REG - Telecom Plus PLC - Half-year Report
22/11/2022 07:00
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RNS Number : 1277H Telecom Plus PLC 22 November 2022
Embargoed until 0700 22 November 2022
Telecom Plus PLC
Half-Year Results for the Six Months ended 30 September 2022
"Record number of UK households joining UW to save on their bills"
Telecom Plus PLC (trading as Utility Warehouse), which supplies a wide range
of utility services to UK households, today announces its half-year results
for the six months ended 30 September 2022.
Financial highlights:
● Revenue up 51.5% to £562.4m (2021: £371.3m)
● Adjusted profit before tax 1 (#_ftn1) up 22.5% to £32.1m
(2021: £26.2m)
● Statutory profit before tax up 46.2% to £29.1m (2021:
£19.9m)
● Interim dividend increased to 34p per share (2021: 27p)
Operating highlights:
● Record growth - annualised customer growth rate of almost 24%
● Customer numbers up by 86,004 to 814,684 (March 2022: 728,680)
● Total services supplied up by 292,343 to 2,557,252 (March
2022: 2,264,909)
● Insurance services increased by 67% from 44,834 to 74,948
● Unique multiservice model delivers energy bill savings of over
£30m to UW customers this year
● Broadband agreement with TalkTalk extended on improved
commercial terms
Current trading and outlook:
● Net customer growth remains at record levels
● Partner recruitment increasing in response to the cost of
living crisis
● We are upgrading our previous guidance and now expect
full-year adjusted profit before tax for FY23 of at least £95m, leading to a
full year dividend of at least 80p per share (2022: 57p)
● On track to deliver an additional one million customers in the
next 4-5 years
Commenting on today's results, Andrew Lindsay, Co-CEO, said:
"As the pressures on household budgets mount, we continue to offer UK families
what they want: the lowest priced energy on the market, savings on their
mobile, broadband and insurance bills, cashback on their daily spend, and
additional earnings for recommending UW to their friends and families.
"The business is growing faster than ever, at an annualised rate of almost
24%. With inflationary pressures showing no signs of easing, we expect demand
for what we offer to remain high, supporting our progress towards our target
of welcoming an additional one million customers in the next 4-5 years."
Stuart Burnett, Co-CEO, added:
"UW is now the only meaningful energy switching option in the UK, with the
rest of the market offering customers little to no difference in price or
service. Our unique multiservice proposition enables us to provide
households with energy savings of up to £125 a year below the new Energy
Price Guarantee, sustainably and profitably, underpinning our long-term strong
competitive position.
"These energy savings are expected to put over £30m back into the pockets of
UK households this financial year alone. With financial pressures on
families due to increase over the next few years, we expect demand for the
savings and earnings that we offer to continue to grow."
There will be a meeting for analysts today at 9.00am. Please contact MHP
Communications at: telecomplus@mhpc.com for details.
For more information, please contact:
Telecom Plus PLC
Andrew Lindsay, Co-CEO 020 8955 5000
Stuart Burnett, Co-CEO
Nick Schoenfeld, CFO
Peel Hunt
Dan Webster / Andrew Clark 020 7418 8900
Numis Securities
Mark Lander / Joshua Hughes 020 7260 1000
MHP
Reg Hoare / Catherine Chapman 020 3128 8339
About Telecom Plus PLC ("Telecom Plus"): (http://www.uw.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 energy, broadband, mobile and insurance markets.
Customers benefit from the convenience of a single monthly bill, consistently
good value across all their utilities and exceptional levels of service. The
business relies on word of mouth recommendation by existing satisfied
customers 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 telecomplus.co.uk
LEI code: 549300QGHDX5UKE58G86
Cautionary statement regarding forward-looking statements
This Announcement may contain "forward-looking statements" with respect to
certain of the Company's plans and its current goals and expectations relating
to its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use words such as
"aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
meaning. By their nature, all forward-looking statements involve risk and
uncertainty because they are based on numerous assumptions regarding the
Company's present and future business strategies, relate to future events and
depend on circumstances which are or may be beyond the control of the Company
which could cause actual results or trends to differ materially from those
made in or suggested by the forward-looking statements in this Announcement,
including, but not limited to, domestic and global economic business
conditions; market-related risks such as fluctuations in interest rates; the
policies and actions of governmental and regulatory authorities; the effect of
competition, inflation and deflation; the effect of legislative, fiscal, tax
and regulatory developments in the jurisdictions in which the Company and its
respective affiliates operate; the effect of volatility in the equity, capital
and credit markets on profitability and ability to access capital and credit;
a decline in credit ratings of the Company; the effect of operational risks;
an unexpected decline in sales for the Company; any limitations of internal
financial reporting controls; and the loss of key personnel. Any
forward-looking statements made in this Announcement by or on behalf of the
Company speak only as of the date they are made. Save as required by the
Market Abuse Regulation, the Disclosure Guidance and Transparency Rules, the
Listing Rules or by law, the Company undertakes no obligation to update these
forward-looking statements and will not publicly release any revisions it may
make to these forward-looking statements that may occur due to any change in
its expectations or to reflect events or circumstances after the date of this
Announcement.
Interim Management Report
Financial and Operating Review
The business has delivered both record financial results and customer growth
during the first half of the year, against an economic background where UK
household finances are under significant and increasing pressure.
These conditions have driven heightened demand for both the savings we offer
our customers, and the additional earnings we offer our Partners: and with 97
out of every 100 households across the UK still with suppliers other than UW,
there is considerable scope for our current profitable growth trajectory to
continue building over the years ahead.
At the heart of our business model is a sustainable competitive advantage that
results from two fundamental points of differentiation: firstly, the inherent
cost advantage we derive from providing multiple services to our customers
from a single, integrated customer service and management platform. And
secondly, our word of mouth route to market: real people explaining the
convenience and savings we provide, and unlocking high levels of multiservice
take-up across our four core markets.
Our competitive position as the lowest priced supplier in a highly
commoditised energy marketplace is underpinned by the contribution we generate
in our mobile, broadband and insurance businesses. The returns we make in each
of our core markets are expected to increase as we continue to scale, and in
the absence of any significant capital investment requirements this means that
our levels of cash conversion are expected to remain high, supporting our
progressive dividend policy.
As the macro-economic outlook for UK households worsens, and budgets come
under further pressure, so demand for what UW offers will clearly rise: the
business is well positioned to capitalise on these dynamics, and we are
increasingly confident in delivering on our goal of adding a further one
million customers in the next four to five years. Managing our rapid growth
is critical to achieving this goal, and requires appropriate investment to
ensure successful operational delivery; to this end we continue to prioritise
our time and effort in three key areas:
Building a great culture and environment for our people - the hard work of our
team of over 2,000 employees underpins everything we do, and our highest
priority is to attract and retain the talented individuals that we need to
achieve our goals.
Looking after our customers as we grow - earning genuine personal
recommendations from our customers is critical to our ongoing growth: we
continue to invest heavily in the people, systems and processes required to
deliver the hassle-free experience that our customers seek from UW.
Maximising high quality customer growth - we have ambitious growth targets,
but will not compromise quality for quantity. We continue to evolve our
customer and Partner propositions to attract multiservice homeowners via our
word of mouth route to market.
Results
Adjusted Statutory
Half year to 30 September 2022 2021 Change 2022 2021 Change
Revenue £562.4m £371.3m 51.5% £562.4m £371.3m 51.5%
Profit before tax £32.1m £26.2m 22.5% £29.1m £19.9m 46.2%
Basic earnings (per share) 33.9p 26.1p 29.9% 30.5p 18.3p 66.7%
Interim dividend (per share) 34.0p 27.0p 25.9% 34.0p 27.0p 25.9%
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 of £0.7m (2021: £0.6m), the loss for the period
attributable to the non-controlling interest of £0.3m (2021: £0.1m), and the
amortisation of the intangible asset of £5.6m (2021: £5.6m) arising from
entering into the energy supply arrangements with Eon (formerly npower) in
December 2013; this decision reflects both the relative size and non-cash
nature of these charges. In H1 FY23 adjusted profit before tax and adjusted
basic EPS also excludes the profit on the disposal of Glow Green (£3.6m). The
reconciliations for adjusted profit before tax and adjusted EPS are set out in
notes 3 and 9 respectively.
Adjusted profit before tax increased to £32.1m (2021: £26.2m) on revenues of
£562.4m (2021: £371.3m). Adjusted earnings per share increased to 33.9p
(2021: 26.1p). Statutory profit before tax increased to £29.1m (2021:
£19.9m), including the profit on disposal of Glow Green of £3.6m, energy
supply contract intangible amortisation of £5.6m (2021: £5.6m), the loss for
the period attributable to the non-controlling interest of £0.3m (2021:
£0.1m), and share incentive scheme charges of £0.7m (2020: £0.6m).
We will be paying an increased interim dividend of 34p per share (2021: 27p)
on 16 December 2022 to shareholders on the register on 2 December 2022; the
Company's shares will go ex-dividend on 1 December 2022.
Revenues
The increase in revenue primarily reflects higher energy prices combined with
the significant increase in the number of services we are supplying, following
a 12-month period of strong customer growth.
Gross margin fell to 19.9% (2021: 22.9%), mainly reflecting the sharp rise in
retail energy prices, resulting in a higher proportion of our revenues coming
from supplying lower margin energy services.
Costs
Distribution expenses increased to £17.2m (2021: £12.7m), reflecting the
higher levels of customer acquisition and Partner activity during the period.
Although administrative expenses (excluding the amortisation of the energy
supply contract intangible and share incentive scheme charges) fell as a
proportion of sales, in absolute terms they increased by £12.6m to £53.2m
(2021: £40.6m). This increase was mainly a result of increased staff and
technology costs to manage the significantly increased level of customer
growth.
The bad debt charge for the period increased to £8.5m (2021: £5.1m)
representing 1.5% of
revenues (2021: 1.4%).
Cash Flow and Borrowings
Operating cash flow of £78.6m (2021: £22.7m) was significantly higher year
on year, mainly
reflecting the timing of receipts from Government for the Energy Bills Support
Scheme
("EBSS"). Underlying operating cashflow excluding the receipt of EBSS funds
was £31.1m, broadly reflecting the level of profit for the period. Capital
expenditure of £4.9m (2021: £4.8m) related primarily to our ongoing
technology investment programme.
Net debt (including lease liabilities) fell to £19.6m at the period end
following the early receipt of EBSS funds from Government. Underlying net debt
(excluding EBSS funds) fell marginally to £67.2m (31 March 2022: £70.3m). At
this level, our underlying net debt to EBITDA ratio (on a 12-month rolling
basis) remains low at around 0.8x, underpinning our progressive dividend
policy.
Tax
Our effective tax rate for the first half was 18.1% (2021: 28.3%). The overall
level during the period was marginally below the underlying rate of
corporation tax due mainly to the profit on the disposal of Glow Green and the
tax deduction available to the Company from the exercise of employee share
options; partially offset by the ongoing amortisation charge on our energy
supply contract intangible asset (which is not an allowable deduction for tax
purposes).
Investing in our Customers
A record number of UK households joined UW to save on their bills in the first
half of the year, taking the total number of customers we supply to 814,684 as
at 30 September 2022 (31 March 2022: 728,680).
This increase of 86,004 new customers (H2 2022: 67,980) equates to an
annualised growth rate of almost 24%, consistent with our medium-term growth
target of adding one million additional customers over the next four to five
years.
The long-term value of our multiservice customer proposition, combined with
consistently offering the lowest priced energy in the market, means we are
uniquely positioned to help consumers tackle the market-wide inflationary
pressures they are experiencing in each of the commoditised household services
we supply.
Our position as the UK's cheapest energy supplier has remained intact
throughout the turbulent market conditions of the last 12 months following the
end of the energy price war in September 2021, with UW customers receiving
ongoing annual savings of up to £125 relative to the Government Price Cap,
with the amount depending on the number of services they take from us. Across
the full financial year, we expect UW customers to collectively save over
£30m on their energy bills - funded through our innovative and sustainable
multiservice business model.
We remain disciplined in our approach to maximising high value growth against
a backdrop of exceptionally strong demand, ensuring that we strike the right
balance between quantity and quality. Whilst energy prices continue to
dominate the headlines, it is important to recognise that we are not simply an
energy business, and the inflationary pressures being felt by consumers in all
of our markets make the savings we offer across each of them increasingly
attractive.
As a result we saw strong levels of multiservice take up by new customers
during the first half, leading to growth across all our core services; this
resulted in an overall increase in the number of services we supply to our
customers of 292,343 (H1 FY22: 5,959) to over 2.5 million in total.
H1 H1
FY 2023 FY2022 FY 2022
Partners 52,062 47,620 44,325
Customers
Residential 792,674 705,634 637,553
Business 22,010 23,046 23,147
Total 814,684 728,680 660,700
Core services
Energy 1,388,932 1,219,836 1,090,319
Broadband 341,392 323,623 316,276
Mobile 364,062 324,773 306,738
Insurance 74,948 44,834 35,608
Other services
Cashback Card 364,960 327,949 305,875
Legacy services 22,958 23,894 24,940
Total 2,557,252 2,264,909 2,079,756
Whilst energy services have grown the most in absolute terms, we were
particularly pleased with the strong relative growth in mobile and insurance
services, as both new and existing customers sought to maximise their energy
savings by switching additional services to UW. In March 2022 we integrated
Insurance into our bundle proposition, triggering a marked acceleration in
take-up of this service.
Demand for our Cashback card also remains high. It is a unique point of
differentiation for UW, and represents a further, meaningful way in which we
can help our customers tackle the rising cost of living. During the first
half of the year, our customers received over £3.5m (2021: £3.0m) deducted
from their UW bills by using their Cashback card.
Supporting our customers
In order to deliver on our promise of helping our customers to save time and
money on their household bills, and to genuinely earn their recommendations,
it is vital that we continue to invest in them - not solely in the value of
our proposition, but also, critically, in how we look after them: we must
deliver a consistently high standard of service, treat them fairly, and live
up to our promise of letting them get on with their lives.
The increase in the Government Price Cap to £1,971 in April 2022, and the
ongoing energy-related media headlines throughout the first half of the year,
led to significantly heightened concern amongst consumers. Our customers
were no exception and we experienced unprecedented levels of customer contact
during the period. At the same time a record number of new customers have
joined UW, switching multiple essential household services to us. The £2,500
Government Energy Price Guarantee announced in September, whilst temporarily
quelling affordability concerns, led to widespread consumer confusion, and
more recent changes have further exacerbated this.
Whilst we continue to invest in providing customers with self-service
capabilities for each of the household services they are taking from us, these
external market dynamics mean that we are facing unprecedented numbers of
customers wishing to speak to us directly. In response, we have increased
our front line customer support teams, taking the total number of UW employees
to over 2,000 at the end of the period. This expansion of our employee base
represents a significant additional investment, but it is one that we are
delighted to make and are pleased to be creating jobs against such a
challenging broader economic backdrop.
This expansion in our workforce includes an initiative to develop regional
centres of customer service excellence, with our first hub opening in Burnley
in October, aimed at providing new UW customers with dedicated support as they
switch their services to us. We intend to open further hubs during the
second half of the year, each with a focus on a particular aspect of our
business, to help our teams build deep, specialist knowledge, and to provide
our customers with the highest level of support.
It is not only the efforts and hard work of our colleagues that are integral
to supporting our customers: the systems they use are vital, and we have made
further progress during the period to develop these to help our teams perform
the critical role they play in looking after our customers, resolving their
problems and answering their questions.
With the steep increase in energy bills being experienced by everyone, we are
especially focussed on supporting our vulnerable customers, and have increased
our Payment Support Team by around 40% year on year. We seek to provide
unparalleled support for customers facing payment difficulties, and were
pleased with our rating in Ofgem's recent Market Compliance Review into
customers struggling to pay their bills.
Customer churn remains at record low levels, primarily reflecting our position
as the lowest priced energy supplier in the market, but also the long term
value we offer across all our core services, and our commitment to looking
after our customers.
Our Services
Energy
Over the last six months we have seen a period of enforced stability in the
energy market with no suppliers entering or leaving and little differentiation
in what they are able to offer to customers. With all other suppliers priced
within c.£10 of the Government Energy Price Guarantee, we have consistently
offered savings of up to £125 per year, funded through our sustainable cost
advantage, and as a result have become the fastest growing energy provider in
the UK.
The relative stability of the competitive retail supply market sits in stark
contrast to the regulatory environment. There have been a series of Government
interventions aimed at shielding consumers from the volatility in wholesale
energy prices including most notably, the Energy Bills Support Scheme (EBSS)
and Energy Price Guarantee. In the business sector where we supply over
20,000 SME customers, the Energy Bill Relief Scheme (EBRS) is also starting to
deliver significant bill reductions. Whilst the details of these schemes
continue to evolve along with government policy, providing ongoing operational
challenges to all suppliers, our competitive advantage has been unaffected by
the changes, and we have shown resilience in being able to adapt quickly to
the changing circumstances without compromising our growth.
Whilst the amount of government subsidy is significant, most customers' bills
are still more than double what they were a little over a year ago. As a
result, customers are seeking to lower their outgoings by reducing their
consumption, with average usage down by around 10% over the summer, and with a
larger reduction expected over the coming winter months.
Across the market more customers are falling into arrears, and whilst we are
not immune to this challenge, the nature of both our multiservice proposition
and our word of mouth acquisition channel means our business is less
susceptible to higher bad debts, reflecting our customer demographic.
Smart meters are a key component in the UK's plans to achieve its net zero
targets, and we continue to have one of the highest smart meter penetration
rates in the UK of 65% despite our increased growth. A shortage of trained
engineers during the period has reduced our previously high rate of
installation, but we anticipate this will accelerate again in the new year and
remain committed to investing in the roll-out.
This summer saw the implementation of Ofgem's Faster Switching programme,
enabling customers to switch their energy supplier in as little as two working
days. Whilst lower levels of overall switching have reduced the significance
of this large, industry-wide investment, we have seen the benefits of the more
streamlined onboarding experience for the record numbers of customers
switching to UW over the period.
Broadband and Mobile
Our mobile service, spearheaded by our highly competitive unlimited data SIM
proposition, continued to grow rapidly during H1 (+12%). We have invested in
improvements to both the provisioning experience, with better automation of
our activation processes, and the in-life account management experience to
drive advocacy amongst our mobile service users. We also extended our
long-standing supply agreement with EE until 2028.
Broadband growth was relatively muted across the period (+5%) when compared
with the growth of our other services. This reflects both the increasingly
high reliance consumers place on their connectivity and the perceived risk of
disruption associated with switching, and the redesigned bundle proposition
that we launched in March 2022 (allowing customers to access our lowest energy
prices by taking insurance as one of their qualifying services, with a knock
on effect on broadband take up). We are continuing to invest in the
automation of our provisioning processes in order to assure customers of a
seamless switching process, and anticipate that Ofcom's 'One Touch Switch'
programme will further reduce switching friction for consumers.
The ongoing full fibre roll-out continues to underpin market activity focussed
on the 'tease and squeeze' acquisitional pricing tactics that have been, or
are being, addressed by regulation in Financial Services and Energy. The
majority of the big suppliers subject all their customers (including those in
contract) to automatic CPI-plus annual price rises, which drove a c.9%
increase to many consumers' bills in the spring. With current inflation
forecasts, we expect this will rise even further over the coming months, and
our strategy of guaranteeing no in-contract price rises leaves us well placed
to grow in response to this dynamic.
We signed a new, long-term agreement with TalkTalk in October. The
significantly improved terms will help us accelerate our broadband growth
whilst maintaining an increasingly profitable proposition over the medium to
long term. We are excited that this new agreement will enable us to benefit
from TalkTalk's growing network of alt-net fibre relationships, giving UW
customers access to the widest range of full fibre connectivity in the market
in due course.
At a time when cost of living pressures continue to rise, and other major
broadband providers are imposing automatic inflation-linked price rises on
their customers, we have not only maintained our existing fibre broadband
prices throughout 2022, but have also committed to freezing them throughout
the winter ahead.
Insurance
Our Insurance book increased from 44,834 to 74,948 policies, an uplift of 67%
in H1 alone. This healthy growth was driven by two main catalysts: firstly,
strong customer growth in our core business and secondly, the redesigned
bundle proposition that we launched in March 2022, which led to over 22% of
new customers taking an insurance product when they signed up to UW.
Our approach of rewarding customer loyalty and focus on delivering customer
value meant that we have been well prepared for the impacts of the FCA pricing
interventions, as well as the upcoming Consumer Duty requirements. Our
retention at renewal has held steady at around 95%.
For the time being, our insurance business remains firmly in growth mode.
Whilst it is currently only making a modest contribution to our bottom line,
we see a clear path to making a material contribution as we continue to scale,
and we will continue to invest in this area as a key strategic driver of
future growth for the overall business.
Cashback
Our Cashback card is ideally suited to help UK households looking for ways to
combat the rising cost of living: by enabling our customers to earn up to 10%
cashback on their everyday spending, the Cashback card takes the savings that
UW offers beyond our four core utilities, and is another key differentiator
compared to any other home services provider.
Demand for the card continues to rise with cardholder growth of over 10%, and
spending exceeded £238m in H1 (H1 FY21: £199m). In total, our customers
received £3.5m of cashback during the period, taken straight off their bills.
We continue to invest in improving the cardholder experience at every touch
point - for example instantly push notifying them of how much cashback they
have received each time they spend. We have also extended our portfolio of
retail partners to include brands such as Boohoo and Dobbies, and anticipate
further additions over the course of the year.
With no obvious signs of inflationary pressures abating, we expect the
Cashback card to become increasingly relevant to our customers over the
foreseeable future.
Investing in our Word of Mouth Model
Our rapid growth in customers has been underpinned by high levels of activity
amongst our growing community of Partners. They are one of the key strengths
of our business. Through UW, our Partners can create real financial security
for themselves and their families by signing up new customers and introducing
our income opportunity to others. They do so in their own time and on their
own terms, earning meaningful short-term financial rewards as well as a
long-term residual income.
Confidence has risen during the period, as Partners have embraced the strength
of our customer proposition and the growing consumer demand for the savings it
offers. Recommending UW is both significantly easier and more enjoyable for
our Partners when they know that they are genuinely helping their friends,
families and neighbours. This has evidently been the case given our consistent
position as the lowest priced energy supplier in the UK over the last year,
and has reinforced the other ways we can help tackle the broader rise in the
cost of living that households are facing, such as through the savings offered
by our Cashback card.
Growing awareness of the UW brand amongst consumers - resulting from increased
media recognition, our consistent top-of-table position in energy price
comparisons and other third-party endorsements - has further boosted their
confidence.
Combined with heightened and proactive consumer demand for what Partners can
offer through UW, this has driven record levels of activity and growth amongst
our Partner base, in turn leading to greater earnings, particularly in the
form of bonuses for signing up new multiservice customers. These earnings of
up to £250 per referral totalled over £7m in the first half, and - in
addition to the savings offered by our core customer proposition - are
increasingly attractive to people seeking to offset the rise in daily living
costs that we are all facing.
We continually seek to make it easier to succeed as a Partner by ensuring the
competitive positioning of our services, providing market-leading levels of
customer care, and raising awareness of the UW brand. We have further
invested in the tools we provide to them during the period, introducing
enhanced personalised websites, simplifying the sharing of online links with
people they meet, and directing prospective new customers to active Partners
who are local to them.
With the financial pressure on UK households continuing to rise, and an
increasing recognition that the scope to mitigate the impact of steep and
widespread inflation through savings alone is limited, we anticipate that
increasing numbers of people will turn to UW over the coming years to help
them earn their way out of the cost of living crisis.
In order to broaden the scope of the UW income opportunity we are relaunching
our customer referral proposition, which not only enhances our
tried-and-tested word of mouth model, but extends it to all our existing
customers, giving them the opportunity to boost their income at a time when
their financial outgoings are increasing.
Investing in Our Employees
We have made significant investment and progress in improving the culture and
environment for our employees. Our efforts were acknowledged in our most
recent company-wide Heartbeat survey in July, which saw our employee Net
Promoter Score increasing to +20.
In response to the acceleration in new customer growth, we have stepped up our
recruitment of new colleagues and developed all aspects of our onboarding
journey creating a positive experience for any new starter long before their
first day on the job.
We have enhanced our learning and development offer for all employees, while
increasing the dedicated support we provide in our Customer Services teams,
and have seen over 70% of all staff access our improved resources online. We
have also started to deploy guided digital journeys for different types of
leaders across the business, to help them develop in their roles.
In addition to opening our first regional hub in Burnley, we have continued to
invest in our working environment more broadly, opening an office in
Paddington with space for nearly 100 staff to regularly meet and collaborate.
We have also taken steps to better engage with our growing employee base,
especially those working remotely, running regular company-wide events to help
people build on their remote relationships, better understand the business,
and connect with peers in and beyond their core teams.
Access to existing benefits and support resources has been improved with the
launch of a new online benefits platform. As well as dedicated mental health
and wellbeing modules, we have expanded our resources to include financial
wellbeing support. This is on top of enhancements to our sick pay policy, a
one-off cost of living payment we are paying to all employees this winter, and
a support fund we have set up to help employees in real financial difficulty
to access supermarket vouchers or additional funding.
In order to better leverage our growing team's professional network and boost
internal talent movement, we have replaced our recruitment platform, providing
greater visibility on job opportunities and applications, as well as fuelling
word of mouth recommendation from within our business.
Outlook
The combination of our sustainable multiservice cost advantage - enabling us
to consistently undercut the competition as the lowest priced supplier in the
market - and rising consumer demand for the savings and convenience we offer,
means we expect to see further strong organic growth over the months and years
ahead.
The recent political upheaval and subsequent changes to the Government's
Energy Price Guarantee, mean that energy prices are once again front page
news. Despite being a major contributor towards the wider inflationary
pressures and cost of living squeeze that is being felt by households across
the country, there is little competition between energy suppliers (other than
ourselves) who all face the same costs and have next to no points of
differentiation from one another.
In contrast, we are proud of the savings we offer our customers on their
energy bills - which are set to total over £30m this year - a figure that
will continue to grow as more households choose UW as their supplier. But our
ability to help our customers reduce their monthly outgoings is not restricted
to their energy: we also do so on their mobile, broadband and insurance.
In the face of rising costs, we are uniquely positioned to offer UK consumers
multiple ways to save. Everyday general shopping, in particular the rising
cost of food, is a further key pressure point on household budgets, and our
Cashback card helps UW customers meet this challenge: with spending on our
card now running at over £40m per month, we expect this will generate
meaningful further savings for our customers in future. And unlike the
majority of other broadband and mobile providers, who impose annual
inflation-linked price rises on their customers, we have committed not to
increase our prices this winter.
At the same time, we continue to experience strong levels of new Partner
recruitment, as more people turn to UW to earn an extra income in response to
the deepening cost of living crisis. In launching our customer referral
scheme, we are excited to be bringing the UW income opportunity to a broader
audience - all our customers - as the financial pressures faced by all UK
households continue to mount. We expect momentum to build in our word of
mouth model through the second half, further supporting our strong organic
customer growth rate as we move into FY24.
Household energy bills are expected to remain high for the foreseeable future.
On top of ongoing elevated wholesale prices, we are yet to see the full impact
of the predicted £6.5bn bail-out of Bulb, anticipated higher bad debts across
the industry, and the cost of transitioning to net zero, all of which will
need to be factored into future bills. This leaves us uniquely positioned to
offer both new and existing customers significant savings through our
sustainable multiservice model and to continue growing our market share
significantly over the coming years.
Whilst the EPG will mean that the amount customers pay for their energy will
remain fixed until April, the underlying Government Price Cap will be reset in
January, with a growing likelihood that the new level will exceed £4,000 for
an average dual fuel household. This provides greater clarity over our
likely financial performance for the final quarter of FY23, albeit that some
uncertainty remains over the extent to which customers either self-regulate
their consumption in order to reduce their bills over the peak winter months,
or are unable to afford to pay them.
In the context of this greater visibility, and in the absence of unforeseen
circumstances, we are upgrading our previous guidance. We now expect
full-year adjusted profit before tax for FY23 of at least £95m, leading to a
full year dividend of at least 80p (2022: 57p) per share.
These dynamics give us considerable confidence in our ability to achieve the
goal we set in the summer of welcoming an additional million customers to UW
over the next four to five years, and the further material improvement in our
financial performance that this would deliver in FY24 and beyond.
Given on behalf of the Board
ANDREW LINDSAY STUART BURNETT NICK SCHOENFELD
Co-Chief Executive Co-Chief Executive Chief Financial Officer
22 November 2022
Principal Risks and Uncertainties
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.
The directors have carried out a robust assessment of the Company's emerging
and principal 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. Save as
set out below, the magnitude of any risks previously identified has not
significantly changed during the period.
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, broadband and insurance services)
under the Utility Warehouse and TML brands. As a reseller, the Group does not
own any of the network infrastructure required to deliver these services to
its customer 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 is able to secure the wholesale supply of all the services it offers
at competitive rates, enabling it to generate a consistently fair level of
profitability from delivering a great value bundled proposition to its
customers. There is an alignment of interests between the Group and its
wholesale suppliers which means that it is in the interests of the suppliers
to ensure that the Group remains competitive, driving growth and maximising
their benefit from our complementary route to market. Furthermore, the group
benefits from a structural cost advantage, due to the multiple revenue streams
it receives from customers who take more than one service-type, and only
having one set of overheads. The Group has alternative sources of wholesale
supply should an existing supplier become uncompetitive or no longer
available.
In relation to energy specifically, the Group's wholesale costs are calculated
by reference to a discount to the prevailing standard variable retail tariffs
offered by the 'Big 6' to their domestic customers (effectively the Government
price cap), which gives the Group considerable visibility over profit margins.
The Group's services are promoted using 'word of mouth' by a large network of
independent Partners, who are paid predominantly on a commission basis. This
means that the Group has limited fixed costs associated with acquiring new
customers.
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 customers, 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 developing new services, and in enhancing current ones, careful
consideration is given to the likely impact of such changes on existing
customers.
In relation to the service provided to its customer 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 customers (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 reliant on its in-house developed and supported systems for the
successful operation of its business model. Any failure in the operation of
these systems could negatively impact service to customers, undermine Partner
confidence, and potentially be damaging to the Group's brand. Application
software is developed and maintained by the Group's Technology team to support
the changing needs of the business using the best 'fit for purpose' tools and
infrastructure. The Technology team is made up of highly-skilled, motivated
and experienced individuals.
Changes made to the systems are prioritised by business, Product Managers work
with their stakeholders to refine application and systems requirements. They
work with the Technology teams undertaking the change to ensure a proper
understanding and successful outcome. Changes are tested as extensively as
reasonably practicable before deployment. Review and testing are carried out
at various stages of the development by both the Technology team and the
operational department who ultimately take ownership of the system.
The Group has strategic control over the core customer and Partner platforms
including the software development frameworks and source code behind these key
applications. The Group also uses strategic third-party vendors to deliver
solutions outside of our core competency. This largely restricts our
counterparty risks to services that can be replaced with alternative vendors
if required, albeit this could lead to temporary disruption to the day-to-day
operations of the business.
Monitoring, backing up and restoring of the software and underlying data are
made on a regular basis. Backups are securely stored or replicated to
different locations. Disaster recovery facilities are either provided through
cloud-based infrastructure as a service, and in critical cases maintained in a
warm standby or active-active state to mitigate risk in the event of a failure
of the production systems.
Data security risk
The Group processes sensitive personal and commercial data and in doing so is
required by law to protect customer and corporate information and data, as
well as to keep its infrastructure secure. A breach of security could result
in the Group facing prosecution and fines as well as loss of business from
damage to the Group's reputation. Recovery could be hampered due to any
extended period necessary to identify and recover a loss of sensitive
information and financial losses could arise from fraud and theft. Unplanned
costs could be incurred to restore the Group's security.
The Group has deployed a robust and industry-appropriate Group-wide layered
security strategy, providing effective control to mitigate the relevant
threats and risks. The Group is PCI compliant and external consultants conduct
regular penetration testing of the Group's internal and external systems and
network infrastructure.
The Information Commissioner's Office ('ICO') upholds information rights in
the public interest and, where required, companies within the Group are
registered as data controllers with the ICO. If the Group fails to comply with
all the relevant legislation and industry specific regulations concerning data
protection and information security, it could be subject to enforcement
action, significant fines and the potential loss of its operating licence.
Information security risks are overseen by the Group's Information Security
and Legal & Compliance teams.
Legislative and regulatory risk
The Group is subject to various laws and regulations. The energy,
communications and financial services markets in the UK 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 material failure to comply may
result in the Group being fined and lead to reputational damage which could
impact the Group's brand and ability to attract and retain customers.
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 licensed gas and electricity supplier, and therefore has a
direct regulatory relationship with Ofgem. If the Group fails to comply with
its licence obligations, it could be subject to fines or to the removal of its
respective licences.
The regulatory framework for the UK's energy retail market, as overseen by
Ofgem, is subject to continuous development. Any regulatory change decision
could potentially lead to a significant impact on the sector, and the net
profit margins available to energy suppliers. The current pace and extent of
regulatory change is more substantial than in previous years. In addition to
the industry-wide programmes of work, such as the rollout of smart meters, and
a growing range of environmental and social obligations, Ofgem has been
implementing a special package of reform measures. These special reforms have
arisen in response to the 'energy crisis', which emerged in the autumn of 2021
and is associated with high wholesale energy costs and a consolidation of
competition, with many new-entrant suppliers having ceased trading. The
reforms cover the future of the price cap, assessing suppliers' financial
resilience and compliance performance, and temporary interventions, in part,
to protect suppliers from their financial exposures to the wholesale market.
The Group tracks this changing landscape closely, to identify risks and
opportunities, to prepare for any subsequent operational changes, and also to
input directly into Ofgem's work.
The Group is also a supplier of telecoms services and therefore has a direct
regulatory relationship with Ofcom. If the Group fails to comply with its
obligations, it could be subject to fines or lose its ability to operate. The
ongoing implementation of the European Electronic Communications Code has
resulted in an increased regulatory burden and an even stronger Ofcom focus on
compliance monitoring. Regulatory changes to the fixed line and broadband
switching processes for next year are substantial and require cooperation from
all fixed telecom providers. The Group is closely engaged in the relevant
forums and industry groups to both influence and prepare for the changes.
The Group is authorised and regulated as an insurance broker for the purposes
of providing insurance services to customers by the Financial Conduct
Authority ("FCA"). In addition, the Group holds consumer credit permissions
related to the provision of staff and Partner loans and hire purchases. If the
Group fails to comply with FCA regulations, it could be exposed to fines and
risk losing its authorised status, severely restricting its ability to offer
insurance services to customers and consumer credit services to staff and
Partners.
Recent regulatory changes relating to insurance pricing practices and the new
Consumer Duty regulation will have a significant impact on the financial
services sector as a whole. The business has prepared and the Board has
approved an implementation plan which will continue to be informed by any
clarifications and additional guidance issued.
In general, the majority of the Group's services are supplied to consumers in
highly regulated markets, and this could restrict the operational flexibility
of the Group's business. In order to mitigate this risk, the Group seeks to
maintain appropriate relations with both Ofgem and Ofcom (the UK regulators
for the energy and telecommunications markets respectively), the Department
for Business, Energy and Industrial Strategy ('BEIS'), and the FCA. 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.
Political and consumer concern over energy prices, broadband availability and
affordability, vulnerable customers and fuel poverty may lead to further
reviews of the energy and telecoms markets which could result in further
consumer protection legislation being introduced. Political and regulatory
developments affecting the energy and telecoms markets within which the Group
operates may have a material adverse effect on the Group's business, results
of operations and overall financial condition.
The Group is also aware of and managing the impact of a developing regulatory
landscape in relation to climate change and the Net Zero transition.
To mitigate the risks from failure to comply with legislative requirements in
an increasingly active regulatory landscape, the Group's Legal &
Compliance team has developed and rolled out robust policies and procedures,
undertakes regular training across the business, and continually monitors
legal and regulatory developments. The team also conducts conformance and
assurance tests on the policies and procedures.
Financing risk
The Group has 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 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.
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 customers who are not
considered creditworthy, the Group is obliged to supply domestic energy to
everyone who submits a properly completed application form. Where customers
subsequently fail to pay for the energy they have used, 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 switching their smart meters to
pre-payment mode, installing a pre-payment meter or disconnecting their
supply, and the costs associated with preventing such customers from
increasing their indebtedness are not always fully recovered.
Bad debt within the telephony industry may arise from customers using the
services, or being provided with a mobile handset, 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 usage fraud. The Group is able to immediately eliminate any
further usage bad debt exposure by disconnecting any telephony service that
demonstrates a suspicious usage profile, or falls into arrears on payments.
Wholesale price risk
Whilst the Group acts as principal in most of the services it supplies to
customers, 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 largely
protected from technological risk, capacity risk or the risk of obsolescence,
as it can purchase the precise amount of each service required to meet its
customers' 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 typically either regulated (as in the energy
market) or subject to significant competitive pressures (as in telephony and
broadband). The profile of the Group's customers, the significant quantities
of each service they consume in aggregate, and the Group's 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 customer demand can be subject to
considerable short-term fluctuations depending on the weather. The Group has a
long-standing supply relationship with Eon (formerly npower) under which the
latter assumes the substantive risks and rewards of buying and hedging energy
for the Group's customers, and where the price paid by the Group to cover
commodity, balancing, transportation, distribution, agreed metering,
regulatory and certain other associated supply costs 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, which is set at the start of each
quarter; this may not be competitive against the equivalent supply costs
incurred by new and/or other independent suppliers. However, if the Group
did not have the benefit of this long-term supply agreement it would need to
find alternative means of protecting itself from the pricing risk of securing
access to the necessary energy on the open market and the costs of balancing.
Competitive risk
The Group operates in highly competitive markets and significant service
innovations by others or increased price competition, could impact future
profit margins and growth rates. In order to maintain its competitive
position, there is a consistent focus on improving operational efficiency.
New service innovations are monitored closely by senior management and the
Group is generally able to respond within an acceptable timeframe where it is
considered desirable to do so, by sourcing comparable features and benefits
using the infrastructure of its existing suppliers. The increasing
proportion of customers who are benefiting from the genuinely unique
multi-utility solution that is offered by the Group, and which is unavailable
from any other known supplier, further reduces any competitive threat.
The Directors anticipate that the Group will face continued competition in the
future as 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 available to the
Group. 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 customer
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 some of the
Group's largest wholesale suppliers. This should also 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 customers is reliant on the efficient
operation of third party physical infrastructure. There is a risk of
disruption to the supply of services to customers 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 customers could in due course be sourced from another
provider.
The development of localised energy generation and distribution technology may
lead to increased peer-to-peer energy trading, thereby reducing the volume of
energy provided by nationwide suppliers. As a nationwide retail supplier,
the Group's results from the sale of energy could therefore be adversely
affected.
Similarly, the construction of 'local monopoly' fibre telephony networks to
which the Group's access may be limited as a reseller could restrict the
Group's ability to compete effectively for customers in certain areas.
Smart meter rollout risk
The Group is reliant on third party suppliers to fully deliver its smart meter
rollout programme effectively. In the event that the Group suffers delays to
its smart meter rollout programme the Group may be in breach of its regulatory
obligations and therefore become subject to fines from Ofgem. In order to
mitigate this risk the Group dual-sources (where practicable) the third party
metering and related equipment they use.
The Group may also be indirectly exposed to reputational damage and litigation
from the risk of technical complications arising from the installation of
smart meters or other acts or omissions of meter operators, e.g. the escape of
gas in a customer's property causing injury or death. The Group mitigates
this risk through using established reputable third party suppliers.
Energy industry estimation risk
A significant degree of estimation is required in order to determine the
actual level of energy used by customers 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 customers. However, this risk is mitigated by the relatively high
proportion of customers who provide meter readings on a periodic basis, and
the high level of penetration the Group has achieved in its installed base of
smart meters.
Gas leakage within the national gas distribution network
The operational management of the national gas distribution network is outside
the control of the Group, and in common with all other licensed domestic gas
suppliers the Group is responsible for meeting its pro-rata share of the total
leakage cost. There is a risk that the level of leakage in future could be
higher than historically experienced, and above the level currently expected.
Acquisition risk
The Group may invest in other businesses, taking a minority, majority or 100%
equity shareholding, or through a joint venture partnership. Such investments
may not deliver the anticipated returns, and may require additional funding in
future. This risk is mitigated through conducting appropriate
pre-acquisition due diligence where relevant.
Virus outbreak risk
In the event of a disease or virus outbreak (or different variants of an
existing disease or virus emerging) which are resistant to vaccinations and/or
treatments, and which causes serious incapacity amongst those infected, the
Company faces a number of risks including: (i) staff may be unable to attend
their normal place of work and fulfil their normal duties due to falling ill
or being required to self-isolate (either due to exposure to carriers of the
virus/disease, or to reduce the likelihood of being so exposed); (ii) the
Company may be required to shut its offices to prevent transmission of the
virus/disease in the workplace; (iii) the efficiency of our operations may be
reduced; (iv) we may be unable to recruit and train new members of staff; (v)
customers may find it more difficult to contact the company; (vi) we may be
unable to resolve faults and challenges faced by customers which require a
visit to their home or other engineering works to be carried out; (vii)
customers may stop paying their bills, or we may be required by the Government
to offer payment holidays to customers in respect of their utilities (in a
similar fashion to the mortgage payment provisions), putting pressure on the
Company's working capital; (viii) we may be restricted from carrying out
normal debt enforcement procedures including suspension of telephony services
and installation of smart meters; (ix) the Company's Partners may find it more
difficult to grow their businesses during a period when restrictions on
movement are imposed by the Government; (x) we may be unable to visit
customers' homes to install smart meters; (xi) the various providers of third
party infrastructure used to supply our services may be unable to cope with
the increased demands placed upon them; and (xii) churn could increase during
periods when customers are isolated at home.
These are mitigated by: (i) the Company has proven technology to enable most
employees to carry out their duties remotely; (ii) the demographic mix of our
customer base is heavily skewed towards homeowners and older/retired
customers; this means we are significantly less exposed to payment issues than
most other providers of similar services; (iii) the Company has a strong
balance sheet with modest gearing, and access to significant, recently
refinanced, additional debt facilities (if required) to cover any temporary
pressure on working capital; in extremis, these could be enhanced by a
temporary suspension of the dividend; (iv) the Company has developed tools
which are now in widespread use, enabling Partners to sign-up new customers,
recruit new Partners, and to help existing Partners support new Partners
remotely to teach them how to build their own successful UW business; and (v)
the wide range of services provided to customers gives us significant
resilience from a revenue and profit perspective against an external event
which affects any individual revenue stream.
Climate change risk
Climate change has the potential to significantly impact the future of our
planet. Everyone has a role to play in reducing the effects of harmful GHG
emissions in our atmosphere and ensuring that we meet a 1.5°C target in line
with the Paris Agreement. No business is immune from the risks associated with
climate change as it acts as a driver of other risks and affects government
decision-making, consumer demand and supply chains. In recognition of this,
the Group has designated climate change as a standalone principal risk for our
business and has assigned the Legal & Compliance Director as the owner for
managing climate change risk.
The Group is committed to continuing to implement the recommendations of the
Task Force on Climate-related Financial Disclosures ('TCFD'). The Group's
first TCFD disclosures can be found in the 2022 Annual Report. The Group is
working to develop its disclosures further this year to build a deeper
appreciation of the specific risk implications to the Group arising from
climate change.
The Group is developing a Net Zero transition plan to achieve Net Zero by 2040
in line with the Science Based Target initiatives ('SBTi'). To assist with
this, the Group is working with third parties and has invested in software to
develop and manage progress against the targets.
Going Concern
Recent developments in the Group's business activities, together with the
factors likely to affect its future development, performance and financial
position are set out above.
The Group has revolving credit facilities of £175.0 million with Barclays
Bank PLC, Lloyds Bank PLC and Bank of Ireland Group PLC for the period to 30
June 2024. As at 30 September 2022, £100.0 million of this facility was
drawn down and the Company had a cash balance of £80.6 million.
Under the Group's energy supply arrangements, the Group benefits from its
relationship with Eon (formerly npower) who fund the principal seasonal
working capital requirements relating to the supply of energy to the Group's
customers.
The Group has considerable financial resources together with a large and
diverse retail and small business customer base and long-term contracts with a
number of key suppliers. As a consequence, the directors believe that the
Group is well placed to manage its business risks.
On this basis the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for at least 12 months
from the date of the approval of the interim financial statements. The interim
financial statements have therefore been prepared on a going concern basis.
Directors' Responsibilities
The Directors are responsible for the preparation of the condensed set of
financial statements and interim management report comprising this set of
Half-Yearly Results for the six months ended 30 September 2022, each of whom
accordingly confirms that to the best of their knowledge:
● the condensed set of financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting" and provides
a true and fair view of the assets, liabilities, financial position and profit
of the Group as a whole;
● the interim management report includes a fair review of
the information required by the Financial Statements Disclosure Guidance and
Transparency Rules (DTR) 4.2.7R (indication of important events during the
first six months and their impact on the financial statements and description
of principal risks and uncertainties for the remaining six months of the
year); and
● the interim management report includes a fair review of
the information required by DTR 4.2.8R (disclosures of related party
transactions and changes therein).
The Directors of Telecom Plus PLC are:
Charles Wigoder Chairman
Andrew Lindsay Co-Chief Executive
Officer
Stuart Burnett Co-Chief
Executive Officer
Nick Schoenfeld Chief Financial Officer
Beatrice Hollond Senior Non-Executive
Director
Andrew Blowers Non-Executive Director
Carla Stent
Non-Executive Director
Suzi Williams Non-Executive
Director
Independent Review Report to Telecom Plus PLC
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 which comprises the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim statement of financial position, the condensed consolidated interim statement of cash flows, the condensed consolidated interim statement of changes in shareholders' equity and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2022 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly financial report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the group are prepared in accordance with
UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Robert Seale
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
United Kingdom
22 November 2022
Condensed Consolidated Interim Statement of Comprehensive Income
Note 6 months ended 30 September 2022 (unaudited) 6 months ended 30 September 2021 (unaudited) Year
£'000 £'000 ended
31 March 2022 (audited)
£'000
Revenue 562,431 371,275 967,433
Cost of sales (450,777) (286,295) (778,958)
Gross profit 111,654 84,980 188,475
Distribution expenses (17,175) (12,697) (29,686)
Administrative expenses (53,175) (40,574) (84,423)
Share incentive scheme charges (741) (585) (960)
Amortisation of energy supply contract intangible 5 (5,614) (5,614) (11,228)
Total administrative expenses (59,530) (46,773) (96,611)
Impairment loss on trade receivables (8,467) (5,071) (11,566)
Impairment of goodwill - - (1,536)
Other income 648 669 1,844
Operating profit 27,130 21,108 50,920
Financial income 143 26 136
Financial expenses (1,764) (1,272) (2,709)
Net financial expense (1,621) (1,246) (2,573)
Profit/(loss) on disposal of subsidiaries 3,595 - (1,139)
Profit before taxation 29,104 19,862 47,208
Taxation (5,271) (5,623) (12,205)
Profit for the period 23,833 14,239 35,003
Profit and other comprehensive income for the period attributable to owners of 24,098 14,383 35,467
the parent
Loss for the period attributable to non-controlling interest (265) (144) (464)
Profit for the period 23,833 14,239 35,003
Basic earnings per share 9 30.5p 18.3p 45.1p
Diluted earnings per share 9 30.0p 18.3p 45.0p
Interim dividend per share 34.0p 27.0p
Condensed Consolidated Interim Balance Sheet
As at As at
30 September
31 March
2022 As at
2022
(unaudited)
30 September
(audited)
2021*
(unaudited)
Assets Note £'000 £'000 £'000
Non-current assets
Property, plant and equipment 26,056 33,009 26,180
Investment property 4 8,385 8,463 8,345
Intangible assets 5 147,306 156,997 152,418
Goodwill 3,742 5,324 3,742
Other non-current assets 36,258 30,215 32,855
Total non-current assets 221,747 234,008 223,540
Current assets
Inventories 3,714 6,451 4,152
Trade and other receivables 51,955 52,641 50,463
Current tax receivable 2,110 1,402 -
Accrued income 129,861 81,515 134,917
Prepayments 7,397 7,345 4,077
Costs to obtain contracts 19,487 14,824 15,151
Cash 80,632 23,175 29,647
Assets classified as held for sale - - 3,838
Total current assets 295,156 187,353 242,245
Total assets 516,903 421,361 465,785
Current liabilities
Trade and other payables (86,161) (33,365) (38,101)
Accrued expenses and deferred income (119,644) (81,419) (113,493)
Current tax payable - - (8)
Liabilities held for sale - - (7,551)
Total current liabilities (205,805) (114,784) (159,153)
Non-current liabilities
Long term borrowings 6 (99,513) (94,554) (99,215)
Lease liabilities (713) (6,465) (766)
Deferred tax (756) (1,695) (1,078)
Total non-current liabilities (100,982) (102,714) (101,059)
Total assets less total liabilities 210,116 203,863 205,573
Equity
Share capital 3,998 3,970 3,982
Share premium 149,581 145,317 147,112
Capital redemption reserve 107 107 107
Treasury shares (5,502) (5,502) (5,502)
JSOP reserve (1,150) (1,150) (1,150)
Retained earnings 63,082 61,712 61,935
210,116 204,454 206,484
Non-controlling interest - (591) (911)
Total equity 210,116 203,863 205,573
* The presentation of the balance sheet has been re-stated to reclassify the
Costs to obtain contracts on the face of the statement, previously these were
included in Trade and other receivables and Prepayments (refer to the
Presentation of financial statements section of the Notes to the consolidated
financial statements in the 2022 Annual Report).
Condensed Consolidated Interim Cash Flow Statement
Note 6 months Year
ended
ended
30 September 6 months
31 March
2022
ended
2022
(unaudited)
30 September
(audited)
2021
(unaudited)
£'000 £'000 £'000
Operating activities
Profit before taxation 29,104 19,862 47,208
Adjustments for:
Net financial expense 1,621 1,246 2,573
Impairment of goodwill - - 1,536
(Profit)/loss on disposal of subsidiaries (3,595) - 1,139
Depreciation of property, plant and equipment 1,720 2,421 4,558
Profit on disposal of fixed assets (56) (312) (940)
Amortisation of intangible assets 5 8,461 7,681 15,786
Amortisation of debt arrangement fees 298 178 436
Decrease/(increase) in inventories 438 (126) 2,173
Decrease/(increase) in trade and other receivables (9,504) 34,628 (18,750)
(Decrease)/increase in trade and other payables 57,170 (37,726) 6,144
Share incentive scheme charges 741 585 960
Corporation tax paid (7,749) (5,753) (11,528)
Net cash flow from operating activities 78,649 22,684 51,295
Investing activities
Purchase of property, plant and equipment (1,580) (769) (2,196)
Purchase of intangible assets 5 (3,349) (4,052) (7,747)
Disposal of property, plant and equipment 62 628 1,567
Interest received 143 26 136
Cash flow from investing activities (4,724) (4,167) (8,240)
Financing activities
Dividends paid 7 (23,689) (23,559) (44,787)
Interest paid (1,754) (1,323) (2,630)
Interest paid on lease liabilities (10) (108) (238)
Drawdown of long-term borrowing facilities 15,000 25,000 65,000
Repayment of long-term borrowing facilities (15,000) (20,000) (55,000)
Fees associated with borrowing facilities - - (597)
Repayment of lease liabilities (88) (631) (1,530)
Issue of new ordinary shares 8 2,485 223 2,032
Cancellation of B shares in subsidiary - - (2)
Cash held in subsidiaries at disposal (596) - -
Cash flow from financing activities (23,652) (20,398) (37,752)
Increase/(decrease) in cash and cash equivalents 50,273 (1,881) 5,303
Net cash and cash equivalents at the beginning of the period 30,359 25,056 25,056
Net cash and cash equivalents at the end of the period 80,632 23,175 30,359
Cash and cash equivalents per balance sheet 80,632 23,175 29,647
Cash and cash equivalents included within assets classified as held for sale - - 712
Net cash and cash equivalents at the end of the period 80,632 23,175 30,359
Condensed Consolidated Interim Statement of Changes in Equity
Share Share premium Capital redemption reserve Retained earnings Non-controlling interest Total
capital
Treasury shares JSOP
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2021 3,970 145,094 107 (5,502) (1,150) 70,306 (447) 212,378
14,239
Profit and total comprehensive income for the period 14,383
- - - - - (144)
Dividends - - - - - (23,559) - (23,559)
Credit arising on share options - - - - - 585 - 585
Deferred tax on share options - - - - - (11) - (11)
Retained earnings tax adjustments - - - - - 8 - 8
Issue of new ordinary shares - 223 - - - - - 223
Balance at 30 September 2021 3,970 145,317 107 (5,502) (1,150) 61,712 (591) 203,863
Balance at 1 October 2021 3,970 145,317 107 (5,502) (1,150) 61,712 (591) 203,863
20,764
Profit and total comprehensive income for the period 21,084
- - - - - (320)
Dividends - - - - - (21,228) - (21,228)
Credit arising on share options - - - - - 375 - 375
Deferred tax on share options - - - - - - - -
Retained earnings tax adjustments - - - - - (8) - (8)
Issue of new ordinary shares 14 1,795 - - - - - 1,809
Cancellation of B shares in subsidiary (2)
(2) - - - - - -
Balance at 31 March 2022 3,982 147,112 107 (5,502) (1,150) 61,935 (911) 205,573
Balance at 1 April 2022 3,982 147,112 107 (5,502) (1,150) 61,935 (911) 205,573
23,833
Profit and total comprehensive income for the period
- - - - - 24,098 (265)
Dividends - - - - - (23,689) - (23,689)
Credit arising on share options - - - - - 741 - 741
Deferred tax on share options - - - - - 6 - 6
Retained earnings tax adjustments - - - - - (9) - (9)
Issue of new ordinary shares 16 2,469 - - - - - 2,485
Disposal of non-controlling interest - - - - - - 1,176 1,176
Balance at 30 September 2022 3,998 149,581 107 (5,502) (1,150) 63,082 - 210,116
Notes to the Condensed Interim Financial Statements
1. General information
The condensed consolidated interim financial statements presented in this
half-year report ("the Half-Year Results") have been prepared in accordance
with IAS 34 as adopted for use in the UK. The principal accounting policies
adopted in the preparation of the condensed consolidated financial statements
are unchanged from those used in the annual report for the year ended 31 March
2022, and are consistent with those that the Company expects to apply in its
financial statements for the year ended 31 March 2023.
The condensed consolidated financial statements for the year ended 31 March
2022 presented in this half-year report do not constitute the Company's
statutory accounts for that period. The condensed consolidated financial
statements for that period have been derived from the Annual Report and
Accounts of Telecom Plus PLC. The Annual Report and Accounts of Telecom Plus
PLC for the year ended 31 March 2022 were audited and have been filed with the
Registrar of Companies.
The Independent Auditor's Report on the Annual Report and Accounts of Telecom
Plus PLC for the year ended 31 March 2022 was unqualified and did not draw
attention to any matters by way of emphasis and did not contain statements
under s498(2) or (3) of the Companies Act 2006. The financial information
for the periods ended 30 September 2022 and 30 September 2021 is unaudited but
has been subject to a review by the Company's auditors.
Seasonality of business: amounts reported in the half year period may not be
indicative of the amounts that will be reported for the full year due to
seasonal fluctuations in customer demand for gas and electricity. In respect
of the energy supplied by the Group, approximately two thirds is consumed by
customers in the second half of the financial year.
The Half-Year Results were approved for issue by the Board of Directors on 22
November 2022.
2. Judgements and estimates
The preparation of the condensed consolidated interim financial statements
requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgments about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in future periods if applicable.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements as at and for the year
ended 31 March 2022.
3. Alternative performance measures
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
from entering into the energy supply arrangements with Eon (formerly npower)
in December 2013; this decision reflects both the relative size and non-cash
nature of these charges. The loss for the period attributable to the
non-controlling interest is excluded as these losses are not attributable to
shareholders of the Company. In FY22 adjusted profit before tax also
excludes: (i) the loss on the disposal of UWHS, (ii) the write-off of goodwill
associated with the conditional disposal of Glow Green; and (iii) the profit
on disposal of a freehold property; this decision reflects the one-off
non-operating nature of these items. In the period ended 30 September 2022
adjusted profit before tax excludes the Group profit on disposal of Glow Green
reflecting the one-off non-operating nature of this item.
6 months ended 30 September 2022 (unaudited) 6 months ended 30 September 2021 (unaudited) Year ended 31 March 2022 (audited)
£'000 £'000 £'000
Statutory profit before tax 29,104 19,862 47,208
Adjusted for:
Loss for period attributable to non-controlling interest 265 144 464
Amortisation of energy supply contract intangible assets 5,614 5,614 11,228
Share incentive scheme charges 741 585 960
(Profit)/loss on disposal of subsidiaries (3,595) - 1,139
Impairment of goodwill - - 1,536
Profit on sale of freehold property - - (603)
Adjusted profit before tax 32,129 26,205 61,932
4. Investment property
Investment properties are properties which are held either to earn rental
income or for capital appreciation or for both. Investment properties are
stated at cost less accumulated depreciation.
Rental income from investment properties is accounted for on an accruals
basis. The Company vacated its former head office, Southon House, in 2015
and the property is now held as an investment property.
An independent valuation of Southon House was conducted on 4 June 2021 in
accordance with RICS Valuation - Professional Standards UK January 2014
(revised April 2015) guidelines. The independent market value of Southon
House was determined to be £11.9 million and has been categorised as a Level
3 fair value based on the inputs to the valuation technique used. The
valuation was prepared on a Market Value basis as defined in the Valuation
Standards and was primarily derived from using comparable market transactions
carried out on an arm's length basis. These inputs are deemed unobservable.
5. Intangible assets
Energy Supply Contract IT Software & Web Development
Total
£'000 £'000 £'000
Cost
At 31 March 2022 224,563 35,744 260,307
Additions - 3,349 3,349
At 30 September 2022 224,563 39,093 263,656
Amortisation
At 31 March 2022 (93,567) (14,322) (107,889)
Charge for the period (5,614) (2,847) (8,461)
At 30 September 2022 (99,181) (17,169) (116,350)
Net book amount at 30 September 2022 (unaudited) 125,382 21,924 147,306
Net book amount at 31 March 2022 (audited) 130,996 21,422 152,418
Net book amount at 30 September 2021 (unaudited) 136,610 20,387 156,997
The Energy Supply Contract intangible asset relates to the entering into of
the energy supply arrangements with Eon (formerly npower) on improved
commercial terms through the acquisition of Electricity Plus Supply Limited
and Gas Plus Supply Limited from Npower Limited having effect from 1 December
2013. The intangible asset is being amortised evenly over the 20-year life
of the energy supply agreement.
The IT Software & Web Development intangible asset relates to the
capitalisation of certain costs associated with the development of new IT
systems.
6. Interest bearing loans and borrowings
6 months ended 30 September 2022 (unaudited) 6 months ended 30 September 2021 (unaudited)
Year ended 31 March 2022 (audited)
£'000 £'000 £'000
Bank loans 100,000 95,000 100,000
Unamortised loan arrangement fees (487) (446) (785)
99,513 94,554 99,215
Due within one year - - -
Due after one year 100,000 95,000 100,000
100,000 95,000 100,000
7. Dividends
6 months 6 months Year
ended
ended
ended
30 September
30 September
31 March
2022
2021
2022
(unaudited)
(unaudited)
(audited)
£'000 £'000 £'000
Final dividend for the year ended 31 March 2022 of 30p per share 23,689 - -
Final dividend for the year ended 31 March 2021 of 30p per share - 23,559 23,559
Interim dividend for the year ended 31 March 2022 of 27p per share (2021: 27p) - - 21,228
An interim dividend of 34p per share will be paid on 16 December 2022 to
shareholders on the register at close of business on 2 December 2022. The
estimated amount of this dividend to be paid is approximately £26.8m and, in
accordance with IFRS accounting requirements, has not been recognised in these
accounts.
8. Share capital
During the period the Company issued 315,822 new ordinary shares to satisfy
the exercise of employee and distributor share options.
9. Earnings per share
6 months 6 months Year
ended
ended
ended
30 September
30 September
31 March
2022
2021
2022
(unaudited)
(unaudited)
(audited)
The calculation of basic and diluted EPS is based on the following data: £'000 £'000 £'000
Earnings for the purpose of basic and diluted EPS 24,098 14,383 35,467
Share incentive scheme charges (net of tax) 616 493 793
Amortisation of energy supply contract intangible assets 5,614 5,614 11,228
(Profit)/loss on disposal of subsidiaries (3,595) - 1,139
Impairment of goodwill - - 1,536
Profit on disposal of freehold office building - - (488)
Earnings for the purpose of adjusted basic and diluted EPS 26,733 20,490 49,675
Number Number Number
('000s) ('000s) ('000s)
Weighted average number of ordinary shares for the purpose of basic EPS
78,940 78,526 78,601
Effect of dilutive potential ordinary shares (share incentive awards)
1,261 193 286
Weighted average number of ordinary shares for the purpose of diluted EPS
80,201 78,719 78,887
Adjusted basic EPS 2 (#_ftn2) 33.9p 26.1p 63.2p
Basic earnings per share 30.5p 18.3p 45.1p
Adjusted diluted earnings per share1 33.3p 26.0p 63.0p
Diluted earnings per share 30.0p 18.3p 45.0p
1 (#_ftnref1) Adjusted profit before tax is defined in note 3 of the
condensed interim financial statements.
2 (#_ftnref2) In order to provide a clearer understanding of the
underlying trading performance of the Group, adjusted basic EPS excludes:
(i) share incentive scheme charges; and (ii) the amortisation of intangible
assets arising on entering into the energy supply
arrangements with Eon (formerly npower) in December 2013. The amortisation of
intangible assets and share incentive
scheme charges have been excluded on the basis that they represent non-cash
accounting charges. These balances can be
derived directly from amounts shown separately on the face of the condensed
consolidated interim statement of comprehensive
income.
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