Achieving our goals and. Annual Meeting of Shareholders. poised for growth

Transcription

1 Achieving our goals and poised for growth Conference call for the year and quarter ended December 31, 2016

2 Forward-Looking Statements (For definitions of capitalized terms, please refer to the Glossary in Enercare s MD&A dated March 6, 2017) This presentation contains certain forward-looking statements within the meaning of applicable Canadian securities laws ( forward-looking statements or forward-looking information ) that involve various risks and uncertainties and should be read in conjunction with Enercare Inc. s ( Enercare ) 2016 audited consolidated financial statements. Additional information in respect of Enercare, including the AIF, can be found on SEDAR at Statements other than statements of historical fact contained in this presentation may be forward-looking statements, including, without limitation, management s expectations, intentions and beliefs concerning anticipated future events, results, circumstances, economic performance or expectations with respect to Enercare, including Enercare s business operations, business strategy and financial condition. When used herein, the words anticipates, believes, budgets, could, estimates, expects, forecasts, goal, intends, may, might, outlook, plans, projects, schedule, should, strive, target, will, would and similar expressions are often intended to identify forwardlooking information, although not all forward-looking information contains these identifying words. These forward-looking statements may reflect the internal projections, expectations, future growth, results of operations, performance, business prospects and opportunities of Enercare and are based on information currently available to Enercare and/or assumptions that Enercare believes are reasonable. Many factors could cause actual results to differ materially from the results and developments discussed in the forward-looking information. In developing these forward-looking statements, certain material assumptions were made. These forward-looking statements are also subject to certain risks. These factors include, but are not limited to: actual future market conditions being different than anticipated by management; the failure to realize the anticipated benefits of the Service Experts Transaction ( SE Transaction ), strategic initiatives and tax efficiencies; the risk that the pilot of rental HVAC offerings in 4 states in the United States does not realize anticipated results as the rental model is a new concept in this industry in the United States; and the risks and uncertainties described under Risk Factors in Enercare s MD&A dated March 6, Material factors or assumptions that were applied to drawing a conclusion or making an estimate set out in forward-looking statements, including pro forma financial information, include: the view of management regarding current and anticipated market conditions; industry trends remaining unchanged; the financial and operating attributes of Enercare and Service Experts as at the date hereof and the anticipated future performance of Enercare and Service Experts; assumptions regarding the volume and mix of business activities remaining consistent with current trends; assumptions regarding the interest rates of the 2014 Term Loan and 2016 Term Loan, foreign exchange rates and commodity prices; the extent to which the SE Transaction is accretive, which may be impacted by the realization and timing of synergies and the operating performance of Enercare and Service Experts; assumptions regarding non-recurring transaction costs estimated to be incurred by Enercare in connection with the SE Transaction; assumptions regarding future selling, general and administration costs estimated to be incurred by Enercare, including in connection with the running of the Service Experts segment ; and the number of Shares outstanding remaining constant. There can be no assurance that the anticipated strategic benefits and operational, competitive and cost synergies from the SE Transaction will be realized. There can be no assurance that recent results from the introduction of the rental model to Service Experts in Canada are indicative of future results. Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although forward-looking statements contained in this presentation are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Accordingly, readers should not place undue reliance on such forward-looking statements and assumptions as management cannot provide assurance that actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Enercare. All forward-looking information in this presentation is made as of the date of this presentation. These forward-looking statements are subject to change as a result of new information, future events or other circumstances, in which case they will only be updated by Enercare where required by law. 2

3 JOHN MACDONALD President & CEO

4 Outstanding 2016 Results & Performance +77% 8,000 Units Increase in revenue to $996M (compared to $564M 2015) Increase in Enercare Home Services net rental unit growth (compared to -2,000 units in 2015) 30% (1) Accretion exceeded for 2017 Normalized Pro Forma Distributable Cash per Share 2 +20% Increase in EBITDA 1 to $266M (compared to $222M in 2015) (1) See Non-IFRS Financial and Performance Measures found in Enercare s MD&A dated March 6, (2) Normalized Pro Forma Distributable Cash per common share excludes transaction costs and synergies and have been normalized by $19 million in 2015 and 2016 to account for timing differences in taxes paid related to the acquisition of Direct Energy s Ontario home and small commercial services business. Gives effect to the 2016 bought deal offering, excluding the over-allotment option. 4

5 Successfully Delivered Our 2016 Strategic Priorities Enercare Home Services Sub-metering Service Experts Achieve net rental unit growth Grow HVAC rentals Annual Re-energize Meeting and grow protection plan of portfolio Shareholders Unit growth Enhance customer service Add new products and services Successful execution of post-merger integration Achieve targeted accretion Increased Consolidated EBITDA BY 20% 5

6 Six Consecutive Quarters of Net Rental Unit Growth Additions (thousands) Additions (thousands) Q Q Attrition (thousands) Attrition (thousands) % Reduction Q Q Bill 59 - Putting Consumers First Act, if enacted as proposed, will completely ban door-todoor sales in Ontario of certain household appliances, including water heaters and HVAC 6

7 Protecting Our Rental Business 2002-Present 1 million customers billed by Enbridge Gas Distribution Inc. ( Enbridge ), which mitigates credit risk. Enercare is entitled to receive payment in 21 days of 99.5% of billed revenue 2009-Present Customer education programs 2010-Present The Buyout Contract: Approximately 68% of net book value is protected by a buyout contract, growing as new equipment is installed (1) Effective January 1, Jan-2014 Enhancements to the billing program with Enbridge 01-Apr-2015 Bill 55-The Stronger Protection for Ontario Consumers Act Nov Proposed Bill 59- Putting Consumers First Act (ON) Door-to-door Energy Sales Ban (AB) (1) 7

8 Delivering Excellent Customer Service: A Cornerstone of Customer Loyalty Improvements in Net Promoter Scores Delivering Excellent Service Focusing on the metrics that matter Requesting immediate customer feedback Investing in technology for customers, technicians and agents Measuring every front line customer facing employee Source: Enercare Net Promoter Score Database, December

9 Increased HVAC Rental Additions by 31% HVAC Transaction Mix Rental vs Sale Average Monthly Rental Rate Changes 31% 19,336 6% 20,568 Difference $13.79 Difference $16.80 $40.83 Difference $16.86 $ ,309 13,489 9,027 7,079 $17.20 $30.99 $24.03 $26.15 Rental Sale Total Attrition Additions An HVAC Rental is Worth 2.5X that of an Outright Sale 9

10 Focused on Growing Protection Plans 2016 Protection Plan Unit Continuity Protection Plan Additions 9,300 Attrition from HVAC Rental Additions 74,000 Attrition 71,000 Additions 542,000 Contracts 8% Approximately two-thirds of Enercare s HVAC originations come from a protection plan relationship 10

11 3+ Years 2016 What s Next for Enercare Home Services? Geographic & Product Growth Whole Home Innovation Expand customer base through dealer strategy Grow rental continuity Mobile application launch Continue growth across Canada, launch new products that complement existing services and build on our strengths in heating, cooling and plumbing Become trusted service advisor, deliver multi-product value offering and increase our share of the household Electrical Services Connected Home Hub (coming soon) More to come in 2017 Lead in Connected Home; leverage strengths in service delivery to build customer value Air Conditioning Duct Cleaning Air Quality Plumbing Furnace or Boiler Water Heater Water Treatment Enhancements to Mobile App Connected Home Pilot Scheduled 11

12 Achieving Scale in Sub-metering Q Unit Continuity (In thousands) Contract to bill backlog: 102,000 units Q Unit Continuity (In thousands) Contract to bill backlog: 119,000 units Contracted Installed Billable Contracted Installed Billable 50% improvement in sales in 2016 compared to the prior year 12

13 Growth Drivers Contracted services growth Billable unit conversion New products New markets Economies of scale 13

14 Service Experts Exceeds our Accretion Target Achieved 30% Accretion in Distributable Cash (1)(2) 5 percentage points in excess of target YTD 2016 Acquisition Adjusted EBITDA: $50.5M (3) Service Experts Enercare Customer Locations Service Experts Locations EENA Commercial National Accounts (1) See Non-IFRS Financial and Performance Measures found in Enercare s MD&A dated March 6, (2) Normalized Pro Forma Distributable Cash per common share excludes transaction costs and synergies and have been normalized by $19 million in 2015 and 2016 to account for timing differences in taxes paid related to the acquisition of Direct Energy s Ontario home and small commercial services business. Gives effect to the 2016 bought deal offering, excluding the over-allotment option. (3) Reflecting results from May 11, 2016 to December 31,

15 Advancing the Integration of Service Experts Commenced negotiations with large suppliers as part of synergy initiative Commence roll-out of HVAC rentals in U.S. in select states Execute on procurement savings Q Q Q Closed Service Experts transaction Launched HVAC rentals program in Canada in October Continued focus on accretive acquisitions Complete and realize cost synergies Reiterating cost synergies in the range of $0.05 to $0.08 per common share on an annualized basis by the end of

16 Expanding Rentals to Service Experts Water heater and HVAC rental products available Roll out complete in Ontario, Manitoba and Alberta Useful life contract with customers Preliminary rental mix of total water heater and HVAC originations: ~20% in ON, and ~10% in MB & AB 2016 Rental Rollout for Canada Complete 2017 Rental Rollout for US Commences 2018 Rental Rollout for US Complete Only HVAC rental products currently available Pilot launched in 2 states with an additional 2 states to be completed in H Defined term contract with customers Rollout expected to be completed by end of

17 EVELYN SUTHERLAND CFO

18 Successfully Growing Long-Term Recurring Revenues 6 th consecutive quarter of net rental unit growth Enercare Home Services Achieved 30% Accretion* Total Revenue** ($ millions) 76.6% Service Experts of 13% Shareholders increase in billable units Sub-metering Enercare Home Services Service Experts Sub-metering *Normalized Pro Forma Distributable Cash per common share excludes transaction costs and synergies and have been normalized by $19 million in 2015 and 2016 to account for timing differences in taxes paid related to the acquisition of Direct Energy s Ontario home and small commercial services business. Gives effect to the 2016 bought deal offering, excluding the over-allotment option. **Excludes corporate investment income of $192,000 and $0, respectively. 18

19 Successful HVAC Rental Initiative Has Short-term Impact and Long-Term Benefits Revenue ($ millions) Split Between HVAC Rentals & Sales +100% +97% ~$33.8 $995.9 $33.8 million deferral of revenue in 2016 due to success of HVAC rental initiative (1) 89% 75% 47% 53% 34% 66% $ % 11% Rentals Sales $12M in additional EBITDA would have been recorded in 2016 had there been no rental HVAC originations (1) (1) Assumes a rental would have been a sale.. 19

20 Double-Digit EBITDA Growth EBITDA (1) (excluding corporate) ($ millions) 22% EBITDA (1) (excluding corporate) ($ millions) % Acquisition Adjusted EBITDA (1) (excluding corporate) ($ millions) 23% Q Q Acquisition Adjusted EBITDA (1) (excluding corporate) ($ millions) % Q Q Enercare Home Services Service Experts (1) See Non-IFRS Financial and Performance Measures in Enercare s MD&A dated March 6, 2017 Sub-metering 20

21 Focused on EBITDA (1) Margin Expansion Enercare Home Services EBITDA Margin as % of Revenue Sub-metering EBITDA Margin as % of Net Revenue Service Experts EBITDA Margin as % of Revenue 60% 54% 55% Range: 50%-55% EBITDA Margin 39% Range: 40%-50% EBITDA Margin Range: 8%-10% EBITDA Margin Q Q (2) Q Q % Q Roll-out of HVAC rental strategy in the U.S. provides opportunity to expand Service Experts margins over the long-term (1) See Non-IFRS Financial and Performance Measures in Enercare s MD&A dated March 6, 2017 (2) EBITDA included a one-time buy-out for a terminated contract. 21

22 Improving Tax Normalized Payout Ratios Payout Ratio (1) Tax Normalized Payout Ratio (2) 66% 94% Normalized for tax deferral 80% 77% Payout Ratio Maintenance (1) Tax Normalized Payout Ratio Maintenance (2) 46% 51% Normalized for tax deferral 51% 45% Payout Ratio Maintenance and Payout Ratio are Non-IFRS financial measures. Refer to the Non-IFRS Financial and Performance Measures section in Enercare s MD&A dated March 6, Tax Normalized Payout Ratio Maintenance and Tax Normalized Payout Ratio are Non-IFRS financial measures which have been calculated by normalizing the distributable cash in both the Payout Ratio Maintenance and Payout Ratio for the impact of the one year tax deferral in 2015, arising from the DE Acquisition, of approximately $4,750 during the fourth quarter. On a full year basis, total tax expense was approximately $19,001 lower, during 2015, as a result of this one year deferral which will reverse in

23 Improving Credit Metrics Key Statistics Net Debt / Acquisition Adjusted EBITDA (1) BBB (Stable) S&P BBB (Stable) DBRS 3.2x 3.0x 3.4x 3.0x 3.3x 3.3% (2) Weighted Average Interest Rate 3.3x (1) Net Leverage Ratio 9.4x (1) Interest Coverage Ratio 9% Weighted Average Interest Rate 4.9% 4.3% 3.9% 3.5% 3.3% 9% (1) Calculated using debt less cash dividend by Acquisition Adjusted EBITDA (for a definition, please refer to the Non-IFRS Financial and Performance Measures section in Enercare Inc. s MD&A dated March 6, Debt excludes the balances associated with pension, other post-employment benefit liabilities and capital lease obligations. The interest expense excludes interest paid on subscription receipts and bridge financing. (2) On February 21, 2017, Enercare Solutions Inc. completed its offering of $500,000 aggregate principal amount of 2017 Notes consisting of $275,000 of " Notes" and $225,000 of " Notes". The Notes were sold at a price of % of the principal amount, with an effective yield of 3.384% per annum if held to maturity and the Notes were sold at a price of % of the principal amount, with an effective yield of 3.993% per annum if held to maturity. The proceeds of the offering were used by Enercare Solutions Inc. to redeem the 2014 Term Loan on February 23, 2017 and will be used to redeem the 2012 Notes in 2017 with the balance to be used to repay a portion of the 2014 Revolver. Once completed the weighted average interest rate will be approximately 3.5%. 23

24 Considerations for Our Debt Refinancing Maintain debt rating Ladder debt maturities Extend debt maturities Reduce exposure to floating rate debt Optimize mix of USD/CAD debt 24

25 Capital Structure After our Successful Debt Refinancing Maturity Schedule at December 31, 2016 (1) Drawn Revolver Revolver USD Term Debt Term Debt Existing Bonds In February 2017, Enercare Solutions refinanced its $210M term debt & its Notes (2012) $250M + upsized the offering for total proceeds of $500M. Pro Forma Maturity Schedule (2) New Bonds Drawn Revolver Revolver USD Term Debt Existing Bonds % 3.99% (1) Excludes pension and post-employment benefit liabilities and capital leases. (2) Excludes pension and other post-employment benefit liabilities and capital lease obligations and the Notes (2012) that will be paid down on March 23,

26 JOHN MACDONALD President & CEO

27 Relative Performance (%) Superior 2-Year Total Shareholder Return $2.9B enterprise value 2-Year Total Shareholder Return December 31, 2014 December 30, 2016 $0.96 annual dividend (paid monthly) 48% increase since % 20% 11% S&P/TSX indices: (i) Composite Index (ii) Small Cap Index (iii) Low Volatility Index (iv) Dividend Aristocrats Index (v) High Dividend Growth Index Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Composite Index Small Cap Index Enercare Successful Execution of Strategies Over the Last Two Years Led to Outperformance of Indices 27

28 Returning Significant Capital to Shareholders Enercare s Annualized Dividend Per Common Share 48% since % +4% +16% +2% +2% +2% +2% +4% Jan 2011 Dec 2011 Mar 2012 Mar 2013 Sept 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Another 4% Increase in Dividends to $0.96 per share on an Annualized Basis 28

29 Achieving our goals and poised for growth Conference call for the year and quarter ended December 31, 2016