'Green shoots' beginning to emerge at Telecom Plus

Utility services retailer Telecom Plus - which trades as the Utility Warehouse - issued a trading update for its financial year to 31 March on Thursday, reporting that customer and service numbers for the full year showed further modest growth, with an encouraging upward trend starting to emerge during the fourth quarter.

The FTSE 250 firm confirmed a total dividend of 48p per share for the year, up 4.3%, alongside the launch of its new home insurance service.

Full year adjusted pre-tax profits from continuing operations, excluding the contribution from its 20% shareholding in Opus Energy Group which was sold to Drax Group in February 2017, was expected to be around £53m - in line with previous guidance, and up from £48.8m excluding Opus in the prior year.

The company said its full year results would also include total profit from discontinued operations of around £65m following the recent sale of the 20% shareholding in Opus.

As previously announced, the cash proceeds from the sale of Opus were expected to be returned to shareholders through a £70m tender offer in the summer.

The board said cash flow remained “strong”, and in line with management expectations.

Telecom Plus said the strong headwinds seen over the last few years persisted during the first half of the year, with continuing low commodity prices creating a record gap between standard variable energy tariffs and aggressively priced introductory deals.

As reported in its interim statement on 21 November, that gap had begun to narrow in the late autumn, although it was too late to provide any positive impact on service and customer numbers for Q3.

“To boost partner confidence and kick-start activity after a prolonged period of modest growth, we implemented a change to our partner compensation plan with effect from 1 January 2017; this gave them the opportunity to accelerate some of the residual income they would earn on new members who switch all their utilities to us,” the board explained in a statement.

Combined with its reportedly more competitive customer proposition, growth began to accelerate as the firm progressed through the fourth quarter, taking full-year customer and service numbers to 607,802 from 598,613 year-on-year, and 2,288,918 from 2,181,704 respectively, in line with previous guidance.

“Our annual sales conference took place on 18-19 March and was attended by around 5,000 partners.

“We launched a range of promotional films featuring Joanna Lumley as the new face of Utility Warehouse, explaining who we are and the benefits we provide to those looking to save money by joining as a new member or make money by becoming a partner.

“These were well received, and we have since seen an encouraging increase in the number of new partners joining the business,” the board said.

Following a successful trial of home insurance to partners over the winter, Telecom Plus announced at its recent sales conference that the new service would shortly be made available to all members.

The initial level of policy sales was expected to be “extremely modest” while the firm ramped up its internal resources and added new insurers to our panel in order to broaden the types of property it could cover competitively.

“Home insurance is expected to have a negligible impact on our profitability for the current financial year, but thereafter has the potential to make a progressively significant contribution as penetration of policies within our membership base begins to grow.”

The company confirmed its intention to pay a total dividend per share for the year just ended of 48p, up from 46p year-on-year.

It said the final dividend of 25p was expected to be paid on 28 July 2017, subject to shareholder approval at the AGM which would be held on 20 July 2017.

“Our strategy of achieving consistent high quality growth through delivering savings, simplicity and exceptional customer service is bearing fruit,” the board said.

“We have seen a significant improvement in the proportion of new members who are switching all their services to us over the course of the last two years - from 30% to c.55% - these better quality customers have the highest expected lifetime value, although they cost significantly more to acquire.

“Based on recent levels of partner activity, we anticipate the number of services we supply will increase by between 5% and 10% over the coming year.”

From a financial perspective, the board said the modest growth in the number of services added over the last few years, combined with higher anticipated customer acquisition costs and an increasing investment in IT, mean that Telecom Plus’ adjusted pre-tax profits from continuing operations for the current financial year were likely to be at a similar level to the year just ended.

It said the benefit from faster organic growth would, if current trends continue, be reflected in its reported results for the following financial year.

“I am delighted we are at last beginning to see green shoots emerging as the retail energy market has started to normalise,” said CEO Andrew Lindsay.

“Confidence within our partner network is increasing, and our focus over the coming months will be on doing everything we can to build on the momentum that is beginning to gather.

“We look forward to returning the proceeds of the sale of our investment in Opus to shareholders this summer through a tender offer, and are excited about the prospects for the business over the coming years as the fundamental cost advantages that led to our historic faster growth begin to reassert themselves.”