Telecom Plus PLC (LON:TEP) (trading as Utility Warehouse and UW), the UK’s only supplier of bundled household utility services, has issued its final results for the year ended 31 March 2024.
Financial Highlights
● Revenues of £2,039.1 million (2023: £2,475.2m)
● Gross profit up 16.0% to £355.2 million (2023: £306.2m)
● Adjusted pre-tax profit up 21.5% to £116.9 million, slightly above market expectations (2023: £96.2m)
● Adjusted EPS up 9.9% to 109.0p (2023: 99.2p)
● Statutory pre-tax profit up 17.6% to £100.5 million (2023: £85.5m)
● Statutory EPS up 3.8% to 89.9p (2023: 86.6p)
● Net debt to adjusted EBITDA ratio at 0.9x
● Full year dividend up 3p to 83p (2023: 80p) per share
Operational Highlights
● The business continues to perform strongly against the backdrop of a normalised energy market, passing the 1 million customer milestone in Q4
● Organic customer growth of 14.1%, taking our total base to 1,011,489 (2023: 886,579)
● Service numbers increased by 328,949 to 3,127,097 (2023: 2,798,148)
● Insurance policies up 38% to 139,109 (2023: 100,590)
● Ranked “Best Value for Money” and “”Most Likely to be Recommended” in Uswitch 2023 Energy Awards; rated “Excellent” on Trustpilot
● Increase in Partner numbers to 68,251 (2023: 59,842) reflecting ongoing strong demand for our income opportunity as cost of living pressures continue
Outlook
● With our recent strong rate of customer growth continuing into FY25, we are confident of delivering organic net customer growth between 12-14% in FY25
● Adjusted pre-tax profit for FY25 is expected to be between £124m-£128m
● Ongoing favourable environment for recruitment of new Partners, supported by both short and long-term drivers
● Recently strengthened multiservice customer proposition and continuing rational marketplace underpin our confidence in doubling the business to two million customers over the medium term
Stuart Burnett, Telecom Plus Co-CEO, said:
“We are delighted to have delivered another year of record customer numbers, record profits and record returns to shareholders – all through helping households to stop wasting time and money. Our unique multiservice model means we can continue to provide market-leading savings and sustainably outcompete within each of our core markets. At the same time, the additional income opportunity we provide to Partners for recommending UW to their friends and family has never been more in demand.
With the business in such good health, and having passed through the 1 million customer milestone, our current rate of growth places us firmly on track to double the size of the business to two million customers over the medium term, with a commensurate increase in profitability and shareholder returns.”
There will be a virtual meeting for analysts today at 9.00am, accessible via https://brrmedia.news/TEP_FY24
Chairman’s Statement
I am pleased to report another exceptional performance during FY24 with customer and service numbers continuing to show strong organic growth, and with record profits and dividends.
Adjusted pre-tax profits increased by 21.5% to £116.9m (2023: £96.2m), slightly above market expectations, reflecting the continuing double-digit growth in our customer and service numbers, and a modest tailwind from higher energy prices in Q1 (compared with the remainder of FY24).
The Ofgem energy price cap during FY24 averaged £2,140 (2023: £3,100). This significant reduction led to a fall in overall revenues for the business to £2,039.1m (2023: £2,475.2m) notwithstanding a significant increase in service numbers and higher revenues from non-energy services. These factors were also responsible for our higher gross profit margin, which at 17.4% (2023: 12.4%) is returning towards historically normal levels, and the 16.0% increase in our gross profit to £355.2m (2023: £306.2m). Adjusted earnings per share for the year rose by 9.9% to 109.0p (2023: 99.2p). Statutory pre-tax profits rose by 17.6% to £100.5m (2023: £85.5m), and statutory EPS rose by 3.8% to 89.9p (2023: 86.6p).
Our strong organic growth continued during the year, with customer numbers increasing by 14.1% to 1,011,489 (2023: 886,579) and service numbers rising by 328,949 to 3,127,097 (2023: 2,798,148).
Families across the UK faced strong inflationary pressures throughout the year, and we remain proud of the role we played in helping both customers and Partners navigate the challenges this created. Our unique business model shares the benefits we derive as an integrated multiservice supplier with our customers (by giving them sustainable long-term savings on their essential household services), whilst our Partner opportunity offers hard-working people, from all walks of life, the ability to earn an additional long-term income (which helps offset their rising cost of living whilst building financial freedom). As a result we are seeing ongoing strong demand in both these areas, with our total Partner numbers increasing by 14.1% to 68,251.
I am very proud of the commitment and achievements of our employees without which this record Company performance could not have been achieved. Amongst other accolades, we were awarded “Best Value for Money” and “Most likely to be Recommended” by Uswitch in their 2023 Energy Awards, came out top in the latest Which? league table of Energy Suppliers, were rated 5 stars for customer service by Uswitch in their 2024 Broadband Rankings, and achieved an “Excellent” rating on Trustpilot. This positive recognition reflects the outstanding customer service delivered by our colleagues, as well as the great value for money of our customer offering and the dedication of our Partners.
Our people and the communities we serve are at the heart of our strategy. As a company, we are culturally focussed on our sustainability – not just in our approach to building long-term relationships with our customers and Partners and supporting our employees, but also in ensuring that we are doing business responsibly. This includes considering our wider impact on the environment around us and supporting the UK’s transition to net zero.
I am pleased with the further progress we have made this year towards improving our sustainability, including leveraging our updated E.ON contract, which enables UW to develop products that will better serve our customers as the UK moves towards net zero.
On our diversity and inclusion agenda, not only have we exceeded our targets for management roles held by women and employees from ethnically diverse backgrounds, we have also developed and launched our UW Belonging groups, with six such groups created during FY24. We also conducted a Diversity & Inclusion audit, the findings of which will help us shape the future of this agenda at UW, ensuring we create an environment where everyone feels they belong and can develop to their full potential.
As families across the UK continue to face ongoing cost of living challenges, we are proud of the role we play in helping our customers and Partners navigate these sustainably, through a combination of savings on their household services (for customers) and an additional income to help offset the rising cost of living (for Partners). I am delighted that we have been able to quantify the positive socio-economic impact of the UW Partner opportunity, with 86% of the Partners who responded to our survey saying that being able to earn flexibly through UW had improved their quality of life.
Looking ahead, our FY25 ESG objectives demonstrate the Company’s continued commitment to improving its sustainability and I look forward to delivering further progress over the year ahead. Further detail of the Company’s sustainability agenda and ongoing progress is set out in our ESG and Sustainability Reports.
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 Non-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, risks, and opportunities 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.
Dividend and Capital Allocation
The Company continues to deliver strong underlying cash generation, notwithstanding our ongoing double-digit organic customer growth.
We are proposing a final dividend of 47p (2023: 46p), bringing the total for the year to 83p (2023: 80p). This will be paid on 25 August 2024 to shareholders on the register at the close of business on 2 August 2024 subject to approval by shareholders at the Company’s AGM which will be held on 13 August 2024. The Company also completed a share buyback of £10.2 million during the year, bringing the total return to shareholders for FY24 to 87.1% of adjusted net income.
The Board adopts a disciplined approach to the allocation of capital, with the overriding objective being to enhance long-term shareholder value, whilst maintaining an appropriate level of gearing; this means retaining sufficient resources within the business to ensure that our organic growth is not constrained by lack of capital. We intend to continue following a progressive distribution policy, returning 80%-90% of adjusted net income to shareholders over the medium term, with the dividend growing in line with inflation, and with the balance being allocated to buying back shares.
Board Changes
As previously announced last autumn, Andrew Lindsay is stepping down as Co-CEO and from the Board after 16 years with the company. The current Co-CEO structure that has been in place for the past two years provides a clear succession path, and Stuart Burnett will assume overall responsibility for the business as sole CEO from our forthcoming AGM in August. Andrew will remain with the business on a part-time basis over the medium term, with a focus on supporting and further growing our Partner community.
We are delighted to welcome Bindi Karia as a new independent non-executive director to the Board. Ms Karia will join the Board immediately following the AGM. We expect her extensive experience, particularly in technology and innovation (where she has held senior board, investment, and advisory roles across the technology sector in Europe), to be of considerable value over the coming years.
Outlook
Sustainable Growth
As the only fully-integrated supplier in the UK spanning four essential household markets (energy, broadband, mobile and insurance), our one-stop-shop proposition delivers long-term savings funded by the inherent efficiency of our bundled multiservice proposition, with significant and growing appeal. This sustainable cost advantage sets us apart from our competitors, each of whom are focussed on individual market segments; and with 97 out of every 100 UK households taking their essential home services from these other suppliers, our organic growth opportunity has barely been tapped.
Since autumn 2021, over two and a half years ago, we have grown our customer numbers at an annualised compound rate of over 18%, spanning a period during which energy commodity prices increased steeply and then fell sharply, before stabilising at or around current levels. During the period of steeply rising energy prices, our annualised customer growth rate was in excess of 20% (albeit on a smaller opening customer base), whilst during the periods of both falling and now broadly stable prices our annualised growth rate has been consistently around 14%. That we have been able to deliver such strong double-digit growth during a rising, falling and stable environment for energy prices gives us considerable confidence in our ability to continue doing so in future.
Regulatory Environment
We fully endorse the more responsible regulatory environment for retail energy suppliers now in force, an outcome which we spent many years lobbying for. The combination of new capital adequacy requirements being imposed upon suppliers and the low regulatory EBIT margin allowed by Ofgem, make it extremely challenging for any standalone energy supplier to sell below the level of the price cap and earn an acceptable return on capital. As a result, we are uniquely positioned to outcompete over the longer term increasing our market share both sustainably and profitably.
Against that backdrop, and with energy prices having fallen significantly from their peak, rational competition has returned. All the major energy suppliers are actively seeking to acquire new customers, with a marked increase in advertising but, critically, based upon sensible pricing strategies. In this competitive marketplace, it has been encouraging to see our recent growth rate continuing into the new financial year, consistent with our guidance range set out below.
Energy Prices
The average energy price this year is expected to fall by around 20% during the current year compared with FY24 (from £2,140 to around £1,650); this creates a modest headwind by reducing our average revenue per customer. However, the negative impact on our profitability from these lower energy prices will be offset by improving our operating leverage and selectively increasing our non-energy pricing, whilst maintaining a market-leading competitive position across all our services.
Looking forward, we retain significant levers to grow our EBITDA per customer over time, including further multiservice pricing optimisation, higher service penetration, and improved operating leverage.
Guidance
We remain focussed on doubling the size of the business to over two million customers, with the following medium-term internal base case planning assumptions:
- annual percentage customer growth is expected to remain within the 10-15% range, with 12-14% organic customer growth expected during FY25;
- adjusted pre-tax profits are expected to increase broadly in line with customer growth, with Adjusted PBT for FY25 expected to be within a range of £124m to £128m; and
- excess capital will be returned to shareholders through a combination of steadily increasing dividends and buying back shares.
Both our people and our technology are vital to delivering an exceptional UW experience to our customers, and we will continue to invest in strengthening our teams at all levels as we scale, whilst evolving and improving our systems. It has been exciting to see our Partners recommending our strong and differentiated consumer proposition to a record number of households, delivering significant and high quality organic growth. With UK households facing continuing challenges and uncertainties over the coming year, and with continuing uncertainty around the ability of households to effectively fund a comfortable retirement, we anticipate that demand from new Partners joining UW to earn a valuable and secure residual income stream will remain strong.
I would like to thank my boardroom colleagues for their support and all our staff and Partners for their energy, drive and hard work through another exciting year of growth, and the contribution they are making to the ongoing strong performance of the business.
Having broken through the one million customer milestone during FY24, we are now firmly on track to achieve our next milestone of two million customers over the medium term, and we look forward to making significant further progress towards this over the current year.
Charles Wigoder
Non-Executive Chairman, Telecom Plus
18 June 2024
