EX-99.1 2 exh_991.htm EXHIBIT 99.1

Exhibit 99.1

 

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian dollars)

 

 

      As at  As at  As at
      September 30, 2017  March 31, 2017  September 30, 2016
   Notes  Unaudited  Audited  Unaudited
ASSETS            
Current assets            
Cash and cash equivalents       $55,950   $57,376   $118,759 
Short-term investments   5    25,252    26,255    - 
Restricted cash        3,399    3,620    6,033 
Trade and other receivables   6    365,661    353,139    399,526 
Unbilled revenues        217,745    218,413    204,694 
Accrued gas receivables        436    16,352    502 
Gas delivered in excess of consumption        12,163    3,232    18,645 
Gas in storage        33,765    12,350    31,324 
Prepaid expenses, deposits and other current assets   7    101,436    111,323    103,246 
Fair value of derivative financial assets   8    21,554    11,656    23,845 
Corporate tax recoverable        3,154    2,986    7,766 
         840,515    816,702    914,340 
Non-current assets                    
Investments        12,184    15,561    11,432 
Property, plant and equipment        20,562    21,682    25,240 
Intangible assets        366,976    357,987    347,996 
Prepaid expenses        9,518    -    - 
Fair value of derivative financial assets   8    2,673    3,010    3,189 
Deferred tax asset        24,381    23,013    19,245 
         436,294    421,253    407,102 
TOTAL ASSETS       $1,276,809   $1,237,955   $1,321,442 
                     
LIABILITIES                    
                     
Current liabilities                    
Trade and other payables       $527,289   $486,632   $542,614 
Accrued gas payable        257    12,537    501 
Deferred revenue        70,311    17,546    46,146 
Income taxes payable        5,796    13,913    3,205 
Fair value of derivative financial liabilities   8    197,553    168,793    232,071 
Provisions        8,135    8,215    13,441 
Current portion of long-term debt   11    214,812    -    365,465 
         1,024,153    707,636    1,203,443 
Non-current liabilities                    
Long-term debt   11    325,625    498,088    278,548 
Deferred lease inducements        931    1,088    1,246 
Fair value of derivative financial liabilities   8    123,972    178,724    209,744 
Other   10    64,481    -    - 
Deferred tax liability        6,001    1,745    5,253 
         521,010    679,645    494,791 
TOTAL LIABILITIES        1,545,163    1,387,281    1,698,234 
SHAREHOLDERS' DEFICIENCY                    
Shareholders’ capital   13    1,201,717    1,198,439    1,075,818 
Equity component of convertible debentures        13,508    13,508    25,795 
Contributed surplus (deficit)        (43,222)   58,266    37,971 
Deficit        (1,498,157)   (1,489,900)   (1,566,318)
Accumulated other comprehensive income        57,800    70,361    49,942 
TOTAL SHAREHOLDERS' DEFICIENCY        (268,354)   (149,326)   (376,792)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY       $1,276,809   $1,237,955   $1,321,442 

 

Commitments and Guarantees (Note 18)

See accompanying notes to the interim condensed consolidated financial statements

 

1 

 

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands of Canadian dollars)

 

 

      Three months  Three months  Six months  Six months
      ended  ended  ended  ended
      Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
   Notes  2017  2016  2017  2016
OPERATIONS               
                
Sales   14   $851,927   $992,828   $1,699,633   $1,891,237 
Cost of sales        709,264    809,294    1,399,407    1,545,031 
GROSS MARGIN        142,663    183,534    300,226    346,206 
EXPENSES                         
Administrative        46,806    46,717    95,437    91,418 
Selling and marketing        58,577    59,454    116,653    117,244 
Other operating   15(a)   20,795    21,044    55,771    39,869 
         126,178    127,215    267,861    248,531 
Operating profit before the following        16,485    56,319    32,365    97,675 
Finance costs   11    (12,521)   (17,882)   (24,511)   (35,855)
Change in fair value of derivative instruments and other   8    (70,923)   (194,389)   39,694    290,948 
Other income (loss)        203    (775)   1,802    (1,527)
Profit (loss) before income taxes        (66,756)   (156,727)   49,350    351,241 
Provision for (recovery of) income taxes   12    (1,833)   4,881    4,964    30,178 
PROFIT (LOSS) FOR THE PERIOD       $(64,923)  $(161,608)  $44,386   $321,063 
                          
Attributable to:                         
Shareholders of Just Energy       $(68,864)  $(167,262)  $34,994   $309,972 
Non-controlling interest        3,941    5,654    9,392    11,091 
PROFIT (LOSS) FOR THE PERIOD       $(64,923)  $(161,608)  $44,386   $321,063 
                          
                          
Earnings (loss) per share available to shareholders   16                     
Basic       $(0.47)  $(1.13)  $0.24   $2.10 
Diluted       $(0.47)  $(1.13)  $0.22   $1.71 

 

See accompanying notes to the interim condensed consolidated financial statements

 

2 

 

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of Canadian dollars)

 

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
   2017  2016  2017  2016
PROFIT (LOSS) FOR THE PERIOD  $(64,923)  $(161,608)  $44,386   $321,063 
                     
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods: Unrealized income (loss) on translation of foreign operations   (7,793)   (342)   (12,561)   1,034 
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX  $(72,716)  $(161,950)  $31,825   $322,097 
                     
Total comprehensive income (loss) attributable to:                    
Shareholders of Just Energy  $(76,657)  $(167,604)  $22,433   $311,006 
Non-controlling interest   3,941    5,654    9,392    11,091 
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX  $(72,716)  $(161,950)  $31,825   $322,097 

 

See accompanying notes to the interim condensed consolidated financial statements

 

 

3 

 

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ DEFICIENCY

FOR THE SIX MONTHS ENDED SEPTEMBER 30


(in thousands of Canadian dollars)

 

 

   Notes  2017  2016
ATTRIBUTABLE TO THE SHAREHOLDERS         
Accumulated earnings (losses)         
Accumulated earnings (losses), beginning of period       $259,571   $(165,963)
Profit for the period, attributable to shareholders        34,994    309,972 
Accumulated earnings, end of period        294,565    144,009 
                
DIVIDENDS               
Dividends, beginning of period        (1,749,471)   (1,672,720)
Dividends declared and paid   17    (43,251)   (37,607)
Dividends, end of period        (1,792,722)   (1,710,327)
DEFICIT       $(1,498,157)  $(1,566,318)
                
ACCUMULATED OTHER COMPREHENSIVE INCOME               
Accumulated other comprehensive income, beginning of period       $70,361   $48,908 
Other comprehensive income (loss)        (12,561)   1,034 
Accumulated other comprehensive income, end of period       $57,800   $49,942 
                
SHAREHOLDERS’ CAPITAL   13           
Common Shares               
Common shares, beginning of period       $1,070,076   $1,069,434 
Share-based units exercised        10,674    6,384 
Repurchase and cancellation of shares        (11,941)   - 
Common shares, end of period        1,068,809    1,075,818 
                
Preferred Shares               
Preferred shares, beginning of period       $128,363   $- 
Shares issued        5,195    - 
Shares issuance costs        (650)   - 
Preferred shares, end of period        132,908    - 
SHAREHOLDERS’ CAPITAL       $1,201,717   $1,075,818 
                
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES               
Balance, beginning of period       $13,508   $25,795 
Balance, end of period       $13,508   $25,795 
                
CONTRIBUTED SURPLUS (DEFICIT)               
Balance, beginning of period       $58,266   $43,459 
Add: Share-based compensation expense   15(a)   16,963    2,902 
Non-cash deferred share grant distributions        22    18 
Less: Purchase of non-controlling interest   10    (102,298)   - 
Share-based units exercised        (10,674)   (6,384)
Share-based compensation adjustment        (5,501)   (2,024)
Balance, end of period       $(43,222)  $37,971 
                
NON-CONTROLLING INTEREST               
Distributions to non-controlling shareholders        (9,392)   (11,091)
Profit attributable to non-controlling interest        9,392    11,091 
Balance, end of period       $-   $- 
TOTAL SHAREHOLDERS' DEFICIENCY       $(268,354)  $(376,792)

 

See accompanying notes to the interim condensed consolidated financial statements

 

4 

 

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands of Canadian dollars)

 

 

      Three months  Three months  Six months  Six months
      ended  ended  ended  ended
      Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
Net inflow (outflow) of cash related to following activities  Notes  2017  2016  2017  2016
OPERATING               
Profit (loss) before income taxes       $(66,756)  $(156,727)  $49,350   $351,241 
                          
Items not affecting cash                         
Amortization of intangible assets and related supply contracts   15(a)   4,331    3,802    7,791    6,720 
Depreciation of property, plant and equipment   15(a)   985    999    1,982    1,859 
Amortization included in cost of sales        769    735    1,546    1,454 
Share-based compensation   15(a)   1,716    1,425    16,963    2,902 
Financing charges, non-cash portion        2,585    5,177    5,188    8,901 
Other        (92)   (90)   (184)   (180)
Change in fair value of derivative instruments        70,923    194,389    (39,694)   (290,948)
Adjustment required to reflect net cash receipts from gas sales        4,881    14,269    7,530    19,525 
Net change in non-cash working capital balances        (5,442)   2,361    (4,886)   (9,572)
Income taxes paid        (4,714)   (5,249)   (15,791)   (11,764)
Cash inflow from operating activities        9,186    61,091    29,795    80,138 
                          
INVESTING                         
Purchase of property, plant and equipment        (1,768)   (1,934)   (2,959)   (3,656)
Purchase of intangible assets        (5,717)   (1,686)   (12,522)   (4,828)
Acquisition of businesses        -    -    (2,546)   - 
Short term investments        (314)   (4,972)   (185)   (4,972)
Decrease in restricted cash        -    949    -    1,462 
Cash outflow from investing activities        (7,799)   (7,643)   (18,212)   (11,994)
                          
FINANCING                         
Dividends paid        (21,458)   (18,806)   (43,229)   (37,590)
Repayment of long-term debt        -    (943)   -    (26,909)
Credit facilities withdrawal        24,612    -    49,262    - 
Issuance of preferred shares        834    -    5,195    - 
Preferred shares issuance costs        (215)   -    (1,676)   - 
Shares repurchase        (498)   -    (11,941)   - 
Distributions to non-controlling interest        (4,098)   (5,654)   (9,603)   (11,091)
Cash outflow from financing activities        (823)   (25,403)   (11,992)   (75,590)
                          
Effect of foreign currency translation on cash balances        266    3,347    (1,017)   (1,391)
                          
Net cash inflow (outflow)        830    31,392    (1,426)   (8,837)
Cash and cash equivalents, beginning of period        55,120    87,367    57,376    127,596 
                          
Cash and cash equivalents, end of period       $55,950   $118,759   $55,950   $118,759 
                          
Supplemental cash flow information:                         
Interest paid       $11,575   $11,253   $18,896   $26,276 

 

See accompanying notes to the interim condensed consolidated financial statements

 

5 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

1. ORGANIZATION

 

Just Energy Group Inc. (“Just Energy”) is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates. The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The unaudited interim condensed consolidated financial statements (“Interim Financial Statements”) consist of Just Energy and its subsidiaries and affiliates. The Interim Financial Statements were approved by the Board of Directors on November 8, 2017.

 

2.OPERATIONS

 

Just Energy is a leading retail energy provider specializing in electricity and natural gas commodities, energy efficiency solutions and renewable energy options. With offices located across the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Germany, and Ireland, Just Energy serves approximately two million residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, Green Star Energy, Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy and TerraPass.

 

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.

 

In addition, Just Energy markets smart thermostats, offering the thermostats as a stand-alone unit or bundled with certain commodity products. The smart thermostats are manufactured and distributed by ecobee Inc. (“ecobee”), a company in which Just Energy holds a 10% fully diluted equity interest. Just Energy also offers green products through its JustGreen program. The JustGreen electricity product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, solar, hydropower or biomass. The JustGreen gas product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

 

Just Energy markets its product offerings through a number of sales channels including door-to-door marketing, broker, retail and affinity relationships, and online marketing. Prior to August 1, 2017, the online marketing of gas and electricity contracts was primarily conducted through Just Ventures LLC and Just Ventures L.P. (collectively, “Just Ventures”), a joint venture in which Just Energy holds a 50% equity interest. This exclusive relationship ended on July 31, 2017. See Note 10 for further information.

 

3.FINANCIAL STATEMENT PREPARATION

 

(a)

Statement of compliance with IFRS

 

These Interim Financial Statements of Just Energy and its subsidiaries have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), utilizing the accounting policies Just Energy outlined in its March 31, 2017 annual audited consolidated financial statements. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the IASB, have been omitted or condensed.

 

6 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

(b)Basis of presentation and interim reporting

 

These Interim Financial Statements should be read in conjunction with and follow the same accounting policies and methods of application as those used in the annual audited consolidated financial statements for the years ended March 31, 2017 and 2016.

 

The Interim Financial Statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand except where otherwise indicated. The Interim Financial Statements are prepared on a going concern basis under the historical cost convention except for certain financial assets and liabilities which are stated at fair value.

 

The interim operating results are not necessarily indicative of the results that may be expected for the full year ending March 31, 2018, due to seasonal variations resulting in fluctuations in quarterly results. Gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September. Electricity consumption is lowest in October through December and April through June. For the 12 months ended September 30, 2017, Just Energy reported gross margin of $649,991 (2016 - $730,432) and profit of $194,207 (2016 – $362,144).

 

(c)Principles of consolidation

 

The Interim Financial Statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at September 30, 2017. Subsidiaries and affiliates are consolidated from the date of acquisition of 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, sales, expenses and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

 

4. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

 

As at September 30, 2017, there have been no additional accounting pronouncement by the IASB beyond those described in Just Energy’s 2017 Annual Report that would impact Just Energy’s Interim Financial Statements. The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Interim Financial Statements are disclosed below. Just Energy intends to adopt these standards, if applicable, when they become effective.

 

IFRS 9, Financial Instruments, (“IFRS 9”), was issued by the IASB on July 24, 2014, and will replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9, fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held-for-trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is only applied to financial liabilities. IFRS 9 uses a new expected loss impairment model and also uses a new model for hedge accounting aligning the accounting treatment with risk management activities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.

 

7 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

IFRS 15, Revenue from Contracts with Customers, (“IFRS 15”), was jointly issued by the IASB and the Financial Accounting Standards Board, effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 15 outlined a single comprehensive model to account for revenue arising from contracts with customers and will replace the majority of existing IFRS requirements on revenue recognition including IAS 18, Revenue. The core principle of IFRS 15 is to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard provides a single, principles-based five-step model that will apply to revenue earned from a contract with a customer, regardless of the type of revenue transaction or industry. The standard will also provide guidance on the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities. The standard also specifies that direct incremental costs of obtaining and fulfilling a contract that are expected to be recovered should be capitalized and amortized over the useful life of customers. Disclosure requirements will increase which include disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgments and estimates made. Just Energy will not be early adopting IFRS 15. Just Energy will be implementing IFRS 15 using the full retrospective approach where IFRS 15 will be applied to both fiscal 2018 and 2019 results beginning April 1, 2018. This will include all the necessary disclosures under the new standard.

 

Management has appointed an IFRS 15 transition team to assess the financial statement impact of IFRS 15. The transition team will implement the accounting system, process and internal control changes that result from the new standard. The transition team has undertaken IFRS 15 planning sessions and developed a preliminary adoption plan. Just Energy is currently in the scoping phase of implementation. The transition team has determined that the requirements of IFRS 15 to capitalize direct incremental costs will impact the accounting for sales commissions in certain markets. Further analysis is required on certain types of customer contracts including flat bill, non-commodity and bundled product contracts. Next steps will involve accumulating, identifying, and inventorying detailed information on customer contracts that may be impacted by the changes at the transition date, completing the overall analysis, assessing any potential impacts to accounting systems and internal controls, and reviewing the additional disclosures required by the standard. Management continues to evaluate the impact of IFRS 15 on the consolidated financial statements.

 

Amendments to IFRS 2, Share-based Payment, (“IFRS 2”), clarifies how to account for certain types of share-based payment transactions. IFRS 2 stipulates new conditions on the accounting for three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting of a modification to the terms and conditions of a share-based payment that changes the transaction from cash-settled to equity-settled. IFRS 2 is applied prospectively; retroactive application is only permitted if the application can be performed without using hindsight. Requirements to apply IFRS 2 are effective for annual periods beginning on or after January 1, 2018. Just Energy has not yet assessed the impact of the application of these amendments from this standard.

 

8 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

IFRS 16, Leases (“IFRS 16”), was issued by the IASB in January 2016. This guidance brings most leases onto the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is retained. Furthermore, per the standard, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly, and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease. Lessees are permitted to make an accounting policy election, by class of underlying asset, to apply a method like IAS 17’s operating lease accounting and not recognize lease assets and lease liabilities for leases with a lease term of 12 months or less, and on a lease-by-lease basis, to apply a method similar to current operating lease accounting to leases for which the underlying asset is of low value. IFRS 16 supersedes IAS 17, Leases and Related Interpretations, and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. Just Energy has not yet assessed the impact of this standard.

 

5. SHORT-TERM INVESTMENTS

 

   As at  As at  As at
   September 30, 2017  March 31, 2017  September 30, 2016
Fixed income  $23,149   $23,872   $- 
Equities   2,103    2,383    - 
   $25,252   $26,255   $- 

 

6. TRADE AND OTHER RECEIVABLES

 

   As at  As at  As at
   September 30, 2017  March 31, 2017  September 30, 2016
Trade account receivables, net  $279,164   $288,254   $323,146 
Other   86,497    64,885    76,380 
   $365,661   $353,139   $399,526 

 

7. PREPAID EXPENSES, DEPOSITS AND OTHER CURRENT ASSETS

 

   As at  As at  As at
   September 30, 2017  March 31, 2017  September 30, 2016
Prepaid expenses and deposits  $63,273   $62,087   $60,267 
Green certificates   38,163    49,236    42,979 
   $101,436   $111,323   $103,246 

 

8.FINANCIAL INSTRUMENTS

 

(a)Fair value of derivative financial instruments

 

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Management has estimated the value of financial swaps, physical forwards and option contracts for electricity, natural gas, carbon and renewable energy certificates, and generation and transmission capacity 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 immediate 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 options.

 

9 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The following table illustrates gains (losses) related to Just Energy’s derivative financial instruments classified as fair value through profit or loss and recorded on the consolidated statements of financial position as fair value of derivative financial assets and fair value of derivative financial liabilities, with their offsetting values recorded in change in fair value of derivative instruments and other.

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
   2017  2016  2017  2016
Change in fair value of derivative instruments and other            
             
Physical forward contracts and options (i)  $(71,671)  $(179,132)  $16,347   $175,380 
Financial swap contracts and options (ii)   12,330    (9,952)   16,024    99,333 
Foreign exchange forward contracts   (9,004)   45    (2,065)   (1,769)
Share swap   300    (2,720)   (1,807)   (2,310)
Unrealized foreign exchange on 6.5% convertible bond   7,313    -    12,097    - 
6.5% convertible bond conversion feature   (728)   5,411    4,900    18,119 
Other derivative options   (9,463)   (8,041)   (5,802)   2,195 
Change in fair value of derivative instruments and other  $(70,923)  $(194,389)  $39,694   $290,948 

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statements of financial position as at September 30, 2017:

 

   Financial assets (current)  Financial assets (non-current)  Financial liabilities (current)  Financial liabilities (non-current)
                     
Physical forward contracts and options (i)  $19,995   $2,105   $118,868   $92,132 
Financial swap contracts and options (ii)   726    532    62,931    26,497 
Foreign exchange forward contracts   438    -    -    2,233 
Share swap   -    -    15,723    - 
6.5% convertible bond conversion feature   -    -    -    3,110 
Other derivative options   395    36    31    - 
As at September 30, 2017  $21,554   $2,673   $197,553   $123,972 

 

10 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the consolidated statements of financial position as at March 31, 2017:

 

  

Financial assets

(current)

  Financial assets (non-current)  Financial liabilities (current)  Financial liabilities (non-current)
                     
Physical forward contracts and options (i)  $982   $983   $89,472   $124,173 
Financial swap contracts and options (ii)   3,207    2,027    65,362    46,246 
Foreign exchange forward contracts   565    -    -    295 
Share swap   -    -    13,916    - 
6.5% convertible bond conversion feature   -    -    -    8,010 
Other derivative options   6,902    -    43    - 
As at March 31, 2017  $11,656   $3,010   $168,793   $178,724 

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statements of financial position as at September 30, 2016:

 

  

Financial assets

(current)

  Financial assets (non-current)  Financial liabilities (current)  Financial liabilities (non-current)
                     
Physical forward contracts and options (i)  $20,846   $2,533   $145,483   $124,833 
Financial swap contracts and options (ii)   -    448    86,418    64,392 
Foreign exchange forward contracts   497    -    -    240 
Share swap   -    -    -    16,128 
6.5% convertible bond conversion feature   -    -    -    4,151 
Other derivative options   2,502    208    170    - 
As at September 30, 2016  $23,845   $3,189   $232,071   $209,744 

 

Below is a summary of the financial instruments classified through profit and loss as at September 30, 2017, to which Just Energy has committed:

 

(i) Physical forward contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 30,342,702 MWh, a weighted average price of $43.59/MWh and expiry dates up to December 31, 2027.

 

·Natural gas contracts with a total remaining volume of 92,016,331 GJs, a weighted average price of $3.77/GJ and expiry dates up to October 31, 2022.

 

·Renewable energy certificates (“REC”) and emission-reduction credit contracts with a total remaining volume of 5,562,905 MWh and 799,732 tonnes, respectively, a weighted average price of $22.42/REC and $2.44/tonne, respectively, and expiry dates up to December 31, 2028 and January 31, 2021.

 

·Electricity generation capacity contracts with a total remaining volume of 4,318 MWCap, a weighted average price of $10,426.56/MWCap and expiry dates up to December 31, 2021.

 

11 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

·Heat rate contracts with a total remaining volume of 70,400 MWh, a weighted average price of $42.39/MWh and expiry dates up to October 31, 2017.

 

·Ancillary contracts with a total remaining volume of 531,386 MWh, a weighted average price of $18.41/MWh and expiry dates up to December 31, 2019.

 

(ii) Financial swap contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 15,651,074 MWh, an average price of $38.99/MWh and expiry dates up to January 31, 2023.

 

·Natural gas contracts with a total remaining volume of 130,300,066 GJs, an average price of $3.69/GJ and expiry dates up to December 31, 2022.

 

·Electricity generation capacity contracts with a total remaining volume of 418 MWCap, a weighted average price of $4,043.01/MWCap and expiry dates up to October 31, 2020.

 

·Ancillary contracts with a total remaining volume of 1,259,440 MWh, a weighted average price of $13.05/MWh and expiry dates upto December 31, 2019.

 

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 financial assets’ balance recognized in the Interim Financial Statements.

 

Share swap agreement

 

Just Energy has entered into a share swap agreement to manage the statements of income volatility associated with the Company’s restricted share grant and deferred share grant plans. The value, on inception, of the 2,500,000 shares under this share swap agreement was approximately $33,803. Net monthly settlements received under the share swap agreement are recorded in other income. Just Energy marks to market the fair value of the share swap agreement and has included that value in the non-current derivative financial liabilities on the consolidated statements of financial position. Changes in the fair value of the share swap agreement are recorded through the interim condensed consolidated statements of income as a change in fair value of derivative instruments.

 

Fair value (“FV”) hierarchy derivatives

 

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.

 

Level 2

 

Fair value measurements that require observable 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, significant inputs must be directly or indirectly observable in the market. Just Energy values its New York Mercantile Exchange (“NYMEX”) financial gas fixed-for-floating swaps under Level 2.

 

12 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

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 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 extend only 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.

 

For the share swap, Just Energy uses a forward interest rate curve along with a volume weighted average share price. The Eurobond conversion feature is valued using an option pricing model.

 

Just Energy’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There was no transfer into or out of Level 1, Level 2 or Level 3 during the six months ended September 30, 2017 or the year ended March 31, 2017.

 

Fair value measurement input sensitivity

 

The main cause of changes in the fair value of derivative instruments is 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 derivative financial assets (liabilities) in the FV hierarchy as at September 30, 2017: 

 

   Level 1  Level 2  Level 3  Total
Derivative financial assets  $-   $-   $24,228   $24,228 
Derivative financial liabilities   -    (20,821)   (300,705)   (321,526)
Total net derivative liabilities  $-   $(20,821)  $(276,477)  $(297,298)

 

The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at March 31, 2017:

 

   Level 1  Level 2  Level 3  Total
Derivative financial assets  $-   $-   $14,666   $14,666 
Derivative financial liabilities   -    (17,741)   (329,776)   (347,517)
Total net derivative liabilities  $-   $(17,741)  $(315,110)  $(332,851)

 

13 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at September 30, 2016:

 

   Level 1  Level 2  Level 3  Total
Derivative financial assets  $-   $-   $27,034   $27,034 
Derivative financial liabilities   -    (32,805)   (409,010)   (441,815)
Total net derivative liabilities  $-   $(32,805)  $(381,976)  $(414,781)

 

Key assumptions used when determining the significant unobservable inputs included in Level 3 of the FV hierarchy consist of:

 

(i) up to 5% price extrapolation to calculate monthly prices that extend beyond the market observable 12- to 15-month forward curve,

 

(ii) discount for counterparty non-performance risk up to 5%, and

 

(iii) discount rate in the range of 6% to 8%.

 

The following table illustrates the changes in net fair value of financial assets (liabilities) classified as Level 3 in the FV hierarchy for the following periods:

 

   Six months ended  Year ended  Six months ended
   September 30, 2017  March 31, 2017  September 30, 2016
Balance, beginning of period  $(315,110)  $(638,231)  $(638,231)
Total gains (losses)   (28,141)   (42,084)   33,542 
Purchases   14,427    (30,265)   (14,139)
Sales   (21,734)   2,084    2,648 
Settlements   74,081    393,386    234,204 
Balance, end of period  $(276,477)  $(315,110)  $(381,976)

 

(b)Classification of non-derivative financial assets and liabilities

 

As at September 30, 2017 and March 31, 2017, the carrying value of cash and cash equivalents, short-term investments, restricted cash, current trade and other receivables, unbilled revenues and trade and other payables approximates their fair value due to their short-term nature.

 

Long-term debt recorded at amortized cost has a fair value as at September 30, 2017 of $574 million (March 31, 2017 - $542 million) and 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 following exceptions:

 

(i)the $100 million, $160 million and US$150 million convertible debentures, which are fair valued based on market value; and

 

(ii)the fair value of the senior unsecured note is based on discounting future cash flows using a discount rate consistent with the above convertible debentures.

 

The $100 million, $160 million and US$150 million convertible debentures are classified as Level 1 and the senior unsecured note is classified as Level 2 in the FV hierarchy.

 

14 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

(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 investments in US and international operations.

 

The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy’s income, as a portion of Just Energy’s income is generated in U.S. dollars and is subject to currency fluctuations upon translation to Canadian dollars. Due to its growing operations in the U.S. and Europe, Just Energy expects to have a greater exposure to foreign currency fluctuations in the future than in prior years. Just Energy has economically hedged between 50% and 90% of forecasted cross border cash flows that are expected to occur within the next 12 months and between 0% and 50% of certain forecasted cross border cash flows that are expected to occur within the next 13 to 24 months. The level of economic 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, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar for the six months ended September 30, 2017, assuming that all the other variables had remained constant, profit for the period would have been $8.1 million lower/higher and other comprehensive income would have been $23.1 million lower/higher.

 

Interest rate risk

 

Just Energy is only 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 long-term debt exposes it to material interest rate 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) of approximately $300 in profit before income taxes for the six months ended September 30, 2017 (2016 – $23).

 

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 flows of Just Energy. Just Energy mitigates the exposure to 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 degree to which weather conditions deviate from normal.

 

15 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

Commodity price sensitivity – all derivative financial instruments

 

If all the energy prices associated with derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all of the other variables had remained constant, profit before income taxes for the six months ended September 30, 2017 would have increased (decreased) by $102,249 ($101,265), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

Commodity price sensitivity – Level 3 derivative financial instruments

 

If the energy prices associated with only Level 3 derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all of the other variables had remained constant, profit before income taxes for the six months ended September 30, 2017 would have increased (decreased) by $106,413 ($105,437), primarily as a result of the change in fair value of Just Energy’s derivative financial 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, California, Michigan, Delaware, Ohio, Georgia and the United Kingdom, 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.

 

16 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The aging of the accounts receivable from the above markets was as follows: 

 

   September 30, 2017  March 31, 2017  September 30, 2016
          
Current  $106,374   $96,510   $132,018 
1 – 30 days   33,750    30,672    38,168 
31 – 60 days   15,910    12,806    15,047 
61 – 90 days   8,315    8,358    9,062 
Over 90 days   53,860    47,059    32,715 
   $218,209   $195,405   $227,010 

 

Changes in the allowance for doubtful accounts were as follows:

 

   September 30, 2017  March 31, 2017  September 30, 2016
          
Balance, beginning of period  $49,431   $58,789   $58,789 
Provision for doubtful accounts   29,035    56,041    28,388 
Bad debts written off   (18,505)   (64,262)   (43,280)
Other   (4,018)   (1,137)   (210)
Balance, end of period  $55,943   $49,431   $43,687 

 

In the remaining markets, the local distribution companies (“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 providing 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 Just Energy. 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 September 30, 2017, the estimated counterparty credit risk exposure amounted to $24,228 (2016 - $27,034), representing the risk relating to Just Energy’s exposure to derivatives that are in an asset position.

 

(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.

 

17 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities:

 

As at September 30, 2017:

 

 

   Carrying  Contractual  Less than        More than
   amount  cash flows  1 year  1-3 years  4-5 years  5 years
Trade and other payables  $527,289   $527,289   $527,289   $-   $-   $- 
Long-term debt1   540,437    564,720    217,520    187,200    160,000    - 
Gas, electricity and non-commodity contracts   321,525    2,963,917    1,064,880    1,567,294    279,685    52,058 
   $1,389,251   $4,055,926   $1,809,689   $1,754,494   $439,685   $52,058 

 

As at March 31, 2017: 

 

   Carrying  Contractual  Less than        More than
   amount  cash flows  1 year  1-3 years  4-5 years  5 years
Trade and other payables  $486,632   $486,632   $486,632   $-   $-   $- 
Long-term debt   498,088    527,743    -    367,743    160,000    - 
Gas, electricity and non-commodity contracts   347,517    3,397,692    1,982,896    1,189,745    188,282    36,769 
   $1,332,237   $4,412,067   $2,469,528   $1,557,488   $348,282   $36,769 

 

As at September 30, 2016:

 

   Carrying  Contractual  Less than        More than
   amount  cash flows  1 year  1-3 years  4-5 years  5 years
Trade and other payables  $542,614   $542,614   $542,614   $-   $-   $- 
Long-term debt   644,013    671,407    374,652    100,000    196,755    - 
Gas, electricity and non-commodity contracts   441,815    3,667,345    1,185,836    2,092,389    344,388    44,732 
   $1,628,442   $4,881,366   $2,103,102   $2,192,389   $541,143   $44,732 

 

1 Included in long-term debt are the $100,000 and $160,000 relating to convertible debentures and US$150,000 relating to convertible bonds, 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, as at September 30, 2017, the contractual net interest payments over the term of the long-term debt with scheduled repayment terms are as follows:

 

  

Less than

1 year

  1 - 3 years  4 - 5 years 

More than

5 years

Interest payments  $28,718   $33,768   $16,200   $- 

 

(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. As at September 30, 2017, Just Energy has applied a discount factor to determine the fair value of its financial assets in the amount of $5,562 (2016 - $5,625) to accommodate for its counterparties’ risk of default.

 

18 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

9. ACQUISITION OF BUSINESSES

 

a)Acquisition of Intell Enercare Solutions Inc.

 

On June 6, 2017, Just Energy completed the acquisition of 100% of the issued and outstanding shares of Intell Enercare Solutions Inc., a complete service provider for supply, design and installation of energy saving technologies, for up to $11.0 million, subject to closing adjustments. Terms of the deal include an initial payment of $2.2 million with the preliminary working capital adjustments still subject to finalization. Also, Just Energy will pay up to $9.0 million to the sellers over three years provided that certain EBITDA targets are satisfied. The fair value of the contingent consideration at acquisition was estimated to be $7.8 million.

 

The acquisition of Intell Enercare Solutions Inc. was accounted for using the purchase method of accounting. Just Energy allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:

 

NET ASSETS ACQUIRED   
    
Intangible assets  $1,753 
Goodwill   9,222 
Working capital   (523)
Deferred tax   (465)
Total consideration  $9,987 
      
Cash paid, net of estimated working capital adjustment  $2,199 
Contingent consideration   7,788 
Total consideration  $9,987 

 

The purchase price allocation is considered preliminary, and as a result may be adjusted. The transaction costs related to the acquisition have been expensed and are included in other operating expenses in the interim condensed consolidated Statement of income.

 

b)Acquisition of db swidirekt GmbH and db swpro GmbH

 

On December 8, 2016, Just Energy completed the acquisition of 95% of the issued and outstanding shares of SWDirekt, a retail energy company, and 50% of the issued and outstanding shares of SWPro, a sales and marketing company, for $6.2 million, subject to closing adjustments. Terms of the deal include a $2.2 million payment upon the achievement of sales targets. In addition, variable compensation is payable to the selling shareholders, which will be recorded as remuneration expense in the future, subject to the financial performance of the acquired businesses. On October 16, 2017, the managing director of SWDirekt and SWPro resigned and the parties have entered into a consultancy agreement in order to secure the services and support for the future. As a result, the variable compensation that would have been payable to the selling shareholders will not be paid.

 

19 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

The acquisition of SWDirekt and SWPro was accounted for using the purchase method of accounting. The purchase price allocation is still considered preliminary, and as a result may be adjusted. Just Energy allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:

 

NET ASSETS ACQUIRED   
    
Working Capital (including cash of $77)  $361 
Property, plant and equipment   56 
Intangible assets   6,003 
Non-controlling interest   (41)
Other liabilities   (221)
Total consideration  $6,158 
      
Cash paid, net of estimated working capital adjustment  $3,994 
Contingent consideration   2,164 
Total consideration  $6,158 

 

10.NON-CONTROLLING INTEREST

 

On August 1, 2017, Just Energy announced that it reached an agreement with its joint venture partner, Red Ventures LLC, to end the exclusive relationship for online sales of the Just Energy brand in North America.  To facilitate the transaction, Just Energy acquired the outstanding 50% interest of each of Just Ventures LLC in the United States and Just Ventures L.P. in Canada. Under the terms of the agreement, the purchase price is a function of go-forward earnings based on the current client base and is payable in quarterly installments over five years estimated at $102.3 million, of which $37.8 million has been presented as current liabilities and $64.5 million as long term liabilities.

 

11. LONG-TERM DEBT AND FINANCING

 

      September 30,  March 31,  September 30,
   Maturity  2017  2017  2016
Credit facility (a)   September 1, 2018   $117,520   $68,258   $- 
Less: Debt issue costs (a)        (1,460)   (2,257)   (2,363)
6.75% convertible debentures (b)   December 31, 2021    146,834    145,579    - 
6.5% convertible bonds (c)   July 29, 2019    180,251    190,486    186,107 
5.75% convertible debentures (d)   September 30, 2018    97,292    96,022    94,804 
6.0% convertible debentures   N/A    -    -    313,452 
Senior unsecured note   N/A    -    -    55,000 
Less: Debt issue costs        -    -    (2,987)
         540,437    498,088    644,013 
Less: Current portion        (214,812)   -    (365,465)
        $325,625   $498,088   $278,548 

 

 

20 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

Future annual minimum repayments are as follows:

 

  

Less than

1 year

  1-3 years  4-5 years 

More than

5 years

  Total
                
Credit facility (a)  $117,520   $-   $-   $-   $117,520 
6.75% convertible debentures (b)   -    -    160,000    -    160,000 
6.5% convertible bonds (c)   -    187,200    -    -    187,200 
5.75% convertible debentures (d)   100,000    -    -    -    100,000 
   $217,520   $187,200   $160,000   $-   $564,720 

 

Interest is expensed based on the effective interest rate. The following table details the finance costs for the indicated periods:

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
   2017  2016  2017  2016
Credit facility (a)  $2,932   $2,229   $5,570   $4,220 
6.75% convertible debentures (b)   3,342    -    6,062    - 
6.0% convertible debentures   -    6,950    -    13,846 
6.5% convertible bonds (c)   3,687    4,144    7,741    8,113 
5.75% convertible debentures (d)   2,072    2,438    4,145    4,042 
Senior unsecured note   -    1,808    -    5,227 
Unwinding of discount and other   488    313    993    407 
   $12,521   $17,882   $24,511   $35,855 

 

(a) As at September 30, 2017, Just Energy has a $342.5 million credit facility to meet working capital requirements, which includes an increase to the capacity by $50 million for a letter of credit facility (the LC facility), effective December 30, 2016. The principal amount outstanding under the LC facility is guaranteed by Export Development Canada under its Account Performance Security Guarantee Program. The syndicate of lenders includes Shell Energy North America (Canada) Inc./Shell Energy North America (US), L.P., Canadian Imperial Bank of Commerce (?CIBC?), National Bank of Canada, HSBC Bank Canada, Alberta Treasury Branches, JP Morgan Chase Bank, N.A. and Canadian Western Bank.

 

Interest is payable on outstanding loans at rates that vary with Bankers’ Acceptance rates, 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 3.400%. Prime rate advances are at a rate of bank prime (Canadian bank prime rate or U.S. prime rate) plus 2.400% and letters of credit are at a rate of 3.400%. Interest rates are adjusted quarterly based on certain financial performance indicators.

 

As at September 30, 2017, the Canadian prime rate was 3.20% and the U.S. prime rate was 4.25%. Just Energy has drawn $117.5 million against the facility and the total letters of credit outstanding as of current period amounted to $97.5 million (March 31, 2017 - $109.2 million). As at September 30, 2017, Just Energy has $122.5 million of the facility remaining as well as a $5.0 million swing line with CIBC for future working capital and/or security requirements. Just Energy’s obligations under the credit facility is 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, primarily, the international operations. The credit facility is presented as a current portion of long term debt as at September 30, 2017 as it matures on September 1, 2018.

 

21 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

Just Energy is required to meet a number of financial covenants under the various debt agreements. As at September 30, 2017, all of the covenants have been met except for the distributable free cash flow covenant required under the credit facility. Due to this breach of the covenant clause, the lending syndicate is entitled to request the outstanding amount for immediate repayment. On November 6, 2017, Just Energy obtained a waiver from the lending syndicate that waives the right to demand repayment of the credit facility solely in relation to the distributable free cash flow covenant breach as at September 30, 2017. The covenant breach on the credit facility did not result in any other defaults on the Company’s long-term debt. The Company is actively taking steps to enhance its distributable cash including consolidating excess cash into entities within the credit facility and expects these actions will enable it to meet its covenants in the future. Additionally, the Company is conducting cost reduction programs and revenue pricing initiatives and, as always, will consider other activities as necessary to further support this ability.

 

(b)On October 5, 2016, Just Energy issued $160 million of convertible unsecured senior subordinated debentures (the “6.75% convertible debentures”). The 6.75% convertible debentures bear interest at an annual rate of 6.75%, payable semi-annually in arrears on June 30 and December 31 in each year, and have a maturity date of December 31, 2021.

 

(c)On January 29, 2014, Just Energy issued US$150 million of European-focused senior convertible unsecured convertible bonds (the “6.5% convertible bonds”). The 6.5% convertible bonds bear interest at an annual rate of 6.5%, payable semi-annually in arrears in equal installments on January 29 and July 29 in each year, and have a maturity date of July 29, 2019. Just Energy incurred transaction costs of $5,215 and has shown these costs net of the 6.5% convertible bonds.

 

(d)In September 2011, Just Energy issued $100 million of convertible unsecured subordinated debentures (the “5.75% convertible debentures”), which was used to fund an acquisition. The 5.75% convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year, and have a maturity date of September 30, 2018.

 

12.INCOME TAXES

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016
Current income tax expense  $3,893   $2,571   $4,484   $4,626 
Deferred tax expense (recovery)   (5,726)   2,310    480    25,552 
Provision for (recovery of) income taxes  $(1,833)  $4,881   $4,964   $30,178 

 

13. SHAREHOLDERS’ CAPITAL

 

Just Energy is authorized to issue an unlimited number of common shares and 50,000,000 preference shares issuable in series, both with no par value. Shares outstanding have no preferences, rights or restrictions attached to them.

 

22 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

On February 7, 2017, Just Energy closed its underwritten public offering of 4,000,000 of its 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “preferred shares”) at a public offering price of US$25.00 per preferred share, for gross proceeds of US$100 million. In addition, concurrently with the closing of the public offering of preferred shares, Just Energy closed a non-brokered private placement of 40,000 Preferred Shares at a price of US$25.00 per preferred share, for gross proceeds of US$1 million.

 

Just Energy has the ability to make a normal course issuer bid (“NCIB”) to purchase for cancellation a portion of the outstanding 5.75% convertible debentures as well as the Just Energy common shares up to March 16, 2018. Under each NCIB, Just Energy may purchase debentures and common shares representing 10% of the outstanding public float at close of business February 28, 2017 up to daily and total limits. For the six months ended September 30, 2017, Just Energy had purchased $11.9 million of common shares through the NCIB program, compared to $nil, purchased in the prior comparable period.

 

Details of issued and outstanding shareholders’ capital are as follows:

 

   Six months ended  Year ended  Six months ended
   September 30, 2017  March 31, 2017  September 30, 2016
   Shares  Amount  Shares  Amount  Shares  Amount
Common Shares:                  
                   
Issued and outstanding                  
Balance, beginning of period   147,013,538   $1,070,076    147,183,778   $1,069,434    147,183,778   $1,069,434 
Share-based awards exercised   1,516,830    10,674    679,760    7,191    609,183    6,384 
Repurchase and cancellation of shares   (1,677,827)   (11,941)   (850,000)   (6,549)   -    - 
Balance, end of period   146,852,541   $1,068,809    147,013,538   $1,070,076    147,792,961   $1,075,818 
                               
Preferred Shares:                              
                               
Issued and outstanding                              
Balance, beginning of period   4,040,000   $128,363    -   $-    -   $- 
Shares issued for cash   149,950    5,195    4,040,000    132,973    -    - 
Preferred shares issuance cost   -    (650)   -    (4,610)   -    - 
Balance, end of period   4,189,950   $132,908    4,040,000   $128,363    -   $- 
                               
Shareholders' capital   151,042,491   $1,201,717    151,053,538   $1,198,439    147,792,961   $1,075,818 

 

14. REPORTABLE BUSINESS SEGMENTS

 

Just Energy’s reportable segments include the following: Consumer Energy and Commercial Energy.

 

Transactions between operating segments are in the normal course of operations and are recorded at the exchange amount. Allocations made between segments for shared assets or allocated expenses are based on the number of customers in the respective segments.

 

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 Interim Financial Statements. Just Energy is not considered to have any key customers.

 

23 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

For the three months ended September 30, 2017

 

   Consumer  Commercial  Consolidated
   division  division   
          
Sales  $504,705   $347,222   $851,927 
Gross margin   107,386    35,277    142,663 
Depreciation of property, plant and equipment   909    76    985 
Amortization of intangible assets   3,852    479    4,331 
Administrative expenses   32,294    14,512    46,806 
Selling and marketing expenses   36,648    21,929    58,577 
Other operating expenses   20,407    (4,928)   15,479 
Operating profit for the period  $13,276   $3,209   $16,485 
Finance costs             (12,521)
Change in fair value of derivative instruments and other             (70,923)
Other loss             203 
Provision for income taxes             1,833 
Loss for the period            $(64,923)
Capital expenditures  $5,015   $2,470   $7,485 

 

For the three months ended September 30, 2016

 

   Consumer  Commercial  Consolidated
   division  division   
          
Sales  $527,286   $465,542   $992,828 
Gross margin   130,631    52,903    183,534 
Depreciation of property, plant and equipment   919    80    999 
Amortization of intangible assets   3,409    393    3,802 
Administrative expenses   32,905    13,812    46,717 
Selling and marketing expenses   36,259    23,195    59,454 
Other operating expenses   12,418    3,825    16,243 
Operating profit for the period  $44,721   $11,598   $56,319 
Finance costs             (17,882)
Change in fair value of derivative instruments and other             (194,389)
Other loss             (775)
Provision for income taxes             (4,881)
Loss for the period            $(161,608)
Capital expenditures  $1,289   $645   $1,934 

 

24 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

For the six months ended September 30, 2017

 

   Consumer  Commercial  Consolidated
   division  division   
          
Sales  $991,471   $708,162   $1,699,633 
Gross margin   222,892    77,334    300,226 
Depreciation of property, plant and equipment   1,823    159    1,982 
Amortization of intangible assets   6,808    983    7,791 
Administrative expenses   69,075    26,362    95,437 
Selling and marketing expenses   72,648    44,005    116,653 
Other operating expenses   44,868    1,130    45,998 
Operating profit for the period  $27,670   $4,695   $32,365 
Finance costs             (24,511)
Change in fair value of derivative instruments and other             39,694 
Other loss             1,802 
Provision for income taxes             (4,964)
Profit for the period            $44,386 
Capital expenditures  $10,372   $5,109   $15,481 
                
As at September 30, 2017               
Total goodwill  $143,184   $148,441   $291,625 
Total assets  $848,423   $428,386   $1,276,809 
Total liabilities  $1,336,073   $209,090   $1,545,163 

 

 

25 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

For the six months ended September 30, 2016

 

   Consumer  Commercial  Consolidated
   division  division   
          
Sales  $991,352   $899,885   $1,891,237 
Gross margin   255,379    90,827    346,206 
Depreciation of property, plant and equipment   1,716    143    1,859 
Amortization of intangible assets   5,817    903    6,720 
Administrative expenses   67,054    24,364    91,418 
Selling and marketing expenses   71,661    45,583    117,244 
Other operating expenses   23,670    7,620    31,290 
Operating profit for the period  $85,461   $12,214   $97,675 
Finance costs             (35,855)
Change in fair value of derivative instruments and other             290,948 
Other loss             (1,527)
Provision for income taxes             (30,178)
Profit for the period            $321,063 
Capital expenditures  $2,437   $1,219   $3,656 
                
As at September 30, 2016               
Total goodwill  $143,629   $137,996   $281,625 
Total assets  $961,404   $360,038   $1,321,442 
Total liabilities  $1,537,597   $160,637   $1,698,234 

 

Sales from external customers

 

The revenue is based on the location of the customer. 

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016
Canada  $77,312   $97,584   $160,691   $198,307 
United States   637,793    793,291    1,272,305    1,471,849 
United Kingdom   136,822    101,953    266,637    221,081 
Total  $851,927   $992,828   $1,699,633   $1,891,237 

 

26 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

Non-current assets

 

Non-current assets by geographic segment consist of property, plant and equipment and intangible assets and are summarized as follows: 

 

   As at September 30, 2017  As at March 31, 2017  As at September 30, 2016
Canada  $201,868   $189,911   $195,357 
United States   177,000    182,840    176,914 
International   8,670    6,918    965 
Total  $387,538   $379,669   $373,236 

 

15.       OTHER EXPENSES

 

(a)Other operating expenses

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016
Amortization of other intangible assets  $4,331   $3,802   $7,791   $6,720 
Depreciation of property, plant and equipment   985    999    1,982    1,859 
Bad debt expense   13,763    14,818    29,035    28,388 
Share-based compensation   1,716    1,425    16,9631   2,902 
   $20,795   $21,044   $55,771   $39,869 

 

1 During the period ended June 30, 2017, Just Energy awarded 1,670,435 numbers of restricted stock grants and performance bonus grants that vested immediately with a grant date fair value of $7.08 per share.

 

(b) Employee benefits expense

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016
Wages, salaries and commissions  $56,447   $54,773   $112,618   $108,528 
Benefits   6,193    8,238    12,503    16,291 
   $62,640   $63,011   $125,121   $124,819 

 

27 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

16.       EARNINGS (LOSS) PER SHARE

 

   Three months  Three months  Six months  Six months
   ended  ended  ended  ended
   Sept. 30, 2017  Sept. 30, 2016  Sept. 30, 2017  Sept. 30, 2016
BASIC EARNINGS (LOSS) PER SHARE            
Earnings (loss) available to shareholders  $(68,864)  $(167,262)  $34,994   $309,972 
Basic weighted average shares outstanding   146,821,112    147,765,764    146,941,860    147,524,632 
Basic earnings (loss) per share available to shareholders  $(0.47)  $(1.13)  $0.24   $2.10 
                     
DILUTED EARNINGS (LOSS) PER SHARE                    
Earnings (loss) available to shareholders  $(68,864)  $(167,262)  $34,994   $309,972 
Adjustment for dilutive impact of convertible debentures   -    -    2,088    15,499 
Adjusted earnings (loss) available to shareholders  $(68,864)  $(167,262)  $37,082   $325,471 
Basic weighted average shares outstanding    146,821,112    147,765,764    146,941,860    147,524,632 
Dilutive effect of:                    
Restricted share grants   2,884,8091.00    2,910,112 1     2,866,591    3,016,332 
Deferred share grants   101,2941.00    84,946 1     97,465    73,613 
Convertible debentures   38,804,4941.00    39,933,526 1     38,804,494    39,933,526 
Shares outstanding on a diluted basis   188,611,709    190,694,348    188,710,410    190,548,103 
Diluted earnings (loss) per share available to shareholders  $(0.47)  $(1.13)  $0.22   $1.71 

 

1 The assumed conversion into shares results in an anti-dilutive position; therefore, these items have not been included in the computation of diluted earnings (loss) per share.

 

17.DIVIDENDS PAID

 

For the three months ended September 30, 2017, a dividend of $0.125 (2016 - $0.125) per common share was declared by Just Energy. This dividend amounted to $18,652 (2016 - $18,814), which was approved by the Board of Directors and paid out during the period. For the six months ended September 30, 2017, dividends of $0.25 (2016 - $0.25) per common share were declared and paid by Just Energy. This amounted to $37,413 (2016 - $37,607), which was approved by the Board of Directors and paid out during the period.

 

For the three months ended September 30, 2017, a dividend of US$0.53125 (2016 - $nil) per preferred share was declared by Just Energy. This dividend amounted to $2,806 (2016 - $nil), which was approved by the Board of Directors and paid out during the period. For the six months ended September 30, 2017, dividends of US$1.0625 (2016 - $nil) per preferred share were declared and paid by Just Energy. This amounted to $5,815 (2016 - $nil), which was approved by the Board of Directors and paid out during the period.

 

28 

 

 

JUST ENERGY GROUP INC.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended September 30, 2017

(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

 

18.COMMITMENTS AND GUARANTEES

 

Commitments for each of the next five years and thereafter are as follows:

 

As at September 30, 2017 

 

  

Less than

1 year

  1-3 years  4-5 years 

More than

5 years

  Total
Premises and equipment leasing  $2,561   $9,576   $8,017   $11,303   $31,457 
Gas, electricity and non-commodity contracts   1,064,880    1,567,294    279,685    52,058    2,963,917 
   $1,067,441   $1,576,870   $287,702   $63,361   $2,995,374 

 

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. No purchase options are included in any major leasing contracts. 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.

 

Guarantees

 

Pursuant to separate arrangements with Westchester Fire Insurance Company, Travelers Casualty and Surety Company of America, Berkley Insurance Company and Charter Brokerage LLC, Just Energy has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at September 30, 2017 amounted to $49.3 million.  

 

As at September 30, 2017, Just Energy had total letters of credit outstanding in the amount of $97.5 million (Note 11(a)).

 

19.COMPARATIVE INTERIM FINANCIAL STATEMENTS

 

Certain figures in the comparative Interim Financial Statements have been reclassified from statements previously presented to conform to the presentation of the current period’s Interim Financial Statements.

 

 

29