Regulatory Story
Go to market news section View chart   Print
RNS
Homeserve Plc  -  HSV   

Half-year Report

Released 07:00 21-Nov-2017

RNS Number : 0265X
Homeserve Plc
21 November 2017
 

 

HomeServe plc

Interim results for the six months ended 30 September 2017

 

 



Six months ended

Six months ended




30 September 2017

30 September 2016

Change

Revenue¹


£366.0m

£314.3m

+16%

Statutory operating profit


£27.5m

£24.6m

+12%

Statutory profit before tax


£21.2m

£22.2m

-5%

Basic earnings per share


5.1p

5.4p

-5%






EBITDA


£56.1m

£47.9m

+17%

Adjusted² operating profit


£35.3m

£31.1m

+13%

Adjusted² profit before tax


£29.0m

£28.7m

+1%

Adjusted² earnings per share


6.8p

6.8p






Ordinary dividend per share


4.7p

4.1p

+15%

Net debt


£304.0m

£252.9m

+20%

Total customers


7.8m

7.5m

+5%






Continued momentum in all businesses with outstanding performance in North America

 

·      Growth in customer numbers in all established regions, supported by a Group retention rate of 82% (HY17: 82%) and a global focus on customer satisfaction

 

·      Solid operational performance and customer service metrics in the UK, with second half weighting of profit increasing as expected: full year growth prospects remain unchanged

 

·      Strong momentum in North America, to be supplemented by HomeServe's largest ever policy book acquisition announced 19 October 2017

 

·      Continued profit growth in France and Spain

 

·      Further progress on defining and testing the Home Experts model to deliver an on-demand home improvements platform

 

·      Net debt of £304m, 1.9x last twelve months EBITDA at 30 September 2017 (HY17: £252.9m, 1.9x)

 

·      Balance sheet strength retained with £125m equity placing on 19 October 2017

 

·      Interim dividend up 15% to 4.7p

 

·      Continued expectation of further strong growth in FY18.

 

·      Announcement today that HomeServe has acquired the remaining 60% of Checkatrade for £54m in cash and shares, taking its total shareholding to 100%

 

Richard Harpin, Founder and Group Chief Executive, HomeServe plc, commented: "I am delighted with the progress we made across our business in the first six months of this financial year. North America delivered outstanding organic growth, which will be further boosted by the acquisition of our largest ever policy book from Dominion Products and Services. The UK made a key strategic acquisition - Help-Link - to give us a stronger foothold in the attractive boiler installations market. France and Spain developed key partner relationships and we continued to explore other partnership-based opportunities for international expansion.

"I am excited by the potential for HomeServe to become a global online home repairs and improvements platform, delivered via Checkatrade and Habitissimo where we already have a majority holding. Today's announcement that we are buying the remaining 60% of Checkatrade brings the realisation of this vision substantially closer. Checkatrade is the market leader in the UK, and delivers a first class customer experience. In our core home assistance business and with an even bigger opportunity in Home Experts, the prospects for growth at HomeServe have never been so strong."

 

1.     The HY18 Trading Update made on 19 October 2017 (the "Trading Update") presented results that were subject to further internal and external review and were rounded to the nearest million with year-on-year percentage changes calculated using those rounded figures. While no amendments have been necessary to the financial and operational metrics presented in the Trading Update as a result of those reviews, the figures provided in this Interim Results Statement are now rounded to the nearest hundred thousand with percentage changes now calculated off exact figures. There may therefore be differences between the year-on-year percentage changes presented in the Trading Update and those in this Interim Results Statement.

 

2.     The Group uses adjusted operating profit, adjusted operating margin, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets (HY18: £7.8m, HY17: £6.5m). Acquisition intangible assets principally arise as a result of the past actions of the former owners of businesses in respect of marketing and business development activity. Therefore, the adjusted measures reflect the post acquisition revenue attributable to, and operating costs incurred by, the Group. A reconciliation between the adjusted and statutory equivalent is included in the Financial Review.

 

Enquiries

A presentation for analysts and investors will take place at 9am this morning at UBS, 5 Broadgate, London EC2M 2QS.

 

There will be a listen-only conference call via +44 203 139 4830, pin code 95712794# and also an audio webcast with a facility to ask questions available via www.homeserveplc.com.

 

 

 

Media enquiries: Tulchan Group

Martin Robinson
Lisa Jarrett-Kerr

 

 

Investor Relations:

 

David Bower - Chief Financial Officer

Miriam McKay - Group Communications and IR Director

 

homeserve@tulchangroup.com

+44 207 353 4200

miriam.mckay@homeserve.com

+44 7795 062564

 

 

About HomeServe

 

HomeServe is an international home repairs and improvements business, with 7.8 million customers in the UK, North America, France, Spain and Italy as at September 2017. Its comprehensive range of water, heating and electrical assistance and repair products provide customers with peace of mind. HomeServe is listed on the London Stock Exchange, with a market capitalisation of c. £2.7 billion. 



 


BUSINESS REVIEW

 

HomeServe made good progress in the first half of the financial year and remains on track to deliver further strong growth in FY18. Customer numbers rose in each established business to total 7.8m. Group policy retention remains high at 82%, reflecting the Group's focus on customer service. Affinity partner households rose to 105m, driven by the addition of 45 new partnerships in North America.

 

Revenue rose 16% to £366.0m, based on increased customer numbers and higher income per customer. Statutory operating profit rose 12% to £27.5m, including a £1.7m favourable foreign exchange movement, as the Group continued to invest in its marketing and growth initiatives and completed more repairs for customers. Statutory profit before tax was £21.2m versus £22.2m in the prior year, due to an increase in interest and amortisation charges as a result of investments and acquisitions in FY17.

 

Strategically, the Group made good progress on key initiatives. There continue to be opportunities to acquire policy books and other assets to supplement organic growth: the announcement to acquire the home assistance business of Dominion Products and Services, Inc (DPS) in North America on 19 October 2017 for a total enterprise value of $143m will be the Group's largest acquisition to date. HomeServe is developing a global heating strategy and acquired Help-Link in August 2017 in the UK to develop its boiler installations capability and create a full service heating business.

 

There has been substantial progress on defining the business model for an online, on-demand Home Experts platform. HomeServe announces today that it has acquired the remaining 60% of Checkatrade, to take its holding to 100%. Of the total consideration of £54m, £10m is being utilised by Checkatrade's founder to subscribe for the allotment and issue of 1,193,317 HomeServe plc shares at a price of £8.38 per share (being the closing price on 16 November 2017).

                                            

HomeServe's successful £125m equity placing on 19 October 2017 retained balance sheet strength and liquidity and provides flexibility for future inorganic investment opportunities, notably policy book acquisitions, heating installation capabilities and investment in Home Experts.  

 

The Group targets leverage in the range of 1.0 to 1.5x at its natural seasonal low point of 31 March but is prepared to exceed this range from time to time to pursue appropriate investments. Net debt to EBITDA at 30 September 2017 was 1.9x (HY17: 1.9x). The Group remains highly cash generative and full year cash conversion¹ is expected to be in excess of 100% (FY17: 118%). Following the equity placing and investments in DPS and Checkatrade, HomeServe expects to be within its target leverage range at the year end, before any further inorganic investment.

 

 

¹Cash conversion is calculated as cash generated by operations divided by adjusted operating profit.

 

                                                              

 

Financial performance for the six months ended 30 September

 


 

      Revenue

Statutory operating profit/(loss)

Adjusted operating profit/(loss)

£million

2017 

2016 

2017

2016 

2017

2016

UK

142.8 

134.8 

8.2 

20.7 

9.1 

21.2 

North America

117.8 

86.0 

8.0 

(4.0)

11.4 

(1.1)

France

35.3 

31.4 

6.2 

5.1 

9.4 

8.0 

Spain

67.6 

57.8 

7.8 

4.5 

7.9 

4.7 


220.7 

175.2 

22.0 

5.6 

28.7 

11.6 

New Markets

5.4 

6.7 

(2.7)

(1.7)

(2.5)

(1.7)

Inter-segment

(2.9)

 (2.4)

Group

366.0 

314.3 

27.5 

24.6 

35.3 

31.1 

Inter-segment revenue principally includes royalty charges between the UK and international businesses.

 



 

Performance metrics for the six months ended 30 September 

 


    Affinity partner

     households (m)

Customer

numbers (m)

 

Policy retention rate


2017

2016

2017

2016

2017

2016

UK

24

24

2.2

2.2

80%

80%

North America

53

49

3.1

2.8

82%

81%

France

15

15

1.0

1.0

89%

89%

Spain

12

12

1.3

1.2

78%

77%


80

76

5.4

5.0

83%

83%

New Markets

1

-

0.2

0.3

-

-

Group

105

100

7.8

7.5

82%

82%

 

 

The Group has five operating segments: UK, North America, France, Spain and New Markets. The following sections report on the operational and financial performance of each operating segment.

 



 

UK

HomeServe's business in the UK continues to deliver solid operational performance and great customer service, and is expected to deliver growth in FY18.

 

UK results £million


HY18

HY17 

Change

Revenue 





Net policy income


83.6 

92.1 

-9%

Repair network


46.8 

38.8 

+21% 

Other income


12.4 

3.9 

+220%

Total revenue


142.8 

134.8 

+6%

Adjusted operating costs


(133.7)

(113.6)

+18%

Adjusted operating profit


9.1 

21.2 

-57%

Adjusted operating margin


6%

16%

-10ppts 

Net policy income is defined as policy revenue net of sales taxes and underwriting.

 

 

UK performance metrics


HY18 

HY17 

Change

Affinity partner households

m

24 

24 

- 

Customers

m

2.2 

2.2 

+1%

Income per customer

£ 

97 

97 

Policies

m

5.5 

5.4 

+3%

Policy retention rate

%

80 

80 

Income per customer is calculated by dividing the last twelve months net policy income by the number of customers.

 

Operational performance

 

HomeServe's plan for its core UK business is to maintain the strength of its earnings and cash flows by focusing on customer satisfaction and developing further growth opportunities for the medium term. Its core HomeServe Membership business remains focused on delivering industry-leading service to its 2.2m customers and is highly rated by customers on feedback platforms such as Trustpilot (8.4) and Reevoo (95%). Retention levels of 80% are testament to this success. Continuing initiatives to upgrade customers to more comprehensive service cover drove a modest increase in policies per customer and are expected to increase income per customer over time.

 

The UK business has a range of organic and inorganic options to deploy capital to acquire new customers, whether from continued marketing investment with existing utility partners or policy book acquisitions, with all decisions subject to the Group's strict investment criteria.

 

On 17 November 2017 HomeServe reached an agreement to acquire 100% of the issued share capital of  Energy Insurance Services Limited (EISL) for a total cash consideration of approximately £1.6m. EISL provides boiler, central heating and control system insurance policies to approximately 19,000 domestic customers. EISL has developed significant knowledge, experience and systems related to the self-fix of boilers, which will bring customer experience improvements and synergies to HomeServe's growing UK heating business. The transaction is expected to complete by the end of November 2017.

 

Further growth opportunities in the UK business include the build out of a full service heating business and continued investment in LeakBot. The acquisition of Help-Link Limited (Help-Link) on 2 August 2017 made HomeServe the country's second largest boiler installer and is a significant step towards the creation of a UK-wide home heating business, bringing together installations, servicing and repairs.

 

HomeServe was granted a patent for LeakBot in August 2017 and continues to work with a number of home insurance companies in the UK and continental Europe to define a model to share the benefits of reducing costs to the insurer associated with undetected water leaks.

 

With today's Checkatrade announcement, HomeServe moves closer in the UK to providing customers with a full home repairs and improvements service covering maintenance, repairs and installations across all trades.

 

Financial performance  

Total revenue of £142.8m was up 6% on prior year (HY17: £134.8m) due to higher repair network revenue and an increase in other income, offset by a reduction in net policy income. Repair revenue increased by 21% to £46.8m reflecting an increase in the number of completed jobs, which were up 29% year on year (HY18: 0.6m jobs, HY17: 0.5m jobs) as customers continued to use and appreciate the value of more extensive cover.

 

Other income of £12.4m (HY17: £3.9m) rose with increased boiler installation income and the addition of revenue from Help-Link.

 

Income per customer of £97 was in line with the prior year with income from Year 2+ customers up at £127 (HY17: £126) as customers opt for enhanced levels of cover.

 

Adjusted operating costs rose 18% to £133.7m due to the higher volume of jobs completed both by the subcontractor network and an expanded network of directly employed engineers. There was also additional investment in growth opportunities including LeakBot and the integration of Help-Link.

 

As expected, UK adjusted operating profit in HY18 was lower than in HY17, showing a reduction of £12.1m. Approximately half of this reduction reflects the increased seasonality of UK net policy income, with a higher proportion of customers now renewing in the second half, including recently acquired service contract policy books which have transferred to underwritten policies.

 

The remainder of the change reflects changes in the cost base. HomeServe UK continues to invest in customer service and growth initiatives such as LeakBot, which resulted in a higher fixed cost base in the first half of the year. Directly employed engineers increased from an average of 760 to 898 compared to the same period in 2017. For the full year this investment will bring operational efficiencies, increased job income and high customer service over the busier winter period and for the full financial year. The acquisition of Help-Link in August 2017 reduced first half profit, as expected, but marks a significant step forward in HomeServe's UK heating strategy.

 

HY18 margin fell 10ppts to 6% but the full year is expected to be in line with FY17 at around 19%.

 



 

North America

HomeServe's business in North America delivered its first ever first half profit, driven by strong organic growth and the successful integration of Utility Service Partners Inc. (USP). The acquisition of the home assistance policy book of Dominion Products and Services (DPS) will bring forward HomeServe's North American growth targets by at least 12 months.

 

North America results US$million


HY18 

 HY17 

 Change

Revenue





Net policy income

Other income


142.1 

10.2 

108.7 

8.5 

+31%

+19%

Total revenue


152.3 

117.2 

+30%

Adjusted operating costs


(137.6)

(118.8)

+16%

Adjusted operating profit / (loss)


14.7 

(1.6)

Adjusted operating margin


10% 

 

 

North America results £million


HY18 

HY17

Change

Revenue





Net policy income

Other income


110.0 

7.8 

79.8 

6.2 

+38%

+26%

Total revenue


117.8 

86.0 

+37%

Adjusted operating costs


(106.4)

(87.1)

+22%

Adjusted operating profit / (loss)


11.4 

(1.1)

Adjusted operating margin


10% 

 

 

North America performance metrics

 


HY18 

HY17 

Change

Affinity partner households

m

53 

49 

+8%

Customers

m

3.1 

2.8 

+12%

Income per customer

US$

97 

96 

+1%

Policies

m

4.8 

4.3 

+12%

Policy retention rate

%

82 

81 

+1ppt

Income per customer is calculated by dividing the last twelve months net policy income by the number of customers. HY18 now includes USP as customers have been with HomeServe for a full 12 months, excluding USP income per customer is US$101 (HY17: US$96).

 

 

Operational performance

 

HomeServe's business in North America continued to deliver strong organic growth, driven by 45 new affinity partner signings ranging in size from small municipalities to a two million household energy utility. Customer numbers and policies both grew 12% and retention increased one percentage point to 82%, testament to HomeServe North America's's continuing focus on customer service.

 

On 19 October 2017 HomeServe announced its largest ever US acquisition, the home assistance business of Dominion Products and Services (DPS). DPS provides a suite of home protection programmes to over 500,000 customers with 1.1m policies and has access to 7.1m households. The announcement to acquire DPS follows the successful integration of USP and confirms HomeServe's reputation as the acquirer of choice of utility policy books in North America. Full details of the acquisition can be found here http://www.homeserveplc.com/~/media/files/h/homeserve-plc/documents/acquisition-and-placing-2017/acquisition-placing-and-trading-update.pdf. Following the announcement of the deal, competition clearance (Hart-Scott Rodino) was received on 9 November 2017 and Tranche 1 is expected to complete on 15 December 2017.

 



 

  

Financial performance

 

Revenue in North America increased 30% to US$152.3m (HY17: US$117.2m) reflecting a 12% year on year growth in customers, combined with an increase in income per customer and a full six months of revenue from customers of Utility Service Partners Inc., a business acquired part way through the prior half year in July 2016.

 

Income per customer (excluding USP customers) increased by US$5 to US$101 (HY17: US$96) reflecting a higher number of renewals and efficiencies in the network. The 0.4m customers acquired in the prior year with USP typically hold products with a lower price point and were excluded from the income per customer figure until they had been with HomeServe for a full year. As expected, following their inclusion the overall income per customer was slightly lower at $97, though still ahead of the prior year. A further small reduction in net income per customer is anticipated for the full year reflecting the addition of DPS and the mix of products currently held by DPS customers.

 

Other income increased 19% to US$10.2m driven in part by a 17% increase in the number of completed HVAC installations.

                                                                                                    

Adjusted operating costs were up 16% to US$137.6m reflecting the growth of the business and continued investment in marketing and business development. An increase in marketing spend has delivered 0.4m gross new customers compared to 0.3m in the prior year. The scale of the business and efficient integration of USP resulted in costs growing at a lower rate than revenue, ensuring the business delivered its first ever first half profit and an adjusted operating margin of 10%.

 

 

 

 



 

France

 

HomeServe's business in France continued to deliver steady growth, with potential to expand its affinity partnerships to create a broader customer base.

 

France results €million


 HY18 

 HY17 

 Change

Total revenue


40.1 

38.4 

+4%

Adjusted operating costs


(29.8)

(28.7)

+4%

Adjusted operating profit


10.3 

9.7 

+7%

Adjusted operating margin


26%

25%

+1ppt

 

France results £million


HY18 

HY17 

Change

Total revenue 


35.3 

31.4 

+12% 

Adjusted operating costs


(25.9)

(23.4)

+11%

Adjusted operating profit


9.4 

8.0 

+18%

Adjusted operating margin


27%

25%

+2ppts

 

France performance metrics


HY18 

HY17 

Change

Affinity partner households

m

15 

15 

Customers

m

1.0 

1.0 

+2%

Income per customer

103 

101 

+2%

Policies

m

2.3 

2.3 

+1%

Policy retention rate

%

89 

89 

 

 

Operational performance

 

With the highest level of retention in the Group and strong partner relationships with Veolia and Suez, HomeServe's business in France continued to deliver steady growth, adding new customers through direct mail and the partners' own channels.

 

Key to increasing growth in France is establishing new partnerships. There is a good business development pipeline, with discussions ongoing to grow existing partnerships and with prospective partners across the water, energy and heating markets.

 

Financial performance

 

Total revenue was €40.1m, an increase of 4% on HY17 due to a higher number of customers and an uplift in the income per customer, which grew 2% to €103 (HY17: €101) as a result of pricing initiatives and efficiencies in costs to serve. Further slight progression in income per customer is expected as the benefit of these initiatives flow through the second half.

 

Operating costs increased 4% to €29.8m, reflecting the expected higher amortisation charge principally resulting from customer acquisition with Suez in prior periods.



 

Spain

 

HomeServe's business in Spain delivered good growth in both its Membership and Claims businesses.

  

 






Spain results €million


HY18 

HY17 

Change

 

Revenue 





 

Membership


29.8 

26.3 

+13%

 

Claims


47.1 

44.3 

+6%

 

Total revenue


76.9 

70.6 

+9%

 

Adjusted operating costs


(67.9)

(64.7)

+5%

 

Adjusted operating profit


9.0 

5.9 

+51%

 

Adjusted operating margin


12%

8%

+4ppts

 






 

Spain results £million


HY18 

HY17 

Change

 

Revenue 





 

Membership


26.1 

21.5 

+21%

 

Claims


41.5 

36.3 

+14%

 

Total revenue


67.6 

57.8 

+17%

 

Adjusted operating costs


(59.7)

(53.1)

+12%

 

Adjusted operating profit


7.9 

4.7 

+68%

 

Adjusted operating margin


12%

8%

+4ppts

 

 

Spain performance metrics


HY18 

HY17

Change

Affinity partner households

m

12 

12 

Customers

m

1.3 

1.2 

+7%

Income per customer

€ 

46 

41 

+10%

Policies

m

1.5 

1.4 

+6%

Policy retention rate

%

78 

77 

+1ppt

 

 

Operational performance

 

In Spain, both the Membership and Claims businesses performed well. The Membership business is founded on a strong relationship with Endesa, who continued to offer HomeServe's products through its sales channels and delivered the majority of the 7% customer growth in the period. As the customers successfully acquired in prior periods begin to mature, there has been an increase in retention rate to 78% (HY17: 77%) and strong progression in income per customer. Opportunities to increase medium term growth in the Membership business are centred on establishing new partnerships and to this end, discussions continue with telco providers and smaller water utilities.

 

The Claims business completed a record number of jobs for the first half, up 5% to 0.4m and continues to work with a number of Spain's largest Bancassurers. Jobs are completed by a network of around 1,800 subcontractors (HY17: around 2,000) and 193 franchisees (HY17: 176).

 

Financial performance

 

Revenue increased 9% to €76.9m with increases in both the Membership and Claims businesses. The 13% increase in Membership revenue to €29.8m was mainly due to the increasing maturity of the customer portfolio and a higher proportion of renewing customers, which also drove a 10% increase in income per customer to €46.

 

Revenue in the Claims business was up 6% to €47.1m due to the increase in completed jobs.

 

Adjusted operating costs were 5% higher than the prior period, growing broadly in line with the increase in job volumes.

 

New Markets

The New Markets segment consists of investments in new territories and the on-demand Home Experts model. Annual investment in this segment continues to be around £6m.

 

The joint venture in Italy with Edison Energia is progressing as Edison continues to market HomeServe's products as part of its strategy to attract customers and expand its own footprint in the energy market. Customers fell slightly to 0.2m (HY17: 0.3m) reflecting retention losses on customers previously acquired with Enel.

 

Business development activity continues, with active discussions in four of the 15 international markets where expansion potential has been identified. Discussions are progressing well with potential partners in Europe and Latin America.

 

On 17 November 2017 HomeServe increased its investment in Checkatrade by 60%, taking its total holding up to 100%. The initial investment made on 13 December 2016 included an option for HomeServe to purchase a further 35% in mid 2019 and this agreement now supersedes that option as well as securing the remaining equity of the business. Of the total consideration of £54m, £10m is being utilised by Checkatrade's founder to subscribe for the allotment and issue of 1,193,317 HomeServe plc shares at a price of £8.38 per share (being the closing price on 16 November 2017). Checkatrade is fundamental to the Home Experts opportunity. Securing a controlling stake now will enable further, faster development of the proposition in the UK. HomeServe will now exercise control and Checkatrade will cease to be classified as an associate. All future results will be fully consolidated into the Group's financial statements.

 

Checkatrade and Habitissimo are making good progress as standalone entities, with profits to be reinvested into marketing and into expanding and testing an online Home Experts platform. Good progress has been achieved testing and evaluating different consumer and tradesmen propositions to define the overall business model. This includes the lead generation approach currently undertaken by Habitissimo and the directory approach as used by Checkatrade. Increasing the monetisation of the different models will be key to success, therefore further testing and refinement is planned for the next six months. The current consumer experience at Checkatrade is rated very highly and the technology skills and ability of Habitissimo to enter other countries with little or no local footprint may bring further opportunity.

 

Dividend

The interim dividend of 4.7p per share (HY17: 4.1p), an increase of 15%, will be paid on 5 January 2018 to shareholders on the register on 8 December 2017.

 

Board changes

On 27 October 2017, it was announced that Mark Morris, Senior Independent Director and Chairman of the Audit and Risk Committee will retire from the Board on 27 February 2018 after nine years.  On 27 October 2017, Ron McMillan was appointed as a Non-Executive Director and member of the Audit and Risk Committee and he will take on the Chairmanship of the Audit and Risk Committee upon Mark's retirement. As separately announced today, Stella David is to be appointed Senior Independent Director upon Mark Morris' retirement. Stella was first appointed to the Board as a Non-Executive Director in November 2010 and is currently Chairman of the Remuneration Committee.

 

Outlook

HomeServe re-iterates its guidance from its Preliminary Results in May 2017 of further strong growth for FY18. This is now boosted by the acquisition of DPS, which is expected to add at least US$10m PBTA in FY18 and at least US$17m PBTA in FY19. 

 

 

Richard Harpin

Founder and Group Chief Executive

21 November 2017


FINANCIAL REVIEW

 

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

Group statutory results

 

The headline statutory financial results for the Group are presented below.

 

£million

 

Six months ended

30 September 2017

Six months ended

30 September 2016

Total revenue

 

366.0 

314.3 

Operating profit

27.5 

24.6 

Net finance costs

 

(6.3)

(2.4)

Adjusted profit before tax

29.0 

28.7 

Amortisation of acquisition intangibles

(7.8)

(6.5)




Statutory profit before tax

21.2 

22.2 

Tax

(5.3)

(5.5)

Profit for the year

15.9 

16.7 




Attributable to:



Equity holders of the parent

16.0 

16.7 

Non-controlling interests

(0.1)


15.9 

16.7 

 

 

Statutory profit before tax was £21.2m, £1.0m lower than the prior year (HY17: £22.2m) due principally to higher finance costs and amortisation charges as a result of investments made in FY17.  Statutory profit before tax is reported after the amortisation of acquisition intangibles as detailed below.

 

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £7.8m (HY17: £6.5m) principally relates to customer and other contracts, which were acquired as part of business combinations and has increased year on year due to the acquisitions in the prior year of USP in North America and Habitissimo in Spain. 

 

Taxation

The tax charge in the period was £5.3m (HY17: £5.5m).  The adjusted effective tax rate was 25% (HY17: 25%). UK corporation tax is calculated at 19% in FY18, FY19 and FY20, with a proposed reduction to 17% in FY21. Taxation for other jurisdictions is calculated at the rates prevailing in the respective countries, all of which are higher than the UK rate.



 

 

Cash flow and financing

Cash generated by operations in the period to 30 September 2017 was £52.7m (HY17: £35.5m).

 

£million

Six months ended

30 September 2017

Six months ended

30 September 2016

Adjusted operating profit

35.3 

31.1 

Amortisation of acquisition intangibles

(7.8)

(6.5)

Operating profit

27.5 

24.6 

Depreciation and amortisation

28.6 

23.3 

Non cash items

3.3 

3.2 

Increase in working capital

(6.7)

(15.6)

Cash generated by operations

52.7 

35.5 

Net interest

(6.0)

(2.9)

Taxation

(9.4)

(8.3)

Capital expenditure

(37.7)

(21.5)

Repayment of finance leases

(0.3)

(0.4)

Free cash flow

(0.7)

2.4 

Acquisition of subsidiaries

(9.6)

(54.0)

Equity dividends paid

(35.0)

(27.5)

Issue of shares

0.1 

0.1 

Net movement in cash and bank borrowings

(45.2)

(79.0)

Impact of foreign exchange

2.3 

(4.8)

Finance leases

0.3 

0.4 

Opening net debt

(261.4)

(169.5)

Closing net debt

(304.0)

(252.9)

 

During the period 1 April to 30 September 2017, net debt increased by £42.6m to £304.0m.

 

Net working capital increased by £6.7m in the period (HY17: £15.6m) reflecting the continued growth of the Group and was lower than the prior period due in part to the increasing seasonality of the UK business and a benefit of the timing of cash flows with underwriters in the UK and North America.

 

During the period capital expenditure was £37.7m (HY17: £21.5m) which included payments of £8.5m in respect of the acquisition of customers originated by Endesa in Spain and Suez in France (HY17: £4.1m), investment in the new core customer relationship management (CRM) system in the UK and further technology spend across all businesses. Full year capital expenditure is expected to be in line with previous guidance at around £70m.

 

The acquisitions investment of £9.6m principally related to the acquisition of Help-Link Limited in the UK whilst the prior year investment of £54.0m principally related to the acquisition of USP in North America.

 

The Group remains highly cash generative and full year cash conversion is expected to be in excess of 100% (FY17: 118%).

 

Earnings per share

Adjusted earnings per share was in line with the prior period at 6.8p. The weighted average number of shares increased from 309.4m to 312.0m. On a statutory basis, earnings per share decreased from 5.4p to 5.1p principally due to the higher acquisition amortisation charges, the increased interest charge as a result of prior year investments and the higher weighted average number of shares.

 

Net debt and finance costs

Net debt at 30 September 2017 was £304.0m (FY17: £261.4m; HY17: £252.9m), well within the Group's financial facilities. On 1 August 2017, the Group entered into a new multi-currency revolving credit facility with both existing and new banking partners. The new terms of the facility  provide committed credit of £400m which runs until 31 July 2022 with two one-year extension options, subject to agreement by the banking partners, which would extend the maturity to 31 July 2024. Loans have variable interest rates linked to LIBOR or EURIBOR. With around £130m of other funding, principally from Private Placements, HomeServe had over £200m headroom against its available sources of debt. 

 

The Group targets leverage in the range of 1.0 to 1.5x adjusted EBITDA, measured at 31 March each year. As expected, half year net debt to EBITDA was outside this range at 1.9x due to prior year acquisitions and the seasonality of the business.

 

Following the £125m equity placing and investments in DPS and Checkatrade, HomeServe expects to be within its target leverage range at the year end before any further inorganic investment.

 

The Group's net interest paid was £6.0m, £3.1m higher than the prior period, principally relating to the costs of entering into the new RCF as well as higher levels of debt during the period that arose due to acquisitions and investments in FY17.

 

Foreign exchange impact

The impact of changes in the Euro and USD exchange rates between HY17 and HY18 has resulted in a £13.6m increase in the reported revenue and a £1.7m increase in adjusted operating profit of the international businesses as summarised in the table below.

 




Effect on (£m)



Average exchange rate

Revenue

Adjusted operating

profit



HY18

HY17

Change

HY18 

HY18

North America

US$

1.30

1.37

(5%)

6.2 

0.5 

France

 1.14

 1.22

(7%)

2.4 

0.6 

Spain

 1.14

 1.22

(7%)

4.6             

0.6 

New Markets

 1.14

 1.22

(7%)

0.4 

-  

Total International





13.6 

1.7 

 

Due to the seasonality of the business and the weighting of profit to the second half, the full year translation impact of a weaker Sterling versus prior year averages is estimated to benefit adjusted operating profit by around £0.7m at current rates. A ten cent movement from current rates in the USD and the Euro would have approximately a £2.0m and £3.0m impact respectively on full year adjusted operating profit respectively.   

 



 

Statutory and pro-forma reconciliations

The Group believes that EBITDA, adjusted operating profit, adjusted profit before tax, adjusted operating margin and adjusted earnings per share, all of which exclude the amortisation of acquisition intangibles are important performance indicators for monitoring the business.

 

This report uses a number of pro-forma measures to highlight the Group's results excluding the above amounts. The table below provides a reconciliation between the statutory and pro-forma items.

 

 

£million

Six months ended

30 September 2017

Six months ended

30 September 2016

Operating profit (statutory)

27.5 

24.6 

Depreciation

3.8 

3.4 

Amortisation

17.0 

13.4 

Amortisation of acquisition intangibles

7.8 

6.5 

EBITDA

56.1 

47.9 




Operating profit (statutory)

27.5 

24.6 

Amortisation of acquisition intangibles

7.8 

6.5 

Adjusted operating profit

35.3 

31.1 




Profit before tax

21.2 

22.2 

Amortisation of acquisition intangibles

7.8 

6.5 

Adjusted profit before tax

29.0 

28.7 




Percentage



Statutory operating margin

7.5 

7.8 

Amortisation of acquisition intangibles

2.1 

2.1 

Adjusted operating margin

9.6 

9.9 

 

Pence per share



Earnings per share (statutory)

5.1 

5.4 

Amortisation of acquisition intangibles (net of tax)

1.7 

1.4 

Adjusted earnings per share

6.8 

6.8 

 

Principal risks and uncertainties

The principal risks and uncertainties, together with the mitigating activities, detailed on pages 42 - 49 of the Group's 2017 Annual Report & Accounts, continue to have the potential to impact the Group's performance and are as follows:

·      The potential loss of a commercial relationship

·      The impact of competition

·      A change in customer loyalty and retention

·      Marketing effectiveness

·      Exposure to legislation or regulatory requirements

·      The quality of customer service

·      Availability of underwriters

·      Recruitment and retention of skilled personnel

·      Exposure to country, regional and Brexit risks

·      IT systems become a constraint to growth and drive inefficiency instead of efficiency improvements

·      Information Security (including cyber risk)

·      Financial strategy and treasury risks including credit risk.

 

Information on financial risk management is also set out on pages 177-180 of the Annual Report, a copy of which is available on the Group's website www.HomeServeplc.com.

 

 



Condensed consolidated income statement

For the six months ended 30 September 2017

 

 

 

 

£million

Note

Six months ended

30 September 2017

(Reviewed)

Six months ended

30 September 2016

(Reviewed)

Year ended

31 March 2017

 (Audited)






Continuing operations










Revenue

3

366.0 

314.3 

785.0 

Operating costs


(339.2)

(289.7)

(680.5)

Share of results of associates


0.7 

- 

0.2 

Operating profit


27.5 

24.6 

104.7 

Investment income


0.1 

0.1 

0.3 

Finance costs


(6.4)

(2.5)

(6.7)

Profit before tax and amortisation of acquisition intangibles


29.0 

28.7 

112.4 

Amortisation of acquisition intangibles


(7.8)

(6.5)

(14.1)

Profit before tax


21.2 

22.2 

98.3 

Tax

4

(5.3)

(5.5)

(23.9)

Profit for the period


15.9 

16.7 

74.4 






Attributable to:

Equity holders of the parent


16.0 

16.7 

74.4 

Non-controlling interests


(0.1)

- 



15.9 

16.7 

74.4 






Dividends per share

5

4.7p 

4.1p 

15.3p 

 

Earnings per share





Basic

6

5.1p 

5.4p 

24.0p 

Diluted

6

5.0p 

5.3p 

23.6p 

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2017

 

 

 

£million

Six months ended

30 September 2017

 (Reviewed)

Six months ended

30 September 2016

(Reviewed)

Year ended

31 March 2017

 (Audited)

Profit for the period

15.9 

16.7 

74.4 

Items that will not be classified subsequently to profit and loss:




Actuarial gain/(loss) on defined benefit pension scheme

0.5 

(4.7)

(3.4)

Deferred tax (charge)/credit relating to components of other comprehensive income

(0.1)

0.9 

 0.6 


0.4 

(3.8)

(2.8)

Items that may be reclassified subsequently to profit and loss:




Exchange movements on translation of foreign operations

(1.7)

20.4 

20.8 





Total comprehensive income for the period

14.6 

33.3 

92.4 





Attributable to:




Equity holders of the parent

14.7 

33.3 

92.4 

Non-controlling interests

(0.1)


14.6 

33.3 

92.4 

 

 

 

 

Condensed consolidated balance sheet

As at 30 September 2017

 

 

 

£million

Note

30 September 2017

(Reviewed)

30 September 2016

(Reviewed)

31 March 2017

(Audited)

Non-current assets





Goodwill

324.8 

290.8 

301.9 

Intangible assets

292.2 

264.5 

288.6 

Property, plant and equipment

37.3 

36.2 

37.0 

Interests in associates

32.9 

- 

32.1 

Investments

8.7 

8.6 

8.5 

Deferred tax assets

9.0 

5.5 

7.6 

Retirement benefit assets


2.1 

0.7 



707.0 

605.6 

676.4 

Current assets





Inventories

3.5 

3.0 

2.7 

Trade and other receivables

382.1 

378.3 

455.1 

Cash and cash equivalents

8

63.8 

76.2 

46.2 



449.4 

457.5 

504.0 

Total assets


1,156.4 

1,063.1 

1,180.4 






Current liabilities




Trade and other payables

(381.9)

(376.4)

(456.2)

Current tax liabilities

(5.1)

(3.2)

(9.2)

Obligation under finance leases

(0.5)

(0.8)

(0.6)

Bank and other loans

8

(38.0)

(25.0)

(35.9)



(425.5)

(405.4)

(501.9)

Net current assets


23.9 

52.1 

2.1 






Non-current liabilities




Bank and other loans

(328.6)

(302.1)

(270.1)

Other financial liabilities

(22.7)

(4.2)

(14.4)

Retirement benefit obligation

-

(1.6)

-

Deferred tax liabilities

(22.5)

(22.1)

(23.0)

Obligations under finance leases

8

(0.7)

(1.2)

(1.0)



(374.5)

(331.2)

(308.5)

Total liabilities


(800.0)

(736.6)

(810.4)

Net assets


356.4 

326.5 

370.0 






Equity




Share capital

8.4 

8.4 

8.4 

Share premium account

49.1 

44.2 

45.7 

Merger reserve

71.0 

71.0 

71.0 

Share incentive reserve

18.5 

15.5 

18.3 

Capital redemption reserve

1.2 

1.2 

1.2 

Currency translation reserve

24.6 

25.9 

26.3 

Available for sale reserve

1.8 

1.8 

1.8 

Retained earnings


181.1 

158.5 

196.5 

Attributable to equity holders of the parent


355.7 

326.5 

369.2 

Non-controlling interests


0.7 

0.8 

Total equity


356.4 

326.5 

370.0 

 

 



 

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2017 (Reviewed)

£million

 

Share capital

 

Share premium account

Other reserves¹

 

Share incentive reserve

 

Currency translation reserve

 

 

Available for sale

reserve

Retained earnings

 

Attributable to equity holders

 

Non-controlling interest

Total equity

Balance at 1 April 2017

8.4 

45.7 

72.2 

18.3 

26.3 

1.8 

196.5 

369.2 

0.8 

370.0 

Profit for the period

-

-

-

-

-

-

16.0 

16.0 

(0.1)

15.9 

Other comprehensive income for the period 

 

-

 

-

 

-

 

-

 

(1.7)

 

-

 

0.4 

 

(1.3)

 

-

 

 (1.3)

Dividends paid

-

-

-

-

-

-

(35.0)

(35.0)

-

(35.0)

Issue of share capital

-

3.4 

-

-

-

-

 -

 3.4 

-

 3.4 

Share-based payments

-

-

-

 3.6 

-

-

-

 3.6 

-

3.6 

Share options exercised

-

-

-

(3.4)

-

-

 0.1 

 (3.3)

-

(3.3)

Tax on exercised share

options

-

-

-

-

-

 

-

 2.4 

 2.4 

-

 2.4 

Deferred tax on share

options

-

-

-

-

-

 

-

0.7 

0.7 

-

0.7 

Balance at 30 September 2017 (Reviewed)

8.4 

49.1

72.2 

18.5 

24.6 

 

1.8 

181.1 

355.7 

0.7 

 

356.4 

 

 

For the six months ended 30 September 2016 (Reviewed)

 

£million

 

Share capital

 

Share premium account

Other reserves¹

 

Share incentive reserve

 

Currency translation reserve

 

 

Available for sale

reserve

Retained earnings

Total equity

Balance at 1 April 2016

8.3

41.1

72.1

16.0 

5.5

1.8

171.8 

 316.6 

Profit for the period

-

-

-

-

-

-

16.7 

16.7 

Other comprehensive income for the period 

-

-

-

-

20.4

-

(3.8)

 16.6 

Dividends paid

-

-

-

-

-

-

(27.5)

(27.5)

Issue of share capital

0.1

3.1

-

-

-

-

 -

 3.2 

Issue of trust shares

-

-

0.1

-

-

-

(0.1)

Share-based payments

-

-

-

 2.6 

-

-

 -

2.6 

Share options exercised

-

-

-

(3.1)

-

-

 0.1 

(3.0)

Tax on exercised share options

-

-

-

-

-

-

 1.3 

 1.3 

Balance at 30 September 2016 (Reviewed)

8.4

44.2

72.2

15.5 

25.9

 

1.8

158.5 

 

326.5 

 

 

For the year ended 31 March 2017 (Audited)

£million

 

Share capital

 

Share premium account

Other reserves¹

 

Share incentive reserve

 

Currency translation reserve

 

 

Available for sale

reserve

Retained earnings

 

Attributable to equity holders

 

Non-controlling interest

Total equity

Balance at 1 April 2016

8.3

41.1

72.1

16.0 

5.5

1.8

171.8 

316.6 

-

316.6 

Profit for the year

-

-

-

-

-

74.4 

74.4 

-

74.4 

Other comprehensive income for the year 

 

-

 

-

 

-

 

 

20.8

 

-

 

(2.8)

 

18.0 

 

-

 

18.0 

Dividends paid

-

-

-

-

-

(40.3)

(40.3)

-

(40.3)

Issue of share capital

0.1

4.6

-

-

-

 - 

 4.7 

-

 4.7 

Issue of trust shares

-

-

0.1

-

-

(0.1)

-

Share-based payments

-

-

-

 6.6 

-

-

 - 

 6.6 

-

 6.6 

Share options exercised

-

-

-

(4.3)

-

-

0.4 

 (3.9)

-

 (3.9)

Changes in non-controlling interest

-

-

-

-

 

-

 - 

0.8

 0.8 

Obligation under put option

-

-

-

-

-

(9.3)

(9.3)

-

(9.3)

Tax on exercised share

options

-

-

-

-

 

-

 2.0 

 2.0 

-

 2.0 

Deferred tax on share

options

-

-

-

-

 

-

0.4 

0.4 

-

0.4 

Balance at 31 March 2017 (Audited)

8.4

45.7

72.2

18.3 

26.3

 

1.8

196.5 

369.2 

0.8 

 

370.0 

 

 

¹Other reserves include Merger and Capital Redemption reserves

 

Condensed consolidated cash flow statement

For the six months ended 30 September 2017

 

 

 

£million

Six months ended

30 September 2017

 (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)





Operating profit

27.5 

24.6 

104.7 

Adjustments for:




Depreciation of property, plant and equipment

3.8 

3.4 

6.9 

Amortisation of acquisition intangibles

7.8 

6.5 

14.1 

Amortisation of other intangible assets

17.0 

13.4 

28.5 

Share-based payments expenses

4.3 

3.2 

7.4 

Share of profit of associates

(0.7)

(0.2)

Loss on disposal of property, plant and equipment and software

0.4 

Decrease in other financial liabilities

(0.3)

Bargain purchase on acquisition

(0.7)

Profit on disposal of subsidiary

(0.1)

Operating cash flows before movements in working capital

59.4 

51.1 

161.0 





(Increase)/decrease in inventories

(0.8)

0.4 

Decrease/(increase) in receivables

70.3 

12.9 

(75.5)

(Decrease)/increase in payables

(76.2)

(28.5)

54.0 

Net movement in working capital

(6.7)

(15.6)

(21.1)





Cash generated by operations

52.7 

35.5 

139.9 

Incomes taxes paid

(9.4)

(8.3)

(20.0)

Interest paid

(6.1)

(3.0)

(6.7)

Net cash inflow from operating activities

37.2 

24.2 

113.2 





Investing activities




Interest received

0.1 

0.1 

0.3 

Disposal of subsidiary

(1.7)

Purchases of intangible assets

(33.7)

(18.5)

(50.9)

Purchases of property, plant and equipment

(4.0)

(3.0)

(7.6)

Acquisition of investment in associate

(24.7)

Net cash outflow on acquisition of subsidiaries

(9.6)

(54.0)

(74.2)

Net cash used in investing activities

(47.2)

(75.4)

(158.8)





Financing activities




Dividends paid

(35.0)

(27.5)

(40.3)

Repayment of finance leases

(0.3)

(0.4)

(1.0)

Issue of shares from the employee benefit trust

0.1 

Proceeds on issue of share capital

0.1 

0.1 

0.8 

New bank and other loans raised

221.0 

42.4 

103.3 

Movement in bank and other loans

(157.7)

55.1 

(29.8)

Net cash from financing activities

28.1 

69.7 

33.1 





Net increase/(decrease) in cash and cash equivalents

18.1 

18.5 

(12.5)





Cash and cash equivalents at beginning of period

46.2 

54.2 

54.2 





Effect of foreign exchange rate changes

(0.5)

3.5 

4.5 





Cash and cash equivalents at end of period

63.8 

76.2 

46.2 

 

Notes to the condensed set of financial statements

For the six months ended 30 September 2017

 

1.         General information

 

HomeServe plc is a company incorporated in the United Kingdom and its shares are listed on the London Stock Exchange. The address of the registered office is Cable Drive, Walsall, WS2 7BN. The information for the year ended 31 March 2017 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts, the report was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006. The condensed set of financial statements for the six months ended 30 September 2017 is unaudited, but has been reviewed by the auditor and their report to the Company is at the end of this statement. This condensed set of financial statements was approved by the Board of Directors on 21 November 2017.

 

2.         Accounting policies

 

Basis of preparation

The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standards (IAS) 34 "Interim Financial Reporting" as adopted by the European Union. The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and therefore comply with Article 4 of the EU IAS regulation.

 

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements.

 

Standards in issue but not yet effective

At the date of authorisation of this condensed set of financial statements the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective (not all of which have been endorsed by the EU):

IFRS 9

Financial Instruments

IFRS 15

Revenue from Contracts with Customers

IFRS 16

Leases

IFRS 17

Insurance Contracts

IFRIC 22

Foreign Currency Transactions and Advance Consideration

IFRIC 23

Uncertainty over Income Tax Treatments

Amendments to IFRS 2

Classification and Measurement of Share based payment transactions

Amendments to IFRS 4  

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance contracts

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Amendments to IAS 7

Disclosure Initiative

Amendments to IAS 12

Recognition of Deferred Tax Assets for Unrealised Losses

Amendments to IAS 40

Transfers of Investment Property

Annual Improvements to IFRSs

2014-2016 Cycle - IFRS 1 and IAS 28 Amendments

Annual Improvements to IFRSs

2014-2016 Cycle - IFRS 12 Amendments

Clarifications to IFRS 15

Revenue from Contracts with Customers

 



 

At 31 March 2017 the Group reported that a review team had been established to assess the impact on the Group's consolidated financial statements of IFRS 9, 15 and 16. While the impact assessment remains ongoing, the Group's preliminary assessment is as follows:

 

·      IFRS 9 will not have a material effect on the financial statements with only limited amendments expected to the classification of financial assets, the timing of credit loss recognition under the expected credit loss model for impairment and disclosures.

 

·      IFRS 15 is unlikely to have a material effect on the financial statements. The Group's preliminary assessment indicates that, while revisions will be required to disclosures, the application of IFRS 15 will have no impact on current revenue recognition under IAS 18. The Group continues to progress its review of existing contracts to validate this initial assertion and quantify potential changes, if any. 

 

·      IFRS 16 will have a significant impact on certain categories of assets and liabilities within the Group Balance Sheet through the recognition of 'Right of Use' assets and liabilities for lease payments in respect of arrangements previously classified as operating leases under IAS 17. Additionally the Group Net Debt and EBITDA measures will be significantly impacted by the replacement of operating leases with Right of Use assets and the related liabilities for lease payments; and the replacement of operational rental expenses with depreciation and interest costs associated with the balance sheet positions created at the inception of a lease. While these changes will have a significant impact on total assets and total liabilities, the impact on earnings and net assets is not expected to be material. Additional disclosures will be also be required.

 

The Group will continue to progress its impact assessment during the second half of the financial year and provide a further update in the Annual Report for the year ended 31 March 2018. The Directors do not expect that the adoption of the other Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future years.     

 

3.         Business and geographical segments

 

Business segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to allocate resources to the segments and to assess their performance. 

 

Segment profit/loss represents the result of each segment including allocated costs associated with head office and shared functions, but before allocating investment income, finance costs and tax. This is the measure reported to the Chief Executive for the purposes of resource allocation and assessment of segment performance. 

 

The accounting policies of the operating segments are the same as those described in Significant Accounting Policies in the Group's latest audited financial statements. Group cost allocations are deducted in arriving at segmental operating profit.  Inter-segment revenue is charged at prevailing market prices. The sale and renewal of policies across HomeServe's business are more heavily weighted towards the second half of the financial year.



 

 

For the six months ended 30 September 2017 (Reviewed)

 

 

£million

UK

North America

France

Spain

New

Markets

Total

Revenue







Total revenue

142.8 

117.8 

35.3 

67.6 

5.4 

368.9 

Inter-segment

(2.9)

(2.9)

External revenue

139.9 

117.8 

35.3 

67.6 

5.4 

366.0 








Result







Segment operating profit/(loss) pre amortisation of acquisition intangibles

9.1 

11.4 

9.4 

7.9 

(2.5)

35.3 

Amortisation of acquisition intangibles

(0.9)

(3.4)

(3.2)

(0.1)

(0.2)

(7.8)

Operating profit/(loss)

8.2 

8.0 

6.2 

7.8 

(2.7)

27.5 

Investment income






0.1 

Finance costs






(6.4)

Profit before tax






21.2 

Tax






(5.3)

Profit for the period






15.9 

 

For the six months ended 30 September 2016 (Reviewed)

 

 

£million

UK

North America

France

Spain

New

Markets

Total

Revenue







Total revenue

134.8 

86.0 

31.4 

57.8 

6.7 

316.7 

Inter-segment

(2.4)

(2.4)

External revenue

132.4 

86.0 

31.4 

57.8 

6.7 

314.3 








Result







Segment operating profit/(loss) pre

amortisation of acquisition intangibles

21.2 

(1.1)

8.0 

4.7 

(1.7)

31.1 

Amortisation of acquisition intangibles

(0.5)

(2.9)

(2.9)

(0.2)

(6.5)

Operating profit/(loss)

20.7 

(4.0)

5.1 

4.5 

(1.7)

24.6 

Investment income






0.1 

Finance costs






(2.5)

Profit before tax






22.2 

Tax






(5.5)

Profit for the period






16.7 

 

For the year ended 31 March 2017 (Audited)

£million

UK 

North America

France

Spain

New Markets

Total

Revenue







Total revenue

 326.5 

 227.8 

 91.1 

 130.2 

16.6 

 792.2 

Inter-segment

(7.2)

 - 

 - 

 - 

(7.2)

External revenue

 319.3 

 227.8 

 91.1 

 130.2 

16.6 

 785.0 








Result







Segment operating profit/(loss) pre amortisation of acquisition intangibles

63.2 

21.2 

27.1 

13.3 

(6.0)

118.8 

Amortisation of acquisition intangibles

(1.2)

(6.5)

(6.0)

(0.3)

(0.1)

(14.1)

Operating profit/(loss)

 62.0 

14.7 

21.1 

 13.0 

(6.1)

104.7 

Investment income






0.3 

Finance costs






(6.7)

Profit before tax






 98.3 

Tax






(23.9)

Profit for the year






 74.4 

 



 

4.         Tax

 

 

£million

Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)

Current tax

7.6 

6.2 

24.9 

Deferred tax

(2.3)

(0.7)

(1.0)


5.3 

5.5 

23.9 

 

The effective tax rate for the six months ended 30 September 2017 was 25% (HY17: 25%). Prevailing taxation rates in the major jurisdictions in which the Group operates were as follows:

 

 

 

Jurisdiction

Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)

United Kingdom

19%

20%

20%

United States of America

40%

40%

40%

France

33%

33%

33%

Spain

25%

25%

25%

 

 

5.         Dividends

 

The interim dividend of 4.7p per share (HY17: 4.1p per share) will be paid on 5 January 2018 to shareholders on the register on 8 December 2017. The interim dividend has not been included as a liability in these financial statements.

 

 

 

£million

Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)

Amounts recognised as distributions to equity holders in the period:




Final dividend for the year ended 31 March 2016 of 8.9p per share

-

27.5

27.6

Interim dividend for the year ended 31 March 2017 of 4.1p per share

-

-

12.7

Final dividend for the year ended 31 March 2017 of 11.2p per share

35.0

-

-


35.0

27.5

40.3

Interim dividend for the year ended 31 March 2018 of 4.7p per share

15.4

-

-

 

 

6.         Earnings per share

 

 

Earnings per share

pence

Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)

Basic

5.1p

5.4p

24.0p

Diluted

5.0p

5.3p

23.6p





Adjusted basic

6.8p

6.8p

27.0p

Adjusted diluted

6.7p

6.6p

26.5p

 



 

The calculation of basic and diluted earnings per share is based on the following:

 

 

Weighted average number of ordinary shares (millions)          

Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

(Reviewed)

Year ended

31 March 2017

 (Audited)

Basic

312.0 

309.4 

309.9 

Dilutive impact of share options

4.8 

5.1 

5.4 

Diluted

316.8 

314.5 

315.3 

 

Earnings

£million




Profit attributable to equity holders of the parent

16.0 

16.7 

74.4 

Amortisation of acquisition intangibles

7.8 

6.5 

14.1 

Tax impact arising on the amortisation of acquisition intangibles

 (2.7)

 (2.3)

(4.9)

Adjusted profit for the period

21.1 

20.9 

83.6 

 

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS33 Earnings Per Share.  Basic earnings per share is calculated by dividing the profit or loss in the financial period by the weighted average number of ordinary shares in issue during the period.  Adjusted earnings per share is calculated excluding the amortisation of acquisition intangibles.  The Group uses adjusted operating profit, adjusted operating margin, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary performance measures. These are non-IFRS measures which exclude the impact of acquisition intangible assets (HY18: £7.8m, HY17: £6.5m). Acquisition intangible assets principally arise as a result of the past actions of the former owners of businesses in respect of marketing and business development activity. Therefore, the adjusted measures reflect the post acquisition revenue attributable to and operating costs incurred by, the Group. Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.

 

7.         Intangible assets


Acquisition intangibles

£m

Trademarks

& access rights

£m

Customer Databases

£m

Software

£m

Total intangibles

 £m

Cost






At 1 April 2016

146.0 

31.6 

55.0 

125.7 

358.3 

Additions

0.3 

16.7 

44.4 

61.4 

Acquisition of subsidiary

44.3 

1.3 

45.6 

Disposals

(0.2)

(0.2)

Exchange Movements

16.3 

1.3 

4.9 

3.2 

25.7 

At 1 April 2017

206.6 

33.2 

76.6 

174.4 

490.8 

Additions

1.5 

4.8 

22.5 

28.8 

Acquisition of subsidiary

1.5 

1.5 

Exchange Movements

(3.7)

(0.7)

1.9 

(1.8)

(4.3)

At 30 September 2017

204.4 

34.0

83.3 

195.1 

516.8 

 

Accumulated amortisation

At 1 April 2016

70.7 

19.5 

18.3 

39.8 

148.3 

Charge for the year

14.1 

4.5 

11.6 

12.4 

42.6 

Disposals

(0.2)

(0.2)

Exchange movements

7.8 

0.6 

1.9 

1.2 

11.5 

At 1 April 2017

92.6 

24.6 

31.8 

53.2 

202.2 

Charge for the period

7.8 

2.2 

8.0 

6.8 

24.8 

Exchange movements

(2.1)

(0.5)

0.8 

(0.6)

(2.4)

At 30 September 2017

98.3 

26.3 

40.6 

59.4 

224.6 







Carrying Amount






At 30 September 2017

106.1 

7.7

42.7 

135.7 

292.2 

At 1 April 2017

114.0 

8.6

44.8 

121.2 

288.6 



8.         Analysis of net debt

 

 

 

£million

Six months ended

30 September 2017

(Reviewed)

Six months ended

30 September 2016

(Reviewed)

Year ended

31 March 2017

 (Audited)

Cash and cash equivalents

(63.8)

(76.2)

(46.2)  

Bank loans and other loans

366.6 

327.1 

306.0 

Finance leases

1.2 

2.0 

1.6 

Net debt

304.0 

252.9 

261.4 

 

As part of the review of the long-term financing requirements of the business, on 1 August 2017, the terms and tenure of the existing revolving credit facility were re-evaluated and the Group entered into a new multi-currency revolving credit facility with both existing and new banking partners. The new terms of the facility provide available committed credit of £400m which runs until 31 July 2022 with two one-year extension options, subject to agreement by the banking partners, which would extend the maturity to 31 July 2024. Loans have variable interest rates linked to LIBOR or EURIBOR.  

 

 

9.         Share capital

 



Six months ended

30 September 2017

  (Reviewed)

Six months ended

30 September 2016

(Reviewed)

Year ended

31 March 2017

(Audited)






Issued and fully paid ordinary shares of 2 9/13p

No.

312,713,579

310,230,874

310,689,548






£m

8.4

8.4

8.4

 

During the period from 1 April 2017 to 30 September 2017 the Company issued 2,024,031 shares with a nominal value of 2 9/13p creating share capital of £54,493 and share premium of £3,364,861.

During the period from 1 April 2016 to 30 September 2016 the Company issued 2,338,448 shares with a nominal value of 2 9/13p creating share capital of £62,958 and share premium of £3,141,856.

During the period from 1 April 2016 to 31 March 2017 the Company issued 2,797,122 shares with a nominal value of 2 9/13p creating share capital of £75,307 and share premium of £4,696,129.

 

On 19 October 2017, HomeServe placed 15,243,903 of new ordinary shares in HomeServe plc. For further details refer to Note 14.



 

10.       Business combinations and disposals

 

The Group has incurred a net cash outflow in respect of business combinations of £9.6m in the period principally related to the acquisition of Help-Link UK Limited. On 2 August 2017 HomeServe Assistance Limited, a Group company, acquired 100% of the issued share capital and obtained control of Help-Link UK Limited.

 

The provisional recognised amounts of identifiable assets acquired and liabilities assumed are set out in the table below:




At fair value 


£m 

Property, plant and equipment


0.5 

Inventories


0.1 

Bank overdraft


(1.7)

Trade and other receivables


1.4 

Trade and other payables


(5.8)

Total identifiable net liabilities


(5.5)




Intangible assets identified on acquisition


1.5 

Deferred taxation


(0.3)

Goodwill


23.4 



19.1 




Satisfied by:



Cash


5.0 

Contingent consideration


14.1 



19.1 




Net cash outflow arising on acquisition



Cash consideration


5.0 

Bank overdraft acquired


1.7 



6.7 

 

The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired represents the expectation of synergy savings, efficiencies, enhancing the scale and scope of the UK business' heating installation capability, together with future volume growth related to new heating system installations. None of the goodwill is expected to be deducted for income tax purposes.

 

The gross contracted amounts due are equal to the fair value amounts stated above for trade and other receivables. The undiscounted range of outcomes associated with the contingent consideration potentially payable is from £nil to £15.5m. 

 

Help-Link UK Limited contributed £4.5m of revenue and a loss of £0.7m to the Group's adjusted profit before tax for the six months to 30 September 2017.

 

If the acquisition had been completed on the first day of the financial year, Group revenue for the period would have been £373.7m and Group statutory profit before tax would have been £19.7m. In deriving this profit before tax figure, a benefit of £9.8m was excluded from Help-Link's pre-acquisition profit for the period from 1 April 2017 to 1 August 2017 for items that are non-recurring.

 

The information above is provisional with fair value assessment activities ongoing and the final acquisition disclosures will be included in the Group annual report to be released in May 2018.

 

In addition to the net cash outflow on the Help-Link acquisition, deferred consideration was paid relating to prior period business combinations of £2.9m (HY17: £0.3m). Acquisition-related costs (included in operating costs) amounted to £0.5m (HY17: £0.8m).

 



 

11.       Retirement benefit schemes

 

The defined benefit plan assets and liabilities have been updated as at 30 September 2017. Differences between the expected return on assets and movement on liabilities have been recognised as an actuarial gain or loss in the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy.

 

12.       Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

Transactions with associates

 

Related party transactions with associate interests during HY18 principally related to recharged consultancy and contractor costs and amounted to £0.2m (HY17: £nil).

 

Other related party transactions

 

Related party transactions during HY18 were similar in nature to those in HY17 and amounted to £0.2m (HY17: £0.1m).

 

Full details of the Group's related party transactions for the year ended 31 March 2017 are included on page 188 of the Annual Report & Accounts 2017.

 

13.       Financial instruments

 

The principal financial instruments used by the Group from which financial instrument risk arises are described in the Group's latest audited financial statements. All principal financial instruments are stated at amortised cost, with the exception of deferred and contingent consideration and assets classified as available for sale which are held at fair value.  The Directors consider that the carrying values of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.

 

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

·      Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities

·      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

The Group has no financial instruments with fair values that are determined by reference to Level 1 and there were no transfers of assets or liabilities between levels during the period.  There are no non-recurring fair value measurements. 

 



 

The Group held the following Level 2 and 3 financial instruments at fair value:

 

 

 

£million

Six months ended

30 September 2017

 (Reviewed)

Six months ended

30 September 2016

 (Reviewed)

Year ended

31 March 2017

 (Audited)

Level 2




Assets classified as available for sale




Non-current assets

8.7 

8.6 

8.5 


8.7 

8.6 

8.5 

Level 3




Deferred and contingent consideration at fair value through profit and loss




Current liabilities

(6.1)

(1.3)

(2.6)

Non-current liabilities

(12.7)

(6.0)

(5.1)


(18.8)

(7.3)

(7.7)

 

The £11.1m increase in deferred and contingent consideration since 31 March 2017 primarily relates to the contingent consideration in respect of the acquisition of Help-Link UK Limited (see Note 10 above).

 

Contingent and deferred consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value. The reconciliation of Level 3 fair value measurements of financial liabilities is shown below:

 



£m 

Balance at 1 April 2016


6.8 

Unwinding of discount through the income statement


0.1 

Payments


(0.3)

Additions


0.5 

Exchange movements


0.2 

Balance at 30 September 2016


7.3 

Unwinding of discount through the income statement


0.4 

Payments


(2.8)

Additions


2.7 

Exchange movements


0.1 

Balance at 31 March 2017


7.7 

Unwinding of discount through the income statement


0.4 

Payments


(2.9)

Additions


14.1 

Released to the income statement


(0.3)

Exchange movements


(0.2)

Balance at 30 September 2017


18.8 

 

 



 

14.       Events after the balance sheet date

 

Dominion Products and Services, Inc.

On 19 October 2017 HomeServe plc announced it had entered into an agreement to acquire certain of the trade and assets of the home assistance cover business of Dominion Products and Services, Inc ("DPS"), a wholly owned subsidiary of Dominion Energy, Inc.

 

The transaction is structured in two tranches, with the portion of the business related to customers of Dominion Energy's utility affiliates anticipated to complete on 15 December 2017. Then, subject to relevant partner agreements, the transfer of the remaining portion of the business, related to customers of investor-owned and municipal utilities, is anticipated to close before the end of calendar year 2018.

 

Subject to customary working capital adjustments and changes in the size of the acquired portfolio, the total transaction consideration is US$143m, which includes US$20m deferred consideration payable on a straight line annual basis over 10 years, starting in FY19. The remaining consideration is payable in two tranches commensurate with the policies transferred.

 

To fund this transaction and to also retain balance sheet strength and liquidity, on 19 October 2017, HomeServe separately placed 15,243,903 of new ordinary shares in HomeServe plc at a price of 820 pence per share, raising gross proceeds of approximately £125m. The Placing Shares issued represent, in aggregate, approximately 4.9 per cent of HomeServe's issued ordinary share capital prior to the Placing.

 

As the acquisition of DPS has not been legally completed as at the date of approving these condensed financial statements, it is not required, nor possible, to include a preliminary assessment of the fair value of the assets and liabilities acquired.

 

For full details on these announcements please refer to:

 

Acquisition, proposed equity placing and trading update

 

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/HSV/13401638.html 

 

Issue of equity

 

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/HSV/13401637.html     

 

 

Checkatrade

On 17 November 2017 HomeServe increased its investment in Sherrington Mews Limited, the holding company of the Checkatrade Group, by 60%, taking its total holding up to 100%. The initial investment made on 13 December 2016 included an option for Homeserve to purchase a further 35% in mid 2019 and this agreement now supersedes that option as well as securing the remaining equity of the business. Of the total consideration now payable of £54m, £10m is being utilised by Checkatrade's founder to subscribe for the allotment and issue of 1,193,317 HomeServe plc shares at a price of £8.38 per share (calculated by reference to the closing price on 16 November 2017). As the acquisition only occurred on 17 November 2017 it is not practicable to provide disclosures regarding the fair value of the separately identifiable assets acquired as part of this acquisition.

 

Energy Insurance Services Limited

On 17 November 2017 HomeServe reached an agreement to acquire 100% of the issued share capital of Energy Insurance Services Limited (EISL) for a total cash consideration of approximately £1.6m. EISL provides boiler, central heating and control system insurance policies to approximately 19,000 domestic customers. EISL has developed significant knowledge, experience and systems related to the self-fix of boilers, which will bring customer experience improvements and synergies to HomeServe's growing UK heating business. The transaction is expected to complete by the end of November 2017. As the transaction has not been legally completed as at the date of approving these condensed financial statements, it is not required, nor possible, to include a preliminary assessment of the fair value of the assets and liabilities acquired.

 

Responsibility statement

 

We confirm that to the best of our knowledge:

 

(a)  the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

 

(b)  the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

(c)  the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

 

 

David Bower


Chief Financial Officer


21 November 2017


 

Forward Looking Statements and Other Information

This interim management report has been prepared solely to provide additional information to shareholders as a body to assess the Company's strategies and the potential for those strategies to succeed.  This report contains certain forward looking statements, which have been made in good faith, with respect to the financial condition, results of operations and businesses of HomeServe plc.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts.  The statements have been made with reference to forecast price changes, economic conditions, the current regulatory environment and the current interpretations of IFRS applicable to past, current and future periods.  Nothing in this announcement should be construed as a profit forecast.

Independent Review Report to HomeServe plc

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Deloitte LLP

Statutory Auditor

Birmingham, United Kingdom

21 November 2017


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR EAXFEAFXXFFF
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Half-year Report - RNS