TORONTO, ONTARIO–(Marketwire – Feb. 28, 2013) – EnerCare Inc. ("EnerCare") (TSX:ECI), 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, 2012.
Fiscal 2012 Highlights – Year ended December 31, 2012 versus year ended December 31, 2011 (in thousands of Canadian dollars except per unit amounts)1
- Total revenues of $256,582 increased by 5% in 2012
- EBITDA2 increased by $1,335 to $145,306 in 2012
- Net losses increased by $7,158 compared to 2011
- Attrition in the rentals portfolio decreased by 3,000 units or 4% in 2012
- The Payout Ratio3 increased to 63% in 2012 from 55% in 2011, primarily due to the increase in current taxes, and higher dividend payments
- Conclusion of refinancing activity in February 2013, ladders debt maturities and creates substantial future interest expense savings
Debt Restructuring
With the recent financing activity completed in February of 2013, EnerCare has successfully laddered its maturities with three, five and seven year debt tranches. Not only has this new capital structure allowed EnerCare to capitalize on the low interest rate environment by crystalizing significant future reductions in interest expense, it has provided flexibi lity to further reduce leverage.
Dividend Increase
EnerCare intends to increase its monthly dividend to $0.057 per share effective in respect of the dividend payable to shareholders as of the record date on the applicable date in March.
"The decision to increase our dividend was due to EnerCare's strong performance in 2012, our long-term stable financial structure, reductions in attrition and the confidence the board has in the company moving forward," said John Macdonald, President and CEO.
RESULTS OF OPERATIONS
Overview
| Consolidated Financial Highlights (000's) | 2012 | 2011 | 2010 | |||||||
| Total revenues | $ | 256,582 | $ | 244,501 | $ | 207,418 | ||||
| Earnings/(loss) before income taxes | 5,375 | 178 | (16,487 | ) | ||||||
| Current tax expense | (14,548 | ) | (5,708 | ) | – | |||||
| Deferred income tax recovery | 5,998 | 9,513 | 18,208 | |||||||
| Net earnings | (3,175 | ) | $ | 3,983 | $ | 1,721 | ||||
| EBITDA | 145,306 | 143,971 | 134,678 | |||||||
| Adjusted EBITDA2 | 160,454 | 163,528 | 156,018 | |||||||
| Per Share information | ||||||||||
| Shareholder distributions declared | $ | 0.67 | $ | 0.65 | $ | 0.65 | ||||
| Net earnings | $ | (0.06 | ) | $ | 0.07 | $ | 0.03 | |||
| Total assets | 802,046 | 906,958 | 935,423 | |||||||
| Total debt | 529,475 | 591,562 | 600,361 | |||||||
| Cash provided by operating activities | 96,090 | 127,918 | 120,356 | |||||||
| Distributable Cash | $ | 61,564 | $ | 65,194 | $ | 55,143 | ||||
| Payout Ratio3 | 6 3 | % | 55 | % | 62 | % | ||||
| IFRS | IFRS | IFRS | ||||||||
Financial Results for 2012 ($000's)
Revenues
Total revenues of $256,582 in 2012 increased by $12,081 or 5% compared to 2011. Rentals revenues decreased marginally by $236 to $186,288 in 2012, compared to 2011, primarily due to a reduction in installed assets, partially offset by a rental rate increase implemented in January 2012. Sub-metering revenues in 2012 were $69,837, an increase of $12,454 or 22% over the comparable period in 2011, as a result of increased commodity charges and billable units. Revenue includes pass through energy charges of $52,048 in 2012, an increase of $10,107 over 2011.
Investment income decreased by $137 in 2012 compared to 2011. The decrease in investment income was attributable to lower investment balances as a result of the repayment of the $60,000 6.20% 2009-1 Senior Unsecured Notes (the "2009-1 Notes") in April 2012, partially offset by the investment of the $250,000 4.30% 2012-1 Senior Unsecured Notes (the "2012 Notes") proceeds for approximately 30 days prior to the redemption of the $240,000 5.25% 2010-1 Senior Unsecured Notes (the "2010 Notes") in the fourth quarter of 2012.
Selling, General & Administrative ("SG&A") Expenses
Total SG&A expenses were $43,623 in 2012, an increase of $5,185 or 14% compared to 2011. Sub-metering SG&A expenses were $12,007 in 2012, $1,477 more than the same period in 2011, primarily as a result of increased wages and benefits of approximately $800 associated with the internalization of customer care and billing functions, bad debts and provisions of $700 and $400 in higher consulting fees, partially offset by $200 in both selling costs and reductions in cost of goods. Rentals and corporate expenses of $31,616 increased by $3,708 in 2012 over that in 2011, primarily due to increases of approximately $1,850 for claims and bad debts ($1,300 credit from DE in 2011), professional fees of $1,200, wages and benefits of $1,100, partially offset by reductions in billing and inventory management fees of $300 and selling expenses of $150.
Amortization Expense
Amortization expense decreased by $3,081 or 3% to $101,622 in 2012, 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
In 2012, EnerCare reported a loss on disposal of equipment of $15,148, a reduction of $3,951 over 2011. 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. Proceeds on disposal of equipment in 2012 were $5,379 or $1,447 greater than 2011, primarily as a result of higher buyout activity during the first and second quarters of 2012 reflecting the additional buyout transactions recorded earlier in the year, many of which were on account of older assets with low buyout fees.
Interest Expense
Interest expense payable in cash decreased by $684 to $36,123 in 2012, compared to 2011. The decrease is primarily related to the conversion of convertible debentures to shares and the repayment of the 2009-1 Notes on April 30, 2012, partially offset by both a make-whole payment of approximately $1,920 associated with the 2010 Notes and $900 of additional interest created by the issuance on November 21, 2012 of the 2012 Notes, 30 days prior to the redemption of the 2010 Notes in December 2012. A mortization of other comprehensive income and financing costs for 2012 are lower than in 2011, primarily due to the declining outstanding balance of convertible debentures and reduced amortization with the repayment of the 2009-1 Notes in April 2012.
Other Income
Other income of $1,993 includes amounts recognized in the current year related to prior years' events. The amount for 2012 includes income of approximately $855, which represents the reversal of the liability in respect of the third and final earnout payable to the former principals of Stratacon, $1,500 on account of a settlement reached by EnerCare and Direct Energy Marketing Limited ("DE") on account of billing disputes for water heater installation costs, $200 from DE on account of billing shortfalls and a reduction of $600 related to reversal of billed amounts from Enbridge Gas Distribution Inc. ("EGD") following the billing conversions. Other income in 2011 represents the reduction in the estimated liability of the third and final earnout payable to the former Stratacon shareholders, which was established in 2010 under the transition to IFRS.
Income Taxes
EnerCare reported a current tax expense of $14,548 for 2012, an increase of $8,840 over 2011, primarily as a result of decreased loss carry forwards available to shelter taxable income in the rentals business. The deferred income tax recovery of $5,998 for 2012 was $3,515 lower than the deferred tax recoveries of $9,513 recorded in 2011. In the second quarter of 2012, deferred taxes increased by approximately $6,000 as a result of the reversal of previously enacted future corporate tax rate reductions in the Province of Ontario.
Net Losses
Earnings before income taxes in 2012 were $5,375, $5,197 lower than in 2011, as described above. Net losses of $3,175 in 2012 increased by $7,158 compared to earnings of $3,983 in 20 11, primarily as a result of changes in total taxes of approximately $12,355, as described above.
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.
| (000's) | Q4/12 | Q3/12 | Q2/12 | Q1/12 | Q4/11 | Q3/11 | Q2/11 | Q1/11 | ||||||||||||||||
| Net earnings/ (loss) | $ | (2,096 | ) | $ | 2,154 | $ | (3,064 | ) | $ | (169 | ) | $ | (2,256 | ) | $ | 5,618 | $ | 1,682 | $ | (1,061 | ) | |||
| Deferred tax expense/ (recovery) | (4,155 | ) | (2,668 | ) | 1,766 | (941 | ) | (874 | ) | (5,666 | ) | (1,858 | ) | (1,115 | ) | |||||||||
| Current tax expense | 5,217 | 3,902 | 2,118 | 3,311 | 765 | 1,478 | 1,881 | 1,584 | ||||||||||||||||
| Amortization expense | 25,175 | 25,407 | 25,166 | 25,874 | 26,234 | 26,126 | 26,103 | 26,240 | ||||||||||||||||
| Interest expense | 11,937 | 9,035 | 9,457 | 10,330 | 10,377 | 10,433 | 10,566 | 10,691 | ||||||||||||||||
| Other expense/ (income) | 362 | (855 | ) | – | (1,500 | ) | – | (254 | ) | (2,129 | ) | – | ||||||||||||
| Investment (income) | (180 | ) | (16 | ) | (76 | ) | (185 | ) | (174 | ) | (168 | ) | (140 | ) | (112 | ) | ||||||||
| EBITDA | 36,260 | 36,959 | 35,367 | 36,720 | 34,072 | 37,567 | 36,105 | 36,227 | ||||||||||||||||
| Add: Loss on disposal of equipment | 3,523 | 3,397 | 4,113 | 4,115 | 4,880 | 4,718 | 4,861 | 4,640 | ||||||||||||||||
| Add: Impairment of assets | – | – | – | – | 458 | – | – | – | ||||||||||||||||
| Adjusted EBITDA | $ | 39,783 | $ | 40,356 | $ | 39,480 | $ | 40,835 | $ | 39,410 | $ | 42,285 | $ | 40,966 | $ | 40,867 |
Financial Results for the Fourth Quarter of 2012
Fourth Quarter Results of Operations
| Earnings Summary (000's) | 2012 | 2011 | |||||
| Revenues: | |||||||
| Rentals | $ | 46,125 | $ | 46,031 | |||
| Sub-metering | 16,823 | 13,783 | |||||
| Investment income | 180 | 174 | |||||
| Total revenues | 63,128 | 59,988 | |||||
| Commodity charges | 12,163 | 9,934 | |||||
| SG&A expenses: | |||||||
| Rentals | 3,814 | 4,261 | |||||
| Sub-metering | 3,301 | 2,810 | |||||
| Corporate | 3,887 | 3,399 | |||||
| Total SG&A expenses | 11,002 | 10,470 | |||||
| Amortization expense | 25,175 | 26,234 | |||||
| Loss on disposal of equipment | 3,523 | 4,880 | |||||
| Impairment of assets | – | 458 | |||||
| Interest expense | 11,937 | 10,377 | |||||
| Total operating expenses | 63,800 | 62,353 | |||||
| Other income | ) | – | |||||
| (Loss) before income taxes | (1,034 | ) | (2,365 | ) | |||
| Current tax expense | (5,217 | ) | (765 | ) | |||
| Income tax recovery | 4,155 | 874 | |||||
| Net (loss) | $ | (2,096 | ) | $ | (2,256 | ) | |
| EBITDA | 36,260 | 34,072 | |||||
| Adjusted EBITDA | $ | 39,783 | $ | 39,410 | |||
Revenues
Total revenues of $63,128 in 2012 increased by $3,140 or 5% compared to 2011. Rentals revenue for the period increased slightly to $46,125, primarily due to the January rate increase and improved billing performance by DE, partially offset by the impact of net attrition. Sub-metering revenues improved by $3,040 or 22% in 2012, due to increases in the number of Billable units and increased pass-through commodity changes.
Investment income was $180, marginally greater than in 2011, primarily due to investment of the proceeds of the 2012 Note offering prior to the redemption of the 2010 Notes in December 2012.
Selling, General & Administrative Expenses
SG&A expenses increased by $532 or 5% from 2011 to $11,002. Sub-metering costs increased by $491, primarily as a result of further costs associated with the implementation of a new billing and customer care platform and bad debt provisions. Rentals and corporate costs decreased by $41, comparatively flat to 2011.
Amortization Expense
Amortization expense of $25,175 was $1,059 lower than in 2011, primarily the result of cumulative portfolio attrition in the rentals business, offset by additions to amortization in the sub-metering business.
Loss on Disposal of Equipment
Loss on disposal of equipment for the period was $3,523, a decrease of $1,357 or 28% over 2011. The net decreased loss was primarily the result of lower attrition and exchanged assets during the period .
Impaired assets
An impairment provision of $458 was taken on certain Sub-metering assets during the fourth quarter of 2011. The provision covered assets in work in progress which were no longer proceeding forward under a contract and some equipment which may never have become income generating property for EnerCare.
Interest Expense
In 2012, interest expense of $11,937 was $1,560 higher than in 2011, primarily as a result of a $1,920 make-whole payment on the redemption of the 2010 Notes, additional interest expense associated with the issuance of the 2012 Notes, partially offset by the repayment of the 2009-1 Notes and lower convertible debenture interest payments stemming from the conversion of debentures into Shares.
Net Loss
Losses before income taxes in 2012 were $1,034, $1,331 better than 2011, as previously described. Net losses decreased marginally by $160 in 2012, primarily as a result of higher current taxes as a result of decreased loss carry forwards available to shelter taxable income in the rentals business, partially offset by the timing of deferred tax reversals.
Outlook
EnerCare continued to experience improved customer retention in the Rentals business during the fourth quarter of 2012. Overall, we are encouraged by the positive trend in the last half of 2012. We expect that we will see Attrition levels continue to have mild volatility from quarter to quarter. Going forward we continue to believe that the factors that have led to the decline in Attrition over the last three years, including improving consumer awareness, 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.
We continued to have additional expenses in the fourth quarter in association with the completion of the transition to our new customer care and billing system and expect some continuation of transition costs in the first 120 days of 2013. However, we have shown a reduction in costs to administer sub-metering customer accounts from the third quarter of 2012 and expect that we will see further sustained cost reduction going forward.
We are very pleased with our reduction in total debt following the repayment of the 2009-1 Notes in April of 2012 and our recent refinancing of the 2010 Notes in November of 2012 and the $270,000 6.75% 2009-2 Senior Unsecured Notes in February of 2013. With these financing activities, we have successfully extended and laddered our maturities and provided some flexibility to allow for further potential reductions in our future leverage and secured a significant reduction in future interest expense. As outlined in the "Summary of Contractual Debt and Lease Obligations", we estimate that the annual interest savings is approximately $12,800.
EnerCare estimates that it will pay approximately $19,000 to $22,000 in current taxes for the fiscal year ended December 31, 2013. This estimate is based on taxable income comparable to current levels, shielded by unrestricted tax losses and a corporate tax rate of approximately 26.25%. EnerCare's current taxes for 2012 were $14,548. 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 2013, EnerCare increased its weighted average rental rate by 3%.
EnerCare intends to increase its monthly dividend to $0.057 per Share, an increase of 1.8%, effective in respect of the dividend payable to shareholders of record on the applicable date in March 2013, which dividend will be paid in April 2013. EnerCare increased its dividend due to strong performance in 2012, its long-term stable financial structure, reductions in Attrition and the confidence the board has in the company moving forward.
As previously announced, EnerCare has set its annual and general and special meeting for June 3, 2013. Jim Pantelidis, Chairman of the board, and management will provide an update to shareholders on EnerCare's achievements in 2012 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 2012 are available on SEDAR at www.sedar.com or on EnerCare's investor relations website at http://investors.enercare.ca.
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 end 2012 on Thursday, February 28, 2013 at 10:00 a.m. (ET). John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will be on the call.
| Call can be accessed as follows: | ||
| Toll free: | 1.877.974.0445 | |
| Local: | 1.416.644.3415 | |
| Via webcast: | http://investors.enercare.ca/ | |
The audio webcast will be archived at http://investors.enercare.ca. A taped rebroadcast will be available until midnight on March 7, 2013. The rebroadcast can be accessed by dialing 1.877.289.8525 or 1.416.640.1917 and entering the pass code 4589618#.
About EnerCare
EnerCare owns a portfolio of approximately 1.2 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 about EnerCare is available on SEDAR (www.sedar.com) or on EnerCare's websites at http://investors.enercare.ca and http://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 Inc. 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. These factors include risks associated with the failure to realize the anticipated benefits of the conversion. Although the forward-looking information is based on what management believes to be r easonable assumptions, EnerCare and EnerCare Solutions Inc. cannot assure investors that actual results will be consistent with this forward-looking information. Except as required by applicable securities laws, neither EnerCare nor EnerCare Solutions Inc. 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.
| 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 and Adjusted EBITDA are non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A. |
| 3 | Payout Ratio is a non-IFRS financial measure. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A. |
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