Jersey Electricity Regulatory News (JEL)

JERSEY ELECTRICITY plc Preliminary Announcement of Annual Results

Year Ended 30 September 2020

At a meeting of the Board of Directors held on 17 December 2020, the final accounts for the year ended 30 September 2020 were approved, details of which follow.

The financial information set out in the announcement does not constitute the statutory accounts for the year ended 30 September 2020 or 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Jersey Registrar of Companies, and those for 2020 will be delivered in early 2021. The auditor reported on the accounts for both years and their reports were unmodified.

A final dividend of 9.70p on the Ordinary and 'A' Ordinary shares in respect of the year ended 30 September 2020 was recommended (2019: 9.25p). Together with the interim dividend of 6.80p (2019: 6.45p) the proposed total dividend declared for the year was 16.50p on each share (2019: 15.70p).

The final dividend will be paid on 25 March 2021 to those shareholders registered on 19 February 2021. A dividend on the 5% cumulative participating preference shares of 1.5% (2019: 1.5%) payable on 1 July 2021 was also recommended.

The Annual General Meeting will be held on 4 March 2021 at 12.30 pm at the Powerhouse, Queens Road, St Helier, Jersey.

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

17 December 2020

The Powerhouse

PO Box 45

Queens Road

St Helier

Jersey JE4 8NY

JERSEY ELECTRICITY plc

Preliminary Announcement of Annual Results

Year ended 30 September 2020

The Chairman, Phil Austin, comments:

"When we entered the year, we could not have imagined that the world would be so impacted by a virus. As I write, countries across the globe are battling COVID-19 and both lives and economies are being hugely disrupted, with tragic consequences. Even now, the world is far from through it.

Strong response to COVID-19

Though unprecedented, a critical service provider like Jersey Electricity should be prepared for such events. I am pleased to report that we were well prepared.

The Company has a well-tested contingency plan and had been closely monitoring the COVID-19 situation since the beginning of January, formally invoking its Business Continuity Plan in April. Throughout the crisis, we have taken steps to keep our people and the community safe, as well as maintaining continuity of electricity supplies and other essential services, on which the Island so depends.

The response of the whole workforce has been exceptional and I'd particularly like to thank those who went out every day in the field, or into their place of work, to ensure that we continued to keep our organisation functioning and able to power homes, businesses and Government throughout this difficult period. Through our ongoing investment in technology, our people were able to successfully migrate to home working, such that overall productivity and performance levels have been remarkably unaffected.

As well as focusing on core services, we took immediate action to lessen any financial hardship of customers by deferring our 2.5% tariff rise by six months, at a cost of around £1m. We also adopted a more flexible approach to electricity customers and investment property tenants. Measures included a more sympathetic debt collection process and suspension of service terminations, and we worked closely with Government and charities to establish new processes to support vulnerable customers.

Given Jersey Electricity's scale and role, we offered the full strength of the Company in support of the community by providing, without charge and on a fast-track basis, new infrastructure, plumbing and electrical services for Jersey's Nightingale Hospital, including professional services support. In addition, Jersey Electricity has fulfilled all its own contractual obligations and has not taken advantage of any forms of Government furlough or other financial support schemes.

Leaders in clean energy

Last year we communicated our new Vision "to enable life's essentials and inspire a zero-carbon future". Whilst we continue to flesh out how we can best support the Island to deliver carbon neutrality, the COVID-19 pandemic has only re-emphasised the importance of this Vision to the Company and to the Island as a whole. There now seems to be a clear and widespread recognition of the climate issue and, crucially, a real appetite to take action. We have made considerable progress during the year in transforming this Vision into tangible work streams, including, for example, conducting a larger scale assessment of what investment is required to facilitate carbon neutrality by 2030. It is now well understood that our grid is substantially decarbonised and the only way Jersey can materially reduce its carbon emissions is by switching from high-carbon fossil fuels to low carbon imported or locally generated electricity.

Resilient performance

Despite the challenges of COVID-19, the Company's financial performance has been remarkably resilient. Revenue for 2019/20 was £111.7m, 1% higher than last financial year. Electricity unit sales initially fell 13% in the immediacy of lockdown, but largely recovered, and for the full year were 619m units, only 1% lower than those in the 2018/19 financial year.

Profit before tax was unchanged from the prior year at a level of £14.8m, with the cost impact of the deferred tariff being completely offset by outperformance in other areas, most notably our Powerhouse retail business, which saw profits increase by almost one third from £0.9m to £1.2m.

The Board has therefore recommended a final dividend for the year of 9.70p, a 5% increase on the previous year, and payable on 25 March 2021.

Our core objective remains to deliver an affordable, secure and sustainable supply of electricity now and long into the future - and our performance this year, across all our key metrics, reflects real success."

Group revenue for the year to 30 September 2020 at £111.7m was 1% higher than in the previous financial year. Energy revenues at £85.1m were 2% lower than the £87.0m achieved in 2019. Lower unit sales of electricity, linked to the COVID-19 crisis, combined with the sale of heavy fuel oil to Guernsey Electricity last year were the main reasons for the reduction. Revenue in the Powerhouse retail business increased 17% from £15.2m in 2019 to £17.8m. The business had a strong first half, but was impacted when the shop was forced to close due to COVID-19, but then recovered well helped by the strong on-line offering. Revenue in the Property business, at £2.3m, was at the same level as last year despite initial concerns that rental flows could be impacted by COVID-19. Revenue from JEBS, our building services business, increased from £3.3m in 2019 to £3.8m. Revenue in our other businesses, at £2.7m, was marginally lower than in 2019.

Cost of sales at £69.7m was £0.4m higher than last year with the increased revenue level in the Powerhouse Retail business being offset by a lower volume of imported units of electricity in 2020 and the costs associated with the sale of heavy fuel oil to Guernsey Electricity last year.

Other income was recognised during the previous year arising from the receipt of a £0.8m rebate for a subsea cable repair.

Operating expenses at £26.4m were £0.4m lower than last year primarily due to the pension cost in 2019 being £0.6m higher than in 2020.

Profit before tax for the year to 30 September 2020, at £14.8m, was maintained at the same level as 2019 despite the challenges of COVID-19.

Profits in our Energy business, at £12.3m, were at the same level as in 2019. Unit sales volumes decreased from 627m to 619m kilowatt hours with the impact of COVID-19 in the second half of the financial year being the main reason. However, revenue from electricity sales was £0.8m higher due to the sales mix, with an increase in usage in domestic premises more than offsetting the fall in the commercial sector. In 2019 Energy had a £1m profit from the sale of heavy fuel oil being a 'one-off' transaction. During this year overhead costs were £0.9m lower than in 2019 largely due to lower depreciation charges. In the financial year we imported 95% of our requirements from France (2019: 94%) and generated 0.2% of our electricity on island from our solar and diesel plant (2019: 0.3%). The remaining 5% (2019: 6%) of our electricity was purchased from the local Energy from Waste plant. A planned 2.5% tariff rise from 1 April 2020 was postponed to 1 October 2020 to provide some further assistance to our customers in light of the COVID-19 pandemic.

The £1.3m profit in our Property division, excluding the impact of investment property revaluation, was £0.4m lower than last year due mainly to accelerated depreciation on air conditioning plant that was replaced during this year. Our investment property portfolio moved up in value by £0.5m to £21.8m based on advice from our external consultants who review the position annually, due primarily to the growth in the value of residential properties despite COVID-19 challenges.

Our Powerhouse retail business saw profits rise by 31% from £0.9m to £1.2m in a turbulent year where flexibility in the business model, due to our strong on-line presence, aided this business during the COVID-19 crisis. The business was also helped by our customers appearing to have more spending power, due to less travel taking place, with some sales lines seeing material growth - such as electric bikes.

JEBS, our building services unit, positively moved to a profit of £0.2m against a £0.1m loss in 2019 as a result of an increase in revenue, and a move to higher margin work.

Our other business units (Jersey Energy, Jendev, Jersey Deep Freeze and fibre optic lease rentals) produced increased profits of £0.8m being £0.2m above last year.

The net interest cost in 2020 was £1.4m being £0.1m higher than in 2019 due to the implementation of IFRS 16 ('Leases'). The taxation charge at £3.1m was marginally higher than the level in 2019.

Group basic and diluted earnings per share at 37.94p compared to 38.42p in 2019 due to profitability being similar in both years.

Dividends paid in the year, net of tax, rose by 5%, from 15.25p in 2019 to 16.05p in 2020. The proposed final dividend for this year is 9.70p, a 5% rise on the previous year. Dividend cover, at 2.4 times, was marginally lower than comparable 2.5 times in 2019.

Net cash inflow from operating activities at £26.9m was £0.8m lower than in 2019. Capital expenditure, at £11.2m was £2.7m lower than £13.9m last year as there was material spend in 2019 in completing the St Helier West primary sub-station. Dividends paid were £5.0m compared to £4.7m in 2019. The resultant position was that net cash at the year-end was £5.5m, being £30.0m of borrowings offset by £35.5m of cash and cash equivalents, which was £10.6m more positive than last year.

Our defined benefits pension scheme showed a surplus at 30 September 2020, under IAS 19 "Employee Benefits", of £5.9m, net of deferred tax, compared with a surplus of £8.3m at 30 September 2019. Assets rose 1% from £154.7m to £156.6m during the year. However, liabilities also increased 4% from £144.2m to £149.3m since the last year-end. This was largely due to the discount rate assumption, which heavily influences the calculation of liabilities, falling from 1.9% in 2019 to 1.6% in 2020, reflecting sentiments in prevailing financial markets.

Impact of new accounting standard - IFRS 16 was adopted from 1 October 2019, applying the "modified retrospective" approach whereby comparative figures are not restated. In adopting this approach, the results for the year to 30 September 2020 are not directly comparable with those reported in the prior year under the previous applicable accounting standard IAS 17 "Leases".

This adoption has resulted in an increase in Group operating profit of £86k, (a £189k reduction in rent expense has been partially offset by an increase of £103k in depreciation). Finance costs have increased by £131k, resulting in a decrease in profit from operations before taxation of £45k. At 30 September 2020 the net value of right of use assets under IFRS 16 totalled £2.9m, with a corresponding lease liability of £2.9m.

Whilst there is no impact on total cash and cash equivalents, there has been a reclassification of lease payments resulting in a deterioration of net cash flows arising from financing activities, whilst there is a corresponding increase in net cash flows from operating activities.

In 2020 the Directors have 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 year reported results, increasing both Operating expenses and Revenue by £415k, with no impact to Group operating profit. 

In 2020 the Directors have 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 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 year's deposit interest received of £103k. This adjustment has had no impact on the 2019 reported Net increase in cash and cash equivalents.

Notes to the accounts

Year ended 30 September 2020

1. Basis of Preparation

The consolidated financial statements of Jersey Electricity plc, for the year ended 30 September 2020, have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), including International Accounting Standards and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). This is consistent with the accounting policies in the 30 September 2019 annual report and accounts, except for IFRS16, the impacts of which are disclosed in the 31 March 2020 interim report.

While the financial information included in this preliminary announcement has been prepared in accordance with the appropriate recognition and measurement criteria, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements that comply with IFRS in early 2021.

The Group has considerable financial resources together with a large number of customers both corporate and individual. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully, including the impact of COVID-19. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going-concern basis in preparing the financial statements.

The revaluation of investment properties is shown separately from Property operating profit as this income is reflected solely by a movement in reserves.

In 2020 the Directors have 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 year reported results, increasing both Operating expenses and Revenue by £415k, with no impact to Group operating profit.