TELECOM PLUS PLC (TEP) Q4 2026 Earnings Call Transcript

Good morning everyone. Thank you for joining us today for the Telecom Plus full year results presentation for the year ending 31st March 2026. I'm Stuart Burnett, CEO, and with me is Nick Schoenfeld, CFO. And we're pleased to report another strong performance in FY26 with double digit percentage organic customer growth resulting in record profits and an increase in total cash distributions to shareholders. Now let's run through the key highlights of our performance. We saw a 23% increase in total customers, including 193,000 broadband customers acquired from TalkTalk, with an underlying organic growth rate of just over 10%, which includes 14,500 TalkTalk customers who we upgraded and cross-sold. Our organic service growth of 7.6% lagged customer growth due to faster growth in single-service customers, resulting in organic services per customer declining, in part as a result of increased competition in the energy and broadband markets. Adjusted profit before tax of £132 million was at the lower end of our guided range, following an unseasonably warm winter, which led to a reduction in household energy consumption. And a total of £80 million will be returned to shareholders in respect of FY26, with a total dividend of 50 pence, plus a share buyback of £40 million, which will start today, equivalent to a further 50 pence per share in line with our updated shareholder distribution policy. And it's our unique business model which has enabled this performance. And below is a simple visualisation of the business model that many of you will be familiar with. first of all our multi-service proposition by bundling together energy broadband mobile and insurance we acquire multi-service customers with those market-leading lifetimes and contributions as well as more value the more services they take multi-service customers benefit from the simplicity of getting all their services on one bill with one phone number one app one password combined with our award-winning customer service. And together, that means that once they join, they don't want to leave. Essentially, we aim to be their last ever switch. Secondly, we have our structural financial advantage. You see, we also get a number of structural financial benefits from our multi-service customers. More margin, lower bad debt, and a higher contribution to our fixed overheads. And we reinvest some of this back into the customer proposition. meaning that we can put together a compelling customer offer whilst at the same time growing profitably and finally we have our partner route to market you know what we've just been talking about creates a proposition which is really worthy of recommendation and that's how we sign up our multi-service customers word of mouth recommendation by our 80,000 strong network of partners you see our partners are the key that unlock our access to multi-service customers And it's a business model which really works, with a long and demonstrable track record. We've now been delivering double-digit organic customer growth for a number of years as a result of this business model. Since FY21, we've seen our customer numbers, excluding those customers acquired from TalkTalk, increase at a compound annual growth rate of 13.8%, whilst our adjusted profit before tax has increased at a compound annual growth rate of almost 19% over the same period. Now, looking more closely at our organic customer and service growth for the year, it's important to understand the key competitive dynamics during the period. As mentioned earlier, we met our double-digit growth target for organic customer growth, including the customers upsold and cross-sold from TalkTalk, with growth of just over 10%, albeit with organic service growth of 7.6%, lagging behind customer growth. Now, the context for this is that we saw increased price competition in the energy market, with many suppliers offering fixed tariffs at a large discount to the price cap, as well as spending heavily on marketing and branding. Despite this, we continued to grow our energy services, all a bit at a slower than expected rate of 1.8%, but in an environment where only one of the big six suppliers increased their market share organically. and together this competitive backdrop led to our churn rate increasing slightly during the period to 14.2 percent. In broadband our full year organic growth was 3.8 percent. During the period the broadband market was impacted by increased price competition driven by discounting from alt nets fighting for customers while dealing with high debt levels and consolidation. Our partnership with City Fibre remains strong, and 74% of new customers are now choosing full fibre broadband, which we expect to increase now that we've launched our first VoIP product. In mobile, our offering continued to grow very strongly, with mobile services up 29%, reflecting our competitive position in the mobile market. And then turning to insurance, this has been slower than expected to recover from the pause in new sales that took place following an FCA review in FY25. Now, whilst our home insurance product began to see positive growth in the second half of the year, this was offset by a decline in our boiler insurance services. And finally, we saw strong growth in cashback card takeout following a number of enhancements to the product during the year, including the launch of open banking, adding new retailers and a three-month free promotion. Now, across the year, we continued to invest in our unique multi-service proposition and partner route to market we were incredibly proud to become the first ever company to be which recommended for energy and broadband at the same time during 2025 which is a testament to both the strength of our customer proposition and the quality of service that we provide and this was in addition to being named best value for money by uswitch at their 2025 energy awards our partner offering is increasingly of its time driven by the ongoing cost-of-living crisis and trends towards multiple incomes, not to mention the pensions crisis and the growing need for many households to bolster their retirement income. As a result, we saw strong growth in the number of partners during the year to over 77,000. And to broaden the reach of our partners, we also launched a trial that we're calling Connectors, where partners sign up a local business or a community organisation, which in turn provides them with warm customer leads with the sign-up bonus shared between the partner and the collector. We also relaunched our insurance proposition during the year after that brief hiatus I mentioned during an FCA review. Insurance service, however, still continued to decline during the year, although we're looking to return insurance back to growth over the year ahead and are planning to launch our first new product in a number of years, expected to be motor insurance in the second half. Finally, we strengthened our customer proposition with new product launches at our biannual partner events, including trialling free energy days and a welcome bonus as a new customer sign-up incentive, introducing a wider range of energy fixed tariffs, as well as adding new retailers to the cashback card. We also further enhanced our mobile offering with a new introductory SIM and unlimited multi-SIM deal, resulting in an increase in the rate of mobile service growth. Competitive dynamics, however, continue to impact service growth in energy and broadband. On the subject of broadband, I also wanted to spend some time on the performance of the Cross-Sell Initiative with former customers of TalkTalk, which we see as a real success. As a reminder, we acquired two tranches of broadband customers from TalkTalk in late FY25 and early FY26. we had 193,000 of these customers on our books at the end of the last financial year with 160,000 of them actually migrated onto our systems and available for cross-sell the balance have since been migrated onto our systems over the last couple of months now the key takeaway here is that the initial cross-sell results are encouraging and show that significant conversion is achievable significantly above what is typical in most industries for cross-sell initiatives. 14,500 customers were upgraded and cross-sold in FY26, with two-thirds of these customers taking at least one additional service. This represents a 17% conversion rate of the customers available for cross-sell across the year, given that these customers were migrated gradually, despite using only manual processes and limited incentives. Now, as previously explained, we expect to achieve a return from these customers above our post-tax cost of capital, even without any cross-selling. And going forward, this opens up a significant opportunity to cross-sell to our existing base of single-service customers. Now we have the know-how, and once we've built out the capabilities to do so.

Now I'll hand over to Nick to talk through our financial performance. thanks Stuart let's start with the P&L as Stuart mentioned adjusted profit before tax is at 132 million relative to the prior year of 126 million this was at the bottom of the guided range due to an unseasonably warm winter now it's important to note that the rephasing of certain energy costs including metering did not impact our full year profits or cash flow as we stated at the half year results. Gross profit is up 9%, reflecting the growth in services offset by the impact from the warmer weather in winter. Distribution expenses of £48 million remain flat as a percentage of sales. Admin expenses increased by 10% to £159 million against a backdrop of customer and service growth, a higher depreciation charge related to TalkTalk, and higher national insurance and minimum living wage costs. The bad debt charge for the period as a percent of sales was higher at 2.1%. This reflected continued elevated levels of customer non-payment which arose from the previously high energy prices and that temporary moratorium on the involuntary installation of prepayment meters. Now a progressive ramp-up of this debt recovery process is underway And as a reminder, typically any movements in bad debt levels across the industry are recovered through increases in the relevant off-gen price cap allowance, all of which accrue to the group. Net interest was higher due to higher net debt following the TalkTalk customer acquisition, and this results in overall adjusted profit before tax of £132 million, which is up 5% on the prior year. The balance sheet includes an increase of £60 million in non-current assets, and that reflects the acquisition of broadband customer contracts to whom we can cross-sell, together with investment in software development. Net current assets increase by £40 million, and that's driven by working capital resulting from growth. This contributes to net debt increasing £27 million driven by the purchase of these customer contracts. With all this, the net debt to EBITDA ratio remains low at 0.9 times given the strong cash generation of the business. On the cash flow, well, this starts with an FY26 EBITDA of £162 million, which is up from £148 million in the prior year. There was a working capital outflow this year of £10 million. Now, as a reminder, the typical working capital outflow expected across the whole year, given the rate of multi-service growth, continues to be around £25 to £30 million. You then have tax of £32 million, and then there is capex of £64 million. That includes £46 million for the acquisition of customer contracts, which relates to TalkTalk, compared to £5 million in the prior year, and that leaves a residual spend, which is primarily technology, of around £17 million. With all this, and the payment of dividends, you have an increase in net debt by £27 million to £143 million. And as mentioned earlier, that results in a net debt to EBITDA position of 0.9 times, despite the acquisition of the TalkTalk customers. Now, turning to shareholder distribution. The backdrop is that we have a capital-like business model, given that this has low working capital requirements as we grow, and it has underlying CAPEX, which is limited primarily to technology development. That's what determines our progressive distribution policy, where we maintain low leverage of around one times net debt to EBITDA, and at the same time return at least 80% of profits after tax to shareholders. Now our policy has been revised to split the distribution to shareholders into at least 50% via ordinary dividends and the remainder via a share buyback if it is financially beneficial to the company and the company is permitted to do so. The share buyback will be actioned if the company's shares are trading below 20 times implied post-tax earnings. Otherwise, this part of the distribution will be via a special dividend. Given that the shares have been trading below that level, we're allocating 50% of the distribution to share buybacks. This means that today we are declaring a final dividend of 12 pence per share, bringing our total dividend for the year to 50 pence per share, and allocating a further £40 million to a share buyback starting today. That's equivalent to a further 50 pence per share, bringing our total return to shareholders for the year to £1 per share.

Now back to Stuart. Thank you, Nick. Now, as we said in our FY26 trading update back in April, we've been reviewing initiatives focused on progressively increasing services per customer, reducing churn and enhancing customer lifetime values in order to maximise long-term shareholder value. and today we have published our new five-year plan which includes a renewed focus on multi-service customer growth and aims to double the number of multi-service customers to more than one million by 2031. For full details of the plan together with our outlook for the current year FY27 please see the separate R&S and the presentation of our new plan which will be webcast at 9am this morning and published on our website. Thank you everyone for listening.