REG - Telecom Plus PLC - Half-Year Results to 30 September 2023
21/11/2023 07:15
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RNS Number : 0549U Telecom Plus PLC 21 November 2023
21 November 2023
Telecom Plus PLC
Half-Year Results for the Six Months ended 30 September 2023
"Comfortably on track to double the size of our high quality customer base"
Telecom Plus PLC (trading as Utility Warehouse or UW), which supplies a wide
range of utility services focussed on domestic customers, today announces its
half-year results for the six months ended 30 September 2023.
Financial highlights
● Revenue up 57.1% to £883.6m (2022: £562.4m)
● Adjusted profit before taxation up 36.1% to £43.7m (2022: £32.1m)
● Statutory profit before taxation up 22.7% to £35.7m (2022: £29.1m)
● Borrowing facilities successfully refinanced
● Underlying net debt to EBITDA ratio (on a 12-month rolling basis) of
0.7x
● Interim dividend increased to 36p per share (2022: 34p)
Operating highlights
● The business continues to perform strongly against the backdrop of a
normalised energy market
● Further high-quality customer growth at an annualised rate of over
14%
● Customer numbers up by 62,601 to 949,180 (March 2023: 886,579)
● Total services supplied up by 170,698 to 2,968,846 (March 2023:
2,798,148)
● Deepened long-term E.ON relationship, opening up incremental growth
opportunities
● Expanded broadband service reach by incorporating CityFibre's
footprint into our proposition
Current trading & outlook
● Now in 5th consecutive half-year period of delivering comfortable
double-digit customer growth
● Macro-economic pressures continue to provide a favourable environment
for new Partner recruitment and engagement
● 7th largest energy supplier in the UK, consistently offering the
lowest-priced tariffs and with significant further organic growth potential
ahead: 97 out of every 100 UK households are with another supplier
● Looking forward to welcoming 1 millionth customer during H2
● Confident in meeting expectations for the full year, with an initial
£10m share buyback commencing in H2
Commenting on today's results, Stuart Burnett, Co-CEO said:
"We have consistently offered the lowest-priced energy tariffs in the UK for
over 2 years. Our unique multiservice model means we can continue to
sustainably beat the competition, and is the primary driver of our continued
rapid growth.
"We are fast approaching the 1m customer milestone, and our current rate of
growth places us firmly on track to double the size of the business by
welcoming a further million customers to UW over the medium term."
Andrew Lindsay, Co-CEO added:
"With no obvious end in sight for hard-pressed families across the country,
demand for our income opportunity remains high, and we are committed to
supporting all of our Partners to achieve their personal goals through UW.
"Over the past 24 months, the business has consistently delivered double-digit
growth in customers and profit: this ongoing strong performance reflects a
business that has never been in such good health in terms of its customer
proposition, its competitive position and the levels of engagement within its
Partner community."
There will be a virtual management presentation for analysts and investors
today starting at 09.00, accessible via https://brrmedia.news/TEP_HYR24
(https://brrmedia.news/TEP_HYR24) . An on-demand webcast version will be made
available for subsequent viewing at
https://telecomplus.co.uk/latest-results-and-annual-report
(https://telecomplus.co.uk/latest-results-and-annual-report) .
For more information please contact:
Telecom Plus PLC
Stuart Burnett, Co-CEO
020 8955
5000
Andrew Lindsay, Co-CEO
Nick Schoenfeld, CFO
Peel Hunt
Dan Webster / Andrew Clark
020 7418 8900
Deutsche Numis
Mark Lander / Joshua Hughes
020 7260 1000
For investor relations:
Julian Wais
07720 999764
jwais@uw.co.uk
For media relations:
Lansons Communications LLP
Tom Baldock / Ed Hooper
07860 101715 /
07783 387713
utilitywarehouse@lansons.com
About Telecom Plus PLC ("Telecom Plus"):
Telecom Plus, which owns and operates Utility Warehouse (UW), is the UK's
leading multiservice utility provider, offering bundled household services -
energy, broadband, mobile and insurance - through one account.
Customers benefit from the convenience of a single monthly bill, consistently
good value across all their utilities and exceptional service levels.
Customers sign up through a network of local UW Partners all across the
country. These Partners recommend UW's services to friends, family and people
they know by word-of-mouth. 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.
Introduction
The business has delivered uninterrupted growth in customer numbers for every
one of its 25+ years. This has been achieved in a broad spectrum of market and
macroeconomic conditions. We have delivered continued strong customer and
profit growth in the first half of this year, against a normalised competitive
market backdrop in which all other energy suppliers have reopened their doors
to new customers. This performance is clear evidence of the continuing
strength of our business model, and the sustainable double-digit customer
growth and earnings potential ahead.
We offer our customers a one-stop shop for their essential services, offering
competitive prices over the long term, and we pride ourselves on genuinely
helping our customers to stop wasting time and money on their household
bills.
Our unique multiservice customer proposition spans the energy, broadband,
mobile and insurance markets and allows our customers to bundle many of their
essential household services together with UW. As a result, we receive up to
four revenue streams from each of our customers but have just one single back
office supporting all the services we provide to them. This gives us an
inbuilt and enduring cost advantage that our competitors have been unable to
replicate and which we share with our customers year-on-year through lower
prices.
This long-term, fair pricing approach, enhanced by top-rated customer service
and the convenience of having one bill, one account, and one app to manage all
their household services, builds loyalty amongst our customers to our brand;
as a result, our typical homeowning customers display below-market rates of
churn and bad debt, further compounding our cost advantage.
The key to acquiring new multiservice customers is our unique and
hard-to-replicate word-of-mouth acquisition model. Over many years we have
built up a UK-wide community of some 65,000 Partners who are real advocates
for our proposition. They overcome the natural inertia that exists to
simultaneously switch multiple essential household services by personally
explaining to family, friends, work colleagues and acquaintances the
convenience of a single UW account for all their household services and the
long-term value we offer. This unique approach enables us to successfully
grow our multiservice customer base in a way that other customer acquisition
strategies cannot replicate.
H1 FY24 Overview
Despite competition returning to the energy market, the company has continued
to perform very strongly, clearly demonstrating the sustainability of its
business model to deliver strong organic growth in a normalised competitive
marketplace, giving us significant confidence in our continued and profitable
growth trajectory.
We were pleased to welcome over 62,500 additional customers to UW during the
first half, representing an annualised growth rate of over 14%. This takes
the total number of customers we supply to a record high of 949,180.
Continued strong multiservice take-up amongst new customers seeking to
maximise the savings that they can make on their household bills resulted in
the number of services we supply to our customers increasing by a further
170,698, to a total of 2,968,846.
Key to this growth has been our word-of-mouth route-to-market. Given the
continued pressure on household budgets due to high interest rates and rising
living costs, many have embraced our Partner opportunity as an alternative way
to earn a second income, and new Partner recruitment levels have remained
robust.
While high-quality growth remains a core focus for the business, we have also
prioritised supporting our customers and delivering for our people and on our
ESG objectives: we have increased support for vulnerable customers with the
opening of a dedicated energy prepayment customer service hub and we continue
to play our role in the transition to net zero, particularly through the smart
meter rollout.
Financial Results
Adjusted Statutory
Half year to 30 September 2023 2022 Change 2023 2022 Change
Revenue £883.6m £562.4m 57.1% £883.6m £562.4m 57.1%
Profit before tax £43.7m £32.1m 36.1% £35.7m £29.1m 22.7%
Basic earnings (per share) 38.8p 33.9p 14.5% 29.5p 30.5p (3.3)%
Interim dividend (per share) 36.0p 34.0p 5.9% 36.0p 34.0p 5.9%
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 £2.4m (2022: £0.7m), the loss for the period
attributable to the non-controlling interest of £Nil (2022: £0.3m), and the
amortisation of the intangible asset of £5.6m (2022: £5.6m) arising from
entering into the energy supply arrangements with E.ON (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 exclude 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 £43.7m (2022: £32.1m) on revenues of
£883.6m (2022: £562.4m) mainly due to the increase in the number of services
and higher energy prices year on year, particularly in the first quarter.
Adjusted earnings per share increased to 38.8p (2022: 33.9p). Statutory profit
before tax increased to £35.7m (2022: £29.1m), including energy supply
contract intangible amortisation of £5.6m (2022: £5.6m), and share incentive
scheme charges of £2.4m (2022: £0.7m).
We will be paying an increased interim dividend of 36p per share (2022: 34p)
on 15 December 2023 to shareholders on the register on 1 December 2023; the
Company's shares will go ex-dividend on 30 November 2023.
Revenues
The increase in revenue primarily reflects higher average energy prices
(particularly in the first quarter), combined with the increase in the number
of services we are supplying following a period of continued strong customer
growth.
Gross margin
Gross margin fell to 18.7% (2022: 19.9%), mainly reflecting the higher
proportion of revenues from supplying lower-margin energy services,
exacerbated by a higher energy price cap in Q1.
Costs
Distribution expenses increased to £25.4m (2022: £17.2m), reflecting the
higher levels of Partner commission, and Partner and customer incentives
during the period given continued strong growth.
Administrative expenses (excluding the amortisation of the energy supply
contract intangible and share incentive scheme charges) increased to £76.4m
(2022: £53.2m). This increase was mainly a result of higher staff and
technology costs to manage the double-digit growth in the customer base, and
higher call volumes, particularly in Q1, which are already abating.
As expected, the bad debt charge for the period increased to £18.8m (2022:
£8.5m) representing 2.1% of revenues (2022: 1.5%). This reflected increased
levels of customer non-payment arising from higher energy prices,
cost-of-living pressures, and the temporary moratorium on the installation of
prepayment meters under warrant. Ofgem is currently consulting on increasing
the bad debt allowance within the price cap given increased debt levels across
the energy industry.
Cash Flow and Borrowings
The operating cash outflow of £142.6m reflected the expected unwinding of
£121m of funds associated with the Government's energy support schemes that
were received in advance of the year end. In addition, there were one-off
timing differences relating to wholesale energy supply payments, and higher
corporation tax instalment payments. In H1 FY23 the operating cash inflow was
£78.6m, which mainly reflected the temporary early receipt of £48m of
Government funds for the Energy Bills Support Scheme. Capital expenditure of
£6.3m in the period (2022: £4.9m) related primarily to our ongoing
technology investment programme.
As expected, net debt (including lease liabilities) increased to £82.9m at
the period end (31 March 2023: net cash £103.4m). Underlying net debt to
EBITDA ratio (on a 12-month rolling basis) is 0.7x.
We are pleased to have refinanced the Company's borrowing facilities. The new
facilities comprise a continuation of our £175m RCF for a term of four years,
together with £75m of private placement debt with a maturity of 7 years, thus
diversifying our sources of capital. These new facilities will support the
growth plans of the Company.
Tax
Our effective tax rate for the first half was 34.6% (2022: 18.1%, being below
the underlying rate of corporation tax of 19% due mainly to the profit on
disposal of Glow Green and the tax deduction available from the exercise of
employee share options). The overall level during the current period was above
the underlying rate of UK corporation tax of 25% due mainly to the ongoing
amortisation charge on our energy supply contract intangible asset (which is
not an allowable deduction for tax purposes), and a movement in deferred tax.
Our Customers
We were pleased to extend the comfortable double-digit growth rate we have
been delivering for over two years now, by welcoming over 62,500 additional
customers to UW during the first half, representing an annualised growth rate
of over 14%.
H1 FY2023 H1
FY2024
FY2023
Residential 931,464 866,403 792,674
Small Business 17,716 20,176 22,010
Total 949,180 886,579 814,684
We continue to focus on driving high-quality customer growth and drive our
acquisition and product development strategies to achieve this, with
multiservice homeowners being our clearly defined primary target
demographic.
Our Services
We are pleased to have seen further strong growth across each of our
individual services during the period:
H1 FY2023 H1
FY2024
FY2023
Core services
Energy 1,606,509 1,522,350 1,388,932
Broadband 363,595 354,118 341,392
Mobile 424,114 394,145 364,062
Insurance 118,889 100,590 74,948
Other services
Cashback Card 434,588 405,118 364,960
Legacy services 21,151 21,827 22,958
Total 2,968,846 2,798,148 2,557,252
Energy services number includes both electricity (876,446) and gas (730,063)
supply points to maintain consistency with energy industry reporting
practices.
Energy
In July, UW was voted the Best Value for Money in the uSwitch 2023 Energy
awards, reflecting our continued ability to sustainably offer the
lowest-priced energy tariffs in the market to our multi-service customers - a
position we have consistently held for over 2 years. This is a key driver
behind the further healthy growth in energy services that we delivered in the
first half of the year.
This growth sits against a background of increasing market stability and
normalisation. The reduction in the energy price cap across the first half
of the calendar year, increasing wholesale price stability and the withdrawal
of 'energy-crisis-related' government and regulatory interventions prompted a
return of rational fixed price offers to the market by virtually all
suppliers, an environment in which we continue to thrive.
Our smart meter rollout continues at pace, with almost 50,000 installations in
the period and smart penetration exceeding 69% of our base, vs an industry
average of 59%. We continue to lobby the UK government to make smart meters
mandatory, which will facilitate the attainment of the full benefits from this
critical aspect of the nation's energy infrastructure and accelerate the vital
role smart meters are playing in the UK's net zero transition.
We were pleased to update our existing long-term energy supply contract with
E.ON during the period, ensuring the sustainability of the agreement over the
remaining 10-year term. We are excited by the greater flexibility this
provides us to develop and launch a wider range of energy products. In the
near term a broader set of attractively priced fixed tariffs to both the
residential and small business markets, and over the longer term fully
harnessing the significant opportunities that will emerge as the energy retail
market continues to evolve.
Broadband
Our broadband base showed further solid growth during the period, with over
30% of new customer orders opting for our full fibre service.
Following the CPI+ price rises that the main broadband providers imposed on
their customers earlier in the year, our competitive position has improved,
particularly in relation to the most popular entry-level fibre broadband
product. Further to this, we were pleased to expand our service reach by
incorporating CityFibre's footprint into our proposition in September and will
continue to ensure we can offer UW customers the high-speed, high quality
connectivity they want.
Mobile
Our mobile business surpassed 400,000 services during the period with ongoing
annualised growth of over 15%. Through our long-term MVNO (Mobile Virtual
Network Operator) relationship with EE we can offer our customers the most
complete geographic network coverage in the UK, and the most competitive
unlimited multi-SIM offering in the market. We remain committed to
maintaining a market-leading customer proposition as the market continues to
evolve.
Insurance
Our insurance business is performing strongly, delivering 36% annualised
policy growth, whilst helping to support the acquisition of multiservice
homeowners.
Price inflation in the wider home insurance market exceeded 25% in the year to
July 2023 and, as a result, a number of major players have exited the market.
In this environment, we are pleased to have successfully maintained our
competitive panel, continued to scale our policy book and kept our home
insurance renewal rate during the period at over 90%.
Our Boiler & Home Cover book has been steadily migrating into UWI (our
in-house insurer) over the 12-month renewal cycle. As of the end of September,
52% of our Boiler & Home Cover book was underwritten within UWI, with the
remainder expected to be migrated by the end of FY24.
In addition to successfully completing its first six months of trading, UWI
has secured favourable reinsurance terms and received regulatory approval for
its prudent reinsurance approach, enabling us to start selectively
underwriting individual home insurance policies. This is an important step
in our strategy to significantly accelerate growth of our insurance business
from FY25 onwards.
A unique word-of-mouth route to market that is hard to replicate
Our word-of-mouth approach is the key that unlocks our ability to consistently
acquire multiservice customers, which in turn delivers our sustainable cost
advantage.
By personally explaining to family, friends and acquaintances the convenience
of a single UW account for all their household services and the long-term
value UW offers, our Partners overcome the natural inertia that exists to
simultaneously switch multiple essential household services. This unique
word-of-mouth approach enables us to successfully grow our multiservice
customer base in a way that other customer acquisition strategies cannot
replicate.
Our 25+ year track record of providing second incomes to thousands of Partners
in the UK, our strong culture of recognition and celebration, and the
market-leading competitive positioning of our multiservice bundles, mean we
provide an attractive opportunity for those who seek to work flexibly around
other commitments.
The rising cost of living, in particular the significant increases that many
homeowners face in their monthly mortgage costs, is causing more and more
people to seek an additional income; with new Partner recruitment running over
40% higher than the equivalent period last year. With no obvious end in
sight for hard-pressed families across the country, we expect that demand for
our income opportunity will remain high, and we remain committed to helping
our Partners achieve their personal goals through UW.
Investing in Customer Service
Genuinely supporting and looking after our customers is fundamental to our
word-of-mouth route to market, and our customer service and operations teams
are highly focused on earning the personal recommendations of our customers
and Partners.
We prioritise investing in initiatives that really deliver on our goal of
helping UW customers stop wasting time and money, with a key focus on digital
self-service and resolving customer queries the first time a customer calls
us. Since the start of the financial year, we significantly improved our
customer support capability by introducing 'one-way' video, allowing our
advisors to understand and resolve energy and broadband queries faster by
enabling them to see the problem first hand. We also increased support for
our vulnerable customers with the opening of a dedicated energy prepayment
customer service hub in Selkirk, Scotland in June, where we now have over 65
colleagues trained to provide support to those in greatest need.
Our UW colleagues are key to supporting our customers, and we continue to
invest in the integrated Customer Relationship Management systems our teams
use to look after our multiservice customers so they can provide the highest
levels of customer service with the least effort.
Our People
A key business priority this year is to evolve our distinct culture to help
attract, develop and keep great people. We've made huge progress during the
first half of the year by codifying our culture and articulating the way we do
things at UW, and we are excited to have moved to implementation as the second
half begins.
We continue to invest in our people leaders by equipping them with the right
skills and tools to effectively lead our teams: from our leadership
fundamentals programme through to coaching and team effectiveness training.
We're already seeing the impact of this, with our leadership engagement score
above target at 81%.
Similarly, ensuring that our customer-facing teams have everything they need
to fully support our customers is a core focus. During the period, we
introduced a new workforce management system which allows us to better predict
call volumes and resource requirements. This has enabled us to decrease the
number of people required to work on Saturdays, introduce a holiday guarantee
policy, and give our call-taking teams greater autonomy over their scheduled
breaks and the ability to swap shifts. Making life easier for our colleagues
by providing them with greater flexibility, easy-to-use systems, a better
working environment, and the support they need to build careers with UW
remains a key priority as we continue to grow.
Our ESG Progress
We are committed to achieving our target of net zero Greenhouse Gas emissions
on or before 2050 across Scope 1, 2 and 3. We have set an interim target to
reduce these emissions by 63% by 2035 and are working towards achieving these
targets. In addition, we are committed to obtaining validation of our targets
by the Science Based Targets Initiative (SBTi).
As the UK energy retail market evolves and continues its transition to net
zero, it is clear there will be significant opportunities for us. To fully
realise these, our updated supply contract with E.ON provides a framework for
us to refresh our green customer product offering and develop innovative 'time
of use' tariffs (suitable for EV charging and home generation and storage).
To support vulnerable customers as the increased cost of living continues to
impact families across the UK, we have started to deploy the UW-funded
hardship fund nationwide (including customers of other suppliers), through our
partnership with Citizen Advice Plymouth.
We have continued to progress our Diversity and Inclusion (D&I) agenda.
This year, we have formally launched our new Belonging Networks including
Menopause, Carers, Pride and Women in Leadership networks. These provide
peer-to-peer support and help to inform our People policy and agenda.
Dividend & Capital Allocation
The Company continues to be highly cash-generative whilst delivering strong,
sustainable growth. Our amended capital allocation policy is to return surplus
cash to shareholders through share buybacks, after funding organic growth,
while modestly growing our current dividend and maintaining an appropriate
level of gearing.
As a result, the Board is increasing the interim dividend by 5.9% to 36p, and
expects to spend up to £10m on buying back shares in the Company during H2.
Board changes
After 16 years with the company Andrew Lindsay has informed the Board of his
plan to step down as Co-CEO and from the Board. The current Co-CEO structure
that has been in place for the past two years means there is a clear
succession path, and Stuart Burnett will assume overall responsibility for the
business as sole CEO from the AGM next summer.
Andrew will remain with the business on a part time basis over the medium
term, with a focus on supporting and further growing our Partner community.
Outlook
We are now into our 5th consecutive half-year period of delivering comfortable
double-digit customer growth, clearly demonstrating the long-term
sustainability of our current growth trajectory. We anticipate passing the 1
million customer milestone during the second half of the year, and are
confident that we will meet expectations for the full year.
The UK energy retail market landscape now looks remarkably similar to the
competitive landscape which existed prior to 2014 when there were 6 large
suppliers holding over 90% market share. Once again, all of the remaining
suppliers are pricing rationally and, as a result, making low margin returns
in line with the Ofgem price cap. What limited innovation there is primarily
revolves around niche tariffs relating to the nascent energy transition.
In contrast, our differentiated multiservice customer proposition continues to
give us a unique and enduring cost advantage that enables us to consistently
price competitively across our four core markets, and is pivotal to our
ongoing success.
The key to unlocking our multiservice cost advantage is our word-of-mouth
route to market, and with no end in sight to the financial pressure being felt
by UK households, our ability to offer hard pressed people a meaningful second
income for recommending our multiservice customer proposition to people they
know provides further support for our strong organic customer growth rate.
As we approach the next phase of our growth, scaling the business from 1
million to 2 million customers, the business has never been in better health.
It has a unique customer proposition and strong competitive position, and
there is heightened demand from households seeking to earn an additional
income as UW Partners. We also have a strong UW team - from our geographically
distributed UK workforce to our enhanced leadership. With just 3% market
share, the growth opportunity in front of us remains significant: we can
double the size of the business yet still remain only the 7th largest supplier
in the UK.
This ongoing momentum gives us increasing confidence in achieving our
medium-term target of welcoming a further million customers to UW, and in
doing so more than doubling the profits and cash generated by the business.
Given on behalf of the Board
ANDREW LINDSAY STUART BURNETT NICK SCHOENFELD
Co-Chief Executive Co-Chief Executive Chief Financial Officer
21 November 2023
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 and Risk 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. The Group has a dedicated information security
team which provides governance and oversight ensuring the confidentiality,
availability and integrity of the Group's systems and operations whilst
ensuring that any risks and vulnerabilities that arise are managed and
mitigated.
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 privacy, information security, cyber security and fraud 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
data privacy and information/cyber 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, data and cyber security risks are overseen by the Group's
Information Security and Legal & Compliance teams.
Fraud has the potential to impact the Group from a financial, regulatory and
reputational perspective. To mitigate and control the risk of fraud the Group
actively investigates and reports on fraud activity and trends to our industry
partners, and ensures that effective controls are implemented. The Group has
further enhanced its monitoring and controls to deal with new and emerging
risks, for example from the increase in the cost of living, by bolstering its
specialised Fraud team. Fraud risks are overseen by the Group's Fraud team
which sits within Legal & Compliance.
Legislative and regulatory risk
The Group is subject to various laws and regulations. The energy,
telecommunications 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 could
potentially lead to a significant impact on the sector, and the net profit
margins available to energy suppliers. The pace and extent of regulatory
change continues to be more substantial than in previous years. In addition to
the industry-wide programmes of work, such as the continuing rollout of smart
meters, and a growing range of environmental and social obligations, Ofgem has
been implementing a special package of reform measures. These specific reforms
emerged in response to the 'energy crisis': the period since the autumn 2021
associated with high wholesale energy costs, supplier failures and a
consolidation of competition. The reforms cover development of the price cap,
intensive assessment of suppliers' financial resilience and compliance
performance, and temporary interventions 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 telecommunications 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 effective this calendar 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 and has
recently become authorised for insurance underwriting in Gibraltar by the
Gibraltar Financial Services Commission ("GFSC"). If the Group fails to comply
with FCA/GFSC 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
FCA's new Consumer Duty 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 Energy Security and Net Zero ("DESNZ"), the FCA and the GFSC. 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, such as the Digital Markets,
Competition and Consumers Bill which is being monitored. Political and
regulatory developments affecting the energy and telecommunications 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 compliance 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
Whilst the Group's focus on multiservice home-owners acts as a mitigating
factor against bad debt, 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 E.ON (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, and certain other associated supply costs is set by
reference to the Ofgem published energy price cap, 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.
Underwriting risk
Whilst operating our own in-house insurer will require taking on some
underwriting risk, we will largely mitigate these risks through: (i) migrating
highly predictable existing lines of business, for which we have several years
of trading history, and have already achieved sufficient scale to maintain low
volatility and predictable returns; (ii) targeting conservative returns on
capital through a risk-averse investment strategy; (iii) where appropriate,
using conservative levels of reinsurance, including protection for catastrophe
risks such as storm, flood and freeze; (iv) using real-time and proprietary
data, such that we are aware of all risks incepted in real time, and are able
to price risks accurately, and manage overall portfolio exposure; and (v)
maintaining and growing our existing home insurance panel, such that our
in-house insurer can selectively target risk profiles that are suitable for
our balance sheet (e.g. houses with lower rebuild cost and not adversely
exposed to catastrophe (CAT) perils).
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.
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
greenhouse gas 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
impacts government decision-making, consumer demand and supply chains.
Development of climate-related policy and regulatory change as well as shifts
in consumer sentiment could impact on the Group's ability to achieve its
financial goals and result in increased compliance costs or reputational
damage.
In recognition of this, climate change risk is integrated into the Group's
risk management framework. Climate change is designated as a standalone
principal risk for the business and the Legal & Compliance Director is
assigned as the owner for managing this risk. It is designated as a controlled
risk due to the Group's agile reseller business model which means the business
is strategically resilient as it is able to respond quickly to climate change
developments and is insulated from more severe physical risks. The risk is
further mitigated through the Group's approach to understanding and monitoring
the developments and the impacts from climate change. The ESG Strategy
Committee, consisting of co-CEOs, CFO, Company Secretary, Executive Leadership
Team and senior management is updated by the ESG Working Group on climate
issues. Climate issues are then assessed and used to inform the Group's
strategy as needed. We have a dedicated Head of Sustainability and continue
to use external specialists as needed.
The Group is committed to achieving net zero greenhouse gas emissions. In line
with our commitment to develop a detailed net zero transition plan and carbon
target plan in FY23 we evaluated our emissions and target against recognised
standards including Science Based Targets initiative ("SBTi") Corporate net
zero Standard, the gold standard framework for emissions target-setting. We
modelled our emissions trajectory and used credible assumptions on external
factors that, as a reseller, will strongly influence the Group's
decarbonisation ability including our key suppliers' decarbonisation plans and
the UK government's published projections about the decarbonisation trajectory
of the UK energy grid. We have adjusted our target to be Net Zero on or before
2050, across scopes 1,2 and 3 to allow us to implement a credible
science-based plan by aligning with the UK government and our key suppliers.
We will use an FY22 emissions baseline, and we will set an interim target to
reduce emissions by 63% across Scopes 1, 2, and 3 by 2035. The Group will have
its targets validated by the SBTi, the leading body on emissions target
setting. Once targets are validated to SBTi we will begin tracking and
disclosing progress against them.
The Group is committed to continuing to implement the recommendations of the
Task Force on Climate-related Financial Disclosures ("TCFD").
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.
As at 30 September 2023 the Group had 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 2025. As at 30 September 2023, £120.0 million of
this facility was drawn down and the Company had a cash balance of £37.2
million. Since the period end the Group has extended the term of its £175.0m
revolving credit facilities to 17 November 2027, and entered into £75m of
private placement debt with a maturity of 7 years.
Under the Group's energy supply arrangements, the Group benefits from its
relationship with E.ON 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 2023, 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 2023 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 2023 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
21 November 2023
Condensed Consolidated Interim Statement of Comprehensive Income
Note 6 months ended 30 September 2023 (unaudited) 6 months ended 30 September 2022 (unaudited) Year
£'000 £'000 ended
31 March 2023 (audited)
£'000
Revenue 883,631 562,431 2,475,160
Cost of sales (718,583) (450,777) (2,168,964)
Gross profit 165,048 111,654 306,196
Distribution expenses (25,358) (17,175) (49,692)
Administrative expenses (76,379) (53,175) (129,014)
Share incentive scheme charges (2,373) (741) (2,849)
Amortisation of energy supply contract intangible 5 (5,614) (5,614) (11,228)
Total administrative expenses (84,366) (59,530) (143,091)
Impairment loss on trade receivables (18,759) (8,467) (28,675)
Other income 645 648 1,156
Operating profit 37,210 27,130 85,894
Financial income 1,592 143 1,016
Financial expenses (3,087) (1,764) (5,051)
Net financial expense (1,495) (1,621) (4,035)
Profit on disposal of subsidiaries - 3,595 3,595
Profit before taxation 35,715 29,104 85,454
Taxation (12,348) (5,271) (17,293)
Profit for the period 23,367 23,833 68,161
Profit and other comprehensive income for the period attributable to owners of 23,367 24,098 68,426
the parent
Loss for the period attributable to non-controlling interest - (265) (265)
Profit for the period 23,367 23,833 68,161
Basic earnings per share 9 29.5p 30.5p 86.6p
Diluted earnings per share 9 29.1p 30.0p 85.2p
Interim dividend per share 36.0p 34.0p -
Condensed Consolidated Interim Balance Sheet
As at As at
30 September
31 March
2023 As at
2023
(unaudited)
30 September
(audited)
2022
(unaudited)
Assets Note £'000 £'000 £'000
Non-current assets
Property, plant and equipment 24,534 26,056 25,816
Investment property 4 8,158 8,385 8,271
Intangible assets 5 139,341 147,306 142,491
Goodwill 3,742 3,742 3,742
Other non-current assets 53,324 36,258 47,529
Total non-current assets 229,099 221,747 227,849
Current assets
Inventories 4,759 3,714 5,698
Trade and other receivables 72,238 51,955 58,863
Current tax receivable 4,987 2,110 3,083
Accrued income 113,935 129,861 267,576
Prepayments 14,080 7,397 16,954
Costs to obtain contracts 22,392 19,487 20,912
Cash 37,220 80,632 193,804
Total current assets 269,611 295,156 566,890
Total assets 498,710 516,903 794,739
Current liabilities
Trade and other payables (61,696) (86,161) (55,396)
Accrued expenses and deferred income (94,301) (119,644) (417,354)
Total current liabilities (155,997) (205,805) (472,750)
Non-current liabilities
Long term borrowings 6 (119,491) (99,513) (89,721)
Lease liabilities (584) (713) (659)
Deferred tax (2,025) (756) (901)
Total non-current liabilities (122,100) (100,982) (91,281)
Total assets less total liabilities 220,613 210,116 230,708
Equity
Share capital 4,006 3,998 4,003
Share premium 151,253 149,581 150,652
Capital redemption reserve 107 107 107
Treasury shares (5,502) (5,502) (5,502)
JSOP reserve (1,150) (1,150) (1,150)
Retained earnings 71,899 63,082 82,598
Total equity 220,613 210,116 230,708
Condensed Consolidated Interim Cash Flow Statement
6 months Year
ended
ended
Note
30 September 6 months
31 March
2023
ended
2023
(unaudited)
30 September
(audited)
2022
(unaudited)
£'000 £'000 £'000
Operating activities
Profit before taxation 35,715 29,104 85,454
Adjustments for:
Net financial expense 1,495 1,621 4,035
(Profit)/ Loss on disposal of subsidiaries - (3,595) (3,595)
Depreciation of property, plant and equipment 1,743 1,720 3,968
Profit on disposal of fixed assets - (56) (85)
Amortisation of intangible assets 5 9,118 8,461 17,407
Amortisation of debt arrangement fees 119 298 506
Decrease/(increase) in inventories 939 438 (1,546)
Decrease/(increase) in trade and other receivables 135,781 (9,504) (176,146)
(Decrease)/increase in trade and other payables (316,722) 57,170 323,974
Share incentive scheme charges 2,373 741 2,849
Corporation tax paid (13,124) (7,749) (20,605)
Net cash flow from operating activities (142,563) 78,649 236,216
Investing activities
Purchase of property, plant and equipment (348) (1,580) (3,535)
Purchase of intangible assets 5 (5,968) (3,349) (7,480)
Disposal of property, plant and equipment - 62 91
Cash held in subsidiaries at disposal - (596) (596)
Interest received 1,676 143 847
Cash flow from investing activities (4,640) (5,320) (10,673)
Financing activities
Dividends paid 7 (36,445) (23,689) (50,601)
Interest paid (3,106) (1,754) (4,934)
Interest paid on lease liabilities (9) (10) (17)
Drawdown of long-term borrowing facilities 30,000 15,000 55,000
Repayment of long-term borrowing facilities - (15,000) (65,000)
Fees associated with borrowing facilities (350) - -
Repayment of lease liabilities (75) (88) (107)
Issue of new ordinary shares 8 604 2,485 3,561
Cash flow from financing activities (9,381) (23,056) (62,098)
Increase/(decrease) in cash and cash equivalents (156,584) 50,273 163,445
Net cash and cash equivalents at the beginning of the year 193,804 30,359 30,359
Net cash and cash equivalents at the year end 37,220 80,632 193,804
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 2022 3,982 147,112 107 (5,502) (1,150) 61,935 (911) 205,573
- - - - - 24,098 (265) 23,833
Profit and total comprehensive income for the period
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
Balance at 1 October 2022 3,998 149,581 107 (5,502) (1,150) 63,082 - 210,116
- - - - - 44,328 - 44,328
Profit and total comprehensive income for the period
Dividends - - - - - (26,912) - (26,912)
Credit arising on share options - - - - - 2,108 - 2,108
Deferred tax on share options - - - - - (17) - (17)
Retained earnings tax adjustments - - - - - 9 - 9
Issue of new ordinary shares 5 1,071 - - - - - 1,076
Balance at 31 March 2023 4,003 150,652 107 (5,502) (1,150) 82,598 - 230,708
Balance at 1 April 2023 4,003 150,652 107 (5,502) (1,150) 82,598 - 230,708
- - - - - 23,367 - 23,367
Profit and total comprehensive income for the period
Dividends - - - - - (36,445) - (36,445)
Credit arising on share options - - - - - 2,373 - 2,373
Deferred tax on share options - - - - - (5) - (5)
Retained earnings tax adjustments - - - - - 11 - 11
Issue of new ordinary shares 3 601 - - - - - 604
Balance at 30 September 2023 4,006 151,253 107 (5,502) (1,150) 71,899 - 220,613
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
2023, and are consistent with those that the Company expects to apply in its
financial statements for the year ended 31 March 2024. The Company is in the
process of implementing IFRS 17: Insurance Contracts and evaluating the full
year financial impacts, including presentational and disclosure changes. For
the Condensed Interim Financial Statements these changes have been assessed as
not material.
The condensed consolidated financial statements for the year ended 31 March
2023 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 2023 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 2023 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 2023 and 30 September 2022 is unaudited but
has been subject to a review by the Company's auditor.
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 21
November 2023.
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 2023.
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 E.ON (formerly npower)
in December 2013; this decision reflects both the relative size and non-cash
nature of these charges. In FY23 adjusted profit before tax also excludes the
Group profit on disposal of Glow Green reflecting the one-off non-operating
nature of this item.
6 months ended 30 September 2023 (unaudited) 6 months ended 30 September 2022 (unaudited) Year ended 31 March 2023 (audited)
£'000 £'000 £'000
Statutory profit before tax 35,715 29,104 85,454
Adjusted for:
Loss for period attributable to non-controlling interest - 265 265
Amortisation of energy supply contract intangible assets 5,614 5,614 11,228
Share incentive scheme charges 2,373 741 2,849
Profit on disposal of subsidiary - (3,595) (3,595)
Adjusted profit before tax 43,702 32,129 96,201
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 operation of the Company were transferred into new head offices
at Merit House in 2015 and the former head office building, Southon House, was
vacated. Southon House is held as an investment property and separately
disclosed on the balance sheet of the Company.
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.
The directors believe that there have not been any material changes in
circumstances that would lead to a significant reduction in the market
valuation of Southon House from £11.9m.
5. Intangible assets
Energy Supply Contract IT Software & Web Development
Total
£'000 £'000 £'000
Cost
At 31 March 2023 224,563 43,224 267,787
Additions - 5,968 5,968
At 30 September 2023 224,563 49,192 273,755
Amortisation
At 31 March 2023 (104,795) (20,501) (125,296)
Charge for the period (5,614) (3,504) (9,118)
At 30 September 2023 (110,409) (24,005) (134,414)
Net book amounts
At 30 September 2023 (unaudited) 114,154 25,187 139,341
At 31 March 2023 (audited) 119,768 22,723 142,491
At 30 September 2022 (unaudited) 125,382 21,924 147,306
The Energy Supply Contract intangible asset relates to the entering into of
the energy supply arrangements with E.ON (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 2023 (unaudited) 6 months ended 30 September 2022 (unaudited)
Year ended 31 March 2023 (audited)
£'000 £'000 £'000
Bank loans 120,000 100,000 90,000
Unamortised loan arrangement fees (509) (487) (279)
119,491 99,513 89,721
Due within one year - - -
Due after one year 120,000 100,000 90,000
120,000 100,000 90,000
7. Dividends
6 months 6 months Year
ended
ended
ended
30 September
30 September
31 March
2023
2022
2023
(unaudited)
(unaudited)
(audited)
£'000 £'000 £'000
Final dividend for the year ended 31 March 2023 of 46p per share 36,445 - -
Final dividend for the year ended 31 March 2022 of 30p per share - 23,689 23,689
Interim dividend for the year ended 31 March 2023 of 34p per share (2022: 27p) - - 26,912
An interim dividend of 36.0p per share will be paid on 15 December 2023 to
shareholders on the register at close of business on 1 December 2023. The
estimated amount of this dividend to be paid is approximately £28.5m and, in
accordance with IFRS accounting requirements, has not been recognised in these
accounts.
8. Share capital
During the period the Company issued 54,094 new ordinary shares to satisfy the
exercise of employee and distributor share options.
9. Earnings per share
The calculation of basic and diluted earnings per share ("EPS") is based on
the following data:
6 months 6 months Year
ended
ended
ended
30 September
30 September
31 March
2023
2022
2023
(unaudited)
(unaudited)
(audited)
£'000 £'000 £'000
Earnings for the purpose of basic and diluted EPS 23,367 24,098 68,426
Share incentive scheme charges (net of tax) 1,797 616 2,346
Amortisation of energy supply contract intangible assets 5,614 5,614 11,228
Profit on disposal of subsidiaries - (3,595) (3,595)
Earnings for the purpose of adjusted basic and diluted EPS 30,778 26,733 78,405
Number Number Number
('000s) ('000s) ('000s)
Weighted average number of ordinary shares for the purpose of basic EPS 79,229 78,940 79,049
Effect of dilutive potential ordinary shares (share incentive awards) 1,045 1,261 1,220
Weighted average number of ordinary shares for the purpose of diluted EPS 80,274 80,201 80,269
Adjusted basic EPS(1) 38.8p 33.9p 99.2p
Basic EPS 29.5p 30.5p 86.6p
Adjusted diluted EPS(1) 38.3p 33.3p 97.7p
Diluted EPS 29.1p 30.0p 85.2p
(1) 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 E.ON (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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