Jersey Electricity Half-year Report for the six months ended 31 March 2018

The Board approved at a meeting on 18 May 2018 the Interim Management Report for the six months ended 31 March 2018 and declared an interim dividend of 6.1p compared to 5.8p for 2017. The dividend will be paid on 29 June 2018 to those shareholders registered in the records of the Company at the close of business on 1 June 2018.

The Interim Management Report is attached and will be available to the public on the Company's website www.jec.co.uk/about-us/investor-relations/financial-figures-and-reports.

The Interim Management Report for 2018 has not been audited or reviewed by our external auditors nor have the results for the equivalent period in 2017. The results for the year ended 30 September 2017 have been extracted from the statutory accounts. The auditor has reported on those accounts and their reports were unmodified. 

M.P. Magee                                                               P.J. Routier

Finance Director                                                       Company Secretary

Direct telephone number : 01534 505201                  Direct telephone number : 01534 505253

Email : mmagee@jec.co.uk                                       Email : proutier@jec.co.uk

18 May 2018

The Powerhouse,

PO Box 45,

Queens Road,

St Helier,

Jersey JE4 8NY

Jersey Electricity plc

Unaudited Interim Management Report

for the six months to 31 March 2018

Overall trading performance

Group revenue, at £60.5m, was 4% higher for the first half of 2018 than the same period in 2017 with £1.0m coming from a higher level of unit sales of electricity and £0.8m from our Powerhouse.je retailing business. Profit before tax was £9.7m being £0.8m ahead of the equivalent period last year and remains at a level commensurate with a sustainable rate of return typical for a regulated utility and at a quantum needed to maintain our continued investment in infrastructure. Cost of sales at £37.5m was £2.0m higher than last year with an increase in import costs in our Energy business and higher sales activity in Powerhouse.je being the main reasons. Operating expenses at £12.6m were £0.4m lower than in 2017 due to a general reduction in overhead costs. The taxation charge in the period of £2.0m was £0.1m higher than during the same period in 2017 due to increased profits. Earnings per share rose to 24.9p from 22.9p in 2017. Net debt on the balance sheet at 31 March 2018 was £20.2m (2017: £29.4m) compared to £21.9m at our last year end on 30 September 2017.     

Energy performance

Unit sales of electricity rose 2%, from 361m to 368m kWh, compared with last year. The average temperature was mixed with the first quarter being milder, and the second quarter colder, than in the first half of the 2017 financial year. On 1 March we saw our highest ever maximum demand for electricity of 178 MW, when temperatures fell to a very unseasonal minus 3 degrees centigrade, being 11% higher than the previous record of 161 MW experienced in 2012. Revenues in our Energy business at £47.2m were £1.0m higher than in 2017. Operating profit at £8.7m was £1.0m higher than in the same period last year. Gross margin was impacted by increased imported electricity costs but other costs, such as manpower and maintenance were lower than the corresponding 2017 period. We imported 95% of our on-Island requirement from France (2017: 93%) and 5% from the Energy from Waste plant (2017: 5%), owned by the States of Jersey. Only 0.3% (1m units) of electricity was generated in Jersey using our own plant (2017: 2%) due to the availability of three subsea cables to France for the first full winter period post the commissioning of our third interlink, Normandie 1, in December 2016.

Investment in infrastructure

Capital expenditure was £7.1m in the first 6 months of the financial year compared to £8.6m in the same period last year. We continue with work on our new West of St Helier Primary sub-station which has an estimated cost of £17m, of which £10m has been expended to date, and is still planned to be commissioned in late 2018. Finally, our rollout of smart-enabled meters continues with around 39,000 installed in customer premises as at 31 March 2018 representing over 78% of our customer base.       

Non-Energy performance

Year-on-year revenue in our retail business, Powerhouse.je, rose by 11% to £7.9m (2017: £7.1m) and profits rose 23% to £0.6m in what is a very competitive marketplace, both locally and off-island. Revenue and profit rose for our Property portfolio as a result of increased rental flows (profit up 5% to £0.9m). JEBS, our contracting and business services unit, saw a £0.2m increase in overall revenue to £3.1m but delivered a break-even position, down from a £0.1m profit in 2017 in a tight local market. Our remaining business units produced profits of £0.3m being £0.1m behind the same period in 2017. 

Forward hedging of electricity and foreign exchange, and customer tariffs

We continue to focus on delivering secure low-carbon electricity supplies and stable customer tariffs. Through the use of our power purchase contract and hedging policies, this has been successfully achieved whilst maintaining an appropriate and fair return for our shareholders. Our electricity purchases are materially, albeit not fully, hedged for the period 2018-21. As these are contractually denominated in the Euro we enter into forward foreign currency contracts to reduce the volatility of our cost base and aid tariff planning. We have continued to see volatility in foreign exchange in the last six months against the Euro primarily driven by the uncertainty surrounding the UK Brexit decision, which is why we seek to manage this exposure. In April 2018 we announced a  below inflation average rise in tariffs of 2%, from 1 June, largely driven by a weakening of sterling relative to the Euro and other inflationary factors. Customer tariffs last rose in April 2014 by 1.5%.

Debt and financing

The net debt figure fell to £20.2m at 31 March 2018 compared to £29.4m at this time last year (and £21.9m at 30 September 2017). After a high level of capital spending on undersea cables, and associated infrastructure, over recent years, the level of expenditure and associated net debt in this current year, has fallen. It is the aim of the Board that Jersey Electricity continues to maintain a prudent level of debt relative to our overall balance sheet, which remains strong.

Pension scheme

The defined benefit pension scheme deficit (without deduction of deferred tax) on our balance sheet at 31 March 2018, at £3.9m, was similar to the £4.2m level at 30 September 2017 (and a deficit of £4.8m at 31 March 2017). Since the last financial year end, scheme assets rose by £4m (to £133m) and liabilities also increased by £4m (to £137m). This increase in scheme liabilities is due to a decrease in relevant AA-rated bond yields partially offset by a decrease in assumed RPI inflation. Cash paid into the scheme during the six month period was £0.9m (2017: £1.0m) with the IAS 19 charge against profit being £1.6m (2017: £1.8m). The defined benefit scheme has been closed to new members since 2013.

Dividend

Your Board proposes to pay an interim net dividend for 2018 of 6.1p (2017: 5.8p). As stated previously we continue to aim to deliver sustained real growth each year over the medium-term. The final dividend for 2017 of 8.4p, paid in late March in respect of the last financial year, was an increase of 5% on the previous year.

Risk and outlook

The principal risks and uncertainties identified in our last Annual Report, issued in January 2018, have not materially altered in the interim period.

Your Board is satisfied that Jersey Electricity plc has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, we continue to adopt the going concern basis in preparing the condensed financial statements.

Responsibility statement

We confirm to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the Interim Directors Statement includes a fair review of the information required by the Disclosure and Transparency Rule DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the Interim Directors Statement includes a fair review of the information required by the Disclosure and Transparency Rule DTR 4.2.8R (disclosure of related party transactions and changes therein); and

(d) this half yearly interim report contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this half yearly financial report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this half yearly financial report should be construed as a profit forecast.

C.J. AMBLER – Chief Executive       M.P.MAGEE – Finance Director            18 May 2018

INVESTOR TIMETABLE FOR 2018

Condensed Consolidated Income Statement (Unaudited)

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

Condensed Consolidated Balance Sheet (Unaudited)

Condensed Consolidated Statement of Changes in Equity (Unaudited)

Condensed Consolidated Cash Flow Statement (Unaudited)

Notes to the Condensed Interim Accounts (Unaudited)

1.         Accounting policies

Basis of preparation

The interim financial statements for the six months ended 31 March 2018 have been prepared on the basis of the accounting policies set out in the 30 September 2017 annual report and accounts using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard 34 'Interim Financial Reporting'. There have been no changes to accounting standards during the current financial year that would be expected to impact the disclosures in these financial statements, nor the full year financial statements that will be prepared for 30 September 2018.

The directors have a reasonable expectation that the Group (being the Company, Jersey Electricity plc and its subsidiary, Jersey Deep Freeze Ltd) has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the interim financial statements.

2.         Revenue and profit

The contributions of the various activities to Group revenue and profit are listed below:

Materially, all of the Group's operations are conducted within the Channel Islands. All transactions between divisions are on an arm's-length basis. The assets and liabilities of the Group are not reported on as there has been no significant movement in the values in the six months to 31 March 2018.

3.         Taxation

For the period ended 31 March 2018 and subsequent periods, the Company is taxable at the rate applicable to utility companies in Jersey of 20% (2017: 20%).

4.         Dividends paid and proposed

The distribution to equity holders in respect of the final dividend for 2017 of £2,573,441 (8.4p net of tax per share) was paid on 29 March 2018.

The Directors have declared an interim dividend of 6.1p per share, net of tax (2017: 5.8p) for the six months ended 31 March 2018 to shareholders on the register at the close of business on 1 June 2018. This dividend was approved by the Board on 18 May 2018 and has not been included as a liability at 31 March 2018.

5.         Pensions

In consultation with the independent actuaries to the scheme, the valuation of the pension scheme assets and liabilities has been updated to reflect current market discount rates, current market values of investments and actual investment returns applicable under IAS 19 'Employee Benefits', and consideration has also been given as to whether there have been any other events that would significantly affect the pension liabilities.

6.         Financial instruments

The Group held the following derivative contracts, classified as level 2 financial instruments at 31 March 2018. 

All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy. This hierarchy is based on the underlying assumptions used to determine the fair value measurement as a whole and is categorised as follows:

Level 1 financial instruments are those with values that are immediately comparable to quoted (unadjusted) market prices in active markets for identical assets or liabilities;

Level 2 financial instruments are those with values that are determined using valuation techniques for which the basic assumptions used to calculate fair value are directly or indirectly observable (such as to readily available market prices);

Level 3 financial instruments are shown at values that are determined by assumptions that are not based on observable market data (unobservable inputs).

The derivative contracts for foreign currency shown above are classified as level 2 financial instruments and are valued using a discounted cash flow valuation technique. Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

7.         Related party transactions

The Company conducts a variety of transactions with the States of Jersey and its associated entities:

The States of Jersey is the Group's majority and controlling shareholder. Related entities include all corporatised entities that remain wholly owned by, or controlled by, the States of Jersey.