REG - Jersey Electricity - Half-year Report <Origin Href="QuoteRef">JLEC.L</Origin>

Jersey ElectricityAnnouncement

19/05/2017 07:05

RNS Number : 5909F
Jersey Electricity PLC
19 May 2017
JerseyElectricity plc  
 Interim Management Report
 for the six months ended 31 March2017
  
The Board approved at a meeting on 18 May 2017 the Interim Management Report for the six months ended 31 March 2017 and declared an interim dividend of 5.80pcompared to 5.50p for 2016. The dividend will be paid on 30 June 2017 to those shareholders registered in the records of the Company at the close of business on 2 June 2017.
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 2017 has not been audited or reviewed by our external auditors nor have the results for the equivalent period in 2016. The results for the year ended 30 September 2016 have been extracted from the statutory accounts. The auditor has reported on those accounts and their report was 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
19 May 2017
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 2017
Financial Summary
6 months
2017
6 months
2016
Electricity Sales in kWh (000)
361,123
351,942
Revenue
58.0m
57.0m
Profit before tax 
 8.9m
 7.9m
Profit in Energy business 
 7.7m
 6.9m
Earnings per share 
22.88p
20.65p
Final dividend paid per ordinary share
8.00p
 7.60p 
Proposed interim dividend per ordinary share 
 5.80p
 5.50p
Net debt
29.4m
21.1m
Overall trading performance
Group revenue, at 58.0m, was 1.7% higher for the first half year of 2017 than the same period in 2016 with this 1.0m rise coming from a higher level of unit sales of electricity and also the overall increased activity in the non-Energy business units. Profit before tax was 8.9m being 1.0m 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 decreased by 1.1m to 35.5m mainly due to a marginal reduction in import costs in our Energy business. However operating expenses at 13.0m were 1.1m above last year with an increase in depreciation charges, post our continued investment in infrastructure, and pension costs being the primary drivers. The taxation charge in the period of 1.9m is 0.4m higher than during the same period in 2016 due to increased profits. Earnings per share rose to 22.88p from 20.65p in 2016. Net debt on the balance sheet at 31 March 2017 was 29.4m (2016: 21.1m) compared to 29.0m at our last year end on 30 September 2016. 
Energy performance
Unit sales of electricity rose by 2.6%, from 352m to 361m kWh, compared with last year. The average temperature was lower than in the first half of the 2016 financial year, resulting in an increased use of electricity, primarily in the heating of residential properties. Revenues in our Energy business at 46.2m rose 1.5% in 2017 because of the aforementioned higher unit sales. Operating profit in Energy at 7.7m was 0.8m higher than in the same period last year with higher revenues offset by higher depreciation and increased IAS 19 pension costs. We imported 93% of our on-Island requirement from France (2016: 90%) and 5% (2016: 6%) from the Energy from Waste plant, owned by the States of Jersey.The remaining 2% of our electricity was generated in Jersey using our own plant (2016: 4%).
Investment in infrastructure
Capital expenditure was 8.6m in the first 6 months of the financial year. Our third undersea supply cable to France, Normandie 1, was successfully commissioned on 1 December ahead of schedule and below budget. We now have three cables being utilised to import electricity from France and the expanded network has performed to expectations in the post-commissioning period. We continue with work on our new West of St Helier Primary sub-station which has an estimated cost of 17m, of which 7m has been expended to date, and is planned to be commissioned in late 2018. Finally, our rollout of smart-enabled meters continues with 31,000 in customer premises at 31 March 2017 representing over 60% of our customer base.
Non-Energy performance
Year-on-year revenue in our retailing business, Powerhouse.je, rose by 11% to 7.1m (2016: 6.4m) and profitability marginally increased to 0.5m in what is a very competitive marketplace, both locally and off-island. Revenue and profit remained constant for our Property portfolio (profit of 0.9m). JEBS, our contracting and business services unit, saw a 0.2m decrease in overall revenue to 2.9m whilst maintaining a profit of 0.1m, on a par with 2016, in a tight local market. Our remaining business units were ahead of target on an overall basis and produced profits of 0.4m being 0.1m ahead of the same period in 2016. 
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. Customer tariffs remain frozen at the same level as when the last tariff rise of 1.5% was instigated in April 2014. Our customers have been promised no movement in tariffs until at least 2018 despite material recent rises in other jurisdictions against whom we benchmark. Our electricity purchases are materially hedged for the period 2017-20, albeit not fully. As these are contractually denominated in the Euro we enter into foreign currency contracts to eliminate a large percentage of exposure to aid tariff planning. We have continued to see volatility in foreign exchange in the last six months against the Euro primarily associated with the UK Brexit decision, which is why we seek to largely eliminate exposure. A five year extension of the existing power importation contract with EDF was agreed during May. This extends our importation framework to 2027 and will help maintain reliable, low-carbon imported electricity supplies for the next decade. 
Debt and financing
The net debt figure, as expected, rose to 29.4m at 31 March 2017 compared to 29.0m at the last year end and we anticipate that this is likely to be close to our peak funding level, subject to any unexpected operational issues, post our relatively heavy level of capital spending on undersea cables, and associated infrastructure, over recent years. It is the aim of the Board that Jersey Electricity continues to maintain a prudent level of debt in the context of 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 2017 was 4.8m compared to 11.5m at 30 September 2016 (and a deficit of 5.7m at 31 March 2016). Since the last financial year end assets rose by around 3m (128m to 131m) and liabilities have fallen 4m (139m to 135m). This decrease in scheme liabilities is due to an increase in relevant AA-rated bond yields (used in the calculation) partially offset by an increase in assumed RPI inflation. Cash paid into the scheme during the six month period was 1.0m (2016: 1.0m) with the IAS 19 charge against profit being 1.8m (2016: 1.2m). The defined benefit scheme has been closed to new members since 2013. 
Dividend
Your Board proposes to pay an interim net dividend for 2017 of 5.80p (2016: 5.50p). As stated in the past we continue to aim to deliver sustained real growth each year over the medium-term. The final dividend for 2016 of 8.00p, 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 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 theoperations, performance and financial condition of the Group. By their nature, these statements involveuncertainty since future events and circumstances can cause results and developments to differ materiallyfrom those anticipated. The forward-looking statements reflect knowledge and information available atthe date of preparation of this half yearly financial report and the Company undertakes no obligation toupdate these forward-looking statements. Nothing in this half yearly financial report should be construedas a profit forecast.
C.J. AMBLER - Chief Executive  M.P.MAGEE - Finance Director 18 May 2017
 
 
INVESTOR TIMETABLE FOR 2017
2 June
Record date for interim ordinary dividend
30 June
Interim ordinary dividend for year ending 30 September 2017
3 July
Payment date for preference share dividends 
14 December
Preliminary announcement of full year results
Condensed Consolidated Income Statement (Unaudited)



Six months ended
31 March
Six months ended
31 March
Year ended
30 September
Note

2017
000

2016
000

2016
000








Revenue
2

58,004

57,036

103,361
Cost of sales


(35,507)

(36,610)

(65,249)
Gross profit


22,497

20,426

38,112
Revaluation of investment properties


-

-

(350)
Operating expenses


(12,981)

(11,851)

(23,498)
Group operating profit before exceptional item 


9,516

8,575

14,264
Exceptional item - La Collette rent accrual reversal 


-

-

1,676
Group operating profit
2

9,516

8,575

15,940
Finance income


1

19

22
Finance costs


(588)

(668)

(1,154)
Profit from operations before taxation


8,929

7,926

14,808
Taxation
3

(1,925)

(1,573)

(3,166)
Profit from operations after taxation


7,004

6,353

11,642








Attributable to:







Owners of the Company


7,009

6,326

11,547
Non-controlling interests


(5)

27

95








Profit for the period/year attributable to the equity holders of the parent Company


7,004

6,353

11,642








Earnings per share







 - basic and diluted


22.88

20.65

37.69
Condensed Consolidated Statement of Comprehensive Income (Unaudited)



Six months ended
31 March
Six months ended
31 March
Year ended
30 September



2017
000

2016
000

2016
000








Profit for the period/year


7,004

6,353

11,642








Items that will not be reclassified subsequently to
profit or loss:







Actuarial gain/(loss) on defined benefit scheme 


7,547

1,595

(2,829)
Income tax relating to items not reclassified


(1,509)

(319)

566



6,038

1,276

(2,263)








Items that may be reclassified subsequently to profit
or loss:







Fair value (loss)/gain on cash flow hedges 


(2,387)

6,979

13,865
Income tax relating to items that may be reclassified


477

(1,396)

(2,773)



(1,910)

5,583

11,092








Total comprehensive income for the period/year


11,132

13,212

20,471








Attributable to:







Owners of the Company


11,137

13,185

20,376
Non-controlling interests 


(5)

27

95



11,132

13,212

20,471
Condensed Consolidated Balance Sheet (Unaudited)

Note

As at 31 March
2017
000

As at 31 March
2016
000

As at 30 September
2016
000
Non-current assets







Intangible assets


189

198

162
Property, plant and equipment


210,597

192,780

209,168
Investment property


20,110

20,460

20,110
Trade and other receivables 


622

708

683
Derivative financial instruments
6

3,807

2,281

5,957
Other investments


5

5

5








Total non-current assets


235,330

216,432

236,085








Current assets







Inventories


5,736

5,853

5,962
Trade and other receivables


20,571

19,038

16,583
Derivative financial instruments
6

2,891

1,074

2,788
Cash and cash equivalents


4,556

8,905

1,925








Total current assets


33,754

34,870

27,258








Total assets


269,084

251,302

263,343








Current liabilities















Trade and other payables


13,058

15,620

16,084
Bank overdraft


-

-

943
Borrowings


4,000

-

-
Derivative financial instruments
6

13

1,468

-
Current tax payable


1,166

619

420








Total current liabilities


18,237

17,707

17,447
Net current assets


15,517

17,163

9,811








Non-current liabilities







Trade and other payables


20,751

20,930

19,600
Retirement benefit deficit


4,764

5,696

11,471
Derivative financial instruments
6

327

28

-
Financial liabilities - preference shares


235

235

235
Borrowings


30,000

30,000

30,000
Deferred tax liabilities


21,992

18,185

20,482








Total non-current liabilities


78,069

75,074

81,788








Total liabilities


96,306

92,781

99,235








Net assets


172,778

158,521

164,108








Equity







Share capital


1,532

1,532

1,532
Revaluation reserve


5,270

5,270

5,270
ESOP reserve


(119)

(191)

(155)
Other reserves


4,968

1,369

6,878
Retained earnings 


161,119

150,496

150,523
















Equity attributable to owners of the Company


172,770

158,476

164,048








Non-controlling interests


8

45

60








Total equity


172,778

158,521

164,108
Condensed Consolidated Statement of Changes in Equity (Unaudited)

Share
Revaluation
ESOP
Other
Retained


capital
reserve 
reserve
reserves
earnings
Total

000
000
000
000
000
000
At 1 October 2016
1,532
5,270
(155)
6,878
150,523
164,048
Total recognised income and expense for the period
-
-
-
-
7,009
7,009
Amortisation of employee share scheme
-
-
36
-
-
36
Unrealised loss on hedges (net of tax)
-
-
-
(1,910)
-
(1,910)
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
6,038
6,038
Equity dividends paid 
-
-
-
-
(2,451)
(2,451)
At 31 March 2017
1,532
5,270
(119)
4,968
161,119
172,770














At 1 October 2015
1,532
5,270
(97)
(4,214)
145,223
147,714
Total recognised income and expense for the period
-
-
-
-
6,326
6,326
Additional shares for employee share scheme
-
-
(114)
-
-
(114)
Amortisation of employee share scheme
-
-
20
-
-
20
Unrealised gain on hedges (net of tax)
-
-
-
5,583
-
5,583
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
1,276
1,276
Equity dividends paid 
-
-
-
-
(2,329)
(2,329)
At 31 March 2016
1,532
5,270
(191)
1,369
150,496
158,476














At 1 October 2015
1,532
5,270
(97)
(4,214)
145,223
147,714
Total recognised income and expense for the period
-
-
-
-
11,547
11,547
Additional shares for employee share scheme
-
-
(114)
-
-
(114)
Amortisation of employee share scheme
-
-
56
-
-
56
Unrealised gain on hedges (net of tax)
-
-
-
11,092
-
11,092
Actuarial loss on defined benefit scheme (net of tax)
-
-
-
-
(2,263)
(2,263)
Adjustment arising from change in non-controlling interest
-
-
-
-
31
31
Equity dividends paid 
-
-
-
-
(4,015)
(4,015)
At 30 September 2016
1,532
5,270
(155)
6,878
150,523
164,048


Condensed Consolidated Cash Flow Statement (Unaudited)


Six months ended
31 March

Six months ended
31 March

Year ended
30 September

2017
000

2016
000

2016
000
Cash flows from operating activities













Operating profit before exceptional items

9,516

8,575

14,264
Depreciation and amortisation charges

5,151

4,957

10,295
Loss on revaluation of investment property

-

-

350
Pension operating charge less contributions paid

840

300

1,351
Loss/(profit) on sale of fixed assets

42

-

(6)







Operating cash flows before movements in working capital

15,549

13,832

26,254







Decrease in inventories 

226

386

277
Increase in trade and other receivables 

(3,928)

(4,222)

(1,758)
(Decrease)/increase in trade and other payables

(1,378)

860

2,359
Interest paid

(590)

(654)

(1,148)
Capitalised interest paid

(172)

(117)

(374)
Preference dividends paid

(4)

(4)

(9)
Income taxes paid

-

-

(396)














Net cash flows generated from operating activities

9,703

10,081

25,205







Cash flows from investing activities













Purchase of property, plant and equipment

(8,508)

(11,335)

(32,391)
Investment in intangible assets

(63)

(6)

(4)
Proceeds from part disposal of subsidiary

-

-

10
Net proceeds from disposal of fixed assets

3

-

9














Net cash used in investing activities

(8,568)

(11,341)

(32,376)







Cash flows from financing activities













Equity dividends paid

(2,490)

(2,357)

(4,067)
Deposit interest received

1

19

22
Payment for foreign exchange option

-

-

(250)
Repayment of borrowings

(14,000)

-

(5,500)
Proceeds of borrowings

18,000

-

5,500














Net cash from / (used in) financing activities

1,511

(2,338)

(4,295)







Net increase/(decrease) in cash and cash equivalents

2,646

(3,598)

(11,466)
Cash and cash equivalents at beginning of period/year

1,925

12,503

12,503
Effect of foreign exchange rate changes

(15)

-

(55)
Overdraft

-

-

943







Net cash and cash equivalents at end of period/year

4,556

8,905

1,925
Notes to the Condensed Interim Accounts(Unaudited)
1.  Accounting policies
Basis of preparation
The interim financial statements for the six months ended 31 March 2017 have been prepared on the basis of the accounting policies set out in the 30 September 2016 annual report and accounts using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standards 34 'Interim Financial Reporting'.
The directors have a reasonable expectation that the Group 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:
Six months ended
31 March 2017
Six months ended
31 March 2016
Year ended
30 September 2016

External
Internal
Total
External
Internal
Total
External
Internal
Total
Revenue
000
000
000
000
000
000
000
000
000










Energy
46,150 
70 
46,220 
45,462
72
45,534
81,215
144
81,359
Property
1,088 
299 
1,387 
1,046
299
1,345
2,143
599
2,742
Retail
7,102 
16 
7,118 
6,413
20
6,433
11,933
45
11,978
Building Services
2,413 
472 
2,885 
2,772
280
3,052
5,120
786
5,906
Other
1,251 
915 
2,166 
1,343
393
1,736
2,950
876
3,826

58,004
1,772 
59,776 
57,036
1,064
58,100
103,361
2,450
105,811
Intergroup elimination


(1,772)


(1,064)


(2,450)
Revenue


58,004 


57,036


103,361










Operating profit









Energy


7,694 


6,904


11,650
Property


870 


870


1,683
Retail


460 


411


452
Building Services


104 


116


134
Other


388 


274


695



9,516 


8,575


14,614










Revaluation of investment properties


-


-


(350)










Exceptional item









La Collette rent accrual reversal


-


-


1,676










Operating profit


9,516


8,575


15,940
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 2017.
Notes to the Condensed Interim Accounts (Unaudited)
3. Taxation
Six months ended 31 March

Year ended
30 September

2017
000

2016
000

2016
000
Current income tax 
1,166

215

420
Deferred income tax
759

1,358

2,746
Total income tax
1,925

1,573

3,166
For the period ended 31 March 2017 and subsequent periods, the Company is taxable at the rate applicable to utility companies in Jersey of 20% (2016: 20%). The mix between current and deferred income tax has changed following the utilisation of tax losses associated with capital allowances.
4. Dividends paid and proposed

Six months ended
 31 March

Year ended
30 September

2017

2016

2016
Dividends per share





 - paid 
8.00p

7.60p

13.10p
 - proposed
5.80p

5.50p

8.00p













000

000

000
Distributions to equity holders 
2,451

2,329

4,015
 
The distribution to equity holders in respect of the final dividend for 2016 of 2,451,200 (8.00p net of tax per share) was paid on 30 March 2017. 
The Directors have declared an interim dividend of 5.80p per share, net of tax (2016: 5.50p) for the six months ended 31 March 2017 to shareholders on the register at the close of business on 2 June 2017. This dividend was approved by the Board on 18 May 2017 and has not been included as a liability at 31 March 2017.
 
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 2017.
Fair value of currency hedges

Six months ended 31 March

Year ended 30 September


2017

2016

2016
Derivative assets

'000

'000

'000
Less than one year

2,891 

1,074 

2,788 
Greater than one year

3,807 

2,281 

5,957 


6,698 

3,355 

8,745 
Derivative liabilities






Less than one year

13 

1,468 

-
Greater than one year

327 

28 

-


340 

1,496 

-
Notes to the Condensed Interim Accounts (Unaudited)
  
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:
 

Value of electricity services supplied by Jersey Electricity
Value of goods & other services supplied by Jersey Electricity
Value of goods & services purchased by Jersey Electricity
Amounts due to Jersey Electricity
Amounts due by Jersey Electricity
Six months ended 31 March
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
000
000
000
000
000
000
000
000
000
000











The States of Jersey
3,803
3,761
581
725
588
1,102
616
732
99
1
JT Group Limited
996
980
177
268
83
19
50
157
-
3
Jersey Post Int Limited 
52
58
9
-
30
17
4
7
-
-
Jersey New Waterworks Ltd
496
409
41
74
81
64
72
63
-
7
The States of Jersey is the Group's majority and controlling shareholder. JT Group Limited and Jersey Post International Limited are both wholly owned by the States of Jersey. Jersey New Waterworks is majority owned and controlled by the States of Jersey. All transactions are undertaken on an arm's length basis.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR LLFIEEIITLID