Ms. Deb Merril reports

JUST ENERGY REPORTS FIRST QUARTER FISCAL 2015 RESULTS

Just Energy Group Inc. has provided its results for its first quarter of fiscal 2015.

Key first quarter highlights:

• Record energy customer additions of 441,000 driven by strong commercial sales, increased 21 per cent from the previous record 364,000 a year earlier. Net additions of 127,000;
• Total customer base growth to 4.5 million, increased 5 per cent year over year;
• Gross margin of $123.4-million, increased 16 per cent year over year;
• Base EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations of $30.2-million, increased 46 per cent year over year;
• Base funds from continuing operations of $15.6-million, increased 50 per cent year over year;
• First quarter results are consistent with the company's published guidance range of $163-million to $173-million in fiscal 2014 base EBITDA from continuing operations;
• National Home Services, Just Energy's water heater and HVAC rental business, was sold in June for $505-million, subject to certain potential adjustments at closing including working capital balances, with closing expected later this year. The net proceeds of the transaction will be applied to reduce company debt.

(millions of dollars except where indicated and per share amounts)

                                  For the three months ended June 30,
                                           2015         2014

Sales                                    $821.0       $728.1

Gross margin                              123.4        105.9

Administrative expenses                    33.0         29.8

Selling and marketing expenses             55.2         50.8

Finance costs                              18.8         16.9

Profit from continuing operations         (45.7)       (39.6)

Profit (loss) from discontinued
operations                                  6.8         (2.2)

Profit                                    (38.9)       (41.8)

Earnings per share from continuing
operations -- basic                       (0.32)       (0.28)

Earnings per share from continuing
operations -- diluted                     (0.32)       (0.28)

Dividends/distributions                    30.9         30.8

Base EBITDA from continuing
operations                                 30.2         20.7

Base funds from continuing
operations                                 15.6         10.4

Payout ratio on base funds from
continuing operations                       198%         296%

Embedded gross margin                 1,685,600    1,691,400

Total customers (RCEs)                4,537,000    4,302,000

Commenting on the quarterly results, co-chief executive officer Deb Merril stated: "I am very pleased with our financial and operational results during the first quarter, which represents a strong start to our fiscal year. We exceeded our growth and profitability expectations, and have laid a solid base for the remainder of fiscal 2015 and beyond. Our 46-per-cent base EBITDA growth and 50-per-cent base funds from operations growth provide evidence that our business is still growing and generating solid returns. As we've said previously, we remain committed to enhancing our balance sheet by reducing our debt levels and refocusing our portfolio towards our core business. During the quarter we executed against this initiative, announcing the sale of NHS, with the intent to utilize the net proceeds from the sale to reduce its debt. We are focused on growing our business through innovative energy products that provide our customers with enhanced value."

Co-CEO James Lewis added: "We saw considerable momentum with net customer additions of 127,000 which compares to 188,000 customers added during all of fiscal 2014. Record new customers signed and strong net customer additions are a very positive trend reflecting a promising market environment for Just Energy's products. Natural gas price volatility combined with market expectations for higher electricity prices have focused customers on their energy options for the future. Our product suite directly addresses these concerns and market receptivity is the best we have seen in years."

First quarter operating performance

The first quarter financial results benefited from the meaningful growth the company has experienced over the past year and the record number of customer additions signed during the quarter.

Adding customers

Customer additions in the first quarter were 441,000, 21 per cent more than the first quarter of fiscal 2014 which was the previous highest total registered in Just Energy's history. Net additions were 127,000 for the quarter. This was a significant improvement over levels seen in fiscal 2014 when net additions totalled 188,000 for the entire year. The overall customer base grew to 4.5 million, up 5 per cent from a year earlier.

New additions were generated from all sales channels led by 276,000 new commercial customers, up 43 per cent from the 193,000 added in the first quarter of fiscal 2013. Consumer additions totalled 165,000, down slightly from 171,000 added in the prior comparable quarter.

                                                                            
                          CUSTOMER AGGREGATION

                             April 1,                             Failed to 
                              2014(1)   Additions    Attrition        renew 

Consumer energy                                                             
Gas                           747,000      46,000      (49,000)     (10,000)
Electricity                 1,198,000     119,000      (79,000)     (30,000)

Total consumer              1,945,000     165,000     (128,000)     (40,000)


Commercial energy                                                           
Gas                           204,000      13,000       (8,000)      (5,000)
Electricity                 2,261,000     263,000      (17,000)    (116,000)

Total commercial            2,465,000     276,000      (25,000)    (121,000)


Total energy marketing                                                      
RCEs                        4,410,000     441,000     (153,000)    (161,000)


                                CUSTOMER AGGREGATION

                            June 30,  % increase      June 30,  % increase  
                                2014  (decrease)          2013  (decrease)  

Consumer energy                                                             
Gas                          734,000          (2)%     785,000          (6)%
Electricity                1,208,000           1%    1,207,000           -  

Total consumer             1,942,000           -     1,992,000          (3)%

Commercial energy                                                           
Gas                          204,000           0%      213,000          (4)%
Electricity                2,391,000           6%    2,097,000          14% 

Total commercial           2,595,000           5%    2,310,000          12% 


Total energy marketing                                                      
RCEs                       4,537,000           3%    4,302,000           5% 

(1) The balances at April 1, 2014, have been adjusted for customers that have 
    either grown above 15 RCEs (became a commercial customer) or have fallen 
    below 15 RCEs (became a consumer customer) during fiscal 2014. At the 
    beginning of each fiscal year, Just Energy will adjust the opening balances 
    to reflect any changes in allocation of customers between the consumer energy 
    and commercial energy divisions as a result of increases or decreases in 
    annual consumption. 

Maintaining customers

The combined attrition rate for Just Energy was 16 per cent for the trailing 12 months ended June 30, 2014, an increase from the 12 per cent overall rate reported a year prior and up from 15 per cent in the fourth quarter of fiscal 2014. The attrition in the consumer energy division's markets increased from 22 per cent to 28 per cent (up from 27 per cent in the fourth quarter of fiscal 2014). Commercial division attrition increased by 1 per cent to 6 per cent for the trailing 12 months ended June 30, 2014 (flat with the 6 per cent for the fourth quarter of fiscal 2014). The company continues to focus on maintaining its profitable customers and ensuring that variable rate customers meet base profitability profiles even if this results in higher attrition.

Reducing attrition is and will remain a key driver of the company's financial success. Consumer attrition rates tracked higher over the past year and remain high. This has been highly correlated to "bill shock" as consumers on fixed prices saw consumption rise sharply in during the cold period last winter resulting in much higher than expected bills. Current gas price volatility and expectations for higher electricity prices should both contribute to a return of attrition to historical levels.

Renewal rates have been steady with consumer renewals at 75 per cent. This indicates a general level of satisfaction with the company's products and services. Commercial renewals were down slightly to 63 per cent from 65 per cent a year earlier. Commercial renewals are often subject to competitive bid and will inevitably be more volatile than consumer renewals. Overall management sees stability in renewals at around current levels.

Profitability

Just Energy showed markedly higher operating results compared with the strong first quarter of fiscal 2014. Note that all comparisons with prior periods exclude the results of National Home Services and Hudson Energy Solar due to their current classification as discontinued operations. Gross margin for the quarter was $123.4-million, up 16 per cent from $105.9-million in fiscal 2014. Base EBITDA from continuing operations was $30.2-million, up 46 per cent from $20.7-million in the prior comparable period. Base funds from continuing operations were $15.6-million, up 50 per cent from $10.4-million a year earlier. Given that the first quarter is the lowest consumption quarter of the year, base EBITDA from continuing operations remains well on track to meet or exceed the company's published guidance range $163-million to $173-million for fiscal 2015. The increase in base funds from operations is consistent with the company's goal to reduce its payout ratio toward its long-term target range of below 65 per cent.

The following factors drove quarterly profitability:

• The 5-per-cent year-over-year growth in customers led to a 16-per-cent increase in gross margin. This is despite the fact that 63 per cent of new customers added in the quarter were lower margin commercial customers.
• Despite the 3-per-cent decrease in the consumer customer base, consumer gross margin rose 28 per cent. Consumer customers added or renewed in the first quarter were at higher margins ($184 per year) than the margin on customers lost ($178 per year).
• Commercial division margins declined 6 per cent despite a 12-per-cent increase in customers. Margins on new and renewed customers were $66 the same as a year earlier and $80 per year on customers lost during the period. The lower margins are a function of aggressive competition in U.S. markets. While less profitable than in the past, commercial customers continue to generate margins more than double annual aggregation costs ensuring a continued high level of profitability within the business segment.
• The 11-per-cent increase in administrative expenses reflects the 5-per-cent increase in customer base. The guidance provided by management for fiscal 2015 anticipated administrative costs growing more rapidly than margin for the year. Costs to administer the new U.K. office and increased legal expenses were the major expected contributors to this increase.
• Selling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives as well as sales-related corporate costs, were $55.2-million, an increase of 9 per cent from $50.8-million in the first quarter of fiscal 2014. This was lower than the 21-per-cent increase in customers added as 63 per cent of those were commercial division customers with lower annual aggregation costs. There are also a growing number of consumer division customers generated by affinity and Internet marketing programs where commissions are paid on a residual basis as the customer flows. This would tend to slightly decrease current period average costs but will increase future period average costs in comparison as commissions will be paid on customers that have already been counted in customer aggregation totals.
• Bad debt expense amounted to 2.4 per cent of relevant sales, up from 2.2 per cent in the first quarter of fiscal 2014, and within the target range of 2 per cent to 3 per cent.
• Financing costs were $18.8-million for the quarter, up from $16.8-million in the prior comparable period. The increase reflects the impact of the issuance of the $150-million (U.S.) convertible debentures.

The first quarter is the quarter least impacted by weather and is seasonally the slowest quarter for generating cash flow. That said, profitability shown in the quarter reflects strong year-over-year growth, and is consistent with the guidance provided by the company for fiscal 2015 base EBITDA.

Dividends for the quarter were 21 cents per share. The payout ratio on base funds from continuing operations based on the 84-cent annual dividend paid in the seasonally slowest quarter was 198 per cent versus 296 per cent a year earlier. The payout ratio includes all dividends paid but excludes base FFO (funds from operations) contributions from NHS (sold with closing expected later this year) and HES (held for sale).

The payout ratio, pro forma based on the newly announced 50-cent annual dividend level following the announcement of the sale of NHS (which had generated approximately 25 per cent of the company's base EBITDA), would have been 112 per cent. The results of the first quarter are in line with a targeted payout ratio of less than 100 per cent for the fiscal year.

Sale of NHS

On June 4, 2014, Just Energy announced an agreement to sell the shares of National Energy Corp. (which operates under the name National Home Services), its water heater and HVAC rental unit, to Reliance Comfort LP. Reliance is a Canadian supplier of heating, cooling and water heater rental services.

The agreement calls for a selling price of $505-million subject to certain potential adjustments at closing including working capital balances. Additionally, as conditions of closing, Just Energy must repay all outstanding NHS borrowings and pay out the remainder interest in a royalty agreement. The sale is contingent upon approval of the Canadian Competition Bureau and consents of Just Energy lenders.

After the repayment of NHS debt, the buyout of the royalty interest, taxes and transaction costs, the company expects to utilize the net proceeds from the sale to reduce its debt. The total debt reduction following closing is expected to be approximately $400-million, including the repayment of the NHS debt.

Outlook

The first quarter of fiscal 2015 showed higher than expected gross and net customer additions, sales, gross margin, base EBITDA and base funds from continuing operations. Management remains confident that Just Energy will realize its $163-million to $173-million base EBITDA guidance range for the year.

Net additions and relevant margins are the main driver of expected base EBITDA growth in the year following the additions. Residential customers added generate effectively no EBITDA in the first year as the cost of their aggregation is expensed in that period. Following periods have full margin and no aggregation cost to offset. The low single-digit base EBITDA growth forecast for fiscal 2015 is based on the 188,000 net additions seen last year.

Debt reduction remains a clear priority of management. The company has a long-term target ratio of no more than four times base EBITDA to total debt. As at June 30, 2014, the ratio was 4.6 times, down from a ratio of 5.8 times a year earlier largely due to the exclusion of NHS and HES debt. Management expects continued reductions in debt based on a lower than 100-per-cent payout ratio going forward.

Just Energy retains a strong interest in participating in the sale of solar energy to residential homeowners. The company is exploring methods of offering residential solar without incurring material additional debt. The company will provide shareholders with regular updates as to progress as it continues to review possible options for entry into this market.

Earnings call

The company will host a conference call and live webcast to review the first quarter results beginning at 10 a.m. Eastern Daylight Time on Thursday, Aug. 7, 2014, followed by a question-and-answer period. Those who wish to participate in the conference call may do so by dialling 1-866-229-4144 and entering pass code 5662177 (pound sign).

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