REG - Jersey Electricity - Half-year Report
Jersey Electricity plc
Interim Management 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
Financial Summary
6 months
2018
6 months
2017
Electricity Sales in kWh (000)
368,200
361,123
Revenue
£60.5m
£58.0m
Profit before tax
£ 9.7m
£ 8.9m
Earnings per share
24.9p
22.9p
Final dividend paid per ordinary share
8.4p
8.0p
Proposed interim dividend per ordinary share
6.1p
5.8p
Net debt
£20.2m
£29.4m
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
1 June
Record date for interim ordinary dividend
29 June
Interim ordinary dividend for year ending 30 September 2018
2 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
2018
£000
2017
£000
2017
£000
Revenue
2
60,463
58,004
102,320
Cost of sales
(37,506)
(35,507)
(63,186)
Gross profit
22,957
22,497
39,134
Revaluation of investment properties
-
-
40
Operating expenses
(12,553)
(12,981)
(24,379)
Group operating profit
2
10,404
9,516
14,795
Finance income
7
1
3
Finance costs
(707)
(588)
(1,340)
Profit from operations before taxation
9,704
8,929
13,458
Taxation
3
(2,023)
(1,925)
(2,834)
Profit from operations after taxation
7,681
7,004
10,624
Attributable to:
Owners of the Company
7,640
7,009
10,599
Non-controlling interests
41
(5)
25
Profit for the period/year attributable to the equity holders of the parent Company
7,681
7,004
10,624
Earnings per share
- basic and diluted
24.9p
22.9p
34.6p
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
Six months ended
31 March
Six months ended
31 March
Year ended
30 September
2018
£000
2017
£000
2017
£000
Profit for the period/year
7,681
7,004
10,624
Items that will not be reclassified subsequently to
profit or loss:
Actuarial gain on defined benefit scheme
964
7,547
8,859
Income tax relating to items not reclassified
(193)
(1,509)
(1,772)
771
6,038
7,087
Items that may be reclassified subsequently to profit
or loss:
Fair value loss on cash flow hedges
(3,407)
(2,387)
(1,673)
Income tax relating to items that may be reclassified
681
477
335
(2,726)
(1,910)
(1,338)
Total comprehensive income for the period/year
5,726
11,132
16,373
Attributable to:
Owners of the Company
5,685
11,137
16,348
Non-controlling interests
41
(5)
25
5,726
11,132
16,373
Condensed Consolidated Balance Sheet (Unaudited)
Note
As at 31 March
2018
£000
As at 31 March
2017
£000
As at 30 September
2017
£000
Non-current assets
Intangible assets
1,077
189
1,110
Property, plant and equipment
212,401
210,597
211,921
Investment property
20,150
20,110
20,150
Trade and other receivables
533
622
592
Derivative financial instruments
6
593
3,807
2,790
Other investments
5
5
5
Total non-current assets
234,759
235,330
236,568
Current assets
Inventories
6,618
5,736
6,825
Trade and other receivables
21,559
20,571
15,782
Derivative financial instruments
6
3,337
2,891
4,454
Cash and cash equivalents
9,767
4,556
8,076
Total current assets
41,281
33,754
35,137
Total assets
276,040
269,084
271,705
Current liabilities
Trade and other payables
14,147
13,058
15,885
Borrowings
-
4,000
-
Derivative financial instruments
6
8
13
-
Current tax payable
2,813
1,166
1,034
Total current liabilities
16,968
18,237
16,919
Net current assets
24,313
15,517
18,218
Non-current liabilities
Trade and other payables
21,820
20,751
20,177
Retirement benefit deficit
3,855
4,764
4,219
Derivative financial instruments
6
257
327
172
Financial liabilities - preference shares
235
235
235
Borrowings
30,000
30,000
30,000
Deferred tax liabilities
23,490
21,992
23,719
Total non-current liabilities
79,657
78,069
78,522
Total liabilities
96,625
96,306
95,441
Net assets
179,415
172,778
176,264
Equity
Share capital
1,532
1,532
1,532
Revaluation reserve
5,270
5,270
5,270
ESOP reserve
(61)
(119)
(84)
Other reserves
2,932
4,968
5,658
Retained earnings
169,700
161,119
163,862
Equity attributable to owners of the Company
179,373
172,770
176,238
Non-controlling interests
42
8
26
Total equity
179,415
172,778
176,264
Condensed Consolidated Statement of Changes in Equity (Unaudited)
Share
Revaluation
ESOP
Other
Retained
Total
capital
reserve
reserve
reserves
earnings
reserves
£000
£000
£000
£000
£000
£000
At 1 October 2017
1,532
5,270
(84)
5,658
163,862
176,238
Total recognised income and expense for the period
-
-
-
-
7,640
7,640
Funding of employee share scheme
-
-
(9)
-
-
(9)
Amortisation of employee share scheme
-
-
32
-
-
32
Unrealised loss on hedges (net of tax)
-
-
-
(2,726)
-
(2,726)
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
771
771
Equity dividends paid
-
-
-
-
(2,573)
(2,573)
At 31 March 2018
1,532
5,270
(61)
2,932
169,700
179,373
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 2016
1,532
5,270
(155)
6,878
150,523
164,048
Total recognised income and expense for the year
-
-
-
-
10,599
10,599
Funding of employee share scheme
-
-
(2)
-
-
(2)
Amortisation of employee share scheme
-
-
73
-
-
73
Unrealised loss on hedges (net of tax)
-
-
-
(1,338)
-
(1,338)
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
7,087
7,087
Adjustment to reserves
-
-
-
118
(118)
-
Equity dividends paid
-
-
-
-
(4,229)
(4,229)
At 30 September 2017
1,532
5,270
(84)
5,658
163,862
176,238
Condensed Consolidated Cash Flow Statement (Unaudited)
As at 31 March
2018
£000
As at 31 March
2017
£000
As at 30 September
2017
£000
Cash flows from operating activities
Operating profit
10,404
9,516
14,795
Depreciation and amortisation charges
5,458
5,151
10,695
Share-based reward charges
32
36
73
Gain on revaluation of investment property
-
-
(40)
Pension operating charge less contributions paid
654
840
1,607
Payment for foreign exchange option
250
-
-
Loss/(profit) on sale of fixed assets
-
42
(4)
Operating cash flows before movements in working capital
16,798
15,585
27,126
Working capital adjustments:
Decrease/(increase) in inventories
207
226
(863)
(Increase)/decrease in trade and other receivables
(5,718)
(3,928)
892
Increase/(decrease) in trade and other payables
1,017
(1,414)
1,230
Net movement in working capital
(4,494)
(5,116)
1,259
Interest paid
(703)
(590)
(1,322)
Capitalised interest paid
-
(172)
(172)
Preference dividends paid
(4)
(4)
(9)
Income taxes paid
-
-
(421)
Net cash flows generated from operating activities
11,597
9,703
26,461
Cash flows from investing activities
Purchase of property, plant and equipment
(6,914)
(8,508)
(14,252)
Investment in intangible assets
(137)
(63)
(836)
Net proceeds from disposal of fixed assets
-
3
4
Net cash used in investing activities
(7,051)
(8,568)
(15,084)
Cash flows from financing activities
Equity dividends paid
(2,573)
(2,451)
(4,229)
Dividends paid to non-controlling interest
(25)
(39)
(59)
Deposit interest received
7
1
3
Payment for foreign exchange option
(250)
-
-
Proceeds from borrowings
-
18,000
18,000
Repayment of borrowings
-
(14,000)
(18,943)
Net cash (used in) / generated from financing activities
(2,841)
1,511
(5,228)
Net increase in cash and cash equivalents
1,705
2,646
6,149
Cash and cash equivalents at beginning of period/year
8,076
1,925
1,925
Effect of foreign exchange rate changes
(14)
(15)
2
Net cash and cash equivalents at end of period/year
9,767
4,556
8,076
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:
Six months ended
31 March 2018
Six months ended
31 March 2017
Year ended
30 September 2017
External
Internal
Total
External
Internal
Total
External
Internal
Total
Revenue
£000
£000
£000
£000
£000
£000
£000
£000
£000
Energy
47,174
64
47,238
46,150
70
46,220
80,480
143
80,623
Building Services
2,865
249
3,114
2,413
472
2,885
3,982
915
4,897
Retail
7,912
17
7,929
7,102
16
7,118
13,045
37
13,082
Property
1,115
305
1,420
1,088
299
1,387
2,187
599
2,786
Other
1,397
390
1,787
1,251
915
2,166
2,626
1,324
3,950
60,463
1,025
61,488
58,004
1,772
59,776
102,320
3,018
105,338
Intergroup elimination
(1,025)
(1,772)
(3,018)
Revenue
60,463
58,004
102,320
Operating profit
Energy
8,667
7,694
11,723
Building Services
(13)
104
131
Retail
567
460
731
Property
913
870
1,645
Other
270
388
525
10,404
9,516
14,755
Revaluation of investment properties
-
-
40
Operating profit
10,404
9,516
14,795
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
Six months ended 31 March
Year ended
30 September
2018
£000
2017
£000
2017
£000
Current income tax
1,771
1,166
1,034
Deferred income tax
252
759
1,800
Total income tax
2,023
1,925
2,834
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
Six months ended
31 March
Year ended
30 September
2018
2017
2017
Dividends per share
- paid
8.4p
8.0p
13.8p
- proposed
6.1p
5.8p
8.4p
£000
£000
£000
Distributions to equity holders
2,573
2,451
4,228
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.
Fair value of currency hedges
31 March
30 September
2018
2017
2017
Derivative assets
£'000
£'000
£'000
Less than one year
3,337
2,891
4,454
Greater than one year
593
3,807
2,790
Derivative liabilities
Less than one year
(8)
(13)
-
Greater than one year
(257)
(327)
(172)
Total net assets
3,665
6,358
7,072
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
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
£000
£000
£000
£000
£000
£000
£000
£000
£000
£000
The States of Jersey and related entities
5,139
5,347
1,165
808
791
782
564
742
6
99
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR LLFFSETITLIT
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