Jersey Electricity plc

       Interim Management Report

for the six months ended 31 March 2022

The Board approved at a meeting on 18 May 2022 the Interim Management Report for the six months ended 31 March 2022 and declared an interim dividend of 7.60p compared to 7.20p for 2021. The dividend will be paid on 21 June 2022 to those shareholders registered in the records of the Company at the close of business on 3 June 2022. 

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

The Interim Management Report for 2022  has not been audited, or reviewed, by our external auditors, nor have the results for the equivalent period in 2021. The results for the year ended 30 September 2021 were extracted from the statutory accounts. The auditor has reported on those accounts and their report was unmodified.   

M.P. Magee                                                                                                                                                                    L. Floris 

Finance Director                                                                                                                                                         Company Secretary 

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

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

18 May 2022 

The Powerhouse, 

PO Box 45, 

Queens Road, 

St Helier, 

Jersey JE4 8NY  

Directors' Statement

Financial Summary

COVID-19 - impact on trading performance

The pandemic continued throughout the period since the end of our last financial year but has not materially impacted our overall trading performance even though COVID-19 cases have remained relatively high. It has however influenced comparisons with the same trading period in the last financial year. In our Energy business we saw lower unit sales, and although the year-on-year fall is due largely to milder weather, there is an element attributable to a decrease in domestic consumption associated with less home-working, than in the same period last year. Our Retail business has also seen revenue fall from record levels as the trading position has normalised with customers starting to travel more widely resulting in spending power returning to pre-COVID levels.

Energy - security of supply and price volatility

In our 2021 Annual Report we highlighted the escalation of political issues between the EU and the UK on fishing rights between Jersey and France. This tension appears to have largely dissipated for the moment, but we maintain a watching brief as it has potential to re-surface in the future. We saw unprecedented volatility in energy markets in the second half of 2021 and this has further intensified throughout 2022 with the Russian invasion of Ukraine exacerbating uncertainty and prolonging high prices. We continue to monitor developments on both security of supply and volatility in energy markets. We have strong relationships with our French partners, EDF (as supplier) and RTE (as network operator) that span more than 35 years and the Company benefits from legal and contractual arrangements which cover imported electricity supplies to the end of 2027.

Hedging of electricity and foreign exchange, and customer tariffs

We continue to focus on delivering secure, low-carbon electricity supplies and our goal is to maintain relative stability in customer tariffs, despite volatility in both European wholesale electricity and foreign exchange markets. This is however extremely challenging in the current climate. Our electricity purchases are materially, but not fully, hedged for the period 2022-24. We also have around one third of our expected 2025-27 requirements hedged at largely fixed prices. As these are contractually denominated in the Euro, we also enter into forward foreign currency contracts, on a three-year rolling basis, to reduce the volatility on our cost base, and to aid tariff planning. In January 2022 we implemented a 4% rise in customer tariffs.

Given the continued upward pressure on wholesale prices flowing into costs, we have recently announced a 5% tariff increase from 1 July 2022 and an intention to implement a further 5% rise from 1 January 2023. Even with these rises, the prices payable by our customers continue to benchmark well against other jurisdictions. From 1 April 2022, the "default maximum tariff" applied by Ofgem (the UK electricity regulator) to cap domestic prices payable in the UK is set at a level that is nearly double the current average standard domestic tariff in Jersey, and this UK default maximum tariff is expected to materially rise again from 1 October 2022. Other UK Islands are also implementing material rises in customer tariffs with the Isle of Man having instigated a 15% increase on 1 April 2022 and a further 15% rise from 1 July 2022. Guernsey Electricity has also announced that they will increase electricity tariffs by 9% from the beginning of July 2022, subject to regulatory approval.

Overall trading performance in the 6 months to 31 March

Group revenue, at £65.0m, was 3% lower for the first half of 2022 compared with £67.1m for the same period last year mainly due to a fall in both Energy and Retail revenue. Profit before tax at £7.0m was £3.5m lower than 2021 primarily due to a material fall in profit in our Energy business. Cost of sales at £42.9m was £1.1m higher than last year with the rise in wholesale energy costs being the main factor. Operating expenses at £14.4m were £0.3m higher than last year due mainly to general inflationary pressures. The taxation charge in the period of £1.5m was £0.7m lower than last year due to decreased profits. Earnings per share, at 17.78p, were below 27.00p in 2021 due to lower profits. Net cash on the balance sheet, which comprises borrowings less cash and cash equivalents, at 31 March 2022, was £13.1m compared with £5.9m at this time last year (and £13.1m of net cash at our last year end on 30 September 2021).

Energy performance

Unit sales of electricity fell 4% from 375m to 359m kWh, compared with the same period last year. We experienced milder weather in the first half of this financial year, with the temperature in all months being above the long-term average and five months being warmer than the corresponding period in the previous year. There was also lower domestic consumption associated with less home-working linked to the pandemic compared with last year. Revenue in our Energy business at £50.8m was £1.2m lower than in 2021 with the year-on-year decrease in unit sales more than offsetting the 4% tariff rise in January 2022. Operating profit at £5.9m was £3.2m lower than the corresponding period last year due to the decreased revenue and higher costs, including increased wholesale import prices, recruitment of new employees, and other inflationary pressures. We imported 98% of our on-island requirement from France and 2% from the Energy from Waste plant, owned by the Government of Jersey. Only 0.2% (less than 1m units) of electricity was generated in Jersey using our traditional oil-fired plant (which is run during testing regimes) and we also saw a rising trend in our solar generation albeit still at a low level compared with overall requirements. These importation and generation levels were materially consistent with the same period last year albeit the imports from the Energy from Waste plant were around half the normal level as maintenance work was being performed for an extended time in this period.

Non-Energy performance

Year-on-year revenue in our Powerhouse retail business, fell by 11% to £9.5m (2021: £10.7m) and profits fell by £0.4m to £0.7m as the business returned to more normalised levels of trading post last year's strong trading performance which was associated with factors including a substantial proportion of customers having more disposable income due to COVID-19 travel restrictions. Profit from our Property portfolio at £0.7m was £0.1m lower than last year, due to additional maintenance costs. JEBS, our building services unit, saw external revenue rise £0.2m to £1.8m and profitability rise to £0.1m from breakeven level last year. Our remaining business units produced profits of £0.3m  at the same level as 2021.

Liquidity and cashflow

No net cash was generated in the period (2021: £0.4m) post the continued investment in infrastructure of £6.0m (2021: £4.8m). The net cash figure of £5.9m at 31 March 2021 moved to a net cash figure of £13.1m at 31 March 2022 (being at the same level as 30 September 2021). Net cash consists of £30.0m of long-term debt offset by cash and cash equivalents of £43.1m.

Pension scheme

The defined benefit pension scheme surplus (without deduction of deferred tax) on our balance sheet at 31 March 2022 stood at £22.0m, compared with a surplus of £18.8m at 30 September 2021 (and a surplus of £17.1m at 31 March 2021). Since the last financial year end, scheme liabilities have materially decreased by approximately £13m (to £129m). This fall was primarily due to an increase to the discount rate assumptions from 2.1% at the last financial year end to 2.8% at 31 March 2022 associated with a rise in UK AA corporate bond yields in the interim. Assets in the Scheme fell by around £10m (to £151m). The defined benefit scheme has been closed to new members since 2013 and the next triennial valuation of the scheme, as at 31 December 2021, is currently being performed by Aon and the results will be reported in our 2022 Annual Report.

Dividend

Your Board proposes to pay an interim net dividend for 2022 of 7.60p (2021: 7.20p). As stated in previous years, we continue to aim to deliver sustained real growth each year over the medium-term. The final dividend for 2021 of 10.20p, 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 2022, have not materially altered in the interim period. We, however, highlighted earlier in this report, the current unprecedented volatility in energy markets. This continues to be closely monitored by the Board as this adds unpredictability into the price we will pay for any unhedged elements of our future electricity costs. 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

this half yearly interim report looks at 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 2022

Investor timetable 2022

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)

*'Other reserves' represents the foreign currency hedging reserve.

Condensed Consolidated Cash Flow Statement (Unaudited)

Of the £43.1m cash and cash equivalents at 31 March 2022, £35.0m (30 September 2021: £35.0m) is on fixed term deposits with an average of 45 days remaining  (30 September 2021: 79 days).

1 Accounting policies

           Basis of preparation

     The interim accounts for the six months ended 31 March 2022 have been prepared on the basis of the accounting policies set out in the 30 September 2021 annual report and accounts using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with IAS 34 'Interim Financial Reporting'. There have been no changes to accounting standards during the current financial period that has impacted the disclosures in these financial statements and the full year financial statements that will be prepared for 30 September 2022.

     Jersey Electricity plc has considerable financial resources and, as a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. 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 annual financial statements.

           Prior year adjustment

     As disclosed in the 30 September 2021 annual report and in accordance with IAS 8, £0.9m was written off and treated as a prior year adjustment against the 2019 financial year. Accordingly, the opening balances of retained earnings disclosed in the Consolidated Statement of Changes in Equity align with the revised opening balances shown in the 2021 annual report.

2 Revenue and profit

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

*Other segment includes Jersey Energy, Jendev (both divisions) and Jersey Deep Freeze Limited, the Group's sole subsidiary.

Materially, all the Groups operations are conducted within the Channel Islands. All transfers between divisions are on an armslength basis.

Revenues disclosed by the business segments above are recognised both on a point in time and over time basis. The treatment of revenue recognition in accordance with IFRS 15 is detailed in the 30 September 2021 annual report.

3 Taxation

For the period ended 31 March 2022 and subsequent periods, the Company is taxable at the rate applicable to utility companies in Jersey of 20%. (2021: 20%).

4 Dividends paid and proposed

The distribution to equity holders in respect of the final dividend for 2021 of £3,125,066 (10.20p net of tax per share) was paid on 24 March 2022.

The Directors have declared an interim dividend of 7.60p per share, net of tax (2021: 7.20p) for the six months ended 31 March 2022 to shareholders on the register at the close of business on 3 June 2022. This dividend was approved by the Board on 18 May 2022 and has not been included as a liability at 31 March 2022.

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 also consideration has 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 2022.

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 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 based on 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 Government of Jersey (the "Government") treats the Company as a strategic investment. Whilst it holds the majority voting rights in the Company, the Government does not view the Company as being under its control and as such, it is not consolidated within the Government accounts. The Government is understood by the Directors to have significant influence but not control of the Company. The Company has elected to take advantage of the disclosure exemptions available in IAS 24, paragraphs 25 and 26.  All transactions are undertaken on an arms-length basis in the course of ordinary business.