EX-99.1 2 exh_991p.htm EXHIBIT 99.1

Exhibit 99.1

 

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian dollars)

 

 

         As at    As at 
         June 30, 2020    March 31, 2020 
    Notes    (Unaudited)    (Audited) 
ASSETS               
Current assets               
Cash and cash equivalents       $20,006   $26,093 
Restricted cash        376    4,326 
Trade and other receivables, net   5    372,530    403,907 
Gas in storage        12,283    6,177 
Fair value of derivative financial assets   7    55,072    36,353 
Income taxes recoverable        7,067    6,641 
Other current assets   6(a)    143,857    203,270 
         611,191    686,767 
Assets classified as held for sale   15    3,402    7,611 
         614,593    694,378 
Non-current assets               
Investments        32,889    32,889 
Property and equipment, net        23,903    28,794 
Intangible assets, net        362,389    370,958 
Fair value of derivative financial assets   7    26,929    28,792 
Deferred income tax assets        3,644    3,572 
Other non-current assets   6(b)    47,620    56,450 
         497,374    521,455 
TOTAL ASSETS       $1,111,967   $1,215,833 
                
LIABILITIES               
Current liabilities               
Trade and other payables   8   $559,441   $685,665 
Deferred revenue        1,795    852 
Income taxes payable        6,433    5,799 
Fair value of derivative financial liabilities   7    79,652    113,438 
Provisions        142    1,529 
Current portion of long-term debt   9    262,909    253,485 
         910,372    1,060,768 
Liabilities related to assets classified as held for sale   15    2,198    4,906 
         912,570    1,065,674 
Non-current liabilities               
Long-term debt   9    519,347    528,518 
Fair value of derivative financial liabilities   7    57,700    76,268 
Deferred income tax liabilities        2,720    2,931 
Other non-current liabilities        32,670    37,730 
         612,437    645,447 
TOTAL LIABILITIES        1,525,007    1,711,121 
SHAREHOLDERS’ DEFICIT               
Shareholders’ capital   12    1,246,991    1,246,829 
Equity component of convertible debentures        13,029    13,029 
Contributed deficit        (29,273)   (29,826)
Accumulated deficit        (1,730,433)   (1,809,557)
Accumulated other comprehensive income        87,053    84,651 
Non-controlling interest        (407)   (414)
TOTAL SHAREHOLDERS’ DEFICIT        (413,040)   (495,288)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT       $1,111,967   $1,215,833 
                
Basis of presentation (Note 3)               
Commitments and guarantees (Note 16)               

 

See accompanying notes to the interim condensed consolidated financial statements

 

/s/ Scott Gahn   /s/ H. Clark Hollands  
Scott Gahn   H. Clark Hollands  
Chief Executive Officer and President   Corporate Director  

  1.

 

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30
(unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 

    Notes    2020    2019 
CONTINUING OPERATIONS               
Sales   10   $593,134   $670,165 
Cost of goods sold   4    323,997    457,941 
GROSS MARGIN        269,137    212,224 
INCOMES (EXPENSES)               
Administrative        (39,953)   (40,803)
Selling and marketing        (46,959)   (61,704)
Other operating expenses   13(a)    (19,911)   (35,765)
Finance costs   9    (21,853)   (23,546)
Unrealized gain (loss) of derivative instruments and other   4, 7    77,349    (241,999)
Realized loss of derivative instruments   4    (134,446)   (79,932)
Other expenses, net        (632)   (740)
Profit (loss) from continuing operations before income taxes        82,732    (272,265)
Provision for (recovery of) income taxes   11    634    (2,294)
PROFIT (LOSS) FROM CONTINUING OPERATIONS       $82,098   $(269,971)
                
DISCONTINUED OPERATIONS               
Loss from discontinued operations   15    (2,948)   (5,189)
PROFIT (LOSS) FOR THE PERIOD       $79,150   $(275,160)
                
Attributable to:               
Shareholders of Just Energy       $82,095   $(269,951)
Discontinued operations   15    (2,948)   (5,189)
Non-controlling interest        3    (20)
PROFIT (LOSS) FOR THE PERIOD       $79,150   $(275,160)
                
Earnings (loss) per share from continuing operations   14           
Basic       $0.52   $(1.82)
Diluted       $0.43   $(1.82)
Earnings (loss) per share from discontinued operations   15           
Basic       $(0.02)  $(0.03)
Diluted       $(0.02)  $(0.03)
Earnings (loss) per share available to shareholders   14           
Basic       $0.50   $(1.85)
Diluted       $0.41   $(1.85)

 

See accompanying notes to the interim condensed consolidated financial statements

 

  2.

 

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30
(unaudited in thousands of Canadian dollars)

 

 

    Notes    2020    2019 
PROFIT (LOSS) FOR THE PERIOD       $79,150   $(275,160)
Other comprehensive profit (loss) to be reclassified to profit or loss in subsequent periods:               
Unrealized gain (loss) on translation of foreign operations, net of tax        1,143    (7,019)
Unrealized gain on translation of foreign operations from discontinued operations        426    4,721 
Gain on translation of foreign operations disposed and reclassified to consolidated statement of loss   15    833    - 
         2,402    (2,298)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX       $81,552   $(277,458)
                
Total comprehensive income (loss) attributable to:               
Shareholders of Just Energy       $81,549   $(277,438)
Non-controlling interest        3    (20)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX       $81,552   $(277,458)

 

See accompanying notes to the interim condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

  3.

 

JUST ENERGY GROUP INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED JUNE 30

(unaudited in thousands of Canadian dollars)

 

 

    Notes    2020    2019 
ATTRIBUTABLE TO THE SHAREHOLDERS               
Accumulated earnings               
Accumulated earnings, beginning of period   4   $140,446   $533,107 
Profit (loss) for the period as reported, attributable to shareholders        79,147    (275,140)
Accumulated earnings, end of period       $219,593   $257,967 
                
DIVIDENDS AND DISTRIBUTIONS               
Dividends and distributions, beginning of period        (1,950,003)   (1,923,808)
Dividends and distributions declared and paid        (23)   (22,070)
Dividends and distributions, end of period       $(1,950,026)  $(1,945,878)
ACCUMULATED DEFICIT       $(1,730,433)  $(1,687,911)
                
ACCUMULATED OTHER COMPREHENSIVE INCOME               
Accumulated other comprehensive income, beginning of period   4   $84,651   $79,093 
Other comprehensive income (loss)        2,402    (2,298)
Accumulated other comprehensive income, end of period       $87,053   $76,795 
                
SHAREHOLDERS’ CAPITAL   12           
Common shares               
Common shares, beginning of period       $1,099,864   $1,088,538 
Share-based units exercised        162    6,960 
Common shares, end of period       $1,100,026   $1,095,498 
                
Preferred shares   12           
Preferred shares, beginning of period       $146,965   $146,965 
Preferred shares, end of period       $146,965   $146,965 
SHAREHOLDERS’ CAPITAL       $1,246,991   $1,242,463 
                
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES               
Balance, beginning of period       $13,029   $13,029 
Balance, end of period       $13,029   $13,029 
                
CONTRIBUTED DEFICIT               
Balance, beginning of period       $(29,826)  $(25,540)
Add: Share-based compensation expense   13(a)    692    7,118 
Discontinued operations        -    137 
Less: Share-based units exercised        (162)   (6,960)
Share-based compensation adjustment        -    20 
Non-cash deferred share grants        23    23 
Balance, end of period       $(29,273)  $(25,202)
                
NON-CONTROLLING INTEREST               
Balance, beginning of period       $(414)  $(399)
Foreign exchange impact on non-controlling interest        4    23 
Profit (loss) attributable to non-controlling interest        3    (20)
Balance, end of period       $(407)  $(396)
TOTAL SHAREHOLDERS’ DEFICIT       $(413,040)  $(381,222)

 

See accompanying notes to the interim condensed consolidated financial statements

 

  4.

 

JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30

(unaudited in thousands of Canadian dollars)

 

 

    Notes    2020    2019 
Net inflow (outflow) of cash related to the following activities               
OPERATING               
Profit (loss) from continuing operations before income taxes       $82,732   $(272,265)
Profit (loss) from discontinued operations before income taxes   15    (2,948)   (5,299)
Profit (loss) before income taxes        79,784    (277,564)
                
Items not affecting cash               
Amortization and depreciation   13(a)    7,352    11,938 
Share-based compensation expense   13(a)    692    7,118 
Financing charges, non-cash portion        5,561    4,316 
Unrealized (gain) loss in fair value of derivative instruments and other   7    (77,349)   241,999 
Net change in working capital balances        (8,641)   29,911 
Adjustment for discontinued operations, net   15    3,920    (26,064)
Income taxes paid        (670)   (5,703)
Cash inflow (outflow) from operating activities        10,649    (14,049)
                
INVESTING               
Purchase of property and equipment        (16)   (562)
Purchase of intangible assets        (1,670)   (9,409)
Payments for acquired business        -    (12,013)
Cash outflow from investing activities        (1,686)   (21,984)
                
FINANCING               
Dividends/Distributions paid        -    (22,047)
Repayment of long-term debt   9    (1,651)   (1,645)
Leased asset payments        (1,081)   (1,468)
Debt issuance costs        -    (190)
Credit facilities withdrawal   9    9,867    54,155 
Share swap payout        (21,488)   - 
Cash inflow (outflow) from financing activities        (14,353)   28,805 
                
Effect of foreign currency translation on cash balances        (697)   (168)
                
Net cash outflow        (6,087)   (7,396)
Cash and cash equivalents, beginning of period        26,093    9,927 
Cash and cash equivalents, end of period       $20,006   $2,531 
                
Supplemental cash flow information:               
Interest paid       $12,934   $15,208 

 

See accompanying notes to the interim condensed consolidated financial statements

 

 

  5.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

1.ORGANIZATION

 

Just Energy Group Inc. (“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 unaudited interim condensed consolidated financial statements (“Interim Financial Statements”) consist of Just Energy and its subsidiaries and affiliates. The Interim Financial Statements were approved by the Board of Directors on August 28, 2020.

 

2.OPERATIONS

 

Just Energy is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and renewable energy options to customers. Currently operating in the United States (“U.S.”) and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, Filter Group Inc. (“Filter Group”), Hudson Energy, Interactive Energy Group, 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, Just Energy provides subscription-based home water filtration systems to residential customers, including under-counter and whole-home water filtration solutions. Just Energy markets smart thermostats, offering the thermostats as a standalone 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 an approximate 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 markets its product offerings through several sales channels including brokers, digital and telesales marketing, retail and affinity relationships.

 

In March 2019, Just Energy formally approved and commenced a process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, Just Energy also formally approved and commenced a process to dispose of its business in the United Kingdom (“U.K.”), as part of the Company’s Strategic Review. The decision was part of a strategic transition to focus on the core business in North America. The U.K. and Ireland businesses were disposed of during the three months ended December 31, 2019 as described in Note 15. The disposal of operations in Japan was completed in April 2020, and the disposal of operations in Germany is expected to be completed in the near future. As at June 30, 2020, 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, while a portion of the U.K. business was allocated to the Commercial segment.

 

  6.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

3.FINANCIAL STATEMENT PRESENTATION

 

(a)Compliance with IFRS

 

These Interim Financial Statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), utilizing the accounting policies Just Energy outlined in its March 31, 2019 annual audited consolidated financial statements, except the adoption of new International Financial Reporting Standards (“IFRS”). Accordingly, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with IFRS, as issued by the IASB, have been omitted or condensed.

 

(b)Basis of presentation and going concern

 

These Interim Financial Statements should be read in conjunction with and follow the same accounting policies and methods of application as those used in the annual audited consolidated financial statements for the fiscal years ended March 31, 2020 and 2019.

 

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

 

The interim operating results are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2021, due to seasonal variations resulting in fluctuations in quarterly results. Gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September. Electricity consumption is lowest in October through December and April through June.

 

Certain figures in the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the current period’s interim condensed consolidated financial statements.

 

As described further in Note 9, the Company has a $370 million credit facility with a syndicate of lenders and a US$250 million non-revolving multi-draw senior unsecured term loan facility from another lender, maturing on December 1, 2020 and September 12, 2023, respectively. The facility maturing on December 1, 2020 has been classified in the Interim Financial Statements as a current liability and contributes to the net current liability position as at June 30, 2020. As at June 30, 2020, the Company was compliant with the requirements of its senior debt to EBITDA ratio covenant as a result of an amendment that provided, among other things, a temporary increase of the ratio from its lenders. As at June 30, 2020, the Company amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1:50 to 2:00, and the total debt to EBITDA covenant ratio from 3.50:1 to 4.00:1 with respect to the fiscal quarter ending June 30, 2020. In addition, the lenders under the Company’s senior unsecured term loan facility waived compliance with the senior debt to EBITDA and the total debt to EBITDA covenant ratios contained therein for the fiscal quarter ending June 30, 2020.

 

  7.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

The Company’s ability to continue as a going concern for the next 12 months is dependent on the continued availability of its credit facilities; the Company’s ability to obtain waivers from its lenders for potential instances of non-compliance with covenants, if necessary; the ability to refinance, or, secure additional sources of financing, if necessary, or the completion of this Recapitalization transaction (the “Recapitalization”); the liquidation of available investments; and the continued support of the Company’s lenders and suppliers. These conditions indicate the existence of material uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern and, accordingly, the ultimate appropriateness of the use of accounting principles applicable to a going concern. There can be no assurance that the Company will be successful in these initiatives, that lenders will provide further financing or relief for covenants, or that the Company can refinance or repay credit facilities from new sources of financing.

 

On July 8, 2020, the Company announced a comprehensive plan to strengthen and de-risk the business, positioning the Company for sustainable growth as an independent industry leader. The Recapitalization will be undertaken through a plan of arrangement under the Canada Business Corporations Act (“CBCA”) and includes:

 

·Exchange of the 6.75% $100M convertible debentures and the 6.75% $160M convertible debentures (collectively, the “Subordinated Convertible Debentures”) for issuance of common shares; upon completion of the Recapitalization, a material non-cash, accounting gain would be recognized as a result of the carrying value of the Subordinated Convertible Debentures being higher than the expected value of the common shares;

·Extension of the $335 million credit facilities to December 2023, with revised covenants and a schedule of commitment reductions throughout the term;

·Existing 8.75% loan and the remaining convertible bonds due December 31, 2020 (the “Eurobonds”) shall be exchanged for a new term loan due March 2024, with interest to be paid-in-kind and issuance of common shares;

·Exchange of all 8.50%, fixed-to-floating rate, cumulative, redeemable, perpetual preferred shares (JE.PR.U) (the “preferred shares”) for issuance of common shares;

·Common share issuance in exchange for cash investment commitments of $100 million;

·Initial reduction of annual cash interest expense by approximately $45 million; and

·Ongoing business as usual for employees, customers and suppliers enhanced by the relationship with a financially stronger Just Energy – no impact expected by the Recapitalization.

 

On August 26, 2020, the Company announced additional terms to the Recapitalization as follows:

 

·Pay accrued and unpaid interest in cash on the Subordinated Convertible Debentures until closing of the Recapitalization;
·Issue $15 million principal amount of New Subordinated Notes (the “New Subordinated Notes”) to holders of the Subordinated Convertible Debentures, which New Subordinated Notes will have a six-year maturity and will bear an annual interest rate of 7% (which shall only be payable in kind semi-annually);
·Pay certain expenses of the ad hoc group of convertible debenture holders; and
·Issue approximately $3.7 million of common shares by way of an additional private placement to the Company’s term loan lenders at the same subscription price available to all securityholders pursuant to the new equity subscription offering, proceeds of which will partially offset the incremental cash costs noted above.

 

All other terms of the Recapitalization remain unchanged.

 

The implementation of the Recapitalization is expected in September 2020, pending all approvals, including court and regulatory approvals. The Recapitalization has been approved by Just Energy’s Board of Directors. Just Energy’s financial advisor, BMO Capital Markets, has provided an opinion to Just Energy’s Board of Directors that the terms of the Recapitalization are fair from a financial point of view to the holders of the existing Eurobond, Subordinated Convertible Debentures, preferred shares and common shares. The full text of the opinion was filed on SEDAR on August 26, 2020.

 

 

  8.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

On July 17, 2020 the Superior Court of Justice which among other things, granted a limited stay of proceedings and established a record date for voting of security holders with respect to the Recapitalization as of July 23, 2020. The Company filed a revised version of the plan of arrangement on SEDAR on August 26, 2020.

 

The Company filed on SEDAR an information circular on July 21, 2020 describing the Recapitalization transaction which was approved at a Special Meeting of Shareholders and all applicable creditor classes on August 27, 2020.

 

These Interim Financial Statements do not reflect the adjustments to carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary if the going concern assumption was deemed inappropriate. These adjustments could be material.

 

(c)Principles of consolidation

 

The Interim Financial Statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at June 30, 2020. Subsidiaries and affiliates are consolidated from the date of acquisition and control and, continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries and affiliates are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, sales, expenses and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

 

(d)Significant accounting judgements, 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 amount of assets, liabilities, income and expenses. The estimates and related assumptions based on previous experience and other factors are 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. There have been no material changes from the disclosures in the Annual Report for the period ended March 31, 2020 with regard to significant accounting judgements, estimates and assumptions.

 

COVID-19 impact

 

As a result of the continued and uncertain economic and business impact of the coronavirus disease (“COVID-19”) pandemic, we have reviewed the estimates, judgments and assumptions used in the preparation of the Interim Financial Statements, including with respect to: the determination of whether indicators of impairment exist for the assets and cash-generating units (“CGUs”) and the underlying assumptions used in the measurement of the recoverable amount of such assets or CGUs. We have also assessed the impact of COVID-19 on the estimates and judgments used in connection with the measurement of deferred income tax assets and the credit risk of Just Energy’s customers.  Although we determined that no significant revisions to such estimates, judgments or assumptions were required for the period ended June 30, 2020, revisions may be required in future periods to the extent that the negative impacts on the business arising from COVID-19 continue or worsen. Any such revision (due to COVID-19 or otherwise) may result in, among other things, writedowns or impairments to the assets or CGUs, and/or adjustments to the carrying amount of the accounts receivable, or to the valuation of the deferred income tax assets, any of which could have a material impact on the results of operations and financial condition. While we believe the COVID-19 pandemic to be temporary, the situation is dynamic and the impact of COVID-19 on the Company’s results of operations and financial condition, including the duration and the impact on overall customer demand, cannot be reasonably estimated at this time.

 

 

  9.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

4.ACCOUNTING POLICIES AND NEW STANDARDS ADOPTED

 

Adoption of International Financial Reporting Interpretations Committee (“IFRIC”) Agenda Decision 11, Physical Settlement of Contracts to Buy or Sell a Non-Financial Item (“Agenda Decision 11”)

 

The IFRIC reached a decision on Agenda Decision 11 during its meeting on March 5 and 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 that 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 nor 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. The presentation of interim condensed consolidated financial statements of loss has been amended to comply with the IFRIC agenda decision.

 

Prior to the adoption of Agenda Decision 11, realized gains and losses on financial swap contracts and options were included in cost of goods sold. Upon adoption of Agenda Decision 11, realized gains and losses on financial swap contracts are recorded in the line item realized loss on derivative instruments. As a result of Agenda Decision 11, the amount of cost of goods sold previously reported for the three months ended June 30, 2019, has decreased by $79.9 million from $537.8 million previously reported to $457.9 million upon the adoption of the IFRIC Agenda Decision 11 with an increase in realized losses on derivative instruments by the same amount.

 

5.TRADE AND OTHER RECEIVABLES, NET

 

(a)Trade and other receivables

 

    As at    As at 
    June 30, 2020    March 31, 2020 
Trade accounts receivable, net  $188,677   $241,969 
Accrued gas receivables   4,779    7,224 
Unbilled revenues, net   120,312    121,993 
Other   58,762    32,721 
   $372,530   $403,907 

 

(b)Aging of accounts receivable

 

Customer credit risk

 

The lifetime expected credit loss reflects Just Energy’s best estimate of losses on the accounts receivable and unbilled revenue balances. Just Energy determines the lifetime expected credit loss by using historical loss rates and forward-looking factors if applicable. Just Energy is exposed to customer credit risk on its continuing operations in Alberta, Texas, Illinois (gas), California and Ohio (electricity). 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 of the above markets.

 

  10.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

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 that is recorded in cost of goods sold. 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.

 

The aging of the trade accounts receivable from the markets where the Company bears customer credit risk was as follows:

 

    As at    As at 
    June 30, 2020    March 31, 2020 
           
Current  $79,981   $83,431 
1–30 days   15,023    26,678 
31–60 days   5,806    6,513 
61–90 days   2,630    5,505 
Over 90 days   23,302    35,252 
   $126,742   $157,379 

 

(c)Allowance for doubtful accounts

 

Changes in the allowance for doubtful accounts related to the balances in the table above were as follows:

 

    As at    As at 
    June 30, 2020    March 31, 2020 
           
Balance, beginning of period  $45,832   $182,365 
Provision for doubtful accounts   11,940    80,050 
Bad debts written off   (23,274)   (138,514)
Foreign exchange   2,879    3,124 
Assets classified as held for sale   -    (81,193)
Balance, end of period  $37,377   $45,832 
           
Allowance for doubtful accounts on accounts receivable  $34,388   $43,127 
Allowance for doubtful accounts on unbilled revenue   2,989    2,705 
Total allowance for doubtful accounts  $37,377   $45,832 

 

  11.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

6.OTHER CURRENT AND NON-CURRENT ASSETS

 

(a)

    As at    As at 
Other current assets   June 30, 2020    March 31, 2020 
Prepaid expenses and deposits  $28,029   $55,972 
Customer acquisition costs   66,865    77,939 
Green certificates   43,784    63,728 
Gas delivered in excess of consumption   2,030    2,393 
Inventory   3,149    3,238 
   $143,857   $203,270 

 

(b)

    As at    As at 
Other non-current assets   June 30, 2020    March 31, 2020 
Customer acquisition costs  $37,236   $43,686 
Other long-term assets   10,384    12,764 
   $47,620   $56,450 

 

7.

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 and green power 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 (“CDDs”) and heating degree days (“HDDs”) 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 is determined by calculating the difference between the agreed strike and expected variable observed at the same station.

 

The following table illustrates unrealized gains (losses) related to Just Energy’s derivative financial instruments classified as fair value through profit or loss and recorded on the interim condensed 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 unrealized loss in fair value of derivative instruments and other on the interim condensed consolidated statements of income (loss).

 

  12.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

    Three months ended    Three months ended 
    June 30, 2020    June 30, 2019 
Physical forward contracts and options (i)  $48,380   $(224,974)
Financial swap contracts and options (ii)   28,121    (15,635)
Foreign exchange forward contracts   (6,051)   (227)
Share swap   -    836 
Unrealized foreign exchange on 6.5% convertible bond   12,218    5,815 
Weather derivatives (iii)   (2,381)   (3,021)
Other derivative options   (2,938)   (4,793)
Unrealized gain (loss) of derivative instruments and other  $77,349   $(241,999)

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statement of financial position as at June 30, 2020:

 

    Financial assets
(current)
    

Financial assets
(non-current)

    

Financial liabilities
(current)

    

Financial liabilities
(non-current)

 
                     
Physical forward contracts and options (i)  $46,342   $20,298   $41,935   $40,983 
Financial swap contracts and options (ii)   5,738    1,823    32,032    16,447 
Foreign exchange forward contracts   1,349    155    -    - 
Weather derivatives (iii)   593    -    2,341    270 
Other derivative options   1,050    4,653    3,344    - 
As at June 30, 2020  $55,072   $26,929   $79,652   $57,700 

 

The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statement of financial position as at March 31, 2020:

 

    Financial assets
(current)
    

Financial assets
(non-current)

    

Financial liabilities
(current)

    

Financial liabilities
(non-current)

 
Physical forward contracts and options (i)  $24,549   $17,673   $57,461   $51,836 
Financial swap contracts and options (ii)   6,915    1,492    53,917    24,432 
Foreign exchange forward contracts   4,519    3,036    -    - 
Weather derivatives (iii)   -    -    280    - 
Other derivative options   370    6,591    1,780    - 
As at March 31, 2020  $36,353   $28,792   $113,438   $76,268 

 

Below is a summary of the financial instruments classified through profit or loss as at June 30, 2020, to which Just Energy has committed:

 

(i)Physical forward contracts and options consist of:

 

·Electricity contracts with a total remaining volume of 30,394,697 MWh, a weighted average price of $50.25/MWh and expiry dates up to December 31, 2029.

 

·Natural gas contracts with a total remaining volume of 80,779,715 GJs, a weighted average price of $2.57/GJ and expiry dates up to October 31, 2025.

 

  13.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

·Renewable energy certificates (“RECs”) with a total remaining volume of 3,386,395 MWh, a weighted average price of $38.21/REC and expiry dates up to December 31, 2028.

 

·Electricity generation capacity contracts with a total remaining volume of 2,369 MWCap, a weighted average price of $6,508.70/MWCap and expiry dates up to May 31, 2024.

 

·Ancillary contracts with a total remaining volume of 198,765 MWh, a weighted average price of $23.81/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 14,686,500 MWh, an average price of $46.27/MWh and expiry dates up to December 31, 2024.

 

·Natural gas contracts with a total remaining volume of 112,528,362 GJs, an average price of $3.27/GJ and expiry dates up to December 31, 2025.

 

·Electricity generation capacity contracts with a total remaining volume of 12 MWCap, a weighted average price of $3,934.85/MWCap and expiry dates up to October 31, 2020.

 

·Ancillary contracts with a total remaining volume of 265,020 MWh, a weighted average price of $22.45/MWh and expiry dates up to December 31, 2020.

 

(iii)Weather derivatives consist of:

 

·HDD natural gas swaps with price strikes ranging from US$1.75 to US$7.35/MmBTU and temperature strikes from 1,051 to 5,059 HDD and an expiry date of March 31, 2021.

 

·HDD natural gas swaps with price strikes to be set on futures index and temperature strikes from 1,051 to 5,059 HDD and an expiry date of March 31, 2022.

 

·Electricity call options with price strikes of $100/MWh, temperature strikes 84 F-103 F and an expiry date of October 31, 2020.

 

·Put options for CDDs with temperature strikes at historical averages, total tick size of $22 per CDD and an expiry date of September 30 or October 31, 2020.

 

Share swap agreement

 

Just Energy had entered into a share swap agreement to manage the volatility associated with the Company’s restricted share grants and deferred share grants 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. On March 31, 2020, the share swap agreement expired and settled. Net monthly settlements received (paid) under the share swap agreement are recorded in other loss.

 

These derivative financial instruments create a credit risk for Just Energy since they have been transacted with a limited number of counterparties. Should any counterparty be unable to fulfill its obligations under the contracts, Just Energy may not be able to realize the financial assets’ balance recognized in the interim condensed consolidated financial statements.

 

  14.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

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. Currently there are no derivatives carried in this level.

 

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.

 

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.

 

For the share swap agreement, 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.

 

  15.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

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 June 30, 2020:

 

    Level 1    Level 2    Level 3    Total 
Derivative financial assets  $-   $-   $82,001   $82,001 
Derivative financial liabilities   -    (25,377)   (111,975)   (137,352)
Total net derivative financial assets (liabilities)  $-   $(25,377)  $(29,974)  $(55,351)

 

The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at March 31, 2020:

 

    Level 1    Level 2    Level 3    Total 
Derivative financial assets  $-   $-   $65,145   $65,145 
Derivative financial liabilities   -    (38,676)   (151,030)   (189,706)
Total net derivative financial assets (liabilities)  $-   $(38,676)  $(85,885)  $(124,561)

 

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 period ended June 30, 2020 would have increased (decreased) by $194,030 ($192,928), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

A key assumption used when determining the significant unobservable inputs included in Level 3 of the FV hierarchy consists 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:

 

    Three months ended    Year ended 
    June 30, 2020    March 31, 2020 
Balance, beginning of period  $(85,885)  $17,310 
Total gains   (23,041)   (3,822)
Purchases   3,687    (43,663)
Sales   (7,988)   14,549 
Settlements   83,253    (70,259)
Balance, end of period  $(29,974)  $(85,885)

 

  16.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

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

 

As at June 30, 2020 and March 31, 2020, the carrying value of cash and cash equivalents, restricted cash, 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 June 30, 2020 of $589.8 million (March 31, 2020 - $596.2 million) and the interest payable on outstanding amounts is at rates that vary with bankers’ acceptances, London Interbank Offering Rate (“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 and 6.5% convertible bonds, which are fair valued based on market value. The 6.75% $100M convertible debentures, 6.75% $160M convertible debentures and 6.5% convertible bonds are classified as Level 1 in the FV hierarchy.

 

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. operations.

 

The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy’s income, as a portion of Just Energy’s income is generated in U.S. dollars and is subject to currency fluctuations upon translation to Canadian dollars. Due to its growing operations in the U.S., 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 100% 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 period ended June 30, 2020, assuming that all the other variables had remained constant, loss for the quarter ended June 30, 2020 would have been $2.9 million lower/higher and other comprehensive income (loss) would have been $3.0 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.

 

  17.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

A 1% increase (decrease) in interest rates would have resulted in an increase (decrease) of approximately $551 in profit (loss) before income taxes for the quarter ended June 30, 2020 (June 30, 2019 - $606).

 

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. 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 (loss) before income taxes for the quarter ended June 30, 2020 would have increased (decreased) by $188,963 ($187,861), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 

For information on credit risk, refer to Note 5.

 

(ii)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.

 

  18.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

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

 

As at June 30, 2020:

 

    Carrying    Contractual    Less than               More than 
    amount    cash flows    1 year    1–3 years    4–5 years    5 years 
Trade and other payables  $559,441   $559,441   $559,441   $-   $-   $- 
Long-term debt1   782,256    822,902    263,592    263,105    296,205    - 
Gas, electricity and non-commodity contracts   137,352    2,938,427    1,125,798    1,386,530    325,257    100,842 
   $1,479,049   $4,320,770   $1,948,831   $1,649,635   $621,462   $100,842 

1 Included in long-term debt are the 6.75% $100M convertible debentures, 6.75% $160M convertible debentures and 6.5% convertible bonds, which may be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.

 

In addition to the amounts noted above, as at June 30, 2020, 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  $42,895   $68,417   $5,834   $- 

 

(iii)Physical supplier risk

 

Just Energy purchases the majority of the gas and electricity delivered to its customers through long-term contracts entered into with various suppliers. Just Energy has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customers is reliant upon the ongoing operations of these suppliers and their ability to fulfill their contractual obligations. As at June 30, 2020, Just Energy has applied an adjustment factor to determine the fair value of its financial instruments in the amount of $17,063 (June 30, 2019 - $8,246) to accommodate for its counterparties’ risk of default.

 

(iv)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. Counter party 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 June 30, 2020, the estimated counterparty credit risk exposure amounted to $82,001 (June 30, 2019 - $102,209), representing the risk relating to Just Energy’s exposure to derivatives that are in an asset position.

 

 

  19.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

8.

TRADE AND OTHER PAYABLES

 

    As at    As at 
    June 30, 2020    March 31, 2020 
Commodity suppliers' accruals and payables  $364,355   $414,581 
Green provisions and repurchase obligations   69,648    103,245 
Sales tax payable   27,216    19,706 
Non-commodity trade accruals and accounts payable   67,843    117,473 
Current portion of payable to former joint venture partner   16,179    18,194 
Accrued gas payable   2,331    3,295 
Other payables   11,869    9,171 
   $559,441   $685,665 

 

9.

LONG-TERM DEBT AND FINANCING

 

         As at    As at 
    Maturity    June 30, 2020    March 31, 2020 
Credit facility (a)   December 1, 2020   $246,256   $236,389 
Less: Debt issue costs (a)        (683)   (1,644)
Filter Group financing (b)   October 25, 2023    8,039    9,690 
8.75% loan (c)   September 12, 2023    270,543    280,535 
6.75% $100M convertible debentures (d)   March 31, 2023    90,907    90,187 
6.75% $160M convertible debentures (e)   December 31, 2021    154,791    153,995 
6.5% convertible bonds (f)   December 31, 2020    12,403    12,851 
         782,256    782,003 
Less: Current portion        (262,909)   (253,485)
        $519,347   $528,518 

 

Future annual minimum principal repayments are as follows:

 

    Less than 1 year    1–3 years    4–5 years    Total 
                     
Credit facility (a)  $246,256   $-   $-   $246,256 
Filter Group financing (b)   4,933    3,105    -    8,038 
8.75% loan (c)   -    -    296,205    296,205 
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)   12,403    -    -    12,403 
   $263,592   $263,105   $296,205   $822,902 

 

  20.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

The following table details the finance costs for the period ended June 30. Interest is expensed based on the effective interest rate.

 

    2020    2019 
Credit facility (a)  $5,135   $6,052 
Filter Group financing (b)   206    384 
8.75% loan (c)   9,264    7,337 
6.75% $100M convertible debentures (d)   2,408    2,337 
6.75% $160M convertible debentures (e)   3,496    3,430 
6.5% convertible bonds (f)   275    804 
Supplier finance and others (g)   1,069    3,202 
   $21,853   $23,546 

 

(a)In April 2018, the credit facility size was increased to $352.5 million from $342.5 million, with an accordion for Just Energy to draw up to $370 million. On June 28, 2019, the Company exercised its option to access the amounts relating to the accordion agreement as part of the credit facility. Certain principal amount outstanding under the letter of credit facility is guaranteed by Export Development Canada under its Account Performance Security Guarantee Program. The Company amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1.50:1 to 2.00:1 and the total debt to EBITDA covenant from 3.50:1 to 4.00:1 for the first quarter of fiscal 2021. As at June 30, 2020, the Company was compliant with all of these covenants. On July 8, 2020, the Company announced a comprehensive Recapitalization that is expected to be implemented in September 2020 and amended the maturity date of the existing credit facility from September 1, 2020 to December 1, 2020. The Recapitalization includes a $335 million extension of the credit facility for three years to December 2023.

 

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 of 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 June 30, 2020, the Canadian prime rate was 2.45% and the U.S. prime rate was 3.25%. As at June 30, 2020, $246.3 million has been drawn against the facility and total letters of credit outstanding as of June 30, 2020 amounted to $63.2 million (March 31, 2020- $72.5 million). As at June 30, 2020, Just Energy has $60.5 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 Barbados and German operations.

 

(b)Filter Group 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 monthly.

 

  21.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

(unaudited 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 of June 30, 2020, US$207.0 million was drawn from the 8.75% loan. In July 2019, the Company drew US$14 million on the debt which was secured by a personal guarantee from a director of the Company. At June 30, 2020, the Company has US$43.0 million available under the facility to draw, earmarked for investments and future acquisitions. The Company has amended the covenants on its senior unsecured term loan facility to increase the senior debt to EBITDA covenant ratio from 1.65:1 to 2.30:1 and the total debt to EBITDA covenant from 3.50:1 to 4.25:1 for the first quarter of fiscal 2021. As at June 30, 2020, the Company was compliant with all of these covenants. The Recapitalization announced by the Company on July 8, 2020 includes an extension of the senior unsecured loan facility for the US$205.9 million to March 2024, with a portion of interest to be paid in-kind.

 

(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 conversion feature of the 6.75% $100 million convertible debentures has been accounted for as a separate component of shareholders’ deficit 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 June 30, 2020.

 

(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.

 

  22.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

(unaudited 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.

 

The conversion feature of the 6.75% $160 million convertible debentures has been accounted for as a separate component of shareholders’ deficit 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 June 30, 2020.

 

(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 December 31, 2020.

 

A conversion right in respect of a bond could have been exercised, at the option of the holder thereof, at any time from May 30, 2014 to July 7, 2019, and was not. 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$8.5 million. 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. On July 29, 2019, the Company redeemed US$13.2 million of the 6.5% convertible bonds. The remaining lenders of $9.2 million of the 6.5% convertible bonds elected to extend the maturity date of the bonds from July 29, 2019 to December 31, 2020, pursuant to an option offered by the Company announced on July 17, 2019.

 

  23.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

(g)Supplier finance and other costs for the quarter ended June 30, 2020 primarily consists of charges for extended payment terms.

 

As described within Note 3 of these Interim Financial Statements, the Company has presented a Recapitalization plan which, if implemented, will impact the future payments and amounts with respect to its outstanding debt and interest payments.

 

10.REPORTABLE BUSINESS SEGMENTS

 

Just Energy’s reportable segments are the Consumer segment and the Commercial segment.

 

The chief operating decision maker monitors the operational results of the Consumer and Commercial segments for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on certain non-IFRS measures such as base gross margin.

 

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.

 

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.

 

 

 

 

 

 

 

 

 

  24.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

For the three months ended June 30, 2020:

 

    Consumer    Commercial    Corporate and shared services    Consolidated 
                     
Sales  $371,796   $221,338   $-   $593,134 
Cost of goods sold   185,441    138,556    -    323,997 
Gross margin   186,355    82,782    -    269,137 
Depreciation of property and equipment   2,661    26    -    2,687 
Amortization of intangible assets   3,704    888    -    4,592 
Administrative expenses   8,461    5,835    25,657    39,953 
Selling and marketing expenses   27,556    19,403    -    46,959 
Other operating expenses   9,115    3,517    -    12,632 
Segment profit (loss) for the period  $134,858   $53,113   $(25,657)  $162,314 
Finance costs                  (21,853)
Unrealized gain of derivative instruments and other                  77,349 
Realized loss of derivative instruments                  (134,446)
Other income, net                  (632)
Provision for income taxes                  (634)
Profit for the period from continuing operations                 $82,098 
Loss from discontinued operations                  (2,948)
Profit for the period                  79,150 
Capital expenditures  $1,521   $165   $-   $1,686 
                     
As at June 30, 2020                    
Total goodwill  $170,854   $98,748   $-   $269,602 
Total assets  $859,268   $252,699   $-   $1,111,967 
Total liabilities  $1,383,132   $139,531   $-   $1,522,663 

 

 

  25.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

For the three months ended June 30, 2019:

 

    Consumer    Commercial     Corporate and shared services    Consolidated 
                     
Sales  $409,998   $260,167   $-   $670,165 
Cost of goods sold   259,260    198,681    -    457,941 
Gross margin   150,738    61,486    -    212,224 
Depreciation of property and equipment   2,950    38    -    2,988 
Amortization of intangible assets   7,680    692    -    8,372 
Administrative expenses   11,234    6,152    23,417    40,803 
Selling and marketing expenses   41,798    19,906    -    61,704 
Other operating expenses   22,969    1,436    -    24,405 
Segment profit (loss) for the period  $64,107   $33,262   $(23,417)  $73,952 
Finance costs                  (23,546)
Unrealized loss of derivative instruments and other                  (241,999)
Realized loss of derivative instruments                  (79,932)
Other income                  (740)
Recovery of income taxes                  2,294 
Loss for the period from continuing operations                 $(269,971)
Loss from discontinued operations                  (5,189)
Loss for the period                  (275,160)
Capital expenditures  $9,170   $749   $-   $9,919 
                     
As at June 30, 2019                    
Total goodwill  $172,072   $165,324   $-   $337,396 
Total assets  $1,117,435   $419,380   $-   $1,536,815 
Total liabilities  $1,713,787   $204,250   $-   $1,918,037 

 

Sales from external customers

 

The revenue is based on the location of the customer.

 

    Three months ended    Three months ended 
    June 30, 2020    June 30, 2019 
Canada  $58,147   $75,485 
U.S.   534,987    594,680 
Total  $593,134   $670,165 

 

For the three months ended June 30, 2020, revenue generated from the sale of electricity made up 89% of total revenue while gas amounted to 11%, consistent with the prior comparable quarter.

 

  26.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

Non-current assets

 

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

 

    As at June 30, 2020    As at March 31, 2020 
Canada  $232,219   $233,678 
United States   154,073    166,074 
Total  $386,292   $399,752 

 

11.INCOME TAXES

 

    Three months ended    Three months ended 
    June 30, 2020    June 30, 2019 
Current income tax expense  $873   $462 
Deferred income tax recovery   (239)   (2,756)
Provision for (recovery of) income taxes  $634   $(2,294)

 

12.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.

 

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

 

    Three months ended    Year ended 
    June 30, 2020    March 31, 2020 
    Shares    Amount    Shares    Amount 
Common shares:                    
                     
Issued and outstanding                    
Balance, beginning of period   151,614,238   $1,099,864    149,595,952   $1,088,538 
Share-based awards exercised   26,336    162    2,018,286    11,326 
Balance, end of period   151,640,574   $1,100,026    151,614,238   $1,099,864 
                     
Preferred shares:                    
                     
Issued and outstanding                    
Balance, beginning of period   4,662,165   $146,965    4,662,165   $146,965 
Balance, end of period   4,662,165   $146,965    4,662,165   $146,965 
                     
Shareholders' capital   156,302,739   $1,246,991    156,276,403   $1,246,829 

 

 

  27.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

(b)Dividends and distributions

 

In the second quarter of fiscal 2020, the Company made the decision to suspend its dividend on common shares. For the quarter ended June 30, 2020, dividends of $nil (2019 - $0.125) per common share were declared by Just Energy. These dividends amounted to $nil (2019 - $18,714).

 

As a result of the dividend suspension, distributions related to the dividends also ceased. Distributions in the first quarter of fiscal 2021 amounted to $23 (2019 - $23) which was paid in accordance with the terms of the Canadian and U.S. plans during the year.

 

For the quarter ended June 30, 2020, dividends of $nil (2019 - US$0.53125) per preferred share were declared by Just Energy. These dividends amounted to $nil (2019 - $3,333).

 

In connection with amendments to the credit facility and 8.75% loan agreement announced on December 2, 2019, the agreements governing both facilities have been changed to restrict the declaration and payment of dividends until the Company’s senior debt to EBITDA ratio is no more than 1.50:1 for two consecutive fiscal quarters. Accordingly, as at December 2, 2019, the Company suspended the declaration and payment of dividends on the Series A Preferred Shares until the Company is permitted to declare and pay dividends under the agreements governing its facilities. However, dividends on the Series A Preferred Shares continue to accrue in accordance with Series A Preferred Share terms during the period in which dividends are suspended. Any dividend payment following the suspended period will be credited against the earliest accumulated but unpaid dividend.

 

As described within Note 3 of these interim condensed consolidated financial statements, the Company has presented a Recapitalization plan which, if implemented, will impact the Series A Preferred Share dividend payments.

 

13.OTHER EXPENSES

 

(a)Other operating expenses

 

    Three months ended    Three months ended 
    June 30, 2020    June 30, 2019 
Amortization of intangible assets  $4,592   $8,372 
Depreciation of property and equipment   2,687    2,988 
Bad debt expense   11,940    17,287 
Share-based compensation   692    7,118 
   $19,911   $35,765 

 

(b)Employee expenses

 

    Three months ended    Three months ended 
    June 30, 2020    June 30, 2019 
Wages, salaries and commissions  $36,219   $61,757 
Benefits   6,488    7,270 
   $42,707   $69,027 

 

  28.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

Employee expenses of $15.2 million and $27.5 million are included in administrative expense and selling and marketing expenses, respectively, in the first quarter fiscal 2021 interim condensed consolidated statements of income (loss). Corresponding amounts of $23.4 million and $45.6 million, respectively, are reflected in the comparable quarter in fiscal 2020.

 

14. PROFIT (LOSS) PER SHARE

 

    Three months     Three months  
    ended    ended 
    June 30, 2020    June 30, 2019 
BASIC EARNINGS (LOSS) PER SHARE          
Profit (loss) from continuing operations available to shareholders  $82,098   $(269,971)
Dividend to preferred shareholders, net of tax   3,319    2,450 
Earnings (loss) from continuing operations available to shareholders, net of tax   78,779    (272,421)
Basic weighted average shares outstanding   151,622,538    149,846,539 
Basic earnings (loss) per share from continuing operations available to shareholders  $0.52   $(1.82)
Basic earnings (loss) per share available to shareholders  $0.50   $(1.85)
           
DILUTED EARNINGS (LOSS) PER SHARE          
Profit (loss) from continuing operations available to shareholders  $78,779   $(272,421)
Adjustment for dilutive impact of convertible debentures   4,541    - 
Adjusted earnings (loss) from continuing operations available to shareholders  $83,320   $(272,421)
Basic weighted average shares outstanding   151,622,538    149,846,539 
Dilutive effect of:          
Restricted share and performance bonus grants    2,222,576 1    3,123,247 1
Deferred share grants    203,185 1    184,546 1
Convertible debentures    39,574,831 1    30,662,288 1
Shares outstanding on a diluted basis   193,623,130    183,816,620 
Diluted earnings (loss) from continuing operations per share available to shareholders  $0.43   $(1.82)
Diluted earnings (loss) per share available to shareholders  $0.41   $(1.85)

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 convertible debentures and 6.75% $100M convertible debentures as well as the stock options and share grants.

 

 

  29.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

15.DISCONTINUED OPERATIONS

 

In March 2019, Just Energy formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, the U.K. was added to the disposal group. The decision was part of a strategic transition to focus on the core business in North America. On November 29, 2019, Just Energy closed its previously announced sale of Hudson U.K. to Shell Energy Retail Limited. On April 10, 2020, the Company announced that it has sold all of the shares of Just Energy Japan KK to Astmax Trading, Inc. The purchase price was nominal, as the business was still in its start-up phase with more liabilities than assets and had fewer than 1,000 customers. The sale of the Japanese subsidiary resulted in a loss on sale of $1.1 million primarily due to the realization of cumulative translation adjustments of exchange differences from accumulated other comprehensive income, which is included in profit (loss) from discontinued operations. As at June 30, 2020, the remaining operations were classified as a disposal group held for sale and as discontinued operations. The tax impact on the discontinued operations is minimal.

 

Assets and liabilities of the discontinued operations classified as held for sale were as follows:

 

    As at     As at  
    June 30, 2020    March 31, 2020 
ASSETS          
Current assets          
Cash and cash equivalents  $1,222   $898 
Current trade and other receivables   997    4,978 
Income taxes recoverable   12    12 
Other current assets   599    1,140 
    2,830    7,028 
Non-current assets          
Property and equipment   37    38 
Intangible assets   535    545 
ASSETS CLASSIFIED AS HELD FOR SALE  $3,402   $7,611 
           
Liabilities          
Current liabilities          
Trade and other payables  $2,117   $4,823 
Deferred revenue   81    83 
LIABILITIES CLASSIFIED AS HELD FOR SALE  $2,198   $4,906 

 

16.COMMITMENTS AND CONTINGENCIES

 

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

 

As at June 30, 2020

 

    

Less than

1 year

    1–3 years    4–5 years    

More than

5 years

    Total 
Gas, electricity and non-commodity contracts  $1,125,798   $1,386,530   $325,257   $100,842   $2,938,427 

 

 

  30.

 

JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

(a)Surety bonds and letters of credit

 

Pursuant to separate arrangements with several bond agencies, 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 June 30, 2020 amounted to $48.9 million (March 31, 2020 - $66.2 million).

 

As at June 30, 2020, Just Energy had total letters of credit outstanding in the amount of $63.2 million (Note 9(a)).

 

(b)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 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. Oral testimony was heard on October 24, 2019. A decision is pending. 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 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. Omarali’s motion for summary judgment was dismissed in its entirety on June 21, 2019. A trial date has been set commencing November 15, 2021.

 

On July 23, 2019, Just Energy announced that, as part of its Strategic Review process, management identified customer enrolment and non-payment issues, primarily in Texas. In response to this announcement, and in some cases in response to this and other subsequent related announcements, putative class action lawsuits were filed in the United States District Court for the Southern District of New York, in the United States District Court for the Southern District of Texas and in the Ontario Superior Court of Justice, on behalf of investors that purchased Just Energy Group Inc. securities during various periods, ranging from November 9, 2017 through August 19, 2019. The U.S. lawsuit seeks damages allegedly arising from violations of the United States Securities Exchange Act. The Ontario lawsuit seeks damages allegedly arising from violations of Canadian securities legislation and of common law. The U.S. lawsuits have been consolidated in the United States District Court for the Southern District of Texas with one lead plaintiff and the Ontario lawsuits have been consolidated with one lead plaintiff. Just Energy denies the allegations and will vigorously defend these claims.

 

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JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended June 30, 2020

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

 

 

In March of 2020, the seller representative with respect to the acquisition of Filter Group Inc. (the “Claimant”) delivered a Notice of Dispute under the purchase agreement among the Claimant, Just Energy, a subsidiary of Just Energy (the “Buyer”) and other sellers with respect to the purchase of Filter Group Inc. by the Buyer on September 10, 2018 (the “Purchase Agreement”). In this arbitral proceeding, the Claimant alleges, among other things, that the Buyer breached its responsibilities by failing to conduct the business of Filter Group Inc. in a commercially reasonable manner to reduce or avoid the achievement of the EBITDA targets contained in the Purchase Agreement and failed to honour the obligations to the Claimant that would have been owing had the target EBITDA been achieved in the first period under the Purchase Agreement. The Claimant seeks, among other things, the immediate exchange of the 9,500,000 class A special shares of the Buyer for common shares of Just Energy, being the number of common shares of Just Energy that would be exchanged if the entire earn-out under the Purchase Agreement was achieved. Just Energy denies the allegations and will vigorously defend the proceeding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.