EnerCare Inc. (TSX:ECI) ("EnerCare"), one of Canada's leading providers of
energy conservation products and services, today reported its financial results
for the fourth quarter and year ended December 31, 2013.
Full Year 2013 Financial Highlights
Year ended December 31, 2013 versus year ended December 31, 2012
(in thousands of Canadian dollars except per unit amounts)(1)
-- Attrition in the rentals portfolio decreased by 33%
-- Total revenues increased by 9% to a record $299 million
-- EBITDA(2) increased by 5% to a record $152 million
-- Total debt declined by $51 million since 2011
"2013 was a year marked by strong operating performance in our rentals
operations, further build-out of sub-metering and significant improvements in
our balance sheet," said John Macdonald, President and CEO. "It was also a very
good year for our investors who saw total shareholder return of 31 per cent(3)
and two dividend increases."
Announces 4% Dividend Increase
EnerCare intends to increase its dividend to approximately $0.725 per share on
an annual basis, or $0.0604 per share per month, effective in respect of the
dividend payable to shareholders as of the record date on the applicable date in
March 2014.
Added John Macdonald, "our commitment continues to be on the creation of
long-term shareholder value, as evidenced by our announcement today of an
increase in our dividend, the fifth time in 27 months. Since January 1, 2011,
our annual dividend has grown by approximately 12.0%. More than $120 million has
been paid out to our shareholders and our payout remains comfortably under
100%."
Acquisition of Water Heaters from Energy Services Niagara Inc.
In February 2014, EnerCare acquired the rental portfolio of Energy Services
Niagara Inc., comprised of approximately 2,441 electric and gas-fired water
heaters.
Results of Operations
Earnings Statement
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(000's) 2013 2012
---------------------------------------------------------------------------
Revenues:
Rentals $189,438 $186,288
Sub-metering 109,338 88,833
Investment income 373 457
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Total revenues 299,149 275,578
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Commodity charges 90,671 71,044
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SG&A expenses:
Rentals 15,211 15,474
Sub-metering 13,943 12,007
Corporate 14,818 16,142
---------------------------------------------------------------------------
Total SG&A expenses 43,972 43,623
Amortization expense 99,720 101,622
Loss on disposal of equipment 11,640 15,148
Interest expense 44,973 40,759
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Total expenses 290,976 272,196
---------------------------------------------------------------------------
Other income 4,447 1,993
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Earnings before income taxes 12,620 5,375
---------------------------------------------------------------------------
Current tax (expense) (21,852) (14,548)
Deferred income tax recovery 18,050 5,998
---------------------------------------------------------------------------
Net earnings/(loss) 8,818 (3,175)
---------------------------------------------------------------------------
EBITDA 152,493 145,306
---------------------------------------------------------------------------
Adjusted EBITDA(2) $168,580 $162,447
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For 2013 and 2012, certain comparative amounts have been reclassified to conform
to the current period's presentation: 1) revenue related to charges to landlords
on account of common area and suite consumption that was not billed to tenants
has been reclassified from commodity charges. The related accounts receivable
has been reclassified from accounts payable and accrued liabilities. These
reclassifications resulted in an increase of $5,196 to both sub-metering
revenues and commodity charges for the fourth quarter of 2012 and $18,996 in
2012. These reclassifications did not result in any adjustments to previously
reported net income, working capital or cash flows. 2) Where deferred tax assets
and liabilities existed in the legal entities of EnerCare and its subsidiaries,
these amounts were reclassified to either a net deferred tax asset or liability,
as applicable. As such, for 2012 deferred tax assets and deferred tax
liabilities declined by $2,676 on a consolidated basis. These reclassifications
did not result in any adjustments to previously reported net income, working
capital or cash flows.
In addition, the definition of Adjusted EBITDA(2) was changed in 2013 to include
other income and expense in the calculation. As a result, relevant comparative
amounts have been recalculated to conform to the current presentation.
(1) Unless otherwise noted, amounts are reported in thousands, except
customers, units, shares and per share amounts and percentages. Dollar
amounts are expressed in Canadian currency.
(2) EBITDA, Adjusted EBITDA and payout ratio are non-IFRS financial
measures. Refer to the Non-IFRS Financial and Performance Measures
section in the MD&A.
(3) Shareholder return assumes dividend re-investments.
Revenues
Total revenues of $299,149 for 2013 increased by $23,571 or 9% compared to 2012.
Rentals revenues increased by $3,150 to $189,438, compared to 2012, primarily
due to a rental rate increase implemented in January 2013, improved billing
completeness and changes in asset mix, partially offset by fewer installed
assets. Sub-metering revenues in 2013 were $109,338, an increase of $20,505 or
23% over the comparable period in 2012, primarily as a result of increased
billable units and the associated commodity charges. Sub-metering revenue
includes total pass through energy charges of $90,671 in 2013, an increase of
$19,627 over the same period in 2012.
Investment income decreased by $84 to $373 in 2013. The change in investment
income was primarily attributable to lower investment balances, particularly
after the repayment of the $60,000 6.20% Series 2009-1 Senior Notes ("2009-1
Notes") of EnerCare Solutions Inc. ("EnerCare Solutions") in April 2012.
Selling, General & Administrative Expenses
Total SG&A expenses were $43,972 in 2013, an increase of $349 or 1%, compared to
2012. Sub-metering SG&A expenses were $13,943 or $1,936 greater in 2013 compared
to 2012, primarily as a result of increased bad debt expenses of approximately
$1,700, wages and benefits of $900 primarily associated with the completion of
the transition to our new customer care and billing system, partially offset by
reductions in cost of goods of $600 and other expense accounts. Rentals and
corporate expenses of $30,029 decreased by $1,587 over 2012, primarily due to
decreases of approximately $3,000 in selling expenses and $1,500 for
professional fees, partially offset by increases of approximately $1,700 for
wages and benefits, $700 on account of billing and servicing costs and $500 in
bad debts and claims.
Amortization Expense
Amortization expense decreased by $1,902 or 2% to $99,720 in 2013, primarily due
to a smaller installed asset base in the rentals portfolio, partially offset by
increased sub-metering capital investments, which are amortized over a shorter
life than the rentals business.
Loss on Disposal of Equipment
EnerCare reported a loss on disposal of equipment of $11,640 in 2013, a
reduction of $3,508 or 23% over the same period in 2012. The loss on disposal
amount is influenced by the number of assets retired, proceeds on disposal of
equipment, changes in the retirement asset mix and the age of the assets
retired. In 2012, loss on disposal was elevated primarily as a result of higher
buyout activity and attrition.
Interest Expense
Interest expense payable in cash decreased by $8,419 to $25,784 in 2013 compared
to 2012. The decrease is primarily related to the repayment of the 2009-1 Notes
on April 30, 2012, conversion of convertible debentures to shares and the
redemption of the $240,000 5.25% Series 2010-1 Senior Unsecured Notes of
EnerCare Solutions in the fourth quarter of 2012 with the proceeds from the
offering of the $250,000 4.30% Series 2012-1 Senior Unsecured Notes of EnerCare
Solutions. The make-whole payment of $13,754 was incurred upon the early
redemption of the $270,000 6.75% Series 2009-2 Senior Notes ("2009-2 Notes") of
EnerCare Solutions associated with the issuance of the $225,000 4.6% 2013-1
Senior Unsecured Notes ("2013 Notes") of EnerCare Solutions and the drawdown of
the $60,000 single draw, variable rate, interest only, open loan ("Term Loan").
Reductions in the interest rate associated with the 2013 Notes and Term Loan
also contributed to lower interest expense payable in cash in 2013. Amortization
of other comprehensive income ("OCI") and financing costs for 2013 include the
previously unamortized costs associated with the 2009-2 Notes and $4,023 of
accumulated OCI which was fully reclassified to earnings in 2013.
Other Income
During 2013, EnerCare realized settlements from Direct Energy Marketing Limited
("DE") of $4,447, including income of approximately $2,769 on account of water
heater installation costs, billing and collection deficiencies and third-party
claims, and $1,678 on account of billing and collection in respect of water
heater buyouts. Other income in 2012 includes $855 representing the reversal of
the liability in respect of the third and final earn out payable to the former
principals of Stratacon, $1,500 on account of a settlement reached by EnerCare
and DE on account of billing disputes for water heater installation costs,
approximately $200 from DE on account of billing shortfalls and a reduction of
$600 related to reversal of billed amounts from Enbridge following the billing
conversion.
Income Taxes
EnerCare reported a current tax expense of $21,852 in 2013, an increase of
$7,304 over 2012, primarily as a result of higher taxable income and decreased
loss carry forwards available to shelter taxable income in the rentals business.
The deferred income tax recovery of $18,050 for 2013 was $12,052 higher than the
deferred tax recoveries of $5,998 recorded in 2012, primarily as a result of
temporary difference reversals in the rentals and sub-metering businesses,
including the 2013 make-whole payment inclusion through April 30, 2014.
Net Earnings
Net earnings in 2013 were $8,818, or $11,993 higher than in 2012, as previously
described.
EBITDA and Adjusted EBITDA
The following table summarizes comparative quarterly results for the last eight
quarters, and reconciles net earnings, an IFRS measure, to EBITDA and Adjusted
EBITDA.
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(000's) Q4/13 Q3/13 Q2/13 Q1/13 Q4/12 Q3/12 Q2/12 Q1/12
---------------------------------------------------------------------------
Net
earn-
ings/
(loss) $4,793 $6,931 $7,482 $(10,388) $(2,096) $2,154 $(3,064) $(169)
Deferred
tax
(reco-
very)/
expense (3,552) (3,134) (3,640) (7,724) (4,155) (2,668) 1,766 (941)
Current
tax
expense 6,148 5,525 4,591 5,588 5,217 3,902 2,118 3,311
Amorti-
zation
expense 25,792 25,228 24,344 24,356 25,175 25,407 25,166 25,874
Interest
expense 6,002 6,022 5,976 26,973 11,937 9,035 9,457 10,330
Other
(in-
come)/
expense (769) (2,000) (1,678) - 362 (855) - (1,500)
Invest-
ment
(in-
come) (35) (21) (49) (268) (180) (16) (76) (185)
---------------------------------------------------------------------------
EBITDA 38,379 38,551 37,026 38,537 36,260 36,959 35,367 36,720
Add:
Loss
on
dispo-
sal of
equip-
ment 2,666 2,633 3,449 2,892 3,523 3,397 4,113 4,115
Add:
Other
income/
(ex-
pense) 769 2,000 1,678 - (362) 855 - 1,500
---------------------------------------------------------------------------
Adjusted
EBITDA
(1) $41,814 $43,184 $42,153 $41,429 $39,421 $41,211 $39,480 $42,335
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(1) Historical Adjusted EBITDA has been conformed to the current
presentation which includes other income and expense.
Outlook
The forward-looking statements contained in this section are not historical
facts but, rather, reflect EnerCare's current expectations regarding future
results or events and are based on information currently available to
management. Certain material factors and assumptions were applied in providing
these forward-looking statements. See "Forward-looking Information" in this news
release.
EnerCare continued to experience improved customer retention during the fourth
quarter of 2013. Overall, we are encouraged by the positive trend we have seen
in 2013, with a 33% reduction in year-over-year attrition and the decreasing
trend over the last six quarters. On November 27, 2013, the Stronger Protection
for Ontario Consumers Act, 2013 ("Bill 55") passed third reading in the Ontario
Legislature. EnerCare believes that Bill 55 is a strong enhancement in consumer
protection that will provide necessary protection for its customers and greatly
assist with EnerCare's continued efforts to combat attrition. Going forward we
continue to believe that the factors that have led to the decline in attrition
over the last five years, including improving consumer awareness, as well as the
new Enbridge open bill access agreement and Bill 55, will create a more
favourable environment for further improvement in customer retention. We will
continue to explore new initiatives and modifications of existing programs, as
well as enhanced customer product offerings and service programs.
As announced in the first quarter of 2013, our key priorities and initiatives in
the rentals business in 2013 were to continue to reduce attrition by continuing
to invest in the education and protection of consumers relating to door-to-door
solicitation, enhancing our customer value proposition, supporting Bill 55 and
growing the business through portfolio additions and new products by
accelerating originations in respect of HVAC. We are pleased to report that we
exceeded our targets in the rentals business with respect to these objectives.
In respect of sub-metering, our priorities and initiatives in 2013 to grow the
business to be cash flow positive by year end by improving productivity and
operating efficiencies, was not met as a result of the operational disruptions
created by the transition to our new customer care and billing system.
We are pleased with the improved sales activity experienced in the fourth
quarter of 2013 and beginning of 2014. The launch of e-billing, investing to
improve client communication and furthering our "whole building" solution
installed base are initiatives that will contribute to growth. Our operational
priorities remain focused on improving productivity and operating efficiencies
through our recently launched Lean program.
EnerCare estimates that it will pay approximately $23,000 to $26,000 in current
taxes for the fiscal year ended December 31, 2014. This estimate is based on
taxable income comparable to current levels, shielded by unrestricted tax losses
and a corporate tax rate of approximately 26.50%. EnerCare's current taxes for
2013 were $21,852. Taxable income is principally impacted by changes in revenue,
operating expenses, potential acquisitions or divestitures, appropriate tax
planning and capital expenditures through the capital cost allowance deduction.
In January 2014, EnerCare increased its weighted average rental rate by 3%.
EnerCare intends to increase its monthly dividend to $0.0604 per share, an
increase of 4%, effective in respect of the dividend payable to shareholders of
record on the applicable date in March 2014, which dividend will be paid in
April 2014. This increase reflects EnerCare's strong overall performance.
As previously announced, EnerCare has set its annual and general and special
meeting for May 1, 2014. Jim Pantelidis, chair of the board and management will
provide an update to shareholders on EnerCare's achievements in 2013 and
strategy.
Financial Statements and Management's Discussion and Analysis
EnerCare's financial statements and management's discussion and analysis for the
fourth quarter and year end of 2013 are available on SEDAR at www.sedar.com or
on EnerCare's investor relations website at http://www.enercareinc.com.
Conference Call and Webcast
Management will host a conference call and live audio webcast to discuss
EnerCare's financial results for the fourth quarter and year ended December 31,
2013 later this morning, at 10:00 a.m. (ET). John Macdonald, President and CEO,
and Evelyn Sutherland, CFO, will be on the call. Details of the call and webcast
are as follows:
By telephone: 416.695.5295 or 1.800.952.7105
Please allow 10 minutes to be connected to the conference
call.
Webcast: http://www.gowebcasting.com/5120
Note: this is a listen-only audio webcast. Media Player or
Real Player is required to listen to the broadcast.
Replay: An archived audio webcast will be available at:
http://www.enercareinc.com/ for one year following the
original broadcast.
Note: A slide presentation intended for simultaneous viewing with
the conference call is available at:
http://www.enercareinc.com/.
About EnerCare
EnerCare owns a portfolio of approximately 1.1 million installed water heaters
and other assets, rented primarily to residential customers in Ontario. EnerCare
also owns EnerCare Connections Inc., a leading sub-metering company, with
metering contracts for condominium and apartment suites in Ontario, Alberta and
elsewhere in Canada.
Additional information regarding EnerCare is available on SEDAR at www.sedar.com
or through EnerCare's investor website at www.enercareinc.com or at
www.enercare.ca.
Forward-looking Information
Certain statements in this news release are forward-looking statements, which
reflect management's expectation regarding EnerCare's and EnerCare Solutions'
growth, results of operations, performance, business prospects and
opportunities. Such forward-looking information reflects management's current
beliefs and is based on information available to them and/or assumptions
management believes are reasonable. Many factors could cause results to differ
materially from the results discussed in the forward-looking information.
Although the forward-looking information is based on what management believes to
be reasonable assumptions, EnerCare and EnerCare Solutions cannot assure
investors that actual results will be consistent with this forward-looking
information. All forward-looking information in this news release is made as of
the date of this news release. Except as required by applicable securities laws,
neither EnerCare nor EnerCare Solutions intend and do not assume any obligation
to update or revise the forward-looking information, whether as a result of new
information, future events or otherwise.
FOR FURTHER INFORMATION PLEASE CONTACT:
EnerCare Inc.
Evelyn Sutherland
CFO
1.416.649.1860
esutherland@enercare.ca
www.enercare.ca
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