Treasury and Resources
Ministerial Decision Report
Presentation of three States of Jersey Owned Companies 2013 Financial Reports and Accounts to the States
1. Purpose of Report
To present States owned company annual reports and accounts to the States.
2. Background
The States is a major shareholder and in some cases the sole shareholder in States owned companies. The Minister decided to present the 2013 Financial Reports and Accounts for the following companies to the States:-
- Jersey Telecom Group Limited (Appendix A)
- Jersey New Waterworks Company Limited (Appendix B)
- Jersey Post International Limited (Appendix C)
Jersey Telecom Group Limited has decided to continue to annually present their Financial Results to all States Members. This year they will also updated States Members on the progress of Gigabit Jersey. Their presentation was held on 30th June 2014. Their accounts are being presented shortly after, as few attended the presentation.
3. Company Report and Accounts
The companies have all held the relevant Annual General Meetings and their report and accounts are now available for presentation to the States. A Summary of the financial Performance for the 3 Companies is given below.
Jersey Telecom Group Limited – year end 31st December 2013 (Wholly owned)
States Holding as at 31st December 2013
Issued and Fully Paid | | Nominal |
| | |
Ordinary shares of £1 each | | £20,000,000 |
The Company’s Annual Report and Financial Statements contain the full Directors’ Report, Accounts and Auditors Report. The following paragraphs summarise the key financial matters.
As the accounts contained in this document show, the financial year ending 31st December 2013 resulted in Group turnover being £151.4 million (2012: £119.7 million), which was the highest in its history. The increase in turnover is related to the acquisition of Worldstone Inc in 2012, now seeing the annual effect and business growth. Areas of business growth were in data centres, Machine to Machine business (M2M), a cyber-attach prevention service in JT lab and infrastructure-as-a-service offering.
Other Operating expenses increased from £60.8 million in 2012 to £72.9 million in 2013. The main movements in the year were increases in staff cost mainly due to the annualized effect of staff costs for the acquisition of Worldstone acquired in 2012 (£7.9 million), Depreciation (£2.6 million) and fees and charges (£1.4 million).
Interest receivable decreased from £1.1 million in 2012 to £0.5 million in 2013 mainly relating to income from Pension costs held. Whilst Interest payable decreased from £3.2 million in 2012 to £3.0 million in 2013 this was mainly due to restructuring of the balance sheet financing in 2012.
2013 Profit on ordinary activities before Tax was £10.8 million compared with £14.9 million for 2012. Profit for the financial year after tax was £7.4 million; £4.5 million lower than last year mostly as a result of increased operating expenses during the year.
The net assets of JT Group continued to increase from £70.9 million in 2012 to £76.8 million in 2013. Non-current assets were £133.3 million in 2013 (2012: £135.2 million), current assets were £73.1 million in 2013 (2012: £53.8 million) and total creditors were £92.6 million in 2013 (2012: £80.3 million).
The Board of Jersey Telecom Group Ltd after discussions with the States’ has decided to propose a final dividend for 2012 of £2.8 million. This return on 2012 profits is in line with the expected dividend yields of 50% of distributable profits.
This results in total dividends received during 2013 Jersey Telecom Group Ltd being in the above the latest forecasts.
Jersey New Waterworks Company Limited – year end 31st December 2013 (Majority owned)
States Holding as at 31st December 2013
Issued and Fully Paid | | Percentage owned | Nominal owned |
| | | |
Ordinary Shares of £0.50 | | 50% | £2,520,000 |
‘A’ Ordinary shares of £0.50 | | 100% | £4,620,000 |
10% 5th Cum Pref. shares of £5 each | | 100% | £900,000 |
Turnover for 2013 was £14,916,000 (2012: £14,609,000), water related turnover increased by 2.1% and totalled £14,166,000 (2012: £13,841,000).
Metered income in 2013 was £10,890,000 (2012: £9,497,000), an increase of 15% on 2012. The change in metered income is attributable to an increase in overall demand for water of 0.4%, the addition of 3,700 metered properties, 406 new connections and a 2% tariff increase. Metered water sales accounted for 77% of water related turnover compared to 69% in 2012.
Unmeasured water income totalled £2,686,000, compared to £3,774,000 in 2012. The reduction of £1,088,000 corresponded with the transfer of customers to metered billing. Unmeasured charges now account for just 19% of water related turnover (2012: 27%).
Operating expenditure for the year was £10,116,000 (2012: £9,849,000). This 2.7% increase was due to the following factors: -
- Increased Electricity charges (Materials, consumables, hired in services and other costs) of £263,000 (6.9%)
- Increased Directors fees of £21,000
- Planned increases in staff costs of a net £15,000 (0.4%)
The above were offset by lower in depreciation charges of £35,000 for the year
The operating profit for the year before exceptional items was £4,800,000 (2012: £4,760,000), an increase of 0.8% from the prior year. In 2012 a one off £130,000 of charitable contributions associated with the Company’s 130th Anniversary Fund was paid and reported as an exceptional cost.
During the year the Company disposed of two small areas of land, generating a profit on the sale of £179,000 (2012: £598,000) and proceeds of £186,000 (2012: £714,000).
There was an 11% reduction in net finance costs in 2013. The charge reduced by £81,000 to £661,000 as a result of the combined effects of lower interest payable on debt and an increase in the net finance income arising from the Company’s pension scheme.
After the deduction of finance costs, the Company generated a Profit before tax of £4,318,000, a reduction of £168,000 or 3.7% on the prior year. The reduction was principally due to lower profits on the sale of fixed assets offset by lower exceptional items (relating to the130th Anniversary celebrations in 2012), lower net finance costs and better underlying operating performance.
The total recognised gains for the year amounts to £3,694,000 (2012: £3,372,000). The main reason for the increase on the prior year is due to lower profits during 2013, offset by a gain arising on the defined benefit pension scheme of £427,000 (2012: loss of £231,000).
A loss of £171,000 arose in the year relating to the Directors’ internal valuation for the revaluation of investment property (2012: a loss of £94,000). The freehold investment properties were valued in 2013 by an external valuer. CB Richard Ellis Limited, on the basis of open market value in accordance with the requirements of the RICS Appraisal and Valuation Standards.
The Company’s capital programme continued in 2013 with the investment in capital works totalling £2,878,000 (2012: £2,905,000). The majority of the capital expenditure was spent on metering, £994,000, and mains renewals, £882,000, in line with the Company’s focus on these areas to reduce leakage and the discretionary use of water.
Loans and borrowings as at 31 December 2013 remained unchanged at £20,282,000, which was made up of bank loans and non-equity preference shares. During the year, the Company renewed loans totalling £6,000,000 with HSBC Plc. for a term of ten years.
The States of Jersey continues to provide guarantees for the 3 loans with HSBC Bank Plc up to a maximum of £16,200,000. Currently £14,900,000 is drawn down against this facility; the amount remains unchanged compared to 2012. Cash at the bank increased from £2,653,000 in 2012 to £4,598,000 in 2013.
Earnings per Ordinary share of £0.36 (2012: £0.38) is based on earnings of £3,438,000 (2012: £3,697,000), being the profit available for distribution to equity shareholders and 9,660,000 (2012: 9,660,000) Ordinary and ‘A’ Ordinary shares of £0.50 in issue.
The proposed final dividend for this year is 12.516p per share, a 3.5% increase from the previous year where a final dividend of 12.09p was declared and paid. During the year an interim dividend of 6.426p per share was paid (2012: 6.30p). Dividends paid and proposed in respect of 2013 totalled 18.942p per share, an overall increase of 3% on 2012. The dividend due to the States of Jersey is favourably ahead of the planned 2014 budget; although the final out-turn against plan is dependent on the interim dividend declared in November 2014.
A summary of the operational statistics are as follows:-
| Units | 2013 | 2012 | 2011 | 2010 | 2009 |
Total Water supplied | MI | 7,047 | 7,015 | 7,152 | 7,220 | 7,253 |
Maximum Daily demand | MI | 24.8 | 23.4 | 24.7 | 25.8 | 25.7 |
Annual rainfall | Mm | 939 | 1,089 | 773 | 982 | 843 |
New Mains laid | Km | 1.5 | 1.5 | 2.0 | 1.7 | 3.1 |
Mains re-laid/relined | Km | 2.5 | 2.1 | 4.0 | 2.7 | 1.8 |
New connections | No | 406 | 349 | 492 | 337 | 412 |
Live unmeasured supplies | ‘000 | 10 | 13 | 18 | 21 | 23.8 |
Live metered connections | ‘000 | 28 | 24 | 20 | 16.2 | 13.2 |
Employees | No | 80 | 79 | 83 | 84 | 80 |
Compliance with water quality parameters | % | 99.84% | 99.99% | 99.81% | 99.86% | 99.84% |
Jersey Post International Limited - end 31st December 2013 (Wholly owned)
States Holding as at 31st December 2013
Issued and Fully Paid | | Nominal |
| | |
Ordinary shares of £1 each | | £5,000,000 |
2013 was Jersey Post International Limited’s first full year operating in a market place without UK Low Value Consignment Relief (LVCR). Despite this, the company has managed to generate a profit before tax of £1.3 million, just 2% lower than 2012 in spite of a 22% fall in sales. The achievement is all the more credible given the Board’s decision not to implement any stamp price increase to their customers in 2013. Modest price increases have been implemented in April 2014.
Gross profit in 2013 was £7.3m, a gross profit margin of 21% compared to 17% in 2012.
Operating profit before exceptional items was £1.1m in 2013 (2012: £1.0 million).
In spite of substantially lower volumes, the Logistics division, which provides mailing solutions to bulk mailers, made a reasonable contribution to profits albeit at significantly lower levels than before the loss of UK LVCR. Logistics revenue in 2013 was 54% lower than in 2012 and some 78% lower than 2011. International postings now account for 73% of Logistics total revenue compared to 36% in 2012, reflecting the successful efforts of JPIL’s customers to move into new markets and JPIL’s efforts to facilitate that move.
Administration costs (excluding the FRS 17 charge to the profit and loss account and the onerous lease provision for a leased warehouse now vacant) were £5.6m and broadly in line with 2012.
Net assets at the end of 2013 were £14.3m, £1.5m (12%) higher than as at 31 December 2012. Creditors were £2.3m lower than 2012 due to the change in JPIL’s relationship with Royal Mail. In previous years volumes of mail sent off Island, (in respect of which JPIL pay Royal Mail), were higher than those received into the Island for delivery (for which JPIL receive payment from Royal Mail). In 2013, for the first time, Royal Mail became a net customer rather than net supplier. The company’s liquidity remains strong with £11.8m held in cash and equity balances.
No external financing was required during 2013.
Other Key Performance Indicators:-
- The decline in traditional letter mail continued, but JPIL still processed 34.5m items at Postal Headquarters in 2013. Inbound parcels and packets increased by 16% which, with the 26% growth in the Direct to Home product, has kept the overall amount of mail delivered in 2013 more or less in line with 2012. Outward mail continued to be a cause for concern reducing by 14% and is now around half what it was 5 years ago. The total mail volumes handled were 3% lower in 2013 compared to 2012.
- The number of post offices continued to remain in line with 2012 at 21 post offices.
- The latest customer survey in January 2014 showed 92% rating their postman as good or very good; 80% rating the overall delivery service as good or very good and 81% rating the retail network as good or very good.
- For the regulatory target – JPIL managed to achieve the local mail target of at least 95% for local mail reaching a local destination each day and saw an improvement on the 2012 statistics. Work is ongoing to improve results for mail posted outside of Jersey, handled by Royal Mail.
The opinion provided in the Auditors’ Report, signed by Pricewaterhouse Coopers CI LLP, is that:
“In our opinion, the financial statements give a true and fair view of the financial position of the Group as of 31 December 2013, and of its financial performance and its cash flows for the year then ended in accordance with United Kingdom Accounting Standards and have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991.”
The States of Jersey own 100% of the issued ordinary shares (5 million at £1 per share).
In accordance with Article 97, it is recommended to propose a final ordinary dividend of £390,000 (net of tax), this represents one third of the net profit in line with the approved dividend policy. 2012 final dividend declared was £382,000 (£477,500 gross). The 2013 final dividend declared represents 7.8p per share (net of tax).
4. Recommendation
It is recommended that the Minister request the Greffier of the States to present the attached reports and accounts to the States on 8th July 2014.
- Reason for Decision
To present the Financial Reports and Accounts for the above companies to the States.
- Resource Implications
This decision has no resource implications.
Report author : Head of Shareholder Relations | Document date : 1st July 2014 |
Quality Assurance / Review : Business Manager | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DSs, WRs and SDs\2014-0069 - Presentation of SoJ owned Utilities Reports & accounts 2013\WR - Presentation of Utilities 2013 accounts and report to the States.doc |
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