Annual dividend rises by 4% to 72.5 cents per share with announcement of fifth dividend increase in 27 months
Six consecutive quart
ers of year-over-year improvement in customer retention
Sub-metering build-out on track; 5,400 services contracted since beginning of 2014
Completes attractive tuck-in acquisition of the rental portfolio of Energy Services Niagara Inc.
TORONTO, ONTARIO–(Marketwired – March 6, 2014) – 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
- EBITDA2 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 cent3 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
| (000's) | 2013 | 2012 | |
| Revenues: | |||
| Rentals | $189,438 | $186,288 | |
| Sub-metering | 109,338 | 88,833 | |
| Investment income | 373 | 457 | |
| Total revenues | 299,149 | 275,578 | |
| Commodity charges | 90,671 | 71,044 | |
| SG&A expe nses: | |||
| 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 | |
| Total expenses | 290,976 | 272,196 | |
| Other income | 4,447 | 1,993 | |
| 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 EBITDA2 | $168,580 | $162,447 | |
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 Adjus ted EBITDA2 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 amortize d 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 inco me 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.
| (000's) | Q4/13 | Q3/13 | Q2/13 | Q1/13 | Q4/12 | Q3/12 | Q2/12 | Q1/12 |
| Net earnings/(loss) | $4,793 | $6,931 | $7,482 | $(10,388) | $(2,096) | $2,154 | $(3,064) | $(169) |
| Deferred tax (recovery)/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 |
| Amortization 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 (income)/expense | (769) | (2,000) | (1,678) | – | 362 | (855) | – | (1,500) |
| Investment (income) | (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 disposal of equipment | 2,666 | 2,633 | 3,449 | 2,892 | 3,523 | 3,397 | 4,113 | 4,115 |
| Add: Other income/(expense) | 769 | 2,000 | 1,678 | – | (362) | 855 | – | 1,500 |
| Adjusted EBITDA(1) | $41,814 | $43,184 | $42,153 | $41,429 | $39,421 | $41,211 | $42,335 | |
| (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 initiative s 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 201 4, 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 con nected 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.
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