JERSEY ELECTRICITY plc     
Preliminary Announcement of Annual Results
Year Ended 30 September 2021

At a meeting of the Board of Directors held on 15 December 2021, the final accounts for the year ended 30 September 2021 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 2021, or 2020, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Jersey Registrar of Companies, and those for 2021 will be delivered in early 2022. The auditor reported on the accounts for both years and their reports were unmodified.

A final dividend of 10.20p on the Ordinary and 'A' Ordinary shares in respect of the year ended 30 September 2021 was recommended (2020: 9.70p). Together with the interim dividend of 7.20p (2020: 6.80p) the proposed total dividend declared for the year was 17.40p on each share (2020: 16.50p).

The final dividend will be paid on 24 March 2022 to those shareholders registered on 18 February 2022. A dividend on the 5% cumulative participating preference shares of 1.5% (2020: 1.5%) payable on 1 July 2022 was also recommended.

The Annual General Meeting will be held on 3 March 2022 at 12.30 pm at the Powerhouse, Queen's Road, St Helier, Jersey.

M.P. Magee                                                                           L. Floris

Finance Director                                                                  Company Secretary

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

Email: [email protected]                                                            Email: lfloris@jec.co.uk

15 December 2021    

The Powerhouse

PO Box 45

Queens Road

St Helier

Jersey JE4 8NY

JERSEY ELECTRICITY plc            

Preliminary Announcement of Annual Results

Year ended 30 September 2021                                                                                                     

The Chair, Phil Austin, comments:

The COVID-19 pandemic has again brought continued challenges for our Island community and Jersey Electricity. Though we avoided another total lockdown, public health restrictions imposed by the Government of Jersey as part of its COVID-19 Winter Strategy continued to disrupt life and business. As cases escalated from the start of October 2020, working from home was re-introduced, and non-essential retail and social venues were closed. The Company and its employees again responded well and indeed, benefited from lessons learned earlier in 2020 when the pandemic first took hold. We maintained rigorous standards to keep our people and the Community safe, while ensuring the continuity of electricity supplies for homes, businesses, Government, and other essential services. New technologies, rapidly deployed among the workforce in the first lockdown, are now mainstream and ensured a seamless switch to home working, where practicable, and continuity of all our other business functions. The result is that we maintained high levels of flexibility, productivity and performance throughout.

PERFORMANCE

Revenue for the year to 30 September 2021 at £118.6m was 6% higher than in the previous financial year. Profit before tax for the year was a strong £19.1m against £14.8m in 2020. However, if the non-cash upside from revaluation of investment properties is excluded in both years, along with the non-cash cost of £1.8m for the ex-gratia award for pensions in service in 2021, the underlying year-on-year profit before tax is £14.8m in 2021 against £14.3m in 2020, an increase of 3%. The Board has therefore recommended a final dividend for the year of 10.20p, a 5% increase on the previous year, payable on 24 March 2022. We also continue to achieve high levels of non-financial performance, including our annual Customer Minutes Lost figure which was unchanged at a low level of 5 minutes, and our independently assessed Customer Service Score increased to 78 in 2021 from 77 last year.

FRENCH FISHING DISPUTE

During the year, we have also seen an escalation of political issues between the EU and the UK on fishing rights between France and Jersey, raising questions about energy sovereignty and the security of supply of imported electricity between Europe and the Channel Islands. We have taken such matters very seriously and have liaised closely with senior civil servants and politicians in Jersey and the UK.  Whilst we view these matters as being political, we have taken the opportunity to review and enhance our contingency plans including establishing arrangements to bring additional generating capacity into Jersey, should that be necessary.  We have firm contractual relationships with parties in France, from whom we have been importing power over the last 37 years, and they have confirmed that such commitments to supply electricity are robust. Furthermore, whilst we remain compliant with our published security of supply standard, we are currently reviewing it in the light of the Island's carbon neutral ambitions and its dependency on electricity.

ELECTRICITY MARKETS

We have seen unprecedented volatility in energy markets during 2021, which has resulted in many UK suppliers going out of business, and the Ofgem regulated cap on UK electricity prices rising by around 20% since April 2021. This is expected to materially rise again when formally reviewed in early 2022. Energy prices in the UK, including gas, have risen by an even higher quantum. We are not immune to these conditions, but our hedging policies have greatly sheltered Jersey customers from the material rises being experienced elsewhere, with the period 2022-2024 being largely hedged for the price we will pay for electricity and to a lesser extent, the foreign exchange requirements we need to settle such liabilities. We announced in October 2021 that a 4% tariff rise would be implemented from 1 January 2022, and although this is unfortunate, it is far lower than increases elsewhere.  Even after this rise we will continue to benchmark very favourably against other jurisdictions, with the UK price cap currently being 46% higher than Jersey Electricity's standard domestic tariff.

CLIMATE CHANGE

The Intergovernmental Panel on Climate Change (IPCC) 2021 report calls for immediate, rapid, and large-scale reductions in greenhouse gas emissions. In Jersey, the appetite for action was apparent from the recommendations of the Citizens' Assembly on Climate Change to which we gave our full support. The contribution of Jersey Electricity to decarbonising electricity was noted in this Citizen's Assembly as well as the opportunity for Jersey to do much more.  We now look to the Government of Jersey to set policies to achieve the Island's carbon neutrality ambitions to which we are fully committed. We continue to assess the investment needed and have already started to deliver new infrastructure to meet the forecast increase in demand that carbon neutrality would bring. We see this as a huge opportunity for growth and believe the grid is largely in place to achieve this quickly and cost effectively.

CORPORATE GOVERNANCE

Last year, in line with the UK Corporate Governance Code 2018, I identified a number of key areas of focus for the Board in the year ahead. I am pleased to report that we have made good progress in all these areas:

·    Workforce diversity

·    Culture and engagement

·    Stakeholder engagement

·    Business efficiency and innovation

·    Risk and risk management

·    Review of business model

The Board's key areas of focus for 2022 are:

·    Progressing stakeholder engagement 

·    Extending workforce diversity

·    Developing culture and engagement 

·    Exploring energy sourcing strategies to facilitate Jersey's net-zero carbon emissions 

      As indicated in my 2020 Report, Aaron Le Cornu was retiring in March 2021 at our AGM. I would like to thank him for his contribution to the success of Jersey Electricity from 2011 until he retired during this year. Non-Executive Director Peter Simon, who joined the Board in 2019 and sat on our Audit and Risk and Remuneration Committees, stepped down on 31 August 2021. I would like to thank Peter for his insights and expertise and for a significant contribution over the last two years. The recruitment process to find his successor is underway.

IN CONCLUSION

I'd like to conclude by thanking the entire workforce for their outstanding commitment and dedication, which has delivered an excellent business performance in very difficult circumstances. Their expertise and resilience have shone through, and they should be very proud of their achievements. I would also like to thank the Board for their hard work and commitment throughout the year, and our shareholders for their continued support. The coming years will have their challenges, but there will also be opportunities, and I am very confident that the Company is well placed to take advantage of them.

Group revenue for the year to 30 September 2021 at £118.6m was 6% higher than in the previous financial year. Energy revenues at £89.8m were 5% higher than the £85.1m achieved in 2020. Higher unit sales of electricity were linked to a recovery from the COVID-19 crisis in the retail and hospitality sectors, and an uplift from increased home working, combined with colder than normal weather and a 2.5% tariff rise from October 2020. Revenue in the Powerhouse retail business increased 11% from £17.8m in 2020 to £19.8m. Revenue in the Property business at £2.3m was marginally higher than last year. Revenue from JEBS, our building services business, decreased from £3.8m in 2020 to £3.4m. Revenue in our other businesses at £3.3m, was above the £2.7m delivered in 2020.

Cost of sales at £74.2m was £4.5m higher than last year with the increased revenue level in our Energy and Powerhouse Retail businesses.

Operating expenses at £30.0m were £3.6m higher than last year. Of this increase, £1.8m related to the non-cash ex-gratia award for pensions in service, in our defined benefits pension scheme, discussed later in this narrative. The remainder of the rise is largely due to the increased investment in systems and people, associated with the de-carbonisation vision for the Island.

Profit before tax for the year to 30 September 2020 was £19.1m against £14.8m in 2020. However, if the non-cash upside from revaluation of investment properties is excluded in both years, along with the non-cash cost of £1.8m for the ex-gratia award for pensions in service in 2021, the underlying year-on-year profit before tax is £14.8m in 2021 against £14.3m in 2020, an increase of 3%.

Profit in our Energy business, at £10.7m, was below the £12.3m achieved in 2020, largely due to the non-cash £1.8m ex-gratia award for pensions in service in 2021. Our target return on assets employed continues to be in the 6%-7% range over the medium-term and was 5.9% in 2021 against 6.8% in 2020. Unit sales volumes increased by 3% from 619m to 639m kilowatt hours, due to colder than normal weather, combined with a material proportion of customers continuing to work from home, due to COVID-19. Units billed in the 2021 financial year increased by around 8% in the residential sector, but fell around 2% for commercial premises, compared with 2020. In the financial year we imported 95.2% of our requirements from France (2020: 94.7%) and generated 0.4% of our electricity on-Island from our solar and diesel plant (2020: 0.2%). The remaining 4.4% (2020: 5.1%) of our electricity was purchased from the local Energy from Waste plant. The planned 2.5% tariff rise from 1 April 2020, which was postponed, to aid our customers due to the COVID-19 pandemic, took place on 1 October 2020.

The £1.4m profit in our Property division, excluding the impact of investment property revaluation, was £0.1m higher than last year. Our investment property portfolio moved up in value by £6.1m to £27.8m, based on advice from our external consultants, who review the position annually. This increase was pronounced due primarily to a restructuring of the lease arrangement for our largest tenant, whereby the existing break clause was moved to a later date, post commercial discussions, which materially moved the valuation upwards. The value of residential properties also rose by £1.2m due to continued buoyant market conditions in Jersey.

Our Powerhouse retail business saw profits rise by 30% from £1.2m to £1.5m during a period when COVID-19 continued to influence the behaviours, and spending patterns, of local consumers, for example, due to less travel taking place out of the Island over the last year.

JEBS, our building services unit, maintained profitability at £0.2m, being at the same level as 2020.

Our other business units (Jersey Energy, Jendev, Jersey Deep Freeze and fibre optic lease rentals) produced profits of £0.6m being £0.2m lower than last year mainly due to accelerated depreciation in Jendev.

The net interest cost in 2021 was £1.4m being at the same level as in 2020. The taxation charge at £2.8m was lower than the previous year, despite increased profit, as the profit increase was largely non-taxable, being due to non-cash items. 

Group basic and diluted earnings per share, at 52.73p, compared to 37.94p in 2020 due to increased profitability.

Dividends paid in the year, net of tax, rose by 5%, from 16.05p in 2020 to 16.90p in 2021. The proposed final dividend for this year is 10.20p, a 5% rise on the previous year. Dividend cover, at 3.1 times, was higher than the comparable 2.4 times in 2020 due mainly to the large non-cash increase in the revaluation of investment properties in 2021.

Net cash flows from operating activities at £22.4m was £4.5m lower than in 2020. Investing activities, at £9.3m was £1.8m lower than £11.1m last year. Dividends paid were £5.3m compared to £5.0m in 2020. The resultant position was that net cash at the year-end was £13.1m, being £30.0m of borrowings offset by £43.1m of cash and cash equivalents, which was £7.6m more than last year.

Our defined benefits pension scheme showed a surplus at 30 September 2021, under IAS 19 "Employee Benefits" of £15.0m, net of deferred tax, compared with a surplus of £5.9m at 30 September 2020. Assets rose 3% from £156.6m to £161.1m in the same period. Liabilities decreased 5% from £149.3m to £142.3m since the last year-end. This was largely due to the discount rate assumption, which heavily influences the calculation of liabilities, rising from 1.6% in 2020 to 2.1% in 2021, reflecting sentiments in prevailing financial markets. Unlike most UK schemes, the Jersey Electricity Pension Scheme is not funded to pay mandatory annual rises on retirement. The Pension Scheme Trustees asked the Company to consider the granting of a 3% rise to pensions in service in light of the level of the surplus as the last increase was in 2019.  This was agreed by the Board and the capital cost of this award was £1.8m and the cash will be paid by the Scheme, rather than the Company, but generated a £1.8m charge against our Income Statement in the current financial year. This is reflected in the year-end surplus figure of £15.0m.

Prior year adjustment

During 2020 we migrated to a new Smart Pay As You Go metering solution for around 4,000 of our electricity customers who choose this payment method as a budgeting tool. The legacy system, which had been installed in the 1990's, was scrapped and the remaining credit balances and debts that existed on each meter transferred across to the new system. Following a review of the remaining £0.9m balance in our receivables ledger we ascertained that there had been a systematic over-statement of income from this payment method over the period since 1998, when a new ERP financial system was adopted. Although the sums were relatively immaterial on an annual basis, the full scale of the issue only became apparent when the new smart metering system was installed. It is not possible to accurately allocate adjustments to all the individual years between 1998-2019. This £0.9m has been written off and treated as a prior year adjustment against reserves and comfort provided, that this is not a recurring issue with the new system.          

Consolidated Balance Sheet as at 30 September 2021

Consolidated Statement of Changes in Equity for the year ended 30 September 2021

Notes to the accounts

Year ended 30 September 2021

1.   Basis of Preparation

The consolidated financial statements of Jersey Electricity plc, for the year ended 30 September 2021, 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 2020 annual report and accounts and the 31 March 2021 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 2022 in advance of the next Annual General Meeting.

The Group has considerable financial resources together with many customers both corporate and individual. Therefore, the Directors believe that the Group is well placed to manage its business risks successfully, including any further impacts 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.

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

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

2.   Prior year adjustment

During 2020 we migrated to a new Smart Pay As You Go metering solution for around 4,000 of our electricity customers who choose this payment method as a budgeting tool. The legacy system, which had been installed in the 1990's, was scrapped and the remaining credit balances and debts that existed on each meter transferred across to the new system.

Following a review of the remaining £0.9m balance in our receivable's ledger we ascertained that there had been a systematic over statement of income from this payment method over the period since 1998, when a new ERP financial system was adopted. The primary drivers being a combination of both the accumulation of £5 free credit provided as a customer service benefit to all new charge keys and a timing delay arising on each occasion tariffs have risen. The sums were relatively immaterial on an annual basis.

The Smart Pay As You Go metering solution benefits from more accurate data, including the elimination of time lag where tariffs move and any upfront credit provided to customers is now reclaimed over subsequent top-ups. At 30^th September 2021 a deferred income balance of £0.5m is included and has been assessed as being reasonable.

In accordance with IAS 8, it has proven impractical to accurately allocate adjustments to all the individual years between 1998-2019. Therefore, £0.9m has been written off and treated as a prior year adjustment against reserves and trade receivables as seen in both the Consolidated Balance Sheet and the Consolidated Statement of Changes in Equity.

Each of the affected financial statement line items for the prior periods have been restated as follows: