102.6 million in fiscal 2012. Adjusted EBITDA was $49.4 million, up 3% from $47.9 million in the prior year, resulting in a payout ratio of 90% versus 91% in the comparable quarter of fiscal 2012.

The following factors drove profitability:


--  Realized gas margin per customer was down 3% in Canada and 17% in the
    U.S. due to final reconciliations with local utilities balancing under
    consumption during the extremely warm winter of fiscal 2012. 
    
    
--  Realized electricity margin per customer was up 47% in Canada but down
    11% in the United States. Canadian margins were helped by higher margins
    from JustGreen and other new products. 
    
    
--  New customer annual margins averaged $181 per RCE for residential
    customers and $70 per RCE for commercial customers, exceeding the annual
    margin on customers lost of $177 per RCE for residential and $50 per RCE
    for commercial. This reverses the trend over the past several quarters
    although the margin on commercial customers lost was impacted by the
    inclusion of the 75,000 RCE customer lost with less than $2 annual
    margins.  
    
    
--  Aggregation cost per residential customer was down 21% to $160 from $203
    a year prior. Commercial customer aggregation costs were, on average,
    down slightly. This positive trend has been driven by the use of
    multiple sales channels and economies of scale as fixed marketing costs
    are spread across more customers. 
    
    
--  NHS saw its gross margin grow 41% year over year to $9.2 million up from
    $6.5 million. NHS EBITDA was $6.8 million, up 62% from $4.2 million a
    year earlier. 
    
    
--  Administrative costs per customer were an annual $34, up slightly, from
    $33 a year earlier. Management believes that this measure will fall as
    new markets like the U.K. and new channels like Momentis begin to reach
    their potential. 
    
--  Bad debt equaled 2.3% of relevant sales, down from 2.5% in the second
    quarter of fiscal 2012. Bad debt expense was up 20% due to a 33%
    increase in sales in markets where Just Energy bears bad debt risk. 
    
    
--  Financing costs were $20 million for the quarter, up from $14.3 million
    a year earlier. The increase reflects inclusion of the convertible
    debenture funding the acquisition of Fulcrum and higher drawings on the
    working capital line of credit as a result of our accelerated growth
    levels.

All of these factors contributed not only to the Company's profitability but also to the growth in the long-term value of the business. Management believes that a key measure of this value is embedded gross margin. Embedded margin is an estimate of cashflow from existing contracts based on the spread between contract price and underlying supply.

The table below shows the increase in this value over the quarter and the last year.

Embedded Gross Margin

(millions of dollars)


                                          Sept. 2012                        
                          As at     As at  vs. Sept.       As at Sept. vs.  
                      Sept. 30, Sept. 30,       2011   June. 30, June 2012  
                           2012      2011   variance        2012  variance  
                      ------------------------------------------------------
Canada energy                                                               
marketing (C$)        $   571.0 $   603.9         (5)% $   587.7        (3)%
Home Services division                                                      
(C$)                      510.7     335.7         52%      465.7        10% 
----------------------------------------------------------------------------
Canada total (C$)       1,081.7     939.6         15%    1,053.4         3% 
U.S. energy marketing                                                       
(US$)(1)                1,065.7     866.7         23%    1,023.0         4% 
----------------------------------------------------------------------------
Total (C$)            $ 2,129.5 $ 1,848.1         15%  $ 2,094.9         2% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)U.S. energy marketing also includes embedded gross margin related to     
Momentis, HES and the U.K. operations                                       

Funding Growth Investment

One of the impacts of the rapid growth seen year to date is higher than expected demands for investment capital. The result of this is a high payout ratio on Funds from Operations and an increase in drawdowns on the Company's working capital line. Payout for the last 12 months was 152%, up from 95% a year earlier, reflecting expenditures on high growth. The nature of these investments is that they payback very quickly and generate high returns as reflected in the growth of embedded gross margin above. Based on results to date, it is clear that the annual payout ratio on Funds from Operations ("FFO") will exceed 100% for the fiscal year. This will require financing through the Company's operating line, as has been utilized year to date, or other financing sources. Over the longer term, the Company targets a payout ratio of no more than 85%-90% on FFO, consistent with the cash flow profile of the Company's business. Based on Just Energy's current growth level, FFO payout is expected to be in this range for fiscal 2015.

Dividends were $0.31 per share in the quarter, unchanged from those paid a year earlier. Payout ratio on Adjusted EBITDA improved to 90%, down from 91% a year ago. Removing seasonality using the last 12 months, payout ratio was 61%, down from 62% a year earlier. This continues a trend of improved payouts after the replacement of all lost embedded margin for the period. As noted above, the Company's dividend obligations will exceed funds from operations for the year. The rapid payback on Just Energy's investments should begin to offset this situation once all newly signed customers flow and the Company is in the process of arranging funding to maintain this potential accelerated growth rate, capital expenditures and to pay down the operating line.

About Just Energy Group Inc.

Established in 1997, Just Energy is primarily a competitive retailer of natural gas and electricity. With offices located across the United States, Canada and the United Kingdom, Just Energy serves close to 2 million residential and commercial customers through a wide range of energy programs and home comfort services, including fixed-price or price-protected energy program contracts, the rental of water heaters, furnaces and air conditioners and the installation of solar panels. The Company's JustGreen® products provide consumers with the ability to help them reduce the environmental impact of their everyday energy use. Just Energy is the parent to Amigo Energy, Commerce Energy, Hudson Energy, Hudson Energy Solar, National Home Services, Momentis, Tara Energy and Terra Grain Fuels.

FORWARD-LOOKING STATEMENTS

Just Energy's press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, general and administrative expenses, dividends, distributable cash and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy's operations, financial results or dividend levels are included in Just Energy's annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com, on the U.S. Securities Exchange Commission's website at www.sec.gov or through Just Energy's website at www.justenergygroup.com.

Neither the Toronto Stock Exchange nor the New York Stock Exchange has approved nor disapproved of the information contained herein.

Contacts:
Just Energy Group, Inc.
Mr. Ken Hartwick, C.A.
Chief Executive Officer & President
(905) 795-3557

Just Energy Group, Inc.
Ms. Beth Summers, C.A.
Chief Financial Officer
(905) 795-4206

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