Jersey Electricity plc       

       Interim Management Report

            for the six months ended 31 March 2021

The Board approved at a meeting on 13 May 2021 the Interim Management Report for the six months ended 31 March 2021 and declared an interim dividend of 7.20p compared to 6.80p for 2020. The dividend will be paid on 25 June 2021 to those shareholders registered in the records of the Company at the close of business on 4 June 2021.

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 2021 has not been audited, or reviewed, by our external auditors, nor have the results for the equivalent period in 2020. The results for the year ended 30 September 2020 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

13 May 2021

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 2021

COVID-19 - impact on trading performance

The pandemic continued throughout the period since the end of our last financial year but did not materially impact our overall trading performance. In our Energy business we saw lower unit sales in the hospitality and retail sectors, due to lockdown measures but this was more than offset by increased domestic consumption associated with a combination of "home-working", and a colder winter period than in the previous year. Our other business units have not been greatly affected by the COVID-19 crisis, and as highlighted in our 2020 Annual Report, our Retail business continues to benefit from customers appearing to have more spending power, due to less travel taking place. We will continue to closely monitor the COVID-19 position as it develops, as we cannot be complacent, but our balance sheet, with no gearing, remains strong.     

Brexit - licensing of French fishing vessels

In early May, post the balance sheet date, there was extensive media coverage of a dispute relating to a new licensing system for French fishing vessels in Jersey waters, introduced under the UK-EU Trade and Cooperation Agreement (TCA).   During this incident, the French Maritime Minister made reference, within the French Parliament, to implementing retaliatory measures, including the possibility of cutting off electricity supplies transported to Jersey via submarine cables.   The Company consider this a political issue to be resolved between the governments.  Furthermore, we have strong relationships with our French partners, EDF (as supplier) and RTE (as network operator), that spans more than 35 years, and benefits from legal and contractual arrangements which cover imported electricity supplies to the end of 2027. Both RTE and EDF have confirmed our existing supply arrangements are unlikely to be impacted.

Overall trading performance in the 6 months to 31 March

Group revenue, at £67.1m, was 5% higher for the first half of 2020 compared to the same period last year mainly due to a rise in both Energy and Retail revenue. Profit before tax at £10.5m was £0.5m higher than 2020 primarily due to a rise in Property and Retail profits. Cost of sales at £41.7m was £2.5m higher than last year with the rise in wholesale energy costs, and additional stock purchases associated with the increase in Retail revenue being the main factors. Operating expenses at £14.1m were marginally lower than last year. The taxation charge in the period of £2.2m was £0.1m higher than last year due to increased profits. Earnings per share, at 27.00p, were ahead of 25.95p in 2020 due to higher profits. Net cash on the balance sheet, which comprises borrowings less cash and cash equivalents, at 31 March 2021, was £5.9m compared to £2.9m of net debt at this time last year (and £5.5m of net cash at our last year end on 30 September 2020).     

Energy performance

Unit sales of electricity rose 1% from 371m to 375m kWh, compared with the same period last year. The mix of consumption altered from the same period in the prior year with lower sales to the commercial marketplace more than offset by increased domestic consumption associated with "home-working" and colder weather than in the previous year. Revenues in our Energy business at £52.0m were £1.8m higher than in 2020 with the year-on-year increase in unit sales and the 2.5% tariff rise in October 2020 being the primary drivers. Operating profit at £9.2m was £0.1m higher than the corresponding period last year as the increased revenue was largely offset by higher costs including increased wholesale import prices. We imported 96% of our on-island requirement from France and 4% from the Energy from Waste plant, owned by the Government of Jersey. Only 0.3% (around 1m units) of electricity was generated in Jersey using our traditional oil-fired plant (mainly for testing purposes) and we also saw a rising trend in our solar generation albeit still at a relatively low level compared to overall requirements. These importation and generation levels were materially consistent with the same period last year.

Non-Energy performance

Year-on-year revenue in our Powerhouse retail business, rose by 12% to £10.7m (2020: £9.6m) and profits rose by £0.2m to £1.0m with continued strong revenue growth linked to a combination of factors including a substantial proportion of customers having more disposable income due to an inability to travel, resulting from COVID-19 restrictions. Profit from our Property portfolio at £0.8m was £0.3m higher than last year, as we had an accelerated depreciation charge for air conditioning equipment of £0.4m, in our Powerhouse building, in the same period last year. JEBS, our building services unit, saw external revenue falling £0.3m to £1.6m and profitability at breakeven level compared to a profit of £0.1m last year. Our remaining business units produced profits of £0.3m being marginally behind that delivered in 2020. 

Liquidity and cashflow

Net cash generated in the period was £0.4m (2020: £2.2m) post the continued investment in infrastructure of £4.8m (2020: £5.1m). The net debt figure of £2.9m at 31 March 2020 moved to a net cash figure of £5.9m at 31 March 2021 (being net cash of £5.5m at 30 September 2020). Net cash consists of £30.0m of long-term debt offset by cash and cash equivalents of £35.9m.

Forward 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. We are seeing a rising trend in future wholesale prices in Europe, associated with carbon prices reaching record levels, and we continue to monitor this position. Our electricity purchases are materially, albeit not fully, hedged for the period 2021-23. We also have around one third of our expected 2024-27 liabilities hedged at known prices. As these are contractually denominated in the Euro, we enter into forward foreign currency contracts, on a three-year rolling basis, to reduce the volatility of our cost base, and to aid tariff planning. In October 2020 we implemented a 2.5% rise in customer tariffs, largely driven by a rising trend in wholesale electricity prices, which we had delayed from 1 April 2020, in response to the COVID-19 crisis. The tariffs payable by an average customer continue to benchmark well against other jurisdictions. The 'default maximum tariff', introduced by Ofgem (the UK electricity regulator) to cap prices payable in the UK, is set at a level over 35% higher than the average standard domestic tariff in Jersey. 

Pension scheme

The defined benefit pension scheme surplus (without deduction of deferred tax) on our balance sheet at 31 March 2021 stood at £17.1m, compared to a surplus of £7.3m at 30 September 2020 (and a surplus of £14.3m at 31 March 2020). Since the last financial year end, scheme liabilities have materially decreased by approximately £10m (to £140m). This fall was primarily due to an increase to the discount rate assumptions from 1.6% at the last financial year end to 2.1% at 31 March 2021 associated with a rise in UK AA corporate bond yields in the interim. Assets in the Scheme rose by around £1m (to £157m). 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, will be performed in 2022. 

Valuation of investment properties

We formally revalue investment properties, using an external valuer, once per annum to coincide with our financial year end, and any movement is reflected in our Income Statement. The value of such properties at 30 September 2020 was around £22m, compared to the total net asset value, on our Consolidated Balance Sheet, of around £206m. We have not revalued at this interim stage being consistent with previous practice. The overall value of our investment properties may have risen, despite uncertainties of COVID-19, due to the restructuring of one of our commercial leases in late March, along with current buoyancy in the residential sector.     

Dividend

Your Board proposes to pay an interim net dividend for 2021 of 7.20p (2020: 6.80p). As stated in previous years, we continue to aim to deliver sustained real growth each year over the medium-term.  At this time, we do not expect the COVID-19 outbreak to influence our dividend strategy, but we will continue to review the position. The final dividend for 2020 of 9.70p, paid in late March 2021, 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 2021, have not materially altered in the interim period. We have highlighted earlier in this report, the current Brexit related fishing rights dispute, which will hopefully be resolved in due course. 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           13 May 2021

INVESTOR TIMETABLE FOR 2021

In 2020 the Directors made a classification change in relation to the amortisation of deferred infrastructure charges. In order to present the results in a consistent format, the Directors have reclassified the prior half year reported results, increasing both Operating expenses and Revenue by £221k, with no impact on Group operating profit.

Condensed Consolidated Balance Sheet (Unaudited)

Condensed Consolidated Statement of Changes in Equity (Unaudited)

Condensed Consolidated Cash Flow Statement (Unaudited)

In 2020 the Directors made a presentational change in relation to deposit interest received, presenting this within investing activities, in compliance with IAS 7 "Statement of Cash Flows". In the prior half year, deposit interest received was presented within financing activities. In order to present the consolidated cash flow statement in a consistent format, the Directors have reclassified prior half year interest received of £89k. The adjustment has had no impact on the half year 2020 reported net increase in cash and cash equivalents.

Notes to the Condensed Interim Accounts (Unaudited)

1.         Accounting policies

Basis of preparation

The interim financial statements for the six months ended 31 March 2021 have been prepared on the basis of the accounting policies set out in the 30 September 2020 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 period that has impacted the disclosures in these financial statements and the full year financial statements that will be prepared for 30 September 2021.

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

2.         Revenue and profit

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

          Materially, all of the Group's operations are conducted within the Channel Islands. All transactions between divisions are on an arm's-length basis. The assets and liabilities of the Group are not reported on as there has been no significant movement in the values in the six months to 31 March 2021.

In 2020 the Directors made a classification change in relation to the amortisation of deferred infrastructure charges. In order to present the results in a consistent format, the Directors have reclassified the prior half year reported results, increasing both Operating expenses and Revenue by £221k within Energy, with no impact on Group operating profit.

Notes to the Condensed Interim Accounts (Unaudited)

3.         Taxation

          For the period ended 31 March 2021 and subsequent periods, the Company is taxable at the rate applicable to utility companies in Jersey of 20% (2020: 20%).

4.         Dividends paid and proposed

The distribution to equity holders in respect of the final dividend for 2020 of £2,972,080 (9.70p net of tax per share) was paid on 25 March 2021.

The Directors have declared an interim dividend of 7.20p per share, net of tax (2020: 6.80p) for the six months ended 31 March 2021 to shareholders on the register at the close of business on 4 June 2021. This dividend was approved by the Board on 13 May 2021 and has not been included as a liability at 31 March 2021.

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 2021. 

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 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 take the view that the Company is 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 IAS24, paragraphs 25 and 26.

All transactions are undertaken on an arms-length basis in the course of ordinary business.