Q4 2014 Just Energy Group Inc Earnings Conference Call

May 15, 2014 AM EDT
JE.TO - Just Energy Group Inc
Q4 2014 Just Energy Group Inc Earnings Conference Call
May 15, 2014 / 02:00PM GMT 

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Corporate Participants
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   *  Rebecca MacDonald
      Just Energy Group, Inc. - Executive Chair
   *  Deb Merril
      Just Energy Group, Inc. - Co-CEO and President
   *  James Lewis
      Just Energy Group, Inc. - Co-CEO and President
   *  Beth Summers
      Just Energy Group, Inc. - CFO

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Conference Call Participants
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   *  Nelson Ng
      RBC Capital Markets - Analyst
   *  Damir Gunja
      TD Newcrest - Analyst
   *  Roland Keiper
      Clearwater Capital - Analyst
   *  Robert Poole
      Pooler Securities - Analyst
   *  Tom Nowak
      Advent Capital - Analyst
   *  Nathaniel August
      Mangrove Partners Fund - Analyst
   *  Chris Chow
      Park West Asset Management - Analyst
   *  Alex Latushkin
      Centurion Investment - Analyst

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Presentation
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Operator   [1]
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 Good morning, ladies and gentlemen, welcome to the Just Energy Group, Inc. conference call to discuss the fourth-quarter year-end results for the period ended March 31, 2014. (Operator Instructions).

 I would now like to turn the meeting over to Ms. Rebecca MacDonald. Go ahead, Ms. MacDonald.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [2]
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 Good morning, everyone. I would like to welcome you to our fourth quarter and year-end conference call. With me this morning are our co-CEOs, Deb Merril and James Lewis with Beth Summers, our CFO. Deb and I will make a short presentation and then we will open the call to questions.

 I am very pleased to introduce Deb and James to this, their first earnings conference call. They bring extensive knowledge and experience in our retail energy, proven out over 16 years working as partners. Since joining us, Deb as Head of our Commercial business and James as Chief Operating Officer in charge of our Residential division, have been intimately involved in the operation of our business over the past seven years and the knowledge, skills and attention to detail they bring to the CEO role will be a huge asset going forward.

 Before we get going, let me preface the call by telling you that our earnings release and potentially our answers to your questions will continue (sic) forward-looking financial information. This information may eventually prove to be inaccurate, so please read the disclaimer regarding such information at the bottom of our press releases.

 I am pleased to report our results for the year end March 31, 2014. It was another year of growth with renewed profitability. Fiscal 2014 saw a continued receptivity of customers to our products with a record [1.4 million -- 331,000] customers added during the year. These additions resulted in a 5% growth in our customer base over the past year. That 5% growth in customers resulted in 8% increase in margin to CAD566 million.

 The increased margin (inaudible) to 22% growth in the Base EBITDA to CAD210 million and a 17% growth in funds from operations to CAD110 million. These numbers represent outstanding operating performance by the Just Energy team over the past year. The results would have been even stronger if not for the extreme winter weather seen in our fourth quarter and its impact on supply cost and margins. Anyone in Canada and Northeast knows the cold and seemingly endless winter we have just been through.

 Consumption of gas was up 17% on average in our market. This demand, when faced with capacity limits, drove up spot gas prices sharply. This impacted the entire retailing industry with reports from our competitors showing universally negative impact. This increase in customer gas consumption, however, had a minimal impact on us because most of our contracts are fixed rate matched by fixed-price supplies.

 Unlike some others, this limits our exposure only to the higher than normal consumption. We entered into winter weather derivatives, collar derivatives we call them, which protect our margins against the warm winter and lack of consumption in exchange for giving away much of the benefit if consumption is higher. These options protected us in the warm 2011-12 winter, but reduced the favorable margin impact of higher conceptions this year.

 Where we felt the greatest impact of cold weather was actually seen in the electricity market. Price spikes were seen throughout the quarter with daily [ahead] prices in New York, at one point hitting as high of CAD600 per megawatt versus normal prices of CAD80. Philadelphia, they had prices peaked at over CAD1000 per megawatt more than 20 times higher than normal price. Even a small price increase in consumption over normal levels resulted in significant loss margin in this price environment. The total impact, largely due to electricity, during Q4 was approximately CAD15 million in reduced margins.

 This electricity price consumption combination was unprecedented in the history of Just Energy. We believe that overall Just Energy fared better than the industry as a whole over the winter. It remains that we have always kept a continued -- and continued to have exposure to extreme weather. We manage as carefully as possible, and we will continue to prove our [high gen] moving forward.

 Deb Merril will talk more about the details of the year and our future direction in her remarks. I will finish providing our outlook and guidance for fiscal 2015. I believe that the delivery of 22% EBITDA growth at the year was -- with extremely adverse weather shows a resilience of Just Energy business. We are proud of what we have accomplished and the base we have built for the future.

 Let me turn things over to Deb.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO and President   [3]
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 Thank you, Rebecca. As Rebecca has noted, we added a record 1.4 million customers during the year. Both segments of energy marketing contributed to this record. Increased sales through nontraditional channels like online marketing and geographic expansion resulted in a record 648,000 customer addition by the Consumer division. The strong Commercial division sales channels also benefited from the expansion into new territories, adding 729,000 new customer equivalents, up 2% from fiscal 2013.

 Our Home Services business also had a strong -- had strong growth, finishing the year with 297,000 customers, up 22% year over year. In addition to these new customer additions, we also renewed 991,000 customers during the year. After all attrition and renewals, net customer additions were 242,000 resulting in 5% overall growth in customers for the year. The shock of the winter build to our variable rate customers and our focus on profitability of these customers led to a rise in attrition to 15% for the year, up from 12% a year earlier.

 As Just Energy grows, there is a need to replace a greater number of customers annually. Fortunately, our expansion, both geographic and by channel, have allowed us to meet this challenge. A positive trend impacting future sales was the emergence of significant energy price volatility during the year. Higher volatility reinforces our customer value proposition and stable price contract by protecting consumers from unexpected energy costs.

 Continued volatility should contribute to another year of record additions combined with lower attrition and improved renewals. These metrics are key to the continued increase in profitability of the business.

 Customer growth resulted in gross margins of CAD565 million up 8% year-over-year. This was more than the growth in customers as a result of higher variable rate customer margins and elevated consumption during the winter months due to the certainly cold temperatures experienced throughout North America.

 Administrative expense was $139 million, an increase of 1% over fiscal 2013. Energy administrative costs were down, reflecting economies of scale from the geographic platform built out over the past three years. Home Services cost increased year-over-year reflecting service obligation to the growing customer base. Selling and Marketing expense was CAD200 million which represents a 9% year-over-year reduction. This decline occurred despite a 2% growth in customer addition. The reduced expenses reflect the use of lower-cost aggregation channels and a higher proportion of consumer sales signed using the sales channels with the residual commission structure similar to the commercial broker contract as well as a reduction of the network marketing sales channel.

 Base EBITDA from continuing operations of CAD210 million increased 22% versus CAD171 million recorded in fiscal 2013. Administrative, selling and marketing costs grew more slowly than margins, leading to high-based EBITDA growth. Base funds from operations were CAD110 million, an increase of 17% compared with CAD94 million for fiscal 2013.

 While we are encouraged by this level of growth, we fell short of our Base EBITDA guidance of CAD220 million for the year due to severe winter weather Rebecca discussed earlier. The realities that Just Energy absorbed a price spike's inherent with the severe weather conditions, the cost of which our residential customers would otherwise had to bear entirely on their own. This is a key component of our value proposition.

 We believe this volatility provides clear validation of the importance of our fixed-price product for residential customers, and is a dynamic that we believe will serve to strengthen our customer aggregation in the future.

 Overall, we are very pleased with the 22% fiscal 2014 Base EBITDA growth, realized during the most challenging of weather conditions. Our goal in building Just Energy to the multibillion dollar business it is today, was to target the high-growth, deregulated energy retailing industry and clearly established our Company as a market leader in this space. To create value for our shareholders, we must continue to build on this position with both consistency and profitability.

 Customer focus is another important facet in building long-term value. Our markets have changed since the formation of Just Energy. We have grown from the original natural gas focus Ontario-only business selling fixed-price contracts to residential customers.

 Today we serve both residential and commercial customers across North America, selling energy and energy-related products. We offer both fixed rate, variable rate, and hybrid contract. We remain laser focused on the changing needs of our customers. We want Just Energy to be at the leading edge as North America moves into the world of solar installations, electric cars, and demand response.

 Innovation will continue to drive our business in fiscal 2015 and the future. Our Predict-a-Bill product closely fits the needs of a certain demographic. Our JustGreen product has made Just Energy a leading retailer of renewable energy in North America.

 We continue to look at new ways of delivering what our customers want as cost-effectively as possible. Our move into bundling thermostat and our potential entry into residential solar are further innovative products intended to strengthen our ties to the customer.

 With that, I will turn things back over to Rebecca to discuss our balance sheet and guidance for the year ahead.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [4]
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 Thanks, Deb. We expect fiscal 2015 to be a year of solid performance, as in the past Just Energy management is providing guidance to our expectation for the year.

 As was the case in fiscal 2014, we expect net customer growth to drive margin growth with the results being higher-based EBITDA and funds from operation. Our guidance is that Base EBITDA will be in the range of CAD220 million to CAD230 million for the fiscal year. This we arrange would equate to 5% to 9% growth over fiscal 2014. With Base EBITDA in this range, the payout ratio on the Base funds from operation would be less than 100% for the year and debt ratio should continue to decline.

 This guidance was developed based on conservative assumptions regarding customer additions as well as allowances for other market conditions that provides in the retail energy industry. Combining solid financial performance with some of the new directions in products and customers relations described by Deb Merrill, Just Energy begins the year with a solid base and a great opportunity.

 As regards to our balance sheet, the coming year will see continued focus on the reduction of our debt level. The sale of our ethanol plant in fiscal 2014 and the planned sale of our Hudson Solar business will result in elimination of CAD105 million of debt from our balance sheet. We will continue to examine all aspects of our business in an attempt to identify any non-core assets which could be sold at attractive prices.

 Back to EBITDA. Ratio has fallen from 5.6 times a year ago to 4.9 times as of March 31, 2014. Our target is to reduce a rate through 4 times or less and we hope to do so through a combination of higher EBITDA and a possible further sale of non-core assets. We are very focused on delivering a more conservatively structured Just Energy in the future. We think this will build a path to a better valuation based on predictable, reliable business we build.

 On that note, I will open up for questions.



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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Nelson Ng, RBC Capital Markets.

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 Nelson Ng,  RBC Capital Markets - Analyst   [2]
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 Deb and James, if he is there, congratulations on your new role.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO and President   [3]
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 Thank you very much.

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 James Lewis,  Just Energy Group, Inc. - Co-CEO and President   [4]
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 Thank you.

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 Nelson Ng,  RBC Capital Markets - Analyst   [5]
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 A quick question in terms of the solar business. The -- you mentioned that the Hudson Solar is being held for sale. Can you provide some background as to why you have decided to sell it and how far along in the process are you with selling that business?

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO and President   [6]
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 Well, we -- as the decision for our -- the Company to reduce the manage the balance sheet as we talked about before, we had looked at the solar business and said it really was built for tax purposes for us to get some tax credits and to manage some of our tax obligations in the future. So we built that business over the last few years to make that occur.

 As we look to the future, what we want to -- we don't think it is core to what we are going to be doing going forward. We are going to be looking more on the residential side instead of on the commercial side. So we feel like it is not a [quarter] what we are going to be doing in the future, but has been a benefit to us in the business that we have built so far.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [7]
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 And the way we looked at that business as well is most of the tax benefits have been utilized already. And it is small and it is regional, and we know that our expertise are on being the last mile up to the residential customer. That is a very attractive market in a different jurisdiction in United States. And we want to put most of our focus towards developing that solar business versus the commercial one.

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 Nelson Ng,  RBC Capital Markets - Analyst   [8]
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 And then in terms of how long are you in terms of the sales process?

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [9]
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 How long in terms of a sales process? Well, no deal is done until it is done, the ink is dry. But I would say that we are down the road on it. We do have some prospects and as soon as we have something to announce, we will.

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 Nelson Ng,  RBC Capital Markets - Analyst   [10]
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 Okay, that's great. And then you mentioned that you will continue to look for other non-core assets. I presume you are referring to the water heater business.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [11]
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 Fair comment. Yes, that is the way I look at it, it's -- how all of us look at it. It is a non-core asset business that is only in Ontario. We do love it. I think it is a great, great business, but this management team, as I said in my remarks, wants to go to a very conservative approach of managing the business, and it starts with cleaning up our balance sheet.

 So if that asset gave us a fair price, we would consider selling it.

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 Nelson Ng,  RBC Capital Markets - Analyst   [12]
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 Okay. Thanks, Rebecca. And then a quick question in terms of fixed versus variable. Roughly what proportion of your customers now are fixed versus variable? And also, has unmixed changed and has the term of the FX contracts changed in the past six months due to the cold?

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 James Lewis,  Just Energy Group, Inc. - Co-CEO and President   [13]
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 Approximately 30% of our customers are variable and 70% fixed. And over the last six months, we haven't seen necessarily a change in that.

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 Nelson Ng,  RBC Capital Markets - Analyst   [14]
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 Okay, that's great. One last question. I believe New York and Connecticut will be introducing legislation that would limit the variable rate changes and standardize the bill format. I was just assuming if that gets adopted by more states, how do you think that will impact the business?

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 James Lewis,  Just Energy Group, Inc. - Co-CEO and President   [15]
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 I think -- for us, we already had basically a self-imposed limit on variable rates. We look to protect our customers there. So from our standpoint, we don't see that as impacting us.

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 Nelson Ng,  RBC Capital Markets - Analyst   [16]
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 Okay, that's great. Those are all my questions. Thank you.

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Operator   [17]
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 (Operator Instructions). Damir Gunja, TD Securities.

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Operator   [18]
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 Damir Gunja, TD Securities.

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 Damir Gunja,  TD Newcrest - Analyst   [19]
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 Good morning. A question on the possible entry into the solar business, perhaps on the marketing side. Can you maybe even just in round terms talk about it a little bit? Sort of timing of getting into the business, how it would potentially work, would you get a finder's fee for bringing in contracts or how we should think about potential customer ads or economics?

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO and President   [20]
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 Yes, we are in the process of evaluating what that looks like for us. I mean what we are really good at -- we are good at a lot of things, but one of the things we are really good at is to get customers and to for -- explain the value proposition to a customer that can be somewhat complicated through our door-to-door sales channel.

 So we really think that, as we look at this business, first of all it is energy, it is green energy, which we are very good at selling and maintaining for those customers. And then we also -- as we look at solar it has got a great fit with our sales channel.

 So strategically it makes a lot of sense for us. But as far as the business plan and how it would work, I mean we would want to be in this business to benefit on the upside, not just from a finders fee on the sell side. This is really a business that we think is core to us and we will look at structures that help us get in on it that way.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [21]
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 And just to add to that, Damir, microgeneration is going to be part of our energy solution on going forward basis. It is not there to disappear. It is here to stay.

 We recognize that we look at companies south of the border as much as everyone else. We know our strengths and we know our weaknesses. The weakness really around solar is our balance sheet and the Board's decision is to lower that leverage, not increase it. But residential solar is expensive business.

 So it is very safe to say that the likely scenario will be some type of a Joint Venture Agreement between ourselves and possibly companies that are already installing and have a capacity to install and the lender for the panels. We do not want to get in the position of being an agent for one of the solar companies because we feel with customer base that we already have, it is a great mix. So it is not just about having panels on the roof. It can help with our load profiles and we know how we will be in a better position to maximize the value out of that customer than those pure solar companies that just put the panels on the roof.

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 Damir Gunja,  TD Newcrest - Analyst   [22]
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 Okay. So, given the value of a typical solar installation, whatever plan you come up with the margin per RCE is probably going to be multiple times of what you would get on a typical energy contract.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [23]
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 You are absolutely right. And you know what, we all know valuation that solar city has. I mean it is up to debate whether it is too high or low, but it is what it is.

 I do want everyone on this call to remember that every year and if you look at the year that we just passed, we have signed 180,000 customers that are green customers. That are paying premium for green energy and they want to contribute to the betterment of the planet. Solar city has 80,000 customers installed. So we are very confident that we can be relatively quickly a major player in that field.

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 Damir Gunja,  TD Newcrest - Analyst   [24]
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 Okay. Maybe a second one for me, maybe a little bit tougher here. The gross margins coming in versus the margins coming out on, I guess, from attrition and lost renewals. There is still a healthy gap there on the consumer and the commercial side.

 Can you maybe talk a little bit about what you see there going forward? And is there going to be an inflection point at some point, maybe the better natural gas environment is going to help? Or is commercial stabilizing?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [25]
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 Yes. I think as you look at it we would view as we go forward the consumer margins probably getting a little better than what you have seen through time as we have seen that increase volatility, et cetera, in the market. Again, balancing off more so with the customers that are leading with the customers that are being added.

 On the commercial side, we have had competitive challenges in the Northeast in particular, et cetera, which has put some pressure on those margins. Our view from the commercial side is they should remain in and around that range we are seeing now for those customers added as we look going forward.

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 Deb Merril,  Just Energy Group, Inc. - Co-CEO and President   [26]
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 And I'll also say that on the commercial side we have seen a lot of competition over the last several quarters and last few years. And I think we are seeing -- after this winter a lot of people had experienced some heartache on the commercial side on energy as a whole.

 So, I think we are seeing a little bit more of a pullback. So we are hoping that maybe a little bit less aggressive competition will be to margin stabilizing, maybe turning around in the future.

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 Damir Gunja,  TD Newcrest - Analyst   [27]
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 Okay, thanks.

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Operator   [28]
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 (Operator Instructions). Roland Keiper, Clearwater Capital.

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 Roland Keiper,  Clearwater Capital - Analyst   [29]
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 Good morning. A question on the seller business that has been earmarked for sale. I noticed in the disclosure that the year-over-year change in loss of operations is approximately CAD13 million. That is, there is a loss of CAD12 million in fiscal 2014 versus a profit of CAD1 million in the entire year. What is the shift year over year in EBITDA for that particular business, please?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [30]
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 As you look at it on a year-over-year basis, it has been influenced certainly as we have been building and financing that business. We do have the financing charges coming in and, Roland, what occurs as you go forward is these are 15-year assets. So you see that growth margin starting to roll in in the future years. So it is reflective of that growth in that business where you get the margins in future years and you have a lot of the expenses upfront as you build that infrastructure.

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 Roland Keiper,  Clearwater Capital - Analyst   [31]
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 Thank you for that. I think it was -- I am just trying to get a picture of -- obviously you folks provided guidance of CAD220 million last year. You don't know what the weather is going to be like including the cold weather that was experienced here in the third and fourth quarter. It appeared to benefit you in the third quarter. It appeared to hurt you in the fourth quarter and -- but obviously, you are not predicting the weather. Well, normalized weather is what you are basing your guidance, I presume, on. And I am just trying to see what the impact on your actual result of CAD210 million Base result is and what it would've been had this not been classified as discontinued? That is what I'm trying to get at.

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 James Lewis,  Just Energy Group, Inc. - Co-CEO and President   [32]
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 You say excluding the solar or just on the weather impact itself?

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 Roland Keiper,  Clearwater Capital - Analyst   [33]
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 Just the discontinued assets. If it weren't -- I assume that the Base would be something like had this not been classified as discontinued, had you not made a decision in March that the Base EBITDA would be something less than CAD200 million for fiscal 2014, maybe (multiple speakers)

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 Beth Summers,  Just Energy Group, Inc. - CFO   [34]
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 There's two things actually impacting it as well. When you discontinue= an operation you actually go through the process also of fair valuing the assets, et cetera. So I mean if you look at it that pure EBITDA as it is reflected there, yes, it would have had an impact on the CAD220 million or the CAD210 million.

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Operator   [35]
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 [Robert Poole, Pooler] Securities.

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 Robert Poole,  Pooler Securities - Analyst   [36]
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 Good morning. Rebecca, I would like to circle back little bit to the idea of rightsizing the balance sheet and getting the debt under control a little bit.

 When you forecast CAD220 million in EBITDA for next year and I take off CAD120 million for dividends and in interest costs approaching CAD100 million, it doesn't leave really any money left for significant debt repayment. So beyond the solar, if I believe that is CAD50 million net based on the disclosure between assets and liabilities, so approximately CAD50 million in net proceeds assumed there. And then the -- even if you do the water heater business which is possibly worth based on some of the public companies maybe CAD300 million, you have already got CAD250 million of debt against that -- so maybe another CAD50 million there -- it just doesn't seem to add up to a significant improvement in the debt ratio.

 So, just wondering how you think you are going to get there.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [37]
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 You know what? I appreciate your comment. And I would only say that we believe that we will be able to lower our debt and how much is certain business worth or not, that's obviously up for debate.

 So, we will see how things will progress in the quarter or two. I think we are approaching a very conservative outlook for the Company and we do have a plan of lowering that. And I think that is as much as I can tell you right now. I don't think I would be in position to reveal anything more. You will have to wait and see.

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 Robert Poole,  Pooler Securities - Analyst   [38]
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 But the point being, you are committed to that?

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [39]
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 Absolutely. Company is very committed in lowering our debt and we will do everything in our power to do it even if it means selling the assets that we love. And what's the sales price of that asset? I guess is matter of an opinion. And I can tell you, Company is going to be going forward with a very conservative assumptions. We used to manage the business like that and now we are going back to good old conservative assumptions.

 But commitment to lowering the debt is there and that is our priority. And I am quite confident we will be able to do that.

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 Robert Poole,  Pooler Securities - Analyst   [40]
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 Thank you.

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Operator   [41]
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 [Tom Nowak].

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 Tom Nowak,  Advent Capital - Analyst   [42]
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 A related question. If I look at your LTM cash from operation and I look at it before working capital because working capital comes and goes, and I also net against that your contract initiation cost, you are not covering your dividend just in cash from operations excluding CapEx. So, same question as before, how do you reduce that when you can't cover the dividend with the CFO?

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [43]
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 Well, we are not covering the dividend and we know that. We know the numbers and I would say that that is one of the reasons we are going to be probably upselling more non-core assets that will help us clean up the balance sheet that cover our dividends.

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 Beth Summers,  Just Energy Group, Inc. - CFO   [44]
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 I think also as you look at it going forward with our forecast on the EBITDA numbers, the guidance between the CAD220 million to CAD230 million, that would put us as you go forward to a payout ratio under 100%. And the other thing from this year's perspective, there were a couple of impacts, certainly the weather impact that we talked about which would have had our funds from operations higher and resulting in a payout ratio under 100% in combination with the adjustment for gas receipts, which was more negative this year that we would typically see, again as a result of that extreme weather.

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 Tom Nowak,  Advent Capital - Analyst   [45]
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 Okay. I mean you haven't covered it. You didn't cover it in 2012 either. But I guess an accounting question. Why do you include contract initiation costs? It seems to me that is clearly an operating cost. Why do you put that in the investment section of the cash flow statement versus operating?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [46]
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 Because it is an asset with future value. So it is capitalized and capitalized items get treated in investment. What we do in the maintenance CapEx is there is a portion and the maintenance CapEx that is customer initiation costs associated with maintaining the overall embedded margin of the business.

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Operator   [47]
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 Nathaniel August, Mangrove Partners.

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [48]
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 I am still missing when you are expecting to on a cash flow from operations minus CapEx and contract acquisition costs cover your dividend. And I was hoping that you could guide us in what year we should expect that to happen.

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 Beth Summers,  Just Energy Group, Inc. - CFO   [49]
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 Yes. In fiscal 2015. We certainly would never include growth CapEx and that calculation. The growth CapEx being the largest portion, that would be the water heater business.

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [50]
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 But you don't think you covered it in 2014, but you see an improvement in 2015?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [51]
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 Yes. As we -- from a guidance perspective as we provided our guidance is between CAD220 million to CAD230 million and in fiscal 2014 we are at CAD210 million EBITDA.

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [52]
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 And -- okay, that's fine.

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 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [53]
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 And let's remind ourselves, last year we told everybody -- our payout ratio last year was very high and we told everybody that the goal is to get it down under 100%. If we were not hit with prolonged winter that we settled in April this year because we had no knowledge how long that vortex would last, we would have been under 100%.

 Now, you know what? It is not an excuse, dog ate my homework, but it has been extreme weather conditions. We noticed that in February and that is one of the reasons in our call in February we guided everybody that we are not -- we had such a tremendous third quarter that we are seeing impact of the cold weather that we guided them down to CAD220 million EBITDA and we to the best of our knowledge at that time we thought it would be CAD220 million. We didn't realize that the winter won't leave until the end of March.

 We can't control that. We can control everything, but we cannot control weather.

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [54]
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 And just to follow up. I noticed that you include your EBITDA from the water heater business in your cash flow that is available to pay dividends. But I thought that you were contractually restricted from receiving does cash flows. So I don't understand how those are free to cover the dividend.

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 Beth Summers,  Just Energy Group, Inc. - CFO   [55]
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 I am not sure why you would think we are not contractually (multiple speakers)

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [56]
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 Don't you need to amortize the debt with that? The water heater debt?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [57]
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 Well, the way that the structure -- what you also have to think about when you look at those numbers is that we bring in more cash as we build, as we install the water heaters then is actually required to installed those water heaters. So there is cash coming in to cover off that installation, all the CapEx associated with those water heaters.

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 Nathaniel August,  Mangrove Partners Fund - Analyst   [58]
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 So it is kind of like future customers funding current customers or something like that?

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 Beth Summers,  Just Energy Group, Inc. - CFO   [59]
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 I think if you are -- I mean, one of the things which I think you are asking is why when you look over all EBITDA would you factor that in as current operational flows. Well, they are current operational flows. From a CapEx perspective, we bring in all the CapEx associated or the costs associated with installing those in addition to incremental dollars.

 So if you are looking at it from a pure cash perspective, there's more cash coming in than going out from the water heater business.

 If you want, I am happy to have a discussion with you off-line and walk you through how some of the different pieces of the business model work from cash inflows and outflows.

------------------------------
 Nathaniel August,  Mangrove Partners Fund - Analyst   [60]
------------------------------
 But you are not restricted to using that cash for repaying the securitized debt that you received upfront when you install the water heater?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [61]
------------------------------
 Well, we get the money upfront. What we do is we can do whatever we want with the money upfront. As we go forward, we (multiple speakers)

------------------------------
 Nathaniel August,  Mangrove Partners Fund - Analyst   [62]
------------------------------
 You don't need to purchase the water heater with the money that you get upfront?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [63]
------------------------------
 The water heater is already installed and the cash has been used upfront and then we get cash like it is financed. We can do whatever we want with that incremental cash, which typically gets used for funding additional CapEx in that water heater business until we can do another funding.

 With respect to as we go forward, the cash flows coming in, we do have to pay the principal and interest associated which is equivalent to the revenue stream for a period of time. But, again, as I said, it may be easier to do this off-line.

------------------------------
 Nathaniel August,  Mangrove Partners Fund - Analyst   [64]
------------------------------
 Okay.

------------------------------
Operator   [65]
------------------------------
 (Operator Instructions). Roland Keiper, Clearwater Capital.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [66]
------------------------------
 At quarter end, what is the net liquidity position (multiple speakers)

------------------------------
 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [67]
------------------------------
 I am sorry, I am very sorry. Could you speak up please?

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [68]
------------------------------
 Yes, can you hear -- is that clearer?

------------------------------
 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [69]
------------------------------
 Now that is better.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [70]
------------------------------
 Thank you, sorry. At quarter end, that net liquidity position for Just Energy on its -- well, I am looking for what is available on its credit facility, what would be available at quarter end?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [71]
------------------------------
 Well, at quarter end if you looked at our total draw, we had CAD69.5 million cash drawn on the facility and our letters of credit were CAD123.6 million. So the total draw would be CAD193.1 million. So the maximum amount of the facility is the CAD290 million. So that is roughly CAD87 million.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [72]
------------------------------
 Beth, is there a boring based restriction that restricts that CAD290 million in any way?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [73]
------------------------------
 Well, there is an underlying boring-based calculation and the overall facility, but that wouldn't restrict, restrict the maximum amount.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [74]
------------------------------
 And that particular time it wasn't restricted in terms of quarter end, the full CAD290 million is (multiple speakers)

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [75]
------------------------------
 No.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [76]
------------------------------
 Right, okay.

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [77]
------------------------------
 Yes, absolutely.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [78]
------------------------------
 And you folks have experienced quite substantial working capital changes over between the March quarter and the September quarter. Could you speak to what your expectations are over the next six months, what type of non-cash working capital changes you expect to experience?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [79]
------------------------------
 I think -- I mean, typically, when you look at it from a working capital perspective, when you have periods of I am going to say extreme weather, et cetera, you tend to have a larger working capital draw because we pay for our supply. I am going to say quicker than we receive the funds from our customers. So you would typically see it I am going to say in the shoulder quarters as you make your way through the shoulder quarters, which would typically be our Q1 and the beginning sort of and of Q2, beginning of Q3. You would see less working capital required than the extreme quarters, which I am going to say as you get towards December or September and then your December quarter itself would be probably the largest draw. Per requirement.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [80]
------------------------------
 Can you quantify some of that for us?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [81]
------------------------------
 Typically when you look at what happens with our line draw, et cetera, which is predominantly influenced by the working capital which is what it is used for, and average swing in a year is probably around the range of CAD30 million.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [82]
------------------------------
 Between the high and the low?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [83]
------------------------------
 Yes.

------------------------------
 Roland Keiper,  Clearwater Capital - Analyst   [84]
------------------------------
 Okay, thanks.

------------------------------
Operator   [85]
------------------------------
 Chris Chow, Park West.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [86]
------------------------------
 This is building on an earlier question from one of the callers. But why do you include the EBITDA from the water heater business in your payout ratio calculation? Because I don't think you get any of that EBITDA for the next seven years, right? That goes to your financing partner?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [87]
------------------------------
 Fundamentally we calculate the funds from operations, the payout ratio and the EBITDA calculation in accordance with GAAP results. So that would include the operating results of all of the businesses. So for purposes of looking at the payout ratio, that is how we calculate it.

 As I mentioned before, from a cash perspective, from a pure financing perspective, all of the water heater CapEx, et cetera, is funded and cash comes in associated with all of that CapEx.

 For paying that back, the revenues associated with the funded water heaters, et cetera, is used to pay principal and interest over the period of time that the initial financing was structured for. And from a pure cash perspective, as I mentioned on the last call, again, I am very happy to walk through the business model and how the various cash flows work. But it is probably easier than doing it on a call, doing it individually and I can walk you through it.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [88]
------------------------------
 What would the payout ratio look like if you took out the cash flows related to the water heater business? Because I understand that you get more than your initiation cost -- than your installation cost upfront, but those seem to be one time. So if you just took the water heater business out of your payout ratio calculation what would it look like?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [89]
------------------------------
 Well, you could do that if you wanted. I am not sure that it is a particularly meaningful calculation, but you could do that, based on the information we would provide or we do provide segmented EBITDA. So you could take the consolidated EBITDA and take out the segmented EBITDA and then calculate it.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [90]
------------------------------
 So there is like CAD40 million in EBITDA and then a decent amount (multiple speakers)

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [91]
------------------------------
 CAD43 million.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [92]
------------------------------
 -- related to the water heater business as well. Correct?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [93]
------------------------------
 There is CAD43 million EBITDA for the water heater business.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [94]
------------------------------
 (multiple speakers) that would be CAD177 million or, no, CAD210 million less CAD43 million. Sorry. (multiple speakers)

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [95]
------------------------------
 It would be CAD167 million.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [96]
------------------------------
 (multiple speakers) million. And then you have the purchase of intangible assets. Right, which is that software development, or something?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [97]
------------------------------
 There is some software development. You have to be careful when you -- yes. There would be software development.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [98]
------------------------------
 Okay and then you have about CAD10 million of CapEx and about CAD10 million of contract initiation costs related to your energy business, correct?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [99]
------------------------------
 Yes. Roughly.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [100]
------------------------------
 And then you have about, what is it? About CAD50 million of interest related to your non-water heater interest? Your non-water heater debt?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [101]
------------------------------
 Yes, that is roughly in the range. Yes.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [102]
------------------------------
 And then you pay a little bit of cash taxes or something?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [103]
------------------------------
 Cash taxes, yes. They would be very little. Roughly in the range, I believe for the year you would see it in the current taxes payable. I believe it is roughly CAD3 million.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [104]
------------------------------
 So, then I get to real free cash flow available to service your dividend and everything else, that is a little less than CAD90 million and your dividend is about CAD120 million. Is that the right way to calculate it and think about it?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [105]
------------------------------
 No, I don't think that is the right way to think about it. I think you should fundamentally look at the business as a whole and what the operational cash flows look like for the business as opposed to excluding portions of the operational cash flows.

 I think you have to look at all of the operational if you are doing an operational metric or a measurement. And (multiple speakers)

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [106]
------------------------------
 But the minute you stop selling increment water heaters, you have no cash flow from that business for seven years, right?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [107]
------------------------------
 For -- only for those water heaters which would be currently financed. There's water heaters which were financed previously. So it will start generating free cash flow.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [108]
------------------------------
 Have you guys thought about maybe breaking that all out so people can see it? Because there's obviously tons of questions about whether you can sustain your dividend?

------------------------------
 Beth Summers,  Just Energy Group, Inc. - CFO   [109]
------------------------------
 We provide the segmented EBITDA information and, again, that is something that we can take away and consider, but to date we have not.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [110]
------------------------------
 Got it. And have you thought of the most obvious step to delever by not having to pay out as much cash? I'm certain you would find a lot more or new buyers for your stock once people felt comfortable that you could sustain your dividend.

------------------------------
 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [111]
------------------------------
 We get that a lot and we get a lot of comments around it and, trust me, we look at it and we listen to everybody and the Company does have a plan on delevering and on the dividend basis, we are committed to the dividend for now. And Board looks at the dividend policy every quarter.

 So, we will -- if there is anything that they would like to change, we will communicate that to the marketplace. You have to appreciate and give us some credit. We have the people that are running the business and creating the cash flows. So we are very intimately involved and we do not want to make any decisions that based on general opinion of some that the easiest way to do anything is cut the dividend.

 That is an easy decision. And that will be a very easy step to make.

 But we feel strongly that we want to look at overall businesses that said, we want to delever and we want to look prudently at overall business over the next 12 months. And that will include the dividend assessment.

------------------------------
 Chris Chow,  Park West Asset Management - Analyst   [112]
------------------------------
 Thanks.

------------------------------
Operator   [113]
------------------------------
 (Operator Instructions). Alex Latushkin, Centurion Investment.

------------------------------
 Alex Latushkin,  Centurion Investment - Analyst   [114]
------------------------------
 I was hoping you could talk about how you see trends (multiple speakers)

------------------------------
 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [115]
------------------------------
 Would you mind speaking up? For some reason, we have difficulty hearing some people.

------------------------------
 Alex Latushkin,  Centurion Investment - Analyst   [116]
------------------------------
 I was hoping you could speak about your consumer energy business into next year. It seems like over the last couple of quarters the trends have gotten a little bit worse. Do you expect those to accelerate in terms of your net customer additions into next year? Or how are you thinking about that business apart from the commercial business? Thanks.

------------------------------
 James Lewis,  Just Energy Group, Inc. - Co-CEO and President   [117]
------------------------------
 I think when you look at our growth adds have been up very well. I think Rebecca and Deb mentioned that you saw a record number of additions.

 Where we seem to have a downfall is in attrition and we expect that to improve with the volatility that we spoke about earlier. As we see volatility increase, our parts become more favorable for consumers. So, we are really excited about the opportunities for next year.

------------------------------
Operator   [118]
------------------------------
 (Operator Instructions).

------------------------------
 Rebecca MacDonald,  Just Energy Group, Inc. - Executive Chair   [119]
------------------------------
 Well, if there are no other questions, I would like to thank you very much for joining us for this call. And thank you for the support.

 If there are any questions that you would like to take off-line, I am available, Deb, James, and Beth. So feel free to call us directly.

 And I would like because it is the four -- last quarter that we are talking about, I would like to thank, very much, all of our employees that have worked extremely hard through a very, very difficult winter to deliver the results they have.

 When you are analyst and when you sit and look at the numbers we provide, sometimes people in the trenches are forgotten and we said earlier, if you compare our size to some others in the industry that have gone through this vortex, we delivered these results only because of unbelievable work that our staff has done. So I would like to applaud them and publicly thank them.

 Hopefully we will all hear from you on the next call reporting our first-quarter fiscal 2015. Thank you very much.

------------------------------
Operator   [120]
------------------------------
 Thank you, ladies and gentlemen. This concludes today's conference.






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