REG - Jersey Electricity - Half-year Report
Jersey Electricity plc
Interim Management Report
for the six months ended 31 March 2019
The Board approved at a meeting on 16 May 2019 the Interim Management Report for the six months ended 31 March 2019 and declared an interim dividend of 6.45p compared to 6.10p for 2018. The dividend will be paid on 28 June 2019 to those shareholders registered in the records of the Company at the close of business on 7 June 2019.
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 2019 has not been audited, or reviewed, by our external auditors nor have the results for the equivalent period in 2018. The results for the year ended 30 September 2018 were 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
16 May 2019
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 2019
Financial Summary
6 months
2019
6 months
2018
Electricity Sales in kWh
356.7m
368.2m
Revenue
£59.7m
£60.5m
Profit before tax
£9.3m
£9.7m
Earnings per share
23.83p
24.93p
Final dividend paid per ordinary share
8.80p
8.40p
Proposed interim dividend per ordinary share
6.45p
6.10p
Net debt
£12.1m
£20.2m
Overall trading performance
Group revenue, at £59.7m, was 1% lower for the first half of 2019 compared to the same period last year mainly due to a £1.3m decrease in revenue in JEBS, our contracting and business services unit. Revenue in our Energy business was broadly similar to last year. Profit before tax at £9.3m was £0.4m less than 2018 with a fall in Energy profits associated with lower unit sales being the primary driver. Cost of sales at £36.7m was £0.8m lower than last year with the fall in JEBS revenue being the main reason and operating expenses at £13.1m were £0.5m higher driven by marginal increases in depreciation, maintenance costs and software licensing. The taxation charge in the period of £1.9m was £0.1m lower than last year due to lower profits. Earnings per share, at 23.8p, were marginally behind 24.9p in 2018 due to lower profits. Net debt on the balance sheet, which comprises borrowings less cash and cash equivalents, at 31 March 2019 was £12.1m compared to £20.2m at this time last year (and £14.3m at our last year end on 30 September 2018).
Energy performance
Unit sales of electricity fell 3%, from 368m to 357m kWh, compared with last year. The recorded Maximum Demand fell by 15% from an all-time record of 178MW in March 2018 to 150MW, in December 2018. Revenues in our Energy business at £47.4m were £0.2m higher than in 2018 reflecting a £0.6m reduction due to lower unit sales offset by the 2% rise in customer tariffs from 1 June 2018. Other income received was £0.8m higher than in 2018 as we received a rebate for subsea cable repair costs incurred in 2014. Operating profit at £8.2m was £0.5m lower than in the same period last year. Gross margin was impacted by lower unit sales and increased imported electricity prices and other costs, such as manpower, were higher compared to last year. We imported 95% of our on-Island requirement from France and 5% from the Energy from Waste plant, owned by the States of Jersey. Only 0.2% (1m units) of electricity was generated in Jersey using our own plant due to the availability of our three subsea cables to France. These importation and generation levels were consistent with the same period last year.
Non-Energy performance
Year-on-year revenue in our Powerhouse retail business, rose by 3% to £8.1m (2018: £7.9m) and profits rose by £0.1m to £0.6m in what is a very competitive marketplace, both locally and off-island. Profit for our Property portfolio was £0.1m lower than last year, at £0.8m, due mainly to an increase in operational maintenance costs. JEBS, our contracting and business services unit, saw a £1.3m decrease in external revenue to £1.6m (as one particularly large project took place during the previous financial year) but profitability remained around break-even similar to 2018. Our remaining business units produced profits of £0.3m being at a similar level to that delivered in 2018.
Investment in infrastructure
Capital expenditure was £6.4m in the first 6 months of the financial year compared to £7.1m in the same period last year. Our new West of St Helier Primary sub-station was successfully commissioned on 13 December as planned and the remaining mainly cosmetic works to the site, will be completed by summer 2019. Our rollout of smart-enabled meters continues with around 45,000 installed in customer premises as at 31 March 2019 representing around 90% of our customer base. A £4m project to install a new transformer at our La Collette site was approved at the March 2019 Board meeting and the project is expected to be completed during 2021.
Forward hedging of electricity and foreign exchange, and customer tariffs
We continue with our focus on delivering secure low-carbon electricity supplies and in our goal to maintain relative stability in customer tariffs, despite volatility in both European wholesale electricity, and foreign exchange markets. Our electricity purchases are materially, albeit not fully, hedged for the period 2019-22. 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. In February 2019 we announced a below inflation average rise in tariffs of 3.5%, from 1 April, largely driven by a weakening of Sterling relative to the Euro and other inflationary factors. This is only the second rise instigated in the last five years and the tariffs payable by an average customer continue to benchmark well against other jurisdictions. The 'default maximum tariff', recently introduced by Ofgem (the electricity Regulator) to cap prices payable in the UK, is set at a level that is over 30% higher than the average customer would pay in Jersey.
Debt and financing
The net debt figure fell to £12.1m at 31 March 2019 compared to £20.2m at this time last year (and £14.3m at 30 September 2018). We continue to invest in necessary infrastructure in the Channel Islands and the Board is of the opinion that the Company is in a strong position to invest and fund further capital expenditure as considered appropriate.
Pension scheme
The defined benefit pension scheme deficit (without deduction of deferred tax) on our balance sheet at 31 March 2019 stood at £3.4m, compared to a surplus of £4.8m level at 30 September 2018 (and a deficit of £3.9m at 31 March 2018). Since the last financial year end scheme liabilities have materially increased by approximately £13m (to £144m). This increase was due to the assumed discount rate moving down from 2.9% at the last financial year-end to 2.4% at 31 March 2019 as yield curve movements have fallen in the interim period. Assets in the Scheme have risen by around £5m (to £141m).
The defined benefit scheme has been closed to new members since 2013. The triennial valuation of the pension scheme, as at 31 December 2018, is currently being performed by Aon, and the results will be reported in our 2019 Annual Report.
Dividend
Your Board proposes to pay an interim net dividend for 2019 of 6.45p (2018: 6.10p). As stated previously we continue to aim to deliver sustained real growth each year over the medium-term. The final dividend for 2018 of 8.80p, 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 2019, have not materially altered in the interim period. We reported on Brexit considerations in the 2018 Annual Report and our view has not altered, since then.
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 approval 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 16 May 2019
INVESTOR TIMETABLE FOR 2019
7 June
Record date for interim ordinary dividend
28 June
Interim ordinary dividend for year ending 30 September 2019
1 July
Payment date for preference share dividends
20 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
2019
£000
2018
£000
2018
£000
Revenue
2
59,695
60,463
105,874
Cost of sales
(36,689)
(37,506)
(65,110)
Gross profit
23,006
22,957
40,764
Revaluation of investment properties
-
-
310
Operating expenses
(13,056)
(12,553)
(24,380)
Group operating profit
2
9,950
10,404
16,694
Finance income
39
7
28
Finance costs
(735)
(707)
(1,377)
Profit from operations before taxation
9,254
9,704
15,345
Taxation
3
(1,911)
(2,023)
(3,152)
Profit from operations after taxation
7,343
7,681
12,193
Attributable to:
Owners of the Company
7,302
7,640
12,115
Non-controlling interests
41
41
78
Profit for the period/year attributable to the equity holders of the parent Company
7,343
7,681
12,193
Earnings per share
- basic and diluted
23.83p
24.93p
39.54p
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
Six months ended
31 March
Six months ended
31 March
Year ended
30 September
2019
£000
2018
£000
2018
£000
Profit for the period/year
7,343
7,681
12,193
Items that will not be reclassified subsequently to
profit or loss:
Actuarial (loss)/gain on defined benefit scheme
(7,526)
964
10,166
Income tax relating to items not reclassified
1,505
(193)
(2,033)
(6,021)
771
8,133
Items that may be reclassified subsequently to
profit or loss:
Fair value loss on cash flow hedges
(5,210)
(3,407)
(4,261)
Income tax relating to items that may be reclassified
1,042
681
852
(4,168)
(2,726)
(3,409)
Total comprehensive income for the period/year
(2,846)
5,726
16,917
Attributable to:
Owners of the Company
(2,887)
5,685
16,839
Non-controlling interests
41
41
78
(2,846)
5,726
16,917
Condensed Consolidated Balance Sheet (Unaudited)
Note
As at 31 March
2019
£000
As at 31 March
2018
£000
As at 30 September
2018
£000
Non-current assets
Intangible assets
826
1,077
938
Property, plant and equipment
215,533
212,401
215,153
Investment property
20,460
20,150
20,460
Trade and other receivables
425
533
501
Retirement benefit surplus
-
-
4,751
Derivative financial instruments
6
-
593
682
Other investments
5
5
5
Total non-current assets
237,249
234,759
242,490
Current assets
Inventories
7,423
6,618
7,092
Trade and other receivables
20,506
21,559
15,202
Derivative financial instruments
6
78
3,337
2,338
Cash and cash equivalents
17,939
9,767
15,735
Total current assets
45,946
41,281
40,367
Total assets
283,195
276,040
282,857
Current liabilities
Trade and other payables
16,014
14,147
15,284
Derivative financial instruments
6
738
8
120
Current tax payable
4,047
2,813
2,299
Total current liabilities
20,799
16,968
17,703
Net current assets
25,147
24,313
22,664
Non-current liabilities
Trade and other payables
20,471
21,820
20,348
Retirement benefit deficit
3,375
3,855
-
Derivative financial instruments
6
1,739
257
89
Financial liabilities - preference shares
235
235
235
Borrowings
30,000
30,000
30,000
Deferred tax liabilities
23,369
23,490
25,753
Total non-current liabilities
79,189
79,657
76,425
Total liabilities
99,988
96,625
94,128
Net assets
183,207
179,415
188,729
Equity
Share capital
1,532
1,532
1,532
Revaluation reserve
5,270
5,270
5,270
ESOP reserve
-
(61)
(41)
Other reserves
(1,919)
2,932
2,249
Retained earnings
178,252
169,700
179,666
Equity attributable to owners of the Company
183,135
179,373
188,676
Non-controlling interests
72
42
53
Total equity
183,207
179,415
188,729
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 2018
1,532
5,270
(41)
2,249
179,666
188,676
Total recognised income and expense for the period
-
-
-
-
7,302
7,302
Funding of employee share scheme
-
-
(22)
-
-
(22)
Amortisation of employee share scheme
-
-
63
-
-
63
Unrealised loss on hedges (net of tax)
-
-
-
(4,168)
-
(4,168)
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
(6,021)
(6,021)
Equity dividends paid
-
-
-
-
(2,695)
(2,695)
At 31 March 2019
1,532
5,270
-
(1,919)
178,252
183,135
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 2017
1,532
5,270
(84)
5,658
163,862
176,238
Total recognised income and expense for the year
-
-
-
-
12,115
12,115
Funding of employee share scheme
-
-
(9)
-
-
(9)
Amortisation of employee share scheme
-
-
52
-
-
52
Unrealised loss on hedges (net of tax)
-
-
-
(3,409)
-
(3,409)
Actuarial gain on defined benefit scheme (net of tax)
-
-
-
-
8,133
8,133
Equity dividends paid
-
-
-
-
(4,444)
(4,444)
At 30 September 2018
1,532
5,270
(41)
2,249
179,666
188,676
Condensed Consolidated Cash Flow Statement (Unaudited)
As at 31 March
2019
£000
As at 31 March
2018
£000
As at 30 September
2018
£000
Cash flows from operating activities
Operating profit
9,950
10,404
16,694
Depreciation and amortisation charges
5,584
5,458
11,242
Share-based reward charges
63
32
52
Gain on revaluation of investment property
-
-
(310)
Pension operating charge less contributions paid
460
654
1,196
Profit on sale of fixed assets
-
-
(1)
Operating cash flows before movements in working capital
16,057
16,548
28,873
Working capital adjustments:
(Increase)/decrease in inventories
(331)
207
(267)
(Increase)/decrease in trade and other receivables
(5,226)
(5,718)
671
Increase in trade and other payables
1,442
1,017
125
Net movement in working capital
(4,115)
(4,494)
529
Interest paid
(731)
(703)
(1,368)
Preference dividends paid
(4)
(4)
(9)
Income taxes paid
-
-
(1,045)
Net cash flows generated from operating activities
11,207
11,347
26,980
Cash flows from investing activities
Purchase of property, plant and equipment
(6,381)
(6,914)
(14,705)
Investment in intangible assets
(60)
(137)
(168)
Net proceeds from disposal of fixed assets
-
-
1
Net cash used in investing activities
(6,441)
(7,051)
(14,872)
Cash flows from financing activities
Equity dividends paid
(2,695)
(2,573)
(4,444)
Dividends paid to non-controlling interest
(22)
(25)
(51)
Deposit interest received
39
7
28
Net cash used in financing activities
(2,678)
(2,591)
(4,467)
Net increase in cash and cash equivalents
2,088
1,705
7,641
Cash and cash equivalents at beginning of period/year
15,735
8,076
8,076
Effect of foreign exchange rate changes
116
(14)
18
Net cash and cash equivalents at end of period/year
17,939
9,767
15,735
Notes to the Condensed Interim Accounts (Unaudited)
1. Accounting policies
Basis of preparation
The interim financial statements for the six months ended 31 March 2019 have been prepared on the basis of the accounting policies set out in the 30 September 2018 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 two changes to accounting standards during the current financial period that would be expected to impact the disclosures in these financial statements and the full year financial statements that will be prepared for 30 September 2019:
IFRS 9 'Financial instruments' was endorsed by the European Union (EU) and has been effective for periods on or after 1 January 2018 (1 October 2018 for the Group) and replaces IAS 39 'Financial Instruments: Recognition and Measurement'. The impact of adopting this standard does not materially change the amounts recognised in relation to existing Euro forward currency hedging arrangements employed by the Group but does simplify the requirements for measuring hedge effectiveness, and thus the eligibility conditions for hedge accounting. The Group's review of the IFRS 9 hedge accounting model concluded that whilst adoption does not change the treatment of existing hedging arrangements, the changes made do not result in any additional hedge designations either. As such, the existing hedge accounting model under IAS 39 appropriately reflects our risk management activities in the financial statements. Therefore, as permitted by IFRS 9, the Group has elected to continue to apply the hedge accounting requirements of IAS 39. This policy choice will be periodically reviewed to consider any changes in our risk management activities. Additionally, the Group has applied the exemption from the requirement to restate comparative information about classification and measurement, including impairment.
IFRS 15 'Revenue from contracts with customers' was endorsed by the EU and is effective for periods commencing on or after 1 January 2018 (1 October 2018 for the Group) and replaces IAS 11 'Construction contracts', IAS 18 'Revenue', IFRIC 18 'Transfers of Assets from Customers' and a number of other revenue related interpretations previously adopted by the Group. The core principle of IFRS 15 is that an entity recognises revenue that reflects the expected consideration for goods or services provided to a customer under contract, over the performance obligations they are provided, especially where bundled services are provided. Due to the nature of the Group's revenue generating transactions with customers, the impact of IFRS 15 only affects very limited activities undertaken by our Jendev division. It is therefore understood that this standard has no material impact to revenue or profits of the Group.
IFRS 16 'Leases' has been endorsed by the EU and will be effective for periods commencing on or after 1 January 2019 (1 October 2019 for the Group) and replaces IAS 17 'Leases' and sets out the principles for the recognition, measurement, presentation and disclosure of leases. It is anticipated that where the Group is currently lessee, around £4.0m of additional "Right of Use" assets will be capitalised with a corresponding lease liability. The amortisation of the lease liability through the income statement is currently forecast to be similar to the current rent charges and thus there is expected to be no material impact to profit.
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.
Notes to the Condensed Interim Accounts (Unaudited)
2. Revenue and profit
The contributions of the various activities to Group revenue and profit are listed below:
Six months ended
31 March 2019
Six months ended
31 March 2018
Year ended
30 September 2018
External
Internal
Total
External
Internal
Total
External
Internal
Total
Revenue
£000
£000
£000
£000
£000
£000
£000
£000
£000
Energy
47,413
58
47,471
47,174
64
47,238
82,332
133
82,465
Building Services
1,573
478
2,051
2,865
249
3,114
4,823
876
5,699
Retail
8,123
22
8,145
7,912
17
7,929
13,571
56
13,627
Property
1,133
302
1,435
1,115
305
1,420
2,277
604
2,881
Other
1,453
437
1,890
1,397
390
1,787
2,871
909
3,780
59,695
1,297
60,992
60,463
1,025
61,488
105,874
2,578
108,452
Intergroup elimination
(1,297)
(1,025)
(2,578)
Revenue
59,695
60,463
105,874
Operating profit
Energy
8,155
8,667
13,418
Building Services
13
(13)
(245)
Retail
632
567
812
Property
837
913
1,813
Other
313
270
586
9,950
10,404
16,384
Revaluation of investment properties
-
-
310
Operating profit
9,950
10,404
16,694
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 2019.
3. Taxation
Six months ended
31 March
Year ended
30 September
2019
£000
2018
£000
2018
£000
Current income tax
1,748
1,771
2,299
Deferred income tax
163
252
853
Total income tax
1,911
2,023
3,152
For the period ended 31 March 2019 and subsequent periods, the Company is taxable at the rate applicable to utility companies in Jersey of 20% (2018: 20%).
Notes to the Condensed Interim Accounts (Unaudited)
4. Dividends paid and proposed
Six months ended
31 March
Year ended
30 September
2019
2018
2018
Dividends per share
- paid
8.80p
8.40p
14.50p
- proposed
6.45p
6.10p
8.80p
£000
£000
£000
Distributions to equity holders
2,695
2,573
4,444
The distribution to equity holders in respect of the final dividend for 2018 of £2,695,449 (8.80p net of tax per share) was paid on 28 March 2019.
The Directors have declared an interim dividend of 6.45p per share, net of tax (2018: 6.10p) for the six months ended 31 March 2019 to shareholders on the register at the close of business on 7 June 2019. This dividend was approved by the Board on 16 May 2019 and has not been included as a liability at 31 March 2019.
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 2019.
Fair value of currency hedges
31 March
30 September
2019
2018
2018
Derivative assets
£'000
£'000
£'000
Less than one year
78
3,337
2,338
Greater than one year
-
593
682
Derivative liabilities
Less than one year
(738)
(8)
(120)
Greater than one year
(1,739)
(257)
(89)
Total net (liabilities)/assets
(2,399)
3,665
2,811
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);
Notes to the Condensed Interim Accounts (Unaudited)
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
Jersey Electricity plc 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
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
£000
£000
£000
£000
£000
£000
£000
£000
£000
£000
The States of Jersey and related entities
4,707
5,139
963
1,165
947
791
473
564
10
6
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.
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