TIDMTEP
RNS Number : 8906Q
Telecom Plus PLC
23 June 2015
Embargoed until 07.00 23 June 2015
Telecom Plus PLC
Final Results for the year ended 31 March 2015
Telecom Plus PLC (the "Company"), the UK's leading low-cost
multi-utility supplier (Gas, Electricity, Telephony and Broadband),
announces its final results for the year ended 31 March 2015.
Financial Highlights:
-- Revenue up 10.5% to GBP729.2m
-- Adjusted profit before tax up 22.5% to GBP52.2m
-- Statutory profit before tax up 21.3% to GBP42.1m
-- Adjusted EPS up 9.3% to 53.0p
-- Full year dividend up 14.3% to 40p per share
Operating Highlights:
-- Over 580,000 Members
-- Service numbers up by 208,000 to 2.1 million
-- Continuing strong organic growth in both services and Members
-- Relocated to new headquarters, providing capacity for future growth
-- Shortlisted by Which? for 'Best Telecom Services Company' in 2015 Annual Awards
-- Public Champion in European Business Awards
Andrew Lindsay, CEO, commented:
"I am very pleased with the double digit growth that we have
delivered in the face of unprecedented headwinds this year, and
take confidence from this strong endorsement of our unique business
model.
"We remain focussed on genuinely looking after our Members: this
is the bedrock of our business model and we were therefore
delighted to have been shortlisted by Which? as 'Best Telecom
Services Company' in their 2015 Annual Awards. It is through
continuing to earn the trust of our Members, and treating them
fairly, that we will achieve our medium term goal of supplying a
million households.
"We wholly support the pressure that the Secretary of State is
applying to the 'Big 6' energy suppliers to pass their lower
wholesale costs onto the majority of their customers, by reducing
their standard variable tariffs. Furthermore, we encourage the
Competition and Markets Authority to be bold in addressing the
fundamentally unfair and increasingly prevalent practices in the
energy markets that are clearly detrimental to the majority of UK
consumers.
"Looking forward we are confident that we will deliver record
revenues, profits, and earnings per share for the current year, and
expect to increase our dividend by a further 15% to 46p per
share."
There will be a meeting for analysts at the offices of MHP
Communications,
60 Great Portland Street, London, W1W 7RT at 8.45am today.
For more information please contact:
Telecom Plus PLC
Andrew Lindsay, CEO 020 8955 5000
Nick Schoenfeld, CFO
Peel Hunt
Dan Webster / Jock Maxwell Macdonald 020 7418 8900
MHP Communications
Reg Hoare / Katie Hunt / Giles Robinson 020 3128 8100
About Telecom Plus PLC ('Telecom Plus'): www.utilitywarehouse.co.uk
Telecom Plus, which owns and operates the Utility Warehouse
brand, is the UK's only fully integrated provider of a wide range
of competitively priced utility services spanning both the
Communications and Energy markets.
Members benefit from the convenience of a single monthly
statement, consistently good value across all their utilities and
exceptional levels of service. Telecom Plus does not advertise,
relying instead on 'word of mouth' recommendation by existing
satisfied Members and Partners in order to grow its market
share.
Telecom Plus also has a 20% shareholding in Opus Energy Group
Ltd, a successful, profitable and fast growing independent supplier
of gas and electricity to small, medium and large business
customers.
Telecom Plus is listed on the London Stock Exchange (Ticker: TEP
LN). For further information please visit
www.utilitywarehouse.co.uk
Chairman's Statement
I am delighted to report another successful year for the Company
with revenues, profits, earnings and dividends all reaching record
levels.
This has been achieved in the face of the most competitive
trading conditions we have yet seen, where a sustained fall in
wholesale energy prices over the last 18 months and aggressive
promotional activity by a number of new entrants into the energy
market (who are not carrying the burden of energy hedged at
historically higher prices), has combined to create a record gap
between the introductory fixed price deals available to those who
switch, and the standard variable tariffs paid by the vast majority
of domestic consumers; this has been exacerbated by an
industry-wide tendency (excluding ourselves) to use the higher
margins earned on legacy customers to help fund such introductory
deals. We are strongly opposed to customers being exploited in this
way, and there is a widespread expectation that this issue will be
addressed in due course through a combination of regulatory
intervention (either as part of the CMA review of the energy
industry whose report is expected this summer, or by Ofgem), and by
reductions in standard variable tariffs as larger suppliers reflect
the prevailing lower level of commodity costs.
Against this background, the continued strong organic growth we
have delivered in both service numbers and the size of our
membership base over the last year is a clear and positive
endorsement of our unique business model. We remain on track to
achieve our medium term target of one million households, although
it is now apparent that our path towards this destination will not
be in a straight line; growth will be higher during periods when
market conditions are favourable, and slower when (as currently)
the competitive environment is more challenging.
On 16 April 2015 the Company informed shareholders that a
detailed review of the unbilled energy debtor on our balance sheet
had revealed that our share of the industry-wide leakage within the
national gas distribution network had been running at a
significantly higher level than we had previously provided against.
The resultant GBP11m write-down of this current asset on our
balance sheet (net of anticipated tax credits), although a non-cash
item, has reduced both historic and current reported earnings, and
is extremely disappointing given the strong underlying performance
of the business over the last year, and our exciting prospects for
future profitable organic growth.
Results overview
Adjusted pre-tax profits increased by 22.5% to GBP52.2m (2014:
GBP42.6m) on revenue up by 10.5% to GBP729.2m (2014: GBP659.7m);
adjusted earnings per share for the year rose by 9.3% to 53.0p
(2014: 48.5p).
The increase in profitability reflects the consistent organic
growth we have achieved over the last two years, combined with a
full year's additional margin contribution from the new supply
arrangements with Npower which we entered into in December 2013,
partially offset by writing off the higher costs associated with
leakage within the national gas distribution network than had
previously been expected.
Revenue growth was constrained by a fall in average energy
consumption within our domestic membership base compared with the
previous year, reflecting both milder weather and the progressive
impact of the energy efficiency measures that have been delivered
by the industry over the last few years; this impact was
exacerbated by lower average energy prices during the year
following the price reductions we implemented in early 2014 and
early 2015.
We remain encouraged by the continuing organic growth in the
number of services we are providing through our Utility Warehouse
brand, which reached 2,093,447 (2014: 1,884,694) by the year end -
an increase of more than 200,000 services during the year. This
growth has been broadly spread across all our core services (Gas,
Electricity, Home Phone, Mobile and Broadband) with 58,753 (2014:
40,544) residential Members now taking all five of these services
from us out of a total of 66,898 with our 'Double Gold' bundle.
This takes our 'Double Gold' penetration up to around 12% of our
residential membership base - a 44% increase in the number of
Members taking this premium bundle over the last 12 months.
In line with previous guidance, we are proposing a final
dividend of 21p (2014: 19p), bringing the total for the year to 40p
(2014: 35p); this represents an increase of 14% compared with last
year. We remain committed to a progressive dividend policy
consistent with the underlying strong cash generation of our
business.
We were delighted to receive a number of further endorsements
from Which? and MoneyWise during the year recognising both the
value we offer and the quality of service provided by our UK based
membership service team, including being ranked as one of the top
three suppliers in all the surveys we were featured in, and being
shortlisted as 'Best Telecom Services Provider' at their 2015
Annual Awards. This is a reflection of the continuing focus and
significant ongoing resources invested into delivering the best
possible service to our Members, consistent with securing our
position as the Nation's most trusted utility supplier.
Our share of the profits from Opus Energy Group Limited
("Opus"), in which we maintain a 20% stake, increased during the
year to GBP6.0m (2014: GBP4.7m). This business continues to trade
strongly, and we anticipate our contribution for the coming year
will remain at a broadly similar level, before moving forward again
in 2017.
Business Development
Our commitment to being the Nation's most trusted utility
supplier and to treating our Members fairly makes it inappropriate
for us to adopt the same marketing strategies as our competitors,
who combine cheap introductory deals for new customers with much
higher tariffs charged to their loyal existing customer base who do
not appreciate the extent to which they are being exploited.
This approach has become increasingly prevalent across the
market for all the services we offer. Introductory standard
broadband deals offering up to 18 months free, compared with a
monthly charge of up to GBP20 (or more) for existing loyal
customers; new mobile tariffs with larger inclusive allowances and
lower monthly charges, that existing customers cannot switch to
without paying substantial penalties; and in domestic energy
markets, one-year fixed term introductory deals have emerged that
are up to GBP400 cheaper than the standard variable tariffs
available from the same supplier. They are all competing for market
share using the same distribution channels (direct marketing
campaigns and price comparison websites), where the primary means
of differentiating themselves from each other is the headline price
of the introductory deal they are offering.
This is not only fundamentally unfair on existing loyal
customers, but unlikely to create a sustainable long term business,
as customers who have chosen to switch once based solely on the
headline price on a comparison site must have a higher propensity
to do so again when their introductory deal expires.
Our alternative approach is to focus on treating all our Members
in a fair manner, and to give everyone consistently good value on
all their services. Accordingly, we don't offer heavily discounted
one-year introductory energy deals to new Members, and with all our
telephony services (landline, broadband and mobile), both new and
existing Members pay exactly the same prices for identical
packages.
Our bad debt charge for the year remained low, even though a
significant number of new Members joined during the year, and
delinquency levels (which are a useful lead indicator of future bad
debt) saw a further small reduction over the course of the year
reflecting the improving quality of our membership base.
Route to Market
Significant numbers of new Partners joined the business during
the year, taking the total number of registered Partners at the
year end to a record high of 49,539 (2014: 44,056). Although many
of these will not be active on a regular basis, this continuing
high level of interest reflects the growing awareness of our brand
and the attractiveness of the secure part-time additional income
opportunity we offer.
We continue to invest in improving the personal development
programme we offer, free of charge, to both new and existing
Partners. This is designed to help them gather Members more
effectively and build a growing long-term residual income.
It is encouraging that notwithstanding the absence of 'loss
leader' introductory deals for new Members, the combined impact of
an improved online training course and a revised incentive
structure means that a higher proportion of new Partners are making
a successful start to building their Utility Warehouse business
than we were seeing during the comparable period last year.
Improving the effectiveness of new Partners remains a core focus
for the business, and we have recently been trialling a new
approach to classroom training; this has delivered encouraging
results, and we will be rolling this out across the UK next
month.
Corporate Governance
The UK Corporate Governance Code (the "Code") encourages the
Chairman to report personally on how the principles in the Code
relating to the role and effectiveness of the Board have been
applied.
As a Board we are responsible to the Company's shareholders for
delivering sustainable shareholder value over the long term through
effective management and good governance. A key role of mine, as
Executive Chairman, is to provide strong leadership to enable the
Board to operate effectively.
We believe that open and rigorous debate around key strategic
issues and risks faced by the Company is important in achieving our
objectives and the Company is fortunate to have non-executive
directors with diverse and extensive business experience who
actively contribute to these discussions.
Further detail of the Company's governance processes and
compliance with the Code is set out in the Corporate Governance
Statement in the full annual report and accounts.
Outlook
Recent Trading
A record number of Partners attended our annual sales conference
in March, where we made some important changes to our membership
proposition designed to help them build their businesses more
effectively. These included discontinuing our previous introductory
offer of six months free broadband for all new Members taking our
'Gold Talk' and 'Double Gold' bundles, and replacing it with a
two-year fixed price energy tariff and choice from a range of new
optional extra benefits; these are only available to
owner-occupiers, and on identical terms to both new and existing
Members.
This decision was driven by the significant difference in churn
rates (and hence the length of time they can be expected to remain
a Member) between different segments of our membership base, which
makes it logical to invest more in attracting and keeping the most
valuable types of Member, and to reduce our investment where the
expected membership lifetime value is lower.
This removal of up-front incentives has obviously not made it
easier for our Partners to sign-up new Members, within a
competitive environment where other suppliers have adopted a
diametrically opposite strategy of putting as much value as
possible into short-term introductory deals. Against this
background, it is pleasing that our Partners continue to identify
substantial numbers of households who can make significant savings
by switching to us, and who empathise with our core messages of
treating our Members fairly, delivering consistently good value and
providing great service - albeit that absolute growth in the number
of new Members is currently running below our target run-rate for
the year as a whole.
Partner recruitment levels remain solid, and we look forward to
the positive impact on activity levels which should be created by
our new skills-based training programme being introduced
shortly.
Energy Prices
Within the energy sector as a whole, significant investment is
needed over the next decade to renew and extend the distribution
network, replace nuclear and coal-fired generating plant that is
approaching the end of its useful life, roll out smart meters, and
encourage the take up of energy efficiency and renewable energy
programmes. The costs associated with delivering these initiatives
are likely to put continued upward pressure on retail energy prices
in due course, although in the shorter term we anticipate these
will be more than offset by lower wholesale energy commodity
prices, which have fallen significantly over the last 18 months,
and will steadily be reducing the average hedge book costs for all
major suppliers.
Regulatory
The Competition and Markets Authority has been carrying out a
detailed review of the domestic energy market, and its initial
findings are expected to be announced shortly. We welcome its focus
on ensuring that competition amongst suppliers is working in the
best interests of consumers, and look forward to hearing its
proposals for protecting those on standard variable tariffs across
the industry whose inertia is being exploited by their existing
supplier and used to cross-subsidise introductory fixed price deals
aimed at those who are switching.
We will shortly be starting to roll-out the installation of
smart meters for our Members in line with our obligations to ensure
all domestic energy meters are replaced by the target completion
date in 2020. However, the continuing delays in finalising the
specification of SMETS2 meters, in getting them certified, and in
the DCC testing schedule, have created a broad consensus amongst
energy suppliers that the original target end date for this
programme is no longer achievable, and maintaining this deadline
will simply lead to even higher fulfilment costs which will
ultimately be borne by consumers.
Much money continues to be wasted within the industry with
little thought apparently given to delivering initiatives in a way
that will minimise their costs, which ultimately get passed on by
suppliers to customers through their bills. A prime example of this
is the establishment of Smart Energy GB, which has a mandate to
spend over GBP85m of customers' money over the next five years on
advertising the benefits of smart meters, and making the public
aware that this meter replacement programme is taking place,
through an expensive multi-media campaign featuring two cartoon
characters called 'Gaz' and 'Leccy'.
The changes mandated as part of Ofgem's Retail Market Review
have now been in force for over 12 months, and it is disappointing
how little impact the cheapest alternative supplier messaging rules
seem to be having on preventing larger suppliers exploiting the
inertia of their legacy customer bases, and using the excess
profits from these customers to fund cheap introductory deals for
those who are switching. This seems to be due to a combination of
factors including: (i) a general lack of interest by many consumers
in even reading their bill; (ii) a failure by consumers to notice
or understand the cheapest tariff messaging; and (iii) the practice
of most suppliers to send energy bills to their customers on a
quarterly or annual basis, by which time many of the cheaper deals
which were available since the previous billing date will have been
withdrawn.
Regulation has an important role to play in ensuring the energy
markets are operating in a transparent manner, creating a framework
which encourages real competition, protecting the rights of
consumers, and ensuring they receive a fair deal for their energy.
However, it is not clear that the right balance has recently always
been struck. We look forward to a less detailed and more principle
based approach in future, where innovation can flourish, and there
is a clearer understanding of the need to reduce the burden of
regulation which ultimately falls on those least able to afford it
- namely domestic customers.
Within the telecoms markets, significant corporate activity has
been announced during the last 12 months, with BT having made an
agreed bid for EE, and '3' planning to merge with O2. If completed,
these transactions will reduce the number of networks available for
Mobile Virtual Network Operators ('MVNO's') such as ourselves to
work with in future, and we are therefore encouraged that the CMA
and Ofcom (in relation to the BT/EE transaction) and the European
Commission (in relation to the '3'/O2 merger) are focussed on
ensuring this likely consolidation will not lead to a reduction in
competition or consumer choice in future.
Prospects
We are encouraged by the high proportion of new owner-occupiers
who are applying for our 'Double Gold' bundle (Landline, Broadband,
Mobile and Energy), which has been consistently running at around
45% since the start of our new financial year. Over time, this will
lead to a progressive further rise in the quality of our membership
base.
Absolute growth in membership numbers is currently running below
our target run-rate for the year as a whole, and the likelihood is
that our percentage organic growth will remain in mid-single digits
until the gap between the introductory fixed-price energy deals
available to new customers on the one hand, and the higher standard
variable tariffs charged to most domestic households on the other,
narrows significantly. We anticipate this will happen progressively
over the course of the next 12 months, starting with price
reductions from all the major energy suppliers later this
summer.
In the meantime we are in the process of rolling out
improvements to our training programme which we believe will
improve the effectiveness of new Partners joining the business, and
are planning a number of new initiatives for later in the year
designed to make our unique proposition even more attractive to
'Double Gold' multi-service owner-occupiers.
Our focus remains on building our membership base to 1 million
Members and beyond over the medium term; this would represent a UK
market share of less than 4%, and seems eminently achievable in due
course given our track record of consistent organic growth, our
unique fully integrated multi-utility service proposition, and
clearly differentiated proven route to market.
The high quality of our membership base gives us good visibility
over future revenues and margins on the various services we
provide, and we re-iterate our previous guidance that adjusted
pre-tax profits for the current year will be between GBP54m and
GBP58m. In the absence of unforeseen circumstances, we intend to
increase the dividend by 15% to 46p per share.
It only remains for me to thank my boardroom colleagues for
their support and all our staff and Partners for their loyalty and
hard work during the past year, and to wish each and every one of
them success in the years to come.
Charles Wigoder
Executive Chairman
22 June 2015
Chief Executive's Review
Markets
We supply a wide range of essential services under the Utility
Warehouse brand (Gas, Electricity, Landline, Broadband and Mobile)
to both domestic and small business Members throughout the UK;
these are all substantial markets and represent a vast opportunity
for further organic growth.
The markets we operate in are dominated by a relatively small
number of former monopoly suppliers and other owners of
infrastructure assets, although in each there are also a number of
independent suppliers carving out their own niches, generally based
on offering highly competitive introductory short-term fixed price
contracts promoted through price comparison sites.
Business model
We have a fundamentally different business model to any other
utility provider in the UK in three key respects:
-- we operate our business as a Discount Club; each of our
customers becomes a Member, receiving a level of service
commensurate with that status;
-- we are the only fully integrated provider of both energy and
communications services in the country. This enables us to enjoy
unparalleled levels of operating efficiency as we are able to
spread a single set of overheads across the multiple revenue
streams that we derive from each of our Members; and
-- we have a unique route to market, with an 'army' of almost
50,000 part-time self-employed Partners; rather than seeking to
attract new Members through expensive advertising, direct marketing
or price comparison sites, we instead benefit from genuine personal
recommendations by both our Partners, and by existing Members.
Partners can earn a small percentage of the monthly revenues
generated by any Members gathered, either personally, or by someone
in their team. On a similar basis, we reward our existing Members
with shopping vouchers when they introduce a new Member to the
Club.
Our Members value the Savings (compared with the prices they
were paying their previous suppliers), Simplicity (the convenience
and ease of budgeting provided by a single monthly bill), and
Service (from our award-winning UK call centre) that we offer. In
addition, an increasing number are benefitting from our innovative
CashBack proposition.
The delivery of these core benefits is critical to our route to
market, giving our Partners the confidence to promote our services
to their friends and family - as well as generating recommendations
from existing Members who in many cases also become advocates for
our brand. The Net Promoter Scores ("NPS") of around +45 that we
consistently achieve reflect our relentless focus on this goal, and
are in stark contrast to the negative NPS scores prevalent within
the utility and telecoms markets.
Against a backdrop where most of our competitors seem focussed
almost solely on price, we believe that genuinely earning the Trust
of our Members is the key point of differentiation that will enable
us to achieve our medium term growth objectives. By treating our
Members as we would like to be treated ourselves, we aim to earn
both their loyalty (which delivers long term, sustainable revenues)
and their enthusiasm for our business model (which creates growth
through referrals).
We have taken a number of steps in this direction over the past
few years, culminating most recently in our decision to stop giving
introductory short-term discounts to new Members as an incentive to
switch; this reflects our view that it is unfair for existing loyal
Members not to be able to benefit from the same prices and tariffs
as those offered to new ones.
Simultaneously we are progressively segmenting our customer
base, based on their expected lifetime value to us as a Member.
Consistent with this approach, we have recently increased our focus
on attracting owner-occupiers taking multiple services from us, by
introducing a range of extra benefits from which they can
choose.
We continue to invest heavily in our bespoke IT systems; these
enable us to integrate all the services we supply into a single
monthly bill, supported by just one set of central overheads
(including all administrative and membership service functions).
This highly efficient cost base is a key factor in enabling us to
offer attractive pricing and a wide range of valuable benefits to
our Members, a secure residual income to our Partners, and a
growing dividend stream to shareholders.
We are extremely pleased with the further progress we have made
this year in taking advantage of our multiple key points of
differentiation, and towards securing our position as the Nation's
most trusted utility provider.
Strategy
Our strategy is to build on the consistent strong organic growth
we have historically delivered in order to progressively increase
our share of the markets in which we operate.
We will achieve this by maintaining our focus on delivering
best-in-class service and support to our Members, treating them
fairly, investing in our systems and staff, simplifying and, where
possible, improving the competitiveness of our services even
further, encouraging existing Members to talk about the unique
benefits we offer to their friends and acquaintances, and making it
easier for our Partners to promote our services more
effectively.
We continue to explore the possibility of expanding our current
range of core services into areas where we can leverage our
existing strong relationship with our Members to offer them
improved service and better value on services they currently obtain
from other suppliers, whilst also delivering a satisfactory return
for our shareholders. Later this year we hope to introduce a range
of insurance products, such as home and motor policies; in the
medium to longer term, other potential new services might include
water, television, and home emergency cover (including boiler
cover).
Operational performance and non-financial KPIs
Our overall performance for the year has been extremely
encouraging in a number of key respects:
-- continuing strong organic growth with service numbers up by 208,753 (2014: 305,100)
-- low churn
-- lower delinquency
-- higher proportion of Members taking our 'Double Gold' bundle
-- healthy increase in the number of new Partners
-- positive reviews and recognition from Which? for both energy and telephony services
-- consistently high Net Promoter Scores
Against the background of a broadly flat economy, and with
household incomes remaining under pressure, our value-based
consumer proposition and the part-time income opportunity we offer
are extremely attractive to both Members and Partners
respectively.
Our continuing strong organic growth is underpinned by high
levels of confidence amongst our Partners in our brand and
financial strength, the good value we provide, and our commitment
to delivering best-in-class service and support to our Members.
Members
2015 2015
Residential Club 551,322 495,234
Business Club 30,191 29,098
Total Club 581,513 524,332
In addition, there are 5,700 predominantly small-business
customers within our TML subsidiary, which does not form part of
our core Discount Club proposition. We will therefore no longer be
including or reporting any customer or service numbers for TML,
although the relatively modest financial contribution it makes will
continue to be reflected in the consolidated group numbers.
Within the residential Club, there is a significant difference
in average expected lifetimes between Members (and therefore in the
revenues and profits they will generate), depending on whether they
are an owner-occupier, and on the number of services we are
providing to them.
The most attractive category, with a calculated expected average
lifetime of over 25 years, are owner-occupiers taking our 'Double
Gold' bundle. We have therefore recently made it even more
attractive for them to take this bundle from us, by introducing a
range of additional ongoing benefits and a new two-year fixed
energy tariff which are only available to owner-occupiers (both new
and existing Members); these have replaced the introductory
broadband discount previously only offered to new Members taking
our 'Gold Talk' and 'Double Gold' bundles, irrespective of the type
of housing they occupied.
This focus on attracting Members who will have the highest
lifetime value has been reflected in an increasing proportion of
new Members signing up for 'Double Gold' and switching all their
services to us (Landline, Broadband, Mobile, Electricity and/or
Gas) to us:
Percentage of
new Members
taking 'Double
Gold' bundle
--------------------
Q1 FY15 21.1%
Q2 FY15 24.6%
Q3 FY15 23.6%
Q4 FY15 27.7%
In the first two months of the current quarter, and following
the recent changes to our proposition, the proportion of 'Double
Gold' amongst new Members gathered by our Partners had further
increased to over 29%.
Overall churn within our membership base has remained close to
the record low we reported last year. This is best illustrated by
the level of individual energy supply point churn, which has
remained below 1% per month (on average), notwithstanding the
widening gap between the introductory fixed price deals available
from other suppliers and the range of competitive variable tariffs
we offer:
Energy supply
point churn
------------------
FY11 16.3%
FY12 13.3%
FY13 11.2%
FY14 10.4%
FY15 11.2%
Average revenue per Member has shown a modest decrease during
the year due to falling average energy consumption during another
mild year, a full year impact from the lower dual fuel energy
prices which became effective on 1 February 2014, and a small
impact from a further reduction in domestic gas prices from 1 March
2015:
Average Revenue
per Member
--------------------
1999 GBP190
2000 GBP286
2001 GBP316
2002 GBP329
2003 GBP459
2004 GBP482
2005 GBP505
2006 GBP634
2007 GBP801
2008 GBP819
2009 GBP1,064
2010 GBP1,149
2011 GBP1,137
2012 GBP1,186
2013 GBP1,359
2014 GBP1,304
2015 GBP1,279
(These revenue figures relate solely to our Customer Management
operating segment, the figures for 2008 to 2014 inclusive are
restated)
We enjoy high levels of overall satisfaction within our
membership base, as evidenced by the positive reviews we receive
from Which? magazine on a regular basis, the feedback we receive
from the surveys we send out each month to Members who have
contacted our call centre, and the low level of complaints made by
our Members to the various industry ombudsmen. This feedback is
reflected in our consistently positive Net Promoter Score of around
+45 against a background where many other suppliers in the utility
and telecoms sectors achieve negative scores; indeed, our high
positive score would have put us in second place overall out of
more than 60 brands (across nine sectors including mobile and
internet) in the most recent Satmetrix report (April 2015), and is
almost double the latest score of +23 reported by British Gas.
Our innovative CashBack card continues to generate significant
monthly savings for our Discount Club Members, with the total value
of CashBack credited to Members since launching this programme now
in excess of GBP21m. In addition, we have seen increasing numbers
of Members using our online shopping portal and price comparison
service tohelp them find the cheapest online supplier for a wide
range of everyday household goods, and to earn additional
CashBack.
Services
The full range of services we offer includes Landline Telephony
(calls and line rental), Broadband, Mobile, Gas, Electricity, and
our CashBack card. At the year end, we supplied a total of
2,093,447 services to Club members (2014: 1,884,694), representing
an increase of over 200,000 during the year.
2015 2014
---------- ----------
Electricity 525,024 474,123
Gas 430,517 392,744
Fixed Telephony
(calls and NGN) 301,594 283,159
Fixed Telephony
(line rental) 278,903 257,012
Broadband 245,625 220,537
Mobile 144,350 117,350
CashBack card 167,434 139,769
Total 2,093,447 1,884,694
Residential Club 2,008,241 1,804,830
Business Club 85,206 79,864
---------- ----------
Total 2,093,447 1,884,694
We saw consistent quarterly growth throughout the year in all
the core services we provide (Gas, Electricity, Landline, Broadband
and Mobile), with a particularly pleasing 23% rise in the number of
Mobile services provided. This increase means penetration of Mobile
within our residential Club has almost doubled to 25% over the last
four years with scope for significant further improvement in this
level of penetration in future.
CashBack
Our exclusive CashBack card has proven itself as an important
Member acquisition and retention tool. It gives our Members the
opportunity to achieve additional savings of between 3% and 7% on
their shopping at a wide range of participating retailers, which
they receive as an automatic credit on their next monthly bill from
us.
We have seen a 20% increase during the year in the number of
cards in issue to 167,434 (2014: 139,769), with around 40% of new
residential Club Members gathered directly by our Partners applying
for a card. We believe this continuing strong demand demonstrates
the attractiveness of this unique membership benefit, and would be
even higher were it not for the difficulties faced by some new
Members in funding the switch from paying in arrears on their
credit card, to paying for their purchases in advance with our
prepayment card.
We have seen a pleasing increase in the use of our online
shopping portal, with Members earning CashBack on over GBP1m of
online retail spend each month. We aim to further develop this
membership benefit within the online Clubhouse and via a Member App
to be launched later in the year.
We paid over GBP5.4m (2014: GBP4.9m) in CashBack to our Members
during the year (funded entirely by the retailers in the
programme), with many Members achieving a reduction of between 20%
and 30% on the amount they pay for the utilities we are supplying
to them each month, simply by using their CashBack card (instead of
an alternative payment card) for most of their regular household
shopping, and/or our online shopping portal.
Membership Service and Support
We pride ourselves on delivering first-class service to our
Members through a single call centre based in the UK. We try to
ensure where possible that the first person a Member speaks to is
able to resolve any issues they may have with their multi-utility
account.
We have a relentless focus on improving the service experience
we deliver to our Members; we readily invest in technology that we
believe will genuinely achieve this objective, and continually
assess the numerous qualitative and quantitative performance
measurement tools that we employ to monitor all aspects of our
Members' interactions with us in order to ensure the overall
quality of their experience.
We have been delighted at the consistently high ratings we
receive in Which? magazine for the quality of the service and
support provided to our Members, and the overwhelmingly positive
feedback we receive from Members in our own surveys.
Partners
Our Partners are one of the key strengths of our business. In
contrast to the routes to market adopted by other suppliers of
similar household services, the alignment of financial interest
provided by our revenue-sharing model, the structure of our
compensation plan, and the substantial number of Partners who hold
equity or share options in the Company, incentivise them to focus
their activities on finding creditworthy higher-spending Members
who will reap the maximum savings from using our services, and will
thus be least likely to churn; by doing so, they maximise their own
long-term income. This ensures that cases of mis-selling are both
inadvertent and extremely rare.
We provide a variety of training and personal development
courses both online and classroom based, designed to provide the
skills and knowledge they need to gather Members and recruit other
Partners effectively and successfully; all of these courses are
free to attend. In addition, we offer an interest-free hire
purchase scheme which gives Partners access to a Tablet so they can
present the benefits of our unique Discount Club more
effectively.
Our Car Plan, which provides eligible Partners with a subsidised
Utility Warehouse branded BMW Mini, remains extremely popular with
around 700 vehicles now on the road (2014: 575). Owners inform us
that they find these helpful in raising their local profile,
resulting in enquiries from both potential new Members and
Partners.
Premises and Systems
The refurbishment of our new headquarters office building which
we purchased in February 2012 is now substantially complete, and we
took occupation around the end of March. This exciting new space
will support our growing business for the foreseeable future. From
a systems perspective, we have the capacity to manage a substantial
increase in our current membership base and service numbers,
without the need for any material further capital investment.
Andrew Lindsay MBE
Chief Executive Officer
22 June 2015
Financial Review
Overview of Results
Adjusted [1] Statutory
2015 2014 Change 2015 2014 Change
Restated Restated
---------- ---------- ------- ---------- ---------- -------
Revenue GBP729.2m GBP659.7m 10.5% GBP729.2m GBP659.7m 10.5%
Profit before
tax GBP52.2m GBP42.6m 22.5% GBP42.1m GBP34.7m 21.3%
Basic EPS 53.0p 48.5p 9.3% 40.6p 37.7p 7.7%
Dividend per
share 40.0p 35.0p 14.3% 40.0p 35.0p 14.3%
[1] In order to provide a clearer presentation of the underlying
performance of the Group, adjusted profit before tax and adjusted
basic EPS exclude share incentive scheme charges and the
amortisation of the intangible asset arising on entering into the
energy supply arrangements with Npower in December 2013.
Summary
The increase in revenue during the year has been driven by
continuing strong organic growth in the number of services we
provide, partially offset by lower energy prices and lower average
household energy usage compared with the previous year.
The improvement in adjusted pre-tax profits of 22.5% reflects
the underlying increase in the average number of Members during the
year, and a full-year contribution from our new energy supply
arrangements, offset by higher costs being attributed to us than we
had previously expected relating to leakage within the national gas
distribution network which is discussed in more detail below.
Increased promotional activity during the year targeted on
recruiting high quality multi-utility new Members in a highly
competitive market has led to an increased loss from our Customer
Acquisition operating segment of GBP15.5m (2014: GBP12.1m).
Distribution expenses, which primarily consist of commissions
paid to our Partners, increased by GBP3.3m to GBP21.9m (2014:
GBP18.6m), reflecting the higher number of services being provided
to our Members and additional promotional costs associated with
gathering new Members.
Administrative expenses increased during the year by GBP4.9m to
GBP46.5m (2014: GBP41.6m) mainly as a result of higher staff
costs.
Adjusted earnings per share increased by 9.3% to 53.0p (2014:
48.5p), reflecting the full impact of the increase in the Company's
share capital resulting from the transaction with Npower in
December 2013. In accordance with previous guidance and our strong
cash position, the Company is proposing to pay a final dividend of
21p (2014: 19p) per share, making a total dividend of 40p (2014:
35p) per share for the year.
Write-down of unbilled energy debtor
As announced in our trading update on 16 April, a detailed
review of the unbilled energy debtor carried on our balance sheet
disclosed that approximately GBP11m (net of anticipated tax
credit), which had accumulated over the seven years between April
2007 and March 2014 was not recoverable. This related to higher
levels of leakage within the national gas distribution network than
had previously been anticipated, and as fully explained in the
trading update, has been written off.
The Board has restated the Company's accounts to reflect the
impact of this write-down on previous years, providing stakeholders
with an accurate reflection of the historic underlying trend in the
performance of the business.
Margins
Our overall gross margin for the year was 15.9% (2014: 14.9%)
reflecting a full year's contribution from the new energy supply
arrangements with Npower which were completed in December 2013, and
an improving gross margin on our telephony services where higher
pricing has largely offset the continuing downward trend in call
spend amongst Members using their landlines. We expect our gross
profit margins to remain within the previously stated range of 15%
to 17% for the foreseeable future, subject to the impact from any
new services which may be introduced.
Customer Management Business
We have continued to achieve steady growth in the number of
services we are supplying, with an increase of over 200,000
services during the course of the year. This takes the total number
of services provided by our Discount Club to almost 2.1 million -
an increase of more than 10% compared with the previous year.
These numbers reflect our continuing focus on making it easier
for Partners to gather new Members by simplifying our processes,
improving membership benefits, making our prices more competitive,
and improving the quality of service and support we provide to our
membership base. As a result, all our core services have continued
to see consistent organic growth.
Revenues increased across all our core services, notwithstanding
both lower average energy consumption and lower retail energy
prices compared with the previous year:
2014
GBPm 2015 Restated
------ ----------
Electricity 304.7 273.5
Gas 278.4 255.4
Landline and Broadband 93.7 82.2
Mobile 20.3 16.7
Other 15.5 15.7
712.6 643.5
Customer Acquisition
Our net investment in acquiring new Members increased during the
year to GBP15.5m (2014: GBP12.1m), mainly reflecting increased
promotional activity in a challenging and increasingly competitive
market and a higher proportion taking our 'Double Gold' bundle.
Although the cost of acquiring an owner-occupier taking our
'Double Gold' Bundle is generally considerably higher than for a
tenant taking fewer services, our experience shows that the return
on that investment will more than compensate for the higher upfront
costs we incur, due to the much longer expected lifetime of this
type of Member.
Distribution and Administrative Expenses
Distribution expenses include both the share of our revenues
that we pay as commission to Partners, and other direct costs
associated with gathering new Members included as part of the
Customer Acquisition Segment result for the year. These increased
by GBP3.3m to GBP21.9m (2014: GBP18.6m), reflecting a combination
of higher residual income payments to Partners, and the costs of
various promotional incentives (such as shopping vouchers) provided
to new Members.
Within administrative expenses, the bad debt charge for the year
remained at 1.5% of revenues (2014:1.5%), but increased slightly in
absolute terms to GBP10.7m (2014: GBP9.9m).
Notwithstanding our growing membership base, the number of
prepayment meters we installed during the year fell to 8,642 (2014:
8,958), of which many were provided at the Member's own request.
This reflects our efforts over the last few years to attract and
retain high quality multi-service owner-occupiers. At the end of
the year we had an installed base of 68,066 (2014: 50,095)
prepayment meters, representing approximately 7.1% of the energy
services we supply. This remains significantly below the average
level of prepayment meters within the industry of around 15%
(source: Ofgem).
Delinquent Members
----------------------
Q1 FY12 1.71%
Q2 FY12 1.53%
Q3 FY12 1.26%
Q4 FY12 1.34%
Q1 FY13 1.33%
Q2 FY13 1.17%
Q3 FY13 1.08%
Q4 FY13 1.32%
Q1 FY14 1.30%
Q2 FY14 1.15%
Q3 FY14 1.00%
Q4 FY14 1.15%
Q1 FY15 1.18%
Q2 FY15 1.12%
Q3 FY15 0.99%
Q4 FY15 1.10%
Delinquency (the proportion of Members who have at least two
energy bills outstanding) has been on a steady downward trajectory
over the last few years, and we are pleased that this trend has
continued over the last 12 months.
The average number of employees increased from 696 to 787,
reflecting our commitment to continue delivering the best possible
service experience to our Members, and a significant ongoing
investment in strengthening our management structure. Personnel
expenses (excluding the non-cash accounting cost of share incentive
schemes) increased by 12.2% during the year to GBP26.7m (2014:
GBP23.8m).
Overall, administrative expenses remained broadly flat at 6.4%
of revenue for the year (2014: 6.3%).
Opus
Our share of the profits from Opus Energy Group Limited
("Opus"), in which we maintain a 20% stake, increased during the
year to GBP6.0m (2014: GBP4.7m). This excellent result reflects a
continuing strong trading performance, and the further steady
progress they have made in supplying gas alongside electricity into
the small business and corporate sector, for which they are now
buying renewable energy from over 500 small UK generators. Opus
revenues increased by 20.5% to just over GBP523m (2014: GBP434m)
and profit before tax increased from GBP30.2m to GBP38.0m.
We remain encouraged by the resilience of the business model and
the strength and experience of the Opus management team, and look
forward to receiving a dividend of approximately GBP5.4m from them
later this month. Our shareholding in Opus is valued on our balance
sheet at GBP10.8min line with standard accounting policy,
notwithstanding the likelihood that its market value is
substantially in excess of this figure; we are extremely pleased to
have such significant exposure to this rapidly growing, profitable
and highly cash generative business.
Cash, Capital Expenditure and Working Capital
Our cash balances at the year-end reduced to GBP16.5m (2014:
GBP45.4m) as we took advantage of the opportunity to re-negotiate
our banking facilities and reduce our borrowing costs by repaying
GBP30m to the bank ahead of the originally agreed repayment
schedule. We also spent GBP19m during the year out of the GBP23m
anticipated total cost of refurbishing our new office
headquarters.
Our overall working capital position benefitted from a year on
year cash inflow of GBP8.4m, largely due to lower average energy
consumption and payment timing differences related to our energy
purchasing arrangements with Npower. This cash inflow is expected
to reverse during the current financial year.
On an underlying basis, and in the normal course of events, we
anticipate a modest rise in our working capital requirements over
the next two years due to a number of factors: (i) the costs
associated with funding the growth in our mobile business (where
increasing numbers of Members are choosing to be provided with a
premium mobile handset, which they can obtain from us with no
upfront cost on a 24 month contract); (ii) an increase in the
number of BMW Minis supplied to Partners on hire purchase
agreements; and (iii) the cost of providing them with Tablets (on
30 months interest-free credit) to help them build their businesses
more effectively.
Under the terms of our energy supply arrangements Npower remains
responsible for funding the working capital requirements associated
with providing energy to Members who have chosen to pay on a budget
plan.
Borrowings
Our balance sheet at the year-end shows a net debt position of
GBP74.0m (2014: GBP75.1m) including the deferred consideration of
GBP21.5m payable to Npower in December 2016.
Dividend
The final dividend of 21p per share (2014: 19p) will be paid on
18 August 2015 to shareholders on the register at the close of
business on 24 July 2015 and is subject to approval by shareholders
at the Company's Annual General Meeting which will be held on 11
August 2015. This makes a total dividend payable for the year of
40p (2014: 35p), an increase of over 14% compared with the previous
year.
We believe our strong underlying cash flow, rising earnings and
significant borrowing capacity will enable us to refinance or repay
our remaining borrowings as they fall due, whilst maintaining a
progressive dividend policy. We remain comfortable with previous
guidance that our total dividend for the current year will increase
by 15% to 46p per share, and thereafter that further growth in
earnings from the level we achieve this year should be reflected in
a corresponding rise in the level of distributions to
shareholders.
Share Incentive Scheme Charges
Operating profit is stated after share incentive scheme credits
of GBP1.0m (2014: charges of GBP4.2m). These credits relate to an
accounting charge under IFRS 2 Share Based Payments ("IFRS 2") and
arose principally as a result of the fall in the Company's share
price over the year.
As a result of the relative size of share incentive scheme
credits/charges as a proportion of our pre-tax profits, we are
separately disclosing this amount within the Consolidated Statement
of Comprehensive Income for the period (and excluding these charges
from our calculation of adjusted profits and earnings) so that the
underlying performance of the business can be clearly identified.
Our current adjusted earnings per share have also therefore been
adjusted to eliminate these share incentive scheme charges.
Taxation
A full analysis of the taxation charge for the year is set out
in note 4 to the financial statements in the Annual Report. The tax
charge for the year is GBP9.8m(2014: GBP7.2m).
The effective tax rate for the year was 23.2% (2014: 20.8%),
with the increase compared with last year primarily due to the
inclusion of a full year's amortisation charge in respect of the
intangible asset, which is not tax deductible.
Nick Schoenfeld
Chief Financial Officer
22 June 2015
Principal Risks and Uncertainties
Background
The Group faces various risk factors, both internal and
external, which could have a material impact on long-term
performance. However, the Group's underlying business model is
considered relatively low-risk, with no need for management to take
any disproportionate risks in order to preserve or generate
shareholder value.
The Group continues to develop and operate a consistent and
systematic risk management process, which involves risk ranking,
prioritisation and subsequent evaluation, with a view to ensuring
all significant risks have been identified, prioritised and (where
possible) eliminated, and that systems of control are in place to
manage any remaining risks.
A formal document is prepared by the executive directors and
senior management team on a regular basis detailing the key risks
faced by the Group and the operational controls in place to
mitigate those risks; this document is then reviewed by the Audit
Committee.
Business model
The principal risks outlined below should be viewed in the
context of the Group's business model as a reseller of utility
services (gas, electricity, fixed line telephony, mobile telephony
and broadband internet) under the Utility Warehouse and TML brands.
As a reseller, the Group does not own any of the network
infrastructure required to deliver its services to its membership
base. This means that while the Group is heavily reliant on third
party providers, it is insulated from all the direct risks
associated with owning and/or operating such capital intensive
infrastructure itself.
The Group's services are promoted using 'word of mouth' by a
large network of independent Partners, who are paid solely on a
commission basis. This means that the Group has minimal fixed costs
associated with acquiring new Members.
The principal specific risks arising from the Group's business
model, and the measures taken to mitigate those risks, are set out
below.
Reputational risk
The Group's reputation amongst its Members, suppliers and
Partners is believed to be fundamental to the future success of the
Group. Failure to meet expectations in terms of the services
provided by the Group, the way the Group does business or in the
Group's financial performance could have a material negative impact
on the Group's performance.
In relation to the service provided to its membership base,
reputational risk is principally mitigated through the Group's
recruitment processes, a focus on closely monitoring staff
performance, including the use of direct feedback surveys from
Members (Net Promoter Score), and through the provision of rigorous
staff training.
Responsibility for maintaining effective relationships with
suppliers and Partners rests primarily with the appropriate member
of the Group's senior management team with responsibility for the
relevant area. Any material changes to supplier agreements and
Partner commission arrangements which could impact the Group's
relationships are generally negotiated by the executive Directors
and ultimately approved by the full Board.
Information technology risk
The Group is dependent on its proprietary billing and membership
management software for the successful operation of its business
model. This software is developed and maintained in accordance with
the changing needs of the business by a team of highly skilled,
long-standing, motivated and experienced individuals. The Group
relies on this software and any failure in its operation could
negatively impact service to Members and potentially be damaging to
the Group's brand.
All significant changes which are made to the billing and
membership management software are tested as extensively as
reasonably practicable before launch and are ultimately approved by
the heads of the IT and Billing departments in consultation with
the Chief Executive as appropriate.
Back-ups of both the software and underlying billing and
membership data are made on a regular basis and securely stored
off-site. The Group also has extensive back-up information
technology infrastructure in the event of a failure of the main
system, designed to ensure that a near-seamless service to Members
can be maintained.
During the year the Group agreed to acquire the underlying
source code behind its billing and membership management system
which had previously been used under licence. As a result of the
acquisition the Group now has full strategic control over the
source code and has therefore removed any risk of future software
development not being able to meet the precise requirements of the
Group.
Legislative and regulatory risk
The Group is subject to varying laws and regulations, including
possible adverse effects from European regulatory intervention. The
energy markets in the UK and Continental Europe are subject to
comprehensive operating requirements as defined by the relevant
sector regulators and/or government departments. Amendments to the
regulatory regime could have an impact on the Group's ability to
achieve its financial goals and any failure to comply may result in
the Group being fined and lead to reputational damage which could
impact the Group's brand. Furthermore, the Group is obliged to
comply with retail supply procedures, amendments to which could
have an impact on operating costs.
The Group is a licenced gas and electricity supplier, and
therefore has a direct regulatory relationship with Ofgem. If the
Group fails to maintain an effective relationship with Ofgem and
comply with its licence obligations, it could be subject to fines
or to the removal of its respective licences.
Proposed regulatory changes such as the new requirements in
relation to smart energy meters (with the potential for additional
costs if existing meters must be replaced prior to the end of their
planned lives) and social tariffs, and changes to the current
decommissioning regime could all have a potentially significant
impact on the sector, although any additional costs associated with
smart metering are not expected to affect the net margins earned by
energy suppliers in the longer term (as any such extra costs are
likely to be reflected in higher retail charges).
In general, the majority of the Group's services are supplied
into highly regulated markets, and this could restrict the
operational flexibility of the Group's business. In order to
mitigate this risk, the Group maintains an appropriate relationship
with both Ofgem and Ofcom (the UK regulators for the energy and
communications markets respectively) and the Department for Energy
and Climate Change ("DECC"). The Group engages with officials from
all these organisations on a periodic basis to ensure they are
aware of the Group's views when they are consulting on proposed
regulatory changes or if there are competition issues the Group
needs to raise with them.
However, it should be noted that the regulatory environment for
the various markets in which the Group operates is generally
focussed on promoting competition. As one of the new entrants, it
seems reasonable to expect that most potential changes will broadly
be beneficial to the Group, given the Group's relatively small size
compared to the former monopoly incumbents with whom it competes,
although these changes, and their actual impact, remain uncertain
at present. It currently remains unclear how the governmental focus
on reform of the energy market and the current investigation by the
Competition and Markets Authority will impact the operations of the
Group.
Political and consumer concern over energy prices and fuel
poverty may lead to further reviews of the energy market which
could result in further consumer protection legislation being
introduced through energy supply licences. The Government could
also choose to introduce adverse measures such as a windfall tax on
the Group or price controls for certain customer segments. In
addition, political and regulatory developments affecting the
energy markets within which the Group operates may have a material
adverse effect on the Group's business, results of operations and
overall financial condition.
Financing risk
As a result of the transaction with Npower in December 2013, the
Group entered into new debt facilities leading to increased debt
service obligations which may place operating and financial
restrictions on the Group. This debt could have adverse
consequences insofar as it: (a) requires the Group to dedicate a
material proportion of its cash flows from operations to fund
payments in respect of the debt, thereby reducing the flexibility
of the Group to utilise its cash to invest in and/or grow the
business; (b) increases the Group's vulnerability to adverse
general economic and/or industry conditions; (c) may limit the
Group's flexibility in planning for, or reacting to, changes in its
business or the industry in which it operates; (d) may limit the
Group's ability to raise additional debt in the long term; and (e)
could restrict the Group from making larger strategic acquisitions
or exploiting business opportunities.
Each of these prospective adverse consequences (or a combination
of some or all of them) could result in the potential growth of the
Group being at a slower rate than may otherwise be achieved.
Fraud and bad debt risk
The Group has a universal supply obligation in relation to the
provision of energy to domestic customers. This means that although
the Group is entitled to request a reasonable deposit from
potential new Members who are not considered creditworthy, the
Group is obliged to supply domestic energy to everyone who submits
a properly completed application form. Where Members subsequently
fail to pay for the energy they have used ("Delinquent Members"),
there is likely to be a considerable delay before the Group is able
to control its exposure to future bad debt from them by either
installing a pre-payment meter or disconnecting their supply, and
the costs associated with preventing such Delinquent Members from
increasing their indebtedness are not always fully recovered.
Fraud within the telephony industry may arise from Members using
the services without intending to pay their supplier. The amounts
involved are generally relatively small as the Group has
sophisticated call traffic monitoring systems to identify material
occurrences of fraud. The Group is able to immediately eliminate
any further bad debt exposure by disconnecting any telephony
service that demonstrates a suspicious usage profile, or falls into
arrears on payments.
More generally, the Group is also exposed to payment card fraud,
where Members use stolen cards to obtain credit (e.g. on their
CashBack card) or goods (e.g. Smartphones and Tablets) from the
Group; the Group regularly reviews and refines its fraud protection
systems to reduce its potential exposure to such risks.
Data security risk
The Group processes sensitive personal and commercial data
during the course of its business. The Group looks to protect
customer and corporate information and data and to keep its
infrastructure secure. A significant breach of cyber security could
result in the Group facing regulatory fines, loss of commercially
sensitive information and damage to its brand. The Group uses high
specification firewalling and anti-viral management systems;
external consultants are also used to conduct penetration testing
on the Group's IT infrastructure.
Wholesale prices risk
The Group does not own or operate any utility network
infrastructure itself, choosing instead to purchase the capacity
needed from third parties. The advantage of this approach is that
the Group is protected from technological risk, capacity risk or
the risk of obsolescence, as it can purchase the amount of each
service required to meet its Members' needs.
Whilst there is a theoretical risk that in some of the areas in
which the Group operates it may be unable to secure access to the
necessary infrastructure on commercially attractive terms, in
practice the pricing of access to such infrastructure is either
regulated (as in the energy market) or subject to significant
competitive pressures (as in telephony and broadband). The profile
of the Group's Members, the significant quantities of each service
they consume in aggregate, and its clearly differentiated route to
market has historically proven attractive to infrastructure owners,
who compete aggressively to secure a share of the Group's growing
business.
The supply of energy has different risks associated with it. The
wholesale price can be extremely volatile, and Member demand can be
subject to considerable short term fluctuations depending on the
weather. The Group has a long-standing supply relationship with
Npower under which the latter assumes the substantive risks and
rewards of hedging and buying energy for the Group's Members, and
where the price paid by the Group is set by reference to the
average of the standard variable tariffs charged by the 'Big 6' to
their domestic customers less an agreed discount; this may not be
competitive against the wholesale prices available to new and/or
other independent suppliers. If the Group did not have the benefit
of this long term supply agreement it would be exposed to the
pricing risk of securing access to the necessary energy on the open
market.
Competitive risk
The Group operates in highly competitive markets and significant
service innovations or increased price competition could impact
future profit margins. In order to maintain its competitive
position, there is a consistent focus on ways of improving
operational efficiency and keeping the cost base as low as
possible. New service innovations are monitored closely by senior
management and the Group is typically able to respond rapidly by
offering any new services using the infrastructure of its existing
suppliers. The Group offers a unique multi-utility proposition. The
increasing proportion of Members who are benefiting from a genuine
multi-utility solution, that is unavailable from any other known
supplier, materially reduces any competitive threat.
The Directors anticipate that the Group will face continued
competition in the future as the market grows, new companies enter
the market and alternative technologies and services become
available. The Group's services and expertise may be rendered
obsolete or uneconomic by technological advances or novel
approaches developed by one or more of the Group's competitors. The
existing approaches of the Group's competitors or new approaches or
technologies developed by such competitors may be more effective or
affordable than those supplied to the Group. There can be no
assurance that the Group's competitors will not develop more
effective or more affordable technologies or services, thus
rendering the Group's technologies and/or services obsolete,
uncompetitive or uneconomical. There can be no assurance that the
Group will be able to compete successfully with existing or
potential competitors or that competitive factors will not have a
material adverse effect on the Group's business, financial
condition or results of operations. However, as the Group's
membership base continues to rise, competition amongst suppliers of
services to the Group is expected to increase. This has already
been evidenced by various volume-related growth incentives which
have been agreed with the Group's three largest wholesale
suppliers. This should ensure that the Group has direct access to
new technologies and services available to the market.
Infrastructure risk
The provision of services to the Group's Members is reliant on
the efficient operation of third party physical infrastructure.
There is a risk of disruption to the supply of services to Members
through any failure in the infrastructure e.g. gas shortages, power
cuts or damage to communications networks. However, as the
infrastructure is generally shared with other suppliers, any
material disruption to the supply of services is likely to impact a
large part of the market as a whole and it is unlikely that the
Group would be disproportionately affected. In the event of any
prolonged disruption isolated to the Group's principal supplier
within a particular market, services required by Members could be
sourced from another provider.
Energy industry estimation risk
A significant degree of judgement and estimation is required in
order to determine the actual level of energy used by Members and
hence that should be recognised by the Group as sales. There is an
inherent risk that the estimation routines used by the Group do not
in all instances fully reflect the actual usage of Members.
Gas Leakage within the national gas distribution network
The operational management of the national gas distribution
network is outside the control of the Group. There is a risk that
the level of leakage in future could be higher than those
historically experienced, and above those currently expected.
Key man risk
The Group is dependent on its key management for the successful
development and operation of its business. In the event that any or
all of the members of the key management team were to leave the
business, it could have a material adverse effect on the Group's
operations.
Single site risk
The Group operates from one principal site and, in the event of
significant damage to that site through fire or other issues, the
operations of the Group could be adversely affected.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2015
Restated
Note 2015 2014
GBP'000 GBP'000
Revenue 1 729,178 659,722
Cost of sales (612,969) (561,435)
---------- ----------
Gross profit 116,209 98,287
Distribution expenses (21,876) (18,641)
Share incentive scheme charges (151) (125)
------------------------------------------ ------- ---------- ----------
Total distribution expenses (22,027) (18,766)
Administrative expenses (46,544) (41,560)
Share incentive scheme credits/(charges) 1,173 (4,068)
Amortisation of intangible assets (11,186) (3,785)
------------------------------------------ ------- ---------- ----------
Total administrative expenses (56,557) (49,413)
Other income 361 650
---------- ----------
Operating profit 1 37,986 30,758
Financial income 133 109
Financial expenses (2,066) (855)
---------- ----------
Net financial expense (1,933) (746)
Share of profit of associates 6,006 4,654
---------- ----------
Profit before taxation 42,059 34,666
Taxation (9,758) (7,203)
---------- ----------
Profit and other comprehensive income
for the year attributable to owners
of the parent 32,301 27,463
---------- ----------
Basic earnings per share 2 40.6p 37.7p
---------- ----------
Diluted earnings per share 2 40.2p 37.1p
---------- ----------
Consolidated Balance Sheet
As at 31 March 2015
Restated Restated
2015 2014 2013
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 41,800 23,379 18,950
Intangible assets 209,592 220,778 2,969
Goodwill 3,742 3,742 3,742
Investments in associates 10,843 8,814 7,216
Deferred tax - 2,399 1,646
Other non-current receivables 13,929 13,061 10,300
--------- --------- ---------
Total non-current assets 279,906 272,173 44,823
--------- --------- ---------
Current assets
Inventories 893 1,771 491
Trade and other receivables 28,128 39,143 16,357
Prepayments and accrued income 104,931 109,711 103,901
Cash 16,536 45,389 3,378
--------- --------- ---------
Total current assets 150,488 196,014 124,127
--------- --------- ---------
Total assets 430,394 468,187 168,950
--------- --------- ---------
Current liabilities
Short term borrowings (4,934) (19,804) (2,605)
Trade and other payables (24,885) (7,749) (7,504)
Current tax payable (1,086) (1,495) (1,402)
Deferred tax (551) - -
Accrued expenses and deferred
income (115,472) (139,622) (95,745)
--------- --------- ---------
Total current liabilities (146,928) (168,670) (107,256)
--------- --------- ---------
Non-current liabilities
Long term borrowings (64,139) (79,216) -
Deferred consideration (21,500) (21,500) -
JSOP creditor (1,507) (4,080) (685)
--------- --------- ---------
Total non-current liabilities (87,146) (104,796) (685)
Total assets less total liabilities 196,320 194,721 61,009
--------- --------- ---------
Equity
Share capital 4,011 4,001 3,530
Share premium 137,238 136,651 8,508
Treasury shares (760) - -
JSOP reserve (2,275) (2,275) (2,275)
Retained earnings 58,106 56,344 51,246
Total equity 196,320 194,721 61,009
--------- --------- ---------
Consolidated Cash Flow Statement
For the year ended 31 March 2015
Restated
2015 2014
GBP'000 GBP'000
Operating activities
Profit before taxation 42,059 34,666
Adjustments for:
Share of profit/distributions
from associates (6,006) (4,654)
Net financial expense 1,933 746
Depreciation of property, plant
and equipment 1,834 1,307
Amortisation of intangible assets 11,186 3,785
Amortisation of debt arrangement
fees 367 118
Increase in inventories 878 (1,280)
Decrease/(increase) in trade and
other receivables 14,914 40,321
(Decrease)/increase in trade and
other payables (7,427) (89,281)
Share incentive scheme charges (1,022) 4,193
Corporation tax paid (9,058) (7,104)
-------- ---------
Net cash flow from operating activities 49,658 (17,183)
-------- ---------
Investing activities
Purchase of property, plant and
equipment (20,306) (5,736)
Disposal of property, plant and
equipment 47 -
New energy supply agreement:
* Cash consideration and fees paid - (202,629)
* Cash held in statutory entities acquired - 64,175
Distribution from associated company 4,148 3,056
Purchase of shares in associated
company (171) -
Interest received 130 107
-------- ---------
Cash flow from investing activities (16,152) (141,027)
-------- ---------
Financing activities
Dividends paid (30,230) (23,921)
Interest paid (1,652) (769)
Drawdown of long term borrowing
facilities - 100,000
Repayment of borrowing facilities (30,000) -
Fees associated with long term
borrowing facilities (315) (1,098)
Issue of new ordinary shares 598 131,061
Payment of share issue costs - (2,447)
Purchase of own shares (760) -
-------- ---------
Cash flow from financing activities (62,359) 202,826
-------- ---------
Increase/(decrease) in cash and
cash equivalents (28,853) 44,616
Net cash and cash equivalents
at the beginning of the year 45,389 773
Net cash and cash equivalents
at the year end 16,536 45,389
-------- ---------
Consolidated Statement of Changes in Equity
For the year ended 31 March 2015
Share Share Treasury JSOP Retained
Consolidated capital premium shares reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Previous balance at
1 April 2013 3,530 8,508 - (2,275) 60,979 70,742
Adjustments - - - - (9,733) (9,733)
-------- --------- -------- -------- --------- --------
Restated balance at
1 April 2013 3,530 8,508 - (2,275) 51,246 61,009
Profit and total comprehensive
income for the year - - - - 27,463 27,463
Deferred tax on share
options - - - - 748 748
Dividends - - - - (23,921) (23,921)
Credit arising on share
options - - - - 808 808
Issue of new ordinary
shares 471 130,590 - - - 131,061
Costs associated with
the issue of new ordinary
shares - (2,447) - - - (2,447)
Balance at 31 March
2014 4,001 136,651 - (2,275) 56,344 194,721
Profit and total comprehensive
income for the year - - - - 32,301 32,301
Deferred tax on share
options - - - - (1,861) (1,861)
Dividends - - - - (30,230) (30,230)
Purchase of treasury
shares - - (760) - - (760)
Credit arising on share
options - - - - 1,552 1,552
Issue of new ordinary
shares 10 587 - - - 597
Balance at 31 March
2015 4,011 137,238 (760) (2,275) 58,106 196,320
-------- --------- -------- -------- --------- --------
Notes
1. Segment reporting
The Group's reportable segments reflect the two distinct
activities around which the Group is organised:
-- Customer Acquisition; and
-- Customer Management.
Customer Acquisition revenues represent joining fees from the
Group's distributors, the sale of marketing materials and sales of
equipment including mobile phone handsets and wireless internet
routers. Customer Management revenues are principally derived from
the supply of fixed telephony, mobile telephony, gas, electricity
and internet services to residential and small business
customers.
The Board measures the performance of its operating segments
based on revenue and segment result, which is referred to as
operating profit. The Group applies the same significant accounting
policies across both operating segments.
Operating segments
Restated
Year ended 31 March Year ended 31 March
2015 2014
Customer Customer Customer Customer
Management Acquisition Total Management Acquisition Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 712,652 16,526 729,178 643,503 16,219 659,722
----------- ------------ --------- ----------- ------------ ---------
Segment result 53,451 (15,465) 37,986 42,894 (12,136) 30,758
----------- ------------ --------- ----------- ------------ ---------
Operating profit 37,986 30,758
Net financing expense (1,933) (746)
Share of profit of associates 6,006 4,654
--------- ---------
Profit before taxation 42,059 34,666
Taxation (9,758) (7,203)
--------- ---------
Profit for the year 32,301 27,463
--------- ---------
Segment assets 410,842 8,709 419,551 454,063 5,310 459,373
Investment in associates 10,843 - 10,843 8,814 - 8,814
----------- ------------ --------- ----------- ------------ ---------
Total assets 421,685 8,709 430,394 462,877 5,310 468,187
Segment liabilities (231,048) (3,026) (234,074) (269,818) (3,648) (273,466)
--------- ---------
Net assets 196,320 194,721
--------- ---------
Capital expenditure (19,845) (461) (20,306) (5,595) (141) (5,736)
Depreciation 1,792 42 1,834 1,275 32 1,307
Amortisation 11,186 - 11,186 3,785 - 3,785
----------- ------------ --------- ----------- ------------ ---------
The share of profit of associates relates to the Customer
Management operating segment.
Revenue by service
Restated
2015 2014
GBP'000 GBP'000
Customer Management
* Electricity 304,713 273,468
* Gas 278,367 255,433
* Fixed communications 93,706 82,189
* Mobile 20,334 16,664
* Other 15,532 15,749
------- --------
712,652 643,503
Customer Acquisition 16,526 16,219
729,178 659,722
------- --------
The Group operates solely in the United Kingdom.
2. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following data:
Restated
2015 2014
GBP'000 GBP'000
Earnings for the purpose of
basic and diluted earnings
per share 32,301 27,463
Share incentive scheme (credits)/charges
(net of tax) (1,316) 4,038
Amortisation of intangible
assets 11,186 3,785
Earnings excluding share incentive
scheme charges and amortisation
of intangibles for the purpose
of adjusted basic and diluted
earnings per share 42,171 35,286
Number Number
('000s) ('000s)
Weighted average number of
ordinary shares for the purpose
of basic earnings per share 79,581 72,775
Effect of dilutive potential
ordinary shares (share incentive
awards) 783 1,223
Weighted average number of
ordinary shares for the purpose
of diluted earnings per share 80,364 73,998
Adjusted basic earnings per share1
(Adjusted basic and diluted earnings
per share exclude share incentive
scheme charges and the amortisation
of the intangible asset recognised
as a result of the new energy
supply arrangements entered into
with Npower in December 2013.) 53.0p 48.5p
Basic earnings per share 40.6p 37.7p
Adjusted diluted earnings per
share1
(Adjusted basic and diluted earnings
per share exclude share incentive
scheme charges and the amortisation
of the intangible asset recognised
as a result of the new energy
supply arrangements entered into
with Npower in December 2013.) 52.5p 47.7p
Diluted earnings per share 40.2p 37.1p
In accordance with IFRS 2 Share Based Payments ("IFRS 2"),
awards made under the Company's JSOP share incentive scheme are
deemed to be cash-settled. On vesting, any gains made on awards
granted under the JSOP may be settled at the discretion of the
Remuneration Committee either through: (i) a cash payment to the
participant equal to the gain; or (ii) the transfer of legal and
beneficial ownership to the participant of such number of shares as
have full value equal to the gain. In line with IAS 33 for EPS
purposes it is assumed the gains will be settled in shares and it
has therefore been deemed appropriate to present the above analysis
of earnings per share as adjusted for share incentive scheme
charges. In the current year the share incentive charge relating to
the JSOP was a credit of approximately GBP2,573,000 (2014: charge
of approximately GBP3,395,000).
It has also been deemed appropriate to present the analysis of
adjusted earnings per share excluding the amortisation of
intangible assets arising from the energy supply agreement with
Npower in order to present a clearer picture of the underlying
trading performance of the Group.
3. Dividends
2015 2014
GBP'000 GBP'000
Prior year final paid 19p (2014:
18p) per share 15,105 12,656
Interim paid 19p (2014: 16p) per
share 15,125 11,265
-------- --------
The Directors have proposed a final dividend of 21p per ordinary
share totalling approximately GBP16.7 million, payable on 18 August
2015, to shareholders on the register at the close of business on
24 July 2015. In accordance with the Group's accounting policies
the dividend has not been included as a liability as at 31 March
2015. This dividend will be subject to income tax at each
recipient's individual marginal income tax rate.
4. Related parties
Identity of related parties
The Company has related party relationships with its
subsidiaries, its associate and with its directors and executive
officers.
Transactions with key management personnel
Directors of the Company and their immediate relatives control
approximately 23.8% of the voting shares of the Company.
Details of the total remuneration paid to the directors of the
Company as key management personnel for qualifying services are set
out below:
2015 2014
GBP'000 GBP'000
Short term employee benefits 1,200 1,142
Social security costs 296 601
Post employment benefits 83 106
1,579 1,849
Share incentive scheme (credits)/charges (2,402) 3,454
------- -------
(823) 5,303
------- -------
During the year, the Company acquired goods and services worth
approximately GBP16,000 (2014: GBP16,000) from companies in which
directors have a beneficial interest. No amounts were owed to these
companies by the Company as at 31 March 2015. During the year, the
Company sold goods and services worth approximately GBP33,000
(2014: GBP10,000) to companies in which directors have a beneficial
interest.
During the year directors purchased goods and services on behalf
of the Company worth approximately GBP375,000 (2014: GBP1,841,000).
The directors were fully reimbursed for the purchases and no
amounts were owing to the directors by the Company as at 31 March
2015.
During the year the Company sold a motor vehicle to a director
for GBP46,000 which represented the market value of the vehicle at
the time of the transaction.
Other related party transactions
Associates
During the year ended 31 March 2015, the associate supplied
goods to the Group which amounted to GBP1,054,000 (2014:
GBP903,000) and at 31 March 2015 the associate was owed GBP78,000
by the Group which is recognised within trade payables (2014:
GBP72,000). Transactions with the associate are priced on an arm's
length basis. Dividends received during the year from the associate
amounted to GBP4,148,000 (2014: GBP3,056,000) relating to the
financial year to 31 March 2014.
Subsidiary companies
During the year ended 31 March 2015, the Company's subsidiaries
purchased goods and services from the Company in the amount of
GBP49,262,000 (2014: GBP9,350,000). At 31 March 2015 the Company
owed the subsidiaries GBP37,787,000 which is recognised within
trade payables (2014: GBP17,159,000 owed by the Company to the
Subsidiaries).
5. Prior year restatement
A detailed review was recently conducted of the unbilled energy
debtor previously carried on the Group's balance sheet and which
had accumulated over the seven years between April 2007 and March
2014. As a result of this review it was concluded that a total of
approximately GBP11 million (net of an anticipated tax credit), was
not likely to be recoverable. This primarily related to higher
levels of industry-wide leakage within the gas distribution network
than had previously been anticipated.
Background
In common with other domestic energy suppliers, the majority of
the Group's customer energy invoices are prepared using estimated
meter readings, as actual meter readings are rarely available on
the date that bills are produced. This gives rise to timing
differences between the estimated volumes of energy invoiced to
customers, and the actual volume of energy invoiced to the Group by
energy industry system operators, which contribute to the unbilled
energy debtor carried forward on the Group balance sheet.
A detailed assessment was recently undertaken of the accuracy of
the estimates created by the Group's billing system and the
recoverability of the unbilled energy debtor. This review of
current and historic meter reading data that existed at each
balance sheet date provided a strong endorsement of the accuracy of
the Group's billing system in calculating customer usage, but
showed that overall leakage within the gas industry (which is
ultimately not billable to customers) had been running at a higher
rate than previously expected.
It was therefore decided to write down the unbilled gas energy
debtor to bring its value in line with the amount expected to be
recoverable.
Restatement
The Board has decided to restate the Group's accounts to reflect
the impact of this write-down on previous years in order to provide
stakeholders with an accurate reflection of the historic underlying
trend in the performance of the business.
Gas
Fully writing down the unbilled gas debtor insofar as it relates
to our share of this industry-wide leakage, which has built up over
the seven years to March 2014 has a negative balance sheet impact
as at March 2014 of GBP11.0 million (net of the anticipated GBP1.8
million tax credit).
Electricity
As a result of the more sophisticated way in which wholesale
costs are reconciled to actual customer meter readings by
electricity industry system operators, the net negative balance
sheet impact as at March 2014 from the restatement relating to
Electricity is limited to GBP0.3 million. This impact relates
solely to providing accurately for timing differences.
The tables below set out the impact of the restatement on each
line item affected in the prior year comparative financial
statements presented in this Annual Report.
Consolidated Statement of Comprehensive Income
2014 Restatement 2014
Reported adjustment Restated
GBP'000 GBP'000 GBP'000
Revenue 658,760 962 659,722
Cost of sales (558,509) (2,926) (561,435)
Taxation (7,655) 452 (7,203)
------------
Net impact to profit after
tax (1,512)
Adjusted basic earnings per
share 50.6p (2.1)p 48.5p
Basic earnings per share 39.8p (2.1)p 37.7p
Adjusted diluted earnings
per share 49.7p (2.0)p 47.7p
Diluted earnings per share 39.2p (2.1)p 37.1p
Consolidated Balance Sheet
2014 Restatement 2014
Reported adjustment Restated
GBP'000 GBP'000 GBP'000
Trade and other receivables 39,336 (193) 39,143
Prepayments and accrued income 120,786 (11,075) 109,711
Current tax payable (3,360) 1,865 (1,495)
Accrued expenses and deferred
income (137,780) (1,842) (139,622)
------------
Retained earnings 67,589 (11,245) 56,344
2013 Restatement 2013
Reported adjustment Restated
GBP'000 GBP'000 GBP'000
Trade and other receivables 16,541 (184) 16,357
Prepayments and accrued income 115,947 (12,046) 103,901
Current tax payable (2,815) 1,413 (1,402)
Accrued expenses and deferred
income (96,829) 1,084 (95,745)
------------
Retained earnings 60,979 (9,733) 51,246
6. Basis of preparation
The financial information set out above does not constitute the
Group's statutory information for the years ended 31 March 2015,
2014 or 2013, but is derived from those accounts. The Group's
consolidated financial information has been prepared in accordance
with accounting policies consistent with those adopted for the year
ended 31 March 2014. Statutory accounts for 2014 have been
delivered to the Registrar of Companies and those for 2015 will be
delivered following the Company's annual general meeting. The
auditor has reported on these accounts, their reports were
unqualified and did not contain statements under the Companies Act
2006, s498(2) or (3).
7. Directors' responsibility statement
The directors confirm, to the best of their knowledge:
(a) the financial statements, prepared in accordance with
International Financial Reporting Statements ("IFRSs") as adopted
by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
the undertakings included in the consolidation taken as a whole;
and
(b) the Chairman's Statement, Chief Executive's Review,
Financial Review and Principal Risks and Uncertainties include a
fair review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
The directors of Telecom Plus PLC and their functions are listed
below:
Charles Wigoder - Executive Chairman
Julian Schild - Deputy Chairman and Senior Non Executive
Director
Andrew Lindsay - Chief Executive Officer
Nick Schoenfeld - Chief Financial Officer
Melvin Lawson - Non Executive Director
Michael Pavia - Non Executive Director
By order of the Board
This information is provided by RNS
The company news service from the London Stock Exchange
END
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