2019-10-08 17:23 ET - News Release
Mr. Scott Gahn reports
JUST ENERGY ANNOUNCES SALE OF UK OPERATIONS; IDENTIFIES A FURTHER C$20 MILLION OF COST SAVINGS IN NORTH AMERICAN OPERATIONS
Just Energy Group Inc. has executed a share purchase agreement to sell the company's United Kingdom operations, Hudson Energy Supply U.K. Ltd., to Shell Energy Retail Ltd. for up to 10.5 million pounds sterling (approximately $17-million). In addition, the company has identified an incremental approximate $20-million in annualized cost savings through its continuing optimization efforts.
"The sale of our U.K. operations is part of our broader strategy to concentrate on our higher-margin North American operations, while also improving our liquidity," said Scott Gahn, president and chief executive officer of Just Energy. "As well as refocusing our geographic footprint, we have undertaken an in-depth review of our operations and identified ways to improve our business by boosting efficiency and lowering costs."
Sale of Hudson U.K.
The sale of Hudson U.K. advances Just Energy's plan to streamline its operations, allowing the company to narrow its geographic focus and concentrate on its core operations. In addition, the sale improves Just Energy's liquidity position by eliminating significant capital investments in Hudson U.K. that would otherwise have been required in the short term to support the U.K. operations and to further expand the U.K. business.
Pursuant to the share purchase agreement, Just Energy will receive two million pounds sterling (approximately $3.2-million) at closing and up to 8.5 million pounds sterling (approximately $13.8-million) to be paid depending on whether the Office of Gas and Electricity Markets (Ofgem) or the Department for Business, Energy and Industrial Strategy reinstates the capacity market payments in the U.K. within a specified period of time. Until completion, both companies will continue to operate independently. Under the terms of the deal, on completion, Hudson U.K. will operate as a wholly owned subsidiary of Shell Energy Retail. Just Energy is committed to lowering leverage and expects to apply the proceeds from the sale against its indebtedness.
The company is confident that Shell Energy Retail is a strong partner for its U.K.-based customers, allowing them to benefit from Shell Energy Retail's extensive renewable energy offerings and strong customer service. Hudson U.K. supplies around 200,000 U.K. residential customers with gas and 100-per-cent renewable electricity through its residential trading arm, Green Star Energy, as well as providing bespoke gas and 100-per-cent renewable electricity contracts to around 2,000 commercial customers.
The transaction is subject to customary closing conditions, including merger control approval, and is expected to close by the end of 2019.
The board of directors received financial advice and an opinion from its financial adviser, National Bank Financial Inc., that as of the date of the opinion and subject to the assumptions, limitations and qualifications set forth therein, the consideration payable by Shell Energy Retail pursuant to the sale of Hudson U.K. is fair, from a financial point of view, to the company.
The accounting for the sale of Hudson U.K. is being finalized, and a non-cash impairment as a result of the expected sale will be included in Just Energy's second quarter financial statements under discontinued operations.
Additional cost savings identified
Following an in-depth review of its business, Just Energy has identified several opportunities to improve efficiency and profitability. Incremental savings will be achieved by eliminating low-value activities in non-selling costs, optimizing on-line commission spending to eliminate low-return deals and through improved efficiency in its customer care group.
These improvements are in addition to cost reductions of approximately $40-million identified at the end of fiscal 2019, bringing the total fiscal 2020 cost savings to approximately $60-million, net of costs associated with severance and Just Energy's strategic review process.
Strategic review process
The strategic review process initiated in early June is continuing, and the board is comfortable with the progress to date. Just Energy has not set a specific time frame for the conclusion of the strategic review. The company plans to provide an update when the board has approved a specific course of action.
While the process is continuing, Just Energy is focused on improving and optimizing the business. The company continues to implement measures designed to lower costs by eliminating unnecessary overhead and low-return investments, improve the quality of its customer base, and fortify operational and financial controls.
In addition to improvements to its operations, Just Energy has strengthened and stabilized its leadership team with the recent appointments of Mr. Gahn as chief executive officer and Walter M. Higgins III as a director. Each brings to Just Energy deep expertise and extensive experience in the energy sector.