UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

 

FORM 40-F

 

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

  For the fiscal year ended March 31, 2019     Commission File Number: 001-35400

 

JUST ENERGY GROUP INC.

( Exact name of Registrant as specified in its charter )

 

Canada
( Province or other Jurisdiction of
Incorporation or Organization ) 		4924
( Primary Standard Industrial
Classification Code Number) 		Not Applicable
( I.R.S. Employer Identification No. )
     

6345 Dixie Road, Suite 200
Mississauga, Ontario, Canada L5T 2E6
(905) 670-4440
( Address and telephone number of Registrant's principal executive offices )

 

Just Energy (U.S.) Corp.
5251 Westheimer Road, Suite 1000
Houston, Texas 77056
(855) 694-8529
( Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States )

 

_________________

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class
Common Shares, No Par Value

8.50% Series A Fixed-to-Floating
Rate Cumulative Redeemable
Perpetual Preferred Shares

Trading Symbol(s)
JE

JE.PR.A

Name of Each Exchange on Which Registered
New York Stock Exchange

New York Stock Exchange

     
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
For annual reports, indicate by check mark the information filed with this Form:
[X]   Annual information form [X]   Audited annual financial statements

 

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

 

The Registrant had 149,595,952 Common Shares outstanding and 4,662,165 Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares outstanding as at March 31, 2019

 

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒   No ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 

Emerging growth company ☐

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

 

 

 

 

 

 

 

A. Disclosure Controls and Procedures

 

Disclosure controls and procedures are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), as those controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Rule 13a-15(e) also provides that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrant is accumulated and communicated to the Registrant's management as appropriate to allow timely decisions regarding required disclosure.

 

The Registrant’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Registrant's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as of March 31, 2019 and have determined that such disclosure controls and procedures were effective as of March 31, 2019.

 

As disclosed under the heading “Management’s Discussion and Analysis – Controls and Procedures,” contained in the Management’s Discussion and Analysis (the “MD&A”) for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report on Form 40-F (this “Annual Report”), in January 2019, the Registrant identified and remediated a deficiency in the design and operating effectiveness of certain internal controls related to the preparation, analysis and review of certain gross margin accounts in certain markets. Upon identification of the deficiency, the Registrant designed internal controls, including account reconciliations, to remediate the deficiency in design.  These new internal controls were effectively operated for the months ended February 28, 2019 and March 31, 2019, and the internal control deficiency is considered to be effectively remediated as at March 31, 2019. No other changes were made in the Registrant’s internal control over financial reporting or in other factors during the period covered by this Annual Report that have materially affected or are likely to materially affect the Registrant’s internal control over financial reporting.

 

The information provided under the heading “Management’s Discussion and Analysis – Controls and Procedures,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

B. Management's Annual Report on Internal Control Over Financial Reporting

 

Management of the Registrant is responsible for establishing and maintaining adequate internal control over the Registrant's financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. The Registrant's Chief Executive Officer and Chief Financial Officer have assessed the effectiveness of the Registrant's internal control over financial reporting as at March 31, 2019 in accordance with the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, the Registrant’s Chief Executive Officer and the Chief Financial Officer have determined that the Registrant’s internal control over financial reporting was effective as of March 31, 2019.

 

The information provided under the heading “Management’s Discussion and Analysis – Controls and Procedures – Internal Control over Financial Reporting,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

 

 

C. Attestation Report of the Registered Public Accounting Firm

 

Ernst & Young LLP (“E&Y”), the independent registered public accounting firm of the Registrant, has issued an attestation report on the effectiveness of the internal control over financial reporting of the Registrant as of March 31, 2019. For a copy of E&Y's report see Exhibit 1.3 to this Annual Report.

 

D. Changes in Internal Control Over Financial Reporting

 

During the period covered by this Annual Report, the Registrant identified and remediated a deficiency in the design and operating effectiveness of certain internal controls related to the preparation, analysis and review of certain gross margin accounts in certain markets. Upon identification of the deficiency, the Registrant designed internal controls, including account reconciliations, to remediate the deficiency in design. There have been no other changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

E. Notice of Pension Fund Blackout Period

 

The Registrant was not required by Rule 104 of Regulation BTR to send any notice to any of its directors or executive officer during the fiscal year ended March 31, 2019.

 

F. Audit Committee Financial Expert

 

The Registrant’s board of directors has determined that Mr. H. Clark Hollands, an individual serving on the audit committee of the Registrant's board of directors, is an audit committee financial expert within the meaning of General Instruction B(8)(b) of Form 40-F under the Exchange Act and is independent within the meaning of Rule 10A-3 under the Exchange Act and the listing standards of the New York Stock Exchange.

 

The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

 

G. Code of Ethics

 

The Registrant has adopted a code of ethics (the “Code of Conduct”) that applies to all directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. The Code of Conduct is available on the Registrant’s internet website, www.justenergygroup.com, under the “Corporate Governance” tab and will be provided without charge to any person that requests a copy by contacting the Corporate Secretary of the Registrant at the address that appears on the cover page of this Annual Report.

 

H. Principal Accountant Fees and Services and Audit Committee Pre-Approval Policies

 

Principal Accountant Fees

 

The information provided under the heading “Schedule “A” – Audit Committee Information Required in an AIF – External Auditor Service Fees” in the Annual Information Form for the fiscal year ended March 31, 2019, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

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Audit Committee Pre-Approval Policies and Procedures

 

All audit and non-audit services performed by the Registrant's external auditor must be pre-approved by the audit committee of the Registrant.

 

For the fiscal year ended March 31, 2019, all audit and non-audit services performed by E&Y were pre-approved by the audit committee of the Registrant.

 

The information provided under the headings “Pre-Approval Policies and Procedures” and “External Auditor Service Fees” contained in the Annual Information Form for the year ended March 31, 2019, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

I. Off-Balance Sheet Arrangements

 

The Registrant has issued letters of credit in accordance with its credit facility totaling $94.0 million to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group and Charter Brokerage LLC, the Registrant 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 March 31, 2019 were $70.3 million.

 

The information provided under the heading “Management's Discussion and Analysis – Off Balance Sheet Items,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

J. Tabular Disclosure of Contractual Obligations

 

The information provided under the heading “Management's Discussion and Analysis – Contractual Obligations,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

K. Identification of the Audit Committee

 

The Registrant has established a separately-designated standing audit committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee is comprised of Messrs. Gahn, Hollands, Ross and Weld, all of whom are independent as such term is defined under Rule 10A-3 of the Exchange Act and the listing standards of the New York Stock Exchange.

 

L. Critical Accounting Policies

 

The information provided under the heading “Management's Discussion and Analysis – Critical Accounting Estimates,” contained in the MD&A for the year ended March 31, 2019, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

 

  3  

 

M. Interactive Data File

 

The Registrant has submitted to the SEC, included in Exhibit 101 to this Annual Report, an Interactive Data File.

 

N. Mine Safety

 

The Registrant is not currently required to disclose the information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

O. Corporate Governance Practices

 

There are certain differences between the corporate governance practices applicable to the Registrant and those applicable to U.S. companies under the NYSE listing standards. A summary of these differences can be found on the Registrant's website at www.justenergygroup.com.

 

  4  

 

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

 

A. Undertaking

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities in relation to which the obligation to file an annual report on Form 40-F arises or transactions in said securities.

 

B. Consent to Service of Process

 

The Registrant has previously filed with the SEC a Form F-X in connection with its common shares. Any change to the name or address of the agent for service of process shall be communicated promptly to the SEC by an amendment to the Form F-X.

 

EXHIBITS

The following exhibits are filed as part of this Annual Report:

 

Number Document
1.1 Annual Information Form for the year ended March 31, 2019
1.2 Management's Discussion and Analysis for the year ended March 31, 2019
1.3 Audited Consolidated Financial Statements for the year ended March 31, 2019, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, including the report of the auditors thereon
23.1 Consent of Ernst & Young LLP
31.1 Certification of the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive Data File

 

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SIGNATURE

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

 

    JUST ENERGY GROUP INC.
       
       
Dated: May 21, 2019 By: /s/ Jim Brown
    Name: Jim Brown
  Title: Chief Financial Officer

Exhibit 1.1

 

 

 

 

 

 

 

 

ANNUAL INFORMATION FORM

 

JUST ENERGY GROUP INC.

 

MAY 15, 2019

 

 

 

 

 

 

 

JUST ENERGY GROUP INC.

 

May 15, 2019

 

ANNUAL INFORMATION FORM (1)(2)

 

TABLE OF CONTENTS

Page

Forward Looking StatementS 1
three year history of the company 5
BUSINESS OF JUST ENERGY 9
RISK FACTORS 22
DIVIDENDS and distributions 22
MARKET FOR SECURITIES 23
PRIOR SALES 26
Escrowed securities 26
DIRECTORS AND Executive OFFICERS OF the company 26
LEGAL PROCEEDINGS and regulatory actionS 30
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 31
AUDITORS, TRANSFER AGENT AND REGISTRAR 31
INTEREST OF EXPERTS 31
MATERIAL CONTRACTS 31
AUDIT COMMITTEE INFORMATION 32
ADDITIONAL INFORMATION 32
schedule “A” - FORM 52-110F1 33
SCHEDULE “B” - AUDIT COMMITTEE MANDATE 35
SCHEDULE “C” - GLOSSARY 39

 

(1) Except as otherwise indicated, all information in this Annual Information Form is as at May 15, 2019.

(2) All capitalized terms not otherwise defined in the body of this Annual Information Form shall have the meanings ascribed to them in Schedule C - Glossary.

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Annual Information Form and documents incorporated by reference herein constitute forward-looking statements. These statements relate to future events and future performance. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “may”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Just Energy Group Inc. (the “Company”) believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, this Annual Information Form, and the documents incorporated by reference herein, contain forward-looking statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, dividends, the ability to compete successfully and treatment under governmental regimes. Some of the risks that could affect the Company’s future results and could cause results to differ materially from those expressed in forward-looking statements include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuation in natural gas and electricity prices, extreme weather patterns, changes in regulatory regimes, decisions by regulatory authorities and competition. See “Risk Factors” for additional information on these and other factors that could affect the Company’s operations, financial results or dividend levels. These risks include, but are not limited to, risks relating to: credit, commodity and other market-related risks including availability of supply, volatility of commodity prices, availability of credit, market risk, energy trading inherent risk, customer credit risk, counterparty credit risk, electricity, and natural gas supply balancing risk; operational risks including, reliance on information technology systems, outsourcing arrangements, dependence on independent sales contractors and brokers, electricity and gas contract renewals and attrition rates, commodity alternatives, capital asset and replacement risk, credit facilities and other debt arrangements; and legal, regulatory and securities risks including legislative and regulatory environment, investment eligibility, changes in legislation, dependence on federal and provincial legislation and regulation, and the outcome of litigation. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of future results. These forward-looking statements are made as of the date of this Annual Information Form and, except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements.

 

 

Just Energy Group Inc.

 

Just Energy Group Inc. (the “ Company ” or “ Just Energy ”) is a CBCA corporation created on January 1, 2011, pursuant to a plan of arrangement approved by unitholders of the Just Energy Income Fund (the “ Fund ”) on June 29, 2010, and by the Alberta Court of the Queen’s Bench on June 30, 2010 (the “ Trust Conversion ”). See “Articles of Arrangement of the Company” on page 3 for a detailed description of the Articles and Common Shares of the Company. The head offices of the Company are located at 6345 Dixie Road, Suite 400, Mississauga, Ontario, L5T 2E6 and 5251 Westheimer Road, Suite 1000, Houston, Texas 77056. Its registered office is located at First Canadian Place, 100 King Street West, Suite 2630, Toronto, Ontario, M5X 1E1. The predecessors of the Company were founded in 1997 and went public on the Toronto Stock Exchange in April of 2001.

 

Organizational Structure of the Company

 

The following diagram sets forth the simplified organizational structure of the Company.

 

 

Notes:

 

(1) The Canadian Subsidiaries are corporations, limited partnerships, and unlimited liability companies directly or indirectly wholly-owned by the Company. The Canadian material or operating Subsidiaries are Just Energy Ontario L.P. (Ontario); Just Energy Alberta L.P. (Alberta); Just Green L.P. (Alberta); Just Energy Manitoba L.P. (Manitoba); Just Energy B.C. Limited Partnership (British Columbia); Just Energy Québec L.P. (Quebec); Just Energy Prairies L.P. (Manitoba); Just Energy Trading L.P. (Ontario); Hudson Energy Canada Corp. (Canada); Just Energy Advanced Solutions Corp. (Ontario); and Filter Group Inc. Just Energy Corp. is the general partner of each of the Canadian operating limited partnerships. Additionally, the Company indirectly holds an approximate 8% fully diluted interest in ecobee Inc., a manufacturer and distributor of smart thermostats located in Toronto, Ontario.
(2) The U.S. Subsidiaries are corporations, limited liability companies and limited partnerships indirectly wholly-owned by the Company and are incorporated or formed, as applicable, under the laws of the State of Delaware, unless otherwise noted. The U.S. material or operating Subsidiaries are Just Energy (U.S.) Corp.; Just Energy Illinois Corp.; Just Energy Indiana Corp.; Just Energy Massachusetts Corp.; Just Energy New York Corp.; Just Energy Texas I Corp.; Just Energy Texas LP (Texas); Just Energy Pennsylvania Corp.; Just Energy Solutions Inc. (California); Just Energy Marketing Corp.; Just Energy Michigan Corp.; Hudson Energy Services LLC (New Jersey); Just Energy Limited; Fulcrum Retail Energy LLC d/b/a Amigo Energy (Texas); Tara Energy, LLC (Texas); Just Solar Holdings Corp.; Interactive Energy Group LLC; EdgePower, Inc.; and Filter Group US Inc.
(3) Foreign material or operating Subsidiaries. Hudson Energy Supply UK Limited is a wholly-owned subsidiary of the Company operating in the United Kingdom. Just Energy Deutschland GmbH is an indirect subsidiary of the Company operating in Germany. JEBPO Services LLP is an indirect wholly-owned Indian subsidiary of the Company which provides services to the Company and its affiliates. Just Energy Japan K.K. and Just Energy Japan G.K. are indirect subsidiaries of the Company operating in Japan. Just Energy (Ireland) Limited is an indirect subsidiary of the Company operating in Ireland.

 

  2  

 

Brands

 

The Company operates under the following brands:

 

 

Articles of Arrangement of the Company

 

Below is a summary of the Articles of Arrangement of the Company. For a full description, please see www.sedar.com, www.sec.gov or www.justenergygroup.com.

 

Share Capital of the Company

 

The authorized share capital of the Company consists of an unlimited number of Common Shares and 50,000,000 Preferred Shares of which, as of May 15, 2019, 149,705,030 Common Shares and 4,662,165 Preferred Shares were issued and outstanding. The Company’s Common Shares are listed on the Toronto Stock Exchange (TSX: JE) and the New York Stock Exchange (NYSE: JE) and the Company’s Preferred Shares are listed on the Toronto Stock Exchange (TSX: JE.PR.U) and on the New York Stock Exchange (NYSE: JE.PR.A).

 

Common Shares

 

Each Common Share entitles the holder thereof to receive notice of and to attend all meetings of shareholders of the Company and to one vote per share at such meetings (other than meetings of another class of shares of the Company). The holders of Common Shares are, at the discretion of the Board and subject to the preferences accorded to the holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, as well as applicable legal restrictions, entitled to receive any dividends declared by the Board of Directors on the Common Shares.

 

Preferred Shares

 

The Board may at any time in accordance with the CBCA issue Preferred Shares in one or more series, each series to consist of such number of shares and rights, privileges, restrictions and conditions as may be determined by the Board prior to such issuance. Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting. The holders of each series of Preferred Shares shall be entitled, in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares, the amount of accumulated dividends, if any, specified as being payable preferentially to the holders of such series.

 

8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

The first series of Preferred Shares consists of up to 10,000,000 Preferred Shares, designated as the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “ Series A Preferred Shares ”).

 

The Series A Preferred Shares rank senior to the Common Shares and to any other equity securities the terms of which specifically provide that they rank junior to the Preferred Shares. The Series A Preferred Shares shall rank junior to the Company’s existing and future indebtedness.

 

Except as provided by applicable law and as provided for herein, holders of Series A Preferred Shares will have no voting rights. Holders of Series A Preferred Shares shall be entitled to vote separately as a class to: (a) amend, alter or repeal any provisions of the Company’s articles relating to the Series A Preferred Shares to affect materially and adversely the rights, privileges, restrictions or conditions of the Series A Preferred Shares; or (b) authorize, create or increase the authorized amount of, any class or series of shares having rights senior to the Series A Preferred Shares with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up.

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Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends. During each dividend period from, and including, the date of original issuance to, but not including, March 31, 2022, dividends on the Series A Preferred Shares will accrue at the rate of 8.50% per annum of the Liquidation Preference. During each dividend period from, and including, March 31, 2022, to, but not including, March 31, 2027, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 0.50%, of the Liquidation Preference. During each dividend period from and including March 31, 2027, and thereafter, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 1.00%, of the Liquidation Preference. Dividends on the Series A Preferred Shares shall accrue daily and be cumulative from, and including, the date of original issue of each Series A Preferred Share and shall be payable quarterly on the last day of each March, June, September and December (each, a “dividend payment date”).

 

Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting.

 

On and after March 31, 2022, the Company may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. Upon the occurrence of a Change of Control (i) at any time on or after March 31, 2022, and (ii) provided that there is not a credit document prohibiting the same, the Company may, at its option, upon not less than 30 nor more than 60 days written notice, redeem the Series A Preferred Shares, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If, prior to the Change of Control Conversion Date, the Company has provided notice of redemption of some or all of the Series A Preferred Shares, the holders of Series A Preferred Shares will not have the Change of Control Conversion Right with respect to the Series A Preferred Shares so called for redemption.

 

Upon the occurrence of a Change of Control, each holder of Series A Preferred Shares will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided or provides irrevocable notice of the Company’s election to redeem the Series A Preferred Shares, in which case each such holder will only have the right with respect to the Series A Preferred Shares not called for redemption) to convert some or all of the Series A Preferred Shares held by such holder on the Change of Control Conversion Date into a number of Common Shares per Series A Preferred Share, which is equal to the lesser of (A) the quotient obtained by dividing (i) the sum of the Liquidation Preference plus the amount of any accumulated and unpaid dividends (whether or not declared) to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date for a dividend declared on the Series A Preferred Shares and prior to the corresponding dividend payment date, in which case no additional amount for such accumulated and unpaid dividend will be included in this sum) by (ii) the Common Share Price; and (B) 8.606 Common Shares.

 

Liquidation, Dissolution or Winding-up

 

In the event of the liquidation, dissolution or winding-up of the Company or other distribution of its assets among its shareholders, the holders of the Preferred Shares and Common Shares shall be entitled, after payment of all liabilities of the Company, to share in all remaining assets of the Company as follows:

 

(a) the holders of the Preferred Shares shall be entitled in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares in the amount, if any, specified as being payable preferentially to the holders of such series; and
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(b) the holders of the Common Shares shall be entitled, subject to the preferences accorded to holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, to share equally, share for share, in the remaining property of the Company.

 

three year history of the company

 

During the past three years the Company has been involved in several significant events. These events are described below in chronological order.

 

Discontinued Operations

 

In March 2019, the Company formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to a consumer focused company. The disposal of the operations is expected to be completed within the next twelve months.

 

Cost Reduction Initiative

 

On March 21, 2019, the Company announced the elimination of over 200 positions, equating to approximately $40 million in general and administrative savings in the upcoming Fiscal Year. These actions are in direct alignment with Just Energy’s ongoing transition to a consumer company and will generate efficiencies in the Company’s income statement.

 

Addition of Insurance Wrap

 

On October 9, 2018, the Company announced that it has entered into a Multi-Year Contingent Business Interruption Insurance Agreement (the “Insurance”) with Interstate Fire & Casualty Company (“IFCC”), a subsidiary of Allianz Global Corporate & Specialty SE. USI Insurance Services (“USI”) collaborated with Just Energy to customize and place the Insurance.

 

The Insurance provides up to USD $25 million of insured limit per event, USD $50 million per year and USD $225 million of limit over an eighty month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyberattack, increased cost of supply from damage to supply and distribution infrastructure, interruption due to damage to customer property, losses in excess of Just Energy’s weather derivative program recoveries, and any unforeseen or unplanned weather related loss. The coverage period starts as at August 1, 2018, and the initial premium is USD $9.5 million per annum adjustable annually depending on loss experience. The policy structure allows for annualized amount of up to USD $6.5 million return of premiums depending on loss experience and can be cancelled annually.

 

Acquisition of Filter Group Inc.

 

On October 1, 2018, the Company acquired Filter Group Inc., a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

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Repurchase of $150 Million Convertible Bonds

 

On September 19, 2018, the Company announced the repurchase of an aggregate principal amount of US$45,600,000 of the $150 Million Convertible Bonds. On February 21, 2019, the Company announced the repurchase of an aggregate principal amount of US$60,200,000 of the $150 Million Convertible Bonds. On March 25, 2019, the Company announced that it had repurchased US$21,800,000 of the $150 Million Convertible Bonds. Following these repurchases, an aggregate principal amount of US$22,400,000 remains outstanding.

 

US$250 Million Term Financing

 

On September 12, 2018, the Company announced a US$250 million (approximately C$325 million equivalent) non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company intends to use the net proceeds of this loan to repurchase the $150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions.

 

Credit Facility Renewal

 

On April 18, 2018, the Company announced that it renegotiated an agreement with a syndicate of lenders that includes CIBC, National Bank of Canada, HSBC Bank Canada, JPMorgan Chase Bank N.A., ATB Financial and Canadian Western Bank. In addition, Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley Bank N.A., joined the syndicate. Current lenders, CIBC and National Bank of Canada served as Co-Lead Arrangers and Joint Bookrunners. The agreement extends Just Energy’s credit facility for an additional two years to September 1, 2020. The facility size was increased to $352.5 million from $342.5 million, with an accordion for Just Energy to draw up to $370 million.

 

Leadership Transition

 

On March 20, 2018, the Company announced that Deborah Merril and James Lewis will be transitioning out of their President and Co-CEO roles and Patrick McCullough, Just Energy’s current CFO, will be appointed as President and CEO and will join the Board of Directors, effective April 1, 2018. Jim Brown, the President of Just Energy’s commercial business, will replace Mr. McCullough as CFO as of April 1, 2018. Ms. Merril and Mr. Lewis will continue as directors of the Company. Ms. Merril and Mr. Lewis will also provide advisory services to the Company until December 31, 2018.

 

Early Redemption of $100 Million Convertible Debentures

 

On March 27, 2018, the Company announced that it closed the redemption of the $100 Million Convertible Debentures scheduled to mature on September 30, 2018. The Company paid in cash to the holders of such debentures a redemption price equal to $1,028.0411 for each $1,000 principal amount of debentures, being equal to the aggregate of $1,000 and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 

Normal Course Issuer Bid (2018)

 

On March 15, 2018, the Company announced its intention to initiate a normal course issuer bid for its 6.75% $160 Million Convertible Debentures and to renew its normal course issuer bid for its Common Shares. The notice provided that the Company may, during the 12-month period commencing March 19, 2018, and ending March 15, 2019, purchase on the Toronto Stock Exchange, the New York Stock Exchange (only in respect of the Common Shares) or alternative trading systems, if eligible, up to $16,000,000 of the $160 Million Convertible Debentures and up to 9,733,847 Common Shares, being 10% of the “public float” of the $160 Million Convertible Debentures and the Common Shares. The aggregate amount of the $160 Million Convertible Debentures and Common Shares that the Company may purchase during any trading day would not exceed $38,565 and 115,449, respectively, being approximately 25% of the average daily trading volume of the $160 Million Convertible Debentures and the Common Shares based on the trading volume on the TSX for the most recently completed six calendar months. Any of the $160 Million Convertible Debentures and Common Shares purchased pursuant to this normal course issuer bid will be cancelled by the Company. The price that the Company will pay for the $160 Million Convertible Debentures and Common Shares will be the market price at the time of acquisition.

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6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “6.75% 100 Million Convertible Debentures”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023.

 

EdgePower Acquisition

 

On February 5, 2018, Just Energy and Just Energy (U.S.) Corp. entered into the Share Purchase Agreement with the Sellers, pursuant to which Just Energy (U.S.) Corp. agreed to acquire all of the issued and outstanding shares of EdgePower for total consideration of approximately US$14 million on closing, subject to customary adjustments based on working capital (the “ Purchase Price ”). The Purchase Price consists of: (i) US$7 million in cash; (ii) US$7 million to be satisfied by the issuance of the Consideration Shares (the “ Share Consideration Amount ”), approximately 43% of which will be subject to a three year escrowed hold period; and (iii) a one-time performance based payout of 20% of the cumulative EBITDA over three years, up to a maximum of US$6 million subject to annual and cumulative thresholds. The specific number of Consideration Shares to be issued as part of the Purchase Price was determined by dividing (A) the Share Consideration Amount by (B) the sum of the daily dollar volume weighted average price for a Common Share on the NYSE for each of the five trading days ending on and including the second trading day immediately prior to the Closing Date, divided by five.

 

At-the-Market Offering Renewal

 

On January 5, 2018, Just Energy renewed its at-the-market offering in the United States of up to US$146,096,810 million aggregate principal amount of 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares pursuant to a prospectus supplement dated January 5, 2018. Dividends on the Preferred Shares will initially accrue at the rate of 8.50% per annum of the US$25.00 liquidation preference per Preferred Share and will thereafter accrue at a floating rate. The Preferred Shares are convertible into Common Shares upon a change of control of Just Energy.

 

Energy Broker Business

 

In the fall of 2017, the Company launched its energy broker business under the brand Interactive Energy Group, which markets energy solutions to businesses for multiple suppliers. Just Energy also provides LED retrofit services in certain markets including Ontario and Texas.

 

Termination of Exclusivity with Red Ventures LLC

 

On August 1, 2017, the Company announced that it had 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 Just Ventures LLC in the United States and Just Ventures L.P. in Canada.

 

At-the-Market Program in the United States for the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On May 2, 2017, the Company announced it had entered into an at-the-market issuance sales agreement dated May 1, 2017 (the “Sales Agreement”) with FBR Capital Markets & Co. (“FBR”), pursuant to which Just Energy may, at its discretion and from time-to-time during the term of the Sales Agreement, offer and sell in the United States, through FBR, acting as the Company’s agent, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares of the Company (“Preferred Shares”) having an aggregate offering price of up to US$150 million.

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Commerce Energy Re-Brand

 

On April 1, 2017, subsidiary Commerce Energy re-branded as Just Energy Solutions Inc. This change represented a transition in name only, and does not affect the status of existing customer contracts, business licenses, or any other legal documentation. Re-branding under the Just Energy name reflects Just Energy’s desire to unify the companies under a common identity and serve customers with greater efficiency and consistency as Just Energy continues to grow its footprint.

 

Normal Course Issuer Bid (2017)

 

On March 15, 2017, the Company announced its intention to renew its normal course issuer bids for its $100 Million Convertible Debentures and its Common Shares. The notice provided that the Company may, during the 12-month period commencing March 17, 2017, and ending March 16, 2018, purchase on the on the Toronto Stock Exchange, the New York Stock Exchange (only in respect of the Common Shares) or alternative trading systems, if eligible, up to $9,999,100 of the $100 Million Convertible Debentures and up to 9,655,649 Common Shares, being 10% of the “public float” of the $100 Million Convertible Debentures and the Common Shares. The aggregate amount of the $100 Million Convertible Debentures and Common Shares that the Company may purchase during any trading day would not exceed $53,754 and 77,479, respectively, being approximately 25% of the average daily trading volume of the $100 Million Convertible Debentures and the Common Shares based on the trading volume on the TSX for the most recently completed six calendar months. Any of the $100 Million Convertible Debentures and Common Shares purchased pursuant to this normal course issuer bid will be cancelled by the Company. The price that the Company will pay for the $100 Million Convertible Debentures and Common Shares will be the market price at the time of acquisition.

 

Issuance of 8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

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. The Preferred Shares are listed on the New York Stock Exchange under the symbol JE.PR.A and on the Toronto Stock Exchange under the Symbol JE.PR.U.

 

Credit Agreement Capacity Increase of $50 Million

 

On January 3, 2017, the Company announced that it has amended and restated its credit facility with its syndicate of lenders to increase the capacity under the credit facility by CDN $50 million to $342.5 million by adding a letter of credit facility (the “LC Facility”). The principal amount outstanding under the LC Facility is guaranteed by Export Development Canada (“EDC”) under EDC’s Account Performance Security Guarantee Program.

 

Acquisition of db swdirekt GmbH and db swpro GmbH

 

On December 8, 2016, Just Energy completed the acquisition of 95% of the issued and outstanding shares of db swdirekt GmbH (“SWDirekt”), a retail energy company, and 50% of the issued and outstanding shares of db swpro GmbH, 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. SWDirekt subsequently changed its name to Just Energy Deutschland GmbH.

 

Early Redemption of $330 Million Convertible Debentures

 

On November 7, 2016, the Company announced that it closed the redemption of $225,000,000 principal amount of its $330 Million Convertible Debentures scheduled to mature on June 30, 2017. Just Energy paid in cash to the holders of such debentures a redemption price equal to $1,021.3699 for each $1,000 principal amount of the debentures, being equal to the aggregate of $1,000 and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

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On February 21, 2017, the Company announced that it closed the redemption of the outstanding $94,652,000 principal amount of its 6.0% Convertible Debentures scheduled to mature on June 30, 2017. Just Energy paid in cash to the holders of such debentures a redemption price equal to $1,008.5479 for each $1,000 principal amount of the debentures, being equal to the aggregate of $1,000 principal amount and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 

Issuance of 6.75% Convertible Debentures

 

On October 5, 2016, the Company announced the closing of its $160,000,000 public offering of convertible unsecured senior subordinated debentures (the “6.75% Debentures”) at a price of $1,000 per debenture, bearing interest at 6.75% per annum and maturing on December 31, 2021 (the “Maturity Date”). Each $1,000 principal amount of the 6.75% Debentures is convertible at the option of the holder at any time prior to the close of business on the last business day immediately preceding the earlier of the Maturity Date and the date fixed for redemption, into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain antidilution adjustments. The 6.75% Debentures are listed on the Toronto Stock Exchange under the symbol JE.DB.C.

 

Addition of JP Morgan as a Lender under the Credit Facility

 

On October 3, 2016, the Company announced that JPMorgan Chase Bank N.A. has joined the Company’s Credit Facility as a lender with a commitment of $15 million. This commitment increases the line under the Company’s accordion to $292.5 million.

 

Early Redemption of $105 Million Note

 

On March 31, 2016, the Company announced that it had early redeemed $25,000,000 of its $105 Million Note at a redemption price of $28,337,547, including accrued interest, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

On June 30, 2016, the Company announced that it had early redeemed $25,000,000 of its $105 Million Note at a redemption price of $26,218, 750, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

On October 6, 2016, the Company early redeemed the remaining principal amount of $55,000,000 of its $105 Million Note at a redemption price of $59,121,045, which amount includes accrued interest and the early redemption premium, in accordance with the $105 Million Note Indenture dated December 12, 2012 (as amended, supplemented and restated from time to time).

 

BUSINESS OF JUST ENERGY

 

General

 

Just Energy is a leading consumer company focused on essential needs, including electricity and natural gas commodities; health and well-being, such as water quality and filtration devices; and utility conservation, bringing energy efficient solutions and renewable energy options to consumers. Currently operating in the United States, Canada and the United Kingdom, Just Energy serves residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., Green Star Energy, Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy, and Terrapass.

 

By fixing the price of electricity or natural gas under its fixed-price energy 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 and indexed rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat bill products offer a consistent price regardless of usage. The Company 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 price at which it purchases the associated volumes from its commodity suppliers as well as from margins obtained through the sale of home energy management services and products. Under the Company’s terrapass brand, through carbon offset and Renewable Energy Credits programs, customers can reduce the negative impact of their own day-to-day energy consumption. In certain markets, the Company bundles smart thermostats with its other services, which the Company believes increases customer loyalty and margins. The Company launched its Just Energy Perks program in 2016 which allows customers to gain points used to purchase energy efficient products or gift cards from its partner Energy Earth. The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017 which markets energy solutions to businesses for multiple suppliers. Just Energy also provides LED retrofit services in certain markets including Ontario and Texas under its Just Energy Advanced Solutions brand. Through the EdgePower brand, the Company provides lighting and heating, ventilation and air conditioning controls in over 480 facilities and enterprise monitoring for over 700 buildings in North America. Through Filter Group, the Company sells water filtration systems in Ontario, California, Nevada and Texas.

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The Company’s operating Subsidiaries currently carry on business in the United States in the states of Illinois, New York, Indiana, Michigan, Ohio, New Jersey, California, Maryland, Pennsylvania, Massachusetts, Georgia, Texas and Delaware and in Canada in the provinces of Ontario, Alberta, Manitoba, Québec, British Columbia and Saskatchewan. The Company sells electricity and natural gas in the United Kingdom to commercial customers under the Hudson brand and to residential consumers under the Green Star Energy brand. In December 2016, Just Energy entered the German retail energy market. In 2017, Just Energy entered the Japanese and Irish retail energy markets. The Company’s operations in Germany, Ireland and Japan are currently being held for sale.

 

The map in Fig-1 below shows the jurisdictions in the United States, Canada and the United Kingdom in which Just Energy operates.

 

Fig-1:

 

 

As of March 31, 2019, Just Energy had aggregated approximately 4,089,000 RCEs, with approximately 41% from its Consumer Division (residential and small business) and 59% from its Commercial Division.

 

Consumer Division

 

Electricity

 

In the Provinces of Ontario and Alberta and the States of New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California, Ohio, Delaware and Massachusetts, as well as the United Kingdom, Just Energy and its affiliates offer a variety of solutions to its electricity customers, including fixed-price, variable-price, and flat-bill products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity supply requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.

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The Local Distribution Companies (“LDCs”) provide billing in all electricity markets except Alberta, Texas and the United Kingdom (see “Business of Just Energy – Natural Gas”). The LDCs also provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee, except in Alberta, California, Massachusetts, Texas and the United Kingdom. In California and Massachusetts, the LDC provides collection services only until the account is delinquent. In Alberta, Texas and the United Kingdom, Just Energy bills and collects itself. In Ontario, New York, Pennsylvania, New Jersey, Ohio, Illinois, Maryland and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential customers.

 

Natural Gas

 

Just Energy and its affiliates offer natural gas customers a variety of products, such as five-year fixed-price contracts, flat-bill options and month-to-month variable-price offerings in the Provinces of Ontario, Québec, British Columbia, Alberta, Manitoba and Saskatchewan, and in the States of Maryland, Michigan, New York, Illinois, Indiana, Ohio, California, Pennsylvania, New Jersey and Georgia. Although customers purchase their gas supply through Just Energy, the LDC is still mandated, on a regulated basis, to distribute the gas. Except in Alberta, Georgia and the United Kingdom, the LDCs provide billing and, except in Alberta, Illinois, Georgia, California and the United Kingdom, the LDCs provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee. In Illinois and Pennsylvania, the LDC provides collection services only until the account is delinquent. In Ontario, British Columbia, Manitoba, Quebec, New York, Ohio and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential and commercial customers. In all Canadian markets except for Alberta, the LDCs pay Just Energy for the gas when it is delivered. In other jurisdictions, including Alberta, Just Energy is paid upon consumption by the customers.

 

Filter Group

 

Acquired by the Company on October 1, 2018, Filter Group is a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Filter Group offers consumers both under-counter and whole-home water filtration systems.

 

Smart Thermostats

 

Just Energy offers customers the ability to bundle commodity contracts with smart thermostats. The smart thermostats allow customers to have more control over their energy consumption and can assist them in reducing energy costs. As of March 31, 2019, there were approximately 71,000 thermostats installed, all of which were manufactured by ecobee Inc., which are bundled with other products.

 

Just Energy Perks

 

The Company launched its customer loyalty program, Just Energy Perks, in 2016. Through this program, customers are awarded Perks points when they enroll with the Company and on a quarterly basis. These Perks points may then be redeemed for energy efficient products or shopping and dining gift cards.

 

Commercial Division

 

Just Energy’s commercial business is operated primarily through Hudson Energy. Hudson Energy offers fixed and variable rate natural gas and electricity contracts, as well as more customized products to meet the needs of specific customers. Hudson Energy generates the majority of its sales through a large network of non-exclusive Independent Brokers. Some sales are also made through Independent Contractors, exclusive brokers, and inside sales teams. With its web based sales portal, Hudson Connex, Hudson Energy has technology that enables more efficient selling of products to commercial customers by delivering customer-specific pricing and contract documents on demand. Hudson Connex also provides tools for Independent Brokers to manage their customer accounts after the sale is complete. Except in Alberta, Illinois, and Texas, the LDC provides billing and collection services for the majority of Hudson Energy customers. In New Jersey and California, the LDC provides collection services only until the account is delinquent.

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Hudson Energy UK markets electricity and natural gas in the United Kingdom and Just Energy (Ireland) Limited markets electricity and natural gas in Ireland utilizing the same technology and deal process used in North America adapted for the unique characteristics in the market. Shell Energy Europe Limited (“SEEL”) and Hudson Energy UK signed an amended and restated supply agreement on December 21, 2017, under which Shell will be the wholesale supplier for the UK businesses providing credit support and wholesale supply to cover the commodity obligation for customers.

 

Interactive Energy Group

 

The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017. This business markets energy solutions to businesses for multiple suppliers.

 

EdgePower

 

The Company acquired EdgePower, Inc. on February 5, 2018. EdgePower is an energy monitoring and management company operating out of Aspen, Colorado. EdgePower provides lighting and heating, ventilation and air conditioning controls in over 480 facilities and enterprise monitoring for over 700 buildings in North America. The acquisition of EdgePower facilitates Just Energy in continuing to build out an energy management solutions platform in the commercial space and creating synergies with Just Energy’s lighting systems and commercial commodity business.

 

Just Energy Advanced Solutions

 

The Company provides LED retrofit services, including lighting audits, solution design, installation and financing, in certain markets including Ontario and Texas under its Just Energy Advanced Solutions brand.

 

JustGreen and terrapass

 

Just Energy also offers carbon offsets and renewable energy certificates through its JustGreen Electricity and Natural Gas, and terrapass programs. Sales of these products continue to support and reaffirm the strong customer demand for green product options in all markets.

 

JustGreen™

 

The JustGreen electricity product offers customers the option of choosing renewable energy credits which contribute to ‘greening the grid’. The JustGreen Gas product offers carbon offsets which allow the customer to reduce or eliminate the carbon footprint of their home or business associated with the gas purchased from Just Energy.

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Renewable Energy Certificates (RECs) and Carbon Offset Project Locations

 

 

Just Energy believes that these JustGreen products will not only add to profits, but also increase sales receptivity. When a customer purchases a unit of JustGreen Electricity or Natural Gas, it creates a contractual obligation for Just Energy to obtain renewable energy credits or carbon offsets of a quantity at least equal to the demand created by the customer’s purchase. The Company currently sells JustGreen Gas (carbon offsets) in Ontario, Manitoba, British Columbia California, Illinois, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Illinois, and JustGreen Electricity (RECs) in Ontario, Alberta, Delaware, New York, New Jersey, Maryland, Illinois, Ohio, Texas, Massachusetts, and Pennsylvania. Of all residential customers who contracted with Just Energy in the year ending March 31, 2019, 44% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 79% of their consumption as green supply.

 

Terrapass

 

Since 2004, terrapass has been a provider of sustainable carbon emissions solutions. Terrapass supports projects throughout North America that reduce greenhouse gases and produce renewable energy. Terrapass products and services provide consumers and businesses with options to help them reduce the environmental impact of their everyday activities through carbon offsets and renewable energy credits. In 2015 a new product was added, BEF Water Restoration Certificates® (“ WRC’s ”). The Bonneville Environmental Foundation (“ BEF ”) created and operates the program which creates the WRCs and sells them to terrapass. The National Fish and Wildlife Foundation verifies each project for BEF. Each WRC is individually registered by BEF on the international Markit Environmental Registry. With growing awareness of drought and water shortages, the company believes this will be a strong product in the future.

 

The Company retains an independent auditor to validate its renewable and carbon offset purchases annually to ensure that customer requirements have been matched or exceeded with relevant carbon offsets or renewable energy certificates for both JustGreen and terrapass products. An independent auditor has performed this review since 2009 and determined that Just Energy was compliant each year.

 

Marketing

 

Residential customers are contracted through a number of sales channels including online, retail stores, telemarketing, door-to-door and affinity programs. Commercial customers are primarily obtained through Independent Brokers utilizing the Hudson Connex sales portal to solicit Energy Contracts but also uses door-to-door, telemarketing and affinity relationships.

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The elapsed period between the time when a customer contract is signed and when the first payment is received from the customer varies with each market. The time delays per market are approximately two to six months. The cost for obtaining a new customer and related expenses currently includes commissions payable to sales agents and brokers, salaries paid to the marketing and customer service departments, salaries paid to customer service representatives who verify the customer contracts, the costs of printing contracts, bonus awards, advertising costs and the costs of promotional materials.

 

Corporate Social Responsibility

 

Community Investment

 

Just Energy conducts business with a mind that its activities benefit the communities in which it operates through job creation, charitable donations and employee volunteerism.

 

Support for communities

 

As a leading energy retailer in North America, Just Energy’s vision is to support organizations in Canada and the United States that make positive contributions to energy consumers. The Company is dedicated to supporting organizations that work to provide financial aid and resources to disadvantaged/high-needs communities. Through such support, Just Energy is committed to being a strong corporate citizen and community partner to promote the livelihood and enhance the quality of life for those most vulnerable.

 

Women’s Leadership Council

 

The Women’s Leadership Council was formed in 2016 to cultivate the success and leadership of women at Just Energy. The Council hosts regular social events to encourage networking in addition to providing career coaching to women at all levels of the Company. In the fourth quarter of 2019, the Council was offered membership in the prestigious Hawthorn Club, a global network of executive women whose mission is to promote the appointment of women to senior corporate positions and boards, and to facilitate gender diversity within the energy sector. The Women’s Leadership Council participated in the Hawthorn Club’s 2019 Global Summit, collaborating with 60 of the world’s most powerful women in energy on such issues as the acceleration of the transition to low carbon energy.

 

Environmental Stewardship

 

Just Energy provides sustainable energy solutions to residential and commercial customers that allow them to reduce their environmental impact. See “Just Green” and “terrapass” on pages 12-13. Just Energy also partnered with Intuit in 2018 to create the Purely Green Program which is designed to offer discounted renewable electricity to hundreds of thousands of electricity customers across Texas. The renewable energy and renewable energy credits are sourced from EDP Renewables’ Lone Star II Wind Farm.

 

Accountability and transparency

 

Just Energy proactively evaluates its green energy sales to ensure the Company’s project investments match customers’ green energy selections. Just Energy’s green purchases are reviewed annually by Grant Thornton LLP. This validates that the money spent by customers on Just Energy’s green products through terrapass.com or with JustGreen Natural Gas and Power goes directly to renewable energy or carbon offset projects.

 

One hundred percent of the carbon offsets purchased are verified and validated against broadly accepted protocols by independent third party verifiers.

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Standards and certifications

 

Terrapass RECs are certified by Green-E Energy (U.S.) and EcoLogo (Canada) to assure transparency and quality in creation, quantification, and verification. Each REC receives a unique identification number to track every MWh of energy generated.

 

Carbon offsets are verified and retired under the Climate Action Reserve (CAR), Verified Carbon Standard (VCS), Gold Standard (GS), and the CSA Registry.

 

The National Fish and Wildlife Foundation, a widely recognized leader in freshwater restoration projects, certifies all BEF WRC® restoration projects. BEF tracks the amount of water restored by each project on the International Markit Registry which ensures no double counting. Every BEF (Bonneville Environmental Foundation) Water Restoration Certificate® created represents 1,000 gallons of water restored on a customer’s behalf. By purchasing BEF WRCs®, customers are directly contributing to the restoration of recreational and ecological vitality in critical freshwater ecosystems.

 

Terrapass is a member of Green-e Climate certification to ensure transparency and quality of offsets.

 

Generation sources

 

Just Energy seeks and purchases RECs and carbon offsets from a variety of renewable sources that reduce greenhouse gases including:

 

Farm power – working with farms to make the best possible use of animal waste.

Landfill gas capture – turns garbage into power by capturing the methane released by organic waste as it breaks down.

Coal mine methane – support methane capture projects at abandoned coal mines where methane naturally exists in coal beds and is released into the atmosphere through mine shafts.

Forest management – forests sequester carbon dioxide in the trunks, leaves, branches and roots of trees. The projects improve forest management to sequester more carbon.

Wind energy – wind energy displaces electricity that is generated by dirty fossil fuels like gas and coal.

 

Corporate Governance

 

The Company has an active Board of Directors to guide its operations and ensure transparency to investors. Just Energy’s corporate governance committee meets the recommended standards established by the Canadian and US Securities Administrators and other shareholder groups. The Company’s Board of Directors currently comprises the Executive Chair, the CEO, and six non-management directors, and is monitored by a lead independent director. The Board has delegated certain decisions to its committees that are comprised of non-management directors only. The committees are Audit; Risk; Nominating and Corporate Governance; Compensation, Human Resources, Environmental and Health and Safety; and Strategic Initiatives Committee.

 

Code of Business Conduct and Ethics Policy

 

Just Energy has implemented a Code of Business Conduct and Ethics Policy which is available on its website at www.justenergygroup.com. All employees are required to acknowledge the Code of Business Conduct and Ethics Policy annually.

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Human Resources

 

As a company, Just Energy has implemented a number of policies to foster a safe, welcoming and equitable work environment, including with respect to the following:

 

 

Supply Arrangements

 

Commodity

 

For fixed-price contracts, Just Energy purchases gas and electricity supply through physical or financial transactions with Commodity Suppliers in advance of marketing, based on forecasted customer aggregation for residential and small commercial customers. For larger commercial customers, electricity and gas supply is generally purchased concurrently with the execution of a contract. Each LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. For natural gas, some LDCs may require Just Energy to inject gas into storage in the summer for delivery to customers in the winter pursuant to a pre-set delivery schedule.

 

Just Energy attempts to mitigate exposure to weather variations through active management of the electricity and gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. This strategy provides price and volume protection, but will not eliminate all supply cost risks. The expected cost of this strategy is incorporated into the price to the customer. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected consumption, Just Energy must purchase the short supply in the spot market. Consequently, customer margin increases proportionately to the increase in consumption net of the gain or loss associated with the incremental supply purchase. Additionally, to the extent that supply balancing is not fully covered through customer pass-throughs, active management or the options employed, Just Energy’s customer gross margin may be impacted depending upon market conditions at the time of balancing.

 

Just Energy transacts with a number of different counterparties for its energy supply. Its primary suppliers in North America participate in an Intercreditor Agreement pursuant to which the Commodity Suppliers and lenders to Just Energy share in the collateral provided by the energy commodity business (other than the UK) of Just Energy. The supply participants to the Intercreditor Agreement are Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, Nextera Energy Power Marketing, LLC, Macquarie and Morgan Stanley Capital Group Inc. (collectively, the “Secured Suppliers”). Certain of these Commodity Suppliers also assist in managing, balancing and/or scheduling gas and/or power requirements in certain markets for a fee pursuant to additional agreements.

 

Just Energy’s financial obligations to the Secured Suppliers are secured by general security agreements providing for, among other things, a priority security interest over all customer contracts. If the Secured Suppliers default in their obligations to deliver gas and electricity to Just Energy, or if Just Energy defaults in its obligations to accept delivery of gas or electricity, the contractual arrangements between them contain provisions requiring, subject to force majeure, the payment of various amounts by the defaulting party to the non-defaulting party, including liquidated damages.

 

Just Energy has also entered into contractual arrangements for the physical purchase or financial hedge of energy from other Commodity Suppliers. Although the contractual arrangements with these other Commodity Suppliers are not secured on the same basis as the transactions with the Secured Suppliers, in certain circumstances, security for the obligations of Just Energy to these other Commodity Suppliers or vice versa is provided by way of letter of credit.

 

Hudson UK has entered into a strategic supply arrangement with SEEL for Hudson UK’s retail business in the United Kingdom and Ireland. Under the arrangement, SEEL will be the wholesale supplier for Hudson UK Just Energy (Ireland) Limited. The structure gives the Company access to the wholesale market and the benefit of SEEL’s market presence and knowledge.

  16  

 

JustGreen/terrapass

 

On behalf of its customers, Just Energy purchases and retires renewable energy credits and carbon offsets from certified sources for greenhouse gas reduction and green energy production offsetting their average electricity and/or natural gas use for those customers who elect to purchase JustGreen or terrapass products. Just Energy may attempt to purchase the renewable energy credits and carbon offsets from facilities, such as wind farms, solar, biomass projects and landfill gas projects, located in the local jurisdiction in which it sells its green products. The Renewable Energy Credits are Green-e Energy (U.S.) and EcoLogo (Canada) certified or comply with renewable portfolio standards where registered; the carbon offset projects are verified through Climate Action Reserve, Voluntary Carbon Standard or American Carbon Registry in the U.S., and meet the ISO 14064 Standard in Canada. Water Restoration Certificates® are purchased from the Bonneville Environmental Foundation which operates the program. The National Fish and Wildlife Foundation verifies each project. Each WRC is individually registered on the international Markit Environmental Registry.

 

Risk Management

 

Just Energy’s commodity and volume forecasts are a function of historical data and current market conditions, and have been meticulously tested and analyzed under a number of potential scenarios.

 

 

  17  

 

As detailed below, Just Energy effectively hedges its weather exposure so that weather volatility is substantially mitigated.

 

 

Just Energy’s risk management policy has established risk limits that mitigate any material downside. These include value-at-risk limits, volume thresholds for electricity, natural gas, and carbon and renewable energy credits, and weather exposure. These risk limits are reviewed on a quarterly basis by the Risk Committee and are subject to change. In addition, on October 9, 2018, the Company announced that it entered into a Multi-Year Contingent Business Interruption Insurance Agreement with Interstate Fire & Casualty Company which provides up to USD $25 million of insured limit per event, USD $50 million per year and USD $225 million of limit over an eighty month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyberattack, increased cost of supply from damage to supply and distribution infrastructure, interruption due to damage to customer property, losses in excess of Just Energy’s weather derivative program recoveries, and any unforeseen or unplanned weather related loss.

 

Competition

 

Management of Just Energy believes it has competitive advantages over a number of other energy retailers in that it has: (i) a marketing and sales organization which has achieved significant success in commodity and green product sales; (ii) a responsive customer care and customer service process; (iii) a disciplined risk management approach to commodity supply, green products, and home energy management solutions through smart thermostats; (iv) products priced to achieve stable margin growth vs. customer growth in all business sectors; (v) evolving sales channels; and (vi) growth of value-added products such as Just Energy Perks, water filtration systems and smart thermostats. The industry credibility of Just Energy is based on the long-term experience of its management team relating to the deregulation of natural gas and electricity and their innovations in providing consumer choices including its terrapass product offerings within the direct purchase market.

 

Industry Competition

 

Electricity and Natural Gas

 

Just Energy has natural gas and electricity competition in every jurisdiction in which it carries on business. Generally, competitors are local in nature with a few extending to multiple jurisdictions. There can be upwards of twenty competitors in many markets. The nature and product offerings vary by jurisdiction. It is possible that new entrants may enter the market and compete directly for the customer base that Just Energy targets, slowing or reducing its market share. Other than LDCs (discussed below), Just Energy’s largest competitors in North America are Direct Energy Marketing Ltd. (which is owned by Centrica plc), IGS Energy Inc., NRG Energy Inc., which owns Green Mountain Energy Company and Reliant Energy, and MXenergy Inc. and Constellation (which are owned by Exelon). In the United Kingdom there are approximately fifty other competitors, the most significant of which are Ovo Energy, Bulb Energy, Octopus Energy, Shell Energy and Utility Warehouse.

  18  

 

The LDCs are currently not permitted to make a profit on the sale of the gas and electricity commodity to their supply customers. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas at prices other than cost, their existing customer bases could provide them with a significant competitive advantage. This may limit the number of customers available for marketers including Just Energy. To the extent that Just Energy is successful through its marketing program in educating customers, it believes that it can be successful in signing LDC customers to its products.

 

JustGreen/terrapass

 

The most significant competitors with respect to Just Energy’s JustGreen and terrapass products are Green Mountain Energy Company, 3 Degrees Group Inc., Blue Source, LLC and Community Energy, Inc. in the United States and Bullfrog Power in Canada.

 

Water Filtration Systems

 

The Company’s most significant competitors with respect to water filtration systems are Aquasana, Inc., Culligan Water, and Brita whose North American rights are owned by The Clorox Company.

 

Environmental Protection

 

With respect to the sale of natural gas and electricity, Just Energy does not view potential environmental liabilities as a significant concern. Just Energy does not have physical control of the natural gas or electricity or any facilities used to transport it. Therefore, any potential liability of Just Energy for gas leaks or explosions during transmission and distribution is considered to be relatively remote.

 

Employees

 

As of May 15, 2019, Just Energy and its affiliates employed approximately 1,581 people.

 

 

Real Property

 

Just Energy leases space for its Canadian, U.S., and UK head offices in Mississauga, Ontario, Houston, Texas, and Milton Keynes, England, respectively; corporate office in Toronto, Ontario; operating office in Dallas, Texas, call centres in Mississauga, Ontario, Houston, Texas, and Milton Keynes, England; JEBPO office in Bangalore, India, as well as over fifteen sales offices throughout North America.

  19  

 

Industry Regulation

 

In each jurisdiction in North America, the energy markets are regulated under the oversight of a state or provincial government agency with legislated authority to regulate generally all aspects of the industry including the sale of electricity and natural gas. Although the sale of the commodity itself is considered a ‘deregulated’ service, with the exception of Quebec and Indiana, Just Energy is required to obtain a certificate of authority or license from the regulatory agency and pursuant to that license, operate in accordance with state or provincial legislation and established regulations and rules as it pertains to the marketing of energy services within the jurisdiction. In Quebec and Indiana, Just Energy markets services under a direct contractual arrangement established with the LDC and is subject to operate in accordance with rules established under the LDC’s tariffs. In the UK, the electricity and gas markets are regulated by the Gas and Electricity Markets Authority, operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem issues companies licences to carry out activities in the electricity and gas sectors, sets the levels of return which the monopoly networks companies can make, and decides on changes to market rules. In Ireland, the energy markets are regulated by the Commission for Regulation of Utilities. In Japan, the electricity market is governed by the Ministry of Economics, Trade and Industry and licensing for this market is regulated by the Organization for Cross-regional Coordination of Transmission Operators. Just Energy currently has obtained and maintains all of the licenses and contractual arrangements required to undertake its business in all of the jurisdictions in which it operates.

 

In the US, the Company is subject to regulation by the Federal Energy Regulatory Commission (“ FERC ”) and the North American Electricity Reliability Corporation (“ NERC ”). FERC regulates transportation of natural gas by interstate pipelines. Such regulation affects the Company’s access to natural gas supplies. As to the wholesale electricity sector, FERC has issued regulations that require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. The Company’s electric operations are dependent upon the availability of open access, non-discriminatory electric transmission service. FERC also regulates the sale of wholesale electricity by requiring companies who sell in the wholesale market to obtain a market-based rate authority unless they justify their rates on a cost-of-service basis. Several of the Company’s subsidiaries have market-based rate authority. If these subsidiaries do not comply with FERC’s rules on market-based rate authority be subject to sanctions, including substantial monetary penalties. The Company is also subject to mandatory reliability standards enacted by the NERC and enforced by FERC. Compliance with the mandatory reliability standards may subject the Company and others to higher operating costs and may result in increased capital expenditures. If the Company is found to be in noncompliance with the mandatory reliability standards, the Company could be subject to sanctions, including substantial monetary penalties.

 

In addition, the Dodd-Frank Act provides a regulatory regime for derivatives that generally requires derivatives to be traded on an exchange and cleared together with related collateral and margin requirements. The Company qualifies for the commercial end-user exception which allows it to continue to enter into swaps in the over-the-counter market without being subject to mandatory exchange trading and clearing. Additionally, Dodd-Frank has brought about enhanced reporting and record keeping requirements as well as expanded position limits that are still pending final adoption. A similar regulatory regime is coming online in Europe. In addition, the Canadian regulators have commenced a process to implement a similar regulatory regime for derivatives that is not yet finalized. These Canadian rules are meant to be similar to the US’s Dodd Frank Act but have differences that may be more impactful to the Company than the current US regulations.

 

Financing

 

Just Energy Credit Facility

 

Just Energy Ontario L.P. and Just Energy (U.S.) Corp., Subsidiaries of the Company, are parties to the eight amended and restated credit agreement (as amended, restated and supplemented from time to time), providing Just Energy with a credit facility of up to $352.5 Million for working capital purposes, which includes a $50 million LC Facility (the “Credit Facility”). Under the terms of the Credit Facility, Just Energy is able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.625 per cent and 3.75 per cent, prime rate advances at rates of interest that vary between bank prime plus 1.625 per cent and 2.75 per cent, and letters of credit at rates that vary between 2.625 per cent and 3.75 per cent. Interest rates are adjusted quarterly based on certain financial performance indicators. The current syndicate of lenders includes National Bank of Canada, HSBC Bank of Canada, CIBC, ATB Financial, Canadian Western Bank, JPMorgan Chase Bank N.A. and Morgan Stanley Senior Funding, Inc. The principal amount outstanding under the LC Facility is guaranteed by Export Development Canada (“EDC”) under EDC’s Account Performance Security Guarantee Program. To complement the Credit Facility, Just Energy, the Secured Suppliers and the lenders have entered into the Intercreditor Agreement pursuant to which the Secured Suppliers and the lenders jointly hold security over substantially all of the assets of the Company and its North American operating Subsidiaries. Securities with respect to the commodity business owned directly or indirectly by the Company in its North American operating Subsidiaries have been pledged to National Bank of Canada, the collateral agent, as part of the security. All receipts are directed to bank accounts over which National Bank of Canada, as collateral agent, has deposit account control agreements in place (each a “Blocked Account”). Gas Suppliers and Electricity Suppliers invoice the operating Subsidiaries of the Company directly and, provided that no event of default exists under the Credit Facility, the Intercreditor Agreement or the related security agreements, the Subsidiaries of the Company, on a periodic basis, pay the cost of commodity and related administration fees directly from the Blocked Accounts. Where an event of default exists, National Bank of Canada, as collateral agent, has the right to exercise control over each Blocked Account in any manner and in respect of any item of payment or proceeds thereof in accordance with the terms of the Intercreditor Agreement. The Credit Facility contains a number of covenants, including, without limitation, with respect to financial ratios. As of March 31, 2019, Just Energy is in compliance with all covenants under the Credit Facility. The Credit Facility matures on September 1, 2020.

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US$250 Million Term Financing

 

On September 12, 2018, the Company entered into a US$250 million (approximately C$325 million equivalent) non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company intends to use the net proceeds of this loan to repurchase the $150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions.

 

$150 Million Convertible Bonds

 

On January 29, 2014, the Company announced the closing of the European-focused offering of US$150 million of senior unsecured convertible bonds due July 2019 with a coupon of 6.5% per annum payable semi-annually in arrears. The initial conversion price is US$9.3762 share, which represents a premium of 22.5% over the 5-day volume weighted average price of Just Energy’s Common Shares on January 21, 2014 (being the day on which the offering was publicly announced). The $150 Million Convertible Bonds are subject to certain covenants. As of March 31, 2019, all of these covenants have been met. Just Energy used the net proceeds of the offering to redeem its outstanding $90 Million Convertible Debentures, and intends to make market purchases for cancellation of convertible debentures from other series as allowed under its debt covenants and to pay down the Company’s Credit Facility.

 

As of May 15, 2019, the Company has repurchased an aggregate principal amount of US$127,600,000, with US$22,400,000 of the $150 Million Convertible Bonds remaining outstanding.

 

6.75% Convertible Debentures

 

On October 5, 2016, the Company announced the closing of its $160,000,000 public offering of convertible unsecured senior subordinated debentures (the “ 6.75% Debentures ”) at a price of $1,000 per debenture, bearing interest at 6.75% per annum and maturing on December 31, 2021 (the “Maturity Date”). Each $1,000 principal amount of the 6.75% Debentures is convertible at the option of the holder at any time prior to the close of business on the last business day immediately preceding the earlier of the Maturity Date and the date fixed for redemption, into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain antidilution adjustments. The 6.75% Debentures are listed on the Toronto Stock Exchange under the symbol JE.DB.C.

 

The 6.75% Debentures are not redeemable before December 31, 2019 (except in limited circumstances following a Change of Control as provided herein). On and after December 31, 2019 and prior to December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, and at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon, if any, provided that the current market price on the date on which notice of redemption is given is at least 125% of the conversion price. On or after December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest.

  21  

 

8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

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. Just Energy granted the underwriters an option exercisable for 30 days from January 30, 2017, exercisable in whole or in part, to purchase up to 600,000 additional Preferred Shares at the same price and on the same terms as the 4,000,000 Preferred Shares. 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.

 

At-the-Market Program in the United States for the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On May 2, 2017, the Company announced it has entered into an at-the-market issuance sales agreement dated May 1, 2017 (the “Sales Agreement”) with FBR Capital Markets & Co. (“FBR”), pursuant to which Just Energy may, at its discretion and from time-to-time during the term of the Sales Agreement, offer and sell in the United States, through FBR, acting as the Company’s agent, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares of the Company (“Preferred Shares”) having an aggregate offering price of up to US$150 million (the “Offering”). To date, 613,349 Preferred Shares have been sold under the At-the-Market Program for US$19.4 million.

 

6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “ 6.75% 100 Million Convertible Debentures ”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023. The 6.75% 100 Million Convertible Debentures were used to early redeem the 5.75% Debentures on March 27, 2018.

 

RISK FACTORS

 

The business of the Company and an investment in securities of the Company are subject to certain risks. Prospective purchasers of securities of the Company should carefully consider the risk factors set forth on page 1 and under the heading “Risk Factors” at pages 48 to 54 of the Company’s Fiscal 2019 Fourth Quarter Management Discussion and Analysis (“ MD&A ”) (in Just Energy’s Annual Report), which portions of such documents are incorporated by reference in this Annual Information Form and are available on the SEDAR website at www.sedar.com, the U.S Securities and Exchange Commission website at www.sec.com and on Just Energy’s website at www.justenergygroup.com. The principal risks and uncertainties that Just Energy can foresee are described in the above referenced excerpts, which are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Information Form. The list may not be an exhaustive list as some future risks may be as yet unknown. Other risks currently regarded as immaterial could turn out to be material. If any such risks actually occur, the business, financial condition and/or liquidity and results of operations of the Company could be materially adversely affected and the ability of the Company to pay dividends on the Common Shares could be materially adversely affected.

 

DIVIDENDS and distributions

 

Dividends on Common Shares

 

The Company’s dividend policy provides that the amount of cash dividends, if any, to be paid on the Common Shares is subject to the discretion of the Board of Directors and may vary depending on a variety of factors, including, without limitation: (i) the prevailing economic and competitive environment; (ii) the Company’s results of operations and earnings; (iii) financial requirements for the operations and growth of the Company and its Subsidiaries; (iv) the satisfaction of solvency tests imposed by the CBCA for the declaration and payment of dividends; (v) contractual restrictions and financing agreement covenants; and (vi) other relevant factors and conditions existing from time to time.

  22  

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per Preferred Share when, as and if declared by the Company’s Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the Preferred Shares are cumulative, dividends on Preferred Shares will accrue even if they are not paid. Common shareholders will not receive dividends until the Preferred Share dividends in arrears are paid.

 

The following table sets forth the month of payment and dividends per Common Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April and May, 2019.

 

Record of Cash   Fiscal 2020   Fiscal 2019   Fiscal 2018   Fiscal 2017
Distributions/ Dividends (1)   $ Per Common Share   $ Per Common Share   $ Per Common Share   $ Per Common Share
                 
June   -     0.125     0.125     0.125  
September   -     0.125     0.125     0.125  
December   -     0.125     0.125     0.125  
March   -     0.125     0.125     0.125  

 

Notes:

 

(1) Distributions are also paid on all outstanding PBGs, RSGs and DSGs equal to the dividend paid on the Common Shares. As of March 31, 2019, there were 385,214 PBGs, 1,473,989 RSGs and 184,430 DSGs outstanding.

 

Dividends on Preferred Shares

 

The following table sets forth the month of payment and dividends per Preferred Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April and May, 2019.

 

Record of Cash Distributions/   Fiscal 2020   Fiscal 2019   Fiscal 2018   Fiscal 2017
Dividends   US$ Per Preferred Share   US$ Per Preferred Share   US$ Per Preferred Share   US$ Per Preferred Share
June   -     0.53125     0.53125     -  
September   -     0.53125     0.53125     -  
December   -     0.53125     0.53125     -  
March   -     0.53125     0.53125     0.3128  

 

MARKET FOR SECURITIES

 

Common Shares of the Company

 

The Common Shares of the Company are listed for trading on the TSX and the NYSE under the symbol JE. The following tables set forth the price range and trading volume of Common Shares traded on the TSX and the NYSE for the periods indicated as reported by the TSX and the NYSE, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2018      
April $5.79 $4.53 7,454,860
May $5.40 $4.56 12,055,695
June $5.00 $4.62 7,078,463
July $5.10 $4.73 3,686,275
August $5.13 $3.66 10,154,453
September $4.07 $3.77 8,534,055
October $4.40 $3.96 6,796,703
November $5.70 $4.26 10,341,213
December $5.72 $4.19 9,998,628
2019      
January $5.00 $4.44 4,808,652
February $4.99 $4.33 6,894,430
March $5.00 $4.52 6,333,920
April $4.93 $4.53 2,928,131
May (1 to 10) $4.95 $4.75 1,396,766

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NYSE

(US$)

 

Period High ($) Low ($) Volume
2018      
April $4.54 $3.39 6,990,729
May $4.19 $3.53 7,245,029
June $3.86 $3.48 6,977,314
July $3.90 $3.60 3,926,411
August $3.95 $2.80 9,095,334
September $3.14 $2.90 6,343,537
October $3.44 $3.02 6,729,295
November $4.29 $3.25 6,405,320
December $4.34 $3.08 6,191,374
2019      
January $3.77 $3.26 3,587,723
February $3.79 $3.26 4,370,659
March $3.76 $3.38 3,040,782
April $3.67 $3.39 3,330,930
May (1 to 10) $3.69 $3.54 1,219,100

 

Preferred Shares of the Company

 

The Preferred Shares of the Company are listed for trading on the NYSE under the symbol JE.PR.A and on the TSX under the Symbol JE.PR.U. The following tables set forth the price range and trading volume of Preferred Shares traded on the NYSE and TSX for the periods indicated as reported by the NYSE and the TSX, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2018      
April $23.85 $20.26 22,830
May $24.00 $21.74 5,420
June $24.00 $23.50 700
July $23.50 $23.00 6,300
August $23.26 $22.20 13,340
September $23.00 $20.70 8,116
October $21.35 $17.25 24,213
November $20.00 $17.60 15,843
December $20.00 $15.37 11,250
2019      
January $20.00 $18.40 9,455
February $20.26 $18.50 7,210
March $20.25 $19.80 3,607
April $21.50 $20.26 650
May (1 to 10) $23.25 $21.74 750

 

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NYSE

(US$)

 

Period High ($) Low ($) Volume
2018      
April $24.37 $20.35 1,414,512
May $24.19 $21.83 208,940
June $24.00 $22.99 112,004
July $23.74 $22.80 110,913
August $23.59 $21.97 165,687
September $23.00 $20.50 172,596
October $21.40 $17.81 213,401
November $20.38 $17.48 207,118
December $19.97 $15.09 201,463
2019      
January $20.30 $18.11 169,453
February $20.88 $18.24 333,691
March $20.70 $19.13 302,335
April $21.83 $20.35 305,154
May (1 to 10) $23.48 $21.61 305,154

 

6.75% Convertible Debentures

 

The 6.75% Convertible Debentures are traded on the TSX under the symbol JE.DB.C. The following table sets forth trading information for the 6.75% Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2018      
April $100.88 $97.27 5,510,000
May $100.05 $97.50 3,537,000
June $99.31 $97.00 1,405,000
July $99.50 $90.00 3,099,000
August $99.50 $90.00 3,099,000
September $98.00 $96.00 1,917,000
October $98.00 $93.00 2,137,500
November $96.50 $92.50 1,353,000
December $96.00 $91.01 1,021,000
2019      
January $98.00 $94.00 1,791,000
February $98.75 $93.25 1,757,000
March $99.80 $98.00 823,000
April $99.50 $97.27 2,993,000
May (1 to 10) $99.80 $98.51 363,000

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6.75% $100 Million Convertible Debentures

 

The 6.75% $100 Million Convertible Debentures began trading on the TSX under the trading symbol JE.DB.D on February 12, 2018. The following table sets forth trading information for the $100 Million Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2018      
April $96.75 $92.00 4,546,000
May $96.65 $92.26 3,085,000
June $94.00 $92.70 3,535,000
July $94.87 $92.50 1,189,000
August $93.99 $84.01 3,773,000
September $93.60 $88.50 1,950,000
October $93.19 $87.00 859,000
November $90.99 $86.51 3,120,000
December $87.01 $82.00 2,809,000
2019      
January $92.97 $86.00 3,036,000
February $93.00 $89.99 597,000
March $94.65 $91.00 982,000
April $95.00 $92.00 1,456,000
May (1-10) $95.02 $92.26 443,000

 

$150 Million Convertible Bonds

 

The $150 Million Convertible Bonds were listed on the Professional Securities Market of the LSE under the trading symbol 48IL on June 12, 2014. To date the LSE has not reported any trading activity.

 

PRIOR SALES

 

The Company issued the following securities during the most recently completed fiscal year, none of which are listed or quoted on a marketplace:

 

1. 770,453 RSGs/PBGs were granted on May 16, 2018, having a grant value of $5.11 per RSG/PBG.

 

2. 311,106 RSGs/PBGs were granted on May 25, 2018, having a grant value of $4.72 per RSG/PBG.

 

3. 19,500 RSGs were granted on November 7, 2018, having a grant value of $4.45 per RSG.

 

4. 7,848 RSGs were granted on February 9, 2019, having a grant value of $4.93 per RSG.

 

As part of their fee based compensation, DSGs or Common Shares are issued to directors at the end of each quarter at a value per DSG or Common Share equal to the 10-day simple average closing price of the Common Shares, as applicable, on the TSX preceding the quarter end.

 

The following table describes the number of DSGs or Common Shares granted, the date granted, and the 10-day simple average closing price of Common Shares, as applicable, used to determine the number of DSGs or Common Shares granted.

 

Quarter Ended

Total Number of DSGs/

Common Shares Granted

10 Day Average Closing Price

 

June 30, 2018 18,366 $4.82
September 30, 2018 12,196 $3.97
December 31, 2018 11,468 $4.51
March 31, 2019 11,221 $4.61

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Escrowed securities

 

As part of the acquisition of EdgePower on February 28, 2018, a portion of the consideration paid by Just Energy was satisfied by the issuance of 1,415,285 Just Energy Common Shares, 606,550 of which are subject to a three-year escrow hold period.

 

DIRECTORS AND Executive OFFICERS OF the company

 

Members of the Board of Directors

 

The names, municipalities of residence, year of appointment and the present principal occupations of the directors of the Company as at May 15, 2019, are as follows:

 

Name, Municipality of Residence  

Year of
Appointment (7)

 

Present Principal Occupation
During Five Preceding Years (8)

         

John A. Brussa (3)(4)(5)

Calgary, Alberta

 

  2001   Senior Partner, Burnet, Duckworth & Palmer LLP

R. Scott Gahn (1)(2)(4)(5)

Houston, Texas

 

  2013   President, Modern System Concepts, Inc.

H. Clark Hollands (1)(3)(5)

Vancouver, British Columbia

 

  2015   Chartered Accountant, Businessman and Corporate Director

Rebecca MacDonald

Toronto, Ontario

 

  2001  

Executive Chair of the Company

 

 

Patrick McCullough

Houston, Texas

 

  2018   Chief Executive Officer of the Company

Brett Perlman (2)(4)(5)

Houston, Texas

 

  2013   President, Vector Advisors

Dallas H. Ross (1)(2)(3)(4)(5)

Vancouver, British Columbia

 

  2017   General Partner and Founder - Kinetic Capital Partners

William F. Weld (1)(2)(3)(5)(6)

New York, New York

 

2012

 

 

Principal, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C (law firm)

 

 

Notes:

 

(1) Member of the Audit Committee. Mr. Hollands is the Chair of the Committee and the Financial Expert under the NYSE listing standards.
(2) Member of the Compensation, Human Resources, Environmental, Health and Safety Committee. Mr. Ross is the Chair of the Committee.
(3) Member of the Nominating and Corporate Governance Committee. Mr. Weld is the Chair of the Committee.
(4) Member of the Risk Committee. Mr. Gahn is the Chair of the Committee.
(5) Member of the Strategic Initiatives Committee. Mr. Ross is the Chair of the Committee.
(6) Appointed lead director by the Board on June 25, 2015.
  27  

 

(7) Each of Ms. MacDonald and Mr. Brussa became a director of the Company on December 31, 2010, immediately prior to the Trust Conversion. Prior to the Trust Conversion, each of Ms. MacDonald and Mr. Brussa was a director of Just Energy Corp., the administrator of the Fund.
(8) Each of the Directors of the Company has held the principal occupation indicated opposite his or her name during the preceding five years except for Mr. McCullough who previously served as the Chief Financial Officer of the Company from August 2014 to March 31, 2018, and, prior to this, was Chief Executive Officer at Amonix, Inc.

 

Executive Officers of the Company

 

The names, municipality of residence and present principal occupations of the executive officers of the Company as at May 15, 2019, are as follows:

 

Name, Municipality of Residence

 

Principal Occupation
During Preceding Five Years (1)

     

Rebecca MacDonald

Toronto, Ontario

 

  Executive Chair

Patrick McCullough

Houston, Texas

 

  Chief Executive Officer

Jim Brown

Houston, Texas

 

  Chief Financial Officer

Jonah T. Davids

Toronto, Ontario

 

  Executive Vice President, General Counsel and Corporate Secretary

Sam Mavalwalla

Houston, Texas

 

  Chief Information Officer

Amir Andani

Toronto, Ontario

 

  Chief Risk Officer

Brent Moore

Houston, Texas

  Executive Vice President, President North America Retail
     

Mark Hanrahan

Toronto, Ontario

  Chief Strategy Officer
     

Alex Ince-Cushman

Toronto, Ontario

  Chief Technology Officer
     

Daniel MacDonald

Toronto, Ontario

  Senior Vice President, President, Value Added Products

 

Notes:

 

(1) Each of the officers who is not a director of the Company has held the principal occupation referred to opposite his or her name or has held other positions and offices within the Company or its subsidiaries during the past five years except:

 

(a) Mr. McCullough was Chief Financial Officer of the Company from August, 2014 to March 31, 2018. He was previously the Chief Executive Officer and Chief Financial Officer of Amonix, Inc.
(b) Mr. Brown joined the Company as Senior Vice President of Settlements on April 22, 2013. He was President of Hudson Energy from April 11, 2016 to April 2018. He was previously Vice President of Finance at NextEra Energy Resources.
(c) Mr. Moore was President of Hudson Energy from April 2018 to April 2019. He was President of Interactive Energy Group from August 2017 to April 2018. Prior to that, he founded Save On Energy in 2003 which was ultimately acquired by Red Ventures in 2012. From then he continued to serve as the President of Save On Energy as well as Senior Vice President at Red Ventures until 2017.
  28  

 

(d) Mr. Hanrahan was Vice President of Integrated Planning & Performance Management at Barrick Gold Corporation from September 2015 to December 2017. He was at McKinsey & Company from October 2007 to June 2015.
(e) Mr. Ince-Cushman was an Executive with Palantir Technologies from March 2015 to November 2018. He was at McKinsey & Company from November 2008 to February 2015.
(f) Mr. MacDonald founded Filter Group Inc. in 2011 and was president of Filter Group Inc. when it was acquired by Just Energy in October of 2018.

 

 

 

 

 

  29  

 

Ownership, Control and Direction of Securities by Directors and Executive Officers

 

As of May 10, 2019, the above directors and executive officers of the Company, as a group, beneficially owned, or exercised control or direction over, directly or indirectly, an aggregate of approximately 8.8 million Common Shares, PBGs, RSGs and DSGs, representing approximately 5.9% of the issued and outstanding Common Shares.

 

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company, is, as at the date hereof, or has been within the 10 years before the date hereof, a director, or executive officer of any company that, while such person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of such person ceasing to act in that capacity become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

 

John Brussa resigned as a director of Calmena Energy Services Inc. (“Calmena”) on June 30, 2014. On January 19, 2015, a senior lender of Calmena (the “Senior Lender”) made an application to the Court of Queen's Bench of Alberta (the “Court”) to appoint an interim receiver under the Bankruptcy and Insolvency Act (Canada) and trading in the common shares of Calmena was suspended by the Toronto Stock Exchange. On January 20, 2015, the Senior Lender was granted a receivership order by the Court.

 

Mr. Brussa was also a director of Enseco Energy Services Corp. (“Enseco”), a public oilfield service company, which was placed in receivership on October 14, 2015 and, in connection therewith, a receiver was appointed under the Bankruptcy and Insolvency Act (Canada). Mr. Brussa resigned as a director of Enseco on October 14, 2015. On December 21, 2015 Enseco was assigned into bankruptcy by the receiver.

 

Mr. Brussa was a director of Argent Energy Ltd. which was the administrator of Argent Energy Trust. On February 17, 2016, Argent Trust and its Canadian and United States holding companies (collectively “Argent”) commenced proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) for a stay of proceedings until March 19, 2016. On the same date, Argent filed voluntary petitions for relief under Chapter 15 of the United States Bankruptcy Code (“Chapter 15”). On March 9, 2016, the stay of proceedings under the CCAA was extended until May 17, 2016. Additionally, on March 10, 2016 the U.S. Bankruptcy Court approved an order recognizing the CCAA as the foreign main proceedings under Chapter 15. Mr. Brussa resigned on June 30, 2016.

 

John Brussa resigned as a director of Twin Butte Energy Ltd. (“Twin Butte”) on September 1, 2016. On September 1, 2016, the senior lenders of Twin Butte (the “Senior Lenders”) made an application to the Court of Queen's Bench of Alberta (the “Court”) to appoint a receiver and manager over the assets, undertakings and property of Twin Butte under the Bankruptcy and Insolvency Act (Canada) and trading in the common shares of Twin Butte was suspended by the Toronto Stock Exchange. On September 1, 2016, the Senior Lenders were granted a receivership order by the Court.

 

Mr. Brussa was a director of Virginia Hills Oil Corp. (“VHO”), a TSX-V listed oil and gas company. On February 13, 2017, VHO received a demand notice and notice of intention to enforce security from its lenders and agreed to consent to the early enforcement of the lenders' security and the appointment of a receiver over all of the current and future assets, undertakings and properties of VHO. The receiver was appointed on February 13, 2017. Mr. Brussa resigned as a director of VHO on February 24, 2017.

 

Mr. Ross was asked to join the Board of Directors of Catalyst Paper Corporation in May 2010 to assist in the possible restructuring of the company. The company subsequently filed for CCAA protection in January 2012, reorganized its financial affairs significantly over a number of months and then successfully emerged from CCAA in September 2012, at which time a new Board representing the post recapitalization stakeholders was appointed.

  30  

 

No director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company (or any personal holding company of such person), has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

Personal Bankruptcies

 

No director or executive officer of the Company, or a security holder holding sufficient securities of the Company to affect materially the control of the Company, or a personal holding company of any such persons, has, within the 10 years preceding the date of this document, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of the individual.

 

Conflicts of Interest

 

There are potential conflicts of interest to which the directors and officers of the Company will be subject in connection with the operations of the Company. In particular, certain of the directors and officers of the Company are involved in managerial or director positions with other energy companies whose operations may, from time to time, be in direct competition with those of the Company or with entities which may, from time to time, provide financing to, or make equity investments in, competitors of the Company. Conflicts, if any, will be subject to the procedures and remedies available under the CBCA. The CBCA provides that in the event that a director has an interest in a contract or proposed contract or agreement, the director shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement unless otherwise provided in the CBCA. As at the date hereof, the Company is not aware of any existing material conflicts of interest between the Company or a Subsidiary of the Company and any director or officer of the Company or a Subsidiary of the Company.

 

LEGAL PROCEEDINGS and regulatory actionS

 

Other than as set forth below, there are no outstanding legal proceedings or regulatory actions to which the Company or any of its Subsidiaries is a party or in respect of which any of their respective properties are subject, which are either: (a) individually, for claims in excess of 10% of the current asset value of the Company, or (b) material to the Company or any of its Affiliates, nor are there any such proceedings known to be contemplated.

 

In March 2012, Davina Hurt and Dominic Hill filed a lawsuit against Commerce Energy Inc. (“Commerce”), Just Energy Marketing Corp. and the Company (collectively referred to as “Just Energy”) in the Ohio Federal Court claiming entitlement to payment of minimum wage and overtime under Ohio wage claim laws and the federal Fair Labor Standards Act (“FLSA”) on their own behalf and similarly situated door-to-door sales representatives who sold for Commerce in certain regions of the United States. The Court granted the plaintiffs’ request to certify the lawsuit as a class action. Approximately 1,800 plaintiffs opted into the federal minimum wage and overtime claims, and approximately 8,000 plaintiffs were certified as part of the Ohio state overtime claims. On October 6, 2014, the jury refused to find a willful violation but concluded that certain individuals were not properly classified as outside salespeople in order to qualify for an exemption under the minimum wage and overtime requirements. On September 28, 2018, the Court issued a final judgment, opinion and order. Just Energy filed its appeal to the Court of Appeals for the Sixth Circuit on October 25, 2018. Just Energy strongly believes it complied with the law which is consistent with the recent findings in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018) and Kevin Flood, et al. v. Just Energy Marketing Group, et al. 2d Circular No. 17-0546.

 

In August 2013, Levonna Wilkins, a former door-to-door independent contractor for Just Energy Marketing Corp. (“JEMC”), filed a lawsuit against Just Energy Illinois Corp., Commerce Energy Inc., JEMC and the Company (collectively referred to as “Just Energy”) in the Illinois Federal District Court claiming entitlement to payment of minimum wage and overtime under Illinois wage claim laws and the FLSA on her own behalf and similarly situated door-to-door sales representatives who sold in Illinois. On March 13, 2015, the Court certified the class of Illinois sales representatives who sold for Just Energy Illinois and Commerce, and on June 16, 2016, the Court granted Just Energy’s motion for reconsideration which revised the class definition to exclude sales representatives who sold for Commerce. The trial is scheduled to commence on August 5, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

  31  

 

In May 2015, Kia Kordestani, a former door-to-door independent contractor sales representative for Just Energy Corp., filed a lawsuit against Just Energy Corp., Just Energy Ontario L.P. and the Company (collectively referred to as “Just Energy”) in the Superior Court of Justice, Ontario, claiming status as an employee and seeking benefits and protections of the Employment Standards Act, 2000 such as minimum wage, overtime pay, and vacation and public holiday pay on his own behalf and similarly situated door-to-door sales representatives who sold in Ontario. On Just Energy’s request, Mr. Kordestani was removed as a plaintiff but replaced with Haidar Omarali, also a former door-to-door sales representative. On July 27, 2016, the Court granted Omarali’s request for certification, refused to certify Omarali’s request for damages on an aggregate basis, and refused to certify Omarali’s request for punitive damages. On September 5, 2018, Omarali filed his motion for summary judgment and set a hearing date of June 11, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

On October 1, 2018, the Company acquired Filter Group Inc., a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

Other than as described above and in the Proxy and Management Information Circular dated May 15, 2019, which is incorporated by reference herein, there were no material interests, direct or indirect, of directors or executive officers of the Company, any person that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Common Shares, or any known associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year which has materially affected or is reasonably expected to materially affect the Company.

 

AUDITORS, TRANSFER AGENT AND REGISTRAR

 

The auditors of the Company are Ernst & Young LLP, Chartered Accountants, Toronto, Ontario. Based on the recommendation of the Audit Committee of the Company, the Board has proposed that Ernst & Young LLP continue as auditors of the Company at the Annual General Meeting of the Company to take place on June 26, 2019.

 

Computershare Investor Services Inc. at its principal transfer offices in Toronto, Ontario acts as the transfer agent and registrar for the Common Shares and Preferred Shares, and trustee for the 6.75% Convertible Debentures and the 6.75% $100 Million Convertible Debentures. US Bank Trustees Limited at their principal offices in London, England and Elavon Financial Services Limited, UK Branch act as trustees for the $150 Million Convertible Bonds.

 

INTEREST OF EXPERTS

 

There is no person or company whose profession or business gives authority to a statement, report or valuation made by such person or company and who is named as having prepared or certified a statement, report or valuation described or included in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company during, or related to, the Company’s most recently completed financial year other than Ernst &Young LLP, the Company’s current auditors. Ernst & Young LLP have confirmed that they are independent within the meaning of the rules of professional conduct of the Institute of Chartered Accountants of Ontario. In addition, none of the aforementioned persons or companies, nor any director, officer or employee of any of the aforementioned persons or companies, is or is expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company.

  32  

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into by the Company and/or its Subsidiaries are: the Credit Facility and its respective amendments, the $150 Million Convertible Bonds Trust Deed, the 6.75% Convertible Debentures Trust Indenture, the 6.75% $100 Million Convertible Debenture Trust Indenture, and the US$250 Million Term Financing Loan Agreement, each of which is described herein. Copies of the Company’s material agreements are available on the Company’s SEDAR profile at www.sedar.com or, since January 30, 2012, on the U.S. Securities Exchange Commission’s website at www.sec.com.

 

AUDIT COMMITTEE INFORMATION

 

Multilateral Instrument 52-110 of the Canadian Securities Administrators requires the Company to disclose annually in its AIF certain information relating to the Company’s Audit Committee and its relationship with its independent auditors. Schedule “A” contains the additional information contemplated by Form 52-110F1 - “Audit Committee Information required in an AIF”, including information with respect to the financial literacy and experience of each member of the Audit Committee. The text of the mandate for the Audit Committee is included in Schedule “B”.

 

ADDITIONAL INFORMATION

 

Additional information relating to the Company may be found on SEDAR at www.sedar.com, at the U.S. Securities and Exchange Commission website at www.sec.gov, or on the Company’s website at www.justenergygroup.com. Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, is contained in the Information Circular of the Company for its most recent annual meeting of Shareholders that involved the election of directors of the Company. Additional financial and other information is contained in the Financial Statements and the MD&A.

 

 

 

 

 

  33  

 

schedule “A” - FORM 52-110F1

AUDIT COMMITTEE INFORMATION REQUIRED IN AN AIF

 

The Audit Committee’s Charter.

 

The text of the Company’s Audit Committee charter as approved on February 9, 2012, is attached hereto as Schedule “B”.

 

Composition of the Audit Committee and Relevant Education and Experience.

 

At May 15, 2019, the Company’s Audit Committee consisted of H. Clark Hollands (Chair), R. Scott Gahn, William F. Weld and Dallas H. Ross. All members of the audit committee are independent and financially literate (as those terms are defined in Multilateral Instrument 52-110 – Audit Committees).

 

Mr. Hollands is a chartered accountant. He obtained his B. Comm from the University of British Columbia in 1975, his CA designation in 1977 and his FCA designation in 2008. He spent 25 years of his professional career as an international tax partner with KPMG LLP in Vancouver advising many significant Canadian based multi-national groups and large public companies on their international tax arrangements. Mr. Hollands left private practice in 2008 to devote most of his time to a variety of business and investment interests in which he is a partner and to devote more time to his family and several charitable foundations including The Jim Pattison Foundation. He also serves as a director and advisor to several other large Canadian based private foundations. Mr. Hollands’ broad background and experience in finance, accounting, business and taxation will significantly contribute, on behalf of all shareholders, to the deliberations of the Just Energy board of directors and the committees on which he will serve.

 

Mr. Gahn, formerly Executive Vice President and Chief Operating Officer of Just Energy until June 2011, was appointed to the board on December 17, 2013. Mr. Gahn is currently Chairman of Modern System Concepts, Inc., a Houston-based life-safety and security firm. Mr. Gahn has a long history in the deregulated energy industry having served on the Texas ERCOT board from 2005 to 2008 and having been involved in the sale of deregulated and regulated electricity and natural gas for 28 years. He was one of the founding shareholders and Chief Executive Officer of Just Energy Texas L. P. which was purchased by the Company in 2007, and in that capacity was responsible for North American Wholesale energy supply operations and business developments.

 

Mr. Weld currently practices with the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in Boston and New York where he specializes in government strategies, corporate governance and compliance and international business best practices. He also served as Senior Advisor to the Chair of Ivanhoe Capital Corporation, a private holding company headquartered in British Columbia. Mr. Weld has a very distinguished career in government and business. During the 1990’s, Mr. Weld served two terms as Governor of Massachusetts, being elected in 1990 and re-elected in 1994. He served as national co-chair of the Privatization Council and led business and trade missions to many counties in Asia, Europe, Latin America and Africa. He has served as a director of other public companies and is an active member of the United States Council on Foreign Relations. Prior to his election as Governor, Mr. Weld was a federal prosecutor for seven years, serving as the Assistant U.S. Attorney General in charge of the Criminal Division of the Justice Department in Washington, D.C. and the U.S. Attorney for Massachusetts during the Reagan administration. He was also a commercial litigator in Boston and Washington. Mr. Weld is currently running for President of the United States.

 

Mr. Ross is a General Partner and Founder of Kinetic Capital Partners in Vancouver, BC whose equity capital and strategic attention is focused on controlling positions in several private companies in the United States with substantial value creation underway. Mr. Ross is Chair or Senior Director of those private companies. Mr. Ross currently also serves on public company boards: he is Chair of Rogers Sugar; Director of Westshore Terminals; and a Director of Canfor Corporation. Previously he was a Director of Catalyst Paper and was brought in to assist with its financial restructuring as Chair of its Strategic Alternatives Committee; and previously was a Director of Futureshop.com. Mr. Ross was on the Board, and was the Chair of the Campus Task Force and was on the Executive Committee of Crofton House School during its substantial campus rebuild. Prior to Kinetic Capital Partners, Mr. Ross was Managing Director Investment Banking in Vancouver and Managing Director Mergers and Acquisitions in Toronto with ScotiaMcLeod. Before that Mr. Ross had qualified as a Chartered Accountant.

  34  

 

Pre-Approval Policies and Procedures

 

Recommendations are made from time to time from management to the Audit Committee for the engagement of all non-audit services. The Audit Committee considers such recommendations for pre-approval at its quarterly meetings or sooner, if necessary providing that where necessary, this function may be delegated to the Chair of the Audit Committee for approval on the basis that the Chair reports all such approvals to the Audit Committee at its next regularly scheduled meeting.

 

External Auditor Service Fees

 

Audit and Audit Related Fees

 

For fiscal 2019, fees charged by Ernst & Young LLP for professional audit services that are normally provided by external auditors in connection with statutory and regulatory filings or engagements as well as for assurance and related services rendered by it that are reasonably related to the performance of the audit or review of the Company’s financial statements were $2,192,900 (2018 — $2,013,670).

 

Tax Fees

 

Tax fees for professional services rendered by Ernst & Young LLP for tax compliance, tax advice, tax planning and other services were $257,700 (2018 — $444,857).

 

Total Fees

 

The aggregate fees billed by Ernst & Young LLP were $2,450,600 (2018 — $2,458,527). No other services were provided to Just Energy and its subsidiaries by Ernst & Young LLP.

 

 

 

 

 

  35  

 

SCHEDULE “B” - AUDIT COMMITTEE MANDATE

 

JUST ENERGY group inc.

 

1. COMPOSITION

 

(a) Applicable Canadian corporate and provincial and United States securities legislation, regulation and policies, the Toronto Stock Exchange (“TSX”) and New York Stock Exchange (“NYSE”) by-laws rules, regulation and policies and applicable provisions of the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to the extent applicable to a foreign private issuer (together “Applicable Legislation”) require that an audit committee (the “Committee”) be comprised of a minimum of three directors, each of whom will be financially literate and independent and one of whom shall be a “financial expert” as defined by Applicable Legislation and each of whom shall be independent (as set out in section 303 A.02 of the NYSE Company Manual) and shall not have any material relationship with the Company or any affiliate thereof, i.e., a relationship that could, in the view of the Company’s board of directors (the “Board”) reasonably interfere with the exercise of a member’s independent judgment.

 

(b) The Board of Directors of the Company (the “Board”) will appoint the members of the Committee annually at the first meeting of the Board after the annual meeting of shareholders of the Company and shall ensure that the members of the Committee meet the qualifications and other requirements outlined in (a) above under Applicable Legislation.

 

(c) Committee members will be appointed for a one-year term and may be reappointed subject to the discretion of the Board having regard: (i) to Applicable Legislation and, (ii) the desire for continuity and for periodic rotation of Committee members.

 

(d) One of the members of the Committee who is otherwise qualified under Applicable Legislation and who shall be a financial expert under Applicable Legislation shall be appointed Committee Chair by the Board. The Committee shall appoint a Secretary who shall be the Corporate Secretary of to the Company. Any Committee member, who for any reason, is no longer independent, ceases to be a member of the Committee.

 

(e) If an audit committee member simultaneously serves on the audit committee of more than 3 public companies, the Board must determine that such simultaneous service will not impair the ability of such member to effectively serve on the Company’s Committee.

 

2. AUTHORITY

 

(a) The Board may authorize the Committee to investigate any activity of the Company and any affiliate thereof for which the Committee has responsibility or with respect to those responsibilities imposed on audit committees herein and by Applicable Legislation. All employees are to co-operate as requested by the Committee.

 

(b) The Committee may, without the approval of management, retain persons having special expertise to assist the Committee in fulfilling its responsibilities, including outside counsel or financial experts and provide for their remuneration.

 

(c) The external auditor and internal audit shall report to the Committee.

 

3. MEETINGS

 

(a) The Committee is to meet at least four times per year preferably immediately following the meeting of the Risk Committee. The meetings will be scheduled to permit the review of the scope of the audit as presented by the Company’s auditor before commencement of the audit and the timely review of the quarterly and annual financial statements and such other annual filings required to be made by the Company and any affiliate thereof containing financial information about the Company and any affiliate thereof including the AIF, MD&A (quarterly and annual), quarterly press releases, reports to Shareholders, the management proxy circular and such other disclosure documents applicable to the Company and any affiliate thereof which contain financial data based upon, derived from or to form part of the financial statements of the Company and contemplated by Applicable Legislation.
  36  

 

(b) Meetings of the Committee shall be validly constituted if a majority of members of the Committee are present in person or by telephone conference. Additional meetings may be held as deemed necessary by the Committee Chair or as requested by any member or the external auditors or any director of the Company not a member of the Committee.

 

(c) Any member of the external auditors of the Company is entitled to receive notice of every meeting of the Committee and at the Company’s expense, to attend and be heard thereat and, if requested by a member of the Committee, to attend any meeting of the Committee.

 

(d) The Committee should require the attendance of the Company’s auditors at least once each year, and at such other times as the Committee deems appropriate in the context of Applicable Legislation and its responsibilities as outlined below. The Company’s external auditor shall be requested to review and comment on all disclosure documents issued by the Company containing financial statements or information derived therefrom.

 

(e) The Committee shall meet privately with the external auditor at least quarterly excluding members of management other than the Secretary to the Committee. The Committee shall meet privately with the internal audit staff at least twice yearly excluding other members of management other than the Secretary to the Committee.

 

4. REPORTING

 

(a) The minutes of all meetings of the Committee are to be provided to the Board and to the Company’s auditor. Oral reports by the Chair on recent matters not yet minuted will be provided to the Board at its next meeting. Minutes of all Committee meetings will be subsequently reviewed and approved by the Committee.

 

(b) Supporting schedules and information reviewed by the Committee will be available for examination by any director or the Company’s auditor upon request to the Secretary of the Committee.

 

5. RESPONSIBILITIES

 

The general responsibility of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to: (i) the integrity of annual and quarterly financial statements to be provided to shareholders and regulatory bodies; (ii) compliance with accounting and finance based legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the system of internal accounting and financial reporting controls that management has established; (v) performance of the internal and external audit process and of the independent auditor; and (vi) to the extent not addressed by the Risk Committee, the implementation and effectiveness of the policies of the Company relating to Risk Management Policy and Procedures, the Policy on Dividends and such other policies of the Company approved from time to time by the Board or the Committee.

 

• The specific responsibilities of the Committee shall be as follows:

 

(a) to review the Company’s quarterly and annual financial statements and any other financial statements of the Company and its affiliates required to be prepared by Applicable Legislation or otherwise for dissemination to the public, so as to be satisfied they are fairly presented in accordance with generally accepted accounting principles and in accordance with Applicable Legislation and to recommend to the Board whether the quarterly and the annual financial statements and any such other financial statements should be approved by the Board;

 

(b) prior to the dissemination to the public, to review the financial information and financial data contained in the Company’s quarterly financial statements, Annual Report to Shareholders and other financial publications of the Company or any affiliate thereof (including the Company’s interim and year end management discussions and analysis of financial condition and results of operation, annual information form, proxy information circular, quarterly press releases and material and timely disclosure reports containing any financial data) and the financial information contained in a prospectus and/or registration statement of the Company or any affiliate thereof or other document filed with any regulatory authority so as to be satisfied that the financial information and financial data is not significantly erroneous, misleading or incomplete and contains full, true and plain disclosure of all material facts or as otherwise required by Applicable Legislation and to make recommendations to the Board with respect to all such disclosure documents;
  37  

 

(c) to be satisfied that management of the Company and any affiliate thereof have implemented appropriate systems of capture of financial information and internal control over financial reporting and that these are operating effectively under Applicable Legislation and to review all reports prepared by the auditors with respect to the auditor’s attestation report;

 

(d) to be satisfied that management of the Company and the Company have implemented appropriate systems of internal control to ensure compliance with Applicable Legislation and ethical requirements and particularly to be satisfied that internal controls over financial reporting and disclosure controls and procedures are in place and that internal controls have been designed and implemented to provide reasonable assurance that the Company’s financial statements and other documents required to be mailed to shareholders or filed with regulatory authorities are fairly presented so as to enable the Chief Financial Officer and the Chief Executive Officer (and any other officer or director of the Company as may be required by Applicable Legislation) to personally certify the Company’s financial statements as required by Applicable Legislation;

 

(e) to the extent not addressed by the Risk Committee, to be satisfied that management of the Company and each affiliate thereof have implemented effective systems to identify significant financial and other risks of the business and changes to these risks including the implications of risks associated with the Company’s compensation policies and practices under Form 51-12 F6 under National Instrument 51-102. The Committee will review reports from management related to these risks and make recommendations to the Board with respect to a Risk Management Policy;

 

(f) to recommend to the Board the appointment of external auditors nominated at each annual meeting of shareholders and provide oversight with respect to the external audit engagement. The Committee will also recommend to the Board the re-appointment or appointment of the external auditors and the compensation payable to them. The Committee will pre-approve all non-audit services to be provided to the Company and its affiliates by the Company’s external auditors providing that where necessary, this function may be delegated to the Chair of the Committee for approval on the basis that the Chair reports all such approvals to the Committee at its next regularly scheduled meeting;

 

(g) to be satisfied that any significant or material matter brought to the attention of the Committee by the Company’s external auditors and internal audit or matters where there is significant disagreement between the Company’s external auditors and/or internal audit and Company officers (including the resolution or proposed resolution thereof) are communicated to the Board;

 

(h) to be satisfied that all significant matters raised in any report to management by the external auditors and internal audit are being addressed and dealt with by management in a satisfactory manner and, to the extent they are not, to make a report to the Board;

 

(i) to be satisfied that the declaration and payment of dividends by any affiliate of the Company to the Company or to any affiliate thereof and the declaration and payment of dividends by the Company to its shareholders, meet applicable legal requirements and Applicable Legislation and to make recommendations to the Board with respect thereto;

 

(j) as and when required by Applicable Legislation or as otherwise required including the laws and regulations in all jurisdictions in which it operates to establish independent procedures (A) for the receipt, retention and treatment of complaints received by the Company or any affiliate thereof regarding accounting, internal accounting controls or auditing matters, and (B) for the confidential communication of anonymous submissions to the Company or any affiliate thereof and a member of the Committee of concerns regarding questionable accounting or auditing matters from employees including the submission of those complaints and concerns by logging into www.justenergy.ethicspoint.com , selecting the Just Energy Group or JEG as the company and following the prompts which are available. This service is interactive and anonymous;
  38  

 

(k) as and when required by Applicable Legislation, to be satisfied that disclosure controls and procedures are in place to ensure that material information required to be disclosed by Applicable Legislation is recorded, processed and summarized and reported within the time periods specified in Applicable Legislation;

 

(l) to ensure that the external auditors report annually on matters of independence;

 

(m) to ensure that the external and internal auditors prepare an external audit plan which, with any changes thereto, is reviewed by and acceptable to the Committee;

 

(n) to review and approve the hiring policies of the Company and any affiliate thereof regarding partners and employees (past or current) of the present and former external auditors of the Company;

 

(o) to review semi-annually all expenses relating to consulting and professional services including legal and audit;

 

(p) to review semi-annually executive business expenses;

 

(q) to review, analyse and implement all necessary procedures, controls and other similar requirements relating to financial matters arising from proposals to amend or introduce Applicable Legislation and the implementation or promulgation thereof;

 

(r) once or more annually, as the Corporate Governance and Nominating Committee (CGN Committee) decides, to receive for consideration that Committee’s evaluation of this Mandate and any recommended changes. Review and assess the CGN Committee’s recommended changes and make recommendations to the Board for consideration.

 

(s) to carry out any other appropriate duties and responsibilities assigned to the Committee by the Board;

 

(t) to honour the spirit and intent of Applicable Legislation as it evolves, authority to make minor technical amendments to this Mandate is delegated to the Corporate Secretary, who will report any amendments to the CGN Committee at its next meeting;

 

(u) to ensure that the Terms of Reference for the Committee are published on the Company’s website; and

 

(v) to discuss the Company’s major financial risk exposure and the steps management has taken to monitor and control such exposures and to ensure that the mandate for the Risk Committee addresses each of these matters.

 

• The Chair of the CGN Committee, in consultation with the Chair of the Committee, will periodically review the effectiveness of the Committee and the performance of each Committee member and report to the Board on their conclusions.

 

(Approved as amended by the Board of Directors of the Company on February 9, 2012 ).

  39  

 

SCHEDULE “C” - GLOSSARY

 

All capitalized terms not otherwise defined in the body of this Annual Information Form, shall have the meanings ascribed to them below.

 

“ 6.75% $100 Million Convertible Debentures Indenture ” means the trust indenture made as of February 22, 2018, between Just Energy and Computershare.

 

“ $90 Million Convertible Debentures ” means the $90 million aggregate principal amount of 6.0% convertible unsecured subordinated debentures of the Company issued on October 2, 2007, pursuant to the $90 Million Debenture Indenture.

 

“ $90 Million Debenture Indenture ” means the trust indenture dated as of October 2, 2007, between Universal and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of July 1, 2009, between JEEC (as successor to Universal) and Computershare and pursuant to a Second Supplemental Trust Indenture dated as of January 1, 2011, between the Company (as successor to JEEC) and Computershare.

 

“ $100 Million Convertible Debentures ” means the $100 million aggregate principal amount of 5.75% extendible unsecured subordinated debentures of the Company issued on September 22, 2011, pursuant to the $100 Million Supplemental Debenture Indenture.

 

“ $100 Million Supplemental Indenture ” means the supplemental indenture dated as of September 22, 2011, between the Company and Computershare, supplementing the $330 Million Debenture Indenture.

 

“ $105 Million Note Indenture ” means the trust indenture dated as of December 12, 2012, between Just Energy and Computershare.

 

“ $105 Million Note ” means the $105 million aggregate principal amount of the 9.75% note issued to CPPIB Credit Investments Inc. on December 12, 2012, pursuant to the $105 Million Note Indenture.

 

“ $150 Million Convertible Bonds ” means the US$150 million aggregate principal amount of the 6.5% convertible bonds issued on January 29, 2014, pursuant to the $150 Million Convertible Bonds Trust Deed.

 

“ $150 Million Convertible Bonds Trust Deed ” means the trust deed dated as of January 29, 2014, between the Company, US Bank Trustees Limited and Elavon Financial Services Limited, UK Branch.

 

“ US$250 Million Term Financing ” means the US$250 Million non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager, pursuant to the US$250 Million Term Financing Loan Agreement.

 

“ US$250 Million Term Financing Loan Agreement ” means the loan agreement dated as of September 12, 2018, between the Company, National Bank of Canada, and Sagard Credit Partners, LP.

 

“ $330 Million Convertible Debentures ” means the $330 million aggregate principal amount of 6.0% extendible unsecured subordinated debentures of the Company issued on May 5, 2010, pursuant to the $330 Million Debenture Indenture.

 

“ $330 Million Debenture Indenture ” means the trust indenture dated as of May 5, 2010, between the Fund and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of January 1, 2011, between the Company (as successor to the Fund) and Computershare.

 

“ Board ” and “ Board of Directors ” means the board of directors of the Company.

 

“ BP ” means collectively BP Energy Company, BP Canada Energy Marketing Corp., BP Canada Energy Group ULC and BP Corporation North America Inc. and any other related affiliate with which Just Energy contracts.

 

“ Bruce Power ” means Bruce Power L.P.

  40  

 

“ CBCA ” means the Canada Business Corporations Act , as amended from time to time, including the regulations promulgated thereunder.

 

“ CIBC ” means Canadian Imperial Bank of Commerce, a Canadian chartered bank.

 

“ CDS ” means The Canadian Depository for Securities Limited.

 

“ Commodity Suppliers ” means Gas Suppliers and Electricity Suppliers.

 

“ Common Shares ” means the common shares in the capital of the Company.

 

“ Company ” means Just Energy Group Inc., a corporation created by a certificate of arrangement issued under the CBCA on January 1, 2011.

 

“ Computershare ” means Computershare Trust Company of Canada.

 

“ Declaration of Trust ” means the amended and restated declaration of trust for the Fund dated April 30, 2001, as amended and restated from time to time and terminated on December 31, 2010.

 

“ DSGs ” means deferred share grants (formerly DUGs – deferred unit grants), issued to Directors pursuant to the DSG Plan as a component of compensation paid to Directors in lieu of fees payable in cash and which are exchangeable into Common Shares on a 1:1 basis.

 

“ DSG Plan ” means the 2010 Directors’ Compensation Plan (formerly the Directors Deferred Unit Grant Plan) of the Company as amended from time to time.

 

“ Electricity Supplier ” means a person who is an electricity producer or an electricity supply aggregator.

 

“ Exchangeable Shares ” means exchangeable shares, series 1 in the capital of JEEC.

 

“ Exelon ” means Exelon Generation Company, LLC, or any other related affiliate with which Just Energy contracts.

 

“ Financial Statements ” means the audited comparative consolidated financial statements of the Company as at and for the years ended March 31, 2018, and 2017, together with the notes thereto and the auditor’s report thereon.

 

“ Fund ” means Just Energy Income Fund, a trust established under the laws of the Province of Ontario on April 30, 2001, governed by the Declaration of Trust and wound up on December 31, 2010.

 

“ Gas Supplier ” means a person who is a natural gas producer or natural gas supply aggregator.

 

“ Independent Broker ” means a person who serves in the capacity of an independent broker to solicit Energy Contracts using among other things, a web-based sales portal, to small to mid-size commercial and small industrial customers primarily associated with Hudson.

 

“ Independent Contractor ” means a person who serves in the capacity of an independent contractor to solicit energy contracts (including JustGreen and JustClean products), to residential and small commercial customers.

 

“ Information Circular ” means the management information circular of the Company dated May 15, 2019, in respect of the annual meeting of shareholders of the Company to be held on June 26, 2019.

 

“ Intercreditor Agreement ” means the sixth amended and restated intercreditor agreement made as of September 1, 2015, between the Company, certain of the Company’s Subsidiaries, CIBC, as Collateral Agent, Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, National Bank of Canada, Nextera Energy Power Marketing, LLC and Macquarie, as amended and supplemented from time to time.

 

“ JEC ” means Just Energy Corp., a corporation incorporated under the laws of Ontario and the former administrator of the Fund.

  41  

 

“ JEEC ” means Just Energy Exchange Corp., a corporation created by amalgamation under the CBCA on July 1, 2009, that amalgamated with, among others, the Company pursuant to the Trust Conversion, on January 1, 2011.

 

“ Just Energy ” means all or any one or more of the Company and the Subsidiaries thereof as the context implies or may require.

 

“ LDC ” means local distribution company, the natural gas or electricity distributor for a geographic franchise area.

 

“ Liquidation Preference ” means US$25.00 per Series A Preferred Share.

 

“ Mid Market Swap Rate ” means on the second business day in New York immediately preceding the first day of each relevant dividend period for the Series A Preferred Shares, the applicable semi-annual 5-year U.S. dollar mid market swap rate (the “5-year Mid Swap Rate”) displayed at 5:00 p.m. (New York time) as reported by Bloomberg L.P. on the IRSB page (or such other page as may replace that page as reported by Bloomberg L.P., or such other service as may be nominated by the person providing or sponsoring the information appearing there for the purposes of displaying comparable rates) on such date of determination; provided that if the 5-year Mid Swap Rate does not appear on that page, it shall be determined by a U.S. or Canadian investment banking firm selected by the Company on the basis of (i) quotations provided by the principal office of each of four major banks in the U.S. dollar swap market of the rates at which swaps for a 5 year period in U.S. dollars are offered by it at approximately 5:00 p.m. (New York time) on such date of determination to participants in the U.S. dollar swap market, and (ii) the arithmetic mean rounded, if necessary, to the nearest 0.00001 (0.000005 being rounded upwards) of such quotations.

 

“ Macquarie ” means Macquarie Bank Limited, Macquarie Energy Canada Ltd., Macquarie Energy LLC and any other related affiliate with which Just Energy contracts

 

“ NYSE ” means the New York Stock Exchange.

 

“ person ” includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporate, unincorporated association or organization, governmental entity, syndicate or other entity, whether or not having legal status.

 

“ Preferred Shares ” means the preferred shares of the Company.

 

“ RCE ” means a residential customer equivalent which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m 3 (or 106 GJ’s) of natural gas on an annual basis and, as regards electricity, 10,000 kWh of electricity on an annual basis, which represents, respectively, the approximate amount of gas and electricity used by a typical household in Ontario.

 

“ PBGs ” means the performance bonus grants of the Company granted pursuant to the Company’s 2013 Performance Bonus Incentive Plan, as amended from time to time.

 

“ RSGs ” means restricted share grants of the Company granted pursuant to the Company’s 2010 Restricted Share Grant Plan, as amended from time to time (formerly known as unit appreciation rights (UARs) of the Fund granted pursuant to the Fund’s 2004 Unit Appreciation Right Plan, as amended from time to time).

 

“ Shareholders ” means the holders from time to time of Common Shares and/or Preferred Shares, and includes the beneficial owners of such shares.

 

“ Shell ” means Shell Energy North America (Canada) Inc., Shell Energy North America (U.S.) L.P., and any other related affiliate with which Just Energy contracts.

 

“ Spruce ” means Spruce Finance, Inc., a merger of CPF and Kilowatt Financial, LLC.

 

“ Subsidiary ” has the meaning ascribed thereto in the CBCA and includes all limited partnerships directly or indirectly controlled by the Company.

 

“ TSX ” means the Toronto Stock Exchange.

  42  

 

“ Universal ” means Universal Energy Group Ltd., a corporation incorporated under the CBCA and amalgamated with JEEC on July 1, 2009.

 

Words importing the singular include the plural and vice versa and words importing any gender include all genders.

 

Unless otherwise stated, all dollar amounts herein are in Canadian dollars.

 

 

 

 

 

 

 

 

43

Exhibit 1.2

 

 

Management’s discussion and analysis

– May 15, 2019

 

The following Management’s Discussion and Analysis (“MD&A”) is a review of the financial condition and operating results of Just Energy Group Inc. (“Just Energy” or the “Company”) for the year ended March 31, 2019. This MD&A has been prepared with all information available up to and including May 15, 2019. This MD&A should be read in conjunction with Just Energy’s audited consolidated financial statements for the year ended March 31, 2019. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. All dollar amounts are expressed in Canadian dollars unless otherwise noted. Quarterly reports, the annual report and supplementary information can be found on Just Energy’s corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com or on the U.S. Securities and Exchange Commission’s website at www.sec.gov.

 

Company overview

 

Just Energy is a leading consumer company focused on essential needs, including electricity and natural gas commodities; on health and well-being, through products such as water quality and filtration devices; and on utility conservation, bringing energy efficient solutions and renewable energy options to consumers. Currently operating in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), Just Energy serves both residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., Green Star Energy, Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy, and TerraPass.

 

 

For a more detailed description of Just Energy’s business operations, refer to the “Continuing operations overview” section on page 6 of this MD&A.

 

Forward-looking information

 

This MD&A may contain forward-looking statements and information, including guidance for Base EBITDA for the fiscal year ending March 31, 2020. 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, general economic, business and market conditions, the ability of management to execute its business plan, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, interest and exchange rates, actions taken by governmental authorities including energy marketing regulation, increases in taxes and changes in government regulations and incentive programs, changes in regulatory regimes, results of litigation and decisions by regulatory authorities, competition, the performance of acquired companies and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or dividend levels is included in Just Energy’s Annual Information Form and other reports on file with Canadian securities regulatory authorities which can be accessed on SEDAR at www.sedar.com or by visiting the U.S. Securities and Exchange Commission’s website at www.sec.gov.

 

1 .

 

 

Key terms

 

“6.5% convertible bonds” refers to the US$150 million in convertible bonds issued in January 2014, which mature on July 29, 2019. Net proceeds were used to redeem Just Energy’s outstanding $90 million convertible debentures and pay down Just Energy’s credit facility. In September 2018, US$45.6 million were tendered. A further US$82.0 million were repurchased during the fourth quarter of fiscal 2019 resulting in a balance of US$22.4 million outstanding as at March 31, 2019. See “Debt and financing for continuing operations” on page 26 for further details.

 

“6.75% $160M convertible debentures” refers to the $160 million in convertible debentures issued in October 2016, which have a maturity date of December 31, 2021. Net proceeds were used to redeem Just Energy’s outstanding senior unsecured notes on October 5, 2016 and $225 million of its 6.0% convertible debentures on November 7, 2016. See “Debt and financing for continuing operations” on page 26 for further details.

 

“6.75% $100M convertible debentures” refers to the $100 million in convertible debentures issued in February 2018, which have a maturity date of March 31, 2023. Net proceeds were used to redeem the 5.75% convertible debentures on March 27, 2018. See “Debt and financing for continuing operations” on page 26 for further details.

 

“8.75% loan” refers to the US$250 million non-revolving multi-draw senior unsecured term loan facility entered into on September 12, 2018, which has a maturity date of September 12, 2023. US$193.0 million was drawn as of March 31, 2019. Net proceeds from the initial draw were used to fund a tender offer for Just Energy’s outstanding 6.5% convertible bonds due July 29, 2019, and for general corporate purposes, including to pay down the Company’s credit facility. See “Debt and financing for continuing operations” on page 26 for further details.

 

“Active asset” means an asset (product) that has been installed and not cancelled.

 

“Active MRR” refers to monthly recurring revenue (“MRR”) from active assets (i.e., subscriptions). It represents the expected recurring revenue as at the reporting date.

 

“Commodity RCE attrition” refers to the percentage of energy customers whose contracts were terminated prior to the end of the term either at the option of the customer or by Just Energy.

 

“Customer count” is comprised of each individual customer with a distinct address rather than to an RCE (see key term below).

 

“Failed to renew” means customers who did not renew expiring contracts at the end of their term.

 

“Filter Group financing” refers to the outstanding loan balance between Home Trust Company (“HTC”) and Filter Group Inc. which was acquired by the Company on October 1, 2018. The loan bears an annual interest rate of 8.99%. See “Debt and financing for continuing operations” on page 26 for further details.

 

“Gross margin per RCE” refers to the energy gross margin realized on Just Energy’s RCE customer base, including gains/losses from the sale of excess commodity supply.

 

“LDC” means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.

 

“Maintenance capital expenditures” means the necessary capital expenditures required to maintain existing operations at functional levels.

 

“Preferred shares” refers to the 8.50%, fixed-to-floating rate, cumulative, redeemable, perpetual preferred shares that were initially issued at a price of US$25.00 per preferred share in February 2017. The cumulative feature means that preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price, as and if declared by our Board of Directors.

 

“RCE” means residential customer equivalent, which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m 3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario, Canada.

 

2 .

 

 

Non-IFRS financial measures

 

Just Energy’s audited consolidated financial statements are prepared in accordance with IFRS. The financial measures that are defined below do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss), cash flow from operating activities and other measures of financial performance as determined in accordance with IFRS; however, the Company believes that these measures are useful in providing relative operational profitability of the Company’s business.

 

EBITDA

 

“EBITDA” refers to earnings before finance costs, income taxes, depreciation and amortization. EBITDA is a non-IFRS measure that reflects the operational profitability of the business.

 

Base EBITDA

 

“Base EBITDA” refers to EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments, discontinued operations and restructuring as well as reflecting an adjustment for share-based compensation, non-controlling interest and amortization of sales commissions with respect to value-added products (see below). This measure reflects operational profitability as the non-cash share-based compensation expense is treated as an equity issuance for the purposes of this calculation, since it will be settled in common shares; the mark to market gains (losses) are associated with supply already sold in the future at fixed prices; and the mark to market gains (losses) of weather derivatives are not yet realized. Restructuring and discontinued operations are one-time, non-recurring events.

 

Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under current IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing. Management believes that these short-term mark to market gains (losses) do not impact the long-term financial performance of Just Energy, and has excluded them from the Base EBITDA calculation.

 

Included in Base EBITDA are gains (losses) from the Company’s portfolio of equity investments and acquisitions which are presented in the Company’s audited consolidated statements of income (loss). The impact from fair value adjustments of contingent consideration liabilities that are related solely to performance is included in Base EBITDA, while any impact from fair value adjustments of contingent consideration liabilities relating to changes in Just Energy’s share price is excluded from Base EBITDA. Management believes that volatility in share price does not impact the financial performance of Just Energy as the contingent consideration is settled in shares.

 

Just Energy recognizes the incremental acquisition costs of obtaining a customer contract as an asset since these costs would not have been incurred if the contract was not obtained and are recovered through the consideration collected from the contract. Commissions and incentives paid for commodity contracts and value-added product contracts are capitalized and amortized over the term of the contract. Amortization of these costs with respect to commodity contracts is included in the calculation of Base EBITDA (as selling and marketing expenses). Amortization of incremental acquisition costs on value-added product contracts is excluded from the Base EBITDA calculation as value-added products are considered to be a lease asset akin to a fixed asset whereby amortization or depreciation expenses are excluded from Base EBITDA.

 

FREE CASH FLOW

 

Free cash flow (“FCF”) is the cash flow from operating activities less cash flow from investing activities.

 

Funds from operations

 

Funds from Operations (“FFO”) refers to the cash flow generated by current operations. FFO is calculated as gross margin adjusted for cash items including administrative expenses, selling and marketing expenses, bad debt expenses, finance costs, corporate taxes, capital taxes and other cash items. FFO also includes a seasonal adjustment for the gas markets in Ontario, Quebec, Manitoba and Michigan to include cash received from LDCs for gas not yet consumed by end customers.

 

3 .

 

 

base Funds from operations

 

Base Funds from Operations (“Base FFO”) refers to FFO reduced by maintenance capital expenditures.

 

Base Funds from Operations Payout Ratio

 

The payout ratio for Base FFO means dividends declared and paid as a percentage of Base FFO.

 

Embedded gross margin

 

“Embedded gross margin” is a rolling five-year measure of management’s estimate of future contracted energy and product gross margin. The commodity embedded gross margin is the difference between existing energy customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for commodity RCE attrition and renewals. The product gross margin is the difference between existing value-added product customer contract prices and the cost of sales on a five-year or ten-year undiscounted basis for such customer contracts, with appropriate assumptions for value-added product attrition and renewals. It is assumed that expiring contracts will be renewed at target margin renewal rates.

 

Embedded gross margin indicates the margin expected to be realized from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to consider administrative and other costs necessary to realize this margin.

 

Strategic initiatives

 

Just Energy continues its strategic shift from a retail energy provider to a consumer company focused on differentiated value-added products, unparalleled customer satisfaction and profitable customer growth. The Company stabilized its growth platform in fiscal 2019 by establishing a solid base for long-term growth through value-added products, maturing the retail sales channel development and consolidating service functions, thereby simplifying the business and realizing cost savings. Throughout the year, Just Energy realigned its technology and service functions, culminated in the overall restructuring of its businesses, to support the fiscal 2020 strategic initiatives. In addition, Just Energy is taking steps to refine its global footprint and focus on the core profitable markets.

 

Just Energy will focus on optimization to achieve profitable growth throughout fiscal 2020 by applying customer data analytics to gain a deep understanding of customers’ needs. Additionally, Just Energy will focus on optimizing sales channels and cost-to-serve in North America to increase gross margin. Lastly, Just Energy will drive value-added products and services (“VAPS”) growth through the newly acquired Filter Group to accelerate its strategic shift to a customer centric consumer company.

 

Discontinued operations

 

In March 2019, Just Energy formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to focus on the core business in North America and the U.K. The disposal of the operations is expected to be completed within the next 12 months. As at March 31, 2019, these operations were classified as a disposal group held for sale and as discontinued operations. In the past, these operations were reported under the Consumer segment. Just Energy’s results for the past two fiscal periods reported throughout this MD&A have been adjusted to reflect continuing operation results and figures with respect to these discontinued operations. The tax impact on the discontinued operations is minimal.

 

For a detailed breakdown of the discontinued operations, reference Note 18 of the consolidated financial statements for the year ended March 31, 2019.

 

4 .

 

 

Financial highlights
For the years ended March 31
(thousands of dollars, except where indicated and per share amounts)
                               
          % increase           % increase        
    Fiscal 2019     (decrease)     Fiscal 2018     (decrease)     Fiscal 2017  
Sales   $ 3,812,470       5 %   $ 3,623,558       (4 )%   $ 3,756,924  
Gross margin     712,215       11 %     640,511       (8 )%     696,009  
Administrative expenses     206,820       10 %     187,251       12 %     167,283  
Selling and marketing expenses     232,030       -         232,228       3 %     226,239  
Restructuring costs     16,078       -         -         -         -    
Finance costs     88,072       57 %     55,972       (28 )%     78,077  
Profit (loss) from continuing operations     (100,491 )     NMF   3     524,519       NMF   3     472,225  
Loss from discontinued operations     (22,379 )     NMF   3     (5,945 )     NMF   3     (1,342 )
Profit (loss) 1     (122,870 )     NMF   3     518,574       NMF   3     470,883  
Profit (loss) per share from continuing operations available to shareholders - basic     (0.73 )             3.45               3.03  
Profit (loss) per share from continuing operations available to shareholders - diluted     (0.73 )             2.65               2.43  
Dividends/distributions     88,030       2 %     86,307       12 %     76,751  
Base EBITDA from continuing operations 2     203,998       13 %     180,151       (19 )%     223,622  
Base Funds from continuing operations 2    

106,826

     

10

%     96,915       (25 )%     129,013  
Payout ratio on Base Funds from continuing operations 2    

82%

              89%               60%  
Embedded gross margin 2     2,271,200       20 %     1,900,500       8 %     1,757,000  
Total customers (RCEs)     4,089,000       (2 )%     4,163,000       (1 )%     4,202,000  
Total gross customer (RCE) additions     1,102,000       (6 )%     1,171,000       40 %     839,000  
Total net customer (RCE) additions     (74,000 )     (54 )%     (48,000 )     85 %     (318,000 )

1 Profit (loss) includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.

2 See “Non-IFRS financial measures” on page 3.

3 Not a meaningful figure.

 

For the year ended March 31, 2019, sales increased 5% from $3.6 billion to $3.8 billion. In fiscal 2019, gross margin was $712.2 million, 11% higher than the prior year, and Base EBITDA amounted to $204.0 million, 13% higher than fiscal 2018. The higher gross margin is largely attributable to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations, which in turn drove Base EBITDA higher. The impact from the improvements in gross margin can be also seen in the increases in Base FFO and embedded gross margin, which grew 10% and 20%, respectively, compared to the prior year.

 

Throughout the year, an unprecedented level of scrutiny has been applied across all products, contracts, operations, and regions to ensure each part of the business is operating efficiently which culminated in the restructuring announcement in the fourth quarter of fiscal 2019. This decision resulted in the reclassification of previously reported administrative costs of $6.0 million to restructuring costs. The Company incurred an additional $10.1 million as restructuring charges in the fourth quarter of fiscal 2019.

 

5 .

 

Continuing operations overview

 

CONSUMER SEGMENT

 

The sale of gas and electricity to customers with annual consumption equivalent to 15 RCEs or less is undertaken by the Consumer segment. Marketing of the energy products of this segment is primarily done through retail, online and door-to-door marketing. Consumer customers make up 41% of Just Energy’s RCE base, which is currently focused on longer-term price-protected, flat-bill and variable rate product offerings, as well as JustGreen products. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer segment’s sales channels also offer these products.

 

Developments in connectivity and convergence, and changes in customer preferences, have created an opportunity for Just Energy to provide value-added products and service bundles with the Company’s energy products. As a conservation solution, smart thermostats are offered as a value-added product with commodity contracts and also sold as a stand-alone unit. These smart thermostats are currently manufactured and distributed by ecobee Inc., a company in which Just Energy holds a 8% fully diluted equity interest. On October 1, 2018, Just Energy added home water filtration systems to its line of consumer product and service offerings through the acquisition of Filter Group. See “Acquisition of Filter Group Inc.” on page 27 for further details.

 

COMMERCIAL SEGMENT

 

Customers with annual consumption equivalent to over 15 RCEs are served by the Commercial segment. These sales are made through three main channels: brokers, door-to-door commercial independent contractors, and inside commercial sales representatives. Commercial customers make up 59% of Just Energy’s RCE base. Products offered to Commercial customers range from standard fixed-price offerings to “one off” offerings, tailored to meet the customer’s specific needs. These products can be fixed or floating rate or a blend of the two, and normally have a term of less than five years. Gross margin per RCE for this segment is lower than it is for the Consumer segment, but customer aggregation costs and ongoing customer care costs per RCE are lower as well. Commercial customers also have significantly lower attrition rates than Consumer customers.

 

In addition, the Commercial segment also provides value-added products and services which include LED lighting, smart building controls, monitoring and alerts, bill audits, smart thermostats, tariff analysis, energy insights and energy procurement.

 

ABOUT THE ENERGY MARKETS

 

Just Energy offers products and services to address customers’ essential needs, including electricity and natural gas commodities; health and well-being products such as water quality and filtration devices; and utility conservation products which bring energy efficient solutions and renewable energy options to customers.

 

Natural gas

 

Just Energy offers natural gas customers a variety of products ranging from month-to-month variable-price contracts to five-year fixed-price contracts. Gas supply is purchased from market counterparties based on forecasted Consumer and small Commercial RCEs. For larger Commercial customers, gas supply is generally purchased concurrently with the execution of a contract. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat-bill products offer customers the ability to pay a fixed amount per period regardless of usage or changes in the price of the commodity.

 

6 .

 

The LDCs provide historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing requirements are outside the forecasted purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s realized customer gross margin may increase or decrease depending upon market conditions at the time of balancing.

 

Territory Gas delivery method
Ontario, Quebec, Manitoba and Michigan The volumes delivered for a customer typically remain constant throughout the year. Sales are not recognized until the customer actually consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery, resulting in accrued gas receivables, and, in the summer months, deliveries to LDCs exceed customer consumption, resulting in gas delivered in excess of consumption. Just Energy receives cash from the LDCs as the gas is delivered, which is even throughout the year.
Alberta, British Columbia, New York, Illinois, Indiana, Ohio, California, Georgia, Maryland, New Jersey, Pennsylvania, Saskatchewan and the U.K. The volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore, the amount of gas delivered in the winter months is higher than in the spring and summer months. Consequently, cash flow received from most of these markets is greatest during the third and fourth (winter) quarters, as cash is normally received from the LDCs in the same period as customer consumption.

 

Electricity

 

Just Energy services various territories in Canada, the U.S. and the U.K. with electricity. A variety of electricity solutions are offered, including fixed-price, flat-bill and variable-price products on both short-term and longer-term contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions. Flat-bill products offer a consistent price regardless of usage.

 

Just Energy purchases power supply from market counterparties for residential and small Commercial customers based on forecasted customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger Commercial customers. Historical customer usage is obtained from LDCs, which, when normalized to average weather, provides Just Energy with expected normal customer consumption. Similar to gas, Just Energy mitigates exposure to weather variations through active management of the power portfolio and the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing power purchases are outside the acceptable forecast, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. Any supply balancing not fully covered through customer pass-throughs, active management or the options employed may impact Just Energy’s gross margin depending upon market conditions at the time of balancing.

 

JustGreen

 

Customers also have the ability to choose an appropriate JustGreen program to supplement their natural gas and electricity contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.

 

JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects. JustGreen’s electricity product offers customers the option of having all or a portion of the volume of their electricity usage sourced from renewable green sources such as wind, solar, hydropower or biomass, via power purchase agreements and renewable energy certificates. 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.

 

7 .

 

 

Just Energy currently sells JustGreen gas and electricity in eligible markets across North America. Of all Consumer customers who contracted with Just Energy in the past year, 44% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 79% of their consumption as green supply. For comparison, as reported for the year ended March 31, 2018, 34% of Consumer customers who contracted with Just Energy chose to include JustGreen for an average of 71% of their consumption. As of March 31, 2019, JustGreen makes up 7% of the Consumer gas portfolio, compared to 10% a year ago. JustGreen makes up 14% of the Consumer electricity portfolio, compared to 12% a year ago.

 

Value-added products and services

 

In addition to JustGreen, Just Energy also provides energy management as well as health and wellness solutions in the form of VAPS. These products and services may be sold in a bundle with natural gas or electricity, or on a stand-alone basis.

 

Just Energy’s Commercial energy management solutions include LED lighting as well as monitoring and control solutions for lighting and HVAC systems. These solutions include custom design, procurement, utility rebate management, and management of installation services that may be purchased outright or financed through third parties.

 

Energy management for the Consumer business focuses on energy efficient and energy conserving products. Just Energy has strategic partnerships to facilitate the purchase and support of smart thermostats and home warranty products. Customers may also redeem points earned through Just Energy’s Perks loyalty program for a wide variety of free or discounted energy saving products.

 

Through the Filter Group business acquired by Just Energy on October 1, 2018, Just Energy now provides subscription-based home water filtration systems to residential customers in Canada and the United States, including under-counter and whole-home water filtration solutions.

 

The VAPS business is still in its infancy stage; the core business is still the commodity operations.

 

EBITDA from Continuing Operations
For the years ended March 31
(thousands of dollars)                  
    Fiscal 2019     Fiscal 2018     Fiscal 2017  
Reconciliation to consolidated financial statements                        
Profit (loss) for the year   $ (122,870 )   $ 518,574     $ 470,883  
Add:                        
Finance costs     88,072       55,972       78,077  
Provision for income taxes     2,829       20,671       43,231  
Amortization     30,868       23,930       25,494  
EBITDA   $ (1,101 )   $ 619,147     $ 617,685  
Add (subtract):                        
Change in fair value of derivative instruments and other     153,226       (474,356 )     (374,791 )
Change in fair value of investments     -         20,591       -    
Contingent consideration revaluation     7,447       -         -    
Restructuring costs     16,078       -         -    
Share-based compensation     6,182       18,353       6,076  
Discontinued operations     21,974       5,714       (877 )
Loss (Profit) attributable to non-controlling interest     192       (9,298 )     (24,471 )
Base EBITDA from continuing operations   $ 203,998     $ 180,151     $ 223,622  

 

8 .

 

 

Gross margin per consolidated financial statements   $ 712,215     $ 640,511     $ 696,009  
Add (subtract):                        
Administrative expenses     (206,820 )     (187,250 )     (167,283 )
Selling and marketing expenses     (232,030 )     (232,228 )     (226,239 )
Bad debt expense     (81,037 )     (56,331 )     (56,041 )
Amortization included in cost of sales     2,666       3,116       2,974  
Other income (expenses)     8,812       1,040       (1,327 )
Change in fair value of investments     -         20,591       -    
Loss (Profit) attributable to non-controlling interest     192       (9,298 )     (24,471 )
Base EBITDA from continuing operations   $ 203,998     $ 180,151     $ 223,622  

 

Base EBITDA amounted to $204.0 million for the year ended March 31, 2019, an increase of 13% from $180.2 million in the prior year. The higher Base EBITDA is largely attributable to the increase in gross margin, partially offset by increased bad debt expenses and administrative expenses.

 

The Company’s continuing operational performance has been adjusted to exclude the loss from the discontinued operations totalling $22.4 million, including the impairment loss resulting from the write down assets in the discontinued operations in fiscal 2019. The comparative periods have also been adjusted for the results of this disposal group. Base EBITDA also excludes non-recurring restructuring costs which include a reclassification of previously reported administrative expenses of $6.0 million to restructuring costs and $10.1 million incurred in the last quarter of fiscal 2019.

 

Gross margin was up 11% due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. The impact from the improvements in gross margin can be also seen in the increases in Base FFO and embedded gross margin, which grew 10% and 20%, respectively, compared to the prior year.

 

Administrative expenses increased by 10% from $187.3 million to $206.8 million. The increase over the prior year was attributable to the additional administrative expenses resulting from the stabilization program to achieve operational effectiveness and from the acquisition of Filter Group together with foreign exchange fluctuations from the U.S. and U.K. operations.

 

Selling and marketing expenses for the year ended March 31, 2019 were $232.0 million, consistent with the prior year, largely due to the capitalization of the incremental customer acquisition costs under IFRS 15 and mass-market restructuring actions that reduced costs, offset by unfavourable foreign exchange fluctuations from the U.S. and U.K. operations.

 

Bad debt expense was $81.0 million for the year ended March 31, 2019, an increase of 44% from $56.3 million recorded for the prior year. For the year ended March 31, 2019, the bad debt expense represents approximately 2.3% of revenue in the jurisdictions where the Company bears the credit risk, up from 1.9% of revenue reported for the year ended March 31, 2018. Management’s target range is 2% to 3%.

 

For more information on the changes in the results from operations, refer to “Gross margin” on page 21 and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further explained on pages 22 through 23.

 

For comparative purposes, the table on the previous page includes the results for the years ended March 31, 2018 and 2017. For the year ended March 31, 2018, gross margin was $640.5 million, a decrease of 8% from $696.0 million reported in fiscal 2017, primarily due to lower realized margins per customer and the negative foreign exchange impact on gross margin earned in the U.S. markets compared with fiscal 2017. In fiscal 2018, administrative, selling and marketing, and bad debt expenses amounted to $187.3 million, $232.2 million and $56.3 million respectively, an increase of 12%, 3% and 1%, respectively. For fiscal 2018, Base EBITDA amounted to $180.2 million, a decrease of 19% from $223.6 million in fiscal 2017, reflecting a number of one-time weather related events that occurred in fiscal 2018, including the reduction of consumption arising from the abnormally mild summer weather in North America, customer disruptions caused by Hurricane Harvey and higher supply costs due to unusually colder than normal weather in January 2018 in North America.

 

9 .

 

EMBEDDED GROSS MARGIN
 
Management’s estimate of the future embedded gross margin is as follows:
 
(millions of dollars)
                2019 vs.           2018 vs.  
    Fiscal     Fiscal     2018     Fiscal     2017  
    2019     2018     variance     2017     variance  
Commodity embedded gross margin   $ 2,230.4     $ 1,900.5       17 %   $ 1,757.0       8 %
VAPS embedded gross margin     40.8       -         -         -         -    
Total embedded gross margin   $ 2,271.2     $ 1,900.5       20 %   $ 1,757.0       8 %

 

Management’s estimate of the future embedded gross margin within its customer contracts amounted to $2,271.2 million as of March 31, 2019, an increase of 20% compared to the embedded gross margin as of March 31, 2018, primarily due to the improved pricing power in North America. The embedded gross margin remains stable at record highs compared to the embedded gross margin reported in the previous fiscal years.

 

Embedded gross margin includes $40.8 million from Filter Group, which was acquired by Just Energy on October 1, 2018, on a five-year undiscounted basis. On a ten-year undiscounted basis, the embedded gross margin for Filter Group is $73.1 million.

 

Embedded gross margin indicates the margin expected to be realized over the next five years from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to take into account administrative and other costs necessary to realize this margin. As our mix of customers continues to reflect a higher proportion of Commercial volume, the embedded gross margin may, depending on currency rates, grow at a slower pace than customer growth; however, the underlying costs necessary to realize this margin will also decline.

 

Just Energy’s results for the past two fiscal periods reported throughout the MD&A have been adjusted to reflect continuing operation results and figures.

 

10 .

 

Funds from Continuing Operations
For the years ended March 31
(thousands of dollars)
    Fiscal 2019     Fiscal 2018     Fiscal 2017  
Cash inflow from continuing operations   $ (44,455 )   $ 62,022     $ 150,451  
Add (subtract):                        
Changes in working capital    

124,138

      36,194       22,756  
Change in fair value of Filter Group contingent consideration     7,447       -         -    
Loss (profit) attributable to non-controlling interest     192       (9,298 )     (24,471 )
Discontinued operations     22,375       5,944       1,254  
Tax adjustment     6,117       18,763       (7,283 )
Funds from continuing operations   $

115,814

    $ 113,625     $ 142,707  
Less: Maintenance capital expenditures     (8,988 )     (16,710 )     (13,695 )
Base Funds from continuing operations   $

106,826

    $ 96,915     $ 129,012  
                         
Gross margin per consolidated financial statements   $ 712,215     $ 640,511     $ 696,009  
Add (subtract):                        
Administrative expenses     (206,820 )     (187,250 )     (167,283 )
Selling and marketing expenses     (232,030 )     (232,228 )     (226,239 )
Bad debt expense     (81,037 )     (56,331 )     (56,041 )
Current income tax recovery     (6,333 )     (2,556 )     (27,123 )
Adjustment required to reflect net cash receipts from gas sales     4,186       (2,876 )     (681 )
Amortization included in cost of sales     2,666       3,116       2,974  
Restructuring costs     (16,078 )     -         -    
Other income     8,812       1,040       804  
Financing charges, non-cash    

18,223

      14,547       23,198  
Finance costs     (88,072 )     (55,972 )     (78,077 )
Other non-cash adjustments     82       (8,376 )     (24,834 )
Funds from continuing operations   $

115,814

    $ 113,625     $ 142,707  
Less: Maintenance capital expenditures     (8,988 )     (16,710 )     (13,695 )
Base Funds from continuing operations   $

106,826

    $ 96,915     $ 129,012  
Base Funds from continuing operations payout ratio    

82

%     89 %     59 %
Dividends/distributions                        
Dividends on common shares   $ 74,557     $ 73,624     $ 73,717  
Dividends on preferred shares     12,189       11,380       1,657  
Distributions for share-based awards     1,284       1,303       1,377  
Total dividends/distributions   $ 88,030     $ 86,307     $ 76,751  

 

Base Funds from Continuing Operations for the year ended March 31, 2019 was $106.8 million, an increase of 10% compared with Base FFO of $96.9 million for the prior year. The improvement in Base FFO is largely attributable to the significant improvement in Base EBITDA and lowered maintenance capital expenditures spending, offset by higher bad debt expenses from the implementation of IFRS 9 and higher finance costs. Finance costs of $28.8 million increased by 59% in fiscal 2019 compared to the prior year as a result of higher collateral and working capital management related costs, supplier credit term extensions, interest expense from higher debts and higher interest rates, as well as an increase in non-cash accretion costs.

 

Dividends and distributions for the year ended March 31, 2019 were $88.0 million, a slight increase of 2% from fiscal 2018. The payout ratio on Base Funds from Continuing Operations was 82% for the year ended March 31, 2019, an improvement from 89% reported in fiscal 2018, primarily resulting from the higher Base FFO.

 

11 .

 

Selected consolidated financial data from continuing operations
For the years ended March 31
(thousands of dollars, except per share amounts)
                   
Statement of operations                  
    Fiscal 2019     Fiscal 2018     Fiscal 2017  
Sales   $ 3,812,470     $ 3,623,558     $ 3,756,924  
Gross margin     712,215       640,511       696,009  
Profit (loss) from continuing operations     (100,491 )     524,519       472,225  
Profit (loss) from continuing operations per share - basic     (0.73 )     3.45       3.03  
Profit (loss) from continuing operations per share - diluted     (0.73 )     2.65       2.43  

 

Balance sheet data                        
As at March 31                        
      Fiscal 2019       Fiscal 2018       Fiscal 2017  
Total assets   $ 1,746,068     $ 1,601,393     $ 1,225,318  
Long-term liabilities    

817,064

      538,191       679,645  

 

2019 COMPARED WITH 2018

 

For the year ended March 31, 2019, sales increased by 5% to $3.8 billion in fiscal 2019, compared with $3.6 billion in the prior fiscal year.

 

Gross margin increased by 11% to $712.2 million from $640.5 million reported in fiscal 2018. The increases in sales and gross margin are primarily due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

The loss for fiscal 2019 amounted to $100.5 million, compared to a profit of $524.5 million in fiscal 2018, primarily due to the change in fair value of the derivative instruments which resulted in a loss of $153.2 million, as compared to a gain of $474.4 million in fiscal 2018. Under IFRS, there is a requirement to mark to market the future supply contracts, creating unrealized non-cash gains or losses depending on the supply pricing, but the related future customer revenues are not marked to market (which would create an offsetting gain or loss to the supply gain or loss). Additionally, the loss from operations is a result of higher administrative expenses to support the Company’s growth and international operations, restructuring costs of $16.1 million to transform the Company and increased bad debt expenses. Just Energy views Base EBITDA and FFO as more relevant measures of operating performance.

 

Total assets increased by 9% to $1,746.1 million in fiscal 2019 due to increases in accounts receivable, capitalization of customer acquisition costs and acquisition of intangible assets, partially offset by the reduction of cash and the derivative financial assets. Total long-term liabilities as of March 31, 2019 were $817.1 million, representing a 52% increase from fiscal 2018. The increase in total long-term liabilities is primarily due to the additional withdrawals on the credit facility, the signing of the new 8.75% loan, and the acquisition of Filter Group which added the Filter Group financing, partially offset by the partial redemption of the 6.5% convertible debentures.

 

2018 COMPARED WITH 2017

 

Sales decreased by 4% to $3.6 billion in fiscal 2018, compared with $3.8 billion in the prior fiscal year. The decrease is primarily a result of the 1% decrease in customer base and the impact from foreign exchange, due to the weakening of the U.S. dollar.

 

For the year ended March 31, 2018, gross margin decreased by 8% to $640.5 million from $696.0 million reported in fiscal 2017, of which foreign currency translation (primarily from the weaker U.S. dollar) accounted for a decrease of $9.0 million. One-time weather events in the summer and the winter, including the reduction of consumption due to abnormally mild weather in the summer, customer disruption due to Hurricane Harvey and higher supplier costs due to extreme cold weather in the winter, adversely affected the gross margin in the fiscal 2018. Gross margin for the Consumer segment decreased to $487.2 million, down 5%, while gross margin for the Commercial segment decreased by 16% to $153.3 million.

 

The profit for fiscal 2018 amounted to $524.5 million, compared to $472.2 million in fiscal 2017. The profit increased as a result of the year over year increase in the change in fair value of the derivative instruments and other on the Company’s supply portfolio, which resulted in a gain of $474.4 million, compared with a gain of $374.8 million in fiscal 2017. Under IFRS, there is a requirement to mark to market the future supply contracts, creating unrealized non-cash gains or losses depending on the supply pricing, but the related future customer revenues are not marked to market (which would create an offsetting gain or loss to the supply gain or loss). Just Energy views Base EBITDA and FFO the better measures of operating performance.

 

12 .

 

Total assets increased by 33% to $1,634.2 million in fiscal 2018 due to gains in the fair value of derivative instruments, as market prices relative to Just Energy’s future electricity supply contracts increased by an average of $9.01/MWh as compared to fiscal 2017. Total long-term liabilities as of March 31, 2018 were $538.2 million, representing a 21% decrease from fiscal 2017. The decrease in total long-term liabilities is primarily a result of reclassification of the credit facility from long-term to current liabilities and the repayment of the 5.75% convertible debentures, partially offset by the issuance of the 6.75% $100M convertible debentures in fiscal 2018.

 

Summary of quarterly results for continuing operations
(thousands of dollars, except per share amounts)      
    Q4     Q3     Q2     Q1  
    Fiscal 2019     Fiscal 2019     Fiscal 2019     Fiscal 2019  
Sales   $ 1,024,200     $ 960,657     $ 953,482     $ 874,131  
Gross margin     198,172       187,992       172,851       153,201  
Administrative expenses     48,418       50,927       55,276       52,199  
Selling and marketing expenses     69,405       56,610       56,185       49,830  
Restructuring costs     10,096       2,746       1,319       1,917  
Finance costs     (28,847 )     (22,762 )     (20,123 )     (16,340 )
Profit (loss) for the period from continuing operations     (71,413 )     29,672       (19,415 )     (39,335 )
Loss for the period from discontinued operations     (15,608 )     (2,648 )     (2,035 )     (2,088 )
Profit (loss) for the period     (87,021 )     27,024       (21,450 )     (41,423 )
Profit (loss) for the period from continuing operations per share – basic     (0.49 )     0.19       (0.15 )     (0.28 )
Profit (loss) for the period from continuing operations per share – diluted     (0.49 )     0.18       (0.15 )     (0.28 )
Dividends/distributions paid     22,004       21,434       22,330       22,261  
Base EBITDA from continuing operations     68,774       63,534       40,531       31,159  
Base Funds from continuing operations    

23,945

      34,632       28,173       20,075  
Payout ratio on Base Funds from continuing operations    

92%

     

62%

     

79%

      111%  

 

    Q4     Q3     Q2     Q1  
    Fiscal 2018     Fiscal 2018     Fiscal 2018     Fiscal 2018  
Sales   $ 1,012,855     $ 911,522     $ 851,767     $ 847,415  
Gross margin     169,132       171,229       142,667       157,484  
Administrative expenses     47,183       47,361       45,330       47,377  
Selling and marketing expenses     60,563       55,355       58,421       57,889  
Finance costs     18,195       13,266       12,521       11,990  
Profit (loss) for the period from continuing operations     267,679       209,330       (63,260 )     110,772  
Loss for the period from discontinued operations     (1,906 )     (915 )     (1,663 )     (1,463 )
Profit (loss) for the period     265,773       208,415       (64,923 )     109,309  
Profit (loss) for the period from continuing operations per share – basic     1.81       1.41       (0.47 )     0.70  
Profit (loss) for the period from continuing operations per share – diluted     1.41       1.12       (0.47 )     0.53  
Dividends/distributions paid     21,555       21,501       21,468       21,783  
Base EBITDA from continuing operations     70,680       53,357       22,184       33,930  
Base Funds from continuing operations     27,145       38,453       9,345       21,971  
Payout ratio on Base Funds from continuing operations     79%       56%       230%       99%  

 

13 .

 

 

Just Energy’s results reflect seasonality, as electricity consumption is slightly greater in the first and second quarters (summer quarters) and gas consumption is significantly greater during the third and fourth quarters (winter quarters). Electricity and gas customers currently represent 75% and 25%, respectively, of the commodity customer base. Since consumption for each commodity is influenced by weather, annual quarter over quarter comparisons are more relevant than sequential quarter comparisons.

 

Fourth quarter financial highlights
For the three months ended March 31
(thousands of dollars, except where indicated and per share amounts)
                   
          % increase        
    Fiscal 2019     (decrease)     Fiscal 2018  
Sales   $ 1,024,200       1%     $ 1,012,855  
Gross margin     198,172       17%       169,132  
Administrative expenses     48,418       3%       47,183  
Selling and marketing expenses     69,405       15%       60,563  
Restructuring costs     10,096               -    
Finance costs     28,847       59%       18,195  
Profit (loss) from continuing operations     (71,413 )     NMF   3     267,679  
Loss from discontinued operations     (15,608 )     NMF   3     (1,906 )
Profit (loss) 1     (87,021 )     NMF   3     265,773  
Profit (loss) per share from continuing operations available to shareholders - basic     (0.49 )             1.81  
Profit (loss) per share from continuing operations available to shareholders - diluted     (0.49 )             1.41  
Dividends/distributions     22,004       2%       21,555  
Base EBITDA from continuing operations 2     68,774       (3)%       70,680  
Base Funds from continuing operations 2    

23,945

     

(12)%

      27,145  
Payout ratio on Base Funds from continuing operations 2    

92

%             79 %
Total gross customer (RCE) additions     245,000       (21)%       312,000  
Total net customer (RCE) additions 2     (44,000 )     NMF   3     49,000  

1 Profit (loss) includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.

2 See “Non-IFRS financial measures” on page 3.

3 Not a meaningful figure.

 

For the three months ended March 31, 2019, gross margin was $198.2 million, 17% higher than the prior comparable quarter, and Base EBITDA amounted to $68.8 million, a decrease of 3% compared to fiscal 2018. The increase in gross margin is primarily due to the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

The decline was substantially to the gain of $20.6 million on the Company’s ecobee investment in the fourth quarter of fiscal 2018, partially offset by increase in gross margin.

 

14 .

 

Fourth quarter gross margin per RCE
    Q4 Fiscal     Number of     Q4 Fiscal     Number of  
    2019     RCEs     2018     RCEs  
                         
Consumer customers added and renewed   $ 386       215,000     $ 216       242,000  
Consumer customers lost     313       168,000       200       117,000  
Commercial customers added and renewed     71       165,000       87       220,000  
Commercial customers lost     89       70,000       81       128,000  

 

For the three months ended March 31, 2019, the average gross margin per RCE for the customers added and renewed by the Consumer segment was $386/RCE, compared with $216/RCE in the prior comparable quarter. The increase in average gross margin per RCE for Consumer customers added and renewed in the quarter is a result of the Company's margin optimization efforts in focusing on ensuring customers added meet its profitability targets. The average gross margin per RCE for the Consumer customers lost during the three months ended March 31, 2019 was $313/RCE, compared with $200/RCE in the fourth quarter of fiscal 2018.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the quarter ended March 31, 2019 was $71/RCE, compared to $87/RCE in the prior comparable quarter. Customers lost through attrition and failure to renew during the three months ended March 31, 2019 were at an average gross margin of $89/RCE, an increase from $81/RCE reported in the prior comparable quarter. Management will continue its margin optimization efforts by focusing on ensuring customers added meet its profitability targets.

 

Analysis of the fourth quarter

 

Sales increased 1% to $1,024.2 million for the three months ended March 31, 2019 from $1,012.9 million recorded in the fourth quarter of fiscal 2018. The gross margin was $198.2 million, an increase of 17% from the prior comparable quarter, primarily due to improved pricing power in North America, enabled by the Company’s unique customer value enhancing product offerings coupled with loyalty rewards offered through a multi-channel approach, and margin expansion from the suite of value-added products and services, partially offset by risk management costs.

 

Administrative expenses for the three months ended March 31, 2019 increased 3% attributable to the additional operational administrative expenses from the acquisition of Filter Group, and unfavourable foreign exchange fluctuations from the U.S. and U.K. operations. Selling and marketing expenses for the three months ended March 31, 2019 increased by 15% to $69.4 million as a result of the increased commission costs to acquire new customers in certain channels, increased customer additions in Texas and growth in the residual perks points commission, offset by capitalization of certain upfront incremental customer acquisition costs under IFRS 15 and cost savings from restructuring of the marketing function .

 

Finance costs for the three months ended March 31, 2019 amounted to $28.8 million, an increase of 59% from $18.2 million reported for the three months ended March 31, 2018, primarily driven by higher collateral and working capital management related costs, supplier credit term extensions, interest expense from higher debts and higher interest rates as well as an increase in non-cash accretion costs.

 

The change in fair value of derivative instruments and other resulted in a loss of $91.2 million for the three months ended March 31, 2019, compared to a gain of $250.9 million in the prior comparable quarter, as market prices relative to Just Energy’s future electricity supply contracts decreased by an average of $2.63/MWh, offset by the increase in future gas contracts by an average of $0.02/GJ. Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under current IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts.

 

An unprecedented level of scrutiny has been applied across all products, contracts, operations, and regions to ensure each part of the business is operating efficiently throughout the year which culminated in the restructuring announcement in the fourth quarter of fiscal 2019. This decision resulted in $10.1 million of restructuring costs recognized during the fourth quarter, of which $6.6 million was accrued as at March 31, 2019.

 

15 .

 

The loss for the three months ended March 31, 2019 was $87.0 million, representing a loss per share of $0.49 on a basic and diluted basis, respectively. For the prior comparable quarter, the profit was $265.8 million, representing earnings per share of $1.82 and $1.42 on a basic and diluted basis, respectively.

 

Base EBITDA was $68.8 million, a decrease of 3% as compared to the prior comparable quarter due to an increase in selling and marketing expenses to support the growth in sales, partially offsetting the increase in gross margin. The Base EBITDA excludes restructuring costs recorded in the fourth quarter .

 

Base FFO was $23.9 million for the fourth quarter of fiscal 2019, down 12% compared to $27.1 million in the prior comparable quarter as a result of the lower Base EBITDA, partially offset by lower maintenance capital expenditures.

 

Dividends and distributions paid were $22.0 million, consistent with the prior comparable quarter. The payout ratio on Base FFO for the quarter ended March 31, 2019 was 92%, compared with 79% in the prior comparable quarter. The payout ratio for the fiscal year ended March 31, 2019 was 82%, compared with 89% for the fiscal year ended March 31, 2018.

 

Just Energy’s results for the past fiscal period have been adjusted to reflect continuing operation results and figures.

 

Segmented Base EBITDA 1
For the years ended March 31
(thousands of dollars)
          Fiscal 2019  
    Consumer     Commercial     Corporate
and shared
services 		    Consolidated  
Sales   $ 2,395,624     $ 1,416,846     $ -       $ 3,812,470  
Cost of sales     (1,859,913 )     (1,240,342 )     -         (3,100,255 )
Gross margin     535,711       176,504       -         712,215  
Add (subtract):                                
Administrative expenses     (76,709 )     (40,693 )     (89,418 )     (206,820 )
Selling and marketing expenses     (158,770 )     (73,260 )     -         (232,030 )
Bad debt expense     (72,470 )     (8,567 )     -         (81,037 )
Amortization included in cost of sales     2,666       -         -         2,666  
Other income, net     8,703       109       -         8,812  
Loss attributable to non-controlling interest     192       -         -         192  
Base EBITDA from continuing operations   $ 239,323     $ 54,093     $ (89,418 )   $ 203,998  

 

16 .

 

          Fiscal 2018  
    Consumer     Commercial     Corporate
and shared
services 		    Consolidated  
Sales   $ 2,232,081     $ 1,391,477     $ -       $ 3,623,558  
Cost of sales     (1,744,906 )     (1,238,141 )     -         (2,983,047 )
Gross margin     487,175       153,336       -         640,511  
Add (subtract):                                
Administrative expenses     (64,282 )     (29,153 )     (93,815 )     (187,250 )
Selling and marketing expenses     (161,246 )     (70,982 )     -         (232,228 )
Bad debt expense     (53,759 )     (2,572 )     -         (56,331 )
Amortization included in cost of sales     3,116       -         -         3,116  
Other income, net     21,524       107       -         21,631  
Profit attributable to non-controlling interest     (9,298 )     -         -         (9,298 )
Base EBITDA from continuing operations   $ 223,230     $ 50,736     $ (93,815 )   $ 180,151  

1 The segment definitions are provided on page 6.

 

Consumer Energy contributed $239.3 million to Base EBITDA for the year ended March 31, 2019, an increase of 7% from $223.2 million in fiscal 2018. Consumer gross margin increased 10% due to the 22% increase in gross margin per RCE resulting from the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. Consumer administrative costs increased by 19%, attributable to the additional operational administrative expenses from the acquisition of Filter Group, and unfavourable foreign exchange fluctuations from the U.S. and U.K. operations. Consumer selling and marketing expenses were down by 2% due to the capitalization of upfront commission expense with the adoption of IFRS 15 and the reduction in non-commission selling expenses resulting from the consolidation of regional sales offices and diversification of sales channels.

 

Commercial Energy contributed $54.1 million to Base EBITDA, an increase of 7% from the year ended March 31, 2018, when the segment contributed $50.7 million. The increase in gross margin was due to the 20% increase in gross margin per RCE for Commercial customers, resulting from the pricing power improvements in North America, ramp up on sales from the Commercial VAPS businesses acquire in the latter half of fiscal 2018, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations. The increase in Commercial administrative costs reflects the unfavourable foreign exchange fluctuations from the U.S. and U.K. operations.

 

17 .

 

Customer aggregation
 
CUSTOMER SUMMARY
                   
    As at     As at        
    March 31,     March 31,     % increase  
    2019     2018     (decrease)  
                         
Commodity     1,399,000       1,556,000       (10 )%
VAPS     70,000       24,000       192 %
Commodity and VAPS bundle     140,000       78,000       79 %
Total customer count     1,609,000       1,658,000       (3 )%

 

As at March 31, 2019, the total customer count declined 3% to 1,609,000 compared to the prior period. The decline in commodity customers is a result of the Company’s focus on renewing and signing higher quality and long lasting customers. The customer count captures customers with a distinct service address. These customers can have multiple products contracted with Just Energy, multiple active assets installed by Just Energy. The total VAPS customer count also includes 27,000 distinct customers from Filter Group’s water filter subscriptions, with 33,000 active assets. Just Energy’s customer base also includes 74,000 smart thermostat customers. The significant growth in VAPS customers shows the positive reception to the Company’s strategic shift from a retail energy provider to a consumer company focused on differentiated value-added products.

 

COMMODITY RCE SUMMARY
             
    Apr. 1,                 Failed to     Mar. 31,     % increase  
    2018     Additions     Attrition     renew     2019     (decrease)  
Consumer                                                
Gas     640,000       139,000       (111,000 )     (98,000 )     570,000       (11 )%
Electricity     1,196,000       360,000       (313,000 )     (129,000 )     1,114,000       (7 )%
Total Consumer RCEs     1,836,000       499,000       (424,000 )     (227,000 )     1,684,000       (8 )%
Commercial                                                
Gas     384,000       140,000       (37,000 )     (27,000 )     460,000       20 %
Electricity     1,943,000       463,000       (154,000 )     (307,000 )     1,945,000       -    
Total Commercial RCEs     2,327,000       603,000       (191,000 )     (334,000 )     2,405,000       3 %
Total RCEs     4,163,000       1,102,000       (615,000 )     (561,000 )     4,089,000       (2 )%

 

Just Energy’s total RCE base is currently at 4.1 million. Gross RCE additions for the year ended March 31, 2019 were 1,102,000, compared to 1,171,000 for the prior year, reflecting the transition from a purely RCE driven focus to a greater focus on attracting and retaining strong-fit customers that will drive greater profitability. Net additions were negative 74,000 for the year ended March 31, 2019, compared with a negative 48,000 net RCE additions in fiscal 2018.

 

Consumer RCE additions amounted to 499,000 for the year ended March 31, 2019, a 14% decrease from 578,000 gross RCE additions recorded in fiscal 2018, primarily driven by significant customer acquisitions in the U.K. from switching sites in the prior year, which was not repeated in fiscal 2019. As of March 31, 2019, the U.S., Canadian and U.K. segments accounted for 68%, 17% and 15% of the Consumer RCE base, respectively.

 

Commercial RCE additions were 603,000 for the year ended March 31, 2019, a 2% increase over fiscal 2018 due to improved selling efforts in the Midwest and Eastern U.S., offset by lower adds from large Commercial and Industrial customers and Interactive Energy Group RCEs. The Commercial failed to renew RCEs for the year ended March 31, 2019 improved by 37%, decreasing from 534,000 RCEs to 334,000 RCEs with the launch of the Company’s enhanced product offering, which resulted in improved renewal rates. As of March 31, 2019, the U.S., Canadian and U.K. segments accounted for 69%, 24% and 7% of the Commercial RCE base, respectively.

 

18 .

 

For the year ended March 31, 2019, 44% of the total Consumer and Commercial RCE additions were generated through commercial brokers, 35% from online and other sales channels, 11% from retail channels and 10% from door-to-door sales. In fiscal 2018, 47% of RCE additions were generated from retail, online and other sales channels, 39% from commercial brokers, and 14% from door-to-door sales.

 

Overall, as of March 31, 2019, the U.S., Canadian and U.K. operations accounted for 69%, 21% and 10% of the RCE base, respectively. At March 31, 2018, the U.S., Canadian and U.K. operations represented 67%, 22% and 11% of the RCE base, respectively.

 

COMMODITY RCE ATTRITION
             
    Fiscal     Fiscal  
    2019     2018  
                 
Consumer     19 %     20 %
Commercial     6 %     4 %
Total attrition     13 %     12 %

 

The combined attrition rate for Just Energy was 13% for the year ended March 31, 2019, an increase of one percentage point from the 12% reported for prior year. The Consumer attrition rate decreased one percentage point to 19% from a year ago while the Commercial attrition rate increased two percentage points to 6%. The decrease in the Consumer attrition rate is a result of Just Energy’s focus on margin optimization while working to become the customers’ “trusted advisor” and providing a variety of energy management solutions to its customer base to drive customer loyalty. The increase in the Commercial attrition rate reflected a very competitive market for Commercial renewals with competitors pricing aggressively, and Just Energy’s focus on improving retained customers’ profitability rather than pursuing low margin growth.

 

COMMODITY RCE RENEWALS            
             
    Fiscal     Fiscal  
    2019     2018  
                 
Consumer     70 %     70 %
Commercial     51 %     45 %
Total renewals     59 %     55 %

 

The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts to renew customers begin up to 15 months in advance. Overall, the renewal rate was 59% for the year ended March 31, 2019, an increase of four percentage points from 55% as at March 31, 2018. The Consumer renewal rate remained at 70%, and the Commercial renewal rate increased by 6 percentage points to 51% as compared to the prior year. The increase in the overall renewal rate is evidence that the Company’s loyalty building tactics are taking effect and improving customer retention.

 

19 .

 

ENERGY CONTRACT RENEWALS
This table shows the percentage of customers up for renewal in the following fiscal periods:
                         
    Consumer     Commercial  
    Gas     Electricity     Gas     Electricity  
2020     31 %     24 %     26 %     33 %
2021     21 %     34 %     21 %     22 %
2022     22 %     22 %     22 %     20 %
Beyond 2022     26 %     20 %     31 %     25 %
Total     100 %     100 %     100 %     100 %
Note: All month-to-month customers, who represent 704,000 RCEs, are excluded from the table above.

 

Gross margin
For the years ended March 31
(thousands of dollars)
    Fiscal 2019     Fiscal 2018  
    Consumer     Commercial     Total     Consumer     Commercial     Total  
Gas   $ 168,092     $ 27,061     $ 195,153     $ 160,168     $ 17,729     $ 177,897  
Electricity     359,746       144,242       503,988       327,423       134,639       462,062  
VAPS     7,873       5,201       13,074       -         968       968  
    $ 535,711     $ 176,504     $ 712,215     $ 487,591     $ 153,336     $ 640,927  
Increase     10%       15%       11%                        

 

CONSUMER ENERGY

 

Gross margin for the year ended March 31, 2019 for the Consumer segment was $535.7 million, an increase of 10% from $487.6 million recorded in fiscal 2018. Gas and electricity gross margins increased by 5% and 10%, respectively, primarily as a result of the pricing power improvements in North America, additional sales from newly acquired VAPS businesses, normalized weather compared to the extreme negative one-time weather events in the prior fiscal year, growth in the U.K. operations and favourable foreign exchange fluctuations.

 

Average realized gross margin for the Consumer segment for the year ended March 31, 2019 was $252/RCE, representing a 7% increase from $236/RCE reported in the prior year. This increase is primarily attributable to the margin improvement initiatives, partially offset by significantly higher bad debt expense in fiscal 2019. The gross margin/RCE value includes an appropriate allowance for bad debt expense in applicable markets.

 

Gas

 

Gross margin from gas customers in the Consumer segment was $168.1 million for the year ended March 31, 2019, an increase of 5% from $160.2 million recorded in the prior year. This change is primarily a result of the Company's margin optimization efforts, which focus on ensuring customers added meet profitability targets.

 

Electricity

 

Gross margin from electricity customers in the Consumer segment was $359.7 million for the year ended March 31, 2019, an increase of 10% from $327.4 million recorded in fiscal 2018. The increase in gross margin was primarily due to lower gross margin in fiscal 2018, impacted by the abnormally mild summer weather in North America, customer disruptions caused by Hurricane Harvey and higher supply costs due to the January deep freeze in Texas followed with warmer days that resulted in a normal monthly average.

 

20 .

 

COMMERCIAL ENERGY

 

Gross margin for the Commercial segment was $176.5 million for the year ended March 31, 2019, an increase of 15% from $153.3 million recorded in the prior year.

 

Average realized gross margin for the year ended March 31, 2019 was $100/RCE, an increase of 20% from $83/RCE a year ago as a result of the margin improvement initiatives, partially offset by the increase in bad debt expense. The gross margin per RCE value includes an appropriate allowance for bad debt expense in markets where Just Energy has customer credit risk.

 

Gas

 

Gas gross margin for the Commercial segment was $27.1 million, an increase of 53% from $17.7 million recorded in fiscal 2018 due to the 20% increase in RCEs resulting from the pricing power improvements in North America, growth in the U.K. operations and favourable foreign exchange fluctuations, as compared to last fiscal year.

 

Electricity

 

Electricity gross margin for the Commercial segment was $144.2 million, an increase of 7% from $134.6 million recorded in the prior year. The increase in gross margin was due to the pricing power improvements in North America, ramp up on sales from the Commercial VAPS businesses acquired in the latter half of fiscal 2018, normalized weather compared to the extreme negative one-time customer disruptions caused by Hurricane Harvey and higher supply costs due to the January deep freeze in Texas in the prior year.

 

GROSS MARGIN ON NEW AND RENEWING CUSTOMERS

 

The table below depicts the annual margins on contracts for Consumer and Commercial customers signed during the year. This table reflects the gross margin (sales price less costs of associated supply) earned on new additions and renewals, including both brown commodities and JustGreen supply. The gross margin/RCE value includes an appropriate allowance for bad debt expense in applicable markets.

 

Annual gross margin per RCE
    Fiscal     Number of     Fiscal     Number of  
    2019     RCEs     2018     RCEs  
                         
Consumer customers added or renewed   $ 300       880,000     $ 206       995,000  
Consumer customers lost     268       605,000       198       544,000  
Commercial customers added or renewed 1     76       742,000       80       891,000  
Commercial customers lost     77       386,000       78       656,000  

1 Annual gross margin per RCE excludes margins from Interactive Energy Group and large Commercial and Industrial customers.

 

For the year ended March 31, 2019, the average gross margin per RCE for the customers added or renewed by the Consumer segment was $300/RCE, an increase of 46% from $206/RCE in the prior comparable period. The average gross margin per RCE for the Consumer customers lost during the year ended March 31, 2019 was $268/RCE, an increase from $198/RCE for customers lost in the prior comparable period. The increase in gross margin is attributed to the improved pricing power and continued risk management of the weather derivative costs.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the year ended March 31, 2019 was $76/RCE, a decrease of 5% from $80/RCE in the prior comparable period. Customers lost through attrition and failure to renew during the year ended March 31, 2019 were at an average gross margin of $77/RCE, a decrease from $78/RCE reported in the prior comparable period. Management continues to focus on margin optimization by focusing on small and medium-sized customers and retaining our larger margin customers.

 

21 .

 

 

Just Energy’s results for the past fiscal periods reported below have been adjusted to reflect continuing operation results and figures.

 

Overall consolidated results from continuing operations
 
ADMINISTRATIVE EXPENSES
For the years ended March 31                  
(thousands of dollars)                  
    Fiscal 2019     Fiscal 2018    

% increase

(decrease)

 
Consumer Energy   $ 76,709     $ 64,282       19 %
Commercial Energy     40,693       29,153       40 %
Corporate and shared services costs     89,418       93,815       (5 )%
Total administrative expenses   $ 206,820     $ 187,250       10 %

 

Administrative expenses increased by 10% from $187.3 million to $206.8 million in the year ended March 31, 2019 as compared to the prior year. The Consumer segment’s administrative expenses were $76.7 million for the year ended March 31, 2019, an increase of 19% from $64.3 million recorded in fiscal 2018. The Commercial segment’s administrative expenses were $40.7 million for fiscal 2019, an increase from fiscal 2018 of 40%. The overall increase over the prior comparable year was attributable to the additional administrative expenses resulting from the stabilization program to achieve operational effectiveness and from the acquisition of Filter Group together with foreign exchange fluctuations from the U.S. and U.K. operations .

 

Just Energy’s results for the past fiscal periods reported below have been adjusted to reflect continuing operation results and figures.

 

SELLING AND MARKETING EXPENSES
For the years ended March 31                  
(thousands of dollars)                  
                   
    Fiscal 2019     Fiscal 2018     % increase
(decrease) 		 
Consumer Energy   $ 158,770     $ 161,246       (2 )%
Commercial Energy     73,260       70,982       3 %
Total selling and  marketing  expenses   $ 232,030     $ 232,228       -    

 

Selling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and sales agents, as well as sales-related corporate costs, were $232.0 million, consistent with the prior year.

 

The selling and marketing expenses for the Consumer segment were $158.8 million for the year ended March 31, 2019, a 2% decrease from $161.2 million recorded in fiscal 2018 due to the capitalization of the upfront commission expense with the adoption of IFRS 15.

 

The selling and marketing expenses for the Commercial segment increased 3% to $73.3 million from the prior year resulting from increased commission costs to acquire new customers, offset by capitalization of certain upfront incremental customer acquisition costs in accordance with IFRS 15 and reduction of non-commission selling expense.

 

22 .

 

The aggregation costs per customer for the last 12 months for Consumer customers signed by independent representatives and Commercial customers signed by brokers were as follows:

 

    Fiscal 2019   Fiscal 2018
Consumer   $ 242 /RCE   $ 199 /RCE
Commercial   $ 51 /RCE   $ 41 /RCE

 

The average aggregation cost for the Consumer segment was $242/RCE for the year ended March 31, 2019, an increase of 22% from the $199/RCE reported in the fiscal 2018, primarily related to the weakening of the U.S. dollar.

 

The $51/RCE average aggregation cost for Commercial segment customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts are paid further commissions averaging $51/RCE per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $92 (1.8 x $51) to the year’s average aggregation cost reported above. As at March 31, 2018, the average aggregation cost for commercial brokers was $41/RCE.

 

BAD DEBT EXPENSE

 

In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia and the U.K., Just Energy assumes the credit risk associated with the collection of customer accounts. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets.

 

Bad debt expense is included in the audited consolidated statement of income under other operating expenses. Bad debt expense was $81.0 million for the year ended March 31, 2019, an increase of 44% from $56.3 million recorded for fiscal 2018, primarily as a result of the growth of revenues within Texas and in the U.K., and the adoption of the IFRS 9 expected credit loss model. For the year ended March 31, 2019, the bad debt expense represents 2.3% of relevant revenue, up from 1.9% reported in fiscal 2018.

 

FINANCE COSTS

 

Total finance costs for the year ended March 31, 2019 amounted to $88.1 million, an increase of 57% from $56.0 million recorded during fiscal 2018. The increase in finance costs was primarily driven by the premium and fees associated with the 8.75% loan, partial redemption of the 6.5% convertible bonds, higher collateral related costs associated with Texas electricity markets, supplier credit term extensions and interest expense from the increased utilization of the credit facility and higher interest rates.

 

FOREIGN EXCHANGE

 

Just Energy has exposure to U.S. dollar, U.K. pound and European euro exchange rates as a result of its international operations. Any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income. For the year ended March 31, 2019, an unrealized foreign exchange loss of $4.2 million was reported in other comprehensive income, versus an unrealized loss of $2.8 million reported in fiscal 2018. In addition to changes in the U.S. foreign exchange rate, this fluctuation is a result of the significant decrease in the mark to market liability position of the Company’s derivative financial instruments.

 

Overall, the impact from the translation of the U.S.-based operations resulted in a favourable $2.2 million on Base EBITDA for the year ended March 31, 2019.

 

Just Energy retains sufficient funds in its foreign subsidiaries to support ongoing growth; surplus cash is deployed in Canada, and hedges for cross border cash flow are placed. Just Energy hedges between 50% and 90% of the next 12 months of cross border cash flows depending on the level of certainty of the cash flow.

 

23 .

 

PROVISION FOR INCOME TAX
For the years ended March 31            
(thousands of dollars)            
    Fiscal 2019     Fiscal 2018  
Current income tax expense   $ 6,329     $ 2,552  
Deferred income tax expense (recovery)     (3,500 )     18,119  
Provision for income tax   $ 2,829     $ 20,671  

 

Just Energy recorded a current income tax expense of $6.3 million for the year ended March 31, 2019, versus $2.6 million in fiscal 2018. Increased gross margin and profitability in taxable jurisdictions as well as the timing of the income taxation in Canada have resulted in higher current tax expense.

 

For the year ended March 31, 2019, a deferred tax recovery of $3.5 million was recorded as compared to a deferred tax expense of $18.1 million in the prior year. The reduction in expense was primarily driven by changes in fair value of derivative instruments.

 

Liquidity and capital resources from continuing operations
 
SUMMARY OF CASH FLOWS
For the years ended March 31            
(thousands of dollars)            
    Fiscal 2019     Fiscal 2018  
Operating activities from continuing operations   $ (44,455 )   $ 62,022  
Investing activities from continuing operations     (47,823 )     (21,076 )
Financing activities from continuing operations, excluding dividends     141,301       35,344  
Effect of foreign currency translation     2       1,456  
Increase in cash before dividends     49,025       77,746  
Dividends (cash payments)     (87,959 )     (86,261 )
Decrease in cash     (38,934 )     (8,515 )
Cash and cash equivalents – beginning of period     48,861       57,376  
Cash and cash equivalents – end of period   $ 9,927     $ 48,861  

 

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

 

Cash flow from continuing operating activities for the year ended March 31, 2019 was an outflow of $44.5 million, compared to an inflow of $62.0 million in the prior comparable year. Cash flow from operations was lower in the current period due to the payments made upfront for residential commission on customer acquisitions and upfront costs relating to process and operational efficiency improvement activities, which depressed the changes in working capital.

 

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

 

Investing activities for the year ended March 31, 2019 included purchases of capital and intangible assets totalling $5.2 million and $38.4 million, respectively, compared with $4.8 million and $30.9 million, respectively, in fiscal 2018. Just Energy’s capital spending related primarily to information technology-related purchases for process improvement initiatives.

 

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

 

Financing activities, excluding dividends, relate primarily to the issuance and repayment of long-term financing. During the year ended March 31, 2019, Just Energy added $253.2 million of debt with the 8.75% loan and the Filter Group financing, withdrew an additional $79.5 million on the credit facility and issued an additional $10.4 million in preferred shares. These inflows were offset by the partial redemption of the 6.5% convertible debentures and a payment of $10.0 million on the share swap.

 

24 .

 

Just Energy’s liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. The elapsed period between the time a customer is signed and receipt of the first payment from the customer varies with each market. The time delays per market are approximately two to nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy. In Alberta, Georgia and Texas and for commercial direct-billed customers, Just Energy receives payment directly.

 

DIVIDENDS AND DISTRIBUTIONS

 

During the year ended 2019, Just Energy paid cash dividends to its shareholders and distributions to holders of share-based awards in the amount of $88.0 million, compared to $86.3 million paid in the prior comparable year.

 

Just Energy’s annual dividend rate is currently $0.50 per common share paid quarterly. Dividends are not guaranteed and are subject to Board approval each quarter.

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per preferred share when, as and if declared by our Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the preferred shares are cumulative, dividends on preferred shares will accrue even if they are not paid. Common shareholders will not receive dividends until any preferred share dividends in arrears are paid. Dividend payment dates are quarterly on the last day of each of March, June, September and December. The dividend payment on March 31, 2019 was US$0.53125 per preferred share.

 

Balance sheet as at March 31, 2019, compared to March 31, 2018

 

Total cash decreased from $48.9 million as at March 31, 2018 to $9.9 million as at 2019. The decrease in cash is primarily attributable to the Company’s significant investment in upfront customer acquisition costs to acquire quality customers and risk management activities throughout the fiscal year.

 

As of March 31, 2019, trade receivables and unbilled revenue amounted to $506.2 million and $277.6 million, respectively, compared to March 31, 2018, when the trade receivables and unbilled revenue amounted to $357.3 million and $301.6 million, respectively. Trade payables and other increased from $590.0 million to $714.1 million during the year as a result of the extension of payment terms negotiated in fiscal 2018 for a number of commodity suppliers.

 

In certain markets, more gas has been delivered to LDCs than consumed by customers, resulting in gas delivered in excess of consumption and a deferred revenue position of $3.1 million and $43.2 million, respectively, as of March 31, 2019. These amounts increased from $2.7 million and $38.7 million, respectively, as of March 31, 2018. As at March 31, 2019, more gas was consumed by customers than Just Energy had delivered to the LDCs in Ontario and Manitoba, and as a result, Just Energy recognized an accrued gas receivable and accrued gas payable of $13.6 million and $12.9 million, respectively, down from $15.9 million and $12.3 million, respectively, as of March 31, 2018. These changes represent the normal seasonality of gas storage. Other current assets increased from $111.9 million at March 31, 2018 to $164.3 million as of March 31, 2019.

 

Fair value of derivative financial assets and fair value of financial liabilities relate entirely to the financial derivatives. The mark to market gains and losses can result in significant changes in profit and, accordingly, shareholders’ equity from year to year due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash changes are not meaningful and will not be experienced as future costs or cash outflows.

 

Long-term debt increased from $422.1 million as at March 31, 2018 to $687.9 million as at March 31, 2019. This increase is a result of reclassification of the credit facility from current to long-term liabilities together with adding the new 8.75% loan, the Filter Group financing and unfavourable foreign exchange fluctuations on the U.S. dollar debt, partially offset by the redemption of the 6.5% convertible bonds. The book value of net debt was 3.6x for Base EBITDA, higher than the 2.8x reported for March 31, 2018.

 

25 .

 

    As at     As at     As at  
    Mar. 31,     March 31,     Mar. 31,  
    2019     2018     2017  
Assets:                        
Cash   $ 9,927     $ 48,861     $ 83,631  
Trade and other receivables     783,780       658,844       582,971  
Total fair value of derivative financial assets     153,767       283,431       14,666  
                         
Liabilities:                        
Trade payables and other     714,110       594,732       513,747  
Total fair value of derivative financial liabilities     143,045       138,159       347,517  
Total long-term debt     725,372       543,504       498,088  
Total other liabilities     11,895       5,486       13,913  

 

Debt and financing for continuing operations

(thousands of dollars)          

 

    March 31, 2019     March 31, 2018  
             
Just Energy credit facility   $ 201,577     $ 122,115  
Filter Group financing     17,577       -  
8.75% loan     240,094       -  
6.75% $100M convertible debentures     87,520       85,760  
6.75% $160M convertible debentures     150,945       148,146  
6.5% convertible bonds     29,483       188,147  

 

The various debt instruments are described as follows:

 

• A $352.5 million credit facility expiring on September 1, 2020, supported by guarantees and secured by, among other things, a general security agreement and an asset pledge excluding, primarily, the U.K. and other international operations. Credit facility withdrawals amounted to $201.6 million as of March 31, 2019, compared with $122.1 million as of March 31, 2018. In addition, total letters of credit outstanding as at March 31, 2019 amounted to $94.0 million (March 31, 2018 - $113.4 million). The renewal on the facility agreement included an extension for an additional 2 years to September 1, 2020.

 

• An 8.99% outstanding loan between HTC and Filter Group. The loan is a result of factoring receivables. Payments on the loan are made monthly as Just Energy receives payment from the customer and will continue up to the end date of the customer contract term on the factored receivable.

 

• An 8.75% US$250 million non-revolving multi-draw senior unsecured term loan facility with a maturity date of September 2023 was entered into during the second quarter of fiscal 2019, which bears interest at a rate of 8.75% per annum payable semi-annually in arrears on June 30 and December 31. US$193 million was drawn as at March 31, 2019.

 

• A 6.75% $100M senior unsecured subordinated debenture with a maturity date of March 31, 2023 was issued during the fourth quarter of fiscal 2018 for which interest is payable semi-annually in arrears on March 31 and September 30, at a rate of 6.75% per annum.

 

    26 .

 

• A 6.75% $160M senior unsecured subordinated debenture with a maturity date of December 31, 2021 was issued during the third quarter of fiscal 2017 for which interest is payable semi-annually in arrears on June 30 and December 31, at a rate of 6.75% per annum.

 

• A 6.5% European-focused senior unsecured convertible bond with a maturity date of July 29, 2019, and interest payable semi-annually in arrears on January 29 and July 29, at a rate of 6.5% per annum. As at March 31, 2019, US$127.6 million was repurchased and extinguished.

 

See Note 19 of the consolidated financial statements for further details regarding the nature of each debt agreement.

 

Acquisition of businesses

 

ACQUISITION OF EDGEPOWER, INC.

On February 28, 2018, Just Energy completed the acquisition of the issued and outstanding shares of EdgePower, Inc. (“EdgePower”), a privately held energy monitoring and management company operating out of Aspen, Colorado. EdgePower provides lighting and HVAC controls, as well as enterprise monitoring, in hundreds of commercial buildings in North America. Just Energy acquired 100% of the equity interests of EdgePower for the purposes of integrating their lighting and HVAC controls with the commercial business. The fair value of the total consideration transferred is US$14.9 million, of which US$7.5 million was paid in cash and US$7.4 million was settled through the issuance of 1,415,285 Just Energy common shares. The goodwill that was acquired as part of this acquisition relates primarily to the EdgePower workforce and synergies between Just Energy and EdgePower.

 

In addition, the former shareholders of EdgePower are entitled to a payment of up to a maximum of US$6.0 million, payable in cash, subject to continuing employment and the achievement of certain annual and cumulative performance thresholds of the EdgePower business. The payment is calculated as 20% of EBITDA for the EdgePower business for the years of 2019-2021 with minimum thresholds that must be met. The management remuneration recognized since the acquisition date is $nil. As of March 31, 2019, the acquisition accounting for EdgePower has been finalized and closed.

 

For an allocated breakdown of the purchase price to identified assets and liabilities acquired in the acquisition, see Note 17 of the consolidated financial statements for the year ended March 31, 2019.

 

ACQUISITION OF FILTER GROUP INC.

On October 1, 2018, Just Energy acquired Filter Group Inc, a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

Just Energy acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by Just Energy under the Purchase Agreement is comprised of: (i) $14.3 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this is a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and Just Energy received a fairness opinion from National Bank Financial on the transaction.

 

    27 .

 

For an allocated breakdown of the purchase price to identified assets and liabilities acquired in the acquisition, see Note 17 of the consolidated financial statements for the year ended March 31, 2019. As of March 31, 2019, the acquisition accounting for Filter Group has been finalized and closed.

 

During the year ended March 31, 2019, Filter Group contributed $2.1 million in EBITDA to the overall results. Total sales added during fiscal 2019 were $6.3 million, of which $5.8 million is recurring. As the Filter Group business applies operating lease accounting, the majority of the sales earned goes directly to gross margin, with a gross margin percentage of 86% for the year ended March 31, 2019. The trailing 12 months attrition rate for the Filter Group business was 12%, one percentage point lower than the attrition rate for Just Energy’s commodity markets. On Filter Group’s 33,000 active assets, there was active MRR of $0.9 million.

 

Contractual obligations

In the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are known and non-cancellable.

 

PAYMENTS DUE BY PERIOD

(thousands of dollars)                              

 

    Less than 1 year     1 – 3 years     4 – 5 years     After 5 years     Total  
Trade and other payables   $ 714,110     $ -     $ -     $ -     $ 714,110  
Long-term debt     39,150       210,564       531,987       -       781,701  
Interest payments     40,766       80,234       40,600       -       161,600  
Premises and equipment leasing    

5,035

      9,902       6,306       -       21,243  
Gas, electricity and non-commodity contracts    

1,899,713

      1,439,479       119,212       42,089       3,500,493  
    $ 2,698,774     $ 1,740,179     $ 698,105     $ 42,089     $ 5,179,147  

 

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 $99.8 million. As at March 31, 2019, the current liabilities amount to $22.3 million and long-term liabilities amount to $36.4 million.

 

OTHER OBLIGATIONS

In the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included either in its accrued liabilities or in the consolidated financial statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become payable only if certain events were to occur. The inherent uncertainty surrounding the timing and financial impact of any events prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from actions, claims or proceedings.

 

Transactions with related parties

Just Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates other than the related party transaction discussed under the “Acquisition of Filter Group Inc.” section.

 

Off balance sheet items

The Company has issued letters of credit in accordance with its credit facility totalling $94.0 million (March 31, 2018 - $113.4 million) to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

    28 .

 

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group 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 March 31, 2019 were $70.3 million (March 31, 2018 - $56.5 million).

 

Critical accounting estimates

The consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, selling and marketing, and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

 

The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Just Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply and as part of the risk management practice. In addition, Just Energy uses derivative financial instruments to manage foreign exchange, interest rate and other risks.

 

Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce its exposure to commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment. Certain derivative contracts were purchased to manage Electricity Reliability Council of Texas (“ERCOT”) collateral requirements.

 

Just Energy’s objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy’s policy to hedge the estimated fixed-price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy’s price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed-price or price-protected customer contracts; however, hedge accounting under IFRS 9 is not applied. Just Energy’s policy is not to use derivative instruments for speculative purposes.

 

Just Energy uses a forward interest rate curve along with a volume weighted average share price to value its share swap. The conversion feature on the 6.5% convertible bonds is valued using an option pricing model.

 

Just Energy’s U.S. and U.K. operations introduce foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows, however, hedge accounting under IFRS 9 is not applied .

 

The consolidated financial statements are in compliance with IAS 32, Financial Instruments: Presentation; IFRS 9, Financial Instruments; and IFRS 7, Financial Instruments: Disclosure. Due to commodity volatility and to the size of Just Energy, the swings in mark to market on these positions will increase the volatility in Just Energy’s earnings.

 

    29 .

 

The Company’s financial instruments are valued based on the following fair value (“FV”) hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

 

Level 3 – Inputs that are not based on observable market data.

 

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. For a sensitivity analysis of these forward curves, see Note 14 of the consolidated financial statements for the year ended March 31, 2019. Other inputs, including volatility and correlations, are driven off historical settlements.

 

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

The allowance for uncollectible accounts reflects Just Energy’s best estimates of losses on the accounts receivable balances. Just Energy determines the allowance for doubtful accounts on customer receivables by applying loss rates based on historical results to the outstanding receivable balance. Just Energy is exposed to customer credit risk on its continuing operations in Alberta, Texas, Illinois, Ohio, Delaware, California, Michigan, Georgia, the U.K. and commercial direct-billed accounts in British Columbia. 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.

 

Revenues related to the sale of energy are recorded when energy is delivered to customers. The determination of energy sales to individual customers is based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The measurement of unbilled revenue is affected by the following factors: daily customer usage, losses of energy during delivery to customers and applicable customer rates.

 

Increases in volumes delivered to the utilities’ customers and favourable rate mix due to changes in usage patterns in the period could be significant to the calculation of unbilled revenue. Changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.

 

IMPAIRMENT OF NON-FINANCIAL ASSETS

 

Just Energy assesses whether there is an indication that an asset may be impaired at each reporting date. If such an indication exists or when annual testing for an asset is required, Just Energy estimates the asset's recoverable amount. The recoverable amounts of goodwill and intangible assets with an indefinite useful life are tested annually. The recoverable amount is the higher of an asset's or cash-generating unit's (“CGU”) fair value less costs to sell and its value in use. Value in use is determined by discounting estimated future pre-tax cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. The recoverable amount of assets that do not generate independent cash flows is determined based on the CGU to which the asset belongs.

 

The recoverable amount of each of the operating segments has been determined based on a fair value less costs of disposal model using fiscal 2019’s EBITDA of the operating segment multiplied by the entity’s EBITDA multiple. The EBITDA multiple and the EBITDA of the segment that has been utilized in the fair value less costs of disposal model are consistent with external sources of information and are considered a Level 2 input within the fair value hierarchy.

 

    30 .

 

DEFERRED TAXES

 

In accordance with IFRS, Just Energy uses the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are recognized on the differences between the carrying amounts of assets and liabilities and their respective income tax basis.

 

The tax effects of these differences are reflected in the consolidated statements of financial position as deferred income tax assets and liabilities. An assessment must be made to determine the likelihood that our future taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent that such recovery is not probable, deferred income tax assets must be reduced. The reduction of the deferred income tax asset can be reversed if the estimated future taxable income improves. No assurances can be given as to whether any reversal will occur or as to the amount or timing of any such reversal. Management must exercise judgment in its assessment of continually changing tax interpretations, regulations and legislation to ensure deferred income tax assets and liabilities are complete and fairly presented. Assessments and applications differing from our estimates could materially impact the amount recognized for deferred income tax assets and liabilities.

 

Deferred income tax assets of $9.5 million and $9.4 million have been recorded on the consolidated statements of financial position as at March 31, 2019 and March 31, 2018, respectively. These assets primarily relate to mark to market losses on our derivative financial instruments in the UK. Management believes there will be sufficient taxable income that will permit the use of these future tax assets in the tax jurisdictions where they exist.

 

When evaluating the future tax position, Just Energy assesses its ability to use deferred tax assets based on expected taxable income in future periods and other taxable temporary differences such as the book gain on fair value of derivative financial instruments. As at March 31, 2019, no net deferred tax assets were recognized in the U.S.

 

Deferred income tax liabilities of $4.1 million and $6.9 million have been recorded on the consolidated statements of financial position as at March 31, 2019 and March 31, 2018, respectively. The decrease in the deferred tax liabilities is primarily due to mark to market losses on the derivative financial instruments in the U.K.

 

DISCONTINUED OPERATIONS

 

Management used judgment in concluding on the discontinued operations classification as a major separate geographical area of operations, as part of a single coordinated disposal plan to resell the business in the new fiscal year. There is also a high level of judgment involved in estimating the fair value less cost to sell of the disposal group and the significant carrying amounts of the assets and liabilities related to assets held for sale.

 

Just Energy common and preferred shares

 

As at May 15, 2019, there were 149,705,030 common shares and 4,662,165 preferred shares of Just Energy outstanding.

 

In May 2017, Just Energy announced it entered into an at-the-market issuance (“ATM offering”) sales agreement pursuant to which Just Energy may, at its discretion and from time to time, offer and sell in the United States preferred shares having an aggregate offering price of up to US$150 million. As at May 15, 2019, Just Energy has issued a cumulative 338,865 preferred shares in fiscal 2019 for aggregate total gross proceeds of $10.4 million under the ATM offering.

 

New accounting pronouncements adopted in fiscal 2019

 

Adoption of IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

 

On April 1, 2018, Just Energy adopted IFRS 15 and has applied it using the modified retrospective method. As such, transition adjustments have been recognized in equity as at April 1, 2018.

 

Upon the adoption of IFRS 15, incremental costs to obtain a contract with a customer within the North American Consumer business are capitalized if these costs are expected to be recovered. Similar costs pertaining to other segments have been capitalized in the past. Accordingly, Just Energy has changed its accounting policy to allow for capitalizing all upfront sales commissions, incentives, and third party verification costs paid based on customer acquisitions that met the criteria for capitalization. Just Energy has elected, under the practical expedient, to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is less than one year. Costs of obtaining a contract are deferred and amortized over the average customer relationship period (estimated to be between two and five years, based on historical blended attrition rates, inclusive of expected renewal periods by region). The majority of Just Energy’s customer contracts meet IFRS 15’s B16 practical expedient where Just Energy has the right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance completed to date.

 

    31 .

 

The adoption of IFRS 15 resulted in an increase of $28.4 million in the opening balance of customer acquisition costs capitalized, an increase in deferred tax liabilities of $7.6 million and an opening retained earnings adjustment of $20.7 million.

 

IFRS 15 has no impact on the economics of the business. That being said, the implementation of IFRS 15 will result in a change in the timing and recognition of commission expense, but has no effect on the cash flows of Just Energy. IFRS 15 does impact the relationship between FFO and operating cash flow, with operating cash flow lagging behind FFO, as incremental customer acquisition costs are paid upfront and capitalized.

 

For further description of the impact of the accounting policy change, refer to Note 7 in the consolidated financial statements for the year ended March 31, 2019.

 

Adoption of IFRS 9, Financial Instruments (“IFRS 9”)

 

Effective April 1, 2018, Just Energy adopted IFRS 9, which among other things, introduces a new expected lifetime credit loss impairment model which replaces the existing incurred loss impairment model under IAS 39.

 

Under the previous accounting standard, IAS 39, a collective allowance for losses was recorded on trade receivables when a loss event had occurred as at, or prior to, the balance sheet date. An incurred loss event provides objective evidence to establish an allowance for loss against these receivables. IAS 39 did not allow the recognition of any allowance for losses expected in the future if a loss event had not yet occurred on the balance sheet date.

 

Under IFRS 9, Just Energy is required to apply a lifetime expected credit loss model, where credit losses that are expected to transpire in future years, irrespective of whether a loss event has occurred or not, as at the balance sheet date, are provided for. The expected lifetime credit loss is calculated based on the weighted average expected cash collected shortfall against the carrying value of the receivable and unbilled revenue and considers reasonable and supportable information about past events, current conditions, and forecasts of future events and economic conditions that may impact the credit profile of the receivables.

 

IFRS 9 requires that forward-looking indicators are considered when determining the impact on credit risk and measuring lifetime expected credit losses and are incorporated in the risk parameters as relevant. Based on the analysis performed by Just Energy, it was determined that the following forward-looking indicators could have an impact on the credit performance of the receivables, and they were considered in the calculation of the allowance for losses:

 

- Interest rates;
- Unemployment rates;
- Commodity prices; and
- The Consumer Price Index.

 

IFRS 9 does not require the restatement of comparative period financial statements except in limited circumstances related to aspects of hedge accounting. Just Energy made the decision not to restate comparative period financial information and has recognized any measurement differences between the previous carrying amounts and the new carrying amounts on April 1, 2018, through an adjustment to opening retained earnings, net of deferred tax.

 

In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia and the U.K., Just Energy has customer credit risk, and therefore, credit review processes have been implemented to perform credit evaluations of customers and manage customer default. Just Energy’s bad debt expense as a percentage of revenue for these markets, as determined under IAS 39, for the year ended March 31, 2018, was 1.9%.

 

    32 .

 

Under IFRS 9, for the year ended March 31, 2019, the same metric was determined to be 2.3%. This increase in bad debt expense as a percentage of revenue was not indicative of a change in the expected recovery value of the underlying customer receivables but rather a function of extending the allowance for expected lifetime credit losses to provide for expected future losses over a longer future time frame as required under IFRS 9. The standard required that a provision for expected lifetime credit losses be calculated for unbilled revenues, as they meet the definition of a contract asset under IFRS 15, whereas previously, under IAS 39, these receivables would not have a provision under the incurred loss model.

 

In the remaining markets, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. Management believes that the risk of LDCs failing to deliver payment to Just Energy is minimal.

 

The following table summarizes the transition adjustment that was required to adopt IFRS 9 as at April 1, 2018 for the markets above:

 

(in thousands of dollars)   IAS 39 carrying
amount as at
March 31, 2018 		    Transition
adjustment 		    IFRS 9 carrying
amount as at
April 1, 2018 		 
Trade receivables   $ 395,730     $ (11,237 )   $ 384,493  
Unbilled revenues   $ 301,577     $ (12,399 )   $ 289,178  

 

Due to the transition from an incurred loss model to a future expected lifetime credit loss model as required under IFRS 9, if forecast of events or change of economic condition are expected to give rise to change of the credit loss, the bad debt expenses will be changed prior to the occurrence of the future event. This would theoretically result in a greater bad debt expense and a corresponding decrease in reported net income when compared to net income reported under IAS 39 in situations where the future expected event leads to deterioration of the credit loss.

 

Just Energy’s results for the past two fiscal periods reported throughout the MD&A have been adjusted to reflect continuing operation results and figures.

 

Accounting standards issued but not yet applied

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the consolidated financial statements are disclosed below. Just Energy intends to adopt these standards, if applicable, when they become effective. For more information on the new accounting pronouncements not yet applied, as well as the Company’s analysis of accounting impacts, reference Note 8 of the consolidated financial statements for the year ended March 31, 2019.

 

 

 

 

    33 .

 

Standard Change summary Effective for fiscal years commencing after:
IFRS 16, Leases (“IFRS 16”) IFRS 16 brings most leases onto the balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. January 1, 2019
IFRIC 23, Uncertainty over Income Tax Treatments (“IFRIC 23”) IFRS 23 clarifies the uncertainty in certain income tax treatments in complex situations and scenarios. January 1, 2019

 

The IFRS Interpretations Committee (“IFRIC”) reached a decision IFRIC Agenda Paper 11, Physical Settlement of Contracts to Buy or Sell a Non-Financial Item (“Agenda Paper 11), during its meeting on March 5 - 6, 2019. The decision was in respect to a request about how an entity applies IFRS 9 to particular contracts to buy or sell a non-financial item at a fixed price.

 

The Company has reviewed the agenda decision and determined that a change is required in its accounting policy related to contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments. These are contracts the Company enters into which are accounted for as derivatives at fair value through profit or loss but physically settled by taking delivery of the underlying non-financial item. The IFRIC concluded that IFRS 9 neither permits or requires an entity to reverse the accumulated gain or loss previously recognized on the derivative and recognize a corresponding adjustment to cost of goods sold or inventory when the contract is physically settled.

 

In its December 2018 meeting, the International Accounting Standards Board (IASB) confirmed its view that it expects companies to be entitled to sufficient time to implement changes in accounting policy that result from agenda decisions of the IFRIC. The Company is currently evaluating the impact of implementing the agenda decision on its financial statements, systems and processes. Given the nature of its current systems and processes and the volume of transactions effected, the Company determined it was not possible to affect the accounting change in time for its March 31, 2019 reporting. The Company expects to implement the change retrospectively in the first half of its fiscal 2020 year. While the impact has not been quantified, the Company expects there will be material movements between cost of sales and change in fair value of derivative instruments and other in Just Energy’s consolidated statement of operations and the value of gas in storage on the statement of financial position. There is no impact on the net income of the Company.

 

Risk factors

 

Described below are the principal risks and uncertainties that Just Energy can foresee. It is not an exhaustive list, as some future risks may be yet unknown and other risks, currently regarded as immaterial, could turn out to be material.

 

MARKET RISK

 

Market risk is a potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity.

 

Commodity price risk

 

Just Energy’s cost to serve its retail energy customers is exposed to fluctuations in commodity prices. Although Just Energy enters into commodity derivative instruments with its suppliers to manage the commodity price risks, it is exposed to commodity price risk where estimated customer requirements do not match actual customer requirements or where it is not able to exactly purchase the estimated customer requirements. In such cases, Just Energy may suffer a loss if it is required to sell excess supply in the spot market (compared to its weighted average cost of supply) or to purchase additional supply in the spot market. Such losses could have a material adverse impact on Just Energy’s operating results, cash flow and liquidity.

 

A key risk to Just Energy’s business model is a sudden and significant drop in the commodity market price resulting in an increase in customer churn, regulatory pressure and resistance on enforcement of liquidation damages and enactment of provisions to reset the customer price to current market price levels which could have a significant impact on Just Energy’s business.

 

Commodity volume balancing risk

 

Depending on several factors including weather, Just Energy’s customers may use more or less commodity than the volume purchased by Just Energy for delivery to them. Just Energy bears the financial responsibility, is exposed to market risk and, furthermore, may also be exposed to penalties by the LDCs for balancing the customer volume requirements. Although Just Energy manages the volume balancing risk through balancing language in some of its retail energy contracts, enters into weather derivative and insurance transactions to mitigate weather and volume balancing risk, and leverages natural gas storage facilities to manage daily delivery requirements, increased costs and/or losses resulting from occurrences of volume imbalance net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s operating results, cash flow and liquidity.

 

Interest rate risk

 

Just Energy is exposed to interest rate risk associated with its working capital facility, supplier payment terms, perpetual preferred shares and refinancing of its debt instruments. Just Energy may enter into derivative instruments to mitigate interest rate risk; however, large fluctuations in interest rates and increases in interest costs net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s cash flow and liquidity.

 

    34 .

 

Foreign exchange rate risk

 

Just Energy is exposed to foreign exchange risk on foreign investment outflow and repatriation of foreign currency denominated income against Canadian dollar denominated common share dividends. In addition, Just Energy is exposed to translation risk on foreign currency denominated earnings and foreign investments. Just Energy enters into foreign exchange derivative instruments to manage the cash flow risk on foreign investments and repatriation of foreign funds. Currently, Just Energy does not enter into derivative instruments to manage foreign exchange translation risk. Large fluctuations in foreign exchange rates may have a significant impact on Just Energy’s earnings and cash flow. In particular, a significant rise in the relative value of the Canadian dollar to the U.S. dollar or U.K. pound could materially reduce reported earnings and cash flow.

 

LIQUIDITY RISK

 

Just Energy is at risk of not being able to settle its future debt obligations including the Credit Agreement, subordinated debt, convertible debentures and commercial notes. An increase in liquidity risk may put Just Energy’s cash dividend at risk or require Just Energy to raise additional funds. Liquidity risk may cause Just Energy to close down, sell or otherwise dispose of all or part of the business of Just Energy’s subsidiaries.

 

Credit agreement and other debt

 

Just Energy maintains a credit facility of up to $352.5 million for working capital purposes, pursuant to a credit agreement with various lenders (the “Credit Agreement”). The lenders under the Credit Agreement, together with certain suppliers of Just Energy and its affiliates, are party to the Credit Agreement and related security agreement, which provide for a joint security interest over all customer contracts in North America. There are various covenants pursuant to the Credit Agreement that govern activities of Just Energy and its affiliates. The restrictions in the Credit Agreement may adversely affect Just Energy’s ability to finance its future operations and capital needs and to pursue available business opportunities. Should Just Energy or its subsidiaries default under the terms of the Credit Agreement, the credit facility thereunder may become unavailable and may materially reduce Just Energy’s liquidity. There can be no assurance that Just Energy would be able to obtain alternative financing or that such financing would be on terms favourable to Just Energy. In addition, Just Energy may not be able to extend, renew or refinance the credit facility on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy’s liquidity position, in which case Just Energy could be forced to sell assets or secure additional financing to make up for any shortfall in its payment obligations under unfavourable circumstances.

 

On September 12, 2018, Just Energy entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility during the year to fund a tender offer for its U.S. dollar denominated convertible unsecured subordinated bonds, for general corporate purposes, including to pay down the Company’s credit facility, and for future acquisitions. The term loan contains usual and customary covenants for this type of financing, including but not limited to financial covenants and limitations on debt incurrence, distributions, asset sales, and transactions with affiliates. The restrictions in the loan facility may adversely affect Just Energy’s liquidity position and ability to finance its future operations and capital needs and to pursue available business opportunities.

 

Just Energy has significant levels of other debt, including convertible debentures, which could further limit Just Energy’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, restructuring, acquisitions or general corporate purposes, which could make Just Energy more vulnerable to economic downturns and adverse industry developments or limit flexibility in planning for or reacting to changes in its business. There can be no assurance that Just Energy would be able to refinance or replace such debt on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy's liquidity position.

 

    35 .

 

Working capital requirements (availability of credit)

 

In several markets where Just Energy operates, payment is provided to Just Energy by LDCs only when the customer has paid the LDC for the consumed commodity, rather than when the commodity is delivered. Just Energy also manages natural gas storage facilities where Just Energy must inject natural gas in advance of payment. These factors, along with seasonality in energy consumption, create a working capital requirement necessitating the use of Just Energy’s available credit. In addition, Just Energy and its subsidiaries are required to post collateral to LDCs and Electricity System Operators. Any changes in payment terms managed by LDCs, any termination of extended payment terms by commodity suppliers, any increase in cost of carrying natural gas storage inventory, and any increase in collateral posting requirements could result in significant liquidity risk to Just Energy.

 

Earnings seasonality and volatility

 

Just Energy’s business is seasonal in nature. In addition to regular seasonal fluctuations in its earnings, there is significant volatility in its earnings associated with the requirement to mark its commodity contracts to market. The earnings volatility associated with seasonality and mark to market accounting may affect the ability of Just Energy to access capital and increase its liquidity risk.

 

Cash dividends are not guaranteed

 

The ability to pay dividends on common and preferred shares and the actual amount of dividends on common shares will depend upon numerous factors, including profitability, fluctuations in working capital, debt service requirements (including compliance with Credit Agreement obligations), additional issuance of senior preferred shares or indebtedness and the sustainability of margins. Cash dividends are not guaranteed and will fluctuate with the performance of Just Energy and the availability of cash liquidity from ongoing business operations.

 

Share ownership dilution

 

Just Energy may issue an unlimited number of common shares and up to 50,000,000 preferred shares without the approval of shareholders which would dilute existing shareholders’ interests. As of the date hereof, 149,705,030 common shares and 4,662,165 preferred shares have been issued.

 

SUPPLY COUNTERPARTY RISK

 

Counterparty risk is a loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations.

 

Credit risk

 

Just Energy enters into long-term derivative contracts with its counterparties. If a derivative counterparty were to default on its contractual obligations, Just Energy would be required to replace its contracted commodities or instruments at prevailing market prices, which may negatively affect related customer margin or cash flows. Just Energy mitigates credit risk by procuring a majority of its derivatives from investment grade rated counterparties, therefore restricting its exposure to unrated counterparties.

 

Supply delivery risk

 

Just Energy’s business model is based on contracting for supply of electricity or natural gas to deliver to its customers. Failure by Just Energy’s supply counterparties to deliver these commodities to Just Energy due to business failure, supply shortage, force majeure, or any other failure of such counterparties to perform their obligations under the applicable contracts would put Just Energy at risk of not meeting its delivery requirements with LDCs, thereby resulting in penalties, price risk, liquidity and collateral risk and may have a significant impact on the business, financial condition, results of operations and cash flows of Just Energy. Just Energy attempts to mitigate supply delivery risk by diversifying its commodity procurement, purchasing from multiple suppliers and purchasing business interruption insurance.

 

 

    36 .

 

LEGAL AND REGULATORY RISK

 

Legal and regulatory risk is a potential loss that may be incurred as a result of changes in regulations or legislation affecting Just Energy’s business model, costs or operations, as well as being a risk of potential litigation against Just Energy resulting in impact to Just Energy’s cash flow.

 

Regulatory environment

 

In most jurisdictions in which Just Energy operates, Just Energy is required to be licensed by the relevant regulatory authority. Just Energy’s commodity business is dependent on continuing to be licensed in existing markets and receiving approval for additional licenses in new and existing markets. If Just Energy is denied a license, has a license revoked or is not granted renewal of a license, Just Energy’s financial results may be negatively impacted. Additionally, the denial or revocation or non-renewal of a license in one jurisdiction may adversely impact Just Energy’s current or future licenses in other jurisdictions and relationships with the various regulatory agencies.

 

Just Energy is able to operate in deregulated segments of the natural gas and electricity industries under currently effective state, provincial and federal regulations. If the competitive restructuring of the natural gas and electricity utility industries is altered, reversed, discontinued or delayed, Just Energy’s business, financial condition, results of operations and cash flows could be materially adversely affected. The retail energy industry is highly regulated. Regulations may be revised or reinterpreted, or new laws and regulations may be adopted or become applicable to Just Energy or its operations. Such changes may have a detrimental impact on Just Energy’s business, including Just Energy’s ability to use its sales and marketing channels. In certain deregulated electricity markets, proposals have been made by governmental agencies and/or other interested parties to partially or fully re-regulate areas of these markets. Other proposals to re-regulate may be made and legislated or other attention to the electric and gas restructuring process may: (i) delay or reverse the deregulation process; (ii) interfere with our ability to do business; (iii) inhibit our growth; (iv) increase our commodity, operating or financing costs; or (v) otherwise impact Just Energy’s profitability. If competitive restructuring of electricity and natural gas markets is altered, reversed, discontinued or delayed, our business, financial condition, results of operations and cash flows could be adversely affected. For example, in December 2016, the New York Public Service Commission (“PSC”) established an evidentiary hearing process to consider whether to adopt a complete prohibition on retail energy supplier service to mass market customers, or other market reforms such as requiring that retail energy suppliers' charges be no greater than utility supply charges, and requiring the tariffing of retail energy suppliers' service, including the potential for the PSC to void existing retail energy supply contracts if it tariffs retail energy services. The New York PSC is also considering the extent to which retail energy suppliers should be subject to Article 4 of the Public Service Law, which sets forth the PSC's authority to establish rates to ensure that they are just and reasonable rates and to accordingly regulate such rates. Similarly, several other states are taking preliminary actions to more closely monitor and control marketing activities, in particular as those activities relate to retail electricity markets. Negative outcomes in these matters or any future litigation or regulatory actions could result in significant settlements, damages or other penalties and could also increase legal costs, divert management attention from other business issues or harm Just Energy’s reputation with customers, any of which could adversely affect our financial results and the viability of Just Energy’s business.

 

Just Energy may receive complaints from consumers which may involve sanctions from regulatory and legal authorities. The most significant potential sanction is the suspension or revocation of a license which would prevent Just Energy from selling in a particular jurisdiction.

 

Just Energy is exposed to changes in energy market regulations that may put the onus on Just Energy to adhere to stricter renewable energy compliance standards, procure additional volume of capacity and transmission units and pay regulated tariffs and charges for transmission and distribution of energy, which may change from time to time. In certain cases, Just Energy may not be able to pass through the additional costs from changes in energy market regulations to its customers which may impact Just Energy’s business, financial condition and cash flows.

 

Just Energy’s business model involves entering into derivative financial instruments to manage commodity price and supply risk. Financial reforms in the U.S., Canada and Europe may require Just Energy to comply with certain aspects of reporting, record keeping, position limits and other risk mitigation and price transparency rules that result in increased scrutiny of commodity procurement activities. Costs resulting from Just Energy’s compliance with certain new regulatory requirements as well as increased costs of doing business with Just Energy’s counterparties who may be subject to even greater regulatory requirements could have a material impact on Just Energy’s business.

 

    37 .

 

In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum. The decision to withdraw has created significant uncertainty about the future relationship between the U.K. and the European Union, including determining which European Union-derived laws to replace or replicate in the event of the U.K.’s withdrawal. These developments, or the perception that they can occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, which may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity, restrict our access to capital or disrupt the operations and growth strategies of our subsidiaries in the region, which could have a material adverse effect on our business, financial condition and results of operations.

 

Litigation

 

In addition to the litigation referenced herein (see “Legal proceedings” on page 43) and occurring in the ordinary course of business, Just Energy may in the future be subject to class actions and other actions arising in relation to its consumer contracts and marketing practices. This litigation is, and any such additional litigation could be, time consuming and expensive and could distract the executive team from the conduct of Just Energy’s daily business and may result in costly settlement arrangements. An adverse resolution or reputational damage of any specific lawsuit could have a material adverse effect on Just Energy’s business or results of operations and the ability to favourably resolve other lawsuits.

 

In certain jurisdictions, independent contractors that contracted with Just Energy to provide door-to-door sales have made claims, either individually or as a class, that they are entitled to employee benefits such as minimum wage or overtime pursuant to legislation, even though they have entered into a contract with Just Energy that provides that they are not entitled to benefits normally available to employees. Just Energy’s position has been confirmed in some instances and overturned by regulatory bodies and courts in others, and some of these decisions are under appeal. Should the regulatory bodies or claimants ultimately be successful, Just Energy would be required to remit unpaid tax amounts plus interest and might be assessed a penalty, of which amounts could be substantial.

 

RETAIL RISK

 

Retail customer risk is a potential loss that may be incurred as a result of change in customer behaviour and from an increase in competition in the retail energy industry.

 

Consumer contract attrition and renewal rates

 

Just Energy may experience an increase in attrition rates and lower acceptance rates on renewal requests due to commodity price volatility, increased competition or change in customer behaviour. There can be no assurance that the historical rates of annual attrition will not increase substantially in the future or that Just Energy will be able to renew its existing energy contracts at the expiry of their terms. Any such increase in attrition or failure to renew could have a material adverse impact on Just Energy’s business, financial condition, operating results, cash flow, liquidity and prospects.

 

Customer credit risk

 

Just Energy has customer credit risk in various markets where bills are sent directly to customers for energy consumption from Just Energy. If a significant number of direct bill customers were to default on their payments, it could have a material adverse effect on the results of operations, cash flow and liquidity of Just Energy.

 

For the remaining customers, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. There is no assurance that the LDCs that provide these services will continue to do so in the future, which would mean that Just Energy would have to accept additional customer credit risk.

 

    38 .

 

Competition

 

A number of companies and incumbent utility subsidiaries compete with Just Energy in the residential, commercial and small industrial market. It is possible that new entrants may enter the market as marketers and compete directly for the customer base that Just Energy targets, slowing or reducing its market share. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas or electricity at prices other than at cost, their existing customer bases could provide them with a significant competitive advantage. This could limit the number of customers available for marketers, including Just Energy, and impact Just Energy’s growth and retention.

 

Sales channel risk

 

Just Energy’s residential customers are generally acquired through the use of online advertising, retail stores, telemarketing and door-to-door sales. Commercial customers are primarily solicited through commercial brokers and independent sales agents. Just Energy’s ability to increase revenues in the future will depend significantly on the success of these marketing techniques, as well as its ability to expand into new sales channels to acquire customers. There is no assurance that competitive conditions will allow this sales channel strategy to continue or whether new sales channels will be successful in signing up new customers. Further, if Just Energy’s services are not attractive to, or do not generate sufficient revenue for commercial brokers, retail stores and sales partners, Just Energy may lose these existing relationships, which would have a material adverse effect on the business, revenues, results of operations and financial condition of Just Energy.

 

Retailer and product acceptance risk

 

Just Energy’s profitability and growth depends upon the customer’s broad acceptance of energy retailers and their products. There is no assurance that customers will widely accept Just Energy or its retail energy and value-added products. The acceptance of Just Energy’s products may be adversely affected by Just Energy’s ability to offer a competitive value proposition, and customer concerns relating to product reliability and general resistance to change. Unfavourable publicity involving customer experiences with other energy retailers could also adversely affect Just Energy’s acceptance. Lastly, market acceptance could be affected by regulatory and legal developments. Failure to achieve deep market penetration may have material adverse effects on Just Energy’s business, financial condition and results of operations.

 

BUSINESS OPERATIONS RISKS

 

Business operations risk is a potential loss occurring from an unplanned interruption or cyber-attack, manual or system errors, or business earnings risk unique to the retail energy sales industry.

 

Cyber risk

 

Just Energy’s business requires retaining important customer information that is considered private, such as name, address, banking and payment information, drivers’ licenses, and Social Security and Social Insurance numbers. Although Just Energy protects this information with restricted access and enters into cyber risk insurance policies, there could be a significant adverse impact to the Company’s, reputation and customer relations should the private information be compromised due to a cyber-attack on Just Energy’s information technology systems.

 

Just Energy’s vendors, suppliers and market operators rely on information technology systems to deliver services to Just Energy. These systems may be prone to cyber-attacks, which could result in market disruption and impact Just Energy’s business operations, finances and cash.

 

Just Energy is also subject to federal, state, provincial and foreign laws regarding privacy and protection of data. Changes to such data protection laws may impose more stringent requirements for compliance and impose significant penalties for non-compliance. Just Energy’s failure to comply with federal, state, provincial and foreign laws regarding privacy and protection of data could lead to significant fines and penalties imposed by regulators, as well as claims by our customers. There can be no assurance that the limitations of liability in Just Energy’s contracts would be enforceable or adequate or would otherwise protect Just Energy from any such liabilities or damages with respect to any particular claim. The successful assertion of one or more large claims against Just Energy that exceeds its available insurance coverage could have an adverse effect on our business, financial condition and results of operations.

 

    39 .

 

Information technology systems

 

Just Energy relies on information technology (“IT”) systems to store critical information, generate financial forecasts, report financial results and make applicable securities law filings. Just Energy also relies on IT systems to make payments to suppliers, pay commissions to brokers and independent contractors, enroll new customers, send monthly bills to customers and collect payments from customers. Failure of these systems could have a material adverse effect on Just Energy’s business and financial prospects or cause it to fail to meet its reporting obligations, which could result in a suspension or delisting of its common shares.

 

Model risk

 

The approach to calculation of market value and customer forecasts requires data-intensive modelling used in conjunction with certain assumptions when independently verifiable information is not available. Although Just Energy uses industry standard approaches and validates its internally developed models, should underlying assumptions prove incorrect or an embedded modelling error go undetected in the vetting process, this could result in incorrect estimates and thereby have a material adverse impact on Just Energy’s business, financial condition, results of operations, cash flow and liquidity.

 

Accounting estimates risks

 

Just Energy makes accounting estimates and judgments in the ordinary course of business. Such accounting estimates and judgments will affect the reported amounts of Just Energy’s assets and liabilities at the date of its financial statements and the reported amounts of its operating results during the periods presented. Additionally, Just Energy interprets the accounting rules in existence as of the date of its financial statements when the accounting rules are not specific to a particular event or transaction. If the underlying estimates are ultimately proven to be incorrect, or if Just Energy’s auditors or regulators subsequently interpret Just Energy’s application of accounting rules differently, subsequent adjustments could have a material adverse effect on Just Energy’s operating results for the period or periods in which the change is identified. Additionally, subsequent adjustments could require Just Energy to restate historical financial statements.

 

Risks from adoption of new accounting standards or interpretations

 

Implementation of and compliance with changes in accounting rules and interpretations could adversely affect Just Energy's operating results or cause unanticipated fluctuations in its results in future periods. The accounting rules and regulations that Just Energy must comply with are complex and continually changing. While Just Energy believes that its financial statements have been prepared in accordance with IFRS, Just Energy cannot predict the impact of future changes to accounting principles or Just Energy's accounting policies on its financial statements going forward.

 

Risks from deficiencies in internal control over financial reporting

 

Just Energy may face risks if there are deficiencies in its internal control over financial reporting and disclosure controls and procedures. The Board of Directors, in coordination with the Audit Committee, is responsible for assessing the progress and sufficiency of internal control over financial reporting and disclosure controls and procedures and makes adjustments as necessary. Any deficiencies, if uncorrected, could result in Just Energy’s financial statements being inaccurate and in future adjustments or restatements of Just Energy’s historical financial statements, which could adversely affect the business, financial condition and results of operations of Just Energy.

 

Outsourcing and third party service agreements

 

Just Energy has outsourcing arrangements to support its call centre’s requirements for business continuity plans and independence for regulatory purposes, billing and settlement arrangements for certain jurisdictions, scheduling responsibilities in certain jurisdictions and operational support for its operations in the United Kingdom. Contract data input is also outsourced as is some corporate business continuity, IT development and disaster recovery functions. Should the outsourced counterparties not deliver their contracted services, Just Energy may experience service and operational gaps that adversely impact customer retention and aggregation and cash flows.

 

    40 .

 

In most jurisdictions in which Just Energy operates, the LDCs currently perform billing and collection services. If the LDCs cease to perform these services, Just Energy would have to seek a third party billing provider or develop internal systems to perform these functions. This could be time consuming and expensive.

 

Disruption to infrastructure

 

Customers are reliant upon the LDCs to deliver their contracted commodity. LDCs are reliant upon the continuing availability of their distribution infrastructure. Any disruptions in this infrastructure as a result of a hurricane, act of terrorism, cyber-attack or otherwise could result in counterparties’ default and, thereafter, Just Energy enacting the force majeure clauses of their contracts. Under such severe circumstances there could be no revenue or margin for the affected areas.

 

Additionally, any disruptions to Just Energy’s operations or sales office may also have a significant impact on business and financial prospects. Although Just Energy has insurance policies that cover business interruption and natural calamities, in certain cases, the insurance coverage may not be sufficient to cover the potential loss.

 

OTHER RISKS

 

Integration of acquisitions

 

Just Energy may acquire businesses from time to time. The ability to realize the anticipated benefits of such acquisitions will depend in part on Just Energy successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on the ability to realize the anticipated growth and potential synergies from such acquisitions into Just Energy’s current operations. There can be no assurance that Just Energy will be successful in integrating any acquired company’s operations, or that the expected benefits will be realized.

 

Share price volatility risk

 

The common and preferred shares currently trade on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”). The trading price of the shares has in the past been, and may in the future be, subject to significant fluctuations. These fluctuations may be caused by events related or unrelated to Just Energy’s operating performance and beyond its control. Factors such as actual or anticipated fluctuations in Just Energy’s operating results (including as a result of seasonality and volatility caused by mark to market accounting for commodity contracts), fluctuations in the share prices of other companies operating in business sectors comparable to those in which Just Energy operates, outcomes of litigation or regulatory proceedings or changes in estimates of future operating results by securities analysts, among other things, may have a significant impact on the market price of the common shares or preferred shares. In addition, the stock market has experienced volatility, which often has been unrelated to the operating performance of the affected companies. The preferred shares may be adversely affected by changes in market interest rates. These market fluctuations may materially and adversely affect the market price of the common and preferred shares, which may make it more difficult for shareholders to sell their shares.

 

Management retention risk

 

Just Energy's future success will depend on, among other things, its ability to keep the services of its management and to hire other highly qualified employees at all levels. Just Energy will compete with other potential employers for employees, and may not be successful in hiring and keeping the services of executives and other employees that it needs. The loss of the services of, or the inability to hire, executives or key employees could hinder Just Energy's business operations and growth.

 

 

 

    41 .

 

Risks related to the preferred shares

 

Dividends paid on the preferred shares to a U.S. holder (or other non-resident holder) may be subject to Canadian withholding tax

 

Since Just Energy is incorporated in Canada, dividends on preferred shares paid or credited or deemed to be paid or credited to a non-resident holder will be subject to Canadian withholding tax at the rate of 25% of the gross amount of the dividends, subject to any reduction in the rate of withholding to which the non-resident holder is entitled under any applicable income tax treaty or convention between Canada and the country in which the non-resident holder is resident. For example, where a non-resident holder is a resident of the United States, is fully entitled to the benefits under the Canada-United States Tax Convention (1980), as amended, and is the beneficial owner of the dividend, the applicable rate of Canadian withholding tax is generally reduced to 15% of the amount of such dividend.

 

The preferred shares represent perpetual equity interests in the Company

 

The preferred shares represent perpetual equity interests in Just Energy and, unlike Just Energy’s indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the preferred shares may be required to bear the financial risks of an investment in the preferred shares for an indefinite period of time. In addition, the preferred shares will rank junior in right of payment to all Just Energy’s existing and future indebtedness (including indebtedness outstanding under the credit facility, the 8.75% loan facility, the 6.5% convertible bonds and the 6.75% $100M and $160M convertible debentures) and other liabilities, and any other senior securities the Company may issue in the future with respect to assets available to satisfy claims against Just Energy.

 

The preferred shares have not been rated

 

The Company has not sought to obtain a rating for the preferred shares, and the preferred shares may never be rated. It is possible, however, that one or more rating agencies might independently determine to assign a rating to the preferred shares or that the Company may elect to obtain a rating of the preferred shares in the future. In addition, the Company may elect to issue other securities for which Just Energy may seek to obtain a rating. If any ratings are assigned to the preferred shares in the future or if Just Energy issues other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the preferred shares. Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the preferred shares. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of the preferred shares may not reflect all risks related to the Company or the Company’s business, or the structure or market value of the preferred shares.

 

The preferred shares are subordinated to our existing and future indebtedness, and a purchaser’s interests could be diluted by the issuance of additional equity interests in the Company, including additional preferred shares, and by other transactions

 

The preferred shares are subordinated to all of Just Energy’s existing and future indebtedness (including indebtedness outstanding under the credit facility, the 8.75% loan facility, the 6.5% convertible bonds and the 6.75% $100M and $160 M convertible debentures). Therefore, if Just Energy becomes bankrupt, liquidates our assets, reorganizes or enters into certain other transactions, the Company’s assets will be available to pay its obligations with respect to the preferred shares only after the Company has paid all of its existing and future indebtedness in full. There may be insufficient assets remaining following such payments to make any payments to holders of the preferred shares then outstanding.

 

In addition, a significant amount of Just Energy’s business is conducted through its subsidiaries. None of Just Energy’s subsidiaries have guaranteed or otherwise become obligated with respect to the preferred shares and, as a result, the preferred shares will be structurally subordinated to all liabilities and other obligations of the Company’s subsidiaries. Accordingly, Just Energy’s right to receive assets from any of its subsidiaries upon its bankruptcy, liquidation or reorganization, and the right of holders of preferred shares to participate in those assets, is structurally subordinated to claims of that subsidiary’s creditors, including trade creditors. Even if the Company were a creditor of any of its subsidiaries, its rights as a creditor would be subordinate to any security interest in the assets of that subsidiary and any indebtedness of that subsidiary senior to that held by the Company.

 

    42 .

 

Investors should not expect Just Energy to redeem the preferred shares on the date the preferred shares become redeemable by the Company or on any particular day afterwards

 

The preferred shares have no maturity or mandatory redemption date and are not redeemable at the option of investors under any circumstances. The preferred shares may be redeemed by Just Energy at its option at any time on or after March 31, 2022, in whole or in part, out of funds legally available for such redemption, at a redemption price of US$25.00 per preferred share plus an amount equal to all accumulated and unpaid dividends thereon to the date of redemption, whether or not declared. Any decision the Company may make at any time to redeem the preferred shares will depend upon, among other things, Just Energy’s evaluation of its cash and capital position and general market conditions at that time and will be subject to limitations contained in the documents governing its indebtedness.

 

The Change of Control Conversion Right may make it more difficult for a party to acquire Just Energy or discourage a party from acquiring Just Energy

 

The Change of Control Conversion Right may have the effect of discouraging a third party from making an acquisition proposal to Just Energy or of delaying, deferring or preventing certain of our change of control transactions under circumstances that otherwise could provide the holders of our common shares and preferred shares with the opportunity to realize a premium over the then-current market price of such equity securities or that unitholders may otherwise believe is in their best interests.

 

Just Energy could be prevented from paying cash dividends on the Series A preferred shares

 

Holders of preferred shares do not have a right to dividends on such shares unless declared or set aside for payment by the Company’s Board of Directors. No dividends on preferred shares shall be authorized by Just Energy’s Board of Directors or paid, declared or set aside for payment by the Company at any time when the authorization, payment, declaration or setting aside for payment would be unlawful under the Canada Business Corporations Act or any other applicable law, or when the terms and provisions of any limiting documents, including the credit facility, prohibit the authorization, payment, declaration or setting aside for payment thereof or provide that the authorization, payment, declaration or setting aside for payment thereof would constitute a breach of such documents.

 

Legal proceedings

 

Just Energy’s subsidiaries are party to a number of legal proceedings. Other than as set out below, Just Energy believes that each proceeding constitutes legal matters that are incidental to the business conducted by Just Energy and that the ultimate disposition of the proceedings will not have a material adverse effect on its consolidated earnings, cash flows or financial position.

 

In March 2012, Davina Hurt and Dominic Hill filed a lawsuit against Commerce Energy Inc. (“Commerce”), Just Energy Marketing Corp. and the Company (collectively referred to as “Just Energy”) in the Ohio Federal Court claiming entitlement to payment of minimum wage and overtime under Ohio wage claim laws and the federal Fair Labor Standards Act (“FLSA”) on their own behalf and similarly situated door-to-door sales representatives who sold for Commerce in certain regions of the United States. The Court granted the plaintiffs’ request to certify the lawsuit as a class action. Approximately 1,800 plaintiffs opted into the federal minimum wage and overtime claims, and approximately 8,000 plaintiffs were certified as part of the Ohio state overtime claims. On October 6, 2014, the jury refused to find a willful violation but concluded that certain individuals were not properly classified as outside salespeople in order to qualify for an exemption under the minimum wage and overtime requirements. On September 28, 2018, the Court issued a final judgment, opinion and order. Just Energy filed its appeal to the Court of Appeals for the Sixth Circuit on October 25, 2018. Just Energy strongly believes it complied with the law which is consistent with the recent findings in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018) and Kevin Flood, et al. v. Just Energy Marketing Group, et al. 2d Circular No. 17-0546.

 

    43 .

 

In August 2013, Levonna Wilkins, a former door-to-door independent contractor for Just Energy Marketing Corp. (“JEMC”), filed a lawsuit against Just Energy Illinois Corp., Commerce Energy Inc., JEMC and the Company (collectively referred to as “Just Energy”) in the Illinois Federal District Court claiming entitlement to payment of minimum wage and overtime under Illinois wage claim laws and the FLSA on her own behalf and similarly situated door-to-door sales representatives who sold in Illinois. On March 13, 2015, the Court certified the class of Illinois sales representatives who sold for Just Energy Illinois and Commerce, and on June 16, 2016, the Court granted Just Energy’s motion for reconsideration which revised the class definition to exclude sales representatives who sold for Commerce. The trial is scheduled to commence on August 5, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

 

In May 2015, Kia Kordestani, a former door-to-door independent contractor sales representative for Just Energy Corp., filed a lawsuit against Just Energy Corp., Just Energy Ontario L.P. and the Company (collectively referred to as “Just Energy”) in the Superior Court of Justice, Ontario, claiming status as an employee and seeking benefits and protections of the Employment Standards Act, 2000 such as minimum wage, overtime pay, and vacation and public holiday pay on his own behalf and similarly situated door-to-door sales representatives who sold in Ontario. On Just Energy’s request, Mr. Kordestani was removed as a plaintiff but replaced with Haidar Omarali, also a former door-to-door sales representative. On July 27, 2016, the Court granted Omarali’s request for certification, refused to certify Omarali’s request for damages on an aggregate basis, and refused to certify Omarali’s request for punitive damages. On September 5, 2018, Omarali filed his motion for summary judgment and set a hearing date of June 11, 2019. Just Energy strongly believes it complied with the law and continues to vigorously contest this matter.

 

Controls and procedures

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Both the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed, or caused to be designed under their supervision, the Company’s disclosure controls and procedures which provide reasonable assurance that: i) material information relating to the Company is made known to management by others, particularly during the period in which the annual and interim filings are being prepared; and ii) information required to be disclosed by the Company in its annual and interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. The CEO and CFO are assisted in this responsibility by a Disclosure Committee composed of senior management. The Disclosure Committee has established procedures so that it becomes aware of any material information affecting Just Energy to evaluate and communicate this information to management, including the CEO and CFO as appropriate, and determine the appropriateness and timing of any required disclosure.

 

INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Both the CEO and CFO have designed, or caused to be designed under their supervision, the Company’s Internal Control over Financial Reporting (“ICFR”) which has been effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS.

 

During January 2019, in connection with the Company’s assessment of internal controls over financial reporting, the Company which identified and subsequently remediated a deficiency in the design and operating effectiveness of certain internal controls related to certain account balances in certain markets. Specifically, the Company identified a deficiency in the design of internal controls through the effective operation of alternative internal controls related to the preparation, analysis and review of certain gross margin accounts in those markets. Upon identification of the deficiency, the Company designed internal controls were designed, including account reconciliations, to remediate the deficiency in design. These new internal controls were effectively operated for February 28, 2019 and March 31, 2019. Just Energy considers the internal control deficiency to be effectively remediated as at March 31, 2019.

 

As a result of remediating this deficiency in the design of internal controls and operating them in an effective manner, the Company identified certain individually insignificant reconciling items that should have been recorded in periods prior to April 1, 2017.  The Company determined that it was appropriate to revise its consolidated financial statements as at April 1, 2017, as denoted within Note 5 of the consolidated financial statements, to correct for an aggregate error of $14.2 million in the opening accumulated deficit account. It was determined that this deficiency in the design and operating effectiveness of these particular internal controls resulted in no significant error in the income statements for the years ended March 31, 2019 and 2018.

 

INHERENT LIMITATIONS

 

A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that its objectives are met. Due to these inherent limitations in such systems, no evaluation of controls can provide absolute assurance that all control issues within any company have been detected. Accordingly, Just Energy’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the Company’s disclosure control and procedure objectives are met.

 

 

 

    44 .

 

Corporate governance

 

Just Energy is committed to maintaining transparency in its operations and ensuring its approach to governance meets all recommended standards. Full disclosure of Just Energy’s compliance with existing corporate governance rules is available at www.justenergygroup.com and is included in Just Energy’s Management Proxy Circular. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.

 

Outlook

 

Just Energy is executing a strategic shift from a retail energy provider to a consumer company focused on differentiated value-added products, unparalleled customer satisfaction and profitable customer growth. While Just Energy continues to nurture its core commodity business, the Company is committed to harnessing the accretive potential of its large customer base by offering value-added products and services with strong consumer appeal. Early customer response has been enthusiastic and is reflected in a rise in the Company’s Net Promoter Score, a standard metric for evaluating customer satisfaction levels. Stable attrition rates provide further evidence of heightened customer satisfaction as the Company continues to increase gross margin on its residential book.

 

Rapidly growing, high-engagement sales channels have opened the door to sophisticated customers that are motivated more by value than price, allowing for further expansion of gross margin and near-term growth. Priorities of these customers include resource conservation and health and well-being. This presents a pivotal, long-term growth opportunity for Just Energy as a best-in-class product and service provider and opens the door to regulated markets.

 

Just Energy will continue to leverage its close supplier relationships and aggressively contain costs, building upon efficiencies of 2019 and further enhancing embedded gross margin. A comprehensive review of capital expenditures is underway, and new projects may be initiated only by meeting strict requirements for return on invested capital. The Company will continue to use its offshore business process office for transaction-based work and to consolidate back office functions where appropriate. Streamlined operations and a simplified reporting structure are expected to further reduce costs. Refinement of the Company’s geographic footprint will allow for sharper focus on profitability in the core North American and U.K. operations, markets in which meaningful growth is expected.

 

As a result, management has provided its guidance for fiscal 2020 Base EBITDA from continuing operations in the range of $220 million to $240 million. In addition, management is providing fiscal 2020 FCF guidance of between $90 million and $100 million.

 

 

45.

Exhibit 1.3

 

JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at March 31 (in thousands of Canadian dollars)

 

    Notes   2019     2018  
ASSETS                    
Current assets                    
Cash and cash equivalents       $ 9,927     $ 48,861  
Restricted cash         4,048       3,515  
Trade and other receivables   9     783,780       658,844  
Gas in storage         2,943       2,342  
Fair value of derivative financial assets   14     144,512       218,769  
Income taxes recoverable         18,973       5,617  
Other current assets   10     169,240       112,214  
          1,133,423       1,050,162  
Non-current assets                    
Investments   11     36,897       36,314  
Property and equipment, net   12     25,862       18,893  
Intangible assets, net   13     472,656       401,926  
Fair value of derivative financial assets   14     9,255       64,662  
Deferred income tax assets   21     9,492       9,449  
Other non-current assets   10     49,512       19,987  
          603,674       551,231  
Assets classified as held for sale   18     8,971       -  
          612,645       551,231  
TOTAL ASSETS       $ 1,746,068     $ 1,601,393  
                     
LIABILITIES                    
                     
Current liabilities                    
Trade and other payables   15   $ 714,110     $ 590,018  
Deferred revenue   16     43,228       38,710  
Income taxes payable         11,895       5,486  
Fair value of derivative financial liabilities   14     79,387       86,288  
Provisions   20     7,205       4,714  
Current portion of long-term debt   19     37,429       121,451  
          893,254       846,667  
Non-current liabilities                    
Long-term debt   19     687,943       422,053  
Fair value of derivative financial liabilities   14     63,658       51,871  
Deferred income tax liabilities   21     4,124       6,918  
Other non-current liabilities         61,339       57,349  
          817,064       538,191  
Liabilities relating to assets classified as held for sale   18     5,200       -  
          822,264       538,191  
TOTAL LIABILITIES         1,715,518       1,384,858  
SHAREHOLDERS' EQUITY                    
Shareholders’ capital   22     1,235,503       1,215,826  
Equity component of convertible debentures         13,029       13,029  
Contributed deficit         (25,540 )     (22,693 )
Accumulated deficit         (1,271,136 )     (1,081,139 )
Accumulated other comprehensive income         79,093       91,934  
Non-controlling interest         (399 )     (422 )
TOTAL SHAREHOLDERS' EQUITY         30,550       216,535  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 1,746,068     $ 1,601,393  

 

Commitments and Guarantees (Note 31)

 

See accompanying notes to the consolidated financial statements

 

Approved on behalf of Just Energy Group Inc.      

 

/s/ Rebecca MacDonald   /s/ H. Clark Hollands  
Rebecca MacDonald   H. Clark Hollands  
Executive Chair   Corporate Director  
    1 .

 

JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31
( in thousands of Canadian dollars, except where indicated and per share amounts )

 

    Notes   2019     2018  
CONTINUING OPERATIONS                    
Sales   24   $ 3,812,470     $ 3,623,558  
Cost of sales         3,100,255       2,983,047  
GROSS MARGIN         712,215       640,511  
EXPENSES                    
Administrative         206,820       187,250  
Selling and marketing         232,030       232,228  
Other operating expenses   25(a)     115,016       95,304  
Restructuring costs   20     16,078       -  
          569,944       514,782  
Operating profit before the following         142,271       125,729  
Finance costs   19     (88,072 )     (55,972 )
Change in fair value of derivative instruments and other   14     (153,226 )     474,393  
Other income, net   17     1,365       1,040  
Profit (loss) before income taxes         (97,662 )     545,190  
Provision for income taxes   21     2,829       20,671  
PROFIT (LOSS) FROM CONTINUING OPERATIONS       $ (100,491 )   $ 524,519  
                     
DISCONTINUED OPERATIONS                    
Loss from discontinued operations   18     (22,379 )     (5,945 )
PROFIT (LOSS) FOR THE YEAR       $ (122,870 )   $ 518,574  
                     
Attributable to:                    
Shareholders of Just Energy       $ (122,678 )   $ 509,276  
Non-controlling interest         (192 )     9,298  
PROFIT (LOSS) FOR THE YEAR       $ (122,870 )   $ 518,574  
                     
                     
Earnings (loss) per share from continuing operations   27                
Basic       $ (0.73 )   $ 3.45  
Diluted       $ (0.73 )   $ 2.65  
Loss per share from discontinued operations   18                
Basic       $ (0.15 )   $ (0.03 )
Diluted       $ (0.15 )   $ (0.03 )
Earnings (loss) per share available to shareholders   27                
Basic       $ (0.88 )   $ 3.42  
Diluted       $ (0.88 )   $ 2.62  

 

See accompanying notes to the consolidated financial statements

 

    2 .

 

JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31
(in thousands of Canadian dollars )

 

    2019     2018  
PROFIT (LOSS) FOR THE YEAR   $ (122,870 )   $ 518,574  
Other comprehensive income to be reclassified to profit or loss in subsequent years:                
Unrealized gain on translation of foreign operations from continuing operations     4,217       2,843  
Unrealized gain on translation of foreign operations from discontinued operations     805       867  
Unrealized gain on revaluation of investment, net of tax     -       17,863  
      5,022       21,573  
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR, NET OF TAX   $ (117,848 )   $ 540,147  
                 
Total comprehensive income (loss) attributable to:                
Shareholders of Just Energy   $ (117,656 )   $ 530,849  
Non-controlling interest     (192 )     9,298  
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR, NET OF TAX   $ (117,848 )   $ 540,147  

 

See accompanying notes to the consolidated financial statements

                 

    3 .

 

JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31
(in thousands of Canadian dollars )

 

    Notes   2019     2018  
ATTRIBUTABLE TO THE SHAREHOLDERS                    
Accumulated earnings                    
Accumulated earnings, beginning of year       $ 754,639     $ 259,571  
Adjustment for revision   5     -       (14,208 )
Adjustment for adoption of recent accounting pronouncements   7     20,711       -  
Profit (loss) for the period, attributable to shareholders         (122,678 )     509,276  
Accumulated earnings, end of year         652,672       754,639  
                     
DIVIDENDS AND DISTRIBUTIONS                    
Dividends and distributions, beginning of year         (1,835,778 )     (1,749,471 )
Dividends and distributions declared and paid   30     (88,030 )     (86,307 )
Dividends and distributions, end of year         (1,923,808 )     (1,835,778 )
DEFICIT       $ (1,271,136 )   $ (1,081,139 )
                     
ACCUMULATED OTHER COMPREHENSIVE INCOME                    
Accumulated other comprehensive income, beginning of year       $ 91,934     $ 70,361  
Adjustment for adoption of recent accounting pronouncements   7     (17,863 )     -  
Other comprehensive income         5,022       21,573  
Accumulated other comprehensive income, end of year       $ 79,093     $ 91,934  
                     
SHAREHOLDERS’ CAPITAL   22                
Common shares                    
Common shares, beginning of year       $ 1,079,055     $ 1,070,076  
Share-based units exercised         9,483       11,954  
Acquisition of businesses   17     -       8,966  
Repurchase and cancellation of shares         -       (11,941 )
Common shares, end of year       $ 1,088,538     $ 1,079,055  
                     
Preferred shares                    
Preferred shares, beginning of year       $ 136,771     $ 128,363  
Shares issued   22     10,447       9,260  
Shares issuance costs         (253 )     (852 )
Preferred shares, end of year         146,965       136,771  
SHAREHOLDERS’ CAPITAL       $ 1,235,503     $ 1,215,826  
                     
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES                    
Balance, beginning of year       $ 13,029     $ 13,508  
Add: Issuance of convertible debentures   19(d)     -       7,130  
Less: Redemption of convertible debentures   19(g)     -       (7,609 )
Balance, end of year       $ 13,029     $ 13,029  
                     
CONTRIBUTED SURPLUS (DEFICIT)                    
Balance, beginning of year       $ (22,693 )   $ 58,266  
Add:    Share-based compensation expense   25(a)     6,133       18,353  
Redemption of convertible debentures   19(e)     -       7,126  
Non-cash deferred share grant distributions         72       45  
Less:    Purchase of non-controlling interest         1,462       (89,010 )
Share-based units exercised         (9,483 )     (11,954 )
Share-based compensation adjustment         (1,031 )     (5,519 )
Balance, end of year       $ (25,540 )   $ (22,693 )
                     
NON-CONTROLLING INTEREST                    
Balance, beginning of year       $ (422 )   $ -  
Distributions to non-controlling shareholders         -       (9,603 )
Foreign exchange impact on non-controlling interest         215       (117 )
Profit (loss) attributable to non-controlling interest         (192 )     9,298  
Balance, end of year       $ (399 )   $ (422 )
TOTAL SHAREHOLDERS' EQUITY       $ 30,550     $ 216,535  

 

See accompanying notes to the consolidated financial statements                    

    4 .

 

JUST ENERGY GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31

(in thousands of Canadian dollars)

 

Net inflow (outflow) of cash related to the following activities   Notes   2019     2018  
OPERATING                    
Profit (loss) from continuing operations before income taxes       $ (97,662 )   $ 545,190  
Loss from discontinued operations before income taxes   18     (22,375 )     (5,942 )
Profit (loss) before income taxes         (120,037 )     539,248  
                     
Items not affecting cash                    
 Amortization of intangible assets   25(a)     22,655       16,547  
 Depreciation of property and equipment   25(a)     4,771       4,073  
 Amortization included in cost of sales         2,666       3,116  
 Share-based compensation   25(a)     6,133       18,353  
 Financing charges, non-cash portion         18,223       14,547  
 Other         (110 )     (369 )
 Change in fair value of investments         -       1,289  
 Change in fair value of derivative instruments and other   14     153,226       (474,393 )
 Adjustment required to reflect net cash receipts from gas sales   32(a)     4,186       (2,876 )
 Net change in working capital balances   32(b)     (124,138 )     (36,425 )
 Adjustment for non-cash discontinued operations         405       231  
 Income taxes paid         (12,435 )     (21,319 )
Cash inflow (outflow) from operating activities         (44,455 )     62,022  
                     
INVESTING                    
 Purchase of property and equipment         (5,159 )     (4,838 )
 Purchase of intangible assets         (38,383 )     (30,938 )
 Acquisition of businesses         (4,281 )     (10,832 )
 Short-term investments         -       25,532  
Cash outflow from investing activities         (47,823 )     (21,076 )
                     
FINANCING                    
 Dividends paid   30     (87,959 )     (86,261 )
 Repayment of long-term debt         (173,366 )     (100,000 )
 Issuance of long-term debt         253,242       100,000  
 Share swap payout         (10,000 )     -  
 Debt issuance costs         (18,132 )     (4,115 )
 Credit facilities withdrawal         79,462       53,857  
 Issuance of preferred shares         10,447       9,260  
 Preferred shares issuance costs         (352 )     (2,114 )
 Shares repurchase         -       (11,941 )
 Distributions to non-controlling interest         -       (9,603 )
Cash inflow (outflow) from financing activities         53,342       (50,917 )
                     
Effect of foreign currency translation on cash balances         2       1,456  
                     
Net cash outflow         (38,934 )     (8,515 )
Cash and cash equivalents, beginning of year         48,861       57,376  
                     
Cash and cash equivalents, end of year       $ 9,927     $ 48,861  
                     
Supplemental cash flow information:                    
Interest paid       $ 52,836     $ 38,551  

 

See accompanying notes to the consolidated financial statements                    

 

    5 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

1. ORGANIZATION

 

Just Energy Group Inc. (“JEGI”, “Just Energy” or the “Company”) is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates. The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The consolidated financial statements consist of Just Energy and its subsidiaries and affiliates. The consolidated financial statements were approved by the Board of Directors on May 15, 2019.

 

2. OPERATIONS

 

Just Energy is a leading consumer company focused on essential needs, including electricity and natural gas commodities; on health and well-being, through products such as water quality and filtration devices; and on utility conservation, bringing energy efficient solutions and renewable energy options to consumers. Currently operating in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), Just Energy serves residential and commercial customers. Just Energy is the parent company of Amigo Energy, EdgePower Inc., Filter Group Inc., Green Star Energy, Hudson Energy, Interactive Energy Group, Just Energy Advanced Solutions, Tara Energy and TerraPass.

 

Just Energy’s current commodity product offerings include fixed, variable, index and flat rate options. 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. Flat-bill products allow customers to pay a flat rate each month regardless of usage. 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.

 

Through the Filter Group business acquired by Just Energy on October 1, 2018, Just Energy provides subscription-based, home water filtration systems to residential customers, including under-counter and whole-home water filtration solutions. 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 currently manufactured and distributed by ecobee Inc. (“ecobee”), a company in which Just Energy holds a 8% 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 also provides energy management solutions to both Consumer and Commercial customers in the form of value added products and services which include, but are not limited to, LED retrofit lighting and HVAC controls, as well as enterprise monitoring.

 

Just Energy markets its product offerings through several sales channels including brokers, online marketing, retail and affinity relationships, and door-to-door.

 

In March 2019, Just Energy formally approved and commenced a process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to focus on the core business in North America and the U.K. The disposal of the operations is expected to be completed within the next 12 months. At March 31, 2019, these operations were classified as a disposal group held for sale and as a discontinued operation. Previously, these operations were reported within the Consumer segment.

 

    6 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

3. BASIS OF PRESENTATION

 

(a) Compliance with IFRS

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The policies applied in these consolidated financial statements were based on IFRS issued and outstanding as at March 31, 2019.

 

The consolidated financial statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand, except where indicated. The Company’s consolidated financial statements are prepared on the historical cost basis of accounting, except as disclosed in the accounting policies set out below.

 

(b) Principles of consolidation

 

The consolidated financial statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries as at March 31, 2019. Subsidiaries are consolidated from the date of acquisition and control, and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

 

(c) Comparative consolidated financial statements

 

Certain figures in the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the current year’s consolidated financial statements. This includes consolidating the unbilled revenues with trade receivables and separating out the discontinued operations’ results from prior fiscal years. The changes were made to consolidate line items that are alike in nature and for comparability of results.

 

4. SIGNIFICANT ACCOUNTING POLICIES

 

Cash and cash equivalents and restricted cash

 

All highly liquid temporary cash investments with an original maturity of three months or less when purchased are considered to be cash equivalents. For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

Restricted cash includes cash and cash equivalents, where the availability of funds is restricted by debt arrangements or held in escrow as part of prior acquisition agreements.

 

    7 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Accrued gas receivable/accrued gas payable or gas delivered in excess of consumption/deferred revenue

 

Accrued gas receivable from Just Energy’s customers is stated at fair value and results from customers consuming more gas than has been delivered by Just Energy to local distribution companies (“LDCs”). Accrued gas payable represents Just Energy’s obligation to the LDCs for the customers’ excess consumption, over what was delivered to the LDCs.

 

Gas delivered to LDCs in excess of consumption by customers is stated at the lower of cost and net realizable value. Collections from customers in advance of their consumption of gas result in deferred revenue.

 

Assuming normal weather and consumption patterns, during the winter months, customers will have consumed more than was delivered, resulting in the recognition of accrued gas receivable/accrued gas payable. In the summer months, customers will have consumed less than what was delivered, resulting in the recognition of gas delivered in excess of consumption/deferred revenue.

 

These adjustments are applicable solely to the Ontario, Manitoba, Quebec, Saskatchewan and Michigan gas markets.

 

Gas in storage

 

Gas in storage represents the gas delivered to the LDCs in Illinois, Indiana, New York, Ohio, Georgia, Maryland, California and Alberta. The balance will fluctuate as gas is injected into or withdrawn from storage.

 

Gas in storage is valued at the lower of cost and net realizable value, with cost being determined on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business.

 

Property and equipment (“P&E”)

 

Property and equipment are stated at cost, net of any accumulated depreciation and impairment losses. Cost includes the purchase price and, where relevant, any costs directly attributable to bringing the asset to the location and condition necessary and/or the present value of all dismantling and removal costs. Where major components of property and equipment have different useful lives, the components are recognized and depreciated separately. Just Energy recognizes, in the carrying amount, the cost of replacing part of an item when the cost is incurred and if it is probable that the future economic benefits embodied in the item can be reliably measured. When significant parts of property and equipment are required to be replaced at intervals, Just Energy recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statements of income (loss) as a general and administrative expense when incurred. Depreciation is provided over the estimated useful lives of the assets as follows:

 

 

    8 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Asset category Depreciation method Rate/useful life
Furniture and fixtures Declining balance 20%
Office equipment Declining balance 20%
Computer equipment Declining balance 30%
Leasehold improvements Straight-line Term of lease
Thermostats Straight-line 5 years
Installed assets (water filtration) Straight-line 4-7 years

 

An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statements of income (loss).

 

The useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.

 

Business combinations

 

All identifiable assets acquired and liabilities assumed are measured at the acquisition date at fair value. The Company records all identifiable intangible assets including identifiable assets that had not been recognized by the acquiree before the business combination. Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets acquired and liabilities assumed is recorded as goodwill. During the measurement period (which is within one year from the acquisition date), Just Energy may adjust the amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date. Adjustments related to facts and circumstances that did not exist as at the consolidated statement of financial position dates are taken to the consolidated statements of income (loss). The Company records acquisition-related costs as expenses in the periods in which the costs are incurred with the exception of certain costs relating to registering and issuing debt or equity securities which are accounted for as part of the financing. Non-controlling interest is recognized at its proportionate share of the fair value of identifiable assets and liabilities, unless otherwise indicated.

 

Goodwill

 

Goodwill is initially measured at cost, which is the excess of the cost of the business combination over Just Energy’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated statements of income (loss).

 

After initial recognition, goodwill is measured at cost, less impairment losses. For the purpose of impairment testing, goodwill is allocated to each of Just Energy’s operating segments that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities of the acquiree are assigned to those segments.

 

Intangible assets

 

Intangible assets acquired outside of a business combination are measured at cost on initial recognition. Intangible assets acquired in a business combination are recorded at fair value on the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and/or accumulated impairment losses.

    9 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization method and amortization period of an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense related to intangible assets with finite lives is recognized in the consolidated statements of income (loss) in the expense category associated with the function of the intangible assets. Intangible assets consist of gas customer contracts, electricity customer contracts, sales network, brand and goodwill, acquired through business combinations and asset purchases, as well as software, commodity billing and settlement systems and information technology system development.

 

Internally generated intangible assets are capitalized when the product or process is technically and commercially feasible, the future economic benefit is measurable, Just Energy can demonstrate how the asset will generate future economic benefits and Just Energy has sufficient resources to complete development. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management.

 

The goodwill and certain brands are considered to have indefinite lives and are not amortized, rather tested annually for impairment. The assessment of indefinite life is reviewed annually. The Filter Group brand is treated as a finite life asset and amortized due to its history of rebranding.

 

Gains or losses arising from disposal of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the consolidated statements of income (loss) when the asset is derecognized.

 

Intangible asset category Amortization method Rate/useful life
Customer contracts Straight-line Term of contract
Contract relationships Straight-line Term of contract
Commodity billing and settlement system Straight-line 5 years
Sales network and affinity relationships Straight-line 5-8 years
Information technology system development Straight-line 3-5 years
Software Straight-line 1 year
Technology Straight-line 15 years
Brand (Filter Group) Straight-line 10 years

 

Impairment of non-financial assets

 

Just Energy assesses whether there is an indication that an asset may be impaired at each reporting date. If such an indication exists or when annual testing for an asset is required, Just Energy estimates the asset's recoverable amount. The recoverable amounts of goodwill and intangible assets with an indefinite useful life are tested annually. The recoverable amount is the higher of an asset's or cash-generating unit's (“CGU”) fair value less costs to sell and its value-in-use. Value-in-use is determined by discounting estimated future pre-tax cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. The recoverable amount of assets that do not generate independent cash flows is determined based on the CGU to which the asset belongs.

    10 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

An impairment loss is recognized if an asset's carrying amount or that of the CGU to which it is allocated is higher than its recoverable amount. Impairment losses of CGUs are first charged against the value of assets in proportion to their carrying amount.

 

In the consolidated statements of income (loss), an impairment loss is recognized in the expense category associated with the function of the impaired asset.

 

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, Just Energy estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such a reversal is recognized in the consolidated statements of income (loss).

 

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Goodwill is tested at the segment level as that is the lowest level at which goodwill is monitored. Impairment is determined for goodwill by assessing the recoverable amount of each segment to which the goodwill relates. Where the recoverable amount of the segment is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

 

Leases

 

A lease is an arrangement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Where Just Energy determines that the contractual provisions of a contract contain, or are, a lease and result in the customer assuming the principal risks and rewards of ownership of the asset, the arrangement is a finance lease. Assets subject to finance leases are not reflected as property and equipment and the net investment in the lease, represented by the present value of the amounts due from the lessee, is recorded as a financial asset, classified as a finance lease receivable. The payments considered to be part of the leasing arrangement are apportioned between a reduction in the lease receivable and finance lease income. The finance lease income element of the payments is recognized using a method that results in a constant rate of return on the net investment in each period and is reflected in financing income.

 

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) requires the estimation of total consideration over the contract term and the allocation of that consideration to all performance obligations in the contract based on their relative stand-alone selling prices. As such, consideration is allocated towards the performance obligation related to the finance lease and commodity revenue if a customer has a contract with Just Energy for a thermostat and electricity and/or power that was entered into at the same time.

 

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date and whether fulfillment of the arrangement is dependent on the use of a specific asset or assets, or the arrangement conveys a right to use the asset.

 

Just Energy as a lessee

 

Operating lease payments are recognized as an expense in the consolidated statements of income (loss) on a straight-line basis over the lease term.

    11 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Just Energy as a lessor

 

Leases where Just Energy does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.

 

Just Energy considers itself to be a dealer lessor with respect to its lease arrangements for thermostats as it has given the customer the choice of either buying or leasing the thermostat. A finance lease of an asset by a dealer lessor gives rise to profit or loss equivalent to that resulting from an outright sale of the underlying asset, at normal selling prices. Just Energy recognizes revenue based on the fair value of the thermostat at the time of completed installation of the thermostat, at which point in time Just Energy has transferred control of the thermostat to the customer. Just Energy also recognizes the cost of sale on the thermostat through cost of goods sold.

 

Financial instruments

 

For comparability purposes, the accounting policies below discuss the previous financial instruments treatment under IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). IAS 39 was applied in fiscal 2018. For fiscal 2019, the Company adopted IFRS 9, Financial Instruments (“IFRS 9”), as discussed in Note 7, “Accounting Policies and New Standards Adopted”.

 

Financial assets and liabilities

 

Just Energy classifies its financial assets as either (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) other financial assets, or (iv) available for sale, and its financial liabilities as either (i) financial liabilities at fair value through profit or loss or (ii) other financial liabilities. Appropriate classification of financial assets and liabilities is determined at the time of initial recognition or when reclassified in the consolidated statements of financial position.

 

Financial instruments are recognized on the trade date, which is the date on which Just Energy commits to purchase or sell the asset.

 

Financial assets at fair value through profit or loss

 

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as fair value through profit or loss if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Included in this class are primarily physical delivered energy contracts, for which the own-use exemption could not be applied, financially settled energy contracts and foreign currency forward contracts.

 

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 14. Related realized and unrealized gains and losses are included in the consolidated statements of income (loss).

    12 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognized at fair value net of transaction costs. They are subsequently measured at amortized cost using the effective interest rate method less any impairment. The effective interest amortization is included in finance costs in the consolidated statements of income (loss).

 

Financial assets classified as available for sale

 

Available for sale financial assets are held at fair value with gains and losses included in other comprehensive income. Just Energy uses this classification for assets that are not derivatives and are not held for trading purposes or otherwise designated at fair value through profit or loss, or at amortized cost.

 

Derecognition

 

A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when Just Energy has transferred its rights to receive cash flows from the asset.

 

Impairment of financial assets

 

Just Energy assesses whether there is objective evidence that a financial asset is impaired at each reporting date. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows that can be reliably estimated.

 

For significant individual financial assets carried at amortized cost, Just Energy assesses if impairment significantly exists. Insignificant financial assets are assessed collectively. If Just Energy determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

 

If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

 

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of other income in the consolidated statements of income (loss).

 

Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other operating costs in the consolidated statements of income (loss).

    13 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Financial liabilities at fair value through profit or loss

 

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

 

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by Just Energy that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Included in this class are primarily physically delivered energy contracts, for which the own-use exemption could not be applied, financially settled energy contracts and foreign currency forward contracts.

 

Gains or losses on liabilities held for trading are recognized in the consolidated statements of income (loss).

 

Other financial liabilities

 

Other financial liabilities are measured at amortized cost using the effective interest rate method. Financial liabilities include long-term debt issued and are initially measured at fair value. Fair value is the consideration received, net of transaction costs incurred, trade and other payables and bank indebtedness. Transaction costs related to the long-term debt instruments are included in the value of the instruments and amortized using the effective interest rate method. The effective interest expense is included in finance costs in the consolidated statements of income (loss).

 

Derecognition

 

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income (loss).

 

Derivative instruments

 

Just Energy enters into fixed-term contracts with customers to provide electricity and gas at fixed prices. These customer contracts expose Just Energy to changes in consumption as well as changes in the market prices of gas and electricity. To reduce its exposure to movements in commodity prices, Just Energy enters into contracts with suppliers that expose the Company to changes in prices for the purchase and sale of power and natural gas. These contracts are treated as derivatives as they do not meet the own-use criteria under IAS 32, Financial Instruments: Presentation (“IAS 32”). The primary factors affecting the fair value of derivative instruments at any point in time are the volume of open derivative positions and the changes of commodity market prices. Prices for power and natural gas are volatile, which can result in material changes in the fair value measurements reported in Just Energy’s consolidated financial statements in the future.

 

Just Energy analyzes all its contracts, of both a financial and non-financial nature, to identify the existence of any “embedded” derivatives. Embedded derivatives are accounted for separately from the underlying contract at the inception date when their economic characteristics are not closely related to those of the host contract and the host contract is not carried as held for trading or designated as fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.

    14 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

All derivatives are recognized at fair value on the date on which the derivative is entered into and are remeasured to fair value at each reporting date. Derivatives are carried in the consolidated statements of financial position as other financial assets when the fair value is positive and as other financial liabilities when the fair value is negative. Just Energy does not utilize hedge accounting; therefore, changes in the fair value of these derivatives are recorded directly to the consolidated statements of income (loss) and are included within change in fair value of derivative instruments and other.

 

Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statements of financial position if, and only if, there is currently an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

Fair value of financial instruments

 

Fair value 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). The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs.

 

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques that are recognized by market participants. Such techniques may include using recent arm’s-length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 14.

 

Revenue recognition

 

For comparability purposes, the accounting policy below discusses the previous revenue recognition treatment under IAS 18, Revenue (“IAS 18”). The fiscal 2018 financial statements were prepared using IAS 18. For fiscal 2019, the Company adopted IFRS 15 as discussed in Note 7, “Accounting Policies and New Standards Adopted”.

 

Revenue is recognized when significant risks and rewards of ownership are transferred to the customer. In the case of gas and electricity, transfer of risks and rewards is upon consumption of the commodity. Just Energy recognizes revenue from thermostat leases, based on rental rates over the term commencing from the installation date.

 

Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and sales taxes.

 

The Company assumes credit risk for all customers in Alberta, Texas, Illinois, California, Michigan, Delaware, Ohio, Georgia and the U.K. On all value-added products sold on the market, Just Energy also assumes the credit risk. In these markets, the Company ensures that credit review processes are in place prior to the commodity flowing to the customer.

    15 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Foreign currency translation

 

Functional and presentation currency

 

Items included in the consolidated financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). For U.S.-based subsidiaries, this is U.S. dollars (“USD”), for subsidiaries based in the U.K. it is British pounds, and for subsidiaries based in Germany and Ireland it is euros. The consolidated financial statements are presented in Canadian dollars, which is the parent Company’s presentation and functional currency.

 

Transactions

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statements of income (loss).

 

Translation of foreign operations

 

The results and consolidated financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

· assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate as at the date of that consolidated statement of financial position; and

 

· income and expenses for each consolidated statement of income (loss) are translated at the exchange rates prevailing at the dates of the transactions.

 

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recorded in other comprehensive income (“OCI”).

 

When a foreign operation is partially disposed of or sold, exchange differences that were recorded in accumulated other comprehensive income are recognized in the consolidated statements of income (loss) as part of the gain or loss on sale.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

Earnings (loss) per share amounts

 

The computation of earnings (loss) per share is based on the weighted average number of shares outstanding during the year. Diluted earnings (loss) per share are computed in a similar way to basic earnings (loss) per share except that the weighted average number of shares outstanding is increased to include additional shares assuming the exercise of stock options, restricted share grants (“RSGs”), performance bonus incentive grants (“PBGs”), deferred share grants (“DSGs”) and convertible debentures, if dilutive.

    16 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Share-based compensation plans

 

Equity-based compensation liability

 

Share-based compensation plans are equity-settled transactions. The cost of share-based compensation is measured by reference to the fair value at the date on which it was granted. Awards are valued at the grant date and are not adjusted for changes in the prices of the underlying shares and other measurement assumptions. The cost of equity-settled transactions is recognized, together with the corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant grantee becomes fully entitled to the award. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting period reflects the extent to which the vesting period has expired and Just Energy’s best estimate of the number of the shares that will ultimately vest. The expense or credit recognized for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

 

When options, RSGs, PBGs and DSGs are exercised or exchanged, the amounts previously credited to contributed deficit are reversed and credited to shareholders' capital.

 

Employee future benefits

 

In Canada, Just Energy offers a long-term wealth accumulation plan (the "Canadian Plan") for all permanent full-time and permanent part-time employees (working more than 26 hours per week). The Canadian Plan consists of two components, a Deferred Profit Sharing Plan ("DPSP") and an Employee Profit Sharing Plan ("EPSP"). For participants of the DPSP, Just Energy contributes an amount equal to a maximum of 2% per annum of an employee's base earnings. For the EPSP, Just Energy contributes an amount up to a maximum of 2% per annum of an employee's base earnings towards the purchase of shares of Just Energy, on a matching one-for-one basis.

 

For U.S. employees, Just Energy has established a long-term savings plan (the "U.S. Plan") for all permanent full-time and part-time employees (working more than 30 hours per week) of its subsidiaries. The U.S. Plan consists of two components, a 401(k) and an Employee Unit Purchase Plan ("EUPP"). For participants who are enrolled only in the EUPP, Just Energy contributes an amount up to a maximum of 3% per annum of an employee's base earnings towards the purchase of Just Energy shares, on a matching one-for-one basis. For participants who are enrolled only in the 401(k), Just Energy contributes an amount up to a maximum of 4% per annum of an employee's base earnings, on a matching one-for-one basis. In the event an employee participates in both the EUPP and 401(k), the maximum Just Energy will contribute is 5% total, consisting of 3% to the EUPP and 2% to the 401(k).

 

Participation in the plans in Canada or the U.S. is voluntary. For the 401(k), there is a two-year vesting period beginning from the date of hire, and for the EUPP, there is a six-month vesting period from the employee's enrollment date in the plan.

 

Obligations for contributions to the Canadian and U.S. Plans are recognized as an expense in the consolidated statements of income (loss) when the employee makes a contribution.

 

    17 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Income taxes

 

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where Just Energy operates and generates taxable income.

 

Current income taxes relating to items recognized directly in OCI or equity are recognized in OCI or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations where applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

 

Just Energy follows the liability method of accounting for deferred income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities in the consolidated financial statements and their respective tax bases.

 

Deferred income tax liabilities are recognized for all taxable temporary differences except:

 

· where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

· in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled by the parent and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred income tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses, can be utilized except:

 

· where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

· in respect of deductible temporary differences associated with investments in subsidiaries, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

 

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profits will allow the deferred income tax asset to be recovered.

 

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

    18 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Deferred income taxes relating to items recognized in cumulative translation adjustment or equity is recognized in cumulative translation adjustment or equity and not in profit or loss.

 

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

Provisions and restructuring

 

Provisions are recognized when Just Energy has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where Just Energy expects some or all provisions to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statements of income (loss), net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

 

Restructuring provisions comprise activities including termination or relocation of a business, management structural reorganization and employee-related costs. Incremental costs directly associated with the restructuring are included in the restructuring provision. Costs associated with ongoing activities, including training or relocating continuing staff, are excluded from the provision. Measurement of the provision is at the best estimate of the anticipated costs to be incurred.

 

Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated statements of income (loss).

 

Selling and marketing expenses

 

Commissions and various other costs related to obtaining and renewing customer contracts are charged to income in the period incurred except as disclosed below:

 

Commissions related to obtaining and renewing Commercial customer contracts are paid in one of the following ways: all or partially up front or as a residual payment over the term of the contract. If the commission is paid all or partially up front, it is recorded as a customer acquisition cost in other current assets and expensed in selling and marketing expenses over the term for which the associated revenue is earned. If the commission is paid as a residual payment, the amount is expensed as earned.

 

Just Energy recognizes the incremental acquisition costs of obtaining a customer contract as an asset as these costs would not have been incurred if the contract had not been obtained and these costs are recovered through the consideration collected from the contract. Commissions and incentives paid for commodity contracts and value-added products are capitalized and amortized over the term of the contract. When the term of the contract is one year or less, the incremental costs incurred to obtain the customer contracts are expensed when incurred.

 

    19 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Green provision and certificates

 

Just Energy is a retailer of green energy and records a provision to its regulators as green energy sales are recognized. A corresponding cost is included in cost of sales. Just Energy measures its provision based on the extent of green certificates that it holds or has committed to purchase and has recorded this obligation net of its green certificates. Any provision balance in excess of the green certificates held or that Just Energy has committed to purchase is measured at fair value. Green certificates are purchased by Just Energy to settle its obligation with the regulators. Any green energy-related derivatives are forward contracts and are recognized in accordance with the accounting policy discussed under financial instruments above.

 

Non-current assets held for sale and discontinued operations

 

Just Energy classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for the held for sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statements of income (loss). Property and equipment and intangible assets are not depreciated or amortized once classified as held for sale.

 

5. REVISION OF PRIOR PERIOD FINANCIAL STATEMENT

 

During the fourth quarter ended March 31, 2019, management identified immaterial errors in certain balance sheet accounts related to flat delivery gas markets. These errors relate to fiscal years ended March 31, 2017 and earlier.

 

In accordance with accounting guidance in IAS 8, Accounting policies, accounting estimates and errors, as well as guidance found in Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements, the Company assessed the materiality of the errors and concluded that it was not material to any of the Company’s previously issued financial statements. The Company assessed that correcting these historical errors in the current period would be material to the current period. The Company revised its opening retained earnings at the beginning of the earliest period presented to correct the effect of the matters. The revision does not have an impact on the consolidated statements of income (loss) for fiscal 2018 and 2019.

 

The errors occurred before the earliest period presented in the financial statements, and as a result the net effect on opening balances of assets, liabilities and equity of $14.2 million was recorded as an adjustment to opening retained earnings. The following table presents the effect of the correction on the consolidated statement of financial position as at March 31, 2018.

 

 

    20 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

    As previously reported     Adjustment     As revised  
Trade and other receivables   $ 664,528     $ (5,684 )   $ 658,844  
Gas in storage     11,812       (9,470 )     2,342  
Other current assets     109,697       2,517       112,214  
Trade and other payables     (583,655 )     (6,363 )     (590,018 )
Deferred revenue     (41,684 )     2,974       (38,710 )
Income tax payable     (7,304 )     1,818       (5,486 )
Deficit   $ (1,066,931 )   $ (14,208 )   $ (1,081,139 )

 

6. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of the consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis for making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Judgments made by management in the application of IFRS that have a significant impact on the consolidated financial statements relate to the following:

 

Allowance for doubtful accounts

 

The measurement of the expected credit loss allowance for accounts receivable requires the use of management judgment in estimation techniques, building models, selecting key inputs and making significant assumptions about future economic conditions and credit behaviour of the customers, including the likelihood of customers defaulting and the resulting losses. At each reporting period, Just Energy is required to evaluate the change in credit quality since initial recognition, which also requires significant judgment.

 

Business combinations

 

In accounting for business combinations, judgment is required in estimating the acquisition date fair values of the identifiable assets acquired (including intangible assets) and liabilities assumed (including contingent liabilities). The necessary measurements are based on information available on the acquisition date and expectations and assumptions that have been deemed reasonable by management. During the measurement period (which is within one year from the acquisition date), Just Energy must adjust the amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

 

Deferred income taxes

 

Significant management judgment is required to determine the amount of deferred income tax assets and liabilities that can be recognized, based upon the likely timing and the level of future taxable income realized, including the usage of tax-planning strategies. Determining the tax treatment on certain transactions also involves management’s judgment.

 

Discontinued operations

 

Management used judgment in concluding on the discontinued operations classification as a major separate geographical area of operations, as part of a single coordinated disposal plan to resell the business in the new fiscal year. There is also a high level of judgment involved in estimating the fair value less cost to sell of the disposal group and the significant carrying amounts of the assets and liabilities related to assets held for sale. Refer to Note 18 for further details.

 

    21 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Fair value of financial instruments

 

Where the fair values of financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow models or transacted/quoted prices of identical assets that are not active. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgment includes consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 14 for further details about the assumptions as well as a sensitivity analysis.

 

Impairment of non-financial assets

 

Just Energy’s impairment test is based on the fair value less cost to sell calculation and uses an EBITDA multiple approach model. Management is required to exercise judgment in identifying the CGUs in which to allocate goodwill, working capital and related assets and liabilities. The EBITDA is derived from actual figures and the EBITDA-multiple is sourced from external sources of information, including analyst reports and competitor benchmarks. Judgment is further applied to determine which transactions or companies are considered comparable for use. Refer to Note 26 for further information.

 

7. ACCOUNTING POLICIES AND NEW STANDARDS ADOPTED

 

IFRS 15

 

Just Energy has adopted IFRS 15, as issued by the IASB in July 2014, effective January 1, 2018. The new accounting policies have been applied from April 1, 2018 and, in accordance with the transitional provisions in IFRS 15, comparative figures have not been restated. Just Energy adopted IFRS 15 using the modified retrospective method, applying the practical expedient in paragraph C5(c) under which the aggregate effect of all modifications on the date of initial application is reflected. Accordingly, transition adjustments have been recognized through equity as at April 1, 2018.

 

IFRS 15 replaces the provisions of IAS 18, that relate to all revenue from contracts from customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

 

Accounting policies

 

The following accounting policies are applicable to the accounting for all revenue arising from contracts with customers, unless those contracts are in the scope of other standards in the quarter ended April 1, 2018 and onwards.

 

 

 

 

    22 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Gas and electricity

 

Sales

 

Just Energy historically recognized revenue based on consumption of the commodity by the customer. Often-times, the billing cycles for customers do not coincide with the accounting periods used for financial reporting purposes. Gas and electricity that have been consumed by a customer, but not yet billed to that customer, are estimated on an accrual basis and included in revenue during the period in which they were consumed. These accrual amounts result in contract assets and are presented as unbilled revenue under IFRS 15. Unbilled revenue is assessed for impairment in accordance with IFRS 9.

 

Upon the adoption of IFRS 15, there is no change in the revenue recognition for gas and electricity sales. Just Energy has identified that the material performance obligation is the provision of gas and electricity to customers, which is satisfied over time throughout the contract term. Just Energy utilizes the output method to recognize revenue based on the units of gas and electricity delivered and billed to the customer each month. Just Energy has elected to adopt the practical expedient to recognize revenue in the amount to which the entity has a right to invoice, as the entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance to date.

 

Expenses

 

Historically, North American residential sales commissions and incentives paid to brokers, employees or third parties for acquiring new contracts with customers were recognized as selling expenses as they were incurred.

 

Upon the adoption of IFRS 15, incremental costs to obtain a contract with a customer are capitalized if expected to be recovered. As such, Just Energy commenced capitalizing all upfront sales commissions, incentives and third party verification costs that meet the criteria for capitalization. These expenses are deferred and amortized over the average customer relationship period, which varies from two to five years depending on the market where the customer resides. Just Energy has elected under the practical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the contract length is one year or less.

 

Impact on consolidated financial statements

 

The cumulative effect of changes made to the April 1, 2018 consolidated statement of financial position for the adoption of IFRS 15 was as follows, and had a deferred income tax liability effect of $7,493:

 

   

 

Original IAS 18

   

Carrying amount

New IFRS 15

 
Current assets                
Customer acquisition costs   $ 31,852     $ 43,152  
Non-current financial assets                
Customer acquisition costs   $ 17,101     $ 34,162  

 

 

 

 

 

    23 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following table shows the effect of IFRS 15 adoption on the consolidated statement of financial position as at March 31, 2019:

 

   

As at

March 31,
2019
(reported)

    Balances
without
adoption of
IFRS 15 		    Effect of
change higher 		 
Current assets                        
Customer acquisition costs   $ 75,707     $ 31,865     $ 43,842  
Non-current financial assets                        
Customer acquisition costs   $ 46,416     $ 17,830     $ 28,586  

 

The following table shows the movement of customer acquisition costs after the implementation of IFRS 15:

 

 

   

 

Current assets

   

 

Non-current assets

 
Opening balance   $ 41,704     $ 34,106  
Capitalization     98,483       39,552  
Amortization     (64,480 )     (27,242 )
Closing balance   $ 75,707     $ 46,416  

 

 

 

 

 

 

 

 

 

 

    24 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following table shows the effect of the adoption of IFRS 15 on the consolidated statement of comprehensive income (loss) for the year ended March 31, 2019:

 

    For the
year ended
Mar. 31, 2019
(reported) 		    Balances
without
adoption
of IFRS 15 		    Effect of
change
higher
(lower) 		 
Sales   $ 3,812,470     $ 3,812,470     $ -  
Cost of sales     3,100,255       3,100,255       -  
Gross margin     712,215       712,215       -  
Expenses                        
Administrative     206,820       206,820       -  
Selling and marketing     232,030       264,558       (32,528 )
Other operating expenses     115,016       115,016       -  
Restructuring costs     16,078       16,078       -  
      569,944       602,472       (32,528 )
Operating profit before the following     142,271       109,743       32,528  
Finance costs     (88,072 )     (88,072 )     -  
Change in fair value of derivative instruments and other     (153,226 )     (153,226 )     -  
Other income -net     1,365       1,365       -  
Loss before income taxes     (97,662 )     (130,190 )     32,528  
Provision for income taxes     2,829       2,829       -  
Profit (loss) from continuing operations     (100,491 )     (133,019 )     32,528  
Loss from discontinued operations     (22,379 )     (22,379 )     -  
Loss for the period   $ (122,870 )   $ (155,398 )   $ 32,528  
Attributable to:                        
Shareholders of Just Energy   $ (122,678 )   $ (155,206 )   $ 32,528  
Non-controlling interest     (192 )     (192 )     -  
Loss for the period   $ (122,870 )   $ (155,398 )   $ 32,528  
Loss per share available to shareholders                        
Basic   $ (0.73 )   $ (1.26 )   $ 0.53  
Diluted   $ (0.73 )   $ (1.26 )   $ 0.53  

 

IFRS 15 did not impact any revenue amounts related to historical or current revenue recognition. The key factors driving revenue segmentation are related to differentiation between the business divisions, which are disclosed in Note 24.

 

The majority of Just Energy’s customer contracts meet IFRS 15’s B16 practical expedient where Just Energy has the right to consideration from a customer in an amount that corresponds directly with the value to the customer of the performance completed to date. While there is no change in revenue recognition upon the adoption of IFRS 15 for flat-bill customer contracts, they do not meet the B16 practical expedient and therefore require the following disclosure for contracts that have a duration of one year or more.

 

    25 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The aggregate of contractual amounts allocated to performance obligations related to flat-bill contracts that are unsatisfied as at March 31, 2019 is $75,636.

 

Just Energy expects to recognize revenue on these flat-bill contracts in the amounts of:

 

    April 1, 2019 to
March 31, 2020 		    April 1, 2020 to
March 31, 2021 		    April 1, 2021 to
March 31, 2022 		    Years
thereafter 		    Total  
Gas and electricity flat-bill contracts   $ 29,122     $ 22,564     $ 12,998     $ 10,952     $ 75,636  

 

IFRS 9

 

Just Energy has adopted IFRS 9 as issued by the IASB in July 2014, effective April 1, 2018. The new accounting policies have been applied from April 1, 2018 and, in accordance with the transitional provisions in IFRS 9, comparative figures have not been restated. Just Energy has adopted IFRS 9 retrospectively, and accordingly, transition adjustments have been recognized through equity as at April 1, 2018.

 

IFRS 9 replaces IAS 39 with respect to the recognition, classification and measurement of financial assets and financial liabilities; derecognition of financial instruments; impairment of financial assets and hedge accounting. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7, Financial Instruments: Disclosures .

 

(a) Accounting policy for financial instruments under IFRS 9

 

The following accounting policy is applicable to the accounting for financial instruments in the quarter ended April 1, 2018 and onwards.

 

Financial assets

 

(i) Recognition and derecognition

 

Regular purchases and sales of financial assets are recognized on the trade date, being the date on which Just Energy commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and Just Energy has transferred substantially all the risks and rewards of ownership.

 

(ii) Classification

 

From April 1, 2018, Just Energy classified its financial assets in the following measurement categories:

 

· Those to be measured subsequently at fair value (either through OCI or through profit or loss); and
· Those to be measured at amortized cost.

 

    26 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The measurement category classification of financial assets depends on Just Energy’s business objectives for managing the financial assets and whether contractual terms of the cash flows are considered solely payments of principal and interest. For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI depending upon the business objective.

 

Just Energy reclassified debt instruments when and only when its business objective for managing those assets changes.

 

(iii) Measurement

 

At initial recognition, Just Energy measures a financial asset at its fair value. In the case of a financial asset not categorized as fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to the acquisition of the financial asset are included in measurement at initial recognition. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.

 

Subsequent measurement of debt instruments depends on Just Energy’s business objective for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which Just Energy classifies its debt instruments:

 

Amortized cost : Assets held for collection of contractual cash flows that represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt instrument is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in “finance income” using the effective interest rate method. Cash and cash equivalents, restricted cash, trade and other receivables are included in this category.

 

Fair value through other comprehensive income (“FVOCI”) : Assets held to achieve a particular business objective, by collecting contractual cash flows and selling financial assets, where the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses, which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss. Interest income from these financial assets is included in “finance income” using the effective interest rate method. Just Energy has not classified any investments in this category.

 

FVTPL : Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at FVTPL and is not part of a hedging relationship is recognized in profit or loss. Just Energy classifies its derivatives and its investments in equity securities at FVTPL due to the fact that they do not meet the criteria for classification at amortized cost as the contractual cash flows are not solely payments of principal and interest.

 

Just Energy’s equity instruments are carried at FVTPL, and gains and losses are recorded in profit or loss.

 

(iv) Impairment

 

Just Energy assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its assets carried at amortized cost, including other receivables. For trade and other receivables only, Just Energy applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables.

 

    27 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Trade receivables are reviewed qualitatively on a case-by-case basis to determine if they need to be written off.

 

ECL are measured as the difference in the present value of the contractual cash flows that are due to Just Energy under the contract, and the cash flows that Just Energy expects to receive. Just Energy assesses all information available, including past due status, credit ratings, the existence of third party insurance and forward-looking macroeconomic factors in the measurement of the ECL associated with its assets carried at amortized cost. Just Energy measures ECL by considering the risk of default over the contract period and incorporates forward-looking information into its measurement.

 

(b) New Classification categories of financial instruments on adoption of IFRS 9

 

As at April 1, 2018, the date of initial application, Just Energy’s financial instruments and new classification categories under IFRS 9 were as follows:

 

    Classification category
  Original IAS 39 New IFRS 9
Current financial assets    
Cash and cash equivalents Loans and receivables Amortized cost
Restricted cash Loans and receivables Amortized cost
Trade and other receivables Loans and receivables Amortized cost
Derivative assets FVTPL FVTPL
Non-current financial assets    
Investments FVOCI and FVTPL FVTPL
Derivative assets FVTPL FVTPL
Current financial liabilities    
Trade and other payables Other financial liabilities Amortized cost
Derivative liabilities FVTPL FVTPL
Current portion of long-term debt Other financial liabilities Amortized cost
Non-current financial liabilities    
Long-term debt Other financial liabilities Amortized cost
Derivative liabilities FVTPL FVTPL

 

Upon adoption of IFRS 9, the investment in ecobee is classified as FVTPL instead of available for sale, resulting in a movement of $17,863 relating to the unrealized gain on revaluation of investments, net of income taxes from OCI to accumulated earnings on April 1, 2018.

 

 

    28 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(c) Reconciliation of lifetime ECL balance from IAS 39 to IFRS 9

 

The following table reconciles the closing lifetime ECL for financial assets and contract assets in accordance with IAS 39 as at March 31, 2018 to the opening allowance for credit losses as at April 1, 2018.

 

    Impairment allowance
under IAS 39 as at
March 31, 2018 		    Remeasurement     Lifetime expected credit
loss under IFRS 9 as at
April 1, 2018 		 
Trade and other receivables   $ 60,121     $ 11,237     $ 71,358  
Unbilled revenue   $ -     $ 12,399     $ 12,399  

 

(d) Impairment of financial assets

 

Just Energy has two types of financial assets subject to IFRS 9’s new ECL model: (i) trade and other receivables and (ii) unbilled revenue. Just Energy was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. For trade and other receivables, Just Energy applies the simplified approach to providing for ECL prescribed by IFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables and unbilled revenue. Measurement of ECL resulted in an increase to the provision for trade receivables and unbilled revenue of $23,636, which was recorded as at April 1, 2018. This was before the income tax impact of $5,616, which reduced the deferred income tax liability, as at April 1, 2018.

 

(e) Derivatives and hedging activities

 

Just Energy did not apply hedge accounting under IAS 39, nor under IFRS 9.

 

8. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

 

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. IFRS 16 supersedes IAS 17, Leases (“IAS 17”), and its related interpretations, and is effective for periods beginning on or after January 1, 2019. The standard is required to be adopted either retrospectively or using a modified retrospective approach.

 

Just Energy will adopt IFRS 16 beginning April 1, 2019, and has elected to apply the modified retrospective approach. On initial adoption, Just Energy will use the following practical expedients permitted by the standard, where applicable:

 

· Exemption for short-term leases with a remaining term of 12 months or less as at April 1, 2019 and low value leases, which will be accounted for as operating leases;
· Using a single discount rate on a portfolio of leases with reasonably similar characteristics;
· Excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application;
· Using historical information in determining the lease term where contracts contain options to extend or terminate the lease;
    29 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

· Adjusting the right-of-use asset amounts for any onerous contract provisions immediately before the date of initial application; and
· Measuring the right-of-use assets at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments relating to that lease immediately before the date of initial application.

 

Just Energy began its assessment of existing operating leases, which primarily consist of buildings, office equipment, and vehicles. Upon implementation, Just Energy will record the right-of-use lease assets and related lease liabilities for existing operating leases.

 

Adopting IFRS 16 is expected to increase Just Energy's assets and liabilities, depreciation and amortization, and finance costs, while reducing operating costs. Just Energy is in the final stages of establishing the amounts of the right-of-use asset and lease liability and overall financial statement impact of adopting IFRS 16, which will be completed and disclosed in the June 30, 2019 interim condensed consolidated financial statements.

 

IFRS Interpretations Committee (“IFRIC”) 23, Uncertainty over Income Tax Treatments (“IFRIC 23”) , provides guidance to be applied in the determination of taxable profit or loss, tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12, Income Taxes (“IAS 12”). IFRIC 23 was issued by the IASB in June 2017 and is effective for annual periods beginning on or after January 1, 2019. Just Energy does not expect the interpretation to have a material impact on the consolidated financial statements when it implements IFRIC 23 beginning April 1, 2019.

 

IFRIC Agenda Paper 11, Physical Settlement of Contracts to Buy or Sell a Non-Financial Item (“Agenda Paper 11), the IFRS Interpretations Committee (“IFRIC”) reached a decision on Agenda Paper 11 during its meeting on March 5 - 6, 2019. The decision was in respect to a request about how an entity applies IFRS 9 to particular contracts to buy or sell a non-financial item at a fixed price.

 

The Company has reviewed the agenda decision and determined that a change is required in its accounting policy related to contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments. These are contracts the Company enters into which are accounted for as derivatives at fair value through profit or loss but physically settled by the underlying non-financial item. The IFRIC concluded that IFRS 9 neither permits or requires an entity to reverse the accumulated gain or loss previously recognized on the derivative and recognize a corresponding adjustment to cost of goods sold or inventory when the contract is physically settled.

 

In its December 2018 meeting, the International Accounting Standards Board (IASB) confirmed its view that it expects companies to be entitled to sufficient time to implement changes in accounting policy that result from agenda decisions of the IFRIC. The Company is currently evaluating the impact of implementing the agenda decision on its financial statements, systems and processes. Given the nature of its current systems and processes and the volume of transactions affected, the Company determined it was not possible to affect the accounting change in time for its March 31, 2019 reporting. The Company expects to implement the change retrospectively in the first half of its fiscal 2020 year. While the impact has not been quantified, the Company expects there will be material movements between cost of sales and change in fair value of derivative instruments and other in Just Energy’s consolidated statement of operations and the value of gas in storage on the statement of financial position. There is no impact on the net income of the Company.

 

 

 

    30 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

9. TRADE AND OTHER RECEIVABLES

 

    As at     As at  
    March 31, 2019     March 31, 2018  
Trade account receivables, net   $ 476,173     $ 326,399  
Accrued gas receivable     13,637       15,893  
Unbilled revenue     277,556       301,577  
Other     16,414       14,975  
    $ 783,780     $ 658,844  

 

10. OTHER CURRENT AND NON-CURRENT ASSETS

 

(a) Other current assets

 

    As at
March 31, 2019 		    As at
March 31, 2018 		 
Prepaid expenses and deposits   $ 45,709     $ 35,078  
Customer acquisition costs     75,707       31,852  
Green certificates     39,749       42,230  
Gas delivered in excess of consumption     3,121       2,715  
Inventory     4,954       339  
    $ 169,240     $ 112,214  

 

(b) Other non-current assets

 

    As at
March 31, 2019 		    As at
March 31, 2018 		 
Customer acquisition costs   $ 46,416     $ 17,101  
Income taxes recoverable     3,096       2,336  
Other long-term assets     -       550  
    $ 49,512     $ 19,987  

 

11. INVESTMENTS

 

On August 10, 2012, Just Energy, through a subsidiary, acquired an interest in ecobee, a private company that designs, manufactures and distributes smart thermostats, for an amount of $6.4 million. During the fiscal year 2017 and 2018, Just Energy further increased its investment in the company by $5.4 million and $0.4 million, respectively. Company markets these smart thermostats in all its core markets, bundling the thermostats with commodity and home service products. As at March 31, 2019, Just Energy owns approximately 8% of ecobee. This investment is measured at and classified as fair value through profit or loss. The fair value of the investment has been determined directly from transacted/quoted prices of identical assets that are not active (Level 3 measurement). As at March 31, 2019, the fair value of the investment is $32.9 million (2018 – $32.4 million).

 

 

 

 

 

    31 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

12. PROPERTY AND EQUIPMENT

 

As at March 31, 2019                                          
    Computer equipment     Furniture
and
fixtures 		    Installed
assets 		    Office
equipment 		    Thermo-
stats 		    Leasehold
improve-
ments 		    Total  
Cost:                                                        
Opening balance - April 1, 2018   $ 22,173     $ 6,861     $ -     $ 15,209     $ 13,238     $ 4,894     $ 62,375  
Additions     7,468       58       707       311       -       114       8,658  
Acquisition     -       -       4,827       773       -       554       6,154  
Assets held for sale     (5 )     (4 )     -       (60 )     -       -       (69 )
Retirements     -       (309 )     -       -       (192 )     (1,078 )     (1,579 )
Exchange differences     340       95       15       32       131       312       925  
Ending balance, March 31, 2019     29,976       6,701       5,549       16,265       13,177       4,796       76,464  
                                                         
Accumulated depreciation:                                                        
Opening balance - April 1, 2018     (13,984 )     (4,995 )     -       (10,776 )     (10,555 )     (3,172 )     (43,482 )
Depreciation charge to cost of sales     -       -       -       -       (2,666 )     -       (2,666 )
Depreciation charge for the year     (2,835 )     (178 )     (707 )     (623 )     -       (428 )     (4,771 )
Assets held for sale     2       -       -       (4 )     -       (49 )     (51 )
Retirements     -       127       -       -       202       322       651  
Exchange differences     (138 )     (61 )     -       (61 )     (64 )     41       (283 )
Ending balance, March 31, 2019     (16,955 )     (5,107 )     (707 )     (11,464 )     (13,083 )     (3,286 )     (50,602 )
Net book value, March 31, 2019   $ 13,021     $ 1,594     $ 4,842     $ 4,801     $ 94     $ 1,510     $ 25,862  

 

As at March 31, 2018                                    
    Computer
equipment 		    Furniture
and
fixtures 		    Office
equipment 		    Thermo-
stats 		    Leasehold
improve-
ments 		    Total  
Cost:                                                
Opening balance - April 1, 2017   $ 18,672     $ 6,774     $ 14,947     $ 13,471     $ 4,517     $ 58,381  
Additions     3,561       147       352       387       391       4,838  
Retirements     -       -       -       (517 )     -       (517 )
Exchange differences     (60 )     (60 )     (90 )     (103 )     (14 )     (327 )
Ending balance, March 31, 2018     22,173       6,861       15,209       13,238       4,894       62,375  
                                                 
Accumulated depreciation:                                                
Opening balance - April 1, 2017     (11,600 )     (4,776 )     (10,095 )     (7,713 )     (2,515 )     (36,699 )
Depreciation charge to cost of sales     -       -       -       (3,116 )     -       (3,116 )
Depreciation charge for the year     (2,431 )     (262 )     (745 )     -       (677 )     (4,115 )
Retirements     -       -       -       208       -       208  
Exchange differences     47       43       64       66       20       240  
Ending balance, March 31, 2018     (13,984 )     (4,995 )     (10,776 )     (10,555 )     (3,172 )     (43,482 )
                                                 
Net book value, March 31, 2018   $ 8,189     $ 1,866     $ 4,433     $ 2,683     $ 1,722     $ 18,893  

 

    32 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

13. INTANGIBLE ASSETS

 

 

As at March 31, 2019                                          
    Goodwill     Brand     Technology 1     Customer
relationships 		    Sales
networks and
affinity
relationships 		    Other     Total  
Cost:                                                        
Opening balance - April 1, 2018   $ 300,673     $ 30,205     $ 80,401     $ 18,027     $ 51,963     $ 495     $ 481,764  
Acquisition     40,630       3,000       -       12,600       -       -       56,230  
Assets held for sale     -       -       (2,453 )     -       -       (3 )     (2,456 )
Additions     -       -       38,383       -       -       -       38,383  
Exchange differences     (1,382 )     1,100       1,332       623       1,890       (439 )     3,124  
Ending balance, March 31, 2019     339,921       34,305       117,663       31,250       53,853       53       577,045  
                                                         
Accumulated amortization:                                                        
Opening balance - April 1, 2018     -       -       (36,309 )     (1,309 )     (42,220 )     -       (79,838 )
Assets held for sale     -       -       18       -       -       2       20  
Amortization charge for the year     -       (100 )     (14,927 )     (1,018 )     (6,610 )     -       (22,655 )
Exchange differences     -       -       1,883       (2,142 )     (1,657 )     -       (1,916 )
Ending balance, March 31, 2019     -       (100 )     (49,335 )     (4,469 )     (50,487 )     2       (104,389 )
                                                         
Net book value, March 31, 2019   $ 339,921     $ 34,205     $ 68,328     $ 26,781     $ 3,366     $ 55     $ 472,656  

1 Technology includes work in progress IT projects of $27.3 million

 

 

As at March 31, 2018                                          
    Goodwill     Brand     Technology     Customer
relationship 		    Sales network
and affinity
relationships 		    Other     Total  
Cost:                                                        
Opening balance - April 1, 2017   $ 289,201     $ 31,154     $ 48,525     $ -     $ 53,595     $ -     $ 422,475  
Acquisition of a subsidiary     14,699       -       1,409       17,387       -       347       33,842  
Additions     -       -       30,938       -       -       -       30,938  
Exchange differences     (3,227 )     (949 )     (471 )     640       (1,632 )     148       (5,491 )
Ending balance, March 31, 2018     300,673       30,205       80,401       18,027       51,963       495       481,764  
                                                         
Accumulated amortization:                                                        
Opening balance - April 1, 2017     -       -       (27,641 )     -       (36,847 )     -       (64,488 )
Amortization charge for the year     -       -       (8,924 )     (1,309 )     (6,466 )     -       (16,699 )
Exchange differences     -       -       256       -       1,093       -       1,349  
Ending balance, March 31, 2018     -       -       (36,309 )     (1,309 )     (42,220 )     -       (79,838 )
Net book value, March 31, 2018   $ 300,673     $ 30,205     $ 44,092     $ 16,718     $ 9,743     $ 495     $ 401,926  

 

    33 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The capitalized internally developed costs relate to the development of new customer billing and analysis software solutions for the different energy markets of Just Energy. All research costs and development costs, not eligible for capitalization, have been expensed and are recognized in administrative expenses.

 

14. FINANCIAL INSTRUMENTS

 

(a) Fair value of derivative financial instruments and other

 

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 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 pricing model using the applicable market forward curves and the implied volatility from other market traded options. Management periodically uses non-exchange traded swap agreements based on cooling degree days and heating degree days measured in its utility service territories to reduce the impact of weather volatility on Just Energy’s electricity volumes, commonly referred to as “weather derivatives”. The fair value of these swaps on a given measurement station indicated in the derivative contract are determined by calculating the difference between the agreed strike and expected variable observed at the same station.

 

The following table illustrates gains (losses) related to Just Energy’s derivative financial instruments classified as FVTPL 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 on the consolidated statements of income (loss).

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
Change in fair value of derivative instruments and other                
                 
Physical forward contracts and options (i)   $ (182,117 )   $ 400,583  
Financial swap contracts and options (ii)     39,832       59,710  
Foreign exchange forward contracts     72       (1,842 )
Share swap (iii)     (3,507 )     (4,484 )
6.5% convertible bond conversion feature     247       7,764  
Unrealized foreign exchange on 6.5% convertible bond     (8,061 )     6,101  
Weather derivatives     7,796       -  
Other derivative options     (7,488 )     6,561  
Change in fair value of derivative instruments and other   $ (153,226 )   $ 474,393  

 

    34 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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 statement of financial position as at March 31, 2019:

 

    Financial
assets
(current) 		    Financial
assets
(non-current) 		    Financial
liabilities
(current) 		    Financial
liabilities
(non-current) 		 
                         
Physical forward contracts and options (i)   $ 115,483     $ 7,237     $ 49,601     $ 50,174  
Financial swap contracts and options (ii)     18,212       1,876       16,142       8,583  
Foreign exchange forward contracts     -       56       1,555       -  
Share swap (iii)     -       -       11,907       -  
Other derivative options     10,817       86       182       4,901  
As at March 31, 2019   $ 144,512     $ 9,255     $ 79,387     $ 63,658  

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the consolidated statement of financial position as at March 31, 2018:

 

    Financial
assets
(current) 		    Financial
assets
(non-current) 		    Financial
liabilities
(current) 		    Financial
liabilities
(non-current) 		 
                         
Physical forward contracts and options   $ 198,891     $ 60,550     $ 32,451     $ 29,003  
Financial swap contracts and options     8,133       1,342       34,369       22,117  
Foreign exchange forward contracts     -       -       1,068       505  
Share swap     -       -       18,400       -  
6.5% convertible bond conversion feature     -       -       -       246  
Other derivative options     11,745       2,770       -       -  
As at March 31, 2018   $ 218,769     $ 64,662     $ 86,288     $ 51,871  

 

Below is a summary of the financial instruments classified through profit or loss as at March 31, 2019, to which Just Energy has committed:

 

(i) Physical forward contracts and options consist of:

 

· Electricity contracts with a total remaining volume of 38,759,196 MWh, a weighted average price of $51.29/MWh and expiry dates up to March 31, 2029.

 

· Natural gas contracts with a total remaining volume of 92,885,570 GJs, a weighted average price of $3.67/GJ and expiry dates up to December 31, 2024.

 

· Renewable energy certificates (“RECs”) and emission-reduction credit contracts with a total remaining volume of 4,184,687 MWh and 177,000 tonnes, respectively, a weighted average price of $32.50/REC and $2.68/tonne, respectively, and expiry dates up to December 31, 2028 and December 31, 2021.

 

· Electricity generation capacity contracts with a total remaining volume of 4,362 MWCap, a weighted average price of $5,226.42/MWCap and expiry dates up to May 31, 2023.

 

    35 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

· Ancillary contracts with a total remaining volume of 738,532 MWh, a weighted average price of $23.06/MWh and expiry dates up to December 31, 2020.

 

(ii) Financial swap contracts and options consist of:

 

· Electricity contracts with a total remaining volume of 10,333,347 MWh, an average price of $45.19/MWh and expiry dates up to November 30, 2024.

 

· Natural gas contracts with a total remaining volume of 134,711,738 GJs, an average price of $3.53/GJ and expiry dates up to December 31, 2024.

 

· Electricity generation capacity contracts with a total remaining volume of 69 MWCap, a weighted average price of $304,787.72/MWCap and expiry dates up to October 31, 2020.

 

· Ancillary contracts with a total remaining volume of 1,220,145 MWh, a weighted average price of $21.52/MWh and expiry dates up to December 31, 2020.

 

(iii) Share swap agreement

 

Just Energy has entered into a share swap agreement to manage the consolidated statements of income (loss) volatility associated with the Company’s RSG and DSG Plans. The value, on inception, of the 2,500,000 shares under this share swap agreement was approximately $33,803. On August 22, 2018, Just Energy reduced the notional value of the share swap to $23,803 through a payment of $10,000 and renewed the share swap agreement for an additional year. Net monthly settlements received under the share swap agreement are recorded in other income. Just Energy records the fair value of the share swap agreement 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 consolidated statements of income (loss) as a change in fair value of derivative instruments and other.

 

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 consolidated financial statements.

 

Fair value (“FV”) hierarchy of 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.

 

    36 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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 power 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.

 

Weather derivatives are non-exchange traded financial instruments used as part of a risk management strategy to mitigate the impact adverse weather conditions have on gross margin. The fair values of the derivatives are determined using an internally developed model that relies upon both observable inputs and significant unobservable inputs. Accordingly, the fair values of these derivatives are classified as Level 3. Market and contractual inputs to these models vary by contract type and would typically include notional amounts, reference weather stations, strike prices, temperature strike values, terms to expiration, historical weather data and historical commodity prices. The historical weather data and commodity prices were utilized to value the expected payouts with respect to weather derivatives and, as a result, are the most significant assumptions contributing to the determination of fair value estimates, and changes in these inputs can result in a significantly higher or lower fair value measurement. There were no weather derivatives held as at March 31, 2019.

 

For the share swap, Just Energy uses a forward interest rate curve along with a volume weighted average share price to model out its value. As the inputs have no observable market, it is classified as Level 3.

 

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. The fair value inputs into the investment of ecobee transferred from Level 2 to Level 3 in fiscal 2019.

 

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 March 31, 2019:

 

    Level 1     Level 2     Level 3     Total  
Derivative financial assets   $ -     $ -     $ 153,766     $ 153,766  
Derivative financial liabilities     -       (6,588 )     (136,456 )     (143,044 )
Total net derivative assets (liabilities)   $ -     $ (6,588 )   $ 17,310     $ 10,722  

 

    37 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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 March 31, 2018:

 

    Level 1     Level 2     Level 3     Total  
Derivative financial assets   $ -     $ -     $ 283,431     $ 283,431  
Derivative financial liabilities     -       (21,092 )     (117,067 )     (138,159 )
Total net derivative assets (liabilities)   $ -     $ (21,092 )   $ 166,364     $ 145,272  

 

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 RECs had risen (fallen) by 10%, assuming that all of the other variables had remained constant, profit (loss) before income taxes for the year ended March 31, 2019 would have increased (decreased) by $241,661 ($239,419), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

Key assumptions used when determining the significant unobservable inputs for all commodity supply contracts included in Level 3 of the FV hierarchy consist of up to 5% price extrapolation to calculate monthly prices that extend beyond the market observable 12- to 15-month forward curve.

 

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:

 

    Year ended
March 31, 2019 		    Year ended
March 31, 2018 		 
Balance, beginning of year   $ 166,364     $ (315,110 )
Total gains     19,644       105,709  
Purchases     11,502       207,531  
Sales     (25,575 )     (64,464 )
Settlements     (154,625 )     232,698  
Balance, end of year   $ 17,310     $ 166,364  

 

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

 

As at March 31, 2019 and March 31, 2018, the carrying value of cash and cash equivalents, restricted cash, current trade and other receivables, 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 March 31, 2019 of $740.6 million (March 31, 2018 - $570.1 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 exceptions of the 8.75% loan, 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures, which are fair valued based on market value. The 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures are classified as Level 1 in the FV hierarchy.

 

Investments in equity instruments have a fair value as at March 31, 2019 of $36.9 million (March 31, 2018 - $36.3 million) and are measured based on Level 2 of the fair value hierarchy for the investment in Energy Earth and Level 3 of the fair value hierarchy for the investment in ecobee.

 

No adjustments were made in the year in valuing the investment in ecobee or Energy Earth. Movements are related to foreign exchange revaluations.

 

 

    38 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following table illustrates the classification of investments in the FV hierarchy as at March 31, 2019:

 

    Level 1     Level 2     Level 3     Total  
Investment in ecobee   $ -     $ -     $ 32,888     $ 32,888  
Investment in Energy Earth     -       4,009       -       4,009  
Total investments   $ -     $ 4,009     $

32,888

    $ 36,897  

 

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 U.S. 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 USD 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 following 13 to 24 months. The level of economic hedging is dependent on the source of the cash flows 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 year ended March 31, 2019, assuming that all the other variables had remained constant, loss for the year would have been $3.8 million lower/higher and OCI would have been $14.2 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 its long-term debt exposes the Company 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 $1,939 in profit before income taxes for the year ended March 31, 2019 (2018 - $758).

    39 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

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.

 

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 RECs had risen (fallen) by 10%, assuming that all of the other variables had remained constant, profit before income taxes for the year ended March 31, 2019 would have increased (decreased) by $240,332 ($238,089), 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, California, Delaware, Ohio, Georgia and the U.K., 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.

 

    40 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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:

 

    March 31, 2019     March 31, 2018  
             
Current   $ 116,892     $ 113,786  
1–30 days     42,562       44,374  
31–60 days     22,317       21,241  
61–90 days     16,352       12,686  
Over 90 days     100,580       69,207  
    $ 298,703     $ 261,294  

 

Changes in the allowance for doubtful accounts related to the balances in the table above were as follows:

 

    March 31, 2019     March 31, 2018  
             
Balance, beginning of year   $ 60,121     $ 49,431  
Provision for doubtful accounts     81,037       56,300  
Bad debts written off     (90,231 )     (41,802 )
Adjustment from IFRS 9 adoption     23,636       -  
Foreign exchange    

(3,363

)     (3,808 )
Balance, end of year   $ 71,200     $ 60,121  

 

In the remaining markets, the LDCs, provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. Management believes that the risk of the LDCs failing to deliver payment to Just Energy is minimal. There is no assurance that the LDCs 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 March 31, 2019, the estimated counterparty credit risk exposure amounted to $153,767 (2018 - $283,431), 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 daily cash flow forecasts covering a rolling 13-week period, 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.

 

    41 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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 March 31, 2019:

 

    Carrying
amount 		    Contractual
cash flows 		    Less than
1 year 		    1–3 years     4–5 years     More than
5 years 		 
Trade and other payables   $ 714,110     $ 714,110     $ 714,110     $ -     $ -     $ -  
Long-term debt 1     725,372       781,701       39,150       210,564       531,987       -  
Gas, electricity and non-commodity contracts     143,045       3,500,493       1,899,713       1,439,479       119,212       42,089  
    $ 1,582,527     $ 4,996,304     $ 2,652,973     $ 1,650,043     $ 651,199     $ 42,089  

 

As at March 31, 2018:

 

    Carrying
amount 		    Contractual
cash flows 		    Less than
1 year 		    1–3 years     4–5 years     More than
5 years 		 
Trade and other payables   $ 622,797     $ 622,797     $ 622,797     $ -     $ -     $ -  
Long-term debt 1     543,504       575,525       122,115       193,410       260,000       -  
Gas, electricity and non-commodity contracts     138,159       3,171,037       1,867,389       1,202,949       69,658       31,041  
    $ 1,304,460     $ 4,369,359     $ 2,612,301     $ 1,396,359     $ 329,658     $ 31,041  

1 Included in long-term debt are the 6.75% $100M convertible debentures, 6.75% $160M convertible debentures, 6.5% convertible bonds and 5.75% convertible debentures, which may be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.

 

In addition to the amounts noted above, as at March 31, 2019, 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   $ 40,765     $ 80,234     $ 40,600     $ -  

 

(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 fulfil their contractual obligations. As at March 31, 2019, Just Energy has applied an adjustment factor to determine the fair value of its financial instruments in the amount of $8,307 (2018 - $4,737) to accommodate for its counterparties’ risk of default.

 

    42 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

15. TRADE AND OTHER PAYABLES

 

    As at
March 31, 2019 		    As at
March 31, 2018 		 
Commodity suppliers' payables   $ 189,554     $ 176,831  
Accrued liabilities     112,039       135,733  
Green provisions     151,992       152,542  
Sales tax payable     22,969       15,794  
Trade accounts payable     184,257       45,887  
Payable for former JV partner     22,625       26,375  
Accrued gas payable     12,937       18,624  
Other payables     17,737       18,232  
    $ 714,110     $ 590,018  

 

16. DEFERRED REVENUE

 

    Fiscal 2019     Fiscal 2018  
Balance, beginning of year   $ 38,710     $ 17,546  
Additions to deferred revenue     569,880       553,050  
Revenue recognized during the year     (563,922 )     (534,265 )
Foreign Exchange impact     (1,440 )     2,379  
Balance, end of year   $ 43,228     $ 38,710  

 

17. ACQUISITION OF BUSINESSES

 

(a) Acquisition of EdgePower, Inc.

 

On February 28, 2018, Just Energy completed the acquisition of the issued and outstanding shares of EdgePower, Inc. (“EdgePower”), a privately held energy monitoring and management company operating out of Aspen, Colorado. EdgePower provides lighting and HVAC controls, as well as enterprise monitoring, in hundreds of commercial buildings in North America. Just Energy acquired 100% of the equity interests of EdgePower for the purposes of integrating their lighting and HVAC controls with the commercial business. The fair value of the total consideration transferred is US$14.9 million, of which US$7.5 million was paid in cash and US$7.4 million was settled through the issuance of 1,415,285 Just Energy common shares. The goodwill that was acquired as part of this acquisition relates primarily to the EdgePower workforce and synergies between Just Energy and EdgePower.

 

In addition, the former shareholders of EdgePower are entitled to a payment of up to a maximum of US$6.0 million, payable in cash, subject to continuing employment and the achievement of certain annual and cumulative performance thresholds of the EdgePower business. The payment is calculated as 20% of EBITDA for the EdgePower business for the years of 2019–2021 with minimum thresholds that must be met. As at the acquisition date, the amount recognized for management remuneration was $nil. As at March 2019, the acquisition accounting for EdgePower has been finalized and closed.

 

 

    43 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following is the final purchase price allocation for EdgePower:

 

NET ASSETS ACQUIRED        
         
Working capital   $ 993  
Intangible assets     14,198  
Goodwill     7,673  
Deferred tax liabilities     (3,820 )
Total consideration   $ 19,044  
         
Cash paid, net of working capital adjustment   $ 10,078  
Common shares issued     8,966  
Total consideration   $ 19,044  

 

(b) Acquisition of Filter Group Inc. (“Filter Group”)

 

On October 1, 2018, Just Energy acquired Filter Group, a leading provider of subscription-based home water filtration systems to residential customers in Canada and the U.S. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

Just Energy acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third party Filter Group debt. The aggregate consideration payable by Just Energy under the Purchase Agreement is composed of: (i) $14.3 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy common shares (with up to an additional 2.4 million Just Energy common shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

    44 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this is a related party transaction. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 

Of the $14.3 million cash consideration for the acquisition of Filter Group, $1.3 million relates to the purchase of the shares of Filter Group. The remaining $13.0 million is for the assumption of a shareholder debt owed to a related party, of which $3.0 million was already paid on the closing date of October 1, 2018. Therefore, as at March 31, 2019, $11.3 million of the overall cash consideration payable is included in current trade and other payables of the consolidated statements of financial position, of which $11.1 million is for a related party. The outstanding balance accrued interest at a rate of 1% per month, beginning October 1, 2018, which resulted in $0.7 million of interest accrued as at March 31, 2019, of which $0.6 million is for a related party.

 

The contingent consideration relating to the potential earn-out payments over the next three years was valued at approximately $24.9 million on October 1, 2018, which is the mid-point of the calculated range of $23.1 million to $26.8 million. As it does not meet the definition of equity, it is carried at fair value through profit or loss and is revalued at each reporting period. Significant assumptions affecting the measurement of contingent consideration each quarter include the Just Energy share price and the performance of Filter Group.

 

Each quarter the contingent consideration related to the Filter Group acquisition is revalued. To estimate the number of Just Energy common shares that are exchanged in each period, a Monte Carlo simulation model was used where the trailing 12-month adjusted EBITDA for each period is forecasted based on a Geometric Brownian Motion process. Inputs used in the Monte Carlo simulation model are as follows:

 

· Adjusted trailing 12-months EBITDA as at each quarter-end date;
· Average EBITDA forecasts for new periods;
· Implied asset volatility;
· Equity volatility of Just Energy;
· Underlying asset price of Just Energy common shares;
· Dividend yield; and
· Risk-free rate.

 

Based on the foregoing, the value of the contingent consideration as at March 31, 2019 is in the range of $27.1 million to $31.2 million, with a mid-point of $29.1 million. The change in fair value of the contingent consideration at October 1, 2018 of $24.9 million to the fair value at March 31, 2019 of $29.1 million results in a change of $4.2 million reported in other income (net), in the consolidated statements of income (loss).

 

    45 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following is the purchase price allocation for Filter Group:

 

NET ASSETS ACQUIRED        
         
Working capital   $ 898  
Property and equipment     6,154  
Intangible assets     15,600  
Goodwill     38,217  
Long-term debt     (21,611 )
Total consideration   $ 39,258  
         
Cash consideration   $ 3,000  
Payable to shareholders     11,314  
Contingent consideration     24,944  
Total consideration   $ 39,258  

 

The goodwill was calculated as the difference between the fair value of consideration transferred and the fair value of the assets acquired and liabilities assumed. The goodwill acquired as part of the acquisition primarily represents Filter Group’s workforce, operational and strategic management processes and synergies between Just Energy and Filter Group. Goodwill is not amortized for accounting.

 

For the year ended March 31, 2019, Just Energy recorded $1.2 million of administration expenses associated with the Filter Group acquisition, primarily related to due diligence and professional fee expenditures.

 

As at March 31, 2019, Filter Group revenues of $6.3 million and profit of $0.3 million were included in the consolidated statements of profit (loss) since October 1, 2018. On a pro forma basis, Just Energy’s consolidated revenue and earnings for the year ended March 31, 2019 would have been higher by approximately $11.3 million and lower by $4.8 million, respectively, had the Filter Group acquisition occurred on April 1, 2018.

 

As of March 31, 2019, the acquisition accounting for Filter Group has been finalized and closed.

 

18. DISCONTINUED OPERATIONS

 

In March 2019, Just Energy formally approved and commenced a process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to focus on the core business in North America and the U.K. The disposal of the operations is expected to be completed within the next 12 months. At March 31, 2019 these operations were classified as a disposal group held for sale and as a discontinued operation. Previously, these operations were reported within the Consumer segment. The tax impact on the discontinued operations is minimal.

 

The results of the discontinued operations are presented below:

 

    2019     2018  
Sales   $ 19,729     $ 3,012  
Cost of sales     19,347       2,596  
Gross margin     382       416  
Expenses                
Administrative, selling and operating expenses     12,079       8,455  
Operating loss     (11,697 )     (8,039 )
Change in fair value of derivative instruments and other     -       (37 )
Other income (loss)     (199 )     2,134  
Loss from discontinued operations before the undernoted     (11,896 )     (5,942 )
Provision for income tax expense     4       3  
Impairment loss recognized on the remeasurement to estimate fair value less costs to sell     10,479       -  
LOSS FROM DISCONTINUED OPERATIONS   $ (22,379 )   $ (5,945 )
                 
                 
                 
Cash flows used in operating activities   $ (13,194 )     (9,259 )
Cash flows used in investing activities   $ (1,316 )   $ (2,252 )
Cash flows from financing activities   $ 13,856     $ 12,236  

 

    46 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Assets and liabilities of the discontinued operations classified as held for sale as at March 31, 2019 were:

 

ASSETS      
Current assets        
Cash and cash equivalents   $ 628  
Current trade and other receivables     3,007  
Income taxes recoverable     50  
Other current assets     3,087  
         
Non-current assets        
Property and equipment     42  
Intangible assets     2,157  
ASSETS CLASSIFIED AS HELD FOR SALE   $ 8,971  
         
Liabilities        
Trade and other payables   $ 4,902  
Deferred revenue     298  
LIABILITIES RELATING TO ASSETS CLASSIFIED AS HELD FOR SALE   $ 5,200  

 

The $5.1 million goodwill associated with German operations was fully impaired in fiscal 2019 following the formal decision to commence the disposal of the business.

 

19. LONG-TERM DEBT AND FINANCING

 

    Maturity   March 31, 2019     March 31, 2018  
Credit facility (a)   September 1, 2020   $ 201,577     $ 122,115  
Less: Debt issue costs (a)         (1,824 )     (664 )
Filter Group financing (b)         17,577       -  
8.75% loan (c)   September 12, 2023     240,094       -  
6.75% $100M convertible debentures (d)   March 31, 2023     87,520       85,760  
6.75% $160M convertible debentures (e)   December 31, 2021     150,945       148,146  
6.5% convertible bonds (f)   July 29, 2019     29,483       188,147  
          725,372       543,504  
Less: Current portion         (37,429 )     (121,451 )
        $ 687,943     $ 422,053  

 

 

    47 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

(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)   $ -     $ 201,577     $ -     $ -     $ 201,577  
Filter Group financing (b)     9,217       8,987       1,186       -       19,390  
8.75% loan (c)     -       -      

270,801

      -      

270,801

 
6.75% $100M convertible debentures (d)     -       -       100,000       -       100,000  
6.75% $160M convertible debentures (e)     -       -       160,000       -       160,000  
6.5% convertible bonds (f)     29,933       -       -       -       29,933  
    $ 39,150     $ 210,564     $

531,987

    $ -     $

781,701

 

 

The details for long-term debt are as follows:

 

    As at
April 1,
2018 		    Cash
inflows/
(outflows) 		    Foreign
Exchange 		    Non-cash
changes 		    As at
March 31,
2019 		 
                               
Credit facility (a)   $ 121,451     $ 77,638     $ -     $ 664     $ 199,753  
Filter Group financing (b)     -       17,577       -      

-

      17,577  
8.75% loan (c)     -       236,934       4,553       (1,393 )     240,094  
6.75% $100M convertible debentures (d)     85,760       -       -       1,760       87,520  
6.75% $160M convertible debentures (e)     148,146       -       -       2,799       150,945  
6.5% convertible bonds (f)     188,147       (169,333 )     3,508       7,161       29,483  
    $ 543,504     $ 162,816     $ 8,061     $ 10,991     $ 725,372  
Less: Current portion     (121,451 )     -       -       -       (37,429 )
    $ 422,053     $ 162,816     $ 8,061     $ 10,991     $ 687,943  

 

    As at
April 1,
2017 		    Cash
inflows/
(outflows) 		    Foreign
Exchange 		    Non-cash
changes 		    As at
March 31,
2018 		 
                               
Credit facility (a)   $ 66,001     $ 53,857     $ -     $ 1,593     $ 121,451  
6.75% $100M convertible debentures (d)     -       95,869       -       (10,109 )     85,760  
6.75% $160M convertible debentures (e)     145,579       -       -       2,567       148,146  
6.5% convertible bonds (f)     190,486       -       (6,101 )     3,762       188,147  
5.75% convertible debentures (g)     96,022       (100,000 )     -       3,978       -  
    $ 498,088     $ 49,726     $ (6,101 )   $ 1,791     $ 543,504  
Less: Current portion     -       -       -       -       (121,451 )
    $ 498,088     $ 49,726     $ (6,101 )   $ 1,791     $ 422,053  

 

    48 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The following table details the finance costs for the year ended March 31. Interest is expensed based on the effective interest rate.

 

    2019     2018  
Credit facility (a)   $ 20,715     $ 12,883  
Filter Group financing (b)     875       -  
8.75% loan (c)     8,999       -  
6.75% $100M convertible debentures (d)     8,819       497  
6.75% $160M convertible debentures (e)     13,598       12,773  
6.5% convertible bonds (f)     18,387       15,753  
5.75% convertible debentures (g)     -       9,173  
Collateral management and others (h)     16,679       4,893  
    $ 88,072     $ 55,972  

 

(a) As of April 18, 2018, the Company has renegotiated an agreement with a syndicate of lenders that includes Canadian Imperial Bank of Commerce, National Bank of Canada, HSBC Bank Canada, JPMorgan Chase Bank N.A., Alberta Treasury Branches, Canadian Western Bank and Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley Bank N.A. The agreement extends Just Energy’s credit facility for an additional two years to September 1, 2020. The facility size was increased to $352.5 million from $342.5 million, with an accordion for Just Energy to draw up to $370 million. A certain principal amount outstanding under the credit facility is guaranteed by Export Development Canada under its Account Performance Security Guarantee Program.

 

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 3.750%. Prime rate advances are at a rate of bank prime (Canadian bank prime rate or U.S. prime rate) plus 2.750% and letters of credit are at a rate of 3.750%. Interest rates are adjusted quarterly based on certain financial performance indicators.

 

As at March 31, 2019, the Canadian prime rate was 3.95% and the U.S. prime rate was 5.5%. As at March 31, 2019, $201.6 million has been drawn against the facility and total letters of credit outstanding as at March 31, 2019 amounted to $94.0 million (March 31, 2018 - $113.4 million). As at March 31, 2019, Just Energy has $56.9 million of the facility remaining for future working capital and/or security requirements. Just Energy’s obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates and secured by a general security agreement and a pledge of the assets and securities of Just Energy and the majority of its operating subsidiaries and affiliates excluding, primarily, the U.K. and other international operations. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at March 31, 2019, the Company was compliant with all of these covenants.

 

(b) Filter Group, which was acquired on October 1, 2018, has an outstanding loan payable to Home Trust Company (“HTC”). The loan is a result of factoring receivables to finance the cost of rental equipment over a period of three to five years with HTC and bears interest at 8.99% per annum. Principal and interest are repayable on a monthly basis.

 

    49 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(c) On September 12, 2018, Just Energy entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility (the “8.75% loan”) with Sagard Credit Partners, LP and certain funds managed by a leading U.S.-based global fixed income asset manager. The 8.75% loan bears interest at 8.75% per annum payable semi-annually in arrears on June 30 and December 31 in each year plus fees, and will mature on September 12, 2023. Counterparties were issued 7.5 million warrants at a strike price of $8.56 each, convertible to one Just Energy common stock. The value of these warrants has been assessed as nominal. The 8.75% loan has three tranches. The first tranche of US$50 million is earmarked for general corporate purposes, including to pay down Just Energy's credit facility. The second tranche of US$150 million is earmarked towards the settlement of Just Energy's 6.5% convertible bonds. The third tranche of US$50 million is earmarked for investments and future acquisitions. As at March 31, 2019, US$193.0 million was drawn from the 8.75% loan.

 

(d) On February 22, 2018, Just Energy issued $100 million of convertible unsecured senior subordinated debentures (the “6.75% $100 million convertible debentures”). The 6.75% $100 million convertible debentures bear interest at an annual rate of 6.75%, payable semi-annually in arrears on March 31 and September 30 in each year, and have a maturity date of March 31, 2023. Each $1,000 principal amount of the 6.75% $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 112.3596 common shares of Just Energy, representing a conversion price of $8.90, subject to certain anti-dilution provisions. Holders who convert their debentures will receive accrued and unpaid interest for the period from and including the date of the latest interest payment up to, but excluding, the date of conversion.

 

The 6.75% $100 million convertible debentures will not be redeemable at the option of the Company on or before March 31, 2021. After March 31, 2021 and prior to March 31, 2022, the 6.75% $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the Toronto Stock Exchange (the “TSX”) for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after March 31, 2022, the 6.75% $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

 

The conversion feature of the 6.75% $100 million convertible debentures has been accounted for as a separate component of shareholders’ equity in the amount of $9.7 million. Upon initial recognition of the convertible debentures, Just Energy recorded a deferred income tax liability of $2.6 million and reduced the equity component of the convertible debentures by this amount. The remainder of the net proceeds of the 6.75% $100 million convertible debentures has been recorded as long-term debt, which is being accreted up to the face value of $100 million over the term of the 6.75% $100 million convertible debentures using an effective interest rate of 10.7%. If the 6.75% $100 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. No amounts of the 6.75% $100 million convertible debentures have been converted or redeemed as at March 31, 2019.

 

(e) On October 5, 2016, Just Energy issued $160 million of convertible unsecured senior subordinated debentures (the “6.75% $160 million convertible debentures”). The 6.75% $160 million 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. Each $1,000 principal amount of the 6.75% $160 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 107.5269 common shares of Just Energy, representing a conversion price of $9.30, subject to certain anti-dilution provisions. Holders who convert their debentures will receive accrued and unpaid interest for the period from and including the date of the latest interest payment up to, but excluding, the date of conversion.

 

    50 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

The 6.75% $160 million convertible debentures will not be redeemable at the option of the Company on or before December 31, 2019. After December 31, 2019 and prior to December 31, 2020, the 6.75% $160 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the TSX for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after December 31, 2020, the 6.75% $160 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

 

The conversion feature of the 6.75% $160 million convertible debentures has been accounted for as a separate component of shareholders’ equity in the amount of $8.0 million. Upon initial recognition of the convertible debentures, Just Energy recorded a deferred income tax liability of $2.1 million and reduced the equity component of the convertible debentures by this amount. The remainder of the net proceeds of the 6.75% $160 million convertible debentures has been recorded as long-term debt, which is being accreted up to the face value of $160 million over the term of the 6.75% $160 million convertible debentures using an effective interest rate of 9.1%. If the 6.75% $160 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. No amounts of the 6.75% $160 million convertible debentures have been converted or redeemed as at March 31, 2019.

 

(f) 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.

 

A conversion right in respect of a bond may be exercised, at the option of the holder thereof, at any time from May 30, 2014 to July 7, 2019. The initial conversion price is US$9.3762 per common share (being C$10.2819) but is subject to adjustments. In the event of the exercise of a conversion right, the Company may, at its option, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation in cash equal to the market value of the underlying shares to be received.

 

As a result of the debt being denominated in a different functional currency than that of Just Energy, the conversion feature is recorded as a financial liability instead of a component of equity. Therefore, the conversion feature of the 6.5% convertible bonds has been accounted for as a separate financial liability with an initial value of US$8,517. The remainder of the net proceeds of the 6.5% convertible bonds has been recorded as long-term debt, which is being accreted up to the face value of $150.0 million over the term of the 6.5% convertible bonds using an effective interest rate of 8.8%. At each reporting period, the conversion feature is recorded at fair value with changes in fair value recorded through profit or loss. As at March 31, 2019, the fair value of this conversion feature is US$0.2 million and is included in other non-current financial liabilities. During the year, Just Energy redeemed US$127.6 million of the outstanding balance.

 

    51 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(g) 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. Each $1,000 principal amount of the 5.75% convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 56.0 common shares of Just Energy, representing a conversion price of $17.85. On or after September 30, 2016, the 5.75% convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

 

The Company may, at its option, on not more than 60 days' and not less than 30 days' prior notice, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the 5.75% convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable common shares determined by dividing the principal amount of the 5.75% convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.

 

On March 27, 2018, Just Energy redeemed the 5.75% convertible debentures. Of the amount paid, $99.5 million was recorded as a reduction in the liability component of the 5.75% convertible debentures, a non-cash loss on early redemption of $0.5 million was classified as finance costs, and $7.1 million was recorded as an increase in contributed deficit.

 

(h) The collateral management and others include primarily collateral management costs of $5.1 million, a supplier credit term extension charge of $4.8 million and accretion costs relating to the acquisition of RV of $5.1 million. High electricity prices in the forward markets along with fundamental change in the Electric Reliability Council of Texas’s credit exposure calculations in February 2018 led to an increase in collateral requirements for market participants during fiscal 2019.

 

 

 

 

 

    52 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

20. PROVISIONS

 

Restructuring

 

During fiscal 2019, Just Energy’s management team approved several restructuring actions including targeted workforce reductions. These actions include the elimination of over 200 positions. The actions are in direct alignment with Just Energy’s ongoing transition to a consumer-focused company and are expected to generate future cost savings.

 

Amounts related to restructuring during fiscal 2019 are as follows:

 

Employee-related   $ 8,706  
Facilities     1,987  
Transition agreements     3,187  
Other non-headcount related     2,198  
Total restructuring costs     16,078  
         
Expended in the year     9,462  
Provision at end of the year     6,616  
Total restructuring costs   $ 16,078  

 

The remaining provision balance relate to other contingent liabilities.

 

21. INCOME TAXES

 

(a) Tax expense

 

    2019     2018  
Current tax expense   $ 6,329     $ 2,552  
Deferred tax expense (benefit)                
Origination and reversal of temporary differences   $ (30,110 )   $ 129,177  
Benefit arising from previously unrecognized tax loss or temporary difference     26,610       (111,058 )
Deferred tax (benefit) expense     (3,500 )     18,119  
Provision for income taxes   $ 2,829     $ 20,671  

 

    53 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(b) Reconciliation of the effective tax rate

 

The provision for income taxes represents an effective rate different than the Canadian corporate statutory rate of 26.50% (2018 – 26.50%).

 

    2019     2018  
Income before income taxes   $ (120,035 )   $ 539,248  
Combined statutory Canadian federal and provincial income tax rate     26.50 %     26.50 %
Income tax expense based on statutory rate   $ (31,809 )   $ 142,901  
Increase (decrease) in income taxes resulting from:                
Expense (benefit) of mark to market loss and other temporary differences not recognized   $ 26,610     $ (111,058 )
Variance between combined Canadian tax rate and the tax rate applicable to foreign earnings     1,993       1,000  
Other permanent items     6,035       (12,172 )
Total provision for income taxes   $ 2,829     $ 20,671  

 

(c) Recognized deferred income tax assets and liabilities

 

Recognized deferred income tax assets and liabilities are attributed to the following:

 

    2019     2018  
Mark to market losses on derivative instruments   $ 10,336     $ 17,580  
Tax losses and excess of tax basis over book basis     99,218       78,825  
Total deferred income tax assets     109,554       96,405  
Offset of deferred income taxes     (104,186 )     (93,873 )
Net deferred tax assets   $ 5,368     $ 2,532  
                 
Partnership income deferred for tax purposes   $ (3,542 )   $ (6,249 )
Mark to market gains on derivative instruments     (20,683 )     (54,158 )
Book to tax differences on other assets     (73,889 )     (30,480 )
Convertible debentures     (6,073 )     (2,986 )
Total deferred income tax liabilities     (104,187 )     (93,873 )
Offset of deferred income taxes     104,187       93,873  
Net deferred income tax liabilities   $ -     $ -  

 

    54 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(d) Movement in deferred income tax balances

 

    Balance
April 1,
2018 		    Recognized
in profit or
loss 		    Recognized
in OCI 		    Other     Balance
March 31,
2019 		 
Partnership income deferred for tax   $ (6,249 )   $ 2,707     $ -     $ -     $ (3,542 )
Book to tax differences     48,345       (22,351 )     (638 )     (26 )     25,330  
Mark to market (gains) losses on derivative instruments     (36,578 )     26,231       -       -       (10,347 )
Convertible debentures     (2,986 )     (3,087 )     -       -       (6,073 )
    $ 2,532     $ 3,500     $ (638 )   $ (26 )   $ 5,368  

 

    Balance
April 1,
2017 		    Recognized
in profit or
loss 		    Recognized
in OCI 		    Other     Balance
March 31,
2018 		 
Partnership income deferred for tax   $ (8,281 )   $ 2,032     $ -     $ -     $ (6,249 )
Book to tax differences     4,269       51,864       (7,788 )     -       48,345  
Mark to market (gains) losses on derivative instruments     29,424       (66,002 )     -       -       (36,578 )
Convertible debentures     (4,144 )     1,158       -       -       (2,986 )
    $ 21,268     $ (10,948 )   $ (7,788 )   $ -     $ 2,532  

 

(e) Unrecognized deferred income tax assets

 

Deferred income tax assets not reflected as at March 31 are as follows:

 

    2019     2018  
Excess of tax over book basis     16,903       15,824  

 

Losses available for carryforward (recognized and unrecognized) are set to expire as follows:

 

    2019  
2030   $ 136,763  
2031     -  
Total   $ 136,763  

 

    55 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

22. 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.

 

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

 

    Year ended
March 31, 2019 		    Year ended
March 31, 2018 		 
    Shares     Amount     Shares     Amount  
Common shares:                        
                         
Issued and outstanding                                
Balance, beginning of year     148,394,152     $ 1,079,055       147,013,538     $ 1,070,076  
Share-based awards exercised     1,201,800       9,483       1,643,156       11,954  
Acquisition     -       -       1,415,285       8,966  
Repurchase and cancellation of shares     -       -       (1,677,827 )     (11,941 )
Balance, end of year     149,595,952     $ 1,088,538       148,394,152     $ 1,079,055  
                                 
Preferred shares:                                
                                 
Issued and outstanding                                
Balance, beginning of year     4,323,300     $ 136,771       4,040,000     $ 128,363  
Shares issued for cash     338,865       10,447       283,300       9,260  
Preferred shares issuance cost     -       (253 )     -       (852 )
Balance, end of year     4,662,165     $ 146,965       4,323,300     $ 136,771  
                                 
Shareholders' capital     154,258,117     $ 1,235,503       152,717,452     $ 1,215,826  

 

23. SHARE-BASED COMPENSATION PLANS

 

(a) Stock option plan

 

Just Energy may grant awards under its 2010 share option plan (formerly the 2001 Unit Option Plan) to directors, officers, full-time employees and service providers (non-employees) of Just Energy and its subsidiaries and affiliates. In accordance with the share option plan, Just Energy may grant options to a maximum of 11,300,000 shares. As at March 31, 2019, there were 814,166 options still available for grant under the plan. Of the options issued, 500,000 options remain outstanding as at March 31, 2019 with an exercise price of $7.88. The exercise price of the share options equals the closing market price of the Company’s shares on the last business day preceding the grant date. The share options vest over periods ranging from three to five years from the grant date and expire after five or ten years from the grant date. There were no new grants during fiscal 2019.

 

(b) Restricted share grants

 

Just Energy grants awards under the 2010 RSGs Plan (formerly the 2004 unit appreciation rights) in the form of fully paid RSGs to senior officers, employees and service providers of its subsidiaries and affiliates. As at March 31, 2019, there were 2,717,774 RSGs (2018 - 3,004,624) still available for grant under the plan. Of the RSGs issued, 1,473,989 remain outstanding as at March 31, 2019 (2018 - 1,635,882). Except as otherwise provided, (i) the RSGs vest from one to five years from the grant date providing, in most cases, on the applicable vesting date the RSG grantee continues as a senior officer, employee or service provider of Just Energy or any affiliate thereof; (ii) the RSGs expire no later than ten years from the grant date; (iii) a holder of RSGs is entitled to payments at the same rate as dividends paid to JEGI shareholders; and (iv) when vested, the holder of an RSG may exchange one RSG for one common share.

 

    56 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

There are 40,000 RSGs granted to senior management that do not receive dividend payments. In addition to a continued employment condition for vesting, there are certain share price targets that must be met.

 

RSGs available for grant

 

    2019     2018  
Balance, beginning of year     3,004,624       4,107,830  
Less: Granted     (788,211 )     (1,716,743 )
Add: Cancelled/forfeited    

501,361

      613,537  
Balance, end of year     2,717,774       3,004,624  

 

The average grant date fair value of RSGs granted in the year was $5.00 (2018 - $6.94).

 

(c) Performance bonus grants

 

Just Energy grants awards under the 2013 performance bonus incentive plan (the “PBG Plan”) in the form of fully paid PBGs to senior officers, employees, consultants and service providers of its subsidiaries and affiliates. As at March 31, 2019, there were 2,182,302 (2018 - 2,270,480) PBGs still available for grant under the PBG Plan. Of the PBGs issued, 385,214 remain outstanding as at March 31, 2019 (2018 -1,050,094). Except as otherwise provided, (i) the PBGs will entitle the holder to be paid in three equal installments as one-third on each of the first, second and third anniversaries of the grant date providing, in most cases, on the applicable vesting date the PBG grantee continues as a senior officer, employee, consultant or service provider of Just Energy or any affiliate thereof; (ii) the PBGs expire no later than three years from the grant date; (iii) a holder of PBGs is entitled to payments at the same rate as dividends paid to JEGI shareholders; and (iv) when vested, Just Energy, at its sole discretion, shall have the option of settling payment for the PBGs, to which the holder is entitled in the form of either cash or in common shares.

 

PBGs available for grant

    2019     2018  
Balance, beginning of year     2,270,480       2,650,513  
Less: Granted     (331,196 )     (812,787 )
Add: Cancelled/forfeited     243,018       432,754  
Balance, end of year     2,182,302       2,270,480  

 

The average grant date fair value of PBGs granted in the year was $5.01 (2018 - $7.08).

 

(d) Deferred share grants

 

Just Energy grants awards under its 2010 Directors’ Compensation Plan (formerly the 2004 Directors’ deferred unit grants, “DUGs”) to all independent directors on the basis that each director is required to annually receive 15% of their compensation entitlement in DSGs and may elect to receive all or any portion of the balance of their annual compensation in DSGs. The holders of DSGs and/or common shares are also granted additional DSGs on a quarterly basis equal to the monthly dividends paid to the shareholders of Just Energy. The DSGs vest on the earlier of the date of the director's resignation or three years following the date of grant and expire ten years following the date of grant. As at March 31, 2019, there were nil DSGs (2018 - 69,481) available for grant under the plan. In fiscal 2019, with the consent of the TSX 37,123 DSGs have been granted to directors, subject to shareholder approval. The Company will be requesting shareholder approval at its Annual and Special meeting on June 26, 2019. Of the DSGs issued, 184,430 DSGs (2018 - 114,949) remain outstanding as at March 31, 2019.

    57 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

DSGs available for grant

 

    2019     2018  
Balance, beginning of year    

69,481

     

110,012

 
Less: Granted     (69,481 )     (40,531 )
Balance, end of year    

-

     

69,481

 

 

The weighted average grant date fair value of DSGs granted in the year was $4.48 (2018 - $6.32).

 

24. REPORTABLE BUSINESS SEGMENTS

 

Just Energy’s reportable segments are Consumer Energy and Commercial Energy. Just Energy has aggregated the operating segments into these reportable segments on the basis that the operating segments share economic characteristics. These characteristics include the nature of the product and services sold, the distribution methods, and the type of customer class and regulatory environment.

 

Transactions between 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 residential customer equivalents 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 consolidated financial statements. Just Energy does not have any key customers.

 

Corporate and shared services report the costs related to management oversight of the business units, public reporting and filings, corporate governance and other shared services functions.

 

    58 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

For the year ended March 31, 2019:

 

    Consumer
segment 		    Commercial
segment 		   

Corporate and

shared services  

    Consolidated  
                         
Sales   $ 2,395,624     $ 1,416,846     $ -     $ 3,812,470  
Gross margin     535,711       176,504       -       712,215  
Depreciation of property, plant and equipment     4,567       204       -       4,771  
Amortization of intangible assets     20,440       2,215       -       22,655  
Administrative expenses     76,709       40,693       89,418       206,820  
Selling and marketing expenses     158,770       73,260       -       232,030  
Restructuring costs    

3,173

     

4,069

      8,836       16,078  
Other operating expenses     78,460       9,130       -       87,590  
Operating profit (loss) for the period   $

193,592

    $

46,933

    $ (98,254 )   $ 142,271  
Finance costs                             (88,072 )
Change in fair value of derivative instruments and other                             (153,226 )
Other income, net                            

1,365

 
Provision for income taxes                             (2,829 )
Loss for the year from continued operations                             (100,491 )
Loss from discontinued operations                             (22,379 )
Loss for the year                           $ (122,870 )
                                 
Capital expenditures   $ 39,475     $ 4,068     $ -     $ 43,543  
                                 
As at March 31, 2019                                
Total goodwill   $ 181,358     $ 158,563     $ -     $ 339,921  
Total assets   $ 1,284,435     $

461,633

    $ -     $ 1,746,068  
Total liabilities   $ 1,513,583     $

201,935

    $ -     $ 1,715,518  

 

 

    59 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

For the year ended March 31, 2018:

 

    Consumer
segment 		    Commercial
segment 		   

Corporate and

shared services

    Consolidated  
                         
Sales   $ 2,232,081     $ 1,391,477     $ -     $ 3,623,558  
Gross margin     487,175       153,336       -       640,511  
Depreciation of property and equipment     3,775       340       -       4,115  
Amortization of intangible assets     12,707       3,992       -       16,699  
Administrative expenses     64,282       29,153       93,815       187,250  
Selling and marketing expenses     161,246       70,982       -       232,228  
Other operating expenses     69,690       4,800       -       74,490  
Operating profit (loss) for the period   $ 175,475     $ 44,069     $ (93,815 )   $ 125,729  
Finance costs                             (55,972 )
Change in fair value of derivative instruments and other                             474,393  
Other income, net                             1,040  
Provision for income taxes                             (20,671 )
Profit for the year from continued operations                           $ 524,519  
Loss from discontinued operations                             (5,945 )
Profit for the year                             518,574  
                                 
Capital expenditures   $ 32,252     $ 3,524     $ -     $ 35,776  
                                 
As at March 31, 2018                                
Total goodwill   $ 147,252     $ 153,421     $ -     $ 300,673  
Total assets   $ 1,135,325     $ 466,068     $ -     $ 1,601,393  
Total liabilities   $

844,379

    $ 540,479     $ -     $ 1,384,858  

 

Sales from external customers

 

The revenue is based on the location of the customer.

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
Canada   $ 413,836     $ 414,183  
U.S.     2,624,602       2,465,794  
U.K.     774,032       743,581  
Total   $ 3,812,470     $ 3,623,558  

 

 

    60 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Non-current assets

 

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

 

    As at March 31, 2019     As at March 31, 2018  
Canada   $ 266,775     $ 201,985  
U.S.     223,802       207,147  
International     7,941       11,687  
Total   $ 498,518     $ 420,819  

 

25. OTHER EXPENSES

 

(a) Other operating expenses

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
Amortization of intangible assets   $ 22,655     $ 16,547  
Depreciation of property and equipment     4,771       4,073  
Bad debt expense     81,037       56,331  
Share-based compensation     6,133       18,353  
Other     420       -  
    $ 115,016     $ 95,304  

 

(b) Amortization and energy costs included in cost of sales in the consolidated statements of income (loss)

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
Amortization   $ 2,666     $ 3,116  
Direct energy costs and other     3,097,589       2,983,047  
    $ 3,100,255     $ 2,986,163  

 

(c) Employee benefits expense

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
Wages, salaries and commissions   $ 264,566     $ 237,867  
Benefits     24,239       24,100  
    $ 288,805     $ 261,967  

 

    61 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

26. IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE LIVES

 

Goodwill acquired through business combinations and intangible assets with indefinite lives have been allocated to one of four operating segments. These segments are the U.K. Consumer, North America Consumer, U.K. Commercial, and North America Commercial. The goodwill associated with the Filter Group acquisition was not allocated to an operating segment for the purposes of impairment testing as at March 31, 2019.

 

For impairment testing, goodwill and brand have been allocated as follows as at March 31, 2019:

 

    Consumer segment     Commercial segment  
    North America     U.K.     North America  
Goodwill   $ 168,003     $ 13,355     $ 158,563  
Brand     19,570       -       14,734  
    $ 187,573     $ 13,355     $ 173,297  

 

The goodwill of $38.2 million associated with the acquisition of Filter Group has been allocated to the Consumer segment for the purposes of goodwill impairment testing.

 

Just Energy considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. As at March 31, 2019, the market capitalization of Just Energy was above the book value of its equity.

 

The recoverable amount of each of the operating segments has been determined based on a fair value less costs of disposal model using fiscal 2019’s EBITDA of the operating segment multiplied by the entity’s EBITDA multiple. The EBITDA multiple and the EBITDA of the segment that has been utilized in the fair value less costs to disposal model are consistent with external sources of information and are considered a Level 2 input within the fair value hierarchy.

 

27. EARNINGS (LOSS) PER SHARE

 

    For the
year ended
March 31, 2019 		    For the
year ended
March 31, 2018 		 
BASIC EARNINGS (LOSS) PER SHARE            
Earnings (loss) from continuing operations available to shareholders   $ (100,299 )   $ 515,221  
Dividend to preferred shareholders - net of tax     8,959       8,364  
Earnings (loss) from continuing operations available to shareholders - net     (109,258 )     506,857  
Basic weighted average shares outstanding     149,138,797       147,039,737  
Basic earnings (loss) per share from continuing operations available to shareholders   $ (0.73 )   $ 3.45  
Basic earnings (loss) per share available to shareholders   $ (0.88 )   $ 3.42  
                 
                 
                 
DILUTED EARNINGS (LOSS) PER SHARE                
Earnings (loss) from continuing operations available to shareholders   $ (109,258 )     506,857  
Adjustment for dilutive impact of convertible debentures     -       22,407  
Adjusted earnings (loss) from continuing operations available to shareholders   $ (109,258 )   $ 529,264  
Basic weighted average shares outstanding     149,138,797       147,039,737  
Dilutive effect of:                
Restricted share and performance bonus grants     2,409,990   1     2,924,587  
Deferred share grants     142,928   1     95,536  
Convertible debentures     39,574,831   1     49,979,055  
Shares outstanding on a diluted basis     191,266,546       200,038,915  
Diluted earnings (loss) from continuing operations per share available to shareholders   $ (0.73 )   $ 2.65  
Diluted earnings (loss) per share available to shareholders   $ (0.88 )   $ 2.62  

 

  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.

 

 

The potentially dilutive instruments are the convertible features on the 6.5% convertible bonds, 6.75% $160M conertible debentures and 6.75% $100M convertible debentures as well as the stock options and share grants.

    62 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

28. CAPITAL DISCLOSURE

 

Just Energy defines capital as shareholders’ equity (excluding accumulated other comprehensive income) and long-term debt. Just Energy’s objectives when managing capital are to maintain flexibility by:

 

(i) enabling it to operate efficiently;

 

(ii) providing liquidity and access to capital for growth opportunities; and

 

(iii) providing returns and generating predictable cash flows for dividend payments to shareholders.

 

Just Energy manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year-over-year sustainable and profitable growth. Just Energy’s capital management objectives have remained unchanged from the prior year. Just Energy is not subject to any externally imposed capital requirements other than financial covenants in its long-term debts, and as at March 31, 2019 and 2018, all of these covenants have been met.

 

29. RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL REMUNERATION

 

Parties are considered to be related if one party has the ability to control the other party or exercise influence over the other party in making financial or operating decisions. The definition includes subsidiaries and other persons.

 

Subsidiaries

 

Transactions between Just Energy and its subsidiaries meet the definition of related party transactions. These transactions are eliminated on consolidation and are not disclosed in these consolidated financial statements.

 

    63 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

Key management personnel

 

Just Energy’s key management personnel and persons connected with them are also considered to be related parties for disclosure purposes. Key management personnel are defined as those individuals having authority and responsibility for planning, directing and controlling the activities of Just Energy and consist of the Executive Chair, the Chief Executive Officer and the Chief Financial Officer.

 

During the years ended March 31, 2019 and 2018, Just Energy recorded the following as expenses related to these individuals:

 

    March 31, 2019     March 31, 2018  
Salaries and benefits   $ 2,493     $ 8,939  
Share-based compensation, net     1,163       3,738  
    $ 3,656     $ 12,677  

 

 

In fiscal 2018, the key management personnel consisted of the Executive Chair, two Chief Executive Officers and the Chief Financial Officer. The key management personnel expenses for the prior year also include severance and executive bonuses not included in fiscal 2019.

 

As at March 31, 2019, key management personnel held approximately 669,688 RSGs/PBGs (2018 – 1,774,094).

 

30. DIVIDENDS PAID

 

For the year ended March 31, 2019, dividends of $0.50 (2018 - $0.50) per common share were declared by Just Energy. These dividends amounted to $74,557 (2018 - $73,624) and were approved by the Board of Directors and were paid out during the year.

 

For the year ended March 31, 2019, distributions of $0.50 (2018 - $0.50) per common share for share grants was declared by Just Energy. This distribution amounted to $1,284 (2018 - $1,302) which was paid in accordance with the terms of the Canadian and U.S. Plans during the year.

 

For the year ended March 31, 2019, dividends of US$2.125 (2018 - $2.125) per preferred share were declared by Just Energy. These dividends amounted to $12,189 (2018 - $11,380) and were approved by the Board of Directors and were paid out during the year.

 

31. COMMITMENTS AND GUARANTEES

 

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

 

As at March 31, 2019

 

    Less than
1 year 		    1–3 years     4–5 years     More than
5 years 		    Total  
Premises and equipment leasing   $

5,035

    $

9,902

    $

6,306

    $

-

    $

21,243

 
Gas, electricity and non-commodity contracts    

1,899,713

     

1,439,479

     

119,212

     

42,089

      3,500,493  
    $

1,904,748

    $

1,449,381

    $

125,518

    $

42,089

    $ 3,521,736  

 

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.

 

    64 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(a) Surety bonds and letters of credit

 

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 March 31, 2019 amounted to $70.3 million.  

 

As at March 31, 2019, Just Energy had total letters of credit outstanding in the amount of $94.0 million (Note 19(a)).

 

(b) Officers and directors

 

Corporate indemnities have been provided by Just Energy to all directors and certain officers of its subsidiaries and affiliates for various items including, but not limited to, all costs to settle suits or actions due to their association with Just Energy and its subsidiaries and/or affiliates, subject to certain restrictions. Just Energy has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future suits or actions. Each indemnity, subject to certain exceptions, applies for so long as the indemnified person is a director or officer of one of Just Energy’s subsidiaries and/or affiliates. The maximum amount of any potential future payment cannot be reasonably estimated.

 

(c) Operations

 

In the normal course of business, Just Energy and/or Just Energy’s subsidiaries and affiliates have entered into agreements that include guarantees in favour of third parties, such as purchase and sale agreements, leasing agreements and transportation agreements. These guarantees may require Just Energy and/or its subsidiaries to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulation or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The maximum payable under these guarantees is estimated to be $104.9 million.

 

32. SUPPLEMENTAL CASH FLOW INFORMATION

 

(a) Adjustments required to reflect net cash receipts from gas sales

 

    2019     2018  
Changes in:                
Accrued gas receivable   $ 2,256     $ 459  
Gas delivered in excess of consumption     (405 )     516  
Accrued gas payable     676       (276 )
Deferred revenue     1,659       (3,575 )
    $ 4,186     $ (2,876 )

 

 

    65 .

JUST ENERGY GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MARCH 31, 2019

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

 

(b) Net change in working capital

 

    As at
March 31, 2019 		    As at
March 31, 2018 		 
Accounts receivable and unbilled revenue   $ (92,923 )   $ (108,900 )
Gas in storage     (601 )     538  
Prepaid expenses and deposits     (88,184 )     (15,534 )
Provisions     4,309       (3,501 )
Trade and other payables    

53,261

      90,972  
    $ (124,138 )   $ (36,425 )

 

 

 

 

 

 

 

 

66.

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the reference to our Firm under the caption “Interest of Experts” and to the use in this Annual Report on Form 40-F filed with the United States Securities and Exchange Commission of our reports dated May 15, 2019, with respect to the consolidated statements of financial position of Just Energy Group Inc. (the “Company”) as at March 31, 2019 and 2018, and the consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the years in the two-year period ended March 31, 2019, and the effectiveness of internal controls over financial reporting of the Company as at March 31, 2019.

 

We also consent to the incorporation by reference of our reports dated May 15, 2019 in the Registration Statements on Form S-8 (No. 333-208131), Form S-8 (333-200194), Form S-8 (No. 333-183954), Form F-10 (No. 333-222141), Form F-3D (No. 333-188184), with respect to the consolidated statements of financial position of the Company as at March 31, 2019 and 2018, and the consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the years in the two-year period ended March 31, 2019, and the effectiveness of internal controls over financial reporting of the Company as at March 31, 2019.

 

 

 

/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants

 

 

 

Toronto, Canada

May 21, 2019

 

 

 

 

Exhibit 31.1

 

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Patrick McCullough, certify that:

 

1. I have reviewed this annual report on Form 40-F of Just Energy Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d -15(f)) for the issuer and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

  Date: May 21, 2019   /s/ Patrick McCullough
    By: Patrick McCullough
    Title: Chief Executive Officer and President

 

 

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Jim Brown, certify that:

 

1. I have reviewed this annual report on Form 40-F of Just Energy Group Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d -15(f)) for the issuer and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

  Date: May 21, 2019   /s/ Jim Brown
    By: Jim Brown
    Title: Chief Financial Officer

 

 

Exhibit 32.1

 

Certification of CEO and CFO

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of Just Energy Group Inc. (the "Registrant") filed under cover of Form 40-F for the year ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick McCullough, as Chief Executive Officer and President of the Registrant, and Jim Brown, as Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. § 1350, as enacted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge, that:

 

(1)            The Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

 

(2)            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

/s/ Patrick McCullough                           

By: Patrick McCullough

Title: Chief Executive Officer and President

Date: May 21, 2019

 

 

/s/ Jim Brown                                             

By: Jim Brown

Title: Chief Financial Officer

Date: May 21, 2019

 

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of §18 of the U.S. Securities Exchange Act of 1934, as amended.