Jersey Electricity : Interim Report - 2022

Inspiring a zero carbon future

Interim Report 2022

6 months ended 31 March 2022

Contents

Directors' Statement	2
Condensed Consolidated Income
Statement (Unaudited)	4
Condensed Consolidated Statement
of Comprehensive Income (Unaudited)	5
Condensed Consolidated Balance
Sheet (Unaudited)	6
Condensed Consolidated Statement
of Changes in Equity (Unaudited)	7
Condensed Consolidated Cash
Flow Statement (Unaudited)	8
Notes to the Condensed
Interim Accounts (Unaudited)	9

Directors, Officers and Professional Advisers

NON-EXECUTIVE DIRECTORS

Phil Austin MBE, FCIB, FCMI (Chair)

Alan Bryce MSc, CEng, FIET

Wendy Dorman BA, ACA

Tony Taylor BSc (Hons)

Kayte O'Neill BA (Hons)

Amanda Iceton BA (Hons)

EXECUTIVE DIRECTORS

Christopher Ambler BA, MEng, CDipAF,

CEng, MIMechE, MBA (Chief Executive)

Martin Magee CA (Finance)

SECRETARY

Lisa Floris LLB (Hons)

REGISTERED OFFICE

Queen's Road, St. Helier, Jersey

PLACE OF INCORPORATION

Both Jersey Electricity plc ('the Company') and Jersey Deep Freeze Limited (together 'the Group') are incorporated in Jersey.

AUDITORS

PricewaterhouseCoopers CI LLP,

37 Esplanade,

St. Helier, Jersey, JE1 4XA

BANKERS

Royal Bank of Scotland International Limited,

71 Bath Street,

St. Helier, Jersey

BROKERS

Canaccord Genuity Wealth Management,

PO Box 3,

37 The Esplanade,

St. Helier, Jersey

REGISTRAR

Computershare Investor Services

(Jersey) Limited,

13 Castle Street,

St. Helier, Jersey

Interim Report 2022

1

Directors' Statement

Financial Summary
6 months	6 months
	2022	2021
Electricity Sales in kWh	359.4m	374.9m
Revenue	£65.0m	£67.1m
Profit before tax	£7.0m	£10.5m
Earnings per share	17.78p	27.00p
Final dividend paid per ordinary share	10.20p	9.70p
Proposed interim dividend per ordinary share	7.60p	7.20p

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 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.

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 indicated that they will increase electricity tariffs by 9% from the beginning of 1 July 2022, subject to regulatory approval.

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.

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

2 JERSEY ELECTRICITY

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:

1. the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
2. 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
3. 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

C.J. AMBLER - Chief Executive

M.P. MAGEE - Finance Director

18 May 2022

1. 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.

Investor timetable for 2022

1 June	Record date for interim ordinary dividend
21 June	Interim ordinary dividend for year ending
	30 September 2022
1 July	Payment date for preference share dividends
20 December	Announcement of full year results

Interim Report 2022

3

Financial Statements

Condensed Consolidated Income Statement (Unaudited)

		Six months		Six months		Year
		ended		ended		ended
		31 March		31 March	30 September
	Note	2022	2021	2021
		£000	£000	£000
Revenue
Cost of sales	2	64,995	67,098	118,608
Gross profit		(42,859)		(41,743)		(74,159)
		22,136	25,355	44,449
Profit on revaluation of investment properties		-	-	6,055
Operating expenses		(14,412)		(14,108)		(29,991)
Group operating profit	2	7,724	11,247	20,513
Finance income		10	26	112
Finance costs		(764)		(779)		(1,540)
Profit from operations before taxation		6,970	10,494	19,085
Taxation	3	(1,464)		(2,162)		(2,794)
Profit from operations after taxation		5,506	8,332	16,291
Attributable to:
Owners of the Company		5,488	8,274	16,155
Non-controlling interests		58	58	136
Profit for the period/year attributable to the
equity holders of the parent Company		5,506	8,332	16,291
Earnings per share
- basic and diluted		17.78p		27.00p		52.73p

4 JERSEY ELECTRICITY