Telecom plus PLC, the UK's leading low-cost multi-utility supplier (gas, electricity, telephony, internet), announces preliminary results for the year ended 31 March 2007.

Financial and business highlights:

- Turnover up 29% to £176m (2006: £136m)
- Profit before tax of £11.6m (2006: loss £1.6m)
- Net cash balance increased by £19.9m to £25.8m (2006: £5.9m)
- Final dividend of 6.0p (2006: 1.0p)
- Number of services provided increased 9% during the year to 542,039 (2006: 495,679)
- Number of independent distributors up 4% to 16,600
- Significant growth in Business Club customers to 6,388 (2006: 2,200)

Peter Nutting, Chairman, said:

'We are still the UK's only fully integrated provider of a wide range of attractively priced utility services, with a distribution channel of proven ability in cost effectively gathering high quality new customers each month,
which gives us a considerable competitive advantage in the domestic market. We also now have good earnings visibility following the elimination of our previous exposure to price fluctuations in the wholesale energy markets.

'We therefore remain confident that the current year will see further progress in the development of our business, and in the continuing delivery of satisfactory results.'

Chairmans Statement

I am delighted to report a year of record turnover and profits for the Company.

We achieved pre-tax profits of £11.6m (2006: £1.6m loss) on turnover which increased by 29% to £176m (2006: £136m). This substantial increase in turnover was driven by the favourable combination of higher energy prices together with an increase in the number of services provided to our customers.

Our cash balances increased by almost £20m during the year to just under £26m, a level which is substantially greater than we need to meet our forecast working capital requirements. Shareholders may recall that we raised approximately £10m through a share placing in May 2005, when we needed a stronger balance sheet to support our wholesale energy commitments during a period of rising prices and greater volatility in the wholesale markets. As a result of the transaction we announced in February 2006, these requirements are now substantially the responsibility of npower. We are therefore seeking authority at the forthcoming AGM to reduce our share premium account, in order to increase our distributable reserves and enable us to repurchase our shares in the market. The directors intend to consider making such purchases if, in the light of market conditions prevailing at that time, the directors believe that such purchases would increase earnings per share and would be for the benefit of the shareholders generally.

We have made good progress in developing our distribution channel, with a net increase of around 600 new independent distributors over the year, taking the total to around 16,600. We anticipate a further steady increase during the current year as we continue to invest significant resources in supporting our channel. An important development during the year was the launch of a new recruitment DVD ' What's it all about?' We also improved and simplified the bonus structure for new distributors in the Autumn, and this has clearly been a factor (together with the new DVD) behind the increased recruitment activity we have seen over the last 6 months.

Customer numbers overall remained broadly stable over the year; however this headline figure masks several important trends. Firstly, although the number of residential customers fell slightly to 208,444, the quality of the customer base has continued to improve, with the average number of services taken by each member increasing to 2.95 (2006: 2.76). Secondly, our Business Club (which we launched about 18 months ago) has seen significant growth over the year, with customer numbers increasing to 6,388 (2006: 2,200). It is particularly encouraging that members of our Business Club not only take multiple services, but also have higher average revenues and lower churn than domestic customers. Thirdly, the proportion of our residential customers who are now members of our Discount Club (and are thus eligible to take advantage of our new 'Free UK Calls' (multi-service discount) has increased to 72% (2006: 66%).

The lack of growth in residential customer numbers during the year was partly due to our decision to wait until the latest technology for supporting high speed low cost broadband ('LLU') had been installed in sufficient BT local exchanges, and the inevitable teething problems associated with the introduction of any new technology had been resolved. We feel this decision has been vindicated by the highly publicised problems experienced by those companies who launched their services earlier in the year. Our new BroadCall service (which combines Line rental, Calls and High Speed Broadband in a single package) was launched last Autumn and we expect this to account for an increasing proportion of our turnover in coming years.

Our infrastructure and systems were originally developed to enable us to manage a significantly larger number of customers than currently use our services, which means we have the potential to benefit from considerable economies of scale by growing our customer numbers. This is one of our key priorities for the coming year.

Recent published surveys show we are generally held in high esteem by our customers. We therefore intend to capitalise on this goodwill by encouraging them to recommend us, through launching a 'friend get friend' programme later this year. However before we can do so effectively we need to establish an inbound tele-sales fulfilment team, so that potential new customers can sign up for our services with the minimum of effort or inconvenience.

We are also establishing a specialist Home Movers team to help us retain a higher proportion of those potential new customers who have moved into a property where we were supplying the previous occupant.

I would like to thank our staff and distributors for the loyalty they have shown and the considerable contribution they have made to the continued success of the business.

Dividend

We are proposing a final dividend of 6p for the year (2006: 1p) making a total for the year of 8p (2006:1p), which will be paid on 10 August 2007 to shareholders on the register at the close of business on 13 July 2007 and is subject to approval by shareholders at the Company's Annual General Meeting which is being held on 11 July 2007. We intend to maintain a progressive dividend policy in future.

Segmental reporting

There are two fundamentally different business activities carried out by the Company. The first is the acquisition of new customers through our distribution channel. The second is the administration, management and billing of all the services we supply to our customer base. Historically we have referred to these (perhaps somewhat confusingly) as our Distribution business and our Virtual Network business respectively. In future, these will be referred to as our Customer Acquisition business and our Customer Management business.

Last year, for the first time, we further subdivided our Customer Management business between the supply of energy and telephony services, primarily in recognition of the substantially different risk profiles associated with these activities. In telephony, margins have always been highly predictable because of the close association between the retail prices we charge and the wholesale costs we incur, whereas in energy the margins are extremely volatile because there is no relationship in the short term between prices in the wholesale and retail markets. Following the transaction with npower which completed in March 2006, this difference no longer exists.

The highly integrated nature of our business, where we have a single billing and customer service platform supporting all the services we provide, means it is impossible to provide a meaningful result for each service as any allocation of overhead between our energy and telephony supplies is wholly arbitrary. We have therefore decided to present the figures for our Customer Management business in future as a single segment, in line with the way in which the business is actually managed internally. A breakdown of our turnover, split between the different services we supply, is included in the Financial Review section of these accounts.

Board of Directors

During the year under review we said goodbye to John Levin and Stephen Davis. Richard Hateley was appointed Finance Director in addition to his responsibilities as Company Secretary, and I am delighted to welcome Melvin Lawson and Michael Pavia who have joined the Board as non executive directors. They both bring very considerable commercial experience to our deliberations and I am pleased Michael Pavia agreed to take over from me the chairmanship of the Audit Committee.

Outlook

The current forward price curves for gas and electricity indicate that it is unlikely there will be any further material reductions in retail energy prices this Autumn, although our recently announced price reductions (in common with all the other major energy suppliers) will have a small adverse impact on our turnover for the coming year. Our gross energy margin (in percentage terms) is expected to remain broadly unchanged, and we look forward to continuing to earn a satisfactory contribution from supplying energy in future.

We are still the UK's only fully integrated provider of a wide range of attractively priced utility services, with a distribution channel of proven ability in cost effectively gathering high quality new customers each month,
which gives us a considerable competitive advantage in the domestic market. We also now have good earnings visibility following the elimination of our previous exposure to price fluctuations in the wholesale energy markets.

We therefore remain confident that the current year will see further progress in the development of our business, and in the continuing delivery of satisfactory results.

Peter Nutting

Chairman

5 June 2007


Further from the Business Review...

Our Distributors

Our distributors remain one of our key strengths. In contrast to other utility suppliers, the alignment of financial interests provided by our revenue sharing model ensures that our distributors focus their activities on finding credit-worthy and high spending customers 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 returns.

During the Autumn, we simplified the payment structure covering the bonuses available to new distributors, giving them the opportunity to earn a bonus of £200 (equal to their original joining fee) by gathering a minimum of 12 new customers within their first 90 days.

Our Car Plan, which provides eligible distributors with a subsidised fully-branded Mini remains extremely popular, and we have now supplied almost 70 cars. Owners find these helpful in raising their local profile, resulting in enquiries from both potential new customers and distributors, and we are currently considering how we can extend this programme to bring it within reach of a substantially larger number of distributors.

Distributors have seen a considerable increase in their average earnings from each customer during the last 2 years as a result of the growth in the number of services taken combined with sharply higher energy prices. Whilst there remains scope for some further modest rises as the average number of services taken continues to increase, distributors will now need to achieve consistent growth in their personal and Group customer numbers in order to obtain a meaningful increase in their current earnings as a distributor. Our unique market position continues to make this predominantly part-time career extremely attractive to potential new recruits.

Our national training programme has been further enhanced during the year, with the introduction of a full-day training course for new distributors, which replaced the previous two half-day sessions. We also have training modules to support our Business Club (including the supply of Commercial Energy and the increasing popularity of BlackBerrys), and a Personal Development Programme to provide our next generation of leaders with the additional skills they will
need.

Read full preliminary results

Also see...

Report & Accounts - Year ended 31st March 2007

Labels: company-information, corporate-news, director-news

posted by Jeremy Tromans at 6/09/2007 02:24:00 AM