TIDMTEP
RNS Number : 5327C
Telecom Plus PLC
18 June 2019
18 June 2019
Telecom Plus PLC
Final Results for the year ended 31 March 2019
Telecom Plus PLC (trading as the Utility Warehouse), the UK's
only fully integrated provider of a wide range of competitively
priced utility services spanning both the communications and energy
markets, today announces its final results for the year ended 31
March 2019.
Financial Highlights:
-- Results in line with expectations
-- Revenue up 1.5% to GBP804.4m
-- Adjusted profit before tax up 3.7% to GBP56.3m
-- Statutory profit before tax up 4.9% to GBP43.0m
-- Adjusted EPS up 7.1% to 59.0p
-- Statutory EPS up 9.5% to 42.5p
-- Full year dividend up 4.0% to 52p per share
Operating Highlights:
-- Significantly faster growth in both customers and Partners
-- Services supplied up 8.2% to over 2.5 million
-- Rising customer quality, with over 26% now taking their
energy, broadband and mobile services from us
-- Improved energy supply arrangements successfully negotiated with npower
Andrew Lindsay, CEO, commented:
"Partner confidence built steadily during the course of the
year; this manifested itself in higher levels of activity and an
acceleration in the numbers of new Partners joining the business,
which in turn drove faster growth in both customer and service
numbers.
"Our balance sheet remains robust, with low leverage and strong
cash flow. In contrast to the majority of other energy suppliers,
this puts us in a strong position to take advantage of a
challenging retail marketplace.
"In an environment in which record numbers of households are
switching energy suppliers, our churn rate has fallen, reflecting
the improving quality of our customer base; over 26% of our members
now take all their core utilities from us and this important metric
continues to increase steadily each month.
"The combination of higher Partner confidence, our continuing
steady growth, and improving gross margins means we expect adjusted
profits before tax to increase to between GBP60m - GBP65m for
FY2020, with a commensurate 10% increase in the total dividend to
57p per share."
There will be a meeting for analysts today at the offices of
Peel Hunt, Moor House, 120 London Wall, London, EC2Y 5ET at 8.45
for 9.00am
For more information please contact:
Telecom Plus PLC
Andrew Lindsay, CEO 020 8955 5000
Nick Schoenfeld, CFO
Peel Hunt
Dan Webster / George Sellar 020 7418 8900
JP Morgan Cazenove
Christopher Wood / Hugo Baring 020 7742 4000
MHP Communications
Reg Hoare / Katie Hunt / Florence Mayo 020 3128 8572
About Telecom Plus PLC ('Telecom Plus'):
www.utilitywarehouse.co.uk
Telecom Plus, which owns and operates the Utility Warehouse
brand, is the UK's only fully
integrated provider of a wide range of competitively priced
utility services spanning the
Communications, Energy and Insurance markets.
Members benefit from the convenience of a single monthly
statement, consistently good value
across all their utilities and exceptional levels of service.
Telecom Plus does not advertise,
relying instead on 'word of mouth' recommendation by existing
satisfied Members and Partners
in order to grow its market share.
Telecom Plus is listed on the London Stock Exchange (Ticker: TEP
LN). For further information
please visit www.utilitywarehouse.co.uk
Chairman's Statement
I am pleased to report a highly satisfactory year for the
Company, in which we achieved meaningfully faster growth and an
improved operating performance in the face of challenging market
conditions.
Adjusted pre-tax profits increased by 3.7% to GBP56.3m (2018:
GBP54.3m), and statutory pre-tax profits advanced by 4.9% to
GBP43.0m (2018: GBP41.0m), on revenue up by 1.5% to GBP804.4m
(2018: GBP792.9m); adjusted earnings per share for the year rose by
7.1% to 59.0p (2018: 55.1p), and statutory EPS increased by 9.5% to
42.5p (2018: 38.8p).
We saw customer and service number growth accelerate during the
course of the year, notwithstanding a significant continuing gap
between the low introductory fixed price energy deals available
from other independent suppliers, and the standard variable tariffs
("SVTs") charged by the 'Big 6' (which we use as the basis for our
own range of discounted retail tariffs).
Against this backdrop, the faster growth and higher
profitability we have achieved clearly demonstrates the resilience
and strength of our unique business model. Customer numbers for the
year advanced by 4.0% (2018: 0.5%) to 635,039 (2018: 610,739) and
service numbers advanced by 8.2% (2018: 2.3%) to 2,532,024 (2018:
2,340,719) reflecting a further improvement in the quality of our
customer base.
We received a number of awards during the year recognising both
the value we offer and the quality of service provided by our
UK-based membership support teams, including being ranked by
independent consumer champions Which? as one of the top suppliers
and/or as a recommended provider for all our core services; we also
received five awards from Moneywise.
We were particularly delighted to receive the prestigious
accolade of 'Utilities Provider of the Year' at the 2018 Which?
Annual Awards. Whilst each of our core services has been recognised
individually by them on many occasions as amongst the best in the
market, this was the first time that our unique multi-utility brand
and the excellence we deliver across the board has been recognised
in this way.
These third party independent and prestigious endorsements are
testament to our customer-centric approach, our commitment to
treating our Members fairly, our ongoing mission to be the Nation's
most trusted utility provider, and the significant resources
invested in delivering the best possible customer service.
Results overview
The modest rise in revenue reflects a number of factors; the
increase in the total number of services we are supplying,
partially offset by a growing proportion of Members benefitting
from our most competitive 'Double Gold' tariffs, a reduction in
average energy usage (reflecting the progressive impact of
industry-wide energy efficiency measures enhanced by our successful
LED light bulb replacement service, more efficient boilers and
appliances, and an unusually warm winter), and the impact of the
Ofgem price cap during the final quarter.
The small improvement in adjusted pre-tax profit also reflects a
number of different factors; slower organic growth in the size of
our membership base during the preceding year, improved commercial
terms from our wholesale partners, and some early benefits from our
smart meter roll-out programme, partially offset by growth in our
customer support teams, a warmer winter, and increased investment
in technology and systems.
Dividend
In line with previous guidance, we are proposing a final
dividend of 27p (2018: 26p), bringing the total for the year to 52p
(2018: 50p); this represents an increase of 4.0% compared with last
year, and will be paid on 2 August 2019 to shareholders on the
register at the close of business on 12 July 2019 subject to
approval by shareholders at the Company's AGM which will be held on
25 July 2019.
We remain committed to a progressive dividend policy consistent
with the underlying strong cash generation of our business. As
previously indicated, and in the absence of unforeseen
circumstances, this will result in an increase of around 10% in the
total dividend to 57p per share for the current year.
Churn
Our churn remains significantly below prevailing industry levels
despite record numbers of households switching their energy
supplier (encouraged inter alia by government, press, and Ofgem).
We attribute this to a combination of factors including our fair
approach to pricing, high standards of customer service, unique
route to market, and the steadily improving quality of our
membership base, partially offset by the continuing large gap
between SVTs and the introductory deals offered by a number of
energy suppliers.
Ofgem Energy Price Cap
The Ofgem energy price cap ("the Price Cap") took effect on 1
January 2019, and the consequent reduction in SVTs (paid
predominantly by millions of disengaged households) of around GBP75
led to a brief narrowing of the gap between the price they were
paying and the introductory fixed price deals available to those
who choose to switch supplier on a regular basis ("the Gap").
Higher wholesale costs during the autumn and early winter
resulted in an increase of around GBP115 to the Price Cap on 1
April 2019. This rise coincided with a more recent period of
falling commodity prices during the late winter and spring, and as
a result, the Gap has now widened to over GBP300.
These lower recent commodity costs mean that the Price Cap is
expected to fall again at the next review point on 1 October 2019.
The forecast reduction of about GBP75 will take SVTs back to below
the level they were at just prior to the introduction of the Price
Cap in January, thus significantly narrowing the current Gap.
Overall, and notwithstanding these fluctuations, we believe that
the Price Cap has created a fairer energy market than before, to
the benefit of millions of disengaged households. This is evidenced
by the significant negative impact being reported by the 'Big 6' on
the profitability of their UK domestic supply businesses.
We remain sheltered from the full impact of the Price Cap under
our wholesale supply arrangements with npower, and are encouraged
by the modest improvement in our competitive position which it has
created.
Our Route to Market - Partners
Our Partners can create real financial security for themselves
and their families by using their spare time to sign up new Members
and introduce our business opportunity to other like-minded people;
by doing so, they receive meaningful short-term financial rewards
combined with a long-term residual income.
This route to market gives us a significant competitive
advantage, enabling us to target high quality customers who in many
cases have never previously switched their supplier(s), by
effectively communicating the savings, simplicity and service of
our multi-utility retail proposition.
We are totally committed to helping our network of over 40,000
Partners build successful independent businesses. Action taken
during the year in pursuance of this goal included improving the
digital tools we provide to them, enriching the training and
personal development programmes that we run for them, enhancing the
compensation plan, and introducing a wider selection of short and
medium-term incentives to motivate them to greater levels of
activity.
We are encouraged by the acceleration in the number of new
Partners signing up to the opportunity, with the recent level
having stabilised at around 1,000 per month.
Business Development
Insurance
We continue to make good progress in gathering Home Insurance
renewal dates from our members, with around 125,000 (2018: 60,000)
having been collected by the end of March. Total policies grew to
around 14,500 (2018: 4,700) with a quote conversion rate of around
30%; a key priority over the course of the current year is
therefore to continue strengthening our panel of insurers in order
to make our proposition more competitive across a wider range of
risk profiles.
We are very pleased that our 'consistently low price' approach
to setting premiums has led to average renewal rates in excess of
95%: this approach is unusual within the insurance market, and in
many cases Members are seeing the cost of their insurance fall when
their UW home insurance policy comes up for renewal.
It is highly encouraging that our Home Insurance business is
already profitable, and we remain confident it will make a material
contribution to the financial performance of the group in due
course.
We extended our Insurance proposition by launching Boiler &
Home Cover in March 2019; this has been designed primarily as a
customer acquisition and retention tool, rather than as a further
profit centre. It offers market leading cover at a highly
competitive monthly premium, combined with a unique 10% discount on
the cost of any gas we supply to them whilst they maintain their
policy with us.
Energy
The energy market is now polarised between the 'Big 6', who have
largely remained profitable at the expense of seeing their market
share continue to decline, and a significant number of independent
suppliers, who are growing their customer numbers whilst incurring
substantial losses.
We find it difficult to understand how this multitude of
sub-scale competitors can develop viable long-term businesses,
given their similar wholesale cost structure and distribution
channels (focussed on lowest-price retail propositions), rising
administration costs as they become more mature, and inevitable
high levels of churn (as customers who had chosen to switch to them
based predominantly on price, actively search the market for
further savings as soon as they reach the end of their introductory
fixed-price period). It is therefore unsurprising that 14 such
suppliers have experienced acute financial difficulties and ceased
trading since January 2018.
Against this background, we continue to develop the significant
niche we have identified, providing consistently fair and
sustainable pricing combined with a unique range of other benefits,
to a steadily growing customer base.
Amongst the unique benefits we offer is our innovative free LED
light bulb replacement service, which we are currently delivering
to around 3,000 households each month. By reducing household
electricity usage, this benefit offers our customers real long term
savings as opposed to short lived introductory discounts, and
significantly strengthens our green credentials as a major energy
supplier.
Improved Energy Supply Arrangements
We announced in our recent trading update on 17 April 2019 that
we had successfully negotiated a number of changes to our wholesale
energy supply arrangements with npower, including:
-- An overall modest improvement to the commercial terms,
including a small increase in the level of discount we receive;
-- The ability for us to switch from our current 'retail-minus'
wholesale pricing structure onto industry standard wholesale supply
arrangements (either with npower or an alternative counterparty)
from 1 April 2024, mitigating the risk that the current pricing
structure ceases to be appropriate over the medium term as the
energy industry continues to evolve;
-- A relaxation in our previous exclusivity obligations, giving
us the freedom to source energy in the open market in relation to
any other company, business or customer base we may acquire in
future (although we are not currently in discussion with any other
parties);
-- That if the Price Cap ceases to apply, our wholesale pricing
will continue to be calculated using the Price Cap methodology
rather than being based on higher 'Big 6' SVTs;
-- The removal of our termination rights on any future change of
control in the ownership of npower.
We were extremely pleased with the outcome of these discussions,
which both secure and modestly enhance the benefits we are
receiving from our ongoing energy supply arrangements with npower
over the medium term.
Smart Meters
We made good progress during the year with our smart meter
roll-out programme, achieving an installed base of approximately
315,000 (largely dual fuel) meters by the end of the financial
year; this represents over 31% of our residential meter portfolio
and puts us slightly ahead of the average for the industry as a
whole, despite the continuing failure of our contracted meter
operators to meet their agreed service levels.
To enable us to meet the increasingly challenging roll-out
targets stipulated by BEIS over the next few years whilst
delivering a satisfactory experience to our members, we previously
reported that we were establishing a wholly-owned subsidiary ('UW
Home Services') to install smart meters on our behalf. We are
extremely pleased with the progress of this project over the last
eight months, during which we have established a centralised
support team, recruited and trained our first 70 live engineers,
and successfully installed over 15,000 smart meters by the end of
May.
UW Home Services is on track to deliver a significant
acceleration in activity over the course of the current year as it
progressively expands its geographic footprint. The financial
benefits from this programme (excluding any timing differences
which may arise between when costs are incurred and when they are
recovered) remain partly dependent on the speed and efficiency of
our roll-out relative to other suppliers.
Boiler Installation and Servicing (via Glow Green)
Last summer we purchased a 75% shareholding in Glow Green Ltd, a
regional supplier/installer of domestic gas boilers and
warranty/care plans, making a modest initial cash investment of
GBP2m. Since then, we have assisted them in securing improved
customer financing and boiler procurement terms, upgrading their
financial controls, optimising their marketing spend, and
implementing a new CRM platform.
Although loss-making last year (c. GBP1m for the period to 31
March 2019), Glow Green's financial performance has been improving
over the last few months, and we expect a modest positive financial
contribution for the current year, as we progressively market their
services to our members. Whilst initial volumes are expected to be
moderate, this represents another substantial medium-term business
opportunity for us, with an estimated 35,000 of our members needing
to have their boiler replaced each year.
Improving our customer proposition
During the course of the year we instigated a number of
initiatives aimed at improving the experience of our members:
-- We redesigned our bills, making them easier for our members to understand;
-- We introduced a choice of premium routers on our broadband
service, providing an improved customer experience (particularly
for members living in larger homes);
-- We increased the functionality of our online Clubhouse,
enabling more members to self-serve without needing to call our
customer service team, with significant further enhancements
planned for the future;
-- We introduced an enhanced version of our CashBack card in
March 2018, giving holders the opportunity to significantly
increase their annual savings by earning 1% CashBack wherever they
shop (in addition to receiving between 3% and 7% at a wide
selection of retail partners); this is now being rolled out to all
cardholders;
-- Our drive to encourage Members to receive their monthly bill
electronically is continuing, with 64% (2018: 59%) no longer
receiving a paper copy; as this proportion continues to rise, we
will benefit from increased operational efficiency from the ability
to smooth out the peaks and troughs in the volume of inbound
customer service calls, and with lower environmental impact.
Technology
We continue to invest in the technology platform that is at the
very core of our business, in order to ensure that we can provide
best in class service levels to our customers across the increasing
range of services we supply, and to provide our Partners with the
tools and support that they need to make the most of the part time
income opportunity that we offer them.
Corporate Governance
The UK Corporate Governance Code (the 'Code') encourages the
Chairman to report personally on how the principles in the Code
relating to the role and effectiveness of the Board have been
applied.
As a board we are responsible to the Company's shareholders for
delivering sustainable shareholder value over the long term through
effective management and good governance. A key role of mine, as
Executive Chairman, is to provide strong leadership to enable the
Board to operate effectively.
We believe that open and rigorous debate around key strategic
issues and risks faced by the Company is important in achieving our
objectives and the Company is fortunate to have non-executive
directors with diverse and extensive business experience who
actively contribute to these discussions.
Further detail of the Company's governance processes and
compliance with the Code is set out in the Corporate Governance
Statement in the Annual Report.
Recent Trading and Outlook
Recent Trading
Performance since the year-end is in line with management
expectations, with the quantity and quality of new Members
continuing to run comfortably ahead of the levels we achieved
during the corresponding period last year. In addition, the number
of new Partners joining the business has remained buoyant, with
around 1,000 joining each month.
Our annual conference took place in March, with attendance
levels significantly ahead of the previous year. We launched our
new Boiler and Home Cover insurance service (which received an
enthusiastic response from the 6,000 Partners present), shared
motivational ideas, recognised their achievements, provided them
with useful tips to help build their businesses, and encouraged
each Partner to define and commit to their own clear vision for the
coming year.
We are particularly pleased that our own churn has remained
steady at around 12% a year (which is around half the average rate
being experienced across the energy industry) - this is despite the
impact of the Ofgem price cap being reset at a higher level on 1
April 2019, a widening Gap between the Price Cap and the bottom of
the market, and record levels of switching within the broader
energy market.
Energy Prices and Regulatory Changes
Since 1 February 2019, forward energy commodity prices have been
below the average level which prevailed during the period 1
September 2018 to 31 January 2019; this means that the level of the
Price Cap is expected to fall on 1 October 2019 by around GBP75,
partially reversing the recent GBP125 rise.
Many commentators had opposed the introduction of the Price Cap,
on the basis it would lead to a reduction in the level of savings
available to engaged customers, and a corresponding reduction in
switching levels. These fears have not been borne out, with savings
of over GBP300 still available, and record levels of switching
taking place over the last five months.
This has been driven by many smaller suppliers continuing to set
their retail prices at whatever level is required to maintain a
position at (or towards) the top of price comparison sites,
irrespective of the impact this may have on their profitability
and/or cashflow. In the absence of strong balance sheets to absorb
the losses they will be making, further insolvencies (in addition
to the 14 suppliers who ceased trading over the last 18 months)
seem inevitable.
We are pleased that Ofgem is taking action in this area with the
recent announcement of 'tougher' entry tests for new energy
suppliers. In our view, these tentative first steps fall well short
of what is required to deal with these challenges, such as adding
both ongoing minimum capital requirements and an obligation to
segregate customer credit balances until such time as a new
supplier has demonstrated the sustainability of their business
model.
Outlook
We are well positioned for further growth over the coming year,
with a diverse and growing portfolio of services, a motivated
Partner network, a unique integrated multi-utility business model
and a strong balance sheet. These attributes, together with our
continuing focus on treating our customers fairly and delivering
consistently good value and service, have enabled us to build an
exceptionally high quality membership base, with market leading
levels of customer retention and strong visibility over our future
earnings stream.
We anticipate the momentum that has been building within our
business over the last 12 months will continue, with growth in
customer and service numbers for the current year reaching 5% and
10% respectively. Whilst it is inevitably more expensive to add
multi-service customers, we are hugely encouraged by the record
proportion of new members choosing to switch all their services to
us (which has recently been running at over 58%), with the higher
investment made in acquiring them being more than offset by the
length of time they are likely to remain with us, and
correspondingly higher expected lifetime value.
From a financial perspective, the combination of a higher
quality customer base, improved commercial terms from our wholesale
partners, growing benefits from our smart meter roll-out programme,
and an initial contribution from the extra customers we added over
the past 12 months, mean that in the absence of unforeseen
circumstances we expect adjusted profits before tax for FY2020 to
be between GBP60m and GBP65m - a significant increase on our
performance for the year just ended - accompanied by a
corresponding 10% increase in our dividend to 57p per share.
Once again, I would like to thank my boardroom colleagues for
their support and all our staff and Partners for their loyalty and
hard work which have played such a huge part in achieving such a
strong performance this year. Our medium term objective is to
continue building this business to one million households (and
beyond), and I look forward to the opportunities and value that
reaching this goal will create for all stakeholders.
Charles Wigoder
Executive Chairman
17 June 2019
Chief Executive's Review
Markets
We supply a wide range of essential services under the Utility
Warehouse brand (gas, electricity, landline, broadband, mobile and
insurance) to both domestic and small business Members throughout
the UK; these are all substantial markets and represent a
significant opportunity for further organic growth.
The markets we operate in are generally dominated by a
relatively small number of former monopoly suppliers and other
owners of infrastructure assets, although in each there are also a
number of independent suppliers carving out their own niches,
generally based on offering highly competitive introductory deals
promoted through price comparison sites, national advertising, and
direct marketing campaigns.
Business model
Our business model is fundamentally different to all other UK
utility providers in three key respects:
-- we are the only fully integrated provider of both energy and
communications services; this enables us to enjoy significant
operating efficiencies by spreading a single set of overheads
across the multiple revenue streams we receive from our
Members;
-- we have a unique route to market, with over 40,000 part-time
self-employed Partners; rather than seeking to attract new Members
through expensive advertising or price comparison sites, we instead
benefit from personal recommendations from both our Partners and
our existing Members; and
-- we operate our business as a Discount Club; each of our
customers becomes a Member, and is treated in a way that is
commensurate with that status.
Partners can earn a small percentage of the monthly revenues
generated by any Members gathered, either personally, or by someone
in their team. And in a similar way, we reward our existing Members
with shopping vouchers when they introduce a new Member to the
Club.
We continue to follow a different strategy to that of our
competitors in both the energy and communications markets,
focussing on delivering an integrated multi-utility proposition
that includes three key benefits: Savings (compared with the prices
they were previously paying), Simplicity (just one convenient
monthly bill making it easier to manage a significant part of their
monthly household budget), and Service (delivered by our
award-winning UK-based support teams).
These benefits are supported by our commitment to treating our
Members fairly, avoiding the business practice adopted by our
competitors of combining cheap introductory deals for new customers
with higher tariffs charged to their legacy customer bases.
We believe their approach is not only viewed by loyal customers
as being fundamentally unfair, but makes it less likely they will
succeed in creating a sustainable long term business - as customers
who have chosen to switch once based solely on the headline price
on a comparison site will have a high propensity to do so again
when their introductory deal expires. In contrast, our alternative
approach is to reward loyalty and commitment, with additional
savings and benefits available to our most valuable and
long-standing Members.
These dynamics are illustrated by recent switching data within
the electricity market for domestic customers, where reported churn
amongst other small and medium suppliers is currently running at an
annualised rate of around 27% - over twice the level we are
experiencing ourselves.
The delivery of these core values is critical to our route to
market, giving our Partners the confidence to promote our services
to their friends and family - as well as generating recommendations
from existing Members who in many cases also become advocates for
our brand. The Net Promoter Scores ('NPS') of around 50 that we
consistently achieve reflect our relentless focus on this goal, and
are in stark contrast to the negative NPS scores prevalent within
the utility and telecoms markets.
Against a backdrop where most of our competitors seem focussed
almost solely on price, we believe that genuinely earning the trust
of our Members is the key point of differentiation that will enable
us to achieve our medium-term growth objectives and help us
maximise long term shareholder value.
Examples of this approach include (i) not offering introductory
deals to new Members as an inducement to switch, (ii) allowing
existing loyal Members to benefit from any new tariffs we
introduce, and (iii) reserving our best benefits and lowest prices
for those who have switched the most services to us. Combined with
the wider range of benefits and consistently good value we offer,
this is expected to create significantly greater shareholder value
over the medium term through lower churn and longer average
customer lifetimes.
We continue to invest in our technology systems, which enable us
to integrate all the services we supply into a single monthly bill,
supported by just one set of central overheads (including all
administrative and membership support functions). This highly
efficient cost base is a key factor in enabling us to offer
attractive pricing and a wide range of valuable benefits to our
Members, a secure and growing residual income to our Partners, and
a healthy dividend stream to shareholders. We are making good
progress with our medium-term programme to enhance and update these
systems, and we look forward to the greater business efficiency and
flexibility this will deliver in due course.
We have strong commercial relationships with all our key
suppliers, who recognise the value of our unique route to market
and the importance of maintaining our competitive market position.
To this end, we have regular and ongoing discussions with each of
them about how the market dynamics for each of our services are
changing, and the best way to ensure these are appropriately
reflected in our wholesale pricing structure. These strong
relationships are illustrated by the improvements we announced to
our wholesale energy arrangements in our April trading update, as
well as the better mobile and broadband commercial terms we have
negotiated over the last two years.
We are extremely pleased with the further progress we have made
this year in taking advantage of our multiple key points of
differentiation, and towards securing our position as the Nation's
most trusted utility provider.
Strategy
Our strategy is to progressively grow our share of the markets
in which we operate, primarily through organic means, in order to
build a robust, sustainable and increasingly profitable
business.
We will achieve this by expanding our Partner network and making
it easier for them to promote our services more effectively,
through maintaining our focus on delivering best-in-class service
and support to our Members, treating them fairly and investing in
our systems and staff. We will seek to simplify and, where
possible, further improve the competitiveness of our services,
encouraging existing Members to talk about the unique benefits we
offer to their friends and acquaintances.
An example of this is the enhanced CashBack card we launched
last year, offering savings to Members wherever they shop, rather
than solely at our retail partners, and providing a number of other
features which make it easier for our members to use; over 90,000
Members are now benefitting from this enhanced card, and we will
automatically be upgrading the remainder of the original
cardholders over the course of the next few months. We have been
encouraged by the consistently high proportion of new Members
(around 65%) who have requested our new CashBack card over the last
12 months.
Expanding our current range of services into related areas
remains a significant opportunity for the coming decade,
identifying opportunities where we can build upon our existing
strong relationship with our Members to give them both a better
experience and better value on services they currently obtain from
other suppliers, whilst also delivering a satisfactory return for
our shareholders. Recent examples include the successful
introduction of Home Insurance, the addition of Boiler and Home
Cover this spring, and our new boiler installation business.
In the longer term, there may be an opportunity to start
supplying water and/or television, or to combine the national
rollout of smart meters with other 'connected home' products and
services by leveraging our position as the UK's only fully
integrated multi-utility supplier.
Operational performance and non-financial KPIs
Despite a challenging competitive environment, our overall
performance for the year has been encouraging in a number of key
respects:
-- strong organic growth with service numbers up by 191,305
(2018: 51,801)
-- continued low churn against a background of record levels of
energy switching
-- record proportion of Members taking our 'Double Gold' bundle
-- over 90,000 Members taking our enhanced CashBack card
-- over 14,500 Home Insurance policies issued
-- over 315,000 smart meters now installed
-- Best Utilities Provider at annual Which? Awards 2018
-- Which? #1 rated provider for Mobile April 2018
-- Which? 'Recommended Provider' for Broadband March 2019
-- Continuing high Net Promoter Scores
Against the background of a slowly growing economy, and with
household incomes remaining under pressure, our value-based
consumer proposition and the part-time income opportunity we offer
remain extremely attractive to both Members and Partners
respectively.
Our continuing organic growth is underpinned by high levels of
confidence amongst our Partners in our brand and financial
strength, the good value we provide through our fair pricing
policies, and our commitment to delivering best-in-class service
and support to our Members.
Partners
Our Partners are one of the key strengths of our business. In
contrast to the routes to market adopted by other suppliers of
similar household services, the alignment of financial interest
provided by our revenue-sharing model and the structure of our
compensation plan incentivise them to focus their activities on
finding creditworthy higher-spending Members who will reap the
maximum savings from using our services, and will thus be least
likely to churn; by doing so, they maximise their own long-term
income. This ensures that cases of mis-selling are both inadvertent
and extremely rare.
Our Partners are also extremely effective at targeting high
quality customers who would not otherwise be engaged in the market,
and in communicating the savings, simplicity and service provided
by our unique integrated multi-utility proposition to prospective
new Members.
We provide a variety of training and personal development
courses, both online and classroom-based, designed to furnish them
with the skills and knowledge they need to gather Members and
recruit other Partners effectively and successfully.
For any Partner who wants to spend a substantial amount of time
developing their Utility Warehouse business, we operate a Quick
Income Plan; this gives them the opportunity to accelerate some of
their commission payments. This initiative is a key driver behind
the pleasing trend towards higher numbers of new Partners joining
the business each month, and the improving quality of new Members
they are gathering.
Our Car Plan, which provides eligible Partners with the
opportunity to purchase a Utility Warehouse branded BMW Mini (or in
some cases a BMW X5), remains extremely popular, with over 1,050
Minis and 25 BMW X5s delivered since the scheme was introduced.
Owners inform us that they find these helpful in raising their
local profile, resulting in enquiries from both potential new
Members and Partners.
Members
2019 2018
-------- --------
Residential Club 608,371 583,273
Business Club 26,668 27,466
-------- --------
Total Club 635,039 610,739
Whilst we continue to regard our business Club as an exciting
long-term opportunity, the dynamics of this market make it
extremely difficult to grow in the current energy wholesale pricing
environment.
The current focus remains firmly on our residential Club, where
there is a significant difference in average expected customer
lifetimes between Members (and therefore in the revenues and
profits they will generate) depending on whether they are an
owner-occupier, and on the number of services we are providing to
them. The most attractive category are owner-occupiers taking our
'Double Gold' bundle.
Our focus and success in attracting this type of Member has been
reflected in the consistently high proportion of new Members
gathered by Partners who switch all their core services to us
(landline, broadband, mobile, electricity and/or gas) as can be
seen from the following figures:
Percentage of new
Members taking 'Double
Gold' bundle
---------------------------
Q1 FY18 50.9%
Q2 FY18 48.3%
Q3 FY18 48.6%
Q4 FY18 53.2%
Q1 FY19 55.3%
Q2 FY19 57.0%
Q3 FY19 57.6%
Q4 FY19 55.4%
It is extremely encouraging that since the year-end, this
proportion has continued to increase.
We were encouraged to see our energy supply point churn falling
to around 1.0% per month, against a background of record levels of
switching within the energy industry, and the continuing large gap
between the introductory fixed price deals available from other
suppliers and the range of tariffs we offer:
Our Energy
supply point churn
-----------------------
FY11 16.3%
FY12 13.3%
FY13 11.2%
FY14 10.4%
FY15 11.2%
FY16 13.1%
FY17 13.2%
FY18 12.7%
FY19 11.8%
Average revenue per Member fell slightly to GBP1,245 (2018:
GBP1,267) due to a combination of the Ofgem price cap (which
reduced energy revenues during Q4), lower energy consumption during
a particularly warm winter, and steadily declining landline call
spend, partially offset by an increasing proportion of fibre
broadband and mobile services within our membership base.
Average Revenue per
Member
--------------------------
1999 GBP190
2000 GBP286
2001 GBP316
2002 GBP329
2003 GBP459
2004 GBP482
2005 GBP505
2006 GBP634
2007 GBP801
2008 GBP819
2009 GBP1,064
2010 GBP1,149
2011 GBP1,137
2012 GBP1,186
2013 GBP1,359
2014 GBP1,304
2015 GBP1,279
2016 GBP1,226
2017 GBP1,191
2018 GBP1,267
2019 GBP1,245
Services
Our core services are landline telephony (calls and line
rental), broadband, mobile, gas, electricity, home insurance, and
our CashBack card. At the year end, we supplied a total of
2,532,024 services to Club Members (2018: 2,340,719), an increase
of 8.2% during the year.
2019 2018
---------- ----------
Electricity 579,603 555,721
Gas 470,227 449,810
Fixed Telephony (calls
and NGN) 338,439 321,494
Fixed Telephony (line
rental) 326,766 307,742
Broadband 304,678 283,518
Mobile 252,206 221,716
CashBack card 245,620 195,960
Home Insurance 14,485 4,758
Total 2,532,024 2,340,719
Residential Club 2,455,698 2,261,680
Business Club 76,326 79,039
---------- ----------
Total 2,532,024 2,340,719
All our core services grew during the year, with the strongest
performances being a 25% increase in the number of Cashback cards
and a 14% rise in mobile services. This reflects the attractiveness
of our new CashBack card and our strategic decision to place mobile
at the heart of our multi-service retail proposition.
CashBack
Our CashBack card has proven itself as an attractive and
important Member acquisition and retention tool. We believe it is a
key factor behind our continuing organic growth and low churn
against a challenging market background.
Historically it offered our Members the opportunity to achieve
additional savings of between 3% and 7% on their shopping at a wide
range of participating retailers, which they receive as an
automatic credit on their next monthly bill from us. Around 12
months ago, we broadened its appeal by launching an enhanced
version which also offers 1% CashBack on everyday household
shopping at non-participating retailers (on up to GBP1,000 of
retail spend each month). Over the course of the next few months,
we will be upgrading all existing cardholders onto the new
card.
Many Members also use our online shopping portal to reduce their
bills; this generated over GBP300,000 of additional CashBack for
our Members over the course of last year.
Member Service and Support
We pride ourselves on delivering a consistently high standard of
service to our Members through a single support centre for all our
core services based in north London, ensuring where possible that
the first person a Member speaks to is able to resolve any issues
they may have with their multi-utility account.
At the same time, we are always looking for ways to further
improve the service experience we deliver, hence our ongoing
digital transformation programme, and the numerous qualitative and
quantitative performance measurement tools that we employ to
monitor all aspects of our Members' interactions with us.
We have been delighted at the consistently high ratings, awards
and recognition we receive from Moneywise and Which? for the
quality of the service, support and value we provide to our
Members, and the overwhelmingly positive feedback we receive from
Members in our own surveys.
We were particularly proud to be recognised as the UK's Best
Utilities Provider at the Which? 2018 Awards, a massive endorsement
of our commitment to looking after our customers, and treating them
as we would wish to be treated ourselves, from the UK's leading
independent consumer champion.
The Environment
Although there is little we can directly do as an energy
supplier to influence the generation mix which enters the National
Grid each year, we are committed to playing our part in helping
reduce the UK's overall carbon footprint. This is best illustrated
by the significant investment we continue to make each year in
project Daffodil - our free LED light bulb replacement service - an
exclusive benefit which we are currently providing to around 3,000
households each month.
Since launching this service, we have installed a cumulative
total of almost 4,000,000 energy efficient bulbs in more than
100,000 Members' homes (both new and existing) who have switched
their energy and telephony services to us. By reducing household
electricity usage, we make a direct and significant positive impact
on our carbon footprint as a major energy supplier. This initiative
has also been a major factor behind the improvement in the quality
of new Members joining the Club, whilst encouraging, many thousands
of longer-standing Members to take additional services in order to
take advantage of this valuable benefit.
In addition, we continue to encourage our members to receive
their monthly bills electronically (rather than by post) with
considerable success. Since January 2017, the proportion receiving
a paper bill has fallen significantly from 56% to around 36%,
equivalent to a saving of over 7 million pieces of paper.
Our new boiler installation business only installs highly
efficient A-rated boilers from Vaillant and Worcester Bosch, two of
the world's leading manufacturers, thereby helping to reduce the
amount of gas our customers are using.
Smart Meter roll-out
By the end of the financial year our rollout programme has
resulted in an installed base of over 315,000 smart meters,
representing over 31% of our domestic energy customer portfolio;
whilst less than we were forecasting due to the ongoing failure of
our Meter Operator partners to meet their agreed targets, the
proportion of our base who now have a smart meter is now slightly
ahead of the average for the industry as a whole.
The transition from first generation SMETS1 smart meters to
second generation SMETS2 smart meters is now taking place; all of
the engineers within our UW Home Services division have been
re-trained accordingly, and are now primarily installing SMETS2
meters in our Members homes.
In addition to possible efficiency benefits, smart meters
improve billing accuracy; this should improve the generally
contentious relationship that exists between many customers and
their energy supplier. We are broadly supportive of the nationwide
smart meter programme, albeit we remain highly concerned over the
significant additional costs that are being incurred as a result of
an ill-conceived and sub-optimal rollout strategy combined with
unrealistic deadlines - a cost that will ultimately be met by
consumers.
Technology
We are making steady progress on our digital transformation
project to update our systems and processes. While this is creating
significant additional costs in the short term, with benefits that
will still take several more years to materialise, we are now
making real progress and I am confident that making this investment
is the right long-term decision for the business.
In the meantime, our operating costs remain lower than those of
any of our peers on a like-for-like basis, and we look forward to
the operating efficiencies and performance improvements which our
new systems are expected to deliver in due course.
Andrew Lindsay MBE
Chief Executive Officer
17 June 2019
Financial Review
Overview of Results
Adjusted Statutory
2019 2018 Change 2019 2018 Change
---------- ---------- ------- ---------- ---------- -------
Revenue GBP804.4m GBP792.9m 1.5% GBP804.4m GBP792.9m 1.5%
Profit before
tax GBP56.3m GBP54.3m 3.7% GBP43.0m GBP41.0m 4.9%
Basic EPS 59.0p 55.1p 7.1% 42.5p 38.8p 9.5%
Dividend per share 52.0p 50.0p 4.0% 52.0p 50.0p 4.0%
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 GBP1.8m (2018:
GBP2.0m) and the amortisation of the intangible asset of GBP11.2m
(2018: GBP11.2m) arising from entering into the energy supply
arrangements with npower in December 2013; this decision reflects
both the relative size and non-cash nature of these charges. The
reconciliation for adjusted EPS is set out in note 2.
Summary
Adjusted profit before tax increased by 3.7% to GBP56.3m (2018:
GBP54.3m) on higher revenues of GBP804.4m (2018: GBP792.9m). The
relatively small increase in revenues reflects the larger customer
base offset by the warm winter, and the impact of the Ofgem price
cap, which reduced energy revenues in the final quarter. The
improvement in adjusted pre-tax profit mainly reflects the organic
growth in the number of services we are providing to our Members
and improved terms from certain key suppliers, partially offset by
continued investment in staff headcount, modest losses associated
with our expansion into related business areas (such as Glow Green
and Boiler & Home Cover insurance), and higher technology
costs.
Within our Customer Acquisition operating segment, net costs
increased to GBP19.5m (2018: GBP18.0m), mainly reflecting the
increased growth in new customers and services during the year.
Distribution expenses increased to GBP26.0m (2018: GBP21.9m),
mainly reflecting higher commissions and an increase in the cost of
other incentives provided to Partners arising from higher levels of
activity.
Administrative expenses increased during the year by GBP4.7m to
GBP67.9m (2018: GBP63.2m) mainly as a result of higher remuneration
costs (as we grow our headcount in line with the number of services
we are supplying), costs associated with our expansion into related
business areas, and greater costs associated with our digital
transformation programme.
Adjusted earnings per share increased by 7.1% to 59.0p (2018:
55.1p), with statutory EPS increasing by 9.5% to 42.5p (2018:
38.8p). The increase in adjusted EPS reflects higher profits and
the lower number of shares in issue following the share buyback in
July 2018. In accordance with previous guidance and our strong cash
position, the Board is proposing to pay a final dividend of 27p
(2018: 26p) per share, making a total dividend of 52p (2018: 50p)
per share for the year.
Margins
Our overall gross margin for the year was 18.6% (2018: 17.6%)
mainly reflecting the improved terms from certain key suppliers and
a lower proportion of energy sales due to the warm winter and the
Ofgem price cap.
Customer Management
We delivered faster growth in the number of services we are
supplying, with an increase of 191,000 services (2018: 52,000)
during the course of the year, taking the total number of services
provided within our Discount Club to over 2.5 million.
The relatively small increase in revenues reflects the warm
winter and the impact of the Ofgem price cap which reduced energy
revenues in the final quarter, partially offset by the increase in
the number of services being supplied:
Revenues GBPm 2019 2018
------ ------
Electricity 351.2 337.5
Gas 268.1 280.3
Landline and Broadband 116.5 114.0
Mobile 32.5 30.8
Other 16.6 13.5
784.9 776.1
Customer Acquisition
Our Customer Acquisition operating segment loss increased to
GBP19.5m (2018: GBP18.0m), mainly reflecting the greater number of
new customers and services added during the year.
Distribution and Administrative Expenses
Distribution expenses include the share of our revenues that we
pay as commission to Partners, together with other direct costs
associated with gathering new Members which are included as part of
the Customer Acquisition Segment result for the year. These rose to
GBP26.0m (2018: GBP21.9m), mainly reflecting an increase in
commissions paid to Partners due to a larger customer base and
higher growth, and higher Partner incentive costs.
Within administrative expenses, the bad debt charge for the year
of GBP8.1m (2018: GBP8.8m) remained broadly flat at 1.0% of
revenues (2018: 1.1%).
The number of prepayment meters we installed during the year,
many of which were provided at the Member's own request, fell to
4,209 (2018: 4,556). At the end of the year we had an installed
base of 74,840 (2018: 71,796) prepayment meters, representing
approximately 7.1% of the energy services we supply; this remains
significantly below the average level of prepayment meters within
the industry of around 16% (source: CMA). An investigation into the
Group's debt management processes announced by Ofgem in June 2018
remains ongoing, and any potential exposure is not considered
likely to be material.
The proportion of Members who have at least two energy bills
outstanding has increased to 1.50% (2018: 1.34%). This is largely
due to delays caused by third party engineers in fitting prepayment
meters requested by customers and as a result of this we made the
decision to establish UW Home Services in order to gain greater
control over these processes.
Overall, administrative expenses (excluding share incentive
scheme charges and amortisation of the energy supply agreement
intangible) increased during the year by GBP4.7m to GBP67.9m (2018:
GBP63.2m) mainly as a result of higher staff costs, expansion into
new business areas, and higher technology costs. The increase in
staff costs reflects our ongoing commitment to deliver the best
possible experience to our Members (a rising proportion of whom are
taking multiple services from us) and a significant ongoing
investment in strengthening our technology resources, regulatory
functions and management structure, together with the broadening of
the business through the acquisition of Glow Green Limited and the
setting up of our own meter operator UW Home Services.
Cash, Capital Expenditure, Working Capital and Borrowings
We ended the period with a net debt position of GBP37.0m (2018:
GBP11.2m), mainly reflecting the higher working capital
requirements associated with changes to the phasing of certain
energy industry payments, higher technology investment, smart meter
roll-out costs, the success of our Quick Income Plan in driving
higher levels of Partner activity, the establishment of our own
meter operator (UW Home Services) and the share buy back in July
2018. A number of these increases were of a one-off nature, and
more modest increases in working capital are anticipated over the
coming years. The Group's Net Debt/EBITDA ratio remains low at
around 0.6x (EBITDA of GBP62.0m used in this ratio represents
adjusted pre-tax profit of GBP56.3m plus depreciation and
amortisation of fixed assets of GBP4.4m and net interest costs of
GBP1.3m).
Our net working capital position showed a year on year cash
outflow of GBP22.3m primarily due to changes to the phasing of
certain energy industry payments and the Quick Income Plan we
launched for Partners earlier in the year. Capital expenditure of
GBP7.5m (2018: GBP3.8m) related primarily to our continuing digital
transformation programme.
Under the terms of our energy supply arrangements, the npower
billing profile to the Group broadly equates to our customer
billing profile, which helps to reduce the amount of working
capital we need.
Dividend
The final dividend of 27p per share (2018: 26p) will be paid on
2 August 2019 to shareholders on the register at the close of
business on 12 July 2019 and is subject to approval by shareholders
at the Company's Annual General Meeting which will be held on 25
July 2019. This makes a total dividend payable for the year of 52p
(2018: 50p), an increase of 4.0% compared with the previous
year.
Our intention going forward remains to bring our dividend
pay-out ratio to around 85% of adjusted EPS over the medium term,
whilst maintaining our long-standing progressive dividend policy.
Consistent with this approach, and reflecting the profit guidance
we have provided, we expect to increase our dividend to 57p per
share for the current year.
Share Incentive Scheme Charges
Operating profit is stated after share incentive scheme charges
of GBP1.8m (2018: GBP2.0m). These relate to an accounting charge
under IFRS 2 Share Based Payments ('IFRS 2').
As a result of the relative size of share incentive scheme
charges as a proportion of our pre-tax profits, we are separately
disclosing this amount within the Consolidated Statement of
Comprehensive Income for the period (and excluding these charges
from our calculation of adjusted profits and earnings) so that the
underlying performance of the business can be clearly identified.
Our current adjusted earnings per share have also therefore been
adjusted to eliminate these share incentive scheme charges.
Taxation
A full analysis of the taxation charge for the year is set out
in note 4 to the financial statements in the Annual Report. The tax
charge for the year is GBP10.2m (2018: GBP10.5m). The effective tax
rate for the year was 23.7% (2018: 25.6%).
Nick Schoenfeld
Chief Financial Officer
17 June 2019
Principal Risks and Uncertainties
Background
The Group faces various risk factors, both internal and
external, which could have a material impact on long-term
performance. However, the Group's underlying business model is
considered relatively low-risk, with no need for management to take
any disproportionate risks in order to preserve or generate
shareholder value.
The Group continues to develop and operate a consistent and
systematic risk management process, which involves risk ranking,
prioritisation and subsequent evaluation, with a view to ensuring
all significant risks have been identified, prioritised and (where
possible) eliminated, and that systems of control are in place to
manage any remaining risks.
A formal document is prepared by the executive directors and
senior management team on a regular basis detailing the key risks
faced by the Group and the operational controls in place to
mitigate those risks; this document is then reviewed by the Audit
Committee. No new principal risks have been identified during the
period, and save as set out below, nor has the magnitude of any
risks previously identified 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
membership base. This means that while the Group is heavily reliant
on third party providers, it is insulated from all the direct risks
associated with owning and/or operating such capital-intensive
infrastructure itself.
The Group's services are promoted using 'word of mouth' by a
large network of independent Partners, who are paid predominantly
on a commission basis. This means that the Group has limited fixed
costs associated with acquiring new Members.
The principal specific risks arising from the Group's business
model, and the measures taken to mitigate those risks, are set out
below.
Reputational risk
The Group's reputation amongst its Members, suppliers and
Partners is believed to be fundamental to the future success of the
Group. Failure to meet expectations in terms of the services
provided by the Group, the way the Group does business or in the
Group's financial performance could have a material negative impact
on the Group's performance.
In developing new services, and in enhancing current ones,
careful consideration is given to the likely impact of such changes
on existing Members.
In relation to the service provided to its membership base,
reputational risk is principally mitigated through the Group's
recruitment processes, a focus on closely monitoring staff
performance, including the use of direct feedback surveys from
Members (Net Promoter Score), and through the provision of rigorous
staff training.
Responsibility for maintaining effective relationships with
suppliers and Partners rests primarily with the appropriate member
of the Group's senior management team with responsibility for the
relevant area. Any material changes to supplier agreements and
Partner commission arrangements which could impact the Group's
relationships are generally negotiated by the executive Directors
and ultimately approved by the full Board.
Information technology risk
The Group is 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 Members, 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' who clarify system needs. 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 Member 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 third-party hosting services
or in certain cases maintained in a warm standby state in the event
of a failure of the main system. These facilities are designed to
ensure a near-seamless service can be maintained for Members.
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 both a consumer-facing and enterprise
layered security strategy, providing effective control to mitigate
the relevant threats and risks. 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 the Group is a data
controller registered with the ICO. If the Group fails to comply
with all the relevant legislation concerning information security,
it could be subject to enforcement action and significant
fines.
Information security risks are overseen by the Group's Legal and
Compliance team who are supported by security specialists.
Legislative and regulatory risk
The Group is subject to varying laws and regulations, including
possible adverse effects from European regulatory intervention. The
energy and communications markets in the UK and Continental Europe
are subject to comprehensive operating requirements as defined by
the relevant sector regulators and/or government departments.
Amendments to the regulatory regime could have an impact on the
Group's ability to achieve its financial goals and any failure to
comply may result in the Group being fined and lead to reputational
damage which could impact the Group's brand. Furthermore, the Group
is obliged to comply with retail supply procedures, amendments to
which could have an impact on operating costs.
The Group is a 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.
Proposed regulatory changes such as the imposition of retail
energy price caps, the rapid rollout programme of smart energy
meters (with the potential for additional costs if existing meters
must be replaced prior to the end of their planned lives), and the
replacement of existing environmental and social policies, could
all have a potentially significant impact on the sector, and the
net profit margins available to energy suppliers.
The Group is also a licensed supplier of telephony services and
therefore has a direct regulatory relationship with Ofcom. If the
Group fails to comply with its licence obligations, it could be
subject to fines or to the removal of its licences.
The Group is an Appointed Representative of a Financial Conduct
Authority ('FCA') authorised and regulated insurance broker for the
purposes of providing insurance services to Members. If the Group
fails to comply with FCA regulations, it could be indirectly
exposed to fines and risk losing its status as an Appointed
Representative severely restricting its ability to offer insurance
services to Members.
In general, the majority of the Group's services are supplied
into highly regulated markets, and this could restrict the
operational flexibility of the Group's business. In order to
mitigate this risk, the Group seeks to maintain appropriate
relations with both Ofgem and Ofcom (the UK regulators for the
energy and communications 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 or if there are
competition issues the Group needs to raise with them. An
investigation into the Group's debt management processes announced
by Ofgem in June 2018 remains ongoing, and any potential exposure
is not considered likely to be material.
It should be noted that the regulatory environment for the
various markets in which the Group operates is generally focussed
on promoting competition; it therefore seems reasonable to expect
that most potential changes will broadly be beneficial to the
Group, given the Group's relatively small size compared to the
former monopoly incumbents with whom it competes. However, these
changes and their actual impact will always remain uncertain and
could include, in extremis, the re-nationalisation of the energy
supply industry.
Political and consumer concern over energy prices, vulnerable
customers and fuel poverty may lead to further reviews of the
energy market which could result in further consumer protection
legislation being introduced through energy supply licences with
price controls for certain customer segments currently being
proposed. In addition, 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.
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.
Fraud and bad debt risk
The Group has a universal supply obligation in relation to the
provision of energy to domestic customers. This means that although
the Group is entitled to request a reasonable deposit from
potential new Members who are not considered creditworthy, the
Group is obliged to supply domestic energy to everyone who submits
a properly completed application form. Where Members subsequently
fail to pay for the energy they have used, 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 Members from increasing their indebtedness are not
always fully recovered.
Fraud and bad debt within the telephony industry may arise from
Members 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.
More generally, the Group is also exposed to payment card fraud,
where Members use stolen cards to obtain credit (e.g. on their
CashBack card) or goods (e.g. Smartphones and Tablets) from the
Group; the Group regularly reviews and refines its fraud protection
systems to reduce its potential exposure to such risks.
Wholesale price risk
The Group does not own or operate any utility network
infrastructure itself, choosing instead to purchase the capacity
needed from third parties. The advantage of this approach is that
the Group is largely protected from technological risk, capacity
risk or the risk of obsolescence, as it can purchase the amount of
each service required to meet its Members' needs.
Whilst there is a theoretical risk that in some of the areas in
which the Group operates it may be unable to secure access to the
necessary infrastructure on commercially attractive terms, in
practice the pricing of access to such infrastructure is 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 Members, 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 Member demand can be
subject to considerable short-term fluctuations depending on the
weather. The Group has a long-standing supply relationship with
npower under which the latter assumes the substantive risks and
rewards of buying and hedging energy for the Group's Members, 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. In addition, the timing of any quarterly price changes
under the npower arrangement may not align with changes in retail
prices, creating temporary short-term fluctuations in the
underlying margins earned by the Group from supplying energy.
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 or increased price competition could impact
future profit margins. In order to maintain its competitive
position, there is a consistent focus on ways of improving
operational efficiency. New service innovations are monitored
closely by senior management and the Group is generally able to
respond within an acceptable timeframe by offering any new services
using the infrastructure of its existing suppliers. The increasing
proportion of Members 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, is considered likely to
materially reduce 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. In the event that smaller independent
energy suppliers were to experience financial difficulties as a
result of increasing wholesale prices for instance, it is possible
that customers could also have a loss of confidence in the Group,
given that it is also an independent energy supplier. 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 membership base continues to rise, competition amongst
suppliers of services to the Group is expected to increase. This
has already been evidenced by various volume-related growth
incentives which have been agreed with 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 Members is reliant on
the efficient operation of third party physical infrastructure.
There is a risk of disruption to the supply of services to Members
through any failure in the infrastructure e.g. gas shortages, power
cuts or damage to communications networks. However, as the
infrastructure is generally shared with other suppliers, any
material disruption to the supply of services is likely to impact a
large part of the market as a whole and it is unlikely that the
Group would be disproportionately affected. In the event of any
prolonged disruption isolated to the Group's principal supplier
within a particular market, services required by Members could 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 meter operators to 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 regularly monitors the performance of third party meter
operators and addresses any issues as they arise.
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
third party meter operators, e.g. the escape of gas in a Member's
property causing injury or death. The Group mitigates this risk
through using reputable third party meter operators and through the
establishment of the Group's own meter operator UW Home Services
Limited.
Energy industry estimation risk
A significant degree of judgement and estimation is required in
order to determine the actual level of energy used by Members and
hence that should be recognised by the Group as sales. There is an
inherent risk that the estimation routines used by the Group do not
in all instances fully reflect the actual usage of Members.
However, this risk is mitigated by the relatively high proportion
of Members who provide meter readings on a periodic basis, and the
rapid anticipated growth in the installed base of smart meters
resulting from the national rollout programme.
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.
Key man risk
The Group is dependent on its key management for the successful
development and operation of its business. In the event that any or
all of the members of the key management team were to leave the
business, it could have a material adverse effect on the Group's
operations. The Group seeks to mitigate this risk through its
remuneration policy.
Single site risk
The Group operates from one principal site and, in the event of
significant damage to that site through fire or other issues, the
operations of the Group could be adversely affected. In order to
mitigate, where possible, the impact of this risk the Group has in
place appropriate disaster recovery arrangements.
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.
UK withdrawal from the EU risk
The Directors do not anticipate that, as a UK centric business
supplying core household services (where any increases in costs
tend to be passed through into retail prices), the UK's potential
withdrawal from the EU ("Brexit") will have any material negative
impact on the Group's earnings or growth. It is not expected that
Brexit will have a significant impact on the security of supply of
the services the Group provides given its arrangements with key
suppliers.
It is possible that if Brexit has a meaningful negative impact
on the UK economy in the short term, certain consumers may face
temporary hardship. However, as a supplier of essential
non-discretionary household services to a large and diverse
customer base, it is not expected that this will have a material
overall impact on the Company's sales levels and exposure to credit
risk. Nonetheless the situation is being kept under review.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2019
Note 2019 2018
GBP'000 GBP'000
Revenue 1 804,438 792,872
Cost of sales (654,874) (653,237)
---------- ----------
Gross profit 149,564 139,635
Distribution expenses (25,981) (21,879)
Share incentive scheme charges (10) (60)
--------------------------------------------------- ------- ---------- ----------
Total distribution expenses (25,991) (21,939)
Administrative expenses (67,916) (63,222)
Share incentive scheme charges (1,772) (1,971)
Amortisation of energy supply contract
intangible (11,228) (11,228)
--------------------------------------------------- ------- ---------- ----------
Total administrative expenses (80,916) (76,421)
Other income 1,656 629
---------- ----------
Operating profit 1 44,313 41,904
Financial income 206 92
Financial expenses (1,520) (997)
---------- ----------
Net financial expense (1,314) (905)
Profit before taxation 42,999 40,999
Taxation (10,174) (10,509)
Profit for period 32,825 30,490
Profit and other comprehensive income for
the year attributable to owners of the
parent 33,103 30,490
Loss for the year attributable to non-controlling (278) -
interest
Profit for the period 32,825 30,490
---------- ----------
Basic earnings per share 2 42.5p 38.8p
---------- ----------
Diluted earnings per share 2 42.3p 38.6p
---------- ----------
Consolidated Balance Sheet
As at 31 March 2019
2019 2018
Assets GBP'000 GBP'000
Non-current assets
Property, plant and equipment 30,579 29,165
Investment property 8,621 8,705
Intangible assets 173,655 181,110
Goodwill 5,324 3,742
Other non-current assets 19,052 16,274
--------- ---------
Total non-current assets 237,231 238,996
--------- ---------
Current assets
Inventories 4,781 6,101
Trade and other receivables 48,450 37,788
Prepayments and accrued income 119,190 126,884
Cash 24,166 28,151
--------- ---------
Total current assets 196,587 198,924
--------- ---------
Total assets 433,818 437,920
--------- ---------
Current liabilities
Trade and other payables (31,064) (30,983)
Current tax payable (5,065) (5,210)
Accrued expenses and deferred income (111,386) (134,708)
--------- ---------
Total current liabilities (147,515) (170,901)
--------- ---------
Non-current liabilities
Long term borrowings (59,598) (39,369)
Finance leases (1,616) -
Deferred tax - (635)
Total non-current liabilities (61,214) (40,004)
Total assets less total liabilities 225,089 227,015
--------- ---------
Equity
Share capital 3,950 3,930
Share premium 141,732 139,055
Capital redemption reserve 107 107
Treasury shares (5,502) (760)
JSOP reserve (1,150) (1,150)
Retained earnings 86,230 85,833
Non-controlling interest (278) -
--------- ---------
Total equity 225,089 227,015
--------- ---------
Consolidated Cash Flow Statement
For the year ended 31 March 2019
2019 2018
GBP'000 GBP'000
Operating activities
Profit before taxation 42,999 40,999
Adjustments for:
Net financial expense 1,314 905
Depreciation of property, plant and equipment 3,100 3,362
Loss/(profit) on disposal of fixed assets 1 (1)
Amortisation of intangible assets 12,509 12,244
Amortisation of debt arrangement fees 229 229
Decrease/(increase) in inventories 1,320 (3,425)
Increase in trade and other receivables (5,695) (38,071)
(Decrease)/increase in trade and other payables (23,457) 29,784
Non-cash adjustments arising from IFRSs
9 and 15 6,348 -
Non-cash adjustments arising from acquisitions (834) -
Share incentive scheme charges 1,783 2,031
Corporation tax paid (12,148) (10,675)
-------- --------
Net cash flow from operating activities 27,469 37,382
-------- --------
Investing activities
Purchase of property, plant and equipment (2,495) (1,028)
Purchase of fixed assets under finance leases (1,557) -
Purchase of intangible assets (5,054) (2,779)
Disposal of property, plant and equipment 5 3
Purchase of shares in subsidiaries acquired
(net of cash acquired) (709) -
Interest received 167 81
Cash flow from investing activities (9,643) (3,723)
-------- --------
Financing activities
Dividends paid (39,739) (38,273)
Interest paid (1,310) (1,020)
Drawdown of long term borrowing facilities 20,000 40,000
Finance leases for the purchase of fixed
assets 1,557 -
Repayment of other borrowings (274) -
Issue of new B shares in subsidiary 1 7
Issue of new ordinary shares 2,696 419
Purchase of own shares (4,742) (25,373)
Cash flow from financing activities (21,811) (24,240)
-------- --------
(Decrease)/increase in cash and cash equivalents (3,985) 9,419
Net cash and cash equivalents at the beginning
of the year 28,151 18,732
Net cash and cash equivalents at the year
end 24,166 28,151
-------- --------
Consolidated Statement of Changes in Equity
For the year ended 31 March 2019
Capital Non-controlling
Share Share redemption Treasury JSOP Retained interest
capital premium reserve shares reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 April
2017 4,024 138,642 - (760) (1,150) 116,958 - 257,714
Profit and total
comprehensive income - - - - - 30,490 - 30,490
Dividends - - - - - (38,273) - (38,273)
Credit arising on
share options - - - - - 2,031 - 2,031
Issue of new ordinary
shares 6 413 - - - - - 419
Issue of B shares
in subsidiary 7 - - - - - - 7
Purchase of cancelled
shares (107) - 107 - - (25,373) - (25,373)
Balance at 31 March
2018 3,930 139,055 107 (760) (1,150) 85,833 - 227,015
-------- -------- ----------- ---------- --------- --------- --------------- --------
Balance at 1 April
2018 3,930 139,055 107 (760) (1,150) 85,833 - 227,015
Opening balance
adjustments - - - - - 5,068 - 5,068
Revised opening balances 3,930 139,055 107 (760) (1,150) 90,901 - 232,083
-------- -------- ----------- ---------- --------- --------- --------------- --------
Profit and total
comprehensive income - - - - - 33,103 (278) 32,825
Dividends - - - - - (39,739) - (39,739)
Credit arising on
share options - - - - - 1,783 - 1,783
Deferred tax on share
options - - - - - 182 - 182
Issue of new ordinary
shares 19 2,677 - - - - - 2,696
Issue of B shares
in subsidiary 1 - - - - - - 1
Purchase of treasury
shares - - - (4,742) - - - (4,742)
Balance at 31 March
2019 3,950 141,732 107 (5,502) (1,150) 86,230 (278) 225,089
-------- -------- ----------- ---------- --------- --------- --------------- --------
Notes
1. Segment reporting
The Group's reportable segments reflect the two distinct
activities around which the Group is organised:
-- Customer Acquisition; and
-- Customer Management.
Customer Acquisition revenues mainly comprise sales of equipment
including mobile phone handsets and wireless internet routers to
customers. Customer Management revenues are principally derived
from the supply of fixed telephony, mobile telephony, gas,
electricity, internet services, home insurance and boiler
installation services to residential and small business
customers.
The Board measures the performance of its operating segments
based on revenue and segment result, which is referred to as
operating profit. The Group applies the same significant accounting
policies across both operating segments.
Operating segments
Year ended 31 March 2019 Year ended 31 March 2018
Customer Customer Customer Customer
Management Acquisition Total Management Acquisition Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 784,973 19,465 804,438 776,087 16,785 792,872
----------- ------------ --------- ----------- ------------ ---------
Segment result 63,862 (19,549) 44,313 59,859 (17,955) 41,904
----------- ------------ --------- ----------- ------------ ---------
Operating profit 44,313 41,904
Net financing expense (1,314) (905)
Profit before taxation 42,999 40,999
Taxation (10,174) (10,509)
--------- ---------
Profit for the period 32,825 30,490
--------- ---------
Segment assets 421,312 12,506 433,818 428,447 9,473 437,920
Total assets 421,312 12,506 433,818 428,447 9,473 437,920
Segment liabilities (205,558) (3,171) (208,729) (207,567) (3,338) (210,905)
--------- ---------
Net assets 225,089 227,015
--------- ---------
Capital expenditure (7,365) (184) (7,549) (3,727) (80) (3,807)
Depreciation 3,024 76 3,100 3,291 71 3,362
Amortisation 12,509 - 12,509 12,244 - 12,244
----------- ------------ --------- ----------- ------------ ---------
Statutory operating profit is stated after deducting share
incentive scheme charges (GBP1.8m) and the amortisation of the
energy supply contract intangible asset (GBP11.2m).
Revenue by service
2019 2018
GBP'000 GBP'000
Customer Management
* Electricity 351,197 337,461
* Gas 268,140 280,293
* Fixed communications 116,522 114,050
* Mobile 32,477 30,828
* Other 16,637 13,455
------- -------
784,973 776,087
Customer Acquisition 19,465 16,785
804,438 792,872
------- -------
The Group operates solely in the United Kingdom.
2. Earnings per share
The calculation of basic and diluted earnings per share ("EPS")
is based on the following data:
2019 2018
GBP'000 GBP'000
Earnings for the purpose of basic and
diluted EPS 33,103 30,490
Share incentive scheme charges (net of
tax) 1,649 1,657
Amortisation of energy supply contract
intangible assets 11,228 11,228
--------- ---------
Earnings excluding share incentive scheme
charges and amortisation of intangibles
for the purpose of adjusted basic and
diluted EPS 45,980 43,375
--------- ---------
Number Number
('000s) ('000s)
Weighted average number of ordinary shares
for the purpose of basic EPS 77,975 78,659
Effect of dilutive potential ordinary
shares (share incentive awards) 335 426
--------- ---------
Weighted average number of ordinary shares
for the purpose of diluted EPS 78,310 79,085
Adjusted basic EPS(1) 59.0p 55.1p
Basic EPS 42.5p 38.8p
Adjusted diluted EPS(1) 58.7p 54.8p
Diluted EPS 42.3p 38.6p
1 Adjusted basic and diluted EPS exclude share incentive scheme
charges and the amortisation of the intangible asset recognised as
a result of the new energy supply arrangements entered into with
npower in December 2013.
It has been deemed appropriate to present the analysis of
adjusted EPS excluding share incentive scheme charges due to the
relative size and historical volatility of the charges. In view of
the size and nature of the charge as a non-cash item the
amortisation of intangible assets arising from the energy supply
agreement with npower has also been adjusted.
3. Dividends
2019 2018
GBP'000 GBP'000
Prior year final paid 26p (2018: 25p) per
share 20,257 19,523
Interim paid 25p (2018: 24p) per share 19,482 18,750
-------- --------
The Directors have proposed a final dividend of 27p per ordinary
share totalling approximately GBP21.1 million, payable on 2 August
2019, to shareholders on the register at the close of business on
12 July 2019. In accordance with the Group's accounting policies
the dividend has not been included as a liability as at 31 March
2019. This dividend will be subject to income tax at each
recipient's individual marginal income tax rate.
4. Related parties
Identity of related parties
The Company has related party relationships with its
subsidiaries and with its directors and executive officers.
Transactions with key management personnel
Directors of the Company and their immediate relatives control
approximately 23.9% of the voting shares of the Company. No other
employees are considered to meet the definition of key management
personnel other than those disclosed in the Directors' Remuneration
Report in the Annual Report.
Details of the total remuneration paid to the directors of the
Company as key management personnel for qualifying services are set
out below:
2019 2018
GBP'000 GBP'000
Short-term employee benefits 1,729 1,639
Social security costs 228 219
Post-employment benefits 20 40
1,977 1,898
Share incentive scheme charges 86 294
------- -------
2,063 2,192
------- -------
During the year, the Group acquired goods and services worth
approximately GBP25,000 (2018: GBP22,000) from companies in which
directors have a beneficial interest. No amounts were owed to these
companies by the Group as at 31 March 2019. During the year, the
Group sold goods and services worth GBPNil (2018: GBP12,000) to
companies in which directors have a beneficial interest.
During the year directors purchased goods and services on behalf
of the Group worth approximately GBP755,000 (2018: GBP75,000). The
directors were fully reimbursed for the purchases and no amounts
were owing to the directors by the Group as at 31 March 2019.
During the year the directors purchased goods and services from the
Group worth approximately GBP29,000 (2018: GBP32,000) and persons
closely connected with the directors earned commissions as Partners
for the Group of approximately GBP10,000 (2018: GBP13,000).
Other related party transactions
Subsidiary companies
During the year ended 31 March 2019, the Company purchased goods
and services from the subsidiaries in the amount of GBP171,000
(2018: GBP239,000 purchased by the Company from the subsidiaries).
During the year ended 31 March 2019 the Company also received
distributions from subsidiaries of GBP30,000,000 (2018: GBPNil). At
31 March 2019 the Company owed the subsidiaries GBP76,197,000 which
is recognised within trade payables (2018: GBP63,626,000 owed by
the Company to the subsidiaries).
5. Financial reporting standards applied for the first time in
current year
Background
IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from
Contracts with Customers) were applied for the first time as of 1
April 2018. The effects resulting from their first-time application
are detailed in this note. Full details of the nature of the
expected impact of these new accounting standards was set out on
pages 101 to 104 of the Company's Annual Report for the year ended
31 March 2018.
The Company has decided to apply these new accounting standards
in modified form retrospectively for the first time as at 1 April
2018, without restating the prior-year figures, accounting for the
aggregate amount of any transition effects by way of an adjustment
to equity and presenting the comparative period in line with
previous standards.
The effects that the first-time application of IFRS 9 and IFRS
15 had on retained earnings and other comprehensive income in the
statement of comprehensive income in the current period are
detailed in the tables below where significant.
Retained earnings reconciliation IFRS 9 and IFRS 15
GBP'000 GBP'000
Retained earnings as at 31 March 2018 85,833
--------
Effects of IFRS 9 (net of tax) (424)
of which increase in allowances for unbilled trade
receivables (424)
Effects of IFRS 15 (net of tax) 5,492
of which increase in prepayments 3,368
of which increase in contract assets relating to
provision of light bulbs and routers 2,591
of which increase in deferred income relating to
CashBack card scheme (467)
Retained earnings as at 1 April 2018 90,901
--------
Impact of IFRS 15 on the Balance Sheet as at 31 March 2019
As at Changes As at
31 March of timing 31 March
2019 in recognition 2019
Before accounting After accounting
changes changes
GBP'000 GBP'000 GBP'000
Trade and other receivables 48,944 (494) 48,450
Prepayments and accrued income 118,971 219 119,190
Current tax payable (5,139) 74 (5,065)
Accrued expenses and deferred income (111,273) (113) (111,386)
Retained earnings 86,544 (314) 86,230
The impact of IFRS 9 on the Balance Sheet as at 31 March 2019 is
not significant.
Impact of IFRS 15 on the Statement of Comprehensive Income for
the year ended 31 March 2019
31 March Changes 31 March
2019 of timing 2019
in recognition
Before accounting After accounting
changes changes
GBP'000 GBP'000 GBP'000
Revenue 805,045 (607) 804,438
Distribution expenses (26,200) 219 (25,981)
Taxation (10,248) 74 (10,174)
The impact of IFRS 9 on the Statement of Comprehensive Income
for the year ended 31 March 2019 is not significant.
Summary of accounting policy changes - IFRS 9
IFRS 9 established that an expected credit loss model should be
applied that will result in a day one loss on initial recognition
of trade receivables or contract assets that arise from
transactions in the scope of IFRS 15.
In relation to trade receivables and accrued income, the Group
already made a day one provision for losses on initial recognition
and has therefore previously applied the principles of IFRS 9. In
relation to certain contract assets, under IFRS 9 the Group has
recognised a small provision on day one to reflect the expected
level of recoverability of such balances as they are
invoiced/demanded.
The Group has adopted IFRS 9 using the modified retrospective
approach. Consequently, comparatives for the year-end position as
at 31 March 2018, have not been restated.
Summary of accounting policy changes - IFRS 15
Under IFRS 15, the core principle is that an entity recognises
revenue to depict the transfer of goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. For
bundled packages, IFRS 15 requires the Group to account for
individual goods and services separately if they are distinct -
i.e. broadly, if the customer can benefit from the goods and/or
services on their own or together with other readily available
resources. The transaction price is allocated between separate
goods and services in a bundle based on their stand-alone selling
prices. Revenue is then recognised when the Group transfers control
of a good or service to a customer. IFRS 15 also requires the Group
to recognise any incremental costs of obtaining a contract to be
capitalised and amortised on a systematic basis.
The Group has adopted IFRS 15 using the modified retrospective
approach. Consequently, comparatives for the year-end position as
at 31 March 2018, have not been restated.
Sale of goods In marketing the sale of bundled services, the Group
Daffodil light offers most "Double Gold" and certain "Gold" customers
bulbs the provision and installation of LED light bulbs
throughout their homes (the 'Daffodil' scheme). Under
IAS 18, no up--front revenue was separately recognised
for the provision of light bulbs, and the associated
costs were recognised as incurred.
Under IFRS 15 the provision of Daffodil light bulbs
is distinct from the provision of the other bundled
goods and services. This has resulted in an allocation
of revenue to the light bulbs, which is being recognised
as control of the light bulbs is passed to the customer
- i.e. at the point of installation by a Utility
Warehouse fitter. There is a corresponding reduction
compared to the previous accounting treatment in
revenues from services over the remaining contractual
term.
Sale of goods In the provision of broadband services, the Group
Broadband provides its customers with a broadband router at
routers the start of their contract. Under IAS 18, no up-front
revenue was separately recognised for the provision
of routers, and the associated costs were recognised
as incurred.
Under IFRS 15, as the routers provided by the Group
can be used with other service providers, they are
considered to be distinct from the provision of broadband
services. This has resulted in an allocation of revenue
to the broadband routers, which is being recognised
as control of the routers is passed to the customer
- i.e. on receipt of the router. There is a corresponding
reduction compared to the previous accounting treatment
in revenues from broadband services over the remaining
contractual term. The terms and conditions under
which broadband routers are supplied to customers
changed from mid-September 2018 and routers shipped
after this date are now accounted for as finance
leases.
------------------------------------------------------------------
Commissions Management considers commissions paid to Partners
to be incremental costs of obtaining a contract.
The Group's services are promoted by a large network
of independent distributors. The Group's independent
distributors earn commissions primarily on the introduction
of new customers to the Group ('upfront commissions')
and on the ongoing monthly use of the Group's services
by the customers they have introduced ('trailing
commissions'). Previously, upfront commissions and
trailing commissions were recognised as an expense
as they are incurred.
Under IFRS 15, upfront commissions have been capitalised
and are being amortised over the expected life of
the customer.
------------------------------------------------------------------
CashBack card The Group operates a CashBack card scheme, whereby
scheme a pre-paid payment card is provided to customers
through a third-party e-money issuer. Customers earn
CashBack on any spend at retailers that are part
of the scheme. The cashback earned is applied against
the customers' subsequent non-energy service bills.
The Group charges various fees to the customer for
operating the scheme, including initial application
fees, monthly management fees and other transactional
based fees.
Under IFRS 15, as the initial application fee is
considered to be a non-refundable upfront fee that
does not relate to the transfer of a promised good
or services, the associated fee is now therefore
being recognised over the expected life of the customer.
------------------------------------------------------------------
6. Acquisitions of Glow Green Limited and Cofield Limited
On 31 May 2018 the Group acquired 75% of the ordinary share
capital of Glow Green Limited, a small supplier/installer of
domestic gas boilers and warranty/care plans for consideration of
GBP1.5 million, plus a GBP0.5 million repayable working capital
loan facility ("the Transaction"). The Group also acquired 75% of
the share capital of Cofield Limited as part of the Transaction.
Cofield Limited was under the same ownership as Glow Green Limited
and is a small online retailer of central heating equipment to the
plumbing industry.
The book value of the net assets and liabilities at acquisition
of GBP(28,000) was considered to reflect the fair value of the
identifiable assets and liabilities of the two companies. The two
companies did not have any other identifiable assets and
liabilities at acquisition and therefore the consideration of
GBP1.5 million has been entirely allocated to goodwill on the Group
balance sheet.
7. Basis of preparation
The financial information set out above does not constitute the
Group's statutory information for the years ended 31 March 2019 or
2018, but is derived from those accounts. The Group's consolidated
financial information has been prepared in accordance with
accounting policies consistent with those adopted for the year
ended 31 March 2018. Statutory accounts for 2018 have been
delivered to the Registrar of Companies and those for 2019 will be
delivered following the Company's annual general meeting. The
auditor has reported on these accounts, their reports were
unqualified and did not contain statements under the Companies Act
2006, s498(2) or (3).
8. Directors' responsibility statement
The directors confirm, to the best of their knowledge:
(a) the financial statements, prepared in accordance with
International Financial Reporting Statements ("IFRSs") as adopted
by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
the undertakings included in the consolidation taken as a whole;
and
(b) the Chairman's Statement, Chief Executive's Review,
Financial Review and Principal Risks and Uncertainties include a
fair review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
The directors of Telecom Plus PLC and their functions are listed
below:
Charles Wigoder - Executive Chairman
Julian Schild - Deputy Chairman and Senior Non Executive
Director
Andrew Lindsay - Chief Executive Officer
Nick Schoenfeld - Chief Financial Officer
Andrew Blowers - Non Executive Director
Beatrice Hollond - Non Executive Director
Melvin Lawson - Non Executive Director
By order of the Board
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKODQABKDBAD
(END) Dow Jones Newswires
June 18, 2019 02:00 ET (06:00 GMT)
Telecom Plus (LSE:TEP)
Historical Stock Chart
From Apr 2024 to May 2024
Telecom Plus (LSE:TEP)
Historical Stock Chart
From May 2023 to May 2024