TIDMTEP
RNS Number : 4548W
Telecom Plus PLC
17 April 2019
17 April 2019
Telecom Plus PLC
Trading Update and Notice of Results
Telecom Plus PLC (trading as the Utility Warehouse), which
supplies a wide range of utility services to both residential and
business customers, today issues a trading update for its financial
year ending 31 March 2019.
Highlights
-- Record revenues, profits and dividend
-- Significantly faster growth with momentum continuing to build:
- Customer numbers: up 4.0% (2018: 0.5%)
- Service numbers: up 8.2% (2018: 2.3%)
-- Quality of customer base continues to get better
-- Accelerating growth in new Partners joining the business
-- Improvements to our energy supply arrangements with npower
-- Total dividend of 52p (2018: 50p) per share for the year (+4%)
Financial
Full year adjusted pre-tax profits are expected to be towards
the lower end of previous guidance at around GBP56m (2018:
GBP54.3m). This reflects the impact of a warm winter and the Ofgem
price cap (which reduced energy revenues during the final quarter),
and modest initial losses associated with our expansion into
related business areas (Glow Green and Boiler & Home Cover
insurance).
Underlying cash flow remained strong, although net debt has
increased to approximately GBP38m (2018: GBP11.2m) at the year end,
reflecting higher working capital requirements associated with
changes to the phasing of certain energy industry payments, higher
Technology investment, smart meter roll-out costs, the success of
our Quick Income Plan in driving higher levels of Partner activity,
and the share buy back in July 2018. A number of these increases
were of a one-off nature, and only a further modest increase in
working capital is anticipated over the course of the coming
year.
We are encouraged by the profit outlook for the current year.
The combination of accelerating growth in customer numbers and a
small increase in our gross margins (resulting mainly from the
improved supply arrangements with npower which have just been
agreed - see below), mean that we expect adjusted profits before
tax of between GBP60m and GBP65m for FY2020, with a commensurate
increase of c.10% in the total dividend to 57p per share in line
with our published distribution policy.
Trading
We saw an acceleration in customer growth during the course of
the year, notwithstanding a significant and persistent gap between
the low introductory fixed price energy deals available from other
independent suppliers, and the standard variable prices charged by
the 'Big 6' (which we use as the basis for our own range of
discounted retail tariffs).
Although this gap narrowed during Q4 following the introduction
of the Ofgem price cap, it has since started to widen again, driven
by the questionable pricing strategy adopted by a handful of
independent suppliers who continue to sell energy at a zero (or
even negative) gross margin; this is clearly unsustainable, as
shown by the significant number who ceased trading over the course
of the last 12 months, and we are pleased that Ofgem has belatedly
recognised the need to take action in this area with the
announcement last week of tougher entry tests for new energy
suppliers.
Against this challenging backdrop, our accelerating growth and
modestly higher profitability, are testament to the resilience and
strength of our unique business model. Customer numbers for the
year advanced by 4% (2018: 0.5%) to 635,039 (2018: 610,739) and
service numbers advanced by 8.2% (2018: 2.3%) to 2,532,024 (2018:
2,340,719). In addition, we saw a further improvement in the
quality of our customer base, with 26.6% (2018: 23.2%) of our
membership having now successfully switched all their core services
(energy, broadband and mobile) to us.
It is particularly encouraging that in an energy market which
continues to see record levels of switching (with domestic customer
churn now running at an annualised rate of over 21%), our own churn
not only fell slightly year-on-year, but remains at less than half
the level seen by many other independent suppliers. This reflects
our longstanding policy of providing consistent everyday low
pricing to all our customers combined with a range of other unique
benefits, rather than seeking to attract new customers through
price comparison sites by offering unsustainable below cost
introductory deals.
This faster growth has been driven by growing confidence and
activity within our distribution channel, with increasing numbers
of Partners taking advantage of our Quick Income Plan; this enables
them to combine the benefit of receiving meaningful introductory
payments from recommending our services in the short term, with
building a long-term monthly residual income for the future.
During the first half of the year, the number of new Partners
joining each month was running consistently at between 600 and 800,
before accelerating to around 1,000 per month during the autumn;
more recently, we have seen the run-rate increase to over 1,200 per
month. These numbers are encouraging, and significantly higher than
we have seen for many years.
Our annual sales conference took place last month, with
attendance levels significantly ahead of the previous year. We
announced our new Boiler & Home Cover insurance service (which
received an enthusiastic response from the 6,000 Partners present),
provided them with useful tips to help build their businesses,
shared motivational ideas, recognised their achievements, and
encouraged each Partner to define and commit to their own clear
vision for the next 12 months.
Insurance
The Boiler & Home Cover insurance product we launched last
month has been designed primarily as a customer acquisition and
retention tool, rather than as a further profit centre. It offers
market leading cover at a highly competitive monthly premium,
combined with a unique 10% discount on the cost of any gas we
supply to them whilst they maintain their Boiler & Home Cover
policy with us. Early sales are encouraging at around 150-250
policies per week.
We continue to make good progress in gathering Home Insurance
renewal dates from our members, with around 125,000 (2018: 60,000)
having been collected by the end of March. Total policies grew to
around 14,500 (2018: 4,500), reflecting the need to continue
strengthening our panel of insurers in order to make our
proposition as competitive as possible across the widest possible
range of risk profiles. This product is now making a modest
contribution to group profits, which will become increasingly
significant as the penetration of policies within our membership
base continues to grow, supported by renewal rates which are
consistently running above 96%.
Boiler Installation and Servicing
Twelve months ago we announced the acquisition of a 75%
shareholding in Glow Green, a regional supplier/installer of
domestic gas boilers and warranty/care plans, for a modest initial
cash investment of GBP2m. Since then, losses have been running
slightly higher than anticipated (c.GBP1m for the period to 31
March 2019), although we expect to reach break-even on a monthly
basis within the next few months.
Since making this investment, we have assisted them in securing
improved customer financing and boiler procurement terms, upgrading
their financial controls, optimising their marketing spend, and
implementing a new CRM platform.
In February 2019 we ran a trial with our Partners, offering them
the chance to obtain a new boiler from us, with fulfilment being
carried out by Glow Green; this was successful, and as a result we
made this new service available to our entire customer base from
last month. Whilst initial volumes are expected to be modest, this
represents a substantial medium-term business opportunity for us,
with around 35,000 of our members needing to have their boiler
replaced each year.
UW Home Services
We announced last autumn our plan to establish a wholly-owned
licensed Meter Operator and Meter Asset Manager (for electricity
and gas respectively) under the 'UW Home Services' brand to
implement our smart meter rollout programme more efficiently,
whilst delivering a better customer experience.
We are extremely pleased with the progress made over the last
six months, during which they have established a centralised
support team, recruited and trained their first 40 live engineers,
and successfully installed their first smart meter before
Christmas. By the end of last month they had installed over 5,000
smart meters, and are on track to deliver a significant
acceleration in activity over the course of the current year as
they progressively expand their geographic footprint.
Improved Energy Supply Arrangements
The proposed merger between Eon and Innogy created an
opportunity to initiate discussions with npower (a wholly owned
subsidiary of Innogy) on the terms of our current wholesale energy
supply arrangements with them. This has resulted in a number of
changes to the previous arrangements including:
-- An overall modest improvement to the commercial terms,
including a small increase in the current level of discount we
receive;
-- The ability for us to switch from our current 'retail-minus'
wholesale pricing structure onto industry standard wholesale supply
arrangements (either with npower or an alternative counterparty)
from 1 April 2024, mitigating the risk that the current pricing
structure ceases to be appropriate over the medium term as the
energy industry continues to evolve;
-- A relaxation in the previous exclusivity obligations, giving
us the freedom to source energy in the open market in relation to
any other company, business or customer base we may acquire in
future (although there are no current plans to do so).
In return, we have agreed to delete our termination rights on
any future change of control in the ownership of npower.
Dividend
The Company intends to pay a total dividend per share for the
year just ended of 52p (2018: 50p), representing an increase of 4%
compared with the prior year. The final dividend of 27p is expected
to be paid on 2(nd) August 2019, subject to shareholder approval at
the AGM which will be held on 25(th) July 2019.
Outlook
We remain well positioned for further growth, with a diverse
portfolio of services, a motivated distribution channel, a unique
integrated multi-utility business model and a strong balance sheet.
These attributes, together with our continuing focus on treating
our customers fairly, delivering consistently good value and great
customer service, have enabled us to build an exceptionally high
quality membership base, with market leading levels of customer
retention and clear visibility over our future earnings stream.
We anticipate the momentum that has been building over the last
12 months will continue, with growth in customer and service
numbers for the year ahead reaching 5% and 10% respectively.
Despite the higher costs associated with acquiring multi-service
customers, we are hugely encouraged by the continuing high
proportion of new members choosing to switch all their services to
us, and remain firmly focussed on this point of differentiation as
these higher quality customers have the greatest expected lifetime
value.
From a financial perspective, the combination of higher quality
customers, improved commercial terms from our wholesale partners,
growing benefits from our smart meter roll-out programme, and an
initial contribution from the extra customers we added over the
past 12 months, mean that in the absence of unforeseen
circumstances we expect adjusted profits before tax for FY2020 to
be between GBP60m and GBP65m - a significant increase on the
anticipated outcome of around GBP56m for the year just ended.
Notice of results
The Company will issue its final results for the year ended 31
March 2019 on 18(th) June 2019.
Andrew Lindsay said:
"I am excited by the increasing confidence we are seeing amongst
our Partners, and the higher levels of activity this is generating.
We anticipate this momentum will continue to build, delivering
growth in customer and service numbers of around 5% and 10%
respectively over the course of the coming year.
"The combination of this accelerating growth in customer numbers
and a small increase in our gross margins means that we expect
adjusted profits before tax of between GBP60m and GBP65m for FY20.
This represents a significant increase on the anticipated outcome
of around GBP56m for FY19, with a commensurate increase of c.10% in
the total dividend for FY20 to 57p per share."
For further information, please contact:
Telecom Plus PLC
Andrew Lindsay, CEO 020 8955 5000
Nick Schoenfeld, CFO
Peel Hunt
Dan Webster / George Sellar 020 7418 8900
JP Morgan Cazenove
Christopher Wood / Hugo Baring 020 7742 4000
MHP Communications
Reg Hoare / Katie Hunt / Florence Mayo 020 3128 8572
Notes
This announcement contains inside information. The person
responsible for arranging the release of this announcement on
behalf of Telecom Plus PLC is David Baxter, Company Secretary (Tel:
020 8955 5000).
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 the
Communications, Energy and Insurance 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 is listed on the London Stock Exchange (Ticker: TEP
LN). For further information please visit
www.utilitywarehouse.co.uk
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END
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